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Healthcare Realty Trust Reports Results for the Second Quarter

Healthcare Realty Trust Incorporated
Healthcare Realty Trust Incorporated

NASHVILLE, Tenn., Aug. 08, 2023 (GLOBE NEWSWIRE) -- Healthcare Realty Trust Incorporated (NYSE:HR) today announced results for the second quarter ended June 30, 2023. The Company reported net loss attributable to common stockholders of $82.8 million, or $0.22 per diluted common share, for the quarter ended June 30, 2023. Normalized FFO for the three months ended June 30, 2023 totaled $149.8 million, or $0.39 per diluted common share.

Salient quarterly highlights include:

  • Normalized FFO per share totaled $0.39.

  • Merger Combined Same Store cash NOI, including the Company's share of joint ventures, for the second quarter increased 2.1% over the prior year, and 2.9% for the trailing twelve months ended June 30, 2023.

  • The Company merged with Legacy HTA on July 20, 2022. Beginning in third quarter of 2022, the Company reported combined company same store results, 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 each other element 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.

  • Predictive growth measures in the Merger Combined Same Store portfolio include:

    • Average in-place rent increases of 2.7%

    • Future annual contractual increases of 3.0% for leases commencing in the quarter.

    • Weighted average MOB cash leasing spreads of 3.0% on 598,000 square feet renewed:

      • 6% (<0% spread)

      • 16% (0-3%)

      • 62% (3-4%)

      • 15% (>4%)

    • Tenant retention of 80.5%

    • Year-over-year absorption of 26,000 square feet resulted in an average occupancy increase of 20 basis points, to 89.0%.

  • Portfolio leasing activity that commenced in the second quarter totaled 1,041,000 square feet related to 306 leases:

    • 736,000 square feet of renewals

    • 305,000 square feet of new and expansion leases

  • The Company executed new leases totaling 376,000 square feet in the quarter that will commence in future periods, an increase of 57% over the first quarter.

  • The total portfolio leased percentage was 88.9% at June 30, which was 150 basis points greater than portfolio occupancy. The portfolio leased percentage increased 30 basis points from the first quarter.

  • Since the end of the first quarter, the Company sold three properties totaling $21.6 million. The Company expects to generate over $300 million of proceeds related to properties under contract or letters of intent that are expected to be sold by year-end.

  • 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.

  • A dividend of $0.31 per share was paid in June. A dividend of $0.31 per share will be paid on August 30, 2023 to stockholders and OP unitholders of record on August 15, 2023.

  • On Tuesday, August 8, 2023, at 11:00 a.m. Central 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: +1 833-470-1428 access code 294698; All Other Locations: +1 404-975-4839 access code 294698. Replay Information: Domestic Dial-In Number: +1 866-813-9403 access code 594252; All Other Locations: +1 929-458-6194 access code 594252.

Healthcare Realty Trust is a real estate investment trust that integrates owning, managing, financing and developing income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. As of June 30, 2023, the Company was invested in over 700 real estate properties totaling more than 40 million square feet and provided leasing and property management services to over 35 million square feet nationwide.

 

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: 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 1
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

ASSETS

 

 

 

 

 

2Q 2023

1Q 2023

4Q 2022

3Q 2022

Real estate properties

 

 

 

 

Land

$

1,424,453

 

$

1,412,805

 

$

1,439,798

 

$

1,449,550

 

Buildings and improvements

 

11,188,821

 

 

11,196,297

 

 

11,332,037

 

 

11,439,797

 

Lease intangibles

 

922,029

 

 

929,008

 

 

959,998

 

 

968,914

 

Personal property

 

12,615

 

 

11,945

 

 

11,907

 

 

11,680

 

Investment in financing receivables, net

 

121,315

 

 

120,692

 

 

120,236

 

 

118,919

 

Financing lease right-of-use assets

 

83,016

 

 

83,420

 

 

83,824

 

 

79,950

 

Construction in progress

 

53,311

 

 

42,615

 

 

35,560

 

 

43,148

 

Land held for development

 

78,411

 

 

69,575

 

 

74,265

 

 

73,321

 

Total real estate investments

 

13,883,971

 

 

13,866,357

 

 

14,057,625

 

 

14,185,279

 

Less accumulated depreciation and amortization

 

(1,983,944

)

 

(1,810,093

)

 

(1,645,271

)

 

(1,468,736

)

Total real estate investments, net

 

11,900,027

 

 

12,056,264

 

