Q2 2025 Community Healthcare Trust Inc Earnings Call
Jamie: 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 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, July 30th, 2025, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements.
Good day, everyone and welcome to community Healthcare Trust's 2025 second quarter earnings release Conference call.
On the call today, the company will discuss its 2025 second quarter financial results.
Well 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 Dot C. H C T Dot 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 32025, and may contain forward looking statements that involve risks and uncertainty.
Actual results may differ materially from those set forth in such statements.
Jamie: 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 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 two 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.
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 M. D N 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 two is available and 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.
Jamie: Now I would like to turn the conference call over to Dave Dupuy, CEO of Community Healthcare Trust. Please go ahead.
Now I'd like to turn the conference call over to Dave Dupuy CEO of community Healthcare Trust. Please go ahead.
Dave Dupuy: 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, our 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 8K, along with our quarterly report on Form 10Q. 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.
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, Our Chief Accounting Officer, and our new senior Vice President of asset management Smartcards.
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 and.
In addition, an updated investor presentation was posted to our website last night.
As previously announced Jim Meyer departed the company effective May 31, we are excited to have mark onboard as our new senior Vice President of asset management.
He has over 25 years of health care real estate experience, including leasing and managing medical outpatient properties.
Most recently in leadership positions with well tower and L. Pic.
Dave Dupuy: 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 17th, 2025, the tenant signed a letter of intent for the sale of the operations of all six of its hospitals to an experienced behavioral healthcare 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 six geriatric hospitals owned by Community Healthcare Trust Incorporated.
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 had been unable to pay us full rent and interest.
As discussed on previous calls the tenant has been exploring strategic alternatives.
<unk> 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 six 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, we signed new or amended leases for the six geriatric hospitals owned by <unk>.
Dave Dupuy: The tenant and Community Healthcare Trust Incorporated are in active negotiations with the buyer, so we can't share more details at this time. 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 90.9% to 90.7% during the quarter, but we continue to see good leasing activity in the portfolio.
The tenant in thet 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 collectability of the remaining interest balance and unreserved notes related to this tenant we're not reasonably assured.
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 260000 from the tenant.
That is included in revenue compared with 165000 in the prior quarter.
As for other components of the business, our occupancy decreased slightly from nine 9% and 99% to 97% during the quarter, but we continue to see good leasing activity in the portfolio.
Dave Dupuy: We have three 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 9th, 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 six properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million.
We have three properties were significant portions of them that are undergoing redevelopment where significant renovations with long term tenants in place when the renovations or redevelopment is complete one of those projects commenced its lease on July one.
Due to some free rent built into the lease we expect this property to contribute <unk> later in the fourth quarter of 2025 and into the first quarter of 2026.
So we did not acquire any properties during the second quarter of 2025.
On July nine 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 nine 4%.
Also we have a signed definitive purchase we have signed definitive purchase and sale agreements for six 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 nine 1% to 975%.
Dave Dupuy: 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 five 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 expect to close on one of these properties in the fourth quarter with the remaining five properties closing throughout 2026 and 2027.
Considering the Companys 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 600000 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 <unk> 47 to five per common share.
This equates to an annualized dividend of $1 89 per share.
Dave Dupuy: 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 Monroe 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 reported an $8.7 million credit loss reserve on the notes receivable from this tenant, which utilized the signed letter of intent's 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.
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.
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 tenants 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 and.
In addition, we recorded an $8 7 million credit loss reserve on the notes receivable from this tenant which utilized a signed letter of intents valuation of the tenants operations.
Next let me detail the impact related to the departure of our former executive Vice President of asset management.
Dave Dupuy: Within general and administrative expense, we reported 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. 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.
Within general and administrative expense.
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 <unk> by 2008.
And <unk> by <unk> <unk> 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 $37 million.
When comparing this $37 million to our total revenue in the first quarter of 2025, which was $31 million our core portfolio would've achieved two 2% total revenue growth quarter over quarter.
Moving to expenses property operating expenses decreased by approximately $500000 quarter over quarter to $5 6 million for the second quarter of 2025.
Dave Dupuy: 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. 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.
