Welcome to Community Healthcare Trust's 2018 Second Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2018 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 8, 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 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 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’d like to turn the call over to Timothy Wallace, Chairman, Chief Executive Officer and President of Community Healthcare Trust Incorporated..

Good morning everyone and thank you for joining us today for our 2018 second quarter 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 quarterly report on Form 10-Q was also filed last night.

As you’ve probably also noticed, as I have indicated in the past we would, we filed an 8-K and a perspective supplement indicating that we’ve entered into a sales agency agreement and have put in place an ATM program for up to $100 million in shares. Once again we were extremely busy during the quarter.

As previously discussed, we funded a new note during the quarter providing $23 million to a newly established company secured by the ownership interest, cash accounts -- cash, accounts receivable, other assets and cash flows of nine long-term acute care or rehabilitation hospitals. We anticipate earning approximately 9% on the note.

However, based on its terms, anticipated cash flows and potential for refinancing by the new company, we are anticipating a significant amount of this will be repaid relatively quickly. Also during the quarter and closing out our bankruptcy issue, we received a real estate that was secured by the original mortgage note to redeem in lieu foreclosure.

It had a valuation of approximately $4.5 million. While this building is vacant, we have a signed term sheet for a single tenant to lease 100% of the building which is approximately 30,000 square feet.

In addition, during the quarter, we acquired two additional properties with a total of approximately 38,000 square feet for a purchase price of approximately $7.4 million. These properties were 100% leased with leases running till 2026, with anticipated annual returns of 9% to 9.3%.

As it relates to our pipeline, we have one property with a fully negotiated purchase and sale agreement for an aggregate expected investment of $3.2 million. The expected return on these investments should range up to approximately 9.25% and we anticipate that it will close during the third quarter.

In addition, we have five additional properties under definitive purchase and sale agreements to be acquired after completion and occupancy for an aggregate expected investment of approximately $103 million. The expected return on these investments should range from 9.4% to 11% and we anticipate that these will close through the end of 2019.

We continue to have many properties under review and we have several term sheets outstanding with anticipated returns of 9% to 10%. We anticipate having enough availability on our revolver to fund our acquisitions. But now that we have it in place, we anticipate opportunistically utilizing the ATM to strategically access the equity markets.

On the leasing front, during the first six months of the year, we had expiring or terminated leases -- terminating leases related to approximately 58,000 square feet and we leased, extended or renewed leases relating to approximately 109,000 square feet.

Occupancy did drop during the quarter principally related to the 30,000 square-foot vacant foreclosed property. However, as mentioned earlier, we have a signed term sheet to lease 100% of the property to a single tenant. So we anticipate occupancy popping back up after we get that lease signed.

On another front, we declared our dividend for the second quarter and raised it to $0.4025 per common share. This equates to an annualized dividend of $1.61 per share and I have continued to be proud to say we have raised our dividend every quarter since our IPO. I believe that takes care of all the items I wanted to cover.

So I will 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, 2018. Total revenues for the second quarter of 2018 were $12.4 million versus $8.9 million for the same period in 2017. Rental and interest revenues were $10.8 million for the quarter versus $7.6 million for the same period in 2018 -- 2017.

Primarily due to receiving titled AMG property in Lafayette, Louisiana, the real estate portfolio decreased to 89.3% leased.

On a pro forma, if all the 2018 second quarter acquisitions occurred on the first day of the quarter, rental and interest revenues would have increased by an additional $214,000 to a pro forma total of $11 million for the quarter.

Total expenses for the second quarter of 2018 were approximately $8.6 million versus $7.3 million for the same period 2017. General and administrative expenses for the second quarter were $1,504,000. Depreciation and amortization expense was slight over $4.6 million for the quarter.

On a pro forma basis, if all the 2018 second quarter acquisitions occurred on the first day of the second quarter, depreciation and amortization expense would have increased by $150,000 to a pro forma total of approximately $4.8 million. The company reported net income of $2,417,000 for the second quarter versus $466,000 for the same period 2017.

Funds from operations FFO for the second quarter of 2018 consisted of net income plus $4.6 million in depreciation and amortization for a total of over $7 million.

