Q1 2025 Community Healthcare Trust Inc Earnings Call
Welcome to the community Healthcare Trust 2025 first quarter earnings release conference call on the call today. The company will discuss its 2025 first quarter financial results and will also discuss progress made in various aspects of its business following the <unk>.
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. R E 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 April 30th 2025 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.
Should review the company's disclosures regarding forward looking statements in its earnings release as well as its risk factors and M D and E and F 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.
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 property of the company. This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission prior written permission.
Speaker Change: Now I would like to turn the call over to Dave Dupuy CEO of community Healthcare Trust. Please go ahead.
Speaker Change: Great. Thank you Allen and good morning, Thank you for joining us today for our 2025 first quarter conference call.
Speaker Change: On the call with me today is Bill Monroe, Our Chief Financial Officer, Leigh Ann Stach, Our Chief Accounting Officer, and Tim Mayer, our EVP of asset management.
Speaker Change: Our earnings announcement and supplemental data report were released last night and furnished on form 8-K.
Speaker Change: Along with our quarterly report on Form 10-Q.
Speaker Change: In addition, an updated investor presentation was posted to our website last night.
Speaker Change: We had a busy first quarter from an operations perspective, and continue to be selective from an acquisition standpoint.
Speaker Change: Both our occupancy and our weighted average remaining lease term remained flat quarter over quarter at 99% and six seven years, respectively. We continue to see good leasing activity in the portfolio and our asset management team is doing a great job, serving our tenants while continuing to focus on property.
Speaker Change: Operating costs.
Speaker Change: We have four properties or significant portions of them that are undergoing redevelopment are significant renovations with long term tenants in place when the renovation or redevelopment is complete.
Speaker Change: One of these projects commenced its lease during the first quarter.
Due to healthcare licensure requirements as well as rent abatement built into the lease we expect this property to contribute NOI during the fourth quarter of 2025.
Speaker Change: During the first quarter, we acquired a behavioral residential treatment facility consisting of five buildings with a total of approximately 38000 square feet for a purchase price of approximately $9 $7 million and anticipated tenant improvements of $1 4 million.
Speaker Change: We entered into a new lease with a lease expiration of 2040 and anticipated annual return of nine 5%.
Speaker Change: This represents a new client relationship for C. H C T and we're evaluating other projects to work on with this operator.
Speaker Change: 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.
Speaker Change: The expected return on these investments should range from nine 1% to 975%.
Speaker Change: We expect to close on one of these properties in the third quarter with the remaining six properties closing throughout 2025, 26 and 27.
Speaker Change: In April we sold one building in Ohio, with a net book value of approximately $400000.
Speaker Change: And received net proceeds of approximately 600000, resulting in a gain on the property sale.
Speaker Change: As for an update on our geriatric psychiatric hospital, operator, which is a tenant in six of our properties representing a total of approximately 79000 square feet and annual base rent of $3 $2 million, we continue to see incremental operating improvements and received rent and intra.
Speaker Change: Missed payments of 165000 in the first quarter.
Speaker Change: In addition, the operator is evaluating strategic alternatives, including the potential sale of all or selected hospitals within its portfolio.
Speaker Change: We remain in active dialogue with the operator and its consultants and we will continue evaluating all options available under our leases and notes.
Speaker Change: Due to the company's low share price, we did not issue any shares under our ATM last quarter. However, we continue to evaluate capital recycling opportunities and we would anticipate having sufficient capital from selected asset sales coupled with our increased revolver capacity to fund near term acquisitions going.
Speaker Change: Forward, we will evaluate the best uses of our capital all while maintaining modest leverage levels.
Speaker Change: To wrap up we declared our dividend for the first quarter and raised it to <unk> 47 per common share. This equates to an annualized dividend of $1 88 per share.
Speaker Change: We are proud to have raised our dividend every quarter since our IPO.
Speaker Change: That takes care of the items I wanted to cover so I will hand things off to bill to discuss the numbers.
Bill Monroe: Thank you Dave I will now provide more details on our first quarter financial performance.
Speaker Change: I am pleased to report that total revenue grew from $29 $3 million in the first quarter of 2000 $24 million to $31 million in the first quarter of 2025, representing two 5% annual growth over the same period last year.
Speaker Change: When compared to our total revenue in the fourth quarter of 2024, which was also $29 $3 million. We achieved two 7% total revenue growth quarter over quarter as a result of incremental revenue from fourth quarter acquisitions made late in the quarter last year seasonal increases in op.
