Chiron Real Estate Inc. (XRN)

ITEM 7.   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 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 in this Report 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 the section in this Report entitled “Risk Factors.” Unless otherwise indicated, all dollar and share amounts in the following discussion are presented in thousands.

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:

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 December 31, 2024, we owned 92.6% of the outstanding common operating partnership units (“OP Units”) of our Operating Partnership, with an aggregate of 7.4% 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.

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2024 Executive Summary

The following tables summarize the primary changes in our business and operations during the years presented.

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Our Properties

As of December 31, 2024, our portfolio consisted of gross investment in real estate of $1.5 billion, with an aggregate of 4.8 million leasable square feet and an aggregate $110 million of annualized base rent.

Completed Acquisitions

During the year ended December 31, 2024 we completed the acquisition of a 15-property portfolio of outpatient medical real estate. In aggregate the portfolio had a purchase price of $80.3 million with 254,220 leasable square feet and annualized base rent of $6.4 million.

Properties Under Contract to Acquire and Acquisitions Completed Subsequent to December 31, 2024

In October 2024, we entered into a purchase agreement to acquire a five-property portfolio (the “five-property portfolio”) of medical real estate for an aggregate purchase price of $69.6 million. In February 2025, we completed the acquisition of three properties in the five-property portfolio encompassing an aggregate of 188,874 leasable square feet for an aggregate purchase price of $31.5 million with aggregate annualized base rent of $2.8 million. We expect to complete the acquisition of the remaining two properties in the five-

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property portfolio, with an aggregate purchase price of $38.1 million, during the second quarter of 2025. The Company’s obligation to close the acquisition of the remaining two properties in the five-property portfolio is subject to certain customary terms and conditions, including due diligence reviews. Accordingly, there is no assurance that we will close this acquisition on the terms described above, or at all.

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Completed Property Dispositions

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During the year ended December 31, 2024, we completed seven dispositions that generated aggregate gross proceeds of $60.7 million, resulting in an aggregate gain of $4.2 million. Of the $60.7 million of gross disposition proceeds in 2024, $35.2 million were related to the sale of two properties to a joint venture between us and Heitman (the “Joint Venture”), whereby Heitman maintains an 87.5% equity investment and we maintain a 12.5% equity investment in the Joint Venture.

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Impairment of Investment Property

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During the year ended December 31, 2024, we recognized an impairment loss of $1.7 million related to our Derby, Kansas facility.

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Capital Raising Activity

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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”).

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During the year ended December 31, 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 year ended December 31, 2024, we borrowed $143.8 million under our Credit Facility and repaid $99.6 million, for a net amount borrowed of $44.2 million. As of December 31, 2024, the net outstanding Credit Facility balance was $631.7 million and as of February 26, 2025, we had unutilized borrowing capacity under the Credit Facility of $219.4 million.

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Joint Venture

In December 2024, we entered into the Joint Venture with Heitman, a real estate investment firm with over $48 billion of assets under management. Pursuant to the Joint Venture operating agreement, we maintain a 12.5% investment in the Joint Venture and also serve as its managing member and Heitman maintains an 87.5% investment.  Most economic decisions related to the Joint Venture are determined by the majority vote of an executive committee that consists of three members representing Heitman and two members representing our Company. As the managing member, we source new investments for the Joint Venture, manage the day-to-day activities of the Joint Venture and its assets, earn fees as compensation for such services, and are entitled to reimbursement of certain expenses we incur in the performance of such services.  Pursuant to the terms of the Joint Venture operating agreement, we have the right to purchase investment opportunities for the Company before offering such opportunities to the Joint Venture.

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In connection with the formation of the Joint Venture, we sold two of our assets to the Joint Venture (the “Seed Portfolio”) receiving gross proceeds of $35.2 million. We used $2.1 million of the sale proceeds from the Seed Portfolio to finance our initial 12.5%

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capital investment in the Joint Venture. In connection with the acquisition of the Seed Portfolio, the Joint Venture entered into a mortgage loan with a principal amount of $17.6 million.

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Recent Developments

CEO Succession Plan

On January 8, 2025, the Company and Jeffrey Busch, Chairman of the Board and Chief Executive Officer, reached an agreement regarding Mr. Busch’s transition from service as the Company’s Chief Executive Officer and anticipated continuation as a member of the Company’s Board. Pursuant to a Transition and Separation Agreement and General Release of Claims dated as of January 8, 2025 (the “Separation Agreement”), Mr. Busch, the Company and Inter-American Management LLC (“Inter-American”) agreed that Mr. Busch’s employment, and service as Chief Executive Officer and President of the Company and Inter-American, would end no later than the first to occur of (i) the date that a successor to the position of Chief Executive Officer who has been appointed in accordance with the Board’s approved succession process begins employment, or (ii) June 30, 2025 (such date that is the first to occur, the “Succession Date”). The Board has directed the Nominating and Corporate Governance Committee of the Board to conduct a comprehensive search process to identify a new Chief Executive Officer with the assistance of an executive search firm. Mr. Busch intends to stand for re-election as a director at the Company’s 2025 annual meeting of stockholders, and it is expected that he will continue to serve as non-executive Chairman of the Board following the Succession Date.  Mr. Busch’s departure is not the result of any disagreement with the Company on any matter relating to its operations, policies, or practices.

Pursuant to the Separation Agreement, and in consideration for Mr. Busch (i) assisting with the transition to the new Chief Executive Officer and continuing in employment through the Succession Date, (ii) executing, and not revoking, releases of claims in favor of the Company, and (iii) otherwise satisfying the terms of the Separation Agreement, Mr. Busch will receive separation benefits to which he is entitled under that certain Employment Agreement between Mr. Busch and the Company effective as of July 9, 2020 and later amended by that certain letter agreement dated January 27, 2021 following his cessation of employment.

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For the year ended December 31, 2024 the Company accrued $3.2 million for cash severance related costs included in the “Accounts Payable and Accrued Expenses” line item on the Company’s Consolidated Balance Sheets with the expense included in the “General and Administrative Expense” line item on the Company’s Consolidated Statements of Operations.

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Chapter 11 Bankruptcy Filing of Prospect Medical Group

On January 11, 2025, our tenant, Prospect Medical Group (“Prospect”), filed for Chapter 11 bankruptcy reorganization. As of January 11, 2025, Prospect owed us approximately $2.4 million related to leases at three of our healthcare facilities, including $2.2 million related to our facility in East Orange, New Jersey. As of February 26, 2025, Prospect had not yet decided if it was going to accept or reject its leases with us. If Prospect rejects any of its leases with us, we would have a general unsecured claim with respect to amounts owed under any rejected lease.

Trends Which May Influence Our Results of Operations

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

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

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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.

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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.

For a more detailed discussion of our significant accounting policies, see Note 2 – “Summary of Significant Accounting Policies” in the footnotes to the accompanying consolidated financial statements. Below is a discussion of accounting policies that we consider critical in that it may require complex judgment in its application or require estimates about matters that are inherently uncertain.

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We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

●Investment in Real Estate

●Impairment of Long-Lived Assets

●Revenue Recognition

Investment in Real Estate

All of our facility acquisitions for the years ended December 31, 2024 and 2023 were accounted for as asset acquisitions because substantially all of the fair value of the gross assets that we acquired were concentrated in a single asset or group of similar identifiable assets. Accordingly, the purchase prices of acquired tangible and intangible assets and liabilities were recorded and allocated at fair value on a relative basis. The recorded allocations are based on estimated cash flow projections of the properties acquired, which incorporates discount, capitalization and interest rates as well as available comparable market information. We use considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods, and costs to execute similar leases.

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While our methodology for purchase price allocations did not change during the year ended December 31, 2024, the real estate market is fluid and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value allocated to acquired tangible and intangible assets and liabilities.

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In the case of the fair value of buildings and fair value of land and certain other intangibles, our estimates of the values of these components will affect the amount of depreciation or amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the fair value of above-market or below-market lease intangibles, our estimates of the values of these components will affect the amount of rental revenue we record as these values are amortized as a reduction of or an addition to rental income over the estimated remaining term of the respective leases.

Impairment of Long-Lived Assets

We review our real estate assets on an asset group basis for impairment. We identify an asset group based on the lowest level of identifiable cash flows. In the impairment analysis we must determine whether there are indicators of impairment. For operating properties, these indicators could include a reduction in our estimated hold period, a significant decline in a property’s leasing percentage, a current period operating loss or negative cash flows combined with a history of losses at the property, a significant decline in lease rates for that property or others in the property’s market, a significant change in the market value of the property, or an adverse change in the financial condition of significant tenants.

If we determine that an asset has indicators of impairment, we must determine whether the undiscounted cash flows associated with the asset exceed the carrying amount of the asset. In calculating the undiscounted net cash flows of an asset, we use considerable judgement to estimate a number of inputs. We must estimate future rental rates, future capital expenditures, future operating expenses, and market capitalization rates for residual values, among other things. In addition, if there are alternative strategies for the future use of the asset, we assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset.

In determining the fair value of an asset, we exercise considerable judgment on a number of factors. We may determine fair value by using a discounted cash flow calculation or by utilizing comparable market information. We use judgement to determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. We also use judgment in analyzing comparable market information because no two real estate assets are identical in location and price.

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The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed. Additionally, changes in economic and operating conditions, including changes in the financial condition of our tenants, and changes to our intent and ability

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to hold the related asset, that occur subsequent to our impairment assessment could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

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Revenue Recognition

Our operations primarily consist of rental revenue earned from tenants under leasing arrangements which provide for minimum rent and escalations. Management exercises considerable judgment in the rental property revenue recognition process including the treatment of the contractual rental stream and the determination of its collectability.

