Global Medical REIT - Q2 2024

Transcript

Operator (participant)

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. 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, Mr. Steve Swett, Investor Relations. Thank you, Mr. Swett. You may begin.

Steve Swett (Head of Investor Relations)

Thank you. Good morning, everyone, and welcome to Global Medical REIT's second quarter 2024 earnings conference call. On the call today are Jeffrey 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 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 31, 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, EBITDA and adjusted EBITDA. 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 Jeffrey Busch, Chief Executive Officer of Global Medical REIT. Jeff?

Jeffrey Busch (CEO)

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 interests 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 interests 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 2 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 5 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.

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 assets 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 turn the call over to Alfonzo to discuss our investment activity and the current acquisition market conditions in more detail.

Alfonzo Leon (CIO)

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 sq ft 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 sq ft, 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 the Detroit MSA leased to Henry Ford, a $7 billion revenue health system with an A2 credit rating. A multi-specialty 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 BB- rating. A primary care-focused, multi-specialty 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 4-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. 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 second quarter of 2024, our portfolio consisted of gross investments in real estate of $1.4 billion and included 4.7 million sq ft of total leasable square feet, 96.2% occupancy, 5.8 years of weighted average lease term, 4.6x rent coverage, a 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, at 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 of 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-$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 dollar 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 interests 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 are expected to close later this year, we will continue to be disciplined as we seek to maintain leverage in our target range of 40%-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 thirtieth, 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 of 2024, we're projecting total capital expenditures of $11 million-$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 re-leasing 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 (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 questions 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 poll for questions.... The first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets Inc. Please go ahead.

Austin Wurschmidt (Analyst)

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

Alfonzo Leon (CIO)

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 you know, there's more willing sellers that are willing to sell their assets at attractive pricing.

Austin Wurschmidt (Analyst)

What's the composition of these assets, Alfonzo? Maybe can you share some details around the economics, and then just timing that you'd expect to close on the deals?

Alfonzo Leon (CIO)

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 markets that we've been pursuing historically. And these are quality buildings with quality tenants.

Austin Wurschmidt (Analyst)

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

Alfonzo Leon (CIO)

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

Jeffrey Busch (CEO)

Austin, I just

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. You know, 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 8 cap. And there's higher 8 caps and higher out there for us in our niche, that, you know, we'll be able to absorb, and we could have a very good year of that.

Austin Wurschmidt (Analyst)

That's, that's helpful. And then just lastly, on the funding side, Jeff, you spoke about the asset recycling program. You know, with that pipeline, kind of the acquisition pipeline building, you know, are you marketing additional assets today? And what's your latest thoughts on, you know, cap rates on the disposition side? That's all for me. Thank you.

Jeffrey Busch (CEO)

Yeah, yeah, no, I agree with you. On disposition, we always look, there's properties out there that we could sell or if we could do 1.2 above, sometimes sell. But we're really monitoring also the equity side of the business. The reason is, you know, if the Fed, you know, which people think now after multiple times, you know, brings the rates down, which my belief, it's finally gonna happen, but we'll see. Our stock historically, the 3 times the market thought it was coming down, had a really nice jump, and we could be very accretive for the properties we're gonna 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, you know, like, 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 gonna be substantially higher, so it matches to being accretive for us.

Austin Wurschmidt (Analyst)

Appreciate the thoughts.

Operator (participant)

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

Juan Sanabria (Managing Director)

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?

Alfonzo Leon (CIO)

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 gonna 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, you know, more than $9 million of rent from this property from an A-rated system, and we're able to sell it for, you know, 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 expansion 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, you know, when we bought the portfolio, we underwrote it as a package, and then as a whole, the portfolio has performed very well.

Juan Sanabria (Managing Director)

What was the rent accrued in the second quarter with regard to the Wisconsin asset?

Alfonzo Leon (CIO)

The Wisconsin asset?

Bob Kiernan (CFO)

Yeah, the-

Juan Sanabria (Managing Director)

Yeah, just back into the cap rate.

Alfonzo Leon (CIO)

Oh, sure. I mean, it was, it was north of a, you know, it was a low double-digit cap rate.

Juan Sanabria (Managing Director)

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?

Bob Kiernan (CFO)

That's great. Yeah. Sure. I mean, as we look ahead to the, you know, the expirations that are coming up in the second half of the year, you know, we're still projecting, I mean, as we've said on previous calls, pretty steady occupancy and right around this kind of 96% plus, you know, ±, and with it trending, you know, toward a little bit plus that 96%. So in that 96%, you know, and above type range. And, you know, from an earnings perspective, again, sometimes there are renewals that have again free rent periods from a timing perspective, you're subject to that from a long-term perspective or in the short term.

But overall, I mean, we're projecting, you know, solid occupancy as we look ahead, and it shouldn't be provide that much volatility from an earnings perspective.

Juan Sanabria (Managing Director)

Just one last one for 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? I guess if you have to release it, presumably that is the case, then how much mark to market could we expect, either positive or negative, in your mind, at initial assessment?

Alfonzo Leon (CIO)

We're still in discussions, but I mean, it... Yeah, it's gonna, it's gonna be very comparable to what we had.

