Healthcare Realty Trust Incorporated (NYSE:HR) today announced
results for the third quarter ended September 30, 2023. The
Company reported net loss attributable to common stockholders of
$67.8 million, or $0.18 per diluted common share, for the quarter
ended September 30, 2023. Normalized FFO for the three months
ended September 30, 2023 totaled $148.1 million, or $0.39 per
diluted common share.
The following applies to all same store disclosures reported in
this press release. Subsequent to its merger with Healthcare Trust
of America ("Legacy HTA") on July 20, 2022, the Company began
reporting combined same store results in the third quarter of 2022,
which are now referred to as Merger Combined Same Store. Merger
Combined Same Store includes the Company’s same store properties,
including Legacy HTA properties, that were owned for the full
comparative period, and that meet all elements of the Company’s
same store criteria. The Company presents the combined companies’
same store portfolios to provide an understanding of the operating
performance and growth potential of the combined company.
Salient quarterly highlights include:
- Normalized FFO per share totaled $0.39.
- Merger combined total same store cash NOI for the third quarter
increased 2.3% over the prior year, and 2.8% for the trailing
twelve months ended September 30, 2023.
- Predictive growth measures in the Merger Combined Same Store
portfolio include:
- Average in-place rent increases of 2.8%
- Future annual contractual increases
of 3.0% for leases commencing in the quarter.
- Weighted average MOB cash leasing
spreads of 4.8% on 622,000 square feet renewed:
- 1% (<0% spread)
- 3% (0-3%)
- 77% (3-4%)
- 19% (>4%)
- Tenant retention of 76.1%
- Year-over-year absorption of 56,000 square feet resulted in an
average occupancy increase of 20 basis points to 89.2%.
- Portfolio leasing activity that commenced in the third quarter
totaled 1,139,000 square feet related to 360 leases:
- 692,000 square feet of renewals
- 401,000 square feet of new and 46,000 square feet of expansion
leases
- The Company executed new leases totaling 447,000 square feet in
the quarter that will commence in future periods, an increase of
19% over the second quarter and 86% over the first quarter.
- New leasing momentum for the legacy HTA properties was
particularly strong, representing 62% of activity year-to-date,
while comprising approximately one-half of the multi-tenant
portfolio square footage.
- The multi-tenant leased percentage was 87.2% at September 30,
which was 210 basis points greater than occupancy.
- The multi-tenant Legacy HTA leased percentage was 85.2%, which
was 250 basis points greater than occupancy.
- As of October 23, 2023, the pipeline of new leasing activity
totaled 1.7 million square feet, which includes 16% in the lease
documentation phase, 37% in the proposal and letter of intent
phase, and 47% active prospects in the touring phase.
- During the third quarter, the Company sold five properties
totaling $208.7 million and year-to-date has sold nine properties
totaling $318.3 million. The Company expects to generate $138
million of proceeds from properties under contract that are
expected to close by year-end. An additional $182 million of
proceeds are expected to be generated from properties under letter
of intent to sell with closings expected to be completed in fourth
quarter 2023 and first quarter 2024.
- Net debt to adjusted EBITDA was 6.6 times at the end of the
quarter. Leverage is expected to decline from additional asset
sales and underlying portfolio NOI growth. The Company's variable
rate debt reduced from 14.6% to 13.0% of net debt as of June 30 and
September 30, respectively. In October, the Company executed
interest rate swaps totaling $200 million in anticipation of
expiring interest rate swaps in January 2024.
- A dividend of $0.31 per share was paid
in August. A dividend of $0.31 per share will be paid on November
30, 2023 to stockholders and OP unitholders of record on November
14, 2023.
- On Friday, November 3, 2023, at 12:00
p.m. Eastern Time, Healthcare Realty Trust has scheduled a
conference call to discuss earnings results, quarterly activities,
general operations of the Company and industry trends.
Simultaneously, a webcast of the conference call will be available
to interested parties at
https://investors.healthcarerealty.com/corporate-profile/webcasts
under the Investor Relations section. A webcast replay will be
available following the call at the same address. Conference Call
Access Details: Domestic Dial-In Number: +1 646-904-5544 access
code 681379; All Other Locations: +1 833-470-1428 access code
681379. Replay Information: Domestic Dial-In Number: +1
929-458-6194 access code 207459; All Other Locations: +1
866-813-9403 access code 207459.