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Our 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, when we believe substantially all lease income, including the related straight-line receivable, is probable of collection.

We monitor the liquidity and creditworthiness of our tenants and operators and exercise considerable judgement in assessing the probability of collection. Our assessment of collectability incorporates available operational performance measures such as sales and the aging of billed amounts as well as other publicly available information with respect to our tenant’s financial condition, liquidity and capital resources, including declines in such conditions. In the event that we determine receivables are not probable of collection, lease income will be recorded on a cash basis, with the corresponding tenant receivable and straight-line rent receivable charged as a direct write-off against rental revenue in the period of the change in our collectability determination. If management’s assumptions regarding the collectability of lease-related receivables prove incorrect, we could experience decreases in rental revenue, including decreases in excess of any amounts initially recognized.

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Consolidated Results of Operations

For a discussion related to our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 28, 2024.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

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Revenue

Total Revenue

Total revenue for the year ended December 31, 2024 was $138.8 million, compared to $141.0 million for the same period in 2023, a decrease of $2.2 million. The decrease primarily resulted from the full year impact of three property dispositions that were completed during the year ended December 31, 2023 and the impact from seven property dispositions that were completed during the year ended December 31, 2024, partially offset by the impact of 15 properties that were acquired in 2024. Within that decrease, $19.4 million in revenue was recognized from net lease expense recoveries during the year ended December 31, 2024, compared to $19.5 million for the same period in 2023.

Expenses

General and Administrative

General and administrative expenses for the year ended December 31, 2024 were $21.1 million, compared to $16.9 million for the same period in 2023, an increase of $4.2 million. The increase primarily resulted from $3.2 million that was expensed in 2024 related to cash severance costs owed to Mr. Jeffery Busch, our Chairman and Chief Executive Officer, pursuant to the Transition and Separation Agreement and General Release of Claims, dated January 8, 2025, by and among the Company, Inter-American Management LLC and Mr. Busch, and an increase in non-cash LTIP compensation expense, which was $5.1 million for the year ended December 31, 2024, compared to $4.2 million for the same period in 2023.

Operating Expenses

Operating expenses for the year ended December 31, 2024 were $29.3 million, compared with $28.1 million for the same period in 2023, an increase of $1.2 million. While the increase compared to 2023 was not significant, the increase relative to revenue reflects the impact of tenants placed on cash basis accounting in the fourth quarter of 2023 and the second quarter of 2024, partially offset by a net reduction in costs at other properties. Included in these amounts were $19.4 million of recoverable property operating expenses incurred during the year ended December 31, 2024, compared to $19.5 million for the same period in 2023. In addition, our operating expenses included $5.7 million of non-recoverable property operating expenses from gross leases for the year ended December 31, 2024, compared to $5.9 million for the same period in 2023.

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Depreciation Expense

Depreciation expense for the year ended December 31, 2024 was $40.4 million, compared to $41.3 million for the same period in 2023, a decrease of $0.9 million. The decrease primarily resulted from the full year impact of three property dispositions that were completed during the year ended December 31, 2023 and the impact from seven property dispositions that were completed during the year ended December 31, 2024, partially offset by the impact of 15 properties that were acquired in 2024.

Amortization Expense

Amortization expense for the year ended December 31, 2024 was $14.9 million, compared to $16.9 million for the same period in 2023, a decrease of $2.0 million. The decrease primarily resulted from the full year impact of three property dispositions that were completed during the year ended December 31, 2023 and the impact from seven property dispositions that were completed during the year ended December 31, 2024, partially offset by the impact of 15 properties that were acquired in 2024.

Interest Expense

Interest expense for the year ended December 31, 2024 was $28.7 million, compared to $30.9 million for the same period in 2023, a decrease of $2.2 million. This decrease was due to lower interest rates and lower average borrowings during the year ended December 31, 2024, compared to the same period in 2023.

The weighted average interest rate of our debt for the year ended December 31, 2024 was 3.94% compared to 4.12% in 2023. Additionally, the weighted average interest rate and term of our debt was 3.75% and 2.0 years, respectively, at December 31, 2024.

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Income Before Other Income (Expense)

Income before other income (expense) for the year ended December 31, 2024 was $4.2 million, compared to $7.0 million for the same period in 2023, a decrease of $2.8 million.

Gain on Sale of Investment Properties

During the year ended December 31, 2024, we completed seven dispositions resulting in an aggregate gain of $4.2 million. During the year ended December 31, 2023, we completed three dispositions resulting in an aggregate gain of $15.6 million.

Impairment of Investment Property

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In December 2024, we entered into an agreement to sell our facility located in Derby, Kansas. We recognized an impairment loss of $1.7 million during the fourth quarter of 2024 to reduce the carrying value of the asset to its fair value, which was determined to be the contractual sales price less commissions and fees. The sale of this facility was completed in February 2025.

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Equity Loss from Unconsolidated Joint Venture

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During the year ended December 31, 2024, we recognized a loss from the unconsolidated Joint Venture of $20 thousand, which represented our 12.5% ownership interest in the net loss of the Joint Venture from December 20, 2024, when the Joint Venture was formed, through December 31, 2024.

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Loss on Extinguishment of Debt

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In December 2023, we completed the defeasance of a CMBS loan resulting in a loss on extinguishment of debt of $0.9 million.

Net Income

Net income for the year ended December 31, 2024 was $6.7 million compared to $21.7 million for the same period in 2023, a decrease of $15.0 million.

Assets and Liabilities

As of December 31, 2024 and 2023, our principal assets consisted of investments in real estate, net, of $1.2 billion. We completed the acquisition of a 15-property portfolio and completed seven disposition transactions during the year ended December 31, 2024. Our liquid assets consisted primarily of cash and cash equivalents and restricted cash of $8.9 million and $6.7 million, as of December 31, 2024 and 2023, respectively.

The increase in our cash and cash equivalents and restricted cash balances to $8.9 million as of December 31, 2024, compared to $6.7 million as of December 31, 2023, was primarily due to net cash provided by operating activities, net proceeds received from the sale of investment properties, net borrowings on our Credit Facility, and net proceeds received from ATM equity issuances, partially offset by funds used to acquire investment properties, the payment of dividends to our common and preferred stockholders and holders of OP Units and LTIP Units, funds used for capital expenditures on existing real estate investments and leasing commissions, the repayment of notes payable, and funds we invested in an unconsolidated joint venture.

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The increase in our total liabilities to $700.6 million as of December 31, 2024 compared to $662.0 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.

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Liquidity and Capital Resources

General

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

In 2025, we are contractually obligated to pay, or have capital commitments for, approximately (i) $37.5 million of principal and interest payments on our outstanding debt, and (ii) $0.7 million in ground and operating lease expenses. In addition, if we decide to redeem our preferred stock, 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 at our properties, scheduled debt maturities, general and administrative expenses, operating expenses, and distributions. Beyond 2025, we are contractually obligated to pay, or have capital commitments for, approximately (i) $666.5 million of principal and interest payments on our outstanding debt, and (ii) $12.0 million in 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.

As of December 31, 2024, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $24.5 million. 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 existing and proposed leases, capital improvement obligations in the next 12 months are expected to total approximately $12.9 million.

Internal Sources of Liquidity

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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

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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.

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Equity Issuances

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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.

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During the year ended December 31, 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.

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Debt Financing.

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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 February 26, 2025, we had unutilized borrowing capacity under the Credit Facility of $219.4 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 December 31, 2024, management believed it complied with all of the financial and non-financial covenants contained in the Credit Facility.

Other Fixed Debt. We have $14.4 million in gross notes payable as of December 31, 2024, which is comprised of two instruments.

Hedging Instruments. As of December 31, 2024, we had nine interest rate swaps that are used to manage our interest rate risk.  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%. 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%.

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Total Fixed Debt. Our fixed debt totaled $514.4 million on a gross basis at December 31, 2024, with a weighted average interest rate of 3.18% based on our interest rate swaps at current leverage. The weighted average maturity of our fixed debt was 1.9 years at December 31, 2024.

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Cash Flow Information

Net cash provided by operating activities for the year ended December 31, 2024 was $70.0 million, compared to $68.4 million for the same period in 2023. During the 2024 year there was a lower aggregate gain on the sale of investment properties, an impairment loss on an investment property, increases in accounts payable and accrued expenses and other assets and liabilities, and an increase in non-cash LTIP compensation expense, partially offset by lower net income, lower non-cash depreciation and amortization expenses, and a higher tenant receivables balance.

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Net cash used in investing activities for the year ended December 31, 2024 was $45.9 million, compared to net cash provided by investing activities of $67.6 million for the same period in 2023. During the 2024 year we used more funds to acquire investment properties, we received less net proceeds from the sale of investment properties, more funds were used for capital expenditures on existing real estate investments and leasing commissions, and we invested funds in an unconsolidated joint venture.

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Net cash used in financing activities for the year ended December 31, 2024 was $21.9 million, compared to $143.8 million for the same period in 2023. During the 2024 year, 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.

Off Balance Sheet Arrangements

We own an interest in an unconsolidated joint venture as described in Note 2 – “Summary of Significant Accounting Policies” in the footnotes to the Consolidated Financial Statements. The joint venture has mortgage debt of $17.6 million, of which our share is $2.2 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

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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 Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.

Funds from Operations and Adjusted Funds from Operations

Funds from operations (“FFO”) and adjusted funds from operations (“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, property impairment losses, 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.

