Global Medical REIT Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Property Portfolio

Property Portfolio

3 Months Ended

Mar. 31, 2018

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 3 Property Portfolio

Implementation of New Business Combination Accounting Standard

Effective January 1, 2018, the Company adopted the provisions of ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides revised guidance to determine when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition. ASU 2017-01 requires that, when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a 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 will continue to be capitalized for asset acquisitions and expensed as incurred for business combinations. ASU 2017-01 will result in most, if not all, of the Company’s post January 1, 2018 acquisitions being accounted for as asset acquisitions because substantially all of the fair value of the gross assets the Company acquires are concentrated in a single asset or group of similar identifiable assets. 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 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.

Summary of Properties Acquired During the Three Months Ended March 31, 2018

During the three months ended March 31, 2018, the Company completed five acquisitions. For all five acquisitions, substantially all of the fair value of the acquisitions was concentrated in a single identifiable asset or group of similar identifiable assets and therefore all of the acquisitions represent asset acquisitions under the guidance provided by ASU 2017-01. Accordingly, transaction costs for these acquisitions were capitalized.

A rollforward of the gross investment in land, building and improvements as of March 31, 2018, resulting from these acquisitions is as follows:

	Land		Building		Site & Tenant Improvements		Acquired Lease Intangibles		Gross Investment in Real Estate
Balances as of January 1, 2018	$	42,701	$	384,338	$	12,818	$	31,650	$	471,507
Facility Acquired Date Acquired:
Moline / Silvis 1/24/18		-		4,895		1,216		989		7,100
Freemont 2/9/18		162		8,335		-		-		8,497
Gainesville 2/23/18		625		9,885		-		-		10,510
Dallas 3/1/18		6,272		17,012		-		-		23,284
Orlando 3/22/18		2,543		11,720		756		1,395		16,414
Total Additions⁽¹⁾:		9,600		51,847		1,973		2,384		65,804
Balances as of March 31, 2018	$	52,301	$	436,185	$	14,791	$	34,034	$	537,311

⁽¹⁾An aggregate of $239 of intangible liabilities were acquired from the acquisitions that occurred during the three months ended March 31, 2018, resulting in total gross investments funded using cash of $65,565.

Depreciation expense was $2,906 and $1,346 for the three months ended March 31, 2018 and 2017, respectively.

As of March 31, 2018, the Company had aggregate capital improvement commitments to improve or expand existing tenant space of $19 million. Many of these allowances are subject to contingencies that make it difficult to predict when such allowances will be utilized, if at all. However, the Company expects to be obligated to spend approximately $3 million in tenant improvements during 2018 in connection with its Sherman, Silvis, and Gainesville facilities.

The following is a summary of the acquisitions completed during the three months ended March 31, 2018. Each acquisition was accounted for as an asset acquisition in accordance with the provisions of ASU 2017-01:

Moline / Silvis Facilities

Moline Facility - On January 24, 2018, the Company purchased a medical office building located in Moline, Illinois, which included the seller’s interest, as ground lessee, in an existing ground lease. The ground lease has approximately 10 years remaining in the initial term, with 12 consecutive five-year renewal options. Upon the closing of this acquisition, the Company assumed two subleases: one sublease with Fresenius Medical Care Quad Cities, LLC (“Fresenius”) with approximately 13 years remaining in the initial term, with three consecutive five-year renewal options; and one sublease with Quad Cities Nephrology Associates, P.L.C. with approximately 15 years remaining in the initial term, with three consecutive five-year renewal options.

Silvis Facility - On January 24, 2018, the Company purchased a medical office building located in Silvis, Illinois from the same seller as the Moline facility, which included the seller’s interest, as ground lessee, in an existing ground lease. The ground lease has approximately 67 years remaining in the initial term, with no renewal options. Upon the closing of this acquisition, the Company assumed one sublease with Fresenius with approximately 13 years remaining in the initial term, with three consecutive 5-year renewal options.

