Healthcare Realty Trust Incorporated (NYSE:HR) today announced
results for the third quarter ended September 30, 2022. The
Company reported net income attributable to common stockholders of
$28.3 million, or $0.08 per diluted common share, for the quarter
ended September 30, 2022. Normalized FFO for the three months
ended September 30, 2022 totaled $129.4 million, or $0.39 per
diluted common share.
Salient quarterly highlights include:
- The Company completed the merger with Healthcare Trust of
America, Inc. on July 20, 2022. Legacy HR was the accounting
acquirer in the reverse merger structure. Unless otherwise noted,
all financial information prior to the completion of the merger
relates to Legacy HR.
- Normalized FFO per share totaled $0.39. With the full quarter
pro-forma and run-rate adjustments as outlined below, expected
run-rate normalized FFO is $0.40 per share. These quarterly amounts
include the negative effect of non-cash, merger-related fair value
debt adjustments of $0.03 per share. See the section below for a
reconciliation of these items.
- Same store cash NOI for the third quarter increased 2.8% over
the prior year. For the trailing twelve months ended September 30,
2022, same store cash NOI grew 2.4%. The same store portfolio
includes 589 properties from combined Legacy HR and HTA, comprising
83% of total cash NOI.
- Predictive growth measures in the same store portfolio include:
- Average in-place rent increases of 2.64%
- Future annual contractual increases of 2.8% for leases
commencing in the quarter
- Weighted average cash leasing spreads
of 2.9% on 634,000 square feet renewed:
- 10% (<0% spread)
- 26% (0-3%)
- 43% (3-4%)
- 22% (>4%)
- Tenant retention of 79.1%
- Portfolio leasing activity in the third quarter totaled
1,086,000 square feet related to 317 leases:
- 694,000 square feet of renewals
- 392,000 square feet of new and expansion leases
- In the third quarter, the Company realized $16.4 million of
annualized synergies, or nearly half of the projected $33-$36
million of annual G&A synergies. The Company expects to realize
approximately $18 million of remaining annual G&A savings
evenly over the next three quarters. This equates to an incremental
$1.5 million of G&A savings for each of the next three
quarters.
- Associated with the merger, the Company has closed $922 million
in joint ventures and asset sale transactions at a weighted average
cap rate of 4.6%. Transactions totaling $105 million are under
contract and expected to close in November. In December, the
Company expects to complete the remaining sales that will bring the
total to over $1.1 billion at an expected weighted average cap rate
of 4.8%.
- Since the end of the second quarter, the Company acquired nine
medical office buildings totaling 249,000 square feet for $94.9
million. The properties are all located in existing markets and
expand clusters in high growth markets, including Atlanta,
Nashville and Raleigh.
- Since the end of the third quarter, the Company entered into
new interest rate swaps totaling $250 million, bringing fixed rate
debt to 86% of total debt, excluding the remaining balance on the
asset sale term loan.
- Run-rate net debt to adjusted EBITDA on a full quarter proforma
basis was 6.3 times at the end of the quarter. For a reconciliation
to expected run-rate amounts, see the section below.
- A dividend of $0.31 per share will be
paid on November 30, 2022 to stockholders of record on November 15,
2022.
The following table provides a reconciliation of the current
quarter full proforma normalized FFO, FAD and Adjusted EBITDA to an
expected quarterly run-rate. The expected run-rates do not adjust
for future changes in interest rates, portfolio NOI growth, or
external investment activity. The expected run-rates also do not
include any dispositions beyond those expected to repay the $1.125
billion asset sale term loan.
