Healthcare Realty Trust Inc Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Austin Wurschmidt - KeyBanc Capital Markets Inc. - Analyst : Todd, just wanted to go back and make sure I understand the multi-tenant same-store NOI growth guidance and kind of move-in, move-out dynamic you discussed. I guess can you just marry the timing impact you mentioned with the comment about net absorption kind of exceeding your goals and whether this is a quarter end occupancy versus average occupancy difference or if there's something else that we're missing here? And just speak to kind of what went on there this quarter.

Question: Austin Wurschmidt - KeyBanc Capital Markets Inc. - Analyst : So we should really start to think more about the fact that contractual increases are in that high 2% range, you're in the mid-3% I think, on cash leasing spreads and then occupancy should just be the other piece, and that should really be the drivers of base revenue growth moving forward?

Question: Austin Wurschmidt - KeyBanc Capital Markets Inc. - Analyst : And then just last one for me. On backfilling the Steward space, can you give us a sense on timing of the leases that account for, I think you said 2/3 of the $27 million of NOI, when you'd expect those to commence.

Question: Juan Sanabria - BMO Capital Markets (US) - Analyst : Just on the multi-tenant same-store NOI, maybe I'm being a little bit thick here, but just curious on why that guidance was brought back or brought down, I should say. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 3:00PM, HR.N - Q3 2024 Healthcare Realty Trust Inc Earnings Call

Question: Juan Sanabria - BMO Capital Markets (US) - Analyst : So the lease is just starting later than you would have initially hoped?

Question: Juan Sanabria - BMO Capital Markets (US) - Analyst : Got you. And then just curious, G&A came down. I guess, what drove that? And should we then expect a higher number in '25 or a bigger increase as that's kind of normalized out or hoping you could tease that out a little bit as we think about turning the calendar over?

Question: John Kilichowski - Wells Fargo Securities, LLC - Analyst : Maybe if we could just turn to the capital activity in the quarter. You said you paid down the rest of your term loan. And based on the upside of the disposition activity, does that imply about $100 million of further debt buybacks you're assuming sort of flat stock repurchases?

Question: John Kilichowski - Wells Fargo Securities, LLC - Analyst : Okay. So it sounds like with that $100 million roughly, it's the revolver to 579 is the best choice of action for that? Or is there other opportunities for that capital?

Question: John Kilichowski - Wells Fargo Securities, LLC - Analyst : Okay. And then maybe next, there was a $47 million credit loss reserve in the quarter. Is there anything you could give us on that?

Question: John Kilichowski - Wells Fargo Securities, LLC - Analyst : Okay. And then just last one for me. The final $10 million entering the new leasing pipeline of NOI, could you just walk us through maybe normal cadence of what an asset that hits that new pipeline looks like in terms of timing to touring and TI the process and typical lease up? Like is there [any sort of aspect that is hard] to sort of put a time frame around it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 3:00PM, HR.N - Q3 2024 Healthcare Realty Trust Inc Earnings Call

Question: Michael Griffin - Citigroup Global Markets Inc. - Analyst : I'm wondering if you've noticed whether or not you have a greater ability to push rents or get tenants to sign longer leases given what seems like continued solid demand and minimal new options from a supply perspective?

Question: Michael Griffin - Citigroup Global Markets Inc. - Analyst : Appreciate the color there, Todd. And then just maybe switching to sort of the capital allocation front. I think you guys have done a good job kind of narrowing the discount to NAV with the share buybacks so far this year. But given there's probably more limited accretion from those at this juncture and Austen, I think you talked about a pretty liquid and open transaction market. Have you started seeing deal activity from an acquisition perspective pickup or are cap rates a little bit too narrow relative to where your cost of capital is today to execute on some of those deals?

Question: Rich Anderson - Wedbush Securities, Inc. - Analyst : So on the occupancy bridge, you're making good progress there. I'm -- and you -- Todd, you referred to a move to a rate focus perhaps next year. Might we expect sort of a similar sort of communication style about this next phase for Healthcare Realty. You've achieved perhaps, god willing, your occupancy goal for the end of this year. Could there be a bridge or a ski lift or something to get to a higher kind of rate? What's the thought process about communicating the future because it seems it has worked reasonably well for you this year.

Question: Rich Anderson - Wedbush Securities, Inc. - Analyst : Do you sense that tenants though, are getting more and more conditioned to a higher -- we've talked about this for years. higher rate environment in rental rate environment for them? Or are they still sort of pushing back, even though -- despite some of the anecdotal evidence that you've seen in terms of reducing spreads.

Question: Rich Anderson - Wedbush Securities, Inc. - Analyst : Second question is you talked about multiple sort of avenues to future growth. Your stock is now just perhaps a hair below at least consensus estimates for net asset value. So are we moving away from buybacks and into a pivot with the JVs where maybe you're selling less into them and buying alongside with them? I mean how quickly could that evolve vis-a-vis the previous schedule or the previous plan to sell assets and buy back stock?

