Global Medical REIT (NYSE:) Inc., a company specializing in the acquisition and leasing of healthcare-related facilities, reported its second quarter 2024 earnings. The company’s portfolio occupancy was 96.2% with a weighted average lease term of 5.8 years and a portfolio average rent coverage ratio of 4.6 times. The company reported a net loss of $3.1 million or $0.05 per share, compared to net income of $11.8 million or $0.18 per share in the same quarter last year.

Despite the loss, the company has maintained a high occupancy rate and is actively expanding its portfolio through strategic acquisitions. The net loss was primarily due to the sale of a medical facility, but the firm remains optimistic about its future prospects, including the acquisition market and lease renewals.

Key Takeaways

  • Global Medical REIT reported a net loss of $3.1 million for Q2 2024.
  • Portfolio occupancy stood at 96.2% with a weighted average lease term of 5.8 years.
  • The company entered a purchase agreement for a 15-property outpatient medical real estate portfolio, with five properties already acquired.
  • Operating expenses remained steady, while G&A expenses saw a slight increase due to non-cash LTIP compensation.
  • The company is optimistic about re-leasing the space previously occupied by Steward Health Care, which filed for bankruptcy.

Company Outlook

  • Global Medical REIT expects occupancy to remain steady at around 96% for the second half of 2024.
  • The company anticipates a retention rate of 75% to 80% on expiring leases.
  • Capital expenditures are projected to be between $11 million and $13 million for the year.

Bearish Highlights

  • The company recognized a loss from the sale of a medical facility, contributing to the net loss for the quarter.
  • Steward Health Care’s bankruptcy has led to uncertainty regarding future rent payments, prompting a reserve of $800,000 to $1 million for related exposure and expenses.

Bullish Highlights

  • The company’s medical office buildings (MOBs) are performing well, with a focus on acquiring more MOBs in the current market.
  • Despite current market challenges, opportunities to buy MOBs are emerging as sellers capitulate due to higher interest rates.

Misses

  • Net loss attributable to common shareholders was $0.05 per share, down from a net income of $0.18 per share in the same quarter last year.
  • A tenant has vacated a building, but the company is optimistic about finding a new tenant once the lease is rejected.

Q&A Highlights

  • Alfonzo Leon discussed the impact of higher interest rates and bank line challenges on the private equity sector.
  • Jeffery Busch inquired about the vacancy of a building and the potential for re-leasing it to a new tenant.
  • Bryan Maher questioned the possibility of locking in lower interest rates, with Robert Kiernan suggesting that rates might decrease further in the event of a recession.

InvestingPro Insights

Global Medical REIT Inc . (GMRE) has recently faced challenges reflected in its financial performance, with a net loss reported in the second quarter of 2024. Despite this, there are several aspects of the company’s financial health and future outlook that are worth noting.

InvestingPro Data:

  • The company’s market capitalization stands at $609.13 million, indicating its size and relevance in the healthcare real estate sector.
  • With a Price to Book ratio of 1.26 as of the last twelve months ending Q2 2024, the stock is currently valued above its book value, which may suggest investor confidence in its assets or potential growth.
  • A notable dividend yield of 9.07% as of 2024 suggests that the company remains committed to returning value to its shareholders, despite recent losses.

InvestingPro Tips:

  • GMRE has a high shareholder yield, which is a positive sign for investors looking for income in addition to potential capital gains.
  • Analysts predict that the company will be profitable this year, which may indicate a turnaround from the recent net loss and provide a more optimistic future outlook.

For investors seeking more insights, there are additional InvestingPro Tips available on the platform, which can provide a deeper analysis of GMRE’s financial health and future prospects. These tips can be an invaluable resource for making more informed investment decisions.

Full transcript – Global Medical REIT Inc (GMRE) Q2 2024:

Operator: Greetings and welcome to Global Medical REIT Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Swett, Investor Relations. Thank you, Mr. Swett, you may begin.

