Community Healthcare Trust Incorporated — Q3 2020 Form 10-Q
Business and period. Healthcare REIT that owns and acquires properties leased to healthcare providers. This unaudited report covers the quarter and nine months ended September 30, 2020. At quarter-end, the portfolio comprised 131 properties across 33 states, with approximately 2.8 million square feet and 89% leased.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $19.3 million | $16.3 million | $55.6 million | $44.0 million |
| Net income | $5.2 million | $2.6 million | $13.8 million | $6.2 million |
| Diluted EPS | $0.22 | $0.12 | $0.59 | $0.28 |
| FFO per diluted share | $0.52 | $0.44 | $1.50 | $1.20 |
Q3 revenue increased 19.0% and net income increased 96.9% year over year; nine-month revenue rose 26.2% and net income rose 124.5%. Management attributed the revenue and earnings growth principally to acquisitions. Rental income increased 20.5% in Q3 and 29.1% year to date. Interest expense declined 16.9% in Q3 and 4.3% year to date, mainly due to lower average debt balances and borrowing rates. Higher property, G&A, and depreciation expenses partially offset revenue growth.
For the first nine months, operating cash flow was $35.8 million, investing cash outflow was $57.5 million, and financing cash inflow was $32.2 million. Cash and cash equivalents were $12.2 million at September 30, with another $0.3 million restricted. The company paid $28.0 million of dividends during the period. The board subsequently declared a quarterly dividend of $0.425 per share, or $1.70 annualized.
Total assets were $615.7 million and stockholders’ equity was $409.6 million. Debt, net, was $179.3 million, down from $194.2 million at December 31, 2019. The company reported a 26.2% debt-to-total-capitalization ratio, compliance with credit-facility covenants, no revolver borrowings, and $150 million of remaining revolver capacity. Its term loans had $175 million outstanding and a weighted-average fixed rate of approximately 3.881% under swaps; the mortgage note was $5.2 million.
Material changes, outlook, and risks
- Acquisitions and portfolio: During the first nine months, the company acquired 13 properties and two adjacent land parcels for approximately $59.3 million, with acquired properties 99% leased in aggregate. Through November 3, it also acquired 10 properties for approximately $67.9 million, 100% leased in aggregate. Three additional properties totaling approximately $12.8 million and two properties totaling approximately $38.0 million were under definitive purchase agreements; closings were expected in 2021 but were not assured.
- COVID-19: As of October 31, 18 tenants had rent-deferral agreements and one additional agreement was anticipated. Together, these represented less than 1% of annualized rent. The company said it received substantially all installments due in Q3. It warned that the pandemic’s future effects remain uncertain and a prolonged outbreak could materially adversely affect operations and results.
- Capital and dilution: The company issued 1.73 million shares through its ATM program in the first nine months, receiving $75.5 million net. Approximately $226.2 million remained available under the $360 million program at September 30. Management expected to fund planned investments with operating cash, credit-facility proceeds, or further debt or equity offerings.
- Hedges and unusual items: A $10.3 million nine-month decrease in cash-flow hedge fair value was recorded in other comprehensive loss. The swap liability was $13.1 million; approximately $3.7 million was expected to be reclassified from accumulated other comprehensive loss as additional interest expense over the next 12 months. A land sale generated a $0.3 million loss in Q2. The Highland Hospital bankruptcy-related net receivable of approximately $0.2 million was collected in October.
- Outlook: The filing provides no quantified earnings or full-year operating guidance. Management said liquidity and capital sources were adequate for expected needs, while noting funding availability and acquisition closings could not be assured. No material off-balance-sheet arrangements were reported. Management considered inflation’s impact likely minimal, while noting some rent escalators may not keep pace with actual inflation.
Important facts for investors to verify
- Tenant rent collections, repayment of deferrals, occupancy, and leasing trends, especially given the continuing COVID-19 uncertainty.
- Whether the announced acquisitions and pipeline transactions close on expected terms, and how they are funded.
- ATM share issuance, remaining program capacity, and the effect of further equity issuance on per-share results and dividends.
- Debt covenant headroom, refinancing requirements, and the cash-flow and equity effects of interest-rate swaps and their accumulated loss.
- Dividend coverage by operating cash flow and FFO; FFO is a supplemental non-GAAP measure and is not equivalent to cash available for dividends.