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Section 1: 8-K (8-K)

mrt-8k_20171107.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 7, 2017

 

MEDEQUITIES REALTY TRUST, INC.

(Exact name of Registrant as Specified in Its Charter)

 

 

Maryland

001-37887

46-5477146

(State or Other Jurisdiction

of Incorporation)

(Commission File Number)

(IRS Employer

Identification No.)

 

 

 

3100 West End Avenue, Suite 1000

Nashville, TN

 

37203

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (615) 627-4710

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth company

 

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 Section 13(a) of the Exchange Act.



Item 2.02.  Results of Operations and Financial Condition.

On November 7, 2017, MedEquities Realty Trust, Inc. (the “Company”) issued a press release announcing its financial position as of September 30, 2017, results of operations for the three and nine months ended September 30, 2017 and other related information. Also on November 7, 2017, the Company made available on its website (www.medequities.com) a supplemental package, which contains information concerning the Company’s financial position as of September 30, 2017, results of operations for the three and nine months ended September 30, 2017 and other related information. Copies of such press release and supplemental package are furnished as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

In accordance with General Instructions B.2 and B.6 of Form 8-K, the information included in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing made by the Company under the Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 7.01.  Regulation FD Disclosure.

The disclosure contained in Item 2.02 is incorporated herein by reference.

Item 9.01.  Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit

Number

 

Description

 

 

 

99.1

 

Third quarter earnings press release, dated November 7, 2017

 

 

 

99.2

 

Third quarter 2017 supplemental package

 


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 hereunto duly authorized.

 

 

 

MedEquities Realty Trust, Inc.

 

 

 

 

Date: November 7, 2017

 

By:

/s/ Jeffery C. Walraven

 

 

 

Jeffery C. Walraven

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

mrt-ex991_6.htm

Exhibit 99.1

Contacts:

 

 

Jeff Walraven

 

Tripp Sullivan

EVP & Chief Financial Officer

 

SCR Partners

(615) 627-4712

 

(615) 760-1104

IR@medequities.com

 

MEDEQUITIES REALTY TRUST REPORTS THIRD QUARTER 2017 RESULTS

 

NASHVILLE, Tenn., November 7, 2017 – MedEquities Realty Trust, Inc. (NYSE: MRT) (the “Company”) today announced its consolidated financial results for the quarter ended September 30, 2017 and other recent developments. A comparison of the reported amounts per share for the third quarter of 2017 to prior-year periods has been affected by an increase in the common stock outstanding resulting from the completion of, and the use of proceeds from, the Company’s initial public offering (the “IPO") in October 2016, as discussed below.

 

Highlights

 

Closed on the acquisition of six facilities and funding of one new mortgage note receivable for aggregate new investments of $46.7 million at a weighted average initial yield of approximately 9.0% in three separate transactions during the third quarter of 2017.

 

Originated a construction mortgage note receivable with a total funding commitment of $6.0 million in October 2017 secured by a behavioral health facility under development.

 

Exercised in November 2017 the option to purchase for $17.5 million an acute care hospital in Houston, Texas that currently serves as collateral for a $12.5 million mortgage note receivable, which will be applied to the purchase price along with an additional $5.0 million in cash consideration.

 

Reported results for the third quarter of 2017 attributable to common stockholders of net income of $0.17 per diluted common share and Funds from Operations (“FFO”) and Adjusted FFO (“AFFO”) of $0.29 per diluted common share.

 

Updated guidance for 2017 results attributable to common stockholders of net income of $0.64 to $0.65 per diluted common share, FFO of $1.11 to $1.13 per diluted common share and AFFO of $1.12 to $1.14 per diluted common share.

 

Declared a regular cash dividend of $0.21 per share for the third quarter of 2017.

 

John W. McRoberts, the Company’s Chief Executive Officer and Chairman, noted, “We have maintained an active investment pace since mid-year with a further expansion into the behavioral health space and additional commitments to existing operators. This activity has positioned us to deliver on our financial outlook for the year. While the impact from the hurricane in Texas delayed some of the more immediate investments planned for the quarter, we expect to reach our investment goals by year end with opportunities in both the acute and post-acute sectors.”

 

Financial Results for the Third Quarter of 2017

 

The completion of the IPO in October 2016 provided the Company with a meaningfully different and simplified capital structure compared to the prior-year periods.  The IPO net proceeds were used to redeem all outstanding preferred stock, including a $6.3 million redemption premium, and pay down borrowings on the Company’s secured credit facility.

 

The Company believes the use of IPO proceeds and related higher share count, combined with the impact from the replacement of the tenant at Lakeway Hospital with Baylor Scott & White Health effective September 1, 2016, makes year-over-year comparisons less meaningful, particularly on a per share basis.

 

 


 

Net income attributable to common stockholders for the quarter ended September 30, 2017 was $5.3 million, or $0.17 per diluted common share, compared with net income attributable to common stockholders of $1.4 million, or $0.12 per diluted common share, for the same period in 2016.  Consolidated total revenues for the quarter ended September 30, 2017 were $15.8 million, compared with $13.8 million for the same period in 2016. Total revenues for the quarter ended September 30, 2017 increased approximately $1.3 million as a result of the Company’s real estate investment activities since the end of the third quarter of 2016.  Total revenues were also favorably impacted by $0.4 million in additional rental income related to the Fundamental Healthcare lease modifications that occurred in the second quarter of 2017 and $0.3 million of additional straight-line rent revenue recognized under the current lease at Lakeway Hospital.

 

FFO for the quarter ended September 30, 2017 was $9.2 million, or $0.29 per diluted common share, compared with $5.0 million, or $0.45 per diluted common share, for the same period in 2016. The $4.2 million increase is primarily the result of higher total revenues of $1.8 million, a decrease in interest expense of $0.7 million and the elimination of $2.5 million of preferred stock dividends upon completion of the IPO, partially offset by an increase in general and administrative expenses of $0.6 million.

 

AFFO for the quarter ended September 30, 2017 was $9.0 million, or $0.29 per diluted common share, compared with $5.2 million, or $0.47 per diluted share, for the same period in 2016, primarily as a result of the elimination of the preferred stock dividends, and an increase in total revenues, excluding the effects of straight-line rent, of $1.3 million.

 

Investment Activity

 

As of September 30, 2017, the Company had gross real estate investments totaling approximately $575.2 million, which was comprised of $546.0 million in 31 healthcare facilities and $29.2 million in three mortgage notes receivable collateralized by existing healthcare facilities and redevelopment real estate.

 

During the third quarter of 2017, the Company invested $46.7 million in the following transactions:

 

 

On July 31, 2017, the Company acquired two skilled nursing facilities totaling 160 beds in Indiana from Magnolia Health Systems for an aggregate purchase price of $15.0 million in cash. The Company leased Brookville Healthcare Center in Brookville, Indiana and Whitewater Commons Senior Living Center in Liberty, Indiana to Magnolia pursuant to a 15-year, triple-net master lease at an initial lease rate of 9.0% with annual escalators.

 

On August 1, 2017, the Company funded a $6.7 million mortgage note receivable to a subsidiary of Medistar Corporation, which is secured by land and an existing building in Webster, Texas.  Interest accrues at a rate of 10.0% per annum.  The borrower intends to redevelop the existing property into an integrated medical facility with approximately 48,000 rentable square feet with construction expected to commence in early 2018.  The Company may fund this redevelopment through a construction mortgage note receivable, which would replace the existing mortgage note receivable and may include an option to purchase the property upon satisfactory completion of the redevelopment.

 

On August 9, 2017, the Company acquired four behavioral health and substance abuse treatment facilities from subsidiaries of AAC Holdings, Inc. for an aggregate purchase price of $25.0 million in cash. The facilities are comprised of two standalone intensive outpatient treatment facilities in Las Vegas, Nevada and Arlington (Dallas), Texas; a 110-bed sober living facility in Las Vegas; and a 56-bed sober living facility in Arlington that is expected to expand to 131 beds in mid-2018. The Company leased these facilities to AAC pursuant to a 15-year, triple-net master lease at an initial lease rate of 8.75% with annual escalators.

