Healthcare Realty Trust rporated(US:HR)2022-11-09 19:50Financial Data and Key Metrics Changes - Healthcare Realty reported pro forma FFO per share for Q3 2022 at $0.39, with a run rate FFO per share of $0.40, reflecting a significant impact from merger-related expenses [23][24] - The company realized $16.4 million in G&A synergies, which is 50% of the projected $33 million to $36 million in annual G&A savings, indicating strong operational efficiency post-merger [21][22] - Same-store NOI growth was 2.8% in Q3 2022, up from 2% a year ago, showing an acceleration in performance [27] Business Line Data and Key Metrics Changes - The company has made significant progress in asset sales, with 29 properties sold for a total of $922 million at a 4.6% cap rate, and expects to reach $1.1 billion in total dispositions by year-end [33][34] - The development pipeline has increased to $209 million, with a long-term embedded development pipeline of approximately $2 billion, indicating strong growth potential [36][37] Market Data and Key Metrics Changes - The medical office building (MOB) market is currently experiencing price discovery due to rising debt costs, with cap rates around 6% [34] - The company’s top 15 markets account for 60% of total NOI, with an average of 31 properties in these markets, enhancing its competitive position [15] Company Strategy and Development Direction - The company is focused on integration and organizational realignment, with nearly 50% of expected G&A savings already realized, and aims to boost NOI through operational efficiencies [12][21] - Healthcare Realty plans to selectively sell assets and reinvest proceeds into development projects, acquisitions, or stock repurchases, maintaining a patient approach in the current market [11][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth driven by occupancy gains, rent growth, and a robust development pipeline, expecting to generate the fastest growth in the medical office sector [18][19] - The company is actively monitoring interest rates and their impact on growth, indicating that a 1% increase in interest expense could reduce overall growth by about 1.5% [55][101] Other Important Information - The company has made strides in ESG efforts, achieving a GRESB score of 80 points, which is a notable improvement and positions it well among peers [19] - The company is implementing real-time electricity monitoring in properties, leading to an average 8% reduction in energy consumption, which is expected to further enhance operational efficiency [29] Q&A Session Summary Question: What is the rate on the new swaps? - The rate on the $250 million swaps is approximately 4.12%, bringing the fixed debt ratio to over 50% [47][48] Question: How should we think about the adjusted run rate FAD for next year? - The company views occupancy upside as a key growth driver, with expectations of 3% to 5% growth on fundamental contractual escalations and cash leasing spreads [53][54] Question: Can you elaborate on the leasing and operations teams' realignment? - The realignment focuses on leveraging top talent from both legacy companies to enhance efficiency and accelerate occupancy gains [60] Question: What are the realistic prospects for further dispositions in 2023? - The company anticipates a measured approach to dispositions, potentially in the $250 million to $300 million range, depending on market conditions [74] Question: What yields are expected from the $300 million development pipeline? - The targeted initial yield for developments is in the range of 7% to 8%, which is above the current cost of capital [84]