Welcome to Community Healthcare Trust 2019 Second Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2019 second quarter financial results. It will also discuss progress made in various aspects of its business. Following their 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.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, August 7, 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 and 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. And a copy 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 over to Timothy Wallace, Chairman, Chief Executive Officer and President of Community Healthcare Trust Incorporated.

Thank you, operator, and good morning, everyone. Thank you for joining us today for our 2019 second quarter conference call. On the call with me today is Dave Dupuy, our new Chief Financial Officer; Page Barnes, our Chief Operating 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.We were busy during the second quarter however it was basically business as usual. As you know, we have an active ATM Program in place. During the first -- during the second quarter, the company issued through its ATM program, almost 0.5 million shares of common stock at an average gross sales price of $37.85 per share. We received net proceeds of approximately $18.5 million at an approximate 4.38% current equity yield. During the quarter, we acquired three properties with a total of approximately 110,000 square feet for a purchase price of approximately $31.9 million. These properties were 97.1% leased, with leases running through 2034, and anticipated annual returns of 9.26% to 9.39%.So far this quarter, we have acquired three properties with a total of approximately 130,000 square feet for a purchase price of approximately $52.6 million. These properties are 100% leased. Again, with leases running through 2034 and anticipated annual returns of 9.02% to 11%. We have five properties under definitive purchase and sale agreements for an aggregate expected investment of $15.8 million. The expected return on these investments should range from 9.2% to 10.1%.In addition, we have four additional properties under definitive purchase and sale agreements to be acquired after completion and occupancy for an aggregate expected investment of $87 million. The expected return on these investments should range…

Thanks, Tim, and thanks to you, Page, Leigh Ann and the rest of the CHCT team for making me feel so welcome over the last three months. I'm really excited to be part of this growing and dynamic company.Now on to the financial results. As Tim discussed, we continue to see positive growth momentum in the business. Specifically, total revenue grew from $13.4 million in the first quarter of 2019 to $14.3 million in the second quarter, representing 6.5% sequential growth. Revenue for the same period in 2018 was $12.4 million, representing 15.4% growth over the same period last year.On a pro forma basis, if all the second quarter acquisitions had occurred on the first day of the quarter, total revenue would have increased by approximately $280,000, resulting in total revenue of $14.7 million for the second quarter.As Tim said, the real estate portfolio was over 90% leased, 90.1% leased in the second quarter compared with 88.9% the prior quarter. In addition, weighted average lease terms grew from 6.9 years to 7.2 years, reflecting, in part, our continued success in re-leasing and extending lease terms for the portfolio. From an expense perspective, property operating expenses were down slightly quarter-over-quarter from $3,075,000 to $2,993,000 or 2.7% mostly due to higher seasonal costs in the first quarter.G&A remained flat quarter-over-quarter despite adding two key corporate positions: Chief Operating Officer, Page Barnes' new role; and VP of Internal Audit. Page, of course, has always elected to take 100% of his compensation in deferred stock. Notably, each of the new team members, including myself, has elected to take 100% of their compensation in deferred stock as well.I'm pleased to report that funds from operations, FFO, for the second quarter of 2019 grew to $7.4 million from $6.7 million in the first quarter, or 10% sequentially. Adjusted funds from operations or AFFO, which adjusts for straight-line rents and stock-based compensation, totaled $7.9 million or $0.42 per diluted share compared with the first quarter 2019 of $7.2 million or $0.40 per diluted share.Finally, on a pro forma basis, if all of the 2019 second quarter acquisitions occurred on the first day of the second quarter. AFFO would have increased by approximately $140,000 to a pro forma total of just under $8 million, increasing AFFO to $0.43 a share.That's all I have from a numbers perspective. Operator, we are ready to start the question-and-answer session.

[Operator Instructions] This question is from Alexander Goldfarb with Sandler O'Neill.

Just a few questions. First of all, Tim, appreciate your comments on tempering expectations that you would go above your acquisition targets. But just curious, you did $18 million of ATM, but you closed $32 million in the quarter, with another $53 million subsequent. And obviously, you've got more teed up. So just curious why sort of the relative small ATM issuance in the second quarter. And then for the balance of the year, how are you thinking about ATM versus increasing on the debt side.

