CHCT — Community Healthcare Trust Incorporated · 2026-09-11 · Verdict: WATCH · Conviction 3
Price $14.63 (screen price, universe_v2.csv dated 2026-09-11; no live quote) · Mkt cap $419M · EV $976M · P/FFO 7.5x LTM · P/AFFO 6.6x · FAD yield 12.4% · Net debt $557M · ADV $5.5M Sources read: 10-K 2026-02-17 (Items 1, 1A, 7), 10-Q 2026-08-04, DEF 14A 2026-03-12, 8-Ks 2026-05-05 / 05-07 / 08-04 (incl. EX-99.1 release, EX-99.2 supplemental), Form 4s (12m), Q2 2026 call transcript.
Desk stats (REIT lane) - Revenue trend. FY2025 rental income +5.9%, of which $5.4M of the $6.8M rise came from 2024-25 acquisitions, not the existing portfolio (10-K 2025, Item 7). Q2 2026 revenue +7.4%, but prior-year revenue was cut by a $1.7M interest reversal on the geriatric behavioral tenant; adjusted, about +1.4%. Rental income alone +2.8%: acquisitions +$2.3M, dispositions -$0.7M, a tenant moved to cash basis -$0.9M (10-Q Q2 2026). - Normalised earnings. GAAP net income FY2025 $5.1M. NAREIT FFO $45.9M ($1.69/sh) after adding back D&A $43.9M and the $8.7M credit loss reserve and deducting $11.8M of gains on sale; AFFO $58.4M ($2.15/sh) after straight-line rent -$3.7M, stock comp +$10.3M, accelerated stock comp on the May 2025 executive termination +$4.6M, severance +$1.3M (10-K 2025, Item 7). Run rate: LTM FFO $1.96/sh, AFFO $2.23/sh, FAD $1.81/sh after $49.7M of leasing commissions, TIs and recurring capex (supplemental, p.8). - EV / earnings. EV $976M (28.65M sh at $14.63, plus $560M debt principal, less $2.7M cash; supplemental pp.6, 11) = 10.5x annualized Adjusted EBITDAre of $93.0M, 8.1x FAD, and a 10.4% implied cap rate on $101.4M annualized NOI. - Leverage. Net debt / annualized Adjusted EBITDAre 6.0x; debt/assets 55.8%; net debt 57% of EV at $14.63, versus the 43.9% debt/total-cap the company shows at its $18.28 quarter-end price. Covenant leverage 44.6% vs 60% limit, fixed charge coverage 3.0x vs 1.50x (supplemental, p.11). Maturities: $125M hedged 3.60% 3/2028, $285M revolver floating 5.32% 10/2029, $150M hedged 5.61% 3/2030. - Is the growth sustainable? Not organically. AFFO per share has been $0.55-0.56 for four straight quarters, and underlying FFO per share fell from an adjusted $0.51 in Q2 2025 to $0.48 in Q2 2026 as interest expense rose 12.7% and swaps on $75M of revolver ran off unreplaced in March 2026. Growth is now funded only by retained cash and asset sales: about $15M a year, which the CFO says buys $25M of assets at 9-10% and adds $0.06-0.07 of AFFO per share annually (Q2 call, CFO). - What the screen got wrong. (1) FFO growth of +15.2% is an artifact: the screen computes FFO as net income plus D&A, and FY2025 net income carried $11.8M of property-sale gains that NAREIT FFO excludes while FY2024 was a loss. On the company's own definition FFO fell 10.4% and FFO per share 11.5% (10-K 2025, Item 7). (2) The 12.8% dividend yield no longer exists: on 2026-08-04 the board cut the quarterly dividend 31%, from $0.4800 to $0.33, annualising to $1.32 and a 9.0% forward yield (8-K 2026-08-04, EX-99.1).
1. What the business does
197 outpatient healthcare buildings, $1.25bn gross, 4.5M sq ft in 36 states, leased to hospitals, physician groups and behavioral operators (supplemental, p.4). By rent: 35% medical office, 23% inpatient rehab, 16% acute inpatient behavioral, rest specialty and physician clinics. The niche is buying $3M-$30M properties off-market in secondary submarkets where large REITs do not compete (10-K 2025, Item 1). No tenant above 10% of rent; largest are US Healthvest 7.1% and Lifepoint 6.3%. Thirty-five employees.
