Chiron Real Estate reported second-quarter results as it continues to reposition its portfolio toward senior housing and away from outpatient medical real estate, with management emphasizing capital recycling, leadership additions and a growing investment pipeline.
Chief Executive Officer Mark Decker Jr. said the company’s existing portfolio remained operationally stable while it pursued a broader strategic transition. Normalized same-store net operating income increased 1.7% during the quarter, in line with the company’s expectations and its guidance at the start of the year, he said.
“The strategic actions we’re taking today are not a response to operational challenges,” Decker said. “It’s about capital allocation.” He said the company sees opportunities for better total returns within healthcare real estate than in portions of its outpatient medical portfolio.
Capital Recycling and Senior Housing Investments
During the quarter, Chiron closed a $100 million Maewyn investment alongside the acquisition of its first two senior housing communities: The Landing and The Riviera in Alexandria, Virginia. The properties together comprise 292 luxury homes. The Landing is a stabilized continuum-of-care community, while The Riviera opened in March and remains in lease-up.
Chiron also completed the sale of seven inpatient rehabilitation facilities to a newly formed joint venture in June. The transaction generated about $200 million in gross proceeds, according to Decker, while the company retained a small equity interest in the venture. Chief Financial Officer Bob Kiernan said the facilities were sold at an aggregate value of $217 million.
In addition, the company is under contract to sell a surgical hospital in Beaumont, Texas, for $49 million at a 5.9% exit capitalization rate. Decker said proceeds from asset sales will be redirected into higher-returning investments, including the previously announced acquisition of The Pinnacle, a luxury senior housing community that welcomed its first residents in June.
Management said it is evaluating additional dispositions from the outpatient medical portfolio, including individual asset sales and potential larger portfolio transactions. Chiron has hired a broker to help evaluate options for selling further assets in a manner intended to maximize value, Decker said in response to an analyst question.
Financial Results and Balance Sheet
For the second quarter, Kiernan reported GAAP-redefined funds from operations of $0.88 per share and unit, while Core FFO was $1.40 per share and unit.
Same-store cash NOI increased 0.8% year over year. The result was affected by a one-time, non-recurring revenue recovery recorded in the prior-year period for a single tenant. Excluding that asset, same-store cash NOI growth would have been 1.7%, Kiernan said.
Cash general and administrative expense was $3.8 million in the second quarter, slightly below the first-quarter level. Kiernan said recent senior-management changes are expected to raise G&A in the near term, although management expects costs to align with the size of the portfolio as the repositioning advances.
- Net debt to adjusted EBITDA was 6.0 times, compared with 6.6 times in the first quarter.
- The company ended the quarter with $259 million of unused borrowing capacity under its credit facility.
- Leverage was just under 40%, and management said the company has no debt maturities until 2028.
- Chiron issued $100 million of Series C convertible perpetual preferred equity during the quarter.
Leadership Buildout and Investment Strategy
Decker highlighted several leadership appointments intended to support the company’s senior housing expansion. The company welcomed Tami Cumings as senior vice president of seniors housing, Aaron Roseth in an operating leadership role, Matthew Whitlock as chief investment officer, and Bobby Zeiller as chief development officer and head of seniors housing.
Decker said the additions bring more than 100 years of combined experience in sourcing, developing, operating and managing senior housing communities. He also recognized Alfonso Leon, who stepped down as chief investment officer earlier in the week.
In response to questions on the company’s strategy, Decker said Chiron expects to focus primarily on stabilized senior housing assets rather than developments requiring extended lease-up periods. The company’s recently acquired Reston land parcel represents about 1% of assets and could likely support a full-continuum community, he said.
Whitlock said the company has already developed a “pretty robust pipeline” of investment opportunities. He said Chiron is prioritizing investments that can provide long-term earnings growth and partnerships with experienced operators in targeted metropolitan areas.
Although senior housing will be the company’s principal focus, Decker said Chiron will remain opportunistic across real estate investments where it believes it can generate strong returns on capital. He cited the quarter’s announced $421 million of senior housing investments, compared with a $15 million land investment and $5 million of mezzanine loans.
Management characterized the mezzanine loans as a small part of the portfolio, representing roughly 33 basis points of the book. Decker said they are cash-paying investments with an established sponsor and credit profile, designed to generate returns while providing the company with optionality on the related assets.
Portfolio Valuation
Decker said Chiron believes public market valuation does not fully reflect the value of its legacy outpatient medical portfolio. He pointed to public and private transaction activity that he said indicates institutional demand for outpatient medical real estate at capitalization rates that compare favorably with the implied valuation of the company’s medical office building portfolio.
The company plans to use disciplined asset sales and reinvestment to address that disconnect, Decker said. “We can’t control where the market values our shares in the near term,” he said. “What we can control is disciplined execution.”
Chiron concluded that its transformation remains underway, with management focused on completing portfolio sales, deploying capital into senior housing and building a larger operating platform around its expanded leadership team.
About Global Medical REIT (NYSE:XRN)
Global Medical REIT NYSE: GMRE is a real estate investment trust focused on owning and managing healthcare-related properties across the United States. The company acquires, develops and leases a diversified portfolio of medical office buildings, outpatient facilities, long-term care centers and other specialized healthcare real estate. By concentrating on essential healthcare assets, Global Medical REIT seeks to generate stable, long-term rental income under triple-net and modified gross lease structures.
Since its incorporation in 2016 and initial public offering in 2017, the company has pursued an acquisitive growth strategy targeting markets with strong demographic trends and limited supply of modern medical facilities.
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