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What changed in Community Healthcare Trust Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Community Healthcare Trust Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+266 added−280 removedSource: 10-K (2024-02-13) vs 10-K (2023-02-14)

Top changes in Community Healthcare Trust Inc's 2023 10-K

266 paragraphs added · 280 removed · 217 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

38 edited+3 added−11 removed83 unchanged
Biggest changeExamples of significant legislation currently under consideration, recently enacted or in the process of implementation, include: 13 • the Affordable Care Act and proposed amendments and any further repeal measures and related actions at the federal and state level; • the 2019 repeal of a portion of the Affordable Care Act for the mandate that all individuals purchase health insurance or pay a tax penalty; • mandatory expansion of healthcare services and increased access to individual healthcare insurance through legislative initiatives, including the Inflation Reduction Act of 2022; • quality control, cost containment, and payment system reforms for Medicaid, Medicare and other public funding, such as expansion of pay-for-performance criteria and value-based purchasing programs, bundled provider payments, accountable care organizations, increased patient cost-sharing, geographic payment variations, comparative effectiveness research, and lower payments for hospital readmissions; • implementation of health insurance exchanges and regulations governing their operation, whether run by the state or by the federal government, whereby individuals and small businesses purchase health insurance, including government-funded plans, many assisted by federal subsidies that are under ongoing legal challenges; • equalization of Medicare payment rates across different facility-type settings (i.e., the Bipartisan Budget Act of 2015, Section 603, lowered Medicare payment rates, effective January 1, 2017, for services provided in off-campus, provider-based outpatient departments to the same level of rates for physician-office settings for those facilities not grandfathered-in under the current Medicare rates as of the law’s date of enactment, November 2, 2015 and beginning January 1, 2019, CMS implemented site neutral changes in Medicare reimbursement for clinic visits provided in off-campus locations that were previously exempted from payment reductions); • the continued adoption by providers of federal standards for, and the associated audits of, the meaningful-use of electronic health records and the transition to ICD-10 coding; • the continued effort to expand the utilization of telehealth services; • implementation of federal rules requiring healthcare providers and third party payors to comply with electronic health system interoperability rules intended to allow for more efficient sharing of healthcare data; • an increased flexibility from the Trump Administration to grant Medicaid waivers, including work and job training requirements, which could decrease Medicaid coverage, as well as the potential reversal of such flexibility under the new Biden Administration; • changes made by the Biden Administration to reverse actions taken by the Trump Administration that impacted enrollment in health insurance exchanges and Medicaid; • a continuing trend of provider consolidation and associated antitrust scrutiny; and • tax law changes affecting non-profit providers, including the 2017 act's effect on charitable contributions.
Biggest changeExamples of significant legislation currently under consideration, recently enacted or in the process of implementation, include: • the Affordable Care Act and proposed amendments and any further repeal measures and related actions at the federal and state level; • the 2019 repeal of a portion of the Affordable Care Act for the mandate that all individuals purchase health insurance or pay a tax penalty; • mandatory expansion of healthcare services and increased access to individual healthcare insurance through legislative initiatives, including the Inflation Reduction Act of 2022; • quality control, cost containment, and payment system reforms for Medicaid, Medicare and other public funding, such as expansion of pay-for-performance criteria and value-based purchasing programs, bundled provider payments, accountable care organizations, increased patient cost-sharing, geographic payment variations, comparative effectiveness research, and lower payments for hospital readmissions; • implementation of health insurance exchanges and regulations governing their operation, whether run by the state or by the federal government, whereby individuals and small businesses purchase health insurance, including government-funded plans, many assisted by federal subsidies that are under ongoing legal challenges; • equalization of Medicare payment rates across different facility-type settings (i.e., the Bipartisan Budget Act of 2015, Section 603, lowered Medicare payment rates, effective January 1, 2017, for services provided in off-campus, provider-based outpatient departments to the same level of rates for physician-office settings for those facilities not grandfathered-in under the current Medicare rates as of the law’s date of enactment, November 2, 2015 and beginning January 1, 2019, CMS implemented site neutral changes in Medicare reimbursement for clinic visits provided in off-campus locations that were previously exempted from payment reductions); • the continued adoption by providers of federal standards for, and the associated audits of, the meaningful-use of electronic health records and the transition to ICD-10 coding; • the continued effort to expand the utilization of telehealth services; • implementation of federal rules requiring healthcare providers and third party payors to comply with electronic health system interoperability rules intended to allow for more efficient sharing of healthcare data; • changes made by the Biden Administration to reverse actions taken by the Trump Administration that impacted enrollment in health insurance exchanges and Medicaid; • a continuing trend of provider consolidation and associated antitrust scrutiny; • tax law changes affecting non-profit providers, including the Tax Cuts and Jobs Act of 2017's effect on charitable contributions; • regulatory changes designed to address health equity and disparities as a critical aspect of health and health care; and • regulatory and legislative changes related to the use of artificial intelligence in healthcare. 13 Environmental Matters As an owner of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties as a result of environmental contamination or noncompliance at our properties even if we no longer own such properties.
See the discussion under Item 1A, “Risk Factors,” under the caption “Environmental compliance costs and liabilities associated with owning and leasing our properties may 14 affect our results of operations.” We have adopted a Corporate Environmental Policy, which sets forth our commitment to implementing environmentally sustainable best practices for our own operations, and to assist our tenants in their efforts to address their environmental concerns.
See the discussion under Item 1A, “Risk Factors,” under the caption “Environmental compliance costs and liabilities associated with owning and leasing our properties may affect our results of operations.” We have adopted a Corporate Environmental Policy, which sets forth our commitment to implementing environmentally sustainable best practices for our own operations, and to assist our tenants in their efforts to address their environmental concerns.
In addition, we believe that healthcare-related real estate rents and valuations are less susceptible to changes in the general economy than many other types of commercial real estate due to favorable demographic trends and the need-based rise in healthcare expenditures, even during economic downturns. • Extensive Relationships with Healthcare Providers, Intermediaries and Property Owners.
In addition, we believe that healthcare-related real estate rents and valuations are less susceptible to changes in the general economy than many other types of commercial real 7 estate due to favorable demographic trends and the need-based rise in healthcare expenditures, even during economic downturns. • Extensive Relationships with Healthcare Providers, Intermediaries and Property Owners.
Dupuy was a Managing Director at SunTrust Robinson Humphrey (Truist Securities) where he led investment banking coverage of healthcare facilities and REITs and held positions in healthcare banking at Bank of America. Ms. Stach has experience in public healthcare RE IT accounting and financial reporting. Mr.
Dupuy was a Managing Director at SunTrust Robinson Humphrey (Truist Securities) where he led investment banking coverage of healthcare facilities and REITs and held positions in healthcare banking at Bank of America. Mr. Monroe has experience in healthcare investment banking. Ms. Stach has experience in public healthcare RE IT accounting and financial reporting. Mr.
These laws subject tenant healthcare facilities and practices to requirements related to reimbursement, licensing and certification policies, ownership of facilities, addition or expansion of facilities and services, pricing and billing for services, compliance obligations (including those governing the security, use and disclosure of confidential patient 11 information) and fraud and abuse laws.
These laws subject tenant healthcare facilities and practices to requirements related to reimbursement, licensing and certification policies, ownership of facilities, addition or expansion of facilities and services, pricing and billing for services, compliance obligations (including those governing the security, use and disclosure of confidential patient information) and fraud and abuse laws.
These laws and regulations are wide-ranging and complex, may vary or overlap from jurisdiction to jurisdiction, and are subject frequently to change. Healthcare facilities may also be affected by changes in accreditation standards or in the procedures of the accrediting agencies that are recognized by governments in the certification process.
These laws and regulations are wide-ranging and complex, may vary or overlap from jurisdiction to jurisdiction, and are subject frequently to change. Healthcare facilities may also be affected by changes in accreditation standards or in the procedures of the accrediting agencies that are recognized by 10 governments in the certification process.
The Company’s internet website address is www.chct.reit. 15 Corporate Governance Guidelines The Company has adopted Corporate Governance Guidelines relating to the conduct and operations of the Board of Directors. The Corporate Governance Guidelines are posted on the Company’s website (www.chct.reit) and are available in print to any stockholder who requests a copy.
The Company’s internet website address is www.chct.reit. Corporate Governance Guidelines The Company has adopted Corporate Governance Guidelines relating to the conduct and operations of the Board of Directors. The Corporate Governance Guidelines are posted on the Company’s website (www.chct.reit) and are available in print to any stockholder who requests a copy.
Under the Affordable Care Act prior to 12 the Trump Administration, individuals were required to obtain coverage or pay a penalty resulting in millions of more Americans obtaining coverage, usually through the healthcare exchanges (called the Marketplace) established to provide coverage in each state. The Trump Administration and Congress removed this mandate beginning in 2019.
Under the Affordable Care Act prior to the Trump Administration, individuals were required to obtain coverage or pay a penalty resulting in millions of more Americans obtaining coverage, usually through the healthcare exchanges (called the Marketplace) established to provide coverage in each state. The Trump Administration and Congress removed this mandate beginning in 11 2019.
These proposals, individually or in the aggregate, could significantly change the delivery of healthcare services, either nationally or at the state level, if implemented.
These proposals, individually or in the aggregate, could significantly 12 change the delivery of healthcare services, either nationally or at the state level, if implemented.
Previously, health coverage affordability and adequacy had been measured solely for the employee, but not for coverage of the employee’s family. The Biden Administration estimates that this policy change will provide coverage for an additional 200,000 individuals, and nearly 1 million people will have access to lower premiums.
Previously, health coverage affordability and adequacy had been measured solely for the employee, but not for coverage of the employee’s family. The Biden Administration estimates that this policy change will provide coverage for an additional 200,000 individuals, and nearly 1 million people will have access to lower premiums. The U.S.
We currently have no intention to invest in companies that provide healthcare services structured to comply with the 10 REIT Investment Diversification and Empowerment Act of 2007, or RIDEA. We operate so as to maintain our status as a REIT for federal income tax purposes.
We currently have no intention to invest in companies that provide healthcare services structured to comply with the REIT Investment Diversification and Empowerment Act of 2007, or RIDEA. 9 We operate so as to maintain our status as a REIT for federal income tax purposes.
We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code and that our manner of operations will enable us to continue to meet the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes for the year ending December 31, 2023.
We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code and that our manner of operations will enable us to continue to meet the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes for the year ending December 31, 2024.
If an employee desires to raise a concern in a confidential or anonymous manner, the concern may be directed to the whistleblower officer at the Company’s whistleblower hotline. During the year ended December 31, 2022, the whistleblower officer received no whistleblower complaints.
If an employee desires to raise a concern in a confidential or anonymous manner, the concern may be directed to the whistleblower officer at the Company’s whistleblower hotline. During the year ended December 31, 2023, the whistleblower officer received no whistleblower complaints.
Tax Status We have qualified as a REIT for U.S. federal income tax purposes since 2015, the year we began operations, and we expect that we will remain qualified as a REIT for U.S. federal income tax purposes for the year ending December 31, 2023.
Tax Status We have qualified as a REIT for U.S. federal income tax purposes since 2015, the year we began operations, and we expect that we will remain qualified as a REIT for U.S. federal income tax purposes for the year ending December 31, 2024.
At December 31, 2022, we had no amounts outstanding on our revolving credit facility and had $350.0 million outstanding on our term loans under our first amendment to the third amended and restated credit agreement, dated as of December 14, 2022, by and among Community Healthcare Trust Incorporated, as borrower, the several banks and financial institutions party thereto as lenders, and Truist Bank, as administrative agent (collectively, our "Credit Facility") with a 34.8% debt-to-total capitalization ratio (debt plus stockholders' equity plus accumulated depreciation).
At December 31, 2023, we had $50.0 million outstanding on our revolving credit facility and had $350.0 million outstanding on our term loans under our first amendment to the third amended and restated credit agreement, dated as of December 14, 2022, by and among Community Healthcare Trust Incorporated, as borrower, the several banks and financial institutions party thereto as lenders, and Truist Bank, as administrative agent (collectively, our "Credit Facility") with a 36.1% debt-to-total capitalization ratio (debt plus stockholders' equity plus accumulated depreciation).
See Government Regulation and Legislative Developments below for a discussion of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or "ACA") and Note 15 – Other Data to the Consolidated Financial Statements for a discussion of th e Tax Cuts and Jobs Act ("TCJA"), enacted on December 22, 2017, which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.
See Government Regulation and Legislative Developments below for a discussion of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or "ACA") for a discussion of th e Tax Cuts and Jobs Act ("TCJA"), enacted on December 22, 2017, which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.
Number of Properties Annualized Rent (%) Medical Office Building (MOB) 75 31.8 % Inpatient Rehabilitation Facilities (IRF) 7 17.9 % Acute Inpatient Behavioral (AIB) 5 15.3 % Specialty Centers (SC) 37 13.3 % Physician Clinics (PC) 30 9.2 % Surgical Centers and Hospitals (SCH) 10 5.6 % Behavioral Specialty Facilities (BSF) 9 5.2 % Long-term Acute Care Hospitals (LTACH) 1 1.7 % Total real estate investments 174 100.0 % Customer Concentrations The Company's real estate portfolio is leased to a diverse tenant base.
Number of Properties Annualized Rent (%) Medical Office Building (MOB) 93 37.0 % Inpatient Rehabilitation Facilities (IRF) 8 18.8 % Acute Inpatient Behavioral (AIB) 5 14.2 % Specialty Centers (SC) 37 11.2 % Physician Clinics (PC) 30 7.8 % Behavioral Specialty Facilities (BSF) 9 5.1 % Surgical Centers and Hospitals (SCH) 10 4.3 % Long-term Acute Care Hospitals (LTACH) 1 1.6 % Total real estate investments 193 100.0 % Customer Concentrations The Company's real estate portfolio is leased to a diverse tenant base.
Upon acquisition, the properties were 98.9% leased in the aggregate with lease expirations through 2037. Human Capital Resource Management As of December 31, 2022, we had 31 employees. All of our employees work at our corporate office in Franklin, Tennessee. Our employees are not members of any labor union, and we consider our relations with our employees to be excellent.
Upon acquisition, the properties were 99.2% leased in the aggregate with lease expirations through 2038. Human Capital Resource Management As of December 31, 2023, we had 37 employees. All of our employees work at our corporate office in Franklin, Tennessee. Our employees are not members of any labor union, and we consider our relations with our employees to be excellent.
See each of the discussions under Item 1A, "Risk Factors," under the captions "Adverse economic or other conditions in the geographic markets in which we conduct business could negatively affect our occupancy levels and rental rates and have a material adverse effect on our operating results," and "A large percentage of our properties are located in Texas, Ohio, and Illinois, and changes in these markets may materially adversely affect us." 7 2022 Real Estate Investments During the year ended December 31, 2022, the Company acquired 18 real estate properties as detailed in Note 4 – Real Estate Acquisitions and Dispositions to the Consolidated Financial Statements.
