Good day and welcome to the Community Healthcare Trust's first quarter earnings conference call and webcast. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tim Wallace. Please go ahead, sir.

Good morning. Thank you for joining us today for our 2017 first quarter conference call. 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 quarterly report on Form 10-Q was also filed last night. Once again, we had a very busy quarter. We acquired 10 properties in five states during the quarter with a total of approximately 145,000 square feet for a total purchase price of approximate 28.5 million. These properties were approximately 95.2% leased with leases running through 2032 and anticipated annual returns of 9.1% to 10.5%. As several of you all have noticed, 8 of the 10 properties did not close until the last few days of the quarter. This has caused our revenue and FFO to be lighter than expected. This is caused because seven of those properties were in too small portfolios and the sellers and their attorneys cannot get things finalized. This is not all that unusual when you are dealing with multiple properties, especially with sellers who are not used to being sellers. There are no ongoing issues or problems with these properties. We have already acquired 6 properties in the second quarter with a total of approximately 79,900 square feet for a total purchase price of approximately 4.1 million. The expected return on these investments are approximately 9.9%. The properties are 100% leased with leases expiring in 2032. In addition, we have three properties under definitive purchase agreements for an aggregate expected purchase price of approximately 15.3 million. The expected return on these investments is approximately 9%. We anticipate that substantially all of these will close during the second quarter, one as…

Thanks, Tim. I'm pleased to review the company's financial performance for the first quarter ended March 31, 2017. Total revenues for the first quarter of 2017 were 8 million versus 5.2 million for the same period 2016. Rental and mortgage interest revenues were 6.9 million for the quarter versus 4.2 million for the same period 2016. The real estate portfolio was over 92% leased. On a pro forma basis, if all the 2017 first quarter acquisitions had occurred on the first day of the quarter, rental and mortgage interest revenues would have increased by an additional 636,000 to a pro forma total of over 8.6 million for the quarter. Total expenses for the first quarter of 2017 were approximately 6.5 million. General and administrative expenses were 770,000. Depreciation and amortization expense was 3.9 million for the quarter. On a pro forma basis, if all of the 2017 first quarter acquisitions had occurred on the first day of the first quarter, depreciation and amortization expense would have increased by over 300,000 to a pro forma total of approximately 4.2 million. The company reported net income of over 913,000 for the first quarter versus 116,000 for the same period 2016. Funds from operations for the first quarter of 2017 consisted of net income plus 3.9 million in depreciation and amortization for a total of over 4.8 million. AFFO, which adjusts for straight line rents and deferred compensation increases the total to 4.9 million or $0.38 per share diluted versus 3.2 million or $0.43 per share for the same period of 2016. Again, on a pro forma basis, adjusting for the debt outstanding for the entire quarter, if all of the 2017 first quarter acquisitions occurred on the first day of the quarter, AFFO would have increased by approximately 425,000 to a pro forma total of over 5.3 million and increasing AFFO by $0.03 to $0.41 per share. That's all I have from a numbers standpoint. Operator, I believe, we're ready to start the question-and-answer session.

[Operator Instructions] And now our first question today comes from the line of Sheila McGrath of Evercore. Please go ahead.

I was wondering if you could talk about your G&A outlook for the year. Is first quarter a good run rate or do you foresee having to add additional personnel for acquisitions this year?

We are adding a few people. I mean, as I said before, I don't think it's a bad run rate and we're going to add three, four people throughout the year. So if you build that out, but the good news is their property count is basically in the low end of the scale. So if over the year, you added I don't know 200000, 250000 over the year, so by the end of the year, you'd have a run rate that's $250,000 a year more, you'd probably get a good answer.

Okay. That's great. And then Tim, you mentioned a 14,000 square foot lease. Where is that property and when - which quarter do you think that will start to impact the bottom line?

It's in Houston and we think probably, it's starting in the third quarter.

Okay. And one more and I'll get back in the line, nut if you could just comment on the bad debt allowance, just give us some insight on what that is and your expectation there?

