Welcome to Community Healthcare Trust 2022 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2022 third 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.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, November 2nd, 2022, 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 disclosure 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 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 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 Tim Wallace, CEO of Community Healthcare Trust..

Good morning, everyone, and thank you for joining us today for our 2022 third quarter conference call. On the call with me today is Dave Dupuy, our Chief Financial Officer; Leigh Stach, our Chief Accounting Officer; and Tim Meyer, our EVP, Asset Management.

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. In addition, an updated investor presentation was posted to our website last night.

The third quarter was busy from both an operations standpoint and from an acquisition standpoint. Our occupancy has risen to 90.8%, and we have seen a continued pickup in leasing activity. We continue to be encouraged by the activity we see on the part of health care providers.

Our weighted average remaining lease term remains about the same at slightly less than eight years. Our asset managers have been very busy controlling expenses, while maintaining tenant satisfaction.

As I have indicated for the last several quarters, we continue to have five different properties or significant portions of them that are undergoing redevelopment or significant renovations with long-term tenants in place when the renovations and redevelopments are done.

During the third quarter, we acquired two properties with a total of approximately 114,200 square feet for a purchase price of approximately $17.5 million. The properties are 100% leased, with leases running through 2037 and anticipated annual returns of approximately 9% to 9.72%.

The company currently has 20 properties under definitive purchase agreements for an aggregate expected purchase price of approximately $71.6 million and expected returns of approximately 9% to 10.17%. The company is currently performing due diligence on these properties and expects to close these properties in the fourth quarter of this year.

The company continues to have signed purchase and sale agreements for five properties to be acquired after completion and occupancy for an aggregate expected investment of $117.5 million. The expected return on these investments should range up to 10.25%. We expect to close on these properties throughout 2023 and possibly into 2024.

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 and through our banking relationships to fund our acquisitions, and we expect to opportunistically utilize the ATM to strategically access the equity markets. On another front, we declared our dividend for the third quarter and raised it to $0.445 per common share.

This equates to an annualized dividend of $1.78 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'll 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 $23.3 million in the third quarter of 2021 to $24.8 million in the third quarter of 2022, representing 6.7% growth over the same period last year. Revenue for the second quarter of 2022 was $24 million, representing 3.2% growth quarter-over-quarter.

On a pro forma basis, if the 2022 third quarter acquisition had occurred on the first day of the third quarter, total revenue would have increased by an additional $308,000 to a pro forma total of $25.1 million in the third quarter.

From an expense perspective, property operating expenses grew from $4.1 million in the second quarter to $4.3 million in the third quarter or 6.5%. The increase was due in part to seasonal increases in utilities expense caused by the hot summer months, along with increased property tax assessments on some of our properties.

G&A increased from $3.6 million in the second quarter to $3.8 million in the third quarter or 4.2%. Increases in G&A were driven by increases in non-cash amortization of stock-based compensation. Meanwhile, cash G&A expense decreased from approximately $1.4 million in the second quarter to $1.3 million in the third quarter.

Interest expense increased from $2.8 million in the second quarter to $3 million in the third quarter or 9.9%. This increase was due to increased borrowings under our revolving credit facility to fund acquisitions, as well as an increase in floating interest rates.

Funds from operations or FFO for the third quarter of 2022 was flat quarter-over-quarter at $13.8 million. Likewise, on a per share basis, FFO remained flat at $0.57 per diluted share. As discussed, FFO was impacted by the increase in non-cash amortization of stock-based compensation experienced quarter-over-quarter.

I am pleased to report that adjusted funds from operations or AFFO, which adjusts for straight-line rent and non-cash amortization of stock-based compensation, totaled $15.4 million in the third quarter of 2022, compared with $14.3 million in the third quarter of 2021 or 7.2% growth year-over-year.

On a per share basis, AFFO increased from $0.59 per diluted share in the third quarter of ‘21 to $0.63 per diluted share in the third quarter of ‘22 or 6.8%. Finally, AFFO grew quarter-over-quarter from $15 million in the second quarter to $15.4 million, representing a 2.5% increase.

And on a per share basis, AFFO increased from $0.62 per diluted share in the second quarter of ‘22 to $0.63 per diluted share in the third quarter.

And on a pro forma basis, if the third quarter acquisitions had occurred on the first day of the third quarter, AFFO would have increased by approximately $304,000 to a pro forma total of $15.7 million or $0.64 per diluted share. That's all I have from a numbers perspective. Jason, we're ready to start the Q&A session..

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Connor Mitchell from Piper Sandler. Please go ahead..

Hey, good morning. I have two questions. So first, you guys have a good relationship with developers building out specialty spaces.

So has the weakening macro had any impact on the propensity for these types of deals?.

Good morning, Connor, no, we have not seen any effect yet from the weakening macro. I mean, as you can tell by our acquisition pipeline and our activity in the leasing side, everything is looking very good right now, and we're excited about what we're seeing out in the environment..

Okay, great.

And then my second question, regarding the acquisition pipeline, touched on it briefly in your opening remarks, but can you just provide a little bit more color on how you guys are thinking about funding of the pipeline and expected acquisitions to reduce the ATM debt or the line of credit?.

Yes. We are anticipating and this isn't a change from what we've said over the last few quarters. We've historically maintained our leverage level at extremely low levels. We anticipate taking that up a little bit probably into the mid-30% debt to book half and then looking to utilize the ATM to pull it down.

