Notice of 2021 Annual Meeting
and Proxy Statement
Annual Report on Form 10-K
for Fiscal Year Ended December 31, 2020
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 2021 – 8:00 A .M. CST
Community Healthcare Trust Incorporated
3326 Aspen Grove Drive
Suite 150
Franklin, TN 37067
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Proxy
Form 10-K
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14MAR201620023194
March 24, 2021
Dear Stockholder:
On behalf of the Board of Directors, we cordially invite you to attend the 2021 annual meeting of
stockholders of Community Healthcare Trust Incorporated, a Maryland corporation (the ‘‘Company’’).
The annual meeting will be held beginning at 8:00 a.m., Central time, on Thursday, May 6, 2021 at the
principal offices of the Company, located at 3326 Aspen Grove Drive, Suite 150, Franklin, Tennessee
37067. The formal notice of the annual meeting appears on the next page. At the annual meeting, you
will be asked to:
1. Elect five directors, each to serve a one-year term expiring in 2022;
2. Vote to approve, on a non-binding advisory basis, a resolution approving the Company’s
compensation of its named executive officers;
3. Ratify the appointment of BDO USA, LLP as our independent registered public accountants
for 2021; and
4. Transact such other business as may properly come before the annual meeting or any
adjournment or postponement thereof.
The accompanying proxy statement provides detailed information concerning the matters to be
acted upon at the annual meeting. We urge you to review this proxy statement and each of the
proposals carefully. Your vote is very important. It is important that your views be represented at the
annual meeting regardless of the number of shares of common stock you own or whether you are able
to attend the annual meeting in person.
On March 24, 2021, we posted on the investor’s relations page of our Internet website,
http://investors.chct.reit, a copy of our 2021 proxy statement, proxy card and our annual report to
stockholders. Also, on or around March 24, 2021, we mailed a notice (the ‘‘Notice’’) containing
instructions on how to access our proxy materials and vote online to our institutional stockholders who
own our stock directly in their name and in the name of other stockholders.
You may vote your shares on the Internet. If you request a paper copy of the proxy card or voting
instruction form, we will mail you the paper copy and you may sign, date and mail the accompanying
proxy card or voting instruction form in the envelope provided with your proxy card. Instructions
regarding the two methods of voting by proxy are contained on the Notice and on the proxy card. As
always, if you are the record holder of our stock, you may vote in person at the annual meeting. The
accompanying proxy statement explains how to obtain driving directions to the meeting.
On behalf of our Board of Directors, I would like to express our appreciation for your continued
interest in Community Healthcare Trust Incorporated.
Sincerely,
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26MAR201820461048
Timothy G. Wallace
Chairman of the Board, President, and
Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials for
the Stockholder Meeting to be held on May 6, 2021:
Community Healthcare Trust Incorporated’s 2021 proxy statement, proxy card and annual report to
stockholders are available at http://investors.chct.reit.
Community Healthcare Trust Incorporated
3326 Aspen Grove Drive, Suite 150
Franklin, Tennessee 37067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TIME . . . . . . . . . . . . . . . . . . .
8:00 a.m., Central Time, on Thursday, May 6, 2021
PLACE . . . . . . . . . . . . . . . . . . Community Healthcare Trust Incorporated
ITEMS OF BUSINESS . . . . . . .
3326 Aspen Grove Drive, Suite 150
Franklin, Tennessee 37067
1. To elect five directors, each to serve a one-year term expiring in
2022;
2. To vote to approve, on a non-binding advisory basis, a resolution
approving the Company’s compensation of its named executive
officers;
3. To ratify the appointment of BDO USA, LLP as our independent
registered public accountants for 2021; and
4. To transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
RECORD DATE . . . . . . . . . . . . You can vote if you are a stockholder of record as of the close of
business on March 5, 2021.
ANNUAL REPORT . . . . . . . . . . All of these documents are accessible on our Internet website,
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PROXY VOTING . . . . . . . . . . .
http://investors.chct.reit. You may request a paper copy of the proxy
statement, the proxy card, and our annual report to stockholders,
which is not part of the proxy solicitation material.
It is important that your shares be represented and voted at the
annual meeting. You may vote your shares on the Internet or, if you
request and receive written proxy materials, you may vote by
signing, dating and mailing the accompanying proxy card or voting
instruction form in the envelope provided. Instructions regarding
the two methods of voting are contained on the proxy card. The
Notice has instructions regarding voting on the Internet. Any proxy
may be revoked at any time prior to its exercise at the annual
meeting.
By Order of the Board of Directors,
8MAR202121530496
David H. Dupuy
Secretary of
Community Healthcare Trust Incorporated
Franklin, Tennessee
March 24, 2021
COMMUNITY HEALTHCARE TRUST INCORPORATED
PROXY STATEMENT
INDEX
Questions and Answers Regarding the 2021 Annual Meeting of Stockholders . . . . . . . . . . . . . . . .
Proposal 1—Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 2—Non-Binding Advisory Vote on Executive Compensation . . . . . . . . . . . . . . . . . . . . . .
Proposal 3—Ratification of the Appointment of BDO USA, LLP as Our Independent Registered
Public Accountants for 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficial Ownership of Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposals for the 2022 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A—Reconciliation of Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . .
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COMMUNITY HEALTHCARE TRUST INCORPORATED
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 6, 2021
We are furnishing this proxy statement to the stockholders of Community Healthcare Trust
Incorporated in connection with the solicitation of proxies by its Board of Directors for use at the
annual meeting of stockholders of Community Healthcare Trust Incorporated to be held at 8:00 a.m.,
Central time, on Thursday, May 6, 2021, at 3326 Aspen Grove Drive, Suite 150, Franklin,
Tennessee 37067, as well as in connection with any adjournments or postponements of the meeting.
This solicitation is made by Community Healthcare Trust Incorporated on behalf of our Board of
Directors (also referred to as the ‘‘Board’’ in this proxy statement). ‘‘We,’’ ‘‘our,’’ ‘‘us’’ and the
‘‘Company’’ refer to Community Healthcare Trust Incorporated, a Maryland corporation.
We have elected to provide access to our proxy materials and annual report over the Internet
through a ‘‘notice and access’’ model. Accordingly, we are sending a Notice of Internet Availability of
Proxy Materials (the ‘‘Notice’’) to our stockholders of record as of March 5, 2021. All stockholders will
have the ability to access the proxy materials on the website referred to in the Notice or to request a
printed set of the proxy materials. Instructions on how to request a printed copy by mail or
electronically may be found on the Notice and on the website referred to in the Notice, including an
option to request paper copies on an ongoing basis. On March 24, 2021, we intend to make this proxy
statement available on the Internet and, on or around March 24, 2021, we intend to mail the Notice to
all stockholders entitled to vote at the annual meeting. We intend to mail this Proxy Statement,
together with a proxy card, to those stockholders entitled to vote at the annual meeting who have
properly requested paper copies of such materials, within three business days of such receipt.
This proxy statement, proxy card and our annual report to stockholders are available at
http://investors.chct.reit. This website address contains the following documents: the Notice, the proxy
statement and proxy card sample, and the annual report to stockholders. You are encouraged to access
and review all of the important information contained in the proxy materials before voting.
QUESTIONS AND ANSWERS REGARDING THE 2021 ANNUAL MEETING OF
STOCKHOLDERS
Who is soliciting proxies from the stockholders?
Our Board of Directors is soliciting your proxy. The proxy provides you with the opportunity to
vote on the proposals presented at the annual meeting, whether or not you attend the annual meeting.
What will be voted on at the annual meeting?
Our stockholders will vote on three proposals at the annual meeting:
1. The election of five directors, who are each to serve a one-year term expiring in 2022;
2. The approval of, on a non-binding advisory basis, a resolution approving the Company’s
compensation of its named executive officers; and
3. The ratification of the appointment of BDO USA, LLP as our independent registered public
accountants for 2021.
Your proxy will also give the proxy holders discretionary authority to vote the shares represented
by the proxy on any matter, other than the above proposals, that is properly presented for action at the
annual meeting.
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How will we solicit proxies, and who bears the cost of proxy solicitation?
Our directors, officers and employees may solicit proxies by telephone, mail, facsimile, via the
Internet or by overnight delivery service. These individuals do not receive separate compensation for
these services. Finally, in accordance with the rules and regulations of the U.S. Securities and Exchange
Commission (the ‘‘SEC’’), we will reimburse brokerage firms and other persons representing beneficial
owners of our common stock for their reasonable expenses in forwarding solicitation materials to such
beneficial owners.
Who can vote at the annual meeting?
Our Board of Directors has fixed the close of business on Friday, March 5, 2021, as the record
date for our annual meeting. Only stockholders of record on that date are entitled to receive notice of
and vote at the annual meeting. As of March 5, 2021, our only outstanding class of securities was
common stock, $0.01 par value per share. On that date, we had 450,000,000 shares of common stock
authorized, of which 24,036,213 shares were outstanding.
You (if you, rather than your broker, are the record holder of our stock) can vote either in person
at the annual meeting or by proxy, whether or not you attend the annual meeting. If you would like to
attend the annual meeting in person and need directions, please contact David H. Dupuy by e-mail at
investorrelations@chct.reit or by telephone at 615-771-3052. You may vote your shares on the Internet
or, to the extent you request written proxy materials, by signing, dating and mailing the accompanying
proxy card in the envelope provided. Instructions regarding the two methods of voting by proxy are
contained on the proxy card.
How many votes must be present to hold the annual meeting?
A quorum must be present to hold our annual meeting. The presence, in person or by proxy, of a
majority of the votes entitled to be cast at the annual meeting constitutes a quorum. Your shares, once
represented for any purpose at the annual meeting, are deemed present for purposes of determining a
quorum for the remainder of the meeting and for any adjournment, unless a new record date is set for
the adjourned meeting. This is true even if you abstain from voting with respect to any matter brought
before the annual meeting. As of March 5, 2021, we had 24,036,213 shares of common stock
outstanding; thus, we anticipate that the quorum for our annual meeting will be 12,018,107 shares.
How many votes does a stockholder have per share?
Our stockholders are entitled to one vote for each share held.
What is the required vote on each proposal?
Pursuant to our Amended and Restated Bylaws (the ‘‘Bylaws’’), in uncontested elections (which is
the case for the Annual Meeting), the nominees for election to the Board of Directors who receive a
majority of all of the votes cast for the election of directors shall be elected directors. In accordance
with our Bylaws, if an incumbent director who is nominated for election to the Board of Director fails
to receive a majority of votes for re-election, the director is required to tender his or her resignation
promptly following the Annual Meeting; in which cast, within 90 days following certification of the
stockholder vote, the Corporate Governance Committee will determine whether to recommend that the
Board of Directors accept the director’s resignation, and upon submission of the Corporate Governance
Committee’s recommendation to the Board of Directors, the Board will decide and act on the matter
in its discretion. The Corporate Governance Committee and the Board may consider any factors they
deem relevant in deciding whether to recommend or accept a director’s resignation. In general, any
director who tenders his or her resignation will not participate in the Corporate Governance
Committee’s recommendation or the Board of Director’s action regarding whether to accept the
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resignation offer. We will disclose promptly the Board of Director’s decision regarding whether to
accept or reject the director’s resignation offer and its rationale for such decision in a Current Report
on Form 8-K filed with the Securities and Exchange Commission.
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is
required to approve, on an advisory basis, the say on pay vote. As an advisory vote, this proposal is not
binding upon us. However, the Compensation Committee of our Board of Directors, which is
responsible for designing and administering our executive compensation program, values the opinions
expressed by our stockholders and will consider the outcome of the vote when making future
compensation decisions.
The proposal to ratify our appointment of BDO USA, LLP, or BDO, as our independent
registered public accountants for 2021, is approved by our stockholders if the votes cast favoring the
ratification exceed the votes cast opposing the ratification.
Stockholders do not have the right to cumulate their votes.
How will the proxy be voted, and how are votes counted?
If you vote by proxy (either voting on the Internet or by properly completing and returning a
paper proxy card that you receive upon requesting written proxy materials), the shares represented by
your proxy will be voted at the annual meeting as you instruct, including any adjournments or
postponements of the meeting. If you return a signed proxy card but no voting instructions are given,
the proxy holders will exercise their discretionary authority to vote the shares represented by the proxy
at the annual meeting and any adjournments or postponements as follows:
1.
2.
3.
‘‘FOR’’ the election of nominees Alan Gardner, Claire Gulmi, Robert Hensley, Lawrence Van
Horn, and Timothy Wallace.
‘‘FOR’’ the resolution approving the compensation of the Company’s named executive officers.
‘‘FOR’’ the ratification of the appointment of BDO USA, LLP as our independent registered
public accountants for 2021.
If you hold your shares in broker’s name (sometimes called ‘‘street name’’ or ‘‘nominee name’’),
you must provide voting instructions to your broker. If you do not provide instructions to your broker,
your shares will not be voted in any matter on which your broker does not have discretionary authority
to vote, which generally includes non-routine matters. A vote that is not cast for this reason is called a
‘‘broker non-vote.’’ Broker non-votes will be treated as shares present for the purpose of determining
whether a quorum is present at the annual meeting, but they will not be considered present for
purposes of calculating the vote on a particular matter, nor will they be counted as a vote FOR or
AGAINST a matter or as an abstention on the matter. Under the rules of the New York Stock
Exchange (‘‘NYSE’’), which is the stock exchange on which our common stock is listed, the ratification
of our appointment of our independent registered public accountants is considered a routine matter for
broker voting purposes, but the election of directors and the advisory (non-binding) vote on the
compensation of our named executive officers are not considered routine. It is important that you
instruct your broker as to how you wish to have your shares voted, even if you wish to vote as
recommended by the Board.
Can a proxy be revoked?
Yes. You can revoke your proxy at any time before it is voted. You revoke your proxy (1) by giving
written notice to our Corporate Secretary before the annual meeting, (2) by granting a subsequent
proxy on the Internet, or (3) by delivering a signed proxy card dated later than your previous proxy. If
you, rather than your broker, are the record holder of your stock, a proxy can also be revoked by
appearing in person and voting at the annual meeting. Written notice of the revocation of a proxy
should be delivered to the following address: David H. Dupuy, Community Healthcare Trust
Incorporated, 3326 Aspen Grove Drive, Suite 150, Franklin, Tennessee 37067.
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PROPOSAL 1
ELECTION OF DIRECTORS
The persons listed below have been nominated by our Board of Directors to serve as directors for
a one-year term expiring at the annual meeting of stockholders occurring in 2022: Alan Gardner, Claire
Gulmi, Robert Hensley, Lawrence Van Horn and Timothy Wallace. Each nominee has consented to
serve on our Board of Directors. If any nominee were to become unavailable to serve as a director, our
Board of Directors may designate a substitute nominee. In that case, the persons named as proxies on
the accompanying proxy card will vote for the substitute nominee designated by our Board of Directors.
The following lists each director nominated for election to serve as a director for a one-year term
expiring at the annual meeting of stockholders occurring in 2022, which includes a brief discussion of
the experience, qualifications and skills that led us to conclude that such individual should be a
member of our Board.
Qualifications of Directors
We believe that our Board of Directors consists of a diverse collection of individuals who possess
the integrity, education, work ethic and ability to work with others necessary to oversee our business
effectively and to represent the interests of all stockholders, including the qualities listed below. We
have attempted below to highlight certain notable experience, qualifications and skills for each director
nominee, rather than provide an exhaustive catalog of each and every qualification and skill that a
director possesses. Each of the nominees set forth below is currently serving as a director of the
Company.
Name
Age
Background, Qualifications and Skills
Alan Gardner . . . . . . . .
67 Mr. Gardner retired from Wells Fargo in October 2015. Prior to his
retirement, he was a senior relationship manager in healthcare
corporate banking. He primarily covered national healthcare
companies with market capitalization exceeding $5 billion, generally in
the pharmaceutical, medical device and healthcare services sectors.
Mr. Gardner has over 26 years of corporate and investment banking
experience, with 20 years covering healthcare companies. Prior to
joining Wells Fargo (Wachovia) in March 2004, Mr. Gardner was head
of healthcare for FleetBoston Financial from 2003 to 2004 and was a
managing director for Banc of America Securities from 1996 to 2003.
During his career, Mr. Gardner has led a number of significant
financing transactions for leading public healthcare companies.
Mr. Gardner previously served as board member and president of
Omni Montessori School in Charlotte, North Carolina, as Charlotte
Chapter chair for the Impact Angel Network (‘‘IAN’’). IAN is
managed by RENEW, LLC, an investment advisory and management
consulting firm based in Addis Ababa, Ethiopia and Washington D.C.
Mr. Gardner currently serves on the board of Feeding Avery Families,
a nonprofit charitable organization serving the needy of Avery County,
North Caroline and is on the board of directors at Christ Lutheran
Church in Charlotte, North Carolina. Mr. Gardner earned a B.S. and
M.S. from Virginia Polytechnic Institute and State University and an
M.B.A. in finance and accounting from the University of Rochester.
Mr. Gardner is our lead independent director, and Mr. Gardner’s
commercial banking, capital markets and healthcare industry
experience makes him a valuable resource to our Board of Directors.
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Name
Age
Background, Qualifications and Skills
Claire Gulmi
. . . . . . . .
67 Ms. Gulmi served as Executive Vice President and Chief Financial
Officer of Envision Healthcare, a $7 billion public company, the
largest owner/operator of ambulatory surgery centers in the United
States and a leading provider of hospital based physician services, until
her retirement in October 2017. Ms. Gulmi continued to serve as an
advisor to Envision until September 2018. Prior to Envision’s merger
with AmSurg Corp in 2016, Ms. Gulmi served as Executive Vice
President and Chief Financial Officer of AmSurg starting in 1994. She
was a member of the Board of Directors of AmSurg from 2004 until
the merger in 2016. From 2015 to 2017, Ms. Gulmi served on the
Board of Directors and as the audit committee chair of Air Methods
Corp, a $1.5 billion public company and the largest provider of air
medical emergency transport services in the U.S. From 2001 to 2015
she served on the advisory board of the Bank of Nashville. Ms. Gulmi
has a BBA in Accounting and Finance from Belmont University.
Ms. Gulmi is the past board chair of the YWCA of Nashville, serves
on the boards of the Frist Center for the Visual Arts and Nashville
Public Radio. She has served as board chair for the Bethlehem
Centers of Nashville and has served on the boards of the Girl Scouts,
the American Heart Association and All About Women. Ms. Gulmi
has been named by the Nashville Business Journal as one of its
Healthcare 100, was one of the 2007 winners of the Nashville Business
Journal’s Women of Influence and in 2011 received the Nashville
Business Journal’s CFO Lifetime Achievement Award. Ms. Gulmi’s
over 30 years of experience in corporate finance, accounting and
healthcare makes her a valuable resource to our Board of Directors.
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Name
Age
Background, Qualifications and Skills
Robert Hensley . . . . . .
63 Mr. Hensley has more than 40 years of experience serving public and
privately-held companies across a range of industries, including
healthcare, insurance, real estate and private equity capital funds.
Mr. Hensley is also the principal owner of two real estate and rental
property development companies. Mr. Hensley was an audit partner
with Ernst & Young from 2002 to 2003. Previously, he was with
Arthur Andersen, where he served as an audit partner from 1990 to
2002 and was the managing partner of their Nashville office from 1997
to 2002. His significant experience includes mergers and acquisitions,
identification of enterprise and healthcare industry risks, corporate
governance and forensic investigations and disputes. Since 2006,
Mr. Hensley has served as a senior advisor to the healthcare and
transaction advisory services groups of Alvarez and Marsal, LLC
(‘‘A&M’’). Mr. Hensley also serves on the board of directors for
Diversicare Healthcare Services, Inc. and several privately held
companies. Mr. Hensley previously served as a director of Capella
Healthcare from 2008 to 2015, Greenway Medical Technologies from
2011 to 2013, HealthSpring, Inc. from 2006 to 2012 and Comsys IT
Partners, Inc. and Spheris, Inc. from 2006 to 2010. Mr. Hensley earned
a B.S. in accounting and a Master’s of Accountancy from the
University of Tennessee and is a Certified Public Accountant.
Mr. Hensley’s financial accounting, healthcare industry and
transactional experience makes him a valuable resource to our Board
of Directors.
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Name
Lawrence Van Horn . . .
Age
53
Background, Qualifications and Skills
Professor Van Horn has been an associate professor of Economics and
Management and the Executive Director of Health Affairs at the
Vanderbilt University Owen Graduate School of Management
(‘‘Owen’’) since 2006. Professor Van Horn is a leading expert and
researcher on healthcare management and economics. His current
research interests focus on the role of the consumer in health care
markets and the measurement of healthcare outcomes and
productivity. His research on healthcare organizations, managerial
incentives in nonprofit hospitals and the conduct of managed care
firms has appeared in leading publications, and media. Professor Van
Horn consults for national consulting firms, providers, managed care
organizations, and pharmaceutical firms as well as the federal
government on topics of health policy. Professor Van Horn also holds
faculty appointments in the Vanderbilt University School of Medicine
and Law School. Prior to his tenure at Owen, from 1996 to 2006,
Professor Van Horn served as an associate professor of economics and
management at the William E. Simon Graduate School of Business at
the University of Rochester where he was responsible for their
graduate programs in health administration. Professor Van Horn
previously served on the board of directors of Quorum Health
Corporation until July 2020, and currently serves on the board of
Harrow Inc. Professor Van Horn holds a Ph.D. from the University of
Pennsylvania’s Wharton School and a Master’s in Business
Administration, a Master’s in Public Health and a B.A. from the
University of Rochester. Professor Van Horn’s extensive knowledge
and research into healthcare industry economics and governance as
well as his unique experience with healthcare decision makers and
business executives nationwide regarding healthcare policy make him a
valuable resource to our Board of Directors.
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Name
Age
Background, Qualifications and Skills
Timothy Wallace . . . . . .
62 Mr. Wallace has served as our Chairman, Chief Executive Officer and
President since the formation of our Company in March 2014. Prior to
founding our Company, from 2003 to 2014, Mr. Wallace was
co-founder, President and majority owner of Athena Funding
Partners, LLC and related entities which were established in 2002 to
provide financing solutions to the higher education industry for
on-campus student housing facilities mostly in rural areas. From 1993
to 2002, Mr. Wallace was a co-founder and Executive Vice President
of Healthcare Realty Trust (NYSE: HR) (‘‘HR’’). Between HR’s initial
public offering in 1993 and his departure from HR in 2002,
Mr. Wallace was integral in helping to grow HR from $2,000 to over
$2 billion in asset value. Mr. Wallace remained as a paid consultant to
HR and was subject to a non-compete until 2008. Mr. Wallace was a
senior manager at Ernst & Young from 1988 to 1993. Mr. Wallace
began his career in 1980 with Arthur Andersen & Co. Mr. Wallace
holds a Bachelor of Science in Business Administration and Masters in
Business Administration, both from Western Kentucky University.
Mr. Wallace was selected to serve as Chairman because of his past
public company experience, his experience in real estate, including
acquiring healthcare real estate, and his role as Chief Executive
Officer and President of our Company.
Each of the persons listed above has been nominated by our Board of Directors to serve as
directors for a one-year term expiring at the annual meeting of stockholders occurring in 2022. Each
nominee has consented to serve on our Board of Directors. If any nominee were to become unavailable
to serve as a director, our Board of Directors may designate a substitute nominee. In that case, the
persons named as proxies on the accompanying proxy card will vote for the substitute nominee
designated by our Board of Directors.
Required Vote
Directors are elected by the affirmative vote of a majority vote of all of the votes cast for the
election of directors.
Our Board of Directors unanimously recommends a vote ‘‘FOR’’ the election of each of the five
nominees for director to the Board of Directors.
8
Board Leadership Structure
CORPORATE GOVERNANCE
Our Board of Directors currently consists of the following five directors: Alan Gardner, Claire
Gulmi, Robert Hensley, Lawrence Van Horn and Timothy Wallace, each for a one-year term. Our
Board has affirmatively determined that each of Alan Gardner, Claire Gulmi, Robert Hensley, and
Lawrence Van Horn is an ‘‘independent director’’ as defined under the listing rules of the NYSE,
Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), and the
Company’s Corporate Governance Guidelines.
The Board considered the relationships between our directors and the Company when determining
each director’s status as an ‘‘independent director’’ under the listing rules of the NYSE, Rule 10A-3 of
the Exchange Act and the Company’s Corporate Governance Guidelines, including the relationships
listed below under ‘‘Certain Relationships and Related Party Transactions.’’ The Board determined that
these relationships did not affect any director’s status as an ‘‘independent director.’’ Furthermore, we
are not aware of any family relationships between any director, executive officer or person nominated
to become a director or executive officer.
Timothy Wallace, our President and Chief Executive Officer, serves as Chairman of the Board of
the Company, while Alan Gardner serves as ‘‘Lead Independent Director’’ of our Board. The members
of the Board who meet the definition of ‘‘independent director’’ under the listing rules of the NYSE
select our lead independent director.
Mr. Wallace serves as our Chairman because we believe this board structure results in a single
voice speaking for the Company and presents a unified and clear chain of command to execute our
strategic initiatives and business plans. Also, the Chairman of the Board is expected to manage the
Board in performing its duties and lead Board discussion. As our President and Chief Executive
Officer, Mr. Wallace is ideally positioned to provide insight on the current status of our overall
operations, our future plans and prospects and the risks that we face. Thus, the individual with the
most knowledge about us and our operations is responsible for leading the Board’s discussions. The
Board retains the authority to separate the positions of chairman and chief executive officer if it finds
that the Board’s responsibilities can be better fulfilled with a different structure.
Mr. Gardner serves as our Lead Independent Director and provides an independent
counterbalance to the Chairman, ensuring that all of our directors’ concerns are addressed and
otherwise facilitating robust discussions among the entire Board (which, as noted above, is comprised
almost entirely of ‘‘independent directors’’). In terms of Board leadership, we view the lead
independent director as essentially a co-equal with the Chairman of the Board. Mr. Gardner has been a
director since 2015 and was the second director to join the Board following Mr. Wallace, which we
believe adds weight to his independent voice on the Board. Also, at each meeting of our Board,
Mr. Gardner leads the Board in an executive session (that is, a meeting of only those directors who are
‘‘independent directors’’ under the listing rules of the NYSE) to discuss matters outside the presence of
the Chairman and management. Our lead independent director is selected on an annual basis by a
majority of the independent directors then serving on our Board of Directors.
Our Lead Independent Director Charter sets forth a complete description of the lead independent
director’s responsibilities. In general, the lead independent director is responsible for:
• serving as liaison between the Chairman and our other independent directors;
• calling and presiding at executive sessions of the independent directors;
• serving as the focal point of communication to the Board of Directors regarding management
plans and initiatives;
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• ensuring that the management adheres to the Board of Directors’ oversight role over
management operations;
• providing the medium for informal dialogue with and between independent directors, allowing
for free and open communication within that group; and
• serving as the communication conduit for third parties who wish to communicate with our Board
of Directors.
In addition to these specific duties, we expect the lead independent director to familiarize himself
with the Company and the real estate investment trust and healthcare industries in general. He also is
expected to keep abreast of developments in the principles of sound corporate governance.
The Board’s Role in Risk Oversight
One of the key functions of our Board of Directors is to provide oversight of our risk management
process. Our Board of Directors administers this oversight function directly, with support from its three
standing committees—the Audit Committee, the Compensation Committee, and the Corporate
Governance Committee—each of which addresses risks specific to their respective areas of oversight. In
particular, our Audit Committee has the responsibility to consider and discuss our major financial risk
exposures and the steps our management has taken to monitor and control these exposures, including
guidelines and policies to govern the process by which risk assessment and management is undertaken.
The Audit Committee also monitors compliance with legal and regulatory requirements and has
oversight of the performance of our internal audit function. Our Compensation Committee assesses
and monitors whether any of our compensation policies and programs has the potential to encourage
excessive risk-taking. Our Corporate Governance Committee monitors the effectiveness of our
corporate governance guidelines, including whether they are successful in preventing illegal or improper
liability-creating conduct.
Each committee meets regularly with management to assist it in identifying all of the risks within
such committee’s areas of responsibility and in monitoring and, where necessary, taking appropriate
action to mitigate the applicable risks. At each Board meeting, the committee chairman of each
committee that met prior to such Board meeting provides a report to the full Board on issues related
to such committee’s risk oversight duties, as applicable. To the extent that any risks reported to the full
Board need to be discussed outside the presence of management, the Board meets in executive session
to discuss these issues.
We believe the Board’s approach to fulfilling its risk oversight responsibilities complements its
leadership structure. In his capacity as Chairman of the Board, Mr. Wallace reviews whether Board
committees are addressing their risk oversight duties in a comprehensive and timely manner. Since he
is also our Chief Executive Officer, Mr. Wallace is able to assist these committees in fulfilling their
duties by (1) requiring that our management team provide these committees with all requested reports
and other information as well as with access to our employees and (2) implementing recommendations
of the various Board committees to mitigate risk. At the same time, Mr. Gardner, as our lead
independent director, is able to lead an independent review of the risk assessments developed by
management and reported to the committees.
Our Board held five meetings during 2020. In 2020, our directors attended all of our Board
meetings and at least 75% of the meetings of the committees on which they served. The members who
are ‘‘independent directors’’ met in executive session four times during 2020.
We do not have a policy requiring director attendance at our annual stockholder meeting.
Mr. Wallace was the only director of the Company to attend our 2020 annual stockholder meeting.
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Committees of the Board of Directors
Our Board of Directors has three standing committees: an Audit Committee, a Compensation
Committee and a Corporate Governance Committee. The principal functions of each committee are
described below. We currently comply, and we intend to continue to comply, with the listing
requirements and other rules and regulations of the NYSE and each of these committees are
comprised exclusively of independent directors. Additionally, our Board of Directors may from time to
time establish certain other committees to facilitate the management of our Company.
Audit Committee
Our Audit Committee consists of Mr. Gardner, Ms. Gulmi, and Mr. Hensley, all of whom are
independent directors, with Mr. Hensley serving as the chairman. Ms. Gulmi and Mr. Hensley each
qualify as an ‘‘audit committee financial expert’’ as that term is defined by the applicable SEC
regulations and NYSE corporate governance listing standards. Our Board of Directors has determined
that each of the Audit Committee members is ‘‘financially literate’’ as that term is defined by the
NYSE corporate governance listing standards. We have adopted an Audit Committee Charter, which
details the principal functions of the Audit Committee, including oversight related to:
• our accounting and financial reporting processes;
• the integrity of our consolidated financial statements and financial reporting process;
• our system of disclosure controls and procedures and internal control over financial reporting;
• our compliance with financial, legal and regulatory requirements;
• the evaluation of the qualifications, independence and performance of our independent
registered public accounting firm;
• reviewing the adequacy of our Audit Committee Charter on an annual basis;
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• the performance of our internal audit function; and
• our overall risk profile.
The Audit Committee is also responsible for engaging an independent registered public accounting
firm, reviewing with the independent registered public accounting firm the plans and results of the
audit engagement, approving professional services provided by the independent registered accounting
firm, including all audit and non-audit services, reviewing the independence of the independent
registered public accounting firm, considering the range of audit and non-audit fees and reviewing the
adequacy of our internal accounting controls.
The Audit Committee met five times in 2020. A copy of the charter of our Audit Committee is
available on the investor relations webpage of our website, http://investors.chct.reit.
Compensation Committee
Our Compensation Committee consists of Mr. Gardner, Ms. Gulmi, and Mr. Van Horn, all of
whom are ‘‘independent directors’’ as defined in NYSE Rule 303A.02, with Ms. Gulmi serving as
chairperson. Further, each member of the Compensation Committee is a ‘‘non-employee director’’ as
defined in Rule 16b-3 promulgated under the Exchange Act. We have adopted a Compensation
Committee Charter, which details the principal functions of the Compensation Committee, including:
• reviewing and recommending to our Board of Directors on an annual basis the corporate goals
and objectives relevant to our chief executive officer’s compensation, evaluating our chief
executive officer’s performance in light of such goals and objectives and determining and
approving the remuneration of our chief executive officer based on such evaluation;
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• reviewing and recommending to our Board of Directors the compensation, if any, of all of our
other executive officers;
• evaluating our executive compensation policies and plans;
• assisting management in complying with our proxy statement and annual report disclosure
requirements;
• administering our incentive plans;
• reviewing and recommending to our Board of Directors policies with respect to incentive
compensation and equity compensation arrangements;
• reviewing the competitiveness of our executive compensation programs and evaluating the
effectiveness of our compensation policy and strategy in achieving expected benefits to us;
• evaluating and overseeing risks associated with compensation policies and practices;
• reviewing and recommending to our Board of Directors the terms of any employment
agreements, severance arrangements change in control protections and any other compensatory
arrangements for our executive officers;
• reviewing the adequacy of its Compensation Committee Charter on an annual basis;
• producing a report on executive compensation to be included in our annual proxy statement as
required; and
• reviewing, evaluating and recommending changes, if appropriate, to the remuneration for
directors.
The Compensation Committee met four times in 2020. A copy of the charter of our Compensation
Committee is available on the investor relations webpage of our website, http://investors.chct.reit.
Corporate Governance Committee
Our Corporate Governance Committee consists of Messrs. Van Horn, Hensley and Gardner, all of
whom are ‘‘independent directors’’ as defined in NYSE Rule 303A.02, with Mr. Van Horn serving as
chairman. We have adopted a Corporate Governance Committee charter, which details the principal
functions of the Corporate Governance Committee, including:
• identifying, evaluating and recommending to the full Board of Directors qualified candidates for
election as directors and recommending nominees for election as directors at the annual meeting
of stockholders;
• developing and recommending to the Board of Directors corporate governance guidelines and
implementing and monitoring such guidelines;
• reviewing and making recommendations on matters involving the general operation of the Board
of Directors, including Board size and composition, and committee composition and structure;
• evaluating and recommending to the Board of Directors nominees for each committee of the
Board of Directors;
• annually facilitating the assessment of the Board of Directors’ performance as a whole and of
the individual directors, as required by applicable law, regulations and the NYSE corporate
governance listing standards;
• considering nominations by stockholders of candidates for election to our Board of Directors;
• considering and assessing the independence of members of our Board of Directors;
12
• developing, as appropriate, a set of corporate governance principles, and reviewing and
recommending to our Board of Directors any changes to such principles;
• periodically reviewing our policy statements; and
• reviewing, at least annually, the adequacy of its Corporate Governance Committee Charter.
When evaluating director candidates, the Corporate Governance Committee’s objective is to craft a
Board composed of individuals with a broad and diverse mix of backgrounds and experiences and
possessing, as a whole, all of the skills and expertise necessary to guide a company like us in the
prevailing business environment. The Corporate Governance Committee uses the same criteria to
assess all candidates for director, regardless of who proposed the candidate. The Corporate
Governance Committee considers whether the candidate possesses the following qualifications and
qualities:
• independence for purposes of the NYSE rules and SEC rules and regulations, and a record of
honest and ethical conduct and personal integrity;
• experience in the healthcare, real estate and/or public real estate investment trust industry or in
finance, accounting, legal or other professional disciplines;
• ability to represent the interests of all of our stockholders; and
• ability to devote time to the Board of Directors and to enhance their knowledge of our industry.
The Corporate Governance Committee met two times in 2020. A copy of the charter of the
Corporate Governance Committee is available on the investor relations webpage of our website,
http://investors.chct.reit. Our Corporate Governance Guidelines and Code of Ethics and Business
Conduct are also available on the investor relations webpage of our website, http://investors.chct.reit. If
we make any substantive amendment to the Code of Ethics and Business Conduct or grant any waiver,
including any implicit waiver, from a provision of the Code of Ethics and Business Conduct to certain
executive officers, we are obligated to disclose the nature of such amendment or waiver, the name of
the person to whom any waiver was granted, and the date of waiver on our website or in a report on
Form 8-K filed with the SEC. Since the Company’s inception, there have been no such amendments or
waivers. Further, in 2020 and going forward, the Corporate Governance Committee has proposed, and
the Board has adopted, a requirement that the approval of our majority of stockholders is required in
order for the Company to materially modify our capital structure.
The current members of the Board propose nominees for election to the Board. In addition, the
Corporate Governance Committee will also consider candidates that stockholders and others
recommend. Stockholder recommendations should be addressed to: David H. Dupuy, Corporate
Secretary, 3326 Aspen Grove Drive, Suite 150, Franklin, Tennessee 37067. Your recommendations must
be submitted to us no earlier than October 25, 2021, nor later than 5:00 p.m., Eastern Time, on
November 24, 2021, for consideration as a possible nominee for election to the Board at our 2022
annual meeting.
On November 2, 2020, the Board adopted certain amendments to the Company’s Bylaws which
altered the procedures by which a stockholder may nominate persons to the Board of Directors. The
Board adopted an amendment to Article II, Section 16 of its Bylaws to allow proxy access for director
nominations for a stockholder, or a group of no more than twenty stockholders, that holds at least 3%
of the Company’s stock, and have held such stock for at least three years.
The Board has not adopted a formal procedure that you must follow to send communications to it,
but it does have informal procedures, described below, which it believes adequately facilitate
stockholder and other interested party communications with the Board. Stockholders and other
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interested parties can send communications to the Board by contacting David H. Dupuy, our Corporate
Secretary, in one of the following ways:
• By writing to Community Healthcare Trust Incorporated, 3326 Aspen Grove Drive, Suite 150,
Franklin, Tennessee, 37067, Attention: Corporate Secretary;
• By e-mail to investorrelations@chct.reit; or
• By phone at 615-771-3052.
If you request information or ask questions that can be more efficiently addressed by management,
Mr. Dupuy will respond to your questions instead of the Board. He will forward to the Audit
Committee any communication concerning employee fraud or accounting matters and will forward to
the full Board any communication relating to corporate governance or those requiring action by the
Board of Directors. A stockholder or interested party may communicate directly with Mr. Gardner, the
lead independent director, by sending a confidential letter addressed to his attention at 3326 Aspen
Grove Drive, Suite 150, Franklin, Tennessee, 37067.
Director Compensation
The Compensation Committee recommends the compensation for our non-employee directors; our
full Board approves or modifies the recommendation. Any modifications are implemented after the
annual meeting. Directors who are also employees, currently only Mr. Wallace, receive no additional
compensation for their service as a director, but are reimbursed for any direct board related expenses.
Annual compensation of non-employee directors may be a combination of cash and restricted stock at
levels set by the Compensation Committee.
The Compensation Committee retained FPL Advisory Group (‘‘FPL’’) as its independent
compensation consultant in 2020 to advise it regarding market trends and practices in director
compensation and with respect to specific compensation decisions. The Company last met with a
consultant in 2017 and expects to meet every three years with a compensation consultant to discuss
director compensation trends. The consultant may also attend Compensation Committee meetings
periodically. FPL provided a report to the Compensation Committee in 2020 and discussed the report
with the chair of the committee. FPL received a fee of $17,500 for its compensaton consulting services
provided to the Compensation Committee in 2020 with respect to director compensation.
Cash compensation
Each non-employee director receives an annual retainer, and chairpersons of our board
committees and the lead independent director receives additional annual retainers. The annual
retainers are payable after each annual meeting of our stockholders. Director compensation may be
adjusted by the Compensation Committee based on an evaluation of director compensation at peer
companies. In February 2021, the Compensation Committee approved an increase in the annual cash
retainer from $40,000 to $50,000 per year, beginning with the retainer earned at the 2021 annual
meeting. Additionally, the chairs of the Audit Committee, the Compensation Committee and the
Corporate Governance Committee and the lead independent director receive additional annual
retainers. In February 2021, the Compensation Committee approved an increase in the annual cash
retainer of the Audit Committee Chair from $15,000 to $20,000, increases in the annual cash retainers
of each of the Compensation Committee Chair and Corporate Governance Committee Chair from
$10,000 to $17,500, and an increase in the lead independent director annual cash retainer from $17,500
to $25,000.
Each year, non-employee directors may elect to acquire shares of restricted stock with all or a
portion of each of their retainers. These shares are issued 10 business days following the date of our
annual meeting of stockholders. The number of shares of restricted stock to be acquired is determined
14
by dividing the total amount of annual retainer the director elected to use to acquire shares by the
average price of shares of common stock for the immediately preceding 10 trading days. Pursuant to
the Company’s Amended and Restated Alignment of Interest Program (the ‘‘Amended and Restated
Alignment of Interest Program’’), each director who makes an election to acquire shares of restricted
stock with all or a portion of their retainers will be awarded additional shares, at no additional cost to
the director, according to the following multiples:
Duration of Restriction Period
Restriction
Multiple
1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2x
0.4x
0.6x
Accordingly, for example, if a non-employee director elects to acquire shares of restricted stock in
lieu of cash compensation that is equivalent in value to 1,000 shares of common stock and the director
elected a three-year restriction period for such restricted stock, the non-employee director would
receive the 1,000 shares of restricted stock plus an award of 600 shares of restricted common stock for
electing to subject his or her restricted stock to a three-year restriction period, resulting in a total
receipt of 1,600 shares of restricted stock, all of which would be subject to a three-year cliff vesting
schedule whereby no shares vest until the third anniversary of the date of grant, at which time 100% of
the shares of restricted stock will vest.
The restriction period subjects the shares purchased by the director and the additional shares
awarded by the Company to the risk of forfeiture in the event that a director voluntarily resigns or is
removed by the stockholders prior to the vesting of these shares. All unvested shares will be forfeited if
such non-employee director voluntarily resigns or is removed by the stockholders for any reason prior
to vesting. During the restriction periods described above, the restricted shares may not be sold,
assigned, pledged, or otherwise transferred. Subject to the risk of forfeiture and transfer restrictions,
non-employee directors have all rights as stockholders with respect to restricted shares, including the
right to vote and receive dividends or other distributions on such shares.
