Community Healthcare Trust Q2 FY26 earnings call CHCT

CHCT unveiled a new strategic plan focused on four core priorities: occupancy improvement, portfolio reinvestment, strategic capital recycling, and accelerated acquisition growth. This plan aims to drive accretive AFFO growth and elevate portfolio quality, supported by a dividend rightsizing to free up capital. The company believes this comprehensive approach will position it for long-term success and shareholder value creation.

The quarterly dividend was reduced from $0.48 to $0.33 per share, expected to retain $25M-$30M in capital over the next two years, or up to $15M annually. This capital, combined with recycling proceeds, will fund accretive acquisitions and reinvestments on a leverage-neutral basis (approx. 40% debt to capitalization), generating an incremental 6-7 cents of AFFO growth per year. The dividend will now be reviewed annually, targeting an AFFO payout ratio of 60-65%.

CHCT targets 92% occupancy within 18 months, with a 2026 leasing budget aiming for 90.5% by year-end, a 70 bps increase. The company has already signed over 100,000 square feet in new leases in Q2, exceeding 2025's total. This momentum, driven by strategic market positioning and healthcare property shortages, is expected to generate up to $6M in NOI upside. The company noted that major lease expiration years (2024-2026) are largely behind them, with lower expirations expected in 2027-2029.

Targeted capital deployment into redevelopment projects with existing high-quality tenants offers compelling risk-adjusted returns of 9-12% yield on cost. An example is the recently completed behavioral hospital in Lafayette, LA. Additionally, CHCT is selectively building speculative suites in high-demand markets to accelerate occupancy gains and NOI realization, with three such projects currently underway.

Since 2025, CHCT has sold seven properties, generating $38.5M in net proceeds, and currently has over $70M of assets in the market for disposition. These proceeds, along with retained capital from the dividend cut, will fund a high-yield acquisition pipeline, including inpatient rehab facilities. The company expects to close $85M-$90M in acquisitions in 2026, with activity increasing in 2027, aiming to return to historical acquisition volumes of $120M-$150M annually.

The operator of six Geriatric Behavioral Hospitals paid $370,000 in rent in Q2, a $70,000 increase from Q1. The prospective buyer, who signed an LOI, is finalizing due diligence and drafting definitive purchase agreements, including new leases for CHCT's properties. While the transaction is progressing constructively, subject to regulatory issues and closing conditions, CHCT anticipates a signed agreement in Q3 and a close by year-end. Management noted the business is performing well, providing flexibility if the transaction does not proceed.

CHCT has introduced additional disclosures in its Q2 supplemental information, including FAD calculation with a breakout of capital expenditures (tenant improvements, leasing commissions, recurring capex). New portfolio overview tables provide breakouts by ownership type (fee simple, ground lease), detailed quarterly leasing activity (new leases, renewals, vacancies, acquisitions/dispositions), lease types (net, modified gross, gross), and annual escalators, in response to investor and analyst questions.