Q2 2021 Community Healthcare Trust Inc Earnings Call

Okay.

[music].

Good day and welcome to the community Healthcare Trust 2021 second quarter from.

<unk> conference call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.

On the call today, the company will discuss for 2021 second quarter financial yourself.

It's a low to discuss topics made in various aspects of its business for.

All in the remarks, the phone lines will be opened for a question and answer session to ask a question you May Press Star then 1 on a touchtone phone.

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The company's earnings release was distributed last evening and has also been posted on its website www Dot C. H C P.

R E IP.

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. All this for 2021 and may contain forward looking statements getting on risk and uncertainty.

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 a true risk factors and Andy any and its SEC filings.

The company undertakes no obligation to update forward looking statements, whether as a result of from information future developments or otherwise, except as maybe required by law.

During this call the company will discuss GAAP and non-GAAP financial measures.

Are you conciliation between the 2 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 on the call will be made available on the company's Investor Relations day right for approximately 30 days and is property of the company.

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I would like to turn the call over to Tim Wallace CEO of community Healthcare Trust incorporated. Please go ahead.

Good morning, everyone and thank you for joining us today for our 2.2021 second quarter conference call on.

On the call with me today is Dave Dupuy, our Chief Financial Officer, Leigh Ann Stach, 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.

We had a good quarter from an operations standpoint, and from an acquisition standpoint.

As you know we have an active ATM program in place.

The first quarter the company during the second quarter. The company issued 247960 for shares of stock through its ATM program at an average gross sales price of $48.87 per share.

We received net proceeds of approximately 11.9 million and an approximate $3.5 9% current equity yield.

During the second quarter, we acquired 2 properties with a total of approximately 77000 square feet for.

For purchase price of approximately $9.5 million. These properties were approximately 90% leased with leases running through 2028 and anticipated annual returns of approximately 9.3 or 4% to 9.97%.

So far this quarter for August 3rd the company has acquired 1 property totaling 14400 square feet for an aggregate purchase price of approximately $3.7 million.

Upon acquisition the property was 100 per cent lease with lease expirations through 2026.

And an anticipated annual return of $9.3 7%.

The company has 2 properties under definitive purchase agreements for an aggregate expected purchase price of approximately $8.5 million and expected returns from approximately 9 points to 9.3%.

The company is currently performing due diligence and expects to close these properties in the third quarter.

We also signed a definitive purchase and sale agreements for for the properties. We discussed last quarter that we had signed term sheets on.

To be acquired after completion and occupancy for an aggregate expected investment of $94 million.

The expected return on these investments should range up to 10.25 per cent.

We expect to close on 1 of these properties as early as the fourth quarter, but most likely the first quarter of 2022.

And the other 3 through 2022 and into 2023.

So we have 2 properties for signed term sheets for an expected purchase price of approximately $9.3 million.

We expect to close on these properties and a third or fourth quarter.

In addition, as we discussed last quarter, we have signed term sheets with plans for another 10, new properties up to approximately $60 million on new investment. It is anticipated that these investments will be made over the next approximately 24 months.

We continue to have many properties under review and have term sheets out on several properties with anticipated returns of 9% 10%.

We anticipate having enough availability on our credit facilities to fund our acquisitions and we expect to continue to opportunistically utilize the ATM to strategically access.

Equity markets.

Our weighted average remaining lease term was relatively stable at slightly more than 8 years.

Occupancy ticked up slightly for the quarter as leasing activity picked up on and we are encouraged by the activity we see on the part of healthcare providers.

On another front, we declared our dividend for the second quarter and raised it to 43.25 cents per common share.

This equates to an annualized dividend of $1.73 per share and I continue to be proud to say, we have raised our dividend every quarter since our IPO.

I believe that takes care of the items I wanted to cover so I will hand things off to Dave to cover the numbers.

Great. Thanks, Tim and good morning, everybody.

I'm pleased to report that total revenue grew from $18.3 million in the second quarter of 2020 to $22.7 million in the second quarter of 2021, representing 24, 1% growth over the same period last year.

Revenue for the first quarter of 2021 was $21.4 million.

Thereby representing 6% sequential growth.

On a pro forma basis, if all of the 2021 second quarter acquisitions had occurred on the first day of the second quarter total revenue would have increased by an additional 216000 to a pro forma total of $22.9 million in the second quarter.

From an expense perspective property operating expenses increased quarter over quarter from $3.7 million to $3.8 million or 3% the increase in <unk> is.

Is in line with the growth we are experiencing in total revenue.

G&A expense for the second quarter remained flat at $2.9 million. However, interest expense increased from $2.2 million to $2.7 million for 22, 7%.

This increase was due to the full quarter effect of our recent refinancing in which we added net new term loan borrowings of $75 million.

I am pleased to report that funds from operations or <unk> for the second quarter of 2021 grew to $13.3 million from 11 million in the second quarter of 2020, representing 29% growth over the same period last year.

On a per per share basis, <unk> increased from 51 per diluted share in the second quarter of 2020 to 56 cents per diluted share in the second quarter of 2021, an increase of 9.8%.