Stephen Swett: Thank you. Good morning everyone and welcome to Global Medical REIT’s second quarter 2024 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 the 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 31st, 2023, 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 its 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 second quarter 2024 earnings call. Our high quality diversified portfolio continues to produce solid results. At the end of the second quarter, portfolio occupancy was 96.2% with a weighted average lease term of 5.8 years and portfolio average rent coverage ratio of 4.6 times. For the second quarter, our net loss attributable to common shareholders was $3.1 million or $0.05 per share, compared to net income attributable to common shareholders of $11.8 million, or $0.18 per share in the second quarter of 2023. FFO attributable to common shareholders and non-controlling interest in the second quarter was $0.20 per share and unit, down $0.01 from the prior year quarter, and our AFFO attributable to common stockholders and non-controlling interest was $0.22 per share and unit, down $0.01 from the prior year quarter. During the quarter, we entered into a purchase agreement for a 15 property portfolio of outpatient medical real estate for an aggregate purchase price of $80.3 million at an 8% cap to be completed in two tranches. These properties are fully occupied and leased under triple-net and absolute net leases. Subsequent to quarter end in July, we closed on the first tranche, acquiring five properties in the 15 property portfolio for an aggregate purchase price of $30.8 million. We expect to complete the acquisition of the 10 remaining properties during the fourth quarter of 2024. We are optimistic about the overall acquisition market in our asset class and are pleased with the improvement in market conditions. Currently, our investment pipeline consists of approximately $120 million of assets at attractive cap rates. As we think about our growth opportunities, we are focused on maintaining a strong balance sheet. An important element to our prudent approach is utilizing select dispositions to fund a portion of our growth. Our dispositions can be part of an asset recycling program or in response to expectations regarding long-term property performance. During the quarter, we closed on the sale of a medical facility in Mishawaka, Indiana, receiving gross proceeds of $8.1 million, and in July we closed on the sale of a medical facility in Panama City, Florida, that we generated $11 million of gross proceeds. We continue to selectively sell assets as we move forward. In terms of tenant related items, last quarter, we discussed Steward Health Care bankruptcy announcement and their exposure in the Company’s portfolio. At the time of the filing, Steward represented 2.8% of the Company’s annualized base rent, primarily in one facility in Beaumont, Texas. Prior to the bankruptcy announcement the Company was actively pursuing releasing opportunities at this facility and is optimistic about our long-term prospects at this location. Bob will provide an update and more details regarding the financial aspects of our Steward relationship in his remarks. Overall, I’m pleased with our second quarter results and we want to thank the entire team for their hard work and contribution to our results. With that, I’ll turn the call over to Alfonzo to discuss our investment activity and the current acquisition market conditions in more detail.

Alfonzo Leon: Thank you, Jeff. The transaction market for our target assets, which align with our investment criteria, continues to show signs of promising progress. We remain actively engaged with a wide range of physician groups, brokers and corporate sellers to identify acquisition opportunities. As Jeff mentioned, in the quarter we entered into a purchase agreement to acquire a 15 property portfolio of outpatient medical real estate for an aggregate purchase price of $80.3 million to be completed in two tranches. These properties align with our investment criteria, being fully occupied and leased under triple-net or absolute triple-net agreements. As Jeff discussed earlier, we completed the first tranche subsequent to quarter end, acquiring five properties encompassing roughly 95,000 leasable square feet for an aggregate purchase price of $30.8 million with aggregate annualized base rent of $2.5 million, and the second tranche is expected to close in the fourth quarter of 2024. The ability to close the deal in two tranches provides us with additional flexibility to prudently fund a transaction. As a reminder, the second tranche of this deal is currently under contract and subject to customary terms and conditions, including due diligence reviews. Accordingly, there is no assurance that the company will close this acquisition on a timely basis or at all. We see this transaction as indicative of current market trends where sellers are increasingly accepting higher cap rate deals due to the ongoing challenges in the refinance market and pressure on real estate funds to sell. Regarding the asset that we acquired in July, note the following details. We acquired the five properties in the first tranche at an average price of $325 per square foot, an 8% ingoing cap rate, 5.4 years of weighted average lease term and 2.2% average rent bumps. The five properties in the portfolio include a family medicine clinic in Cerritos in Southeast LA leased to PIH Health, a regional health network with three hospitals and 26 clinics with an A rating. Two ophthalmology focused outpatient clinics in Detroit MSA leased to Henry Ford (NYSE:), a $7 billion revenue health system with an A2 credit rating. A multispecialty clinic and surgery center in Minot, North Dakota, leased to Trinity Health, the region’s dominant health system with three hospitals and 18 clinics with a BBB minus rating. A primary care focused multispecialty outpatient center in Spartanburg, South Carolina leased to the county with an AA1 rating. On a disposition front during the quarter, we closed on the sale of a medical facility in Mishawaka, Indiana, receiving gross proceeds of $8.1 million, resulting in a loss on sale of $3.4 million. The lease at this property was set to expire at the end of the year and our decision to dispose of this property was based on our lease renewal expectations and outlook for finding a suitable tenant replacement. The property was originally part of a four-property portfolio the company purchased in 2019. After quarter end in July, the company sold a medical facility in Panama City, Florida, receiving gross proceeds of $11 million. The property had a net book value of approximately $8.9 million at the time of sale. This sale was part of our general asset recycling process whereby we identify assets that we believe can be sold at gains and the proceeds reinvested accretively by the company. Looking ahead, we will remain persistent and disciplined in seeking opportunities that align with our investment strategy and underwriting standards. We plan to leverage our competitive advantages, including scale, access to capital, the potential use of OP unit deal structures to unlock opportunities and drive value. As Jeff mentioned, our current investment pipeline consists of approximately $120 million of healthcare assets. Now I’d like to turn the call over to Bob to discuss our financial results. Bob?

