Executive Summary / Key Takeaways

• Community Healthcare Trust (CHCT) is a specialized healthcare REIT focused on income-producing outpatient facilities, demonstrating consistent dividend growth since its IPO.
• Recent financial performance shows solid revenue growth, though profitability has been impacted by significant credit loss reserves and severance costs related to a troubled geriatric tenant and an executive transition.
• The company has strategically pivoted to a capital recycling program, utilizing asset sales to fund accretive acquisitions and maintain modest leverage, thereby mitigating the impact of a depressed share price on equity issuance.
• A substantial acquisition pipeline and the anticipated resolution of the geriatric tenant situation are expected to be key drivers for future Adjusted Funds From Operations (AFFO) growth and occupancy improvements.
• CHCT's competitive edge stems from its niche focus on outpatient services, geographic diversification, and strong tenant relationships, rather than proprietary technology, allowing for operational agility in a competitive landscape.

Community Healthcare Trust: A Focused Approach in Healthcare Real Estate

Community Healthcare Trust Incorporated operates as a self-administered, self-managed healthcare real estate investment trust (REIT), specializing in the acquisition and ownership of properties leased to a diverse array of healthcare service providers. These include hospitals, doctors, healthcare systems, and other outpatient service providers across the United States. The company's portfolio, as of September 30, 2025, comprises approximately $1.2 billion in 200 real estate properties spanning 36 states, totaling roughly 4.6 million square feet. This extensive and geographically diverse footprint underpins its strategy to generate stable rental income through generally non-cancelable, fixed-term operating leases, many of which include provisions for annual rent increases.

The healthcare real estate sector benefits from macro-level demand for outpatient, rehabilitation, and ambulatory centers, driven by an aging population and a shift towards more cost-effective care settings. CHCT's strategic focus on these specialized properties positions it as a key infrastructure provider in this evolving landscape. The company's portfolio was approximately 90.1% leased as of September 30, 2025, with a weighted average remaining lease term of about 6.7 years, reflecting a stable operational base.

Competitive Landscape and Strategic Differentiation

CHCT operates within a competitive healthcare REIT sector, contending with larger, more diversified players such as Medical Properties Trust , Healthcare Realty Trust , and Welltower . CHCT's market positioning is that of a specialized player, emphasizing a focused niche rather than broad market dominance.

Compared to Medical Properties Trust (MPW), which focuses on large-scale hospital investments and international expansion, CHCT's offerings are more targeted towards outpatient healthcare properties. This allows CHCT to be more agile in specific sub-markets and potentially foster stronger customer loyalty within local healthcare networks. While MPW benefits from scale and diversification, CHCT's specialized approach can lead to greater efficiency in managing its specific asset class.

Against Healthcare Realty Trust (HR), which emphasizes high-quality medical office buildings in urban and suburban locations, CHCT demonstrates broader regional diversification across its 36 states. This geographic spread potentially offers greater flexibility in sub-market targeting and reduces exposure to localized economic downturns. HR's urban focus may yield stronger pricing power in high-density areas, but CHCT's streamlined operational model for outpatient properties differentiates it through better alignment with local healthcare needs.

Welltower (WELL), a large REIT with a broad focus on senior housing, outpatient facilities, and long-term care, offers extensive diversification. CHCT's narrower focus on outpatient services allows for potentially greater efficiency in property types that do not require the comprehensive care facilities managed by WELL. While WELL's diversification provides resilience, CHCT's specialization can lead to more efficient capital allocation within its chosen outpatient segments.

Indirect competitors include general commercial REITs that could repurpose properties for healthcare use, and technology-driven healthcare providers like telemedicine platforms. The rise of integrated healthcare technology and telemedicine could theoretically reduce the need for physical outpatient facilities. However, CHCT's investment in essential outpatient infrastructure provides a degree of resilience, as many healthcare services still necessitate a physical presence.

CHCT's primary competitive advantages, or moats, are its specialized focus on outpatient healthcare properties and its extensive geographic diversification. This focus translates into stronger customer loyalty from healthcare providers seeking tailored spaces, potentially leading to recurring revenue and superior margins through efficient property management. This strategy helps CHCT counter the tenant-specific risks that larger, more generalized REITs might face by attracting operators needing specialized outpatient solutions.

A key vulnerability for CHCT is its narrower portfolio focus, which could limit revenue diversification compared to its larger rivals. This could expose the company to greater impact if demand softens significantly within the outpatient segment. Barriers to entry in the healthcare REIT industry, such such as high capital requirements and regulatory hurdles, generally favor established players like CHCT by limiting new competition.

Operational Model and Asset Optimization

CHCT's competitive differentiation is primarily rooted in its operational model and strategic focus on acquiring and managing a diverse portfolio of outpatient healthcare facilities, rather than proprietary technology. The company leverages its expertise in identifying and managing these specialized real estate assets to create value through efficient property management and strong tenant relationships. While the company's disclosures do not detail specific technological differentiators or R&D initiatives by CHCT itself, the broader healthcare real estate industry is increasingly influenced by technological advancements. The rise of integrated healthcare technology and telemedicine, for instance, could impact demand for physical facilities. CHCT's strategy of investing in essential outpatient infrastructure provides a degree of resilience against purely virtual care models, as many healthcare services still require physical presence. The company's operational "technology" lies in its ability to optimize its real estate portfolio and adapt to the evolving needs of healthcare providers, ensuring its properties remain relevant and in demand.

