Community Healthcare Trust Inc (CHCT) 2018 Q1 法說會逐字稿

Welcome to the Community Healthcare Trust 2018 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2018 first quarter financial results. It will also discuss progress made in various aspects of its business. (Operator Instructions)

The company's earnings release was distributed last evening and also has 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, May 9, 2018, and make certain 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 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 2 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 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. Thank you for joining us today for our 2018 first 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.

Once again, we were busy during the quarter. We acquired 3 properties in 3 states during the quarter, with a total of approximately 38,000 square feet for purchase price of approximately $12.7 million. These properties were 100% leased with leases running through 2033, with anticipated annual returns of 9% to 11%. In addition, in the last few days of 2017, the company purchased certain promissory notes for $8.75 million and early in the first quarter, acquired $2.2 million of promissory notes for a total investment in these notes of approximately $10.95 million. These notes, along with the properties previously discussed, brought our total investments to almost $24 million. As it relates to our pipeline, we have 2 properties with fully negotiated purchase and sale agreements for an aggregate expected investment of $7.3 million. The expected return on these investments should range from approximately 9% to 9.3%, and we anticipate that these will close during the second quarter.

In addition, we have 4 additional properties under definitive purchase and sale agreements to be acquired after completion of occupancy for an aggregate expected investment of $76 million. The expected return on these investments should range up to approximately 11%, and we anticipate that these will close through the end of 2019. We had 3 of these type properties coming into the quarter, closed on 1 of those and added 2 new properties during the quarter. This represents 35% to 40% of our targeted acquisitions through the end of 2019 already under definitive purchase and sale agreements. We continue to have many properties under review, and we have several term sheets outstanding with anticipated returns of 9% to 11%.

We continue to anticipate having enough availability on our revolver to fund our acquisitions through late 2018. After which time, we anticipate utilizing an ATM to strategically access the equity markets.

On the leasing front, during the first quarter, we had expiring or terminating leases relating to approximately 21,000 square feet and leased extended or renewed leases relating to approximately 98,000 square feet.

To close out our bankruptcy issue, as previously discussed, we entered into a new note and provided $23 million in funding to a newly established company, secured by the ownership interest, cash, accounts receivable, other assets and cash flows of 8 long-term acute care or rehabilitation hospitals, 1 of which has a satellite facility making the total facility securing the transaction 9.

We've received a real estate that was secured by the original mortgage notes through a deed in lieu foreclosure with a valuation of approximately $4.5 million and had the remaining mortgage and promissory note amounts satisfied from the funding of the loan. We anticipate earning approximately 9% interest on the loan. However, based on the terms of the loan, anticipated cash flows and potential for refinancing by the new company, we are anticipating a significant amount of this will be repaid relatively quickly.

On another front, we declared our dividend for the first quarter and raised it to $0.40 per common share. This equates to an annualized dividend of $1.60 per share, and I'm continuing 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'll hand things off to Page to cover the numbers.

Thank you, Tim. Good morning. I'm pleased to review the company's financial performance for the first quarter ended March 31, 2018. Total revenues for the first quarter of 2018 were $11.4 million versus $8 million for the same period 2017.

Rental and investment interest revenues were $10 million for the quarter versus $6.9 million for the same period 2017. The real estate portfolio was 91.2% leased. On a pro forma basis, if all the 2018 first quarter acquisitions had occurred on the first day of the quarter, rental and interest revenues would have increased by an additional $286,000 to a pro forma total of $10.3 million for the quarter.

Total expenses for the first quarter of 2018 were approximately $8.5 million versus $6.5 million for the same period of 2017. General and administrative expenses for the first quarter were $1,193,000. Depreciation and amortization expense was slightly over $4.9 million for the quarter. On a pro forma basis, if all the 2018 first quarter acquisitions had occurred on the first day of the quarter, depreciation and amortization expenses would have increased by $140,000 to a pro forma total of approximately $5.1 million.

The company reported net income of $1,872,000 for the first quarter versus $913,000 for the same period 2017. Funds from operations, FFO, for the first quarter of 2018 consisted of net income plus $4.9 million in depreciation and amortization for a total of $6.8 million. AFFO, which adjusts for straight line rents and deferred compensation, increases for the total to just below $7 million or $0.39 per share diluted versus $49 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 first quarter acquisitions occurred on the first day of the first quarter, AFFO would have increased by approximately $179,000 to a pro forma total of just under $7.2 million and increasing AFFO by $0.01 to $0.40 per share.

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

(Operator Instructions) Our first question today comes from Alexander Goldfarb with Sandler O'Neill.

Tim, so just -- first of all, I appreciate the color on the 8 hospitals, that's really 9. So that's been consistent with what you guys had laid out before. And then I assume that, that $23 million the restructured loan that has the same claims on the receivables and cash that you guys had previously outlined?

Yes.

Okay. Cool. And then on the presales, I think before it was 3 assets for $40 million that would close throughout this year. And now it's 4 assets for $76 million to close by the end of next year, but I think you said that 2 were new. So did 1 of the deals fall out of bed or what went on?

No, we closed one of them. That was what -- we closed 1 during the quarter and added 2. So it was 3 then minus 1 that we closed, and then we added 2.

So you added 2. Okay. Then that's helpful there. And then the timing, so there is still 2 more that closes at the end of this year, and then what do you anticipate the timing for the other 2 for next year?