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 $400000 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.
400, <unk> contributions and employer tax payments from stock vesting during the first quarter.
Dave Dupuy: 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 one-time 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 one-time items I discussed earlier. That concludes our prepared remarks.
Interest expense increased by $240000 quarter over quarter to $6 6 million in the second quarter of 2025.
Cause 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 this quarter compared to the first quarter.
Moving to funds from operations <unk> on a diluted common share basis was <unk> 23 in the second quarter of 2025, but remember that this was reduced by the 28 with one times one time items I discussed earlier.
Adjusted funds from operations, or <unk>, which adjusts for straight line rent and stock based compensation totaled $13 6 million in the second quarter of 2025, which on the diluted common share basis was <unk> 50.
Also remember that this was reduced by the <unk> of one time items I discussed earlier.
That concludes our prepared remarks, Jamie we are now ready to begin the question and answer session.
Dave Dupuy: Jamie, we are now ready to begin the question and answer session.
Jamie: Ladies and gentlemen, at this time, we will begin the question and answer session. If you would like to ask a question, please press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question.
Ladies and gentlemen at this time, we'll begin the question and answer session. If you'd like to ask a question. Please press star and then one using a touchtone telephone to withdraw your question you May Press Star two.
If you are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
Once again that is star and then one to join the question queue.
Our first question today comes from Rob Stevenson from Janney. Please go ahead with your question.
Rob Stevenson: Good morning, guys. Dave, the acquisition that you did, was that out of the 100-and-some million dollar pipeline? Because I think it was seven assets before and now down to six. Is that accounting for that?
Good morning, guys.
Dave the acquisition that you did.
Was that out of the.
$101 million pipeline, because I think it was seven assets before now down to six.
Bill Monroe: That's correct.
Accounting for that correct.
Rob Stevenson: Okay.
Bill Monroe: Yeah, that is right.
Yes, that's right.
Rob Stevenson: 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?
Then how are you guys thinking at this point about funding the remaining 25 acquisition out of that pipeline, given where the stock prices now.
Dave Dupuy: Yeah, no, we are very focused on not wanting to continue to just fund those under the revolver. 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.
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.
Would pay for.
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.
Rob Stevenson: Okay. 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, you know, nothing's certain, but the likelihood of a deal happening there is strong enough that you've got things to focus on elsewhere at this point?
Hey.
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.
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.
Dave Dupuy: Look, until the transaction closes, we are going to be very, you know, involved. Obviously, we have got significant interest in making sure that this transaction goes through. We think we have got the ingredients to get the transaction closed, which is an interested buyer, an interested seller, and obviously us as a meaningful debt holder. You know, we think that this is the best buyer, and so we are excited. They have very similar properties in the portfolio. It is a, they have financial resources, they have a good management team, and so we are excited about it. We did have other interested buyers in the process.
Look until the transaction closes we're going to be very <unk>.
Involved obviously, we've got significant interest and making sure that this transaction goes through.
And we think we've got the ingredients to get the transaction closed, which as an interested buyer and interested seller and obviously us as 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 theyre doing additional diligence work.
Dave Dupuy: So if for whatever reason during this period of time where they are doing additional diligence work, they would, you know, step away or we do not 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 are happy with where we sit today, but, you know, we are laser-focused on making sure that this gets closed, ideally by year-end.
They would.
Step away or.
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.
Yes.
Laser focused on making sure that this gets closed.
Daily by year end.
Rob Stevenson: All right. Then I guess the other question there would wind up being, it has, you know, 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 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 would be relatively minor to get leased?
Alright, and then I guess the other question there would wind up being.
It 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 new lease would be signed by either is that either the buyer of that company or some other tenant or are you anticipating at this point.
Any type of further investment in those assets in the near term, we have relatively minor to get leased.
Dave Dupuy: Yeah, no, it is a fair question, but you know, we do think that any sort of work on the buildings would be relatively minor. I don't think in general, you know, 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 those buildings ready for the next buyer.
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.
Rob Stevenson: Okay. 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 a, you know, that for 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?
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.
For 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 would be impacting that that we should be thinking about as we update our models.
