Global Medical REIT - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 results showed solid top-line growth and stable FFO/AFFO despite higher interest and transition costs: rental revenue rose 10.7% year over year to $37.9M, FFO was $14.3M ($0.20/share and unit), and AFFO was $16.6M ($0.23/share and unit).
• The Board appointed Mark Decker, Jr. as CEO, reaffirmed FY25 AFFO/share guidance of $0.89–$0.93, and continued balance sheet work to refinance the $350M Term Loan A and extend the revolver, targeting completion in Q4 2025.
• Portfolio KPIs remain resilient: 94.5% occupancy, $117.5M ABR, WALT 5.6 years; leverage 47.2%, net debt/annualized adj. EBITDAre 6.8x, fixed-charge coverage 2.63x.
• Dividend was right-sized to $0.15/share for Q2 to bring FAD payout <80%, and Q3 dividend was declared at $0.75/share post 1-for-5 reverse split (equates to $0.15 pre-split), enhancing internal capital for growth.
• Near-term stock catalysts: successful refinancing, trajectory of occupancy/lease-up (Beaumont fully occupied; East Orange recovery), capital recycling, and strategic acquisitions at attractive cap rates.

What Went Well and What Went Wrong

What Went Well

• Re-tenanting and stabilization milestones: CHRISTUS Health fully occupied the 84,674 sq ft Beaumont, TX facility in May 2025 on a 15-year triple-net lease (first-year base rent $2.9M, 2.5% annual escalators), driving run-rate improvement into Q3.
• Accretive acquisitions at high yields: GMRE completed a $69.6M five-property medical portfolio at a 9.0% cap rate, adding differentiated assets at discounts to replacement cost and below-market rents (30%+ upside potential discussed).
• Guidance and balance sheet visibility: Reaffirmed FY25 AFFO/share guidance ($0.89–$0.93); management expects to refinance Term Loan A and extend the revolver in Q4 2025 without significant adverse changes to terms (subject to conditions).

Management quotes:

• “We have an outstanding niche and I look forward to honing that further and driving results for all our stakeholders…” – Mark Decker, Jr..
• “We are not anticipating any significant adverse changes to the financial terms of the credit facility and expect to complete these transactions during the fourth quarter of 2025.”.
• “The dividend reduction is expected to generate approximately $17,000,000 per year that can be allocated to our best ideas.” – CFO.

What Went Wrong

• Occupancy dipped sequentially to 94.5% due to a lease expiration (Aurora, IL) and Prospect’s rejection of the master lease at East Orange, NJ; lease-up plan underway with direct tenants and the adjacent hospital operator.
• Higher operating costs: total expenses increased to $37.5M in Q2 (vs $32.8M prior year) driven by CEO succession-related G&A and acquisition-related costs; interest expense rose to $8.0M on higher borrowings.
• GAAP EPS remained negative: net loss to common stockholders of $0.8M (−$0.01/share), though improved versus prior-year loss (−$0.05/share).

Transcript

Speaker 5

Good day, everyone, and welcome to today's Global Medical REIT Second Quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Jamie Barber, Global Medical REIT's General Counsel. Please go ahead.

Speaker 4

Good morning, everyone, and welcome to Global Medical REIT's Second Quarter 2025 earnings conference call. My name is Jamie Barber, and I'm Global Medical REIT's General Counsel. On the call today are Mark Decker, Jr., Chief Executive Officer, Alfonzo Leon, Chief Investment Officer, Danica Holley, Chief Operating Officer, and Bob Kiernan, Chief Financial Officer. Statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested from any forward-looking statements due to a variety of factors which are discussed in detail in our SEC filing. Additionally, on this call, the company may refer to certain non-GAAP financial measures.

You can find a tabular reconciliation of these non-GAAP financial measures for the most currently comparable GAAP numbers in the company's earnings release and in filings with the SEC. Additional information may also 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 Mark.

Speaker 3

Thank you, Jamie. Welcome, everyone, and thanks for joining us today. It's my pleasure to provide our quarterly update as the new CEO of Global Medical REIT. To begin, I have a few thank yous. First, I'd like to thank the board for placing their confidence in me to lead our business into the next chapter. I'd also like to thank Jeff Busch for his work as the company's founder. Jeff built a strong foundation that we will take to the next level. Finally, I want to thank our talented team here for their hard work, grace, and efforts to keep things moving during the transition that started in January when we announced the CEO transition plan. I'm excited to work together with them to reimagine our business and unlock new opportunities for growth and value creation.

They are excited to get back in gear, so it's a great time for our company. I will now turn the call over to Danica Holley, our Chief Operating Officer. Danica?

