Global Medical REIT Inc (GMRE) 2017 Q4 法說會逐字稿

Greetings, and welcome to Global Medical REIT Inc. Q4 and Fiscal Year 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jeremy Hellman, of The Equity Group.

Thank you very much, and good morning, everyone. Last night after the market close, Global Medical REIT Inc. issued the announcement of its financial results for the fourth quarter and year-ended December 31, 2017. Certain statements contained herein may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and it is the company's intent that any such statements be protected by the safe harbor created thereby. These forward-looking statements are identified by the use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, should, plan, predict, project, will, continue and other similar terms and phrases, including any references to assumptions and forecasts of future results.

Except for historical information, the matters set forth herein, including, but not limited to, any projections or forecast of revenues, expenses, operating results, cash flow or other financial items and future dividend coverage; any statements concerning our plans, strategies and objectives for future operations and our pipeline of acquisition opportunities and expected acquisition activity; any statements regarding the expected size and growth of the health care real estate market; any statements regarding future regulatory changes and their impact on our industry or business; any statements regarding future economic conditions or performance; and any statement regarding future dividend payments are forward looking statements. These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to certain risks and uncertainties.

Although we believe that the expectations, estimates and assumptions reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Important factors that could cause our actual results to differ materially from estimates or projections contained in our forward-looking statements are set forth in the Risk Factors section of our annual report on Form 10-K as amended that we filed for the year ended December 31, 2016, and in our annual report on Form 10-K that we intend to file on Monday, March 12, and elsewhere in the reports we have filed with the Securities and Exchange Commission.

These risk factors include the risks that our financial projections may not be realized due to, among other things, lower-than-anticipated revenues or higher-than-anticipated expenses or that we may not be successful in completing all the acquisitions in our investment pipeline or that we identify or pursue in the future. We do not intend and undertake no obligation to update any forward-looking statements.

With that, I would like to turn the call over to Jeff Busch, CEO of Global Medical REIT. Please go ahead, Jeff.

Thank you, Jeremy, and welcome, everyone, to the call. Joining me today is our Chief Financial Officer, Bob Kiernan; and our Chief Investment Officer, Alfonzo Leon. Before handing the call over to Bob for his review of the company's financial results and Alfonzo for his review of the company's acquisition activity, I would like to spend a few minutes touching on some highlights from the fourth quarter and year-end 2017.

On the last call, I shared some details on our near-term pipeline, which consisted of 12 properties, and I'm happy to report that through the point in Q1, we have successfully closed 10 of those acquisitions and 1 additional acquisition not included in that pipeline report.

Seven of those acquisitions closed in the fourth quarter, and 4 have been closed so far in the first quarter. In addition, I'm pleased to report that on Tuesday, we entered into a purchase agreement to acquire a 4-building medical office portfolio on campus in Belpre, Ohio for $64 million -- $64.2 million at the initial cap rate of just under 8%.

Alfonzo and his team continue to be very busy sourcing additional opportunities, and he will share highlights of our recent acquisitions and current pipeline after Bob's report. Also, on Tuesday, we successfully expanded the capacity of our credit facility by $90 million from $250 million to $340 million.

Now I would like to turn the call over to Bob Kiernan, our CFO, who will go into more detail regarding the quarter's financial highlights. Then Alfonzo Leon, our CIO, who will go over the company's portfolio and recent acquisition activity. After that, I will return for some closing remarks and questions.

Thank you, Jeff. If you've not already done so, I encourage everyone to review our press release from yesterday afternoon and our updated investor presentation on our website. In addition, note that we intend to file our 2017 Form 10-K on Monday, which will include additional details regarding our financial condition and performance.

Now onto the financial highlights. Our fourth quarter 2017 revenue is $9.9 million compared to $3.1 million during the fourth quarter of 2016. For the full year 2017, our revenue was $30.3 million versus $8.2 million in 2016. Both our quarterly and full year revenue growth figures were predominantly driven by the increased size of our property portfolio, the carrying amount of which increased from $207 million at December 31, 2016 to $472 million at year-end 2017.

Our total expenses for the fourth quarter of '17 increased to $8.6 million from $5.1 million in the fourth quarter of 2016. Our total expenses for the full year 2017 increased to $30.4 million from $14.6 million in 2016. As with our revenue increase, a good portion of our expense increased from 2016 to 2017, particularly depreciation and amortization expenses as well as interest expense was due to the increased size of our portfolio.

Regarding our G&A expenses, net of LTIP expenses, our Q4 2017 G&A expenses totaled approximately $750,000, which increased from approximately $650,000 in Q3, but was still meaningfully lower than Q1 and Q2 levels. The key takeaway here is that we continue to be focused on keeping our G&A expenses in check, especially our public company expenses.

