Community Healthcare Trust Incorporated — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The company is a healthcare REIT owning and leasing properties to healthcare providers. At quarter-end it held 131 properties in 33 states, with approximately $664.7 million invested in real estate and portfolio occupancy of 89.5%.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $18.3 million | $14.3 million | $36.2 million | $27.8 million |
| Net income | $4.5 million | $2.1 million | $8.6 million | $3.5 million |
| Basic/diluted EPS | $0.19 | $0.09 | $0.37 | $0.16 |
| FFO | $11.0 million | $7.4 million | $21.2 million | $14.1 million |
| FFO per diluted share | $0.51 | $0.40 | $0.98 | $0.76 |
Q2 revenue rose 27.7% and net income rose 119.1% year over year; for the first half, revenue increased 30.5% and net income 145.3%. Management attributed revenue growth primarily to property acquisitions, partly offset by lower interest income on notes receivable. Calculated net margin was approximately 24.8% in Q2 versus 14.4% a year earlier, and 23.8% for the first half versus 12.7%.
For the six months, cash from operations was $23.7 million, compared with $14.4 million in 2019. Investing used $55.6 million, including $57.9 million of real estate acquisitions and $3.1 million of property capital expenditures; financing provided $35.0 million, including $50.6 million of equity proceeds and $18.3 million of dividends paid. Cash and restricted cash ended the period at $5.2 million.
Balance sheet, liquidity and capital
- At June 30, 2020, total assets were $612.3 million, total liabilities $225.2 million, and stockholders’ equity $387.1 million.
- Debt, net, was $197.3 million, versus $194.2 million at year-end 2019. The company had $18.0 million drawn on its $150 million revolver, leaving approximately $132 million available; it had drawn the full $175 million of term loans.
- The company reported a 29.3% debt-to-total-capitalization ratio and compliance with credit-facility financial covenants. Term loans were fixed through swaps at a weighted-average 4.569%; revolver borrowings had a 2.06% weighted-average rate.
- Cash-flow hedge liabilities were $14.0 million, and the company recorded $9.2 million of other comprehensive loss for the first half, primarily reflecting hedge fair-value changes. It estimates another $3.7 million will be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.
- The company issued 1.19 million shares through its ATM program in the first half, receiving $50.6 million net. Approximately $251.6 million remained available under the program at June 30.
Changes, outlook and risks
- First-half acquisitions comprised 13 properties and an adjacent land parcel for approximately $58.2 million aggregate purchase price; acquired properties were 99.0% leased. The portfolio was approximately 89.5% leased at quarter-end; roughly 107,000 square feet were leased or renewed versus 74,000 square feet of expirations or terminations during the first half.
- As of July 31, the company had entered into, or anticipated entering into, rent-deferral agreements with up to approximately 20 tenants, representing less than 1% of annualized rent. Deferred payments were generally due in equal monthly installments in the third and fourth quarters of 2020. The company continued recognizing rent under its elected accounting treatment. Management cautioned that the full effects of COVID-19 remained uncertain and a prolonged outbreak could materially adversely affect results and operations.
- Management expected to close two properties for approximately $2.6 million in Q3 2020, subject to uncertainty. Three further properties, expected to cost approximately $68 million with projected returns of 9.5%–11.0%, were expected to close from Q4 2020 through mid-2021, also subject to completion, occupancy and transaction timing. The filing gives no full-year earnings or revenue guidance.
- On July 1, a bankruptcy sale of Highland Hospital closed; its operator acquired the operations and entered into a lease. The company reported a combined net receivable of approximately $1.4 million and expected repayment in the following months, but gave no assurance as to timing or collection. The company also reported a $0.3 million loss on sale of a land parcel in Q2.
- Two property purchase agreements carried expected returns of approximately 9.3%. The company cited general risks including COVID-19 effects on healthcare tenants, capital-market access, refinancing, interest rates, acquisitions and the broader economy. It reported no material off-balance-sheet arrangements and no known pending or threatened litigation expected to have a material adverse effect.
The board declared a $0.4225 per-share quarterly dividend on August 3, payable August 28, 2020. Management stated that liquidity and capital sources were adequate for expected needs, while noting that funding might not be available on acceptable terms or in sufficient amounts. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Subsequent tenant rent collections, repayment of deferrals, and the extent of COVID-19 effects on healthcare tenants and occupancy.
- Collection and timing of the Highland-related receivable and other amounts owed.
- Execution and funding of the acquisition pipeline, including expected returns and closing conditions.
- Debt covenant headroom, interest-rate exposure, swap obligations, and the future earnings impact of hedge losses.
- Cash generation relative to dividends, acquisition spending, and continued ATM share issuance and dilution.