Global Medical REIT (GMRE) 10-Q 2024 Q3 Quarterly report

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 September 30, 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 November 5, 2024 was 66,803,348

TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2024 and 2023	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and Nine Months Ended September 30, 2024 and 2023	5
	Condensed Consolidated Statements of Equity – Three and Nine Months Ended September 30, 2024 and 2023	6
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023	8
	Notes to the Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	42
Item 6.	Exhibits	43
Signatures		44

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GLOBAL MEDICAL REIT INC.

Condensed Consolidated Balance Sheets

(unaudited and in thousands, except par values)

	As of
	September 30, 2024		December 31, 2023
Assets
Investment in real estate:
Land	$	168,110	$	164,315
Building		1,041,006		1,035,705
Site improvements		22,946		21,974
Tenant improvements		66,933		66,358
Acquired lease intangible assets		137,886		138,617
		1,436,881		1,426,969
Less: accumulated depreciation and amortization		(283,941)		(247,503)
Investment in real estate, net		1,152,940		1,179,466
Cash and cash equivalents		5,723		1,278
Restricted cash		2,066		5,446
Tenant receivables, net		8,122		6,762
Due from related parties		404		193
Escrow deposits		1,694		673
Deferred assets		27,685		27,132
Derivative asset		14,967		25,125
Goodwill		5,903		5,903
Other assets		23,091		15,722
Total assets	$	1,242,595	$	1,267,700
Liabilities and Equity
Liabilities:
Credit Facility, net of unamortized debt issuance costs of $5,418 and $7,067 at September 30, 2024 and December 31, 2023, respectively	$	614,382	$	585,333
Notes payable, net of unamortized debt issuance costs of $31 and $66 at September 30, 2024 and December 31, 2023, respectively		14,493		25,899
Accounts payable and accrued expenses		13,350		12,781
Dividends payable		16,534		16,134
Security deposits		3,222		3,688
Other liabilities		12,370		12,770
Acquired lease intangible liability, net		3,638		5,281
Total liabilities		677,989		661,886
Commitments and Contingencies
Equity:
Preferred stock, $0.001 par value, 10,000 shares authorized; 3,105 issued and outstanding at September 30, 2024 and December 31, 2023, respectively (liquidation preference of $77,625 at September 30, 2024 and December 31, 2023, respectively)		74,959		74,959
Common stock, $0.001 par value, 500,000 shares authorized; 66,803 shares and 65,565 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively		67		66
Additional paid-in capital		733,626		722,418
Accumulated deficit		(281,067)		(238,984)
Accumulated other comprehensive income		14,967		25,125
Total Global Medical REIT Inc. stockholders' equity		542,552		583,584
Noncontrolling interest		22,054		22,230
Total equity		564,606		605,814
Total liabilities and equity	$	1,242,595	$	1,267,700

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 Operations

(unaudited and in thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue
Rental revenue	$	34,175	$	35,487	$	103,458	$	108,003
Other income		89		20		166		85
Total revenue		34,264		35,507		103,624		108,088
Expenses
General and administrative		4,381		4,367		13,416		12,633
Operating expenses		7,437		7,231		22,056		21,989
Depreciation expense		9,993		10,100		30,233		31,062
Amortization expense		3,649		4,095		11,487		12,828
Interest expense		7,236		7,170		21,119		23,909
Preacquisition expense		—		—		—		44
Total expenses		32,696		32,963		98,311		102,465
Income before gain (loss) on sale of investment properties		1,568		2,544		5,313		5,623
Gain (loss) on sale of investment properties		1,823		2,289		(1,560)		15,560
Net income	$	3,391	$	4,833	$	3,753	$	21,183
Less: Preferred stock dividends		(1,455)		(1,455)		(4,366)		(4,366)
Less: Net (income) loss attributable to noncontrolling interest		(145)		(240)		50		(1,187)
Net income (loss) attributable to common stockholders	$	1,791	$	3,138	$	(563)	$	15,630
Net income (loss) attributable to common stockholders per share – basic and diluted	$	0.03	$	0.05	$	(0.01)	$	0.24
Weighted average shares outstanding – basic and diluted		65,737		65,565		65,633		65,545

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 Comprehensive (Loss) Income

(unaudited and in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	3,391	$	4,833	$	3,753	$	21,183
Other comprehensive (loss) income :
(Decrease) increase in fair value of interest rate swap agreements		(12,705)		2,520		(10,158)		3,705
Total other comprehensive (loss) income		(12,705)		2,520		(10,158)		3,705
Comprehensive (loss) income		(9,314)		7,353		(6,405)		24,888
Less: Preferred stock dividends		(1,455)		(1,455)		(4,366)		(4,366)
Less: Comprehensive loss (income) attributable to noncontrolling interest		807		(418)		817		(1,440)
Comprehensive (loss) income attributable to common stockholders	$	(9,962)	$	5,480	$	(9,954)	$	19,082

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 Nine Months Ended September 30, 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 (loss)	—		—	—		—		—		3,803		—		3,803		(50)		3,753
Issuance of shares of common stock, net	1,204		1	—		—		10,895		—		—		10,896		—		10,896
LTIP Units redeemed for common stock	34		—	—		—		313		—		—		313		(313)		—
Change in fair value of interest rate swap agreements	—		—	—		—		—		—		(10,158)		(10,158)		—		(10,158)
Stock-based compensation expense	—		—	—		—		—		—		—		—		3,826		3,826
Dividends to common stockholders ($0.63 per share)	—		—	—		—		—		(41,520)		—		(41,520)		—		(41,520)
Dividends to preferred stockholders ($1.40625 per share)	—		—	—		—		—		(4,366)		—		(4,366)		—		(4,366)
Dividends to noncontrolling interest	—		—	—		—		—		—		—		—		(3,639)		(3,639)
Balances, September 30, 2024	66,803	$	67	3,105	$	74,959	$	733,626	$	(281,067)	$	14,967	$	542,552	$	22,054	$	564,606

For the Three Months Ended September 30, 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, June 30, 2024	65,588	$	66	3,105	$	74,959	$	722,627	$	(268,885)	$	27,672	$	556,439	$	21,933	$	578,372
Net income	—		—	—		—		—		3,246		—		3,246		145		3,391
Issuance of shares of common stock, net	1,204		1	—		—		10,895		—		—		10,896		—		10,896
LTIP Units redeemed for common stock	11		—	—		—		104		—		—		104		(104)		—
Change in fair value of interest rate swap agreements	—		—	—		—		—		—		(12,705)		(12,705)		—		(12,705)
Stock-based compensation expense	—		—	—		—		—		—		—		—		1,274		1,274
Dividends to common stockholders ($0.21 per share)	—		—	—		—		—		(13,973)		—		(13,973)		—		(13,973)
Dividends to preferred stockholders ($0.46875 per share)	—		—	—		—		—		(1,455)		—		(1,455)		—		(1,455)
Dividends to noncontrolling interest	—		—	—		—		—		—		—		—		(1,194)		(1,194)
Balances, September 30, 2024	66,803	$	67	3,105	$	74,959	$	733,626	$	(281,067)	$	14,967	$	542,552	$	22,054	$	564,606

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 - Continued

(unaudited and in thousands, except per share amounts)

For the Nine Months Ended September 30, 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	—		—	—		—		—		19,996		—		19,996		1,187		21,183
LTIP Units redeemed for common stock	47		—	—		—		427		—		—		427		(427)		—
OP Units issued for a property acquisition	—		—	—		—		—		—		—		—		5,482		5,482
Change in fair value of interest rate swap agreements	—		—	—		—		—		—		3,705		3,705		—		3,705
Stock-based compensation expense	—		—	—		—		—		—		—		—		3,020		3,020
Dividends to common stockholders ($0.63 per share)	—		—	—		—		—		(41,299)		—		(41,299)		—		(41,299)
Dividends to preferred stockholders ($1.40625 per share)	—		—	—		—		—		(4,366)		—		(4,366)		—		(4,366)
Dividends to noncontrolling interest	—		—	—		—		—		—		—		—		(3,142)		(3,142)
Balances, September 30, 2023	65,565	$	66	3,105	$	74,959	$	722,418	$	(224,375)	$	38,379	$	611,447	$	22,201	$	633,648

For the Three Months Ended September 30, 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, June 30, 2023	65,565	$	66	3,105	$	74,959	$	722,418	$	(213,744)	$	35,859	$	619,558	$	21,834	$	641,392
Net income	—		—	—		—		—		4,593		—		4,593		240		4,833
Change in fair value of interest rate swap agreements	—		—	—		—		—		—		2,520		2,520		—		2,520
Stock-based compensation expense	—		—	—		—		—		—		—		—		1,185		1,185
Dividends to common stockholders ($0.21 per share)	—		—	—		—		—		(13,769)		—		(13,769)		—		(13,769)
Dividends to preferred stockholders ($0.46875 per share)	—		—	—		—		—		(1,455)		—		(1,455)		—		(1,455)
Dividends to noncontrolling interest	—		—	—		—		—		—		—		—		(1,058)		(1,058)
Balances, September 30, 2023	65,565	$	66	3,105	$	74,959	$	722,418	$	(224,375)	$	38,379	$	611,447	$	22,201	$	633,648

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)

	Nine Months Ended September 30,
	2024		2023
Operating activities
Net income	$	3,753	$	21,183
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		30,233		31,062
Amortization of acquired lease intangible assets		11,174		12,718
Amortization of above market leases, net		782		812
Amortization of debt issuance costs and other		1,684		1,795
Stock-based compensation expense		3,826		3,020
Capitalized preacquisition and other costs charged to expense		93		155
Reserve for uncollectible accounts, net		822		—
Loss (gain) on sale of investment properties		1,560		(15,560)
Other		129		285
Changes in operating assets and liabilities:
Tenant receivables		(2,182)		513
Deferred assets		(1,008)		(2,478)
Other assets and liabilities		(1,030)		(787)
Accounts payable and accrued expenses		153		(855)
Security deposits		(466)		(1,548)
Net cash provided by operating activities		49,523		50,315
Investing activities
Purchase of land, buildings, and other tangible and intangible assets and liabilities		(31,279)		(442)
Net proceeds from sale of investment properties		19,230		77,929
Escrow deposits for purchase of properties		(1,252)		—
Advances made to related parties		(211)		(89)
Capital expenditures on existing real estate investments		(9,972)		(5,778)
Leasing commissions		(2,935)		(890)
Net cash (used in) provided by investing activities		(26,419)		70,730
Financing activities
Net proceeds received from common equity offerings		10,896		—
Escrow deposits required by third party lenders		231		(1,038)
Repayment of notes payable		(11,441)		(964)
Proceeds from Credit Facility		82,800		38,100
Repayment of Credit Facility		(55,400)		(115,400)
Payment of debt issuance costs		—		(13)
Dividends paid to common stockholders, and OP Unit and LTIP Unit holders		(44,759)		(44,207)
Dividends paid to preferred stockholders		(4,366)		(4,366)
Net cash used in financing activities		(22,039)		(127,888)
Net increase (decrease) in cash and cash equivalents and restricted cash		1,065		(6,843)
Cash and cash equivalents and restricted cash—beginning of period		6,724		14,455
Cash and cash equivalents and restricted cash—end of period	$	7,789	$	7,612
Supplemental cash flow information:
Cash payments for interest	$	19,525	$	23,290
Noncash financing and investing activities:
Accrued dividends payable	$	16,534	$	16,055
Interest rate swap agreements fair value change recognized in other comprehensive (loss) income	$	(10,158)	$	3,705
LTIP Units redeemed for common stock	$	313	$	427
Accrued capital expenditures and leasing commissions included in accounts payable and accrued expenses	$	1,956	$	713
OP Units issued for a property acquisition	$	—	$	5,482
Proceeds from sale of an investment property held in escrow	$	—	$	990
Recognition of lease liability related to right of use asset	$	—	$	4,634

