Sila Rlty Tr Inc Trust Aktie

Good morning, and welcome to Sila Realty Trust's Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the conference over to your host, Miles Callihan, Senior Vice President of Acquisitions, Capital Markets Research and Credit for Sila. You may begin.

Good morning, and welcome to Sila Realty Trust's Fourth Quarter 2025 Earnings Conference Call. Yesterday evening, we issued our earnings release and supplement, which are available on the Investor Relations section of our website at investors.silarealtytrust.com. With me today are Michael Seton, President and Chief Executive Officer; and Kay Neely, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate and other comparable words and phrases. Statements that are not historical facts such as statements about expected financial performance, are also forward-looking statements.

Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in our results compared to these forward-looking statements is contained in our SEC filings. Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these historical non-GAAP measures to the most directly comparable GAAP measures in our fourth quarter earnings release and our earnings supplement both of which can be found on the Investor Relations section of our website and in the Form 8-K we filed with the SEC. With that, I will now turn the call over to Michael Seton, our President and Chief Executive Officer.

Thank you, Miles, and good morning to everyone joining us today. As we begin a new year, I look back on 2025 our first full calendar year as a publicly traded company as one during which we faithfully executed our strategy of growing Sila Realty Trust in a skillful and thoughtful manner. Sila was added to several prominent equity indices during the year. including the RMZ and the Russell 2000, and our shareholder base has continued to evolve to larger institutional investors from an entirely retail ownership at onetime prior. We believe our ownership transition reflects the market's recognition of what we have been building at Sila for many years, a high-quality, necessity-based health care real estate portfolio designed to deliver predictable, durable and growing income streams through any market cycle.

During 2025, we acquired 6 health care facilities for an aggregate purchase price of approximately $150 million, which equated to 241,000 rentable square feet. Each of these new facilities fits well within what we call the Sila mold, exhibiting the characteristics that we see in new opportunities, modern construction, high utilization, favorable market demographics and quality tenant sponsorship. After the year-end, we closed on another purpose-built, state-of-the-art inpatient rehabilitation facility in Oklahoma City for $43.1 million. This well utilized facility further expands our relationship with Novus rehabilitation partners a well-respected and strong operator in the post-acute space.

The property was originally constructed in 2022 and has experienced such strong demand since opening that has recently undergone an expansion, increasing its licensed bed count from 40 to 58 beds. With the support of a long-term lease with contractual lease escalators, strong EBITDAR coverage, experienced sponsorship and limited competition, we believe this facility aligns firmly within our objective to deliver lasting value to Sila and its shareholders. Sila's ownership of high-quality, diverse health care assets with best-in-class tenancy creates opportunities to invest additional capital in existing properties which experienced outsized demand for health care services within current building envelopes.

Over the past year, we have completed over $7 million of redevelopment opportunities at compelling risk-adjusted returns. We are readily prepared to provide capital to our strong and growing tenant base when it aligns with our mutual interest to address market-driven demand requirements with minimal operating execution risk. Consistent with this approach, we have already committed to providing additional capital at our Dover health care facility as previously disclosed during our third quarter earnings call and intend to execute a similar investment at our Overland Park health care facility, both of which are inpatient rehabilitation facilities leased to Pam Health, our largest tenant and one of the strongest and most respected post-acute operators.

We foresee additional expansion opportunities in the near future, which typically offer more favorable returns compared to recent acquisition opportunities frequently yielding 150 to 200 basis points higher than going in capitalization rates. Turning to an update on the Stoughton Healthcare Facility. I'm pleased to report that the building demolition has been completed and the removal of building debris is well underway which work we currently expect to be entirely finished by the end of the first quarter of 2026. The decision to raise the existing building structures has allowed us to already significantly reduce carrying costs of the property which will be reduced to approximately $35,000 per month from as much as $120,000 per month during the middle of last year. I would like to bring your attention to a few planned dispositions in 2026 and our continued pursuit to optimize our portfolio construction.

Toward year-end 2025, we executed purchase and sale agreements on 3 properties: our Henderson, Las Vegas to and Saginaw health care facilities. After year-end, we closed on the sale of the Saginaw Healthcare facility for gross sales proceeds of $14.5 million, while the Henderson and Las Vegas to health care facilities are estimated to close in the first quarter of 2026. We also recently executed a purchase and sale agreement to sell the Alexandria Healthcare facility which became vacant in December of 2025 with the departure of our ASC tenant. Subject to the typical due diligence process, we would expect this to close around the end of the first quarter or beginning of the second quarter. We had approximately 4.8% of total gross leasable area scheduled to expire in 2025. Our leasing team successfully retain 90% of scheduled expiring tenancy on a square foot basis, while the 10% of tenants who did not renew represented only 0.5% of ABR.

The Alexandria Healthcare facility, which I just mentioned, accounted for 60% of that 10% nonrenewal. In addition, the tenant which had a lease expiry in 2025 at our Tampa Healthcare facility did not fully vacate its space. It simply reduced its footprint in the building due to the departure of a subtenant. This available space is only 2,100 square feet and has seen strong interest due to the facilities location in a bustling Medical Corridor in Tampa in close proximity to Baycare St. Joseph Hospital and Baycare's newly planned HealthHub. Our lease renewal activity and proactive early lease extensions at our other properties resulted in an increase to our weighted average remaining lease term from 9.7 years at the end of the third quarter of 2025 to 10 years by year-end.

For leases scheduled to expire in 2026, we have already completed renewals for 34.8% of the 4.1% of total gross leasable area expiring in the year. For the renewal pipeline for 2026, we have a known conversion of a single-tenant property into a multi-tenant property. With this change, the legacy tenancy will renew approximately 60% of the total space leaving the balance of 40%, which represents approximately 0.3% of company ABR to be relet to new tenants. We have already engaged a well-known broker and are actively marketing the anticipated available space. Our portfolio continues to demonstrate significant strength, while our high credit quality remains a critical factor in ensuring CLS sustained success.

Notably, there have been meaningful improvements in our tenant credit quality during 2025, which have aided the growth in our investment grade-rated tenant guarantor an affiliate percentage by 2.3% on a year-over-year basis to 40.6%. As an example of credit quality upgrade in the fourth quarter of 2025, Washington Regional Medical Center, an investment-grade rated best-in-class regional hospital system, executed a lease and took occupancy of our Fayetteville Healthcare facility from Community Health Systems. This transition moves community health systems from being our third largest tenant to our seventh largest tenant at year-end, further diversifying our tenant concentration and upgrading our overall sponsorship profile.

In addition, subsequent to year-end, Community Health Systems completed the divestiture of its 3 Pennsylvania hospitals, including our Wilks Berry health care facility to Tenor Health Foundation effective February 1, 2026, which will further reduce our CHS exposure going forward. In the fourth quarter, our tenant at our Savannah Healthcare facility was successfully sold through the bankruptcy process to select medical, an existing tenant and Sila's portfolio, moving select up to be our fourth largest tenant and providing operational strength and stability to the Savannah asset going forward.

Lastly, on the tenant sponsorship front. Late in the fourth quarter of 2025, Syncora, one of the largest Fortune 500 companies announced that it has entered into a definitive agreement to acquire the majority of the outstanding equity interest that it does not already own in One Oncology. Syncora with over $300 billion in annual revenue will be the common control at our 7 former GenesisCare master leased properties. As we look ahead to the full year 2026, I see Sila as a company in prime position to continue executing on its strategy. We have the balance sheet strength, pipeline, team members and discipline to continue to allocate capital skillfully and lawfully. The Silver tsunami is imminent with the entire baby boomer generation reaching 65 or older by 2030 which is expected to increase total outpatient health care spending to nearly $2 trillion. We continue to believe that this demographic shift should drive increasing patient volumes in case acuity supporting stronger operator revenues and therefore, more durable income streams for Sila.

As we know, health care is nondiscretionary, which means health care real estate is vital social infrastructure. Today, Sila owns over $2 billion worth of institutional quality health care facilities with high utilization, which, along with the triple net lease structures, that we have in place at 99.9% of our properties provides a powerful combination for long-term success. I will now turn the call over to Kay to discuss our financial performance.

