Q1 2024 Community Healthcare Trust Inc Earnings Call
Operator: Welcome to the Community Healthcare Trust's 2024 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2024 first quarter financial results and progress made in various aspects of its business. Following the remarks, the phone lines will be open for a question and answer session.
Welcome to the community Healthcare Trust 2024 first quarter earnings release Conference call.
Operator: The company's earnings release was distributed last evening and has also been posted on its website, www.chct.reit.org. The company wants to emphasize that some of the information that may be discussed in this call will be based on information as of today, May 1st, 2024, 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 these risks and uncertainties, you should review the company's disclosures regarding forward-looking statements and in its earnings release, as well as the risk factors and MD&A, and its SEC filings.
Operator: The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. Call participants are advised that this conference call is being 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 call over to Dave Dupuy, CEO of Community Healthcare Trust. Please go ahead.
David H. Dupuy: Great. Thank you, Nick.
On the call today, the company will discuss its 2024 first quarter financial results. We 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.
The company's earnings release was distributed last evening and has also been posted on its website www Dot C. H C. T Dot R E I T.
The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today may 1st 'twenty 'twenty four 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 these risks and uncertainties you should review the company's disclosures regarding forward looking statements and in its earnings release as well as risk factors in M D and E and S E C filings.
The company undertakes no obligation to update forward looking statements, whether as a result of new information future developments or otherwise, except as may be required by law.
During this call the company will discuss GAAP and non-GAAP financial measures a reconciliation between the two is available in its earnings release, which is posted on its website called.
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 call over to Dave Dupuy C. O of community Healthcare Trust. Please go ahead.
David H. Dupuy: And good morning, everybody. Thank you for joining us today for our 2024 first quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer, Leigh Ann Stach, 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 8K, along with our quarterly report on Form 10Q. In addition, an updated investor presentation was posted to our website last night. The first quarter was busy both from an operations standpoint and also from an acquisition perspective.
David H. Dupuy: Great. Thank you Nick and good morning, everybody. Thank you for joining us today for our 2024.
David H. Dupuy: Our occupancy increased from 91.1% to 92.3% during the quarter. A key component of the increased occupancy was the long-term lease sign on one of our buildings to deliver in- and outpatient behavioral healthcare services. This new lease will require the redevelopment of the property from its former use, and we expect the property redevelopment to be completed and the lease to commence in 2026. In addition to this project, we have four properties, or significant portions of them, that are undergoing redevelopment or significant renovations.
David H. Dupuy: First quarter conference call on the call with me today is Bill Mcgrath, our Chief Financial Officer.
David H. Dupuy: And you add back our Chief Accounting Officer, and Ken Meyer, our EVP of asset management.
David H. Dupuy: Our earnings announcement and supplemental data report were released last night and furnished on form 8-K, along with our quarterly report on Form 10-Q.
David H. Dupuy: In addition, an updated investor presentation was posted to our website last night.
David H. Dupuy: With long-term tenants in place, then the renovations or redevelopment are completed. Thus, our weighted average on any week's term remains about the same at slightly less than seven years. During the first quarter, we acquired four properties with a total of approximately 165,000 square feet for a purchase price of approximately $34.2 million. The properties were 98.6% leased in the aggregate, with leases running through 2039 and anticipated aggregate annual returns ranging from 9.3% to 9.75%. Subsequent to March 31st, we acquired a new patient rehabilitation facility for a purchase price of $23.5 million.
David H. Dupuy: The first quarter was busy both from an operation standpoint, and also from an acquisition perspective.
David H. Dupuy: Occupancy increased from 91, 1% to 92, 3% during the quarter.
David H. Dupuy: A key component for the increased occupancy with a long term lease side on one of our buildings to deliver in an outpatient behavioral health care services.
David H. Dupuy: This new lease will require a redevelopment of the property from its former yields and we expect the property redevelopment to be completed and the lease to commence in 2026.
David H. Dupuy: In addition to this project, we have four properties or significant portions of.
David H. Dupuy: That are undergoing redevelopment or significant renovations with long term tenants in place and renovations or redevelopment is completed.
David H. Dupuy: Our weighted average remaining lease term remains about the same at slightly less than seven years.
David H. Dupuy: During the first quarter, we acquired four properties with a total of approximately 165000 square feet.
David H. Dupuy: We're just pricing approximately $34 $2 billion.
David H. Dupuy: The properties was 98, 6% leased in the aggregate with leases running through 2039 and anticipated aggregate annual returns ranging from nine 3% to 975%.
David H. Dupuy: Subsequent to March 31st we acquired an inpatient rehabilitation facility for the purchase.
David H. Dupuy: The price of $23 $5 million.
David H. Dupuy: We entered into a new lease with a lease expiration in 2039 and an anticipated annual return of approximately 9.1%. 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 $169.5 million. The expected return on these investments should range from 9.1 to 9.75 percent. We expect to close on one of these properties in the fourth quarter of 2024, with the remaining six properties closing throughout 25, 26, and into 2027.
David H. Dupuy: We entered into a new lease with lease exploration in 2039 and anticipated annual returns of approximately nine.
David H. Dupuy: Pat.
