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Edited Transcript of CHCT earnings conference call or presentation 8-May-19 2:00pm GMT

Q1 2019 Community Healthcare Trust Inc Earnings Call

Franklin May 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Community Healthcare Trust Inc earnings conference call or presentation Wednesday, May 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Timothy G. Wallace

Community Healthcare Trust Incorporated - Chairman, CEO & President

* William Page Barnes

Community Healthcare Trust Incorporated - Executive VP & COO

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Conference Call Participants

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* Alexander David Goldfarb

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst

* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Barry Paul Oxford

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Nathan Daniel Crossett

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

* Sheila Kathleen McGrath

Evercore ISI Institutional Equities, Research Division - Senior MD

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Presentation

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Operator [1]

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Welcome to the Community Healthcare Trust's 2019 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2019 first quarter financial result. It will also discuss progress made in various aspects of its business. (Operator Instructions)

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, May 8, 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 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 2 is available in its earnings release, which is posted on its website.

All call participants are advised that this conference 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.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [2]

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Good morning, everyone, and thank you for joining us today for our 2019 first quarter conference call. On the call with me today is Page Barnes, our Chief Operating Officer; Leigh Ann Stach, our Chief Accounting Officer; and for the first time, our new Chief Financial Officer, Dave Dupuy, who will be mostly in listen-only mode today.

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.

Before we get into our normal topics, I would like to give an update to the Highlands Hospital situation. We continue with the process of transitioning the facility to a new operator. The old operator and new operator have signed an asset purchase agreement and a management agreement, and the new operator is currently managing Highlands. The new operator is in the process of preparing for transfer of licenses and related items customary for these types of transactions. As I indicated last quarter, we have a signed lease with the new operator subject to a transfer of licenses contingency.

We expect the cash flow from Highlands going forward to be substantially the same from the new operator as we were getting from the old operator. We have been collecting monthly payments since February, roughly equivalent to the interest in rent we were receiving.

Highlands provided a $0.02 to $0.03 drag on FFO in the first quarter, because we have not yet collected rent for January and our professional fees were up significantly related to Highlands. Obviously, there are various contingencies that might occur such that the outcome could be different than what we think now, but we believe we have addressed the situation as best we can.

Now on to more mundane topics. As you know, we have an active ATM program in place. During the first quarter, the company issued through its ATM program 143,600 shares of common stock at an average gross sales price of $33.57 per share. We received net proceeds of approximately $4.7 million at approximately 4.96% current equity yield.

Also at the end of the first quarter, the company amended its credit facility, increasing it to a $325 million credit facility. The credit facility provides for a $150 million revolving facility and $175 million in term loans. And through an accordion feature, it allows borrowings up to a total of $525 million, including the ability to add and fund additional term loans. The current term loans consist of $50 million due in 2022, $50 million due in 2024 and $75 million due in 2026. The revolving facility matures in March of '23.

The company entered into interest rate swap agreement that fixed the interest rates on the term loans, resulting on a blended rate and existing leverage of 4.188%.

During the quarter, we acquired 2 properties with a total of approximately 83,000 square feet for a purchase price of approximately $32.7 million. These properties were 100% leased with leases running through 2029 and anticipated annual returns of 9% to 9.27%.

So far this quarter, we have acquired one property with a total of approximately 81,000 square feet for a purchase price of approximately $27 million. The property is 100% leased, which runs through 2034 and an anticipated annual return of 9.39%.

In addition, we continue to have 4 additional properties under definitive purchase and sale agreements to be acquired after completion and occupancy for an aggregate expected investment of $76 million. The expected return on these investments should range up to 11%. We continue to have many properties under review, and we have several term sheets outstanding with anticipated returns of 9% to 10%.

We anticipate having enough availability on our revolver to fund our acquisitions, but now that we have it in place, we anticipate to continue to opportunistically utilize the ATM to strategically access the equity markets.

Occupancy was stable during the quarter; however, we are seeing a lot of activity on the leasing front and believe we will start seeing the occupancy level start increasing in the next few quarters.

On another front, we declared our dividend for the first quarter and raised it to $0.41 per common share. This equates to an annualized dividend of $1.64 per share. And I continue 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 for the last time, I will hand things off to Page to cover the numbers. Starting next quarter, Dave will be covering the numbers.

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William Page Barnes, Community Healthcare Trust Incorporated - Executive VP & COO [3]

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Thank, Tim. I appreciate that. I am pleased to review the company's financial performance for the first quarter ended March 31, 2019.