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 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 September 30, 2024, the Company was the 92.51% limited partner of the Operating Partnership, with an aggregate of 7.49% 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 certain 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 September 30,
	2024		2023
Cash and cash equivalents	$	5,723	$	1,281
Restricted cash		2,066		6,331
Total cash and cash equivalents and restricted cash	$	7,789	$	7,612

Tenant Receivables, Net

The tenant receivable balance as of September 30, 2024 and December 31, 2023 was $8,122 and $6,762, respectively. The balance as of September 30, 2024 consisted of $3,473 in funds owed from the Company’s tenants for rent that the Company had earned but had not yet received, $4,043 of tenant reimbursements, $122 for a loan that was made to one of the Company’s tenants, and $484 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 September 30, 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 September 30, 2024 and December 31, 2023 was $1,694 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 September 30, 2024 and December 31, 2023 was $27,685 and $27,132, respectively. The balance as of September 30, 2024 consisted of $27,567 in deferred rent receivables resulting from the recognition of revenue from leases with fixed annual rental escalations on a straight-line basis and $118 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 September 30, 2024 and December 31, 2023 was $23,091 and $15,722, respectively. The balance as of September 30, 2024 consisted of $7,362 in right of use assets, $8,473 in capitalized construction in process costs, $2,434 in prepaid assets, $4,431 in net capitalized leasing commissions, and $391 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 September 30, 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 $14,967 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 September 30, 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 September 30, 2024 or December 31, 2023.

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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 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 September 30, 2024 and December 31, 2023 was $12,370 and $12,770, respectively. The balance as of September 30, 2024 consisted of $7,544 for right of use liabilities and $4,826 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 Nine Months Ended September 30, 2024

During the nine months ended September 30, 2024, the Company completed five acquisitions. These acquisitions were made pursuant to a May 2024 purchase agreement to acquire a 15-property portfolio. For these acquisitions, substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets and, therefore, these acquisitions represent an asset acquisition. Accordingly, transaction costs for these acquisitions were capitalized. The Company completed the acquisition of the remaining 10 properties in the 15-property portfolio in October 2024.

During the nine months ended September 30, 2024, the Company completed three dispositions. In June 2024, the Company sold an in-patient rehabilitation facility located in Mishawaka, Indiana receiving gross proceeds of $8.1 million, resulting in a loss of $3.4 million. In July 2024, the Company sold a medical office building located in Panama City, Florida receiving gross proceeds of $11.0 million, resulting in a gain of $1.7 million. In September 2024, the Company sold a medical office building located in Panama City Beach, Florida receiving gross proceeds of $1.1 million, resulting in a gain of $0.1 million.

A rollforward of the gross investment in land, building, improvements, and acquired lease intangible assets as of September 30, 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
Facility Acquired – Date Acquired:
Minot – 7/11/24		935		7,324		144		103		676		9,182
Clinton – 7/11/24		938		4,829		188		256		657		6,868
Westland– 7/11/24		921		3,630		157		99		540		5,347
Cerritos – 7/11/24		3,424		1,244		107		106		392		5,273
Spartanburg – 7/11/24		890		2,613		168		390		517		4,578
Capitalized costs(1)		—		3,552		469		2,344		—		6,365
Total Additions:		7,108		23,192		1,233		3,298		2,782		37,613
Disposition of Mishawaka - 6/27/24		(1,924)		(10,084)		(75)		(1,798)		(2,223)		(16,104)
Disposition of Panama City - 7/12/24		(1,117)		(7,201)		(165)		(841)		(1,141)		(10,465)
Disposition of Panama City Beach - 9/19/24		(272)		(606)		(21)		(84)		(149)		(1,132)
Total Dispositions:		(3,313)		(17,891)		(261)		(2,723)		(3,513)		(27,701)
Balances as of September 30, 2024	$	168,110	$	1,041,006	$	22,946	$	66,933	$	137,886	$	1,436,881

(1) Represents capital projects that were completed and placed in service during the nine months ended September 30, 2024 related to the Company’s existing facilities.

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Depreciation expense was $9,993 and $30,233 for the three and nine months ended September 30, 2024, respectively, and $10,100 and $31,062 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $22,500. 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 $14,500.

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.

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.

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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 September 30, 2024
			Accumulated
	Cost		Amortization		Net
Assets
In-place leases	$	77,121	$	(50,465)	$	26,656
Above market leases		24,724		(12,529)		12,195
Leasing costs		36,041		(21,098)		14,943
	$	137,886	$	(84,092)	$	53,794
Liability
Below market leases	$	13,595	$	(9,957)	$	3,638

	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				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Amortization expense related to in-place leases	$	2,431	$	2,809	$	7,707	$	8,850
Amortization expense related to leasing costs	$	1,114	$	1,230	$	3,467	$	3,868
Decrease in rental revenue related to above market leases	$	793	$	818	$	2,425	$	2,565
Increase in rental revenue related to below market leases	$	(511)	$	(584)	$	(1,643)	$	(1,753)

As of September 30, 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 (three months remaining)	$	(357)	$	3,136
2025		(1,705)		11,045
2026		(1,800)		9,127
2027		(1,377)		6,302
2028		(1,093)		4,998
Thereafter		(2,225)		6,991
Total	$	(8,557)	$	41,599

As of September 30, 2024, the weighted average amortization periods for asset lease intangibles and liability lease intangibles were 3.3 years and 2.2 years, respectively.

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Note 4 – Credit Facility, Notes Payable and Derivative Instruments

Credit Facility

The Company, the Operating Partnership, as borrower, and certain of its subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) are parties to an amended and restated $900 million unsecured syndicated credit facility with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “Credit Facility”). The Credit Facility consists of (i) $500 million of term loans, which include (a) a $350 million term loan (“Term Loan A”) and (b) a $150 million term loan (“Term Loan B,” and, together with Term Loan A, the “Term Loans”), and (ii) a $400 million revolver (the “Revolver”). The Credit Facility also includes a $500 million accordion feature. Term Loan A matures in May 2026, Term Loan B matures in February 2028, and the Revolver matures in August 2026, with two six-month extension options. Interest rates on amounts outstanding under the Credit Facility equal the term Secured Overnight Financing Rate (“SOFR”) plus a related spread adjustment of 10 basis points and a borrowing spread based on the current pricing grid in the Credit Facility. The Company may be entitled to a temporary reduction in the interest rate of two basis points provided it meets certain to be agreed upon sustainability goals.

The Operating Partnership is subject to a number of financial covenants under the Credit Facility, including, among other things, the following as of the end of each fiscal quarter, (i) a maximum consolidated unsecured leverage ratio of less than 60%, (ii) a maximum consolidated secured leverage ratio of less than 30%, (iii) a maximum consolidated secured recourse leverage ratio of less than 10%, (iv) a minimum fixed charge coverage ratio of 1.50:1.00, (v) a minimum unsecured interest coverage ratio of 1.50:1.00, (vi) a maximum consolidated leverage ratio of less than 60%, and (vii) a minimum net worth of $573 million plus 75% of all net proceeds raised through equity offerings subsequent to March 31, 2022. As of September 30, 2024, management believed it complied with all of the financial and non-financial covenants contained in the Credit Facility.

The Company has entered into interest rate swaps to hedge its interest rate risk on the Term Loans through their respective maturities. For additional information related to the interest rate swaps, see the “Derivative Instruments - Interest Rate Swaps” section herein.

During the nine months ended September 30, 2024, the Company borrowed $82,800 under the Credit Facility and repaid $55,400, for a net amount borrowed of $27,400. During the nine months ended September 30, 2023, the Company borrowed $38,100 under the Credit Facility and repaid $115,400, for a net amount repaid of $77,300. Interest expense incurred on the Credit Facility was $6,526 and $18,766 for the three and nine months ended September 30, 2024, respectively, and $5,878 and $20,047 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024 and December 31, 2023, the Company had the following outstanding borrowings under the Credit Facility:

	September 30, 2024		December 31, 2023
Revolver	$	119,800	$	92,400
Term Loan A		350,000		350,000
Term Loan B		150,000		150,000
Credit Facility, gross		619,800		592,400
Less: Unamortized debt issuance costs		(5,418)		(7,067)
Credit Facility, net	$	614,382	$	585,333

Costs incurred related to the Credit Facility, net of accumulated amortization, are netted against the Company’s “Credit Facility, net of unamortized debt issuance costs” balance in the accompanying Condensed Consolidated Balance Sheets. The Company paid $13 related to amendments and modifications to the Credit Facility during the nine months ended September 30, 2023. Amortization expense incurred related to debt issuance costs was $550 and $1,649 for the three and nine months ended September 30, 2024, respectively, and $551 and $1,649 for the three and nine months ended September 30, 2023, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed Consolidated Statements of Operations.

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Notes Payable, Net of Debt Issuance Costs

The Company, through certain of its wholly owned subsidiaries, entered into or assumed loans in connection with the acquisitions of the Rosedale, Dumfries, and Toledo facilities. The Dumfries loan matured and was paid in full in June 2024. As of September 30, 2024 and December 31, 2023, the Company had the following outstanding borrowings under these loans:

	September 30, 2024		December 31, 2023
Rosedale loan (1)	$	13,261	$	13,563
Dumfries loan (2)		—		11,034
Toledo loan (3)		1,263		1,368
Notes payable, gross		14,524		25,965
Unamortized debt issuance costs		(31)		(66)
Notes payable, net	$	14,493	$	25,899

(1) The Rosedale loan has an annual interest rate of 3.85% and matures on July 31, 2025.

(2) The Dumfries loan had an annual interest rate of 4.68% and matured on June 1, 2024.

(3) The Toledo loan has an annual interest rate of 5.0% and matures on July 30, 2033.

Amortization expense incurred related to debt issuance costs was $9 and $35 for the three and nine months ended September 30, 2024, respectively, and $38 and $115 for the three and nine months ended September 30, 2023, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed Consolidated Statements of Operations.

