Healthcare Realty Trust Provides Update on Capital Allocation Progress

Rhea-AI Summary

Healthcare Realty Trust (NYSE:HR) announced significant progress in its capital allocation strategy. The company entered a joint venture with KKR to invest in medical outpatient buildings, contributing 10 properties and generating $227 million. Additional contributions are expected to bring the total proceeds to over $300 million, with KKR committing up to $600 million, raising the JV's potential value to $1 billion.

Healthcare Realty retains a 20% interest and manages the JV. Other transactions under contract are expected to generate over $300 million by early August. Since April 1, 2024, the company has repurchased $175 million in shares, aiming to improve dividend coverage and accelerate FFO growth.

Positive

• Generated $227 million in proceeds from contributions to the KKR JV.
• Expecting additional contributions to bring total proceeds to over $300 million.
• KKR has committed up to $600 million to the JV, increasing its potential value to $1 billion.
• Retains a 20% interest and manages the JV, ensuring continued operational control.
• Additional transactions under contract expected to generate over $300 million by early August.
• Repurchased shares totaling over $175 million since April 1, 2024.
• Capital allocation strategy on track to improve dividend coverage and accelerate FFO growth.

Negative

• No immediate increase in revenue from the KKR JV contributions reported.
• Potential risk of over-reliance on JV contributions for future financial stability.
• Significant share repurchase could affect liquidity if not balanced properly.

Insights

Financial Analyst

Healthcare Realty Trust's announcement reveals significant capital allocation activities which are key for assessing the company’s financial health. The joint venture with KKR, a major global investment firm, is poised to contribute substantial proceeds. With an initial contribution of $227 million and expectations to exceed $300 million, this partnership will deepen the company’s asset base.

Moreover, the commitment from KKR to inject up to $600 million further enhances the JV's potential value, reaching approximately $1 billion. This indicates strong confidence from a renowned financial entity in Healthcare Realty Trust’s assets and management. The expected proceeds will likely be used for stock repurchases, a strategy to increase shareholder value and signal management's belief that the company's shares are undervalued. The repurchase of $175 million in shares since April 1, 2024, suggests robust execution of this plan.

From a financial perspective, the focus on improving dividend coverage and accelerating Funds From Operations (FFO) growth is pivotal. FFO is a critical metric for real estate investment trusts (REITs), reflecting their operational performance by excluding depreciation and amortization, which are large non-cash expenses in real estate.

In summary, proceeds and new capital are anticipated to bolster financial flexibility, potentially leading to increased dividends or further investments in high-quality assets, which could drive future growth.

Market Research Analyst

The strategic alignment with KKR offers a promising roadmap for Healthcare Realty Trust. By partnering with an influential player, they are positioned to leverage KKR’s extensive network and investment acumen. The joint venture focuses on medical outpatient buildings, a segment expected to see continued demand due to aging populations and a shift towards outpatient care.

Managing the joint venture and retaining a 20% interest keeps Healthcare Realty Trust heavily involved, ensuring control over day-to-day operations and leasing. This level of involvement helps safeguard against quality erosion and aligns the interests of both parties.

Strategic joint ventures in the healthcare real estate space often lead to enhanced operational efficiencies and expanded market reach. The commitment of up to $600 million from KKR highlights the scalability of the project and underscores the potential for substantial capital appreciation.

Additionally, the intention to use proceeds for share repurchases aligns with efforts to enhance shareholder returns. Share buybacks reduce the number of outstanding shares, potentially increasing earnings per share (EPS) and market value over time.

Overall, the expanded capital base and targeted reinvestment strategies signal a positive outlook for Healthcare Realty Trust’s market positioning.

$227 million of proceeds from contributions to KKR JV

Repurchased shares totaling over $175 million

NASHVILLE, Tenn., June 03, 2024 (GLOBE NEWSWIRE) -- Healthcare Realty Trust Incorporated (NYSE:HR) announced in early May that it had entered into a strategic joint venture with KKR (“KKR JV”) to own and invest in quality medical outpatient buildings. To date, the Company has contributed 10 properties to the KKR JV that have generated $227 million of proceeds. The Company expects to contribute additional properties to the KKR JV that will bring total proceeds in excess of $300 million. Beyond the initial property contributions, KKR has committed up to an additional $600 million of capital to increase the potential value of the JV to $1 billion. Healthcare Realty will retain a 20% interest and manage the JV, as well as continue to oversee day-to-day operations and leasing of the properties.

Separate from the KKR JV, the Company has additional transactions under contract and letters of intent that are expected to generate further proceeds of more than $300 million by early August. Proceeds from the KKR JV as well as additional transactions are expected to be used to repurchase shares on a leverage neutral basis. The Company has repurchased shares totaling over $175 million since April 1, 2024.

“We are making progress on our near-term capital allocation priorities,” stated Todd Meredith, President and CEO. “Combined with operational momentum, our capital allocation execution is on track to improve dividend coverage and accelerate FFO growth.”

About Healthcare Realty

Healthcare Realty 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 nearly 700 properties totaling over 40 million square feet concentrated in 15 growth markets. Additional information regarding the Company can be found at www.healthcarerealty.com.

Ron Hubbard
Vice President, Investor Relations
P: 615.269.8290

In addition to the historical information contained within, the matters discussed in this press release may contain forward-looking statements that involve risks and uncertainties. These risks are discussed in filings with the Securities and Exchange Commission by Healthcare Realty, including its Annual Report on Form 10-K for the year ended December 31, 2023 under the heading “Risk Factors,” and in its Quarterly Reports filed thereafter and in the Company’s other SEC filings. Forward-looking statements represent the Company’s judgment as of the date of this release. The Company disclaims any obligation to update forward-looking statements.

FAQ

What recent joint venture has Healthcare Realty entered?

Healthcare Realty has entered a joint venture with KKR to invest in medical outpatient buildings.

How much has Healthcare Realty generated from contributions to the KKR JV?

Healthcare Realty has generated $227 million from contributions to the KKR JV.

What is the expected total proceeds from the KKR JV contributions?

The expected total proceeds from the KKR JV contributions is over $300 million.

How much additional capital has KKR committed to the joint venture?

KKR has committed up to an additional $600 million to the joint venture.

How much in shares has Healthcare Realty repurchased since April 1, 2024?

Healthcare Realty has repurchased over $175 million in shares since April 1, 2024.

What is Healthcare Realty's objective with its capital allocation strategy?

Healthcare Realty aims to improve dividend coverage and accelerate FFO growth with its capital allocation strategy.