Total revenues for the first quarter of 2019 were $13.4 million versus $11.4 million for the same period in 2018. The real estate portfolio was 88.9% leased. On a pro forma basis, if all the 2019 first quarter acquisitions had occurred on the first day of the first quarter, rental and interest revenues would have increased by an additional $445,000 to a pro forma total of $13.9 million for the quarter.

Total expenses for the first quarter of 2019 were approximately $10.1 million versus $8.5 million for the same period in 2018. General and administrative expenses for the first quarter were $1,785,000. Depreciation and amortization expense was over $5.2 million for the quarter. On a pro forma basis, if all of the 2019 first quarter acquisitions occurred on the first day of the first quarter, depreciation and amortization would have increased by $137,000 to a pro forma total of approximately $5.4 million.

The company reported net income of $1,450,000 for the first quarter versus net income of $1,872,000 for the same period in 2018.

Funds from operations, FFO, for the first quarter of 2019 consist of net income plus $5.3 million in depreciation and amortization for a total of $6.7 million.

AFFO, which adjusts for straight-line rents and stock-based compensation, totaled over $7.2 million or $0.40 per diluted share versus just under $7 million or $0.39 per share for the same period 2018. Again, on a pro forma basis, adjusting for the debt outstanding for the entire quarter, if all the 2019 first quarter acquisitions occurred on the first day of the first quarter, AFFO would have increased by approximately $230,000 to a pro forma total of just under $7.5 million, increasing AFFO by $0.01 to $0.41 per share.

That's all I have from a number standpoint. Operator, I believe we're ready for the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Sheila McGrath with Evercore ISI.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

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I was wondering on the $76 million acquisitions that you have under agreement, I assume that's through your kind of program ventures. Any insight on how those might shake out in terms of timing? The yield is 11%. And also, any other discussions underway with additional program-type investment opportunities?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [3]

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Yes. The $76 million is 4 properties that we anticipate probably basically 1 a quarter over the next few quarters, or I guess, maybe 2 in the...

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William Page Barnes, Community Healthcare Trust Incorporated - Executive VP & COO [4]

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Fourth quarter.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [5]

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In the fourth quarter? Okay. So like 1 in the third, 2 in the fourth, and 1 in the first quarter of next year. Is that right, Page? I'm looking at Page.

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William Page Barnes, Community Healthcare Trust Incorporated - Executive VP & COO [6]

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Probably, yes.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [7]

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Okay.

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William Page Barnes, Community Healthcare Trust Incorporated - Executive VP & COO [8]

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Probably.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [9]

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It's possible we could end up closing 1 at the end of the quarter this quarter, but it's more likely that 2 will be next quarter. And yes, as it relates to the programmatic -- we have some additional discussions with existing people on more of those types of properties, and we have initiated discussions with additional operators for those types of properties. So again, we see that as something that provides transparency to the pipeline and provides a good view into the future.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [10]

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Okay. And just a quick follow-up on G&A. I'm assuming that extra professional fees ran through that in the quarter. But any guidance that you could provide in terms of like a run rate? Is first quarter a good run rate? Or do you have additional hiring plan for the rest of the year?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [11]

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We are hiring a couple of more people through the rest of the year. I mean, again, I think our continuing guidance is it will be a slow ramp-up. You're correct, there are significant additional professional fess running through the first quarter numbers. But if you kind of back out $100,000 and then ramp it up from there, it's probably a pretty decent number. One of the things related to our new hires, I mean, in -- and I'll go ahead and state this, but Dave has also elected to take all of his compensation in stock like to have it sitting at the table, and several of our early new hires are electing to do that also. So it has a muting effect in the first year, but it provides that alignment of interest that we like so much.

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Operator [12]

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The next question comes from Barry Oxford with D.A. Davidson.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [13]

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When it comes to acquisitions and the type of healthcare properties that you're looking at, which ones right now are kind of offering the best risk-adjusted return in your opinion on the property type?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [14]

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It's really hard to say from a property type, Barry, because we -- all of our property types, we get fairly decent returns on. We're seeing -- we're continuing to see the physician clinic, the $4 million to $5 million to $8 million properties that we're able to acquire off market at the 9% and above cap rate. We obviously like the programmatic approach that we can do with the operators that we -- we like to tell the clients that we can do a package of 2, 3, 4, 5 of the properties together. And diversification is the big thing from our standpoint is we've got good diversification by industry segment and property type, and we intend to maintain that on a going-forward basis.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [15]

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Great, great. When I look at what you want to execute over the next 12 months, does the ATM provide you enough equity or not necessarily?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [16]

