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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission file number: 001-37815

Global Medical REIT Inc.

(Exact name of registrant as specified in its charter)

Maryland

    

46-4757266

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 7373 Wisconsin Avenue, Suite 800

Bethesda, MD

 

20814

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (202) 524-6851

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol(s):

    

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

 

GMRE

 

NYSE

 Series A Preferred Stock, par value $0.001 per share

 

GMRE PrA

 

NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

þ

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the registrant’s common stock outstanding at May 6, 2024 was 65,587,648

Table of Contents

TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets – March 31, 2024 and December 31, 2023

3

Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended March 31, 2024 and 2023

5

Condensed Consolidated Statements of Equity – Three Months Ended March 31, 2024 and 2023

6

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2024 and 2023

7

Notes to the Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures

39

-2-

Table of Contents

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Balance Sheets

(unaudited and in thousands, except par values)

As of

    

March 31, 2024

    

December 31, 2023

    

Assets

Investment in real estate:

Land

$

164,315

$

164,315

Building

 

1,036,224

 

1,035,705

Site improvements

 

21,984

 

21,974

Tenant improvements

 

67,021

 

66,358

Acquired lease intangible assets

 

138,617

 

138,617

 

1,428,161

 

1,426,969

Less: accumulated depreciation and amortization

 

(262,287)

 

(247,503)

Investment in real estate, net

 

1,165,874

 

1,179,466

Cash and cash equivalents

 

1,333

 

1,278

Restricted cash

 

6,473

 

5,446

Tenant receivables, net

 

7,743

 

6,762

Due from related parties

363

193

Escrow deposits

 

737

 

673

Deferred assets

 

27,995

 

27,132

Derivative asset

29,285

25,125

Goodwill

5,903

5,903

Other assets

 

17,874

 

15,722

Total assets

$

1,263,580

$

1,267,700

Liabilities and Equity

Liabilities:

Credit Facility, net of unamortized debt issuance costs of $6,518 and $7,067 at March 31, 2024 and December 31, 2023, respectively

$

592,082

$

585,333

Notes payable, net of unamortized debt issuance costs of $53 and $66 at March 31, 2024 and December 31, 2023, respectively

 

25,682

 

25,899

Accounts payable and accrued expenses

 

10,520

 

12,781

Dividends payable

 

16,157

 

16,134

Security deposits

 

4,376

 

3,688

Other liabilities

 

12,952

 

12,770

Acquired lease intangible liability, net

 

4,713

 

5,281

Total liabilities

 

666,482

 

661,886

Commitments and Contingencies

Equity:

Preferred stock, $0.001 par value, 10,000 shares authorized; 3,105 issued and outstanding at March 31, 2024 and December 31, 2023, respectively (liquidation preference of $77,625 at March 31, 2024 and December 31, 2023, respectively)

 

74,959

 

74,959

Common stock, $0.001 par value, 500,000 shares authorized; 65,587 shares and 65,565 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

66

 

66

Additional paid-in capital

 

722,623

 

722,418

Accumulated deficit

 

(251,963)

 

(238,984)

Accumulated other comprehensive income

 

29,285

 

25,125

Total Global Medical REIT Inc. stockholders' equity

 

574,970

 

583,584

Noncontrolling interest

 

22,128

 

22,230

Total equity

 

597,098

 

605,814

Total liabilities and equity

$

1,263,580

$

1,267,700

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

-3-

Table of Contents

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Operations

(unaudited and in thousands, except per share amounts)

Three Months Ended March 31, 

    

2024

    

2023

    

Revenue

Rental revenue

$

35,069

$

36,199

Other income

 

49

 

31

Total revenue

 

35,118

 

36,230

Expenses

General and administrative

4,446

3,804

Operating expenses

7,384

7,536

Depreciation expense

10,113

10,494

Amortization expense

3,971

4,395

Interest expense

6,890

8,271

Preacquisition expense

42

Total expenses

 

32,804

 

34,542

Income before gain on sale of investment property

2,314

1,688

Gain on sale of investment property

485

Net income

$

2,314

$

2,173

Less: Preferred stock dividends

(1,455)

(1,455)

Less: Net income attributable to noncontrolling interest

(65)

(45)

Net income attributable to common stockholders

$

794

$

673

Net income attributable to common stockholders per share – basic and diluted

$

0.01

$

0.01

Weighted average shares outstanding – basic and diluted

65,573

65,525

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

-4-

Table of Contents

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited and in thousands)

