Community Healthcare Trust Inc (CHCT) 2015 Q4 法說會逐字稿

Welcome to Community Healthcare Trust 2015 fourth-quarter and year-end earnings release conference call. On the call today the Company will discuss the 2015 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, www.communityhealthcaretrust.com. 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 26, 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 disclosure regarding forward-looking statements in its earning 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 a result of new information, future developments, or otherwise except as may be required by law.

During this call the Company will discuss the GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earning 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.

Thank you, Ed. Good morning, everyone and thank you for joining us today. I'm actually in Florida today, where I participated in a University of Florida real estate conference. I committed to it a long time ago, well in advance of when we decided this call would be, so I'm making sure I meet my commitment on that. With me on the call today back in Franklin is Page Barnes, our Executive Vice President and Chief Financial Officer.

Once again, we have been extremely busy. We issued a press release back in January that highlighted our activities in the fourth quarter and the first three weeks of January.

To reiterate what we said in the press release, in the fourth quarter we acquired eight properties with an aggregate purchase price of approximately $29.2 million. We expect the returns on these investments to range from approximately 9.2% to 10.9%.

In the first three weeks of January we acquired two properties with an aggregate purchase price of approximately $9.5 million, and funded a $12.5 million mortgage with an option to purchase the property securing the mortgage. We expect the returns on these investments to range from approximately 9.1% to 11%.

In addition we have some properties that should close in the next few weeks, including a surgery center in Illinois and a medical office building in Florida. As it relates to our pipeline, our properties under review continue to go up, which is exactly what we anticipated. We can now provide swift closing and timely actions on our processes, so everybody is pretty pleased with what we have going.

We are continuing to develop and improve our relationships with our key provider clients and are encouraged by the discussions we are having there. We continue to believe that there are a lot of the properties that we are interested in and continue to believe that there's very little competition for them.

As was previously announced, we declared our dividend for the fourth quarter and raised it to $0.3775 per common share. This equates to an annualized dividend of $1.51 per share. As I am proud to say, we have raised our dividend every quarter since our IPO; and as I've said since the IPO, what I want to do is be able to be here in 10 years and make that same statement.

As part of our information released last night, we provided our version of supplemental data. We continue to view this as a work in progress.

Again if you have suggestions for additional information to be included, please send all of your suggestions via email to Leigh Ann Stach. Alternatively, send them to Page or myself, and we will make sure she gets them.

A couple of things that are happening, and I'm going to put this in now so that if you all need to call us later on you won't try the office. But we are I guess I would say in the process of moving to our new office, and our service provider doesn't have our phone system at the new office working correctly just yet. So if you want to follow up on stuff today, send us an email, or call Page or myself on our cell phones.

All of this stuff that I've been talking about is very exciting and satisfying and, as I always say, would not have been possible without the assistance of the people on this phone call, from the investment bankers to the analysts to the investors themselves. We continue to thank you for all of your assistance and support that each of you provide.

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 fourth quarter and year ended December 31, 2015. Most of my comments will be focused on the fourth quarter, since the annual numbers are only for a partial year.

Total revenues for the fourth quarter of 2015 were $4.6 million. Total revenues for the year were $8.6 million. Rental and mortgage interest revenues were $3.4 million and $6.7 million for the quarter and year, respectively.

As previously addressed, the Company closed on eight properties during the quarter. The real estate portfolio was over 94% leased. On a pro forma basis, if all the 2015 fourth-quarter acquisitions had occurred on the first day of the fourth quarter, rental and mortgage interest revenues would have increased by an additional $376,000 to a pro forma total of over $3.7 million.

Total expenses for the quarter were approximately $4.3 million. Total expenses for the year were $9.8 million.

General and administrative expenses for the fourth quarter were $646,000. Of this amount, transaction expenses totaled $243,000.

Our run rate G&A expense was a little above our indicated G&A run rate. This additional expense was primarily due to legal expenses and other expenses from previous periods that were somewhat cleanup items being recognized in the fourth quarter.

