Community Healthcare Trust Incorporated Common Stock, $0.01 par value per share 2026 Q2 Earnings Call

Great. Thank you, Cindy, and good morning, everyone. Thank you for joining us for Community Healthcare Trust's second quarter 2026 conference call. Joining me on the call today are Bill Monroe, our Chief Financial Officer, Leanne Stack, our Chief Accounting Officer, and Mark Kearns, our SVP of asset management. Before we begin, I'd like to remind everyone 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. Additionally, we included in our Form 8-K a new strategic plan investor presentation, which is also available in the investor relations section of our website. We encourage you to reference this presentation along with today's remarks. The board and senior leadership have spent considerable time developing CHCT's strategic plan for renewed growth, and I'm excited to share an overview with you today.

We are rightsizing our quarterly dividend from $0.48 to $0.33 per share. This decision allows us to retain capital directly for accretive acquisitions and long-term portfolio growth. We expect this reduction to free up $25 million-$30 million in capital over the next 2 years. Combined with our capital recycling program, this incremental cash flow will accelerate our portfolio investments and fund our acquisition pipeline. We expect these investments to be highly accretive to AFFO growth and shareholder value, all while maintaining our current target leverage levels. As part of this capital realignment, we are focusing on 4 core strategic priorities to drive growth and elevate the overall quality of our portfolio. Those are occupancy improvement, portfolio reinvestment, strategic capital recycling, and accelerated acquisition growth. Our first priority is occupancy improvement.

We see a clear, tangible path to reaching 92% occupancy over the next 18 months. Our 2026 leasing budget targets a 70 basis point increase in occupancy to 90.5% by year-end. Year to date, we have already signed new leases totaling over 100,000 sq ft, surpassing our total volume for all of 2025. Leasing activity remains strong across the majority of our footprint. We expect these tailwinds to continue into 2027. This momentum is driven by the strategic market positioning of our assets, along with a broader supply shortage of quality healthcare properties. Fully achieving these occupancy gains and rent growth represents up to $6 million in NOI upside. Our second strategic priority is portfolio reinvestment. We are deploying targeted capital into redevelopment projects alongside high-quality tenants with long-term leases already in place.

These projects offer compelling risk-adjusted returns with a 9%-12% yield on cost. A prime example is our recently completed behavioral hospital in Lafayette, Louisiana, a joint venture between Ochsner Health and Oceans Behavioral Health, with a lease commencement that occurred early in the third quarter. We are selectively building out speculative suites in high-demand markets. Proactively preparing these spaces allows us to capture prospective healthcare tenants faster, accelerating both occupancy gains and NOI realization. Our third priority is strategic capital recycling. Since launching this initiative in 2025, CHCT has sold seven properties, generating $38.5 million in net proceeds. We currently have more than $70 million of assets in the market. We expect these disposition proceeds to fund our high yield acquisition pipeline, while keeping leverage modest.

We view this as truly strategic recycling, whereby we are exiting select assets to fund high conviction opportunities, like our attractive inpatient rehab facility pipeline, while simultaneously enhancing the credit quality and profile of our overall portfolio. Our fourth priority is accelerating acquisition growth. In addition to improved occupancy and portfolio performance, acquisitions will be an important growth driver for CHCT. Over the last 2 years, acquisition volume moderated to $64.5 million and $72.1 million. By combining our capital recycling proceeds with the capital freed up from our dividend rightsizing, we have unlocked the liquidity necessary to step up our acquisition velocity. We expect to close on $85 million-$90 million in acquisitions in 2026. We anticipate activity to increase in 2027 as this newly unlocked growth capital compounds.

In short, we believe the strategic plan is clear and achievable, positioning us to improve our portfolio, increase our acquisition cadence, and drive accretive AFFO growth. Next, I'd like to walk through a few key operational updates from the second quarter. During the second quarter, the geriatric behavioral hospital operator, which leases six of our properties, paid approximately $370,000 in rent, representing a $70,000 increase over the first quarter. As previously noted, this tenant signed a letter of intent with an experienced behavioral healthcare operator to acquire the operations of all six facilities under exclusivity. Since then, the buyer has made significant progress. They are now finalizing legal and business due diligence and have moved into drafting definitive purchase agreements, which includes new leases for CHCT's six properties.

Given the steady momentum through the second quarter and into July, we anticipate a signed purchase agreement during the third quarter, targeting a transaction close by year end. While the deal is progressing constructively, transactions of this nature remain subject to final documentation and closing conditions. We cannot guarantee a closed transaction, but we remain fully committed to keeping you updated as key milestones are reached. Also in May, we sold one building in Batesville, Mississippi, and received net proceeds of approximately $460,000, resulting in a small gain on the property sale. 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%-9.75%.

We expect to close on one of these properties in the third quarter, and another in the fourth quarter of 2026, and the remaining two in the second half of 2027. That takes care of the items I wanted to cover, so I'll hand things off to Bill to provide additional details on our financial results for the quarter.

Thank you, Dave. Let me add more detail on our capital allocation policy first, given our new rightsized dividend. As Dave mentioned, we expect to retain $25 million-$30 million of capital over the next two years, or to put it on an annual basis, up to $15 million of cash flow per year. On a leverage neutral basis of approximately 40% debt to capitalization, this will allow us to acquire or reinvest up to an incremental $25 million per year, generating an incremental $0.06-$0.07 of AFFO growth per year, assuming a 9%-10% yield. As our AFFO grows from this retained cash flow, as well as the occupancy improvements Dave discussed, it also enables our dividend to grow with earnings going forward.

Historically, we updated our dividend each quarter. Going forward, we expect to update our dividend on an annual basis while maintaining an AFFO payout ratio of approximately 60%-65%. I also want to take a minute to point out the additional disclosures we have included within our filed second quarter 2026 supplemental information. Within our reconciliation tables on page eight, we now include our funds available for distribution, or FAD calculation, which provides a breakout of capital expenditures across tenant improvements, leasing commissions, and recurring CapEx.

Within our portfolio overview tables on page 14, we now include a breakout of our properties by ownership type, fee simple and ground lease; a detailed review of our quarterly leasing activity across new leases, renewals, vacancies, and acquisitions/dispositions; a breakout of our lease types across net leases, modified gross leases, and gross leases, as well as a calculation of our portfolio's annual escalators. These additional disclosures are a response to investor and analyst questions. We are excited to provide more transparency on these items. To help save time for Q&A, I'll very briefly review our second quarter financial performance, which on an AFFO per share basis remains steady at $0.56. Total revenue for the second quarter of 2026 was $31.2 million, with property operating expenses of $5.9 million, general and administrative expenses of $4.9 million, and interest expense of $7.4 million.