Three Months Ended March 31, 

    

2024

    

2023

    

Net income

$

2,314

$

2,173

Other comprehensive income (loss):

Increase (decrease) in fair value of interest rate swap agreements

 

4,160

 

(7,264)

Total other comprehensive income (loss)

 

4,160

 

(7,264)

Comprehensive income (loss)

 

6,474

 

(5,091)

Less: Preferred stock dividends

 

(1,455)

(1,455)

Less: Comprehensive (income) loss attributable to noncontrolling interest

 

(379)

412

Comprehensive income (loss) attributable to common stockholders

$

4,640

$

(6,134)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Equity

(unaudited and in thousands, except per share amounts)

For the Three Months Ended March 31, 2024:

Global

Accumulated

Medical

Additional

Other

REIT Inc.

Non-

Common Stock

Preferred Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

controlling

Total

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Equity

    

Interest

    

Equity

Balances, December 31, 2023

 

65,565

$

66

 

3,105

$

74,959

$

722,418

$

(238,984)

$

25,125

$

583,584

$

22,230

$

605,814

Net income

 

 

 

 

 

 

2,249

 

 

2,249

 

65

 

2,314

LTIP Units redeemed for common stock

22

205

205

(205)

Change in fair value of interest rate swap agreements

 

 

 

 

 

 

 

4,160

 

4,160

 

 

4,160

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

1,233

 

1,233

Dividends to common stockholders ($0.21 per share)

 

 

 

 

 

 

(13,773)

 

 

(13,773)

 

 

(13,773)

Dividends to preferred stockholders ($0.46875 per share)

 

 

 

 

 

 

(1,455)

 

 

(1,455)

 

 

(1,455)

Dividends to noncontrolling interest

 

 

 

 

 

 

 

 

 

(1,195)

 

(1,195)

Balances, March 31, 2024

 

65,587

$

66

 

3,105

$

74,959

$

722,623

$

(251,963)

$

29,285

$

574,970

$

22,128

$

597,098

For the Three Months Ended March 31, 2023:

Global

Accumulated

Medical

Additional

Other

REIT Inc.

Non-

Common Stock

Preferred Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

controlling

Total

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Equity

    

Interest

    

Equity

Balances, December 31, 2022

 

65,518

$

66

 

3,105

$

74,959

$

721,991

$

(198,706)

$

34,674

$

632,984

$

16,081

$

649,065

Net income

 

 

 

 

 

 

2,128

 

 

2,128

 

45

 

2,173

LTIP Units redeemed for common stock

12

122

122

(122)

Change in fair value of interest rate swap agreements

(7,264)

(7,264)

(7,264)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

688

 

688

Dividends to common stockholders ($0.21 per share)

 

 

 

 

 

 

(13,761)

 

 

(13,761)

 

 

(13,761)

Dividends to preferred stockholders ($0.46875 per share)

 

 

 

 

 

 

(1,455)

 

 

(1,455)

 

 

(1,455)

Dividends to noncontrolling interest

 

 

 

 

 

 

 

 

 

(971)

 

(971)

Balances, March 31, 2023

 

65,530

$

66

 

3,105

$

74,959

$

722,113

$

(211,794)

$

27,410

$

612,754

$

15,721

$

628,475

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Cash Flows

(unaudited and in thousands)

Three Months Ended March 31, 

    

2024

    

2023

    

Operating activities

Net income

$

2,314

$

2,173

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense

 

10,113

 

10,494

Amortization of acquired lease intangible assets

 

3,863

 

4,373

Amortization of above market leases, net

 

251

 

291

Amortization of debt issuance costs and other

 

562

 

601

Stock-based compensation expense

 

1,233

 

688

Capitalized preacquisition and other costs charged to expense

34

15

Gain on sale of investment property

(485)

Other

 

169

 

Changes in operating assets and liabilities:

Tenant receivables

 

(981)

 

638

Deferred assets

 

(863)

 

(811)

Other assets and liabilities

 

(1,033)

 

(210)

Accounts payable and accrued expenses

 

(2,057)

 

(1,223)

Security deposits

688

(773)

Net cash provided by operating activities

 

14,293

 

15,771

Investing activities

Net proceeds from sale of investment property

4,175

Escrow deposits for purchase of properties

 

 

