Q3 2020 Community Healthcare Trust Inc Earnings Call
[music].
Welcome to community Health care trusts, 2023rd quarter earnings release conference call on the call today, The company will discuss just 2023rd quarter financial results.
It will also discuss progress made in various aspects of it there's no.
Following the remarks, the phone lines will be opened for a question answer session.
The company's earnings release was distributed last evening and has also been posted on its website www Dot C.H.T.T. RV I T.
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 November four 2020 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 risk factors and <unk> and it does he see filings.
The company's Oh.
Company undertakes no obligation to update forward looking statements, whether as a result of new information future developments or otherwise, except as maybe 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 this call will be made available on the company's Investor Relations website for approximately 30 days and this the company property of the company.
This call may not be recorded or otherwise reproduced or distributed without the companys prior written permission.
Now I would like to turn the call over to Timothy Wallace, Chairman, Chief Executive Officer, and President of community Health Care Trust incorporated. Please go ahead.
Thank you operator, good morning, everyone. Thank you for joining us today for our 2023rd quarter Conference call.
On the call with me today is Dave degree, our Chief Financial Officer pays Burns, our Chief operating officer, and last our Chief Accounting Officer.
As is our normal process our earnings announcement and supplemental data report were released last night and filed with an 8-K and our quarterly report on form 10-Q was also filed last night.
As it relates to the supplemental data report you will notice. It has a different look also when you have a chance to go to our website and take a look at our investor presentation.
David and done a great job updating both of these documents they will probably discuss things later.
Well the third quarter was somewhat unusual.
We had a busy quarter, both from an operational standpoint, and an acquisition standpoint.
The acquisitions were not consummated until after the end of the quarter.
The topic of the quarter still seem to be COVID-19 health care providers are still being impacted by the COVID-19 pandemic. Some are seeing a reduced number of procedures indoor patient visits well others operations are basically back to pre pandemic levels.
As of October 31st the company had there for all agreements with existing tenants representing less than 1% of our annualized rent.
And had collected approximately 50%.
<unk> previously deferred.
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 cope in 19.
As I indicated last quarter. The most significant effect Kogan Mccain has had on the company is slowing down our acquisition process.
Of course, the properties, we intended to close in the third quarter into October.
No the more normal.
As you know we have an active ATM program in place then during the third quarter. The company issued 536839 shares of stock through its ATM program at an average gross sales price of $47.40 per share.
We received net proceeds of approximately 24.9 million and an approximate 3.64% current equity yield.
During the quarter the company acquired a land parcel adjacent to one of our existing properties for a purchase price of approximately 1.1 million.
During the fourth quarter during November 3rd we acquired 10 properties with a total of approximately 209000 square feet for a purchase price of approximately $67.9 million. Thanks.
These properties are 100% waste with leases running Victor 2035.
And anticipated annual returns of 9.45% to 9.9%.
This brings our acquisitions for the year to approximately 127.2 million through October.
The company has three properties under definitive purchase agreements for an aggregate expected purchase price of approximately <unk> point eightmillion.
Unexpected aggregate returns of approximately 9.2% to 10.8%.
The company is currently performing due diligence and expects to close its properties over the next two quarters.
We also continue to have additional properties under definitive purchase and sale agreement to be acquired after completion and occupancy for an aggregate expected investment of $38 million.
They expected return on these investments should range up to 11%.
We expect to close these properties close on these properties and the metal 2021.
We continue to have many properties under review and have term sheets out on several properties with anticipated returns.
10%.
We anticipate having nap 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 dropped slightly during the quarter as leasing activity was somewhat muted due to the challenges goes back over 19.
However, we have seen leasing activity and interest to pick up over the last six to eight weeks.
Our weighted average remaining lease term remain relatively stable at approximately 7.8 years.
On another front, we declared a dividend for the third quarter and raised it to 42.5 cents per common share. This.
This equates to an annualized dividend of $1.70 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 Harlem Hospital as previously disclosed the company provided financing to facilitate the bankruptcy process.
As of today, we do not have any net receivable balance and due to that fact.
