Q3 2023 Community Healthcare Trust Incorporated Earnings Call
Welcome to community Healthcare Trust 2023 third quarter earnings release Conference call.
On the call today, the company will discuss its 2023 third quarter financial results. It will also discuss progress made in various aspects of its business.
During 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 at Www Dot C. H C. T R. A 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 one 2023 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 the risks and uncertainties you should review the company's disclosures regarding forward looking statements in its earnings release as well as its risk factors and MD&A in its SEC filings the.
The company undertakes no obligation to update forward looking statements, whether as the 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 it and 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 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.
I would like to turn the call to Dave Dupuy CEO of community Healthcare Trust.
Thank you good morning, and thank you for joining us today for our 2023 third quarter conference call.
With me today is bill Monroe, our Chief Financial Officer.
In stack, our Chief Accounting Officer, and Tim Mayer, our EVP of asset management.
Our earnings announcement and supplemental data report were released last night and furnished an 8-K.
And our quarterly report on 10-Q was filed last night.
In addition, an updated investor presentation was posted to our website last night.
The third quarter was busy both from an operations both I'm sorry from an acquisition standpoint, and also from an operation standpoint.
During the quarter, we acquired seven properties with a total of approximately 177000 square feet.
For a purchase price of approximately $51 $7 million. The properties were 99, 8% leased with leases running through 2038.
Anticipated annual returns of approximately $9 one to $10 three 7%.
Subsequent to September 30th we acquired two medical office buildings.
In a single transaction.
For a purchase price of $7 $1 million.
Our properties were 96, 8% leased.
With leases running through 2031.
From an operations perspective, our weighted average remaining lease term remained stable at seven one years.
Occupancy decreased from 91, 7%.
The 91% that decrease can be attributed to Genesis care lease rejection occurring in the quarter.
As it relates to Genesis care, we had one lease rejection during the quarter at 46000 square feet square foot building in Fort Myers, Florida, and which Genesis care was the sole tenant.
When coupled.
With the Liza Nashville rejected in the prior quarter. The two leases have been rejected representing 57000 square feet and has seen good leasing activity at both locations.
As of September 30th 2023, Genesis care was the sole tenant in five of our properties and a tenant in two of our multi tenant properties, representing approximately one 9% of our gross real estate properties for approximately 62000 square feet.
Based on our recent based on recent court filings the Genesis care bankruptcy timeline has been extended with the auction currently scheduled for today November 1st.
We and our outside counsel continue to monitor the situation closely and our asset management team is prepared to engage quickly as the bankruptcy process progresses.
As it relates to our pipeline. The company has seven properties to be acquired after completion and occupancy for an aggregate expected investment of $166 $5 million.
Expected return on these investments should range from nine one to $9 75 per cent.
We currently expect to close on these properties throughout 2024 and 2025.
We continue to have many properties under review and have term sheets out on several properties with indicative returns of nine to 10 plus percent.
We anticipate anticipate having enough availability on our credit facilities and through our banking relationships to fund our acquisitions and we expect to continue to opportunistically utilize the ATM to strategically access the equity markets.
To wrap up we declared our dividend for the third quarter and raised it to $45.05 per common share.
This equates to an annualized dividend of $1 82 per share.
We are proud to have raised our dividend every quarter since our IPO.
That takes care of the items I wanted to cover so I will hand things off to bill to discuss the numbers.
Thank you Dave I will now provide more details on our third quarter financial performance.
I'm pleased to report that total revenue grew from $24 $8 million in the third quarter of 2022 to $28 $7 million in the third quarter of 2023, representing 15, 8% annual growth over the same period last year.
When compared to our $27 $8 million of total revenue in the second quarter of 2023, we achieved three 3% total revenue growth quarter over quarter.
And on a pro forma basis is the acquisitions, we completed during the third quarter of 2023 had occurred on the first day of the third quarter. Our total revenue would have increased by an additional $757000 to a pro forma total of $29 $5 million in the third quarter.
From an expense perspective property operating expenses increased by approximately $670000 quarter over quarter to $5 $5 million, primarily as a result of properties acquired during the period, but also due to seasonal increases in HVAC repairs and utilities.
Caused by the hot summer months.
<unk> and administrative expenses decreased from $3 $8 million in the second quarter of 2023 to $3 6 million in the third quarter of 2023.
This decrease was driven by the one time increase in employer Medicare taxes paid in the second quarter from the vesting of our former CEO and president shares.
Interest expense increased from $4 $1 million in the second quarter of 2023 to $4 6 million in the third quarter of 2023 due to the increase in borrowings under our revolving credit facility to fund acquisitions as well as slightly higher interest rates under our revolving credit facility.
During the quarter.
Turning to funds from operations <unk> increased from $13 $8 million in the third quarter of 2000 $22 million to $15 million in the third quarter of 2023 or eight 9% growth year over year.