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, severance and transition related expense, 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.

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A reconciliation of FFO and AFFO for the years ended December 31, 2024, 2023, and 2022 is as follows:

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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, property impairment losses, and adjustments for unconsolidated partnerships and joint ventures, 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, severance and transition related expense, transaction 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.

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A reconciliation of net income to EBITDAre and Adjusted EBITDAre for the years ended December 31, 2024, 2023, and 2022 is as follows:

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ITEM 7.   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 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 in this Report 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 the section in this Report entitled “Risk Factors.” Unless otherwise indicated, all dollar and share amounts in the following discussion are presented in thousands.

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:

Overview

Global Medical REIT Inc. (the “Company,” “us,” “we,” or “our”) is a Maryland corporation and internally managed REIT that owns and 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 December 31, 2023, we owned 92.91% of the outstanding common operating partnership units (“OP Units”) of our Operating Partnership, with an aggregate of 7.09% 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.

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2023 Executive Summary

The following tables summarize the primary changes in our business and operations during the years presented.

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Our Properties

Completed Acquisitions

During the year ended December 31, 2023 we completed one acquisition encompassing 18,698 leasable square feet for a contractual purchase price of $6.7 million with annualized base rent of $0.5 million. We funded this acquisition primarily through the issuance of OP Units to the seller. As of December 31, 2023, our portfolio consisted of gross investment in real estate of $1.4 billion, with an aggregate of 4.7 million leasable square feet and an aggregate $110.2 million of annualized base rent.

Completed Property Dispositions

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During the year ended December 31, 2023, the Company completed three dispositions that generated aggregate gross proceeds of $80.5 million, resulting in an aggregate gain of $15.6 million.

Debt Activity

During the year ended December 31, 2023, we borrowed $83.1 million under our Credit Facility and repaid $136.4 million, for a net amount repaid of $53.3 million. As of December 31, 2023, the net outstanding Credit Facility balance was $307.6 million and as of February 26, 2024, we had unutilized borrowing capacity under the Credit Facility of $293.6 million.

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In December 2023, we completed the defeasance of a CMBS loan by making a total payment of $31.5 million, including transaction costs, that was funded by borrowings on our Revolver. The carrying value of the loan, net of unamortized debt issuance costs, was $30.6 million on the date of the defeasance, resulting in a loss on extinguishment of debt of $0.9 million. In connection with the loan defeasance, we subsequently received $8.4 million in escrowed funds held by the CMBS servicer and used those funds to reduce our total debt.

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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, from time to time, shares of our common stock (the “2024 ATM Program”). No shares were sold under the 2024 ATM Program from January 2024 through February 26, 2024.

Trends Which May Influence Our Results of Operations

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

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

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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.

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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.

For a more detailed discussion of our significant accounting policies, see Note 2 – “Summary of Significant Accounting Policies” in the footnotes to the accompanying consolidated financial statements. Below is a discussion of accounting policies that we consider critical in that it may require complex judgment in its application or require estimates about matters that are inherently uncertain.

We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

●Investment in Real Estate

●Impairment of Long-Lived Assets

●Revenue Recognition

Investment in Real Estate

All of our facility acquisitions for the years ended December 31, 2023 and 2022 were accounted for as asset acquisitions because substantially all of the fair value of the gross assets that we acquired were concentrated in a single asset or group of similar identifiable assets. Accordingly, the purchase prices of acquired tangible and intangible assets and liabilities were recorded and allocated at fair value on a relative basis. The recorded allocations are based on estimated cash flow projections of the properties acquired, which incorporates discount, capitalization and interest rates as well as available comparable market information. We use considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods, and costs to execute similar leases.

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While our methodology for purchase price allocations did not change during the year ended December 31, 2023, the real estate market is fluid and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value allocated to acquired tangible and intangible assets and liabilities.

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In the case of the fair value of buildings and fair value of land and certain other intangibles, our estimates of the values of these components will affect the amount of depreciation or amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the fair value of above-market or below-market lease intangibles, our estimates of the values of these components will affect the amount of rental revenue we record as these values are amortized as a reduction of or an addition to rental income over the estimated remaining term of the respective leases.

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Impairment of Long-Lived Assets

We review our real estate assets on an asset group basis for impairment. We identify an asset group based on the lowest level of identifiable cash flows. In the impairment analysis we must determine whether there are indicators of impairment. For operating properties, these indicators could include a reduction in our estimated hold period, a significant decline in a property’s leasing percentage, a current period operating loss or negative cash flows combined with a history of losses at the property, a significant decline in lease rates for that property or others in the property’s market, a significant change in the market value of the property, or an adverse change in the financial condition of significant tenants.

If we determine that an asset has indicators of impairment, we must determine whether the undiscounted cash flows associated with the asset exceed the carrying amount of the asset. In calculating the undiscounted net cash flows of an asset, we use considerable judgement to estimate a number of inputs. We must estimate future rental rates, future capital expenditures, future operating expenses, and market capitalization rates for residual values, among other things. In addition, if there are alternative strategies for the future use of the asset, we assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset.

In determining the fair value of an asset, we exercise considerable judgment on a number of factors. We may determine fair value by using a discounted cash flow calculation or by utilizing comparable market information. We use judgement to determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. We also use judgment in analyzing comparable market information because no two real estate assets are identical in location and price.

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The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed. Additionally, changes in economic and operating conditions, including changes in the financial condition of our tenants, and changes to our intent and ability to hold the related asset, that occur subsequent to our impairment assessment could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

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Revenue Recognition

Our operations primarily consist of rental revenue earned from tenants under leasing arrangements which provide for minimum rent and escalations. Management exercises considerable judgment in the rental property revenue recognition process including the treatment of the contractual rental stream and the determination of its collectability.

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Our 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, when we believe substantially all lease income, including the related straight-line receivable, is probable of collection.

We monitor the liquidity and creditworthiness of our tenants and operators and exercise considerable judgement in assessing the probability of collection. Our assessment of collectability incorporates available operational performance measures such as sales and the aging of billed amounts as well as other publicly available information with respect to our tenant’s financial condition, liquidity and capital resources, including declines in such conditions. In the event that we determine receivables are not probable of collection, lease income will be recorded on a cash basis, with the corresponding tenant receivable and straight-line rent receivable charged as a direct write-off against rental revenue in the period of the change in our collectability determination. If management’s assumptions regarding the collectability of lease-related receivables prove incorrect, we could experience decreases in rental revenue, including decreases in excess of any amounts initially recognized.

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Consolidated Results of Operations

The major factors that resulted in variances in our results of operations for each revenue and expense category for the year ended December 31, 2023 compared to the year ended December 31, 2022, were higher interest rates, significantly lower acquisition activity, increased disposition activity, and the recognition of a reserve related to one tenant. Regarding acquisitions, we completed one acquisition for a contractual purchase price of $6.7 million during the year ended December 31, 2023 compared to 14 completed acquisitions for an aggregate contractual purchase price of $148.9 million during the year ended December 31 2022. Regarding dispositions, we had three property dispositions during the year ended December 31, 2023 that generated aggregate gross proceeds of $80.5 million compared to one property disposition during the year ended December 31, 2022 that generated gross proceeds of $17.9 million. Our total investments in real estate, net of accumulated depreciation and amortization, was $1.2 billion and $1.3 billion as of December 31, 2023 and 2022, respectively.

For a discussion related to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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Revenue

Total Revenue

Total revenue for the year ended December 31, 2023 was $141.0 million, compared to $137.3 million for the same period in 2022, an increase of $3.7 million. The increase primarily resulted from the recognition of a full year of rental revenue in 2023 from acquisitions that were completed during 2022, partially offset by the impact of property dispositions and the recognition of reserves for $0.9 of rent and the write-off of $0.2 million of deferred rent. Within that increase, $19.5 million in revenue was recognized from net lease expense recoveries during the year ended December 31, 2023, compared to $18.7 million for the same period in 2022.

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Expenses

General and Administrative

General and administrative expenses for the year ended December 31, 2023 were $16.9 million, compared to $16.5 million for the same period in 2022, an increase of $0.4 million. The increase resulted from an increase in cash compensation costs and general corporate expenses, partially offset by a reduction in non-cash LTIP compensation expense, which was $4.2 million for the year ended December 31, 2023, compared to $4.7 million for the same period in 2022.

Operating Expenses

Operating expenses for the year ended December 31, 2023 were $28.1 million, compared with $25.2 million for the same period in 2022, an increase of $2.9 million. The increase results primarily from $19.5 million of recoverable property operating expenses incurred during the year ended December 31, 2023, compared to $18.7 million for the same period in 2022. In addition, our operating expenses included $5.9 million of non-recoverable property operating expenses from gross leases for the year ended December 31, 2023, compared to $4.7 million for the same period in 2022.

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Depreciation Expense

Depreciation expense for the year ended December 31, 2023 was $41.3 million, compared to $40.0 million for the same period in 2022, an increase of $1.3 million. The increase resulted primarily from the recognition of a full year of depreciation expense in 2023 from acquisitions that were completed during 2022, partially offset by the impact of property dispositions.

Amortization Expense

Amortization expense for the year ended December 31, 2023 was $16.9 million, compared to $16.7 million for the same period in 2022, an increase of $0.2 million. The increase resulted primarily from the recognition of a full year of amortization expense in 2023 from acquisitions that were completed during 2022, partially offset by the impact of property dispositions.

