Welcome to the Community Healthcare Trust’s 2018 Fourth Quarter and Year-End Earnings Release Conference Call. On the call today, the company will discuss its 2018 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 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, February 27, 2019 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 conference call over to Timothy Wallace, Chairman, Chief Executive Officer and President of Community Healthcare Trust Incorporated..

Thank you, Jamie. Good morning and thank you for joining us today for our 2018 fourth quarter and year-end conference call. On the call with me today, is Page Barnes our Executive Vice-President, 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. Before we get into our normal topics, I would like to address the impairment charge and related noise in our financial statements.

We acquired our Highlands impatient behavioral hospital in 2017. We have approximately $30 million invested in Highland’s and at the request of the operator that was structured as a $25 million lease investment and a $5 million mezzanine loans.

The operator requested this structure, because they told us they were intending to refinance the loan at a lower rate than our lease rate. During the second half of 2018, we started experiencing payment issues with the operator of Highlands.

We've placed them on a close monitoring regime, and had our original underwriting confirmed when we found that the operations at the facility were still producing significant cash flow and should not have been having a problem paying us our interest and rent.

In early December, it was discovered that the reason there were payment issues was that there was a diversion of funds in violation of our agreements. We moved aggressively to assert our rights under our agreements.

We're in the process of transitioning the facility to a new operator, and in that regard we have signed a transition agreement with the old operator. In addition, we have a signed lease with a new operator subject to a normal transfer of licenses contingency.

The new lease is based on our total investment of a little over $30 million and we expect to lease cash flow from Highlands going forward to be substantially the same as what it would have been from the lease and the mezzanine loan with the old operator.

We are currently collecting monthly payments roughly equivalent to the interest in rent, we should be receiving. For accounting purposes, it was determined that we should impair the loan, and not recognize approximately $500,000 of revenue in write off approximately $200,000 in straight line rent in the fourth quarter.

As I previously indicated, we are currently receiving monthly payments. We anticipate collecting the amount previously described that we could not recognize in the next couple of quarters, and the new lease provides for rent payments roughly equivalent to our old interest in rent payments. We believe, we have addressed the situation as best we can.

Now on to more mundane topics. We have an active ATM program in place. During the fourth quarter, the company issued through its ATM program, one hundred thousand seven hundred shares of common stock at an average gross sales price of $30.83 per share. We were seeing net proceeds of approximately $3 million at an approximate 5.36% current equity yield.

During the quarter, we acquired 11 properties with a total of approximately 143,000 square feet for purchase price of approximately $24.1 million. These properties were 96.6% leased with leases running through 2028 and anticipated annual returns of 9.04% to 9.51%.

So far, this quarter, we have acquired two properties with a total of approximately 83,000 square feet per purchase price of approximately $32.7 million. These properties were 100% leased with leases running through 2029, and anticipated annual returns of 9% to 9.3%.

In addition, we continued to have five additional properties and a definitive purchase and sale agreement 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 up to 11%.

We anticipate one or two of these closing in the second quarter, but we are being told that all of this rain we have been having may cause some construction delays with a couple of them. 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 to continue to opportunistically utilize the ATM to strategically access the equity markets.

Occupancy was stable during the quarter and therefore 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 fourth quarter and raised it to $40.75 per common share.

This equates to an annualized dividend of $1.63 per share. And I continue to be proud to say, we have raised our dividend every quarter since our IPO.

Something I like to mention every year about this time is that, Page, Leigh Ann and myself continue to take all of our compensation in stock, and most of our Board and several other executives continue to take significant amounts of their compensation in stock.

I will note that starting last year, some directors and executives have stock that they can sell and you may see that happen from time to time in small amounts for personal reasons. However, I will point out that I had no intentions of selling any of my stock.

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..

Thank you, Tim. I am pleased to review the company’s financial performance for the fourth quarter ended December 31, 2018. Total revenues for the fourth quarter of 2018 were approximately $12.2 million versus $11 million for the same period of 2017. Total revenues for the year of 2018 were $48.6 million versus $37.3 million for 2017.

Rental and investment interest revenues were $10.5 million and $42.3 million for the quarter and year respectively, versus $9.5 million and $32.3 million for the same period of 2017. The real estate portfolio was approximately 89% leased.

On a pro forma basis of all the 2018 fourth quarter acquisitions that occurred on the first day of fourth quarter, rental and interest revenues would have increased by an additional 298,000 to a pro forma total of $10.8 million for the quarter.

Total expenses for the fourth quarter of 2018 were approximately $9.1 million versus $8.8 million for the same period in 2017. Total expenses for the year 2018 were just under $35.2 million versus just under $30.4 million for 2017. General and administrative expenses for the fourth quarter were $1,000,547.

