Community Healthcare Trust Incorporated

Good day everyone and welcome to Community Health Care Trust's 2025 Second Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 Second Quarter financial results. We'll 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 .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, July 30, 2025, and may contain forward-looking statements that involve risks 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 and 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 the call, the company will discuss gap and non-gap financial measures. A reconciliation between the two is available and its earnings release, which is posted on its website. Call participants are advised that this 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'd like to turn the conference call over to Dave Dupuy, CEO of Community Health Care Trust. Please go ahead.

Great. Thanks, Jamie, and good morning. Thank you for joining us today for our 2025 Second Quarter Conference Call. On the call with me today is Bill Monroe, our Chief Financial Officer, Leanne Stack, our Chief Accounting Officer, and our new Senior Vice President of Asset Management, Mark Kearns. 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. As previously announced, Tim Meyer departed the company effective May 31st. We are excited to have Mark on board as our new Senior Vice President of Asset Management. He has over 25 years of healthcare real estate experience, including leasing and managing medical outpatient properties, most recently in leadership positions with Welltower and Healthpeak. Bill will review the financial details in his comments, but I wanted to provide an update on the status of our geriatric behavioral hospital tenant. Although their performance has stabilized over the last couple of quarters, they have been unable to pay us full rent and interest. As discussed on previous calls, the tenant has been exploring strategic alternatives, including a potential sale of its business. On July 17, 2025, the tenant signed a letter of intent for the sale of the operations of all six of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. Among other terms and conditions of the sale, the buyer would sign new or amended leases for the six geriatric hospitals owned by CHCT. The tenant and CHCT are in active negotiations with the buyer, so we can't share more details at this time, and while we can't provide certainty that the transaction will close, we hope to share more information over the next couple of quarters as we move through the process. As disclosed in our filings, we determined that the collectability of the remaining interest balance and unreserved notes related to this tenant were not reasonably assured. Our notes and interest are now fully reserved for this tenant, and rent continues to be recognized on a cash basis. During the quarter, we received $260,000 from the tenant that is included in revenue compared with $165,000 in the prior quarter. As for other components of the business, our occupancy decreased slightly from .9% to .7% during the quarter, but we continue to see good leasing activity in the portfolio. We have three 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 those projects commenced its lease on July 1st. Due to some free rent built into the lease, we expect this property to contribute AFFO later in the fourth quarter of 2025 and into the first quarter of 2026. Though we did not acquire any properties during the second quarter of 2025, on July 9th, we acquired an inpatient rehabilitation facility after completion of construction for a purchase price of $26.5 million. We entered into a new lease with a lease expiration in 2040 and an anticipated annual return of approximately 9.4%. Also, we have assigned 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 .1% to 9.75%. We expect to close on one of these properties in the fourth quarter with the remaining five properties closing throughout 2026 and 2027. Considering the company's current share price, we did not issue any shares under our ATM last quarter. However, we are actively working on capital recycling opportunities and would anticipate having sufficient capital from selected asset sales coupled with our revolver capacity to fund near-term acquisitions. We had one very small disposition in the second quarter, providing approximately $600,000 in proceeds and generating a small capital gain. Going forward, we will evaluate the best uses of our capital, all while maintaining modest leverage levels. To finish up, we declared our dividend for the second quarter and raised it to .47.25 per common share. This equates to an annualized dividend of $1.89 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'll hand things off to Bill to discuss the numbers. Thank you, Dave. I will now provide more details on our second quarter financial performance. Let me start by detailing the impacts to our financials related to the geriatric behavioral hospital tenant that Dave described earlier. Other operating interest revenue in the second quarter was negatively impacted by the reversal $1.7 million of interest receivables from this tenant. In addition, we recorded an $8.7 million credit loss reserve on the notes receivable from this tenant, which utilized the signed letter of intent's valuation of the tenant's operations. Next, let me detail the impact related to the departure of our former executive vice president of asset management. Within general and administrative expense, we were charged a charge of $5.9 million for severance and transition related expenses. Combining the reversal of the interest receivable with the severance charges reduced second quarter FFO by 28 cents and AFFO by 6 cents per diluted common share. Moving back to the top of our income statement, total revenue for the second quarter of 2025 was $29.1 million, but if you exclude the $1.7 million reversal of interest receivable I just mentioned from the geriatric behavioral hospital tenant, total revenues would have been approximately $30.7 million. When comparing this $30.7 million to our total revenue in the first quarter of 2025, which was $30.1 million, our core portfolio would have achieved .2% total revenue growth quarter over quarter. Moving to expenses, property operating expenses decreased by approximately $500,000 quarter over quarter to $5.6 million for the second quarter of 2025. This reduction was primarily related to the higher seasonal expenses in the first quarter, including snow removal and utilities expense at several properties. Total general and administrative expense was $10.6 million in the second quarter of 2025, but if you exclude the $5.9 million of severance and transition related payments I mentioned earlier, G&A expense was $4.7 million, a reduction of approximately $400,000 quarter over quarter. This reduction was primarily related to the higher seasonal G&A expenses in the first quarter from our annual employer HSA funding, higher 401K contributions, and employer tax payments from stock vestings during the first quarter. Interest expense increased by $240,000 quarter over quarter to $6.6 million in the second quarter of 2025 because of increased borrowings under our revolving credit facility late in the first quarter to fund the $10 million property acquisition, as well as one extra day of interest in the second quarter compared to the first quarter. Moving to funds from operations, SFO on a diluted common share basis was $0.23 in the second quarter of 2025, but remember that this was reduced by the $0.28 with one-time items I discussed earlier. Adjusted funds from operations, or ASFO, which adjusts for straight line rent and stock based compensation, totaled $13.6 million in the second quarter of 2025, which on a diluted common share basis was $0.50, but also remember that this was reduced by the $0.06 of one-time items I discussed earlier. That concludes our prepared remarks. Jamie, we are now ready to begin the question and answer session.

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you'd like to ask a question, please press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Rob Stevenson from JANI. Please go ahead with your question.