The Company made principal payments of $11,441 and $964 during the nine months ended September 30, 2024 and 2023, respectively. Interest expense incurred on these loans was $151 and $669 for the three and nine months ended September 30, 2024, respectively, and $703 and $2,098 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, scheduled principal payments due for each year ended December 31 were as follows:

2024 (three months remaining)	$	103
2025		13,268
2026		117
2027		124
2028		131
Thereafter		781
Total	$	14,524

Derivative Instruments - Interest Rate Swaps

The Company has nine interest rate swaps that are used to manage its interest rate risk by fixing the SOFR component of the Term Loans through their maturities. A description of these swaps is below:

Term Loan A Swaps

As of September 30, 2024, five of the Company’s interest rate swaps related to Term Loan A with a combined notional value of $350 million that fix the SOFR component on Term Loan A through April 2026 at 1.36%.

Term Loan B Swaps

As of September 30, 2024, four of the Company’s interest rate swaps related to Term Loan B with a combined notional value of $150 million that fix the SOFR component on Term Loan B through January 2028 at 2.54%.  

The Company records the swaps either as an asset or a liability measured at its fair value at each reporting period. When hedge accounting is applied, the change in the fair value of derivatives designated and that qualify as cash flow hedges is (i) recorded in accumulated other comprehensive income in the equity section of the Company’s Condensed Consolidated Balance Sheets and (ii) subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transactions affect earnings. If

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specific hedge accounting criteria are not met, changes in the Company’s derivative instruments’ fair value are recognized currently as an adjustment to net income. As of September 30, 2024 and December 31, 2023, all of the Company’s swaps meet the criteria for hedge accounting.

The Company’s interest rate swaps are not traded on an exchange. The Company’s interest rate swaps are recorded at fair value based on a variety of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs. The Company measures its derivatives at fair value on a recurring basis based on the expected size of future cash flows on a discounted basis and incorporates a measure of non-performance risk. The fair values are based on Level 2 inputs within the framework of ASC Topic 820. The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivative instruments.

The fair value of the Company’s interest rate swaps was an asset of $14,967 and $25,125 as of September 30, 2024 and December 31, 2023, respectively. The balances are included in the “Derivative Asset” line item on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively.

The table below details the components of the amounts presented on the accompanying Condensed Consolidated Statements of Comprehensive (Loss) Income recognized on the Company’s interest rate swaps designated as cash flow hedges for the three and nine months ended September 30, 2024 and 2023:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Amount of loss (gain) recognized in other comprehensive (loss) income	$	8,197	$	(6,801)	$	(3,233)	$	(14,824)
Amount of gain reclassified from accumulated other comprehensive income into interest expense		4,508		4,281		13,391		11,119
Total change in accumulated other comprehensive income	$	12,705	$	(2,520)	$	10,158	$	(3,705)

During the next twelve months, the Company estimates that an additional $10,224 will be reclassified as a decrease to interest expense. Additionally, during the three and nine months ended September 30, 2024, the Company recorded total interest expense in its Condensed Consolidated Statements of Operations of $7,236 and $21,119, respectively.

Weighted-Average Interest Rate and Term

The weighted average interest rate and term of the Company’s debt was 3.79% and 2.2 years at September 30, 2024, compared to 3.83% and 2.9 years as of December 31, 2023.

Note 5 – Equity

Preferred Stock

The Company’s charter authorizes the issuance of 10,000 shares of preferred stock, par value $0.001 per share. As of September 30, 2024 and December 31, 2023, there were 3,105 shares of Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”), issued and outstanding. The Series A Preferred Stock has a liquidation preference of $25 per share.

Preferred stock dividend activity for the nine months ended September 30, 2024 is summarized in the following table:

		Applicable		Quarterly			Dividends
Date Announced	Record Date	Quarter	Payment Date	Dividend			per Share
December 12, 2023	January 15, 2024	Q4 2023	January 31, 2024	$	1,455		$	0.46875
March 7, 2024	April 15, 2024	Q1 2024	April 30, 2024	$	1,455		$	0.46875
June 6, 2024	July 15, 2024	Q2 2024	July 31, 2024	$	1,455		$	0.46875
September 5, 2024	October 15, 2024	Q3 2024	October 31, 2024	$	1,455	(1)	$	0.46875

⁽¹⁾ Two months of this amount, equal to $970, was accrued at September 30, 2024.

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The holders of the Series A Preferred Stock are entitled to receive dividend payments only when, as and if declared by the Company’s board of directors (the “Board”) (or a duly authorized committee of the Board). Dividends will accrue or be payable in cash from the original issue date, on a cumulative basis, quarterly in arrears on each dividend payment date at a fixed rate per annum equal to 7.50% of the liquidation preference of $25.00 per share (equivalent to $1.875 per share on an annual basis). The Series A Preferred Stock may be partially or fully redeemed by the Company. Dividends on the Series A Preferred Stock are cumulative and accrue whether or not (i) funds are legally available for the payment of those dividends, (ii) the Company has earnings or (iii) those dividends are declared by the Board. The quarterly dividend payment dates on the Series A Preferred Stock are January 31, April 30, July 31 and October 31 of each year. During each of the nine-month periods ended September 30, 2024 and 2023, the Company paid preferred dividends of $4,366.

Common Stock

The Company has 500,000 authorized shares of common stock, $0.001 par value. As of September 30, 2024 and December 31, 2023, there were 66,803 and 65,565 outstanding shares of common stock, respectively.

Common stock dividend activity for the nine months ended September 30, 2024 is summarized in the following table:

		Applicable		Dividend		Dividends
Date Announced	Record Date	Quarter	Payment Date	Amount(1)		per Share
December 12, 2023	December 27, 2023	Q4 2023	January 9, 2024	$	14,819	$	0.21
March 7, 2024	March 22, 2024	Q1 2024	April 9, 2024	$	14,901	$	0.21
June 6, 2024	June 21, 2024	Q2 2024	July 9, 2024	$	14,912	$	0.21
September 5, 2024	September 20, 2024	Q3 2024	October 8, 2024	$	15,109	$	0.21

⁽¹⁾ Includes distributions on outstanding LTIP Units and OP Units.

During the nine months ended September 30, 2024 and 2023, the Company paid total dividends on its common stock, LTIP Units and OP Units in the aggregate amount of $44,759 and $44,207, respectively.

As of September 30, 2024 and December 31, 2023, the Company had accrued dividend balances of $455 and $345 for dividends payable on the aggregate annual and long-term LTIP Units that are subject to retroactive receipt of dividends on the amount of LTIP Units ultimately earned. During the nine months ended September 30, 2024, $237 of dividends were accrued and $127 of dividends were paid related to these units. During the nine months ended September 30, 2023, $115 of dividends were accrued and $58 of dividends were paid related to these units.

The amount of the dividends paid to the Company’s stockholders is determined by the Board and is dependent on a number of factors, including funds available for payment of dividends, the Company’s financial condition and capital expenditure requirements, except that, in accordance with the Company’s organizational documents and Maryland law, the Company may not make dividend distributions that would: (i) cause it to be unable to pay its debts as they become due in the usual course of business; (ii) cause its total assets to be less than the sum of its total liabilities plus senior liquidation preferences; or (iii) jeopardize its ability to maintain its qualification as a REIT.

Capital Raising Activity

In January 2024, the Company and the Operating Partnership implemented a $300 million “at-the-market” equity offering program, pursuant to which the Company may offer and sell (including through forward sales), from time to time, shares of its common stock.

During the three and nine months ended September 30, 2024, the Company generated gross proceeds of $11,990 through ATM equity issuances of 1,204 shares of the Company’s common stock at an average offering price of $9.95 per share.

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OP Units

During the nine months ended September 30, 2024, the Operating Partnership did not issue or redeem any OP Units. During the year ended December 31, 2023, the Operating Partnership issued 577 OP Units with a value of $5,482 in connection with a facility acquisition and did not redeem any OP Units.

The OP Unit value at issuance and redemption is based on the Company’s closing share price on the date of the respective transaction and is included as a component of noncontrolling interest equity in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023. As of September 30, 2024 and December 31, 2023, there were 2,244 OP Units issued and outstanding. The Company has sufficient shares of common stock authorized pursuant to its charter to cover the redemption of outstanding OP Units.

Note 6 – Related Party Transactions

Related Party Balances

The amounts due from related parties as of September 30, 2024 and December 31, 2023 were $404 and $193, respectively. These balances primarily consist of taxes paid on behalf of LTIP Unit and OP Unit holders that are reimbursable to the Company. The Company had no amounts due to related parties as of September 30, 2024 and December 31, 2023.

Note 7 – Stock-Based Compensation

2016 Equity Incentive Plan

The 2016 Equity Incentive Plan, as amended (the “Plan”), is intended to assist the Company and its affiliates in recruiting and retaining employees of the Company, members of the Board, executive officers of the Company, and individuals who provide services to the Company and its affiliates.

The Plan is intended to permit the grant of both qualified and non-qualified options and the grant of stock appreciation rights, restricted stock, unrestricted stock, awards of restricted stock units, performance awards and other equity-based awards (including LTIP Units). Based on the grants outstanding as of September 30, 2024, there were 1,903 shares of common stock that remain available to be granted under the Plan. Units subject to awards under the Plan that are forfeited, cancelled, lapsed, or otherwise expired (excluding shares withheld to satisfy exercise prices or tax withholding obligations) are available for grant.

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Time-Based Grants

During the nine months ended September 30, 2024, the Company granted the following LTIP Units:

		Number of
Date	Description	Units Issued	Vesting Dates
February 21, 2024	Final awards under the 2023 Annual Incentive Plan	151	50% on February 21, 2024; and
			50% on February 21, 2025
February 21, 2024	Time-based awards under the 2024 Long-Term Incentive Plan	238	100% on February 21, 2027
May 15, 2024	Annual awards to independent directors	47	100% vest on May 15, 2025
June 10, 2024	Discretionary grant	8	33.33% on June 10, 2025;
			33.33% on June 10, 2026; and
			33.33% on June 10, 2027;

During the nine months ended September 30, 2024, certain participants redeemed an aggregate of 34 vested LTIP Units for the Company’s common stock and forfeited an aggregate of three LTIP Units. A detail of the Company’s outstanding time-based LTIP Units as of September 30, 2024 is as follows:

Vested units	2,558
Unvested units	605
LTIP Units outstanding as of September 30, 2024	3,163

Performance Based Awards

The Board has approved annual performance-based LTIP awards (“Annual Awards”) and long-term performance-based LTIP awards (“Long-Term Awards” and together with the Annual Awards, “Performance Awards”) to the executive officers and other employees of the Company. As described below, the Annual Awards have one-year performance periods and the Long-Term Awards have three-year performance periods. In addition to meeting specified performance metrics, vesting in the Performance Awards is subject to service requirements.