<unk> decreased from $15 $9 million in the second quarter of 2000 $23 million to $15 million in the third quarter of 2023 and on a per diluted common share basis over these periods.
<unk> declined from 62 to <unk> 58 per share, but it is important to remember our second quarter 2023, SFO included a 700000 or three cents per share net casualty gain from insurance proceeds received related to one property that was vandalized.
Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $16 $4 million in the third quarter of 2023, which compares to $15 $4 million in the third quarter of 2022 or six 9% growth year over year.
Year.
On a per diluted common share basis, <unk> was 63 cents in the third quarter of 2022, and also 63 in the third quarter of 2023.
<unk> for the second quarter of 2023 was $16 million. So our <unk> grew by two 4% quarter over quarter.
And finally on a pro forma basis, if the acquisitions, we completed during the third quarter of 2023 had occurred on the first day of the third quarter <unk> would have increased by approximately $443000 to a pro forma total of $16 9 million or <unk> 65 per diluted common share.
That concludes our prepared remarks, Joe we are now ready to begin 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 Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing the keys and to withdraw a question. Please press Star then two.
At this time, we will take our first question, which will come from Connor Mitchell with Piper Sandler. Please go ahead.
Hey, good morning, Thanks for taking my question.
So you guys have done a great job of finding your compensation with all stock, but just thinking about as you hire new talent for the company going forward.
Can you provide any updated thoughts on how the mix of cash versus stock compensation would look and then how about that impact G&A given the all stock was I believe at a two X multiplier versus cash without the bulk of the player.
Hey, Conor thanks for the question.
I hope all is well so as it relates to <unk>.
Cash versus stock mix.
We are in the process now of working with the as everyone may recall ISS <unk>.
Provided a unfortunately, a vote against say on pay despite our strong alignment with shareholders that we believe and but as part of that we knew that we were going to work with the compensation Committee and the board to look at along with our compensation consultant to look at the knee.
Compensation and that process is ongoing so I can't give you any guidance on that yet Conor I think it's safe to say that there will be some mix of cash and stock going forward, but again, we're in the early stages of evaluating how that is.
Work and what that's going to look like.
We're just at this point not prepared to.
Disclose any details on that.
My guess is at some point in the next.
Six months or so that will that will be disclosed.
Disclosed.
Yeah of course of course, and then maybe looking at a different topic.
Build to suit opportunity given what's going on in construction lending and banks pulling back do you see.
Maybe some weakening from the core group of developers and the merchant and entrepreneurial developers.
And then.
Along with that what would you guys be comfortable stepping in to maybe find some developments or would you rather be developments take place and then acquire once its leased up and stabilized.
So what I would say is.
We have a core group of banks that we've worked with for years.
That actually like to go and fund these development projects with our takeout upon certificate of occupancy and even though there is some level of pressure we've seen broadly within the banking community. Those types of deals continue to work for the banks that have done business with us in the past.
As far as your second question would we be open to doing some of those development projects or funding some of those development projects ourselves. We would certainly take a look I think our preferred vehicle is have our bank partners fund those projects and then how does take those projects out.
There is no question just given the overall cost of debt that those projects.
<unk> have become a little bit more expensive for our development partners and I think they are working with.
Operator: Welcome to Community Healthcare Trust's 2023-3rd quarter earnings release conference call. On the call today, the company will discuss its 2023-3rd quarter financial results. It will also discuss progress made in various aspects of its business.
Operator: Following the remarks, the phone lines will be open for a question and answer session. The company's earnings release was distributed last evening and has also been posted on its website at www.chct.reit. 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 1, 2023, and may contain forward looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth and such statements.
Their lenders and frankly their construction budgets to make sure that they can develop projects.
More quickly and more efficiently to help counteract the increase in debt, but with the folks that we're working with now we haven't seen a significant change.
Obviously, we.
We're looking at that very closely and it is.
Things evolve or change we can we can adapt as well, but our preferred method is to work with our partner banks.
Operator: For a discussion of the risks and uncertainties, you should review the company's disclosures regarding forward looking statements in its earnings release, as well as its risk factors and MDNA in its SEC filings. The company undertakes no obligation to update forward looking statements, whether as the 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.
And that's kind of what what we intend to do going forward.
Okay. Appreciate the color. Thank you very much.
Thanks Connor.
And our next question will come from Rob Stevenson with Janney. Please go ahead.
Hi, good morning, guys.
What was the coverage on the two rejected Genesis care assets versus the remaining assets just trying to get a feel for if there was a major difference between the profitability of those two centers in the others.
Yes so.
It's actually.
That gives me an opportunity to take a step back and sort of describe those too.
Operator: Call participants are advised that this conference call is being recorded 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.
Facilities. So Asheville, I think we mentioned on our last call the first lease rejection that.
That lease was actually we were working through a termination with.
