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Healthcare Realty Trust Reports Results for the Second Quarter

NASHVILLE, Tenn., July 30, 2019 (GLOBE NEWSWIRE) -- Healthcare Realty Trust Incorporated (HR) today announced results for the second quarter ended June 30, 2019.  The Company reported net income of $4.5 million, or $0.03 per diluted common share for the quarter ended June 30, 2019.  Normalized FFO for the three months ended June 30, 2019 totaled $51.2 million, or $0.40 per diluted common share.

Salient quarterly highlights include:

  • For the trailing twelve months ended June 30, 2019, same store cash NOI grew 3.6%.
    • Revenues increased 2.8% and revenue per average occupied square foot increased 2.9%.
    • Operating expenses increased 1.6%.
    • Average occupancy was stable at 89.5% versus 89.6% the same period a year ago.
  • Same store cash NOI for the second quarter increased 3.0% over the second quarter of 2018.
  • Predictive growth measures in the same store multi-tenant portfolio include:
    • Average in-place rent increases of 2.91%, up from 2.84% a year ago, partially attributable to future annual contractual increases of 3.17% for leases commencing in the quarter. 
    • Weighted average cash leasing spreads of 5.0% on 305,000 square feet renewed:  
      • 8% (<0% spread)
      • 2% (0-3%)
      • 53% (3-4%)
      • 37% (>4%) 
    • Tenant retention of 87.4%.
  • Portfolio leasing activity in the second quarter totaled 534,000 square feet related to 169 leases:
    • 367,000 square feet of renewals
    • 167,000 square feet of new and expansion leases
    • 26,000 square feet of net positive sequential absorption
  • Second quarter acquisitions of $102.2 million included five properties totaling 293,000 square feet that were 94% leased.  Acquisitions included:
    • A medical office building adjacent to AA- rated Piedmont Healthcare's hospital in the Buckhead area of Atlanta for $28.0 million.  The 48,000 square foot building is 100% leased.
    • A medical office building adjacent to AA- rated Baylor Scott & White Health’s All Saints Medical Center in the Dallas-Fort Worth market for $17.0 million.  The 90,000 square foot building is 85% leased and adjacent to a 140,000 square foot, on-campus medical office building developed by the Company.
    • A medical office building adjacent to AA- rated MultiCare Health System’s Allenmore Hospital in the Seattle-Tacoma market for $7.7 million.  The 30,000 square foot building is 100% leased and is adjacent to two on-campus medical office buildings, totaling 154,000 square feet, owned by the Company. 
    • Two medical office buildings for $49.5 million, totaling 126,000 square feet, that are 98% leased in aggregate.  These properties are located near AA+ rated UW Medicine’s Northwest Hospital and Medical Center in Seattle where the Company owns two medical office buildings totaling 130,000 square feet. 
  • Second quarter dispositions of $13.0 million included four medical office buildings totaling 67,000 square feet in Tucson, AZ, three of which were located off-campus.
  • In May 2019, the Company renewed and expanded its credit facilities by:
    • Extending the $700 million unsecured credit facility maturity to 2023 and improving borrowing costs by 10 basis points.
    • Extending its existing five-year term loan maturity to 2024, expanding the total capacity by $50 million to $200 million, and improving borrowing costs by 10 basis points.
    • Entering into a new seven-year $150 million term loan facility with a nine-month delayed draw feature.  The Company expects to draw from this facility in the first quarter of 2020.
  • In the second quarter, the Company entered into $100 million of LIBOR-based swaps, bringing the Company's total LIBOR-based swaps to $175 million, with a weighted average rate of 2.29% plus the applicable margin rate. 
  • Net debt to adjusted EBITDA was 5.2 times.
  • A dividend of $0.30 per common share was declared for the second quarter.  Dividends paid for the quarter equaled 75.8% of normalized FFO and 93.4% of FAD.