 

Subsequent to the third quarter of 2017, the Company has invested or committed to invest approximately $11 million in the following transactions:

 

 

On October 10, 2017, the Company provided a commitment of up to $6.0 million at an interest rate of 8.25% to Sequel Youth and Family Services, a leading national provider of diversified behavioral health programs for children, adolescents and adults, to fund construction of a 63-bed, 28,000-square-foot residential treatment facility in Andersonville, Tennessee to replace an existing smaller facility in Norris, Tennessee. The commitment, of which $1.0 million was drawn at closing, is secured by a first mortgage on the new facility and a guarantee from the corporate parent. Construction is expected to be completed in

 

 


 

 

the second half of 2018. Upon completion, the Company has the option to purchase the new facility in a sale-leaseback transaction pursuant to a 15-year triple-net master lease at an initial lease rate of 9.0%. MedEquities also has the exclusive right to make an offer on all future Sequel real estate transactions.

 

In November 2017, the Company exercised its option and has agreed to acquire a 23,300 square foot acute care hospital that currently serves as collateral for a $12.5 million interest-only mortgage loan, for a purchase price of approximately $17.5 million.  The purchase price will be satisfied by applying the $12.5 million aggregate principal amount outstanding on the mortgage note plus $5.0 million in cash consideration. This transaction is expected to close in the fourth quarter of 2017, subject to customary closing conditions. Upon closing, the Company will lease the property to AD Hospital East, LLC pursuant to a 15-year triple net lease with two ten-year renewal options at an initial yield of 9.6%, with annual rent escalators. The lease will contain certain operator and personal guarantees, which are subject to future reduction based on maintaining certain minimum financial covenants, and will be secured by certain additional assets related to the hospital owned by the guarantor.

 

Quarterly Distributions to Common Stockholders

 

On November 1, 2017, the Company’s Board of Directors declared a cash dividend of $0.21 per share for the third quarter of 2017, which equates to an annualized dividend of $0.84 per share. The dividend will be paid on November 29, 2017 to stockholders of record as of November 15, 2017.

 

Guidance for 2017

For the year ending December 31, 2017, the Company has updated its previously issued guidance range for net income attributable to common stockholders to $0.64 to $0.65 per diluted common share and for FFO ($1.11 to $1.13 per diluted common share) and AFFO ($1.12 to $1.14 per diluted common share).

A reconciliation of projected net income attributable to common stockholders per diluted share to projected FFO and AFFO per diluted share is provided as follows:

 

 

Full Year

 

 

2017 Range

 

 

Low

 

High

Net income attributable to common stockholders

 

$

0.64

 

 

$

0.65

 

Add: Real estate depreciation & amortization, net of noncontrolling interest (1)

 

0.47

 

 

0.48

 

FFO attributable to common stockholders

 

1.11

 

 

1.13

 

Stock-based compensation expense

 

0.11

 

 

0.11

 

Deferred financing costs amortization

 

0.03

 

 

0.03

 

Straight-line rental income, net of noncontrolling interest

 

(0.15)

 

 

(0.15)

 

Other adjustments (2)

 

0.02

 

 

0.02

 

AFFO attributable to common stockholders

 

$

1.12

 

 

$

1.14

 

______________________________

(1) Includes $0.00 to $0.01 of real estate depreciation related to $80.5 million of assumed investments in the fourth quarter of 2017.

(2) Includes adjustments for non-real estate depreciation and straight-line rent expense.

The Company’s guidance for 2017 is based on the following assumptions:

 

Cash general and administrative expenses of $8.7 million to $8.9 million

 

Close a total of $150.0 million of investments in 2017

 

o

$69.6 million in investments were closed as of September 30, 2017

 

 


 

 

o

$80.5 million of investments are expected to close in the fourth quarter of 2017 with initial cash yields of 8.50% to 9.00%

 

o

Approximate per share impact of the $80.5 million of investments expected to close in the fourth quarter to each of net income, FFO and AFFO is $0.00 to $0.01

 

Interest expense of approximately $7.8 million to $8.1 million, including approximately $1.0 million in amortization of deferred financing costs

 

Weighted average diluted share count of 31.5 million

 

GruenePointe Holdings Update

 

The Company leases ten skilled nursing facilities (the “Texas SNF Portfolio”) to wholly owned subsidiaries of GruenePointe Holdings (collectively, the “GruenePointe Tenant”) pursuant to a triple-net master lease (the “Master Lease”), which is guaranteed by certain affiliates of the GruenePointe Tenant and is secured by certain collateral, each as further described below.  To date, the GruenePointe Tenant has made timely payments of monthly base rent and accounted for 24.1% of the Company’s consolidated total revenue for the nine months ended September 30, 2017.

 

While the GruenePointe Tenant has made timely all payments of monthly base rent, the Company has been monitoring a decline in the Texas SNF Portfolio rent coverage metrics throughout the first half of 2017.  With the finalization of its June 30, 2017 financial statement close processes, the GruenePointe Tenant was no longer in compliance with two financial covenants under the Master Lease—a minimum rent coverage ratio (aggregate EBITDAR to aggregate base rent of the GruenePointe Tenant) of 1.2 to 1.0 and a minimum fixed charge coverage ratio (aggregate EBITDAR to aggregate fixed charges of the GruenePointe Tenant) of 1.1 to 1.0, each of which is calculated on a trailing 12 month basis and reported one quarter in arrears and as such terms are defined in the Master Lease.  For the GruenePointe Tenant reporting period ended June 30, 2017, the rent and fixed charge coverage ratios were 1.06 to 1.0 and 0.90 to 1.0, respectively.  Rent coverage on an EBITDARM basis (which adds back to EBITDAR management fees that are contractually subordinated to rent payments) for the same reporting period was 1.36 to 1.0.  

 

With the Company’s review of operational and statistical results in conjunction with management meetings with GruenePointe Holdings, GruenePointe Holdings advised the Company that the failure to comply with the two financial covenants was primarily a result of the following:

 

 

lower patient census attributable to regional executive management’s inconsistencies in the quality of care being delivered, resulting in lower CMS survey results in certain facilities and the disruption of certain referral patterns; and

 

higher than expected costs from purchased services, primarily in therapy and pharmacy, and in contracted nursing labor.

Management of GruenePointe Holdings has also advised the Company in connection with the Company’s monitoring activities that they have put in place and are executing upon a plan specifically to address each of these operational matters, including:

 

 

The appointment of a new executive management team at the management company and the replacement of local administrators, Directors of Nursing and other clinical personnel at certain facilities.  The Company believes that the new management team has renewed and increased its focus on delivering quality outcomes and is creating a supporting, fully accountable corporate culture across the operational platform.  These initial steps appear to be yielding improvements in the portfolio, as reflected by the following information provided by GruenePointe Holdings in connection with the Company’s monitoring activities:

 

o

based on preliminary data, occupancy in the third quarter of 2017 is expected to increase to 79.6%, up from a low of 78.1% in the second quarter of 2017;  

 

o

the average number and the severity of survey deficiencies have declined in 2017 as compared to 2016;  

 

o

avoidable re-hospitalizations have trended positively over the past 12 months;

 

o

within the CMS star rating system, the average quality rating for the Texas SNF Portfolio increased to 3.3 stars as of September 30, 2017, up from 2.7 stars as of March 31, 2017--management of GruenePointe Holdings has

 

 


 

 

indicated that the reduction in the number and severity of deficiencies has helped drive better performance in the latest CMS surveys and that it expects additional improvements in the average CMS star ratings before the end of the year; and  

 

o

most recently, one facility achieved a survey with zero deficiencies;

 

the consolidation of corporate administrative operations into a centrally located office in Dallas;

 

negotiation of pricing with service providers particularly within contracted services for therapy and pharmacy; and

 

reduction in the utilization of contracted nursing labor.