The tenant there because they had they had decided not to continue to provide services at that location. So we were not at all surprised that that lease was going to get rejected as part of this process. Obviously, we were disappointed that our termination was not <unk>.
David Dupuy: Now, I would like to turn the call of Dave Dupuis, CEO of Community Healthcare Trust. Thank you, good morning, and thank you for joining us today for our 2023 third quarter conference call. On the call with me today is Bill Monroe, our chief financial officer, Lee and Stack, our chief accounting officer, and Tim Meyer, our EVP of asset management.
Salt.
Our settlement was not resolved before that so that is the asheville situations. So they were not providing care in that facility at the time. The other location in Fort Myers is essentially an office use or back office space administrative space that Genesis care was using and so.
David Dupuy: Our earnings announcement and supplemental data report were released last night and furnished on 8K, and our quarterly report on Tim Q was filed last night. In addition, an updated investor presentation was posted to our website last night.
Again disappointed that that lease was rejected but not all together surprising given the dynamics the remaining.
David Dupuy: The third quarter was busy, both from an acquisition standpoint and also from an operations standpoint. During the quarter, we acquired seven properties with a total of approximately 177,000 square feet, for a purchase price of approximately $51.7 million. The properties were 99.8% least with leases running through, 2038, and anticipated annual returns of approximately 9.1 to 10.37%. Subsequent to September 30th, we acquired two medical office buildings and a single transaction for a purchase price of $7.1 million.
Leases that we have in place are all for clinics health care.
Providers.
Or providing cancer care to patients and so we.
We think those are obviously more stable than the other ones, we do not yet financial statements on a center by center basis to answer your question from a coverage standpoint.
No.
Ken can give you coverage levels here.
Okay, and then how are you.
If you work those two assets and any others that you were to get back.
How's the your confidence level in returning those versus.
Selling vacant.
David Dupuy: The properties were 96.8% least with leases running through 2031. From an operations perspective, our weighted average remaining lease term remains stable at 7.1 years. Occurrency decreased from 91.7%, to 91%, that decrease can be attributed to a Genesis care lease rejection occurring in the quarter. As it relates to Genesis Care, we had one lease rejection during the quarter, at 46,000 square feet, square foot building, and Fort Mars border, in which Genesis Care was the sole tenant.
And just moving on how are you guys sort of juggling those balls.
Well as I said in the prepared remarks, we're getting good leasing activity at both the Asheville and Fort Myers location. So we're actively looking to re lease those spaces.
So we feel good about those we have also done.
Market studies at the other locations just to determine kind of what the market rents are and I think guard. Our teams are feel very good about being able to move.
Move quickly to re lease those spaces to the extent we need to.
But we also have done some some views and made sure that those tenants are actually providing healthcare in those locations and they are and so our hope and our expectation is whoever the next buyer is for these assets those leases would continue to move forward under the new one.
David Dupuy: When coupled, with the lease in Asheville rejected in the prior quarter, the two leases have been rejected representing 57,000 square feet, and had seen good leasing activity at both locations. As of September 30th, 2023, Genesis Care was the sole tenant in five of our properties, and a tenant in two of our multi-tenanted properties, representing approximately 1.9 percent of our gross real estate properties, or approximately 62,000 square feet. Based on our recent court filings, the Genesis Care bankruptcy timeline has been extended with the option currently scheduled for today, November 1st. We and our outside council continue to monitor the situation closely, and our asset management team is prepared to engage quickly as the bankruptcy process progresses.
Ownership is.
Is there anything in particular about the Fort Myers asset that lends itself to a to medical back office or could that just as easily be.
Tenant to a law firm or.
Our financials firm or some other sort of non medical tenant that then would not.
Really fit with your portfolio longer term.
Yeah, I mean look it's we're looking at all options as it relates to that so ultimately based on the final user we may decide that that isn't the right fit for the portfolio, but we're certainly talking to all different kinds of users there theres nothing magical about that being a healthcare space, although we.
David Dupuy: As it relates to our pipeline, the company has seven properties to be acquired after completion and occupancy, for an aggregate expected investment of $166.5 million. The expected return on these investments should range from 9.1 to 9.75 percent. We currently expect to close on these properties throughout 2024 and 2025. We continue to have many properties under review, and have term sheets out on several properties with indicative returns of 9 to 10 plus percent. We anticipate having enough availability on our credit facilities and through our banking relationships to fund our acquisitions, and we expect to continue to opportunistically utilize the ATM to strategically access the equity markets.
We're talking to both potential health care tenants as well as other times. Okay. That's helpful. And then while we're on the subject to any other sort of watch list tenants of note that you're focused on that.
It was becoming more delinquent or that Youre, where it may not.
Would it meet its rent obligations over the next quarter or two.
You know, Rob and we've mentioned this on the last call too.
We have a watch list, we manage that watch list I would tell you that it's consistent the names are different but it's usually eight to 10 folks that were working with at any one time there could be issues that we're working through but there is nothing that I would say we're seeing.