Speaker 0

Thank you, Mark. As many of you are aware, earlier this year, we successfully re-tenanted our Beaumont, Texas facility with Christus Health as our new tenant. I'm pleased to announce that as of May, Christus is fully operating in the facility and is paying rent. This is a huge success story given the status of the previous tenant, Steward Health Care, and an example of our team's ability to navigate obstacles to a successful conclusion. More broadly on the portfolio, as of June 30, 2025, our occupancy stood at 94.5%, which is down from the first quarter primarily due to the expiration of the lease at our 50,000 square foot Aurora, Illinois property and the rejection of the master lease at our 60,000 square foot East Orange, New Jersey property related to the Prospect Medical Holdings bankruptcy.

We touched on both of these in prior calls, but I'd like to offer a little more color. In Aurora, this was a healthcare administrative building adjacent to one of the system's new outpatient facilities. We purchased this building pre-COVID with an expectation that the system would expand, and unfortunately, COVID changed the system's utilization of the administrative space. We are currently looking to sell or re-tenant this facility. On the flip side, after almost two years of negative cash flows, the developments at East Orange are positive. We now have control over the space, which is 40% occupied, and are working directly with former subtenants and prospective tenants, including the new adjacent hospital operator. We expect this property to recover to stabilized occupancy of over 90% in the next 24 to 36 months.

Turning to our leasing activity, we expect total occupancy to end the year over 95%, which includes 150,000 square feet of new leases, 130,000 of which are complete. Regarding CapEx and leasing commissions, year-to-date spend is $5.2 million, and our guidance for the full year is between $12 million to $14 million, so we are well positioned. I would now like to turn the call over to Alfonzo to discuss our investments. Alfonzo?

Speaker 2

Thank you, Danica. During the quarter, we completed the acquisition of a five-property portfolio of outpatient medical real estate, which brings our total acquisition volume for 2024 and 2025 to approximately $150 million at a blended going-in cash yield of 8.5%. While we are ecstatic about the cash yields, we are even more excited about our ability to find differentiated investment opportunities. First and foremost, we were able to achieve portfolio discounts with our execution capabilities, including our balance sheet strength when lending for portfolios was unavailable. On the real estate side, we were able to achieve wide discounts to replacement costs, and we believe in-place rents are more than 30% below market, which will allow us to grow future rents at faster than market rates, while still providing a significant value proposition to our tenants.

Based on our proprietary data, portfolio volumes, which averaged $300 million per quarter from 2022 to 2024, spiked in the second quarter of 2025 to $2.1 billion, over seven times recent levels, and we expect this level of activity to continue due to the large activity in 2020 and 2021 by leveraged short-term owners. We are excited to compete in this market because, in our experience, a flood of opportunities like this offers inefficiencies that we can benefit from with our proven middle market expertise, track record, and reputation as a great counterparty. With that, I'd like to turn the call over to Bob.

Speaker 1

Thank you, Alfonzo. As we look at the remainder of 2025, our highest priority on the balance sheet is to renew the portions of our credit facility that are coming due in 2026, namely the revolver and our $350 million term loan. We are in active discussions with our lending group regarding renewal and expect to complete the renewal during the fourth quarter of 2025. We value the strong relationships we have with our current bank lending group, and over time, we are looking to expand our lender relationships to potentially include longer-term debt providers such as insurance companies. By diversifying our lender and tenor mix, we will improve the quality of our earnings and broaden our access to debt capital. As reported earlier this year, the company lowered its second quarter 2025 dividend from $0.21 per share to $0.15 per share.

We view this as the right sizing of our dividend as our dividend coverage went from 110% during the first quarter of 2025 to 79% during the second quarter of 2025 on a FAD basis. As you'll see in our supplemental, when we say FAD, we are talking about our cash flow after all capital expenditures and leasing commissions. Additionally, the dividend reduction is expected to generate approximately $17 million per year that can be allocated to our best ideas. Given the dearth of the equity capital markets in recent years, we are looking at alternative sources for growth. The right sizing of our dividend is the most important action we took in this regard, and we will continue asset recycling. We have identified several assets that are candidates for capital recycling.

Our portfolio contains organic growth opportunities that can sustain us until the equity capital markets open up again and look forward to what is to come under Mark's leadership. With that, I'll turn the call back over to Mark for final comments.

