Q1 2020 Earnings Call
Welcome to the trade healthcare trust 2021st quarter earnings release Conference call.
On the call today, the company will discuss 2021st quarter financial results. We'll also discuss progress made in various aspects of this but that's business.
Following their remarks mines will be open for question answer session.
Accompanying companys earnings release story last evening, and it's also post on the.
W. C.H.C.G. dawn already I T.
The company wants that's caused some of the information I mean, it be discussed on this call will be based on the information as of today may six 2020, and making <unk> forward looking statements.
Involve risk and uncertainty.
Actual results may differ materially from those set forth in such statements.
For discussion of these risks and uncertainties.
You should review other companies closures regarding forward looking statements and its earnings release, it's always its worst crackers and M.D. in there.
I see see filing.
Company undertakes no obligation to update forward looking statements, whether as a result work now information future developments or otherwise.
Except as may be required by law.
During this call at the company will discuss GAAP and non-GAAP financial measures.
A reconciliation between the two it's available in its earnings release was supposed to go on its website.
Oh I'm sorry boxes. This conference call is being recorded for playback purposes, Archrival Oh will be made available in the company's Investor Relations website for approximately 30 days.
As property if the company.
It might not be recorded otherwise reproduced or distributed across the company. This prior written permission.
Now, let's turn the call over time, if he wants chairman.
Chief Executive Officer and Crescent.
Community Healthcare Trust incorporated please go ahead.
Thank you you.
Good morning, everyone and thank you for joining us today for 2021st quarter Conference call.
Oh with me today is Dave degree, our Chief Financial Officer Page Burns, our Chief operating officer, and land stack, our Chief Accounting Officer.
As is our normal process, our earnings announcement and supplemental data report released last night and filed with an 8-K and our quarterly report on form 10-Q was also filed last night.
Once again as usual we were busy during the first quarter and most of it what's business as usual.
However, I guess, that's just start with the topic of a quarter coping 19.
As you all know many health care providers have been impacted by the cobot 19 pandemic.
Some of them or not seeing patients others have seen a reduced number of elective procedures and or patient visits while others have experienced limited impact or have even seen improved cash flows from either increases in census, or from government funding.
As of April Thirtyth. The company has entered into their pro agreements with approximately seven tenants representing approximately <unk>, 0.25% of analyze grip.
In addition, the company is currently negotiating deferral agreements with approximately.
30 tenants, representing 2.34% of our annualized correct.
[noise], notably three of these tenants had after requesting a deferral have called back and said it was not necessary because they had received their PPP funding.
Based upon made and request the company has been generally providing these tenants with two to three months of base right deferral.
The tenants do continue to pay operating expenses.
Pursuant to these agreements the tenants a German required to repay the deferred amounts with funds received from business interruption insurance or the payroll protection program.
With any remaining balance paid an equal monthly installments during the third and fourth quarters of 2020.
As I understand that other rigs have been disclosing a percentage of April rents collected we have not historically measured that metric, but what I will tell you is that our receivables are in better shape than almost any other time and the company's history.
At this point I would like to call out the great job that our asset management group has done related to covert 19.
And the week after the cares Act was passed they were busy sending out emails to all of our tenants, providing directions and instructions on how to access the different programs.
Then when we heard that some tenants were having problems utilizing their banks.
Access the PPP program.
We pulled some of our banking relationships into the process.
And were able to human probably get them close to $5 million a funding.
If you're able to do that for people they tend to pay the rent.
No no no no own to more normal Adams.
As you know we haven't active ATM program in place during the fourth first quarter. The company issued 600 in 2786 shares of stock there Whats ATM program, we did that at an average gross sales price of almost 45 dollar for sure.
We received net proceeds of approximately 26.9 million at an approximately 3.79% current half what do you.
[noise] during the first quarter, we acquired six properties with a total of approximately 122000 square feet. Her purchase price of approximately $37 million. These properties were approximately 98.2% leased but at least as running through 2035 and anticipated annual returns of 9.12 11.
Uh huh.