Robert Kiernan: Thank you, Alfonzo. At the end of the second quarter 2024, our portfolio consisted of gross investments in real estate of $1.4 billion and included $4.7 million of total leasable square feet, 96.2% occupancy, 5.8 years of weighted average lease term, 4.6 times rent coverage and 2.2% weighted average contractual rent escalations. In the second quarter of 2024, our total revenues decreased by approximately 6% compared to the prior year quarter to $34.2 million due primarily to the impact of dispositions that were completed in 2023. Additionally, the recognition of reserves for $800,000 of rent and the write-off of $100,000 of deferred rent, primarily related to our tenant, Steward Health Care and our Beaumont facility contributed to the decline. Total expenses for the second quarter of 2024 were $32.8 million compared to $35 million in the prior year quarter. The decrease was primarily due to disposition transactions that were completed during 2023 and lower interest expense. Our interest expense in the second quarter was $7 million compared to $8.5 million in the comparable quarter of last year, reflecting lower borrowing rates due to lower leverage, the impact of our interest rate swaps and lower average borrowings compared to the prior year period. Our operating expenses were $7.2 million for both the second quarter of 2024 and the prior year quarter. Regarding the second quarter, 2024 expenses $4.9 million related to net leases, where the Company recognized a comparable amount of expense recovery revenue and $900,000 related to gross leases. G&A expenses for the second quarter of 2024 were $4.6 million compared to $4.5 million in the second quarter of 2023. The increase primarily resulted from an increase in non-cash LTIP compensation expense, which was $1.3 million for the second quarter of 2024 compared to $1.1 million for the same period in 2023, partially offset by a decline in general corporate expenses. Looking ahead, we expect our G&A expenses in the second half of 2024 to be in the range of $4.4 million and $4.6 million on a quarterly basis. Net loss attributable to common stockholders for the second quarter of 2024 was $3.1 million or $0.05 per share compared to net income attributable to common stockholders of $11.8 million or $0.18 per share in the second quarter of 2023. The loss in the second quarter of 2024 was primarily due to a $3.4 million loss recognized on the sale of the medical facility in Mishawaka, Indiana. The results for the second quarter of 2023 reflected a gain on sale of investment properties of 12.8 million. FFO attributable to common stockholders and non-controlling interest in the second quarter of 2024 was $13.9 million or $0.20 per share in unit compared to $14.7 million or $0.21 per share in unit in the second quarter of 2023. AFFO attributable to common stockholders and non-controlling interest in the second quarter of 2024 was $15.7 million or $0.22 per share in unit, compared to $15.9 million or $0.23 per share in unit, in the second quarter of 2023. Moving on to the balance sheet, as of June 30, 2024, our gross investment in real estate was $1.4 billion. At June 30, 2024, we had $620 million of total gross debt with a weighted average remaining term of 2.5 years. At quarter end, 83% of our total debt was fixed rate debt, our leverage ratio was 43.8% and our weighted average interest rate was 3.89%. Lastly, as of today, the current unutilized borrowing capacity under the credit facility is $261 million. We did not issue any shares of common stock under our ATM program during the second quarter or to date in the third quarter. As we consider funding options for the acquisitions that we have closed or expected to close later this year, we will continue to be disciplined as we seek to maintain leverage in our target range of 40% to 45%. With respect to our investment portfolio and our 2024 lease expirations, we are pleased with our progress on renewals and based on activity to date, we are currently trending towards a retention rate of between 75% and 80% on this year’s expiring leasable square feet. Regarding capital expenditures on the portfolio, during the second quarter, our cash spend was approximately $3.2 million. Year-to-date through June 30, our cash outflows for capital expenditures were approximately $5.2 million, with slightly more than half of that related to tenant improvements. Currently, for the full year 2024, we’re projecting total capital expenditures of $11 million to $13 million. As Jeff mentioned, during the quarter, Steward Health Care announced that it filed for Chapter 11 bankruptcy. At the time of the bankruptcy filing, Steward represented 2.8% or $3.1 million of the Company’s annualized base rent of which 86% related to our facility located in Beaumont, Texas. Post-bankruptcy, the Company has received base rent payments on its Steward leases for the months of June, July and August. The company has been proactively exploring releasing options at the Beaumont facility since before the bankruptcy announcement, and we remain optimistic about our long-term prospects at this location. In conclusion, as we look to the second half of the year, we believe that our strong portfolio and ample liquidity provide a solid foundation for our future growth. We are encouraged by our acquisition opportunities and look forward to sharing our progress with you. This concludes our prepared remarks. Operator, please open the call for questions.

