Q2 2020 Community Healthcare Trust Inc Earnings Call
On the call today, the company will discuss it's 2022nd quarter financial results.
We'll also discuss progress made in various aspects of its business.
Following their remarks, the phone lines will be open for question and answer session.
The Companys earnings release was distributed last evening and has also been posted on its website www dot C.H.C.T. dot right.
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 August <unk> 2020, and may contain forward looking statements that involve risk and uncertainty.
Actual 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 first risk factors and DNA and if I see see.
Right.
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.
Reconciliation between the two is available in its earnings release, which is posted on its website.
Call participants for advice that this conference call is being recorded for playback purposes and archive of the call will be made available on the company's Investor Relations website for approximately 30 days and there's 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 tell me if he Wallace Chairman Chief Executive Officer, and President of community Health Care Trust incorporated.
Thank you Gary.
Good morning, everyone and thank you for joining us today for a 2022nd quarter conference call.
With me today, they are supporting our Chief Financial Officer Page Barton, our Chief operating Officer, and Williams, our Chief Accounting Officer.
As is our normal process, our earnings announcement and supplemental data report were released last night and Fallbrook an 8-K.
And our quarterly report on form 10-Q was also filed last night.
Once again as usual we were very busy during the second quarter and most of it was business as usual.
However, I guess I should start with the topic [laughter] quarter of course Kogan like team.
[noise] and though in the first quarter, many health care providers have been impacted by the coping 19 pandemic. Some of them have not been thing patients others have seen a reduced number of elective procedures indoor patient visits.
Well, others have experienced limited impact or have even seen improved cash flows from either increases in census, or from government funding.
As of July 31st for company has entered into or anticipate entering into the pro agreements with Oh boy 20 tenants, representing less than 1% of our annualized rent.
The company is generally providing tenants with two to four months of base right deferral independent continues to create operating expenses.
Pursuant to these agreements the tenants are journal are required to repay the deferred amounts and equal monthly installments during the third and fourth quarters 2020.
Our receivables are in the best shape. They have been in the company's history, our asset management group has done a great job related to Kobin 19.
The most significant effect go up in my opinion has had on the company is slowing down our acquisition process.
That's the pipeline, but the process. This is pushed the properties we closed in the second quarter two the ended the quarter.
We also believe it will slow the process through the second half a year.
Well to know to more normal items.
As you know we have an active ATM program in place and during the.
Second quarter, the company issued 578759 shares of stock.
It's ATM program at an average gross sales price a $41.70 per share.
We received net proceeds of approximately $23.7 million at an approximate 4.11% current equity yield.
During the second quarter, we acquired seven properties with a total of approximately 92000 square feet.
Her purchase price of approximately $21.3 million.
These properties were 100% leased with places running through 2035 and anticipated annual returns of 9.1% to 9.5%.
The company has two properties under definitive purchase agreement for an aggregate expected purchase price of approximately two point sixmillion unexpected aggregate return of approximately 9.3%.
The company's currently performing due diligence and expects to close these properties in the third quarter.
In addition, the company has 10 properties under signed term sheets for an aggregate expected purchase price of approximately $45.7 million and expected aggregate returns ranging from approximately 9.5% to 9.9%.
The company is currently negotiating purchase and sale agreements and expects to close these properties in the second half a year.
We also continue to have three additional properties under definitive purchase and sale agreements to me acquired after completion than occupancy.
<unk> aggregate expected investment of $68 million.
The expected return on these investments should range from approximately 9.5% to 11%.
We expect to close on one of these properties in the fourth quarter and the other two through the middle of 2021.
We continue to have many properties under review and a half term sheets out on several properties with anticipated returns in the 9% to 10% range.
[noise], we anticipate having enough availability on our revolver to fund or acquisitions.
And we expect to continue to opportunistically utilize the ATM to strategically access the equity markets.
On an operational standpoint occupancy was stable during the quarter.
