Welcome to Community Healthcare Trust 2020 fourth Quarter Earnings Release Conference call. On the call today, the company will discuss its 2020 fourth quarter financial results. It also will discuss progress made in various aspects of the 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.chct.reit.

Good morning, and thank you for joining us today for our 2020 fourth quarter and year-end conference call. On the call with me today is Dave Dupuy, our 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, - well, actually our annual report on Form 10-K was also filed last night. We had a busy quarter, both from an operations standpoint and from an acquisition standpoint. Now the obligatory COVID discussion. Healthcare providers have been impacted by the COVID-19 pandemic, some saw reduced number of procedures and/or patient visits. However, most of our tenants’ operations are basically back to pre-pandemic levels. As of December 31st, the company had remaining rent deferral agreements with two tenants representing less than $100,000. Our receivables are in the best shape they have been in the Company’s history. Our asset management group has done a great job relating to COVID-19. Now on to more normal items. As you know, we have an active ATM program in place. During the fourth quarter, the Company issued 480,592 shares of stock through its ATM program at an average gross sales price of $47.65 per share. We received net proceeds of approximately 22.4 million at an approximate 3.64% current equity yield.

Thanks, Tim, and good morning, everyone. Despite the headwinds associated with the pandemic, we continue to see strong growth in our business. I’m pleased to report that total revenue for 2020 was $75.7 million compared to $60.8 million for 2019, representing 24.4% growth over the prior year. Meanwhile, total revenue for the fourth quarter of 2020 was approximately $20.1 million versus the $16.8 million for the same period in 2019, representing 20% growth over the fourth quarter of 2019.

First question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.

First of all, you know, Tim, it came for me to say that - to congratulate you publicly, but 340% total return and the chart that you have in the supplemental is pretty impressive. So kudos to you and your team on that. I do have two questions to ask. First is, can you just give a bit more color on the property that you bought, where you made the loan to the tenant on two properties, the term loan and then the line of credit, basically a little bit more color around this and whether or not this is something more of a specific nature or if this is something that increasingly we are going to see with some other acquisitions that you guys have planned?

Sure. And thanks for the question, Alex. No, it is not something you are going to say generally. This is a kind of special situation. We have had several properties, two or three properties with this tenant. We like the management team. We like what they are doing. They were growing before the pandemic. They had several projects in the process when the pandemic hit. And one area in our portfolio that got hit a little bit. The geriatric psych is what they are. And so basically, we looked at where they are. At this point, all their staff has been vaccinated most of their population, tenant population and potential patient population have been vaccinated. So we think they are going to come out extremely well. And they are in kind of a different situation because they have outgrown their small bank but not quite to the big bank stage. So we saw this as an opportunity to be a win-win for them, for us because we are making some excellent returns on it. And if you look at the overall company, based upon the numbers, it is probably a little over one times levered. So we like situations where you can do stuff that is one time to two times levered and you make returns like what we anticipate making. But it is not something you are going to see every day. It is a really unique situation.

But more to that point, what are the returns? And then it does seem like you have been willing from time-to-time to step in to use your balance sheet to bridge tenants through. So: one, what are the returns then? And two, it does seem like it is sort of part of your arsenal that you do use from time-to-time?

Well, I don’t know that I would call that part of the arsenal. I mean it is something that we do. I mean, we try to manage it. I mean one of the things that made us feel comfortable doing this AMG Refinance. So we have got them now set for a while, but they paid that loan down to 15 million, put it on self amortizing, and there’s no prepayment. So we have got that kind of sitting there. The terms on this, and I forget exactly, but I think it is a 9% current pay with a 3% accrual and it amortizes, if they don’t pay it off early, which the anticipation is they will end up getting a bank loan in a year or two and paying it off. But I think it amortizes over five-years or something.

That is right.

So it is still amortizing over five-years. But we anticipate it will be paid off in a year or two. And let me say this. The only thing they have drawn is the term -.

150,000 on the revolver.

Yes. I mean, a couple of – and like 150,000 on the revolver, and we don’t anticipate the revolver ever being significantly drawn.

