Community Healthcare Trust Incorporated — Q1 2022 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. The company is a healthcare REIT that owns and leases healthcare properties. At quarter-end it reported 158 properties across 34 states, approximately 3.4 million square feet, 89.9% leased, and a weighted-average remaining lease term of approximately 7.6 years.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $23.481 million | $21.395 million | +9.7% |
| Net income | $5.524 million | $5.315 million | +3.9% |
| Basic and diluted EPS | $0.21 | $0.21 | No change |
| Operating cash flow | $14.402 million | $13.493 million | +$0.909 million |
| FFO | $13.525 million | $12.591 million | +7.4% |
| AFFO | $14.827 million | $13.311 million | +11.4% |
| NOI | $19.390 million | $17.666 million | +9.8% |
| Interest expense | $2.626 million | $2.229 million | +17.8% |
FFO, AFFO, and NOI are non-GAAP measures; the company cautions that its definitions may not be comparable with other REITs. GAAP net income remains management’s stated preferred earnings measure.
Financial position and liquidity
- At March 31, 2022, total assets were $761.230 million and total liabilities were $290.116 million. Debt, net, was $269.670 million, up from $265.625 million at December 31, 2021.
- Cash and cash equivalents were $1.178 million; restricted cash was $0.521 million. The company had $134 million of unused capacity on its $150 million revolving facility.
- The company reported a 30.6% debt-to-total-capitalization ratio and compliance with its credit-facility financial covenants. Its stated financing policy generally limits debt to 40% of total capitalization, apart from short-term transitional periods.
- Term loans totaling $250 million had a fixed weighted-average rate of approximately 3.79% through interest-rate swaps. The $16 million revolver balance had a weighted-average rate of 3.0% and a floating rate. A $5 million mortgage carried a 4.98% fixed rate and matures in May 2024.
- Operating cash flow was $14.402 million; investing used $8.487 million and financing used $7.083 million. Dividends paid were $10.969 million.
Changes and notable items
- Revenue growth was attributed mainly to real estate acquisitions and interest on notes receivable. Rental income rose 8.8%; other operating interest rose 42.6%.
- Expenses increased: property operating costs by 9.7%, general and administrative costs by 16.0%, and depreciation and amortization by 9.9%. Interest expense rose primarily following the March 2021 credit-facility refinancing.
- Net income increased more slowly than revenue, while reported EPS remained $0.21. Weighted-average basic shares rose to 23.570 million from 22.809 million.
- Q1 2022 included $11.407 million of unrealized cash-flow-hedge gains in other comprehensive income, not net income. Derivative fair values shifted to a net asset position; the company estimated $5.2 million would be reclassified from accumulated other comprehensive income as a reduction of interest expense over the next 12 months.
- The company acquired two medical office properties for approximately $5.8 million; both were fully leased at acquisition. The acquisitions contributed approximately $45,000 of revenue and a $5,000 loss in the quarter.
Outlook, risks, and contingencies
- No numerical company-wide earnings or revenue guidance is provided. Management said it believes liquidity and capital sources are adequate, while noting that financing may not be available in sufficient amounts or on acceptable terms.
- One property was under definitive purchase agreement for approximately $5.9 million, with expected closing in Q2 or Q3 2022. Six additional properties were contracted for after completion and occupancy, at an aggregate expected purchase price of approximately $141 million and expected returns of 9.75%–10.25%; timing and completion were not assured.
- Portfolio occupancy was 89.9%. During the quarter, approximately 83,000 square feet of leases expired or terminated and approximately 80,000 square feet were leased or renewed.
- Risks identified include capital-market volatility, access to and cost of capital, refinancing, interest rates, the economy, healthcare-sector developments, competition, acquisition execution, and COVID-19-related impacts. The company uses swaps to manage interest-rate exposure and does not use derivatives for speculation.
- Notes receivable totaled $26.750 million, including loans to healthcare operators; certain borrowers were identified as variable-interest entities, but the company said it was not their primary beneficiary. It described maximum exposure as limited to the outstanding notes. The company also had discretion to fund up to an additional $5 million under one borrower arrangement.
- Potential tenant-improvement funding or reimbursements were up to approximately $8.8 million, and contracted capital expenditures were approximately $1.5 million. No pending or threatened litigation was identified as likely to have a material adverse effect.
- The board declared a $0.44-per-share quarterly dividend on April 28, 2022, payable May 27, 2022; this equates to an annualized rate of $1.76 per share. Dividend capacity depends on cash generation and accretive investment opportunities.
Important facts for investors to verify
- Whether occupancy, leasing activity, tenant credit quality, and collections sustain rental income and portfolio cash flow.
- Whether the planned acquisitions close on schedule and at the disclosed prices and expected returns, and how they are funded.
- Debt maturities, covenant headroom, floating-rate exposure, swap valuations, and the effect of changing interest rates on borrowing costs.
- Credit quality and repayment performance of the $26.750 million notes receivable, including potential additional funding commitments.
- Whether operating cash flow can support dividends, capital expenditures, and growth investments while maintaining liquidity.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter; investors should also review the company’s latest risk factors and subsequent filings.