Thank you, Michael, and good morning, everyone. I'm pleased to report that our disciplined approach to operational integrity and capital allocation drove strong financial results throughout 2025. For the year ended 2025, cash NOI was $169.9 million compared to $168.6 million for the year ended 2024, representing a 0.8% increase. This increase was largely driven by acquisition activity and an increase in same-store cash NOI of 0.9%, partially offset by dispositions and the impact of the vacancy of the Stoughton Healthcare facility. Year-over-year cash NOI growth was also impacted by the collection of over $6 million in onetime lease termination and lease severance fees in 2024 compared to less than $300,000 and in termination fees in 2025.

If we were to exclude these onetime fees from cash NOI in 2025 and 2024, cash NOI and same-store cash NOI growth would have been 4.4% and 1.1%, respectively. Turning now to our earnings metrics. FFO per share for the full year was $2.16 or a 3.6% increase from the previous year, while AFFO per share for the full year was $2.18 or 5.8% decrease from the previous year. In addition to the cash NOI items just discussed, our increase in FFO per share was driven by several items, an increase in straight-line rent which was largely driven by the new lease amendments that we entered into in connection with our PAM Health properties in December 2024.

Prior year write-off of above-market rent related to the GenesisCare bankruptcy in 2024. Higher revenue from interest income on our 2 outstanding mezzanine loans and a reduction in G&A and other costs in 2025 stemming from the incurrence of onetime separation pay and higher personnel costs in 2024 and $3 million in onetime listing fees in relation to our New York Stock Exchange listing. The FFO per share increase was partially offset by an increase in interest expense, largely related to new swaps that we entered into at the end of 2024 due to the expiration of prior swap maturities. Our decrease in AFFO per share was driven by the increase in interest expense, partially offset by the cash NOI items previously discussed, lower G&A costs due to lower personnel costs. and an increase in interest income related to our fully funded mezzanine loans.

As Michael mentioned earlier in the call, the strength and resilience of our tenant base continued as demonstrated by the company's strong financial results. We now have 75.6% of our portfolio ABR reporting financial results at either the tenant or guarantor level. We generated a portfolio-wide EBITDAR rent coverage ratio of 5.9x in 2025 as compared to 5.3x in 2024. The tenant at our Saginaw Healthcare facility, which we sold in late January 2026, was the tenant with an outsized EBITDARM coverage ratio that we described last quarter and drove our average up meaningfully. Without the Saginaw tenant included, our portfolio-wide EBITDARM rent coverage was 5.7x in 2025, still well above 2024 levels. Moving to our balance sheet. Net debt to EBITDAre was a conservative 3.9x at year-end, remaining below our targeted leverage range of 4.5x to 5.5x.

Our leverage level translates into over $200 million of debt capital we can readily deploy to reach the midpoint of our targeted leverage range. Total liquidity at year-end exceeded $480 million, providing substantial dry powder for acquisitions and growth initiatives. As of December 31, 2025, we had $676 million of outstanding debt under our unsecured credit facilities at a weighted average interest rate of 4.7%. Our capital allocation philosophy remains unchanged, we will deploy capital in a manner that creates the most long-term value for our shareholders, be that through acquisitions, investment in existing properties in need of expansion, share repurchases or other means. With that, we look forward to taking your questions.

[Operator Instructions] Your first question comes from Michael Lewis of Truist.

If this first one is too specific, I can follow up, but I was wondering how much rent you collected on the Alexander that you're selling? I think they had some holdover rent and then also the 2 redevelopments placed in service. I think they were placed in later in the quarter. I was wondering if they contributed significant rent in the quarter as well.

Michael, this is Michael. Thank you for joining the call today. Great to hear from you. On the Alexandria property, we -- their scheduled rent was essentially $40,000 per month. Their lease expired in August, and they paid holdover rent through November. The holdover rent was at 125% of the scheduled rent. So they ultimately ended up essentially if you count it this way, paying full rent for the year due to the holdover rent. So they paid total rent in the fourth quarter of $120,000.

Okay. And the redevelopments, I guess I'll tag on to that. Is there a -- difference between the lease percentage you show in the supplemental versus what's commenced? In other words, do you have some that may be on the come that we can't see from that lease number.

You mean our lease status at year-end?

Yes. I think we -- you had 2 redevelopment projects placed in service during the quarter. Those were listed, I think, as leased last quarter but they started.

Yes. So specifically, for instance, the El Segundo property, which as UCLA is a tenant has a free rent period. So they're still in that free rent period. but they are considered the buildings considered leased as of the year-end. That one specifically comes to mind.

Okay. And my next question is about -- I guess, it's about acquisition yields, but I think you'll see where I'm going with this. When you acquire assets that are similar to what's in your portfolio or you see similar assets trade in the market, what's the pricing like for the types of assets you own?

The pricing for the type of assets that we own today, consistent, I think, with what we've done on the acquisition side is we generally see rehabs kind of in the -- this is subject to performing assets, longer-term leases, good national sponsors on the operational side in the high 6s to, I would say, generally speaking, the low 7s to mid-7s. So generally speaking, 77.25% can be a little tighter, it can be a little wider depending upon circumstances. And the MOB outpatient, call it ASC-type assets, we can -- those get fairly tight and those can get to as low as 6% or low 6s to, I would say, generally not the high 6s so I'll say mid-6s, but MOB assets, again, 6 to 6.5.

On the LTAC side, because we do own some LTACs, we frankly don't see them trade much at all. So I can't tell you the last time we saw an LTAC trade. We don't own too many, but we do own some surgical hospitals. We've seen, I would say, over the last, I would say, 12 months kind of interest, we call pre-2022. A lot of interest in surgical hospitals, and we've seen that kind of renewed interest, particularly over the last 12 months. And we will see those trade depending again on the credit circumstance, the lease term, anywhere from the high 6s to around 7. So I think when we think about the portfolio of assets that we own, on a blended basis, we do see it somewhere in the 7 cap range, cash cap rate going in.

Okay. So it was a little bit of a leading question to my last question. So on our calculate lease, we have the stock a little bit north of an 8% implied cap rate. It's been moving in the right direction. But the question is, as you sell some of these assets and you're below leverage, what's kind of the -- I know you've gotten this question before about potential stock repurchases. I also wonder to the extent you could answer if you get inbounds from institutions or private equity about the company at this price.

So as it relates specifically to stock repurchases, I'll tell you what we've always said, which is it's a tool in the toolbox. I will also say that 1 thing that makes us particularly cautious about stock repurchases as we're trying to build our institutional investor base, it does pull liquidity for our stock out of the market. So that's where it causes us pause particularly. As it relates to inbounds, I would say, over time, we've certainly had interest in our company, even pre-listing, by the way, up to listing. The goal of our listing was, of course, to bring liquidity to our stockholders, which I think we've done.

We have seen our shareholder base rotate, as I said in my remarks, from 100% retail to really what is now 70% institutional and so we've seen that occur. We do see that disconnect, Michael, that you're referring to. I would say it makes us cautious on the acquisition side. We are poised for growth, but we are also conscious of others out there who have run up leverage and find themselves in a box, and we're definitely not in a box today because we've got a lot of liquidity, and we're not going to find ourselves in that box, but we would like to see a higher share price fairly significantly higher in order to raise equity.

Your next call comes from John Kilichowski from Wells Fargo.

Can you hear me?

John, I can hear you.

Perfect. Sorry, I just barred from another call. So forgive me, I'm a little bit late, and I hope I didn't miss anything. But just kind of following up on that last question. I guess it felt like I got part of the answer there. My question is at what point here -- and maybe we can start with remaining leverage capacity and where you're comfortable taking that, what that buying power means for 2026. And then my second part of the question is going to be at what point do you start to -- not that maybe you're not taking it seriously today, but at what point do you get a little bit more aggressive if maybe that incremental growth doesn't get the stock working that you start to look for other ways to realize that?

Sure. Just in terms of liquidity, ability to buy more, we essentially to reach the midpoint of our targeted leverage, which would be 5x because we've given some indications of between 4.5x and 5.5x, we could see investing about $225 million, roughly speaking. If we were to reach the high end of our leverage, it could be as much as $375 million. But again, we're being very discerning with the acquisitions. There is competition in the marketplace. I think our -- we have a good brand in the marketplace on the acquisition front with the developer, with the brokerage community, et cetera, with the tenant community. In terms of us looking at other ways to bring opportunity for our shareholders. I think we're always looking at that. In terms of timing, I can't really give you an indication of timing. We think the company is very solid right now. It's been stronger than it's ever been before in terms of our portfolio.