David H. Dupuy: We also have the signed definitive purchase and sale agreements for seven properties to be acquired after completion and occupancy for an aggregate expected investment of $169 $5 million.
David H. Dupuy: The expected return on these investments should range from nine 1% to 975%.
David H. Dupuy: We expect to close on one of these properties in the fourth quarter of 2024.
David H. Dupuy: With the remaining six properties closing throughout 'twenty, five 'twenty six and into 2027.
David H. Dupuy: We continue to have many properties under review and have term sheets out on properties with indicative returns of 9 to 10 percent. 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, will provide sufficient capital for continued growth and attractive yields throughout 2024.
David H. Dupuy: Okay.
David H. Dupuy: And you have many properties under review and have term sheets out on properties with indicative returns of 9% to 10%.
David H. Dupuy: 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 <unk>.
David H. Dupuy: Asset sales will provide sufficient capital for continued growth and attractive yields throughout 2024.
David H. Dupuy: Also, during the first quarter, our board approved and adopted certain changes to executive compensation. These changes were the result of six months of careful consideration of stockholder feedback, the analysis of proxy advisory firm reports, as well as guidance from our independent compensation consultants. I'll let Bill describe our G&A expense in more detail in his section. But to wrap up, we declared our dividend for the first quarter and raised it to $0.46 per common share.
David H. Dupuy: Also during the first quarter, our board approved and adopted certain changes to executive compensation.
David H. Dupuy: These changes will result in six months of careful consideration of stockholder feedback the analysis the proxy advisory firm reports as well as guidance from our independent compensation consultant.
David H. Dupuy: I'll, let bill describe our G&A expense in more detail in his section.
David H. Dupuy: So to wrap up we declared our dividend for the first quarter and raised its 46 cents per common share. This equates to an annualized dividend of $1 84 per share and we are very proud to have raised our dividend every quarter since our IPO.
David H. Dupuy: This equates to an annualized dividend of $1.84 per share, and we are very 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.
David H. Dupuy: It takes care of the items I wanted to cover so I will hand things off to bill to discuss the numbers.
William G. Monroe: I will now provide more details on our first quarter financial performance. I'm pleased to report that total revenue grew from $27.2 million in the first quarter of 2023 to $29.3 million in the first quarter of 2024, representing 7.9% annual growth over the same period last year. When you compare to our $29.1 million of total revenue in the fourth quarter of 2023, we achieved 0.7% total revenue growth quarter over quarter, although our growth was negatively impacted by the timing of our acquisitions as we closed $27.7 million in acquisitions during the last week of the first quarter.
Bill: Thank you Dave I will now provide more details on our first quarter financial performance I'm pleased to report that total revenue grew from $27 $2 million in the first quarter of 2023 to $29 $3 million in the first quarter of 2024, representing seven 9% annual growth over the.
William G. Monroe: On a pro forma basis, if all $34.2 million of the acquisitions we completed during the first quarter of 2024 had occurred on the first day of the first quarter, our total revenue would have increased by an additional $774,000 to a pro forma total of $30.1 million in the first quarter. From an expense perspective, property operating expenses increased by $193,000 quarter over quarter to $5.8 million, primarily as a result of seasonal increases in utilities and snow removal expenses at several properties, along with tire repairs and maintenance.
William G. Monroe: The same period last year.
William G. Monroe: General and administrative expenses increased by $826,000 quarter over quarter to $4.6 million. Dave highlighted the Executive Compensation Plan design changes made in January, but let me provide more details on the increases to G&A expense in the first quarter. While total compensation to executives is expected to be less under the new plan because 50% of executive salaries are taken in cash, and the amortization period for the long-term equity incentive awards is shorter under the new plan, executive compensation expense increased by $660,000 during the first quarter.
William G. Monroe: And compared to our $29 $1 million of total revenue in the fourth quarter of 2023.
William G. Monroe: 0.7% total revenue growth quarter over quarter, although our growth was negatively impacted by the timing of our acquisitions as we closed 27 $7 billion of acquisitions during the last week of the first quarter.
William G. Monroe: Pro forma basis that all $34 $2 million of acquisitions, we completed during the first quarter of 2024 had occurred on the first day of the first quarter. Our total revenue would have increased by an additional $774000 to a pro forma total of $31 million in it.
William G. Monroe: First quarter.
William G. Monroe: From an expense perspective property operating expenses increased by $193000 quarter over quarter.
William G. Monroe: $5 $8 million, primarily as a result of seasonal increases in utilities and snow removal expense at several properties.
William G. Monroe: Along with higher repairs and maintenance.
William G. Monroe: General and administrative expenses increased by $826000 quarter over quarter to $4 $6 million.
William G. Monroe: We've highlighted in the executive compensation plan design changes made in January but let me provide more details on the increase in the G&A expense in the first quarter.
William G. Monroe: While total compensation to executives is expected to be less under the new plan because 50% of executive salaries are taken in cash and the amortization period for the long term equity incentive awards the shorter under the new plan executive compensation expense increased by $660000 during the first quarter.