Stock Awards
Each non-employee director is also awarded an annual grant of shares of restricted stock. Our goal
is to have a minimum of 60% to 75% of the aggregate total compensation for our non-employee
directors paid in the form of restricted stock having a restriction period of up to three years. Directors
are not entitled to receive additional shares through a restriction multiple for these awards.
In February 2021, the Compensation Committee approved an increase in the annual equity award,
whereby, beginning with the 2021 annual meeting, each non-employee director will receive an annual
equity award of restricted stock with an aggregate market value of $100,000 at the conclusion of each
annual stockholders’ meeting, an increase from $75,000 in 2020. These shares are subject to a
three-year cliff vesting schedule whereby no shares vest until the third anniversary of the date of grant,
at which time 100% of the shares of restricted stock will vest. During the restriction period described
above, the restricted shares may not be sold, assigned, pledged, or otherwise transferred. Additionally,
such non-employee director must forfeit such equity award if the non-employee director voluntarily
resigns or is removed for any reason during the three-year restriction period. Subject to the risk of
forfeiture and transfer restrictions, non-employee directors have all rights as stockholders with respect
to restricted shares, including the right to vote and receive dividends or other distributions on such
shares.
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2020 Director Compensation
The following table sets forth compensation paid during 2020 to each of our non-employee
directors:
Name(1)
Fees Earned or Paid
Fees Paid
in Cash
Fees Paid
in Stock(2)
Stock
Awards(3)
All Other
Compensation
Alan Gardner . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Claire Gulmi
Robert Hensley . . . . . . . . . . . . . . . . . . . . . .
Lawrence Van Horn . . . . . . . . . . . . . . . . . .
$ — $57,500
$ — $50,000
$15,000
$40,000
$ — $50,000
$114,208
$109,078
$102,264
$109,078
$—
$—
$—
$—
Total
$171,708
$159,078
$157,264
$159,078
(1) Mr. Wallace is our other director and is also a full-time employee whose compensation is discussed
below under the section titled ‘‘Executive Officers’’ and ‘‘Summary Compensation Table.’’
Mr. Wallace receives no additional compensation for his service as a director.
(2) This column represents non-employee director annual retainer and additional annual retainer
amounts, approximately 93% of which was paid in shares of our restricted common stock in lieu of
cash. All of the shares are subject to a three-year cliff vesting schedule whereby no shares vest
until the third anniversary of the date of grant, at which time 100% of the shares of restricted
stock will vest, subject to the director’s continuing service as a director of the Company.
(3) Represents the grant date fair value computed in accordance with FASB ASC Topic 718 of awards
of restricted stock to the non-employee directors under the 2014 Incentive Plan, or the 2020
Director Awards. The dollar value of the 2020 Director Awards was based upon the grant date
price of our common stock, which was $36.13 on May 7, 2020. This column also includes the
amount of the grant date value of the shares received in accordance with restriction multiples with
respect to the deferral of director retainer amounts based on the price of our common stock of
$37.70 on the determination date, May 21, 2020. All of the shares are subject to a three-year cliff
vesting schedule whereby no shares vest until the third anniversary of the date of grant, at which
time 100% of the shares of restricted stock will vest, subject to the director’s continuing service as
a director of the Company.
We also reimburse our directors for expenses they incur in connection with their service on our
Board, such as director education, travel and lodging expenses.
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes the material elements of the Company’s
named executive officer compensation program and analyzes the compensation decisions made for our
executive officers included in the Summary Compensation Table beginning on page 34 (the ‘‘named
executive officers’’).
2020 Named Executive Officers
Our named executive officers for 2020 were:
Timothy Wallace—Chief Executive Officer and President
David Dupuy—Chief Financial Officer and Executive Vice President
Page Barnes—Chief Operating Officer and Executive Vice President
Leigh Ann Stach—Chief Accounting Officer and Executive Vice President
Because only four individuals served as our executive officers at any time during 2020, we have
only four named executive officers for 2020. Mr. Barnes resigned as an executive officer on
December 31, 2020 and transitioned to a part-time role, assisting with tenant relations and business
development matters.
2020 Highlights
Despite the challenges associated with the COVID-19 pandemic, we believe that 2020 was a successful
year for the Company. Our named executive officers continued to execute our business plan during
2020 and built upon our operating and financial performance results achieved since we became a
publicly traded company after our initial public offering in May 2015.
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Our operating and financial performance highlights in 2020 included:
• Achieving net income of $0.80 per diluted share, FFO of $2.03 per diluted share and AFFO of
$2.10 per diluted share, compared to net income of $0.37 per diluted share, FFO of $1.67 per
diluted share and AFFO of $1.77 per diluted share in 2019;
• Acquiring twenty-three (23) real estate properties and 2 land parcels for an aggregate purchase
price of approximately $127.2 million with estimated yields ranging from 9.05% to 11.00%.
These properties were approximately 99.5% leased with lease expirations through 2039;
• Raising gross proceeds of $98.0 million under our at-the-market offering program;
• Maintaining low leverage levels with a debt-to-total capitalization ratio (debt plus stockholders’
equity plus accumulated depreciation) of approximately 28.5%; and
• Generating a year-over-year total stockholder return of approximately 14% (versus an
approximately negative 5% for the NAREIT All Equity REIT Index) for the year ended
December 31, 2020.
Reconciliations of FFO and AFFO are provided in Appendix A beginning on page 48 of this Proxy
Statement.
Comprehensive Compensation Policy
We believe that the compensation of our executive officers aligns their interests with those of the
stockholders in a way that encourages prudent decision-making, links compensation to our overall
performance, provides a competitive level of total compensation necessary to attract and retain talented
and experienced executive officers and motivates the executive officers to contribute to our success.
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All of our executive officers are eligible to receive performance-based compensation under the
2014 Incentive Plan as amended by Amendment No. 1 to the 2014 Incentive Plan, Amendment No. 2
to the 2014 Incentive Plan, and Amendment No. 3 to the 2014 Incentive Plan (as so amended, our
2014 Incentive Plan).
We use a combination of allowing the acquisition of shares of restricted stock in connection with
grants of restricted stock as the primary means of delivering long-term compensation to our executive
officers. Shares of restricted stock are forfeitable until the lapse of the applicable restrictions. We
believe that restricted stock with long vesting periods align the interests of executive officers and
stockholders and provide strong incentives to our executive officers to achieve long-term growth in our
business, grow the value of our common stock and maintain or increase our dividends.
The executive officers personally benefit from these efforts through their restricted stock, which
pay dividends at the same rate as unrestricted stock and increase in value as the value of unrestricted
stock increases. However, the Company’s executive officers essentially have to earn this equity
compensation twice: the first time through their efforts to meet the initial performance criteria
necessary to receive the restricted stock; and the second time by continued service and increasing share
value through the at-risk vesting period.
Substantially all of our executive officers’ compensation is tied to the value of our common stock
since the officers have elected to receive restricted stock in lieu of cash compensation. Therefore, if we
have superior long-term operating performance, our executive officers, through their restricted stock,
will eventually receive more value, due to increases in the price of our common stock, than if they had
been paid in cash. Conversely, if we have inferior long-term operating performance, our executive
officers through their restricted stock will eventually receive less value, due to decreases in the price of
our common stock, than if they had been paid in cash.
Our Compensation Committee determines the restrictions for each award granted pursuant to the
2014 Incentive Plan. Restrictions on the restricted stock may include time-based restrictions, the
achievement of specific performance goals, or the occurrence of a specific event. Vesting of restricted
stock will generally be subject to cliff vesting periods ranging from three to eight years and will be
conditioned upon the participant’s continued employment, among other restrictions that may apply.
If the performance goals are not achieved or the time-based restrictions do not lapse within the
time period provided in the award agreement, the participant will forfeit his or her unvested restricted
stock.
Compensation Methodology
Compensation Committee’s Governance
The Board established the Compensation Committee to carry out the Board’s responsibilities to
administer our compensation programs. The Compensation Committee has the final decision-making
authority for the compensation of our executive officers. The Compensation Committee operates under
a written charter adopted by the Compensation Committee and approved by the Board. The charter is
available in the investor relations section of our website (http://investors.chct.reit).
Our Compensation Committee has independent authority to engage outside consultants and obtain
input from external advisers as well as our management team or other employees.
The Compensation Committee may retain any independent counsel, experts or advisors that it
believes to be desirable and appropriate. The Compensation Committee may also use the services of
the Company’s regular legal counsel or other advisors to the Company. The Compensation Committee
undertakes an independent assessment prior to retaining or otherwise selecting any independent
counsel, compensation consultant, search firm, expert or other advisor that will provide advice to it,
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taking such factors into account and as otherwise may be required by the NYSE from time to time. On
at least an annual basis, the Compensation Committee evaluates whether any work by any
compensation consultant to it raised any conflict of interest.
The Compensation Committee retained FPL Associates (‘‘FPL’’) as its independent compensation
consultant in 2020 to advise it regarding market trends and practices in executive compensation and
with respect to specific compensation decisions. The Compensation Committee expects to meet at least
annually with a compensation consultant to discuss executive compensation trends. The consultant may
also attend Compensation Committee meetings periodically. FPL met with the chair of the
Compensation Committee in 2020, during and in which it provided a review of recent trends and
developments in executive compensation practices within the Company’s industry and in general. FPL
received a fee of $50,000 for its compensation consulting services provided to the Compensation
Committee in 2020 with respect to annual and long-term executive compensation and director
compensation.
Our Chief Executive Officer may attend Compensation Committee meetings (except for executive
sessions where his compensation is discussed) as requested by the Compensation Committee. No
executive officer is in attendance when his or her compensation is considered. Our Chief Executive
Officer may provide recommendations with respect to compensation for the executive officers other
than himself. The Compensation Committee considers these recommendations, but may approve, reject
or adjust them as it deems appropriate.
Compensation Risk Assessment
The Compensation Committee believes its compensation policies and practices do not promote
excessive risk-taking and are not likely to have a material adverse effect on the Company. In particular,
the Compensation Committee believes that the following factors mitigate excessive risk-taking by the
named executive officers:
• The use of restricted stock, with long vesting periods during which the stock cannot be sold,
margined, pledged or otherwise hypothecated, provides an incentive to the named executive
officers to make decisions that contribute to long-term growth of the Company, the stability of
Net Operating Income (‘‘NOI’’), and the delivery of dividends to stockholders.
• The maximum potential cash and stock incentive payments are capped at levels such that total
compensation would remain comparable within the peer group.
• The Compensation Committee retains broad discretionary authority to adjust annual awards and
payments, which further mitigates risks associated with the Company’s compensation plans and
policies.
Peer Group
For 2020, the Compensation Committee, based on FPL’s recommendation, used the companies
listed below as the peer group against which to measure the Company’s relative one-year and
three-year Total Shareholder Return (‘‘TSR’’) performance. The peer group is selected each year in
accordance with the Amended and Restated Executive Officer Incentive Program. The Amended and
Restated Executive Officer Incentive Program provides a mechanism for determining the peer group,
which the Compensation Committee believes provides for the most closely comparable companies with
respect to market capitalization and appropriate pay levels. In determining our peer group, all publicly-
traded equity REITs are sorted by market capitalization. Additional criteria used can include industry
segment, asset base, externally/internally managed and years of operating history. The Compensation
Committee, based on FPL’s recommendations, makes discretionary adjustments to include or exclude
companies in the peer group to capture the Company’s closest competitors and to adjust for events
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such as mergers that might occur during the period. The following companies comprised the peer
group for 2020:
Physicians Realty Trust
One Liberty Properties, Inc.
National Health Investors, Inc.
CatchMark Timber Trust, Inc.
LTC Properties, Inc.
CareTrust REIT, Inc.
New Senior Investment Group, Inc.
Sotherly Hotels, Inc.
Easterly Government Properties, Inc.
Clipper Realty, Inc.
City Office REIT, Inc.
Plymouth Industrial REIT, Inc.
The Compensation Committee determines the peer group each year and compares the
compensation of the peer group for the year preceding the applicable year.
Material Components of Compensation
Elements of Pay
In 2020, the Company’s compensation program for its named executive officers consisted of the
following key elements:
• Annual base salaries;
• Elective acquisition of restricted shares with corresponding restricted share grants, allowing
named executive officers to increase their ownership portion in the Company;
• Annual performance-based awards of cash, restricted stock, or a combination of both;
• Long-term equity incentive awards of restricted stock; and
• Perquisites and retirement benefits.
Annual Base Salary
Each of our named executive officers has an employment agreement that establishes his or her
base salary. Adjustments to base salary are determined by the Compensation Committee and are based
upon a review of a variety of factors, including:
• individual and Company performance, measured against quantitative and qualitative goals, such
as growth, asset quality and other matters;
• duties and responsibilities, as well as the named executive officer’s experience;
• the types and amount of each element of compensation to be paid to the named executive
officer; and
• salary levels of persons holding similar positions at companies included in our peer group.
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The base salary of the Company’s named executive officers for 2021 and 2020, before any elective
deferral of cash for restricted stock, is as follows:
Named Executive Officer
2021 Base Salary
2020 Base Salary
Timothy G. Wallace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$750,000
$645,000
Chief Executive Officer and President
David H. Dupuy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$460,000
$392,000
Executive Vice President and Chief Financial Officer
W. Page Barnes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
n/a(1)
$370,400
Executive Vice President and Chief Operating Officer
Leigh Ann Stach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$387,600
$326,800
Executive Vice President and Chief Accounting Officer
(1) Mr. Barnes resigned as an executive officer on December 31, 2020, and he transitioned to a
part-time role, assisting with tenant relations and business development matters. In connection with
this transition, we anticipate that Mr. Barnes will not be a named executive officer in 2021 and,
thus, we are not disclosing his 2021 base salary.
Pursuant to the Amended and Restated Alignment of Interest Program described below, executive
officers may elect to utilize any cash compensation they receive to acquire shares of restricted stock. In
the event that an executive officer elects to acquire shares of restricted stock, rather than cash
compensation, the officer will be awarded shares of restricted stock pursuant to the Amended and
Restated Alignment of Interest Program, subject to a three-, five-, or eight- year cliff-vesting schedule,
depending on the officer’s election. Each executive officer who makes this election will be awarded the
additional restricted common stock award, subject to the restrictions, at no additional cost to the
officer, according to the multiple-based formula set forth on page 22 of this proxy statement.
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2014 Incentive Plan
Awards may be made in the form of restricted stock or cash under our 2014 Incentive Plan. The
purposes of the 2014 Incentive Plan are to attract and retain qualified persons upon whom, in large
measure, our sustained progress, growth and profitability depend; to motivate the participants to
achieve long-term Company goals; and to more closely align the participants’ interests with those of our
other stockholders by providing them with a proprietary interest in our growth and performance.
Our executive officers, non-executive officers, employees, consultants and non-employee directors
may be eligible to participate in the 2014 Incentive Plan as determined by the Compensation
Committee. As of March 5, 2021, the number of shares of our common stock available for issuance
under the 2014 Incentive Plan is 719,387.
The 2014 Incentive Plan is administered by our Compensation Committee, which interprets the
2014 Incentive Plan and has broad discretion to select the eligible persons to whom awards will be
granted, as well as the type, size and terms and conditions of each award, including the amount of cash
or number of shares subject to awards and the expiration date of, and the vesting schedule or other
restrictions (including, without limitation, restrictive covenants) applicable to, awards. However, during
a calendar year, no participant may receive awards intended to comply with the performance-based
compensation requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
‘‘Code’’), which exceed 150,000 shares of common stock.
Unless the 2014 Incentive Plan is terminated earlier by our Board of Directors, the 2014 Incentive
Plan will automatically terminate on March 31, 2024. Awards granted before the termination of the
2014 Incentive Plan may extend beyond that date in accordance with their terms.
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The two distinct programs applicable to executive officers under the 2014 Incentive Plan are the
Amended and Restated Alignment of Interest Program and the Second Amended and Restated
Executive Officer Incentive Program. In addition, we believe it is in the best interests of our
stockholders to encourage all executive officers to increase their equity position in the Company to
promote share ownership and further align employee and stockholder interests and have therefore
adopted stock ownership guidelines with respect to our executive officers and directors.
Amended and Restated Alignment of Interest Program
The Company’s Amended and Restated Alignment of Interest Program, under the 2014 Incentive
Plan, is designed to provide the Company’s executive officers with an incentive to remain with the
Company and to incentivize long-term growth and profitability. The original Alignment of Interest
Program was amended in November 2016 by the Company’s Board of Directors to, among other items,
reserve 500,000 shares of the Company’s common stock to be acquired by employees and directors
pursuant to elections to acquire restricted stock with their compensation.
Pursuant to the Amended and Restated Alignment of Interest Program, executive officers may
elect to acquire restricted stock in lieu of up to 100% of any compensation otherwise payable in cash
under their employment agreements. The executive officer must elect his or her participation level and
the applicable vesting period for the upcoming year no later than December 31 of the then-current
year. The number of shares of restricted stock to be acquired will be determined as of January 15 of
the year following the election or, if such date is not a trading day, on the trading day immediately
before January 15 by dividing the total of the named executive officer’s elected deferred salary, cash
bonus or other compensation by the average price of our common stock for the 10 trading days
immediately preceding the determination date. If the dollar amount of any reduced salary, cash bonus
or other compensation has not been determined by January 15, then the determination date will be the
10th business day following the date on which the amount of such cash compensation is fixed and
determined. Payments of restricted stock in lieu of compensation otherwise payable in cash will be
made immediately thereafter.
To the extent an executive officer elects to acquire stock in lieu of cash compensation, the
executive officer is entitled to receive an award of restricted stock pursuant to the Amended and
Restated Alignment of Interest Program, subject to a three, five or eight-year cliff vesting schedule,
depending on each executive officer’s election. Each executive officer who makes this election is
awarded the stock award at no cost to the executive officer, according to the following multiple-based
formula:
Duration of Restriction Period
Restriction Multiple
3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3x
0.5x
1.0x
Accordingly, for example, if an executive officer elects to acquire shares of restricted stock in lieu
of cash compensation that is equivalent in value to 1,000 shares of common stock and the executive
officer elected an eight-year restriction period for such restricted stock, the executive officer would
receive the 1,000 shares of restricted stock plus an award of 1,000 shares of restricted stock for electing
to subject his or her restricted stock to an eight-year restriction period, resulting in a total receipt of
2,000 shares of restricted stock, all of which would be subject to an eight-year cliff vesting schedule
whereby no shares vest until the eighth anniversary of the date of grant, at which time 100% of the
shares of restricted stock will vest.
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The restriction period subjects the shares acquired by the executive officer and the additional
shares awarded by the Company to the risk of forfeiture in the event that the executive officer
voluntarily terminates employment or is terminated for cause from employment with the Company, as
those terms are described below, prior to the vesting of the shares. All unvested shares will be forfeited
if such executive officer voluntarily terminates employment or is terminated for cause prior to vesting.
During the restriction periods described above, the restricted shares may not be sold, assigned, pledged
or otherwise transferred. Subject to the risk of forfeiture and transfer restrictions, executive officers
have all rights as stockholders with respect to restricted shares, including the right to vote and receive
dividends or other distributions on such shares.
All executive officers have elected to take 100% of their base salary and acquire shares of restricted stock
since the Company’s initial public offering, or since joining the Company as an executive officer.
Second Amended and Restated Executive Officer Incentive Program
We also have a Second Amended and Restated Executive Officer Incentive Program under the
2014 Incentive Plan pursuant to which our executive officers may earn performance-based awards in
the form of cash and/or restricted stock. Any awards under the Second Amended and Restated
Executive Officer Incentive Program and its interpretation and operation are subject to the discretion
of the Compensation Committee.
The Second Amended and Restated Executive Officer Incentive Program is designed to directly
link compensation to performance. The Company believes that the combination of operating metrics
and shareholder returns provides the best incentive structure for the growth of long-term shareholder
value.
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Through the Second Amended and Restated Executive Officer Incentive Program, our named
executive officers are rewarded for attaining targeted individual performance, targeted company
performance and relative TSR performance. For 2020, over 80% of the aggregate total compensation
for our named executive officers was paid in the form of performance-based compensation, all of which
was in restricted stock with cliff vesting periods of eight years.
The Compensation Committee believes that this further demonstrates alignment of the interests of
our named executive officers with that of the Company’s shareholders.
2020 Annual Incentive Rewards
The Compensation Committee takes the named executive officer’s base salary levels into account
when it establishes each executive’s potential incentive award, with the intent that each executive’s
targeted annual cash or stock opportunity is competitive, and that each executive has a meaningful
upside annual cash or stock compensation opportunity for performance excellence. We believe this
compensation philosophy is consistent with our pay-for-performance culture and our compensation
objective of linking pay to performance.
Individual Performance Awards
The Compensation Committee grants awards of cash, stock, or a combination of both under the
2014 Incentive Plan based on each executive officer’s individual performance, and may determine all
terms of the award, including to whom, and the time or times at which, individual performance awards
may be granted, the number of shares, units or other rights subject to each individual performance
award, the exercise, base or purchase price of such individual performance award (if any), the time or
times at which such individual performance award will become vested, exercisable or payable, the
23
performance criteria, goals and other conditions of the individual performance award, and the duration
of the individual performance award. Key metrics used to measure individual performance include:
• Business development activity—this includes the acquisition of new properties, development of
relations with potential tenants and development of relationships with providers who may
become recurring clients of the Company;
• Leasing activity—this includes working with tenants as existing leases are set to expire; working
with tenants as they need additional space or have other needs; working with tenants on the
collection of receivables; working with potential tenants and brokers to fill vacancies as they
arise; and working to increase overall portfolio rental rates and weighted average remaining
lease term;
• Employee satisfaction and turnover—this includes reviewing employee, compensation levels,
bonus potentials, and benefits; providing an environment where employees can obtain their
desired work/life balance; and reducing overall employee turnover;
• Timely and accurate financial statement preparation and filing—this includes the timely
preparation of the Company’s quarterly filings, on Form 10-Q, and annual filings, on Form 10-K;
timely preparation and filing of other SEC forms including Forms 8-K, Form-4, etc.; and
providing the documentation, processes and controls to insure there are no significant
deficiencies or material weaknesses in the Company’s Internal Control over Financial Reporting;
• Investor relations activities—this includes maintaining relationships with current and potential
investors; participating in conferences and non-deal road shows; and reviewing and updating the
Company’s website, investor presentation, supplemental data report and other investor
information;
• Capital markets activities—this includes maintaining relationships with investment and
commercial banks and managing the Company’s credit facilities and equity raising activities
through the Company’s ‘‘At-The-Market Offering Program’’ and other capital raising alternatives;
and
• Environmental, Social and Governance (ESG) policy management—this includes reviewing the
Company’s existing ESG policies, comparing those policies to peers and guidelines to determine
where the Company can improve, implementing policies to increase the Company’s overall
attainment of ESG goals and publication of the results of the ESG policies and goal attainment.
In 2020, the Compensation Committee approved the payment of cash individual performance
awards to the Company’s executive officers in the aggregate of approximately $694,000. The executive
officers each elected to acquire restricted shares of common stock in lieu of the cash bonuses, which
based on their elections are subject to an eight-year cliff vesting schedule. Based on the eight-year
restriction period elected, the executive officers acquired an aggregate of 14,437 shares of restricted
stock in lieu of their cash bonuses and were granted 14,436 additional shares based on the restriction
period elected.
All executive officers have elected to take 100% of their bonuses and acquire shares of restricted stock
since the Company’s initial public offering, or since joining the Company as an executive officer.
Company Performance Awards
Company Performance Awards (‘‘CPA’’) may be issued under the 2014 Incentive Plan based on
Company performance targets. The Compensation Committee may determine, in its discretion, the
particular financial and/or operating metrics to be targeted, which may include, but are not limited to
AFFO, payout percentages, etc. The measurement period is four consecutive quarters ending on
June 30 of each year or such date as the Compensation Committee may determine.
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Participants have the opportunity to earn Company Performance Awards each year. The Company
will generally target a maximum of three performance metrics during any given measurement period
and a maximum combined award for all such metrics of up to 75% of such participant’s base salary.
Consistent with prior years, the metrics used by the Compensation Committee to determine the
CPA for 2020 were as follows:
• The actual AFFO for the trailing four quarters ended June 30, 2020 which was $1.96 per share.
This was a 20.0% increase over the $1.63 AFFO for the trailing four quarters ended June 30,
2019.
• The Amended and Restated Executive Officer Incentive Program targets an annual dividend
increase of $0.05 cents per share, which is approximately $0.01 per share more than the actual
increases have been. The Compensation Committee believes this fixed targeted increase presents
an aggressive target and removes any potential to manipulate the actual dividend to benefit
executive officer compensation.
• The targeted dividend per share for 2020 was $1.70 per share. The actual AFFO of $1.96 per
share provided an 87% dividend payout coverage for the $1.70 targeted dividend. This was the
equivalent of an 86% payout ratio for the actual dividends of $1.675 per share.
• The Amended and Restated Executive Officer Incentive Program provides for payment of a
range from 0.00% to 150.00% of executive salary based on decreasing calculated targeted
dividend payout ratios moving from 95.0% to 80.0%. The coverage ratio of 87% resulted in a
CPA award percentage of 90%. Since the CPA targets 50% of each executive officer’s base pay,
the CPA resulted in a 45% of base salary bonus payment.
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The Compensation Committee believes the CPA measures three critical components of Company
performance:
• First, it measures actual AFFO for the trailing four quarters. Actual AFFO is an important
measure of the ongoing growth and operating performance of the Company.
• Second, the CPA targets an increasing targeted dividend. The Compensation Committee believes
that an increasing dividend is an important attribute of the Company’s stock for its investors.
This is a critical concept because the Amended and Restated Executive Officer Incentive
Program requires the ability for dividend growth every year which cannot be modified without
Compensation Committee approval.
• Third, the CPA measures dividend payout coverage of the Target Dividend and will only pay a
bonus when that coverage is at or below 95%. As the dividend coverage increases and the
payout ratio goes down, the bonus potential goes up.
As a result of these rigorous performance requirements, 2020 is the first year management met the
required thresholds for a CPA bonus.
In 2020, the Compensation Committee approved the payment of cash CPA to the Company’s
executive officers in the aggregate of approximately $780,000. The executive officers each elected to
acquire restricted shares of common stock in lieu of the cash bonuses, which based on their elections
are subject to an eight-year cliff vesting schedule. Based on the eight-year restriction period elected, the
executive officers acquired an aggregate of 16,242 shares of restricted stock in lieu of their cash
bonuses and were granted 16,241 additional shares based on the restriction period elected.
All executive officers have elected to take 100% of their bonuses and acquire shares of restricted stock
since the Company’s initial public offering, or since joining the Company as an executive officer.
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2020 Long Term Equity Incentive Awards
Total Shareholder Return Awards
Total Shareholder Return Awards (‘‘TSRA’’) are designed to be long term incentive awards based
on the Company’s total shareholder return, as measured against the Peer Group. The criteria for
awarding TSRAs are the Company’s relative total shareholder return performance measured as a
percentile, as compared to the total shareholder returns of the companies in the Peer Group. The
current measurement period is four and twelve consecutive quarters ending June 30 of each year.
The Compensation Committee generally targets a maximum TSRA for each executive officer of up
to 200% of such executive officer’s base salary. Executive officers have historically had the opportunity
to earn TSRAs each year based on 1-year total shareholder return and 3-year total shareholder return.
Effective for 2021 and future years, 3-year and 5-year shareholder return metrics will be used.
TSRAs are in the form of restricted stock with an eight-year cliff vesting period and are not
available for the Amended and Restated Alignment of Interest Program. The TSRA percentages range
from 0% up to 100% of base salary depending on the relative total shareholder return versus the
members of the Peer Group. The number of shares are determined as of June 30th by dividing the
total of the executive officer’s TSRA by the average closing price of the common stock for the 10
trading days immediately preceding June 30.
In 2020, the Company ranked second in the 1-year total shareholder return, which placed it in the
greater than 75% range, and first in the 3-year total shareholder return, which placed it in the 100%
range, versus the members of the Peer Group.
2020 Total Shareholder
Return
Level
1-Year TSR
3-Year TSR
Total
>25%
>50%
>75%
=100%
(cid:31)
(cid:31)
75%
100%
175%
The following table illustrates the value of the TSR equity incentive awards granted to each named
executive officer for 2020.
Executive Officer
Timothy Wallace . . . . . . . . . . . . . .
Page Barnes . . . . . . . . . . . . . . . . .
David Dupuy . . . . . . . . . . . . . . . .
Leigh Ann Stach . . . . . . . . . . . . . .
Performance
Metric
175%
175%
175%
175%
Base Salary
$645,000
$370,400
$392,000
$326,800
Long Term
Incentive Award
$1,128,750
$ 648,200
$ 686,000
$ 571,900
The Company granted TSRAs in the form of restricted stock under the Amended and Restated
Executive Officer Incentive Program to our executive officers in 2020 in the aggregate of 72,082 shares
of common stock which will cliff vest in eight years.
Effective for 2021 and future years, the Compensation Committee approved the Second Amended
and Restated Executive Officer Incentive Program which modified the TSRA to 3-year and 5-year total
shareholder return metrics. This change recognizes the Company’s more than 5 years of operating
history, and the goal to incent continued long-term performance in alignment with our stockholders.
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Perquisites
The Company provides its executive officers with perquisites that it believes are reasonable,
competitive and consistent with the Company’s compensation program for all employees. The Company
believes that such perquisites help the Company to retain its personnel. In 2020, these perquisites
included matching contributions in each participating executive’s 401(k) and a contribution for each
participating executive’s health savings account (HSA), calculated in the same manner as for all
employees. In 2019, we also provided moving and relocation expenses for Mr. Dupuy.
Retirement Benefits
All named executive officers are eligible to participate in the Company’s 401(k) plan, pursuant to
which each participant may contribute up to the annual maximum allowed under IRS regulations
($19,500 for 2020). All eligible participants over the age of 50 may also contribute an additional $6,500
per year to the plan in the form of catch-up contributions. The Company provides a matching
contribution of up to an annual maximum of three and one-half percent for the first six percent of base
salary contributed to the plan by the employee.
Compensation Governance Practices
Anti-Hedging, Margin or Hypothecation Policy
The Company prohibits the hedging, margining or hypothecation of Company securities by its
executive officers and directors. None of the executive officers or directors have entered into any
arrangements to hedge, margin or hypothecate the Company’s securities. In addition, restricted stock
may not be sold, assigned, pledged or otherwise transferred.
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At Risk Compensation
Since the Company’s initial public offering or joining the Company, as applicable, all named
executive officers have elected to take 100% of their compensation in restricted stock of the Company
that cliff-vests in 8-years. Until such time that those shares vest, each named executive officer is at risk
of forfeiting those shares, as well as losing value of the shares should events occur, including
management errors, that negatively impact the financial results or performance of the Company.
We believe this compensation program aligns executive management with our stockholders,
encourages appropriate long-term decision-making and effectively rewards or punishes executive
management for their decisions made.
Stock Ownership Guidelines
We believe that it is in the best interests of our stockholders to encourage all executive officers
and directors to increase their equity position in the Company to promote share ownership and further
align stockholder interests with executive officers and directors. Accordingly, as set forth in the table
below, we have adopted stock ownership guidelines applicable to our executive officers and directors
requiring each to hold common stock with a fair market value equal to a multiple of each officer’s then
current base salary or each non-employee director’s then current annual retainer, as applicable:
Position
Chief Executive Officer
Executive Vice President
Non-Employee Director
Common Stock Ownership Multiple
5x Current Base Salary
3x Current Base Salary
3x Current Base Annual Retainer
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The guidelines provide that all owned stock, both restricted and unrestricted, counts toward the
ownership guidelines. All of our executive officers and directors were in compliance with these
guidelines as of March 5, 2021.
Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to a corporation’s chief executive officer and the
three other most highly compensated executive officers (excluding the chief financial officer). In 2017
and prior tax years, qualifying performance-based compensation was not subject to the deduction limit
if certain requirements were met. Effective for tax years beginning on January 1, 2018, the tax reform
legislation informally known as the Tax Cuts and Jobs Act of 2017 repeals the performance-based
compensation exception to the Section 162(m) $1 million deduction limit. The Company’s tax deduction
for compensation expense in 2020 was not limited pursuant to Section 162(m) because no applicable
officer’s compensation, as determined for federal income tax purposes, exceeded the applicable limit.
As a qualifying REIT, the Company does not pay federal income tax; therefore, the future
unavailability of the Section 162(m) compensation deduction is not expected to result in any increase in
the Company’s federal income tax obligations.
CEO Pay Ratio
Pursuant to rules adopted by the SEC under the Dodd-Frank Act, the Company is required to
disclose the ratio of the annual total compensation for its CEO to the median annual total
compensation for its employees other than the CEO. The Company identified the median employee by
examining its payroll records for 2020 for all individuals other than the CEO that were employed by
the Company at December 31, 2020. Compensation for employees that began employment during the
year was annualized based on rate of pay applied to a full year.
As of December 31, 2020, the Company had 28 employees. These employees are all employed at
the Company’s corporate office and are comprised of executive and non-executive officers, asset
management, accountants, and various other roles and responsibilities. At December 31, 2020, the
Company identified its median employee as one making $141,791 per year. For 2020, the Company’s
CEO, Mr. Wallace, had an annual total compensation of $3,737,563. This amount is comprised of
several components, as reflected in the Summary Compensation Table beginning on page 34. Additional
information concerning Mr. Wallace’s total compensation is provided in the Compensation Discussion
and Analysis section beginning on page 17 and in the Executive Officers section beginning on page 31.
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The ratio of CEO pay to median employee pay at December 31, 2020 was 26:1. The table below
illustrates the details of the calculation.
Pay
Salary
CEO to Median Employee Pay Ratio
Chief Executive Officer
and President
Median Employee
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
681,198
$ 92,995
2,005
Bonus
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonus stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alignment of Interest Stock . . . . . . . . . . . . . . . . . . . . . . . . . .
1-Year Total Shareholder Return Stock . . . . . . . . . . . . . . . . . .
3-Year Total Shareholder Return Stock . . . . . . . . . . . . . . . . . .
Non-Executive Restricted Stock Award . . . . . . . . . . . . . . . . . .
All Other Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO to Median Employee Pay Ratio . . . . . . . . . . . . . . . . . . . . .
Termination, Severance and Change-in-Control Arrangements
—
541,405
1,193,250
560,712
747,616
—
13,382
$3,737,563
17,150
7,350
9,382
—
—
10,289
2,620
$141,791
26:1
Under the terms of the Company’s compensation plans and its employment agreements with
Mr. Wallace, Mr. Dupuy and Ms. Stach, if employment is terminated for any reason other than for
cause, change-in-control or death or disability, Mr. Wallace, Mr. Dupuy and Ms. Stach are entitled to
receive all accrued salary, bonus compensation, if any, to the extent earned, whether or not vested
without regard to such termination (other than defined contribution plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under any plans of the
Company in which they are a participant to the full extent of their rights under such plans, full vesting
of all awards granted to them under the 2014 Incentive Plan, accrued vacation pay and any appropriate
business expenses incurred by them in connection with his or her duties hereunder, all to the date of
termination. In addition, Mr. Wallace, Mr. Dupuy and Ms. Stach will receive as severance
compensation his or her base salary (at the rate payable at the time of such termination), for a period
of 36 months, with respect to Mr. Wallace, and 12 months, with respect to Mr. Dupuy and Ms. Stach,
from the date of such termination; provided, however, that if they are employed by a new employer
during such period, the severance compensation payable to them during such period will be reduced by
the amount of compensation that the named executive officer is receiving from the new employer.
However, none of Mr. Wallace, Mr. Dupuy and Ms. Stach are under any obligation to mitigate the
amount owed them by seeking other employment or otherwise. In addition to the severance payment,
they will be paid an amount equal to the greater of: (i) two times the average annual cash bonus, if
any, earned by them in the two years immediately preceding the date of termination, without regard to
any elective income deferral or conversion of such bonus into stock or any other non-cash
consideration; and (ii) two times the product of their base salary and 0.67 with respect to Mr. Wallace,
and 0.33 with respect to Mr. Dupuy and Ms. Stach. Each of Mr. Wallace, Mr. Dupuy and Ms. Stach
will be entitled to accelerated vesting of any accrued benefit under each deferred compensation plan. If
Mr. Wallace, Mr. Dupuy and Ms. Stach are terminated for disability, the terminated executive officer
will receive the benefits described above, all to the date of termination, with the exception of medical
and dental benefits, if any, which shall continue at the Company’s expense through the then current
one-year term of the employment agreement. If Mr. Wallace’s, Mr. Dupuy’s and Ms. Stach’s
employment terminates due to death, the terminated executive officer’s estate will receive the benefits
described above.
29
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The severance payment in the event of a change in control will consist of: (1) three times the
terminated officer’s annual base salary (at the rate payable at the time of such termination), and (2) an
amount equal to the greater of: (i) two times the average annual cash bonus, if any, earned by the
terminated officer in the two years immediately preceding the date of termination, without regard to
any elective income deferral or conversion of such bonus into stock or any other non-cash
consideration; and (ii) two times the product of the terminated officer’s base salary and 0.67 with
respect to Mr. Wallace, and 0.33 with respect to Mr. Dupuy and Ms. Stach. Such severance
compensation shall be paid in a lump sum promptly after the date of such termination, and in no event
later than two and a half months after the end of the year in which such termination occurs. If the
payments due to the change-in-control result in an excise tax to the terminated officer, under
Section 4999 of the Code, all change-in-control payments to the terminated officer may be limited to
an amount that is less than 300% of his or her average annual compensation. This limit would not
apply in the event that the terminated officer’s net after-tax benefits are greater after considering the
effect of the excise tax.
Mr. Barnes, who stepped down as an executive vice president as of December 31, 2020 will
continue as an employee of the Company with responsibilities relating to business development and
tenant relationships. Mr. Barnes is no longer considered to be an executive officer, will not be a
participant in the Second Amended and Restated Executive Officer Incentive Program and will receive
a base salary equal to approximately 60% of his former base salary.
COMPENSATION COMMITTEE REPORT
The following Compensation Committee Report does not constitute soliciting material and should not
be deemed filed or incorporated by reference into any other Company filing under the Securities Act or the
Exchange Act, except to the extent the Company specifically incorporates this Report by reference therein.
The Compensation Committee has reviewed and discussed the Compensation Discussion and
Analysis contained in this Proxy Statement with management of the Company and, based on such
review and discussions, the Compensation Committee has recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in this Proxy Statement.
Members of the Compensation Committee:
Claire Gulmi (Chair)
Alan Gardner
Lawrence Van Horn
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 2020 were Claire Gulmi (Chair), Alan
Gardner, and Lawrence Van Horn. In 2020, no member of the Compensation Committee was an
officer or employee of the Company or any of its subsidiaries or was formerly an officer of the
Company or any of its subsidiaries, and no member had any relationship requiring disclosure as a
related person transaction under applicable SEC regulations.
30
EXECUTIVE OFFICERS
The names, ages, positions and business experience of our executive officers, except for
Mr. Wallace, are listed below. Because he is also a member of our Board, information about
Mr. Wallace appeared previously under Proposal 1—Election of Directors beginning on page 4. All of
our executive officers serve at the discretion of the Board and are parties to employment agreements.
Name
David H. Dupuy . . . . . . . .
Age
52
Leigh Ann Stach . . . . . . .
54
Position
Mr. Dupuy has served as our Executive Vice President and Chief
Financial Officer since May 2019. From 2008 to 2019, Mr. Dupuy
served as a Managing Director, Healthcare Investment Banking
Group at SunTrust Robinson Humphrey. From 2004 to 2008,
Mr. Dupuy served as a Senior Vice President of the Healthcare
Group at Bank of America. From 2000 to 2004, Mr. Dupuy
served as a Vice President and Regional Director for KDA
Holdings with responsibility for consulting, financing, and
development of outpatient medical facilities. Previously,
Mr. Dupuy served as Chief Financial Officer and Founding
Partner of LIFESIGNS Holdings, Inc., a provider of diagnostic
healthcare services, from 1997 to 2000. Mr. Dupuy began his
career in 1991 with Bank of America. Mr. Dupuy holds a
Bachelor of Arts in Business Administration from Furman
University and a Master of Business Administration from the
Owen School at Vanderbilt University.
Ms. Stach has served as our Chief Accounting Officer since the
formation of our company in March 2014 and as Executive Vice
President since May 2019. Prior to her appointment as Executive
Vice President in May, Ms. Stach served as our Vice President—
Financial Reporting, and Chief Accounting Officer. From 2005 to
2013, Ms. Stach served as Vice President—Financial Reporting at
Healthcare Realty (‘‘HR’’) where she had responsibility for
financial reporting and coordinating due diligence materials for
debt and equity offerings. In addition, she brought EDGAR and
XBRL filings in-house and provided oversight of HR’s
compliance function and internal audit. Prior to that, from 1997
to 2005, Ms. Stach served as Vice President—Controller at HR.
From 1994 to 1997, Ms. Stach served as Assistant Controller at
HR. Prior to HR, from 1991 to 1994, Ms. Stach was a senior
accountant—financial reporting at Hospital Corporation of
America (‘‘HCA’’). She began her career with HCA in 1988 as an
internal auditor. Ms. Stach holds a Bachelor of Science in
Accounting from Western Kentucky University and is a licensed
CPA.
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Mr. Barnes resigned as an executive officer on December 31, 2020 and his employment agreement
with the Company was mutually terminated. Thus, although he is a named executive officer for
purposes of this proxy statement, the information below discusses the compensation of our current
executive officers.
