CHCT Q2 FFO Drops 47%

Key Points

• Funds from Operations (FFO, non-GAAP) per diluted share was $0.23, exceeding the negative analyst estimate (non-GAAP) Funds from Operations (FFO) per diluted share was $0.23, compared to $0.43 for Q2 2024.

• A significant one-time tenant credit event and $5.9 million of severance and transition expenses drove a wider net loss (GAAP).

• Dividend growth continued, with the quarterly dividend raised to $0.47 per share in Q1 2025, with a quarterly payout of $0.4725 per share for Q3 2025.

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Community Healthcare Trust (NYSE:CHCT), a real estate investment trust (REIT) focused on owning and acquiring healthcare-related properties across the United States, released its second quarter results on July 29, 2025. The report featured better-than-expected non-GAAP earnings. but highlighted serious operational and one-time expenses, including a substantial charge from a tenant credit event and high severance costs. Revenue was $30.128 million, which was slightly less than the $30.14 million GAAP consensus estimate. Funds from Operations (FFO, non-GAAP) per diluted share was $0.23. However, both FFO and Adjusted Funds from Operations (AFFO) (non-GAAP) were materially lower than the prior year. The period was marked by lower profitability, a widened net loss, and rising expenses, and ongoing dividend growth.

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Strategic Focus

Community Healthcare Trust specializes in acquiring, owning, and leasing healthcare-focused real estate such as medical office buildings, behavioral health centers, and inpatient rehabilitation facilities. Its properties are spread across 36 states, with 200 properties in total and about 4.5 million square feet as of June 30, 2025. The company aims for a diversified portfolio by geography and healthcare type to manage risk and promote stable cash flows.

Its recent business strategy centers on off-market acquisitions that offer long-term leases with attractive returns, as well as minimizing equity issuance during periods of low stock prices. Diversification and tenant quality are key success factors, as the company works to reduce exposures to individual tenants and geographic areas that could jeopardize earnings or asset values.

Quarter in Review: Notable Events and Metrics

The second quarter featured a mix of portfolio growth, significant one-time expenses, and continued dividend increases, while underlying earnings declined. The most significant event was a tenant credit issue involving a geriatric behavioral hospital tenant. The company recorded a $1.7 million reserve for interest receivable, lowering FFO and AFFO by $0.06 per share, and an $8.7 million credit loss reserve on notes with the tenant, which is excluded from FFO and AFFO by industry convention. Management reported that the tenant had signed a letter of intent to sell their business, with a potential new lease for the six affected properties. However, there is uncertainty about whether the buyer will complete the purchase.

In addition, the company faced $5.9 million in severance and transition expenses, primarily related to executive departures, including $4.6 million of accelerated stock-based compensation. These costs drove FFO down by $0.22 per share. Property operating expenses, by contrast, held steady year over year on a GAAP basis.

On the revenue side, Rental income was $30.128 million and $27.905 million in Q2 2024, resulting in a substantially lower net profit (GAAP) and FFO (non-GAAP). The company’s net loss (GAAP) widened to $12.6 million, largely due to the credit and severance events. Funds from operations—a key non-GAAP metric for REITs representing net income plus real estate depreciation and amortization, and adjusted for one-time items—fell 46.5% from the prior year. Adjusted FFO per diluted share was $0.50 and $0.53 for Q2 2024.

The company completed a behavioral specialty facility acquisition for $9.7 million, with a lease expiring in 2040 with an anticipated annual return of 9.5% on the acquired property. In July 2025, it acquired an inpatient rehabilitation facility in Florida for approximately $26.5 million (also leased to 2040 with a 9.4% expected return (as of July 2025)). Six additional properties were under contract at quarter end, with total expected cost of $146 million and anticipated closing dates stretching into 2027. Sales and recycling activity was limited, but the company sold a building in Ohio, realizing a $0.2 million gain and reclassified another property as a sales-type lease.

The company declared a quarterly dividend of $0.4725 per share, and continuing its pattern of incremental quarterly increases. This payout equals roughly 95% of AFFO.

Outlook and Upcoming Priorities

Management did not provide formal financial guidance for FFO, AFFO, or other earnings metrics for the next quarter or the full year. It reiterated that six acquisition transactions in its pipeline are expected to close between 2025 and 2027, subject to timing and final financing. The company continues to avoid issuing equity under its at-the-market (ATM) program due to its share price and plans to fund acquisitions through a mix of debt and selective property sales.

The company declared a quarterly dividend of $0.4725 per share. Investors should pay close attention to developments around the troubled tenant situation, future one-time charges, rising general and administrative costs, and dividend coverage, given the elevated payout ratio and uncertain earnings trend. No explicit guidance was given for future dividend changes or net income metrics.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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