Operator: Thank you. [Operator Instructions] The first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets, Inc. Please go ahead.

Austin Wurschmidt: Great. Good morning everybody. I was hoping to get some additional details regarding the $120 million investment pipeline. Maybe just starting with whether this amount includes the second tranche of the 15 property portfolio or is the $120 million on top of that kind of remaining $50 million or so?

Robert Kiernan: The pipeline does not include the second tranche. I mean, this is stuff that is in our pipeline that we’ve been pursuing in various ways and in discussions with various parties. The market has improved pretty significantly since the last earnings call and there’s more willing sellers that are willing to sell their assets at attractive pricing.

Austin Wurschmidt: And what’s the composition of these assets, Alfonso? And maybe can you share some details around the economics and then just timing that you’d expect to close on the deals?

Alfonzo Leon: Sure. So these are medical office buildings. I mean, our focus has been on medical office buildings in our pipeline and geographically, it’s in markets that are, like the types of market that we’ve been pursuing historically and these are quality buildings with quality tenants.

Austin Wurschmidt: And as far as the cap rates on the $120 million, where would you expect kind of that to shake out on average?

Alfonzo Leon: Sure. So, I mean, we’re targeting cap rates that are north of ACAP and are finding opportunities that are in the high 8s and even in the 9 caps.

Jeffery Busch: Austin, this is Jeff. I just want to add to that. It’s a very exciting time, which I haven’t said in a long time for us. If interest rates start to fall as projected, and there’s opportunities out there in our niche at very attractive properties, good quality like we bought the $80 million portfolio, extraordinarily good quality at an ACAP, and there is higher ACAPs and hires out there for us in our niche that we’ll be able to absorb, and we could have a very good year of that.

Austin Wurschmidt: That’s helpful. And then just lastly, on the funding side, Jeff you spoke about the asset recycling program with that pipeline, kind of the acquisition pipeline building. Are you marketing additional assets today? And what’s your latest thoughts on cap rates on the disposition side? That’s all from me, thank you.

Jeffery Busch: Yes, no, I agree with you. On disposition, we always look there’s properties out there that we could sell or if we could do a point to two above sometime, but we’re really monitoring also the equity side of the business. The reason is if the Fed, which people think now after multiple times, brings it brings the rates down, which my belief it’s finally going to happen, but we’ll see. Our stock, historically, the three times the market thought it was coming down, had it at a really nice jump, and we could be very accretive for the properties we’re going to buy. So it’d be a combination of selling properties at lower cap rates and making the spread and also possibly raising money to acquire these new properties, it’s really nice. This is the first time out there that the market has sort of capitulated on — the market of selling real estate has sort of capitulated that the pricing is going to be substantially higher. So it matches to being accretive for us.

Austin Wurschmidt: I appreciate the thoughts.

Operator: Thank you. Next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Juan Sanabria: Hi. Good morning, and thanks for the time. Just a question following up on the dispositions, could you comment or provide the cap rates for what you sold in the second quarter and in July to date, recognizing there was some vacancy risk with an upcoming expiration.

Jeffery Busch: Sure. So on the Panama City; we sold that for a 7.1 cap. And on the Mishawaka asset, I mean, again, just to point out, I mean, this is one that we felt like the re-leasing prospect was going to be very difficult and it made sense to sell. And we had found a buyer that was owner/user of the property. And keep in mind too that this was part of a portfolio that we acquired back in 2019, a $94 million portfolio and we allocated roughly $16 million of that value to this property. And since then, we’ve collected more than $9 million of rent from this property from an A rated system, and we’re able to sell it for just over $8 million. And the other three properties have outperformed. We got a 10-year renewal on the Las Vegas property. On the Oklahoma property, we got an extension and a 14-year renewal. And the Surprise, Arizona property had a long-term lease to begin with. And these are all properties that have very strong rent coverage. And so from our perspective, when we bought the portfolio, we underwrote it as a package. And as a whole, this portfolio has performed very well.

