Community Healthcare Q3 2026 Earnings Call Transcript

Community Healthcare (NYSE:CHCT) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Community Healthcare reported a 4.4% increase in total revenue year-over-year, reaching $32.4 million in Q3 2026, driven by higher occupancy and acquisitions.

Occupancy improved to 90.1% in Q3 from 89.8% in Q2, with robust leasing activity and a strong pipeline.

The company engaged in strategic capital recycling, monetizing properties for $32.8 million, with plans for further acquisitions totaling $99 million.

Funds from operations increased 10.4% year-over-year to $15 million, with adjusted funds from operations rising 6.1% to $16 million.

The company maintained its quarterly dividend at $0.33 per share and managed to reduce general and administrative expenses by $700,000 quarter-over-quarter.

The management expressed optimism about acquisition opportunities, targeting yields between 9% and 10%, and anticipates increased transaction activity in 2027.

Operational challenges included delays in a tenant acquisition deal, prompting exploration of alternative buyers.

Interest expense slightly increased due to rate hikes, but leverage decreased to 5.8 times.

Full Transcript

OPERATOR

Welcome to Community Healthcare 2026 third quarter earnings release conference call. On the call today, the company will discuss its 2026 third 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, November 4, 2026, and may contain forward-looking statements that involve risks 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&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 available on the company’s investor relations website for approximately 30 days and it is the property of the company. This call may not be recorded or otherwise reproduced or distributed without the company’s prior permission.

I would now like to turn the call over to Dave Dupuy, CEO of Community Healthcare. Over to you.

Dave Dupuy (President and Chief Executive Officer)

Great, great. Thank you very much, Sagar. Good morning and thank you for joining us for Community Healthcare third quarter 2026 conference call. Joining me on the call today are Bill Monroe, our Chief Financial Officer, Leigh Ann Stach, our Chief Accounting Officer, and Mark Kearns, our SVP of Asset Management. Before we begin, I’d like to remind everybody 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. In addition, an investor presentation was posted to our website last night.

I would like to start with updates to our key strategic priorities designed to drive durable growth and elevate the overall quality of the portfolio, which are occupancy improvement, portfolio reinvestment through redevelopment and speculative suites, strategic capital recycling, and accelerated acquisition growth. Starting with occupancy improvement, we continue to see robust leasing activity across the portfolio. Occupancy increased from 89.8% in the second quarter to 90.1% in the third quarter.

Our leasing pipeline remains strong and the team is executing well as we work toward our target occupancy. Turning to portfolio reinvestment, we continue to advance our redevelopment projects on schedule. As noted last quarter, our behavioral hospital redevelopment in Lafayette, Louisiana commenced its lease early in the third quarter. We have three additional redevelopment projects currently under construction with completion expected late in the fourth quarter or early in the first quarter, backed by long-term leases following receipt of certificates of occupancy and licensure.

These leases are projected to commence late in the first quarter or early in the second quarter of 2027. Regarding our speculative suite program, we currently have one suite under construction, one in permitting, and three others in the design phase. These suites are strategically positioned in high-demand buildings where tenants are actively seeking turnkey-ready space. Proactively delivering these spaces allows us to capture prospective healthcare tenants faster, accelerating both occupancy gains and NOI realization.

Our strategic capital recycling program remains active. As highlighted in our press release, we successfully monetized one property in the third quarter and two additional properties in October, generating total net proceeds of $32.8 million. The largest transaction, an inpatient rehab facility, will result in a $9.1 million gain in the fourth quarter. We are executing this sale through a Section 1031 like-kind exchange, using the net proceeds to acquire another high-quality inpatient rehab facility expected to close late in the fourth quarter.

We currently have more than $30 million of properties actively marketed for disposition. These proceeds will fund our high-quality, high-yield acquisition pipeline while maintaining our disciplined leverage profile. Finally, looking at acquisition growth, we signed definitive purchase and sale agreements for four properties to be acquired upon completion and occupancy for an aggregate expected purchase price of $99 million. The expected return on these investments should range from 9.1% to 9.75%. We anticipate closing the first of these properties in the fourth quarter, a second in 1Q27, and the remaining two between mid-’27 and early ’28. As visibility into our disposition pipeline solidifies, we are actively evaluating new acquisition candidates.