And I think you can see that in the results that we reported last evening. And when we think about the opportunities within the portfolio to really get greater yield, which I mentioned in my remarks as well, those opportunities are coming more and more. So we mentioned some there are actually additional ones that we have where we can get yields north of -- Lewis talk about where he evaluates where we're trading at an implied cap rate basis, north of that. So we're going to take advantage of those opportunities within our portfolio that only exists when you own the existing real estate and have those existing direct tenant relationships so we're going to continue to be forward-footed as it relates to taking advantage of opportunity in deploying our capital, but we're going to do it cautiously and thoughtfully.

And in that same vein, if you think about the $375 million of capacity that you mentioned to the high end, what's a fair cadence for that as we look at maybe the incremental opportunities that are starting to come to you, yields have been relatively steady. Transaction markets seem to have improved from most. I'm curious, is there an improved cadence relative to what we've seen in the past that could maybe accelerate AFFO growth from here?

I think the market will drive the cadence. That being said, I think that gives us about 24 months of buying capacity. So from an indication perspective, I would expect volume this year to be similar to what it would be last year. And of course, we already made an acquisition this year. It could be more at the towards the end of this year as opposed to the beginning of this year, particularly as we're focused on investing capital in these development opportunities with our existing tenancy and existing assets.

There are no further questions at this time. I will now turn the call back over to Michael Seton, CEO. Please continue.

I would like to once again extend my sincere thanks to the entire Sila team, their hard work, dedication and commitment to excellence continue to drive our success. We deeply appreciate the support and confidence of our shareholders and remain excited about the opportunities that lie ahead in 2026. Thank you for joining today's call.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and welcome to Sila Realty Trust Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions]

I will now turn the conference over to your host, Drew Miles, Senior Associate of Capital Markets and Investor Relations for Sila. You may begin.

Good morning, and welcome to Sila Realty Trust's Third Quarter 2025 Earnings Conference Call. Yesterday evening, we issued our earnings release and supplement, which are available on the Investor Relations section of our website at investors.silarealtytrust.com.

With me today are Michael Seton, President and Chief Executive Officer; and Kay Neely, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as statements about expected financial performance are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in our results compared to these forward-looking statements is contained in our SEC filings.

Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these historical non-GAAP measures to the most directly comparable GAAP measures in our third quarter earnings release and our earnings supplement, both of which can be found on the Investor Relations section of our website and in the Form 8-K we filed with the SEC.

With that, I will turn the call over to Michael Seton, our President and Chief Executive Officer.

Thank you, Drew, and good morning to everyone joining us today. As we reflect on the third quarter, I am pleased to report positive results that continue to exemplify the resilience and strength of Sila Realty Trust's investing platform. Our steadfast commitment to pursuing prudent, accretive growth has consistently yielded meaningful results for our shareholders, reinforcing the value of our strategic long-term approach to building our company.

During the quarter, we made significant strides to further expand our net lease health care real estate portfolio by making several key investments in lower cost patient settings. Our $16.3 million acquisition of the Southlake portfolio comprised of a medical outpatient building and an adjacent ambulatory surgery center operate symbiotically and demonstrate the type of necessity-driven health care real estate that is central to our investment thesis. These buildings are anchored by investment-grade affiliated tenancy and benefit from strong operational synergies and are strategically located in Southlake, Texas, an affluent suburb of Dallas.

The overlapping physicians who are uniquely aligned in their ownership of the ASC tenant seamlessly transition from providing patient consultations in the MOB to surgical procedures in the ASC. Furthermore, the ownership affiliation with and proximity to Baylor Scott & White Medical Center enhanced the overall tenancy, acting as a referral network for strong patient volumes.

In addition to the Southlake acquisitions, during the quarter, we closed on the $70.5 million Reunion Nobis portfolio, which is comprised of 2 newly constructed state-of-the-art inpatient rehabilitation facilities located in Plano, Texas; and Peoria, Arizona. These purpose-built facilities operated by an experienced and well-regarded partner and Nobis Rehabilitation Partners serve 2 of the fastest-growing markets in the United States. Both the Southlake and Reunion Nobis transactions, which total approximately $87 million, demonstrate our laser focus on acquiring best-in-class net lease health care assets in markets with strong and growing demographics.

In addition to the achievements on the acquisition front during the quarter, we have had success at sourcing opportunities to deploy capital at attractive yields to serve our existing tenancy. In the first example, PAM Health entered into an amended lease in May for a facility, which we own in San Antonio, Texas, whereby Sila is providing approximately $5 million of capital at an attractive yield for the property's redevelopment as a 34-bed inpatient rehabilitation facility.

The commencement of operations at this location is anticipated for December 2025. Please note that PAM Health has been paying full rent to Sila as it has anticipated repositioning the facility to better serve the San Antonio marketplace. Base rent will increase to reflect Sila's additional capital deployment upon commencement of operations, and Sila will also enjoy the benefit from a new 20-year triple net lease term.

As another example, we have made significant strides at our Dover Healthcare facility located in Dover, Delaware, which is tenanted by a joint venture between Bayhealth and PAM Health. Sila purchased the facility in April 2025 for $24.1 million. During the third quarter, we acquired adjacent land to the facility to support an approximately $12.5 million expansion of the building, which we expect to be completed by the end of 2026.

Sila expects to generate a highly attractive yield on the deployment of its capital to expand the facility and benefit from a new 20-year triple net lease term, which commences upon completion of the expansion. This development will add nearly 13,000 square feet and up to 12 new beds to the facility, a much needed increase to serve the high demand of the patient population in Dover, Delaware.

As a final example, we expect to have a similar expansion in capital deployment opportunity at our PAM Health and University of Kansas IRF in Overland Park, Kansas, which is anticipated to cost approximately $16 million. This expansion will add 2 additional floors and 17 new beds, which we expect to commence and be completed in 2026.

Collectively, the opportunities, which I just mentioned, along with others that we have in the pipeline, are our concerted response to the ongoing demand for high-quality health care services in the markets in which we operate. These expansion opportunities underscore our consistent ability to enhance value for Sila's shareholders, generating cash yields on our incremental capital deployment of typically 150 basis points or better, beyond our acquisition cash cap rates.

Real estate ownership often presents opportunities to provide capital to a captive audience, our existing tenants. Utilizing our existing portfolio, these opportunities that I mentioned, along with more to come, lend support to our thesis of continuing to externally grow the company through acquisitions of highly utilized health care real estate.

Our pipeline for acquisitions remains strong with an approximately $43 million opportunity that has been awarded to Sila and is anticipated to close in early 2026, subject to our customary due diligence process. We have a strong acquisition opportunity set as we head into 2026 and expect a similar level of acquisition volume next year, as we have accomplished so far this year. We do expect our targeted cap rate to tighten somewhat due to anticipated looser Central Bank monetary policy. As I have stated repeatedly, we are committed to growing thoughtfully, strategically and accretively.

Turning to leasing activity. We have successfully renewed 90% of our 2025 lease expirations. In the third quarter, we executed 3 lease renewals, which accounted for approximately 58,000 square feet or 1% of portfolio ABR.

Following the close of the quarter, we experienced an unanticipated tenant departure at our Alexandria healthcare facility located in Alexandria, Louisiana, whereby a tenant with whom we had a lease-out for signature to renew decided to vacate. This tenant represents 15,600 square feet or approximately 0.3% of total portfolio square feet in ABR. The tenant paid full rent and holdover rent between its stated lease expiration of July 31, 2025, and through, and including October.

In addition to leasing news, we are pleased to report that despite having approximately 3 years left on a lease with Community Health Systems, or CHS, at our Fayetteville Healthcare Facility in Fayetteville, Arkansas, we are agreeing to terminate our lease early with CHS, receiving a termination payment and anticipate simultaneously executing a new lease with Washington Regional Medical Center, best-in-class regional hospital system. Washington Regional will assume the entire facility under a new lease agreement for 17.5 years, and we expect this transition to take place in December 2025. This strategic transition from CHS to Washington Regional will move CHS from being our third largest tenant to our sixth largest tenant.

I would like to take a moment to remind everyone what Sila's differentiated proposition brings to its shareholders. Sila distinguishes itself from many peers through its integrated focus on health care assets and a long-term net lease structure, which we believe yields better long-term outcomes for shareholders. The nondiscretionary nature of health care spending has been demonstrated to show durability and resilience across market cycles.

