Community Healthcare Trust Inc [CHCT] Filings

10-Q 1 chct-20240630.htm 10-Q chct-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024
OR
☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-37401

Community Healthcare Trust Incorporated

(Exact Name of Registrant as Specified in Its Charter)


Maryland						46-5212033
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

3326 Aspen Grove Drive

Suite 150

Franklin, Tennessee 37067

(Address of Principal Executive Offices) (Zip Code)

(615) 771-3052

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common stock, $0.01 par value per share

CHCT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Emerging-growth company

☐

Non-accelerated filer

☐

Smaller reporting

company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The Registrant had 28,057,217 shares of Common Stock, $0.01 par value per share, outstanding as of July 24, 2024.

COMMUNITY HEALTHCARE TRUST INCORPORATED

FORM 10-Q

JUNE 30, 2024

TABLE OF CONTENTS


		Page
PART I.—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40

PART II.—OTHER INFORMATION		41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41

SIGNATURES		44

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMUNITY HEALTHCARE TRUST INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share amounts)


	(Unaudited)
	June 30, 2024		December 31, 2023
ASSETS
Real estate properties
Land and land improvements	$	143,717	$	136,532
Buildings, improvements, and lease intangibles	976,415		913,416
Personal property	318		299
Total real estate properties	1,120,450		1,050,247
Less accumulated depreciation	(221,834)		(200,810)
Total real estate properties, net	898,616		849,437
Cash and cash equivalents	734		3,491
Restricted cash	—		1,142

Real estate properties held for sale	7,326		7,466
Other assets, net	76,520		83,876
Total assets	$	983,196	$	945,412

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Debt, net	$	457,625	$	403,256
Accounts payable and accrued liabilities	12,023		12,032

Other liabilities, net	15,777		16,868
Total liabilities	485,425		432,156

Commitments and contingencies

Stockholders' Equity
Preferred stock, $0.01 par value; 50,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 450,000 shares authorized; 28,049 and 27,613 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	280		276
Additional paid-in capital	699,833		688,156
Cumulative net income	82,094		88,856
Accumulated other comprehensive income	21,490		16,417
Cumulative dividends	(305,926)		(280,449)
Total stockholders’ equity	497,771		513,256
Total liabilities and stockholders' equity	$	983,196	$	945,412

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTHCARE TRUST INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(Unaudited; Dollars and shares in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
REVENUES
Rental income	$	27,905	$	26,764	$	56,247	$	52,892


Other operating interest, net	(389)		1,046		602		2,094
	27,516		27,810		56,849		54,986

EXPENSES
Property operating	5,572		4,786		11,363		9,659
General and administrative (1)	4,760		3,787		9,314		19,992
Depreciation and amortization	10,792		9,219		21,054		18,237

	21,124		17,792		41,731		47,888

OTHER INCOME (EXPENSE)
Impairment of real estate asset	(140)		—		(140)		—
Interest expense	(5,986)		(4,140)		(11,048)		(8,132)
Credit loss reserve	(11,000)		—		(11,000)		—
Deferred income tax expense	—		(50)		—		(85)
Interest and other income	307		749		308		774
	(16,819)		(3,441)		(21,880)		(7,443)

NET (LOSS) INCOME	$	(10,427)	$	6,577	$	(6,762)	$	(345)

NET (LOSS) INCOME PER COMMON SHARE
Net (loss) income per common share - Basic	$	(0.42)	$	0.24	$	(0.31)	$	(0.07)
Net (loss) income per common share -Diluted	$	(0.42)	$	0.24	$	(0.31)	$	(0.07)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC	26,479		25,065		26,388		24,648
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED	26,479		25,065		26,388		24,648

___________
(1) General and administrative expenses for the six months ended June 30, 2024 included stock-based compensation expense totaling approximately $4.9 million. General and administrative expenses for the six months ended June 30, 2023 included stock-based compensation expense totaling approximately $16.0 million, including the accelerated amortization of stock-based compensation totaling approximately $11.8 million recognized upon the passing of our former CEO and President in the first quarter of 2023. See Note 9 – Stock Incentive Plan.

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTHCARE TRUST INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(Unaudited; Dollars in thousands)


			Three Months Ended June 30,				Six Months Ended June 30,
			2024		2023		2024		2023

NET (LOSS) INCOME			$	(10,427)	$	6,577	$	(6,762)	$	(345)
	Other comprehensive income:
		Increase in fair value of cash flow hedges	2,703		9,875		10,573		4,902
		Reclassification for amounts recognized as interest expense	(2,703)		(2,474)		(5,500)		(4,484)
	Total other comprehensive income		—		7,401		5,073		418
COMPREHENSIVE (LOSS) INCOME			$	(10,427)	$	13,978	$	(1,689)	$	73

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTHCARE TRUST INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024

(Unaudited; Dollars and shares in thousands, except per share amounts)


	Preferred Stock			Common Stock			Additional Paid in Capital		Cumulative Net Income		Accumulated Other Comprehensive Income		Cumulative Dividends		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2024	—	$	—	27,701	$	277	$	690,491	$	92,521	$	21,490	$	(293,133)	$	511,646
Issuance of common stock, net of issuance costs	—	—		294	3		6,873		—		—		—		6,876
Stock-based compensation, net of forfeitures	—	—		54	—		2,469		—		—		—		2,469

Increase in fair value of cash flow hedges	—	—		—	—		—		—		2,703		—		2,703
Reclassification for amounts recognized as interest expense	—	—		—	—		—		—		(2,703)		—		(2,703)
Net loss	—	—		—	—		—		(10,427)		—		—		(10,427)
Dividends to common stockholders ($0.4600 per share)	—	—		—	—		—		—		—		(12,793)		(12,793)
Balance at June 30, 2024	—	$	—	28,049	$	280	$	699,833	$	82,094	$	21,490	$	(305,926)	$	497,771

