Welcome to the Community Healthcare Trust 2024 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2024 third quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be opened for a question-and-answer session. The company's earnings release was distributed last evening and has also been posted on its website, www.chct.reit. The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today, October 30, 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 in its earnings release, as well as its risk factors and MD&A and its SEC filings. The company undertakes no obligation to update forward-looking statements, whether as the result of new information, future developments, or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. 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.

Great. Thanks, M.J. And good morning. Thank you for joining us today for our 2024 Third 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 10-Q. In addition, an updated investor presentation was posted to our website last night. Numerous people and businesses were severely impacted and even devastated by hurricanes Helene and Milton. Many in Florida, Western North Carolina, and East Tennessee have experienced unprecedented flooding and damage that will require months for full recovery. Although some of our tenants encountered power outages, downed trees, and other inconveniences, we were fortunate that our properties did not sustain damage from the storms. As was previously announced, we successfully increased our revolving credit facility from $150 million to $400 million, extended its maturity date five years, all while achieving lower pricing. Bill will go into more detail in his remarks, but we were very pleased with the support of our bank group, which gives credence to the overall strength and stability of CHCT. Also, I wanted to provide an update on the geriatric psychiatric hospital operator, who is a tenant in six of our properties, representing a total of approximately 79,000 square feet and base rent of $3.2 million. Although we are not yet receiving rent and interest from the tenant, the operator's consulting team has stabilized hospital staffing, reduced costs, and improved processes and controls. As a result, we are seeing improved census in October. Although we do not yet know the timing or amounts the tenant may be able to pay, we continue to pursue multiple parallel paths to begin receiving rent and interest payments as soon as possible. We remain in active dialogue with the operator and its consultants and will continue to evaluate all options available to us under our leases and notes. As for the other components of the business, our occupancy decreased from 92.6% to 91.3% during the quarter, related to a couple of lease terminations and expirations, but we continue to see good leasing activity in the portfolio. In addition, we have five 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. We expect three of these projects to commence their leases during the first quarter of 2025. Our weighted average remaining lease term decreased slightly from 7.1 years to 6.8 years. And during the quarter, we acquired one physician clinic for a purchase price of approximately $6.2 million and an expected return of approximately 9.3%. The property is 100% leased with a lease expiration in 2027. We have four properties under definitive purchase agreements for an aggregate expected purchase price of $8.8 million. The company's expected returns on these investments range from 9.29% to 9.5%. We expect to close on these properties in the fourth quarter of 2024. Also, the company has 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 anticipate closing on these properties throughout 2025, 2026, and 2027. Despite having access to our ATM last quarter, we did not sell equity at our currently depressed share price. Given the low share price, we are actively evaluating 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 forward, we will evaluate the best uses of our capital, including, if authorized, potential share repurchases, all while maintaining modest leverage levels. To wrap up, we declared our dividend for the third quarter and raised it to $46.5 cents per common share. This equates to an annualized dividend of $1.86 per share, and we are proud to have raised our dividend every quarter since our IPO. That takes care of the items I wanted to cover, so I will hand things off to Bill to discuss the numbers.