 

12,412,354

 

 

12,716,543

 

Cash and cash equivalents

 

35,904

 

 

49,941

 

 

60,961

 

 

57,583

 

Assets held for sale, net

 

151

 

 

3,579

 

 

18,893

 

 

185,074

 

Operating lease right-of-use assets

 

333,224

 

 

336,112

 

 

336,983

 

 

321,365

 

Investments in unconsolidated joint ventures

 

327,245

 

 

327,746

 

 

327,248

 

 

327,752

 

Other assets, net and goodwill

 

797,796

 

 

795,242

 

 

693,192

 

 

587,126

 

Total assets

$

13,394,347

 

$

13,568,884

 

$

13,849,631

 

$

14,195,443

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

1Q 2023

1Q 2023

4Q 2022

3Q 2022

Liabilities

 

 

 

 

Notes and bonds payable

$

5,340,272

 

$

5,361,699

 

$

5,351,827

 

$

5,570,139

 

Accounts payable and accrued liabilities

 

196,147

 

 

155,210

 

 

244,033

 

 

231,018

 

Liabilities of properties held for sale

 

222

 

 

277

 

 

437

 

 

10,644

 

Operating lease liabilities

 

278,479

 

 

279,637

 

 

279,895

 

 

268,840

 

Financing lease liabilities

 

73,629

 

 

73,193

 

 

72,939

 

 

72,378

 

Other liabilities

 

219,694

 

 

232,029

 

 

218,668

 

 

203,398

 

Total liabilities

 

6,108,443

 

 

6,102,045

 

 

6,167,799

 

 

6,356,417

 

 

 

 

 

 

Redeemable non-controlling interests

 

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 authorized

 

3,808

 

 

3,808

 

 

3,806

 

 

3,806

 

Additional paid-in capital

 

9,595,033

 

 

9,591,194

 

 

9,587,637

 

 

9,586,556

 

Accumulated other comprehensive income (loss)

 

9,328

 

 

(8,554

)

 

2,140

 

 

5,524

 

Cumulative net income attributable to common stockholders

 

1,137,171

 

 

1,219,930

 

 

1,307,055

 

 

1,342,819

 

Cumulative dividends 1

 

(3,565,941

)

 

(3,447,750

)

 

(3,329,562

)

 

(3,211,492

)

Total stockholders' equity

 

7,179,399

 

 

7,358,628

 

 

7,571,076

 

 

7,727,213

 

Non-controlling interest

 

104,018

 

 

106,211

 

 

108,742

 

 

111,813

 

Total Equity

 

7,283,417

 

 

7,464,839

 

 

7,679,818

 

 

7,839,026

 

Total liabilities and stockholders' equity

$

13,394,347

 

$

13,568,884

 

$

13,849,631

 

$

14,195,443

 


1     Includes Legacy HTA's cumulative dividends in excess of earnings.


 

Consolidated Statements of Income
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

 

 

 

 

 

 

2Q 2023

1Q 2023

4Q 2022

Revenues

 

 

 

Rental income

$

329,680

 

$

324,093

 

$

329,399

 

Interest income

 

4,233

 

 

4,214

 

 

4,227

 

Other operating

 

4,230

 

 

4,618

 

 

4,436

 

 

 

338,143

 

 

332,925

 

 

338,062

 

Expenses

 

 

 

Property operating

 

125,395

 

 

122,040

 

 

117,009

 

General and administrative

 

15,464

 

 

14,935

 

 

14,417

 

Acquisition and pursuit costs 1

 

669

 

 

287

 

 

92

 

Merger-related costs

 

(15,670

)

 

4,855

 

 

10,777

 

Depreciation and amortization

 

183,193

 

 

184,479

 

 

185,275

 

 

 

309,051

 

 

326,596

 

 

327,570

 

Other income (expense)

 

 

 

Interest expense before merger-related fair value

 

(54,780

)

 

(52,895

)

 

(52,464

)

Merger-related fair value adjustment

 

(10,554

)

 

(10,864

)

 

(11,979

)

Interest expense

 

(65,334

)

 

(63,759

)

 

(64,443

)

Gain on sales of real estate properties

 

7,156

 

 

1,007

 

 

73,083

 

Gain (loss) on extinguishment of debt

 

 

 

 

 

119

 

Impairment of real estate assets and credit loss reserves

 

(55,215

)

 

(31,422

)

 

(54,452

)

Equity(loss) gain from unconsolidated joint ventures

 

