Community Healthcare Trust Incorporated

Welcome to Community Health Care's Trust's 2025 Fourth Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 Fourth Quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be opened for a 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, February 18, 2026, and may contain forward-looking statements that involve risks 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 the 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. Call participants are advised that this conference call is being recorded for playback purpose. An archive of the call will be made available on the company's investor relations website for approximately 30 days and is property of the company. This 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. Please go ahead, sir.

Great. Thanks so much, Nick. Good morning, everybody, and thank you for joining us today for our 2025 Fourth 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 annual report on form 10K. In addition, an updated investor presentation was posted to our website last night. During the fourth quarter, the geriatric behavioral hospital operator, a tenant in six of the company's properties, paid rent of $200,000, consistent with last quarter. 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 hospitals owned by CHCT. We continue to maintain frequent, productive communication with the buyer's team to advance the closing process. The buyer is finalizing legal and business due diligence, and while the transaction is progressing, we can't provide specific timing or certainty that it will close. We will share more information as we move through the process. As it relates to our core business, we had a busy fourth quarter from an operations perspective and capital recycling perspective and continue to be selective from an acquisition standpoint. Our occupancy increased from 90.1 to 90.6% during the quarter, and our leasing team is very busy with renewals and new leasing activity. Our weighted average lease term increased from 6.7 to 7 years. We have three properties that are undergoing redevelopment or significant renovations with long-term tenants in place when the renovations or redevelopment are complete. We expect the largest of these projects to be completed in the second quarter of 2026, with rent expected to commence in the third quarter after the tenant obtains the appropriate provider license. As previously disclosed, during the fourth quarter, we sold an inpatient rehab facility at an approximate 7.9% cap rate. resulting in a gain on the sale of approximately $11.5 million, with net proceeds reinvested through a 1031 like-kind exchange into a new inpatient rehab facility for a purchase price of $28.5 million. We entered into a new lease with a lease expiration in 2040 and an anticipated annual return of approximately 9.3%. I will note an additional benefit of the transaction was the reduction of our largest tenant concentration, further enhancing our overall portfolio diversification. For the year, we acquired three properties with a total of 113,000 square feet for an aggregate purchase price of $64.5 million, which were 100% leased with leases running through 2040 and anticipated annual returns of 9.3 to 9.5%. As it relates to other capital recycling activity, we had two additional dispositions close in the fourth quarter and one disposition close in the first quarter, resulting in net proceeds of approximately $7.7 million. We have other properties both in market and under review as part of our capital recycling program, and when appropriate, we would anticipate using a similar 1031 like-kind exchange to accretively reinvest proceeds to fund our pipeline. Also, we have signed definitive purchase and sale agreements for five properties to be acquired after completion and occupancy for an aggregate expected investment of $122.5 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 first quarter, with two properties expected to close in the second half of 2026, and the remaining two closing in the second half of 2027. 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 fourth quarter and raised it to 47.75 cents per common share. This equates to an annualized dividend of $1.91 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 will hand things off to Bill to discuss the numbers. Thank you, Dave. I will now provide more details on our fourth quarter financial performance. I am pleased to report total revenue grew from $29.3 million in the fourth quarter of 2024 to $30.9 million in the fourth quarter of 2025, representing 5.6% annual growth over the same period last year. On a quarter-over-quarter basis, the capital recycling and asset disposition progress in the fourth quarter that Dave discussed led to relatively flat quarterly performance across many line items on our income statement, as I will review. The $30.9 million of fourth quarter total revenue was a slight decrease of $140,000 quarter over quarter versus the $31.1 million in the third quarter of 2025 impacted by the capital recycling and asset disposition activity. Moving to expenses, property operating expense increased by less than $100,000 quarter over quarter to $6 million for the fourth quarter of 2025. Total general and administrative expense was $4.8 million in the fourth quarter of 2025, which was nearly flat both quarter over quarter from the $4.7 million in the third quarter of 2025 and year over year from the $4.8 million in the fourth quarter of 2024. Interest expense decreased slightly by approximately $100,000 quarter over quarter to $7 million in the fourth quarter of 2025, due primarily to recent FOMC interest rate cuts and the resulting lower floating rates on our revolving credit facility. Moving to funds from operations, FFO in the fourth quarter of 2025 was $13.3 million, a 4.6% increase year over year compared to the $12.7 million of FFO in the fourth quarter of 2024. On a diluted common share basis, FFO increased from 48 cents in the fourth quarter of 2024 to 49 cents in the fourth quarter of 2025, although this was one cent less quarter over quarter from the 50 cents of FFO in the third quarter of 2025 as a result of the net impacts to revenue and expenses described earlier. Adjusted funds from operations, or ASFO, which adjusts for straight-line rent and stock-based compensation, totaled $14.9 million in the fourth quarter of 2025, a 2.1% increase year over year compared to the 14.6 million of the AFFO in the fourth quarter of 2024. AFFO on a diluted common share basis was 55 cents in the fourth quarter of 2025, even with the 55 cents of the AFFO in the fourth quarter of 2024 although this was one cent less quarter over quarter from the 56 cents of ASFO in the third quarter of 2025, again, as a result of the net impacts to revenue and expenses described earlier. And finally, while it did not impact FFO or ASFO, we did have net gains on sale of $12.1 million from the capital recycling and asset disposition activity during the fourth quarter of 2025 that increased net income. That concludes our prepared remarks. Nick, we are now ready to begin the question and answer session.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. And the first question will come from Connor Mitchell with Piper Sandler. Please go ahead.