Healthcare Realty (NYSE: HR) is a real estate investment trust
(REIT) that owns and operates medical outpatient buildings
primarily located around market-leading hospital campuses. The
Company selectively grows its portfolio through property
acquisition and development. As the first and largest REIT to
specialize in medical outpatient buildings, Healthcare Realty's
portfolio includes more than 700 properties totaling over 40
million square feet concentrated in 15 growth markets.
Additional information regarding the Company, including this
quarter's operations, can be found at www.healthcarerealty.com. 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: the Company's expected results may not be achieved;
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 2022 Annual Report on Form 10-K and in
its other filings with the SEC.
Consolidated Balance Sheets |
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
3Q 2023 |
2Q 2023 |
1Q 2023 |
4Q 2022 |
|
3Q 2022 |
|
|
Real estate properties |
|
|
|
|
|
Land |
$1,387,821 |
|
$1,424,453 |
|
$1,412,805 |
|
$1,439,798 |
|
$1,449,550 |
|
|
|
Buildings and improvements |
11,004,195 |
|
|
11,188,821 |
|
|
11,196,297 |
|
|
11,332,037 |
|
|
11,439,797 |
|
|
|
Lease intangibles |
890,273 |
|
|
922,029 |
|
|
929,008 |
|
|
959,998 |
|
|
968,914 |
|
|
|
Personal property |
12,686 |
|
|
12,615 |
|
|
11,945 |
|
|
11,907 |
|
|
11,680 |
|
|
|
Investment in financing
receivables, net |
120,975 |
|
|
121,315 |
|
|
120,692 |
|
|
120,236 |
|
|
118,919 |
|
|
|
Financing lease right-of-use
assets |
82,613 |
|
|
83,016 |
|
|
83,420 |
|
|
83,824 |
|
|
79,950 |
|
|
|
Construction in progress |
85,644 |
|
|
53,311 |
|
|
42,615 |
|
|
35,560 |
|
|
43,148 |
|
|
|
Land
held for development |
59,871 |
|
|
78,411 |
|
|
69,575 |
|
|
74,265 |
|
|
73,321 |
|
|
|
Total real estate investments |
13,644,078 |
|
|
13,883,971 |
|
|
13,866,357 |
|
|
14,057,625 |
|
|
14,185,279 |
|
|
|
Less
accumulated depreciation and amortization |
(2,093,952 |
) |
|
(1,983,944 |
) |
|
(1,810,093 |
) |
|
(1,645,271 |
) |
|
(1,468,736 |
) |
|
|
Total real estate investments, net |
11,550,126 |
|
|
11,900,027 |
|
|
12,056,264 |
|
|
12,412,354 |
|
|
12,716,543 |
|
|
|
Cash and cash equivalents |
24,668 |
|
|
35,904 |
|
|
49,941 |
|
|
60,961 |
|
|
57,583 |
|
|
|
Assets held for sale, net |
57,638 |
|
|
151 |
|
|
3,579 |
|
|
18,893 |
|
|
185,074 |
|
|
|
Operating lease right-of-use
assets |
323,759 |
|
|
333,224 |
|
|
336,112 |
|
|
336,983 |
|
|
321,365 |
|
|
|
Investments in unconsolidated
joint ventures |
325,453 |
|
|
327,245 |
|
|
327,746 |
|
|
327,248 |
|
|
327,752 |
|
|
|
Other
assets, net and goodwill |
822,084 |
|
|
797,796 |
|
|
795,242 |
|
|
693,192 |
|
|
587,126 |
|
|
|
Total assets |
$13,103,728 |
|
$13,394,347 |
|
$13,568,884 |
|
$13,849,631 |
|
$14,195,443 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
3Q 2023 |
2Q 2023 |
1Q 2023 |
4Q 2022 |
|
3Q 2022 |
|
|
Liabilities |
|
|
|
|
|
Notes and bonds payable |
$5,227,413 |
|
$5,340,272 |
|
$5,361,699 |
|
$5,351,827 |
|
$5,570,139 |
|
|
|
Accounts payable and accrued
liabilities |
204,947 |
|
|
196,147 |
|
|
155,210 |
|
|
244,033 |
|
|
231,018 |
|
|
|
Liabilities of properties held
for sale |
3,814 |
|
|
222 |
|
|