Depreciation and Amortization expense was a little under $5.1 million for the quarter. On a pro forma basis if all of the 2018 fourth quarter acquisitions occurred on the first day of the fourth quarter, depreciation and amortization expense would have increased by $257,000 to a pro forma total of approximately $5.3 million.

The company reported a net loss of one million eight hundred and eighty five thousand for the fourth quarter versus net income of one million five hundred fifty two thousand for the same period 2017. For the year of 2018, net income was four point four million versus three point five million for the year 2017.

Funds from operations, FFO for the fourth quarter of 2018 consisted of the net loss plus 5.1 million in depreciation and amortization less the gain from the sale of two hundred ninety five thousand for a total of two point nine million. Net income and thus FFO was reduced by Highland’s rent, we did not recognize.

Interest we did not recognize and straight line rent we reverse which combined to a little over $0.04 a share. As we disclose, we anticipate collecting these amounts over the next quarter or so. In addition, FFO was reduced by $5 million or $0.28 by the loan impairment, which was partially offset by the tax benefit, which added back $0.074 to FFO.

AFFO which adjusts for straight-line rents and deferred compensation, the impairment of the note in the corresponding income tax benefit for the fourth quarter was $7.2 million or $0.41 per share diluted versus $6.6 million or $0.37 per share for the same period, 2017.

AFFO was negatively affected by the Highlands rent and interest not recognized, by about $0.3 per share.

Again, on a pro forma basis, adjusting for the debt outstanding for the entire quarter, all of the 24 -- 2018, fourth quarter acquisitions occurred on the first day of the fourth quarter, AFFO would have increased by approximately $165,000 to a pro forma total of just $7.4 million with AFFO remaining at $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] Our first question today comes from Sheila McGrath from Evercore ISI. Please go ahead with your question..

Good morning. Tim or Page, I was wondering if you could talk about how this operator situation will reflect in first quarter earnings.

Are you getting the transition income the whole time? And also a same topic, how are you able to get a new operator so quickly?.

Good morning, Sheila. Yes, the transition agreement is in place. We are receiving payments with the legal fees and all the other stuff related to it, it will probably affect what we are doing, a penny or so in the first quarter, but again we anticipate collecting what we've been doing.

The answer to your question, how we were able to do is, because it's a great facility, and in a year and half ago when the old operator acquired the facility, there were several others that have reviewed the facilities.

So we actually talked to several site operators that would have been happy to taking it over and we were able to move quickly with one of them..

Okay, great. And then just on the acquisition side of things, it looks like this year is going to shape out to be at least $135 million with what you've closed already and the programmatic acquisitions.

I was wondering if you could discuss what's making this year's volume so much bigger than last year? And just any detail you could give us on the two acquisitions, you just closed in February..

And then channeling was, we have anything lean and if we disclosed anything on the details of the acquisitions in February. Basically, one was a multi-hospital with Kindred the operator and Rehab -- excuse me, Kindred the operator and Rehab.

With Kindred as the operator in Texas and the other is a physician office with a orthopedic group in Pennsylvania. Both of them have basically 10-year leases on them and as we pointed out, the yields are 9% to 9.3%, something like that and they were closed earlier this month..

And just if you could comment, Tim, on why this year's acquisitions is -- it's so much the volume, so much bigger than last year, if there is any rationale?.

Well, I mean, part of it is because we've been working from kind of from the beginning of having this shift -- future pipeline with clients that would provide us some view into the future. So having that as a base and then just filling in around, it makes it a lot simpler than it is actually going out and finding everything every quarter.

So we're going to continue to try to develop that out and try to have a future pipeline of stuff, so the ongoing basis, we will have some visibility into what the acquisitions are for the next 12 months to 18 months..

Okay, thank you..

Our next question comes from Alexander Goldfarb from Sandler O'Neill. Please go ahead with your question..

Hey, good morning. Good Morning down there. A few questions here, first -- all right, good morning, Tim. Just first going back a little bit, the bankrupt tenant that you did a restructuring of last year. Can you just update how that's going and I think when you originally talked about that.

It sounded like that may, that was an investment that was likely to exit at some point, so just -- if you could update us on that and how that tenants going in and where you stand there?.

They we're actually in the office, in the last month or so and going over what they did for last year. Their operations were pretty much performance what we were anticipating from last year. We're anticipating a good year this year.

They are looking at converting the company into employee-owned company, to lease up in which case, if they do that then sometime this year, we will get paid off. We are anticipating getting significantly paid down even if they don't do that, but some refinancing that they would do.

But our best case is probably sometime in the second half most -- if not all of that loan will get paid off..

Okay. Okay and then just, Tim, as you look back on your underwriting.

