Welcome to Community Healthcare Trust 2023 Second Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2023 second 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 August 2, 2023 and may contain forward-looking statements that involve risks and uncertainties. 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 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. The 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 conference over to Dave Dupuy, CEO of Community Healthcare Trust.

Great. Thanks, Jason and good morning. Thank you for joining us today for our 2023 second quarter conference call. On the call with me today is Bill Monroe, our new Chief Financial Officer; Leigh Stach, our Chief Accounting Officer; and Tim Meyer, our EVP of Asset Management. As previously disclosed, Bill joined CHCT from Truist Securities on June 1 and spent its first full week on the job meeting many of our analysts, investors and bankers at the Nareit's REIT Week Conference in New York City. We are excited to welcome Bill to the team where he brings a wealth of experience from his days as Managing Director responsible for both healthcare services and healthcare REIT investment banking at Truist. Our earnings announcement and supplemental data report were released last night and filed with an 8-K. Our quarterly report on Form 10-Q was filed last night. In addition, an updated investor presentation was posted to our website last night. Before I discuss more normal topics, I wanted to provide more details on a couple of items we disclosed in our 10-Q. First, one of our tenants Genesis Care filed voluntary petitions for reorganization under Chapter 11 of the US bankruptcy code on June 1. Genesis Care which operates 440 cancer care clinics globally has secured commitments for debtor-in-possession financing to support its business operations, while exploring the separation of its US business from its businesses in Australia, Spain and the UK. On June 27, 2023 the US Bankruptcy Court approved Genesis Care's request to reject certain unexpired real property leases including one lease of approximately 11,000 square feet with CHCT in Asheville North Carolina. At June 30, 2023 Genesis Care with the sole tenant in seven of our properties and a tenant in two of our multi-tenanted properties representing approximately…

Thank you, Dave and let me first say, how excited I am to be joining the Community Healthcare Trust team. In my prior role as a health care investment banker covering the sector, it was always an honored work alongside Tim Wallace, you and the entire CHCT team. We look forward to helping build upon our company's foundation as Chief Financial Officer. I will now provide more details on our second quarter financial performance. I'm pleased to report that total revenue grew from $24 million in the second quarter of 2022 to $27.8 million in the second quarter of 2023, representing 15.6% annual growth over the same period last year. When compared to our $27.2 million of total revenue in the first quarter of 2023, we achieved 2.3% total revenue growth quarter-over-quarter. And on a pro forma basis, if the acquisitions we completed during the second quarter of 2023 had occurred on the first day of the second quarter, our total revenue would have increased by an additional $308,000 to a pro forma total of $28.1 million in the second quarter. From an expense perspective, property operating expenses declined by approximately $100,000 quarter-over-quarter to $4.8 million. General and administrative expenses decreased from $16.2 million in the first quarter of 2023 to $3.8 million in the second quarter of 2023. The $12.4 million decrease quarter-over-quarter was driven primarily by the accelerated amortization of stock-based compensation, totaling $11.8 million recognized in the first quarter upon the passing of our former CEO and President as well as a reduction in the second quarter's deferred compensation amortization due to the above-mentioned accelerated amortization in the first quarter. Offset partially by a onetime increase in employer Medicare taxes paid in the second quarter from the vesting of our former CEO and President's shares. Interest expense…

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.

Hi, good morning. And Bill, welcome to sitting on the public side of the REIT land. So fun times for you. Just a question and Dave certainly, appreciate the upfront disclosure on the Genesis filing. Maybe just a little bit more color. I mean clearly, one rejection out of I think you said you have seven or eight total, seems pretty good. So first, has Genesis, -- are they completely through the rejection period? And then two, yes 11,000 square feet not a big space, but you still have to ask the perfunctory. What are your thoughts on backfill? A – Dave Dupuy: Hi, Alex, thanks for the question. Sure. As it relates to GenesisCare, they're still -- they still have the opportunity to reject leases is our understanding and that can happen all the way up to when the deadline for submission of bids actually occurs. So -- and that deadline just so -- and this is all publicly available information, submission of bids is September 22. And ultimately, we should hear that first week in October, who the actually winning bidder is, if the schedule as laid out holds. So, as it relates to the nine leases, we have in place this is one of nine. In fact, we are actually already talking to GenesisCare about an early termination of this lease and we're having discussions with potential tenants, who could backfill the; space. And so those – obviously, because of the GenesisCare bankruptcy, we've got a lease rejection claim although, we're not expecting to get much from that. But ultimately, we're just in dialogue with potential tenants. We think it's an attractive space. And so, our plan would either be to re-lease it or potentially explore selling it if that makes more sense. So