Looking forward to 2018, while we have forecasted these expenses to average approximately $800,000 per quarter, which includes nonreimbursed property operating expenses, we will continue to look for opportunities to reduce our cash G&A expenses.

In addition to expenses during the fourth quarter of 2017, we incurred a full quarter's preferred dividend expense of $1.5 million compared with $0.3 million, which was a partial dividend in the prior quarter. Our net loss attributable to common stockholders in the fourth quarter was roughly $200,000 or $0.01 per share, which was up from a loss of about $1.9 million or $0.11 per share for Q4 2016.

For the full year, our net loss attributable to common stockholders was about $1.8 million or $0.09 per share, which was up from a loss of $6.4 million or $0.68 per share for the full year 2016.

Fourth quarter 2017 FFO increased to $0.14 per share and AFFO grew to $0.15 per share versus a negative $0.06 and a positive $0.06, respectively, in Q4 of 2016. Full year 2017 FFO was $0.41 and AFFO was $0.54, both amounts were negative in 2016 with FFO of negative $0.43 and AFFO of negative $0.03.

Moving on to the balance sheet. At December 31, 2017, we had real estate assets carrying our balance sheet at a gross value of $472 million. Looking at the liability side of our balance sheet, at year-end 2017, we had debt of approximately $204 million, which included $165 million withdrawn on our credit facility and $39 million of fixed rate debt.

As of December 31, 2017, the weighted average term of the company's debt was 2.94 years, with a weighted average interest rate of 3.72%. As Jeff stated earlier, subsequent to year-end, we were able to amend our revolving credit facility to increase the aggregate facility size by $90 million, bringing our overall credit facility capacity to $340 million.

Before handing the call over to Alfonzo, I'd like to note that while interest rates on our credit facility are floating, we are actively evaluating various options that would allow us to fix a significant portion of our interest expense. Also, with our recent growth of our portfolio and the closings of the properties we have under contract, we will have portfolio-wide annualized base rent of $46.2 million, which will enable us to grow sequentially in Q1 and Q2 with the forecast result of covering our dividends in the second quarter.

With that, I'll turn things over to our CIO, Alfonzo Leon, to discuss the company's acquisition activity.

Thank you, Bob. As Jeff noted, we closed 7 acquisitions in the fourth quarter of 2017. Those added over 142,000 square feet to our portfolio. And we expect these properties to yield $3.5 million of annual base rent revenue in year 1. Thus far, in first quarter, we have closed 4 more acquisitions adding over 324,000 square feet, which we expect to generate $4.2 million of annual base rent revenue in year 1.

As with all our properties, the properties we have acquired in Q4 and thus far in Q1 will carry annual rent escalators in the 2% to 3% range. These acquisitions were all accretive with a weighted average cap rate of 7.9%. And with the acquisitions we have closed to date in Q1, this brings our total annual base rent to $39.8 million. We still have a few weeks left in the first quarter, and we are actively working to close 1 additional acquisition that will bring our total annual base rent at the point in time to $41 million.

Also, as Jeff noted earlier, on Tuesday, we entered into a purchase agreement to acquire a 4-building medical office portfolio in Belpre, Ohio, for a price of $64.2 million and a going-in cap rate of 7.9%. Subject to satisfactory completion of our due diligence, we expect to close this acquisition in the second quarter. We are very excited about this acquisition, as it will substantially bolster our portfolio, particularly our medical office portfolio.

I would also like to point out that based on our market research, among our peers of similar-sized funds, since our IPO, we are one of the fastest-growing funds in our space, and we have built a portfolio of cap rates that are 50 to 75 basis points above our peers. We believe we have been able to accomplish this by assembling a first-class acquisition team that can identify diligence, negotiate, close and close deals better than our competition. Our pipeline of opportunities remains robust with good diversification geographically and by property type.

We continue pursuing deals in a cap rate range from approximately 7.5% to 8.5% and have been able to find outliers to the upside. The property types we are pursuing are consistent with our portfolio. As we have grown -- as we have continued to grow and close acquisitions, we are increasingly the recipient of inbound calls as market participants recognize the value we bring to the table, including our reputation for closing deals we put under contract.

In addition, we have developed a large network of relationships, and our pipeline in the past 6 months is reflective of our ability to capitalize on those relationships. We have also been recipient of deals that sell out of contract with sellers and many times these deals that -- these are deals that we are originally passed on based on price. However, because of our reputation for closing, many of these sellers have eventually come back to us, and we have been able to get these deals at the price we originally underwrote. And we have -- and by being disciplined in our underwriting, we have been able to pick up extra yield by also solidifying our reputation as a sought-after source of health care real estate capital.

I also want to add that in the process of growing our portfolio, we've added some truly wonderful tenants. They are great providers in the respective submarkets with hard-working doctors and staff, who ultimately seek to provide the highest quality care in a competitive cost setting.