Bill Monroe: As you know, we don't get into guidance, but you're right to be thinking about what were the one-time items that affected this quarter to look at, you know, what would have a more normalized second quarter look like.
Yes, as you know we.
Don't get into guidance, but you are right to be thinking about what were the onetime items that.
That affected this quarter to look at what would've.
More normalized second quarter looked like.
Rob Stevenson: Okay. Thanks, guys. Appreciate the time.
Thanks, guys I appreciate the time.
Bill Monroe: Thanks, Rob.
Thanks, Rob.
Jamie: Our next question comes from Connor Mitchell from Piper Sandler. Please go ahead with your question.
Our next question comes from Connor Mitchell from Piper Sandler. Please go ahead with your question.
Bill Monroe: Hey, good morning. Thanks for taking my question. I guess first, just going back to the transaction environments and funding possibilities, you guys have used the revolver recently, focusing on capital recycling instead. 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 to use on the revolver or a leverage metric? I would say where we are now, obviously, is a level that we're comfortable with, but as Dave Dupuy 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. We obviously have availability under revolver and significant availability and cushion to our covenant levels within our revolver.
Hey, good morning, Thanks for taking my question.
I guess first is going back to the transaction environment and.
Funding possibilities.
You guys have used the revolver recently.
Focusing on capital recycling. It said, but 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 to use on a revolver or a.
Our leverage metrics.
Yes.
I would say where we are now.
Obviously, it 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 our revolver and significant.
<unk> ability.
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.
Bill Monroe: 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.
As we kind of look forward over the next few quarters.
Rob Stevenson: Okay. So it is almost using the capital recycling approach instead of the ATM in the current environment, if I am understanding correctly.
Okay.
It.
It's almost using the capital recycling approach instead of the ATM in the current environment, if I'm understanding correctly.
Bill Monroe: That's correct.
That's correct.
Rob Stevenson: Okay. Turning to the geriatric tenant as well, focusing more on the credit loss and the notes receivable related to the tenants. I just want to make sure if there are any other notes receivable with other tenants that are outstanding. Also, how you are thinking about that process going forward if that remains a possible transaction process with other tenants, either in the portfolio or potential tenants in the future.
Okay, and then just turning to the geriatric tenant as well.
Maybe focusing more on the credit loss in the note receivable related to the tenants just want to make sure. If there is 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 youre thinking about that process, maybe going forward, if if that remains a possible.
Yeah.
Transaction process with other other tenant either.
In the portfolio or potential tenants in the future.
Dave Dupuy: I think, and Bill Monroe, stop me if I am wrong, but I think we have got two notes remaining that have an outstanding balance of approximately $4.1 million. We have, after, you know, the reserve against these notes with the geriatric site tenant. Connor Mitchell, I hear you. This business went through a really difficult time during COVID, opening two 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. It is suffice it to say, doing a similar amount of leverage with a tenant is not something that is core to our business, nor it is something we would look to do going forward.
So I think and Bill will stop me, if I'm wrong, but I think we've got two notes remaining that have an outstanding balance of approximately $4 $1 million. So we have.
After.
The reserve against these notes with.
Geriatric site tenant and yes, Conor I hear you look.
This business went through a really difficult time during COVID-19.
Turning to 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.
Got to leverage levels that ultimately were not sustainable based on how the business has performed over the last year or so.
And suffice.
Suffice it to say.
Doing a similar amount of leverage with the tenant is not something thats quarter, our business, nor its something we would look to do going forward. So.
Dave Dupuy: Yes, we are focused on getting, you know, assurance resolved and having a strong operator, you know, taking over leases in our existing properties. As we have said before, we would not look to lever up with another tenant going forward. We really have not with our track record. This was an unusual situation and an unusual time during COVID.
So yes, we are.
We're focused on getting.
Assurance resolved and having a strong operator.
Taking over leases in our in our existing properties.
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 is this was an unusual situation in an unusual time during COVID-19.
