Community Healthcare Trust Incorporated (NYSE: CHCT) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. CHCT is a healthcare real estate investment trust that owns and acquires properties leased to healthcare providers.
Business and portfolio
- At year-end, the company held investments of approximately $837.1 million in 153 properties across 33 states, totaling about 3.4 million square feet. The portfolio was 90.0% leased, with a 7.8-year weighted-average remaining lease term.
- Annualized rent was diversified by property type, led by medical office buildings (30.6%), acute inpatient behavioral facilities (17.1%), and inpatient rehabilitation facilities (16.9%). Texas, Illinois, and Ohio together generated 40.3% of 2021 revenue.
- CHCT acquired 13 properties in 2021 for approximately $88.1 million in cash; acquired assets were 98.3% leased. One property was sold for net proceeds of approximately $1.3 million.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $90.6 million | $75.7 million | Up 19.7% |
| Net income | $22.5 million | $19.1 million | Up 17.9% |
| Net income per diluted share | $0.87 | $0.80 | Up $0.07 |
| FFO | $52.9 million; $2.20 per diluted share | $45.0 million; $2.03 per diluted share | Per-share FFO up 8.4% |
| AFFO | $56.5 million; $2.35 per diluted share | $46.6 million; $2.10 per diluted share | Per-share AFFO up 11.9% |
| Cash from operating activities | $56.3 million | $48.4 million | Up $8.0 million |
| Cash used in investing activities | $104.4 million | $125.1 million | Lower investment outflow |
| Cash from financing activities | $48.1 million | $77.6 million | Down $29.5 million |
- Rental income was $87.7 million, up 18.6%; other operating interest was $2.9 million, up 65.9%. Net income was approximately 24.8% of total revenue.
- Operating expenses rose 20.8% to $57.7 million, including general and administrative expense up 38.2% to $12.1 million and depreciation and amortization up 19.8% to $30.4 million. Interest expense increased 22.3% to $10.5 million, mainly following the March 2021 credit-facility refinancing.
- Year-end total assets were $754.2 million, debt (net) was $265.6 million, and stockholders’ equity was $462.1 million. Debt to total capitalization was 30.9%; the company reported compliance with credit-facility financial covenants. Cash and cash equivalents were $2.4 million, with $138.0 million of revolving capacity available.
- The credit facility includes $250.0 million of term loans, with a 3.95% weighted-average fixed rate under swaps, and a $150.0 million revolver maturing in 2026. A $5.1 million mortgage note bears fixed interest at 4.98% and matures in 2024.
- Dividends paid were $1.725 per share in 2021, versus $1.685 in 2020. The board declared a further quarterly dividend of $0.4375 per share in February 2022.
Material changes, outlook, and notable items
- Revenue and earnings growth primarily reflected acquisitions made in 2020 and 2021, along with interest earned on notes receivable. Operating cash flow increased; investing outflows declined as acquisition spending was lower than in 2020.
- The company reported three properties under purchase agreements for approximately $11.7 million, with expected returns of 9.01%–9.36%, and four properties to be acquired after completion and occupancy for approximately $94.0 million, with expected returns of approximately 10.25%. Expected closing windows extend from the first half of 2022 through the third quarter of 2023; closings are not assured. No formal earnings or FFO guidance is provided in the supplied filing text.
- Tenant-improvement commitments rose to $10.4 million from $2.3 million; $8.5 million relates to five redevelopment projects backed by long-term leases. Capital-improvement commitments were $0.9 million.
- COVID-19 affected tenant patient volumes and elective procedures, but rent deferrals for 18 tenants were less than 1% of annualized rent in aggregate and all amounts due under the agreements had been repaid. Management cautioned that further pandemic effects on tenants and acquisition activity remain uncertain.
- Lease expirations represent 6.4% of annualized lease revenue in 2022 and 7.9% in 2023. Management expects many tenants to renew and believes vacant space can generally be re-leased without significant rental loss, but this is not assured.
- Key risks include tenant defaults or non-renewals, healthcare reimbursement and regulatory changes, geographic concentration, acquisition competition and execution, access to capital, interest rates, climate and uninsured property losses, and maintaining REIT qualification. The revolving facility is LIBOR-indexed; it contains a fallback provision for SOFR or another benchmark.
- No material pending or threatened litigation was identified. No long-lived asset impairment was recorded in 2021, 2020, or 2019; the auditor identified impairment-trigger assessment and property recoverability testing as a critical audit matter. The auditor gave unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Review acquisition underwriting and whether the pending $105.7 million of property purchases close on schedule, at expected returns, and with the anticipated occupancy.
- Assess tenant credit, lease renewal and rollover exposure, especially the 2022–2023 expirations, and monitor occupancy and rent collections.
- Verify the funding and returns of the $10.4 million tenant-improvement commitments, including the five redevelopment projects.
- Evaluate debt maturities, refinancing needs, covenant headroom, variable-rate exposure, hedge costs, and the LIBOR transition; distinguish the $138.0 million revolver availability from cash on hand.
- Compare dividend coverage with cash generation and AFFO, noting that FFO and AFFO are non-GAAP measures and may not be comparable across REITs.
- Monitor tenant and regional concentration, healthcare reimbursement or regulatory changes, and the assumptions behind impairment testing.