That.
Is concerning or.
Relates to a specific sector or anything along those lines, it's sort of kind of a normal process when youre in the real estate business that you've got a manager.
David Dupuy: To wrap up, we declared our dividend for the third quarter and raised it to 45.5 cents per common share. This equates to an annualized dividend of $1.82 per share. We are proud to have raised our dividend every quarter since our IPO.
Some some delinquent tenants, but in general our receivables are in really good shape and we feel good about.
Where we are these are the our tenants and so nothing meaningful has changed or.
David Dupuy: That takes care of the items I wanted to cover, so I will hand things off to Bill to discuss the numbers. Thank you, Dave.
Is different today than it was a quarter or two ago.
William Monroe: I will now provide more details on our third quarter financial performance. I'm pleased to report that total revenue grew from $24.8 million in the third quarter of 2022 to $28.7 million in the third quarter of 2023, representing 15.8 percent annual growth over the same period last year. When compared to our $27.8 million of total revenue and the second quarter of 2023, we achieved 3.3 percent total revenue growth quarter over quarter. And on a pro-forma basis, the acquisitions we completed during the third quarter of 2023 had occurred on the first day of the third quarter.
And then last one for me Bill how are you thinking about debt financing over the next six months is it just fund on the line and leave it there is there some other debt be a term loans or some floating to fixed swaps. That's attractive to you today that you would put in place over the next quarter or two to <unk>.
Pushed the term out and replenish the line how should we be thinking about that.
Yeah.
With our revolver balance currently outstanding at the end of the quarter at $48 million, we have $102 million of availability under that revolver and so I think certainly over the next six months, we will look to continue to use our revolver as our primary finance debt financing mechanism and certainly appreciate the support.
William Monroe: Our total revenue would have increased by an additional $757,000 to a pro-forma total of $29.5 million in the third quarter. From an expense perspective, property operating expenses increased by approximately $670,000 quarter over quarter to $5.5 million, primarily as a result of properties acquired during the period, but also due to seasonal increases in HVAC repairs and utilities expense caused by the hot summer month. General and administrative expenses decreased from $3.8 million in the second quarter of 2023 to $3.6 million in the third quarter of 2023.
All of our new banks in that facility. So.
Nothing on the near term horizon, but certainly we continue to monitor the debt markets. Our next maturity isn't until 2026, and so feel fortunate that there is no near term maturities, but certainly we will continue to monitor the markets and if there is an opportunity opportunistic opportunity.
To further extend maturities, we certainly will look at that okay. Thanks, guys I appreciate the time this morning.
Thanks, Rob.
And our next question will come from Wes Golladay with Baird. Please go ahead.
Hey, good morning, guys I just wanted to follow up on the plant for Genesis. It looks like you have some action to re leased the space, but maybe talk about your long term plans for this asset would it be to lease it up and sell it and just curious if this was part of a bigger deal and that's how you got the back office space.
William Monroe: This decrease was driven by the one-time increase in employer Medicare taxes paid in the second quarter from the besting of our former CEO and president's shares. Interest expense increased from $4.1 million in the second quarter of 2023 to $4.6 million in the third quarter of 2023 due to the increase in borrowings under our Revolving Credit Facility to fund acquisitions as well as slightly higher interest rates under our Revolving Credit Facility during the quarter.
In the first place.
Hey, Wes Thanks for the question, yes. It is so.
This was this was a portfolio acquisition that the company made I think in the December.
December timeframe of 2020 and so.
As part of our as part of the portfolio and sometimes you get an asset that you wouldn't ordinarily do last year. It was a single asset and that is the case related to the to the asset in Fort Myers and so yeah, I mean look we're not.
William Monroe: Same to funds from operations, FFO increased from $13.8 million in the third quarter of 2022 to $15 million in the third quarter of 2023 or 8.9% growth year over year. FFO decreased from $15.9 million in the second quarter of 2023 to $15 million in the third quarter of 2023 and on a poor deluded common share basis over these periods, FFO declined from $0.62 to $0.58 per share. But it's important to remember our second quarter of 2023 FFO included a $700,000 or $3 per share net casualty gained from insurance proceeds received related to one property that was vandalized.
Our focus as a firm is going after.
Care related provision of healthcare assets.
I think everyone knows that that's the focus of our business and so on.
Optimally Fort Myers doesn't fit that long term, we might look to.
Sell that property.
All options are on the table.
Like I said, we are experiencing some good activity at both locations and all that good activity doesn't necessarily translate into a lease right away. We feel good that both are attractive in their respective markets and so.
William Monroe: Adjusted funds from operations or AFFO which adjusts for straight line rent and stock based compensation total $16.4 million in the third quarter of 2023 which compares to $15.4 million in the third quarter of 2022 or 6.9% growth year over year. On a poor deluded common share basis, AFFO was 63 cents in the third quarter of 2022 and also 63 cents in the third quarter of 2023. AFFO for the second quarter of 2023 was $16 million so our AFFO grew by 2.4% quarter over quarter.