Hey, good morning. Thanks for taking my question. I guess just focusing first on the JRS Behavioral Hospital operator that signed the transaction last summer. I know you guys can't speak too much about the timing or some details, but just try to get a little better understanding. Is the transaction on your part essentially supposed to all take place in one bite all at the same time, or is there any chance that the new operator that would come in and sign leases on the properties could do it on a property-by-property timeline or even a state-by-state timeline instead of kind of all at once?

Hey, Connor. Thanks for the question. Yeah, as it relates to the transaction itself, um you know there was not as much progress as we would have hoped being been made in the fourth quarter and i think a lot of that is you know the the buyer had to confirm various liabilities and was related you know was dependent on the government to to get through some of those uh issues i think we're seeing significantly more activity And in this first quarter, as far as the progress made from a due diligence standpoint and, you know, site visits and really working on getting the documentation squared away. What I would say about your question specifically, you know, the buyer is still very interested in all six hospitals, and the goal is for this transaction to happen all at one time. And that's our expectation. That's the buyer's expectation. So there would be no plans to have any sort of a staged closing. I think it just makes it, you know, more challenging that way and a little bit messier. And so everybody is moving forward with the acquisition of the operations of all six hospitals in the three states. And so there would not be a stage closing based on our expectations or the buyer's expectations.

Okay, appreciate the color. And then turning towards transactions, the pipeline seems pretty stable compared to prior quarters as well. Just curious kind of how you balance the level of transactions, the timings of closing those transactions along with, you know, the time needed to find the right dispositions to fund the acquisitions or if you are considering maybe increasing the debt levels or leverage if there's a ceiling you have there. When you see the the optimal acquisitions and the timeline needs to be sped up. So you can't really wait for the offsetting dispositions.

You know, our goal is really to execute and sequence the dispositions just like we did in the fourth quarter where we, you know, sold the inpatient rehab facility. There was a little bit of a gap between selling that facility and acquiring the new facility, which had some small impact on our financials. But overall, it worked very, very well. And as I mentioned in the prepared remarks, we're working right now on a handful of other acquisitions so that we could similarly sequence in the same way when we acquire these facilities that we expect, these inpatient rehab facilities that we expect to close sometime in the third quarter. So the goal is obviously to do it and sequence it in a way that we can do a 1031 like kind exchange if that's appropriate, because we would anticipate a significant gain on some of the assets that we're looking to sell. But you're right. I mean, buying and selling real estate is inherently, you know, sometimes those time gaps don't always sequence correctly. I think, you know, everybody should know. There may be some gaps between, you know, when we close and when we sell. But the goal is to keep that leverage in sort of the zip code that it is today and certainly not add leverage over time. But some of that is going to be dependent on the timing of close. But we feel confident that based on what we have in progress from a capital recycling perspective will allow us to acquire assets without adding meaningful leverage to the balance sheet.

Okay. I appreciate that as well. And maybe just one more if I could sneak it in. Can you just give an update on if there's really been any change in what you're seeing for cap rates for other acquisitions or dispositions? I know you gave some color in your opening remarks, but just maybe if there's anything you're seeing in the market right now that's really changing drastically from from the recent closed transactions?

