Community Healthcare Trust, Inc. Aktie

Welcome to Community Healthcare Trust 2026 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2026 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, May 6, 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 2 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 approximately 30 days and is the 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 Dupuy, CEO of Community Healthcare Trust.

Great. Thank you very much. Good morning, everyone, and thank you for joining us today for the 2026 first quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer; Leigh Ann Stack, our Chief Accounting Officer; and Mark Kearns, our Senior Vice President of Asset Management.

Our earnings announcement 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 updated investor presentation was posted to our website last night. During the first quarter, the geriatric behavioral hospital operator, a tenant in 6 of the company's properties, paid rent of approximately $300,000, an increase of $100,000 over last quarter.

On July 17, 2025, this tenant signed a letter of intent for the sale of the operations of all 6 of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. The buyer is finalizing legal and business due diligence and has entered the drafting phase of the definitive purchase documents, including new leases on the 6 hospitals owned by the company.

We continue to maintain frequent productive communication with the buyer's team to advance the closing process. While the transaction is progressing, we can't provide specific timing or certainty that it will close. However, we remain committed to providing further updates as the process moves forward.

We had a busy first quarter from both an operations and a capital recycling perspective and continue to be selective from an acquisition standpoint. Our occupancy decreased from 90.6% to 89.8% during the quarter due to lease terminations. However, our leasing team is very busy with renewals and new leasing activity, and we expect leased occupancy to grow next quarter.

Our weighted average lease term increased slightly from 7 to 7.1 years, and our asset management team continues to do a great job serving our tenants while focusing on property operating costs. We have 3 properties that are undergoing redevelopment for significant renovations with long-term tenants in place once the redevelopment or renovations are complete. The largest of these projects, a behavioral health care facility, received its certificate of occupancy in March.

Due to health care licensure requirements, we expect this property to commence its lease and contribute NOI during the third quarter of 2026. During the first quarter, we acquired an inpatient rehabilitation facility after completion of construction for a purchase price of $28.5 million. We entered into a new lease with a lease expiration in 2044 an anticipated annual return of approximately 9.3%.

We also have signed definitive purchase and sale agreements for 4 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% to 9.75%. We expect to close on 2 of these properties in the second half of 2026 and the remaining 2 in the second half of 2027.

In February, we sold 1 building in Fort Myers, Florida, and received net proceeds of approximately $5.2 million, resulting in a small loss on the property sale. We also received net proceeds of approximately $700,000 from the disposition of a property at the end of 2025. 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 revolver availability 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 first quarter dividend and raised it to $0.48 per common share. This equates to an annualized dividend of $1.92 per share, and 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'll 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 total revenue grew from $30.1 million in the first quarter of 2025 to $31.5 million in the first quarter of 2026, representing 4.8% annual growth over the same period last year. On a quarter-over-quarter basis, total revenue grew 1.9%, primarily from higher rental income from our recent acquisitions and higher property operating expense recoveries, partially offset by recent capital recycling dispositions and net leasing activity.

Moving to expenses. Property operating expenses increased by approximately $360,000 quarter-over-quarter to $6.4 million for the first quarter of 2026. This increase was a result of seasonally higher snowplow and utility expense at several properties that we typically see in January and February in particular.

Total general and administrative expense was $5.1 million in the first quarter of 2026, which was approximately $330,000 higher quarter-over-quarter, primarily as a result of higher noncash amortization of deferred compensation and our typical first quarter adjustments due to the timing of annual employee salary increases, employer HSA and 401(k) contributions and employer tax payments.

On a year-over-year basis, G&A did not increase from the same $5.1 million in the first quarter of 2025. Interest expense decreased by $160,000 quarter-over-quarter to $6.8 million in the first quarter of 2026 due to 2 less days in the first quarter and slightly lower floating rates on our revolving credit facility.

I'll note that we expect our second quarter interest expense to be higher, however, based on an additional day in the second quarter, a full quarter of our current revolver balance, which includes net borrowings from our inpatient rehabilitation facility acquisition in February and the expiration in late March of $75 million of interest rate hedges.

Moving to funds from operations. FFO in the first quarter of 2026 was $13.4 million, a 5.8% increase year-over-year compared to the $12.7 million of FFO in the first quarter of 2025. On a diluted common share basis, FFO increased $0.02 year-over-year from $0.47 in the first quarter of 2025 to $0.49 in the first quarter of 2026 and remained the same quarter-over-quarter from the $0.49 of FFO in the fourth quarter of 2025.

Adjusted funds from operations, or AFFO, which adjusts for straight-line rents and stock-based compensation, totaled $15.4 million in the first quarter of 2026, a 4.1% increase year-over-year compared to the $14.7 million of AFFO in the first quarter of 2025. AFFO on a diluted common share basis was $0.56 in the first quarter of 2026, which was $0.01 higher both year-over-year and quarter-over-quarter from the $0.55 of the AFFO in the first quarter of 2025 and the fourth quarter of 2025, respectively.

That concludes our prepared remarks. Darwin, we are now ready to begin the question-and-answer session.

[Operator Instructions] Our first question comes from Alexander Goldfarb with Piper Sandler.

Dave, you made some promising comments about the Assurance hospital transfer. It sounds like things are progressing, sort of, getting in late stages. Can you just give a little bit more color? Do you feel like we're getting close to the end? Or is this sort of like typical sort of government work where you have to enjoy the process. And at this point, based on the shot clock, you're like, okay, we should be at the point of the shot clock where this should be coming to a conclusion.

Alex, yes, thanks for the question. We are feeling like we have definitely made some progress over the last quarter. Some of the roadblocks that we've seen, as you've alluded to, have been related to some -- getting some confirmation on some outstanding liabilities from a couple of the various governing bodies that pay. So in particular, as it relates to Ohio Medicaid firming up the amount that is owed.

So -- but we do feel like we're making good progress. The company is highly engaged. The buyer is highly engaged in the process. And we do feel like we're hopefully going to get final confirmation on timing and everything very shortly. So we do -- like I said in the prepared remarks, we are currently trading documents and purchase agreements, and we would anticipate getting this thing in a good place, hopefully, in the next quarter.

Okay. That's certainly good to hear. Second question is, obviously, senior housing is all the rage these days and MOB and I think your traditional property types may not be as in vogue at least when you look at the public stock prices. When you guys look in the market for acquisitions, is that the same that you see on the private market? Or is there -- are you -- basically, what I'm asking is your acquisition pipeline is coming down.

