Q3 2025 Earnings Call: Contradictions Emerge on Occupancy, Acquisition Strategies, and Timeline Delays

Date of Call: October 29, 2025

Financials Results

• Revenue: $31.1M in Q3 2025, up 4.9% YOY from $29.6M; compared to $29.1M in Q2 2025 (1.1% QoQ growth when normalizing for a $1.7M interest receivable reversal)

Guidance:

• Leased occupancy expected to rise ~50–100 bps by year-end.
• One acquisition expected to close in Q4 2025; five additional pipeline assets expected to close across 2026–2027 with anticipated returns ~9.1%–9.75%.
• Expect to fund near-term acquisitions with selected asset sales and revolver capacity (including a planned 1031 exchange) while maintaining modest leverage.
• Anticipate further interest expense reduction if additional FOMC rate cuts occur; full benefit of September cut mainly in Q4.

Business Commentary:

* Acquisition Pipeline and Capital Recycling: - The company's acquisition pipeline for high-quality assets remains strong, with expected returns ranging from 9.1% to 9.75%. - Community Healthcare Trust is selectively acquiring assets and focusing on capital recycling to fund these acquisitions without increasing leverage.

• Occupancy and Leasing Activity:
• The company's occupancy decreased slightly to 90.1% in Q3, but leasing activity indicates an expected increase of 50 to 100 basis points by year-end.

• The weighted average lease term also increased slightly from 6.6 to 6.7 years.

• Dividend Growth:

• Community Healthcare Trust declared a dividend for Q3, raising it to $0.475 per common share, equating to an annualized dividend of $1.90 per share.

• The dividend has been raised every quarter since the company's IPO.

• Financial Performance and Funds from Operations:

• Total revenue grew from $29.6 million in Q3 2024 to $31.1 million in Q3 2025, representing 4.9% annual growth.

• Funds from operations (FFO) increased by 5.7% year-over-year, with adjusted FFO increasing by 3.1%.

• Capital Recycling and Acquisition Funding:

• The company has several dispositions planned, including two expected to close in Q4, providing anticipated net proceeds of $6.1 million.
• The proceeds from these sales will fund acquisitions through a 1031 like-kind exchange, maintaining leverage-neutral acquisitions.

Sentiment Analysis:

Overall Tone: Positive

• Revenue grew 4.9% YOY to $31.1M and FFO rose to $13.5M (+5.7% YOY); AFFO per share increased to $0.56. Management raised the quarterly dividend to $0.475 and emphasized selective, accretive acquisitions (expected returns ~9%–9.75%) funded via capital recycling while aiming to maintain modest leverage.

Q&A:

• Question from Alexander Goldfarb (Piper Sandler & Co.): As you look at the acquisition pipeline, is the opportunity set growing such that a more competitive equity source would increase deal volume, or is the opportunity set unchanged?
  Response: Management: Pipeline is attractive (9%–10% cap range); opportunities would expand with a stronger equity currency, but they prefer capital recycling over issuing shares at current depressed prices.

• Question from Alexander Goldfarb (Piper Sandler & Co.): By trading assets and taking on debt to fund acquisitions, won't leverage rise — is there a limit to how much debt you'll take on while equity is depressed?
  Response: Management: Do not expect to meaningfully increase leverage; forthcoming disposition (anticipated $11.5M gain) should fully fund the next acquisition with no incremental debt.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): The behavioral health tenant paid $200k in the quarter — what were they previously paying per quarter before they hit the wall?
  Response: Management: The tenant previously paid approximately $800,000 per quarter.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): What's the expected timing for closing the sale to the new operator—could it close by year-end or stretch into 2026?
  Response: Management: Prefer year-end but due diligence likely pushes closing to Q1 2026; year-end remains possible but Q1 is more realistic.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): Are you actively pursuing Plan B if the buyer deal falls through?
  Response: Management: Yes — pursuing multiple contingency paths simultaneously to maximize recovery and rental outcomes.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): How likely is recovery of unpaid interest or back rent versus accepting similar reduced payments and a new lease with the buyer?
  Response: Management: Low likelihood of recovering unpaid interest/back rent; they wrote down notes and are not assigning high probability of collection.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): The three properties under redevelopment—how material are they and when will those leases start impacting earnings?
  Response: Management: One significant redevelopment lease likely won't commence until after mid-2026 (post-Q2), another late 2026, and a smaller one in early 2026; impacts mainly from mid-2026 onward.

• Question from Robert Stevenson (Janney Montgomery Scott LLC): You mentioned expecting a 50–100 bps occupancy increase — when will that translate into earnings tailwinds?
  Response: Management: There's a lag between signing and lease commencement; the occupancy tailwind is expected to help growth in 2026.

