Welcome to Community Healthcare Trust 2026 third quarter earnings release conference call. On the call today, the company will discuss its 2026 third quarter financial results. It will also discuss progress made in various aspects of this business. Following the remarks, the phone lines will be opened 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, November 4, 2026, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements.
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 in MD&A and its SEC filings. The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law. During this 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 conference call is being recorded for playback purposes. An archive of the call will be available on the company's investor relations website for approximately 30 days, and it is the property of the company. This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission.
Now, I would like to turn the call over to Dave Dupuy, CEO of Community Healthcare Trust. Over to you.
Great. Thank you very much, Sagar. Good morning, and thank you for joining us for Community Healthcare Trust third quarter 2026 conference call. Joining me on the call today are Bill Monroe, our Chief Financial Officer, Leigh Ann Stach , our Chief Accounting Officer, and Mark Kearns, our SVP of Asset Management. Before we begin, I'd like to remind everybody that our earnings release and supplemental data report were released last night and furnished on Form 8-K, along with our quarterly report on Form 10-Q. In addition, an investor presentation was posted to our website last night. I would like to start with updates to our key strategic priorities designed to drive durable growth and elevate the overall quality of the portfolio, which are occupancy improvement, portfolio reinvestment through redevelopment and speculative suites, strategic capital recycling, and accelerated acquisition growth.
Starting with occupancy improvement, we continue to see robust leasing activity across the portfolio. Occupancy increased from 89.8% in the second quarter to 90.1% in the third quarter. Our leasing pipeline remains strong, and the team is executing well as we work toward our target occupancy. Turning to portfolio reinvestment, we continue to advance our redevelopment projects on schedule. As noted last quarter, our behavioral hospital redevelopment in Lafayette, Louisiana, commenced its lease early in the third quarter. We have three additional redevelopment projects currently under construction, with completion expected late in the fourth quarter or early in the first quarter, backed by long-term leases. Following receipt of certificates of occupancy and licensure, these leases are projected to commence late in the first quarter or early in the second quarter of 2027.
Regarding our speculative suite program, we currently have one suite under construction, one in permitting, and three others in the design phase. These suites are strategically positioned in high-demand buildings where tenants are actively seeking turnkey-ready space. Proactively delivering these spaces allows us to capture prospective healthcare tenants faster, accelerating both occupancy gains and NOI realization. Our strategic capital recycling program remains active. As highlighted in our press release, we successfully monetized one property in the third quarter and two additional properties in October, generating total net proceeds of $32.8 million. The largest transaction, an inpatient rehab facility, will result in a $9.1 million gain in the fourth quarter. We are executing this sale through a Section 1031 like-kind exchange, using the net proceeds to acquire another high-quality inpatient rehab facility, expected to close late in the fourth quarter.
We currently have more than $30 million of properties actively marketed for disposition. These proceeds will fund our high-quality, high-yield acquisition pipeline while maintaining our disciplined leverage profile. Finally, looking at acquisition growth, we have signed definitive purchase and sale agreements for four properties to be acquired upon completion and occupancy for an aggregate expected purchase price of $99 million. The expected return on these investments should range from 9.1%- 9.75%. We anticipate closing the first of these properties in the fourth quarter, a second in the first quarter of 2027, and the remaining two between mid-2027 and early 2028. As visibility into our disposition pipeline solidifies, we are actively evaluating new acquisition candidates. While we do not have additional properties currently under contract, the market is offering compelling opportunities aligned with our quality and return objectives.
We anticipate transaction activity to accelerate through 2027 as our disposition proceeds are realized and our retained capital continues to compound. Next, I'd like to walk through a few key operational updates from the third quarter. The geriatric behavioral hospital operator, which leases six of our properties, paid approximately $540,000 in rent this quarter, a $170,000 increase over the second quarter. As previously noted, this tenant has signed a letter of intent with an experienced behavioral healthcare operator to acquire the operations of all six facilities. The prospective buyer is actively working through legal and business due diligence, negotiating definitive purchase agreements with the tenant, and finalizing new long-term leases for the six hospitals with CHCT. While the process has encountered multiple delays, the tenant and prospective buyer continue working collaboratively to resolve outstanding issues.
We remain actively engaged with all parties and will provide further updates as appropriate regarding the transaction certainty. Given buyers' extended due diligence timeline, alongside the tenant's improved operating performance, we are also proactively engaging with other parties who previously expressed an interest in buying the business. We did not issue any shares under our ATM last quarter. However, we anticipate having sufficient capital from selected asset sales, coupled with our revolver capacity, to fund near-term acquisitions. 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 third quarter and kept it steady at $0.33 per common share. This equates to an annualized dividend of $1.32 per share.
