Welcome to Community Healthcare Trust 2016 Second Quarter Earnings Conference Release Conference Call. On the call today, the company will discuss its 2016 second quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be opened 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, August 12, 2016, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.

For a discussion of these risks and uncertainties, you should review the company's disclosures regarding forward-looking statements in its earnings release as well as its risk factors and MD&A in its SEC filings.

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

During this call, the company will also 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 the property of the company.

This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission. [Operator Instructions].

Now I would like to turn the call over to Timothy Wallace, Chairman, Chief Executive Officer and President of Community Healthcare Trust Incorporated. .

Thank you, Drew. Good morning, everyone, and thank you for joining us today for our second quarter conference call. With me on the call today, as usual, is Page Barnes, our Executive Vice President and Chief Financial Officer. Once again, we've had a very busy quarter.

As we previously announced, we acquired 3 properties during the quarter in 3 states with a total of approximately 153,400 square feet for a total purchase price of approximately $33.5 million. These properties were approximately 93.7% leased, with lease expirations ranging out to 2031.

As disclosed in the 10-Q, we have 4 properties under definitive purchase agreements for an aggregate expected purchase price of approximately $13.4 million. The expected return on these investments range from approximately 9.16% to 9.97%. .

As it relates to our pipeline, our properties under review continues to go up. We currently have several properties under signed term sheets, and several more with term sheets being actively negotiated. We continue to improve our relationships with key provider clients and are encouraged by our efforts.

We continue to believe there are a lot of these types of properties and continue to believe that there's very little competition for them. .

In addition to our acquisition activity in the second quarter, we are very active on a number of other fronts. As was discussed last quarter, at the beginning of the second quarter, we completed our first follow-on equity offering.

The company sold a total of 5,175,000 shares, which included the full exercise and [ph] the underwriters option for net proceeds of approximately $86.8 million. Also, as was previously announced, we declared our dividend for the second quarter and raised it to $0.3825 per common share.

This equates to an annualized dividend of $1.53 per share, and I continue to be proud to say we have raised our dividend every quarter since our IPO.

Also, as we have previously indicated we would and as we announced in the release last night, we amended our revolving credit facility, increasing the maximum borrowing capacity from $75 million to $150 million, and reducing the interest rate downward by 25 basis points.

Also, certain financial covenants were adjusted or replaced and the maturity date was pushed out to August 2019. .

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

Thanks, Tim. I am pleased to review the company's financial performance for the second quarter ended June 30, 2016. Total revenues for the second quarter of 2016 were $6.2 million. Rental and mortgage interest revenues were $5.1 million.

The company closed on the 3 properties during the quarter, including the exercise of our option under our mortgage note.

The real estate portfolio was 93% leased and on a pro forma basis, if all the 2016 second quarter acquisitions had occurred on the first day of the second quarter, rental and mortgage interest revenues would have increased by an additional $151,000 to a pro forma total of approximately $5.2 million.

Total expenses for the second quarter of 2016 were approximately $5.5 million. General and administrative expenses for the second quarter were $895,000, and of this amount, transaction expenses totaled $204,000.

Depreciation and amortization expense was $3.3 million, and on a pro forma basis, if all of the 2016 second quarter acquisitions occurred on the first day of the second quarter, depreciation and amortization expense would have increased by $269,000 to a pro forma total of just over $3.6 million..

The company reported net income of $508,000 for the second quarter. Funds from operations for the second quarter of 2016 consisted of net income, plus $3.3 million in depreciation and amortization, for a total of over $3.8 million or $0.32 per diluted common share.

Normalized FFO, which adds back acquisition expense and deferred compensation and eliminates straight-line rent increases, the total to over $4 million or $0.34 per diluted common share..

Again, on a pro forma basis, adjusting for the debt outstanding for the quarter, if all of the 2016 second quarter acquisitions occurred on the first day of the second quarter, normalized FFO would have increased by an additional $151,000 to a pro forma total of approximately $4.2 million, and increasing normalized FFO by over $0.01 to $0.35 per share..

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

[Operator Instructions] The first question comes from Sheila McGrath of Evercore ISI. .

Tim, I was wondering if you could give us some insight how you think about the acquisition pipeline and underwriting now that your cost of capital is so much improved.

