Welcome to the Community Healthcare Trust’s 2018 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2018 third 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 maybe discussed in this call will be based on information as of today, November 7, 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 maybe 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. Sir, please go ahead..

Thank you. Good morning and thank you for joining us today for our 2018 third quarter conference call. I am actually out in San Francisco at the NAREIT World Conference. But on the call with me today back in Franklin 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 we announced last quarter, we entered into a sales agency agreement and have put in place an ATM program for up to $100 million.

During the third quarter, the company issued through its ATM program 234,000 shares of common stock at an average gross sales price of $31.17 per share and received net proceeds of approximately $7.1 million at an approximate 5.27% current equity yield.

During the quarter, we acquired two properties with a total of approximately 37,000 square feet for a purchase price of approximately $6.7 million. These properties were 93.4% leased with leases running through 2023 and anticipated annual returns of 9% to 9.23%.

As it relates to our pipeline, we have 11 properties with fully negotiated purchase and sale agreements for an aggregate expected investment of approximately $24 million. The expected return on these investments should range from approximately 9% to 9.5% and we anticipate that they will be closing during the fourth quarter.

Actually, several of them are supposed to close today and we anticipate most of them, if not all closing before Thanksgiving. In addition, we continue to have 5 additional properties under definitive purchase and sale agreements to be acquired after completion and occupancy for an aggregate expected investment of $103 million.

The expected return on these investments should range from 9.4% to 11% and we anticipate 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 net availability on our revolver to fund our acquisitions.

But now that we have it in place, we anticipate to continue to opportunistically utilizing ATM to strategically access the equity markets.

On the leasing front, during the first 9 months of the year we had expiring or terminating leases related to approximately 73,000 square feet and leases extended or renewed leases relating to approximate 167,000 square feet. Occupancy was stable during the quarter.

However, we are seeing a lot of activity on the leasing front and believe we will start seeing the occupancy level start increasing in the next few quarters. On another front, we declared our dividend for the third quarter and raised it to $0.405 cents per common share.

This equates to an annualized dividend of $1.62 per share and I continue to be proud to say we have raised our dividend every quarter since our IPO. As some of you all have already noted, we are a little light this quarter in FFO mainly driven by a little light in acquisitions. We do not feel that this is driven by some overall change in the market.

We have almost $130 million of acquisitions that should close over the next 13 months, already in the contract. While I hesitate to say there is seasonality to our acquisitions, if you look back over the last 3 years, the third quarter is always live.

A lot of this is driven unusually by vacations, not just our vacations, but the sellers vacations, their attorneys vacations, our attorneys vacations, etcetera, because everyone takes their vacations at different times.

Since most of our sellers are doctors with fellow practice attorneys, if they or their attorney goes on vacation the process basically stops until they get back. As I always say acquisitions is a lumpy business.

In addition, I think some of the things happening on a macro basis interest rate hikes, mid-term elections, etcetera have also slowed doctors decision making process. However, since we have $24 million of properties that should closed before Thanksgiving, we do not think anything has fundamentally changed in our model or methodology.

We are running a marathon, not a sprint. And we are still confident we are on the right track. The company paid annual bonuses in August and substantially all of them were taken in stock which should indicate our level of confidence. 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 third quarter ended September 30, 2018. Total revenues for the third quarter of 2018 were $12.6 million versus $9.4 million for the same period 2017. Rental and interest revenues were $10.9 million for the quarter versus $8.3 million for the same period 2017.

The real estate portfolio’s occupancy remains stable at 89.3% leased. On a pro forma basis if all 2018 third quarter acquisitions had occurred on the first day of the quarter, rental and interest revenues would have increased by an additional $96,000 to a pro forma total of $11 million for the quarter.

Total expenses for the third quarter of 2018 were approximately $9 million versus $7.8 million for the same period 2017. General and administrative expenses for the third quarter were $1.395 million. Depreciation and amortization expenses were slightly over $4.9 million for the quarter.

On a pro forma basis if all of the 2018 third quarter acquisitions occurred on the first day of the third quarter depreciation and amortization expense would have increased by $67,000 to a pro forma total of approximately $5 million. The company reported net income of $1.999 million for the third quarter versus $579,000 for the same period 2017.

Funds from operations, FFO for the third quarter of 2018 consisted of net income of $4.9 million and depreciation and amortization for a total of over $6.9 million.

AFFO which adjusts for straight line rents and deferred compensation increases the total to over $7.2 million or $0.40 per share diluted versus $5.5 million or $0.31 per share for the same period 2017.

Again on a pro forma basis, adjusting for the debt outstanding for the entire quarter if all of 2018 third quarter acquisitions occurred on the first day of the third quarter AFFO would have increased by approximately $63,000 to a pro forma total of a little under $7.3 million and increasing AFFO by $0.01 to $0.41 per share.

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

[Operator Instructions] The first question is from the line of Daniel Santos with Sandler O’Neill. Please go ahead..

Hey, good morning guys. Thanks for taking my question. So my first question is on the acquisition cadence. Obviously in the past you have indicated that $35 million per quarter is sort of a reasonable run-rate with the understanding that some quarters would be lighter than others. Obviously, this quarter was a bit lighter than we had expected.

