Community Healthcare Trust: A Buying Opportunity After Recent Underperformance

Core Viewpoint - Community Healthcare Trust (NYSE:CHCT) has underperformed the Vanguard Real Estate Index Fund ETF (VNQ) in 2024, with a negative return of 12.5%, presenting a potential buying opportunity as it trades at a market implied cap rate of 9% while growing its occupancy and property portfolio [1] Company Overview - Community Healthcare Trust is a healthcare REIT with significant exposure to medical offices (39.9% of annualized rent), inpatient rehabilitation facilities (17.7%), and acute inpatient behavioral facilities (13.2%) [2] - The company operates 197 properties across 35 states, with the largest exposure in Texas (15.5% of annualized rent), followed by Illinois (11.2%) and Ohio (10.4%) [3] Operational Overview - As of Q1 2024, the occupancy rate was 92.3%, an increase of 0.7% year-over-year, which is notable given the 40% exposure to medical offices [4] - The company has been acquiring nearly fully leased properties, including four buildings with a 98.6% lease rate in Q1 2024 [4] - A new long-term lease for a property will require redevelopment, expected to be completed by 2026, alongside other properties undergoing significant renovations [5] Financial Overview - FFO for Q1 2024 was $0.53 per share, down 7% quarter-over-quarter due to higher interest rates and acquisition timing [6] - Community Healthcare Trust generated $23.5 million in net operating income (NOI) in Q1 2024, with a pro forma total revenue of $30.1 million if all acquisitions had occurred at the start of the quarter [9][10] - The company has a net debt of $439 million, accounting for 41% of enterprise value, with 20% of the debt being floating rate and 80% fixed rate [8] Executive Compensation and Management - A new executive compensation plan will take effect on July 1, 2024, aimed at reducing administrative expenses, which were elevated in Q1 2024 at $4.5 million [11] - The company is addressing shareholder concerns regarding executive compensation while managing overall administrative expenses [11] Conclusion - Community Healthcare Trust is trading at a market-implied cap rate of about 9% and is expanding its property portfolio through acquisitions with indicative returns in the 9-10% range [14] - The company is recovering from the bankruptcy of GenesisCare, with plans to lease and sell remaining assets [14]