Our thesis around triple net lease structures is critical to achieving the best outcomes for our shareholders over time as property operating expenses are passed through to tenants, mitigating the high cost of day-to-day ownership of real estate. Our longer duration lease terms should result in reduced re-tenanting capital expenses, namely tenant improvement allowances and lease commissions, relative to peers with shorter term lease agreements. We are confident that our distinctive and disciplined approach, supported by our robust balance sheet and available liquidity, position us to be able to sustain positive momentum and deliver value to our shareholders.

At this time, I will turn the call over to Kay to provide further insight into our financial performance.

Thank you, Michael, and good morning, everyone. I am pleased to share that our disciplined capital allocation and accretive transactions continue to result in strong financial performance in the third quarter.

For the third quarter of 2025, cash NOI was $42.8 million, an increase of 4.9% from $40.8 million in the third quarter of 2024. This increase was largely driven by acquisition activity over the last year and same-store cash NOI growth of 1.2%, partially offset by reduced cash NOI from our Stoughton Healthcare Facility.

Compared to the second quarter of 2025, cash NOI increased 2.2%, primarily due to the acquisition of the Southlake and Reunion Nobis portfolios as well as reduced carrying costs at Stoughton as demolition of the building is underway.

Our third quarter AFFO per share decreased by 0.8% compared to the third quarter of last year, primarily due to the increased interest expense related to the new swaps we entered into at year-end 2024. This was partially offset by the acquisitions and other cash NOI items mentioned previously and increased notes receivable interest income related to our fully funded mezzanine loans. Compared to the second quarter of this year, AFFO per share increased 4.2%, primarily driven by the acquisitions mentioned previously, increased interest income from our mezzanine loans and a decrease in G&A.

Beyond earnings, Sila's in-place tenancy remains strong. Our percentage of reporting obligors increased by 2.4% to 75.8% and collectively reported an EBITDARM rent coverage ratio of 6.19x, up from 5.31x from the second quarter of 2025. This increase in coverage was largely driven by one tenant, which possesses a high EBITDARM rent coverage ratio that was recently added into the reporting population due to a lease assignment.

Without this one tenant, our average EBITDARM rent coverage ratio would have remained at 5.31x quarter-over-quarter. These strong coverage ratios of our tenants and guarantors help further solidify our portfolio's resilience and demonstrate the durability of the income stream that we have built in our pursuit of providing long-term value to our shareholders.

Though political headlines and the macroeconomic landscape continue to be top of mind, we believe our strong tenancy, balance sheet position and available liquidity continue to distinguish us in terms of both security and growth potential. At the conclusion of the third quarter, our revolver provided nearly $450 million of available funds, resulting in total liquidity exceeding $476 million, while our net debt-to-EBITDAre ratio of 3.9x remains below our targeted range. The combination of a robust balance sheet, low to moderate leverage and a prudent AFFO payout ratio of 71% for the quarter, reinforces our confidence in our ability to maintain a sustainable dividend and our ability to grow our portfolio thoughtfully and accretively.

During the third quarter, the Board authorized a share repurchase program of up to $75 million in gross proceeds for a 3-year period from August 4, 2025, limited to $25 million in gross proceeds in any 12-month period. We did not purchase any shares under the program during the quarter.

Additionally, on August 12, 2025, we entered into an at-the-market equity offering sales agreement or our ATM program, through which from time to time, we may offer and sell shares when we believe it is in the best interest of our shareholders. We established the ATM program, as many REITs have done, to add another tool in our toolbox to be readily available when we are able to accretively raise equity capital with an immediate vision into how those funds will be deployed. To date, no shares have been issued under the ATM program.

We are particularly proud of the results from this quarter, building on to many successes throughout 2025. Although we still possess considerable dry powder, we will continue to remain prudent in the allocation of our capital, ensuring that leverage levels are maintained within sustainable limits.

We have now put in place various tools, including the share repurchase program and the ATM, which give us full flexibility to take thoughtful and accretive actions when we believe the time is right. We remain fully committed to our capital allocation philosophy, focusing on the acquisition of high-performing triple net lease health care assets leased to quality tenants that operate in growing markets close to the patient.

With that, we look forward to taking your questions.

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

The CHS termination payment, was that in third quarter? Or is that going to be in fourth quarter? And how much was that?

Rob, thank you for joining. That CHS termination payment that we anticipate would come in the fourth quarter. The expectation is that Washington Regional will take over that facility. So essentially, we'll have an effective lease starting December 1. And so, my expectation is simultaneous with that, we would terminate the CHS lease, and we would receive that termination payment, which is, roughly speaking, a couple of hundred thousand dollars.

Okay. That's helpful. And then, Kay, you're going to get -- in the fourth quarter, you're going to get the full quarter benefit of the August and September acquisitions and the -- you're going to -- that's going to net out against some of the Louisiana departure. Anything else of note positively or negatively likely to impact the income statement in the fourth quarter versus the third quarter?

Yes. The main things I would factor in would be continued decreased carry costs for Stoughton. So as that -- more and more of that building comes down, the carry is reduced. We're, I think, roughly about $75,000 a month as we get to the end of the year. And we expect that to be roughly about $35,000 a month into 2026. However, our intention is also to appeal real estate taxes and to drive that down even further once that occurs.

In terms of -- we [indiscernible] a clarification on deferred rent. We have deferred rent we're receiving, Michael spoke to in his prepared remarks, on one of our PAM properties. That will just be reflected in rental revenues going forward. So you won't see that line item. So the amount will still factor in. It will just be up at the top as opposed to added in for AFFO.

We do think G&A for the year will come in below previous communicated range. Previously, we had indicated a range of $22.5 million to $23.5 million for G&A. We do believe we will be at the low end, if not slightly below that range for 2025. We do have demolition costs. Of course, those, if you see in our supplemental, are added back for core and AFFO, but separately distinguished on our income statement and in that reconciliation table, so you can see those amounts. Those amounts will continue to be incurred through the end of the year and into the very early parts of 2026. And the only other item that's a little bit seasonal in nature is just any accruals related to any bonuses.

Okay. That's extremely helpful. Thank you very much for that detail. And then I guess the other thing for me is, so you've got -- it seems like with the third quarter, I don't know what the fourth quarter is looking like for you, but it seems like the deal volume has been kicking up as the stock price has sort of moved below $24. If you do that $40 million transaction in early '26, how much more capacity do you have and stay within your targeted leverage ranges to do additional deals without needing to issue equity at these type of levels?

We estimate something around $200 million, $220 million to hit the midpoint of our communicated leverage target, which we had previously stated would be 4.5 to 5.5x net debt-to-EBITDA. So to around 5x is $200 million roughly.

Okay. That's extremely helpful. And then last one, Michael, as you're looking at the -- whatever you guys refer to it internally, but essentially a tenant credit watch list, and you look back a couple of quarters, is that list getting shorter? Is it staying the same? Is it increasing as operators have difficulty? How do you sort of characterize the sort of evolution of your credit watch list these days? And where is that likely to be going as we enter the beginning of '26?

I would say that we're cautiously optimistic. We had a very good rent collection year this year. I would tell you, we're more focused on lease maturities and obviously, renewal rates for those leases as we look forward. We have a long lease duration in the portfolio, as you well know. I don't -- I wouldn't tell you the watch list has per se increased. We have things move up, we have things move down. I think we had a very solid year in 2025. We're obviously not done yet, but I'm optimistic.

As we go into next year, we do see our operators performing well. I mean, as you know, Big Beautiful Bill Act has been out there. We've talked about our assets being a mitigating factor in that space. I would say, overall, we're -- I'm cautiously optimistic about what the future holds. I mean that from a tenant credit perspective, because I don't think anybody knows what the future holds in the context of federal government reimbursement and so forth. But what -- you can see our coverage ratios are strong and they remain -- and they continue to be strong and they continue to go up. So we feel good about who we're aligned with on the tenant side.

Your next question comes from John Kilichowski from Wells Fargo.

My first one is just on capital deployment and where you find opportunities that are most attractive. I mean, given where your stock is trading today, does -- maybe rotating out of some noncore assets, surgical specialty and buying back stock here get more attractive relative to growing the asset base. I'm curious what that spread needs to be for you to say that's where incremental dollars should go?

