NASHVILLE, Tenn., Nov. 03, 2023 (GLOBE NEWSWIRE) -- Healthcare Realty Trust Incorporated (NYSE:HR) today announced results for the third quarter ended September 30, 2023. The Company reported net loss attributable to common stockholders of $67.8 million, or $0.18 per diluted common share, for the quarter ended September 30, 2023. Normalized FFO for the three months ended September 30, 2023 totaled $148.1 million, or $0.39 per diluted common share.

The following applies to all same store disclosures reported in this press release. Subsequent to its merger with Healthcare Trust of America ("Legacy HTA") on July 20, 2022, the Company began reporting combined same store results in the third quarter of 2022, which are now referred to as Merger Combined Same Store. Merger Combined Same Store includes the Company’s same store properties, including Legacy HTA properties, that were owned for the full comparative period, and that meet all elements of the Company’s same store criteria. The Company presents the combined companies’ same store portfolios to provide an understanding of the operating performance and growth potential of the combined company.

Salient quarterly highlights include:

  • Normalized FFO per share totaled $0.39.
  • Merger combined total same store cash NOI for the third quarter increased 2.3% over the prior year, and 2.8% for the trailing twelve months ended September 30, 2023.
  • Predictive growth measures in the Merger Combined Same Store portfolio include:
    • Average in-place rent increases of 2.8%
    • Future annual contractual increases of 3.0% for leases commencing in the quarter.
    • Weighted average MOB cash leasing spreads of 4.8% on 622,000 square feet renewed:
      • 1% (<0% spread)
      • 3% (0-3%)
      • 77% (3-4%)
      • 19% (>4%)
    • Tenant retention of 76.1%
    • Year-over-year absorption of 56,000 square feet resulted in an average occupancy increase of 20 basis points to 89.2%.
  • Portfolio leasing activity that commenced in the third quarter totaled 1,139,000 square feet related to 360 leases:
    • 692,000 square feet of renewals
    • 401,000 square feet of new and 46,000 square feet of expansion leases
  • The Company executed new leases totaling 447,000 square feet in the quarter that will commence in future periods, an increase of 19% over the second quarter and 86% over the first quarter.
    • New leasing momentum for the legacy HTA properties was particularly strong, representing 62% of activity year-to-date, while comprising approximately one-half of the multi-tenant portfolio square footage.
  • The multi-tenant leased percentage was 87.2% at September 30, which was 210 basis points greater than occupancy.
    • The multi-tenant Legacy HTA leased percentage was 85.2%, which was 250 basis points greater than occupancy.
  • As of October 23, 2023, the pipeline of new leasing activity totaled 1.7 million square feet, which includes 16% in the lease documentation phase, 37% in the proposal and letter of intent phase, and 47% active prospects in the touring phase.
  • During the third quarter, the Company sold five properties totaling $208.7 million and year-to-date has sold nine properties totaling $318.3 million. The Company expects to generate $138 million of proceeds from properties under contract that are expected to close by year-end. An additional $182 million of proceeds are expected to be generated from properties under letter of intent to sell with closings expected to be completed in fourth quarter 2023 and first quarter 2024.
  • Net debt to adjusted EBITDA was 6.6 times at the end of the quarter. Leverage is expected to decline from additional asset sales and underlying portfolio NOI growth. The Company's variable rate debt reduced from 14.6% to 13.0% of net debt as of June 30 and September 30, respectively. In October, the Company executed interest rate swaps totaling $200 million in anticipation of expiring interest rate swaps in January 2024.
  • A dividend of $0.31 per share was paid in August. A dividend of $0.31 per share will be paid on November 30, 2023 to stockholders and OP unitholders of record on November 14, 2023.
  • On Friday, November 3, 2023, at 12:00 p.m. Eastern Time, Healthcare Realty Trust has scheduled a conference call to discuss earnings results, quarterly activities, general operations of the Company and industry trends. Simultaneously, a webcast of the conference call will be available to interested parties at https://investors.healthcarerealty.com/corporate-profile/webcasts under the Investor Relations section. A webcast replay will be available following the call at the same address. Conference Call Access Details: Domestic Dial-In Number: +1 646-904-5544 access code 681379; All Other Locations: +1 833-470-1428 access code 681379. Replay Information: Domestic Dial-In Number: +1 929-458-6194 access code 207459; All Other Locations: +1 866-813-9403 access code 207459.

