Q3 2025 Sila Realty Trust Inc Earnings Call

Speaker #1: Good morning and welcome to Sila Realty Trust, Inc. third quarter 2020 Earnings Conference Call and Webcast . All participants will be in listen only mode .

Speaker #1: Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero . I will now turn the conference over to your host , Drew Myles , senior Associate of Capital Markets and Investor Relations for Sheila .

Speaker #1: You may begin .

Speaker #2: Good morning and welcome to Sila Realty Trust, Inc. Third Quarter 2020 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 Sila Realty Trust, Inc. .

Speaker #2: 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 .

Speaker #2: Forward looking statements are identified by words such as will be , intend , believe , expect , anticipate or other comparable words and phrases .

Speaker #2: 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 .

Speaker #2: 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 .

Speaker #2: 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.

Speaker #2: With that , I will turn the call over to Michael Seton , our President and Chief Executive Officer .

Speaker #3: 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, Inc. investing platform .

Speaker #3: 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 .

Speaker #3: During the quarter, we made significant strides to further expand our net lease healthcare real estate portfolio by making several key investments in lower-cost patient settings.

Speaker #3: 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 healthcare real estate that is central to our investment thesis .

Speaker #3: These buildings are anchored by investment-grade affiliated tenancy and benefit from strong operational synergies. They are strategically located in Southlake, Texas, an affluent suburb of Dallas.

Speaker #3: 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 .

Speaker #3: Furthermore , the ownership of affiliation with and proximity to Baylor Scott and White Medical Center enhance the overall tenancy . Acting as a referral network for strong patient volumes .

Speaker #3: In addition to the Southlake acquisitions , during the quarter , we closed on the $70.5 million reunion nobis portfolio , which is comprised of two newly constructed state of the art inpatient rehabilitation facilities located in Plano , Texas , and Peoria , Arizona .

Speaker #3: These purpose built facilities , operated by an experienced and well regarded partner in Novus Rehabilitation Partners , serve two of the fastest growing markets in the United States .

Speaker #3: Both the Southlake and Reunion Novus transactions , which total approximately $87 million , demonstrate our laser focus on acquiring best in class net lease healthcare assets to markets with strong and growing demographics .

Speaker #3: 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 .

Speaker #3: In the first example, Pam Health entered into an amended lease in May for a facility that we own in San Antonio, Texas, whereby Selah is providing approximately $5 million of capital at an attractive yield for the property's redevelopment.

Speaker #3: 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 Selah , as it has anticipated repositioning the facility to better serve the San Antonio marketplace .

Speaker #3: Base rent will increase to reflect Selah's additional capital deployment upon commencement of operations , and will also enjoy the benefit from a new 20 year triple net lease term .

Speaker #3: 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 .

Speaker #3: Selah 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 .

Speaker #3: Selah 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 .

Speaker #3: This development will add nearly 13,000 ft² 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.

Speaker #3: As a final example, we expect to have a similar expansion in capital deployment opportunity at our Pam Health and University of Kansas ERF in Overland Park, Kansas, which is anticipated to cost approximately $16 million.

Speaker #3: This expansion will add two 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 concerted response to the ongoing demand for high quality healthcare services in the markets in which we operate .

Speaker #3: These expansion opportunities underscore our consistent ability to enhance value for cialis shareholders , generating cash yields on our incremental capital deployment of typically 150 basis points or better beyond our acquisition .

Speaker #3: Cash cap rates , real estate ownership often presents opportunities to provide capital to a captive audience . Our existing tenants , utilizing our existing portfolio .

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 retention in 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 K 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 creative 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 South Lake and Reunion Novas portfolios, as well as reduced carrying costs at Stoughton, as demolition of the building is underway.

Our third quarter AFO 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. No items mentioned previously, an increase notes, receivable interest income related to our fully funded, mezzanine loans, compared to the second quarter of this year afo per share increased 4.2%, primarily driven by the Acquisitions mentioned previously, increased interest income from our mezzanine loans and a decrease in GNA.