See each of the discussions under Item 1A, "Risk Factors," under the captions "Adverse economic or other conditions in the geographic markets in which we conduct business 6 could negatively affect our occupancy levels and rental rates and have a material adverse effect on our operating results," and "A large percentage of our properties are located in Texas, Ohio, and Illinois, and changes in these markets may materially adversely affect us." 2023 Real Estate Investments During the year ended December 31, 2023, the Company acquired 19 real estate properties and one land parcel adjacent to an existing property in our portfolio, in fourteen separate transactions, as detailed in Note 4 – Real Estate Acquisitions and Dispositions to the Consolidated Financial Statements.
Available Information The Company makes available to the public free of charge through its internet website the Company’s Definitive Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the Securities and Exchange Commission ("SEC").
Seasonality Our business has not been, and we do not expect it to become, subject to material seasonal fluctuations. 14 Available Information The Company makes available to the public free of charge through its internet website the Company’s Definitive Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the Securities and Exchange Commission ("SEC").
These efforts resulted in 14.5 million Americans enrolling in ACA health plans and nearly 19 million low-income Americans being enrolled in the ACA’s Medicaid expansion coverage. Other Biden Administration legislative initiatives and policies have been implemented in an attempt to expand access to health care coverage.
These efforts have resulted in more than 16 million Americans enrolling in ACA health plans and an additional 14 million low-income Americans being enrolled in the ACA’s Medicaid expansion coverage from a pre-ACA baseline. Other Biden Administration legislative initiatives and policies have been implemented in an attempt to expand access to health care coverage.
We believe that paying our board and management team with restricted stock that is subject to long-term cliff-vesting periods effectively aligns the interests of our board and management with those of our stockholders, creating significant incentives to maximize returns for our stockholders.
We believe that our board and management team receiving restricted stock subject to long-term cliff-vesting periods as a material component of their total compensation effectively aligns the interests of our board and management with those of our stockholders, creating significant incentives to maximize returns for our stockholders.
Meyer, our Executive Vice President, Asset Management, our management team has significant experience in acquiring, owning, operating and managing healthcare facilities and providing full service real estate solutions for the healthcare industry. Prior to founding our company, Mr. Wallace was a co-founder and Executive Vice President of Healthcare Realty Trust (NYSE: HR).
Meyer, our Executive Vice President, Asset Management, our management team has significant experience in acquiring, owning, operating and managing healthcare facilities and providing full service real estate solutions for the healthcare industry. Prior to joining the Company, Mr.
These policies are posted on the Investor Relations tab of the Company’s website (www.chct.reit). Competitive Strengths We believe our management team's significant healthcare, real estate and public REIT management experience distinguishes us from other REITs and real estate operators, both public and private. Specifically, our Company's competitive strengths include, among others: • Strong, Diversified Portfolio.
Competitive Strengths We believe our management team's significant healthcare, real estate and public REIT management experience distinguishes us from other REITs and real estate operators, both public and private. Specifically, our Company's competitive strengths include, among others: • Strong, Diversified Portfolio.
The properties are located in 34 states, totaling approximately 3.8 million square feet in the aggregate and were approximately 91.7% leased at December 31, 2022 with a weighted average remaining lease term of approximately 7.6 years.
The properties are located in 34 states, totaling approximately 4.3 million square feet in the aggregate and were approximately 91.1% leased, excluding real estate assets held for sale, at December 31, 2023 with a weighted average remaining lease term of approximately 6.9 years.
We have structured the compensation of our board and management team to closely align their interests with the interests of our stockholders. Mr. Wallace and Ms. Stach have elected to take 100% of their total compensation in restricted stock since the Company's initial public offering, or IPO, in May 2015, subject to an eight-year cliff-vesting period. Similarly, Mr.
We have structured the compensation of our board and management team to closely align their interests with the interests of our stockholders. From our IPO in May 2015 through 2023, our executive officers elected each year to take 100% of their total compensation in restricted stock, subject to an eight-year cliff-vesting period.
Geographic Concentrations The Company's portfolio is currently located in 34 states with 39.0% of our annualized rent for the year ended December 31, 2022 derived from properties located in Texas (15.0%), Ohio (12.1%), and Illinois (11.9%).
Geographic Concentrations The Company's portfolio is currently located in 34 states with 39.6% of our annualized rent as of December 31, 2023 derived from properties located in Texas (16.5%), Illinois (11.9%), and Ohio (11.2%).
Real Estate Investments As of December 31, 2022, we had investments of approximately $946.2 million in 174 real estate properties (including a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million).
Real Estate Investments As of December 31, 2023, we had gross investments of approximately $1.1 billion in 193 real estate properties (including a portion of one property accounted for as a sales-type lease with a gross amount totaling approximately $3.0 million and two properties classified as held for sale with an aggregate amount totaling approximately $7.5 million).
In addition, tenants under long-term single-tenant net leases are required to carry property insurance covering our interest in the buildings. Seasonality Our business has not been, and we do not expect it to become, subject to material seasonal fluctuations.
In addition, tenants under long-term single-tenant net leases are required to carry property insurance covering our interest in the buildings.
Our tenants include many nationally recognized healthcare providers (or their affiliates), such as Adventist HealthCare, Inc., Hospital Corporation of America, Fresenius Medical Care AG & Co, Davita, Inc., Tenet Healthcare Corporation, Catholic Healthcare Initiatives, and Envision Healthcare. For the year ended December 31, 2022, none of our tenants individually accounted for more th an 10% of ou r consolidated revenues.
Our tenants include many nationally recognized healthcare providers, such as Adventist HealthCare, Inc., Hospital Corporation of America, Fresenius Medical Care AG & Co, Davita, Inc., Tenet Healthcare Corporation, Catholic Healthcare Initiatives, and Lifepoint Health. Lifepoint Health accounted for 11.9% of annualized revenues as of December 31, 2023 .
We believe that 8 our management team has a strong reputation among, and a deep understanding of the real estate needs of, healthcare providers in our target submarkets.
We believe that our management team has a strong reputation among, and a deep understanding of the real estate needs of, healthcare providers in our target submarkets. In addition, we have strategic relationships which we believe gives us the ability to meet the needs of healthcare providers by structuring transactions that are mutually advantageous to sellers, our tenants and us.
Business Objective Our principal business objective is to provide attractive risk-adjusted returns to our stockholders through a combination of (i) sustainable and increasing rental income and cash flow that generates reliable, increasing dividends and (ii) potential long-term appreciation in the value of our properties and common stock.
Finally, each executive officer and director has met stock ownership guidelines that require our executive officers and dire ctors to continuously own an amount of our common stock based on a multiple of such officer's annual base salary or such director's annual retainer, as applicable. 8 Business Objective Our principal business objective is to provide attractive risk-adjusted returns to our stockholders through a combination of (i) sustainable and increasing rental income and cash flow that generates reliable, increasing dividends and (ii) potential long-term appreciation in the value of our properties and common stock.
Dupuy and Mr. Meyer, who both joined the Company during 2019, have elected to receive 100% of their total compensation in restricted stock since joining the Company. The Company's board of directors have elected to tak e 91% o f their total compensation in restricted stock since the Company's IPO, subject to a three-year cliff-vesting period.
Beginning in 2024, our executive officers are permitted to take up to 50% of their total compensation in restricted stock. The Company's board of directors have elected to tak e 91% o f their total compensation in restricted stock since the Company's IPO, subject to a three-year cliff-vesting period.
Our executive officers have elected each year to take 100% of their total compensation in restricted stock, subject to an eight-year cliff-vesting period. Our board has elected to take the majority of their total compensation in restricted stock, subject to a three-year cliff-vesting period.
Our board has elected to take the majority of their total compensation in restricted stock, subject to a three-year cliff-vesting period. Also, all of our employees are shareholders in the Company, further aligning their interest with those of our stockholders.
None of our properties to date were acquired pursuant to "calls for offers" or other auction style bidding situations. We believe our relationships provide us with additional off-market or lightly marketed acquisition opportunities, thus providing us the opportunity to continue to purchase assets outside a competitive bidding process. • Experienced Management Team.
We believe our relationships provide us with additional off-market or lightly marketed acquisition opportunities, thus providing us the opportunity to continue to purchase assets outside a competitive bidding process. • Experienced Management Team. Our executive management team averages over 25 years of healthcare, real estate and/or public REIT management experience on average. Led by David H.
Also, all of our employees are shareholders in the Company, further aligning their interest with those of our stockholders. We have a stable, but growing workforce with an average tenure of 3.5 years and voluntary employee turnover of approximately 11% during the year ended December 31, 2022.
We have a stable, but growing workforce with an average tenure of 3.7 years and voluntary employee turnover of approximately 15% during the year ended December 31, 2023. At December 31, 2023, 35% of our employees, 33% of our management team, and 33% of our board of directors were female.
At December 31, 2022, 32% of our employees, 24% of our management team, and 33% of our board of directors were female. We have adopted a Human Capital Support and Development Policy and a Human Rights Policy to support our employees and tenants with a safe and healthy environment.
We have adopted a Human Capital Support and Development Policy and a Human Rights Policy to support our employees and tenants with a safe and healthy environment. These policies are posted on the Investor Relations tab of the Company’s website (www.chct.reit).
In addition, we have strategic relationships which we believe gives us the ability to meet the needs of healthcare providers by structuring transactions that are mutually advantageous to sellers, our tenants and us. We believe this ability has led to, and will continue to lead to, strategic acquisition opportunities, which will, in turn, produce attractive risk-adjusted returns.
We believe this ability has led to, and will continue to lead to, strategic acquisition opportunities, which will, in turn, produce attractive risk-adjusted returns. None of our properties to date were acquired pursuant to "calls for offers" or other auction style bidding situations.
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Our executive management team averages over 25 years of healthcare, real estate and/or public REIT management experience on average. Led by Timothy G. Wallace, who is currently on medical leave, David H. Dupuy, our Interim Chief Executive Officer and Chief Financial Officer, Leigh Ann Stach, our Executive Vice President and Chief Accounting Officer, and Timothy L.
Added
From our initial public offering, or IPO, in May 2015 through 2023, our executive officers elected each year to take 100% of their total compensation in restricted stock, subject to an eight-year cliff-vesting period. Beginning in 2024, our executive officers are permitted to take up to 50% of their total compensation in restricted stock.
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Between the initial public offering of HR in 1993 and his departure from HR in 2002, Mr. Wallace was integral in helping to grow HR to over $2 billion in assets. Prior to joining the Company, Mr.
Added
Dupuy, Chief Executive Officer and President, William G. Monroe IV, our Executive Vice President and Chief Financial Officer, Leigh Ann Stach, our Executive Vice President and Chief Accounting Officer, and Timothy L.
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In addition, concurrently with the completion of our IPO in May 2015 and our follow-on offering in 2016, Mr.
Added
Department of Health and Human Services' data shows continued growth in access to care under the ACA, with over 20 million people selecting an ACA Marketplace plan in the 2024 Open Enrollment Period, including over 3.7 million people who were new to ACA Marketplace plans.
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Wallace purchased over $2.6 million in shares of our common stock and certain of our officer s and directors purchased an aggregate of $450,000 in shares of our common stock in concurrent private placements in each case at a price per share equal to the price of the shares sold in the IPO or follow-on offering, as applicable. Further, Mr.
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Wallace purchased 178,213 shares of our common stock under 10b5-1 plans that he had in place in 2016 and 2017, which we believe further aligns management's interests with our stockholders.
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Finally, each executive officer and director has met stock ownership 9 guidelines that require our executive officers and dire ctors to continuously own an amount of our common stock based on a multiple of such officer's annual base salary or such director's annual retainer, as applicable (except for Cathrine Cotman, who joined our board of directors in May 2022 and has until 2027 to comply).
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Environmental Matters As an owner of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties as a result of environmental contamination or noncompliance at our properties even if we no longer own such properties.
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The Company’s Information Technology infrastructure is cloud-based, utilizing Software as a Service (“SaaS”) applications for substantially all of its software requirements. Management has formed an IT Committee consisting of the Chief Executive Officer, Chief Financial Officer, and the Vice President of Information Technology to review and discuss information security matters and cyber security risks.
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The committee meets at least twice a year and reports to the Board of Directors as needed. The Company has adopted the Center of Internet Security (CIS) v8 IG1 cyber security controls including adopting an annual information security training program for its employees.
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The Company has partnered with a global cyber security leader to continuously and proactively manage and mitigate the ever growing list of cyber threats. As part of the managed monitoring and remediation platform, the Company benefits from a $100,000 breach prevention warranty.
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Since the Company’s inception, the Company has not had a security breach resulting in expenses, penalties or settlements. 16

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

94 edited+29 added−26 removed344 unchanged
Biggest changeThese laws include without limitation: • the federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any federal or state healthcare program patients; • the Stark Law, which, subject to specific exceptions, restricts physicians who have financial relationships with healthcare providers from making referrals for designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship; • the federal False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including under the Medicare and Medicaid programs; • the federal Civil Monetary Penalties Law, which authorizes the Department of Health and Human Services, or HHS, to impose monetary penalties for certain fraudulent acts; and • state anti-kickback, anti-inducement, fee-splitting, anti-referral and insurance fraud laws which may be generally similar to, and potentially more expansive than, the federal laws set forth above. 30 Other laws that impact how our tenants conduct their operations include: state and local licensure laws; laws protecting consumers against deceptive practices; laws generally affecting our tenants’ management of property and equipment and how our tenants generally conduct their operations, such as fire, health and safety and environmental laws (including medical waste disposal); federal and state laws affecting various types of facilities, including assisted living facilities mandating quality of services and care, mandatory reporting requirements regarding the quality of care and quality of food service; resident rights (including abuse and neglect laws); and health standards set by the federal Occupational Safety and Health Administration.
Biggest changeThese laws include without limitation: • the federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any federal or state healthcare program patients; • the Stark Law, which, subject to specific exceptions, restricts physicians who have financial relationships with healthcare providers from making referrals for designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship; • the federal False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including under the Medicare and Medicaid programs; • the federal Civil Monetary Penalties Law, which authorizes the Department of Health and Human Services, or HHS, to impose monetary penalties for certain fraudulent acts; • state anti-kickback, anti-inducement, fee-splitting, anti-referral and insurance fraud laws which may be generally similar to, and potentially more expansive than, the federal laws set forth above; and • federal and state laws governing confidentiality, maintenance, and security issues associated with health-related information and medical records.
The availability of equity capital to us will depend, in part, upon the market price of our common stock, which, in turn, will depend upon various market conditions and other factors that may change from time to time, including: • the extent of investor interest in our Company and our assets; • our ability to satisfy the distribution requirements applicable to REITs; • the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; • our financial performance and that of our tenants; • analyst reports about us and the REIT industry; • macroeconomic conditions generally and conditions affecting the healthcare and real estate industry in particular; • general stock and bond market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions; • a failure to maintain or increase our dividend which is dependent, in large part, upon funds from operations, or FFO, which, in turn, depends upon increased revenue from additional acquisitions and rental increases; and • other factors such as governmental regulatory action and changes in REIT tax laws.
