Community Healthcare Trust - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 printed mixed metrics: revenue rose to $30.08M (+2.5% YoY; +2.7% QoQ), while diluted EPS was $0.03 as higher seasonal OpEx offset revenue gains.
• Versus S&P Global consensus, revenue beat by ~$0.37M (+1.3%), but EPS missed by $0.04 (estimate $0.07 vs actual $0.03). Expect estimate revisions focused on EPS drivers and OpEx cadence.
• Dividend was raised again to $0.47/share (annualized $1.88), sustaining a long-standing quarterly increase streak.
• Management emphasized capital recycling over equity issuance at current share price, a selective acquisition pipeline (7 properties, $169.5M, 9.1–9.75% returns), and resolving the geriatric psychiatric tenant issue where $165k of rent and interest was received in Q1.

Note: We searched for an Item 2.02 8‑K earnings release for Q1 2025 but did not find one in the corpus; we used the company’s earnings press release and full call transcript for primary sourcing.

What Went Well and What Went Wrong

What Went Well

• Revenue inflected: total revenue rose to $30.08M (+2.5% YoY; +2.7% QoQ) aided by late Q4 acquisitions, reimbursement seasonality, and $165k from the geriatric operator.
• AFFO resilience: AFFO/share held at $0.55 QoQ (AFFO ~$14.7M, +$0.1M QoQ) despite higher seasonal OpEx.
• Strategic pipeline: Seven properties under definitive purchase agreements (~$169.5M) with expected returns of ~9.1–9.75%; management reiterated intent to fund with asset sales and revolver rather than equity at depressed prices.

Management quotes:

• “We continue to see good leasing activity… while continuing to focus on property operating costs.”
• “We… anticipate having sufficient capital from selected asset sales coupled with our increased revolver capacity to fund near-term acquisitions.”
• “We are proud to have raised our dividend every quarter since our IPO.”

What Went Wrong

• EPS miss: diluted EPS came in at $0.03, below the S&P Global consensus of $0.07*, as seasonal utilities/snow removal and higher G&A (noncash comp and annual items) pressured earnings.
• Tenant risk overhang: the geriatric psychiatric operator (6 properties; ~$3.2M annual base rent plus ~$2.5M on notes) remains unresolved; Q1 payments were only $165k.
• OpEx headwinds: Property operating expenses increased ~$0.6M QoQ to $6.1M due to seasonal utility and snowfall costs; G&A increased ~$0.3M QoQ to $5.1M on deferred comp amortization and annual employer adjustments.

Transcript

Bill Monroe (EVP and CFO)

Welcome to the Community Healthcare Trust's 2025 first quarter earnings release conference call. On the call today, the company will discuss its 2025 first 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, April 30, 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 a 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. Call 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 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.

Dave Dupuy (President, CEO, and a Board Member)

Great. Thank you, Alan, and good morning. Thank you for joining us today for our 2025 first quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer, Leigh Ann Stach, our Chief Accounting Officer, and Tim Meyer, our EVP of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on Form 8-K along with our quarterly report on Form 10-Q. In addition, an updated investor presentation was posted to our website last night. We had a busy first quarter from an operations perspective and continue to be selective from an acquisition standpoint. Both our occupancy and our weighted average remaining lease term remained flat quarter over quarter at 90.9% and 6.7 years, respectively.

We continue to see good leasing activity in the portfolio and our asset management team is doing a great job serving our tenants while continuing to focus on property operating costs. We have four properties or significant portions of them that are undergoing redevelopment or significant renovations with long term tenants in place when the renovations or redevelopment is complete. One of these projects commenced its lease.

During the first quarter due to healthcare

licensure requirements as well as rent abatement built into the lease, we expect this property to contribute NOI during the fourth quarter of 2025. During the first quarter we acquired a behavioral residential treatment facility consisting of five buildings with a total of approximately 38,000 sq ft for a purchase price of approximately $9.7 million and anticipated tenant improvements of $1.4 million. We entered into a new lease with a lease expiration of 2040 and anticipated annual return of 9.5%. This represents a new client relationship for CHCT and we are evaluating other projects to work on with this operator. We also have signed definitive purchase and sale agreements for seven properties to be acquired after completion and occupancy for an aggregate expected investment of $169.5 million. The expected return on these investments should range from 9.1%-9.75%.

