CHCT 10-Q Quarterly Report Sept. 30, 2018 | Alphaminr
Community Healthcare Trust Inc
ALPHAMINR

CHCT 10-Q Quarter ended Sept. 30, 2018

Balance Sheet
Cash Flow
Income Statement
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COMMUNITY HEALTHCARE TRUST INC
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10-Q 1 chct-2018q3x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO
Commission file number: 001-37401
Community Healthcare Trust Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of Incorporation or Organization)
46-5212033
(I.R.S. Employer Identification No.)
3326 Aspen Grove Drive
Suite 150
Franklin, Tennessee 37067
(Address of Principal Executive Offices) (Zip Code)
(615) 771-3052
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ¨
Accelerated filer x
Emerging-growth company x
Non-accelerated filer ¨
(Do not check if a
smaller reporting company)
Smaller reporting
company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x

The Registrant had 18,533,802 shares of Common Stock, $0.01 par value per share, outstanding as of October 31, 2018 .

1

COMMUNITY HEALTHCARE TRUST INCORPORATED
FORM 10-Q
Septemer 30, 2018
TABLE OF CONTENTS

Page

2

PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
COMMUNITY HEALTHCARE TRUST INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
September 30, 2018
December 31, 2017
ASSETS
Real estate properties
Land and land improvements
$
47,748

$
44,419

Buildings, improvements, and lease intangibles
376,310

343,955

Personal property
132

112

Total real estate properties
424,190

388,486

Less accumulated depreciation
(50,607
)
(36,136
)
Total real estate properties, net
373,583

352,350

Cash and cash equivalents
1,006

2,130

Mortgage note receivable, net
—

10,633

Other assets, net
40,711

20,653

Total assets
$
415,300

$
385,766

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Debt, net
$
127,449

$
93,353

Accounts payable and accrued liabilities
3,818

4,056

Other liabilities
4,716

4,983

Total liabilities
135,983

102,392

Commitments and contingencies




Stockholders' Equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued and outstanding
—

—

Common stock, $0.01 par value; 450,000,000 shares authorized; 18,533,802 and 18,085,798 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
185

181

Additional paid-in capital
333,468

324,303

Cumulative net income
11,063

4,775

Accumulated other comprehensive income
2,612

258

Cumulative dividends
(68,011
)
(46,143
)
Total stockholders’ equity
279,317

283,374

Total liabilities and stockholders' equity
$
415,300

$
385,766


See accompanying notes to the condensed consolidated financial statements.

3

COMMUNITY HEALTHCARE TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(Unaudited; Dollars in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended
September 30,
2018
2017
2018
2017
REVENUES
Rental income
$
10,225

$
8,012

$
30,080

$
21,968

Tenant reimbursements
1,701

1,158

4,731

3,620

Mortgage interest
—

255

—

774

Other operating interest
679

19

1,625

19

12,605

9,444

36,436

26,381

EXPENSES
Property operating
2,627

2,225

7,497

6,103

General and administrative
1,395

1,069

4,092

2,674

Depreciation and amortization
4,925

4,544

14,471

12,749

Bad debts
68

—

68

67

9,015

7,838

26,128

21,593

OTHER INCOME (EXPENSE)
Interest expense
(1,643
)
(1,091
)
(4,482
)
(2,897
)
Other income
52

64

462

67

(1,591
)
(1,027
)
(4,020
)
(2,830
)
NET INCOME
$
1,999

$
579

$
6,288

$
1,958

NET INCOME PER COMMON SHARE:
Net income per common share – Basic
$
0.10

$
0.02

$
0.31

$
0.10

Net income per common share – Diluted
$
0.10

$
0.02

$
0.31

$
0.10

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC
17,669,681

16,241,986

17,695,688

13,884,476

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED
17,669,681

16,241,986

17,695,688

13,884,476

DIVIDENDS DECLARED, PER COMMON SHARE, DURING THE PERIOD
$
0.4025

$
0.3925

$
1.2000

$
1.1700


See accompanying notes to the condensed consolidated financial statements.

4

COMMUNITY HEALTHCARE TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(Unaudited; Dollars in thousands)

Three Months Ended September 30,
Nine Months Ended September 30,
2018
2017
2018
2017
NET INCOME
$
1,999

$
579

$
6,288

$
1,958

Other comprehensive income (loss):
Increase (decrease) in fair value of cash flow hedges
527

(74
)
2,152

(672
)
Reclassification for amounts recognized as interest expense
46

124

201

286

Total other comprehensive income (loss)
573

50

2,353

(386
)
COMPREHENSIVE INCOME
$
2,572

$
629

$
8,641

$
1,572


See accompanying notes to the condensed consolidated financial statements.


5

COMMUNITY HEALTHCARE TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited; Dollars in thousands, except per share amounts)
Preferred Stock

Common Stock
Additional Paid in Capital
Cumulative Net Income
Accumulated Other Comprehensive Income
Cumulative Dividends
Total Stockholders' Equity
Shares
Amount
Shares
Amount
Balance at December 31, 2017
—

$
—

18,085,798

$
181

$
324,303

$
4,775

$
258

$
(46,143
)
$
283,374

Stock-based compensation
—

—

94,001

1

615

—

—

—

616

Unrecognized gain on cash flow hedges
—

—

—

—

—

—

906

—

906

Reclassification adjustment for losses included in net income (interest expense)
—

—

—

—

—

—

68

—

68

Net income
—

—

—

—

—

1,872

—

—

1,872

Dividends to common stockholders ($0.3975 per share)
—

—

—

—

—

—

—

(7,226
)
(7,226
)
Balance at March 31, 2018
—

$
—

18,179,799

$
182

$
324,918

$
6,647

$
1,232

$
(53,369
)
$
279,610

Stock-based compensation
—

—

20,176

—

801

—

—

—

801

Unrecognized gain on cash flow hedges
—

—

—

—

—

—

720

—

720

Reclassification adjustment for losses included in net income (interest expense)
—

—

—

—

—

—

87

—

87

Net income
—

—

—

—

—

2,417

—

—

2,417

Dividends to common stockholders ($0.40 per share)
—

—

—

—

—

—

—

(7,277
)
(7,277
)
Balance at June 30, 2018
—

$
—

18,199,975

$
182

$
325,719

$
9,064

$
2,039

$
(60,646
)
$
276,358

Issuance of common stock, net of issuance costs
—

—

234,000

2

7,062

—

—

—

7,064

Stock-based compensation
—

—

99,827

1

687

—

—

—

688

Unrecognized gain on cash flow hedges
—

—

—

—

—

—

527

—

527

Reclassification adjustment for losses included in net income (interest expense)
—

—

—

—

—

—

46

—

46

Net income
—

—

—

—

—

1,999

—

—

1,999

Dividends to common stockholders ($0.425 per share)
—

—

—

—

—

—

—

(7,365
)
(7,365
)
Balance at September 30, 2018
—

$
—

18,533,802

$
185

$
333,468

$
11,063

$
2,612

$
(68,011
)
$
279,317


See accompanying notes to the condensed consolidated financial statements.