The availability of equity capital to us will depend, in part, upon the market price of our common stock, which, in turn, will depend upon various market conditions and other factors that may change from time to time, including: • the extent of investor interest in our Company and our assets; • our ability to satisfy the distribution requirements applicable to REITs; 24 • the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; • our financial performance and that of our tenants; • analyst reports about us and the REIT industry; • macroeconomic conditions generally and conditions affecting the healthcare and real estate industry in particular; • general stock and bond market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions; • a failure to maintain or increase our dividend which is dependent, in large part, upon funds from operations, or FFO, which, in turn, depends upon increased revenue from additional acquisitions and rental increases; and • other factors such as governmental regulatory action and changes in REIT tax laws.
These risks are discussed more fully below in the section titled “Risk Factors.” These risks and uncertainties include, but are not limited to, the following: • General economic conditions can have a material adverse effect on our business, financial conditions and results of operations. • Failure to implement strategies to enhance our performance could have a material adverse effect on our business, results of operations and financial conditions. • Our success depends, in part, on our ability to continue to make successful real estate acquisitions at fair prices and to integrate these acquisitions into our operations, and the failure to do so can have a material adverse effect on our business, financial conditions and results of operations. • If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows. • Our ability to perform depends on keeping and hiring exceptionally talented management and employees, and our failure to do so could have a material adverse effect on our business, revenues, results of operations and financial condition. • Risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the COVID-19 pandemic's impact on global markets, may adversely affect our revenues, results of operations and financial condition. • Our tenants are subject to significant regulatory oversight, and changes in any of the laws and regulations applicable to their business could adversely impact our tenants’ ability to make rent payments to us, which, in turn, could have a material adverse effect on our business, revenues, results of operations and financial conditions. • Climate change may adversely affect our business due to new weather patterns or the occurrence of significant weather events which could impact economic activity or the value of our properties in specific markets. • Our properties generate rent revenue, and any adverse impacts on our properties, including, but not limited to, inability to secure funds for future tenant or other capital improvements or payment of leasing commissions, a requirement to make rent or other concessions and significant capital expenditures to improve our properties in order to retain and attract tenants, property vacancies, increases in property taxes, uninsured damages to or total losses of our properties, or health and safety or environmental violations, could have a material adverse effect on our properties, revenues, results of operations and financial condition. • We primarily fund our acquisitions through our Credit Facility and equity offerings, and any inability to utilize our Credit Facility or access capital markets at favorable terms and rates could have a material adverse effect on our business, results of operations and financial conditions. 17 • We qualify as a REIT under the Code, and the failure to remain qualified as a REIT would have a material adverse effect on our business, cash flows, ability to pay distributions and the market price of our common stock.
These risks are discussed more fully below in the section titled “Risk Factors.” These risks and uncertainties include, but are not limited to, the following: • General economic conditions can have a material adverse effect on our business, financial conditions and results of operations. 15 • Failure to implement strategies to enhance our performance could have a material adverse effect on our business, results of operations and financial conditions. • Our success depends, in part, on our ability to continue to make successful real estate acquisitions at fair prices and to integrate these acquisitions into our operations, and the failure to do so can have a material adverse effect on our business, financial conditions and results of operations. • If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows. • Our ability to perform depends on keeping and hiring exceptionally talented management and employees, and our failure to do so could have a material adverse effect on our business, revenues, results of operations and financial condition. • Risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the COVID-19 pandemic's impact on global markets, may adversely affect our revenues, results of operations and financial condition. • Our tenants are subject to significant regulatory oversight, and changes in any of the laws and regulations applicable to their business could adversely impact our tenants’ ability to make rent payments to us, which, in turn, could have a material adverse effect on our business, revenues, results of operations and financial conditions. • Climate change may adversely affect our business due to new weather patterns or the occurrence of significant weather events which could impact economic activity or the value of our properties in specific markets. • Our properties generate rent revenue, and any adverse impacts on our properties, including, but not limited to, inability to secure funds for future tenant or other capital improvements or payment of leasing commissions, a requirement to make rent or other concessions and significant capital expenditures to improve our properties in order to retain and attract tenants, property vacancies, increases in property taxes, uninsured damages to or total losses of our properties, or health and safety or environmental violations, could have a material adverse effect on our properties, revenues, results of operations and financial condition. • We primarily fund our acquisitions through our Credit Facility and equity offerings, and any inability to utilize our Credit Facility or access capital markets at favorable terms and rates could have a material adverse effect on our business, results of operations and financial conditions. • We qualify as a REIT under the Code, and the failure to remain qualified as a REIT would have a material adverse effect on our business, cash flows, ability to pay distributions and the market price of our common stock.
Certain provisions of the Maryland General Corporation Law, or MGCL, applicable to Maryland corporations may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of our shares, including: 40 • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our shares at any time within the two-year period immediately prior to the date in question) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes certain minimum price and/or supermajority stockholder voting requirements on these combinations; and • “control share” provisions that provide that holders of “control shares” of our company (defined as shares that, when aggregated with all other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Certain provisions of the Maryland General Corporation Law, or MGCL, applicable to Maryland corporations may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of our shares, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our shares at any time within the two-year period immediately prior to the date in question) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes certain minimum price and/or supermajority stockholder voting requirements on these combinations; and • “control share” provisions that provide that holders of “control shares” of our company (defined as shares that, when aggregated with all other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding 39 “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Our level of debt and any limitations imposed upon us by our debt agreements could have adverse consequences, including the following: • our cash flow may be insufficient to meet required principal and interest payments; • we may be unable to borrow additional funds as needed or on favorable terms, including to make acquisitions; • we may be unable to refinance indebtedness at maturity or the refinancing terms may be less favorable than the terms of the original indebtedness; • because a portion of our debt bears interest at variable rates, an increase in interest rates could materially increase our interest expense; • we may fail to effectively hedge against interest rate volatility; • we may be forced to dispose of properties, possibly on disadvantageous terms if we are able to do so at all, in order to repay indebtedness; • after debt service, the amount available for distributions to our stockholders may be reduced; • we may default on our debt obligations, which could restrict our ability to make any distributions to our stockholders; • our ability to make distributions to our stockholders could be restricted by our debt agreements; • our leverage could place us at a competitive disadvantage compared to our competitors who have less debt; 38 • we may experience increased vulnerability to economic and industry downturns, reducing our ability to respond to changing business and economic conditions; • we may default on our obligations and the lenders may foreclose on properties that secure their loans and receive an assignment of rents and leases; • we may violate financial covenants, which would cause a default on our obligations and result in the acceleration of our payment obligations; • we may inadvertently violate non-financial restrictive covenants in our loan documents, such as covenants that require us to maintain the existence of entities, maintain insurance policies and provide financial statements, which would entitle the lenders to accelerate our debt obligations; and • our default under any loan with cross-default or cross-collateralization provisions could result in default on other indebtedness or result in the foreclosures of other properties.
Our level of debt and any limitations imposed upon us by our debt agreements could have adverse consequences, including the following: • our cash flow may be insufficient to meet required principal and interest payments; • we may be unable to borrow additional funds as needed or on favorable terms, including to make acquisitions; • we may be unable to refinance indebtedness at maturity or the refinancing terms may be less favorable than the terms of the original indebtedness; • because a portion of our debt bears interest at variable rates, an increase in interest rates could materially increase our interest expense; • we may fail to effectively hedge against interest rate volatility; • we may be forced to dispose of properties, possibly on disadvantageous terms if we are able to do so at all, in order to repay indebtedness; • after debt service, the amount available for distributions to our stockholders may be reduced; • we may default on our debt obligations, which could restrict our ability to make any distributions to our stockholders; • our ability to make distributions to our stockholders could be restricted by our debt agreements; • our leverage could place us at a competitive disadvantage compared to our competitors who have less debt; • we may experience increased vulnerability to economic and industry downturns, reducing our ability to respond to changing business and economic conditions; • we may default on our obligations and the lenders may foreclose on properties that secure their loans and receive an assignment of rents and leases; • we may violate financial covenants, which would cause a default on our obligations and result in the acceleration of our payment obligations; • we may inadvertently violate non-financial restrictive covenants in our loan documents, such as covenants that require us to maintain the existence of entities, maintain insurance policies and provide financial statements, which would entitle the lenders to accelerate our debt obligations; and 37 • our default under any loan with cross-default or cross-collateralization provisions could result in default on other indebtedness or result in the foreclosures of other properties.
If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distribution to our stockholders because: • we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates; 43 • we could be subject to the federal alternative minimum tax and increased state and local taxes; and • unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distribution to our stockholders because: • we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates; • we could be subject to the federal alternative minimum tax and increased state and local taxes; and • unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
Adverse economic or other conditions in the geographic markets in which we operate, including periods of economic slowdown or recession, industry slowdowns, periods of deflation, relocation of businesses, changing demographics, water pollution, earthquakes and other natural disasters, fires, terrorist acts, epidemics, pandemics, civil disturbances or acts of war and other man-made disasters which may result in uninsured or underinsured losses, and changes in tax, real estate, zoning and other laws and regulations, may lower our tenants' businesses, occupancy levels and limit our ability to increase rents or require us to offer rental concessions.
Adverse economic or other conditions in the geographic markets in which we operate, including periods of economic slowdown or recession, industry slowdowns, periods of deflation, relocation of businesses, changing demographics, water pollution, earthquakes and other natural disasters, fires, terrorist acts, epidemics, pandemics, vandalism, civil disturbances or acts of war and other man-made disasters which may result in uninsured or underinsured losses, and changes in tax, real estate, zoning and other laws and regulations, may lower our tenants' businesses, occupancy levels and limit our ability to increase rents or require us to offer rental concessions.
To the extent that we consummate development opportunities, our investment in these projects could be subject to the following risks: • we may be unable to obtain financing for development projects on favorable terms or at all; • we may not complete development projects on schedule or within budgeted amounts; 26 • we may encounter delays in obtaining or fail to obtain all necessary zoning, land use, building, occupancy, environmental and other governmental permits and authorizations, or underestimate the costs necessary to develop the property to market standards; • development or construction delays may provide tenants the right to terminate preconstruction leases or cause us to incur additional costs; • volatility in the price of construction materials or labor may increase our development costs; • hospitals or health systems may maintain significant decision-making authority with respect to the development schedule; • we may incorrectly forecast risks associated with development in new geographic regions; • tenants may not lease space at the quantity or rental rate levels projected; • demand for our development project may decrease prior to completion, including due to competition from other developments; and • lease rates and rents at newly developed properties may fluctuate based on factors beyond our control, including market and economic conditions.
To the extent that we consummate development opportunities, our investment in these projects could be subject to the following risks: • we may be unable to obtain financing for development projects on favorable terms or at all; • we may not complete development projects on schedule or within budgeted amounts; • we may encounter delays in obtaining or fail to obtain all necessary zoning, land use, building, occupancy, environmental and other governmental permits and authorizations, or underestimate the costs necessary to develop the property to market standards; • development or construction delays may provide tenants the right to terminate preconstruction leases or cause us to incur additional costs; • volatility in the price of construction materials or labor may increase our development costs; 25 • hospitals or health systems may maintain significant decision-making authority with respect to the development schedule; • we may incorrectly forecast risks associated with development in new geographic regions; • tenants may not lease space at the quantity or rental rate levels projected; • demand for our development project may decrease prior to completion, including due to competition from other developments; and • lease rates and rents at newly developed properties may fluctuate based on factors beyond our control, including market and economic conditions.
If we are unable to complete any potential acquisitions, we would still incur the costs associated with pursuing those investments but would not generate the revenues and net operating income that we currently anticipate, which would adversely affect our ability to make distributions to our stockholders and could have a material adverse impact on our financial condition, results of operations and the market price of our common shares.
If we are unable to complete any potential acquisitions, we 18 would still incur the costs associated with pursuing those investments but would not generate the revenues and net operating income that we currently anticipate, which would adversely affect our ability to make distributions to our stockholders and could have a material adverse impact on our financial condition, results of operations and the market price of our common shares.
In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to you.
In some cases, we may 32 receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to you.
Furthermore, dealing with a tenant bankruptcy or other default may divert 21 management’s attention and cause us to incur substantial legal and other costs, which could adversely affect our ability to execute our business strategies, financial condition, and results of operations, as well as our ability to make distributions to our stockholders and the market price of our common stock.
Furthermore, dealing with a tenant bankruptcy or other default may divert management’s attention and cause us to incur substantial legal and other costs, which could adversely affect our ability to execute our business strategies, financial condition, and results of operations, as well as our ability to make distributions to our stockholders and the market price of our common stock.
In order to retain existing tenants and attract new tenants, we may be required to offer more substantial rent abatements, tenant improvement allowances and early termination rights, provide options to purchase our properties 22 within the lease term or accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants.
In order to retain existing tenants and attract new tenants, we may be required to offer more substantial rent abatements, tenant improvement allowances and early termination rights, provide options to purchase our properties within the lease term or accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants.
Further there are significant costs associated with a breach including investigation costs, remediation and mitigation costs, notification costs, attorney fees and the potential for reputational harm and lost revenues due to a loss in confidence in the provider. Plaintiff attorneys are increasingly developing class action litigation strategies designed to obtain settlements from healthcare providers.
Further there are significant costs associated with a breach including investigation costs, remediation and mitigation 30 costs, notification costs, attorney fees and the potential for reputational harm and lost revenues due to a loss in confidence in the provider. Plaintiff attorneys are increasingly developing class action litigation strategies designed to obtain settlements from healthcare providers.
Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of tenants, vendors or other persons dealing with the entities prior to this report (including those that had not been asserted or threatened prior to this report), tax liabilities, and accrued but unpaid liabilities incurred in the ordinary course of business.
Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of tenants, vendors or other 36 persons dealing with the entities prior to this report (including those that had not been asserted or threatened prior to this report), tax liabilities, and accrued but unpaid liabilities incurred in the ordinary course of business.
Among other requirements, in order to qualify as an eligible independent contractor a facility operator must not own, directly or indirectly, more than 35% 45 of our outstanding shares and no person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the facility operator, taking into account certain ownership attribution rules.
Among other requirements, in order to qualify as an eligible independent contractor a facility operator must not own, directly or indirectly, more than 35% of our outstanding shares and no person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the facility operator, taking into account certain ownership attribution rules.
We cannot assure you that we will qualify as a “domestically controlled” REIT, although we expect our stock will be regularly traded on an established securities market. Our capital gain distributions to non-U.S. stockholders attributable to our sales of U.S. real property interests may be subject to tax under FIRPTA.
We cannot assure you that we will qualify as a “domestically controlled” REIT, although we expect our stock will be regularly traded on an established securities market. 45 Our capital gain distributions to non-U.S. stockholders attributable to our sales of U.S. real property interests may be subject to tax under FIRPTA.
We cannot give any assurances that material weaknesses will not be identified in the future in connection with our compliance with the provisions of the Sarbanes-Oxley Act. The existence of any material 37 weakness would preclude a conclusion by management and our independent auditors that we maintained effective internal control over financial reporting.
We cannot give any assurances that material weaknesses will not be identified in the future in connection with our compliance with the provisions of the Sarbanes-Oxley Act. The existence of any material weakness would preclude a conclusion by management and our independent auditors that we maintained effective internal control over financial reporting.
In order to meet these tests, we may be required to forego investments we might otherwise make or liquidate otherwise attractive investments. Compliance with the REIT 44 requirements may reduce our income and amounts available for distribution to our stockholders and otherwise hinder our performance. The “prohibited transactions” tax may limit our ability to dispose of our properties.