During the nine months ended September 30, 2024, certain participants forfeited an aggregate of three Performance Awards. A detail of the Performance Awards under the 2022, 2023 and 2024 programs as of September 30, 2024 is as follows:

2022 Long-Term Awards	96
2023 Long-Term Awards	154
2024 Annual Awards (1)	149
2024 Long-Term Awards (2)	228
Total target Performance Awards as of September 30, 2024	627

(1) Approved by the Board on February 21, 2024. The number of target LTIP Units was based on the average closing price of the Company’s common stock reported on the New York Stock Exchange over the 15 trading days preceding the award date.

(2) Approved by the Board on February 21, 2024. The number of target LTIP Units was based on the fair value of the Long-Term Awards as determined by an independent valuation consultant.

Annual Awards. The Annual Awards are subject to the terms and conditions of LTIP Annual Award Agreements (“LTIP Annual Award Agreements”) between the Company and each grantee.

The Compensation Committee of the Board (the “Compensation Committee”) and the Board established performance goals for the year ending December 31, 2024, as set forth in the 2024 LTIP Annual Award Agreements (the “Performance Goals”) that will be

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used to determine the number of LTIP Units earned by each grantee. Cumulative stock-based compensation expense during the three and nine months ended September 30, 2024 reflects management’s estimate of the probability of the number of these awards that will be earned. As soon as reasonably practicable following the end of the performance period, the Compensation Committee and the Board will determine the extent to which the Company has achieved each of the Performance Goals (expressed as a percentage) and, based on such determination, will calculate the number of LTIP Units that each grantee is entitled to receive. Each grantee may earn up to 150% of the number of his/her target LTIP Units. Any 2024 Annual Award LTIP Units that are not earned will be forfeited and cancelled.

Vesting. LTIP Units that are earned as of the end of the applicable performance period will vest in two installments as follows: 50% of the earned LTIP Units will become vested on the valuation date of the awards (which is expected to occur in February 2025) and 50% of the earned LTIP Units become vested on the one year anniversary of the initial vesting date. Vesting may be accelerated under certain circumstances such as a “change-in-control” transaction or a “qualified termination” event.

Distributions. Distributions equal to the dividends declared and paid by the Company will accrue during the applicable performance period on the estimated maximum number of LTIP Units that the grantee could earn and will be paid with respect to all of the earned LTIP Units at the conclusion of the applicable performance period, in cash or by the issuance of additional LTIP Units at the discretion of the Compensation Committee.

Long-Term Awards. The Long-Term Awards are subject to the terms and conditions of their related LTIP Long-Term Award Agreements (collectively the “LTIP Long-Term Award Agreements”) between the Company and each grantee. The number of LTIP Units that each grantee earns under the LTIP Long-Term Award Agreements will be determined following the conclusion of a three-year performance period based on the Company’s (i) total stockholder return (“TSR”), which is determined based on a combination of appreciation in stock price and dividends paid during the performance period, and (ii) relative stockholder return (“RSR”), which is determined by comparing the Company’s TSR with the TSRs of the companies that comprise the Dow Jones U.S. Real Estate Health Care Index (the “Index”). Each grantee may earn up to 200% of the number of target LTIP Units covered by the grantee’s Long-Term Award. Any target LTIP Units that are not earned will be forfeited and cancelled. The number of LTIP Units earned under the Long-Term Awards will be determined as soon as reasonably practicable following the end of the applicable three-year performance period based on the Company’s TSR on an absolute basis (as to 50% of the Long-Term Award) and RSR (as to 50% of the Long-Term Award).

Vesting. LTIP Units that are earned as of the end of the applicable three-year performance period will vest in two installments as follows: 50% of the earned LTIP Units will vest upon the day prior to the third anniversary of the respective grant dates and the remaining 50% will vest on the one year anniversary of the initial vesting date. Vesting may be accelerated under certain circumstances such as a “change-in-control” transaction or a “qualified termination” event.

Distributions. Pursuant to the LTIP Long-Term Award Agreements, distributions equal to the dividends declared and paid by the Company will accrue during the applicable performance period on the estimated maximum number of LTIP Units that the grantee could earn and will be paid with respect to all of the earned LTIP Units at the conclusion of the applicable performance period, in cash or by the issuance of additional LTIP Units at the discretion of the Compensation Committee.

Stock-Based Compensation Expense

Compensation expense for LTIP Unit grants, Annual Awards, and Long-Term Awards is based on the grant date fair value of the units/awards, with no subsequent remeasurement required.

As the Long-Term Awards involve market-based performance conditions, the Company utilizes a Monte Carlo simulation to provide a grant date fair value for expense recognition. The Monte Carlo simulation is a generally accepted statistical technique used, in this instance, to simulate a range of possible future stock prices for the Company and the members of the Index over the Performance Periods. The purpose of this modeling is to use a probabilistic approach for estimating the fair value of the performance share award.

The assumptions used in the Monte Carlo simulation include beginning average stock price, valuation date stock price, expected volatilities, correlation coefficients, risk-free rate of interest, and expected dividend yield. The beginning average stock price is the beginning average stock price for the Company and each member of the Index for the 15 trading days leading up to the grant date of the Long-Term Award. The valuation date stock price is the closing stock price of the Company and each of the peer companies in the Index on the grant dates of the Long-Term Awards. The expected volatilities are modeled using the historical volatilities for the Company and the members of the Index. The correlation coefficients are calculated using the same data as the historical volatilities. The risk-free rate of interest is taken from the U.S. Treasury website and relates to the expected life of the remaining performance period on valuation or

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revaluation. Lastly, the dividend yield assumption is 0.0%, which is mathematically equivalent to reinvesting dividends in the issuing entity, which is part of the Company’s award agreement assumptions.

Below are details regarding certain of the assumptions for the Long-Term Awards using Monte Carlo simulations:

	2024 Long-Term			2023 Long-Term			2022 Long-Term
	Awards			Awards			Awards
Fair value	$	9.37		$	11.67		$	16.39
Target awards		228			154			96
Volatility		28.12	%		43.54	%		41.65	%
Risk-free rate		4.38	%		4.35	%		1.72	%
Dividend assumption		reinvested			reinvested			reinvested
Expected term in years		3			3			3

The Company incurred stock compensation expense of $1,274 and $3,826 for the three and nine months ended September 30, 2024, respectively, and $1,185 and $3,020 for the three and nine months ended September 30, 2023, respectively, related to the grants awarded under the Plan. Compensation expense is included within “General and Administrative” expense in the Company’s Condensed Consolidated Statements of Operations.

As of September 30, 2024, total unamortized compensation expense related to these awards of approximately $6.9 million is expected to be recognized over a weighted average remaining period of 1.8 years.

Note 8 – Leases

The Company operates as both a lessor and a lessee. As a lessor, the Company is required under ASC Topic 842 to account for leases using an approach that is substantially similar to ASC Topic 840’s guidance for operating leases and other leases such as sales-type leases and direct financing leases. In addition, ASC Topic 842 requires lessors to capitalize and amortize only incremental direct leasing costs. As a lessee, the Company is required under the new standard to apply a dual approach, classifying leases, such as ground leases, as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. ASC Topic 842 also requires lessees to record a right of use asset and a lease liability for all leases with an initial term of greater than a year regardless of their classification. The Company has also elected the practical expedient not to recognize right of use assets and lease liabilities for leases with a term of a year or less.

Information as Lessor

To generate positive cash flow, as a lessor, the Company leases its facilities to tenants in exchange for fixed monthly payments that cover rent, property taxes, insurance and certain cost recoveries, primarily common area maintenance (“CAM”). The Company’s leases were determined to be operating leases and have a portfolio-average-lease-years remaining of approximately 10 years. Payments from the Company’s tenants for CAM are considered nonlease components that are separated from lease components and are generally accounted for in accordance with the revenue recognition standard. However, the Company qualified for and elected the practical expedient related to combining the components because the lease component is classified as an operating lease and the timing and pattern of transfer of CAM income, which is not the predominant component, is the same as the lease component, for all asset classes. As such, consideration for CAM is accounted for as part of the overall consideration in the lease. Payments from customers for property taxes and insurance are considered non-components of the lease and therefore no consideration is allocated to them because they do not transfer a good or service to the customer. Fixed contractual payments from the Company’s leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the tenant assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.

Some of the Company’s leases are subject to annual changes in the Consumer Price Index (“CPI”). Although increases in CPI are not estimated as part of the Company’s measurement of straight-line rental revenue, for leases with base rent increases based on

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CPI, the amount of rent revenue recognized is adjusted in the period the changes in CPI are measured and effective. Additionally, some of the Company’s leases have extension options.

Initial direct costs, primarily commissions related to the leasing of our facilities are capitalized when material as incurred. Capitalized leasing costs are amortized on a straight-line basis over the remaining useful life of the respective leases. All other costs to negotiate or arrange a lease are expensed as incurred.

Lease-related receivables, which include accounts receivable and accrued straight-line rents receivable, are reduced for credit losses, if applicable. The Company regularly evaluates the collectability of its lease-related receivables. The Company’s evaluation of collectability primarily consists of reviewing past due account balances and considering such factors as the credit quality of our tenant, historical trends of the tenant and changes in tenant payment terms. If the Company’s assumptions regarding the collectability of lease-related receivables prove incorrect, the Company could experience credit losses in excess of what was recognized in rental and other revenues.

The Company recognized $34,175 and $103,458 of rental revenue related to operating lease payments for the three and nine months ended September 30, 2024, respectively, and $35,487 and $108,003 of rental revenue related to operating lease payments for the three and nine months ended September 30, 2023, respectively. Of these amounts, $1,891 and $5,817 relate to variable rental revenue for the three and nine months ended September 30, 2024, respectively, and $1,704 and $5,563 relate to variable rental revenue for the three and nine months ended September 30, 2023, respectively.

The aggregate annual cash to be received by the Company on the noncancelable operating leases related to its portfolio as of September 30, 2024 is as follows for the subsequent years ended December 31:

2024 (three months remaining)	$	28,421
2025		110,977
2026		103,569
2027		91,633
2028		81,427
Thereafter		293,344
Total	$	709,371

Information as Lessee

The Company recorded a right of use asset and liability in May 2023 on the commencement date of the lease for its corporate headquarters in Bethesda, Maryland. The Company used a discount rate of approximately 6.5% to record the right of use asset and liability, which represented its incremental borrowing rate at the lease commencement date. Additionally, the Company has seven buildings located on land that is subject to operating ground leases with a weighted average remaining term of approximately 42 years. Rental payments on these leases are adjusted periodically based on either the CPI or on a pre-determined schedule. The monthly payments on a pre-determined schedule are recognized on a straight-line basis over the terms of the respective leases. Changes in the CPI are not estimated as part of our measurement of straight-line rental expense. The Company used a weighted average discount rate of approximately 7.5% to record the right of use assets and liabilities, which was derived, using a portfolio approach, from our assessment of the credit quality of the Company and adjusted to reflect secured borrowing, estimated yield curves and long-term spread adjustments over appropriate tenors. Some of the Company’s ground leases contain extension options and, where we determined it was reasonably certain that an extension would occur, they were included in our calculation of the right of use asset and liability. The Company recognized approximately $51 and $161 of ground lease expense during the three and nine months ended September 30, 2024, respectively, of which $58 and $110 was paid in cash. The Company recognized approximately $81 and $234 of ground lease expense during the three and nine months ended September 30, 2023, respectively, of which $43 and $124 was paid in cash.