Meanwhile, <unk> so for the first quarter of 2021 was $12.6 million, representing 5.7% growth sequentially.

Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $13.9 million in the second quarter of 2021, compared with $11.4 million in the second quarter of 2020, or 22, 7% growth year over year.

On a per share basis <unk> increased from 52 per diluted share in the second quarter of 2020 to 58 per diluted share in the second quarter of 2021 or 11, 5% for.

Finally, <unk> for the first quarter of 2021 was $13.3 million, representing 4.6% growth on a sequential basis.

And from a pro forma perspective, if all of the second quarter acquisitions occurred on the first day of the second quarter <unk> would have increased by approximately 151000 to a pro forma total of $14.1 million.

Increasing <unk> on a pro forma basis to 59 per share.

That's all I have from a numbers perspective, operator, we are ready to start the question and answer session.

We will now begin the question and answer session to ask a question you May Press Star then 1 on you touched on the phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

But anytime Youre question has been on Christian you would like to withdraw your question. Please press star 2.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Our first question comes from Sheila Mcgrath with Evercore. Please go ahead.

Yes, good morning.

Jim I was interested that you now have it on another term sheet with a dialysis company for kind of programmatic relationship I was just wondering if you could give us a little more detail on how these deals are structured do you fund the construction costs and then serve as it take out upon completion.

And just also if you could give us insight on what makes working with C. H C. T on this.

Attractive for the.

The company.

Good morning, Sheila and thanks for the question, obviously, what makes it attractive as that Dave and I are such good guys I mean [laughter].

[laughter] core.

[laughter] on that particular term, saying, yes, we will be doing.

The construction financing well basically by the property and it can be either land or it can be an existing building and then fund the.

The construction of the renovation of it dialysis centers or relatively small typically in the $4 million to $6 million apiece range. So and they are relatively quick too.

To put up so we felt like it was it was okay.

On the tenant will be taking the risk on completion and getting it operational so.

It will still be the same from that standpoint, we wont be taking that risk.

But we've said all along that what we've tried to do is develop the clients and this is 1 of our clients in and what makes it better for them is that if they had to go out and finance each 1 of these on a standalone basis. It would take a long time, because we don't have to deal with the local <unk>.

In the area.

And and then have to put up a lot more equity, whereas with us we want to own the real estate from the beginning.

And we can we can make their lives a lot simpler and.

Let them get to their goes a lot faster because.

What they're looking to do is developed per company there.

This is 1 of our serial entrepreneurs are looking to grow our company until it gets to a certain level and then fell off to 1 of the big guys.

And.

If we can help them do that a year or 2 years earlier than they otherwise could other than it makes a big difference on their internal rate of return.

On their investments so it's a win win situation for everybody.

And just to be clear Tim. This is a previous these guys are already an existing tenant of yours.

Yes.

Great and just 1 housekeeping item just on G&A on Dave.

On your thoughts on G&A for the second half is <unk>, a pretty good run rate.

Okay.

I think it's probably a good run rate I think you've seen it.

It went up a little bit and now it's flat. So I think keeping at about that level is probably a good proxy for where we expected and again the mix between cash and noncash may vary a little bit over time, but I think in general youre, saying kind of some consistency there.

Okay, great. Thank you.

Our next question comes from Daniel Santos with Piper Sandler. Please go ahead.

Hey, guys. Good morning, Thanks for taking my questions, Tim you've talked in the past about how your average sort of small town doctor doesn't follow the 10 year cap rates or spreads so thinking about there in terminal calculus, and our sales from that perspective, probably isn't the right approach, but if you look across the board cap rate.

Have compressed pretty consistently and yet you're still hitting your sort of your sort of 9% threshold maybe comment if you will on whether or not you're seeing any impact on pricing and maybe your long term views on being able to continue that keep the pipeline stocked with non caps.

So far we've been able to do it and I don't anticipate changing.

The market is not that much different now than it was.

For the last 6 years.

And.

Again, having a focus on developing clients and net.

Number 1 on Dave and pages list to do is develop new client.

We can that we can have the win win situation that I just talked about before.

We think we can we can do a big percentage of our acquisitions with the clients and then fill in along the way with the other property. So we fully anticipate being able to maintain.

Our spread investing that we're doing.

As good as we can.

Got it that's helpful. And then the next 1 is a little bigger picture, but you probably the closest thing to a doctor right now what are your operators staying about the delta Varian, how scared or a day, how long do they see this sort of wave might be here to stay.

To be honest with you I haven't talked to our asset management people. The methane everybody's operating full speed ahead operations or our back basically to pre pandemic levels.

And maybe even more on it.

On average basis so.

I don't think anybody right now is thinking that delta is going to shut things down or slow things down that much.

Yeah.

A huge difference in and.

For the cases in the hospitalizations and death between between Delta and <unk>.

In the previous who still has a ways to play out, but but several people here Scott Gottlieb et cetera. Thank that.

On burn out here quickly.

And if you look at if you look at vaccinated people in previous Covid cases, generally arent that sick with it it's only the unvaccinated that are sick with it.

And it will burn through that population relatively quickly.

