Community Healthcare Trust Incorporated — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company is a healthcare REIT owning and leasing healthcare properties. At quarter-end, its 191 properties across 34 states totaled approximately 4.2 million square feet, were 91.0% leased, and had a weighted-average remaining lease term of 7.1 years. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $28.7 | $24.8 | $83.7 | $72.3 |
| Net income | $3.5 | $5.7 | $3.1 | $16.8 |
| Net income per diluted share | $0.11 | $0.21 | $0.05 | $0.62 |
| Operating cash flow | — | — | $47.1 | $44.9 |
| Cash used in investing | — | — | $100.1 | $55.9 |
| Cash provided by financing | — | — | $45.9 | $11.5 |
- Q3 FFO was $15.0 million, or $0.58 per diluted share; AFFO was $16.4 million, or $0.63 per diluted share. Both are non-GAAP measures defined by the company.
- Q3 NOI was $23.3 million. The filing does not present a specific operating-margin measure.
- At September 30, total assets were $955.1 million, debt net was $401.2 million, total liabilities were $432.8 million, and stockholders’ equity was $522.3 million. Cash and restricted cash totaled $4.9 million.
- Debt included $350.0 million of term loans, $48.0 million drawn on a $150.0 million revolving facility, and a $4.8 million mortgage note. The term loans’ weighted-average rate was approximately 4.3% under swaps; the revolver’s weighted-average rate was 7.05%. Remaining revolver capacity was $102.0 million. Debt to total capitalization was approximately 35.9%; the company reported compliance with credit-facility covenants.
Material changes versus comparable periods
- Q3 revenue increased 15.8%, primarily from properties acquired in 2022 and 2023, while net income fell 38.4%. Interest expense rose 53.3% to $4.6 million, reflecting the late-2022 refinancing, higher revolver borrowings, and higher rates; depreciation and amortization also increased.
- Nine-month revenue increased 15.7%, but net income declined 81.2%. General and administrative expense rose to $23.6 million from $10.7 million, principally due to $11.8 million of accelerated, noncash stock-compensation amortization following the former CEO and President’s death in March 2023. Nine-month interest expense increased 51.9% to $12.8 million.
- The company acquired 17 properties and a land parcel during the first nine months for approximately $92.0 million of cash consideration. Acquisitions and capital expenditures contributed to investing cash outflows of $100.1 million.
- The company issued shares through its at-the-market program, generating approximately $34.8 million in net proceeds during the first nine months, and borrowed $48.0 million on its revolver. Dividends paid were $35.6 million.
Outlook, risks, and unusual items
- No earnings or full-year financial guidance is provided. Seven properties are under definitive purchase agreements following completion and occupancy, with expected aggregate purchase price of approximately $166.5 million and anticipated returns of 9.1%–9.75%; closings are expected during 2024 and 2025, but are not assured. After quarter-end, the company acquired two medical office buildings for approximately $7.1 million.
- Management said available liquidity sources—including cash, operating cash flow, equity issuance, and borrowing capacity—are expected to meet cash needs, while noting there is no assurance financing will be available on acceptable terms. The $4.8 million mortgage balloon payment is due May 1, 2024; the company expects to fund it with ATM proceeds or revolver borrowings.
- GenesisCare filed for Chapter 11 bankruptcy in June 2023. Two leases were rejected; at quarter-end, GenesisCare was the sole tenant in five properties and a tenant in two multi-tenant properties, representing about 1.9% of gross real estate investment and 62,000 square feet. It had met substantially all lease payments due through October 2023, and the company is monitoring the bankruptcy.
- Interest-rate increases may raise costs on variable-rate borrowings and adversely affect property values. Term loans are hedged, but the revolver remains floating-rate. The company also cited general economic, healthcare-industry, capital-market, refinancing, acquisition, climate and cyber risks.
- Other unusual items included a $0.7 million net casualty gain from insurance proceeds relating to a vandalized Houston property and a $0.1 million impairment when that property was classified as held for sale. The board declared a subsequent quarterly dividend of $0.455 per share, equivalent to an annualized $1.82 per share.
- The filing reported no material change in risk factors, no material litigation known to the company, and effective disclosure controls.
Most important facts for investors to verify
- Whether GenesisCare’s bankruptcy leads to further lease rejections, vacancies, or collection losses.
- Leasing progress and occupancy, including the effect of leases that expired or terminated during 2023.
- Funding and returns for the $166.5 million acquisition pipeline, planned capital spending, and remaining tenant-improvement obligations.
- Interest-rate exposure, the May 2024 mortgage maturity, revolver availability, and continued covenant compliance.
- Cash generation and dividend coverage, considering the $35.6 million of dividends paid against $47.1 million of nine-month operating cash flow and ongoing investment requirements.