Similarly, we.
Hope to get those released right away, but.
But yes, I mean back office space for health care providers is not a focus for the firm and and we wouldn't have done that acquisition. If it wasn't a part of a larger transaction.
Got it yeah that all makes sense.
I guess, how have your conversations changed with potential sellers and with the recent rate rising interest rates.
At all.
Yes.
Listen from an activity standpoint, it's been it's been great I mean, we're seeing a lot more activity in the marketplace.
William Monroe: And finally, on a pro form of basis, if the acquisitions we completed during the third quarter of 2023 had occurred on the first day of the third quarter, AFFO was increased by approximately $443,000 to a pro form total of $16.9 million or $65 cents per deluded common share.
Capital is precious as everybody knows on this call and so it's very precious for us too we feel good about the dialogue and the activity that we're having with potential sellers.
We think that that activity is going to translate into into some good.
Acquisition opportunities, but.
Yes, I think we're seeing really solid activity on both sides of our business as most people know we're looking both of that.
Operator: That concludes our prepared remarks.
Operator: Joe, we are now ready to begin the question and answer session session. We will now begin the question and answer session. To ask a question, you may press star but one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. And to withdraw a question, please press star then two.
Assets that are represented in the brokerage market, but we're also having good dialog with potential client companies and even as even though those are.
Conversations haven't resulted in a specific.
Connor Mitchell: At this time, we will take our first question which will come from Connor Mitchell with Piper Sandler. Please go ahead. Hey, good morning. Thanks for taking my question. So you guys have done a great job of finding your compensation with all stock, but just thinking about as you hired new talent for the company going forward. Can you provide any updated thoughts on how the best of cash versus stock compensation would look and then how about that impact? Given the old stock was, I believe, a 2X multiplier versus cash without the bolt. Player.
Perfect purchase and sale agreements today, we feel like that good dialogue bodes well going forward for us from an acquisition standpoint so.
Even though.
And really because rates are so high.
To the extent.
We had competition from smaller buyers, whether they be 10, 31 exchange buyers or other smaller.
Real estate funds, obviously, its tougher for those funds and for those buyers to get financing in this environment and it is an all cash buyer, we feel like we've got a pretty nice.
Advantage in the marketplace right now and it's allowed us to be choosy, and we're seeing a lot of good opportunities.
Unnamed Speaker: Hey Connor, thanks for the question, I hope all as well. So as it relates to cash versus stock mix, we are in the process now of working with the, as everyone may recall, ISS provided a, unfortunately, a vote against stay on pay despite our strong alignment with shareholders that we believe. But as part of that, we knew that we were going to work with the compensation committee and the board to look at, along with our compensation consultant, to look at the neocompensation.
Got it.
Verification right when you set the cap rates. They always have in a typical range is this due to non disclosure reasons or is there something that can actually change the actual cap rate at the time of the deal with the final growth.
Yeah, I mean, I think thats.
What are you referring to specifically Wes.
What would you give a range on cap rate you kind of give or we have this many deals at $156 million. This range for the cap rate instead of a pinpoint that gives the deal.
Are the terms not officially set or is there a reason you can't disclose maybe the seller doesn't want you to give the official cap rate just trying to see what kind of caused the variation between the range you gave.
Unnamed Speaker: And that process is ongoing, so I can't give you any guidance on that yet. Connor, I think it's safe to say that there will be some mix of cash and stock going forward. But again, we're in the early stages of evaluating how that's going to work and what that's going to look like. And we're just at this point not prepared to disclose any details on that. And my guess is at some point in the next, I don't know, six months or so, that will, that will be disclosed. Yes, of course, of course.
That that is a range of cap rates based on purchase and sale agreements we have on the books and so that's that.
They range between $9, one and what you are referring to and 975% so.
Some are at the higher rate and some are at the lower right. We just don't break out which are which.
Oh, Okay. So it's not like okay.
Okay.
Got it thanks a lot.
Yes sure.
Again, if you have a question you May press Star then one to join the queue.
Unnamed Speaker: And then maybe looking at a different topic, the bill to suit opportunity, given what's going on in construction lending and banks pulling back. Do you see maybe some weakening from the decor group of developers and the merchant and entrepreneurial developers.
Our next question will come from Jim Cameron with Evercore. Please go ahead.
Hi, Good morning. Thank you just to double check the remaining leases with Genesis toggling between the second and third quarter supplements too.
Two 8% of ABR is that sound about right.
Uh huh.
Unnamed Speaker: And then along with that, would you guys be comfortable stepping in to maybe fund some developments or would you rather let the development take place and then acquire what is least up and stabilized? So, you know, what I would say is we have a core group of banks that we've worked with for years that actually like to go in, fund these development projects with our takeout upon certificate of occupancy. And even though there's some level of pressure we've seen broadly within the banking community, those types of deals continue to work for, you know, the banks that have done business with us in the past.
