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Community Healthcare Trust Inc (NYSE:CHCT)
Q1 2021 Earnings Call
May 6, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Community Healthcare Trust 2021 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2021 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 5, 2021, and may contain forward looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company's disclosures regarding forward looking statements in its earnings release as well as its risk factors and MD&A in its SEC filings.

The company undertakes no obligation to update forward looking statements, whether as the result of new information, future developments or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. The reconciliation between the two is available in its earnings release, which is posted on its website. All participants are advised that the conference call is being recorded for playback purposes. An archive of the call will be made available on the company's Investor Relations website for approximately 30 days and is the property of the company. This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission. Now I would like to turn the call over to Tim Wallace, CEO of Community Healthcare Trust Inc. Go ahead, Tim.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Thanks Garrett. Good morning everyone and thank you for joining us today for our 2021 first quarter conference call. On the call with me today is Dave Dupuy, our Chief Financial Officer; and Leigh Stach, our Chief Accounting Officer. As is our normal process, our earnings announcement and supplemental data report were released last night and filed with an 8-K and our quarterly report on Form 10-Q was also filed last night. We had a busy quarter, both from an operations standpoint and from an acquisition standpoint. Health care providers have been impacted by the COVID-19 pandemic. Some saw a reduced number of procedures and/or patient visits. However, most of our tenant operations are basically back to pre-pandemic levels.

As of March 31, the company had one remaining rent deferral with one tenant representing less than $50,000. Our receivables are in great shape. Our asset management group has done a great job related to collections during the pandemic. This will probably be my last update on COVID issues hopefully. Now onto more normal issues. As you know, we have an active ATM program in place. During the first quarter, the company issued 435,272 shares of stock through its ATM program at an average gross sales price of $46.70 per share. We received net proceeds of approximately $19.9 million at an approximately 3.74% current equity yield. As was previously announced, we increased and extended and modified our credit facilities. I will not steal Dave's part here as I am sure he will give a lot more color on that later. During the first quarter, we acquired six properties with a total of approximately 159,000 square feet for a purchase price of approximately $59.8 million.

These properties were 100% leased with leases running through 2036 and anticipated annual returns of 9.1% to 10.83%. In addition, the company entered into a $6 million term loan and a revolving loan of up to $4 million with the tenant on two of these properties as we discussed in our fourth quarter conference call. So far this quarter, through May 5, the company has acquired one property totaling approximately 44,000 square feet for an aggregate purchase price of approximately $4.2 million. Upon acquisition, the property was approximately 91% leased with lease expirations through 2028 and an anticipated annual return of 10.1%. The company has two properties under definitive purchase agreements for an aggregate expected purchase price of approximately $8.4 million, and expected aggregate returns of approximately 9.3%.

The company is currently performing due diligence and expects to close these properties in the second quarter. In addition, we disclosed in the investor presentation that is posted on our website that we have two new signed term sheets with clients for up to approximately 14 new properties and up to approximately $154 million of new investment. It is anticipated that these investments will be made over the next approximately 24 months. We continue to have many properties under review and have term sheets out on several properties with anticipated returns of 9% to 10%. We anticipate having enough availability on our credit facilities to fund our acquisitions and we expect to continue to opportunistically utilize the ATM to strategically access the equity markets.

Our weighted average remaining lease term continue moving up at approximately 8.28 years. Occupancy ticked up slightly for the quarter as leasing activity picked up some and we are encouraged by the activity we see on the part of healthcare providers. On another front, we declared our dividend for the first quarter and raised it to $0.43 per common share. This equates to an annualized dividend of $1.72 per share. And I continue to be proud to say we have raised our dividend every quarter since our IPO. I believe that takes care of the items I wanted to cover, so I will hand things off to Dave to cover the numbers.

David H. Dupuy -- Chief Financial Officer and Secretary

Great. Thanks Tim, and good morning everyone. Before jumping into the financial results, I wanted to highlight some key aspects of our recent refinancing, the details of which are included in our SEC filings. In addition to adding a new seven year $125 million term loan and extending our revolver maturity for five years, the credit facilities are now unsecured and have provisions that make it consistent with an investment grade financing and pricing grid.