4% to 75.8% and collectively reported in i-bidder rent coverage ratio of 6.19 times up from 5.31 times from the second quarter of 2025.

This increase in coverage was largely driven by 1 tenant which possesses a high eidar rent coverage ratio. That was recently added into the reporting population due to a lease assignment.

Without this 1 Tennent, our average even coverage ratio would have remained at 5.31 times 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 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 dollars of available funds resulting in total liquidity, exceeding 476 million. While our net debt to ivari ratio of 3.9 times remains below our targeted range.

The combination of a robust balance sheet, low to moderate leverage, and a prudent AFO pair ratio of 71% for the quarter reinforces our confidence in our ability to maintain a sustainable dividend and to grow our portfolio thoughtfully and creatively.

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 4th 2025.

Limited to 25 million in growth proceeds in any 12-month period, we did not purchase any shares under the program during the quarter.

Additionally, on August 12th. 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 reads have done to add another tool in our toolbox to be readily available. When we are able to accreted 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 healthcare assets. We seek tenants of at least the quality that operate in growing markets close to the patient.

With that, we look forward to taking your questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session.

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1 moment, please for your first question.

Your first question comes from Rob Stevenson from Jamie. Please, go ahead. Good morning, guys. The CHS termination payment, was that in the third quarter or is that going to be in the fourth quarter? And how much was that?

Morning Rob. Thank you for joining. Um, that's 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 to 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 hundred thousand dollars

You're going to that's going to net out again, some of the, uh, Louisiana departure, anything else of note positively or negatively, uh, likely to impact the income statement in the fourth quarter versus the third quarter.

Yes. Um, the main things I would factor in, um, would be continued, decrease carry costs for Stoughton. So as that more and more, that building comes down the carry, uh, is reduced. We're I think roughly about 75,000 a month.

Um, as we get to the end of the year and we expect that to be roughly about 35,000 a month, um, into 2026. However, Our intention is also to um, appeal real estate taxes and to drive that down even further. Um, once that occurs, um,

in terms of, uh, we added a, a clarification on deferred rent, we have, um, deferred rent. We're receiving Michael spoke to and his, uh, prepared remarks on a 1 of our, um, 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'll just be up at the top as opposed to add it in, uh, for afo. Um, we do think GNA for the year will come in below previous, um, communicated range, uh, previously we had, we had indicated a range of 22 and a half.

To $23.5 million for GNA. We do believe we will be at the low end, if not slightly below that, uh, that range for 2025.

Um, we do have demolition costs. Of course, those, uh, if you've uh, seen our supplemental or added back for core and AFFO, are 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, um, into the very early parts of 2026.

Um and the only other item that's a little bit seasonal in nature is just any acral is related to um 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 its, 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. Um, as a stock price is sort of, excuse me, move below 240 million transaction in early 26th, how much more capacity do you have, uh, and stay within your targeted leverage, um, ranges to do additional deals without needing to issue Equity at these type of levels.

We estimate something around 200 to 220 million dollars, to hit the midpoint of our communicated leverage Target, which we had previously stated would be 4 and a half to 5 and a half times net debt to ibida. So to around 5 times, uh is 200 million dollars. Roughly okay, that's extremely helpful and then last 1 Michael as you're looking at the you you, whatever you guys refer to it internally but essentially a tenant credit watch list um and you look back. You know a couple of quarters. Is that list getting shorter? Is it staying the same? Um, is it increasing is, you know,

You know, operators have difficulty, how do you sort of characterize, the sort of evolution of your uh your credit watch list these days. And where is that likely to be going? Is we enter the beginning of 26?

I would say that, um, you know, we're cautiously optimistic, we had a very good uh, rent collection year this year. Um, you know, I would tell you we're more focused uh, on uh, lease maturity um, and obviously renewal rates for those leases. As we look forward, we have long lease duration in the portfolio as you well, know. Um, I don't, I wouldn't tell you the watch list is per se increase, we have things, move up, we have things moved down. Um, I think we had a very solid year in 2025, we're obviously not done yet but um, you know I'm, I'm optimistic as we go into next.