We expect to close on one of these properties in the third quarter with the remaining six properties closing throughout 2025, 2026 and 2027. In April, we sold one building in Ohio with a net book value of approximately $400,000 and received net proceeds of approximately $600,000, resulting in a gain on the property sale. As for an update on our geriatric psychiatric hospital operator, which is a tenant in six of our properties representing a total of approximately 79,000 sq ft and annual base rent of $3.2 million, we continue to see incremental operating improvements and received rent and interest payments of $165,000 in the first quarter. In addition, the operator is evaluating strategic alternatives, including the potential sale of all or selected hospitals within its portfolio.

We remain in active dialogue with the operator and its consultants and will continue evaluating all options available under our leases and notes. Due to the Company's low share price, we did not issue any shares under our ATM last quarter. However, we continue to evaluate capital recycling opportunities and we would anticipate having sufficient capital from selected asset sales coupled with our increased 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 wrap up, we declared our dividend for the first quarter and raised it to $0.47 per common share. This equates to an annualized dividend of $1.88 per share.

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

Bill Monroe (EVP and CFO)

. Thank you, Dave. I will now provide more details on.

Our first quarter financial performance and pleased to report that total revenue grew from $29.3 million in the first quarter of 2024 to $30.1 million in the first quarter of 2025, representing 2.5% annual growth over the same period last year. When compared to our total revenue in the fourth quarter of 2024, which was also $29.3 million, we achieved 2.7% total revenue growth quarter over quarter as a result of incremental revenue from fourth quarter acquisitions made late in the quarter last year, seasonal increases in operating expense reimbursements and the $165,000 of rent and interest payments received in the first quarter from our geriatric psychiatric hospital operator that Dave mentioned earlier.

From an expense perspective, property operating expenses increased by approximately $600,000 quarter over quarter to $6.1 million in the first quarter of 2025, primarily as a result of higher seasonal utility and snowplow expenses at several properties in January and February. In particular, general and administrative expenses increased by approximately $300,000 quarter over quarter to $5.1 million in the first quarter of 2025, primarily as a result of higher non cash amortization of deferred compensation and our typical first quarter seasonal adjustments due to the timing of annual employee salary increases, employer HSA and 401k contributions and employer tax payments. Interest expense remained flat quarter over quarter at $6.4 million in the first quarter of 2025 due to the lower acquisition volumes over the last quarter as well as 2 less days in the first quarter compared to the fourth quarter.

Moving to funds from operations, FFO decreased slightly quarter over quarter by $77,000 but remained at $12.7 million in the first quarter of 2025 on a per diluted common share basis. FFO was $0.47 in the first quarter of 2025, down slightly from $0.48 in the fourth quarter of 2024. Adjusted funds from operations or AFFO, which adjusts for straight line rental and stock based compensation, totaled $14.7 million in the first quarter of 2025, which was approximately $100,000 higher than the fourth quarter of 2024, but on a diluted common share basis remained the same quarter over quarter at $0.55. That concludes our prepared remarks. Alan, we are now ready to begin the question and answer session.

We will now begin the question and answer session. To ask a question, you may press Star then one on your touch. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Connor Mitchell of Piper Sandler. Please go ahead.

Connor Mitchell (Analyst)

Hey, good morning. Thanks for taking my question. I guess first, I appreciate some of the information, Dave, you provided on the geriatric psychiatric hospital. Just wondering if there's any more color you could also provide maybe on timing of when they might consider the sales that you discussed. Or maybe it gets to a point where you guys decide that it's time to fully replace them and release the space. Just any more color on kind of the ongoing process on their side, your considerations with the process and then maybe the timing of any of those options as well.

Dave Dupuy (President, CEO, and a Board Member)

Sure, Connor. Thanks for the question. You know, as we've talked about, they are in an active sale process and they have potential buyers doing work to evaluate the purchase of all or selected hospitals. Of course, we do have levers that we can pull from a lease perspective that could make that acquisition more attractive to potential buyers. You know, it's difficult in a sales process to put a precise time related to ultimately where things shift out. You know, from our perspective, we're looking, we feel like that we should have some additional certainty toward the end of the second quarter, beginning of the third quarter to better understand kind of where the status is of interested buyers and terms. I think that'll give us a better sense of what our intended next steps will be.

Connor Mitchell (Analyst)

Okay. All right, I appreciate the additional information. Then maybe turning towards acquisition outlook and capital allocation, it looks like you still have a pretty healthy pipeline, but just a little less activity in the first quarter and maybe not expecting a ton in the near term. It is just kind of a read through what we are expected to see for the remainder of the year, really into the end of the year or even into the beginning of next year, unless the conditions better significantly, you know, maybe the cost of capital, your stock price comes back and you guys could utilize the ATM again. Is this kind of just how you are looking at it for the near term with the current conditions?