(153)

Advances made to related parties

 

(170)

 

(121)

Capital expenditures on existing real estate investments

(2,004)

(809)

Leasing commissions

(542)

Net cash (used in) provided by investing activities

 

(2,716)

 

3,092

Financing activities

Escrow deposits required by third party lenders

 

(64)

(639)

Repayment of notes payable

 

(230)

(344)

Proceeds from Credit Facility

 

14,000

12,600

Repayment of Credit Facility

 

(7,800)

(14,800)

Dividends paid to common stockholders, and OP Unit and LTIP Unit holders

 

(14,946)

(14,699)

Dividends paid to preferred stockholders

 

(1,455)

(1,455)

Net cash used in financing activities

 

(10,495)

 

(19,337)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

1,082

 

(474)

Cash and cash equivalents and restricted cash—beginning of period

 

6,724

 

14,455

Cash and cash equivalents and restricted cash—end of period

$

7,806

$

13,981

Supplemental cash flow information:

Cash payments for interest

$

6,407

$

8,139

Noncash financing and investing activities:

Accrued dividends payable

$

16,156

$

15,854

Interest rate swap agreements fair value change recognized in other comprehensive income (loss)

$

(4,160)

$

7,264

LTIP Units redeemed for common stock

$

205

$

122

Accrued capital expenditures and leasing commissions included in accounts payable and accrued expenses

$

1,946

$

778

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL MEDICAL REIT INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except per share amounts or as otherwise indicated)

Note 1 – Organization

Global Medical REIT Inc. (the “Company”) is a Maryland corporation and internally managed real estate investment trust (“REIT”) that owns and acquires healthcare facilities and leases those facilities to physician groups and regional and national healthcare systems. The Company holds its facilities and conducts its operations through a Delaware limited partnership subsidiary, Global Medical REIT L.P. (the “Operating Partnership”). The Company serves as the sole general partner of the Operating Partnership through a wholly owned subsidiary of the Company, Global Medical REIT GP LLC, a Delaware limited liability company. As of March 31, 2024, the Company was the 92.44% limited partner of the Operating Partnership, with an aggregate of 7.56% of the Operating Partnership owned by holders of long-term incentive plan units (“LTIP Units”) and third-party limited partners who contributed properties or services to the Operating Partnership in exchange for common limited partnership units (“OP Units”).

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

The accompanying condensed consolidated financial statements are unaudited and include the accounts of the Company, including the Operating Partnership and its wholly owned subsidiaries. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual consolidated financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the accompanying condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023. In the opinion of management, all adjustments of a normal and recurring nature necessary for a fair presentation of the condensed consolidated financial statements for the interim periods have been made.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company presents the portion of any equity it does not own but controls (and thus consolidates) as noncontrolling interest. Noncontrolling interest in the Company includes the LTIP Units that have been granted to directors, officers and affiliates of the Company and the OP Units held by third parties. Refer to Note 5 – “Equity” and Note 7 – “Stock-Based Compensation” for additional information regarding the OP Units and LTIP Units.

The Company classifies noncontrolling interest as a component of consolidated equity on its Condensed Consolidated Balance Sheets, separate from the Company’s total equity. The Company’s net income or loss is allocated to noncontrolling interests based on the respective ownership or voting percentage in the Operating Partnership associated with such noncontrolling interests and is removed from consolidated income or loss on the Condensed Consolidated Statements of Operations in order to derive net income or loss attributable to common stockholders. The noncontrolling ownership percentage is calculated by dividing the aggregate number of LTIP Units and OP Units by the total number of units and shares outstanding.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes. Actual results could differ from those estimates.

Investment in Real Estate

The Company determines when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition in accordance with Accounting Standard Codification (“ASC”) Topic 805 “Business Combinations” (“ASC Topic 805”), which requires that, when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a

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group of similar identifiable assets, the asset or group of similar identifiable assets does not meet the definition of a business and therefore is required to be accounted for as an asset acquisition. Transaction costs are capitalized for asset acquisitions and expensed as incurred for business combinations.