Leasing activity was somewhat muted due to the challenge this goes back over 19.
The combination of new an extended leases and our acquisitions, we have been able to maintain our weighted average remaining lease term.
At approximately 7.9 years.
On another fraud, we declared our dividend for the second quarter and raised it to 42.25 cents per common share.
This equates to an annualized dividend of $1.69 cents per share.
And I continue to be very proud to say, we have raised our dividend every quarter since our IPO.
As it relates to how long hospital.
On July 120, 20, the bankruptcy cell phone hospital was completed and the operator, who had been managing this isn't the facility.
Acquired its operations and entered into at least with the company.
As previously disclosed the company, providing financing to facilitate the process and as of today. The net receivable balance is approximately 1.4 million.
The company expects this receivable to be repaid by the end up being here.
Obviously, there are various contingencies that might still occur so to the outcome could be different than what we think now but we believe we have addressed this situation as best we can.
I believe that takes care of the items I wanted to cover so I will hand things off today the cover the numbers.
Great. Thanks, Tim and good morning, everyone.
I'm pleased to review CHC team second quarter financial results through June Thirtyth 2020.
Total revenue grew from 14.3 million in the second quarter 2019 to 18.3 million and the second quarter of 2020, representing 27.7% growth over the same period last year.
Revenue for the first quarter 2020 was 17.9 million representing 1.9% sequential growth.
As Tim already discussed in his opening comments cobot 19 delayed several of our acquisitions to the very end to the second quarter impacting growth quarter over quarter.
Giving pro forma effect to these acquisitions as though they closed on day one of the quarter total revenue would have increased by over 348000, resulting in total revenue of approximately 18.6 million for the second quarter.
From an expense perspective property operating expenses decreased slightly quarter over quarter from 3.343 million to 3.223 million or 3.6% driven by normal fluctuations and property expenses.
Experience quarter to quarter.
In addition, gionee decreased from two point.
2.192 million, rather to 1.919 million or 12.5%.
Most of this decrease was a result of a decrease and reimbursement of legal fees related to the Highland Hospital bankruptcy.
During the quarter, we sold a remote parking lot related to one of our him Ob properties for approximately $300000, resulting in a 313000 dollar book loss, but also during the quarter, we acquired a parcel adjacent to the same property for 400000.
And this new parcel will be used for parking as well too as well as to improve and reorient the building entrance and traffic flow.
Interest expense declined $66000 from 2.249 million in the first quarter to 2.183 million in the second quarter. This decrease related to net proceeds raised through our ATM program as well as the backend loaded nature of our acquisitions in the corner quarter.
But rather as Tim discussed.
Our net income increase from 2.066 million for the second quarter 2019 to 4.526 million and the second quarter of 2020, representing year over year growth of 119.1%.
Net income for the first quarter of 2020 was form S 4.100 million, representing 10.4% growth sequentially.
Finally, I'm pleased to report that funds from operations at that though.
For the second quarter of 2020 grew to 11 million from 7.4 million in the second quarter of 2019 or 48.6% year over year.
On a per share basis, Ethernet FFO increased from 40 cents per diluted share in the second quarter of 2019 to 51 cents per diluted share in the second quarter of 2020 or 27.5%.
Meanwhile, at that so for the first quarter of 2020 was 10.2 million, representing 7.8% growth on a sequential basis.
In addition, adjusted.
Funds from operations or asset though.
Which adjust for straight line rent and stock based compensation totaled 11.4 million compared with 7.9 million in the second quarter of 2019 or 43.8% growth year over year.
On a per share basis, AFFO increased from 42 cents per diluted share and the second quarter of 2019 to 52 cents per diluted share and then second quarter of 2020 or 23.8%.
Finally, a AFFO for the first quarter of 2020 was 10.4 million representing 9.7% growth.
Sequentially.
