Global Medical REIT - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered stable operating performance with total revenue $34.6M and GAAP EPS $0.03; AFFO per unit was $0.22, flat sequentially and down $0.01 YoY as higher borrowings and tenant issues offset lower G&A.
• The quarter missed Wall Street consensus on both Primary EPS and revenue; S&P Global indicates Primary EPS was ~$0.052 vs ~$0.063 estimate and revenue ~$34.58M vs ~$35.49M; company GAAP EPS was $0.03, reflecting definitional differences across measures*.
• Acquisition execution remained a bright spot: GMRE closed the previously announced $69.6M five‑property portfolio at a 9.0% cap, adding strategic, procedure‑based tenants near hospital campuses; portfolio occupancy ended at 95.6%.
• Guidance was reaffirmed: FY 2025 AFFO per share/unit $0.89–$0.93; capex outlook ~$12–$14M; leverage stood at 46.1% with $187M of borrowing capacity and a facility extension under discussion in 2H 2025.
• Near‑term catalysts include Beaumont (CHRISTUS) rent commencement in Q2, progress re‑leasing East Orange post Prospect’s lease rejection, financing updates, and a dividend reset to $0.15/share in Q2 that may broaden investor appeal for income‑stability vs payout risk.

What Went Well and What Went Wrong

What Went Well

• Accretive acquisition at scale: Completed the $69.6M five‑property medical portfolio at a 9.0% cap; buildings ~92% leased at close and largely on‑campus with procedure‑based specialties, supporting retention and returns.
• Cost discipline: G&A fell to $3.6M YoY from $4.4M, aided by lower non‑cash LTIP expense, and management guided cash G&A run‑rate to $3.4–$3.6M per quarter for the remainder of 2025.
• Strategic recycling: Two dispositions for $8.2M generated $1.4M aggregate gain (occupied asset at ~6.7% cap), demonstrating ability to fund growth while improving portfolio quality.

Management quotes:

• “We utilized our deep relationships…to win the bidding for this portfolio at an attractive cap rate of 9.0%” — Jeffrey M. Busch, CEO.
• “We are working to lease up the acquired vacancy…which will provide additional returns above the 9% in‑place cap rate” — Alfonzo Leon, CIO.

What Went Wrong

• Consensus miss: S&P Global shows Q1 Primary EPS and revenue came in below street expectations; GAAP EPS was $0.03, reflecting pressure from higher borrowings and tenant‑related impacts*.
• Tenant‑credit overhang: Prospect bankruptcy led to East Orange lease rejection; GMRE received $250k post‑petition through Feb, but re‑leasing will take time and Prospect’s remaining leases were undecided as of May 6.
• Occupancy volatility ahead: CFO flagged potential dip to 94–95% in Q2–Q3 from acquired vacancy and a 50k sq ft non‑renewal, before recovering toward ~96% by year‑end.

Transcript

Operator (participant)

Greetings, and welcome to the Global Medical REIT First Quarter 2025 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Swett, Best of Relations. Thank you, sir. You may begin.

Steve Swett (Head of Investor Relations)

Thank you. Good morning, everyone, and welcome to Global Medical REIT's First Quarter 2025 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 this 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, 2024, 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 attributable to common shareholders and non-controlling interest, adjusted funds from operations attributable to common stockholders and non-controlling interest, EBITDAre, and adjusted EBITDA-RE. You can find a tabular reconciliation of these non-GAAP financial measures to the currently comparable GAAP numbers in the company's earnings release and filings with the SEC.

Additional information may be found in 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?

Jeff Busch (CEO)

Thank you, Steve. Good morning, and thank you for joining our First Quarter 2025 earnings call. Our high-quality, diversified portfolio continues to produce steady results. At the end of the first quarter, portfolio occupancy was 95.6%, with a weighted average lease term of 5.6 years and portfolio average rent coverage ratio of 4.4x. For the first quarter, net income attributable to common shareholders was $2.1 million, or $0.03 per share, compared to $800,000 or $0.01 per share in the first quarter of 2024. FFO attributable to common shareholders and non-controlling interest in the first quarter was $0.20 per share and unit, down $0.01 from the prior year quarter. AFFO attributable to common stockholders and non-controlling interest was $0.22 per share and unit, down $0.01 from the prior year quarter.