Bill Monroe: Yeah, of course. No. The two notes that are remaining on the balance sheet for the $4 million, just an update on those tenants. They are in good standing. Then maybe just the watchlist overall as well. If there is any other new tenants that might be popping up or if you are seeing the trend kind of go more positive instead and seeing tenants fall off the watchlist.
Yeah of course no.
And then so the two notes that are remaining on the balance sheet for $4 million.
Just an update on those tenants they are 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 are seeing the trend.
To go more positive et cetera.
Tenant fall off the watch list.
Dave Dupuy: Yeah, so as far as the notes go, yes, the tenants are paying and performing as expected. We feel good about those notes and no issues associated with those. Our watchlist has remained pretty consistent. As I've mentioned in prior calls, we have 15 to 20 names that are on that tenant watchlist. Some names will come on while other names come off based on working through various tenant issues. We've got over 300 tenants. That's kind of a normal process for us. I'd also mention that there are no other top 10 tenants that are on our watchlist this quarter. I know that's been a question that's come up before. 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. I think our tenants overall are performing well.
Yes.
As far as the notes go yes, the tenants are paying and performing as expected and we feel good about those notes and no new 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.
We will some names will come on while new.
The 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 mentioned 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 our tenants' overall are performing well, but.
Dave Dupuy: We'll always manage those watchlist tenants aggressively and make sure that they continue to perform relative to our expectations.
We will always manage those watch list tenants aggressively and make sure that they continue to perform relative to our expectations.
Bill Monroe: Okay. Appreciate all the colors. Thank you.
Okay I appreciate all the color. Thank you.
Dave Dupuy: Thanks, Connor.
Thanks Connor.
Jamie: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Michael Lewis from Truist Securities. Please go ahead with your question.
Once again, if you would like to ask a question. Please press star and then one to withdraw your questions you May press star two.
Our next question comes from Michael Lewis from <unk> Securities. Please go ahead with your question.
Michael Lewis: Great. Thank you. 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? In this agreement, was the rent level set in the term of the lease and all that, or is that still to be negotiated?
Great. Thank you.
Is there anything more you could say regarding the strength of this new operator since there presumably set to become one of your largest tenants and.
This agreement was the rent level set in the term of the lease and all of that or is that still.
And being negotiated.
Dave Dupuy: So, Michael, how are you? It is 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 healthcare space, but also specifically in geriatric psychiatric, 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. I think most folks that are in the behavioral space would recognize the name if we told you who the name was. We feel very good about the operator. We think it is a very qualified operator. Then your second question, remind me what your second question was.
So.
Michael how are you 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 sake.
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 koala.
Operator.
<unk>.
And then your second question remind me what your second question was.
Michael Lewis: I was just wondering if the rent level and the terms of the lease were part of this agreement or if that is still to be negotiated.
I was just wondering if the rent level and in terms of the lease where we're part of this agreement or if that's still to be negotiated.
Dave Dupuy: Those aspects are still in negotiation. Basically, we are negotiating that part with the new tenant, prospective new tenant and buyer. They are continuing to do their due diligence with the platform. We are working through that right now.
So those aspects are still in negotiation.
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.
With the platform so that as we're working through that right now.
Michael Lewis: Okay, got it. As far as the notes, the assurance notes, you talked about that you took the reserve. To just put a point on this, what is the chance of collecting all or part of the interest of the principal load on those notes?
Okay got it and then.
As far as the <unk>.
Note. The assurance notes you talked about that it took the reserve maybe to just put a point on this I mean whats the chance of.
Collecting all or part of the interest and the principal owed on those notes.
Dave Dupuy: Look, I think part of why we reserve the remaining balance of the notes is we do not believe there is 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 do not 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 should not expect a $5 or $10 million recovery here. I think that would, again, would work to make sure that that happens, but we are not expecting it.
Look I think part of why we reserved the remaining balance of the notes is we don't believe there is going to be a meaningful pick up.
Sure.
Are very focused on trying to get as much as we possibly can in this transaction.
But.
Part of the reason, we reserved the remainder of the notes and interest is because we don't think there is a meaningful.
All of that being said.
That that can evolve and change, but I think for the purposes of everybody's models, we shouldnt expect.
Yes.
Five or $10 million recovery here I think.