Okay. And then the second question is, just with COVID, it would seem like there is a huge everything we read in the press, huge need for mental health, substance abuse and all of that. Are you seeing whether it is existing properties or with your presales with your developer partners, are you seeing growth in that area for investment or is that something that gets a lot of press headlines, but as far as it translating to business opportunity for you guys, not really seeing it yet?

Well, and the problem with behavioral is it is such a wide description, because it covers everything from autism to opioid to geriatric psych which is what we were just talking about with this tenant to inpatient acute psych. And the answer to the question is, it was growing before the pandemic, because of several things. It was way under-bedded through the ‘90s as reimbursements were cut and then the beds have been coming back as Obamacare basically said if you had short-term acute care benefits you had to have psych benefits. So it has been coming back for some time, and there has been a lot of money thrown at different areas of behavioral, the Federal administration have thrown billions of dollars at the opioid situation over the last few years. And our biggest problem is trying to sort through and see which ones are really valid, which ones have long-term legs, et cetera. But I will say this, the pandemic has multiplied that. And all of our (Ph) facilities are doing well from that standpoint. And we have seen a lot of snack opportunities over the last 12-months to 18-months.

Okay. Thank you Tim.

Thank you Alex.

Thank you. Next question is from Sheila McGrath of Evercore. Please go ahead.

Yes good morning. Tim or Dave, the balance sheet is very strong operating at net debt-to-EBITDA in the threes. Just wondering what your target leverage level is? And do you envision bringing that up a little bit higher this year?

Well, our target leverage levels haven’t changed since we became public. And basically what we said then is long-term, we wanted to be 30% to 35% of our booked capital to be debt with 65% to 70% being equity. It is on the low side now. And you should not be surprised if you see us raise the amount of debt. I’m not going to say that we are going to significantly change the percentage as it relates to the overall, but you shouldn’t be surprised if you see the amount increase as we increase our overall balance sheet.

Okay. Great. And then just a little bit more clarity on the 42 million closings this year. I think you said probably first quarter. Just give us a little bit more insight on potential timing if those are almost complete?

Our best estimate right now is that there are several parties in the transaction that is happening. And one of the parties wants it to close on the first of the month. So it will either probably close on March 1st or April 1st. And we are not in control of that at this point. We think, hopefully, March 1st, but it could be April 1st.

Okay. And last question for me. You have a great, consistent track record of bumping the dividend every quarter since the IPO. Now your payout ratio is pretty conservative, I guess, you are retaining some cash flow for investment. Just curious if you plan on being consistent with the modest increase every quarter or since the payout is conservative if you would entertain a larger dividend increase?

Obviously, that is up to the Board. But I will say at this last board meeting, that topic did come as the topic of discussion, and if we meet our internal projections for the next year, then there is a good likelihood we will bump the size of that increase on a quarterly basis, but we want to always maintain a conservative approach to our payout ratio and make sure that there is plenty of cash to pay the dividend.

Okay, great. Thank you.

Thanks Sheila.

Thank you. Next question is from Nate Crossett of Berenberg. Please go ahead.

Hey good morning guys. Maybe you can just help us size the acquisition pipeline outside of what you have already announced, kind of what is the size of the deal funnel right now? And then just had a question on pricing and yields. It has been consistently above 9% for the last several years. Are you seeing anything that would change that kind of targeted range this year?

Well, Nate, you should know us enough by now to know that we are - the boring this company around, so we don’t change much. Our target goal for acquisitions, still $120 million to $150 million a year. We have always said it is lumpy. Sometimes it is lumpy early in the year. Sometimes it is lumpy late in the year. But our goal is to shoot for $120 million to $150 million. Now in any given year, maybe it is 160 million. But that is kind of our sweet spot and what we would like to say everybody to model in. As it relates to returns, we have never done anything below a 9% return and don’t anticipate doing anything below a 9% return. So that kind of covers that. Like I said, we are boring. We don’t change a lot.

Well, the stock is doing well. So boring is good. What about just tenant concentrations. Healthvest is over, I think, 11%, Everest is 9%. Is there a certain threshold on the upper bound that you don’t want to go above and would that impact what you would be willing to acquire?