RUN-RATE ADJUSTED EBITDA, NORMALIZED FFO AND
FAD |
|
|
|
|
|
NORMALIZED FFO |
|
FAD |
|
ADJUSTED EBITDA |
|
NET DEBT |
|
Q3
2022 proforma full quarter |
$150,884 |
|
$118,835 |
|
$212,759 |
|
$5,840,802 |
|
NOI adjustments for asset
sales:1 |
|
|
|
|
Q3 NOI recognized on assets sold during the quarter 2 |
|
(3,997) |
|
|
(3,944) |
|
|
— |
|
|
— |
|
October asset sales completed |
|
(1,625) |
|
|
(1,600) |
|
|
(1,625) |
|
|
(136,000) |
|
Expected November asset sales |
|
(1,400) |
|
|
(1,300) |
|
|
(1,400) |
|
|
(105,000) |
|
Expected December asset sales |
|
(3,000) |
|
|
(2,875) |
|
|
(3,000) |
|
|
(182,000) |
|
Q3
acquisition timing 2 |
|
918 |
|
|
865 |
|
|
— |
|
|
— |
|
Q3
recognized interest expense on the asset sale term loan |
|
5,419 |
|
|
5,151 |
|
|
— |
|
|
— |
|
Reversal of Q3 seasonal utilities |
|
2,500 |
|
|
2,500 |
|
|
2,500 |
|
|
— |
|
Remaining expected G&A synergies 3 |
|
4,500 |
|
|
4,500 |
|
|
4,500 |
|
|
— |
|
Normalized maintenance capex 4 |
|
— |
|
|
4,500 |
|
|
— |
|
|
— |
|
Adjusted run-rate |
$154,199 |
|
$126,632 |
|
$213,734 |
|
$5,417,802 |
|
Per
share |
$0.40 |
|
$0.33 |
|
|
Net debt to adjusted EBITDA |
|
|
|
6.3x |
|
FFO wtd avg common shares outstanding -
diluted |
|
384,615 |
|
|
384,615 |
|
|
|
Merger-related fair value debt
adjustment |
$11,844 |
|
|
|
|
Per share |
$0.03 |
|
|
|
|
- FFO and EBITDA includes the impact of straight-line rent.
- Adjustments to reflect quarterly NOI/EBITDA from properties
acquired or disposed of in the quarter.
- The Company expects to realize $1.5 million per quarter in
incremental G&A savings over each of the next three
quarters.
- Quarterly maintenance capex as a percentage of NOI was 17.6%.
The Company expects a run rate of 16% of run-rate adjusted cash
NOI.
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 September 30, 2022, the Company was invested
in over 700 real estate properties totaling more than 40 million
square feet and provided leasing and property management services
to over 35 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, this press release contains certain
forward-looking statements with respect to the Company.
Forward-looking statements are statements that are not descriptions
of historical facts and include statements regarding management’s
intentions, beliefs, expectations, plans or predictions of the
future, within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Because such statements include risks,
uncertainties and contingencies, actual results may differ
materially and in adverse ways from those expressed or implied by
such forward-looking statements. These risks, uncertainties and
contingencies include, without limitation, the following: failure
to realize the expected benefits of the Merger; significant
transaction costs and/or unknown or inestimable liabilities; the
risk that HTA’s business will not be integrated successfully or
that such integration may be more difficult, time-consuming or
costly than expected; risks related to future opportunities and
plans for the Company, including the uncertainty of expected future
financial performance and results of the Company; the possibility
that, if the Company does not achieve the perceived benefits of the
Merger as rapidly or to the extent anticipated by financial
analysts or investors, the market price of the Company’s common
stock could decline; general adverse economic and local real estate
conditions; changes in economic conditions generally and the real
estate market specifically; legislative and regulatory changes,
including changes to laws governing the taxation of REITs and
changes to laws governing the healthcare industry; the availability
of capital; changes in interest rates; competition in the real
estate industry; the supply and demand for operating properties in
the Company’s proposed market areas; changes in accounting
principles generally accepted in the US; policies and guidelines
applicable to REITs; the availability of properties to acquire; the
availability of financing; pandemics and other health concerns, and
the measures intended to prevent their spread, including the
currently ongoing COVID-19 pandemic; and the potential material
adverse effect these matters may have on the Company’s business,
results of operations, cash flows and financial condition.
Additional information concerning the Company and its business,
including additional factors that could materially and adversely
affect the Company’s financial results, include, without
limitation, the risks described under Part I, Item 1A - Risk
Factors, in the Company’s 2021 Annual Report on Form 10-K and in
its other filings with the SEC.