I realize that you're managing that relative to your cost of capital. But I'm also trying to understand what's going on in valuation land and if there's sort of all the health care private capital is heading only to senior housing and your traditional target class remains still very attractive and therefore, your decision to pull the pipeline down is more based on just your cost of capital versus everything is once again getting bid up and therefore, there's less product that's of interest to you.

No, it really has to do with the latter, Alex. I mean we see a number of acquisitions. We continue to have investment committee meetings every couple of weeks where we go through opportunities. And yes, if we were in a different position and weren't doing capital recycling and having to sequence those asset sales in order to acquire new assets because we don't want to raise capital through our ATM, we would definitely see the types of properties and the types of opportunities that we'd like to invest in.

And so what we are doing in terms of focusing on capital recycling is we're using this as an opportunity to do 2 things. Obviously, we're using this as an opportunity to trim some of the properties that are in less attractive markets. A lot of these facilities that we sold, we sold 5 properties in 2025. We sold another one in 2026.

And so we're using this as an opportunity to really prune the portfolio and improve the portfolio. And so it's not the most fun in terms of selling a property in order to buy properties, but that's what we're going to focus our time and efforts on. And what we expect is in the second half of the year, as some of these redevelopment projects and other things that we've been working on to come online, we would expect to start posting AFFO growth, and we hope that, that's recognized as a positive in the marketplace and puts us in a position to start doing what we have been doing historically as a company, which is not just growing the portfolio performance through leasing, but also growing the portfolio through acquisitions.

Our next question comes from Jim Kammert with Evercore.

Guys, you noticed if I'm pronouncing that property acquisition. It was quoted about a 9.3% yield, I believe. Is that a GAAP or a cash yield? And if GAAP, I'm just trying to understand perhaps what are the representatives in annual escalators on that long lease.

That is a cash yield, that 9.3% cap rate. And what are the bumps on that? Jim, you weren't coming through very clear. Are you trying to -- are you asking what are the escalators on that property?

Yes, I'm sorry. Yes. What are the -- because you clarified as cash yield going in. And then yes, what are the representative escalators? And are they then representative of say, the other 4 assets in the pipeline?

Yes. It's -- they're 2% escalators and it would be consistent with the other -- what we would anticipate with the other ones that are in the pipeline.

[Operator Instructions] We have no further questions at this time. I would now like to turn the conference back over to management for closing comments. Over to you.

Great. Thanks, Darwin, and thank you, everybody, for dialing in. We hope to see many of you at NAREIT coming up in June. Thank you.

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

Welcome to Community Healthcare Trust 2025 Fourth Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 fourth 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, February 18, 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 2 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 purpose. An archive of the call will be made available on the company's Investor Relations website for approximately 30 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 Dupuy, CEO of Community Healthcare Trust. Please go ahead, sir.

Great. Thanks so much, Nick. Good morning, everybody, and thank you for joining us today for our 2025 fourth quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer. Leigh Ann Stack, our Chief Accounting Officer; and Mark Kearns, our Senior Vice President of Asset Management.

Our earnings announcement and supplemental data report were released last night and furnished on Form 8-K, along with our annual report on Form 10-K. In addition, an updated investor presentation was posted to our website last night. During the fourth quarter, the geriatric behavioral hospital operator, a tenant in 6 of the company's properties, paid rent of $200,000, consistent with last quarter.

On July 17, 2025, this tenant signed a letter of intent for the sale of the operations of all 6 of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. Among other terms and conditions of the sale, the buyer would sign new or amended leases for the 6 geriatric hospitals owned by CHCT. We continue to maintain frequent productive communication with the buyer's team to advance the closing process. The buyer is finalizing legal and business due diligence. And while the transaction is progressing, we can't provide specific timing or certainty that it will close. We will share more information as we move through the process.

As it relates to our core business, we had a busy fourth quarter from an operations perspective and capital recycling perspective and continue to be selective from an acquisition standpoint. Our occupancy increased from 90.1% to 90.6% during the quarter, and our leasing team is very busy with renewals and new leasing activity. Our weighted average lease term increased from 6.7 to 7 years. We have 3 properties that are undergoing redevelopment or significant renovations with long-term tenants in place when the renovations or redevelopment are complete. We expect the largest of these projects to be completed in the second quarter of 2026, with rent expected to commence in the third quarter after the tenant obtains the appropriate provider license.

As previously disclosed, during the fourth quarter, we sold an inpatient rehab facility at an approximate 7.9% cap rate, resulting in a gain on the sale of approximately $11.5 million with net proceeds reinvested through a 1031 like-kind exchange into a new inpatient rehab facility for a purchase price of $28.5 million.

We entered into a new lease with a lease expiration in 2040 and an anticipated annual return of approximately 9.3%. I will note an additional benefit of the transaction was the reduction of our largest tenant concentration, further enhancing our overall portfolio diversification.

For the year, we acquired 3 properties with a total of 113,000 square feet for an aggregate purchase price of $64.5 million, which were 100% leased with leases running through 2040 and anticipated annual returns of 9.3% to 9.5%. As it relates to other capital recycling activity, we had 2 additional dispositions closed in the fourth quarter and 1 disposition closed in the first quarter, resulting in net proceeds of approximately $7.7 million. We have other properties both in market and under review as part of our capital recycling program. And when appropriate, we would anticipate using a similar 1031 like-kind exchange to accretively reinvest proceeds to fund our pipeline.

Also, we have signed definitive purchase and sale agreements for 5 properties to be acquired after completion and occupancy for an aggregate expected investment of $122.5 million. 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 first quarter with 2 properties expected to close in the second half of 2026 and the remaining 2 closing in the second half of 2027.

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 fourth quarter and raised it to $0.4775 per common share. This equates to an annualized dividend of $1.91 per share, and 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 fourth quarter financial performance. I am pleased to report total revenue grew from $29.3 million in the fourth quarter of 2024 to $30.9 million in the fourth quarter of 2025, representing 5.6% annual growth over the same period last year. On a quarter-over-quarter basis, the capital recycling and asset disposition progress in the fourth quarter that Dave discussed led to relatively flat quarterly performance across many line items on our income statement as I will review. The $30.9 million of fourth quarter total revenue was a slight decrease of $140,000 quarter-over-quarter versus the $31.1 million in the third quarter of 2025, impacted by the capital recycling and asset disposition activity.

