Q2 2022 Community Healthcare Trust Inc Earnings Call

In performing due diligence and expects to close on these properties in the second half of the year.

The company continues to have signed purchase and sale agreements for five properties to be acquired after completion and occupancy for an aggregate expected investment of $117 $5 million.

The expected return on these investments should range up to 10, 5%.

We expect to close one of these properties in the fourth quarter of 2022 and the other four throughout 2023.

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

We anticipate having a net availability on our credit facilities.

To fund our acquisitions and we expect to continue to Opportunistically utilize the ATM to strategically access the equity markets.

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

This equates to an annualized dividend of $1 77 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 am pleased to report that total revenue grew from $22 7 million in the second quarter of 2000 $21 million to $24 million in the second quarter of 'twenty, two representing 6% growth over the same period last year.

Revenue for the first quarter of 'twenty, two was $23 5 million, representing two 4% growth quarter over quarter.

On a pro forma basis, if the 'twenty two second quarter acquisition had occurred on the first day of the second quarter total revenue would have increased by an additional 302000 to a pro forma total of $24 4 million in the second quarter.

From an expense perspective property operating expenses remained flat quarter over quarter at $4 $1 million G&A increased from $3 3 million in the first quarter to $3 6 million in the second quarter or eight 9%.

Increases in G&A were driven primarily by increases in employee and deferred compensation expenses as well as increases in travel and professional fees expense.

Interest expense increased from $2 6 million to $2 8 million or four 9%.

This increase was due to increased borrowings under our revolving credit facility to fund acquisitions as well as an increase in floating interest rates.

I am pleased to report that funds from operations <unk> for the second quarter of 'twenty two grew to $13 7 million from $13 5 million in the first quarter of 2002, representing one 5% growth quarter over quarter.

On a per share basis <unk> increased from 56 per diluted share in the first quarter of 'twenty two to 57.

Per diluted share in the second quarter of <unk> 22, an increase of one 8%.

Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $15 million in the second quarter of 22% compared with $13 9 million in the second quarter of 'twenty, one or seven 6% growth year over year.

On a per share basis <unk> increased from 58 per diluted share in the second quarter of 'twenty, one to 62 per diluted share in the second quarter of 2002 or six 9%.

Finally, <unk> for the first quarter of 'twenty, two was $14 8 million, representing a one 1% increase quarter over quarter.

On a per share basis <unk> increased from 61 per diluted share in the first quarter of 'twenty two to <unk> 62 per diluted share in the second quarter of 2002.

And on a pro forma basis, if the second quarter acquisition had occurred on the first day of the second quarter.

<unk> would have increased by approximately 271000 to a pro forma total of $15 3 million or <unk> 63 per diluted share.

Anyway, that's all I have from a numbers perspective, Danielle we're 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 one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before question Keith.

To withdraw your question. Please press Star then two.

The first question comes from Sheila Mcgrath of Evercore. Please go ahead.

Yes, good morning.

Tim I was wondering you mentioned that your capital that you're investing and redevelopment I was just wondering if you could give us some insight on how much capital is being invested what kind of return and the timing. So we could add to our model.

It's approximately $8 $5 million.

Be spread out over probably the next.

Four quarters.

<unk>.

And it's in fab projects.

We already have leases for these.

Specifically for existing tenants.

Is that it provides.

Okay, and what kind of yield like is it similar like 10% or is it.

The man to 10% range Okay.

Okay.

Great and then on the acquisition this quarter I'm, assuming that was from your largest tenant since their exposure moved up the rehab facility just wondering if that.

That opportunity came about given your relationship or was it like a widely marketed transactions.

Part of our relationship it was one of the last quarter. We had six of six of these under under purchase and sale agreement and we closed on one of them. So now we've got five so it's an existing relationship that that's part of one of our clients.

Okay, Great and last question.

Dialysis.

Leather LOI that you have potentially over $60 million.

Just curious are there.

Your hurdles to get that to purchase our definitive agreement.

Where that stands in the process.

They're identifying properties.

I said last quarter, they got funded therapy.

<unk> funding and now they're out in the market acquiring.

The operation side and that leads to our ability to do real estate transactions with them.

Okay, great. Thank you.

Thanks Sheila.