Okay. So just -- so Dave, just so I understand, and forgive me, the outright rejected one so not paying on one, they're still paying on the other eight. But those are -- there's a potential that other operators will buy those through the bankruptcy auction process. And presumably once we get to I think the end of September when that bid period stops, I think you said then you'll know definitively, if what they're keeping what other operators bought or if in fact others are sold. But overall, you feel pretty comfortable if you get any more of that there's sufficient demand that the downtime would be minimal. A – Dave Dupuy: Yes. I mean, we're doing work right now. The asset management team is looking at those local markets and evaluating, what the market rents are we feel for that type of medical use. We feel like we've got competitive rates. And so, we're doing those market studies now so that we're prepared when the actual winning bidder comes, and we can evaluate whether we want to move forward under their structure or whether we want to look and potentially evaluate another tenant to fill those spaces. But, it's our thought that given the provision of healthcare that's had in many of -- most of these spaces that there's going to be there is going to be a buyer and that buyer is going to want these spaces. So, we're not anticipating any additional rejections, but obviously that could happen in a bankruptcy process. So we're monitoring that as we go forward.

Okay. Switching topics the vandalism, not something that we typically see in REIT land, I mean outside a few years ago when there were some of the riots. So, is this something like Urban unrest related, or was this a disgruntled employee like 1.6 million of one of your -- I mean your properties tend to be sort of out in the outer suburbs not in the inner cities. So, just a little bit more color. And is this something that you think could occur in other facilities?

This is unusual. Look, I think in our eight years, this is by far the most -- the biggest sort of vandalism issue that we've had. You are a little bit more at risk for that type of vandalism, when the facility is vacant versus when it is occupied and this was a vacant facility. It's now held for sale. We intend to sell the facility. It's -- frankly, it's one of our IPO properties. It's been empty for a couple of years. And so, it's -- I don't think it's anything -- I think it's just one of those bad type of things that happen to us. And -- but we are very focused whenever we have an empty building. We have a process of putting up security cameras and making sure that there is sufficient security for that space to prevent this type of thing. These vandals just were very sophisticated in their approach and did a significant amount of damage to the building.

Good luck. Thank you.

Thanks, Alex. Appreciate all questions.

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

Good morning, guys. I guess a question on the Genesis stuff is competitors that might be interested in that business. I mean where are they sort of in that type of business on a rent coverage basis? Are they materially better than where Genesis is? Was Genesis for the assets that you guys have about average in that space? How should we be thinking about that in terms of the potential for credit upgrade, credit neutral, credit downgrade from an acquisition of the US business there?

My thought process here is it would be a credit neutral to a credit improvement. A lot of GenesisCare's problems stem from the fact that the Holdco level, they way over levered the business. And so, a lot of the issue that we're seeing with GenesisCare is the reality of putting a lot of debt on the business and that debt more than likely wasn't hedged creating significant issues for the operating companies to amortize and pay off that debt. So, we don't think that the underlying assets are as much a problem as the actually the original capital structure. So -- and there are a number of regional cancer operators. A lot of those are not-for-profit companies that I think are very stable, very good credit tenants. And so our view is this would be neutral to an improvement related to credit. But keep in mind I think a lot of the problems that GenesisCare just relates to the capital structure that they put on the parent.

Okay. That's helpful. And then how extensive beyond Genesis is your credit watch list or sort of week 10 however you want to characterize it weak tenant list et cetera. And anybody else of concern at this point in terms of not paying rent?

We always Rob have a list, a watch list that we watch and talk about as a team on a monthly basis and have ever since I've been here. So there's always going to be anywhere from six to 12 tenants that for a variety of reasons, we're working with them and dealing with potential issues. But we're not seeing anything out of the ordinary or unusual in that watch list and how it's evolved over the last six to 12 months. It's been a -- we had issues, we deal with those issues. And then there's another tenant that will focus on after resolving the issues of the tenant that we dealt with before. So, we've got a watch list. We manage and work that watch list very, very closely. But look, we've got, I don't know roughly 250 tenants. And at any one time, it wouldn't be surprising to have eight to 10 of those that we're working through.

Okay. That's helpful. And then last one for me. When you guys look at financing the acquisition pipeline, what's the cost for incremental debt these days? Is there any debt available through term loans et cetera that would be cheaper than I think the revolver is now probably up to 7% or so with where SOFR has gone?

Rob, you're right, that is how we look at our margin cost of debt right now with where daily SOFR is and revolver rates. Obviously, we benefit as you look at our overall cost of debt capital, the hedges that we have in place. And so, on a total weighted average cost of debt, it's more like 4.4%, but we are cognizant as we think about our marginal borrowing costs that it is that -- it was 6.8% at 6:30. We continue to monitor the markets and look at different options. I think right now, the support we have from our lenders. And obviously the returns we're able to generate from our properties. We're comfortable with our capital structure, but we will continue to evaluate that.

