Healthcare Realty Trust Inc (HR)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 showed operational momentum: Normalized FFO/share rose to $0.41 (+$0.02 q/q; +$0.03 y/y), same‑store cash NOI grew 5.1% y/y (highest in 9 years), and same‑store occupancy increased 40 bps sequentially to 90.0% .
• Mixed vs estimates: Revenue modestly beat consensus while GAAP EPS and NAREIT FFO/share missed (GAAP loss reflects impairments); management raised 2025 Normalized FFO and same‑store NOI guidance, while lowering GAAP EPS and NAREIT FFO guidance to reflect higher dispositions and non‑cash items .
• Strategic reset advanced: $182.4M of dispositions closed in Q2+July (YTD $210.5M at 6.2% cap), ~$700M under contract/LOI; revolver extended to 2030, leverage run‑rate 6.0x with YE target 5.4x–5.7x; dividend right‑sized 23% to $0.24 to fund ~$300M of RTO/redevelopment over 3 years (targeting ~$50M NOI uplift) .
• Stock catalysts: credible plan execution (lease‑up/RTO/redevelopment), accelerated dispositions at ~7% caps, leverage to mid‑5x, and tangible G&A/property efficiency savings; watch for dilution timing vs. raised Normalized FFO trajectory and improving occupancy .

What Went Well and What Went Wrong

• What Went Well

  • “Second highest new leasing quarter in the last three years” with 1.5M sf executed (452k sf new); SNO pipeline ~610k sf supports 2H occupancy gains .
  • Same‑store cash NOI +5.1% y/y (best in 9 years), same‑store margin 64.3%, and sequential occupancy +40 bps to 90.0%; tenant retention 83% and cash leasing spreads +3.3% .
  • Strategic/financial actions: revolver extended to 2030, term loan extensions added; run‑rate Net Debt/Adj EBITDA 6.0x with YE path to 5.4x–5.7x; Normalized FFO guidance raised to $1.57–$1.61 .
  • Management quote: “We have the best‑in‑class outpatient medical portfolio…HR 2.0 will be an operations‑oriented culture where earnings growth is paramount…capital allocation is initially prioritized towards accretive reinvestment into our existing portfolio.” .

• What Went Wrong

  • GAAP net loss widened to $(0.45)/share on impairments; NAREIT FFO/share declined q/q to $0.34; revenue declined y/y given dispositions and portfolio pruning .
  • Estimate optics: GAAP EPS and NAREIT FFO/share missed S&P consensus; Normalized FFO strength highlights divergence between non‑cash items and core operations [GetEstimates Q2 2025]*.
  • Guidance mix: GAAP EPS and NAREIT FFO guidance moved lower (impairments/disposition effects), even as Normalized FFO and same‑store NOI were raised; investor focus needed on timing of dilution vs. lease‑up benefits .

Financial Results

• KPIs and Operating Metrics
  • Same‑store cash NOI growth: 5.1% y/y; YTD 3.9% . Q1 2025 same‑store cash NOI growth was 2.3% (tough comp/weather) .
  • Same‑store occupancy (period end): 90.0% (vs 89.6% Q1; 89.0% y/y) .
  • Same‑store cash NOI margin: 64.3% .
  • Leasing: Total Q2 executed 1.5M sf; new leases 452k sf; retention 83%; cash leasing spreads +3.3%; WALT 5.3 yrs, avg escalator 3.2% .
  • Dispositions: $182.4M closed in Q2+July; YTD $210.5M at 6.2% cap; ~$700M under contract/LOI .

Notes: Asterisked consensus values are from S&P Global; Values retrieved from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Healthcare Realty 2.0 will be an operations‑oriented culture where earnings growth is paramount, strong tenant relationships are essential…capital allocation is initially prioritized towards accretive reinvestment into our existing portfolio.” — Peter Scott, CEO .
• “We have already achieved our initial goal of at least $10M in run‑rate G&A savings…through headcount reduction, office expense savings, and reduction in Board size.” — Peter Scott .
• “We estimate approximately $300M of capital investment [RTO/redevelopment] over the next three years…to generate up to $50M of incremental NOI.” — Peter Scott .
• “We raised our 2025 Normalized FFO/share outlook by $0.01 at the midpoint to $1.57–$1.61…alongside a 25 bps increase in same‑store NOI guidance.” — CFO Austen Helfrich .
• “With the sale of the disposition portfolio, we expect net debt to EBITDA to be in the mid‑5x area by year end.” — Peter Scott .