Balance at December 31, 2023	—	$	—	27,613	$	276	$	688,156	$	88,856	$	16,417	$	(280,449)	$	513,256
Issuance of common stock, net of issuance costs	—	—		313	3		7,336		—		—		—		7,339
Stock-based compensation, net of forfeitures	—	—		144	1		4,892		—		—		—		4,893
Shares withheld on vesting of stock-based compensation	—	—		(21)	—		(551)		—		—		—		(551)
Increase in fair value of cash flow hedges	—	—		—	—		—		—		10,573		—		10,573
Reclassification for amounts recognized as interest expense	—	—		—	—		—		—		(5,500)		—		(5,500)
Net loss	—	—		—	—		—		(6,762)		—		—		(6,762)
Dividends to common stockholders ($0.9175 per share)	—	—		—	—		—		—		—		(25,477)		(25,477)
Balance at June 30, 2024	—	$	—	28,049	$	280	$	699,833	$	82,094	$	21,490	$	(305,926)	$	497,771

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTHCARE TRUST INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023

(Unaudited; Dollars and shares in thousands, except per share amounts)


	Preferred Stock			Common Stock			Additional Paid in Capital		Cumulative Net Income		Accumulated Other Comprehensive Income		Cumulative Dividends		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2023	—	$	—	26,274	$	263	$	648,384	$	74,220	$	15,684	$	(244,036)	$	494,515
Issuance of common stock, net of issuance costs	—	—		236	2		7,943		—		—		—		7,945
Stock-based compensation, net of forfeitures	—	—		31	—		1,693		—		—		—		1,693
Shares withheld on vesting of stock-based compensation	—	—		—	—		(963)		—		—		—		(963)
Increase in fair value of cash flow hedges	—	—		—	—				—		9,875		—		9,875
Reclassification for amounts recognized as interest expense	—	—		—	—		—		—		(2,474)		—		(2,474)
Net income	—	—		—	—		—		6,577		—		—		6,577
Dividends to common stockholders ($0.4500 per share)	—	—		—	—		—		—		—		(11,843)		(11,843)
Balance at June 30, 2023	—	$	—	26,541	$	265	$	657,057	$	80,797	$	23,085	$	(255,879)	$	505,325

Balance at December 31, 2022	—	$	—	25,897	$	259	$	625,136	$	81,142	$	22,667	$	(232,390)	$	496,814
Issuance of common stock	—	—		485	5		16,846		—		—		—		16,851
Stock-based compensation, net of forfeitures	—	—		159	1		16,038		—		—		—		16,039
Shares withheld on vesting of stock-based compensation	—	—		—	—		(963)		—		—		—		(963)
Increase in fair value of cash flow hedges	—	—		—	—				—		4,902		—		4,902
Reclassification for amounts recognized as interest expense	—	—		—	—		—		—		(4,484)		—		(4,484)
Net loss	—	—		—	—		—		(345)		—		—		(345)
Dividends to common stockholders ($0.8975 per share)	—	—		—	—		—		—		—		(23,489)		(23,489)
Balance at June 30, 2023	—	$	—	26,541	$	265	$	657,057	$	80,797	$	23,085	$	(255,879)	$	505,325

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTHCARE TRUST INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Dollars in thousands)


	Six Months Ended June 30,
	2024		2023
OPERATING ACTIVITIES
Net loss	$	(6,762)	$	(345)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	21,054		18,237
Other amortization	384		508
Stock-based compensation	4,893		4,239
Accelerated amortization of stock-based compensation	—		11,799
Straight-line rent receivable	(551)		(1,737)
Net gain from insurance recovery on casualty loss	—		(706)


Impairment of real estate asset	140		—
Credit loss reserve	11,000		—

Deferred income tax expense	—		85
Changes in operating assets and liabilities:
Other assets	(37)		(1,853)
Accounts payable and accrued liabilities	189		(233)
Other liabilities	(938)		(620)
Net cash provided by operating activities	29,372		29,374

INVESTING ACTIVITIES
Acquisitions of real estate	(57,844)		(39,712)

Funding of notes receivable	(275)		(1,985)

Proceeds from the repayment of notes receivable	1,620		2,255
Insurance proceeds from casualty loss	—		2,273
Capital expenditures on existing real estate properties	(12,298)		(7,884)
Net cash used in investing activities	(68,797)		(45,053)

FINANCING ACTIVITIES
Net borrowings on revolving credit facility	59,000		15,000


Mortgage note repayments	(4,820)		(63)
Dividends paid	(25,477)		(23,489)
Proceeds from issuance of common stock	7,492		16,944
Taxes paid on behalf of employees and shares withheld upon shares vesting	(551)		(964)
Equity issuance costs	(118)		(141)


Net cash provided by financing activities	35,526		7,287
Decrease in cash, cash equivalents and restricted cash	(3,899)		(8,392)
Cash, cash equivalents and restricted cash, beginning of period	4,633		12,068
Cash, cash equivalents and restricted cash, end of period	$	734	$	3,676

Supplemental Cash Flow Information:
Interest paid (net of capitalized interest)	$	10,703	$	7,868
Invoices accrued for construction, tenant improvement and other capitalized costs	$	3,619	$	3,776

Reclassification of registration statement costs incurred in prior years to equity issuance costs	$	188	$	91

Increase in fair value of cash flow hedges	$	10,573	$	4,902
Income taxes paid	$	28	$	69
Capitalized interest	$	77	$	349

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTHCARE TRUST INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Overview

Community Healthcare Trust Incorporated (the ‘‘Company’’, ‘‘we’’, ‘‘our’’) was organized in the State of Maryland on March 28, 2014. The Company is a fully-integrated healthcare real estate company that owns and acquires real estate properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers. As of June 30, 2024, the Company had gross investments of approximately $1.1 billion in 198 real estate properties (including a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million and two properties classified as an asset held for sale with an aggregate net investment totaling approximately $7.3 million. See Note 10 – Other Assets, net and Note 4 – Real Estate Acquisitions and Assets Held for Sale, respectively). The properties are located in 35 states, totaling approximately 4.5 million square feet in the aggregate and were approximately 92.6% leased, excluding real estate assets held for sale, at June 30, 2024 with a weighted average remaining lease term of approximately 7.1 years. Any references to square footage, property count, or occupancy percentages, and any amounts derived from these values in these notes to the Condensed Consolidated Financial Statements, are outside the scope of our independent registered public accounting firm's review.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. This interim financial information should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2024. All intercompany accounts and transactions have been eliminated.