Healthcare Realty (NYSE: HR) is a real estate investment trust (REIT) that owns and operates medical outpatient buildings primarily located around market-leading hospital campuses. The Company selectively grows its portfolio through property acquisition and development. As the first and largest REIT to specialize in medical outpatient buildings, Healthcare Realty's portfolio includes more than 700 properties totaling over 40 million square feet concentrated in 15 growth markets.

 

Additional information regarding the Company, including this quarter's operations, can be found at www.healthcarerealty.com. In addition to the historical information contained within, this press release contains certain forward-looking statements with respect to the Company. Forward-looking statements are statements that are not descriptions of historical facts and include statements regarding management’s intentions, beliefs, expectations, plans or predictions of the future, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because such statements include risks, uncertainties and contingencies, actual results may differ materially and in adverse ways from those expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, without limitation, the following: the Company's expected results may not be achieved; failure to realize the expected benefits of the Merger; significant transaction costs and/or unknown or inestimable liabilities; the risk that HTA’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company; the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline; general adverse economic and local real estate conditions; changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of REITs and changes to laws governing the healthcare industry; the availability of capital; changes in interest rates; competition in the real estate industry; the supply and demand for operating properties in the Company’s proposed market areas; changes in accounting principles generally accepted in the US; policies and guidelines applicable to REITs; the availability of properties to acquire; the availability of financing; pandemics and other health concerns, and the measures intended to prevent their spread, including the currently ongoing COVID-19 pandemic; and the potential material adverse effect these matters may have on the Company’s business, results of operations, cash flows and financial condition. Additional information concerning the Company and its business, including additional factors that could materially and adversely affect the Company’s financial results, include, without limitation, the risks described under Part I, Item 1A - Risk Factors, in the Company’s 2022 Annual Report on Form 10-K and in its other filings with the SEC.

 


Consolidated Balance Sheets
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
      
ASSETS     
 3Q 20232Q 20231Q 20234Q 2022 3Q 2022   
Real estate properties     
Land$1,387,821 $1,424,453 $1,412,805 $1,439,798 $1,449,550   
Buildings and improvements11,004,195  11,188,821  11,196,297  11,332,037  11,439,797   
Lease intangibles890,273  922,029  929,008  959,998  968,914   
Personal property12,686  12,615  11,945  11,907  11,680   
Investment in financing receivables, net120,975  121,315  120,692  120,236  118,919   
Financing lease right-of-use assets82,613  83,016  83,420  83,824  79,950   
Construction in progress85,644  53,311  42,615  35,560  43,148   
Land held for development59,871  78,411  69,575  74,265  73,321   
Total real estate investments13,644,078  13,883,971  13,866,357  14,057,625  14,185,279   
Less accumulated depreciation and amortization(2,093,952) (1,983,944) (1,810,093) (1,645,271) (1,468,736)  
Total real estate investments, net11,550,126  11,900,027  12,056,264  12,412,354  12,716,543   
Cash and cash equivalents24,668  35,904  49,941  60,961  57,583   
Assets held for sale, net57,638  151  3,579  18,893  185,074   
Operating lease right-of-use assets323,759  333,224  336,112  336,983  321,365   
Investments in unconsolidated joint ventures325,453  327,245  327,746  327,248  327,752   
Other assets, net and goodwill822,084  797,796  795,242  693,192  587,126   
Total assets$13,103,728 $13,394,347 $13,568,884 $13,849,631 $14,195,443   
      
LIABILITIES AND STOCKHOLDERS' EQUITY     
 3Q 20232Q 20231Q 20234Q 2022 3Q 2022  
Liabilities     
Notes and bonds payable$5,227,413 $5,340,272 $5,361,699 $5,351,827 $5,570,139   
Accounts payable and accrued liabilities204,947  196,147  155,210  244,033  231,018   
Liabilities of properties held for sale3,814  222  277  437  10,644   
Operating lease liabilities273,319  278,479  279,637  279,895  268,840   
Financing lease liabilities74,087  73,629  73,193  72,939  72,378   
Other liabilities211,365  219,694  232,029  218,668  203,398   
Total liabilities5,994,945  6,108,443  6,102,045  6,167,799  6,356,417   
      