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We're going to play that by year. We're still new in this ATM approach. And we did a little bit -- in the fourth quarter, we did a little bit. And we're in in the first quarter, we're not sure exactly how the best way to approach it is. You might see us do a small overnight in the third or fourth quarter depending upon how it feels. I don't want to get into a place where we have to do a large follow-on offering. Because like the last one, it's -- I think everybody probably knows the stock got beat down like $2 or $3 in the last hour of trading that day, and I got extremely upset about it. Let's just put it that way. So we're going to try to stay away from having to do the large follow-ons, where the stock can get beat up. But the ATM might not be quite enough in the third or fourth quarter depending upon how these acquisitions plan out.

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Operator [17]

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The next question comes from Drew Babin with Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]

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Just first of all a quick question on lease maturities addressed in the first quarter. Looks like maybe more than 1/4 of your maturities for this year were addressed. And obviously, occupancy picked up with the margin. So I was hoping you could maybe give some color on how those negotiations you've had so far in the second quarter have gone as far as new rents or renewal rents and just where occupancy may trend through the rest of the year.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [19]

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I think as I indicated earlier, we're having a lot of good leasing discussions. It's a way between leasing discussions and actually signing on the dotted line. But we are very comfortable with where we are currently in the year. And we've got -- our leasing program actually reaches out 4 quarters into the future. So we already test and talk to people through the first quarter of next year. We have seen that leasing roll go down from 4 years ago when we did the IPO. I think the annual roll for the first of couple of years was 25%, 26%, and now we're down to -- if you look at the next couple of years, it's like 10% a year, which is relatively what we would anticipate having a portfolio like we did. So we feel very good about how the leasing is going. We did have some leases yet to take care of this year. As it relates to rent rate, some are up, some are down. I think probably overall, it's pretty much -- what we've always said is we feel like overall, our portfolio is relatively at market, and we don't anticipate any significant increases or decreases in those rates as we roll.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

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That's helpful. And then just one more question on Highlands. I was hoping you could kind of just quantify the amount of rent, the payment that they owe you in aggregate. My guess would be, I think, about $800,000. And anything we can assume in terms of timing on recouping that? And I guess my broader question is, might there be any more legal or accounting fees going forward lingering into the second quarter or beyond that might net against that?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [21]

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The answer is, as always, there's always legal fees involved in things like this. We think probably we're beyond the big gulp, I mean, because we had the -- in the first quarter, we did the negotiations, the transition agreement and the new lease and all that type of stuff. I'm sure -- I haven't seen numbers for the second quarter yet, but I'm sure there are some lingering legal fees, but I wouldn't anticipate them being anywhere close to the same level. And your quantification is pretty close. I don't have a number off the top of my head, but it's probably somewhere between $800,000 and $1 million. And I would hate to give an estimate on the timing on when we get that back. I mean some of it's going to depend on when the actual transfer of licenses happens and the way that the agreements are structured. I would anticipate it over the next 12 months, but I would hate to put a stake in the ground and say, 12 months from the day we'll have all of the collected bag.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22]

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Okay. So keep the assumptions pretty conservative on that front?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [23]

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Yes. If we get surprised, I'm not sure that'd be a good surprise.

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Operator [24]

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The next question comes from Alexander Goldfarb with Sandler O'Neill.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [25]

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Just a few quick questions here. First, Tim, on the Highlands replacement, is there anything -- as you see what's going on with the transition to the new operator, is there anything that could be at risk? Like is there any reason why this wouldn't close in the second half of this year?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [26]

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I mean, Alex, this is a health care, in essence, acquisition, so there's always issues that can keep it from closing. I mean the new operator has talked to the state, has talked to all the people. We think everybody is onboard and understands what's happening and why it's happening, et cetera. But -- I mean I would never say it's guaranteed, that it will happen at any given time frame. But everything that we're seeing, everything that we're hearing is indicative that things are moving forward in the orderly fashion that we would anticipate. And if we hear any different, we'll let people know.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [27]

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Okay, okay. And then following up on Drew's question or comment. You just said, there is $800,000 or $900,000 -- if I heard correctly, $800,000 or $900,000 of sort of uncollected rent. But in the press release, you only referenced the $300,000 from January. So what else -- maybe I didn't hear it correctly. But if it is that $800,000 or $900,000, what else is that including that they didn't pay?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [28]

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You did hear that correctly, but the rest of it's $500,000 or $600,000 from the fourth quarter.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [29]

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Okay. That's helpful. And then final question is, on the last call, you spoke about the recapped hospital from last year that may look to pay you guys back, I think it's $23 million, later this year. Can you give us an update if that's something that you guys are thinking is still likely? Or that loan will stay outstanding?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [30]

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I think Page has had the last discussions. I mean -- my understanding -- and then I'll let him follow up. My understanding is they're still proceeding in that fashion. They're current on all their payments. Actually, they're ahead. They paid some principal payments down. And things are going well from the EBITDA, et cetera. I mean I think -- and again, I'll let Page address it. But the last I heard, it was their -- like an $11 million EBITDA run rate on the quality of earnings report that they got, which makes them like 2x leverage. So we're very comfortable with where we are. But Page?

