Global Medical REIT(GMRE) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Global Medical REIT Inc., including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes on organization, accounting policies, property portfolio, debt, equity, related party transactions, stock-based compensation, leases, and commitments Condensed Consolidated Balance Sheets The company's total assets decreased by approximately $72.5 million from December 31, 2022, to June 30, 2023, primarily due to a reduction in net investment in real estate and cash balances Condensed Consolidated Balance Sheets | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Assets | $1,320,800 | $1,393,261 | $(72,461) | | Investment in Real Estate, Net | $1,213,260 | $1,285,959 | $(72,699) | | Cash and Cash Equivalents | $2,460 | $4,016 | $(1,556) | | Total Liabilities | $679,408 | $744,196 | $(64,788) | | Credit Facility, Net | $567,988 | $636,447 | $(68,459) | | Total Equity | $641,392 | $649,065 | $(7,673) | Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2023, the company reported significant increases in net income, primarily driven by gains on the sale of investment properties Condensed Consolidated Statements of Operations | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | YoY Change (3M) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | YoY Change (6M) | | :-------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Total Revenue | $36,351 | $33,697 | $2,654 | $72,581 | $65,572 | $7,009 | | Total Expenses | $34,960 | $29,863 | $5,097 | $69,502 | $57,453 | $12,049 | | Interest Expense | $8,468 | $5,401 | $3,067 | $16,739 | $10,202 | $6,537 | | Gain on Sale of Inv. Properties | $12,786 | — | $12,786 | $13,271 | — | $13,271 | | Net Income | $14,177 | $3,834 | $10,343 | $16,350 | $8,119 | $8,231 | | Net Income Attributable to Common Stockholders | $11,820 | $2,236 | $9,584 | $12,492 | $4,895 | $7,597 | | EPS (Basic & Diluted) | $0.18 | $0.03 | $0.15 | $0.19 | $0.07 | $0.12 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for the three and six months ended June 30, 2023, saw a significant increase and decrease, respectively, primarily influenced by changes in the fair value of interest rate swap agreements Condensed Consolidated Statements of Comprehensive Income | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | YoY Change (3M) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | YoY Change (6M) | | :-------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Net Income | $14,177 | $3,834 | $10,343 | $16,350 | $8,119 | $8,231 | | Increase in fair value of interest rate swap agreements | $8,449 | $5,770 | $2,679 | $1,185 | $23,163 | $(21,978) | | Total Other Comprehensive Income | $8,449 | $5,770 | $2,679 | $1,185 | $23,163 | $(21,978) | | Comprehensive Income | $22,626 | $9,604 | $13,022 | $17,535 | $31,282 | $(13,747) | Condensed Consolidated Statements of Equity The company's total equity decreased slightly from December 31, 2022, to June 30, 2023, primarily due to common and preferred stock dividends, partially offset by net income and an increase in the fair value of interest rate swap agreements Total Equity | Metric (in thousands) | June 30, 2023 | December 31, 2022 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Total Equity | $641,392 | $649,065 | $(7,673) | - During the six months ended June 30, 2023, the company issued 577 OP Units with a value of $5,482 thousand in connection with a facility acquisition[16][90] - Dividends to common stockholders totaled $27,530 thousand for the six months ended June 30, 2023, and preferred stockholders received $2,911 thousand[16] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased for the six months ended June 30, 2023, while investing activities shifted to a significant inflow due to property sales, and financing activities resulted in a substantial net cash outflow Cash Flow Activity | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | YoY Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | | Net cash provided by operating activities | $33,649 | $39,919 | $(6,270) | | Net cash provided by (used in) investing activities | $65,066 | $(102,394) | $167,460 | | Net cash (used in) provided by financing activities | $(103,385) | $63,916 | $(167,301) | | Net (decrease) increase in cash and restricted cash | $(4,670) | $1,441 | $(6,111) | | Cash and cash equivalents and restricted cash—end of period | $9,785 | $14,200 | $(4,415) | - Net proceeds from the sale of investment properties totaled $68,403 thousand for the six months ended June 30, 2023, compared to none in the prior year[22] - Repayment of Credit Facility was $94,157 thousand for the six months ended June 30, 2023, significantly