Okay. Thanks.

[Operator Instructions] Our next question comes from Wes Golladay from Baird. Please go ahead.

Hey good morning guys. I just had a question on the genesis that was rejected. Did anything stand out to you? Was there just too much competition market was the rent level too high coverage low? Just trying to get -- I guess a feel for how isolated this one would be assuming a successful reorg?

Yes. I mean, all I can tell you is like I said, we were actually already working with them on a termination related to this particular space. I think they had just determined that this was not a market that they wanted to operate in. They may not have had as deep a group in this market to compete effectively. This is adjacent to the Mission Hospital affiliated with HCA. And the only thing I can guess is perhaps HCA had a radiation oncology presence that this group was not affiliated with. But again I think this is an isolated situation. It's good real estate. So we feel good about being able to release it. But we don't view this as something that's indicative of the rest of our portfolio for sure.

Got it. And then when you look at the acquisition pipeline, we're hearing a lot of sectors where there's just not a lot of competition. It's really down year-over-year. Are you seeing the same thing? I guess what's driving the volume that you're seeing now? Is it more volume? Is it a higher close rate a little of everything? There's kind of a little bit of a snapshot of the competitive landscape today versus maybe a year ago.

Yes. It's -- listen think that we've got a little bit of a tailwind in our business from an acquisition standpoint, Wes. I mean, if you think about our goal has always been to drive that high single-digit cap rate. And back when money was free during COVID it was really tough to find those attractive real estate acquisition opportunities in those -- in that yield framework. Today we're seeing a much different case where all of a sudden those high single-digit cap rates are really market. And the other thing, we're seeing too because historically based on the size of the assets that we were acquiring to the extent we did have any acquisition it was there -- any competition it was very little competition but it was usually 1040 exchange buyers and those buyers really are having difficulty getting any of their deals financed. And so anyway, I wouldn't point to one thing, but I think in general, we're seeing more opportunities for the type of real estate that we like and less competition for those acquisition opportunities. So it's been a nice overall tailwind to the business.

Got it. And then if I could squeeze in one more. I hope that CapEx is up a little bit year-over-year. Is that a function of the leasing that you're doing? And then do you have an outlook for the second half of the year?

Yes. We don't provide any, sort of, guidance with regard to CapEx. But yes I think some of that additional CapEx it's a variety of things. I think obviously we're looking to make improvements in some of our facilities. And often we'll do that around some of the redevelopment projects that we have on the books. And so, I think you're seeing a little bit of additional CapEx as it relates to some of those redevelopment projects by the way are around long-term leases. And in general, we're looking to get our yield on top of a good portion of that CapEx. So anyway, I would say it's that and just kind of the complexion of our assets today. And so anyway we're not going to provide any guidance related to it, but I think it's kind of just some of those issues that I just outlined.

Okay. And a quick follow-up on that. So you do have some redevelopment going on and I assume that comes when the facility open so you may have some I guess pent-up NOI coming maybe in 3Q or 4Q for the spin that you did in the first half. Is that a fair assessment?

I think that's right. I think that's right. Those projects are coming in over time. But yeah, it's -- we hope that those will come online. We've had one of those projects come online in June and we expect to have other ones come online throughout the rest of the year.

Great. Thanks for the time everyone.

Thank you.

The next question comes from Jim Kammert from Evercore. Please go ahead.

Hi. Good morning. Thank you. I hate to dwell on Genesis. But hope educate me, I apologize. In the event a new tenant takes over a new operator, they don't have any ability to tweak the existing ongoing lease terms between yourselves and then do. There's no way for them to cram down the new lease kind of parameter on you?

No. There's no ability for them to do that Jim.

Great. Great. And then again on the same topic, but I'm sure your team has been out there looking at the other eight locations with Genesis. Would you characterize sort of the utilization? I know you seem confident in the quality of the real estate location, but are patients coming into these properties, it's a viable cancer treatment? I'm just trying to get a sense of what's happening at the operational level if you have any color on that?

Yeah. We actually -- our asset management team specifically made sure that we went out and did some visuals on each of the buildings. And yes there -- where they're providing healthcare, it appears as though they're open for business as usual. So we take -- obviously we take comfort associated with that.

That’s helpful. Thank you very much.

Thanks, Jim.

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

Thanks, Jason, and thanks everybody for their support and look forward to talking to everybody next time. Have a good week. Thank you.

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