William G. Monroe: Only $260,000 of the increase was cash compensation, with the remaining $400,000 being non-cash, stock-based compensation. The remainder of the increases, quarter over quarter, were a combination of employer tax payments due upon the divesting of stock-based awards from 2016 deferrals and typical first quarter seasonal adjustments due to the timing of the annual employee salary increases, employer 401k contributions, and employer tax payments. Finally, from an expense perspective, interest expense increased by $43,000 quarter over quarter to $5.1 million.
William G. Monroe: Only $260000 of the increase was cash compensation with the remaining $400000 being noncash stock based compensation.
William G. Monroe: The remainder of the increase this quarter over quarter, where a combination of employer tax payments due upon the vesting of stock based awards from 2016 deferrals and typical first quarter seasonal adjustments due to the timing of the annual employee salary increases employer 401, K contributions and employer tax.
William G. Monroe: Payments.
William G. Monroe: Finally from an expense perspective interest expense increased by $43000 quarter over quarter to $5 $1 million.
William G. Monroe: According to Funds from Operations, FFO was $14 million in the first quarter of 2024. On a quarter-over-quarter basis, FFO decreased from $14.9 million in the fourth quarter of 2024. And on a per diluted common share basis over these periods, FFO declined from $0.57 to $0.53 per share. Adjusted Funds from Operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $15.7 million in the first quarter of 2024, which compares to $15.6 million in the first quarter of 2023, or 0.8% growth year-over-year.
William G. Monroe: Funds from operations.
William G. Monroe: <unk> was $14 million in the first quarter of 2024 on a quarter over quarter basis.
William G. Monroe: It decreased from $14 9 million in the fourth quarter of 2023.
William G. Monroe: And on a per diluted common share basis over these periods <unk> declined from 57 to 53 per share.
William G. Monroe: Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $15 $7 million in the first quarter of 2024, which compares to $15 $6 million in the first quarter of 2023 or 0.8% growth year over year.
William G. Monroe: On a quarter-over-quarter basis, AFFO decreased by 2.2% from $16.1 million in the fourth quarter of 2023. And on a per diluted common share basis over these periods, AFFO declined from 61 cents to 59 cents per share. And finally, on a pro forma basis, if the acquisitions we completed during the first quarter of 2024 had occurred on the first day of the first quarter, AFFO would have increased by approximately $498,000 to a pro forma total of $16.2 million. That concludes our prepared remarks. Nick, we are now ready to begin the question and answer session.
William G. Monroe: On a quarter over quarter basis, <unk> decreased by two 2% from $16 $1 million in the fourth quarter of 2023.
William G. Monroe: And on a per diluted common share basis over these periods <unk> declined from 61 cents to <unk> 59 per share.
Nick: And finally on a pro forma basis, if the acquisitions, we completed during the first quarter of 2024 and occurred on the first day of the first quarter <unk> would have increased by approximately $498000 to a pro forma total of $16 $2 million.
William G. Monroe: That concludes our prepared remarks, Nick we are now ready to begin the question and answer session.
Nick: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Operator: If youre using a speakerphone 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.
Operator: At this time, we will pause momentarily to assemble our roster.
Operator: The first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander David Goldfarb: Hey, morning down there. A few questions. First, Dave, you know, just looking at the acquisitions that are outlined in the press release that you also discussed in your opening remarks. Are there any acquisitions that we should be modeling for the remainder of the second quarter and third quarter, or is there going to be a gap in the pipeline until you close that outline deal in the fourth quarter?
Alexander David Goldfarb: Hey morning morning down there.
Alexander David Goldfarb: A few questions first Dave.
Alexander David Goldfarb: Dave Yeah, just looking at the acquisitions that are outlined in the press release that you also discussed in your opening remarks are there any acquisitions that we should be modeling for the remainder of the second quarter and third quarter or is there going to be a gap in the pipeline until you close that outlined deal and the <unk>.
Alexander David Goldfarb: Fourth quarter.
David H. Dupuy: Hey, Alex. Thanks for the question. I hope all is well. As it relates to the acquisition pipeline, we have seen fewer opportunities in the first quarter, which has impacted near-term pipeline, as you noted. We have a core group of brokers we work with, and they saw the dip in activity, too. Their guess, like ours, was that sellers were on the sidelines in the hopes that we would start seeing some rate cuts.
Alexander David Goldfarb: Hey, Alex Thanks for the question I Hope all is well.
David H. Dupuy: As it relates to the acquisition pipeline, we have seen fewer opportunities in the first quarter, which has impacted near term pipeline as you flag.
David H. Dupuy: We have a corporate for brokers, we work with and they saw the dip in activity to our guests and theirs was that sellers were on the sidelines in the hopes that we would start seeing some rate cuts.
David H. Dupuy: Obviously, expectations for cuts have been pushed back to later in the year, if at all. However, I will say that market sentiment does appear to be changing, because our last two investment committee meetings included more interesting opportunities at attractive cap rates. So, we're hopeful that we can start building the pipeline for the third and fourth quarters beyond the inpatient rehab facility that we are expecting to close in the fourth quarter. But it was pretty light in terms of building the pipeline in the first quarter.
David H. Dupuy: Obviously expectations for cuts have been pushed back to later in the year if at all.
David H. Dupuy: I will say that market sentiment does appear to be changing because our last two investment committee meetings included more interesting opportunities at attractive cap rates. So we're hopeful that we can start building the pipeline for the third and fourth quarters beyond.