Redeemable non-controlling interests3,195  2,487  2,000  2,014  —   
      
Stockholders' equity     
Preferred stock, $0.01 par value; 200,000 shares authorized—  —  —  —  —   
Common stock, $0.01 par value; 1,000,000 shares authorized3,809  3,808  3,808  3,806  3,806   
Additional paid-in capital9,597,629  9,595,033  9,591,194  9,587,637  9,586,556   
Accumulated other comprehensive income (loss)17,079  9,328  (8,554) 2,140  5,524   
Cumulative net income attributable to common stockholders1,069,327  1,137,171  1,219,930  1,307,055  1,342,819   
Cumulative dividends(3,684,144) (3,565,941) (3,447,750) (3,329,562) (3,211,492)  
Total stockholders' equity7,003,700  7,179,399  7,358,628  7,571,076  7,727,213   
Non-controlling interest101,888  104,018  106,211  108,742  111,813   
Total Equity7,105,588  7,283,417  7,464,839  7,679,818  7,839,026   
Total liabilities and stockholders' equity$13,103,728 $13,394,347 $13,568,884 $13,849,631 $14,195,443   

 

 


Consolidated Statements of Income
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
       
 3Q 20232Q 20231Q 20234Q 2022  
Revenues    
Rental income$333,335$329,680$324,093$329,399  
Interest income4,2644,2334,2144,227  
Other operating4,6614,2304,6184,436  
 342,260338,143332,925338,062  
Expenses    
Property operating131,639125,395122,040117,009  
General and administrative13,39615,46414,93514,417  
Acquisition and pursuit costs 176966928792  
Merger-related costs7,450(15,670)4,85510,777  
Depreciation and amortization182,989183,193184,479185,275  
 336,243309,051326,596327,570  
Other income (expense)    
Interest expense before merger-related fair value(55,637)(54,780)(52,895)(52,464)  
Merger-related fair value adjustment(10,667)(10,554)(10,864)(11,979)  
Interest expense(66,304)(65,334)(63,759)(64,443)  
Gain on sales of real estate properties48,8117,1561,00773,083  
Gain on extinguishment of debt62——119  
Impairment of real estate assets and credit loss reserves(56,873)(55,215)(31,422)(54,452)  
Equity(loss) gain from unconsolidated joint ventures(456)(17)(780)89  
Interest and other income (expense), net139592547(1,168)  
 (74,621)(112,818)(94,407)(46,772)  
Net loss$(68,604)$(83,726)$(88,078)$(36,280)  
Net loss attributable to non-controlling interests760967953516  
Net loss attributable to common stockholders$(67,844)$(82,759)$(87,125)$(35,764)  
     
     
Basic earnings per common share$(0.18)$(0.22)$(0.23)$(0.10)  
Diluted earnings per common share$(0.18)$(0.22)$(0.23)$(0.10)  
     
Weighted average common shares outstanding - basic378,925378,897378,840378,617  
Weighted average common shares outstanding - diluted 2378,925378,897378,840378,617  


1.Includes third party and travel costs related to the pursuit of acquisitions and developments.
2.Potential common shares are not included in the computation of diluted earnings per share when a loss exists, as the effect would be an antidilutive per share amount. As a result, the Company's OP totaling 4,042,993 units was not included.


Reconciliation of FFO, Normalized FFO and FAD 1,2,3
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
     
 3Q 20232Q 20231Q 2023 4Q 2022  
Net loss attributable to common stockholders$(67,844)$(82,759)$(87,125)$(35,764)  
Net loss attributable to common stockholders per diluted share 3$(0.18)$(0.22)$(0.23)$(0.10)  
     
Gain on sales of real estate assets(48,811) (7,156) (1,007) (73,083)  
Impairments of real estate assets56,873 55,215 26,227 54,452  
Real estate depreciation and amortization185,143 185,003 186,109 186,658  
Non-controlling loss from partnership units(841) (1,027) (1,067) (382)  
Unconsolidated JV depreciation and amortization4,421 4,412 4,841 4,020  
FFO adjustments$196,785$236,447$215,103$171,665  
FFO adjustments per common share - diluted$0.51$0.62$0.56$0.45  
FFO$128,941$153,688$127,978$135,901  
FFO per common share - diluted$0.34$0.40$0.33$0.35  
     
Acquisition and pursuit costs769 669 287 92  
Merger-related costs7,450 (15,670) 4,855 10,777  
Lease intangible amortization213 240 146 137  
Non-routine legal costs/forfeited earnest money received— 275 — 194  
Debt financing costs(62) — — 625  
Allowance for credit losses 4— — 8,599 —  
Merger-related fair value adjustment10,667 10,554 10,864 11,979  
Unconsolidated JV normalizing items 590 93 117 96  
Normalized FFO adjustments$19,127$(3,839)$24,868$23,900  
Normalized FFO adjustments per common share - diluted$0.05$(0.01)$0.06$0.06  
Normalized FFO$148,068$149,849$152,846$159,801  
Normalized FFO per common share - diluted$0.39$0.39$0.40$0.42  
     