277 |
|
|
437 |
|
|
10,644 |
|
|
|
Operating lease
liabilities |
273,319 |
|
|
278,479 |
|
|
279,637 |
|
|
279,895 |
|
|
268,840 |
|
|
|
Financing lease
liabilities |
74,087 |
|
|
73,629 |
|
|
73,193 |
|
|
72,939 |
|
|
72,378 |
|
|
|
Other
liabilities |
211,365 |
|
|
219,694 |
|
|
232,029 |
|
|
218,668 |
|
|
203,398 |
|
|
|
Total liabilities |
5,994,945 |
|
|
6,108,443 |
|
|
6,102,045 |
|
|
6,167,799 |
|
|
6,356,417 |
|
|
|
|
|
|
|
|
|
Redeemable non-controlling
interests |
3,195 |
|
|
2,487 |
|
|
2,000 |
|
|
2,014 |
|
|
— |
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
Preferred stock, $0.01 par
value; 200,000 shares authorized |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Common stock, $0.01 par value;
1,000,000 shares authorized |
3,809 |
|
|
3,808 |
|
|
3,808 |
|
|
3,806 |
|
|
3,806 |
|
|
|
Additional paid-in
capital |
9,597,629 |
|
|
9,595,033 |
|
|
9,591,194 |
|
|
9,587,637 |
|
|
9,586,556 |
|
|
|
Accumulated other
comprehensive income (loss) |
17,079 |
|
|
9,328 |
|
|
(8,554 |
) |
|
2,140 |
|
|
5,524 |
|
|
|
Cumulative net income
attributable to common stockholders |
1,069,327 |
|
|
1,137,171 |
|
|
1,219,930 |
|
|
1,307,055 |
|
|
1,342,819 |
|
|
|
Cumulative dividends |
(3,684,144 |
) |
|
(3,565,941 |
) |
|
(3,447,750 |
) |
|
(3,329,562 |
) |
|
(3,211,492 |
) |
|
|
Total stockholders' equity |
7,003,700 |
|
|
7,179,399 |
|
|
7,358,628 |
|
|
7,571,076 |
|
|
7,727,213 |
|
|
|
Non-controlling interest |
101,888 |
|
|
104,018 |
|
|
106,211 |
|
|
108,742 |
|
|
111,813 |
|
|
|
Total Equity |
7,105,588 |
|
|
7,283,417 |
|
|
7,464,839 |
|
|
7,679,818 |
|
|
7,839,026 |
|
|
|
Total liabilities and stockholders' equity |
$13,103,728 |
|
$13,394,347 |
|
$13,568,884 |
|
$13,849,631 |
|
$14,195,443 |
|
|
|
Consolidated Statements of Income |
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA |
|
|
|
|
|
|
|
|
3Q 2023 |
2Q 2023 |
1Q 2023 |
4Q 2022 |
|
|
Revenues |
|
|
|
|
Rental income |
$333,335 |
$329,680 |
$324,093 |
$329,399 |
|
|
Interest income |
4,264 |
4,233 |
4,214 |
4,227 |
|
|
Other
operating |
4,661 |
4,230 |
4,618 |
4,436 |
|
|
|
342,260 |
338,143 |
332,925 |
338,062 |
|
|
Expenses |
|
|
|
|
Property operating |
131,639 |
125,395 |
122,040 |
117,009 |
|
|
General and
administrative |
13,396 |
15,464 |
14,935 |
14,417 |
|
|
Acquisition and pursuit costs
1 |
769 |
669 |
287 |
92 |
|
|
Merger-related costs |
7,450 |
(15,670) |
4,855 |
10,777 |
|
|
Depreciation and amortization |
182,989 |
183,193 |
184,479 |
185,275 |
|
|
|
336,243 |
309,051 |
326,596 |
327,570 |
|
|
Other income (expense) |
|
|
|
|
Interest expense before
merger-related fair value |
(55,637) |
(54,780) |
(52,895) |
(52,464) |
|
|
Merger-related fair value adjustment |
(10,667) |
(10,554) |
(10,864) |
(11,979) |
|
|
Interest expense |
(66,304) |
(65,334) |
(63,759) |
(64,443) |
|
|
Gain on sales of real estate
properties |
48,811 |
7,156 |
1,007 |
73,083 |
|
|
Gain on extinguishment of
debt |
62 |
— |
— |
119 |
|
|
Impairment of real estate
assets and credit loss reserves |
(56,873) |
(55,215) |
(31,422) |
(54,452) |
|
|
Equity(loss) gain from
unconsolidated joint ventures |
(456) |
(17) |
(780) |
89 |
|
|
Interest and other income (expense), net |
139 |
592 |
547 |
(1,168) |
|
|
|