Consolidated Balance Sheets 1 |
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA |
ASSETS |
|
|
|
|
|
|
2Q 2022 |
|
3Q 2022 |
|
Combined |
|
Legacy HR |
|
Legacy HTA |
|
Real
estate properties |
|
|
|
|
Land |
$1,449,550 |
|
$1,104,700 |
|
$456,306 |
|
$648,394 |
|
Buildings and improvements |
|
11,439,797 |
|
|
11,447,844 |
|
|
4,673,026 |
|
|
6,774,818 |
|
Lease
intangibles |
|
968,914 |
|
|
382,738 |
|
|
— |
|
|
382,738 |
|
Personal property |
|
11,680 |
|
|
11,799 |
|
|
11,799 |
|
|
— |
|
Investment in financing receivables, net |
|
118,919 |
|
|
118,446 |
|
|
118,446 |
|
|
— |
|
Financing lease right-of-use assets |
|
79,950 |
|
|
71,632 |
|
|
71,632 |
|
|
— |
|
Construction in progress |
|
43,148 |
|
|
31,980 |
|
|
16,728 |
|
|
15,252 |
|
Land held for development |
|
73,321 |
|
|
22,952 |
|
|
22,952 |
|
|
— |
|
Total real estate investments |
|
14,185,279 |
|
|
13,192,091 |
|
|
5,370,889 |
|
|
7,821,202 |
|
Less accumulated depreciation and amortization |
|
(1,468,736 |
) |
|
(3,102,055 |
) |
|
(1,402,509 |
) |
|
(1,699,546 |
) |
Total real estate investments, net |
|
12,716,543 |
|
|
10,090,036 |
|
|
3,968,380 |
|
|
6,121,656 |
|
Cash
and cash equivalents |
|
57,583 |
|
|
64,026 |
|
|
34,312 |
|
|
29,714 |
|
Restricted cash |
|
— |
|
|
4,559 |
|
|
— |
|
|
4,559 |
|
Assets held for sale, net |
|
185,074 |
|
|
— |
|
|
— |
|
|
— |
|
Operating lease right-of-use assets |
|
321,365 |
|
|
353,807 |
|
|
126,204 |
|
|
227,603 |
|
Investments in unconsolidated joint ventures |
|
327,752 |
|
|
272,851 |
|
|
210,781 |
|
|
62,070 |
|
Other assets, net and goodwill |
|
587,126 |
|
|
578,948 |
|
|
209,200 |
|
|
369,748 |
|
Total assets |
$14,195,443 |
|
$11,364,227 |
|
$4,548,877 |
|
$6,815,350 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
2Q 2022 |
|
3Q 2022 |
|
Combined |
|
Legacy HR |
|
Legacy HTA |
|
Liabilities |
|
|
|
|
Notes
and bonds payable |
$5,570,139 |
|
$5,158,398 |
|
$2,063,755 |
|
$3,094,643 |
|
Accounts payable and accrued liabilities |
|
231,018 |
|
|
255,883 |
|
|
84,210 |
|
|
171,673 |
|
Liabilities of properties held for sale |
|
10,644 |
|
|
— |
|
|
— |
|
|
— |
|
Operating lease liabilities |
|
268,840 |
|
|
291,739 |
|
|
94,748 |
|
|
196,991 |
|
Financing lease liabilities |
|
72,378 |
|
|
62,195 |
|
|
62,195 |
|
|
— |
|
Other liabilities |
|
203,398 |
|
|
176,844 |
|
|
66,102 |
|
|
110,742 |
|
Total liabilities |
|
6,356,417 |
|
|
5,945,059 |
|
|
2,371,010 |
|
|
3,574,049 |
|
Stockholders' equity |
|
|
|
|
Preferred stock, $0.01 par value; 200,000 shares authorized |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Common stock, $0.01 par value; 1,000,000 shares authorized |
|
3,806 |
|
|
3,807 |
|
|
1,516 |
|
|
2,291 |
|
Additional paid-in capital |
|
9,586,556 |
|
|
9,185,292 |
|
|
4,002,526 |
|
|
5,182,766 |
|
Accumulated other comprehensive income/(loss) |
|
5,524 |
|
|
4,536 |
|
|
(1,250 |
) |
|
5,786 |
|
Cumulative net income attributable to common stockholders |
|
1,342,819 |
|
|
1,314,515 |
|
|
1,314,515 |
|
|
— |
|
Cumulative dividends 1 |
|
(3,211,492 |
) |
|
(5,171,621 |
) |
|
(3,139,440 |
) |
|
(2,032,181 |
) |
Total stockholders' equity |
|
7,727,213 |
|
|
5,336,529 |
|
|
2,177,867 |
|
|
3,158,662 |
|
Noncontrolling interest |
|
111,813 |
|
|
82,639 |
|
|
— |
|
|
82,639 |
|
Total Equity |
|
7,839,026 |
|
|
5,419,168 |
|
|
2,177,867 |
|
|
3,241,301 |
|
Total liabilities and stockholders' equity |
$14,195,443 |
|
$11,364,227 |
|
$4,548,877 |
|
$6,815,350 |
|
- Includes legacy HTA's cumulative dividends in excess of
earnings.