Thank you. Before I turn to our third quarter financials, I will expand on the successful closing of our credit facility refinancing two weeks ago that Dave highlighted during his remarks. The purpose of the transaction was a routine extension of upcoming debt maturities, but with strong support from 11 existing banks and one new bank, we were able to upsize our revolver, while also reducing its pricing. The result is a new five-year $400 million revolver with current drawn pricing set at SOFR plus 170 basis points, or approximately 6.5% today. While our new upsize revolver provides us with approximately $200 million of available borrowing capacity currently, we believe in the importance of continuing our modest leverage profile. And so we do not plan to use this borrowing capacity to sustain increased leverage, but it does give us enhanced flexibility to execute upon our capital allocation plans as it relates to the timing of closing acquisitions, completing dispositions for capital recycling purposes, and issuing equity depending on share price. I will now provide more details on our third quarter financial performance. Total revenue grew from $28.7 million in the third quarter of 2023 to $29.6 million in the third quarter of 2024, representing 3.1% annual growth over the same period last year. When compared to our $27.5 million of total revenue in the second quarter of 2024, it is important to remember that we had approximately $1.7 million of out of period adjustments in the second quarter of 2024 related to the reversal of rent and interest from the geriatric psychiatric hospital tenant. Normalizing for those out of period adjustments, total revenue growth quarter over quarter was approximately 1%. From an expense perspective, property operating expenses increased by approximately $414,000 quarter-over-quarter to $6 million, primarily as a result of seasonal increases in HVAC repairs and utilities expenses caused by the hot summer months. General and administrative expenses increased slightly from $4.8 million in the second quarter of 2024 to $4.9 million in the third quarter of 2024. Interest expense increased from $6 million in the second quarter of 2024 to $6.3 million in the third quarter of 2024 due to the increase in borrowings under our revolving credit facility to fund acquisitions and CapEx. Moving to funds from operations, FFO was $12.8 million in the third quarter of 2024. On a quarter-over-quarter basis, FFO increased by $1.2 million from $11.6 million in the second quarter of 2024. And on a per-diluted common share basis over these periods, FFO increased from $0.43 to $0.48 per share. Adjusted funds from operations or AFFO, which adjusts for straight line rents and stock based compensation totaled $14.6 million in the third quarter of 2024. On a quarter-over-quarter basis, AFFO increased from $14.3 million in the second quarter of 2024, and on a per-diluted common share basis over these periods, AFFO increased from $0.53 to $0.55 per share. Finally, I'll highlight again that our dividend remains well covered with a current payout ratio of only 85%. That concludes our prepared remarks. MJ, we are now ready to begin the question-and-answer session.

Thank you. Today's first question comes from Connor Mitchell with Piper Sandler. Please go ahead.

Hey, good morning. Thanks for taking my question. I know you guys touched on it a bit, but just wondering if you could provide a little bit more or any more color on the geriatric tenants issue that popped up in the prior quarter. Just if you guys expect any leases to maybe open, how do you feel about backfilling them? Your confidence level in getting any returns from the loan that was outstanding? Just any additional color you might be able to provide at this time.

Thank you for your question, Connor. As I mentioned earlier, our consultants have made significant progress in recent months. One of the positive developments is their focus on strengthening relationships with key referral sources, which should lead to improved admissions and occupancy rates. As we've discussed in previous calls, maintaining a stable occupancy will result in consistent rent and interest payments to CHCT. We are encouraged by the trends we're observing in the business. Additionally, we are exploring multiple options, and we've received several inquiries from other operators regarding our facilities. Given the operator's performance and this incoming interest, we believe there are opportunities to resolve these issues within the next couple of quarters. However, accurately predicting the timing and amounts of rent and interest is challenging at this moment since we have not yet received those payments from the company. Nevertheless, we anticipate that, based on the current occupancy levels and strong performance, they will be in a position to fulfill those payments.

Yes, of course. And then maybe just to follow up, just if there's any other tenants that might have popped up on the watch list kind of since this issue has occurred. And then just a reminder, if you guys could give us a reminder of any other outstanding loans to tenants as well? I think I remember there were two for maybe an aggregate of $5 million or $6 million, but just a reminder on that as well, please. Thank you.

Yes, thanks. We have 15 to 20 tenants on our watch list, and that number changes regularly based on portfolio activity. I can confirm that none of our top 10 tenants are currently on the watch list. Regarding outstanding loans, they've remained stable. We have a $2.2 million loan to an operator of behavioral health facilities, over $4 million to another operator, and a smaller $2 million loan to an operator of inpatient rehab facilities. The loan levels are very modest at this time.

Okay. Appreciate the color there. And then maybe just switching gears. Kind of as you guys think about putting capital to work, and you mentioned the upsize revolver, the kind of lower stock price right now. I'm just curious, would you guys think about maybe looking at more development projects like the dialysis clinic discussed? And maybe that's just a source of, again, putting capital to work without having to really think about your leverage profile or the stock position at the moment?

