Community Healthcare Trust Inc: Form 10-Q for the period ended Jun 30, 2025

Disclosure Regarding Forward-Looking Statements

This report and other materials that Community Healthcare Trust Incorporated (the "Company") has filed or may file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “believes”, “expects”, “may”, "will', “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, “anticipates” or other similar words or expressions, including the negative thereof. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections or other forward-looking information. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. Because forward-looking statements relate to future events, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. Thus, the Company’s actual results and financial condition may differ materially from those indicated in such forward-looking statements. Some factors that might cause such a difference include the following: general volatility of the capital markets and the market price of the Company’s common stock, changes in the Company’s business strategy, availability, terms and deployment of capital, the Company’s ability to refinance existing indebtedness at or prior to maturity on favorable terms, or at all, changes in the real estate industry in general, interest rates or the general economy, adverse developments related to the healthcare industry, changes in governmental regulations, the degree and nature of the Company’s competition, the ability to consummate acquisitions under contract, catastrophic or extreme weather and other natural events and the physical effects of climate change, the occurrence of cyber incidents, effects on global and national markets as well as businesses resulting from increased inflation, changes in interest rates, supply chain disruptions, labor conditions, tariffs and global trade tensions, and/or conflicts in Ukraine and the Middle East, and other factors described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and the Company’s other filings with the Securities and Exchange Commission from time to time. Readers are therefore cautioned not to place undue reliance on the forward-looking statements contained herein which speak only as of the date hereof. The Company intends these forward-looking statements to speak only as of the time of this report and 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.

The purpose of this Management's Discussion and Analysis ("MD&A") is to provide an understanding of the Company's consolidated financial condition, results of operations and cash. MD&A is provided as a supplement to, and should be read in conjunction with, the Company's Condensed Consolidated Financial Statements and accompanying notes.

Overview

References such as "we," "us," "our," and "the Company" mean Community Healthcare Trust Incorporated, a Maryland corporation, and its consolidated subsidiaries.

We were organized in the State of Maryland on March 28, 2014. We are a self-administered, self-managed healthcare real estate investment trust, or REIT, that acquires and owns properties that are leased to hospitals, doctors, healthcare systems or other healthcare service providers.

Trends and Matters Impacting Operating Results

Management monitors factors and trends that it believes are important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company. Certain of the factors and trends that management believes may impact the operations of the Company are discussed below.

Asset Acquisition

During the first quarter of 2025, the Company acquired a behavioral specialty facility for cash consideration of approximately $9.7 million. Because the lease had not yet commenced and was accounted for as a sale-leaseback transaction, the Company could not recognize the acquisition as a real estate purchase during the first quarter of 2025 but rather accounted for it as a financing transaction. During the second quarter of 2025, the lease commenced, the real estate purchase was recognized, and the asset was reclassified from other assets to real estate properties on the Company's Condensed Consolidated Balance Sheet. The property is 100.0% leased to a tenant with a lease expiration in 2040.

Subsequent Acquisition

On July 9, 2025, the Company acquired one inpatient rehabilitation facility in Florida upon completion of construction for a purchase price of approximately $26.5 million and cash consideration of approximately $26.4 million. Upon acquisition, the property was 100.0% leased to a tenant with a lease expiration in 2040.

Acquisition Pipeline

The Company has six properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $146.0 million. The Company anticipates closing on these properties throughout 2025, 2026 and 2027; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. The Company expects to fund these acquisitions with cash from operations, with net proceeds from equity or debt issuances, with the Company's Revolving Credit Facility, or from asset sales.

Asset Dispositions

During the second quarter of 2025, the Company disposed of a building in Ohio, received net proceeds of approximately $0.6 million, and recognized a gain of approximately $0.2 million on the sale. The property was previously classified as an asset held for sale on the Company's Condensed Consolidated Balance Sheet. Also, during the second quarter of 2025, the Company amended an operating lease on a property that resulted in a sales-type lease. As such the Company reclassified the real estate to other assets on the Condensed Consolidated Balance Sheet and recognized a gain on sale of the real estate totaling approximately $1.3 million.

