MedEquities Realty Trust Reports First Quarter 2018 Results
Highlights – First Quarter and Year to Date
- Reported results attributable to common stockholders for the first quarter of 2018 of net income of
$0.16 per diluted share, Funds from Operations ("FFO") of$0.29 per diluted share and Adjusted FFO ("AFFO") of$0.30 per diluted share. - Invested or committed to invest
$29.4 million (up to$73 million if Company purchase options are exercised) in an inpatient psychiatric hospital, an inpatient rehabilitation hospital and a mezzanine loan on an existing skilled nursing/assisted living facility as well as additional fundings on existing investments. - Increased 2018 per share guidance for net income attributable to common stockholders of
$0.64 to$0.66 and reaffirmed 2018 per share guidance for FFO of$1.17 to$1.21 and AFFO of$1.18 to$1.22 . - Declared a regular cash dividend of
$0.21 per share for the first quarter of 2018.
Financial Results for the First Quarter of 2018
Net income attributable to common stockholders for the quarter ended
FFO for the quarter ended
AFFO for the quarter ended
Investment Activity
As of
The significant transactions in the first quarter of 2018 are as follows:
- On
January 8, 2018 , the Company agreed to provide a loan of up to$19.0 million at an annual interest rate of 10.0% toHaven Behavioral Healthcare , an operator of inpatient psychiatric hospitals in five states, for a three-year term to fund the purchase and conversion of an existing long-term acute care hospital to a 72-bed, 60,029-square-foot inpatient psychiatric hospital inBoise, Idaho . The loan, of which$7.9 million was outstanding atMarch 31, 2018 , is secured by a first mortgage on the property. Upon completion, the Company has the exclusive right to purchase the facility for a purchase price equal to the outstanding loan balance in a sale-leaseback transaction with a 15-year triple-net lease at an initial lease rate of 9.3%. - On
January 31, 2018 , the Company provided a mezzanine loan of$5.4 million at an annual cash interest rate of 8.5% toCobalt Medical Development to partially fund the construction of a 42-bed, 57,275-square-foot inpatient rehabilitation hospital to be operated by Cobalt Rehabilitation Hospitals inClarksville, Indiana , a suburb ofLouisville, Kentucky . The three-year loan was fully funded at closing and has an annual accrued interest rate of 9.5%, which has a claw-back feature that would equate to a 15.0% annual interest rate from the inception of the loan should the Company elect not to exercise its option to purchase the new facility upon completion for approximately$26.0 million pursuant to a 20-year triple-net lease at an initial lease rate of 9.0%. - On
March 29, 2018 , the Company originated a$5.0 million mortgage note receivable with a subsidiary real estate entity ofGruenePointe Holdings, LLC , which is secured by a second lien on a skilled nursing and assisted living facility (Adora Midtown Park ) and a first lien on an additional parcel of land inDallas, Texas . The loan has a two-year term and accrues interest at an annual interest rate of 10.0% that is payable on the maturity date ofMarch 29, 2020 . The Company has an existing purchase option onAdora Midtown Park for a gross purchase price not to exceed approximately$28.0 million , plus an earnout based on the facility's earnings before interest, taxes, depreciation, amortization and rent expense ("EBITDAR") during the three years following the closing date of the acquisition.