And the new operator has leased the the property and is doing well I do not anticipate giving any future updates on how.
I believe that takes care of the items I wanted to cover so I'll hand things off to Dave to cover that.
Great.
Thanks, Tim before covering the financial results I wanted to provide a couple of quick updates as.
As Jim mentioned, we have updated and enhanced our supplemental information report, which was included with our 8-K filing last night.
It was our goal with this update to add additional metrics and depth to our financial disclosures to make it easier for our investors and analyst community to understand our growth and financial performance.
Examples include a company snapshot section but.
Financial highlights section as well as a more detailed reconciliation of non-GAAP measures, including F. that so yeah. So pro forma assets, though you know why and EBITDA Ari.
We hope you find the updated and expanded supplemental useful.
In addition to that we have updated our investor presentation similar to the supplemental we updated the design added some new information and we'll be.
Updating that document on a quarterly basis, both the supplemental information in the Investor presentation may be found on our website, which is www dot c. HCT Dot art <unk> tea under the Investor Relations tab.
Finally, as it relates to our web site, we are in the process of updating it as well the new website should be up and running in early 2021.
Now onto the numbers.
[noise] I'm pleased to report total revenue grew from 16.3 million in the third quarter of 2019 to 19.3 million in the third quarter of 2020, representing 19% growth over the same period last year.
Revenue for the second quarter, 2020 was 18.3 million, which represents 5.8% sequential growth.
From an expense perspective property operating expenses increased quarter over quarter from 3.223 million to 3.563 million or 10.5%.
This was driven by new property acquisitions that occurred in the second quarter as well as normal fluctuations in property expenses experienced quarter to quarter.
In addition, gionee increase from 1.919 million to 2.211 million or 15.2%.
The increase in GNS. It was a result of both an increase in deferred stock amortization as well as normal fluctuations in DNA experience quarter to quarter.
Interest expense declined to $119000 from 2.183 million in the second quarter to 2.064 million in the third quarter. This decrease related to net proceeds raised through our ATM program used to pay off our revolver as well as moving to.
A new tier in our syndicated bank facilities pricing grid, which resulted in 25 basis point savings across all of our bank facilities.
Our net income increased from 2.647 million for the third quarter of 2019 to 5.211 million in the third quarter 2020, representing year over year growth of 96.9%.
Net income for the second quarter of 2020 was 4.526 million representing 15.1% growth sequentially.
Also I'm pleased to report that funds from operations for the third quarter of 2020 grew to 11.6 million from 8.5 million in the third quarter of 2019 or 37.1% year over year.
On a per share basis at that though increased from 44 cents per diluted share in the third quarter of 2019 to 52 cents per diluted share in the third quarter of 2020 or 18.2% mean.
Meanwhile, at the AFFO for the second quarter of 2020, with 11 million, representing 5.4 growth 5.4% growth sequentially.
Adjusted funds from operations, which adjusts for straight line rent and stock based compensation totaled 12 million compared with 8.9 million in the third quarter of 2019 or 35% growth year over year on a per share basis asset, though increased from 46 cents.
Per diluted share in the third quarter of 2019 to 53 cents per diluted share in the third quarter of 2020 or 15.2%.
Finally, I asked that though for the second quarter of 2020 was 11.4 million, representing 5.4% growth on a sequential basis.
That's all I have from a numbers perspective, operator, we are ready to start the question and answer session.
Ladies and gentlemen at this time, we will begin the question answer session anyone who wish to ask a question May Press star followed by one on their Touchtone telephone.
If you wish trend those yourself in the question queue. You May proceed star followed by two.
If you are using speaker equipment today, please lift the handset before making your selection.
Anyone who asked a question maybe for star followed by one at this time.
One moment for the first question please.
The first question comes from the line of Alexander Goldfarb with Pete just on line. Please go ahead.
Oh Piper Sandler Hey, good morning, Tim Good morning, Dave.
Good morning, So hey, how are you.
Well good question to two questions and then we'll go back to Highland Hospital.
And as you said hopefully you have last time, we talked about this so just so that we're all clear I think there were two tenants that you had that you had to deal with restructurings. Both you Yeah, where you were successful in both.
