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

PART I - FINANCIAL INFORMATION Financial Statements The company reported a net loss of $205.5 million for H1 2025, with total assets decreasing to $10.24 billion Condensed Consolidated Balance Sheets Total assets decreased to $10.24 billion as of June 30, 2025, with total equity declining to $4.88 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total real estate properties, net | $8,674,578 | $9,327,054 | | Assets held for sale, net | $358,207 | $12,897 | | Total assets | $10,235,572 | $10,650,923 | | Notes and bonds payable | $4,694,391 | $4,662,771 | | Total liabilities | $5,354,146 | $5,345,049 | | Total equity | $4,877,094 | $5,301,096 | Condensed Consolidated Statements of Operations The company reported a net loss of $160.1 million for Q2 2025 and a reduced net loss of $205.5 million for H1 2025 Key Operating Results (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $287,070 | $308,135 | $575,927 | $626,211 | | Total Revenues | $297,502 | $316,322 | $596,478 | $643,127 | | Total Expenses | $281,748 | $305,629 | $562,219 | $620,008 | | Impairment of real estate properties | ($142,348) | ($132,118) | ($154,429) | ($148,055) | | Impairment of goodwill | — | — | — | ($250,530) | | Net loss | ($160,144) | ($145,938) | ($205,532) | ($461,157) | | Diluted EPS | ($0.45) | ($0.39) | ($0.58) | ($1.22) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss was $159.8 million for Q2 2025 and $210.7 million for H1 2025, driven by interest rate swaps Comprehensive Loss Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | ($160,144) | ($145,938) | ($205,532) | ($461,157) | | Other comprehensive (loss) income | ($2,008) | $2,229 | ($8,127) | $17,973 | | Comprehensive loss attributable to common stockholders | ($159,830) | ($141,585) | ($210,657) | ($436,889) | Condensed Consolidated Statements of Equity and Redeemable Non-Controlling Interests Total stockholders' equity decreased to $4.82 billion by June 30, 2025, due to net loss and common stock dividends - Dividends declared for common stockholders totaled $0.62 per share for the six months ended June 30, 2025, resulting in a total distribution of $217.9 million[15] - The net loss attributable to common stockholders for the first six months of 2025 was $202.7 million, which directly reduced cumulative net income[15] Condensed Consolidated Statements of Cash Flows Net cash from operations was $211.0 million for H1 2025, with significant cash used in investing and financing activities Cash Flow Summary (in thousands) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $211,003 | $244,304 | | Net cash (used in) provided by investing activities | ($41,931) | $151,388 | | Net cash used in financing activities | ($212,330) | ($379,626) | | (Decrease) increase in cash and cash equivalents | ($43,258) | $16,066 | Notes to the Condensed Consolidated Financial Statements The notes provide detailed information on accounting policies, real estate investments, debt, property dispositions, impairment charges, and credit facility refinancing - As of June 30, 2025, the company's portfolio consisted of 559 consolidated real estate properties totaling approximately 32.2 million square feet, with gross investments of $11.2 billion[18] - During the first six months of 2025, the company recognized real estate impairment charges totaling $151.0 million[36] - On July 25, 2025, the company entered into a new credit facility, which includes a $1.5 billion unsecured revolving credit facility and $1.115 billion in unsecured term loans, replacing and extending previous arrangements[71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 2025 performance, highlighting revenue decrease, credit facility refinancing, and challenges like rising interest rates Liquidity and Capital Resources The company's liquidity is supported by rent, property sales, and debt, with a new $1.5 billion credit facility extending maturity to July 2029 - On July 25, 2025, the company entered into a Fifth Amended and Restated Credit Facility, extending the maturity of its $1.5 billion revolver to July 2029[117][131] - Cash flows from operations in H1 2025 were not sufficient to fully fund dividends, primarily due to the timing of interest payments, with the gap covered by the Unsecured Credit Facility[119] Investing Activities Cash used in investing activities totaled $41.9 million for H1 2025, driven by capital expenditures and property dispositions - Disposed of properties for a total sales price of $81.2 million in H1 2025[121] - Incurred capital costs of $158.4 million in H1 2025, with $75.4 million for development/redevelopment and $83.0 