Quarterly Distributions to Common Stockholders
On
Guidance for 2018
For the year ending
A reconciliation of projected net income attributable to common stockholders per diluted share to projected FFO and AFFO per diluted share is provided as follows:
Full Year |
||||||||
2018 Range |
||||||||
Low |
High |
|||||||
Net income attributable to common stockholders |
$ |
0.64 |
$ |
0.66 |
||||
Add: Real estate depreciation & amortization, net of noncontrolling interest |
0.53 |
0.55 |
||||||
FFO attributable to common stockholders |
1.17 |
1.21 |
||||||
Stock-based compensation expense |
0.11 |
0.11 |
||||||
Deferred financing costs amortization |
0.04 |
0.04 |
||||||
Straight-line rental income, net of noncontrolling interest |
(0.16) |
(0.16) |
||||||
Other adjustments (1) |
0.02 |
0.02 |
||||||
AFFO attributable to common stockholders |
$ |
1.18 |
$ |
1.22 |
______________________________ |
|
(1) |
Includes adjustments for non-real estate depreciation and straight-line rent expense. |
The Company's guidance for net income attributable to common stockholders, FFO and AFFO for 2018 is based on the following assumptions:
- Total investment volume of
$45 million to$125 million ($45 million of which reflects transactions that have already been announced and are expected to be funded during 2018) - Initial cash yields on additional investments, in excess of the
$45 million of previously announced transactions, of 8.0% to 9.0% - Cash general and administrative expenses of approximately
$9.0 million - Interest expense of approximately
$11.6 million to$13.4 million , including approximately$1.2 million to$1.3 million in amortization of deferred financing costs - Weighted average diluted share count of 31.7 million
Portfolio Update
The Company's stabilized, single-tenanted portfolio and its skilled nursing facility ("SNF") portfolio continued to perform as expected for the twelve months ended
For the reporting period ended
Earnings Conference Call and Webcast
The Company will host a conference call and live audio webcast, both open for the general public to hear, later today at
The live audio webcast of the Company's quarterly conference call will be available online in the Investor Relations section of the Company's website at ir.medequities.com. The online replay will be available approximately one hour after the end of the call and archived for approximately twelve months.
About
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the
|
||||
Consolidated Balance Sheets |
||||
(in thousands, except per share amounts) |
||||
|
|
|||
Assets |
(unaudited) |
|||
Real estate properties |
||||
Land |
$ 43,181 |
$ 43,180 |
||
Building and improvements |
505,699 |
505,623 |
||
Intangible lease assets |
11,387 |
11,387 |
||
Furniture, fixtures, and equipment |
3,538 |
3,538 |
||
Less accumulated depreciation and amortization |
(46,286) |
(41,984) |
||
Total real estate properties, net |
517,519 |
521,744 |
||
Mortgage notes receivable, net |
41,513 |
18,557 |
||
Cash and cash equivalents |
5,917 |
12,640 |
||
Other assets, net |
32,729 |
28,662 |
||
Total Assets |
$ 597,678 |
$ 581,603 |
||
Liabilities and Equity |
||||
Liabilities |
||||
Debt, net |
$ 232,065 |
$ 215,523 |
||
Accounts payable and accrued liabilities |
6,204 |
6,605 |
||
Deferred revenue |
1,587 |
2,722 |
||
Total liabilities |
239,856 |
224,850 |
||
Commitments and contingencies |
||||
Equity |
||||
Common stock, |
314 |
314 |
||
Additional paid in capital |
376,702 |
375,690 |
||
Dividends declared |
(74,525) |
(67,691) |
||
Retained earnings |
49,365 |
44,196 |
||
Accumulated other comprehensive income |
3,034 |
1,247 |
||
|
354,890 |
353,756 |
||
Noncontrolling interest |
2,932 |
2,997 |
||
Total equity |
357,822 |
356,753 |
||
Total Liabilities and Equity |
$ 597,678 |
$ 581,603 |
|
|||||
Consolidated Statements of Income |
|||||
(in thousands, except per share amounts) |
|||||
Three months ended |
|||||
2018 |
2017 |
||||
(unaudited) |
(unaudited) |
||||
Revenues |
|||||
Rental income |
$ 15,929 |
$ 13,839 |
|||
Interest on mortgage notes receivable |
787 |
433 |
|||
Interest on notes receivable |
- |
10 |
|||
Total revenues |
16,716 |
14,282 |
|||
Expenses |