Alright, that's helpful. That's all for me thanks.

Thanks Daniel.

The next question comes from Bryan Maher with B Riley. Please go ahead.

Oh, Yeah. Good morning, 2 questions for me.

1 when we look at the lease exploration schedule for the next couple of years I think it's a little under 80 per cent next year and longer 10 per cent per year. After that can you talk about your process on getting those properties re leased and maybe your outlook for rent roll ups.

Good morning, Brian Thanks for the question and sure I mean.

Actually we've had.

A lot on properties a lot of tenants request early renewals. So we're working on a lot of stuff may on it doesn't it doesn't roll until 2022.2023, even 2024, we're working on renewals now after the pandemic there was a year there probably 15 months where.

Where providers couldn't focus on anything about leasing on most because they were so focused on internal staff for it came out of it and they seem to be a lot more focused on.

1.

On their leases and.

And I'm not exactly sure why wouldn't have decided it is time to lock in.

Lease terms for for longer.

I mean, we had 3.

Multi tenant.

Tenants that are in multiple buildings all requests on about the same week.

Extensions extension discussions.

For properties.

For for leases that didnt expire until some of them until 2024, so we feel very comfortable with what's happening now in the leasing market.

On the leasing activity on existing and vacant space has seen a significant pickup in.

In the last 6 months and we're hopeful that the last 6 months of this year will be extremely.

Extremely good.

Great and then when we look at the diversification of your portfolio, you know roughly 30% in Texas, and Illinois to state, 40% and 3 that Ohio and.

Nearly 50% enforced day to be at Florida.

Is that mainly by design or is that simply where the opportunities are and when you look at your acquisition pipeline do you suspect it's going to be more of the same.

We have overall diversification guidelines, but those are the MSA.

We don't have diversification guidelines by state and when people talk about Texas, I mean, Texas is a huge state Texas is like.

All of New England and.

So on a couple more states to go with it.

So I'm not surprised that we have some concentrations in there I mean, the concentration in Illinois because of a couple of large properties.

Illinois Con's day, so we're very comfortable with.

And these are <unk> properties.

That make up a big chunk of it so we're not uncomfortable with that but Florida is a great place for healthcare.

So again.

I wouldn't say, it's by design, but diversification is about is at the MSA level not at the state level and.

Yeah.

Don't know what the future will bring but I wouldn't be surprised that it doesn't bring.

Something very similar to the past.

Thanks, Dan.

Thanks, Brian.

As a reminder, if you have a question. Please press star then 1 can be joined into the queue.

Our next question comes from Rob Stevenson with Janney. Please go ahead.

Hey, good morning, guys.

Tim are you seeing any better opportunities in certain asset types. These days and what is the pipeline.

Any big exposures there.

Property type or market.

Okay.

Well we are.

We're marketing to our share of entrepreneurs and looking for new share of entrepreneur. So we obviously just on person sales agreements for for inpatient rehab facilities over.

Over the next.

18.24 months.

Should have another 100, approximately $100 million of inpatient rehab.

It's something that is.

As a growing market.

And we like it and we're participating in it.

We also say a lot of behavioral and behavioral is a broad category.

We've turned down probably 90, 598% of the behavioral hit we see.

But it is something that is growing and is something that.

The reimbursement has improved over the last well since obamacare.

The reimbursements improved and been more accepting an and.

The society is more accepting of behavioral.

Issues that people have.

So we anticipate seeing that growth.

No.

We obviously like the physicians in the mob space.

And.

With the right assay, operator, we like that space, but we haven't seen a lot of those lately that we felt were for worthwhile.

Yeah on the other thing I would just add to what Tim is saying, we just obviously talked about the client.

That we did with on the dialysis side and so that's that's an area that we continue to see growth is in dialysis and so that's that's an area in and really across the board.

The.

I care space, we're seeing opportunities in the derm space.

We're also looking strategically.

Outpatient imaging and so theres a lot of areas, where we're spending time and as I'm sure everyone. Can appreciate those those discussions take some period of time, but there are lots of opportunities broadly out there. It's just a matter of finding the right partner to do multiple facility.

With.

And then Dave you've pushed the <unk> payout now down to below 75% on the common dividend how closer you know to REIT minimum payout levels that would force you to raise the dividend by more than the sort of quarter, a penny a quarter that you've been doing recently.

Yes, we're nowhere close I mean, the way that is measured is on it.

Net FX appreciation taxable income and so we're nowhere close to hitting that and Tim I'll, let you cover the increasing dividend question.

Well.

For the discussion that's been at the board level, and we're kind of monitoring day on the dividend.

We want to make sure that we can maintain an increased dividend when we increase it so.

Yeah.

I wouldn't be surprised if sometime in 'twenty, 2 that doesn't happen, but but it's always obviously up to the board.

Thanks, guys I appreciate the time.

Thanks, Rob Thank you.

Yes.

This concludes our question and answer session I would like to turn the conference back over to Tim Wallace for any closing remarks.

Thanks, everyone. We appreciate you.

You are spending the time with us this morning, and look forward to talking to you in about another 3 months.

Okay.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.