In order to meet these tests, we may be required to forego investments we might otherwise make or liquidate otherwise attractive investments. Compliance with the REIT requirements may reduce our income and amounts available for distribution to our stockholders and otherwise hinder our performance. The “prohibited transactions” tax may limit our ability to dispose of our properties.
The occurrence of any of the situations described above could have a material adverse effect on our financial condition, results of operations, cash flows, or the market price of our common stock. We may be unable to source off-market or lightly marketed deal flow in the future, which may have a material adverse effect on our growth.
The occurrence of any of the situations described above could have a material adverse effect on our financial condition, results of operations, cash flows, or the market price of our common stock. 17 We may be unable to source off-market or lightly marketed deal flow in the future, which may have a material adverse effect on our growth.
In order for such rent to qualify as “rents from real property” for purposes of the gross income tests applicable to REITs, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement.
In order for such rent to qualify as “rents from real property” for purposes of the gross income tests applicable to REITs, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, joint ventures or some 44 other type of arrangement.
Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of two-thirds of all the votes entitled to be cast generally in the election of directors. 42 Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum.
Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of two-thirds of all the votes entitled to be cast generally in the election of directors. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum.
We believe that our operating partnership should be treated either as an entity disregarded from us or, after the admission of additional partners, if any, as a “partnership” for U.S. federal income tax purposes. As a disregarded entity or a partnership, our operating partnership will not be subject to U.S. federal income tax on its income.
We believe that our operating partnership should be treated either as an entity disregarded from us or, after the admission of additional partners, if any, as a “partnership” for U.S. federal income tax purposes. As a disregarded 42 entity or a partnership, our operating partnership will not be subject to U.S. federal income tax on its income.
The impact of climate change on weather patterns or the occurrence of significant weather events could impact economic activity or the value of our properties in specific markets. We rely on a limited number of vendors to provide key services, including, but not limited to, utilities and construction services, at certain of our properties.
The impact of climate change on weather patterns or the occurrence of significant weather events could impact economic activity or the value of our properties in specific markets. 22 We rely on a limited number of vendors to provide key services, including, but not limited to, utilities and construction services, at certain of our properties.
Climate change and severe weather may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property 23 insurance on terms we find acceptable, by increasing the costs of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties.
Climate change and severe weather may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable, by increasing the costs of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties.
Court of Appeals for the 5th Circuit, which issued a decision in December 2019 finding the insurance mandate unconstitutional and remanded the case to the District Court to consider the constitutionality of the rest of the law. The case was appealed to the U.S. Supreme Court, which heard oral arguments in November 2020.
Court of Appeals for the 5th Circuit, which issued a decision in December 2019 finding the insurance mandate unconstitutional and remanded the case to the District Court to consider the constitutionality of the rest of the law. The case was appealed to the U.S. Supreme Court, which heard oral arguments in November 27 2020.
The loss of services of, or the failure to successfully integrate one or more new members of, our senior management team could adversely affect our business and our prospects. 19 In addition, we have recently observed an overall tightening and increasingly competitive labor market.
The loss of services of, or the failure to successfully integrate one or more new members of, our senior management team could adversely affect our business and our prospects. In addition, we have recently observed an overall tightening and increasingly competitive labor market.
If we are unsuccessful in expanding into new or our existing target 20 submarkets, it could materially and adversely affect our business, financial condition and results of operations, our ability to make distributions to our stockholders and the market price of our common stock.
If we are unsuccessful in expanding into new or our existing target submarkets, it could materially and adversely affect our business, financial condition and results of operations, our ability to make distributions to our stockholders and the market price of our common stock.
If we determine that an impairment has occurred, we would be 36 required to make an adjustment to the net carrying value of the asset which could have an adverse effect on our results of operations in the period in which the impairment charge is recorded.
If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset which could have an adverse effect on our results of operations in the period in which the impairment charge is recorded.
In addition, our ability to locate suitable replacement tenants could be impaired by the specialized healthcare uses or contractual restrictions on use of the properties, and we may be required to spend substantial amounts to adapt the properties to other uses.
In addition, our ability to locate suitable replacement tenants could be 20 impaired by the specialized healthcare uses or contractual restrictions on use of the properties, and we may be required to spend substantial amounts to adapt the properties to other uses.
If we are unable to recruit, attract and/or retain qualified members of our board 24 of directors to maintain compliance with the diversity requirements of applicable mandates within the prescribed timelines, we could be exposed to costly fines and penalties.
If we are unable to recruit, attract and/or retain qualified members of our board of directors to maintain compliance with the diversity requirements of applicable mandates within the prescribed timelines, we could be exposed to costly fines and penalties.
Further, we are unable to foresee how individuals and businesses will respond to the uncertain landscape or that 28 landscape's effect on the reimbursement rates received by our tenants, the financial success of our tenants and strategic partners, and consequently the effect on us.
Further, we are unable to foresee how individuals and businesses will respond to the uncertain landscape or that landscape's effect on the reimbursement rates received by our tenants, the financial success of our tenants and strategic partners, and consequently the effect on us.
Our fiduciary duties and obligations as the general partner of our operating partnership may come into conflict with the duties of our directors and officers to our company. There are currently no limited partners of our operating partnership other than a wholly-owned subsidiary of the Company.
Our fiduciary duties and obligations as the general partner of our 35 operating partnership may come into conflict with the duties of our directors and officers to our company. There are currently no limited partners of our operating partnership other than a wholly-owned subsidiary of the Company.
In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our subsidiaries.
In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed 41 money) of our subsidiaries.
Although we are generally not engaged in large-scale development projects, small-scale construction projects, such as building renovations and maintenance and tenant improvements required under leases are a routine and necessary part of our business.
Although we are generally not engaged in large-scale development projects, small-scale construction projects, such as building renovations and maintenance and tenant improvements required under leases are a routine and necessary part of our 21 business.
Moreover, the release of hazardous substances or materials, or the failure to properly remediate such substances or materials, may adversely affect the owner’s or tenant’s ability to lease, sell, develop or rent such property or to borrow by using such property as collateral.
Moreover, the release of hazardous substances or materials, or the failure to properly remediate such substances or materials, may adversely affect the owner’s or tenant’s ability to lease, sell, develop or 34 rent such property or to borrow by using such property as collateral.
We may be required to 32 expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements.
We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements.
In some cases, private insurers rely upon all or portions of the Medicare payment systems to determine payment rates which may result in decreased reimbursement from private insurers.
In some cases, private 28 insurers rely upon all or portions of the Medicare payment systems to determine payment rates which may result in decreased reimbursement from private insurers.
As of December 31, 2022, the Company had 17 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk for notional amounts totaling $350.0 million. The Company may enter into additional swap agreements in the future to manage some of its exposure to interest rate volatility.
As of December 31, 2023, the Company had 17 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk for notional amounts totaling $350.0 million. The Company may enter into additional swap agreements in the future to manage some of its exposure to interest rate volatility.
These transfer restrictions would impede our ability to sell a property even if we deem it necessary or appropriate.
These transfer restrictions would impede our ability to sell a property even if we deem it necessary 31 or appropriate.
We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. 47 Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include: • actual or anticipated variations in our quarterly operating results or dividends; • changes in our FFO or earnings estimates; • publication of research reports about us or the real estate industry; • increases in market interest rates that lead purchasers of our shares to demand a higher yield; • changes in market valuations of similar companies; • adverse market reaction to any additional debt we incur in the future; • additions or departures of key management personnel; • actions by institutional stockholders; • speculation in the press or investment community; • the realization of any of the other risk factors presented in this report; • the extent of investor interest in our securities; • the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; • our underlying asset value; • investor confidence in the stock and bond markets generally; • changes in tax laws; • future equity issuances by us; • failure to meet earnings estimates; • failure to meet and maintain REIT qualification; • changes in our credit ratings; • the impact of a pandemic, epidemic or outbreak of a contagious disease on our business, financial condition, results of operations, cash flows, and global financial markets; and • general market and economic conditions.
Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include: • actual or anticipated variations in our quarterly operating results or dividends; • changes in our FFO or earnings estimates; • publication of research reports about us or the real estate industry; • increases in market interest rates that lead purchasers of our shares to demand a higher yield; • changes in market valuations of similar companies; 46 • adverse market reaction to any additional debt we incur in the future; • additions or departures of key management personnel; • actions by institutional stockholders; • speculation in the press or investment community; • the realization of any of the other risk factors presented in this report; • the extent of investor interest in our securities; • the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; • our underlying asset value; • investor confidence in the stock and bond markets generally; • changes in tax laws; • future equity issuances by us; • failure to meet earnings estimates; • failure to meet and maintain REIT qualification; • changes in our credit ratings; • the impact of a pandemic, epidemic or outbreak of a contagious disease on our business, financial condition, results of operations, cash flows, and global financial markets; and • general market and economic conditions.
However, for tax years beginning after December 31, 2017, certain stockholders may be able to deduct up to 20% of "qualified REIT dividends" pursuant to Section 199A of the Code subject to certain limitations set forth in the Code. Distributions to tax-exempt stockholders may be classified as unrelated business tax income.
However, for tax years beginning after December 31, 2017, but before January 1, 2026, certain stockholders may be able to deduct up to 20% of "qualified REIT dividends" pursuant to Section 199A of the Code subject to certain limitations set forth in the Code. Distributions to tax-exempt stockholders may be classified as unrelated business tax income.
Increased operating costs resulting from inflation could have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenue, which may adversely affect our tenants’ ability to pay rent or other obligations owed to us. In March 2022, the U.S.
Increased operating costs resulting from inflation could have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenue, which may adversely affect our tenants’ ability to pay rent or other obligations owed to us.
In recent years, the assessment of the potential impact of climate change has begun to impact the activities of government authorities and other areas that impact the business environment in the U.S., including, but not limited to, energy-efficiency measures, water use measures and land-use practices. According to the latest data provided by the U.S.
In recent years, the assessment of the potential impact of climate change has begun to impact the activities of government authorities and other areas that impact the business environment in the U.S., including, but not limited to, energy-efficiency measures, water use measures and land-use practices.
Wallace, or other key employees for any reason or for any amount of time could significantly delay or prevent the achievement of our strategic objectives and negatively impact our business, financial condition, results of operations, and stock price. Although we have entered into employment agreements with Messrs. Wallace, Dupuy, and Meyer and Ms.
The loss of services of our senior management or other key employees for any reason or for any amount of time could significantly delay or prevent the achievement of our strategic objectives and negatively impact our business, financial condition, results of operations, and stock price. Although we have entered into employment agreements with Messrs. Dupuy, Monroe and Meyer and Ms.
Our ability to continue to acquire and develop healthcare properties in off-market or lightly marketed transactions depends upon the significant relationships that our senior management team has developed over many years. The loss of services of our senior management, particularly Mr.
Our ability to continue to acquire and develop healthcare properties in off-market or lightly marketed transactions depends upon the significant relationships that our senior management team has developed over many years.
We could become highly leveraged in the future because our organizational documents contain no limitations on the amount of debt that we may incur. At December 31, 2022, our debt to total capitalization ratio (debt plus stockholders' equity plus accumulated depreciation) was approximately 34.8%.
We could become highly leveraged in the future because our organizational documents contain no limitations on the amount of debt that we may incur. At December 31, 2023, our debt to total capitalization ratio (debt plus stockholders' equity plus accumulated depreciation) was approximately 36.1%.
Increases in interest rates may increase our interest expense and adversely affect our cash flows and our ability to service our indebtedness and to make distributions to our shareholders. As of December 31, 2022, we had no variable-rate indebtedness outstanding that had not been swapped for a fixed interest rate.
Increases in interest rates may increase our interest expense and adversely affect our cash flows and our ability to service our indebtedness and to make distributions to our shareholders. As of December 31, 2023, we had $50.0 million of variable-rate indebtedness outstanding that had not been swapped for a fixed interest rate.
A large percentage of our properties are located in Texas, Ohio, and Illinois, and changes in these markets may materially adversely impact our business and financial condition. Of our investments in 174 properties, the properties located in Texas, Ohio, and Illinois provide, in the aggregate, approximately 39.0% of our annualized rent as of December 31, 2022.
A large percentage of our properties are located in Texas, Illinois, and Ohio, and changes in these markets may materially adversely impact our business and financial condition. Of our investments in 193 properties, the properties located in Texas, Illinois, and Ohio provide, in the aggregate, approximately 39.6% of our annualized rent as of December 31, 2023.
Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things: 39 • available interest rate hedging may not correspond directly with the interest rate risk for which we seek protection; • the duration of the hedge may not match the duration of the related liability; • the party owing money in the hedging transaction may default on its obligation to pay; • the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value, such as downward adjustments, or “mark-to-market losses,” which would reduce our stockholders’ equity.
Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things: • available interest rate hedging may not correspond directly with the interest rate risk for which we seek protection; • the duration of the hedge may not match the duration of the related liability; • the party owing money in the hedging transaction may default on its obligation to pay; • the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value, such as downward adjustments, or “mark-to-market losses,” which would reduce our stockholders’ equity. 38 In addition, we may be limited in the type and amount of hedging transactions that we may use in the future by our need to satisfy the REIT income tests under the Code.
We cannot predict whether our tenants will renew existing leases beyond their current terms. At December 31, 2022, we had 49 leases scheduled to expire in 2023 and 52 leases scheduled to expire in 2024 , which represent 5.9% and 6.9% of our total annualized lease revenue, respectively, for the year ended December 31, 2022.
We cannot predict whether our tenants will renew existing leases beyond their current terms. At December 31, 2023, we had 69 leases scheduled to expire in 2024 and 54 leases scheduled to expire in 2025 , which represent 6.9% and 9.2% of our total annualized lease revenue, respectively, for the year ended December 31, 2023.
Market volatility and disruption could hinder our ability to obtain new debt financing or refinance our maturing debt on favorable terms or at all or to raise debt and equity capital.
Market volatility and disruption could hinder our ability to obtain new debt financing or refinance our maturing debt on favorable terms or at all or to raise debt and equity capital. Covenants related to our indebtedness could limit our operations.
We cannot predict the ultimate content, timing or effect of any further healthcare reform legislation or the impact of potential legislation on us.
We cannot predict the ultimate content, timing or effect of any further healthcare reform legislation related to increasing access to healthcare or the impact of potential legislation on us.
An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our common stock to expect a higher dividend yield (with a resulting decline in the trading prices of our common stock) and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.
An increase in market interest rates, may lead prospective purchasers of our common stock to expect a higher dividend yield (with a resulting decline in the trading prices of our common stock) and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.
Because of the uncertainty of market conditions that may affect the future disposition of our properties, and the potential payment of prepayment penalties upon such disposition, we cannot assure you that we will be able to sell our properties at a profit in the future, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. 33 If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows.
Because of the uncertainty of market conditions that may affect the future disposition of our properties, and the potential payment of prepayment penalties upon such disposition, we cannot assure you that we will be able to sell our properties at a profit in the future, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
The capital and credit markets have experienced extreme volatility and disruption as a result of the global outbreak of COVID-19, the conflict between Russia and Ukraine, and the recent rise in inflation, as well as the resulting governmental policies. We believe that such volatility and disruption are likely to continue into the foreseeable future.