31
Employment Agreements of Mr. Wallace, Mr. Dupuy and Ms. Stach
We have entered into employment agreements with each of Mr. Wallace, Mr. Dupuy, and
Ms. Stach, which became effective on May 28, 2015 for Mr. Wallace and Ms. Stach, and May 1, 2019
for Mr. Dupuy. The initial term of each of Mr. Wallace’s, and Ms. Stach’s employment agreements
were through December 31, 2017, while the initial term of Mr. Dupuy’s employment agreement was
through December 31, 2019. On May 1, 2019, the Company entered into an amended and restated
employment agreement with Ms. Stach in connection with her new role as Executive Vice President
that became effective on May 1, 2019. Other than related to Ms. Stach’s change in role, the
compensation terms and other material terms of Ms. Stach’s employment with the Company remain
unchanged. The term of each respective employment agreement automatically renews for successive
one-year terms on December 31 of each calendar year. As amended on January 4, 2021, the annual
base salary of each of Mr. Wallace, Mr. Dupuy, and Ms. Stach under each of their employment
agreements was increased for fiscal year 2021 from $645,000 to $750,000, from $392,000 to $460,000,
and from $326,800 to $387,600, respectively. In addition, Mr. Dupuy is to be awarded a grant of 5,000
shares of restricted common stock per year for three years, which began on May 1, 2019, vesting
equally in 2027, 2028, and 2029.
The base salaries are subject to annual increases as the Compensation Committee may approve in
their discretion and other benefits generally available to other employees and our other executive
officers, and each will be eligible for an annual bonus for each calendar year during his or her
respective employment based on a combination of his or her respective continued employment with the
Company and the achievement of certain performance goals established by our Board of Directors and
our Compensation Committee.
If employment is terminated for any reason other than for cause, change-in-control or death or
disability, each executive officer is entitled to receive all accrued salary, bonus compensation, if any, to
the extent earned, whether or not vested without regard to such termination (other than defined
contribution plan or profit sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Company in which the executive officer is a participant to
the full extent of the executive officer’s rights under such plans, full vesting of all awards granted to the
named executive officer under the 2014 Incentive Plan, accrued vacation pay and any appropriate
business expenses incurred by the named executive officer in connection with his or her duties
hereunder, all to the date of termination.
In addition, the executive officer will receive as severance compensation his or her base salary (at
the rate payable at the time of such termination), for a period of 36 months, with respect to
Mr. Wallace, and 12 months, with respect to Mr. Dupuy and Ms. Stach, from the date of such
termination; provided, however, that if the executive officer is employed by a new employer during such
period, the severance compensation payable to the executive officer during such period will be reduced
by the amount of compensation that the executive officer is receiving from the new employer. However,
the executive officer is under no obligation to mitigate the amount owed the executive officer by
seeking other employment or otherwise.
In addition to the severance payment, the executive officer will be paid an amount equal to the
greater of: (i) two times the average annual cash bonus, if any, earned by the executive officer in the
two years immediately preceding the date of termination, without regard to any elective income
deferral or conversion of such bonus into stock or any other non-cash consideration; and (ii) two times
the product of the executive officer’s base salary and 0.67 with respect to Mr. Wallace, and 0.33 with
respect to Mr. Dupuy and Ms. Stach. Each executive officer will be entitled to accelerated vesting of
any accrued benefit under each deferred compensation plan.
If an executive officer is terminated for disability, the terminated executive officer will receive the
benefits described above, all to the date of termination, with the exception of medical and dental
32
benefits, if any, which shall continue at the Company’s expense through the then current one-year term
of the employment agreement. If an executive officer’s employment terminates due to death, the
terminated executive officer’s estate will receive the benefits described above.
The severance payment in the event of a change in control will consist of: (1) three times the
terminated executive officer’s annual base salary (at the rate payable at the time of such termination),
and (2) an amount equal to the greater of: (i) two times the average annual cash bonus, if any, earned
by the terminated executive officer in the two years immediately preceding the date of termination,
without regard to any elective income deferral or conversion of such bonus into stock or any other
non-cash consideration; and (ii) two times the product of the terminated executive officer’s base salary
and 0.67 with respect to Mr. Wallace, and 0.33 with respect to Mr. Dupuy and Ms. Stach. Such
severance compensation shall be paid in a lump sum promptly after the date of such termination, and
in no event later than two and a half months after the end of the year in which such termination
occurs. If the payments due to the change-in-control result in an excise tax to the terminated executive
officer, under Section 4999 of the Code, all change-in-control payments to the terminated officer may
be limited to an amount that is less than 300% of his or her average annual compensation. This limit
would not apply in the event that the terminated executive officer’s net after-tax benefits are greater
after considering the effect of the excise tax.
Each employment agreement contains customary non-competition and non-solicitation covenants
that apply during the term and for 12 months following a termination upon a change in control, so long
as the payments to which the terminated officer is entitled as a result of his or her termination upon a
change of control are made on a timely basis.
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Summary Compensation Table
COMPENSATION TABLES
The table below sets forth the compensation paid in fiscal years 2020, 2019, and 2018 to our
principal executive officer and the three most highly compensated executive officers. Mr. Wallace,
Mr. Dupuy, Mr. Barnes and Ms. Stach are referred to in this proxy statement as our named executive
officers.
Each of our named executive officers has agreed to take 100% of his or her salary, bonus and
long-term incentive compensation in the form of restricted common stock under our 2014 Incentive
Plan since such officers began their tenure with the Company. In compliance with the terms of the
Amended and Restated Alignment of Interest Program described above, the election to acquire stock,
otherwise payable in cash, caused the named executive officers to be eligible to receive additional stock
awards based upon a multiple described on page 22 of this proxy statement.
All shares of restricted stock issued in lieu of cash compensation and any shares of restricted stock
issued under the Amended and Restated Alignment of Interest Program are subject to a vesting
schedule whereby no shares vest until the third, fifth or eighth anniversary of the date of grant, at
which time 100% of the shares of restricted stock will vest, subject to continued employment.
The following table sets forth the compensation of our named executive officers for the fiscal years
2020, 2019, and 2018.
Name and Principal Position
Timothy G. Wallace .
.
Chief Executive Officer and President
.
.
.
.
.
.
.
.
.
.
David H. Dupuy(6) .
.
.
.
.
.
.
.
.
.
.
.
.
W. Page Barnes .
Executive Vice
President and Chief
Financial Officer
.
Former Executive
Vice President and
Chief Operating Officer(7)
.
.
.
.
.
.
.
.
.
.
Leigh Ann Stach .
Executive Vice
President and Chief
Accounting Officer
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Salary
Bonus
Compensation Compensation Compensation Compensation
Year
. 2020
2019
2018
. 2020
2019
2018
. 2020
2019
2018
. 2020
2019
2018
Paid in
Cash(1)
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
Paid in
Stock(2)
$645,000
$540,000
$458,167
$392,000
$233,333
—
$
$370,400
$328,000
$271,167
$326,800
$266,000
$220,500
Paid in
Cash
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
Paid in
Stock(3)
$548,250
$216,000
$183,267
$333,200
$ 23,333
—
$
$314,840
$131,200
$108,467
$277,780
$106,400
$188,200
Stock
All Other
Awards(4) Compensation(5)
Total(8)
$2,530,931
$1,829,164
$1,606,543
$1,721,059
$1,115,165
—
$
$1,453,378
$1,111,109
$ 950,883
$1,282,303
$ 901,044
$ 876,216
$13,382
$10,800
$ —
$ 5,722
$11,279
$ —
$11,616
$ 8,930
$ —
$ 8,734
$ 1,000
$ —
$3,737,563
$2,595,964
$2,247,977
$2,451,981
$1,383,110
—
$
$2,150,234
$1,579,239
$1,330,517
$1,895,617
$1,274,444
$1,284,916
(1) All of our named executive officers agreed to acquire shares of restricted common stock in lieu of
any cash compensation for the fiscal years ended December 31, 2020, 2019, and 2018, as
applicable.
(2) The amounts represent the annual base salary of each named executive officer set forth in the
table pursuant to their employment agreements, 100% of which was used to acquire shares of our
restricted common stock in lieu of cash. The number of shares of common stock issued in 2020
was based on $43.14, which was the average price of our common stock for the 10 days preceding
January 15, 2020, the determination date. The number of shares of common stock issued in 2019
was based on $29.78, which was the average price of our common stock for the 10 days preceding
January 15, 2019, the determination date. The number of shares of common stock issued in 2018
was based on $26.99, which was the average price of our common stock for the 10 days preceding
January 16, 2018, the determination date. All of the shares of our restricted common stock issued
in lieu of cash compensation are subject to an eight-year cliff vesting schedule whereby no shares
34
vest until the eighth anniversary of the date of grant, at which time 100% of the shares of
restricted stock will vest, subject to continued employment.
(3) The bonus amounts paid in each of the years 2020, 2019, and 2018 represent the annual bonus of
each named executive officer set forth in the table pursuant to their employment agreements,
100% of which was used to acquire shares of our restricted common stock in lieu of cash. The
number of shares of common stock issued in 2020 was based on $48.05, which was the average
price of our common stock for the 10 days preceding August 17, 2020, the determination date. The
number of shares of common stock issued in 2019 was based on $42.50, which was the average
price of our common stock for the 10 days preceding August 15, 2019, the determination date. The
number of shares of common stock issued in 2018 was based on $31.26, which was the average
price of our common stock for the 10 days preceding August 15, 2018, the determination date. All
of the shares of our restricted common stock issued in lieu of cash compensation are subject to an
eight-year cliff vesting schedule whereby no shares vest until the eighth anniversary of the date of
grant, at which time 100% of the shares of restricted stock will vest, subject to continued
employment.
(4) Represents the aggregate fair value computed in accordance with FASB ASC Topic 718 of awards
of restricted common stock to the named executive officers for the years ended December 31,
2020, 2019, and 2018 under the 2014 Incentive Plan, as amended. The dollar values of the awards
related to base salaries and bonuses for 2020, 2019, and 2018 are based on the grant date value of
such awards and the restriction multiples for cash compensation deferrals outlined in our
Amended and Restated Alignment of Interest Program. Awards granted to our named executive
officers’ in connection with their base salaries for 2020, 2019, and 2018, were based on grant date
values of such awards of $44.35 per share, $30.67 per share, and $25.95 per share, respectively.
Awards granted to our named executive officers’ in connection with their bonuses for 2020, 2019,
and 2018, were based on grant date values of such awards of $47.75, $42.90 per share and $31.73
per share, respectively. The dollar values of the awards related to the Company’s total stockholder
return performance, relative to its peer group, for the years ended December 31, 2020, 2019, and
2018, as outlined in the Executive Officer Incentive Program, are based on the grant date value of
such awards of $48.80 per share, $42.90 per share and $31.73 per share, respectively. Mr. Dupuy
received restricted share awards in 2020 and 2019 in connection with joining our Company as our
Chief Financial Officer in 2019. These restricted share awards in 2020 and 2019 were based on a
grant date value of $36.57 and $36.29 per share, respectively.
(5) Includes employer contributions to the executive officer’s health savings account (HSA) and
401(k), as well as moving and relocation expenses for Mr. Dupuy in 2019.
(6) Joined the Company as a named executive officer on May 1, 2019 and was awarded 5,000 shares
of restricted stock in each of 2020 and 2019.
(7) Mr. Barnes resigned as Executive Vice President and Chief Operating Officer on December 31,
2020, transitioning to a part-time role with the Company, assisting with tenant relations and
business development matters,
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(8) A significant portion of the named executive officer’s compensation is performance based, as set
forth in the following table:
Performance Based Incentive Compensation
Name
Timothy G. Wallace .
.
.
.
.
.
.
.
.
.
.
David H. Dupuy(3) .
.
.
.
.
.
.
.
.
.
.
W. Page Barnes .
.
.
.
.
.
.
.
.
.
.
.
.
Leigh Ann Stach .
.
.
.
.
.
.
.
.
.
.
.
Alignment 1-Year Total
3-Year Total
Shareholder Shareholder
Bonus
Year Compensation Stock(1)
Total
of
Interest
Stock(2)
. 2020
2019
2018
. 2020
2019
2018
. 2020
2019
2018
. 2020
2019
2018
$3,737,563
$2,595,964
$2,247,977
$2,451,981
$1,383,110
$
$2,150,234
$1,579,239
$1,330,517
$1,895,617
$1,274,444
$1,284,916
$548,250 $1,402,181
$216,000 $ 884,164
$183,267 $ 690,209
$333,200 $ 852,209
$ 23,333 $ 321,215
$314,840 $ 805,178
$131,200 $ 537,109
$108,467 $ 408,549
$277,780 $ 710,403
$106,400 $ 435,544
$188,200 $ 435,216
— $
— $
— $
Return
Stock
$483,750
$405,000
$458,167
$294,000
$262,500
—
$277,800
$246,000
$271,167
$245,100
$199,500
$220,500
Return
Stock
$645,000
$540,000
$458,167
$392,000
$350,000
$
—
$370,400
$328,000
$271,167
$326,800
$266,000
$220,500
Total
Performance
Based
Incentive
Compensation
Percent of
Total
Compensation
$3,079,181
$2,045,164
$1,789,810
$1,871,409
$ 957,048
$
—
$1,768,218
$1,242,309
$1,059,350
$1,560,083
$1,007,444
$1,064,416
82.4%
78.8%
79.6%
76.3%
69.2%
—
82.2%
78.7%
79.6%
82.3%
79.0%
82.8%
(1)
(2)
Each executive officer has elected to take 100% of their salary and cash bonus in deferred stock with an 8-year cliff vesting.
Alignment of interest stock grants per the Amended and Restated Alignment of Interest Program which is part of the Company’s Incentive
Plan.
(3) Mr. Dupuy joined the Company on May 1, 2019.
Grants of Plan-Based Awards
The following table provides additional information relating to grants of plan-based awards made
to our named executive officers during 2020.
Name
Timothy G. Wallace . . . . . . . . .
David H. Dupuy . . . . . . . . . . . .
W. Page Barnes . . . . . . . . . . . . .
Leigh Ann Stach . . . . . . . . . . . .
Grant date
1/15/2020
8/6/2020
8/17/2020
1/15/2020
5/4/2020
8/6/2020
8/17/2020
1/15/2020
8/6/2020
8/17/2020
1/15/2020
8/6/2020
8/17/2020
All other stock awards:
Number of shares of stock (#)(1)
Grant date fair value
of stock awards
14,952
26,810
11,410
9,087
5,000
16,294
6,934
8,586
15,395
6,552
7,576
13,583
5,781
$ 663,121
$1,308,328
$ 544,828
$ 403,008
$ 182,850
$ 795,147
$ 331,099
$ 380,789
$ 751,276
$ 312,858
$ 335,996
$ 662,850
$ 276,043
(1) The table below shows the number of restricted shares of common stock awarded to the
named executive officers in 2020 pursuant to the 2014 Incentive Plan.
Name
Company
Match
Salary (#)
Company Match
Bonus (#)
1 Year Total
Shareholder Return
Stock (#)
3 Year Total
Shareholder
Return Stock (#)
CFO Grant (#)
Incentive Awards
Timothy G. Wallace .
.
David H. Dupuy .
.
W. Page Barnes
.
.
Leigh Ann Stach .
.
.
.
.
.
.
.
14,952
9,087
8,586
7,576
11,410
6,934
6,552
5,781
15,320
9,311
8,797
7,762
—
5,000
—
—
11,490
6,983
6,598
5,821
36
Total Stock
Awards
(#)
53,172
37,315
30,533
26,940
Outstanding Equity Awards at December 31, 2020
The following table sets forth all outstanding equity awards held by each of our named executive
officers at December 31, 2020.
Name
Timothy G. Wallace . . . . . . . . . . . . . . .
David H. Dupuy . . . . . . . . . . . . . . . . . .
W. Page Barnes . . . . . . . . . . . . . . . . . .
Leigh Ann Stach . . . . . . . . . . . . . . . . . .
Number of Shares or Units of Stock Market Value of Shares or Units of
Stock That Have Not Vested ($)(1)
That Have Not Vested (#)
238,004(2)
64,887(2)
136,082(2)
117,459(2)
$11,212,368
$ 3,056,827
$ 6,410,823
$ 5,533,493
(1) The market value of unvested restricted common stock is calculated by multiplying the number of
unvested shares of restricted common stock held by the applicable named executive officer by the
closing price of our common stock on December 31, 2020, which was $47.11.
(2) These shares of restricted common stock are subject to eight-year cliff vesting through 2028,
subject to continued employment with the Company on the vesting date.
Post-Employment Compensation
The tables below illustrate the compensation that would have been received by each of the named
executive officers assuming the officer had been terminated or had been eligible to retire and had
elected to retire on December 31, 2020, and that any additional conditions to vesting of restricted stock
awards under restricted stock award agreements had been met.
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Timothy G. Wallace
Chief Executive Officer and President
Voluntary
Termination
Not for Cause
Termination
Change-in
-Control
Death or
Disability
Retirement
Cash Severance Benefit(1) . . . . . .
Accelerated Vesting Of Restricted
Stock(3) . . . . . . . . . . . . . . . . . .
$ — $ 2,799,300
$ 2,799,300
$
— $
—
$ — $17,520,680
$17,520,680
$17,520,680
$17,520,680
Total Value of Payments . . . . . . . .
$ — $20,319,980
$20,319,980
$17,520,680
$17,520,680
David H. Dupuy
Executive Vice President and Chief Financial
Officer
Cash Severance Benefit(2) . . . . . .
Accelerated Vesting Of Restricted
Stock(3) . . . . . . . . . . . . . . . . . .
Voluntary
Termination
Not for Cause
Termination
Change-in-
Control
Death or
Disability
Retirement
$ — $
748,533
$ 1,532,533
$
— $
—
$ — $ 4,137,012
$ 4,137,012
$ 4,137,012
$ 4,137,012
Total Value of Payments . . . . . . . .
$ — $ 4,885,545
$ 5,669,545
$ 4,137,012
$ 4,137,012
W. Page Barnes
Former Executive Vice President and Chief
Operating Officer
Cash Severance Benefit(2) . . . . . .
Accelerated Vesting Of Restricted
Stock(3) . . . . . . . . . . . . . . . . . .
Voluntary
Termination
Not for Cause
Termination
Change-in-
Control
Death or
Disability
Retirement
$ — $
816,440
$ 1,557,240
$
— $
—
$ — $ 9,946,570
$ 9,946,570
$ 9,946,570
$ 9,946,570
Total Value of Payments . . . . . . . .
$ — $10,763,010
$11,503,810
$ 9,946,570
$ 9,946,570
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Leigh Ann Stach
Executive Vice President and Chief
Accounting Officer
Cash Severance Benefit(2) . . . . . .
Accelerated Vesting Of Restricted
Stock(3) . . . . . . . . . . . . . . . . . .
Voluntary
Termination
Not for Cause
Termination
Change-in-
Control
Death or
Disability
Retirement
$ — $
710,980
$ 1,364,580
$
— $
—
$ — $ 8,678,463
$ 8,678,463
$ 8,678,463
$ 8,678,463
Total Value of Payments . . . . . . . .
$ — $ 9,389,443
$10,043,043
$ 8,678,463
$ 8,678,463
(1) Represents the annual base salary at December 31, 2020 for a period of 36-months from the date
of such termination, payable in monthly installments.
(2) Represents the annual base salary at December 31, 2020 for a period of 12-months from the date
of such termination, payable in monthly installments.
(3) Based upon the closing price of a share of the Company’s Common Stock on the New York Stock
Exchange on December 31, 2020 of $47.11.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about shares of our common stock that may be issued under
our 2014 Incentive Plan as of December 31, 2020.
Plan Category
Equity compensation plans approved by
stockholders(1) . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved
by stockholders . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Securities
to be Issued Upon
Exercise of
Outstanding
Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in First Column)
—
—
—
—
—
—
595,098
185,158(2)
780,256
(1) Our 2014 Incentive Plan automatically increases, on an annual basis, the number of shares of
common stock available for issuance under the 2014 Incentive Plan to an amount equal to 7% of
the total number of shares of common stock outstanding on December 31 of the immediately
preceding year. These annual increases are required because of the level of restricted stock, versus
cash, we utilize in our compensation methodology and was approved by a vote of our shareholders
in 2017.
(2) These 185,158 shares are reserved under our 2014 Incentive Plan for purchase by our employees
and directors in exchange for the cash compensation. See ‘‘2014 Incentive Plan’’ beginning on
page 21.
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PROPOSAL 2
NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank
Act, enables the Company’s stockholders to vote to approve, on a non-binding advisory basis, the
compensation of the Company’s named executive officers as disclosed in this proxy statement in
accordance with the SEC’s rules.
As discussed in the Compensation Discussion and Analysis section of this proxy statement
beginning on page 17, the Company’s executive compensation policies are designed to align the
interests of the named executive officers with the interests of our shareholders, link executive
compensation to the Company’s overall performance, and attract, retain, and motivate our named
executive officers. The Board believes that its executive compensation programs have been effective at
appropriately aligning pay and Company performance, promoting the achievement of the long-term
positive results in its performance criteria, and enabling the Company to attract and retain talented
executives within its industry.
The Board is asking stockholders to indicate their support for the named executive officer
compensation described in this proxy statement. This proposal, commonly known as a ‘‘say-on-pay’’
proposal, gives stockholders the opportunity to express views on the Company’s executive compensation
for its named executive officers. This vote is not intended to address any specific item of compensation,
but rather the overall compensation of the Company’s named executive officers and the policies and
procedures described in this proxy statement. Accordingly, the Board asks stockholders to vote ‘‘FOR’’
the following resolution:
RESOLVED, that the stockholders of Community Healthcare Trust Incorporated approve, on a
non-binding advisory basis, the compensation of the named executive officers as disclosed pursuant to
Item 402 of Regulation S-K in the Company’s proxy statement for the 2021 annual meeting of
stockholders.
Although this is an advisory vote that will not be binding on the Compensation Committee or the
Board, the Board will carefully review the results of the vote. The Compensation Committee will also
carefully consider stockholders’ concerns when designing future executive compensation programs.
Required Vote
The affirmative vote of a majority of the shares represented at the meeting and entitled to vote is
required to approve, on an advisory basis, the say on pay vote. As an advisory vote, this proposal is not
binding upon us. However, the Compensation Committee of our Board of Directors, which is
responsible for designing and administering our executive compensation program, values the opinions
expressed by our stockholders and will consider the outcome of the vote when making future
compensation decisions.
Our Board of Directors unanimously recommends a vote ‘‘FOR’’ the resolution approving the
compensation of the Company’s named executive officers
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39
RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS FOR 2021
PROPOSAL 3
General
We are asking our stockholders to ratify the selection of BDO USA, LLP as our independent
registered public accountants for 2021. Although current law, rules and regulations, as well as the
charter of the Audit Committee, require the Audit Committee to engage, retain and supervise our
independent registered public accountants, we view the selection of the independent registered public
accountants as an important matter of stockholder concern and thus are submitting the selection of
BDO USA, LLP for ratification by stockholders as a matter of good corporate practice.
The Audit Committee appointed BDO USA, LLP to serve as our independent registered public
accountants for the 2020 fiscal year and has appointed BDO USA, LLP to serve as our independent
registered public accountants for the 2021 fiscal year. A representative of BDO USA, LLP is expected
to attend the annual meeting. If present, the representative will have the opportunity to make a
statement and will be available to respond to appropriate questions. BDO USA, LLP has served as our
independent registered public accountants since 2015.
Audit and Non-Audit Services
Fees related to services performed for us by BDO USA, LLP in fiscal years 2020 and 2019 are as
follows:
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$592,591
—
—
—
$726,430
19,066
—
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$592,591
$745,496
2020
2019
(1) Audit fees include fees and expenses associated with the audit of our financial statements,
the reviews of the financial statements in our quarterly reports on Form 10-Q, and
services provided in connection with registration statements and periodic reports filed
with the Securities and Exchange Commission. Audit fees for 2020 include fees associated
with registration statements totaling $94,011 and fees related to auditing our internal
control over financial reporting. Audit fees for 2019 include fees associated with
registration statements totaling $109,492 and fees related to auditing our internal control
over financial reporting.
(2) Audit-related fees for 2019 included fees associated with Rule 3-14 audits.
In accordance with the procedures set forth in its charter, the Audit Committee pre-approves all
auditing services and permitted non-audit and tax services (including the fees and terms of those
services) to be performed for us by our independent registered public accountants prior to their
engagement with respect to such services, subject to the de minimis exceptions for non-audit services
permitted by the Exchange Act, which are approved by the Audit Committee prior to the completion of
the audit.
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Required Vote
The affirmative vote by a majority of the votes cast at the annual meeting is required for the
ratification of the appointment of BDO USA, LLP as our independent registered public accountants.
Abstentions will have no effect on this proposal. If our stockholders fail to ratify this appointment, the
Audit Committee will reconsider whether to retain BDO USA, LLP and may retain that firm or
another firm without resubmitting the matter to our stockholders. Even if the appointment is ratified,
the Audit Committee may, in its discretion, direct the appointment of a different independent
registered public accountant at any time during the year if it determines that such change would be in
our best interests and in the best interests of our stockholders.
Our Board of Directors unanimously recommends a vote ‘‘FOR’’ the ratification of
BDO USA, LLP as our independent registered public accountants for 2021.
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REPORT OF THE AUDIT COMMITTEE
The information provided in this section 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 Exchange Act. 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 Exchange Act.
The Audit Committee oversees our financial reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the preparation, consistency and fair presentation of the
financial statements, the accounting and financial reporting process, the systems of internal control, and
the procedures designed to ensure compliance with accounting standards, applicable laws and
regulations. Management is also responsible for its assessment of the design and effectiveness of our
internal control over financial reporting. Our independent registered public accountants are responsible
for performing an audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States), or PCAOB, and expressing an opinion on the conformity of the financial
statements of the Company with U.S. generally accepted accounting principles and expressing an
opinion on the effectiveness of our internal controls over financial reporting. The internal auditors are
responsible to the Audit Committee and the Board of Directors for testing the integrity of the financial
accounting and reporting control systems and such other matters as the Audit Committee and the
Board of Directors determine.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with
management the audited financial statements of the Company for the year ended December 31, 2020
and management’s assessment of the design and effectiveness of our internal control over financial
reporting as of December 31, 2020. The discussion addressed the quality, and not just the acceptability,
of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures
in the financial statements.
The Audit Committee reviewed and discussed with the independent public accountants their
judgments as to the quality of our accounting principles and such other matters as are required to be
discussed with the committee under PCAOB auditing standards including, without limitation, the
matters required to be discussed by PCAOB Auditing Standard No. 1301. In addition, the Audit
Committee received the written disclosures and the letter from the independent registered public
accountants required by applicable requirements of the PCAOB regarding the independent registered
public accountants’ communications with the Audit Committee concerning independence, discussed
with the independent registered public accountants their independence from management and the
Company, and considered the compatibility of non-audit services with the auditors’ independence.
The Audit Committee discussed with our internal and independent registered public accountants
the overall scope and plans for their respective audits. The Audit Committee met with the internal and
independent registered public accountants, with and without management present, to discuss the results
of their examinations, their understanding of our internal controls, and the overall quality of our
financial reporting.
In reliance upon the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board has approved) that the audited financial
statements be included in our annual report to stockholders for filing with the SEC.
The members of the Audit Committee are not professionally engaged in the practice of auditing or
accounting and are not experts in the fields of accounting or auditing, including with respect to auditor
independence. Members of the Audit Committee rely without independent verification on the
information provided to them and on the representations made by management and the independent
registered public accounting firm. Accordingly, the Audit Committee’s oversight does not provide an
independent basis to determine that management has maintained appropriate accounting and financial
42
reporting principles, or appropriate internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s
considerations and discussions referred to above do not assure that the audit of the Company’s
financial statements has been carried out in accordance with the standards of the PCAOB, that the
financial statements are presented in accordance with generally accepted accounting principles or that
BDO USA, LLP is in fact ‘‘independent.’’
Audit Committee:
Robert Hensley (Chairman)
Alan Gardner
Claire Gulmi
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BENEFICIAL OWNERSHIP OF SHARES OF COMMON STOCK
Directors, Executive Officers and Other Stockholders
As of March 5, 2021, we had 34 stockholders of record. Except as otherwise stated in a footnote,
the following table presents certain information regarding the beneficial ownership of our common
stock as of March 5, 2021 by: (i) the persons known by us to own beneficially more than 5% of our
common stock; (ii) each of our directors, nominees for director and named executive officers; and
(iii) all of our directors, nominees for director, and executive officers as a group. Each person named
in the table has sole voting and investment power with respect to all of the common stock shown as
beneficially owned by such person, except as otherwise set forth in the notes to the table.
The SEC has defined ‘‘beneficial ownership’’ of a security to mean the possession, directly or
indirectly, of voting power and/or investment power over such security. A stockholder is also deemed to
be, as of any date, the beneficial owner of all securities that such stockholder has the right to acquire
within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the
conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement
or (4) the automatic termination of a trust, discretionary account or similar arrangement. In computing
the number of shares beneficially owned by a person and the percentage ownership of that person, our
common stock subject to options or other rights (as set forth above) held by that person that are
currently exercisable or will become exercisable within 60 days thereafter, are deemed outstanding,
while such shares are not deemed outstanding for purposes of computing percentage ownership of any
other person.
Unless otherwise indicated, the business address of all the individuals and entities is c/o
Community Healthcare Trust Incorporated, 3326 Aspen Grove Drive, Suite 150, Franklin,
Tennessee 37067. No common stock beneficially owned by any director or named executive officer has
been pledged as security for a loan.
Name of Beneficial Owner
5% Stockholders
Number of Shares
Beneficially
Owned (#)
Percentage of
All Shares
(%)(1)
BlackRock, Inc.
The Vanguard Group, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,259,397(2)
2,493,684(3)
17.7%
10.4%
Directors
Alan Gardner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claire Gulmi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert Hensley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence Van Horn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Named Executive Officers
Timothy G. Wallace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David H.Dupuy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
W. Page Barnes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leigh Ann Stach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Directors and Executive Officers as a Group (8 persons total) . . . . .
35,087
13,917
41,862
23,745
842,847
107,726
236,135
200,993
1,502,312
*
*
*
*
3.5%
*
*
*
6.3%
*
Less than 1% of the outstanding shares of common stock.
(1) Based on 24,036,213 shares of common stock outstanding on March 5, 2021.
(2) Based on a Schedule 13G filed with the SEC on January 25, 2021, BlackRock, Inc. has sole voting
power with respect to 4,208,989 shares of common stock and sole dispositive power with respect to
4,259,397 shares of common stock. A subsidiary of BlackRock, Inc., BlackRock Fund Advisors,
44
beneficially owns 5% or greater of the outstanding shares of common stock reported on
BlackRock’s Schedule 13G. BlackRock, Inc. is located at 55 East 52nd Street, New York, New
York 10055.
(3) Based on a Schedule 13G/A filed with the SEC on February 10, 2021, The Vanguard Group, Inc.
has shared voting power with respect to 99,302 shares of common stock, sole dispositive power
with respect to 2,378,258 shares of common stock and shared dispositive power with respect to
115,426 shares of common stock. The VanGuard Group, Inc. is located at 100 Vanguard
Boulevard, Malvern, PA 19355.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Related Person Transactions
Our Audit Committee has adopted a written policy governing the approval of related party
transactions that complies with all applicable requirements of the SEC and the NYSE concerning
related party transactions. Under our policy, a related party transaction is a transaction between the
Company and a related party (including any transaction requiring disclosure under Item 404 of
Regulation S-K under the Exchange Act), other than transactions available to all employees generally
or involving less than $5,000 when aggregated with similar transactions. ‘‘Related parties’’ include (i) an
officer or director of the Company, (ii) a person who is an immediate family member of an officer or
director; (iii) an entity which is owned or controlled by an officer or director or an immediate family
member of an officer or director, or an entity in which an officer or director or an immediate family
member of an officer or director is deemed to have a substantial ownership interest or control of such
entity by virtue of such person owning more than 20% of such entity; and (iv) any person known to be
the beneficial owner of more than 5% of any class of the Company’s voting securities. Members of an
officer’s or director’s immediate family include such officer’s or director’s spouse, child, stepchild,
parent, stepparent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law and any other person sharing the household of such officer or director. For purposes of
this policy, officers are defined as ‘‘executive officers’’ under applicable guidelines of the SEC.
Additionally, a ‘‘Related Party’’ may be a person or entity that proposes to enter into a transaction with
the Company if the Audit Committee finds that such transaction would require disclosure under
Item 404 of Regulation S-K.
Our related party transaction policy is administered by our Audit Committee. At each fiscal year’s
first regularly-scheduled Audit Committee meeting, management or the Corporate Governance
Committee, as applicable, will provide the Audit Committee with detailed information concerning all
related party transactions, if any, then known by management to be entered into or to be continued by
the Company for the fiscal year. Under the related party transactions policy, there is a general
presumption that a related party transaction with the Company will not be approved by the Audit
Committee. However, the Audit Committee may approve a related party transaction if: (i) the Audit
Committee finds that the transaction is on terms comparable to those that could be obtained in arm’s
length dealings with an unrelated third party; and (ii) the Audit Committee finds that it has been fully
apprised of all significant conflicts that may exist or otherwise arise on account of the transaction, and
it believes, nonetheless, that the Company is warranted entering into the related party transaction and
has developed an appropriate plan to manage the potential conflicts of interest. The Audit Committee
will consider each proposed related party transaction and may approve the Company’s entering into or
continuing such related party transaction if the transaction satisfies the guidelines set forth above.
Related Party Transactions
Pursuant to its authority and based on discussions with management and BDO USA, LLP, the
Audit Committee has determined that there have been no related party transactions requiring
disclosure under Item 404(a) of Regulation S-K.
Legal Proceedings
We are not aware of any current legal proceedings involving any of our directors, director
nominees, or executive officers and either the Company or any of its subsidiaries.
46
STOCKHOLDER PROPOSALS FOR THE 2022 ANNUAL MEETING
At the annual meeting each year, the Board of Directors submits to stockholders its nominees for
election as directors. In addition, the Board may submit other matters to the stockholders for action at
the annual meeting. Stockholders may also submit proposals for action at the annual meeting.
Stockholders interested in submitting a proposal for inclusion in our proxy materials for the 2022
annual meeting of stockholders may do so by following the procedures described in Rule 14a-8 of the
Exchange Act. If the 2021 annual meeting is held within 30 days of May 6, 2021, stockholder proposals
must be received by Timothy Wallace at 3326 Aspen Grove Drive, Suite 150, Franklin, Tennessee,
37067, no later than 5:00 p.m., Eastern Time on November 24, 2021 in order for such proposals to be
considered for inclusion in the proxy statement and form of proxy relating to such annual meeting.
Any stockholder proposals (including recommendations of nominees for election to the Board of
Directors) intended to be presented at the Company’s 2022 annual meeting of stockholders, other than
a stockholder proposal submitted pursuant to Exchange Act Rule 14a-8, must be received in writing at
our principal executive offices no earlier than on October 25, 2021, nor later than 5:00 p.m., Eastern
Time, on November 24, 2021, together with all supporting documentation required by our Bylaws. For
more complete information on these requirements, please refer to our Bylaws.
OTHER MATTERS
As of the date of this proxy statement, management does not know of any other matters to be
brought before the annual meeting other than those set forth herein. However, if any other matters are
properly brought before the annual meeting, the persons named in the enclosed form of proxy will have
discretionary authority to vote all proxies with respect to such matters in accordance with their best
judgment.
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REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO
THE COMPANY. PLEASE SUBMIT A PROXY BY INTERNET OR, IF YOU REQUEST WRITTEN
PROXY MATERIALS BY RETURNING A COMPLETED, SIGNED AND DATED PROXY CARD OR
VOTING INSTRUCTION FORM.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
Upon written request of any record holder or beneficial owner of shares entitled to vote at the
annual meeting, we will provide, without charge, a copy of our Annual Report on Form 10-K. Requests
should be mailed to David H. Dupuy, Corporate Secretary, 3326 Aspen Grove Drive, Suite 150,
Franklin, Tennessee 37067. You may also access our Annual Report on Form 10-K on the investor
relations webpage of our Internet website, http://investors.chct.reit.
By Order of the Board of Directors,
26MAR201820461048
Timothy Wallace
Chairman of the Board
March 24, 2021
47
APPENDIX A—RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Funds from operations, (‘‘FFO’’), as defined by NAREIT, and adjusted funds from operations
(‘‘AFFO’’), are important non-GAAP supplemental measures of operating performance for a REIT.
Because the historical cost accounting convention used for real estate assets requires straight-line
depreciation except on land, such accounting presentation implies that the value of real estate assets
diminishes predictably over time. However, since real estate values have historically risen or fallen with
market and other conditions, presentations of operating results for a REIT that uses historical cost
accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental
measure of operating performance for REITs that excludes historical cost depreciation and
amortization, among other items, from net income, as defined by GAAP.
NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s
operating performance equal to net income (computed in accordance with GAAP), excluding gains (or
losses) from sales of property and impairments of real estate, plus depreciation and amortization
related to real estate properties, and after adjustments for unconsolidated partnerships and joint
ventures. NAREIT also provides REITs with an option to exclude gains, losses and impairments of
assets that are incidental to the main business of the REIT from the calculation of FFO.
The Company’s AFFO is defined as FFO, excluding non-cash income and expenses, such as
amortization of stock-based compensation, the effects of straight-line rent, and others. The Company
considers AFFO to be a useful supplemental measure to evaluate the Company’s operating results
excluding these income and expense items to help investors, analysts and other interested parties
compare the operating performance of the Company between periods or as compared to other
companies on a more consistent basis.
Management believes that net income, as defined by GAAP, is the most appropriate earnings
measurement. However, management believes FFO and FFO per share to be supplemental measures of
a REIT’s performance because they provide an understanding of the operating performance of the
Company’s properties without giving effect to certain significant non-cash items, primarily depreciation
and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP
assumes that the value of real estate assets diminishes predictably over time. However, real estate
values instead have historically risen or fallen with market conditions.
The Company believes that by excluding the effect of depreciation, amortization, gains or losses
from sales of real estate, impairment of real estate, and gains, losses and impairment of incidental
assets, straight-line rent and amortization of stock-based compensation, all of which are based on
historical costs and which may be of limited relevance in evaluating current performance, FFO and
AFFO can facilitate comparisons of operating performance between periods. The Company reports
FFO and AFFO per share because these measures are observed by management to be some of the
predominant measures used by the REIT industry and by industry analysts to evaluate REITs and
because FFO per share, as defined by NAREIT, is consistently reported, discussed, and compared by
research analysts in their notes and publications about REITs. For these reasons, management has
deemed it appropriate to disclose and discuss FFO and AFFO per share. However, neither FFO or
AFFO represents cash generated from operating activities determined in accordance with GAAP and
are not necessarily indicative of cash available to fund cash needs. FFO and AFFO should not be
considered alternatives to net income attributable to common stockholders or as indicators of the
Company’s operating performance or as alternatives to cash flow from operating activities as measures
of liquidity. The table below reconciles net income to FFO and AFFO.
48
COMMUNITY HEALTHCARE TRUST INCORPORATED
RECONCILIATION OF FFO and AFFO
(Unaudited; Amounts in thousands, except per share amounts)
Year Ended
December 31,
2020
2019
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate depreciation and amortization . . . . . . . . . . . . . . .
Income tax expense(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . .
$19,077
25,615
—
313
$ 8,376
22,377
1,321
—
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,928
23,698
Funds from Operations (FFO) . . . . . . . . . . . . . . . . . . . . . . . . .
Straight-line rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Funds from Operations (AFFO) . . . . . . . . . . . . . . . . .
$45,005
(3,211)
4,767
$46,561
$32,074
(2,052)
3,844
$33,866
FFO per Common Share-Diluted . . . . . . . . . . . . . . . . . . . . . .
AFFO Per Common Share-Diluted . . . . . . . . . . . . . . . . . . . . .
$
$
2.03
2.10
$
$
1.67
1.77
Weighted Average Common Shares Outstanding-Diluted(2) . . . .
22,179
19,164
(1) In 2018, the Company recorded an impairment related to a note and recorded a related
tax benefit and deferred tax asset. This deferred asset was impaired in 2019 and the tax
benefit was reversed resulting in tax expense of $1.3 million. The Company believes that
the note was incidental to the main operations of the Company. As such, the Company
excluded the impairment of the note and the related tax impact from its calculation of
FFO.
(2) Diluted weighted average common shares outstanding for FFO are calculated based on
the treasury method, rather than the 2-class method used to calculate earnings per share.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number: 001-37401
Community Healthcare Trust Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
46-5212033
(I.R.S. Employer
Identification No.)
3326 Aspen Grove Drive
Suite 150
Franklin, Tennessee 37067
(Address of Principal Executive Offices) (Zip Code)
(615) 771-3052
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common stock, $0.01 par value per share
Trading Symbol(s) Name of Each Exchange on Which Registered
CHCT
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
__________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
The aggregate market value of the shares of common stock (based upon the closing price of these shares on the New
York Stock Exchange, Inc. on June 30, 2020) of the Registrant held by non-affiliates (for purposes of this calculation, all of
the Registrant's directors and executive officers are deemed affiliates of the Registrant) on June 30, 2020 was approximately
$876.3 million.
The Registrant had 24,011,013 shares of common stock, $0.01 par value per share, outstanding as of February 10, 2021.
________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Report. The Registrant expects to file its Definitive Proxy Statement with the
Securities and Exchange Commission within 120 days after December 31, 2020.
2
COMMUNITY HEALTHCARE TRUST INCORPORATED
FORM 10-K
December 31, 2020
TABLE OF CONTENTS
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Part IV
Item 15.
