Healthcare Realty Trust Reports Results for the Fourth Quarter

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NASHVILLE, Tenn., Feb. 16, 2024 (GLOBE NEWSWIRE) — Healthcare Realty Trust Incorporated (NYSE:HR) today announced results for the fourth quarter ended December 31, 2023. The Company reported net income (loss) attributable to common stockholders of $(40.5) million, or $(0.11) per diluted common share, for the quarter ended December 31, 2023. Normalized FFO for the three months ended December 31, 2023 totaled $150.7 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.

RESULTS

Net (loss) income attributable to common stockholders for the three months ended December 31, 2023 was $(40.5) million or $(0.11) per diluted common share. Net (loss) income attributable to common stockholders for the year ended December 31, 2023 was $(278.3) million or $(0.74) per diluted common share.

Normalized FFO per share totaled $0.39 and $1.57 for the three months and year ended December 31, 2023, respectively.

MERGER COMBINED SAME STORE

Merger Combined Same Store cash NOI for the fourth quarter increased 2.7% over the prior year, and 2.8% for the year ended December 31, 2023.

Fourth quarter predictive growth measures in the Merger Combined Same Store portfolio include:

Average in-place rent increases of 2.8%
Future annual contractual increases of 2.9% for leases commencing in the quarter.
Weighted average MOB cash leasing spreads of 3.3% on 607,000 square feet renewed:

3% (<0% spread)
6% (0-3%)
76% (3-4%)
16% (>4%)

Tenant retention of 78.2%

MULTI-TENANT OCCUPANCY AND ABSORPTION

During the quarter, the multi-tenant portfolio had sequential occupancy improvement of 175,000 square feet, or 53 basis points.

 
4Q 2023

(in thousands, except % and bps)
NOVEMBER 2023
PROJECTION
ACTUAL

Total multi-tenant SF
33,552
33,371

Starting occupancy
85.1%
84.7%

Absorption (SF)
120-180
175

Ending occupancy
85.4-85.6%
85.2%

Change in occupancy (bps)
+ 30-50
+ 53

 

Total multi-tenant square feet changes from the November 2023 projection to 4Q 2023 actual include the sale of properties comprising 287,000 square feet offset by a 106,000 square feet development completion.
The multi-tenant portfolio leased percentage was 87.3% at December 31, which was 210 basis points greater than occupancy.   

The multi-tenant Legacy HTA portfolio leased percentage was 85.5%, which was 230 basis points greater than occupancy.

An updated multi-tenant occupancy and NOI bridge can be found on page 21 of the Investor Presentation.

LEASING

Portfolio leasing activity that commenced in the fourth quarter totaled 1,224,000 square feet related to 340 leases:

703,000 square feet of renewals
508,000 square feet of new and 13,000 square feet of expansion leases

The Company executed new leases totaling 425,000 square feet in the quarter that will commence in future periods.

DISPOSITIONS

During the fourth quarter, the Company sold 27 properties totaling $338 million.
Additional dispositions in 2023 totaled 36 properties for $656 million at an average cap rate of 6.6%. These dispositions generated proceeds of $597 million and $59 million of seller financing.
The 2023 additional dispositions do not include the January 2023 dispositions of $112 million to repay the balance on the asset sale term loan.
The 2023 total dispositions improved the quality and growth profile of the portfolio as seen through the following characteristics:

34% non-MOB
54% off campus MOB
63% single-tenant
1.9% average in-place escalators

 

BALANCE SHEET

Net debt to adjusted EBITDA was 6.4 times at the end of the quarter.
During the fourth quarter, the Company executed interest rate swaps totaling $275 million. In January 2024, $200 million of interest rate swaps expired.
As of December 31, 2023, including the effect of the expiration of the January 2024 interest rate swap, variable rate debt was 8%. This reflects an improvement from 13% as of December 31, 2022.
As of December 31, 2023, the Company’s line of credit balance was fully repaid.

DIVIDEND

A dividend of $0.31 per share was paid in November 2023. A dividend of $0.31 per share will be paid on March 14, 2024 to stockholders and OP unitholders of record on February 26, 2024.

EARNINGS CALL

On Friday, February 16, 2024, at 11:00 a.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.
Live Conference Call Access Details:

Domestic Dial-In Number: +1 404-975-4839 access code 926364;
All Other Locations: +1 833-470-1428 access code 926364.

Replay Information:

Domestic Dial-In Number: +1 929-458-6194 access code 512784;
All Other Locations: +1 866-813-9403 access code 512784.