I'd highlight and he's this asset now out of the portfolios to your involvement with this asset has done. We're just now becomes a regular tenant and to remind me. The other restructuring that you're involved with is that is that done now as well or is that still in the portfolio.
Both of them are in the portfolio Hollins.
The new tenant is signed a long term lease and we anticipate being as part of the portfolio for.
A long time now.
The other one that you're talking about with A.M.G. and and we still have.
$15 million to $16 million outstanding they have been doing wonderfully. This year. They are they are going through a process to see about refinancing is we're hoping that they can't do that just yet.
But but you know a it has been a very good success story for those owners and we feel very good about what we did there.
Okay and then the.
The other question is on your acquisition Guy who is traveling the country on the RV just a sense of what's going on with the pipeline.
You know is.
Has there been a you know sort of but a dearth of deal.
Through co bid and especially on the presale. So on the development front or has there been a steady pace because from your comments. It sounds like the pipeline has been largely unaffected like it's still a pretty good environment out there, but just curious if you know as we get through a longer the Kobe that we should expect sort of more up to.
Nobody on the pipeline and the presale fraud or the level of activity has never really deviated that much from what it was historically.
The answer is it really hasn't deviated that much from historical it I mean, what what we experienced at the end of the second quarter and through a large part of the third quarter was just a difficulty in getting things through the process of closing.
I mean in part of that was you know it takes longer.
For my to drive around in an RV and see 10 different properties and then it did for him to fly around and see 10 different properties part of it is is the title companies part of it is the court clerks part of it and so so that was basically just a.
Like a gumming up of the works there for a period of time and in the works are still down some I don't want to I don't want to downplay that but the good thing is we kind of work through that and we got things out the other end and so instead of looking at what happened in the third quarter is being some aberration. If you look at what's happened in the second half.
Over the year, we've kind of met our guidelines I mean, we we we see 120 to 150 million a year and we sit here on November the fourth thing we've done 127 million so.
Don't think anything can be drawn a conclusion from a from the pipeline otherwise no no. The question of what happens if Kobe cleaners covered you. It's worse again covered whatever yeah. I mean, your crystal ball is probably as good as my Crystal ball and you know I really cant say, but but we are still seeing.
Deals come in and we're still sending term sheets out on them.
Okay.
That sounds that sounds good listen thank you. Thank you Tim.
Thanks, Alex.
The next question comes the line of Gaurav Mehta with National Securities. Please go ahead.
Yeah. Thanks, good morning.
Oh, <unk> opening up an acquisition.
If you could comment on what you are seeing in different asset classes in the acquisition market.
Could you repeat that.
I was hoping if you could comment on what you have seen different asset classes and healthcare and acquisition market.
And then we're seeing you know assets kind of across the board on you know everything from behavioral to oncology to physician clinics or I mean, we're still seeing kind of the same stuff that we've always seen from that from that asset class standpoint.
And it could be because that's what we're still looking for so [laughter].
Okay, Great. That's good to hear and I guess my second question on leasing.
He is exploration you talked about occupancy drop and.
As a result on the record leasing activity.
Yes, let me talk a talk about what you're expecting for 2020 in 2020 lease expirations are you are you speaking with diamonds and if you are what kind of feedback are you getting.
Oh, yes, we're already we're already addressing a lot of that I mean that there's only I think 6% of the portfolio Rolling in 2021, but we were we were already addressing some.
Some of those leasing Oh.
Leasing leases that are coming up for parole.
I mean overall, we think the leasing markets actually pretty good I mean, we it went to kind of the same kind of process that we went through with the acquisitions I mean in.
May June July probably the first part of August providers juice were stretched too thin to think about their leasing situation I mean, they they they only had so much bandwidth and then it was going to other things and what we've seen.
Kind of its slowed it down to is they have brought in brokers or were historically there hadn't been brokers involved and that tends to slow the process down also so we're thinking we're thinking that we're going to see a good fourth quarter as it relates to leasing were.
We believe the occupancy levels going to pop back up.