For asset acquisitions that are “owner occupied” (meaning that the seller either is the tenant or controls the tenant), the purchase price, including capitalized acquisition costs, will be allocated to land and building based on their relative fair values with no value allocated to intangible assets or liabilities. For asset acquisitions where there is a lease in place but that are not “owner occupied,” the Company will allocate the purchase price to tangible assets and any intangible assets acquired or liabilities assumed based on their relative fair values. Fair value is determined based upon the guidance of ASC Topic 820, “Fair Value Measurements and Disclosures,” and generally are determined using Level 2 inputs, such as rent comparables, sales comparables, and broker indications. Although Level 3 inputs are utilized, they are minor in comparison to the Level 2 data used for the primary assumptions. The determination of fair value involves the use of significant judgment and estimates. We make estimates to determine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources, including preacquisition due diligence, and we routinely utilize the assistance of a third-party appraiser.

Revenue Recognition

The Company’s operations primarily consist of rental revenue earned from tenants under leasing arrangements which provide for minimum rent and escalations. The leases have been accounted for as operating leases. For operating leases with contingent rental escalators, revenue is recorded based on the contractual cash rental payments due during the period. Revenue from leases with fixed annual rental escalators are recognized on a straight-line basis over the initial lease term, subject to a collectability assessment, with the difference between the contractual rental receipts and the straight-line amounts recorded as a “deferred rent receivable.” Additionally, the Company recognizes as a component of rental revenue “expense recoveries” revenue, which represents revenue recognized related to tenant reimbursement of real estate taxes, insurance, and certain other operating expenses (“tenant reimbursements”). The Company recognizes these reimbursements and related expenses on a gross basis in its Condensed Consolidated Statements of Operations.

Cash and Cash Equivalents and Restricted Cash

The Company considers all demand deposits, cashier’s checks, money market accounts, and certificates of deposit with a maturity of three months or less to be cash equivalents. Amounts included in restricted cash represent certain security deposits received from tenants at the inception of their leases and funds held by the Company related to tenant reimbursements. The following table provides a reconciliation of the Company’s cash and cash equivalents and restricted cash that sums to the total of those amounts at the end of the periods presented on the Company’s accompanying Condensed Consolidated Statements of Cash Flows:

As of March 31, 

    

2024

    

2023

Cash and cash equivalents

 

$

1,333

 

$

4,603

Restricted cash

6,473

9,378

Total cash and cash equivalents and restricted cash

 

$

7,806

 

$

13,981

Tenant Receivables, Net

The tenant receivable balance as of March 31, 2024 and December 31, 2023 was $7,743 and $6,762, respectively. The balance as of March 31, 2024 consisted of $3,444 in funds owed from the Company’s tenants for rent that the Company had earned but had not yet received, $3,886 of tenant reimbursements, $128 for a loan that was made to one of the Company’s tenants, and $285 of miscellaneous receivables. The balance as of December 31, 2023 consisted of $2,062 in funds owed from the Company’s tenants for rent that the Company had earned but had not yet received, $4,372 of tenant reimbursements, $131 for a loan that was made to one of the Company’s tenants, and $197 of miscellaneous receivables.

Receivables arising from operating leases are accounted for in accordance with ASC Topic 842 “Leases” (“ASC Topic 842”). The Company assesses the likelihood of losses resulting from tenant defaults, or the inability of tenants to make contractual rent and tenant reimbursements at each reporting date. The Company also monitors the liquidity and creditworthiness of its tenants and operators on a continuous basis. If the likelihood of a tenant paying its lease payments is determined to no longer be probable, all tenant receivables, including deferred rent, are written off against revenue and any future revenue for that tenant is recognized only upon receipt of cash.

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In addition, as of March 31, 2024 and December 31, 2023, the Company had a portfolio level reserve of $350 on those leases that were probable of collection to ensure that the tenant lease receivables were not overstated.  

Escrow Deposits

The escrow balance as of March 31, 2024 and December 31, 2023 was $737 and $673, respectively. Escrow deposits include funds held in escrow to be used for the acquisition of properties in the future and for the payment of taxes and insurance.

Deferred Assets

The deferred assets balance as of March 31, 2024 and December 31, 2023 was $27,995 and $27,132, respectively. The balance as of March 31, 2024 consisted of $27,157 in deferred rent receivables resulting from the recognition of revenue from leases with fixed annual rental escalations on a straight-line basis and $838 of other deferred costs. The balance as of December 31, 2023 consisted of $26,757 in deferred rent receivables resulting from the recognition of revenue from leases with fixed annual rental escalations on a straight-line basis and $375 of other deferred costs.