Leased Square Footage

As of June 30, 2025, our real estate portfolio was approximately 90.7% leased, excluding a real estate property held for sale. During the first six months of 2025, we had expiring or terminated leases related to approximately 287,000 square feet, and we leased or renewed leases relating to approximately 279,000 square feet.

Purchase Option Provisions

Certain of the Company's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property. The purchase option provisions generally allow the lessee to purchase the leased property at fair value or at an amount greater than the Company's gross investment in the leased property at the time of the purchase.

At June 30, 2025, the Company had an aggregate gross investment of approximately $37.4 million in 12 real estate properties with purchase options exercisable at June 30, 2025 that had not been exercised.

Credit Loss on Loans and Interest Receivables

The Company determined that the collectability of the remaining balances on notes and interest with a geriatric inpatient behavioral hospital tenant were not reasonably assured. As a result, in the second quarter of 2025, the Company determined that it should recognize an additional credit loss reserve for the remaining balances of the notes, totaling approximately $8.7 million and should also reserve the remaining outstanding interest receivable on these notes totaling approximately $1.7 million.

Accelerated Amortization of Restricted Stock and Restricted Stock Units

The Company's former Executive Vice President, Asset Management was terminated effective May 31, 2025. In accordance with his employment agreement, his unvested restricted shares totaling 198,015 shares vested and his unvested restricted stock units totaling 18,275 units vested at target upon termination. As such, upon termination and vesting of these shares, the Company accelerated the unamortized remaining balance of his deferred compensation at May 31, 2025 and recognized $4.6 million of amortization expense. Also, the Company recognized severance and transition expense totaling approximately $1.3 million.

Inflation

Inflation has significantly increased during the past couple of years and a prolonged period of high and persistent

inflation could cause an increase in our expenses, capital expenditures, and cost of our variable-rate borrowings which could have a material impact on our financial position or results of operations. Many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation, including annual rent increases based on

stated increases or CPI increases. In response to inflationary pressures, the Federal Reserve raised interest rates in

2022 and 2023, however, the Federal Reserve lowered interest rates in 2024 and may provide additional rate changes during 2025. Higher interest rates may adversely impact real estate asset values and increase our interest expense on our variable-rate borrowings under our revolving credit facility.

Results of Operations

The Company's results of operations for the three and six months ended June 30, 2025 compared to the same period in 2024 were impacted by credit loss reserves, real estate acquisitions, lease receivables placed on cash basis, severance and transition charges related to an employee termination, other compensation expense, including non-cash stock compensation, interest expense, as well as other items discussed in more detail below.

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

Revenues

Rental income increased approximately $2.2 million, or 8.0%, for the three months ended June 30, 2025 compared to the same period in 2024. Rental income on properties acquired during 2024 and 2025 resulted in additional rental income of approximately $0.8 million in 2025 compared to 2024. Also, the reversal of revenues in each of the three months ended June 30, 2024 and 2025 related to the geriatric behavioral hospital tenant resulted in an increase in revenues of approximately $1.2 million for the three months ended June 30, 2025 as compared to the same period in 2024. The remaining $0.2 million increase resulted from net leasing activities.

Other operating interest decreased approximately $0.7 million for the three months ended June 30, 2025 compared to the same period in 2024 due mainly to reversing interest receivables due from a geriatric behavioral hospital tenant in both 2025 and 2024.

Expenses

General and administrative expenses increased approximately $5.8 million for the three months ended June 30, 2025 compared to the same period in 2024 due almost entirely to compensation-related expenses associated with the termination of our former Executive Vice President of Asset Management, effective May 31, 2025. Upon termination, unvested shares of restricted stock and restricted stock units vested in accordance with the terms of his employment agreement, and the Company accelerated the unamortized remaining balance of deferred compensation and recognized approximately $4.6 million of non-cash amortization expense in the second quarter of 2025. Additionally, the Company recognized approximately $1.3 million of severance and transition-related expenses.

