Sila Realty Trust, Inc. Q1 FY2025 earnings call

• Michael Seton thanked the team for solid results, noted strong in-place tenancy, ample liquidity, and recent acquisitions. Highlighted healthcare real estate's non-discretionary nature and demographic trends driving healthcare spending.
• Kay Neely reported cash NOI and AFFO figures, discussed balance sheet leverage and liquidity, and the AFFO payout ratio.
• Chris Flouhouse shared details of two acquisitions in March and April, expanding into new states, and discussed leasing activity and monitoring of the Savannah Healthcare facility bankruptcy.

Cash NOI for the first quarter of 2025 was $41.2 million, an approximately 50 basis point increase from the fourth quarter of last year, driven by scheduled contractual lease escalations and the acquisition of the Knoxville healthcare facility in March, partially offset by slightly higher carrying costs associated with the vacant Stoughton asset. Compared to the first quarter of 2024, cash NOI decreased 12.3% primarily due to nonrecurring termination and severance fees received in 2024 and bankruptcies of Steward Healthcare and Genesis Care, partially offset by other same-store cash NOI increases of 2.1% and acquisitions since 2024. AFFO during the first quarter was $29.4 million or $0.53 per diluted share, down from $30.2 million or $0.54 per diluted share in the fourth quarter of last year, largely driven by an increase in interest expense from new interest rate swaps entered into at year-end 2024, partially offset by a decrease in G&A expenses. Compared to the first quarter of 2024, AFFO decreased 23.1%. The AFFO payout ratio for the first quarter was 76.4%. At quarter end, total net debt was $526.5 million or 3.5x net debt-to-EBITDAre, with over $598 million in liquidity, including a new $600 million revolving line of credit entered into in February 2025.

• Maintained a prudent yet active investment approach, having closed 2 acquisitions meeting investment criteria in 2025. Anticipated acquiring between $150 million and $250 million of real estate in normal conditions. Intends to look for longer duration fixed rate debt over time but currently relies on the revolving line of credit.

• Uncertain macroeconomic environment including tariffs, labor and inflationary pressures, and potential recession. Uncertainty regarding the Stoughton property's disposal process and carrying costs. Difficulty in accurately determining impacts from pending tariff and evolving healthcare policy. Potential cooling of the acquisition market due to macroeconomic changes.

Q: Could you maybe talk a little about the Stoughton property? And I know last quarter, you talked about it could be a new lease, it could be a sale. Maybe update us on timing, et cetera.

A: As it relates to Stoughton, engaged a broker to solicit bids for sale or lease, had interest from multifamily users, but carry costs are a consideration. Potentially exploring strategies to reduce carry costs and pursue a multifamily buyer process with potential demolition and entitlement.

Q: Have you funded anything on the 2 mezz loan investments that you announced last quarter? Or is there any update on those?

A: Have funded amounts on the mezzanine loan associated with the inpatient rehab facility, not yet funded the equity requirement on the inpatient behavioral facility, expect both to be fully funded in Q3 of this year.

Q: The percentage of ABR with EBITDARM coverage below 1x went from 1.8% last quarter down all the way to 50 basis points. What drove that substantial improvement?

A: What drove ultimately that improvement was essentially some properties moving up in terms of their coverage levels. 0.5% of ABR is below 1x, 60% of that is investment-grade rated.

Q: Chris, on quality acquisitions like Knoxville or Dover, where is your minimum yield today given the sort of backdrop that you're operating under, as you talked about in Michael's questions about cost of equity, turbulence in the marketplace. I mean, where are you guys sort of at this point to deploy capital, where does the yield need to be even for a quality deal?

A: As we previously stated, we see opportunities in that 6.5% cap rate area to 7.5% cap rate area. I think it does depend on, obviously, the property type, the quality of the sponsorship as well as the term.

Q: Kay, obviously, if you make a smaller mid-size acquisition, you've got the line of credit. But if you wanted to do something more permanent or longer lasting like a term loan, et cetera, where is your borrowing cost today, whether or not it's floating and then swapping to fixed or just looking at just fixed rate debt out of the chute. How do you think about where your incremental cost of debt is if you elect to do something other than the line of credit?

A: Right now, all of our debt is bank debt. We're currently borrowing at 5.57% on our revolver, which is SOFR plus a spread of 125 basis points. Intention is to look to other sources of debt capital for longer duration fixed rate debt, but that's more in the future as current maturities are not near.