Speaker 3

Thanks, Bob. I'm happy to say I know many of those on this call, but for those who don't know me, I have almost 30 years of capital markets, real estate, and leadership experience, nearly 20 years in investment banking, building teams to serve middle market real estate companies that were undergoing some growth and/or transition, and seven years in the C-suite at CenterSpace, mostly as CEO. CenterSpace was another smaller public real estate company that needed to meaningfully reposition their business. If nothing else, that makes me experienced and hopefully a little wise. I sought out this role because I love the work of delivering results and communicating clearly to our three key audiences: our team, our customers, and the capital markets. If we can do this, be formidable in our niche, post results, and communicate well, we'll be in a great spot.

That's why I'm here and happy to be underway. It's early days for me, but you can expect that we will fully review our portfolio with an eye towards identifying opportunities. We'll also be working to take our 100% unsecured balance sheet and turning it into more of a competitive advantage with the establishment of a long debt maturity lateral. We'll be looking inwards to our team to see how and where we can improve, all with the goal of owning the middle market healthcare real estate space, providing great results to our business owners and growth for our team. Lastly, I hope you'll notice our supplemental on this call. We're seeking to be more transparent and easy to evaluate and understand, starting with improved clarity of our disclosure. We understand these are table stakes as a smaller public company.

If you have suggestions, as Ross Perot says, we're all ears. Please call or send an email with your suggestions. Thank you for listening, and operator, please open the call for Q&A.

Speaker 5

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. Our first question will come from Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Hey, good morning, everybody. Welcome to the call, Mark. There was a little bit of a technical issue, so sorry if I missed this. I guess, Mark, could you just lay out what the immediate strategic priorities are for you and that you think that the company could be doing differently on a go-forward basis?

Speaker 3

Sure. Yeah, thanks, Austin. That was not me playing saxophone. Can you hear me okay?

Yes, I can hear you fine.

Okay.

Thanks.

Yeah, immediate strategic priorities are to come together on a strategy with the team and the Board. We have a bunch of good ingredients, I think, in the business as we sit today, and I think we can organize those a little bit more thoughtfully. Obviously, we want to get the refinancing of the line and the term loan A done. I feel really good about where we are on that, but nothing's done until it's done. We are going to be looking at some asset recycling. Those are the immediate priorities.

I appreciate that. I think, Bob, you kind of outlined continue asset recycling and that you've identified some assets. Can you just give us a sense of what types of assets these are, from an occupancy perspective or whether there's a capital need, and where you think you can sell assets as it sounds like there's a little bit of a pickup in liquidity in the transaction market?

Yeah, I'll take that one. Austin, I think, you know, the ideal candidates would be the lowest yielding or best priced things. If you could imagine things that had long-term leases with high-grade tenants, those would probably be first to go. On the other side, to the extent we have assets that we don't believe in long-term after a portfolio review, which we are undergoing, we've got this new car smell for a little bit and we're going to take it for a ride. If there's anything that doesn't look long-term now, we'll work to get rid of that as well. I don't honestly see a ton of that so far, but I'd say it's more offensive capital recycling in mind, maybe a little bit of deleveraging, maybe a little bit of enhancing cash flows while taking advantage of some of those high-quality assets that are well bid today.

Where do you think you can ultimately, what type of spread do you ultimately think you can reinvest those proceeds? Alfonzo, I think you referenced sourcing assets at wide discounts to replacement costs with really attractive mark-to-market opportunities. Are those out there and what does that spread look like on a going-in basis? I'll yield the floor. Thanks.

Speaker 2

Sure. The market is, there's a range of cap rates in the market. The higher quality stuff is trading in the low and sometimes sub-6% cap, but the bulk of the market is trading in the mid-6% to higher 6%. There's a good chunk of deals that are trading north of 7%, and selectively, there are deals that are higher than mid-7%. We've always played in that higher range of the cap rate range. With the flood of deals that have come to market, there's a lot of opportunities out there that fit in that bucket.

Speaker 3

Yeah, I'd just add to that. I think we're using the word quality in a way that is market convention. I mean, I think something that's sub-5% that grows at 2% is not as good as something that's 7.5% and grows at 2%. What I think can be observed based on historical facts is that some of those really tight yields don't actually grow more. In many instances, your landlord probably has more leverage over you than maybe otherwise. It's our contention. I think Alfonzo and his team have done a fantastic job over the last several years of doing this well, of finding good properties that yield more, which in my view are higher quality and better risk-adjusted returns. We're going to lean into where we have been because I think it's worked well for us.

We're going to be working very hard on producing better than average per share FFO growth, which, you know, we got to put a plan and a formula together to do that. I think this is an area where kind of the law of small numbers helps us. $15 million is 1% of enterprise value and $720,000 is a penny. We can get this thing going, I think, without moving heaven and earth. We are buying, in my estimation, and what we just recently purchased, the last bit of that portfolio is a fantastic deal in terms of price per pound, opportunity for rent, upside, great tenancy. We're going to try to do more like that. Those are hard to find. We don't need to find a ton of them to make a difference.