David H. Dupuy: Inpatient rehab facility that we are expecting to close in the fourth quarter, but it was it was pretty light in terms of building the pipeline in the first quarter.
Alexander David Goldfarb: Okay, so then that extends to the second question. You know, we go back to during COVID when, you know, rates went to zero, and you guys were aggressively outbid, and you know, wisely, you guys made the decision that you weren't going to trace rates, you know, cap rates at zero, and you maintained discipline. Now we're sort of, you know, in another period of volatility. The point of the company, though, is to be able to acquire, you know, sort of $125 million a year, and hopefully grow that pipeline to, you know, something above that, especially if the asset base has grown multiples of that.
Speaker Change: Okay. So then that extends to the second question Yeah. We go back.
Alexander David Goldfarb: During COVID-19 when rates went to zero and you guys were aggressively outbid and you know wisely you guys made the decision that you weren't going to chase rates cap rates to zero and you maintain disciplined now where sort of you know it.
Alexander David Goldfarb: Periods of volatility.
Alexander David Goldfarb: The point of the company, though is to be able to acquire yeah sort of a 125 million a year hopefully grow that pipeline that you have something above that especially if the asset base is ground multiples of that as you guys sit there do you still think that that holds true and that you'll be able to grow the pipeline.
Alexander David Goldfarb: Do you, as you guys sit here, still think that, you know, that holds true, and that you'll be able to grow the pipeline back? Or is it just because of what you're looking for, in nature, just means that it's sort of a limited pool of assets to go after?
Alexander David Goldfarb: Back or is it just because of what you're looking for it yeah in nature, just means that it's sort of a limited pool of assets to go after.
David H. Dupuy: Well, I guess I would say a couple things related to that, Alex. First of all, you're right; it is a different environment we find ourselves in today. Capital is very precious, and so we're being quite disciplined. We want to try to maximize, as we always have, but we really are making sure that the acquisitions that we are going after are going to have the quality we're looking for and the yield we're looking for, especially given this higher cost environment.
Speaker Change: Well I guess I would say a couple of things related to that Alex first of all you are right. It is a different environment, we find ourselves in today fresh capital.
David H. Dupuy: Is very precious and so we're being quite disciplined we want to try to maximize as we always have but we really are making sure that the acquisitions that we are.
David H. Dupuy: We're going after are going to have the quality, we're looking for and the yields we're looking for especially given this higher cost environment and so what we have acquired almost $60 million in acquisitions, thus far and so I absolutely think it's achievable achievable that we can get in that 120 to $1 50 range.
David H. Dupuy: And so, look, we've acquired almost $60 million in acquisitions thus far, and so I absolutely think it's achievable that we can get in that $120 to $150 range. But we're balancing that with making sure that the acquisitions we're doing are at the right yields and are at the right quality, given the very pricey nature of capital, both debt and equity capital, that we're seeing in today's environment. So it's a bit of a tight walk. We're walking, but we feel very confident that we can get to that $120 to $150 range. Okay. Thank you, Dave.
David H. Dupuy: But we're balancing that with.
David H. Dupuy: With making sure that the acquisitions, we're doing are at the right yields are at the right quality given the very pricey nature of capital.
David H. Dupuy: And equity capital that we're seeing in today's environment. So it's it's a bit of a tightwad type work.
David H. Dupuy: We're walking, but we feel very confident that we can get to that 120 to $1 50 range.
Speaker Change: Okay. Thank you Dave.
David H. Dupuy: Okay.
David H. Dupuy: Yeah.
Robert Chapman Stevenson: The next question comes from Rob Stevenson with JANI. Please go ahead.
David H. Dupuy: The next question comes from Rob Stevenson with Janney. Please go ahead.
David H. Dupuy: Good morning guys. Dave, sorry if I missed this, but the sale that you alluded to in the press release, is that one of the GenesysCare vacant assets? Okay. And then, can you talk about what the current plan is for the other one? Is that also going to likely be a sale? Are you getting closer to being able to release that? How should we be thinking about that asset?
Robert Chapman Stevenson: Hey, good morning, guys, Dave sorry, if I missed this but this the sale that you allude to the press release is that one of the Genesis care vacant assets.
David H. Dupuy: It is.
David H. Dupuy: Okay, and then can you talk about what the plan. The current plan is for the other one is that is that also going to likely be a sale is are you getting closer to being able to release that how should we be thinking about that asset.
David H. Dupuy: The good news is that it's currently under LOI for release. So we're working on a draft lease right now, and hopefully, that property will get leased here very soon. So it's, and it's at rates that are similar to the rates that we were getting as part of the GenesysCare portfolio. So we're feeling very good about getting that property released. Okay.
Speaker Change: That's actually the good news there is that is currently under LOI for to be released so we're working on a draft fleets right now and hopefully that property will will get leased here very soon so it's.
David H. Dupuy: And it's at rates that are similar to the rates that we were.
David H. Dupuy: Getting as part of the Genesis care.
David H. Dupuy: Portfolio so.
David H. Dupuy: Feel very good about getting that property released.
Robert Chapman Stevenson: Okay. Bill, how meaningful was the drag in the first quarter from vacant assets on the expense line?
