Community Healthcare Trust Incorporated — Q3 2015 Form 10-Q
Reporting period: Quarter ended September 30, 2015. The company is a newly public healthcare REIT focused on properties leased to healthcare providers in non-urban markets. It completed its IPO in May 2015; therefore, 2014 comparative operating results were zero and are not a meaningful like-for-like comparison.
Financial and operating highlights
- Revenue: Q3 revenue was $3.240 million, including $2.585 million of rental income and $655,000 of tenant reimbursements. Nine-month revenue was $4.076 million.
- Profitability: Q3 net loss was $67,000, or $0.01 per share; nine-month net loss was $1.576 million, or $0.42 per share. Depreciation and amortization was $2.211 million in Q3 and $2.788 million for nine months. The filing does not report a margin measure.
- FFO: Funds from Operations was $2.144 million, or $0.29 per diluted share, for Q3; and $1.212 million, or $0.32 per diluted share, for nine months. FFO is a supplemental, non-GAAP measure and is not equivalent to operating cash flow.
- Cash flow and liquidity: Nine-month operating cash flow was $1.469 million; investing cash use was $110.982 million; financing cash flow was $125.564 million. Cash at September 30 was $16.053 million.
- Assets and debt: Total assets were $127.050 million, including net real estate of $98.340 million and a mortgage note receivable of $10.862 million. Total liabilities were $2.091 million. No borrowings were outstanding on the $75 million revolving credit facility, and the company reported compliance with its covenants.
- Portfolio: At quarter-end, investments totaled approximately $112.0 million across 32 owned properties and one mortgage, in 16 states, totaling approximately 575,000 square feet. Q3 property acquisitions were approximately $13.1 million; the properties were 93.6% leased upon acquisition.
Material changes and capital allocation
- The May IPO and concurrent private placements generated approximately $127.5 million of net proceeds combined. The company used capital to acquire properties and fund its mortgage investment.
- After quarter-end, the company acquired three properties for approximately $14.7 million; they were fully leased upon acquisition. It also reported 11 properties under definitive purchase agreements for approximately $18.4 million, with anticipated Q4 closings. These transactions remained subject to due diligence and might not close.
- The board declared a $0.375-per-share dividend in November 2015, payable in December, equivalent to an annualized rate of $1.50 per share. The company paid $0.142 per share in September for the initial dividend period.
Outlook, risks, and unusual items
- Management said it expected liquidity needs to be met through cash on hand, operating cash flows, and potential debt or equity financing, but cautioned that funding may not be available on acceptable terms or in sufficient amounts. No numerical earnings guidance was provided.
- The $11.0 million Louisiana mortgage bears fixed interest at 9.5%, is interest-only through September 2016, and matures in 2026. The company has a fixed-price option to purchase the secured property through September 2016; the borrower was identified as a variable-interest entity, but the company determined it was not the primary beneficiary.
- The revolving facility carries floating-rate pricing if drawn, and availability is subject to borrowing-base limits and financial covenants. The company had not hedged interest-rate exposure as of quarter-end.
- Management expected inflation and seasonality to have limited impact, citing lease escalation provisions and tenant responsibility for many property costs. Some rent increases may be below actual inflation.
- The company reimbursed approximately $425,000 during Q2 and Q3 for formation and offering-related costs advanced by AFP, an entity substantially owned and controlled by the CEO; AFP was to receive no further compensation for these services.
- The filing reported no pending or threatened litigation expected to have a material adverse effect. It also noted that management’s internal-control assessment was omitted under the transition rules for newly public companies.
Important facts for investors to verify
- Current occupancy, tenant credit quality, lease expirations, and rent collection across the portfolio; quarter-end portfolio occupancy is not clearly stated.
- Whether the 11 announced purchase-agreement properties closed, at what cost, and whether expected returns were achieved.
- Performance and collectability of the $11 million mortgage, including the purchase option and borrower’s ability to service the loan after interest-only payments end.
- Cash available for acquisitions and dividends, the sustainability of the $1.50 annualized dividend, and any future use of debt or equity financing.
- Final acquisition valuations, related-party reimbursements, and the effect of restricted-stock compensation on future expenses and dilution.