Community Healthcare Trust Incorporated — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Community Healthcare Trust is a healthcare REIT that owns and leases healthcare properties. At quarter-end, its portfolio comprised 147 properties across 33 states, approximately 3.2 million square feet, 89.1% leased, with an 8.3-year weighted-average remaining lease term.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $21.4 million | $17.9 million | +19.3% |
| Operating income | $7.6 million | $6.3 million | +19.6% |
| Net income | $5.3 million | $4.1 million | +29.6% |
| Diluted EPS | $0.21 | $0.18 | +$0.03 |
| FFO / diluted share | $0.54 | $0.48 | +12.5% |
| AFFO / diluted share | $0.57 | $0.49 | +16.3% |
| Cash from operations | $13.5 million | $10.3 million | +$3.2 million |
Operating margin was approximately 35.4%, broadly unchanged from Q1 2020; net margin increased to approximately 24.8% from 22.9%. NOI was $17.7 million versus $14.6 million. Management attributed revenue growth primarily to property acquisitions and new notes receivable. Expenses also rose: property operating costs increased 11.5%, G&A increased 30.4%, and depreciation and amortization increased 19.2%. Interest expense was nearly flat at $2.2 million.
Investing cash outflow was $67.3 million, mainly for $60.0 million of property acquisitions and $7.1 million of notes receivable funding. Financing cash inflow was $56.9 million. Cash and restricted cash totaled $6.0 million at quarter-end.
Balance sheet, debt and liquidity
- Total assets were $735.3 million; debt, net was $260.4 million, up from $212.4 million at December 31, 2020. Stockholders’ equity was $450.1 million.
- The company amended and restated its credit agreement in March. It replaced a $50 million term loan with a new $125 million seven-year loan, extended the revolver maturity to March 2026, removed collateral security provisions, and increased total potential borrowing capacity under the accordion feature to $600 million.
- At March 31, $7 million was drawn on the $150 million revolving facility, leaving $143 million available; term loans totaled $250 million and carried a swap-fixed weighted-average rate of approximately 3.95%. The company reported compliance with financial covenants and a debt-to-total-capitalization ratio of approximately 31.7%.
- The company issued 435,272 shares through its ATM program for $19.9 million net proceeds during the quarter; approximately $119.9 million remained available under the program.
Material changes, outlook and risks
- Six properties were acquired in Q1 for approximately $59.8 million, with aggregate occupancy of 100% at acquisition. A further property was acquired after quarter-end for approximately $4.2 million.
- Two properties were under definitive purchase agreements for an aggregate expected price of $8.4 million and expected returns of approximately 9.3%; anticipated closing was Q2 or Q3 2021, but completion was not assured.
- A tenant exercised a purchase option on a medical office building; the company expected a Q2 sale and gain. The property was classified as held for sale.
- Management reported continuing COVID-19 effects on some healthcare tenants. Deferrals involved 18 tenants and less than 1% of annualized rent; approximately $51,000 remained to be billed and paid during the rest of 2021.
- The company declared a quarterly dividend of $0.43 per share after quarter-end, equivalent to an annualized $1.72. Q1 dividends were $0.4275 per share.
- Key risks cited include tenant and healthcare-sector impacts from COVID-19, acquisition execution, capital-market availability and terms, refinancing, interest rates, and general economic and real-estate conditions. No material litigation was reported. Management stated disclosure controls were effective.
Other notable item: cash-flow hedges produced $3.7 million of other comprehensive income in Q1, compared with an $8.6 million loss in Q1 2020. The company estimated that $4.5 million of losses in accumulated other comprehensive income would be reclassified to interest expense over the next 12 months.
Important facts for investors to verify
- Whether portfolio occupancy and tenant rent collections remain resilient, particularly given the 89.1% leased rate and continuing healthcare-sector effects.
- Acquisition pipeline closings, expected returns, and the outcome and gain from the held-for-sale property.
- Debt levels, covenant headroom, floating-rate exposure, and the effects of the new credit agreement and hedge reclassifications.
- How ATM share issuance, acquisition funding, and the $0.43 quarterly dividend affect per-share cash generation and dividend coverage.
- Whether reported FFO and AFFO trends persist; these are non-GAAP measures and may not be comparable with other REITs.