Good day and welcome to Community Healthcare Trust 2017 Fourth Quarter and Year End Earnings Release Conference Call. On the call today, the Company will discuss its 2017 fourth quarter and year-end 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, at 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, February 23, 2018, 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 and its SEC filings.

The Company undertakes no obligation to update forward-looking statements whether as the result of new information, further 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 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 Timothy Wallace, Chairman, Chief Executive Officer, and President of Community Healthcare Trust Incorporated. Please go ahead..

Thank you. Good morning, everyone. We appreciate your joining us today for the 2017 fourth quarter and year-end conference call. With me on the call today is Page Barnes, our Executive Vice President and Chief Financial Officer; and Leigh Ann 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 annual report on Form 10-K was also filed last night. We were extremely busy during the fourth quarter.

We acquired six properties in four states during the quarter, with a total of approximately 153,000 square feet for purchase price of approximately $40.2 million. These properties were 100% leased with leases running through 2032, and anticipated annual returns of 9% to 10.5%.

As it relates to our pipeline, we have three properties with fully negotiated purchase and sale agreements for an aggregate expected investment of $16.8 million. The expected return on these investments should range from approximately 9% to 9.6%, and we anticipate that these will close during the first quarter.

As I will discuss in more detail later, we're also anticipating net new investment of about 12.5 million into the exit financing for our bankrupt borrower, as calculated its $23 million commitment less the $10.5 million mortgage investment we have had for some time. The majority of the net new investment has already been made.

In addition as we previously disclosed, we have three additional properties under definitive purchase and sale agreements to be acquired after completion in occupancy that’s from aggregate expected investment of $40.4 million.

The expected return on these investments should range up to approximately 11% and we anticipate that one of these were closed during the first half of 2018 and the others to close in the second half of 2018. These represent two of our client relationships that you heard me talk about developing from the beginning.

Our properties under review continue to go up. We current had term sheets outstanding from multiple potential properties with anticipated returns of 9% to 11%. We anticipate having enough availability on our undrawn term loans and revolver to fund these acquisitions through late 2018.

I think as everyone is aware, we have been working through our first bankruptcy. The borrower has filed an amended bankruptcy plan, for that we will provide financing to a newly formed company that will acquire certain assets and liabilities of the borrower and other entities. We believe this plan will be confirmed by the court later this month.

Assuming the plan is confirmed by the court, we will enter into a new note and provide up to $23 million in funding to the newly establish company. This will be secured by the ownership interest, cash, accounts receivable, other assets and cash flows of long-term acute care or rehabilitation hospitals.

This includes two specially hospitals that we're not a party to the bankruptcy, but are being contributed to and will be owned and operated by the new company.

On December 28th, an anticipation of the plan, we purchased $11.45 million amount of our face value of certain promissory notes, secured by cash and accounts receivable of the borrower for $8.75 million from the Syndicated Banks. That's a $2.7 million discount to face value.

Subsequent to December 31st, we acquired $2.2 million of promising notes secured by the operations of the two specialty hospitals that were included in the bankruptcy. So, it will be owned and operated by the new entity.

Under the terms of the plan, we will received the real estate currently secured by the mortgage note receivable through a deed in lieu of foreclosure with a valuation of approximately $4.5 million. We will receive $6.7 million related to mortgage note and $10.95 million related to the other promissory notes.

An additional amount of approximately $5.35 million will be utilized to complete the contemplated transactions. When everything is set and done, we are anticipating having up to approximately $23 million loan to the new entity, secured by all of the ownership interest cash, accounts receivable and other assets of the nine hospitals.

We anticipate earnings approximately 9% interest on the loan, however, based on the terms of the loan, anticipated cash flows and potential for refinancing by the new company, we are anticipating a significant amount of this will be repaid relatively quickly.

As I have said before, we view this as just part of real estate and we have been working to resolve the situation as favorably as possible. On another front, we declared our dividend for the fourth quarter and raised to $0.3975 for common share.

This equates an annualized dividend of a $1.59 per share and I continue to be proud to say we have raised our dividend every quarter since our IPO. During the fourth quarter, our purchase 45,178 shares of the Company's common stock at weighted average daily prices ranging from $0.2668 to $0.2760 pursuant to 10b5 buying plan.

The plan expired on December 31, 2017 and I have not decided yet if I am going to put another plan in place for this year.

Also since the Company's initial public offering, our named executive officers, Leigh Ann and Page and myself following with other members of management have elected to utilize all of our compensation to purchase restricted stock.

In January, Leigh and Page and myself purchased an aggregate of 35,195 shares of common stock in lieu of cash salary, and received an aggregate award from the Company of additional 35,194 shares for investing eight years cliff vesting on that stock.