Would you move your kind of underwriting to be a little bit more aggressive to ramp the pipeline? And also just in terms of ramping the pipeline, do you think you have to add additional personnel?.

Sheila, thanks for the questions. To hit on most of those, the answer is, is we don't see changing what we've been doing.

What we've been doing has been working and it's been making money, and the way we view it is as our cost of capital goes down, if we're continuing to invest in the cap rates that we're ranging in, then our margin just goes up and we make more money for the shareholders.

We feel very comfortable, as I've said from the beginning, that we can do $120 million to $150 million a year in acquisitions. We could push that a little bit with the people that we have.

We are anticipating, as we add more properties over the next year or so, adding a person or 2 in that process, but not specifically for underwriting or for the acquisition side. Again, we want to maintain kind of a steady state. We may -- in some quarters, we may do $25 million.

In some quarters, we may do $40 million, but I doubt that you'll see us very far from $120 million to $150 million for a year. .

Okay, great. And I was just wondering if you could update us.

Are there any known lease expirations that are nonrenewal in '16 at this point?.

Page, I'm going to let you do that. I think... .

Yes. We did have one at the end of June that we had -- I think, we may have discussed before with the last call. It was one of that we were working actively to renew, and the hospital company has its own issues and they delayed renewing until they've recruited some doctors to fill the space. They're still interested in the space.

But just to put it into context, that's what, a 3,000, 4,000 square-foot lease?.

Yes, yes. About 4,000 square feet, I believe. .

So it was a small one... .

And we're continuing to have leasing activity and renewal activity with all of our existing tenants. .

Yes. .

The next question comes from Rob Stevenson of Janney. .

Page, given the expanded line of credits, what do you -- at this point, given your commitments to the pipeline, what you've already closed, what do you -- what's the dry powder right now in terms of acquisitions that you could do without having to come back to the equity markets?.

It's -- with the cash on hand and the availability under the line, we're probably just under $150 million -- I'd say $140 million as it stands right now. .

Yes, let me -- because we've talked about that kind of before and kind of what our plan is from... .

And that's -- Rob -- I'm sorry, that's with our internal limit of 40% debt-to-cap. The credit facility actually would let us take that up higher. .

But kind of what our game plan on that is, is we're going to draw down on the line probably $100 million plus or minus, which we think will be probably first, second quarter of next year.

And then we're going to test the market from both insurance company standpoint and bank standpoint of doing a 7-year, plus or minus, 6- or 8-year tenure-type of permanent debt piece.

That would be the first permanent debt piece that we've canceled [ph] that we had on the balance sheet, pay down the bank line, and then be in a position to draw it back up.

The other thing we're going to do, as you'll see later this fall, and I've told this all the time to people, so that when it happens, they won't go, like, "Oh, what are you doing?" But we will file a universal shelf filing later this year, and it will say we can raise all kinds of money, so all kinds of securities and all kinds of ways which we won't do.

But basically, that will set it up to where we'll have a lot easier access to the equity capital markets on a going-forward basis, and be able to do it in smaller bites and bites that makes sense from a capital funding matching standpoint. .

Okay, but I mean, at this point, you've basically got almost at your -- at the acquisition pace that you just identified, you basically got another almost 1 year before you start really running into the need for substantial amount of equity. .

Yes, yes. .

Okay, and how do you guys -- I mean, given the yield on the acquisitions versus where your stock's -- your common's being valued today, I mean, how do you think about preferreds in the capital structure going forward, given the rates that a bunch of sub-billion dollar REITs have been able to get recently? How does that -- how do you guys think about -- how do you and the board think about that?.

Well, I've addressed this previously. I mean, we never say never to anything, but we like a simple capital structure. We very much prefer just sticking with common stock and with debt. At the appropriate time and the appropriate ways, if it was priced appropriately, never say never, but it's not our intent to do any preferred at this point in time.

But I can't predict what the capital markets will be a year from now when we might start thinking about it. .

Okay. And then just lastly, looks like the portfolio is 93% leased today.

I mean, in terms of existing vacancy, not on future renewals, but on existing vacancy, what does the pipeline look like to drive that higher?.

I'm looking at Page here. But I'm told we've sent out 3 new leases like Wednesday. So I mean, the great thing about our vacancy is it's bulk vacancy. We only pay for existing NOI. So when we build -- when we buy a building with vacancy, we're not paying for it. So anything is just bonus, but go ahead, Page. .