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

Good morning, good morning down there.

First of all good to see the pipeline expand.

That's a good thing.

Just a few questions Tim first.

As far as the funding goes you referenced line of credit you also referenced the ATM.

Are you guys still trade at a premium to NAV.

So that that's a positive for accretion, but just given the disruption in both the equity markets and debt markets.

How do you see your funding.

Going forward.

At least in the near term as long as we are in the current scenario.

Good morning, Alex.

Thanks for the question.

Basically we don't think.

We don't we don't see this situation has changed significantly we are investing.

Nonplus camps.

And we have seen that market open up substantially after.

Even after the first 75 basis point increase.

From from the Fed's, we anticipate it's going to open up more with the second 75 basis point increase.

A lot of a lot of the funding that.

Other people hand has dried up.

Cap rates they were buying it so we're anticipating seeing are.

Market open up substantially more.

But basically if you look at our funding costs on both equity and debt, it's still very accretive to buy and then the 5% range. So.

Overall plan is still the same.

We plan on keeping that debt.

And that 30% to 35% range of total capitalization and using the ATM to offset it because again, we think it's a $60 stock I hate selling.

Selling stock at the thought of selling stock where it is.

It is now but the fact the matter is we can make a lot of money.

Okay, and then that leads into the second question.

Which I think you partially answered but.

From a lot of the other Reits and other sectors.

Apartments retail office industrial what have you.

Theres a lot of disruption going on in the transaction markets just given.

What's going on in the cost of capital and a lot of the people have said that.

Transaction markets have really slowed down and almost come to a stop if you will.

That doesn't sound like it's the case in your markets or maybe it is maybe just a bit more color on what's going on.

And the product that you transact in as you. Just described is it just that yes, a lot of deals.

Stop and therefore year the recipient or as you look at your own pipeline. The deal flow has noticeably stop because sellers are pulling back in general.

No actually the opposite I mean, we've seen a significant pickup in our potential pipeline.

Yes.

Fourth quarter last year first quarter. This year, there is a significant slowdown in that final plan.

As I said after the first 75 basis point increase we saw a pickup in our pipeline.

And the effort.

We anticipate there's going to be more of a pickup because there is a lag between the recognition of what the capital markets are saying and sellers.

<unk> of.

What they are saying so there is probably still some.

Patients.

Because buyers.

They have cost of capital that makes them by at a higher cap rate and sellers are still thinking.

<unk> cap rate, but again, we've seen a significant pickup already were anticipating more of a pickup we think.

Fourth quarter.

We'll be back to the same deal flow that we saw.

Pre pandemic.

So we're fairly excited about what we're seeing in and things.

It bodes well for us.

Okay listen thank you.

Thanks, Alex.

The next question comes from Rob Stevenson of Janney. Please go ahead.

Hey, good morning, guys, Tim any property type looking more attractive to others in the marketplace today, when youre sourcing stuff outside of the stuff that's already under contract.

Good morning, Rob.

We continually get asked that question and we're very opportunistic.

I don't think we've ever thought that there was one particular property type that was better than another.

We are there for a while we were seeing a substantial number of behavior.

Behavioral facilities were still seeing some but.

That's kind of slowed down a little bit we are seeing more.

Ken on the medical office building multi tenanted medical office building.

Here in the last couple.

A couple of months as part of what I was just talking to Alex about.

But all of them.

All of them have good qualities that we lag if they meet our parameters so.

One particular property type that we would.

Favre over another.

And then are there any at this point are there any known move outs or downsizing in the 2023 lease expirations at this point.

Yes.

Yeah.

As Pat into the 2023 lease explorations I am sure there are some.

That will end up moving out again I think our historic.

Retention rate is.

80, 590%, so we anticipate 10% to 15%.

Explorations to move up in any given year.

But we have a full fledged leasing effort.

Both vacancy in.

The asset management people have already started working on the 2023 explorations.

We feel very comfortable with where that is.

Mentioned, the leasing activity that we've seen from health care providers has picked up substantially as noted we picked up 40 bps in our in our occupancy and we anticipate that continuing north over the next several quarters.

Okay, and then last one for me Dave did you guys buy back some stock in the second quarter page nine of the supplemental shows the second quarter share count on a weighted average basis, it's about 100000 below what the first quarter was.

