Healthcare Realty Trust rporated(HR) - 2025 Q2 - Quarterly Results

Highlights This section summarizes the company's strong Q2 2025 financial and operational performance, strategic initiatives, and updated financial guidance Second Quarter 2025 Financial and Operating Results In Q2 2025, Healthcare Realty reported a GAAP Net Loss of $(0.45) per share and a Normalized FFO of $0.41 per share, driven by strong operational performance and raised guidance Q2 2025 Financial Results vs. Q2 2024 (in thousands, except per share amounts) | (in thousands, except per share amounts) | THREE MONTHS ENDED JUNE 30, 2025 | THREE MONTHS ENDED JUNE 30, 2024 | | :--- | :--- | :--- | | GAAP Net loss | $(157,851) | $(143,780) | | GAAP Net loss per share | $(0.45) | $(0.39) | | NAREIT FFO, diluted | $120,371 | $123,797 | | NAREIT FFO per share, diluted | $0.34 | $0.33 | | Normalized FFO, diluted | $143,736 | $143,500 | | Normalized FFO per share, diluted | $0.41 | $0.38 | - Improved same store operating metrics including cash NOI growth of +5.1%, a 40 bps sequential increase in occupancy to 90.0%, and +3.3% cash leasing spreads[9] - Increased full-year 2025 guidance for Normalized FFO per share by $0.01 at the midpoint to $1.57 - $1.61 and for Same Store Cash NOI growth by 25 bps to 3.25% - 4.00%[9] Leasing, Disposition, and Balance Sheet Activity The company executed 1.5 million square feet of leases and completed $210.5 million in year-to-date asset sales, reducing leverage and extending credit facilities - Executed 341 new and renewal leases totaling 1.5 million square feet in Q2, with a weighted average lease term of 5.3 years and an average annual escalator of 3.2%[11][14] - Completed $182.4 million in asset sales during Q2 and through July. Year-to-date sales total $210.5 million at a 6.2% blended cap rate, with an additional $700 million under contract or LOI[9][12] - Debt paydown from asset sales reduced run-rate Net Debt to Adjusted EBITDA to 6.0x. The company extended its $1.5 billion revolver to 2030 and obtained extensions on term loans, reducing debt maturing through 2026 from $1.5 billion to $600 million[12][13] Strategic Plan and Leadership Updates The company implemented a new Strategic Plan to optimize its portfolio and operations, initiating a platform restructuring with new hires and senior leadership changes - A new Strategic Plan has been implemented to improve operational performance, optimize the portfolio, and maximize shareholder value[16] - Commenced a platform restructuring, hiring industry veterans Tony Acevedo and Glenn Preston as SVPs of Asset Management to lead a new operations-centric model[17][19] - Julie Wilson, EVP – Chief Administrative Officer, will depart at year-end after a 24-year career, along with other senior leaders impacted by the restructuring[18] Dividend and Financial Reporting The Board approved a 23% dividend reduction to $0.24 per share to improve the FAD payout ratio and retain capital, while also aligning financial reporting with market norms - The dividend was reduced by 23% to $0.24 per share. This change lowers the FAD payout ratio to about 80% and is intended to mitigate refinancing risk and retain $100 million annually for reinvestment[19][20] - The company began using the Carrying Value of its debt for leverage calculations, which reduced the Q2 Net Debt to Adjusted EBITDA by approximately 0.25x[23] - The FAD calculation was updated to exclude Leasing Commissions for first-generation leases, which is expected to decrease Maintenance Capital by $5-10 million annually[24] Salient Facts This section provides a concise overview of the company's property portfolio, market presence, and key capitalization metrics as of June 30, 2025 Company Overview as of June 30, 2025 | Metric | Value | | :--- | :--- | | Properties | | | Number of Properties | 619 | | Total Square Feet | 36.1M | | Markets | 60 in 32 states | | Capitalization | | | Enterprise Value | $10.5B | | Market Capitalization | $5.6B | | Credit Rating (S&P/Moody's) | BBB/Baa2 | | Run Rate Net Debt to Adj. EBITDA | 6.0x | Corporate Information Healthcare Realty is a REIT specializing in medical outpatient buildings, with a portfolio of 619 properties and a recently streamlined Board of Directors - Healthcare Realty (NYSE: HR) is a REIT specializing in owning and operating medical outpatient buildings, primarily near leading hospital campuses. As of June 30, 