Regarding our acquisition activity, last year we entered into a purchase agreement to acquire a five-property portfolio of medical facilities for an aggregate purchase price of $69.6 million at a 9% cap rate. These properties are a great strategic fit to our overall portfolio, given the procedure-based nature of the tenant specialties, the close proximity of the buildings to the hospital campuses, each of which promotes tenant retention, and that almost 70% of the leases are triple-net leases. During the first quarter, we closed on the first tranche of this acquisition, consisting of three properties for $31.5 million, and subsequent to the quarter end in April, we completed the acquisition of the remaining two properties. We are pleased about the addition of these assets and will continue to monitor the transaction market and remain disciplined in executing our acquisition strategy.

Turning to dispositions, during the quarter, we completed the sale of two medical properties, generating aggregate gross proceeds of $8.2 million, resulting in an aggregate gain of $1.4 million. Finally, I would like to update everyone on the progress we made in our CEO succession plan. The nominating and corporate governance committee has done an excellent job conducting multiple interviews with highly qualified candidates to become the company's next CEO. The committee has narrowed the candidate pool to a few final candidates and expects to have a new CEO in place by June 30, 2025. As this is my last earnings call, as I transition from my role as CEO, I would like to thank the entire GMRE team for their dedication and contributions to our success over the years.

I am deeply grateful to have served as CEO and founder and proud of what we have built together, and I'm confident in where the company is positioned today and look forward to continuing in my role as Chairman. We have built a highly experienced team, robust infrastructure, and maintained our core focus on generating consistent results and creating value for our shareholders. With that, I turn the call over to Alfonzo to discuss our investment activity and the current market conditions in more detail.

Alfonzo Leon (CIO)

Thank you, Jeff. As Jeff mentioned, in February and in April, we closed on a previously announced five-property, 487,000 sq ft portfolio for an aggregate purchase price of $69.6 million, with an aggregate annualized base rent of $6.3 million, equating to a 9% cap rate. At this pricing, we acquired this portfolio at approximately $143 per sq ft, which is substantially below replacement cost. Relative to the condition of the properties, note that we acquired these properties from the original developer who has maintained them to institutional quality standards. In addition, these properties are each approximately 100,000 sq ft outpatient facilities, four of which are on campus. Following are some additional details on the properties. In the February closing, we acquired two on-campus multi-tenant medical facilities located in Tucson, Arizona, with St. Joseph's Hospital as a primary tenant at one of the facilities. St.

Joseph's Hospital is part of Tenet Healthcare, a publicly traded healthcare system. Services performed at these facilities include cardiology, oncology, urology, and orthopedics. In addition, we acquired one off-campus multi-tenant medical facility located in Slippery Rock, Pennsylvania. Services performed at this facility include physical therapy, musculoskeletal, and orthopedics. In the April closing, we acquired two on-campus multi-tenant medical facilities located in Des Moines, Iowa, with MercyOne as a primary tenant. MercyOne is a credit-rated hospital system ranked as the number two hospital in Iowa per U.S. News and World Report. GMRE has extensive relationships with MercyOne, which represents 55% of the portfolio. Services performed at these facilities include gastroenterology, orthopedics, cardiology, oncology, and endocrinology.

I would also like to mention that the portfolio was approximately 92% leased upon acquisition, and we are working to lease up the acquired vacancy, which will provide additional returns above the 9% in place cap rate at acquisition. We are very excited about this transaction as most of these facilities are on campus with a good tenant mix of procedural-based practices that squarely fit within our investment criteria. We believe this transaction showcases our ability to find accretive acquisition opportunities in a higher cost of capital environment. On a disposition front, during the quarter, we closed on the sale of two medical facilities for gross proceeds of $8.2 million, resulting in a gain of $1.4 million. Included in these dispositions was a facility located in Coos Bay, Oregon, receiving gross proceeds of $7.2 million, resulting in a gain of $1.3 million and reflecting a cap rate of 6.7%.

