Healthcare Realty Trust rporated(HR) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q1 2023 financial statements show a net loss of $88.1 million, driven by increased expenses post-merger with HTA Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $13.57 billion, liabilities $6.10 billion, and equity $7.46 billion, with minor decreases from year-end 2022 Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $13,568,884 | $13,849,631 | | Total real estate properties, net | $12,056,264 | $12,412,354 | | Cash and cash equivalents | $49,941 | $60,961 | | Total Liabilities | $6,102,045 | $6,167,799 | | Notes and bonds payable | $5,361,699 | $5,351,827 | | Total Equity | $7,464,839 | $7,679,818 | Condensed Consolidated Statements of Operations Q1 2023 saw a net loss of $87.1 million ($0.23/share), a significant shift from Q1 2022 net income, driven by higher post-merger expenses Q1 2023 vs. Q1 2022 Statement of Operations (Unaudited) | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Revenues | $332,925 | $142,894 | | Total Expenses | $326,596 | $129,960 | | Depreciation and amortization | $184,479 | $54,041 | | Interest expense | ($63,759) | ($13,661) | | Net (Loss) Income Attributable to Common Stockholders | ($87,125) | $42,227 | | Diluted EPS | ($0.23) | $0.28 | Condensed Consolidated Statements of Cash Flows Q1 2023 operating cash flow increased to $69.2 million, investing activities provided $41.6 million from property sales, and financing used $121.8 million Q1 2023 vs. Q1 2022 Cash Flow Summary (Unaudited) | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,190 | $43,771 | | Net cash provided by (used in) investing activities | $41,560 | ($113,267) | | Net cash (used in) provided by financing activities | ($121,770) | $79,015 | | (Decrease) increase in cash and cash equivalents | ($11,020) | $9,519 | Notes to the Condensed Consolidated Financial Statements Notes detail the HTA reverse merger accounting, purchase price allocation, and the company's portfolio of 681 properties totaling 39.9 million square feet - As of March 31, 2023, the Company's portfolio included 681 real estate properties in 35 states, totaling approximately 39.9 million square feet, with a gross investment value of about $13.9 billion[21] - The merger with HTA on July 20, 2022, was treated as a "reverse acquisition" for accounting purposes, with Legacy HR as the accounting acquirer. The historical financial statements of Legacy HR became the historical financial statements of the combined company[10][50] - The preliminary purchase price allocation for the HTA merger resulted in $8.73 billion in real estate investments, $5.65 billion in assumed liabilities, and goodwill of $257.3 million. This allocation is not yet final[55][58][59] - In Q1 2023, the company acquired one property in Tampa, FL for $31.5 million and disposed of several properties for total proceeds of $208.8 million[61][65] - Total notes and bonds payable as of March 31, 2023, stood at $5.36 billion, including a $1.5 billion unsecured credit facility with $385 million drawn[79][80] - The company declared and paid a common stock dividend of $0.31 per share during Q1 2023[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses merger impact on liquidity and operations; Q1 2023 Normalized FFO was $152.8 million ($0.40/share), with Same Store Cash NOI up 2.8% Liquidity and Capital Resources Primary liquidity sources include rent, property sales, and debt/equity offerings, with $1.1 billion available on the Unsecured Credit Facility as of March 31, 2023 - As of March 31, 2023, the Company had $1.1 billion available on its Unsecured Credit Facility and $49.9 million in cash[122] - In Q1 2023, the company disposed of six properties for a total sales price of $208.8 million, generating cash proceeds of $149.2 million[127] - The company has an at-the-market (ATM) equity offering program with $750.0 million available for issuance as of March 31, 2023, though no shares were sold under it in Q1 2023[95][130] Trends and Matters Impacting Operating Results Rising interest rates and capital market volatility increase cost of capital; 3.3 million square feet of leases expire in 2023 with 75% to 90% retention expected - Rising interest rates and capital market volatility have increased the company's cost of capital and could adversely impact operations and tenant financial health[135][136] - 1,169 leases totaling 3.3 million square feet are set to expire during the remainder of 2023, with an expected tenant retention rate of 75% to 90%[137] - As of March 31, 2023, 47 properties are subject to purchase options, representing a gross real estate investment of $1.22 billion[139] Non-GAAP Financial Measures and Key Performance Indicators This section defines and reconciles non-GAAP metrics; Q1 2023 Normalized FFO was $152.8 million and Same Store Cash NOI increased 2.8% Q1 2023 vs. Q1 2022 Non-GAAP Performance | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net (Loss) Income Attributable to Common Stockholders | ($87,125) | $42,227 | | FFO Attributable to Common Stockholders | $127,978 | $55,445 | | Normalized FFO Attributable to Common Stockholders | $152,846 | $64,788 | | Normalized FFO per Share - Diluted | $0.40 | $0.43 | | FAD | $125,934 | $57,035 | - Same Store Cash NOI increased 2.8% year-over-year, from $173.6 million in Q1 2022 to $178.6 million in Q1 2023. The same-store pool consists of 588 properties[155] Results of Operations Q1 2023 results were heavily influenced by the HTA merger, driving significant increases in rental income, operating expenses, depreciation, and interest expense - The HTA merger was the primary driver of changes in Q1 2023 results, contributing an $180.2 million increase in rental income, a $64.2 million increase in property operating expenses, and a $128.0 million increase in depreciation and amortization[160][162][163] - Interest expense increased by $50.1 million (366.7%) year-over-year, driven by debt assumed in the merger ($26.0M increase) and higher rates on variable debt[165][168] - The company recognized impairment charges of $26.2 million on properties sold or held for sale and recorded a $5.2 million credit loss reserve on notes receivable in Q1 2023[166] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is from changing interest rates on debt, with no material changes from the prior Annual Report on Form 10-K - The company's primary market risk is from changing interest rates on its debt. There were no material changes to this risk profile during the quarter[168] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[169] - There were no material changes in the company's internal control over financial reporting during the first quarter of 2023[170] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any pending or threatened litigation that would materially adversely affect its financial condition or results - The Company is not aware of any pending or threatened litigation that would have a material adverse effect on its financial condition or results of operations[171] Item 1A. Risk Factors This section refers investors to the detailed discussion of risk factors in the company's Annual Report on Form 10-K for 2022 - The report directs investors to the Risk Factors section of the Annual Report on Form 10-K for the year ended December 31, 2022 for a detailed discussion of potential risks[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company withheld 38,632 shares at $21.71 per share to satisfy employee tax withholding obligations Share Withholding for Tax Obligations | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | February 1 - February 28, 2023 | 38,632 | $21.71 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data files[174]