And you know we think we've got a good head of steam going into next year.
Okay. Thanks, that's all I had.
Thank you.
The next question comes the line of Nate crushed it with Baird Burke. Please go ahead.
Hey, good morning, guys.
Hey, maybe just following up on your comment at the end there I thought at full steam into next year. So I guess do you feel pretty comfortable that the range of the pipeline for next year will be within that kind of 120 to 150 million. Yeah. Maybe you can just give us some color on the side.
The deal.
Well flow outside of what you've already announced.
And then my second question is can you just give us some detail on the 10 properties you've already acquired.
So far in the quarter.
Sure.
As it relates to the deal flow I mean, we've had.
Going from memory, I mean, I think what we disclose was you know htwo well over 12 million and three properties that were currently working on.
Actually we've got a a P.S.A. in from the seller it'll go out probably today fully executed for another five and a half million property. So we're saying we're seeing good flow in the pipeline I know you know I'm not saying you.
Historically I might have said I thought some of those will close in the fourth quarter.
Some of them might close in the fourth quarter, but but but probably several of them will end up closing in the first quarter and and so we've got we've got several term sheets out again, the pipeline looks good I feel fairly comfortable saying that well do 120 to 150 million next year, just like Oh, Yeah, We did 120.
7 million, so far this year or in the middle of a pandemic. So I hope were able to do do that next year.
As it relates to the 10 properties, we've already acquired their behavior in property there's no.
And a group of oncology centers.
I don't think we've disclosed to the operators are on those probably shouldn't say now I don't know.
What we have but but again, they're they're good operators, a and then good locations and we feel very comfortable with them.
Okay. That's helpful have you seen any increase in competition in the last 18 months.
I know normally stuff that you guys been on isn't.
Usually I like it and then but.
Any comments there would be good and then just on pricing I guess, what's your kind of expectation for next year.
I mean, <unk> RV and competition is it's like it's always been I mean, one of my favorite quotes is from Mr. Rockefeller who said.
The only problem with competition is it's run as a profit so we try to stay away from it.
And tend to be rather successful at doing that ER. So we haven't seen any competition any increased competition in and if we feel competition on the other side or a competitive bid type of prices going down.
I will tell him that will walk away from it and then you know if its the process doesn't work out let us know and well look at it but we're not going to get in the middle of competitive bid process.
As it relates to pricing I mean, Oh, yeah, we feel like the pricing can can hold steady.
I mean, we might be able to increase it in some situations I mean, I think you know our history. At this point you know five years ago people question, whether or not we could buy.
Continually bias it man camps are bad, but we've done it for five years and I don't know at this point what would change related to that so we're still anticipating.
Being able to get that the nine plus cap rate Oh, Yeah, Oh, yeah.
Acquisitions that we do.
Okay. Thank you.
The next question comes line of Rob Stevenson with Janney. Please go ahead.
Hi, Good morning, guys I'm, sorry, if I missed it but did you guys announced what the cap rate was on the 68 million of acquisitions, thus far in the fourth quarter.
Thanks that was part of my comments I don't know if it was done in a thing but it's.
9.45 to 9.9.
Okay.
And then Tim when we look back at the March April May June period, what percentage of your tenants really felt real documented financial stress from the closures and the bands on elective surgeries because a lot of that stuff was in the northeast and the mid Atlantic and stuff like that or places, where you don't have as much exposure.
So when you look back on that like what percentage of the tenants in the portfolio really had a lot of Oh really demonstrate will financial stress.
Oh, yeah, very small percent I mean, as we've stated before we.
Deferred rent related to less than 1% of our annual adjusted basis or annual base rent.
You know I 18 out of.
A couple of hundred tenants.
Yes, and most of those were smaller ones, where we saw the doctors that had problems. It was like Dennis or or a common stress you know people who were working close to the phase in and.
They basically had to shut down the majority of our properties a bit and I mean that the behavioral facilities basically had an increase the process generally speaking.
And and so I mean, it is really a very small percentage and as I said, we've already collected approximately.
Approximately half of that.