I believe that takes care of all the items I wanted to cover, so I will hand things up to Page to cover the numbers..

Thanks, Tim. I am pleased to review the Company’s financial performance for the fourth quarter and year ended December 31, 2017. Total revenues for the fourth quarter of 2017 were slightly less than $11 million versus almost $7.4 million for the same period in 2016. Total revenues for the year 2017 were $37.3 million versus $25.2 million for 2016.

Rental and investment interest revenues were 9.5 million and 32.3 million for the quarter and year respectively versus 6.1 million and 20.6 million for the same period in 2016. The real estate portfolio was 91.7% leased at quarter end.

On a pro forma basis, if all of 2017 fourth quarter acquisitions had occurred on the first day of the fourth quarter, rental and interest revenues would have increased by an additional 420,000 to a pro forma total of 9.9 million for the quarter.

Total expenses for the fourth quarter of 2017 were approximately 8.4 million versus 6 million for the same period 2016. Total expenses for the year 2017 were just under 30 million versus 21.3 million for 2016. General and administrative expenses for the fourth quarter were 801,000.

Depreciation and amortization expense were just under 5 million for the quarter. On a pro forma basis, if all the 2017 fourth quarter acquisitions occurred on the first day of the fourth quarter, depreciation and amortization expense would have increased by 192,000 to a pro forma total of approximately 5.2 million.

The Company reported net income of 1.552 million for the fourth quarter versus 1.33 million for the same period in 2016. For the year 2017 net income was 3.5 million versus 2.7 million for the year 2016.

Funds from operations, FFO, for the fourth quarter of 2017 consisted of net income plus 5 million in depreciation and amortization for a total of 6.6 million.

AFFO adjusted for straight line rents and deferred compensation, which had minimum impact, the total remaining at 6.6 million or $0.37 per share diluted versus 4.8 million or $0.38 per share for the same period 2016.

Again on a pro forma basis adjusting for the debt outstanding for the entire quarter, if all of the 2017 fourth quarter acquisitions start on the first day of the fourth quarter, AFFO would have increased by approximately, $248,000 to a total of just under $6.9 million and increasing AFFO about $0.02 to $0.49 per share.

That's all I have from the numbers standpoint. Operator, I believe we are ready to start the Q&A session..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Sheila McGrath with Evercore ISI. Please go ahead..

Tim, I just wondering if you could talk about the creative solution for the bankrupt tenant, just so we can understand it first from a modeling standpoint, does the old loan go away and now there is a new loan and what coupon and everything like that.

But also if you could just explain to us strategically, how adding more capital to this was the help to optimize the outcome for shareholders? That'd be great..

One of the things, I have been involved in real estate for a long time and before that I was involved in real estate from the public accounting standpoint.

And one of the things I've known for a long time it is, if something goes to bankruptcy gets cleaned up a lot of times within in some much better shape than it was when it went in that it's extensively better credit.

And if you look at what we are doing, we had $2.5 million basically secured by the real estate of one hospital, and we are going to end up with $23 million secured by all the assets of nine different hospitals.

And the Company has been able through the bankruptcy process that shared a lot of debt, its read itself of assets that it didn't want so it's coming in. Significantly claim is coming out with cash flows that should be very sustainable and very good. So we feel very good about the position that we are doing.

And as I have said from the beginning, we were going to take a very aggressive approach to solving this and we can have and we feel like we have been in such a way that our shareholders will not have lost money and will actually be in a position to benefit from it. From a modeling standpoint, the $10.5 million mortgage goes away.

It's basically been replaced with $23 million loan and the $23 million loan is at 9%. As I said, it equates to basically about $12.5 of net new investment for the quarter. So that along with the $16.8 million gets us to the $28 million to $29 million range, so that is our normal investment for the quarter.

Does that tell what you want?.

Yes, no, no, that's very helpful thought it's just a lot of puts and takes to that and that helps on the modeling standpoint. Is there any insight you could give us on to like coverage level on the loan? Just of course we understand that the Company is in much better position now, so that's good news.

But is there any kind of EBITDA coverage that you insight you could give us?.

We are anticipating the EBITDA to interest coverage will be something in the 4 to 5 times range. So, we think it should be very well covered..

And is it the short term financing or how should we think about it in that way?.

It can be up for I think 10 years, but we're anticipating that probably in the next year to three years, they're going to pay down a majority of it and that would anticipate probably being out of it in five years.

Page, would you disagree with that?.

No I agree with that..

And I just on the -- Page, I guess maybe this one is for you.

On G&A, is -- I know you guys don't give specific annual guidance, but is fourth quarter a good run rate for us to assume for the year? Or should we expect like in first quarter there would be additional expenses associated with this restructuring?.

