Healthcare Realty Trust Incorporated (HR)

HR 
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Healthcare Realty Trust Inc. (HR)

Q1 2009 Earnings Call

May 12, 2009 10:00 am ET

Executives

David R. Emery - Chairman and Chief Executive Officer

Scott W. Holmes - Chief Financial Officer

B. Douglas Whitman II - Chief Operating Officer

Bethany Mancini - Corporate Communications

Gabrielle Andres - Corporate Communications

Analysts

Jerry Doctrow - Stifel Nicolaus & Co.

Rosemary Pugh - Green Street Advisors

Robert Mains - Morgan, Keegan & Co.

Todd Stender - Keefe, Bruyette & Woods

Michael Mueller - J.P. Morgan

Omotayo Okusanya - UBS

David Aubuchon - Robert W. Baird & Co.

Presentation

Operator

Welcome to the Healthcare Realty Trust’s first quarter financial results conference call. (Operator Instructions). Now, I would like to turn the conference over to Mr. David R. Emery, Chairman and CEO.

David R. Emery

Good morning everyone. Joining us on the call today are Scott Holmes, Chief Financial Officer, Doug Whitman Chief Operating Officer and Bethany Mancini and Gabrielle Andres in communications. Now, I’d ask Ms. Andres to read the disclaimer.

Gabrielle Andres

Except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These risks are more specifically discussed in our Form 10-K filed with the SEC for the year ended December 31, 2008, and the Form 10-Q filed with the SEC for the quarter ended March 31, 2009. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material.

The matters discussed in this call may also contain certain non-GAAP financial measures such as funds from operations, FFO or FFO per share, funds available for distribution, FAD or FAD per share. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the first quarter ended March 31, 2009. The company's earnings press release, supplemental information, Form 10-Q and 10-K are available on the company's website.

David R. Emery

We’re pleased to have completed another sound quarter. Occupancy rates, rental rates, and NOI have remained solid consistent with the company’s portfolio performance over the last year. Despite the sluggish economy, healthcare employment trends are still increasing and our core portfolio results continue to pose a deterioration seen in other sectors of the industry.

Rental rate on renewals averaged 9.9% for the first quarter and occupancy remains steady at 91%. We certainly have not seen any washing away of our company’s pricing power. Regarding investments, our recent acquisitions are performing as we thought they would, and leasing at our new developments has shown excellent progress. Notably, the Kaiser lease in Colorado Springs is certainly a dull weather tenant that would attract complement reposition practices. Kaiser is Colorado’s oldest and largest group practice providing healthcare in a network of 219 primary care physicians and 534 specialists in Colorado Springs. In fact, we are already in discussions about expanding their space.

There is no predictable pattern to leasing, and sometimes our assumptions for facility stabilization can change; for instance, our development on Baylor’s downtown campus is now estimated to stabilize about a year ahead of the original schedule. Currently, the completed development that are being stabilized but are less than 50% leased comprised only 3% of the company’s portfolio.

With most of our developments now slated for completion over the next year and given that we expect more opportunities for acquisition on the horizon, it is important to continue our focus on sources of funding which could impact future growth.

To enhance liquidity, management has initiated offerings on secured financing from about $150 million to $250 million on existing assets. We expect to close on these financings by the third quarter. In recent weeks, credit markets have begun to improve with unsecured bond credit have been tightened dramatically, hopefully a catalyst for improvement in the equity markets in the months to come.

Lastly, since December, we have had ongoing dialogue with participants and others concerning the renewal of our bank credit facility. We are pleased with their indications and anticipate a well executed renewal of the facility later this year. Our conservative stance and simple capital structure have served us well over time, and we are reassured by our core fundamentals and the strength that the company has shown in renewing leases, securing acquisitions, and completing development. It seems at this time that in the months ahead there could well be a return to normalcy in the capital markets and a more favorable backdrop for executing the company’s long-term strategy and maintaining its low business risk profile.

Now, I’d like to ask Ms. Mancini to give us an update on the trends in healthcare as most of you know there’s been a lot into press regarding healthcare in recent months.

Bethany Mancini

Hospital companies continue to report favorable operating fundamental. First quarter results have been in line with expectations or better as higher revenues and cost control efforts resulted in expanding profit margins. With relatively flat inpatient volumes, companies remain focused on retaining and recruiting physicians to improve admissions and enhance revenue growth from outpatient services.

Despite positive first quarter results, hospital company management teams remain cautious in the face of the difficult economy, the potential for lagging effects from higher unemployment on patient volumes and bad debt expense, and uncertainties surrounding healthcare reform initiatives in Congress.

Headlines have reported series of declining volumes from patients foregoing elective procedures. While elective care may decline in the near term, physicians serve most importantly as the front door to the hospital. The first stops were the 117 people per thousand were admitted to the hospital every year, a number which has remained relatively constant regardless of economic cycle.

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