Sila Realty Trust Q1 2025 slides: net income halves as leverage increases

Introduction & Market Context

Sila Realty Trust (NYSE:SILA) released its Q1 2025 quarterly supplemental information on May 8, 2025, revealing a significant decline in financial performance compared to the same period last year. The healthcare-focused REIT, which closed at $25.57 on May 7, 2025, reported a 50% drop in net income per share amid increasing leverage ratios and declining occupancy rates. Despite these challenges, the company maintained its portfolio of 136 properties and extended its weighted average remaining lease term.

Quarterly Performance Highlights

Sila Realty Trust reported rental revenue of $48.26 million for Q1 2025, a 4.7% decrease from $50.64 million in Q1 2024. Net income attributable to common stockholders fell sharply to $7.10 million ($0.13 per diluted share), down from $14.98 million ($0.26 per diluted share) in the prior-year period.

As shown in the following comprehensive financial summary, the company experienced declines across most key metrics:

Funds From Operations (FFO) decreased to $28.36 million ($0.51 per diluted share) from $33.78 million ($0.59 per diluted share) in Q1 2024. Core FFO also declined to $29.63 million ($0.53 per diluted share) from $36.16 million ($0.63 per diluted share), while Adjusted Funds From Operations (AFFO) fell to $29.45 million ($0.53 per diluted share) from $38.29 million ($0.66 per diluted share).

The company’s payout ratios increased across all metrics, with the FFO payout ratio rising to 79.3% from 69.9%, the Core FFO payout ratio increasing to 75.9% from 65.3%, and the AFFO payout ratio climbing to 76.4% from 61.7%.

Portfolio and Leasing Trends

Despite the financial performance decline, Sila Realty Trust maintained its portfolio of 136 properties with 5,333 thousand rentable square feet. However, the weighted average leased rate decreased to 96.0% from 99.2% in Q1 2024, indicating some occupancy challenges.

The following graph illustrates the company’s Same Store Cash Net Operating Income and leased rate trends over the past five quarters:

While the Same Store Cash NOI has remained relatively stable at $37.8 million in Q1 2025 compared to $38.7 million in Q1 2024, the leased rate has declined from 99.4% to 95.6% during the same period. This analysis is based on 125 properties that were owned and operated throughout the entire comparison period.

A positive development is the extension of the weighted average remaining lease term to 9.7 years from 8.4 years in Q1 2024, providing enhanced visibility into future rental income. The company also maintained its triple net lease exposure at 99.9%, which helps insulate it from operating expense fluctuations.

The company’s real estate portfolio remains well-diversified across property types and tenants, as illustrated in the following chart:

The tenant credit profile shows that 39.3% of annualized base rent comes from investment grade rated tenants or guarantors, with an additional 28.1% from rated tenants or guarantors. This credit quality helps mitigate tenant default risk in the current economic environment.

The company’s geographical diversification is depicted in the following property map:

Debt and Financial Position

Sila Realty Trust’s debt metrics showed signs of increasing leverage during Q1 2025. The net debt to EBITDAre ratio increased to 3.5x from 3.0x in Q1 2024, while the net debt leverage ratio rose to 26.2% from 20.5%. The interest coverage ratio declined significantly to 4.5x from 7.4x, reflecting both higher interest expenses and lower operating performance.

The following debt summary provides a detailed breakdown of the company’s debt structure and covenant compliance:

Despite the increased leverage, the company remains well within its debt covenants, with actual ratios comfortably below required thresholds. The debt maturity schedule shows no immediate refinancing needs, with $250 million maturing in 2027 and $275 million in 2028. The company also maintains $568 million in available capacity on its revolving credit facility, providing substantial liquidity.

Strategic Initiatives and Outlook

During Q1 2025, Sila Realty Trust acquired the Knoxville Healthcare Facility in Knoxville, Tennessee, for $35.32 million. The property adds 70,005 square feet to the company’s portfolio. No dispositions were reported during the quarter.

The company’s Cash NOI margin decreased to 85.3% from 92.7% in Q1 2024, while Cash NOI yield declined to 7.3% from 7.9%. These metrics suggest pressure on operating efficiency and returns on invested capital.

Looking ahead, Sila Realty Trust faces challenges in improving occupancy rates and financial performance while managing its increased leverage. The company’s focus on healthcare real estate, particularly medical outpatient buildings, inpatient rehabilitation facilities, and surgical and specialty facilities, positions it to benefit from long-term healthcare demand trends driven by an aging population.

However, investors should monitor the company’s ability to reverse the declining performance trends and manage its debt levels effectively in the current interest rate environment. The stock’s recent trading at $25.57, below the $26.71 referenced in the presentation, suggests some investor concerns about the company’s near-term prospects despite its stable portfolio and extended lease terms.

Full presentation:

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