(74,621) |
(112,818) |
(94,407) |
(46,772) |
|
|
Net loss |
$(68,604) |
$(83,726) |
$(88,078) |
$(36,280) |
|
|
Net
loss attributable to non-controlling interests |
760 |
967 |
953 |
516 |
|
|
Net loss attributable to common stockholders |
$(67,844) |
$(82,759) |
$(87,125) |
$(35,764) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share |
$(0.18) |
$(0.22) |
$(0.23) |
$(0.10) |
|
|
Diluted earnings per common
share |
$(0.18) |
$(0.22) |
$(0.23) |
$(0.10) |
|
|
|
|
|
|
|
Weighted average common shares
outstanding - basic |
378,925 |
378,897 |
378,840 |
378,617 |
|
|
Weighted average common shares
outstanding - diluted 2 |
378,925 |
378,897 |
378,840 |
378,617 |
|
|
1. |
Includes third
party and travel costs related to the pursuit of acquisitions and
developments. |
2. |
Potential common shares are not included in the computation of
diluted earnings per share when a loss exists, as the effect would
be an antidilutive per share amount. As a result, the Company's OP
totaling 4,042,993 units was not included. |
Reconciliation of FFO, Normalized FFO and FAD
1,2,3 |
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA |
|
|
|
|
|
|
3Q 2023 |
2Q 2023 |
1Q 2023 |
|
4Q 2022 |
|
|
Net loss attributable to common stockholders |
$(67,844) |
$(82,759) |
$(87,125) |
$(35,764) |
|
|
Net loss attributable to
common stockholders per diluted share 3 |
$(0.18) |
$(0.22) |
$(0.23) |
$(0.10) |
|
|
|
|
|
|
|
Gain on sales of real estate assets |
(48,811) |
|
(7,156) |
|
(1,007) |
|
(73,083) |
|
|
Impairments of real estate
assets |
56,873 |
|
55,215 |
|
26,227 |
|
54,452 |
|
|
Real estate depreciation and
amortization |
185,143 |
|
185,003 |
|
186,109 |
|
186,658 |
|
|
Non-controlling loss from
partnership units |
(841) |
|
(1,027) |
|
(1,067) |
|
(382) |
|
|
Unconsolidated JV depreciation and amortization |
4,421 |
|
4,412 |
|
4,841 |
|
4,020 |
|
|
FFO adjustments |
$196,785 |
$236,447 |
$215,103 |
$171,665 |
|
|
FFO
adjustments per common share - diluted |
$0.51 |
$0.62 |
$0.56 |
$0.45 |
|
|
FFO |
$128,941 |
$153,688 |
$127,978 |
$135,901 |
|
|
FFO per common share -
diluted |
$0.34 |
$0.40 |
$0.33 |
$0.35 |
|
|
|
|
|
|
|
Acquisition and pursuit
costs |
769 |
|
669 |
|
287 |
|
92 |
|
|
Merger-related costs |
7,450 |
|
(15,670) |
|
4,855 |
|
10,777 |
|
|
Lease intangible
amortization |
213 |
|
240 |
|
146 |
|
137 |
|
|
Non-routine legal
costs/forfeited earnest money received |
— |
|
275 |
|
— |
|
194 |
|
|
Debt financing costs |
(62) |
|
— |
|
— |
|
625 |
|
|
Allowance for credit losses
4 |
— |
|
— |
|
8,599 |
|
— |
|
|
Merger-related fair value
adjustment |
10,667 |
|
10,554 |
|
10,864 |
|
11,979 |
|
|
Unconsolidated JV normalizing items 5 |
90 |
|
93 |
|
117 |
|
96 |
|
|
Normalized FFO adjustments |
$19,127 |
$(3,839) |
$24,868 |
$23,900 |
|
|
Normalized FFO adjustments per common share - diluted |
$0.05 |
$(0.01) |
$0.06 |
$0.06 |
|
|
Normalized FFO |
$148,068 |
$149,849 |
$152,846 |
$159,801 |
|
|
Normalized FFO per common
share - diluted |
$0.39 |
$0.39 |
$0.40 |
$0.42 |
|
|
|
|
|
|
|
Non-real estate depreciation
and amortization |
475 |
|
802 |
|
604 |
|
624 |
|
|
Non-cash interest
amortization, net 6 |
1,402 |
|
1,618 |
|
682 |
|
2,284 |
|
|
Rent reserves, net |
442 |
|
(54) |