AFFO which adjusts for straight-line rents and deferred compensation increases the total to just over $7.5 million or $0.42 per share diluted versus $4.8 million or $0.38 per share for the same period 2017.

Again on a pro forma basis, adjusting for the debt outstanding for the entire quarter, if all the 2018 second quarter acquisitions occurred on the first day of the second quarter, AFFO would increased by approximately $149,000 to a pro forma total of a little under $7.7 million and increasing AFFO by $0.01 to $0.43 per share.

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

[Operator Instructions] And our first question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead..

So just a few questions. First, on the ATM, obviously good to see you guys have that in place.

But just curious now that you have that Tim, does that change your acquisition pace the 25 million to 35 million that you’ve targeted? And then also previously you talked about term loans, different types of financing, has anything changed bigger picture in your capital plans that we should be thinking about?.

On the first question the answer is no. We still anticipate 25 million to 35 million a quarter, so that’s a good run rate.

And basically, view the ATM, which is being another arrow in the quiver from a capital structure standpoint, we don’t see it changing, long-term we’ve got 30% to 40%, 30%, 35% and it’s the goal for debt, that’s going to be in place so it’s just going to be the ATM should be a lot better granular way to manage our acquisitions with our equity and capital requirements..

And then the next thing is the G&A was a little bit higher than we expected and obviously now that you’ve the ATM, you can certainly grow.

So are there -- how should we be thinking about -- I think before you had mentioned creeping up maybe a few 100,000, but how should we be thinking about G&A for this year and next versus where you were in the second quarter?.

The second quarter was somewhat of an anomaly for basically two significant issues that happened there. We had our first Board departure as Alfred Lumsdaine left the Board to become CFO at Quorum and we added Claire Gulmi. In doing that we had to accelerate Alfred’s deferred compensation that we had taken in stock.

So that was close to a couple of hundred thousand dollars in the second quarter and then also we had -- it’s probably close to couple of hundred thousand dollars of professional fees related to basically closing out the bankruptcy.

So we feel like the first quarter run rate is probably a fairly good run rate and we’ve got -- again we had these couple of items in the second quarter that were hopefully unique..

Okay. And just a final question. You mentioned about the bankrupt restructuring and about getting repaid early is your anticipation. You’ve been pretty consistent on that.

Now that everything is closed, again, thinking about earnings perspective, for this year and next, how much should we be thinking about your note that's due on that 9%, how much should we think about coming back this year versus staying in place? Just want to make sure that from an earnings perspective we’re thinking about things correctly..

Right now, I wouldn’t anticipate -- from a model standpoint, I don’t think I’ll put any repayments in. I think it’s very possible we could get 8 million to 10 million repaid by the end of the year. But I don’t know that I put that into model. If we did we would probably turn it to accelerate in an acquisition that would offset.

So it’s kind of like an additional potential funding source in future but it’s not something that we have planned to be repaid in six months or 12 months. We just think that it’s likely based upon the terms.

And quite frankly the operations of the facilities, they finished -- the first quarter also had bankruptcy, they were ahead of their budget, so we feel pretty good about it..

[Operator Instructions] Our next question comes from Sheila McGrath with Evercore. Please go ahead..

Tim, I was wondering if you could give us a little bit more detail on you mentioned the -- there is a term sheet out on that vacant building and how does that rent compare to the prior rent? And then if you look back at that transaction which was complex in totality assuming you get paid back the note, just how does CHCT come out, whole or better than whole the way that you went after this transaction?.

I’ll knock on wood when I talk about this. But if -- assuming that the term sheet gets signed, we will have rent on it very similar to what we would have had from a cap rate standpoint with the prior mortgage.

We will -- and basically it’s coming back at $4.5 million valuation and we will end up putting probably around $1 million in renovations into it. So we will end up with a $5.5 million valuation and I’m anticipating that’s coming to right around 9% return.

On an overall basis, other than, if we get all the professional fees back and the management time back, I would say we came out very well in the transaction assuming everything works out like it looks like it’s going to.

It did take a lot of professional fees and did take a lot of management time to get it there but we feel good that we’ve come to kind of our first test by far and everything looks pretty good right now..

Okay, that’s great. And then on the $103 million under purchase agreement you mentioned that it’s -- the closings between now and the end of 2019.