(17

)

 

(780

)

 

89

 

Interest and other income (expense), net

 

592

 

 

547

 

 

(1,168

)

 

 

(112,818

)

 

(94,407

)

 

(46,772

)

Net (loss) income

$

(83,726

)

$

(88,078

)

$

(36,280

)

Net loss (income) attributable to non-controlling interests

 

967

 

 

953

 

 

516

 

Net (loss) income attributable to common stockholders

$

(82,759

)

$

(87,125

)

$

(35,764

)

 

 

 

 

 

 

 

 

Basic earnings per common share

$

(0.22

)

$

(0.23

)

$

(0.10

)

Diluted earnings per common share

$

(0.22

)

$

(0.23

)

$

(0.10

)

 

 

 

 

Weighted average common shares outstanding - basic

 

378,897

 

 

378,840

 

 

378,617

 

Weighted average common shares outstanding - diluted 2

 

378,897

 

 

378,840

 

 

378,617

 


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

 

 

 

 

 

2Q 2023

1Q 2023

4Q 2022

Net (loss) income attributable to common stockholders

$

(82,759

)

$

(87,125

)

$

(35,764

)

Net (loss) income attributable to common stockholders per share 3

$

(0.22

)

$

(0.23

)

$

(0.10

)

 

 

 

 

Gain on sales of real estate assets

 

(7,156

)

 

(1,007

)

 

(73,083

)

Impairments of real estate assets

 

55,215

 

 

26,227

 

 

54,452

 

Real estate depreciation and amortization

 

185,003

 

 

186,109

 

 

186,658

 

Non-controlling (loss) income from partnership units

 

(1,027

)

 

(1,067

)

 

(382

)

Unconsolidated JV depreciation and amortization

 

4,412

 

 

4,841

 

 

4,020

 

FFO adjustments

$

236,447

 

$

215,103

 

$

171,665

 

FFO adjustments per common share - diluted

$

0.62

 

$

0.56

 

$

0.45

 

FFO

$

153,688

 

$

127,978

 

$

135,901

 

FFO per common share - diluted

$

0.40

 

$

0.33

 

$

0.35

 

 

 

 

 

Acquisition and pursuit costs

 

669

 

 

287

 

 

92

 

Merger-related costs

 

(15,670

)

 

4,855

 

 

10,777

 

Lease intangible amortization

 

240

 

 

146

 

 

137

 

Non-routine legal costs/forfeited earnest money received

 

275

 

 

 

 

194

 

Debt financing costs

 

 

 

 

 

625

 

Allowance for credit losses 4

 

 

 

8,599

 

 

 

Merger-related fair value adjustment

 

10,554

 

 

10,864

 

 

11,979

 

Unconsolidated JV normalizing items 5

 

93

 

 

117

 

 

96

 

Normalized FFO adjustments

$

(3,839

)

$

24,868

 

$

23,900

 

Normalized FFO adjustments per common share - diluted

$

(0.01

)

$

0.06

 

$

0.06

 

Normalized FFO

$

149,849

 

$

152,846

 

$

159,801

 

Normalized FFO per common share - diluted

$

0.39

 

$

0.40

 

$

0.42

 

 

 

 

 

Non-real estate depreciation and amortization

 

802

 

 

604

 

 

624

 

Non-cash interest amortization, net 6

 

1,618

 

 

682

 

 

2,284

 

Rent reserves, net

 

(54

)

 

1,371

 

 

(100

)

Straight-line rent income, net

 

(8,005

)

 

(8,246

)

 

(9,873

)

Stock-based compensation

 

3,924

 

 

3,745

 

 

3,573

 

Unconsolidated JV non-cash items 7

 

(316

)

 

(227

)

 

(316

)

Normalized FFO adjusted for non-cash items

 

147,818

 

 

150,775

 

 

155,993

 

2nd generation TI

 

(17,236

)

 

(8,882

)

 

(13,523

)

Leasing commissions paid

 

(5,493

)

 

(7,013

)

 

(7,404

)

Capital expenditures

 

(8,649

)

 

(8,946

)

 

(25,669

)

Total maintenance capex

 

(31,378

)

 

(24,841

)

 

(46,596

)

FAD

$

116,440

 

$

125,934

 

$

109,397

 

Quarterly dividends

$

119,444

 

$

119,442

 

$

119,323

 

FFO wtd avg common shares outstanding - diluted 8

 

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 442,263 for the three months ended June 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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