The Company will continue to closely monitor the GruenePointe Tenant’s ongoing operations and believes that the efforts taken by the new management team will lead to continued improvement in patient census and reduce operating costs and return the portfolio to compliance with our lease coverage covenants.

 

The Company expects to grant a temporary waiver to the GruenePointe Tenant with respect to these two financial covenants for approximately 12 to 18 months, subject to its compliance with certain terms and conditions and additional operational and financial reporting requirements, in order to allow the GruenePointe Tenant time to execute its plans to improve quality of care and operational results. To date, the GruenePointe Tenant has maintained compliance with all other covenants and provisions of the Master Lease.

 

The Master Lease is unconditionally guaranteed by GruenePointe Holdings and is guaranteed by an affiliate of OnPointe Health (a privately owned operator of post-acute facilities that is one of the owners of GruenePointe Holdings and manages the operations of the Texas SNF Portfolio) in an amount up to one year of its management fee received from the Texas SNF Portfolio. In addition, the Master Lease is personally guaranteed by certain other owners of GruenePointe Holdings in an amount up to $6.0 million and is further secured by (i) a first priority pledge and security interest in the equity interests in the GruenePointe Tenant and (ii) the assignment and pledge of substantially all of the assets of the GruenePointe Tenant. The Master Lease also requires the GruenePointe Tenant to maintain security deposits in an amount equal to two months of rent.

 

Earnings Conference Call and Webcast

 

The Company will host a conference call and live audio webcast, both open for the general public to hear, on November 8, 2017 at 8:00 a.m. Central Time. The number to call for this interactive teleconference is (412) 542-4116. A replay of the call will be available through November 15, 2017 by dialing (412) 317-0088 and entering the replay access code, 10112949.

 

The live audio webcast of the Company’s quarterly conference call will be available online in the Investor Relations section of the Company’s website at ir.medequities.com. The online replay will be available approximately one hour after the end of the call and archived for approximately twelve months.

 

 

About MedEquities Realty Trust, Inc.

MedEquities Realty Trust (NYSE: MRT) is a self-managed and self-administered real estate investment trust that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. The Company’s management team has extensive industry experience in acquiring, owning, developing, financing, operating, leasing and monetizing many types of healthcare properties and portfolios. MedEquities’ strategy is to become an integral capital partner with high-quality and growth-oriented facility-based providers of healthcare services on a nationwide basis, primarily through net-leased real estate investment. For more information, please visit www.medequities.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about the Company’s 2017 guidance and related assumptions, strategic plans and objectives, potential property acquisitions and investments, anticipated capital expenditures (and access to capital), amounts of anticipated cash distributions to our stockholders in the future, the ability of the GruenePointe Tenant to improve its operating results and return to compliance with financial covenants under the Master Lease and other matters. Words such as “anticipates,” “expects,” “intends,”

 

 


 

“plans,” “believes,” “seeks,” “estimates,” “will” and variations of these words and other similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.  Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2017, and other documents filed by the Company with the SEC. You are cautioned to not place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results.


 

 


 

MedEquities Realty Trust, Inc.

 

Consolidated Balance Sheets

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Real estate properties

 

 

 

 

 

 

 

 

Land

 

$

42,250

 

 

$

39,584

 

Building and improvements

 

 

489,334

 

 

 

440,927

 

Intangible lease assets

 

 

11,387

 

 

 

11,387

 

Furniture, fixtures, and equipment

 

 

2,981

 

 

 

2,976

 

Less accumulated depreciation and amortization

 

 

(37,547

)

 

 

(26,052

)

Total real estate properties, net

 

 

508,405

 

 

 

468,822

 

 

 

 

 

 

 

 

 

 

Mortgage notes receivable, net

 

 

29,120

 

 

 

9,915

 

Cash and cash equivalents

 

 

7,264

 

 

 

9,509

 

Other assets, net

 

 

26,044

 

 

 

31,507

 

Total Assets

 

$

570,833

 

 

$

519,753

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt, net

 

$

206,782

 

 

$

144,000

 

Accounts payable and accrued liabilities

 

 

6,376

 

 

 

15,244

 

Deferred revenue

 

 

2,040

 

 

 

2,251

 

Total liabilities

 

 

215,198

 

 

 

161,495

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value. Authorized 400,000 shares; 31,756 and 31,757

   issued and outstanding at September 30, 2017 and December 31, 2016,

   respectively

 

 

314

 

 

 

314

 

Additional paid in capital

 

 

374,994

 

 

 

372,615

 

Dividends declared

 

 

(60,935

)

 

 

(40,951

)

Retained earnings

 

 

38,426

 

 

 

23,774

 

Accumulated other comprehensive loss

 

 

(8

)

 

 

-

 

Total MedEquities Realty Trust, Inc. stockholders' equity

 

 

352,791

 

 

 

355,752

 

Noncontrolling interest

 

 

2,844

 

 

 

2,506

 

Total equity

 

 

355,635

 

 

 

358,258

 

Total Liabilities and Equity

 

$

570,833

 

 

$

519,753

 

 


 

 


 

MedEquities Realty Trust, Inc.

 

Consolidated Statements of Operations

 

(in thousands, except per share amounts)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

15,114

 

 

$

13,603

 

 

$

43,240

 

 

$

34,561

 

Interest on mortgage notes receivable

 

 

644

 

 

 

231

 

 

 

1,606

 

 

 

689

 

Interest on notes receivable

 

 

8

 

 

 

11

 

 

 

27

 

 

 

36

 

Total revenues

 

 

15,766

 

 

 

13,845

 

 

 

44,873

 

 

 

35,286

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,931

 

 

 

3,617

 

 

 

11,176

 

 

 

10,705

 

Property related

 

 

326

 

 

 

341

 

 

 

1,155

 

 

 

1,006

 

Acquisition related

 

 

33

 

 

 

29

 

 

 

362

 

 

 

488

 

Franchise, excise and other taxes

 

 

50

 

 

 

87

 

 

 

76

 

 

 

222

 

Bad debt expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

216

 

General and administrative

 

 

3,046

 

 

 

2,436

 

 

 

9,196

 

 

 

7,760

 

Total operating expenses

 

 

7,386

 

 

 

6,510

 

 

 

21,965

 

 

 

20,397

 

Operating income

 

 

8,380

 

 

 

7,335

 

 

 

22,908

 

 

 

14,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

3

 

 

 

191

 

 

 

5

 

 

 

194

 

Interest expense

 

 

(2,117

)

 

 

(2,792

)

 

 

(5,440

)

 

 

(9,143

)

 

 

 

(2,114

)

 

 

(2,601

)

 

 

(5,435

)

 

 

(8,949

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,266

 

 

$

4,734

 

 

$

17,473

 

 

$

5,940

 

Less: Preferred stock dividends

 

 

-

 

 

 

(2,464

)

 

 

-

 

 

 

(7,394

)

Less: Net (income) loss attributable to noncontrolling interest

 

 

(941

)

 

 

(821

)

 

 

(2,821

)

 

 

665

 

Net income (loss) attributable to common stockholders

 

$

5,325

 

 

$

1,449

 

 

$

14,652

 

 

$

(789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.17

 

 

$

0.12

 

 

$

0.46

 

 

$

(0.09

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,467

 

 

 

10,964

 

 

 

31,429

 

 

 

10,961

 

Diluted

 

 

31,506

 

 

 

10,964

 

 

 

31,460

 

 

 

10,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.21

 

 

$

0.42

 

 

$

0.63

 

 

$

0.63

 

 


 

 


 

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: funds from operations attributable to common stockholders (“FFO”) and adjusted fund from operations attributable to common stockholders (“AFFO”).

