Community Healthcare Trust Incorporated

Welcome to the Community Health Care Trust's 2024 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2024 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 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, October 30th, 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 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 over to Dave Dupree, CEO of Community Healthcare Trust. Please go ahead.

Great. Thanks, MJ, and good morning. Thank you for joining us today for our 2024 Third Quarter Conference Call. On the call with me today is Bill Monroe, our Chief Financial Officer, Leanne Stack, our Chief Accounting Officer, and Tim Beyer, our EVP of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on Form 8K, along with our quarterly report on 10Q. In addition, an updated investor presentation was posted to our website last night. Numerous people and businesses were severely impacted and even devastated by Hurricanes Helene and Milton. Many in Florida, Western North Carolina, and East Tennessee have experienced unprecedented flooding, and damage that will require months for full recovery. Although some of our tenants encountered power outages, downed trees, and other inconveniences, we were fortunate that our properties did not sustain damage from the storms. As was previously announced, we successfully increased our revolving credit facility from $150 to $400 million, extended its maturity date five years, all while achieving lower pricing. Bill will go into more detail in his remarks, but we were very pleased with the support of our bank group, which gives credence to the overall strength and stability of CHCT. Also, I wanted to provide an update on the geriatric psychiatric hospital operator, who is a tenant in six of our properties, representing a total of approximately 79,000 square feet and base rent of $3.2 million. Although we are not yet receiving rent and interest from the tenant, the operator's consulting team has stabilized hospital staffing, reduced costs, and improved processes and controls. As a result, we are seeing improved census in October. Although we do not yet know the timing or amounts the tenant may be able to pay, we continue to pursue multiple parallel paths to begin receiving rent and interest payments as soon as possible. We remain in active dialogue with the operator and its consultants and will continue to evaluate all options available to us under our leases and notes. As for the other components of the business, our occupancy decreased from 92.6% to 91.3% during the quarter related to a couple of lease terminations and expirations, but we continue to see good leasing activity in the portfolio. In addition, we have five properties or significant portions of them that are undergoing redevelopment or significant renovations with long-term tenants in place when the renovations or redevelopment is completed. We expect three of these projects to commence their leases during the first quarter of 2025. Our weighted average remaining lease term decreased slightly from 7.1 years to 6.8 years. And during the quarter, we acquired one physician clinic, for a purchase price of approximately $6.2 million and an expected return of approximately 9.3%. The property is 100% leased with a lease expiration in 2027. We have four properties under definitive purchase agreements for an aggregate expected purchase price of $8.8 million. The company's expected returns on these investments range from 9.29 to 9.5%. We expect to close on these properties in the fourth quarter of 2024. Also, the company has signed definitive purchase and sale agreements for seven properties to be acquired after completion and occupancy for an aggregate expected investment of $169.5 million. The expected return on these investments should range from 9.1% to 9.75%. We anticipate closing on these properties throughout 2025, 26, and 27. Despite having access to our ATM last quarter, we did not sell equity at our currently depressed share price. Given the low share price, we are actively evaluating capital recycling opportunities, and we would anticipate having sufficient capital from selected asset sales coupled with our increased revolver capacity to fund near-term acquisitions. Going forward, we will evaluate the best uses of our capital, including, if authorized, potential share repurchases, all while maintaining modest leverage levels. To wrap up, we declared our dividend for the third quarter and raised it to 46.5 cents per common share. This equates to an annualized dividend of $1.86 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. Before I turn to our third quarter financials, I will expand on the successful closing of our credit facility refinancing two weeks ago that Dave highlighted during his remarks. The purpose of the transaction was a routine extension of upcoming debt maturities, but with strong support from 11 existing banks and one new bank, we were able to upsize our revolver while also reducing its pricing. The result is a new five-year $400 million revolver with current drawn pricing set at SOFR plus 170 basis points, or approximately 6.5% today. While our new upsized revolver provides us with approximately $200 million of available borrowing capacity currently, we believe in the importance of continuing our modest leverage profile. And so we do not plan to use this borrowing capacity to sustain increased leverage, but it does give us enhanced flexibility to execute upon our capital allocation plans as it relates to the timing of closing acquisitions, completing dispositions for capital recycling purposes, and issuing equity depending on share price. I will now provide more details on our third quarter financial performance. Total revenue grew from $28.7 million in the third quarter of 2023 to $29.6 million in the third quarter of 2024, representing 3.1% annual growth over the same period last year. When compared to our $27.5 million of total revenue in the second quarter of 2024, it is important to remember that we had approximately $1.7 million of out-of-period adjustments in the second quarter of 2024, related to the reversal of rent and interest from the geriatric psychiatric hospital tenant. Normalizing for those out-of-period adjustments, total revenue growth quarter over quarter was approximately 1%. From an expense perspective, property operating expenses increased by approximately $414,000 quarter over quarter to $6 million, primarily as a result of seasonal increases in HVAC repairs and utilities expense caused by the hot summer months. General and administrative expenses increased slightly from $4.8 million in the second quarter of 2024 to $4.9 million in the third quarter of 2024. Interest expense increased from $6 million in the second quarter of 2024 to $6.3 million in the third quarter of 2024, due to the increase in borrowings under our revolving credit facility to fund acquisitions and CapEx. Moving to funds from operations, FFO was $12.8 million in the third quarter of 2024. On a quarter-over-quarter basis, FFO increased by $1.2 million from $11.6 million in the second quarter of 2024. And on a per diluted common share basis over these periods, FFO increased from 43 cents to 48 cents per share. Adjusted funds from operations, or AFFO, which adjusts for straight-line rents and stock-based compensation, totaled $14.6 million in the third quarter of 2024. On a quarter-over-quarter basis, AFFO increased from $14.3 million in the second quarter of 2024, and on a per-diluted common share basis over these periods, AFFO increased from 53 cents to 55 cents per share. Finally, I'll highlight again that our dividend remains well covered with a current payout ratio of only 85%. That concludes our prepared remarks. MJ, we are now ready to begin the question and answer session.

Thank you.