Since we manage our business with disciplined growth strategy, modest leverage and diversification, essentially in line with other investment grade rated REITs, we wanted to structure our loan agreement to allow for bond financing at some point in the future. We believe our refinancing successfully positions the company for continued growth at very attractive borrowing rates both today and in the future. Now onto the numbers.

As Tim discussed, we had a busy and productive first quarter. I'm pleased to report that total revenue grew from $17.9 million in the first quarter of 2020 to $21.4 million in the first quarter of 2021, representing 19.3% growth over the same period last year. Revenue for the fourth quarter of 2020 was $20.1 million, representing 6.3% sequential growth. Our two largest acquisitions closed later in the quarter, so we did not see their full impact in our first quarter results. So on a proforma basis, if all the 2021 first quarter acquisitions had occurred on the first day of the first quarter, total revenue would have increased by an additional $866,000 to a pro forma total of $22.3 million in the first quarter. From an expense perspective, property operating expenses or POE increased quarter-over-quarter from $3.5 million to $3.7 million or 7%.

The increase in POE is in line with the growth we are experiencing in total revenue. Meanwhile, G&A increased from $2.5 million to $2.9 million sequentially in the first quarter or 15%. Increases in G&A were driven primarily by fees and expenses associated with our refinancing, our reconciliation catch-up and taxes, as well as an increase in deferred compensation expense, which is a noncash item. Meanwhile, interest expense increased from $2.1 million to $2.2 million or 4.9%. And this increase was due to the write-off of deferred financing costs associated with our refinancing as well as increased outstandings under our revolver to fund acquisitions in the first quarter. Going forward, our interest costs will trend higher due to the new $125 million term loan, which moves us into a higher pricing tier in our loans.

I am pleased to report that funds from operations, FFO, for the first quarter of 2021 grew to $12.6 million from $10.2 million in the first quarter of 2020, representing 23.3% growth over the same period last year. And on a per-share basis, FFO increased from $0.48 per diluted share in the first quarter of 2020 to $0.54 per diluted share in the first quarter of 2021, an increase of 12.5%. Meanwhile, FFO for the fourth quarter of 2020 was $12.2 million, representing 3.3% growth sequentially. Adjusted funds from operations, which adjust for straight line rent and stock-based compensation total $13.3 million compared with $10.4 million in the first quarter of 2020, or 28.6% growth year-over-year. On a per share basis, AFFO increased from $0.49 per diluted share in the first quarter of 2020 to $0.57 per diluted share in the first quarter of 2021, or 16.3%. Finally, for the fourth quarter of 2020, AFFO was $12.9 million, representing 3.3% growth on a sequential basis. And from a pro forma perspective, if all of first quarter acquisitions occurred on the first day of the first quarter, AFFO would have increased by approximately 752,000 to a pro forma total of $14.1 million, increasing AFFO on a pro forma basis to $0.6 per share.

That's all I have from a numbers perspective. Garrett, we're ready to start the question-and-answer session.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Amanda Sweitzer from Baird.

Amanda Morgan Sweitzer -- Robert W. Baird -- Analyst

On the two larger transactions that you signed term sheets on, can you just talk a little bit more about how those partnerships came about? And then I think in the past, you've talked about targeting serial entrepreneurs as partners. Do you view those agreements as falling into that bucket? And is there a potential for a credit upgrade on those properties in the future?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

So Amanda, thanks for the question. And I have to give you the prize because you're the only one that went back to page seven of the investor presentation and found that information. So you get the prize this quarter for doing the best due diligence before the call. But yes, they are a part of our ongoing client relationships, serial entrepreneur program, and we look at this as a way to fill out the pipeline. These properties, probably won't any of them close this year, one might. But they're probably more 2022 and first half of 2023. But we really like having that ability to look at and see what that pipeline looks like. And we are continuing to focus on that. We had a meeting yesterday where that was -- basically the significant focus of the meeting was where are we on some of these discussions and how do we bring them forward? And it takes time to do some of them. But we feel very good about it. And yes, we anticipate at some point the serial entrepreneurs, they have a history of building companies and then selling them to larger company. So we anticipate that that's going to happen. Although we do our underwriting as if it's not going to happen, and then when it does, we have a nice step up in credit and in value.

