Community Healthcare Trust Incorporated — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The company is a healthcare REIT focused on properties leased to healthcare providers in non-urban markets. At quarter-end, it reported approximately $183.0 million invested in 46 properties and mortgage notes across 18 states. The portfolio included 44 owned properties and two mortgage notes.
Financial performance and condition
- Revenue: $5.166 million, comprising rental income of $3.673 million, tenant reimbursements of $0.957 million, and mortgage interest of $0.536 million.
- Expenses and earnings: Operating expenses were $1.049 million, general and administrative expense was $0.806 million, depreciation and amortization was $2.815 million, and interest expense was $0.380 million. Net income was $0.116 million, or $0.02 per basic and diluted share; net margin was approximately 2.2%.
- FFO: $2.929 million, or $0.39 per diluted share. FFO is a supplemental non-GAAP measure and is not equivalent to operating cash flow.
- Cash flow: Operating activities provided $2.586 million; investing activities used $38.121 million, including property acquisitions and mortgage funding; financing activities provided $35.088 million, principally from net revolver borrowings. Cash declined by $0.447 million to $1.571 million.
- Balance sheet and debt: Total assets were $179.242 million and stockholders’ equity was $119.594 million. The revolving credit facility had $55.0 million outstanding, $20.0 million of remaining capacity, a 3.6% weighted-average interest rate, and maturity in June 2018. Debt was approximately 31.5% of total book capitalization. The company reported compliance with its financial covenants.
- Dividends: $0.3775 per share was declared for the quarter, totaling $2.912 million. The board subsequently declared $0.38 per share, payable in June 2016.
Changes versus the prior comparable period
Q1 2015 reported no revenue, net income, or operating, investing, or financing cash flows; therefore, year-over-year comparisons are not meaningful. The company’s initial public offering occurred in May 2015, and its investment and operating base expanded afterward. During Q1 2016, it acquired four properties for approximately $25.4 million and funded a $12.5 million mortgage note. These activities were primarily financed with revolver borrowings.
Outlook, commentary, and risks
- In April 2016, the company completed a follow-on offering, receiving approximately $86.8 million net proceeds, and repaid the $55.0 million revolver balance. It also acquired a property for approximately $10.4 million using offering proceeds.
- The company exercised an option to acquire the Illinois behavioral facility securing its mortgage note; it expected to close in Q2 2016 for approximately $7.5 million net of the note payoff and anticipated entering a 15-year lease. A separate Arizona surgery-center purchase agreement, estimated at $3.2 million, remained subject to due diligence, with no assurance it would close.
- Management expects approximately 7.6% of annualized rent to expire during the remainder of 2016 and 11.1% in 2017. It expects many tenants to renew and believes space can generally be re-leased without significant rental loss, but this is not assured.
- Debt carried a floating rate and the company had no hedging activity at quarter-end. Interest-rate changes could affect financing costs. Management stated that liquidity sources were adequate but could not assure funds would be available on acceptable terms when needed.
- Other items to monitor include contingent consideration of approximately $1.0 million, tenant improvement obligations of about $0.3 million not included in the contractual-obligations table because timing was uncertain, and the company’s dependence on acquisitions and equity or debt financing for growth. Management reported no known litigation expected to have a material adverse effect.
Important facts for investors to verify
- Confirm the post-quarter revolver repayment and offering proceeds against subsequent filings and cash balances.
- Track the closing, purchase price, and lease terms for the Illinois facility and the status of the Arizona transaction.
- Review tenant concentration, lease expirations, renewals, and the performance of the recently acquired properties; the filing does not provide a clear same-property growth comparison.
- Assess cash available for dividends separately from GAAP earnings and FFO, and monitor dividend coverage as the portfolio grows.
- Review floating-rate exposure, borrowing capacity and covenants, mortgage-note collectability, and contingent obligations.