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

Quarterly report pursuant to Section 13 or 15(d)

Related Party Transactions

Related Party Transactions

6 Months Ended

Jun. 30, 2016

Note 6 Related Party Transactions

Allocated General and Administrative Expenses

In the future, the Company may receive an allocation of general and administrative expenses from the Advisor that are either clearly applicable to or were reasonably allocated to the operations of the properties. There were no allocated general and administrative expenses from the Advisor for the three months ended June 30, 2016 or the twelve months ended December 31, 2015.

Convertible Debenture, due to Majority Stockholder

The Company has received funds from its majority stockholder ZH USA, LLC in the form of convertible interest bearing notes (8% per annum, payable in arrears) due on demand unsecured debt, which are classified as “Convertible debenture, due to majority stockholder” on the accompanying Consolidated Balance Sheets. The Company may prepay the note at any time, in whole or in part. ZH USA, LLC may elect to convert all or a portion of the outstanding principal amount of the note into shares of common stock in an amount equal to the principal amount of the note, together with accrued but unpaid interest, divided by $12.748.

A rollforward of the funding from ZH USA, LLC classified as convertible debenture, due to majority stockholder as of June 30, 2016 is as follows:

Balance as of January 1, 2016	$	40,030,134
Conversion of convertible debenture to common shares ^(a)		(15,000,000)
Balance as of June 30, 2016	$	25,030,134

(a)

As disclosed in Note 5 “Stockholders’ Equity” on March 2, 2016, ZH USA, LLC converted $15,000,000 of principal under the Convertible Debenture into 1,176,656 shares of the Company’s unregistered common stock.

Interest expense on the convertible debenture was $498,206 and $1,197,985 for the three and six months ended June 30, 2016, respectively, and $108,625 and $216,054 for the three months ended June 30, 2015, respectively.

On June 15, 2016, in anticipation of its initial public offering, the Company entered into a Pay-Off Letter and Conversion Agreement (the “Pay-Off Letter and Conversion Agreement”) with the Company’s majority stockholder with regards to the Convertible Debentures loaned to the Company having an aggregate current principal amount outstanding of $25,030,134 as of June 30, 2016. Under the terms of the Pay-Off Letter and Conversion Agreement, upon the closing date of the initial public offering on July 1, 2016, the Company converted the remaining principal amount of $15,030,134 into 1,179,019 shares of the Company’s common stock based on a conversion rate of $12.748 per share. Additionally, in accordance with the Pay-Off Letter and Conversion Agreement, on July 8, 2016 the Company paid off the remaining principal amount of $10,000,000 outstanding under the Convertible Debentures and all accrued interest owed on the Convertible Debentures in the amount of $1,716,811 with a total payment of $11,716,811.

The Company analyzed the conversion option in the convertible debenture for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company performed an analysis in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options,” to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does not have a beneficial conversion feature.

Note Payable to Majority Stockholder

The Company has received funds from its majority stockholder ZH USA, LLC in the form of a non-interest bearing due on demand note payable, which is classified as “Note payable to majority stockholder” on the accompanying Consolidated Balance Sheets.

A rollforward of the funding from the majority stockholder as of June 30, 2016 is as follows:

Balance as of January 1, 2016	$	421,000
Proceeds received from majority stockholder		-
Repayments of note payable		-
Balance as of June 30, 2016	$	421,000

Note Payable to Related Party

During the six months ended June 30, 2016, the Company received total funds in the amount of $450,000 in the form of an interest bearing note payable from a related party. The note bears interest at 4% per annum and is due on demand. Interest expense incurred on this note for the three and six months ended June 30, 2016 was $4,500 and $6,134, respectively. Under the arrangement with the related party the Company has the ability to receive additional loans in the future.

Majority Stockholder Loan

On June 7, 2016, the Company received an interest free loan from ZH USA, LLC in the principal amount of $1.5 million. As discussed in Note 10 - “Subsequent Events,” this loan was repaid in full on July 8, 2016 in connection with the closing of the initial public offering.

Due to Related Parties, Net

A rollforward of the due (to) from related parties balance, net as of June 30, 2016 is as follows:

	Due from Advisor		Due to Advisor Mgmt. Fees		Due to Advisor Other Funds		Due (to) from Other Related Party		Total Due (To) From Related Parties, Net
Balance as of January 1, 2016	$	178,111		(630,000)		(240,280)		(155,000)		(847,169)
Management fees due to Advisor ^(a)		-		(30,000)		-		-		(30,000)
Funds loaned by Advisor ^(b)		-		-		(152,894)		-		(152,894)
Funds loaned to Other Related Party^(c)		-		-		-		39,040		39,040
Funds loaned by Other Related Party^(b)		-		-		-		(2,378)		(2,378)
Funds loaned by ZH USA, LLC ^(b)		-		-		-		(1,500,000)		(1,500,000)
Balance as of June 30, 2016	$	178,111		(660,000)		(393,174)		(1,618,338)		(2,493,401)

(a)

Consists of $180,000 of management fee expense less $150,000 that was paid. This amount represents a cash flow operating activity.

(b)

Represents a total of $1,655,272, $1,500,000 of which was loaned by the Company’s majority stockholder. Refer to Note 10 “Subsequent Events” for repayment information related to the $1,500,000. This is a cash flow financing activity.

(c)

Funds loaned by the Company to a related party for their general use, which represents a cash flow investing activity.

Management Agreement

On November 10, 2014, the Company entered into a Management Agreement, with an effective date of April 1, 2014, with the “Advisor,” a Delaware limited liability company and an affiliate of the Company. Under the terms of the Management Agreement, the Advisor is responsible for designing and implementing the Company’s business strategy and administering its business activities and day-to-day operations. For performing these services, the Company is obligated to pay the Advisor a base management fee equal to the greater of (a) 2.0% per annum of the Company’s net asset value (the value of the Company’s assets less the value of the Company’s liabilities), or (b) $30,000 per calendar month. For the three and six months ended June 30, 2016, management fees of $90,000 and $180,000, respectively were incurred and expensed by the Company. For the three and six months ended June 30, 2015, management fees of $90,000 and $180,000, respectively were incurred and expensed by the Company. During the three months ended June 30, 2016 the Company repaid $150,000 of the accrued management fees. As of June 30, 2016 and December 31, 2015, cumulative management fees of $660,000 and $630,000, respectively, were due to the Advisor, and remain unpaid. Additionally, during the six months ended June 30, 2016, the Company expensed $754,000 that was paid to the Advisor for the acquisitions of the Plano, Melbourne and Westland Facilities, respectively. For the six months ended June 30, 2015, the Company incurred no acquisition expenses as no properties were acquired during this prior six-month period.

Upon completion of the Company’s initial public offering on July 1, 2016, the Company’s amended and restated management agreement, which was approved by the Company’s board of directors on June 13, 2016, became effective. Refer to Note 10 “Subsequent Events,” for details regarding the amended and restated management agreement.