6

COMMUNITY HEALTHCARE TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Nine Months Ended September 30,
2018
2017
OPERATING ACTIVITIES
Net income
$
6,288

$
1,958

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
14,929

13,053

Stock-based compensation
2,105

1,050

Straight-line rent receivable
(1,165
)
(953
)
Provision for bad debts, net of recoveries
68

67

Reduction in contingent purchase price
—

(5
)
Deferred income tax benefit
(103
)
—

Changes in operating assets and liabilities:
Other assets
(3,400
)
(636
)
Accounts payable and accrued liabilities
(373
)
(404
)
Other liabilities
(427
)
1,234

Net cash provided by operating activities
17,922

15,364

INVESTING ACTIVITIES
Acquisitions of real estate
(26,820
)
(93,442
)
Acquisitions of notes receivable
(2,201
)
(5,000
)
Funding of notes receivable
(4,833
)
—

Proceeds from the repayment of notes receivable
50

296

Capital expenditures on existing real estate properties
(4,220
)
(545
)
Net cash used in investing activities
(38,024
)
(98,691
)
FINANCING ACTIVITIES
Net repayments on revolving credit facility
(6,000
)
(51,000
)
Term loan borrowings
40,000

60,000

Dividends paid
(21,868
)
(17,288
)
Net proceeds from issuance of common stock
7,147

109,168

Equity issuance costs
(83
)
(465
)
Debt issuance costs
(218
)
(784
)
Settlement of contingent purchase price
—

(393
)
Net cash provided by financing activities
18,978

99,238

Decrease in cash and cash equivalents
(1,124
)
15,911

Cash and cash equivalents, beginning of period
2,130

1,568

Cash and cash equivalents, end of period
$
1,006

$
17,479

Supplemental Cash Flow Information:
Interest paid
$
3,823

$
2,390

Invoices accrued for construction, tenant improvement and other capitalized costs
$
102

$
3

Reclassification between accounts and notes receivable
$
—

$
615

Reclassification of registration statement costs incurred in prior year to equity issuance costs
$
34

$
148

Increase (decrease) in fair value of cash flow hedges
$
2,152

$
(672
)
Fair value of property received in foreclosure
$
4,541

$
—

Notes and mortgage receivable repayments utilized to originate note receivable (See footnote 5)
$
18,167

$
—

See accompanying notes to the condensed consolidated financial statements.

7

COMMUNITY HEALTHCARE TRUST INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)


Note 1. Summary of Significant Accounting Policies

Business Overview
Community Healthcare Trust Incorporated (the ‘‘Company’’, ‘‘we’’, ‘‘our’’) was organized in the State of Maryland on March 28, 2014. The Company is a fully-integrated healthcare real estate company that owns and acquires real estate properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers in our target submarkets. As of September 30, 2018 , the Company had investments of approximately $424.2 million in 93 real estate properties, located in 28 states, totaling approximately 2.1 million square feet in the aggregate.

Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements.

This interim financial information should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 .

Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2018 . All material intercompany accounts and transactions have been eliminated.

Use of Estimates in the Condensed Consolidated Financial Statements
Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may materially differ from those estimates.

Income Taxes
The Company has elected to be taxed as a real estate investment trust ("REIT"), as defined under the Internal Revenue Code of 1986, as amended (the "Code"). The Company and one subsidiary have also elected for that subsidiary to be treated as a taxable REIT subsidiary ("TRS"), which is subject to federal and state income taxes. No provision has been made for federal income taxes for the REIT; however, the Company may record income tax expense or benefit for the TRS to the extent applicable. The Company intends at all times to qualify as a REIT under the Code. The Company must distribute at least 90% per annum of its REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) and meet other requirements to continue to qualify as a REIT.

Effective January 1, 2018, under legislation from the Tax Cuts and Jobs Act of 2017, the maximum U.S. federal corporate income tax rate was reduced from 35% to 21%. Accordingly, to the extent that the activities of our taxable REIT subsidiary generates taxable income in future periods, it may be subject to lower U.S. federal income tax rates.

The Company classifies interest and penalties related to uncertain tax positions, if any, in the Condensed Consolidated Statements of Income as a component of general and administrative expenses.


8
Notes to Condensed Consolidated Financial Statements - Continued

New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which establishes a comprehensive model to account for revenues arising from contracts with customers. ASU 2014-09 applies to all contracts with customers, except those that are within the scope of other topics in the FASB's Accounting Standards Codification, such as real estate leases and financial instruments. ASU 2014-09 requires companies to perform a five-step analysis of transactions to determine when and how revenue is recognized. The Company adopted ASU 2014-09 using the "modified retrospective" method effective January 1, 2018; as such, the Company applied the guidance only to the most recent period presented in the financial statements. The primary source of revenue for the Company is generated through its leasing arrangements with its tenants, which is covered under other accounting guidance, but certain non-lease revenues could be impacted by the new guidance. While the Company has not historically sold any properties, accounting for the sales of real estate could also be impacted by this new guidance. Prior to the adoption of ASU 2014-09, gains and losses from real estate sales were adjusted at the time of the sale by the maximum exposure to loss related to continuing involvement with the real estate. After adoption, any continuing involvement is considered a separate performance obligation and the sales price is required to be allocated between the elements with continuing involvement and those without continuing involvement. As the continuing performance obligations are satisfied, additional gains and losses will be recognized. The Company recognized no change to previously reported amounts from the cumulative effect of the adoption of ASU 2014-09.
On January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which clarifies or provides guidance relating to eight specific cash flow classification issues. The standard should be applied retrospectively for each period presented, as appropriate. The impact of this new guidance will depend on future transactions, though the impact will only be related to the classification of those items on the statement of cash flows and will not impact the Company's total cash flows or its results of operations. There was no impact to the Company's Condensed Consolidated Financial Statements upon adoption of this standard.

On January 1, 2018, the Company adopted ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) , ("ASU 2017-09"), which provides guidance about which changes in the terms or conditions of a share-based payment award require a company to apply modification accounting in Topic 718. Under ASU No. 2017-09, a company will generally be required to apply modification accounting unless the fair value or intrinsic value of the modified award, the vesting conditions of the modified award, and the classification of the modified award as equity or a liability are the same as the original award immediately before the award is modified. There was no impact to the Company's Condensed Consolidated Financial Statements upon adoption of this standard.

Recently Issued Accounting Pronouncements
Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02") which will supersede the existing standards for lease accounting (Topic 840, Leases ) by requiring lessees to record most leases on their balance sheets and making targeted changes to lessor accounting and reporting. The new standard will require lessees to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months and classify such leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method (finance leases) or on a straight-line basis over the term of the lease (operating leases). Leases with a term of 12 months or less and that do not include a purchase option that the lessee is reasonably certain to exercise will be accounted for similarly to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. The new standard will require more extensive quantitative and qualitative disclosures as compared to Topic 840 for both lessees and lessors. ASU 2016-02 is effective for the Company on January 1, 2019.

The Company expects to adopt this new standard using the transition method in ASU 2018-11, Leases (Topic 842):

9
Notes to Condensed Consolidated Financial Statements - Continued

Targeted Improvements, ("ASU 2018-11"). ASU No. 2018-11 (1) simplifies transition requirements for both lessees and lessors by adding an option that permits an organization to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and (2) provides a practical expedient for lessors that permits lessors to make an accounting policy election to not separate non-lease components from the associated lease components, if the following two criteria are met: (1) the timing and pattern of transfer of the lease and non-lease components are the same and (2) the lease component would be classified as an operating lease if accounted for separately. For leases where we are the lessor, we plan to elect the optional transition relief and apply the practical expedients provided by ASU 2018-11. Under this transition, the Company will initially apply the new standard on January 1, 2019, and the comparative periods will continue to be reported in accordance with Topic 840. Under the new standard, the accounting by a lessor is largely unchanged from that of the previous standard.