You know, I think, look, the good news is I think there's a high level of demand for the assets that we're looking to selectively manage through a disposition process and our capital recycling. You know, we received an indicative 7.9% cap rate on the sale of inpatient rehab. We would expect similar sort of pricing on other types of dispositions that we're looking at. So, we feel like that disposition capital recycling activity is going to be accretive to us and to the business. And we do see opportunities on the buy side in that 9% to 10% cap rate range, but Of course, not wanting to raise stock through the ATM at these price levels, we're being very, very selective. What I would say is, in addition to these acquisitions that are in the pipeline, as I mentioned on the prepared remarks, we have some embedded growth in our 2026 numbers because we've got a redevelopment project that we anticipate coming online and in mid-2026, and then we've got another redevelopment project that should be coming online at the end of the year. And so, you know, those are essentially like acquisitions for us, and so we expect that to be a nice tailwind in the second half of the year for us.

Understood. That's all for me. Thank you very much. Thanks for the questions.

The next question will come from Michael Lewis with Truist. Please go ahead.

Great. Thank you. Dave, last quarter on the call, you said you expected the least percentage for the portfolio to be up 50 to 100 bps in 4Q, and it was. It was up 50 bps. I was just wondering if you felt compelled to give a little bit of insight into what you might expect for occupancy either over the next quarter or two or for the full year. Do you expect that to continue going up this year?

Hey, Michael, thanks for the question. You know, I think over the next, we have had great leasing activity in the portfolio. We've also had some, you know, we had some terminations toward the end of last year. And so I think Mark and his team are doing a remarkable job of taking some of those terminations, releasing the space. I think our Our view, big picture, is that's going to be really good overall for the portfolio. As you know, it takes a little bit of time for those new leases to become economic, but we feel very good about the leasing activity we're seeing. But, you know, the reality of it is it's probably, I would say, you know, this range of in the low 90s will continue for the next couple of quarters. I wouldn't suspect that it goes up meaningfully or down meaningfully just because some of the new leases were getting in place. I think it's really in the second half of the year that we would expect to see some, you know, momentum as it relates to growing leased occupancy. I would anticipate that that least occupancy would stay in that general zip code of where it is today for the next couple of quarters with it, you know, looking to increase second half of this year.

Okay. And then my second question is about the investment pipeline. You know, I remember the days when, you know, the annual target was $120 to $150 million annually. obviously with COVID and some changes in the cost of capital. You know, you've been below that in recent years. Is the goal now, you know, you have these developments that you'll be taking down. Is that kind of the pipeline? Or, you know, if you were going to do $120 to $150 million annually and you had the cost of capital, is there still that volume of opportunity out there? Or has something changed since the pandemic and maybe there's not as many opportunities in your net?

Yeah, the opportunity is still there, Michael. We're, you know, we're chomping at the bit and see a lot of great opportunities. We're constantly, you know, in touch with sort of that core group of brokers that we've worked with routinely over the last 10 years with the company. We've got great relationships and we're seeing the activity in that nine to to 10 range. And what I would tell you is if our stock was in a different spot and we were, you know, doing what we had done, you know, prior to the last year and a half, we would be looking to make those acquisitions. You know, we've always, as you will recall, because you've covered the company for a long time, there's always been sort of half of our business has been, you know, client business that we've programmatic that we've done. So call it 50 to 60 million a year. And then the other half has been that brokered business with some redevelopment projects mixed in. And I think what you've seen and what we've acted on over the last couple of years with our stock price where it was, is we've been focused more on supporting our clients. And as soon as that dynamic changes and the share price gets to a level where we can raise capital accretively, we would absolutely look to augment that client acquisition with the broker deals that we've done historically.

Okay. And then lastly for me, you know, the last few years, you've also had a note in the investor presentation about this dialysis term sheet pipeline. I didn't see that disclosure this time. Is that relationship kind of done or is that on the back burner and that could still become something programmatic down the line?

It's on, I think you nailed it. It is on the back burner. You know, most of that company's growth has really been, you know, buying operations. There hasn't been real estate as part of the, their overall acquisition cadence. And that has been the case now for a while. And so, and they have been focused on really their core business over the last, you know, couple of years now that they've done several acquisitions. So, you know, putting it in there just didn't seem like it made sense, just given the fact that we haven't executed any transactions under that deal. We still have a great relationship and, you know, for dialysis clinics with the operator, and we'll continue to monitor their acquisition activity. But yes, I would anticipate that that That is an opportunistic and certainly not a focus or an expectation that that would occur anytime soon.

Okay. Thank you. Thank you, Michael. Appreciate the questions.

This concludes our question and answer session. I would like to turn the conference back over to Dave Dupuy for any closing remarks.

Thanks, everybody. I appreciate everyone joining us, and feel free to reach out if you have any additional questions. Hope everyone has a good day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.