Community Healthcare Trust Inc (CHCT) is a self-administered, self-managed healthcare real estate investment trust (REIT) that acquires and owns properties leased to hospitals, doctors, healthcare systems, and other healthcare service providers. The company has demonstrated resilience in the face of a volatile market environment, delivering consistent financial performance and strategic growth.
For the full year 2023, CHCT reported annual net income of $7,714,000, annual revenue of $112,845,000, annual operating cash flow of $61,383,000, and annual free cash flow of $42,402,000. In the first quarter of 2024, the company generated revenue of $29,333,000 and net income of $3,665,000.
Business Overview
CHCT's portfolio consists of 197 real estate properties, totaling approximately 4.4 million square feet, located across 35 states. The properties are diversified by property type, with a focus on medical office buildings, inpatient rehabilitation hospitals, acute inpatient behavioral facilities, and specialty centers, among others. The company's tenants include major healthcare providers such as Lifepoint Health and US HealthVest, as well as a diverse mix of smaller regional and local operators.
During the first quarter of 2024, CHCT acquired four properties with a total of approximately 165,000 square feet for a purchase price of $34.2 million. The properties were 98.6% leased in the aggregate, with leases running through 2039 and anticipated aggregate annual returns ranging from 9.3% to 9.75%. Subsequent to the quarter, the company acquired an additional inpatient rehabilitation facility for $23.5 million, with a lease expiration in 2039 and an anticipated annual return of approximately 9.1%.
The company also has seven properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of $169.5 million. CHCT expects to close on one of these properties in the fourth quarter of 2024, with the remaining six properties closing throughout 2025, 2026, and 2027.
Geographic Breakdown and Revenue Drivers
CHCT's real estate portfolio is geographically diversified, with properties located in 35 states. The largest concentrations are in Texas (17 properties), Illinois (18 properties), and Ohio (26 properties), which collectively account for approximately 37% of the company's gross investment.
The primary drivers of CHCT's revenue growth in the first quarter of 2024 were the acquisitions completed during 2023 and 2024, which contributed approximately $2.9 million in additional rental income. This was partially offset by a $0.7 million decrease in revenue due to lease expirations and terminations, including the two GenesisCare leases that were rejected as part of the tenant's bankruptcy.
Financial Ratios and Liquidity
CHCT maintains a conservative financial profile, with a debt to total capitalization ratio of approximately 38.0% as of March 31, 2024. The company's credit facility provides a $150.0 million revolving credit facility, with $61.0 million of borrowing capacity remaining as of the end of the first quarter.
The company's interest coverage ratio, a measure of its ability to service its debt, stood at 3.03x as of the first quarter of 2024. CHCT's cash flow to debt ratio, which indicates its capacity to generate cash flow to meet its debt obligations, was 0.14x.
Risks and Challenges
While CHCT has demonstrated resilience, the company faces several risks and challenges, including:
1. Exposure to the healthcare industry: As a REIT focused on healthcare properties, CHCT's performance is closely tied to the overall health of the healthcare sector, which can be impacted by regulatory changes, reimbursement pressures, and evolving patient preferences.
2. Acquisition and integration risks: The company's growth strategy relies on successful acquisitions and the integration of new properties into its portfolio. Challenges in identifying, evaluating, and integrating these assets could impact CHCT's financial performance.
3. Tenant concentration: A significant portion of CHCT's revenue is derived from a limited number of large customers, such as Lifepoint Health and US HealthVest. The loss of or changes in these key tenant relationships could have a material adverse effect on the company.
4. Interest rate risk: As a REIT with significant debt financing, CHCT is exposed to interest rate fluctuations, which could increase its borrowing costs and impact its profitability.
Guidance and Outlook
CHCT remains cautiously optimistic about its growth prospects, despite the challenging market environment. The company expects to continue its acquisition strategy, targeting properties with attractive yields and long-term leases. Management has guided that the company can achieve $120 million to $150 million in annual acquisitions, funded through a combination of its credit facility, equity offerings, and selective asset sales.
The company's recent changes to its executive compensation program, which include a shift towards performance-based restricted stock units and a limit on the maximum elective deferral percentage, are expected to align management's incentives with shareholder interests and support the company's long-term growth objectives.
Conclusion
CHCT has demonstrated its ability to navigate the complexities of the healthcare real estate market, delivering consistent financial performance and strategic growth. The company's diversified portfolio, conservative financial profile, and disciplined acquisition strategy position it well to continue its track record of value creation for shareholders. While the company faces industry-specific risks, CHCT's experienced management team and focus on high-quality healthcare properties provide a solid foundation for long-term success.