Q4 2023 Community Healthcare Trust Inc Earnings Call
Operator: www.communityhealthcare.org All rights reserved. Welcome to the Community Healthcare Trust 2023 fourth quarter earnings release conference call. On the call today, the company will discuss its 2023 fourth-quarter financial results and progress made in various aspects of healthcare. Following the speech, 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, www.chdt.rie.gov. The company wants to emphasize that some of the information that may be discussed on the call will be based on information as of today, February 14, 2024, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. To review the company's disclosures regarding forward-looking statements in its earnings release, as well as its risk assessment and MD&A, and its SEC 5.
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Welcome to the community Healthcare Trust two.
2023 fourth quarter earnings release conference call.
On the call today, the company will discuss its 2023 fourth quarter financial results.
It will also discuss progress made in various aspects of its business.
Following the remarks, the phone lines will be opened for a question and answer session. They.
The company's earnings release was attributed last evening and has also been posted on its website Www C. H D. T Dot R E I 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 February 14th 'twenty 'twenty four and make the change forward looking statements that involve risk and uncertainty.
Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties you should review the company's disclosures regarding forward looking statements in its earnings release as well as its risks.
Factors and M D N a S.
And.
And it's S. D C 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.
Operator: The company undertakes no obligation to update forward-looking statements, whether as a result of new information, developments, or otherwise, except as may be required by law. A reconciliation between the two is available in an earnings release which is posted on its website. All 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 consent. Now I would like to turn the conference over to Dave Dupuy, CEO of Community Healthcare Trust. Barry, thank you very much and good morning.
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 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 now I would like to turn the conference over to Dave Dupuy C E O of community Healthcare Trust.
Great. Thank you very much and good morning. Thank you for joining us today for our 2023 fourth quarter conference call.
David H. Dupuy: Thank you for joining us today for our 2023 fourth quarter conference call. On the call with me today is Dylan Rowe, our Chief Financial Officer, Leanne Sack, our Chief Accounting Officer, and Tim Meyer, our EVP of Asset Management. Our Earnings Announcement and Supplemental Data Report were released last night and furnished on Form 80-K along with our Annual Report on Form 10-K. And, in addition, an updated investor presentation was posted to our website last night. The forecourt was busy from an operations standpoint, but slowed a bit from an acquisition perspective.
On the call with me today is Don Munroe, our Chief Financial Officer.
Lee Ann Stach, our Chief Accounting Officer, and Jim Meier, our EVP of asset management.
Our earnings announcement and supplemental data report were released last night and furnished on form 8-K, along with our annual report on Form 10-K.
In addition, an updated investor presentation was posted to our website last night.
The fourth quarter was busy from an operation standpoint, but slowed a bit from an acquisition perspective.
Our occupancy increased slightly from 91 to 91, 1%, while our weighted average remaining lease term declined slightly to six nine years.
David H. Dupuy: Our occupancy increased slightly from 91 to 91.1 percent, while our weight average remaining least term declined slightly to 6.9 years. I am pleased to report that GenesisCare is expected to keep or assign to buyers the seven remaining leases with the company, with no material changes to the lease terms. The effective date of the plan of reorganization is expected to be during the first quarter of 2024. Today, GenesysCare has closed on the assignment of two of the seven leases with two separate buyers, and we expect the remaining assignments and assumption to occur during the first quarter. Justice's Care has substantially met all, at least payment obligations due to the company through February 2024.
I am pleased to report that Genesis care is expected to keep were signed to buyers.
Seven remaining leases with the company with no material changes to the lease terms.
The effective date of the plan of reorganization is expected to be during the first quarter of 2024.
The day Genesis care is closed on the assignment of two of the seven leases.
With two separate buyers and we expect the remaining assignment and assumptions to occur in the first quarter.
Genesis care substantially all of its lease payment obligations due to the company through February 2024.
David H. Dupuy: As it relates to the two vacant Genesis Care properties, Fort Myers is under a definitive sale agreement, and the sale agreement is for a price above its carrying value, allowing us to recycle that capital into new and income-producing properties. The Asheville MOV continues to be for lease or sale, and we're seeing good activity at that facility. While the GenesisCare bankruptcy process was retracted, we are proud of how our team managed our property to these successful outcomes.
As it relates to the two vacant Genesis care properties Fort Myers is under definitive sale agreement.
The sale agreement is for price above its carrying value, allowing us to recycle that capital into new income producing property.
The Asheville M O b continues to be for lease or sale and we are seeing good activity at that facility.
While the Genesis care bankruptcy process was protracted.
We're proud with how our team managed our properties to the successful outcome.
During the fourth quarter, we acquired two properties in one transaction with a total of approximately 48000 square feet for a purchase price of approximately $7 $1 million.
David H. Dupuy: During the fourth quarter, we acquired two properties and one transaction with a total of approximately $48,000 worth of fees for a purchase price of approximately $7.1 million. The properties were 97.5% leased, with leases running through 2031, with an anticipated aggregate annual return of approximately 9.6%. Over the year, we acquired 19 properties and one land parcel, with a total of 463,000 square feet, for an aggregate purchase price of $97.8 million, with an approximately 99.2% lease, with leases running through 2038, and annual returns of 9.1 to 10.6%. Subsequent to December 31st, we acquired one long-term acute care hospital for a purchase price of $6.5 million.
The properties were 97, 5% leased with leases running through 2031 with.
With anticipated aggregate annual return of approximately nine 6%.
For the year, we acquired 19 properties and one land parcel with a total of 463000 square feet for an aggregate purchase price of $97 $8 million, which were approximately 99, 2% leased with leases running through 2038 and annual return.
<unk> of $9, one to 10, 6%.
Subsequent to December 31, we acquired one long term acute care hospital for a purchase price of $6 $5 million.
David H. Dupuy: We entered into a new lease with a lease expiration in 2039 and anticipated annual returns of approximately 9.8%. The company has three properties under definitive purchase agreements for an aggregate expected purchase price of $27.9 million and expected aggregate returns of 9.1 to 9.2 percent. The company is currently performing due diligence and expects to close on these properties in the next few months. We have also signed definitive purchase and sale agreements for seven properties to be acquired after completion of occupancy for an aggregate expected investment of $166.5 million.