Speaker Change: Operating expense reimbursements, and the $165000 of rent and interest payments received in the first quarter from our geriatric psychiatric hospital, operator that Dave mentioned earlier.
Speaker Change: From an expense perspective property operating expenses increased by approximately $600000 quarter over quarter to $6 1 million in the first quarter of 2025, primarily as a result of higher seasonal utility and snowfall expenses at several properties in January and February in particular.
Speaker Change: General and administrative expenses increased by approximately $300000 quarter over quarter.
Speaker Change: $5 $1 million in the first quarter of 2025.
Speaker Change: Primarily as a result of higher noncash amortization of deferred compensation and our typical first quarter seasonal adjustments due to the timing of annual employee salary increases employer, HSA and 401, K contributions and employer tax payments.
Speaker Change: Interest expense remained flat quarter over quarter at $6 $4 million in the first quarter of 2025 due to the lower acquisition volumes over the last quarter as well as two less days in the first quarter compared to the fourth quarter.
Speaker Change: Moving to funds from operations <unk> decreased slightly quarter over quarter by $77000, but remained at $12 $7 million in the first quarter of 2025.
Speaker Change: On a per diluted common share basis.
Speaker Change: <unk> was 47 cents in the first quarter of 2025 down slightly from 48 in the fourth quarter of 2024.
Speaker Change: Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $14 $7 million in the first quarter of 2025, which was approximately $100000 higher than the fourth quarter of 2024, but on a diluted common share basis remain.
Speaker Change: And the same quarter over quarter at 55 cents.
Speaker Change: That concludes our prepared remarks, Alan we are now ready to begin the question and answer session.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at anytime. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our.
Speaker Change: Roster.
Connor Mitchell: Our first question comes from Connor Mitchell of Piper Sandler. Please go ahead.
Connor Mitchell: Hey, good morning, Thanks for taking my question.
Speaker Change: I guess first I appreciate some of the information Dave you provided on the geriatric. Thank.
Speaker Change: Thank you Patrick Hospital, operator, I'm, just wondering if there's any more color you could also provide maybe on timing of when they might consider.
Speaker Change: The sales that you discussed or maybe it gets to a point, where you guys decide that.
Speaker Change: It's time to fully replace them and released the space just any more color on kind of the ongoing process on their side your considerations with the.
Speaker Change: With the.
Speaker Change: But the process and then maybe the timing of any of those options as well.
Speaker Change: Sure. Thanks for the question.
Speaker Change: So as we've talked about they are in an active sale process.
Speaker Change: And they have potential buyers doing work to evaluate the purchase of all our selected hospitals and of course, we do have levers that we can pull from a lease perspective that could make that acquisition more attractive to potential buyers.
Speaker Change: It's difficult in a sales process to put a precise time related to ultimately where things shift out but.
Speaker Change: From our perspective.
Speaker Change: We were looking we feel like that we should have some additional.
Speaker Change: Certainty toward the end of the second quarter, beginning of the third quarter to better understand kind of where the status is of interested buyers in terms and I think that'll give us a better sense of what our intended next steps will be.
Speaker Change: Okay, Alright, I appreciate the additional information and then maybe turning towards the acquisition outlook.
Speaker Change: Capital allocation it looks like you still have a pretty healthy pipeline.
Speaker Change: But just a little less activity in the first quarter and maybe not expecting a ton.
Speaker Change: In the near term.
Speaker Change: Is this kind of a read through what we're expected to see for the remainder of the year really into.
Speaker Change: At the end of the year, even into the beginning of next year and less.
Speaker Change: The conditions better.
Speaker Change: Significantly.
Speaker Change: Maybe the cost of capital you're your stock price comes back and you got to utilize the ATM again or is this kind of just how you're looking at it for the near term with the current conditions.
Speaker Change: Yeah, no listen so just to provide some additional color on what is in the pipeline and where we think things are going to end to.
Speaker Change: Two inpatient rehab facilities.
Speaker Change: We are expecting to close one of those.
Speaker Change: In the third quarter, probably early third quarter.
Speaker Change: And we're still looking to close another one of those in the fourth quarter.
Conor Mitchell: We've got a $4 million property under term sheet that debt, if we get to terms through the purchase and sale agreement could be a third quarter acquisition I will say that we're seeing some attractive property acquisitions, and we're evaluating those but Conor as you point out we're not excited raising equity.
Conor Mitchell: These prices. So you should expect us to look at other methods, we've mentioned before selected asset sales.
Conor Mitchell: To help us because from a leverage perspective, we do not want to put meaningful additional leverage on the business and so were you should expect us to use selected asset sales as well as some draws on the revolver to fund acquisitions, but yes, we are absolutely going to be opportunistic.
