Healthcare Trust, Inc. 7.375% CUM RED REP PFD STK SER A (NASDAQ:HTIA) 2023 Fourth Quarter Earnings Conference Call April 5, 2024, 1:00 PM ET
corporate participants
Michael Anderson – Chief Executive Officer
Scott Lapetito – Chief Financial Officer
conference call participants
operator
Welcome to the Healthcare Trust Inc. Season 4 2023 or HTI webcast. All participants will be in listen-only mode. Please note that this event is being logged. Please also note that certain statements and assumptions in this webcast briefing are not historical facts, are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to certain assumptions and risk factors, which could cause HTI’s actual results to differ materially from the forward-looking statements. We refer you to our filings with the SEC, including our Form 10-K for the year ended December 31, 2023, filed on March 15, 2024, and our Form 10-K/A filed on March 22, 2024. Amendments, as well as all other SEC filings after that date, to discuss in greater detail the risk factors that could cause these differences and affect our business.
During today’s call, we will discuss HTI’s non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for financial performance prepared in accordance with generally accepted accounting principles. As part of HTI’s fourth quarter 2023 investor presentation, HTI provided a reconciliation of these measures to the most directly comparable GAAP measure, which can be viewed on HTI’s website at www.healthcaretrustinc.com.
You can submit questions by typing them into the box on your screen during today’s webcast, and members of our investor relations team will follow up directly after the presentation to answer questions.Please also note that a copy of this briefing and a replay of the webcast will be available later today Available on the HTI website.
I’d now like to turn the call over to our CEO, Michael Anderson. Please go ahead, Michael.
Michael Anderson
Thank you, Curtis, and thank you all for joining us today.I am pleased to report that compared to 2022, excluding $4.5 million received in 2022 CARES Act funding reduces real estate operating expenses in 2022. Our portfolio net operating income increased by more than $10 million, or 8.7%, including a 36.6% increase in the seniors housing segment. No CARES Act funding was received in 2023. NOI’s growth is driven by accretive acquisitions and favorable leasing in our medical office building segment, as well as improved rental rates and tightly managed operating costs across our store portfolio.
Total revenue from tenants also increased by more than $10 million compared with 2022, and net losses decreased by more than $7 million year-over-year. During the fourth quarter, we signed seven new leases totaling 16,000 square feet and linear rent of $0.4 million and renewed 13 leases totaling more than 71,000 square feet. The renewal contract has a signing price differential of 11.1% compared to the prior lease and is expected to be recognized over the weighted average term of these leases of 5.2 years.
We have a forward leasing pipeline of over 26,000 square feet and, assuming all leases commence on current terms and final letters of intent are signed, occupancy of the MOB portfolio is expected to increase from 90.6% currently to 91.1% upon launch agreement.
During the year, we acquired 7 MOB properties for a total of US$35 million, with an average occupancy rate of 6.8% and a weighted average remaining lease term of over 10 years. After the end of the fourth quarter, we acquired a portfolio of four properties for $12.6 million at a cap rate of 7.6%. We will continue to pursue accretive acquisitions and strategic dispositions that we believe will enhance our portfolio, while we continue to position the company for future common shareholder liquidity events.
As of December 31, 2023, HTI owned more than 200 properties totaling more than 9 million square feet in 33 states. The portfolio includes 156 medical office buildings, 46 senior housing operations with more than 4,100 individual units and two parcels of land. According to the NOI, the portfolio consists of approximately 76% MOB assets and 24% SHOP assets.
Additionally, as of December 31, 2023, our medical office building portfolio was 90.6% occupied, had a weighted average remaining lease term of 4.7 years, and cash generated from annual rent increases averaging 2.3 years on approximately 91% of the leases %, which increases cash rent payments in future periods.
We have worked hard to build a portfolio of MOB and SHOP assets and continue to allocate funds to select high-quality assets across the United States. Our portfolio is geographically diversified across 33 states, with only 3 states representing more than 10% (on a square foot basis) of our total portfolio. The portfolio’s full-year NOI is approximately $128 million, 76% of which is generated by medical office buildings.
We partner with top healthcare brands in mature markets to maintain lasting healthcare real estate portfolios. We believe the quality of our tenants is critical to our long-term success and building strong relationships with highly respected brands keeps our portfolio stable and focused. We believe that our partnerships with tenants such as DaVita, Fresenius and UPMC in MOB’s portfolio will not only benefit HTI’s shareholders, but also patients and other stakeholders.
As our portfolio continues to expand, we will continue to seek quality tenants to add to HTI’s MOB portfolio and maintain strong relationships with our store operators. During the year ended December 31, 2023, we completed the acquisition of seven medical office buildings with a total value of $35 million. The weighted average cap rate for these acquisitions was 6.8%, and the remaining weighted average lease term at the time of acquisition was 10.2 years.