We entered into a new lease with a lease expiration in 2039 and anticipated annual returns of approximately nine 8%.
The company has three properties under definitive purchase agreements for an aggregate expected purchase price of $27 $9 million and expected aggregate returns of nine one to nine 2%.
The company is currently performing due diligence and expect to close on these properties in the next few months.
We also have signed definitive purchase and sale agreements for seven properties to be acquired after completion and occupancy.
For an aggregate expected investment of $166 5 million do you.
<unk> return on these investments should range from nine 1% to 975%.
David H. Dupuy: To provide an update on the timing of these seven transactions, we expect to close on two of these properties in 2024, with the remaining five properties closing throughout 2025 and 2026. We are seeing very good acquisition activity and continue to have many properties under review and have term sheets out on several properties with indicative returns of 9-10%. Given our modest leverage levels, 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 to strategically access the equity market. These traditional capital sources, combined with proceeds from selected asset sales, like the Fort Myers Property I mentioned earlier, will provide sufficient capital for continued growth and attractive yields throughout 2024. On another topic, the Compensation Committee and Board approved updates to the company's compensation programs.
To provide an update on the timing of the seven transactions, we expect to close on two of these properties in 2024 with the remaining five properties closing throughout 2025 and 2026.
We are seeing very good acquisition activity and continue to have many properties under review and have term sheets out on several properties with indicative returns of 9% to 10%.
Given our modest leverage levels, 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 to strategically access the equity markets.
These traditional capital sources combined with proceeds from selected asset sales like the Fort Myers property I mentioned earlier.
Will provide sufficient capital for continued growth at attractive yields throughout 2024.
On another topic, the compensation Committee and board approved updates to the company's compensation programs details of which were filed under form 8-K on January four 2024.
David H. Dupuy: Details of which were filed under Form 8K on January 4, 2024. Under the company's alignment of interest program, changes included a maximum deferral percentage of 50% of the compensation from 100% previously, and a limit on the duration of the restriction period based on retirement eligibility. Updates were also made to annual incentive metrics, such that the 70% will be based on specific company metrics from 50% previously, and 30% will be based on individual metrics. Finally, we transitioned our long-term incentive plans to a three-year, four-year commitment period with performance-based RISD grants representing 65% and time-based RISD grants representing 35% of the executive officer's targeted long-term incentive compensation, all of which utilize threshold Our proxy statement, which will be filed in March, will provide a detailed review of our conservation program.
These updates were designed to address issues raised during last year's say on pay advisory vote, while maintaining the companys strong alignment with shareholders.
Under the company's alignment of interest program changes included a maximum deferral percentage of 50% of compensation from 100% previously.
And a limit on the duration of the restriction period based on retirement eligibility.
Updates were also made to annual incentive metrics, such that 70% will be based on specific company metrics from 50% previously and 30% will be based on individual metrics.
Finally, we transitioned our long term incentive plan two or three year forward looking measurement period with performance based <unk> grants, representing 65% and time based <unk> grants, representing 35% of the executive officers targeted long term incentive compensation all of which utilized threshold.
<unk> target and maximum performance levels.
Our proxy statement, which will be filed in March we will provide a detailed review of our compensation program.
David H. Dupuy: To wrap up, I am excited about the opportunities we see for CACCD in 2024 and beyond. We declared our dividend for the fourth quarter and raised it to 45.75 cents per common share. This equates to an annualized dividend of $1.83 per share.
To wrap up I'm excited about the opportunities we see for <unk> in 2024, and beyond we declared our dividend for the fourth quarter and raised it to $45 75 per common share. This equates to an annualized dividend of $1 83 per share and.
Bill: And 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.
And 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 fourth quarter financial performance.
Bill: I will now provide more details on our fourth quarter financial performance. I'm pleased to report that total revenue grew from $25.3 million in the fourth quarter of 2022 to $29.1 million in the fourth quarter of 2023, representing 14.9% annual growth over the same period last year. When compared to our $28.7 million total revenue in the third quarter of 2023, we achieved 1.4% total revenue growth quarter over quarter, although our growth was negatively impacted by the loss of GenesisCare for higher revenue in the fourth quarter after receiving two months of grants and operating expense reimbursement in the third quarter. From an expense perspective, property operating expenses increased by approximately $142,000, quarter over quarter, to $5.6 million, primarily as a result of property acquired or General administrative expenses increased by approximately $110,000, quarter over quarter, to $3.7 million, driven by slightly higher non-cash deferred compensation expenses and professional fees associated with the compensation plan design changes they discussed earlier.
I am pleased to report that total revenue grew from $25 3 million in the fourth quarter of 2022 to $29 $1 million in the fourth quarter of 2023, representing 14, 9% annual growth over the same period last year.
When compared to our $28 7 million in total revenue in the third quarter of 2023, we achieved one 4% total revenue growth quarter over quarter, although our growth was negatively impacted by the loss of Genesis care Fort Myers revenue in the fourth quarter after receiving two months of Brent and operating expense.
<unk> in the third quarter.
From an expense perspective property operating expenses increased by approximately $142000 quarter over quarter to $5 $6 million, primarily as a result properties acquired during the period.
General and administrative expenses increased by approximately $110000 quarter over quarter to $3 $7 million driven by slightly higher noncash deferred compensation expense and professional fees associated with the compensation plan design changes Steve discussed earlier.
Bill: Interest expense increased from $4.6 million in the third quarter of 2023 to $5 million in the fourth quarter of 2023 due to the increase in borrowings under our raw credit system to fund acquisitions. Moving funds from operations, SFO increased from $13.6 million in the fourth order of 2022 to $14.9 million in the fourth order of 2023, or 9.5% growth year-over-year. On a quarter over quarter basis, SFO decreased slightly from $15 million in the third quarter of 2023. And on a per capita share basis over these years, SFO declined 58 cents to 57 cents per share.