The capital and credit markets have experienced extreme volatility and disruption as a result of the conflict between Russia and Ukraine, new and ongoing hostilities between Israel and Hamas, and the recent rise in inflation, as well as the resulting governmental policies. We believe that such volatility and disruption are likely to continue into the foreseeable future.
As of December 31, 2022, we had $350.0 million outstanding under our Credit Facility, including our term loans.
As of December 31, 2023, we had $400.0 million outstanding under our Credit Facility, including our term loans.
Furthermore, if one or more of the analysts who do cover us downgrades our shares or our industry, or the stock of any of our competitors, the market price of our common stock could decline.
We have no control over these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our shares or our industry, or the stock of any of our competitors, the market price of our common stock could decline.
We may be unable to complete any pending acquisitions, which would adversely affect our ability to make distributions to our stockholders and could have a material adverse impact on our results of operations, earnings and cash flow.
We may be unable to complete any pending acquisitions, which would adversely affect our ability to make distributions to our stockholders and could have a material adverse impact on our results of operations, earnings and cash flow, and even if acquisitions are completed, we may fail to successfully operate acquired properties.
Subject to the exceptions described herein, a non-U.S. person generally is subject to U.S. federal income tax on gain recognized on a disposition of our stock under the Foreign Investment in Real Property Tax Act, or FIRPTA.
Non-U.S. stockholders may be subject to FIRPTA taxation upon the sale of their shares of our common stock. Subject to the exceptions described herein, a non-U.S. person generally is subject to U.S. federal income tax on gain recognized on a disposition of our stock under the Foreign Investment in Real Property Tax Act, or FIRPTA.
Changes in federal, state, and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties (for example, to improve their energy efficiency and/or resistance to severe weather) without a corresponding increase in revenue, which may result in adverse impacts to our net income.
Although these laws and regulations have not had any known material adverse effects on our business to date, changes in federal, state, and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties (for example, to improve their energy efficiency and/or resistance to severe weather) without a corresponding increase in revenue, which may result in adverse impacts to our net income.
In addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flows and our ability to pay distributions, and the market price of our common stock. 35 Environmental compliance costs and liabilities associated with owning and leasing our properties may affect our results of operations.
In addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flows and our ability to pay distributions, and the market price of our common stock.
At any time, our tenants may experience a downturn in their businesses that may significantly weaken their financial condition, whether as a result of general economic conditions or otherwise.
As a result, our performance depends on our ability to collect rents from tenants. At any time, our tenants may experience a downturn in their businesses that may significantly weaken their financial condition, whether as a result of general economic conditions or otherwise.
Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage note. Cybersecurity incidents could disrupt our business and result in the unavailability or compromise of confidential information.
Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage note.
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results.
In that event, the market price of our common stock could decline, and you could lose part or all of your investment. 16 The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results.
These provisions include, among others: 41 • redemption rights of qualifying parties; • a requirement that we may not be removed as the general partner of our operating partnership without our consent; • transfer restrictions on OP units; and • our ability, as general partner, in some cases, to amend the partnership agreement and to cause our operating partnership to issue additional partnership interests with terms that could delay, defer or prevent a merger or other change of control of us or our operating partnership without the consent of our stockholders or the limited partners.
These provisions include, among others: • redemption rights of qualifying parties; • a requirement that we may not be removed as the general partner of our operating partnership without our consent; • transfer restrictions on OP units; and • our ability, as general partner, in some cases, to amend the partnership agreement and to cause our operating partnership to issue additional partnership interests with terms that could delay, defer or prevent a merger or other change of control of us or our operating partnership without the consent of our stockholders or the limited partners. 40 Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest.
If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the price at which you purchased such shares.
If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the price at which you purchased such shares. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future.
In addition to state data breach notification requirements, HIPAA authorizes state attorneys general to bring civil actions on behalf of affected state residents against entities that violate HIPAA privacy and security regulations or their respective state laws.
Violations of these various privacy and security laws can result in significant civil monetary penalties, as well as the potential for criminal penalties. In addition to state data breach notification requirements, HIPAA authorizes state attorneys general to bring civil actions on behalf of affected state residents against entities that violate HIPAA privacy and security regulations or their respective state laws.
If any of the events or circumstances described in the following risk factors actually occur, our business, operating results, financial condition, cash flows, and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
If any of the events or circumstances described in the following risk factors actually occur, our business, operating results, financial condition, cash flows, and prospects could be materially and adversely affected.
If our expenses increase as a result of any of the aforementioned factors, our results of operations may be adversely affected. 25 Our ability to issue equity to expand our business will depend, in part, upon the market price of our common stock, and our failure to meet market expectations with respect to our business could adversely affect the market price of our common stock and thereby limit our ability to raise capital.
Our ability to issue equity to expand our business will depend, in part, upon the market price of our common stock, and our failure to meet market expectations with respect to our business could adversely affect the market price of our common stock and thereby limit our ability to raise capital.
In general, neither ordinary nor capital gain distributions with respect to our common stock, nor gain from the sale of our common stock, should constitute unrelated business tax income, or UBTI, to a tax-exempt stockholder.
In general, neither ordinary nor capital gain distributions with respect to our common stock, nor gain from the sale of our common stock, should constitute unrelated business tax income, or UBTI, to a tax-exempt stockholder. However, under certain limited circumstances, income and gain recognized by certain tax-exempt stockholders could be treated, in whole or in part, as UBTI.
Additionally, failure to close acquisitions under contract or in our investment pipeline could restrict our growth opportunities. We may obtain only limited warranties when we purchase a property, which, in turn, would only provide us with limited recourse against the seller if issues arise after our purchase of a property.
We may obtain only limited warranties when we purchase a property, which, in turn, would only provide us with limited recourse against the seller if issues arise after our purchase of a property.
This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us, including our financial condition, results of operations, cash flow and the market price of our common stock. 48 Increases in market interest rates may have an adverse effect on the market price of our common stock as prospective purchasers of our common stock may expect a higher dividend yield and as an increased cost of borrowing may decrease our funds available for distribution.
This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us, including our financial condition, results of operations, cash flow and the market price of our common stock.
Federal Reserve began, and has continued and is expected to continue, to raise interest rates in an effort to curb inflation. Increases in interest rates will increase interest cost on existing variable rate debt, including our Credit Facility. Such increases in the cost of capital could adversely impact our ability to finance operations and acquire properties.
In response to inflationary pressures, the Federal Reserve raised interest rates in 2022 and 2023, and these increases may continue in 2024 and beyond. Increases in interest rates will increase interest cost on existing variable rate debt, including our Credit Facility. Such increases in the cost of capital could adversely impact our ability to finance operations and acquire properties.
Any ownership of a TRS will be subject to limitations, and our transactions with a TRS cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
Consequently, we may choose not to engage in an otherwise attractive sale of property or may conduct such a sale through a TRS, which would subject such sale to federal and state income taxation. 43 Any ownership of a TRS will be subject to limitations, and our transactions with a TRS cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
The healthcare industry is currently experiencing, among other things: • changes in the demand for and methods of delivering healthcare services; • changes in third party reimbursement methods and policies; • increased attention to compliance with regulations designed to safeguard protected health information and cyber-attacks on entities; • consolidation and pressure to integrate within the healthcare industry through acquisitions and joint ventures; and • increased scrutiny of billing, referral and other practices by U.S. federal and state authorities. 29 These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues, which may have a material adverse effect on our business, financial condition and results of operations, our ability to make distributions to our stockholders and the market price of our common stock.
The healthcare industry is currently experiencing, among other things: • changes in the demand for and methods of delivering healthcare services; • changes in third party reimbursement methods and policies; • increased attention to compliance with regulations designed to safeguard protected health information and cyber-attacks on entities; • consolidation and pressure to integrate within the healthcare industry through acquisitions and joint ventures; and • increased scrutiny of billing, referral and other practices by U.S. federal and state authorities.
Accordingly, a downturn in the healthcare industry generally, or in the healthcare related facility specifically, could adversely affect our business, financial condition and results of operations, our ability to make distributions to our shareholders and the market price of our common shares. 18 Failure by our major tenants to make rental payments to us, because of a deterioration of their financial condition, a termination of their leases, a non-renewal of their leases or otherwise, could have a material adverse effect on our results of operations .
Accordingly, a downturn in the healthcare industry generally, or in the healthcare related facility specifically, could adversely affect our business, financial condition and results of operations, our ability to make distributions to our shareholders and the market price of our common shares.
If we are unable to offset such cost increases through rent increases, we could be required to fund those increases in operating costs which could adversely affect funds available for future acquisitions or cash available for distribution. 34 Our property taxes could increase due to property tax rate changes or reassessments, which could materially adversely impact our cash flows.
Our properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs, and maintenance and administrative expenses. If we are unable to offset such cost increases through rent increases, we could be required to fund those increases in operating costs which could adversely affect funds available for future acquisitions or cash available for distribution.
We will rely upon external sources of capital to fund future capital needs, and, if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.
In the event of negative economic or other changes in these markets, our business, financial condition and results of operations, our ability to make distributions to our stockholders and the market price of our common stock may be materially and adversely affected. 23 We will rely upon external sources of capital to fund future capital needs, and, if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.
If the property taxes we pay increase, our cash flow would be adversely impacted to the extent that we are not reimbursed by tenants for those taxes, and our ability to pay any expected dividends to our stockholders could be materially adversely affected.
If the property taxes we pay increase, our cash flow would be adversely impacted to the extent that we are not reimbursed by tenants for those taxes, and our ability to pay any expected dividends to our stockholders could be materially adversely affected. 33 Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.
Our business is at risk from and may be impacted by information security incidents, including attempts to gain unauthorized access to our confidential data, ransomware, malware, and other electronic security events. Such incidents can range from individual attempts to gain unauthorized access to our information technology systems to more sophisticated security threats.
Cybersecurity incidents could disrupt our business and result in the unavailability or compromise of confidential information. Our business is at risk from and may be impacted by information security incidents, including attempts to gain unauthorized access to our confidential data, ransomware, malware, and other electronic security events.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeTotal Leased Square Footage Annualized Lease Revenue Year Number of Leases Expiring Amount Percent (%) Amount (in thousands) Percent (%) 2023 49 251 7.2 % $ 5,215 5.9 % 2024 52 303 8.7 % 6,148 6.9 % 2025 41 303 8.7 % 8,082 9.1 % 2026 43 362 10.5 % 7,981 9.0 % 2027 38 212 6.1 % 4,323 4.9 % 2028 26 231 6.7 % 4,357 4.9 % 2029 17 234 6.7 % 6,194 7.0 % 2030 15 141 4.1 % 3,645 4.1 % 2031 16 286 8.3 % 7,850 8.9 % 2032 10 126 3.6 % 1,695 1.9 % Thereafter 35 994 28.7 % 32,729 36.9 % Month-to-Month 10 24 0.7 % 413 0.5 % Totals 352 3,467 100.0 % $ 88,632 100.0 %
Biggest changeTotal Leased Square Footage Annualized Lease Revenue Year Number of Leases Expiring Amount (in thousands) Percent (%) Amount (in thousands) Percent (%) 2024 69 316 8.3 % $ 6,667 6.9 % 2025 54 338 8.8 % 8,910 9.2 % 2026 65 541 14.2 % 11,029 11.4 % 2027 50 304 8.0 % 6,476 6.7 % 2028 58 327 8.5 % 5,938 6.1 % 2029 25 272 7.1 % 6,489 6.7 % 2030 16 115 3.0 % 3,219 3.3 % 2031 23 347 9.1 % 9,331 9.6 % 2032 11 133 3.5 % 1,877 1.9 % 2033 12 75 2.0 % 1,503 1.5 % Thereafter 38 1,032 27.0 % 35,059 36.2 % Month-to-Month 10 20 0.5 % 449 0.5 % Totals 431 3,820 100.0 % $ 96,947 100.0 %
PROPERTIES In addition to the information provided below, see Item 1, "Business," Note 2 – Real Estate Investments to the Consolidated Financial Statements in Item 8 "Financial Statements and Supplementary Data," and Schedule III of Item 15 of this Annual Report on Form 10-K for more detailed information about the Company's properties as of December 31, 2022. 49 Scheduled Lease Expirations As of December 31, 2022, the weighted average remaining years to maturity pursuant to the leases with our tenants was approximately 7.6 years, with expirations through 2039.
ITEM 2. PROPERTIES In addition to the information provided below, see Item 1, "Business," Note 2 – Real Estate Investments to the Consolidated Financial Statements in Item 8 "Financial Statements and Supplementary Data," and Schedule III of Item 15 of this Annual Report on Form 10-K for more detailed information about the Company's properties as of December 31, 2023.
The table below details scheduled lease expirations, as of December 31, 2022, for our properties for the periods indicated.
Scheduled Lease Expirations As of December 31, 2023, the weighted average remaining years to maturity pursuant to the leases with our tenants was approximately 6.9 years, with expirations through 2039. The table below details scheduled lease expirations, as of December 31, 2023, for our properties for the periods indicated.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Community Healthcare Trust Incorporated $ 100.00 $ 108.81 $ 168.60 $ 192.54 $ 200.40 $ 158.89 Russell 3000 Index $ 100.00 $ 94.76 $ 124.15 $ 150.08 $ 188.60 $ 152.37 NAREIT All Equity REIT Index $ 100.00 $ 95.96 $ 123.46 $ 117.14 $ 165.51 $ 124.22 The information provided under the heading “Stock Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to its proxy regulations or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, other than as provided in Item 201 of Regulation S-K.
Biggest changeWe will not make or endorse any predictions as to future stock performance Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Community Healthcare Trust Incorporated $ 100.00 $ 154.94 $ 176.94 $ 184.17 $ 146.02 $ 114.62 Russell 3000 Index $ 100.00 $ 131.02 $ 158.39 $ 199.03 $ 160.80 $ 202.54 NAREIT All Equity REIT Index $ 100.00 $ 128.66 $ 122.07 $ 172.49 $ 129.45 $ 144.16 The information provided under the heading “Stock Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to its proxy regulations or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, other than as provided in Item 201 of Regulation S-K.
The 51 information provided in this section shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. ITEM 6. [RESERVED] Intentionally omitted.
The information provided in this section shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. 51 ITEM 6. [RESERVED] Intentionally omitted.
The performance graph assumes that the value of the investment in our common stock, the Russell 3000 Index and the NAREIT All Equity REIT Index was $100 at December 31, 2017 and that all dividends were reinvested.
The performance graph assumes that the value of the investment in our common stock, the Russell 3000 Index and the NAREIT All Equity REIT Index was $100 at December 31, 2018 and that all dividends were reinvested.
Stock Performance Graph The following graph compares, over a measurement period beginning December 31, 2017 and ending on December 31, 2022, the cumulative total return on our common stock with the cumulative total return on the stocks included in (i) the Russell 3000 Index and (ii) the NAREIT All Equity REIT Index.
