CHCT
#Thank you.
Good morning, everyone, and thank you for joining us today for our second-quarter conference call.
With me on the call today as usual, is <UNK> <UNK>, our Executive Vice President and Chief Financial Officer.
Once again, we've had a very busy quarter.
And as we have previously announced, we acquired three properties during the quarter in three states with a total of approximately 153,400 square feet.
For a total purchase price of approximately $33.5 million.
These properties were approximately 93.7% leased, with lease expirations ranging out to 2031.
As disclosed in the 10-Q, we have four properties under definitive purchase agreements.
For an aggregate expected purchase price of approximately $13.4 million.
The expected return on these investments range from approximately 9.16% to 9.97%.
As it relates to our pipeline, our properties under review continues to go up.
We currently have several properties under signed term sheets.
And several more with term sheets being actively negotiated.
We continue to improve our relationships with key-provider clients and are encouraged by our efforts.
We continue to believe there are a lot of these types of properties.
And continue to believe that there's very little competition for them.
In addition to our acquisition activity in the second quarter, we were very active on a number of other fronts.
As was discussed last quarter, at the beginning of the second quarter, we completed our first [follow-on] equity offering.
The Company sold a total of 5.175 million shares which included the full exercise and the underwriters option, for net proceeds of approximately $86.8 million.
Also, as was previously announced, we declared our dividend for the second quarter and raised it to $0.3825 per common share.
This equates to an annualized dividend of $1.53 per share.
I continue to be proud to say, we have raised our dividend every quarter since our IPO.
Also, as we have previously indicated, we would, and as we announced in the release last night, we amended our revolving credit facility increasing the maximum borrowing capacity from $75 million to $150 million and reducing the interest rate downward by 25 basis points.
Also, certain financial covenants were adjusted or replaced and the maturity date was pushed out to August 2019.
I believe that takes care of most of the items I wanted to cover.
So I will hand things off to <UNK> to cover the numbers.
Thanks, Tim.
I am pleased to review the Company's financial performance for the second quarter ended June 30, 2016.
Total revenues for the second quarter of 2016 were $6.2 million.
Rental and mortgage interest revenues were $5.1 million.
The Company closed on the three properties during the quarter including the exercise of our option under our mortgage note.
The real estate portfolio was 93% leased.
And on a pro forma basis, if all of the 2016 second-quarter acquisitions had occurred on the first day of the second quarter, rental and mortgage interest revenues would have increased by an additional $151,000 to a pro forma total of approximately $5.2 million.
Total expenses for the second quarter of 2016 were approximately $5.5 million.
General and administrative expenses for the second quarter were $895,000.
And of this amount, transaction expenses totaled $204,000.
Depreciation and amortization expense was $3.3 million.
And on a pro forma basis, if all of the 2016 second quarter acquisitions occurred on the first day of the second quarter, depreciation and amortization expense would have increased by $269,000 to a pro forma total of just over $3.6 million.
The Company reported net income of $508,000 for the second quarter.
Funds from operations for the second quarter of 2016 consisted of net income plus $3.3 million in depreciation and amortization for a total of over $3.8 million or $0.32 per diluted common share.
Normalized FFO, which adds back acquisition expense and deferred compensation eliminates straight line rent increases the total to over $4 million or $0.34 per diluted common share.
Again, on a pro forma basis, adjusting for the data outstanding for the quarter, if all of the 2016 second-quarter acquisitions occurred on the first day of the second quarter normalized FFO would have increased by an additional $151,000 to a pro forma total of approximately $4.2 million and increasing normalized FFO by over $0.01 to $0.35 per share.
That's all I have from a numbers standpoint, operator.
I believe we are ready to start the Q&A.
Good morning, <UNK>.
Thanks for the questions.
To hit on most of those, the answer is we don't see changing what we have been doing.
What we have been doing has been working and has been making money.
And the way we view it as our cost of capital goes down, if we are continuing to invest in the cap rates that we are ranging at, then our margin just goes up.
And we make more money for the shareholders.
We feel very comfortable as I said from the beginning that we can do $120 million to $150 million a year in acquisitions.
We can push that a little bit with the people that we have.
We are anticipating as we add more properties over the next year or so, adding a person or two in that process.