Non-real estate depreciation and amortization475 802 604 624  
Non-cash interest amortization, net 61,402 1,618 682 2,284  
Rent reserves, net442 (54) 1,371 (100)  
Straight-line rent income, net(8,470) (8,005) (8,246) (9,873)  
Stock-based compensation2,556 3,924 3,745 3,573  
Unconsolidated JV non-cash items 7(231) (316) (227) (316)  
Normalized FFO adjusted for non-cash items144,242 147,818 150,775 155,993  
2nd generation TI(21,248) (17,236) (8,882) (13,523)  
Leasing commissions paid(8,907) (5,493) (7,013) (7,404)  
Capital expenditures(14,354) (8,649) (8,946) (25,669)  
Total maintenance capex(44,509) (31,378) (24,841) (46,596)  
FAD$99,733$116,440$125,934$109,397  
Quarterly dividends 119,456 $119,444 $119,442 $119,323  
FFO wtd avg common shares outstanding - diluted 8383,428 383,409 383,335 383,228  


1.Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by NAREIT. NAREIT defines FFO as “net income (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.”
2.FFO, Normalized FFO and Funds Available for Distribution ("FAD") do not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO, Normalized FFO and FAD should not be considered alternatives to net income attributable to common stockholders as indicators of the Company's operating performance or as alternatives to cash flow as measures of liquidity.
3.Potential common shares are not included in the computation of diluted earnings per share when a loss exists, as the effect would be an antidilutive per share amount.
4.In Q1 2023, allowance for credit losses included a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate and credit loss reserves" on the Statement of Income and $3.4 million reserve included in “Rental Income” on the Statement of Income for previously deferred rent and straight line rent for three skilled nursing facilities.
5.Includes the Company's proportionate share of normalizing items related to unconsolidated joint ventures such as lease intangibles and acquisition and pursuit costs.
6.Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization.
7.Includes the Company's proportionate share of straight-line rent, net and rent reserves, net related to unconsolidated joint ventures.
8.The Company utilizes the treasury stock method, which includes the dilutive effect of nonvested share-based awards outstanding of 432,597 for the three months ended September 30, 2023. Also includes the diluted impact of 4,042,993 OP units outstanding.


Reconciliation of Non-GAAP Measures
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA - UNAUDITED 


Management considers funds from operations ("FFO"), FFO per share, normalized FFO, normalized FFO per share, funds available for distribution ("FAD") to be useful non-GAAP measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure historical financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors.

The non-GAAP financial measures presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income (determined in accordance with GAAP), as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs.

FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as “net income (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.” The Company defines Normalized FFO as FFO excluding acquisition-related expenses, lease intangible amortization and other normalizing items that are unusual and infrequent in nature. FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense and rent reserves, net; and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. FFO, Normalized FFO and FAD do not represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. FFO, Normalized FFO and FAD should not be considered an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of liquidity. FFO, Normalized FFO and FAD should be reviewed in connection with GAAP financial measures.

Management believes FFO, FFO per share, Normalized FFO, Normalized FFO per share, and FAD provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, including depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, gains or losses from sales of real estate, and other normalizing items that are unusual and infrequent, FFO, FFO per share, Normalized FFO, Normalized FFO per share and FAD can facilitate comparisons of operating performance between periods. The Company reports these measures because they have been observed by management to be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because these measures are consistently reported, discussed, and compared by research analysts in their notes and publications about REITs.

Merger Combined Cash NOI and Merger Combined Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Merger Combined Cash NOI as rental income and less property operating expenses. Merger Combined Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, lease termination fees, tenant improvement amortization and leasing commission amortization. Merger Combined Cash NOI is historical and not necessarily indicative of future results.

Merger Combined Same Store Cash NOI compares Merger Combined Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, properties undergoing redevelopment, and newly redeveloped or developed properties.

The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction for such properties through the application of additional resources including an amount of capital expenditures significantly above routine maintenance and capital improvement expenditures. These properties are described in additional detail in Footnote 6 to the Condensed Consolidated Financial Statements.

Any recently acquired property will be included in the same store pool once the Company has owned the property for eight full quarters. Newly developed or redeveloped properties will be included in the same store pool eight full quarters after substantial completion.

Ron Hubbard
Vice President, Investor Relations
P: 615.269.8290


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Source: Healthcare Realty Trust Incorporated

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