The Company has historically only capitalized direct leasing costs, such as leasing commissions. While the new standard revises the treatment of indirect leasing costs and permits the capitalization and amortization only of direct leasing costs, the Company does not expect an impact to its financial statements related to the capitalization of leasing costs.

The Company is currently only a lessee under one ground lease. The new standard will require the Company to record a right of use asset and a lease liability on its consolidated balance sheet with minimal impact on the recognition of ground lease expense. As such, the Company expects the adoption of this new standard will have no material impact on its financial statements related to this ground lease.

The Company is continuing to assess the FASB's activities related to the new leasing standards and the potential impact on its financial results upon adoption.

Financial Instruments-Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new current expected credit loss ("CECL") model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. Companies will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables. Companies will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This standard is effective for the Company on January 1, 2020 with early adoption permitted. In August 2018, the FASB issued a proposal that would amend the ASU to clarify that receivables arising from leases would not be within the scope of the ASU but rather would be accounted for under the leasing standard. The Company continues to monitor the FASB's activity relating to this ASU.



10

Note 2. Real Estate Investments

At September 30, 2018 , the Company had investments of approximately $424.2 million in 93 real estate properties. The following table summarizes the Company's real estate investments.


(Dollars in thousands)
Number of Facilities
Land and
Land Improvements
Buildings, Improvements, and Lease Intangibles

Personal
Property


Total

Accumulated Depreciation
Medical office buildings:
Florida
5

$
4,608

$
29,275

$
—

$
33,883

$
3,705

Ohio
6

3,637

26,396

—

30,033

4,816

Texas
3

3,108

15,455

—

18,563

3,988

Illinois
2

1,136

11,831

—

12,967

2,234

Kansas
3

2,455

14,875

—

17,330

3,904

Iowa
1

2,241

9,010

—

11,251

1,940

Other states
14

3,711

27,872

—

31,583

3,671

34

20,896

134,714

—

155,610

24,258

Physician clinics:
Kansas
2

610

6,921

—

7,531

1,279

Illinois
2

2,615

6,354

—

8,969

280

Florida
4

253

9,484

—

9,737

740

Other states
9

2,708

20,464

—

23,172

3,382

17

6,186

43,223

—

49,409

5,681

Surgical centers and hospitals:
Louisiana
1

1,683

21,353

—

23,036

977

Michigan
2

637

8,276

—

8,913

2,245

Illinois
1

2,183

5,410

—

7,593

1,060

Florida
1

271

7,037

—

7,308

578

Arizona
2

576

5,389

—

5,965

1,379

Other states
7

2,122

17,835

—

19,957

3,533

14

7,472

65,300

—

72,772

9,772

Specialty centers:
Illinois
3

3,482

24,727

—

28,209

1,318

Other states
17

3,214

31,331

—

34,545

6,213

20

6,696

56,058

—

62,754

7,531

Behavioral facilities:
West Virginia
1

2,138

22,897

—

25,035

589

Illinois
1

1,300

18,803

—

20,103

1,098

Indiana
2

1,126

6,040

—

7,166

272

Other states
3

1,411

12,836

—

14,247

325

7

5,975

60,576

—

66,551

2,284

Long-term acute care hospitals:
Indiana
1

523

14,405

—

14,928

877

1

523

14,405

—

14,928

877

Corporate property
—

—

2,034

132

2,166

204

Total real estate investments
93

$
47,748

$
376,310

$
132

$
424,190

$
50,607




11
Notes to Condensed Consolidated Financial Statements - Continued

Note 3. Real Estate Leases

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2034 . The Company’s leases generally require the lessee to pay minimum rent, with fixed rent renewal terms or increases based on a Consumer Price Index and and may also include additional rent, which may include taxes (including property taxes), insurance, maintenance and other operating costs associated with the leased property.

Future minimum lease payments under the non-cancelable operating leases due the Company for the years ending December 31, as of September 30, 2018 , are as follows (in thousands):
2018 (three months ending December 31)
$
9,818

2019
36,745

2020
33,614

2021
30,302

2022
26,962

2023 and thereafter
151,598

$
289,039


Straight-line rental income
Rental income is recognized as earned over the life of the lease agreement on a straight-line basis. Straight-line rent included in rental income was approximately $0.4 million and $0.4 million , respectively, for the three months ended September 30, 2018 and 2017 and was approximately $1.2 million and $1.0 million , respectively, for the nine months ended September 30, 2018 and 2017 .

Deferred revenue
Rent received but not yet earned is deferred until such time it is earned. Deferred revenue, included in other liabilities, was approximately $ 1.4 million and $1.1 million , respectively, at September 30, 2018 and December 31, 2017 .

Note 4. Real Estate Acquisitions

Property Acquisitions

During the third quarter of 2018, the Company acquired two real estate properties totaling approximately 37,000 square feet for an aggregate purchase price and cash consideration of approximately $6.7 million . Upon acquisition, the properties were 93.4% leased in the aggregate with lease expirations ranging from 2021 through 2023 . Amounts reflected in revenues and net income for the three months ended September 30, 2018 for these properties were approximately $106,049 and $17,825 , respectively. Transaction costs totaling approximately $0.1 million related to these acquisitions were capitalized in the period and included in real estate assets.

During the second quarter of 2018, the Company acquired three real estate properties totaling approximately 68,000 square feet for an aggregate purchase price of approximately $11.7 million , including cash consideration of approximately $7.3 million and $4.5 million fair value of real estate received in foreclosure. Upon acquisition, two of the properties were 100% leased in the aggregate with lease expirations ranging from 2020 through 2026 , and one property previously secured a mortgage note receivable held by the Company. See Note 5 for more detail on this property. Amounts reflected in revenues and net income for the nine months ended September 30, 2018 for these properties were approximately $0.5 million and $0.3 million , respectively. Transaction costs totaling approximately $0.2 million related to these acquisitions were capitalized in the period and included in real estate assets.

During the first quarter of 2018, the Company acquired three real estate properties totaling approximately 38,000 square feet for an aggregate purchase price and cash consideration of approximately $12.7 million . Upon

12
Notes to Condensed Consolidated Financial Statements - Continued

acquisition, the properties were 100% leased in the aggregate with lease expirations ranging from 2018 through 2033 . Amounts reflected in revenues and net income for the nine months ended September 30, 2018 for these properties were approximately $0.8 million and $0.3 million , respectively. Transaction costs totaling approximately $0.1 million related to these acquisitions were capitalized in the period and included in real estate assets.

Note 5. Mortgage and Other Notes Receivable

The Company had one mortgage note receivable outstanding as of December 31, 2017 with a principal balance of $10.6 million and interest receivable of $0.6 million , which is included in other assets. The borrower and several related entities (the "Borrower") filed for voluntary bankruptcy on June 23, 2017. At the time of filing for bankruptcy, the Borrower was current on all obligations to the Company, but no payments were received during the bankruptcy.