Interest expense increased from $4 6 million in the third quarter of 2000 $23 million to $5 million in the fourth quarter of 2023 due to the increase in borrowings under our revolving credit facility to fund acquisitions.
Moving to funds from operations.
<unk> increased from $13 6 million in the fourth quarter of 2022 to $14 $9 million in the fourth quarter 2023, or nine 5% growth year over year.
On a quarter over quarter basis, <unk> decreased slightly from $15 million in the third quarter of 2023.
And on a per diluted common share basis over these periods <unk> declined from 58 to 57 per share.
Adjusted funds from operations, or <unk>, which adjusts for straight line rent stock based compensation totaled $16 1 million in the fourth quarter of 2020 free.
Bill: Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $16.1 million in the fourth quarter of 2021-2023, which compares to $15.4 million in the fourth quarter of 2022, or 4.3% growth year-over-year. However, on a quarter over quarter basis, AFFO decreased by 2.1% from $16.4 million in the third quarter of 2023. And on a per capita common share basis, over these periods, ASFO declined from 63 cents to 61 cents per share.
Which compares to $15 4 million fourth quarter of 2022, or four 3% growth year over year.
On a quarter over quarter basis.
<unk> decreased by two 1% from $16 4 million in the third quarter of 2023.
And on a per diluted common share basis over these periods.
<unk> declined from 63 to 61 per share.
Operator: I'll note that revenue loss from businesses caring for minors in the fourth quarter did impact both SSO and ASFO sequentially. That concludes our prepared remarks. Operator, you're 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 touch-tone phone.
Note that revenue loss from Genesis care, Fort Myers, and the fourth quarter did impact both <unk> and <unk>.
That concludes our prepared remarks, operator, we're 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 are using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Alexander David Goldfarb: If you're using a feature phone, please pick up your handset before pressing the key. Our first question comes from Alexander. Mr. Goldfarb, please go ahead with your question. Hey, good morning.
Our first question comes from Alexander.
Goldfarb. Please go ahead with your question.
Hey.
Good morning, good morning down there.
David H. Dupuy: Dave, just quickly, on the Genesis, did you say the remaining office lease, not the office lease, the MOB lease, did you say that's being, in the process of being taken by someone else, or that's the final piece that needs to be resolved? So the MOB, the Asheville property, we are continuing. That property continues to be for sale or lease, and we've got good traffic at that facility, and so we're hopeful that we have something to report on here soon, but that continues to remain for sale or lease, and we're talking to both buyers as well as folks interested in using that space. Okay, and then just, you know, sort of in keeping, because you guys have dealt with a number of these credit issues over time, as any other landlord would, but it sounds like you guys were made whole here, like there's no law against shareholders, there's no real economic downside, like it sounds like everything worked out the way you guys anticipated. Is that the case?
Dave just quickly.
Quickly.
On the Genesis did you say the are.
The remaining office lease not the office lease.
<unk> did.
Did you say that being in the process of being taken by someone else or that's the final piece that needs to be resolved.
So the M O b.
Bill.
Property, we are continuing that.
Property continues to be for sale or lease and we've got good traffic at that facility and so we're hopeful that we have something to report on here soon but that continues to remain for sale or lease and so we're talking to buyers as well as folks interested in leasing that space.
Okay, and then just sort of in keeping because you guys have dealt with a number of these.
Credit issues over time as any other landlord, Lord what but it sounds like you guys were made whole here like there is no loss to shareholders. There's no.
Real economic downside like it sounds like everything worked out the way you guys anticipated is that the case or is there something missing where there is some economic impact.
David H. Dupuy: Or is there something missing where there is some economic impact? Well, I mean, obviously, we don't like it when we get two of those leases rejected, as happened with the Genesis of Care situation. So, two of our nine leases for Genesis of Care were rejected as part of the bankruptcy process. But, as we talked about, you know, I'm proud of the way the team sort of handled the situation. It was a retracted bankruptcy process.
Well I mean, obviously, we don't like it when we get to those leases rejected as what happened with the Genesis care situations. So two of our our nine leases with Genesis care were rejected as part of the bankruptcy process, but as we talked about.
I'm proud of the way the team sort of handled this situation. It was a protracted bankruptcy process as you can tell we've got a number of different buyers of these assets and so.
David H. Dupuy: As you can see, we've got a number of different buyers for these assets. And so, what I would say is that the seven leases are transitioning over. We're happy about that.
What I would say as the seven leases are transitioning over we're happy about that the two that arent that were rejected as part of the process. One is an asset held for sale, which is essentially at a level that.
David H. Dupuy: The two that aren't, that were rejected as part of the process, one is an asset held for sale, which is essentially at a level that, you know, we are having to take a write-off on at this point. And so, you know, we look to recycle that capital and to do income-producing properties for us. So, look, we lost some ADR as part of the process.
We arent having to take a write off on at this point and so we look to recycle that capital into new income producing properties for us.
So look we look blossom ABR as part of this process.
David H. Dupuy: But, you know, we're in the process of dealing with the outcome. And I think, overall, this is a great situation for CHPP. Okay. And then, in just a second, you guys did it to make them around 28 bucks.
We're in the process of dealing with the.
With the outcome and I think overall this is a great.
This is a great situation for CATV.
Okay, and then just second.
Hey, guys.
Did issue some ATM year round 28 Bucks I think you said you used some line of credit.
David H. Dupuy: I think you said you used some line of credit, you know, historically, obviously, you issued ATM higher. You know, everyone wants to issue ATM higher. But as we think about you guys funding acquisitions over the next year, it sounds like you're comfortable issuing around these levels, or how are you thinking about funding and sort of maintaining that low-leveraged balance sheet, you know, that the stock is still where it is? Yeah, look, I think, you know, we certainly would love it if we could issue shares at a higher share price. And what I will say, in that average share price that we sold shares at last quarter, those are still accretive transactions for us in investing in those proceeds and in the new acquisitions. But we're very mindful of where our share price is. And so, you know, as we consistently are, if the share price goes down, we're not going to be very active in the ATM.
