Healthcare Trust, Inc. (NASDAQ:HTIA): A Diversified Healthcare REIT Navigating Challenging Times

Published on September 24, 2024 | Ticker: HTIA

Healthcare Trust, Inc. (NASDAQ:HTIA) is an externally managed real estate investment trust (REIT) that acquires, owns, and manages a diversified portfolio of healthcare-related properties, primarily focused on medical office buildings (MOBs) and senior housing operating properties (SHOPs). As of March 31, 2024, HTIA owned 208 properties located across 33 states, comprising 9.1 million rentable square feet.

Business Overview

The company operates in two reportable business segments: MOBs and SHOPs. In the MOB segment, HTIA owns, manages, and leases single- and multi-tenant MOBs where tenants are required to pay their pro rata share of property operating expenses, in addition to base rent. The company's Property Manager or third-party managers oversee the operations of the MOBs. In the SHOP segment, HTIA invests in senior housing properties through the REIT Investment Diversification and Empowerment Act of 2007 (RIDEA) structure, with four eligible independent contractors operating 46 SHOPs as of March 31, 2024.

SHOP Segment Challenges

HTIA has faced significant challenges in its SHOP segment due to the ongoing impact of the COVID-19 pandemic. Occupancy in the SHOP portfolio trended downward from 85.1% as of December 31, 2019 to a low of 72.0% as of March 31, 2021, and has since recovered to 75.3% as of March 31, 2024. The company has also experienced higher operating costs, including increased labor expenses, at its SHOPs, which have adversely impacted the segment's results.

MOB Segment Performance

In contrast, HTIA's MOB segment has been less impacted by the pandemic, with occupancy levels remaining relatively stable. However, the company has not been immune to the broader economic headwinds, as recent and continuing increases in inflation, labor shortages, supply chain disruptions, and higher interest rates have had adverse impacts on its results of operations.

Financials

For the full year 2023, HTIA reported annual net income of -$72.3 million, annual revenue of $345.8 million, annual operating cash flow of $21.6 million, and annual free cash flow of -$0.8 million. In the first quarter of 2024, the company reported a net loss of $15.6 million, revenue of $88.3 million, operating cash flow of $2.5 million, and negative free cash flow of $9.7 million.

The company's financial performance has been impacted by several factors, including the challenges in its SHOP segment, increased operating expenses, and higher interest costs. HTIA's debt leverage ratio (total debt divided by total gross asset value) was approximately 44.4% as of March 31, 2024, with total gross borrowings of $1.2 billion at a weighted-average interest rate of 5.60%.

Recent Developments

To address the challenges in its SHOP segment, HTIA has focused on improving occupancy and managing operating costs. The company has also been actively managing its capital structure, including refinancing debt and utilizing its credit facilities to fund acquisitions and capital expenditures.

Geographic Concentration

In terms of geographic concentration, HTIA has a significant presence in Florida, which accounted for 20.0% of its annualized rental income on a straight-line basis as of March 31, 2024. The company also has a notable presence in Pennsylvania, which contributed 10.5% of its annualized rental income.

Outlook

Looking ahead, HTIA's guidance and outlook remain cautious, as it navigates the ongoing economic and industry-specific challenges. The company has not provided specific financial guidance for the full year 2024, but has indicated that it will continue to focus on improving the performance of its SHOP segment, managing costs, and selectively pursuing accretive acquisitions to diversify its portfolio.

Liquidity

HTIA's liquidity position remains a key focus, with $28.7 million in cash and cash equivalents as of March 31, 2024. The company has access to additional liquidity through its Fannie Mae Master Credit Facilities and MOB Warehouse Facility, which had $344.8 million and $14.7 million outstanding, respectively, as of the same date.

Risks and Challenges

In terms of risks, HTIA faces several key challenges, including the continued impact of the COVID-19 pandemic on its SHOP segment, the ability to manage rising operating costs and labor shortages, the potential for further increases in interest rates, and the ability to execute on its acquisition and portfolio diversification strategies.

Conclusion

Despite these challenges, Healthcare Trust, Inc. (NASDAQ:HTIA) remains a diversified healthcare REIT with a focus on essential healthcare-related real estate assets. The company's management team is actively working to navigate the current environment and position the company for long-term success. Investors should closely monitor HTIA's progress in addressing the issues in its SHOP segment, managing costs, and executing on its strategic initiatives.

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