Community Healthcare Trust Incorporated

2023 third quarter earnings release conference call. On the call today, the company will discuss its 2023 third quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be open for a question and answer session. The company's earnings release was distributed last evening and has also been posted on its website at www.chct.reit. The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today, November 1, 2023, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussion of the risks and uncertainties, you should review the company's disclosures regarding forward-looking statements in its earnings release, as well as its risk factors and MD&A in its SEC filings. The company undertakes no obligation to update forward-looking statements, whether as the result of new information, future developments, or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. Call participants are advised that this conference call is being recorded for playback purposes. An archive of the call will be made available on the company's investor relations website for approximately 30 days. and is the property of the company. This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission. Now, I would like to turn the call to Dave Dupuy, CEO of Community Healthcare Trust.

Thank you.

Good morning, and thank you for joining us today for our 2023 third quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer. Lee Ann Stack, our Chief Accounting Officer, and Tim Meyer, our EVP of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on 8K, and our quarterly report on 10Q was filed last night. In addition, an updated investor presentation was posted to our website last night. The third quarter was busy, both from an operations both, I'm sorry, from an acquisition standpoint and also from an operation standpoint. During the quarter, we acquired seven properties with a total of approximately 177,000 square feet for a purchase price of approximately $51.7 million. The properties were 99.8% leased with leases running through 2038 and anticipated annual returns of approximately 9.1 to 10.37%. Subsequent to September 30th, we acquired two medical office buildings and a single transaction for a purchase price of $7.1 million. The properties were 96.8% leased, with leases running through 2031. From an operations perspective, our weighted average remaining lease term remained stable at 7.1 years. Occupancy decreased from 91.7% To 91%, that decrease can be attributed to a GenesisCare lease rejection occurring in the quarter. As it relates to GenesisCare, we had one lease rejection during the quarter at 46,000 square feet, square foot building in Fort Myers, Florida, in which GenesisCare was the sole tenant. When coupled with the lease in Asheville rejected in the prior quarter, the two leases have been rejected representing 57,000 square feet and has seen good leasing activity at both locations. As of September 30th, 2023, Genesis Care was the sole tenant in five of our properties and a tenant in two of our multi-tenanted properties representing approximately 1.9% of our gross real estate properties or approximately 62,000 square feet. Based on recent court filings, The GenesisCare bankruptcy timeline has been extended with the auction currently scheduled for today, November 1st. We and our outside counsel continue to monitor the situation closely, and our asset management team is prepared to engage quickly as the bankruptcy process progresses. As it relates to our pipeline, the company has seven properties to be acquired after completion and occupancy. for an aggregate expected investment of $166.5 million. The expected return on these investments should range from 9.1 to 9.75%. We currently expect to close on these properties throughout 2024 and 2025. We continue to have many properties under review and have term sheets out on several properties with indicative returns of 9 to 10 plus percent. We anticipate having enough availability on our credit facilities and through our banking relationships to fund our acquisitions, and we expect to continue to opportunistically utilize the ATM to strategically access the equity markets. To wrap up, we declared our dividend for the third quarter and raised it to 45.5 cents per common share. This equates to an annualized dividend of $1.82 per share. We are proud to have raised our dividend every quarter since our IPO. That takes care of the items I wanted to cover, so I will hand things off to Bill to discuss the numbers. Thank you, Dave. I will now provide more details on our third quarter financial performance. I'm pleased to report that total revenue grew from $24.8 million in the third quarter of 2022 to $28.7 million in the third quarter of 2023. representing 15.8% annual growth over the same period last year. When compared to our $27.8 million of total revenue in the second quarter of 2023, we achieved 3.3% total revenue growth quarter over quarter. And on a pro forma basis, if the acquisitions we completed during the third quarter of 2023 had occurred on the first day of the third quarter, our total revenue would have increased by an additional $757,000 to a pro forma total of $29.5 million in the third quarter. From an expense perspective, property operating expenses increased by approximately $670,000 quarter over quarter to $5.5 million, primarily as a result of properties acquired during the period, but also due to seasonal increases in HVAC repairs and utilities expense caused by the hot summer months. General and administrative expenses decreased from $3.8 million in the second quarter of 2023 to $3.6 million in the third quarter of 2023. This decrease was driven by the one-time increase in employer Medicare taxes paid in the second quarter from the vesting of our former CEO and President's shares. Interest expense increased from $4.1 million in the second quarter of 2023 to $4.6 million in the third quarter of 2023 due to the increase in borrowings under our revolving credit facility to fund acquisitions, as well as slightly higher interest rates under our revolving credit facility during the quarter. to funds from operations, FFO increased from $13.8 million in the third quarter of 2022 to $15 million in the third quarter of 2023, or 8.9% growth year over year. FFO decreased from $15.9 million in the second quarter of 2023 to $15 million in the third quarter of 2023, and on a per diluted common share basis over these periods, FFO declined from $0.62 to $0.58 per share, but it is important to remember our second quarter 2023 FFO included a $700,000 or $0.03 per share net casualty gain from insurance proceeds received related to one property that was vandalized. Adjusted funds from operations, or AFFO, which adjusts for straight line rent and stock-based compensation, totaled $16.4 million in the third quarter of 2023, which compares to $15.4 million in the third quarter of 2022, or 6.9% growth year over year. On a per diluted common share basis, AFFO was 63 cents in the third quarter of 2022, and also 63 cents in the third quarter of 2023. AFFO for the second quarter of 2023 was $16 million, So our AFFO grew by 2.4% quarter over quarter. And finally, on a pro forma basis, if the acquisitions we completed during the third quarter of 2023 had occurred on the first day of the third quarter, AFFO would have increased by approximately $443,000 to a pro forma total of $16.9 million, or 65 cents per diluted common share. That concludes our prepared remarks. Joe, we are now ready to begin the question and answer session.