2. The edge case
A mechanical shareholder-base reset. CHCT raised its dividend every quarter from its 2015 IPO through Q2 2026, to a payout of 87% of AFFO and over 100% of FFO (DEF 14A 2026, Pay vs Performance, fn.8). The 31% cut took the stock from $18.28 at quarter end (supplemental, p.4) to $14.63, down 20%, even though the cut removes roughly $17M of annual payments and leaves that cash inside the company to reinvest at 9-10% against a 4.9% blended cost of debt. Income mandates and dividend-growth screens sell a cutting REIT regardless of that arithmetic, and with a $419M cap, $5.5M daily volume and five covering brokers there is no bid to absorb them. The CEO bought 10,000 shares at $15.13 on 2026-08-14, ten days after the cut, the larger of only two open-market insider purchases in twelve months against zero sales (Form 4 summary). It is not a clean edge case: the same price also reflects 6.0x leverage, a lost equity currency ("it would be great if we had some currency in our share price to do some ATM", Q2 call, CEO), and a five-year total return of $48.94 per $100 invested against $126.71 for the NAREIT All Equity index (DEF 14A 2026).
3. Occupancy and the six behavioral hospitals
NOI is $101.4M annualized, up 7.9% year over year but only about 0.6% excluding the prior-year interest reversal. The portfolio was 90.6% leased at 12/31/2025 and 89.8% at 6/30/2026: occupancy is moving away from the 92% target. The CEO blames 2025 and 2026 being the two largest expiration years in the portfolio's history, "north of 10% each", from medical office bought early that turned over after four to six years, with expirations falling in 2027-29 (Q2 call); the 10-K corroborates, 77 leases expiring in 2026 at 9.0% of rent and 68 in 2027 at 7.2% (Item 1A). Closing the gap is worth "up to $6 million in NOI", about $0.22 per share.
The biggest swing factor is the geriatric behavioral operator in six properties. CHCT fully reserved $8.7M of notes and $1.7M of interest from it in Q2 2025, after $11.0M in 2024 (10-K 2025, Item 7). The tenant paid $370,000 of rent in Q2 2026, up $70,000 sequentially (Q2 call), annualising to roughly $1.5M against the $3.3M of annualized rent the supplemental shows for its six-property behavioral tenant Assurance Health (p.13; the filings never name the distressed tenant, but Assurance is the only six-property behavioral lessee listed). A July 2025 letter of intent to sell the operations is now "finalizing legal and business due diligence", with a purchase agreement targeted in Q3 2026 and a close by year end. That is a thirteen-month-old LOI that has slipped repeatedly. Restoring contract rent is worth about $0.065 per share of AFFO; losing the hospitals costs a similar amount plus a disposal problem.
4. Balance sheet and capital allocation
$560M of debt, all bank, $2.7M cash, $115M revolver capacity, $300M untouched under the ATM (supplemental, p.11). Nothing matures before March 2028, so refinancing risk is not near-term, but the 3.60% tranche then reprices roughly 200bp higher. Share count drifts up about 1% a year from stock compensation, not capital raises. Alignment is unusual and real: executives took 50% of 2025 salary and bonus in restricted stock on three, five and eight-year cliffs, the CEO holds 270,193 unvested restricted shares, and the CEO pay ratio is 16:1 (DEF 14A 2026). Stock compensation runs 8.9% of revenue and is added back in AFFO, which flatters it; FAD is the honest number.
5. Management: said versus did
Said for three years the dividend was sustainable and raised it quarterly; cut it 31%, with the CEO conceding "there was no event... it was just the last two years of seeing the stock stuck in this band" (Q2 call). Said the platform is built for $120-150M of annual acquisitions; delivered $64.5M in 2025 and $72.1M in 2024, and guides $85-90M for 2026 with $28.5M closed through June. The 92% occupancy target, as the Truist analyst noted on the call, "has been kind of out there for a while." Against that: reserves were taken promptly and in full, this quarter's supplemental adds real disclosure (FAD, leasing detail, escalators), $38.5M of dispositions are done with $70M more marketed, and the CEO is buying.