And from a pro forma perspective, if all of the second quarter acquisitions occurred on the first day of the second quarter AFFO would have increased by approximately 302002, a pro forma of 11.7 million increasing asset though.
54 cents a share.
That's all I have from a numbers perspective carry we're ready to start the question and answer session.
We will now begin the question and answer session to ask your question you May Press Star then one on your Touchtone phone.
If you are using speakerphone, please pick up a handset before pressing the keys.
Your question. Please press Star then to at this time.
To assemble.
The first question will come from cross of Baron Bird.
Good morning.
I want to name.
Hey.
I was wondering maybe.
The acquisition pipeline outside of what you've already.
Now what is the deal well look like.
Being any changes in property type and.
Has there been any changes in pricing.
You know so far we really can't say, there's been that much difference in the pipeline or the pricing or what were seeing a from what we reported in previous quarters.
We're seeing a lot of specialty stuff, we are seeing a lot of a a lot of sag related behavior related Oh.
Properties.
We do have a very active pipeline and we feel very comfortable on being able to.
To meet our acquisition targets for the year and have a good start on next year's.
Target also.
Okay, well, what do you need that Kolpin has increased the kind of opportunities I mean is there any.
Right salary.
And client that you're kinda able to it.
Or.
No I don't really think we're saying distress sellers I mean.
All of all of our tenants are back seeing patients I don't know if any that aren't.
Operating now we may have one or two.
Small ones that argument, but and most of health care I think is pretty pretty much back to a.
Back to business.
And maybe it is it we're not looking for distressed I mean, we're not we're not we're not actively looking for districts. We won't strong operators, we won't we won't strong properties. So so we really haven't seen that but we haven't been looking forward.
Okay.
The 60 million that Thunder definitive agreement I'm, just curious how big is the one that expected to close or <unk>.
I think at 30 million grades that.
Yeah, 30 30 million.
Okay, and just lastly, I kind of wanted to ask a bigger picture question just on how that how.
So how should we tend to think about how that could impact your portfolio.
Is it.
I never how should we be thinking about that yet.
Well the way we look at Tele health, we think tele health overall bases as a net positive to health care.
Yeah. If you look at what happened in our buildings most of it can't happening over telephone I mean, we have inpatient side, we have inpatient rehab, we have oncology, we radiation oncology, we have kidney dialysis, we've got surgery centers, yeah, most of what Weve.
Okay, and but I mean, even dental visits gain happen or optum logic visits can happen pillar held tele health it will be very good from the standpoint of consults.
From the standpoint of a there's probably some behavioral stuff that can be done tele health, but there's still out of issues related to tele health I mean, because we've talked to some of our doctors.
And some of the ones that you would think might be you know.
Very much in favor of it like dermatologists.
Because theoretically you can take a good picture of something on your scan and send it to the doctor in big adopting et cetera, but what we're told by the doctors is is that depending upon the camera depending upon the lighting a lot of what they do depend upon the coloration and you can get various degrees of coloration when you're trying to do something on a remote.
Basis.
And the protocols around that.
And potential legal liability are still not well the fun hey from standpoint of if they think they can do something on a tele health bases and then it turns out they should have told them to come in and get it looked at.
Are they going to be held liable for that so theres a lot of issues I mean, I know, there's a lot of discussion, particularly today with the the Teladoc avago.
Merger talks et cetera.
But but we see it as something that will make health care more accessible and if we didnt have made over the next few years, we would have a very severe shortage of doctors, but with it it will help bending the curve to where we don't have a severe shortage adopters.
That's a long winded answer to it but not all that simple of a question.
No I appreciate the color thanks, guys.
The next question will come from.
<unk>.
Yes, thanks, good morning.
Good morning.
Following up on acquisition, while I was wondering if you could comment on.
How youre thinking about no funding acquisition between between equity and and Walmart given where your stock prices today.
Well as we've always said, we'll opportunistically, usually ATM to access the equity markets in and.
