Community Healthcare Trust (CHCT) Q2 FY26 earnings call: guidance and Q&A

What is the occupancy of the $70 million of assets currently being marketed for sale, and how will their disposition impact overall portfolio occupancy?

Most of the $70 million in assets being marketed are 100% occupied, with the exception of a small handful (less than five) of empty buildings that would result in modest proceeds. The disposition of these highly occupied assets would likely decrease overall portfolio occupancy slightly.

“Most of those buildings are 100% occupied. We do have a handful of buildings we're looking to sell that should result in relatively modest proceeds that are empty buildings.”

asked by Rob Stevenson · answered by David Dupuy

Is the dividend now subject to annual review, and will the company maintain the 33-cent level until reaching a minimum payout ratio to maximize retained capital for investment?

The dividend will be evaluated annually by the board. The company will target an AFFO payout ratio of approximately 60-65% when considering future dividend adjustments, aiming to retain as much capital as possible for investment.

“As I had mentioned in my comments, you know, we're going to be targeting that 60 to 65% ASFO payout ratio, and so that's what we'll be looking at, you know, as we, you know, evaluate the dividend on an annual basis.”

asked by Rob Stevenson · answered by William Monroe

How comfortable is management with waiting for the behavioral health hospital transaction to close, or is a parallel process being run in case it falls through?

Management is confident in the transaction, noting significant progress and the buyer's investment. The business has performed well, with rent increasing, providing flexibility. While other parties have expressed interest, the current buyer is seen as the right fit, with delays primarily due to regulatory issues, not buyer commitment.

“But the good news is the business is performing so that if they aren't, we think that somebody else could come in and operate the business. and be a potential alternative.”

asked by Rob Stevenson · answered by David Dupuy

What finally prompted the decision to reduce the dividend now, given it has been a long-standing topic?

The decision was driven by the stock being 'stuck in this band' for the past two years, despite strong portfolio performance. Management and the board concluded that a change in strategy, specifically freeing up capital for growth, was necessary to improve performance and move the stock.

“There was no event or there was nothing that was a catalyst. It was just the last two years of seeing the stock sort of stuck in this band and recognizing that the only way we were going to be able to pull it out is for us to do something different from a growth perspective.”

asked by Alexander Goldfarb · answered by David Dupuy

Can you provide context on leasing activity over the past few years, given the current strong announcements, to show that the company wasn't just waiting for the behavioral health resolution?

The company faced significant lease expirations in 2024-2026 (over 10% each year). Mark Kearns was hired over a year ago to rebuild the leasing team and strategy. This team is now gaining momentum, coinciding with lower expiration volumes in 2027-2029, creating a strong environment for achieving occupancy targets.

“We knew that we had to perform better as a company. And so that's what prompted us to, you know, bring Mark Kearns on board. He has a significant amount of experience and expertise on the leasing side with companies that we admire.”

asked by Alexander Goldfarb · answered by David Dupuy

Is the current corporate overhead and platform appropriately sized for the company's historical and targeted growth rates, or is it too large for recent activity?

Management believes the current team is largely built out and appropriately sized to handle historical acquisition volumes of $120M-$150M annually. While some additions may occur, the platform is ready for increased growth velocity, though reaching those historical levels will take time.

“We think that we've got the platform in place to be able to be able to handle that 120 to 150 in growth. And ultimately that's our goal is to get back there.”

asked by Alexander Goldfarb · answered by David Dupuy

What is the specific timeframe for achieving the 92% occupancy target, and is there potential to exceed it?

The company believes it can reach 92% occupancy as early as the end of 2027. While there's a delay between leasing and revenue generation, management sees potential to grow beyond 92%, noting that full occupancy for their portfolio type is typically 92-93%.

“I think the timeframe, we feel like we can get to that 92% as early as at the end of 2027.”

asked by Michael Lewis · answered by David Dupuy

How much redevelopment opportunity is available, and what is the risk/reward profile of speculative suites?

Redevelopment projects offer good returns (9-12% yield on cost) on owned buildings, typically $3M-$5M in size, with $10M-$15M of such projects ongoing historically. Speculative suites (2,500-5,000 sq ft) are opportunistic in busy markets, with three projects currently underway. Both are selective, focused on speed-to-market, and contribute to overall portfolio performance.

“My guess is historically of the last three years, we've had anywhere from, you know, $10 to $15 million worth of those projects going on. over time. I think it's reasonable to see anywhere from 10 to $15 million worth of those types of projects going on over time.”

asked by Michael Lewis · answered by David Dupuy