Community Healthcare Trust Incorporated

Welcome to Community Health Care Trust 2025 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 Third Quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be open for question and answer session. The company's earnings release was distributed last evening and has also been posted on its website www.chct.reit. The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today, October 29, 2025, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements, For discussion of these risks and uncertainties, you should review the company's disclosures regarding forward-looking statements in its earnings release, as well as its risk factors and MD&A in its SEC filings. The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. All participants are advised that this conference call is being recorded for playback purposes. An archive of the call will be made available on the company's investor relations website for approximately 30 days and is the property of the company. The call may not be recorded or otherwise reproduced or distributed without the company's prior written permission. Now, I would like to turn the call over to Dave Dupuy, CEO of Community Healthcare Trust.

Great. Thank you, Danielle. And good morning. Thank you for joining us today for our 2025 third quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer, Leanne Stack, our Chief Accounting Officer, and Mark Kearns, our Senior Vice President of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on Form 8K, along with our quarterly report on Form 10Q. In addition, an updated investor presentation was posted to our website last night. During the third quarter, the Geriatric Behavioral Hospital Operator, a tenant in six of the company's properties, paid rent of approximately $200,000. On July 17, 2025, this tenant signed a letter of intent for the sale of the operations of all six of its hospitals to an experienced behavioral healthcare operator and is under exclusivity with that buyer. Among other terms and conditions of the sale, the buyer would sign new or amended leases for the six geriatric psych hospitals owned by CHCT. The buyer continues to perform legal and business due diligence on the transaction. And while we can't provide certainty that the transaction will close, we will share more information as we move through the process. As it relates to our core business, we had a busy third quarter from an operations perspective and continue to be selective from an acquisition standpoint. Our occupancy decreased from 90.7% to 90.1% during the quarter. However, our leasing team is very busy with a number of new leases signed so far in October. Based on leasing activity across the portfolio, we would expect our leased occupancy to increase by 50 to 100 basis points by year end. Our weighted average lease term increased slightly from 6.6 to 6.7 years. We have three properties that are undergoing redevelopment or significant renovations with long-term tenants in place when the renovations and redevelopment are complete. During the third quarter, we acquired one inpatient rehab facility after completion of construction for a purchase price of $26.5 million. We entered into a new lease with a lease expiration in 2040 and anticipated annual return of approximately 9.4%. Also, we have signed definitive purchase and sale agreements for six properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million. The expected return on these investments should range from 9.1 to 9.75%. We expect to close on one of these properties in the fourth quarter with the remaining five properties closing throughout 2026 and 2027. As it relates to our capital recycling program, we had one disposition in the third quarter providing approximately 700,000 of proceeds and generating a small loss on the sale. In addition, we have two other dispositions in our program that we expect to close in the fourth quarter with anticipated net proceeds of $6.1 million. Also as part of this program, we expect to close on the sale of an inpatient rehab hospital in the fourth quarter with an expected gain of approximately $11.5 million and net proceeds expected to fund our fourth quarter acquisition through a 1031 like-kind exchange. The indicative cap rate associated with the property sale is in the high 7% range. We have other properties with similar expected cap rate ranges both in market and under review as part of our capital recycling program. We would anticipate utilizing a similar 1031 like-kind exchange to accretively reinvest proceeds to fund our pipeline on a leverage neutral basis. We did not issue any shares under our ATM last quarter. However, we anticipate having sufficient capital from selected asset sales coupled with our revolver capacity to fund near-term acquisitions. Going forward, we will evaluate the best uses of our capital, all while maintaining modest leverage levels. To finish up, we declared our dividend for the third quarter and raised it to 47.5 cents per common share. This equates to an annualized dividend of $1.90 per share, and we are proud to have raised our dividend every quarter since our IPO. That takes care of the items I wanted to cover, so I'll hand things off to Bill to discuss the numbers. Thank you, Dave. I will now provide more details on our third quarter financial performance. I'm pleased to report total revenue grew from $29.6 million in the third quarter of 2024 to $31.1 million in the third quarter of 2025, representing 4.9% annual growth over the same period last year. When compared to our $29.1 million of total revenue in the second quarter of 2025, we need to consider that the second quarter was negatively impacted by the reversal of $1.7 million of interest receivables from the geriatric behavioral hospital tenant that Dave discussed earlier. Normalizing the second quarter for this, we achieved 1.1% total revenue growth quarter over quarter. Moving to expenses, Property operating expenses increased by approximately $300,000 quarter over quarter to $5.9 million for the third quarter of 2025. This quarter over quarter increase in the third quarter is typical with a seasonal increase in utility expenses during the summer compared to the milder temperatures in the second quarter. On a year over year basis, property operating expenses decreased by approximately $50,000. Total general and administrative expense was $4.7 million in the third quarter of 2025, which was flat quarter over quarter once you exclude the $5.9 million of severance and transition-related payments incurred within the second quarter's $10.6 million of G&A expense. On a year-over-year basis, G&A expense decreased by approximately $300,000 in the third quarter of 2025. Interest expense increased by approximately $500,000 quarter over quarter to $7.1 million in the third quarter of 2025 due to increased borrowings under our revolving credit facility early in the third quarter to fund the $26.5 million property acquisition, as well as one extra day of interest in the third quarter compared to the second quarter. We benefited late in the quarter from the FOMC's 25 basis point reduction to the federal funds rate in mid-September, but the full benefit of that cut will be realized in our fourth quarter financials based on the approximately $180 million of floating rate exposure we have within our revolver borrowings. If there are any additional rate cuts by the FOMC later today or during their December meeting, we expect those cuts will reduce our interest expense further. Moving to funds from operations, SFO in the third quarter of 2025 was $13.5 million, a 5.7% increase year over year compared to the $12.8 million of SFO in the third quarter of 2024. On the diluted common share basis, SFO increased from 48 cents in the third quarter of 2024 to 50 cents in the third quarter of 2025. Adjusted funds from operations, or ASFO, which adjusts for straight-line rent and stock-based compensation, totaled $15.1 million in the third quarter of 2025, a 3.1% increase year-over-year compared to the $14.6 million of ASFO in the third quarter of 2024. ASFO on a diluted common share basis was 56 cents in the third quarter of 2025, or one cent higher than the 55 cents of ASFO in the third quarter of 2024. I'll note that our third quarter 2025 ASFO dividend payout ratio remains strong at 85%. That concludes our prepared remarks.

Danielle, we are now ready to begin the question and answer session.