Welcome to the Community Healthcare Trust 2024 First Quarter Earnings Release Conference Call. 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 open for a question-and-answer session. The company's earnings release was distributed last evening and has also been posted on its website.

Great. Thank you, Nick, 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 8-K, along with our quarterly report on Form 10-Q. 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. Our occupancy increased from 91.1% to 92.3% during the quarter. A key component for the increased occupancy was the long-term lease signed on one of our buildings to deliver inpatient and outpatient behavioral health care services. This new lease will require 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 with long-term tenants in place when the renovations or redevelopment is completed. Our weighted average remaining lease 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 31, we acquired a new patient rehabilitation facility for a purchase price of $23.5 million. We entered into a new lease with a lease expiration in 2039 and 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%. We expect to close on one of these properties in the fourth quarter of 2024, with the remaining six properties closing throughout 2025, 2026 and into 2027. We continue to have new properties under review and have turn sheets out on 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, will provide sufficient capital for continued growth at attractive yields throughout 2024. Also during the first quarter, our Board approved and adopted certain changes to executive compensation. These changes were a 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 consultant. I'll let Bill describe our G&A expense in more detail in his section. So to wrap up, we declared our dividend for the first quarter and raised it to $0.46 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. 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 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 compared 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 of acquisitions during the last week of the first quarter. 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 higher repairs and maintenance. 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. Only $260,000 of the increase was cash compensation, with the remaining $400,000 being noncash stock-based compensation. The remainder of the increases quarter-over-quarter were 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 payments. Finally, from the expense perspective, interest expense increased by $43,000 quarter-over-quarter to $5.1 million. Turning 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 2023. 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. 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 $0.61 to $0.59 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.

The first question comes from Alexander Goldfarb with Piper Sandler.

A few questions. First, Dave, 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 in the fourth quarter?

Alex, thanks for the question. As it relates to the acquisition pipeline, we have seen fewer opportunities in the first quarter, which has impacted near-term pipeline, as you flagged. We have a core group for brokers we work with, and they saw the dip in activity, too. Our guess and theirs was that sellers were on the sidelines in the hopes that we would start to see some rate cuts. Obviously, expectations for cuts have been pushed back to later in the year, if at all. 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.

Okay. This relates to the second question. Reflecting on the period during COVID when rates reached 0 and you were outbid but chose not to chase those low rates, maintaining discipline was a wise decision. Now we find ourselves in another volatile period. The company's goal is to acquire around $125 million annually and potentially increase that pipeline, especially if the asset base expands significantly. As you consider this, do you still believe that will be achievable and that you can rebuild the pipeline? Or do the characteristics of what you are seeking mean that there is only a limited selection of assets to pursue?

Well, I guess I would say a couple of things related to that, Alex. First of all, you're right, it is a different environment we find ourselves in today. Fresh 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. And so look, we have acquired almost $60 million in acquisitions thus far. And so I absolutely think it's achievable that we can get in that $120 million to $150 million range, but we're balancing that with making sure that the acquisitions we're doing are at the right yields and 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 tightrope we're walking, but we feel very confident that we can get to that $120 million to $150 million range.

The next question comes from Rob Stevenson with Janney.

Dave, sorry if I missed this, but the sale that you allude to in the press release, is that one of the Genesis Care vacant assets?

It is.

Okay. Can you discuss the current plan for the other asset? Is it likely to be sold, or are you getting closer to a release? How should we think about that asset?

The good news is that it's currently under a letter of intent to be re-leased. We are working on a draft lease right now, and we hope that property will be leased very soon. The rates are similar to what we were receiving from the Genesis Care portfolio, so we are optimistic about getting that property re-leased.

Okay. Bill, how meaningful was the drag in the first quarter from the vacant assets on the expense line?

The vacant assets? I mean, obviously, we have discussed Genesis Care and the properties that were rejected is about $1 million of total annualized rent. And so certainly, that is a drag. Again, as Dave mentioned, being able to re-lease 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 will kind of help reduce that drag, but it is something that, obviously, we have to work through.

On the expense side, are you unable to achieve the triple net on expenses like insurance and taxes? Is there a significant amount that could be alleviated if the assets were sold and then re-leased? We understand the revenue has already been factored out, but is there a negligible amount of expenses that would disappear once those assets are resolved, or is it not substantial?

I don't expect that it's significant. I don't have the exact figure at hand, but it definitely helps incrementally.

Okay. It was great to get the breakdown from you, Bill. One question I have is what changes we can expect in that line item from the first quarter as we look to the second, third, and fourth quarters. What will remain from the various compensation expenses?

There is a lot of movement from quarter to quarter. However, we would expect there is some seasonality in the first quarter. But as we look at the changes to the compensation plan, those amortization schedules are over 36 months for kind of the long-term incentive awards. So those will remain, the cash salary will remain. So we typically see some movement in the second quarter versus the first quarter, but I would not expect it to be a material amount. The other thing we would highlight as we look at kind of compensation throughout the year is 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 the new performance period, which always goes from July 1 to June 30. So 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 $0.01 per quarter, right, kind of $260,000 similar to what we announced here in the first quarter.

