Q3 2022 Community Healthcare Trust Inc Earnings Call

Okay.

Welcome to community Healthcare Trust 2022 third quarter earnings release conference call on the call today. The company will discuss its 2022 third quarter financial results.

I'll also discuss progress made in various aspects of its business falling following the remarks the phone lines will be opened for a question and answer session.

The company's earnings release was distributed last evening and has also been posted on its website www Dot C. H C. T Dot R E I T.

The company wants to emphasize that some of the information that may be discussed on this call me will be based on information as of today November 2nd 'twenty 'twenty. Two it 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.

These risks and uncertainties you should review the Companys disclosure regarding forward looking statements and its earning release release as well as its risk factors and M. D N a and its SEC filings. The company undertakes no obligation to update forward looking statements, whether as a 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 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 re corded for playback purposes, an archive of the call will be made available on the company's Investor Relations website for approximately 30 days and is 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 Tim Wallace CEO of community Healthcare Trust.

So.

Good morning, everyone and thank you for joining us today for our 2022 third quarter conference call on the call with me today is David pray, our Chief Financial Officer, Leigh Ann Stach, Our Chief Accounting Officer, and Tim Our EVP asset management.

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.

In addition, an updated investor presentation was posted to our website last night.

The third quarter as busy from both an operations standpoint, and from an acquisition standpoint.

Our occupancy has risen to 98%.

And we have seen a continued pickup in leasing activity.

We continue to be encouraged by the activity, we see on the part of health care providers.

Our weighted average remaining lease term remains about the same it's slightly less than eight years.

Our asset managers have been very busy controlling expenses, while maintaining tenant satisfaction.

As I have indicated for the last several quarters. We continue to have five different properties are significant portions of them that are undergoing redevelopment or significant renovations with long term tenants in place when the renovations and redevelopments are done.

Yeah.

During the third quarter, we acquired two properties with a total of approximately 114200 square feet for a purchase price of approximately $17.5 million.

The properties are 100% leased with leases running through 2037 and anticipated annual returns of approximately nine and 9.72%.

Okay.

The company currently has 20 properties.

I had a definitive purchase agreements for.

On an aggregate expected purchase price of approximately $71 $6 million and expected returns of approximately 9% to pinpoint one 7%.

The company is currently performing due diligence on these properties and expects to close these properties in the fourth quarter of this 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 10.25%.

We expect to close on these properties throughout 'twenty, 'twenty, three and possibly end of 'twenty 'twenty four.

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

We anticipate having enough availability on our credit facilities and through our banking relationships to fund our acquisitions and we expect to Opportunistically utilize the ATM.

Strategically access the equity markets.

On another front, we declared our dividend for the third quarter and raised it to $44.05 per common share.

This equates to an annualized dividend of $1.78 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'll 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 $23 3 million in the third quarter of 2021 to $24 $8 million in the third quarter of 2022, representing six 7% growth over the same period last year.

Revenue for the second quarter of 2022 was $24 million, representing 3.2% growth quarter over quarter.

On a pro forma basis, if the 2022 third quarter acquisition had occurred on the first day of the third quarter total revenue would have increased by an additional 308000 to a pro forma total of $25 1 million in the third quarter.

From an expense perspective property operating expenses grew from $4 1 million in the second quarter to $4 3 million in the third quarter or six 5%.

The increase was due in part to seasonal increases in utilities expense caused by the hot summer months, along with increased property tax assessments on some of our properties.

G&A increased from $3 6 million in the second quarter to $3 8 million in the third quarter.

Or four 2% increases in G&A were driven by increases in noncash amortization of stock based compensation.

Meanwhile, cash G&A expense decreased from approximately $1 4 million in the second quarter to $1 3 million in the third quarter.

Interest expense increased from $2 8 million in the second quarter to $3 million in the third quarter or nine 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.

Funds from operations or <unk>, so for the third quarter of 2022 was flat quarter over quarter at $13 8 million.

