Healthcare Realty Trust (NYSE:HR) Q4 2025 Earnings call February 13, 2026 09:00 AM ET Company ParticipantsDan Gabbay - CFOMichael Carroll - Managing DirectorMichael Gorman - Managing Director of REITsNick Joseph - Head of US Real Estate and Lodging Research TeamNick Yulico - Managing DirectorOmotayo Okusanya - Managing Director and Head of US REIT ResearchPeter Scott - President and CEORob Hull - COORon Hubbard - VP of Investor RelationsRyan Crowley - CIOConference Call ParticipantsAustin Wurschmidt - Direc ...

Financial Data and Key Metrics Changes - The company reported normalized FFO per share of $1.61 for the full year 2025, exceeding the midpoint of original guidance by $0.03 [10] - Same-store NOI growth was 4.8%, surpassing the midpoint of original guidance by 140 basis points [11] - In Q4 2025, normalized FFO per share was $0.40, with same-store cash NOI growth of 5.5% [23] Business Line Data and Key Metrics Changes - The company executed approximately 5.8 million square feet of leases in 2025, including 1.6 million square feet of new leases [15] - Tenant retention improved to 82% for the year, with same-store absorption translating to over 100 basis points of occupancy gain [15][16] - Cash leasing spreads improved by 60 basis points, and tenant retention increased by 220 basis points under the new asset management platform [8] Market Data and Key Metrics Changes - The outpatient medical transaction volume increased significantly in 2025, driven by rising patient and tenant demand alongside a lack of new supply [11] - Demand in the top 100 MSAs continues to outstrip supply, with completions as a percentage of inventory remaining near all-time lows [16] Company Strategy and Development Direction - The company aims to become the leader in the outpatient medical sector, focusing on driving long-term shareholder value through a three-year strategic plan [5][6] - Key initiatives include revamping the asset management platform, achieving G&A savings, and executing an ambitious asset disposition plan [7][8] - The company has successfully sold $1.2 billion of assets at a blended cap rate of 6.7%, exceeding expectations [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's premier outpatient medical portfolio, supported by nearly 5% same-store NOI growth in 2025 [9] - The outlook for 2026 includes normalized FFO guidance of $1.58-$1.64 per share, with same-store cash NOI growth expected to be 3.5%-4.5% [25] - Management acknowledged the need for disciplined capital allocation due to current cost of capital and discount to intrinsic asset value [11] Other Important Information - The company has reduced net debt to EBITDA to 5.4 times, improving financial flexibility and liquidity [9] - The dividend has been right-sized to be appropriate and well-covered, currently offering a nearly 6% yield [10] Q&A Session Summary Question: Same-store NOI guidance for 2026 - Management explained that the 3.5%-4.5% guidance reflects expectations for escalators, retention, absorption, and cash leasing spreads, with a focus on pushing these metrics [31][32] Question: CapEx relative to FAD for 2026 - Management indicated that if FFO is flat, FAD is also expected to be flat, with maintenance capital numbers provided in guidance [36][38] Question: Absorption potential and redevelopment leasing - Management confirmed that the absorption figures discussed were for the same-store pool, with expectations for significant contributions from redevelopment projects [40][42] Question: Acquisition potential and profile - Management stated that any acquisitions would be pursued only if they meet yield expectations, emphasizing discipline in capital allocation [44][46] Question: Dispositions going forward - Management outlined a plan for $175 million in sales for the year, with some deals expected to close early in 2026 [49][50]