So, we feel good about who we're aligned with on the tenant side.

Okay, that's helpful. Thank you, guys. I appreciate the time this morning.

Thank you, Rob.

Thank you.

Your next question comes from John chowski from Wells. Fargo, please go ahead.

Hi, good morning out there. Uh, my first 1 is just on, uh, Capital deployment and where you find opportunities that are most attractive. I mean, given where your stock is trading today, just, you know, maybe rotating out of some non-core assets, Surgical Specialty and buying back stock here. Get more attractive relative to going the asset base. I'm curious what that spread needs to be for you to say. That's where incremental dollars should go.

Good morning, John. Thank you for joining. Um, you know, we found opportunities—I'll speak at first to really 2025 thus far. The opportunities that we found have been more in the Earth space than, you know, the other spaces that we target. Of course, M is a key area of that. Um, we've seen a lot of M mob sales. I mean, volumes are down admittedly from, you know, years ago. But we've seen a number of M 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 Earth’s, where we can get long WALTs, we can get high-quality operators, and we can get demonstrated performance in the portfolio. So that’s what we've clearly found in the.

The Nova's transactions. That's clearly what we found in the transaction that I'm referring to. Um, that we may close on, uh, in January subject to our due diligence from the capitol recycling perspective. Um, we're long-term owners of real estate. Sure there are things that, um, we have on the radar and we do have a list of, uh, properties that could be potential dispositions. I would say those tend to be a little bit more event driven, whether they're tenant driven, um, could be an issue with the tenant or is it relates to a tenant simply wanting to own the real estate, which we have a number of those, um, occurring as well? So, um, I don't know that they'll come to fruition. Nothing is, um, per se penned in. There's some discussions taking place but as we look at those opportunities, I think the we we um, are, I would say slanted and Prejudice towards deploying capital in new Investments at this point. Um, obviously we are very aware of our our share price in terms of cost of capital availability.

To raise it, you know, future equity capital.

Pay gave some uh numbers as it relates to um ranges where we can, you know, expect to level up to um and the run the way that we have. Um, that being said the board did approve, a share of purchase program. So we've got really, I would tell you all the tools and the tool box Capital ready to deploy, certainly properties that we could sell or we could invest those or buy back shares of course, and then the share repurchase program. So we're

Remaining nimble, um, in terms of our approach to capital deployment,

Well, that was very helpful. And I guess, you know, as you think about, you know, obviously, you're you're still tilted towards the, uh, the acquisition side. I guess when you talk about the, the development opportunities that you're seeing there a little bit higher yielding and you look at your leverage capacity. I think the number was 200.

Um, what percentage of that do you think could be deployed into maybe some of those opportunities relative to just the the fee? Simple Acquisitions that. You know, you noted cap rates are getting a little bit tighter here.

We like the we we as you know, had done late last year now um those Lynchburg mezzanine loans and we like those kinds of opportunities because they're, you know, double digit mid teams type returns. We recognize that is interesting. Come, you know, uh, for purposes of income purposes, so it's current development deals. Um, if we're funding the development as Equity owner, um, really the income gets recognized when that property goes into service, um, that being said, uh, when we talk about expansion opportunities within our portfolio, those are relatively short-term constructions, 12 months or less, um, and those yields that I mentioned, um, you know, 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 and that particular Marketplace, but we love those opportunities because the tenants also captive to us because we own the underlying land, for instance,

Marketplace today. Um, you know, I think banks out there are willing and and able to do, you know, for instance, you know, mob transactions but you know in the rehab space there's probably more limited folks willing to do those kinds of transactions on the lending side. So um we want to be a partner um to those developers and to those tenants that want to expand

Okay, thank you. Last 1 for me. If you wouldn't mind. Just on the opening remarks, you made the comment about the Alexandria tenant and I apologize. I apologize if I missed this but that move out that's happening in October. Is there a like, you know, do we have any expectations on what's going to happen to rent for Q?