Juan Sanabria (Managing Director)

Thank you.

Jeffrey Busch (CEO)

Yeah, I just want to comment on the Steward property. It's an excellent property that is in pretty decent demand. So, you know, that's why we're optimistic about the re-leasing and the market on that.

Operator (participant)

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

Rob Stevenson (Managing Director and Head of Real Estate Research)

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

Bob Kiernan (CFO)

Right. Yeah, Rob, think of it as, yeah, March, April, May, from an exposure perspective, as well as expenses.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay. What's the cumulative of that March, April, May?

Bob Kiernan (CFO)

So that's about that $800,000-$1 million type reserve, because we're now incurring, you know, 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, you know, triple net lease where the tenant was funding all the expenses.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay. And then I guess at this point, I mean, how fast is this moving? Are you like, are they likely to pay you for September and October, or is August basically the extent to which you guys think that you're gonna 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?

Bob Kiernan (CFO)

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, you know, 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 that, you know, 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 it staged and are kind of working off to the side, you know, very, you know, as quickly as we can to have it staged for a quicker, as quick a transition as we could possibly have, recognizing that there's probably there would probably be, again, a modest transition period for 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.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay... And then, Trinity Health was replaced as your number five tenant by TeamHealth during the second quarter. Sounded like from Alfonzo's comments, if I heard it right, that at least one of the five portfolio acquisitions you completed thus far in the third quarter is leased to Trinity. Is any of these other acquisitions out of the five or the ten 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 (CIO)

Yeah, I don't think the move like, there's not gonna be a meaningful move to the top ten.

Rob Stevenson (Managing Director and Head of Real Estate Research)

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

Bob Kiernan (CFO)

So right now, and we've talked in the past few quarters about, you know, Prospect Medical Holdings in Q4, Steward Health Care in Q1, and those have been our primary, you know, tenant-related items that we've had to deal with from an accounting and reporting, you know, perspective. And at this point, again, we continue to monitor, you know, our acute care. We have one acute care hospital. But again, it is something that, again, we're very actively involved with. But, you know, at this point, I'd point out to you, we don't have any, you know, anything that's beyond that group that we're actively focused on.

We also don't have any, you know, loans to tenants that, you know, we would highlight or note either from in how we're managing the portfolio.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay.

Jeffrey Busch (CEO)

I just wanna 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, you know, like surgical, like Beaumont and others, those were doing well. But, you know, after the pandemic and others, and the billing system, the reimbursement system changed, they've struggled more, that you see that. But that's a very limited part of our portfolio. The vast, vast majority of our portfolio is, you know, absolute and triple net MOBs that are doing very well.

Rob Stevenson (Managing Director and Head of Real Estate Research)

I guess one question that poses then, Jeff and Alfonzo, given those 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, you know, behavioral health or hospitals, are you still interested in doing them at all? Is it just requiring a much wider, you know, return that you need another 150 basis points to make that the risk worthwhile? Or is the focus here and for the immediate future just going to be medical office no matter what, for you guys?

Jeffrey Busch (CEO)

I'll, the market has turned so substantially for us to buy medical office buildings. 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, you know, 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 see... 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 love the MOB field, especially the absolute and triple net area.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay. Thanks, guys. Appreciate the time this morning.

Alfonzo Leon (CIO)

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

Bryan Maher (Managing Director)

Thanks, and good morning, everyone. Now, most of my questions have been asked already, but can I get a point of clarity on Steward? A little confused. So they paid for June, July, and August, but they haven't paid for March, April, and May. Is that correct? That's the $800 you're going after?

Bob Kiernan (CFO)

That's correct.

Bryan Maher (Managing Director)

Are they physically out of the building with no intention of coming back to that building?

Bob Kiernan (CFO)

They just get out of the building-

Alfonzo Leon (CIO)

The first part, for sure. Yeah, the first part, for sure, they're out. The second part, I mean, it's, it's most likely. Yes, they're out.

Bryan Maher (Managing Director)

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

Jeffrey Busch (CEO)

... It's odd that they haven't rejected the lease. We feel very optimistic we could rent this out, given that this is popular in the market. So therefore, you know, we're at the point now where, you know, 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, you know... 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 as-

Bryan Maher (Managing Director)

Okay.

Jeffrey Busch (CEO)

With a new-

Bryan Maher (Managing Director)

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 so?

Jeffrey Busch (CEO)

That is correct.

Bryan Maher (Managing Director)

Okay. My other question may be for Bob. You know, with how quickly interest rates have come down here, and given the, you know, fairly short 2.5 years, you know, weighted average, you know, debt maturities, is there any opportunity for you to kind of move quickly to lock in some of these lower rates? Or, you know, 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?

Jeffrey Busch (CEO)

I think-

Bob Kiernan (CFO)

From an-

Jeffrey Busch (CEO)

going lower. You know, I think once they start, you know, people talking about, you know, 1, 1.5 or so. So, you know, I think we have time, and we could, you know, get a good rate in the future. If a recession happens, it'll even go lower, out there.