John, thank you for joining. We found opportunities, I'll speak first to really 2025 thus far -- The opportunities that we found have been more in the IRF space than the other spaces that we target. Of course, MOB is a key area of that. We've seen a lot of MOB sales. I mean, volumes are down admittedly from years ago, but we've seen a number of MOB sales out there, particularly large portfolios as you monitor as well in the marketplace. But the quality of that hasn't been the quality that we seek to have within our portfolio, hence, our targeting of particularly IRFs, where we can get long WALT, we can get high-quality operators, we can get demonstrated performance in the portfolio. So that's what we've clearly found in the Nobis transactions. That's clearly what we found in the transaction that I'm referring to, that we may close on in January subject to our due diligence.

From the capital recycling perspective, we're long-term owners of real estate. Sure, there are things that we have on the radar, and we do have a list of properties that could be potential dispositions. I would say those tend to be a little bit more event-driven, whether they're tenant-driven, could be an issue with the tenant, or as it relates to a tenant simply wanting to own their real estate, which we have a number of those occurring as well.

So I don't know that they'll come to fruition. Nothing is per se penned in. There are some discussions taking place. But as we look at those opportunities, I think the -- we are, I would say, slanted and prejudiced towards deploying capital in new investments at this point. Obviously, we are very aware of our share price in terms of cost of capital, ability to raise future equity capital. Kay gave some numbers as it relates to ranges where we can expect to lever up to, and the runway that we have. That being said, the Board did approve a share repurchase

program. So we've got really, I would tell you, all the tools in the toolbox, capital ready to deploy, certainly properties that we could sell where we could invest those or buy back shares, of course, and then the share repurchase program. So we're remaining nimble in terms of our approach to capital deployment.

Well, that was very helpful. And I guess as you think about -- obviously, you're still tilted towards the acquisition side. I guess when you talk about the development opportunities that you're seeing that are a little bit higher yielding and you look at your leverage capacity, I think the number was $200 million. What percentage of that do you think could be deployed into maybe some of those opportunities relative to just the few simple acquisitions that you noted cap rates are getting a little bit tighter here?

We like the -- we, as you know, had done late last year now those Lynchburg mezzanine loans, and we like those kinds of opportunities because they're double-digit, mid-teens type returns. We recognize it as interest income for purposes of -- income purposes. So it's current development deals. If we're funding the development as equity owner, really the income gets recognized when that property goes into service.

That being said, when we talk about expansion opportunities within our portfolio, those are relatively short-term constructions, 12 months or less. And those yields, as I mentioned, are 150 basis points or greater. So we'd like to find more of those opportunities. We're conscious of tenant exposure. We want to make sure there's opportunity for that -- expansion of that property in that particular marketplace. But we love those opportunities because the tenants also captive to us because we own the underlying land, for instance, and they're adding on to their building and attaching it to existing building, which we already own.

And by the way, I would mention some of those yields are 300 basis points wide of our acquisition cap rate. So it can really vary, but we -- I tried to be, I would say, relatively conservative in saying minimum kind of 150 basis points or greater.

So we're looking for those development opportunities. I don't think there's a ton of medical development in the marketplace today. I think banks out there are willing and able to do, for instance, MOB transactions. But in the rehab space, there's probably more limited folks willing to do those kinds of transactions on the lending side. So we want to be a partner to those developers and to those tenants that want to expand.

Okay. Last one for me, if you wouldn't mind. Just on the opening remarks, you made the comment about the Alexandria tenant, and I apologize if I missed this, but that move-out that's happened in October, is there like -- do we have any expectations on what's going to happen to rent in 4Q?

Yes. So they were scheduled to expire already in late July. And as mentioned in the remarks, I mean, we had a lease out for signature with them. They paid holdover rent through the months of August through October. So full rent plus the 25% additional holdover rent. And we do have an expectation that they may need another month of staying there. So we may very well get November rents with holdover. We're obviously very early in the month of December. Most tenants kind of pay in the first, I'll call it, 10 days or so. So -- but that's the indication to us at this time.

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

As far as these development or expansion projects, how do you know when one is a [ candidate ]? How do you know it works and that the risk reward is balanced? Does the tenant come to you with it and you kind of evaluate it? How do you get comfortable with those and you know you've got the right one?

Michael, thank you for joining. I would tell you, it's -- the vast majority of the time, it's really an inbound from the tenant. So we're monitoring, as you know, the financials of these operations. The operations in a particular case may be doing very well and that property may be busting as it seems essentially. And that tenant is saying, "Hey, there's a market."

So we'll often review those pro formas of the tenant saying, "Hey, this is what it looks like if we add this number of beds." We've already got, of course, the benefit of the credit of the existing operations because the operations in those facilities are not shut down or stopped, they actually continue and the construction goes on. So I would tell you, it's really communication from the tenant. Of course, we monitor, so we know which properties are good candidates for those. And we do market our tenants and say, "We're here to be your partner and provide capital."

Okay. Great. And then, this is an old question, I guess, but still relevant. As the shutdown goes on and the battle seems mostly focused on these ACA subsidies, you've got good coverage across the portfolio. Is there any risk anywhere you see if the, I guess, call it, the Republicans prevail and those subsidies go away?

Yes. I mean that's a great question. I mean, as you know, we're not acute care hospital owners per se -- short-term acute care hospital owners per se. We're focused on outpatient procedure settings, lower-cost patient settings. So even when we have a situation where there may be a hospital partner, which we have a number of LifePoint transactions like that. In fact, all of our LifePoint transactions are really like that.

We're not looking really to the hospital credit in that case. We're looking to the site performance in those transactions. We like the benefit of the branding of hospitals related to marketing and patient recognition. But from an operational standpoint, we're not looking to those.

I do think that it's -- we're going to see -- even if there is some ACA subsidy continuation or there's something more done than is currently passed by the Big Beautiful Bill, we might see more influx to emergency rooms. Naturally, we'll see less insured. I mean, even if someone's premium goes up $100 a month, they may elect to not have insurance. So I think that we'll see that. And I think that's a stress on the whole system overall.

The facilities that we focus on, as you know, looking at our portfolio is really the MOB and the lower-cost patient setting, post-acute spaces. So the rehab and of course, we own some LTACs as well, kind of a limited amount of behavioral. So we think we're much more insulated than a lot of folks out there. But I would tell you, it's not good for the whole health care marketplace, just generally speaking. But again, with our focus, we think we're pretty well insulated.

Okay. And then lastly from me. So you've got the ATM program. You've got the buyback program. Is there -- are you closer to one or the other? Or does neither one of those look attractive here? Does it depend if an opportunity pops up? How do you think about that?

Well, we've read your reports, Michael, and I think you have a good -- when you think about NAV, for instance, for us not necessarily price target, as well as with your peers, that's what we're thinking about when we're thinking about kind of ATM type levels. So we feel we need to be higher. Issuing equity now, we think, is very dilutive and not reflective of the value of the company. So we don't think this is the right level to do it.

So we do feel we're trading at a pretty substantial discount. So that leads into, of course, your -- the alternative, which we could be doing. And I think that, that's always a topic of conversation in the company and with the Board. We want to be thoughtful about how we're spending money. If we only have $1, we only have that $1 to spend. So we want to put it in the right place.

I mentioned from an acquisition standpoint that we had done -- we've done about $145 million of acquisitions so far this year. And sort of the indication I gave for next year was, hey, it's going to be a base case scenario kind of relatively consistent with that. And I think that's a fair statement. It could be more if we find the right opportunities. But at the end of the day, we want to be thoughtful and we want to be also -- what's critical in our minds is also the quality of our balance sheet as well.

Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Michael Seton, CEO, for closing remarks. Please go ahead.

I would like to once again extend my sincere thanks to the entire Sila team. Their hard work and dedication continue to drive successful outcomes. On behalf of our leadership team and Board of Directors, we deeply appreciate the support and confidence of our shareholders. Thank you, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

Good morning, and welcome to Sila Realty Trust's Second Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions]

I will now turn the conference over to your host, Miles Callahan, Senior Vice President of Capital Markets and Investor Relations for Sila. You may begin.

Good morning, and welcome to Sila Realty Trust's Second Quarter 2025 Earnings Conference Call. Yesterday evening, we issued our earnings release and supplement, which are available on the Investor Relations section of our website at investors.silarealtytrust.com.