No. It's no share buybacks at all we didn't issue any shares Thats just the way the.

The shares are calculated.

And.

Because of the stock price was down.

The share price calculation move down very slightly and so thats, what youre seeing there.

Hey, Thanks, guys I appreciate the time.

Yes, thanks, Rob.

The next question comes from Dave Rodgers of Baird. Please go ahead.

Yeah, Hey, good morning, guys wanted to ask on the redevelopment assets I guess two questions. There should we anticipate leases to commence then on those spaces by the end of 2023 is that your expectation.

Or will there be a delay or a lag before that happens and can you remind me what percentage of the vacancy of the portfolio that that redevelopment portfolio.

Companies today are accounts for today.

Alright. Your first part of the question is we anticipate all of those being completed and rent started.

Sometime in 2022 or 2023, so by the end of 2023 all of those.

The rent should be started and all of those.

And I think that answers the first part of the question.

As it relates to the second part of the question to be honest with you.

Sure.

Never quite looked at it like that.

It's probably.

I don't know, if I guess it'd be 20 basis points or something like that.

It's just a guess.

We've never looked at it like that.

Okay, maybe I can follow up on square footage of redevelopment or something to that effect. If you have that number but other than that I guess my question would be around deploying new capital. I mean are you getting with a tighter capital market are you seeing existing customers come to you for expansion projects were more capital that you can put to work.

In the existing portfolio to get returns off of that might be beneficial as well as the acquisition.

What was kind of saying that over the last six to eight months and Thats was generated these.

Renovation and redevelopment projects.

Will that continue.

That reaction is it's a good possibility that that will continue we've got we've got several discussions now.

Im going with.

Probably 30% to 50000 square feet of space with that type of that.

Type of.

Project.

So we're hopeful and we're very happy to.

Investment money in.

And the existing properties.

Look forward to doing that.

Thanks, Tim.

Thanks, Dave.

As a reminder, if you have a question. Please press star one. The next question comes from Michael Lewis of <unk> Securities. Please go ahead.

Thank you.

I wanted to follow up on Sheila's question about the dialysis program is there.

Sorry.

Good morning, Jason for when Youll be putting capital to work in that program and then taking it a step further.

You're making progress on other programmatic investment pipelines like that one I know you've talked about that in the past.

Good morning, Michael.

Good morning, Patrick.

<unk> also.

Okay.

Yes.

We've been slightly disappointed how long it's taking to.

Capital invested in the dialysis side of it.

We are still very confident that it will happen, it's still very good tenant I mean, we've already got.

Four five.

For four power projects with them already.

But this particular thing is taking a long time number one that they wanted to get their p/e money done until they get that done and now they are.

Searching for stuff, we anticipated happening but.

I've kind of given up on saying when.

And that's why I didn't put it in my comments today.

And the answer to the other part of the question is yes, we are working on.

Several different other.

Sure.

Relationships.

And it has proven difficult to do.

I think I've previously said on one of these calls for maybe several of them.

They're all there in the pandemic, we couldn't work on these relationships.

The ones that we have started to see kind of.

Neutral for.

For a period of time during the pandemic as nobody wanted us to come visit.

They were focused on other things now they are focusing on growth and we are.

Having some of those discussions, but they take a while to mature.

Don't have anything else to announce at this point, but we do continue to work on it and look to increase that part of our business.

Okay, Great and then.

Lastly for me I saw you have $28 million of properties under.

Sizing.

Exercisable purchase options that have not been exercised.

Do you expect.

Any of those options to be exercised.

Maybe share kind of what the pricing is that might help us understand the likelihood of that yourself.

We really don't expect that.

Particularly now that the cost of capital for everybody is going up.

And basically I think the majority of those are exercisable.

An initial purchase price plus an inflation rate.

Two the purchase price.

So.

Okay.

If interest rates were still zero.

My answer might be different but with interest rates going up and the cost of capital for everybody going up.

We really don't expect any of those to be exercised.

Okay that makes sense. Thank you.

Thanks, Michael.

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

Thanks, everyone. We appreciate you taking the time to spend with us and we'll talk to you next quarter.

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