On December 28, 2017, the Company purchased $11.45 million face value of certain promissory notes, secured by accounts receivable of the Borrower, for $8.75 million from a syndicate of banks, a $2.7 million discount to face value, and in the first quarter of 2018 acquired $2.2 million of certain promissory notes, secured by the operations of two facilities related to the Borrower, but were not included in the bankruptcy, for a total investment in these promissory notes of approximately $10.95 million .

On April 25, 2018, the Company provided a $23.0 million loan, included in other assets, to a newly formed company (Newco), secured by all assets and ownership interests in seven long-term acute care hospitals and one inpatient rehabilitation hospital that, along with a series of investments by the management of Newco, allowed Newco to acquire certain assets of the Borrower.

Also on April 25, 2018, $10.95 million for the promissory notes discussed above and approximately $0.26 million of interest on those promissory notes and approximately $0.25 million in fees and reimbursement of expenses and approximately $6.7 million principal and accrued interest related to its mortgage note receivable were satisfied with proceeds from the loan. In addition, the Company received title to the property previously financed by the mortgage note receivable at an approximate $4.5 million valuation. No impairment was recognized by the Company.

Note 6. Debt, net

The table below details the Company's debt as of September 30, 2018 and December 31, 2017 .
Balance as of
(Dollars in thousands)
September 30, 2018
December 31, 2017
Maturity Dates
Revolving Credit Facility
$
28,000

$
34,000

8/19
5-Year Term Loan, net
49,741

29,685

3/22
7-Year Term Loan, net
49,708

29,668

3/24
$
127,449

$
93,353


The Company's second amended and restated credit facility (the "Credit Facility") is by and among Community Healthcare OP, LP, the Company, the lenders from time to time party thereto, and SunTrust Bank, as Administrative Agent. The Company’s material subsidiaries are guarantors of the obligations under the Credit Facility. The Credit Facility provides for a $150.0 million revolving credit facility (the "Revolving Credit Facility") and $100.0 million in term loans (the "Term Loans"). The Credit Facility, through the accordion feature, allows borrowings up to a total of $450.0 million , including the ability to add and fund additional term loans. The Revolving Credit Facility matures on August 9, 2019 and includes two 12 -month options to extend the maturity date of the Revolving Credit Facility, subject to the satisfaction of certain conditions. The Term Loans include a five -year term loan facility in the aggregate principal amount of $50.0 million (the "5-Year Term Loan"), which matures on March 29, 2022 , and a

13
Notes to Condensed Consolidated Financial Statements - Continued

seven -year term loan facility in the aggregate principal amount of $50.0 million (the "7-Year Term Loan"), which matures on March 29, 2024 .

During the first quarter of 2018, the Company entered into two amendments relating to its Credit Facility. The first amendment, which was effective as of November 1, 2017, modified the formula used to calculate the amount of restricted payments the Company may make under the Credit Facility. The second amendment, effective on March 27, 2018, reduced the pricing margins on its LIBOR borrowings on both its Revolving Credit Facility and Term Loans and increased the maximum swingline commitment from $15.0 million to $20.0 million . The Company paid $0.2 million in fees related to these amendments.

Amounts outstanding under the Revolving Credit Facility, as amended, bear annual interest at a floating rate that is based, at the Company’s option, on either: (i) LIBOR plus 1.75% to 2.50% or (ii) a base rate plus 0.75% to 1.50% , in each case, depending upon the Company’s leverage ratio. In addition, the Company is obligated to pay an annual fee equal to 0.25% of the amount of the unused portion of the Revolving Credit Facility if amounts borrowed are greater than 33.3% of the borrowing capacity under the Revolving Credit Facility and 0.35% of the unused portion of the Revolving Credit Facility if amounts borrowed are less than or equal to 33.3% of the borrowing capacity under the Revolving Credit Facility. At September 30, 2018 , the Company had $28.0 million outstanding under the Revolving Credit Facility with a remaining borrowing capacity of $122.0 million and a weighted average interest rate of approximately 4.29% .

Amounts outstanding under the Term Loans, as amended, bear annual interest at a floating rate that is based, at the Company’s option, on either: (i) LIBOR plus 1.95% to 2.65% or (ii) a base rate plus 0.95% to 1.65% , in each case, depending upon the Company’s leverage ratio. In addition, the Company is obligated to pay an annual fee equal to 0.35% of the amount of the unused portion of the Term Loans. The Company entered into interest rate swaps to fix the interest rates on the original Term Loan amounts drawn in 2017. On March 29, 2018, the Company borrowed the remaining $40.0 million , in equal amounts, available under its 5-Year and 7-Year Term Loans, repaid $40.0 million of its Revolving Credit Facility, and concurrently entered into interest rate swap agreements that fixed the interest rates on the additional $40.0 million drawn, resulting in fixed interest rates under the Term Loans ranging from 4.5790% to 4.6255% . See Note 7 for more details on the interest rate swaps. At September 30, 2018 , the Company had drawn the full $100.0 million under the Term Loans which had a fixed weighted average interest rate under the swaps of approximately 4.45% .

The Company’s ability to borrow under the Credit Facility is subject to its ongoing compliance with a number of customary affirmative and negative covenants, including limitations with respect to liens, indebtedness, distributions, mergers, consolidations, investments, restricted payments and asset sales, as well as financial maintenance covenants. Also, the Company’s present financing policy prohibits incurring debt (secured or unsecured) in excess of 40% of its total book capitalization. The Company was in compliance with its financial covenants under its Credit Facility as of September 30, 2018 .

Note 7. Derivative Financial Instruments

Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.


14
Notes to Condensed Consolidated Financial Statements - Continued

Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and/or caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract.

As of September 30, 2018 , the Company had four outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk for notional amounts totaling $100.0 million . The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 .

Asset Derivatives Fair Value at
September 30, 2018
December 31, 2017
Balance Sheet Classification
Interest rate swaps
$
2,612

$
258

Other assets

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified to interest expense in the period that the hedged forecasted transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s Term Loans. During the next twelve months, the Company estimates that an additional $0.3 million will be reclassified from other comprehensive income ("OCI") as a decrease to interest expense.

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and nine months ended September 30, 2018 and 2017 .

Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in thousands)
2018
2017
2018
2017
Amount of unrealized gain (loss) recognized in OCI on derivative
$
527

$
(74
)
$
2,152

$
(672
)
Amount of loss reclassified from accumulated OCI into interest expense
$
46

$
124

$
201

$
286

Total Interest Expense presented in the Condensed Consolidated Statements of Income in which the effects of the cash flow hedges are recorded
$
1,643

$
1,091

$
4,482

$
2,897


Note 8. Stockholders’ Equity

Common Stock
The following table provides a reconciliation of the beginning and ending common stock balances for the nine months ended September 30, 2018 and for the year ended December 31, 2017 :

15
Notes to Condensed Consolidated Financial Statements - Continued

Nine Months Ended
September 30, 2018
Year Ended
December 31, 2017
Balance, beginning of period
18,085,798

12,988,482

Issuance of common stock
234,000

4,887,500

Restricted stock-based awards
214,004

209,816

Balance, end of period
18,533,802

18,085,798


ATM Program
On August 7, 2018, the Company entered into an at-the-market offering program ("ATM Program") with Sandler O’Neill & Partners, L.P., Evercore Group L.L.C., SunTrust Robinson Humphrey, Inc., BB&T Capital Markets, a division of BB&T Securities, LLC, Fifth Third Securities, Inc. and Janney Montgomery Scott LLC, as sales agents (collectively, the “Agents”), under which the Company may issue and sell shares of its common stock, par value $0.01 per share (the “Common Stock”), having an aggregate gross sales price of up to $100.0 million (the “Shares”) from time to time through or to one or more of the Agents, as may be determined by the Company in its sole discretion, subject to the terms and conditions of the Agreement and applicable law.