It's hard to tell on construction, and we're trying to use loosely those terms, so that we don't get caught in the box of saying, well, it was going to be this quarter, but it ended up being pushed a quarter. I mean, it is construction, it is -- it's subject to weather, it's subject to a lot of things. So way we look at it is we hope to close them in 2018 and some in early 2019. If they get pushed to later in 2019, so be it. It's still great, great product and great rates and new. So...

Our next question comes from Sheila McGrath with Evercore.

Tim, I was wondering if you could just explain for modeling purposes, or Page, the mortgage scenario going forward on this transaction? So did the new $23 million mortgage proceeds from that retired the other notes that you purchased? I just want to make sure we're modeling this correctly.

Yes. The -- basically on a going-forward basis, what we have is the $23 million loan and a property that we have to lease. So when we get it leased, then we'll add revenue from that. But basically, we weren't accruing -- we didn't accrue any income related to the mortgage in the first quarter. So basically, all of that will be accretive when that happens.

Okay. And the coupon on the $23 million, this will impact second quarter. Going forward you have the $23 million loan and then just the property that you're going to try to lease, and that's the impact to the income?

Correct, right. And it did pay off the promissory notes and the remaining part of the mortgage. So that's -- going forward, it's $23 million and 9% until that gets paid back and the property when we get it leased, it will be accretive.

Okay. And that property previously had a mortgage on it that has now been retired?

Correct.

Okay, okay. And then can you just give us some insight on have you hired a leasing broker? Or is there a much interest in leasing the property?

We have some interest from a close -- tenant that has some space close. And then we are in the midst of engaging the leasing broker. I mean, this didn't happen until recently. So I mean, we're just now getting our hands on the property and getting to be able to move it forward.

Okay. Great. And then could you give us just a little bit more insight on how the pipeline is going beyond the programmatic transactions? You said what's under purchase, but I was just curious in terms of the pipeline expanding? What types of property are you looking at right now?

All right. It's kind of the same stuff that we're looking at, I mean, and I'm going to say something I think as it's in the investor presentation that's posted to our website, that we have a term sheet on another programmatic type of transactions, $27 million transaction with one of our existing clients that we got the term sheet on, but don't have the PSA signed yet and that would be, again, probably an early 2019 transaction. But we are continuing to look at existing stuff. My gut reaction is, I think, just to feel with interest rates moving up and we are attempting to push cap rates on -- it's my gut feel is, is that, that the flow of property has slowed down in general. And I've noticed that some of our peers have indicated reductions in their program, we're still targeting $25 million to $35 million a quarter. This year, I wouldn't be surprised if it's not on the lower side of that than the higher side of that, but somewhere in that we still feel very comfortable with.

Next question today comes from Matt Boone with B. Riley FBR.

Hey, guys, can you provide any color on the bump to G&A during the quarter? And how we can expect that to trend going forward?

I think the biggest bump is related to amortization of stock compensation. And we've accelerated the amortization on 3 of our guys that are reaching retirement age. So we moved that up from what we had it as a life period to looking at them retiring probably sometime in 2019. So that was, I think, $100,000, $200,000 bump in it...

Almost, $200,000.

Yes, so I think that was most of that bump.

Okay. Great. Thanks. And then one more, do you have any other tenants that are on your internal watchlist that you're currently having problems with?

Our receivables are in the best shape that they have ever been. We are very pleased with where our receivables are. We always have tenants that we're watching and making sure, doing what they're doing, but our receivables at the end of the quarter were, I mean, in the best shape we've had since we've been in existence.

(Operator Instructions) Our next question comes from Eric Fleming with SunTrust.

Wanted to get some more clarity on kind of all the transactions that closed in the development pipeline. So you're saying 1 of that development pipeline closed, that closed in 1Q or did that close in 2Q?

In first quarter.

In first quarter. So it's one of those in that $12 million total?

Yes.

Of the properties that did close?

Yes.

And just -- and then so last quarter, you said the pipeline was at $16 million that you expected to close across the first quarter, was that including that development deal in that or was that not in that $16 million that you are talking about, so...

I don't think that was in there. We had 1 property drop out because of due diligence issues. So we didn't close on 1 that we had going in because of some issues that we found with it while we're doing due diligence.

Okay, so out of that $16 million, 1 of the properties dropped out, and the net $12 million is the other 2 properties, plus this 1 development?

Right.

Okay. That makes sense. And then just one other question. Not a big trend, but your occupancy has been modestly declining every quarter. Are we kind of reaching a stabilization point at around this 91%, 90% range? Or is there anything to be worried about?

We're not worried about it. I mean, as I said, I mean, we had some great leasing stuff going on during the quarter. I think it was 21,000 that expired or terminated. And we leased -- extended -- we leased, extended or renewed close to 100,000. So we think that things are going well. I mean, one thing that will drop in, in the second quarter is the vacant AMG property that we took back. So I wouldn't be surprised to see vacancy take a little more step down in the second quarter. But we've got a big focus on leasing and feel like things are moving in the right direction.

At this time, this will conclude the question-and-answer session for today. I'd like to turn the conference back over to Tim Wallace for any closing remarks.

Again, we appreciate y'lls interest in taking the time to spend with us this morning. We're going to be around most of the day, I think. So if there are any additional questions, let us know. And again, thanks for your support.

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