Historically, obviously.
Issued ATM hire everyone wants to issue ATM higher but as we think about you guys funding.
Acquisitions over the next year it sounds like Youre comfortable issuing around these levels or how are you thinking about funding and sort of maintain that low leverage.
Balance sheet, if the stock is still where it is.
Yeah look I think.
We certainly would love it if we could issue shares at a higher share price and.
And what I will tell you in that average share price that we sold shares at last quarter.
Those are still accretive.
Transactions for us.
Investing those proceeds into new acquisitions, but we're very mindful of where our share price is and so.
As we are consistently if the share price goes down we're not going to be very active in the ATM as the share price goes up we're going to be more active in the ATM and the good news is we've got capacity under our revolving credit facility. So that we aren't forced to use the ATM when the share price isn't where we like it so.
Rob Stevenson: If the share price goes up, we're going to be more active at the ATM. And the good news is that we've got capacity under our revolving credit facility so that we aren't forced to use the ATM when the share price isn't where we'd like it. So I would just say that, as always, we're going to be mindful of where the share price is, and we're going to issue shares strategically based on that. The other thing I would mention is, you know, we've got the Fort Myers property that we're going to sell. We've got another asset held for sale that we will be looking to sell. And so some of these asset sales will also contribute to the capital that we have available to us, and we'll take that into consideration as we issue shares on the ATM. Thank you. Thank you, Alex. The next question comes from Rob Stevenson with GN. Please go ahead. Good morning, guys.
I would just say that as always we're going to be mindful of where the share price is and we're going to issue shares strategically based on that and the other thing I would mention is.
We've got.
The Fort Myers property that we're going to sell we've got another asset held for sale that we will be looking to sell and so some of these asset sales will also contribute to the capital that we have available to us.
We'll take that into consideration as we're issuing shares under the ATM.
Thank you.
Thank you Alex.
Next question comes from Rob Stevenson with Janney. Please go ahead.
David H. Dupuy: Just to follow up on Alex's question, you know, can you talk a little bit about the disposition market today? Obviously, Fort Myers is vacant, but is there an opportunity here for you guys to sell more than the two assets that are currently held for sale, given your cost of equity to fund acquisitions? Is that market sort of frozen, you know, given the bank issues and cost of debt? How would you guys characterize the disposition market right now? You know, hey Rob, by the way, thanks for the question.
Hi, Good morning, guys just to follow up on Alex's question.
Can you talk a little bit about the.
The disposition market today, I mean, obviously Fort Myers is is bacon, but.
Is there an opportunity here for you guys to sell more than the two assets that are currently held for sale.
Given your cost of equity to fund acquisitions is that market sort of frozen.
Given the bank issues and cost of debt how would you guys characterize the disposition market right now.
Hey, Rob by the way thanks for the question.
Look I think I don't think the.
David H. Dupuy: Look, I don't think the market for selling properties is frozen by any stretch of the imagination. I think the Fort Myers situation sort of is indicative of where the market is, and so we're happy about that. And we do get questions from time to time, and people will, you know, ask us if we want to sell buildings. And so we have taken, we've listened to those things. Up to this point, we haven't considered doing any asset sales.
The market for selling properties is frozen by any stretch the imagination I think that the.
The Fort Myers situation sort of is indicative of where the market is and so we're happy about that and we do get questions from time to time and people will.
Ask us if we want to sell buildings and so we have taken we've listened to those things up to this point, we haven't considered doing any asset sales, but certainly that is an option that we have and it's something that we can consider.
David H. Dupuy: But certainly, that is an option that we have, and it's something that we can consider. You know, again, our preference is to grow our assets based on, you know, nice, attractive 9 to 10% yields. And so we're going to look at, I think, primarily raising funds through the credit facility and through our ATM.
Again, our preferences is to.
Grow our assets based on.
Nice attractive 9% to 10% yields.
And so we're going to look at.
I think primarily at raising funds through the credit facility and through our ATM, but we always have the option of looking at asset sales and that's certainly an option that we have to consider it's not anything that we're looking to consider at this point, but it's certainly an option we have.
David H. Dupuy: But we always have the option of looking at asset sales, and that's certainly an option that we have to consider. It's not anything that we're looking to consider at this point, but it's certainly an option we have.
And then can you talk about where you guys are viewing the operators trend on the two Genesis care sign properties.
David H. Dupuy: And then, can you talk about where you guys are viewing the operator trends on the two GenesisCare-assigned properties and potentially where the others might fall out as well, you know, versus where GenesisCare was a year ago before bankruptcy? Are you likely to be, you know, sort of flat, in terms of operator trends, a little bit of a hit to where GenesisCare was before it hit the wall, or slightly better? How are you guys thinking about, you know, when this is all said and done in, you know, 90 days, where are those assets that are going to be operating trends wise versus what they were, you know, a year or 18 months ago? Look, we feel very good about the operators that are coming in to operate these facilities.
And potentially where the others might fall out as well.
Versus where Genesis care was a year ago before bankruptcy are you likely to be.
Flat in terms of operator strength, a little bit of a hit to where Genesis care was before it hit the wall.
Bit better how are you guys thinking about when this is all said and done in 90 days, where those assets are going to be operators transplant versus what they were a year or 18 months ago.
Look we feel very good about the operators that are coming in to operate these facilities and we also.
David H. Dupuy: And we also, you know, two of the leases are going to stay with Genesis Care. So, we think that Genesis Care is viable as they move into the new facility and sort of de-leverage. So, I would say, on balance, based on what we've seen, the operators are going to be just as strong, if not stronger.
Two of the leases are going to stay with Dennis there. So.
We think that Genesis care as viable as they move into the new Genesis care.
Sort of deleverage so I would say on balance based on what what we've seen that the operators are going to be just as strong if not stronger than where we're excited about.
David H. Dupuy: And we're excited about diversifying that portfolio away from a single operator. We now have operators that are strong in their existing markets, and we think that that will go really well for the individual properties.