During the third quarter of 2018 , the Company issued, through its ATM Program, 234,000 shares of common stock at an average gross sales price of $31.17 per share and received net proceeds of approximately $7.1 million . As of September 30, 2018, the Company had approximately $92.7 million remaining that may be issued under the ATM Program.

Equity Offering
On July 26, 2017, the Company completed a public offering of 4,887,500 shares of its common stock, including 637,500 shares of common stock issued in connection with the exercise in full of the underwriters' option to purchase additional shares, and received net proceeds of approximately $108.7 million after deducting underwriting discount and commissions and offering expenses paid by the Company.

Note 9. Net Income Per Common Share

The following table sets forth the computation of basic and diluted net income per common share.



Three Months Ended
September 30, 2018
Nine Months Ended
September 30, 2018
(Dollars in thousands, except per share data)
2018
2017
2018
2017
Net income
$
1,999

$
579

$
6,288

$
1,958

Participating securities' share in earnings
(287
)
(200
)
(769
)
(526
)
Net income, less participating securities' share in earnings
$
1,712

$
379

$
5,519

$
1,432

Weighted average Common Shares outstanding
Weighted average Common Shares outstanding
18,330,340

16,719,150

18,228,006

14,319,231

Unvested restricted shares
(660,659
)
(477,164
)
(532,318
)
(434,755
)
Weighted average Common Shares outstanding–Basic
17,669,681

16,241,986

17,695,688

13,884,476

Dilutive potential common shares
—

—

—

—

Weighted average Common Shares outstanding –Diluted
17,669,681

16,241,986

17,695,688

13,884,476

Basic Net Income per Common Share
$
0.10

$
0.02

$
0.31

$
0.10

Diluted Net Income per Common Share
$
0.10

$
0.02

$
0.31

$
0.10



16

Note 10. Incentive Plan

Under the Company's 2014 Incentive Plan, as amended, awards may be made in the form of restricted stock, cash or a combination of both. Compensation expense recognized from the amortization of the value of the Company's officer, employee and director shares over the applicable vesting periods during the three months ended September 30, 2018 and 2017 was approximately $0.7 million and $0.4 million , respectively, and during the nine months ended September 30, 2018 and 2017 was approximately $2.1 million and $1.1 million , respectively. Amortization expense in the second quarter of 2018 included approximately $0.2 million related to fully-amortized shares previously granted to a board member who did not stand for re-election to the Company's board.

A summary of the activity under the 2014 Incentive Plan for the three and nine months ended September 30, 2018 and 2017 is included in the table below.
Three Months Ended September 30,
Nine Months Ended
September 30,
2018
2017
2018
2017
Stock-based awards, beginning of period
609,660

434,980

512,115

302,299

Stock in lieu of compensation
17,420

16,452

69,767

80,580

Stock awards
82,407

60,683

144,237

129,236

Total stock granted
99,827

77,135

214,004

209,816

Vested shares
—

—

(16,632
)
—

Stock-based awards, end of period
709,487

512,115

709,487

512,115


Note 11. Other Assets

Items included in Other assets, net on the Company's Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 are detailed in the table below.

Balance as of
(Dollars in thousands)
September 30, 2018
December 31, 2017
Notes receivable
$
28,034

$
13,917

Accounts and interest receivables
4,494

2,417

Straight-line rent receivables
3,208

2,179

Allowance for doubtful accounts
(250
)
(293
)
Prepaid assets
623

341

Deferred financing costs, net
452

618

Leasing commissions, net
560

483

Deferred tax asset
581

478

Fair value of interest rate swaps
2,612

258

Other
397

255

$
40,711

$
20,653


The Company's $28.0 million in notes receivable at September 30, 2018 include mainly the following notes. Interest related to these notes is included in Other Operating Income on the Company's Condensed Consolidated Statements of Income.


17

•
During 2017, concurrent with the acquisition of a property, the Company entered into a $5.0 million note receivable with the tenant in the building. The $5.0 million note receivable, which matures on September 27, 2022, currently bears interest at 12% per annum, increasing through the maturity date to 16% per annum, and payments aggregating approximately $1.9 million are due each year until maturity with the remaining amount due at maturity.

•
On April 25, 2018, the Company provided a $23.0 million loan to a newly formed company (Newco), secured by all assets and ownership interests in seven long-term acute care hospitals and one inpatient rehabilitation hospital that, along with a series of investments by the management of Newco, allowed Newco to acquire certain assets of the Borrower. The loan, which matures on May 1, 2031, currently bears interest at 9% per annum, with principal payments beginning in May 2021. See Note 5 for more details.

The Company identified the borrowers of these notes as variable interest entities ("VIEs"), but management determined that the Company was not the primary beneficiary of the VIEs because we lack either directly or through related parties any material impact in the activities that impact the borrowers' economic performance. We are not obligated to provide support beyond our stated commitment to the borrowers, and accordingly our maximum exposure to loss as a result of this relationship is limited to the amount of our outstanding notes receivable. The VIEs that we have identified at September 30, 2018 are summarized in the table below.

Classification
Carrying Amount
(in millions)
Maximum Exposure to Loss
(in millions)
Note receivable
$
5.0

$
5.0

Note receivable
$
23.0

$
23.0


Note 12. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate the fair value.

Cash and cash equivalents - The carrying amount approximates the fair value.

Mortgage note receivable - The fair value was estimated using cash flow analyses, based on an assumed market rate of interest or at a rate consistent with the rates on mortgage notes acquired by the Company and are classified as level 2 in the hierarchy.

Notes receivable - The fair value is estimated using cash flow analyses, based on an assumed market rate of interest or at a rate consistent with the rates on notes carried by the Company and are classified as level 2 in the hierarchy.

Borrowings under our Credit Facility - The carrying amount approximates the fair value because the borrowings are based on variable market interest rates.

Interest rate swaps - The fair value is estimated using discounted cash flow techniques. These techniques incorporate primarily level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate swaps are observable in active markets and are classified as level 2 in the hierarchy.

The table below details the fair values and carrying values for our mortgage note and notes receivable and interest rate swaps at September 30, 2018 and December 31, 2017 , using level 2 inputs.


18

September 30, 2018
December 31, 2017
(Dollars in thousands)
Carrying Value
Fair Value
Carrying Value
Fair Value
Mortgage note receivable
$
—

$
—

$
10,633

$
10,633

Notes receivable
$
28,034

$
28,032

$
13,917

$
13,828

Interest rate swap asset
$
2,612

$
2,612

$
258

$
258


Note 13. Subsequent Events

Dividend Declared
On November 1, 2018 , the Company’s Board of Directors declared a quarterly common stock dividend in the amount of $0.4050 per share. The dividend is payable on November 30, 2018 to stockholders of record on November 16, 2018 .