Dave Dupuy (President, CEO, and a Board Member)

Yeah, no, listen, just to provide some additional color on what is in the pipeline and where we think things are going to end. Two inpatient rehab facilities that we are expecting to close, one of those in the third quarter, probably early third quarter, and we're still looking to close another one of those in the fourth quarter. We've got a $4 million property under term sheet that if we get to terms through the purchase and sale agreement, could be a third quarter acquisition. I will say that we're seeing some attractive property acquisitions and we're evaluating those. Connor, as you point out, we're not excited raising equity at these prices, so you should expect us to look at other methods.

You know, we've mentioned before selected asset sales to help us because, you know, from a leverage perspective, we do not want to put meaningful additional leverage on the business. You should expect us to use selected asset sales as well as some draws on the revolver to fund acquisitions. Yes, we are absolutely going to be opportunistic. You know, as our share price, to the extent our share price increases and gets to a better level to raise capital, we would look to the ATM, but certainly at these levels, we're not interested in doing that. We would look at selected capital recycling as well as draws on the revolver, but not doing either of those in a way that would meaningfully increase leverage.

Connor Mitchell (Analyst)

Right.

Okay. Maybe just kind of going along the same line, you know, your focus on the depressed stock price, I guess. How do you consider maybe the opportunity to even buy back stock versus looking at the potential to use capital and allocate capital for growth and acquire new properties?

Dave Dupuy (President, CEO, and a Board Member)

I think that's certainly something that we have talked about at the board level and we'll continue to look at and discuss at the board level. We do have a pipeline of deals that we are focused on and that we will make sure that we execute on those deals by, you know, using some capital recycling. What we don't want to do is we don't want to put leverage on our balance sheet to do a share purchase. Look, we'll be opportunistic and of course we and the board will look at all options and, you know, depending on the timing of the selected capital recycling and how those opportunities look, there may be an opportunity for us to do a share buyback. You know, given our pipeline, I wouldn't expect that that would be our first choice.

Connor Mitchell (Analyst)

Okay, that's all for me. Thank you very much for all the caller.

Dave Dupuy (President, CEO, and a Board Member)

Thanks, Connor.

The next question comes from Rob Stevenson of Janney. Please go ahead.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Just for clarification, is the $3.2 million of contractual payments with your troubled psychiatric hospital operator just the rent or is that inclusive of the notes as well?

Dave Dupuy (President, CEO, and a Board Member)

That's just the rent.

Rob Stevenson (Managing Director and Head of Real Estate Research)

How much more is the payment on the notes?

Dave Dupuy (President, CEO, and a Board Member)

The notes would comprise, you know, another.

You know, $2.5 million. Kind of approximately is kind of the run rate that they were paying, you know, before middle of last year.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay, so it's in total, it's, you know, just under $6 million annual payment is what they contractually owe you.

Dave Dupuy (President, CEO, and a Board Member)

Correct.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay, and then was the $1.4 million of TI's expected to be completed and the rent on the Georgia asset starting when is that supposed to? What's the time frame for that?

Dave Dupuy (President, CEO, and a Board Member)

You know, we would expect that to complete and the lease to commence early in the third quarter.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay. Bill, the $9.7 million Georgia acquisition listed in the release reflects $9.5 million on page 13 of the supplemental. What is the difference there? Are those numbers inclusive of this $1.4 million of TI's, or is this really essentially like an $11 million asset?

Bill Monroe (EVP and CFO)

It's essentially the latter, kind of an $11 million asset by the time you.

Include the TI, which again, is being done on an expedited basis.

Dave Dupuy (President, CEO, and a Board Member)

Okay, yeah, it's essentially purchase price versus cash consideration.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay, that's helpful. Last one for me, Dave. Your predecessor wasn't very fond of preferred stock, but given the question, the previous question about capital, etcetera, how are you guys feeling today and the board feeling about potentially doing a preferred stock, depending on where a deal would wind up pricing, to give you a little bit of capital for growth here?

Dave Dupuy (President, CEO, and a Board Member)

You know, Rob, what I would say is we're going to. We're looking at all of the capital options that we have, and we will evaluate those. I do agree that, you know, our bias in general is to keep the capital structure simple. I think that has always served us well. Look, I think there's some issues with preferred stock issuance that, you know, it has its pros and cons, but we will evaluate, you know, various capital alternatives. You know, I would say that it's not a near consideration for us.