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, 2019, the Company owned 201 real estate properties in 26 states totaling 15.3 million square feet and was valued at approximately $5.5 billion. The Company provided leasing and property management services to 11.1 million square feet nationwide.

Additional information regarding the Company, including this quarter's operations, can be found at www.healthcarerealty.com.  Please contact the Company at 615.269.8175 to request a printed copy of this information.

In addition to the historical information contained within, the matters discussed in this press release may contain forward-looking statements that involve risks and uncertainties. These risks are discussed in filings with the Securities and Exchange Commission by Healthcare Realty Trust, including its Annual Report on Form 10-K for the year ended December 31, 2018 under the heading "Risk Factors," and as updated in its Quarterly Reports on Form 10-Q filed thereafter. Forward-looking statements represent the Company's judgment as of the date of this release.  The Company disclaims any obligation to update forward-looking statements. A reconciliation of all non-GAAP financial measures in this release is included herein.


Condensed Consolidated Balance Sheets 1
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 


ASSETS      
  JUNE 30, 2019     DECEMBER 31, 2018  
Real estate properties      
Land $247,772     $230,206  
Buildings, improvements and lease intangibles   3,845,546       3,675,415  
Personal property   10,804       10,696  
Construction in progress   36,996       33,107  
Land held for development   24,647       24,647  
Total real estate properties   4,165,765       3,974,071  
Less accumulated depreciation and amortization   (1,064,408 )     (1,015,174 )
Total real estate properties, net   3,101,357       2,958,897  
Cash and cash equivalents   7,617       8,381  
Assets held for sale, net   6,615       9,272  
Operating lease right-of-use assets   127,326        
Financing lease right-of-use assets   9,095        
Other assets, net   176,537       214,697  
Total assets $3,428,547     $3,191,247  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
  JUNE 30, 2019     DECEMBER 31, 2018  
Liabilities      
Notes and bonds payable $1,442,758     $1,345,984  
Accounts payable and accrued liabilities   60,394       80,411  
Liabilities of properties held for sale   511       587  
Operating lease liabilities   91,056        
Financing lease liabilities   14,216        
Other liabilities   50,168       47,623  
Total liabilities   1,659,103       1,474,605  
Commitments and contingencies      
Stockholders' equity      
Preferred stock, $.01 par value; 50,000 shares authorized; none issued and outstanding          
Common stock, $.01 par value; 300,000 shares authorized; 129,245 and 125,279 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively   1,292       1,253  
Additional paid-in capital   3,305,344       3,180,284  
Accumulated other comprehensive loss   (6,189 )     (902 )
Cumulative net income attributable to common stockholders   1,097,494       1,088,119  
Cumulative dividends   (2,628,497 )     (2,552,112 )
Total stockholders' equity   1,769,444       1,716,642  
Total liabilities and stockholders' equity $3,428,547     $3,191,247  
  1. The Condensed Consolidated Balance Sheets do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.


Condensed Consolidated Statements of Income 1
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 


           
  THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
    2019     2018       2019     2018  
Revenues          
Rental income 2 $114,351   $109,566     $225,046   $219,795  
Other operating   1,966     2,068       3,928     3,963  
    116,317     111,634       228,974     223,758  
Expenses          
Property operating   44,286     41,737       87,012     83,556  
General and administrative   7,845     8,373       16,355     17,473  
Acquisition and pursuit costs   422     120       726     397  
Depreciation and amortization   43,926     40,130       86,588     79,703  
Bad debts, net of recoveries2       104           104  
    96,479     90,464       190,681     181,233  
Other income (expense)          
Gain on sales of real estate assets   4,849     29,590       4,865     29,590  
Interest expense   (13,850 )   (13,069 )     (27,438 )   (25,737 )
Impairment of real estate assets   (5,610 )         (5,610 )    
Interest and other income (expense), net   (743 )   38       (735 )   530  
    (15,354 )   16,559       (28,918 )   4,383  
Net Income $4,484   $37,729     $9,375   $46,908  
           
Basic earnings per common share - Net income $0.03   $0.30     $0.07   $0.37  
Diluted earnings per common share - Net income $0.03   $0.30     $0.07   $0.37  
           
Weighted average common shares outstanding - basic   127,449     123,285       125,799     123,271  
Weighted average common shares outstanding - diluted   127,525     123,321       125,889     123,324  
  1. The Condensed Consolidated Statements of Income do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
  2. Beginning in the first quarter of 2019 with the adoption of Accounting Standards Codification Topic 842, bad debts, net of recoveries associated with lease revenue was recorded within rental income. 