With me today are Michael Seton, President and Chief Executive Officer; Kay Neely, Executive Vice President and Chief Financial Officer; and Chris Flouhouse, Executive Vice President and Chief Investment Officer.

Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as statements about expected financial performance are also forward-looking statements.

Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in our results compared to these forward-looking statements is contained in our SEC filings.

Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these historical non-GAAP measures to the most directly comparable GAAP measures in our second quarter earnings release and our earnings supplement, both of which can be found on the Investor Relations section of our website and in the Form 8-K we filed with the SEC.

With that, I will now turn the call over to our President and Chief Executive Officer, Michael Seton.

Thank you, Miles, and good morning to everyone. Thank you for taking the time to join our call today. Our team delivered another positive quarter of results driven by quality operating fundamentals and our ability to remain steadfast in our commitment to our prudent capital allocation strategy. While macroeconomic and legislative uncertainty remain top of mind, Sila's portfolio continues to fire on all cylinders.

With a strong average EBITDARM coverage ratio of 5.31x, a portfolio weighted average remaining lease term of 9.5 years, meaningful annual contractual rent growth of 2.2% and over $568 million in liquidity, our resilient portfolio and enviable capital position provides stability to deliver solid earnings growth and reinforces our ability to maintain a healthy dividend for our shareholders.

On top of our robust operating performance, we remain emboldened by our focus on necessity-based health care solutions, focusing on operators that deliver better outcomes for patients in convenient locations at an affordable price. Despite the headlines in various health care-related proposals coming from Capitol Hill, our strategic health care focus, along with the ultimate tailwind that is the impending silver tsunami of aging adults, provides us with confidence in our ability to continue to grow over the long term with the partnerships of our established and resilient tenancy.

With the passing and signing into law of the One Big Beautiful Bill Act, there are uncertainties as it pertains to health care and how the bill will ultimately affect all aspects of the health care delivery system. However, many of our tenants across the health care continuum of care provide us with payer mix information when reporting financial results. Of the tenants that report, Medicaid reimbursement is only a very small fraction of the revenue base.

This limited exposure by our tenants to Medicaid and consequently our portfolio is largely due to the types of health care facilities that we invest in, the services being provided and the markets in which they reside. In the second quarter, we remained focused on our accretive and thoughtful capital allocation strategy. In April, we closed on the off-market acquisition of our new Dover healthcare facility asset, the only inpatient rehabilitation facility in Kent County and 1 of only 4 in the state of Delaware.

The facility is leased to a joint venture between 2 best-in-class operators, Bayhealth a very strong and successful investment-grade rated health system and the second largest in the state and PAM Health, or PAM, one of the nation's largest and leading providers of post-acute health care services. This facility constructed in 2019, reached stabilization more rapidly than any other PAM facility in the company's history and remains very highly utilized.

With such high demand and little competition in the market comes an opportunity to expand the facility, which we are currently discussing with the existing tenancy. Subsequent to quarter end, we closed on a 2-property MOB portfolio in Southlake, Texas. These properties benefit from strong operational synergies as physicians who practice at the traditional MOB routinely perform surgeries at the outpatient surgery center, creating a unique referral and care pathway between the 2 buildings.

All 3 of these facilities fit very well within the Sila mold and we are excited to embed them within our operating platform. Beyond these 3 transactions, we are currently under exclusive LOI on over $70 million of new net lease health care transactions that are currently going through the typical pre-acquisition due diligence process. The ultimate acquisition of these properties is subject to our due diligence and closing process. However, should they occur, we currently would anticipate they would close in or around the third quarter.

Beyond our most recent 3 net lease acquisitions made, we also utilized our share repurchase program to execute on over $7 million of share repurchases during the quarter. We noticed a significant enough dislocation in our public market share price and private market valuations to make the decision to use excess cash on hand to capture accretion and value for shareholders.

As conveyed previously and demonstrated this quarter, share repurchases are a tool in our toolbox that we can use if we deem there to be dislocation in our share price. That being said, our bias remains pointed towards growth through acquisitions of physical property.

Finally, I'm happy to report that we have arrived at a strategic vision and solution for our Stoughton asset. After exploring many options over the past months, we deemed that the course allowing for the highest value for our shareholders is to demolish the building and entitle the land for separate use. The demolition of the building will halt a majority of the expense leakage and is expected to be completed around the end of this year.

With the removal of the Stoughton asset from service, our portfolio lease percentage increased to 99.2%. Sila's advantages were on full display this quarter. Our balance sheet strength and liquidity position continue to allow us to be opportunistic by executing on accretive transactions while using excess cash to execute on strategic share repurchases.

While there is still much noise and uncertainty within the health care landscape today, our creative capital allocation decisions this quarter are a testament to our focus on delivering the best value for shareholders over the long term.

I will now turn to Kay to discuss our financial performance.

Thank you, Michael, and good morning, everyone. I am pleased to report positive trends in our financial results, which stem from the various accretive transactions we have recently made. For the second quarter of 2025, we reported cash NOI of $41.9 million compared to $41.2 million or 1.7% increase from the first quarter of 2025. This increase was primarily driven by our Knoxville Healthcare facility and Dover Healthcare facility acquisitions. Compared to the second quarter of 2024, cash NOI was up 5%, driven by our acquisition activity over the previous year and our same-store cash NOI growth of 1.5%.

This was partially offset by a cash net operating loss on the Stoughton Healthcare Facility due to its vacancy when compared to the prior year when we were still receiving some rent. Note that with the demolition of Stoughton underway, we have removed the asset from the same-store pool. Our AFFO was $0.54 per diluted share for the second quarter or a 1.7% increase from the first quarter of 2025. This was driven by the cash NOI drivers mentioned previously, along with the lower G&A driven by customary first quarter audit and accounting fees, slightly offset by higher interest expense, largely driven by acquisition activity.

Compared to the second quarter of last year, our total AFFO decreased by 2.7%, largely driven by an increase in interest expense related to acquisition activity and the replacement of certain swaps at the end of last year, partially offset by interest income received on our mezzanine loans and the previously mentioned cash NOI items. Additionally, interest income from our money market account decreased from the prior year due to using a portion of those funds toward our modified Dutch Auction tender offer last year, decreasing the amount of weighted average shares outstanding. As a result, there was no reduction in AFFO per share compared to the second quarter of last year.

As Michael mentioned, we executed on over $7.3 million of strategic share repurchases at an average price of approximately $24.09 per share. We believe this execution was accretive to both earnings and to NAV, and we use excess cash flows from operations to fund these repurchases. We may continue to execute repurchases with excess cash on hand, depending on other capital deployment priorities. The Board recently approved a 3-year share repurchase program for share repurchases up to $75 million with no more than $25 million of repurchases in any 12-month period. That said, we prefer to use our balance sheet capacity and liquidity position for the acquisitions of assets that fit within the Sila strategy, net lease assets that are accretive to both earnings and the quality of the portfolio.

The strength of the portfolio was once again demonstrated through the collection of financial reporting at either the tenant or guarantor level of 73.4% of our portfolio ABR. Our reporting tenancy maintained a strong EBITDARM coverage ratio of 5.31x, up from 4.64x in the second quarter of 2024. Notably, our MOB and IRF coverages have increased by 2.26x and 0.73x year-over-year, respectively, and we now have 40% of our tenancy that is associated with an investment-grade rated tenant, guarantor or affiliate, up from 36.4% at the same time last year.

The significant and improving coverages that the majority of our tenants and guarantors possess further bolsters our confidence in our ability to grow earnings through cycles and over the long term. Similar to our tenancy, Sila remains in a strong fiscal state as evidenced by our balance sheet position, ending the quarter with $568.8 million of liquidity and net debt-to-EBITDAre of 3.6x.

We reported an AFFO payout ratio for the quarter of 74%. And on August 5, the company's Board approved and authorized a quarterly cash dividend of $0.40 per share, payable on September 4, 2025. As we've said in the past, we believe maintaining a strong balance sheet with low to moderate leverage, ample liquidity and financial flexibility is fundamental to being a resilient and sustainable REIT.

This type of environment with economic and legislative unknowns still looming over the market is precisely why we continue to position the company in a place which can withstand and perhaps even take advantage of disruption. Today, we remain committed to external growth in a prudent manner, making sure acquisitions fit with our strategy and are accretive and sustainable.

This thoughtful approach, combined with our tenants' robust operational performance, allows us to remain confident in our capital allocation philosophy and the maintenance of the dividend over the long run.