So far in the first quarter, we have acquired one property with a total of approximately 10000 square feet.
For purchase price of approximately $3.9 million with a commitment to provide $1.5 million of tenant improvements.
That property is 100% leased with the lease running through 2035.
And then anticipated annual return of approximately 9.5%.
The company has four properties on a definitive purchase agreements for an aggregate expected purchase price of approximately $9.9 million.
And expect an aggregate returns from approximately 9.05% to 9.24%.
The company is currently performing due diligence and expects to close these properties and the second quarter.
We also have three additional properties on a definitive purchase and sale agreements to be acquired after completion in occupancy.
Aggregate expected investment of $68 million.
They expected return on these investments should range from approximately 9.5% to 11%.
We expect to close on these properties through the middle of 2021.
We continue to have many properties under review and have signed term sheets on several properties with anticipated returns from 9% to 10%.
We anticipate having enough availability on our revolver to fund our acquisitions and we expect to continue to opportunistically utilize the ATM.
To strategically access the equity markets.
Occupancy was down slightly during the first quarter leasing activity was somewhat muted during the first quarter due to the challenges caused that cover 19.
There are a combination of new an extended leases and our acquisitions, we have been able to increase our weighted average remaining lease term to approximately 7.9 years.
On another for <unk> as we announced the other day, we declared a dividend for the fourth quarter or first quarter and raised it to 42 cents per common share.
This equates an annualized dividend of $1.68 cents per share and I continue to be proud to say, we have raised our dividend every quarter since our IPO.
[noise] as it relates to Holland hospital, the filing of the prepackaged bankruptcy occurred on March 29.
Anticipated sale to the new operator is expected to occur at the end of the second quarter or first of the third quarter as previously disclosed.
The company's providing financing to facilitate the process.
Obviously, there are various sometimes it takes it might still look are such that the outcome would be different <unk>.
And what we think now but we believe we have a direct situation as best we can.
I believe that takes care of the items I wanted to cover so I will hand things off today because the numbers.
Great. Thanks, Tim.
I'm pleased to review CHC Tees financial performance for the first quarter, we continue to experience positive growth in our business with revenue growing from 16.8 million in the first fourth quarter 2019 to 17.9 million in the first quarter, representing 6.6% sequential growth.
Yes.
Revenue for the same period in 2019 was 13.4 million representing 33.4% growth over last year.
Many of our acquisitions close late in the quarter. So we did not see the full impact in our first quarter results, However, giving pro forma effect to these acquisitions as though they closed on day one of the quarter total revenue would have increased by over 838000.
Resulting in total revenue of approximately 18.8 million for the first quarter.
From an expense perspective property operating expenses increased quarter over quarter from 2.840 million to 3.343 million or 17.7%.
This was driven by one new property acquisitions to property taxes.
Three seasonal increases, including snow removal that a handful of properties.
And also normal fluctuations [noise].
In property expenses experience quarter to quarter.
[noise] DNA increased slightly by $66000 and that was driven primarily by an increase in compensation and professional fees.
As it relates to Gionee, we occasionally get questions about the mix between cash and noncash DNA expense. Therefore, we've included a new section at the bottom on page seven in the supplemental materials, which breaks out cash and noncash DNA.
This quarter and in previous quarters feel free to reach out to me should you have any questions.
Interest expense declined $264000.
From 2 million 200, and fit from 2.513 million in the fourth quarter to 2.249 million in the first quarter. This decrease related to the net proceeds raised through our ATM program as well as the backend loaded nature of our acquisitions in the quarter.
Our net income increased from 2.213 million in the fourth quarter to 4.100 million in the first quarter. However, when you adjust for the onetime noncash income tax expense of 1.421 million in the fourth quarter net income would.
Ben 3.634 million, resulting in an adjusted sequential increase of approximately 12.8%.
Finally, I'm pleased to report that funds from operations for the first quarter of 2020 grew to 10.2 million or 48 cents per diluted share.
From 9.5 million or 47 cents per diluted share in the fourth quarter or 7.7% sequentially.
