CHCT Q1 2026 Earnings Call Transcript
CHCT Q1 2026 Earnings Call Transcript
Motley Fool Transcribing, The Motley FoolWed, May 6, 2026 at 3:02 PM UTC
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Date
Wednesday, May 6, 2026 at 10 a.m. ET
Call participants -
Chief Executive Officer — David H. Dupuy
Chief Financial Officer — William G. Monroe
Chief Accounting Officer — Leanne Stack
Senior Vice President, Asset Management — Mark Kearns
Takeaways -
Revenue -- $31.5 million, representing 4.8% annual growth and 1.9% sequential growth, primarily from rental increases and recent acquisitions.
Occupancy -- Declined from 90.6% to 89.8%, attributed to lease terminations.
Weighted average lease term -- Rose from 7.0 to 7.1 years, indicating longer tenant commitments.
Net property acquisition -- Acquired an inpatient rehabilitation facility for $28.5 million, executed with a new lease expiring in 2044 at a 9.3% initial cash yield and 2% annual escalators.
Acquisition pipeline -- Definitive purchase and sale agreements signed for four additional properties with expected investment of $99 million and targeted yields ranging from 9.1% to 9.75%, with two expected closings in 2026 and two in 2027.
Asset sales -- Sold one building in Fort Myers, Florida, for $5.2 million, incurring a small loss; also received $700,000 from another property disposition (proceeds not fully reflected in quarterly totals).
Funds from operations (FFO) -- $13.4 million, up 5.8%; diluted per share FFO at $0.49, up $0.02 year over year and flat sequentially.
Adjusted funds from operations (AFFO) -- $15.4 million, 4.1% annual growth; AFFO per diluted share at $0.56, up $0.01 year over year and sequentially.
Property operating expenses -- Increased by $360,000 to $6.4 million quarter over quarter, reflecting seasonal utility and snow plow expenses.
General and administrative expense -- $5.1 million, up by $330,000 quarter over quarter but flat year over year.
Interest expense -- $6.8 million, a $160,000 decrease sequentially due to fewer calendar days and lower floating rates.
Dividend -- Raised to $0.48 per common share, annualized at $1.92, marking continued quarterly increases since IPO.
Behavioral hospital tenant update -- Tenant in six properties paid $300,000 in rent, up $100,000 quarter over quarter; a sale of operations and new leases is in legal due diligence, with no assured closing timing stated.
Leasing activity outlook -- Management expects leased occupancy to grow next quarter, citing ongoing new leasing and renewals.
Capital allocation strategy -- Company is prioritizing capital recycling, refraining from issuing equity under the ATM, and intends to fund acquisitions through asset sales and revolver drawdowns.
Redevelopment update -- Three properties under redevelopment or renovation; the largest, a behavioral healthcare facility, received its certificate of occupancy in March, with lease commencement and NOI contribution anticipated later in 2026 after licensure completion.
Interest rate hedge expiration -- $75 million of interest rate hedges expired in late March, with management expecting higher interest expense in the second quarter due to this and increased revolver balance.
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Risks -
Management stated, "we expect our second quarter interest expense to be higher," citing the full quarter impact of borrowings and hedge expirations.
Asset dispositions resulted in a "small loss on the property sale."
The transaction involving the behavioral hospital tenant remains uncertain, as management said, "we cannot provide specific timing or certainty that it will close."
Occupancy fell from 90.6% to 89.8%, with management stating that they expect leased occupancy to grow next quarter.
Summary
Community Healthcare Trust (NYSE:CHCT) reported 4.8% revenue growth to $31.5 million, reflecting higher rental income and acquisitions. The company closed a $28.5 million inpatient rehabilitation facility with a 9.3% cash yield and executed definitive purchase agreements for four more properties totaling a $99 million investment. Weighted average lease term increased to 7.1 years, while the dividend rose to $0.48 per share. Asset sales generated $5.2 million in proceeds from Fort Myers and $700,000 from another property, but at a small loss on the former. Management highlighted an ongoing but uncertain resolution for a key behavioral hospital tenant transaction and outlined a continued focus on capital recycling over new equity issuance.
Management plans to fund acquisitions primarily through asset sales and revolver capacity, forgoing additional ATM share issuances.
The largest redevelopment project, a behavioral healthcare facility, obtained its certificate of occupancy in March, with its lease commencement delayed due to regulatory licensing requirements.
Interest expense is projected to rise next quarter, following $75 million of interest rate hedge expirations and increased revolver utilization.
Leasing and renewal efforts are underway, with management anticipating future growth in leased occupancy in subsequent periods.
