HR - Healthcare Realty Trust Reports Results for the First Quarter | Benzinga

The Company is focused on its top priorities of capital allocation and operational momentum to accelerate FFO growth and improve dividend coverage.

CAPITAL ALLOCATION MOMENTUM

• Announced a $383 million JV with KKR at a 6.6% cap rate with expected proceeds of $300 million
• Expects additional proceeds of more than $300 million within 90 days from separate transactions
• Repurchased 3.0 million shares totaling $41.7 million in April

OPERATIONAL MOMENTUM

• Delivered multi-tenant absorption of 57,000 square feet, or 17 basis points, on pace with expectations
• Generated strong new leasing momentum with new leases of approximately 440,000 square feet
• Improved tenant retention to 84.8%, up from 78.2% in fourth quarter 2023

NASHVILLE, Tenn., May 07, 2024 (GLOBE NEWSWIRE) -- Healthcare Realty Trust Incorporated (NYSE:HR) today announced results for the first quarter ended March 31, 2024. Net (loss) income attributable to common stockholders for the three months ended March 31, 2024 was $(310.8) million, or $(0.82) per diluted common share. Normalized FFO per share totaled $0.39 for the three months ended March 31, 2024.

CAPITAL ALLOCATION

• The Company announced a strategic JV with KKR & Co., Inc. with the following key terms:
  
  • The Company will contribute 12 existing properties at a value of $382.5 million, representing a cap rate of approximately 6.6%.
  • KKR will make an initial capital contribution into the JV equal to 80% of the value of the properties.
  • The Company will retain a 20% interest and will manage the JV, as well as continue to oversee day-to-day operations and leasing of the properties.
  • The JV is expected to generate approximately $300 million of proceeds to the Company, and the contribution of the properties is expected to occur throughout May and June, subject to customary closing conditions.
  • Asset-level financing is not expected to be used for the initial JV seed portfolio or future investments.
  • KKR has also committed up to $600 million of additional equity capital to invest in high-quality stabilized MOBs, which may include additional contributions of the Company's properties.
• The Company has additional transactions under contract and letters of intent that are expected to generate further proceeds of more than $300 million within 90 days.
• The impact of additional transactions as well as the KKR JV will be incorporated into the Company's guidance expectations when they are completed.
• Proceeds are expected to be used to repurchase shares on a leverage neutral basis, maintaining debt to adjusted EBITDA between 6.0 and 6.5 times.
• In April, the Company repurchased 3.0 million shares totaling $41.7 million at an average price of $14.07 per share.
• The Company's Board of Directors has authorized the repurchase of up to $500.0 million of outstanding shares of the Company's common stock.

MULTI-TENANT OCCUPANCY AND ABSORPTION

• Multi-tenant sequential occupancy gains were in-line with expectations provided in the February 2024 Investor Presentation as shown below:
  

• Strong multi-tenant absorption was noteworthy given the 1,603,000 square feet of expirations in first quarter, nearly double the expirations in the fourth quarter 2023 and the highest quarterly level scheduled in 2024.
• The multi-tenant portfolio leased percentage was 87.1% at March 31, which was 170 basis points greater than occupancy of 85.4%.
• Multi-tenant occupancy has increased by 70 basis points since third quarter of 2023. For the Legacy HTA properties, multi-tenant occupancy has increased by 130 basis points for the same period.
• The multi-tenant occupancy and NOI bridge can be found on page 5 of the Key Highlights Investor Presentation.

LEASING

• Portfolio leasing activity that commenced in the first quarter totaled 2,077,000 square feet related to 411 leases:
  
  • 1,595,000 square feet of renewals
  • 482,000 square feet of new and expansion lease commencements

• The Company signed new leases totaling approximately 440,000 square feet in the quarter.

SAME STORE

• Same Store cash NOI for the first quarter increased 3.0% over the same quarter in the prior year, up from 2.7% year over year growth in fourth quarter 2023.
• Tenant retention for the first quarter was 84.8%, an increase from 78.2% in fourth quarter 2023.
• Operating expense growth was 1.7% over the same quarter in the prior year, down from 4.1% year over year growth in fourth quarter 2023.
• First quarter predictive growth measures in the 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 3.7% on 1,313,000 square feet renewed:
    
    • 4% (<0% spread)
    • 10% (0-3%)
    • 54% (3-4%)
    • 31% (>4%)

BALANCE SHEET

• Net debt to adjusted EBITDA was 6.5 times at March 31, 2024.
• In March 2024, the Company reduced its credit spread on its term loans and credit facility by 1 basis point as a result of meeting certain sustainability targets.
• As of March 31, 2024, variable rate debt was 10% of outstanding, an improvement from 16% as of March 31, 2023.

DIVIDEND

• The Company is focused on its top priorities of capital allocation and operational momentum to accelerate earnings growth and improve dividend coverage.
• A dividend of $0.31 per share was paid in March 2024. A dividend of $0.31 per share will be paid on May 23, 2024 to stockholders and OP unitholders of record on May 13, 2024.

GUIDANCE

• The Company affirms its 2024 Normalized FFO per share guidance as shown below:
  

• The Company's 2024 guidance range includes activities outlined in the Components of Expected FFO on page 27 of the Supplemental Information.
• The Company's 2024 guidance range does not include any assumptions for recently announced or prospective JV seed portfolios, dispositions or share repurchases. These transactions will be incorporated into the Company's guidance expectations after completion.
• The Company's earnings per share and NAREIT FFO per share guidance ranges have been updated to reflect the impact of non-cash goodwill and real estate impairments recognized in 1Q 2024, as applicable.
  

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.

EARNINGS CALL

• On Tuesday, May 7, 2024, 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.
• Live Conference Call Access Details:
  
  • Domestic Toll-Free Number: +1 833-470-1428 access code 240790;
  • All Other Locations: +1 404-975-4839 access code 240790.
• Replay Information:
  
  • Domestic Toll-Free Number: +1 866-813-9403 access code 656103;
  • All Other Locations: +1 929-458-6194 access code 656103.

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; 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.

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