higher than $5,000 thousand in the prior year[22] Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed disclosures on the company's organizational structure, significant accounting policies, property transactions, debt instruments, equity structure, related party dealings, stock-based compensation, lease arrangements, and contingent liabilities Note 1 – Organization Global Medical REIT Inc. operates as an internally managed REIT, owning and acquiring healthcare facilities leased to physician groups and healthcare systems, holding a 92.91% limited partner interest in its Operating Partnership as of June 30, 2023 - Global Medical REIT Inc. is a Maryland corporation and internally managed REIT[23] - As of June 30, 2023, the Company held a 92.91% limited partner interest in the Operating Partnership[23] Note 2 – Summary of Significant Accounting Policies This note outlines the company's accounting principles, including the basis of presentation, consolidation, use of estimates, and specific policies for investment in real estate, revenue recognition, cash, tenant receivables, escrow deposits, deferred assets, other assets, derivative instruments, goodwill, and assets held for sale - All facility acquisitions for the six months ended June 30, 2023 and 2022 were accounted for as asset acquisitions[30] - The fair value of interest rate swap derivative instruments was an asset of $35,864 thousand as of June 30, 2023, up from $34,705 thousand at December 31, 2022[41] Asset Categories | Asset Category (in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $2,460 | $4,016 | | Restricted cash | $7,325 | $10,439 | | Tenant receivables, net | $7,381 | $8,040 | | Escrow deposits | $9,725 | $7,833 | | Deferred assets | $26,189 | $29,616 | | Other assets | $12,302 | $6,550 | Note 3 – Property Portfolio During the first six months of 2023, the company completed one acquisition and two dispositions, including a portfolio of four medical office buildings in Oklahoma City for $66.0 million, resulting in a $12.8 million gain - One acquisition was completed during the six months ended June 30, 2023, for $5,936 thousand[50] - Sold a portfolio of four medical office buildings in Oklahoma City for $66.0 million, resulting in a gain of $12.8 million in June 2023[51] - Aggregate capital improvement commitments and obligations were approximately $29,600 thousand as of June 30, 2023[53] Note 4 – Credit Facility, Notes Payable and Derivative Instruments The company manages its debt through a $900 million unsecured syndicated credit facility and four notes payable, utilizing interest rate swaps to hedge variable-rate debt, fixing the SOFR component of its Term Loans - The Credit Facility consists of $500 million in term loans and a $400 million revolver, with a $500 million accordion feature[58] Debt Categories | Debt Category (in thousands) | June 30, 2023 | December 31, 2022 | | :--------------------------- | :------------ | :---------------- | | Credit Facility, net | $567,988 | $636,447 | | Notes payable, net | $57,121 | $57,672 | | Total Debt, net | $625,109 | $694,119 | - The company has ten interest rate swaps and five forward starting interest rate swaps to fix the SOFR component of Term Loans A and B through their maturities[74][75] - The weighted average interest rate and term of the company's debt was 4.09% and 3.4 years at June 30, 2023[81] Note 5 – Equity The company has 3,105 shares of Series A Preferred Stock outstanding with a $25 per share liquidation preference and 65,565 shares of common stock outstanding as of June 30, 2023, with dividends paid quarterly for both preferred and common stock - 3,105 shares of Series A Cumulative Redeemable Preferred Stock were issued and outstanding as of June 30, 2023, with a liquidation preference of $25 per share[82] - 65,565 shares of common stock were outstanding as of June 30, 2023[86] Dividends | Dividend Type (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------- | :--------------------------- | :--------------------------- | | Preferred Stock Dividends | $2,911 | $2,911 | | Common Stock, LTIP, OP Units Dividends | $29,387 | $29,136 | Note 6 – Related Party Transactions As of June 30, 2023, the company had $391 thousand due from related parties, primarily for reimbursable taxes paid on behalf of LTIP Unit and OP Unit holders Due from Related Parties | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Due from related parties | $391 | $200 | Note 7 – Stock-Based Compensation The company's 2016 Equity Incentive Plan facilitates grants of LTIP Units, with 2,757 LTIP Units outstanding as of June 30, 2023, and a stock-based compensation expense of $1,835 thousand for the six months