Earnings call transcript: Community Healthcare Trust Q1 2025 misses EPS, stock rises

Community Healthcare Trust Inc (CHCT) reported mixed earnings for the first quarter of 2025, with earnings per share (EPS) falling short of expectations at $0.03 compared to the forecasted $0.08. However, revenue surpassed predictions, reaching $30.08 million against an anticipated $29.58 million. The company, which has raised its dividend for 10 consecutive years and offers an impressive 11.56% dividend yield, saw its stock rise by 4.8% in after-hours trading, closing at $16.26. According to InvestingPro analysis, CHCT appears undervalued based on its Fair Value metrics.

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Key Takeaways

• EPS missed forecasts by $0.05, while revenue exceeded expectations.
• Stock price increased by 4.8%, indicating positive market sentiment.
• Strategic acquisitions and property investments signal potential growth.
• Dividend increase to $0.47 per share highlights financial confidence.
• Stable occupancy rates and ongoing renovations in key properties.

Company Performance

Community Healthcare Trust demonstrated resilience in Q1 2025 despite an EPS shortfall. The company maintained revenue growth of 1.33% over the last twelve months, with a robust 5-year revenue CAGR of 14%. According to InvestingPro data, the company maintains an impressive 80.14% gross profit margin, though its Financial Health Score currently stands at "FAIR." The focus on expanding its property portfolio and maintaining high occupancy rates underscores its competitive position.

Financial Highlights

• Revenue: $30.08 million, up 2.5% year-over-year.
• Earnings per share: $0.03, below the forecast of $0.08.
• Funds from Operations (FFO): $12.7 million, slightly down from the previous quarter.
• Dividend: Raised to $0.47 per share, annualized at $1.88.

Earnings vs. Forecast

Community Healthcare Trust’s EPS of $0.03 fell short of the expected $0.08, marking a significant miss. However, revenue of $30.08 million exceeded forecasts by $0.5 million, providing a positive offset. The revenue beat suggests strong operational performance, despite challenges in profitability.

Market Reaction

The company’s stock rose by 4.8% in after-hours trading, closing at $16.26. This increase suggests investor optimism, likely fueled by revenue growth and strategic initiatives, despite the EPS miss. Analyst consensus shows potential upside, with price targets ranging from $17 to $25. The stock’s performance is notable as it trades at $17.04, about 15% above its 52-week low of $14.76, indicating potential for further gains.

Discover more valuable insights with InvestingPro’s comprehensive financial analysis tools and expert research reports.

Outlook & Guidance

Looking forward, Community Healthcare Trust plans to close on new inpatient rehab facilities in Q3 and Q4 2025, with additional property acquisitions anticipated. InvestingPro analysts expect the company to return to profitability this year, with an EPS forecast of $0.25 for FY2025 and revenue growth of 6%. The company remains focused on capital allocation strategies, including asset sales and potential share buybacks, to enhance shareholder value.

Executive Commentary

CEO Dave DePuy highlighted the company’s cautious approach to equity raises, stating, "We are not excited raising equity at these prices." He emphasized exploring capital alternatives and noted, "Our tenants seem to be doing well," reflecting confidence in tenant performance and cash flow stability.

Risks and Challenges

• Potential profitability concerns due to EPS miss.
• Stable occupancy rates may limit immediate revenue growth.
• Dependence on successful property acquisitions for future expansion.
• Market conditions and macroeconomic factors could impact healthcare real estate demand.

Q&A

During the earnings call, analysts inquired about the potential sale of hospitals operated by a geriatric psychiatric hospital operator, with clarity expected by Q3. Questions also focused on capital strategies, with management indicating no immediate plans for preferred stock issuance.

Full transcript - Community Healthcare Trust Inc (CHCT) Q1 2025:

Alan, Conference Call Moderator: Welcome to the Community Healthcare Trust’s twenty twenty five First Quarter Earnings Release Conference Call. On the call today, the company will discuss its twenty twenty five first quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be opened for a question and answer session. The company’s earnings release was distributed last evening and has also been posted on its website www.chct.reit.

The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today, 04/30/2025, and may contain forward looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company’s disclosures regarding forward looking statements in its earnings release as well as its risk factors and MD and A in its SEC filings. The company undertakes no obligation to update forward looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non GAAP financial measures.

