Healthcare Realty Trust Reports Results for the Fourth Quarter
February 14 2018 - 5:19PM
Healthcare Realty Trust Incorporated (NYSE:HR) today announced
results for the fourth quarter ended December 31, 2017.
The Company reported a net loss of $37.2 million or $0.31 per
diluted common share for the quarter, which includes a loss on
extinguishment of debt totaling $45.0 million related to the early
repayment of debt. Normalized FFO for the three months ended
December 31, 2017 totaled $46.8 million, or $0.38 per diluted
common share. Normalizing items include acquisition and
pursuit costs as well as one-time charges related to debt
refinancing activities.
Salient quarterly highlights include:
- For the trailing twelve months ended December 31, 2017, same
store revenue grew 3.4%, operating expenses increased 2.3%, and
same store NOI grew 4.1%:
- Same store revenue per average occupied square foot increased
2.8%.
- Average same store occupancy increased 50 basis points to 89.4%
from 88.9%.
- Four predictive growth measures in the same store multi-tenant
portfolio:
- In-place contractual rent increases averaged 2.80%, up from
2.69% a year ago.
- Weighted average cash leasing spreads were 3.7% on 367,000
square feet renewed:
- 13% (<0% spread)
- 12% (0-3%)
- 48% (3-4%)
- 27% (>4%)
- Tenant retention was 81.9%.
- The average yield on renewed leases increased 60 basis
points.
- Leasing activity in the fourth quarter totaled 546,000 square
feet related to 152 leases:
- 395,000 square feet of renewals
- 151,000 square feet of new and expansion leases
- Acquisitions totaled $246.6 million in the fourth quarter,
comprising 662,000 square feet at an aggregate leased percentage of
95%:
- The Company completed the purchase of eight medical office
buildings from the previously announced Atlanta portfolio
transaction for an aggregate purchase price of $193.8 million. The
buildings total 496,000 square feet and are 96% leased. Seven
of the buildings are located on three WellStar hospital campuses,
and the eighth is 100% leased to Piedmont Healthcare.
- The Company purchased a medical office building adjacent to the
Overlake Hospital Medical Center campus in Seattle for $12.7
million. The building is 26,000 square feet, 96% leased, and
is adjacent to the Overlake Medical Pavilion, which Healthcare
Realty developed in October 2011.
- The Company purchased a medical office building on Ascension
Health's St. Alexius Medical Center campus in Chicago for $28.8
million. The building is 100,000 square feet and 88% leased.
- The Company purchased a medical office building adjacent to UW
Medicine's Valley Medical Center campus in Seattle for $8.8
million. The building is 33,000 square feet and 95%
leased.
- The Company paid $2.5 million to purchase an additional 8,000
square feet in a previously acquired medical office building
adjacent to Ascension Health's Seton Medical Center campus in
Austin, bringing the Company's ownership in the building to
69%.
- In December, the Company commenced construction of a $64.1
million medical office building located on UW Medicine's Valley
Medical Center campus in Seattle. The 151,000 square foot
building is 60% pre-leased and is expected to be completed in the
second quarter of 2019. This development will be the
Company's eighteenth asset in the Seattle market and the fourth on
or adjacent to the Valley Medical Center campus.
- On December 11, 2017, the Company issued $300 million of Senior
Notes due January 2028 with a coupon rate of 3.625%. Also
during the quarter, the Company called its $400 million, 5.750%
Senior Notes due 2021, which were redeemed in two transactions on
November 1, 2017 and December 27, 2017.
- On December 18, 2017, the Company extended the maturity date of
its $150 million Term Loan from February 2019 to December 2022 and
reduced the spread over LIBOR by 10 basis points, based on the
Company's current unsecured debt ratings.
- A dividend of $0.30 per common share was declared, which is
equal to 78.9% of normalized FFO per share.
Salient highlights for the year ended December 31, 2017
include:
- Normalized FFO totaled $182.2 million, or $1.53 per diluted
common share.
- Four predictive growth measures in the same store multi-tenant
portfolio:
- In-place contractual rent increases averaged 2.80%, up from
2.69% a year ago.
- Weighted average cash leasing spreads were 5.4% on 1,395,000
square feet renewed for 2017:
- 7% (<0% spread)
- 9% (0-3%)
- 44% (3-4%)
- 40% (>4%)
- Tenant retention averaged 83.0%.
- The average yield on renewed leases increased 73 basis
points.