I was just wondering if you could give us some perspective of how much of that pipeline might be targeted to close in 2018 if any?.

Right now there is a possibility of late 2018, we think probably most of it by far is going to be in 2019 and we’re hoping that it will be spread out over the years, although it won’t come in lumps but there’s parts of it that may come in lumps.

But we’re -- again we’re excited about that and feel like that provides a lot of transparency and looks into the future pipeline and then just takes a few add-on acquisitions and we’re well on our way to having our 2019 already made..

And it’s all new properties as well, correct?.

Yes, it’s all new properties, all 15-year leases. Well, one is basically a fully renovated, it’s been an existing property but it’s going to do a full renovation right now..

And the last question, at your IPO, senior management was largely paid and the company’s stock, I was just wondering if you could update us on that.

Is that still the case and how much insider ownership is at the company?.

We -- that is a very important part of our DNA as a company and everybody in the room Page, Leigh Ann and myself, have only taken compensation in stock and we only get cash flow the same way that all of our investors do and that’s through the dividend.

There’s still a couple of other guys they’re in the company that still take all of their compensation in stock but the majority of executives take a very good level -- I am not sure what that level is anymore but it’s a very good level but everybody in the room here takes a 100% of it.

And I think quite frankly that is a very important part of what makes us who we are and why investors like us because they know that we are buying into what we’re selling. And we get meetings and we get investors who tell us that basically that’s why they took the meetings and one of the main reasons why they’re doing the investing..

And our next question comes from Eric Fleming with SunTrust. Please go ahead..

On you’re -- the $103 million development pipeline, just hoping you get more into the details on it. Obviously a couple of quarters ago it was three properties at $40 million, last quarter was four properties of $70 million plus, now we’re five at $103 million.

Is there any kind of details on that kind of who the specific operators, partners are and kind of how that -- those relationships are continuing to grow and plus add on as what’s the longer term outlook on adding more buildings there?.

It’s part of -- since the beginning we’ve talked about trying to develop the client relationships with these -- with the operators and we’re probably up to what I would call five or six clients we’re trying to get, if we had two, I’d be very pleased, but these in particular is in-patient rehab operator, it’s a new company but he is a -- that is -- it’s and experienced management team.

They sold their previous in-patient rehab company to HealthSouth, now Encompass or I forgot what their current name is, but HealthSouth a few years ago, that’s in-patient rehab and then we’ve had an in-patient site that’s $30 million or so of that pipeline. It’s US HealthVest which we’ve got one of their facilities in Chicago.

This would be our second facility with US HealthVest and that management team has -- this is the third time that management team has a done this, they sold one of them to Universal and one of them to Sach Solutions. So we're dealing with very -- we call them serial entrepreneurs.

We also have relationship with -- we've closed on one in the first quarter, it was a dialysis company. This is actually -- is fourth time around.

So we feel very comfortable with the management teams and their experience and they have significant capital behind them and quite frankly we look at it as probably in two or five years they are going to sell them again and we are going to earn therein the credit, so..

I mean how big do you think the pipelines get in terms of -- just what you're willing to disclose I guess?.

I would say if we can get it to 125 million and keep it there, we would be very pleased..

And we do have a follow-up question from Sheila McGrath with Evercore. Please go ahead..

Yes.

A real quick Tim, on the timing of that proposed new lease, is that something that will start this year or you think from a modeling perspective we’re better off assuming next year?.

To be honest with you, I was hoping to get it done in place the August 1st, but that didn’t happen, I am hesitant to say at this point in time. But I’m hoping to have it in place by the end of the third quarter anyway..

Okay.

So that would mean you would start recognizing rents or does it take a while to do the renovation and?.

No, we would start -- I mean, they started paying some rent from the beginning and fortunately and unfortunately GAAP accounting makes a straight line rent. So -- and it’s anticipated to be a 16 year lease so we basically take the rental stream over to 16 years in straight line.

So there would be immediate rental recognition although some of it would be basically deferred straight liner rent..

At this time, I’m showing no further questions. So I would like to turn the conference back to Tim Wallace for any closing remarks..

Thanks, Austin. And again we would like to thank everybody for helping us, for supporting us and for participating in the call today and we’re looking forward to a great third quarter and talk to you in three months. Thanks..

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