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01/11 10:24
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture: a slight revenue growth and dividend increase are positives, but weak FFO and AFFO due to one-time charges, and management's vague guidance on G&A expenses are concerns. The Q&A reveals a focus on capital recycling for acquisitions, but also highlights uncertainties, such as potential risks with the geriatric facilities deal. Overall, these factors balance each other out, leading to a neutral sentiment.
Revenue Total revenue for the second quarter of 2025 was $29.1 million. Excluding the $1.7 million reversal of interest receivable from the geriatric behavioral hospital tenant, total revenues would have been approximately $30.7 million. This represents a 2.2% total revenue growth quarter-over-quarter compared to $30.1 million in the first quarter of 2025.
Property Operating Expenses Property operating expenses decreased by approximately $500,000 quarter-over-quarter to $5.6 million for the second quarter of 2025. This reduction was primarily related to the higher seasonal expenses in the first quarter, including snow removal and utilities expense at several properties.
General and Administrative Expense Total general and administrative expense was $10.6 million in the second quarter of 2025. Excluding the $5.9 million of severance and transition-related payments, G&A expense was $4.7 million, a reduction of approximately $400,000 quarter-over-quarter. This reduction was primarily related to the higher seasonal G&A expenses in the first quarter from annual employer HSA funding, higher 401(k) contributions, and employer tax payments from stock vestings.
Interest Expense Interest expense increased by $240,000 quarter-over-quarter to $6.6 million in the second quarter of 2025. This was due to increased borrowings under the revolving credit facility late in the first quarter to fund the $10 million property acquisition as well as one extra day of interest in the second quarter compared to the first quarter.
Funds From Operations (FFO) FFO on a diluted common share basis was $0.23 in the second quarter of 2025. This was reduced by $0.28 due to one-time items including the reversal of interest receivable and severance charges.
Adjusted Funds From Operations (AFFO) AFFO totaled $13.6 million in the second quarter of 2025, which on a diluted common share basis was $0.50. This was reduced by $0.06 due to one-time items including the reversal of interest receivable and severance charges.
Inpatient rehabilitation facility acquisition: Acquired for $26.5 million with a lease expiration in 2040 and an anticipated annual return of approximately 9.4%.
Future property acquisitions: Signed definitive purchase and sale agreements for 6 properties with an aggregate expected investment of $146 million and expected returns ranging from 9.1% to 9.75%. Closures expected between Q4 2025 and 2027.
Geriatric behavioral hospital tenant update: Tenant signed a letter of intent for the sale of operations of all 6 hospitals to a new operator. Negotiations are ongoing, and new or amended leases are expected.
Occupancy rate: Decreased slightly from 90.9% to 90.7% during the quarter.
Redevelopment projects: Three properties undergoing redevelopment or renovations with long-term tenants in place. One project commenced its lease on July 1, 2025, with contributions to AFFO expected later in Q4 2025 and into Q1 2026.
Capital recycling and disposition: One small property disposition generated $600,000 in proceeds. Actively working on capital recycling opportunities to fund acquisitions.
Dividend increase: Raised to $0.4725 per common share, equating to an annualized dividend of $1.89 per share.
Capital management: No shares issued under ATM due to current share price. Focus on maintaining modest leverage levels and funding acquisitions through asset sales and revolver capacity.
Geriatric Behavioral Hospital Tenant Issues: The tenant has been unable to pay full rent and interest, and the collectibility of the remaining interest balance and unreserved notes is not reasonably assured. The company has fully reserved notes and interest for this tenant, recognizing rent on a cash basis. This poses a financial risk and uncertainty regarding the tenant's ability to meet obligations.
Occupancy Rate Decline: Occupancy decreased slightly from 90.9% to 90.7%, which could impact revenue generation and operational efficiency.
Severance and Transition Costs: The departure of the former Executive Vice President of Asset Management resulted in a $5.9 million charge for severance and transition-related expenses, negatively impacting financial performance.
Interest Expense Increase: Interest expense increased by $240,000 quarter-over-quarter due to increased borrowings under the revolving credit facility and one extra day of interest in the quarter, which could strain financial resources.
Capital Recycling and Funding Risks: The company is relying on capital recycling opportunities and revolver capacity to fund near-term acquisitions, which may pose risks if asset sales or funding do not materialize as planned.
Revenue Impact from Tenant Issues: The reversal of $1.7 million of interest receivables and an $8.7 million credit loss reserve related to the geriatric behavioral hospital tenant significantly impacted revenue and financial stability.
Future property acquisitions: The company has signed definitive purchase and sale agreements for 6 properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million. The expected return on these investments should range from 9.1% to 9.75%. One property is expected to close in the fourth quarter of 2025, with the remaining 5 properties closing throughout 2026 and 2027.
Capital recycling and funding: The company is actively working on capital recycling opportunities and anticipates having sufficient capital from selected asset sales, coupled with revolver capacity, to fund near-term acquisitions.
Dividend growth: The company declared a dividend for the second quarter and raised it to $0.4725 per common share, equating to an annualized dividend of $1.89 per share. The company has raised its dividend every quarter since its IPO.
Redevelopment projects: Three properties or significant portions of them are undergoing redevelopment or significant renovations with long-term tenants in place. One project commenced its lease on July 1, 2025, and is expected to contribute AFFO later in the fourth quarter of 2025 and into the first quarter of 2026.
New lease agreements: The company acquired an inpatient rehabilitation facility for $26.5 million with a lease expiration in 2040 and an anticipated annual return of approximately 9.4%.
Dividend Declaration: Declared a dividend for the second quarter and raised it to $0.4725 per common share, equating to an annualized dividend of $1.89 per share.
Dividend Growth: The company has raised its dividend every quarter since its IPO.
The earnings call reveals mixed signals: a slight revenue increase and dividend growth are positives, but concerns about interest expense volatility, seasonal expense increases, and unresolved tenant issues contribute to uncertainty. The Q&A section highlights management's cautious approach to acquisitions and debt, but also reveals vague responses regarding redevelopment impacts and tenant recovery. These factors balance each other out, resulting in a neutral sentiment. Without market cap data, stock reaction prediction remains cautious.
The earnings call presents a mixed picture: a slight revenue growth and dividend increase are positives, but weak FFO and AFFO due to one-time charges, and management's vague guidance on G&A expenses are concerns. The Q&A reveals a focus on capital recycling for acquisitions, but also highlights uncertainties, such as potential risks with the geriatric facilities deal. Overall, these factors balance each other out, leading to a neutral sentiment.
The earnings call revealed a mixed outlook. Financial performance showed modest growth in revenue and AFFO, but the occupancy rate remained flat. Regulatory issues, supply chain challenges, and competitive pressures were highlighted as risks. The Q&A section noted uncertainties around a significant tenant's sale process and acquisition pipeline. Dividend increase is a positive, but lack of share buybacks and low share price affecting capital raising are concerns. Overall, the sentiment is balanced with slight positives and negatives, suggesting a neutral stock price movement over the next two weeks.
The earnings call presents a mixed picture: while there are positive elements like increased dividends and FFO growth, concerns remain about tenant issues and rising interest expenses. The Q&A reveals unresolved uncertainties regarding tenant payments and redevelopment projects. Despite dividend increases, financial strain from higher debt and regulatory risks persists. Thus, the overall sentiment is neutral, expecting minimal stock price movement in the short term.
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