Depreciation and amortization expense increased approximately $0.1 million, or 0.8%, for the three months ended June 30, 2025 compared to the same period in 2024. This increase was due mainly to the following:

• Depreciation and amortization on real estate acquired during 2024 and 2025 resulted in an increase of approximately $0.3 million;
• Depreciation on tenant and other capital improvements resulted in an increase of approximately $0.6 million; offset partially by
• Fully amortized building improvements resulted in a decrease of approximately $0.2 million; and
• Fully amortized real estate lease intangibles which generally have a shorter depreciable life than a building resulted in a decrease of approximately $0.5 million.

Gains on sale, net of impairments of real estate assets

Gains on sale, net of impairments increased approximately $0.8 million for the three months ended June 30, 2025 compared to the same period in 2024. This increase was due mainly to the following:

• During the three months ended June 30, 2025, the Company amended an operating lease on a property that resulted in a sales-type lease. The Company recognized a gain on sale of the real estate totaling approximately $1.3 million;
• During the three months ended June 30, 2025, the Company recognized a gain on the sale of a property in Ohio of approximately $0.2 million;
• The impairment of a property held for sale during the second quarter of 2024 resulted in an increase of $0.1 million; and
• The impairment of a property held for sale during the second quarter of 2025 resulted in a decrease of $0.9 million.

Interest expense

Interest expense increased approximately $0.6 million, or 10.1%, for the three months ended June 30, 2025 compared to the same period in 2024 due mainly to increases in the weighted average balance and interest rates on the Credit Facility.

Credit loss reserve

A credit loss reserve totaling $11.0 million was recorded during the three months ended June 30, 2024 related to notes receivable with a geriatric inpatient behavioral hospital tenant. An additional credit loss reserve of approximately $8.7 million related to the same tenant was recorded during the three months ended June 30, 2025 to fully reserve the notes. See Note 10 – Other Assets, net for more details on the credit loss reserve.

Interest and other income, net

Interest and other income, net decreased approximately $0.3 million for the three months ended June 30, 2025 compared to the same period in 2024. During the three months ended June 30, 2024, the Company recognized income related to an undistributed allowance for tenant improvements totaling $0.3 million upon expiration of the lease.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Revenues

Rental income increased approximately $3.6 million, or 6.4%, for the six months ended June 30, 2025 compared to the same period in 2024. Income on properties acquired during 2024 and 2025 increased rental income by approximately $2.7 million. Also, the reversal of revenues related to the geriatric behavioral hospital tenant resulted in an increase in revenues of approximately $0.4 million for the six months ended June 30, 2025 as compared to the same period in 2024.

Other operating interest decreased $1.3 million for the six months ended June 30, 2025 compared to the same period in 2024 due mainly to reversing interest receivables due from a geriatric behavioral hospital tenant in both 2025 and 2024.

Expenses

Property operating expenses increased approximately $0.3 million, or 2.8%, for the six months ended June 30, 2025 compared to the same period in 2024, primarily due to properties acquired during 2024 and 2025.

General and administrative expenses increased approximately $6.3 million, or 68.1%, for the six months ended June 30, 2025 compared to the same period in 2024 due mainly to:

• An increase in compensation-related expenses associated with the termination of our former Executive Vice President of Asset Management, effective May 31, 2025. Upon termination, unvested shares of restricted stock and restricted stock units vested in accordance with the terms of his employment agreement, and the Company accelerated the unamortized remaining balance of deferred compensation and recognized approximately $4.6 million of non-cash amortization expense in the second quarter of 2025. Additionally, the Company recognized approximately $1.3 million of severance and transition-related expenses;
• Compensation expense increased approximately $0.7 million for the six months ended June 30, 2025 compared to the same period in 2024, partially related to a $0.3 million increase to non-cash amortization of stock-based compensation; and
• Professional fees decreased by $0.2 million for the six months ended June 30, 2025 compared to the same period in 2024.

