Healthcare Realty Trust Reports Results for the First Quarter – Wire Real Estate

Healthcare Realty Trust Reports Results for the First Quarter




Aug 6, 2019

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NASHVILLE, Tenn.– Healthcare Realty Trust Incorporated (NYSE:HR) today announced results for the first quarter ended March 31, 2019.  The Company reported net income of $4.9 million, or $0.04 per diluted common share for the quarter ended March 31, 2019.  Normalized FFO for the three months ended March 31, 2019 totaled $48.6 million, or $0.39 per diluted common share.

Salient quarterly highlights include:

  • Same store cash NOI for the first quarter increased 4.1% over the first quarter of 2018.  For the trailing twelve months ended March 31, 2019, same store cash NOI grew 3.5%:
    –   Revenues increased 2.7% and revenue per average occupied square foot increased 2.8%.
    –   Operating expenses increased 1.4%.
    –   Average occupancy was stable, decreasing by 10 basis points.  
  • Predictive growth measures in the same store multi-tenant portfolio include:
    –   In-place contractual rent increases averaged 2.91%, up from 2.81% a year ago, partially attributable to future annual contractual increases of 3.09% for leases commencing in the quarter. 
    –   Weighted average cash leasing spreads were 3.3% on 541,000 square feet renewed:  
       –   7% (<0% spread)
       –   2% (0-3%)
       –   69% (3-4%)
       –   22% (>4%) 
    –   Tenant retention was 85.5%.
  • Leasing activity in the first quarter totaled 669,000 square feet related to 149 leases:
    –   575,000 square feet of renewals
    –   94,000 square feet of new and expansion leases
  • Year-to-date acquisitions of $121.0 million included four properties totaling 350,000 square feet that were 89% leased:
    –   In March, the Company acquired two medical office buildings on AA+ rated Inova Health’s Fair Oaks Hospital campus in Washington, D.C. for $46.0 million.  The 75% leased buildings total 158,000 square feet.
    –   Also in March, the Company acquired a medical office building on AA rated Indiana University Health’s Methodist Hospital campus in Indianapolis for $47.0 million.  The 143,000 square foot building is 100% leased.
    –   In April, the Company acquired a medical office building adjacent to AA- rated Piedmont Healthcare’s hospital in the Buckhead area of Atlanta for $28.0 million.  The 48,000 square foot building is 100% leased. 
  • Year-to-date dispositions of $13.0 million included four medical office buildings totaling 67,000 square feet in Tucson, AZ, three of which were located off-campus.
  • On March 19, 2019, the Company completed the sale of 3.7 million shares of common stock for net proceeds of $115.8 million to fund investment activity.  Also during the quarter, the Company raised $4.3 million through its at-the-market equity program. 
  • Leverage decreased with net debt to adjusted EBITDA at 5.0 times.
  • A dividend of $0.30 per common share was declared for the first quarter.  Dividends paid totaled $37.6 million, which equaled 77.3% of normalized FFO and 87.2% of FAD.

Healthcare Realty Trust is a real estate investment trust that integrates owning, managing, financing and developing income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States.  As of March 31, 2019, the Company owned 201 real estate properties in 26 states totaling 15.0 million square feet and was valued at approximately $5.5 billion. The Company provided leasing and property management services to 11.3 million square feet nationwide.

In addition to the historical information contained within, the matters discussed in this press release may contain forward-looking statements that involve risks and uncertainties. These risks are discussed in filings with the Securities and Exchange Commission by Healthcare Realty Trust, including its Annual Report on Form 10-K for the year ended December 31, 2018 under the heading “Risk Factors,” and as updated in its Quarterly Reports on Form 10-Q filed thereafter. Forward-looking statements represent the Company’s judgment as of the date of this release.  The Company disclaims any obligation to update forward-looking statements. A reconciliation of all non-GAAP financial measures in this release is included herein.Additional information regarding the Company, including this quarter’s operations, can be found at www.healthcarerealty.com.  Please contact the Company at 615.269.8175 to request a printed copy of this information.