million for tenant improvements and building capital[124][127] Financing Activities Cash used in financing activities was $212.3 million for H1 2025, primarily due to debt repayments and a new credit facility - On May 1, 2025, the company repaid its Senior Notes due 2025 at maturity, including $250 million of principal[130] - In July 2025, the company refinanced its debt with a new facility that includes a $1.5 billion revolver (maturing 2029) and five term loan tranches totaling $1.115 billion[131] Trends and Matters Impacting Operating Results Key trends impacting results include rising interest rates, lease expirations, and tenant bankruptcy, with expense increases partially mitigated - Rising interest rates and capital market volatility have increased the company's cost of capital and could impact its ability to finance operations and acquisitions[139] - Prospect Medical, a tenant accounting for $2.9 million in annual revenue, filed for Chapter 11 bankruptcy[141] - Approximately 92% of the company's leases allow for some recovery of operating expenses, mitigating the impact of rising property taxes and utility costs[142] Non-GAAP Financial Measures and Key Performance Indicators The company uses FFO, Normalized FFO, FAD, and Same Store Cash NOI as key performance indicators, with Normalized FFO at $0.80 per share Non-GAAP Performance Measures (in thousands, except per share data) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | FFO attributable to common stockholders | $244,145 | $10,327 | | Normalized FFO attributable to common stockholders | $281,458 | $291,322 | | Normalized FFO per common share - diluted | $0.80 | $0.77 | | FAD | $217,574 | $212,099 | Same Store Cash NOI (in thousands) | Portfolio | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Same store properties (excluding JVs) | $325,785 | $313,126 | +4.0% | | Same store joint venture properties | $8,806 | $9,036 | -2.5% | Results of Operations H1 2025 results show decreased rental income and property operating expenses due to dispositions, with G&A expenses rising - Q2 2025 vs Q2 2024: - Rental income decreased 6.8% due to dispositions - Property operating expenses decreased 6.6%, also from dispositions - G&A expenses increased 67.7% due to $10.3 million in restructuring charges - Interest expense decreased 14.6% due to lower debt balances[162][163][165] - H1 2025 vs H1 2024: - Rental income decreased 8.0% due to dispositions - Property operating expenses decreased 5.8% - G&A expenses increased 28.6% due to restructuring charges - Interest expense decreased 12.4%[171][172][174] Quantitative and Qualitative Disclosures about Market Risk The company faces market risk from interest rate changes on its debt, with no material changes to disclosures since 2024 - There were no material changes in market risk disclosures during the six months ended June 30, 2025[179] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2025, with no material changes to internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[181] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2025[182] PART II - OTHER INFORMATION Legal Proceedings The company is not aware of any pending or threatened litigation that would materially affect its financial position - The company is not aware of any pending or threatened litigation that would have a material adverse effect on its financial condition[183] Risk Factors No new risk factors are presented; investors should refer to the 2024 Annual Report on Form 10-K for detailed risks - Investors are advised to review the risk factors detailed in the company's 2024 Form 10-K[184] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its public plan in H1 2025, with $237.0 million remaining under authorization - The company has $237.0 million remaining under its stock repurchase authorization as of June 30, 2025[88][185] - Share purchases during H1 2025 were solely for satisfying employee tax withholding obligations related to vested awards and not part of the public repurchase program[185] Other Information The company announced the upcoming departures of Executive Vice President Julie F. Wilson and Senior Vice President John M. Bryant, Jr. - Executive Vice President and Chief Administrative Officer, Julie F. Wilson, will depart the company effective December 31, 2025[187] - Senior Vice President, Legal Affairs, John M. Bryant, Jr., will depart the company effective December 31, 2025[188] Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreements and CEO/CFO certifications - Key exhibits filed include the Fifth Amended and Restated Credit and Term Loan Agreement dated July 25, 2025, and CEO/CFO certifications[189]