(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclosure Regarding Forward-Looking Statements This report and other materials that Community Healthcare Trust Incorporated (the "Company") has filed or may file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, statements that are "forward-looking statements" within the meaning of
The purpose of this Management's Discussion and Analysis ("MD&A") is to provide an understanding of the Company's consolidated financial condition, results of operations and cash. MD&A is provided as a supplement to, and should be read in conjunction with, the Company's Condensed Consolidated Financial Statements and accompanying notes.
Overview
We were organized in the State of Maryland on March 28, 2014. We are a self-administered, self-managed healthcare real estate investment trust, or REIT, that acquires and owns properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers.
Trends and Matters Impacting Operating Results Management monitors factors and trends that it believes are important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company. Certain of the factors and trends that management believes may impact the operations of the Company are discussed below.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Subsequent to September 30, 2021, the Company acquired a 27,000 square foot medical office building for a purchase price and cash consideration of approximately $3.5 million. The property was 83.4% leased with lease expirations through 2030 at acquisition and was funded with cash on hand and proceeds from the Company's Revolving Credit Facility.
Acquisition Pipeline
The Company also has four properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $94.0 million. The Company's expected returns on these investments are approximately 10.25%. The Company anticipates closing on these properties from the first quarter of 2022 through the second quarter of 2023; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close.
Asset Held for Sale
Leased square footage
COVID-19 pandemic
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
New Accounting Pronouncements
Results of Operations
Three Months Ended September 30, 2021 Compared to Three Months Ended
September 30, 2020
The table below shows our results of operations for the three months ended
September 30, 2021 compared to the same period in 2020 and the effect of changes
in those results from period to period on our net income.
Increase (decrease) to
Three Months Ended September 30, Net income
(dollars in thousands) 2021 2020 $ %
REVENUES
Rental income $ 22,447 $ 18,939 $ 3,508 18.5 %
Other operating interest 807 405 402 99.3 %
23,254 19,344 3,910 20.2 %
EXPENSES
Property operating 4,051 3,563 (488) (13.7) %
General and administrative 3,206 2,191 (1,015) (46.3) %
Depreciation and amortization 7,812 6,295 (1,517) (24.1) %
15,069 12,049 (3,020) (25.1) %
INCOME BEFORE INCOME TAXES AND OTHER ITEMS 8,185 7,295 890 12.2 %
Interest expense (2,788) (2,064) (724) (35.1) %
Deferred income tax expense (45) (20) (25) 125.0 %
Interest and other income 2 - 2 n/m
NET INCOME $ 5,354 $ 5,211 $ 143 2.7 %
n/m-not meaningful
Revenues
Expenses
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Depreciation and amortization expense increased approximately $1.5 million, or 24.1%, for the three months ended September 30, 2021 compared to the same period in 2020. Acquisitions accounted for an increase of approximately $1.6 million, offset by a decrease of approximately $0.3 million in amortization due to fully amortized real estate lease intangibles which generally have a shorter depreciable life than a building. The remaining increase is generally due to the depreciation of building and tenant improvements.
Interest expense
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Nine Months Ended September Increase (decrease) to
30, Net income
(dollars in thousands) 2021 2020 $ %
REVENUES
Rental income $ 65,233 $ 54,197 $ 11,036 20.4 %
Other operating interest 2,104 1,363 741 54.4 %
67,337 55,560 11,777 21.2 %
EXPENSES
Property operating 11,623 10,129 (1,494) (14.7) %
General and administrative 8,958 6,282 (2,676) (42.6) %
Depreciation and amortization 22,576 18,473 (4,103) (22.2) %
43,157 34,884 (8,273) (23.7) %
INCOME BEFORE INCOME TAXES AND OTHER ITEMS 24,180 20,676 3,504 16.9 %
Loss on sale of real estate - (313) 313 100.0 %
Interest expense (7,753) (6,496) (1,257) (19.4) %
Deferred income tax expense (104) (40) (64) (160.0) %
Interest and other income 56 10 46 (460.0) %
NET INCOME $ 16,379 $ 13,837 $ 2,542 18.4 %
Revenues
Expenses
General and administrative expenses increased approximately $2.7 million, or 42.6%, for the nine months ended September 30, 2021 compared to the same period in 2020 due mainly to compensation-related expenses related to new employees and annual salary increases and stock issuances totaling approximately $2.5 million, including the non-cash amortization of non-vested restricted common shares of approximately $1.8 million which includes $0.2 million of accelerated amortization due to the elimination of a position and employee terminations in the third quarter of 2021.