David H. Dupuy: Okay.
David H. Dupuy: Bill how meaningful was the drag in the first quarter from the vacant assets on the expense line.
William G. Monroe: The vacant assets, I mean, obviously, we have discussed Genesys Care, and the properties that were rejected were about a million dollars in total annualized rent. And so, you know, certainly that is a drag.
Bill: The vacant assets I mean, obviously, we've discussed Genesis care and the properties that were rejected it was about $1 million of.
Bill: So total annualized rent and so.
William G. Monroe: Again, as Dave mentioned, being able to release the Asheville property is something we're excited about. And then the Fort Myers property, having that under contract to sell so that we can recycle that capital will kind of help, you know, reduce that drag. But it is something that, obviously, we have to work on.
William G. Monroe: Certainly that is a drag.
William G. Monroe: Again, as Dave mentioned being able to release the Asheville property. We're excited about and then the Fort Myers property, having that under contract to sell so that we can recycle that capital.
William G. Monroe: Help reduce that drag, but it is something that obviously, we have to work through it.
Robert Chapman Stevenson: But on the expense side, you're not able to get the triple net on the expenses for insurance, taxes, etc. Was there any material amount of drag from that that goes away if you wind up selling and releasing? We know that the revenues come out of the numbers, but I guess is there half a penny, a penny of expenses that goes away when those assets get resolved? Or is it not meaningful?
William G. Monroe: But on the expense side was there I mean, you're not able to to get the triple net on the expenses for insurance.
Robert Chapman Stevenson: Taxes et cetera was that any material amount of drag from that that goes away. If you wind up selling and re leasing we know that the revenue has come out of the numbers, but I guess is there is there any is there you know half a penny or penny of expenses that goes away when those assets get resolved.
Robert Chapman Stevenson: Or is it not meaningful.
William G. Monroe: I don't expect that it's meaningful; I don't have the number right in front of me, but it certainly helps.
Robert Chapman Stevenson: I don't expect that it's meaningful I don't have the number right in front of me, but it certainly it incrementally helps okay.
William G. Monroe: Okay.
Robert Chapman Stevenson: And then I guess it was great to get the, well, I've got you Bill, the G&A sort of breakdown, but I guess the one question I have is what is the line item from the first quarter that goes away when we look to the second, third, and fourth quarters and what remains in that line item from the various comp stuff?
William G. Monroe: And then I guess it was it was great to get the while I've got you.
Robert Chapman Stevenson: G&A I'm sort of breakdown, but I guess the one question I have is what is the out of that line from the first quarter what goes away when we when we look to the second and third and fourth quarters and what remains in that line item from the from the various comp stuff.
William G. Monroe: There is a lot of, you know, movement from quarter to quarter, you know, however, we would expect there to be some seasonality in the first quarter, but as we look at the changes to the compensation plan, you know, those amortization schedules are over, you know, 36 months for kind of the long-term incentive awards, you know, so those will remain, you know, the cash salary will remain. And so we typically see, you know, some movement in the second quarter versus the first quarter, but, you know, I would not expect it to be a material amount.
Robert Chapman Stevenson: There is a lot of.
Robert Chapman Stevenson: Movement from quarter to quarter, However, we would expect.
William G. Monroe: There is some seasonality in the first quarter, but as we look at the changes to the compensation plan those amortization schedules are over.
William G. Monroe: 36 months for kind of the long term incentive awards.
William G. Monroe: Those will remain the cash salary and will remain so.
William G. Monroe: We typically see some movement in the second quarter versus the first quarter, but I would not expect it to be a material amount.
William G. Monroe: The other thing we would highlight as we look at the kinds of compensation throughout the year is that beginning in the third quarter, we will start accruing for 50% of executive bonuses to be paid in cash as part of the new executive compensation plan approved in January. We waited for that to be enacted to align with the start of a new performance period, which always goes from July 1st to June 30th.
William G. Monroe: The other thing we would highlight as we look at kind of compensation.
William G. Monroe: Throughout the year is beginning in the third quarter.
William G. Monroe: We will we will start accruing for 50% of executive bonuses to be paid in cash as part of the new executive compensation plan approved in January we waited for that to be enacted to align with the start of a new performance period, which always goes from July one to June 30th So similar to the impact of executive cash.
William G. Monroe: So, you know, similar to the impact of executive cash salaries this quarter, we would expect that 50% cash bonus to have an incremental impact on AFFO of about one cent per quarter, right, kind of $260,000, similar to what we announced here in the first quarter.
William G. Monroe: Salaries this quarter.
William G. Monroe: I would expect that 50% cash bonus to have an incremental impact.
William G. Monroe: About one per quarter, right kind of $260000 similar to what we announced here in the first quarter.
Robert Chapman Stevenson: Okay, so we shouldn't be expecting GNA to revert back to sort of the 3.6, 3.7 million a quarter that you had in the second through fourth quarters of last year. It's going to wind up running higher than that because of the way these comp programs work with GAP.
Speaker Change: Okay. So we shouldn't be expecting the G&A to revert back to sort of the the 363 7 million a quarter that you had in the three and the <unk>.