Depreciation and amortization expense increased approximately $0.8 million, or 3.6%, for the six months ended June 30, 2025 compared to the same period in 2024. This increase was comprised mainly of the following:

• Acquisitions of real estate in 2024 and 2025 resulted in an increase of approximately $1.1 million;
• Tenant improvements and other capital expenditures resulted in an increase of approximately $1.6 million;
• Fully amortized building improvements resulted in a decrease of approximately $0.7 million; and
• Fully amortized real estate lease intangibles which generally have a shorter depreciable life than a building resulted in a decrease of approximately $1.1 million.

Gains on sale, net of impairment of real estate assets

Gains on sale, net of impairment increased approximately $0.8 million for the six months ended June 30, 2025 compared to the same period in 2024. This increase was due mainly to the following:

• During the six months ended June 30, 2025, the Company amended an operating lease on a property that resulted in a sales-type lease. The Company recognized a gain on sale of the real estate totaling approximately $1.3 million;
• During the six months ended June 30, 2025, the Company recognized a gain on the sale of a property in Ohio of approximately $0.2 million;
• The impairment of a property held for sale during the second quarter of 2024 resulted in an increase of $0.1 million; offset by
• The impairment of a property held for sale during the second quarter of 2025 resulted in a decrease of $0.9 million.

Credit loss reserve

A credit loss reserve totaling $11.0 million was recorded during the six months ended June 30, 2024 related to notes receivable with a geriatric inpatient behavioral hospital tenant. An additional credit loss reserve of approximately $8.7 million related to the same tenant was recorded during the six months ended June 30, 2025 to fully reserve the notes. See Note 10 – Other Assets, net for more details on the credit loss reserve.

Interest expense

Interest expense increased approximately $1.9 million, or 17.2%, for the six months ended June 30, 2025 compared to the same period in 2024 due mainly to increases in the weighted average balance and interest rates on the Credit Facility, including the maturity of two interest rate swaps in 2024, which were replaced with two forward-starting interest swaps at higher interest rates.

Interest and other income, net

Interest and other income, net decreased approximately $0.3 million for the six months ended June 30, 2025 compared to the same period in 2024. During the six months ended June 30, 2024, the Company recognized into income an undistributed allowance for tenant improvements totaling $0.3 million upon expiration of the lease.

Non-GAAP Financial Measures and Key Performance Indicators

Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. The Company reports non-GAAP financial measures because these measures are observed by management to also be among the most predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these non-GAAP financial measures. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of those measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.

Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO")

FFO is an operating performance measure adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (calculated in accordance with GAAP), excluding gains or losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, plus depreciation and amortization related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures. NAREIT also provides REITs with an option to exclude gains, losses and impairments of assets that are incidental to the main business of the REIT from the calculation of FFO.

In addition to FFO, the Company presents AFFO and AFFO per share. The Company defines AFFO as FFO, excluding certain expenses related to closing costs of properties acquired accounted for as business combinations and mortgages funded, excluding straight-line rent and the amortization of stock-based compensation, and including or excluding other non-cash items from time to time. AFFO presented herein may not be comparable to similar measures presented by other real estate companies due to the fact that not all real estate companies use the same definition.

Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, management believes FFO, AFFO, FFO per share and AFFO per share provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, losses and impairment of incidental assets, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO, AFFO, FFO per share and AFFO per share can facilitate comparisons of operating performance between periods. The table below reconciles net loss to FFO and AFFO for the three and six months ended June 30, 2025 compared to the same periods in 2024.

(In thousands, except per share amounts)

(1) During the three and six months ended June 30, 2025, the Company recorded a credit loss reserve on its notes related to a geriatric behavioral hospital tenant totaling approximately $8.7 million. During the three and six months ended June 30, 2024, the Company recorded an $11.0 million credit loss reserve related to its notes receivable with this geriatric behavioral hospital tenant. Because these notes are incidental to the Company's main business, the Company added back these reserves in its calculations of FFO and AFFO.