Thanks for being on the call. We basically are looking at the ATM as a way of accessing the capital markets to make sure that we stay within our overall capital structure requirements. So we're -- we did $18.5 million in the second quarter. There was a significant increase over the first quarter. We basically still view the ATM as a new capital raising capability, and we're trying to determine exactly how much we can rely on it and how much can be raised in a quarter. On a going-forward basis, what we're anticipating then is probably raising 60% to 70% of our acquisitions, and this is over time. This isn't a quarter-to-quarter basis but over time, 60% to 70% of our acquisitions through the ATM, which if we do $120 million a year in acquisition, you're talking about probably somewhere around $90 million a year to the ATM or $20 million -- what does that work out to? $22.5 million or so a quarter in -- through the ATM. So as long as we can do something like that. And we don't feel like we're impacting the stock significantly. Something in that, call it, $20 million to $30 million a quarter range is probably what we're going to look at doing through the ATM.

Okay. And then earlier in the year, you had talked about the restructured hospital from last year that they may possibly pay you basically buy you guys out and be free and clear. And that part of why you're increasing acquisitions was to overcome this. Where do we stand with that operator, that portfolio? Are they -- do you anticipate getting that back? Or does it look like they're going to stay in which...

Look, well, I mean, we're in active discussions with them on kind of what's happening with that. And obviously, now that we're into it for a while. I mean, we feel a lot more comfortable with it. Their operations -- annualized EBITDA for 2018 were probably paid close to $10 million on annualized. And that's the year they came out of bankruptcy. So our loan of $23 million, which is all the debt that they have, puts them at a little over 2x levered with that. We're currently getting a 9% yield. They're current on all their interest payments. They're ahead on their principal payments. So where 6 months ago, 9 months ago, we were more anxious for them to pay it off. Right now, we're feeling fairly comfortable with it. And with the return we're getting, although we think sometime in the next 6 months to a year, they're going to want to pay it off because it is a 9% return to us. So long way of answering the question is we're not sure when they're going to pay it off. We are a lot more comfortable now holding it longer than what we were and are enjoying the return off of it right now.

Right. But I guess, from a modeling perspective, we should think about sometime in the next year that tenant -- that operator is going to pay them off. So you're going to lose those earnings. Is that fair to think about it that way?

Yes, I would, yes, I mean, again because I continue to think sometime in the next year, they'll do that, whether that's third quarter or second quarter -- third quarter of this year, second quarter next year. We don't know.

The next question is from Nate Crossett with Berenberg.

I think you may have touched on this a bit on the last call, but maybe you can just remind us how you're able to get the investment yields you do as -- it's the highest of the net lease REITs we track. So I mean, are these yields, is it a function of your relationships in the health care industry? Or is it just a few alternatives some of these health care tenants have? Because we've seen cap rates compress on a lot of the other net lease sectors?

It's a combination of our relationships that we have and our understanding of what these health care providers are trying to do in growing their company. And the way that we're able to get some of these returns are -- is that we've integrated our process with the construction financing with utilizing our bank space, put together a program for these operators basically to where our banks will finance the construction, multiple sites. And we will take -- we'll be the takeout of that. We'll sign a purchase and sale agreement to acquire the property once it's completed, once it's occupied. And so basically, what these operators are doing. And we call them our serial entrepreneurs, that the site guy that we're working with has done this twice before and sold it to large public companies. The inpatient rehab guy's done it before and sold it to HealthSouth -- or it ended up in HealthSouth or Encompass now. So basically, what we do is we make the process very easy for them to do multiple properties. We underwrite. The bank underwrites. We feel very comfortable because we've got somebody else in there underwriting with us because the bank's responsible for it until it gets completed and occupied. So it is, in essence, a way for them to grow faster without having to go out and individually finance each of these facilities. And their goal is to get to a certain EBITDA level to where they can sell to a big company again. And from our standpoint, that's just that much better from our standpoint because at that point in time, we get a big step-up in credit. Does that make sense?

Yes, that's helpful. And then I think you mentioned that you're trying to extend some lease terms on renewals. So I'm just wondering, is that having any impact on renewal rates or the yields on the new leases, if you extending out farther?

You know each lease is a different negotiation. We've -- and to get a 12-year lease, you'd probably give a better lease rate than you do if you give a 3-year lease. So I mean, that's kind of a natural part of the release functioning. I mean, what we always try to do is target to make sure we get at least the return on the asset that we were looking for when we bought the asset. So we don't feel like we've seen significant degradation. But again, when you sign longer term leases, and you see that, again, as Dave pointed out, the weighted average remaining lease term go up the way that it has since we did the IPO. You're probably giving up some lease rate in that process.

Okay, that's helpful. And then just on the acquisition, like the definitive agreements for the acquisitions. Do you guys ever give any color on what those property types are?

I don't think we've ever disclosed that until we actually buy it.

The next question is from Rob Stevenson with Janney.

