Global Medical REIT Inc. (NYSE:GMRE) Q4 2023 Earnings Call Transcript February 28, 2024
Global Medical REIT Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Global Medical REIT Fourth Quarter 2023 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Steve Swett, Investor Relations. Thank you. You may begin.
Stephen Swett: Thank you. Good morning, everyone, and welcome to Global Medical REIT's fourth quarter and full year 2023 earnings conference call. On the call today are Jeff Busch, Chief Executive Officer; Alfonzo Leon, Chief Investment Officer; and Bob Kiernan, Chief Financial Officer. Please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements which are not historical facts and are considered forward-looking. The company intends these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is making the statement for purpose of complying with those Safe Harbor provisions.
Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including, without limitation, those contained in the company's 10-K for the year ended December 31, 2022, and its other SEC filings. The company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, on this call, the company may refer to certain non-GAAP financial measures such as funds from operations, adjusted funds from operations, EBITDAre and adjusted EBITDAre. You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's earnings release and in filings with the SEC.
Additional information may be found on the Investor Relations page of the company's website at www.globalmedicalreit.com. I would now like to turn the call over to Jeff Busch, Chief Executive Officer of Global Medical REIT. Jeff?
Jeffery Busch: Thank you, Steve. Good morning, and thank you for joining our fourth quarter and full year 2023 earnings call. Our high-quality medical real estate portfolio continues to produce steady results. At the end of the fourth quarter, portfolio occupancy was 96.5% with a weighted average lease term of 5.8 years. And the portfolio average rent coverage ratio of 4.2x. For the fourth quarter, reflecting impact of a loss on extinguishment of debt, we had a net loss attributable to common shareholders of $840,000 or $0.01 per share compared to net income attributable to common shareholders of $369,000 or $0.01 per share in the fourth quarter of 2022. FFO in the fourth quarter was $0.19 per share and unit, down $0.03 from the prior year quarter.
And our AFFO was $0.23 per share and unit, down $0.01 from the prior year quarter. In 2023, we patiently managed through continual difficult market conditions for acquisitions, and look to opportunistically dispose of assets to reduce our leverage and variable rate debt. We are pleased with the results of our dispositions activity in 2023 as we completed three dispositions at a weighted average cap rate of 6.3% that generated $80.5 million of gross proceeds. We use the net proceeds from these dispositions to pay down our variable rate debt, resulting in a leverage ratio at the end of the year of 43.6% to position the company for growth as accretive acquisition opportunities arise. I am proud of our team for efficiently executing these dispositions during the year.
Looking ahead to 2024, I'm excited to see the market for our target acquisitions has improved meaningfully compared to 2023. Significantly, we have a near-term acquisition pipeline of between $95 million and $110 million of medical properties that meet our investment criteria. As we look ahead, we continued our accretive growth strategy while maintaining or lowering our portfolio leverage. We believe the strategy of lower leverage growth is prudent in the current environment of sustained higher interest rates, and will lead to long-term growth for our stockholders. Overall, I am pleased with the results of 2023 and want to thank the entire team for their hard work and contributions to our results. With that, I turn the call over to Alfonzo to discuss our transaction activity and the current acquisition market conditions in more detail.
Alfonzo Leon: Thank you, Jeff. As Jeff mentioned, we are currently reviewing near-term acquisition opportunities, ranging from $95 million to $110 million that meet our investment criteria. Based on a typical timeline for our due diligence process, we're targeting the second half of this year for closing these transactions. As acquisition cap rates have risen in response to buyers increased cost of capital, we are seeing sellers begin to adjust their expectations, which is leading to more accretive acquisition opportunities. We continue to remain actively involved with various physician groups, brokers and corporate sellers to identify acquisition opportunities. This continued dialogue along with our deleveraging activities in 2023 should allow us to capitalize on potential opportunities, which gives us an advantage over less liquid buyers.
Additionally, an unattractive debt refinancing market could push previously reluctant sellers our way as these sellers run out of refinancing options. We continue to closely monitor the ever changing market conditions and are excited about what we see for 2024 and beyond. We will continue to leverage our competitive advantage, including scale, access to capital and the potential utilization of OP unit deal structures to unlock opportunities. I'd now like to turn the call over to Bob to discuss our financial results. Bob?