I think.
So the remaining leases, we've got seven leases, representing one 9% of our gross real estate properties is that a question.
Good evening.
Base rent is about two 8% of rent.
I'm not sure we disclose that amount.
Alright.
Yes.
Alright.
You could obviously go back into our supplemental and you can calculate it I mean, I think we have that disclosed there. That's fine. Thank you and then thinking about you know you touched on this on the watch list et cetera.
How much of the ABR is covered where you get either unit level <unk> combination of parent or guarantor financial report I'm just trying to curious how do you really.
Unnamed Speaker: As far as your second question, would we be open to doing some of those development projects or funding some of those development projects ourselves? We would certainly take a look. I think our preferred vehicle is have our bank partners fund those projects and then have us take those projects out. There's no question just given the overall cost of debt those projects have become a little bit more expensive for our development partners.
Well, how about Washington.
How do you maintain how do you how do you identify which tenants are potential problems.
Well I mean.
We did the watch list is.
<unk> identified based on folks that maybe you're delaying payment or asking for special.
Requests as part of their pay.
Paying their lease or whatever and so it really varies I mean, we've got 260, plus tenants, Jim and so I can't give you a broad brush on what the specific.
Unnamed Speaker: And I think they're working with, you know, their lenders and frankly, their construction budgets to make sure that they can develop projects more quickly and more efficiently to help, you know, counteract the increase in debt. But with the folks that we're working with now, we haven't seen a significant change. Obviously, we're looking at that very closely and things evolve or change. We can adapt as well. But our preferred method is to work with our partner banks.
Issues related to that it's a variety of situations and what I would tell you is if it's in most of these tenants tend to be tenants and our multi tenanted buildings and so it's it represents a very small amount of square footage, but we're very very focused on.
Having dialogue and working through any and all of those issues.
And so if they're the smaller.
Connor Mitchell: And that's kind of what we intend to do going forward. Okay, I appreciate the colors. Thank you very much. Thanks Connor.
Tenants in our multi tenanted buildings, we're not getting.
<unk> Z physician groups financial statements and so.
But if it's a larger if we're having issues with a larger tenant that we may have financial statements that we can talk to them about but it just it really varies and so it's hard for me to give you a broad brush on what that's related to what I would tell you is most of the dialogue, we're having with these tenants that are watch list tenants.
Rob Stevenson: And our next question will come from Rob Stevenson or Jenny. Please go ahead. Good morning guys. Dave, where was the coverage on the two rejected Genesis care assets versus the remaining assets? Just trying to get a feel for if there was a major difference between the profitability of those two centers and the others.
Don't represent large.
David Dupuy: Yes, so it's actually, that gives me an opportunity to take a step back and sort of describe those two, you know, facilities. So Ashville, I think we mentioned on our last call, the first least rejection, that that lease was actually we were working through a termination with the tenant there because they had decided not to continue to provide services at that location. So we were not at all surprised that that lease was going to get rejected as part of this process.
Amounts of square footage and so.
Theyre not quote client.
Tenants and so we're not getting financial information on those.
Tend to be smaller tenants that are in the mlps that we operate.
I appreciate I wasn't clear, but what percentage of ABR is covered where you actually do get reported financials.
50% of the tenant have you or can you.
Rajeev financials for that amount or more.
I've never I've never calculated that amount.
We can.
I don't have a good answer for you Okay I'm just curious.
David Dupuy: Obviously, we were disappointed that our termination was not resolved and our settlement was not resolved before that. So that is the Ashville situation. So they were not providing care in that facility at the time. The other location in Fort Myers is essentially an office use of back office space, administrative space that Genesis care was using. And so, you know, again, disappointed that that lease was rejected, but not all together surprising given the dynamics.
Just be guessing.
I mean, if you think about it the makeup of our of our tenants, we've got a significant amount of physician clinics and Mlps and Thats.
50, plus percent of our overall assets and so in those assets, we're not going to be getting individual financial statements and so you can kind of look at it that way the remaining larger single tenants, we're going to get financial statements on those so my guess is it's something less than 50%, but I can't give you a specific number.
Rob Stevenson: The remaining leases that we have in place are all for clinics, healthcare providers that are providing cancer care to patients. And so, you know, we think those are obviously more stable than the other ones. We do not get financial statements on a center by center basis to answer your question from a coverage standpoint. So, you know, can't give you coverage levels here. Okay.
Fair enough. Thank you for your time.
Yes, Thanks, Jim.
And with no remaining questions. We will conclude the question and answer session.
I'd now like to turn the conference back over to David <unk> for any closing remarks.
We really appreciate the questions. We appreciate everybody on the phone and look forward to talking to everybody again in the new year. Thank you.
