Sila Realty Trust, Inc. Q3 FY2024 earnings call

• Market Observations: The Silver Tsunami is driving higher volumes of patients and acuity cases for healthcare facilities, making existing healthcare real estate more valuable. Construction is limited, creating opportunities for bespoke capital solutions in healthcare facilities.
• Acquisitions: In late July, acquired a leading inpatient rehabilitation facility in Fort Smith, Arkansas for ~$28.4 million. Subsequent to quarter end, closed two mezzanine loans for development of inpatient rehabilitation and behavioral healthcare facilities in Lynchburg, Virginia.
• Dispositions: Closed on the sale of two vacant properties formerly leased to GenesisCare, leaving two remaining vacant former GenesisCare properties. A property in Massachusetts formerly leased to Steward Healthcare System had its sales contract terminated, and a broker has been hired to market the property.
• Financial Results: Third quarter cash NOI was $40.8 million, AFFO was $31.7 million. Share repurchase program concluded with ~$50 million of shares bought back at accretive price.
• Lease Renewals: Renewed or extended leases on approximately 134,000 square feet with a ~97% renewal rate.

In the third quarter, Sila Realty Trust reported cash NOI of $40.8 million, an increase from the $39.9 million in the second quarter. AFFO was $31.7 million or $0.57 per diluted share, up from $30.8 million in the second quarter. The portfolio consisted of 136 properties in 65 markets, diversified geographically and across targeted healthcare asset types. Cash NOI for the first nine months of 2024 was $127.6 million, a 3.4% decrease from the prior year, while AFFO for the first nine months was $100.8 million, a 0.9% increase from the prior year.

• Leverage Target: Believes a leverage ratio of approximately 4 times to 5 times net debt-to-EBITDAre is appropriate.
• Share Repurchase: Board authorized a share repurchase program of up to 1.5 million shares or $25 million.
• Dividend Change: Board approved a change from monthly to quarterly distributions effective in 2025, with the first quarterly distribution in Q1 2025.

• Economic Factors: Broader economic news and Federal Reserve interest rate outlook could impact the company.
• Lease Events: Impacts from GenesisCare and Steward events, including lost rent and income, could affect financial results.
• Interest Rate Risk: Actively monitoring to replace maturing interest rate swaps, with midterm rates having risen recently.

Q: Nate Crossett asked about the acquisition pipeline, pricing, and buyback.

A: Michael Seton and Chris Flouhouse discussed increasing acquisition volume opportunities, on and off market transactions, and that the company's public listing and liquidity make it a go-to capital provider. Michael Seton noted the buyback is a tool but acquisition opportunities in 2025 are prioritized.

Q: Nate Crossett also asked about EBITDARM coverages.

A: Michael Seton explained that 10 properties fall under one times EBITDARM coverage, with many affiliated with large healthcare systems or being medical office buildings for primary care, and tenants are current on rent.

Q: Rob Stevenson asked about the Staunton facility's use and mez loans.

A: Michael Seton said the property is being marketed by a national broker, and Chris Flouhouse discussed mez loans with mid-teens returns, draws beginning later that month and continuing into Q1 2026, with pre-negotiated cap rates based on future NOI.

Q: Michael Lewis asked about mez loan details and the Steward property sale.

A: Michael Seton discussed mid-teens unlevered returns on mez loans, and that the Steward property sale fell through during due diligence with the buyer having a refundable deposit, and the property is being marketed for potential uses including healthcare or residential.