Amanda Morgan Sweitzer -- Robert W. Baird -- Analyst

That's great and helpful. And so with those deals and kind of the lineups that you have into your pipeline in 2022 and 2023, do you expect to raise your kind of $120 million to $150 million targeted acquisition guidance on a go-forward basis? Or do you expect kind of a two to three-year step-up in acquisitions that might moderate over time?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

I mean I always caution anybody from increasing it. We feel very comfortable in the $120 million to $150 million range. We think that can produce consistently growing return. It's something that we feel comfortable with. And so I mean, as I've said, over time, as we get bigger, it may go to $130 million to $160 million or $140 million to $170 million, but we do not see any significant step-up in that. And the main reason is we look to optimize our profit, and if we're buying a $0.5 million a quarter or $0.5 million a year -- $0 five billion a year, we wouldn't be able to maintain the profit margin on the deals.

Operator

Our next question comes from Alexander Goldfarb of Piper Sandler.

Alexander David Goldfarb -- Piper Sandler -- Analyst

And hey, I guess it's typical of your understated style to -- and kudos to Amanda for digging through page seven. But I would've thought that, that would have been something that you would have highlighted in the press release, but again, I guess that leaves us for future things to dig for. two questions for you, first

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

But let me address that for just a second, because we never have announced term sheets in the earnings press release or in the Q. We always put term sheets just in the investor presentation. And the main reason is the investor presentation is not filed with the SEC, but it is made available on the website on a widely available basis. So we're just following historic norms on that, and we've never put term sheets in anything other than the investor presentation.

Alexander David Goldfarb -- Piper Sandler -- Analyst

Okay. Well, hopefully if the attorneys should be comfortable with it. I mean, it's great stuff that you guys have, and it'd be great to just publicize it more. So if the attorneys are comfortable with it going into the press release, awesome. But good to know, Tim, and thank you for pointing out that the investor presentation could have acquisition material that may not be in the press release. So appreciate that. So two questions. First, Dave, you mentioned the line of credit is going to drive higher interest costs. And I think you mentioned because of the terms or the size of the facility, and I didn't know if you just meant that you have more drawn on the facility, therefore the interest rate is higher, or if the actual interest rates, the spreads, are higher on the new facility. And if that's the case, I'm just sort of curious, I would think as the company gets more bigger, more credit-worthy, closer to investment grade, I would figure that the spreads would go down. So I wasn't sure if it was just a comment about spreads or if it was a comment about just absolute level of interest.

David H. Dupuy -- Chief Financial Officer and Secretary

So it's two things, really, Alex. The first is we added the $125 million term loan. And simultaneous with that, we refinanced a short dated $50 million term loan. So incrementally, we've added $75 million of debt that we then swapped. So we've got some additional fixed rate debt at higher costs from an interest perspective there. But the second thing is we do -- our pricing grid is the same in terms of how it works. We've added an investment grade component. So to the extent there's a time 2, three years from now when we achieve investment grade ratings and the details are included in our filings, then we have the ability to transition to that investment grade grid. Our grid currently is the same, but because we put some incremental leverage on the business, we're just in a higher pricing tier. So nothing has -- our pricing has not gone up. In fact, we've got a pathway for our pricing to go down as we get more investment grade sort of metrics, but it's just we're in a higher tier, and so as a result, we're paying slightly higher spreads.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Yes. I mean, two things I'd add, Alex. So 30% debt to capital is a bright line in the agreement. And before we were at 28.5%. So we were in a lower tier, as Dave was mentioning. Now we're at 31.5%. So we're in the upper tier. But as we raise more equity, we'll probably slide back down under the 30%. The other thing, Dave, and I don't know. Did you go into what the fixed rate was on the new debt?