Exhibit and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Page
6
15
44
44
44
44
45
46
46
58
60
92
92
95
96
96
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100
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We make statements in this Annual Report on Form 10-K that are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)). All statements other than statements of historical facts may be forward-looking statements. In
particular, statements pertaining to our capital resources, property performance and results of operations contain
forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from
operations and anticipated market conditions, demographics and results of operations are forward-looking
statements. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “assumes,” “projects,”
“forecast,” “goal” or similar expressions or their negatives, as well as statements in future tense, we intend to
identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy,
plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as
predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be
incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events
described will happen as described (or that they will happen at all). The following factors, among others, could
cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking
statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the continued financial and operational impacts of and uncertainties relating to the COVID-19
pandemic on Community Healthcare Trust Incorporated and our tenants and other parties;
defaults on or non-renewal of leases by tenants;
adverse economic or real estate developments, either nationally or in the markets in which our
properties are located;
decreased rental rates or increased vacancy rates;
difficulties in identifying healthcare properties to acquire and completing acquisitions;
our ability to make distributions on our shares of stock;
our dependence upon key personnel whose continued service is not guaranteed;
our ability to identify, hire and retain highly qualified personnel in the future;
the degree and nature of our competition;
general economic conditions;
the availability, terms and deployment of debt and equity capital;
general volatility of the market price of our common stock;
changes in our business or strategy;
changes in governmental regulations, tax rates and similar matters;
new laws or regulations or changes in existing laws and regulations that may adversely affect the
healthcare industry;
4
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
trends or developments in the healthcare industry that may adversely affect our tenants;
competition for acquisition opportunities;
our failure to successfully develop, integrate and operate acquired properties and operations;
our ability to operate as a public company;
changes in accounting principles generally accepted in the United States of America (“GAAP”);
our failure to generate sufficient cash flows to service our outstanding indebtedness;
fluctuations in interest rates and increased operating costs;
our increased vulnerability economically due to the concentration of our investments in healthcare
properties;
a substantial portion of our revenue is derived from our largest tenants and thus, the bankruptcy,
insolvency or weakened financial position of any one of them could seriously harm our operating
results and financial condition;
geographic concentrations in Illinois, Texas, and Ohio cause us to be particularly exposed to
downturns in these local economies or other changes in local real estate market conditions;
lack of or insufficient amounts of insurance;
other factors affecting the real estate industry generally;
our failure to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal
income tax purposes;
limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain
our status as a REIT for U.S. federal income tax purposes; and
changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and
increases in real property tax rates and taxation of REITs.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. You
should not place undue reliance on any forward-looking statements, which speak only as of the date of this report.
We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in
underlying assumptions or factors, of new information, data or methods, future events or other changes after the date
of this Annual Report on Form 10-K, except as required by applicable law. For a further discussion of these and
other factors that could impact our future results, performance or transactions, see “Part I, Item 1A. Risk Factors."
Unless the context otherwise requires or indicates, references above or in this report to "we," "us," "our," "the
Company," "our Company," and "Community Healthcare Trust" refer to Community Healthcare Trust Incorporated,
a Maryland corporation organized to qualify as a REIT for U.S. federal income tax purposes, together with its
consolidated subsidiaries, including Community Healthcare OP, LP, a Delaware limited partnership, or our
"operating partnership" or our "OP," of which we are the sole general partner and own 100% of its interests.
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ITEM 1. BUSINESS
PART I.
We are a fully-integrated healthcare real estate company organized as a corporation in the State of Maryland on
March 28, 2014. We own and acquire real estate properties that are leased to hospitals, doctors, healthcare systems
or other healthcare service providers.
COVID-19 Pandemic
During 2020, the world was, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic.
COVID-19 and measures to prevent its spread impacted many healthcare providers, including some of our tenants.
Some of them are not seeing patients, others have seen a reduced number of elective procedures and/or patient visits,
while others have experienced limited impact, or have even seen improved cash flows from either increases in
census or from government funding.
As a result of the pandemic, the Company entered into deferral agreements with eighteen tenants. These represented
less than one percent of our annualized rent in the aggregate. Sixteen of these agreements required the tenants to
repay the deferred amounts during the last half of 2020, while two of the agreements extended repayment beyond
the end of 2020. The Company has remaining payments due under these agreements of less than $100,000 as of
December 31, 2020.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be
dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently
unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental
actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters
going forward. The reopening or closure of our tenants' businesses is dependent on applicable government
requirements, which vary by location, and are subject to ongoing changes, which could result from increasing
COVID-19 cases.
Real Estate Investments
As of December 31, 2020, we had investments of approximately $738.8 million in 141 real estate properties
(including a portion of one property accounted for as a financing lease included in Other Assets). The properties are
located in 33 states, totaling approximately 3.1 million square feet in the aggregate and were approximately 88.8%
leased at December 31, 2020 with a weighted average remaining lease term of approximately 8.1 years. The
Company's real estate investments by geographic area, and customer are detailed in Note 2 to the Consolidated
Financial Statements. The Company's investments are also diversified by property type as shown in the following
table:
Medical Office Building (MOB)
Acute Inpatient Behavioral (AIB)
Specialty Centers (SC)
Inpatient Rehabilitation Facilities (IRF)
Physician Clinics (PC)
Surgical Centers and Hospitals (SCH)
Behavioral Specialty Facilities (BSF)
Long-term Acute Care Hospitals (LTACH)
Total real estate investments
6
Number of
Properties
Annualized
Rent (%)
55
5
34
4
26
10
6
1
30.4 %
19.3 %
15.3 %
13.4 %
10.1 %
6.1 %
3.3 %
2.1 %
141
100.0 %
Our investments in healthcare real estate are considered a single reportable segment as further discussed in Note 1 of
Item 8 in this Annual Report on Form 10-K setting forth the required financial information.
Customer Concentrations
The Company's real estate portfolio is leased to a diverse tenant base. For the year ended December 31, 2020, none
of our tenants individually accounted for more than 10% of our consolidated revenues. See Note 2 to the
Consolidated Financial Statements for more details. We have no control over the success or failure of our tenants'
businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its
financial condition.
Geographic Concentrations
The Company's portfolio is currently located in 33 states with 37.9% of our consolidated revenues for the year ended
December 31, 2020 derived from properties located in Illinois (15.4%), Texas (14.2%), and Ohio (8.3%). Such
geographic concentrations could expose the Company to certain downturns in the economics of those states or other
changes in such states' respective real estate market conditions. Any material change in the current payment
programs or regulatory, economic, environmental or competitive conditions in any of these areas could have an
effect on our overall business results. In the event of negative economic or other changes in any of these markets,
our business, financial condition and results of operations, our ability to make distributions to our shareholders and
the trading price of our common shares may be adversely affected. 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 Illinois, Texas, and Ohio, and changes in
these markets may materially adversely affect us."
2020 Real Estate Investments
During the year ended December 31, 2020, the Company acquired 23 real estate properties and 2 land parcels as
detailed in Note 4 to the Consolidated Financial Statements. Upon acquisition, the properties were 99.5% leased in
the aggregate with lease expirations through 2039.
Human Capital Resource Management
As of December 31, 2020, we employed 28 full-time 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.
The success of our employees drives the success of the business and supports our goal of long-term value creation
for our shareholders. We offer competitive benefits and training programs to develop employees’ expertise and
skillsets, use training, communication, appropriate investments and clear corporate policies to strive to provide a
safe, harassment-free work environment guided by principles of fair and equal treatment, and prioritize employee
engagement. As a result, we believe our employees are committed to building strong, innovative and long-term
relationships with each other and with our tenants.
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Compensation of our board and management team is structured to closely align their interest with those of our
stockholders. 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. Also, all of our employees are
shareholders in the Company, further aligning their interest with those of our stockholders.
7
Since our IPO in May 2015, we have had a stable workforce with an average tenure of 3.0 years and voluntary
employee turnover of approximately 3% during the year ended December 31, 2020. At December 31, 2020, 29% of
our employees, 22% of our management team, and 20% of our board of directors were female.
COVID-19 Health and Safety
As a result of the COVID-19 pandemic, we have put into place a number of health and safety measures to enable our
employees to work in a safe environment. Beginning in March 2020 through June 2020, we adopted a work-from-
home approach for our non-management employees, without significant impact to productivity. We implemented a
COVID-19 policy and require social distancing to the extent possible in accordance with the Centers for Disease
Control and Prevention (“CDC”) and local health agency guidelines. At the corporate office we provide cleaning
supplies and facial coverings to all employees and visitors to help reduce the potential for disease transmission.
Throughout the corporate office, we also installed Global Plasma Solutions, Inc. needlepoint bipolar ionization
technology to remove pathogens such as mold, viruses (including COVID-19), and bacteria. We have reduced all
travel and carry-out necessary travel without the use of public transportation to the extent possible. Refer to the
discussion in Item 7. Management’s Discussion and Analysis for further information related to the impact of the
pandemic on our business.
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. Our focus is on investing in properties where we can develop strategic
alliances with financially sound healthcare providers that offer need-based healthcare services in our target
markets. Our tenant base includes many nationally recognized healthcare providers (or their affiliates) and
our property portfolio has significant diversification with respect to healthcare provider, industry segment,
and facility type.
Attractive and Disciplined Investment Focus. We focus on healthcare facilities in our target submarkets
which are off-market or lightly marketed transactions at purchase prices generally between $5 million and
$30 million. We believe there is significantly less competition from existing REITs and institutional buyers
for assets in these target submarkets than for comparable urban assets, thereby increasing the potential for
more attractive risk-adjusted returns. 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. 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. 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. 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. Each of the members of our executive management team has over 25
years of healthcare, real estate and/or public REIT management experience. Led by Timothy G. Wallace,
our Chairman, Chief Executive Officer and President, David, H. Dupuy, our Executive Vice President and
8
Chief Financial Officer, and Leigh Ann Stach, our Executive Vice President and Chief Accounting Officer,
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). 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. Dupuy
was a Managing Director at SunTrust Robinson Humphrey 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 REIT accounting and financial reporting.
•
•
Growth Oriented Capital Structure. At December 31, 2020, we had $33.0 million outstanding on our
revolving credit facility and had $175.0 million outstanding on our term loans under our second amended
and restated Credit Agreement, as amended (collectively, our "Credit Facility") with a 28.5% debt-to-total
capitalization ratio (debt plus stockholders' equity plus accumulated depreciation). In the future, in addition
to equity and debt issuances, we may also use OP units of our operating partnership as currency to acquire
additional properties from owners seeking to defer their potential taxable gain and diversify their holdings.
We believe that the borrowing capacity under our Credit Facility, combined with our ability to use OP units
as acquisition currency, provides us with significant financial flexibility to make opportunistic investments
and fund future growth.
Significant Alignment of Interests. 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. Dupuy, who
joined the Company during 2019, has elected to receive 100% of his total compensation in restricted stock
since joining the Company. The Company's board of directors have elected to take 89% of their total
compensation in restricted stock since the Company's IPO, subject to a three-year cliff-vesting period. 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. In addition, concurrently with the
completion of our IPO in May 2015 and our follow-on offering in 2016, Mr. Wallace purchased over $2.6
million in shares of our common stock and certain of our officers 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. 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. Finally, each executive
officer and director has met stock ownership guidelines that require our executive officers and directors 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.
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. Our primary
strategies to achieve our business objective are to invest in, own and proactively manage a diversified portfolio of
healthcare properties, which we believe will drive reliable, increasing rental revenue and cash flow.
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Growth Strategy
We intend to continue to grow our portfolio of healthcare properties primarily through acquisitions of healthcare
facilities in our target submarkets that provide stable revenue growth and predictable long-term cash flows. We
generally focus on individual acquisition opportunities between $5 million and $30 million in off-market or lightly
marketed transactions and do not intend to participate in competitive bidding or auctions of properties. We believe
9
that there are abundant opportunities to acquire attractive healthcare properties in our target markets either from
third-party owners of existing healthcare facilities or directly with healthcare providers through sale-leaseback
transactions. We believe there is significantly less competition from existing REITs and institutional buyers for
assets in these target submarkets than for comparable urban assets, thereby increasing the potential for attractive
risk-adjusted returns. Furthermore, we may acquire healthcare properties on a non-cash basis in a tax efficient
manner through the issuance of OP units as consideration for the transaction.
We intend for our investment portfolio to be diversified among healthcare facility type and segments such as
medical office buildings, physician clinics, surgical centers and hospitals, specialty centers, behavioral facilities,
inpatient rehabilitation facilities and long-term acute care hospitals, as well as being diverse both geographically and
with respect to our tenant base. We seek to invest in properties where we can develop strategic alliances with
financially-sound healthcare providers that offer need-based healthcare services in our target markets.
In connection with our review and consideration of healthcare real estate acquisition opportunities, we generally take
into account a variety of considerations, including but not limited to:
•
•
•
•
•
•
•
•
•
•
whether the property will be leased to a financially-sound healthcare tenant;
the historical performance of the market and its future prospects;
property location, with an emphasis on proximity to a population base;
demand for healthcare related services and facilities;
current and future supply of competing properties;
occupancy and rental rates in the market;
population density and growth potential;
anticipated capital expenditures;
anticipated future acquisition opportunities; and
existing and potential competition from other healthcare real estate owners and tenants.
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.
We operate so as to maintain our status as a REIT for federal income tax purposes. As a REIT, we are not subject to
corporate federal income tax with respect to taxable income distributed to our stockholders. We have also elected
one subsidiary to be treated as a taxable REIT subsidiary ("TRS"), which is subject to federal and state income taxes.
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, 2021. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, through actual
investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as
amended, or the Code, relating to, among other things, the sources of our gross income, the composition and values
of our assets, our distribution levels and the diversity of ownership of our capital stock. 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, 2021.
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As a REIT, we generally will not be subject to U.S. federal income tax on our taxable income that we distribute
currently to our stockholders. Under the Code, REITs are subject to numerous organizational and operational
requirements, including a requirement that they distribute on an annual basis at least 90% of their REIT taxable
income, determined without regard to the deduction for dividends paid and excluding any net capital gains. If we fail
to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our
income for that year will be subject to tax at regular corporate income tax rates, and we would be disqualified from
taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. Even
if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to state and local taxes on our
income and assets and to U.S. federal income and excise taxes on our undistributed income. Additionally, any
income earned by Community Healthcare Trust Services, Inc., our TRS, and any other TRSs that we form or acquire
in the future will be fully subject to U.S. federal, state and local corporate income tax. 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”) and Note 14 to the
Consolidated Financial Statements for a discussion of the 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.
Government Regulation
Our healthcare tenants and their operators are subject to extensive federal, state and local government legislation and
regulation. Federal laws, including but not limited to the Affordable Care Act; laws intended to combat fraud and
waste such as the Anti-Kickback Statute, Stark Physician Self-Referral Law, False Claims Act; Medicare and
Medicaid laws and regulations; and the Health Insurance Portability and Accountability Act of 1996 may limit our
tenants operational flexibility and compensation arrangements. Many states have analogous laws which may be
broader than their federal counterparts, including state licensure laws, fraud and abuse laws, privacy rules, and
Medicaid requirements. Compliance with these regulatory requirements can increase operating costs and, thereby,
adversely affect the financial viability of our tenants’ businesses. Our tenants’ failure to comply with these laws and
regulations could adversely affect their ability to successfully operate our properties, which could negatively impact
their ability to satisfy their contractual obligations to us. As a landlord, we intend for all of our business activities
and operations to conform in all material respects with all applicable laws and regulations, including healthcare laws
and regulations. Our leases require the tenants and operators to comply with all applicable laws, including healthcare
laws. However, we do not have any ability to audit nor do we independently verify such information.
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. In addition, expansion (including the addition of new beds or services or
the acquisition of medical equipment) and occasionally the discontinuation of services of healthcare facilities may be
subject to state regulatory approval through certificate of need programs. This may impact the ability of our tenants
to expand their businesses. Different tenants may be more or less subject to certain types of regulation, some of
which are specific to the type of facility or provider. We cannot predict the degree to which these changes, or
changes to the federal healthcare programs in general, may affect the economic performance of some or all of our
tenants, positively or negatively. We expect healthcare providers to continue to adjust to new operating and
reimbursement challenges, as they have in the past, by increasing operating efficiency and modifying their strategies
to profitably grow operations.
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There are various state and federal laws that may apply to investors including U.S. federal and state anti-kickback
and fee-splitting statutes, which limit physician referrals to entities in which the physician has a financial
relationship. States vary in the types of entities, if any, that their laws cover. Investment interests in those facilities
may, in certain instances, prohibit referrals to the entity by physician investors. Physician investors may also face
disciplinary action from licensure boards for referrals to entities in which the physician has an investment interest.
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Some states require disclosure of the financial relationship before referral by any physician investors, while others
prohibit referrals entirely. These state laws and regulations may be broader than their federal counterparts and are
the subject of state enforcement. Many state laws contain exemptions for investments in publicly traded companies
provided certain requirements are met. These exemption requirements may include listing on a national stock
exchange or maintaining a minimum asset value. Meeting some of these requirements may be dependent on market
forces or otherwise outside our control.
Changes in laws and regulations, reimbursement enforcement activity and regulatory non-compliance by our tenants
and operators can all have a significant effect on their operations and financial condition, which in turn may
adversely impact us, as detailed below and set forth under Item 1A, “Risk Factors,” under the caption “The
healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations,
changes to reimbursement models or structure, loss of licensure or failure to obtain licensure could adversely impact
our company and result in the inability of our tenants to make rent payments to us.” We highlight below several of
the more complex laws; however, this is an overview, as the complexities of the laws impacting tenants are varied
and extensive.
The Affordable Care Act has continued to change how healthcare services are covered, delivered and reimbursed.
The Affordable Care Act includes payment reform provisions intended to drive Medicare towards more value-based
purchasing which, in turn, increases accountability for healthcare providers for the quality and costs of the
healthcare services they provide. While more individuals now carry healthcare coverage as a result of the Affordable
Care Act, the full effects of the changes to reimbursement models for both public and commercial coverage continue
to evolve. Each kind of healthcare provider tenant has a different and complex set of laws related to reimbursement
and reimbursement models, which may affect the tenant’s ability to collect revenues and meet the terms of their
leases. Such varying reimbursement models and laws impact each kind of provider as well as the healthcare system
as a whole. For example, for physicians, the Centers for Medicare and Medicaid Services issues annual updates to
the physician fee schedule that can have a material impact (either positive or negative) on the amount of
reimbursement that physicians earn; for ambulatory surgery centers, the Affordable Care Act introduced provisions
that reduce the annual inflation update for payment rates by a “productivity adjustment,” which may result in a
decrease in Medicare payment rates for the same procedures in a given year compared to the prior year. Other
changes brought about by the Affordable Care Act could negatively impact reimbursement for any one of the kind of
provider tenants as outlined below.
The Affordable Care Act also altered reimbursement from private insurers and managed care organizations.
Networks continue to readjust, and all providers must ensure adequate market share in their respective areas to
remain in the network created by many of the managed care organizations. 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
2019. The Trump Administration has also loosened rules to allow greater flexibility among insurers in the benefits
offered, both lowering the costs of some plans but also limiting the coverage such plans offer. It is unclear at this
time if increased competition from low-cost plans will damage the Marketplace, and how these changes will affect
coverage rates in any particular state or locale. While the Trump Administration had decreased its focus on repealing
the Affordable Care Act, a December 2018 federal court ruled the law unconstitutional. This decision was being
appealed to the U.S. 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. A decision is expected by June 2021. There is continued uncertainty with respect to the impact the federal
judiciary may have on the Affordable Care Act, and it could impact coverage and reimbursement for healthcare
items and services covered by plans that were authorized by the Affordable Care Act. Through Executive Orders
issued January 28, 2021, the Biden Administration signaled its strong support for the Affordable Care Act by taking
steps to reverse various actions by the Trump Administration and to strengthen Medicaid and the Affordable Care
Act. However, we cannot predict time and effect on us and/or our tenants of the ultimate decision by the Supreme
Court or future action by the Biden Administration and/or Congress with respect to the Affordable Care Act and
other aspects of the healthcare system.
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Section 603 of the Bipartisan Budget Act of 2015 lowered Medicare 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. Section 603 does not apply to facilities that billed at the lower Medicare rates on or before November 2,
2015 (the "grandfather clause") or that had a binding written agreement in place for the construction of the off-
campus site before November 2, 2015 (the "mid-build exemption"). Section 603 reflects movement by the Congress
and the Center for Medicare and Medicaid Services ("CMS") toward “site-neutral reimbursement” where Medicare
rates across different facility-type settings are equalized. CMS implemented these changes beginning January 1,
2017. Beginning January 1, 2019, CMS also implemented site neutral changes in Medicare reimbursement for clinic
visits provided in off-campus locations that were previously exempted from payment reductions. While such site
neutral changes are expected to lower overall Medicare spending, our medical office buildings located on hospital
campuses could become more valuable as hospital tenants keep their higher Medicare rates for on-campus outpatient
services. However, other laws may limit the extent to which higher rents may be charged based on proximity to a
hospital. Ultimately, we cannot predict the amount of benefit from these measures or if future legislation will
ultimately require similar site neutral changes in Medicare reimbursement rates for services provided in other
facility-type settings.
Legislative Developments
Each year, legislative proposals for health policy are introduced in Congress and state legislatures, and regulatory
changes are enacted by government agencies. These proposals, individually or in the aggregate, could significantly
change the delivery of healthcare services, either nationally or at the state level, if implemented. Examples of
significant legislation currently under consideration, recently enacted or in the process of implementation, include:
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the Affordable Care Act and proposed amendments and any further repeal measures and related actions at
the federal and state level;
the repeal of a portion of the Affordable Care Act (effective in 2019) for the mandate that all individuals
purchase health insurance or pay a tax penalty;
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);
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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;
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;
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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.
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
affect our results of operations.”
Competition
We compete with many other entities engaged in real estate investment activities for acquisitions of healthcare
properties, including national, regional and local operators, acquirers and developers of healthcare-related real estate
properties. The competition for healthcare-related real estate properties may significantly increase the price that we
must pay for healthcare properties or other assets that we seek to acquire, and our competitors may succeed in
acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our
competitors to be more attractive because they may have greater resources, may be willing to pay more for the
properties or may have a more compatible operating philosophy. In particular, larger REITs that target healthcare
properties may enjoy significant competitive advantages that result from, among other things, a lower cost of capital,
enhanced operating efficiencies, more personnel and market penetration and familiarity with markets. In addition,
the number of entities and the amount of funds competing for suitable investment properties may increase. Increased
competition would result in increased demand for the same assets and therefore increase prices paid for them. Those
higher prices for healthcare properties or other assets may adversely affect our returns from our investments.
Insurance
We carry comprehensive liability insurance and property insurance covering our properties. 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.
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"). 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.
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Committee Charters
The Board of Directors has an Audit Committee, Compensation Committee and Corporate Governance Committee.
The Board of Directors has adopted written charters for each committee which are posted on the Company’s website
(www.chct.reit) and are available in print to any stockholder who requests a copy.
ITEM 1A. RISK FACTORS
Risk Factor Summary
Investing in our common stock involves a degree of risk. You should carefully consider all information in this
Annual Report on Form 10-K prior to investing in 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:
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General economic conditions can have a material adverse effect on our business, financial conditions and
results of operations.
The ongoing COVID-19 pandemic may adversely affect our revenues, results of operations and financial
condition.
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.
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.
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.
Our properties generate rent revenue, and any adverse impacts on our properties, including, but not limited
to, 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.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to
understanding other statements in this Annual Report on Form 10-K, and we direct you to read our statement about
forward-looking statements under the title “Cautionary Statements Regarding Forward-Looking Statements” in this
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Annual Report on Form 10-K. The following information should be read in conjunction with Part II, Item 7,
“Management’s Discussion And Analysis of Financial Condition and Results of Operations” and the consolidated
financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional
risk and uncertainties not presently known to us or that we presently deem less significant may also impair our
business operations. 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.
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. Any of these factors, in whole or in
part, could materially and adversely affect the Company’s business, financial condition, operating results and stock
price.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating
results, past financial performance should not be considered to be a reliable indicator of future performance, and
investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Our Business
The COVID-19 pandemic’s impact on global markets could affect our future access to liquidity and materially
adversely affect our results of operations and financial condition.
The coronavirus has spread throughout much of the world after initially surfacing in Wuhan, China in December
2019. The ongoing COVID-19 pandemic, and restrictions intended to prevent its spread, have had a significant
adverse impact on economic and market conditions around the world, including the United States and the markets in
which we own properties. The impact of the COVID-19 pandemic continues to evolve. Many states, including states
where we own properties initially reacted to the COVID-19 pandemic by instituting quarantines, restrictions on
travel, “shelter in place” rules, stay-at-home orders, density limitations, social distancing measures, restrictions on
types of business that may continue to operate and/or restrictions on types of construction projects that may
continue. Although some state governments and other authorities are in varying stages of lifting or modifying some
of these measures, some have already been forced to, and others may in the future, reinstitute these measures or
impose new, more restrictive measures, if the risks, or the perception of the risks, related to the COVID-19
pandemic worsen at any time. While the economic impact brought by, and the duration of, COVID-19 is difficult to
assess or predict, the COVID-19 pandemic could result in additional disruption of global financial markets, reducing
our ability to access capital in the future, which could negatively affect our liquidity in the future. The situation is
constantly evolving, however, so the extent to which the COVID-19 outbreak will continue to impact businesses and
the economy is highly uncertain and cannot be predicted. Accordingly, we cannot predict the extent to which our
results of operations, financial condition and cash flows will be affected.
Our real estate investments are concentrated in healthcare properties, making us more vulnerable economically
than if our investments were diversified in other segments of the economy.
We acquire, own, manage, operate and selectively develop properties for lease primarily to physicians and
healthcare delivery systems. We are subject to risks inherent in concentrating investments in real estate, and the risks
resulting from a lack of diversification is even greater as a result of our business strategy to concentrate our
investments in the healthcare sector. Any adverse effects that result from these risks could be more pronounced than
if we diversified our investments outside of healthcare properties. Given our concentration in this sector, our tenant
base is especially concentrated and dependent upon the healthcare industry generally, and any industry downturn
could adversely affect the ability of our tenants to make lease payments and our ability to maintain current rental and
occupancy rates. Our tenant mix could become even more concentrated if a significant portion of our tenants
practice in a particular medical field or are reliant upon a particular healthcare delivery system. Accordingly, a
downturn in the healthcare industry generally, or in the healthcare related facility specifically, could adversely affect
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our business, financial condition and results of operations, our ability to make distributions to our shareholders and
the market price of our common shares.
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.
A key component of our investment strategy is to acquire additional healthcare properties in off-market or lightly
marketed transactions, relying on our officers’ relationships with healthcare providers and real estate brokers. We
seek to acquire properties before they are widely marketed by real estate brokers. As we expect to compete with
many national, regional and local acquirers of healthcare properties, properties that are acquired in off-market or
lightly marketed transactions are typically more attractive to us as a purchaser because of the absence of a formal
sales process, which could lead to higher prices. In the formal sales process, our potential acquisition targets may
find our competitors to be more attractive because they may have greater resources, may be willing to pay more for
the properties or may have a more compatible operating philosophy. In particular, larger REITs, including publicly
traded and privately held REITs, private equity investors or institutions investment funds who are targeting
healthcare properties may enjoy significant competitive advantages that result from, among other things, a lower
cost of capital, enhanced operating efficiencies, more risk tolerance, more personnel and market penetration and
familiarity with markets. As such, if we do not have access to off-market or lightly marketed deal flow in the future,
our ability to locate and acquire additional properties in our target submarkets at attractive prices could be materially
and adversely affected, which could materially impede our growth, and, as a result, adversely affect our operating
results.
Our business could be harmed if key personnel terminate their employment with us or if we are unsuccessful in
integrating new personnel into our operations.
Our success depends, to a significant extent, on the continued services of Mr. Timothy G. Wallace, our Chairman,
Chief Executive Officer and President, Mr. David H. Dupuy, our Executive Vice President and Chief Financial
Officer, and Ms. Leigh Ann Stach, our Executive Vice President and Chief Accounting Officer. Each executive
officer has significant experience in the healthcare and/or real estate industry and have all developed significant
relationships with various healthcare providers and real estate brokers throughout the United States. 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.
Although we have entered into employment agreements with Messrs. Wallace and Dupuy, and Ms. Stach, we cannot
provide any assurance that any of them will remain employed by us. Our ability to retain our executive officers, or to
attract suitable replacements should any member of the senior management team leave, is dependent on the
competitive nature of the employment 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.
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 cannot assure you that we will complete any pending acquisitions on the terms described in this report or other
reports the Company may file or furnish in future SEC filings, because these transactions are subject to a variety of
conditions, including, in the case of properties under contract, the execution of a mutually agreed-upon lease
between us and the proposed tenant, our satisfactory completion of due diligence and the satisfaction of customary
closing conditions. These transactions, whether or not successful, require substantial time and attention from
management. Furthermore, the pending acquisitions require significant expense, including expenses for due
diligence, legal and accounting fees and other costs. 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.
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The COVID-19 pandemic may further hinder or delay our ability to complete any pending acquisitions due to its
effect on a significant portion of the workforce, including but not limited to, temporarily closing businesses, limiting
business hours, and setting restrictions on travel for a prolonged period of time. Our ability to complete pending
acquisitions may be adversely affected due to such business closures. The extent to which the COVID-19 pandemic
could impact our pending acquisitions will depend on future developments that are highly uncertain and cannot be
accurately predicted.
We may be unable to successfully acquire properties and expand our operations into new or existing target
submarkets.
A component of our strategy is to pursue acquisitions of properties in new and existing target submarkets. These
acquisitions could divert our officers’ attention from other pending and/or potential acquisitions, and we may be
unable to retain key employees or attract highly qualified new employees in those markets. In addition, we may not
possess familiarity with the dynamics and prevailing conditions of any new target submarkets, which could
adversely affect our ability to successfully expand into or operate within those markets. For example, new target
submarkets may have different insurance practices, reimbursement rates and local real estate zoning regulations than
those with which we are familiar. We may find ourselves more dependent on third parties in new target submarkets
because our physical distance could hinder our ability to directly and efficiently manage and otherwise monitor new
properties in new target submarkets. In addition, our expansion into new target submarkets could result in
unexpected costs or delays as well as lower occupancy rates and other adverse consequences. We may not be
successful in identifying suitable properties or other assets that meet our acquisition criteria or in consummating
acquisitions on satisfactory terms or at all for a number of reasons, including, among other things, significant
competition from other prospective purchasers in new target submarkets, unsatisfactory results of our due diligence
investigations, failure to obtain financing for the acquisition on favorable terms or at all, and our misjudgment of the
value of the opportunities. We may also be unable to successfully integrate the operations of acquired properties,
maintain consistent standards, controls, policies and procedures, or realize the anticipated benefits of the acquisitions
within the anticipated timeframe or at all. 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.
The bankruptcy, insolvency or weakened financial position of our tenants, and particularly our largest tenants,
could materially and adversely affect our operating results and financial condition.
We receive substantially all of our revenue from rent payments from tenants under leases of space in our healthcare
properties. We have no control over the success or failure of our tenants’ businesses and, at any time, any of our
tenants may experience a downturn in its business that may weaken its financial condition. Additionally, private or
governmental payers may lower the reimbursement rates paid to our tenants for their healthcare services. For
example, the Affordable Care Act provides for significant reductions to Medicare and Medicaid payments. As a
result, our tenants may delay lease commencement or renewal, fail to make rent payments when due or declare
bankruptcy. Any leasing delays, tenant failures to make rent payments when due or tenant bankruptcies could result
in the termination of the tenant’s lease and, particularly in the case of a large tenant, or a significant number of
tenants, 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. In addition, to the extent a
tenant vacates specialized space in one of our properties (such as imaging space, ambulatory surgical space, or
inpatient hospital space), re-leasing the vacated space could be more difficult than re-leasing less specialized office
space, as there are fewer users for such specialized healthcare space in a typical market than for more traditional
office space.
Any bankruptcy filings by or relating to one of our tenants could bar all efforts by us to collect pre-bankruptcy debts
from that tenant or seize its property, unless we receive an order permitting us to do so from a bankruptcy court,
which we may be unable to obtain. A tenant bankruptcy could also delay our efforts to collect past due balances
under the relevant leases and could ultimately preclude full collection of these sums. Furthermore, if a tenant rejects
the lease while in bankruptcy, we would have only a general unsecured claim for pre-petition damages. Any
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unsecured claim that we hold may be paid only to the extent that funds are available and only in the same percentage
as is paid to all other holders of unsecured claims. It is possible that we may recover substantially less than the full
value of any unsecured claims that we hold, if any, 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. 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.
Certain of our tenants may have availed themselves of stimulus funds made available under the Coronavirus Aid,
Relief, and Economic Security Act of 2020 (the "CARES Act”). A second COVID-19 federal stimulus package was
enacted as part of the Consolidated Appropriations Act, 2021 (the "COVID Supplemental Appropriations Act") on
December 27, 2020. However, even with this additional stimulus, some businesses may be unable to continue.
Moreover, the unavailability of further stimulus funds or economic assistance beyond that provided under the
COVID Supplemental Appropriations Act , the CARES Act and similar programs or the insufficiency of such funds
to cover all of the tenant’s financial results, including rent, could have adverse effects on our business. In addition,
certain businesses that received a Paycheck Protection Program (“PPP”) loan may not be entitled to forgiveness of
such loan or that they should not have received a PPP loan. Their application for forgiveness could be determined by
the government to be impermissible or that the application for the original loan was impermissible. If it is later
determined that a tenant did not meet the terms of applicable laws or governmental regulations applicable to
forgiveness of PPP loans or the tenant was ineligible to receive a PPP loan, the tenant may be required to repay the
PPP loan in its entirety in a lump sum or be subject to additional penalties, which could adversely affect their ability
to pay rent.
As a result of the pandemic, the Company entered into deferral agreements with 18 tenants, in the aggregate
representing less than one percent of our annualized rent. In 16 of these agreements, the tenants were required to
repay the deferred amounts in equal monthly installments during the last half of 2020, and in 2 of the agreements,
the repayments extend into 2021 and 2022. As of December 31, 2020, the Company had received substantially all of
the payments due under these agreements. However, there can be no assurance that the tenants will be able to repay
the remaining deferred rent due.
We may have difficulty finding suitable replacement tenants in the event of a tenant default or non-renewal of
our leases, especially for our properties located in smaller markets.
We cannot predict whether our tenants will renew existing leases beyond their current terms. At December 31, 2020,
we had 29 leases scheduled to expire in 2021 and 39 leases scheduled to expire in 2022 which represent 5.2% and
6.9% of our total annualized lease revenue, respectively, for the year ended December 31, 2020. If any of our leases
are not renewed, or are terminated prior to the contractual expiration date, we would attempt to lease those
properties to another tenant at then-current market rates. However, following expiration of a lease term or if we
exercise our right to replace a tenant in default, rental payments on the related properties could decline or cease
altogether while we reposition the properties with a suitable replacement tenant. As such, we may be required to
fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the
value of, and avoid the imposition of liens on, our properties while they are being repositioned. Furthermore, our
ability to reposition our properties with a suitable tenant could be significantly delayed or limited by state licensing,
receivership, certificate of need, or CON, or other laws, as well as by the Medicare and Medicaid change-of-
ownership rules. We could also incur substantial additional expenses in connection with any licensing, receivership
or change-of-ownership proceedings. 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. Any such delays, limitations and
expenses could adversely impact our ability to collect rent, obtain possession of leased properties or otherwise
exercise remedies for tenant default and could 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.
All of these risks may be greater in the target submarkets on which we focus, where there may be fewer potential
replacement tenants, making it more difficult to replace tenants, especially for specialized space, like hospital or
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outpatient treatment facilities located in our properties, and could 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.
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.
Our operating results depend upon our ability to maintain and improve the anticipated occupancy levels and rental
rates at our properties. 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,
pandemics (such as the COVID-19 pandemic), 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 occupancy levels and limit our ability to increase rents or require us to offer rental
concessions. The failure of our properties to generate revenues sufficient to meet our cash requirements, including
operating and other expenses, debt service and capital expenditures, may have an 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.
A large percentage of our properties are located in Illinois, Texas, and Ohio, and changes in these markets may
materially adversely affect us.
Of our investments in 141 properties, the properties located in Illinois, Texas, and Ohio provide, in the aggregate,
approximately 37.9% of our annualized rent as of December 31, 2020. As a result of this geographic concentration,
we are particularly exposed to downturns in the economies of those states or other changes in such states’ respective
real estate market conditions. Any material change in the current payment programs or regulatory, economic,
environmental or competitive conditions in these states could have a disproportionate effect on our overall business
results. 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.
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 order to maintain our status as a REIT under the Code, we are required, among other things, to distribute each
year to our stockholders at least 90% of our REIT taxable income, without regard to the deduction for dividends paid
and excluding net capital gains. In addition, we are subject to income tax at regular corporate rates to the extent we
distribute less than 100% of our REIT taxable income, including any net capital gains. Because of this distribution
requirement, we will not likely be able to fund all of our future capital needs from cash retained from operations,
including capital needed to make investments and to satisfy or refinance maturing obligations. As a result, we expect
to rely upon external sources of capital, including debt and equity financing, to fund future capital needs. If we are
unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to
expand our business or to meet our obligations and commitments as they mature. Our access to capital will depend
upon a number of factors over which we have little or no control, including general market conditions, the market’s
perception of our current and potential future earnings and cash distributions and the market price of our common
stock. We may not be in a position to take advantage of attractive acquisition opportunities for growth if we are
unable to access the capital markets on a timely basis on favorable terms.
The capital and credit markets have experienced extreme volatility and disruption as a result of the global outbreak
of COVID- 19. We believe that such volatility and disruption are likely to continue into the foreseeable future.
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.
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We may not be able to control our expenses or our expenses may remain constant or increase, even if our
revenue does not increase, which could cause our results of operations to be adversely affected.
There are factors beyond our control that may adversely affect our ability to control our expenses. Certain costs
associated with real estate investments (e.g., real estate taxes, debt costs and maintenance expenses) required to
preserve the value of the property may not be reduced even if a healthcare related facility is not occupied or other
circumstances cause our revenues to decrease. If our expenses increase as a result of any of the foregoing factors,
our results of operations may be adversely affected.
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.
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:
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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;
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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.
Our failure to meet the market’s expectations with regard to future earnings and cash distributions could materially
and adversely affect the market price of our common stock and, as a result, the cost and availability of equity capital
to us.
We have now, and may have in the future, exposure to contingent rent escalators, which can hinder our growth
and profitability.
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We receive a significant portion of our revenues by acquiring and leasing our assets under long-term net leases in
which the rental rate is generally fixed with annual fixed rate rental rate escalations or rental rate escalators based
upon changes in the Consumer Price Index, or CPI. Properties which we acquire in the future may contain CPI
escalators or escalators that are contingent upon our tenant’s achievement of specified revenue parameters. If, as a
result of weak economic conditions or other factors, the revenues generated by our net leased properties do not meet
the specified parameters or CPI does not increase, our growth and profitability will be hindered by these leases.
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Our investments in development projects may not yield anticipated returns which could directly affect our
operating results and reduce the amount of funds available for distributions.
A component of our growth strategy is exploring development opportunities, some of which may arise through
strategic joint ventures. In deciding whether to make an investment in a particular development, we make certain
assumptions regarding the expected future performance of that property. To the extent that we consummate
development opportunities, our investment in these projects will be subject to the following risks:
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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;
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 our investments in development projects do not yield anticipated returns for any reason, including those set forth
above, our business, financial condition and results of operations, our ability to make distributions to our
shareholders and the market price of our common shares may be adversely affected.
Mortgage notes in which we may invest in may be impacted by unfavorable real estate market conditions, which
could decrease their value.
Investments in mortgage notes involve special risks relating to the particular borrower, and we could be at risk of
loss on that investment, including losses as a result of a default on the mortgage note. These losses may be caused by
many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and
lease expirations, interest rate levels, adverse rulings of bankruptcy courts, and the other economic and liability risks
associated with real estate. We do not know whether the values of the property securing any of our real estate related
investments will remain at the levels existing on the dates we initially make the related investment. If the values of
the underlying properties drop, our risk will increase and the values of our interests may decrease.
Delays in liquidating defaulted mortgage note investments could reduce our investment returns.
Delays in liquidating defaulted mortgage note investments could reduce our investment returns. If there are defaults
under mortgage note investments, we may not be able to foreclose on or obtain a suitable remedy with respect to
such investments. Specifically, we may not be able to repossess and sell the underlying properties quickly, which
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could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage
note is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the
defendant raises defenses or counterclaims. 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.
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. They can also result from internal compromises, such as human error or
malicious acts. While we employ a number of measures to prevent, detect and mitigate these threats, there is no
guarantee such efforts will be successful in preventing a cyber event. Cybersecurity incidents could disrupt our
business and compromise confidential information of ours and third parties, including our tenants.
If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates
on our Credit Facility may be adversely impacted.
In July 2017, Financial Conduct Authority (the authority that regulates LIBOR) previously announced its intent to
stop compelling banks to submit rates for the calculation of LIBOR after 2021, and the administrator of LIBOR
announced its intention to cease the publication of the one week and two month USD LIBOR settings immediately
following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR
publication on June 30, 2023. Accordingly, there is considerable uncertainty regarding the publication of such rates
beyond these dates. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight
Financing Rate (SOFR) is the rate that represents best practice as the alternative to LIBOR for use in derivatives and
other financial contracts currently indexed to LIBOR. ARRC has proposed a paced market transition plan to SOFR
from LIBOR. We are currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to
other potential alternative reference rates, including SOFR. We do not currently have material contracts, with the
exception of our Credit Facility, that are indexed to LIBOR. We will continue to actively assess the related
opportunities and risks involved in this transition.
Risks Related to the Healthcare Industry
The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations,
changes to reimbursement models or structure, loss of licensure or failure to obtain licensure could adversely
impact our company and result in the inability of our tenants to make rent payments to us.
