Community Healthcare Trust Incorporated — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The company completed its IPO on May 27, 2015 and began operations as a public REIT thereafter; 2014 had no operating results, so year-over-year comparisons are limited.
Business context and portfolio
The company acquires and owns healthcare real estate leased to healthcare providers, principally in non-urban markets. At year-end, it held 40 properties and one mortgage note across 18 states, representing approximately $143.9 million of investments and 789,500 square feet. Properties were 94.3% leased, with a weighted-average remaining lease term of 5.6 years. No tenant represented 10% or more of 2015 consolidated revenue.
Financial results and liquidity
| Metric | 2015 |
|---|---|
| Revenue | $8.632 million |
| Net loss | $1.456 million; diluted loss per share $0.31 |
| FFO | $3.747 million; $0.79 per diluted share |
| Cash from operations | $2.971 million |
| Cash used in investing | $140.640 million |
| Cash from financing | $139.685 million |
| Year-end cash | $2.018 million |
| Total assets / stockholders’ equity | $142.803 million / $122.270 million |
| Revolving credit facility borrowings | $17.0 million; approximately $58.0 million remaining availability |
Annual expenses were $9.759 million, including $5.204 million of depreciation and amortization and $2.472 million of general and administrative expense. Management attributed the GAAP loss in part to non-cash real estate amortization and approximately $1.6 million of transaction costs associated with acquisitions and the IPO. FFO is a non-GAAP supplemental measure, not a substitute for operating cash flow.
Fourth-quarter revenue was $4.556 million and net income was $121,000, compared with third-quarter revenue of $3.240 million and a net loss of $67,000. The filing identifies approximately $1.6 million of IPO and acquisition expenses in 2015, but does not clearly allocate the full amount by quarter.
Annualized lease revenue at year-end was $13.499 million. Approximately 42.1% was from properties in Kansas, Texas and Florida. The filing also reports that 41.3% of full-year consolidated revenue came from Kansas and Texas; these are different measures and periods.
Material changes and capital allocation
- During 2015, the company acquired 40 properties for approximately $130.4 million, including approximately $129.8 million in cash consideration, and funded an $11.0 million mortgage note.
- The $75.0 million revolving facility matures in June 2018, with two one-year extension options and an accordion feature that could increase total facility size to $200.0 million, subject to conditions. Year-end borrowings carried a weighted-average rate of approximately 3.6% and were variable-rate.
- Cash dividends paid in 2015 totaled $3.928 million, or $0.517 per share. The board declared a $0.3775-per-share dividend in February 2016, equivalent to an annualized rate of $1.51 per share.
- After year-end, the company acquired two properties for approximately $9.5 million and funded a $12.5 million mortgage note. It borrowed an additional $21.0 million under the facility, bringing borrowings to $38.0 million at January 31, 2016.
Outlook, risks and unusual items
The company provided no quantified earnings or acquisition guidance. Management intends to grow through acquisitions of non-urban healthcare properties, generally targeting individual transactions of $10 million or less, and stated that liquidity and capital sources were adequate for expected needs, while noting funding availability and terms could not be assured. Two additional properties were under definitive purchase agreements for an expected aggregate price of approximately $16.9 million, subject to due diligence and closing conditions.
Key risks include the company’s limited operating history, tenant defaults or lease non-renewals, healthcare reimbursement and regulatory changes, and geographic concentration. Leases representing 13.7% of annualized lease revenue were scheduled to expire in 2016 and 11.8% in 2017. The credit facility is floating-rate, and the company relies on external capital to fund growth and refinancing needs. It was in compliance with facility financial covenants at year-end. Management reported no 2015 impairment charges and no known litigation expected to have a material adverse effect. The company expected to qualify as a REIT for 2015; maintaining REIT status depends on meeting ongoing tax requirements.
Important facts for investors to verify
- Whether rental collections, occupancy and tenant credit quality support the dividend, given 2015 operating cash flow of $2.971 million and dividends paid of $3.928 million.
- Lease renewal and re-leasing outcomes for the 2016–2018 expirations, which together represent a substantial share of annualized lease revenue.
- How additional acquisitions and mortgage lending affect leverage, variable-rate exposure, available facility capacity and future liquidity.
- The sustainability and quality of FFO relative to GAAP results and cash flow, including the effect of acquisition-related lease-intangible amortization and transaction costs.
- Progress on pending acquisitions, REIT qualification, and exposure to Kansas, Texas and Florida markets and healthcare reimbursement or regulatory changes.