Consolidated Statements of Income 1 |
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA |
|
|
|
|
|
|
|
3Q 2022 |
2Q 2022 |
|
AS REPORTED |
|
PROFORMA FULLQUARTER |
|
COMBINED |
|
LEGACY HR |
|
LEGACY HTA |
|
Revenues |
|
|
|
|
|
Rental income |
|
298,931 |
|
|
344,251 |
|
|
338,916 |
|
|
140,632 |
|
|
198,284 |
|
Interest income |
|
3,366 |
|
|
3,750 |
|
|
1,957 |
|
|
1,957 |
|
|
— |
|
Other operating |
|
4,057 |
|
|
4,057 |
|
|
4,587 |
|
|
2,738 |
|
|
1,849 |
|
|
|
306,354 |
|
|
352,058 |
|
|
345,460 |
|
|
145,327 |
|
|
200,133 |
|
Expenses |
|
|
|
|
|
Property operating |
|
112,473 |
|
|
127,172 |
|
|
120,383 |
|
|
57,010 |
|
|
63,373 |
|
General and administrative |
|
16,741 |
|
|
18,956 |
|
|
24,783 |
|
|
10,540 |
|
|
14,243 |
|
Acquisition and pursuit costs 2 |
|
482 |
|
|
482 |
|
|
1,449 |
|
|
1,352 |
|
|
97 |
|
Merger-related costs |
|
79,402 |
|
|
79,402 |
|
|
12,192 |
|
|
7,085 |
|
|
5,107 |
|
Depreciation and amortization |
|
158,117 |
|
|
186,643 |
|
|
130,782 |
|
|
55,731 |
|
|
75,051 |
|
|
|
367,215 |
|
|
412,655 |
|
|
289,589 |
|
|
131,718 |
|
|
157,871 |
|
Other
income (expense) |
|
|
|
|
|
Interest expense before merger-related fair value |
($43,775 |
) |
($48,547 |
) |
($40,303 |
) |
($15,543 |
) |
($24,760 |
) |
Merger-related fair value debt adjustment |
|
(9,269 |
) |
|
(11,844 |
) |
|
— |
|
|
— |
|
|
— |
|
Interest expense |
|
(53,044 |
) |
|
(60,391 |
) |
|
(40,303 |
) |
|
(15,543 |
) |
|
(24,760 |
) |
Gain
on sales of real estate properties |
|
143,908 |
|
|
143,908 |
|
|
8,496 |
|
|
8,496 |
|
|
— |
|
Loss
on extinguishment of debt |
|
(1,091 |
) |
|
(1,091 |
) |
|
(3,615 |
) |
|
— |
|
|
(3,615 |
) |
Equity loss from unconsolidated joint ventures |
|
(124 |
) |
|
(124 |
) |
|
94 |
|
|
(307 |
) |
|
401 |
|
Interest and other income (expense), net |
|
(172 |
) |
|
(172 |
) |
|
9 |
|
|
(125 |
) |
|
134 |
|
|
|
89,477 |
|
|
82,130 |
|
|
(35,319 |
) |
|
(7,479 |
) |
|
(27,840 |
) |
Net income |
$28,616 |
|
$21,533 |
|
$20,552 |
|
$6,130 |
|
$14,422 |
|
Net income attributable to non-controlling interests |
|
(312 |
) |
|
(316 |
) |
|
(254 |
) |
|
— |
|
|
(254 |
) |
Net income attributable to common stockholders |
$28,304 |
|
$21,217 |
|
$20,298 |
|
$6,130 |
|
$14,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
MERGER-RELATED FAIR VALUE ADJUSTMENTS |
|
|
|
|
|
|
|
PROFORMA FULLQUARTER |
|
PER SHARE |
|
|
|
Merger-related fair value debt adjustment |
|
|
(11,844 |
) |
($0.031 |
) |
|
|
|
|
|
|
|
|
G&A SYNERGIES |
|
|
|
|
|
|
|
QUARTERLYAMOUNT |
|
PER SHARE |
|
|
|
Q2
2022 combined |
|
$24,783 |
|
|
|
|
Legacy HTA normalizing adjustments |
|
|
(1,700 |
) |
|
|
|
Q2
2022 normalized combined |
|
|
23,083 |
|
|
|
|
Q3
2022 realized synergies |
|
|
(4,127 |
) |
($0.011 |
) |
|
|
Q3
2022 proforma full quarter |
|
|
18,956 |
|
|
|
|
Remaining expected synergies |
|
|
(4,500 |
) |
($0.012 |
) |
|
|
- On July 20, 2022, Legacy HR and Legacy HTA closed the merger of
the two companies, in which Legacy HR was the acquirer under GAAP.
