Community Healthcare Trust (CHCT) Q2 2024 earnings summary

Executive summary

• Reported a net loss of $10.4 million for Q2 2024, compared to net income of $6.6 million in Q2 2023, primarily due to a significant $11.0 million credit loss reserve and lower rent/interest income from a major geriatric inpatient behavioral hospital tenant facing operational and financial challenges.

• The tenant operates six hospitals, is the sole occupant in five properties and a partial occupant in one, representing about 79,000 sq ft, and has been moved to cash accounting with limited payments expected.

• Portfolio consists of 198 properties in 35 states, leased to 318 tenants, with a market cap of $656.1 million and enterprise value of $1.1 billion as of June 30, 2024.

• Management has engaged a consulting team to implement a turnaround plan for the troubled tenant, while maintaining a diversified portfolio with no other top tenants on the watch list.

• Achieved 87% total shareholder return since inception and 36 consecutive quarters of dividend growth.

Financial highlights

• Q2 2024 total revenue was $27.5 million, down from $27.8 million in Q2 2023, with rental income at $27.9 million, up 4.3% year-over-year, but offset by a $1.9 million reduction due to the troubled tenant.

• FFO for Q2 2024 was $11.6 million ($0.43 per share), down from $14.0 million ($0.62 per share) in Q2 2023; AFFO was $14.3 million ($0.53 per share), down from $15.7 million ($0.63 per share).

• Net loss for Q2 2024 was $10.4 million, compared to net income of $6.6 million in Q2 2023.

• Interest expense increased 44.6% year-over-year to $6.0 million in Q2 2024 due to higher debt balances and rates.

• Dividend for Q2 was raised to $0.4625 per share, annualized at $1.85, with a payout ratio of 87%.

Outlook and guidance

• AFFO per share is expected to remain around $0.53 until tenant performance improves; approximately $750,000–$800,000 of AFFO could be added back on a run-rate basis if out-of-period charges are excluded.

• Seven properties are under definitive purchase agreements with an aggregate expected price of $169.5 million and anticipated returns of 9.1% to 9.75%, with closings expected from Q4 2024 through 2027.

• Company expects to fund acquisitions and capital improvements through free cash flow, equity sales, and the Revolving Credit Facility.

• Healthcare industry tailwinds, including an aging population and shift to outpatient care, support long-term demand.