Diversifying that portfolio away from a single operator, we've got now operators that are strong in their existing markets and we think that bodes really well for the individual properties.
Okay and then the last one for me on the you talked to the prepared comments about the two properties. Among the 167 million that are expected to close in 2024 from our capital needs and modeling perspective are these going to be later in 'twenty four.
David H. Dupuy: And then the last one for me, you talked in a pair of comments about the two properties among the $167 million that are expected to close in 2024. From a capital needs and modeling perspective, are these going to be later in 2024, you know, one earlier, one later, both back-end weighted? And I guess from a pricing standpoint, are most of the seven roughly more or less in line with the $25 million average price, that is $167 million divided by seven? Or are there some couple of much larger ones within those seven that we have to be aware of from a capital needs perspective? No, so that's a great question.
One earlier, one later, both backend weighted and I guess from a.
Pricing standpoint are most of the seven roughly more or less in line with the $25 billion average price.
167 divided by seven or there are some couple of much larger ones within those seven that we have to be aware of from a capital needs perspective.
No.
That's a great question so one of the.
David H. Dupuy: So one of those hospitals is going to close, one of those inpatient rehab facilities is going to close early this year. The other one is going to be later this year, you know, call it late third quarter, I would estimate, and those dollars are right around that, you know, consider that 24 million dollars per unit is a good average. Okay, that's helpful. Thank you guys. I appreciate your time. Thank you, Rob. The next question comes from Jim Kamertz with Evercore. Please go ahead. Good morning.
One of those hospitals is going to close one of those inpatient rehab facilities is going to close.
In early on this year. The other one is going to be later this year call. It late third quarter I would estimate.
And.
Those dollars are right around that consider that $24 million per unit is a good average.
That's helpful. Thanks, guys I appreciate the time.
Thanks, Rob.
The next question comes from Jim <unk> with Evercore. Please go ahead.
Jim Kamertz: Thank you. You know, David, I think you mentioned or alluded to kind of a shadow pipeline of activity, perhaps, and I was just curious, you know, you said 90% type returns. With those, could you just put more color on those existing relationships or, you know, new, new opportunities? And I'm wondering, the second part of that is, are more tenants slash owners calling TACP, given lingering challenges in the credit market? I mean, your opportunity has been widened, in other words. Thank you. Yeah, thanks, Jim.
Hi, good morning, Thank you.
David I think you mentioned or alluded to kind of a shadow pipeline of activity.
Perhaps I was just curious you said, 9% to 10% type returns with those could you just put more color around how those from existing relationships or new new opportunities and I am wondering second part of that is our more tenant slash owners, calling thet given the lingering challenges in the credit markets means your opportunity set widening.
In other words, thank you.
Yes, Thanks, Tim I appreciate the question.
David H. Dupuy: I appreciate the question. You know, what I would say is that we are seeing an expanded opportunity set, and we're using that to, you know, obviously try to push on yield as best as we can, but also get higher quality access. And so we're, I would say that it is a mix.
What I would say is we are seeing an expanded opportunity set and we're using that.
Obviously to try to push on yield as best we can but also get higher quality asset.
And so we're.
Yes, I would say that it's a mix we're talking to so where we have relationships and were.
David H. Dupuy: We're talking to folks where we have relationships, and we're, so that part of the business is, I think, yielding really good dialogue and good opportunities. We've got, as everybody knows, about five client-type relationships, and we've been wanting those client relationships to get more active, and we've got some good dialogue and prospects for additional deals through those client relationships. And we're also talking to a couple of new potential client relationships. Those haven't, you know, got to a point where we can talk more specifically about them, but we're certainly encouraged by folks looking to partner with us. And, you know, so we're excited about the prospects of the types of facilities that we like and getting pricing and yield that are attractive to us on that side.
So that part of the business is as I think is yielding really good dialogue and good opportunities we've got.
As everybody knows we have about five client type relationships.
We were we've been wanting those client relationships to get more active and we've got some good dialog and in prospects for additional deals through those client relationships and we're also talking to a couple of new potential client relationships.
Those happen.
Got to a point, where we can talk more specifically about them, but we are encouraged certainly by folks looking to partner with us.
And.
So we're excited about the prospects of the types of facilities that we like.
And getting pricing and yields that are attractive to us.
David H. Dupuy: But in terms of Nick, I would say it's sort of consistent with what we've seen in the past; what we're seeing is just a higher volume of those types of opportunities, both in the broker market and also in the client market. So we think that that will, over time, yield more opportunities for us on an acquisition standpoint. Very helpful. But not that it does well at all.
On that side, but in terms of <unk>.
I would say is sort of consistent with what we've seen in the past what we're seeing is just a higher volume of those types of opportunities both in the broker market, but also in the in the client market. So we think that that will over time yield to more opportunities more opportunities for us from an acquisition standpoint.
Very helpful and not to dwell upon one second question back to Genesis just for my own edification. Please.
David H. Dupuy: One second question. Back to Genesis, just for my own edification, please. You talked about the seven remaining yields going to be assigned to your police and your operators. But does that imply, then, that the operators are going to use the assets for very similar purposes? Are they trying to get that fund to grow again, reuse some of the properties, or are they changing the business that would be, you know, undertaken within? I'm just curious how that might play out, if you have any insight. Yeah, no, they're all going to be essentially operating consistent with, you know, the radiation oncology type of purpose. And so the actual use of the facility is not changing at all. And so, you know, to me, that sort of indicates that you've got a good business there and an attractive business. It just was not in the right hands.
You talked about the seven remaining deals you aren't going to be assigned Youre pleased with the new operators, but does that imply then that the operators are going to use the assets for a very similar purpose or just trying to think about the fungibility and reuse of the properties or are they changing the business that would be undertaken within I'm. Just curious how that might play out if you have any insight.
Yes, they are.
All going to be essentially operating.
Consistent with.
Radiation oncology type of.
Purpose and so the actual use of the facilities is not changing at all and so.