We have investment guidelines that have been in place since the beginning that kind of puts us in - keeps us in between the ditches both on geographic diversification, tenant diversification and industry segment diversification. And basically, what that says is no tenant will ever be over 20%. Now actually, we don’t like tenants being double-digits. U.S. Healthvest has been a good client. They are very good operator and they are big lumps. I mean, I think the last deal we did with them was 30 million. So they are a big lump. So they ended up being over 11%. We try to manage that. We don’t want to turn down good projects from good clients, but sometimes we do, do that just to manage that tenant diversification. So I would say 11% is about as high as you will see happen in the portfolio. Hopefully, yes. But again, they are good tenants. So it is really hard to turn them down sometimes.

Okay. That is helpful. And then maybe just one last one. Lease expirations for this year, renewal spreads, are we assuming it should be kind of flattish or how are the discussions, I guess, going with those tenants?

Yes. I mean, we have always said that we feel like, basically, if you look at the portfolio, we are plus or minus market rate. And that is still the way we feel, and that is the way that we see most of the renewals happening is basically a market type of rate that is maybe 1%, 1.5% inflation-based increase. So you are going to see us say that we have got 5% renewal increases or anything like that.

Okay. That is helpful. Thank you.

Thanks Nate.

Thank you. Next question comes from Gaurav Mehta of National Securities. Please go ahead.

Yes, hi good morning. Question on the vacancy that you have in your portfolio. I was hoping if you could talk about where some of the largest vacancies in your portfolio and then is there any opportunity to fill some of that up?

Is there any opportunity to what?

To maybe increase the occupancy in your portfolio?

We try to lease property every day. I mean, our asset management group is on that. Last year, through the pandemic leasing was pretty tough, because healthcare providers didn’t have enough bandwidth to focus on operating their business, much less leasing space. The asset managers tell me that they are having a lot more success talking to and getting interest in healthcare providers and leasing additional space already this year. So we are hopeful that we will see a pickup in leasing. But I think overall, if you look at our occupancy on a year-to-year basis, if you consider that we just came through the pandemic and what all that has done to a lot of people’s occupancies, we look pretty good.

Okay. Thank you, that is all I had.

Alright. Thanks.

Thank you. Next question is from Amanda Sweitzer of Baird. Please go ahead.

Thanks. Good morning guys. I wanted to start on some of your recent transaction activity. Can you just provide some additional detail on the GenesisCare portfolio acquisition, how did the transaction come about? And then do you see any additional portfolio acquisition opportunities in the near-term?

Good morning. We don’t generally look for portfolio acquisitions, because generally, there is stuff in there that we don’t necessarily like. This was kind of a unique situation. Well, I don’t know if you know that much about the history of GenesisCare, but basically, it was 21st century oncology. They went through a bankruptcy. They went their management shakeup. GenesisCare is an Australian healthcare company backed by KKR. And it is putting, I think, $300 million into the platform to expand it. So it provided some unique stuff, the Chief Operating Officer of GenesisCare actually lives in Franklin here. So we have been able to have some personal dialogue with him, and we are hopeful of trying to develop them into a client. But it is kind of a unique situation, and we are not looking to do portfolio size transactions.

That is helpful and kind of what I figured. And then secondly, a bit more of a hypothetical question, but just with some of the increase in M&A and liquidity in the market broadly. Do you expect to see some of your tenants get acquired this year and potentially result in an increase in credit quality, are there any other ways kind of the increased investment in the healthcare sector may benefit you?

Actually, you have been seeing that a lot of the not for profits have been consolidating over the last 12-months to 18-months, and it has been kind of quiet, but a lot of that has been happening. But yes, we do anticipate acquisitions. There is a lot of activity now in the market in several of the different areas that we are involved in, and we do anticipate that. And a lot of our investments, several of our investments, particularly with our clients, was with the anticipation that, that would happen at some point in time. Some of it is happening sooner than we would have thought, but others will happen overtime, we believe.

Thanks. That is it from me. I appreciate the time.