ended June 30, 2023 - As of June 30, 2023, there were 843 shares of common stock remaining available for grant under the 2016 Equity Incentive Plan[94] LTIP Units Status | LTIP Units Status | Number of Units (in thousands) | | :---------------- | :----------------------------- | | Vested units | 2,151 | | Unvested units | 606 | | Total outstanding | 2,757 | Stock Compensation Expense | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Stock compensation expense | $1,147 | $1,289 | $1,835 | $2,576 | - Total unamortized compensation expense of approximately $7.2 million is expected to be recognized over a weighted average remaining period of 1.7 years as of June 30, 2023[111] Note 8 – Leases The company acts as both a lessor and a lessee, recognizing $72,517 thousand in rental revenue from operating leases with a portfolio-average-lease-years remaining of approximately 10 years, and recording a right-of-use asset and liability of $4,634 thousand for its new corporate headquarters lease Rental Revenue | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental revenue (operating leases) | $36,317 | $33,679 | $72,517 | $65,530 | | Variable rental revenue | $1,856 | $1,920 | $3,859 | $3,867 | - The company's operating leases as a lessor have a portfolio-average-lease-years remaining of approximately 10 years[115] - A right of use asset and liability of $4,634 thousand was recorded on May 1, 2023, for the new corporate headquarters lease[122] - The company's rental revenues were derived from 268 tenants leasing 186 buildings during the six months ended June 30, 2023[124] Note 9 – Commitments and Contingencies The company is not currently subject to any material litigation or environmental liabilities that would significantly impact its financial position, results of operations, or cash flows - The company is not presently subject to any material litigation[125] - The company is not currently aware of any environmental liability with respect to its properties that would have a material effect on its financial position, results of operations, or cash flows[126] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, changes in financial condition, and results of operations, covering business strategy, sustainability, impacts of inflation and COVID-19, an executive summary, property transactions, capital and debt activities, and a detailed analysis of consolidated results and non-GAAP financial measures Special Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements, which involve numerous risks and uncertainties, advising against undue reliance and listing various factors that could cause actual results to differ materially - Forward-looking statements are identified by terms like 'believes,' 'expects,' 'may,' 'will,' 'should,' 'seeks,' 'approximately,' 'intends,' 'plans,' 'estimates,' or 'anticipates'[129] - Key risk factors include difficulties in identifying and completing acquisitions, tenant defaults, increases in interest rates, macroeconomic factors, and the effects of the COVID-19 pandemic[130] Objective of MD&A The MD&A aims to provide a narrative explanation of the financial statements, enhance overall financial disclosure, and offer insights into the quality and variability of earnings and cash flow to help investors understand past and future performance - The MD&A provides a narrative explanation of financial statements to enhance understanding of financial condition and results of operations[135] - It aims to provide information about the quality and potential variability of earnings and cash flow[139] Overview Global Medical REIT Inc. is an internally managed REIT focused on acquiring and leasing healthcare facilities, primarily through triple net leases, with revenues derived from rental and operating expense reimbursements, and acquisitions financed through a mix of debt and equity - Global Medical REIT Inc. owns and acquires healthcare facilities and leases them to physician groups and healthcare systems[136] - Revenues are primarily from rental and operating expense reimbursement payments from tenants, mostly under medium to long-term triple net leases[137] - Acquisitions are financed with a mixture of debt and equity, primarily from cash from operations, Credit Facility borrowings, and stock issuances[137] Business Overview and Strategy The company's strategy is to invest in healthcare properties offering attractive returns, focusing on medical office buildings and decentralized healthcare facilities in secondary markets, while also pursuing opportunistic acquisitions to strengthen tenant relationships and achieve reliable dividends and stock price appreciation - Business strategy is to invest in healthcare