Community Healthcare Trust Incorporated

Welcome to the Community Health Care Trust's 2025 first quarter earnings release conference call. On the call today, the company will discuss its 2025 first 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, April 30, 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 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-licking 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 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. Please go ahead.

Great. Thank you, Alan. And good morning. Thank you for joining us today for our 2025 first 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 quarterly report on Form 10Q, In addition, an updated investor presentation was posted to our website last night. We had a busy first quarter from an operations perspective and continue to be selective from an acquisition standpoint. Both our occupancy and our weighted average remaining lease term remain flat quarter over quarter at 90.9% and 6.7 years respectively. We continue to see good leasing activity in the portfolio, And our asset management team is doing a great job serving our tenants while continuing to focus on property operating costs. 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 complete. One of these projects commenced its lease during the first quarter. Due to healthcare licensure requirements as well as renovatement built into the lease, We expect this property to contribute NOI during the fourth quarter of 2025. During the first quarter, we acquired a behavioral residential treatment facility consisting of five buildings with a total of approximately 38,000 square feet for a purchase price of approximately $9.7 million and anticipated tenant improvements of $1.4 million. We entered into a new lease with a lease expiration of 2040 and anticipated annual return of 9.5%. This represents a new client relationship for CHCT, and we are evaluating other projects to work on with this operator. 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 $169.5 million. The expected return on these investments should range from 9.1 to 9.75%. We expect to close on one of these properties in the third quarter, with the remaining six properties closing throughout 2025, 26, and 27. In April, we sold one building in Ohio with a net book value of approximately $400,000 and received net proceeds of approximately $600,000, resulting in a gain on the property sale. As for an update on our geriatric psychiatric hospital operator, which is a tenant in six of our properties, representing a total of approximately 79,000 square feet and annual base rent of $3.2 million, we continue to see incremental operating improvements and received rent and interest payments of $165,000 in the first quarter. 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. 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. Going forward, we will evaluate the best uses of our capital, all while maintaining modest leverage levels. To wrap up, we declared our dividend for the first quarter and raised it to 47 cents per common share. This equates to an annualized dividend of $1.88 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 first quarter financial performance. I'm pleased to report that total revenue grew from $29.3 million in the first quarter of 2024 to $30.1 million in the first quarter of 2025, representing 2.5% annual growth over the same period last year. When compared to our total revenue in the fourth quarter of 2024, which was also $29.3 million, we achieved 2.7% total revenue growth quarter over quarter as a result of incremental revenue from fourth quarter acquisitions made late in the quarter last year, seasonal increases in operating expense reimbursements, and the $165,000 of rent and interest payments received in the first quarter from our geriatric psychiatric hospital operator that Dave mentioned earlier. From an expense perspective, property operating expenses increased by approximately $600,000 quarter over quarter to $6.1 million in the first quarter of 2025, primarily as a result of higher seasonal utility and snowplow expenses at several properties in January and February in particular. General and administrative expenses increased by approximately $300,000 quarter over quarter to $5.1 million in the first quarter of 2025, primarily as a result of higher non-cash amortization of deferred compensation and our typical first quarter seasonal adjustments due to the timing of annual employee salary increases, employer HSA and 401k contributions, and employer tax payments. Interest expense remained flat quarter over quarter at $6.4 million in the first quarter of 2025 due to the lower acquisition volumes over the last quarter, as well as two less days in the first quarter compared to the fourth quarter. Moving to funds from operations, FFO decreased slightly quarter over quarter by $77,000, but remained at $12.7 million in the first quarter of 2025. On a per diluted common share basis, SFO was 47 cents in the first quarter of 2025, down slightly from 48 cents in the fourth quarter of 2024. Adjusted funds from operations, or ASFO, which adjusts for straight-line rent and stock-based compensation, totaled $14.7 million in the first quarter of 2025, which was approximately $100,000 higher than the fourth quarter of 2024, but on a diluted common share basis remained the same quarter over quarter at 55 cents. That concludes our prepared remarks. Alan, 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 one on your touchtone 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 it, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Connor Mitchell of Piper Sandler. Please go ahead.