Other Assets

The other assets balance as of March 31, 2024 and December 31, 2023 was $17,874 and $15,722, respectively. The balance as of March 31, 2024 consisted of $7,613 in right of use assets, $3,854 in capitalized construction in process costs, $2,538 in prepaid assets, $3,445 in net capitalized leasing commissions, and $424 in net capitalized software costs and miscellaneous assets. The balance as of December 31, 2023 consisted of $7,627 in right of use assets, $3,346 in capitalized construction in process costs, $1,379 in prepaid assets, $2,894 in net capitalized leasing commissions, and $476 in net capitalized software costs and miscellaneous assets. Refer to Note 8 – “Leases” for additional details on right of use assets.

Derivative Instruments - Interest Rate Swaps

As of March 31, 2024 and December 31, 2023, the Company's balance related to interest rate swap derivative instruments that were designated as cash flow hedges of interest rate risk was an asset of $29,285 and $25,125, respectively. In accordance with the Company’s risk management strategy, the purpose of the interest rate swaps is to manage interest rate risk for certain of the Company’s variable-rate debt. The interest rate swaps involve the Company’s receipt of variable-rate amounts from the counterparties in exchange for the Company making fixed-rate payments over the life of the agreements. The Company accounts for derivative instruments in accordance with the provisions of ASC Topic 815, “Derivatives and Hedging.” Refer to Note 4 – “Credit Facility, Notes Payable and Derivative Instruments” for additional details.

Goodwill

As of March 31, 2024 and December 31, 2023, the Company’s goodwill balance was $5,903. Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of businesses acquired. Goodwill has an indefinite life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company’s policy is to perform its annual goodwill impairment evaluation as of the first day of the fourth quarter of its fiscal year. The Company has one reporting unit.  

Assets Held for Sale and Sales of Real Estate

The Company classifies a property as held for sale when the following criteria are met: (i) management, having the authority to approve action, commits to a plan to sell the property in its present condition, (ii) the sale of the property is at a price reasonable in relation to its current fair value and (iii) the sale is probable and expected to be completed within one year. At that time, the Company presents the assets and obligations associated with the real estate held for sale separately in its Condensed Consolidated Balance Sheets and ceases recording depreciation and amortization expense related to that asset.  Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. None of the Company’s properties were classified as held for sale as of March 31, 2024 or December 31, 2023.

Upon the disposition of a property, the Company recognizes a gain or loss at a point in time when the Company determines control of the underlying asset has been transferred to the buyer. The Company’s performance obligation is generally satisfied at the

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closing of the transaction. Any continuing involvement is analyzed as a separate performance obligation in the contract, and a portion of the sales price is allocated to each performance obligation. There is significant judgment applied to estimate the amount of variable consideration, if any, identified within the sales price and assess its probability of occurrence based on current market information, historical transactions, and forecasted information that is reasonably available.

For sales of real estate (or assets classified as held for sale), the Company evaluates whether the disposition is a strategic shift that will have a major effect on the Company’s operations and financial results, and, if so, it will be classified as discontinued operations in the Company’s consolidated financial statements for all periods presented.  

Other Liabilities

The other liabilities balance as of March 31, 2024 and December 31, 2023 was $12,952 and $12,770, respectively. The balance as of March 31, 2024 consisted of $7,835 for right of use liabilities and $5,117 of prepaid rent. The balance as of December 31, 2023 consisted of $7,680 for right of use liabilities and $5,090 of prepaid rent. Refer to Note 8 – “Leases” for additional details on right of use liabilities.

Note 3 – Property Portfolio

Summary of Properties Acquired and Sold During the Three Months Ended March 31, 2024

During the three months ended March 31, 2024, the Company completed no acquisitions or dispositions. A rollforward of the gross investment in land, building, improvements, and acquired lease intangible assets as of March 31, 2024 is as follows:

Site

Tenant

Acquired Lease

Gross Investment in

   

Land

   

Building

   

Improvements

   

Improvements

   

Intangible Assets

   

Real Estate

Balances as of December 31, 2023

$

164,315

$

1,035,705

$

21,974

$

66,358

$

138,617

$

1,426,969

Capitalized costs(1)

 

519

10

663

 

1,192

Total Additions:

519

10

663

1,192

Balances as of March 31, 2024

$

164,315

$

1,036,224

$

21,984

$

67,021

$

138,617

$

1,428,161

(1)Represents capital projects that were completed and placed in service during the three months ended March 31, 2024 related to the Company’s existing facilities.