Thanks Amanda.

Thank you. Next question is from Rob Stevenson of Janney. Please go ahead.

Hey guys. Tim, back to your diversification commentary. The acute inpatient behavioral facility is now roughly 20% of annualized rent. Do you have an upper boundary where you would want to take that exposure in the aggregate?

I will say this, I won’t say that we wouldn’t do anything else right now, but it would have to be a very nice property with very good terms for us to do it now. I mean we kind of a never say never, but it is hitting on that range.

But what I would also say is, we are also very active in other sectors right now, and our pipeline is such that as we as we move through that pipeline, I think you will see that come down.

Okay. That is helpful. And then, Dave, how are you thinking about incremental G&A that you need to handle acquisition volume and generally run the company over the next year? I mean, any material increase is expected over 2020 levels?

You know I think that is one of the powers we are seeing in the platform as we have gotten to a certain size, yes, we are going to have to add incrementally to our accounting staff and there are other folks within our asset management team that we will want to selectively add to the team. But the reality of it is, we really don’t have big needs in order to incrementally grow the business and the platform. And so I think what you will continue to see is G&A not growing as fast as it has historically and especially relative to our revenue growth. So that is how I would guide you.

Yes. One thing I would like to point out on that, too, because I just recently had an e-mail discussion with one of our analysts on it. But I would like to remind everybody that if you look, we put it in the supplemental now, but 55% of our G&A in the fourth quarter was amortization of stock-based compensation. And that is not deferred compensation. There is never a cash effect from that compensation. The shares are already in our outstanding shares number in to that calculation. So basically, that is one of the reasons why we think that AFFO in our situation is by far the best measure because that stock-based compensation will never have a cash effect and is already accounted in the outstanding shares.

Okay. And then, Dave, I mean just close the loop. In terms of the additions that you may need this year and maybe early next year, are those more along the lines of your sort of median employee pay from the supplemental or is there going to be any sort of higher compensation individuals that you will need to bring in?

No. I think what you would find over the next year, so it sort of track along with our median employee.

Okay. helpful guys, thanks.

Thank you.

Next question is from Bryan Maher B. Riley FBR. Please go ahead.

Good morning. Just two questions. One on occupancy. I know it only went down about 20 bps in the quarter. But when we go back and look at the transcript for the third quarter earnings call, I think you mentioned that you thought it would pop back up in the fourth quarter. And considering that the properties you bought in the fourth quarter were 100% leased, we were a little surprised with the occupancy degradation. Is there any color you can share with us there?

Basically, when we were talking with the third quarter call, things had started to loosen up a little bit, but then we had a surge in the pandemic, surge in the virus and all of a sudden providers pulled back in. So I mean, it was definitely an environmental type effect. And again, overall, we feel very comfortable with where the occupancy is. And our leases that we have to release are at like 5% for this year or the lowest in our history from an annual releasing need standpoint. So we feel like we have kind of planned out on it. And the asset management group is very focused on leasing stuff as long as we can keep providers focused on it.

Great. And then as it relates to all of the press out there with people moving from here in the Northeast, down to this in Florida and other low tax state. Has that changed your view on where you want to look at assets at all or is it still status quo?

Yes. I’m not sure at this point how much that is in actuality and how much that is in reality or basically the press needing something to talk about. So far, we haven’t seen that much. I mean, and it is very early in the process. But to make it significant, it would have to be a lot of people doing it. And so far, we haven’t seen that. We have a good mixture. We are in 33 states now, I think it is. Everything from mostly in the Midwest to the Southeast or the Southwest. If you look, I think, Florida, Ohio, Texas, are some of our biggest states. And so I mean, I would anticipate probably something very similar continuing.

Well, having sold my New Jersey house and heading South, like many of my friends and colleagues, I can assure you that it is real.

Well, good. Come on down, except for right now, right now, we are like 15 degrees and there is four inches snow on the ground but.

Thanks Tim.

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

Thanks, Nick, and we would like to thank everybody on the call for spending time with us and being interested, and thanks for the continued support, and we will talk to you in a quarter. Thanks. Bye.

Conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.