Subsequent Disposition
On October 29, 2018, the Company disposed of a 61,000 square foot physician clinic in Winfield, Alabama and received net proceeds of approximately $3.2 million . The Company received the tenant's notice of its intent to exercise the purchase option in October 2018. The Company expects to recognize a gain on this transaction.

19

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosure Regarding Forward-Looking Statements
This report and other materials that Community Healthcare Trust Incorporated (the "Company") has filed or may file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “believes”, “expects”, “may”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, “anticipates” or other similar words or expressions, including the negative thereof. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections or other forward-looking information. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. Because forward-looking statements relate to future events, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. Thus, the Company’s actual results and financial condition may differ materially from those indicated in such forward-looking statements. Some factors that might cause such a difference include the following: general volatility of the capital markets and the market price of the Company’s common stock, changes in the Company’s business strategy, availability, terms and deployment of capital, the Company’s ability to refinance existing indebtedness at or prior to maturity on favorable terms, or at all, changes in the real estate industry in general, interest rates or the general economy, adverse developments related to the healthcare industry, the degree and nature of the Company’s competition, the ability to consummate acquisitions under contract and the other factors described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and the Company’s other filings with the Securities and Exchange Commission from time to time. Readers are therefore cautioned not to place undue reliance on the forward-looking statements contained herein which speak only as of the date hereof. The Company intends these forward-looking statements to speak only as of the time of this report and the Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law.

The purpose of this Management's Discussion and Analysis ("MD&A") is to provide an understanding of the Company's consolidated financial condition, results of operations and cash. MD&A is provided as a supplement to, and should be read in conjunction with, the Company's Condensed Consolidated Financial Statements and accompanying notes.

Overview
References such as "we," "us," "our," and "the Company" mean Community Healthcare Trust Incorporated, a Maryland corporation, and its consolidated subsidiaries.

We were organized in the State of Maryland on March 28, 2014. We are a self-administered, self-managed healthcare real estate investment trust, or REIT, that acquires and owns properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers in our target submarkets.


Trends and Matters Impacting Operating Results

Management monitors factors and trends that it believes are important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company. Certain of the factors and trends that management believes may impact the operations of the Company are discussed below.


20

Real estate acquisitions

During the third quarter of 2018, the Company acquired two real estate properties totaling approximately 37,000 square feet for an aggregate purchase price and cash consideration of approximately $6.7 million . Upon acquisition, the properties were 93.4% leased in the aggregate with lease expirations ranging from 2021 through 2023 .

During the second quarter of 2018, the Company acquired three real estate properties totaling approximately 68,000 square feet for an aggregate purchase price of approximately $11.7 million , including cash consideration of approximately $7.3 million and $4.5 million fair value of real estate received in foreclosure. Upon acquisition, two of the properties were 100% leased in the aggregate with lease expirations ranging from 2020 through 2026 , and one property previously secured a mortgage note receivable held by the Company.

During the first quarter of 2018, the Company acquired three real estate properties totaling approximately 38,000 square feet for an aggregate purchase price and cash consideration of approximately $12.7 million . Upon acquisition, the properties were 100% leased in the aggregate with lease expirations ranging from 2018 through 2033 .

See Note 4 to the Condensed Consolidated Financial Statements for more details on these acquisitions.

Acquisition Pipeline

The Company has 11 properties under definitive purchase agreements for an aggregate expected purchase price of approximately $24.0 million. The Company's expected aggregate returns on these investments range from approximately 9.0% to 9.5%. The Company anticipates the properties will close during the fourth quarter of 2018. However, the Company is currently performing due diligence procedures customary for these types of transactions and cannot provide assurance as to the timing of when, or whether, the transaction will actually close.

The Company also has five properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $103.0 million. The Company's expected aggregate returns on these investments range from approximately 9.4% to 11.0%. The Company expects to close these properties through the end of 2019; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close.

The Company anticipates funding these investments with cash from operations, through proceeds from its Credit Facility or from net proceeds from additional debt or equity offerings.

Leased square footage

As of September 30, 2018 , our real estate portfolio was approximately 89.3% leased. During the first nine months of 2018 , we had expiring or terminated leases related to approximately 73,000 square feet and leased or renewed leases relating to approximately 167,000 square feet.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a material effect on the Company's consolidated financial condition, results of operations or liquidity.

Inflation

We believe inflation will have a minimal impact on the operating performance of our properties. Many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation. These provisions include clauses that enable us to receive payment of increased rent pursuant to escalation clauses which generally increase rental rates during the terms of the leases. These escalation clauses often provide for fixed rent increases or indexed escalations (based upon the Consumer Price Index or other measures). However, some of these contractual rent

21

increases may be less than the actual rate of inflation. Generally, our lease agreements require the tenant to pay property operating expenses, including maintenance costs, real estate taxes and insurance. This requirement reduces our exposure to increases in these costs and property operating expenses resulting from inflation.

Seasonality

We do not expect our business to be subject to material seasonal fluctuations.

New Accounting Pronouncements

See Note 1 to the Company’s Condensed Consolidated Financial Statements accompanying this report for information on new accounting standards not yet adopted.

Results of Operations

The Company's results of operations for the three and nine months ended September 30, 2018 compared to the same period in 2017 have most significantly been impacted by its real estate acquisitions. As of September 30, 2018 and 2017 , the Company had investments in real estate properties, and a mortgage note in 2017, totaling approximately $424.2 million and $358.0 million, respectively.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

The table below shows our results of operations for the three months ended September 30, 2018 compared to the same period in 2017 and the effect of changes in those results from period to period on our net income.

Three Months Ended September 30,
Increase (Decrease) to
Net Income
(dollars in thousands)
2018
2017
$
%
REVENUES
Rental income
$
10,225

$
8,012

$
2,213

27.6
%
Tenant reimbursements
1,701

1,158

543

46.9
%
Mortgage interest
—

255

(255
)
(100.0
)%
Other operating interest
679

19

660

n/m

12,605

9,444

3,161

33.5
%
EXPENSES
Property operating
2,627

2,225

(402
)
(18.1
)%
General and administrative
1,395

1,069

(326
)
(30.5
)%
Depreciation and amortization
4,925

4,544

(381
)
(8.4
)%
Bad debts
68

—

(68
)
—
%
9,015

7,838

(1,177
)
(15.0
)%
OTHER INCOME (EXPENSE)
Interest expense
(1,643
)
(1,091
)
(552
)
(50.6
)%
Other income
52

64

(12
)
18.8
%
(1,591
)
(1,027
)
(564
)
(54.9
)%
NET INCOME
$
1,999

$
579

$
1,420

245.3
%
__________
n/m-not meaningful.


22

Revenues

Revenues increased approximately $3.2 million , or 33.5% , for the three months ended September 30, 2018 compared to the same period in 2017 due mainly to acquisitions of real estate and interest on notes receivable.

Expenses

Property operating expenses increased approximately $0.4 million , or 18.1% , for the three months ended September 30, 2018 compared to the same period in 2017 mainly due to acquisitions of real estate.

General and administrative expenses increased approximately $0.3 million , or 30.5% , for the three months ended September 30, 2018 compared to the same period in 2017 due mainly to compensation-related expenses and occupancy costs related to our employees, including the amortization of non-vested restricted common shares issued under our 2014 Incentive Plan, as amended, and expenses related to the addition of employees.

