Q1 2022 Community Healthcare Trust Inc Earnings Call

During the first quarter, we acquired two properties with a total of approximately 30000 square feet for a purchase price of approximately $5 8 million. These properties were 100% leased with leases running through 2028 and anticipated annual returns of approximately 9% to 951%.

The company signed a couple of additional purchase and sale agreements this quarter and now have signed agreements for six properties to be acquired after completion and occupancy for an aggregate expected investment of $141 million.

Expected return on these investments should range up to 10.25%.

We expect to close on one of these properties in the second quarter of 2022, and the other five through 2022 and 'twenty into 2023.

In addition, we still have the signed term sheet for another 10, new properties and up to approximately $60 million of new investment. It is anticipated that these investments will be made over the next approximately 24 months.

Citing update on this client is that they finalized an agreement with a private equity firm and were funded last week. Therefore, we are hopeful that they can turn their attention to growth and development.

We continue to have many properties under review and have term sheets 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.

Strategically access the equity markets.

On another front, we declared our dividend for the first quarter and raised it to <unk> 44 per common share.

This equates to an annualized dividend of $1 76.

76 cents 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, everyone. I am pleased to report that total revenue grew from $21 4 million in the first quarter of 2021 to.

$23 5 million in the first quarter of 2022, representing nine 7% growth over the same period last year.

Revenue for the fourth quarter of 2021 was $23 2 million, representing 1% growth quarter over quarter.

On a pro forma basis, if all the 2022 first quarter acquisitions had occurred on the first day of the first quarter total revenue would have increased by an additional 132000 to a pro forma total of $23 6 million in the first quarter.

From an expense perspective property operating expenses increased quarter over quarter from $3 5 million to $4 1 million or 15, 7%.

The increase in <unk> was a result of.

One an increase in property taxes to seasonal increases, including snow removal at several properties and three normal fluctuations we experience in property expenses quarter to quarter.

G&A increase from $3 2 million to $3 3 million sequentially in the first quarter or five 1% in.

Increases in G&A were primarily driven by an increase in deferred compensation expense.

Meanwhile, interest expense decreased from $2 8 million to $2 6 million or five 8%. This decrease was due to capitalized interest expense on a few construction projects that can previously mentioned as well as two fewer days of interest in the first quarter compared with the fourth quarter.

I am pleased to report that funds from operations or <unk> for the first quarter of 'twenty two grew to $13 5 million from $12 6 million in the first quarter of 'twenty, one representing seven 4% growth over the same period last year.

On a per share basis <unk> increased from 54 per diluted share in the first quarter of 'twenty one to 56.

Per diluted share in the first quarter of 'twenty, two an increase of three 7%. Meanwhile, <unk> for the fourth quarter of 'twenty, one was $13 8 million, representing a one 7% decrease sequentially.

Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $14 8 million compared with the $13 3 million in the first quarter of 'twenty, one or 11, 4% growth year over year.

On a per share basis <unk> increased from 57 per diluted share in the first quarter of 'twenty, one to 61 per diluted share in the first quarter of 'twenty, two or 7%.

Finally, <unk> for the fourth quarter of 'twenty, one was $14 9 million, representing a 5% decrease on a sequential basis and flat on a per share basis of 61 per diluted share.

And from a pro forma perspective, if all of the first quarter acquisitions occurred on the first day of the first quarter <unk> would have increased by approximately 73000 to a pro forma total of $14 9 million.

That's all I have from a numbers perspective, Betsy we're ready to start the Q&A session.

Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset.

Keith.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

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

The first question today comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Oh, Hey, Hey, good morning, Tim and Dave.

Just a few questions.

Tim can you just.

Talk a little bit more about what's going on in the acquisition environment.

In the early years of the company you guys had.

<unk> had pretty healthy quarterly acquisition volumes, but that slowed recently at the same time. We've also built up the presale pipeline, which is a positive. So is it just that in the pipeline of what you guys saw on a quarter to quarter basis.

Wasn't as much available or was it a function of the stock price trading off that caused you to slow down just sort of curious and then what we should expect for quarterly volumes.

Heading forward.

Good morning, Alex and thanks for the question.

Sure.

It's a combination of things actually because.

The pipeline makes us want to be pickier because.

The pipeline is good assets.

Brand new assets with 15 year leases.

