• Normalized FFO per Share: $0.40 for Q4 2024, representing 2.5% year-over-year growth.
• New Lease Commitments: Nearly 600,000 square feet in Q4 and 2 million square feet for the year.
• Occupancy Gains: 149 basis points for the year, at the high end of the projected range.
• Controllable Operating Expenses: Reduced by 100 basis points.
• Proceeds Generated: $1.3 billion in 2024, including $500 million from non-core asset sales.
• Share Repurchases: $510 million allocated to repurchase 31 million shares.
• Debt Repayment: $350 million repaid, ending the year at 6.4 times leverage.
• Same Store Cash NOI Growth: 3.1% for Q4 and 2.9% for the year.
• Tenant Retention: 83.4% for the year, up 400 basis points from 2023.
• 2025 Guidance - Same Store NOI Growth: 3% to 3.75%.
• 2025 Guidance - Non-Core Asset Sales: $400 million to $500 million.
• 2025 Guidance - Leverage Target: Reduce to 6 times to 6.25 times by year-end.

• Warning! GuruFocus has detected 9 Warning Signs with HR.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Healthcare Realty Trust Inc (NYSE:HR) achieved a record 2 million square feet of new lease commitments for the year, with nearly 600,000 square feet in the fourth quarter alone.
• The company reported a 2.5% year-over-year growth in normalized FFO per share, reaching $0.40 in the fourth quarter, which was at the high end of their guidance.
• HR successfully reduced controllable operating expenses by 100 basis points, demonstrating improved operational efficiency.
• The company generated $1.3 billion in proceeds during 2024, including $500 million from non-core asset sales, which were used to repurchase shares and reduce debt.
• HR's multi-tenant portfolio saw an occupancy gain of 149 basis points for the year, meeting the high end of their projected range.

Negative Points

• The company faces a modest near-term earnings headwind due to its strategic focus on significant debt reduction in 2025.
• Prospect Medical's Chapter 11 bankruptcy introduces uncertainty, with HR assuming no revenue from Prospect in their 2025 guidance.
• HR's dividend is not expected to be fully covered until late 2025 or early 2026, indicating potential financial strain.
• The company has a significant $1.2 billion debt maturity in 2026, which may pose refinancing challenges.
• HR's focus on deleveraging and asset sales may result in reduced NOI, impacting short-term earnings growth.

Q & A Highlights

Q: Can you break out new leasing this quarter related to the backfilling of the Steward space and explain if the same store net absorption guidance includes any releasing of that Steward space? A: Robert Hull, COO, explained that the subtenant to direct leases related to Steward were treated as renewals, not new leases. About 15,000 square feet of new leasing in the fourth quarter was related to Steward buildings. Austen Helfrich, CFO, added that the absorption target for next year does not include Steward, and the lease commencement front for 2025 is expected to be similar to 2024.

Q: What are the expectations for FAD relative to normalized FFO guidance, and is a dividend cut off the table? A: Constance Moore, Interim CEO, stated that they are confident in growing into their dividend by the end of this year or next year through leasing momentum and operational efficiency. Austen Helfrich, CFO, added that maintenance capital guidance and core growth in FFO per share will bridge to coverage by the fourth quarter.

Q: Can you provide an update on the CEO search process and expectations for timing of an announcement? A: Constance Moore, Interim CEO, mentioned that the search committee began in earnest in January, and while they hope to have a permanent CEO soon, they are committed to ensuring the right leader is selected without rushing the process.

Q: How do you view the impact of changes in Washington on the MOB sector and your tenants? A: Austen Helfrich, CFO, noted that while it's early to speculate on specifics from the new administration, the demand for outpatient space remains robust, and they are the natural beneficiary of any cost-lowering measures. Constance Moore, Interim CEO, added that they stay in front of legislators to highlight the benefits of the MOB space.

Q: How do you plan to address the significant 2026 debt maturities, and what is the timeline for refinancing? A: Austen Helfrich, CFO, indicated that the primary focus for addressing the 2026 maturities will be in the second half of 2025. They plan to execute debt paydown from asset sales and start refinancing efforts during that period.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.