Rob Stevenson (Managing Director and Head of Real Estate Research)

Okay, thanks, guys. Appreciate the time this morning.

Dave Dupuy (President, CEO, and a Board Member)

Thanks, Rob.

The next question comes from Barry Oxford of Colliers. Please go ahead.

Barry Oxford (Analyst)

Great. Thanks, guys. Just pulling two questions, but first one is just pulling back on the geriatric tenant. Let's say this becomes more and more of an elongated process. How much patience do you have until you say, look, you're in default of your lease and we're going to take action?

Dave Dupuy (President, CEO, and a Board Member)

You know, Barry, the way I would characterize it is when I was talking earlier in the call, we want to see kind of where the buyers come in, and we think we will have better visibility in terms of those potential opportunities by the end of the second quarter, early third quarter. Once we have a sense of buyer interest and specifics associated with that, I think we will be making some decisions. You know, if there is not sufficient buyer interest, then we are going to look at all the alternatives under our leases and notes. You know, we have got patience, but it is not unlimited patience. You should expect that we will be looking at trying to get this resolved sooner rather than later.

Barry Oxford (Analyst)

Great, great. My next question, when you look at some of your other smaller tenants in the portfolio, are you concerned about any tenants? Did any problems kind of arise in the first quarter with some of the smaller tenants, or is everybody kind of continuing to pay and continuing to have strong cash flows? How would you, from the macro side, describe the environment as far as your tenants' ability to make money and pay rents going forward?

Dave Dupuy (President, CEO, and a Board Member)

Yeah, we are continuing to monitor our tenants, and we have an active watch list which we've talked about, and we'll have tenants come on that watch list, and we'll have tenants then come off of that watch list. There hasn't been anything. You've seen some relative stability in the portfolio, so there hasn't been anything that we've seen this quarter that would indicate otherwise. You know, seeing some stability both, you know, across the board, whether it's small tenants or larger tenants. That's obviously a positive. I would say from a macro perspective, obviously we're hearing a lot of noise on tariffs and impacts to the economy. I think, you know, for once we're not. Healthcare providers aren't necessarily in the crosshairs of what we're seeing from a government perspective. Our tenants seem to be doing well.

I don't have any, you know, I don't have anything that I can identify short term that would have a negative impact overall from a macro perspective on our tenants or their ability to pay rent.

Barry Oxford (Analyst)

Okay, thanks for the color, guys.

Dave Dupuy (President, CEO, and a Board Member)

Thank you, Barry.

Barry Oxford (Analyst)

Yep.

The next question comes from Jim Kammert of Evercore. Please, go ahead.

Jim Kammert (Managing Director and Senior Equity Research Analyst)

Good morning. Thank you. Could you remind me, I apologize. On the $169 million pipeline, under what conditions or circumstance could CHCT not have to proceed and not have to acquire? I'm just trying to understand, you know, are they absolute obligations or, you know, depending on how the company evolves, what you could do.

Dave Dupuy (President, CEO, and a Board Member)

They are obligations for us to acquire. Now, we certainly have a relationship with the developer. And you know, there have been times if it's a development project that either he or us or both of us have decided is not the right opportunity, then we would move on. I think you should expect that this $170 million pipeline, which again, Jim, we're going to do over the next three years, I think everybody should consider that pipeline as a solid pipeline and one that we expect to close on.

Jim Kammert (Managing Director and Senior Equity Research Analyst)

Fair enough. As regards the geriatric psychiatric tenant, I think it's about $22 million where the original loan advanced to them. In the event that they were to sell their assets or sell the business, where do your notes kind of stand vis-à-vis the other creditors? Because I know you took, you wrote off about half of them or reserved for half. I was trying to think about what happens in that circumstance. Where you stand, please.

Dave Dupuy (President, CEO, and a Board Member)

Yeah. So really the only creditors, certainly you've got trade creditors that you have to be cognizant of and that's part of the overall working capital of the business. But you know, there is a $4 million accounts receivable line of credit that a commercial bank currently has and they have a first priority security interest on the AR. We have a second lien on the AR as well as a first lien on all the other assets of the.

Of the borrower.

Those borrowers are co-borrowers on our notes as well as we have all the stock of those subsidiaries pledged to our notes. Okay.

Jim Kammert (Managing Director and Senior Equity Research Analyst)

Appreciate the detail. Thank you. That's all for me.

Dave Dupuy (President, CEO, and a Board Member)

Thanks, Jim.

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

I appreciate everyone joining us for the call and look forward to hopefully seeing many of you at NAREIT coming up in June. Thank you very much.

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