Healthcare Realty Trust Incorporated Q2 FY2025 earnings call

Strategic Plan

• Focus on operations-oriented culture with earnings growth paramount, strong tenant relationships, and capital allocation towards existing portfolio reinvestment.

Corporate Governance

• Reduced board size from 12 to 7 directors, bringing fresh perspective and industry experience.

Organizational Restructuring

• Implemented new operating model for cost savings and accountability, hired Tony Acevedo and Glenn Preston for asset management, streamlined corporate overhead costs with $10 million run rate G&A savings.

Portfolio Optimization

• Segmented assets into stabilized (75%), lease-up (13%), and disposition (12%) portfolios. Stabilized portfolio has 95% occupancy, NOI margins over 65%. Lease-up portfolio has potential for $50M incremental NOI. Disposition portfolio aims to exit assets outside priority markets with $1B sales by 2025 at 7% cap rate.

Capital Allocation

• Near-term priority: $300M capital investment into lease-up portfolio via RTO and redevelopment over 3 years.

Balance Sheet

• Completed revolver recast and term loan extensions, reducing near-term debt maturities. Net debt to EBITDA expected to be mid-5x by year-end.

Dividend

• Reduced dividend by 23% to $0.24 per share quarterly to free up capital for portfolio reinvestment.

Normalized FFO was $0.41 per share, a $0.02 sequential increase. FAD was $0.33 per share, a $0.04 sequential increase. Same-store occupancy was 90%, a 40 basis point sequential increase. Same-store NOI growth was 5.1%, a 280 basis point sequential increase. Net debt to adjusted EBITDA sits at 6x. Year-to-date sales increased to $211 million at a blended 6.2% cap rate. There is over $700 million of additional assets under contract or LOI.

2025 Guidance

• Raised normalized FFO per share outlook to $1.57 to $1.61.
• Increased disposition outlook to $800M to $1B.
• Net debt to adjusted EBITDA expected to be in mid-5x area by year-end.

• Real estate fundamentals in non-priority markets for disposition portfolio.
• Market volatility impacting disposition timing and pricing.
• Financing market changes affecting cap rates and leverage for acquisitions and dispositions.

Q: Nick Yulico asked about composition of lease-up portfolio and capital funding.

A: Pete Scott responded on the $50M upside potential and funding from dividend cut and asset sales.

Q: Austin Wurschmidt inquired about redevelopment pool and capitalized interest.

A: Austen Helfrich discussed redevelopment projects and capitalized interest levels.

Q: John Pawlowski asked about lease-up portfolio occupancy and disruption.

A: Pete Scott and Rob Hull spoke on occupancy improvement through portfolio optimization and RTO program.

Q: John Pawlowski questioned disposition cap rates and buyers.

A: Ryan Crowley explained disposition portfolio variety and buyer composition.

Q: Omotayo Okusanya asked about lease-up portfolio NOI and disruption.

A: Pete Scott detailed lease-up and rental rate improvement potential.

Q: Seth Bergey asked about occupancy confidence and expansion with tenants.

A: Pete Scott and Rob Hull discussed occupancy improvement through market trends and portfolio restructuring.

Q: Juan Sanabria asked about disposition exit run rate and cost cutting.

A: Austen Helfrich and Pete Scott spoke on disposition timing and cost savings from G&A and property level.

Q: Michael Gorman asked about disposition buyer composition and CapEx cadence.

A: Ryan Crowley and Pete Scott discussed buyer diversity and CapEx modeling for RTO and redevelopment.