Depreciation and amortization expense increased approximately $4.1 million, or 22.2%, for the nine months ended September 30, 2021 compared to the same period in 2020. Acquisitions accounted for an increase of approximately $4.8 million, offset by a decrease of approximately $1.1 million in amortization due to fully amortized real estate lease intangibles which generally have a shorter depreciable life than a building. The remaining increase is generally due to the depreciation of building and tenant improvements.
Loss on sale of real estate
Interest expense
Non-GAAP Financial Measures and Key Performance Indicators Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. The Company reports non-GAAP financial measures because these measures are observed by management to also be among the most predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these non-GAAP financial measures. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of those measures to the most directly comparable GAAP financial measure.
The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.
Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT's operating performance equal to net income (calculated in accordance with GAAP), excluding gains or
In addition to FFO, the Company presents AFFO and AFFO per share. The Company defines AFFO as FFO, excluding certain expenses related to closing costs of properties acquired accounted for as business combinations and mortgages funded, excluding straight-line rent and the amortization of stock-based compensation, and including or excluding other non-cash items from time to time. AFFO presented herein may not be comparable to similar measures presented by other real estate companies due to the fact that not all real estate companies use the same definition.
Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, management believes FFO, AFFO, FFO per share and AFFO per share provide an understanding of the operating performance of the Company's properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, losses and impairment of incidental assets, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO, AFFO, FFO per share and AFFO per share can facilitate comparisons of operating performance between periods.
The table below reconciles net income to FFO and AFFO for the three months ended September 30, 2021 compared to the same period in 2020.
Three Months Ended
September 30,
(In thousands, excepts per share amounts) 2021 2020
Net income $ 5,354 $ 5,211
Real estate depreciation and amortization 7,871 6,387
FFO $ 13,225 $ 11,598
Straight-line rent (895) (914)
Stock-based compensation 2,004 1,284
AFFO $ 14,334 $ 11,968
FFO per diluted common share $ 0.55 $ 0.52
AFFO per diluted common share $ 0.59 $ 0.53
Weighted average common shares outstanding - diluted (1) 24,220 22,468
___________________
Net Operating Income ("NOI")
The table below reconciles net income to NOI for the three months ended September 30, 2021 compared to the same period in 2020.
Three Months Ended
September 30,
(In thousands) 2021 2020
Net income $ 5,354 $ 5,211
General and administrative 3,206 2,191
Depreciation and amortization 7,812 6,295
Interest expense 2,788 2,064
Deferred income tax expense 45 20
NOI $ 19,205 $ 15,781
EBITDAre and Adjusted EBITDAre
We consider EBITDAre and Adjusted EBITDAre important measures because they provide additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.
The table below reconciles net income to EBITDAre and Adjusted EBITDAre for the three months ended September 30, 2021 compared to the same period in 2020.
Three Months Ended
September 30,
(In thousands) 2021 2020
Net income $ 5,354 $ 5,211
Interest expense 2,788 2,064
Depreciation and amortization 7,812 6,295
Deferred income tax expense 45 20
EBITDAre $ 15,999 $ 13,590
Non-cash stock-based compensation expense 2,004 1,284
Adjusted EBITDAre $ 18,003 $ 14,874
Liquidity and Capital Resources
Nov 02, 2021
COMTEX_396246124/2041/2021-11-02T17:03:39
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