Good day, and welcome to the Community Healthcare Trust 2021 Second Quarter Earnings Release Conference Call. . On the call today, the company will discuss its 2021 second quarter financial results. It will also discuss progress made in various aspects of its business. .

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, August 4, 2021, 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 in 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 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 Tim Wallace, CEO of Community Healthcare Trust Incorporated. Please go ahead..

Good morning, everyone, and thank you for joining us today for our 2021 second quarter conference call. On the call with me today is Dave Dupuy, our Chief Financial Officer; and Leigh Ann Stach, our Chief Accounting Officer.

As is our normal process, our earnings announcement and supplemental data report were released last night and filed with an 8-K, and our quarterly report on Form 10-Q was also filed last night. We had a good quarter from an operations standpoint and from an acquisition standpoint. As you know, we have an active ATM program in place.

During the first quarter, the company - during the second quarter, the company issued 247,964 shares of stock through its ATM program at an average gross sales price of $48.87 per share. We received net proceeds of approximately $11.9 million and an approximate 3.59% current equity yield.

During the second quarter, we acquired 2 properties with a total of approximately 77,000 square feet for a purchase price of approximately $9.5 million. These properties were approximately 90% leased with leases running through 2028 and anticipated annual returns of approximately 9.34% to 9.97%.

So far this quarter through August 3, the company has acquired 1 property totaling 14,400 square feet for an aggregate purchase price of approximately $3.7 million. Upon acquisition, the property was 100% leased with lease expirations through 2026 and an anticipated annual return of 9.37%.

The company has 2 properties under definitive purchase agreements for an aggregate expected purchase price of approximately $8.5 million and expected returns of approximately 9.0% to 9.3%. The company is currently performing due diligence and expects to close these properties in the third quarter.

We also signed definitive purchase and sale agreements for 4 of the properties we discussed last quarter till we had signed term sheet zone to be acquired after completion and occupancy for an aggregate expected investment of $94 million. The expected return on these investments should range up to 10.25%.

We expect to close on one of these properties as early as the fourth quarter, but most likely the first quarter of 2022 and the other 30 through 2022 and into 2023. Also, we have 2 properties with signed term sheets for an expected purchase price of approximately $9.3 million. We expect to close on these properties in the third or fourth quarter.

In addition, as we discussed last quarter, we have signed term treats with clients for another 10 new properties up to approximately $60 million of new investment. It is anticipated that these investments will be made over the next approximately 24 months.

We continue to have many properties under review and have term sheets out on several properties with anticipated returns of 9% to 10%. We anticipate having enough availability on our credit facilities to fund our acquisitions, and we expect to continue to opportunistically utilize the ATM to strategically access the equity markets.

Our weighted average remaining lease term was relatively stable at slightly more than 8 years. Occupancy ticked up slightly for the quarter as leasing activity picked up some and we are encouraged by the activity we see on the part of health care providers.

On another front, we declared our dividend for the second quarter and raised it to $0.4325 per common share. This equates to an annualized dividend of $1.73 per share and I continue to be proud to say we have raised our dividend every quarter since our IPO. I believe that takes care of the items I wanted to cover.

So I will hand things off to Dave to cover the numbers..

Great. Thanks, Tim, and good morning, everybody. I'm pleased to report that total revenue grew from $18.3 million in the second quarter of 2020 to $22.7 million in the second quarter of 2021, representing 24.1% growth over the same period last year. Revenue for the first quarter of 2021 was $21.4 million, thereby representing 6% sequential growth.

On a pro forma basis, if all of the 2021 second quarter acquisitions had occurred on the first day of the second quarter, total revenue would have increased by an additional $216,000 to a pro forma total of $22.9 million in the second quarter.

From an expense perspective, property operating expenses increased quarter-over-quarter from $3.7 million to $3.8 million or 3%. The increase in POE is in line with the growth we are experiencing in total revenue. G&A expense for the second quarter remained flat at $2.9 million.

However, interest expense increased from $2.2 million to $2.7 million or 22.7%. This increase was due to the full quarter effect of our recent refinancing in which we added net new term loan borrowings of $75 million.

I am pleased to report that funds from operations, or FFO, for the second quarter of 2021 grew to $13.3 million from $11 million in the second quarter of 2020 representing 20.9% growth over the same period last year.

On a per share basis, FFO increased from $0.51 per diluted share in the second quarter of 2020 to $0.56 per diluted share in the second quarter of 2021, an increase of 9.8%. Meanwhile, FFO for the first quarter of 2021 was $12.6 million, representing 5.7% growth sequentially.

Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $13.9 million in the second quarter of 2021 compared with $11.4 million in the second quarter of 2020 or 22.7% growth year-over-year.

On a per share basis, AFFO increased from $0.52 per diluted share in the second quarter of 2020 to $0.58 per diluted share in the second quarter of 2021 or 11.5%. Finally, AFFO for the first quarter of 2021 was $13.3 million, representing 4.6% growth on a sequential basis.

And from a pro forma perspective, if all of the second quarter acquisitions occurred on the first day of the second quarter, AFFO would have increased by approximately $151,000 to a pro forma total of $14.1 million, increasing AFFO on a pro forma basis to $0.59 per share. That's all I have from a numbers perspective.

Operator, we are ready to start the question-and-answer session..

. Our first question comes from Sheila McGrath with Evercore..

Tim, I was interested that you now have another term sheet with the dialysis company for kind of programmatic relationship. I was just wondering if you could give us a little more detail on how these deals are structured.

Do you fund the construction costs and then serve as a takeout upon completion? And just also, if you could give us insight on what makes working with CHCT on this attractive for the company..

Thanks for the question. Obviously, what makes it attractive is that Dave and I are such good guys. I mean - on that particular terms, yes, we will be doing the construction financing. We'll basically buy the property and it can be either land or it can be an existing building and then fund either the construction or the renovation of it.

Balance centers are relatively small, typically in the $4 million to $6 million of featuring so - and they're relatively quick to put up. So we felt like it was okay. The tenant will be taking the risk on completion and getting it operational. So it will still be the same from that standpoint. We won't be taking that risk.

But we've said all along that what we try to do is develop the clients and this is one of our clients.

And what makes it better for them is that if they had to go out and finance each one of these on a stand-alone basis, it would take a long time because they would have to deal with the local banks in the area and they'd have to put up a lot more equity for ads with us.

We want to own the real estate from the beginning and we can make their life a lot simpler and let them get to their goals a lot faster because what they're looking to do is develop a company there, this is one of our serial entrepreneurs, they're looking to grow a company until it gets to a certain level and then sell off to one of the big guys.

And if we can help them do that a year or 2 years earlier than they otherwise could have, then it makes a big difference on their internal rate of return they have on their investments. So it's a win-win situation for everybody..

And just to be clear, Tim, this is a previous - these guys are already an existing tenant of yours..

Yes..

Okay. Great.

And just one housekeeping item, just on G&A, Dave, your thoughts on G&A for the second half is 2Q a pretty good run rate?.

I think it's probably a good run rate. I think you've seen it went up a little bit and now it's flat. So I think keeping at about that level is probably a good proxy for where we expected. And again, the mix between cash and noncash may vary a little bit over time. But I think in general, you're seeing kind of some consistency there..

Our next question comes from Daniel Santos with Piper Sandler..

Tim, you've talked in the past about how your average sort of small town doctor followed a 10-year cap rates or spreads. So thinking about their internal calculus and a sale from that perspective, probably isn't the right approach.

But if you look across the board, cap rates have compressed pretty consistently, and yet you're still hitting your sort of 9% threshold. Maybe a comment, if you will, on whether or not you're seeing any impact on pricing and maybe your long-term views on being able to continue to keep the pipeline stocked at 9 caps..

So far, we've been able to do it, and I don't anticipate changing. The market is not that much different now than it was for the last 6 years. And again, having our focus on developing clients, and that's like number one on Dave and pages list to do is develop new clients that we can have the win-win situation that I just talked about before.

We think we can do a big percentage of our acquisitions with the clients and then fill in along the way with the other properties. So we fully anticipate being able to maintain our spread investing that we're doing as good as we can..

Got it. That's helpful. And then the next one is a little bigger picture, but you're probably the closest thing to doctors right now.

What are your operators saying about the delta variant? How scared are they? How long do they think this sort of way it might be here to stay?.

To be honest with you, I haven't talked to our asset management people about it. Everybody is operating full speed ahead. Operations are our bank, basically to pre-pandemic levels and maybe even more on an average basis. So I don't think anybody right now is thinking that Delta is going to shut things down or slow things down that much.

There's a huge difference in the cases and the hospitalizations and the depth between Delta and the previous. So it still has ways to play out. But several people, Scott Gotlieb, et cetera, think that it's going to burn out here quickly. And if you look at vaccinated people in previous COVID cases, generally aren't that sick with it.

