Community Healthcare Trust Inc (CHCT) 2016 Q4 法說會逐字稿

Welcome to the Community Healthcare Trust's 2016 Fourth Quarter and Year End Earnings Release Conference Call. On the call today, the Company will discuss its 2016 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 may be discussed in this call will be based on information as of today, February 24, 2017 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 the 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 would like to turn the call over to Timothy Wallace, Chairman, Chief Executive Officer and President of Community Healthcare Trust Incorporated.

Thanks. Good morning everyone and thank you for joining us today. With me on the call today is Page Barnes, our Executive Vice President and Chief Financial 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.

Once again, we had a very productive quarter. We acquired six properties in five states during the quarter, with a total of approximately 187,000 square feet for a total purchase price of approximately $45.6 million. These properties were approximately 98.1% leased, with leases running to 2031 and anticipated annual returns of 9% to 9.7%. We've already acquired two properties in the first quarter with a total of approximately 48,800 square feet for a total purchase price of approximately $7.9 million. The expected return on these investments range from approximately 9.2% to 9.3%. The properties were approximately 94% leased with lease expirations through 2022.

In addition, we have nine properties under definitive purchase agreements for an aggregate expected purchase price of approximately $25.7 million. The expected return on these investments range from approximately 9% to 9.6% and we anticipate that substantially all of these will close during the first quarter. As it relates to the pipeline, our properties under review continue to increase. We currently have several properties under signed term sheets and several more term sheets being actively negotiated and that we expect that to be signed soon.

In addition to our acquisition activity in the fourth quarter, we also declared our dividend and raised it to $0.3875 per common share. This equates to an annualized dividend of $1.55 per share and I continue to be proud to say we have raised our dividend every quarter since our IPO.

As announced last year, I had an active 10b5 plan to acquire shares of the Company's stock. During the fourth quarter I acquired pursuant to the plan, 74,854 shares of the Company's common stock. Pursuant to the plan I acquired almost $3 million of the Company's common stock last year. And in total, considering all sources, I acquired almost $5 million of the Company's common stock in 2016.

[It will all script] but a couple of things people have already started questions about. I do not currently have anything to announce about a replacement 10b5 program. The one that I had last year expired as of 12/31. However, with my history of buying stock at the IPO at the (inaudible) and pursuant to [a plane] in the market in addition to taking all of our compensation in stock, if I were you, I will not be surprised if a new program was announced over the next few weeks. Also as it relates to the property we are buying adjacent to our corporate headquarters it is for future expansion. It currently has a tenant in it paying rent and we anticipate leaving that status quo for some period of time. We'll be getting a return on our investment, albeit a little less than our normal return.

I believe I've taken 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 and year ended December 31, 2016. Total revenues for the fourth quarter were $7.4 million versus $4.6 million for the same period 2015. Total revenues for the year were $25.2 million versus $8.6 million for the partial year 2015. Rental and mortgage interest revenues were $5.8 million and $19 million for the quarter and year respectively versus $3.1 million and $6.4 million for the same periods in 2015.

The real estate portfolio was over 93% leased. On a pro forma basis if all the 2016 fourth quarter acquisitions had occurred on the first day of fourth quarter, rental and mortgage interest revenues would have increased by an additional 762,000 to a pro forma total of over $6.6 million. Total expenses for the fourth quarter of 2016 were approximately $6 million. Total expenses for the year were $21.3 million.

General and administrative expenses for the fourth quarter were $856,000 and of this amount transaction expenses totaled $200,000.

Depreciation and amortization expense was $3.6 million for the quarter and $13.2 million for the year. On a pro forma basis, if all the 2016 fourth quarter acquisitions occurred on the first day of the fourth quarter, depreciation and amortization expense would have increased by $330,000 to a pro forma total of approximately $3.9 million.

The Company reported net income of over $1 million for the fourth quarter and over $2.7 million for the year. Funds from operations for the fourth quarter of 2016 consisted of net income of $3.6 million and depreciation and amortization for a total of over $4.6 million. AFFO, which adds back acquisition expenses and adjust for straight-line rents and deferred compensation increases the total to $4.8 million or $0.38 per share diluted.

Again, on a pro forma basis, adjusting for debt outstanding for the entire quarter, if all of the 2016 fourth quarter acquisitions occurred on the first day of the fourth quarter, AFFO would have increased by approximately $650,000 to a pro forma total of over $5.4 million and increasing AFFO by $0.05 to $0.43 per share diluted.

That's all I had from a numbers standpoint. Operator, I believe we are ready to start the question-and-answer session.