Okay. So we shouldn't be expecting the G&A to revert back to sort of the $3.6 million, $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 GAAP.

That's correct. While executive compensation will be lower, it is important to note that compensation is not the same as GAAP expense. There will still be a considerable amount of noncash compensation and amortization that we will continue to incur moving forward.

That's helpful. Dave, I have one final question. When you mention the development projects expected to close in '25, '26, and '27, why is '27 the furthest out? Was there an addition to the pipeline, or did something significant cause a delay? It seems quite distant. I understand that even a high-rise development in Manhattan could wrap up by '27, but I'm interested in why it seems to be taking so long, especially for more suburban projects.

Yes, that's a fair question, Rob. There are a couple of things to note. First, we added one new deal to the group this year. We opted not to proceed with a project in Florida due to various issues at the site, including the presence of endangered plant and animal species, which led to significant expenses and complications. As a result, one Florida project was removed from the group, while we added two new projects in Texas. These new deals were just signed, and it typically takes at least a couple of years to bring them to completion. Since COVID, there has been a delay of 6 to 12 months in getting projects fully constructed. Both our partner and we are eager to get these online as quickly as possible. The inclusion of 2027 in our plan reflects the addition of these two new facilities that we recently signed, resulting in a net addition of one to our pipeline.

The next question comes from Jim Kammert with Evercore.

It 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 were signed or assumed leases? 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.

Yes, it was indeed a lengthy bankruptcy process, but we are pleased with the outcome and the team's effort in ensuring that all seven of the remaining properties were either assigned to buyers or taken on by the new Genesis Care. The new buyers consist of five different entities, including a major oncology provider, a significant hospital system, and some local oncology practices. We received sufficient assurance during the bankruptcy process from Genesis Care regarding these assignments and are eager to collaborate with these new tenants, feeling positive about their involvement in those facilities. As for the two remaining properties taken on by Genesis Care after exiting bankruptcy, the company now holds a considerably different leverage position than it did before. We again received adequate assurance regarding the new Genesis Care and anticipate working with them as well.

And Jim, we're actively working on lease extensions with these new tenants. And what I would say is, look, these leases had uncapped CPIs and there are going to be a handful of leases that will probably be adjusted for additional terms; we will probably lower some to make them more marketable because during COVID, those lease rates went significantly above market. But the good news is we've got good operators in those businesses, and we feel like that they're in a good place right now.

That's very helpful. And then I think, David, you had mentioned that potentially you look at some asset sales and partial funding, obviously, for the accretive new investments. And just playing devil's advocate, looking at where their stock is, I think consensus implied cap rate is around 8, 9 on the equity. I presume you could sell a number of your assets well inside of that. Just what's the philosophy there, asset sales versus equity just to try to think through your process, please.

Yes, I appreciate the question, Jim. Our approach to raising capital in the current environment is primarily focused on funding under the revolver and raising additional funds, followed by opportunistic capital raises through the ATM. We are also considering asset sales that do not align well with our portfolio. As Bill mentioned, we expect to finalize the sale of certain assets during the second or third quarter, which will assist us with our capital needs. We are continuously assessing other assets that may not be suitable for our long-term strategy, and we will consider selling them if it makes financial sense. However, we do not believe this will be a primary method for funding our growth moving forward. We are cautious about selling properties since it essentially converts AFFO to de-lever, which is not our preferred strategy. Nonetheless, it's always an option, and if we need to raise capital through other means, we can do so at favorable cap rates. We'll monitor the situation and may consider additional actions in the second half of the year.

The next question comes from Alex Fagan with Baird.

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 in raising new debt?

Yes. 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. Right now, we have $61 million available on our revolver as of March 31. The next maturity is not until March of 2026. So we have a nice runway until our near-term maturities. What we have historically done is look to term out those revolver borrowings into a new term loan, which then lets us kind of reset the revolver with less undrawn. I expect that that's what we will do again this time. We're always evaluating that market, 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, we think that maybe we'll be in a lower interest rate environment, but that would kind of be the natural time that our revolver would look to be termed out.

Got it. That's helpful. 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?

Yes. As I mentioned earlier, our first quarter general and administrative expenses are consistent with previous periods in terms of cash and noncash components, which we detailed in our supplemental information. The only anticipated change as we progress through the year is that starting in the third quarter, the annual incentive awards will be included under the new compensation plan design. This means we will start to accrue for 50% of those executive bonuses to be paid in cash, similar to how we accounted for 50% of cash salaries in the first quarter, which amounted to approximately $0.01 towards AFFO or $260,000.

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

Okay. Thank you very much, and thank you, everybody, for joining us today. I look forward to seeing everybody at NAREIT coming up in June.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.