One of the points I mentioned earlier was providing an update on our redevelopment projects. We currently have four projects in progress, which can be seen as almost embedded acquisitions in our portfolio. We anticipate that three of these projects will come online in the first quarter, which we view positively. We expect to achieve returns on these projects similar to those from our acquisitions. Additionally, we have a letter of intent for a dialysis project. We continue to engage in discussions with them as they explore opportunities in the market, and we hope to develop something together. It's important to note that this particular operator has primarily focused on acquiring operating companies without real estate involved. While they have been active, their acquisitions have not included real estate, which has limited our ability to advance concerning that term sheet. Nonetheless, we remain focused on our portfolio, believing that investing in our real estate can yield strong internal returns. We will also consider capital recycling opportunities for non-core assets as a means to support growth. Our objective is to avoid over-leveraging the business, although we do have significant capacity in our revolving credit facility to support acquisitions.

Okay. Thank you.

Thanks, Connor.

Good morning, guys. Dave, the $3.2 million on the geriatric tenant, is that just rent or is that rent and the interest on the notes?

That's just rent.

And how much is the interest on the notes when you add on to that? What's the sort of total that they should be paying you a year per year that you're not getting.

On an annual basis would be about $6 million. It's kind of about $1.5 million per quarter.

Okay. And then can you remind me when the last full month of payment was for this tenant?

I think we got partial payments back in January and February.

Okay. So the last full month would have been sometime in 2023.

Yes, that's probably right.

Okay. Regarding the three redevelopment projects anticipated to launch in the first quarter, how significant is the annual base rent from these projects? How should we consider this in terms of potential earnings impact?

Rob, we haven't disclosed that. Historically, that's not something we've shared, but it's going to be a significant increase for us. I expect that to be a tailwind into the first quarter, and some of it is just the timing. We anticipate that those three projects will be operational, but they will come online throughout the quarter rather than all at once. You can think of it as approximately $750,000 or more in annual rent.

Okay. That's very helpful. And then you'd mentioned dispositions, do you currently have anything under contract for sale or anything you anticipate closing by year end?

We do. And we have a small facility. It's very, very small. So it's not material, but we have one facility that's under contract for about $650,000, and we would expect to close that by year end.

Okay. And then the last one for me. I think that pipeline you have, the seven properties for $169.5 million, one of those was previously expected to close in the fourth quarter, but now looks like it's going to be 2025. Was that a delay on your end? Was it a delay in construction or occupancy? What caused that shift from the fourth quarter?

Hey, Rob, it's Bill. It was a pushback on their side just as they were getting approvals and Medicare accreditations and being in Florida and some of the hurricanes that have come through there, things are moving a little bit slower. So the property did well through the hurricanes, but the approval process has slowed down a little bit. So instead of being in the fourth quarter, we now estimate it kind of mid to late first quarter next year.

Okay. And do you have any ability on your end to delay the timing of the close on that stuff?

No, not on our end.

Okay. All right, that's all for me. Thanks, guys. Appreciate the time this morning.

Thanks, Rob.

Thank you. The next question comes from Michael Lewis with Truist Securities. Please go ahead.

Great. Thank you. So, you addressed the movement in the lease percentage. It sounds like that should come back a bit. Did you collect material lease termination fee income in the third quarter?

Michael, I appreciate the question. So nearly all of the reduction in occupancy quarter-over-quarter related to one property, which has been on cash basis and not paying rent for the last year. We did negotiate a lease termination with that tenant, which is going to be paid over four years. And there's some incentives for that tenant to prepay us. So they're going to be paying us monthly payments plus interest, and ultimately we're going to get that building released and get a new long-term tenant in there. So we think this is a good outcome for us. And so yes, to answer your question, there was some lease termination fees and there will be ongoing lease termination fees paid monthly based on this termination agreement.

And then, we noticed that LifePoint last quarter was listed as six properties representing 10.7% of your total rent. This quarter, it looks like five properties, only 8.7% of your total rent. Is this related to a LifePoint property what we just talked about or kind of what happened in the numbers there?

