Community Healthcare Trust (NYSE:CHCT) reported higher third-quarter revenue and funds from operations as occupancy improved and expenses remained under control, while executives outlined plans to sell properties and reinvest the proceeds in acquisitions.
Revenue rose 4.4% to $32.4 million from $31.1 million a year earlier, Chief Financial Officer Bill Monroe said on the company’s November 4 earnings call. Revenue also increased from $31.2 million in the second quarter, helped by leasing activity and acquisitions.
Funds from operations, or FFO, increased to $15 million, or $0.54 per diluted share, from $13.5 million, or $0.50 per share, a year earlier. Adjusted FFO rose to $16 million, or $0.58 per diluted share, from $15.1 million, or $0.56 per share.
Occupancy increased to 90.1% from 89.8% in the second quarter. CEO Dave Dupuy said the leasing pipeline remained strong, and the company was working toward its occupancy target.
Property Sales and Acquisition Pipeline
Community Healthcare Trust sold one property during the third quarter and two more in October, generating a combined $32.8 million in net proceeds, Dupuy said. The largest sale, an inpatient rehabilitation facility, is expected to produce a $9.1 million gain in the fourth quarter.
The company is using a Section 1031 like-kind exchange to reinvest the proceeds from that sale in another inpatient rehabilitation facility, with a closing expected late in the fourth quarter. Dupuy said more than $30 million of additional properties were being actively marketed for sale.
The company also has definitive agreements to acquire four properties upon their completion and occupancy for an aggregate expected price of $99 million. The investments are expected to yield between 9.1% and 9.75%. One is expected to close in the fourth quarter, another in the first quarter of 2027 and the remaining two between mid-2027 and early 2028.
Dupuy said the company was evaluating other acquisition candidates but had no additional properties under contract. He told analysts that returns in the 9% to 10% range remained achievable based on opportunities the company was seeing.
Asked about vacant properties, Dupuy said the company expected to lease some empty buildings but could sell smaller properties that are difficult or expensive to lease and do not fit its long-term strategy. He said most activity would be focused on leasing.
Tenant Negotiations and Redevelopment
A geriatric behavioral hospital operator that leases six company properties paid approximately $540,000 in rent during the third quarter, up $170,000 from the second quarter, Dupuy said.
The tenant previously signed a letter of intent for an experienced behavioral healthcare operator to acquire the operations of all six facilities. The prospective buyer is conducting due diligence, negotiating purchase agreements with the tenant and finalizing proposed long-term leases with Community Healthcare Trust. Dupuy said the process has encountered multiple delays.
During the question-and-answer session, Dupuy said the prospective buyer’s exclusivity had expired and the underlying business was performing better than when the letter of intent was signed about 18 months earlier. He said the company still hoped the deal would close but was exploring interest from other parties as an alternative.
On redevelopment, Dupuy said a behavioral hospital project in Lafayette, Louisiana, began its lease early in the third quarter. Three other projects under construction are expected to be completed late in the fourth quarter or early in the first quarter, with their leases projected to begin in late first-quarter or early second-quarter 2027 after certificates of occupancy and licensure are received.
Costs, Leverage and Dividend
Property operating expenses were $6 million, up approximately $100,000 from the second quarter. General and administrative expense declined to $4.2 million, a reduction of about $700,000 from the prior quarter and approximately $470,000 from a year earlier. Monroe attributed the decline to actions including changes to executive and stock-based compensation, as well as fully amortized restricted stock.
Monroe said the company expects general and administrative costs to fluctuate by quarter but remain lower year over year for the next few quarters. He told an analyst that nothing material in third-quarter FFO was nonrecurring. Dupuy noted that the timing gap between a property sale and a replacement acquisition would create some temporary earnings leakage.
Leverage declined by two-tenths of a turn to 5.8 times, Monroe said. The company made no incremental borrowings under its revolving credit facility during the quarter and issued no shares through its at-the-market program. It held its quarterly dividend steady at $0.33 per common share, equivalent to $1.32 per share annually.
About Community Healthcare Trust (NYSE:CHCT)
Community Healthcare Trust Incorporated (NYSE: CHCT) is a real estate investment trust that owns and operates healthcare-related properties across the United States. The company focuses primarily on properties located in non-urban and underserved markets, where healthcare facilities can serve as important community resources.
Its portfolio includes outpatient clinics, physician office buildings, specialty healthcare facilities, behavioral health properties, and other facilities leased to healthcare providers.