The healthcare industry is heavily regulated by U.S. federal, state and local governmental authorities. As has been
the trend in recent years, it is reasonable to assume that there will continue to be increased government oversight and
regulation of the healthcare industry in the future. This may be particularly true in coming years as a result of the
COVID-19 pandemic. Our tenants generally will be subject to laws and regulations covering, among other things,
licensure, certification for participation in government programs, billing for services, breaches of privacy and
security of health information and relationships with physicians and other referral sources. In addition, new laws and
regulations, changes in existing laws and regulations or changes in the interpretation of such laws or regulations
could negatively affect our financial condition and the financial condition of our tenants. These changes, in some
cases, could apply retroactively. The enactment, timing or effect of legislative or regulatory changes cannot be
predicted.
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The Affordable Care Act's passage changed how healthcare services are covered, delivered and reimbursed through
expanded coverage of uninsured individuals and reduced Medicare program spending. The law reformed certain
aspects of health insurance, expanded existing efforts to tie Medicare and Medicaid payments to performance and
quality and contained provisions intended to strengthen fraud and abuse enforcement. In addition, the law requires
skilled nursing facilities and nursing facilities to implement a compliance and ethics program for all employees and
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agents. The complexities and ramifications of the Affordable Care Act continue to unfold within our industry. Our
revenues and financial condition, and those of our tenants, could be impacted by the current law’s complexity, lack
of implementing regulations or interpretive guidance, gradual implementation and possible additional changes to the
law. 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.
While the Trump Administration had decreased its focus on a legislative repeal of the Affordable Care Act, efforts
in the courts are ongoing. In December 2018, a federal court ruled the law unconstitutional. This decision was
appealed to the U.S. 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. A decision is expected by June 2021. There is continued uncertainty with respect to the impact the federal
judiciary may have on the Affordable Care Act, and it could impact coverage and reimbursement for healthcare
items and services covered by plans that were authorized by the Affordable Care Act. While it is not entirely clear
exactly what actions the Biden Administration may take relative to the Affordable Care Act, the Biden
Administration has signaled its strong support for the Affordable Care Act by taking steps to reverse various actions
by the Trump Administration and to strengthen Medicaid and the Affordable Care Act through an Executive Orders
issued January 28, 2021.
We cannot predict the ultimate content, timing or effect of any further healthcare reform legislation or the impact of
potential legislation on us. We expect that additional state and federal healthcare reform measures will be adopted in
the future, any of which could limit the amounts that federal and state governments will pay for healthcare products
and services, which could result in reduced demand for medical products once approved or additional pricing
pressures, and may adversely affect our operating results.
Many states also regulate the construction of healthcare facilities, the expansion of healthcare facilities, the
construction or expansion of certain services, including by way of example specific bed types and medical
equipment, as well as certain capital expenditures through CON laws. Under such laws, the applicable state
regulatory body must determine a need exists for a project before the project can be undertaken. If one of our tenants
seeks to undertake a CON-regulated project, but is not authorized by the applicable regulatory body to proceed with
the project, the tenant would be prevented from operating in its intended manner.
Failure to comply with these laws and regulations could adversely affect us directly and our tenants’ ability to make
rent payments to us which may have an 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.
Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to make
distributions to our stockholders.
The healthcare industry is currently experiencing, among other things:
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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.
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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.
In 2020, the COVID-19 pandemic resulted in a substantial reduction in the number of elective surgeries, physician
office visits and emergency room volumes due to restrictive measures, like quarantines and shelter-in-place orders,
and general concerns related to the risk of contracting COVID-19 from interacting with the healthcare system. We
believe that certain of these patient volume declines reflect a deferral of healthcare services utilization to a later
period, rather than a permanent reduction in demand for services. Given the general necessity of the healthcare
services, we anticipate that this deferral of services may create a backlog of demand in the future, in addition to the
resumption of historically normal activity; however, there is no assurance that either will occur.
Reductions in reimbursement from third-party payers, including Medicare and Medicaid, could adversely affect
the profitability of our tenants and hinder their ability to make rent payments to us or renew their lease.
Sources of revenue for our tenants typically include Medicare, Medicaid, private insurance payers and health
maintenance organizations. Healthcare providers continue to face increased government and private payer pressure
to control or reduce healthcare costs and significant reductions in healthcare reimbursement, including reduced
reimbursements and changes to payment methodologies under the Affordable Care Act. 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. The Affordable Care Act and associated regulations continue to
encourage increasing enrollment in plans offered by private insurers who choose to participate in state-run
exchanges, but recent changes by the Trump Administration affecting Medicaid and the availability of lower cost,
lower coverage plans creates uncertainty around private insurer costs and, thereby, payment rates to providers.
Through Executive Orders issued January 28, 2021, the Biden Administration has taken steps to create a special
enrollment period for the Affordable Care Act and other steps to support Medicaid and the Affordable Care Act.
Efforts by payers to reduce healthcare costs will likely continue which may result in reductions or slower growth in
reimbursement for certain services provided by some of our tenants. A reduction in reimbursements to our tenants
from third-party payers for any reason could adversely affect our tenants’ ability to make rent payments to us which
may have a material adverse effect on our businesses, financial condition and results of operations, our ability to
make distributions to our stockholders and the market price of our common stock.
Our tenants and our Company are subject to fraud and abuse laws, the violation of which by a tenant may
jeopardize the tenant’s ability to make rent payments to us.
There are various federal laws prohibiting fraudulent and abusive business practices by healthcare providers who
participate in, receive payments from or are in a position to make referrals in connection with government-sponsored
healthcare programs, including the Medicare and Medicaid programs. Many states have analogous laws which may
be broader than their federal counterparts. Our lease arrangements with certain tenants may also be subject to these
fraud and abuse laws.
These laws include without limitation:
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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;
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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.
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.
Violations of these laws may result in criminal and/or civil penalties that range from punitive sanctions, damage
assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from federal
healthcare programs including the Medicare and Medicaid programs. In addition, the Affordable Care Act clarifies
that the submission of claims for items or services generated in violation of the Anti-Kickback Statute constitutes a
false or fraudulent claim under the False Claims Act. The federal government has taken the position, and some
courts have held that violations of other laws, such as the Stark Law, can also be a violation of the False Claims Act.
Additionally, certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on
behalf of the government for violations thereof. Imposition of any of these penalties upon one of our tenants or
strategic partners could jeopardize that tenant’s ability to operate or to make rent payments or affect the level of
occupancy in our healthcare properties, 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. Further, we enter into leases and other financial relationships with healthcare delivery systems that
are subject to or impacted by these laws.
Our tenants may be subject to compliance issues and cyber-attack associated with the protection of personal
information.
Security incidents and data breaches of personal information can result from deliberate attacks or unintentional
events. More recently, there has been an increased level of attention focused on security incidents and cyber-attacks
focused on healthcare providers because of the vast amount of personally identifiable information they process and
maintain. Public awareness of privacy and security issues is increasing and focus of legislators and other regulators
has also increased. Most healthcare providers, including all who accept commercial insurance, Medicare and
Medicaid, must comply with the Health Insurance Portability and Accountability Act, as amended, (HIPAA)
regulations regarding the privacy and security of protected health information. All 50 states also maintain laws
focused on the privacy, security and notification requirements with regard to personally identifiable information,
including health information. The HIPAA regulations impose significant requirements on our tenants and their
business associate vendors with regard to how such protected health information may be used and disclosed. Further,
the regulations include extensive and complex regulations which require providers to establish reasonable and
appropriate administrative, technical and physical safeguards to ensure the confidentiality, integrity and availability
of protected health information. Providers are obligated under HIPAA and state law to notify individuals and the
government if personal information is compromised as defined by the respective law. In addition to federal
regulators, state attorneys general are also enforcing information security breaches. All 50 states have breach
notification laws. In addition to state laws regarding confidentiality of medical information, several states are now
focused on expanding state privacy laws regarding personal information. For example, California maintains one of
the more extensive laws in this area. California recently enacted the California Consumer Privacy Act, whose effects
on our tenant's businesses vary and add to the risk profiles of those in California or who otherwise meet the law's
requirements regarding revenue or California personal information metrics. These laws require our tenants to
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safeguard protected health information, and potentially other information, against reasonably anticipated threats or
hazards to the information. HIPAA directs the Secretary of HHS to provide for periodic audits to ensure covered
entities (and their business associates, as that term is defined under HIPAA) comply with the applicable HIPAA
requirements.
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. These penalties could be in addition to any penalties
assessed by a state for a breach which would be considered reportable under the state’s data breach notification laws.
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. We cannot predict the effect of additional costs on tenants to
comply with these laws nor the costs associated with a potential breach of protected health information by a tenant
and what effect they might have on the expenses of our tenants and their ability to meet their obligations to us,
which in turn could have a material adverse effect on our business, financial condition and results of operations, our
ability to pay distributions to our stockholders and the market price of our common stock.
Our healthcare-related tenants may be subject to significant legal actions that could subject them to increased
operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to
us, and we could be subject to healthcare industry violations.
As is typical in the healthcare industry, our tenants may often become subject to claims that their services have
resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in
the frequency and severity of professional liability and general liability insurance claims and litigation asserted
against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor
continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive
damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be
available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of
tenants of our healthcare properties and healthcare-related facilities operating in these states may be liable for
punitive damage awards that are either not covered or are in excess of their insurance policy limits.
We also believe that there has been, and will continue to be, an increase in governmental investigations of certain
healthcare providers, particularly in the areas of Medicare/Medicaid false claims and meaningful-use of electronic
health records, as well as an increase in enforcement actions resulting from these investigations. Insurance is not
available to cover all such losses. Any adverse determination in a legal proceeding or governmental investigation,
any settlements of such proceedings or investigations in excess of insurance coverage, whether currently asserted or
arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to
obtain or maintain insurance coverage, if judgments are obtained or settlements reached in excess of the insurance
coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable cost of
a government enforcement action or investigation, the tenant could be exposed to substantial additional liabilities,
which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business,
financial condition and results of operations, our ability to pay distributions to our stockholders and the market price
of our common stock.
Risks Related to the Real Estate Industry
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the
performance of our properties.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more of our properties in
response to changing economic, financial and investment conditions is limited. The real estate market is affected by
many factors, such as general economic conditions, availability of financing, interest rates and other factors,
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including supply and demand, that are beyond our control. In the event we decide to sell any of our properties, we
cannot predict whether we will be able to sell such properties for the price or on the terms set by us or whether any
price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length
of time needed to find a willing purchaser and to close the sale of any of our properties. The fact that we own
properties in our target submarkets may lengthen the time required to sell our properties. 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 acquiring a property, we may agree to transfer restrictions that materially restrict us from selling that property for
a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid
on that property. These transfer restrictions would impede our ability to sell a property even if we deem it necessary
or appropriate. These facts and any others that would impede our ability to respond to adverse changes in the
performance of our properties may have an adverse effect on our business, financial condition, results of operations,
or ability to make distributions to our stockholders and the market price of our common stock.
Moreover, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other
types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our properties for
investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer
sales of properties that otherwise would be in our best interests. Therefore, we may not be able to vary our portfolio
promptly in response to economic or other conditions or on favorable terms, which may adversely affect our cash
flows, our ability to make distributions to our stockholders and the market price of our common stock.
Uncertain market conditions could cause us to sell our healthcare properties at a loss in the future.
We intend to hold our various real estate investments until such time as we determine that a sale or other disposition
appears to be advantageous to achieve our investment objectives. Our senior management team and our board of
directors may exercise their discretion as to whether and when to sell one of our healthcare properties, and we will
have no obligation to sell our buildings at any particular time. We generally intend to hold our healthcare properties
for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real
estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions
that may affect the future disposition of our healthcare properties, we may not be able to sell our buildings at a profit
in the future or at all. We may incur prepayment penalties in the event that we sell a property subject to a mortgage
earlier than we otherwise had planned. Additionally, we could be forced to sell healthcare properties at inopportune
times which could result in us selling the affected building at a substantial loss. Accordingly, the extent to which you
will receive cash distributions and realize potential appreciation on our real estate investments will, among other
things, be dependent upon fluctuating market conditions. 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.
Uninsured losses relating to real property may adversely affect your returns.
We evaluate our insurance coverage annually in light of current industry practice through an analysis prepared by
outside consultants and attempt to ensure that all of our properties are adequately insured to cover casualty losses.
However, there are certain losses, including losses from floods, earthquakes, wildfires, acts of war, acts of terrorism
or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed
economically feasible or prudent to do so. In addition, changes in the cost or availability of insurance could expose
us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not fully covered
by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could
experience a significant loss of capital invested and potential revenue in these properties and could potentially
remain obligated under any recourse debt associated with the property. In addition, we may have no source of
funding to repair or reconstruct the damaged property, and we cannot assure you that any such sources of funding
will be available to us for such purposes in the future. Furthermore, we, as the general partner of our operating
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partnership, generally will be liable for all of our operating partnership’s unsatisfied recourse obligations. Any such
losses could materially adversely affect our financial condition, results of operations, cash flows and ability to pay
distributions, and the market price of our common stock.
Our property taxes could increase due to property tax rate changes or reassessments, which could materially
adversely impact our cash flows.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay some state and local taxes
on our properties. The real property taxes on our properties may increase as property tax rates change or as our
properties are assessed or reassessed by taxing authorities. The amount of property taxes we pay in the future may
increase substantially from what we have paid in the past. 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.
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.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if
the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce
airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical
contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and
bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of
adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant
mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation
program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor
ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability
from our tenants, employees of our tenants or others if property damage or personal injury is alleged to have
occurred.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants
that are applicable to our properties.
The properties in our portfolio are subject to various covenants and federal, state and local laws and regulatory
requirements, including permitting and licensing requirements. Local regulations, including municipal or local
ordinances and zoning restrictions may restrict our use of our properties and may require us to obtain approval from
local officials or restrict our use of our properties and may require us to obtain approval from local officials of
community standards organizations at any time with respect to our properties, including prior to acquiring a property
or when undertaking renovations of any of our properties. Among other things, these restrictions may relate to fire
and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and
regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that
additional regulations will not be adopted that increase such delays or result in additional costs. Our growth strategy
may be adversely affected by our ability to obtain permits, licenses and zoning relief. Our failure to obtain such
permits, licenses and zoning relief or to comply with applicable laws could have an adverse effect on our financial
condition, results of operations, cash flows and our ability to pay distributions, and the market price of our common
stock.
In addition, federal and state laws and regulations, including laws such as the Americans with Disabilities Act, or
ADA, and the Fair Housing Amendment Act of 1988, or FHAA, impose further restrictions on our properties and
operations. Under the ADA and the FHAA, all public accommodations must meet federal requirements related to
access and use by disabled persons. Some of our properties may currently be in non-compliance with the ADA or
the FHAA. If one or more of our properties is not in compliance with the ADA, the FHAA or any other regulatory
requirements, we may be required to incur additional costs to bring the property into compliance, including the
removal of access barriers, and we might incur governmental fines or the award of damages to private litigants. In
addition, we do not know whether existing requirements will change or whether future requirements will require us
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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.
Environmental compliance costs and liabilities associated with owning and leasing our properties may affect our
results of operations.
Under various U.S. federal, state and local laws, ordinances and regulations, current and prior owners and tenants of
real estate may be jointly and severally liable for the costs of investigating, remediating and monitoring certain
hazardous substances or other regulated materials on or in such property. In addition to these costs, the past or
present owner or tenant of a property from which a release emanates could be liable for any personal injury or
property damage that results from such release, including for the unauthorized release of asbestos-containing
materials and other hazardous substances into the air, as well as any damages to natural resources or the
environment that arise from such release. These environmental laws often impose such liability without regard to
whether the current or prior owner or tenant knew of, or was responsible for, the presence or release of such
substances or materials. 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. Persons who transport or arrange for the
disposal or treatment of hazardous substances or other regulated materials may be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, regardless of whether or not such facility is owned
or operated by such person.
We perform a Phase I environmental site assessment at any property we are considering acquiring. However, Phase I
environmental site assessments are limited in scope and do not involve sampling of soil, soil vapor, or groundwater,
and these assessments may not include or identify all potential environmental liabilities or risks associated with the
property. Even where subsurface investigation is performed, it can be very difficult to ascertain the full extent of
environmental contamination or the costs that are likely to flow from such contamination. We cannot assure you that
the Phase I environmental site assessment or other environmental studies identified all potential environmental
liabilities, or that we will not face significant remediation costs or other environmental contamination that makes it
difficult to sell any affected properties. As a result, we could potentially incur material liability for these issues,
which could adversely impact our financial condition, results of operations, cash flows and ability to pay
distributions, and the market price of our common stock.
Certain environmental laws impose compliance obligations on owners and tenants of real property with respect to
the management of hazardous substances and other regulated materials. For example, environmental laws govern the
management and removal of asbestos-containing materials and lead-based paint. Failure to comply with these laws
can result in penalties or other sanctions. If we incur substantial costs to comply with these environmental laws or
we are held liable under these laws, 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 adversely affected.
Some of the properties we acquire may be subject to ground lease or other restrictions on the use of the space. If
we are required to undertake significant capital expenditures to procure new tenants, then our business and
results of operations may suffer.
Properties we acquire may be subject to ground leases that contain certain restrictions. These restrictions could
include limits on our ability to re-let these properties to tenants not affiliated with the healthcare provider or other
owner that owns the underlying property, rights of purchase and rights of first offer and refusal with respect to sales
of the property and limits on the types of medical procedures that may be performed. If we are unable to promptly
re-let our properties, if the rates upon such re-letting are significantly lower than expected or if we are required to
undertake significant capital expenditures in connection with re-letting, 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 adversely affected.
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Our assets may be subject to impairment charges.
We will periodically evaluate our real estate investments and other assets for impairment indicators. The judgment
regarding the existence of impairment indicators is based upon factors such as market conditions, tenant
performance and legal structure. For example, the termination of a lease by a major tenant may lead to an
impairment charge. 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.
Risks Related to our Corporate Structure and the Acquisition of Properties
Conflicts of interest could arise in the future between the interests of our stockholders and the interests of holders
of OP units, which may impede business decisions that could benefit our stockholders.
Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one
hand, and our operating partnership or any limited partner thereof, on the other. Our directors and officers have
duties to our company under Maryland law in connection with the management of our company. At the same time,
we, as the general partner of our operating partnership, have fiduciary duties and obligations to our operating
partnership and its limited partners, if any, under Delaware law and our partnership agreement in connection with
the management of our operating partnership. 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.
Under Delaware law, a general partner of a Delaware limited partnership has fiduciary duties of loyalty and care to
the partnership and its limited partners and must discharge its duties and exercise its rights as general partner
consistent with the obligation of good faith and fair dealing. Our partnership agreement provides that, in the event of
a conflict between the interests of our operating partnership or any limited partner, on the one hand, and the
company or our stockholders, on the other hand, we, as the general partner of our operating partnership, may give
priority to the separate interests of the company or our stockholders (including with respect to tax consequences).
Further, any action or failure to act on our part or on the part of our directors that gives priority to the interests of the
company or our stockholders and does not result in a violation of our partnership agreement does not violate the
duty of loyalty or any other duty that we, in our capacity as the general partner of our operating partnership, owe to
our operating partnership and its limited partners or violate the obligation of good faith and fair dealing.
Additionally, our partnership agreement provides that we generally will not be liable to our operating partnership or
any limited partner for any action or omission taken in our capacity as general partner, for the debts or liabilities of
our operating partnership or for the obligations of our operating partnership under the partnership agreement, except
for liability for our fraud, willful misconduct or gross negligence, pursuant to any express indemnity we may give to
our operating partnership or in connection with a redemption. Our operating partnership must indemnify us, our
directors and officers, officers of our operating partnership and our designees from and against any and all claims
that relate to the operations of our operating partnership, unless (1) an act or omission of the person was material to
the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate
dishonesty, (2) the person actually received an improper personal benefit in violation or breach of the partnership
agreement or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that
the act or omission was unlawful. Our operating partnership must also pay or reimburse the reasonable expenses of
any such person in advance of a final disposition of the proceeding upon its receipt of a written affirmation of the
person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written
undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the
standard of conduct for indemnification.
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We are subject to the requirements of the Sarbanes-Oxley Act and are obligated to obtain an audit opinion on the
effectiveness of internal control over financial reporting. These internal controls may not be determined to be
effective, which may harm investor confidence and, as a result, the trading price of our common stock.
The Sarbanes-Oxley Act requires our auditors to deliver an attestation report on the effectiveness of our internal
control over financial reporting in conjunction with their opinion on our audited financial statements. Substantial
work on our part is required to implement appropriate processes, document the system of internal control over key
processes, assess their design, remediate any deficiencies identified and test their operation. This process is expected
to be both costly and challenging. 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. Our management may be required to devote significant time and
expense to remediate any material weaknesses that may be discovered and may not be able to remediate any material
weakness in a timely manner. The existence of any material weakness in our internal control over financial reporting
could also result in errors in our financial statements that could require us to restate our financial statements, cause
us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial
information, all of which could lead to a decline in the market price of our common stock.
We may have assumed unknown liabilities in connection with our acquisitions which could result in unexpected
liabilities and expenses.
As part of our acquisitions, we (through our operating partnership) received certain assets or interests in certain
assets subject to existing liabilities, some of which may be unknown to us. 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. Our
recourse with respect to such liabilities may be limited. Depending upon the amount or nature of such liabilities, our
business, financial condition and results of operations, our ability to make distributions to our shareholders and the
market price of our shares may be adversely affected.
Required payments of principal and interest on our Credit Facility may leave us with insufficient cash to operate
our properties or to pay the distributions currently contemplated or necessary to qualify as a REIT and may
expose us to the risk of default under our debt obligations.
As of December 31, 2020, we had $208.0 million outstanding under our Credit Facility, including our term loans.
We do not anticipate that our internally generated cash flow will be adequate to repay our anticipated indebtedness
upon maturity and, therefore, we expect to repay indebtedness through refinancings and future offerings of equity
and debt securities, either of which we may be unable to secure on favorable terms or at all. Our level of debt and
any limitations imposed upon us by our debt agreements could have adverse consequences, including the following:
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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;
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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
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.
The realization of any or all of these risks may have an 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.
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, 2020, our debt to total capitalization ratio (debt plus stockholders' equity plus accumulated
depreciation) was approximately 28.5%. Our 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.
However, this debt limitation policy can be changed by our board of directors without stockholder approval and
there are no provisions in our bylaws that limit our ability to incur indebtedness. We could alter the balance between
our total outstanding indebtedness and the value of our properties at any time. If we become more highly leveraged,
the resulting increase in outstanding debt could adversely affect our ability to make debt service payments, to pay
our anticipated distributions and to make the distributions required to qualify as a REIT. The occurrence of any of
the foregoing risks could 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.
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, 2020, we had $33 million of variable-rate indebtedness outstanding that had not been swapped
for a fixed interest rate and we expect that more of our indebtedness in the future, including borrowings under our
Credit Facility, some of which may be subject to variable interest rates. Increases in interest rates on any variable
rate indebtedness will increase our interest expense, which could adversely affect our cash flow and our ability to
pay distributions.
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The Company may enter into swap agreements from time to time that may not effectively reduce its exposure to
changes in interest rates.
The Company may enter into swap agreements from time to time that may not effectively reduce its exposure to
changes in interest rates. The Company entered into 7 swap agreements during 2017, 2018 and 2019 and may enter
into such agreements in the future to manage some of its exposure to interest rate volatility. These swap agreements
involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In
addition, these arrangements may not be effective in reducing the Company's exposure to changes in interest rates.
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. Failure to hedge effectively against interest rate changes may
have an adverse effect on our business, financial condition, results of operations, our ability to make distributions to
our shareholders and the market price of our common shares.
Our use of OP units in our operating partnership as currency to acquire properties could result in stockholder
dilution and/or limit our ability to sell such properties, which could have a material adverse effect on us.
In the future, we may acquire properties or portfolios of properties through tax deferred contribution transactions in
exchange for OP units in our operating partnership, which may result in stockholder dilution. This acquisition
structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over
the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer
recognition of taxable gain through restrictions on our ability to dispose of the acquired properties or the allocation
of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell
properties at a time, or on terms, that would be favorable absent such restrictions.
Our charter restricts the ownership and transfer of our outstanding shares which may have the effect of delaying,
deferring or preventing a transaction or change of control of our Company.
In order for us to maintain our status as a REIT, no more than 50% of the value of our outstanding shares may be
owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable
year other than our initial REIT taxable year. Subject to certain exceptions, our charter prohibits any stockholder
from beneficially or constructively owning more than 9.8% of the outstanding shares of our capital stock, in value or
number of shares, whichever is more restrictive. The constructive ownership rules under the Code are complex and
may cause the outstanding shares owned by a group of related individuals or entities to be deemed to be
constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of our outstanding
shares or of our common stock by an individual or entity could cause that individual or entity to own constructively
more than 9.8% of the outstanding shares of such stock and to be subject to our charter’s ownership limit. Our
charter also prohibits, among other prohibitions, any person from owning our shares that would result in our being
“closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any attempt to
own or transfer shares in violation of these restrictions may result in the shares being automatically transferred to a
charitable trust or may be void.
Certain provisions of Maryland law could inhibit changes of control, which may discourage third parties from
conducting a tender offer or seeking other change of control transactions that could involve a premium price for
our common stock or that our stockholders otherwise believe to be in their best interests.
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,
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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.
Our bylaws, however, contain provisions exempting us from the business combination and control share acquisition
provisions of the MGCL and we will not be permitted to opt into either of these provisions in the future without the
affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote. Our board of directors
may not amend or eliminate either of these provisions at any time in the future without the affirmative vote of a
majority of the votes cast on the matter by stockholders entitled to vote.
Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what
is currently provided in our charter or bylaws, to implement certain corporate governance provisions, some of which
are not currently applicable to us. If implemented, these provisions may have the effect of limiting or precluding a
third party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in
control of us under circumstances that otherwise could provide our common stockholders with the opportunity to
realize a premium over the then current market price. Our charter contains a provision whereby the Company has
elected to not be subject to the provisions of Title 3, Subtitle 8 of the MGCL without the affirmative consent of the
shares cast on the matter by stockholders entitled to vote.
We could increase the number of authorized shares, classify and reclassify unissued shares and issue shares
without stockholder approval.
Our board of directors, without stockholder approval, has the power under our charter to amend our charter to
increase or decrease the aggregate number of shares or the number of shares of any class or series that we are
authorized to issue, and to authorize us to issue authorized but unissued common stock or preferred stock. In
addition, under our charter, our board of directors has the power to classify or reclassify any unissued common or
preferred shares into one or more classes or series of shares and set or change the preference, conversion or other
rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications or terms or
conditions of redemption for such newly classified or reclassified shares. As a result, we may issue series or classes
of common stock or preferred stock with preferences, dividends, powers and rights, voting or otherwise, that are
senior to, or otherwise conflict with, the rights of holders of our common stock. Although our board of directors has
no such intention at the present time, it could establish a class or series of preferred shares that could, depending on
the terms of such class or series, 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 interests.
Certain provisions in the partnership agreement of our operating partnership may delay or prevent unsolicited
acquisitions of us.
Provisions of the partnership agreement of our operating partnership may delay or make more difficult unsolicited
acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals
involving an unsolicited acquisition of us or change of our control, although some stockholders or limited partners
might consider such proposals, if made, desirable. These provisions include, among others:
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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.
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.
We may change our business, investment and financing strategies without stockholder approval.
We may change our business, investment and financing strategies without a vote of, or notice to, our stockholders,
which could result in our making investments and engaging in business activities that are different from, and
possibly riskier than, the investments and businesses described in this report. In particular, a change in our
investment strategy, including the manner in which we allocate our resources across our portfolio or the types of
assets in which we seek to invest, may increase our exposure to real estate market fluctuations. In addition, we may
in the future increase the use of leverage at times and in amounts that we, in our discretion, deem prudent and such
decision would not be subject to stockholder approval. Furthermore, our board of directors may determine that
healthcare properties do not offer the potential for attractive risk-adjusted returns for an investment strategy.
Changes to our strategies with regards to the foregoing could adversely affect our financial condition, results of
operations and our ability to make distributions to our stockholders.
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which
could limit your recourse in the event that we take certain actions which are not in your best interests.
Our charter eliminates the liability of our directors and officers to us and our stockholders for money damages,
except for liability resulting from:
•
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actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as
being material to the cause of action adjudicated.
Our charter authorizes us to indemnify our present and former directors and officers for actions taken by them in
those and other capacities to the maximum extent permitted by Maryland present and former law. Our bylaws
obligate us to indemnify each present and former director or officer, to the maximum extent permitted by Maryland
law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his
or her service to us. In addition, we may be obligated to advance the defense costs incurred by our director and
officers. We have entered into indemnification agreements with our officers and directors, granting them express
indemnification rights. As a result, we and our stockholders may have more limited rights against our directors and
officers than might otherwise exist absent the current provisions in our charter, bylaws and indemnification
agreements or that might exist with other companies.
Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our
stockholders to effect changes to our management and may prevent a change in control of our company that is in the
best interests of our stockholders. 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. These
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requirements make it more difficult to change our management by removing and replacing directors and may
prevent a change in control of our company that is in the best interests of our stockholders.
We are a holding company with no direct operations and, as such, we will rely on funds received from our
operating partnership to pay liabilities, and the interests of our stockholders will be structurally subordinated to
all liabilities and obligations of our operating partnership and its subsidiaries.
We are a holding company and conduct substantially all of our operations through our operating partnership. We do
not have, apart from an interest in our operating partnership, any independent operations. As a result, we will rely on
distributions from our operating partnership to pay any dividends we might declare on shares of our common stock.
We will also rely on distributions from our operating partnership to meet any of our obligations, including any tax
liability on taxable income allocated to us from our operating partnership. 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 operating partnership and its subsidiaries. Therefore, in the
event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its
subsidiaries will be available to satisfy the claims of our stockholders only after all of our and our operating
partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
Our operating partnership may issue additional OP units to third parties without the consent of our stockholders,
which would reduce our ownership percentage in our operating partnership and would have a dilutive effect on
the amount of distributions made to us by our operating partnership and, therefore, the amount of distributions
we can make to our stockholders.
We own 100% of the outstanding OP units and we may, in connection with our acquisition of properties or
otherwise, cause our operating partnership to issue additional OP units to third parties. Such issuances would reduce
our ownership percentage in our operating partnership and affect the amounts of distributions made to us by our
operating partnership and, therefore, the amounts of distributions we can make to our stockholders. Because you will
not directly own OP units, you will not have any voting rights with respect to any such issuances or other
partnership level activities of our operating partnership.
Risks Related to Our Qualification and Operation as a REIT
Failure to remain qualified as a REIT, would cause us to be taxed as a regular corporation, which would
adversely affect the value of our shares and substantially reduce funds available for distributions to our
stockholders.
Our organization and proposed method of operation have enabled us to meet the requirements for qualification and
taxation as a REIT commencing with our taxable year ended December 31, 2015. However, we cannot assure you
that we will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial and administrative interpretations. The
complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the
Code, or the Treasury Regulations, is greater in the case of a REIT that, like us, holds its assets through a
partnership. The determination of various factual matters and circumstances not entirely within our control may
affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements,
including requirements regarding the ownership of our stock, the composition of our assets and the composition of
our income. In addition, we must distribute to stockholders annually at least 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding net capital gains. Legislation, new
Treasury Regulations, administrative interpretations or court decisions may materially and adversely affect our
ability to qualify as a REIT for U.S. federal income tax purposes.
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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:
37
•
•
•
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 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.
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all
these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it
would adversely affect the market price of our common shares.
If our operating partnership failed to qualify as a “partnership” for U.S. federal income tax purposes, we would
cease to qualify as a REIT and suffer other adverse consequences.
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.
Instead, each of its partners will be allocated, and may be required to pay tax with respect to, its share of our
operating partnership’s income. We cannot assure you that the IRS will not challenge the status of our operating
partnership, or that a court would not sustain such a challenge. If the Internal Revenue Service, or IRS, were
successful in treating our operating partnership as an entity taxable as a corporation, our operating partnership would
be liable for U.S. federal and state corporate income taxes on its taxable income and we would fail to meet the gross
income tests and certain of the asset tests applicable to REITs under the Code and cease to qualify as a REIT.
We may face other tax liabilities that reduce our cash flows.
We may be subject to certain federal, state and local taxes on our income and assets, including taxes on any
undistributed income, tax on income from some activities conducted as a result of a foreclosure, taxes on income
from certain “prohibited transactions” and state or local income, property and transfer taxes. In addition, any TRS
that we may form or in which we may invest will be subject to regular corporate federal, state and local taxes. Any
of these taxes would decrease cash available for distributions to our stockholders.
To maintain our status as a REIT and avoid the payment of U.S. federal income and excise taxes, we may be
forced to borrow funds, use proceeds from the issuance of securities, pay taxable dividends of our stock or debt
securities or sell assets to make distributions, in each case during unfavorable market conditions and which may
result in our distributing amounts that would otherwise be used for our operations.
To maintain our status as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable
income each year, determined without regard to the dividends paid deduction and excluding net capital gains, and
we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our REIT
taxable income (determined without regard to the deduction for dividends paid) each year. In addition, we will be
subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar
year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our
undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise
would be spent on operations, the acquisitions of properties and the service of our debt. It is possible that we could
be required to borrow funds, use proceeds from the issuance of securities, pay taxable dividends of our stock or debt
securities or sell assets in order to distribute enough of our taxable income to qualify or maintain our qualification as
a REIT and to avoid the payment of U.S. federal income and excise taxes. We cannot assure you that a sufficient
amount of capital will be available to us on favorable terms, or at all, when needed for the foregoing purposes,
which would materially and adversely affect our financial condition, results of operations, cash flows and ability to
pay distributions, and the market price of our common stock.
38
Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate
otherwise attractive investments.
To maintain our status as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning,
among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute
to our stockholders and the ownership of our shares. 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.
A REIT’s net gain or income from “prohibited transactions” is subject to a 100% penalty tax. In general, prohibited
transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to
customers in the ordinary course of business. Although a safe harbor regarding the characterization of the sale of
real property by a REIT as a prohibited transaction is available, we cannot assure you that we will be able to comply
with the safe harbor with respect to any sale of our properties or that we will avoid owning property that may be
characterized as held primarily for sale to customers in the ordinary course of business. 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.
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.
We have formed one TRS, and in the future, may form other TRSs for various reasons, including for the purpose of
leasing “qualified healthcare properties” from us pursuant to the provisions of the REIT Investment Diversification
and Empowerment Act of 2007, or RIDEA. Overall, no more than 20% of the value of a REIT’s assets may consist
of stock or securities of one or more TRSs. The Code also imposes a 100% excise tax on certain transactions
between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of
our respective investments in our TRSs for the purpose of ensuring compliance with the TRS ownership limitation
and will structure any future transactions with any TRS on terms that we believe are arm’s length to avoid incurring
the 100% excise tax described above. However, there can be no assurance that we will be able to comply with such
TRS ownership limitation or to avoid application of the 100% excise tax.
TRSs will increase our overall tax liability.
Our one TRS, and any TRSs that we may form or acquire in the future, including a TRS formed or acquired to lease
“qualified healthcare properties” from us under the provisions of RIDEA, will be subject to federal and state income
tax on its taxable income. Accordingly, although our ownership of a TRS may allow us to participate in income we
otherwise could not receive directly as a REIT, such income would be fully subject to federal and state income tax.
If a TRS tenant failed to qualify as a TRS, or the operator of a facility engaged by a TRS tenant did not qualify as
an “eligible independent contractor,” we could fail to qualify as a REIT and could be subject to higher taxes and
have less cash available for distribution to our stockholders.
We may, in the future, lease certain of our properties that qualify as “qualified healthcare properties” to a TRS
tenant, although we have no present intention to do so. Rent paid by a tenant that is a “related party tenant” of ours
will not be qualifying income for purposes of the two gross income tests applicable to REITs. However, so long as
any TRS tenant of ours qualifies as a TRS, it will not be treated as a “related party tenant” with respect to our
healthcare properties that are managed by “eligible independent contractors.” We would seek to structure any future
arrangements with a TRS tenant such that the TRS tenant would qualify to be treated as a TRS for U.S. federal
income tax purposes, but there can be no assurance that the IRS would not challenge the status of a TRS or that a
court would not sustain such a challenge. If the IRS were successful in disqualifying a TRS tenant from treatment as
a TRS, it is possible that we would fail to meet the asset tests applicable to REITs and a significant portion of our
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income would fail to qualify for the gross income tests. If we failed to meet either the asset or gross income tests, we
would likely lose our REIT qualification for federal income tax purposes.
Additionally, if the operator of a facility engaged by a TRS tenant does not qualify as an “eligible independent
contractor,” we could fail to qualify as a REIT. Any operator of a healthcare facility leased to a TRS tenant must
qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by such TRS
tenant to be qualifying income for purposes of the REIT gross income tests. 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. The
ownership attribution rules that apply for purposes of these 35% thresholds are complex. Although we would
monitor ownership of our shares by any facility operators and their owners, there can be no assurance that these
ownership levels will not be exceeded.
If leases of our properties are not respected as true leases for U.S. federal income tax purposes, we would fail to
qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our
stockholders.
Rents paid to us by third-party tenants and any TRS tenant that we may form or acquire in the future pursuant to the
leases of our properties will constitute substantially all of our gross income. 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. If our leases are not respected as true leases for U.S. federal income tax purposes, we
could fail to qualify as a REIT.
You may be restricted from acquiring or transferring certain amounts of our common stock.
The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit and other restrictions on
ownership and transfer of our shares contained in our charter may inhibit market activity in our shares and restrict
our business combination opportunities.
In order to maintain our status as a REIT each taxable year, five or fewer individuals, as defined in the Code, may
not own, beneficially or constructively, more than 50% in value of our issued and outstanding shares at any time
during the last half of each taxable year. Attribution rules in the Code determine if any individual or entity
beneficially or constructively owns our shares under this requirement. Additionally, at least 100 persons must
beneficially own our shares during at least 335 days of a taxable year for each taxable year. To help insure that we
meet these tests, our charter restricts the acquisition and ownership of shares.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to
preserve our qualification as a REIT. Unless exempted by our board of directors, our charter prohibits any person
from beneficially or constructively owning more than 9.8% in value of the outstanding shares of our capital stock or
9.8%, in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock.
Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose
ownership in excess of such limits would result in our failing to qualify as a REIT. This, as well as other restrictions
on transferability and ownership, will not apply if our board of directors determines that it is no longer in our best
interests to continue to qualify as a REIT.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at
individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on
qualified dividend income. The more favorable rates applicable to regular corporate qualified dividends could cause
investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than
investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the
40
shares of REITs, including our common stock. 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.
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.
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.
However, such FIRPTA tax will not apply if we are “domestically controlled,” meaning less than 50% of our stock,
by value, has been owned directly or indirectly by non-U.S. persons during a specified look-back period. In addition,
even if we were not domestically controlled, such tax would not apply to such non-U.S. stockholder if our common
stock was traded on an established securities market and such stockholder did not, at any time during the five-year
period prior to a sale of our common stock, directly or indirectly own more than 5% of the value of our outstanding
common stock. 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.
A non-U.S. stockholder generally is subject to U.S. income tax on our capital gain distributions attributable to our
sales of U.S. real property interests under FIRPTA. However, if our common stock is regularly traded on an
established securities market, such distributions will not be subject to such tax if such stockholder did not, at any
time during the one-year period preceding the distribution, directly or indirectly own more than 5% of the value of
our outstanding common stock. While we expect our stock will be regularly traded on an established securities
market, if it is not so traded, or if we are unable to determine the level of ownership of a particular non-U.S.
stockholder, we may be required to withhold 21% of any distribution to such stockholder that we designate as a
capital gain dividend.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our
common stock.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws
may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative
interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative
interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may
take effect retroactively. We and our stockholders could be adversely affected by any such change in the U.S.
federal income tax laws, regulations or administrative interpretations.
Effective January 1, 2018, among other things, the TCJA reduced the top corporate tax rate from 35% to 21%,
allowed a deduction of up to 20% of qualified business income including qualified REIT dividends, eliminated the
corporate alternative minimum tax, and placed certain additional limitations on the deductibility of interest expense.
Additionally, the TCJA required that taxpayers using the accrual method for income tax accounting take into
account certain items of income for income tax purposes no later than the time such items are taken into account as
revenue for financial accounting purposes on certain financial statements. The application of this rule may require
the accrual of income with respect to certain debt instruments on mortgage-based securities, such as original issue
discount or mortgage discount, earlier than would be the case under the general tax rules, although the precise
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application of this rule is unclear at this time. The full effect of the TCJA on the real estate industry and our business
are not yet known.
Risks Related to our Common Stock
The trading volume of our common stock may be volatile, and you may not be able to resell shares of our
common stock at prices equal to or greater than the price you paid or at all.
Our common stock is listed on the NYSE. In addition, the trading volume in our common stock may fluctuate and
cause significant price variations to occur, and investors in our common stock may from time to time experience a
decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. 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.
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;
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•
•
•
changes in our credit ratings;
the impact of COVID-19 on our business, financial condition, results of operations, cash flows, and
global financial markets; and
general market and economic conditions.
In the past, securities class-action litigation has often been instituted against companies following periods of
volatility in the price of their common stock. 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.
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.
One of the factors that will influence the market price of our common stock will be the dividend yield on the
common stock (as a percentage of the price of our common stock) relative to market interest rates. 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. Thus, higher market interest rates could cause the market price of our common stock to decrease.
Our issuance of equity securities or the perception that such issuances might occur could materially adversely
affect us, including the per share trading price of our common stock.