Interest Expense

Interest expense for the year ended December 31, 2023 was $30.9 million, compared to $25.2 million for the same period in 2022, an increase of $ 5.7 million. This increase was due to increased interest rates, partially offset by lower average borrowings during the year ended December 31, 2023, compared to the same period in 2022.

The weighted average interest rate of our debt for the year ended December 31, 2023 was 4.12% compared to 3.43% in 2022. Additionally, the weighted average interest rate and term of our debt was 3.83% and 2.9 years, respectively, at December 31, 2023.

Income Before Gain on Sale of Investment Properties and Loss on Extinguishment of Debt

Income before gain on sale of investment properties and loss on extinguishment of debt for the year ended December 31, 2023 was $8.1 million, compared to $13.2 million for the same period in 2022, a decrease of $5.1 million.

Gain on Sale of Investment Properties

During the year ended December 31, 2023, we completed three dispositions. 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.

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During the year ended December 31, 2022, we sold a medical office building located in Germantown, Tennessee receiving gross proceeds of $17.9 million, resulting in a gain of $6.8 million.

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Loss on Extinguishment of Debt

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In December 2023, we completed the defeasance of a CMBS loan by making a total payment of $31.5 million, including transaction costs, that was funded by borrowings on our Revolver. The carrying value of the loan, net of unamortized debt issuance costs, was $30.6 million on the date of the defeasance, resulting in a loss on extinguishment of debt of $0.9 million. In connection with the loan defeasance, we subsequently received $8.4 million in escrowed funds held by the CMBS servicer and used those funds to reduce our total debt.

Net Income

Net income for the year ended December 31, 2023 was $22.8 million compared to $20.0 million for the same period in 2022, an increase of $2.8 million.

Assets and Liabilities

As of December 31, 2023 and 2022, our principal assets consisted of investments in real estate, net, of $1.2 billion and $1.3 billion, respectively. We completed one acquisition during the year ended December 31, 2023 and sold six medical office buildings through three disposition transactions. Our liquid assets consisted primarily of cash and cash equivalents and restricted cash of $6.7 million and $14.5 million, as of December 31, 2023 and 2022, respectively.

The decrease in our cash and cash equivalents and restricted cash balances to $6.7 million as of December 31, 2023, compared to $14.5 million as of December 31, 2022, was primarily due to net repayments on our Credit Facility primarily using funds from our property dispositions, funds used to pay dividends to our common and preferred stockholders and holders of OP Units and LTIP Units, a payment for the defeasance of a CMBS loan, and funds used for capital expenditures on existing real estate investments, partially offset by net proceeds received from the sale of investment properties and net cash provided by operating activities.

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The decrease in our total liabilities to $662.0 million as of December 31, 2023 compared to $744.2 million as of December 31, 2022, was primarily the result of lower net borrowings outstanding.

Liquidity and Capital Resources

General

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

In 2024, we are contractually obligated to pay, or have capital commitments for, approximately (i) $34.8 million of principal and interest payments on our outstanding debt, and (ii) $0.7 million in ground and operating lease expenses. In addition, if we decide to redeem our preferred stock, we would have to pay the liquidation preference of $77.6 million plus accrued dividends, fees and expenses.

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Our long-term (beyond 12 months) liquidity requirements consist primarily of funds necessary to pay for acquisitions, capital and tenant improvements 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, approximately (i) $655.5 million of principal and interest payments on our outstanding debt, and (ii) $12.7 million in 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.

As of December 31, 2023, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $18 million. 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 existing and proposed leases, capital improvement obligations in the next 12 months are expected to total approximately $14 million.

Internal Sources of Liquidity

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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

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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.

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Equity Issuances

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In January 2024, the Company and the Operating Partnership implemented the 2024 ATM Program, pursuant to which we may offer and sell, from time to time, shares of our common stock. No shares were sold under the 2024 ATM Program from January 2024 through February 26, 2024. In March 2022, the Company and the Operating Partnership implemented a $300 million “at-the-market” equity offering program, pursuant to which the Company could offer and sell, from time to time, shares of its common stock (the “2022 ATM Program”). No shares were sold under the 2022 ATM Program during the year ended December 31, 2023. The 2022 ATM Program was terminated in connection with implementing the 2024 ATM Program.

Debt Financing.

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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 February 26, 2024, we had unutilized borrowing capacity under the Credit Facility of $293.6 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 December 31, 2023, management believed it complied with all of the financial and non-financial covenants contained in the Credit Facility.

Other Fixed Debt. We have $26.0 million in gross notes payable as of December 31, 2023, which is comprised of three instruments.

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Hedging Instruments. We have ten interest rate swaps and three forward-starting interest rate swaps that are used to manage our interest rate risk.  A description of these swaps is below:

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Term Loan A Swaps

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As of December 31, 2023, six of our interest rate swaps related to Term Loan A. The combined notional value of these swaps is $350 million, with $200 million of the swaps maturing in August 2024 and the remaining $150 million maturing in April 2026. In addition, we have three forward starting interest rate swaps with a combined notional value of $200 million, each with a maturity date of April 2026, that will become effective on the August 2024 maturity date of the existing swaps. Currently, the Term Loan A swaps fix the SOFR component of Term Loan A at a rate of 1.50% through August 2024. From August 2024 to April 2026 the SOFR component of Term Loan A will be fixed at 1.36%.

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Term Loan B Swaps

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As of December 31, 2023, 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%.

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Total Fixed Debt. Our fixed debt totaled $526.0 million on a gross basis at December 31, 2023, with a weighted average interest rate of 3.31% based on our interest rate swaps and at current leverage. The weighted average maturity of our fixed debt was 2.8 years at December 31, 2023. Due to our forward starting interest rate swaps related to Team Loan A, the weighted average interest rate on fixed debt outstanding as of December 31, 2023 is expected to improve over the next two years.

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Cash Flow Information

Net cash provided by operating activities for the year ended December 31, 2023 was $67.6 million, compared to $76.5 million for the same period in 2022. The decrease during the 2023 year was primarily due to lower income before gain on sale of investment properties.

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Net cash provided by investing activities for the year ended December 31, 2023 was $67.6 million, compared to net cash used in investing activities of $137.3 million for the same period in 2022. During the 2023 year less funds were used to complete property acquisitions and we received more net proceeds from the sale of investment properties.

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Net cash used in financing activities for the year ended December 31, 2023 was $143.8 million, compared to net cash provided by financing activities with $62.4 million for the same period in 2022. During the 2023 year we completed no common equity offerings and therefore did not receive any equity offering proceeds, we made net repayments on our Credit Facility, and we made a payment for the defeasance of a CMBS loan.

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,

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these measures should be examined in conjunction with net income and cash flows from operations as presented in the Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.

Funds from Operations and Adjusted Funds from Operations

Funds from operations (“FFO”) and adjusted funds from operations (“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.

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.

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A reconciliation of FFO and AFFO for the years ended December 31, 2023, 2022, and 2021 is as follows:

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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.

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A reconciliation of net income to EBITDAre and Adjusted EBITDAre for the years ended December 31, 2023, 2022, and 2021 is as follows:

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ITEM 7.   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 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 in this Report 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 the section in this Report entitled “Risk Factors.”

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:

Overview

Global Medical REIT Inc. (the “Company,” “us,” “we,” or “our”) is an internally managed REIT that acquires healthcare facilities and leases those facilities to physician groups and regional and national healthcare systems. We conduct our business through an umbrella partnership REIT, or UPREIT, structure in which our properties are owned by wholly owned subsidiaries of our operating partnership, 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 December 31, 2022, we owned 93.97% of the outstanding common operating partnership units (“OP Units”) of our Operating Partnership, with an aggregate of 6.03% 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.

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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 off our Credit Facility, and stock issuances.

2022 Executive Summary

The following tables summarize the material changes in our business and operations during the years presented.

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Our Properties

Completed Acquisitions

During the year ended December 31, 2022, we completed 14 acquisitions encompassing an aggregate of 583,253 leasable square feet for an aggregate contractual purchase price of $148.9 million with annualized base rent of $11.0 million. As of December 31, 2022, our portfolio consisted of gross investment in real estate of $1.5 billion, which was comprised of 189 buildings with an aggregate of 4.9 million leasable square feet and $114.5 million of annualized base rent.

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Completed Property Dispositions

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In July 2022, we sold a medical office building located in Germantown, Tennessee receiving gross proceeds of $17.9 million, resulting in a gain of approximately $6.8 million.

Capital Raising Activity

During the year ended December 31, 2022, the Company generated gross proceeds of $10.3 million through at-the-market ("ATM") equity issuances of 0.6 million shares of the Company’s common stock at an average offering price of $17.15 per share.

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Debt and Hedging Activity

On August 1, 2022, we entered into an amendment to the Credit Facility (the “Amendment”), that, among other things, (i) added a new $150 million term loan, which matures on February 1, 2028 (the “Term Loan B”), (ii) extended the maturity date of the Revolver from May 2025 to August 2026, and (iii) transitioned all LIBOR-based loans under the Credit Facility to SOFR-based loans. LIBOR-based interest rates on amounts outstanding under the Credit Facility were transitioned to a SOFR-based interest rate equal to term SOFR plus a related spread adjustment of 10 basis points and a borrowing spread based on the current pricing grid in the Credit Facility. We may be entitled to a temporary reduction in the interest rate of two basis points provided we meet certain to be agreed upon sustainability goals.

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We have entered into interest rate swaps to hedge our interest rate risk on the Term Loans through their respective maturities.  For additional information related to our interest rate swaps, see the “Liquidity and Capital Resources – Debt Financing – Hedging Instruments” section herein.