6. Valuation
The market caps in-place NOI at 10.4%; the portfolio cost $1.25bn gross and EV is $976M, 78 cents on the dollar of cost. - Base (55%). Occupancy 91.5% by end-2027, behavioral tenant replaced at partial rent, $25M a year reinvested at 9.5%. AFFO/sh $2.40 by 2028 at 8.5x (a 9.0% cap) = $20.40, plus ~$3.30 of dividends: $23.70, up 62%. - Bear (30%). Behavioral sale fails and the hospitals go dark, occupancy stalls at 89%, the 2028 loan reprices 200bp higher. AFFO/sh $2.00 at 6.5x = $13.00 plus dividends, roughly flat. Cap rates widening to 11% puts equity at $12.73. - Bull (15%). Sale closes at full rent, occupancy 92.5%, acquisitions back toward $120M. AFFO/sh $2.60 at 10x = $26 plus dividends, about $29.
Probability weighted, roughly $21, or 44% above the price, but levered 6x: every 50bp of cap-rate movement is about $2.20 per share of equity. Reverse DCF: at $14.63 against $1.81 of FAD per share the price implies a 12.4% perpetual FAD yield with zero growth and a 10.4% cap rate on in-place NOI, against 2.5% contractual escalators, a $99M pipeline contracted at 9.1-9.75% and $15M a year of newly retained cash. The price pays for the leverage and the execution record, not for the assets.
7. Catalysts
Signed purchase agreement on the six behavioral hospitals, guided Q3 2026, close by year end. The Q3 print in early November, first quarter that should show occupancy turning and the first under the $0.33 dividend. One pipeline closing in Q3 and another in Q4 at 9.1-9.75%. Completion of the $70M of marketed dispositions.
8. Pre-registered kill criteria
- No signed definitive purchase agreement on the six geriatric behavioral hospitals disclosed by the Q3 2026 10-Q. A fourth slip means the $1.8M annual rent gap is permanent.
- Portfolio leased percentage below 90.0% for two consecutive quarters (89.8% at 6/30/2026). Two more quarters of drift kills the 92% path the base case rests on.
- AFFO per diluted share below $0.54 in any quarter, or FAD per share below $0.42. Interest expense is still rising and the swap roll-off is unfinished.
- Net debt / annualized Adjusted EBITDAre above 6.5x, or any ATM issuance below $16 per share. Either means the self-funded, leverage-neutral plan has failed.
9. Verdict and summary
WATCH, conviction 3. Community Healthcare Trust is a $419M healthcare REIT at 7.5x FFO, 8.1x FAD and a 10.4% implied cap rate on its buildings, 78 cents on the dollar of what it paid for them, because on 4 August it cut its dividend 31% and the income holders who owned it for eleven years of quarterly raises sold mechanically into a $5.5M-a-day stock with five analysts covering it. The cut is economically right: it retains about $15M a year to reinvest at 9-10% against a 4.9% cost of debt, and the CEO put $151,300 of his own money in at $15.13 ten days later. It is a WATCH and not an IDEA because the cheapness is bought with 6.0x net debt to EBITDA and 57% net-debt-to-EV, and the two things that must go right, occupancy climbing from 89.8% to 92% and a thirteen-month-old sale of six distressed geriatric behavioral hospitals actually closing, are both things this team has promised for years without delivering, on a portfolio whose underlying FFO per share fell about 6% year over year last quarter. The screen flatters it twice: the 15.2% FFO growth is an artifact of $11.8M of 2025 property-sale gains that NAREIT FFO excludes (real FFO fell 10.4%), and the 12.8% dividend yield is gone. The catalysts are dated and near, so one or two quarters convert this into a buyable idea or kill it cheaply.
Research for discussion, not investment advice. Positions and sizing are the reader's decision.