Financial Performance: Navigating Challenges with Resilience

CHCT's financial performance in the nine months ended September 30, 2025, reflects both solid core growth and the impact of specific challenges. Total revenue for the third quarter of 2025 increased by approximately 4.9% year-over-year to $31.1 million. For the nine months ended September 30, 2025, rental income grew by approximately 5.9% to $90.67 million, primarily driven by acquisitions made in 2024 and 2025, which contributed approximately $3.9 million in additional rental income.

Despite this revenue growth, net income for the third quarter of 2025 was $1.64 million, a slight decrease from $1.75 million in the same period of 2024. However, for the nine months ended September 30, 2025, net income improved significantly to $9.33 million, up from $5.01 million in the prior year.

Funds From Operations (FFO) for Q3 2025 increased by 5.7% year-over-year to $13.5 million, translating to $0.50 per diluted common share. Adjusted Funds From Operations (AFFO) for the same period rose by 3.1% to $15.1 million, or $0.56 per diluted common share, demonstrating the company's ability to generate strong operational cash flow. The AFFO dividend payout ratio remained robust at 85% in Q3 2025.

A significant headwind has been the situation with a geriatric behavioral hospital operator, a tenant in six of CHCT's properties. The company recorded an $8.7 million credit loss reserve on notes receivable from this tenant in the nine months ended September 30, 2025, following an $11 million reserve in the prior year, fully reserving these notes. Additionally, a $1.7 million reversal of interest receivables from this tenant negatively impacted Q2 2025 operating interest revenue. Rent from this tenant is now recognized on a cash basis, with approximately $200,000 received in Q3 2025. These charges, combined with $5.9 million in severance and transition-related expenses due to an executive termination in Q2 2025, compressed FFO and AFFO per diluted common share by $0.28 and $0.06, respectively, in the second quarter.

Interest expense increased by 13.1% in Q3 2025 and 15.7% for the nine months ended September 30, 2025, primarily due to higher weighted average debt balances and rising interest rates on the Credit Facility. However, the company benefited from a 25 basis point reduction in the federal funds rate in mid-September 2025, with the full impact expected in Q4 2025 financials. CHCT has proactively managed interest rate risk by fixing rates on $350 million of its debt through interest rate swaps.

Strategic Initiatives and Forward Outlook

CHCT maintains a robust acquisition pipeline, with six properties under definitive purchase agreements representing an aggregate expected investment of $146 million. These acquisitions are anticipated to yield returns ranging from 9.1% to 9.75%. One of these properties is expected to close in Q4 2025, with the remaining five scheduled throughout 2026 and 2027. The company's annual acquisition target of $120 million to $150 million remains a key objective, with a focus on accretive deals.

In response to its depressed share price, CHCT has strategically shifted its capital allocation to a "capital recycling" program, avoiding equity issuance at current levels. This involves selling non-core assets, such as a Q3 2025 disposition in Pennsylvania and two additional dispositions expected in Q4 2025, which are projected to generate $6.1 million in net proceeds. A significant disposition of an inpatient rehabilitation hospital is also anticipated in Q4 2025, expected to yield an $11.5 million gain and fund a fourth-quarter acquisition through a 1031 like-kind exchange, with indicative cap rates for sales in the high 7% to 8% range. This strategy aims to fund the acquisition pipeline accretively and maintain modest, leverage-neutral balance sheet levels.

The resolution of the geriatric tenant situation is a significant near-term catalyst. The tenant signed a letter of intent on July 17, 2025, for the sale of its operations to an experienced behavioral healthcare operator, who is expected to sign new or amended leases for CHCT's properties. While a year-end 2025 closing is possible, a Q1 2026 resolution is considered more realistic. Management is actively pursuing multiple paths to ensure a favorable outcome, viewing any positive resolution as a "significant amount of additional AFFO."

Operational improvements are also expected to contribute to future growth. Management anticipates an increase in leased occupancy by 50 to 100 basis points by year-end 2025, with a further increase of 100 basis points or more into 2026, driven by strong leasing activity. Three redevelopment projects, including a significant behavioral healthcare facility, are underway with long-term tenants secured. These projects are expected to commence leases and contribute rent after mid-2026, providing a future tailwind to the portfolio.

CHCT declared a quarterly common stock dividend of $0.475 per share for Q3 2025, equating to an annualized dividend of $1.90 per share. This marks a consistent increase every quarter since its IPO, and management expresses confidence in the dividend's coverage, expecting it to strengthen further upon resolution of the geriatric tenant issue.

Risks and Challenges

Despite a clear strategic direction, CHCT faces several risks. The resolution of the geriatric tenant situation, while progressing, is not guaranteed, and the recovery of previously unpaid rent or interest is deemed unlikely. The company's exposure to floating interest rates on a portion of its revolving credit facility, despite hedging efforts, remains a sensitivity to market rate fluctuations. The current depressed share price limits the effectiveness of its At-The-Market (ATM) program, necessitating a reliance on capital recycling for funding acquisitions. Additionally, macroeconomic factors such as persistent inflation and potential changes in U.S. tariff regulations could impact tenant performance and overall economic activity.

Conclusion

Community Healthcare Trust stands as a specialized healthcare REIT, strategically positioned to capitalize on the growing demand for outpatient healthcare facilities. The company's history of consistent dividend growth underscores its commitment to shareholder returns, even as it navigates operational challenges. The strategic pivot to capital recycling, coupled with a robust acquisition pipeline and the anticipated resolution of the geriatric tenant issue, forms a compelling narrative for future AFFO growth and enhanced portfolio performance. While market and operational complexities persist, CHCT's focused approach, geographic diversification, and proactive capital management position it to sustain its competitive edge and deliver value in the dynamic healthcare real estate market. The expected increase in occupancy and the commencement of leases from redevelopment projects are key forward-looking indicators for continued stability and growth.