The aggregate purchase price for the Moline/Silvis facilities was $6.9 million. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed for this acquisition:

Site improvements	$	249
Building and tenant improvements		5,862
In-place leases		343
Above market lease intangibles		219
Leasing costs		427
Below market lease intangibles		(229)
Total purchase price	$	6,871

Fremont Facility - On February 9, 2018, the Company purchased a medical office building located in Fremont, Ohio for a purchase price of approximately $8.5 million. Upon the closing of this acquisition, the Company entered into a new 12-year lease with Northern Ohio Medical Specialists, LLC (NOMS) with four consecutive five-year renewal options.

Gainesville Facility - On February 23, 2018, the Company purchased a medical office building and ambulatory surgery center located in Gainesville, Georgia for a purchase price of approximately $10.5 million. Upon the closing of this acquisition, the Company entered into a new 12-year lease with SCP Eye Care Services, LLC with four consecutive five-year renewal options.

Dallas Facility - On March 1, 2018, the Company purchased a hospital, a three-story parking garage, and land all located in Dallas, Texas for an aggregate purchase price of $23.3 million. In addition to the hospital and the parking garage, the land underlays two medical office buildings that are not owned by the Company, each of which is ground leased to the hospital. Upon the closing of this acquisition, the Company entered into two leases with Pipeline East Dallas, LLC, with one lease of the hospital and the other lease for the land.

Orlando Facilities - On March 22, 2018, the Company purchased five medical office buildings from five affiliated sellers for an aggregate purchase price of $16.4 million. Upon the closing of this acquisition, the Company assumed five existing leases with Orlando Health, Inc. One lease has approximately one year remaining in its initial term, with one 10-year renewal option; one lease has approximately six years remaining in its initial term, with three consecutive five-year renewal options; one lease has approximately six years remaining in its initial term, with four consecutive five-year renewal options; one lease has approximately six years remaining in its initial term, with three consecutive five-year renewal options; and one lease was amended at closing to extend the remaining term to five years with four consecutive five-year renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

Land and site improvements	$	3,075
Building and tenant improvements		11,944
In-place leases		808
Above market lease intangibles		229
Leasing costs		358
Below market lease intangibles		(10)
Total purchase price	$	16,404

Intangible Assets and Liabilities

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

	As of March 31, 2018
	Cost		Accumulated Amortization		Net
Assets
In-place leases	$	18,212	$	(2,098)	$	16,114
Above market ground lease		707		(10)		697
Above market leases		4,854		(371)		4,483
Leasing costs		10,261		(782)		9,479
	$	34,034	$	(3,261)	$	30,773
Liabilities
Below market leases	$	1,628	$	(140)	$	1,488

	As of December 31, 2017
	Cost		Accumulated Amortization		Net
Assets
In-place leases	$	17,061	$	(1,577)	$	15,484
Above market ground lease		488		(6)		482
Above market leases		4,625		(220)		4,405
Leasing costs		9,476		(538)		8,938
	$	31,650	$	(2,341)	$	29,309
Liabilities
Below market leases	$	1,389	$	(98)	$	1,291

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

	Three Months Ended March 31,
	2018		2017
Amortization expense related to in-place leases	$	521	$	281
Amortization expense related to leasing costs	$	244	$	63
Decrease in rental revenue related to above market ground lease	$	4	$	1
Decrease in rental revenue related to above market leases	$	151	$	3
Increase in rental revenue related to below market leases	$	42	$	12

As of March 31, 2018, scheduled future aggregate net amortization of the acquired lease intangible assets and liabilities for each fiscal year ended December 31 is listed below:

	Net Decrease in Revenue		Net Increase in Expenses
2018 (nine months remaining)	$	(457)	$	2,554
2019		(610)		3,406
2020		(610)		3,406
2021		(613)		2,791
2022		(614)		2,526
Thereafter		(788)		10,910
Total	$	(3,692)	$	25,593

As of March 31, 2018, the weighted average amortization periods for asset lease intangibles and liability lease intangibles were 7.34 years and 8.51 years, respectively.