properties with attractive returns, operated by profitable physician groups or healthcare systems[138] - Focuses on medical office buildings and decentralized components of the healthcare delivery system in secondary markets and suburbs[140] - Also invests opportunistically in acute-care hospitals, LTACs, health system corporate offices, and behavioral/mental health facilities[140] Corporate Sustainability and Social Responsibility The company integrates environmental sustainability, social responsibility, and strong governance practices, led by a standing ESG committee of the Board, with efforts including tenant outreach for energy data, a Corporate Social Responsibility Report, and prioritizing employee engagement and well-being - The Board of Directors leads ESG efforts through a standing ESG committee[144] - The company released its second Corporate Social Responsibility Report in June 2023, detailing progress in ESG[145] - Commitment to employee engagement, health, safety, and work-life balance, including LEED platinum certified headquarters[146] Climate Change The company prioritizes energy efficiency and sustainability in investments, monitoring its portfolio for climate risk factors, using utility and energy audits to assess carbon emissions, and exploring mitigation efforts including renewable energy and energy utilization reduction - Prioritizes energy efficiency and sustainability when evaluating investment opportunities and monitors portfolio for climate risk factors[147] - Utilizes utility and energy audits by third-party engineering consultants during due diligence to assess carbon emission levels[147] - Explores ways to mitigate climate risk and contribute to reduction of climate impact through proactive asset management, incorporating renewable energy and energy utilization reduction[147] Impact of Inflation Rising inflation and Federal Funds Rate increases have significantly elevated the company's interest expense, with one-month term SOFR increasing to 5.32% by August 2, 2023, while long-term leases limit rapid rent increases to offset higher costs - One-month term SOFR increased from near 0% at the beginning of 2022 to 5.32% by August 2, 2023, leading to a significant increase in interest expense[148] - A 100 basis point increase in term SOFR would increase annual interest expense by approximately $0.8 million based on June 30, 2023, floating rate debt[161] - Longer-term leases limit the ability to quickly increase rents to fully offset increased interest rates and inflation[149] Continuing Impact of COVID-19 The COVID-19 pandemic has led to increased labor costs for healthcare systems due to worker burnout and reliance on higher-cost contract labor, with the continued spread of variants prolonging disruptions to operations for the company and its tenants - COVID-19 has led to material increases in labor costs for healthcare systems, especially hospitals, due to worker burnout and reliance on contract nursing labor[150] - The continued spread of COVID-19 variants could disrupt operations for the company and its tenants[151] Executive Summary The executive summary highlights key financial and operational changes for the three and six months ended June 30, 2023, showing significantly increased net income per share driven by property sales, while FFO and AFFO per share and unit saw slight decreases, alongside a reduction in gross investment in real estate and total debt Executive Summary - Financial Metrics | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental revenue (in thousands) | $36,317 | $33,679 | $72,517 | $65,530 | | Interest expense (in thousands) | $8,468 | $5,401 | $16,739 | $10,202 | | Gain on sale of investment properties (in thousands) | $12,786 | — | $13,271 | — | | Net income attributable to common stockholders per share | $0.18 | $0.03 | $0.19 | $0.07 | | FFO per share and unit | $0.21 | $0.24 | $0.43 | $0.47 | | AFFO per share and unit | $0.23 | $0.25 | $0.45 | $0.49 | Executive Summary - Balance Sheet and Operational Metrics | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Investment in real estate, gross | $1,431,369 | $1,484,177 | | Total debt, net | $625,109 | $694,119 | | Weighted average interest rate | 4.09 % | 4.20 % | | Net leasable square feet | 4,773,469 | 4,895,635 | Our Properties During the first half of 2023, the company acquired one property for $6.7 million and disposed of five medical office buildings across two transactions, generating $70.4 million in gross proceeds and $13.3 million in gains, with the portfolio comprising 186 buildings and 4.8 million leasable square feet as of June 30, 2023 - Completed one acquisition of 18,698 leasable square feet for $6.7 