Community Health Trust (CHCT) Q3 2026 Earnings Call Transcript

DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

• Chief Executive Officer - David Dupuy
• Chief Financial Officer - Bill Monroe
• Chief Accounting Officer - Leigh Stach
• SVP of Asset Management - Mark Kearns

TAKEAWAYS

• Total Revenue -- $32.4 million, representing 4.4% year-over-year growth and 3.9% growth quarter over quarter driven by higher leased occupancy and property acquisitions.
• Funds From Operations (FFO) -- $15 million or $0.54 per diluted common share, reflecting a 10.4% increase year over year from $13.5 million.
• Adjusted Funds From Operations (AFFO) -- $16 million or $0.58 per diluted common share, growing 6.1% versus $15.1 million in the third quarter of 2025.
• Net Income -- $3.1 million or $0.09 per diluted common share, compared to $1.6 million or $0.03 per share in the prior-year period.
• Leased Occupancy -- 90.1%, increasing from 89.8% in the second quarter of 2026 due to robust leasing activity across the portfolio.
• Acquisition Pipeline -- $99 million, consisting of four properties under definitive purchase agreements with expected returns ranging from 9.1% to 9.75%.
• Strategic Capital Recycling -- $32.8 million in total net proceeds, generated from property monetizations in the third quarter and Oct. 2026 to fund high-yield acquisitions.
• Disposition Gain -- $9.1 million, projected to be recognized in the fourth quarter from the sale of an inpatient rehab facility through a Section 1031 like-kind exchange.
• General and Administrative Expense -- $4.2 million, a reduction of approximately $700,000 from the second quarter reflecting lower executive and stock-based compensation.
• Property Operating Expenses -- $6 million, an increase of approximately $100,000 sequentially despite higher seasonal utility costs during the third quarter.
• Interest Expense -- $7.5 million, a slight increase from $7.4 million in the second quarter caused by a 25-basis point interest rate hike in Sept. 2026.
• Geriatric Behavioral Hospital Tenant -- $540,000 in rent paid, representing a $170,000 increase over the second quarter as the operator improved performance for six leased facilities.
• Net Leverage -- 5.8x, representing a reduction of 0.2x of a turn during the third quarter.
• Dividend -- $0.33 per common share, maintained at a steady rate equating to an annualized dividend of $1.32 per share.
• Real Estate Portfolio -- $1.2 billion, including 196 real estate properties totaling approximately 4.5 million square feet as of Sept. 30, 2026.
• Redevelopment Projects -- Three properties currently under construction, with completion expected in late 2026 or early 2027 and leases projected to commence in the first half of 2027.
• Speculative Suite Program -- Five suites in various stages of construction, permitting, or design to capture health care tenants faster and accelerate occupancy gains.
• Marketed Dispositions -- $30 million, representing properties actively being marketed to maintain the company's disciplined leverage profile while funding new acquisitions.
• Subsequent Asset Sales -- $31.5 million in net proceeds, received after Sept. 30, 2026, from the sale of two properties to support ongoing capital recycling.
• Deferred Compensation Reduction -- $0.9 million, realized as a decrease in general and administrative expenses due to the full amortization of restricted stock awards.
• Property Sale Loss -- $700,000, recorded in the third quarter following a property disposition that generated net proceeds of approximately $100,000.

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RISKS

• Dupuy warned that while the geriatric behavioral hospital tenant and its prospective buyer continue working collaboratively, management is frustrated with the length of time and amount of due diligence and some of the issues that have gone into the process.

SUMMARY

Community Healthcare Trust Incorporated (NYSE:CHCT) reported progress on its strategic plan, characterized by increased occupancy and active capital recycling. Management executed the sale of several properties to generate proceeds for a $99 million acquisition pipeline while simultaneously reducing general and administrative expenses through executive compensation adjustments. The company also reported operational improvements among its behavioral hospital tenants and continued progress on redevelopment projects and speculative suites intended to drive net operating income realization.

• Occupancy growth was supported by the early commencement of a behavioral hospital redevelopment lease in Lafayette, Louisiana, during the third quarter.
• Management is proactively engaging with alternative buyers for its six-property behavioral hospital portfolio as exclusivity for the current prospective buyer has expired.
• The company expects acquisition activity to accelerate through 2027 as disposition proceeds are realized and retained capital continues to compound.
• David Dupuy stated, "the gains associated with those sales give credence to the fact that there's certainly a dislocation between where we're valued from a public markets perspective and what the private market views as attractive real estate."
• The speculative suite program targets high-demand buildings to provide turnkey-ready spaces that allow for faster tenant capture and accelerated realization of net operating income.