During the year ended December 31, 2022, we borrowed $138.6 million under our Credit Facility and repaid $15.5 million, for a net amount borrowed of $123.1 million. As of December 31, 2022, the net outstanding Credit Facility balance was $636.4 million and as of February 24, 2023, we had unutilized borrowing capacity under the Credit Facility of $245.0 million.

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Recent Developments

Chapter 11 Reorganization Filing of Pipeline Health System, LLC

On October 3, 2022, Pipeline Health System, LLC (“Pipeline”), announced that it filed for Chapter 11 bankruptcy protection under the United States Bankruptcy Code. At the time of its bankruptcy filing, Pipeline operated seven hospitals in three states, including the White Rock Medical Center in Dallas, Texas, an acute-care hospital owned by the Company where Pipeline is the sole tenant. According to the filed bankruptcy documents, although Pipeline has experienced the same labor and reimbursement pressures that many acute-care hospitals have been facing since the beginning of the COVID-19 pandemic, the primary reason for the bankruptcy filing relates to Pipeline’s facilities in Chicago, Illinois, and not the White Rock Medical Center. While in bankruptcy, Pipeline sold its facilities in Chicago, Illinois and on January 13, 2023, the bankruptcy court approved Pipeline’s plan of reorganization (the “Reorganization Plan”).  As part of the Reorganization Plan, Pipeline agreed to assume our leases at White Rock Medical Center with certain amendments to facilitate its emergence from bankruptcy and new operating plan. The Reorganization Plan with respect to the Company’s leases with Pipeline was effective as of February 6, 2023.

Acquisition Under Contract

As of February 24, 2023, we had one acquisition under contract for a purchase price of approximately $6.7 million. We are currently in the due diligence period for our property under contract. If we identify problems with this property or the operator of this property during our due diligence review, we may not close the transaction on a timely basis or we may terminate the purchase agreement and not close the transaction.

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Properties Under Contract for Sale

As of February 24, 2023, we had two properties under contract for sale for aggregate gross sales proceeds of approximately $11.6 million and an aggregate net book value of $8.3 million. The transactions are expected to be completed by March 31, 2023. The buyers are currently in the due diligence periods and the transactions are subject to various closing contingencies. Accordingly, the transactions may not close on a timely basis or the buyers may terminate the purchase agreements and not close the transactions.

Trends Which May Influence Our Results of Operations

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

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

The rapid increase in inflation and interest rates caused the common stock prices of many REITs, including the Company’s, to fall significantly during 2022. Although the Company’s stock price has been increasing in 2023 to date, it has not yet returned to a level that would cause the Company’s cost of capital to return to levels seen in early 2022. This decrease in stock price and increase in interest rates has significantly increased the Company’s cost of capital, which, in turn, has significantly reduced its ability to acquire assets that meet the Company’s investment requirements.

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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.

For a more detailed discussion of our significant accounting policies, see Note 2 – “Summary of Significant Accounting Policies” in the footnotes to the accompanying consolidated financial statements. Below is a discussion of accounting policies that we consider critical in that it may require complex judgment in its application or require estimates about matters that are inherently uncertain.

We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

●Investment in Real Estate

●Impairment of Long-Lived Assets

●Revenue Recognition

Investment in Real Estate

All of our facility acquisitions for the years ended December 31, 2022 and 2021 were accounted for as asset acquisitions because substantially all of the fair value of the gross assets that we acquired were concentrated in a single asset or group of similar identifiable assets. Accordingly, the purchase prices of acquired tangible and intangible assets and liabilities were recorded and allocated at fair value on a relative basis. The recorded allocations are based on estimated cash flow projections of the properties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. We use considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods, and costs to execute similar leases.

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While our methodology for purchase price allocations did not change during the year ended December 31, 2022, the real estate market is fluid and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value allocated to acquired tangible and intangible assets and liabilities.

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In the case of the fair value of buildings and fair value of land and certain other intangibles, our estimates of the values of these components will affect the amount of depreciation or amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the fair value of above-market or below-market lease intangibles, our estimates of the values of these components will affect the amount of rental revenue we record as these values are amortized as a reduction of or an addition to rental income over the estimated remaining term of the respective leases.

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Impairment of Long-Lived Assets

We review our real estate assets on an asset group basis for impairment. We identify an asset group based on the lowest level of identifiable cash flows. In the impairment analysis we must determine whether there are indicators of impairment. For operating properties, these indicators could include a reduction in our estimated hold period, a significant decline in a property’s leasing percentage, a current period operating loss or negative cash flows combined with a history of losses at the property, a significant decline in lease rates for that property or others in the property’s market, a significant change in the market value of the property, or an adverse change in the financial condition of significant tenants.

If we determine that an asset has indicators of impairment, we must determine whether the undiscounted cash flows associated with the asset exceed the carrying amount of the asset. In calculating the undiscounted net cash flows of an asset, we use considerable judgement to estimate a number of inputs. We must estimate future rental rates, future capital expenditures, future operating expenses, and market capitalization rates for residual values, among other things. In addition, if there are alternative strategies for the future use of the asset, we assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset.

In determining the fair value of an asset, we exercise considerable judgment on a number of factors. We may determine fair value by using a discounted cash flow calculation or by utilizing comparable market information. We use judgement to determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. We also use judgment in analyzing comparable market information because no two real estate assets are identical in location and price.

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The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed. Additionally, changes in economic and operating conditions, including changes in the financial condition of our tenants, and changes to our intent and ability to hold the related asset, that occur subsequent to our impairment assessment could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

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Revenue Recognition

Our operations primarily consist of rental revenue earned from tenants under leasing arrangements which provide for minimum rent and escalations. Management exercises considerable judgment in the rental property revenue recognition process including the treatment of the contractual rental stream and the determination of its collectability.

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Our 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, when we believe substantially all lease income, including the related straight-line receivable, is probable of collection.

We monitor the liquidity and creditworthiness of our tenants and operators and exercise considerable judgement in assessing the probability of collection. Our assessment of collectability incorporates available operational performance measures such as sales and the aging of billed amounts as well as other publicly available information with respect to our tenant’s financial condition, liquidity and capital resources, including declines in such conditions. In the event that we determine receivables are not probable of collection, lease income will be recorded on a cash basis, with the corresponding tenant receivable and straight-line rent receivable charged as a direct write-off against rental revenue in the period of the change in our collectability determination. If management’s assumptions regarding the collectability of lease related receivables prove incorrect, we could experience decreases in rental revenue, including decreases in excess of any amounts initially recognized.

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Consolidated Results of Operations

The major factors that resulted in variances in our results of operations for each revenue and expense category for the year ended December 31, 2022 compared to the year ended December 31, 2021, were the increase in the size of our property portfolio and related increases in rental revenue and operating expenses, as well as depreciation and amortization expenses. Rising interest rates and increased interest expense on our indebtedness also had a significant impact on our 2022 results of operations. Our total investments in real estate, net of accumulated depreciation and amortization, was $1.3 billion and $1.2 billion as of December 31, 2022 and 2021, respectively.

For a discussion related to our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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Revenue

Total Revenue

Total revenue for the year ended December 31, 2022 was $137.3 million, compared to $115.9 million for the same period in 2021, an increase of $21.4 million. The increase was primarily the result of rental revenue earned from the facilities we acquired during 2022, as well as from the recognition of a full year of rental revenue in 2022 from acquisitions that were completed during 2021. Within that increase, $18.7 million in revenue was recognized from net lease expense recoveries during the year ended December 31, 2022, compared to $11.6 million for the same period in 2021.

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Expenses

General and Administrative

General and administrative expenses for the year ended December 31, 2022 and 2021 were $16.5 million. A reduction in non-cash LTIP compensation expense, which was $4.7 million for the year ended December 31, 2022, compared to $5.8 million for the same period in 2021, was offset by an increase in cash compensation costs and general corporate expenses.

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Operating Expenses

Operating expenses for the year ended December 31, 2022 were $25.2 million, compared with $15.5 million for the same period in 2021, an increase of $9.7 million. The increase results primarily from $18.7 million of recoverable property operating expenses incurred during the year ended December 31, 2022, compared to $11.6 million for the same period in 2021. In addition, our operating expenses included $4.7 million of non-recoverable property operating expenses from gross leases for the year ended December 31, 2022, compared to $2.3 million for the same period in 2021.

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Depreciation Expense

Depreciation expense for the year ended December 31, 2022 was $40.0 million, compared to $33.8 million for the same period in 2021, an increase of $6.2 million. The increase resulted primarily from depreciation expense incurred on the facilities we acquired during 2022, as well as from the recognition of a full year of depreciation expense in 2022 from acquisitions that were completed during 2021.

Amortization Expense

Amortization expense for the year ended December 31, 2022 was $16.7 million, compared to $13.1 million for the same period in 2021, an increase of $3.6 million. The increase resulted primarily from amortization expense related to intangible assets connected to the facilities we acquired during 2022, as well as from the recognition of a full year of amortization expense in 2022 from acquisitions that were completed during 2021.

Interest Expense

Interest expense for the year ended December 31, 2022 was $25.2 million, compared to $19.7 million for the same period in 2021, an increase of $5.5 million. This increase was due to higher average borrowings as well as increased interest rates during the year ended December 31, 2022, compared to the same period in 2021.

The weighted average interest rate of our debt for the year ended December 31, 2022 was 3.43% compared to 3.06% in 2021. Additionally, the weighted average interest rate and term of our debt was 4.20% and 3.93 years, respectively, at December 31, 2022.