Adjusted funds from operations at that though which adjust for straight line rent and stock based compensation totaled 10.4 million or 49 cents per diluted share compared with fourth quarter 2019 of 9.9 million or 49 cents per diluted share.
And importantly from a from a pro forma perspective, if all of the first quarter acquisitions occurred on the first day of the first quarter AFFO would have increased by approximately $470000 to a pro forma total of 10.8 million.
Which would increase asset, though to 51 cents per share.
That's all I have from a numbers perspective, Ian I think we're ready to start the question and answer session.
All right.
[laughter].
At this time, we will begin the question answer session to asking question. Your press Star then one on your touched on Sam.
The reason that speakerphone, please pick up your handset before press nikes.
Well charter your question Please press star isn't too.
Well pause momentarily to assemble a roster.
Our first first question comes on and they cross it Abram Bert.
Now please proceed.
Hey, good morning, guys, I hope you're doing well.
Good morning.
Morning, a appreciate the color on the cold and.
Just wanted to get a sense of the 30 tenants or you know the 2.3% of baby are that are negotiating deferral.
Are you guys expecting these negotiations to kind of cap out at this level or could that number go up.
Okay.
You know, it's hard to say I mean have told everybody. We don't know what would what to learn from this yet, but but basically.
And our discussions with our tenants are there the latest that they're looking at opening backup is June in several of them or looking at opening up in May. So I would hope that this is the peak of that.
And as I mentioned in the a and.
My.
Script to begin with we've had some that have already cold instead, they don't need it because they've got their their PBP funding. So.
Our our hope is this is the peak of it but yeah, we'll have to wait until let's see what May brings the one thing I will say and I find this kind of universal in talking with people. The rest of the country is having a totally different experience this than what New York City.
New Jersey, Connecticut, Boston area, its and its not merely the issue than it is the biggest issue we have our the stay at home and shut down orders being lifted so that people can get back to work.
Okay. That's helpful. Maybe just on the acquisition pipeline outside of what you've already and now now what is the deal well look like I think you mentioned that you signed a few term sheet.
What kind of the dollar value on those.
And then could you give us an update on the timings of the three properties that are going at close to 2021.
I kinda hate to I mean, I think one will close and I think one will close in the fourth quarter of this year.
There might be to the closes in the fourth quarter, probably one in the fourth quarter. This year one in the first quarter one in the second quarter, if I had had to guess.
Some of that has been slow down because the different stayed home orders in some states construction is an essential activity. So it's been able to continue and other states. It's it's not an essential that everybody. So they've had that have had to cut it off for the last four weeks or six weeks or something.
As it relates to the deal flow I mean, I'm trying to think I mean, this week I I've sent out.
We've sent out term shapes own probably four properties of the total 14 to 16 million.
So I mean, we're still seem good deal flow and don't think that cover 19 is going to really slow that down.
Hi, Thank you I'll get back.
Thanks Bye.
Your next question comes from Alexander Goldfarb Piper Sandler Alexander Please proceed.
Thank you good morning, good morning, guys for now.
Hey, how are Ya so just two questions.
First Tim the percent of tenants, who are in deferral discussion is incredibly low compared to what we've heard from others ranging from off that you know I want even mentioned retail, but office industrial et cetera. So you didn't provide a percent of rents collected so I didn't know if you're going to.
You're waiting for the Q and eight disclose that but can you just talk a bit more about why you know its own it's less than 3% of your tenants are in deferral discussion do you anticipate more or is it just that literally rented such a small part of the tenants and for the most part their businesses weren't selfish.
Certainly affected for them to even consider a asking for a deferral just want a little bit more color.
I try to answer some of that previously, but but but I will say this I think I think this is one place where again our diversification strategy comes into play because if you look at the bigger parts of our portfolio from a singular standpoint, you know we've had a good chunk of behavioral health.
And if anything coven 19 has increased the demand for behavioral health concerns.
We've got a big chunk of inpatient rehab that has done well too.
Through this process, we've got dialysis centers and cancer centers that you know if you need renal dialysis it doesn't matter if theres, a covert pandemic going on or not you get renal dialysis three days a week or you that.