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The following table sets forth the undiscounted cash flows of our scheduled obligations for future lease payments on operating ground leases at September 30, 2024, and a reconciliation of those cash flows to the operating lease liability at September 30, 2024:

2024 (three months remaining)	$	181
2025		740
2026		757
2027		772
2028		794
Thereafter		9,657
Total		12,901
Discount		(5,357)
Lease liability	$	7,544

Tenant Concentration

During the nine months ended September 30, 2024, the Company’s rental revenues were derived from 275 tenants leasing 187 buildings. During this period there were no tenants with rental revenue that exceeded 10% of the Company’s rental revenue.    

Note 9 – Commitments and Contingencies

Litigation

The Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company, which if determined unfavorably to the Company, would have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Environmental Matters

The Company follows a policy of monitoring its properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at its properties, the Company is not currently aware of any environmental liability with respect to its properties that would have a material effect on its financial position, results of operations, or cash flows. Additionally, the Company is not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that management believes would require additional disclosure or the recording of a loss contingency.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements, including the notes to those financial statements, included elsewhere in this Quarterly Report on Form 10-Q (this “Report”). Some of the statements we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section below entitled “Special Note Regarding Forward-Looking Statements.” Certain risk factors may cause actual results, performance, or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) on February 28, 2024. Unless otherwise indicated, all dollar and share amounts in the following discussion are presented in thousands.

Special Note Regarding Forward-Looking Statements

This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In particular, statements pertaining to our trends, liquidity, capital resources, and the healthcare industry and the healthcare real estate markets and opportunity, among others, contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology including, but not limited to, “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

● difficulties in identifying healthcare facilities to acquire (due to increased cost of capital, competition or otherwise) and completing such acquisitions;

● defaults on or non-renewal of leases by tenants;

● our ability to collect rents;

● increases in interest rates and increased operating costs;

● macroeconomic and geopolitical factors, including, but not limited to, inflationary pressures, interest rate volatility, distress in the banking sector, global supply chain disruptions and ongoing geopolitical conflicts and war;

● changes in current healthcare and healthcare real estate trends and costs, including wage inflation;

● an epidemic or pandemic (such as the COVID-19 pandemic), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it;

● our ability to satisfy the covenants in our existing and any future debt agreements;

● decreased rental rates or increased vacancy rates, including expected rent levels on acquired properties;

● adverse economic or real estate conditions or developments, either nationally or in the markets in which our facilities are located;

● our failure to generate sufficient cash flows to service our outstanding obligations;

● our ability to satisfy our short and long-term liquidity requirements;

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● our ability to deploy the debt and equity capital we raise;

● our ability to hedge our interest rate risk;

● our ability to raise additional equity and debt capital on terms that are attractive or at all;

● our ability to make distributions on shares of our common and preferred stock or to redeem our preferred stock;

● expectations regarding the timing and/or completion of any acquisition;

● expectations regarding the timing and/or completion of dispositions, and the expected use of proceeds therefrom;

● general volatility of the market price of our common and preferred stock;

● changes in our business or our investment or financing strategy;

● our dependence upon key personnel, whose continued service is not guaranteed;

● our ability to identify, hire and retain highly qualified personnel in the future;

● the degree and nature of our competition;

● changes in healthcare laws, governmental regulations, tax laws and similar matters;

● changes in expected trends in Medicare, Medicaid and commercial insurance reimbursement trends;

● competition for investment opportunities;

● our failure to successfully integrate acquired healthcare facilities;

● our expected capital and tenant improvement expenditures;

● changes in accounting policies generally accepted in the United States of America (“GAAP”);

● lack of, or insufficient amounts of, insurance;

● other factors affecting the real estate industry generally;

● changes in the tax treatment of our distributions;

● our failure to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes;

● our ability to qualify for the safe harbor from the 100% prohibited transactions tax under the REIT rules with respect to our property dispositions; and

● limitations imposed on our business due to, and our ability to satisfy, complex rules relating to REIT qualification for U.S. federal income tax purposes.

See Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of these and other risks, as well as the risks, uncertainties and other factors discussed in this Report and identified in other documents we may file with the SEC from time to time. You should carefully consider these risks before making any investment decisions in our company. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this Report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements.

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Objective of MD&A

Management’s Discussion and Analysis (“MD&A”) is a narrative explanation of the financial statements and other statistical data that we believe will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations.

The objectives of MD&A are:

a. To provide a narrative explanation of our financial statements that enables investors to see the Company from management’s perspective;

b. To enhance the overall financial disclosure and provide the context within which financial information should be analyzed; and

c. To provide information about the quality of, and potential variability of, our earnings and cash flow so that investors can ascertain the likelihood that past performance is indicative of future performance.

Overview

Global Medical REIT Inc. (the “Company,” “us,” “we,” or “our”) is a Maryland corporation and internally managed REIT that acquires healthcare facilities and leases those facilities to physician groups and regional and national healthcare systems. We hold our facilities and conduct our operations through a Delaware limited partnership subsidiary, Global Medical REIT L.P. (the “Operating Partnership”). Our wholly owned subsidiary, Global Medical REIT GP LLC, is the sole general partner of our Operating Partnership and, as of September 30, 2024, we owned 92.51% of the outstanding common operating partnership units (“OP Units”) of our Operating Partnership, with an aggregate of 7.49% 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 OP Units.

Our revenues are derived from the rental and operating expense reimbursement payments we receive from our tenants, and most of our leases are medium to long-term triple net leases with contractual rent escalation provisions. Our primary expenses are depreciation, interest, and general and administrative expenses. We finance our acquisitions with a mixture of debt and equity primarily from our cash from operations, borrowings under our Second Amended and Restated Credit Facility (the “Credit Facility”), and stock issuances.

Business Overview and Strategy

Our business strategy is to invest in healthcare properties that provide an attractive rate of return relative to our cost of capital and are operated by profitable physician groups, regional or national healthcare systems or combinations thereof. We believe this strategy allows us to attain our goals of providing stockholders with (i) reliable dividends and (ii) stock price appreciation. To implement this strategy, we seek to invest:

● in off-campus medical outpatient buildings and other de-centralized components of the healthcare delivery system because we believe that healthcare delivery trends in the U.S. are increasingly moving away from centralized hospital locations;

● in small to mid-sized healthcare facilities located in secondary markets and suburbs of primary markets and that provide services needed for an aging population, such as cardiovascular treatment, rehabilitation, eye surgery, gastroenterology, oncology treatment and orthopedics. We believe these facilities and markets are typically overlooked by larger REITs and other healthcare investors but contain tenant credit profiles that are like those of larger, more expensive facilities in primary markets; and

● to a lesser extent, in opportunistic acquisitions, including behavioral and mental health facilities that are operated by national or regional operators and are located in markets that demonstrate a need for such services.

Most of our healthcare facilities are leased to single-tenants under triple-net leases. As we continue to grow our portfolio and the competition for single-tenant, triple-net leased properties has intensified, we have added to our portfolio some multi-tenant properties with gross lease or modified gross lease structures.  

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Corporate Sustainability and Social Responsibility

Our business values integrate environmental sustainability, social responsibility, and strong governance practices throughout our Company.

Our Board of Directors (the “Board”) continues to lead our environmental, social and governance (“ESG”) efforts through a standing ESG committee. The primary purpose of the ESG committee is to assist the Board in fulfilling its responsibilities to provide oversight and support of our commitment to ESG matters by overseeing: (1) our general ESG strategy and policies as set by our management, (2) communications with our employees, investors, and other stakeholders with respect to ESG matters, (3) developments relating to, and improving our understanding of, ESG matters, (4) our compliance with certain ESG-related legal and regulatory requirements, and (5) coordination with our other Board committees on ESG matters of common import.

In June 2024, we released our third Corporate Social Responsibility Report, which detailed our progress and areas of focus in the ESG realm. The contents of our Corporate Social Responsibility Report are not incorporated by reference into this Report or in any other report or document we file with the SEC.

Our commitment to employee engagement remains a high-priority, as we continue to make accommodations for health, safety, and work-life balance, including at our headquarters which is LEED platinum certified and includes a fitness center, café and roof-top lounge.

Climate Change Risk

We take climate change and the risks associated with climate change seriously, including both physical and transitional risks. We utilize software to help us identify and measure the potential climate risk exposure for our properties. The software analysis summarizes the climate change-related risks, groups them by onset potential and identifies opportunities for risk mitigation. We prioritize energy efficiency and sustainability when evaluating investment opportunities and have begun to monitor our portfolio for climate risk factors. We utilize utility and energy audits that are performed by third-party engineering consultants during the due diligence phase of our acquisitions. The energy consumption data that we collect is used to assess our facilities’ carbon emission levels. Capturing and tracking this information may help inform future mitigation and remediation efforts when possible. To that end, we continue to explore ways to mitigate climate risk, should it be present, in our acquisition strategy, as well as ways to contribute to the reduction of climate impact through proactive asset management that looks for ways to incorporate renewable energy resources and energy utilization reduction.

We stand with our communities, tenants, and stockholders in supporting meaningful solutions that address this global challenge and contribute to the sustainability of our business objectives.

Impact of Increased Interest Rates and Inflation

After many years of low inflation, the U.S. inflation rate increased substantially during 2022 and remained elevated during 2023 and into the first quarter of 2024. In response to elevated inflation, the U.S. Federal Reserve (the “Fed”) increased the target range for the Federal Funds Rate from 0.25% – 0.50% in the first quarter of 2022 to 5.25% – 5.50% as of August 2024. Many market participants had anticipated that the high trajectory of interest rates during 2022 and throughout 2023 would lead to an economic recession towards the end of 2023 that would have caused the Fed to begin lowering the Federal Funds Rate. However, certain components of the U.S. economy outperformed expectations and inflation continued to remain higher than the Fed’s target rate, causing the Fed to take a “wait-and-see” approach to monetary policy rather than beginning a process of lowering the Federal Funds Rate.

In September 2024, with the Fed comfortable that the U.S. inflation rate was trending lower, the Fed lowered the target range for the Federal Funds rate by 0.50% to 4.75% - 5.00%, marking the first rate reduction in four years. Currently, the market is anticipating at least one additional rate cut in 2024 as well as further cuts in 2025. While the initial impact of the Fed’s September rate cut was positive, subsequent market sentiment has been more negative with yields on U.S. Treasuries rising during October.