Again, we would work to make sure that that happens, but we're not expecting it.
Michael Lewis: Okay. Back to this question, you asked a couple of times about how you will pay for the pipeline of acquisitions. How much can be bought in 2025? Is there flexibility as far as the timing? You know, something stabilizes and you have kind of a window. I am also wondering, is there any chance, maybe it is early to answer this, is there any chance you could pass on one or more of these? Is that an option?
Okay.
Bulk of this question.
I asked a couple of thoughts about how you will 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 is that an option.
Dave Dupuy: You know, these are under purchase and sale agreements. So it is not our, we would not anticipate looking to pass on these. We view this as very attractive real estate, you know, in great markets. And so it is our desire to, you know, move forward with these acquisitions. So, you know, 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 have talked about pay for this because as we have, you know, discussed in prior calls, we do not want to overlever the balance sheet. So we are committed to doing that. But yeah, I mean, look, like I said, these are very attractive assets.
These are under purchase and sale agreement. So it is not our we would not anticipate looking to pass on 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 and 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 close without adding meaningful leverage to our to our balance sheet.
Dave Dupuy: 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.
Michael Lewis: Okay. How did the disposition cap rates compare with the acquisition yields?
Okay, how does the disposition cap rates compare with the acquisition yields.
Dave Dupuy: The, you know, it is still early. We have got to bring these things in to, you know, closing. I would say somewhere between the seven and a half and eight range is kind of where we are thinking that these things would close and could be even better than that. I think seven and a half to eight is what we are looking at.
So that it is.
Still early we've got to bring these things into.
Closing, but.
I would say somewhere between seven 5%.
Eight range is kind of where we're thinking these things would would close and could be even better than that but I think seven 5% to eight is what we're looking at.
Michael Lewis: Okay, great. 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 is your expectation for core occupancy? Do you think that goes up or down over the next four to six quarters?
Okay, Great and last one for me.
Looking at your lease expirations coming up 5% of the portfolio in the second half of this year at 12% in 2026.
What's your expectation for core occupancy do you think that.
It goes up or down over the next four to six quarters.
Dave Dupuy: You know, I think we have, and part of the reason we made the change we did is we have got a lot of embedded value in our portfolio. We do not feel like we are doing or have been doing as much as we can in terms of, you know, driving occupancy where we think the portfolio can go. So look, Mark has got to get his footing, and he has been with us now a little over two months. You know, his background and experience and everybody's focus is on really driving the core portfolio's performance. We think we have got a good head start even before Mark got here. I think we will continue to make progress from that perspective.
I think we have been 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 were 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 is he has been with US now little over two months.
But his background and experience and everybody's focus is on really driving the core portfolio is 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.
Dave Dupuy: My thinking is, you know, we ought to be over the next, you know, into 2026, we ought to be able to add, you know, 100 bps or more to our occupancy. It is going to take us some time to get there. You know, this is not something that is going to happen overnight. It is going to take a lot of hard work. Everybody in the company is very focused on making sure that we drive performance in the portfolio. So, you know, leasing is obviously going to be a big part of that. So, you know, it is work to be done, but we feel like we have got the right team to do that work.
My thinking is.
We ought to be.
Over the next into 2026, we had 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.
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.
Its work to be done, but we feel like we've got the right team to do that work.
Michael Lewis: All right. Thank you very much. Appreciate it.
Alright, Thank you very much appreciate it.
Dave Dupuy: Thanks, Michael.
Thanks, Michael.
Jamie: Ladies and gentlemen, at this time, we will be ending today's question and answer session. I would like to turn the floor back over to Dave Dupuy for any closing comments.
And ladies and gentlemen at this time, we will be ending today's question and answer session.
Like to turn the floor back over to David <unk> for any closing comments.
Dave Dupuy: Jamie, thank you very much. Thank you, everybody, for joining the call today. I look forward to talking to you later this fall.
Jamie Thank you very much and thank you everybody for joining the call today I look forward to talking to you later this fall.
Jamie: With that, ladies and gentlemen, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
And with that ladies and gentlemen, we will conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.
Okay.