INDUSTRY GLOSSARY

• NOI: Net Operating Income, a measure of the cash flow generated by a property after operating expenses but before taxes and interest.
• FFO: Funds From Operations, a standardized metric for REITs that adds back depreciation and amortization to net income.
• AFFO: Adjusted Funds From Operations, a measure that further adjusts FFO for straight-line rent and stock-based compensation to evaluate recurring cash flow.
• Section 1031 Exchange: A provision that allows an investor to defer capital gains taxes by reinvesting sale proceeds into a like-kind replacement property.
• ATM Program: At-the-market program, which allows a company to issue and sell shares of its common stock directly into the market over time.
• Speculative Suite: A move-in ready office space constructed by a landlord before securing a tenant to reduce lead times for occupancy.

Full Conference Call Transcript

Operator: Welcome to Community Healthcare Trust's 2026 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2026 third quarter financial results. It will also discuss progress made in various aspects of its business. [Operator Instructions] 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, November 4, 2026, and may contain forward-looking statements that involve risks and uncertainties. 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 and 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 2 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 available on the company's Investor Relations website for approximately 30 days and is the 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. Over to you.

David Dupuy: Great. Thank you very much, Sagar. Good morning, and thank you for joining us for Community Healthcare Trust's Third Quarter 2026 Conference Call. Joining me on the call today are Bill Monroe, our Chief Financial Officer; Leigh Stach, our Chief Accounting Officer; and Mark Kearns, our SVP of Asset Management. Before we begin, I'd like to remind everybody that our earnings release 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 investor presentation was posted to our website last night.

I would like to start with updates to our key strategic priorities designed to drive durable growth and elevate the overall quality of the portfolio, which are occupancy improvement, portfolio reinvestment through redevelopment and speculative suites, strategic capital recycling and accelerated acquisition growth. Starting with occupancy improvement, we continue to see robust leasing activity across the portfolio. Occupancy increased from 89.8% in the second quarter to 90.1% in the third quarter. Our leasing pipeline remains strong, and the team is executing well as we work toward our target occupancy. Turning to portfolio reinvestment, we continue to advance our redevelopment projects on schedule.

As noted last quarter, our behavioral hospital redevelopment in Lafayette, Louisiana, commenced its lease early in the third quarter. We have 3 additional redevelopment projects currently under construction with completion expected late in the fourth quarter or early in the first quarter, backed by long-term leases. Following receipt of certificates of occupancy and licensure, these leases are projected to commence late in the first quarter or early in the second quarter of 2027. Regarding our speculative suite program, we currently have 1 suite under construction, one in permitting and 3 others in the design phase. These suites are strategically positioned in high-demand buildings where tenants are actively seeking turnkey-ready space.

Proactively delivering these spaces allows us to capture prospective health care tenants faster, accelerating both occupancy gains and NOI realization. Our strategic capital recycling program remains active. As highlighted in our press release, we successfully monetized 1 property in the third quarter and 2 additional properties in October, generating total net proceeds of $32.8 million. The largest transaction, an inpatient rehab facility, will result in a $9.1 million gain in the fourth quarter. We are executing this sale through a Section 1031 like-kind exchange using the net proceeds to acquire another high-quality inpatient rehab facility expected to close late in the fourth quarter. We currently have more than $30 million of properties actively marketed for disposition.

These proceeds will fund our high-quality, high-yield acquisition pipeline while maintaining our disciplined leverage profile. Finally, looking at acquisition growth, we have signed definitive purchase and sale agreements for 4 properties to be acquired upon completion and occupancy for an aggregate expected purchase price of $99 million. The expected return on these investments should range from 9.1% to 9.75%. We anticipate closing the first of these properties in the fourth quarter, a second in the first quarter of '27 and the remaining 2 between mid-'27 and early '28. As visibility into our disposition pipeline solidifies, we are actively evaluating new acquisition candidates.

While we do not have additional properties currently under contract, the market is offering compelling opportunities aligned with our quality and return objectives. We anticipate transaction activity to accelerate through 2027 as our disposition proceeds are realized and our retained capital continues to compound. Next, I'd like to walk through a few key operational updates from the third quarter. The geriatric behavioral hospital operator, which leases 6 of our properties, paid approximately $540,000 in rent this quarter, a $170,000 increase over the second quarter. As previously noted, this tenant has signed a letter of intent with an experienced behavioral health care operator to acquire the operations of all 6 facilities.

The prospective buyer is actively working through legal and business due diligence, negotiating definitive purchase agreements with the tenant and finalizing new long-term leases for the 6 hospitals with CHCT. While the process has encountered multiple delays, the tenant and prospective buyer continue working collaboratively to resolve outstanding issues. We remain actively engaged with all parties and will provide further updates as appropriate regarding the transaction of the certainty. Given buyer's extended due diligence time line, alongside the tenant's improved operating performance, we are also proactively engaging with other parties who previously expressed an interest in buying the business.