Also, I know people have noted that we had a recorded bad debt expense related to two tenants during the quarter of $71,000. We attempt to be conservative in our bad-debt reserving policy, and we try to recognize those if there is a -- as soon as we recognize the possibility of a bad debt.

Depreciation and amortization expense was $2.4 million for the quarter. On a pro forma basis, if all of 2015 fourth-quarter acquisitions occurred on the first day of the fourth quarter, depreciation and amortization expense would have increased by $262,000 to a pro forma total of just under $2.7 million.

The Company reported net income of $121,000 for the fourth quarter and had a net loss of $1.5 million for the year. Funds from operations for the fourth quarter of 2015 consisted of net income plus $2.4 million in depreciation and amortization, for a total of over $2.5 million.

Normalized FFO, which adds back acquisition expenses, increased the total to $2.8 million. Again on a pro forma basis, adjusting for the debt outstanding for the quarter, if all the 2015 fourth-quarter acquisitions occurred on the first day of the fourth quarter, normalized FFO would have increased by an additional $133,000 to a pro forma total of just under $2.9 million; and it would have increased normalized FFO per share by $0.05 to $0.42 per share.

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

(Operator Instructions) Rob Stevenson, Janney.

Good morning, guys. Can you talk a little bit about where you stand today in terms of dry powder to complete future acquisitions, between debt and whatever cash that you guys have on hand since the end of the year?

Yes. Sure, Rob. Good morning; hope you're doing well today. I think we've got currently outstanding on the line, Page, about $39 million? Which gives us about $26 million of dry powder.

Which I know the next question is going to be -- it's like: Okay, so when will you come back to the market and look to raise equity? My comment on that has been from the beginning and is still that I view that as an interactive process, and we are not going to sell stock cheaply.

The management team has a significant amount invested in this Company. And if for some reason the market doesn't like us at the time that we do it, we'll sit and generate cash. Because if we sit with $40 million, $50 million, $55 million drawn on a line we generate a lot of cash, and the FFO on a quarterly basis is going to go up substantially.

We have a lot of ability to invest the money. We think we are one of the few REITs that can invest it accretively at the cap rates that we can invest in.

So when it comes time, we'll basically test the market and see where the stock price is. If it is favorable and our shareholders are amenable, then we'll raise additional equity. If not, we will sit and churn a lot of cash.

Have you guys looked to see where you guys could potentially do a preferred deal?

We have not specifically looked at a preferred deal. Generally speaking I'm a proponent of the KISS theory; and while there is some places that preferred makes sense in a REIT's capital stack, it's tough to see where it's a long-term piece of it.

Okay. Then, Page, you were talking about the bad-debt reserve. What is that on, and how many properties does that involve? Is it the entire tenant of a certain property, or is it in a multi-tenant facility?

Both the bad-debt tenants are in multi-tenanted facilities. And what was your other question? I'm sorry.

I was just trying to figure out, are they the major tenants in there, or are they relatively small? How should we be thinking about that?

Neither of them represent half of the building. One of them is a very small tenant, and one of them is just a medium-sized tenant, I guess.

Okay. Then how are you guys thinking about potentially providing earnings guidance going forward? How does that factor into the equation for you guys?

We have not historically provided earnings guidance, and at this point I'm not sure that it's that important in most cases. We are fairly simple relative to what all the other guys have, and so generally speaking we haven't seen where the analysts were significantly divergent that we felt like there was a need to provide that.

Okay. Then just last question. Page, you said that if all the acquisitions had happened on basically the first day of the quarter and for the fourth quarter core FFO would have been $0.42. Is there any other noise in that that would've fluctuated it up or down just beyond the additions of the additional revenue? Was there anything from an expense standpoint or from a one-timer revenue perspective in the quarter that impacted your numbers?

Well, we didn't just add -- for that number we didn't add just back the rental rate. We looked at a net number rent minus the expenses that would have been associated with it.

Okay. But the fourth quarter didn't include anything abnormal when you're talking about that $0.42 number, right?

Yes. No.

Okay. Thanks, guys. Appreciate it.

Alex Goldfarb, Sandler O'Neill.