Stock Performance Graph The following graph compares, over a measurement period beginning December 31, 2018 and ending on December 31, 2023, the cumulative total return on our common stock with the cumulative total return on the stocks included in (i) the Russell 3000 Index and (ii) the NAREIT All Equity REIT Index.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Shares of the Company's common stock are traded on the New York Stock Exchange under the symbol "CHCT." At February 9, 2023, there were 39 stockholders of record. Future dividends will be declared and paid at the discretion of the Board of Directors.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Shares of the Company's common stock are traded on the New York Stock Exchange under the symbol "CHCT." At February 8, 2024, there were 45 stockholders of record. Future dividends will be declared and paid at the discretion of the Board of Directors.
There can be no assurance that our common stock performance will continue in the future with the same or similar trends depicted in the stock performance graph below. We will not make or endorse any predictions as to future stock performance.
There can be no assurance that our common stock performance will continue in the future with the same or similar trends depicted in the stock performance graph below.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

68 edited+15 added−25 removed46 unchanged
Biggest change(Dollars in thousands) For the Year Ended December 31, Increase (Decrease) to Net Income 2022 2021 $ % REVENUES Rental income $ 94,103 $ 87,661 $ 6,442 7.3 % Other operating interest 3,576 2,918 658 22.5 % 97,679 90,579 7,100 7.8 % EXPENSES Property operating 16,636 15,158 (1,478) (9.8) % General and administrative 14,837 12,113 (2,724) (22.5) % Depreciation and amortization 32,339 30,401 (1,938) (6.4) % 63,812 57,672 (6,140) (10.6) % INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND OTHER ITEMS 33,867 32,907 960 2.9 % Gain on sale of real estate — 237 (237) (100.0) % Interest expense (11,873) (10,542) (1,331) (12.6) % Deferred income tax expense (41) (167) 126 75.4 % Interest and other income, net 66 57 9 15.8 % INCOME FROM CONTINUING OPERATIONS 22,019 22,492 (473) (2.1) % NET INCOME $ 22,019 $ 22,492 $ (473) (2.1) % 54 Revenues Rental income increased approximately $6.4 million, or 7.3%, for the year ended December 31, 2022 compared to the same period in 2021.
Biggest changeFor the Year Ended December 31, Increase (Decrease) to Net Income (Dollars in thousands) 2023 2022 $ % REVENUES Rental income $ 108,682 $ 94,103 $ 14,579 15.5 % Other operating interest 4,163 3,576 587 16.4 % 112,845 97,679 15,166 15.5 % EXPENSES Property operating 20,713 16,636 (4,077) (24.5) % General and administrative (1) 27,338 14,837 (12,501) (84.3) % Depreciation and amortization 39,693 32,339 (7,354) (22.7) % 87,744 63,812 (23,932) (37.5) % OTHER INCOME (EXPENSE) Impairment of real estate asset (102) — (102) n/m Interest expense (17,792) (11,873) (5,919) (49.9) % Deferred income tax expense (306) (41) (265) n/m Interest and other income, net 813 66 747 n/m (17,387) (11,848) (5,539) 46.8 % NET INCOME $ 7,714 $ 22,019 $ (14,305) (65.0) % n/m - not meaningful _____________________ (1) General and administrative expenses for the year ended December 31, 2023 included the accelerated amortization of stock-based compensation totaling $11.8 million recognized upon the passing of our former CEO and President.
In the case of a below-market lease, we also evaluate any renewal options associated with that lease to 62 determine if the intangible should include those periods. The capitalized above-market or below-market lease intangibles are amortized as a reduction from or an addition to rental income over the estimated remaining term of the respective leases.
In the case of a below-market lease, we also evaluate any renewal options associated with that lease to determine if the intangible should include those periods. The capitalized above-market or below-market lease intangibles are amortized as a reduction from or an addition to rental income over the estimated remaining term of the respective leases.
NOI is defined as net income or loss, computed in accordance with GAAP, generated from our total portfolio of properties and other investments before general and administrative expenses, 60 depreciation and amortization expense, gains or losses on the sale of real estate properties or other investments, interest expense, deferred income tax expense, and interest and other income, net.
NOI is defined as net income or loss, computed in accordance with GAAP, generated from our total portfolio of properties and other investments before general and administrative expenses, depreciation and amortization expense, gains or losses on the sale of real estate properties or other investments, interest expense, deferred income tax expense, and interest and other income, net.
The shares of common stock may be sold from time to time through or to one or more of the Agents, as may be determined by the Company in its sole discretion, subject to the terms and conditions of the agreement and applicable law.
The shares of common stock may be sold from time to time through or to one or more of the Agents, as may be determined by the Company in its sole discretion, subject to the terms and conditions of the agreement and 57 applicable law.
The Company expects to meet its liquidity needs through cash on hand, cash flows from operations and cash flows from sources discussed above. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements.
The Company expects to meet its liquidity needs through cash on hand, cash flows from operations and cash flows from sources discussed above. The Company believes that its liquidity and sources of capital are adequate to satisfy 56 its cash requirements.
Ground Leases At December 31, 2022, the Company was obligated, as the lessee, under four non-prepaid ground leases accounted for as operating leases with expiration dates through 2076, including renewal options, and two non-prepaid ground leases accounted for as a financing lease with an expiration date through 2109, including renewal options.
Ground Leases At December 31, 2023, the Company was obligated, as the lessee, under four non-prepaid ground leases accounted for as operating leases with expiration dates through 2076, including renewal options, and two non-prepaid ground leases accounted for as a financing lease with an expiration date through 2109, including renewal options.
Cash flows provided by operating activities for the years ended December 31, 2022, 2021 and 2020 were generally provided by contractual rents and interest on notes receivables, net of property operating expenses not reimbursed by the tenants and general and administrative expenses.
Cash flows provided by operating activities for the years ended December 31, 2023, 2022 and 2021 were generally provided by contractual rents and interest on notes receivables, net of property operating expenses not reimbursed by the tenants and general and administrative expenses.
During 2022 and 2021, the Company amended its Credit Facility and borrowed $150.0 million and $125.0 million, respectively, in Term Loans under its Credit Facility and incurred $0.8 million and $1.6 million, respectively, in additional debt issuance costs, and in 2022 and 2021 repaid $50.0 million and $50.0 million, respectively, in Term Loans under its Credit Facility.
During 2022 and 2021, the Company amended its Credit Facility and borrowed $150.0 million and $125.0 million, respectively, in Term Loans under its Credit Facility and incurred $0.8 million and $1.6 million, respectively, in additional debt issuance costs, and in each of 2022 and 2021, repaid $50.0 million in Term Loans under its Credit Facility.
Year Ended December 31, 2022 Compared to December 31, 2021 The table below shows our results of operations for the year ended December 31, 2022 compared to the same period in 2021 and the effect of changes in those results from period to period on our net income.
Year Ended December 31, 2023 Compared to December 31, 2022 The table below shows our results of operations for the year ended December 31, 2023 compared to the same period in 2022 and the effect of changes in those results from period to period on our net income.
The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs. Operating Activities Cash flows provided by operating activities for the years ended December 31, 2022, 2021 and 2020 were approximately $60.3 million, $56.3 million, and $48.4 million, respectively.
The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs. Operating Activities Cash flows provided by operating activities for the years ended December 31, 2023, 2022 and 2021 were approximately $61.4 million, $60.3 million, and $56.3 million, respectively.
Credit Facility The Company's Credit Facility provides for a $150.0 million Revolving Credit Facility that matures on March 19, 2026 and includes one 12-month option to extend the maturity date, and $350.0 million in Term Loans, as well as an accordion feature which allows borrowings up to a total of $700.0 million, including the ability to add and fund additional term loans.
Credit Facility The Company's third amended and restated credit agreement, as amended (the "Credit Facility") provides for a $150.0 million revolving credit facility (the "Revolving Credit Facility") that matures on March 19, 2026 and includes one 12-month option to extend the maturity date, and $350.0 million in term loans (the "Term Loans"), as well as an accordion feature which allows borrowings up to a total of $700.0 million, including the ability to add and fund additional term loans.
Any rental increases related to the Company's ground leases are generally either stated or based on the Consumer Price Index. At December 31, 2022, the Company's aggregate obligation under these ground leases was approximately $9.1 million. See Note 3 – Real Estate Leases to the Consolidated Financial Statements.
Any rental increases related to the Company's ground leases are generally either stated or based on the Consumer Price Index. At December 31, 2023, the Company's aggregate obligation under these ground leases was approximately $8.9 million. See Note 3 – Real Estate Leases to the Consolidated Financial Statements.
During 2021, the Company invested in 13 real estate properties for an aggregate cash consideration of approximately $88.1 million and sold one property for net proceeds of approximately $1.3 million.
During 2022, the Company invested in 18 real estate properties for an aggregate cash consideration of approximately $96.7 million. During 2021, the Company invested in 13 real estate properties for an aggregate cash consideration of approximately $88.1 million and sold one property for net proceeds of approximately $1.3 million.
During the year ended December 31, 2022, we had expiring or terminated leases related to approximately 443,000 square feet, and we leased or renewed leases related to approximately 469,000 square feet. Purchase Option Provisions Certain of the Company's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property.
During the year ended December 31, 2023, we had expiring or terminated leases related to approximately 462,000 square feet, and we leased or renewed leases related to approximately 334,000 square feet. Purchase Option Provisions Certain of the Company's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property.
During 2022 and 2021, the Company repaid, on a net basis, approximately $12.0 million and $21.0 million, respectively, on its Revolving Credit Facility, and in 2020, the Company borrowed, on a net basis, approximately $18.0 million on its Revolving Credit Facility.
During 2023, the Company borrowed, on a net basis, approximately $50.0 million, and in 2022 and 2021, the Company repaid, on a net basis, approximately $12.0 million and $21.0 million respectively, on its Revolving Credit Facility.
The Company may also assume tenant improvement obligations included in leases acquired in its real estate acquisitions. As of December 31, 2022, the Company had approximately $12.0 million in commitments for tenant improvements. 58 The Company has entered into contracts with various vendors for various capital improvement projects related to its portfolio.
The Company may also assume tenant improvement obligations included in leases acquired in its real estate acquisitions. As of December 31, 2023, the Company had approximately $10.9 million in commitments for tenant improvements. The Company has entered into contracts with various vendors for various capital improvement projects related to its portfolio.
The Company expects to close on these properties during the first half of 2023; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. The Company also has six properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $141.0 million.
The Company expects to close on these properties during the first half of 2024; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. The Company also has seven properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $166.5 million.
The Company expects to close on these properties during the first half of 2023; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. The Company also has six properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $141.0 million.
The Company expects to close on these properties during the first half of 2024; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. The Company also has seven properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $166.5 million.
Security Deposits As of December 31, 2022, the Company held approximately $5.8 million in security deposits, included in other liabilities on the Consolidated Statement of Income, for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease.
Security Deposits As of December 31, 2023, the Company held approximately $3.7 million in security deposits, included in other liabilities, on the Consolidated Statement of Income, for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease.
Other operating interest increased approximately $0.7 million, or 22.5%, for the year ended December 31, 2022 compared to the same period in 2021 due to interest earned on our notes receivable, which are discussed in more detail in Note 10 – Other Assets, net to the Consolidated Financial Statements.
Other operating interest increased approximately $0.6 million, or 16.4%, for the year ended December 31, 2023 compared to the same period in 2022 due to interest earned on our notes receivable, which are discussed in more detail in Note 10 – Other Assets, net to the Consolidated Financial Statements.
However, recent inflation has significantly increased and a prolonged period of high and persistent inflation could cause an increase in our expenses, capital expenditures, and cost of our variable-rate borrowings which could have a material impact 53 on our financial position or results of operations.
Inflation Inflation has significantly increased during the past couple of years and a prolonged period of high and persistent inflation could cause an increase in our expenses, capital expenditures, and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations.
Acquisition pipeline The Company has four properties under definitive purchase agreements for an expected aggregate purchase price of approximately $20.1 million. The Company's expected aggregate return on these investments ranges from approximately 9.2% to 9.5%.
Acquisition pipeline The Company has three properties under definitive purchase agreements for an expected aggregate purchase price of approximately $27.9 million. The Company's expected aggregate return on these investments ranges from approximately 9.08% to 9.20%.
During 2022, 2021 and 2020, the Company paid cash dividends in the amounts of $1.765 per share, $1.725 per share and $1.685 per share, respectively. On February 9, 2023, the Company’s Board of Directors declared a quarterly common stock dividend in the amount of $0.4475 per share.
During 2023, 2022 and 2021, the Company paid cash dividends in the amounts of $1.805 per share, $1.765 per share and $1.725 per share, respectively. On February 8, 2024, the Company’s Board of Directors declared a quarterly common stock dividend in the amount of $0.4575 per share.
Under this registration statement, the Company has the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock, depository shares, rights, debt securities, warrants and units.
The registration statement is for an indeterminate number of securities and is effective for three years. Under this registration statement, the Company has the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock, depository shares, rights, debt securities, warrants and units.
Set forth below is a summary of our accounting policies that we believe are critical to the preparation of our Consolidated Financial Statements. Our accounting policies are more fully discussed in Note 1 – Summary of Significant Accounting Policies to the Consolidated Financial Statements.
Actual results could differ from those estimates. Set forth below is a summary of our accounting policies and estimates that we believe are critical to the preparation of our Consolidated Financial Statements. Our accounting policies are more fully discussed in Note 1 – Summary of Significant Accounting Policies to the Consolidated Financial Statements.
As of December 31, 2022, the Company had approximately $4.2 million in commitments for capital improvement projects. Five of the projects included above, with remaining obligations totaling $2.9 million as of December 31, 2022, represent redevelopment projects of the buildings into different healthcare uses backed by long term leases.
As of December 31, 2023, the Company had approximately $5.8 million in commitments for capital improvement projects. Six of the projects included above, with remaining obligations totaling $3.5 million as of December 31, 2023, represent redevelopment projects of the buildings into different healthcare uses backed by long term leases.
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 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. 60 The table below reconciles net income to FFO and AFFO for the years ended December 31, 2023, 2022, and 2021.
In addition, during 2022, 2021 and 2020, the Company acquired or funded notes receivable of approximately $9.7 million, $14.4 million, and $1.8 million, respectively, and received payments in 2022, 2021 and 2020 on notes of approximately $3.0 million, $4.0 million, and $10.3 million, respectively.
In addition, during 2023, 2022 and 2021, the Company funded notes receivable of approximately $2.0 million, $9.7 million, and $14.4 million, respectively, and received payments in 2023, 2022 and 2021 on notes of approximately $3.9 million, $3.0 million, and $4.0 million, respectively.
The Company anticipates funding these investments with cash from operations, through proceeds from its Credit Facility or from net proceeds from additional debt or equity offerings. Notes Receivable The Company had entered into notes with two tenants with maximum commitments remaining to fund totaling approximately $5.8 million at December 31, 2022.
The Company anticipates funding these investments with cash from operations, through proceeds from its Credit Facility or from net proceeds from additional debt or equity offerings. Note Receivable The Company had entered into a note with a tenant with a maximum commitment remaining to fund totaling approximately $5.0 million at December 31, 2023.
As of December 31, 2022, the Company had approximately $479.0 million remaining that may be issued under the ATM Program.
As of December 31, 2023, the Company had approximately $433.9 million remaining that may be issued under the ATM Program.