Accordingly, the historic financial statements of the combined
company are those of Legacy HR. Unless otherwise noted, third
quarter data is for the combined company, whether on an actual or
pro forma basis.
- Includes third party and travel costs related to the pursuit of
acquisitions and developments.
Reconciliation of FFO, Normalized FFO and FAD
1,2,3 |
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA |
|
|
|
|
|
|
|
3Q 2022 |
2Q 2022 |
|
AS REPORTED |
|
PROFORMA FULLQUARTER |
|
COMBINED |
|
LEGACY HR |
|
LEGACY HTA |
|
Net
income attributable to common stockholders |
$28,304 |
|
$21,217 |
|
$20,298 |
|
$6,130 |
|
$14,168 |
|
(Gain) loss on sales of real estate assets |
|
(143,908 |
) |
|
(143,908 |
) |
|
(8,496 |
) |
|
(8,496 |
) |
|
— |
|
Real
estate depreciation and amortization |
|
159,643 |
|
|
188,131 |
|
|
131,778 |
|
|
57,334 |
|
|
74,444 |
|
Noncontrolling income (loss) from partnership units |
|
377 |
|
|
316 |
|
|
254 |
|
|
— |
|
|
254 |
|
Unconsolidated JV depreciation and amortization |
|
3,526 |
|
|
3,526 |
|
|
3,295 |
|
|
2,807 |
|
|
488 |
|
FFO |
$47,942 |
|
$69,282 |
|
$147,129 |
|
$57,775 |
|
$89,354 |
|
Acquisition and pursuit costs 4 |
|
482 |
|
|
482 |
|
|
1,449 |
|
|
1,352 |
|
|
97 |
|
Merger-related costs |
|
79,402 |
|
|
79,402 |
|
|
12,192 |
|
|
7,085 |
|
|
5,107 |
|
Lease
intangible amortization |
|
(2 |
) |
|
127 |
|
|
815 |
|
|
584 |
|
|
231 |
|
Non-routine legal costs/forfeited earnest money received 5 |
|
346 |
|
|
346 |
|
|
1,842 |
|
|
140 |
|
|
1,702 |
|
Debt
financing costs |
|
1,091 |
|
|
1,091 |
|
|
4,716 |
|
|
— |
|
|
4,716 |
|
Unconsolidated JV normalizing items 6 |
|
154 |
|
|
154 |
|
|
83 |
|
|
83 |
|
|
— |
|
Normalized FFO |
$129,415 |
|
$150,884 |
|
$168,226 |
|
$67,019 |
|
$101,207 |
|
Non-real estate depreciation and amortization |
|
577 |
|
|
577 |
|
|
1,780 |
|
|
556 |
|
|
1,224 |
|
Non-cash interest amortization 7 |
|
8,924 |
|
|
11,499 |
|
|
747 |
|
|
747 |
|
|
— |
|
Provision for bad debt, net |
|
457 |
|
|
457 |
|
|
16 |
|
|
16 |
|
|
— |
|
Straight-line rent income, net |
|
(7,715 |
) |
|
(9,908 |
) |
|
(3,743 |
) |
|
(1,327 |
) |
|
(2,416 |
) |
Stock-based compensation |
|
3,666 |
|
|
3,666 |
|
|
5,547 |
|
|
3,356 |
|
|
2,191 |
|
Unconsolidated JV non-cash items 8 |
|
(377 |
) |
|
(377 |
) |
|
(242 |
) |
|
(242 |
) |
|
— |
|
Normalized FFO adjusted for non-cash items |
|
134,947 |
|
|
156,798 |
|
|
172,331 |
|
|
70,125 |
|
|
102,206 |
|
2nd generation TI |
|
(10,147 |
) |
|
(11,763 |
) |
|
(13,635 |
) |
|
(5,051 |
) |
|
(8,584 |
) |
Leasing commissions paid |
|
(8,283 |
) |
|
(8,739 |
) |
|
(7,251 |
) |
|
(3,475 |
) |
|
(3,776 |
) |
Capital expenditures |
|
(16,067 |
) |
|
(17,461 |
) |
|
(11,726 |
) |
|
(4,557 |
) |
|
(7,169 |
) |
Total maintenance capex |
|
(34,497 |
) |
|
(37,963 |
) |
|
(32,612 |
) |
|
(13,083 |
) |
|
(19,529 |
) |
FAD |
$100,450 |
|
$118,835 |
|
$139,719 |
|
$57,042 |
|
$82,677 |
|
Quarterly dividends 9 |
$103,174 |
|
$119,194 |
|
$122,862 |
|
$47,097 |
|
$75,765 |
|
FFO per common share - diluted |
$0.14 |
|
$0.18 |
|
$0.38 |
|
$0.38 |
|
$0.38 |
|
Normalized FFO per common share - diluted |
$0.39 |
|
$0.39 |
|
$0.44 |
|
$0.45 |
|
$0.43 |
|
FFO wtd avg common shares outstanding - diluted
10 |
|
332,819 |
|
|
384,615 |
|
|
383,670 |
|
|
150,545 |
|
|
233,125 |
|
- On July 20, 2022, Legacy HR and Legacy HTA closed the merger of