We continue to stay on top of that. I mean, most of - well, I won't say most of that, but a lot of what we've written off in the past, we've been able to collect. We anticipate trying to collect even, if we write it off, but it's just again effective of real estate and effective as we're moving, and we did an analysis for our board and I'm trying to remember the numbers page, but basically our receivables over 90 days has been consistently [Technical Difficulty] of the trailing 12-month revenue from the beginning. So as our revenue goes up, some of the stuff is going to go up, but consistently, our receivables over 90 days has been very, very low.

Our next question comes from the line of Rob Stevenson of Janney. Please go ahead.

Tim, a question on your - the comments that you made around the potential equity raise. How are you balancing not wanting to raise too early and the potential dilutive impact of that versus basically sitting here today with a $25 stock price and sort of at all-time highs? I mean you could be sitting here and waiting for the third quarter but the REIT sector may sell off 10%, 15% and you may wind up having to raise capital at $22 in the third quarter versus $25 today. How are you guys thinking about that and sort of balancing that sort of risk reward equation now versus later.

Well, I mean we have a capital plan and we try to stick to it and it's really not that good for us because we think it's a $30 stock. So from our standpoint the longer that we have to buy properties and to earn the spread differential between what we have on the land versus what we're investing in the better off we're going to because it's only now that we're beginning to get to the point where we can have that kind of AFFO per share growth by doing the term loans, going in and getting those done and getting them out. So I mean the way that we balance it is, yeah, the market is going to go up, the market is going to go down, but we think overall the value that we're providing is only going to go up.

You indicated I think it was the number was 10,000 to 20,000 square foot of tenants unlikely to renew. Is that just based off of the 17 rollover at this point or does that include 18 tenants as well?

No, that's just looking at the 17, I mean, again we're up to a little over a 1.5 square feet. So 10,000 to 20,000 square feet is not something that would be unusual in a portfolio like that on an annual basis. So, I mean, we were looking at that. It's a very intense focus of ours is doing that, we are already negotiating with tenants on the 2018 rollovers. But again like I said this is part of real estate and we've got one lease and it takes up 14,000, [indiscernible] [00:16:15] so you're going to have plusses, you're going to minuses.

And then just last one from me. Out of the 68 properties, how many of them have what you would consider a meaningful vacancy, 10%, 15%, 20% or more out of that 68. Is just a couple of assets or is it 5% to 8% vacancy in a bunch of assets?

It's probably - the majority of it is probably in 5 to 8 assets. And again kind of the good news part about it is, we bought the vacancy and didn't pay anything for it. The one that I was talking about was the 14,000 square foot lease. I mean we bought that building based upon existing NOI when we bought it and it was 67% occupied on the lease. So this is just gravy on top of the yield that we bought it at.

Our next question comes from the line of Alexander Goldfarb of Sandler O'Neill. Please go ahead.

Just a few questions here, first, on the cap rate, on the press release it talks about sort of approximately 9% and when you guys went IPO sort of 9% to 11% and now it's been getting closer to 9%. How comfortable are you still maintaining something 9% and above, or are you finding yourself or maybe with that approximately language, that you are now starting to go into the 8s.

We have not done anything below a 9% yet, and we don't anticipate doing it. I mean, we've always used the approximately I think language in it, because it's really tough. My cap rate is not necessarily your cap rate, it's not necessarily somebody else's cap rate depending upon if you looking at, you know, trailing 12 months or last years, the next years or whenever. So I think we've always used it approximately, we've never done anything yet and don't have any proposals out for anything else than a 9%. And I believe Page one that we closed in the first quarter was 10.5%, right?

Yes.

So I mean we're still comfortable, we still there's a lot a product out there demand and above, and we're not going down into the 8s.

So with that in mind, when you have that big, the big duke portfolio trade, when the private owners, I mean, maybe they're just are totally oblivious and they don't see it. But do any of these like they duke trade or any of these large portfolios, do those resonate or it's just totally a different world and it doesn't seem to have any impact on your ability to negotiate, maintain 9 plus versus what the cap rates that some of these larger portfolios are trading, [indiscernible] [00:19:19] you're doing one offs, but we think that there would be some pricing impact.