Certainly, it's a big positive that you're able to backfill this with the Highland operator so quickly, but one -- any other tenants in your profile giving you pause maybe that you want to talk about that, maybe there is something else growing, but in particular on the Highland tenant and the prior tenant.

We just discussed, where there any sort of initial red flags that stood out initially when you did either of these two transactions, where you're like something may not be right, but let's go with it or -- or these -- what just happens to be too coincidental kind of see one this year, one last that just happened to be coincidental and nothing was flagged (Technical Difficulty) et cetera?.

Well, that's --there are two entirely different kind of scenarios. The one last year with OPEC with some of the reimbursement that we changed in the OPEC, it created a lot of flux in the OPEC industry and -- these guys took advantage of that to get rid of some of their marginal to the negative operations after reimbursements.

In that scenario, we were able to utilize our underwriting capabilities and our structuring capabilities to come out and not lose money and hopefully have a full circle. You're getting paid off this year, well kind of, put an exclamation point on that.

The one in Highlands is -- and the attorneys don't want me play in too much, but it's one where you really scratch your head and ask yourself, what would -- what they were thinking because if they had an asset that was generating significant cash flow above what our interest in rent payments were and our original underwriting said that when we went back and looked at it closely again in December -- November-December timeframe, it's still said that -- it's still said when we're able to negotiate a transaction that we were with the new operator, so you just scratch your head and say, what was the old operator thinking when they were doing that and screwed up themselves by what they did.

So and again I think going into detail of what it was or anything, but it’s almost inexplicable as to what happened, because they had an asset with significant cash flow and now they’re not going to have it..

Okay.

Any other tenants on your watch list?.

We got over 300 tenants now, so we always have tenants on our watch list, but nothing of this size of nature or concern..

Okay. And then final question for Page, Page on the weather delays that you guys talked about that may affect some of the presales.

It sounds like on the acquisition pipeline we should be back-end, back-half waiting the deals from a cadence perspective? It sounds like first quarter is going to be impacted by a penny from the Highlands transaction, but then it sounds like the acquisitions are more back-half weighted.

Is that the right way to think about it?.

Yes. I think that, Tim said that we do expect one or two to close in the second quarter and one is complete, but it’s been operating at under the agreement we gave them 90 days to get up and running, but I think you’re correct. But the other three will more back-half..

Okay..

When you look at the whole thing, probably be kind of even weighted growth as we did 32 million in February and then we’ll do 40 million, 50 million in the second quarter. And then, the rest of it will be probably backend weighted on the second half. But when you look at the whole year it’s probably not that far off..

Okay. Thank you..

Our next question comes from Michael Lewis from SunTrust. Please go ahead with your question..

Great. Thank you. Most of my questions about Highlands have been answered now. And I have just one.

I understand the rent on the new lease approximating the old rent and the mortgage interest, but could you talk about the collection of the roughly 500,000 that you didn’t get paid in 2018? And if there’s any risk to that payment, in other words that maybe you don’t ever collect that?.

Good morning, Michael. Yes, of course there’s risk related to it, but in the transition agreement we’ve got laid out pretty tightly how we should get paid and its our belief we’re going to be able to collect – there’s receivables that they’re collecting, there’s funds that are there.

And the fact of matter is they’re generating on a monthly basis twice as much cash flow, I mean, there’s a two-time coverage. So there’s twice as much cash flow that is -- it takes to pay for our rent and interest. So, we feel fairly strong that we’ll be able to get it, but obviously there are risks that we won’t..

Okay. Understood. That’s helpful. And then, Tim, you mentioned the occupancy should begin to rise, the lease percentage has moved down six quarters at a row now. It looks like you have about 38 leases that are schedule to expire this year.

I mean how should we think about where you think that lease percentage might go throughout the year? I know you had some acquisitions and puts and takes, but how should we think about that trending in 2019?.

Again, I think, you’ll see it move up throughout 2019. We do have a few leases that are coming up, but we have weathered most of the storm.

If you go back and when we did the IPO we had -- it was 27% of leases rolling in each of the first year to and we’ve come through that and seeing that occupancy drop 2% or 3%, the majority of which is really relating to the AMG property. If it wasn’t for that property it would – you’d see it over 90% I believe. And so, we see a lot of activity.

Most of the stuff we’re doing is 100% leased on a going forward basis. So I think you’re going to see that moving in.

The other thing is if you look at other metrics on the leasing front, our weighted average remaining lease term, when we did the IPO four years ago it was just a little over four years and now it’s right around seven years and we’ve been able to keep it up around seven years for the last, I don’t know, four or six quarters.

So I think if you look at the overall lease metrics we’ve been able to improve some, and again I think the occupancy you’ll see moves up a little bit..