Use of Estimates in the Condensed Consolidated Financial Statements

Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes, including among others, estimates related to impairment assessments, purchase price allocations, valuation of properties held for sale, allowances for accounts and interest receivables, and valuation of financial instruments. Actual results may materially differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents includes short-term investments with original maturities of three months or less when purchased. Restricted cash consisted of amounts held by the lender of our mortgage note payable to provide for future real estate tax, insurance expenditures and tenant improvements related to one property. The carrying amounts approximate fair value due to the short term maturity of these investments. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Company's Condensed

Notes to Condensed Consolidated Financial Statements - Continued

Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows:


	Balance as of June 30,
(Dollars in thousands)	2024		2023
Cash and cash equivalents	$	734	$	2,627
Restricted cash	—		1,049
Cash, cash equivalents and restricted cash	$	734	$	3,676

Rental Income

The primary source of revenue for the Company is generated through its leasing arrangements with its tenants which is accounted for under ASC Topic 842. The Company's rental income is based on contractual arrangements with its tenants. From the inception of a lease, if collection of substantially all of the lease payments is probable for a tenant, then rental income is recognized as earned over the life of the lease agreement on a straight-line basis. Recognizing rental revenue on a straight-line basis for leases may result in recognizing revenue in amounts more or less than amounts currently due from tenants.

Interest Income

The Company's interest income is recognized based on contractual arrangements with its tenants. The Company recognizes interest income on an accrual basis unless the Company determines that collectability of contractual amounts is not reasonably assured, at which point the note is placed on non-accrual status and interest income is recognized on a cash basis.

Credit Losses

Losses from Operating Lease Receivables

We assess the probability of collecting substantially all rents under our leases, on a tenant-by-tenant basis, based on several factors, including, payment and default history, financial strength of the tenant and/or guarantors, historical and operating trends of the property, and the value of the underlying collateral, if any. If management determines that collection of substantially all of a tenant's lease payments is not probable, we will revert to recognizing such lease payments at the lesser of cash collected, lease income reflected on a straight-line basis, or another systematic basis plus variable rent when it becomes accruable and will reverse any recorded receivables related to that lease. In the event that management subsequently determines collection of substantially all of that tenant's lease payments is probable, management will reinstate and record all such receivables for the lease in accordance with the lease terms. The Company also maintains a general allowance for its lease receivables that management has determined are probable of collection. Accounts receivable, straight-line rent and related allowances are included in Other assets on the Company's Condensed Consolidated Balance Sheets and any offsetting reduction in income is included in rental income on the Company's Condensed Statements of Operations.

Credit Losses on Loans and Interest Receivables

Historically, the Company has at times entered into loans with certain of its tenants for working capital or other needs. We consider our loans to be incidental to our main business of acquiring and leasing healthcare real estate. Credit losses on financial instruments are measured using an expected credit loss ("CECL") model in evaluating the collectability of notes receivable and other financial instruments. The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in addition to information about past events and current conditions. Under the CECL model, the Company estimates credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument and is required to record a credit loss expense (or reversal) in each reporting period. The Company evaluates factors such as its historical credit loss experience with the borrower or similar financial assets, current economic conditions, current and expected future financial condition of the borrower, as well as payment history of the borrower, along with other relevant factors for each borrower or similar instruments. If a sale of the borrower's collateral, such as the underlying business or real estate, is expected to repay amounts due to the Company, the Company will also evaluate the underlying collateral in measuring any expected credit loss. The Company's financial instruments included in the scope of the CECL guidance are the principal balances of its tenant

Notes to Condensed Consolidated Financial Statements - Continued

notes receivable and its net investment in a sales-type lease which are included in Other assets on the Company's Condensed Consolidated Balance Sheets.

We made an accounting policy election to exclude interest receivables from the credit loss reserve model. The Company recognizes interest income on an accrual basis unless the Company has determined that collectability of contractual amounts is not reasonably assured, at which point the note is placed on non-accrual status and interest income is recognized on a cash basis. Subsequently, when collectability of contractual amounts is reasonably assured, management will resume the accrual basis.

Income Taxes

The Company has elected to be taxed as a real estate investment trust ("REIT"), as defined under the Internal Revenue Code of 1986, as amended (the "Code"). The Company and two subsidiaries have also elected for those subsidiaries to be treated as taxable REIT subsidiaries ("TRSs"), which are subject to federal and state income taxes. No provision has been made for federal income taxes for the REIT; however, the Company has recorded income tax expense or benefit for the TRSs to the extent applicable. The Company intends at all times to qualify as a REIT under the Code. The Company must distribute at least 90% per annum of its REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) and meet other requirements to continue to qualify as a REIT.

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280) on November 27, 2023. The provisions of this update generally include; (i) a requirement to disclose significant segment expenses, on an annual and interim basis, that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss; (ii) a requirement to disclose the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit and loss in assessing segment performance and deciding how to allocate resources, and (iii) a requirement that entity's with a single reportable segment provide all of the disclosures required by the amendments in this update. This update is effective for annual reporting periods beginning after December 31, 2023, and interim period beginning after December 15, 2024. The Company does not expect that the adoption of this ASU will have a material impact on its consolidated financial statements other than the new disclosure requirements, as we operate under a single reportable segment. Compliance with these new disclosure requirements will begin with the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

NOTE 2. REAL ESTATE INVESTMENTS

As of June 30, 2024, we had gross investments of approximately $1.1 billion in 198 real estate properties (including a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million and two properties classified as held for sale with an aggregate amount totaling approximately $7.3 million). The Company's investments are diversified by property type, geographic location, and tenant as shown in the following tables:


Property Type	# of Properties	Gross Investment (in thousands)
Medical Office Building	96	$	472,776
Inpatient Rehabilitation Hospitals	9	198,319
Acute Inpatient Behavioral	5	130,535
Specialty Centers	37	117,941
Physician Clinics	30	87,998
Surgical Centers and Hospitals	10	56,672
Behavioral Specialty Facilities	9	45,067
Long-term Acute Care Hospitals	2	21,484
Total	198	$	1,130,792

Notes to Condensed Consolidated Financial Statements - Continued


State	# of Properties	Gross Investment (in thousands)
Texas	17	$	186,451
Illinois	18	132,120
Ohio	26	114,994
Florida	25	109,600
Pennsylvania	15	60,478
All Others	97	527,149
Total	198	$	1,130,792


Primary Tenant	# of Properties	Gross Investment (in thousands)
Lifepoint Health	6	$	110,182
US HealthVest	3	77,964
All Others (less than 4%)	189	942,646
Total	198	$	1,130,792

NOTE 3. REAL ESTATE LEASES

Lessor Accounting

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2044. The Company’s leases generally require the lessee to pay minimum rent, with fixed rent renewal terms or increases based on a Consumer Price Index and may also include additional rent, which may include the reimbursement of taxes (including property taxes), insurance, maintenance and other operating costs associated with the leased property.

Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property. Some leases also allow the lessee to renew or extend their lease term or in some cases terminate their lease, based on conditions provided in the lease.

Future minimum lease payments under the non-cancelable operating leases due to the Company for the years ending December 31, as of June 30, 2024, are as follows (in thousands):


2024 (six months ended December 31)	$	51,592
2025	98,461
2026	89,521
2027	81,964
2028	75,707
2029 and thereafter	415,067
	$	812,312

Rental income is recognized as earned over the life of the lease agreement on a straight-line basis when collection of rental payments over the term of the lease is probable. Straight-line rent reduced rental income by approximately $0.2 million for the three months ended June 30, 2024 and increased rental income by approximately $0.8 million, for the three months ended June 30, 2023, and increased rental income by approximately $0.6 million and $1.7 million, respectively, for the six months ended June 30, 2024 and 2023.

Loss on operating lease receivable

During the three months ended June 30, 2024, the Company determined that the collectability of substantially all of the lease payments on six leases with a geriatric inpatient behavioral hospital tenant was not reasonably assured and

Notes to Condensed Consolidated Financial Statements - Continued

placed the tenant on cash basis, resulting in a reversal of rental income related to $1.9 million of lease receivables, including $0.9 million of straight-line rent.

Purchase Option Provisions

Certain of the Company's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property. The purchase option provisions generally allow the lessee to purchase the leased property at fair value or at an amount greater than the Company's gross investment in the leased property at the time of the purchase. At June 30, 2024, the Company had an aggregate gross investment of approximately $38.5 million in 11 real estate properties with purchase options exercisable at June 30, 2024 that had not been exercised.

Sales-type Lease

The Company has a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million included in other assets, net on the Company's Condensed Consolidated Balance Sheets. Future lease payments due to the Company under this lease for the years ending December 31, as of June 30, 2024, are as follows (in thousands):


2024 (six months ended December 31)	$	175
2025	356
2026	367
2027	378
2028	389
2029 and thereafter	4,821
Total undiscounted lease receivable	6,486
Discount	(3,464)
Lease receivable	$	3,022

The Company recognized interest income of approximately $0.1 million during each of the three months ended June 30, 2024 and 2023 and approximately $0.2 million during each of the six months ended June 30, 2024 and 2023 related to this lease, which is included in other operating interest on the Company's Condensed Consolidated Statements of Operations.

Lessee Accounting

At June 30, 2024, the Company was obligated, as the lessee, under four non-prepaid ground leases accounted for as operating leases with expiration dates, including renewal options, through 2076, and two non-prepaid ground leases accounted for as financing leases with expiration dates through 2109, including renewal options. Any rental increases related to the Company's ground leases are generally either stated or based on the Consumer Price Index. The Company's future lease payments under these non-prepaid ground leases were as follows (in thousands):


	Operating		Financing
2024 (six months ended December 31)	$	21	$	75
2025	44		154
2026	44		154
2027	45		154
2028	46		154
2029 and thereafter	1,102		6,802
Total undiscounted lease payments	1,302		7,493
Discount	(533)		(4,224)
Lease liabilities	$	769	$	3,269

Notes to Condensed Consolidated Financial Statements - Continued

The following table discloses other information regarding the ground leases.


	Three Months Ended June 30,
	2024		2023
Operating leases:
Weighted-average remaining lease term in years (including renewal options)	34.5		35.7
Weighted-average discount rate	4.0	%	4.0	%

Financing leases:
Weighted-average remaining lease term in years (including renewal options)	39.3		40.3
Weighted-average discount rate	4.2	%	4.2	%

NOTE 4. REAL ESTATE ACQUISITIONS AND ASSETS HELD FOR SALE

Acquisitions

During the second quarter of 2024, the Company acquired one inpatient rehabilitation facility. The property was 100.0% leased to a tenant with a lease expiration in 2039. Amounts reflected in revenues and net income for this property for the three months ended June 30, 2024 was approximately $0.5 million and $0.4 million, respectively, and transaction costs totaling approximately $47,000 were capitalized relating to this property acquisition.

During the first quarter of 2024, the Company acquired four real estate properties in four transactions. Upon acquisition, the properties were 98.6% leased in the aggregate with lease expirations through 2039. Amounts reflected in revenues and net income for these properties for the six months ended June 30, 2024 were approximately $1.1 million and $0.5 million, respectively, and transaction costs totaling approximately $0.3 million were capitalized relating to these property acquisitions.

The following table summarizes our property acquisitions for the six months ended June 30, 2024:


Location	Property Type (1)	Number of Properties	Date Acquired	Purchase Price		Cash Consideration		Real Estate		Other (2)		Square Footage
				(000's)		(000's)		(000's)		(000's)
New Bedford, MA	LTACH	1	1/31/24	$	6,500	$	6,540	$	6,547	$	(7)	70,657
Elkton, MD	MOB	1	3/25/24	4,500		4,578		4,757		(179)		19,656
Bemidji, MN	MOB	2	3/29/24	23,200		23,179		23,375		(196)		74,700
San Antonio, TX	IRF	1	4/16/24	23,500		23,547		23,547		—		38,009
















				$	57,700	$	57,844	$	58,226	$	(382)	203,022

(1) LTACH - Long-term Acute Care Hospital; MOB - Medical Office Building; IRF - Inpatient Rehabilitation Facility
(2) Includes other assets acquired, liabilities assumed, and above and below-market intangibles recognized at acquisition

Notes to Condensed Consolidated Financial Statements - Continued

The following table summarizes the relative fair values of the assets acquired and liabilities assumed in the property acquisitions for the six months ended June 30, 2024:


			Relative Fair Value		Estimated Useful Life
			(in thousands)		(in years)
Land and land improvements			$	6,277	9.1
Building and building improvements			49,405		34.8
Intangibles:
	In-place lease intangibles		2,544		3.6
	Above-market lease intangibles		121		5.0
	Below-market lease intangibles		(275)		2.0
		Total intangibles	2,390



Accounts payable, accrued liabilities and other liabilities assumed			(194)
Accounts receivable and other assets acquired			48
Prorated rent, interest and operating expense reimbursement amounts collected			(82)
	Total cash consideration		$	57,844

Assets Held for Sale

The Company had two properties classified as held for sale as of June 30, 2024. The table below reflects the real estate assets classified as held for sale as of June 30, 2024 and December 31, 2023. The Company recorded an additional impairment on one of the buildings totaling approximately $140,000 based on a sales contract entered into during the three months ended June 30, 2024.


(Dollars in thousands)	June 30, 2024		December 31, 2023
Balance Sheet data:
Land	$	1,576	$	1,576
Building, improvements, and lease intangibles	9,916		10,056
	11,492		11,632
Accumulated depreciation	(4,166)		(4,166)
Real estate assets held for sale, net	$	7,326	$	7,466

NOTE 5. DEBT, NET

The table below details the Company's debt as of June 30, 2024 and December 31, 2023.


	Balance as of
(Dollars in thousands)	June 30, 2024		December 31, 2023		Maturity Dates

Credit Facility:
Revolving Credit Facility	$	109,000	$	50,000	3/26
A-3 Term Loan, net	74,791		74,730		3/26
A-4 Term Loan, net	124,579		124,522		3/28
A-5 Term Loan, net	149,255		149,189		3/30
Mortgage Note Payable, net	—		4,815		5/24
	$	457,625	$	403,256

Notes to Condensed Consolidated Financial Statements - Continued

Credit Facility

The Company's third amended and restated credit agreement, as amended (the "Credit Facility") is by and among

Community Healthcare Trust Incorporated, as borrower, the several banks and financial institutions party thereto as lenders, and Truist Bank, as administrative agent.

The Credit Facility provides for a $150.0 million revolving credit facility (the "Revolving Credit Facility") and $350.0 million in term loans (the "Term Loans"). The Revolving Credit Facility matures on March 19, 2026 and includes one 12-month option to extend the maturity date, subject to the satisfaction of certain conditions. The Term Loans include a seven-year term loan facility in the aggregate principal amount of $75.0 million (the "A-3 Term Loan"), which matures on March 29, 2026, a seven-year term loan facility in the aggregate principal amount of $125.0 million (the "A-4 Term Loan"), which matures on March 19, 2028, and a seven-year and three-month term loan facility in the aggregate principal amount of $150.0 million (the "A-5 Term Loan") which matures on March 14, 2030. Loans under the Credit Facility are interest only with principal amounts due as of each facility's applicable maturity date. The Credit Facility allows the Company to borrow, through the accordion feature, up to $700.0 million, including the ability to add and fund incremental term loans. The Company's material subsidiaries are guarantors of the obligations under the Credit Facility.

Amounts outstanding under the Revolving Credit Facility will bear interest at a floating rate based on the Company's option, on either: (i) adjusted term SOFR or adjusted daily simple SOFR plus 1.25% to 1.90% or (ii) a base rate plus 0.25% to 0.90% in each case, depending upon the Company’s leverage ratio. In addition, the Company is obligated to pay an annual fee equal to 0.20% of the amount of the unused portion of the Revolving Credit Facility if amounts borrowed are greater than 33.3% of the borrowing capacity under the Revolving Credit Facility and 0.25% of the unused portion of the Revolving Credit Facility if amounts borrowed are less than or equal to 33.3% of the borrowing capacity under the Revolving Credit Facility. The Company had $109.0 million outstanding under the Revolving Credit Facility with a weighted average interest rate of 7.06% and a borrowing capacity remaining of $41.0 million at June 30, 2024.

Amounts outstanding under the Term Loans will bear interest at a floating rate that is based, at the Company's option, on either (i) adjusted term SOFR or adjusted daily SOFR plus 1.65% to 2.30%, plus a simple SOFR adjustment equal to 0.10% per annum, or (ii) a base rate plus 0.65% to 1.30%, in each case, depending upon the Company’s leverage ratio. The Company has entered into interest rate swaps to fix the interest rates on the Term Loans. See Note 6 – Derivative Financial Instruments for more details on the interest rate swaps. At June 30, 2024, the Company had $350.0 million outstanding under the Term Loans which had a fixed weighted average interest rate under the swaps of approximately 4.4%.

The Company’s ability to borrow under the Credit Facility is subject to its ongoing compliance with a number of customary affirmative and negative covenants, including limitations with respect to liens, indebtedness, distributions, mergers, consolidations, investments, restricted payments and asset sales, as well as financial maintenance covenants. The Company was in compliance with its financial covenants under its Credit Facility as of June 30, 2024.

Mortgage Note Payable

During the three months ended June 30, 2024 the Company repaid its mortgage note payable totaling approximately $4.8 million.

NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative

Notes to Condensed Consolidated Financial Statements - Continued

financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

On March 29, 2024, two interest rate swaps matured and were replaced with two forward-starting interest rate swaps for notional amounts totaling $50.0 million. As of June 30, 2024, the Company had fifteen outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk for notional amounts totaling $350.0 million, which mature between 2026 and 2030, at the maturity dates of the associated term loans (see Note 5 – Debt, net).

Tabular Disclosure of Fair Value of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023.


	Asset Derivatives Fair Value at					Liability Derivatives Fair Value at
(Dollars in thousands)	June 30, 2024		December 31, 2023		Balance Sheet Classification	June 30, 2024		December 31, 2023		Balance Sheet Classification
Interest rate swaps	$	21,490	$	16,417	Other assets, net	$	—	$	—	Other liabilities, net

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income ("AOCI") and are subsequently reclassified to interest expense in the period that the hedged forecasted transaction affects earnings.

Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s Term Loans. During the next twelve months, the Company estimates that an additional $9.2 million will be reclassified from AOCI as a decrease to interest expense.

Tabular Disclosure of the Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2024 and 2023.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2024		2023		2024		2023
Amount of unrealized gain recognized in OCI on derivative	$	2,703	$	9,875	$	10,573	$	4,902
Amount of gain reclassified from AOCI into interest expense	$	(2,703)	$	(2,474)	$	(5,500)	$	(4,484)
Total interest expense presented in the Condensed Consolidated Statements of Operations in which the effects of the cash flow hedges are recorded	$	5,986	$	4,140	$	11,048	$	8,132

Tabular Disclosures of Offsetting Derivatives

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of June 30, 2024 and December 31, 2023. The net amounts of derivative assets can be reconciled to

Notes to Condensed Consolidated Financial Statements - Continued

the tabular disclosure of fair value. As of June 30, 2024 and December 31, 2023 the Company did not have any derivatives in a liability position, therefore we do not present offsetting of derivative liabilities to be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets are presented on the Condensed Consolidated Balance Sheets.


Offsetting of Derivative Assets (as of June 30, 2024)
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(In thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets in the Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives	$	21,490	$	—	$	21,490	$	—	$	—	$	21,490


Offsetting of Derivative Assets (as of December 31, 2023)
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
(In thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets in the Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives	$	16,417	$	—	$	16,417	$	—	$	—	$	16,417

Credit-risk-related Contingent Features

As of June 30, 2024, the Company did not have any derivatives in a net liability position. As of June 30, 2024, the Company had not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company terminated these interest rate swaps or breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value.

NOTE 7. STOCKHOLDERS' EQUITY

Common Stock

The following table provides a reconciliation of the beginning and ending common stock balances for the six months ended June 30, 2024 and for the year ended December 31, 2023:


(In thousands)	Six Months Ended June 30, 2024	Year Ended December 31, 2023
Balance, beginning of period	27,613	25,897
Issuance of common stock	313	1,385
Restricted stock issued	144	361
Restricted stock withheld and forfeited	(21)	(30)
Balance, end of period	28,049	27,613

ATM Program

The Company has an at-the-market offering program ("ATM Program"), with Piper Sandler & Co., Evercore Group L.L.C., Truist Securities, Inc., Regions Securities LLC, Robert W. Baird & Co. Incorporated, Fifth Third Securities, Inc. and Janney Montgomery Scott LLC, as sales agents (collectively, the “Agents”). Under the ATM Program, the Company may issue and sell shares of its common stock, having an aggregate gross sales price of up to $500.0 million. The shares of common stock may be sold from time to time through or to one or more of the Agents, as may be determined by the Company in its sole discretion, subject to the terms and conditions of the agreement and applicable law.

Notes to Condensed Consolidated Financial Statements - Continued

The Company's activity under the ATM Program during the six months ended June 30, 2024 is detailed in the table below. As of June 30, 2024, the Company had approximately $426.3 million remaining that may be issued under the ATM Program.


	Three Months Ended June 30, 2024	Six Months Ended June 30, 2024
Shares issued (in thousands)	294	313
Net proceeds received (in millions)	$7.0	$7.5
Average gross sales price per share	$24.17	$24.38

NOTE 8. NET (LOSS) INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net (loss) income per common share for the three and six months ended June 30, 2024 and 2023, respectively.


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2024		2023		2024		2023
Net (loss) income	$	(10,427)	$	6,577	$	(6,762)	$	(345)
Participating securities' share in earnings	(657)		(550)		(1,303)		(1,373)
Net (loss) income, less participating securities' share in earnings	$	(11,084)	$	6,027	$	(8,065)	$	(1,718)

Weighted average Common Shares outstanding
Weighted average Common Shares outstanding	27,879		26,358		27,780		26,202
Unvested restricted shares	(1,400)		(1,293)		(1,392)		(1,554)
Weighted average Common Shares outstanding–Basic	26,479		25,065		26,388		24,648
Dilutive potential common shares	—		—		—		—
Weighted average Common Shares outstanding –Diluted	26,479		25,065		26,388		24,648

Basic Net (Loss) Income Per Common Share	$	(0.42)	$	0.24	$	(0.31)	$	(0.07)

Diluted Net (Loss) Income Per Common Share	$	(0.42)	$	0.24	$	(0.31)	$	(0.07)

NOTE 9. STOCK INCENTIVE PLAN

Adoption of the 2024 Incentive Plan

The 2024 Incentive Plan, as amended, (the "Plan") was approved by our stockholders at our annual meeting on May 2, 2024. The Plan replaced our 2014 Incentive Plan, as amended, (the "2014 Plan") which had expired on March 31, 2024. The Plan, which will expire on March 4, 2034, implements several changes from the previous 2014 Plan:

•Freezes all awards under the 2014 Plan as of its expiration date;

•Removes the "evergreen provision" which allowed for the incremental automatic increase in the number of shares of common stock reserved for issuance under the Plan;

•Increases the number of shares of common stock authorized for issuance under the Plan to 1,150,000; and

•Expands the types of awards that may be awarded under the Plan.

Notes to Condensed Consolidated Financial Statements - Continued

A summary of restricted stock activity for the three and six months ended June 30, 2024 and 2023 is included in the table below, as well as compensation expense recognized from the amortization of the value of shares over the applicable vesting periods.


		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars and shares in thousands)		2024		2023		2024		2023
Stock-based awards, beginning of period		1,380		1,836		1,374		1,708
	Stock in lieu of compensation	16		22		59		84
	Stock awards	38		39		85		106
	Total stock granted	54		61		144		190
	Vested shares (1)	(17)		(692)		(101)		(692)
	Forfeited shares	—		(2)		—		(3)
Stock-based awards, end of period		1,417		1,203		1,417		1,203
Amortization expense (1)		$	2,152	$	1,692	$	4,260	$	16,038
___________
(1) Amortization expense for the six months ended June 30, 2023 included accelerated amortization totaling approximately $11.8 million recognized during the three months ended March 31, 2023, upon the passing of our former CEO and President. These shares vested during the three months ended June 30, 2023.