|||||
Depreciation and amortization |
4,194 |
3,618 |
|||
Property related |
322 |
352 |
|||
Acquisition related |
108 |
66 |
|||
Franchise, excise and other taxes |
71 |
86 |
|||
General and administrative |
3,316 |
3,171 |
|||
Total operating expenses |
8,011 |
7,293 |
|||
Operating income |
8,705 |
6,989 |
|||
Other income (expense) |
|||||
Interest and other income |
7 |
1 |
|||
Interest expense |
(2,558) |
(1,515) |
|||
(2,551) |
(1,514) |
||||
Net income |
$ 6,154 |
$ 5,475 |
|||
Less: Net income attributable to noncontrolling interest |
(985) |
(944) |
|||
Net income attributable to common stockholders |
$ 5,169 |
$ 4,531 |
|||
Net income attributable to common stockholders per share |
|||||
Basic and diluted |
$ 0.16 |
$ 0.14 |
|||
Weighted average shares outstanding |
|||||
Basic |
31,550 |
31,415 |
|||
Diluted |
31,610 |
31,415 |
|||
Dividends declared per common share |
$ 0.21 |
$ 0.21 |
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: funds from operations attributable to common stockholders ("FFO") and adjusted fund from operations attributable to common stockholders ("AFFO").
Funds from Operations
FFO is a non-GAAP measure used by many investors and analysts that follow the real estate industry. FFO, as defined by the
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company's operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance by excluding the effect of real-estate related depreciation and amortization, gains or losses from sales for real estate, including impairments, extraordinary items and the portion of items related to unconsolidated entities, all of which are based on historical cost accounting, and that FFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common stockholders.
Our calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. FFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.
Adjusted Funds from Operations
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. To calculate AFFO, we further adjust FFO for certain items that are not added to net income in NAREIT's definition of FFO, such as acquisition expenses, non-real estate-related depreciation and amortization (including amortization of lease incentives, tenant allowances, and leasing costs), stock-based compensation expenses, and any other non-comparable or non-operating items, that do not relate to the operating performance of our properties. To calculate AFFO, we also adjust FFO to remove the effect of straight-line rent revenue, which represents the recognition of net unbilled rental income expected to be collected in future periods of a lease agreement that exceeds the actual contractual rent due periodically from tenants for their use of the leased real estate under each lease. Noncontrolling interest amounts represent adjustments to reflect only our share of straight-line rent revenue.
Our calculation of AFFO may differ from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.
|
|||||
Reconciliations of FFO and AFFO |
|||||
(in thousands, except per share amounts) |
|||||
(Unaudited) |
|||||
Three months ended |
|||||
2018 |
2017 |
||||
Net income attributable to common stockholders |
$ 5,169 |
$ 4,531 |
|||
Real estate depreciation and amortization, net of noncontrolling interest |
4,112 |
3,536 |
|||
FFO attributable to common stockholders |
9,281 |
8,067 |
|||
Stock-based compensation expense |
1,056 |
956 |
|||
Deferred financing costs amortization |
258 |
322 |
|||
Non-real estate depreciation and amortization |
133 |
152 |
|||
Straight-line rent expense |
38 |
40 |
|||
Straight-line rent revenue, net of noncontrolling interest |
(1,429) |
(969) |
|||
AFFO attributable to common stockholders |
$ 9,337 |
$ 8,568 |
|||
Weighted average shares outstanding- |
|||||
Basic |
31,550 |
31,415 |
|||
Diluted |
31,610 |
31,415 |
|||
Net income attributable to common |
|||||
Basic and diluted |
$ 0.16 |
$ 0.14 |
|||
Weighted average common shares |
|||||
Basic |
31,550 |
31,415 |
|||
Diluted |
31,610 |
31,566 |
|||
FFO per common share |
|||||
Basic and diluted |
$ 0.29 |
$ 0.26 |
|||
AFFO per common share |
|||||
Basic and diluted |
$ 0.30 |
$ 0.27 |
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