So I mean, if you look at how we structure of the portfolio overall.
It's it again that diversification is coming through and then if you layer on top of that the effective work at our asset management group did and working with our tenants.
Getting them focused on getting PPP and other.
Parts of the cares that programs and getting those done then a substantial amount of that is going to paying us and then.
Where we've seen the biggest impact.
It really and small uses a small space usage, such as dermatologists ophthalmologists, Dennis those types of things and they represent a very small part of the overall portfolio. So so when you look at what we've got.
And how we've got a diversified again I I think the biggest things the diversification in the next thing is our active participation with our tenants and and promoting and accessing the government programs.
Okay, and then I've spoken about <unk>, let me say this to the geographic diversification.
Has a big benefit too because if you look at where this disease has had its biggest impact it's been in densely populated areas and were generally in suburban non urban core areas. So again that part of the diversification strategy has worked hard benefit in this also.
Okay, and then as far as your tenants and you spoke to the prior question about reopening in June and hopefully everything goes well, but your tenants who are you sort of elective procedures or shut down do you expect all of those to reopen or is this like where do we think of it like retail.
There's a mom and pops to you know they shut down they won't be able to reopen like basically do you expect your entire portfolio to reopen or do you have some tenants where you're like you don't think that belt survive, but they're closed for you know many for a few more months.
Well I'll address two parts of that number one we do not currently have the anticipation that any of our tenants are going to go totally out of business.
Sure I'll address that the second thing is is again you need to understand places are opening back up again I mean today.
I've got a dentist appointment and 11 and I get a haircut at noon.
So things outside of New York City, and Metropolitan area are already opening backup.
Hopefully Tim hopefully those are two different appointments.
They are [laughter] well ones on one side.
The only other though [laughter] okay, okay, let that thank you.
Thanks, Alex.
Our next question comes from Brian B. Riley FBR, Brian. Please proceed.
Yes, good morning, and pretty acts like quarter, I must say when we think about your expectations for acquisitions over the balance of the year, putting aside a number for the moment.
Is there anything that you're going out there in product type or maybe in the way it potentially distressed sellers, that's starting to come up on your radar screen.
No I mean, we're not really looking for distressed sellers.
And we don't really think that's going to be significant issue a minute.
What we think it's going to happen I mean, it that will come out of this is I think there'll be some.
Some different views on life, let's just call it the doctors and PE firms and others take on this because yeah. We had our board meeting on Monday and in the topic of discussion because several of our board members around different board.
Is that.
The firms have always looked at the doctors owning their real estate as being a good thing because it tied him into it but then when you have to discuss where they're not you can pay the doctors their rent if you're the PE firm running a a consolidator and it gets to be a tough discussion and if you're on the doctor side of it looking at it and so.
Saying, what can I get pay my rats and mice Mark I have is this a.
All of my assets in one basket so to speak.
Or should that should Oh liquefied this part of pardon me or my overall assets and put it somewhere else. So we think that then over time those are going to be discussions that come into play that play into our hand as to what we knew and how we do it.
But I don't think it's something that's going to happen overnight and quite frankly, you know if somebody comes dues and it's a distress property, we're probably not going to be interested in anyway.
Right I meant more from the standpoint.
The owner of the property has become distressed for some reason.
And to sell a property to raise capital maybe for other reasons.
I was addressing it kind of from.
Most of what we buy we end up buying from doctors are and so I mean, we haven't we haven't seen that doesn't necessarily think that we will in that context, I think we'll say it more in the context of.
The doctors looking at it and saying okay.
How concentrated shouldn't my assets be in should I, not diversify them better than what I've gotten diversified right now.
Got it kind of moving out a little bit and I know this is probably still really early innings, but has there been any shift in cap rates with what's been happening with interest rates over the past a month or two and with the expectation.
A lot of people just are staying away from real estate anytime.
Mike cap rates higher tier benefit are you seeing anything in that regard.
I think it's still probably a little bit early for that to come out.