To me that sort of indicates that you've got a good business, there and an attractive business. It just was not in the right hands and so if anything we're excited about it because <unk> got now regional operators.
David H. Dupuy: And so, if anything, we're excited about it because you now have regional operators that are strong in these current markets that are going to be operating a similar radiation oncology type practice business. Appreciate it. Thank you. The next question comes from Wes Golladay with Baird. Yeah, good morning, everyone.
That are strong in these current markets that are going to be operating a similar radiation oncology type practice and business.
Very good I appreciate it thank you.
Thank you.
The next question comes from Wes Golladay with Baird. Please go ahead.
Good morning, everyone can you talk about how you look to fund the business from a debt perspective would it be the line of credit or do you have any interest in another term loan at the moment.
Wes Golladay: If you could talk about maybe how you respond to business from the debt perspective, would you be on the line of credit, or do you have a union that's in another firm? I believe you called out reimbursement being a little bit lower at the end of this error. Do you happen to have that number for you?
Thanks, Wes we are focused on using our revolving credit facility, we have over $100 million available on that facility. We have great support from our banks for that facility certainly we stay current on the state of of all debt markets and so looking at term loans looking at other.
Bill: Either the dentist error component or the total reimbursement you had on the order? Yeah, what you can do is, you know, you can look obviously at our supplemental and look at the Fort Myers property and kind of come up with, you know, what the monthly rent number is. So we received two months' rent in the third quarter, which we obviously did not receive in the fourth quarter. You know, you can kind of call that $130,000, $140,000. Of course, there was also some expense reimbursement that, you know, isn't, you know, isn't as a result of that obviously impacted a lot of that reimbursement in the fourth quarter. And then obviously, in the fourth quarter, we also now pay for some of the expenses ourselves as opposed to having at least a couple of months reimbursed in the third quarter. So all of those add up to, you know, as you look at a quarter over quarter sequential impact, you kind of see where that, you know, 10 years or so came from. Okay, thanks a lot. The next question comes from Barry Oxford with Collier's. Please go ahead.
Debt financing facility.
<unk> facilities, but but for our current needs the flexibility that the revolver provide.
Kind of what we are utilizing today and obviously the cost is a little bit higher than where it was a year ago, but hopefully we're at least in the interest rate environment that is flat to stable and maybe later this year is starting to decline which will benefit from.
Okay, and then I believe you called out reimbursement being a little bit lower the Genesis care.
Happen to have that number for you either dependent care component or the total reimbursement you had in the quarter.
Yes, what you can do as you know.
You can look obviously at our supplemental and look at the Fort Myers property and kind of come up with what is the monthly rent number so.
So we received two months of rent.
In the third quarter, which we obviously did not receive in the fourth quarter.
You can kind of call that 130 $140000. There was also some expense reimbursement.
Isn't it.
Isn't as visible, but that obviously impacted.
Loss of that reimbursement in the fourth quarter and then obviously in the fourth quarter. We also now.
We're paying for some of those expenses ourselves as opposed to having at least a couple of months reimbursed in the third quarter. So all of those added up to as you look at the quarter over quarter sequential impact.
You can kind of see where that.
10 years or so came from.
Okay. Thanks, a lot for that.
Thanks, Matt.
The next question comes from Barry, Oxford with Colliers. Please go ahead.
Barry Oxford: Great, thank you guys. Real quick, when you guys are talking about long-term debt, have you kind of talked to any of the banks where 5 or 10 year money might be priced for you guys at this particular juncture? Barry, where we are right now with the availability we have under our hold and not having the near-term maturity, our next maturity is not until March of 2026. We continue to monitor the markets and where pricing is, but then, you know, we don't have an immediate need. It's not, you know; it's not a focus of ours.
Great. Thanks, guys.
Real quick when you guys were talking about long term debt have you kind of talk to any of the banks were five or 10 year money might be priced or are you guys. At this particular juncture.
Barry you know, where we are right now with the availability we have under our revolver.
And not having any near term maturities and our next maturity is not until March of 2026.
We continue to monitor that.
Markets and where pricing is but since we don't have an immediate need it's not it's not a focus of ours again I think as we look at the interest rate outlook.
Bill: Again, I think as we look at the interest rate outlook, some of the headwinds that everyone experienced over the last 12, 18 months have at least subsided, and we continue to be in a more stable interest rate environment. And then we go later this year, and then into next year, it's a more favorable interest rate environment. And I think at that point, you know, that is when we may be more interested in taking an order to look at different financing environments. All right, let's take a closer look at that. That makes sense.
We feel like some of the headwinds that everyone's experienced over the last two.
The 18 months have at least subsided and we seem to be in a more stable interest rate environment and look we hope.
Later this year.
Into next year, it's a more favorable interest rate environment and I think at that point that is when we.
We would maybe be more interested in taking a harder look at some of the different financing environment.
Alright take a closer look at that point that makes sense.
Can you just kind of echoes the same thing in your acquisition pipeline what type.
David H. Dupuy: Your Acquisition Pipeline, what type of assets are in there, is it the MLBs, acute care, long term care facilities, is there a particular weight to one of those asset classes, or is it kind of across the board of what we do? It's really kind of across, and Barry, by the way, good to hear from you, good to talk to you, like you've joined the team here, so, but yeah, I would characterize, yeah, that's great, I would characterize our pipeline, it's really being similar to what it's been, roughly, you know, half or a little bit more around the physician clinic, MOV side of things, and maybe that's, you know, call it 60% plus or minus, and then the other side of the pipeline is more of the client single tenant type of opportunity set, which includes everything from, you know, behavioral patient rehab to, you know, a variety of, and actually dialysis too, so that's kind of the mix today that we're seeing, and so, you know, we like that mix, we think it's a good mix of property type, and we expected that sort of mix in general to continue into 2024. Great, appreciate it guys. Thanks so much.
Assets are in there is it.
Mlps or acute care long term.
Care facilities.
Is there a particular wait till one of those asset classes or is it look.
It's kind of across the board of what we normally buy.