Depreciation and amortization expense increased approximately $0.4 million , or 8.4% , for the three months ended September 30, 2018 compared to the same period in 2017 due mainly to acquisitions which accounted for an increase of approximately $1.1 million, offset by a decrease of approximately $0.8 million in amortization due to fully depreciated real estate lease intangibles which generally have a shorter depreciable life than a building.

Interest expense

Interest expense increased approximately $0.6 million , or 50.6% , for the three months ended September 30, 2018 compared to the same period in 2017 due mainly to the Company's borrowings under its Term Loans under the Company's Credit Facility. The Company borrowed $60.0 million in Term Loans in the first quarter of 2017 and borrowed the remaining $40.0 million in Term Loans in the first quarter of 2018 which are at higher interest rates than the Revolving Credit Facility repaid with the Term Loan proceeds. The Company's weighted average debt balance and weighted average interest rate on the revolving credit facility were also higher in the third quarter of 2018 compared to the same period in 2017.


23

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

The table below shows our results of operations for the nine months ended September 30, 2018 compared to the same period in 2017 and the effect of changes in those results from period to period on our net income.

Nine Months Ended September 30,
Increase (Decrease) to
Net Income
(dollars in thousands)
2018
2017
$
%
REVENUES
Rental income
$
30,080

$
21,968

$
8,112

36.9
%
Tenant reimbursements
4,731

3,620

1,111

30.7
%
Mortgage interest
—

774

(774
)
(100.0
)%
Other operating interest
1,625

19

1,606

n/m

36,436

26,381

10,055

38.1
%
EXPENSES
Property operating
7,497

6,103

(1,394
)
(22.8
)%
General and administrative
4,092

2,674

(1,418
)
(53.0
)%
Depreciation and amortization
14,471

12,749

(1,722
)
(13.5
)%
Bad debts
68

67

(1
)
(1.5
)%
26,128

21,593

(4,535
)
(21.0
)%
OTHER INCOME (EXPENSE)
Interest expense
(4,482
)
(2,897
)
(1,585
)
54.7
%
Other income
462

67

395

n/m

(4,020
)
(2,830
)
(1,190
)
42.0
%
NET INCOME
$
6,288

$
1,958

$
4,330

221.1
%
__________
n/m-not meaningful.

Revenues

Revenues increased approximately $10.1 million , or 38.1% , for the nine months ended September 30, 2018 compared to the same period in 2017 due mainly to acquisitions of real estate and interest on notes receivable.
Expenses

Property operating expenses increased approximately $1.4 million , or 22.8% , for the nine months ended September 30, 2018 compared to the same period in 2017 mainly due to acquisitions of real estate which increased property operating expenses by approximately $1.2 million and increases in property taxes and maintenance and repairs on the remaining portfolio of approximately $0.2 million.

General and administrative expenses increased approximately $1.4 million , or 53.0% , for the nine months ended September 30, 2018 compared to the same period in 2017 due mainly to compensation-related expenses and occupancy costs related to our employees, including the amortization of non-vested restricted common shares issued under our 2014 Incentive Plan, as amended, and expenses related to the addition of employees.

Depreciation and amortization expense increased approximately $1.7 million , or 13.5% , for the nine months ended September 30, 2018 compared to the same period in 2017 due mainly to acquisitions which accounted for an increase of approximately $3.1 million, offset by a decrease in amortization of approximately $1.4 million due to fully depreciated real estate lease intangibles which generally have a shorter depreciable life than a building.

24


Interest expense

Interest expense increased approximately $1.6 million , or 54.7% , for the nine months ended September 30, 2018 compared to the same period in 2017 due mainly to the Company's borrowings under its Term Loans under the Company's Credit Facility. The Company borrowed $60.0 million in Term Loans in the first quarter of 2017 and borrowed the remaining $40.0 million in Term Loans in the first quarter of 2018 which are at higher interest rates than the Revolving Credit Facility repaid with the Term Loan proceeds.


Funds from Operations

Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.”

Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, management believes FFO and FFO per share to be supplemental measures of a REIT’s performance because they provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO and FFO per share can facilitate comparisons of operating performance between periods. The Company reports FFO and FFO per share because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because FFO per share is consistently reported, discussed, and compared by research analysts in their notes and publications about REITs. For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share. However, FFO does not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income attributable to common stockholders as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.

25


The table below reconciles FFO to net income for the three and nine months ended September 30, 2018 and 2017 , respectively.
Three Months Ended
September 30,
Nine Months Ended September 30,
(Dollars in thousands, excepts per share amounts)
2018
2017
2018
2017
Net income
$
1,999

$
579

6,288

$
1,958

Real estate depreciation and amortization
4,918

4,539

14,453

12,736

Total adjustments
4,918

4,539

14,453

12,736

Funds from Operations
$
6,917

$
5,118

$
20,741

$
14,694

Funds from Operations per Common Share-Basic
$
0.39

$
0.32

$
1.17

$
1.06

Funds from Operations per Common Share-Diluted
$
0.39

$
0.31

$
1.16

$
1.05

Weighted Average Common Shares Outstanding-Basic
17,669,681

16,241,986

17,695,688

13,884,476

Weighted Average Common Shares Outstanding-Diluted (1)
17,947,568

16,401,718

17,839,014

14,035,185


(1) Diluted weighted average common shares outstanding for FFO are calculated based on the treasury method, rather than the 2-class method used to calculate earnings per share.

Liquidity and Capital Resources

The Company monitors its liquidity and capital resources and relies on several key indicators in its assessment of capital markets for financing acquisitions and other operating activities as needed, including the following:

•
Leverage ratios and financial covenants included in our Credit Facility;

•
Dividend payout percentage; and

•
Interest rates, underlying treasury rates, debt market spreads and equity markets.

The Company uses these indicators and others to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.

Sources and Uses of Cash

The Company derives most of its revenues from its real estate property and notes portfolio (including mortgage), collecting rental income, operating expense reimbursements and interest based on contractual arrangements with its tenants and borrowers. These sources of revenue represent our primary source of liquidity to fund our dividends, general and administrative expenses, property operating expenses, interest expense on our Credit Facility and other expenses incurred related to managing our existing portfolio and investing in additional properties. To the extent additional resources are needed, the Company will fund its investment activity generally through equity or debt issuances either in the public or private markets or through proceeds from our Credit Facility.

The Company expects to meet its liquidity needs through cash on hand, cash flows from operations and cash flows from sources discussed above. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

The Company's Credit Facility provides for a $150.0 million Revolving Credit Facility and $100.0 million in Term Loans, as well as an accordion feature which allows borrowings up to a total of $450.0 million , including the ability to add and fund additional term loans. Note 6 to the Condensed Consolidated Financial Statements provides more details on the Company's Credit Facility. At September 30, 2018 , the Company had borrowed $100.0 million in

26

Term Loans and had $28.0 million outstanding under the Revolving Credit Facility with a remaining borrowing capacity of $122.0 million . At September 30, 2018 , our debt to total book capitalization ratio was approximately 31.3% .

Acquisition Pipeline

The Company has 11 properties under definitive purchase agreements for an aggregate expected purchase price of approximately $24.0 million. The Company's expected aggregate returns on these investments range from approximately 9.0% to 9.5%. The Company anticipates the properties will close during the fourth quarter of 2018. However, the Company is currently performing due diligence procedures customary for these types of transactions and cannot provide assurance as to the timing of when, or whether, the transaction will actually close.

