Welcome to Community Healthcare Trust 2016 First Quarter Earnings Conference Release Conference Call. On the call today, the company will discuss its 2016 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 in this call will be based on information as of today, May 13, 2016, 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 disclosure regarding forward-looking statements and its earnings release as well as its risk factors and MD&A and its SEC filings. .

The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. .

During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. .

Call participants are advised that this conference call is being recorded for playback purposes. An archive of the call will be made available on the company's Investor Relations website for approximately 30 days and is 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 Timothy Wallace, Chairman, Chief Executive Officer and President of Community Healthcare Trust Incorporated. Please go ahead, sir. .

Thank you, operator. Good morning, everyone. Thank you for joining us today for our 2016 First Quarter Conference Call. With me on the call today is Page Barnes, our Executive Vice President and Chief Financial Officer. It is hard to believe that a year ago now we still just had a $2,000 balance sheet and a dream.

Now we own almost 50 properties and have close to $0.25 billion in market capitalization. As I often say, only in America. I would like to publicly thank each of our dedicated team members and all of our professionals, investors and other supporters because without everyone's efforts, our success would not have been possible. .

Once again, this quarter, we have been extremely busy. As our press release indicated, at the end of the quarter we acquired 4 properties in 3 states with a total of approximately 146,000 square feet for a total purchase price of approximately $25.4 million.

We also funded a $12.5 million mortgage note secured by an 8,5000 square foot behavioral facility outside of Chicago.

In addition, since the end of the first quarter, we have closed on a $10.4 million medical office building with approximately 55,000 square feet in Ohio and have exercised our option to acquire the behavioral facility outside of Chicago that we provided the mortgage of. It should close next week.

We also have a $3.2 million surgery center in the contract in Arizona. .

As it relates to our pipeline, our properties under review continue to go up. We are continuing to develop and improve our relationships with key provider clients and are encouraged by the discussions we are having there.

We continue to believe that there are a lot of the properties that we're interested in and continue to believe that there is very little competition for them. .

In addition to our acquisition activity in the first quarter, we were very active on a number of fronts. Our new website, chct.reit, went live. Hopefully, everyone has had a chance to visit it. In addition, we completed the renovation and moved into our new office space. The new space is a lot more functional and efficient than the old space.

But as anyone that has visited us will attest, it is very consistent with our corporate culture. .

Also, we've completed our first annual maintenance reconciliation, which is always a challenge with newly acquired properties, but even more so when all of your properties are newly acquired. Each of these items took a lot of effort, and each provided a small drag on our results for the quarter. .

As I believe everyone on this call is probably aware, shortly after the end of the first quarter, we completed our first follow-on equity offering. The company sold a total of 5,175,000 shares, which included the full exercise of the underwriters' option to acquire additional shares for net proceeds of approximately $86.8 million. .

Also, as previously was announced, we declared a dividend for the first quarter and raised it to $0.38 per common share. This equates to an annualized dividend of $1.52 per share. I continue to be proud to say we have raised our dividend every quarter since our IPO. .

We continue to view our supplemental data as a work in progress, so if you have any suggestions for additional information to be included, please send all of your suggestions via e-mail to Liam Stack [ph] at lstack@chct.reit. .

I believe that takes care of all of the items I wanted to cover today, so I'll hand things off to Page to cover the numbers. .

Thank you, Tim. .

I'm pleased to review the company's financial performance for the first quarter ended March 31, 2016. .

Total revenues for the first quarter were $5.2 million. Rental and mortgage interest revenues were $4.2 million. The company closed on 4 properties in the mortgage during the quarter. The real estate portfolio was approximately 94% leased.

And on a pro forma basis, if all of 2016 first quarter acquisitions had occurred on the first day of the first quarter, rental and mortgage interest revenues would have increased by an additional $450,000 to a pro forma total of approximately $4.7 million. .

Total expenses for the first quarter of 2016 were approximately $4.7 million. General and administrative expenses for the first quarter were $806,000, and of this amount, transaction expenses totaled $288,000. Depreciation and amortization expense was $2.8 million for the quarter.

On a pro forma basis, if all the 2016 first quarter acquisitions occurred on the first day of the first quarter, depreciation and amortization expense would have increased by $250,000 to a pro forma total of just over $3 million. .

The company reported net income of $116,000 for the first quarter. Funds from operations for the first quarter of 2016 consisted of net income, plus $2.8 million in depreciation and amortization for a total of over $2.9 million or $0.39 per share -- common share diluted.