Moving to expenses. Property operating expense increased by less than $100,000 quarter-over-quarter to $6 million for the fourth quarter of 2025. Total general and administrative expense was $4.8 million in the fourth quarter of 2025, which was nearly flat both quarter-over-quarter from the $4.7 million in the third quarter of 2025 and year-over-year from the $4.8 million in the fourth quarter of 2024.

Interest expense decreased slightly by approximately $100,000 quarter-over-quarter to $7 million in the fourth quarter of 2025 due primarily to recent FOMC interest rate cuts and the resulting lower floating rates on our revolving credit facility. Moving to funds from operations.

FFO in the fourth quarter of 2025 was $13.3 million, a 4.6% increase year-over-year compared to the $12.7 million of FFO in the fourth quarter of 2024. On a diluted common share basis, FFO increased from $0.48 in the fourth quarter of 2024 to $0.49 in the fourth quarter of 2025, although this was $0.01 less quarter-over-quarter from the $0.50 of FFO in the third quarter of 2025 as a result of the net impacts to revenue and expenses described earlier.

Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $14.9 million in the fourth quarter of 2025, a 2.1% increase year-over-year compared to the $14.6 million of AFFO in the fourth quarter of 2024. AFFO on a diluted common share basis was $0.55 in the fourth quarter of 2025, even with the $0.55 of AFFO in the fourth quarter of 2024, although this was $0.01 less quarter-over-quarter from the $0.56 of AFFO in the third quarter of 2025, again, as a result of the net impacts to revenue and expenses described earlier. And finally, while it did not impact FFO or AFFO, we did have net gains on sale of $12.1 million from the capital recycling and asset disposition activity during the fourth quarter of 2025 that increased net income.

That concludes our prepared remarks. Nick, we are now ready to begin the question-and-answer session.

[Operator Instructions]. And the first question will come from Connor Mitchell with Piper Sandler.

I guess just focusing first on the geriatric behavioral hospital operator that signed the transaction last summer. Just want to get -- I know you guys can't speak too much about the timing or some details, but just trying to get a little better understanding. Is the transaction on your part essentially supposed to all take place in one bite at the same time? Or is there any chance that the new operator that would come in and sign leases on the properties could do it on a property-by-property time line or even a state-by-state time line instead of kind of all at once?

Connor, thanks for the question. Yes, as it relates to the transaction itself, there was not as much progress as we would have hoped been made in the fourth quarter. And I think a lot of that is the buyer had to confirm various liabilities and was related -- was dependent on the government to get through some of those issues. I think we're seeing significantly more activity in this first quarter as far as the progress made from a due diligence standpoint and site visits and really working on getting the documentation squared away.

What I would say about your question specifically the buyer is still very interested in all 6 hospitals and the goal is for this transaction to happen all at one time. And that's our expectation, that's the buyer's expectation. So there would be no plans to have any sort of a staged closing. I think it just makes it more challenging that way and a little bit messier. And so everybody is moving forward with the acquisition of the operations of all 6 hospitals in the 3 states. And so there would not be a stage closing based on our expectations or the buyers' expectations.

Okay. I appreciate the color. And then turning towards transactions. The pipeline seems pretty stable compared to prior quarters as well. Just curious kind of how you balance the level of transactions, the timing of closing those transactions along with the time needed to find the right dispositions to fund the acquisitions or if you are considering maybe increasing the debt levels or leverage if there's a scale you have there when you see the optimal acquisitions and the time line needs to be sped up, so you can't really wait for the offsetting dispositions?

Our goal is really to execute and sequence the dispositions just like we did in the fourth quarter, where we sold the inpatient rehab facility. There was a little bit of a gap between selling that facility and acquiring the new facility, which had some small impact on our financials. But overall, it worked very, very well. And as I mentioned in the prepared remarks, we're working right now on a handful of other acquisitions so that we could similarly sequence in the same way when we acquire these facilities that we expect, these inpatient rehab facilities that we expect to close sometime in the third quarter.

So the goal is obviously to do it and sequence it in a way that we can do a 1031 like-kind exchange, if that's appropriate because we would anticipate a significant gain on some of the assets that we're looking to sell. But you're right, I mean buying and selling real estate is inherently -- sometimes those time gaps don't always sequence correctly. I think everybody should know there may be some gaps between when we close and when we sell. But the goal is to keep that leverage in sort of the ZIP code that it is today and certainly not add leverage over time. But some of that is going to be dependent on the timing of close. But we feel confident that based on what we have in progress from a capital recycling perspective will allow us to acquire assets without adding meaningful leverage to the balance sheet.

Okay. I appreciate that as well. And maybe just one more, if I could sneak it in. Can you just give an update on if there's really been any change in what you're seeing for cap rates for either acquisitions or dispositions? I know you gave some color in your opening remarks, but just maybe if there's anything you're seeing in the market right now that's really changing drastically from the recent closed transactions?

I think -- look, the good news is I think there's a high level of demand for the assets that we're looking to selectively manage through a disposition process and our capital recycling. We received an indicative 7.9% cap rate on the sale of inpatient rehab. We would expect similar sort of pricing on other types of dispositions that we're looking at. So we feel like that, that disposition capital recycling activity is going to be accretive to us and to the business. And we do see opportunities on the buy side in that 9% to 10% cap rate range. But of course, not having -- not wanting to raise stock through the ATM at these price levels, we're being very, very selective.

What I would say is, in addition to these acquisitions that are in the pipeline, as I mentioned on the prepared remarks, we have some embedded growth in our 2026 numbers because we've got a redevelopment project that we anticipate coming online in mid-2026. And then we've got another redevelopment project that should be coming online at the end of the year. And so those are essentially like acquisitions for us. And so we expect that to be a nice tailwind in the second half of the year for us.

The next question will come from Michael Lewis with Truist.

Dave, last quarter on the call, you said you expected the leased percentage for the portfolio to be up 50 to 100 bps in 4Q, and it was. It was up 50 bps. I was just wondering if you felt compelled to give a little bit of insight into what you might expect for occupancy either over the next quarter or 2 or for the full year? Do you expect that to continue going up this year?

Michael, thanks for the question. I think over the next -- we have had great leasing activity in the portfolio. We've also had some -- we had some terminations toward the end of last year. And so I think Mark and his team are doing a remarkable job of taking some of those terminations, re-leasing the space. I think our view, big picture is that's going to be really good overall for the portfolio. As you know, it takes a little bit of time for those new leases to become economic. But we feel very good about the leasing activity we're seeing.