Robert Kiernan: Thank you, Alfonzo. At the end of the fourth quarter 2023, our portfolio consisted of gross investments in real estate of $1.4 billion, including $4.7 million of total leasable square feet, 96.5% occupancy, 5.8 years of weighted average lease term, 4.2x rent coverage with 2.1% weighted average contractual rent escalations. In the fourth quarter, our total revenues decreased compared to last year to $33 million. Reduction in revenue is primarily driven by our property dispositions completed during the first 9 months of the year, as well as the recognition of reserves for approximately $1.1 million of rent related to our medical office building tenants in East Orange New Jersey, including approximately $0.2 million of deferred rent.
Our total expenses for the fourth quarter were $31.5 million, compared to $34.5 million in the prior year quarter. The decrease was primarily due to decreased interest expense and operating expenses. Our interest expense in the fourth quarter was $7 million, compared to $8.1 million in the comparable quarter of last year, reflecting the impact of lower average borrowings and lower interest rates compared to the prior year period. The beginning in early August, our credit facility pricing improved by 15 basis points as a result of our reduced leverage. In addition, in early August, certain of our forward starting interest rate swaps became effective, replacing maturity swaps, which reduced the interest cost and our $350 million term loan by 30 basis points compared to prior periods.
Our operating expenses for the fourth quarter were $6.1 million, compared to $7.1 million in the prior year quarter. But the decrease in these expense is primarily driven by the changes in our portfolio since the comparable prior year period. Note that real estate related taxes represents the largest component of our operating expenses. Regarding the fourth quarter expenses, $4 million related to net leases where the company recognized a comparable amount of expense recovery revenue, a $1.4 million related to gross leases. G&A expenses for the fourth quarter of 2023 were $4.2 million, compared to $4.1 million in the fourth quarter of 2022. Within our current quarter G&A expenses, note that our stock compensation costs were $1.2 million in the quarter and our cash G&A costs were $3 million.
Looking ahead, we expect our G&A expenses in 2024 to increase to be in the range of $4.4 million and $4.6 million on a quarterly basis. During the fourth quarter, we completed the defeasance of a CMBS loan by making a total payment of $31.5 million, including transaction costs. The net carrying value of the loan was $30.6 million on the date of defeasance, resulting in a loss on extinguishment of debt of $868,000. In connection with the defeasance, we subsequently received $8.4 million in escrowed funds held by the CMBS servicer and used those funds to reduce our total debt and leverage. Net loss attributable to common stockholders for the fourth quarter was $840,000 or $0.01 per share, compared to net income attributable to common stockholders of $369,000, or $0.01 per share in the fourth quarter of 2022.
FFO in the fourth quarter was $13.3 million or $0.19 per share in unit compared to $15.5 million, or $0.22 per share and unit in the fourth quarter of 2022. AFFO in the fourth quarter was $15.9 million, or $0.23 per share and unit compared to $16.5 million, or $0.24 per share and unit in the fourth quarter of 2022. Moving on to the balance sheet. As of December 31, 2023, our gross investment in real estate was $1.4 billion, which is down about $60 million from the start of the year reflecting our disposition activity. At December 31, 2023, we had $618 million of total gross debt with the weighted average remaining term of 2.9 years. At quarter end, 85% of our total debt was fixed rate debt, our leverage ratio was 43.6% and our weighted average interest rate was 3.83%.
As previously mentioned, with our reduced leverage ratio, during the third quarter, we lowered the SOFR margins in our credit facility by 15 basis points. SOFR margin on our revolver now at 1.35% and our term loan margins are now 1.30%. Lastly, the current unutilized borrowing capacity under the credit facility is $294 million. We did not issue any shares of common stock under our ATM program during the quarter or to date in the first quarter of this year. With respect to our 2023 lease expiration, we ended the year retaining 78% of the full years 363,000 expiring square feet and 85% of the related expiring ABR. Our outlook regarding 2024 lease expirations is very good, and in general consistent with our experience on 2023 lease expirations.
Currently, we are expecting that our occupancy during 2024 will range between 95% and 96.5%. Regarding capital expenditures on the portfolio, in 2023, our cash spend was approximately $9.6 million. Currently, we're projecting 2024 capital expenditures of approximately $10 million to $11 million related to building and site improvements, and approximately $2 million to $3 million in tenant improvements, primarily associated with lease renewals and lease up to be completed during 2024. As we begin the year, we are confident that our resilient portfolio and ample liquidity available to us continue to help us navigate these challenging market conditions. We are optimistic about moving forward in our acquisition efforts in 2024 and look forward to sharing our progress with you throughout the year.
This concludes our prepared remarks. Operator, please open the call for questions.
Operator: [Operator Instructions] Our first question comes from the line of Austin Wurschmidt with KeyBanc. Please proceed with your question.