I will now turn the call over to Chris to share details on our portfolio activity.

Thank you, Kay, and good morning, everyone. We have had another great few months filled with successful net lease acquisitions that fit our investment criteria, strong leasing momentum and the continual building of our acquisition pipeline. Our newly acquired Dover Healthcare facility, which had the most successful start of any PAM Health property in the company's history is a prime example of an asset that fits well within the Sila investment strategy, a newer and highly utilized facility in a market with significant barriers to entry.

Both the limited competition and consistently high utilization allows for an expansion opportunity, which we are currently discussing with the tenancy and look forward to bringing to fruition in the near term. This opportunity came to us as an off-market deal via private owner and our existing relationship with PAM Health, highlighting Sila's unique ability to find and transact on accretive deals through our strong relationships that are not available to the rest of the market.

Subsequent to quarter end, we closed on a 2-property medical outpatient building portfolio for approximately $16.2 million. Both properties are well located and highly utilized leased to operators owned in part by investment-grade affiliates and the operational synergies due to their complementary uses and proximity to each other offer a unique dynamic that further enhances the tenancy that would have otherwise fit well within our portfolio on their own.

The portfolio is comprised of a medical outpatient building leased to GI Alliance, the largest independent provider of gastroenterology services in the United States, along with an ambulatory surgery center leased to a joint venture between Baylor Scott & White Health, a subsidiary of Tenet Healthcare and a high-performing physician group. This portfolio is located in Southlake, Texas, an affluent suburb of Dallas with compelling demographics and approximately 2 miles from the 302-bed Baylor Scott & White Medical Center, enhancing the referral base even further. Like our recently acquired Dover asset, these 2 properties are accretive to the quality of the portfolio and are the types of opportunities we'll continue to pursue.

Year-to-date, we have closed approximately $75 million of high-quality acquisitions and currently have over $70 million of properties under exclusive LOI. On top of the success we continue to have on the acquisition front, we continue to experience strong leasing momentum in the second quarter. We executed a total of 3 renewals totaling approximately 56,000 square feet, all of which were at positive rent spreads.

We are diligently working with a few remaining tenants who leases expire in 2025, all of which are expected to renew. We're proactively working with our tenants on all of our 2026 expirations. We also continue to make progress on the funding of our mezzanine loans for the development of a brand-new 60,000 square foot inpatient rehabilitation facility and a 60,000 square foot behavioral health care facility.

Since our update last quarter, we have received the origination fee and begun funding the development of the behavioral facility. As previously disclosed, we expect both mezzanine loans to be completely funded by the end of the third quarter. These loans provide the company with strong risk-adjusted returns during the development period while creating future pipeline opportunities with purchase options for Sila for each facility upon completion of construction.

Sila's philosophy of investing in net lease necessity-based health care infrastructure run by operators that deliver positive outcomes in convenient locations remains unchanged. Our acquisition opportunities remain strong as we continue to see single assets and as of late, more portfolio opportunities. The net lease opportunities we see are comprised of facilities servicing needs all along the health care continuum and are largely priced within a 6.5% to 7.5% cap rate range. As we look forward, our team members remain focused on sourcing high-quality investment opportunities that fit well within the Sila standard.

This concludes our prepared remarks. We will now move on to your questions.

[Operator Instructions] Your first question comes from Nate Crossett from BNP.

Just on the $70 million LOIs, can you kind of tell us what types of assets are those? What does the pricing kind of look like that we should expect? And just outside of what's under LOI, what does kind of look like for the back half of this year?

Sure. Nate, this is Michael. Thank you for joining today. As we mentioned, we have $7 million of additional property under exclusive LOI. In addition to that, I'll just mention to you, we have a number of interesting opportunities as well that we're looking at that could be possibilities for now and year-end. Particularly those properties that are under acquisition that we're doing the due diligence on that were mentioned are consistent with the property types that we currently own.

From a cap rate perspective, the cap rate guidance that we have given has been, generally speaking, from the low 6s to the mid-7s. These particular properties fall into more of the upper end range of what I described in terms of cap rate. I would also mention the lease duration on those properties is very long and will have a very beneficial effect to our remaining average lease term in the overall portfolio and also have lease escalators that are consistent, generally speaking, with what's also in the portfolio.

Just so I heard it right, $70 million, right? It's not $7 million.

I apologize. Yes. Slightly over $70 million, correct.

Okay. This is big difference. Can you just maybe -- I guess you kind of changed the buyback to, right, to be 3 years. I think it's capped at $25 million a year. Just given your comments on pricing for this $70 million, how do you view maxing out to $25 back this year?

As we've mentioned historically, we view the share repurchase option to be a tool in the toolbox. And as mentioned, we acquired a little bit over $7 million worth of our shares at an average price of just over $24, $24.09 per share in the quarter. We had previously -- the Board had previously approved up to $25 million in share repurchases for a 12-month period. And so what the Board has now approved is up to $75 million in share repurchase over a 3-year period, capped at $25 million per year.

So as we see an opportunity potentially with the share price being dislocated from private market values, we will consider that. We did mention our bias is to, of course, grow the portfolio. What I just also want to mention to you about the share repurchases that did occur in the quarter, those occurred at a level that we believe is well over 150 basis points in disconnect between private market values relative to where we saw the value of the company at the time we repurchased those shares. So pretty significant differential of NAV or intrinsic value the way we see it relative to where we bought those shares.

Okay. No, that's helpful. Just the last one. Is there anything on the watch list or tenant issue that we should be tracking or be aware of?

I would say nothing material. I would just mention, just from a watch perspective, we addressed Stoughton, as you know, on this call. I would consider that to be on the watch list, but we've got a very clear strategy around that. And I would also mention, which we did publicly disclose that Landmark Hospitals, of which we own one property, they're an LTAC operator, is in bankruptcy still. However, they've been current on all of our -- all of their obligations to us, which is really just rent during the period of the bankruptcy. And our particular property continues to perform very well and cover its rent.

And we are hopeful and anticipating that they may emerge from bankruptcy, I would say, roughly over the next 60 days and with either potentially a recapitalized sponsor or with a new sponsor of that property, but we feel good about the lease that exists there in terms of that being -- continue to be assumed and in place.

The next question comes from Michael Lewis from Truist Securities.

On Stoughton, I would have thought demolition would have been really quick, although I guess we're getting closer to the end of the year than I realized. Any sense on how long it would take to entitle it and have that land ready to go to market for sale?

Michael, thank you for joining today. The demolition takes some time because it's about 180,000 square foot building. I would also tell you that just going to the market and getting bids to do such a fairly large project, which is the demolition of this has taken some time. We certainly wish it was a shorter time frame. I would also mention there is asbestos in the building. So the asbestos in the building, some of it will be removed prior to the demolition. So it will take -- I'm giving you a rough time frame. We mentioned it should be completed towards the year-end as we are starting now, it is about, call it, 5-ish, 4-, 5-month process.

In terms of entitlement, we've actually been working and talking to various partners on the entitlement. I would also mention to you that we have had multiple occasions of direct dialogue with the town of Stoughton at various levels about entitling the property. And those have gone -- those conversations have gone very positively because the town of Stoughton would like to have some, I would say, revitalization of that property from what it was. It's a large land parcel. But the entitlement process will take some time.

We think it may take us into 2026. But I would tell you, the reason we are taking this tact first and foremost, demolition to reduce the carry cost on the building, which will be -- I think we said majority, it's going to be substantially reduced in terms of those carry costs that we've disclosed per month really to just substantially real estate taxes as that building is taken down. In addition to that, the value that we will realize that we expect to realize, I should say, from simply selling it today as is to an entitled property is going to be what we believe will be significantly greater and benefit our shareholders.

Great. And then on the stock repurchases, how do you measure your cost of equity or the value of those repurchases when you compare it versus acquisition yields because you repurchased at $24, the stock is at $25 today. I think by our math, you're still a materially better yield on the buybacks than on acquisitions, although I realize the acquisitions will have growth and some permanency. But I guess the question is, how do you measure it and decide to do the buyback versus the acquisitions given your stock is still discounted?

I think, Michael, the way to look at it is it's really a combination of investing our capital at a certain cap rate to grow the portfolio, which has benefit in terms of diversification of the portfolio, bringing down certain exposures, for instance, expanding the portfolio to new tenant relationships with buybacks, obviously, are just an economic play, and we're not getting the benefit of that growth, that diversification of the portfolio.