After the year ended, we acquired four additional medical office buildings for $12.6 million at a cap rate of 7.6%. The properties have a weighted average remaining lease term of 14.8 years. We believe we are well-positioned to continue our efforts to pursue accretive acquisitions at opportunistic capitalization rates.
Scott, could you walk us through the financial situation?
Scott Lapetito
Thank you, Michael. In 2023, we continue to actively manage our capital structure. In May 2023, we entered into a 10-year, $240 million CMBS facility that provided us with capital and terminated a prior credit facility that, among other things, provided liquidity and canceled restrictive enterprise-level covenants.
In December 2023, we completed construction of a $50 million MOB warehouse facility with Capital One. Of this amount, $14.7 million was drawn at closing, leaving $35.3 million available for future drawdowns, which will provide us with additional liquidity. As of December 31, 2023, our net leverage ratio was 43.7%. All of our debt is fixed-rate, including hedging instruments with a weighted average economic interest rate of 5%.
HTI continues to execute on our operating plan to grow NOI in the MOB portfolio through accretive acquisitions and strong leasing activity, as well as revenue growth and effective expense management in the SHOP portion of our portfolio. As Michael mentioned previously, when the $4.5 million in CARES Act funding is excluded from the 2022 results, SHOP NOI increased 36.6% from $22.4 million to $30.6 million due to increased rental rates and efficient management of operating expenses.
MOB NOI also grew 2.1% in 2023 compared to last year, reaching $97.5 million, with revenue continuing to grow thanks to increasing acquisitions and favorable leasing activity. We continue to successfully lease available space in our portfolio of medical office buildings. We have a forward lease pipeline of over 26,000 square feet, assuming all leases commence on current terms and letters of intent are signed to final leases.
We also completed 13 lease renewals in the fourth quarter, covering over 71,000 square feet, with a renewal rent spread of 11.1%, which will be recognized over the weighted average remaining term of these renewals of 5.2 years, thereby increasing future revenue and extending the weighted average remaining lease terms of our entire portfolio.
Last week, in line with our commitment to provide an updated NAV per share at least annually, we announced an updated estimated NAV per share of $13. As discussed in more detail in the announcement, the price decrease of $1 compared to the previous price of $14 is primarily due to shares outstanding as of December 31, 2023 compared to shares outstanding as of December 31, 2022. An increase of approximately 6%. The results of the company’s stock dividend distribution this year. This estimate is prepared based on valuation guidance we have previously adopted. A comprehensive report on the methods used to determine estimated net asset value per share is included in the Company’s Form 8-K filed on Friday, March 29, 2024.
Now I’d like to turn the call back over to Michael to catch up on the HTI team and provide some closing remarks.
Michael Anderson
Thanks, Scott. We believe we will achieve long-term profitable growth for HTI by leveraging available leasing space and acquiring quality MOB properties. Our portfolio continues to demonstrate its resiliency as we made positive progress on lease renewals across our MOB portfolio, completed accretive acquisitions and grew NOI compared to last year.
We have an experienced management team who we believe will be able to maximize the opportunities created by demographic trends, which will benefit long-term investments in healthcare real estate. We believe we have the right team to execute our strategy to drive long-term value. Trent Taylor is our Senior Vice President of Asset Management, responsible for ensuring that our existing properties are leased, performing as expected, and that local property managers are meeting tenants’ needs.
David Ruggiero leads MOB acquisitions, applying more than 30 years of experience and a $3 billion acquisition record to our rigorous investment discipline and underwriting standards. Our dedicated SHOP team has over 80 years of collective experience in the senior housing field. Susan Rice and Kimberly Holmes have been with HTI for nearly five years, helping guide our SHOP properties through uncharted times throughout the COVID-19 pandemic.
This year, Lindsay Gordon and Michelle Stepinsky have both joined the team, bringing a wealth of knowledge and experience to our hotel operations and sales teams. We appreciate the fresh perspective Lindsay and Michelle bring to our portfolio and believe our team is well-qualified to continue guiding the recovery of our senior housing portfolio. We are pleased with the continued strong and reliable performance of our MOB product portfolio and the ongoing operational improvements in our SHOP product portfolio.
We are encouraged by the year-over-year growth in net operating income, particularly across our store portfolio, which reflects the results of our team’s focus on improving our store amenities, operations, accessibility and appeal to seniors and their families. As the Board of Directors continues to consider a potential listing or other liquidity event for the Company and its stockholders, the Company believes that suspending dividends on our common stock at this time is in the best interests of the Company. For this reason, a stock dividend has not been declared and will not be paid in the second quarter of 2024.
As always, we look forward to continuing to provide all stakeholders with the latest information on HTI’s results, performance and liquidity pathways through our periodic filings, press releases and subsequent webcasts (like today). Thank you very much for joining us.
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