Good cap rates.

It tends to make us be pickier.

And we've actually seen less flow through the through the system.

For brokerage type deals.

Off market market type deals.

For the last couple of quarters.

I think maybe that has some of the cash inflow into private equity that's chasing healthcare deals et cetera, maybe thats catching up with us a little bit.

We've seen I think a little bit of a breakthrough over the last couple of weeks, maybe a month.

And in deal flow.

And I think that has to do with interest rate increases.

As the 10 year horizon.

Yes.

10 years.

Three over 3% then it makes it a lot more difficult to do some of the deals at lower cap rates and we've seen that open up a little bit.

Okay and then the second question is just bigger industry, maybe tapped on it with the private equity comment.

Yeah, there's the public peer drama with HCA, HR, and well tower, just sort of curious or portfolios back in Vogue or is your view of what's going on there something unique to HCA that.

You wouldn't expect suddenly a Russia.

Bob <unk> portfolios to start.

And the limelight, the way like apartments or or industrial or.

Ian.

It's an interesting study.

That took a couple of hours yesterday, and red part of the prospectus that HR and HCA fold and it <unk>.

As to went back and forth in.

And where.

Company F came into play in different ways.

I'm not sure that you can read anything into overall.

When I read into it was that.

Well tire is so big now they got to find large ways to make a difference I mean, just buying an asset or two doesn't make a difference to willpower anymore. So they need to buy something big inner.

Interesting it was interesting to see that they werent interested in HPA, but they were interested in HR.

And it was.

An interesting thing because the thing that was for sale they didn't want above but the thing that is left for sale they do on them.

Sure.

So I don't know I think it will be interesting to see how it plays out I think it's.

A drama, but don't think it's it's.

Overall type of.

I don't think it has any meaningful overall in MLP space.

Okay. Thank you Tim.

Thanks, Alex.

As a reminder, if you would like to ask a question. Please press Star then one to join the question queue.

The next question comes from Michael Lewis with <unk>. Please.

Please go ahead.

Thank you.

I wanted to ask a little more specifically about.

The investment yield spreads right. So the two pieces to that.

Number one I think on the on the two development deals you announced this quarter. It looked like they were nine and three quarters yield I think the first four you did.

Development deals where we're at.

10 in a quarter it might just be obviously specific to the deals, but so I was wondering if there was anything change on that front and then also do you.

You think differently about how you use your equity given what's happened to the stock price.

Good morning, Michael Thanks for the question.

<unk>.

The change is due basically to the to the to the deals.

Particular, theres nothing I don't think you can read into.

The overall transactions.

Or a shrinking of margins.

We.

As you know we own on.

On a regular basis watch our weighted average cost of capital and of course as the stock price goes down our weighted average cost of capital goes up.

But we still have a very favorable spread between what our investment criteria is.

And what our weighted average cost of capital is so we.

We can still invest at these levels and have it make make.

Making money, it's just a little less on the spreads.

We're not shying away from doing investments that we like based upon the stock price.

At this point in and actually the stock price. It has to go down a lot more before we would we would be that concerned about it.

Obviously, we like to stock price higher.

When we do it because it means the spread is water.

And as I've said for years basically we are in a spread business and we try to optimize that spread.

Okay great.

The question I wanted to ask you about the scalability of your G&A.

Because when I look at it over the last few years.

As you've grown the company.

G&A as a percent of revenue has actually ticked up a little bit and part of that obviously, we love the stock comp with the long dated best thing so.

I don't mean to nitpick that but.

The comp for the three the three top executives has doubled in the past two years.

That includes up 30% this past year.

I realize that's mostly incentive based comp against so it's great that you are hitting your goals, but maybe talk about as you grow what do you think is the opportunity or the ability to kind of scale that G&A.

Well I think we're probably close to a Maxim <unk>.

I mean.

We couple of quarters ago, with whom we gave additional disclosure in the supplemental data report.

Of.

What's happening to us.

Vince.

Some of US are getting close to retirement age the rules make us amortize.

Look over the time between now and retirement and instead of.

The eight years that.

As the legal vesting, so that's pinching us now.

The noncash portion of G&A. If you look just at the cash portion of G&A.

<unk>.

Yes, I think it's been relatively stable to down relative to revenue.