A reconciliation between the two is available in its earnings release, which is posted on its website. Call participants are advised that this conference call is being recorded for playback purposes. An archive of the call will be made available on the company’s Investor Relations website for approx. Thirty days and is property of the company. This call may not be recorded or otherwise reproduced or distributed without the company’s prior written permission.

Now, I would like to turn the call over to Dave DePuy, CEO of Community Healthcare Trust. Please go ahead.

Dave DePuy, CEO, Community Healthcare Trust: Great. Thank you, Alan, and good morning. Thank you for joining us today for our twenty twenty five first quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer Leanne Stack, our Chief Accounting Officer and Tim Meyer, our EVP of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on Form eight ks, along with our quarterly report on Form 10 Q.

In addition, an updated investor presentation was posted to our website last night. We had a busy first quarter from an operations perspective and continue to be selective from an acquisition standpoint. Both our occupancy and our weighted average remaining lease term remained flat quarter over quarter at ninety point nine percent and six point seven years, respectively. We continue to see good leasing activity in the portfolio, and our asset management team is doing a great job serving our tenants while continuing to focus on property operating costs. We have four properties, or significant portions of them, that are undergoing redevelopment or significant renovations with long term tenants in place when the renovations or redevelopment is complete.

One of these projects commenced its lease during the first quarter. Due to health care licensure requirements as well as rent abatement built into the lease, we expect this property to contribute NOI during the fourth quarter of twenty twenty five. During the first quarter, we acquired behavioral residential treatment facility consisting of five buildings with a total of approximately 38,000 square feet for a purchase price of approximately $9,700,000 and anticipated tenant improvements of $1,400,000 We entered into a new lease with a lease expiration of 02/1940 and anticipated annual return of 9.5 percent. This represents a new client relationship for CHCT, and we are evaluating other projects to work on with this operator. We also have signed definitive purchase and sale agreements for seven properties to be acquired after completion and occupancy for an aggregate expected investment of $169,500,000 The expected return on these investments should range from 9.1% to 9.75%.

We expect to close on one of these properties in the third quarter, with the remaining six properties closing throughout 2025, ’twenty six and ’twenty seven. In April, we sold one building in Ohio with approximately $400,000 and received net proceeds of approximately $600,000 resulting in a gain on the property sale. As for an update on our geriatric psychiatric hospital operator, which is a tenant in six of our properties, representing a total of approximately 79,000 square feet and annual base rent of $3,200,000 we continue to see incremental operating improvements and received rent and interest payments of $165,000 in the first quarter. In addition, the operator is evaluating strategic alternatives, including the potential sale of all or selected hospitals within its portfolio. We remain in active dialogue with the operator and its consultants, and we’ll continue evaluating all options available under our leases and notes.

Due to the company’s low share price, we did not issue any shares under our ATM last quarter. However, we continue to evaluate capital recycling opportunities, and we would anticipate having sufficient capital from selected asset sales, coupled with our increased revolver capacity, to fund near term acquisitions. Going forward, we will evaluate the best uses of our capital, all while maintaining modest leverage levels. To wrap up, we declared our dividend for the first quarter and raised it to $0.47 per common share. This equates to an annualized dividend of $1.88 per share.

We are proud to have raised our dividend every quarter since our IPO. That takes care of the items I wanted to cover, so I will hand things off to Bill to discuss the numbers. Thank you, Dave. I will now provide more details on our first quarter financial performance. I’m pleased to report that total revenue grew from $29,300,000 in the first quarter of twenty twenty four to $30,100,000 in the first quarter of twenty twenty five, representing 2.5% annual growth over the same period last year.