- Annual leasing activity totaled 2,136,000 square feet related
to 589 leases, representing 14.6% of the Company's total square
feet:
- 1,500,000 square feet of renewals
- 636,000 square feet of new and expansion leases
- Net absorption was flat year-over-year
- Net investments totaled $236.8 million:
- $327.2 million of acquisitions
- $32.3 million of development and redevelopment funding
- $122.7 million of dispositions
- The Company issued $247.1 million of equity in August 2017 to
fund investment activity and repay debt obligations.
- Leverage decreased from 33.9% at the end of 2016 to 32.3% at
year-end 2017, and net debt to adjusted EBITDA decreased from 5.0x
to 4.8x. The Company also reduced its weighted average
effective interest rate from 4.28% at year-end 2016 to 3.71% at
year-end 2017, increasing its weighted average months to maturity
from 64 months to 77 months.
- Dividends totaled $1.20 per common share, which is equal to
78.4% of normalized FFO per share and 96.8% of FAD per share.
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 December 31, 2017, the Company
owned 201 real estate properties in 27 states totaling 14.6 million
square feet and was valued at approximately $5.3 billion. The
Company provided leasing and property management services to 11.5
million square feet nationwide.
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.
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, 2017 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 appears beginning on page 5.
HEALTHCARE REALTY TRUST INCORPORATED |
Consolidated Balance Sheets (1) |
(amounts in thousands, except per share data) |
|
ASSETS |
|
|
|
12/31/2017 |
12/31/2016 |
Real estate
properties: |
|
|
Land |
$201,283 |
|
$199,672 |
|
Buildings, improvements
and lease intangibles |
|
3,601,460 |
|
|
3,386,480 |
|
Personal property |
|
10,314 |
|
|
10,291 |
|
Construction in
progress |
|
5,458 |
|
|
11,655 |
|
Land held for
development |
|
20,123 |
|
|
20,123 |
|
Total real
estate properties |
|
3,838,638 |
|
|
3,628,221 |
|
Less accumulated
depreciation and amortization |
|
(897,430 |
) |
|
(840,839 |
) |
Total real
estate properties, net |
|
2,941,208 |
|
|
2,787,382 |
|
Cash and cash
equivalents |
|
6,215 |
|
|
5,409 |
|
Restricted cash |
|
— |
|
|
49,098 |
|
Assets held for sale
and discontinued operations, net |
|
33,147 |
|
|
3,092 |
|
Other assets, net |
|
213,015 |
|
|
195,666 |
|
Total assets |
$3,193,585 |
|
$3,040,647 |
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
Liabilities: |
|
|
Notes and bonds
payable |
$1,283,880 |
|
$1,264,370 |
|
Accounts payable and
accrued liabilities |
|
70,995 |
|
|
78,266 |
|
Liabilities of
properties held for sale and discontinued operations |
|
93 |
|
|
614 |
|
Other liabilities |
|
48,734 |
|
|
43,983 |
|
Total
liabilities |
|
1,403,702 |
|
|
1,387,233 |
|
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 and 150,000 shares authorized; 125,132 and 116,417
shares issued and outstanding at December 31, 2017 and December 31,
2016, respectively |
|
1,251 |
|
|
1,164 |
|
Additional paid-in
capital |
|
3,173,429 |
|
|
2,917,914 |
|
Accumulated other
comprehensive loss |
|
(1,299 |
) |
|
(1,401 |
) |
Cumulative net income
attributable to common stockholders |
|
1,018,348 |
|
|
995,256 |
|
Cumulative
dividends |
|
(2,401,846 |
) |
|
(2,259,519 |
) |
Total
stockholders' equity |
|
1,789,883 |
|
|
1,653,414 |
|
Total liabilities and stockholders' equity |
$3,193,585 |
|
$3,040,647 |
|
(1) The 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.