What we originally deferred so we feel very very lucky in that scenario. Okay. Because the reason why I ask is you know [laughter], whereas earlier this year the hardest hit areas, where the northeast mid Atlantic and maybe you could argue maybe some of the west coast. It seems like that the hardest hit areas right now seemed to be the Midwest.
And and some of the Sunbelt stuff would you do have much greater exposure and so some of these areas are starting to limit elective surgeries again. So you know just trying to figure out obviously, you know that there's going to be some sort of could be I guess, there could be some sort of disruption, but just trying to figure out you know from a.
That's standpoint is it to what extent that sort of goes through if you. Just go around is more Midwest Sunbelt then the coast.
Well I mean actually I mean, that's where our diversification comes into play I mean, the the disbursed say diversification by industry segment, we've only probably got I mean, I don't remember whats the percentage of surgery centers that we've got like 10% or something and less than that it's a relatively small percentage.
The surgery centers and generally speaking we are not.
Hospital services dependent a lot of our tenants are hospital related but they're the physicians and those types of things and again and with oncology centers with dialysis centers.
With with behavioral with I mean.
Those types of things, we've we've seen consistent.
Yeah, basically a patient visits et cetera through the process I mean, there was a small dip.
With some of them back you know when when the whole country shut down for a month or whatever it was but but overall, we've seen very little stress in our system. Okay. And then last one for me Dave How close are you guys. These days to a taxable net paying out 100% of taxable net earnings I mean is that.
Dividend increase more of a function. These days of what's reasonable or are you guys down to the sort of bare minimum and any type of growth. You know is going to push the dividend up at a similar growth level.
In other words is there more room for the dividend payout ratio to come down are you basically with these you know last skew and the continued earnings growth are you basically at sort of minimum payout at.
At this point.
All right, but basically and I'll I'll take that one too.
We're basically have a long ways to go I mean.
We're at a you know 80, 80% low seventies, Oh, but if you take our depreciation away from that and then we still have a long ways to go so.
What we've said all along was is that we would be looking when we got down into the seventies, we'd be looking at increasing the dividend at it at a faster pace.
But right now we're not we're not facing anything that requirement to do it from a taxable income standpoint.
Okay. Thanks, guys appreciate it.
Yeah.
The next question comes line of Amanda <unk>, So with that please go ahead.
Thanks, Good morning all.
Good morning, Anthony on top.
Touched on this a bet with your.
Previous comments about stable trends kind of across your portfolio, but what are you hearing from your behavior. All tenants just from a tele health perspective, I assume your acute behavioral inpatient facilities haven't seen that meaningful of an impact but are there any kind of post kobin trend that you could point to your from your broader subset of behavioral assets.
In.
Speaking and you're absolutely right on the on the inpatient stuff I mean, you really can't.
[laughter], new inpatient behavioral, but tele health, what we have seen is that there is an uptick impella health with the behavioral but there's an uptick in behavioral so I don't yeah.
Thats one of the uncounted.
Costs related to this pandemic is is the keeping people isolated et cetera is substantially increased calls to suicide lines and those types of things. So we're anticipating there's got to be a fairly good uptick in pill.
To help but I don't really think it's going to take anything away from the inpatient or office visit or outpatient type of type of a behavioral health because you're going to see an overall increase substantial increase in overall usage of the behavioral health system.
Yeah that makes total sense and then it was small during the quarter, but whats your plan with that land parcel you acquired next one of your existing assets.
Well basically that asset is a next to a mall in Florida and our tenants there have have long wished for.
Access to it other than being off of the mall Road I mean, basically the only access right now is off of the moellering the ring road around them all so.
So by doing this one it allows us to do it it allows us to turn this property into recalling in a medical camp camp as it used to be called treasure coast plant or I forget what it is but where we're going to call. It treasure coast medical campus.
And and we have the opportunity to build a couple of new buildings, I think up to 100000 square feet, but what it allows us to do is put a main drive up to our existing facility. So we'll get an immediate increase in value and and and that visibility with our existing facility and then be able to drive additional.
So growth through the.
The new properties.
Thanks, I appreciate the time.