When compared to our total revenue in the fourth quarter of twenty twenty four, which was also $29,300,000 we achieved 2.7% total revenue growth quarter over quarter as a result of incremental revenue from fourth quarter acquisitions made late in the quarter last year, seasonal increases in operating expense reimbursements, and the $165,000 of rent and interest payments received in the first quarter from our geriatric psychiatric hospital operator that Dave mentioned earlier. From an expense perspective, property operating expenses increased by approximately $600,000 quarter over quarter to 6,100,000 in the first quarter of twenty twenty five, primarily as a result of higher seasonal utility and snowplow expenses at several properties in January and February in particular. General and administrative expenses increased by approximately $300,000 quarter over quarter to $5,100,000 in the first quarter of twenty twenty five, primarily as a result of higher non cash amortization compensation and our typical first quarter seasonal adjustments due to the timing of annual employee salary increases, employer HSA and four zero one ks contributions, and employer tax payments. Interest expense remained flat quarter over quarter at $6,400,000 in the first quarter of twenty twenty five due to the lower acquisition volumes over the last quarter, as well as two less days in the first quarter compared to the fourth quarter.

Moving to funds from operations, FFO decreased slightly quarter over quarter by $77,000 but remained at $12,700,000 in the first quarter of twenty twenty five. On a per diluted common share basis, FFO was $0.47 in the first quarter of twenty twenty five, down slightly from $0.48 in the fourth quarter of twenty twenty four. Adjusted funds from operations or AFFO, which adjusts for straight line rent and stock based compensation totaled $14,700,000 in the first quarter of twenty twenty five, which was approximately $100,000 higher than the fourth quarter of twenty twenty four, but on a diluted common share basis remained the same quarter over quarter at 55¢. That concludes our prepared remarks. Alan, we are now ready to begin the question and answer session.

Alan, Conference Call Moderator: We will now begin the question and answer session. Our first question comes from Connor Mitchell of Piper Sandler. Please go ahead.

Connor Mitchell, Analyst, Piper Sandler: Hey. Good morning. Thanks for taking my question. I guess, first, I appreciate some of the information, Dave, you provided on the geriatric psychiatric hospital operator. Just wondering if there’s any more color you could also provide maybe on on timing of when they might consider the sales that you discussed, or maybe it gets to a point where you guys decide that it’s it’s time to fully replace them and release the space.

Just any more color on kind of the ongoing process on their side, your considerations with the with the process, and then maybe the timing of any of those options as well.

Dave DePuy, CEO, Community Healthcare Trust: Sure, Hunter. Thanks for the question. So as we’ve talked about, they are in an active sale process, and they have potential buyers doing work to evaluate the purchase of all or selected hospitals. And of course, we do have levers that we can pull from a lease perspective that could make that acquisition more attractive to potential buyers. It’s difficult in a sales process to put a precise time related to ultimately where things shift out.

But from our perspective, we’re looking we feel like that we should have some additional certainty toward the end of the second quarter, beginning of the third quarter to better understand kind of where the status is of interested buyers in terms. And I think that’ll give us a better sense of what our intended next steps will be.

Connor Mitchell, Analyst, Piper Sandler: Okay. All right. I appreciate the additional information. And then maybe turning towards acquisition outlook and capital allocation. It looks like you still have a pretty healthy pipeline, but just a little less activity in the first quarter and maybe not expecting a ton in the near term.

Is this kind of a read through what what we’re expected to see for the remainder of the year really into the the end of the year or even into the beginning of next year unless the conditions better significantly, maybe the cost of capital, your stock price comes back and you guys can utilize the ATM again? Or is this kind of just how you’re looking at it for the near term with the current conditions?

Dave DePuy, CEO, Community Healthcare Trust: Yeah, no, listen, so just to provide some additional color on what is in the pipeline and where we think things are going to end. So, two inpatient rehab facilities that we are expecting to close one of those in the third quarter, probably early third quarter. And we’re still looking to close another one of those in the fourth quarter. We’ve got a $4,000,000 property under term sheet that if we get to terms through the purchase and sale agreement, could be a third quarter acquisition. I will say that we’re seeing some attractive property acquisitions, and we’re evaluating those.

But Conor, as you point out, we’re not excited raising equity at these prices. So you should expect us to look at other methods. We’ve mentioned before, selected asset sales to help us because from a leverage perspective, we do not want to put meaningful additional leverage on the business. And so we’re you should expect us to use selected asset sales as well as some draws on the revolver to fund acquisitions. But yes, we are absolutely going to be opportunistic.

As our share price to the extent our share price increases and gets to a better level to raise capital, we would look to the ATM. But certainly, at these levels, we’re not interested in doing that. So we would look at selected capital recycling as well as draws on the revolver, but not doing either of those in a way that would meaningfully increase leverage.