Condensed Consolidated Balance Sheets 1
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 

 

ASSETS      
  MARCH 31, 2019   DECEMBER 31, 2018
Real estate properties      
Land $230,206     $230,206  
Buildings, improvements and lease intangibles   3,757,260       3,675,415  
Personal property   10,739       10,696  
Construction in progress   40,326       33,107  
Land held for development   24,647       24,647  
Total real estate properties   4,063,178       3,974,071  
Less accumulated depreciation and amortization   (1,035,800 )     (1,015,174 )
Total real estate properties, net   3,027,378       2,958,897  
Cash and cash equivalents   11,313       8,381  
Assets held for sale, net   10,568       9,272  
Operating lease right-of-use assets   128,141        
Financing lease right-of-use assets   9,259        
Other assets, net   175,864       214,697  
Total assets $3,362,523     $3,191,247  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
  MARCH 31, 2019   DECEMBER 31, 2018
Liabilities      
Notes and bonds payable $1,343,110     $1,345,984  
Accounts payable and accrued liabilities   61,519       80,411  
Liabilities of properties held for sale   633       587  
Operating lease liabilities   91,044        
Financing lease liabilities   14,294        
Other liabilities   46,144       47,623  
Total liabilities   1,556,744       1,474,605  
Commitments and contingencies      
Stockholders’ equity      
Preferred stock, $.01 par value; 50,000 shares authorized; none 
issued and outstanding
         
Common stock, $.01 par value; 300,000 shares authorized; 129,214
and 125,279 shares issued and outstanding at March 31, 2019 and 
December 31, 2018, respectively
  1,292       1,253  
Additional paid-in capital   3,302,814       3,180,284  
Accumulated other comprehensive loss   (1,611 )     (902 )
Cumulative net income attributable to common stockholders   1,093,010       1,088,119  
Cumulative dividends   (2,589,726 )     (2,552,112 )
Total stockholders’ equity   1,805,779       1,716,642  
Total liabilities and stockholders’ equity $3,362,523     $3,191,247  
  1. The Condensed Consolidated Balance Sheets do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
Condensed Consolidated Statements of Income 1
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 

 

     
  THREE MONTHS ENDED MARCH 31,
    2019     2018  
Revenues    
Rental income 2 $110,696   $110,229  
Other operating   1,961     1,895  
    112,657     112,124  
Expenses    
Property operating   42,725     41,818  
General and administrative   8,510     9,101  
Acquisition and pursuit costs   305     277  
Depreciation and amortization   42,662     39,573  
    94,202     90,769  
Other income (expense)    
Gain on sales of real estate assets   15      
Interest expense   (13,588 )   (12,668 )
Interest and other income, net   9     493  
    (13,564 )   (12,175 )
Net Income $4,891   $9,180  
     
Basic earnings per common share – Net income $0.04   $0.07  
Diluted earnings per common share – Net income $0.04   $0.07  
     
Weighted average common shares outstanding – basic   124,130     123,257  
Weighted average common shares outstanding – diluted   124,232     123,348  
  1. The Condensed Consolidated Statements of Income do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
  2. Beginning in the first quarter of 2019 with the adoption of Accounting Standards Codification Topic 842, bad debts, net of recoveries associated with lease revenue was recorded within rental income. 
Reconciliation of FFO, Normalized FFO and FAD
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA – UNAUDITED
 

 

     
  THREE MONTHS ENDED MARCH 31,
    2019     2018  
Net income $4,891   $9,180  
Gain on sales of real estate assets   (15 )    
Real estate depreciation and amortization   43,383     40,003  
Funds from operations (FFO) $48,259   $49,183  
Acquisition and pursuit costs 1   305     277  
Lease intangible amortization 2   84      
Forfeited earnest money received       (466 )
Normalized FFO $48,648   $48,994  
Non-real estate depreciation and amortization   1,465     1,466  
Provision for bad debt, net   (75 )    
Straight-line rent income, net   (270 )   (1,330 )
Stock-based compensation   2,639     2,822  
Normalized FFO adjusted for non-cash items   52,407     51,952  
2nd generation TI   (4,326 )   (5,867 )
Leasing commissions paid   (1,483 )   (1,851 )
Capital additions   (3,462 )   (4,184 )
Funds available for distribution (FAD) $43,136   $40,050  
FFO per common share – diluted $0.39   $0.40  
Normalized FFO per common share – diluted $0.39   $0.40  
FFO weighted average common shares outstanding – diluted 3   124,928     123,984  
  1. Acquisition and pursuit costs include third party and travel costs related to the pursuit of acquisitions and developments.
  2. The Company adopted the 2018 NAREIT FFO White Paper Restatement during the first quarter of 2019.  This amended definition specifically includes the impact of acquisition related market lease intangible amortization in the calculation of NAREIT FFO.  The Company historically included this amortization in the real estate depreciation and amortization line item which is added back in the calculation of NAREIT FFO.   Prior periods were not restated for the adoption.
  3. Diluted weighted average common shares outstanding for the three months ended March 31, 2019 includes the dilutive effect of nonvested share-based awards outstanding of 696,432 shares.
 
Reconciliation of Non-GAAP Measures
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA – UNAUDITED
 

Management considers funds from operations (“FFO”), FFO per share, normalized FFO, normalized FFO per share, funds available for distribution (“FAD”) and FAD per share to be useful non-GAAP measures of the Company’s operating performance. A non-GAAP financial measure is generally defined as one that purports to measure historical financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company’s business and useful to investors.

The non-GAAP financial measures presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income (determined in accordance with GAAP), as indicators of the Company’s financial performance, or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company’s liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company’s needs.

FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as “net income (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.”  The Company defines Normalized FFO as FFO excluding acquisition-related expenses, lease intangible amortization and other normalizing items that are unusual and infrequent in nature.  FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense and provision for bad debts, net; and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense.  The Company’s definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts.  FFO, Normalized FFO and FAD do not represent cash generated from operating activities determined in accordance with accounting principles generally accepted in the United States of America and is not necessarily indicative of cash available to fund cash needs. FFO, Normalized FFO and FAD should not be considered an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of liquidity.  FFO, Normalized FFO and FAD should be reviewed in connection with GAAP financial measures.

Management believes FFO, FFO per share, Normalized FFO, Normalized FFO per share, and FAD provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, including depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, gains or losses from sales of real estate, and other normalizing items that are unusual and infrequent, FFO, FFO per share, Normalized FFO, Normalized FFO per share  and FAD can facilitate comparisons of operating performance between periods. The Company reports these measures because they have been observed by management to be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because these measures are consistently reported, discussed, and compared by research analysts in their notes and publications about REITs.

Cash NOI and Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Cash NOI as rental income and property lease guaranty income less property operating expenses. Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, lease terminations, tenant improvement amortization and leasing commission amortization. Cash NOI is historical and not necessarily indicative of future results.

Same Store Cash NOI compares Cash NOI for stabilized properties.  Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented and include redevelopment projects.   Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, and development conversions.  In addition, the Company typically excludes properties that meet any of the following Company-defined criteria to be included in the reposition property group:

  • Properties having less than 60% occupancy that is expected to last at least two quarters;
  • Properties that experience a loss of occupancy over 30% in a single quarter; or
  • Properties with negative net operating income that is expected to last at least two quarters.

Any recently acquired property will be included in the same store pool once the Company has owned the property for eight full quarters.  Development properties will be included in the same store pool eight full quarters after substantial completion.  Any additional square footage created by redevelopment projects at a same store property is included in the same store pool immediately upon completion.  Any property included in the reposition property group will be included in the same store analysis once occupancy has increased to 60% or greater with positive net operating income and has remained at that level for eight full quarters.

See Website: https://www.healthcarerealty.com
Contact Information:
Associate Vice President, Investor Relations P: 615.269.8175

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