But the reality of it is, it's probably -- I would say, this range of in the low 90s will continue for the next couple of quarters. I wouldn't suspect that it goes up meaningfully or down meaningfully just because some of the new leases we're getting in place. I think it's really in the second half of the year that we would expect to see some momentum as it relates to growing leased occupancy. So I would anticipate that, that leased occupancy would stay in that general ZIP code of where it is today for the next couple of quarters with it looking to increase second half of this year.

Okay. And then my second question is about the investment pipeline. I remember the days when the annual target was $120 million to $150 million annually. Obviously, with COVID and some changes in the cost of capital, you've been below that in recent years. Is the goal now you have these developments that you'll be taking down? Is that kind of the pipeline? Or if you were going to do $120 million to $150 million annually and you had the cost of capital, is there still that volume of opportunity out there? Or has something changed since the pandemic and maybe there's not as many opportunities in your neck?

Yes. The opportunity is still there, Michael. We're chomping at the bit and see a lot of great opportunities. We're constantly in touch with sort of that core group of brokers that we've worked with routinely over the last 10 years with the company. We've got great relationships. And we're seeing the activity in that 9% to 10% range. And what I would tell you is, if our stock was in a different spot, and we were doing what we have done prior to the last 1.5 years, we would be looking to make those acquisitions. We've always, as you will recall, because you've covered the company for a long time, there's always been sort of half of our business has been client business that we've -- programmatic that we've done, so call it, $50 million to $60 million a year.

And then the other half has been that brokered business with some redevelopment projects mixed in. And I think what you've seen and what we've acted on over the last couple of years with our stock price where it was is we've been focused more on supporting our clients. And as soon as that dynamic changes and the share price gets to a level where we can raise capital accretively, we would absolutely look to augment that client acquisition with the broker deals that we've done historically.

Okay. And then lastly for me, the last few years, you've also had a note in the investor presentation about this dialysis term sheet pipeline. I didn't see that disclosure this time. Is that relationship kind of done? Or is that on the back burner and that could still become something programmatic down the line?

It's on -- I think you nailed it. It is on the back burner. Most of that company's growth has really been buying operations, there hasn't been real estate as part of the -- their overall acquisition cadence, and that has been the case now for a while. And so -- and they have been focused on really their core business over the last couple of years now that they've done several acquisitions.

So putting it in there just didn't seem like it made sense just given the fact that we haven't executed any transactions under that deal. We still have a great relationship and 4 dialysis clinics with the operator, and we'll continue to monitor their acquisition activity. But yes, I would anticipate that, that is an opportunistic and certainly not a focus or an expectation that, that would occur anytime soon.

Thank you, Michael. Appreciate the questions.

This concludes our question-and-answer session. I would like to turn the conference back over to Dave Dupuy for any closing remarks.

Thanks, everybody. I appreciate everyone joining us, and feel free to reach out if you have any additional questions. Hope everyone has a good day. Thank you.

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

Welcome to Community Healthcare Trust's 2025 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 third quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be open 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, October 29, 2025, and may contain forward-looking statements that involve risks and uncertainties. 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.

All 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 approximately 30 days and is the property of the company. The 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 Dupuy, CEO of Community Healthcare Trust.

Great. Thank you, Danielle, and good morning. Thank you for joining us today for our 2025 third quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer; Leigh Ann Stach, our Chief Accounting Officer; and Mark Kearns, our Senior Vice President of Asset Management.

Our earnings announcement 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 updated investor presentation was posted to our website last night.

During the third quarter, the geriatric behavioral hospital operator, a tenant in 6 of the company's properties, paid rent of approximately $200,000. On July 17, 2025, this tenant signed a letter of intent for the sale of the operations of all 6 of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. Among other terms and conditions of the sale, the buyer would sign new or amended leases for the 6 geriatric psych hospitals owned by CHCT. The buyer continues to perform legal and business due diligence on the transaction. And while we can't provide certainty that the transaction will close, we will share more information as we move through the process.

As it relates to our core business, we had a busy third quarter from an operations perspective and continue to be selective from an acquisition standpoint. Our occupancy decreased from 90.7% to 90.1% during the quarter. However, our leasing team is very busy with a number of new leases signed so far in October. Based on leasing activity across the portfolio, we would expect our leased occupancy to increase by 50 to 100 basis points by year-end. Our weighted average lease term increased slightly from 6.6 to 6.7 years. We have 3 properties that are undergoing redevelopment or significant renovations when long-term tenants -- with long-term tenants in place when the renovations and redevelopment are complete.

During the third quarter, we acquired 1 inpatient rehab facility after completion of construction for a purchase price of $26.5 million. We entered into a new lease with a lease expiration in 2040 and anticipated annual return of approximately 9.4%. Also, we have signed definitive purchase and sale agreements for 6 properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million. 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 fourth quarter with the remaining 5 properties closing throughout 2026 and 2027.

As it relates to our capital recycling program, we had one disposition in the third quarter, providing approximately $700,000 of proceeds and generating a small loss on the sale. In addition, we have 2 other dispositions in our program that we expect to close in the fourth quarter with anticipated net proceeds of $6.1 million. Also as part of this program, we expect to close on the sale of an inpatient rehab hospital in the fourth quarter with an expected gain of approximately $11.5 million and net proceeds expected to fund our fourth quarter acquisition through a 1031 like-kind exchange. The indicative cap rate associated with the property sale is in the high 7% range. We have other properties with similar expected cap rate ranges both in market and under review as part of our capital recycling program. We would anticipate utilizing a similar 1031 like-kind exchange to accretively reinvest proceeds to fund our pipeline on a leverage-neutral basis.

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 raised it to $0.475 per common share. This equates to an annualized dividend of $1.90 per share, and 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'll hand things off to Bill to discuss the numbers.

Thank you, Dave. I will now provide more details on our third quarter financial performance. I'm pleased to report total revenue grew from $29.6 million in the third quarter of 2024 to $31.1 million in the third quarter of 2025, representing 4.9% annual growth over the same period last year. When compared to our $29.1 million of total revenue in the second quarter of 2025, we need to consider that the second quarter was negatively impacted by the reversal of $1.7 million of interest receivables from the geriatric behavioral hospital tenant that Dave discussed earlier. Normalizing the second quarter for this, we achieved 1.1% total revenue growth quarter-over-quarter.

Moving to expenses. Property operating expenses increased by approximately $300,000 quarter-over-quarter to $5.9 million for the third quarter of 2025. This quarter-over-quarter increase in the third quarter is typical with a seasonal increase in utility expenses during the summer compared to the milder temperatures in the second quarter.