Funds from Operations

FFO is a non-GAAP measure used by many investors and analysts that follow the real estate industry. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), represents net income (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairments of real estate assets, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Noncontrolling interest amounts represent adjustments to reflect only our share of depreciation and amortization. We compute FFO in accordance with NAREIT’s definition, which may differ from the methodology for calculating FFO, or similarly titled measures, used by other companies.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance by excluding the effect of real-estate related depreciation and amortization, gains or losses from sales for real estate, including impairments, extraordinary items and the portion of items related to unconsolidated entities, all of which are based on historical cost accounting, and that FFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common stockholders.

Our calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. FFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.

Adjusted Funds from Operations

AFFO is a non-GAAP measure used by many investors and analysts to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations.  To calculate AFFO, we further adjust FFO for certain items that are not added to net income in NAREIT’s definition of FFO, such as acquisition expenses, non-real estate-related depreciation and amortization (including amortization of lease incentives and tenant allowances), stock-based compensation expenses, and any other non-comparable or non-operating items, that do not relate to the operating performance of our properties.  To calculate AFFO, we also adjust FFO to remove the effect of straight-line rent revenue, which represents the recognition of net unbilled rental income expected to be collected in future periods of a lease agreement that exceeds the actual contractual rent due periodically from tenants for their use of the leased real estate under each lease. Noncontrolling interest amounts represent adjustments to reflect only our share of straight-line rent revenue.

 

Our calculation of AFFO may differ from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.


 

 


 

MedEquities Realty Trust, Inc.

 

Reconciliations of FFO and AFFO

 

(in thousands, except per share amounts)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss) attributable to common stockholders

 

$

5,325

 

 

$

1,449

 

 

$

14,652

 

 

$

(789

)

Real estate depreciation and amortization, net of noncontrolling interest

 

 

3,849

 

 

 

3,535

 

 

 

10,929

 

 

 

10,587

 

FFO attributable to common stockholders

 

 

9,174

 

 

 

4,984

 

 

 

25,581

 

 

 

9,798

 

Acquisition costs on completed acquisitions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18

 

Stock-based compensation expense

 

 

783

 

 

 

633

 

 

 

2,673

 

 

 

1,927

 

Deferred financing costs amortization

 

 

241

 

 

 

425

 

 

 

803

 

 

 

2,038

 

Non-real estate depreciation and amortization

 

 

136

 

 

 

138

 

 

 

422

 

 

 

156

 

Surety bond fee

 

 

-

 

 

 

(188

)

 

 

-

 

 

 

(188

)

Straight-line rent expense

 

 

39

 

 

 

41

 

 

 

118

 

 

 

124

 

Straight-line rent revenue, net of noncontrolling interest

 

 

(1,348

)

 

 

(851

)

 

 

(3,496

)

 

 

1,260

 

AFFO attributable to common stockholders

 

$

9,025

 

 

$

5,182

 

 

$

26,101

 

 

$

15,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding-

   earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,467

 

 

 

10,964

 

 

 

31,429

 

 

 

10,961

 

Diluted

 

 

31,506

 

 

 

10,964

 

 

 

31,460

 

 

 

10,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common

   stockholders per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.17

 

 

$

0.12

 

 

$

0.46

 

 

$

(0.09

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

   outstanding- FFO and AFFO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,467

 

 

 

10,964

 

 

 

31,429

 

 

 

10,961

 

Diluted

 

 

31,506

 

 

 

11,108

 

 

 

31,460

 

 

 

11,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.45

 

 

$

0.81

 

 

$

0.89

 

Diluted

 

$

0.29

 

 

$

0.45

 

 

$

0.81

 

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFFO per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.47

 

 

$

0.83

 

 

$

1.38

 

Diluted

 

$

0.29

 

 

$

0.47

 

 

$

0.83

 

 

$

1.37

 

 

 

 

(Back To Top)

Section 3: EX-99.2 (EX-99.2)

mrt-ex992_7.pptx.htm

Slide 0

Exhibit 99.2

Slide 1

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Table of ContentsIntroductionManagement, Board of Directors & Investor Contacts2Executive Summary3Capitalization Analysis & Research Coverage42017 Guidance5Financial InformationConsolidated Balance Sheets6Consolidated Statements of Operations - GAAP7Funds from Operations (FFO) & Adjusted Funds from Operations (AFFO)8Consolidated EBITDA & Consolidated Adjusted EBITDA9Debt Overview10Operational & Portfolio InformationOperator Overview & Lease Coverage11Market Summary12Annualized Rental Income Expiration Schedule13Payor Mix by Revenue & Facility-Level Occupancy14Transaction Activity15Additional InformationGlossary16Forward looking statements: This supplemental package contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about our 2017 guidance and related assumptions, the strategic plans and objectives, potential property acquisitions and investments, anticipated capital expenditures (and access to capital), amounts of anticipated cash distributions to our stockholders in the future and other matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” "will" and variations of these words and other similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2017, and other documents filed by the Company with the SEC. You are cautioned to not place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results.Information regarding our operators, tenants and guarantors: This supplemental package includes information regarding certain of our tenants and guarantors, which are not subject to SEC reporting requirements. The information related to our tenants and guarantors contained in this report was provided to us by such tenants or guarantors, as applicable, or was derived from publicly available information. We have not independently investigated or verified this information. We have no reason to believe that this information is inaccurate in any material respect, but we cannot provide any assurance of its accuracy. We are providing this data for informational purposes only. The most recent completed period for which financial and operating information is available for our tenants and guarantors is the period ended June 30, 2017.Definitions and reconciliations: For definitions of certain terms used throughout this supplemental, including certain non-GAAP financial measures, see the Glossary on pages 16-17. For reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, see pages 8-9. On the cover: TOP - Vibra Rehabilitation Hospital of Amarillo, Amarillo, TX; Mountain's Edge Hospital, Las Vegas, NV; Castle Manor Nursing and Rehabilitation Center, National City, CA; MIDDLE - The Rio at Mission Trails, San Antonio, TX; Baylor Scott & White Medical Center - Lakeway, Lakeway, TX; Physical Rehabilitation and Wellness Center of Spartanburg, Spartanburg, SC; Horizon Specialty Hospital of Henderson, Las Vegas, NV; BOTTOM - Kemp Care Center, Kemp, TX; Heritage Park Nursing Center, Upland, CA; Mira Vista Court, Fort Worth, TX.

Slide 2

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Management, Board of Directors & Investor ContactsCorporate3100 West End Avenue, Suite 1000Nashville, Tennessee 37203615.627.4710www.medequities.comExecutive and Senior ManagementJohn McRobertsBill HarlanJeff WalravenChairman and ChiefPresident, Chief OperatingExecutive Vice PresidentExecutive OfficerOfficer and Directorand Chief Financial OfficerForrest GardnerSteve GrahamMichael HammillDavid TravisSVP of Asset & SVP, Director of Post AcuteSVP of Finance & CapitalSVP & Chief Accounting OfficerInvestment ManagementAcquisition & DevelopmentMarketsBoard of DirectorsRandall ChurcheyJohn FoySteven GeringerStephen GuillardBill HarlanLead Independent DirectorIndependent DirectorIndependent DirectorIndependent DirectorPresident & Chief OperatingOfficerElliott MandelbaumJohn McRobertsStuart McWhorterJames PieriIndependent DirectorChairman & Chief ExecutiveIndependent DirectorIndependent DirectorOfficerTransfer AgentAmerican Stock Transfer & Trust Co.59 Maiden LaneNew York, New York 10038800.937.5449Investor RelationsJeff WalravenTripp SullivanExecutive Vice President & Chief Financial OfficerSCR Partners615.627.4710615.760.1104jwalraven@medequities.comIR@medequities.com

