Chiron Real Estate Inc. (XRN, GMRE, XRN-PA, XRN-PB Q2 FY2024 earnings call

• Portfolio performance: Occupancy 96.2%, weighted average lease term 5.8 years, rent coverage ratio 4.6 times.
• Acquisitions: Entered into a purchase agreement for a 15-property outpatient medical real estate portfolio, with first tranche closed post-quarter end, second tranche expected in Q4 2024. Investment pipeline has ~$120 million of assets at attractive cap rates.
• Dispositions: Sold medical facilities in Mishawaka, Indiana ($8.1M) and Panama City, Florida ($11M).
• Tenant related: Steward Health Care bankruptcy represented 2.8% of annualized base rent, with the company optimistic about long-term prospects at Beaumont, Texas facility.
• Balance sheet: Focus on maintaining strong balance sheet, using select dispositions to fund growth.

At the end of the second quarter, portfolio occupancy was 96.2% with a weighted average lease term of 5.8 years and a portfolio average rent coverage ratio of 4.6 times. For the second quarter, net loss attributable to common shareholders was $3.1 million or $0.05 per share. FFO attributable to common shareholders and non-controlling interest was $0.20 per share and unit, down $0.01 from the prior year quarter. AFFO attributable to common stockholders and non-controlling interest was $0.22 per share and unit, down $0.01 from the prior year quarter. The company entered into a purchase agreement for a 15-property portfolio of outpatient medical real estate for an aggregate purchase price of $80.3 million, with the first tranche of $30.8 million closed post-quarter end and the second tranche expected in Q4 2024. Dispositions included selling a medical facility in Mishawaka, Indiana for $8.1 million and another in Panama City, Florida for $11 million.

• Expect to complete acquisition of remaining 10 properties in the 15-property portfolio during Q4 2024.
• G&A expenses in H2 2024 expected to be in the range of $4.4M to $4.6M quarterly.
• Capital expenditures projected to be $11M to $13M for full year 2024.
• Occupancy retention rate for 2024 expiring leasable square feet trending between 75% and 80%.

• Market conditions: Uncertainties in acquisition and disposition markets.
• Steward Health Care bankruptcy: Impact on the Beaumont, Texas facility and potential rent and expense impacts.
• Tenant issues: Potential tenant watch list expansion if economy weakens.
• Interest rate fluctuations: Impact on borrowing costs and investment decisions.

Q: Could you provide details regarding the $120 million investment pipeline, including if it includes the second tranche of the 15-property portfolio?

A: The pipeline does not include the second tranche; it's other pursued assets with improved market conditions.

Q: What's the composition of assets in the $120 million pipeline and cap rates expected?

A: Assets are medical office buildings in quality markets with tenants, targeting cap rates north of ACAP, high 8s to 9 caps.

Q: Could you comment on cap rates for dispositions in Q2 and July?

A: Panama City sale had a 7.1 cap; Mishawaka asset had a low double-digit cap.

Q: How does the Steward Beaumont lease compare to current market levels and potential mark-to-market?

A: The property is in decent demand, optimistic about re-leasing, comparable to current market levels.

Q: On Steward payments, what's the cumulative hit from March, April, May?

A: About $800,000 to $1 million reserve due to operating expenses on the property.

Q: Thoughts on doing behavioral health/hospital properties in the pipeline?

A: Focus is on medical office buildings, with little interest in acute hospital areas due to market conditions.