Community Healthcare Trust Incorporated — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a standalone fourth-quarter results summary. CHCT is a healthcare real estate investment trust that owns properties leased to healthcare providers.
Business context and portfolio
At year-end, the company had approximately $946.2 million invested in 174 properties across 34 states, totaling about 3.8 million square feet. The portfolio was 91.7% leased, with a weighted-average remaining lease term of 7.6 years. No tenant generated more than 10% of annual revenue. Texas, Ohio, and Illinois together represented 39.0% of annualized rent.
CHCT acquired 18 properties in 2022 for approximately $97.1 million; those properties were 98.9% leased at acquisition. Its largest property-type exposures by annualized rent were medical office buildings (31.8%), inpatient rehabilitation facilities (17.9%), and acute inpatient behavioral facilities (15.3%).
Financial performance and position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $97.7 million | $90.6 million | Up 7.8% |
| Rental income | $94.1 million | $87.7 million | Up 7.3% |
| Net income | $22.0 million | $22.5 million | Down 2.1% |
| Diluted EPS | $0.81 | $0.87 | Down $0.06 |
| Net cash from operating activities | $60.3 million | $56.3 million | Up $3.9 million |
| NOI | $81.0 million | $75.4 million | Up 7.5% |
| FFO | $54.6 million | $52.9 million | Up 3.3% |
| AFFO | $60.6 million | $56.5 million | Up 7.3% |
Operating cash flow increased, while investing activities used $113.8 million, chiefly for acquisitions, notes receivable, and capital expenditures. Financing activities provided $62.7 million. The company paid $1.765 per share in dividends for 2022, compared with $1.725 in 2021. FFO, AFFO, and NOI are non-GAAP measures; the company cautions that its definitions may not be comparable with other issuers.
At December 31, 2022, cash and cash equivalents were $11.2 million, total assets were $876.4 million, and total liabilities were $379.6 million. Debt, net, was $353.0 million, including $350.0 million of term loans and a $4.9 million mortgage note; the $150.0 million revolving facility was undrawn. Debt to total capitalization was 34.8%, and the company reported compliance with credit facility covenants. Term loans had a fixed weighted-average rate of approximately 4.27% through interest-rate swaps.
Material changes versus 2021
- Revenue growth was primarily attributable to properties acquired in 2021 and 2022, which contributed approximately $6.7 million of additional rental income.
- Net income declined despite higher revenue: operating expenses rose 10.6%, including a 22.5% increase in general and administrative expense, while interest expense increased 12.6% to $11.9 million.
- Acquisition activity rose to 18 properties costing approximately $97.1 million, versus 13 properties for approximately $88.4 million in 2021.
- Debt, net, increased from $265.6 million to $353.0 million. The December 2022 credit amendment added a $150 million term loan, refinanced prior borrowings, and transitioned the facility benchmark from LIBOR to SOFR.
- Cash and cash equivalents increased from $2.4 million to $11.2 million. The fair value of cash-flow hedge assets rose to $22.7 million from $0.3 million, contributing to higher other comprehensive income; this was not operating income.
Outlook, commentary, and risks
The filing gives no formal earnings or FFO guidance. Management said it believed liquidity and capital sources were adequate for expected needs, while noting that funding might not be available on acceptable terms. The stated strategy is to pursue healthcare property acquisitions, principally in off-market or lightly marketed transactions.
After year-end, CHCT reported three acquisitions for approximately $12.5 million. It also disclosed four properties under definitive agreements with an expected purchase price of $20.1 million and six additional properties to be acquired after completion and occupancy for approximately $141.0 million. Closings were expected during 2023 and 2024, but were not assured; expected returns were approximately 9.2%–9.5% and 10.25%, respectively. Planned funding sources include operating cash, credit facility borrowings, and debt or equity offerings.
- Management warned that persistent inflation may raise operating, capital, and borrowing costs and that higher rates could pressure asset values and costs on variable-rate borrowings. Most year-end term debt was swapped to fixed rates; the revolver remained available but undrawn.
- Healthcare reimbursement, regulatory, licensing, and tenant financial risks could affect rent collection. Specialized healthcare space may be difficult or costly to re-lease.
- Geographic exposure is concentrated in Texas, Ohio, and Illinois. Lease expirations represented 5.9% of annualized lease revenue in 2023 and 6.9% in 2024.
- Timothy G. Wallace took medical leave effective February 10, 2023; David H. Dupuy was appointed interim CEO while retaining the CFO role. The filing identifies this leadership transition as a risk.
- Tenant-improvement commitments were approximately $12.0 million and capital-improvement commitments $4.2 million at year-end. No material pending or threatened litigation was reported.
- No long-lived-asset impairment was recorded in 2022. Asset impairment testing was identified as a critical audit matter involving judgment about triggering events, market rents, holding periods, and capitalization rates.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective as of year-end.
Investor verification priorities
- Review tenant credit quality, rent collections, lease renewals, and the execution of the 2023–2024 lease-expiration schedule.
- Confirm closing status, funding requirements, and realized returns for the announced acquisition pipeline, especially the six properties dependent on completion and occupancy.
- Assess debt maturity and refinancing exposure, covenant headroom, SOFR-linked borrowing terms, swap coverage, and the 2024 mortgage balloon payment.
- Evaluate dividend coverage using operating cash flow and FFO/AFFO, while accounting for capital spending, tenant-improvement commitments, and equity issuance dilution.
- Monitor the leadership transition, geographic concentration, and whether inflation, interest rates, or healthcare reimbursement changes affect tenants and property values.