Tim, what was the blended yield on the second quarter acquisitions and the ones that you guys have closed in the third quarter already?

The blended yield in the second quarter was probably 3-ish [indiscernible]. And the ones we already closed this quarter is probably close to 10 [indiscernible]. Don't forget that out to all the acquisitions. I mean, in your thinking and everything, think the 9 to 9 in a quarter from that standpoint.

Okay. Because I was going to say, is there anything about the product mix or the location that drove this sort of higher -- the 10s versus the 9s?

Well, so far, in the second quarter they -- two of the three acquisitions have been off of the relationship stuff so those tend to be higher.

Okay. And then any known non-renewals or, I guess, probably more like late downsizing in terms of space in the remaining 2019 or 2020 lease expirations at this point.

I'm sure the answer is yes. I mean, we're working on leases on an everyday basis. And my gut reaction is there's probably 10,000 to 20,000 square feet in there that we've got to find new tenants for. But again, out of the portfolio of 2.5 million square feet. That's not a whole lot to deal with.

Okay. And then last one for me. Dave, you mentioned adding another position plus Page's new role. Is the $900,000 of noncash comp in AFFO a fully loaded run rate going forward? Or is there a upward adjustment for a partial period there that we need to be aware of going forward in the third quarter?

Yes, there is a partial adjustment that will continue over the upcoming quarter. So we can give you some additional color on that going forward. I don't have the specifics in front of me right now, but we can circle back.

The next question is Andrew Babin with Baird.

Follow-up to Nate's question, just the tenants that you work with and their expansion plans and the way that you get the yields that you do. Is there any specific type of tenant, whether it's dialysis centers or imaging centers or anything that's sort of leading the charge and maybe expanding the most aggressively across the nation right now. I know these trends probably ebb and flow, but at the moment, are you seeing disproportionate interest from any one type of tenant?

Well, and I will address this in a couple of different ways because we're seeing interest from a number of different sides. But probably the psych and inpatient rehab are the biggest impact because those are the biggest numbers per facility. We are talking with and working with eye care centers. There's a lot of consolidation going on out there now with eye care centers. And it's in a lot of the single specialty stuff. I mean, we've seen -- we've talked to oral surgeons. There's a lot of private equity backed single specialty-type consolidations that are going on that we're talking to. We don't have anything definitive from a programmatic standpoint with them right now. But we do see that is something that is good for us. The issue with those are those tend to be a lot smaller facilities and to really make it worthwhile. We've got to be talking about 6 or 8 or 10 of them for it to really make a lot of sense for us to get into a programmatic stance with them.

That's helpful. And one more for me. The occupancy number went up for the quarter. I think that was probably influenced some by the acquisitions that were made. Looking through the tenant list, it looks like there was a property that went dark . I'm up for a geography lesson here, but Dahlonega Medical Mall in Georgia went dark. And I was just wondering if you could talk about kind of that property? And are there any plans in place to potentially re-tenant that. And is this just sort of a regular way? Business interruption that would tend to happen in diversified portfolio? Or is there maybe anything else kind of behind that?

I don't believe Dahlonega is dark. And I think there's still two or three tenants that are in Dahlonega. Dahlonega -- the regional hospital there got shut down and bought by -- I forget the university system, I forgot what it is. But basically, the university system is looking at leasing the entire vacancy in that building right now as part of the expansion of their medical skill and nursing skill, et cetera.

The next question is from Sheila McGrath with Evercore.

On the Highlands Hospital, I was just wondering if you could clarify the accounting treatment. Right now, you're booking $300,000 a month. When the license transfers, how will that change how you're recognizing income from that property?

Actually, it won't change at all. I don't think. I'm looking at Leigh Ann right now. I mean, we're treating that as rent now it's being treated as rent under the transition agreement, and we have a signed lease with the new operator, with basically the same amount as rent under it. So when it transfers, the accounting for it won't change. Well, I say that. At that point in time, there'll probably be some straight-line to rent that has to be calculated and included in the calculations. But other than that, I'm not aware of anything that would change.

Okay, perfect. And do you think that's on track that the license transfer will happen this year?

Yes. I don't want to put that in the category of if you can predict interest rates, you can predict when the bureaucrats in West Virginia will do something, so.

Okay. Wait. Just -- and then a couple of other questions. On capital expenditures, part of the appeal on CHCT is they're low. I just wondered if you guys have a rule of thumb, how we should think about them? Because we usually look at AFFO on straight lining. And then we also make an adjustment for CapEx. So if you could just give us some insight on CapEx, meaning like TI and leasing commissions and so.

