Community Healthcare Trust Incorporated (NYSE:CHCT) Q1 2024 Earnings Call Transcript May 1, 2024
Community Healthcare Trust Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Community Healthcare Trust’s 2024 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2024 first quarter financial results. It 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, 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, May 1, 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 risk factors in 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 Dave Dupuy, CEO of Community Healthcare Trust. Please go ahead.
Dave Dupuy : 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 operation 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 with the long-term lease signed on one of our buildings to deliver in- 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 lease is 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 assigned 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 many properties under review and have term 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.
William Monroe : 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. And we 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 the 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 expense 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 executive, it 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 non-cash 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 an expense perspective, interest expense increased by $43,000 quarter-over-quarter to $5.1 million. According 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.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
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