David H. Dupuy -- Chief Financial Officer and Secretary

Yes. No. I haven't gone into details there, but we do have a 3.6% fixed rate, blended fixed rate, on the new $125 million term loan, which is, of course, higher than the LIBOR-based drawings on our revolver. So that's part of the issue as well.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

But lower than...

David H. Dupuy -- Chief Financial Officer and Secretary

But lower than our...

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Lower than the $50 million we paid off.

David H. Dupuy -- Chief Financial Officer and Secretary

Right.

Alexander David Goldfarb -- Piper Sandler -- Analyst

Okay. Okay. Cool. And then the second question is on the relationships that you guys have with your serial entrepreneurs, the presale developers and everyone else. Obviously, Tim, you're a wonderful person to do business with, but are you sensing that there's more competition out there? I mean, it's just hard to believe that others haven't noticed the success that CHCT has had. So are you coming across more competitors? Or is this a situation where, because there's a lot of individual asset due diligence and a lot of this is sort of out of the major markets, that you still have a lot of runway to yourself and you're not really seeing much in the way of competition form?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

I'd like to say we're just really smart, but I just don't think other people have focused on it. I mean, I think we do individual due diligence on assets. We do individual due diligence on the operators and we don't look to do the big transactions, and everybody else looks to do the big transactions. So I scratch my head probably once a week and say, I don't understand why other people haven't kind of picked up on what we're doing. And we had a discussion at the Board meeting. And if you get to our point, doing what we're doing looks relatively easy, but the issue is getting to our point and it takes a unique set of people and a unique set of constituents helping to get to where we are today. And I think that's a lot of it because it just isn't the easiest thing to do to execute from nothing to where we are today.

Operator

Our next question comes from Gaurav Mehta of National Securities.

Gaurav Mehta -- National Securities Corporation -- Analyst

First question on your lease expiration. I think in your prepared remarks, you said that you've seen some pickup in the leasing activity. I was hoping if you could maybe comment on your 2021 lease expirations. Are you expecting 100% tenant renewals, and what kind of renewal spreads are you expecting for 2021?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Well, we never expect -- and good morning. Appreciate the question. We never expect 100% renewals. But actually, 2021 is one of the easiest years we've had from a leasing standpoint. And I forget exactly how much is coming due this year, but it's less than 5%, I believe.

David H. Dupuy -- Chief Financial Officer and Secretary

4.3%.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Dave tells me it's 4.3%. So we're actually already working on 2022 renewals. And we're excited about what we're seeing from the providers, because all last year after the pandemic started, basically providers just kept their nose down, and took care of the business, and didn't have a lot of time to talk about leasing. But we have several good size leasing transactions that are real close to being signed. And so we're excited about what we're seeing from a leasing standpoint.

Gaurav Mehta -- National Securities Corporation -- Analyst

Great. Second question on your G&A. It seems like your G&A this quarter as a percentage of revenue was a little higher than historically. You've talked about 12% to 13% range G&A as a percentage of revenue. So are you guys expecting G&A to maybe go down over the next few quarters, or I guess, what kind of run rate are you expecting going forward?

David H. Dupuy -- Chief Financial Officer and Secretary

Yes, so a couple of things on G&A that I'd say. First of all, in the supplemental information on page eight, I think everyone knows we sort of provide a ratio of cash versus noncash G&A. And so a significant portion of our G&A every quarter is noncash. And so what I would say on the cash portion of G&A, as I mentioned in the comments, every year in the first quarter, we tend to have a little bit higher G&A expense because we do salary increases. As part of that, we're funding everybody's HSA a little bit. There's some unusual onetime things that go into G&A in addition to what I mentioned with regard to the facility refinancing and everything. But from a cash perspective, I think it's safe to say we'd be somewhere in that 5% to 6% of revenue range from a G&A perspective. And also just to point out that, on a noncash basis, that G&A, we're taking kind of a double hit. Because we get the dilution in FFO regarding to the shares that are issued in that first quarter, and then we're also increasing the amount of our deferred comp as well. So it's kind of a double hit against our FFO, and against our earnings. But I think that 5% to 6% cash basis is sort of a good range. And you should probably expect to see that over the next few quarters.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