HEALTHCARE REALTY TRUST INCORPORATED |
Consolidated Statements of Income
(1) |
(amounts in thousands, except per share data) |
(Unaudited) |
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
2017 |
2016 |
|
2017 |
2016 |
Revenues |
|
|
|
|
|
Rental income |
$107,333 |
|
$104,736 |
|
|
$422,852 |
|
$407,481 |
|
Other operating |
|
398 |
|
|
573 |
|
|
|
1,647 |
|
|
4,149 |
|
|
|
107,731 |
|
|
105,309 |
|
|
|
424,499 |
|
|
411,630 |
|
Expenses |
|
|
|
|
|
Property operating |
|
40,590 |
|
|
37,285 |
|
|
|
157,233 |
|
|
146,458 |
|
General and
administrative |
|
8,272 |
|
|
7,622 |
|
|
|
32,992 |
|
|
31,309 |
|
Acquisition and pursuit
costs |
|
302 |
|
|
1,085 |
|
|
|
2,180 |
|
|
4,496 |
|
Depreciation and
amortization |
|
37,324 |
|
|
34,022 |
|
|
|
142,472 |
|
|
127,690 |
|
Bad debts, net of
recoveries |
|
(17 |
) |
|
(13 |
) |
|
|
169 |
|
|
(21 |
) |
|
|
86,471 |
|
|
80,001 |
|
|
|
335,046 |
|
|
309,932 |
|
Other income
(expense) |
|
|
|
|
|
Gain on sales of real
estate assets |
|
— |
|
|
41,037 |
|
|
|
39,519 |
|
|
41,038 |
|
Interest expense |
|
(13,707 |
) |
|
(13,839 |
) |
|
|
(56,402 |
) |
|
(57,351 |
) |
Loss on extinguishment
of debt |
|
(44,985 |
) |
|
— |
|
|
|
(44,985 |
) |
|
— |
|
Pension
termination |
|
— |
|
|
— |
|
|
|
— |
|
|
(4 |
) |
Impairment of real
estate assets |
|
2 |
|
|
— |
|
|
|
(5,385 |
) |
|
— |
|
Interest and other
income, net |
|
279 |
|
|
74 |
|
|
|
896 |
|
|
375 |
|
|
|
(58,411 |
) |
|
27,272 |
|
|
|
(66,357 |
) |
|
(15,942 |
) |
|
|
|
|
|
|
Income (loss)
from continuing operations |
|
(37,151 |
) |
|
52,580 |
|
|
|
23,096 |
|
|
85,756 |
|
|
|
|
|
|
|
Discontinued
operations |
|
|
|
|
|
Loss from discontinued
operations |
|
— |
|
|
(22 |
) |
|
|
(9 |
) |
|
(71 |
) |
Impairments of real
estate assets |
|
— |
|
|
(121 |
) |
|
|
— |
|
|
(121 |
) |
Gain on sales of real
estate properties |
|
— |
|
|
— |
|
|
|
5 |
|
|
7 |
|
Loss from discontinued
operations |
|
— |
|
|
(143 |
) |
|
|
(4 |
) |
|
(185 |
) |
Net income (loss) |
($37,151 |
) |
$52,437 |
|
|
$23,092 |
|
$85,571 |
|
Basic earnings
per common share: |
|
|
|
|
|
Income (loss) from
continuing operations |
($0.31 |
) |
$0.46 |
|
|
$0.18 |
|
$0.79 |
|
Discontinued
operations |
$0.00 |
|
$0.00 |
|
|
|
0.00 |
|
|
0.00 |
|
Net income (loss) |
($0.31 |
) |
$0.46 |
|
|
$0.18 |
|
$0.79 |
|
Diluted
earnings per common share: |
|
|
|
|
|
Income (loss) from
continuing operations |
($0.31 |
) |
$0.46 |
|
|
$0.18 |
|
$0.78 |
|
Discontinued
operations |
$0.00 |
|
($0.01 |
) |
|
|
0.00 |
|
|
0.00 |
|
Net income (loss) |
($0.31 |
) |
$0.45 |
|
|
$0.18 |
|
$0.78 |
|
Weighted average common shares outstanding -
basic |
|
123,105 |
|
|
114,589 |
|
|
|
117,926 |
|
|
108,572 |
|
Weighted average common shares outstanding -
diluted |
|
123,105 |
|
|
115,408 |
|
|
|
118,017 |
|
|
109,387 |
|
(1) The 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.