We're not anticipating significant moves I've told people you know, we might anticipate being able to push cap rates up 25, bips or 50, bips on something but I don't think it's going to be.
An overwhelming move for the types of properties that we have in the way that we approach.
And then lastly from me I think you had maybe 40 or so leases expiring 2020 has yeah. The kogan 19.
Pandemic changed your view at all.
On your ability to release those properties or what you might want to charge for those properties as it changed your view in any way as it relates to how you look at the balance of this year.
I'm not really as it relates to the releasing most most of the the spaces. If the doctors are in this space. There. They are releasing I mean, because the fact that matter as through this process leasing has been very low.
Oh I'm there.
Yep Prioritization list. So we've had we've had a lot of trouble getting people look at vacant space, but we haven't had any trouble getting people to release based are currently and because basically they're not out looking for new space at this point in time, so if the leases can.
Yes, they've got to do something with it so we've seen most of rolling but but we haven't been able to do much HM.
The space has already begun.
Great. That's off me. Thank you.
Thanks, Brian.
Our next question comes from Barry all sort of D.A. Davidson.
Barry Please proceed.
Great. Thanks, guys.
Quick question when it comes to the Highland bankruptcy and the financing that you guys are providing can you talk a little bit about the terms.
Well, that's very short term I think it if it expires.
July 31st.
We got a 10% return on it.
10% return, we don't expect it to stay out very long because it's so process. It has been in a prepaid what type of basis and the cash and its cash flowing very well right now we're actually.
Part of a part of the debt financing is we switched their their receipts account and we're actually in a net positive position.
Fairly decent positive position.
That account right now so.
We don't anticipate there the ever being much out on it and we don't anticipate it really affecting the financials that much.
If this were more to drag would that obviously be extended a little bit.
I mean, I'm not going to say that it wouldn't be a but again, we don't anticipate it's it's it's fairly well set up the the sale orders men. The order for approving the sale process et cetera, and the procedures has already been approved there's not a there's not a.
Unsecured creditors committing that nobody wanted to form an unsecured creditors for many so I mean, it's currently set for the the option date for June 15th and the closing date for June 28, I think it is so yeah things could.
Extend out, but we're not anticipating again, even if it does we're not anticipating much of that being Oh.
Much being out on that line it wouldn't be material. Okay. Thanks to the uptake guys Yep.
Hi, Thank you.
Our next question comes from Rob Stevenson of Janney Rob. Please proceed.
Hi, Good morning, guys, Tim you talked about being able to use the ATM program for acquisitions stock prices over 50 in early March and your first quarter ATM activities at 45, how aggressive you got to be it issuing equity at the high Thirtys, even the low Fortys I know you haven't been up big fan of preferred stock, but does that start to look more attractive to you your altered.
It is either reducing your acquisition pace or issuing common at current levels to fund deals.
Well I mean, we can make money.
At the current pricing of the stock I mean, it's it's you know it $40 a share I'm trying to think off top of my head the may implied cap rate or the company is.
Probably less than 5%, so I mean, and we're investing at nine so I think we can we can do accretive transactions.
I'm very well if the stocks you close to where it is are you hopefully a little bit higher.
So I mean them.
And I never viewed and you know you probably heard me talk about this before but the way I view. The ATM program. It's kinda like dollar cost averaging kind of in reverse where I never try to think that I'm going to try to hit the have the market and everything and I'm trying to get below the market, but as long as the team kind of a sweet spot that there can be.
Very accretive with the acquisitions that were doing we're not have shied away from it and we'll use it to two to manage the balance sheet and keep the leveraging inline with what we want to today.
Okay.
Then.
When you talk to your tenants how significant are the additional expenses that they're gonna have to incur going forward to operate B. I mean, I know doctor's office are being clean, but now you probably have a new higher standard for disinfecting at the end of the night, you're going to either need more waiting room space or space appointments.
More so the people can social just instill greater extent, so people aren't on top of one another and a waiting room and then you know you've got the either both the ability to acquire medical supplies like PPD swabs et cetera, and then the incremental cost of this the cost for a mask now and clubs et cetera, I mean how's that.