But not specifically for underwriting or for the acquisition side.
Again, we want to maintain a steady-state.
In some quarters, we may do $25 million and in some quarters we may do $40 million.
But I doubt that you will see us very far from $120 million to $150 million for a year.
<UNK>, I will let you do that.
We did have one at the end of June.
I think we may have discussed before with the last call.
It was one that we were working actively to renew.
And the hospital company has its own issues and they have delayed renewing until they recruited some doctors to fill the space.
They are still interested in the space.
But just to put that in context, that's what [3,000 or 4,000] square foot lease.
We are continuing to have leasing activity and renewal activity with all of our existing tenants.
With the cash on hand, and the availability under the line, we're probably just under $150 million.
I would say $140 million as it stands right now.
We have talked about that before.
And what our plan is, <UNK>.
<UNK>, I'm sorry.
That's with our internal limit of 40% net to cap.
The credit facility actually would let us take that up higher.
What our game plan on that is, we are going to draw down on the line probably $100 million plus or minus.
Which we think will be probably first, second quarter of next year.
And then we're going to test the market from both insurance-company standpoint and bank standpoint.
Of doing a seven year plus or minus.
Six or eight year tenure type of permanent debt fees that would be the first permanent debt fees of capital that we've had on the balance sheet.
Pay down the bank line and then be in a position to draw it back up.
The other thing we're going to do, as you will see later this fall, and I have told this all the time to people so that when that happens they won't say what you are doing.
We will file a universal shelf filing later this year.
And it will say we can raise all kinds of money.
All kinds of securities and all kinds of ways with which we won't do.
But, basically that will set it up to where we will have a lot easier access to the equity capital markets on a going-forward basis.
And be able to do it in smaller bites and bites that makes sense from a capital-funding matching standpoint.
I have addressed this previously.
We never say never to anything.
But we like a simple capital structure.
We very much prefer sticking with common stock and with debt.
At the appropriate time and the appropriate ways, if it was priced appropriately.
And again I'd never say never, but it is not our intent do any preferred at this point in time.
I can't predict what the capital markets will be a year from now.
When we might start thinking about it.
We sent out three new leases Wednesday.
So the great thing about our vacancy it is [vault] vacancy.
We only pay for existing NOIs.
So when we buy a building with vacancy, we're not paying for it.
Anything is just bonus.
Go ahead <UNK>.
I think we've getting more traction on that.
I want to say that we didn't specifically focus on it.
But we've got much more of a focus on it now to do that.
We are working with several companies that are regional companies to look at different spaces that we have in our current portfolio.
So I think we will be able to take advantage of that.
Right now, it looks like that pipeline is pretty good too.
And from a practical standpoint, my experience shows me at is really hard to keep a portfolio much about 95% occupied.
So, we feel like we have a few hundred basis points that we may be able to (inaudible) and try to keep it there.
But as you have fluctuations in the portfolio like this, I mean you're going to have 93% to 96% is something that hopefully we will be able to keep.
And you will see it maintained over time.
Yes, probably.
I think it's because of a combination of vacations.
Some here, but some with attorneys, some with sellers.
It's kind of been hard to get some people to focus on getting stuff done.
We still hope to be able to close that.
But you are right, it will probably be tail-end weighted.
They made us an offer we couldn't refuse.
So we went ahead and did it.
[Laughter] It is still the same unused fill but there is different trip points for when it reduces.
Yes.
That is correct.
But you should anticipate sometime in the next couple of months the shelf being filed.
We're going to go ahead and file that.
And have it ready relatively soon.
We wanted to get the bank line down first, and then we were going to focus on getting the shelf filed.
Thank you, Alex.
It's probably pretty close.
I'm not sure, I hadn't focused on that particularly like that.
It's probably pretty close to what a going-forward type of thing is.
And with the way our compensation is, it's got the second year of the stock stuff layered in.
So that might be some of the difference.
We will build up, in essence, the non-cash G&A part of it.
As time goes by and we add the years in.
If you have any questions, we can follow up with that.
Thanks, <UNK>.
Thanks everybody for being on the call.
We appreciate you taking the time and showing the interest in us.
And hopefully we can continue having great quarters.
Thank you so much.
Bye.