That's helpful. Thanks for the time.

Thank you.

Speaker 5

Our next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.

Hi, good morning. Just curious, what initial thoughts on where leverage is targeted to be at, recognizing it sounds like this, whatever strategic review is more ongoing versus finalized, but just curious on how we should think about leverage over the medium term.

Speaker 3

Yeah. I mean, I think ideally we'd like to have a balance sheet that has more capacity for growth. In my mind, that means the stake of ground, you know, sub-40% or sub-six times would be a great spot. I think if you look at our pricing grid from the banks, they would say we're nearly but not quite investment grade. I think if you were to talk to the private placement community, they would say we're custody, but I think it's more probably size than quantum of debt. Obviously, we have relatively more debt for a public company and a lot less debt than our private peers would have. I mean, we sleep like babies. We've got great cash flows. We will stretch out our maturity ladder and that'll feel better.

You know, four times debt if it expires tomorrow is worse than nine times debt if your weighted average maturity is seven years from now. We're not at either of those extremes, but we do have a large maturity, obviously, coming and we're working on that and we have all the confidence that that'll be achievable in the near term.

Just a quick follow-up on that. Would that be inclusive for 6x of preferred?

I thought we were going to stay off this religious bait for today, but let's go there. Look, preferred, in my opinion, doesn't have a redemption date, so it is more like equity than debt. I know that not everyone agrees with that, but for the time being and given our small size and cost of capital, the preferred is something we could look at. It'd be a great use of proceeds down the road if we had a cost of capital that made sense, but today forever is a long time. If you're going to call it debt, then I'd say you've added to our weighted average maturities. If you're going to call it equity, then I'd say I agree. No, my six doesn't include that, but I understand that the equity buyers will think that way and we're mindful of that.

From the occupancy perspective, I think you shared some thoughts. Apologies for missing the numbers on how you expect occupancy in the portfolio to trend. The general trend has been one that seems to show modest slippage as some leases expired and retention levels just naturally had some churn. I am curious on how we should think about that going forward, any known large move-outs. As part of that answer, if you don't mind, with the Beaumont, Texas facility, what's the incremental pickup we should be modeling third quarter to second quarter on that asset specifically?

Speaker 0

Hi, Juan. On occupancy, I think you can think of us in that 95% and above range. We're consistently seeing trends with our tenants to release at those levels. I think consistency in occupancy is what you should look for. There will be episodic downturns that are followed by releasing. It can be a little bit bumpy, but overall, I think that's the way to think of it. I'm going to actually turn to Bob to talk about the modeling for how we thought of Christus.

For the Beaumont asset, for the second quarter, they fully occupied beginning in May. In the second quarter, you'll have May and June. It'll be a modest pickup in the third quarter from a run rate perspective.

Speaker 3

All of which was in our guidance.

Got it. Thank you.

Speaker 5

Our next question comes from Wes Golladay with Baird. Your line is open.

Hey, good morning, everyone. Maybe just sticking with the quarter-to-quarter changes, will you also have a pickup in reimbursed costs in the third quarter? Would the move-outs impact that at all? How should we think about unreimbursed costs going forward?

Speaker 1

There really wasn't anything in particular of note relative to rental revenue versus the reimbursed costs. From an overall NOI perspective, the way that the trend was consistent with our, you know, with where we were forecasting, and there really wasn't anything significant or unusual from the dynamic between reimbursed costs and the rental revenue side.

Okay. You mentioned tackling the balance sheet, I think, in the fourth quarter. Were you going to do both, I guess, term loans and private placements, or is it an and/or, or how are you thinking about that?

Speaker 3

To be determined. For sure, we're going to refi the term loan A and the revolver, and how exactly that gets done isn't set in stone just yet.

Okay. G&A for the back half of the year, should it be comparable, I guess, on a quarterly basis to what we saw in the second quarter outside the one-time items?

Speaker 1

Yes, but shouldn't be. Yeah, that's a good run rate from a G&A perspective. That's what we're flagging, those outliers from the transition costs, you know, backing those down from both the stock comp and the cash G&A. You know, we'll line it up.

Okay, thanks for the time, everyone.

Speaker 5

Our next question comes from Gaurav Mehta with Alliance Global Partners. Your line is open.