On a year-over-year basis, property operating expenses decreased by approximately $50,000. Total general and administrative expense was $4.7 million in the third quarter of 2025, which was flat quarter-over-quarter once you exclude the $5.9 million of severance and transition-related payments incurred within the second quarter's $10.6 million of G&A expense. On a year-over-year basis, G&A expense decreased by approximately $300,000 in the third quarter of 2025.

Interest expense increased by approximately $500,000 quarter-over-quarter to $7.1 million in the third quarter of 2025 due to increased borrowings under our revolving credit facility early in the third quarter to fund the $26.5 million property acquisition as well as 1 extra day of interest in the third quarter compared to the second quarter.

We benefited late in the quarter from the FOMC's 25 basis point reduction to the federal funds rate in mid-September, but the full benefit of that cut will be realized in our fourth quarter financials based on the approximately $180 million of floating rate exposure we have within our revolver borrowings. If there are any additional rate cuts by the FOMC later today or during their December meeting, we expect those cuts will reduce our interest expense further.

Moving to funds from operations. FFO in the third quarter of 2025 was $13.5 million, a 5.7% increase year-over-year compared to the $12.8 million of FFO in the third quarter 2024. On the diluted common share basis, FFO increased from $0.48 in the third quarter of 2024 to $0.50 in the third quarter of 2025.

Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $15.1 million in the third quarter of 2025, a 3.1% increase year-over-year compared to the $14.6 million of AFFO in the third quarter of 2024. AFFO on a diluted common share basis was $0.56 in the third quarter of 2025 or $0.01 higher than the $0.55 of AFFO in the third quarter of 2024. I'll note that our third quarter 2025 AFFO dividend payout ratio remains strong at 85%.

That concludes our prepared remarks. Danielle, we are now ready to begin the question-and-answer session.

[Operator Instructions] The first question comes from Alexander Goldfarb from Piper Sandler.

Two questions, Dave. Just the first one, the acquisition pipeline -- well, I guess they're related. The first one is just on the acquisition pipeline, and we'll discuss the funding part on my second question. But it's the same now that it was in the second quarter. Obviously, you guys are balancing the stock where the stock is and your funding needs. But as you look at the opportunity set, would you say it's growing, meaning that if you had a more competitive equity source, that pipeline would have increased quarter-to-quarter? Or is the opportunity set basically this unchanged in which case, even if you had a better cost of capital, that acquisition pipeline would not have changed?

Yes. What I would say is if we are being highly selected -- and hey, Alex, good to talk to you. I appreciate the question. We're being highly selective. We know we have this pipeline of very good quality assets at great returns. We want to make sure that we have the ability to pay for those acquisitions that are coming up over the upcoming quarters. And we don't want to issue shares at these depressed levels. And so that's why we're doing the capital recycling to pay for them.

But yes, I would say we are seeing opportunities that are generally attractive in this market in that 9% to 10% cap rate range that if our currency was different, if our share price was different, we'd be looking to make those acquisitions and they would be very attractive relative to risk return.

So yes, we're being highly selective. We're very focused on making sure we get this pipeline of high-quality assets paid for and do that on a -- without increasing our leverage. So yes, you're reading that right.

Okay. And then just a second question when it goes to funding. If you're doing asset sales, I get it that it sounds like there's maybe 150 bps, maybe 200 bps of positive spread between what you're selling and what you're buying. But if you're basically trading one asset for another and taking on additional debt to help fund, isn't that raising leverage just by taking on more debt because you're swapping one asset for another then you're incrementally taking on more debt, your leverage is naturally going to rise.

So my question is, is there a limit to how much debt you'll take on as long as you're still in this current depressed equity situation? Or your view is you're fine running leverage higher than normal with the hope that once the geriatric situation is resolved, hopefully you have a better currency?

We really feel like based on the pipeline of opportunities from a capital recycling that we have that we are not going to increase leverage over the upcoming quarters. And so yes, we did not have any capital recycling to do ahead of the current acquisition that we did in the third quarter. But future acquisitions, we are very focused on matching up dispositions with acquisitions that are accretive to the company. And so we do not expect to meaningfully increase leverage.

But Bill, I don't know if you want to jump in.

Yes, Alex, just to clarify, the property that we have under held for sale, and we'll recognize $11.5 million capital gain. That will -- we expect that will fully pay for the next acquisition such that there will not be any incremental debt associated with that next acquisition. It will be completely paid for with the proceeds of this larger upcoming disposition.

[Operator Instructions] The next question comes from Rob Stevenson from Janney.

In terms of the behavioral health tenants, so $200,000 paid in the quarter, can you remind us what that tenant was previously paying per quarter before they hit the wall?

Yes, they were paying in rent approximately $800,000 per quarter.

Okay. That's helpful. And then what's the expectations for our timing in terms of closing the -- of the acquisition if it occurs? Is that something that occurs before year-end, if it happens, given the deal was signed in July? Or could that stretch into 2026 from your understanding at this point?

We're very -- we'd love for it -- and hey, Rob, good to talk to you. But we'd love for it to close by year-end. Some of the due diligence process has taken a little bit longer than we would have expected. So it's probably more realistic to expect something to close in the first quarter.

So yes, I think there's still a chance that it gets done by the end of the fourth quarter, but it's probably more likely to happen in the first quarter. But we certainly would love to provide additional detail as soon as we have that.

Okay. And to what extent are you guys actively pursuing plan B, just in case the deal falls through?

Yes. You should expect that we are going down multiple paths simultaneously as we always have. And so yes, we're looking at multiple plans, multiple ways that we can move forward with the goal of ultimately getting paid more rent associated with those tenants.

And so -- and look, I think all of this is upside, right, relative to our performance. The portfolio has been stable. We're growing. I think we're certainly motivated to get this resolved as soon as possible. And we think that it will, but yes, we are looking at all options.

Okay. And then last one on this topic. When you sit there and think about where they are in their life cycle, et cetera, what's the likelihood today of getting back any of the unpaid interest or rents, back rents going forward? Or is a similar couple of hundred thousand in the fourth quarter and a new lease with the buyer of these assets the best case scenario for you guys today?

I would call that, that's probably consistent with where we're head is. And part of the reason we did the additional note write-off that we did because we did not deem that it was likely to be collected. So I think we're operating under that expectation, but we're certainly very focused on, to the extent we do have the ability to get any back rent or back interest, we will. But we do not put a high likelihood on that.

