Discounted Outpatient Properties Will Unlock Healthcare Real Estate Potential

Key Takeaways

• Acquisition of outpatient medical properties below market rates and successful re-tenanting are expected to drive rent, occupancy, and earnings growth.
  
• Favorable healthcare demographics and disciplined capital management are supporting stable demand, higher margins, and sustained long-term value creation.
  
• Elevated refinancing risk, declining occupancy, lower dividend coverage, and reliance on asset sales and selective acquisitions threaten financial flexibility and future earnings stability.

Catalysts

Global medical REIT inc. (GMRE) is a net-lease medical real estate investment trust (REIT) that acquires healthcare facilities and leases those facilities to physician groups and regional and national healthcare systems.

• The ongoing and expected acquisition of outpatient medical properties at significant discounts to replacement cost, with in-place rents estimated more than 30% below market, positions the company for outsized rent growth as leases reset to market rates over time, directly supporting top-line revenue and future earnings growth.
  
• Strong demographic tailwinds, including the growing population aged 65+ and sustained increases in U.S. healthcare spending, are driving stable demand for medical real estate, which underpins high occupancy rates (95%+) and reduces revenue volatility.
  
• Successful re-tenanting of challenged facilities (e.g., Beaumont and East Orange) with financially solid operators and renewed focus on asset recycling are expected to improve occupancy, replace nonperforming assets, and unlock embedded cash flow growth, fueling both revenue and net operating income improvements.
  
• The company's continued shift toward balance sheet optimization-refinancing near-term debt, pursuing longer tenor providers, and lowering payout ratios via a right-sized dividend-will create more capital flexibility for targeted investments, supporting sustainable earnings growth and improved net margins.
  
• A limited pipeline of new healthcare facility supply, paired with increased outpatient care needs and the company's expertise in sourcing higher-yield, well-located assets, will sustain pricing power and rental rate growth, boosting both NOI and property values over the long term.

Global Medical REIT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Global Medical REIT's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 4.0% in 3 years time.
• Analysts expect earnings to reach $6.2 million (and earnings per share of $0.09) by about August 2028, up from $4.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $8.0 million in earnings, and the most bearish expecting $5.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 140.3x on those 2028 earnings, up from 99.8x today. This future PE is greater than the current PE for the US Health Care REITs industry at 34.1x.
• Analysts expect the number of shares outstanding to grow by 1.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.65%, as per the Simply Wall St company report.

Global Medical REIT Future Earnings Per Share Growth

Risks

• The company faces elevated refinancing risk, as its Revolver and $350 million Term Loan both mature in 2026 amidst persistent higher interest rates and tighter credit conditions, potentially increasing its cost of capital and pressuring net margins and future earnings.
  
• Recent declines in occupancy (from Q1 to 94.5% in Q2) tied to lease expirations, bankruptcies (e.g., Prospect Medical), and exposure to administrative/office medical buildings challenged by post-COVID space utilization highlight ongoing risks of tenant defaults, difficult re-leasing, and possible future revenue instability.
  
• The reduction of the dividend from $0.21 to $0.15 per share and a drop in dividend coverage (from 110% to 79% FAD) signals strained cash flows and limits capital available for shareholder distributions, negatively impacting shareholder returns and potentially dampening share price appreciation.
  
• The company's growth strategy relies heavily on capital recycling and highly selective portfolio acquisitions in a market flooded with properties due to distressed, leveraged sellers; increased competition for quality assets and potential overexposure to riskier, higher-yield properties may compress acquisition spreads and weaken risk-adjusted net operating income.
  
• Portfolio leverage remains elevated relative to public peers, and asset sales for deleveraging depend on favorable market conditions; inability to execute dispositions at attractive prices or refinance on competitive terms could constrain balance sheet flexibility, limit investment capacity, and suppress future earnings growth.

Valuation

• The analysts have a consensus price target of $9.094 for Global Medical REIT based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.75, and the most bearish reporting a price target of just $7.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $157.5 million, earnings will come to $6.2 million, and it would be trading on a PE ratio of 140.3x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $6.67, the analyst price target of $9.09 is 26.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.