Yeah, different properties. LifePoint on their side entered into a joint venture where they are no longer the primary tenant in that property. And so, same rent, same terms, but a change in ownership of the operations and so a reduction in our LifePoint concentration.

I see. And then just lastly from me, you talked about some dispositions. Anything you could say on what types of facilities you'll be looking to sell? What the cap rates might be? Are you selling off the bottom of the portfolio, or are you going to be selling sort of stuff that's more representative in the portfolio? Just anything you could say about that?

Yes. So I mean, I think broadly speaking, Michael, we're looking at a couple of areas for recycling. First, as you mentioned, we do have a group of buildings, probably less than 10, that may not be a long-term fit for the portfolio, but these buildings tend to be smaller and in less attractive markets, and I think they're not going to raise significant amounts of capital. But we do have a much larger group of very strong performing properties. And we could sell those very selectively at very attractive cap rates. And we're currently exploring sales of both of those broad groups. Look, our ultimate goal is to grow AFFO per share, and so we would be very strategic about selling any of those facilities where we might be able to achieve a gain from those sales and make sure that those gains are reinvested into the business based on the acquisition pipeline that we have in place. And so look, we don't want to raise ATM shares at our current share price. And so we're looking at this as an alternative until we get the share price where we want it and we can start issuing shares on a more regular basis.

Yes. I guess, you're a company that's never bought anything below, I think this is still true, never bought anything below a 9% cap rate. So I was just wondering the difference between the cost of equity and the cost of selling properties, what that spread is. But it depends on the property, I guess.

Yeah. No, it depends on the property. We believe that there's a huge disconnect in terms of the actual value of individual properties as it relates to where our stock is currently trading. But we feel very confident that we could do some very attractive strategic selective asset sales at very good cap rates and use those to invest in the higher yielding assets that we do on a regular basis.

Thank you. The next question is from Jim Kammert with Evercore. Please go ahead.

Good morning. Thank you. Just to finish on that last topic, Dave, if we could. I mean, can we talk about maybe 200 basis points or 250 basis point type spread between implied cap rate on the equity today, and do you think realistic disposition cap rates?

I'd say that's a good range for sure.

Okay, that's helpful. And then more qualitatively looking at a tremendous job on expanding the line of credit, extending it, all those good attributes. Just if you reflect for us, what attracted the lenders, the lender group, what attributes do you think they were underwriting, if you will, that allowed you to pull this together? I'm just curious how they looked at CHCT. Thank you.

Yes, I'll start and Bill can add in, but Bill did a great job. I believe the banks view our diversified portfolio and its overall performance positively. They observe strong dividend coverage and reasonable leverage. Overall, we have nearly 200 buildings, with about 10 or 11 that aren't performing to our expectations, but generally, the portfolio is doing well. From a credit perspective, that moderate leverage, our historical performance, and our proven ability to address tenant issues effectively likely instilled a lot of confidence in the bank group regarding CHCT's overall position and strength. Bill, feel free to add.

Yes, I would agree with all of those. Look, having good timing never hurts, right? We are in an interest rate environment where interest rates are starting to decline. Obviously, we will benefit from that. Banks will benefit from that. And so, as Dave talked about, I think our history of modest leverage and diversification and performance overall are strong, and we timed the transaction well also.

Thank you. The next question comes from Barry Oxford with Colliers. Please go ahead.

Great, thanks guys. Real quick, you mentioned in your opening comments that none of your top 10 tenants were on the watch list. Of the tenants that you are kind of on the watch list or concerned about, is there a particular property type that is causing that, or is it just look, it's more one-off situations, Barry, than it is related to a particular healthcare?

Yeah. No, Barry, thanks for the question. I appreciate that, but it is definitely the latter. It tends to be idiosyncratic situations, tenant by tenant situations that we run into, and it's nothing broadly we are seeing in any specific sector that we would call attention to. Well, thanks everybody for the good questions and everyone's interest in the business and we look forward to talking again very soon.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.