It's really kind of across Barry by the way good good to hear from you get to talk to you again, great glad Greg Greg joined the team here so yes.
I would characterize yeah.
That's great.
Yes.
I would characterize our pipeline is really being similar to what it's been roughly.
Path for a little bit more around the physician clinic MOBA side of things and maybe Thats call it 60% plus or minus and then the other side of the pipeline is is more of the.
The client single tenant type of opportunity set which includes everything from.
Behavioral inpatient rehab too.
<unk>.
A variety of end actually dialysis too.
So that's kind of the mix today.
Today that we're seeing in and so.
We like that mix, we think it is.
It's a good mix of of property type and we expected that sort of mix in general will continue into 2024.
Great I appreciate the color guys. Thanks, so much.
Thank you.
David H. Dupuy: Thank you. The next question comes from Ethan Brown with Cox Capital Markets. Please go ahead.
Our next question comes from Ethan Brown with Cox capital markets. Please go ahead.
Hi, guys. Thanks for taking my question.
Ethan Brown: All right, guys. Thank you. Thank you. Thank you.
David H. Dupuy: I wanted to ask... More of a high-level question about AFFO when we look at that. We're coming up on kind of our third year of that, www.communityhealthcare.org at a time when the acid be...... So at what point do you regain some of that operational leverage to drive AFFO per share? and the New York Times.
I wanted to ask just a more of a high level question.
About <unk> I mean when I.
When we look at that on a per share basis for coming up on kind of our third year of that metric being relatively flat.
At a time when the asset base has continued to grow at a pretty moderate rate.
So at what point do you regain some of that operational leverage to drive <unk> per share and just how do you. How do you internally think about driving that metric. Thank you.
David H. Dupuy: Thank you. Thank you. Well, thank you for the question. What I would tell you, and you know. If you take a step back and look at the environment that we've been operating in over the last, you know, couple of years, it's been an increasingly and integrated environment. And so, you know, unfortunately, during that same period of time, even though we've been acquiring access, our spread has compressed rather immediately. We're very focused on AFFO. That's how we're all rewarded internally, and we're laser-focused on growing that number.
Well thank you for the question.
What I would tell you in.
Yes.
If you take a step back and look at the environment that we've been operating in over the last.
A couple of years, it's been an increasing interest rate environment and so on.
Unfortunately during that same period of time, even though we've been acquiring assets are spread is compressed rather meaningfully we're very focused on ASF. So that's how we're all rewarded.
Internally and we're laser focused on growing that number but unfortunately interest rates have gone up pretty significantly during that 18% to 24 month period of time, and so a lot of that.
David H. Dupuy: But, you know, unfortunately, interest rates have gone up pretty significantly during that 18 to 24-month period of time. And so a lot of that acquisition growth that would have flowed – that would have moved through our AFFO and FFO lines has been impacted as a result of that. So, look, we're going to continue to look to push yields and to find attractive acquisition opportunities because, again, we're looking for the long term. We're going to own these assets for a long period of time, and those yields, I think, are very attractive long-term yields that we're excited about. And I think over time, as Bill referenced, interest rates are going to stabilize. We feel like they are.
Acquisition growth that would've flown that would've moved through our <unk> and <unk> lines have been impacted as a result of that so look we're going to continue to look to to push yields and defined attractive acquisition opportunities because again were looking on the law.
Long term, we're going to own these assets for a long period of time and those yields I think are very attractive long term yields that we're excited about and I think over time as bill referenced intra.
Interest rates are going to stabilize.
We feel like they are and then as they start declining youre going to see an incredible.
David H. Dupuy: And, you know, as they start declining, you're going to see an incredible leveraging of the asset base and growth of AFFO and FFO. But we're very focused on trying to maximize those returns and look at that very closely on an acquisition-by-acquisition basis. Bill, I don't know if there's anything you want to mention there. No, I think that covers it. Thank you. Great. Great. The next question comes from Michael Lewis with Truist Securities. Please go ahead.
Leveraging of the asset base and growth of <unk> and <unk>.
We're very focused on trying to maximize those returns.
<unk> looked at that very closely on an acquisition by acquisition basis, Bill I don't know if theres anything you wanted to mention there.
That covers it.
Great great. Thanks, a lot I appreciate the response.
Sure.
The next question comes from Michael Lewis with Truest Securities. Please go ahead.
Michael Lewis: My first question goes back to this idea of selling some assets. I realize the vacant building is sort of a special case, but you talked about potential assets as a source of capital. I'm just wondering, you know, what are the characteristics of an asset that might fail, for strategic reasons, if it fails?
Okay. My first question.
Goes back to this idea of selling some assets I realized.
The vacant building as part of a special case.
Talked about potential asset sales as a source of capital I'm just wondering.
What the characteristics are of an asset that you might sell a strategic reason to sell and then maybe.
David H. Dupuy: And then, maybe this isn't an either-or situation, but do we think of assets that fail maybe as a replacement for equity capital that would have been from the AATM if the price was better? In other words, if your stock price is still off, and I think you just issued some inequity right around the time of consensus M&A, if your stock price is still off, are you more apt to sell assets that kind of make up that equity piece as you continue to make acquisitions? And then, you know, by birth, acquisitions or authority decisions are not attractive, you know, if you're talking about equity from the AATM. Thank you for the question, Michael. We are very focused on growing our business. Now, that said, there are always a handful of properties that, for whatever reason, aren't, you know, may not be strategic for us.
Either or but should we think of asset sales, maybe as a replacement for equity capital that would've been from the ATM price was better in other words.
<unk> pricing is soft and I think you just issued some equity.
Right around consensus NAV, if your stock prices are.
Or are you more apt to sell assets to kind of makeup that equity piece as you continue to make acquisitions and vice versa acquisition.
Alright dispositions are not attractive.
If your cost of equity from the ATM.
Thanks for the question Michael.
Okay.
We are very focused on growing our book of business now.
That said, there's always a handful of properties that for whatever reason aren't.
May not be strategic for us and we would certainly evaluate.