And we would anticipate that continuing to happen.

And the noncash will reach a kind of maximum point in the next I don't know a year or two.

So.

That point, it will level off or go down.

Okay. Thanks, and then if I could just squeeze in one last one I wanted to ask about how you view the threat of.

In home dialysis.

A lot of your.

A lot of your tenants in your properties, we're talking about kind of the need based nature and no matter what happens.

If you got to see the Doctor Youre going to see the Doctor, we've talked a little about tell a doc and things like that but.

Dialysis has seem to be the most defensive.

Of the property types do you see that changing at all.

Does it change the way you look at that.

Specifically.

Most.

Most dialysis.

The facilities over the last few years have started incorporating in home.

And if you have in home dialysis, you still need some office space. So what we've seen mostly as that.

A facility we will have the in facility dialysis and then it will also have some space designated for for the people who do the at home and supervise the at home dialysis. So I mean, we.

We see it over the next.

Number of decades is something thats going to be switching from from in facility to in home.

Okay.

Generally speaking if somebody getting in facility dialysis may how theyre going to stick with it and we think it's going to be a long lead time to move a lot of people into the in home.

So we see it as a basically a reduction of future need of dialysis facilities, but a reduction of need for the existing dialysis facilities. The only other thing I would add to that Michael is one of the reasons, we really like the operator that we do a lot of our.

Projects with us they specifically have.

Home.

Part of their dialysis business, it's really central to their strategy and so they are strategically mixing a combination of clinics as well as home dialysis as part of their go to market strategy, which candidly. We think is the right approach going forward there will always be some mix.

<unk>.

Clinic based dialysis patients, but you want to be able to capture those and they are they are actually working directly with payers on strategizing partnering with those payers on how to create that best mix and so that's one of the reasons, we really we really like the operator that we're working with and excited about their growth plans.

Okay, great. Thank you guys.

Thanks, Michael.

Your next question comes from Sheila Mcgrath with Evercore. Please go ahead.

Hi, Yes. Good morning, I was wondering if you could talk a little bit more about the increased backlog.

The acquisition was that one or more strategic relationships.

Visibility on how this might season, the $140 million in 'twenty two versus <unk> 23.

Good morning, Sheila and thanks for the question.

Yes, I mean and actually.

We should have already closed on one.

But due to due to supply chain issues.

And overzealous Butler County, Ohio Inspector.

The facility is actually open under a partial.

Oh.

But their kitchen isn't operable, yet because of an exhaust fan.

Issue.

So we're waiting until they get a full CEO before we close out or they're actually seeing patients near they have patients in the facility, they just bringing food and instead of using the kitchen.

So that one ship close relatively soon.

And.

We should close on at least one more in 2022, possibly too.

Again, a lot of it depends on weather and supply chain issues.

And then the remainder three or four will be basically one a quarter or two through the end of 'twenty three.

Okay, Great and then.

Just the stock has been under a little bit of pressure this year with other REIT that use equity to grow.

Just your thoughts on.

Your blended cost of capital here.

And.

Your appetite to use a little bit more.

How do you think about that.

Well, we're going to we're going to stick to our long term goal of keeping leverage at 30% to 35% of our.

Our capital base.

We may we have been.

30, or a little below 34, while we may increase it a little bit, but we're not going to go too much more.

And again, even with the stock price, where it is now with our investment spreads we can make money with where the stock is now.

So we're not we're not shying away from making those investments because of where the stock is.

Don't know what the yield is currently but I think it's it's.

Foreign third quarter percent.

Equity current yield.

So if we're investing in and a half we still got a lot of room, there to invest and the other thing I would just add to that Sheila is.

That's why we like the ATM. So much we can be very strategic pick our spots.

In terms of how we raise capital and be very very disciplined around that we have.

Essentially I think about 140 of our $150 million revolver available so.

We can really be smart in how we tap the equity markets, while still keeping our leverage in the profile that our investors have.

Our used to so.

I think count on us to be.

Nimble as we access the ATM, but.

Having a lot of options from a capital perspective.

Yes.

Great. Thank you.

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

Again, we'd like to thank everybody for your continued interest in the community Healthcare Trust and we look forward to talking to you on the second quarter conference call seeing a lot of you all in New York in June at NAREIT.

Thanks, so much.

Yes.

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