This sale was part of our capital recycling strategy, and we are pleased with the outcome of this transaction. Looking ahead, we remain persistent and disciplined in seeking opportunities that align with our investment strategy and underwriting standards or would be attractive additions to our joint venture with Heitman. We plan to leverage our competitive advantages of scale, capital access, and OP unit structuring capabilities to secure high-quality acquisitions that allow us to grow our portfolio while maintaining our commitment to quality. I'd now like to turn the call over to Bob to discuss our financial results. Bob?

Bob Kiernan (CFO)

Thank you, Alfonzo. At the end of the first quarter of 2025, our portfolio consisted of gross investments in real estate of $1.5 billion, included 4.9 million of total leasable sq ft, 95.6% occupancy, 5.6 years of weighted average lease term, 4.4x rent coverage with 2.2% weighted average contractual rent escalations. In the first quarter of 2025, our total revenues decreased by approximately 1.4% compared to the prior year quarter to $34.6 million, and our total expenses for the first quarter of 2025 were $32.2 million compared to $32.8 million in the prior year quarter. Our operating expenses for the first quarter of 2025 were $7.6 million compared to $7.4 million in the prior year quarter. Regarding the first quarter of 2025 expenses, $5.2 million related to net leases, where the company recognized a comparable amount of expense recovery revenue, and $1.4 million related to gross leases.

G&A expenses for the first quarter of 2025 were $3.6 million compared to $4.4 million in the prior year quarter. The decrease primarily resulted from a decrease in non-cash LTIP compensation expense related to the accounting treatment for Jeff's unvested LTIP awards pursuant to his transition and separation agreement. Cash G&A expenses, excluding CEO transition-related costs, were $3.4 million in the first quarter, and looking ahead, we expect our run rate for comparable cash G&A expenses to range between $3.4 million-$3.6 million on a quarterly basis for the remainder of 2025. Relative to non-cash LTIP compensation expense, based on grants to date and the impact of the accounting treatment for Jeff's awards, we expect to recognize $4.2 million of non-cash LTIP expense over the remainder of the year, including $1.8 million in the second quarter.

Also, during the first quarter, we completed two property dispositions that generated aggregate gross proceeds of $8.2 million, resulting in an aggregate gain of $1.4 million. Net income attributable to common stockholders in the first quarter of 2025 was $2.1 million or $0.03 per share, compared to $800,000 or $0.01 per share in the first quarter of 2024. FFO attributable to common stockholders and non-controlling interest in the first quarter of 2025 was $14.8 million or $0.20 per share and unit, compared to $14.9 million or $0.21 per share and unit in the first quarter of 2024. AFFO attributable to common stockholders and non-controlling interest in the first quarter of 2025 was $16.0 million or $0.22 per share and unit, compared to $16.5 million or $0.23 per share and unit in the first quarter of 2024.

Regarding capital expenditures on the portfolio, in the first quarter of 2025, our cash spend was approximately $2.6 million, with approximately 27% of that related to tenant improvements. Currently, we're projecting full year 2025 capital expenditures of approximately $12 million-$14 million. In terms of tenant-related items, on January 11th, 2025, Prospect Medical Group filed for Chapter 11 Bankruptcy Reorganization. At that time, Prospect had approximately $2.4 million outstanding lease payments related to three of our healthcare facilities, including $2.2 million related to our facility in East Orange, New Jersey, which had been accounted for on a cash basis since the fourth quarter of 2023. As of year-end 2024, Prospect represented 0.8% of our total ABR. Regarding our exposure to Prospect Medical, we entered into a stipulation and agreed order with the bankruptcy courts, whereby Prospect rejected its lease at our East Orange facility.