GUIDANCE

The Company’s 2024 guidance range represents the in-place portfolio as of February 16, 2024, and does not include any assumptions for prospective acquisitions, joint venture seed portfolios or other related balance sheet activities that have not closed unless otherwise noted. The 2024 guidance range expectations are as follows:

 
ACTUAL
EXPECTED 1Q 2024
EXPECTED 2024

 
4Q 2023

 
 2023
 
LOW

 
HIGH
 
LOW

 
HIGH
 

Earnings per share
$(0.11

$(0.74

$(0.12

$(0.11

$(0.60

$(0.10
)

NAREIT FFO per share
$0.36
 
$1.43
 
$0.35
 
$0.36
 
$1.42
 
$1.48
 

Normalized FFO per share
$0.39
 
$1.57
 
$0.38
 
$0.39
 
$1.52
 
$1.58
 

 

The 2024 annual guidance above includes the following significant changes from 2023 results (dollars in thousands, except per share data). Refer to page 28 for additional guidance detail including operating metrics and capital funding expectations.

4Q 2023 RUN-RATE NORMALIZED FFO RECONCILIATION
 
 
4Q 2023
 
DESCRIPTION

4Q 2023 normalized FFO
 
 
$150,730
 
 

Non-recurring items
 
(4,730
)
Property tax appeals/reductions and refunds

4Q 2023 run-rate normalized FFO
 
$146,000
 
 

 
 
 
 
 

 
 
EXPECTED 2024
 

KEY ASSUMPTIONS
 
LOW
HIGH
 
DESCRIPTION

Annualized 4Q 2023 run-rate normalized FFO
 
$584,000
 
$584,000
 
 

Multi-tenant cash NOI
 
21,000
 
29,000
 
3.5% to 4.75% growth

Single-tenant cash NOI
 
1,000
 
3,000
 
0.5% to 1.5% growth

Straight-line rent
 
(2,000
)
2,000
 
 

Performance based compensation
 
(5,500
)
(3,500
)
Return to run-rate

Interest rate swap maturity
 
(6,500
)
(6,500
)
January 2024 expiration of 1.21%

Re/development and other capital funding
 
(7,500
)
(5,500
)
$150-$250 million of dispositions

Other
 

 
1,500
 
 

Expected normalized FFO
 
$584,500
 
$604,000
 
 

Expected normalized FFO per share
$1.52
 
$1.58
 
 

 

The 2024 annual guidance range reflects the Company’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels, interest rates, and operating and general and administrative expenses. The Company’s guidance does not contemplate impacts from gains or losses from dispositions, potential impairments, or debt extinguishment costs, if any. There can be no assurance that the Company’s actual results will not be materially higher or lower than these expectations. If actual results vary from these assumptions, the Company’s expectations may change.

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 nearly 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 2023 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
 
 
 
 
 

 
4Q 2023
3Q 2023
2Q 2023
1Q 2023
4Q 2022

Real estate properties
 
 
 
 
 

Land
$1,343,265
 
$1,387,821
 
$1,424,453
 
$1,412,805
 
$1,439,798
 

Buildings and improvements
 
10,881,373
 
 
11,004,195
 
 
11,188,821
 
 
11,196,297
 
 
11,332,037
 

Lease intangibles
 
836,302
 
 
890,273
 
 
922,029
 
 
929,008
 
 
959,998
 

Personal property
 
12,718
 
 
12,686
 
 
12,615
 
 
11,945
 
 
11,907
 

Investment in financing receivables, net
 
122,602
 
 
120,975
 
 
121,315
 
 
120,692
 
 
120,236
 

Financing lease right-of-use assets
 
82,209
 
 
82,613
 
 
83,016
 
 
83,420
 
 
83,824
 

Construction in progress
 
60,727
 
 
85,644
 
 
53,311
 
 
42,615
 
 
35,560
 

Land held for development
 
59,871
 
 
59,871
 
 
78,411
 
 
69,575
 
 
74,265
 

Total real estate investments
 
13,399,067
 
 
13,644,078
 
 
13,883,971
 
 
13,866,357
 
 
14,057,625
 

Less accumulated depreciation and amortization
 
(2,226,853
)
 
(2,093,952
)
 
(1,983,944
)
 
(1,810,093
)
 
(1,645,271
)

Total real estate investments, net
 
11,172,214
 
 
11,550,126
 
 
11,900,027
 
 
12,056,264
 
 
12,412,354
 

Cash and cash equivalents
 
25,699
 
 
24,668
 
 
35,904
 
 
49,941
 
 
60,961
 

Assets held for sale, net
 
8,834
 
 
57,638
 
 
151
 
 
3,579
 
 
18,893
 

Operating lease right-of-use assets
 
275,975
 
 
323,759
 
 
333,224
 
 
336,112
 
 
336,983
 

Investments in unconsolidated joint ventures
 
311,511
 
 
325,453
 
 
327,245
 
 
327,746
 
 
327,248
 

Other assets, net and goodwill
 
842,898
 
 
822,084
 
 
797,796
 
 
795,242
 
 
693,192
 

Total assets
$12,637,131
 
$13,103,728
 
$13,394,347
 
$13,568,884
 
$13,849,631
 

 
 
 
 
 
 

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 

 
4Q 2023
3Q 2023
2Q 2023
1Q 2023
4Q 2022

Liabilities
 
 
 


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