And I'll add a comment or two on that, because what we've always said is, focus on the cash G&A. Because the noncash, the deferred comp, the way that we take our comp and everybody in the room here has always taken their -- 100% percent of their comp in stock. It's never a cash item. So therefore it's never going to affect the ability to pay a dividend, etc. And even though it's an expense, it's one that the shares are already outstanding. So as Dave pointed out, if you don't kind of factor out the noncash, then we're getting a double hit on that analysis. And that's why we always focus on AFFO as opposed to just FFO, because AFFO takes out the noncash deferred compensation.

Operator

Our next question comes from Bryan Maher of B. Riley FBR.

Bryan Anthony Maher -- B. Riley Securities -- Analyst

Quick question. And maybe you can kind of remind us as to why and I don't know how you want to classify them as the providers, the doctors, the owners, the tenants. Why would they be willing to do leases kind of in the most recent presentation at 9.5% to 10.25%, which is pretty rich in a near 0% interest rate environment. I would suspect that many of these people could probably borrow at a lot less and kind of capture that spread to their own pocketbooks. So can you just walk us through again why they're willing to pay these rates?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

I mean the thing is we understand their business. And you say they could go borrow it, and they probably could on a one-off basis, but they would lose a lot of brain cells. What we offer is a one-stop program. And basically, either we're working with one of our banks. So the bank provides the construction loan, we provide the takeout by purchasing the property or in the case of one of them, we're going to actually provide the construction financing for the dialysis clinics. And it's basically a one-stop shop. And they don't have to stop doing what they're doing from an operations standpoint or from a growth standpoint, to go finance the properties on a one-off basis. The real benefit that they get is that if what their goal is, is to grow their company quickly from wherever they are, $20 million, $30 million, $50 million, wherever they are on an EBITDA basis to wherever they need to be to sell out. If we can provide the ability for them to do that and it turns out it's two years quicker, the internal rate of return on their investment goes up significantly. So basically, what we do is we provide them the ability to grow faster, being able to sell out faster. And then in turn, basically what that does for us is gives us a credit upgrade when that happens. So it works out to everybody's benefit. And the fact of the matter is most of this stuff is done, I mean most normal -- we work with the developer, etc, is done developing to a 9% yield to cost or an 8.5% yield to cost or whatever. So when it works out, 50 to 100 basis points is not a bad price to pay to get there. And then in turn, basically, they're not paying that but for until they sell the company. So if you look at it from the entrepreneur's standpoint, who's trying to turn $5 million into $100 million, if they can do that two years quicker, it makes a lot of sense.

Bryan Anthony Maher -- B. Riley Securities -- Analyst

And you made a comment in the Q&A about how you scratch your head, that you don't understand why maybe other people aren't doing this. And I understand that there's a lot of diligence involved in cobbling up all these 9%, 10% cap rate properties. But why wouldn't a bigger healthcare REIT, MOB. I mean, we hear so often about REITs going and buying MOBs at 5%, 6%, 6.5% caps. Why wouldn't one of these guys just swallow you up and say, hey, Community Healthcare Trust is a division of this bigger REIT that's generally buying 5% and 6% caps, but hey, we've got this big chunk of an entity over here that's doing 9% and 10% caps for us, and juice their total returns? Why isn't that something we might see?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

It's what I've said from the beginning. I mean, we're for sale every day. I mean, nobody's come and offered that yet. I mean, the fact of the matter is we're relatively expensive from a multiples standpoint for someone to do that. And the fact of the matter is, I mean, that's kind of the quandary that REITs have found themselves in at this point in time. And to me, it's an absolute silly thing that everybody has gotten into. But the concept of NAV makes it almost impossible for a REIT to buy something at a higher cap rate. If they've been acquiring stuff at 5% cap rates, and people have been valuing their portfolios at a 5% cap rate, if all of a sudden they started buying 8% cap rates, they just devalued their stock. I mean, which is a very strange concept when you think about it, to buy something cheaper to get a better price for something and it reduces the value of your stock. But that's basically the situation we're in now with people paying attention to NAVs.