Connor Mitchell, Analyst, Piper Sandler: Right. Okay. And then maybe just kind of going along the same line, you’re focused on the depressed stock price, I guess. How do you consider maybe the opportunity to even buy back stock versus looking at the potential to use capital and allocate capital for growth and acquire new properties?

Dave DePuy, CEO, Community Healthcare Trust: Well, listen, I think that’s certainly something that we have talked about at the board level and we’ll continue to look at and discuss at the board level. We do have a pipeline of deals that we are focused on and that we will make sure that we execute on those deals by using some capital recycling. What we don’t want to do is we don’t want to put leverage on our balance sheet to do a share repurchase. So look, we’ll be opportunistic. And of course, we and the board will look at all options.

And depending on the timing of the selected capital recycling and how those opportunities look, there may be an opportunity for us to do a share buyback. But given our pipeline, I wouldn’t expect that that would be our first choice.

Connor Mitchell, Analyst, Piper Sandler: Okay, that’s all for me. Thank you very much for all the color.

Dave DePuy, CEO, Community Healthcare Trust: Thanks, Connor.

Alan, Conference Call Moderator: The next question comes from Rob Stevenson of Janney. Please go ahead.

Rob Stevenson, Analyst, Janney: Just for clarification, is the $3,200,000 of contractual payments with your troubled psychiatric hospital operator just the rent, or is that inclusive of the notes as well?

Dave DePuy, CEO, Community Healthcare Trust: That’s just the rent.

Rob Stevenson, Analyst, Janney: How much more is the payment on the notes?

Dave DePuy, CEO, Community Healthcare Trust: The notes would comprise, you know, another, you know, 2 and a half million dollars kind of approximately is is kind of the the run rate that they were paying, you know, before middle of last year.

Rob Stevenson, Analyst, Janney: Okay. So it’s in total, it’s it’s, you know, just under $6,000,000 annual payment is what they contractually owe you. Correct. Okay. And then was the $1,400,000 of TIs expected to be completed and the rent on the Georgia asset starting, when is that supposed to what’s the time frame for that?

Dave DePuy, CEO, Community Healthcare Trust: We would expect that to complete and the lease to commence early in the third quarter.

Rob Stevenson, Analyst, Janney: Okay. And Bill, the $9,700,000 Georgia acquisition listed in the release reflects $9,500,000 on Page 13 of the supplemental. What’s the difference there? And are those numbers inclusive of this $1,400,000 of TIs? Or is this really essentially like an $11,000,000 asset?

Dave DePuy, CEO, Community Healthcare Trust: It’s essentially the latter kind of an $11,000,000 asset by the time you include the, which again is being done on an expedited basis. Okay. Yeah, it’s essentially purchase price versus cash consideration.

Rob Stevenson, Analyst, Janney: Okay, that’s helpful. And then last one for me. Dave, your predecessor wasn’t very fond of preferred stock, but given the question the previous question about capital, etcetera, how are you guys feeling today and the Board feeling about potentially doing a preferred stock depending on where a deal would wind up pricing to give you a little bit of capital for growth here?

Dave DePuy, CEO, Community Healthcare Trust: Rob, what I would say is we’re looking at all of the capital options that we have, and we will evaluate those. I do agree that our bias in general is to keep the capital structure simple. And I think that has always served us well. And look, I think there’s some issues with a preferred stock issuance that, you know, it’s it has its pros and cons, but we will evaluate, you know, various capital alternatives. But I would say that it’s not a near consideration for us.

Rob Stevenson, Analyst, Janney: Okay. Thanks, guys. Appreciate the time this morning.

Dave DePuy, CEO, Community Healthcare Trust: Thanks, Rob.

Alan, Conference Call Moderator: The next question comes from Barry Oxford of Collier. Please go ahead.

Barry Oxford, Analyst, Collier: Great. Thanks, guys. Just pulling two questions. First one is just pulling back on the geriatric tenant. Let’s say this becomes more and more of an elongated process.

How much patience do you have until you say, look, you’re in default of your lease and we’re gonna take action?