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 kept it steady at $0.33 per common share. This equates to an annualized dividend of $1.32 per share. That takes care of the items I wanted to cover, so I will hand things off to Bill to provide additional details on our financial results for the quarter.

William Monroe: Thank you, Dave. I will now provide more details on our third quarter financial performance, which was strong across the board and the result of early execution wins on our strategic plan announced last quarter. I'm pleased to report total revenue grew from $31.1 million in the third quarter of 2025 to $32.4 million in the third quarter of 2026, representing 4.4% annual growth over the same period last year. This growth was a combination of higher occupancy from leasing activity and acquisitions. When compared to our $31.2 million of total revenue in the second quarter of 2026, we achieved 3.9% total revenue growth quarter-over-quarter.

Moving to expenses, property operating expenses increased by only approximately $100,000 quarter-over-quarter to $6 million for the third quarter of 2026, which is actually a smaller increase than we typically see during the summer from higher utility costs compared to the milder temperatures in the second quarter. On a year-over-year basis, property operating expenses increased by less than $50,000 or less than 1%, which demonstrates the strong cost management results our asset management team has achieved this year. Total general and administrative expense was $4.2 million in the third quarter of 2026, a significant reduction both quarter-over-quarter of approximately $700,000 and year-over-year of approximately $470,000.

This G&A expense decline is the culmination of a number of actions we have taken, including changes we've previously made to reduce executive compensation and stock-based compensation as well as fully amortized restricted stock. We expect to continue to see some quarterly fluctuation in G&A with our typical relatively higher Q1 and Q3 levels due to the timing of salary increases, tax and benefit payments and bonuses, but we believe G&A will consistently be lower year-over-year for the next few quarters. Interest expense increased by less than $100,000 quarter-over-quarter to $7.5 million in the third quarter of 2026. We had no incremental borrowings under our revolving credit facility during the third quarter.

And, in fact, our leverage levels decreased by 0.2x of a turn to 5.8x. But interest expense increased slightly from both the 1 extra day of interest in the third quarter compared to the second quarter and the FOMC decision in mid-September to raise interest rates by 25 basis points. Moving to funds from operations, FFO in the third quarter of 2026 was $15 million, a 10.4% increase year-over-year compared to the $13.5 million of FFO in the third quarter of 2025. On a diluted common share basis, FFO increased $0.04 from $0.50 in the third quarter of 2025 to $0.54 in the third quarter of 2026.

FFO also increased 13.2% quarter-over-quarter or $0.06 from the $13.2 million or $0.48 per diluted common share in the second quarter of 2026. These increases are primarily the result of the higher revenues and lower expenses I discussed earlier. Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $16 million in the third quarter of 2026, a 6.1% increase year-over-year compared to the $15.1 million of AFFO in the third quarter of 2025. AFFO on a diluted common share basis was $0.58 in the third quarter of 2026 or $0.02 higher than the $0.56 of AFFO in the third quarter of 2025.

AFFO also increased 4% or $0.02 quarter-over-quarter from $15.4 million or $0.56 per diluted common share in the second quarter of 2026. That concludes our prepared remarks. Sagar, we are now ready to begin the question-and-answer session.

Operator: [Operator Instructions] Your first question comes from the line of Rob Stevenson with Huntington.

Robert Stevenson: Dave, how are you guys thinking about the vacancy at this point? Are you going to sell more of the vacant assets or the assets with stubborn vacancy? Or are you still thinking at this point that the market over the next couple of quarters is going to allow you to lease up some more of the vacancy?

David Dupuy: Look, Rob, good to hear from you, and thanks for the question. What I would say is we go through a detailed portfolio review on a quarterly basis where we look at our entire portfolio and evaluate leasing activity and opportunities to lease space. And what I would say is our goal is to improve our portfolio over time based on our capital recycling. That said, I think we've got a handful of properties that are still empty. I'd say a couple of those we think are very likely that are going to get leased. And so we will continue to own those buildings.

But there are also a couple of those properties that are smaller that are difficult to lease that would be expensive and aren't good long-term fits for the portfolio. So I think it's going to be a combination. But as you see from the quarterly numbers and what we did in terms of selling a couple of empty buildings, those buildings don't generate a lot of proceeds for us, but it's really a focus on making sure that we're executing on making -- getting the right buildings in the portfolio. And so the leasing activity we're seeing more broadly in the marketplace has been very favorable.

And so I think most of our activity is going to be on the leasing side, but there will continue to be a handful of buildings that aren't strategic that we would look to exit if we don't feel like there's a good opportunity to lease those buildings.

Robert Stevenson: Okay. And for the vacant buildings, did you guys wind up shedding any material amount of expenses associated with not having a tenant in them that you guys were paying? Or was it relatively immaterial?