Okay. And then just switching topics here. The 3 properties that are under redevelopment. How material is that? And then when do those leases expected to kick in and impact earnings?

Yes. So I think the one is very significant and at least that was signed a while ago for a behavioral health care facility. That's a large investment by us with a very recognizable operator. My guess is that lease won't commence until sometime after midyear next year, but that's a meaningful one. We don't provide specifics as to what those numbers are, but wouldn't start seeing any tailwind associated with the rent until after -- probably after second quarter. The other one is probably a late 2026 opportunity as well. And then there's one smaller one that will happen first part of 2026. Again, that should start contributing additional rent.

But these are -- they vary in terms of their impact, and we haven't provided details relative to that. But we just -- it's just an example of how we're reinvesting in buildings and with strong tenants based on signed leases, so anyway.

Okay. Just trying to figure out just what type of earnings tailwind because it sounds like you said that you're expecting to see 50 to 100 basis points increase in occupancy in the near term plus this. Just wanted to figure out when that was going to start all hitting in terms of the earnings.

Yes. As far as the 50 to 100 basis points, we're seeing great leasing activity across the portfolio. There's always a delay between signing leases and having those leases commence. And so -- but I think it sort of speaks to the strong activity we're seeing across the portfolio, and I think it will be a tailwind for 2026 in terms of our ability to grow.

The next question comes from Jim Kammert from Evercore.

Obviously, I think the capital recycling shift is well received. And I was just curious, how are you sort of identifying which assets you would like or most likely to dispose? Is that a geographic concentration, tenant concentration? Just trying to understand the mix or how you're lighting upon the candidates.

Jim, thanks for the question. Yes. So as you sort of hit on, you would think about it around tenant concentration, weighted average lease term, size profile, markets. We're looking at all of those sort of criteria as we evaluate what we want to do from a capital recycling perspective. Obviously, with the key components associated with that of paying for this pipeline in a way that's accretive. So those are all the areas that we're focused on.

And what I'd also remind everybody of is we sort of looked at our capital recycling program in 2 buckets. One is the bucket of smaller properties that are noncore that aren't going to drive a substantial amount of proceeds but they are going to get us focused on our better buildings and better markets. And so you're seeing a few of those sales occur and those sales are -- we expect to conclude in the -- at the end of the fourth quarter. And then the larger opportunities where we can have a very accretive cap rate sale to then reinvest in new very attractive buildings.

So yes, you're thinking about it in the right way. We're looking at tenant concentration, [ wallet size ] profile, et cetera, as we look to just push forward with our capital recycling.

That's helpful. And a derivative question then I'll be done is you mentioned that one of the large transactions pending is a 1031, but I'm just trying to assess the depth of buyer interest. You're not restricting your recycling to just 1031 exchanges. I mean there is a depth of buyers presumably for stand up just traditional sales as well.

Yes. Good question, Jim. The 1031 is more on our side than on the potential buyer side as far as we don't want -- we're deferring that capital gain associated with that sale by putting it into a 1031. And then we have, within our acquisition pipeline and other properties that we have identified that will then be the replacement property as part of that 1031 transaction. But no, we're going to a very wide set of potential buyers to make sure that we're maximizing proceeds to us.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Dupuy for closing remarks.

Thanks, Danielle, and thank you, everybody, for dialing in. Of course, call, if you have any questions, I hope everyone has a good rest of the day. Thank you.

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

Good day, everyone, and welcome to Community Healthcare Trust 2025 Second Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 second quarter financial results. We'll also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be open 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, July 30, 2025, 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 and its SEC filings.

The company undertakes no obligation to update forward-looking statements, whether as the result of new information, future developments or otherwise, except as may be required by law.

During the call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the 2 is available in its earnings release, which is posted on its website. Call participants are advised that this call is being recorded for playback purposes. An archive of the call will be made available on the company's Investor Relations website for approximately 30 days and is the property of the company. This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission.

Now I'd like to turn the conference call over to Dave Dupuy, CEO of Community Healthcare Trust. Please go ahead.

Great. Thanks, Jamie, and good morning. Thank you for joining us today for our 2025 second quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer; Leigh Ann Stach, Chief Accounting Officer; and our new Senior Vice President of Asset Management, Mark Kearns.

Our earnings announcement 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 updated investor presentation was posted to our website last night.

As previously announced, Tim Meyer departed the company effective May 31st. We are excited to have Mark on board as our new Senior Vice President of Asset Management. He has over 25 years of healthcare real estate experience, including leasing and managing medical outpatient properties, most recently in leadership positions with Welltower and Healthpeak.

Bill will review the financial details in his comments, but I wanted to provide an update on the status of our geriatric behavioral hospital tenant. Although their performance has stabilized over the last couple of quarters, they have been unable to pay us full rent and interest. As discussed on previous calls, the tenant has been exploring strategic alternatives, including a potential sale of its business.

On July 17, 2025, the tenant signed a letter of intent for the sale of the operations of all 6 of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. Among other terms and conditions of the sale, the buyer would sign new or amended leases for the 6 geriatric hospitals owned by CHCT.

The tenant and CHCT are in active negotiations with the buyer, so we can't share more details at this time. And while we can't provide certainty that the transaction will close, we hope to share more information over the next couple of quarters as we move through the process.

As disclosed in our filings, we determined that the collectibility of the remaining interest balance and unreserved notes related to this tenant were not reasonably assured. Our notes and interest are now fully reserved for this tenant and rent continues to be recognized on a cash basis.

During the quarter, we received $260,000 from the tenant that is included in revenue compared with $165,000 in the prior quarter.

As for other components of the business, our occupancy decreased slightly from 9.9% to 90.9% to 90.7% during the quarter, but we continue to see good leasing activity in the portfolio. We have 3 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 those projects commenced its lease on July 1st. Due to some free rent built into the lease, we expect this property to contribute AFFO later in the fourth quarter of 2025 and into the first quarter of 2026. Though we did not acquire any properties during the second quarter of 2025, on July 9, we acquired an inpatient rehabilitation facility after completion of construction for a purchase price of $26.5 million.

We entered into a new lease with a lease expiration in 2040 and an anticipated annual return of approximately 9.4%. Also, we have signed definitive purchase and sale agreements for 6 properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million.

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 fourth quarter with the remaining 5 properties closing throughout 2026 and 2027.

Considering the company's current share price, we did not issue any shares under our ATM last quarter. However, we are actively working on capital recycling opportunities and would anticipate having sufficient capital from selected asset sales, coupled with our revolver capacity to fund near-term acquisitions.