Slide 3

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Executive SummaryCompany overview: MedEquities Realty Trust (NYSE: MRT) is a self-managed and self-administered real estate investment trust that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. The Company’s management team has extensive industry experience in acquiring, owning, developing, financing, operating, leasing and monetizing many types of healthcare properties and portfolios. MedEquities’ strategy is to become an integral capital partner with high-quality and growth-oriented facility-based providers of healthcare services on a nationwide basis, primarily through net-leased real estate investment. For more information, please visit www.medequities.com.Unaudited As of 09/30/17Select Portfolio Statistics Number of Properties31Licensed Beds (1)2,635 Facility-Level Occupancy (2)83%Markets / States12/7Weighted Average Lease Term Remaining (3)13.1TTM Portfolio EBITDARM/Rent Coverage (4)2.1xBalance Sheet ($ in thousands)Cash$7,264Gross Assets (5)$608,380Total Debt (6)$207,500Net Debt (Total Debt less Cash)$200,236Net Debt / Gross Assets32.9%Net Debt to Consolidated Adjusted EBITDA, annualized3.7x(1) Excludes the 166 beds in the AAC sober living facilities that are not licensed for treatment.(2) Reflects the facility-level occupancy of our total stabilized, single-tenanted portfolio. See Glossary for definition of our stabilized portfolio.(3) Excludes the medical office building in Brownsville, TX.(4) Includes guarantor-level coverage for our stabilized, single-tenanted buildings for the trailing 12 months as of June 30, 2017.(5) The carrying amount of total assets plus accumulated depreciation and amortization, as reported in the Company's consolidated financial statements.(6) Excludes approximately $718,000 of net deferred financing costs reported as a component of the debt balance in the Company's consolidated financial statements.

Slide 4

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Capitalization Analysis & Research CoverageUnaudited (in thousands except for per-share data and percentages)Three Months Ended9/30/20176/30/20173/31/201712/31/2016Common Stock Data Weighted-Average Shares Outstanding - Basic31,467 31,404 31,415 30,363 Weighted-Average Shares Outstanding - Diluted31,506 31,487 31,566 30,447 High Closing Price $12.79 $12.76 $11.61 $12.00 Low Closing Price $11.37 $11.30 $10.75 $10.48 Average Closing Price $11.86 $11.88 $11.16 $11.18 Closing Price (as of period end) $11.75 $12.62 $11.21 $11.10 Dividends / Share (annualized) (1) $0.84 $0.84 $0.84 $0.84 Dividend Yield (annualized) (2)7.1%6.7%7.5%7.6% Common Shares Outstanding (2)31,756 31,775 31,775 31,757 Market Value of Common Shares (2) $373,133 $401,001 $356,198 $352,503 Total Market Capitalization (2) (3) $580,633 $608,501 $563,698 $496,503 Equity Research Coverage (4)B. Riley FBRJMP SecuritiesRBC Capital MarketsBryan MaherPeter MartinMichael Carroll646.885.5423415.835.8904440.715.2649Cantor Fitzgerald & CompanyJ.P. Morgan SecuritiesJoseph FranceMichael Mueller212.915.1239212.622.6689Capital One SecuritiesKeyBanc Capital MarketsDaniel BernsteinJordan Sadler571.835.7202917.368.2280B. Riley FBR, Inc.CitigroupRaymond James & AssociatesBryan MaherSmedes RoseJonathan Hughes646.885.5423212.816.6243727.567.1000"Investor Conference Call and Webcast:The Company will host a conference call and live audio webcast, both open for the general public to hear, on November 8, 2017 at 8:00 a.m. Central Time. The number to call for this interactive teleconference is (412) 542-4116. A replay of the call will be available through November 15, 2017 by dialing (412) 317-0088 and entering the replay access code, 10112949."(1) Based on third quarter 2017 dividend of $0.21 declared on November 1, 2017.(2) Based on closing price and ending shares for the last trading day of the quarter.(3) Market value of shares plus debt as of quarter end.(4) The analysts listed provide research coverage on the Company. Any opinions, estimates or forecasts regarding the Company's performance made by these analysts are theirs alone and do not represent opinions, estimates or forecasts by the Company or its management. The Company does not by reference above imply its endorsement of or concurrence with such information, conclusions or recommendations.

Slide 5

3Q 2017- Supplemental MedEquities Realty Trust, Inc.2017 GuidanceUnauditedFull Year 2017 RangePer shareLowHighNet income attributable to common stockholders $0.64 $0.65 Real estate depreciation & amortization, net of noncontrolling interest (1) 0.47 0.48 FFO attributable to common stockholders $1.11 $1.13 Stock-based compensation expense 0.11 0.11 Deferred financing costs amortization 0.03 0.03 Straight-line rental income, net of noncontrolling interest (0.15) (0.15)Other adjustments (2) 0.02 0.02 AFFO attributable to common stockholders $1.12 $1.14 AssumptionslCash general and administrative expenses of $8.7 million to $8.9 millionlClose a total of $150 million of investments in 2017¢$69.6 million in investments were closed as of September 30, 2017¢$80.5 million of investments are expected to close in the fourth quarter of 2017 with initial cash yields of 8.50% to 9.00%¢Approximate per share impact of the $80.5 million of investments expected to close in the fourth quarter of 2017 to each net income, FFO and AFFO of $0.00 to $0.01lInterest expense of approximately $7.8 million to $8.1 million, including approximately $1.0 million in amortization of deferred financing costslWeighted average diluted share count of 31.5 million (1) Includes $0.00 per share to $0.01 per share of real estate depreciation related to $80.5 million of assumed investments in the fourth quarter of 2017.(2) Includes adjustments for non-real estate depreciation and straight-line rent expense.

Slide 6

3Q 2017- Supplemental MedEquities Realty Trust, Inc. Consolidated Balance Sheets(in thousands)9/30/20176/30/20173/31/201712/31/20169/30/2016Assets:(unaudited)(unaudited)(unaudited)(unaudited)Real estate properties:Land $42,250 $40,090 $39,584 $39,584 $39,584 Building and improvements 489,334 451,306 441,100 440,927 440,927 Intangible lease assets 11,387 11,387 11,387 11,387 11,387 Furniture, fixtures and equipment 2,981 2,981 2,976 2,976 2,976 Less accumulated depreciation and amortization (37,547) (33,509) (29,777) (26,052) (22,327)Total real estate properties, net $508,405 $472,255 $465,270 $468,822 $472,547 Mortgage notes receivable, net 29,120 22,418 22,417 9,915 9,914 Cash and cash equivalents 7,264 8,240 7,806 9,509 12,211 Other assets, net 26,044 33,665 33,202 31,507 35,330 Total assets $570,833 $536,578 $528,695 $519,753 $530,002 Liabilities:Debt, net $206,782 $163,741 $155,699 $144,000 $244,000 Accounts payable and accrued liabilities 6,376 14,870 14,414 15,244 21,606 Deferred revenue 2,040 2,066 1,365 2,251 1,566 Total liabilities $215,198 $180,677 $171,478 $161,495 $267,172 Equity:Preferred stock $- $- $- $- $1 Common stock 314 314 314 314 109 Additional paid in capital 374,994 374,436 373,518 372,615 275,667 Dividends declared (60,935) (54,513) (47,719) (40,951) (34,585)Retained earnings 38,426 33,101 28,305 23,774 19,329 Accumulated other comprehensive income (loss) (8) (123) 370 - - Total MedEquities Realty Trust, Inc. stockholders' equity 352,791 353,215 354,788 355,752 260,521 Noncontrolling interest 2,844 2,686 2,429 2,506 2,309 Total equity $355,635 $355,901 $357,217 $358,258 $262,830 Total liabilities and equity $570,833 $536,578 $528,695 $519,753 $530,002

