MedEquities Realty Trust Reports Second Quarter 2018 Results

The transactions completed in the second quarter of 2018 were as follows:

• On April 6, 2018, the Company provided a subsidiary of Medistar Corporation with a $7.0 million pre-development, interest-only leasehold mortgage loan that matures on December 31, 2018 and has an annual interest rate of 10.0% payable upon maturity. The loan will be used to partially fund the development of a 50-bed IRF in Stockton, California that is contractually pre-leased by Medistar to Vibra Healthcare.
• On June 27, 2018, the Company acquired Southern Indiana Rehabilitation Hospital, a 60-bed IRF in the Louisville, Kentucky suburb of New Albany, Indiana, for $23.4 million and concurrently leased the facility to an affiliate of Vibra Healthcare pursuant to a 15-year triple-net lease at an initial lease rate of 9.0% with annual escalators.

Quarterly Distributions to Common Stockholders
On August 1, 2018, the Company's Board of Directors declared a cash dividend of $0.21 per share for the second quarter of 2018, or an annualized rate of $0.84 per share. The dividend will be paid on August 29, 2018 to stockholders of record as of August 15, 2018.

Guidance for 2018
For the year ending December 31, 2018, the Company updated its guidance for net income attributable to common stockholders to $0.60 to $0.61 per diluted common share, FFO to $1.13 to $1.15 per diluted common share and AFFO to $1.19 to $1.22 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:

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 $70 million to $125 million ($70 million of which reflects transactions that have already been announced and are expected to be funded during 2018)
• Initial cash yields on new acquisitions of 8.0% to 9.0%
• Cash general and administrative expenses of approximately $11.1 million, including approximately $2.0 million, or $0.06 per diluted share, in transaction costs comprised primarily of professional fees recognized during the second quarter of 2018
• Interest expense of approximately $12.0 million to $12.7 million, including approximately $1.0 million to $1.1 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 with slight increases in rent coverages for the twelve months ended March 31, 2018 (the most recent reporting period for which information is available for the Company's operators).

Texas Ten Tenant
For the reporting period ended March 31, 2018, the results of our tenant for our ten skilled nursing facilities in Texas (the "Texas Ten Tenant") were consistent with our expectations that coverage results would begin to improve incrementally during the first quarter of 2018. The Texas Ten Tenant reported that the rent and fixed charge coverage ratios were 0.77x and 0.70x, respectively, for the trailing twelve-month reporting period ended March 31, 2018 as compared to 0.73x and 0.66x, respectively, for the prior trailing twelve-month 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 periods was 1.04x and 1.00x, respectively. Although coverage results improved for the trailing twelve-month period ended March 31, 2018, preliminary information from the Texas Ten Tenant for the second quarter of 2018 indicates that facility census and rent coverage levels have weakened. 

Additionally, the Texas Ten Tenant's liquidity position has been adversely impacted by slower than anticipated collections of certain aged receivables.  As a result, the Texas Ten Tenant applied its full two-month base rent security deposit to satisfy the monthly rents due for May and June 2018.  Monthly base rent for July 2018 is still outstanding.  We also funded $0.8 million in property taxes due on the ten facilities, which is reflected in rental income and property related expenses.   Accordingly, and with full cooperation of the Texas Ten Tenant, we have been seeking alternative tenants for the facilities and have entered into discussions with several parties that have expressed an interest in leasing some or all of the facilities.

Fundamental Healthcare
Mountain's Edge Hospital is undergoing an expansion to add five operating rooms that has taken procedure rooms offline. Once construction is completed, management of Fundamental Healthcare ("Fundamental") believes the facility will be able to provide a broader variety of surgical services that will result in higher patient volumes and reimbursements. The operating results of the Mira Vista skilled nursing facility have been adversely affected by turnover in the facility's administrator position as well as by increased competition in its market. As a result, management of Fundamental has reported to us that the facility rent coverage ratios for these two facilities are below the minimum ratio of 1.10x stipulated in the master lease for the trailing twelve-month period ended March 31, 2018. The other two facilities are in compliance with the minimum facility rent coverages, but the operating performance for Mountain's Edge and Mira Vista resulted in a Fundamental portfolio rent coverage ratio of 0.86x for the trailing twelve-month period ended March 31, 2018, which is below the minimum ratio of 1.20x. The Fundamental guarantor is in compliance under its guaranty agreement.

As of June 30, 2018, Fundamental owed approximately $1.0 million in past due base rent of which approximately $0.4 million has been collected subsequent to quarter end. The Company intends to defer a portion of the monthly base rent due for Mountain's Edge Hospital through the first quarter of 2019, the currently planned date of completion of the expansion project and commencement of surgical procedures, in order to align expected operational performance with contractual rent. The expected deferred rent balance of approximately $2.4 million would be paid in equal monthly installments over the remainder of 2019. Interest on the outstanding deferred rent amounts will accrue at 9.0% during the deferral and repayment periods.

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 August 15, 2018 by dialing (412) 317-0088 and entering the replay access code, 10122142.

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 and Fundamental to improve their operating results and return to compliance with financial covenants under their master leases, our ability to lease the Texas Ten facilities to other tenants 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)
		June 30, 2018		December 31, 2017
Assets		(unaudited)
Real estate properties
Land		$                       45,281		$                    43,180
Building and improvements		527,651		505,623
Intangible lease assets		11,387		11,387
Furniture, fixtures, and equipment		3,538		3,538
Less accumulated depreciation and amortization		(50,567)		(41,984)
Total real estate properties, net		537,290		521,744
Mortgage notes receivable, net		42,773		18,557
Note receivable		7,000		-
Cash and cash equivalents		4,172		12,640
Other assets, net		37,107		28,662
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