Yeah, and being able to produce the growth that we have that produces the stock price that we have it makes it very advantageous to use equity and leverage the balance sheet. Because our view is that you can always come back later and leverage the balance sheet, if something happens if if there's more issues et cetera. So.
So.
As you saw in the second quarter, we basically match funded all the acquisitions with equity you probably won't see as new that in every quarter, but but our goal is to keep our long term.
That to total capitalization in the 30% to 35% range, but we're not we're not concerned about having it drift a little lower and then when times are the stock price is good.
Okay.
Second question I have is on and on.
On the lease expirations for the year.
Yeah poor paulson leases expiring in 2020, maybe talk about what you're hearing from your comments and then none.
Hoping if you're going on to comment on prospect I really think of vacancy that job in your current portfolio.
Sure.
Kobe, that's one area that cobot has slowed things down I mean, most most systems and and healthcare providers have had their hands full dealing with with what's coming at them on a daily basis much less thinking about leasing. So so overall I think the leasing is going relatively well this year we.
I still think we're going to come out basically you know with a fairly stable occupancy rate or do they ended the year.
We do have several leases that are.
Actively working and some that.
We are hopeful to get signed relatively soon that would make it then in the and the vacancy rate but.
No were relatively comfortable with with the occupancy rate paying a plus or minus 90% and and feel like we can produce good results with that.
Okay. Thank you that's on the home.
Thank you.
The next question will come from Alexander Goldfarb of Piper.
Hey, good morning morning down there.
Okay.
Hey, good morning, I have to ask are you guys still driving around the RV for acquisitions or are you back to [laughter] actually the acquisition Guy I went out and bought an RV. So he can do it. So yes, we are still using an RV to get around to see acquisition and the plus side of it is well is doing that a staffing by and doing it.
Inspections on our existing properties, though so I mean, we'll go out for a week, we can happen hit them back and he'll then 20 inspections or something so.
That sounds like a lot of coffee and slim Jim on the road.
[laughter] well I will think his wife's going with them. So you know, it's got almost like a vacation or something [laughter]. Oh that then you can't be serving slim Jim you've got to upscale.
So two questions here first Ken you mentioned that your receivables or some of the best you've had a clearly less than 1% a baby are in deferral is quite is quite impressive. So the yeah. We read stories about law firms that have been financially impacted and lawyers having.
You know a cut salaries et cetera, because of the impact clearly, we see whats gone out and retail fitness clubs entertainment where yeah.
Areas have been impacted from closures so what's going on in your medical practices. If a number were closed for period of time is it just that everyone got PPP or these are all just really well capitalized practice is it just the the minimal impact is really impressive.
And as I said, I mean, even other parts of real estate like industrial industrial caught a lot more tenants impact. We didn't you think there it's all like E commerce and they're they're still impacted so what's going on your portfolio that it's so insulated.
Oh, well I think it's a number of different things number one is the diversification.
By tenant by geography, and by industry segment has provided a lot of.
Benefit this process.
Another piece of it is something that a lot of what we provided our portfolio eating a patient size inpatient rehab radiation oncology.
Kidney dialysis you know you can't do that any of the way and if you don't do it.
People are really hurt et cetera. So there's a lot of basically what we've said all along is one of them one of them.
Major part of our.
Decision criteria that how is this property needed by the community and I think what we've seen this process is substantially all of our properties are needed by the community and therefore, they will withstand this test of time, but again the diversification not having you know not having any single tenant media significant fees.
But not having having to spread out between the different.
Industry segment. So you know as one industry segment kind of got hurt them, yeah, Yeah, So and yeah, I think a row, we've got the tenant base. So.
Okay, and then that leads me to the second question.
Page 13 of the Powerpoint you two tenants Aberystwyth U.S. help that are over 5% or when do you think that as you look at your pipeline. When do you think that the portfolio will grow sufficiently so that sort of all your tenants are below 5% waiting.