Slide 7

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Consolidated Statements of Operations - GAAP(in thousands, except per-share amounts)Three Months Ended(Unaudited)9/30/20176/30/20173/31/201712/31/20169/30/2016Revenues:Rental income $15,114 $14,287 $13,839 $13,769 $13,603 Interest on mortgage notes receivable 644 529 433 232 231 Interest on notes receivable 8 9 10 9 11 Total revenues $15,766 $14,825 $14,282 $14,010 $13,845 Operating expenses:Depreciation and amortization 3,931 3,627 3,618 3,618 3,617 Property related 326 477 352 297 341 Acquisition related 33 263 66 - 29 Franchise, excise and other taxes 50 (60) 86 144 87 General and administrative 3,046 2,979 3,171 2,836 2,436 Total operating expenses $7,386 $7,286 $7,293 $6,895 $6,510 Operating income $8,380 $7,539 $6,989 $7,115 $7,335 Other income (expense):Interest and other income 3 1 1 1 191 Interest expense (2,117) (1,808) (1,515) (1,740) (2,792)Total other income (expense) $(2,114) $(1,807) $(1,514) $(1,739) $(2,601)Net income $6,266 $5,732 $5,475 $5,376 $4,734 Less: Preferred stock dividends - - - (6,366) (2,464)Less: Net income attributable to noncontrolling interest (941) (936) (944) (931) (821)Net income (loss) attributable to common stockholders $5,325 $4,796 $4,531 $(1,921) $1,449 Net income (loss) attributable to common stockholders per share - basic and diluted $0.17 $0.15 $0.14 $(0.06) $0.12 Weighted-average shares outstanding - basic31,467 31,404 31,415 30,363 10,964 Weighted-average shares outstanding - diluted31,506 31,487 31,415 30,363 10,964 Dividends declared per common share $0.21 (1) $0.21 (2) $0.21 (3) $- (4) $0.42 (1) Dividend for the third quarter of 2017 of $0.21 per share was declared and will be paid in November 2017.(2) Dividend for the second quarter of 2017 of $0.21 per share was declared and paid in August 2017.(3) Dividend for the first quarter of 2017 of $0.21 per share was declared and paid in May 2017.(4) Dividend for the fourth quarter of 2016 of $0.21 per share was declared and paid in January 2017.

Slide 8

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Funds from Operations (FFO) & Adjusted Funds from Operations (AFFO)Unaudited (in thousands, except per-share amounts)Three Months Ended9/30/20176/30/20173/31/201712/31/20169/30/2016Net income (loss) attributable to common stockholders $5,325 $4,796 $4,531 $(1,921) $1,449 Real estate depreciation and amortization, net of noncontrolling interest 3,849 3,544 3,536 3,536 3,535 FFO attributable to common stockholders $9,174 $8,340 $8,067 $1,615 $4,984 Stock-based compensation expense 783 934 956 628 633 Deferred financing costs amortization 241 240 322 428 425 Non-real estate depreciation and amortization 136 134 152 151 138 Preferred stock redemption premium paid upon completion of the IPO - - - 6,256 - Surety bond fee - - - - (188)Straight-line rent expense 39 39 40 41 41 Straight-line rent revenue, net of noncontrolling interest (1,348) (1,179) (969) (982) (851)AFFO attributable to common stockholders $9,025 $8,508 $8,568 $8,137 $5,182 Weighted-average shares outstanding - earnings per shareBasic 31,467 31,404 31,415 30,363 10,964 Diluted 31,506 31,487 31,415 30,363 10,964 Net income (loss) attributable to common stockholders per share - basic and diluted $0.17 $0.15 $0.14 $(0.06) $0.12 Weighted-average shares outstanding - FFO and AFFOBasic 31,467 31,404 31,415 30,363 10,964 Diluted 31,506 31,487 31,566 30,447 11,108 FFO per common shareBasic $0.29 $0.27 $0.26 $0.05 $0.45 Diluted $0.29 $0.26 $0.26 $0.05 $0.45 AFFO per common shareBasic $0.29 $0.27 $0.27 $0.27 $0.47 Diluted $0.29 $0.27 $0.27 $0.27 $0.47

Slide 9

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Consolidated EBITDA & Consolidated Adjusted EBITDAUnaudited (in thousands)Three Months Ended9/30/20176/30/20173/31/201712/31/20169/30/2016Net income $6,266 $5,732 $5,475 $5,376 $4,734 Interest expense 2,117 1,808 1,515 1,740 2,792 Franchise, excise, and other tax expense (income) 50 (60) 86 144 87 Depreciation and amortization 4,192 3,886 3,895 3,894 3,868 Consolidated EBITDA $12,625 $11,366 $10,971 $11,154 $11,481 Stock-based compensation expense 783 934 956 628 633 Consolidated Adjusted EBITDA $13,408 $12,300 $11,927 $11,782 $12,114

Slide 10

3Q 2017- Supplemental MedEquities Realty Trust, Inc.Debt OverviewUnaudited ($ in thousands) at 9/30/2017 Debt Instrument - Secured Bank FacilityMaturityRateRate TypeBalance % of Total Debt $300 Million Revolving Credit FacilityFebruary-212.99% (1)Floating $82,500 39.8% $125 Million Term LoanFebruary-223.59% (2)Fixed 125,000 60.2% $207,500 100.0% Balance Sheet ($ in thousands) at 9/30/2017 Cash $7,264 Gross Assets (3) $608,380 Total Debt $207,500 Net Debt $200,236 Debt Ratios at 9/30/2017 Net Debt to Gross Assets Ratio32.9% Net Debt to Total Market Capitalization34.5% Net Debt to Consolidated Adjusted EBITDA, annualized3.7x(1) Weighted-average interest rate outstanding at September 30, 2017 based on LIBOR and pricing of 175 basis points over LIBOR. The facility pricing grid ranges from 175-300 basis points over LIBOR depending upon leverage. (2) The Company entered into interest rate swap arrangements, effective April 10, 2017, on the full $125 million term loan. The Company's forecasted all-in interest rate under the term loan is composed of a fixed swap rate of 1.84% plus the applicable margin under the credit facility, which was 1.75% at November 7, 2017.(3) The carrying amount of total assets plus accumulated depreciation and amortization, as reported in the Company's consolidated financial statements.

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3Q 2017- Supplemental MedEquities Realty Trust, Inc.Operator Overview & Lease CoverageUnaudited ($ in thousands) at 9/30/17 Gross Number of Operator States Property Type Investment GLA/Square Feet Licensed Beds (1) OnPointeTX SNF $145,142 339,733 1,145 Life GenerationsCA SNF/ALF 96,697 181,149 559 Fundamental HealthcareNV, SC, TX ACH/LTACH/SNF 85,887 211,280 431 Vibra HealthcareCA, TX LTACH/IRF 77,429 77,925 104 Baylor Scott & White HealthTX ACH 75,056 270,512 106 AAC HoldingsNV, TX BH 25,020 180,307 - Magnolia Health SystemsIN SNF 15,003 52,919 160 Prospect MedicalCT SNF 10,120 65,721 130 Multi-tenantedTX MOB 15,598 67,682 - Total - All Properties $545,952 1,447,228 2,635 Stabilized Facility & Guarantor Lease CoverageUnaudited TTM rent coverage EBITDARM Rent CoverageFacilityGuarantor Twelve Months EndedSNF/ALFLTACH/IRFTotalSNF/ALFLTACH/IRFTotal June 30, 20171.41x1.63x1.47x2.21x1.83x2.11x March 31, 20171.52x1.63x1.55x2.30x1.84x2.18x December 31, 20161.62x1.60x1.62x2.32x1.83x2.19x September 30, 20161.65x1.59x1.63x2.36x1.82x2.22x June 30, 20161.54x1.65x1.57x2.34x1.88x2.22xEBITDAR Rent CoverageFacilityGuarantor Twelve Months EndedSNF/ALFLTACH/IRFTotalSNF/ALFLTACH/IRFTotal June 30, 20171.20x1.43x1.26x1.89x1.70x1.84x March 31, 20171.32x1.43x1.35x1.98x1.72x1.91x December 31, 20161.42x1.40x1.41x2.01x1.72x1.93x September 30, 20161.44x1.37x1.42x2.04x1.70x1.95x June 30, 20161.34x1.43x1.37x2.02x1.76x1.95x(1) Excludes 166 beds in the AAC sober living facilities that are not licensed for treatment.