David Dupuy: It's relatively immaterial. But look, it's -- there's definitely property taxes and other operating expense of an empty building that we're able to get rid of. But it's a relatively small amount given the size of those buildings.

Robert Stevenson: Okay. And then I guess the other question for me is we've heard from other asset types that there's a very strong buyer pool right now for 1031 and especially the bonus depreciation buyer trying to close up by year-end. Are you guys seeing that much in your type of assets?

David Dupuy: I think what I would say is we've been so targeted as far as what we're looking to sell that, yes, in those processes, we've seen a great deal of interest. But it's not like we're -- our goal is to do a smaller number of larger attractive cap rate sales to help fund our pipeline. And so it's been pretty rifle shot. But yes, I mean, it has been a very robust process on both of those larger inpatient rehab facilities we've sold.

And I think the gains associated with those sales give credence to the fact that there's certainly a dislocation between where we're valued from a public markets perspective and what the private market views as attractive real estate. So yes, I mean, the dispositions that we're looking at for high-quality buildings that we're using as capital recycling to fund our pipeline is a very rifle shot approach. But yes, we hear from people, many inbound calls looking to buy properties on a one-off basis. Candidly, we're not interested in doing that.

Robert Stevenson: Okay. And then last one for me. Bill, what -- was there anything -- the $0.54 in the third quarter, what's sort of nonrecurring as we think about rolling forward out of the quarter? Obviously, you'll have the trade out of some of the dispositions, et cetera. But when we're thinking about earnings in fourth quarter and going forward, anything in there that we need to be aware of that's especially not reoccurring?

William Monroe: No, nothing material. I did highlight in my remarks some of the declines we saw in G&A and how we do think that, that is kind of the right level set for the next few quarters. And so we think that's certainly going to provide some benefits and tailwinds to our overall FFO in particular.

David Dupuy: The only thing I would add to that, Rob, is we're doing some -- we're doing a capital recycling. We sold one building. We're going to invest in another building. There's going to be a little bit of leakage between when we sold the building and when we invest in the new building because those acquisitions got pushed a little bit. But as far as what we expect going forward, I think the numbers we're showing are consistent and will continue to grow.

Operator: [Operator Instructions] Our next question comes from Jim Kammert with Evercore.

James Kammert: David, I don't want to put words in your mouth, but you intimated that I think that maybe as regards to the Assurance assets, there are other people that or other tenants or buyers that might be interested. Is that -- did I hear that properly? And secondly, does that mean you're souring at all on the existing sort of buyer? I'm just trying to clarify.

David Dupuy: Yes. Jim, thanks for the question. I guess what I would say, we can't go into details on the negotiations between the current transaction contemplated. But what I can say is their exclusivity has expired. The performance of the business, the underlying business is doing much better today than when the LOI was signed 18 months or so ago. We have had interest from others associated with the process. And just given the fact that it's taken longer and quite frankly, we're a little bit frustrated with the length of time and the amount of due diligence and some of the issues that have gone into this process.

We just think it's in the best interest of us and frankly, the tenant to not have all the eggs in this basket if we can't get that indeed over the finish line. I guess from our perspective, we still are -- we still hope that the deal goes through, but we need to have some alternatives should it not. And so given the outstanding interest that we've had from others, we're going to explore those. So let's see how it plays out. But yes, you did hear correctly.

James Kammert: That's very helpful. And just a second question, perhaps you mentioned also that you're seeing -- obviously, you get the cost of capital improved, hopefully, you get a little bit more offensively on the acquisition pipeline. Do you have any sense of where would those yields compare, let's say, to your known $99 million pipeline of 9.1% to 9.75%? Do you think if you had the cost of capital, could you get middle 9s, high 9s on some of the other deals that are starting to cross the threshold?

David Dupuy: Yes, absolutely. We continue to be focused. We've got a high bar, both from a quality perspective, but also from a yield perspective. And so our view is that 9% to 10% range is certainly achievable. And based on some of the activity that we're seeing in the marketplace, yes, we think that, that mid-9 range, anywhere from 9% to 10% is achievable. And so part of what we -- our original expectation was we were going to have 2 inpatient rehab facilities close the second half of this year.

And since those have been pushed out and since we have greater clarity around the dispositions we're working on, we're now able to work on some of those other acquisition candidates. And so that's why I said in my prepared remarks, you should expect some additional activity in the upcoming quarters. And so we're looking at a number of things. And hopefully, we'll have some activity we can share at our next call.

Operator: [Operator Instructions] As there are no further questions at the moment, I would now like to turn the conference back to Dave Dupuy for closing comments. Over to you, sir.

David Dupuy: Great. Thank you so much, and thank you, everybody, for dialing in. Look forward to seeing those who will be there at REITWorld coming up in just a couple of weeks. Talk soon. Bye.

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

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