Robert Chapman Stevenson: Second through fourth quarters of last year, it's going to wind up running higher than that because of because of the way. These comp programs work with with gap.
William G. Monroe: That's right. It is, you know, while executive compensation will be lower. Compensation is not the same as gap expense.
Speaker Change: That's right it as well.
William G. Monroe: While while executive compensation will be lower compensation is not the same as GAAP expense and so.
William G. Monroe: There is a significant amount of kind of noncash compensation and amortization that we will continue to have going forward alright. That's helpful. And then Dave one last one for me when you're talking about the the development assets that are closing.
Robert Chapman Stevenson: All right, that's helpful. And then, Dave, one last one for me.
Robert Chapman Stevenson: Closing in 'twenty five 'twenty six 'twenty seven.
Dave: Why is why is it as far out as twenty-seven did some new development get added to the pipeline or was there some sort of significant delay.
Robert Chapman Stevenson: It seems awfully.
Robert Chapman Stevenson: Far out into the future.
Robert Chapman Stevenson: Spec that even a high rise Manhattan development could be completed by 27 at this point.
Dave: So just curious what.
Dave: Taking that one and and I don't know when.
Robert Chapman Stevenson: The 26, one is a back half of 'twenty six but for you know sort of more suburban assets. It seems like an awfully long.
Robert Chapman Stevenson:
Robert Chapman Stevenson: Cycle there.
Robert Chapman Stevenson: When you're talking about the development assets that are closing in 25, 26, 27, why is it as far out as 27? Did some new development get added to the pipeline, or was there some sort of significant delay? Seems awfully far out into the future. I respect that even a high-rise Manhattan development could be completed by 27 at this point.
Dave: Yeah, No. That's a fair question Ross couple.
Speaker Change: Couple of things going on first of all there is a net.
Speaker Change: One new.
Robert Chapman Stevenson: Deals that we added to the group this year was actually.
David H. Dupuy: Yeah, no, that's a fair question, Rob. There are a couple things going on. First of all, there is a net of one new deal that we added to the group this year. It was actually one deal that we were going to do in Florida that we decided not to move forward with. Again, and this gives you a snapshot into the world of these projects, just a significant number of issues with the site and pushback on some... There were some endangered species, both plant and animal, on the site that resulted in a lot of expense and problems.
Robert Chapman Stevenson: One deal that we were going to do in Florida that we decided not to move forward with again. This gives you a snapshot into the into the world of these projects just a significant amount of issues with.
David H. Dupuy: The site.
David H. Dupuy: And pushed back on some there were some.
David H. Dupuy: Dangerous species plant and animal on the site that resulted in a lot of expense and problems of one.
David H. Dupuy: So one of the Florida projects fell out of the group, and we added two new projects, both of those are in Texas, that are now part of the new group. So because we just signed those deals, it typically takes at least a couple of years. The reality, ever since COVID, the projects, getting these projects totally through from beginning to end, there's just been a six to even 12-month delay as it relates to getting these projects constructed.
David H. Dupuy: One of the Florida projects fell out of the group and we added two new projects. Both of those are in Texas that are now part of the new group. So because we just signed those deals it typically takes.
David H. Dupuy: At least a couple of years.
David H. Dupuy: The reality is every since COVID-19 the projects getting these projects totally through from beginning to end Theres just been a six two to even 12 months add as it relates to getting these projects constructed it believe me.
David H. Dupuy: Believe me, both our partners as well as us want to get these online as quickly as possible. That's what you're seeing. The addition of 2027 sort of recognizes that we just have these two new facilities that we literally just signed up, a net one new for that pipeline. Okay, that's helpful. Thank you.
David H. Dupuy: Our partner as well as on one get things online as quickly as possible.
David H. Dupuy: And so thats, what youre seeing Youre seeing the addition of 2027 sort of recognized is that we just have these two new facilities that we literally just signed up.
David H. Dupuy: Net one new for that for that pipeline.
Robert Chapman Stevenson: Okay, that's helpful. Thank you, guys. I appreciate the time this morning.
Speaker Change: Okay. That's helpful. Thank you guys. Appreciate the time this morning.
Speaker Change: Thanks, Rob.
Operator: Again, if you have a question, please press star then 1. The next question comes from Jim Kammert with Evercore. Please go ahead.
Speaker Change: Again, if you have a question. Please press Star then one.
James Hall Kammert: The next question comes from Jim Cameron with Evercore. Please go ahead.
James Hall Kammert: Good morning, folks. It sounds like the whole Genesis situation resolved pretty well here. Can you just provide some qualitative comments regarding the new tenants on the five assets that they were assigned or assumed leases on? And were there any material increments or diminution to leases? I presume they're pretty much assumed as they were, but any color there would be helpful.
James Hall Kammert: Good morning folks sounds like the whole Genesis situation resolved pretty well here can you just provide some qualitative comments regarding sort of the new tenants on the five assets that they are assigned or assumed the leases and where there any material.
James Hall Kammert: Increments or diminution to Alicia I presume, they're pretty much assumed as they were but any color there would be helpful.
