MedEquities Realty Trust Reports First Quarter 2018 Results

Investment Activity
As of March 31, 2018, the Company had gross real estate investments totaling approximately $605.6 million, which was comprised of $563.8 million in 32 healthcare facilities and $41.8 million in six mortgage notes receivable collateralized by existing healthcare facilities and redevelopment of healthcare facilities. In addition to these mortgage notes receivable, the Company had approximately $23.3 million of funding commitments and construction mortgage notes as of March 31, 2018 that have yet to be disbursed.

The significant transactions in the first quarter of 2018 are as follows:

• On January 8, 2018, the Company agreed to provide a loan of up to $19.0 million at an annual interest rate of 10.0% to Haven Behavioral Healthcare, an operator of inpatient psychiatric hospitals in five states, for a three-year term to fund the purchase and conversion of an existing long-term acute care hospital to a 72-bed, 60,029-square-foot inpatient psychiatric hospital in Boise, Idaho. The loan, of which $7.9 million was outstanding at March 31, 2018, is secured by a first mortgage on the property. Upon completion, the Company has the exclusive right to purchase the facility for a purchase price equal to the outstanding loan balance in a sale-leaseback transaction with a 15-year triple-net lease at an initial lease rate of 9.3%.
• On January 31, 2018, the Company provided a mezzanine loan of $5.4 million at an annual cash interest rate of 8.5% to Cobalt Medical Development to partially fund the construction of a 42-bed, 57,275-square-foot inpatient rehabilitation hospital to be operated by Cobalt Rehabilitation Hospitals in Clarksville, Indiana, a suburb of Louisville, Kentucky. The three-year loan was fully funded at closing and has an annual accrued interest rate of 9.5%, which has a claw-back feature that would equate to a 15.0% annual interest rate from the inception of the loan should the Company elect not to exercise its option to purchase the new facility upon completion for approximately $26.0 million pursuant to a 20-year triple-net lease at an initial lease rate of 9.0%.
• On March 29, 2018, the Company originated a $5.0 million mortgage note receivable with a subsidiary real estate entity of GruenePointe Holdings, LLC, which is secured by a second lien on a skilled nursing and assisted living facility (Adora Midtown Park) and a first lien on an additional parcel of land in Dallas, Texas. The loan has a two-year term and accrues interest at an annual interest rate of 10.0% that is payable on the maturity date of March 29, 2020. The Company has an existing purchase option on Adora Midtown Park for a gross purchase price not to exceed approximately $28.0 million, plus an earnout based on the facility's earnings before interest, taxes, depreciation, amortization and rent expense ("EBITDAR") during the three years following the closing date of the acquisition.

Quarterly Distributions to Common Stockholders
On May 8, 2018, the Company's Board of Directors declared a cash dividend of $0.21 per share for the first quarter of 2018, or an annualized rate of $0.84 per share. The dividend will be paid on June 5, 2018 to stockholders of record as of May 22, 2018.

Guidance for 2018
For the year ending December 31, 2018, the Company updated its guidance for net income attributable to common stockholders to $0.64 to $0.66 per diluted common share and reaffirmed guidance for FFO of $1.17 to $1.21 per diluted common share and AFFO of $1.18 to $1.22 per diluted common share.  While the FFO and AFFO guidance ranges did not change, guidance for net income attributable to common stockholders and certain other reconciling items changed based on the amount and nature of known investment activities to date.

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:

The Company's guidance for net income attributable to common stockholders, FFO and AFFO for 2018 is based on the following assumptions:

• Total investment volume of $45 million to $125 million ($45 million of which reflects transactions that have already been announced and are expected to be funded during 2018)
• Initial cash yields on additional investments, in excess of the $45 million of previously announced transactions, of 8.0% to 9.0%
• Cash general and administrative expenses of approximately $9.0 million
• Interest expense of approximately $11.6 million to $13.4 million, including approximately $1.2 million to $1.3 million in amortization of deferred financing costs
• Weighted average diluted share count of 31.7 million  

Portfolio Update
The Company's stabilized, single-tenanted portfolio and its skilled nursing facility ("SNF") portfolio continued to perform as expected for the twelve months ended December 31, 2017 (the most recent reporting period for which information is available for the Company's operators). Overall, and as presented in the Company's Supplemental Data, the portfolio operations experienced a stabilization in SNF facility rent coverage, an improvement in hospital rent coverage and a decline in both stabilized, single-tenanted and SNF portfolio occupancy when compared with the twelve months ended September 30, 2017.

For the reporting period ended December 31, 2017, the results of the tenant (the "Texas Ten Tenant") for the Company's ten skilled nursing facilities in Texas were consistent with the Company's expectations that coverage results would continue to decline throughout 2017, after which no further substantial decreases are expected. The Texas Ten Tenant reported that the rent and fixed charge coverage ratios were 0.73x and 0.66x, respectively, for the reporting period ended December 31, 2017. Rent coverage on an EBITDARM basis (which adds back to EBITDAR the management fees that are contractually subordinated to rent payments) for the same reporting period was 1.00x. While the Texas Ten Tenant has continued to make payments of monthly base rent, the Company expects the Texas Ten Tenant to remain out of compliance with its coverage covenants throughout 2018.

Earnings Conference Call and Webcast
The Company will host a conference call and live audio webcast, both open for the general public to hear, later today at 9:00 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 May 17, 2018 by dialing (412) 317-0088 and entering the replay access code, 10119109.

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 2018 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 Texas Ten Tenant to improve its operating results and return to compliance with financial covenants under its 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 most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC"), and other documents filed by the Company with the SEC from time to time. 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)
		March 31, 2018		December 31, 2017
Assets		(unaudited)
Real estate properties
Land		$                       43,181		$                    43,180
Building and improvements		505,699		505,623
Intangible lease assets		11,387		11,387
Furniture, fixtures, and equipment		3,538		3,538
Less accumulated depreciation and amortization		(46,286)		(41,984)
Total real estate properties, net		517,519		521,744
Mortgage notes receivable, net		41,513		18,557
Cash and cash equivalents		5,917		12,640
Other assets, net		32,729		28,662
Total Assets		$                    597,678		$                  581,603
Liabilities and Equity
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