Normalized FFO, which adds back acquisition expenses, straight-line rents and deferred comp, increases the total to $3.2 million or $0.43 per common share diluted.

Again, on a pro forma basis, adjusting for the debt outstanding for the entire quarter, if all of the 2016 first quarter acquisitions occurred on the first day of the first quarter, normalized FFO would have increased by an additional $300,000 to a pro forma total of just under $3.6 million and increasing normalized FFO of about $0.04 to $0.47 per share.

.

That's all I had from a number's standpoint, operator. I believe we're ready to start the Q&A session. .

[Operator Instructions] We have a question from Sheila McGrath from Evercore. .

Tim, I was wondering if you could talk to us about the blended cap rates for the acquisitions that you closed in the quarter and your expectations on the pipeline going forward. .

Okay. The blended cap rate, I'm trying to think, is probably like 9.25% to 9.5.% of what we did in the quarter. We still haven't had anything below a 9% cap, so we're very pleased with what we're seeing and what we're being able to do on that font.

Sometimes people ask us how we do that, and I tell people, sometimes it takes many different offers and it takes them saying no several times before we can get them to say yes. It's an effort. But we're very pleased, and we continue to focus on having cap rates that make sense to us from a real estate standpoint. .

And so we should expect similar for the pipeline as well?.

Absolutely. Yes. I mean, the steps that we've got on the contract, the steps that we're closing, yes, the steps that we're looking at. .

Okay. And then just on the supplemental, you did have just one asset, a small -- a long-term acute care center.

And since that is like the topic of the quarter in healthcare land, I was just wondering if you can describe who the operator is there? And your comfort in acquiring those type of assets?.

Sheila, the operator is AMG out of Louisiana. Our facility -- I mean, there are pressures on the LTACs, and we think we're off the rider and our facility are adapting to the changing reimbursement. Our coverages on that particular facility are 2x, there are, what in essence is a corporate guarantee also on that.

So we're pretty comfortable with where we are, and we're pretty comfortable with the operator we have. .

Yes. And let me say this, I mean, the therapies you're describing in the marketplace is one of the reasons we have not exercised the option to acquire that property. We do have an option to acquire it, that's currently a mortgage. And so we've decided to sit and wait and watch it a little bit longer before we exercise that.

We're very comfortable with it, but we know what's going on in the market, and so we decided just to wait for a little bit longer to see, make sure that we're still comfortable with it. .

And our next question is from Eric Fleming from SunTrust. .

I have a quick question on the G&A. It was a little bit higher than I was thinking.

Was that part of it due to the -- well, you were just talking about the common area reconciliation and some of that drag?.

Well, that actually affected the operating expenses more. I mean, the move in the website and some of the other corporate stuff that we had, they came online in the first quarter, probably affected the G&A a little bit more than the reconciliation did. But that affected the property operating expense line. .

So it's safe to assume that's going to come down a little bit? The G&A line coming down a little bit for the rest of the year? I mean, backing out the transaction costs?.

Yes. I mean, on the same thing basis, I mean, we are -- we have recently added a little bit of staff at the lower-end. We've -- I'm trying to think it's probably -- around $100,000 of salary expense at the bottom line for the year, so $25,000 a quarter or so.

And that will fluctuate because as we grow, we will have to add some more property accountants and accounts payable type people. So... .

Okay. And just one other question. So obviously, the acquisitions in your pipeline is looking stronger every time you report. Seems like there's plenty of opportunities and good relationships.

And what's -- how would you guys, say, kind of your ideal pipeline target is like? Would it be grabbing a health system and getting kind of a -- some type of a development relationship with them or kind of working with a developer? How are you thinking about that longer term for your pipeline?.

Well, I mean, as we've said for some time, I mean, my Nirvana would be to have 10 to 12 clients that we can do $10 million to $20 million a year business with, and we continue to work on that.

We've got probably 4 or 5 between the mix now that are in advanced stages of discussion of some type of facility like that, where we have an ongoing relationship. And that -- to me, that's the best part.

You pick an inflow of good operators that everybody is comfortable with and develop that relationship and make their life easier and makes our life easier, and to me it's just great business. So that's what our -- if you ask me what my nirvana is, that's it.

And that's basically what Steve Harrison is working almost on -- probably 80% of his time is spent now on developing those relationship-type facilities as opposed to just one-offs. One thing I meant to mention and I didn't, and I was kind of thinking somebody might ask, but let me go ahead and cover.

Even though there's a difference in the kind of the way we calculate normalized FFO, and the reason for that is, is because people were asking us questions on what our straight-line rent was and what our non-cash compensation was. And it's almost like we didn't know where else to put it other than where we put it.