Reconciliation of FFO, Normalized FFO and FAD
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA - UNAUDITED
 


     
  THREE MONTHS ENDED JUNE 30,
    2019     2018  
Net income $4,484   $37,729  
Gain on sales of real estate assets   (4,849 )   (29,590 )
Impairment of real estate asset   5,610      
Real estate depreciation and amortization   44,682     40,747  
Funds from operations (FFO) $49,927   $48,886  
Acquisition and pursuit costs 1   422     120  
Lease intangible amortization 2   54      
Debt financing costs   760      
Normalized FFO $51,163   $49,006  
Non-real estate depreciation and amortization   1,536     1,481  
Provision for bad debt, net   150     104  
Straight-line rent income, net   (1 )   (683 )
Stock-based compensation   2,372     2,593  
Normalized FFO adjusted for non-cash items   55,220     52,501  
2nd generation TI   (6,124 )   (7,755 )
Leasing commissions paid   (2,601 )   (1,947 )
Capital additions   (4,993 )   (7,117 )
Funds available for distribution (FAD) $41,502   $35,682  
FFO per common share - diluted $0.39   $0.39  
Normalized FFO per common share - diluted $0.40   $0.40  
FFO weighted average common shares outstanding - diluted 3   128,279     123,983  
  1. Acquisition and pursuit costs include third party and travel costs related to the pursuit of acquisitions and developments.
  2. The Company adopted the 2018 NAREIT FFO White Paper Restatement during the first quarter of 2019.  This amended definition specifically includes the impact of acquisition related market lease intangible amortization in the calculation of NAREIT FFO.  The Company historically included this amortization in the real estate depreciation and amortization line item which is added back in the calculation of NAREIT FFO.   Prior periods were not restated for the adoption.
  3. Diluted weighted average common shares outstanding for the three months ended June 30, 2019 includes the dilutive effect of nonvested share-based awards outstanding of 754,089 shares.
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 provision for bad debts, 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 accounting principles generally accepted in the United States of America and is 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.

Cash NOI and 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 Cash NOI as rental income and property lease guaranty income less property operating expenses. Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, lease terminations, tenant improvement amortization and leasing commission amortization. Cash NOI is historical and not necessarily indicative of future results.

Same Store Cash NOI compares 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 and include redevelopment projects.   Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, reposition properties and newly developed properties.  The Company utilizes the reposition classification for properties experiencing a shift in strategic direction.  Such a shift can occur for a variety of reasons, including a substantial change in the use of the asset, a change in strategy or closure of a neighboring hospital, or significant property damage.  Such properties may require enhanced management, leasing, capital needs or a disposition strategy that differs from the rest of the portfolio.  To identify properties exhibiting these reposition characteristics, the Company applies the following Company-defined criteria:

  • Properties having less than 60% occupancy that is expected to last at least two quarters;
  • Properties that experience a loss of occupancy over 30% in a single quarter; or
  • Properties with negative net operating income that is expected to last at least two quarters.

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 properties will be included in the same store pool eight full quarters after substantial completion.  Any additional square footage created by redevelopment projects at a same store property is included in the same store pool immediately upon completion.  Any property included in the reposition property group will be included in the same store analysis once occupancy has increased to 60% or greater with positive net operating income and has remained at that level for eight full quarters.

Carla Baca
Associate Vice President, Investor Relations
P: 615.269.8175