During 2022, 2021 and 2020, the Company paid dividends totaling $44.5 million, $42.4 million and $38.0 million, respectively. During 2022, 2021 and 2020, the Company completed equity offerings under its at-the-market program, resulting in net proceeds, net of 56 underwriters' discount and offering costs, of approximately $20.2 million, $38.2 million and $97.7 million, respectively.
During 2023, 2022 and 2021, the Company completed equity offerings under its at-the-market program, resulting in net proceeds, net of underwriters' discount and offering costs, of approximately $44.0 million, $20.2 million and $38.2 million, respectively.
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 Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K. 59 Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") FFO is an operating performance measure adopted by the National Association of Real Estate Investment Trusts, Inc.
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 Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.
The Company's expected returns on these investments are approximately 10.25%. The Company anticipates closing on these properties from throughout 2023 and 2024; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close.
The Company's expected returns on these investments are approximately 9.1% to 9.75%. The Company anticipates closing on two of these properties in 2024 with the remainder throughout 2025 and 2026; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close.
Allowance for Credit Losses ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments uses an expected credit loss ("CECL") model in evaluating the collectability of notes receivable and other financial instruments.
Allowance for Credit Losses Credit losses on financial instruments are measured using an expected credit loss ("CECL") model in evaluating the collectability of notes receivable and other financial instruments.
Investing Activities Cash flows used in investing activities for the years ended December 31, 2022, 2021 and 2020 were approximately $113.8 million, $104.4 million, and $125.1 million, respectively. During 2022, the Company invested in 18 real estate properties for an aggregate cash consideration of approximately $96.7 million.
Investing Activities Cash flows used in investing activities for the years ended December 31, 2023, 2022 and 2021 were approximately $113.7 million, $113.8 million, and $104.4 million, respectively. During 2023, the Company invested in 19 real estate properties and one land parcel for cash consideration of approximately $98.9 million.
Many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation, including annual rent increases based on stated increases or CPI increases. In response to inflationary pressures, the Federal Reserve began raising interest rates in 2022 and has indicated that it foresees further interest rate increases throughout the year and into 2023 and 2024.
Many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation, including annual rent increases based on stated increases or CPI increases. In response to inflationary pressures, the Federal Reserve raised interest rates in 2022 and 2023, and these increases may continue in 2024 and beyond.
Lease Expirations Approximately 4.9% to 9.1% of our leases will expire in each of the next 5 years. Management expects that many of the tenants will renew their leases, but in cases where they do not renew, the Company believes it will generally be able to re-lease the space to existing or new tenants without significant loss of rental income.
Management expects that many of the tenants will renew their leases, but in cases where they do not renew, the Company believes it will generally be able to re-lease the space to existing or new tenants without significant loss of rental income. See "Properties" in Item 2 for a schedule of the Company's lease expirations.
Depreciation and amortization expense increased approximately $1.9 million, or 6.4%, for the year ended December 31, 2022 compared to the same period in 2021 due mainly to the following: • Depreciation and amortization related to properties acquired during 2022 and 2021 accounted for an increase of approximately $2.8 million; • Real estate intangible assets acquired prior to 2021 that became fully depreciated resulted in a decrease of approximately $1.6 million; and • Depreciation related to tenant and other improvements accounted for an increase of approximately $0.7 million.
Depreciation and amortization expense increased approximately $7.4 million, or 22.7%, for the year ended December 31, 2023 compared to the same period in 2022 due mainly to the following: • Depreciation and amortization related to properties acquired during 2023 and 2022 accounted for an increase of approximately $6.6 million; • Real estate intangible assets acquired prior to 2022 that became fully depreciated resulted in a decrease of approximately $1.8 million; • Accelerated amortization of lease intangibles on the two GenesisCare properties where the leases have been rejected totaled approximately $1.5 million; and • Depreciation related to tenant and other improvements accounted for an increase of approximately $1.1 million. 55 Impairment of real estate asset During the third quarter of 2023, the Company recorded an impairment on an asset held for sale of approximately $0.1 million.
Real estate acquisitions During the year ended December 31, 2022, the Company acquired 18 real estate properties for an aggregate purchase price of approximately $97.1 million. Upon acquisition, the properties, totaling approximately 423,000 square feet, were 98.9% leased in the aggregate with lease expirations through 2037.
Real estate acquisitions During the year ended December 31, 2023, the Company acquired 19 real estate properties and one land parcel for an aggregate purchase price of approximately $97.8 million. Upon acquisition, the properties, totaling approximately 463,000 square feet, were 99.2% leased in the aggregate with lease expirations through 2038.
Acquisition Pipeline The Company has four properties under definitive purchase agreements for an expected aggregate purchase price of approximately $20.1 million. The Company's expected aggregate return on these investments ranges from approximately 9.2% to 9.5%.
The acquisition was funded with proceeds from the Company's Revolving Credit Facility. 58 Acquisition Pipeline The Company has three properties under definitive purchase agreements for an expected aggregate purchase price of approximately $27.9 million. The Company's expected aggregate return on these investments ranges from approximately 9.08% to 9.20%.
Contractual interest due under the Credit Facility increased $1.7 million due to refinancings in the fourth quarter of 2022 and the first quarter of 2021, along with a rise in interest rates. See Note 5 – Debt, net to the Consolidated Financial Statements.
Contractual interest due under the Credit Facility increased $5.9 million due to refinancings in the fourth quarter of 2022, a higher weighted average balance on the Revolving Credit Facility, along with a rise in interest rates during 2023 as compared to 2022. See Note 5 – Debt, net to the Consolidated Financial Statements.
The Company evaluates factors such as its historical credit loss experience with the borrower or similar financial assets, current economic conditions, current and expected future financial condition of the borrower as well as payment history of the borrower, along with other relevant factors for each borrower or similar instruments. 63 Use of Estimates in the Consolidated Financial Statements Preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes.
The Company evaluates factors such as its historical credit loss experience with the borrower or similar financial assets, current economic conditions, current and expected future financial condition of the borrower as well as payment history of the borrower, along with other relevant factors for each borrower or similar instruments.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in our 2021 Annual Report on Form 10-K for a comparison of the year ended December 31, 2021 compared to December 31, 2020, which is incorporated by reference. 55 Liquidity and Capital Resources The Company monitors its liquidity and capital resources and relies on several key indicators in its assessment of capital markets for financing acquisitions and other operating activities as needed, including the following: • Leverage ratios and financial covenants included in our Credit Facility; • Dividend payout percentage; and • Interest rates, underlying treasury rates, debt market spreads and equity markets.
Liquidity and Capital Resources The Company monitors its liquidity and capital resources and relies on several key indicators in its assessment of capital markets for financing acquisitions and other operating activities as needed, including the following: • Leverage ratios and financial covenants included in our Credit Facility; • Dividend payout percentage; and • Interest rates, underlying treasury rates, debt market spreads and equity markets.
In preparing the Consolidated Financial Statements, management is required to exercise judgment and make assumptions and estimates that may impact the carrying value of assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Critical Accounting Policies and Estimates Our Consolidated Financial Statements are prepared in conformity with GAAP and the rules and regulations of the SEC. In preparing the Consolidated Financial Statements, management is required to exercise judgment and make assumptions and estimates that may impact the carrying value of assets and liabilities and the reported amounts of revenues and expenses.
Note 5 – Debt, net to the Consolidated Financial Statements and Liquidity and Capital Resources below provides more details on the Company's Credit Facility. At December 31, 2022, the Company had borrowing capacity remaining under the Revolving Credit Facility of approximately $150.0 million.
Note 5 – Debt, net to the Consolidated Financial Statements provides more details on the Credit Facility and Note 6 – Derivative Financial Instruments provides more detail on interest rate swaps entered into on the Term Loans. At December 31, 2023, the Company had borrowing capacity remaining under the Revolving Credit Facility of approximately $100.0 million.
Results of Operations Our results of operations are most significantly impacted each year by our acquisitions in and funding of our real estate investments, as well as expenses related to our employees, professional fees and other costs related to operating the REIT and its related subsidiaries.
Higher interest rates imposed by the Federal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense on our variable-rate borrowings under our revolving credit facility. 53 Results of Operations Our results of operations are most significantly impacted each year by our acquisitions in and funding of our real estate investments, as well as expenses related to our employees, professional fees and other costs related to operating the REIT and its related subsidiaries.
Also, the Company funded capital expenditures, including tenant improvements, during 2022, 2021 and 2020 totaling $10.4 million, $7.2 million, and $7.0 million, respectively. Financing Activities Cash flows provided by financing activities for the years ended December 31, 2022, 2021 and 2020 were approximately $62.7 million, $48.1 million, and $77.6 million, respectively.
Financing Activities Cash flows provided by financing activities for the years ended December 31, 2023, 2022 and 2021 were approximately $44.9 million, $62.7 million, and $48.1 million, respectively. During 2023, 2022 and 2021, the Company paid dividends totaling approximately $48.1 million, $44.5 million and $42.4 million, respectively.
We believe that NOI provides an accurate measure of operating performance of our operating assets because NOI excludes certain items that are not associated with management of the properties. The Company's use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing NOI.
We believe that NOI provides an accurate measure of operating performance of our operating assets because NOI excludes certain items that are not associated with management of the properties.
If management determines that the carrying value of the Company’s assets may not be fully recoverable based on the existence of any of the factors above, or others, management would measure and record an impairment charge based on the estimated fair value of the property or the estimated fair value less costs to sell the property.
If management determines that the carrying value of the Company’s assets may not be fully recoverable based on the existence of any of the factors above, or others, management would measure and record an impairment charge based on the estimated fair value of the property or the estimated fair value less costs to sell the property. 64 Revenue Recognition The primary source of revenue for the Company is generated through its leasing arrangements with its tenants which is accounted for under Accounting Standards Codification Topic 842 ("ASC Topic 842"), or through notes with its borrowers which is covered under ASC 310.
Year Ended December 31, (Amounts in thousands, except per share amounts) 2022 2021 2020 Net income $ 22,019 $ 22,492 $ 19,077 Real estate depreciation and amortization 32,602 30,624 25,615 (Gain) loss from sales of real estate — (237) 313 Total adjustments 32,602 30,387 25,928 FFO $ 54,621 $ 52,879 $ 45,005 Straight-line rent (3,444) (3,569) (3,211) Stock-based compensation 9,415 7,164 4,767 AFFO $ 60,592 $ 56,474 $ 46,561 FFO per diluted common share $ 2.24 $ 2.20 $ 2.03 AFFO per diluted common share $ 2.49 $ 2.35 $ 2.10 Weighted Average Common Shares Outstanding-Diluted (1) 24,379 24,012 22,179 ____________________________ (1) Diluted weighted average common shares outstanding for FFO are calculated based on the treasury method, rather than the 2-class method.
Year Ended December 31, (Amounts in thousands, except per share amounts) 2023 2022 2021 Net income $ 7,714 $ 22,019 $ 22,492 Real estate depreciation and amortization 40,103 32,602 30,624 Gain on sale of depreciable real estate — — (237) Impairment of real estate asset 102 — — Total adjustments 40,205 32,602 30,387 FFO $ 47,919 $ 54,621 $ 52,879 Straight-line rent (3,052) (3,444) (3,569) Stock-based compensation 8,166 9,415 7,164 Accelerated amortization of stock-based compensation (1) 11,799 — — Net gain from insurance recovery on casualty loss (706) — — AFFO $ 64,126 $ 60,592 $ 56,474 FFO per diluted common share $ 1.86 $ 2.24 $ 2.20 AFFO per diluted common share $ 2.49 $ 2.49 $ 2.35 Weighted Average Common Shares Outstanding-Diluted (2) 25,752 24,379 24,012 ____________________________ (1) Upon the passing of our former CEO and President in the first quarter of 2023, the Company accelerated the amortization of stock-based compensation totaling $11.8 million, impacting FFO per diluted share by $0.46 for the year ended December 31, 2023 .
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.
The ability of the Company to pay dividends is dependent upon its ability to generate cash flows and to make accretive new investments. 59 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.
The Company also presents Adjusted EBITDA re which is EBITDA re before non-cash stock-based compensation expense. We consider EBITDA re and Adjusted EBITDA re 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.
We consider EBITDA re and Adjusted EBITDA re 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. 62 The table below reconciles net income to EBITDA re and Adjusted EBITDA re for the years ended December 31, 2023, 2022, and 2021.
Also, the Company’s current financing policy prohibits aggregate debt (secured or unsecured) in excess of 40% of the Company's total capitalization, except for short-term, transitory periods. At December 31, 2022, our debt to total capitalization ratio (debt plus stockholders' equity plus accumulated depreciation) was approximately 34.8%.
The Company was in compliance with its financial covenants under its Credit Facility as of December 31, 2023. Also, the Company’s current financing policy prohibits aggregate debt (secured or unsecured) in excess of 40% of the Company's total capitalization, except for short-term, transitory periods.
Expenses Property operating expenses increased approximately $1.5 million, or 9.8%, for the year ended December 31, 2022 compared to the same period in 2021 mainly due to properties acquired during 2022 and 2021.
Expenses Property operating expenses increased approximately $4.1 million, or 24.5%, for the year ended December 31, 2023 compared to the same period in 2022 due mainly to the following: • Property operating expenses on properties acquired during 2023 and 2022 resulted in an increase of approximately $3.0 million; • Repairs and maintenance expenses increased approximately $0.4 million; • Security monitoring service expenses increased approximately $0.2 million; • The amortization of leasing commissions increased approximately $0.2 million; and • Property insurance expense increased approximately $0.1 million.
The Company's expected returns on these investments are approximately 10.25%. The Company anticipates closing on these properties from throughout 2023 and 2024; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. 52 Leased square footage As of December 31, 2022, our real estate portfolio was approximately 91.7% lease d.
The Company's expected returns on these investments are approximately 9.1% to 9.75%. The Company anticipates closing on two of these properties in 2024 with the remainder throughout 2025 and 2026 ; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close.
The Company had an aggregate gross investment of approximately $28.1 million in five real estate properties as of December 31, 2022 that were subject to exercisable purchase options.
The Company had an aggregate gross investment of approximately $37.2 million in ten real estate properties as of December 31, 2023 that were subject to exercisable purchase options. Lease Expirations Approximately 6.1% to 11.4% of our leases (based on annualized rent) will expire in each of the next 5 years.
The mortgage note amortizes monthly at a fixed interest rate of 4.98% with a balloon payment upon maturity on May 1, 2024. Principal repayments due on the mortgage note are approximately $0.1 million and $4.8 million for the years ended December 31, 2023 and 2024, respectively.
The mortgage note amortizes monthly at a fixed interest rate of 4.98% with a balloon payment of approximately $4.8 million due upon maturity on May 1, 2024. The Company expects to fund the balloon payment with proceeds from the Company's Revolving Credit Facility or proceeds from the Company's ATM Program.