• Question from James Kammert (Evercore ISI Institutional Equities): How are you identifying assets for disposition (geography, tenant concentration, size, WALT)?
  Response: Management: Decisions are based on tenant concentration, WALT, size profile and markets; two-bucket approach—smaller noncore sales to tighten portfolio and larger accretive sales to fund higher-return acquisitions.

• Question from James Kammert (Evercore ISI Institutional Equities): Is the 1031 exchange restricting buyer depth, or are you pursuing traditional sales too?
  Response: Management: 1031 is primarily for CHCT tax deferral; they will pursue a wide set of buyers to maximize proceeds and are not limiting to 1031-only buyers.

Contradiction Point 1

Occupancy Improvement Expectations

It involves differing expectations for occupancy improvement, which is crucial for assessing the company's operational and financial performance.

What are expectations for occupancy improvement by year-end? - [Robert Stevenson](Janney Montgomery Scott)

2025Q3: We expect 50 to 100 basis points improvement in occupancy by year-end due to strong leasing activity across the portfolio. - [David Dupuy](CEO)

What is your outlook for core occupancy over the next 4 to 6 quarters? - [Michael Robert Lewis](Truist Securities)

2025Q2: Our expectation is to increase occupancy by 100 basis points or more into 2026. This will take time but is a focus of the new team. - [David Dupuy](CEO)

Contradiction Point 2

Tenant Acquisition Strategy and Leverage

It reflects differing strategies regarding tenant acquisition and leverage, which are critical for understanding the company's financial management.

Is the stable acquisition pipeline due to an unchanged opportunity set or a strategic decision to remain selective? - [Alexander Goldfarb](Piper Sandler)

2025Q3: We are being highly selective due to depressed share prices. Opportunities exist in the 9-10% cap rate range, but we do not want to issue shares at current levels. - [David Dupuy](CEO)

Was the acquisition part of the $100 million pipeline, and how are you planning to fund the remaining acquisitions given the stock price? - [Robert Chapman Stevenson](Janney Montgomery Scott LLC)

2025Q2: Our goal is to fund upcoming acquisitions using capital recycling efforts rather than relying solely on the revolver, as we aim to maintain modest leverage levels. - [David Dupuy](CEO)

Contradiction Point 3

Expected Closing Timeline for Geriatric Behavioral Health Tenant Acquisition

It involves differing expectations for the closing timeline of a key acquisition, which can impact the company's growth strategy and financial planning.

What is the expected timeline for the acquisition of the geriatric behavioral health tenant operations? - [Robert Stevenson](Janney Montgomery Scott)

2025Q3: We're hopeful for a year-end close but it's more likely in Q1 2026 due to extended due diligence. - [David Dupuy](CEO)

Are you pursuing other options for geriatric facilities if the deal falls through? - [Robert Chapman Stevenson](Janney Montgomery Scott LLC)

2025Q2: We're hopeful for a Q3 close, but that this transaction goes through, and we believe we have a path to closing. - [David Dupuy](CEO)

Contradiction Point 4

Acquisition Strategy and Share Price Impact

It involves the strategy regarding the use of equity for acquisitions, which directly impacts the company's financial structure and investor expectations.

Is the stable acquisition pipeline due to an unchanged opportunity set or a strategic decision to remain selective? - [Alexander Goldfarb](Piper Sandler)

2025Q3: We are being highly selective due to depressed share prices. Opportunities exist in the 9-10% cap rate range, but we do not want to issue shares at current levels. - [David Dupuy](CEO)

What is the outlook for acquisitions and capital allocation for the remainder of the year? - [Connor Mitchell](Piper Sandler)

2025Q1: We're hesitant to use equity at current prices. We'll use selected asset sales and revolver draws to fund deals, not adding significant leverage. We'll be opportunistic with share purchases if conditions improve. - [Dave Dupuy](CEO)

Contradiction Point 5

Lease Agreements and Recovery Plans

It highlights potential inconsistencies in the company's plans for recovering lease agreements and occupancy rates, which are critical for financial performance.

When is the acquisition of the senior behavioral health tenant operations expected to close? - [Robert Stevenson](Janney Montgomery Scott)

2025Q3: Due diligence has extended beyond our initial expectations. We now expect to close closer to Q1 of 2026 than year-end. - [David Dupuy](CEO)

How does dividend coverage relate to AFFO and cash flow? - [Michael Lewis](Truist Securities)

2024Q4: We're hopeful for a year-end close but it's more likely in Q1 2026 due to extended due diligence. - [David Dupuy](CEO)