Good morning. Just a few questions. First on the bad debt, if you can just say -- was this something that you had a feeling about when you did your underwriting on these assets? Or was this a surprise?

It wasn't a surprise. Again, as Page indicated, one of them was a very small -- a small tenant. The other one it was relatively small for the building; we knew that there was potential issues when they bought it and took that into consideration.

Okay. In the rest of the portfolio, how would you characterize the watch list or the number of tenants that you have similar concerns?

Very minimal. I will let Page -- can see it there in Franklin. But I think that list is less than five in the whole portfolio.

Yes, I think that's right. We've -- we try to stay on top of that pretty well.

Okay. So there are only five or fewer tenants that you are concerned about at this point?

Right. And this is two of them.

Oh, this is two of the five? Okay, great; that's perfect.

Next is on the acquisition pipeline. Maybe I missed it in your MD&A, but did you provide an update from the January 21 press release for any -- I think you talked about $25 million in the discussion pool. Is that still the same, or did you guys provide an update?

We have not provided an update. It's still basically the same.

Okay. It sounds like from your comments that it's the same because you're getting up towards how much you can put on a line of credit relative to where your stock is right now. So just confirming that what you guys said at the beginning of the call is that you're absolutely comfortable basically shutting down the acquisition program until the stock price gets back to a more reasonable level; and then you're fine just using the earnings that you have off the line of credit just to continue to grow FFO. Is that fair?

That's a fair synopsis of it. Again, you've got the model. If you run the numbers with us, $50 million, $60 million drawn on the line we generate a lot of cash.

Okay. Then just finally, what's been the reaction of prospective sellers? Initially you guys said it was slow before the IPO, and then they saw you had cash, and then they became very excited.

But if you guys pull back does that impact your relationship with potential sellers? Or they get it that, right now with where your stock is, it doesn't make sense to issue; and therefore as soon as you guys have money again they'll be right there willing to engage with you.

With the relationship that we have -- I mean, basically we keep everybody informed as to what things are looking like. So I would not anticipate there been any issues with slowing down for three months or six months.

Okay. Listen, thank you very much and hope your phones get working soon.

Amit Nihalani, Oppenheimer.

Good morning. Can you provide a little more color on your pipeline, particularly what type of medical assets and geography, perhaps?

We're looking at stuff basically all over the country. Most of it tends to be, I think because of where we are and where our contacts are, in the Southeast, Southwest type of area. But we do look at assets north of the Mason-Dixon Line and have bought several in the last few quarters.

We are looking at all types, all industry segments. We tend to have a significant sweet spot on surgery centers, because they tend to fall into the asset size and the quality that we're looking for. The same thing with dialysis clinics.

We are working with some of our friends that are providers in those areas to develop programs for the future. As I've said all along if we could have 10 clients that we did $15 million a year of business with, $20 million a year of business with, it would be great. I continue to believe that that's possible, and we're moving down those lines.

Okay. Are you able to provide an acquisition run rate going forward on a quarterly basis?

Again, this is obviously subject to what the market thinks about our stock and the capital availability, but as I've said from the beginning we're very comfortable saying we'd do $25 million to $30 million of acquisitions a quarter and have the quality assets and the cap rates that we're shooting for, and feel like we've got the people in place to be able to do those acquisitions.

Again we haven't changed our story from the beginning. It's still $25 million, $30 million a quarter that we feel very comfortable with.

Got it. Just one last one. What would you expect the G&A run rate going forward?

Page may want to address this to some extent. We are anticipating that the G&A -- again assuming that we continue to grow -- the G&A run rate will increase some this year, and assuming that we're able to do what we'd like to do will be double or more the size that we were when we did the IPO. So we are anticipating $200,000, $300,000 additional G&A on a quarterly basis by the time we get to the end of the year. Because we're going to hire a few people and just kind of anticipate that happening.

Got it. Thank you.

Larry Raiman, LDR Capital Management.

Thanks, good morning. Again, I want to applaud you all for the governance and the alignment that you at the executive level take along with us as shareholders, in taking stock as compensation and pushing forward with regard to the stock price getting to where it needs to be.