David Dupuy: And then, if you work those two assets and any others that you were to get back, how's your confidence level in reteniting those versus selling vacant and just moving on? How are you guys sort of juggling those balls? Well, as I said in the prepared remarks, we're getting good leasing activity at both the Asheville and Fort Myers locations. So, we're actively looking to release those spaces. So, we feel good about those.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
David Dupuy: We have also done, you know, market studies at the other locations, just to determine kind of what the market rents are. And I think our teams are feel very good about being able to quickly to release those spaces to the extent we need to. But we also have done some views and made sure that those tenants are actually providing healthcare in those locations and they are. And so, you know, our hope and our expectation is whoever the next buyer is for these assets, those leases would continue to move forward under the new ownership.
Rob Stevenson: Is there anything in particular about the Fort Myers asset that lends itself to medical back office or could that just as easily be tended to a law firm or you know, a financial firm or some other sort of non medical tenant that then would not, you know, probably fit with your portfolio longer, term. Yeah, I mean, look, it's we're looking at all options as it relates to that. So, ultimately based on the final user, we may decide that that isn't the right fit for the portfolio, but we're certainly talking to all different kinds of users there. There's nothing magical about that being a healthcare phase, all that we're talking about, potential healthcare tenants as well as other tenants. Okay, that's helpful.
Rob Stevenson: And then while we're on the subject, any other sort of watchlist tenants of note that you're focused on, that, you know, is becoming more delinquent or that you're worried may not, you know, meet its rent obligations over the next quarter or two.
David Dupuy: You know, Rob, and we've mentioned this on the last call too. We have a watch list. We manage that watch list. I would tell you that it's consistent. The names are different, but it's usually eight to ten folks that we're working with at any one time. That could be issues that we're working through, but there's nothing that I would say we're seeing that is concerning or, you know, relates to a specific sector or anything along those lines.
David Dupuy: It's sort of a kind of a normal process when you're in the real estate business that you've got to manage your, you know, some delinquent tenants. But in general, our receivables are in really good shape and we feel good about, you know, where we are, these are the our tenants. And so nothing meaningful has changed or is different today than it was, you know, a quarter or two ago.
Rob Stevenson: Okay.
William Monroe: And then last one for me, Bill, how are you thinking about debt financing over the next six months? Is it just fund on the line and leave it there? Is there some other debt via term loans or some floating-to-fix swap that's attractive to you today that you would put in place over the next quarter or two to, you know, push the term out and, you know, replenish the line? How should we be thinking about that?
William Monroe: You know, with our revolver balance currently outstanding at the end of the quarter at $48 million, you know, we have 102 million of availability under that revolver. And so I think, you know, certainly over the next six months we will look to continue to use our revolvers, our primary, you know, debt financing mechanism. And you certainly appreciate the support of all of our banks in that facility. So nothing on the near term horizon, but certainly we continue to monitor that that markets, you know, our next maturity isn't until 2026.
William Monroe: And so feel fortunate that there's no near term maturities, but certainly we will continue to monitor the markets and if there is an opportunistic opportunity, you know, to further extend maturities, we certainly will look out. Okay.
Rob Stevenson: Thanks, guys. Appreciate the time this morning. Thanks, Rob.
Wesley Golladay: And our next question will come from West Golliday with Baird. Please go ahead. Hey, good morning, guys. It's one of the follow-up on the plan for Genesis. It looks like you have some action to release the space, but maybe talk about your long term plans for this asset. Would it be to lease it up and sell it? And just curious if this was part of a bigger deal, and that's how you got the back off of space in the first place.
Wesley Golladay: Hey, West, thanks for the question. Yes, it is. So we, this was a portfolio acquisition that the company made, I think, in the December timeframe of 2020. And so, you know, as part of a as part of a portfolio, sometimes you get an asset that you wouldn't ordinarily get after if it was a single asset. And that is the case related to the asset and Fort Myers. And so yeah, I mean, look, we're not, our focus as a firm is going after, you know, healthcare-related provision of healthcare assets.
Wesley Golladay: And I think everyone knows that that's the focus of our business. And so, you know, ultimately, Fort Myers doesn't fit that long term. We might look to, you know, sell that property. All options are on the table were, like I said, we're experiencing some good activity at both locations, and although good activity doesn't necessarily translate into a lease right away, we feel good that both are attractive in their respective markets. And so, ultimately, we, you know, hope to get those released right away. But, but yeah, I mean, back off of space for healthcare providers is not a focus for the firm. And we wouldn't have done that acquisition if it wasn't a part of a larger transactional.
Wesley Golladay: Yeah, that all makes sense.
David Dupuy: How have your conversations changed with potential sellers, with the recent rise and interest rates, have they changed at all? Yeah, listen, from an activity standpoint, it's been great. I mean, we're seeing a lot more activity in the marketplace. Capital is precious, as everybody knows on this call, and so it's very precious for us too. We feel good about the dialogue and the activity that we're having with potential sellers. We think that that activity is going to translate into some good acquisition opportunities, but yes, I think we're seeing really solid activity.