Thanks. And then, just lastly from me.

Did you disclose or could you share the interest rate on the mortgage payable that you assumed?.

It was just slightly over five [ph] all in..

Thank you..

Our next question comes from Rob Stevenson of Jenny. Please go ahead with your question..

Good morning, guys. Thanks. So just to follow-up on Michael’s question, in terms of the properties that are – that have vacancy in them now.

I mean, is the strategy just to lease them up or you also actively looking to sell some of the properties either that are vacant or have vacancy in them?.

I want to say that we’re actively looking to sell. We do have some people who have made offers on some of the properties that we may end up in the taking, but we’re trying to lease the properties. There’s only one or two that have been significant vacancy that generated since we acquired the property.

A lot of our vacancy is buy a vacancy but we don’t pay for it, because we only buy – we only pay for existing NOI. So if we buy property, that’s got 15% vacancy we’re not paying for and it’s our upside potential. So, something like that we obviously aren’t looking to sell that. We’re obviously looking to try to lease that up..

Okay. And then to ask the lease question on a different way. I mean, you have 9.6 of your revenue leases rolling this year.

Any known move outs or downsizings at this point?.

Upanishads, there are couple, I mean; again, this is real estate. I mean, we have people move out, we have people move in.

I mean, that’s – the occupancy has been basically 89% for the last two or three quarters, but we’ve had some people move out with it, some people move in, so there are some that move out and I think probably our stickiness rate is in the 85%, 90% range, but that means 10% to 15% we will move out..

Okay.

And where do you expect new rents versus expiring on the stuff that you’re going to release this year? Is this relatively flat given the triple-net leases? You up, slightly down, I mean, how should we be thinking about that?.

I think generally speaking, again, we went some up some down, but on average it’s pretty close to the same new leases or basically pretty close to the same as the old leases..

Okay. Thanks guys. Appreciate it..

Thanks, Rob..

[Operator Instructions] Our next question comes from Sheila McGrath from Evercore ISI. Please go ahead with your follow-up..

Yes. Tim, I was wondering if you could give us some insight on how G&A should look this year or Page, versus last year.

And do you expect that you’re going to be adding employees as you grow significantly this year?.

Yes. I mean, again, we do anticipate that we’re going to be adding some people. We are going to be – some of our executives are getting up to retirement age, nobody in the room right now, but some of the other guys are. So we’re going to be looking at switching some at.

So we’re going to add some people at probably lower rates and what we’ve got now and we’re going to be looking at adding some net people. Overall, I think probably G&A will be up 5% 10% maybe not significant, because again, we’re not adding significant at the top level that we’re not adjusting for otherwise..

Okay.

And then, just now that you have access to more efficient equity capital via the ATM, just wonder like big picture how you could help us think about where you want to manage leverage level this year?.

We said from beginning in part of our investment guideline is that we have internal policy of keeping debt below 40% of the book-to-total cap. And the long-term goal is to have that in the 35% range. So you’ll basically be seeing us access to equity markets in a way to try to maintain our long-term leverage it in the 30% to 35% range..

Okay, thank you..

Thanks Sheila..

Our next question is also a follow-up from Alexander Goldfarb from Sandler O'Neill..

Hello, thank you. Thank you. I just really quick. Tim, just going back to the tenant, use said may do, a buy out there, they are restructured portfolio later this year.

If that happens, do you think that you would step up the acquisition pace to that from an earnings perspective? There wouldn't be an impact or would that mean that the 2020 earnings were -- I know, you guys don't give guidance, but if we think about the company as it grows, does that mean that the earnings bar is reset down by that amount.

Just trying to think about the mechanics of -- if that's -- and it does by themselves out what happens from an earnings perspective and how you guys are thinking about addressing them?.

Well, generally speaking, Alex we've always said we do $120 million and $130 million a year. And basically, what we've done today plus the $100 million in the pipeline, we've got $135 million for this year. Anyway, we're not going to not acquire stuff, we haven't shut down the acquisition environment for the next nine months.

So we -- we still going be looking at acquiring to -- but I don't want anybody and say; now they're going to do $150 million or $160 million because there is the likelihood that the $23 million will get paid off, and in its bank down.

So that the answer to your question is, we're kind of anticipating our acquisitions will be a little bit above, more and more this year because of that the pipeline and everything else there and basically it will act as a cushion in the event that the loan does get paid off..

Okay, that's helpful. Thank you, Tim..

And ladies and gentlemen, at this time I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks..

Okay. Thank you, Jamie. And we'd like to thank everybody for being on the call today and for -- obviously your continued support and we look forward to talking to you again in three months. Thank you so much..

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines..