Healthcare Realty Trust Incorporated (HR)

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Healthcare Realty Trust, Inc. (HR)

Q2 2009 Earnings Call

August 11, 2009 10:00 am ET


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


Rich Anderson – BMO Capital Markets

Jerry Doctrow - Stifel Nicolaus & Co.

Robert Mains - Morgan, Keegan & Co.

Michael Mueller - J.P. Morgan

Jim Sullivan – Green Street Advisors

David Aubuchon - Robert W. Baird & Co.



Welcome to the Healthcare Realty Trust’s second quarter financial results conference call. (Operator Instructions) Now, I would like to turn the conference over to Mr. David R. Emery. Mr. Emery please go ahead.

David 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, Ms. Andres will 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 June 30, 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 second quarter ended June 30, 2009. The company's earnings press release, supplemental information, Form 10-Q and 10-K are available on the company's website.


David Emery

Thank you. The company had another stable quarter with rental rate increases averaging 7.7% on renewals and an overall occupancy of 91% reinforcing we believe the defensive nature of core portfolio of outpatient and medical office properties.

Our development and acquisition activities continue to be robust with over $300 million of new investments being reviewed and about $175 million under construction. I am particularly pleased with the progress made during the quarter on the renewal of the bank credit facility and the commitment indications we have received. We expect the renewal will proceed smoothly in the coming weeks.

As was recently announced we were delighted with the outcome of the secured financing effort and working with the folks at Holiday Fenoglio Fowler. The company received over $600 million in offers from nearly a dozen lenders. Establishing our relationship with the venerable mortgage lender, TIAA, the company has expanded its funding options for worthy investments in the years to come.

Our solid capital position supports our strategy to increase acquisitions in the coming months. In fact, we believe more activity will occur in future quarters than we have seen in several years. Historically the best investment margins follow an overheated real estate market.

Health insurance reform is still dominating headlines and we expect given the current legislative environment that changes will most likely be incremental and a net positive for our business model which is focused on properties that have lower cost setting for healthcare delivery. Any legislative program that increases the insured populace will result in a need for more physicians and treatment facilities. A recent published report estimated that expanding coverage could generate a need for more than 200 new medical office buildings.

We believe that Healthcare Realty’s facilities will continue to serve a strategic role on hospital campuses particularly as health systems enhance their physician recruitment and outpatient initiatives while looking to preserve capital through investment partnerships. With the continued positive performance of Healthcare Realty’s core portfolio and it strong balance sheet the company is well positioned to execute its growth plans while maintaining its low business risk profile.

Now I would like to turn it over to Ms. Mancini to expand on the trends in healthcare. Bethany?

Bethany Mancini

Thank you David. The healthcare industry continues to prove its stability, even profitability, despite sustained economic pressure, high unemployment and uncertain surround health insurance reform. Hospital companies reported positive earnings for the second quarter with surprisingly stable volume and bad debt expense. Patients continue to follow long-established demand patterns for hospital and physician services which drives the low risk, need driven dynamics of medical office real estate.

The CMS has released its 2010 ruling for Medicare reimbursement to healthcare providers although Congress will likely change these payment rates as part of a health insurance bill later this year. Payments to physicians formulated to decline 21.5% are at the forefront of the Congressional agenda and should end up flat to slightly positive for 2010. Final rulings for Medicare payments to acute care hospitals and other providers are mostly in line or better than proposed rules and put off payment cuts necessary to catch up with over spending for past years now sustained beyond 2011.

The political sensitivity of healthcare is a dynamic that tends to offset reimbursement risk and ensures consistent growth in payments over time. The details of health insurance reform are continuing to be worked out in the Senate Finance Committee and the House committee Health Reform draft has been prepared to take to the floor for a vote in September. While significant debate surrounds the various reforms under consideration, it is likely that the nation’s healthcare spending and the government’s responsibility for funding that spending currently at 46% of $2.2 trillion will keep growing.

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