Thank you. Good morning. I wanted to go back to your comments around asset recycling, hoping to get some more color on what kind of size of dispositions are you guys looking at. Does the asset recycling depend on you finding the right acquisition targets, or you would consider selling and loading leverage in the near term?

Garaz, your line is a little faint. Did you say what kind of acquisitions are we looking for?

No, my question was what kind of size of dispositions are you looking at? Would you consider selling and lowering leverage in the near term, or do the dispositions depend on finding the right acquisition targets?

Speaker 3

Got it. I think our goal would be, call it $50 million to $100 million, but if we don't get prices we like, we may not be selling. How those proceeds got redeployed would be likely a mix of some debt repayment and some new investment. At a minimum, we'd pay down debt. That would probably be a good use, but we'd probably have some other ideas as well.

Okay. Mark, as you look at the next chapter for the company as far as acquisitions and the portfolio mix, do you expect any changes in specialty type and provider type, or do you want to stick with where the portfolio is as far as that mix is concerned?

I'd say we generally like the mix the way it is. I mean, it'll move around. Go ahead, Alfonzo.

Speaker 2

I agree. We've always been opportunistic. We always try to find the best value in the market. MOBs are by far the largest, that is the asset type that has the largest supply in the market. We've been pretty good at finding inpatient and playing in that space. I would assume that going forward, the portfolio mix should stay roughly consistent.

Okay, thank you. That's all I had.

Speaker 3

Thank you.

Speaker 5

As a reminder, if you would like to ask a question, please press the star and one on your telephone keypad. Our next question comes from John Masoka with B. Riley Securities. Your line is open.

Good morning, everyone. With cost of capital in mind, you talked a little bit about asset recycling as a way to fund future investments. How are you thinking about joint ventures, either the one you currently have in place or maybe even future different de novo joint ventures? Just curious your thoughts there.

Speaker 3

Good morning. Good question. We would like to grow the Heitman joint venture. They're a thoughtful and disciplined MOB investor with over 20 years in the space. They, like we, believe in the secondary, tertiary, quaternary investments with strong systems or practice groups that have dominant market share. That's a good alignment of view of the world. I think there are other potential capital structures we could look at where we could take what we believe is something of value, which is our ability to underwrite these smaller opportunities and deliver that to people that maybe don't have that skill. How that takes shape, if it takes shape, to be determined, but it's certainly something on our board, if you will.

Given, you know, I know it's a little bit unfair because it only was kind of put in place earlier this year, but given the amount of activity you're seeing in the space in 2Q, any reason that JV hasn't been more active?

If there's one deal you like among one, then that one's worth doing. If there's one among 100, that one's worth doing. We have to be disciplined, and they are disciplined with us in that regard. They're picky, and we're picky, and when it's right, we'll do it. If it's not, we don't have any unnatural reason to do anything with Heitman, and they certainly don't either. They're fiduciaries, and so are we.

That's fair. Maybe on a much smaller level, as I think about the East Orange, you know, kind of success leasing up there, can you remind us maybe what the impact kind of run rate numbers are going to be from that lease up, and if there is any impact, what kind of timing you're expecting?

Speaker 1

The old run rate on that building was roughly about $1.2 million, $1.3 million, a baby R. As we talked about, that's been a cash flow drag over the last couple of years. What we're seeing right now is we've gotten the building to 40% or so from an occupied status. As we work at that level, we start to turn the corner and break even relative to the property and over time kind of build that base and increase that to that 80%, 90%, and above occupancy. From an overall perspective, from the sizing, just to give you the context, that's where it was. It was around, again, from a contribution, it was about $1.2 million. We're trying to get on the path back toward that level.

Speaker 3

I do think so, John. This is something we've been talking about as we've been out with investors. That is all, everything I'm telling you is publicly available, but it requires work to put it together. I think there's a perception, to the extent people are paying attention, about 2026 earnings that we have a big hit coming from this refi, and we will absolutely refi at a much higher rate. We currently have so far locked at 1.35%, and it's obviously at 4.35%. When you consider that we weren't getting cash flow, really for much of any in 2025, and we will get some of that direct in from East Orange, and we will have the full impact of Christus, and the forward curve is looking pretty good. We did make some acquisitions. Our year-over-year kind of FAD and FFO are actually going to be, I think, pretty good.

We're not here to give 2026 guidance, but I do think that's something that's a little bit misunderstood about us today.

Okay. Appreciate that color. That's it for me. Thank you.

Speaker 5

It appears we have no further questions at this time. I'll turn the program back to Mark for any closing remarks.

Super. We appreciate everyone's time and interest, and have a great day. Thank you.

This concludes today's program. Thank you for your participation, and you may disconnect at any time.