Um, yeah. So they they were they had a, they were scheduled to expire already in uh, Late July. Um, and as mentioned in the remarks, I mean we had a lease out for signature with them. They paid hold over rent through the months of August through. Uh, October. Um, so full rent, plus the 25% additional hold of a rent and we do have an expectation, um, that they may need another month of staying there. Um, so we may very well get uh November uh rent withhold over. Um, 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. Um, so but that's the indication to us at this time.

Okay, thank you.

Thank you, John.

Thank you Lisa man, as a reminder. If you wish to ask a question, please press star 1.

Your next question comes from Michael Lewis from trust Securities. Please go ahead.

Great. Thank you. Um, as far as these development or expansion projects, um, how do you know when, once 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, um, you know, evaluate it? Um, you know, how do you get comfortable with those? And, you know, you've got the right one.

Good morning, Michael, thank you for joining. Um, I would tell you, it's, you know, vast majority of the time. It's really an inbound from the tenants. So we're monitoring, as you know, the financials of these operations, the operations in a particular case may be doing very well in that property. May be busting at the seams essentially. And that tenant, um, is saying, hey, there's a market. Uh, so we'll often review those performance, um, of the tenants saying, hey, this is what it looks like if we add this number of beds. Um, 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 continued. And, um, and the construction, um, you know, goes on

Um, so I would tell you it's really in, it's really communication from the tenant. Of course, we monitor, so we know which properties, you know, are good candidates for those. And we do market our tenants and say we're here to be your partner. Provide Capital.

Okay, great. And then um, this is an old question I guess but still relevant. Um, you know, as as the shutdown goes on and the battle, you know, seems mostly focused on these ACA subsidies. Um, you've got good coverage of the portfolio. Is there any risk? Um, anywhere you see if the

I guess call it the Republicans Prevail and those subsidies um go away.

Yeah, that I mean, that's a great question. I mean, as you know, we're not, you know, acute care hospital owners per se short-term and acute care, hospitals, owners per se, we're focused on, you know, outpatient procedures settings, um, you know, lower cost patient settings. So, even when we have a situation where there may be a hospital partner, which we have a number of flight Point transactions like that, in fact, all of our life Point transactions are really like that. Um, we're not looking really to the hospital Credit in that case, we're looking to the site performance. Uh, and those transactions, we like the benefit of The Branding of hospitals related to, um, you know, marketing and patient recognition. But from an operational standpoint, we're not looking to those. I do think that it's, you know, we're going to see, uh, even if even if there is some

Cost patient setting opposed to cute spaces. So, um, the rehab, and of course we own some lakhs 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, um, you know, I would tell you it's not good for the whole healthcare marketplace, just generally speaking. But again, with our focus, we think we'll be pretty well insulated.

Okay, thanks and then um, lastly from me so you've got the 8 ATM program. You've got the buyback program. Um, is there are you closer to 1 or the other or does neither 1 of those look attractive here? Does it depend if an opportunity pops up? Um, how how do you think about that?

Well, um, we've read your reports Michael and I think you have a, a a, you know, a good when you think about any of the, for instance, for us, not necessarily price Target, um, 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, um, we don't think this is the right level to do it. So we do feel we're trading at a, at a pretty substantial discount so that leads into of course, your um, the alternative which we could be doing. And, you know, I think that that's always the top of the conversation, uh, in the company and with the board.

Um, we want to be thoughtful about how we're spending money. We all, if we only have a dollar, we only have that dollar to spend so we want to put it in the right place. Um, I mentioned from an acquisition standpoint that we had done. Uh, 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, you know, base case scenario kind of relatively consistent with that.

And I think that's a fair statement. Uh, could be more if we find the right opportunities but um, at the end of the day, um, you know, we want to be thoughtful and we want to be also um, you know, what's critical in our minds is also the uh the quality of our balance sheet as well.

Great. Thank you.

Thank you, Michael.

Thank you.

Jason Yellman: There are no further questions at this time. I will now turn the call over to Michael Seiden, CEO, for closing remarks. Please go ahead.

I would like to once I once again, extend, my sincere, thanks to the entire seal of the 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.