Restricted Stock Issuances

On January 12, 2024, pursuant to the 2014 Incentive Plan and the Third Amended and Restated Alignment of Interest Program, the Company granted 79,533 shares of restricted stock to its employees, in lieu of salary, that will cliff vest between three and eight years. Of the shares granted, 43,292 shares of restricted stock were granted in lieu of compensation from the program pool and 36,241 shares of restricted stock were awarded based on the restriction period elected from the plan pool. Also, on January 12, 2024, pursuant to the 2014 Incentive Plan and the Non-Executive Officer Incentive Program, the Company granted 10,159 shares of restricted stock to certain employees that will cliff vest in five years.

On May 2, 2024, pursuant to the 2024 Incentive Plan, the Company granted an aggregate of 22,070 shares of restricted stock to its Board of Directors, which will cliff vest in three years. On May 16, 2024, pursuant to the 2024 Incentive Plan and the Fourth Amended and Restated Alignment of Interest Program, the Company granted an aggregate of 24,887 shares of restricted stock to its Board of Directors, in lieu of fees, that will cliff vest in three years. Of the shares granted, 15,553 shares of restricted stock were granted in lieu of compensation from the program pool and 9,334 shares of restricted stock were awarded based on the restriction period elected from the plan pool. Also, on June 3, 2024, pursuant to the 2024 Incentive Plan, the Company granted 7,000 shares of restricted stock to an employee that will cliff vest in five years.

Accelerated Amortization of Restricted Stock in 2023

The Company's former CEO and President, Timothy Wallace, passed away in March 2023. At the time of his passing, Mr. Wallace had 624,725 shares of restricted stock that had not been fully amortized. In accordance with the terms of his employment agreement, the Company accelerated the unamortized remaining balance of deferred compensation related to his unvested shares and recognized an additional $11.8 million of amortization expense in the first quarter of 2023.

Compensation Programs under the 2024 Incentive Plan

The Company's various programs under the 2024 Incentive Plan have been amended during 2024 for various items, including: (i) allowing for the grant of RSUs and other types of awards other than restricted stock; (ii) limiting the maximum elective deferral percentage amount of salary and bonus to 50% to the acquisition of restricted stock for certain participants (previously 100%), and (iii) limiting the duration of the restriction period election depending on the retirement eligibility date per those participant's employment agreement. The deferral and restriction period limitations were effective beginning January 1, 2024 for salary and other compensation deferrals and will be effective for performance periods commencing on and after July 1, 2024 for cash bonus deferrals.

Notes to Condensed Consolidated Financial Statements - Continued

Restricted Stock Units

The Plan, and previous 2014 Plan, provide for the award of restricted stock units ("RSUs"). The Company historically granted long-term incentive awards to its executive officers which was comprised of restricted stock that vested in 8 years, based on backward-looking performance metrics. On January 2, 2024, the Board approved and adopted a new incentive compensation structure for its executive officers, including the issuance of time-based and performance-based RSUs with three-year forward-looking performance targets beginning with an initial performance period beginning July 1, 2023.

On January 2, 2024, the Company granted performance-based and time-based RSUs to its executive officers under the 2014 Incentive Plan and the Third Amended and Restated Executive Officer Incentive Program. These RSUs with a grant date value totaling $2.6 million are forward-looking with a three-year performance period beginning July 1, 2023. The performance-based RSUs were valued by independent specialists utilizing a Monte Carlo simulation to calculate the weighted average grant date fair values of $13.67 per share for the Absolute TSR units and $20.77 per share for the Relative TSR units. The grant date fair value of the Time-based TSR units was based on the Company's stock price on the grant date of $26.62. The combined weighted average grant date fair value of the RSUs granted was $19.24 per share. The following assumptions were used in valuing the performance-based RSUs:


Volatility	25.0		%
Dividend assumption	5.4		%
Expected term	3 years
Risk-free rate	4.3		%
Stock price (per share)	$	26.62

A summary of the Company's RSU activity during the three and six months ended June 30, 2024 and 2023, respectively, is included in the table below, as well as compensation expense recognized from the amortization of the value of RSUs over the applicable vesting periods.


		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars and RSUs in thousands)		2024		2023		2024		2023
Restricted Stock Units, beginning of period		134		—		—		—
	Absolute TSR Performance-based RSUs granted (1)	—		—		57		—
	Relative TSR Performance-based RSUs granted (1)	—		—		43		—
	Time-based RSUs granted (2)	—		—		34		—
	Total RSUs granted	—		—		134		—


Restricted Stock Units, end of period		134		—		134		—
Amortization expense		$	317	$	—	$	633	$	—
Grant Date Value Remaining at period end to be Amortized During the Performance Period		$	1,937	$	—	$	1,937	$	—
______________
(1) The number of Performance-based RSUs granted were based on target levels. Actual number of shares granted will be based on performance at the end of the performance period which is June 30, 2026. The Performance-based RSUs, if earned, will vest at the end of the performance period.
(2) The number of Time-based RSUs granted were based on target levels. One-third of these RSUs will vest on each of June 30, 2025 and 2026. The first tranche of the 11,206 Time-Based RSUs was fully amortized as of June 30, 2024 and vested on July 1, 2024, the next business day after June 30, 2024.

Notes to Condensed Consolidated Financial Statements - Continued

NOTE 10. OTHER ASSETS, NET

Other assets, net on the Company's Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 are detailed in the table below.


	Balance as of
(Dollars in thousands)	June 30, 2024		December 31, 2023
Fair value of interest rate swaps	$	21,490	$	16,417
Straight-line rent receivables	19,032		18,481
Notes receivable, net of credit loss reserve	18,430		30,775
Sales-type lessor receivable	3,022		3,028
Accounts receivable, net	2,766		2,739
Leasing commissions, net	2,502		2,312
Financing lease right-of-use assets	2,456		2,486
Above-market intangible assets, net	2,359		2,645
Interest receivable, net	1,781		1,906
Prepaid assets	1,101		1,203
Operating lease right of use assets	713		729
Other	503		684
Deferred financing costs, net	365		471

	$	76,520	$	83,876

The Company's notes receivable mainly included:

•At June 30, 2024 and December 31, 2023, notes receivable included a term loan totaling $4.5 million and $6.0 million, respectively, secured by all assets and ownership interests in seven long-term acute care hospitals and one inpatient rehabilitation hospital owned by the borrower. The term loan will be repaid in equal monthly installments of $250,000 through the maturity date of December 31, 2025 and bears interest at 9% per annum.