The vesting of any restricted shares granted to certain directors, executive officers and other employees under our
2014 Incentive Plan, as amended, (the "2014 Incentive Plan"), including our Amended and Restated Alignment of
Interest Program, our Executive Officer Incentive Program and our Non-Executive Officer Incentive Program, the
issuance of our common stock or OP Units in connection with future property, portfolio or business acquisitions and
other issuances of our common stock could have an adverse effect on the market price of our common stock, and the
existence of our common stock issuable under our 2014 Incentive Plan may adversely affect the terms upon which
we may be able to obtain additional capital through the sale of equity securities. In addition, future issuances of our
common stock may be dilutive to existing stockholders.
If securities analysts do not publish research or reports about our industry or if they downgrade our common
stock or the healthcare-related real estate sector, the price of our common stock could decline.
The trading market for our common stock relies in part upon the research and reports that industry or financial
analysts publish about us or our industry. 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. If one or more of these analysts ceases coverage of our company, we
could lose attention in the market which in turn could cause the market price of our common stock to decline.
Future sales of shares of our common stock, particularly by our executive officers or directors, may cause the per
share trading price of our common stock to decline.
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Any sales of a substantial number of shares of our common stock, or the perception that those sales might occur,
may cause the market price of our common stock to decline. After the expiration of any applicable transfer
restrictions imposed by our 2014 Incentive Plan, stock purchase agreements or lockup agreements with us, our
executive officers and directors will have the ability to sell all of any portion of the applicable common stock which
could cause the market price of our common stock to decline.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
In addition to the information provided below, see Item 1, "Business," Note 2 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, 2020.
Scheduled Lease Expirations
As of December 31, 2020, the weighted average remaining years to maturity pursuant to the leases with our tenants
was approximately 8.1 years, with expirations through 2039. The table below details scheduled lease expirations, as
of December 31, 2020, for our properties for the periods indicated.
Year
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
Month-to-Month
Totals
Total Leased Square Footage
Annualized Lease Revenue
Number of
Leases Expiring
Amount
Percent (%)
Amount
(in thousands)
Percent (%)
29
39
47
21
27
22
4
8
13
14
26
11
164,676
216,602
271,815
143,631
253,353
252,948
12,325
123,461
177,744
172,667
875,472
24,491
6.1 % $
8.1 %
10.1 %
5.3 %
9.4 %
9.4 %
0.5 %
4.6 %
6.6 %
6.4 %
32.6 %
0.9 %
261
2,689,185
100.0 % $
3,535
4,687
5,384
3,347
7,052
5,643
360
2,351
5,217
3,157
26,498
358
67,589
5.2 %
6.9 %
8.0 %
5.0 %
10.4 %
8.3 %
0.5 %
3.5 %
7.7 %
4.7 %
39.3 %
0.5 %
100.0 %
ITEM 3. LEGAL PROCEEDINGS
The Company may, from time to time, be involved in litigation arising in the ordinary course of business or which
may be expected to be covered by insurance. The Company is not aware of any pending or threatened litigation that,
if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial
position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II.
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 10, 2021, there were 31 stockholders of record.
Future dividends will be declared and paid at the discretion of the Board of Directors. The Company’s ability to pay
dividends is dependent upon its ability to generate funds from operations and cash flows, and to make accretive new
investments.
Stock Performance Graph
The following graph compares, over a measurement period beginning December 31, 2015 and ending on
December 31, 2020, 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. 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, 2015 and that all dividends were reinvested. 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.
Index
12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
Community Healthcare Trust Incorporated
Russell 3000 Index
NAREIT All Equity REIT Index
$
$
$
100.00 $
134.84 $
175.03 $
190.45 $
295.10 $
337.00
100.00 $
112.74 $
136.56 $
129.40 $
169.54 $
204.95
100.00 $
108.63 $
118.05 $
113.28 $
145.75 $
138.28
Period Ending
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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
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.
45
ITEM 6. SELECTED FINANCIAL DATA
Intentionally omitted.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this Management's Discussion and Analysis ("MD&A") is to provide an understanding of the
Company's consolidated financial condition, results of operations and liquidity. MD&A is provided as a supplement
to, and should be read in conjunction with, the Company's Consolidated Financial Statements and accompanying
notes.
Overview
We were organized in the State of Maryland in March 2014 and began operations upon the completion of our initial
public offering in May 2015. We are a self-administered, self-managed healthcare REIT that acquires and owns
properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers.
Trends and Matters Impacting Operating Results
Management monitors factors and trends that it believes are important to the Company and the REIT industry in
order to gauge their potential impact on the operations of the Company. Certain of the factors and trends that
management believes may impact the operations of the Company are discussed below.
Real estate investments
During the year ended December 31, 2020, the Company acquired 23 real estate properties and 2 land parcels. Upon
acquisition, the properties were 99.5% leased in the aggregate with lease expirations through 2039.
2021 Real estate acquisitions
Subsequent to December 31, 2020, the Company acquired four real estate properties totaling approximately 80,000
square feet for an aggregate purchase price of approximately $17.8 million and cash consideration of approximately
$17.9 million, and entered into a $6.0 million term loan and a revolver loan up to $4.0 million with the tenant on two
of the properties. Upon acquisition, the properties were 100.0% leased in the aggregate with lease expirations
through 2036. These acquisitions were funded with cash on hand and proceeds from the Company's Revolving
Credit Facility.
Acquisition pipeline
The Company has two properties under definitive purchase agreements, to be acquired after completion and
occupancy, for an aggregate expected purchase price of approximately $42.0 million. The Company's expected
aggregate returns on these investments is approximately 9.1%. The Company expects to close on these properties in
the first quarter of 2021; however, the Company cannot provide assurance as to the timing of when, or whether,
these transactions will actually close.
The Company has one property under a definitive purchase agreement for an expected purchase price of
approximately $4.4 million. The Company is currently performing due diligence procedures customary for this type
of transaction. The Company expects to close this property in the second quarter of 2021; however, the Company
cannot provide assurance as to the timing of when, or whether, this transaction will actually close.
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.
46
COVID-19 Pandemic
During 2020, the world was, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic.
COVID-19 and measures to prevent its spread impacted many healthcare providers, including some of our tenants.
Some of them are not seeing patients, others have seen a reduced number of elective procedures and/or patient visits,
while others have experienced limited impact, or have even seen improved cash flows from either increases in
census or from government funding.
As a result of the pandemic, the Company entered into deferral agreements with eighteen tenants. These represented
less than one percent of our annualized rent in the aggregate. Sixteen of these agreements required the tenants to
repay the deferred amounts during the last half of 2020, while two of the agreements extended repayment beyond
the end of 2020. The Company has remaining payments due under these agreements of less than $100,000 as of
December 31, 2020.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be
dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently
unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental
actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters
going forward. The reopening or closure of our tenants' businesses is dependent on applicable government
requirements, which vary by location, and are subject to ongoing changes, which could result from increasing
COVID-19 cases.
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. The purchase option provisions generally require the lessee to purchase the leased property at fair
value or at an amount greater than the Company's gross investment in the leased property at the time of the purchase.
At December 31, 2020, the Company had gross investments of approximately $13.9 million in 7 real estate
properties with purchase options exercisable at December 31, 2020. An additional 4 real estate properties in which
the Company had an aggregate gross investment of approximately $29.5 million at December 31, 2020 have
purchase options that will become exercisable during 2021.
ATM Program
On November 3, 2020, the Company entered into Amendment No. 1 (the “Amendment”), to the Amended and
Restated Sales Agency Agreement, dated November 5, 2019 (as amended, the “Sales Agreement”) for its at-the-
market offering program ("ATM Program"), by and among the Company and Piper Sandler & Co. (f/k/a Sandler
O’Neill & Partners, L.P.), Evercore Group L.L.C., Truist Securities, Inc. (f/k/a SunTrust Robinson Humphrey, Inc.),
Regions Securities LLC, Robert W. Baird & Co. Incorporated, Fifth Third Securities, Inc. and Janney Montgomery
Scott LLC., as sales agents (collectively, the “Agents”). Pursuant to the Amendment, Regions Securities LLC and
Robert W. Baird & Co. Incorporated were added as additional sales agents under the Sales Agreement. Under the
ATM Program, the Company may issue and sell shares of its common stock, having an aggregate gross sales price
of up to $360.0 million. 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.
During 2020, the Company issued, through its ATM Program, 2,206,976 shares of common stock at an average
gross sales price of $45.29 per share and received net proceeds of approximately $98.0 million after deducting
commissions and offering expenses paid by the Company. As of December 31, 2020, the Company had
approximately $140.2 million remaining that may be issued under the ATM Program. The proceeds were used to
repay outstanding balances under the Company's Credit Facility, to fund investments, and for general corporate
purposes.
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Credit Facility
The Company's second amended and restated credit facility (the "Credit Facility") is by and among Community
Healthcare OP, LP, the Company, and a syndicate of lenders with Truist Bank (formerly SunTrust Bank) serving as
Administrative Agent. The Company’s material subsidiaries are guarantors of the obligations under the Credit
Facility.
The Credit Facility, as amended, provides for a $150.0 million Revolving Credit Facility and $175.0 million in term
loans (the "Term Loans"). The Credit Facility, through the accordion feature, allows borrowings up to a total of
$525.0 million including the ability to add and fund additional term loans. The Revolving Credit Facility matures on
March 29, 2023 and includes one 12-month option to extend the maturity date of the Revolving Credit Facility,
subject to the satisfaction of certain conditions. The Term Loans include a five-year term loan facility in the
aggregate principal amount of $50.0 million (the "A-1 Term Loan"), which matures on March 29, 2022, a seven-
year term loan facility in the aggregate principal amount of $50.0 million (the "A-2 Term Loan"), which matures on
March 29, 2024, and a seven-year term loan facility in the aggregate principal amount of $75.0 million (the "A-3
Term Loan"), which matures on March 29, 2026.
The Company had $33.0 million outstanding under the Revolving Credit Facility with a borrowing capacity
remaining of approximately $117.0 million and a weighted average interest rate of approximately 1.55% at
December 31, 2020. Also, at December 31, 2020, the Company had drawn the full $175.0 million under the Term
Loans which had a fixed weighted average interest rate under the swaps of approximately 3.88%. See Note 5 to the
Consolidated Financial Statements for more details on the Credit Facility.
Lease Expirations
Approximately 5.0% to 10.5% 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. See "Properties" in
Item 2 for a schedule of the Company's lease expirations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a material effect on the Company's
consolidated financial condition, results of operations or liquidity.
Inflation
We believe inflation will have a minimal impact on the operating performance of our properties. Many of our lease
agreements contain provisions designed to mitigate the adverse impact of inflation. These provisions include clauses
that enable us to receive payment of increased rent pursuant to escalation clauses which generally increase rental
rates during the terms of the leases. These escalation clauses often provide for fixed rent increases or indexed
escalations (based upon CPI or other measures). However, some of these contractual rent increases may be less than
the actual rate of inflation. Generally, our lease agreements require the tenant to pay property operating expenses,
including maintenance costs, real estate taxes and insurance. This requirement reduces our exposure to increases in
these costs and property operating expenses resulting from inflation.
Seasonality
We do not expect our business to be subject to material seasonal fluctuations.
New Accounting Pronouncements
See Note 1 to the Company’s Consolidated Financial Statements accompanying this report for information on new
accounting standards not yet adopted.
48
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.
As of December 31, 2020, we had invested approximately $738.8 million in 141 real estate properties, which are
located in 33 states and total approximately 3.1 million square feet. During 2020, we acquired 23 real estate
properties and 2 land parcels which in the aggregate were 99.5% leased for cash consideration of approximately
$126.8 million. During 2019, we acquired 15 real estate properties for cash consideration of approximately $150.0
million.
Year Ended December 31, 2020 Compared to December 31, 2019
The table below shows our results of operations for the year ended December 31, 2020 compared to the same period
in 2019 and the effect of changes in those results from period to period on our net income.
(Dollars in thousands)
REVENUES
Rental income
Other operating interest
EXPENSES
Property operating
General and administrative
Depreciation and amortization
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND OTHER ITEMS
Loss on sale of real estate
Interest expense
Deferred income tax expense
Interest and other income, net
INCOME FROM CONTINUING OPERATIONS
NET INCOME
___________
n/m-not meaningful.
Revenues
For the Year Ended
December 31,
Increase (Decrease) to
Net Income
2020
2019
$
%
$
73,925 $
58,269 $
15,656
26.9 %
1,759
75,684
13,614
8,768
25,378
47,760
2,580
60,849
12,235
7,719
22,225
42,179
(821)
(31.8) %
14,835
24.4 %
(1,379)
(1,049)
(3,153)
(5,581)
(11.3) %
(13.6) %
(14.2) %
(13.2) %
27,924
18,670
9,254
49.6 %
(313)
(8,620)
(80)
166
19,077
—
(9,301)
(1,430)
437
8,376
(313)
681
1,350
(271)
10,701
$
19,077 $
8,376 $
10,701
n/m
7.3 %
94.4 %
(62.0) %
127.8 %
127.8 %
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Revenues increased approximately $14.8 million or 24.4%, for the year ended December 31, 2020 compared to the
same period in 2019 due mainly to the following:
•
Acquisitions during 2020 contributed revenues of approximately $6.3 million in 2020;
49
•
Acquisitions during 2019 contributed an increase in revenues of approximately $8.7 million in 2020.
Expenses
Property operating expenses increased approximately $1.4 million, or 11.3%, for the year ended December 31, 2020
compared to the same period in 2019 mainly due to the following:
•
•
Acquisitions during 2020 accounted for an increase of approximately $0.5 million in 2020;
Acquisitions during 2019 accounted for an increase of approximately $0.6 million in 2020.
General and administrative expenses increased approximately $1.0 million, or 13.6%, for the year ended
December 31, 2020 compared to the same period in 2019 due mainly to compensation-related expenses and
occupancy costs related to our employees and corporate office, including the amortization of non-vested restricted
common shares issued under the 2014 Incentive Plan totaling approximately $1.7 million. Also, professional fees
decreased approximately $0.5 million related mainly to additional costs incurred in 2019 relating to compliance
requirements of moving from an emerging growth company status to a large accelerated filer status totaling
approximately $0.3 million, as well as a reduction in legal fees from 2019 to 2020. The remaining decrease of
approximately $0.1 million resulted from a reduction in state income and other taxes from 2019 to 2020.
Depreciation and amortization expense increased approximately $3.2 million, or 14.2%, for the year ended
December 31, 2020 compared to the same period in 2019 due mainly to the following:
•
•
•
•
Depreciation and amortization related to properties acquired during 2020 accounted for an increase of
approximately $2.5 million in 2020;
Depreciation and amortization related to properties acquired during 2019 accounted for an increase of
approximately $2.5 million in 2020;
Real estate intangible assets acquired prior to 2019 that became fully depreciated resulted in a decrease of
approximately $2.1 million in 2020; and
Depreciation related to tenant and other improvements accounted for an increase of approximately $0.3
million in 2019.
Loss on sale of real estate
During the second quarter of 2020, the Company sold a land parcel related to one of its properties for approximately
$0.3 million and recognized a loss on sale of approximately $0.3 million.
Interest expense
Interest expense decreased approximately $0.7 million, or 7.3%, for the year ended December 31, 2020 compared to
the same period in 2019 due mainly to the decrease in weighted average interest rates on the Credit Facility from
2019 to 2020.
50
Income tax expense
The Company recorded income tax expense in 2019 related to adjustments to the valuation allowance on a deferred
tax asset recognized in 2018 due to the impairment of a mezzanine note and deferred compensation in both 2020 and
2019.
Year Ended December 31, 2019 Compared to December 31, 2018
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of
Operations” in our 2019 Annual Report on Form 10-K for a comparison of the year ended December 31, 2019
compared to December 31, 2018, which is incorporated by reference.
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.
The Company uses these indicators and others to compare its operations to its peers and to help identify areas in
which the Company may need to focus its attention.
Sources and Uses of Cash
The Company derives most of its revenues from its real estate properties, collecting rental income and operating
expense reimbursements based on contractual arrangements with its tenants. These sources of revenue represent our
primary source of liquidity to fund our dividends, general and administrative expenses, property operating expenses,
interest expense on our Credit Facility and other expenses incurred related to managing our existing portfolio and
investing in additional properties. To the extent additional resources are needed, the Company will fund its
investment activity generally through equity or debt issuances, including our at-the-market equity offering program,
either in the public or private markets or through proceeds from our Credit Facility.
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 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, 2020, 2019 and 2018 were
approximately $48.4 million, $32.4 million, and $24.4 million, respectively. Cash flows provided by operating
activities for the years ended December 31, 2020, 2019 and 2018 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.
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Investing Activities
Cash flows used in investing activities for the years ended December 31, 2020, 2019 and 2018 were approximately
$125.1 million, $153.2 million, and $53.5 million, respectively. During 2020, the Company invested in 23 real estate
51
properties and 2 land parcels for an aggregate cash consideration of approximately $126.8 million. During 2019, the
Company invested in 15 real estate properties for an aggregate cash consideration of approximately $150.0 million.
During 2018, the Company invested in 19 real estate properties for cash consideration of approximately $45.2
million. In addition, during 2020 and 2018, the Company acquired or funded notes receivable of approximately $1.8
million and $7.0 million, respectively, and received payments in 2020, 2019 and 2018 on notes of approximately
$10.3 million, $1.2 million, and $0.1 million, respectively. Also, the Company funded capital expenditures,
including tenant improvements, during 2020, 2019 and 2018 totaling $7.0 million, $4.4 million, and $4.6 million,
respectively.
Financing Activities
Cash flows provided by financing activities for the years ended December 31, 2020, 2019 and 2018 were
approximately $77.6 million, $120.4 million, and $29.3 million, respectively. During 2020, 2019 and 2018, the
Company paid dividends totaling $38.0 million, $31.9 million and $29.4 million, respectively. During 2020, 2019
and 2018, the Company completed equity offerings, including offerings under its at-the-market program, resulting in
net proceeds, net of underwriters' discount and offering costs, of approximately $97.7 million, $106.8 million and
$10.0 million, respectively. During 2020 and 2018, the Company borrowed, on a net basis, approximately $18.0
million and $9.0 million, respectively, on its Revolving Credit Facility, and in 2019, the Company repaid, on a net
basis, approximately $28.0 million on its Revolving Credit Facility. During 2019 and 2018, the Company also
borrowed $75.0 million, and $40.0 million, respectively, in Term Loans under its Credit Facility. The net proceeds
from these equity offerings and borrowings under its Credit Facility were used to invest in the Company's real estate
assets and were used for general corporate purposes.
Credit Facility
The Company's second amended and restated credit facility (the "Credit Facility") is by and among Community
Healthcare OP, LP, the Company, and a syndicate of lenders with Truist Bank (formerly SunTrust Bank) serving as
Administrative Agent. The Company’s material subsidiaries are guarantors of the obligations under the Credit
Facility.
The Credit Facility, as amended, provides for a $150.0 million Revolving Credit Facility and $175.0 million in term
loans (the "Term Loans"). The Credit Facility, through the accordion feature, allows borrowings up to a total of
$525.0 million including the ability to add and fund additional term loans. The Revolving Credit Facility matures on
March 29, 2023 and includes one 12-month option to extend the maturity date of the Revolving Credit Facility,
subject to the satisfaction of certain conditions. The Term Loans include a five-year term loan facility in the
aggregate principal amount of $50.0 million (the "A-1 Term Loan"), which matures on March 29, 2022, a seven-
year term loan facility in the aggregate principal amount of $50.0 million (the "A-2 Term Loan"), which matures on
March 29, 2024, and a seven-year term loan facility in the aggregate principal amount of $75.0 million (the "A-3
Term Loan"), which matures on March 29, 2026.
The Company had $33.0 million outstanding under the Revolving Credit Facility with a borrowing capacity
remaining of approximately $117.0 million and a weighted average interest rate of approximately 1.55% at
December 31, 2020. Also, at December 31, 2020, the Company had drawn the full $175.0 million under the Term
Loans which had a fixed weighted average interest rate under the swaps of approximately 3.88%. See Note 5 to the
Consolidated Financial Statements for more details on the Credit Facility.
The Company’s ability to borrow under the Credit Facility is subject to its ongoing compliance with customary
affirmative and negative covenants, including limitations with respect to liens, indebtedness, distributions, mergers,
consolidations, investments, restricted payments and asset sales, as well as financial maintenance covenants. 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, 2020, our debt to total
capitalization ratio (debt plus stockholders' equity plus accumulated depreciation) was approximately 28.5%. The
Company was in compliance with its financial covenants under its Credit Facility as of December 31, 2020.
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Automatic Shelf Registration Statement
On November 5, 2019, 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. 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.
2021 Real estate acquisitions
Subsequent to December 31, 2020, the Company acquired four real estate properties totaling approximately 80,000
square feet for an aggregate purchase price of approximately $17.8 million and cash consideration of approximately
$17.9 million, and entered into a $6.0 million term loan and a revolver loan up to $4.0 million with the tenant on two
of the properties. Upon acquisition, the properties were 100.0% leased in the aggregate with lease expirations
through 2036. These acquisitions were funded with cash on hand and proceeds from the Company's Revolving
Credit Facility.
Acquisition pipeline
The Company has two properties under definitive purchase agreements, to be acquired after completion and
occupancy, for an aggregate expected purchase price of approximately $42.0 million. The Company's expected
aggregate returns on these investments is approximately 9.1%. The Company expects to close on these properties in
the first quarter of 2021; however, the Company cannot provide assurance as to the timing of when, or whether,
these transactions will actually close.
The Company has one property under a definitive purchase agreement for an expected purchase price of
approximately $4.4 million. The Company is currently performing due diligence procedures customary for this type
of transaction. The Company expects to close this property in the second quarter of 2021; however, the Company
cannot provide assurance as to the timing of when, or whether, this transaction will actually close.
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.
Security Deposits
As of December 31, 2020, the Company held approximately $4.1 million in security deposits for the benefit of the
Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the
Company may, at its discretion and upon notification to the tenant, draw upon the security deposits if there are any
defaults under the leases.
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Contractual Obligations
The Company’s material contractual obligations at December 31, 2020 are included in the table below. At
December 31, 2020, the Company had no long-term capital lease or purchase obligations.
(Dollars in thousands)
Revolving Credit Facility (1)
Terms Loans (2)
Mortgage note payable
Operating lease obligation
Tenant improvements
Capital improvements
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
$
34,806 $
803 $
34,003 $
— $
199,154
6,791
6,892
784
2,333
1,472
647
41
2,333
1,472
60,132
1,295
56,491
4,950
84
—
—
87
—
—
—
75,740
—
572
—
—
$ 245,441 $
12,087 $
95,514 $
61,528 $
76,312
____________
(1)
The amounts shown include interest at the weighted average interest rate at December 31, 2020 and the unused fee
interest assuming the credit facility remains at $33.0 million through its maturity.
(2)
The amounts shown include interest at the current fixed rates through the in-place cash flow hedges assuming the term
loans remain at $175.0 million outstanding through maturity.
Dividends
The Company is required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to
maintain its qualification as a REIT.
During 2020, 2019 and 2018, the Company paid cash dividends in the amounts of $1.685 per share, $1.645 per share
and $1.605 per share, respectively.
On February 11, 2021, the Company’s Board of Directors declared a quarterly common stock dividend in the
amount of $0.4275 per share. The dividend is payable on March 5, 2021 to stockholders of record on February 25,
2021.
The ability of the Company to pay dividends is dependent upon its ability to generate cash flows and to make
accretive new investments.
Funds from Operations
Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National
Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as the most commonly
accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance
with GAAP), excluding gains (or losses) from sales of property and impairments of real estate, plus depreciation and
amortization related to real estate properties, and after adjustments for unconsolidated partnerships and joint
ventures. NAREIT also provides REITs with an option to exclude gains, losses and impairments of assets that are
incidental to the main business of the REIT from the calculation of FFO.
Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement.
However, management believes FFO and FFO per share to be supplemental measures of a REIT’s performance
because they provide an understanding of the operating performance of the Company’s properties without giving
effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost
accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes
predictably over time. However, real estate values instead have historically risen or fallen with market conditions.
54
The Company believes that by excluding the effect of depreciation, amortization, gains or losses from sales of real
estate, impairment of real estate, and gains, 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 and FFO per share
can facilitate comparisons of operating performance between periods. The Company reports FFO and FFO per share
because these measures are observed by management to also be the predominant measures used by the REIT
industry and by industry analysts to evaluate REITs and because FFO per share is consistently reported, discussed,
and compared by research analysts in their notes and publications about REITs. For these reasons, management has
deemed it appropriate to disclose and discuss FFO and FFO per share. However, FFO does not represent cash
generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs. FFO should not be considered as an alternative to net income attributable to common
stockholders as an indicator of the Company’s operating performance or as an alternative to cash flow from
operating activities as a measure of liquidity. The table below reconciles net income to FFO.
(Amounts in thousands, except per share amounts)
Net income
Real estate depreciation and amortization
Impairment of note receivable (1)
Income tax expense (benefit) (1)
Loss (gain) from sales of real estate
Total adjustments
Funds from Operations
Funds from Operations per Common Share-Basic
Funds from Operations per Common Share-Diluted
Weighted Average Common Shares Outstanding-Basic
Weighted Average Common Shares Outstanding-Diluted (2)
Year Ended December 31,
2020
2019
2018
$
19,077 $
8,376 $
25,615
—
—
313
25,928
22,377
—
1,321
—
23,698
$
$
$
45,005 $
32,074 $
2.09 $
2.03 $
21,576
22,179
1.72 $
1.67 $
18,685
19,164
4,403
19,661
5,000
(1,321)
(295)
23,045
27,448
1.55
1.53
17,669
17,943
____________________________
(1) In the fourth quarter of 2018, the Company recorded a $5.0 million impairment related to its mezzanine loan with Highland Hospital and
recorded a related tax benefit and deferred tax asset of approximately $1.3 million. This deferred tax asset was impaired in the fourth quarter of
2019 and the tax benefit was reversed resulting in tax expense of $1.3 million. The Company believes that the mezzanine loan is incidental to the
main operations of the Company. As such, the Company has excluded the impairment of the note receivable and the related tax impact from its
calculation of FFO.
(2) Diluted weighted average common shares outstanding for FFO are calculated based on the treasury method, rather than the 2-class method.
Critical Accounting Policies
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. Actual results could differ from those estimates. 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 to the Consolidated Financial Statements.
Principles of Consolidation
Our Consolidated Financial Statements may include the accounts of the Company, its wholly owned subsidiaries,
joint ventures, partnerships and variable interest entities, or VIEs, where the Company controls the operating
activities. All material intercompany accounts, transactions, and balances have been eliminated.
Management must make judgments regarding the Company's level of influence or control over an entity and whether
or not the Company is the primary beneficiary of a variable interest entity. Consideration of various factors include,
but is not limited to, the Company's ability to direct the activities that most significantly impact the entity's
governing body, the size and seniority of the Company's investment, the Company's ability and the rights of other
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investors to participate in policy making decisions, the Company's ability to replace the manager and/or liquidate the
entity. Management's ability to correctly assess its influence or control over an entity when determining the primary
beneficiary of a VIE affects the presentation of these entities in the Company's Consolidated Financial Statements.
If it is determined that the Company is the primary beneficiary of a VIE, the Company's Consolidated Financial
Statements would consolidate the VIE rather than the results of the variable interest in the VIE. 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.
Accounting for Acquisitions of Real Estate Properties
Real estate property acquisitions are accounted for as a business combination or an asset acquisition. An acquisition
accounted for as a business combination is recorded at fair value and related closing costs are expensed as incurred.
An acquisition accounted for as an asset acquisition is recorded at its purchase price, inclusive of acquisition costs,
which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date
of acquisition. The Company adopted Accounting Standards Update ("ASU") No. 2017-01, Business Combinations
(Topic 805): Clarifying the Definition of a Business, on January 1, 2017, and the Company expects that substantially
all of its acquisitions will be accounted for as asset acquisitions.
The allocation of real estate property acquisitions may include land and land improvements, building and building
improvements, and identified intangible assets and liabilities (consisting of above- and below-market leases, in-place
leases, and tenant relationships) based on the evaluation of information and estimates available at that date, and the
allocation of the purchase price is based on these assessments. The acquisition date fair values of the tangible and
intangible assets and acquired liabilities are estimated based on information obtained from multiple sources as a
result of pre-acquisition due diligence, tax records, and other sources. Based on these estimates, we recognize the
acquired assets and liabilities based on their estimated fair values. We expense transaction costs associated with
business combinations in the period incurred. The fair value of tangible property assets acquired considers the value
of the property as if vacant determined by comparable sales and other relevant data. The determination of fair value
involves the use of significant judgment and estimation. We value land based on various inputs, which may include
internal analysis of recently acquired properties, existing comparable properties within our portfolio, or third party
appraisals or valuations based on comparable sales.
In recognizing identified intangible assets and liabilities of an acquired property, the value of above- or below-
market leases is estimated based on the present value (using a discount rate which reflects the risks associated with
the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and
management’s estimate of market lease rates measured over a period equal to the estimated remaining term of the
lease. 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.
In determining the value of in-place leases and tenant relationships, we consider current market conditions and costs
to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from
vacant to existing occupancy. In estimating carrying costs, we include real estate taxes, insurance, other property
operating expenses, estimates of lost rental revenue during the expected lease-up periods, and costs to execute
similar leases, including leasing commissions. The values assigned to in-place leases and tenant relationships are
amortized over the estimated remaining term of the lease. If a lease terminates prior to its scheduled expiration, all
unamortized costs related to that lease are written off.
56
Long-lived Asset Impairments
The Company may need to assess the potential for impairment of identifiable, definite-lived, intangible assets and
long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicates that
the carrying value might not be fully recoverable. Indicators of impairment may include significant under-
performance of an asset relative to historical or expected operating results; significant changes in the Company’s use
of assets or the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the
expiration of a significant portion of leases in a property; or significant negative economic trends or negative
industry trends for the Company or its operators. In addition, the Company’s review for possible impairment may
include those assets subject to purchase options and those impacted by casualties, such as tornadoes and hurricanes.
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.
Revenue Recognition
Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), also
referred to as Topic 606, establishes a comprehensive model to account for revenues arising from contracts with
customers. ASU 2014-09 applies to all contracts with customers, except those that are within the scope of other
guidance, such as real estate leases and financial instruments. ASU 2014-09 requires companies to perform a five-
step analysis of transactions to determine when and how revenue is recognized. The Company adopted ASU
2014-09 using the "modified retrospective" method effective January 1, 2018; as such, the Company has applied this
guidance to the consolidated financial statements.
On January 1, 2019, the Company adopted the new leasing standard, Accounting Standards Codification Topic 842
("ASC Topic 842"). The primary source of revenue for the Company is generated through its leasing arrangements
with its tenants which is accounted for under ASC Topic 842, or through notes with its borrowers which is covered
under the other accounting guidance. The Company's rental income and interest income are recognized based on
contractual arrangements with its tenants and borrowers. From the inception of a lease, if collection of substantially
all of the lease payments is probable for a tenant, then rental income is recognized as earned over the life of the lease
agreement on a straight-line basis. Recognizing rental revenue on a straight-line basis for leases may result in
recognizing revenue in amounts more or less than amounts currently due from tenants. If management determines
that collection of substantially all of a lease’s payments is not probable, it will revert to recognizing such lease
payments on a cash basis and will reverse any recorded receivables related to that lease. In the event that
management subsequently determines collection of substantially all of that lease’s receivable is probable,
management will reinstate and record all such receivables for the lease in accordance with the lease.
The Company recognizes operating expense recoveries in the period that applicable expenses are incurred. Other
variable payments, such as late fees and sales tax are recognized based on the contractual terms of its leases. Income
received but not yet earned is deferred until such time it is earned. Deferred revenue is included in other liabilities on
the Consolidated Balance Sheets.
Allowance for Credit Losses
Upon adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments on January 1, 2020,
the Company uses an expected credit loss ("CECL") model in evaluating the collectability of its notes receivable and
other financial instruments from time to time. The CECL impairment model requires an estimate of expected credit
losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in
addition to information about past events and current conditions. Under the CECL model, the Company will
estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that
instrument and is required to record a credit loss expense (or reversal) in each reporting period. At December 31,
2020, the Company did not have any material expected credit losses and, therefore, did not record any credit losses.
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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. Actual results may materially differ from those estimates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the form of changing interest rates on its debt and mortgage note
receivable. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
Management uses regular monitoring of market conditions and analysis techniques to manage this risk.
As of December 31, 2020, 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. 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. For
purposes of this analysis, sensitivity is demonstrated based on hypothetical 10% changes in the underlying market
interest rates.
Impact on Earnings and
Cash Flows
Outstanding
Principal Balance
at
December 31, 2020
Calculated Annual
Interest Expense
Assuming 10%
Increase in
Market Interest
Rates
Assuming 10%
Decrease in
Market Interest
Rates
$
$
$
$
33,000 $
50,000 $
50,000 $
75,000 $
510 $
1,966 $
1,800 $
3,026 $
(51) $
— $
— $
— $
51
—
—
—
(Dollars in thousands)
Variable Rate Debt:
Revolving Credit Facility
A-1 Term Loan (1)
A-2 Term Loan (1)
A-3 Term Loan (1)
___________
(1) The Company has interest rate swaps that fix the interest rates of the A-1 Term Loan, the A-2 Term Loan and the A-3 Term Loan; therefore,
changes in the interest rates will not impact our earnings or cash flows.
(Dollars in thousands)
December 31, 2020 December 31, 2020
Outstanding
Principal Balance
at
Fair Value
Assuming 10%
Increase in
Market Interest
Rates
Assuming 10%
Decrease in
Market Interest
Rates
December 31, 2019
Fixed Rate Receivables/Payable:
Notes Receivable (1)
$
15,010 $
15,010 $
14,718 $
15,361 $
23,399
Mortgage Note Payable (1)
___________
(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.
5,432 $
5,481 $
5,383 $
5,180 $
$
5,351
In July 2017, Financial Conduct Authority (the authority that regulates LIBOR) previously announced its intent to
stop compelling banks to submit rates for the calculation of LIBOR after 2021, and the administrator of LIBOR
announced its intention to cease the publication of the one week and two month USD LIBOR settings immediately
following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR
publication on June 30, 2023. Accordingly, there is considerable uncertainty regarding the publication of such rates
58
beyond these dates. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight
Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD-LIBOR for use in
derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced
market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and
company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. The
Company has material contracts that are indexed to USD-LIBOR and is monitoring this activity and evaluating the
related risks.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of
Stockholders and Board of Directors
Community Healthcare Trust Incorporated
Franklin, Tennessee
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Community Healthcare Trust Incorporated (the
“Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related
notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) and our report dated February 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
60
Real Estate Acquisitions - Sale and Leaseback Transactions
As described in Note 4 to the Company’s consolidated financial statements, the Company acquired real estate properties
for a total purchase price of approximately $127 million during the year ended December 31, 2020. As discussed in Note
1 to the Company's consolidated financial statements, certain of these acquisitions included a leaseback of the property to
the seller or affiliates of the seller. The Company determined that the transactions which included a leaseback of the
property to the seller or affiliates of the seller qualified as sale and leaseback transactions in accordance with Accounting
Standards Codification (“ASC”) Topic 842, Leases. Management evaluates various inputs and assumptions including
lease terms, renewal options, discount rates, and repurchase rights to determine whether control of the underlying real
estate property has transferred to the Company. If management determines that the control of the underlying real estate
property has not transferred, the transaction is accounted for as a financing transaction rather than an acquisition of the
real estate property.
We identified management’s evaluation of whether control of the underlying real estate property for sale and leaseback
transactions was transferred from the seller/lessee to the Company as a critical audit matter. Management applies
significant judgment in assessing relevant lease terms, provisions and other conditions, including potential or implicit
repurchase rights, included in the Company’s lease and purchase agreements to determine whether or not the control of
the real estate property has transferred to the Company. Auditing these assessments made by management involved
especially challenging auditor judgment due to the extent of specialized skills or knowledge required.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design and operating effectiveness of controls related to management’s assessment of relevant lease
terms, provisions or other conditions included in the Company’s lease and purchase agreements to determine
whether control of the real estate property has transferred to the Company.
Evaluating management’s assessment of whether potential or implicit repurchase rights, that would preclude
control of the real estate property transferring to the Company, are present in the lease and purchase agreements.
Utilizing professionals with specialized skills and knowledge to assist in: (i) assessing management’s application
of ASC Topic 842 and (ii) evaluating relevant lease terms, provisions and other conditions included in the
Company’s lease and purchase agreements to assess the appropriateness of the conclusion that a transfer of
control has occurred.
• Utilizing professionals with specialized skills and knowledge in valuation to assist, for certain transactions, with
assessing whether the overall transaction was at fair value.
Asset Impairment – Identification of Triggering Events and Assessment of Recoverability for Real Estate Properties
The Company recorded total real estate properties, net of accumulated depreciation of approximately $632 million as of
December 31, 2020. As described in Note 1 to the Consolidated financial statements, the Company assesses the potential
for impairment of long-lived assets, including real estate properties, whenever events occur, or circumstances change, that
indicate that the carrying value might not be fully recoverable ("triggering events"). A property value is impaired when
management’s estimate of current and projected, undiscounted and unleveraged, operating cash flows of the property is
less than the net carrying value of the property.
We identified management's evaluation of triggering events and the assessment of recoverability for properties as a
critical audit matter due to the subjectivity required in evaluating the existence of impairment indicators including market
conditions, occupancy, nature of the property, and property performance. Additionally, auditing the assumptions utilized
by management in performing the recoverability test, including market rent and terminal capitalization rate assumptions,
involved especially challenging auditor judgment including requiring the use of a specialist.
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The primary procedures we performed to address this critical audit matter included:
•
•
Testing the design and operating effectiveness of the control related to management's assessment of the potential
impairment of real estate assets which included management's judgment regarding impairment triggers, as well
as the assumptions management used in performing the recoverability tests for certain properties.
Evaluating management's identification and assessment of potential triggering events, including changes in
occupancy, nature of the property and property performance against historical operating results.
61
•
•
Testing the assumptions used by management in determining which properties require a recoverability test and
evaluating management's assumptions, including market rent assumptions, terminal capitalization rates and other
inputs used in performing the recoverability tests.
Utilizing professionals with specialized knowledge and skills in valuation to assist in testing specific market-
based assumptions used by the Company in performing its recoverability tests.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2015.
Nashville, Tennessee
February 16, 2021
62
COMMUNITY HEALTHCARE TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
ASSETS
Real estate properties
Land and land improvements
Buildings, improvements, and lease intangibles
Personal property
Total real estate properties
Less accumulated depreciation
Total real estate properties, net
Cash and cash equivalents
Restricted cash
Other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Debt, net
Accounts payable and accrued liabilities
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders' Equity
December 31,
2020
2019
$
83,714 $
68,129
651,398
534,503
247
735,359
(102,899)
632,460
2,483
409
33,050
220
602,852
(77,523)
525,329
1,730
293
35,179
$
668,402 $
562,531
$
212,374 $
194,243
5,743
20,369
238,486
3,606
11,271
209,120
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued and
outstanding
Common stock, $0.01 par value; 450,000,000 shares authorized; 23,888,090 and
21,410,578 shares issued and outstanding at December 31, 2020 and December 31,
2019, respectively
Additional paid-in capital
Cumulative net income
Accumulated other comprehensive loss
Cumulative dividends
Total stockholders’ equity
—
—
239
550,391
36,631
(11,846)
214
447,916
17,554
(4,808)
(145,499)
(107,465)
429,916
353,411
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Total liabilities and stockholders' equity
$
668,402 $
562,531
See accompanying notes to the consolidated financial statements.
63
COMMUNITY HEALTHCARE TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share amounts)
REVENUES
Rental income
Other operating interest
EXPENSES
Property operating
General and administrative
Depreciation and amortization
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND OTHER ITEMS
(Loss) gain on sales of real estate
Interest expense
Impairment of note receivable
Deferred income tax (expense) benefit
Interest and other income, net
INCOME FROM CONTINUING OPERATIONS
Year Ended December 31,
2020
2019
2018
$
73,925 $
58,269 $
46,453
1,759
75,684
2,580
60,849
2,104
48,557
13,614
8,768
25,378
47,760
27,924
(313)
(8,620)
—
(80)
166
19,077
12,235
7,719
22,225
42,179
18,670
—
(9,301)
—
(1,430)
437
8,376
9,944
5,634
19,539
35,117
13,440
295
(6,299)
(5,000)
1,547
420
4,403
4,403
NET INCOME
$
19,077 $
8,376 $
INCOME PER COMMON SHARE
Net income per common share – Basic
Net income per common share – Diluted
$
$
0.80 $
0.80 $
0.37 $
0.37 $
0.19
0.19
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING-BASIC
21,576,038
18,684,847
17,668,696
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING-DILUTED 21,576,038
18,684,847
17,668,696
See accompanying notes to the consolidated financial statements.
64
COMMUNITY HEALTHCARE TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
NET INCOME
Other comprehensive (loss) income:
(Decrease) increase in fair value of cash flow hedges
Reclassification of amounts recognized as interest expense
Total other comprehensive (loss) income
COMPREHENSIVE INCOME
Year Ended December 31,
2020
2019
2018
$
19,077 $
8,376 $
4,403
(9,945)
(5,472)
2,907
31
(7,038)
(5,441)
182
193
375
$
12,039 $
2,935 $
4,778
See accompanying notes to the consolidated financial statements.