|
1,371 |
|
(100) |
|
|
Straight-line rent income,
net |
(8,470) |
|
(8,005) |
|
(8,246) |
|
(9,873) |
|
|
Stock-based compensation |
2,556 |
|
3,924 |
|
3,745 |
|
3,573 |
|
|
Unconsolidated JV non-cash items 7 |
(231) |
|
(316) |
|
(227) |
|
(316) |
|
|
Normalized FFO adjusted for non-cash items |
144,242 |
|
147,818 |
|
150,775 |
|
155,993 |
|
|
2nd generation TI |
(21,248) |
|
(17,236) |
|
(8,882) |
|
(13,523) |
|
|
Leasing commissions paid |
(8,907) |
|
(5,493) |
|
(7,013) |
|
(7,404) |
|
|
Capital expenditures |
(14,354) |
|
(8,649) |
|
(8,946) |
|
(25,669) |
|
|
Total maintenance capex |
(44,509) |
|
(31,378) |
|
(24,841) |
|
(46,596) |
|
|
FAD |
$99,733 |
$116,440 |
$125,934 |
$109,397 |
|
|
Quarterly
dividends |
119,456 |
|
$119,444 |
|
$119,442 |
|
$119,323 |
|
|
FFO wtd avg common
shares outstanding - diluted 8 |
383,428 |
|
383,409 |
|
383,335 |
|
383,228 |
|
|
1. |
Funds from operations (“FFO”) and FFO per share are operating
performance measures adopted by 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.” |
2. |
FFO, Normalized FFO and Funds
Available for Distribution ("FAD") do not represent cash generated
from operating activities determined in accordance with GAAP 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. |
3. |
Potential common shares are not
included in the computation of diluted earnings per share when a
loss exists, as the effect would be an antidilutive per share
amount. |
4. |
In Q1 2023, allowance for credit
losses included a $5.2 million credit allowance for a mezzanine
loan included in "Impairment of real estate and credit loss
reserves" on the Statement of Income and $3.4 million reserve
included in “Rental Income” on the Statement of Income for
previously deferred rent and straight line rent for three skilled
nursing facilities. |
5. |
Includes the Company's
proportionate share of normalizing items related to unconsolidated
joint ventures such as lease intangibles and acquisition and
pursuit costs. |
6. |
Includes the amortization of
deferred financing costs, discounts and premiums, and non-cash
financing receivable amortization. |
7. |
Includes the Company's
proportionate share of straight-line rent, net and rent reserves,
net related to unconsolidated joint ventures. |
8. |
The Company utilizes the treasury
stock method, which includes the dilutive effect of nonvested
share-based awards outstanding of 432,597 for the three months
ended September 30, 2023. Also includes the diluted impact of
4,042,993 OP units outstanding. |
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 rent reserves, 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.
Merger Combined Cash NOI and Merger Combined 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 Merger Combined Cash NOI as rental income and
less property operating expenses. Merger Combined 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. Merger Combined Cash NOI is historical and not
necessarily indicative of future results.
Merger Combined Same Store Cash NOI compares Merger Combined
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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Healthcare Realty (NYSE:HR)
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