Industry glossary -
ATM (At-the-Market) program: A mechanism allowing the company to issue shares incrementally into the secondary market at prevailing prices.
Cap rate (capitalization rate): The expected annual return on an acquisition, calculated as net operating income divided by purchase price.
FFO (funds from operations): A REIT-specific performance metric, representing net income excluding depreciation and gains or losses from property sales.
AFFO (adjusted funds from operations): A REIT performance measure that adjusts FFO by excluding non-cash rents and certain expenses.
NOI (net operating income): Real estate revenue minus all property-level operating expenses, excluding interest, depreciation, and corporate expenses.
Full Conference Call Transcript
David H. Dupuy: Thank you very much. Good morning, everyone, and thank you for joining us today. For the 2026 first quarter conference call. On the call with me today is William G. 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 8-Ks along with our quarterly report on Form 10-Q. In addition, an investor presentation was posted to our website last night. During the first quarter, the behavioral hospital operator, a tenant in six of the company's properties, paid rent of approximately $300 thousand, an increase of $100 thousand over last quarter.
On 07/17/2025, this tenant signed a letter of intent for the sale of the operations of all six of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. The buyer is finalizing legal and business due diligence and has entered the drafting phase of the definitive purchase documents, including new leases on the six hospitals owned by the company. We continue to maintain frequent, productive communication with the buyer's team to advance the closing process. While the transaction is progressing, we cannot provide specific timing or certainty that it will close. However, we remain committed to providing further updates as the process moves forward.
We had a busy first quarter from both an operations and a capital recycling perspective and continue to be selective from an acquisition standpoint. Our occupancy decreased from 90.6% to 89.8% during the quarter due to lease terminations. However, our leasing team is very busy with renewals and new leasing activity and we expect leased occupancy to grow next quarter. Our weighted average lease term increased slightly from 7.0 to 7.1 years, and our asset management team continues to do a great job serving our tenants while focusing on property operating costs. We have three properties that are undergoing redevelopment or significant renovations with long-term tenants in place once the redevelopment or renovations are complete.
The largest of these projects, a behavioral healthcare facility, received its certificate of occupancy in March. Due to health care licensure requirements, we expect this property to commence its lease and contribute NOI during 2026. During the first quarter, we acquired an inpatient rehabilitation facility after completion of construction for a purchase price of $28.5 million. We entered into a new lease with a lease expiration in 2044 and an anticipated annual return of approximately 9.3%. We also have signed definitive purchase and sale agreements for four properties to be acquired after completion and occupancy for an aggregate expected investment of $99 million. The expected return on these investments should range from 9.1% to 9.75%.
We expect to close on two of these properties in 2026 and the remaining two in 2027. In February, we sold one building in Fort Myers, Florida and received net proceeds of approximately $5.2 million, resulting in a small loss on the property sale. We also received net proceeds of approximately $700 thousand from the disposition of a property in 2025. 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 revolver availability, 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 first quarter dividend and raised it to $0.48 per common share. This equates to an annualized dividend of $1.92 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.
William G. Monroe: Thank you, Dave. I will now provide more details on our first quarter financial performance. I am pleased to report total revenue grew from $30.1 million in 2025 to $31.5 million in 2026, representing 4.8% annual growth over the same period last year. On a quarter-over-quarter basis, total revenue grew 1.9%, primarily from higher rental income from our recent acquisitions and higher property operating expense recoveries, partially offset by recent capital recycling dispositions and net leasing activity. Moving to expenses, property operating expenses increased by approximately $360 thousand quarter over quarter to $6.4 million for 2026.
This increase was a result of seasonally higher snow plow and utility expense at several properties that we typically see in January and February in particular. Total general and administrative expense was $5.1 million in 2026, which was approximately $330 thousand higher quarter over quarter, primarily as a result of higher noncash amortization of deferred compensation and our typical first-quarter adjustments due to the timing of annual employee salary increases, employer HSA and 401(k)s contributions, and employer tax payments. On a year-over-year basis, G&A did not increase from the same $5.1 million in the first quarter 2025.
Interest expense decreased by $160 thousand quarter over quarter to $6.8 million in 2026 due to two fewer days in the first quarter and slightly lower floating rates on our revolving credit facility. I will note that we expect our second quarter interest expense to be higher, however, based on an additional day in the second quarter, a full quarter of our current revolver balance which includes net borrowings from our inpatient rehabilitation facility acquisition in February, and the expiration in late March of $75 million of interest rate hedges. Moving to funds from operations, FFO in 2026 was $13.4 million, a 5.8% increase year over year compared to the $12.7 million of FFO in 2025.