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COMMUNITY HEALTHCARE TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Other amortization
Stock-based compensation
Straight-line rent
Loss (gain) on sales of real estate property
Impairment of note receivable
Deferred income tax expense (benefit)
Changes in operating assets and liabilities:
Other assets
Accounts payable and accrued liabilities
Other liabilities
For the Year Ended December 31,
2020
2019
2018
$
19,077 $
8,376 $
4,403
25,378
22,225
19,539
136
4,736
527
3,836
629
2,852
(3,211)
(2,052)
(1,212)
313
—
80
517
1,015
329
—
—
(295)
5,000
1,430
(1,547)
(1,761)
(95)
(124)
(2,162)
(1,251)
(1,515)
Net cash provided by operating activities
48,370
32,362
24,441
INVESTING ACTIVITIES
Acquisitions of real estate
Dispositions of real estate
Acquisition and funding of mortgage and other notes receivable
Funding of notes receivable
(126,818)
(150,001)
(45,185)
248
(1,750)
—
—
—
—
3,176
(2,201)
(4,833)
92
Proceeds from repayments on notes receivable
10,253
1,195
Capital expenditures on existing real estate properties
Net cash used in investing activities
FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit facility
Term loan borrowings
Mortgage note repayments
Dividends paid
Proceeds from issuance of common stock
Equity issuance costs
Debt issuance costs
Net cash provided by financing activities
(6,995)
(4,372)
(4,557)
(125,062)
(153,178)
(53,508)
18,000
(28,000)
—
75,000
(108)
(103)
9,000
40,000
—
(38,034)
(31,947)
(29,375)
97,972
107,250
10,187
(269)
—
(449)
(1,304)
(157)
(326)
77,561
120,447
29,329
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Increase (decrease) in cash, cash equivalents and restricted cash
$
869 $
(369) $
262
Cash, cash equivalents and restricted cash, beginning of period
2,023
2,392
2,130
Cash, cash equivalents and restricted cash, end of period
$
2,892 $
2,023 $
2,392
67
Supplemental Cash Flow Information:
Interest paid
Invoices accrued for construction, tenant improvement and other capitalized costs
Reclassification between accounts and notes receivable
Reclassification of registration statement costs incurred in prior year to equity
issuance costs
(Decrease) increase in fair value of cash flow hedges
Fair value of property received in foreclosure
For the Year Ended December 31,
2020
2019
2018
$
$
$
$
$
$
8,125 $
8,846 $
5,564
890 $
385 $
13 $
47 $
225 $
322 $
(9,945) $
(5,472) $
71
861
147
182
— $
— $
4,541
Notes, mortgage and interest receivable payments utilized to originate note receivable $
— $
23,500 $
18,167
Interest accrued to notes receivable
Assumption of mortgage note payable
$
$
15 $
— $
29 $
235
— $
5,391
See accompanying notes to the consolidated financial statements.
68
COMMUNITY HEALTHCARE TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Note 1—Summary of Significant Accounting Policies
Business Overview
Community Healthcare Trust Incorporated (the ‘‘Company’’, ‘‘we’’, ‘‘our’’) was organized in the State of Maryland
on March 28, 2014. The Company is a fully-integrated healthcare real estate company that owns and acquires real
estate properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers. As of
December 31, 2020, we had investments of approximately $738.8 million in 141 real estate properties (including a
portion of one property accounted for as a financing lease included in Other Assets). The properties are located in 33
states, totaling approximately 3.1 million square feet in the aggregate and were approximately 88.8% leased at
December 31, 2020 with a weighted average remaining lease term of approximately 8.1 years. Square footage,
property count, and occupancy percentage disclosures in the consolidated financial statements are unaudited.
COVID-19 Pandemic
During 2020, the world was, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic.
COVID-19 and measures to prevent its spread impacted many healthcare providers, including some of our tenants.
Some of them are not seeing patients, others have seen a reduced number of elective procedures and/or patient visits,
while others have experienced limited impact, or have even seen improved cash flows from either increases in
census or from government funding.
As a result of the pandemic, the Company entered into deferral agreements with eighteen tenants. These represented
less than one percent of our annualized rent in the aggregate. Sixteen of these agreements required the tenants to
repay the deferred amounts during the last half of 2020, while two of the agreements extended repayment beyond
the end of 2020. The Company has remaining payments due under these agreements of less than $100,000 as of
December 31, 2020.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be
dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently
unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental
actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters
going forward. The reopening or closure of our tenants' businesses is dependent on applicable government
requirements, which vary by location, and are subject to ongoing changes, which could result from increasing
COVID-19 cases.
Principles of Consolidation
Our Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiaries, and
may also include joint ventures, partnerships and variable interest entities, or VIEs, where the Company controls the
operating activities. Management must make judgments regarding the Company's level of influence or control over
an entity and whether or not the Company is the primary beneficiary of a VIE. Consideration of various factors
include, but is not limited to, the Company's ability to direct the activities that most significantly impact the entity's
governing body, the size and seniority of the Company's investment, and the Company's ability to replace the
manager and/or liquidate the entity. Management's ability to correctly assess its influence or control over an entity
when determining the primary beneficiary of a VIE affects the presentation of these entities in the Company's
Consolidated Financial Statements. If it is determined that the Company is the primary beneficiary of a VIE, the
Company's Consolidated Financial Statements would consolidate the VIE rather than the results of the variable
interest in the VIE. Untimely or inaccurate financial information provided to the Company or deficiencies in the
VIE's internal control over financial reporting could impact the Company's Consolidated Financial Statements and
K
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69
Notes to Consolidated Financial Statements - Continued
its own internal control over financial reporting. See Note 10 regarding VIEs identified by the Company related to
its notes receivable.
All material intercompany accounts, transactions, and balances have been eliminated in the presentation of the
Company's Consolidated Financial Statements.
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. Actual results may materially differ from those estimates.
Segment Reporting
The Company acquires and owns, or finances, healthcare-related real estate properties that are leased to hospitals,
doctors, healthcare systems or other healthcare service providers. The Company is managed as one reporting unit,
rather than multiple reporting units, for internal reporting purposes and for internal decision-making. Therefore, the
Company discloses its operating results in a single segment.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents includes short-term investments with original maturities of three months or less when
purchased. Restricted cash consists of amounts held by the lender of our mortgage note payable to provide for future
real estate tax, insurance expenditures and tenant improvements related to one property. The carrying amount
approximates fair value due to the short term maturity of these investments. The following table provides a
reconciliation of cash and cash equivalents and restricted cash reported within the Company's Consolidated Balance
Sheets and Consolidated Statements of Cash Flows:
(Dollars in thousands)
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash
Real Estate Properties
December 31,
2020
2,483
$
409
2,892
$
2019
1,730
293
2,023
$
$
Real estate property acquisitions are accounted for as a business combination or an asset acquisition. An acquisition
accounted for as a business combination is recorded at fair value and related closing costs are expensed as incurred.
An acquisition accounted for as an asset acquisition is recorded at its purchase price, inclusive of acquisition costs,
which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date
of acquisition. The Company expects that substantially all of its acquisitions will be accounted for as asset
acquisitions.
The allocation of real estate property acquisitions may include land and land improvements, building and building
improvements, and identified intangible assets and liabilities (consisting of above- and below-market leases, in-place
leases, and tenant relationships) based on the evaluation of information and estimates available at that date, and we
allocate the purchase price based on these assessments. We make estimates of the acquisition date fair value of the
tangible and intangible assets and acquired liabilities using information obtained from multiple sources as a result of
pre-acquisition due diligence, tax records, and other sources. Based on these estimates, we recognize the acquired
assets and liabilities at their relative fair values for asset acquisitions. The fair value of tangible property assets
acquired considers the value of the property as if vacant determined by comparable sales and other relevant data.
The determination of fair value involves the use of significant judgment and estimation. We value land based on
70
Notes to Consolidated Financial Statements - Continued
various inputs, which may include internal analysis of recently acquired properties, existing comparable properties
within our portfolio, or third party appraisals or valuations based on comparable sales.
In recognizing identified intangible assets and liabilities of an acquired property, the value of above- or below-
market leases is estimated based on the present value (using a discount rate which reflects the risks associated with
the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and an
estimate of market lease rates measured over the remaining term of the lease. In the case of a below-market lease,
renewal options associated with that lease are evaluated 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.
In determining the value of in-place leases and tenant improvements, current market conditions and costs to execute
similar leases to arrive at an estimate of the carrying costs during the expected lease-up period from vacant to
existing occupancy are considered. Estimated carrying costs include real estate taxes, insurance, other property
operating expenses, estimates of lost rental revenue during the expected lease-up periods, and costs to execute
similar leases, including leasing commissions. The values assigned to in-place leases and tenant relationships are
amortized over the estimated remaining term of the lease. If a lease terminates prior to its scheduled expiration, all
unamortized costs related to that lease are written off.
Long-lived Asset Impairments
The Company assesses the potential for impairment of identifiable, definite-lived, intangible assets and long-lived
assets, including real estate properties, whenever events occur or a change in circumstances indicates that the
carrying value might not be fully recoverable. Indicators of impairment may include significant under-performance
of an asset relative to historical or expected operating results; significant changes in the Company’s use of assets or
the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the expiration of a
significant portion of leases in a property; or significant negative economic trends or negative industry trends for the
Company or its operators. In addition, the Company’s review for possible impairment may include those assets
subject to purchase options and those impacted by casualties, such as tornadoes and hurricanes. A long-lived asset is
impaired when management's estimate of current and projected, undiscounted and unleveraged, operating cash flows
of the property is less than the net carrying value of the property. In determining these cash flows, the Company
estimates market rent, capitalization rates, and other relevant inputs. 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. No impairments on long-lived assets were
recorded during the years ended December 31, 2020, 2019 or 2018.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants. In calculating fair value, a company must maximize the use of observable
market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the
details of such fair value measurements.
A hierarchy of valuation techniques is defined to determine whether the inputs to a fair value measurement are
considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires
the use of observable market data when available. These inputs have created the following fair value hierarchy:
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71
Notes to Consolidated Financial Statements - Continued
•
•
Level 2 – 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; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
Our interest rate swaps are valued in the market using discounted cash flow techniques. These techniques
incorporate Level 1 and Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation
considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative
valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the
hierarchy.
Lease Accounting
As a lessor, we make a determination with respect to each of our leases whether they should be accounted for as
sales-type, direct-financing, or operating lease. Additionally, for each of our real estate transactions involving the
leaseback of the related property to the seller or affiliates of the seller, we determine whether these transactions
qualify as sale and leaseback transactions under the accounting guidance in Accounting Standards Codification
("ASC") 842, Leases. For these transactions, we consider various inputs and assumptions including, but not
necessarily limited to, lease terms, renewal options, discount rates, and other rights and provisions in the purchase
and sale agreement, lease and other documentation to determine whether control has been transferred to the
Company or remains with the lessee. A transaction involving a sale leaseback will be treated as a purchase of a real
estate property if it is considered to transfer control of the underlying asset from the lessee to the Company. A lease
will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the
lease is treated as an operating lease. Criteria in determining the lease classification also includes estimates and
assumptions regarding the fair value of the leased facilities, minimum lease payments, effective cost of funds, the
economic useful life of the facilities, the existence of a purchase option, and certain other terms in the lease
agreements. The lease accounting guidance requires accounting for a transaction as a financing in a sale leaseback
when the seller-lessee is provided an option to purchase the property from the landlord at the tenant's option. We
expect that most of our leases will be accounted for as operating leases. The Company has a portion of one property
accounted for as a sales-type lease at December 31, 2020 included in Other Assets.
Payments received under operating leases are accounted for in the Consolidated Statements of Income as rental
income for actual cash rent collected plus or minus straight-line adjustments, such as lease escalators. The Company
has elected not to separate lease and nonlease components, such as common area maintenance, unless certain
conditions are not met. As such, tenant reimbursements are combined with rental income on the Consolidated
Statements of Income.
The Company is the lessee under 4 ground leases and has recorded operating lease right-of-use assets totaling
approximately $0.8 million and $0.1 million, respectively, and related operating lease liabilities, as appropriate,
totaling approximately $0.8 million and $0.1 million, respectively, at December 31, 2020 and 2019. The operating
right-of-use lease assets are included in other assets and the operating lease liabilities are included in other liabilities
on the Company's Consolidated Balance Sheets.
Revenue Recognition
Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), also
referred to as Topic 606, establishes a comprehensive model to account for revenues arising from contracts with
customers. ASU 2014-09 applies to all contracts with customers, except those that are within the scope of other
guidance, such as real estate leases and financial instruments. ASU 2014-09 requires companies to perform a five-
step analysis of transactions to determine when and how revenue is recognized.
72
Notes to Consolidated Financial Statements - Continued
On January 1, 2019, the Company adopted the new leasing standard, Accounting Standards Codification Topic 842
("ASC Topic 842"). The primary source of revenue for the Company is generated through its leasing arrangements
with its tenants which is accounted for under ASC Topic 842, or through notes with its borrowers which is covered
under the other accounting guidance. The Company's rental income and interest income are recognized based on
contractual arrangements with its tenants and borrowers. From the inception of a lease, if collection of substantially
all of the lease payments is probable for a tenant, then rental income is recognized as earned over the life of the lease
agreement on a straight-line basis. Recognizing rental revenue on a straight-line basis for leases may result in
recognizing revenue in amounts more or less than amounts currently due from tenants. If management determines
that collection of substantially all of a lease’s payments is not probable, it will revert to recognizing such lease
payments on a cash basis and will reverse any recorded receivables related to that lease. In the event that
management subsequently determines collection of substantially all of that lease’s receivable is probable,
management will reinstate and record all such receivables for the lease in accordance with the lease. The Company
maintains a general allowance for its lease receivables that the Company has determined are probable of collection.
The Company recognizes operating expense recoveries in the period that applicable expenses are incurred. Other
variable payments, such as late fees and sales tax are recognized based on the contractual terms of its leases. Income
received but not yet earned is deferred until such time it is earned. Deferred revenue is included in other liabilities on
the Consolidated Balance Sheets.
Allowance for Credit Losses
Upon adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments on January 1, 2020,
the Company uses an expected credit loss ("CECL") model in evaluating the collectability of its notes receivable and
other financial instruments from time to time. The CECL impairment model requires an estimate of expected credit
losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in
addition to information about past events and current conditions. Under the CECL model, the Company will
estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that
instrument and is required to record a credit loss expense (or reversal) in each reporting period. At December 31,
2020, the Company did not have any material expected credit losses and, therefore, did not record any credit losses.
Stock-Based Compensation
The Company's 2014 Incentive Plan, as amended (the "2014 Incentive Plan") is intended to attract and retain
qualified persons upon whom, in large measure, our sustained progress, growth and profitability depend, to motivate
the participants to achieve long-term company goals and to more closely align the participants’ interests with those
of our other stockholders by providing them with a proprietary interest in our growth and performance. The three
distinct programs under the 2014 Incentive Plan are the Amended and Restated Alignment of Interest Program, the
Amended and Restated Executive Officer Incentive Program and the Non-Executive Officer Incentive Program. Our
executive officers, officers, employees, consultants and non-employee directors are eligible to participate in the 2014
Incentive Plan. The 2014 Incentive Plan increases, on an annual basis, the number of shares of common stock
available for issuance to an amount equal to 7% of the total number of shares of the Company’s common stock
outstanding on December 31 of the immediately preceding year. The 2014 Incentive Plan is administered by the
Company’s compensation committee, which interprets the 2014 Incentive Plan and has broad discretion to select the
eligible persons to whom awards will be granted, as well as the type, size and terms and conditions of each award,
including the number of shares subject to awards and the expiration date of, and the vesting schedule or other
restrictions (including, without limitation, restrictive covenants) applicable to, awards. The Company recognizes
share-based payments to its directors and employees in its Consolidated Statements of Income on a straight-line
basis over the shorter of the requisite service period, retirement eligibility date, or other period as deemed
appropriate based on the fair value of the award on the measurement date. In the event of a forfeiture, the previously
recognized expense would be reversed.
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Notes to Consolidated Financial Statements - Continued
Intangible Assets
Intangible assets with finite lives are amortized over their respective lives to their estimated residual values and are
reviewed for impairment only when impairment indicators are present. Identifiable intangible assets of the Company
are generally comprised of in-place and above-market lease intangible assets and below-market lease intangible
liabilities, as well as deferred financing costs. In-place lease intangible assets are amortized to depreciation expense
on a straight-line basis over the applicable lives of the leases. Above- and below-market lease intangibles are
amortized to rental income on a straight-line basis over the applicable lives of the leases. Deferred financing costs
are amortized to interest expense over the term of the related credit facility or other debt instrument using the
straight-line method, which approximates amortization under the effective interest method.
Income Taxes
The Company has elected to be taxed as a real estate investment trust ("REIT"), as defined under the Internal
Revenue Code of 1986, as amended (the "Code"). The Company and one subsidiary have also elected for that
subsidiary to be treated as a taxable REIT subsidiary ("TRS"), which is subject to federal and state income taxes. No
provision has been made for federal income taxes for the REIT; however, the Company has recorded income tax
expense or benefit for the TRS to the extent applicable. The Company also evaluates the realizability of its deferred
tax assets and will record valuation allowances if it is determined that more likely than not the asset will not be
recovered. The Company intends at all times to qualify as a REIT under the Code. The Company must distribute at
least 90% per annum of its REIT taxable income to its stockholders (which is computed without regard to the
dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in
accordance with generally accepted accounting principles) and meet other requirements to continue to qualify as a
REIT. See further discussion in Note 15.
The Company classifies interest and penalties related to uncertain tax positions, if any, in the Consolidated
Statements of Income as a component of general and administrative expenses. No such amounts were recognized
during 2020, 2019 or 2018.
The Company is subject to audit by the Internal Revenue Service and by state taxing authorities for the years ended
December 31, 2019, 2018, and 2017.
Sales and Use Taxes
The Company must pay sales and use taxes to certain state tax authorities based on rental income collected from
tenants in properties located in those states. The Company is generally reimbursed for those taxes by those tenants.
The Company accounts for the payments to the taxing authority and subsequent reimbursement from the tenant on a
net basis, included in rental income on the Company’s Consolidated Statements of Income.
Concentration of Credit Risks
Our credit risks primarily relate to cash and cash equivalents, mortgage notes, if any, other notes receivable and our
interest rate swaps, which are discussed below. Cash and cash equivalents are primarily held in bank accounts and
overnight investments. We maintain our bank deposit accounts with large financial institutions in amounts that often
exceed federally-insured limits. We have not experienced any losses in such accounts.
Derivative Financial Instruments
In the normal course of business, we are subject to risk from adverse fluctuations in interest rates. We have chosen
to manage this risk through the use of derivative financial instruments, primarily with interest rate swaps.
Counterparties to these contracts are major financial institutions. We are exposed to credit loss in the event of
nonperformance by these counterparties. We do not use derivative instruments for trading or speculative purposes.
Our objective in managing exposure to market risk is to limit the impact on cash flows. To qualify for hedge
accounting, our interest rate swaps must effectively reduce the risk exposure that they are designed to hedge. In
74
Notes to Consolidated Financial Statements - Continued
addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must
be, and are expected to remain, probable of occurring in accordance with our related assertions. All of our hedges
are cash flow hedges and are recognized at their fair value in the Consolidated Balance Sheets. Changes in the fair
value of the derivatives are recognized in accumulated other comprehensive loss.
Earnings per Share
Basic earnings per common share is computed by dividing net income by the weighted average common shares
outstanding less issued and outstanding non-vested shares of common stock. Diluted earnings per common share is
calculated by including the effect of dilutive securities.
Our unvested restricted common stock outstanding contains non-forfeitable rights to dividends, and accordingly,
these awards are deemed to be participating securities. These participating securities, under the 2-class method, are
included in the earnings allocation in computing both basic and diluted earnings per common share.
New Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains
practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other
contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities
occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to
probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon
which future hedged transactions will be based matches the index on the corresponding derivatives. Application of
these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues
to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the
market occur.
Note 2—Real Estate Investments
As of December 31, 2020, we had investments of approximately $738.8 million in 141 real estate properties
(including a portion of one property accounted for as a financing lease included in Other Assets). The Company's
investments are diversified by property type, geographic location, and tenant as shown in the following tables:
Property Type
# of Properties
Gross Investment
(in thousands)
Medical Office Building
Acute Inpatient Behavioral
Specialty Centers
Inpatient Rehabilitation Facilities
Physician Clinics
Surgical Centers and Hospitals
Behavioral Specialty Facilities
Long-term Acute Care Hospitals
Total
$
55
5
34
4
26
10
6
1
254,523
130,237
106,187
85,617
72,650
53,536
21,160
14,937
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141
$
738,847
75
Notes to Consolidated Financial Statements - Continued
State
# of Properties
Gross Investment
(in thousands)
Illinois
Texas
Ohio
Florida
Massachusetts
West Virginia
Other (Less than 4%)
Total
US Healthvest
Everest Rehabilitation
Genesis Care
Summit Behavioral Healthcare
All Others (Less than 4%)
Total
16
12
16
14
2
2
79
141
Primary Tenant
# of Properties
3
3
9
1
125
141
$
$
$
$
118,880
103,997
53,280
65,633
35,770
26,380
334,907
738,847
Gross Investment
(in thousands)
77,964
57,100
38,922
25,135
539,726
738,847
Depreciation and amortization expense was $25.4 million, $22.2 million and $19.5 million, respectively, for the
years ended December 31, 2020, 2019 and 2018, which is included in depreciation and amortization expense on the
Company's Consolidated Statements of Income. Depreciation and amortization of real estate assets and liabilities in
place as of December 31, 2020, is recognized on a straight-line basis over the estimated useful lives of the assets.
The estimated useful lives at December 31, 2020 are as follows:
Land improvements
Buildings
Building improvements
Tenant improvements
Lease intangibles
Personal property
Note 3—Real Estate Leases
3 - 20 years
13 - 50 years
3 - 39.8 years
2.9 - 14.4 years
1.2 - 18.6 years
3 -10 years
The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with
expiration dates through 2039. The Company’s leases generally require the lessee to pay minimum rent, with fixed
rent renewal terms or increases based on a Consumer Price Index and may also include additional rent, which may
include taxes (including property taxes), insurance, maintenance and other operating costs associated with the leased
property. The real estate properties were 88.8% leased at December 31, 2020 with a weighted average remaining
lease term of approximately 8.1 years.
76
Notes to Consolidated Financial Statements - Continued
Future Minimum Lease Payments
Future minimum lease payments under the non-cancelable operating leases due the Company for the years ending
December 31, as of December 31, 2020, are as follows (in thousands):
2021
2022
2023
2024
2025
2026 and thereafter
Customer Concentrations
$
$
66,632
62,847
58,400
55,209
50,706
305,119
598,913
The Company's real estate portfolio is leased to a diverse tenant base. See Note 2. For the years ended December 31,
2020, 2019 and 2018, the Company had no customers that accounted for more than 10% of its consolidated
revenues.
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. The purchase option provisions generally allow the lessee to purchase the leased property at fair
value or at an amount greater than the Company's gross investment in the leased property at the time of the purchase.
Since the Company's initial public offering, only one of the Company's tenants has exercised a purchase option. The
purchase option was exercised, and the property was sold during the year ended December 31, 2018. At
December 31, 2020, the Company had an aggregate gross investment of approximately $13.9 million in 7 real estate
properties with purchase options exercisable at December 31, 2020. An additional 4 real estate properties in which
the Company had an aggregate gross investment of approximately $29.5 million at December 31, 2020 have
purchase options that will become exercisable during 2021.
Straight-line rental income
Rental income is recognized as earned over the life of the lease agreement on a straight-line basis when collection of
rental payments over the term of the lease is probable. Straight-line rent included in rental income was
approximately $3.2 million, $2.1 million, and $1.3 million, respectively, for the years ended December 31, 2020,
2019 and 2018.
Deferred revenue
Income received but not yet earned is deferred until such time it is earned. Deferred revenue, included in other
liabilities on the Consolidated Balance Sheets, was approximately $2.6 million and $2.0 million, respectively, at
December 31, 2020 and 2019.
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77
Notes to Consolidated Financial Statements - Continued
Note 4—Real Estate Acquisitions and Dispositions
2020 Real Estate Acquisitions
During the year ended December 31, 2020, the Company acquired 23 real estate properties and 2 land parcels as
detailed in the table below. Upon acquisition, the properties were 99.5% leased in the aggregate with lease
expirations through 2039. Amounts recorded in revenues and net income for these properties were approximately
$6.3 million and $3.3 million, respectively, and transaction costs totaling approximately $1.0 million were
capitalized for the year ended December 31, 2020 relating to these property acquisitions.
Location
Property
Type (1)
Date
Acquired
Purchase
Price
(000's)
Cash
Consideration Real Estate Other (2)
(000's)
(000's)
(000's)
San Antonio, TX
San Antonio, TX
Decatur, AL
Ramona, CA
Cuero, TX
Rogers, AR
Oak Lawn, IL (Land)
Germantown, TN
Westlake, OH
Columbus, IN
Niceville, FL
Greensburg, PA
Gardendale, AL
Prattville, AL
Jensen Beach, FL (Land)
Waukegan, IL
Andalusia, AL
Asheville, NC
Bonita Springs, FL
Fort Myers, FL
Princeton, WV
Redding, CA
Southbridge, MA (3)
Warwick, RI
Weaverville, NC
MOB
MOB
MOB
SC
SC
IRF
MOB
SC
SC
SC
MOB
MOB
MOB
MOB
MOB
AIB
SC
SC
SC
SC
SC
SC
SC
SC
SC
01/27/20
01/27/20
02/18/20
03/13/20
03/18/20
03/27/20
04/20/20
04/29/20
06/5/20
06/5/20
06/15/20
06/16/20
06/24/20
06/24/20
09/18/20
10/1/20
10/30/20
10/30/20
10/30/20
10/30/20
10/30/20
10/30/20
10/30/20
10/30/20
10/30/20
$
4,003 $
1,931
5,784
4,100
2,153
19,000
400
3,900
2,443
1,813
2,294
3,389
2,948
4,091
1,050
30,000
3,698
2,187
1,243
8,261
1,233
5,508
8,462
3,390
3,927
$ 127,208 $
4,022 $
1,955
5,792
4,124
2,174
18,317
403
3,949
2,456
1,828
2,340
3,484
2,935
4,111
1,055
30,067
3,700
2,157
1,219
8,219
1,221
5,508
8,480
3,378
3,924
4,036 $
1,961
5,777
4,143
2,207
19,042
421
3,949
2,487
1,787
2,344
3,497
2,878
4,078
1,075
30,067
3,963
2,209
1,183
8,737
1,245
5,563
8,632
3,424
3,966
126,818 $ 128,671 $
(14)
(6)
15
(19)
(33)
(725)
(18)
—
(31)
41
(4)
(13)
57
33
(20)
—
(263)
(52)
36
(518)
(24)
(55)
(152)
(46)
(42)
(1,853)
Square
Footage
(Unaudited)
13,500
6,500
35,943
11,300
15,515
38,817
—
10,600
15,057
13,969
10,250
15,650
12,956
13,319
—
83,658
10,373
10,850
4,445
46,356
7,236
12,206
20,046
10,236
10,696
429,478
(1) MOB - Medical Office Building; SC - Specialty Center; IRF - Inpatient Rehabilitation Facility; AIB - Acute Inpatient Behavioral
(2) Includes items including, but not limited to, other assets, liabilities assumed, and security deposits.
(3) A portion of this property is accounted for as a financing lease included in Other Assets.
78
Notes to Consolidated Financial Statements - Continued
The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed in the
property acquisitions for the year ended December 31, 2020.
Land and land improvements
Building and building improvements
Intangibles:
At-market lease intangibles
Above-market lease intangibles
Below-market lease intangibles
Total intangibles
Accounts receivable and other assets assumed (1)
Accounts payable, accrued liabilities and other liabilities assumed (2)
Prorated rent, interest and operating expense reimbursement amounts collected
Total cash consideration
____________
(1) Includes a portion of a property accounted for as a financing lease.
(2) Includes security deposits received.
2019 Real Estate Acquisitions
Estimated Fair
Value
(In thousands)
Weighted Average
Useful Life
(In years)
10.9
37.7
7.2
5.5
8.5
$
$
15,809
97,773
11,602
550
(504)
11,648
3,708
(1,413)
(707)
126,818
During the year ended December 31, 2019, the Company acquired 15 real estate properties as detailed in the table
below. Upon acquisition, the properties were 99.5% leased in the aggregate with lease expirations through 2034.
Amounts reflected in revenues and net income for these properties were approximately $8.5 million and $6.1
million, respectively, and transaction costs totaling approximately $1.2 million were capitalized for the year ended
December 31, 2019 relating to these property acquisitions.
Location
Property
Type (1)
Date
Acquired
Purchase
Price
(000's)
Cash
Consideration Real Estate Other (2)
(000's)
(000's)
(000's)
Humble, TX
York, PA
Gurnee, IL
Kissimmee, FL
Worcester, MA
Warwick, RI
Longview, TX
Marysville, WA
Butler, PA
Bay City, MI
Lancaster, PA
Camp Hill, PA
Harrisburg, PA
Manteca, CA
Temple, TX
IRF
PC
MOB
MOB
BF
MOB
IRF
BF
MOB
MOB
MOB
SC
SC
MOB
IRF
02/22/19
02/25/19
05/30/19
06/20/19
04/30/19
07/22/19
07/25/19
08/6/19
10/9/19
10/10/19
10/21/19
10/28/19
10/28/19
10/31/19
11/1/19
$
28,459 $
4,265
3,819
1,059
27,000
6,059
19,000
27,500
2,777
4,300
2,326
1,661
1,977
2,772
19,000
$ 151,974 $
28,517 $
28,462 $
4,349
4,280
3,857
3,755
1,092
1,089
27,138
25,863
6,115
6,094
19,035
18,473
27,789
27,607
2,869
2,835
4,281
4,282
2,406
2,398
1,720
1,718
2,042
2,040
2,811
2,789
18,316
19,023
150,001 $ 153,044 $
Square
Footage
(Unaudited)
55,646
27,100
22,943
4,902
81,972
21,252
38,817
70,100
10,116
25,500
10,753
8,400
9,040
10,832
38,817
436,190
(55)
(69)
(102)
(3)
(1,275)
(21)
(562)
(182)
(34)
1
(8)
(2)
(2)
(22)
(707)
(3,043)
K
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1
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(1) IRF - Inpatient Rehabilitation Facility; PC - Physician Clinic; MOB - Medical Office Building; BF - Behavioral Facility; SC -
Specialty Center
(2) Includes items including, but not limited to, other assets, liabilities assumed, and security deposits.
79
Notes to Consolidated Financial Statements - Continued
The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed in the
property acquisitions for the year ended December 31, 2019.
Land and land improvements
Building and building improvements
Intangibles:
At-market lease intangibles
Below-market lease intangibles
Total intangibles
Accounts receivable and other assets assumed
Accounts payable, accrued liabilities and other liabilities assumed (1)
Prorated rent, interest and operating expense reimbursement amounts collected
Total cash consideration
____________
(1) Includes security deposits received.
Note 5—Debt, net
Estimated Fair
Value
(In thousands)
Weighted Average
Useful Life
(In years)
11.2
41.5
5.8
6.7
$
$
17,526
131,519
4,120
(121)
3,999
52
(2,975)
(120)
150,001
The table below details the Company's debt, net as of December 31, 2020 and December 31, 2019.
(Dollars in thousands)
Revolving Credit Facility
A-1 Term Loan, net
A-2 Term Loan, net
A-3 Term Loan, net
Mortgage Note Payable
Balance as of
12/31/2020
12/31/2019
Maturity
Dates
$
33,000 $
49,908
49,828
74,524
5,114
15,000
49,833
49,775
74,433
5,202
3/23
3/22
3/24
3/26
5/24
$
212,374 $
194,243
The Company's second amended and restated credit facility (the "Credit Facility") is by and among Community
Healthcare OP, LP, the Company, and a syndicate of lenders with Truist Bank (formerly SunTrust Bank) serving as
Administrative Agent. The Company’s material subsidiaries are guarantors of the obligations under the Credit
Facility.
The Credit Facility, as amended, provides for a $150.0 million Revolving Credit Facility and $175.0 million in term
loans (the "Term Loans"). The Credit Facility, through the accordion feature, allows borrowings up to a total of
$525.0 million including the ability to add and fund additional term loans. The Revolving Credit Facility matures on
March 29, 2023 and includes one 12-month option to extend the maturity date of the Revolving Credit Facility,
subject to the satisfaction of certain conditions. The Term Loans include a five-year term loan facility in the
aggregate principal amount of $50.0 million (the "A-1 Term Loan"), which matures on March 29, 2022, a seven-
year term loan facility in the aggregate principal amount of $50.0 million (the "A-2 Term Loan"), which matures on
March 29, 2024 and a seven-year term loan facility in the aggregate principal amount of $75.0 million (the"A-3
Term Loan"), which matures on March 29, 2026.
Amounts outstanding under the Revolving Credit Facility, as amended, bear annual interest at a floating rate that is
based, at the Company’s option, on either: (i) LIBOR plus 1.25% to 1.90% or (ii) a base rate plus 0.25% to 0.90% in
80
Notes to Consolidated Financial Statements - Continued
each case, depending upon the Company’s leverage ratio. In addition, the Company is obligated to pay an annual fee
equal to 0.25% of the amount of the unused portion of the Revolving Credit Facility if amounts borrowed are greater
than 33.3% of the borrowing capacity under the Revolving Credit Facility and 0.35% of the unused portion of the
Revolving Credit Facility if amounts borrowed are less than or equal to 33.3% of the borrowing capacity under the
Revolving Credit Facility. The Company had $33.0 million outstanding under the Revolving Credit Facility with a
borrowing capacity remaining of approximately $117.0 million at December 31, 2020.
Amounts outstanding under the Term Loans, as amended, bear annual interest at a floating rate that is based, at the
Company’s option, on either: (i) LIBOR plus 1.25% to 2.30% or (ii) a base rate plus 0.25% to 1.30%, in each case,
depending upon the Company’s leverage ratio. The Company has entered into interest rate swaps to fix the interest
rates on the Term Loans. See Note 6 for more details on the interest rate swaps. At December 31, 2020, the
Company had drawn the full $175.0 million under the Term Loans which had a fixed weighted average interest rate
under the swaps of approximately 3.881%.
The Company’s ability to borrow under the Credit Facility is subject to its ongoing compliance with a number of
customary affirmative and negative covenants, including limitations with respect to liens, indebtedness,
distributions, mergers, consolidations, investments, restricted payments and asset sales, as well as financial
maintenance covenants. The Company was in compliance with its financial covenants under its Credit Facility as of
December 31, 2020.
In 2018, we acquired a building and assumed a $5.4 million mortgage note payable, secured by the building. The
building had a $7.5 million carrying value at December 31, 2020. The mortgage note amortizes monthly at a fixed
interest rate of 4.98% and matures May 1, 2024. The Company's unamortized loan costs related to the mortgage note
was approximately $0.1 million at December 31, 2020 and 2019.
Note 6—Derivative Financial Instruments
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other
interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The
principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s
operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend
to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative
financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements
are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative
financial instruments with counterparties with high credit ratings and with major financial institutions with which
the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any
of the counterparties will fail to meet their obligations.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its
exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps
as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the
receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over
the life of the agreements without exchange of the underlying notional amount.
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Notes to Consolidated Financial Statements - Continued
As of December 31, 2020, the Company had seven outstanding interest rate derivatives that were designated as cash
flow hedges of interest rate risk for notional amounts totaling $175.0 million. The table below presents the fair value
of the Company's derivative financial instruments as well as their classification on the Consolidated Balance Sheets
as of December 31, 2020 and 2019.
Asset Derivatives Fair Value
at December 31,
Liability Derivatives Fair Value
at December 31,
(in thousands)
2020
2019
Balance Sheet
Classification
2020
2019
Balance Sheet
Classification
Interest rate swaps
$
— $
— Other assets
$
11,846 $
4,808 Other Liabilities
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in
accumulated other comprehensive (loss) income ("AOCI") and are subsequently reclassified to interest expense in
the period that the hedged forecasted transaction affects earnings.
Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are
made on the Company’s Term Loans. During the next twelve months, the Company estimates that an additional $3.7
million will be reclassified from other accumulated comprehensive income ("AOCI") as an increase to interest
expense.
The table below details the location in the financial statements of the gain or loss recognized on interest rate
derivatives designated as cash flow hedges for the for the year ended December 31, 2020 and 2019.
(Dollars in thousands)
Amount of unrealized loss recognized in OCI on derivative
Amount of loss reclassified from AOCI into interest expense
Total Interest Expense presented in the Consolidated Statements of Income in which the
effects of the cash flow hedges are recorded
For the Year Ended December 31,
2020
2019
(9,945) $
2,907 $
(5,472)
31
8,620 $
9,301
$
$
$
Credit-risk-related Contingent Features
As of December 31, 2020, the fair value of derivatives in a net liability position including accrued interest but
excluding any adjustment for nonperformance risk related to these agreements was $12.3 million. As of
December 31, 2020, the Company has not posted any collateral related to these agreements and was not in breach of
any agreement provisions. If the Company terminated these interest rate swaps, it would pay or receive the
approximate aggregate termination value of the swaps at the time of the termination, which was approximately $12.3
million at December 31, 2020.
Note 7—Stockholders’ Equity
Common Stock
The following table provides a reconciliation of the beginning and ending common stock balances for the years
ended December 31, 2020, 2019 and 2018:
Balance, beginning of period
Issuance of common stock
Restricted stock issued
Balance, end of period
For the Year Ended December 31,
2020
21,410,578
2,206,976
270,536
2019
18,634,502
2,554,247
221,829
23,888,090
21,410,578
2018
18,085,798
334,700
214,004
18,634,502
82
Notes to Consolidated Financial Statements - Continued
ATM Program
On November 3, 2020, the Company entered into Amendment No. 1 (the “Amendment”), to the Amended and
Restated Sales Agency Agreement, dated November 5, 2019 (as amended, the “Sales Agreement”) for its at-the-
market offering program ("ATM Program"), by and among the Company and Piper Sandler & Co. (f/k/a Sandler
O’Neill & Partners, L.P.), Evercore Group L.L.C., Truist Securities, Inc. (f/k/a SunTrust Robinson Humphrey, Inc.),
Regions Securities LLC, Robert W. Baird & Co. Incorporated, Fifth Third Securities, Inc. and Janney Montgomery
Scott LLC., as sales agents (collectively, the “Agents”). Pursuant to the Amendment, Regions Securities LLC and
Robert W. Baird & Co. Incorporated were added as additional sales agents under the Sales Agreement. Under the
ATM Program, the Company may issue and sell shares of its common stock, having an aggregate gross sales price
of up to $360.0 million. 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 Company's activity under the ATM Program for the years ended December 31, 2020, 2019, and 2018 is detailed
in the table below. As of December 31, 2020, the Company had approximately $140.2 million remaining that may
be issued under the ATM Program.
Shares issued
Net proceeds received (in millions)
Average gross sales price per share
For the Year Ended December 31,
2020
2019
2018
2,206,976
$98.0
$45.29
2,554,247
$107.3
$42.85
334,700
$10.2
$31.07
Subsequent to December 31, 2020, the Company issued 29,161 shares for an average gross sales price per share of
approximately $47.13 under the ATM Program and received approximately $1.3 million in net proceeds.
Automatic Shelf Registration Statement
On November 5, 2019, 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. 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.
Dividends Declared
During 2020, the Company declared and paid dividends totaling $1.685 per common share.
Record Date
Date Paid
Amount Per Share
Declaration Date
February 6, 2020
May 4, 2020
August 3, 2020
February 18, 2020
February 28, 2020
May 15, 2020
August 17, 2020
May 29, 2020
August 28, 2020
November 2, 2020
November 16, 2020
November 27, 2020
$0.4175
$0.4200
$0.4225
$0.4250
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During 2019, the Company declared and paid dividends totaling $1.645 per common share.
Declaration Date
February 7, 2019
May 1, 2019
August 1, 2019
October 31, 2019
Record Date
February 22, 2019
May 17, 2019
August 16, 2019
November 15, 2019
Date Paid
March 1, 2019
May 31, 2019
August 30, 2019
November 29, 2019
Amount Per Share
$0.4075
$0.4100
$0.4125
$0.4150
83
Notes to Consolidated Financial Statements - Continued
Note 8—Income Per Common Share
The following table sets forth the computation of basic and diluted income per common share.
(In thousands, except per share data)
Net income
Participating securities' share in earnings
Net income, less participating securities' share in earnings
Weighted Average Common Shares Outstanding
Weighted average common shares outstanding
Unvested restricted shares
Weighted average common shares outstanding–Basic
Weighted average common shares–Basic
Dilutive potential common shares
Weighted average common shares outstanding –Diluted
Basic Income per Common Share
Diluted Income per Common Share
Note 9—Incentive Plan
2014 Incentive Plan
Year Ended December 31,
2019
2018
2020
19,077
(1,842)
17,235
$
$
8,376 $
(1,411)
6,965 $
4,403
(1,061)
3,342
22,647
(1,071)
21,576
21,576
0
21,576
19,527
(842)
18,685
18,685
0
18,685
0.80
0.80
$
$
0.37 $
0.37 $
18,311
(642)
17,669
17,669
0
17,669
0.19
0.19
$
$
$
$
The 2014 Incentive Plan authorizes the Company to award shares equal to 7% of the total number of shares of the
Company’s common stock outstanding on December 31 of the immediately preceding year, or 1,498,740 shares of
common stock (the "Plan Pool"), for 2020, to its employees and directors. The 2014 Incentive Plan will continue
until terminated by the Company's Board of Directors or March 31, 2024. As of December 31, 2020, the Company
had issued a total of 903,642 restricted shares under the Incentive Pool for compensation-related awards to its
employees and directors, with 595,098 authorized shares remaining which had not been issued. Shares issued under
the 2014 Incentive Plan are generally subject to long-term, fixed vesting periods of 3 to 8 years. If an employee or
director voluntarily terminates his or her relationship with the Company or is terminated for cause before the end of
the vesting period, the shares are forfeited, at no cost to the Company. Once the shares have been granted, the
recipient of the shares has the right to receive dividends and the right to vote the shares.