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William Page Barnes, Community Healthcare Trust Incorporated - Executive VP & COO [31]

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Yes. They are still proceeding on their program to process to form an ESOP. They are probably projecting right now -- I think the indication they gave me was third quarter is what they're hoping for, but we'll see how that goes.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [32]

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At this point, I had almost assumed they'll leave it out because it's a very nice interest rate and very good coverage. So...

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [33]

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No, I -- Tim, look, obviously, you did a great job there. But just from a modeling perspective, it sounds like we should be thinking about sort of at the end of Q3, that goes away. It sounds like that.

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William Page Barnes, Community Healthcare Trust Incorporated - Executive VP & COO [34]

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Alex, I'm just always concerned that deals like this always are slow to happen.

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Operator [35]

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The next question comes from Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [36]

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Most of my questions have been answered. But Tim, can you just talk a little bit about -- so there's roughly 11% vacancy in the portfolio. Where is that aggregated, which assets? And where are you sort of status-wise in either getting those asset leased back up and/or disposing of them?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [37]

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Well, the biggest single one is the one we took back in the bankruptcy that Alex was just on, where we provided the financing. And that one is -- I can't remember. Is that -- that's right, 3% or 2.5% -- 2% to 3% of our overall vacancy is that one building. However -- I mean, it's basically like a freebie, because the way that we structured it with the note, we're earning return. And then if we lease this up, it's almost like found money. So -- but that's going to be our process. It's taken longer than what we anticipated, but it is what it is. The others, I mean we've got -- there's no large pieces to it. We've got one property in Houston, and basically, it's been -- it's had 15,000, 16,000 square feet of vacancy. So we filled it up, and the tenant moved out, et cetera, but it's all set now. We've got stuff in place. And it should be, by the end of the year, 100% leased. Trying to think what else -- we've got a couple of 4,000 or 5,000 square foot properties that are out there. And we've got leasing activity on all, but one of those, that I would -- based upon what I'm being told is we should see leases later this year. So we -- again, we've got a lot of good leasing activity going on, and there's not a hell lot of space in any one place, which is kind of a good thing, but it makes it a little bit more difficult.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [38]

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So at this point, you're planning on leasing up the asset. So is there anything sort of earmarked for sale at this point?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [39]

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There is one asset that we've had an offer on. They're probably about $100,000 to $200,000 lower than what I'd like to sell it for, but that's the only one that's out there now like that.

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Operator [40]

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Nate Crossett with Berenberg.

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Nathan Daniel Crossett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [41]

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Just curious to get your thoughts on tenant concentration now that the Humble acquisition brings you to 9% for Kindred. Is there a certain level you won't go over for one tenant?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [42]

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Yes. We've got investment guidelines that restricted us. I think it's no more than 20%, but we don't anticipate getting close to that with any one tenant. Kindred -- it's 2 different markets, and it's different 2 groups of Kindred asset, because one is an LTAC hospital, and one is an inpatient rehab hospital. So we feel fairly comfortable with that. But right now, I'd say we probably won't do another Kindred facility until we grew some more.

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Nathan Daniel Crossett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [43]

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Okay. And then just one on the ATM. And my question is, do you find that the liquidity of the stock is limiting the amount you can raise on the ATM if you need it quickly just based on the trading volume of the shares? Or...

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [44]

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I mean we really haven't pressed it like that, so I'm not sure exactly how much we can raise in a quarter without it feeling -- but I mean, obviously, if we wanted a lot of funds quickly, we probably wouldn't lean on the ATM to do that. But we raised, I don't know, $5 million in the first quarter. And I didn't feel like -- and I haven't gotten any responses from anybody that they felt like we were leaning on it too much. Now if we try to do $30 million in a quarter, would that change? I'm not sure, but I'm not intending on trying to do that right now. So...