With regard to funding, want to get back to Rob's question. That is, in the event the stock doesn't go anywhere, why wouldn't you consider alternative sources of capital such as preferred capital? I think maybe as an ancillary question, what about any sort of mortgage indebtedness, project debt as a way of sourcing leverage?

Preferred obviously never has to be repaid, and there's REITs that you know that have effectively used it. And it's arguably a cheaper source of capital for you than the equity, particularly when you're buying at 9% and 10% cap rates, with some long-term growth to that.

So I'd like to just hear a little bit more than we want to keep it simple, with regard to your future funding needs in the event of the stock not moving.

Okay. Good morning, Larry. I will be honest with you, I was kind of excited when I saw your 13 filing come in (multiple speakers). I knew them from back in 1990s.

Of course, of course, of course. One of the reasons why we're big shareholders, and that is: We know who you are, and your alignment with us, and we appreciate that.

And I would never say never to anything. It's just I don't anticipate -- and I could be totally wrong -- I don't anticipate having to sit a long time not doing acquisitions because we don't have access to capital. I mean, I could be totally wrong.

But our FFO -- again, if we're drawing $60 million on the line our FFO is going to go up substantially from where it has been and from where most people have us modeled right now. And I would anticipate that pushing the common stock price up.

I don't know if you remember or not, but we did have a piece -- actually, we inherited it from Capstone Capital -- of a preferred at Healthcare Realty. Again, if we get to that point and if it's an extended period of time, then we very well might look at doing preferred.

As it relates to mortgage debt, I'm a big fan of what I call the corporate finance model. As I've said, we recognize it will be a long time before we get to be investment-grade rating, but we want to run the Company as if we were an investment-grade rated company. The mortgage debt when you put that on, just kind of is an inhibitor in a number of different ways from being able to exercise that if you do it in any meaningful fashion.

Right now the banks would give us more money. That's not the issue. The banks have a 50% loan-to-value covenant.

But our internal debt restriction is a 40% debt-to-total cap. The banks would give us more than what our internal cap is now, so we wouldn't have to look at mortgage to lever the Company up. I'm just convinced that we might could go a little above 40%, but every time I've ever looked at it, if you go into a down cycle in real estate and you've got significantly more than 40% leverage on a real estate investment trust, they have issues going through that cycle; whereas if they keep it down then they don't have issues.

Again, we're shareholders and that's the conservative nature that we have as shareholders. We would rather miss a little bit of the upside to make sure we don't have the downside -- and actually think we can have it both ways.

Don't get me wrong, I'm with you on that. I'd rather you stay disciplined through thick and thin and if the markets are not there; just run the properties, create the cash flow, and pay the dividend, and wait until the markets recognize it.

So I'm with you on that front, and that discipline will bear through long-term. So I'm with you on that front.

I just -- a preferred is a pretty conservative capital source because it's permanent capital. So I will just leave it there and wish you the best. And thanks for chugging forward and remaining disciplined and being aligned with us.

Thanks for the support, Larry.

Eric Fleming, SunTrust.

Hey, guys; just a question. Wondering, is there any more info on the Adventist Maryland property? Any update on that one?

I will take that one. But, no, they are still going through their process; and we should know something by the end of the quarter, I believe.

Okay. Just one other quick question on the portfolio. Any incremental AmSurg activity given the letter you guys had from -- off the IPO?

Yes. Actually we've had a lot of activity with AmSurg, and I'm trying to think how much I can and can't say. But we are still having a very good relationship with them.

It takes a while. They don't own any of their real estate, so it's basically dealing with the doctors who do own the real estate. So it's taking a process, but we feel very good about where that process is at this point in time.

Okay; great. Thanks a lot.

(Operator Instructions) Showing no more questions, this concludes our question-and-answer session. I would like to turn the conference back over to Tim Wallace for any closing remarks.

Well, thanks again, Ed, and we appreciate everybody on the call. Appreciate the support. Again, if you have any follow-up probably the best way is email or call us, call Page or myself on our cell phones. Again, thanks so much and we'll talk to you next quarter.

Thank you. This concludes the conference. Thank you for attending today's presentation, and you now may disconnect.