You know, we I don't know the answer to that Alex We don't really look at 5% as being a significant threshold.
I would just throwing that out as I sort of benchmark right I mean.
We anticipate still doing some more business with yourself medicines more business with ever as we think they're very good clients and we're getting very good properties in and feel comfortable with them we are.
Slowing.
Down acquisitions with them because of the concentration that we have with them I mean, I don't particularly like seeing somebody in double digits I mean, our investment guidelines required diversification, but I think they allow up to 20%, but both but I don't like seeing them in double digits. So we have slowed down those and.
I had to spread them out.
But they are attendance in our challenge is to make sure that the rest of the portfolio grows a as faster faster than than does clients do.
Okay.
Thank you Tim.
Thanks, Alex.
Once again, if you have a question. Please press Star then one the next question will come from Sheila Mcgrath of Evercore.
I guess good morning, Tim I was just wondering it was good news on the high then hospital I just wonder when you go through the puts and takes on that I'm kind of a restructuring and assuming payback of the 1.4 million, which looks highly likely.
Where does see H.T.T. come out on this situation is that whole or with interest maybe a bit better than.
The prior scenario.
Actually is probably a little bit better on a net net basis number one we end up with a lot stronger tenant.
We did the new leases based upon a $30 million valuation was the only place was based upon a 25 million dollar valuation because we had the 5 million dollar mezz loan that we wrote off so basically over the period of the ladies we're gonna be getting paid a as if the mezz loan was still there.
So.
Overall, we think it was very good outcome. It was it was a little bit of a pain to get there, but we're very comfortable and it looks like the new operator.
May turn out to be another one of our clients because we were reviewing what they've two or three other.
Opportunities with them currently.
Okay. That's great and then just on maybe Dave. This is for you on Gionee. It was well we're <unk> in second quarter compared to first quarter.
Just where were there some savings with the you know covert shutdown not traveling or what what should we think about for a good run rate for this year for GE.
Well, it's as I mentioned in my remarks.
A lot of the reduction in GI DNA was had to do with some of the reimbursement we got for the legal costs associated with the Highland situation and not having enough in prior quarters exactly how it's it's a little bit got paid plus there is a reduction that that goes into it so.
So look I think you know.
While we're balancing that which is good news, we're actually continue to grow as a company work. We've got a couple of new people that are joining the company and important positions for us and so I think you know you will continue to see a similar relationship in terms of that yeah. I think we've mentioned 12 to 13.
Percent of rental income with his DNA and I think we'll continue to see that over time to be at a pretty good proxy for where it where it's going to be but we continue to grow in working as we grow we're going to add staff, we're going to add accountants, we're going to add other important roles and so.
Yeah, I do think that dropped this was a with a little bit of a blip and we'll we'll continue to see that 12% to 13%.
Okay, Great and last question. It was certainly a very small item in the 10-Q, but just curious if theres a story around to like I think you sold to small parcel of land or something was there any story behind that.
Yeah, when we bought that particular property, they're actually three parking lots attached to it in two of them were adjacent to the building in one of them with like three blocks away.
And there was a building with a hot dogs stand on its been a joke here in the in the.
In the company that we bought a hot dogs and property, but basically we bought it to tear it down and as Dave mentioned in his comments. What this is going to allow us to do is reorient the building.
And use that as parking lot and reorient kind of the front of the building to.
So now that will get better traffic flow and access so so basically the way that I look at it is we flipped out one parking lot for another product parking lot. We sold one for 300000, we bought another 400002, we had another 100000 dollar investment in a new parking lot.
Okay, great. Thanks, a lot.
Thanks Sheila.
And this concludes our question and answer session I would now like to turn the conference back over to Tim Wallace for any closing remarks.
Well, we certainly appreciate your all's interest in being on the call today, and we look forward to having a good third quarter in talking to you in three months. Thanks again.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
[music].