Are you still comfortable with that $35 million per quarter or 140 for the year?.

Daniel and thanks for joining us today and for the question. We feel fairly comfortable with that goes again in the next 13 months we have got $130 million already on the books to close. So, $140 million doesn’t sound like it’s going to be too hard for 2019.

This year has been little bit of an aberration for a number of reasons, but again we don’t see anything that changed the fundamentals of what we are doing or how we are doing it..

Got it. That’s helpful. Just along those same lines thinking about aligning the Street’s expectations to close in the quarter.

Obviously in the past you have issued a post quarter sort of activity update, is that something you are considering maybe going back to just so that there isn’t as much of a mismatch quarter-over-quarter?.

Yes, we have considered it. There has been several issues involved with it, but yes, that’s something we probably will start doing again..

And then just one last quick one from me as you are thinking about the pipeline, I know you have talked about 130 over the next 13 months, are there any financing deals in the pipeline that you are considering or is it – are these just straight out acquisitions?.

These are straight out acquisitions..

Okay, thank you. That’s it for me..

Thanks Daniel..

The next question is from the line of Sheila McGrath with Evercore. Please go ahead..

Yes, good morning.

Tim of the backlog of $130 million, how much of that it might be all of it is with your strategic kind of partners where it’s kind of programmatic acquisitions?.

A little over $100 million. We are still going to do other types of acquisitions, but we feel like doing those adds a basin and some transparency to the future pipeline that we have been able to have before. So we like doing that and would like to continue to do that and have it increase a little bit, but we are still doing other acquisitions..

Okay.

And then on those partnerships can you just remind us how many strategic relationships you have so far and what types of properties are in those that $130 million?.

In the $130 million, actually, I am assuming it is at the top of my head, but there are probably five relationships that we call client relationships, one is a dialysis company, one is in-patient rehab, one is in-patient geri psych, one is an in-patient general psych, I maybe forgetting some, but included in the acquisitions too are some new ones that we are trying to develop with an I-Care company.

We think that is a good place for us to be as the consolidation occurs in I-Care, let’s say, I remember what the others are, but that’s basically what makes up our current client list and we are trying to as I said continue to increase those..

And for modeling purposes should we figure closings are more to the back half of 2019 or across the year?.

Page has done more work with scheduling those out.

I think it’s pretty much scheduled out through the year, but Page how are those shaping up currently?.

They should be through the first three quarters of the year. The effect of the last one probably would be more fourth quarter than third quarter..

Okay, perfect.

And then just Tim, any thoughts on cap rates either from your perspective or sellers with the changing interest rate environment?.

Well, that’s one of the things, I think it slowed things down some, because we have got it pushed – cap rates to push them up. Sellers don’t believe interest rates really have an effect on cap rates right now, but we are telling and it does, so we are being able to try to push some of it, but we are still closing stuff in the low 9s.

We have yet done anything below that..

Okay, thanks so much. See you soon..

Thanks Sheila..

The next question is from the line of Matt Boone with B. Riley FBR. Please go ahead..

Hey, guys. Good morning.

So looking at your acquisition pipeline in 2018 and 2019, can you provide us with some color as to how those assets compare to the broader market from a pricing perspective?.

I am not sure I really understand..

Sure.

So how the cap rates that you are acquiring those assets versus where the broader market currently stands?.

Well, what we try to do is have relationships and deal with healthcare providers that have a goal, I mean and we call them our serial entrepreneurs, because the dialysis company that we deal with has already done three of them, this is his fourth company, so two to presenting as one to DaVita.

And the same thing can be said with the inpatient rehab they sold the previous company to what ended up being Encompass and the psych company into the inpatient psych company is that too. This is third one. He sold one to Fac Solutions back when and one to Universal Health.

So basically what we are dealing with this is serial entrepreneurs who have a goal of building their company as quickly as possible so that they can sell it and get big lick at that point in time.

So we make things a lot easier for them if we come in and say okay we are going to use standardized paperwork, we are going to do standardized due diligence, we are going to have all of this done upfront and for that we get additional cap rate for that.

And from their standpoint, it’s great, because they don’t have to go finance each one of them individually and it helps them get from zero EBITDA to $50 million or $20 million of EBITDA to $100 million quicker and if they can get there quicker, then obviously that’s better from their investor in their investment standpoint.

Does that make sense?.

That does.

And just kind of following up on that as we head into 2019, are you guys still seeing multitude of opportunities or how should we be thinking about the 2019 pipeline building going forward?.

I would still anticipate, we are going to do regular acquisitions. I don’t want to raise the guidance of $130 million to $140 million, but it makes it a lot nicer when we go into the year with $100 million already on the books. And actually we are already having discussions about our first project for 2020.

So, we feel very comfortable going into next year both from a property what we have seen from properties that are available and people that we are doing business with etcetera and from the standpoint of having the firepower and the liquidity to do that with what would be available under our revolver and may have the access to the capital markets through the ATM that makes a lot more granular and lets us match fund a lot closer..

Thanks..

Thank you..

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

Thank you, operator. And again, we appreciate everybody taking the time to be on the conference call with us and probably see a lot of you all later today or tomorrow here at NAREIT. And with that we conclude it and appreciate your interest..

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