Depreciation expense was $10,113 and $10,494 for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $19,600. Many of these amounts are subject to contingencies that make it difficult to predict when they will be utilized, if at all. In accordance with the terms of the Company’s leases, capital improvement obligations in the next twelve months are expected to total approximately $13,900.

Summary of Properties Acquired and Sold During the Year Ended December 31, 2023

During the year ended December 31, 2023 the Company completed one acquisition. For this acquisition, substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets and, therefore, this acquisition represents an asset acquisition. Accordingly, transaction costs for this acquisition were capitalized.

During the year ended December 31, 2023, the Company completed three dispositions. In March 2023, the Company sold a medical office building located in Jacksonville, Florida receiving gross proceeds of $4.4 million, resulting in a gain of $0.5 million. In June 2023, the Company sold a portfolio of four medical office buildings located in Oklahoma City, Oklahoma receiving gross proceeds of $66.0 million, resulting in a gain of $12.8 million. In August 2023, the Company sold a medical office building located in North Charleston, South Carolina receiving gross proceeds of $10.1 million, resulting in a gain of $2.3 million.

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A rollforward of the gross investment in land, building, improvements, and acquired lease intangible assets as of December 31, 2023 is as follows:

Site

Tenant

Acquired Lease

Gross Investment in

    

Land

    

Building

   

Improvements

   

Improvements

   

Intangible Assets

   

Real Estate

Balances as of December 31, 2022

$

168,308

$

1,079,781

$

22,024

$

65,987

$

148,077

$

1,484,177

Facility Acquired – Date Acquired:

Redding – 4/17/23

771

3,798

174

321

872

5,936

Capitalized costs(1)

 

3,146

1,009

2,356

172

 

6,683

Total Additions:

771

6,944

1,183

2,677

1,044

12,619

Disposition of Jacksonville – 3/9/2023

(1,023)

(2,827)

(3,850)

Disposition of Oklahoma City – 6/30/2023

(2,814)

(43,553)

(1,127)

(1,505)

(9,406)

(58,405)

Disposition of North Charleston – 8/1/2023

(927)

(4,640)

(106)

(801)

(1,098)

(7,572)

Total Dispositions:

(4,764)

(51,020)

(1,233)

(2,306)

(10,504)

(69,827)

Balances as of December 31, 2023

$

164,315

$

1,035,705

$

21,974

$

66,358

$

138,617

$

1,426,969

(1)Represents capital projects that were completed and placed in service during the year ended December 31, 2023 related to the Company’s existing facilities.

Lease Intangible Assets and Liabilities

The following is a summary of the carrying amount of lease intangible assets and liabilities as of the dates presented:

As of March 31, 2024

Accumulated

    

Cost

    

Amortization

    

Net

Assets

In-place leases

$

77,037

$

(46,924)

$

30,113

Above market leases

 

24,961

 

(11,137)

 

13,824

Leasing costs

 

36,619

 

(19,744)

 

16,875

$

138,617

$

(77,805)

$

60,812

Liability

Below market leases

$

13,595

$

(8,882)

$

4,713

As of December 31, 2023

    

    

Accumulated

    

Cost

Amortization

Net

Assets

 

  

 

  

 

  

In-place leases

$

77,037

$

(44,249)

$

32,788

Above market leases

 

24,961

 

(10,318)

 

14,643

Leasing costs

 

36,619

 

(18,556)

 

18,063

$

138,617

$

(73,123)

$

65,494

Liability

 

 

 

Below market leases

$

13,595

$

(8,314)

$

5,281

The following is a summary of the acquired lease intangible amortization:

Three Months Ended

March 31, 

    

2024

    

2023

    

Amortization expense related to in-place leases

$

2,675

$

3,048

Amortization expense related to leasing costs

$

1,188

$

1,325

Decrease in rental revenue related to above market leases

$

819

$

876

Increase in rental revenue related to below market leases

$

(568)

$

(585)

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As of March 31, 2024, scheduled future aggregate net amortization of the acquired lease intangible assets and liabilities for each year ended December 31 is listed below:

    

    

Net Decrease

Net Increase

in Revenue

in Expenses

2024 (nine months remaining)

$

(903)

$

10,347

2025

 

(1,696)

 

10,526

2026

 

(1,802)

 

8,700

2027

 

(1,375)