Sila Realty Trust, Inc. Q3 FY2025 earnings call

• Acquisition activity: Made significant investments in net lease healthcare real estate, including $16.3M Southlake portfolio and $70.5M Reunion Nobis portfolio. Also, had expansion opportunities in existing portfolio with PAM Health, Dover Healthcare, etc.
• Leasing activity: Renewed 90% of 2025 lease expirations; experienced tenant departure in Alexandria; terminated lease early with CHS and will execute new lease with Washington Regional in December 2025.
• Financials: Strong cash NOI growth, AFFO per share changes, and robust tenancy coverage ratios demonstrating portfolio resilience.

For the third quarter of 2025, cash NOI was $42.8 million, an increase of 4.9% from $40.8 million in the third quarter of 2024. This was largely driven by acquisition activity and same-store cash NOI growth of 1.2%, partially offset by reduced cash NOI from the Stoughton Healthcare Facility. Compared to the second quarter of 2025, cash NOI increased 2.2% due to acquisitions and reduced carrying costs at Stoughton. AFFO per share decreased 0.8% Y/Y primarily due to increased interest expense, but increased 4.2% Q/Q due to acquisitions, increased mezzanine loan interest income, and decreased G&A. In-place tenancy was strong with reporting obligors at 75.8% and EBITDARM rent coverage ratio at 6.19x, up from 5.31x in Q2 2025.

• Pipeline for acquisitions remains strong with ~$43M opportunity expected to close early 2026. Anticipate similar acquisition volume in 2026. Targeted cap rate expected to tighten due to looser Central Bank monetary policy. Leverage capacity ~$200-220M to stay within targeted net debt-to-EBITDA range of 4.5 to 5.5x.

• Macro factors like political headlines and economic landscape; potential tenant credit issues; impact of ACA subsidies on healthcare operations and tenant performance.

Q: The CHS termination payment, was that in third quarter? Or is that going to be in fourth quarter? And how much was that?

A: Rob, thank you for joining. That CHS termination payment that we anticipate would come in the fourth quarter. The expectation is that Washington Regional will take over that facility. So essentially, we'll have an effective lease starting December 1. And so, my expectation is simultaneous with that, we would terminate the CHS lease, and we would receive that termination payment, which is, roughly speaking, a couple of hundred thousand dollars.

Q: As you're looking at the tenant credit watch list, is that list getting shorter? Is it staying the same? Is it increasing as operators have difficulty?

A: I would say that we're cautiously optimistic. We had a very good rent collection year this year. I would tell you, we're more focused on lease maturities and obviously, renewal rates for those leases as we look forward. We have a long lease duration in the portfolio, as you well know. I don't -- I wouldn't tell you the watch list has per se increased. We have things move up, we have things move down. I think we had a very solid year in 2025. We're obviously not done yet, but I'm optimistic. As we go into next year, we do see our operators performing well. I mean, as you know, Big Beautiful Bill Act has been out there. We've talked about our assets being a mitigating factor in that space. I would say, overall, we're -- I'm cautiously optimistic about what the future holds. I mean that from a tenant credit perspective, because I don't think anybody knows what the future holds in the context of federal government reimbursement and so forth. But what -- you can see our coverage ratios are strong and they remain -- and they continue to be strong and they continue to go up. So we feel good about who we're aligned with on the tenant side.

Q: As far as these development or expansion projects, how do you know when one is a candidate? How do you know it works and that the risk reward is balanced?

A: I would tell you, it's -- the vast majority of the time, it's really an inbound from the tenant. So we're monitoring, as you know, the financials of these operations. The operations in a particular case may be doing very well and that property may be busting as it seems essentially. And that tenant is saying, "Hey, there's a market." So we'll often review those pro formas of the tenant saying, "Hey, this is what it looks like if we add this number of beds." We've already got, of course, the benefit of the credit of the existing operations because the operations in those facilities are not shut down or stopped, they actually continue and the construction goes on. So I would tell you, it's really communication from the tenant. Of course, we monitor, so we know which properties are good candidates for those. And we do market our tenants and say, "We're here to be your partner and provide capital."