Q&A Highlights

• Lease‑up upside and funding: ~$50M NOI uplift requires ~$300M capex over 3 years; primarily lease‑up (70%→90% occupancy) with selective rent lift; dividend cut pre‑funds growth; sale proceeds are fungible .
• Dispositions cadence/impact: ~$1.2B at 7% cap; primary dilution ($0.06) expected in 2026 as proceeds repay ~5% debt; mix spans on/off‑campus, single/multi‑tenant; exiting weak, non‑scale markets .
• Buyer pool & pricing: Deeper bid lists, competitive final rounds; banks active at ~5.6–low‑6% all‑in; health systems’ direct acquisitions rising, often strategic and price‑insensitive .
• Occupancy trajectory: Target 92–93% over time via portfolio optimization, improved relationships, and reinvestment; same‑store already at 90.0% (highest since ~2016) .
• Capitalized interest/redevelopment: Higher now with ~1.9M sf in redevelopment; cap interest likely stays around current level as projects ramp .

Estimates Context

• Q2 2025 actuals vs S&P consensus:
  • Revenue $297.5M vs $293.2M estimate (beat)* .
  • GAAP EPS $(0.45) vs $(0.067) estimate (miss; largely impairment‑driven)* .
  • NAREIT FFO/share $0.34 vs $0.394 estimate (miss)* .
  • Note: Normalized FFO/share was $0.41, up q/q and y/y, but consensus tracked NAREIT FFO/share.*
• Forward (context): Q3–Q4 2025 FFO/share (REIT) consensus ~0.398–0.399; revenue consensus Q3–Q4 ~$290.4M/$283.5M, reflecting disposition headwinds and lease‑up lag.*
• Implication: Street likely lifts Normalized FFO trajectory and same‑store NOI on execution, while GAAP/FFO (REIT) carry non‑cash and disposition dilution; model mix matters (Normalized FFO better captures operations).*

Notes: Asterisked values from S&P Global; Values retrieved from S&P Global.

Key Takeaways for Investors

• Execution bar is now clear: lease‑up/RTO/redevelopment spend (~$300M) versus timing/dilution from ~$1.2B dispositions; successful delivery supports YE leverage 5.4x–5.7x and multiple re‑rating .
• Near‑term trading lens: Expect noise in GAAP/FFO (REIT) from impairments/dispositions; focus on Normalized FFO, same‑store NOI, occupancy gains, and leasing KPIs (retention/spreads/WALT) .
• Dividend cut is offensive, not defensive: lowers payout, mitigates refi risk, and self‑funds high‑ROI internal growth (RTO ~15% IRR; redevelopment 9–12% yields) .
• Health system alignment is a differentiator: rising share of leasing with systems and stronger C‑suite/local ties should sustain demand and provide off‑market growth optionality .
• Watch list into 2H: pace and pricing of asset sales; SNO conversion; occupancy trajectory toward 92–93%; delivery of $10M+ G&A savings and property‑level efficiencies .
• Valuation frame: HR trades at a discount to peers per management; successful plan execution (growth + de‑levering) is the likely catalyst to narrow the gap .

Supporting Detail and Additional Data

• Balance sheet progress: Revolver recast to 2030; term loan options extended; near‑term maturities through 2026 cut to ~$600M; liquidity ~$1.2B through July .
• Q2 leasing highlights: HCA‑aligned CLS Health (24k sf, Houston redevelopment), UC Irvine Health (23k sf), Texas Children’s (42k sf renewal) .
• FAD/payout: FAD $115.4M; prior payout ~96%; right‑sized dividend targets ~80% FAD payout .

Notes: All company results and commentary are sourced from HR’s Q2 2025 8‑K, supplemental, and earnings call as cited. Asterisked consensus/estimate values are from S&P Global; Values retrieved from S&P Global.