The increase in the Federal Funds Rate since 2022, along with other actions taken by the Fed, have had a ripple effect on other benchmark interest rates, including one-month term Secured Overnight Financing Rate (“SOFR”), which is the reference rate for our indebtedness under the Credit Facility. During the first half of 2024, SOFR remained elevated and ranged from 5.40% at the beginning of the year to 5.33% at the end of the second quarter. In response to the Fed’s rate cut in September, SOFR decreased to 4.85% as of

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September 30, 2024, which is lower than it has been during the year, but still significantly higher than in 2021. Interest costs on our floating rate borrowings are directly impacted by changes in SOFR; accordingly, changes in SOFR can either positively or negatively affect our operating profits. Such changes can also impact the market for our target assets.

Continuing Impact of Healthcare Wage Inflation

The COVID-19 epidemic affected the healthcare industry in many ways. Many stories exist about U.S. healthcare workers, especially nurses, experiencing burnout due to the length and severity of the epidemic, and this has caused many nurses and other medical professionals to switch jobs within the medical profession or quit their professions altogether. This phenomenon has led to material increases in labor costs for healthcare systems, especially hospital systems, as some employers have had to rely on higher costing contract nursing labor to sustain their businesses. Although reliance on contract nursing and overall healthcare wage inflation may moderate during 2024, the overall increase in healthcare labor costs remains. Whether enhanced technology and cost-saving measures and increased reimbursements from payors will help offset these costs remains to be seen.  

Executive Summary

The following table summarizes the primary changes in our business and operations during the periods presented.  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands, except per share and unit amounts)
Rental revenue	$	34,175	$	35,487	$	103,458	$	108,003
Depreciation and amortization expense	$	13,642	$	14,195	$	41,720	$	43,890
Interest expense	$	7,236	$	7,170	$	21,119	$	23,909
General and administrative expense	$	4,381	$	4,367	$	13,416	$	12,633
Gain (loss) on sale of investment properties	$	1,823	$	2,289	$	(1,560)	$	15,560
Net income (loss) attributable to common stockholders per share	$	0.03	$	0.05	$	(0.01)	$	0.24
FFO attributable to common stockholders and noncontrolling interest per share and unit(1)	$	0.19	$	0.22	$	0.60	$	0.64
AFFO attributable to common stockholders and noncontrolling interest per share and unit(1)	$	0.22	$	0.23	$	0.67	$	0.69
Dividends per share of common stock	$	0.21	$	0.21	$	0.63	$	0.63
Weighted average common stock outstanding		65,737		65,565		65,633		65,545
Weighted average OP Units outstanding		2,244		2,244		2,244		2,020
Weighted average LTIP Units outstanding		3,170		2,757		3,055		2,697
Total weighted average shares and units outstanding		71,151		70,566		70,932		70,262

(1) See “—Non-GAAP Financial Measures,” for a description of our non-GAAP financial measures and a reconciliation of our non-GAAP financial measures.

	As of
	September 30,			December 31,
	2024			2023
	(dollars in thousands)
Investment in real estate, gross	$	1,436,881		$	1,426,969
Total debt, net	$	628,875		$	611,232
Weighted average interest rate		3.79	%		3.83	%
Total equity (including noncontrolling interest)	$	564,606		$	605,814
Net leasable square feet		4,776,383			4,748,626

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Our Properties

As of September 30, 2024, our portfolio consisted of gross investment in real estate of $1.4 billion, with an aggregate of 4.8 million leasable square feet and an aggregate $107.8 million of annualized base rent.

Completed Acquisitions

In May 2024, we entered into a purchase agreement to acquire a 15-property portfolio (the “15-property portfolio”) of outpatient medical real estate. In July 2024 we completed the acquisition of five properties in the 15-property portfolio encompassing 94,494 leasable square feet for an aggregate purchase price of $30.8 million with aggregate annualized base rent of $2.5 million. In October 2024 we completed the acquisition of the remaining 10 properties in the 15-property portfolio encompassing 159,726 leasable square feet for an aggregate purchase price of $49.5 million with aggregate annualized base rent of $3.9 million. In aggregate the 15-property portfolio had a purchase price of $80.3 million with 254,220 leasable square feet and annualized base rent of $6.4 million.

Completed Property Dispositions

During the nine months ended September 30, 2024, we completed three dispositions that generated aggregate gross proceeds of $20.2 million, resulting in an aggregate loss of $1.6 million.

Capital Raising Activity

In January 2024, the Company and the Operating Partnership implemented a $300 million “at-the-market” equity offering program, pursuant to which we may offer and sell (including through forward sales), from time to time, shares of our common stock (the “2024 ATM Program”).

During the three and nine months ended September 30, 2024, we generated gross proceeds of $12.0 million through ATM equity issuances of 1.2 million shares of our common stock at an average offering price of $9.95 per share.

Debt Activity

During the nine months ended September 30, 2024, we borrowed $82.8 million under the Credit Facility and repaid $55.4 million, for a net amount borrowed of $27.4 million. During the nine months ended September 30, 2023, we borrowed $38.1 million under the Credit Facility and repaid $115.4 million, for a net amount repaid of $77.3 million. As of September 30, 2024, the net outstanding Credit Facility balance was $614.4 million and as of November 5, 2024, we had unutilized borrowing capacity under the Revolver of $221 million.

Recent Developments

Acquisitions Under Contract Subsequent to September 30, 2024

In October 2024, the Company entered into a purchase agreement to acquire a 5-property portfolio for an aggregate purchase price of $69.6 million. The Company expects to complete this acquisition in two tranches during the first half of 2025. The Company’s obligation to close the acquisition is subject to certain customary terms and conditions, including due diligence reviews. Accordingly, there is no assurance that the Company will close this acquisition on a timely basis, or at all.

Trends Which May Influence Our Results of Operations

We believe the following trends may positively impact our results of operations:

● An aging population. According to the 2020 U.S. Census, the nation’s 65-and-older population has grown rapidly since 2010, driven by the aging of Baby Boomers born between 1946 and 1964. The 65-and-older population grew by over a third during the past decade, and by 3.2% from 2018 to 2019. We believe this segment of the U.S. population will utilize many of the services provided at our healthcare facilities such as orthopedics, cardiac, gastroenterology and rehabilitation.

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● A continuing shift towards outpatient care. According to the American Hospital Association, patients are demanding more outpatient operations. We believe this shift in patient preference from inpatient to outpatient facilities will benefit our tenants as most of our properties consist of outpatient facilities.

● Physician practice group and hospital consolidation. We believe the trend towards physician group consolidation will serve to strengthen the credit quality of our tenants if our tenants merge or are consolidated with larger health systems.

We believe the following trends may negatively impact our results of operations:

● Interest rates remain at elevated levels. Although the Fed reduced the Federal Funds Rate by 0.50% to 4.75% to 5.00% at its September 2024 meeting, interest rates have remained at elevated levels since the Fed began increasing the Federal Funds Rate in 2022, and there is no guarantee that the Fed will continue lowering the Fed Funds Rate in 2024 or 2025, especially if inflation rises above the Fed’s target level. Although term SOFR, which is the reference rate for our floating rate debt, has decreased since the latest Fed Funds Rate cut, is expected to continue decreasing during 2024 and 2025, any action or inaction by the Fed in the coming months could affect the timing and amounts of such decreases.  

Continued elevated interest rates have contributed to a continued lull in the common stock prices of many REITs, including the price of the Company’s common stock. A continued low stock price and elevated interest rates have caused the Company’s cost of capital to remain elevated, which, in turn, has significantly reduced the ability to acquire assets that meet the Company’s investment requirements.  

● Healthcare Wage Inflation. The COVID-19 epidemic affected the healthcare industry in many ways. Many stories exist about U.S. healthcare workers, especially nurses, experiencing burnout due to the length and severity of the epidemic, and this has caused many nurses and other medical professionals to switch jobs within the medical profession or quit their professions altogether. This phenomenon has led to material increases in labor costs for healthcare systems, especially hospital systems, as some employers have had to rely on higher costing contract nursing labor to sustain their businesses. Although reliance on contract nursing and overall healthcare wage inflation may moderate during 2024, the overall increase in healthcare labor costs remains. Whether enhanced technology and cost-saving measures and increased reimbursements from payors will help offset these costs remains to be seen.  

● Changes in third party reimbursement methods and policies. The price of healthcare services has been increasing, and, as a result, we believe that third-party payors, such as Medicare and commercial insurance companies, will continue to scrutinize and reduce the types of healthcare services eligible for, and the amounts of, reimbursement under their health insurance plans. Additionally, many employer-based insurance plans continue to increase the percentage of insurance premiums for which covered individuals are responsible, which makes healthcare services more expensive for individuals. These trends were exacerbated by the COVID-19 epidemic, as medical expenditures increased significantly during the epidemic and have not yet returned to pre-COVID-19 levels. If these trends continue, our tenants’ businesses will continue to be negatively affected, which may impact their ability to pay rent to us.

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Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Commission on February 28, 2024, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Report.

Consolidated Results of Operations

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

	Three Months Ended September 30,
	2024		2023		$ Change
	(in thousands)
Revenue
Rental revenue	$	34,175	$	35,487	$	(1,312)
Other income		89		20		69
Total revenue		34,264		35,507		(1,243)
Expenses
General and administrative		4,381		4,367		14
Operating expenses		7,437		7,231		206
Depreciation expense		9,993		10,100		(107)
Amortization expense		3,649		4,095		(446)
Interest expense		7,236		7,170		66
Preacquisition expense		—		—		—
Total expenses		32,696		32,963		(267)
Income before gain from sale of investment properties		1,568		2,544		(976)
Gain on sale of investment properties		1,823		2,289		(466)
Net income	$	3,391	$	4,833	$	(1,442)

Revenue

Total Revenue

Total revenue for the three months ended September 30, 2024 was $34.3 million, compared to $35.5 million for the same period in 2023, a decrease of $1.2 million. The decrease primarily resulted from changes in our portfolio between the periods, including a reduction in portfolio occupancy in 2024 compared to 2023 as well as the impact of tenants placed on cash basis accounting subsequent to the end of the third quarter of 2023. Within that decrease, $4.8 million in revenue was recognized from net lease expense recoveries during the three months ended September 30, 2024, compared to $5.3 million for the same period in 2023.

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Expenses

General and Administrative

General and administrative expenses for the three months ended September 30, 2024 and 2023 were $4.4 million. An increase in non-cash LTIP compensation expense, which was $1.3 million for the three months ended September 30, 2024, compared to $1.2 million for the same period in 2023,was partially offset by a decrease in general corporate expenses.