We had one very small disposition in the second quarter, providing approximately $600,000 of proceeds and generating a small capital gain. 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 second quarter and raised it to $0.4725 per common share. This equates to an annualized dividend of $1.89 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'll hand things off to Bill to discuss the numbers.

Thank you, Dave. I will now provide more details on our second quarter financial performance. Let me start by detailing the impacts to our financials related to the geriatric behavioral hospital tenant that Dave described earlier.

Other operating interest revenue in the second quarter was negatively impacted by the reversal of $1.7 million of interest receivables from this tenant. In addition, we recorded an $8.7 million credit loss reserve on the notes receivable from this tenant, which utilized the signed letter of intent valuation of the tenant's operations.

Next, let me detail the impact related to the departure of our former Executive Vice President of Asset Management. Within general and administrative expense, we recorded a charge of $5.9 million for severance and transition-related expenses. Combining the reversal of the interest receivable with the severance charges reduced second quarter FFO by $0.28 and AFFO by $0.06 per diluted common share.

Moving back to the top of our income statement, total revenue for the second quarter of 2025 was $29.1 million. But if you exclude the $1.7 million reversal of interest receivable I just mentioned from the geriatric behavioral hospital tenant, total revenues would have been approximately $30.7 million. When comparing this $30.7 million to our total revenue in the first quarter of 2025, which was $30.1 million, our core portfolio would have achieved 2.2% total revenue growth quarter-over-quarter.

Moving to expenses. Property operating expenses decreased by approximately $500,000 quarter-over-quarter to $5.6 million for the second quarter of 2025. This reduction was primarily related to the higher seasonal expenses in the first quarter, including snow removal and utilities expense at several properties.

Total general and administrative expense was $10.6 million in the second quarter of 2025. But if you exclude the $5.9 million of severance and transition-related payments I mentioned earlier, G&A expense was $4.7 million, a reduction of approximately $400,000 quarter-over-quarter. This reduction was primarily related to the higher seasonal G&A expenses in the first quarter from our annual employer HSA funding, higher 401(k) contributions and employer tax payments from stock vestings during the first quarter.

Interest expense increased by $240,000 quarter-over-quarter to $6.6 million in the second quarter of 2025 because of increased borrowings under our revolving credit facility late in the first quarter to fund the $10 million property acquisition as well as one extra day of interest in the second quarter compared to the first quarter.

Moving to funds from operations. FFO on a diluted common share basis was $0.23 in the second quarter of 2025, but remember that this was reduced by the $0.28 of onetime items I discussed earlier. Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $13.6 million in the second quarter of 2025, which on a diluted common share basis was $0.50, but also remember that this was reduced by the $0.06 of onetime items I discussed earlier. That concludes our prepared remarks. Jamie, we are now ready to begin the question-and-answer session.

[Operator Instructions] Our first question today comes from Rob Stevenson from Janney.

Dave, the acquisition that you did, was that out of the $100-and-some million pipeline? Because I think it was 7 assets before and now down to 6. Is that accounting for that?

Correct, yes, that's right.

And then how are you guys thinking at this point about funding the remaining 25 acquisition out of that pipeline given where the stock price is now?

Yes. No, we are very focused on not wanting to continue to just fund those under the revolver and we are working -- I think I've mentioned in prior calls, we're making good progress on our capital recycling efforts. We don't have anything to disclose today as far as details related to that.

But our goal is to use that capital recycling that we've talked about that is underway that would pay for the upcoming pipeline that we have, that forward pipeline that we're expecting late this year and into next year. So that's why we're laser-focused on getting those capital recycling projects done, our goal. And we think based on the activity that we've had so far, we should be able to do that.

Okay. And then are you guys still pursuing other options with the geriatric facilities just in case that deal falls through? Or do you guys think at this point that the likelihood of -- nothing is certain, but the likelihood of a deal happening there is strong enough that you've got things to focus on elsewhere at this point?

Look, until the transaction closes, we're going to be very involved. Obviously, we've got significant interest in making sure that this transaction goes through. And we think we've got the ingredients to get the transaction closed, which is an interested buyer, an interested seller and obviously, us as a meaningful debt holder.

We think that this is the best buyer and so we're excited. They have very similar properties in the portfolio. It's a -- they have financial resources, they have good management team and so we're excited about it. But we did have other interested buyers in the process. And so if for whatever reason, during this period of time where they're doing additional diligence work, they would step away or if we don't feel like at the end of the day, they could bring it to closing, we do have other interested bidders that we would involve in the process. So we're happy with where we sit today, but we're laser-focused on making sure that this gets closed ideally by year-end.

All right. And then I guess the other question there would wind up being, has -- given the financial issues of the existing tenant, is there any deferred maintenance or stuff where you guys are going to need -- would need to put in any substantial amount of money to bring them up to a certain level before a new lease would be signed by either that -- either the buyer of that company or some other tenant? Or are you anticipating at this point that any type of further investment in those assets in the near term will be relatively minor to get leased?

Yes. No, it's a fair question, but we do think that any sort of work on the buildings would be relatively minor. I don't think, in general, we make sure that we look at those buildings on a regular basis, and we think the buildings are in good shape. So we wouldn't anticipate significant capital required in order to make it -- make those buildings ready for the next buyer.

Okay. And then last one for me, Bill, if I strip out the $5.9 million of severance and transition-related charges out of G&A, is that -- whatever point, whatever number, is that a good run rate you think for the final couple of quarters of 2025 for G&A? Or is there other stuff that will be impacting that, that we should be thinking about as we update our models?

Yes. As you know, we don't get into guidance, but you're right to be thinking about what were the onetime items that affected this quarter to look at what would have a more normalized second quarter look like.

Our next question comes from Connor Mitchell from Piper Sandler.

I guess, first, just going back to the transaction environment and funding possibilities. You guys have used the revolver recently and focusing on capital recycling instead. But I'm just curious, is there kind of a top of the range or a threshold that you're keeping an eye on for either the dollar amount used on the revolver or a leverage metric?

Yes. I would say where we are now, obviously, is a level that we're comfortable with. But as Dave discussed, as we look at our acquisition pipeline, trying to time that with dispositions and capital recycling is how we're looking at the remainder of our pipeline. And so we obviously have availability under revolver and significant availability and cushion to our covenant levels within our revolver. So we certainly could take the revolver higher, but our plan is to kind of keep leverage at levels that we're at currently as we kind of look forward over the next few quarters.