(2) During the three months and six months ended June 30, 2025, the Company recorded severance and transition-related charges totaling approximately $5.9 million, including non-cash accelerated amortization of stock-based compensation of approximately $4.6 million which reduced FFO per diluted common share by approximately $0.22 for the three and six months ended June 30, 2025.

(3) During the three months ended June 30, 2025, the Company reversed interest related to a geriatric behavioral hospital tenant totaling approximately $1.7 million, resulting in a reduction of FFO and AFFO per diluted share of approximately $0.06. During the three months ended June 30, 2024, the Company reversed rent and interest related to this geriatric behavioral hospital tenant totaling approximately $3.2 million, including straight-line rent of approximately $0.9 million, resulting in a reduction of FFO per diluted share of approximately $0.12. AFFO, which adds back straight-line rent, was reduced by approximately $0.09 per diluted share for the three months ending June 30, 2024.

(4) Diluted weighted average common shares outstanding for FFO and AFFO are calculated based on the treasury method, rather than the 2-class method used to calculate earnings per share. Restricted stock awards and time-based RSUs are included in the calculation of weighted average common shares outstanding to the extent that they are dilutive. Performance-based RSUs are included in the calculation of weighted average common shares outstanding to the extent that they are in-the-money as of the end of the reporting period and are dilutive.

Net Operating Income ("NOI")

NOI is a key performance indicator. NOI is defined as net income or loss, computed in accordance with GAAP, generated from our total portfolio of properties and other investments before general and administrative expenses, depreciation and amortization expense, gains or loss on the sale of real estate properties or other investments, interest expense, and income tax expense. We believe that NOI provides an accurate measure of operating performance of our operating assets because NOI excludes certain items that are not associated with management of the properties. The Company's use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing NOI.

The table below reconciles net loss to NOI for the three and six months ended June 30, 2025 compared to the same periods in 2024.

(In thousands)

EBITDAre and Adjusted EBITDAre

The Company uses the NAREIT definition of EBITDAre which is net income or loss plus interest expense, income tax expense, and depreciation and amortization, plus losses or minus gains on the disposition of depreciable property, including losses/gains on change of control, plus impairment write-downs of depreciable property and of investments in unconsolidated affiliates caused by a decrease in value of depreciable property in the affiliate, plus or minus adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates and consolidated affiliates with non-controlling interest. The Company also presents Adjusted EBITDAre which is EBITDAre before non-cash stock-based compensation expense.

We consider EBITDAre and Adjusted EBITDAre important measures because they provide additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.

The table below reconciles net loss to EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2025 compared to the same periods in 2024.

(In thousands)

Liquidity and Capital Resources

The Company monitors its liquidity and capital resources and relies on several key indicators in its assessment of capital markets for financing acquisitions and other operating activities as needed, including the following:

• Leverage ratios and financial covenants included in our Credit Facility;
• Dividend payout percentage; and
• Interest rates, underlying treasury rates, debt market spreads and equity markets.

The Company uses these indicators and others to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.

Financing Policy

The Company’s current financing policy limits aggregate debt (secured or unsecured) in excess of 40% of the Company's total capitalization, except for short-term, transitory periods. At June 30, 2025, our debt to total capitalization ratio (debt plus stockholders' equity plus accumulated depreciation) was approximately 41.6%.

Sources and Uses of Cash

The Company derives most of its revenues from its real estate properties, collecting rental income and operating expense reimbursements based on contractual arrangements with its tenants. These sources of revenue represent our primary source of liquidity to fund our dividends, general and administrative expenses, property operating expenses, interest expense on our Credit Facility and other expenses incurred related to managing our existing portfolio and investing in additional properties. To the extent additional resources are needed, the Company will fund its investment activity generally with net proceeds from equity or debt issuances, including our at-the-market equity offering program, either in the public or private markets, from our Credit Facility, or from asset sales.