(Operator Instructions) Daniel Santos, Sandler O'Neill.

My first question is on the corporate expansion. I recognize you said that it was for future expansion, but just one question there. Is that something you envision to be more of like a back-office function expansion or is it something you envision more of a platform expansion and potentially picking up acquisition pace?

No. We view it as something that we'll naturally grow into. I mean, as we're growing, we went from zero properties two years ago where we have got, I guess, it's 60 properties now. We're adding, as we need them, property accountants and other functions like that. So we anticipate that over the next few years adding, I don't know, two to four year probably as we grow, we don't anticipate changing our pace of growth. This is just kind of protective for the future, so that we have it.

Got it. Thanks. That's helpful. My second question is on your capital markets roadmap. Given where rates have leveled out recently, has your roadmap changed as far as debt or equity raises?

We're modifying them slightly. We are still anticipating doing a term loan here towards the end of the first quarter and into the second quarter. I've said that for probably a year now that that's kind of what we were anticipating doing. And that we would have another equity raise probably in the fall.

One of the things that adjusted our thinking to some extent is it's been pointed out to us that we're not currently [ending RMZ] and the anticipation is that it would take a capitalization, somewhere around -- a market capital of somewhere around $380 million, I think it's by the end of August, to get there. So we'll probably look at increasing the size of the equity offering that we're planning to do this fall slightly and maybe moving it up a month or two from what would normally be the case so that we make sure that we get into the RMZ by the end of the year.

Rob Stevenson, Janney.

Are you seeing any property types where you're getting better deals than expected these days?

Based upon where we're looking at, I think they're probably pretty much what we've been expecting. There has been quite a few of some different property types that have been put on the market because the markets looked at them negatively. LTAC is one that comes as an example where some of our peers were trying to reduce their exposure to and where the operators were trying to get others involved in it. And we like this space. We haven't done anything here. We've got the one LTAC that we did and kept it as a mortgage. But other than that -- I mean, Page, can you think of anything that's unusual or I guess a good standpoint?

Yes (inaudible).

(inaudible) We get optimistic more than the property type. I think we had some opportunities within property types to (inaudible).

All right. And then, I guess another question would wind up being today is your acquisition volume limited by the number of deals, the capital et cetera I guess because to your point if you increase the size and bring an equity issuance forward, does that allow you to do more acquisitions earlier in the year or basically are you guys running sort of that -- given your current overhead, are you guys running it close to 100% capacity in terms of getting the deals in, approved and closed these days?

I don't think we've ever quite looked at it at length, Rob. We wanted to kick it up to $50 million, $60 million a quarter. I think we probably have the people and the relationships to do it. We just feel a lot more comfortable doing it on the $25 million, $30 million, in the fourth quarter, $45 million, first quarter it may be $35 million. But by the third quarter it may be $15 million because third quarter seems to be a lull in our acquisition process for the last couple years. So we feel very comfortable at doing $120 million. It's kind of like, if we wanted to, we could do more. If we thought it would be more profitable to do more, we would. But we think in the range that we're at and the property types that we are, we feel very comfortable with it and it's like what we did. I've never viewed it as the capacity type issue from that standpoint. It's more of how do we do this and have it make the most sense and have it make the most money for everybody.

Okay. And then, Page, what's the -- given what you have completed year-to-date and what you have under contract, once you get that stuff closed, what's your remaining dry powder for acquisitions before you really do have to think about doing something, once you get this term loan done and these acquisitions closed?

Well, once we get the term loan done and -- are you speaking to before the equity offering?

Yes, I mean what basically could you acquire between now, including the stuff that you have under contract, between now and when you need to raise equity? I mean, what's that level of dry powder looking like today? Is that giving you the ability to close another $30 million, $40 million (multiple speakers)?

No, it's lot more than that. Once we do the term loan, the revolver will be empty again. I mean, theoretically we don't have to do another equity offering until sometime next year. One of the reasons that it's been -- we probably are going to move it up and look at it sometime in the third quarter though as again the RMZ. We will be in a position where we do not need to do the equity offering, but it will -- we think that it will make a lot of sense from the liquidity standpoint et cetera for our existing shareholders to first go and do it.

Okay. And that would still keep you within whatever leverage levels band that you really want to be in?

We could do another $50 million to $75 million and still be under our 40% I believe.

Okay, that was what I was looking for. All right, perfect, thanks guys. Appreciate it. Have a great weekend.

(Operator Instructions) Sheila McGrath, Evercore.