It's only unvaccinated that are sick with it, and it will burn through that population relatively quickly..

The next question comes from Bryan Maher with B. Riley..

Two questions for me. One, when we look at the lease expiration schedule for the next couple of years, I think it's a little under 8% next year and a little under 10% the year after that.

Can you talk about your process on getting those properties really and maybe your outlook for rent rollouts?.

Thanks for the question. And sure, I mean, actually, we've had a lot of properties, a lot of tenants who request early renewals. So we're working on a lot of stuff now that doesn't roll until 2022, 2023, even 2024, we're working on renewals now.

After the pandemic, there is a year there, probably 15 months where providers couldn't focus on anything about leasing almost because they were still focused on internal stuff, but that came out of it and they seemed to be a lot more focused on their leases.

And I'm not exactly sure why but they've decided that it's time to lock in lease terms for longer. I mean, we had 3 multi-tenant - tenants that are in multiple buildings all requesting about the same week extension discussions for properties that for leases have been expiring until some of them until 2024.

So we feel very comfortable with what's happening now in the leasing market. The leasing activity on existing and vacant space is seeing a significant pickup in the last 6 months, and we're hopeful that the last 6 months of this year will be extremely good..

Great. And then when we look at the diversification of your portfolio, roughly 30% in Texas and Illinois, 2 states, 40% in 3 to add Ohio and nearly 50% in 4 states to be at Florida.

Is that mainly by design? Or is that simply where the opportunities are? And when you look at your acquisition pipeline, do you suspect it's going to be more of the same?.

We have overall diversification guidelines, but those are about MSA. We don't have diversification guidelines by state. And when people talk about Texas, I mean, Texas is a huge state. Texas is like all of New England and going a couple of more states to go with it.

So I'm not surprised that we have some concentrations in there, I mean the concentration in Illinois is because of a couple of large properties in Illinois is a CON state. So we're very comfortable with these CON properties that make up a big chunk of it. So we're not uncomfortable with that. But Florida is a great place for health care.

So again, we're - I wouldn't say it's by design, but diversification is by design at the MSA level, not at the state level. And I don't know what the future will be, but I wouldn't be surprised that it doesn't bring something very similar to the past..

. Our next question comes from Rob Stevenson with Janney..

Tim, are you seeing any better opportunities in certain asset types these days? And what is the pipeline? Any big exposures there by property type or market?.

Well, we're marketing to our share entrepreneur and looking for new share entrepreneur. So we obviously just signed purchase and sale agreements with 4 inpatient rehab facilities. So over the next 18, 24 months, we should have another 100 - approximately $100 million of inpatient rehab.

So it's something that is a growing market and we like it, and we're participating in it. We also see a lot of behavioral and behavioral is a broad category. We've turned down probably 95%, 98% of the behavior that we see. But it is something that is growing.

It is something that the reimbursement has improved over the last - well, since ObamaCare, the reimbursements improved and been more accepting and the society is more accepting of behavioral issues that people have. So we anticipate seeing that growth. We obviously like the physicians in MOB space.

And with the right ASC operator, we like that space, but we haven't seen a lot of those lately that we thought were worthwhile..

The other thing I would just add to what Tim is saying, we just obviously talked about the client that we did with - on the dialysis side. And so that's an area that we continue to see growth is in dialysis. And so that's an area. And really across the board in the eye care space, we're seeing opportunities in the derm space.

We're also looking strategically and outpatient imaging, and so there's a lot of areas where we're spending time and as I'm sure everyone can appreciate those discussions take some period of time, but there are lots of opportunities broadly out there. It's just a matter of finding the right partner to do multiple facilities with..

Okay. And then, Dave, you've pushed the AFFO payout now down to below 75% on the common dividend.

How close are you now to REIT minimum payout levels that would force you to raise the dividend by more than the sort of quarter $0.01 a quarter that you've been doing recently?.

Yes. We're nowhere close. I mean the way that is measured is on a net - appreciate - yes, taxable income. And so we're nowhere close to hitting that. And Tim, I'll let you cover the increasing dividend question..

Well, it's a discussion that's been at the Board level, and we're kind of monitoring what we're going to do on the dividend, but we want to make sure that we can maintain an increased dividend when we increase it. So I wouldn't be surprised sometime in '22 if that doesn't happen, but it's always obviously up to the board..

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

Thanks, everyone. We appreciate your spending the time with us this morning and look forward to talking to you in about another 3 months..

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