million with annualized base rent of $0.5 million during the six months ended June 30, 2023[155] - Sold a portfolio of four medical office buildings in Oklahoma City for $66.0 million, resulting in a gain of $12.8 million in June 2023[157] - Sold a medical office building in Jacksonville, Florida for $4.4 million, resulting in a gain of $0.5 million in March 2023[157] - As of June 30, 2023, the portfolio consisted of 186 buildings with 4.8 million leasable square feet and $111.3 million of annualized base rent[155] Capital Raising Activity The company has an At-The-Market (ATM) Program allowing for the sale of up to $300 million of common stock, but no shares were sold under this program during the six months ended June 30, 2023 - The company has an ATM Program to offer and sell up to $300 million of common stock[159] - No shares were sold under the ATM Program during the six months ended June 30, 2023[159] Debt Activity During the first half of 2023, the company made net repayments of $69.6 million on its Credit Facility, borrowing $24.6 million and repaying $94.2 million, with a net outstanding Credit Facility balance of $568.0 million and $321.0 million in unutilized borrowing capacity under the Revolver as of August 2, 2023 - Borrowed $24.6 million and repaid $94.2 million under the Credit Facility, resulting in a net repayment of $69.6 million during the six months ended June 30, 2023[160] - As of June 30, 2023, the net outstanding Credit Facility balance was $568.0 million[160] - Unutilized borrowing capacity under the Revolver was $321.0 million as of August 2, 2023[160] Trends Which May Influence Our Results of Operations Positive trends include an aging population, a shift towards outpatient care, and physician practice group/hospital consolidation, while negative trends include increased interest rates and cost of capital, the continuing impact of the COVID-19 pandemic on labor costs, and potential changes in third-party reimbursement methods and policies - Positive trends: aging population, shift towards outpatient care, and physician practice group/hospital consolidation[162] - Negative trends: increased interest rates and cost of capital, continued COVID-19 impact on labor costs, and changes in third-party reimbursement methods[161][164][166] - A 100 basis point increase in term SOFR would increase annual interest expense by approximately $0.8 million[161] Critical Accounting Estimates The preparation of financial statements requires management to use judgment, estimates, and assumptions in applying accounting policies, which affect reported amounts and disclosures, and actual results may differ, leading to adjustments in subsequent periods - Preparation of financial statements requires management to use judgment, estimates, and assumptions[165] - Estimates affect reported amounts of assets, liabilities, contingent assets/liabilities, revenue, and expenses[165] Consolidated Results of Operations The company's consolidated results for the three and six months ended June 30, 2023, show increased rental revenue and operating expenses due to recent acquisitions, but also significantly higher interest expenses from rising rates, with net income seeing substantial growth driven by gains from property dispositions - Increases in rental revenue and operating expenses were primarily due to facilities acquired after June 30, 2022, and full recognition of operating results from 2022 acquisitions[166] - Rising interest rates significantly impacted results, leading to increased interest expense[166] - Total investment in real estate, net, decreased to $1.2 billion as of June 30, 2023, from $1.3 billion as of June 30, 2022, due to property dispositions[166] Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 For the three months ended June 30, 2023, total revenue increased by $2.7 million, primarily from rental revenue from new acquisitions, while total expenses rose by $5.1 million, largely due to a $3.1 million increase in interest expense, with a significant gain of $12.8 million from property sales leading to a net income increase of $10.4 million Consolidated Results of Operations - Three Months | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Total Revenue | $36,351 | $33,697 | $2,654 | | General and administrative | $4,462 | $4,336 | $126 | | Operating expenses | $7,223 | $6,000 | $1,223 | | Depreciation expense | $10,468 | $9,898 | $570 | | Amortization expense | $4,337 | $4,138 | $199 | | Interest expense | $8,468 | $5,401 | $3,067 | | Total expenses | $34,960 | $29,863 | $5,097 | | Gain on sale of investment properties | $12,786 | — | $12,786 | | Net income | $14,177 | $3,834 | $10,343 | - The weighted average