It's a totally different world. I mean most of the people that we're buying stuff from probably don't even know who Duke is. And people have asked me, how do we buy this stuff when ten years, you know, less than two and half, and my response is most of the people that were buying stuff from believe it or not don't follow ten-year treasuries on a daily basis. Their doctors, their local people or whatever when they're doing their business and somebody selling a portfolio with $2.8 billion at sub 5 cap rate, just doesn't impact.

And then just final, just on the capital front. I think previously and just want to make sure it's still the case, after the next equity raise then you would go more towards an ATM style or do you feel that after the next equity raise you would still do one more large capital raise before switching to an ATM?

Actually, I'm glad you kind of asked that question because I left kind of a blank there. But after we did this next raise, with the community capital we have in place at the bank loans and the term loans, we won't need to do it equity probably until 2019. And when we do that we will be doing probably step on a lot more discrete basis off of an ATM or that type of scenario because our type of purchases it's a lot easier to make fun, those types of things off of an ATM. So the first part of that is we probably would go to an ATM, but the next part is that we should have our capital needed in place for 15 to 18 months.

We have a follow up question from the line of Sheila McGrath of Evercore. Please go ahead.

Tim, I was wondering if you could just touch on your big picture thoughts on potential changes to the ACA and are there any sectors in healthcare real estate that you would be avoiding right now just given uncertainty there?

I mean if you wanted avoid sectors of healthcare because of uncertainty, you probably should be like an industrial or in self-storage.

That's true.

On a serious point, I mean, we said from the beginning, we didn't think that the ACA affected us one way or another. We don't think that the AHCA is going to affect us significantly one way or another and all the stuff that we've been looking at, we're still looking at. I'm not a political prognosticator, so I have no real read on whether or not the AHCH can actually get passed or in what form it would end up coming out of the Senate and getting a signature of our President. So it's really hard to say. I mean one of the things that I mean kind of alone in front. It's been interesting to watch because I've been saying it for over two years, but basically that healthcare is a retail business. And if you listen to a lot of what's coming out of healthcare demand even in other real estate, I mean [indiscernible] just put out a piece - a white paper piece basically on the retailization of healthcare. So I think what I've been talking about for two years plus and what we've been investing into for two years plus, now a lot of other people are beginning to pick up on. And we just see that is something that's going to continue and grow as healthcare expands in the hospital systems become health systems and expand their reach and try to provide wellness to a population base as opposed to the fee for service generation.

But you have elected to keep the LTAC exposure via a mortgage loan and is that your - you think you'll continue to view LTAC similarly and put him in that lower risk position or…?

As I've said from the beginning, we like LTAC. So we think there is a place long-term in LTAC. We think that you will see them turn like you've seen site turn over the last 15 to 20 years for a quite number of different reasons and people that we've talked to in the industry continue to feel that way. So I mean you should not be surprised to see if we get more LTAC exposure. I don't see taking it up substantially as a percentage of the portfolio. But again, we do think that there is a place for LTAC in healthcare, there is a place for LTAC in our portfolio and whether or not it's a mortgage or whether or not we end up closing on the real estate it will be decided based on the facts of the time.

I just wanted to add one thing on the supplement if you might consider in the future. One company that we follow that has had a very successful acquisition strategy is STAG Industrial and what they have added, it took over time since our IPO, but they've added to their supplement and adjustment in the EBITDA section and in the NOI section that just adjusts the actual like reported cash NOI for the quarter and they add - they have an adjustment so that like it helps us with our NAV and everything with the adjustment to move those metrics as if they were closed the whole period. Part of what you did in your commentary but it's just helpful to have it in the supplemental as well.

If you could send this an example of what you like and have then, we'll look at it and see if we can get it included.

Perfect. Thank you so much.

[Operator Instructions] As there are no further questions, this concludes our question-and-answer session, I would like to pass the call back over to Mr. Tim Wallace for any closing remarks.

Thank you operator and we'd like to thank you for participating in the call and being interested in us. And as I've said many times if it wasn't for the support of the investment community we wouldn't be able to do what we do. So thanks again and look forward to talking to you next quarter.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.