Conor Mitchell: As our share price to the extent our share price increases and it gets to a better.
Conor Mitchell: Level to raise capital, we would look to the ATM, but certainly at these levels. We're not interested in doing that so we would we would look at selected capital recycling as well as draws on the revolver, but not doing either of those in a way that would meaningfully increase leverage.
Conor Mitchell: Right, Okay, and then maybe just kind of going along the same line.
Conor Mitchell: You know your your focus on the <unk>.
Conor Mitchell: Stock price I guess.
Conor Mitchell: How do you consider maybe the opportunity to even buy back stock versus looking at the potential to use capital and allocate capital forward for growth and acquire new properties.
Conor Mitchell: Well listen I think.
Conor Mitchell: That's certainly something that we have talked about at the board level and we'll continue to look at and discuss at the board level. We do have a pipeline of deals that we are focused on and that we will make sure that we execute on those deals by youth.
Conor Mitchell: Using some.
Conor Mitchell: Some capital recycling, what we don't want to do is we don't want to put leverage on our balance sheet to do a share purchase so.
Conor Mitchell: So look we'll be opportunistic and of course, we and the board will look at all options and depending on the timing of the selected capital recycling and all those opportunities look there may be an opportunity for us to do a share buyback, but given our pipeline I wouldn't expect that that would be.
Conor Mitchell: Our first choice.
Speaker Change: Okay. That's all for me. Thank you very much for all the color.
Speaker Change: Thanks Connor.
Rob Stevenson: The next question comes from Rob Stevenson of Janney.
Speaker Change: Please go ahead.
Rob Stevenson: Just for clarification is the $3 2 million of contractual payments with your trouble psychiatric hospital, operator, just the rent or is that inclusive of the notes as well.
Speaker Change: That's just the rent.
Rob Stevenson: How much more is the payment on the notes.
Speaker Change: The notes would.
Speaker Change: Comprise.
Speaker Change: Another.
Speaker Change: $2 $5 million kind of approximately is kind of the run rate that they were paying.
Speaker Change: Before middle of last year.
Speaker Change: Okay. So it's in total it's.
Speaker Change: Just under $6 million annual payment is what they contractually.
Speaker Change: Correct.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: What's the.
Speaker Change: The $1.4 million of Ti is expected to be completed.
Speaker Change: And the rent on the Georgia asset starting when is that supposed to.
Speaker Change: What's the timeframe for that.
Speaker Change: We would expect that to.
Speaker Change: Complete and the lease to commence early in the third quarter.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: The $9 7 million, Georgia acquisition listed in the release.
Speaker Change: <unk> $9 5 million on page 13 of the supplemental what's the difference there and are those numbers inclusive of this $1 4 million of tea is or is this really essentially like a $11 million asset.
Speaker Change: It's essentially the the the latter kind of an $11 million asset by the time you include the Ti, which again is being done on an expedited basis.
Speaker Change: Okay, Yes.
Speaker Change: Purchase price versus cash cash consideration.
Speaker Change: Okay. That's helpful and then last one for me.
Speaker Change: Dave Your predecessor wasn't very fond of preferred stock, but given the question. The previous question about capital et cetera. How are you guys feeling today and the board feeling about potentially doing a preferred stock depending on where a deal would wind up pricing to give you a little bit of cash.
Speaker Change: Capital too.
Speaker Change: For growth here.
Rob Stevenson: You know Rob what I would say is we're going to we're looking at all of the capital.
Rob Stevenson: <unk> that we have and we will evaluate those I do agree that our bias in general is to keep the capital structure.
Rob Stevenson: Simple and I think that search has always served us well and look I think there are some issues with the preferred stock issuance.
Rob Stevenson: It has its pros and cons, but.
Rob Stevenson: We will evaluate.
Rob Stevenson: Various capital alternatives, but yes.
Rob Stevenson: Yes.
Rob Stevenson: I would say that it's not.
Rob Stevenson: Consideration for us.
Rob Stevenson: Okay. Thanks, guys. Appreciate the time this morning.
Rob Stevenson: Thanks, Rob.
Speaker Change: The next question comes from Barry Oxford of Cali.
Rob Stevenson: Please go ahead.
Speaker Change: Great. Thanks, guys.
Speaker Change: Just pulling two questions, but first one is just pulling back on the geriatric tenet.
Speaker Change: Let's say this becomes more and more of an elongated process how much patience do you have until you say look you're in default of your lease and we're gonna take action.