The Company also has five properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $103.0 million. The Company's expected aggregate returns on these investments range from approximately 9.4% to 11.0%. The Company expects to close these properties through the end of 2019; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close.

The Company anticipates funding these investments with cash from operations, through proceeds from its Credit Facility or from net proceeds from additional debt or equity offerings.

Universal Shelf S-3 Registration Statement

The Company has approximately $628.1 million remaining to be issued under its Form S-3 registration statement filed on September 13, 2016 with the Securities and Exchange Commission, and declared effective on September 26, 2016. The registration statement allows us to offer debt or equity securities (or a combination thereof) from time to time.

ATM Program

During the third quarter of 2018 , the Company issued, through its ATM Program, 234,000 shares of common stock at an average gross sales price of $31.17 per share and received net proceeds of approximately $7.1 million , as discussed in more detail in Note 8 to the Condensed Consolidated Financial Statements. The proceeds were used to repay outstanding balances under the Company's Credit Facility and for general corporate purposes.

Operating Activities

Cash flows provided by operating activities for the nine months ended September 30, 2018 and 2017 were approximately $17.9 million and $15.4 million , respectively. Cash flows provided by operating activities were generally provided by contractual rents, net of expenses, on our real estate property portfolio.

Investing Activities

Cash flows used in investing activities for the nine months ended September 30, 2018 and 2017 were approximately $38.0 million and $98.7 million , respectively. During the nine months ended September 30, 2018 , the Company invested in eight properties for an aggregate cash consideration of approximately $26.8 million and $4.5 million fair value of real estate received in foreclosure. In addition, the Company acquired $2.2 million of certain promissory notes secured by two facilities related to its Borrower, discussed in more detail in Note 5 to the Condensed Consolidated Financial Statements. During the nine months ended September 30, 2017 , the Company invested in 22 properties for an aggregate purchase price of approximately $93.0 million , including approximately $92.6 million in cash consideration. The Company also acquired a property, adjacent to its corporate office, for a cash purchase price of approximately $0.9 million . The property is currently leased to a tenant but the Company intends to use the property for future expansion of its corporate office.


27

Financing Activities

Cash flows provided by financing activities for the nine months ended September 30, 2018 and 2017 were approximately $19.0 million and $99.2 million , respectively. During the nine months ended September 30, 2018 , the Company borrowed the remaining $40.0 million under its Term Loans, had net repayments on its Revolving Credit Facility of $6.0 million , received net proceeds under its at-the-market equity offering program of approximately $7.1 million , and paid dividends totaling $21.9 million . During the nine months ended September 30, 2017 , the Company amended its Credit Facility, borrowed $60.0 million in Term Loans, had net repayments on its Revolving Credit Facility of $51.0 million, paid dividends totaling $17.3 million , and completed an equity offering for net proceeds of approximately $108.7 million . The net proceeds from the equity offering were partially used to repay $58.0 million outstanding under the Company's Revolving Credit Facility.

Security Deposits

As of September 30, 2018 , the Company held approximately $2.5 million in security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon the security deposits if there are any defaults under the leases.

Dividends

The Company is required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to maintain its qualification as a REIT.

On November 1, 2018 , the Company’s Board of Directors declared a quarterly common stock dividend in the amount of $0.4050 per share. The dividend is payable on November 30, 2018 to stockholders of record on November 16, 2018 . This rate equates to an annualized dividend of $1.62 per share.

On August 31, 2018, the Company paid a cash dividend in the amounts of $0.4025 per share to shareholders of record on August 17, 2018.

On June 1, 2018, the Company paid a cash dividend in the amount of $0.40 per share to shareholders of record on May 18, 2018.

On March 2, 2018, the Company paid a cash dividend in the amount of $0.3975 per share to shareholders of record on February 16, 2018.

The ability of the Company to pay dividends is dependent upon its ability to generate cash flows and to make accretive new investments.


28

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We may use certain derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings. We will not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. An interest rate swap is a contractual agreement entered into by two counterparties under which each agrees to make periodic payments to the other for an agreed period of time based on a notional amount of principal. Under the most common form of interest rate swap, known from our perspective as a floating-to-fixed interest rate swap, a series of floating, or variable, rate payments on a notional amount of principal is exchanged for a series of fixed interest rate payments on such notional amount.


ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on this evaluation, Company’s management has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports it files or submits under the Exchange Act.

Changes In Internal Control Over Financial Reporting
There were no changes in our system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION


ITEM 1.    LEGAL PROCEEDINGS

The Company may, from time to time, be involved in litigation arising in the ordinary course of business or which may be expected to be covered by insurance. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.


ITEM 1A.    RISK FACTORS

In addition to the other information set forth in this quarterly report, an investor should consider the risk factors included in its Annual Report on Form 10-K for the year ended December 31, 2017 , and other reports that may be filed by the Company.


ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


29


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.   MINE SAFETY DISCLOSURES

None.

ITEM 5.   OTHER INFORMATION

None.
ITEM 6.    EXHIBITS
The exhibits required by Item 601 of Regulation S-X which are filed with this report are listed in the Exhibit Index and are hereby incorporated in by reference.



30

EXHIBIT INDEX
Exhibit
Number
Description
3.1
3.2
10.1
31.1 *
31.2 *
32.1 **
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

(1)
Filed as Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form S-11 of the Company filed with the Securities and Exchange Commission on May 6, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(2)
Filed as Exhibit 3.2 to the Registration Statement on Form S-11 of the Company filed with the Securities and Exchange Commission on April 2, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(3)
Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on August 7, 2018.
_________
*
Filed herewith.
**
Furnished herewith.




31

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 6, 2018
COMMUNITY HEALTHCARE TRUST INCORPORATED
By:
/s/ Timothy G. Wallace
Timothy G. Wallace
Chief Executive Officer and President
By:
/s/ W. Page Barnes
W. Page Barnes
Executive Vice President and Chief Financial Officer

32
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 1. Summary Of Significant Accounting PoliciesNote 2. Real Estate InvestmentsNote 3. Real Estate LeasesNote 4. Real Estate AcquisitionsNote 5. Mortgage and Other Notes ReceivableNote 6. Debt, NetNote 7. Derivative Financial InstrumentsNote 8. Stockholders EquityNote 9. Net Income Per Common ShareNote 10. Incentive PlanNote 11. Other AssetsNote 12. Fair Value Of Financial InstrumentsNote 13. Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits

Exhibits

3.1 Corporate Charter of Community Healthcare Trust Incorporated, as amended (1) 3.2 Bylaws of Community Healthcare Trust Incorporated, as amended (2) 10.1 Sales Agency Agreement, dated August 7, 2018, by and among Community Healthcare Trust Incorporated and Sandler O'Neill & Partners, L.P., Evercore Group L.L.C., SunTrust Robinson Humphrey, Inc., BB&T Capital Markets, a division of BB&T Securities, LLC, Fifth Third Securities, Inc. and Janney Montgomery Scott LLC, as sales agents (3) 31.1 * Certification of the Chief Executive Officer of Community Healthcare Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Rule 302 of the Sarbanes-Oxley Act of 2002 31.2 * Certification of the Chief Financial Officer of Community Healthcare Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Rule 302 of the Sarbanes-Oxley Act of 2002 32.1 ** Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002