I'll now hand the call back to Jeff for closing remarks.

Well, thanks, Alfonzo and Bob. There is certainly a lot to be excited about here at Global Medical REIT. We've been out with the goal to cover our dividend, and we believe based upon the purchases and our track record here, moving forward, that we will be able to cover our dividend going forward.

As Alfonzo summarized, we have been active on the acquisition front despite the downturn in the capital markets and continuing to see a number of acquisition opportunities that fit our investment criteria. We've been monitoring the recent stock performance of health care REITs, including Global Medical REIT. And we understand the fundamentals are solid in our company. And we are focused on what we can control. We can't always control the market, but we do control how we make money at this company, and we have since we went public, July 1, 2016, increased our acquisition level to a substantial amount. And we do believe we're moving to covering our dividend.

We are giving a solid dividend return to our investors to acquiring accretive properties and having discipline in our acquisitions and managing our expenses. We look at GMR as being as much a play on health care as it is on real estate. We believe that high-quality medical practitioners will always be in demand, and we see tremendous long-term opportunity in serving as their real estate partner. Our acquisition pipeline remains robust. And as our recent activity attests, we are finding deals with attractive cap rates. Those of you whom I've met had the pleasure to meet in various nondeal roadshows and regular roadshows, I will be available in the next few months on nondeal roadshows. And I believe we have a great story to tell and a great company. In those conversations, you heard me speak a lot about the importance of covering our dividend. As Bob stated, with acquisitions we have closed to date, our anticipated 2018 acquisition activity, we believe we will achieve that goal in 2018.

Thanks, again, to all of you for joining us on our call today. Operator, let's open up for any questions.

(Operator Instructions) Our first question today comes from Rob Stevenson of Janney Montgomery Scott.

I didn't see an occupancy number anywhere in the release. Are you guys still 100% occupied on the portfolio side?

Yes, we are 100% occupied.

Okay. And then in terms of still first-lease expirations coming due at some point in latter part of '21, is that still correct?

Yes. It is.

Okay. And then when you take a look today with the expanded line of credit and what you guys have sort of remaining without taking leverage out of control, what do you guys think that the dry powder is from an equity standpoint and from a sort of mixed capital standpoint to be able to execute acquisitions before you guys need to raise meaningful equity in order to balance things out?

Well, from an acquisition perspective, after increasing the facilities to $340 million, if you allow for the Orlando transaction and the Belpre transaction. That would push us up to around $290 million of utilization on the facility. So that would leave some capacity there. And we would review alternatives beyond that capacity.

Okay. Have you guys -- did you guys leak anything out on the ATM during the fourth quarter?

No.

Okay. And then just lastly, how are you guys thinking about earnings guidance? I know that you guys are providing guidance in terms of ABR, but have you guys put any serious consideration into FFO guidance at this point?

It is something we talked about in the last call and then reviewing it for, at this point -- really due to the uncertain market conditions in the debt and equity markets. We didn't think that formal look for to -- looking-forward guidance was appropriate at this point.

The next question is from Bryan Maher of B. Riley.

Can you just let us know if -- with the moment in the REIT stocks downward over the past couple of months, are you seeing any changes in cap rates with the acquisitions that you are looking at? Whether it's just generally or across property types or across geographies?

Great. Thanks. That's a good question. This is Alfonzo. So folks are still saying the same thing across the spectrum. But eventually, public markets and private markets will move in sync. So I'm expecting cap rates to drift higher. There is still not clear evidence of that just yet. The tone that people are talking about the market has changed. I mean, it's not as assertive as it was last year, it's more attenuated. So I expect it to drift up, but it's not totally clear right now that it's happening.

(Operator Instructions) Our next question is from Barry Oxford of D.A. Davidson.

Some of my questions have already been asked. But one, when -- maybe for Alfonzo, when you look at the property-type mix, the assets that you are going after, is there one that's looking better on a price basis? Or look -- all of what we look at basically is holding steady?

Nothing jumps out. Everything is still pretty consistent where it was last year. So there is no -- by asset type, there is nothing that really has changed very differently than the rest of the market.

The next question is from Adam France of 1492 Capital Management.

Can I just get you to repeat what you said? You were speaking to a $46.2 million number, and that was annualized rent with everything closed, including these 2 new deals? Could you just clarify that for me, please?

Yes. That's correct. In our -- in the Investor presentation, you could see that our annualized rent for what we have closed, to this point, is in the -- just below $40 million, and with the transactions that we've identified under contract, that would push it up to $46-point million.

(Operator Instructions) There appears to be no further questions at this time. I would like to turn the call back over to Jeff Busch for closing remarks.

Okay. We like to thank everybody for joining us on this call. We look forward to speaking with each of you again on our 2018 first quarter conference call. Thanks, again.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.