interest rate of debt for the three months ended June 30, 2023, was 4.39%, up from 2.97% in the prior year[176] Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 For the six months ended June 30, 2023, total revenue increased by $7.0 million, driven by rental revenue from recent acquisitions, while total expenses rose by $12.0 million, with interest expense increasing by $6.5 million due to higher borrowings and interest rates, and net income increasing by $8.3 million primarily due to a $13.3 million gain from property sales Consolidated Results of Operations - Six Months | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Total Revenue | $72,581 | $65,572 | $7,009 | | General and administrative | $8,266 | $8,534 | $(268) |\ | Operating expenses | $14,759 | $11,372 | $3,387 |\ | Depreciation expense | $20,962 | $19,300 | $1,662 |\ | Amortization expense | $8,732 | $7,915 | $817 |\ | Interest expense | $16,739 | $10,202 | $6,537 |\ | Total expenses | $69,502 | $57,453 | $12,049 |\ | Gain on sale of investment properties | $13,271 | — | $13,271 |\ | Net income | $16,350 | $8,119 | $8,231 | - The weighted average interest rate of debt for the six months ended June 30, 2023, was 4.32%, up from 2.92% in the prior year[190] Assets and Liabilities As of June 30, 2023, the company's net investment in real estate decreased to $1.2 billion from $1.3 billion at December 31, 2022, due to property dispositions, while liquid assets also decreased primarily from net Credit Facility repayments and dividend payments, and total liabilities decreased due to lower net borrowings Assets and Liabilities Overview | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Investment in real estate, net | $1,213,260 | $1,285,959 | | Cash and cash equivalents and restricted cash | $9,785 | $14,455 | | Total liabilities | $679,408 | $744,196 | - The decrease in cash and cash equivalents and restricted cash was primarily due to net repayments on the Credit Facility and dividend payments, partially offset by proceeds from property sales and operating activities[195] - The decrease in total liabilities was primarily due to lower net borrowings outstanding, partially offset by the recognition of a lease liability related to a right of use asset[196] Liquidity and Capital Resources The company's short-term liquidity needs include debt payments, operating expenses, and distributions, while long-term needs involve acquisitions and capital improvements, met through cash flow from operations, debt financing (including a $900 million Credit Facility with $321.0 million unutilized capacity as of August 2, 2023), equity issuances, and property dispositions, with interest rate swaps used to manage interest rate risk - Short-term liquidity requirements include interest and principal payments on debt, general and administrative expenses, property operating expenses, property acquisitions, distributions, and capital/tenant improvements[197][204] - Long-term liquidity requirements primarily consist of funds for acquisitions, capital/tenant improvements, and scheduled debt maturities[198] - Primary external sources of liquidity include equity issuances (including OP Units) and debt financing (Credit Facility and secured term loans)[201] - As of August 2, 2023, the company had unutilized borrowing capacity under the Revolver of $321.0 million[202] - The company uses interest rate swaps to manage interest rate risk on its Term Loans, with total fixed debt of $557.5 million at June 30, 2023, and a weighted average interest rate of 3.75%[206][207][208] Non-GAAP Financial Measures This section discusses the company's use of non-GAAP financial measures, specifically Funds from Operations (FFO), Adjusted Funds from Operations (AFFO), Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre), and Adjusted EBITDAre, which are used by management and analysts to evaluate operating performance and debt servicing ability - Non-GAAP financial measures are used to supplement GAAP measures for evaluating operating performance and liquidity[212][215] - FFO and AFFO are important supplemental measures for evaluating REIT operating performance[216][219] - EBITDAre and Adjusted EBITDAre provide additional information to evaluate core operating results and ability to service debt[221] Funds from Operations and Adjusted Funds from Operations FFO, as defined by NAREIT, adjusts net income for noncontrolling interests, property sales gains/losses, preferred stock dividends, and real estate-related depreciation/amortization, while AFFO further modifies FFO by adjusting for recurring acquisition/disposition costs, deferred rental revenue, stock-based compensation, and debt issuance costs - FFO is net income before noncontrolling interests, excluding gains/losses from property sales and extraordinary items, less preferred stock dividends, plus real estate-related depreciation and amortization[217] - AFFO modifies FFO by adjusting for items like recurring acquisition/disposition costs, straight-line deferred rental revenue, stock-based compensation, and amortization of debt issuance costs[218] FFO and AFFO | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $14,177 | $3,834 | $16,350 | $8,119 | | FFO | $14,710 | $16,387 | $29,803 | $32,368 | | AFFO | $15,868 | $17,563 | $31,820 | $34,390 | | FFO per share and unit | $0.21 | $0.24 | $0.43 | $0.47 | | AFFO per share and unit | $0.23 | $0.25 | $0.45 | $0.49 | Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre and Adjusted EBITDAre) EBITDAre, as per NAREIT standards, is net income adjusted for depreciation, amortization, interest expense, and gains/losses on property sales, while Adjusted EBITDAre further includes non-cash stock compensation, intangible amortization, and preacquisition expenses, with these measures helping evaluate core operating results and debt servicing capacity - EBITDAre is net income plus depreciation and amortization, interest expense, gain or loss on property sales, and impairment loss[221] - Adjusted EBITDAre adds non-cash stock compensation expense, non-cash intangible amortization related to above and below market leases, and preacquisition expense to EBITDAre[221] EBITDAre and Adjusted EBITDAre | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $14,177 | $3,834 | $16,350 | $8,119 | | EBITDAre | $24,664 | $23,271 | $49,512 | $45,536 | | Adjusted EBITDAre | $26,100 | $24,965 | $51,969 | $48,756 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from variable-rate debt, with a 100 basis point increase in SOFR decreasing annual cash flow by approximately $0.8 million, mitigated by interest rate swaps, and no engagement in speculative derivative transactions - The primary market risk is interest rate risk, arising from debt used to acquire healthcare facilities, including Credit Facility borrowings[224][225] - As of June 30, 2023, $76.1 million of unhedged borrowings under the Revolver bore interest at a variable rate[226] - A 100 basis point increase in SOFR would decrease annual cash flow by approximately $0.8 million[226] - The company uses interest rate swaps to limit the impact of interest rate changes and lower borrowing costs, and does not enter into derivative transactions for speculative purposes[227][228] Item 4. Controls and Procedures As of June 30, 2023, the company's principal executive and financial officers concluded that disclosure controls and procedures were effective, with no material changes made to internal control over financial reporting during the most recently completed fiscal quarter - Disclosure controls and procedures were evaluated as effective as of June 30, 2023[231] - No material changes were made to internal control over financial reporting during the most recently completed fiscal quarter[233] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings or litigation, nor is it aware of any threatened proceedings that would have a material adverse effect on its financial condition or results of operations - The company is not presently subject to any material legal proceeding or litigation[235] - No governmental authority is contemplating any proceeding that would have a material adverse effect on the company's financial condition or results of operations[235] Item 1A. Risk Factors There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were disclosed during the six months ended June 30, 2023[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[237] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[238] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[239] Item 5. Other Information There is no other information to report for the period - None[240] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including articles of restatement, bylaws, stock certificates, LTIP agreements, officer certifications, and XBRL documents - Includes Articles of Restatement, Fourth Amended and Restated Bylaws, Specimen Common Stock Certificate, Specimen Series A Preferred Stock Certificate, Form of LTIP Agreement (Annual Awards), Officer Certifications, and Inline XBRL documents[242] Signatures The report is duly signed on behalf of Global Medical REIT Inc. by its Chief Executive Officer, Jeffrey M. Busch, and Chief Financial Officer, Robert J. Kiernan, as of August 4, 2023 - The report is signed by Jeffrey M. Busch, Chief Executive Officer, and Robert J. Kiernan, Chief Financial Officer, on August 4, 2023[246]