In accordance with the order, we received all post-petition amounts due from Prospect from January 11, 2025, through February 28, 2025, totaling $250,000. In addition, effective in April, we gained access to the property, allowing us to work directly with existing subtenants and market the remainder of the facility for leasing. As of May 6, 2025, Prospect had not decided if it was going to accept or reject its remaining leases with us. During the first quarter of 2025, we had 115,000 sq ft of expiring leases and were able to reduce 71,000 sq ft or 62% of these expiring leases. For our expiring leases for the full year 2025, we expect to retain 75% on a sq ft basis. Other activities impacting occupancy during the quarter, including absorption, tenant bankruptcies, as well as the impact on vacancies from acquisitions and dispositions, largely offset each other.

Moving on to the balance sheet, as of March 31, 2025, our gross investment in real estate was $1.5 billion. Additionally, we had $681 million of total gross debt with a weighted average remaining term of 1.8 years. 75% of our total debt was fixed-rate debt. Our leverage ratio was 46.1%, and our weighted average interest rate was 3.84%. As of today, the current unutilized borrowing capacity under the credit facility is $187 million. Relative to equity, we did not issue any shares of our common stock under our ATM program during the first quarter or to date in the second quarter of this year. Turning to our guidance, we are reaffirming our full year 2025 AFFO per share and unit range of $0.89-$0.93.

As a reminder, our 2025 guidance assumes no additional acquisition or disposition activity other than what has been either completed or announced, and no additional equity or debt issuances other than normal course revolver activity. AFFO guidance excludes one-time expenses related to the CEO succession plan. In conclusion, we believe that our high-quality portfolio positions us well to navigate the current environment, while our liquidity allows us to selectively acquire properties that align with our strategic objectives. We remain confident in our disciplined execution of our business strategy and look forward to sharing our continued progress with you throughout the year. This concludes our prepared remarks. Operator, please open the call for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Austin Wurschmidt with KeyBanc. Please proceed with your question.

Austin Wurschmidt (Senior Equity Research Analyst)

Thanks. Good morning, everybody. No, it's still pretty early in the process, but can you just talk about the potential timeline and amount of rent that you'd expect to collect upon releasing the East Orange facility?

Alfonzo Leon (CIO)

Sorry, you said the East Orange facility?

Austin Wurschmidt (Senior Equity Research Analyst)

Yes, correct.

Bob Kiernan (CFO)

With respect to—go ahead.

Alfonzo Leon (CIO)

Yeah, go ahead. Yeah. The first step we have to take, and just to kind of outline the timeline that we're going to have to go here, is convert the subtenants that are in there to direct tenants. That's going to take some time. It's in process. We're also working to get a budget prepared for the property and also looking to get taxes reassessed. We've hired a broker to help us with the leasing effort. The hospital next door is in the process of getting a new operator that has a lot of surgical facilities in the area, which is very positive. They've expressed interest in leasing space in our building. There's been a group that's reached out to us that also wants to take a nice amount of space in the building. We're pretty encouraged with the activity that we're experiencing in the facility.

Rents in that building are in the mid-30s on a gross basis. If we can get expenses in line, our hope is to get a net rent in the mid-13-15 range for that building, which would get us pretty close to where we were before. It is going to take time to kind of work through all this activity, and we are not expecting it to change over the next few months dramatically. As we approach year-end, I think we are feeling pretty encouraged that we are going to build the NOI in that property back up again. By next year, it should be at a point that is approaching where we were before.

Austin Wurschmidt (Senior Equity Research Analyst)

Is it fair to assume that there's nothing in guidance related to releasing this facility, one, and then more broadly related to the other Prospect facilities in Connecticut? I mean, is it your sense that the outcome there might be tied to what ultimately happens with the operations or real estate for other hospitals Prospect leases within that region?