It get likely impact their operations at the end of the day.
[noise] I haven't had anybody now I haven't heard that weve heading in discussions with people who thought it was going to be an overwhelming issue I mean, there's different ways to do some of the stuff I mean, like I mentioned I'm I've got a dentist appointment and a haircut appointment and basically that social distancing that you do as you sit new car.
And they texting when they're ready for you and then you walk in you know student waiting room, So I think thats, probably going to be some of the stuff that you're going to deal with and a future instead of having people waiting and waiting room. They wouldn't a car they get a tax then they come in so and accident. The hairstylist chicken I only have one customer in the bill.
Moving its a suites type of thing she got only a one customer in the building social tax me when when we think is ready to Walker her previous customer outcome opened the door and then I can go in so again its its various things like that is going to do it. So I don't think there's going to additional cost from that standpoint to the extent that.
The our mass required and our gloves required have and some additional disinfecting any most doctors offices.
We're getting a good cleaning everyday anyway, a you know to the extent you have to do it twice a day that might happen.
And you know you might use a few more gloves in a few more.
Mass than what you were previously using.
But those generally speaking aren't a large percentage of their costs. So it may be you on the margin 1% to present would be my guess.
But but again, we don't we don't have we don't have senior housing we don't have nursing homes, we don't have.
Acute care hospitals.
So.
That's kind of what we say from our standpoint.
Okay, all right. Thanks, guys.
Thanks, Rob.
<unk>.
As a final reminder, if you have any quick question. Please press Star then one.
Our next question comes from Sheila Mcgrath with Evercore Sheila. Please proceed.
Yes, good morning, Tim on boarding I just.
It's good news that you don't have any properties in New York, and New Jersey, I could you just give us some insights on what percent of your portfolio is currently open and if that's the improved from earlier in the month.
I'm trying.
Right I think the only ones that I think that we had totally close we're probably.
Two or three surgery centers.
I'm looking at Dave and pays now we mean we had.
In some of our medical office buildings, Dennis closed a I guess, we had I cares eye care facilities that were single tenant that were closed but I mean overall, it's very small percentage that were totally closed.
Okay.
Okay, and then Tim you mentioned some tenants being eligible to receive PPP were there any other government programs that assisted your tenants to this that and that might be the driver of the very low, but Jeff for all the class.
Well, yeah, I mean, there they access several of the a a the carriers I programs I mean, probably the biggest one was the Medicare.
Payment that was made basically if you got manorcare receipts last year, you got like 6.6% of those just drop into your bank account ER and and for our tenants that was relatively significant I mean, if you're running an acute care hospital and you had the NPV acute.
Our hospital for coated.
That doesn't that doesn't mean, much but but for our tenants. If you had you know just 6.6%.
Of once you've got paid by Medicare dropping your bank account you don't have to pay it back that's fairly significant. So so you have there was two three pieces of it.
That was significant.
Okay, Great and then one last one on the new disclosures on Gionee what percent is cash versus a stock compensation is that ratio. If you look at the one that you disclosed this quarter is that like could take a typical quarterly <unk> relationship that we should expect.
Can you.
Yeah, I mean, if you look at on page seven of the supplemental what we've done as we have shown that relationship over the past call. It.
Eight quarters, and so yes, you look quarter to quarter, it's really fluctuated pretty.
Similar to that sometimes it's a little bit more non cash than cash, sometimes it's a little bit more cash the noncash, but it's been roughly in that.
48 to 52 range quarter to quarter, we don't expect that to change significantly enough and also if you look at DNA as a percentage of revenue that his range two in the 12% to 13% range as well so it's been pretty consistent and so but but we didnt.
On a break that out because we had some questions about that Sheila.
Yeah, No that's super helpful. Thanks, a lot.
Thank you. Thank you.
They have no further questions at this time.
Concludes your question answer session now now, let's turn the conference back over for any closing remarks.
Thanks, and we appreciate everybody, taking the time to to dial into day in and Oh.
Well look forward to talking to you in three months. Thanks.
Oh.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.