Executive Summary / Key Takeaways

• Resilient Healthcare Focus: Sila Realty Trust (SILA) is a net lease healthcare REIT strategically positioned to benefit from the "silver tsunami" of an aging U.S. population, driving predictable and durable income streams from necessity-based healthcare facilities.
• Robust Financial Health & Liquidity: The company maintains a strong balance sheet with $568.8 million in liquidity and a conservative net debt-to-EBITDAre of 3.6x, providing substantial capacity for accretive investments and opportunistic capital allocation.
• Differentiated Operational Strategy: SILA's proactive asset management, deep tenant relationships, and innovative capital solutions, such as mezzanine loans with purchase options, create a competitive moat for pipeline growth and risk-adjusted returns.
• Consistent Operational Performance: Q2 2025 saw a 5% year-over-year cash NOI increase and stable AFFO per share, supported by a 99.2% leased portfolio, a 9.5-year weighted average lease term, and 2.2% annual contractual rent growth.
• Strategic Capital Allocation: SILA is actively pursuing over $70 million in new net lease healthcare acquisitions under LOI, alongside a new $75 million share repurchase program, demonstrating a balanced approach to enhancing shareholder value.

The Bedrock of Healthcare Real Estate: Sila's Strategic Foundation

Sila Realty Trust, Inc. (SILA) operates as a net lease real estate investment trust, strategically focused on the resilient and growing healthcare sector. The company's core business revolves around investing in high-quality healthcare facilities across the continuum of care, including medical outpatient buildings (MOBs), inpatient rehabilitation facilities (IRFs), and surgical and specialty facilities. This focus is designed to generate predictable, durable, and growing income streams, capitalizing on the non-discretionary nature of healthcare services.

A pivotal moment in SILA's history was its direct listing on the New York Stock Exchange (NYSE) on June 13, 2024. This transition from a private entity to a publicly traded REIT was a strategic move to enhance access to capital markets and liquidity. The public listing has since allowed SILA to pursue meaningful growth opportunities and increase shareholder value, marking a new chapter in its disciplined investment journey.

SILA's overarching strategy is deeply intertwined with the powerful demographic shift known as the "silver tsunami." By 2030, the entire baby boomer generation will have reached retirement age, increasing the U.S. senior population to 70 million from 61 million in 2024. This demographic tailwind is expected to drive a 31% increase in total outpatient healthcare spending to nearly $2 trillion by 2030, continually boosting patient volumes and acuity of cases. These trends directly support stronger operator revenues for SILA's tenants, translating into more durable income for its portfolio and future acquisition opportunities.

Sila's Operational Moat: A Differentiated Investment Strategy

SILA's competitive advantage, or its "operational moat," stems from its differentiated investment and asset management strategy rather than a traditional technological product. This approach combines rigorous analytical frameworks with deep industry relationships to identify and manage high-quality healthcare real estate. The company's "robust investment management and property management teams" maintain continuous dialogue with tenants through active communication and site visits, enabling superior market intelligence and a proactive understanding of tenant needs.

This operational methodology translates into tangible benefits for investors. As of Q2 2025, SILA's reporting tenancy maintained a strong average EBITDARM coverage ratio of 5.31x, a significant increase from 4.64x in Q2 2024. This robust coverage underscores the financial health and stability of its tenant base. Furthermore, 40% of SILA's tenancy is associated with an investment-grade rated tenant, guarantor, or affiliate, up from 36.4% year-over-year, enhancing portfolio credit quality.

SILA's triple net lease structure is a cornerstone of its operational efficiency, allowing for predictable income streams by shifting major capital costs and operating expenses to its tenants. This model contributes to a portfolio weighted average remaining lease term of 9.5 years and meaningful annual contractual rent growth of 2.2%. The company also employs innovative capital solutions, such as mezzanine loans for new healthcare facility developments. These loans, like the two totaling $17.54 million initiated in November 2024, offer mid-teens unlevered returns during the development period and include purchase options for SILA at pre-negotiated cap rates, effectively building a future acquisition pipeline at attractive valuations.

Competitive Positioning in a Dynamic Landscape

SILA operates within a competitive healthcare REIT landscape, facing larger, more diversified players such as Welltower Inc. (WELL), Ventas, Inc. (VTR), Omega Healthcare Investors, Inc. (OHI), and Healthcare Realty Trust Incorporated (HR). SILA's niche focus on net lease healthcare facilities provides a distinct advantage in income predictability and operational efficiency, particularly through its triple net lease model where tenants bear most operating costs, contributing to a high gross profit margin of 87.32% (TTM).

Compared to its peers, SILA demonstrates a more conservative financial profile. Its net debt-to-EBITDAre of 3.6x as of Q2 2025 is notably lower than many competitors, including WELL (Debt/Equity 0.52) and VTR (Debt/Equity 1.28). This lower leverage, combined with a TTM dividend yield of 6.94%, which is significantly higher than WELL's 2% and VTR's 3%, positions SILA as an attractive option for income-focused investors seeking stability. While larger rivals like WELL and VTR benefit from greater scale and broader property management strategies, SILA's disciplined approach allows it to be opportunistic in a market where "acquisition volumes and competition are down."

SILA's operational efficiency is further highlighted by its TTM EBITDA margin of 74.04%, which compares favorably to WELL's implied 75% (from annual EBITDA ratio) and VTR's 14% operating profit margin. The company's strategic emphasis on markets with high barriers to entry, such as the Dover Healthcare Facility, further strengthens its competitive standing by limiting new competition and enhancing asset value. This focused strategy, coupled with its robust capital position, enables SILA to "step up and fill the gaps in the capital stack" for new developments, a competitive edge in a restricted lending environment.

Financial Performance: A Trajectory of Resilience

SILA's financial performance in the first half of 2025 reflects a trajectory of resilience and strategic growth. For the second quarter of 2025, cash Net Operating Income (NOI) rose to $41.9 million, marking a 1.7% increase from Q1 2025 and a 5% increase year-over-year. This growth was primarily fueled by recent acquisitions, including the Knoxville and Dover Healthcare facilities, alongside a 1.5% increase in same-store cash NOI. Adjusted Funds From Operations (AFFO) for Q2 2025 was $0.54 per diluted share, a 1.7% sequential increase, with no reduction in AFFO per share compared to Q2 2024 despite higher interest expenses. This stability was supported by interest income from mezzanine loans, strong cash NOI, and a lower weighted average share count from a prior year tender offer.

Year-to-date through June 30, 2025, total rental revenue reached $96.800 million, contributing to a net income of $16.496 million and AFFO of $59.445 million. The company's diluted EPS for the six months ended June 30, 2025, was $0.30. These figures underscore the effectiveness of SILA's strategy in generating consistent income streams.

The company's balance sheet remains a source of strength, ending Q2 2025 with $568.8 million in liquidity and a conservative net debt-to-EBITDAre of 3.6x. This robust capital position is a direct result of disciplined financial management, including the successful recast of its revolving credit facility in February 2025, which increased commitments to $600 million. As of June 30, 2025, 90% of SILA's outstanding debt was fixed through hedging strategies, mitigating exposure to interest rate fluctuations. The company's AFFO payout ratio of 74% in Q2 2025 further demonstrates its commitment to a stable dividend while retaining capital for future accretive investments.

Outlook and Strategic Initiatives

SILA's forward-looking strategy is centered on disciplined external growth and proactive portfolio management. The company currently has over $70 million of new net lease healthcare transactions under exclusive Letter of Intent (LOI), anticipated to close in or around Q3 2025. These opportunities are priced within a 6.5% to 7.5% cap rate range, with current LOIs leaning towards the upper end, and feature long lease durations and consistent escalators. Year-to-date, SILA has already closed approximately $75 million in high-quality acquisitions.

The two mezzanine loans for new developments in Lynchburg, Virginia, totaling $17.54 million, are expected to be fully funded by the end of Q3 2025. These loans, bearing interest at 13-15% per annum, include purchase options for SILA upon construction completion in Q1/Q2 2026, with each facility valued roughly in the $50-$60 million range. This innovative financing approach provides attractive risk-adjusted returns while building a robust future acquisition pipeline.

A significant operational initiative involves the Stoughton Healthcare Facility, formerly leased to Steward. Following the lease rejection, SILA plans to demolish the 180,000 sq ft building by year-end 2025 and entitle the land for alternative uses, potentially residential. This strategy aims to substantially reduce monthly carry costs from approximately $120,000 to $20,000-$25,000 and maximize shareholder value. The company targets an enterprise growth rate of roughly 7.5% to 15% per annum, primarily through accretive acquisitions.

SILA's Board recently authorized a new three-year share repurchase program of up to $75 million, capped at $25 million annually. This program serves as a tool to capture value when there is a "significant enough dislocation" between the public market share price and private market valuations, as evidenced by the $7.3 million in repurchases at an average of $24.09 per share in Q2 2025. However, management's primary bias remains towards growth through acquisitions of physical property, with a commitment to not leverage to the high end of its 4.5x to 5.5x net debt-to-EBITDAre target range until its stock price recovers.

Risks and Mitigation

Despite its strong positioning, SILA faces several risks inherent in the healthcare real estate sector and broader macroeconomic environment. Macroeconomic and legislative uncertainties, including persistent inflation, interest rate fluctuations, and the potential impacts of the "One Big Beautiful Bill Act" (OBBBA) on Medicaid reimbursement, pose challenges. However, SILA's tenants generally have limited exposure to Medicaid, mitigating some of the OBBBA's potential effects. The company's extensive hedging strategy, with 90% of its debt fixed, also limits exposure to rising interest rates, though replacement swaps are at higher rates.

Tenant-specific risks, such as the ongoing bankruptcy of Landmark Hospitals (0.6% of ABR), are actively monitored. While Landmark remains current on rent, the situation highlights the importance of SILA's diversified tenant base and proactive management. The successful resolution of the GenesisCare bankruptcy and the strategic plan for the Stoughton asset demonstrate SILA's ability to mitigate tenant-specific challenges. Lease expiration risk is managed through proactive engagement, with expectations to renew nearly all 2025 and 2026 leases. While a small portion of the portfolio (0.5% of ABR) has EBITDARM coverage below 1x, a significant portion is investment-grade rated, and all tenants are current on rent, reflecting underlying support.

Conclusion

Sila Realty Trust stands as a compelling investment opportunity within the healthcare REIT sector, underpinned by a robust and differentiated strategy. The company's focus on necessity-based healthcare, supported by the undeniable demographic tailwind of the "silver tsunami," provides a strong foundation for long-term, predictable income growth. SILA's operational moat, characterized by proactive asset management, deep tenant relationships, and innovative capital solutions like mezzanine loans, enhances its competitive standing and pipeline generation.

With a strong balance sheet, ample liquidity, and a disciplined approach to capital allocation, SILA is well-equipped to pursue accretive acquisitions and opportunistically repurchase shares, all while maintaining a conservative dividend payout. Despite macroeconomic uncertainties and competitive pressures, SILA's strategic positioning, low leverage, and consistent operational performance underscore its resilience. The company's commitment to maximizing shareholder value through thoughtful growth and proactive risk management positions it favorably for sustainable success in the evolving healthcare real estate landscape.