Community Healthcare Trust Incorporated — Q1 2023 Form 10-Q
Business context and period: Healthcare REIT that owns and leases properties to healthcare providers. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022. At quarter-end, the portfolio comprised 181 properties across 34 states, was 91.6% leased, and had a 7.4-year weighted-average remaining lease term.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $27.2 million | $23.5 million |
| Net income (loss) | $(6.9) million | $5.5 million |
| Diluted earnings (loss) per share | $(0.32) | $0.21 |
| FFO | $2.2 million; $0.09 per diluted share | $13.5 million; $0.56 per diluted share |
| AFFO | $15.6 million; $0.62 per diluted share | $14.8 million; $0.61 per diluted share |
| NOI | $22.3 million | $19.4 million |
| Operating cash flow | $12.7 million | $14.4 million |
Rental income rose 15.6%, primarily reflecting acquisitions. Net loss included $11.8 million of accelerated, noncash stock-based compensation after the death of former CEO and President Timothy Wallace on March 3. Excluding that accelerated expense, AFFO increased about 5.2%; FFO was also affected by the charge. Interest expense rose 52.0% to $4.0 million, mainly due to higher rates and the late-2022 credit-facility refinancing.
At March 31, total assets were $886.3 million, debt net of financing costs was $365.1 million, and stockholders’ equity was $494.5 million. Cash and cash equivalents were $3.7 million, plus $1.0 million of restricted cash. The company reported $138.0 million of remaining revolving-credit capacity and a 35.3% debt-to-total-capitalization ratio under its stated calculation. It was in compliance with credit-facility financial covenants.
Material changes and developments
- Acquired seven properties for approximately $23.4 million purchase price, with $23.9 million cash consideration; they were fully leased at acquisition. Investing cash use increased to $28.6 million from $8.5 million.
- Issued 249,000 shares through its ATM program for approximately $8.9 million net proceeds. The company had approximately $469.9 million of ATM capacity remaining.
- Debt increased from $353.0 million at year-end 2022 to $365.1 million. The company had $12.0 million drawn on its $150 million revolver at a 6.55% weighted-average rate. $350 million of term loans were effectively fixed at approximately 4.3% under swaps; the $4.9 million mortgage bears 4.98% and has a roughly $4.8 million balloon due May 2024.
- Cash, cash equivalents and restricted cash declined by $7.4 million during the quarter. Dividends paid were $11.6 million.
- Lease expirations or terminations affected approximately 114,000 square feet; approximately 82,000 square feet were leased or renewed during the quarter.
Outlook, risks and contingencies
No formal earnings guidance is provided. Management stated it expects liquidity needs to be met through cash on hand, operating cash flow, debt and equity financing, while noting funding may not be available on acceptable terms or in sufficient amounts. Four properties under definitive agreements had an expected aggregate price of $19.7 million and anticipated Q2 2023 closings; another nine properties, expected to be acquired after completion and occupancy, represented approximately $214.5 million of potential purchases through 2023–2025. Timing and completion are not assured.
Management highlighted inflation and higher interest rates as potential pressures on expenses, capital spending, variable-rate borrowing costs and real-estate values. Other cited risks include refinancing availability, capital-market volatility, healthcare-sector developments, regulation, competition, extreme weather, cyber incidents, supply-chain and labor conditions, and broader economic uncertainty. Lease escalators, including stated or CPI-based increases, may partly mitigate inflation. The company had up to $12.7 million of potential tenant-improvement funding subject to approval, $4.9 million of remaining capital-expenditure commitments, and a discretionary commitment to fund up to $5.0 million more under a tenant lending arrangement. No pending or threatened litigation with a material adverse effect was identified; the filing reported no material change to previously disclosed risk factors.
The board declared a quarterly dividend of $0.45 per share on April 27, payable May 26, 2023, equivalent to an annualized $1.80 per share. The filing notes dividend capacity depends on cash generation and accretive investment opportunities. Disclosure controls were deemed effective, with no material internal-control changes reported.
Important facts for investors to verify
- How leasing, occupancy and rent collections develop following the quarter’s net reduction in leased square footage.
- Whether the acquisition pipeline closes as anticipated and how it is funded, including potential dilution from ATM or other equity issuance.
- Interest-rate exposure, remaining revolver capacity, covenant headroom and the plan to repay or refinance the May 2024 mortgage balloon.
- Whether AFFO and cash generation support the declared dividend and planned investment commitments; AFFO is a company-defined non-GAAP measure.
- Credit quality and repayment performance of the $33.3 million notes receivable, including the identified borrower VIEs and the additional discretionary funding commitment.
- Management and leadership transition following the former CEO and President’s death, and the ongoing impact of the accelerated compensation charge on period comparisons.