Bryan Anthony Maher -- B. Riley Securities -- Analyst

Well, I don't pay too much attention to NAV, but thanks for those comments. Appreciate it.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

All right. Thanks, Bryan.

Operator

The next question comes from Nate Crossett of Berenberg.

Connor Serge Siversky -- Joh. Berenberg -- Analyst

This is Connor on for Nate. Thanks for having me on the call. Quick one on the general state of the acquisition pipeline. I'm wondering where you're seeing the best opportunities to fit your framework right now in terms of asset class and market positioning? And just to frame that question, I mean, we continue to see a lot of eyes on MOBs, LPACs to a certain degree. And we're seeing some news flow related to struggling operators in more rural areas. So I'm just wondering what you're looking at to hit these yield targets?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

We're looking at basically what we've always looked at. I mean, we're buying from physicians. I mean that -- other than the serial entrepreneurs, the physicians are probably the biggest source of our acquisitions. I'm thinking through what we've got currently in the pipeline and everything. And the biggest thing is the physicians. And there's a number of reasons why they're interested in doing it. And again, the reason why we're able to do it is because nobody else is buying $3 million to $6 million properties. So we go in, we set a price, and sometimes it takes months for them to come back and say, OK, we'll take your price. Because they got to go out and they got to reconcile that this is the price for the market, and nobody else is going to offer them anything better. I mean, it's kind of the same market that we've been in for the last five or six years.

David H. Dupuy -- Chief Financial Officer and Secretary

It's physicians, I mean, that's a big chunk of it. We see a lot in behavioral healthcare, as I'm sure that won't surprise anybody on this line. Behavioral continues to be an area of significant growth. I will tell you, just like everything we do, we're very choosy. We look at a lot of transactions to find the operators and to find the sub-sectors that we're comfortable with. And so behavioral is a big area. Of course, we're continuing to look at in-patient rehab, and LPACs, on a very selective basis. But again, it gets down to that granular underwriting and just making sure that we feel comfortable with the operator in the markets. Because again, we're looking at things on a property-by-property basis, even for our clients. And the other area is dialysis. I mean, that continues to be an area of growth for us, as well. But again, the common theme in all of this is, they tend to be smaller projects. And as a result, they take a little bit more effort and time to sort of underwrite and acquire.

Connor Serge Siversky -- Joh. Berenberg -- Analyst

Okay, that's helpful color. And then just a little bit more on the underwriting framework. I know this has been brought up in a couple of the older conference calls, but can you give us a sense, at all, of how many assets are making it through the initial screening process? And how many targets are you underwriting? And what's the hit rate to actually close on one of these acquisitions?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

We don't actually keep statistics like that because we see so much stuff, but the close rate versus what we see is a very small percentage. The close rate against what, if we actually get to a point where we issue a term sheet, that close rate's fairly high. And I would hesitate to put a percentages or anything on either one of those. But we probably look at, I don't know, it seems like it's 10 a day, or something, that we look at.

David H. Dupuy -- Chief Financial Officer and Secretary

Well, and also, I think, this goes back to Tim's comment earlier, about how five years ago, it was a whole lot more difficult. There is a group of, call it, eight to 10 brokers that know what we do and aren't going to bring us stuff that we're not going to engage around. And so that's helped the funnel a little bit. But yes, it's definitely a numbers game and we spend a lot of time on figuring out which ones we want to spend time on, because it's just really three or four of us here that are doing that work.