The Company expects to meet its liquidity needs through cash on hand, cash flows from operations and cash flows from sources discussed above. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

Credit Facility

At June 30, 2025, the Company had $226.0 million outstanding on its Revolving Credit Facility with a maturity on October 16, 2029. In addition, the Company has $275.0 million outstanding in Term Loans with expirations beginning in 2028 through 2030. The Company has entered into interest rate swaps to fix the interest rates on $275.0 million of the Term Loans, with maturities matching the maturity dates of the notes, and $75.0 million of the Revolving Credit Facility, which will mature on March 29, 2026. See Note 5 – Debt, net to the Condensed Consolidated Financial Statements which provide more details on the Company's Credit Facility. At June 30, 2025, the Company had borrowing capacity remaining under the Revolving Credit Facility of approximately $174.0 million.

The Company’s ability to borrow under the Credit Facility is subject to its ongoing compliance with a number of customary affirmative and negative covenants, including limitations with respect to liens, indebtedness, distributions, mergers, consolidations, investments, restricted payments and asset sales, as well as financial maintenance covenants. The Company was in compliance with its financial covenants under its Credit Facility as of June 30, 2025.

Ground Leases

At June 30, 2025, the Company was obligated, as the lessee, under four non-prepaid ground leases accounted for as operating leases with expiration dates, including renewal options, through 2076, and two non-prepaid ground leases accounted for as financing leases with expiration dates through 2109, including renewal options. Any rental increases related to the Company's ground leases are generally either stated or based on the Consumer Price Index. At June 30, 2025, the Company's aggregate obligation under these ground leases was approximately $8.6 million. See Note 3 – Real Estate Leases to the Condensed Consolidated Financial Statements.

Subsequent Acquisition

On July 9, 2025, the Company acquired one inpatient rehabilitation facility in Florida upon completion of construction for a purchase price of approximately $26.5 million and cash consideration of approximately $26.4 million. Upon acquisition, the property was 100.0% leased to a tenant with a lease expiration in 2040. The acquisition was funded with net proceeds from the Revolving Credit Facility and cash on hand.

Acquisition Pipeline

The Company has six properties under definitive purchase agreements, to be acquired after completion and occupancy, for an aggregate expected purchase price of approximately $146.0 million. The Company anticipates closing on these properties throughout 2025, 2026 and 2027; however, the Company cannot provide assurance as to the timing of when, or whether, these transactions will actually close. The Company expects to fund these acquisitions with cash from operations, with net proceeds from equity or debt issuances, with the Company's Revolving Credit Facility, or from asset sales.

Tenant Improvements and Capital Improvements

Subject to Company approval, we may fund or reimburse tenants for tenant improvements, which are allowed for in certain leases, of up to approximately $29.4 million as of June 30, 2025. At June 30, 2025, $7.2 million of this commitment relates primarily to one ongoing redevelopment project on a building with a tenant backed by a long-term lease.

The Company has also entered into contracts regarding certain capital expenditures with remaining commitments totaling approximately $4.1 million as of June 30, 2025. At June 30, 2025, $1.6 million of this commitment relates primarily to two redevelopment projects of buildings into different healthcare uses backed by long-term leases.

The Company expects to fund these expenditures with cash from operations, with net proceeds from equity or debt issuances, from our Credit Facility, or from asset sales.

Notes Receivable

The Company has a note with a tenant with unfunded commitments remaining totaling $5.8 million at June 30, 2025. Any future requests for borrowings under the revolving credit facility from this tenant will require review and approval by management. See Note 10 – Other Assets, net to the Condensed Consolidated Financial Statements.

Universal Shelf Registration Statement

On February 19, 2025, the Company filed a new non-automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission which became effective on March 14, 2025. The registration statement is for $500.0 million of securities and is effective for three years. Under this registration statement, the Company has the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock, depository shares, rights, debt securities, warrants and units.

