Community Healthcare Trust Inc (CHCT) stock intrinsic value fair value estimate & owner earnings analysis

Community Healthcare Trust owns small medical buildings (clinics, outpatient and behavioral facilities) leased to healthcare operators: 198 properties in 36 states, about 4.5 million square feet, 90.6% leased, with a weighted average remaining lease term of about 7.0 years. No tenant is more than 10% of revenue. Earnings come from contractual rent, less property costs, interest on about $532 million of debt, and the company's own spending on its buildings. How we measure earnings. We start from cash flow from operations ($56.4 million in 2025), remove one-off working-capital swings, and deduct stock compensation ($10.3 million) and spending on existing buildings ($20.5 million, of which about $19.9 million we treat as upkeep). The result is about $27.8 million, or $1.03 per share, in 2025. That is roughly half of the company's own adjusted funds from operations of $2.15 per share, because that measure adds back stock compensation and does not charge for building and tenant-improvement spending. We deliberately exclude a one-time $4.6 million acceleration of stock compensation in 2025 (and $11.8 million in 2023) tied to executive departures, because it only pulls forward expense we already deduct in normal years. Our earnings figure per share was $1.56 in 2023, $0.96 in 2024 and $1.03 in 2025. The decline came mainly from higher interest costs (interest expense rose from $17.8 million in 2023 to $27.0 million in 2025) and larger building spending, while cash flow from operations slipped from $61.4 million to $56.4 million. We use the 2023 to 2025 median, $1.03, as the earnings level because it reflects today's debt costs and spending; older, lower-debt years do not. A point worth knowing: over 2023 to 2025 the company bought about $236 million of properties (paid for with borrowing and stock), yet owner earnings per share fell over the same period. We therefore give no credit for future acquisitions. Dividends paid in 2025 were $53.7 million, about twice our earnings measure, and were funded partly by revolver borrowing ($46 million net in 2025, $162 million in 2024). We do not model the dividend, but an uncovered payout is a risk to how the company funds itself. Base case: about $18.47 per share. Year 1 is held flat at about $1.03 (owner earnings actually rose about 9.5% in 2025, but that came from lower building spending, which we do not assume repeats). We then credit 1.0% a year growth for years 2 to 10, reaching about $1.13. The evidence: in 2025, annual rent increases and leasing produced a net $1.8 million rise in rental income, roughly 1.6% of the prior year's rental income; leases carry fixed or CPI-linked escalators; occupancy has held between 90% and 91% at year-ends 2021, 2023 and 2025. We trim the 1.6% to 1.0% because property expenses rose 3.5% in 2025. After year 10 we hold earnings flat: the owned buildings and the demonstrated ability to keep them around 90% leased keep the earnings going, but nothing named supports further growth. The lease expiry schedule (9.0% of annualized rent in 2026, 7.2% in 2027, 8.9% in 2028) is assumed to be re-let, consistent with the stable occupancy record. Bear case: about $12.47. Owner earnings fall to about $0.75 per share (about $20.1 million) and never grow. Two named risks: (1) debt costs. The revolver ($258 million drawn) matures October 2029, and term loans of $125 million and $150 million mature in March 2028 and March 2030. Loan pricing depends on leverage and ranges 0.6 to 0.65 points across the grid; we assume 0.5 points more on $532 million, about $2.7 million a year. (2) Rent loss: about $5.0 million a year, roughly half of the rent rolling off in 2026, is not replaced. The company has already fully reserved $19.7 million of notes to one behavioral hospital tenant ($11.0 million in 2024 and $8.7 million in 2025), so tenant credit problems are not hypothetical. Bull case: about $20.37. Owner earnings rise 3% in year 1 as leases previously under construction begin paying rent (cited by the company in its 2025 results), then 2.0% a year for years 2 to 10, reaching about $1.27, then flat. We did not credit acquisitions, lower interest rates, or higher occupancy, because none is contracted or backed by the record above. What would make this wrong: the shares may be worth more if the company can buy properties whose returns beat its borrowing costs (its earnings per share have not shown this so far), or less if tenants beyond the behavioral hospital operator run into trouble. The floating-rate swap on $75 million of revolver borrowing expired in March 2026; we estimate the effect is small. We could not independently confirm the average escalator percentage in the leases; the 1.6% figure is derived from the reported $1.8 million rental income increase. The margin-of-safety price is about $13, roughly 30% below our base value and close to our bear value, given the leverage and the uncovered dividend.