Bob Kiernan (CFO)

I mean, first, in terms of the guidance, the impact of Prospect and the reletting that Alfonzo mentioned is factored into our guidance. It's not a significant component of our outlook for this year. In fact, it's relative to an overall NOI, again, very limited overall perspective. I mean, that's really from an East Orange perspective. As it relates to our properties in Vernon, I mean, to this point, we have not had any indication of the lease rejection. I don't know if there's more we could say about the outlook for Prospect strategy relative to those facilities. To this point, from our perspective, there hasn't been any new activity.

Austin Wurschmidt (Senior Equity Research Analyst)

Understood. I am just curious, Jeff, if you can speak to—it sounds like you have a successor in place, but just curious, moving towards a path of announcing that here soon, but curious, you had mentioned last quarter that the board is always evaluating other strategic options. Curious if you went down that path and if there is anything you can share on that front as well. Thank you.

Jeff Busch (CEO)

Yes, Austin. We always evaluate various options out there, and it's always potential given the low price of the stock, the market, the value of our assets, and our belief are well above what it's trading from. That's always a potential out there. On the transition, we are in the process of having multiple good candidates. We're in the process of evaluating them, and we do expect in a very relatively short time to have a final candidate that we pick. The nomination committee has been very active with it. We're excited about bringing in somebody to add new skills and new others. I'm going over to be the Chairman, so I'll still be involved with what I bring to the table. I'm very excited about what goes on in the future.

Austin Wurschmidt (Senior Equity Research Analyst)

Appreciate the time, and thanks for the thoughts. All the best to you.

Operator (participant)

Our next question comes from the line of Wes Golladay with Baird. Please proceed with your question.

Wes Golladay (Senior Research Analyst)

Hey, good morning, guys. Maybe just sticking with Prospect, for the $250,000 you're going to get, did you record anything in the first quarter for that? Or is it going to be in the second quarter?

Bob Kiernan (CFO)

Wes, there was $150,000 in the first quarter, and the $100,000 will be in the second quarter.

Wes Golladay (Senior Research Analyst)

Okay. Can maybe you talk about the outlook for dispositions and overall, maybe capital markets activity for the second half to get the line balance? Will you keep it at the same level? Will you take it down? I guess, how are you thinking about that as well?

Alfonzo Leon (CIO)

Just on the disposition side, I mean, we have regular discussions with the asset management team and with Bob and Jeff in terms of just seeing where we are as a company and seeing if it makes sense to sell assets. That is ongoing. In the near term, what we have is what we have put in a press release, just roughly $8 million in process, and nothing in the near term that we are planning on selling. It is something that we discuss regularly.

Wes Golladay (Senior Research Analyst)

Okay.

I guess on the line balance, will you just keep it at the same levels? Will you look to maybe terminate out with another term loan? What are you thinking there?

Bob Kiernan (CFO)

Relative to the financing side, we've been in kind of active discussions with our lenders on updating and extending the facility, including the term loan that comes up next year. All of that is on the table. At a high level, the CEO succession plan is really driving our timing a bit on that. We would look to execute something in the third quarter, early fourth quarter type of time frame to move forward with those. I think we'd be looking to do something relatively consistent with what we have today.

Wes Golladay (Senior Research Analyst)

Okay. And then just one last one. I think in the original guide you had, I think $4.5 million-$4.7 million per quarter, but it was exit the LTIP, I believe. So how are you thinking about GAAP G&A for the back half of the year?

Bob Kiernan (CFO)

Oh, so from a GAAP G&A perspective, again, it'll be a little bit involved from the perspective of the swing in stock compensation. But it could, with the cash G&A running in that $3.4-$3.6 and with, again, $4.2 of LTIP compensation expense, it'll be from the second quarter will be elevated into the, call it, $5.1-$5.3 type of range. And then prospectively, it'll be back in that range that we talked about previously of the kind of the $4.5-$4.7 type range.

Wes Golladay (Senior Research Analyst)

Got it. Thank you so much.

Operator (participant)

Our next question comes from the line of Juan Sanabria with BMO. Please proceed with your question.