Juan Sanabria: But what was the rent accrued in the second quarter with regard to the Wisconsin asset?

Jeffery Busch: The Wisconsin asset?

Juan Sanabria: Yes, just back into the cap rate.

Jeffery Busch: Oh, sure. I mean, it was north of a, it’s a low double-digit cap rate.

Juan Sanabria: Great, thanks. And then, Bob, you spoke to expected retention on upcoming expirations for the balance of the year. So, I guess, what is then the implied occupancy that we should think about by year end and does that have any impact to FFO per share with presumably some expected move outs or timing before you release that’s trace.

Robert Kiernan: Yes, sure. I mean, as we look ahead to the expirations that are coming up in the second half of the year, we’re still projecting, I mean, as we’ve said on previous calls, pretty steady occupancy and right around this kind of 96% plus or minus, and with trending, toward a little bit plus that 96%, so in that 96%, an above type range. And from an earnings perspective, again sometimes there are renewals that have free rent periods. From a timing perspective, you’re subject to that from a long-term perspective or in the short-term. But overall, we’re projecting solid occupancy as we look ahead, and it shouldn’t provide that much volatility from an earnings perspective.

Juan Sanabria: And just one last one from me, if you don’t mind, on the Steward space, I guess in particular the Beaumont lease, how does that compare to kind of current market levels? And I guess if there is, if you have to re-lease it, presumably that is the case, then how much mark-to-market could we expect, either positive or negative in your initial assessment?

Robert Kiernan: So we’re still — but I mean, yes it’s going to be very comparable to what we had.

Juan Sanabria: Thank you.

Jeffery Busch: Yes, I just want to comment on the Steward property. It’s an excellent property that is in pretty decent demand. So, that’s why we’re optimistic about the re-leasing and the market on that.

Operator: Thank you. Next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please go ahead.

Robert Stevenson: Hi. Good morning, guys. Bob, what is, you indicated that you’ve gotten paid through June, July and August on Steward. What is it just the $800,000 reserves and the $100,000 of deferred rent write-off? Is that the only hit thus far from Steward or is there other May or something that you didn’t get paid for as well that you think that you might down the road?

Robert Kiernan: Right. Yes Rob, think of it as though March, April, May from an exposure perspective as well as expenses.

Robert Stevenson: Okay. And what’s the cumulative of that March, April, May?

Robert Kiernan: So that’s about that $800,000 to a $1 million type reserve because we’re now incurring facing the operating expenses on that property, particularly as we think about keeping it in solid shape for renewal opportunity or re-leasing opportunities. And again, that’s just a delta compared to having it be just a very straightforward triple-net lease where the tenant was funding all the expenses.

Robert Stevenson: Okay. And then I guess at this point, I mean how fast is this moving? Are they likely to pay you for September and October or is August basically the extent to which you guys think that you’re going to get paid and then it’s up to a re-leasing process after that in order to get back to having this be cash flow positive for you guys?

Robert Kiernan: So with the bankruptcy process, it’s not totally clear to us in terms of how they’re managing their timeframe. So from our perspective, they have not yet rejected the lease and pursuant to the bankruptcy, they would owe us base rent and expenses during the period subsequent to bankruptcy up through to the point where they would reject the lease. And so at this point, we’re just collecting that rent post-bankruptcy. But it’s not clear to us when their process is going to kind of move on and provide that kind of more clarity for us, even in terms of that final step. But with that said, we have staged and are kind of working off to the side as quickly as we can to have it staged for as quick a transition as we could possibly have, recognizing that there would probably be, again a modest transition period, a free rent element, things of that nature that could impact us between, again the current situation and when we would onboard a prospective tenant.

Robert Stevenson: Okay. And then Trinity Health was replaced as your number five tenant by Team Health here in the second quarter, so like from Alfonzo’s comments, if I heard it right, that one of at least one of the five portfolio acquisitions completed thus far in the third quarter is leased to Trinity? Is any of these other acquisitions out of the five or the 10 expected to come in the fourth quarter or the likely closings of the $120 million that you’re circling with existing top tenants or other tenants that will be pushed into the top-five by these deals?