Likewise on a per share basis, <unk> remained flat at 57 cents per diluted share.

As discussed F. S. Though was impacted by the increase in noncash amortization of stock based compensation experienced quarter over quarter.

Yes.

I am pleased to report that adjusted funds from operations or <unk>, which adjusts for straight line rent and noncash amortization of stock based compensation totaled $15 4 million in the third quarter of 2022, compared with $14 3 million in the third quarter of 2020.

One or seven 2% growth year over year.

On a per share basis <unk> increased from 59 per diluted share in the third quarter of 21 to 63 per diluted share in the third quarter of 'twenty two.

Or six 8%.

Finally, <unk> <unk> grew quarter over quarter from $15 million in the second quarter to $15 4 million, representing a two 5% increase.

And on a per share basis <unk> increased from 62 per diluted share in the second quarter of 22 to <unk> 63 per diluted share in the third quarter.

And on a pro forma basis at the third quarter acquisitions had occurred on the first day of the third quarter <unk> would have increased by approximately 304000 to a pro forma total of $15 7 million or <unk> 64 per diluted share.

That's all I have from a numbers perspective, Jason 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 youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

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

Our first question comes from Conor Mitchell from Piper Sandler. Please go ahead.

Hey, good morning, I have two questions so far.

First you guys have a good relationship with developers building out specialty spaces. So has the weakening macro had any impact on the propensity for these types of deals.

Hey, good morning Connor.

No we have not seen any any effect yet from.

From the weakening macro.

As you can tell by our acquisition pipeline.

And our activity in the leasing side everything is looking very good right now.

We're excited about what we're seeing in the environment.

Okay.

Okay, Great and then my second question regarded the access pipeline.

I touched on it briefly in your opening remarks, but can you just provide a little bit more color on how you guys are thinking about funding.

Funding of the pipeline and expected actually that's just to reduce the debt or the line of credit.

Yeah, we are anticipating and this isn't a change from what we've said over the last few quarters. We've we've historically maintained R. R.

Our our leverage.

Leverage level at extremely low levels, we anticipate taking that up a little bit.

Well into the mid 30% debt to book.

Cap and and then looking to utilize the ATM to to pull it down we have in our banks.

Banks have indicated.

Very willingness to fund our acquisitions in <unk> and <unk>.

And are excited to have to do.

Do that so we're looking to do utilize the bank lines and then utilize the ATM to reduce the bank loans.

Kind of our normal stuff.

[laughter] alright very helpful. Thank you.

Thank you Connor.

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

Hi, good morning, guys.

What's your assets drove the 50 basis points quarter over quarter occupancy pick up to just under 91% and how much additional occupancy pick up are you expecting over the next few quarters in the portfolio.

I think it was pretty much across the portfolio I'm looking at him Mariner was there anything special in many any special type of assets that are mostly its mobas, yes, mostly mlps, but really it was across our entire portfolio and use type and we're continuing to see a strong pipeline going forward.

Okay.

<unk> seen that increase still so.

Alright.

And then are you seeing how much upward pressure, you're seeing on cap rates and sellers willing to adjust at this point.

To current market conditions or is there still a substantial lag.

For that for you guys.

No I think we've seen it.

Almost like a switch sometime.

After the <unk>.

After the first or maybe the second 75 basis point increase is like a flip the switch switch was flipped.

And.

And it went back to normal normal type of staff.

We've determined is that.

So again kind of Crazy you know in the first quarter second quarter that we Couldnt fund.

Types of properties, but.

But it's just that people people, who had our types of properties all of a sudden back in the first and second quarter thought they really had six caps and nobody was buying and it takes gaps and then once they figured that out in that environment and gone away then.

They were a lot more interested in selling.

Okay. That's helpful. And then last one for me, Dave utilities cost because.

Because of the hot summer and the property taxes is this just a timing issue before you get reimbursed or is this stuff that youre not going to get reimbursed for.