Question: Rich Anderson - Wedbush Securities, Inc. - Analyst : Last question for me is with all the management change and perhaps other changes ahead Todd, you mentioned a fresh perspective. How much of these changes will be strategic and how much of them will be more communicative. In other words, like what are the intentions of the management changes that are underway and that or have been completed in terms of what the company looks like on a go-forward basis?

Question: Jonathan Hughes - Raymond James & Associates, Inc. - Analyst : I was hoping you could clarify how this Steward, Massachusetts catch-up rent received this month will be treated in 4Q multi-tenant NOI growth. Will that be excluded as I think the negative impact was left out in the second quarter?

Question: Jonathan Hughes - Raymond James & Associates, Inc. - Analyst : Okay. That's helpful. And I assume like Florida would be treated similarly, right, and growth in with Massachusetts.

Question: Jonathan Hughes - Raymond James & Associates, Inc. - Analyst : (techinical difficulty) So look forward to hearing more about it as it evolves. I have just one more. On the dividend, I know it was just declared yesterday, and you did talk about the visibility into reaching a 90% payout ratio. But I was hoping you could talk about the -- that reported payout ratio versus an absorption capital adjusted payout ratio. I think absorption capital was really mentioned for the first time last quarter. So I guess my question is why the change in how you're looking at payout ratio or maybe looking at it with another metric since I don't really recall hearing absorption capital mentioned until recently.

Question: Jonathan Hughes - Raymond James & Associates, Inc. - Analyst : Yes, that is helpful. So the absorption capital, just to be clear, that's leasing commissions, right? Like -- so with your portfolio churning like those are cash.

Question: Omotayo Okusanya - Deutsche Bank Securities Inc. - Analyst : I just wanted to talk a little bit about kind of long-term growth for the overall portfolio. Again, clearly, with some of your kind of cash same-store NOI numbers steadily improving, things are moving in the right direction. But if I recall correctly, kind of post the merger, there was a viewpoint that the merged portfolio could kind of generate like 5%-ish same-store cash NOI growth, if I'm recalling that correctly? And can you just walk us through a little bit of like the building block that could eventually get you to that number, if you still believe in that number and how soon that could potentially happen?

Question: Omotayo Okusanya - Deutsche Bank Securities Inc. - Analyst : That's helpful. And then a second question just around capital allocation. Again, I appreciate the comments made earlier on that you would really kind of allocate capital based on where it would create the most kind of earning accretion or shareholder value? And I guess when you do kind of think about acquisitions versus development versus stock buyback today, I mean, you're kind of ranking all those potential kind of uses of capital. How do you kind of think about the best use of capital today versus maybe some other alternative uses? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 3:00PM, HR.N - Q3 2024 Healthcare Realty Trust Inc Earnings Call

Question: Omotayo Okusanya - Deutsche Bank Securities Inc. - Analyst : That's helpful. Then just indulge me one more. Just in terms of certain rates rising, how do we kind of think about upcoming debt maturity and as well as swap expiration kind of in 2025 and even possibly '26.

Question: Mike Mueller - J.P. Morgan Securities LLC - Analyst : I guess one quick question first. Can you give a little more color on why you're just recapturing $5 million of the remaining $10 million from Steward? Is it issues with certain buildings? Is it rents above market or something else? Can you just kind of help put that in context?

Question: Mike Mueller - J.P. Morgan Securities LLC - Analyst : Got it. Okay. And then I guess, based on what you see today, what do you think the likelihood is that you won't be a net seller again next year?

Question: Emily Meckler - Green Street Advisors, LLC - Analyst : I just have a quick question on the first generation TI. So what is causing the $12 million increase from the previous expectation of $35 million.

Question: Emily Meckler - Green Street Advisors, LLC - Analyst : Okay. And then one more on move-out. So outside of Steward, are there any known move-outs in upcoming lease expirations later this yearly next year, that will lead to a temporary drag on occupancy?

Question: Nicholas Yulico - Scotia Capital (USA), Inc. - Analyst : Sorry for the technical difficulties earlier. In terms of the maintenance capital expenditures, they've trended down a bit in recent quarters as a percentage of NOI. Can you just give us a feel for like how to think about that impact next year? Are you still kind of running higher than normal as a percentage of NOI on that CapEx right now, it could come down next year?

Question: Nicholas Yulico - Scotia Capital (USA), Inc. - Analyst : Okay. Second question is just as we think about the signed leasing activity, you've been running on the multi-tenant, you've been running over 400,000 square feet for five quarters now, and you've been getting some 50 basis points roughly of absorption in the last two quarters. Is there -- as we're thinking about just kind of going forward, is there anything unusual about that pace? I mean is there just like a catch-up element in those numbers that we shouldn't sort of extrapolate and assume going forward for a leasing pace or absorption?