Healthcare Realty Trust’s Earnings Call Highlights Robust Growth

Healthcare Realty Trust Incorporated ((HR)) has held its Q2 earnings call. Read on for the main highlights of the call.

Healthcare Realty Trust Incorporated’s recent earnings call painted a picture of strong financial results and strategic initiatives poised to bolster future performance. The company showcased robust leasing activity and financial growth, although challenges persist in optimizing certain assets and managing financial obligations, such as the dividend reduction and high cap rate on asset sales.

Strong Financial Performance

Healthcare Realty Trust reported a notable increase in financial metrics, with Normalized Funds From Operations (FFO) reaching $0.41 per share, marking a $0.02 sequential increase. Funds Available for Distribution (FAD) also saw a rise to $0.33 per share, a $0.04 sequential increase. The company achieved a same-store Net Operating Income (NOI) growth of 5.1%, the highest in nine years, with a 280 basis point sequential increase.

Successful Leasing Activity

The company experienced its second highest new leasing quarter in the last three years, executing nearly 1.5 million square feet of leases. This included over 450,000 square feet of new leases, demonstrating strong demand and effective leasing strategies.

Strategic Portfolio Optimization

Healthcare Realty completed a comprehensive bottom-up analysis of its portfolio, segmenting 650 assets into stabilized, lease-up, and disposition portfolios. Significant growth potential was identified in the lease-up portfolio, highlighting strategic opportunities for future expansion.

Asset Sales and Guidance Raise

Year-to-date asset sales increased to $211 million, with an additional $700 million under contract or Letter of Intent (LOI). This led to a raised full-year disposition outlook of $800 million to $1 billion, reflecting confidence in asset sales strategies.

Corporate Restructuring and Cost Savings

The company achieved $10 million in run rate General and Administrative (G&A) savings through headcount reduction and office expense savings, with expectations for further savings. This restructuring aims to streamline operations and improve financial efficiency.

Improved Balance Sheet

Healthcare Realty successfully recast its $1.5 billion revolver and extended the maturity of term loans, significantly reducing near-term maturities. This move strengthens the company’s financial position and provides greater flexibility.

Dividend Reduction

To alleviate pressure from $1.4 billion of low coupon bonds maturing over the next three years, the company reduced its dividend by 23% to $0.24 per share. This decision reflects a strategic approach to managing financial obligations.

Operational Challenges in Lease-Up Portfolio

The lease-up portfolio faced operational challenges, with performance lagging due to underinvestment or deteriorated local relationships. Current occupancy stands at 70%, with rents nearly 20% below market, indicating areas needing improvement.

High Cap Rate on Asset Dispositions

The company expects asset sales at a blended cap rate of 7%, suggesting potential challenges in achieving desired pricing. This high cap rate may impact the profitability of asset dispositions.

Forward-Looking Guidance

Healthcare Realty raised its guidance, reflecting strong performance and strategic initiatives. Key metrics include a normalized FFO of $0.41 per share and FAD of $0.33 per share. The company reported a 90% same-store occupancy and a 5.1% same-store NOI growth. With over $700 million in assets under contract or LOI, the company successfully renewed its revolver and extended its term loans, further solidifying its financial position.

In summary, Healthcare Realty Trust’s earnings call highlighted strong financial performance and strategic initiatives aimed at enhancing future growth. While the company faces challenges in optimizing certain assets and managing financial obligations, its robust leasing activity and improved balance sheet position it well for continued success.