That takes care of the items I wanted to cover, so I will hand things off to Bill to provide additional details on our financial results for the quarter.
Thank you, Dave. I will now provide more details on our third quarter financial performance, which was strong across the board and the result of early execution wins on our strategic plan announced last quarter. I'm pleased to report total revenue grew from $31.1 million in the third quarter of 2025 to $32.4 million in the third quarter of 2026, representing 4.4% annual growth over the same period last year. This growth was a combination of higher occupancy from leasing activity and acquisitions. When compared to our $31.2 million of total revenue in the second quarter of 2026, we achieved 3.9% total revenue growth quarter-over-quarter.
Moving to expenses, property operating expenses increased by only approximately $100,000 quarter-over-quarter to $6 million for the third quarter of 2026, which is actually a smaller increase than we typically see during the summer from higher utility costs compared to the milder temperatures in the second quarter. On a year-over-year basis, property operating expenses increased by less than $50,000, or less than 1%, which demonstrates the strong cost management results our asset management team has achieved this year. Total general and administrative expense was $4.2 million in the third quarter of 2026, a significant reduction both quarter-over-quarter of approximately $700,000 and year-over-year of approximately $470,000.
This G&A expense decline is the culmination of a number of actions we have taken, including changes we previously made to reduce executive compensation and stock-based compensation, as well as fully amortized restricted stock. We expect to continue to see some quarterly fluctuation in G&A with our typical relatively higher Q1 and Q3 levels due to the timing of salary increases, tax and benefit payments, and bonuses, but we believe G&A will consistently be lower year-over-year for the next few quarters. Interest expense increased by less than $100,000 quarter-over-quarter to $7.5 million in the third quarter of 2026. We had no incremental borrowings under our revolving credit facility during the third quarter, and in fact, our leverage levels decreased by two-tenths of a turn to 5.8x .
But interest expense increased slightly from both the one extra day of interest in the third quarter compared to the second quarter and the FOMC decision in mid-September to raise interest rates by 25 basis points. Moving to funds from operations, FFO in the third quarter of 2026 was $15 million, a 10.4% increase year-over-year compared to the $13.5 million of FFO in the third quarter of 2025. On a diluted common share basis, FFO increased $0.04 from $0.50 in the third quarter of 2025 to $0.54 in the third quarter of 2026. FFO also increased 13.2% quarter-over-quarter, or $0.06, from the $13.2 million, or $0.48 per diluted common share in the second quarter of 2026. These increases are primarily the result of the higher revenues and lower expenses I discussed earlier.
Adjusted Funds From Operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $16 million in the third quarter of 2026, a 6.1% increase year-over-year compared to the $15.1 million of AFFO in the third quarter of 2025. AFFO on a diluted common share basis was $0.58 in the third quarter of 2026, or $0.02 higher than the $0.56 of AFFO in the third quarter of 2025. AFFO also increased 4%, or $0.02 quarter-over-quarter from $15.4 million, or $0.56 per diluted common share in the second quarter of 2026. That concludes our prepared remarks. Sagar, we are now ready to begin the question-and-answer session.
Thank you very much. To ask a question, you may press star and then one on your touchtone telephone. If your question has been addressed and you would like to withdraw your question, you may press star, then two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Rob Stevenson with Huntington. Please go ahead.
Good morning, guys. Dave, how are you guys thinking about the vacancy at this point? Are you going to sell more of the vacant assets or the assets with stubborn vacancy, or are you still thinking at this point that the market over the next couple of quarters is going to allow you to lease up some more of the vacancy?
Look, Rob, good to hear from you, and thanks for the question. What I would say is we go through a detailed portfolio review on a quarterly basis, where we look at our entire portfolio and evaluate leasing activity and opportunities to lease space. What I would say is, our goal is to improve our portfolio over time based on our capital recycling. That said, I think we've got a handful of properties that are still empty. I'd say a couple of those we think are very likely that are going to get leased, and so we will continue to own those buildings. There are also a couple of those properties that are smaller, that are difficult to lease, that would be expensive, and aren't good long-term fits for the portfolio. I think it's going to be a combination.
But as you see from the quarterly numbers and what we did in terms of selling a couple of empty buildings, those buildings don't generate a lot of proceeds for us. But it's really a focus on making sure that we're executing on getting the right buildings in the portfolio. The leasing activity we're seeing more broadly in the marketplace has been very favorable. I think most of our activity is going to be on the leasing side, but there will continue to be a handful of buildings that aren't strategic that we would look to exit if we don't feel like there's a good opportunity to lease those buildings.
Okay. For the vacant buildings, did you guys wind up shedding any material amount of expenses associated with not having a tenant in them that you guys were paying, or was it relatively immaterial?
It is relatively immaterial, but look, there is definitely property taxes and other operating expense of an empty building that we are able to get rid of. It is a relatively small amount given the size of those buildings.