On a diluted common share basis, FFO increased $0.02 year over year from $0.47 in 2025 to $0.49 in 2026, and remained the same quarter over quarter from the $0.49 of FFO in 2025. Adjusted funds from operations, or AFFO, which adjusts for straight-line rents and stock-based compensation, totaled $15.4 million in 2026, a 4.1% increase year over year compared to the $14.7 million of AFFO in 2025. AFFO on a diluted common share basis was $0.56 in 2026, which was $0.01 higher both year over year and quarter over quarter from the $0.55 of AFFO in 2025. That concludes our prepared remarks. Dorwin, we are now ready to begin the question and answer session.
Operator: We will now open the call for questions. Please pick up your handset before pressing any keys. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb: Thank you, and good morning down there. Dave, you made some promising comments about the Assurance hospital transfer. It sounds like things are progressing, sort of getting in late stages. Can you just give a little bit more color? Do you feel like we are getting close to the end, or is this sort of typical government work where you have to enjoy the process? And at this point, based on the shot clock, you are like, okay, we should be at the point of the shot clock where this should be coming to a conclusion.
David H. Dupuy: Hey, Alex. Thanks for the question. We are feeling like we have definitely made some progress over the last quarter. Some of the roadblocks that we have seen, as you have alluded to, have related to getting some confirmation on some outstanding liabilities from a couple of the various governing bodies that pay. In particular, as it relates to Ohio Medicaid, firming up the amount that is owed. But we do feel like we are making good progress. The company is highly engaged, the buyer is highly engaged in the process, and we do feel like we are hopefully going to get final confirmation on timing and everything very shortly.
As I said in the prepared remarks, we are currently trading documents and purchase agreements, and we would anticipate getting this in a good place, hopefully, in the next quarter.
Alexander Goldfarb: Okay. That is certainly good to hear. Second question is, obviously, housing is all the rage these days, and MOB, I think your traditional property types, may not be as in vogue, at least when you look at the public stock prices. When you look in the market for acquisitions, is that the same that you see in the private market? Or is your acquisition pipeline coming down mainly relative to your cost of capital?
I am also trying to understand what is going on in valuation land and if all the health care private capital is heading only to senior housing, and your traditional target class remains still very attractive, and therefore your decision to pull the pipeline down is more based on just your cost of capital versus everything once again getting bid up and therefore there is less product of interest to you.
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David H. Dupuy: No, it really has to do with the latter, Alex. We see a number of acquisitions. We continue to have investment committee every couple of weeks where we go through opportunities, and if we were in a different position and were not doing capital recycling and having to sequence those asset sales in order to acquire new assets—because we do not want to raise capital through our ATM—we would definitely see the types of properties and the types of opportunities that we would like to invest in. What we are doing in terms of focusing on capital recycling is using this as an opportunity to do two things.
Obviously, we are using this as an opportunity to trim some of the properties that are in less attractive markets. A lot of these facilities that we sold, we sold five properties in 2025; we sold another one in 2026. We are using this as an opportunity to really prune the portfolio and improve the portfolio. It is not the most fun in terms of selling a property in order to buy properties, but that is what we are going to focus our time and efforts on.
What we expect is in the second half of the year, as some of these redevelopment projects and other things that we have been working on come online, we would expect to start posting AFFO growth, and we hope that is recognized as a positive in the marketplace and puts us in a position to start doing what we have been doing historically as a company, which is not just growing the portfolio performance through leasing, but also growing the portfolio through acquisitions.
Operator: Thanks, Alex. Our next question comes from Jim Kammert with Evercore. Please go ahead.
Jim Kammert: Hi. Good morning. Thank you. The acquisition you noted was quoted at about a 9.3% yield, I believe. Is that a GAAP or a cash yield? And if GAAP, I am trying to understand what are the representative annual escalators on that long lease, and are they representative of the other four assets in the pipeline?
David H. Dupuy: That is a cash yield, that 9.3% cap rate. Jim, you were not coming through very clearly. Are you asking what the escalators are on that property?
Jim Kammert: Yes, sorry, Dave. Thank you. What are the escalators, and are they representative of the other four assets?
David H. Dupuy: Yes. They are 2% escalators and would be consistent with the other ones that are in the pipeline.
Jim Kammert: Great. That is all I had. Thank you.
Operator: We have no further questions at this time. I would now like to turn the conference back over to management for closing comments. Over to you.
David H. Dupuy: Great. Thanks, Dorwin, and thank you, everybody, for dialing in. We hope to see many of you at NAREIT coming up in June.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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