Income Before Gain on Sale of Investment Property

Income before gain on sale of investment property for the year ended December 31, 2022 was $13.2 million, compared to $17.3 million for the same period in 2021, a decrease of $4.1 million.

Gain on Sale of Investment Property

In July 2022, we sold a medical office building located in Germantown, Tennessee receiving gross proceeds of $17.9 million, resulting in a gain of $6.8 million. In October 2021, we sold a medical office building located in Prescott, Arizona receiving gross proceeds of $5.5 million, resulting in a gain of $1.1 million.

Net Income

Net income for the year ended December 31, 2022 was $20.0 million compared to $18.3 million for the same period in 2021, an increase of $1.7 million.

Assets and Liabilities

As of December 31, 2022 and 2021, our principal assets consisted of investments in real estate, net, of $1.3 billion and $1.2 billion, respectively. We completed 14 acquisitions during the year ended December 31, 2022. Our liquid assets consisted primarily of cash and cash equivalents and restricted cash of $14.5 million and $12.8 million, as of December 31, 2022 and 2021, respectively.

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The increase in our cash and cash equivalents and restricted cash balances to $14.5 million as of December 31, 2022, compared to $12.8 million as of December 31, 2021, was primarily due to borrowings on our Credit Facility, larger net proceeds received from the sale of an investment property during 2022, and net proceeds received from ATM equity issuances, partially offset by funds used to acquire real estate and pay dividends to our common and preferred stockholders and OP Unit and LTIP Unit holders of our Operating Partnership.

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The increase in our total liabilities to $744.2 million as of December 31, 2022 compared to $625.9 million as of December 31, 2021, was primarily the result of higher net borrowings outstanding, partially offset by a decrease in the derivative liability balance.

Liquidity and Capital Resources

General

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

In 2023, we are contractually obligated to pay, or have capital commitments for, approximately (i) $30.5 million of principal and interest payments on our outstanding debt, and (ii) $0.2 million in ground and operating lease expenses.  In addition, our preferred stock became redeemable by us in September 2022. The liquidation preference for our preferred stock is $77.6 million, and, if we decide to fully redeem, we will have to pay this amount plus fees and expenses.

Our long-term (beyond 12 months) liquidity requirements consist primarily of funds necessary to pay for acquisitions, capital and tenant improvements at our properties, scheduled debt maturities, general and administrative expenses, operating expenses, and distributions. Beyond 2023, we are contractually obligated to pay, or have capital commitments for, approximately (i) $788.9 million of principal and interest payments on our outstanding debt, and (ii) $13.0 million in 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.

As of December 31, 2022, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $30 million. 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 existing and proposed leases, capital improvement obligations in the next 12 months are expected to total approximately $10 million.

Internal Sources of Liquidity

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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

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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.

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Equity Issuances

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In March 2022, the Company and the Operating Partnership entered into a Sales Agreement with certain sales agents, pursuant to which the Company may offer and sell, from time to time, up to $300 million of its common stock.

During the year ended December 31, 2022, the Company generated gross proceeds of $10.3 million through equity issuances of 0.6 million shares of the Company’s common stock at an average offering price of $17.15 per share. We did not issue any shares under our ATM program during the third or fourth quarters of 2022 or to date in 2023.

Debt Financing.

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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 February 24, 2023, we had unutilized borrowing capacity under the Credit Facility of $245.0 million. As of August 1, 2022, LIBOR-based interest rates on amounts outstanding under the Credit Facility were transitioned to a SOFR-based interest rate equal to term 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 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 five months for Term Loan B.

We are subject to a number of financial covenants under the amended 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 December 31, 2022, management believed it complied with all of the financial and non-financial covenants contained in the Credit Facility.

Other Fixed Debt. We also have $58.1 million in gross notes payable as of December 31, 2022. This debt is comprised of four instruments.

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

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Term Loan A Swaps

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As of December 31, 2022, six of our interest rate swaps related to Term Loan A. The notional value of these swaps is $350 million, with $150 million of the swaps maturing in August 2023 and the remaining $200 million maturing in August 2024. In addition, we have five forward starting interest rate swaps that will be effective on the maturity dates of Term Loan A’s existing interest rate swaps. These forward starting swaps each have a maturity date of April 2026. Currently, the Term Loan A swaps fix the SOFR component of Term Loan A at a rate of 1.80% through August 2023. Subsequently, from August 2023 to August 2024 the SOFR component of Term Loan A will be fixed at 1.50%. Finally, from August 2024 to April 2026 the SOFR component of Term Loan A will be fixed at 1.36%.

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Term Loan B Swaps

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On August 2, 2022, we entered into four forward starting interest rate swaps related to Term Loan B with a notional value of $150 million that, beginning on October 1, 2022, fix the SOFR component on Term Loan B through January 2028 at 2.54%.

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Total Fixed Debt. Our fixed debt totaled $558.1 million on a gross basis at December 31, 2022, with a weighted average interest rate of 3.75% based on our interest rate swaps and at current leverage. The weighted average maturity of our fixed debt was 3.8 years at December 31, 2022. Due to our forward swap structures, the weighted average interest rate on fixed debt outstanding as of December 31, 2022 is expected to improve over the next few years. Weighted average interest rates on the Company’s fixed debt are expected to decrease to approximately 3.67% in 2023, 3.50% in 2024, and 3.43% in 2025, based on the Company’s current leverage.

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Cash Flow Information

Net cash provided by operating activities for the year ended December 31, 2022 was $76.5 million, compared with $69.0 million for the same period in 2021. The increase during the 2022 period was primarily due to increases in depreciation and amortization expenses, partially offset by a larger gain from the sale of an investment property during 2022 and a decrease in non-cash LTIP compensation expense compared to the same period in 2021.

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Net cash used in investing activities for the year ended December 31, 2022 was $137.3 million, compared with $194.7 million for the same period in 2021. The decrease during the 2022 period was primarily the result of less real estate investment activity compared to the same period in 2021, partially offset by larger net proceeds received from the sale of an investment property during 2022.

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Net cash provided by financing activities for the year ended December 31, 2022 was $62.4 million, compared with $127.7 million for the same period in 2021. The decrease during the 2022 period was primarily due to less proceeds received from equity offerings, partially offset by net borrowings on our Credit Facility in 2022 compared to net repayments in 2021.

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 Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.

Funds from Operations and Adjusted Funds from Operations

Funds from operations (“FFO”) and adjusted funds from operations (“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.

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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.

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, recurring lease commissions, management internalization 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 FFO and AFFO for the years ended December 31, 2022, 2021, and 2020 is as follows:

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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 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 (loss) to EBITDAre and Adjusted EBITDAre for the years ended December 31, 2022, 2021, and 2020 is as follows:

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ITEM 7.   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 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 in this Report 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 the section in this Report entitled “Risk Factors.”

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:

Overview

We are an internally managed REIT that acquires healthcare facilities and leases those facilities to physician groups and regional and national healthcare systems.  We conduct our business through an umbrella partnership REIT, or UPREIT, structure in which our properties are owned by wholly owned subsidiaries of our operating partnership, 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

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and, as of December 31, 2021, we owned 94.35% of the outstanding common operating partnership units (“OP Units”) of our Operating Partnership, with an aggregate of 5.65% 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 off our credit facility, and stock issuances.

2021 Executive Summary

The following tables summarize the material changes in our business and operations during the years presented. The year ended December 31, 2020 included one-time charges of $14 million related to our management internalization transaction.

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Our Properties

Completed Acquisitions

During the year ended December 31, 2021, we completed 20 acquisitions encompassing an aggregate of 652,155 leasable square feet for an aggregate contractual purchase price of $189.1 million with annualized base rent of $14.1 million. As of December 31, 2021, our portfolio consisted of gross investment in real estate of $1.3 billion, which was comprised of 105 facilities with an aggregate of 4.3 million leasable square feet and $103.1 million of annualized base rent.

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Also during the year ended December 31, 2021, we completed and funded a $6.8 million expansion at one of our Oklahoma City facilities. In connection with this expansion, we are receiving additional rental income from the tenant, Mercy Rehabilitation Hospital, which equates to an 11.8% cash return on this expansion.

Properties Sold or Under Contract for Sale

On October 5, 2021, we entered into an agreement to sell a medical office building located in Belpre, Ohio for gross proceeds of approximately $44.6 million. The property had a net book value of approximately $29.5 million as of December 31, 2021. The transaction is expected to be completed no earlier than June 2022. The buyer is currently in the due diligence period and the transaction is subject to various closing contingencies. Accordingly, the transaction may not close on a timely basis, or the buyer may terminate the purchase agreement and not close the transaction. We intend to reinvest the sales proceeds in 2022 for future acquisitions.

On October 13, 2021, we sold a medical office building located in Prescott, Arizona receiving gross proceeds of $5.5 million, resulting in a gain of approximately $1.1 million.

Capital Raising Activity

On March 18, 2021, we closed an underwritten public offering of our common stock, including the related option to purchase additional shares granted to the underwriters. This transaction resulted in the issuance of 8.6 million shares of our common stock at a public offering price of $13.30 per share, generating gross proceeds of $114.7 million.

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During the year ended December 31, 2021, we generated gross proceeds of $97.9 million through at-the-market ("ATM") equity issuances of 6.7 million shares of our common stock at an average offering price of $14.56 per share.