David H. Dupuy: And we would certainly evaluate whether it makes sense to sell properties that are no longer strategic or what we feel, you know, are a focus for us. But, you know, I think, in general, we don't have a plan in place to sort of say, you know, if we don't find it very attractive on an advertising front, from an ATM perspective.
Whether it makes sense to to sell properties.
That are no longer strategic or what we feel are a focus for us.
But.
I think in general.
We don't have a plan in place to sort of say.
Yes, we don't find it very attractive on an app from up.
From an ATM perspective, we don't have a specific plan in place, but we are evaluating our portfolio and to the extent, they're non core properties that we think.
David H. Dupuy: We don't have a specific plan in place, but we are evaluating our portfolio, and to the extent there are nine core properties that we think would be, you know, an option to sell, we may consider that. I think at the end of the day, you know, with a hundred million in availability under our revolver and being strategic with our ATM, I think we're going to be more focused there, but we're certainly open to the opportunity to sell assets to the extent that's ultimately what we need to do. But, you know, again, I think we've got good resources and good capital alternatives before we look very closely at asset sales beyond what we've already identified.
Would be.
An option to sell we may consider that I think at the end of the day.
With a $100 million of availability under our revolver and being strategic with our ATM I think we're going to be more focus there, but we're certainly open to the to the opportunity to sell assets to the extent that.
Ultimately, what we need to do but.
Again.
I think we've got good resources in good capital alternatives before we look very closely at it.
Asset sales beyond what we've already identified.
Okay got it and then just.
David H. Dupuy: I just want to confirm, you know, your acquisition deals are kind of locked in, timing, you know, the timing, whether it's a pushback quarter or not isn't a big deal, and just to confirm that there's nothing, no issues or anything on those projects. Yeah, there are no issues with the projects other than, you know, they have been pushed back a little bit for a variety of reasons. You know, those projects are now being simultaneously closed with another operator, and so coordinating that closing is added a little bit at a time. And then, you know, what we found coming out of COVID, and Michael, you and I have talked about this before, these development projects take a little bit longer to come to market than they did pre-COVID, and so that's unfortunate, but that's kind of the reality of what we're seeing.
Just to confirm the timing pushed back on a couple of these development acquisition I just wanted to confirm your acquisition yield is kind of locked in timing the timing whether it gets pushed back a quarter or not has been a big deal and just confirm theres nothing no issues or anything on those projects.
No there are no issues on the projects other than <unk>.
They have been pushed back a little bit for a variety of reasons.
These projects are now being simultaneously close.
With another operator, and so coordinating that closing has added a little bit of time and then you know.
What we found is coming out of Covid and Michael you and I have talked about this before.
These these development projects take a little bit longer to come to market and then they did pre COVID-19. So that's unfortunate, but that's kind of the reality of what we're seeing.
Okay got it and then lastly from me.
David H. Dupuy: And then lastly for me, we've talked about this before, but I just wanted to make sure as far as the comp structure change is concerned, if it sounds like there's not going to be any real significant impact on the income statement or the cash flow, right? It'll be a, you know, it'll be the same in the net income statement when you expect anything in the cash portion, but maybe the total balance is a little low and I guess the question is, is there any material impact on the income statement from the change in cash flow? Michael, what I would point you to is that there are a couple of things at play here, right?
<unk> talked about this before but I just wanted to make sure as far as the comp structure change.
It sounds like there's not going to be any real significant impact on the income statement or the cash flow right it'll be a.
There'll be a change in the vesting schedule and you would be expecting the cash portion.
But maybe the total comp is a little low and more of it.
I guess the question is is there any material impact on the income statement from this this change in the in the cost structure. This year.
Yes, Michael what I would point you to is.
There's a couple of things at play here right.
Bill: You know, as Dave mentioned, we're focused on continuing to align executive officer compensation with the value of our common doc. And so, you know, continuing to have stock compensation as a large part of executive officer compensation, but the reduction in the matching, our alignment of interest program, you know, will reduce, you know, our salary and analysts, and then the compensation. Now, accounting doesn't always work exactly as compensation does. And so, because some of that compensation is now being paid in cash, you know, that part of the compensation will be extended, you know, kind of immediately and during the year. And so, you know, you will see less of an add-back to ANFO with cash compensation, obviously, compared to stock compensation, right?
As Dave mentioned, we're focused on continuing to align executive officer compensation for the value of our common stock and so continuing to have stock comp.
Compensation being a large large part of executive officer compensation, but the reduction in the matching our alignment of interest program will reduce.
Our salary and annual incentive compensation.
Accounting doesn't always work exactly as compensation does and so because some of that compensation is now being paid in cash.
That part of the compensation will be expense kind of immediately and during the year and so you will see less of an add back to <unk> with cash compensation, obviously compared to stock compensation right. So that that will have an impact it's something you'll see on the income statement. It is being offset by the <unk>.
Bill: So that will have an impact, something you'll see on the income statement. But it's being offset by the reduction in total compensation, again, because of the reduced matching of the alignment of the interest program. So they offset each other, but you will see some improvements on the income statement. But we don't believe it's going to be material to the overall AFFO or FFO.
Reduction in total compensation again, because of the reduced matching of the alignment of interest program. So they offset each other but you will see some movements on the on the income statement. We don't believe it's going to be material to the overall <unk>.
Bill: But it's something that we'll obviously explain in more detail in our properties in March, and it's also something we go into more detail on our first quarter conference call as well. Thank you. Thank you, Michael. This concludes our question and answer session. I would like to turn the conference back over to Dave Dupuy for any closing remarks. I just want to thank everybody for joining us. We appreciate everyone's support, and I hope everyone has a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
But it's something that we'll obviously explain in more detail in our.
Proxy, which gets filed in March and it's also something we can go into more detail on our first quarter conference call as well.
Okay, great. Thank you.
Thanks, Michael.
This concludes our question and answer session I would like to turn the conference back over to Dave Dupuy for any closing remarks.
I just want to thank everybody for joining us and we appreciate everyone's support and I hope everyone has a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.