Okay. Then I guess the other question from me is, we have heard from other asset types that there is a very strong buyer pool right now for 1031, especially the bonus depreciation buyer, trying to close stuff by year end. Are you guys seeing that much in your type of assets?
I think what I would say is we have been so targeted as far as what we are looking to sell that, yes, in those processes, we have seen a great deal of interest. It is not like we are Our goal is to do a smaller number of larger, attractive cap rate sales to help fund our pipeline. So, it has been pretty rifle shot. But yeah, it has been a very robust process on both of those larger inpatient rehab facilities we have sold. I think the gains associated with those sales give credence to the fact that there is certainly a dislocation between where we are valued from a public markets perspective and what the private market views as attractive real estate. So yeah, the dispositions that we are looking at for high-quality buildings that we are using as capital recycling to fund our pipeline is a very rifle shot approach.
But yes, we hear from people, many inbound calls looking to buy properties on a one-off basis. Candidly, we are not interested in doing that.
Okay. And then last one for me. Bill, was there anything, the $0.54 in the third quarter, what's sort of non-recurring as we think about rolling forward out of the quarter? Obviously, you'll have the trade-out of some of the dispositions, et cetera. But when we're thinking about earnings in fourth quarter and going forward, anything in there that we need to be aware of that's especially not reoccurring?
No, nothing material. I did highlight in my remarks some of the declines we saw in G&A and how we do think that that is kind of the right level set for the next few quarters. So, we think that's certainly going to provide some benefits and tailwinds to our overall FFO in particular.
Okay. Thanks, guys. Appreciate the time.
The only thing I would add to that, Rob, is we're doing a capital recycling. We sold one building. We're going to invest in another building. There's going to be a little bit of leakage between when we sold the building and when we invest in the new building, because those acquisitions got pushed a little bit. But as far as what we expect going forward, I think the numbers we're showing are consistent and will continue to grow.
Okay. Thanks, guys. Appreciate the time this morning.
Thanks, Rob.
Thank you. Once again, to ask a question, please press star then one. Our next question comes from Jim Kammert with Evercore. Please go ahead.
All right. Good morning. Thank you. Dave, I do not want to put words in your mouth, but you intimated that I think that maybe as regards the assurance assets, there were other people that, or other tenants, buyers that might be interested. Did I hear that properly? Secondly, does that mean you are souring at all on the existing sort of buyer? I am just trying to clarify.
Yeah. Hey, Jim. Thanks for the question. I guess what I would say, we can't go into details on the negotiations between the current transaction contemplated, but what I can say is their exclusivity has expired. The performance of the business, the underlying business, is doing much better today than when the LOI was signed 18 months or so ago. We have had interest from others associated with the process. Given the fact that it's taken longer, and quite frankly, we're a little bit frustrated with the length of time and the amount of due diligence and some of the issues that have gone into this process, we just think it's in the best interest of us and, frankly, the tenant to not have all the eggs in this basket if we can't get that indeed over the finish line.
I guess from our perspective, we still hope that the deal goes through, but we need to have some alternatives should it not. Given the outstanding interest that we've had from others, we're going to explore those. Let's see how it plays out, but yes, you did hear correctly.
No, that's very helpful. Thank you for that. Just a second question, perhaps. You mentioned also, you're seeing, obviously, you get the cost of capital improved, hopefully, yo u go a little bit more offensively on the acquisition pipeline. Do you have any sense of where would those yields compare, let's say, to your known $99 million pipeline of 9.1%-9.75%? Do you think if you had the cost capital, could you get middle 9s, high 9s on some of the other deals that are starting to look across the threshold?
Yeah, absolutely. We continue to be focused. We've got a high bar, both from a quality perspective, but also from a yield perspective. Our view is that 9% to 10% range is certainly achievable. Based on some of the activity that we're seeing in the marketplace, yes, we think that that mid-9 range, anywhere from 9% to 10%, is achievable. Our original expectation was we were going to have two inpatient rehab facilities close the second half of this year. Since those have been pushed out, and since we have greater clarity around the dispositions we're working on, we're now able to work on some of those other acquisition candidates. That's why I said in my prepared remarks, you should expect some additional activity in the upcoming quarters.
We're looking at a number of things, and hopefully we'll have some activity we can share at our next call.
Oh, good. Thank you for your time, guys.
Great. Thanks, Jim.
Thank you. Once again, to ask a question, please press star then one. As there are no further questions at the moment, I would now like to turn the conference back to Dave Dupuy for closing comments. Over to you, sir.
Great. Thank you so much, and thank you, everybody, for dialing in. Look forward to seeing those who will be there at REITworld coming up in just a couple of weeks. Talk soon. Bye.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.