Alfonzo Leon: Yes. There’s not going to be a meaningful move to the top-10.

Robert Stevenson: Okay. All right, that’s helpful. And then last one from me. Can you talk about the size and scope of the tenant watch list today versus the last couple of quarters? One of your direct competitors is having issues with the geriatric inpatient behavioral hospital tenant. Steward, Genesis and some others, operators are cracking here and what’s still a relatively robust economy. If the economy starts to weaken here, how much more you thinking that the tenant watch list expands over the next sort of four quarters or so?

Jeffery Busch: So right now we’ve talked in the past few quarters about Prospect Health in Q4, Steward in Q1 and those have been our primary tenant related items that we’ve had to deal with from an accounting and reporting perspective. And at this point, again we continue to monitor our acute care, we have one acute care hospital, but again it is something that again we’re very actively involved with. But at this point, I’d point out we don’t have anything that’s beyond that group that we’re actively focused on. We also don’t have any loans to tenants that we would highlight or note either from and how we’re managing the portfolio.

Alfonzo Leon: I just want to add, I mean, the vast, vast majority of our business has been MOB work and MOBs are strong out there and in a downturn they’d be strong. When we did purchase into some of the one acute hospital and some other type of like surgical, like Beaumont and others, those were doing well. But after the pandemic and others and the billing system, the reimbursement system change, they’ve struggled more that you see there, but that’s a very limited part of our portfolio. The vast, vast majority of our portfolio is absolute and triple-net MOBs that are doing very well.

Robert Stevenson: I guess one question that that poses then, Jeff and Alfonzo, given that comments and given that Alfonzo indicated that the vast majority or almost all of the $120 million in your pipeline today are medical office buildings, to do behavioral health or hospitals, are you still interested in doing them at all? Is it just requiring a much wider return that you need another 100 to 150 basis points to make the risk worthwhile or is the focus here and for the immediate future just going to be medical office no matter what to you guys?

Alfonzo Leon: The market has turned so substantially for us to buy medical office building. The private equity does not get the bank lines that they had before and the rates and a lot of the sellers are capitulating and saying, okay the rates are higher now. So we’re finding, like we did early when we started, and then the private equity during the pandemic saw that 99% of our tenants paid whether they had patients or not and moved into the MOB field. Right now we find it open again. I can’t say never, but I can’t see us being in the medical, I mean being in definitely not in the acute hospital area. Rehabs, we got in early and we like those, but I could see us — I can’t see us going into that field, and possibly reducing our exposure to them would probably be more of a future. I loved the MOB field, especially the absolute and triple-net area.

Robert Stevenson: Okay, thanks, guys. I appreciate the time this morning.

Operator: Thank you. Our next question comes from the line of Bryan Maher with B. Riley Securities. Please go ahead.

Bryan Maher:

$:

Jeffery Busch: That’s correct.

Bryan Maher: And are they physically out of the building with no intention of coming back to that building?

Jeffery Busch: Yes, the first part for sure, they’re out. The second part, I mean, it’s most likely, yes.

Bryan Maher: Okay. It seems curious that somebody would keep paying you, June, July and August, if they have zero intention, instead of making you fight to get the money.

Jeffery Busch: It’s odd that they haven’t. We feel very optimistic we could rent this out, given that this is popular in the market. So therefore, we’re at the point now where we’d almost like them to reject the lease and get on with renting it and getting a new tenant in, because this is a very good facility. It’s in the best part of town of this facility. It’s a good medical market, actually. And that’s why we use the word and we’ve been using optimistic out there is, but Steward, I think we’re just such a small part of it, and they’re confused in their bankruptcy that they just haven’t rejected it. But when they do reject it, we hope to be moving very quickly and get this solidified.

Bryan Maher: To be clear, the property is not being operated currently and you cannot re-lease it until they reject it or the bankruptcy court says such.

Jeffery Busch: That is correct.

Bryan Maher: Okay. My other question may be for Bob. How quickly interest rates have come down here and given the fairly short two and a half years weighted average debt maturities, is there any opportunity for you to kind of move quickly to lock-in some of these lower rates or I guess, Jeff with your commentary, you seem to think rates might be going a little lower. Is that the view of the firm to wait and hope for even lower from here?

Robert Kiernan: I think it is going lower. I think once they start, people were talking about point and a half or so. So, I think we have time and we could get a good rate in the future. If a recession happens, it will even go lower out there.

Bryan Maher: Okay, thank you. That’s all from me.

Operator: Thank you. This concludes our Q&A session and today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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