So if anybody has got any ideas on how we disclose that and make everybody comfortable with it, this is what we ended up doing this time and it seemed to make sense. But if you got questions or comments, just let us know. Again, the best way to do that is through Liam [ph] at lstack@chct.reit.

[Operator Instructions] We have a follow-up question from Sheila McGrath at Evercore. .

Yes. I was wondering if you could help us out on leasing expiration expectations.

Do you have any visibility on? Are there any tenants that you know of that are moving out in the next couple of quarters? How should we look at that?.

I mean, in any real estate portfolio you're going to have some that are moving out and some that are moving in. I mean, we're very pleased with the metrics of our leasing efforts.

If you look at basically where we were when we started, there's like 26% that was rolling over in 2016, and now it's basically down to less than 10%, if not already renewed and taken care of. I mean, I'll let Page embody the specifics, I think there's probably one or two.

But I mean, again we've got right at 100 tenants now, so -- and I don't know how many different leases. But I mean, it's not going to be unusual that you have some tenants that move out and then you replace them. We're very comfortable with our properties where they are. But Page, you got... .

Yes. We have a couple of leases that may not be renewed. One at the end of the year, which was a smaller lease and one that -- and during a roadshow that we talked about working on a development expansion project. It's not a large space either. But -- those are the two tenants. They're going to -- we think that one tenant will come back.

Their plans for expansion and hiring docs are such that they're probably not going to renew at the end of June and will renew later in the year, first quarter of next year. .

Okay. And then on the acquisition summary, Page, the Lakeland, Florida, acquisition was 84.1% leased. I'm just wondering how your prospects on leasing up the balance of that space. .

Takes little while will get the ball rolling, but I did get an e-mail yesterday from a particular tenant, and I refer it over to Ryan Hart [ph], our asset manager. So we like that market, so we think the prospects are pretty good. .

And one thing that I'll point out is, when we buy an asset, we buy in place in Ohio. So if we buy, like for Lakeland or Dorset facility in Ohio that we just closed on. If we buy an asset and it's only got 82% or 84% occupancy, we're buying it at a 9-plus cap on the existing occupancy. So when we fill it out, it's just bonus to us. .

Okay.

So it's not -- your acquisition cap rate is not on the prospective stabilized higher occupancy?.

Absolutely not. I've always had trouble taking that kind of stuff to the grocery store and buying groceries with it, Sheila. So we only believe cash. So... .

Okay. And then, just on the G&A. I know you've touched on it a little bit. But if we look at first quarter, there was some one-time.

But as you grow, we have forecasted that, is there any rule of thumb or any help you could give us on just expectations for G&A this year? Or how we should look at it about ramping that number?.

Yes. It obviously is going to go up some as we grow. I mean, the good news is we don't need another CEO, we don't need another CFO. We've got all of our high cost things covered.

So basically, as we add people, it's going to be adding people on -- like I said, on the property accountants, and yes, they're not cheap these days, the property accountants and accounts payable, accounts type of people. And I don't know that we know yet exactly how that's going to ramp.

But it's relatively small ramp compared to, hopefully, the acquisition side of it, and it's something that we feel like is we're obviously going to manage it as -- since we're shareholders. Everybody here is focused on FFO, that's one of the great things about the way our compensation works.

So everybody is focused on FFO and understanding how that affects our stock price. .

Okay. And then on the common area maintenance that you described with a bit of a drag, was that because that you weren't able to pass back as much expenses? Or if you could just give us a little bit more detail on that. .

In the first year of an acquisition, it's almost like a guessing game through the year because you don't know exactly what has been done prior, and now the tenants are going to react and you're going through it. And so you have to make estimated amounts, and you do that. And I think we did an excellent job.

I'm trying to think it's -- we're probably $60,000 to $80,000 off of it. So I mean, relatively speaking, it's a small amount compared to what we're doing now, but it was $0.01 a share probably, or something close to it.

And [indiscernible] big of an issue because we're not going to have a 100% of our properties ever again because there's our initial CAM reconciliation. So... .

I understand. Okay. And then, Tim, a lot of the public REITs will highlight what percent of their tenants are private pay or their business. I was just wondering if you have ever reconciled that metric so we could describe that to people.

Because certainly, anybody in the MOB space has outperformed those exposed to skilled nursing in long-term acute care. So I was just wondering if you could help us out there. .

Well, I mean, in Idaho, last I knew, nobody in the MOB space did that because it's really kind of hard to do when you're dealing with even 5,000-square-foot doctor space or if you get the hospital system that's leasing the space. So it's really kind of hard to deal on the MOBs, and if somebody in MOB space is doing that, let me know.