While we do not have additional properties currently under contract, the market is offering compelling opportunities aligned with our quality and return objectives. We anticipate transaction activity to accelerate through 2027 as our disposition proceeds are realized and our retained capital continues to compound. Next, I’d like to walk through a few key operational updates from the third quarter. The geriatric behavioral hospital operator, which leases six of our properties, paid approximately $540,000 in rent this quarter, a $170,000 increase over the second quarter. As previously noted, this tenant has signed a letter of intent with an experienced behavioral healthcare operator to acquire the operations of all six facilities. The prospective buyer is actively working through legal and business due diligence, negotiating definitive purchase agreements with the tenant, and finalizing new long-term leases for the six hospitals with Community Healthcare.

While the process has encountered multiple delays, the tenant and prospective buyer continue working collaboratively to resolve outstanding issues. We remain actively engaged with all parties and will provide further updates as appropriate regarding the transaction certainty given the buyer’s extended due diligence timeline. Alongside the tenant’s improved operating performance, we are also proactively engaging with other parties who previously expressed an interest in buying the business.

We did not issue any shares under our ATM last quarter. However, we anticipate having sufficient capital from selected asset sales coupled with our 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 finish up, we declared our dividend for the third quarter and kept it steady at $0.33 per common share. This equates to an annualized dividend of $1.32 per share.

That takes care of the items I wanted to cover, so I will hand things off to Bill to provide additional details on our financial results for the quarter.

Bill Monroe (Chief Financial Officer)

Thank you, Dave. I will now provide more details on our third quarter financial performance, which was strong across the board and the result of early execution wins on our strategic plan announced last quarter. I’m pleased to report total revenue grew from $31.1 million in the third quarter of 2025 to $32.4 million in the third quarter of 2026, representing 4.4% annual growth over the same period last year. This growth was a combination of higher occupancy from leasing activity and acquisitions.

When compared to our $31.2 million of total revenue in the second quarter of 2026, we achieved 3.9% total revenue growth quarter over quarter. Moving to expenses, property operating expenses increased by only approximately $100,000 quarter over quarter to $6 million for the third quarter of 2026, which is actually a smaller increase than we typically see during the summer from higher utility costs compared to the milder temperatures in the second quarter. On a year-over-year basis, property operating expenses increased by less than $50,000, or less than 1%, which demonstrates the strong cost management results our asset management team has achieved this year.

Total general and administrative expense was $4.2 million in the third quarter of 2026, a significant reduction both quarter over quarter of approximately $700,000 and year over year of approximately $470,000. This G&A expense decline is the culmination of a number of actions we have taken, including changes we’ve previously made to reduce executive compensation and stock-based compensation as well as fully amortized restricted stock. We expect to continue to see some quarterly fluctuation in G&A with our typical relatively higher Q1 and Q3 due to the timing of salary increases, tax and benefit payments, and bonuses, but we believe G&A will consistently be lower year over year for the next few quarters.

Interest expense increased by less than $100,000 quarter over quarter to $7.5 million in the third quarter of 2026. We had no incremental borrowings under our revolving credit facility during the third quarter and in fact our leverage levels decreased by 0.20 of a turn to 5.8 times. But interest expense increased slightly from both the one extra day of interest in the third quarter compared to the second quarter and the FOMC decision in mid-September to raise interest rates by 25 basis points.

Moving to funds from operations, FFO in the third quarter of 2026 was $15 million, a 10.4% increase year over year compared to the $13.5 million of FFO in 2025. On a diluted common share basis, FFO increased $0.04 from $0.50 in the third quarter of 2025 to $0.54 in the third quarter of 2026. FFO also increased 13.2% quarter over quarter, or $0.06, from the $13.2 million, or $0.48 per diluted common share, in the second quarter of 2026. These increases are primarily the result of the higher revenues and lower expenses I discussed earlier.

Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $16 million in the third quarter of 2026, a 6.1% increase year over year compared to the $15.1 million of AFFO in the third quarter of 2025. AFFO on a diluted common share basis was $0.58 in the third quarter of 2026, or $0.02 higher than the $0.56 of AFFO in the third quarter of 2025. AFFO also increased $0.04, or $0.02 quarter over quarter, from $15.4 million, or $0.56 per diluted common share, in the second quarter of 2026.

That concludes our prepared remarks. We are now ready to begin the question and answer session.

OPERATOR

Thank you very much. To ask a question, you may press star and then one on your touchtone telephone. If your question has been addressed and you would like to withdraw your question, you may press star and then two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Rob Stevenson with Huntington. Please go ahead.

Rob Stevenson (Analyst)

Good morning, guys. Dave, how are you guys thinking about the vacancy at this point? You’re going to sell more of the vacant assets or the assets with stubborn vacancy, or you’re still thinking at this point that the market over the next couple of quarters is going to allow you to lease up some more of the vacancy?

Dave Dupuy (President and Chief Executive Officer)

Look, Rob, good to hear from you and thanks for the question. What I would say is we go through a detailed portfolio review on a quarterly basis where we look at our entire portfolio and evaluate leasing activity and opportunities to lease space. And what I would say is, you know, our goal is to improve our portfolio over time based on our capital recycling. That said, I think, you know, we’ve got a handful of properties that are still empty. You know, I’d say a couple of those we think are very likely that are going to get leased.

And so, you know, we will continue to own those buildings. But there are also a couple of those properties that are smaller, that are difficult to lease, that would be expensive and aren’t good long-term fits for the portfolio. So I think it’s going to be a combination. But, you know, as you see from the quarterly numbers and what we did in terms of selling a couple of empty buildings, those buildings don’t generate a lot of, you know, proceeds for us.

But it’s really, you know, a focus on making sure that we’re executing on getting the right buildings in the portfolio. And so, you know, the leasing activity we’re seeing more broadly in the marketplace has been very favorable. And so I think most of our activity is going to be on the leasing side, but there will continue to be a handful of buildings that aren’t strategic that we would look to exit if we don’t feel like there’s a good opportunity to lease those buildings.

Rob Stevenson (Analyst)

Okay, and for the vacant buildings, did you guys wind up shedding any material amount of expenses associated with not having a tenant in them that you guys were paying, or was it relatively immaterial?

Dave Dupuy (President and Chief Executive Officer)

It’s relatively immaterial, but look, it’s, you know, there’s definitely property taxes and other operating expense of an empty building that we’re able to get rid of, but it’s a relatively small amount given the size of those buildings.

Rob Stevenson (Analyst)

Okay, and then I guess the other question from me is we’ve heard from other asset types that there’s a very strong buyer pool right now for 1031 and especially the bonus depreciation buyer, you know, trying to close stuff by year-end. Are you guys seeing that much in your type of assets?

Dave Dupuy (President and Chief Executive Officer)

I think what I would say is we’ve been so targeted as far as what we’re looking to sell that, yes, in those processes we’ve seen a great deal of interest, but it’s not like we’re, you know, our goal is to do a smaller number of larger, attractive cap rate sales to help fund our pipeline. And so it’s been pretty rifle shot. But yeah, I mean, it has been a very robust process on both of those larger inpatient rehab facilities we’ve sold. And I think the gains associated with those sales give credence to the fact that there’s certainly a dislocation between where we’re valued from a public markets perspective and what the private market views as attractive real estate. So yeah, I mean, the dispositions that we’re looking at for, you know, high-quality buildings that we’re using as, you know, capital recycling to fund our pipeline is a very rifle shot approach. But yes, we hear from people, many inbound calls looking to, you know, looking to buy properties on a one-off basis.

Candidly, we’re not interested in doing that.

Rob Stevenson (Analyst)

Okay, and then last one for me, Bill, was there anything, you know, the $0.54 in the third quarter, what’s sort of nonrecurring as we think about rolling forward out of the quarter? Obviously you’ll have the trade-out of some of the dispositions, etc. But when we’re thinking about earnings, you know, in fourth quarter and going forward, anything in there that we need to be aware of that’s especially not reoccurring?

