Healthcare Realty Trust Inc quarterly report, Q1 FY2024

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Healthcare Realty Trust Incorporated — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. Unless noted otherwise, financial amounts below are in U.S. dollars. Healthcare Realty is a healthcare-focused REIT; its portfolio spans 35 states and approximately 38.4 million square feet. The filing reports approximately $13.4 billion of gross investments and leasing and property-management services for 92% of its portfolio.

Financial and operating performance

  • Revenue: $326.8 million, down 1.8% from $332.9 million a year earlier. Rental income fell 1.9% to $318.1 million. Management attributed the rental decline mainly to 2023 dispositions, partly offset by leasing activity and rent increases.
  • Net loss: $315.2 million, compared with a loss of $88.1 million in Q1 2023. The 2024 loss included a $250.5 million non-cash goodwill impairment and $15.9 million of real estate impairments. Loss attributable to common stockholders was $310.8 million, or $0.82 per share, versus $87.1 million, or $0.23 per share.
  • Operating expenses: Property operating expenses decreased 0.8% to $121.1 million; depreciation and amortization decreased 3.4% to $178.1 million. Interest expense decreased 4.2% to $61.1 million.
  • REIT performance measures: FFO attributable to common stockholders was a loss of $113.5 million, or $0.30 per share, versus FFO of $128.0 million, or $0.33 per share. Normalized FFO was $147.8 million, or $0.39 per share, compared with $152.8 million, or $0.40 per share. FAD was $104.5 million versus $125.9 million.
  • Same-store performance: Same-store Cash NOI excluding joint ventures increased to $191.2 million from $185.8 million. Same-store occupancy was 89.5%; occupancy across owned real estate properties was 87.5%.
  • Cash flow and dividends: Cash provided by operations was $76.2 million, up from $69.2 million. Investing activities used $58.6 million and financing activities used $17.1 million. The company paid $118.3 million in dividends, funded in part by its credit facility because operating cash flow did not cover dividends during the quarter. The quarterly dividend was $0.31 per share.
  • Debt and liquidity: Notes and bonds payable were $5.108 billion, up from $4.995 billion at year-end; cash and cash equivalents were $26.2 million. The company reported $1.4 billion available to draw on its unsecured credit facility and available cash. Fifteen interest-rate swaps hedged $1.075 billion of variable-rate debt at a weighted-average rate of 3.92%.
  • Balance sheet: Total assets were $12.281 billion and total liabilities were $5.774 billion at March 31. The company recorded $30.968 million of assets held for sale.

Material changes versus Q1 2023

  • Net loss increased substantially, primarily because of the full goodwill impairment; the charge was non-cash and followed a sustained decline in the company’s share price.
  • Revenue declined, with dispositions reducing rental income by $15.4 million year over year, partly offset by $8.3 million from leasing activity and contractual rent increases and $1.1 million from acquisitions.
  • Normalized FFO per share declined from $0.40 to $0.39, while FAD fell by $21.5 million. Second-generation tenant improvements and leasing commissions were higher deductions in the FAD reconciliation.
  • Operating cash flow increased by $7.0 million. Unlike Q1 2023, the company had no real estate acquisitions or dispositions during Q1 2024; it spent $58.6 million on investing activities, primarily capital expenditures.

Outlook, risks and unusual items

  • Management said it expects liquidity from operating cash flow and the unsecured credit facility to support investment, dividends and debt service. It expects full-year 2024 dividends to be fundable from operating cash flow or other available liquidity, while noting that capital sources may not always be available on acceptable terms.
  • Approximately 15% of leases are expected to expire each year. The company reported 1,146 leases covering 3.5 million square feet expiring during the remainder of 2024; its typical tenant-retention expectation is 75%–90%, and Q1 retention was within that range.
  • Steward Health Care filed for Chapter 11 bankruptcy on May 6, 2024, after the quarter-end. Steward leased approximately 580,000 square feet, or 1.6% of annualized in-place base rent, and owed approximately $2.6 million in rent as of April 30. The company cautioned that collection and future lease performance are uncertain.
  • Other cited risks include higher interest rates and financing costs, tenant financial distress, healthcare reimbursement and regulatory changes, lease renewals, property operating-cost increases, and the ability to sell or redeploy assets profitably. Management reported no litigation expected to have a material adverse effect.
  • After quarter-end, the company extended a $200 million term loan maturity from May 2024 to May 2025 for an approximately $0.3 million fee, sold two medical outpatient buildings for $5.8 million, and repurchased 2,966,764 shares for $41.7 million. On April 30 it authorized a new share-repurchase program of up to $500 million, superseding the prior authorization.

Key facts investors should verify

  • Whether the $250.5 million goodwill impairment and property impairments signal additional valuation pressure, and how normalized FFO and FAD develop after excluding these unusual items.
  • Steward’s bankruptcy proceedings, rent collection, property occupancy and any resulting impairment or leasing costs.
  • Dividend coverage: Q1 dividends exceeded operating cash flow, and management’s full-year expectation depends on operating performance and liquidity access.
  • Debt maturities and refinancing costs, including the July 2024 $350 million term loan maturity, and exposure to interest-rate changes.
  • Lease expirations, renewal and retention outcomes, occupancy trends, and whether same-store NOI growth can be sustained.
  • The financial and per-share effects of the post-quarter $41.7 million repurchase and the new $500 million authorization.

The filing presents FFO, Normalized FFO, FAD and Cash NOI as supplemental non-GAAP measures; they are not substitutes for GAAP results or operating cash flow.