Community Healthcare Trust Incorporated — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in millions unless otherwise noted.
Business context
Community Healthcare Trust is a healthcare REIT that owns and acquires properties leased to healthcare providers. At quarter-end, it held investments of approximately $824.4 million in 151 properties across 33 states, totaling about 3.3 million square feet. The portfolio was 89.3% leased, with a weighted average remaining lease term of approximately 8.0 years.
Financial and operating results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $23.3 | $19.3 | $67.3 | $55.6 |
| Net income | $5.4 | $5.2 | $16.4 | $13.8 |
| Net income per diluted share | $0.20 | $0.22 | $0.63 | $0.59 |
| Operating cash flow | — | $41.4 | $35.8 | |
| FFO per diluted share | $0.55 | $0.52 | Not provided in cited data | Not provided in cited data |
| AFFO per diluted share | $0.59 | $0.53 | Not provided in cited data | Not provided in cited data |
Q3 GAAP net margin was approximately 23.0%, versus 26.9% in Q3 2020; nine-month net margin was approximately 24.3%, versus 24.9%. These are calculated as net income divided by total revenue. Q3 NOI was $19.2 million, compared with $15.8 million; Adjusted EBITDAre was $18.0 million, compared with $14.9 million.
For the nine months, investing activities used $93.1 million, mainly for $78.2 million of property acquisitions and $13.4 million of note funding. Financing activities provided $51.0 million. Cash, cash equivalents and restricted cash totaled $2.1 million at September 30, 2021, compared with $12.5 million a year earlier.
At September 30, 2021, total assets were $747.6 million and debt, net, was $257.6 million, compared with $668.4 million and $212.4 million, respectively, at December 31, 2020. The company reported $146.0 million of remaining revolver capacity and a debt-to-total-capitalization ratio of approximately 30.5%. Term loans totaling $250.0 million had a fixed weighted-average rate of approximately 3.95% under swaps. The company stated it was in compliance with its credit-facility financial covenants.
Material changes versus comparable periods
- Revenue increased 20.2% in Q3 and 21.2% for the nine months, primarily from real estate acquisitions and interest income on new notes receivable.
- Net income increased 2.7% in Q3 and 18.4% for the nine months. Q3 diluted EPS decreased from $0.22 to $0.20, while nine-month diluted EPS increased from $0.59 to $0.63.
- Interest expense rose 35.1% in Q3 and 19.4% for the nine months, principally following the March 2021 credit-facility refinancing. General and administrative expense also increased, largely due to compensation, employee additions and stock-based compensation.
- During the first nine months, the company acquired 10 properties for an aggregate purchase price of approximately $78.6 million and issued $38.4 million of net ATM equity proceeds. Shares outstanding increased from 23.9 million at December 31, 2020 to 25.0 million at September 30, 2021.
- Operating cash flow increased to $41.4 million from $35.8 million; cash and restricted cash declined year over year.
Outlook, risks and unusual items
- No formal earnings or financial guidance is stated. Management said liquidity and capital sources were believed adequate, while noting funding may not be available in sufficient amounts or on acceptable terms.
- Three properties were under definitive purchase agreements for approximately $12.2 million, with expected closings in Q4 2021 but no assurance of timing or completion. Four additional properties, expected to be acquired after completion and occupancy, had aggregate expected purchase prices of approximately $94.0 million and stated expected returns of approximately 10.25%; anticipated closings were from Q1 2022 through Q2 2023.
- A 27,000-square-foot medical office building was acquired after quarter-end for approximately $3.5 million. The company also expected to sell a tenant-optioned property in Alabama in Q4 2021 and anticipated a gain.
- COVID-19 continued to pose risks to healthcare providers and tenants. Deferrals had been agreed with 18 tenants, representing less than 1% of annualized rent in aggregate; approximately $17,000 remained to be billed and paid in Q4 2021.
- The company estimated $4.3 million of cash-flow hedge losses would be reclassified to interest expense over the next 12 months. Its derivative liability was $8.3 million; the filing stated a breach could have required settlement of approximately $8.5 million.
- Potential tenant-improvement funding or reimbursement was up to approximately $7.7 million, and contracted capital expenditures were approximately $1.8 million. Management cited interest rates, capital-market access, refinancing, acquisition execution, healthcare-sector developments and COVID-19 as risks.
- The board declared a Q4 dividend of $0.435 per share, payable November 26, 2021; the company reported $1.74 per share as the annualized rate.
Most important facts for investors to verify
- Whether portfolio leasing and tenant collections remain stable, particularly given 89.3% occupancy and ongoing healthcare-sector and pandemic risks.
- How acquisition spending and the announced purchase pipeline will be funded, including any further debt or ATM share issuance and resulting dilution.
- Whether cash generation supports dividends, capital needs and debt service, given low reported cash balances and significant investing outflows.
- Debt covenant headroom, refinancing exposure, floating-rate sensitivity and the cost or accounting effects of interest-rate swaps.
- Whether the expected property acquisitions and Alabama property sale close on the stated terms and schedules.