And the way we are evaluating it is we want to see a disconnect, I would say, relative to what we view NAV to be or the intrinsic value of the company of at least 100. And as I mentioned, this was well over 150 basis points relative to where the private market trade is. So you're correct in saying share buybacks from an economic perspective are advantageous to the company and increase our NAV and therefore, shareholder value. We agree with that, and that's why the Board approved this program. And we'll use it selectively and when we think it's appropriate. So I think that our approach is really a combination of the two with our cash available that we've got.

Okay. The core portfolio is 99% leased. Are there any lease expirations or anything that looks like it might change that in the near term? Anything you see on the horizon?

Yes. Let me say that we've done a fantastic job so far this year with our 2025 lease expirations, and we expect to renew all but one of our scheduled 2025 lease expiration. I'll also mention that for 2026, the way we see it today, we have been in touch with every tenant who expires in 2026. And we are optimistic that we are going to be able to renew all of those tenants as we sit here today. Obviously, things can change, but we're optimistic about 2026, which has about 3.8% of our ABR expiring.

This year, by the way, it was about 4.6% of our ABR expiring. We had one tenant that we don't expect to renew. It accounts for about 8,000 square feet of the portfolio, so relatively small of our total over 5 million square foot portfolio. In terms of other vacancies this year, we had one tenant, relatively small in a building in Tucson. It's a multi-tenant building. It was a doctor who apparently, by the way, became ill from COVID-related challenges. He paid all of his rent through last year. The lease remained in place this year. And it was only about 2,000 feet, by the way, that became available this year.

One other property as well in California, which accounted for slightly under 7,000 feet. It was a GenesisCare-related facility. The physicians couldn't really make the property work. They were former GenesisCare physicians. And that property, we held a security deposit. We've applied it to ongoing rent, but that building will be available for sale or lease.

So when I total all of that up, we had 8,000 of expiring lease that we did not renew, relatively small, obviously, for the year, scheduled for this year. And then from the perspective of getting space back, I mentioned the doctor with a couple of thousand feet of exposure in our multi-tenant Tucson building and then a whole building for slightly under 7,000 square feet, 6,900 square feet, roughly speaking, in the California market, Palm Desert.

I appreciate all the detail. It's small exposure, we'll call it.

Small exposure, but I want to be transparent with you. We've been very successful...

Yes. So my final question, and maybe this is a question as much for me as for you and not easily answered, but we see REITs sometimes that get an attractive cost of equity capital and are kind of off to the races and others that sometimes don't ever get that green light. What do you think it is that you need to show to kind of get this cost of equity where it should be? And are investors telling you directly what they would like to see or need to see?

Again, that's a question for you as well as us, right? What I would say is we have been publicly traded for just over a year now. And what we have heard consistently from you and your colleagues in the research community and from investors is clearly, folks don't know the company initially because we didn't do an IPO. We did a direct listing. We did not want to dilute our shareholders because we didn't need to.

We needed to get a few quarters under our belt of steadiness. And I think when -- I'd like to think when you look at the results of this quarter, you can see that we're doing all the right things, whether it's on the acquisition side, whether it's on the leasing side, whether it's as we're dealing with issues that have come up in prior quarters like the Stoughton asset, for instance, or GenesisCare last year.

I think we're really hitting our stride in terms of also ability to grow the company. As you can hear, the year-to-date acquisitions, the post-quarter closing that Chris referred to as well as the properties we have under contract. So I feel like over the next few quarters, if we can demonstrate to the market this consistency, then we should see that recognition in our share price, which is what you're referring to.

From a numeric perspective, after we acquire to the extent we're successful and meaning we just get through due diligence on the $70 million, we'll have the ability to acquire another $100 million worth of property to just get to the very low end of our target leverage range before we start thinking about raising capital. So that's the 4.5x debt to EBITDA. To get to the higher end of that range, which is 5.5x debt to EBITDA, we can acquire, again, after this $70 million, another $260 million.

So what I'm referring to in total is we have another $360 million of capital that we can use to either acquire a property, buy back stock, whatever makes the most sense, probably a combination of the two to the extent our share price doesn't -- we don't see some significant movement there to bring value to our shareholders. So our goal is to get the share price up to grow the company.

We do think we're a differentiated strategy in the health care and the net lease space, and we certainly want the investing community to recognize that. So we think we've got all the right elements today. The portfolio is very strong. We're tremendously liquid today in terms of the capital that we have and we're just starting to hit our stride.

The next question comes from Rob Stevenson from Janney.

What is it going to cost you to demolish the Stoughton facility? And are those costs going to run through the income statement?

The cost will run us approximately $1.9 million, and that's inclusive of any asbestos abatement that we have to do prior to the demolition. I'll let Kay address how it will be treated from a financial perspective in terms of our balance sheet and income statement.

Rob, so that amount will flow through. Given the amount, it may have its own per se line item on our income statement as it comes through, just depends how this is coming through over the next 4, 5 months. But we consider that to be a nonrecurring unusual type expense. And so we would add that back for core or normalized FFO, which would also then flow through as an add-back to AFFO.

Okay. And can you remind us what the current carry costs are on a monthly or quarterly basis on that? And what you expect that to be once the demolition is complete?

Yes. So we had previously, I think, said that we estimated roughly around $120,000 a month. And that will -- that has fluctuated a little bit. It was slightly less this quarter just because of lumpiness of various repairs and maintenance, for example, just to keep the building safe while it's currently up. Those costs will ratchet down each month. And then we believe the kind of run rate carry, which we'll really see the benefit of in 2026 when it's fully demolished to be around $20,000 to $25,000 a month.

Okay. All right. So that's material enough to put [ any ] a share or so. And then Michael or Chris, what's the current thinking for entitlement there for sale, for rent residential, mixed use? What's your latest thinking? And what does the town want to see in your conversations with them?

Great question, Rob. I would tell you, to a degree, the world is your oyster in terms of that and the town views it that way as well. They want to see a new building there. They want to see a use which fits in the community there. The highest and best use probably involves some type of residential, meaning multifamily. It may or may not have a component of, call it, some subsidized housing. It could just be market rental. It could have a component of senior housing. The site itself is quite big.

So I would tell you, for us, we want to maximize value naturally. From the town perspective, I think they see it similarly in terms of the use and just having a new attractive property there that they view to be kind of a destination type location.

Okay. That's helpful. And then, Kay, if you do close the $70 million or possibly more of acquisitions in the coming months, how are you thinking about financing that over the intermediate term? I assume it gets put on the line initially, but does it stay there until rates come down? Do you do something in 2025 with term loans? Or is there some other debt that looks attractive to you at this point? How are you sort of thinking about beyond just the closing funding, but the sort of more intermediate-term funding?

I think for now, yes, we would use our revolver to fund the acquisitions. It remains to be seen what ultimately happens with interest rates. As you know, that's a hot topic daily with the Fed and the economy. But since we don't have anything and I think we talked about this last quarter a little bit, Rob, we don't have any looming maturities. We do think perhaps our next form of debt would be longer-term debt and a private placement, but I would not call that imminent. And then obviously, as our leverage ticks up and if we do, in fact, like our share price, we can tap the equity markets to delever as well. So -- but the revolver for the short to medium term.

Okay. And then last one for me. Michael, just curious as to what the thinking is of the Board in putting that sort of $25 million, whether or not it was in the 1-year program or now on an annual basis on the 3-year program, governor on the program. They worried that Kay and Miles were going to go wild on repos.

I think the Board has a view that they would -- that we have a unique platform here that we are scaled to grow. The Board, of course, is very supportive of the strategy. And we've seen obviously a pretty quiet market, just generally speaking, in the commercial real estate market and in the capital markets, right, over the last 3 years. And I think they view our business strategy to be very sound and have a lot of legs to it. So I think the Board wants to give the tools to us to be nimble, but they also want to see an opportunity to see this company grow.

There are no further questions at this time. I will now turn the call over to Michael Seton. Please continue.

I want to once again extend my sincere thanks to the entire team at Sila. Their hard work and dedication continue to drive our success. On behalf of our leadership team and Board of Directors, we deeply appreciate the support of our shareholders, and we will do everything in our control to ensure that Sila remains a sound investment opportunity for both existing and future shareholders. Thank you all, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.