Bill Monroe (Chief Financial Officer)

No, nothing material. I did highlight in my remarks, you know, some of the declines we saw in G&A and how we do think that that is kind of the right level set for the next few quarters. And so we think that’s certainly going to provide some benefits and tailwinds to, you know, our overall FFO in particular.

Rob Stevenson (Analyst)

Okay, thanks guys.

Dave Dupuy (President and Chief Executive Officer)

The only thing I would add to that, Rob, is, you know, we’re doing a capital recycling. We sold one building, we’re going to invest in another building. You know, there’s going to be a little bit of leakage between when we sold the building and when we invest in the new building because those acquisitions got pushed a little bit. But as far as, you know, what we expect going forward, I think, you know, the numbers we’re showing are consistent and will continue to grow.

Rob Stevenson (Analyst)

Okay, thanks, guys. Appreciate the time this morning.

Dave Dupuy (President and Chief Executive Officer)

Thanks, Rob.

OPERATOR

Thank you. Once again, to ask a question, please press star then one. Our next question comes from Jim Kamert with Evercore. Please go ahead.

Jim Kamert (Analyst)

Good morning. Thank you. David, I don’t want to put words in your mouth, but you intimated that I think that maybe as regards the Assurance assets, there are other people that are other tenants, buyers that might be interested. Is that—did I hear that properly? And secondly, does that mean you’re souring at all on the existing sort of buyer? I’m just trying to clarify.

Dave Dupuy (President and Chief Executive Officer)

Yeah. Hey, Jim, thanks for the question. I guess what I would say—we can’t go into details on the negotiations between the current transaction contemplated, but what I can say is, you know, their exclusivity has expired. The performance of the business, the underlying business, is doing much better today than when the LOI was signed 18 months or so ago. We have had, you know, interest from others associated with the process and, you know, just given the fact that it’s taken longer and, quite frankly, we’re a little bit frustrated with the length of time and the amount of due diligence and some of the issues that have gone into this process, we just think it’s in the best interest of us and, you know, frankly, the tenant to not have all the eggs in this basket if we can’t get that, indeed, over the finish line.

From our perspective, we still are—you know, we still hope that the deal goes through, but we need to have some alternatives should it not. And so, given the outstanding interest that we’ve had from others, you know, we’re going to explore those. So let’s see how it plays out. But yes, you did hear correctly.

Jim Kamert (Analyst)

No, that’s very helpful and thank you for that. And just a second question—perhaps you mentioned also you’re seeing, you know, obviously you get the cost of capital improved, you go a little bit more offensively on the acquisition pipeline. Do you have any sense of where would those yields compare, let’s say, to your known $99 million pipeline of 9.1 to 9.75? Do you think if you had the cost of capital, could you get middle nines, high nines on some of the other deals that are starting to cross the threshold?

Dave Dupuy (President and Chief Executive Officer)

Yeah, absolutely. We continue to be focused—we’ve got a high bar, both from a quality perspective but also from a yield perspective. And so, you know, our view is that 9% to 10% range is certainly achievable. And based on some of the activity that we’re seeing in the marketplace, yes, we think that that mid-9 range, you know, anywhere from 9% to 10% is achievable. And so, you know, part of what we want—our original expectation was we were going to have two inpatient rehab facilities close the second half of this year.

And since those have been pushed out and since we have greater clarity around, you know, the dispositions we’re working on, we’re now able to work on some of those other acquisition candidates. And so that’s why I said in my prepared remarks you should expect some additional activity in the upcoming quarters. And so we are—we’re looking at a number of things and hopefully we’ll have some activity we can share at our next call.

Jim Kamert (Analyst)

Good. Thank you for your time, guys.

Dave Dupuy (President and Chief Executive Officer)

Great. Thanks, Jim.

OPERATOR

Thank you. Once again, to ask a question, please press star, then one. As there are no further questions at the moment, I would now like to turn the conference back to Dave Dupuy for closing comments. Over to you, sir.

Dave Dupuy (President and Chief Executive Officer)

Great. Thank you so much. And thank you everybody for dialing in. Look forward to seeing those who will be there at REITworld coming up in just a couple of weeks. Talk soon. Bye.

OPERATOR

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.