Sheila, we're going to have some additional amortization hit for another years deferred comp. So, the comps are definitely going to go up for that..

And as it relates to the bankruptcy issue I mean our -- we actually anticipate that the cost related to that will rebound because one of the things we negotiated was coverage on some of our largest fees on the final go around. So I mean obviously as we grow, we are going to add people.

So G&A will actually go up, but if it did at steady state, it was probably a good quarter. But based that amortization is going to go up and we're going to, as we add properties we're adding people, so it will go up some this year..

The next question comes from Alexander Goldfarb with Sandler O'Neil. Please go ahead..

Just a few things, Tim, in no particularly order but I'll just run through. First, in the K you've mentioned that you guys owed about 600,000 probably from the mortgage, bankrupt mortgage holder.

So how from I get to Sheila's point on the accounting standpoint, is there any impact from that like are we going to see a dip in the first quarter or is there going to be sort of a catch up booked, once this is settled or how does that work for what you've owed and then accrued?.

We're still going to have to work through the numbers but to the best we could, Alex.

We took into consideration the accrued interest when we were negotiating the settlement and there might be a little follow-up one way or the other but we're not anticipating any significant fall out in the first quarter relative to actually getting it settled, and again you may have something 100,000 one way or the other but we don't think there's going to be anything significant..

And then as part of that 9% coupon on the all in the 23 million is some of that the accretion from the notes you bought back at discount so is it part coupon, part accretion or how is that discount apart being handled for -- because presumably you're going to get the dose payback at par or with the discount is the new par?.

The discount is a new par, basically we're funding the new company, about to 20 million, 30 million and they're utilizing that to pay off the bankrupt debtors liabilities and what we agreed to accept related to that was the investment that we had made into it, so when everything is said and done that obviously will go away, there won't be any accretion and there won't be -- we would have paid out $8.7 million investment..

Okay, so that 8.75 is the new level that's not going back to the 11.5 or whatever?.

But an answer to all that just gets away and we will have a $23 million new..

Okay, and then you said the bankruptcy is the ruling is end of this month, but given we're late in February.

Did you mean end of February of end of March?.

The confirmation hearing is currently set for the 27th of February..

Okay, and then….

Obviously it won't happen on the 27th of February, but that's when the judges gamble hits and say, all right get it done..

Okay great, and then where are these hospitals, the nine hospitals, are they all in the same market or they spread across the region or where are they?.

They are spread across the Southeast, Midwest, Oklahoma, North Alabama, Louisiana, Vegas, Albuquerque, and I mean again it's kind of like the Southeast, Midwest..

Okay, in other words they are not just like all in one state or one market..

No, no, no..

Okay, and then the final question, and I appreciate your time. You said that you're going to be paid back quickly on the menu set over five years expect to be fully by the next one to two paid back I mean full amount.

You guys target about a $120 million a year of acquisitions, but it sounds like there is going to be an offset, so should we expect acquisition activity to ramp up or to pay back of this is consistent with your idea that you will start recycling assets and you would have been selling assets anyway. So there is no real change..

I think you will see the acquisitions ramp up a little bit, I mean I don't think, by doing this I don't see it. It's being significantly different than the $120 million to $130 million, $140 million in that range for a year on a net basis.

So I mean, we may get paid back $10 million of this over the next two years but that's like $5 million a year spread over eight quarters. So I mean it's kind of like, $10 million spread over eight quarters, so it's almost not -- it's a blip. So my belief is, we still be $125 million, $130 million on a net basis for the next year or two..

[Operator Instructions] The next question comes from Rob Stevenson, with Janney. Please go ahead..

Most of my questions have been answered, but just wanted to get your outlook on the occupancy the portfolio dipped 40 basis points sequentially to 91.7. You have got about 10% of the leases in the portfolio of rolling this year and next year, so 20% combined.

Any known move outs and where do you expect that occupancy to trend over the course of 2018, given your current conversation and leasing activity?.

We've already got a significant amount of the 2018 and actually some of the 2019 that's already released. We don't -- we see it the 91% to 94% range on a going forward basis, if you recall Rob, when we did the IPO, I think in the next or two that was close to 50% growth. So now it's down 20%.

And a very large amount of our growth now up passed the five year range. So we feel very good. We've been able to increase the weighted average remaining lease term on the portfolio from a little over four when we did the IPO to right at seven now.

So, we feel very good about that and we understand everybody was hypersensitive about it when it was 25% or 26% a year, 8% to 10% that's kind of like a normal road. So we're not at all concerned about it..

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

Thanks everyone for coming, getting on the call today, spending the time with us. As usual, we truly appreciate your support and your interest. I think we had a fairly decent 2017, and we're looking forward to a great 2018. So, we'll be back and talk to you all pretty much. Thanks..

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