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Nathan Daniel Crossett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [45]

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Yes. And then maybe -- okay, that's helpful. Maybe you can just remind us on leverage level what the range you would like to stay in and won't go above and maybe how that should shake out kind of by the end of the year.

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [46]

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Well, we've said that we've got a 40% internal limit on leverage debt-to-book cap. Our long-term goal is in the low to mid-30s, and we're going to try to use the ATM to manage that as best we can. I think we're probably in the mid to upper 30s right now, and we'll work through managing that, but we're not going to go above. I think our bank covenant is 50%, 60% -- we're close to that limit. I'm sorry. No, the internal limit, we've got 40%, and that's what we intend to stick to.

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Nathan Daniel Crossett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [47]

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Okay. And then just one last one, and I'm sorry if I missed it, but are there any other tenant issues that we should be aware of outside of what's going on with Highlands?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [48]

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None that we're concerned about. I mean we're -- obviously, we've got -- I think it's close to 300 leases and 150 tenants. So you always have some tenants that's in some form or fashion -- I mean we got -- in Florida, we've got a 10,000 square foot tenant who's behind some on the rent. But -- I mean, again, this is real estate. That happens. So I mean Highlands is obviously a large asset and was a high profile type of facility. And we don't know of any other large assets like that that would have that -- that have a profile where we have that much concern.

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Operator [49]

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(Operator Instructions) The next question comes from Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [50]

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On the Highlands asset -- and I know you've talked about this, and I apologize if I missed it. But the rents are comparable, you've stated. But what is the lease term with the new tenant? Is this comparable?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [51]

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Yes, 15 years.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [52]

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And then just another question on the assets that you're looking to acquire with 11% cap rate, can you give us a little color on who would pay that in this type of an environment with such low interest rate? Like why couldn't they get better financing somewhere else or a lower cap rate?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [53]

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Well, it's -- I mean it's part of our programmatic stuff, Bryan, that we've talked about quite a bit. And actually, this particular operator, it's a healthcare provider. Basically, what these providers want to do is grow their company from x EBITDA, whatever they are now, $5 million of EBITDA or $10 million of EBITDA to a point of, say, $50 million of EBITDA, where they can sell to a large company. This particular one has already done it once. They're using a management team that they -- that's got a lot of experience. And basically, they grew that company, and they've sold it to the old HealthSouth -- or they sold the company the new -- not HealthSouth, now it's Encompass. It's an inpatient rehab company. And basically, what we allow them to do, Page worked out an arrangement with our banks, where our banks will provide the construction financing. It's like a seamless approach to it. The banks provide the construction financing. We utilize the same due diligence, the same surveys, the same dialysis companies, the same -- all that type of stuff. So that saves them a lot of upfront cash for them to do it, and it makes it less of a -- if they have to go out to these markets and finance these on a one-off basis, it takes a lot longer, and it kills a lot of brain cells doing it. In this way, it's a programmatic approach. We sign off on each one of the assets. The bank is responsible for making sure that it's constructed in -- has the risk through completion and occupancy. And then we buy it from the operator. So it provides basically a seamless approach, and it turns out that if we can get them to whatever their goal is 2 years earlier than what they could have otherwise, their internal rate of return is significantly higher, because you spread it up, you reduce the costs, et cetera. And they're able to capitalize on what they're trying to do that much sooner. And it turns out in the end, they're not actually paying it for their own, and it's factored into the cost of the acquisition for the acquirer. And then basically, we get a large step-up, because we're doing this with people -- we've got a dialysis company that this is his fourth time around. He sold 2 of them to -- I forget -- Fresenius or DaVita and LifeSource would be the third one. We're doing it with a site -- an inpatient site guy who has previously sold to [Psych Solutions] and Universal Health. And we're doing it with this guy who's done it before and he sold to Encompass. We've got a geropsych client. We've got several others. But anyway, that's kind of the rationale behind it. I mean, till they find cheaper on a one-off basis, maybe. But they couldn't do it in a program that gets them to where they want to be any quicker or easier and were a lot cheaper than equity.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [54]

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And just kind of as a follow-up on that. How much money are these guys typically putting up during the development process? I understand there's bank loans and guarantees and all those other stuff. But are they putting up 10%, 20%, 30%? How much are they putting up of their own cash?

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [55]

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25%.

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Operator [56]

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

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Timothy G. Wallace, Community Healthcare Trust Incorporated - Chairman, CEO & President [57]

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Again, we appreciate you coming out and listening to us today and asking questions. And hopefully, probably see a lot of you all at Nareit in New York. Thanks so much.

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Operator [58]

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