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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, 2022

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.)

 

 

 

 2 Bethesda Metro Center, Suite 440

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 2, 2022 was 65,518,303

TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Equity – Three Months Ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2022 and 2021

7

Notes to the Unaudited Condensed Consolidated Financial Statements

8

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

38

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

39

Signatures

41

-2-

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Balance Sheets

(unaudited and in thousands, except par values)

As of

    

March 31, 2022

    

December 31, 2021

    

Assets

Investment in real estate:

Land

$

155,529

$

152,060

Building

 

1,002,087

 

985,091

Site improvements

 

19,596

 

19,021

Tenant improvements

 

60,154

 

58,900

Acquired lease intangible assets

 

130,790

 

127,931

 

1,368,156

 

1,343,003

Less: accumulated depreciation and amortization

 

(157,132)

 

(143,255)

Investment in real estate, net

 

1,211,024

 

1,199,748

Cash and cash equivalents

 

1,854

 

7,213

Restricted cash

 

6,336

 

5,546

Tenant receivables, net

 

6,477

 

6,070

Due from related parties

451

163

Escrow deposits

 

7,697

 

5,957

Deferred assets

 

26,714

 

25,417

Derivative asset

12,692

1,236

Goodwill

5,903

5,903

Other assets

 

6,345

 

6,232

Total assets

$

1,285,493

$

1,263,485

Liabilities and Equity

Liabilities:

Credit Facility, net of unamortized debt issuance costs of $7,570 and $8,033 at March 31, 2022 and December 31, 2021, respectively

$

529,130

$

514,567

Notes payable, net of unamortized debt issuance costs of $568 and $607 at March 31, 2022 and December 31, 2021, respectively

 

56,919

 

57,162

Accounts payable and accrued expenses

 

9,272

 

10,344

Dividends payable

 

15,823

 

15,668

Security deposits

 

4,616

 

4,540

Derivative liability

 

1,865

 

7,790

Other liabilities

 

7,090

 

7,709

Acquired lease intangible liability, net

 

8,161

 

8,128

Total liabilities

 

632,876

 

625,908

Commitments and Contingencies

Equity:

Preferred stock, $0.001 par value, 10,000 shares authorized; 3,105 issued and outstanding at March 31, 2022 and December 31, 2021, respectively (liquidation preference of $77,625 at March 31, 2022 and December 31, 2021, respectively)

 

74,959

 

74,959

Common stock, $0.001 par value, 500,000 shares authorized; 65,400 shares and 64,880 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

65

 

65

Additional paid-in capital

 

720,306

 

711,414

Accumulated deficit

 

(168,089)

 

(157,017)

Accumulated other comprehensive income (loss)

 

10,757

 

(6,636)

Total Global Medical REIT Inc. stockholders' equity

 

637,998

 

622,785

Noncontrolling interest

 

14,619

 

14,792

Total equity

 

652,617

 

637,577

Total liabilities and equity

$

1,285,493

$

1,263,485

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

-3-

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Operations

(unaudited and in thousands, except per share amounts)

Three Months Ended March 31, 

    

2022

    

2021

    

Revenue

Rental revenue

$

31,852

$

27,325

Other income

 

23

 

24

Total revenue

 

31,875

 

27,349

Expenses

General and administrative

4,197

4,383

Operating expenses

5,372

3,687

Depreciation expense

9,402

7,848

Amortization expense

3,777

3,005

Interest expense

4,801

5,037

Preacquisition expense

40

66

Total expenses

 

27,589

 

24,026

Net income

$

4,286

$

3,323

Less: Preferred stock dividends

(1,455)

(1,455)

Less: Net income attributable to noncontrolling interest

(170)

(112)

Net income attributable to common stockholders

$

2,661

$

1,756

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

$

0.04

$

0.03

Weighted average shares outstanding – basic and diluted

65,302

52,671

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

-4-

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Comprehensive Income

(unaudited and in thousands)

Three Months Ended March 31, 

    

2022

    

2021

    

Net income

$

4,286

$

3,323

Other comprehensive income:

Increase in fair value of interest rate swap agreements

 

17,393

 

3,631

Total other comprehensive income

 

17,393

 