Dave DePuy, CEO, Community Healthcare Trust: Well, Barry, the way I would characterize it is when I was talking earlier in the call. We wanna see kind of where the buyers come in, and we think we’ll have better visibility in terms of those potential opportunities by the end of the second quarter, early third quarter. And once we have a sense buyer interest and specifics associated with that, I think we’ll be making some decisions. And if there isn’t sufficient buyer interest, then we’re going to look at all the alternatives under our leases and notes. And we’ve got patients, but it’s not unlimited patients.

And you should expect that we will be looking at trying to get this resolved sooner rather than later.

Barry Oxford, Analyst, Collier: Great, great. And my next question, when you look at some of your other smaller tenants in the portfolio, are you concerned about any tenants? Did any problems kind of arise in the first quarter with some of the smaller tenants? Is everybody kind of continuing to pay and continuing to have strong cash flows? And then how would you, from the macro side, describe the environment as far as your tenant’s ability to make money and pay rents going forward?

Dave DePuy, CEO, Community Healthcare Trust: Yeah, so we are continuing to monitor our tenants and we have an active watch list, which we’ve talked about and we’ll have tenants come on that watch list and we’ll have tenants then come off of that watch list. But there hasn’t been anything, you’ve seen some relative stability in the portfolio, and so there hasn’t been anything that we’ve seen this quarter that would indicate otherwise. And so seeing some stability both across the board, whether it’s small tenants or larger tenants. And so that’s obviously a positive. And I would say from a macro perspective, obviously, we’re hearing a lot of noise on tariffs and impacts to the economy.

I think for once, health care providers aren’t necessarily in the crosshairs of what we’re seeing from a government perspective. And so our tenants seem to be doing well, and I don’t have anything that I can identify short term that would have a negative impact overall from a macro perspective on our tenants or their ability to pay rent.

Barry Oxford, Analyst, Collier: Okay, thanks for the color, guys.

Dave DePuy, CEO, Community Healthcare Trust: Thank you, Barry.

Connor Mitchell, Analyst, Piper Sandler: Yep.

Alan, Conference Call Moderator: The next question comes from Jim Kamert of Evercore. Please go ahead.

Jim Kamert, Analyst, Evercore: Hi, good morning. Thank you. Could you remind me, I apologize, on the $169,000,000 pipeline, under what conditions or circumstance could CHCT not have to proceed and not have to acquire? I’m just trying to understand, are they absolute obligations or depending on how the company evolves, what you could do?

Dave DePuy, CEO, Community Healthcare Trust: Are obligations for us to acquire. We certainly have a relationship with the developer. And there have been times if it’s a development project that either he or us or both of us have decided is not the right opportunity, then we would move on. But I think you should expect that this $170,000,000 pipeline, which again, Jim, is we’re to do over the three years. I think everybody should consider that pipeline as a solid pipeline and one that we expect to close on.

Jim Kamert, Analyst, Evercore: Fair enough. And as regards the geriatric psychiatric tenant, I think it’s about $22,000,000 where the original loan are advanced to them. In the event that they were to sell their assets or sell the business, where do your notes kind of stand vis a vis other creditors? Because I know you took wrote off about half of them or reserved for half. I was just trying to think about what happens in that circumstance, where you stand, please.

Dave DePuy, CEO, Community Healthcare Trust: Yeah. So really, the only creditors certainly, you’ve got trade creditors that you have to be cognizant of, and that’s part of the overall working capital of the business. But there is a $4,000,000 accounts receivable line of credit that a commercial bank currently has, and they have a first priority security interest on the AR. We have a second lien on the AR, as well as a first lien on all the other assets of borrower. So those borrowers are co borrowers on our notes, as well as we have all the stock of those subsidiaries pledged to our notes.

Jim Kamert, Analyst, Evercore: Okay, that’s helpful. Appreciate the detail. Thank you. That’s all

Alan, Conference Call Moderator: for me.

Connor Mitchell, Analyst, Piper Sandler: Thanks,

Jim Kamert, Analyst, Evercore: Jim.

Alan, Conference Call Moderator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Tepuy for any closing remarks.

Dave DePuy, CEO, Community Healthcare Trust: Well, I appreciate everyone joining us for the call, and look forward to hopefully seeing many of you at NAREIT coming up in June. Thank you very much.

Alan, Conference Call Moderator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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