Community Healthcare Trust Incorporated — FY2016 Form 10-K
Reporting period: Year ended December 31, 2016. The filing compares results with 2015, when operations began following the May 2015 IPO; therefore, year-over-year growth partly reflects a longer operating period and portfolio expansion.
Business context
The company is a healthcare REIT focused on owning and acquiring properties leased to healthcare providers in non-urban markets. At year-end it held 57 properties and one mortgage note across 22 states, with approximately $263.5 million invested, 1.33 million square feet, 93.1% property occupancy and a 7.2-year weighted-average remaining lease term. No tenant individually represented 10% or more of revenue.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $25.2 million | $8.6 million |
| Net income (loss) | $2.7 million | ($1.5 million) |
| Diluted EPS | $0.24 | ($0.31) |
| FFO | $15.9 million; $1.41 per diluted share | $3.7 million; $0.79 per diluted share |
| Cash from operating activities | $14.9 million | $3.0 million |
| Dividends paid per share | $1.525 | $0.517 |
2016 revenue comprised $19.0 million rental income, $4.6 million tenant reimbursements and $1.6 million mortgage interest. Fourth-quarter 2016 revenue was $7.4 million and net income was $1.0 million, or $0.08 per share. The filing provides no clear quarterly cash-flow figure.
At December 31, 2016, total assets were $251.5 million, net real estate was $234.3 million, cash was $1.6 million, total liabilities were $57.5 million and stockholders’ equity was $194.0 million. The company had $51.0 million outstanding on its variable-rate revolving facility, at a 2.99% weighted-average rate, with $99.0 million of remaining capacity. Reported leverage was 20.8% of book capitalization; debt was also reported as 20.3% of total assets. The facility matures August 2019, with two extension options, subject to conditions. The company was in covenant compliance.
Dividends declared and paid totaled $17.8 million, exceeding reported FFO of $15.9 million. The board declared a subsequent quarterly dividend of $0.3875 per share, equivalent to $1.55 annualized; future dividends remain discretionary.
Changes, outlook and notable items
- Revenue rose substantially as the portfolio expanded: the company acquired 17 properties in 2016 and funded a mortgage note; acquisitions contributed about $6.8 million of 2016 revenue. The prior-year comparison also reflects 40 properties acquired during 2015 and only a partial year of operations.
- Property operating costs included a $1.3 million reduction from fair-value adjustments to contingent purchase consideration. 2016 results also included about $0.8 million of acquisition transaction costs. FFO is a supplemental, non-GAAP measure and is not equivalent to cash available for distribution.
- Investing activities used $117.1 million; financing activities provided $101.7 million, including $86.1 million of net follow-on offering proceeds and $34.0 million of net credit-facility borrowings. Operating cash flow was $14.9 million.
- Management expected many expiring leases to renew and believed vacated space could generally be re-leased without significant rental loss. Annualized rent associated with leases expiring in 2017 and 2018 was 13.7% and 13.2%, respectively. These are expectations, not guarantees.
- From January 1 through February 23, 2017, the company acquired two properties for about $7.9 million, funded with facility borrowings. As of February 23, nine additional properties were under definitive purchase agreements for about $25.7 million, with estimated returns of 9.0%–9.6%, plus one $0.9 million property intended for possible office expansion. Closings were uncertain. No formal earnings or FFO guidance is provided.
- Key risks include healthcare reimbursement and regulatory changes affecting tenants, tenant defaults or non-renewals, variable-rate debt and reliance on external capital, and geographic concentration: Florida, Illinois, Kansas and Texas generated 55.2% of 2016 revenue. Lease rollover and specialized space in non-urban markets may make replacement tenants difficult to secure.
- The company qualified as a REIT for 2015 and 2016 and expected to maintain that status in 2017; qualification depends on ongoing compliance with complex tax rules. The independent auditor issued an unqualified opinion. Management concluded disclosure controls and internal control over financial reporting were effective; no material litigation was reported.
Important facts for investors to verify
- Whether operating cash flow and future FFO can support the dividend, given 2016 dividends exceeded FFO.
- Tenant credit quality, lease renewals and re-leasing progress, especially for leases expiring in 2017–2019.
- Actual closing, funding and realized returns for the acquisition pipeline and subsequent acquisitions.
- Exposure to variable interest rates, facility maturity and extension conditions, covenant headroom, and access to future equity or debt capital.
- Tenant exposure to reimbursement, regulatory and healthcare-market changes, and the continued effects of the four-state revenue concentration.
- Reconciliation of reported occupancy, property counts and leverage measures when reviewing the full filing and subsequent disclosures.