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3Q 2017- Supplemental MedEquities Realty Trust, Inc.Market SummaryUnaudited ($ in thousands) (at 9/30/2017) (1)PROPERTY TYPE Geography SNF/ALF ACH LTACH BH IRF MOB Total % of Total Texas11 1 -2 1 1 16 51.6% California6 -1 ---7 22.6% Nevada-1 1 2 --4 12.9% Indiana2 -----2 6.5% South Carolina1 -----1 3.2% Connecticut1 -----1 3.2% Total21 2 2 4 1 1 31 100.0%% OF TOTAL PROPERTIES69%6%6%13%3%3%DISTRIBUTION OF LICENSED BEDS (2) Geography SNF/ALF ACH LTACH BH IRF MOB Total % of Total Texas 1,287 106 - - 44 - 1,437 54.5% California 559 - 60 - - - 619 23.5% Nevada - 130 39 - - - 169 6.4% Indiana 160 - - - - - 160 6.1% South Carolina 120 - - - - - 120 4.6% Connecticut 130 - - - - - 130 4.9% Total 2,256 236 99 - 44 - 2,635 100.0%% OF TOTAL BEDS85%9%4%0%2%0%GROSS INVESTMENT GeographySNF/ALFACHLTACHBHIRFMOBTotal% of Total Texas $161,142 $75,056 $- $12,510 $19,399 $15,598 $283,705 52.0% California 96,697 - 58,030 - - - 154,727 28.3% Nevada - 29,877 20,010 12,510 - - 62,397 11.4% Indiana 15,003 - - - - - 15,003 2.7% South Carolina 20,000 - - - - - 20,000 3.7% Connecticut 10,120 - - - - - 10,120 1.9% Total $302,962 $104,933 $78,040 $25,020 $19,399 $15,598 $545,952 100.0%% OF TOTAL GROSS INVESTMENT55%19%14%5%4%3%RENTAL INCOME (Twelve months ended September 30, 2017) OperatorSNF/ALFACHLTACHBHIRFMOBTotal% of Total OnPointe $14,358 $- $- $- $- $- $14,358 25.2% Life Generations 8,618 - - - - - 8,618 15.1% Fundamental Healthcare 3,522 3,512 1,836 - - - 8,870 15.6% Vibra Healthcare - - 5,358 - 1,596 - 6,954 12.2% Baylor Scott & White Health - 15,180 - - - - 15,180 26.6% AAC Holdings - - - 354 - - 354 0.6% Magnolia Health Systems 261 - - - - - 261 0.5% Prospect Medical 251 - - - - - 251 0.4% Medical office building - - - - - 2,164 2,164 3.8% Total $27,010 $18,692 $7,194 $354 $1,596 $2,164 $57,010 100.0%% OF RENTAL INCOME46%33%13%1%3%4%BASE RENT (3) (Twelve months ended September 30, 2017) OperatorSNF/ALFACHLTACHBHIRFMOBTotal% of Total OnPointe $12,613 $- $- $- $- $- $12,613 24.6% Life Generations 8,312 - - - - - 8,312 16.2% Fundamental Healthcare 3,309 3,204 1,785 - - - 8,298 16.2% Vibra Healthcare - - 5,300 - 1,748 - 7,048 13.8% Baylor Scott & White Health - 12,750 - - - - 12,750 24.9% AAC Holdings - - - 318 - - 318 0.6% Magnolia Health Systems 229 - - - - - 229 0.5% Prospect Medical 228 - - - - - 228 0.4% Medical office building - - - - - 1,453 1,453 2.8% Total $24,691 $15,954 $7,085 $318 $1,748 $1,453 $51,249 100.0%% OF BASE RENT48%31%14%1%3%3%(1) Excludes any investment in and income from notes and mortgage notes receivable.(2) Excludes 166 beds in the AAC sober living facilities that are not licensed for treatment.(3) Base rent represents the contractual rent due under the facility lease agreements that is included in rental income and excludes items such as operating expense reimbursements, straight-line rent revenues, amortization of above-market leases and lease incentives, and any late fees.

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3Q 2017- Supplemental MedEquities Realty Trust, Inc.Annualized Rental Income Expiration ScheduleUnaudited ($ in thousands) (at 9/30/2017)YearLicensed Beds (1) Expiring Annualized Rental Income (ARI) (2) (3) % of ARI Expiring (2)2017-2028 - $- - 2029 392 4,479 7.6%2030 1,748 24,424 41.1%2031 166 20,460 34.4%2032 329 10,050 16.9%Total 2,635 $59,413 100.0%(1) Excludes the 166 beds in the AAC sober living facilities that are not licensed for treatment.(2) Excludes the medical office building in Texas and notes and mortgage notes receivable.(3) Annualized rental income is defined as total consolidated rent, including straight-line rent and amortization of lease incentives, and excluding operating expense reimbursements as of September 30, 2017, multiplied by twelve.

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3Q 2017- Supplemental MedEquities Realty Trust, Inc. Payor Mix by Revenue & Facility-Level OccupancyUnauditedTwelve Months Ended June 30, 2017Stabilized, Single-Tenanted PortfolioSNF Portfolio (1) OperatorMedicareMedicaidCommercialOtherFacility-Level OccupancyMedicareMedicaidCommercialOtherQ-MixFacility-Level Occupancy Life Generations36%27%27%10%91.9%36%27%27%10%72.9%91.9% OnPointe32%49%8%11%79.5%32%49%8%11%51.0%79.5% Fundamental34%21%41%4%82.9%35%36%23%6%64.4%83.2% Vibra49%0%47%3%64.3%------ Total Portfolio37%27%28%8%82.5%34%39%18%10%61.4%83.5% Stabilized, Single-Tenanted PortfolioSNF Portfolio (1) Twelve Months EndedMedicareMedicaidCommercialOtherFacility-Level OccupancyMedicareMedicaidCommercialOtherQ-MixFacility-Level Occupancy June 30, 201737%27%28%8%82.5%34%39%18%10%61.4%83.5% March 31, 201737%27%29%8%84.0%34%39%17%10%61.2%85.3% December 31, 201637%27%28%8%84.4%34%39%16%10%60.7%85.8% September 30, 201638%27%27%8%85.1%35%40%15%10%60.2%86.3% June 30, 201638%27%26%8%85.4%35%40%14%11%60.2%86.5%(1) Includes one assisted living facility (ALF) connected to a skilled nursing facility (SNF).

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3Q 2017- Supplemental MedEquities Realty Trust, Inc.Transaction ActivityUnaudited ($ in thousands) (at 9/30/2017) AcquisitionsAcquisition Date# of PropertiesOperatorProperty TypePurchase Price (1)Licensed Beds (2)Location8/9/20174AAC HoldingsBH $25,000 -NV, TX7/31/20172Magnolia Health SystemsSNF 15,000 160 IN6/30/20171Prospect Medical HoldingsSNF 10,000 130 Tolland, CT10/2/20151OnPointeSNF 11,600 120 Graham, TX10/1/20151Vibra HealthcareIRF 19,400 44 Amarillo, TX10/1/20151Life GenerationsSNF 15,000 98 San Diego, CA7/30/20159OnPointeSNF 133,400 1,025 TX3/31/20151Fundamental HealthcareACH 35,400 130 Las Vegas, NV3/31/20155Life GenerationsSNF/ALF 80,000 461 CA2/20/20151Fundamental HealthcareSNF 16,000 142 Ft. Worth, TX2/3/20151Baylor Scott & White Health (3)ACH 75,000 106 Austin, TX9/19/20141Multi-tenantedMOB 15,100 -Brownsville, TX8/1/20142Fundamental HealthcareLTACH/SNF 40,000 159 NV, SC8/1/20141Vibra HealthcareLTACH 58,000 60 Kentfield, CA Total - Acquisitions $548,900 2,635 Mortgage InvestmentsOrigination Date# of PropertiesOperatorProperty TypeTotal FundedLocation8/1/20171Medistar CorporationMOB $6,700 Webster, TX1/30/20171Advanced Diagnostics Hospital EastACH 12,500 East Houston, TX8/1/20141Vibra HealthcareLTACH 10,000 Springfield, MA Total - Mortgage Investments $29,200 Funding CommitmentsOrigination Date# of PropertiesOperatorProperty TypeTotal CommitmentTotal FundedLocation3/20/20171Fundamental Healthcare (4)ACH $11,000 $613 (5) Las Vegas, NV Total - Funding Commitments $11,000 $613 (1) Represents cash price paid rather than GAAP cost basis.(2) Excludes the 166 beds in the AAC sober living facilities that are not licensed for treatment.(3) A triple-net master lease commenced on September 1, 2016 with Baylor Scott & White Health upon an operator change.(4) Pursuant to the amended master lease with Fundamental, rents increase at a rate of 9.25% on incremental draws on the funding commitment for the Mountain's Edge Hospital expansion project.(5) Includes approximately $222 accrued at September 30, 2017 and funded in October 2017.