Operating Expenses

Operating expenses for the three months ended September 30, 2024 were $7.4 million, compared to $7.2 million for the same period in 2023, an increase of $0.2 million. While the increase compared to 2023 is not significant, the increase relative to revenue reflects changes in our portfolio between the periods, including increased costs from properties acquired in 2024, and the impact of tenants placed on cash basis accounting subsequent to the end of the third quarter of 2023, partially offset by a net reduction in costs at other properties. Included in these amounts were $4.8 million of recoverable property operating expenses incurred during the three months ended September 30, 2024, compared to $5.3 million for the same period in 2023. In addition, our operating expenses included $1.6 million of property operating expenses from gross leases for the three months ended September 30, 2024, compared to $1.4 million for the same period in 2023.

Depreciation Expense

Depreciation expense for the three months ended September 30, 2024 was $10.0 million, compared to $10.1 million for the same period in 2023, a decrease of $0.1 million. The decrease primarily resulted from the impact of three property dispositions during 2024, with one disposition completed at the end of the second quarter of 2024 and two dispositions completed during the three months ended September 30, 2024, partially offset by the impact of five properties that were acquired in July 2024.

Amortization Expense

Amortization expense for the three months ended September 30, 2024 was $3.6 million, compared to $4.1 million for the same period in 2023, a decrease of $0.5 million. The decrease primarily resulted from the impact of three property dispositions during 2024, with one disposition completed at the end of the second quarter of 2024 and two dispositions completed during the three months ended September 30, 2024, partially offset by the impact of five properties that were acquired in July 2024.

Interest Expense

Interest expense for the three months ended September 30, 2024 and 2023 was $7.2 million. Slightly lower interest rates were offset by higher average borrowings during the three months ended September 30, 2024, compared to the same period in 2023.

The weighted average interest rate of our debt for the three months ended September 30, 2024 was 3.97% compared to 3.98% for the same period in 2023. Additionally, the weighted average interest rate and term of our debt was 3.79% and 2.2 years at September 30, 2024.

Income Before Gain on Sale of Investment Properties

Income before gain on sale of investment properties for the three months ended September 30, 2024 was $1.6 million, compared to $2.5 million for the same period in 2023, a decrease of $0.9 million.

Gain on Sale of Investment Properties

During the three months ended September 30, 2024, we completed two dispositions resulting in an aggregate gain of $1.8 million. In September 2024, we sold a medical office building located in Panama City Beach, Florida receiving gross proceeds of $1.1 million, resulting in a gain of $0.1 million. In July 2024, we sold a medical office building located in Panama City, Florida receiving gross proceeds of $11.0 million, resulting in a gain of $1.7 million.

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During the three months ended September 30, 2023, we 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.

Net Income

Net income for the three months ended September 30, 2024 was $3.4 million, compared to $4.8 million for the same period in 2023, a decrease of $1.4 million.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

	Nine Months Ended September 30,
	2024		2023		$ Change
	(in thousands)
Revenue
Rental revenue	$	103,458	$	108,003	$	(4,545)
Other income		166		85		81
Total revenue		103,624		108,088		(4,464)
Expenses
General and administrative		13,416		12,633		783
Operating expenses		22,056		21,989		67
Depreciation expense		30,233		31,062		(829)
Amortization expense		11,487		12,828		(1,341)
Interest expense		21,119		23,909		(2,790)
Preacquisition expense		—		44		(44)
Total expenses		98,311		102,465		(4,154)
Income before (loss) gain from sale of investment properties		5,313		5,623		(310)
(Loss) gain on sale of investment properties		(1,560)		15,560		(17,120)
Net income	$	3,753	$	21,183	$	(17,430)

Revenue

Total Revenue

Total revenue for the nine months ended September 30, 2024 was $103.6 million, compared to $108.1 million for the same period in 2023, a decrease of $4.5 million. The decrease primarily resulted from a full nine months impact of three property dispositions that were completed during the nine months ended September 30, 2023 and the impact from three property dispositions that were completed during the nine months ended September 30, 2024, partially offset by the impact of five properties that were acquired in July 2024. Within that decrease, $14.7 million in revenue was recognized from net lease expense recoveries during the nine months ended September 30, 2024, compared to $15.5 million for the same period in 2023. Additionally, the current period includes the recognition of reserves for $0.8 million of rent and the write-off of $0.1 million of deferred rent.

Expenses

General and Administrative

General and administrative expenses for the nine months ended September 30, 2024 were $13.4 million, compared to $12.6 million for the same period in 2023, an increase of $0.8 million. The increase resulted from an increase in non-cash LTIP compensation expense, which was $3.8 million for the nine months ended September 30, 2024, compared to $3.0 million for the same period in 2023.

Operating Expenses

Operating expenses for the nine months ended September 30, 2024 were $22.1 million, compared to $22.0 million for the same period in 2023, an increase of $0.1 million. While the increase compared to 2023 is not significant, the increase relative to revenue reflects the impact of tenants placed on cash basis accounting subsequent to the end of the third quarter of 2023, partially offset by a net

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reduction in costs at other properties. Included in these amounts were $14.7 million of recoverable property operating expenses incurred during the nine months ended September 30, 2024, compared to $15.5 million for the same period in 2023. In addition, our operating expenses included $4.0 million of property operating expenses from gross leases for the nine months ended September 30, 2024, compared to $4.5 million for the same period in 2023.

Depreciation Expense

Depreciation expense for the nine months ended September 30, 2024 was $30.2 million, compared to $31.1 million for the same period in 2023, a decrease of $0.9 million. The decrease primarily resulted from a full nine months impact during the nine months ended September 30, 2024 from three property dispositions that were completed during the nine months ended September 30, 2023 and the impact from three property dispositions that were completed during the nine months ended September 30, 2024, partially offset by the impact of five properties that were acquired in July 2024.

Amortization Expense

Amortization expense for the nine months ended September 30, 2024 was $11.5 million, compared to $12.8 million for the same period in 2023, a decrease of $1.3 million. The decrease primarily resulted from a full nine months impact during the nine months ended September 30, 2024 from three property dispositions that were completed during the nine months ended September 30, 2023 and the impact from three property dispositions that were completed during the nine months ended September 30, 2024, partially offset by the impact of five properties that were acquired in July 2024.

Interest Expense

Interest expense for the nine months ended September 30, 2024 was $21.1 million, compared to $23.9 million for the same period in 2023, a decrease of $2.8 million. This decrease was due to lower interest rates and lower average borrowings during the nine months ended September 30, 2024, compared to the same period in 2023.

The weighted average interest rate of our debt for the nine months ended September 30, 2024 was 3.93% compared to 4.22% for the same period in 2023. Additionally, the weighted average interest rate and term of our debt was 3.79% and 2.2 years at September 30, 2024.

Income Before (Loss) Gain on Sale of Investment Properties

Income before (loss) gain on sale of investment properties for the nine months ended September 30, 2024 was $5.3 million, compared to $5.6 million for the same period in 2023, a decrease of $0.3 million.

(Loss) Gain on Sale of Investment Properties

During the nine months ended September 30, 2024, we completed three dispositions resulting in an aggregate loss of $1.6 million. In September 2024, we sold a medical office building located in Panama City Beach, Florida receiving gross proceeds of $1.1 million, resulting in a gain of $0.1 million. In July 2024, we sold a medical office building located in Panama City, Florida receiving gross proceeds of $11.0 million, resulting in a gain of $1.7 million. In June 2024, we sold an in-patient rehabilitation facility located in Mishawaka, Indiana receiving gross proceeds of $8.1 million, resulting in a loss of $3.4 million.

During the nine months ended September 30, 2023, we completed three dispositions resulting in an aggregate gain of $15.6 million. In August 2023, we 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. In June 2023, we 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 March 2023, we sold a medical office building located in Jacksonville, Florida receiving gross proceeds of $4.4 million, resulting in a gain of $0.5 million.

Net Income

Net income for the nine months ended September 30, 2024 was $3.8 million, compared to $21.2 million for the same period in 2023, a decrease of $17.4 million.

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Assets and Liabilities

As of September 30, 2024 and December 31, 2023, our principal assets consisted of investments in real estate, net, of $1.2 billion. We completed five acquisitions and completed three property sales during the nine months ended September 30, 2024. Our liquid assets consisted primarily of cash and cash equivalents and restricted cash of $7.8 million and $6.7 million, as of September 30, 2024 and December 31, 2023, respectively.

The increase in our cash and cash equivalents and restricted cash balances to $7.8 million as of September 30, 2024, compared to $6.7 million as of December 31, 2023, was primarily due to net borrowings on our Credit Facility, net proceeds received from the sale of investment properties, net proceeds received from ATM equity issuances, and net cash provided by operating activities, partially offset by funds used to pay dividends to our common and preferred stockholders and holders of OP Units and LTIP Units, funds used to acquire investment properties, the repayment of notes payable, and funds used for capital expenditures on existing real estate investments and leasing commissions.

The increase in our total liabilities to $678.0 million as of September 30, 2024 compared to $661.9 million as of December 31, 2023, was primarily the result of higher net borrowings outstanding on our Credit Facility, partially offset by a lower notes payable balance outstanding.

Liquidity and Capital Resources

General

Our short-term (up to 12 months) liquidity requirements include:

● Interest expense and scheduled principal payments on outstanding indebtedness;

● General and administrative expenses;

● Property operating expenses;

● Property acquisitions;

● Distributions on our common and preferred stock and OP Units and LTIP Units; and

● Capital and tenant improvements and leasing costs.

In 2024, we are contractually obligated to pay, or have capital commitments for, principal and interest payments on our outstanding debt and ground and operating lease expenses. In addition, if we decide to redeem our preferred stock in full, we would have to pay the liquidation preference of $77.6 million plus accrued dividends, fees and expenses.

Our long-term (beyond 12 months) liquidity requirements consist primarily of funds necessary to pay for acquisitions, capital and tenant improvements and leasing costs at our properties, scheduled debt maturities, general and administrative expenses, operating expenses, and distributions. Beyond 2024, we are contractually obligated to pay, or have capital commitments for, principal and interest payments on our outstanding debt and ground and operating lease expenses.

We expect to satisfy our short and long-term liquidity needs through various internal and external sources, including cash flow from operations, debt financing, sales of additional equity securities, the issuance of OP Units in connection with acquisitions of additional properties, proceeds from select property dispositions and recapitalization transactions.

Internal Sources of Liquidity

Our primary internal sources of liquidity include cash flow from operations and proceeds from select property dispositions and recapitalization transactions.  

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External Sources of Liquidity

Our primary external sources of liquidity include net proceeds received from equity issuances, including the issuance of OP Units in connection with acquisitions of additional properties, and debt financing, including borrowings under our Credit Facility and secured term loans.

Equity Issuances

In January 2024, the Company and the Operating Partnership implemented the 2024 ATM Program, pursuant to which we may offer and sell (including through forward sales), from time to time, shares of our common stock.

During the three and nine months ended September 30, 2024, we generated gross proceeds of $12.0 million through ATM equity issuances of 1.2 million shares of our common stock at an average offering price of $9.95 per share.

Debt Financing

Credit Facility. Our Credit Facility consists of (i) the $350 million Term Loan A, (ii) the $150 million Term Loan B, and (iii) the $400 million Revolver. The Credit Facility also contains a $500 million accordion feature. As of November 5, 2024, we had unutilized borrowing capacity under the Credit Facility of $221 million.

The Credit Facility is an unsecured facility with a term of (i) four years (beginning on August 1, 2022) for the Revolver (subject to two, six-month extension options), (ii) five years for Term Loan A (beginning on its origination date of May 3, 2021), and (iii) five years and six months (beginning on August 1, 2022) for Term Loan B.

We are subject to a number of financial covenants under the Credit Facility, including, among other things, the following as of the end of each fiscal quarter, (i) a maximum consolidated unsecured leverage ratio of less than 60%, (ii) a maximum consolidated secured leverage ratio of less than 30%, (iii) a maximum consolidated secured recourse leverage ratio of less than 10%, (iv) a minimum fixed charge coverage ratio of 1.50:1.00, (v) a minimum unsecured interest coverage ratio of 1.50:1.00, (vi) a maximum consolidated leverage ratio of less than 60%, and (vii) a minimum net worth of $573 million plus 75% of all net proceeds raised through equity offerings subsequent to March 31, 2022. As of September 30, 2024, management believed it complied with all of the financial and non-financial covenants contained in the Credit Facility.

Other Fixed Debt. We have $14.5 million in gross notes payable as of September 30, 2024. This debt is comprised of two instruments.

Hedging Instruments. We have nine interest rate swaps that are used to manage our interest rate risk. A description of these swaps is below:

Term Loan A Swaps

As of September 30, 2024, five of our interest rate swaps related to Term Loan A with a combined notional value of $350 million that fix the SOFR component on Term Loan A through April 2026 at 1.36%.

Term Loan B Swaps

As of September 30, 2024, four of our interest rate swaps related to Term Loan B with a combined notional value of $150 million that fix the SOFR component on Term Loan B through January 2028 at 2.54%.

Total Fixed Debt. Our fixed debt totaled $514.5 million on a gross basis at September 30, 2024, with a weighted average interest rate of 3.18% based on our interest rate swaps and at current leverage. The weighted average maturity of our fixed debt was 2.1 years at September 30, 2024.

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Cash Flow Information

Net cash provided by operating activities for the nine months ended September 30, 2024 was $49.5 million, compared to $50.3 million for the same period in 2023. During the 2024 period net income was lower, non-cash depreciation and amortization expenses were lower, and tenant receivables and deferred assets were higher, partially offset by an aggregate loss on the sale of investment properties, and an increase in non-cash LTIP compensation expense.

Net cash used in investing activities for the nine months ended September 30, 2024 was $26.4 million, compared to net cash provided by investing activities of $70.7 million for the same period in 2023. During the 2024 period we received less net proceeds from the sale of investment properties, we used funds to acquire investment properties, and more funds were used for capital expenditures on existing real estate investments and leasing commissions.

Net cash used in financing activities for the nine months ended September 30, 2024 was $22.0 million, compared to $127.9 million for the same period in 2023. During the 2024 period, dividends paid to common and preferred stockholders as well as holders of OP Units and LTIP Units and the repayment of our notes payable were partially offset by net borrowings on our Credit Facility and net proceeds received from ATM equity issuances.

Non-GAAP Financial Measures

Management considers certain non-GAAP financial measures to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. The Company reports non-GAAP financial measures because these measures are observed by management to also be among the most predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these non-GAAP financial measures. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of those measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Report.

Funds from Operations and Adjusted Funds from Operations

Funds from operations attributable to common stockholders and noncontrolling interest (“FFO”) and adjusted funds from operations attributable to common stockholders and noncontrolling interest (“AFFO”) are non-GAAP financial measures within the meaning of the rules of the SEC. The Company considers FFO and AFFO to be important supplemental measures of its operating performance and believes FFO is frequently used by securities analysts, investors, and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results.

In accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, FFO means net income or loss computed in accordance with GAAP before noncontrolling interests of holders of OP Units and LTIP Units, excluding gains (or losses) from sales of property and extraordinary items, less preferred stock dividends, plus real estate-related depreciation and amortization (excluding amortization of debt issuance costs and the amortization of above and below market leases), and after adjustments for unconsolidated partnerships and joint ventures. Because FFO excludes real estate-related depreciation and amortization (other than amortization of debt issuance costs and above and below market lease amortization expense), the Company believes that FFO provides a performance measure that, when compared period-over-period, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from the closest GAAP measurement, net income or loss.

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AFFO is a non-GAAP measure used by many investors and analysts to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations. Management calculates AFFO by modifying the NAREIT computation of FFO by adjusting it for certain cash and non-cash items and certain recurring and non-recurring items. For the Company these items include recurring acquisition and disposition costs, loss on the extinguishment of debt, recurring straight line deferred rental revenue, recurring stock-based compensation expense, recurring amortization of above and below market leases, recurring amortization of debt issuance costs, and other items.

Management believes that reporting AFFO in addition to FFO is a useful supplemental measure for the investment community to use when evaluating the operating performance of the Company on a comparative basis.

A reconciliation of net income to FFO and AFFO for the three and nine months ended September 30, 2024 and 2023 is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(unaudited, in thousands except per share and unit amounts)
Net income	$	3,391	$	4,833	$	3,753	$	21,183
Less: Preferred stock dividends		(1,455)		(1,455)		(4,366)		(4,366)
Depreciation and amortization expense		13,618		14,161		41,611		43,796
(Gain) loss on sale of investment properties		(1,823)		(2,289)		1,560		(15,560)
FFO attributable to common stockholders and noncontrolling interest	$	13,731	$	15,250	$	42,558	$	45,053
Amortization of above market leases, net		282		234		782		812
Straight line deferred rental revenue		(501)		(721)		(1,264)		(2,363)
Stock-based compensation expense		1,274		1,185		3,826		3,020
Amortization of debt issuance costs and other		559		593		1,684		1,795
Preacquisition expense		—		—		—		44
AFFO attributable to common stockholders and noncontrolling interest	$	15,345	$	16,541	$	47,586	$	48,361
Net income (loss) attributable to common stockholders per share – basic and diluted	$	0.03	$	0.05	$	(0.01)	$	0.24
FFO attributable to common stockholders and noncontrolling interest per share and unit	$	0.19	$	0.22	$	0.60	$	0.64
AFFO attributable to common stockholders and noncontrolling interest per share and unit	$	0.22	$	0.23	$	0.67	$	0.69
Weighted Average Shares and Units Outstanding – basic and diluted		71,151		70,566		70,932		70,262
Weighted Average Shares and Units Outstanding:
Weighted Average Common Shares		65,737		65,565		65,633		65,545
Weighted Average OP Units		2,244		2,244		2,244		2,020
Weighted Average LTIP Units		3,170		2,757		3,055		2,697
Weighted Average Shares and Units Outstanding – basic and diluted		71,151		70,566		70,932		70,262

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Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre and Adjusted EBITDAre)

The Company calculates EBITDAre in accordance with standards established by NAREIT and defines EBITDAre as net income or loss computed in accordance with GAAP plus depreciation and amortization, interest expense, gain or loss on the sale of investment properties, and impairment loss, as applicable. The Company defines Adjusted EBITDAre as EBITDAre plus loss on extinguishment of debt, non-cash stock compensation expense, non-cash intangible amortization related to above and below market leases, preacquisition expense and other normalizing items. Management considers EBITDAre and Adjusted EBITDAre important measures because they provide additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.

A reconciliation of net income to EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, 2024 and 2023 is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
		2024		2023		2024		2023
	(unaudited and in thousands)
Net income	$	3,391	$	4,833	$	3,753	$	21,183
Interest expense		7,236		7,170		21,119		23,909
Depreciation and amortization expense		13,642		14,195		41,720		43,890
(Gain) loss on sale of investment properties		(1,823)		(2,289)		1,560		(15,560)
EBITDAre	$	22,446	$	23,909	$	68,152	$	73,422
Stock-based compensation expense		1,274		1,185		3,826		3,020
Amortization of above market leases, net		282		234		782		812
Preacquisition expense		—		—		—		44
Adjusted EBITDAre	$	24,002	$	25,328	$	72,760	$	77,298

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business and investment objectives, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of debt used to acquire healthcare facilities, including borrowings under the Credit Facility. The analysis below presents the sensitivity of the value of our variable rate financial obligations to selected changes in market interest rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period.

As of September 30, 2024, we had $119.8 million of unhedged borrowings outstanding under the Revolver (before the netting of unamortized debt issuance costs) that bears interest at a variable rate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources,” for a detailed discussion of our Credit Facility. At September 30, 2024, SOFR on our outstanding floating-rate borrowings was 4.85%. Assuming no increase in the amount of our variable interest rate debt, if SOFR increased 100 basis points, our cash flow would decrease by approximately $1.2 million annually. Assuming no increase in the amount of our variable rate debt, if SOFR were reduced 100 basis points, our cash flow would increase by approximately $1.2 million annually.

Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or floating rates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Hedging Instruments,” for a description of our interest rate swaps.

We may enter into additional derivative financial instruments, including interest rate swaps and caps, in order to mitigate our interest rate risk on our future borrowings. We will not enter into derivative transactions for speculative purposes.

In addition to changes in interest rates, the value of our investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants/operators and borrowers, which may affect our ability to refinance our debt if necessary.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of September 30, 2024 pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Changes in Internal Control over Financial Reporting

No changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our financial condition or results of operations. From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. There can be no assurance that these matters that arise in the future, individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations in any future period.

Item 1A. Risk Factors

During the nine months ended September 30, 2024, there were no material changes to the risk factors that were disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

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Item 6. Exhibits

(a)Exhibits

Exhibit No.	Description
3.1	Articles of Restatement of Global Medical REIT Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on August 8, 2018).
3.2	Fourth Amended and Restated Bylaws of Global Medical REIT Inc., adopted as of December 7, 2022 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on December 7, 2022).
4.1	Specimen of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11/A as filed with the SEC on June 15, 2016).
4.2	Specimen of 7.50% Series A Cumulative Redeemable Preferred Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 14, 2017).
31.1*	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial and Accounting Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer and Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *	Inline XBRL Instance Document
101.SCH *	Inline XBRL Taxonomy Schema
101.CAL *	Inline XBRL Taxonomy Calculation Linkbase
101.DEF *	Inline XBRL Taxonomy Definition Linkbase
101.LAB *	Inline XBRL Taxonomy Label Linkbase
101.PRE *	Inline XBRL Taxonomy Presentation Linkbase
104	Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith. Such certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GLOBAL MEDICAL REIT INC.
Date: November 7, 2024	By:	/s/ Jeffrey M. Busch
		Jeffrey M. Busch
		Chief Executive Officer (Principal Executive Officer)
Date: November 7, 2024	By:	/s/ Robert J. Kiernan
		Robert J. Kiernan
		Chief Financial Officer (Principal Financial and Accounting Officer)

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