Juan Sanabria (Managing Director)

Hi. Just curious, as part of the search process, and Jeff's going to stay on the board, hoping you could give some insights here. How are you guys thinking about the dividend? I mean, has it necessarily been covered? If you think about CapEx, which some guidance was given for. How are you thinking about the sustainability of that and the ability to do acquisitions when leverage is high? Just curious on the discussions.

Jeff Busch (CEO)

We have been interviewing people for the CEO position, and that is in line with everything else we are doing at the time. I mean, dividend discussion, which is happening in almost all the REITs that refinance at very low rates, is happening. It is sort of being held off until we know our direction. Some of our strategic direction, which we are sort of excited about from some of the candidates, is in line with what we do. The refinance is in line with what we do. There are multiple factors in there.

Juan Sanabria (Managing Director)

Understood. Fair enough. Just curious, on the first quarter, it seemed like retention was a bit lower than what you're expecting for the balance of the year. Just curious if you can give any insights onto why that was the case and if there's any known move-outs we should be kind of thinking of kind of looking forward.

Bob Kiernan (CFO)

Sure, Juan. In the first quarter, you have retention at that lower 60% was lower than our typical. If I look at the 40,000 or so sq ft that did not renew in the first quarter, just note about 80% of that is progressing well toward releasing. Overall, again, we are going to start to trim back a little bit with, again, the specific expirations that were there in the first quarter. Relative to the overall occupancy percentage, when we talked at year-end, we expected there to be some volatility in this number from quarter to quarter this year based on our outlook on expiring leases. We factored that into our guidance for our AFFO guidance for the full year. As we look ahead, in the second quarter, there will be a negative impact of things like the acquired vacancy from the portfolio acquisition.

They'll be there in Q2. We have a 50,000 sq ft lease that's expiring in the second quarter that is not expected to renew. There is going to be some volatility in the number from period to period. Expect that to go into, again, probably into the 94%-95% range in the second and third quarters. Really, as we get our traction, those events and those activities, we expect that to move back up as we progress toward the back part of the year and look to have that back above 95% with the goal to be at 96% again at year-end.

Juan Sanabria (Managing Director)

Thanks. When you said that the 80% is progressing towards releasing, does that mean there were short-term extensions? Because it did look like the 26 expirations ticked up. I'm not sure if there were some shorter-term extensions or just hoping you could give a little bit more color around that.

Bob Kiernan (CFO)

Oh, sure. What that is, is those were two leases that have termination options in them. It really was not a short-term renewal. These are two leases that have termination options. Those were in because that termination option could have affected us in 2025, it was in our 2025 expiration or our lease expiration number. That is a lease. Those are two leases that go out through 2029, but they have termination options that are in them. We continue to put them again, that is now in the 2026 number. That is the unusual activity that you are seeing in that line.

Juan Sanabria (Managing Director)

Thank you. Good luck with everything, and congratulations, and best of luck with everything, Jeff.

Jeff Busch (CEO)

Thank you. Appreciate it.

Operator (participant)

Our next question comes from the line of Guarav Mehta with Alliance Global Partners. Please proceed with your question.

Guarav Mehta (Managing Director and Senior Equity Research Analyst)

Yeah. Thank you. Good morning.

Bob Kiernan (CFO)

Good morning.

Guarav Mehta (Managing Director and Senior Equity Research Analyst)

I wanted to go back to your balance sheet, maybe touch upon leverage again at 46.1%. If you were to find right acquisition opportunities this year, how high are you willing to take that leverage?

Bob Kiernan (CFO)

We're really not looking to take the leverage much higher than where we are. I think when you factor in the acquisitions that we closed in the second quarter, that'll move us up into 47% from an overall perspective. Our target leverage remains 40%-45%. At moments like this and for opportunities like the grand portfolio purchase, we're willing to go above that target range. Again, we're not looking to move materially outside this band that we're in right now.

