Community Healthcare Trust Incorporated — Q2 2023 Form 10-Q
Business and period: Healthcare REIT owning and leasing properties to healthcare providers. This unaudited report covers the quarter and six months ended June 30, 2023. The portfolio comprised 184 properties in 34 states, approximately 4.0 million square feet, 91.7% leased, with a 7.1-year weighted-average remaining lease term.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $27.8 million | $24.0 million | $55.0 million | $47.5 million |
| Net income (loss) | $6.6 million | $5.6 million | $(0.3) million | $11.1 million |
| Basic and diluted EPS | $0.24 | $0.21 | $(0.07) | $0.41 |
| NOI | $23.0 million | $20.0 million | Not provided in the cited filing text | Not provided in the cited filing text |
Q2 NOI margin was approximately 82.8% of revenue, compared with 83.1% a year earlier. Q2 FFO was $15.9 million ($0.62 per diluted share) and AFFO was $16.0 million ($0.63 per diluted share), versus $13.7 million ($0.57) and $15.0 million ($0.62), respectively, in Q2 2022.
For the first half, operating cash flow was $29.4 million, investing cash outflow $45.1 million, and financing cash inflow $7.3 million. Cash and restricted cash totaled $3.7 million at June 30, down from $12.1 million at year-end 2022. The company paid $23.5 million in dividends and received $16.9 million net from ATM share sales during the half.
Balance sheet, debt and liquidity
At June 30, total assets were $900.5 million, debt net $368.1 million, and stockholders’ equity $505.3 million. Debt was $15.1 million higher than at December 31, 2022. Debt to total capitalization, including accumulated depreciation, was approximately 34.9%; the company’s policy generally limits this ratio to 40%. It had $135 million of undrawn revolving credit capacity and was in compliance with credit-facility covenants.
The $350 million term loans had an approximately 4.3% fixed weighted-average rate under swaps; the $15 million revolver borrowing had a 6.80% weighted-average rate. A $4.8 million mortgage balloon payment is due May 1, 2024; management expects to fund it through the ATM program or revolver. Interest expense rose 50.3% in Q2 and 51.1% in the first half year over year, primarily due to the credit-facility refinancing and higher rates.
Material changes and unusual items
- Q2 rental income increased 15.4% year over year, largely from acquisitions; first-half rental income increased 15.5%. Acquired properties contributed approximately $3.4 million of Q2 and $6.7 million of first-half rental income.
- First-half G&A rose to $20.0 million from $6.9 million. It included $11.8 million of accelerated non-cash stock-compensation amortization following the March 2023 death of the former CEO and President. This unusual charge was a major factor in the first-half GAAP net loss; first-half stock-based compensation expense was approximately $16.0 million.
- Q2 interest and other income included a $0.7 million net insurance recovery gain related to vandalism damage at a Houston property. The property was classified as held for sale at June 30.
- The company acquired 10 properties and a land parcel for $39.7 million cash consideration in the first half. After quarter-end, it acquired four properties for approximately $35.7 million cash consideration.
Outlook, risks and contingencies
No specific earnings or FFO guidance is provided in the filing. Management said liquidity sources—cash, operating cash flow, equity issuance and credit facilities—are expected to meet requirements, while noting funding may not be available on acceptable terms. The company had three properties under definitive agreements for approximately $16.1 million, expected to close in Q3 2023, and eight properties to be acquired after completion and occupancy for approximately $191 million, with anticipated closings over 2023–2025; timing and completion are not assured. Expected returns were approximately 9.2%–10.3% and 9.1%–9.75%, respectively.
GenesisCare and affiliates filed for Chapter 11 on June 1, 2023. GenesisCare was the sole tenant at seven properties and a tenant at two multi-tenant properties, representing approximately 3.1% of gross real estate properties. One lease was rejected in bankruptcy; the company reported that GenesisCare had met substantially all lease obligations due through July 2023 and is monitoring further effects.
Management highlighted potential effects of inflation and higher interest rates, including increased variable-rate borrowing costs, expenses and capital expenditures, and pressure on property values. Other cited risks include refinancing, capital-market access, healthcare-sector developments, acquisitions, regulation, natural events and cyber incidents. The company declared a Q3 dividend of $0.4525 per share, or $1.81 annualized. It reported no material changes to previously disclosed risk factors and no litigation known to be expected to materially affect results.
Key facts for investors to verify
- GenesisCare’s bankruptcy outcomes, lease rejection implications, and rent collections beyond July 2023.
- Portfolio leasing, tenant retention and re-leasing progress, given 91.7% occupancy and first-half lease expirations or terminations exceeding new and renewed leasing.
- Funding and returns for the acquisition pipeline, including the substantial properties dependent on completion and occupancy.
- Interest-rate exposure, revolver pricing, covenant headroom, and the funding plan for the May 2024 mortgage maturity.
- Dividend coverage and cash available after acquisitions, capital expenditures and debt service; GAAP earnings were affected by the one-time accelerated compensation expense.