We have -- our banks have indicated a very willingness to fund our acquisitions and are excited to do that. So we're looking to utilize the bank lines and then utilize the ATM to reduce the bank lines, kind of, our normal stuff..

Allright, very helpful. Thank you..

Thank you, Connor..

The next question comes from Rob Stevenson from Janney. Please go ahead..

Good morning, guys.

Tim, which assets drove the 50 basis points quarter-over-quarter occupancy pick up to just under 91%? And how much additional occupancy pickup are you expecting over the next few quarters in the portfolio?.

I think that's pretty much across the portfolio. I'm looking at Tim Meyer now. Was there anything special, any special type of assets. I mean, mostly it's MOBs..

Yes, mostly MOBs, but really it was across our entire portfolio and use type, and we're continuing to see a strong pipeline going forward..

Okay.

So I mean, I would anticipate seeing that increase still. So --.

All right.

And then are you seeing -- how much upward pressure are you seeing on cap rates and sellers willing to adjust at this point to current market conditions? Or is there still a substantial lag for that for you guys?.

No, I think we've seen -- it was almost like a switch sometime after the first or maybe the second 75 basis point increase, it was like a flip of switch, switch is flipped. And it went back to normal type of stuff.

I mean, what we've determined is that things have gotten, kind of, crazy in the first quarter, second quarter, that we couldn't find our types of properties.

But it's just that people, who had our types of properties, all of a sudden back in the first and second quarter, thought they really had six caps, and nobody was buying them at six caps, and then once they figured that out and as that environment had gone away, then they were a lot more interested in selling..

Okay. That's helpful. And then last one for me.

Dave, the utilities cost, because of the hot summer and the property taxes, is this just a timing issue before you get reimbursed? Or is this stuff that you're not going to get reimbursed for?.

Most of that issue, we have various lease agreements. And so we don't get 100% of those increases, but most of those get reimbursed. I'd say, 80% plus. So most of that is just a timing difference..

Okay. Thanks guys. Appreciate the time..

Thanks, Rob..

[Operator Instructions] Our next question comes from Wendy Ma from Evercore. Please go ahead..

Thank you, I have one. Thank you for taking my questions. So I just have one question about these five properties under the purchase and sale agreements that about the timing. So I think in last quarter’s conference call, you mentioned the timing -- expected timing will be one in 4Q ‘22 and the other four throughout 2023.

And now it's more like throughout 2023 and maybe into early 2024. So is there any like reason there could be a delay of this completion and occupancy for this by properties or -- and should we assume for the time it will be more leaning forward to the second half of 2023 instead of like more evenly spread of the four quarters..

Good morning, Wendy. And I've almost got to where I've stopped trying to estimate when construction jobs would be complete. And it's basically the supply chain issues. For inpatient hospitals, you need double compressor HVAC units and you need specialty generators and various items like that and even elevators.

For that matter, even doors, some specialty doors have extremely long lead times now and the manufacturers are not giving true estimated dates as to when they can be delivered.

So it's really tough to determine when a construction project can be done if you can't determine when you're going to be getting the HVAC units for it or the generator for it or the -- or again, even the specialty doors for it.

So I mean that's why it's been pushed back, why we didn't end up closing one -- and why we don't think we'll end up closing one in the fourth quarter and why they've been pushed back.

And my best estimate is probably somewhat pro rata one a quarter for ‘23 and then one that gets pushed into ‘24 that's a best guess, but it's all depending upon the supply chain..

Okay, thank you. That’s very helpful..

[Operator Instructions] The next question comes from Dave Rodgers from Baird. Please go ahead..

Yes. Good morning, guys. Tim, I wanted to go back to the acquisitions that you're set to close here in the fourth quarter. The pipeline pre this quarter was about $20 million or $25 million on average for assets, and this quarter kind of shrinks down to $3 million.

So I'm wondering if you've sourced all those as individual transactions if there are one or multiple portfolios in there.

And maybe talk a little bit about credit on something like that, that you're considering in these smaller-sized assets?.

Well, good morning, Dave. And basically, these are our types of assets. They are our bread-and-butter assets that we've invested in for the last seven or eight years, however long it is that we've been public. There is one group of multiple properties and there is a couple of them that have two different properties.

I think all total, that there's eight or nine transactions that make up the 20 properties. So there's not a single large portfolio. And basically, they are just kind of our bread-and-butter acquisitions. I think all of them are medical office buildings or physician clinics. But there's nothing that really stands out or makes them unique.

Again, they are our basic bread and butter that we've invested in..

So just really the market coming back to you, so that's helpful. And then maybe the other one on redevelopment, and I know redevelopment, something we talked about last quarter, maybe two questions on the five properties you mentioned with tenants in place. And maybe you have this somewhere, I didn't see it or hear it.

But square feet of this bucket of five properties, I guess, would be the first question.

And second is, does that show up in your occupancy stat today? Or is that kind of future occupancy relative to your occupancy number today?.

I'm not really sure how we -- I'm looking at Tim, first, do you know the square foot, Tim? I don't think we've disclosed that, but there's nothing against it. So --.

No, we have not, but it is leased occupancy. So it is included in our occupancy figures..

Okay.

And how many square feet, would you estimate?.

Anywhere between 50,000 and 70,000 square feet roughly..

Great. Well, that's helpful. I appreciate it, guys. Thank you..

Okay..

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

Well, we appreciate everyone being with us today and look forward to having a good fourth quarter and talking to you all after the first of the year. I mean seeing some of you out in NAREIT. Thanks so much. Bye..

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