Financial Data and Key Metrics Changes - The company reported normalized FFO per share of $1.61 for the full year 2025, exceeding the midpoint of original guidance by $0.03 [9] - Same-store NOI growth was 4.8%, surpassing the midpoint of original guidance by 140 basis points [10] - In Q4 2025, normalized FFO per share was $0.40, with same-store cash NOI growth of 5.5% [22] Business Line Data and Key Metrics Changes - The company executed approximately 5.8 million sq ft of leases in 2025, including 1.6 million sq ft of new leases [13] - Tenant retention improved to 82% for the year, with same-store absorption translating to over 100 basis points of occupancy gain [13][14] - Cash leasing spreads improved by 60 basis points, and tenant retention increased by 220 basis points under the new asset management platform [6] Market Data and Key Metrics Changes - The company exited 14 non-core markets, improving its geographic footprint into high-growth MSAs [7] - Demand in the top 100 MSAs continues to outstrip supply, with completions as a percentage of inventory remaining near all-time lows [15] Company Strategy and Development Direction - The company aims to become the clear leader in the outpatient medical sector, focusing on long-term shareholder value [4] - A three-year strategic plan was published in July, with key steps to overhaul the organization, including a revamp of the asset management platform and a successful asset disposition plan [5][6] - The company plans to prioritize redevelopment projects within its existing portfolio, targeting attractive yields on cost of approximately 10% [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's premier outpatient medical portfolio, supported by nearly 5% same-store NOI growth in 2025 [7] - The outlook for 2026 includes normalized FFO per share guidance of $1.58-$1.64, with same-store cash NOI growth expected to be between 3.5%-4.5% [24] - Management acknowledged the need for disciplined capital allocation due to current cost of capital and discount to intrinsic asset value [10] Other Important Information - The company successfully achieved a target of $10 million run rate G&A savings, with total G&A expenses now at $45 million [6] - The dividend was right-sized, offering a nearly 6% current yield to shareholders [9] Q&A Session Summary Question: Same-store NOI guidance for 2026 - Management explained that the 3.5%-4.5% guidance reflects expectations for escalators, retention, absorption, and cash leasing spreads, with a focus on pushing these metrics [30][31] Question: CapEx relative to FAD for 2026 - Management indicated that if FFO is flat, FAD is also expected to be flat, with maintenance capital numbers provided in guidance [36][38] Question: Absorption potential and redevelopment leasing - Management confirmed that the absorption figures discussed were for the same-store pool, with expectations for redevelopment projects to drive total portfolio occupancy increases [40][42] Question: Acquisition potential and profile - Management stated that any acquisitions would be pursued only if they meet yield expectations, emphasizing discipline in capital allocation [44][46] Question: Disposition plans going forward - Management outlined that $175 million of sales are embedded in guidance for the year, with some sales expected to close early in 2026 [48] Question: Changes in office repositionings and shadow supply - Management noted no significant changes in shadow supply affecting their markets, focusing on health system leasing [78] Question: Balance sheet and debt mix - Management indicated a target of mid-single digits to upper single digits for floating rate debt, emphasizing balance sheet efficiency [80]

Financial Data and Key Metrics Changes - Normalized FFO was $0.41 per share, representing a 5% year-over-year increase [20] - Same-store cash NOI growth was 5.4% for the quarter [20] - Net debt to adjusted EBITDA is now at 5.8 times, down from over six times [7][21] - The company raised both its FFO and same-store guidance for the year [6][22] Business Line Data and Key Metrics Changes - Same-store NOI growth averaged 5.25% over the last two quarters [4] - Same-store occupancy increased by 180 basis points, reaching 91.1% [5][17] - Tenant retention improved to nearly 89%, the highest in six years [16] Market Data and Key Metrics Changes - Demand in the top 100 MSAs outstripped supply by over 740,000 square feet [17] - The leasing pipeline stands at 1.1 million square feet, with two-thirds in the LOI phase [5] - The transaction market for outpatient medical is heating up, with cap rate compression observed [8] Company Strategy and Development Direction - The company is focusing on exceeding its three-year growth framework and improving earnings [4] - There is a strategic shift towards maximizing economic returns rather than volume [5] - The company is actively pursuing redevelopment opportunities and has added five assets to its redevelopment portfolio [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the tailwinds for Healthcare Realty Trust, citing improving secular trends in outpatient medical [5] - The company is transitioning to an operations-oriented culture and is excited about future growth prospects [13] - Management noted that the balance sheet initiatives are nearly complete, allowing for potential future investments [13] Other Important Information - The company has sold $500 million of assets year-to-date at a blended cap rate of 6.5% [9] - A $1 billion ATM equity program and up to $500 million in share buybacks have been authorized [22] Q&A Session Summary Question: Impact of NOI on the portfolio over the next quarters - Management indicated a stabilized year-over-year growth rate of 3 to 4% for the portfolio, with potential upside from redevelopments [26] Question: Health system share of leasing - The increase in health system leasing is attributed to improved tenant relations and a shift towards outpatient settings [30] Question: Cap rate assumptions for dispositions - The cap rate for remaining dispositions is expected to be higher due to the mix of assets, which includes more value-add components [33] Question: Buyer pool changes since dispositions began - The buyer demand remains strong, with a notable improvement in the lending environment fueling appetite [58] Question: Future strategic investments - The company is focusing on joint ventures and selective acquisitions, leveraging existing relationships in priority markets [62]