Most of that.

Issue.

We have various.

Lease agreements and so we don't get 100% of those increases, but most of those get reimbursed.

I would say, 80% plus so most of that is just a timing difference okay.

Okay. Thanks, guys I appreciate the time.

Sure.

Okay. If you have a question. Please press Star then one.

Our next question comes from <unk> <unk> from Evercore. Please go ahead.

Thank you everyone. Thank you for taking my question. So I just have one question about today's five properties and go.

The Oh sure standstill agreements that are about the timing. So I think in last quarter's conference call.

You mentioned the timing expected timing will be <unk> 22, and the other flight routes one twice a week and now it's more like throughout 'twenty.

Maybe into early 2024.

Is there any like a reason there could be a delay of this completion and occupancy for this.

Five properties or <unk>.

And should we assume like tiny it'll be more leaning forward to the second half of 2000 Twenty's to me.

Yes.

It's more evenly spread out.

Terry.

Good morning, Wendy and I've, almost got to where I've stopped trying to estimate when construction jobs and be complete.

And it's basically the supply chain issues.

For inpatient hospitals, you need double compressor HVA C units and you need specialty generators.

And various items like that and even elevators.

For that matter, even doors I guess, some specialty doors have extremely long lead times now and the manufacturers are not giving true estimated dates.

As to when they can be delivered so it's really tough to determine when a construction project can be done if you can't determine when youre going to beginning the HVAC units for it or the generator for it or the or again, even even the specialty doors for it.

So that's why that's why it's been pushed back by we didn't end up closing, one and Oh, well. We don't think we will end up closing one in the fourth quarter.

And while they have been pushed back in and.

My best estimate is.

Probably somewhat pro rata, one a quarter for 'twenty three and then one.

Gets pushed into 'twenty four.

Thats, our best guess, but it's all depending upon our supply chain.

Okay. Thank you that's very helpful.

Okay and if you have a question. Please press Star then one.

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

Yeah. Good morning, guys, Tim I wanted to go back to the acquisitions that you're set to close here in the fourth quarter.

The pipeline free this quarter was about 20 or $25 million on average for assets in this quarter kind of shrink down to three so I'm wondering if you have sourced all of those are individual transactions that there are one or multiple portfolios in there and maybe talk a little bit about credit on something like that that you are considering in the smaller sized asset.

Well good morning, Dave and basically these are.

Lives of assets are our bread and butter assets it.

We've invested in for the last seven or eight years.

However, long it is that we've been public.

Public.

There is one group of multiple properties and there is there is a couple of them that have to two different properties.

I think all total.

There is eight or nine transactions that make up the 20 properties. So there's not there's not a single large.

Portfolio.

And basically they are just kind of our bread and butter acquisitions.

I think all of them are medical office buildings.

Or physician clinics.

But theres nothing theres, nothing that really stands out or make some unique again, there their basic bread and butter.

We've invested in.

But just really the market coming back yet so that's helpful.

And then maybe the other one on redevelopment and I know redevelopment something we talked about last quarter, maybe two questions on the five properties you mentioned with tenants in place.

And maybe you have this somewhere I didnt see it or hear it but square feet of this bucket of five properties I guess would be the first question and the second is does that show up in your occupancy stat today or is that kind of future occupancy relative to your occupancy number today.

I'm not really sure how we.

Im look at Tim first to do it.

Square foot gym.

Disclose that but theres nothing against it so.

No we have not but it is leased occupancy.

So it is included in our occupancy figures, okay, and how many square feet.

Would you estimate.

Yeah.

Anywhere between.

50% and 70000 square feet.

Roughly.

Great well that's helpful. I appreciate it guys. Thank you.

Okay.

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

Well, we appreciate everyone being with us today and look forward to having a good fourth quarter and talking to you all after the first year.

<unk> seen some of your I didn't NAREIT. Thanks.

Thanks, so much.

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

Yeah.

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Yes.

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