David Dupuy: On both sides of our business, as most people know, we're looking both at assets that are represented in the brokerage market, but we're also having good dialogue with potential client companies, and even though those conversations haven't resulted in specific purchase and sale agreements today, we feel like that good dialogue votes well going forward for us from an acquisition standpoint. So, you know, even though, and really because rates are so high, to the extent, we had competition from smaller buyers, whether they be 1031 exchange buyers or other smaller real estate funds, obviously it's tougher for those funds and for those buyers to get financing in this environment, and it's an all cash buyer. We feel like we've got a pretty nice advantage in the marketplace right now, and it's allowed us to be choosy, and we're seeing a lot of good opportunities.
Wesley Golladay: Got to get a clarification.
Wesley Golladay: When you set the cap rates, they always have a typical range.
Unnamed Speaker: Is this due to non disclosure reasons, or is there something that can actually change the actual cap rate at the time of the deal is finally closed? Yeah, I mean, I think that's in what are you referring to specifically West? What would you give a range on cap rates? You kind of we have this many deals, 166 million at this range for the cap rate instead of a pen point, like is the deal not, are the terms not officially set, or is there a reason you can't disclose, maybe the seller doesn't want you to give the official cap rate, just trying to see what kind of can cause the variation between the range you give?
Unnamed Speaker: That is a range of cap rates based on purchase and sale agreements we have on the books, and so they range between 9.1 in what you're referring to in 9.75%, so some are the higher rate and some are at the lower rate. We just don't break out with your wedge.
Wesley Golladay: Oh, okay, so it's not like, okay, I got it now. Thanks a lot. Yeah, sure.
Operator: Again, if you have a question, you may press star than one to join the queue.
Jim Cameron: Our next question will come from Jim Cameron with Evercore. Please go ahead.
Jim Cameron: Good morning. Thank you. Just a double check. The remaining leases with Genesis, talking between the second and third quarter sufferments, about 2.8% of ABRs, that's sound about right. I think so the remaining leases we've got seven leases representing 1.9% of our gross real estate properties. Is that your question? No, sorry, I think of ABR having raised rent. It's about 2.8% of rent. I'm not sure we disclosed that amount. All right, so it's 1.2%. Yeah. All right, because you could obviously go back into our supplemental and you could calculate it. I mean, I think we have that disclosed there. That's fine. No, I'll do that. Thank you.
David Dupuy: And then thinking about you, you talk comments on the watch list, et cetera. How much of the ABR is covered where you get either unit level and or combination of parent or guarantor financial report? Are you trying to curious, you know, how do you really assess how that watch list, you know, do, how do you maintain, how do you, how do you identify with 10 or potential problems? Well, I mean, the watch list is identified based on folks that maybe you're delaying payment or asking for special, you know, requests as part of their paying their lease or whatever.
David Dupuy: And so it really varies. I mean, we've got 260 plus tenants, Jim. And so I can't give you a broad brush on what the specific issues are related to that. It's a variety of situations. And what I would tell you is if it's and most of these tenants tend to be tenants in our multi-tinneted buildings. And so it's, you know, it represents very small amount of square footage. But we're very, very focused on and, you know, having dialogue and working through any and all of those issues.
David Dupuy: And so, you know, if they're the smaller tenants in our multi-tinneted buildings, we're not getting, you know, XYZ physician group financial statements. And so, but if it's a larger, if we're having issues with a larger tenant, then we may have financial statements that we can talk to them about. But it just, it really varies. And so it's hard for me to, to give you a broad brush on what that's related to what I would tell you is most of the dialogue we're having with these tenants that are watch list tenants, you know, don't represent large amounts of square footage.
David Dupuy: And so, you know, they're not quote client tenants. And so we're not getting financial information on those. They tend to be smaller tenants that are in the MOPs that we operate. No, that's right. I was clear. I mean, but what percentage of ABR is covered where you actually do get reported financials? I mean, 50% of the tenant ABR. Can you receive financials for that amount or more? I've never, I've never calculated that amount.
David Dupuy: I don't have a good answer for you. I would just be guessing. If you think about it, the makeup of our tenants, we've got a significant amount of physician clinics and MOPs. And that's, you know, 50 plus percent of our overall assets. And so in those assets, we're not going to be getting individual financial statements. And so, you know, you can kind of look at it that way. The remaining larger single tenants, we're going to get financial statements on those. So my guess is it's something less than 50%, but I can't give you a specific number, for you.
Jim Cameron: Thank you for your time. Yep, thanks Jim.
David Dupuy: And with no remaining questions, we will conclude the question and answer session. I would like to turn the conference back over to David Dupuy for any closing remarks. We really appreciate the questions. We appreciate everybody on the phone and look forward to talking to everybody again in the new year. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect your line.