Alignment of Interest Program
The Amended and Restated Alignment of Interest Program (the “Alignment of Interest Program”), amended in late
2016 by the Company's Board of Directors, authorizes the Company to issue 500,000 shares of the Company’s
common stock to its employees and directors in lieu of the employee's or director's cash compensation (the
"Program Pool"), at their election. As of December 31, 2020, the Company had issued a total of 314,842 restricted
shares under the Program Pool in lieu of cash compensation to its employees and directors, with 185,158 authorized
shares remaining which had not been issued.
The Company's Alignment of Interest Program is designed to provide the Company's employees and directors with
an incentive to remain with the Company and to incentivize long-term growth and profitability. Under the
Alignment of Interest Program, employees may elect to defer up to 100% of their base salary and other
compensation and directors may elect to defer up to 100% of their director fees, subject to the 2014 Incentive Plan's
long-term, fixed vesting periods. The number of shares granted will be increased through a Company match
depending on the length of the vesting period selected by the employee or director. Employees may select vesting
84
Notes to Consolidated Financial Statements - Continued
periods of 3 years, 5 years, or 8 years, with a 30%, 50%, and 100% Company match, respectively. Directors may
select vesting periods of 1 year, 2 years, or 3 years, with a 20%, 40%, or 60% Company match, respectively.
Officer Incentive Programs
The Company has an Amended and Restated Executive Officer Incentive Program and a Non-Executive Officer
Incentive Program (the "Officer Incentive Programs") under the Incentive Plan which are designed to provide
incentives to the Company's officers that are designed to reward its officers for individual, as well as Company
performance in the form of cash or restricted stock. Company performance will be based on performance targets,
which may include targets such as funds from operations ("FFO"), dividend payout percentages, as well as the
Company's relative total stockholder return performance over one-year and three-year periods, measured against the
Company's peer group, as determined by the Company's Board of Directors each year. The officers may elect, in the
year prior to an award, to receive awards under the Officer Incentive Programs in cash or restricted stock, as allowed
within the applicable Officer Incentive Programs, as well as a vesting period as discussed under the Alignment of
Interest Program above. Shares of common stock issued under the Officer Incentive Programs are issued under
either the Plan Pool or Program Pool.
Summary
A summary of the activity under the Incentive Plan and related information for the years ended December 31, 2020,
2019, and 2018 is included in the table below.
(dollars in thousands, except per share amounts)
2020
2019
2018
Year Ended December 31,
Stock-based awards, beginning of year
Stock in lieu of compensation
Stock awards
Total Granted
Vested
Stock-based awards, end of year
Weighted average grant date fair value, per share, of:
Stock-based awards, beginning of year
Stock-based awards granted during the year
Stock-based awards vested during the year
Stock-based awards, end of year
Grant date fair value of shares granted during the year
909,892
709,487
92,104
178,432
270,536
(15,910)
1,164,518
$
$
$
$
$
26.75 $
45.83 $
25.13 $
31.04 $
12,398 $
72,391
149,438
221,829
(21,424)
909,892
23.50 $
37.14 $
19.00 $
26.75 $
8,240 $
512,115
69,767
144,237
214,004
(16,632)
709,487
21.20
28.70
19.65
23.50
6,142
The Company had nonvested stock-based compensation that had not yet been recognized of approximately $24.2
million and $16.6 million, respectively, at December 31, 2020 and 2019. The vesting periods for the non-vested
shares granted during 2020 ranged from 3 to 8 years with a weighted-average amortization period remaining as of
December 31, 2020 of approximately 5.4 years. Compensation expense recognized during the years ended
December 31, 2020, 2019, and 2018 from the amortization of the value of shares over the vesting period was
approximately $4.8 million, $3.8 million and $2.9 million, respectively, which are included in general and
administrative expenses on the consolidated statements of income.
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Notes to Consolidated Financial Statements - Continued
Note 10—Other Assets
Other assets on the Company's Consolidated Balance Sheets as of December 31, 2020 and 2019 are detailed in the
table below.
(Dollars in thousands)
Notes receivable
Accounts and interest receivable
Straight-line rent receivables
Prepaid assets
Deferred financing costs, net
Leasing commissions, net
Deferred tax assets, net
Above-market lease intangible assets, net
Sales-type lease receivable
Operating lease right-of-use assets
Other
December 31,
2020
2019
$
15,010 $
1,675
8,682
600
479
1,134
515
617
3,016
821
501
23,500
3,021
5,267
488
693
875
595
144
—
139
457
$
33,050 $
35,179
The Company's notes receivable include the following notes receivable. Interest on these notes is included in Other
operating interest on the Company's Consolidated Statements of Income.
•
At December 31, 2020, the Company held a $15.0 million term loan, secured by all assets and ownership
interests in seven long-term acute care hospitals and one inpatient rehabilitation hospital owned by the borrower.
The note will be repaid in equal monthly installments of $250,000 through the maturity date of December 31, 2025
and bears interest at 9% per annum. Previously, the Company had a $20.0 million term loan and a $3.5 million
revolving line of credit with the borrower. During 2020, the $20.0 million term loan was paid down to $15.0 million
and the $3.5 million revolving line of credit was repaid in full. In December 2020, the $20.0 million term loan was
replaced with the $15.0 million term loan and the revolving line of credit was terminated.
At December 31, 2020, the Company identified the borrower and guarantor of the $15.0 million note as a VIE, but
management determined that the Company was not the primary beneficiary of the VIE because we lack the ability,
either directly or through related parties, to have any material impact in the activities that impact the borrower's or
guarantor's economic performance. We are not obligated to provide support beyond our stated commitment to the
borrower, and accordingly our maximum exposure to loss as a result of this relationship is limited to the amount of
our outstanding notes receivable as noted above.
86
Notes to Consolidated Financial Statements - Continued
Note 11—Other Liabilities
Other liabilities on the Company's Consolidated Balance Sheets as of December 31, 2020 and 2019 are detailed in
the table below.
(Dollars in thousands)
Deferred rent
Security deposits
Below-market lease intangibles, net
Fair value of derivatives
Lease liability
Other
December 31,
2020
2019
$
$
2,596 $
4,141
613
11,846
793
380
20,369 $
2,030
3,492
771
4,808
143
27
11,271
At December 31, 2020, the Company was obligated, as the lessee, under operating lease agreements consisting of
the Company’s ground leases. As of December 31, 2020, the Company had 4 properties totaling 48,574 square feet
that were held under ground leases. These ground leases have expiration dates through 2076, including renewal
options. Any rental increases related to the Company’s ground leases are generally either stated or based on the
Consumer Price Index. The Company had no prepaid ground leases as of December 31, 2020.
The Company’s future lease payments for its ground leases as of December 31, 2020 were as follows:
(In thousands)
2021
2022
2023
2024
2025
2026 and thereafter
Total undiscounted lease payments
Discount
Lease liabilities
Future Lease
Payments
42
42
43
44
44
1,250
1,465
(672)
793
$
$
Note 12—Intangible Assets and Liabilities
The Company has deferred financing costs and various real estate acquisition lease intangibles included in its
Consolidated Balance Sheets as of December 31, 2020 and 2019 as detailed in the table below. The Company did
not have any indefinite lived intangible assets or liabilities as of December 31, 2020 and 2019.
Gross Balance at
December 31,
Accumulated
Amortization at
December 31,
(Dollars in thousands)
Deferred financing costs-Revolving Credit Facility $ 2,395 $ 2,395 $ 1,916 $ 1,703
419
Deferred financing costs-Term Loans
22
Deferred financing costs-Mortgage Note Payable
118
Above-market lease intangibles
(682)
Below-market lease intangibles
1,378
108
262
(1,453)
1,378
108
812
(1,956)
637
41
195
(1,343)
2020
2020
2019
2019
Weighted
Average
Remaining
Life (Years)
2.3
4.3
3.3
37.3
2.4
At-market lease intangibles
Total intangibles
76,461 64,859 49,025 40,779
$ 79,198 $ 67,549 $ 50,471 $ 42,359
5.2
5.5
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Balance Sheet
Classification
Other assets
Debt, net
Debt, net
Other assets
Other liabilities
Real estate
properties
Notes to Consolidated Financial Statements - Continued
For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $8.1 million, $9.2
million, and $9.9 million, respectively, of net intangible amortization expense, which is included in rental income,
interest expense and depreciation and amortization on the Company's Consolidated Statements of Income.
Expected future amortization, net, for the next five years of the Company's intangible assets and liabilities, in place
as of December 31, 2020 are included in the table below.
(in thousands)
2021
2022
2023
2024
2025
Note 13—Commitments and Contingencies
Tenant Improvements
$
Amortization, net
8,087
6,513
4,768
3,710
2,384
The Company may provide tenant improvement allowances in new or renewal leases for the purpose of refurbishing
or renovating tenant space. The Company may also assume tenant improvement obligations included in leases
acquired in its real estate acquisitions. As of December 31, 2020 and 2019, the Company had approximately $2.3
million and $3.6 million, respectively, in commitments for tenant improvements.
Capital Improvements
The Company has entered into contracts with various vendors for various capital improvement projects related to its
portfolio. As of December 31, 2020 and 2019, the Company had commitments of approximately $1.5 million and
$1.7 million, respectively, in commitments for capital improvement projects.
Legal Proceedings
The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have
a material adverse effect on the Company's Consolidated Financial Statements.
Note 14—Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments
for which it is practical to estimate the fair value.
Cash and cash equivalents and restricted cash - The carrying amount approximates the fair value.
Notes receivable - The fair value is estimated using cash flow analyses which are based on an assumed market rate
of interest and are classified as Level 2 in the hierarchy.
Borrowings under our Credit Facility - The carrying amount approximates the fair value because the borrowings are
based on variable market interest rates.
Derivative financial instruments - The fair value is estimated using discounted cash flow techniques. These
techniques incorporate primarily Level 2 inputs. The market inputs are utilized in the discounted cash flow
calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the
derivative valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in
the hierarchy.
88
Notes to Consolidated Financial Statements - Continued
Mortgage note payable - The fair value is estimated using cash flow analyses which are based on an assumed market
rate of interest or at a rate consistent with the rates on mortgage notes assumed by the Company and are classified as
Level 2 in the hierarchy.
The table below details the fair values and carrying values for our mortgage note and notes receivable and interest
rate swaps at December 31, 2020 and 2019 using Level 2 inputs.
December 31, 2020
December 31, 2019
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
$
15,010 $
11,846 $
5,180 $
15,010 $
11,846 $
5,432 $
23,500 $
4,808 $
5,288 $
23,399
4,808
5,351
(Dollars in thousands)
Notes receivable
Interest rate swap liability
Mortgage note payable
Note 15—Other Data
Taxable Income
The Company has elected to be taxed as a REIT, as defined under the Code. To qualify as a REIT, the Company
must meet a number of organizational and operational requirements, including a requirement that it currently
distribute at least 90% of its taxable income to its stockholders. The Company has also elected that one of its
subsidiaries be treated as a TRS, which is subject to federal and state income taxes. All entities other than the TRS
are collectively referred to as "the REIT" within this Note 15.
The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017. The TCJA reduced the U.S. federal
corporate tax rate from 35% to 21% effective January 1, 2018. The REIT generally will not be subject to federal
income tax on taxable income it distributes currently to its stockholders. Accordingly, no provision for federal
income taxes for the REIT has been made in the accompanying Consolidated Financial Statements; however, the
Company may record income tax expense or benefit for the TRS to the extent applicable. If the REIT fails to qualify
as a REIT for any taxable year, then it will be subject to federal income taxes at regular corporate rates, including
any applicable alternative minimum tax, and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the REIT continues to qualify as a REIT, it may be subject to certain state and local taxes on its income and
property and to federal income and excise tax on its undistributed taxable income.
Income tax expense (benefit) and state income tax payments, net of refunds, are as follows for the years ended
December 31, 2020, 2019, and 2018.
(Dollars in thousands)
Current
Deferred
Total income tax expense (benefit)
Income tax payments, net of refunds
Year Ended December 31,
2019
2018
2020
$
$
$
99 $
80
179 $
78 $
62 $
1,430
1,492 $
77 $
64
(1,547)
(1,483)
166
Income tax expense (benefit) primarily relates to permanent differences between federal, state and local taxable
income resulting from certain state and local jurisdictions wholly or partially disallowing the deduction for
dividends paid allowed at the federal level and temporary differences resulting from the bases of assets and liabilities
of the Company's TRS for financial reporting purposes and the bases of those assets and liabilities for income tax
purposes.
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Notes to Consolidated Financial Statements - Continued
The tax effect of temporary differences included in the net deferred tax assets at December 31, 2020 and 2019 are as
follows:
(Dollars in thousands)
Deferred tax assets (liabilities):
Net operating losses
Impairment of note receivable
Deferred compensation
Valuation allowance
Other, net
Total net deferred tax assets
December 31,
2020
2019
$
$
1,350 $
—
3,047
(1,304)
(2,578)
515 $
108
1,321
1,774
(1,322)
(1,286)
595
We believe that it is more likely than not that the benefit from the net operating losses and certain other deductible
temporary differences will not be fully realized. In recognition of this assessment, we have provided a valuation
allowance of $1.3 million on the deferred tax assets related to these deductions. If our assumptions change and we
determine that it is more likely than not that we will be able to realize these deductions, the tax benefits related to
any reversal of the valuation allowance on deferred tax assets as of December 31, 2020, will be accounted for as a
reduction of income tax expense.
On a tax-basis, the Company’s gross real estate assets totaled approximately $735.3 million and $599.9 million,
respectively, as of December 31, 2020 and 2019 (unaudited).
The following table reconciles the Company’s net income to taxable income for the years ended December 31, 2020,
2019 and 2018.
(Dollars in thousands)
Net income
Reconciling items to taxable income:
Depreciation and amortization
Gain on sale of real estate
Impairment of note receivable
Straight-line rent
Receivable allowance
Stock-based compensation
Deferred rent
Deferred income taxes
Other
Year Ended December 31,
2019
2018
2020
$
19,077 $
8,376 $
4,403
9,191
1
(5,000)
(3,415)
(257)
2,280
565
80
(81)
3,364
22,441 $
36,192 $
9,598
—
—
(2,052)
87
1,623
437
1,430
116
11,239
19,615 $
30,537 $
9,888
(183)
5,000
(1,212)
(23)
1,331
484
(1,547)
(426)
13,312
17,715
28,314
Taxable income (1)
Dividends paid (2)
__________
(1) Before REIT dividends paid deduction.
(2) Net of dividends paid on restricted stock included as a reconciling item.
$
$
Characterization of Distributions (unaudited)
Earnings and profits (as defined under the Code), the current and accumulated amounts of which determine the
taxability of distributions to stockholders, vary from net income attributable to common stockholders and taxable
income because of different depreciation recovery periods, depreciation methods, and other items. Distributions in
excess of earnings and profits generally constitute a return of capital. The following table shows the characterization
90
Notes to Consolidated Financial Statements - Continued
of the distributions on the Company's common stock for the years ended December 31, 2020, 2019 and 2018. No
preferred shares have been issued by the Company and no dividends have been paid to date relating to preferred
shares.
2020
2019
2018
Per Share
%
Per Share
%
Per Share
%
$
$
$
$
1.297
0.388
—
1.685
77.0 % $
23.0 % $
— % $
100.0 % $
1.030
0.615
—
1.645
62.6 % $
37.4 % $
— % $
100.0 % $
0.989
0.605
0.011
1.605
61.6 %
37.7 %
0.7 %
100.0 %
Common stock:
Ordinary income
Return of capital
Capital gain
Common stock distributions
Note 16—Subsequent Events
2021 Real estate acquisitions
Subsequent to December 31, 2020, the Company acquired four real estate properties totaling approximately 80,000
square feet for an aggregate purchase price of approximately $17.8 million and cash consideration of approximately
$17.9 million, and entered into a $6.0 million term loan and a revolver loan up to $4.0 million with the tenant on two
of the properties. Upon acquisition, the properties were 100.0% leased in the aggregate with lease expirations
through 2036.
Dividend Declared
On February 11, 2021, the Company’s Board of Directors declared a quarterly common stock dividend in the
amount of $0.4275 per share. The dividend is payable on March 5, 2021 to stockholders of record on February 25,
2021.
Restricted Stock Issuances
On January 15, 2021, pursuant to the 2014 Incentive Plan and the Alignment of Interest Program, the Company
granted 89,119 shares of restricted common stock to its employees, in lieu of salary, that will cliff vest in 5 to 8
years. Of the shares granted, 44,625 shares of restricted stock were granted in lieu of compensation from the
Program Pool and 44,494 shares of restricted stock were awards granted from the Plan Pool. Also, on January 15,
2021, pursuant to the 2014 Incentive Plan and the Non-Executive Officer Incentive Program, the Company granted
4,643 shares of restricted stock to certain employees that will cliff vest in 5 years.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information required to be
disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. These
disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the
information required to be disclosed is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this
Annual Report on Form 10-K. Based on such evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and
procedures are effective.
Limitations on the Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to apply judgment in evaluating the benefits of
possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There have been no changes in our system of internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
The management of Community Healthcare Trust Incorporated is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. The Company’s internal control over
financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
financial statements.
92
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020 using the principles and other criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment,
management concluded that the Company’s internal control over financial reporting was effective as of
December 31, 2020. The Company’s independent registered public accounting firm, BDO USA, LLP, has also
issued an attestation report on the effectiveness of the Company’s internal control over financial reporting included
herein.
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of
Stockholders and Board of Directors
Community Healthcare Trust Incorporated
Franklin, Tennessee
Opinion on Internal Control over Financial Reporting
We have audited Community Healthcare Trust Incorporated’s (the “Company’s”) internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”) In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in
the accompanying index and our report dated February 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
94
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ BDO USA, LLP
Nashville, Tennessee
February 16, 2021
ITEM 9B. OTHER INFORMATION
None.
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PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be contained in the Company's Definitive Proxy Statement for its 2021
Annual Stockholders Meeting, to be filed with the SEC within 120 days after December 31, 2020, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's Definitive Proxy Statement for its 2021
Annual Stockholders Meeting, to be filed with the SEC within 120 days after December 31, 2020, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item will be contained in the Company's Definitive Proxy Statement for its 2021
Annual Stockholders Meeting, to be filed with the SEC within 120 days after December 31, 2020, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this items will be contained in the Company's Definitive Proxy Statement for its 2021
Annual Stockholders Meeting, to be filed with the SEC within 120 days after December 31, 2020, and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this items will be contained in the Company's Definitive Proxy Statement for its 2021
Annual Stockholders Meeting, to be filed with the SEC within 120 days after December 31, 2020, and is
incorporated herein by reference.
96
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
PART IV.
The following documents of Community Healthcare Trust Incorporated are included in this Annual Report on Form
10-K.
(a) Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to the Consolidated Financial Statements
(b) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2020
Schedule IV - Mortgage Loans on Real Estate as of December 31, 2020
102
103
104
All other schedules are omitted because they are either not applicable, not required or because the information is
included in the Consolidated Financial Statements or notes included in this Annual Report on Form 10-K.
c) Exhibits
Exhibit
Number
1.1
3.1
3.2
4.1
4.2
10.1
10.2
10.3 †
10.4 †
10.5 †
10.6 †
10.7 †
10.8 †
10.9 †
Description
Underwriting Agreement, dated as of July 20, 2017, among the Company, Community Healthcare OP, LP,
Sandler O'Neill & Partners, L.P., Evercore Group L.L.C., SunTrust Robinson Humphrey, Inc. and each of the
Underwriters party thereto (1)
Corporate Charter of Community Healthcare Trust Incorporated, as amended (2)
Bylaws of Community Healthcare Trust Incorporated, as amended (3)
Description of Common Stock of Community Healthcare Trust Incorporated (4)
Form of Certificate of Common Stock of Community Healthcare Trust Incorporated (5)
Agreement of Limited Partnership of Community Healthcare OP, LP(6)
Form of Indemnification Agreement (7)
Community Healthcare Trust Incorporated 2014 Incentive Plan, as amended (8)
Amended and Restated Community Healthcare Trust Incorporated Alignment of Interest Program (9)
Amended and Restated Community Healthcare Trust Incorporated Executive Officer Incentive Program (10)
Community Healthcare Trust Incorporated Amended and Restated Non-Executive Officer Incentive Program (11)
Employment Agreement between Community Healthcare Trust Incorporated and Timothy G. Wallace (12)
First Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Timothy G.
Wallace (13)
Second Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Timothy
G. Wallace (14)
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10.10 †
Third Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Timothy
G. Wallace (15)
97
Exhibit
Number
10.11 †
10.12 †
10.13 *†
10.14 †
10.15 †
10.16 †
10.17 †
10.18 †
10.19 †
10.20 †
10.21 †
10.22 †
10.23 †
10.26
10.27
10.28
10.29
10.30
10.31
10.32
21 *
23 *
31.1 *
31.2 *
Description
Fourth Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Timothy
G. Wallace (16)
Fifth Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Timothy
G. Wallace (17)
Notice of Mutual Intent to Not Renew Employment Agreement by and between Community Healthcare Trust
Incorporated and W. Page Barnes
Employment Agreement between Community Healthcare Trust Incorporated and Leigh Ann Stach (18)
First Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Leigh Ann
Stach (19)
Second Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Leigh
Ann Stach (20)
Third Amendment to Employment Agreement between Community Healthcare Trust Incorporated and Leigh Ann
Stach (21)
Amended and Restated Employment Agreement, dated May 1, 2019, between Community Healthcare Trust
Incorporated and Leigh Ann Stach (22)
First Amendment to Amended and Restated Employment Agreement between Community Healthcare Trust
Incorporated and Leigh Ann Stach (23)
Second Amendment to Amended and Restated Employment Agreement between Community Healthcare Trust
Incorporated and Leigh Ann Stach (24)
Employment Agreement, dated March 11, 2019, between Community Healthcare Trust Incorporated and David
H. Dupuy (25)
First Amendment to Employment Agreement between Community Healthcare Trust Incorporated and David H.
Dupuy (26)
Second Amendment to Employment Agreement between Community Healthcare Trust Incorporated and David
H. Dupuy (27)
Form of Restricted Stock Agreement (28)
Form of Officer Compensation Reduction Election Form (29)
Form of Director Compensation Reduction Election Form (30)
Second Amended and Restated Credit Agreement dated as of March 29, 2017, by and among Community
Healthcare OP, LP, the Lenders from time to time party hereto, and SunTrust Bank, as Administrative Agent (31)
Sales Agency Agreement, dated August 7, 2018, by and among Community Healthcare Trust Incorporated and
Sandler O'Neil & Partners, L.P., Evercore Group L.L.C., SunTrust Robinson Humphrey, Inc., BB&T Capital
Markets, a division of BB&T Securities, LLC, Fifth Third Securities, Inc. and Janney Montgomery Scott LLC, as
sales agents (32)
Amended and Restated Sales Agency Agreement, dated November 5, 2019, by and among Community
Healthcare Trust Incorporated and Sandler O'Neil & Partners, L.P., Evercore Group L.L.C., SunTrust Robinson
Humphrey, Inc., BB&T Capital Markets, a division of BB&T Securities, LLC, Fifth Third Securities, Inc. and
Janney Montgomery Scott LLC, as sales agents (33)
Amendment No. 1 to Amended and Restated Sales Agency Agreement, dated November 3, 2020, by and amount
Community Healthcare Trust Incorporated and Piper Sandler & Co., Evercore Group L.L.C., Truist Securities,
Inc., Regions Securities LLC, Robert W. Baird & Co. Incorporated, Fifth Third Securities, Inc., and Janney
Montgomery Scott LLC, as sales agents (34)
Subsidiaries of the Registrant
Consent of BDO USA, LLP, independent registered public accounting firm
Certification of the Chief Executive Officer of Community Healthcare Trust Incorporated pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Rule 302 of the Sarbanes-Oxley Act
of 2002
Certification of the Chief Financial Officer of Community Healthcare Trust Incorporated pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Rule 302 of the Sarbanes-Oxley Act
of 2002
32.1 **
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
101.INS *
XBRL Instance Document
98
Exhibit
Number
101.SCH * XBRL Taxonomy Extension Schema Document
Description
101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB * XBRL Taxonomy Extension Labels Linkbase Document
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document
(1) Filed as Exhibit 1.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on July 26, 2017
(File No. 001-37401) and incorporated herein by reference.
(2) Filed as Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form S-11 of the Company filed with the
Securities and Exchange Commission on May 6, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(3) Filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q of the Company filed with the Securities and Exchange
(4)
Commission on November 3, 2020 (Registration No. 333-203210) and incorporated herein by reference.
Included under the heading "Description of Capital Stock" in the prospectus forming part of the Company's Registration
Statement on Form S-11 of the Company, initially filed with the Securities and Exchange Commission on April 2, 2015
(Registration No. 333-203210) and incorporated herein by reference.
(5) Filed as Exhibit 4.1 to the Registration Statement on Form S-11 of the Company filed with the Securities and Exchange
Commission on April 2, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(6) Filed as Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-11 of the Company filed with the
Securities and Exchange Commission on April 28, 2015 (Registration No. 333-203210) and incorporated herein by
reference.
(7) Filed as Exhibit 10.2 to the Registration Statement on Form S-11 of the Company filed with the Securities and Exchange
Commission on April 2, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(8) The 2014 Incentive Plan filed as Exhibit 10.3 to the Registration Statement on Form S-11 of the Company filed with the
Securities and Exchange Commission on April 2, 2015 (Registration No. 333-203210), and, as to Amendment No. 1 to the
2014 Incentive Plan, as Exhibit 10.12 to Amendment No. 2 to the Registration Statement on Form S-11 of the Company
filed with the Securities and Exchange Commission on May 6, 2015 (Registration No. 333-203210), and, as to Amendment
No. 2 to the 2014 Incentive Plan, as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange
Commission on July 17, 2017, and, as to the Amendment No. 3 to the 2014 Incentive Plan, as Exhibit 10.2 to the Form 8-K
of the Company filed with the Securities and Exchange Commission on July 17, 2017, each of which is incorporated herein
by reference.
(9) Filed as Exhibit 4.5 to the Registration Statement on Form S-8 of the Company filed with the Securities and Exchange
Commission on December 7, 2016 (Registration Statement No. 333-214951) and incorporated herein by reference.
(10) Filed as Exhibit 10.2 to the Form 8-K of the Company filed with the Securities and Exchange Commission on November 4,
2016 (File No. 001-37401) and incorporated herein by reference.
(11) Filed as Exhibit 10.6 to the Annual Report on Form 10-K of the Company filed with the Securities and Exchange
Commission on February 25, 2020 and incorporated herein by reference.
(12) Filed as Exhibit 10.6 to the Registration Statement on Form S-11 of the Company filed with the Securities and Exchange
Commission on April 2, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(13) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 18,
2017 (File No. 001-37401) and incorporated herein by reference.
(14) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 2,
2018 (File No. 001-37401) and incorporated herein by reference.
(15) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 3,
2019 (File No. 001-37401) and incorporated herein by reference.
(16) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 3,
2020 (File No. 001-37401) and incorporated herein by reference.
(17) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 4,
2021 (File No. 001-37401) and incorporated herein by reference.
(18) Filed as Exhibit 10.8 to the Registration Statement on Form S-11 of the Company filed with the Securities and Exchange
Commission on April 2, 2015 (Registration No. 333-203210) and incorporated herein by reference.
(19) Filed as Exhibit 10.3 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 18,
2017 (File No. 001-37401) and incorporated herein by reference.
(20) Filed as Exhibit 10.3 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 2,
2018 (File No. 001-37401) and incorporated herein by reference.
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(21) Filed as Exhibit 10.3 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 3,
2019 (File No. 001-37401) and incorporated herein by reference.
(22) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on May 3, 2019
(File No. 001-37401) and incorporated herein by reference.
(23) Filed as Exhibit 10.4 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 3,
2020 (File No. 001-37401) and incorporated herein by reference.
(24) Filed as Exhibit 10.3 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 4,
2021 (File No. 001-37401) and incorporated herein by reference.
(25) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on March 11,
2019 (File No. 001-37401) and incorporated herein by reference.
(26) Filed as Exhibit 10.2 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 3,
2020 (File No. 001-37401) and incorporated herein by reference.
(27) Filed as Exhibit 10.2 to the Form 8-K of the Company filed with the Securities and Exchange Commission on January 4,
2021 (File No. 001-37401) and incorporated herein by reference.
(28) Filed as Exhibit 10.9 to Amendment No. 1 to the Registration Statement on Form S-11 of the Company filed with the
Securities and Exchange Commission on April 28, 2015 (Registration No. 333-203210) and incorporated herein by
reference.
(29) Filed as Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-11 of the Company filed with the
Securities and Exchange Commission on April 28, 2015 (Registration No. 333-203210) and incorporated herein by
reference.
(30) Filed as Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-11 of the Company filed with the
Securities and Exchange Commission on April 28, 2015 (Registration No. 333-203210) and incorporated herein by
reference.
(31) Filed as Exhibit 10.1 to the Form 10-Q of the Company filed with the Securities and Exchange Commission on May 9, 2017
(File No. 001-37401) and incorporated herein by reference, and, as to the First Amendment to the Second Amended and
Restated Credit Agreement dated February 15, 2018, filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on May 8, 2018 (File No. 001-37401), and, as to the Second Amendment to the
Second Amended and Restated Credit Agreement dated March 27, 2018, filed as Exhibit 99.1 to the Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on May 8, 2018 (File No. 001-37401), and, as to the Third
Amendment to the Second Amended and Restated Credit Agreement dated March 29, 2019, filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2019 (File No. 001-37401),
each of which is incorporated herein by reference.
(32) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on August 7,
2018 (File No. 001-37401) and incorporated herein by reference.
(33) Filed as Exhibit 10.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on November 5,
2019 (File No. 001-37401) and incorporated herein by reference.
(34) Filed as Exhibit 10.1 to the Form 10-Q of the Company filed with the Securities and Exchange Commission on November 3,
2020 (File No. 001-37401 and incorporated herein by reference.
_________
*
Filed herewith.
** Furnished herewith.
† Denotes executive compensation plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 16, 2021
COMMUNITY HEALTHCARE TRUST INCORPORATED
By:
/s/ Timothy G. Wallace
Timothy G. Wallace
Chairman of the Board and Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the
following persons on behalf of the Company and in the capacities and on the date indicated.
Signature
Title
Date
/s/ Timothy G. Wallace
Chairman of the Board and Chief Executive
February 16, 2021
Timothy G. Wallace
Officer and President (Principal Executive Officer)
/s/ David H. Dupuy
David H. Dupuy
/s/ Leigh Ann Stach
Leigh Ann Stach
/s/ Alan Gardner
Alan Gardner
/s/ Claire Gulmi
Claire Gulmi
/s/ Robert Hensley
Robert Hensley
/s/ R. Lawrence Van Horn
R. Lawrence Van Horn
Executive Vice President and Chief Financial
February 16, 2021
Officer (Principal Financial Officer)
Executive Vice President and Chief Accounting
February 16, 2021
Officer (Principal Accounting Officer)
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
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Director
Director
Director
101
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018
(Dollars in thousands)
Description
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Uncollectible
Accounts
Written-off
Balance at
End of
Period
2020 Accounts receivable allowance
2019 Accounts receivable allowance
2018 Accounts receivable allowance
$
$
$
357 $
270 $
293 $
(156) $
216 $
73 $
— $
(129) $
— $
(101) $
— $
(96) $
100
357
270
Additions
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E
Schedule IV - Mortgage Loans on Real Estate as of December 31, 2020
(Dollars in thousands)
Description of Collateral
Interest
Rate
Maturity
Date
Periodic
Payment
Terms
Original
Face
Amount
Carrying
Amount
Principal
amount of
loans subject
to delinquent
principal or
interest
Total Mortgage Loans
$
$
— $
— $
— $
— $
—
—
___________
(1) A rollforward of Mortgage loans on real estate for the years ended December 31, 2020, 2019 and 2018 is provided below.
Balance at beginning of period
Additions during the period:
New or acquired mortgages, net
Amortization/write-off of loan and commitment fees
Deductions during the period:
Repayment upon settlement of bankruptcy (a)
Scheduled principal payments
Year Ended December 31,
2020
2019
2018
$
— $
— $
10,633
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10,633)
—
(10,633)
—
Balance at end of period
$
— $
— $
___________
(a) Mortgage note was repaid upon settlement of the bankruptcy with a borrower.
104
Exhibit 10.13
NOTICE OF MUTUAL INTENT
TO NOT RENEW EMPLOYMENT AGREEMENT
This notice, to be effective November 30, 2020, is provided by each of W. Page Barnes (“Barnes”) and
Community Healthcare Trust Incorporated (the “Company”) in accordance with Section 2.9 of that certain Amended
and Restated Employment Agreement, by and between the Company and Barnes, dated May 1, 2019, as amended
(the “Employment Agreement”).
The current term of the Employment Agreement continues through December 31, 2020 and automatically
renews unless either party provides 30 days’ written notice to the other party in accordance with Section 2.9 thereof.
Barnes and the Company have mutually agreed that the Employment Agreement will expire on December
31, 2020 without renewal (“Non-Renewal Date”), and that, as of the Non-Renewal Date, Barnes will no longer be
employed as Executive Vice President & Chief Operating Officer.
Barnes will remain employed by the Company following the Non-Renewal Date, as an at-will employee,
and shall have no written agreement evidencing his employment. Barnes acknowledges and agrees that Barnes is
not entitled to any severance or other compensation or benefits under the Employment Agreement to which he may
be entitled in accordance with the terms therewith. However, Barnes will retain all existing restricted common stock
of the Company currently held, subject to all existing vesting schedules in accordance with the applicable award
agreements.
Community Healthcare Trust Incorporated
/s/ Timothy G. Wallace
Timothy G. Wallace
President and Chief Executive Officer
/s/ W. Page Barnes
W. Page Barnes
K
-
0
1
m
r
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F
Suite 150
3326 Aspen Grove Drive
Franklin
TN
37067
Subsidiaries of the Registrant
Subsidiary
Community Healthcare OP, LP
Community Healthcare Trust, LLC
Community Healthcare Trust Services, Inc.
CHCT Alabama, LLC
CHCT Arizona, LLC
CHCT Arkansas, LLC
CHCT California, LLC
CHCT Colorado, LLC
CHCT Connecticut, LLC
CHCT Connecticut II, LLC
CHCT Florida, LLC
CHCT Georgia, LLC
CHCT Idaho, LLC
CHCT Illinois, LLC
CHCT Indiana, LLC
CHCT Iowa, LLC
CHCT Kansas, LLC
CHCT Kentucky, LLC
CHCT Lending, LLC
CHCT Louisiana, LLC
CHCT Maryland, LLC
CHCT Massachusetts, LLC
CHCT Michigan, LLC
CHCT Mississippi, LLC
CHCT Nevada, LLC
CHCT New Jersey, LLC
CHCT New York, LLC
CHCT North Carolina, LLC
CHCT Ohio, LLC
CHCT Oklahoma, LLC
CHCT Pennsylvania, LLC
CHCT South Carolina, LLC
CHCT Tennessee, LLC
CHCT Texas, LLC
CHCT Virginia, LLC
CHCT Washington, LLC
CHCT West Virginia, LLC
CHCT Wisconsin, LLC
Exhibit 21
State of
Incorporation
Delaware
Delaware
Tennessee
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Consent of Independent Registered Public Accounting Firm
Exhibit 23
Community Healthcare Trust Incorporated
Franklin, Tennessee
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-234523)
and Form S-8 (No. 333-251981, 333-235833, 333-229121, 333-222399, 333-218366, 333-214951 and 333-206286) of
Community Healthcare Trust Incorporated of our reports dated February 16, 2021, relating to the consolidated financial
statements and financial statement schedules, and the effectiveness of Community Healthcare Trust Incorporated's internal
control over financial reporting, which appear in this Form 10-K.
/s/ BDO USA, LLP
Nashville, Tennessee
February 16, 2021
K
-
0
1
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r
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Community Healthcare Trust Incorporated
Annual Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Timothy G. Wallace, certify that:
1. I have reviewed this Annual Report on Form 10-K of Community Healthcare Trust Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: February 16, 2021
/s/ Timothy G. Wallace
Timothy G. Wallace
Chief Executive Officer and President
Community Healthcare Trust Incorporated
Annual Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, David H. Dupuy, certify that:
1. I have reviewed this Annual Report on Form 10-K of Community Healthcare Trust Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
K
-
0
1
m
r
o
F
Date: February 16, 2021
/s/ David H. Dupuy
David H. Dupuy
Executive Vice President and Chief Financial
Officer
Exhibit 32.1
Community Healthcare Trust Incorporated
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Community Healthcare Trust Incorporated (the "Company")
for the period ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Timothy G. Wallace, Chief Executive Officer and President of the Company, and I, David H. Dupuy, Executive
Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
i.
ii.
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 16, 2021
/s/ Timothy G. Wallace
Timothy G. Wallace
Chief Executive Officer and President
/s/ David H. Dupuy
David H. Dupuy
Executive Vice President and Chief Financial
Officer
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TRANSFER(cid:3)AGENT
American(cid:3)Stock(cid:3)Transfer(cid:3)&(cid:3)Trust(cid:3)Company,(cid:3)LLC(cid:3)
Operations(cid:3)Center(cid:3)
6201(cid:3)15th(cid:3)Avenue(cid:3)
Brooklyn,(cid:3)NY(cid:3)(cid:3)11219(cid:3)
1(cid:882)800(cid:882)937(cid:882)5449(cid:3)
(cid:3)
(cid:3)
ANNUAL(cid:3)SHAREHOLDERS(cid:3)MEETING(cid:3)
The(cid:3)Annual(cid:3)Meeting(cid:3)of(cid:3)the(cid:3)Shareholders(cid:3)will(cid:3)be(cid:3)held(cid:3)at(cid:3)8:00(cid:3)
a.m.,(cid:3)May(cid:3)6,(cid:3)2021,(cid:3)at(cid:3)the(cid:3)Company’s(cid:3)corporate(cid:3)offices(cid:3)in(cid:3)
Franklin,(cid:3)Tennessee.(cid:3)
(cid:3)
(cid:3)
EXECUTIVE OFFICERS
Timothy(cid:3)G.(cid:3)Wallace(cid:3)
Chief(cid:3)Executive(cid:3)Officer(cid:3)and(cid:3)President(cid:3)
(cid:3)
David H. Dupuy
Executive(cid:3)Vice(cid:3)President(cid:3)and(cid:3)Chief(cid:3)Financial Officer(cid:3)
(cid:3)
Leigh(cid:3)Ann(cid:3)Stach(cid:3)
(cid:3)
Executive Vice(cid:3)President(cid:3)and(cid:3)Chief(cid:3)Accounting Officer(cid:3)
(cid:3)
(cid:3)
SHAREHOLDER(cid:3)INFORMATION(cid:3)
CORPORATE(cid:3)ADDRESS(cid:3)
Community(cid:3)Healthcare(cid:3)Trust(cid:3)Incorporated(cid:3)
3326(cid:3)Aspen(cid:3)Grove(cid:3)Drive,(cid:3)Suite(cid:3)150(cid:3)
Franklin,(cid:3)Tennessee(cid:3)(cid:3)37067(cid:3)
(615)(cid:3)771(cid:882)3052(cid:3)
Email:(cid:3)Investorrelations@chct.reit(cid:3)
Website:(cid:3)www.chct.reit(cid:3)
(cid:3)
(cid:3)
STOCK(cid:3)EXCHANGE(cid:3)INFORMATION(cid:3)
The(cid:3)Common(cid:3)Stock(cid:3)of(cid:3)the(cid:3)Company(cid:3)is(cid:3)listed(cid:3)on(cid:3)the(cid:3)New(cid:3)York(cid:3)
Stock(cid:3)Exchange(cid:3)under(cid:3)the(cid:3)symbol(cid:3)“CHCT”.(cid:3)
(cid:3)
(cid:3)
INDEPENDENT(cid:3)REGISTERED(cid:3)PUBLIC(cid:3)ACCOUNTING(cid:3)FIRM(cid:3)
BDO(cid:3)USA,(cid:3)LLP(cid:3)
501(cid:3)Commerce(cid:3)Street,(cid:3)Suite(cid:3)1400(cid:3)
Nashville,(cid:3)Tennessee(cid:3)(cid:3)37203(cid:3)
(cid:3)
(cid:3)
BOARD(cid:3)OF(cid:3)DIRECTORS(cid:3)
Timothy(cid:3)G.(cid:3)Wallace(cid:3)
Chairman of the Board
Chief(cid:3)Executive(cid:3)Officer(cid:3)and
President of Community Healthcare Trust Incorporated
(cid:3)
Alan(cid:3)Gardner(cid:3)
Lead Independent Director
Retired
Former Senior Relationship Manager
in healthcare corporate banking
at Wells Fargo
(cid:3)
Robert(cid:3)Hensley(cid:3)
Audit(cid:3)Committee(cid:3)Chair
Senior Advisor at Alvarez and Marsal, LLC(cid:3)
(cid:3)
Claire Gulmi
Compensation Committee Chair
Committee Chair
Compensation
Former Executive Vice President and Chief Financial Officer at
Envision Healthcare
R.(cid:3)Lawrence(cid:3)Van(cid:3)Horn(cid:3)
Corporate(cid:3)Governance(cid:3)Committee(cid:3)Chair(cid:3)
Associate Professor of Economics and Management and
Executive Director of Health Affairs
at Vanderbilt University Owen Graduate School
of Management