Community Healthcare Trust Incorporated

Welcome to the Community Health Care Trust's 2023 fourth quarter earnings release conference call. On the call today, the company will discuss its 2023 fourth quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be opened for a question and answer session. The company's earnings release was distributed last evening and has also been posted on its website, 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, February 14, 2024, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these 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, and 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 conference over to Dave Dupuy, CEO of Community Healthcare Trust.

Great. Thank you very much, and good morning. Thank you for joining us today for our 2023 fourth quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer, Leanne 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 Form 8-K, along with our annual report on Form 10-K. In addition, an updated investor presentation was posted to our website last night. The fourth quarter was busy from an operations standpoint, but slowed a bit from an acquisition perspective. Our occupancy increased slightly from 91 to 91.1%, while our weighted average remaining lease term declined slightly to 6.9 years. I am pleased to report that Genesis Care is expected to keep or assign to buyers the seven remaining leases with the company, with no material changes to the lease terms. The effective date of the plan of reorganization is expected to be during the first quarter of 2024. To date, Genesis Care has closed on the assignment of two of the seven leases with two separate buyers, and we expect the remaining assignments and assumptions to occur in the first quarter. Genesis Care has met substantially all its lease payment obligations due to the company through February 2024. As it relates to the two vacant Genesis Care properties, Fort Myers is under definitive sale agreement And the sale agreement is for a price above its carrying value, allowing us to recycle that capital into new income-producing properties. The Asheville MOB continues to be for lease or sale, and we are seeing good activity at that facility. While the GenesisCare bankruptcy process was protracted, we are proud with how our team managed our properties to these successful outcomes. During the fourth quarter, we acquired two properties in one transaction with a total of approximately 48,000 square feet for a purchase price of approximately $7.1 million. The properties were 97.5% leased with leases running through 2031 with anticipated aggregate annual return of approximately 9.6%. For the year, we acquired 19 properties and one land parcel with a total of 463,000 square feet for an aggregate purchase price of $97.8 million, which were approximately 99.2% leased with leases running through 2038 and annual returns of 9.1 to 10.6%. Subsequent to December 31st, we acquired one long-term acute care hospital for a purchase price of $6.5 million. We entered into a new lease with a lease expiration in 2039 and anticipated annual returns of approximately 9.8%. The company has three properties under definitive purchase agreements for an aggregate expected purchase price of $27.9 million and expected aggregate returns of 9.1% to 9.2%. The company is currently performing due diligence and expects to close on these properties in the next few months. We also have signed definitive purchase and sale agreements for 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%. To provide an update on the timing of these seven transactions, we expect to close on two of these properties in 2024, with the remaining five properties closing throughout 2025 and 2026. We are seeing very good acquisition activity and continue to have many properties under review and have term sheets out on several properties with indicative returns of 9 to 10%. Given our modest leverage levels, we anticipate having enough availability on our credit facilities and through our banking relationships to fund our acquisitions. And we expect to opportunistically utilize the ATM to strategically access the equity markets. These traditional capital sources combined with proceeds from selected asset sales, like the Fort Myers property I mentioned earlier, will provide sufficient capital for continued growth at attractive yields throughout 2024. On another topic, the Compensation Committee and Board approved updates to the company's compensation programs, details of which were filed under Form 8K on January 4, 2024. These updates were designed to address issues raised during last year's Say on Pay advisory vote while maintaining the company's strong alignment with shareholders. Under the company's alignment of interest program, changes included a maximum deferral percentage of 50% of compensation from 100% previously and a limit on the duration of the restriction period based on retirement eligibility. Updates were also made to annual incentive metrics, such that 70% will be based on specific company metrics from 50% previously, and 30% will be based on individual metrics. Finally, we transitioned our long-term incentive plan to a three-year forward-looking measurement period, with performance-based RSU grants representing 65% and time-based RSU grants representing 35%. of the executive officer's targeted long-term incentive compensation, all of which utilize threshold, target, and maximum performance levels. Our proxy statement, which will be filed in March, will provide a detailed review of our compensation program. To wrap up, I am excited about the opportunities we see for CHCT in 2024 and beyond. We declared our dividend for the fourth quarter and raised it to 45.75 cents per common share. This equates to an annualized dividend of $1.83 per share. And 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 fourth quarter financial performance. I'm pleased to report that total revenue grew from $25.3 million in the fourth quarter of 2022 to $29.1 million in the fourth quarter of 2023, representing 14.9% annual growth over the same period last year. When compared to our $28.7 million of total revenue in the third quarter of 2023, we achieved 1.4% total revenue growth quarter over quarter, although our growth was negatively impacted by the loss of Genesis Care Fort Myers revenue in the fourth quarter after receiving two months of rent and operating expense reimbursement in the third quarter. From an expense perspective, property operating expenses increased by approximately $142,000 quarter over quarter to $5.6 million, primarily as a result of properties acquired during the periods. General and administrative expenses increased by approximately $110,000 quarter over quarter to $3.7 million, driven by slightly higher non-cash deferred compensation expense and professional fees associated with the compensation plan design changes Dave discussed earlier. Interest expense increased from $4.6 million in the third quarter of 2023 to $5 million in the fourth quarter of 2023, due to the increase in borrowings under our revolving credit facility to fund acquisitions. Moving to funds from operations, FFO increased from $13.6 million in the fourth quarter of 2022 to $14.9 million in the fourth quarter of 2023, or 9.5% growth year over year. On a quarter-over-quarter basis, FFO decreased slightly from $15 million in the third quarter of 2023. And on a per diluted common share basis over these periods, FFO declined from 58 cents to 57 cents per share. Adjusted funds from operations or AFFO, which adjusts for straight line rent and stock-based compensation, totaled $16.1 million in the fourth quarter of 2023, which compares to $15.4 million in the fourth quarter of 2022, or 4.3% growth year over year. On a quarter-over-quarter basis, AFFO decreased by 2.1% from $16.4 million in the third quarter of 2023. And on a per diluted common share basis over these periods, AFFO declined from 63 cents to 61 cents per share. I'll note that revenue loss from Genesis Care Fort Myers in the fourth quarter did impact both FFO and AFFO sequentially. That concludes our prepared remarks. Operator, we are now ready to begin the question and answer session.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question comes from Alexander Goldfarb. Please go ahead with your question.