Speaker Change: Well be.
Gary: Gary the way I would.
Gary: The way I would characterize it as when I was.
Gary: Talking earlier in the call.
Gary: We want to see kind of where the buyers come in and we think we'll have better visibility in terms of.
Gary: Those potential opportunities by the end of the second quarter early third quarter and once we have a sense of of buyer interest in.
Gary: Specifics associated with that.
Gary: I think we will be making some decisions.
Gary: If there isn't sufficient buyer interest and we're going to look at all the alternatives under our leases and notes and so.
Gary: We've got patients, but it's not unlimited patience and you should expect that we will be looking at.
Gary: Trying to get this resolved sooner rather than later.
Gary: Great great.
Gary: And my next question when you look at some of your other smaller tenants in the portfolio.
Gary: Are you concerned about any tenants.
Gary: Did any problems kind of a rise in in the first quarter with some of the smaller tenants or or or is everybody kind of continuing to pay and continuing to have strong.
Gary: Cash flows and then how would you from the macro side.
Gary: Describe the environment as far as your tenants' ability to make.
Gary: Make money and pay rents going forward.
Sue: Yes Sue.
Speaker Change: We are continuing to monitor our tenants and we have an active watch list, which we've talked about it and we will have tenants come on that watch list and will add tenants then come off of that watch list, but there hasnt been anything you've seen some relative stability in the portfolio and so there hasnt been anything that we've seen.
Speaker Change: This quarter that that would indicate otherwise and so.
Speaker Change: Seeing.
Speaker Change: Seeing some stability.
Speaker Change: Across the board, whether it's small tenants or larger tenants and so that's obviously a positive.
Speaker Change: And I would say from a macro perspective, obviously, we're hearing a lot of noise on on tariffs and impacts to the economy I think.
Speaker Change: For once.
Speaker Change: Not.
Speaker Change: Health care providers arent necessarily in the crosshairs of what we're seeing.
Speaker Change: From a government perspective, and so our tenants seem to be doing well and I don't have any.
Speaker Change: I don't have anything that I can identify short term that would have a negative impact overall from a macro perspective.
Speaker Change: On our tenants or their ability to pay rent.
Speaker Change: Okay. Thanks for the color guys.
Speaker Change: Thank you Barry.
Speaker Change: The next question comes from Jim can merit of Evercore.
Speaker Change: Please go ahead.
Speaker Change: Hi, good morning, Thank you.
Speaker Change: Could you remind me I apologize on the $169 million pipeline under what conditions or circumstance could <unk> not have to proceed and not have to acquire I'm just trying to understand.
Speaker Change: Are they absolutely obligations.
Speaker Change: Obligations or depending on how the company evolves what you could do.
Speaker Change: They are their obligations for us to acquire now we certainly have a relationship with the developer.
Speaker Change: There have been times, if it fits a development project it.
Speaker Change: Either he or us or both of US have decided is not the right opportunity. Then we would move on but I think you should you should expect that this $170 million pipeline, which again, Jim is we're going to we're going to do over the next three years.
Speaker Change: I think everybody should consider that pipeline has a solid pipeline and one that we expect to close on.
Speaker Change: Fair enough and then as regards the.
Speaker Change: Sure psychiatric tenant.
Speaker Change: It's about $22 million, where the original loan.
Speaker Change: Advance to them in the event that they were to sell their assets or sell the business, where do your notes kind of stand.
Speaker Change: The other creditors because I know you took you wrote off about half of them are reserved for half I'm just trying to think about what happens in that circumstance, where you stand. Please.
Speaker Change: Yes so.
Speaker Change: Really the only creditors.
Speaker Change: Certainly you've got trade creditors that you have to be cognizant of and that's part of the overall working capital of the business but.
Speaker Change: There is a $4 million.
Alex receivable line of credit that are commercial bank currently has and they have a first priority security interest on the E. R.
Speaker Change: We have a second.
Speaker Change: Lean on the ADR as well as a first lien on all the other assets of the borrower so.
Speaker Change: Those borrowers are co borrowers on our notes as well as.
Speaker Change: We have all the stock of those.
Speaker Change: Subsidiaries pledge to our notes.
Speaker Change: Okay.
Speaker Change: I appreciate the detail. Thank you.
Speaker Change: All for me.
Speaker Change: Thanks, Jim.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Dupuis for any closing remarks.
Mr. Dupuis: Well I appreciate everyone joining us for the call and look forward to hopefully seeing many of you at NAREIT coming up in June. Thank you very much.
Mr. Dupuis: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Mr. Dupuis: [music].