No, I think we're getting more traction on that. We didn't -- I won't say that we didn't specifically focus on it, but we've got much more of a focus on it now to do that. We're working with several companies that are regional companies to look at different spaces that we have in our current portfolio.

So I think we'll be able to take advantage of that, and right now, it looks like that pipeline is pretty good, too. .

And from a practical standpoint, my experience tells me it's really hard to keep a portfolio much above 95% occupied. So we feel like we have a few hundred basis points that we may be able to push this and try to keep it there.

But as you have fluctuations in a portfolio like this, I mean, you're going to have -- 93% to 96% is something that hopefully we'll be able to keep it and what -- you'll see it maintained over time. .

The next question comes from Alex Goldfarb of Sandler O'Neill. .

I have a few quick questions here. Tim, just given the deal pipeline that you've announced so far, the $13.5 million for the quarter, it would seem like, assuming that you guys are in the $25 million to $35 million quarterly run rate, it's going to be pretty much to the tail end.

So just from a modeling perspective, third quarter would probably not have the normal benefit of the full $25 million to $35 million, is that correct? Is that the way we should think about it?.

Yes, probably. We've experienced -- I mean, I think it's because of a combination of vacations. I mean, some here, but some with attorneys, some with sellers. I mean, it's kind of been hard to get some people to focus on getting stuff done. We still hope to be able to close that, but you're right, it will probably be tail-end weighted. .

Okay, and then with that in mind, does that suggest that 4Q would have a lot more deals in it? If you're saying people have some vacation now, should we be thinking that 4Q is more towards like a $40 million level or we should think about that being the standard $25 million to $35 million?.

Yes, I think the fourth quarter is going to be a very good quarter. But again, I don't want to encourage anybody to get off the $25 million to $35 million consistent [ph]. And again, like I said, in some quarters, maybe $20 million, some quarters, maybe $40 million.

So I'm anticipating, the way it's looking right now with the term sheets that we have signed back [ph] and the activity that we have going out, I'm anticipating the tail end of the third quarter and fourth quarter are going to be good periods for us. .

Fourth quarter. .

Oh, fourth quarter. .

Yes, fourth. .

Okay. And then Page, on the new line of credit, one of the things that you guys had mentioned before is not wanting to increase it before you had to, given the unused facility fees.

Do you still have those unused facility fees? And/or have they been reduced down? If they are, what's the new rate that we should be assuming?.

They made us an offer we couldn't refuse, so we're looking at it [ph]..

It is still the same unused building [ph]. There's different trip points for when it reduces. .

Okay, so for modeling purposes, we should do the whole 150 with the old unused fee [ph]?.

Yes, yes. .

Okay, okay. And then just finally, Tim, in your comments on the equity and the shelf, what you're saying is, basically, you want to get to the point where you can do, whether it's ATM or small little bits into the market.

But you're not precluding yourself from, if something happens between now and when you do the -- and you file the shelf, of doing issuance. You're not removing your ability to do that, you're just saying, ideally, this is what we'd like to do.

That's the way we should read it, correct?.

That's correct. But you should anticipate sometime in the next couple of months, the shelf being filed. I mean, we're going to file that and have it ready relatively soon. I mean, we wanted to get the bank loan done first, and then we're going to focus on getting the shelf filed, so... .

[Operator Instructions] The next question comes from Eric Fleming of SunTrust. .

Quick questions.

Looking at the G&A line, just -- is it -- slightly higher than I was thinking once you back out the acquisition expenses, is there any one-time things in 2Q or is that kind of a high level that we can expect going forward?.

It's probably pretty close. I'm not sure. I haven't focused on it particularly like that, but it's probably pretty close to what the going-forward type of thing is, and it's got -- with the way our compensation is, it's got the second year of the stock stuff layered in, so that might be some of the difference.

We'll build up, in essence, the noncash G&A part of it as time goes by and we add the years in. .

Okay. I can dig a little further in what I got on the stock comp side. .

If you have any questions, I mean, we can follow up with that. .

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

Thanks, Drew, and thanks, everybody, for being on the call. We appreciate you taking the time and showing interest in us, and hopefully, we can continue having great quarters. Thank you so much. .

Bye. .

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