HEALTHCARE REALTY TRUST INCORPORATED |
Reconciliation of FFO, Normalized FFO and
FAD |
(amounts in thousands, except per share data) |
(Unaudited) |
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
2017 |
2016 |
|
2017 |
2016 |
Net income (loss) |
($37,151 |
) |
$52,437 |
|
|
$23,092 |
|
$85,571 |
|
Gain on sales of real
estate properties |
|
— |
|
|
(41,037 |
) |
|
|
(39,524 |
) |
|
(41,044 |
) |
Impairments of real
estate assets |
|
(2 |
) |
|
121 |
|
|
|
5,385 |
|
|
121 |
|
Real estate
depreciation and amortization |
|
37,869 |
|
|
34,699 |
|
|
|
145,321 |
|
|
129,772 |
|
Total adjustments |
|
37,867 |
|
|
(6,217 |
) |
|
|
111,182 |
|
|
88,849 |
|
Funds from operations |
$716 |
|
$46,220 |
|
|
$134,274 |
|
$174,420 |
|
Acquisition and pursuit
costs (1) |
|
302 |
|
|
915 |
|
|
|
2,180 |
|
|
3,414 |
|
Write-off of deferred
financing costs upon amendment of credit facilities |
|
21 |
|
|
— |
|
|
|
21 |
|
|
81 |
|
Rapid
vesting/revaluation for retiring directors and officer |
|
— |
|
|
— |
|
|
|
— |
|
|
89 |
|
Interest incurred
related to the timing of issuance/redemption of senior notes |
|
767 |
|
|
— |
|
|
|
767 |
|
|
— |
|
Loss on extinguishment
of debt |
|
44,985 |
|
|
— |
|
|
|
44,985 |
|
|
— |
|
Pension
termination |
|
— |
|
|
— |
|
|
|
— |
|
|
4 |
|
Normalized funds from operations |
$46,791 |
|
$47,135 |
|
|
$182,227 |
|
$178,008 |
|
Non-real estate
depreciation and amortization |
|
1,439 |
|
|
1,339 |
|
|
|
5,551 |
|
|
5,475 |
|
Provision for bad debt,
net |
|
(17 |
) |
|
(13 |
) |
|
|
159 |
|
|
(21 |
) |
Straight-line rent
receivable, net |
|
(201 |
) |
|
(1,595 |
) |
|
|
(4,575 |
) |
|
(7,134 |
) |
Stock-based
compensation |
|
2,531 |
|
|
1,949 |
|
|
|
10,027 |
|
|
7,509 |
|
Non-cash items |
|
3,752 |
|
|
1,680 |
|
|
|
11,162 |
|
|
5,829 |
|
2nd generation TI |
|
(6,929 |
) |
|
(7,918 |
) |
|
|
(20,367 |
) |
|
(23,692 |
) |
Leasing commissions
paid |
|
(2,705 |
) |
|
(1,030 |
) |
|
|
(7,099 |
) |
|
(5,210 |
) |
Capital additions |
|
(6,400 |
) |
|
(4,283 |
) |
|
|
(18,790 |
) |
|
(17,122 |
) |
Funds available for distribution |
$34,509 |
|
$35,584 |
|
|
$147,133 |
|
$137,813 |
|
Funds from operations per common share -
diluted |
$0.01 |
|
$0.40 |
|
|
$1.13 |
|
$1.59 |
|
Normalized funds from operations per common share -
diluted |
$0.38 |
|
$0.41 |
|
|
$1.53 |
|
$1.63 |
|
Funds available for distribution per common share -
diluted |
$0.28 |
|
$0.31 |
|
|
$1.24 |
|
$1.26 |
|
FFO weighted average common shares outstanding - diluted
(2) |
|
124,125 |
|
|
115,408 |
|
|
|
118,877 |
|
|
109,387 |
|
(1) Acquisition and pursuit costs include third party and
travel costs related to the pursuit of acquisitions and
developments. Beginning in 2017, FFO and FAD are normalized
for all acquisition and pursuit costs. Prior to 2017, FFO and
FAD were normalized for acquisition and pursuit costs associated
with only those acquisitions that closed in the period. These
changes were prompted by the Company's adoption of ASU 2017-01
which was effective January 1, 2017. (2) Diluted
weighted average common shares outstanding for the three and twelve
months ended December 31, 2017 includes the dilutive effect of
nonvested share-based awards outstanding of 944,831 and 860,145
shares, respectively.
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 the most commonly accepted and
reported measure of a REIT’s operating performance equal to “net
income (computed in accordance with GAAP), excluding gains (or
losses) from sales of property, plus depreciation and amortization
(including amortization of leasing commissions), and after
adjustments for unconsolidated partnerships and joint
ventures.” The Company defines Normalized FFO as FFO
excluding acquisition-related expenses 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.
Carla BacaDirector of Corporate CommunicationsP:
615.269.8175
Healthcare Realty (NYSE:HR)
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