Well, kind of what we've said in the past, I think, is probably some -- the appropriate way to think about it would be $0.10 to $0.15 a square foot a year of the portfolio. So if you're at 2.5 million square feet. So think about it as $0.25 million a year. And some years, that may be light, some years that might be heavy. And that's what I'll call the non-revenue generated in TI because there's other TI. And we've had quite a bit of this. And we still got one ongoing facility like this, where we're putting hospitals inside of some of our multi-tenanted buildings. And when we do that, the TI is expensive, but we get paid additional rent relating to that TI that we invest in that. So we look at that, basically, like buying another building. So -- but there's no way -- that doesn't get broken out in the numbers or anything. So a substantial amount of the TI that you've seen or are clear are statements over the last 12 to 18 months, and that you'll see over the next 12 months will be that type of expenditure.

Okay, that's great. And then on $87 million in the programmatic kind of pipeline you guide to expect that through 2020. Are there more on transactions from that pipeline that some will fall into '19, though?

We think probably one or two will fall into '19 and one or two or two to three, I guess, would be the appropriate way to do it, would fall into '20.

Okay. And then just big picture, your cost of equity and debt is compelling versus your acquisition yields. Does that capital advantage make you broaden the acquisition pipeline to other markets or other target opportunities with -- that might have a lower initial yields? Or do you think the opportunity set in the kind of 9% plus is still ample?

We continue to think that the 9% plus opportunities are ample. We look to optimize and expand our margin, which we calculate as our margin is the difference between what we invest in and the cost of our capital. So we try to optimize that and maximize that. And basically, we think like investors because we are investors. All of us sitting at this table get our compensation through stocks. So our goal is to do what's necessary to increase the value of the stock, increase the value of the cash flow on a going-forward basis. So I don't see us changing what we've done. It works and seems to work. We think there's enough out there to continue doing it. And to us, the returns are compelling when we can raise the equity at the rates that we can and the debt that we can and invest it where we can.

Great. Actually, one last question. On G&A, if you look at the first half of the year, do you expect that that's like a good run rate? Or do you anticipate having to make some additional hires as you grow?

Well, I don't want to break what I told these guys to do, but one of the things that's interesting is and we've already started experiencing some of it that we added the Vice President of Internal Audit. With the increase in the stock price, our market cap went over what was keeping us as an emerging growth company. We've been an emerging growth company since we came out. But now, we're going to be 100% Sarbanes-Oxley compliant by the end of the year. We had planned on it, obviously, but we had planned on it as being the end of 2020 and not the end of 2019. So we are going to increase some spending. There will be an increase in G&A related to that probably $0.01 or $0.02 over here. And that's -- I guess, the way I view that is kind of like the price of success. So we're going to be doing that. So you probably ought to add in a little bit of an increase in the G&A.

The last question is from Barry Oxford with D.A. Davidson.

Just to kind of build. I know you talked about the facility types and the types that are growing, but is there any particular facility type that's offering sort of better going in yields right now when you're kind of canvassing the United States.

No, actually, I mean, we continue to see what we looked at before. I mean, again, one of the things I said earlier, that the behavioral and inpatient rehab is tends to skew things a little bit, and you'll see our percentages of our portfolio going up because they're $18 million to $30 million apiece. So it takes a lot of the $5 million doctor's offices to make up for that difference. We continue to see a lot of opportunity in the bread and butter stuff. We continue to see a lot of opportunity in the programmatic stuff. So we haven't black lined anything. We haven't highlighted anything. We feel good about what we see.

And just kind of follow-through on regions MSAs or regions? Are there any one particular MSA or regions that are offering more attractive going in yields versus others? Or is it just more, as you already indicated, a run-off basis.

Yes. I don't think we've seen one part of the country being significantly different on the yields. I mean, and maybe that's just because everybody now knows what we look for and what we're -- the types, the quality, the yields, et cetera, that we're looking for. And I haven't seen anything different really from a regional standpoint. Sometimes you hit pockets where you get in and people hear that you're buying and other stuff arrives, kind of, comes to your door. We've got a little bit of that going on in Pennsylvania right now. So you'll see us -- we're going to increase some of our exposure to Pennsylvania because we bought some stuff and then it's kind of like Dr. Strange found out about it, so then they come and we knew more just because it's kind of in the area, and it's easy to add on. So -- but as it relates to overall, I don't think there's that much of a change.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Tim Wallace for any closing remarks.

Thank you, operator. And we'd like to thank everybody on the call today for the continued support that you show to us and interest that you'd jump on the call with us. And we look forward to talking to you all again in three months. Thanks so much.

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