the two companies, in which Legacy HR was the acquirer under GAAP.
Accordingly, the historic financial statements of the combined
company are those of Legacy HR. Unless otherwise noted, third
quarter data is for the combined company, whether on an actual or
pro forma basis.
- Funds from operations (“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.”
- FFO, Normalized FFO and Funds Available for Distribution
("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 alternatives to net income
attributable to common stockholders as indicators of the Company's
operating performance or as alternatives to cash flow as measures
of liquidity.
- Acquisition and pursuit costs include third party and travel
costs related to the pursuit of acquisitions and developments.
- Non-routine legal costs include expenses related to two
separate disputes; one with a contractor on a $60.6 million
completed construction project and another with a tenant on a
violation of use restrictions. Forfeited earnest money received
related to a disposition that did not materialize.
- Includes the Company's proportionate share of normalizing items
related to unconsolidated joint ventures such as lease intangibles
and acquisition and pursuit costs.
- Includes the amortization of deferred financing costs,
discounts and premiums, and non-cash financing receivable
amortization.
- Includes the Company's proportionate share of straight-line
rent, net and provision for bad debt, net related to unconsolidated
joint ventures.
- Quarterly dividends for the third quarter represent dividends
at the current rate of $0.31 per share multiplied by the weighted
average shares outstanding. Actual dividends paid in the third
quarter were $72.1 million.
- The Company utilizes the treasury stock method which includes
the dilutive effect of nonvested share-based awards outstanding of
787,559 for the three months ended September 30, 2022.
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") 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
GAAP and are 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 less property operating expenses. Cash NOI
excludes non-cash items such as above and below market lease
intangibles, straight-line rent, lease inducements, lease
termination fees, 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. Accordingly, stabilized properties exclude properties
that were recently acquired or disposed of, properties classified
as held for sale, properties undergoing redevelopment, and newly
redeveloped or developed properties.
The Company utilizes the redevelopment classification for
properties where management has approved a change in strategic
direction for such properties through the application of additional
resources including an amount of capital expenditures significantly
above routine maintenance and capital improvement expenditures.
These properties are described in additional detail in Footnote 6
to the Condensed Consolidated Financial Statements.
Any recently acquired property will be included in the same
store pool once the Company has owned the property for eight full
quarters. Newly developed or redeveloped properties will be
included in the same store pool eight full quarters after
substantial completion.
Ron HubbardVice President, Investor RelationsP: 615.269.8290
Healthcare Realty (NYSE:HR)
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