David H. Dupuy: Yeah, it certainly was a long bankruptcy process, but we're proud of the outcome and the team's hard work to get all seven of those remaining properties assigned to buyers or assumed by the new GenesisCare. As you look at those new buyers, you know, that were assigned, they include a large oncology provider, a large hospital system, and some local oncology practices.
James Hall Kammert: Yeah.
Speaker Change: Yes, It certainly was a long bankruptcy process.
David H. Dupuy: The outcome and the team's hard work to get all seven of those remaining properties assigned to buyers are assumed by the new Genesis care and you look at those.
David H. Dupuy: Buyers.
David H. Dupuy: <unk> signed in five separate buyers.
David H. Dupuy: Include a large oncology provider, a large hospital system and some local oncology practices and so.
David H. Dupuy: And so, you know, they received adequate assurance as part of the bankruptcy process from GenesisCare on these assignments and, you know, look forward to working with these new tenants and feel good about those new tenants in those facilities. The two remaining properties that GenesysCare assumed after exiting from bankruptcy, you know, again, GenesysCare is in a much different leverage position than they were entering bankruptcy, and so, again, receive adequate assurance around the new GenesysCare and look forward to working with them.
David H. Dupuy: Received adequate assurance as part of the bankruptcy process.
David H. Dupuy: From Justice care on these assignments and.
David H. Dupuy: Look forward to working with these new tenants and feel good about those new tenants in those facilities.
David H. Dupuy: The two remaining properties that Genesis care.
David H. Dupuy: After exiting from bankruptcy again Genesis care is in a much different leverage position than they were entering bankruptcy and so again receive adequate assurance around the new Genesis care and look forward to working with Amazon and Jim We're actively working on a lease extension.
David H. Dupuy: And, Jim, we're actively working on lease extensions with these new, you know, tenants. And what I would say is, you know, look, these leases had uncapped CPIs, and there are going to be a handful of leases that will probably, you know, for additional terms will probably be lower to make a more market because during COVID, those lease rates went up way out of market. But the good news is we've got good operators in those businesses, and we feel like they're in a good place.
David H. Dupuy: With these new.
David H. Dupuy: Our tenants and what I would say is.
David H. Dupuy: Look these are these leases and uncapped CPI <unk> and quarter, there is going to enter a handful of the leases that will.
David H. Dupuy: Probably.
David H. Dupuy: For additional term will probably lower to make them more market because during the 30 COVID-19 those lease rates went up.
David H. Dupuy: Way out of market, but the good news is we've got good operators in those businesses and we feel like that.
David H. Dupuy: We're in a good place right now.
James Hall Kammert: are helpful. And then I think, David, you mentioned that potentially you'd look at some asset sales. Partial funding, obviously, for the accretive new investment. Plain Devil's Advocate, Looking Aware of the Stock. Employee cap rates around 8-9 on the equity.
Jim: That's very helpful. And then I think David you had mentioned that potentially look at some asset sales.
James Hall Kammert: Funding, obviously for the accretive new investments and.
Speaker Change: Just playing Devil's advocate looking at where the stocks I think consensus implied cap rates around eight nine on the equity I mean, presumably you could sell a number of your assets well inside of that are.
David H. Dupuy: Presumably, you could sell a number of your assets well inside of that. Just what's the philosophy there of asset sales versus equity? process, please? Yeah, no. I appreciate the question, Jim.
David H. Dupuy: Just what's the philosophy, there massive sales versus equity just to try to think through your process the way.
David H. Dupuy: Yes.
David: I appreciate the question Jim the way, we think about raising capital in this environment is still.
James Hall Kammert: You know, the way we think about raising capital in this environment is still, you know, number one, fund under the revolver, and two, opportunistically raise funds through the ATM. And then, finally, asset sales that aren't a great fit with the portfolio is something we can look at, too. You know, as Bill already mentioned, we expect to close on the sale of those assets held for sale later in the second or third quarter, which is going to, you know, help us from a capital perspective.
James Hall Kammert: We're one fund under the revolver and we Opportunistically.
James Hall Kammert: Opportunistically raise funds through the ATM.
James Hall Kammert: And then finally, yes asset sales that arent, a great fit with the portfolio as something we can look at too.
James Hall Kammert: As Bill already mentioned, we expect to close on the sale of those assets held for sale.
James Hall Kammert: Later in the second or third quarter.
James Hall Kammert: Which is going to.
James Hall Kammert: Kind of help us from a capital perspective.
James Hall Kammert: And we continue to evaluate other assets that may not be a good long-term fit for the portfolio, and we'll opportunistically evaluate a sale if we think it makes sense. But today, we don't think that that is going to be a primary way in which we can fund growth going forward. We certainly don't want it because, you know, when you sell a property, you're basically trading AFFO to de-lever, and that's not something that we're excited about doing.
James Hall Kammert: And we continue to evaluate other assets that may not be a good long term fit for the portfolio and we will opportunistically evaluate a sale if we think it makes sense.
James Hall Kammert: Today, we don't think that that is going to be a primary way in which we can fund growth going forward.
James Hall Kammert: We certainly don't want it because when you sell a property you're basically trading <unk> to Delever and that's not something that we're excited about doing but but look it's always an option and I agree if we wanted to be.