3,631

Comprehensive income

 

21,679

 

6,954

Less: Preferred stock dividends

 

(1,455)

(1,455)

Less: Comprehensive income attributable to noncontrolling interest

 

(1,213)

(331)

Comprehensive income attributable to common stockholders

$

19,011

$

5,168

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

-5-

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Equity

(unaudited and in thousands, except per share amounts)

For the Three Months Ended March 31, 2022:

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 (Loss)

    

Equity

    

Interest

    

Equity

Balances, December 31, 2021

 

64,880

$

65

 

3,105

$

74,959

$

711,414

$

(157,017)

$

(6,636)

$

622,785

$

14,792

$

637,577

Net income

 

 

 

 

 

 

4,116

 

 

4,116

 

170

 

4,286

Issuance of shares of common stock, net

480

8,210

8,210

8,210

LTIP Units and OP Units redeemed for common stock

40

682

682

(682)

Change in fair value of interest rate swap agreements

17,393

17,393

17,393

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

1,287

 

1,287

Dividends to common stockholders ($0.21 per share)

 

 

 

 

 

 

(13,733)

 

 

(13,733)

 

 

(13,733)

Dividends to preferred stockholders ($0.46875 per share)

 

 

 

 

 

 

(1,455)

 

 

(1,455)

 

 

(1,455)

Dividends to noncontrolling interest

 

 

 

 

 

 

 

 

 

(948)

 

(948)

Balances, March 31, 2022

 

65,400

$

65

 

3,105

$

74,959

$

720,306

$

(168,089)

$

10,757

$

637,998

$

14,619

$

652,617

For the Three Months Ended March 31, 2021:

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

    

Loss

    

Equity

    

Interest

    

Equity

Balances, December 31, 2020

 

49,461

$

49

 

3,105

$

74,959

$

504,789

$

(116,773)

$

(18,219)

$

444,805

$

12,955

$

457,760

Net income

 

 

 

 

 

 

3,211

 

 

3,211

 

112

 

3,323

Issuance of shares of common stock, net

11,333

12

144,160

144,172

144,172

Change in fair value of interest rate swap agreements

3,631

3,631

3,631

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

1,715

 

1,715

Dividends to common stockholders ($0.205 per share)

 

 

 

 

 

 

(12,463)

 

 

(12,463)

 

 

(12,463)

Dividends to preferred stockholders ($0.46875 per share)

 

 

 

 

 

 

(1,455)

 

 

(1,455)

 

 

(1,455)

Dividends to noncontrolling interest

 

 

 

 

 

 

 

 

 

(864)

 

(864)

Balances, March 31, 2021

 

60,794

$

61

 

3,105

$

74,959

$

648,949

$

(127,480)

$

(14,588)

$

581,901

$

13,918

$

595,819

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

-6-

GLOBAL MEDICAL REIT INC.

Condensed Consolidated Statements of Cash Flows

(unaudited and in thousands)

Three Months Ended March 31, 

    

2022

    

2021

    

Operating activities

Net income

$

4,286

$

3,323

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

Depreciation expense

 

9,402

 

7,848

Amortization of acquired lease intangible assets

 

3,755

 

2,984

Amortization of above market leases, net

 

199

 

60

Amortization of debt issuance costs and other

 

515

 

425

Stock-based compensation expense

 

1,287

 

1,715

Capitalized preacquisition and other costs charged to expense

153

24

Other

 

29

 

10

Changes in operating assets and liabilities:

Tenant receivables

 

(407)

 

11

Deferred assets

 

(1,297)

 

(1,404)

Other assets and liabilities

 

(532)

 

551

Accounts payable and accrued expenses

 

(1,030)

 

(287)

Security deposits

 

76

 

27

Net cash provided by operating activities

 

16,436

 

15,287

Investing activities

Purchase of land, buildings, and other tangible and intangible assets and liabilities

 

(24,468)

 

(43,348)

Escrow deposits for purchase of properties

 

(1,284)

 

300

Advances made to related parties

 

(288)

 

(127)

Capital expenditures on existing real estate investments

(556)

(397)

Net cash used in investing activities

 

(26,596)

 

(43,572)