Guarav Mehta (Managing Director and Senior Equity Research Analyst)

Okay.

Bob Kiernan (CFO)

From going high, they tend to go significantly higher than where we are.

Guarav Mehta (Managing Director and Senior Equity Research Analyst)

Okay. Maybe follow up on the acquisition market, hoping to get some color on how your pipeline is looking.

Alfonzo Leon (CIO)

Sure. The investment market started off pretty upbeat at the beginning of the year. It is a combination of many factors. The transaction volume has been, relative to past years, quiet. In 2023 and 2024, down significantly, depending on what data set you look at, down 70%-80% at its worst. There was an uptick at the end of 2024. The thought was that the bid-ask spread has narrowed. There is a lot of money sitting on the sidelines. There is the expectation that there is going to be a lot more volume this year, at least more than there was in 2024. There has been an uptick in portfolios that are coming to market. There is optimism in that regard.

In the month of April, with the tariffs and the volatility in the market, it seems like there was a few weeks when there was concern among participants of the market. It seems like there's just a lot of demand. I think there's sort of renewed optimism that there's going to be a good amount of transactions this year. There is a lot of supply that's in the market. What's interesting is the spread in terms of cap rate from higher quality assets into lower quality assets. I mean, that spread's about as wide as I think I've ever seen it, where the really higher quality assets are, in some cases, trading even below 6. On the lower end of the spectrum, there are some assets that are trading in the high 7s and even 8s. It's a pretty wide spread.

In terms of the assets that would fit our portfolio, there's a pretty good supply in that high 7 cap rate range that we've targeted in the past. Our acquisitions are contingent on our cost of capital. We continue monitoring the market. There is good supply. To the extent that we have the cost of capital to pursue, then we'll take our share and do what we've done in the past.

Guarav Mehta (Managing Director and Senior Equity Research Analyst)

Yeah. All right. That's all I had. Thanks for taking my questions.

Operator (participant)

Our next question comes from the line of John Masoka with B. Riley. Please proceed with your question.

John Masoka (Analyst)

Good morning. Yeah. Kind of maybe with that last question in mind, I guess, is there opportunities then to move a lot of that potential deal flow into the Heitman JV? Or are there any kind of other gating factors on maybe that being a source of where you pursue some of the stuff you traditionally would have where your cost of capital is not kind of where it is today?

Alfonzo Leon (CIO)

Yes. Absolutely. We're pretty active looking for opportunities for them and are actively pursuing opportunities. Our hope is that we can try to get some deals with the Heitman joint venture, for sure.

John Masoka (Analyst)

Okay. We talked a lot about Prospect, but I know the non-Beaumont element of the portfolio is pretty small. Any update on releasing of the other Steward assets or former Steward assets?

Bob Kiernan (CFO)

Yeah, the other Steward assets in Hermitage, Pennsylvania, those are about 23,000 sq ft. We're actively working to get those under lease, and we're optimistic that that will be done by June 30. The impact of those properties is really minimal from an overall perspective.

John Masoka (Analyst)

Okay. Anything you're seeing on the policy front, it's either kind of the government policy front, it's either kind of a positive or negative for tenant credit, tenant health. I know there's not life sciences isn't really a big focus, but that's been called out in kind of competitor calls. Just anything maybe kind of you can provide about how the macro is impacting how your tenants are performing, positive or negative?

Jeff Busch (CEO)

The great thing about our portfolio is, one, being relatively recession-proof and also being that type of tenants we have. We're not a Medicaid-based portfolio. We have more Medicare, which is not being touched. Medicaid is being debated, but that's very, very limited. The most interesting thing to learn about our portfolio is when the pandemic occurred and our tenants couldn't operate or anything else, we still collected 99% of the rent. That shows the strong portfolio. In a recession, I do expect us to be a safety investment at that time also.

John Masoka (Analyst)

Okay. That's it for me. Thank you very much.

Operator (participant)

Thank you. We have reached the end of the question and answer session. With that, the conclusion of today's call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.