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Debt and Hedging Activity

On May 3, 2021, we entered into an amended and restated credit facility (the “Credit Facility”) to, among other things, (i) increase the overall capacity of the facility from $600 million to $750 million, consisting of the  $400 million Revolver and a $350 million term loan component (the “Term Loan”), (ii) extend the term of the Revolver to May 2025, with two six-month extension options, and extend the maturity of the Term Loan component to May 2026, (iii) convert the facility from a secured to an unsecured facility and (iv) implement a new pricing matrix. The Credit Facility includes a $500 million accordion feature.

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On May 4, 2021, we entered into five forward starting interest rate swaps that will fix the LIBOR component on the Term Loan through its maturity. Currently, our interest rate swaps fix the LIBOR component of the Term Loan at a rate of 1.91% through August 2023. Subsequently, from August 2023 to August 2024 the LIBOR component of the Term Loan rate will be fixed at 1.61%.  Finally, from August 2024 to April 2026 the LIBOR component of the Term Loan rate will be fixed at 1.45%.

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During the year ended December 31, 2021, we borrowed $221.6 million under our Credit Facility and repaid $224.2 million, for a net amount repaid of $2.6 million. As of December 31, 2021 and February 25, 2022, the gross outstanding Credit Facility balance was $522.6 million and $527.5 million, respectively.

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Recent Developments

2022 Completed Acquisitions

From December 31, 2021 through February 25, 2022, we completed one acquisition encompassing an aggregate of 17,713 leasable square feet for a purchase price of $5.1 million with annualized base rent of $0.3 million.

Acquisitions Under Contract

As of February 25, 2022, we had seven acquisitions under contract for an aggregate purchase price of approximately $72.1 million. We are currently in the due diligence period for our properties under contract. If we identify problems with any of these properties or the operator of any property during our due diligence review, we may not close the transactions on a timely basis or we may terminate the purchase agreements and not close the transactions.

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Capital Raising

From December 31, 2021 through February 25, 2022, we generated gross proceeds of $8.3 million through ATM equity issuances of 0.5 million shares of our common stock at a weighted average offering price of $17.38 per share. As of February 25, 2022, we had $3.4 million remaining under the 2020 ATM Program.

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Trends Which May Influence Our Results of Operations

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

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

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The volatility of COVID-19, as recently evidenced by the trajectory of the Omicron variant, is unpredictable and there are no assurances that an equally or more volatile variant will not emerge in the future.  Although to date our liquidity and operational and financial performance has not been materially affected by the COVID-19 pandemic, including the recent Omicron variant, we cannot predict the effects future resurgences will have on our tenants and our business going forward.

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.

For a more detailed discussion of our significant accounting policies, see Note 2 – “Summary of Significant Accounting Policies” in the footnotes to the accompanying consolidated financial statements. Below is a discussion of accounting policies that we consider critical in that it may require complex judgment in its application or require estimates about matters that are inherently uncertain.

We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

●Investment in Real Estate

●Impairment of Long-Lived Assets

●Revenue Recognition

Investment in Real Estate

All of our facility acquisitions for the years ended December 31, 2021 and 2020 were accounted for as asset acquisitions because substantially all of the fair value of the gross assets that we acquired were concentrated in a single asset or group of similar identifiable assets. Accordingly, the purchase prices of acquired tangible and intangible assets and liabilities were recorded and allocated at fair value on a relative basis. The recorded allocations are based on estimated cash flow projections of the properties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. We use considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods, and costs to execute similar leases.

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While our methodology for purchase price allocations did not change during the year ended December 31, 2021, the real estate market is fluid and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value allocated to acquired tangible and intangible assets and liabilities.

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In the case of the fair value of buildings and fair value of land and certain other intangibles, our estimates of the values of these components will affect the amount of depreciation or amortization we record over the estimated useful life of the property acquired or

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the remaining lease term. In the case of the fair value of above-market or below-market lease intangibles, our estimates of the values of these components will affect the amount of rental revenue we record as these values are amortized as a reduction of or an addition to rental income over the estimated remaining term of the respective leases.

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Impairment of Long-Lived Assets

We review our real estate assets on an asset group basis for impairment. We identify an asset group based on the lowest level of identifiable cash flows. In the impairment analysis we must determine whether there are indicators of impairment. For operating properties, these indicators could include a reduction in our estimated hold period, a significant decline in a property’s leasing percentage, a current period operating loss or negative cash flows combined with a history of losses at the property, a significant decline in lease rates for that property or others in the property’s market, a significant change in the market value of the property, or an adverse change in the financial condition of significant tenants.

If we determine that an asset has indicators of impairment, we must determine whether the undiscounted cash flows associated with the asset exceed the carrying amount of the asset. In calculating the undiscounted net cash flows of an asset, we use considerable judgement to estimate a number of inputs. We must estimate future rental rates, future capital expenditures, future operating expenses, and market capitalization rates for residual values, among other things. In addition, if there are alternative strategies for the future use of the asset, we assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset.

In determining the fair value of an asset, we exercise considerable judgment on a number of factors. We may determine fair value by using a discounted cash flow calculation or by utilizing comparable market information. We use judgement to determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. We also use judgment in analyzing comparable market information because no two real estate assets are identical in location and price.

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The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed. Additionally, changes in economic and operating conditions, including changes in the financial condition of our tenants, and changes to our intent and ability to hold the related asset, that occur subsequent to our impairment assessment could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

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Revenue Recognition

Our operations primarily consist of rental revenue earned from tenants under leasing arrangements which provide for minimum rent and escalations. Management exercises considerable judgment in the rental property revenue recognition process including the treatment of the contractual rental stream and the determination of its collectability.

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Our 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, when we believe substantially all lease income, including the related straight-line receivable, is probable of collection.

We monitor the liquidity and creditworthiness of our tenants and operators and exercise considerable judgement in assessing the probability of collection. Our assessment of collectability incorporates available operational performance measures such as sales and the aging of billed amounts as well as other publicly available information with respect to our tenant’s financial condition, liquidity and capital resources, including declines in such conditions. In the event that we determine receivables are not probable of collection, lease income will be recorded on a cash basis, with the corresponding tenant receivable and straight-line rent receivable charged as a direct write-off against rental revenue in the period of the change in our collectability determination. If management’s assumptions regarding the collectability of lease related receivables prove incorrect, we could experience decreases in rental revenue, including decreases in excess of any amounts initially recognized.

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Consolidated Results of Operations

The major factors that resulted in variances in our results of operations for each revenue and expense category for the year ended December 31, 2021 compared to the year ended December 31, 2020 were (i) the increase in the size of our property portfolio (our total investments in real estate, net of accumulated depreciation and amortization, was $1.2 billion and $1.0 billion as of December 31, 2021 and 2020, respectively) and (ii) our management internalization transaction that was completed in July 2020.

For a discussion related to our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 8, 2021.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Revenue

Total Revenue

Total revenue for the year ended December 31, 2021 was $115.9 million, compared to $93.7 million for the same period in 2020, an increase of $22.2 million. The increase was primarily the result of rental revenue earned from the facilities we acquired during 2021, as well as from the recognition of a full year of rental revenue in 2021 from acquisitions that were completed during 2020. Within that increase, $11.6 million in revenue was recognized from net lease expense recoveries during the year ended December 31, 2021, compared to $8.9 million for the same period in 2020.

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Additionally, total revenue for the year ended December 31, 2021 reflected the recognition of a reserve for approximately $0.4 million of rent, which included $0.1 million of deferred rent. Total revenue for the year ended December 31, 2020 reflected the recognition of a reserve for approximately $1.4 million of rent, which included $0.4 million of deferred rent. These reserves relate to tenants for which the Company could not conclude that future rent collections were probable and, therefore, accounts for these tenants following the cash basis of accounting.

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Expenses

General and Administrative

General and administrative expenses for the year ended December 31, 2021 were $16.5 million, compared to $11.9 million for the same period in 2020, an increase of $4.6 million. The increase was primarily driven by our recognition of compensation-related costs and other administrative expenses that prior to the management internalization transaction were the obligation of our former advisor. In addition, this increase was due to an increase in non-cash LTIP compensation expense, which was $5.8 million for the year ended December 31, 2021, compared to $5.3 million for the same period in 2020.

Operating Expenses

Operating expenses for the year ended December 31, 2021 were $15.5 million, compared with $10.9 million for the same period in 2020, an increase of $4.6 million. The increase results primarily from $11.6 million of recoverable property operating expenses incurred during the year ended December 31, 2021, compared to $8.9 million for the same period in 2020.  In addition, our operating expenses include $2.3 million of non-recoverable property operating expenses from gross leases for the year ended December 31, 2021, compared to $1.2 million for the same period in 2020.

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Management Fees – related party

As a result of the completion of the management internalization transaction, we incurred no management fee expense for the year ended December 31, 2021.  Management fee expense was $4.0 million for the year ended December 31, 2020.

Depreciation Expense

Depreciation expense for the year ended December 31, 2021 was $33.8 million, compared to $26.7 million for the same period in 2020, an increase of $7.1 million. The increase resulted primarily from depreciation expense incurred on the facilities we acquired during 2021, as well as from the recognition of a full year of depreciation expense in 2021 from acquisitions that were completed during 2020.

Amortization Expense

Amortization expense for the year ended December 31, 2021 was $13.1 million, compared to $9.6 million for the same period in 2020, an increase of $3.5 million. The increase resulted primarily from amortization expense incurred on intangible assets related to the facilities we acquired during 2021, as well as from the recognition of a full year of amortization expense in 2021 from acquisitions that were completed during 2020.