James Hall Kammert: But look, it's always an option. And I agree, if we wanted to raise capital by using other means, we certainly have the opportunity to do that at attractive cap rates. So we'll keep an eye on it. And, you know, in the second half of the year, we may evaluate doing more. Thanks for your time.
James Hall Kammert: I wanted to raise capital.
James Hall Kammert: Other needs, we certainly have the opportunity to do that at attractive cap rates. So we'll keep an eye on it.
James Hall Kammert: And you know in the second half of the year, we made we made evaluate do more.
Speaker Change: Terrific. Thanks for your time, thank you.
Speaker Change: Thanks, Jim.
Alex Fagan: The next question comes from Alex Fagan with Barrett. Please go ahead.
James Hall Kammert: The next question comes from Alex Fagan with Baird. Please go ahead.
Alex Fagan: Hey, good morning, and thank you for taking my question. The first one for me is, what are your thoughts about raising debt to potentially clear the line of credit and if there's any timing that you can talk about in raising new debt?
Alex Fagan: Hey, good morning, and thank you for taking my question.
Alex Fagan: First one for me is what's kind of the thoughts about raising debt to potentially clear the line of credit and if there's any timing that you can talk about.
Alex Fagan: And raising new debt.
William G. Monroe: Yeah, we are focused on kind of a modest financial policy and keeping our debt to total capitalization at modest levels. It was at 38% on March 31st.
Alex Fagan: Yes, we are.
Speaker Change: We are focused on kind of a modest financial policy and keeping our debt to total capitalization at modest levels. It was at 38% at March 31.
William G. Monroe: Right now we have $61 billion available on our revolver kind of adds up to $3 31.
William G. Monroe: You know, right now, we have $61 billion available on our revolver, kind of as of 3.31. You know, the next maturity is not until March of 2026. So we have, you know, a nice runway until there are any near-term maturities. What we have historically done is look to turn out those revolver borrowings into a new term line, which then lets us kind of reset the revolver with less undrawn. I expect that that's what we will do again this time.
William G. Monroe: The next maturity is not until March of 2026, So we have.
William G. Monroe: A nice runway until there are any near term maturities. What we've historically done is look to term out the revolver borrowings into a new term loan, which then that's kind of reset the revolver with less undrawn I expect that that's what we will do again this time were always evaluating.
William G. Monroe: Markets, but.
William G. Monroe: We're always evaluating debt markets, but it's worked well for us in the past. And look, I think as we look into later this year or early next year, as we get closer to being about a year out from those March 2026 maturities, you know, we think that, you know, maybe we'll be in a lower interest rate environment, but, you know, that would kind of be the natural time that, you know, our revolver would look to be turned out.
William G. Monroe: It's worked well for us in the past and look I think as we look into later this year or early next year as we get closer.
William G. Monroe: To be in about a year out from those March 2026 maturities.
William G. Monroe: We think that it.
William G. Monroe: Maybe we'll be in a lower interest rate environment, but that would kind of be the natural time that.
William G. Monroe: Our revolver.
William G. Monroe: Look to be termed out.
Alex Fagan: That's helpful, thank you. Second one for me, and sorry if I missed this, but what are the expectations for cash GNA and total GNA going forward throughout the year?
Speaker Change: That's helpful. Thank you.
Speaker Change: Second one for me and sorry, if I missed this but what are the expectations for the cash G&A and total G&A going forward throughout the year.
William G. Monroe: Yeah, we, I had mentioned earlier, as you look at our first quarter G&A, obviously from a cash and non-cash mix, it's similar to what it's been in the past, and we kind of outlined that in our supplemental. The only change we would expect as we move throughout the year is that, again, beginning in the third quarter, the annual incentive rewards will become under the new compensation plan design as well, and so we would begin accruing for 50% of those executive bonuses to be paid in cash, which would be a similar effect to the 50% of cash salaries in the first quarter. You know, it was about a penny towards AFFO or $260,000.
Alex Fagan: Yes.
Alex Fagan: Got it, that's helpful. That's it for me, thank you.
Speaker Change: I had mentioned earlier and as you look at our first quarter G&A, obviously from a for me.
Alex Fagan: Cash and noncash mix, it's similar to what it's been in the past and we kind of outlined that in our supplemental.
Alex Fagan: The only.
Alex Fagan: Chain, we would expect as we move throughout the year is again beginning in the third quarter.
Alex Fagan: The annual incentive rewards will become under the new compensation plan design as well and so we would begin accruing for 50% of those executive bonuses to be paid in cash which would be a similar effect to the 50% of cash salaries in the first quarter. It was about a penny towards <unk>.
Alex Fagan: Over $260000.
Alex Fagan: Got it that's helpful. That's it for me thank you.
Speaker Change: Thanks Alan.
Operator: This concludes our question and answer session. I would like to turn the conference back over to David Dupuy for any closing remarks.
Alex Fagan: This concludes our question and answer session I would like to turn the conference back over to David <unk> for any closing remarks.
David H. Dupuy: Dick, thank you very much and thank you everybody for joining us today. I look forward to seeing everybody at NARIF coming up in June.
David H. Dupuy: Okay. Thank you very much and thank you everybody for joining us today look forward to seeing everybody at NAREIT coming up in June.
David H. Dupuy: Right.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: