Healthcare Realty Trust, Inc. Q4 FY2024 earnings call

• Leadership Changes: Elevated Tom Bejalian to independent chair, appointed new independent directors Dave Henry, Glenn Ruffano, and Don Wood, and promoted Austin Helfrich to Chief Financial Officer.
• 2024 Results: Normalized FFO per share in Q4 was $0.40 (high end of range) with 2.5% Y/Y growth. New lease commitments and leases commenced were all-time highs. Occupancy absorption exceeded projections. Controllable expenses reduced by 1%. Capital allocation: Generated $1.3 billion in proceeds, allocated $510 million for share repurchases, repaid $350 million of debt, and ended 2024 at 6.4 times leverage.
• 2025 Priorities: Focus on operational growth, portfolio refinement with $400M-$500M asset sales, aim for same-store absorption of 75-125 basis points and same-store NOI growth of 3-3.75%, and target dividend coverage by end of 2025 or early 2026.

In the fourth quarter of 2024, Healthcare Realty Trust Incorporated reported a normalized FFO per share of $0.40, which was at the high end of the provided range and represented a 2.5% year-over-year growth. The company achieved new lease commitments of nearly 600,000 square feet in the fourth quarter and 2 million square feet for the year, both all-time records. Occupancy absorption delivered 149 basis points, which was at the high end of the plan. Controllable operating expenses were reduced by 100 basis points.

• 2025 Same-Store Absorption: Expected to be 75-125 basis points with same-store NOI growth of 3-3.75%.
• Asset Sales: Target $400M-$500M of non-core asset sales in 2025.
• Leverage Reduction: Aim to reduce leverage to 6-6.25 times by year-end 2025.
• Dividend Coverage: Confident in achieving dividend coverage by end of 2025 or early 2026, dependent on leasing activity.

• Bankruptcy Events: Related to health systems, though pre-merger reserves were low and less than 2% of the portfolio is with non-credit-rated systems.
• Interest Rate Risk: Concerns around debt maturities and refinancing challenges in the near term.

Q: Break out new leasing related to Stewart space and same-store net absorption guidance.

A: Stewart releasing activity was treated as renewals, not included in the 690,000 sq ft new lease number. There was ~15,000 sq ft of net new leasing related to Stewart buildings. Same-store absorption target for 2025 does not include Stewart.

Q: Expectations for FAD and dividend.

A: Confident in growing into the dividend by the end of 2025 or early 2026, with the timeline dependent on leasing activity.

Q: CEO search process.

A: Search started in December, ongoing, with no specific timeline but the search committee is aggressive.

Q: Impact of Washington changes on MOB tenants.

A: Watching developments, but outpatient demand for MOBs remains robust, and MOBs are natural beneficiaries of cost-lowering efforts.

Q: Capital recycling and dispositions.

A: $400M-$500M of non-core asset sales expected in 2025, primarily asset sales, with proceeds to be used for debt pay down and leasing.

Q: Sustainable earnings growth and debt maturities.

A: Core growth is strong, but there is a near-term headwind from deleveraging; long-term growth expected around 3% as the company focuses on executing the 2025 plan.

Q: Occupancy and multi-tenant guidance.

A: Focus on same-store and total portfolio performance, not providing specific multi-tenant occupancy outlook for 2025.

Q: Sourcing, uses, and buybacks.

A: Proceeds from dispositions will be focused on leasing and debt pay down, with flexibility on buybacks but a primary focus on debt reduction.

Q: Margins and controllable expenses.

A: Controllable expenses were reduced by 1% in 2024, and margins are expected to trend upward with occupancy improvement in 2025.

Q: Stewart and Prospect in guidance.

A: Stewart leases in place on over 80% of pre-bankruptcy square footage, while Prospect exposure is removed from 2025 guidance as it is early in the bankruptcy process.