Interest Expense

Interest expense for the year ended December 31, 2021 was $19.7 million, compared to $18.7 million for the same period in 2020, an increase of $1.0 million. This increase was primarily due to higher average borrowings during the year ended December 31, 2021, compared to the same period last year, the proceeds of which were primarily used to finance our property acquisitions during that time period, partially offset by lower interest rates.

The weighted average interest rate of our debt for the year ended December 31, 2021 was 3.06% compared to 3.41% in 2020. Additionally, the weighted average interest rate and term of our debt was 2.87% and 4.28 years, respectively, at December 31, 2021.

Management Internalization Expense

As a result of the completion of the management internalization transaction, we had no management internalization expense for the year ended December 31, 2021. Management internalization expense was $14.0 million for the year ended December 31, 2020, which included $12.1 million related to the settlement of a preexisting contractual relationship and $1.9 million of professional fees associated with the management internalization transaction.

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Income (Loss) Before Gain on Sale of Investment Property

Income before gain on sale of investment property for the year ended December 31, 2021 was $17.3 million, compared to loss before gain on sale of investment property of $(2.5) million for the same period in 2020, an increase of $19.8 million. The increase resulted from the one-time recognition of $14 million of management internalization expenses in 2020 and an increase in rental revenue during the current year, partially offset by an increase in total expenses.

Gain on Sale of Investment Property

On October 13, 2021, the Company sold a medical office building located in Prescott, Arizona receiving gross proceeds of $5.5 million, resulting in a gain of approximately $1.1 million.  The Company acquired the facility in February 2017. The Company had no property sales in 2020.

Net Income (Loss)

Net income for the year ended December 31, 2021 was $18.3 million compared to net loss of $(2.5) million for the same period in 2020, an increase of $20.8 million. The increase resulted from the one-time recognition of $14 million of management internalization expenses in 2020 and an increase in rental revenue during the current year and the gain on the sale of an investment property, partially offset by an increase in total expenses.

Assets and Liabilities

As of December 31, 2021 and 2020, our principal assets consisted of investments in real estate, net, of $1.2 billion and $1.0 billion, respectively. Our liquid assets consisted primarily of cash and cash equivalents and restricted cash of $12.8 million and $10.8 million, as of December 31, 2021 and 2020, respectively.

The increase in our investments in real estate, net, to $1.2 billion as of December 31, 2021 compared to $1.0 billion as of December 31, 2020, was primarily the result of the 20 acquisitions that we completed during the year ended December 31, 2021.

The increase in our cash and cash equivalents and restricted cash balances to $12.8 million as of December 31, 2021, compared to $10.8 million as of December 31, 2020, was primarily due to net proceeds received from common equity offerings, net proceeds received from the sale of an investment property, and net cash provided by operating activities. Cash inflows were partially offset by funds used to acquire real estate, paydown debt, pay debt issuance costs related to the Credit Facility, and pay dividends to our common and preferred stockholders and OP Unit and LTIP Unit holders of our Operating Partnership.

The decrease in our total liabilities to $625.9 million as of December 31, 2021 compared to $643.1 million as of December 31, 2020, was primarily the result of debt repayments during 2021 and the resulting lower net borrowings outstanding as well as a decrease in the derivative liability balance. This decrease was partially offset by an increases in dividends payable, accounts payable and accrued expenses, and prepaid rent.

Liquidity and Capital Resources

General

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

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In 2022, we are contractually obligated to pay, or have capital commitments for, approximately (i) $17.7 million of principal and interest payments on our outstanding debt, and (ii) $0.4 million in ground and operating lease expenses.  In addition, our preferred stock becomes redeemable by us beginning in September 2022. The liquidation preference for our preferred stock is $77.6 million, and, if we decide to fully redeem, we would have to pay this amount plus fees and expenses.

Our long-term (beyond 12 months) liquidity requirements consist primarily of funds necessary to pay for acquisitions, capital and tenant improvements at our properties, scheduled debt maturities, general and administrative expenses, operating expenses, and distributions. Beyond 2022, we are contractually obligated to pay, or have capital commitments for, approximately (i) $629.1 million of principal and interest payments on our outstanding debt (see — “Debt Financing” for a schedule of our debt maturities), and (ii) $6.7 million in 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.

As of December 31, 2021, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of approximately $28 million. 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 12 months could total up to approximately $24 million.

Internal Sources of Liquidity

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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

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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.

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Equity Issuances.

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On March 18, 2021, we closed an underwritten public offering of our common stock, including the related option to purchase additional shares granted to the underwriters. This transaction resulted in the issuance of 8.6 million shares of our common stock at a public offering price of $13.30 per share, generating gross proceeds of $114.7 million.

In August 2020, the Company and the Operating Partnership entered into a Sales Agreement with certain sales agents, pursuant to which the Company may offer and sell, from time to time, up to $150 million of its common stock (the “2020 ATM Program”). During the year ended December 31, 2021, we generated gross proceeds of $97.9 million through ATM equity issuances of 6.7 million shares of our common stock at an average offering price of $14.56 per share.

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From December 31, 2021 through February 25, 2022, we generated gross proceeds of $8.3 million through ATM equity issuances of 0.5 million shares of our common stock at a weighted average offering price of $17.38 per share. As of February 25, 2022, we had $3.4 million remaining under the 2020 ATM Program.

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Debt Financing.

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The table below provides a summary of our debt as of December 31, 2021 (dollars in thousands):

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(1) The weighted average interest rate on the Credit Facility Term Loan includes the impact of interest rate swaps discussed in the “Hedging Instruments” section below.

Credit Facility. As described in “Debt and Hedging Activity” above, the Credit Facility consists of a $350 million Term Loan and a $400 million Revolver. The Credit Facility also contains a $500 million accordion feature. As of February 25, 2022, we had unutilized borrowing capacity under the Revolver of approximately $222.5 million.

The Credit Facility is an unsecured facility with an initial term of four years for the Revolver (subject to two, six-month extension options) and an initial term of five years for the Term Loan. The Credit Facility also contains the following interest rate pricing grid:

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 $345 million plus 75% of all net proceeds raised through equity offerings subsequent to December 31, 2020. As of February 25, 2022, management believed it complied with all of the financial and non-financial covenants contained in the Credit Facility.

Hedging Instruments. We have six interest rate swaps with a total notional amount of $350 million that are used to manage our interest rate risk and fix the LIBOR component on the Term Loan. An aggregate of $150 million of the swaps mature in August 2023 and the remaining $200 million mature in August 2024. In addition, we have five forward starting interest rate swaps that will be effective on the maturity dates of the existing interest rate swaps. The forward starting swaps each have a maturity date of April 2026 and will fix the LIBOR component on the Term Loan through its maturity. Currently, the interest rate swaps fix the LIBOR component of the Term Loan at a rate of 1.91% through August 2023. Subsequently, from August 2023 to August 2024 the LIBOR component of the Term Loan rate will be fixed at 1.61%.  Finally, from August 2024 to April 2026 the LIBOR component of the Term Loan rate will be fixed at 1.45%.

LIBOR Transition. In July 2017, the FCA, which regulates LIBOR, announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the ARRC which identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts. On December 31, 2021, IBA, the administrator of LIBOR, announced plans to cease publication for all USD LIBOR tenors (except the one- and two-week tenors, which ceased on December 31, 2021) on June 30, 2023. The Credit Facility provides that, on or about the LIBOR cessation date (subject to an early opt-in election), LIBOR shall be replaced as a benchmark rate in the Credit Facility with term SOFR (or another alternative rate if term SOFR is not able to be determined), with such adjustments to cause the new benchmark rate to be economically equivalent to LIBOR at the time of the LIBOR cessation date.

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The Company’s interest rate swap agreements are indexed to LIBOR and the Company will need to enter into bilateral agreements with its swap counterparties to institute a fallback reference rate once LIBOR ceases to be published. It is expected that most market participants will transition to compounding SOFR as the new reference rate for derivative contracts. If the Company transitions its interest rate swaps to compounded SOFR, such transition may impact the effectiveness of its hedging instruments as the reference rate for the Credit Facility (term SOFR) will be different than the reference rate for its interest rate swaps (compounded SOFR).

Cash Flow Information

Net cash provided by operating activities for the year ended December 31, 2021 was $69.0 million, compared with $34.5 million for the same period in 2020. The increase during the 2021 period was primarily due to the increase in net income as well as increases in depreciation and amortization expenses for the year ended December 31, 2021 compared to the same period in 2020.

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Net cash used in investing activities for the year ended December 31, 2021 was $194.7 million, compared with $223.7 million for the same period in 2020. The decrease during the 2021 period was primarily the result of less real estate investment activity in the 2021 period compared to the same period in 2020, partially offset by net proceeds received from the sale of an investment property in 2021. Additionally, the prior year included cash paid to acquire our former advisor in connection with the management internalization transaction.

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Net cash provided by financing activities for the year ended December 31, 2021 was $127.7 million, compared with $192.7 million for the same period in 2020. The decrease was primarily due to net repayments on the Credit Facility, principal payments on our notes payable, the payment of debt issuance costs related to the Credit Facility, and higher dividends paid to our common stockholders, partially offset by net proceeds received from our common stock offerings.

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 Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.

Funds from Operations and Adjusted Funds from Operations

Funds from operations (“FFO”) and adjusted funds from operations (“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

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(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 expense, providing perspective not immediately apparent from the closest GAAP measurement, net income or loss.

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, recurring lease commissions, management internalization 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 FFO and AFFO for the years ended December 31, 2021, 2020, and 2019 is as follows:

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