Year Ended December 31, (In thousands) 2022 2021 2020 Net income $ 22,019 $ 22,492 $ 19,077 General and administrative 14,837 12,113 8,768 Depreciation and amortization 32,339 30,401 25,378 (Gain) loss on sale of depreciable assets — (237) 313 Interest expense 11,873 10,542 8,620 Deferred income taxes 41 167 80 Interest and other income, net (66) (57) (166) NOI $ 81,043 $ 75,421 $ 62,070 EBITDA r e and Adjusted EBITDA re The Company uses the NAREIT definition of EBITDA re which is net income plus interest expense, income tax expense, and depreciation and amortization, plus losses or minus gains on the disposition of depreciable property, including losses/gains on change of control, plus impairment write-downs of depreciable property and of investments in unconsolidated affiliates caused by a decrease in value of depreciable property in the affiliate, plus or minus adjustments to reflect the entity's share of EBITDA re of unconsolidated affiliates and consolidated affiliates with non-controlling interest.
EBITDA r e and Adjusted EBITDA re The Company uses the NAREIT definition of EBITDA re which is net income plus interest expense, income tax expense, and depreciation and amortization, plus losses or minus gains on the disposition of depreciable property, including losses/gains on change of control, plus impairment write-downs of depreciable property and of investments in unconsolidated affiliates caused by a decrease in value of depreciable property in the affiliate, plus or minus adjustments to reflect the entity's share of EBITDA re of unconsolidated affiliates and consolidated affiliates with non-controlling interest.
The Company would depend on the VIE to provide timely financial information and would rely on the interest control of the VIE to provide accurate financial information. Untimely or inaccurate financial information provided to the Company or deficiencies in the VIE's internal controls over financial reporting could impact the Company's Consolidated Financial Statements and its internal control over financial reporting.
The Company would depend on the VIE to provide timely financial information and would rely on the interest control of the VIE to provide accurate financial information.
General and administrative expenses increased approximately $2.7 million, or 22.5%, for the year ended December 31, 2022 compared to the same period in 2021 due mainly to the following: • Compensation-related expenses related to new employees, compensation increases and stock issuances totaling approximately $2.6 million, including the non-cash amortization of non-vested restricted common shares issued of approximately $2.3 million.
General and administrative expenses increased approximately $12.5 million, or 84.3%, for the year ended December 31, 2023 compared to the same period in 2022 due mainly to the following: • Non-cash accelerated amortization of deferred compensation for non-vested restricted common shares held by former CEO and President Timothy Wallace at the time of his passing in March 2023 accounted for an increase of approximately $11.8 million; • Compensation-related expenses increased approximately $0.8 million related to new employees and $0.3 million related to the payment of employer taxes due upon the accelerated vesting of Mr.
Year Ended December 31, (In thousands) 2022 2021 2020 Net income $ 22,019 $ 22,492 $ 19,077 Interest expense 11,873 10,542 8,620 Depreciation and amortization 32,339 30,401 25,378 Deferred income taxes 41 167 80 (Gain) loss on sale of depreciable assets — (237) 313 EBITDA re $ 66,272 $ 63,365 $ 53,468 Non-cash stock-based compensation expense 9,415 7,164 4,767 Adjusted EBITDA re $ 75,687 $ 70,529 $ 58,235 61 Critical Accounting Policies Our Consolidated Financial Statements are prepared in conformity with GAAP and the rules and regulations of the SEC.
Year Ended December 31, (In thousands) 2023 2022 2021 Net income $ 7,714 $ 22,019 $ 22,492 Interest expense 17,792 11,873 10,542 Depreciation and amortization 39,693 32,339 30,401 Deferred income tax expense 306 41 167 Gain on sale of depreciable real estate — — (237) Impairment of real estate asset 102 — — EBITDA re $ 65,607 $ 66,272 $ 63,365 Non-cash stock-based compensation expense (1) 8,166 9,415 7,164 Accelerated amortization of deferred compensation 11,799 — — Net gain from insurance recovery on casualty loss (706) — — Adjusted EBITDA re $ 84,866 $ 75,687 $ 70,529 ____________________________ (1) 2023 excludes accelerated amortization of stock-based compensation shown separately below.
Automatic Shelf Registration Statement On November 2, 2022, the Company filed an automatic shelf registration statement on Form S-3 with the SEC. The registration statement is for an indeterminate number of securities and is effective for three years.
Further in 2023, the Company withheld shares and paid taxes totaling approximately $1.0 million upon the vesting of stock-based awards for certain employees. Automatic Shelf Registration Statement On November 2, 2022, the Company filed an automatic shelf registration statement on Form S-3 with the SEC.
Gain on sale of real estate During the fourth quarter of 2021, the Company sold one of its properties for approximately $1.3 million and recognized a gain on sale of approximately $0.2 million. Interest expense Interest expense increased approximately $1.3 million, or 12.6%, for the year ended December 31, 2022 compared to the same period in 2021.
Deferred income tax expense Deferred income tax expense increased approximately $0.3 million for the year ended December 31, 2023 compared to the same period in 2022. During 2023, the Company fully reserved its deferred tax asset.
The table below reconciles net income to NOI for the years ended December 31, 2022, 2021, and 2020.
The Company's use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing NOI. 61 The table below reconciles net income to NOI for the years ended December 31, 2023, 2022, and 2021.
Also, interest cost capitalized increased $0.4 million for the year ended December 31, 2022 compared to the same period in 2021. Year Ended December 31, 2021 Compared to December 31, 2020 See “Item 7.
See Note 4 – Real Estate Acquisitions and Dispositions to the Consolidated Financial Statements. Interest expense Interest expense increased approximately $5.9 million, or 49.9%, for the year ended December 31, 2023 compared to the same period in 2022.
The dividend is payable on March 1, 2023 to stockholders of record on February 21, 2023. The ability of the Company to pay dividends is dependent upon its ability to generate cash flows and to make accretive new investments.
The dividend is payable on March 1, 2024 to stockholders of record on February 20, 2024.
Subsequent acquisitions Subsequent to December 31, 2022, the Company acquired three real estate properties totaling approximately 99,000 square feet for an aggregate purchase price of approximately $12.5 million. Upon acquisition, the properties were 100.0% leased with lease expirations through 2029.
Subsequent acquisition Subsequent to December 31, 2023, the Company acquired one long term acute care hospital (LTACH) for a purchase price of approximately $6.5 million and cash consideration of approximately $6.6 million. Upon acquisition, the property was 100.0% leased with a lease expiration in 2039.
Accounting for Acquisitions of Real Estate Properties Real estate property acquisitions are accounted for as a business combination or an asset acquisition under Accounting Standards Update ("ASU") No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business .
Untimely or inaccurate financial information provided to the Company or deficiencies in the VIE's internal controls over financial reporting could impact the Company's Consolidated Financial Statements and its internal control over financial reporting. 63 Accounting for Acquisitions of Real Estate Properties Real estate property acquisitions are accounted for as a business combination or an asset acquisition.
Removed
The Company was in compliance with its financial covenants under its Credit Facility as of December 31, 2022. The Company also had outstanding at December 31, 2022, a $4.9 million mortgage note payable, secured by one of its properties, with a maturity date in 2024 and a fixed interest rate of 4.98%.
Added
Assets Held for Sale The Company currently has plans to dispose of two properties with an aggregate carrying balance of $7.5 million during 2024.
Removed
See "Properties" in Item 2 for a schedule of the Company's lease expirations. Inflation Inflation has not had a material impact on the Company in the past several years prior to 2022.
Added
See Note 4 – Real Estate Acquisitions and Dispositions in the Consolidated Financial Statements for more details. 52 Leased square footage As of December 31, 2023, our real estate portfolio was approximately 91.1% lease d, excluding real estate assets held for sale.
Removed
Higher interest rates imposed by the Federal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense on our variable-rate borrowings under our revolving credit facility.
Added
Revenues Rental income increased approximately $14.6 million, or 15.5%, for the year ended December 31, 2023 compared to the same period in 2022 mainly due to the following: • Income on properties acquired during 2023 and 2022 increased rental income by approximately $15.4 million; • Lease rejections related to one bankruptcy during 2023 decreased rental income in 2023 compared to 2022 by approximately $0.3 million; and 54 • During 2023 the Company increased its allowance for bad debts by approximately $0.3 million.
Removed
As of December 31, 2022, we had invested approximately $946.2 million in 174 real estate properties (including a portion of one property accounted for as a financing lease with a gross amount totaling approximately $3.0 million), which are located in 34 states and total approximately 3.8 million square feet.
Added
Wallace's shares; • The non-cash amortization of stock-based compensation decreased approximately $1.2 million in 2023 compared to 2022; and • Legal fees increased approximately $0.5 million and accounting and auditing fees increased approximately $0.2 million in 2023 compared to 2022.
Removed
During 2022, we acquired 18 real estate properties which in the aggregate were 98.9% leased for an aggregate purchase price of approximately $97.1 million. In addition, during 2022, we invested $9.7 million in notes receivable. During 2021, we acquired 13 real estate properties for an aggregate purchase price of approximately $88.4 million and invested in $14.4 million in notes receivable.
Added
Interest and other income Interest and other income increased approximately $0.7 million for the year ended December 31, 2023 compared to the same period in 2022. During 2023, the Company recognized a net casualty gain relating to a property totaling $0.7 million. See Note 4 – Real Estate Acquisitions and Dispositions to the Consolidated Financial Statements.
Removed
Income on properties acquired during 2022 and 2021 increased rental income by approximately $6.7 million.
Added
Year Ended December 31, 2022 Compared to December 31, 2021 See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in our 2022 Annual Report on Form 10-K for a comparison of the year ended December 31, 2022 compared to December 31, 2021, which is incorporated by reference.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+2 added−1 removed2 unchanged
Biggest changeHowever, recent inflation has significantly increased and a prolonged period of high and persistent inflation could cause an increase in our expenses, capital expenditures, and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations.
Biggest changeSee the discussion under Item 1A, "Risk Factors," under the caption "The replacement of LIBOR with SOFR may adversely affect interest expense related to outstanding debt." Inflation Inflation has significantly increased during the past couple of years and a prolonged period of high and persistent inflation could cause an increase in our expenses, capital expenditures, and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations.
The Company has entered into interest rate swaps to fix the interest rates on its Term Loans. The following table provides information regarding the sensitivity of certain of the Company’s financial instruments, as described above, to market conditions and changes resulting from changes in interest rates.
The Company has entered into interest rate swaps to fix the interest rates on its Term Loans. 65 The following table provides information regarding the sensitivity of certain of the Company’s financial instruments, as described above, to market conditions and changes resulting from changes in interest rates.
Management uses regular monitoring of market conditions and analysis techniques to manage this risk. As of December 31, 2022, the Company's Revolving Credit Facility and Term Loans were based on variable interest rates while its notes receivable and mortgage note payable bore interest at fixed rates.
Management uses regular monitoring of market conditions and analysis techniques to manage this risk. As of December 31, 2023, the Company's Revolving Credit Facility and Term Loans were based on variable interest rates while its notes receivable and mortgage note payable bore interest at fixed rates.
Higher interest rates imposed by the Federal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense on our variable-rate borrowings under our revolving credit facility. 65
Higher interest rates imposed by the Federal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense on our variable-rate borrowings under our revolving credit facility. 66
Impact on Earnings and Cash Flows (Dollars in thousands) Outstanding Principal Balance at December 31, 2022 Calculated Annual Interest Expense Assuming 10% Increase in Market Interest Rates Assuming 10% Decrease in Market Interest Rates Variable Rate Debt: Revolving Credit Facility $ — $ — $ — $ — A-3 Term Loan (1) $ 75,000 $ 3,213 $ — $ — A-4 Term Loan (1) $ 125,000 $ 4,177 $ — $ — A-5 Term Loan (1) $ 150,000 $ 7,566 $ — $ — ___________ (1) The Company has interest rate swaps that fix the interest rates of the A-3 Term Loan, the A-4 Term Loan, and the A-5 Term Loan; therefore, changes in the interest rates will not impact our earnings or cash flows.
Impact on Earnings and Cash Flows (Dollars in thousands) Outstanding Principal Balance at December 31, 2023 Calculated Annual Interest Expense Assuming 10% Increase in Market Interest Rates Assuming 10% Decrease in Market Interest Rates Variable Rate Debt: Revolving Credit Facility $ 50,000 $ 3,534 $ (353) $ 353 A-3 Term Loan (1) $ 75,000 $ 3,218 $ — $ — A-4 Term Loan (1) $ 125,000 $ 4,181 $ — $ — A-5 Term Loan (1) $ 150,000 $ 7,661 $ — $ — ___________ (1) The Company has interest rate swaps that fix the interest rates of the A-3 Term Loan, the A-4 Term Loan, and the A-5 Term Loan; therefore, changes in the interest rates will not impact our earnings or cash flows.
Fair Value (Dollars in thousands) Outstanding Principal Balance at December 31, 2022 December 31, 2022 Assuming 10% Increase in Market Interest Rates Assuming 10% Decrease in Market Interest Rates December 31, 2021 Fixed Rate Receivables/Payable: Notes Receivable (1) $ 32,705 $ 32,716 $ 31,539 $ 33,263 $ 25,869 Mortgage Note Payable (1) $ 4,947 $ 4,761 $ 4,712 $ 4,811 $ 5,129 ___________ (1) Level 2 - Fair value based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
Fair Value (Dollars in thousands) Outstanding Principal Balance at December 31, 2023 December 31, 2023 Assuming 10% Increase in Market Interest Rates Assuming 10% Decrease in Market Interest Rates December 31, 2022 Fixed Rate Receivables/Payable: Notes Receivable (1) $ 30,775 $ 31,199 $ 30,893 $ 31,511 $ 32,716 Mortgage Note Payable (1) $ 4,821 $ 4,791 $ 4,782 $ 4,801 $ 4,761 ___________ (1) Level 2 - Fair value based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
Many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation, including annual rent increases based on stated increases or CPI increases. In response to inflationary pressures, the Federal Reserve began raising interest rates in 2022 and has indicated that it foresees further interest rate increases throughout the year and into 2023 and 2024.
Many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation, including annual rent increases based on stated increases or CPI increases. In response to inflationary pressures, the Federal Reserve raised interest rates in 2022 and 2023, and these increases may continue in 2024 and beyond.
The Company's Credit Facility debt shown in the table above and discussed in Note 5 – Debt, net to the Consolidated Financial Statements was indexed to USD LIBOR. On December 14, 2022, the Company amended its Credit Facility to replace LIBOR as a benchmark interest rate for loans under the Credit Facility with SOFR.
The Company's Credit Facility debt shown in the table above and discussed in Note 5 – Debt, net to the Consolidated Financial Statements was transitioned from being indexed to USD LIBOR to SOFR effective December 14, 2022 for Term Loan A-5 and Revolving Credit Facility, and effective December 30, 2022 for Term Loans A-3 and A-4.
Removed
In January 2023, the Company transitioned its interest rate swaps from LIBOR to SOFR rates. See the discussion under Item 1A, "Risk Factors," under the caption "The replacement of LIBOR with SOFR may adversely affect interest expense related to outstanding debt." 64 Inflation Inflation has not had a material impact on the Company in the past several years.
Added
On December 14, 2022, the Company amended its Credit Facility to replace LIBOR as a benchmark interest rate for loans under the Credit Facility with SOFR.
Added
In January 2023, the Company transitioned its interest rate swaps from LIBOR to SOFR rates.

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