Healthcare Realty Trust Inc (HR) Q3 2025 Earnings Call Highlights: Strong Leasing Activity and ...

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Normalized FFO per Share: $0.41, a 5% increase year-over-year. Same Store NOI Growth: 5.25% average over the last two quarters. Same Store Occupancy: Increased by 180 basis points. Net Debt to Adjusted EBITDA: Reduced to below 6 times. Leasing Activity: 1.6 million square feet of executed leases, including 441,000 square feet of new leases. Tenant Retention: Increased to nearly 89%, the highest in 6 years. Annual Escalators: Improved to 3.1% across the portfolio. Disposition Activity: $500 million of assets sold year-to-date at a blended cap rate of 6.5%. Development Pipeline: Two active projects with expected stabilized NOI of approximately $8 million. Redevelopment Portfolio: Added 5 assets with a total budget of approximately $60 million. Updated 2025 FFO Guidance: Increased to a range of $1.59 to $1.61 per share. Same Store Cash NOI Growth Guidance: Updated to 4% to 4.75%. G&A Expenses: Normalized G&A of $9.7 million for the quarter. Leverage: Decreased to 5.8 times.

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Release Date: October 31, 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) reported strong same-store NOI growth averaging 5.25% over the last two quarters. Occupancy rates have increased by 180 basis points, reaching an all-time high of nearly 93% across top 100 metros. The company has a robust leasing pipeline of 1.1 million square feet, with two-thirds in the LOI or lease documentation phase. HR has successfully reduced its net debt to EBITDA by half a turn, improving its leverage profile. The company has raised its FFO and same-store guidance, with normalized FFO reported at $0.41 per share for the quarter.

Negative Points

The company is still in the process of completing its strategic dispositions, with $700 million of assets under contract or LOI. There is a potential earnings drag from redevelopment projects, as some assets may require significant capital investment. The transaction market for outpatient medical is heating up, which could increase competition for acquisitions. HR's balance sheet was previously overlevered, and while improvements have been made, further deleveraging is necessary. The company faces challenges in maintaining high retention rates and pushing lease economics in a tightening supply environment.

Q & A Highlights

Q: Can you provide insights on the NOI impact over the next few quarters, considering asset sales and redevelopment activities? A: Peter Scott, President and CEO, explained that the stabilized portfolio is expected to grow at 3-4% year-over-year. The incremental $50 million NOI upside over the next three years will come from redevelopments and lease-ups. Half of this is expected from redevelopments, with 5 assets added this quarter and more expected. The other half will come from lease-ups, contributing to better-than-expected NOI growth.

Story Continues

Q: Has the increase in health system leasing been driven by renewals or new leasing activity? A: Robert Hull, COO, noted that the increase is due to a combination of health systems expanding their market share and improved tenant relations. The trend of moving services to outpatient settings continues, and the revamped asset management platform has enhanced dialogue with health systems.

Q: Why was the cap rate assumption for dispositions lowered by 25 basis points, and what does this indicate about the remaining asset sales? A: Peter Scott stated that the remaining assets are skewed towards those with value-add components, which take longer to close. The mix includes legacy office assets, and the cap rate adjustment reflects the nature of these remaining assets rather than a change in market conditions.

Q: With significant medical office dispositions in the market, does this indicate any concerns about the sector's future? A: Peter Scott emphasized that the strong bid for outpatient medical assets in private markets is positive. The focus on dispositions is to optimize the portfolio for future NOI growth and balance sheet improvement. The company aims to shift from a defensive to an offensive strategy soon.

Q: What is the strategy for adding assets to the redevelopment pool, and are these currently occupied? A: Peter Scott explained that most assets added to the redevelopment pool are currently vacant or have near-term lease expirations. The focus is on investing capital to secure long-term leases with health systems, with minimal tenant vacates expected.

Q: How does Healthcare Realty Trust plan to leverage its ATM equity program and share buybacks? A: Peter Scott clarified that while the ATM program is in place, there are no immediate plans to issue equity at current stock levels. The focus is on using balance sheet capacity for strategic investments, primarily through joint ventures and selective acquisitions.

Q: What changes have been observed in the buyer pool for medical office buildings since the start of the disposition program? A: Ryan Crowley, CIO, noted that buyer demand remains strong, driven by improved lending conditions and private institutional capital. Health systems have also increased their acquisitions, contributing to a diverse buyer mix.

Q: What is the expected timeline for margin improvement and occupancy levels? A: Peter Scott indicated that margin and occupancy improvements are progressing faster than anticipated, with current occupancy at 91% and margins around 64-65%. The focus is on organic leasing and expense controls to achieve further improvements.

Q: How is Healthcare Realty Trust addressing the 2026 lease maturities, and what opportunities exist for escalators? A: Robert Hull mentioned that the company is achieving escalators above 3% on new leases and renewals. With tightening supply and improved portfolio quality, there is potential to increase escalators further in 2026.

Q: What is the strategy for development and redevelopment projects, and what levels are considered optimal? A: Peter Scott stated that new developments will only commence with significant pre-leasing. Redevelopment projects are prioritized for reinvestment, with expected yields of 9-12% cash on cash. The company aims to maintain around 25 redevelopment projects, balancing capital investment with free cash flow.

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

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