Financing activities

Net proceeds received from common equity offerings

 

8,210

144,312

Escrow deposits required by third party lenders

 

(456)

(646)

Repayment of notes payable

 

(282)

(190)

Proceeds from Credit Facility

 

14,100

50,100

Repayment of Credit Facility

 

(151,800)

Payment of debt issuance costs

 

(74)

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

 

(14,526)

(11,315)

Dividends paid to preferred stockholders

 

(1,455)

(1,455)

Net cash provided by financing activities

 

5,591

 

28,932

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

 

(4,569)

 

647

Cash and cash equivalents and restricted cash—beginning of period

 

12,759

 

10,753

Cash and cash equivalents and restricted cash—end of period

$

8,190

$

11,400

Supplemental cash flow information:

Cash payments for interest

$

4,258

$

4,602

Noncash financing and investing activities:

Accrued dividends payable

$

15,823

$

14,482

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

$

(17,393)

$

(3,631)

OP Units and LTIP Units redeemed for common stock

$

682

$

Accrued common stock offering costs

$

$

220

Accrued capital expenditures included in accounts payable and accrued expenses

$

1,841

$

244

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

-7-

GLOBAL MEDICAL REIT INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

Note 1 – Organization

Global Medical REIT Inc. (the “Company”) is a Maryland corporation engaged primarily in the acquisition of purpose-built healthcare facilities and the leasing of those facilities to strong healthcare systems and physician groups with leading market share. The Company holds its facilities and conducts its operations through a Delaware limited partnership subsidiary named 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 named Global Medical REIT GP LLC, a Delaware limited liability company. As of March 31, 2022, the Company was the 94.00% limited partner of the Operating Partnership, with an aggregate of 6.00% 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, 2021. 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 employees 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. Any future issuances of additional LTIP Units or OP Units would change the noncontrolling ownership interest.

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

-8-

805”), which 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 are capitalized for asset acquisitions and expensed as incurred for business combinations. All our facility acquisitions for the three months ended March 31, 2022 and 2021 have been accounted for as asset acquisitions because substantially all the fair value of the gross assets the Company acquired were 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 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 “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 (1) certain security deposits received from tenants at the inception of their leases; (2) cash required to be held by a third-party lender as a reserve for debt service; and (3) 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, 

    

2022

    

2021

Cash and cash equivalents

 

$

1,854

 

$

5,304

Restricted cash

6,336

6,096

Total cash and cash equivalents and restricted cash

 

$

8,190

 

$

11,400

Tenant Receivables, Net

The tenant receivable balance as of March 31, 2022 and December 31, 2021 was $6,477 and $6,070, respectively. The balance as of March 31, 2022 consisted of $1,792 in funds owed from the Company’s tenants for rent that the Company had earned but had not yet received, $1,152 of loans that were made to two of the Company’s tenants, and $3,533 of tenant reimbursements. The balance as of December 31, 2021 consisted of $1,309 in funds owed from the Company’s tenants for rent that the Company had earned but had not yet received, $1,158 of loans that were made to two of the Company’s tenants, and $3,603 of tenant reimbursements.

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,

-9-

including deferred rent, are written off against revenue and any future revenue for that tenant is recognized only upon receipt of cash. In addition, as of March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021 was $7,697 and $5,957, 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, insurance, and other amounts as stipulated by the Company’s Cantor Loan, as hereinafter defined.

Deferred Assets

The deferred assets balance as of March 31, 2022 and December 31, 2021 was $26,714 and $25,417, respectively. The balance as of March 31, 2022 consisted of $26,551 in deferred rent receivables resulting from the recognition of revenue from leases with fixed annual rental escalations on a straight-line basis and $163 of other deferred costs. The balance as of December 31, 2021 consisted of $25,356 in deferred rent receivables resulting from the recognition of revenue from leases with fixed annual rental escalations on a straight-line basis and $61 of other deferred costs.