2025, its portfolio included 619 properties across 32 states, totaling 36.1 million square feet[34] - The Board of Directors is chaired by Thomas N. Bohjalian and includes President and CEO Peter A. Scott. The board was recently reduced from 12 to 7 members[9][36] Financial Statements This section presents the company's balance sheet and income statement, highlighting changes in assets, liabilities, revenues, and net loss for Q2 2025 Balance Sheet As of June 30, 2025, total assets decreased to $10.24 billion due to dispositions, while total liabilities and equity also saw reductions Selected Balance Sheet Data (in thousands) | Account | 2Q 2025 | 2Q 2024 | | :--- | :--- | :--- | | Total real estate investments, net | $8,674,578 | $10,434,689 | | Assets held for sale, net | $358,207 | $34,530 | | Total assets | $10,235,572 | $11,803,627 | | Notes and bonds payable | $4,694,391 | $5,148,153 | | Total liabilities | $5,354,146 | $5,828,935 | | Total equity | $4,877,094 | $5,970,817 | Statements of Income For Q2 2025, total revenues decreased to $297.5 million, resulting in a wider net loss of $(157.9) million, primarily due to asset sales and impairment charges Selected Income Statement Data (in thousands) | Account | 2Q 2025 | 2Q 2024 | | :--- | :--- | :--- | | Rental income | $287,070 | $308,135 | | Total Revenues | $297,502 | $316,322 | | Property operating expense | $109,924 | $117,719 | | Depreciation and amortization | $147,749 | $173,477 | | Impairment of real estate assets | $(142,348) | $(132,118) | | Net loss attributable to common stockholders | $(157,851) | $(143,780) | | Diluted earnings per common share | $(0.45) | $(0.39) | - General and administrative expenses included $10.3 million in normalizing items, primarily related to restructuring, severance costs, and advisory fees[42][43] REIT Performance Metrics This section details key REIT-specific financial metrics, including FFO, Normalized FFO, and FAD, along with capital funding and commitment activities FFO, Normalized FFO, & FAD In Q2 2025, FFO was $0.34 per share and Normalized FFO was $0.41 per share, with FAD totaling $115.4 million after various adjustments Key Performance Metrics (in thousands, except per share data) | Metric | 2Q 2025 | 2Q 2024 | | :--- | :--- | :--- | | FFO | $120,371 | $123,797 | | FFO per common share - diluted | $0.34 | $0.33 | | Normalized FFO | $143,736 | $143,500 | | Normalized FFO per common share - diluted | $0.41 | $0.38 | | FAD | $115,354 | $107,643 | - Key adjustments to arrive at Normalized FFO included adding back $10.3 million in restructuring charges, $10.6 million for a merger-related fair value adjustment, and $1.5 million in credit losses[46] Capital Funding & Commitments In Q2 2025, the company funded $42.0 million for re/development and $33.4 million for first-generation tenant improvements, with maintenance capital expenditures totaling $26.3 million Capital Expenditures (in thousands) | Category | 2Q 2025 | 2Q 2024 | | :--- | :--- | :--- | | Re/development | $42,040 | $44,796 | | 1st generation TI/LC & acquisition capex | $33,369 | $13,010 | | Total Maintenance Capex | $26,335 | $35,134 | - Leasing commitments for leases commencing in Q2 2025 covered 838,063 square feet with a weighted average lease term (WALT) of 43.8 months[50] Debt & Liquidity This section provides an overview of the company's debt structure, maturity profile, and compliance with financial covenants, alongside its current liquidity position Debt Metrics As of June 30, 2025, total debt principal was $4.90 billion with a weighted average interest rate of 3.61% and a well-staggered maturity schedule Debt Summary as of June 30, 2025 | Category | Value | | :--- | :--- | | Total Principal Balance | $4,903,872 thousand | | Weighted Average Maturity | 41 months | | Weighted Average Contractual Rate | 3.61% | | % Fixed Rate Debt (net of cash) | 93.7% | - The company has $628.9 million in debt maturing in 2026 and $1.12 billion maturing in 2027[56] Debt Covenants & Liquidity The company maintained compliance with all debt covenants as of June 30, 2025, with a total debt to total capital ratio of 39.7% and approximately $1.2 billion in total liquidity Selected Debt Covenant Compliance | Covenant | Requirement | Actual (as of 6/30/25) | | :--- | :--- | :--- | | Leverage Ratio (Total Debt/Total Capital) | Not > 60% | 39.7% | | Fixed Charge Coverage Ratio (EBITDA/Fixed Charges) | Not < 1.50x | 3.0x | | Unencumbered Leverage Ratio | Not > 60% | 43.0% | - Run-rate Net Debt to Adjusted EBITDA was 6.0x, proforma for July dispositions[58][60] - Total liquidity sources include $25.5 million in cash and $1.205 billion in availability under the unsecured credit facility[59] Portfolio Activity This section details the company's investment activities, including significant asset dispositions, joint venture interests, and ongoing re/development projects Investment Activity (Dispositions) Through July 30, 2025, the company completed 13 disposition transactions totaling $210.5 million at a 6.2% cap rate, targeting non-core assets 2025 Disposition Activity Summary | Period | of Properties | Total Square Feet | Sale Price | Average Cap Rate | | :--- | :--- | :--- | :--- | :--- | | 1Q 2025 | 4 | 227,952 | $28,100k | N/A | | 2Q 2025 | 4 (+2 land) | 177,906 | $53,086k | N/A | | Post-Q2 | 5 | 504,231 | $129,350k | N/A | | Total YTD | 13 | 910,089 | $210,536k | 6.2% | Joint Ventures The company holds interests in 65 properties through joint ventures, contributing $8.2 million in NOI at its share in Q2 2025, with major partnerships and a net debt share of $32.4 million Joint Venture Portfolio Summary (at HR's Share) | Metric | Total | | :--- | :--- | | of Properties | 65 | | Square Feet | 4,253,845 | | Occupancy | 88% | | Q2 2025 NOI at Share | $8,225 thousand | | Debt at Share | $42,211 thousand | | Net Debt at Share | $32,437 thousand | Re/development Activity The company has an active re/development pipeline of nearly 1 million square feet with a total budget of $259.0 million, targeting stabilized yields between 7.0% and 12.0% Active Re/development Pipeline Summary | Category | Square Feet | Budget | Cost to Complete | Projected Stabilized Yield | | :--- | :--- | :--- | :--- | :--- | | Development | 325,356 | $158,800k | $15,642k | 7.0% - 8.5% | | Redevelopment | 647,570 | $100,200k | $25,289k | 9.0% - 12.0% | | Total | 972,926 | $259,000k | $40,931k | N/A | Portfolio Overview This section provides a comprehensive look at the company's diversified portfolio by market, property type, and strategic alignment with health systems Portfolio by Market and Type The company's portfolio of 619 properties, totaling 36.1 million square feet, is diversified across 60 markets, with Dallas as the largest contributor to NOI Top 5 Markets by % of NOI | Market | % of NOI | | :--- | :--- | | Dallas, TX | 9.0% | | Seattle, WA | 6.4% | | Charlotte, NC | 5.2% | | Houston, TX | 4.6% | | Denver, CO | 4.5% | Portfolio by Ownership and Tenant Type | Category | % of Square Feet | % of Cash NOI | | :--- | :--- | :--- | | Wholly Owned | 88.2% | 95.4% | | Joint Ventures | 11.8% | 4.6% | | Multi-Tenant | 85.1% | 80.4% | | Single-Tenant | 14.9% | 19.6% | Health System Relationships and Proximity The portfolio is strategically aligned with major health systems, with 93% of NOI from credit-rated systems and 73% of MOBs located on or adjacent to hospital campuses - The top five health system relationships (HCA, CommonSpirit, Baylor Scott & White, Ascension Health, Advocate Health) account for 30.6% of the company's NOI[75] - Based on square footage, 94% of the portfolio is associated with a credit-rated healthcare provider, and 42% is leased by an investment-grade rated provider[77] MOB Proximity to Hospital | Location | % of Total Square Feet | | :--- | :--- | | On campus | 54.5% | | Adjacent to campus | 18.4% | | Total On/Adjacent | 72.9% | | Off campus - affiliated | 20.0% | | Off campus | 7.1% | Leasing This section details the company's lease maturity schedule, occupancy rates, and key leasing statistics, including spreads and tenant retention Lease Maturity & Occupancy As of Q2 2025, the portfolio was 89.2% occupied with a weighted average lease term remaining of 52.8 months and a staggered maturity schedule Lease Maturity Schedule (% of Total SF) | Expiration Period | % of Total Square Feet | | :--- | :--- | | 3Q-4Q 2025 | 7.1% | | 2026 | 13.4% | | 2027 | 15.7% | | 2028 | 11.8% | | Thereafter | 52.0% | - Total portfolio occupancy was 89.2% at the end of Q2 2025, with net absorption of 114,464 square feet during the quarter[86][87] Leasing Statistics For Q2 2025, the company achieved 3.3% cash leasing spreads on same-store renewals and an 83.1% tenant retention rate, with an average in-place rent increase of 2.85% Q2 2025 Same Store Renewal Metrics | Metric | Value | | :--- | :--- | | Cash leasing spreads | 3.3% | | Tenant retention rate | 83.1% | - The average in-place contractual rent increase for the total portfolio is 2.85%[91] - The portfolio's lease structure is primarily Net (60.5%) and Modified Gross (27.9%)[92] Same Store Performance This section analyzes the operational and financial performance of the company's same-store portfolio, highlighting occupancy trends and cash NOI growth Same Store Portfolio Metrics The same-store portfolio, representing 91% of total NOI, saw occupancy increase to 90.0% in Q2 2025, with positive net absorption Same Store Occupancy | Metric | 2Q 2025 | 2Q 2024 | Change | | :--- | :--- | :--- | :--- | | Period End Occupancy % | 90.0% | 89.0% | +100 bps | | Sequential Absorption (SF) | 103,000 | N/A | N/A | | Y-o-Y Absorption (SF) | 314,000 | N/A | N/A | - The same-store pool accounts for $169.2 million, or 91%, of the company's total cash NOI of $186.6 million in Q2 2025[95] Same Store Cash NOI Same-store cash NOI grew by 5.1% year-over-year in Q2 2025, driven by revenue increases and improved operating margins Same Store Year-Over-Year Change (Q2 2025 vs Q2 2024) | Metric | Y-o-Y Change | | :--- | :--- | | Revenues | +4.3% | | Expenses | +2.9% | | Cash NOI | +5.1% | | Average Occupancy | +80 bps | | Revenue per Occupied SF | +3.5% | - The same-store operating margin improved to 64.3% in Q2 2025 from 63.8% in Q2 2024[99] Reconciliations This section provides detailed reconciliations of GAAP Net Loss to key non-GAAP financial measures, including Cash NOI and Adjusted EBITDA NOI Reconciliations For Q2 2025, the net loss of $(160.1) million was reconciled to a total Cash NOI of $186.6 million, with further breakdown into portfolio segments Reconciliation of Net Loss to Cash NOI (Q2 2025, in thousands) | Line Item | Amount | | :--- | :--- | | Net loss | ($160,144) | | Add: Other expense (income) | 175,898 | | Add: G&A expense | 23,482 | | Add: Depreciation and amortization | 147,749 | | Less: Straight-line rent revenue | (7,904) | | Other adjustments | (92,440) | | Cash NOI | $186,641 | - Cash NOI is reconciled to Normalized FFO, showing that after deducting G&A, interest, and other items, the resulting Debt Covenant EBITDA for Q2 2025 was $177.2 million[107] EBITDA Reconciliations For Q2 2025, GAAP Net Loss of $(160.1) million was reconciled to an Adjusted EBITDA of $193.9 million, resulting in a Net Debt to Adjusted EBITDA ratio of 6.1x Reconciliation of Net Loss to Adjusted EBITDA (Q2 2025, in thousands) | Line Item | Amount | | :--- | :--- | | Net loss | ($160,144) | | Add: Interest expense | 53,346 | | Add: Depreciation and amortization | 147,749 | | Add: Impairments on real estate assets | 140,877 | | Less: Gain on sales of assets | (20,004) | | Other adjustments | 32,096 | | Adjusted EBITDA | $193,920 | - The Net Debt to Adjusted EBITDA ratio was 6.1x for the quarter. The run-rate ratio, which includes the impact of July dispositions, was 6.0x[110][113] Components of Net Asset Value This section outlines the key components contributing to the company's Net Asset Value as of June 30, 2025, including assets, liabilities, and shares outstanding NAV Components as of June 30, 2025 (in thousands) | Component | Value | | :--- | :--- | | Assets | | | Total Annualized Cash NOI | $718,340 | | Development & Redevelopment (Est. Total Cost) | $259,000 | | Land, Cash, & Other Assets | $1,101,710 | | Liabilities & Equity | | | Total Debt & Other Liabilities | $5,251,325 | | Total Shares Outstanding (incl. OP units) | 355,730,606 | 2025 Guidance This section presents the company's updated full-year 2025 guidance, reflecting revised expectations for same-store cash NOI growth, asset sales, FFO per share, and leverage Updated 2025 Full Year Guidance | Metric | Prior Guidance (Low-High) | Current Guidance (Low-High) | | :--- | :--- | :--- | | Same store cash NOI growth | 3.0% - 3.75% | 3.25% - 4.0% | | Asset sales and JV contributions | $400M - $500M | $800M - $1,000M | | Normalized FFO per share | $1.56 - $1.60 | $1.57 - $1.61 | | Net debt to adjusted EBITDA | 6.0x - 6.25x | 5.4x - 5.7x | - The company significantly increased its asset sales guidance for 2025, doubling the low end from $400 million to $800 million and the high end from $500 million to $1 billion[120] - Guidance for Normalized G&A was lowered from $52-56 million to $48-52 million, reflecting cost-saving initiatives[120]