Healthcare Realty Trust Incorporated Q3 FY2025 earnings call

• Strategic plan progress: Met with over 100 investors, excitement around strategic plan, aiming to exceed 3-year growth framework.
• Same-store performance: Same-store NOI growth averaged 5.25% over last 2 quarters, occupancy increased 180 basis points, net debt to EBITDA reduced by 0.5 turn.
• Leasing and occupancy: Leasing activity strong with 1.6 million sq ft of executed leases, tenant retention at nearly 89% (highest in 6 years), year-over-year occupancy gains of 90 basis points.
• Disposition activity: Transaction market for outpatient medical heating up, reduced midpoint of expected cap rate on dispositions by 25 basis points, year-to-date sold $500 million of assets at 6.5% blended cap rate, remaining $700 million disposition pipeline mostly under contract.
• Development and redevelopment: 2 active development projects with stabilized NOI expected ~$8 million, added 5 assets to redevelopment portfolio with ~$60 million budget, incremental NOI expected nearly $8 million.

During the third quarter, normalized FFO was $0.41 per share. Same-store NOI growth averaged 5.25% over the last 2 quarters. Same-store occupancy increased 180 basis points. Net debt to adjusted EBITDA is below 6x. Year-to-date, $500 million of assets were sold at a blended cap rate of 6.5%. Remaining disposition pipeline is ~$700 million, mostly under binding contract or LOI. Development and redevelopment projects include All Saints 2 in Fort Worth (72% leased) and Macon Pond in Raleigh (51% pre-leased), with stabilized NOI expected to be ~$8 million from these 2 projects. Added 5 assets to redevelopment portfolio with ~$60 million budget, expected to contribute nearly $8 million in incremental NOI.

• Increased normalized FFO per share guidance to $1.59 to $1.61 range.
• Same-store cash NOI growth expected 4% to 4.75%.
• G&A guidance $46 million to $49 million.
• Board authorized $1 billion ATM equity program and up to $500 million in share buybacks, prospectus for equity program to be filed in fourth quarter.

• Forward-looking statements involve estimates, assumptions, risks, and uncertainties.
• Cap rate compression and market dynamics could impact disposition outcomes.
• Potential lease expirations and their impact on occupancy and NOI.

Q: Talk about NOI impact on portfolio over next several quarters, including redevelopment and lease-up.

A: Pete Scott mentioned incremental $50 million of upside to NOI over next 3+ years, half from redevelopments (added 5 assets in quarter, expect more in coming quarters) and half from lease-up portfolio. Normalized stabilized year-over-year growth rate expected 3% to 4%.

Q: Health system share of leasing picking up. Is it skewed by renewals or new leasing?

A: Robert Hull said health system share of leasing has been a gradual trend upwards, combination of health systems growing market share and better tenant relations.

Q: Lowered cap rate assumption for dispositions by 25 basis points. Is remaining dispositions skewed to higher value-add?

A: Pete Scott said remaining dispositions are skewed more to value-add components and some legacy office assets, balance of assets remaining have higher unlevered IRR from buyer perspective.

Q: Plans to add additional assets to redevelopment pool. Are these occupied assets or current vacancy?

A: Pete Scott said most are current vacancy or near-term role opportunities, with opportunity to invest capital and get healthy mark-to-market on long-term leases.

Q: External growth opportunity and pivoting to offense. When and how?

A: Pete Scott said balance sheet capacity to be in mid- to high 5s net debt to EBITDA, with $150 million to $300 million of capital to put out for tuck-in acquisitions, which would be accretive as financed with 100% leverage.

Q: $700 million of dispositions under contract. Any in same-store pool or targeted for JV?

A: Pete Scott said none are targeted for joint ventures, all going to be sold 100%, and not in same-store pool as they're in held for sale with high probability of closing.

Q: Changes in buyer pool depth and lending environment impact.

A: Ryan Crowley said buyer demand strong, lending environment improved with bank liquidity up, bank originated loan rates in high 4s, buyer mix for dispositions roughly half private buyers and half health systems.

Q: Access to unsecured market and strategy around '26 maturities.

A: Austen Helfrich said have $600 million bond maturing in August 2026, will be opportunistic with refinancing if attractive opportunity presents. Robert Hull said 2026 lease renewals and escalators averaging high 2s, expecting to move up over 3% as supply tightens.

Q: Right level of development and redevelopment.

A: Pete Scott said no imminent new developments unless heavily pre-leased, redevelopment will have ~25 assets with $10 million to $15 million spend per project, free cash flow available for this with payout ratio in low 70s.

Q: Restructuring costs and organizational restructuring inning.

A: Pete Scott said in later innings of organizational restructuring, made good progress, with G&A costs decreasing, getting closer to target cost structure.

Q: Single tenant lease expirations. Any additional vacates in '26?

A: Pete Scott said nothing material, highlighted '27 large lease roll but making good progress on extending tenant in other building, no additional material vacates in recent months.