Operator

The next question comes from Sheila McGrath of Evercore.

Sheila Kathleen McGrath -- Evercore ISI Institutional -- Analyst

Tim, AFFO growth has been very strong, such that the dividend payout ratio now is much more conservative. Just wondering what yours and the Board philosophy is. Do you want to get to a certain payout ratio or can shareholders expect a bigger increase on the horizon?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Good morning, Sheila. Thanks for the question. It's been a topic of discussion. And basically, I think the thought process is when we increase, it will probably increase the increase from a $0.25 a quarter to a $0.5 a quarter. But we want to make sure that we are comfortable, that we can maintain that $0.5 a quarter and maintain a very conservative payout ratio. So -- and that's kind of the thing that we're looking at. And, as I've said, I think, in previous calls, that we're a lot closer to being there than what we have been. We're not quite there, but it is something that is being looked at and discussed.

Sheila Kathleen McGrath -- Evercore ISI Institutional -- Analyst

Okay, great. And then just on the pipeline, or the term sheets, and I apologize if I missed this, what kind of time horizon are those the $94 million and the $60 million over it since their development? Is it a couple years?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Yes. Yes, and as I've said, 24 months. I mean, the first one will probably close on it could be fourth quarter of this year, much more likely first quarter next year. And so look for, basically, '22 through mid second, third quarter of '23 as being the time frame for those.

Sheila Kathleen McGrath -- Evercore ISI Institutional -- Analyst

Okay. And so you -- in both of those transactions, CHCT funds the development and then does the takeout at the agreed upon cap rates, is that correct?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

No. In the in-patient rehab facilities, one of our banks is doing the construction lending and then we buy the facility after it has been constructed. And the reason for that is, we didn't feel comfortable doing the construction lending because if -- those are $20 million plus properties. We are doing the construction lending on the dialysis clinics, but those are $4 million to $6 million a piece so it's a lot more manageable. So there is a slight difference between the 2, and that's kind of the reason for it.

Sheila Kathleen McGrath -- Evercore ISI Institutional -- Analyst

Okay, great. And anything on the horizon in healthcare policy out of DC that you're watching on for, that might have an impact on any of your tenants?

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

You mean other than everything? The kind of the -- the odd thing about it is, is our view is we're concerned about everything that's happening in DC. But when it comes down to it, I don't think that anything that's happening in DC is going to materially be negative for our tenants. If you're talking about spending a lot more money, it's probably going to be good for our tenants. So, I mean, David, you got any thoughts on?

David H. Dupuy -- Chief Financial Officer and Secretary

No, I think that's right. I think there's -- the government seems to be throwing a lot of money in a lot of different areas. So I think the next -- the foreseeable future is positive from a healthcare perspective. We do like some of the transparency discussions that have been had from a pricing perspective, because we think that plays very well to many of our tenants that tend to be low cost providers. But other than that, we just see the government continuing to throw money at things, including healthcare. So that should be a net positive for our tenants.

Sheila Kathleen McGrath -- Evercore ISI Institutional -- Analyst

Yes. Lord knows what happens to the dollar.

David H. Dupuy -- Chief Financial Officer and Secretary

Thanks, Sheila.

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Thanks, Sheila.

Operator

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

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

Well, I would like to thank everybody for being with us, spending the time with us today. And we'll look forward to talking to you all in three months. Plus, I think I've got several conferences in NAREIT between now and then. So we may talk to you sooner. Thanks.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Timothy G. Wallace -- Chairman, Chief Executive Officer and President

David H. Dupuy -- Chief Financial Officer and Secretary

Amanda Morgan Sweitzer -- Robert W. Baird -- Analyst

Alexander David Goldfarb -- Piper Sandler -- Analyst

Gaurav Mehta -- National Securities Corporation -- Analyst

Bryan Anthony Maher -- B. Riley Securities -- Analyst

Connor Serge Siversky -- Joh. Berenberg -- Analyst

Sheila Kathleen McGrath -- Evercore ISI Institutional -- Analyst

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