Community Healthcare Trust Incorporated

Welcome to Community Health Care Trust's 2024 Fourth Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2024 Fourth 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.read. 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 19th, 2025, 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 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 a 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 Dupuy, CEO of Community Healthcare Trust.

Great. Thank you, Drew, and good morning. Thank you for joining us today for our 2024 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 8K, along with our annual report on Form 10K. In addition, an updated investor presentation was posted to our website last night. We had a busy fourth quarter from an operations perspective and continue to be selective from an acquisition standpoint. At year end, our occupancy decreased slightly to 90.9% and our weighted average remaining lease term declined slightly to 6.7 years. We have four 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 two of these projects to commence their leases during the second quarter of 2025. During the fourth quarter, we acquired three physician clinics in two separate transactions with a total of 38,000 square feet for a purchase price of $8.2 million. The properties are 100% leased with leases running through 2029 and anticipated annual returns of approximately 9.4%. For the year, we acquired nine properties with a total of 261,000 square feet for an aggregate purchase price of $72.1 million, which were approximately 99.3% leased with leases running through 2039 and anticipated annual returns of 9.1 to 9.75%. The company has two properties, one behavioral residential treatment facility and one inpatient rehab facility under definitive purchase agreements for an aggregate expected purchase price of $33 million and expected returns of approximately 9.5% to 9.75%. The company is currently performing due diligence and expects to close these properties during the first quarter of 2025. Also, we have signed definitive purchase and sale agreements for six properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million. The expected return on these investments should range from 9.1 to 9.75 percent, and we anticipate closing on these properties throughout 2025, 26, and 27. I wanted to provide an update on the geriatric psychiatric hospital operator, which is a tenant in six of our properties, representing a total of approximately 79,000 square feet, an annual base rent of $3.2 million. Although we did not receive any rent or interest from the tenant in the fourth quarter, we have received a small payment so far in the first quarter of 2025. In addition, the operator is evaluating strategic alternatives, including the potential sale of all or selected hospitals within its portfolio. We remain in active dialogue with the operator and its consultants and will continue evaluating all options available under our leases and notes. As we previously announced, the company increased its revolving credit facility from $150 to $400 million, extended its maturity date five years, all while achieving lower pricing. As part of the refinancing, we repaid the A3 term loan due March 2026 and have no debt maturities until March of 2028. Due to the company's low share price, we did not issue any shares under our ATM last quarter. However, we continue to evaluate 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. And going forward, we will evaluate the best uses of our capital, including if authorized, potential share repurchases, all while maintaining modest leverage levels. On another topic, yesterday, the company filed an amendment to its Form S3 with the SEC, along with an amended sales agency agreement with various banks. And this morning, the company filed a new automatic shelf registration statement on Form S3 with the SEC and updated its sales agency agreement with various banks for the sale of common stock, including the issuance of ATM shares. To wrap up, we declared our dividend for the fourth quarter and raised it to 46.75 cents per common share. This equates to an annualized dividend of $1.87 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 fourth quarter financial performance. Overall, we saw our fourth quarter financial results in line with the prior quarter. Total revenue for the fourth quarter was $29.3 million, which compares closely to the $29.6 million of total revenue in the third quarter. From an expense perspective, property operating expenses decreased by approximately $500,000 quarter over quarter to $5.5 million, primarily as a result of lower utility expenses when compared to the third quarter's hot summer months. General and administrative expenses decreased slightly from $4.9 million in the third quarter of 2024 to $4.8 million in the fourth quarter of 2024. Interest expense increased from $6.3 million in the third quarter of 2024 to $6.4 million in the fourth quarter of 2024 due to a combination of the $12 million increase in borrowings under our credit facility during the fourth quarter to fund acquisitions in CapEx, the 30 basis point lower interest rate spread on our upsize revolver, and the 25 basis point higher interest rate spread on our term loans due to our higher leverage grid point at the end of the third quarter. Moving to funds from operations, FFO was $12.7 million in the fourth quarter of 2024, which compares to $14.9 million in the fourth quarter of 2023 for a decline of 14.5% year over year. primarily related to the loss of rent and interest from the geriatric psychiatric hospital operator Dave mentioned earlier that we placed on cash basis in the second quarter of 2024. Quarter over quarter, FFO remained at 48 cents per diluted common share. Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $14.6 million in the fourth quarter of 2024, which was the same amount as the third quarter of 2024. When compared to the fourth quarter of 2023, AFFO of $16.1 million, the decline year over year was 9%, which again was primarily related to the loss of rent and interest from the geriatric psychiatric hospital operator. Finally, on a quarter over quarter basis, AFFO remained at 55 cents per diluted common share. That concludes our prepared remarks. Drew, 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 telephone keypad. If you are 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. At this time, we will pause momentarily to assemble our roster. The first question comes from Connor Mitchell with Piper Sandler. Please go ahead.