Community Healthcare Trust Incorporated (NYSE: CHCT) — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023. This is an annual filing; the provided text does not present standalone fourth-quarter results.
Business context
CHCT is a healthcare REIT that owns and leases healthcare properties. At year-end, its 193 properties across 34 states comprised approximately 4.3 million square feet, were 91.1% leased, and had a weighted-average remaining lease term of 6.9 years. The portfolio’s largest property-type exposures by annualized rent were medical office buildings (37.0%), inpatient rehabilitation (18.8%), and acute inpatient behavioral facilities (14.2%).
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $112.8 million | $97.7 million |
| Net income | $7.7 million | $22.0 million |
| Diluted earnings per share | $0.20 | $0.81 |
| FFO / diluted share | $47.9 million / $1.86 | $54.6 million / $2.24 |
| AFFO / diluted share | $64.1 million / $2.49 | $60.6 million / $2.49 |
| Operating cash flow | $61.4 million | $60.3 million |
| Cash used in investing | $113.7 million | $113.8 million |
| Cash dividends paid | $48.1 million | $44.5 million |
Revenue increased 15.5%, primarily from acquired properties. Net income margin was approximately 6.8%, versus 22.5% in 2022; these ratios are calculated from reported net income and total revenue. NOI was $92.1 million, up from $81.0 million, equivalent to approximately 81.6% of revenue in 2023. These non-GAAP and derived measures should be considered alongside GAAP results.
Net income was affected by a non-cash $11.8 million accelerated stock-compensation expense following the death of former CEO Timothy Wallace. Even excluding that item through the company’s AFFO adjustment, FFO declined; AFFO increased, while AFFO per share was unchanged.
At year-end, total assets were $945.4 million, total liabilities $432.2 million, and stockholders’ equity $513.3 million. Debt, net, was $403.3 million, including $350 million of term loans, $50 million drawn on the revolver, and a $4.8 million mortgage. The company reported $3.5 million of cash and cash equivalents, $1.1 million of restricted cash, and approximately $100 million of remaining revolver capacity. Its debt-to-total-capitalization ratio was 36.1%; it reported compliance with credit-facility covenants.
Material changes versus 2022
- Rental income rose 15.5%, while property operating expenses rose 24.5% and depreciation and amortization increased 22.7%, reflecting portfolio growth and acquired-property costs.
- Interest expense increased 49.9% to $17.8 million, reflecting higher rates, a higher average revolver balance, and prior-period refinancing.
- General and administrative expense increased 84.3% to $27.3 million, principally due to the $11.8 million accelerated stock-compensation charge.
- CHCT acquired 19 properties and a land parcel for approximately $97.8 million; acquisitions contributed $6.7 million of revenue and $2.0 million of net income in 2023.
- Cash and restricted cash fell to $4.6 million from $12.1 million. The company raised approximately $44.0 million net through its at-the-market equity program and issued 1.385 million shares.
Outlook, risks, contingencies, and unusual items
- Outlook and investments: Management expects to fund liquidity needs through cash, operating cash flow, debt, and equity, and believes available sources are adequate, while noting funding may not be available on acceptable terms. Three properties under purchase agreements have an expected aggregate price of $27.9 million and projected returns of 9.08%–9.20%, with anticipated closings in first-half 2024. Seven additional properties, to be acquired after completion and occupancy, have an expected price of $166.5 million and projected returns of 9.1%–9.75%, with closings anticipated across 2024–2026. These transactions are not assured.
- Leasing and tenant exposure: GenesisCare filed for Chapter 11 in June 2023; two leases were rejected. At year-end it remained the sole tenant at five properties and a tenant at two multi-tenant properties, representing about 1.9% of gross properties. The company said remaining leases were expected to be assumed or assigned, and that GenesisCare had substantially met lease payments due through February 2024. Lifepoint accounted for 11.9% of annualized revenues at year-end. Texas, Ohio, and Illinois together represented 39.6% of annualized rent.
- Lease rollover: Leases representing 6.9% of annualized lease revenue expire in 2024 and 9.2% in 2025. Management expects many tenants to renew but cannot assure renewals or replacement leasing at comparable rents.
- Debt and rates: The $50 million revolver balance was variable-rate; term loans totaling $350 million were hedged with swaps at a weighted-average fixed rate of approximately 4.3%, expected to rise to approximately 4.4% after March 2024 swap transitions. A $4.8 million mortgage balloon payment is due May 2024; management expects to fund it with revolver proceeds or equity proceeds.
- Capital commitments and distributions: Tenant-improvement commitments were $10.9 million and capital-improvement commitments $5.8 million at year-end. The board declared a $0.4575-per-share quarterly dividend in February 2024, payable March 1, 2024. Future dividends remain subject to cash generation and board discretion.
- Other unusual items: A vandalized Houston property generated $2.3 million of insurance proceeds and a net casualty gain of approximately $0.7 million; it remained for sale after a sales contract terminated. Two properties with a combined $7.5 million carrying value were classified as held for sale. The company recorded a $0.1 million impairment on one.
- Principal risks: Tenant defaults or bankruptcies, healthcare reimbursement and regulatory changes, inflation and interest rates, refinancing and capital-market access, acquisition execution, lease expirations, geographic and healthcare-sector concentration, property damage and insurance availability, and REIT qualification. No material pending litigation was reported. The auditor issued unqualified opinions on the financial statements and internal controls; an asset-impairment assessment was identified as a critical audit matter.
Important facts for investors to verify
- Track GenesisCare lease assignments, rent collections, and the leasing or disposition plan for affected properties.
- Confirm completion, pricing, funding, and realized returns for the announced acquisition pipeline and subsequent acquisitions.
- Review refinancing of the May 2024 mortgage maturity, revolver utilization, debt covenants, and sensitivity to variable interest rates.
- Assess upcoming lease expirations, occupancy trends, tenant credit quality, and concentration by tenant and geography.
- Reconcile GAAP earnings with FFO and AFFO, particularly the treatment of stock compensation and other adjustments, and assess dividend coverage and equity dilution.
- Monitor the held-for-sale properties, impairment assumptions, capital commitments, and insurance recoveries.