Could you update us, Tim or Page, on the cost of debt? If you term out that loan around what coupon do you expect for the term loan?

We are still in negotiations over that and basically what we're looking at now, we think is something very comfortably in the [forward angle] range for seven-year type and maybe set for -- somewhere [forward set for five year].

Okay. And also, just on the under contract pipeline that is in the release, do you expect most of that to close in first quarter or is that some of that could slip into second quarter?

The way you ask the question, of course, [none of that slip] into the second quarter. We anticipate that they will all close in the first quarter, but this is [Rose Date] and it is not just a property. So, it is possible that one or two of them slips into the second quarter, absolutely.

Okay. And then I apologize because I'm on like two calls at the same time, but on G&A, are you able to give us any kind of broad stroke metrics how that should look versus 2016?

I'm going to do some of this in my head. I am looking at Page while I am doing this to make sure. I think G&A for 2016 was about $3.2 million and kind of the way I look at that, I break it into three different pieces. One of them is the transaction cost which is like $800,000 for 2016 and we acquired close to $120 million so that's around 65, 70 bps on the acquisition side.

The other piece of that is compensation, the non-cash compensation piece, which I think last year was about $700,000 (technical difficulty). And that's going to ramp up on (technical difficulty) schedule. Hopefully everybody is going to go ramp up schedule on that as we go through the years and we add more and more of this type -- more and more of compensation and stuff a piece of it's going to ramp up. The great news about that is is it's always non-cash. I mean, there is no cash piece to that, which leave I believe for 2016 somewhere in the $1.7 million, $1.8 million which is like between (inaudible) a quarter of real cash G&A. And I would anticipate seeing that increase. Over the years we're going to be adding property accountants, we're going to be adding some other people. So I wouldn't be surprised to see that bump up of $50,000 to $100,000 a quarter by the end of 2017.

(Operator Instructions) Eric Fleming, SunTrust.

It's a couple of questions. I know you kind of hit it before on the acquisition question, but really what would it be that would get you to move comfortably out of here, $25 million to $35 million a quarter target, like what would put you into that $50 million a quarter target?

If we feel comfortable then we could invest $50 million at the larger spread than what we're currently investing at. I mean, again, we aim just to make money, we're not aiming to grow assets, and we think that we're basically in the spread investment business. So if the environment got -- currently, we're investing at [$9 million to $9.5 million] and our equity dividend yields [$6.8 million] and our debt is -- consider the term that I just talked about, consider the long-term debt being in the, call it, $4.5 million range. So, if something happened before that spread, we'll increase 100 basis points and we said, well, gee, this is something that we can take advantage of and we need to do it quickly, something like that would get it to do it. But other than that, again, we've got our plan, we've got our system, we feel comfortable with it. The worst thing we can do is accelerate growth and make mistakes. And since all of us or a significant amount of us, 95% of all of the regional head founders compensation is still being taken and 80% companywide have been taken. So we will make sure that we've got profitable growth and that we're not making mistakes.

Okay, understood. And with any of the investments you've made in the fourth quarter and posts -- are any of those moving towards -- are there any new those relationship investments that you're looking to set up, like what you have with the Chicago behavioral health facility or what you've done with the dialysis clinics?

Yes, actually one of -- the largest one that we did in the fourth quarter, the one that I am looking to work towards a relationship with, we're very excited about that, it's [Vantage Health Claims] in Louisiana and we feel like they are doing healthcare right, it's an insurance company (technical difficulty) doctors and they are actually building the cost curve. Their silver benchmark plan is, I think, what I heard was 17% below Louisiana BlueCross BlueShield benchmark plan. So we're very excited about doing the transaction and very excited about working with them on developing a relationship going forward.

We also bought our first property that was in conjunction with RegionalCare in the fourth quarter and obviously RegionalCare is headquartered here in Franklin and we know their management team well and they have been looking to develop a relationship there. So we're excited about that. And several of the others that we have in that kind of list. We have got signed term sheet on our second one with one of our site clients that's got a (inaudible) property. We've got a term sheet out for a second property with one of the dialysis clinic companies. So, we are seeing that come together. It's taken a little bit longer than what I would like, but we feel very good about where we're going with those relationships.

It appears that there are no further questions. So, I would now like to conclude the question-and-answer session and turn the call back over to Timothy Wallace for any closing remarks.

Thank you and once again I'd like to thank everybody on the phone call for your continued interest and support and we continue to believe that we couldn't be where we are if it wasn't for you all. So, we're very appreciative of your support and we're looking forward to yet another year in 2017. Thank you.

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