ATM Program

Under the ATM Program, the Company may issue and sell shares of its common stock, having an aggregate gross sales price of up to $300.0 million, exclusive of shares of common stock sold under its prior agreements with our Agents. The shares of common stock may be sold from time to time through or to one or more of the Agents, as may be determined by the Company in its sole discretion, subject to the terms and conditions of the third amended and restated sales agency agreement and applicable law. In addition, the Company may enter into one or more forward sales agreements under the ATM Program. As of June 30, 2025, the Company had $300.0 million remaining that may be issued under the ATM Program.

Operating Activities

Cash flows provided by operating activities for the six months ended June 30, 2025 and 2024 were approximately $28.2 million and $29.4 million, respectively. Cash flows provided by operating activities were generally provided by contractual rents and interest on our notes receivable, net of property operating expenses not reimbursed by the tenants, general and administrative expenses, and interest expense paid on our Credit Facility.

Investing Activities

Cash flows used in investing activities for the six months ended June 30, 2025 and 2024 were approximately $13.0 million and $68.8 million, respectively. During the six months ended June 30, 2025, the Company invested in one property for cash consideration of approximately $9.7 million, received payments on its notes totaling $5.0 million and funded capital expenditures and tenant improvements on its existing portfolio totaling approximately $8.9 million.

During the six months ended June 30, 2024, the Company invested in four properties for an aggregate cash consideration of approximately $57.8 million, received payments on its notes receivable totaling $1.6 million and funded capital expenditures and tenant improvements on its existing portfolio totaling approximately $12.3 million.

Financing Activities

Cash flows used in financing activities for the six months ended June 30, 2025 were approximately $14.7 million and cash flows provided by financing activities for the six months ended June 30, 2024 were $35.5 million. During the six months ended June 30, 2025, the Company borrowed $14.0 million under its Revolving Credit Facility and paid dividends totaling approximately $26.6 million. Also, upon the vesting of stock-based awards for certain employees, the Company withheld shares and paid taxes totaling approximately $1.7 million on behalf of employees.

During the six months ended June 30, 2024, the Company (i) borrowed $59.0 million under its Revolving Credit Facility, (ii) completed equity offerings under its at-the-market program, resulting in net proceeds, net of underwriters' discount and offering costs, of approximately $7.4 million, (iii) upon the vesting of stock-based awards for certain employees, withheld shares and paid taxes totaling approximately $0.6 million on behalf of employees, and (iv) paid dividends totaling approximately $25.5 million.

Security Deposits

As of June 30, 2025, the Company held approximately $2.6 million in security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon the security deposits if there are any defaults under the leases.

Dividends

The Company is required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to maintain its qualification as a REIT.

On July 24, 2025, the Company’s Board of Directors declared a quarterly common stock dividend in the amount of $0.4725 per share. The dividend is payable on August 22, 2025 to stockholders of record on August 8, 2025. This rate equates to an annualized dividend of $1.89 per share.

The ability of the Company to pay dividends is dependent upon its ability to generate cash flows and to make accretive new investments.

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We may use certain derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings. We will not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. An interest rate swap is a contractual agreement entered into by two counterparties under which each agrees to make periodic payments to the other for an agreed period of time based on a notional amount of principal. Under the most common form of interest rate swap, known from our perspective as a floating-to-fixed interest rate swap, a series of floating, or variable, rate payments on a notional amount of principal is exchanged for a series of fixed interest rate payments on such notional amount. During the six months ended June 30, 2025, there were no material changes in the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes In Internal Control Over Financial Reporting

There were no changes in our system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in our Quarterly Reports on Form 10-Q for the current year, an investor should consider the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2024 and other reports that may be filed by the Company. There were no material changes in the risk factors presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 other than as set forth below:

Changes to U.S. tariff and import/export regulations may have an adverse effect on our business, financial condition and results of operations.

There have been significant changes, and continue to be ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs, creating significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and have a material adverse effect on our business, financial condition, results of operations, and the market price of our common stock.