•At June 30, 2024 and December 31, 2023, notes receivable included a term loan totaling $17.0 million, and a revolving credit facility with $5.7 million and $5.4 million drawn, respectively, secured by assets and ownership interests of six geriatric behavioral hospitals and affiliated companies all of which are co-borrowers on the loans. At June 30, 2024, the Company had an unfunded commitment of $2.8 million on the revolving credit facility and an unfunded commitment of up to $2.0 million on an advancing term loan facility. The term loan bears interest at 9% per annum, with interest only payments due initially and then equal monthly installments of principal payments due beginning March 31, 2025. The term loan facility matures on December 31, 2032. The revolving credit facility bears interest at 9% per annum and matures on December 31, 2025. The advancing term loan may be funded at the Company's discretion, and bears interest at 9% per annum on any amount funded, that may be used by the borrower to pay existing liabilities of co-borrowers. The term loan, the revolving credit facility and the additional commitment all include a 3% per annum non-cash interest charge that is due and payable upon the earlier of the repayment or maturity of each note. In the second quarter of 2024, the Company placed the 9% interest on both the term loan and revolving credit facility on non-accrual and reversed the outstanding interest amounts due totaling approximately $1.2 million and placed the 3% non-cash interest due at the maturity of the notes on non-accrual, resulting in a reduction in interest for the three months ended June 30, 2024 of approximately $0.2 million. The Company also recorded a credit loss reserve on the term loan and revolver totaling $11.0 million at June 30, 2024.

•At June 30, 2024 and December 31, 2023, notes receivable also included a $2.2 million and $2.3 million, respectively, revolving credit facility. The remaining balance of this note will be repaid in equal monthly installments of $40,000 beginning on November 1, 2024, through the maturity date of April 1, 2027. The

Notes to Condensed Consolidated Financial Statements - Continued

revolving credit facility bears interest at 9% per annum, as well as a 3% per annum non-cash interest charge that is due and payable upon the earlier of the repayment or maturity of the note.

The Company identified the borrowers of these notes as variable interest entities ("VIEs"), but management determined that the Company was not the primary beneficiary of the VIEs because we lack either directly or through related parties any material decision-making rights or control of the entities that impact the borrowers' economic performance. We are not obligated to provide support beyond our stated commitment to the borrowers, and accordingly our maximum exposure to loss as a result of this relationship is limited to the amount of our outstanding notes receivable. The VIEs that we have identified at June 30, 2024 are summarized in the table below.


Classification	Carrying Amount (in thousands)		Maximum Exposure to Loss (in thousands)
Note receivable (term loan)	$	4,500	$	4,500
Note receivable (revolving credit facility)	$	2,220	$	2,220
Notes receivable (revolving credit facility and term loan), net of credit loss	$	11,710	$	11,710

Credit Losses on Loans and Interest Receivables

During the three months ended June 30, 2024, the Company determined that the collectability of the term loan and revolver loan with the geriatric inpatient behavioral hospital tenant noted above was not reasonably assured. The tenant has experienced challenges with patient census and employee staffing, which has impacted cash flows from operations and the consistency of rent and interest payments to the Company. The Company expects that the borrower will sell the collateral on these notes and will use those proceeds in part to repay the Company. As such, the Company valued the notes based on its estimated value of the underlying collateral. As a result, the Company recorded an $11.0 million credit loss reserve on its notes receivable with the tenant and reversed approximately $1.4 million of interest and placed the notes on non-accrual status. No other credit loss reserves have been recorded by the Company at June 30, 2024 or December 31, 2023.

NOTE 11. OTHER LIABILITIES, NET

Other liabilities, net on the Company's Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 are detailed in the table below.


	Balance as of
(Dollars in thousands)	June 30, 2024		December 31, 2023
Prepaid rent	$	5,518	$	5,378
Security deposits	3,123		3,765
Below-market lease intangibles, net	2,884		3,188

Financing lease liability	3,269		3,277
Operating lease liability	769		775

Other	214		485
	$	15,777	$	16,868

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate the fair value.

Cash and cash equivalents and restricted cash - The carrying amount approximated the fair value. The fair value estimates were determined using level 1 inputs.

Notes receivable - The fair value was estimated using cash flow analyses, based on an assumed market rate of interest or at a rate consistent with the rates on notes carried by the Company and were classified as level 2 inputs in

Notes to Condensed Consolidated Financial Statements - Continued

the hierarchy. The fair value of notes receivable with one tenant was determined utilizing the fair value of the receivables' collateral, as the receivables are collateral-dependent, and were classified as level 3 inputs in the hierarchy.

Borrowings under our Credit Facility - The carrying amount approximated the fair value because the borrowings were based on variable market interest rates. The fair value estimates were determined using level 2 inputs.

Derivative financial instruments (Interest rate swaps) - The fair value was estimated using discounted cash flow techniques. These techniques incorporate primarily level 2 inputs. The market inputs were utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate swaps were observable in active markets and were classified as level 2 inputs in the hierarchy.

Mortgage note payable - The fair value was estimated using cash flow analyses which were based on an assumed market rate of interest or at a rate consistent with the rates on mortgage notes assumed by the Company and were classified as level 2 inputs in the hierarchy.

The table below details the fair values and carrying values for our notes receivable, interest rate swaps, and mortgage note payable at June 30, 2024 and December 31, 2023, using level 2 and level 3 inputs.


	June 30, 2024				December 31, 2023
(Dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value

Notes receivable (Level 2)	$	6,720	$	6,413	$	8,340	$	8,159
Notes receivable, net of credit loss (1)	$	11,710	$	11,710	$	22,435	$	31,199
Interest rate swap asset	$