Okay. So in essence, it's almost using the capital recycling approach instead of the ATM in the current environment, if I'm understanding correctly.

That's correct.

Okay. And then just turning to the geriatric tenant as well, maybe focusing more on the credit loss and the notes receivable related to the tenant. Just want to make sure if there's any other notes receivable with other tenants that are outstanding? And then also just how you guys -- and I think this has been discussed before on calls, but how you're thinking about that process maybe going forward, if that remains a possible transaction process with other tenants either in the portfolio or potential tenants in the future?

So I think -- and Bill will stop me if I'm wrong, but I think we've got 2 notes remaining that have an outstanding balance of approximately $4.1 million. So we have -- after the reserve against these notes with the geriatric site tenant. And yes, Connor, I hear you, look, this business went through a really difficult time during COVID, opening 2 new hospitals, serving a geriatric population.

Their borrowings were significant during that period of time just to get those facilities up and running and get those -- and it got to leverage levels that ultimately were not sustainable based on how the business has performed over the last year or so. And suffice it to say, doing a similar amount of leverage with a tenant is not something that's core to our business nor it's something we would look to do going forward.

So yes, we're focused on getting assurance resolved and having a strong operator taking over leases in our existing properties. And as we've said before, would not look to lever up with another tenant going forward. So -- and really haven't with our track record. This was an unusual situation in an unusual time during COVID.

Yes, of course. No. And then so the 2 notes that are remaining on the balance sheet for $4 million, just an update on those tenants, they're in good standing and then maybe just the watch list overall as well, if there's any other new tenants that might be popping up or if you're seeing the trend kind of go more positive instead and seeing tenants fall off the watch list.

Yes. So as far as the notes go, yes, the tenants are paying and performing as expected, and we feel good about those notes and no issues associated with those. And our watch list has remained pretty consistent. As I've mentioned in prior calls, we have 15 to 20 names that are on that tenant watch list. And we'll -- some names will come on -- while other names come off based on working through various tenant issues. We've got over 300 tenants. And so that's kind of a normal process for us.

And I'd also mention that there are no other top 10 tenants that are on our watch list this quarter. I know that's been a question that's come up before. So look, overall, I think we've got a portfolio that is doing what it's designed to do. It's diversified. We don't have big concentrations. And I think our tenants overall are performing well. But we'll always manage those watch list tenants aggressively and make sure that they continue to perform relative to our expectations.

[Operator Instructions] Our next question comes from Michael Lewis from Truist Securities.

Is there anything more you could say regarding the strength of this new operator since they're presumably set to become one of your largest tenants? And in this agreement, was the rent level set and the term of the lease and all that? Or is that still to be negotiated?

So Michael, it's good to get your question. We feel very good about the operator. This is an operator with a great deal of experience broadly within the behavioral health care space. But also specifically in geriatric psych, which was appealing to the seller and appealing to us. They have a strong large platform and good financial resources and a very good team.

And I think most folks that are in the behavioral space would recognize the name if we told you who the name was. So we feel very good about the operator. We think it is a very qualified operator. And then your second question, remind me what your second question was?

Yes. I was just wondering if the rent level and the terms of the lease were part of this agreement or if that's still to be negotiated.

Those aspects are still in negotiation. So basically, we're negotiating that part with the new tenant, prospective new tenant and buyer, and they're continuing to do their due diligence with the platform. So that is -- we're working through that right now.

Okay. Got it. And then as far as the notes, the assurance notes, you talked about that, you took the reserve. Maybe to just put a point on this, I mean, what's the chance of collecting all or part of the interest and the principal on those notes?

Look, I think part of why we reserve the remaining balance of the notes is we don't believe there's going to be a meaningful pickup. We are very focused on trying to get as much as we possibly can in this transaction. But part of the reason we reserve the remainder of the notes and interest is because we don't think there is a meaningful piece.

All of that being said, that can evolve and change. But I think for the purposes of everybody's models, we shouldn't expect a $5 million or $10 million recovery here. I think that would -- again, we would work to make sure that, that happens, but we're not expecting it.

Okay. Back to this question, you asked a couple of times about how you'll pay for the pipeline of acquisitions. How much can be bought in 2025? And is there flexibility as far as the timing, something stabilizes and you have kind of a window. And I'm also wondering, is there any chance maybe it's early to answer this. Is there any chance you could pass on one or more of these? Is that an option?

These are under purchase and sale agreement. So it's not our -- we would not anticipate looking to pass on these. We view this as very attractive real estate in great markets and so it's our desire to move forward with these acquisitions. And so obviously, there are other levers that we can pull.

Candidly, we think the best process for us is to have some of the capital recycling that we've talked about pay for this because as we've discussed in prior calls, we do not want to over-lever the balance sheet and so we're committed to doing that. But yes, I mean, look, like I said, these are very attractive assets. There are a number of things we can do, but our goal is to get these closed, but to get them closed without adding meaningful leverage to our balance sheet.

Okay. How do the disposition cap rates compare with the acquisition yields?

So it's still early. We've got to bring these things into closing. But I would say somewhere between the 7.5% and 8% range is kind of where we're thinking these things would close and could be even better than that, but I think 7.5% to 8% is what we're looking at.

Okay. Great. And then last one for me. Looking at your lease expirations coming up 5% of the portfolio in the second half of this year, 12% in 2026, what's your expectation for core occupancy? Do you think that goes up or down over the next 4 to 6 quarters?

I think we have and part of the reason we made the change we did is we've got a lot of embedded value in our portfolio. We don't feel like we're doing or have been doing as much as we can in terms of driving occupancy where we think the portfolio can go.

And so look, Mark has got to get his footing, and he's been with us now a little over 2 months. But his background and experience and everybody's focus is on really driving the core portfolio's performance. And we think we've got a good head start even before Mark got here, but I think we will continue to make progress in that -- from that perspective.

I mean my thinking is we ought to be over the next -- into 2026, we ought to be able to add 100 basis points or more to our occupancy but it's going to take us some time to get there. It's -- this isn't something that's going to happen overnight. It's going to take a lot of hard work, but everybody in the company is very focused on making sure that we drive performance in the portfolio. And so leasing is obviously going to be a big part of that. So it's work to be done, but we feel like we've got the right team to do that work.

And ladies and gentlemen, at this time, we will be ending today's question-and-answer session. I'd like to turn the floor back over to Dave Dupuy for any closing comments.

Jamie, thank you very much, and thank you, everybody, for joining the call today. I look forward to talking to you later this fall.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.