Other Assets

The other assets balance as of March 31, 2022 and December 31, 2021 was $6,345 and $6,232, respectively. The balance as of March 31, 2022 consisted of $3,728 for right of use assets, $494 in preacquisition and other capitalized costs related to our properties, $1,899 in prepaid assets, and $224 for net capitalized software costs and miscellaneous assets. The balance as of December 31, 2021 consisted of $3,809 for right of use assets, $257 in preacquisition and other capitalized costs related to our properties, $1,916 in prepaid assets, and $250 for 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, 2022 and December 31, 2021, the Company's balance related to interest rate swap derivative instruments that were designated as cash flow hedges of interest rate risk was a net asset of $10,827 and a net liability of $6,554, 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, 2022 and December 31, 2021, 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, 2022 or December 31, 2021.

-10-

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 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 any variable consideration 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, 2022 and December 31, 2021 was $7,090 and $7,709, respectively. The balance as of March 31, 2022 consisted of $3,179 for right of use liabilities and $3,911 of prepaid rent. The balance as of December 31, 2021 consisted of $4,479 for right of use liabilities and $3,230 of prepaid rent. Refer to Note 8 – “Leases” for additional details on right of use liabilities.

Recent Accounting Pronouncements

Reference Rate Reform

Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”) contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of March 31, 2022, the Company had elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Note 3 – Property Portfolio

Summary of Properties Acquired During the Three Months Ended March 31, 2022

During the three months ended March 31, 2022 the Company completed four acquisitions. For each acquisition, substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets and, therefore, each acquisition represents an asset acquisition. Accordingly, transaction costs for these acquisitions were capitalized.

A rollforward of the gross investment in land, building, improvements, and acquired lease intangible assets as of March 31, 2022 resulting from these acquisitions is as follows:

    

    

Site

    

Tenant

    

Acquired Lease

    

Gross Investment in

    

Land

    

Building

    

Improvements

    

Improvements

    

Intangible Assets

    

Real Estate

Balances as of December 31, 2021

$

152,060

$

985,091

$

19,021

$

58,900

$

127,931

$

1,343,003

Facility Acquired – Date Acquired:

 

  

 

  

 

  

 

  

 

  

 

  

Gainesville – 2/4/22

555

3,899

76

199

575

5,304

Grand Rapids – 2/28/22

1,238

4,976

221

270

595

7,300

Sarasota – 3/29/22

747

3,703

84

331

1,263

6,128

Greenwood – 3/30/22

929

4,332

194

360

426

6,241

Capitalized costs(1)

86

94

180

Total Additions:

 

3,469

 

16,996

 

575

 

1,254

 

2,859

 

25,153

Balances as of March 31, 2022

$

155,529

$

1,002,087

$

19,596

$

60,154

$

130,790

$

1,368,156

(1)   Represents capital projects that were completed and placed in service during the three months ended March 31, 2022 related to the Company’s existing facilities.

-11-

Depreciation expense was $9,402 and $7,848 for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $27,892. 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 could total up to approximately $24,112.

Property Under Contract for Sale

On October 5, 2021, the Company entered into an agreement to sell a medical office building located in Belpre, Ohio for gross proceeds of approximately $44.6 million. The property had a net book value of approximately $29 million as of March 31, 2022.  The transaction is expected to be completed no earlier than September 2022. The transaction is subject to various closing contingencies and, accordingly, it may not close on a timely basis or at all. As of March 31, 2022 the transaction did not meet the criteria to be classified as held for sale. The Company acquired the facility as part of a portfolio of four medical office buildings in April 2018.

Summary of Properties Acquired During the Year Ended December 31, 2021

During the year ended December 31, 2021 the Company completed 20 acquisitions. For each acquisition, substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets and, therefore, each acquisition represents an asset acquisition. Accordingly, transaction costs for these acquisitions were capitalized.

A rollforward of the gross investment in land, building, improvements, and acquired lease intangible assets as of December 31, 2021 resulting from these acquisitions is as follows:

    

    

Site

    

Tenant

    

Acquired Lease

    

Gross Investment in

    

Land

    

Building

    

Improvements

    

Improvements

    

Intangible Assets

    

Real Estate

Balances as of December 31, 2020

$

128,857

$

851,427

$

15,183

$

49,204

$

98,234

$

1,142,905

Facility Acquired – Date Acquired:

 

  

 

  

 

  

 

  

 

  

 

  

El Paso – 1/12/21

 

899

7,549

71