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3Q 2017- Supplemental MedEquities Realty Trust, Inc.Glossary"Acute: refers to a disease or condition with a rapid onset and short course.""Acute Care Hospital (“ACH”): general medical and surgical hospitals that provide both inpatient and outpatient medical services and are owned and/or operated either by a non-profit or for-profit hospital or hospital system. These facilities often act as feeder hospitals to dedicated specialty facilities.""Adjusted Funds From Operations attributable to common stockholders (“AFFO”): AFFO is a non-GAAP measure used by many investors and analysts to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations. To calculate AFFO, we further adjust FFO for certain items that are not added to net income in NAREIT’s definition of FFO, such as acquisition expenses, non-real estate-related depreciation and amortization (including amortization of lease incentives and tenant allowances), stock based compensation expenses, and any other non-comparable or non-operating items that do not relate to the operating performance of our properties. To calculate AFFO, we also adjust FFO to remove the effect of straight-line rent revenue, which represents the recognition of net unbilled rental income expected to be collected in future periods of a lease agreement that exceeds the actual contractual rent due periodically from tenants for their use of the leased real estate under each lease. Noncontrolling interest amounts represent adjustments to reflect only our share of straight line rent revenue. Our calculation of AFFO may differ from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.""Assisted Living Facility (“ALF”): residential care facilities that provide housing, meals, personal care and supportive services to older persons and disabled adults who are unable to live independently. They are intended to be a less costly alternative to more restrictive, institutional settings for individuals who do not require 24-hour nursing supervision."Behavioral Health Facility (“BH”): facilities that provide inpatient and outpatient services for the treatment of behavioral health, mental illness and substance abuse. These can include facilities for intensive outpatient treatment, inpatient residential treatment, sober living rehabilitation and psychiatric care."Consolidated Adjusted EBITDA: Consolidated Adjusted EBITDA represents Consolidated EBITDA, as defined below, adjusted further for the effects of acquisition costs, stock-based compensation expense and non-cash write-offs of straight-line rent and accounts receivable.  Both Consolidated EBITDA and Consolidated Adjusted EBITDA are relevant non-GAAP measures broadly used by investors and analysts to evaluate the operating performance of a company and to assess a company’s credit strength, including the ability to service indebtedness. Our calculations of Consolidated EBITDA and Consolidated Adjusted EBITDA may differ from the methodologies used by other companies and, accordingly, our Consolidated EBITDA and Consolidated Adjusted EBITDA may not be comparable to amounts reported by other companies.  Consolidated EBITDA and Consolidated Adjusted EBITDA should not be used as a substitute for any GAAP financial measures for the purpose of evaluating our financial performance, financial position or cash flows."Consolidated EBITDA: calculated as net income (computed in accordance with GAAP) plus interest expense, taxes, and depreciation and amortization."EBITDAR: represents earnings from the operator’s financial statements before interest, taxes, depreciation, amortization and rent and may be adjusted for certain non-recurring, infrequent or out-of-period items.""EBITDAR Rent Coverage: represents the operator EBITDAR of our stabilized facilities for the trailing twelve months divided by the contractual lease rent for the same period. For the leases that have been in place for less than 12 months as of the date presented, the annualized base rent under the applicable lease as of such date is used.""EBITDARM: represents earnings from the operator’s financial statements before interest, taxes, depreciation, amortization, rent and management fees and may be adjusted for certain non-recurring, infrequent or out-of-period items.""EBITDARM Rent Coverage: represents the operator EBITDARM of our stabilized facilities for the trailing twelve months divided by the contractual lease rent for the same period. For the leases that have been in place for less than 12 months as of the date presented, the annualized base rent under the applicable lease as of such date is used."Facility-Level Occupancy: Occupancy is calculated by dividing the daily number of beds occupied each day as reported by the operators at their facilities during the period presented by the beds in operations (available) at the facilities for the same period.Funds From Operations attributable to common stockholders (“FFO”): FFO is a non-GAAP measure used by many investors and analysts that follow the real estate industry. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), represents net income (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairments of real estate assets, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Noncontrolling interest amounts represent adjustments to reflect only our share of depreciation and amortization. We compute FFO in accordance with NAREIT’s definition, which may differ from the methodology for calculating FFO, or similarly titled measures, used by other companies. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance by excluding the effect of real-estate related depreciation and amortization, gains or losses from sales for real estate, including impairments, extraordinary items and the portion of items related to unconsolidated entities, all of which are based on historical cost accounting, and that FFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common stockholders. Our calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. FFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity."Gross assets: the carrying amount of total assets plus accumulated depreciation and amortization, as reported in the Company’s consolidated financial statements.""Inpatient Rehabilitation Facility (“IRF”): facilities that provide inpatient rehabilitation services for patients recovering from injuries, organ transplants, amputations, cardiovascular surgery, strokes, and complex neurological, orthopedic and other medical conditions following stabilization of their acute medical issues.""Long-Term Acute Care Hospital (“LTACH”): facilities designed for patients with serious medical problems that require intense, special treatment for an extended period of time (typically at least 25 days), offer more individualized and resource-intensive care than a skilled nursing facility, nursing home or acute rehabilitation facility, and patients are typically transferred to a long-term acute care hospital from the intensive care unit of a traditional hospital."

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3Q 2017- Supplemental MedEquities Realty Trust, Inc.Glossary (continued)"Medical Office Building (“MOB”): single-tenant or multi-tenant buildings where doctors, physician practice groups, hospitals, hospital systems or other healthcare providers lease space and are typically located near or adjacent to acute care hospitals or other facilities where healthcare services are rendered. Medical office buildings can include outpatient surgical centers, diagnostic labs, physical therapy providers and physician office space in a single building.""Post-acute: the period of time following acute care, in which the patient continues to require elevated levels of medical treatment.""Q-Mix: Quality mix is presented as non-Medicaid revenue as a percentage of total revenue. ""Skilled Nursing Facility (“SNF”): facilities that usually house elderly patients and provide restorative, rehabilitative and nursing care for patients not requiring more extensive and sophisticated treatment that may be available at acute care hospitals or long-term acute care hospitals. They are distinct from and offer a much higher level of care for older adults compared to senior housing facilities. Patients typically enter skilled nursing facilities after hospitalization."Stabilized Portfolio: as of June 30, 2017, our stabilized, single-tenanted portfolio includes only our 17 stabilized skilled nursing facilities, our two stabilized long-term acute care hospitals, our one stabilized assisted living facility (that is connected to a skilled nursing facility in our portfolio) and our one stabilized inpatient rehabilitation facility. Our non-stabilized, single-tenanted property as of June 30, 2017 was Mountain’s Edge Hospital. We consider a facility to be non-stabilized if it is a newly completed development, is undergoing or has recently undergone a significant addition or renovation, or is being repositioned or transitioned to new operators, but in no event beyond 24 months after the date of classification as non-stabilized. Lakeway Hospital is excluded from all operator metrics as a result of Baylor Scott & White's lack of reporting requirements for facility level financial information. Acquired properties that otherwise meet the definition of a stabilized property are included in operating metrics beginning with the first full quarter of ownership.

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