But that's probably 50% or close to 50% of our portfolio now. But if you have the same issue in some of the other stuff and like with dialysis clinics. A large part of that's going to be government pay, but the way that -- those economics are, if they have 85% government pay and 15% private pay then they can make good money at a dialysis clinic.

So it's almost like each industry segment has its own different dynamics. And the good news is, as you pointed out, the SNIFs -- we don't have SNIFs, so we don't have to worry about that. The LTAC that we have, it's a small piece of what we're doing and everything.

People ask in some of the roadshow, if I have to guess, I'd say it's probably 50%, 60% private pay and 40% government pay. But there wouldn't be much more than just a guess. .

Okay. And other than SNIFs, is there any asset that you're intentionally -- in the healthcare space, you're potentially not wanting to own on your balance sheet? Maybe we could think about it that way. .

And we've never said that we wouldn't have SNIFs. It's just, we can't find a sniff that meets our investment criteria so -- part of which is what you're talking about. So to us it's more of how does it fit, how does it make money, does the management know how to make money with it, et cetera.

And what are the possibilities for the government to come in and do something. I mean, I've done this with -- in other settings, but I kind of think about that like psych was back in the late '80s, early '90s because when we started healthcare royalty, psych was a out-of-favor industry segment. The last thing anybody wanted to do was the psych.

And I kind of came into Community Healthcare thinking the same way, but Page has changed my thought on that because basically, government made a telephone psych back in the '90s so they lost 50% of their bids. And then, all of a sudden, everybody woke up and said, well, there's just as crazy people are more out there now.

And now with a 60% less beds, so people like Joey Jacobs at Acadia and Alan Miller at UHS are like printing money in the segment.

But we've got to think LTAC is going to end up being the same way because there's a place for LTAC in the spectrum, in the continuum on care because those type of pricing, the acute cares can afford to keep them in the acute care hospital, and even though the SNIFs would really like to raise up and being out of the acuity, in my opinion, that's part of the problem now as they're trying to do things that they're really not equipped to do.

So we think long term LTAC will probably end up being like psych. So those players who know how to wade through these next 3 to 5 years are going to come out on the other end and smell pretty good. .

Okay. And one last question on acquisitions. Is $25 million to $30 million a quarter still like a reasonable pace that we should think about? I know it all vary between quarters, but just wondering if that's what you're still comfortable with. .

That's what I keep telling people, and we're very comfortable with that. Again, sometimes, like the first quarter we ended up with total investment of about $40 million. If you average it, we are very comfortable with that. And again, if we get like 10 to 12 relationships going, we may end up in more than that.

But right now, I don't want anybody thinking anything more than $25 million to $30 million in that the cap rates that we're talking about. And that's basically what makes us be able to do it is because we only very selectively choose what we need to. And if you don't need to buy $1 billion a year then you can find the ones that you like a lot easier. .

Got you.

And then on the mortgage investments that you do, are they typically -- should we expect that there are -- it means you'll eventually own the asset on balance sheet? Or will you do just straight up mortgages?.

No. Our intent when we do a mortgage is that we will own the asset at some point in time. I mean, the beauty of it is, we have that option out there as in like the LTAC. I mean, we decided to go ahead and exercise it on the outside facility because we like what they're doing, we like what we're seeing. And psych is doing good right now.

The LTAC, we decided to wait because of what's happening in the industry. We like the facility a lot, but it's kind of like, okay, let's wait and see, let them have a few more quarters of operating under the new rules and make sure everything goes like we think it's going to go. So we like that optionality, and it provides a benefit.

I mean, each one of these have -- there's basically tax or other reasons why they didn't want to sell right away, and as long as we can use it as a means to the acquisition of a property then we'll look at doing it. .

Your next question is from Amit Nihalani from Oppenheimer. .

I noticed in the [indiscernible]. I didn't -- I actually didn't find the portfolio lease rate.

Are you able to provide that?.

The 94% occupancy?.

Yes, correct. .

We're right at -- we're just a hair under 94%. .

Okay. Most of my questions have been answered, but I just wanted to touch base with you guys.

Has there been any change in your watch list?.

Lease, Page?.

No.

We really -- I mean, when you say that, is it about lease watch list?.

Yes, correct. .

Yes. No, I don't think it has changed. .

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. .

Thank you, operator. And again, we thank each of you, all, for being on the call today and your continued support and interest in what we're doing. Thanks so much. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..