Thank you.
The next question comes line of Sheila Mcgrath with Evercore. Please go ahead.
I guess good morning, I'm on the Highland I'm glad we won't be able to talk about it anymore, but I'm just curious Tim you guys did a lot of work in terms of negotiating and then had a.
Debtor in possession financing if you look back on how you navigated through that do you think you can out.
Our breakeven for.
For the right.
Good morning, Sheila Thanks for the question and and actually we think we came out a little better than breakeven.
There were several places through the process that.
We were able to take advantage of things like buying stuff at a discount and that type of thing that and we feel very good with where we came out and we've got a very good good tenant now.
So we feel like we had a great asset all along we feel like it's a better asset now and we made some money along the way getting a better tenants.
Okay, Great and then.
In your supplemental you distinguish between two types of behavioral behavioral facilities acute inpatient and then behaviorists Oh specialty just wondering if you could explain.
What the difference is.
Yeah, and we did that I think they were originally break that apart last quarter.
But when we were looking at it you know what we're trying to do with the different industry segments is is is look at the risk that each one of them has.
And and.
You know the inpatient acute behavioral or large assets with very specific risks that are different than other assets I mean, any other behavioral we've got stuff like autism centers or geriatric centers or those types of things, but the acute care with Oh those you know those have.
Those have a different risk profile and we ought to talk about those differently than these others. So that's why we broke it out and that's that's kind of the distinction if it if its an acute inpatient.
Psych hospital it goes in that category and basically anything else goes in the behavioral specialty.
Okay, great. Thank you.
Thank you.
No further questions. Please press star followed by one on your telephone.
The next question comes the line of pilot.
I hope all is though with Colliers Securities. Please go ahead.
Great. Thanks, Good morning, good morning.
Maybe focusing beyond covidien or a longer term. If you look at your diverse portfolio of assets Im curious, which property types might have become more compelling to you maybe it hasn't changed but perhaps ecology centers assay easier within medical office buildings, maybe there's therapeutic areas that.
Might be more interested we've.
You know for example, we've seen some strength in the cash pay practices in medical aesthetics, which ironically, if historically found strength during economic downturns, but again I'm just kind of curious if your appetite for various therapeutic areas. This has changed over the past year or two.
You know my gut reaction is no, but I'm on my I'll, let David chime in with some thoughts on that you know I guess, what I would say is we as a firm try to be opportunistic we look at the dynamics in the health care market, what's changing what's evolving and we as a.
We as a team look at that and try to make decisions based on what we're seeing in the marketplace always being mindful for the diversification that we've talked about geographic tenant as well as sector. So you know as we see opportunities in physician.
Physician offices for instance, or if we see [noise].
Opportunities on in consolidation in various areas of health care, where we think we can be added it additive and helpful from a from a property partnership perspective, and we'll we'll try to jump on those right away. So I think obviously core tenant of the business is to forever be varied.
Disciplined in terms of diversification, but also to be opportunistic with regard to to things, we see developing in health care.
Got it no that makes sense I appreciate that and I know I know you've targeted gene eight about 12% to 13% of rental income and that you plan to fill some some important roles internally looks like that the head count did go up in Q3, I believe I do feel good about the head count or are there still some key positions your your.
Still focused on thank you.
No I think I think we're in pretty good shape with the key positions. We have 'em. We have added some people and and you know in a new VP for information technology.
And a and a new person.
And the acquisition.
Phase, but I think we're probably in pretty good shape now I mean always you know, we're always looking and and accounting the head count in accounting and as we add properties.
Let me now and those were probably the only active search that I know that we have now.
It's for an asset manager or a base level asset manager.
So we're not looking to add anything significant right now.
Okay got it.
Well that's it for me thanks for all the updates that.
Thank you.
If there are any further questions. Please press star followed by one at this time.
At this time. It appears there are no further questions I hand back to our speakers for any closing comments.
Thank you Albert and thank everyone for joining us on the call today. We appreciate your time and interest in us and we look forward to talking to you again in February thanks.
Ladies and gentlemen, the conference has now concluded and you may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.
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