Healthcare Realty Trust Incorporated

Good morning or good afternoon all and welcome to the Healthcare Realty Trust fourth quarter earnings conference call. My name is Adam and I will be your operator for today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor to Ron Hubbard, Vice President of Investor Relations to begin. So Ron, please go ahead when you are ready.

Thank you for joining us today for Healthcare Realty's fourth quarter 2023 earnings conference call. Joining me on the call today are Todd Meredith, Chris Douglas, and Rob Hull. A reminder that except for the historical information contained within, the matter discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks, and uncertainties. These risks are more specifically discussed in the company's Form 10-K filed with the SEC for the year ended December 31, 2023. 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 matter discussed in this call may also contain certain non-GAAP financial measures, such as funds from operations, or FFO, normalized FFO, FFO per share, normalized FFO per share, funds available for distribution, or FAD, net operating income, NOI, EBITDA, and adjusted EBITDA. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended December 31, 2023. The company's earnings press release, supplemental information, and Form 10-K are available on the company's website. I'll now turn the call over to Todd.

Thank you, Ron. And thank you, everyone, for joining us this morning. Healthcare Realty generated solid quarterly results. meeting or exceeding expectations on several key metrics. Normalized FFO of 39 cents per share for the fourth quarter was steady and in line with our expectations. Same store growth for the quarter and year was in the upper half of our guidance range. You will recall we published a bridge last quarter outlining our expectations for multi-tenant occupancy and NOI growth starting with the fourth quarter. We are pleased to report over 50 basis points of positive absorption at the very top end of our expected range for the multi-tenant properties. And NOI growth accelerated above the high end of our range to 3.3% for all multi-tenant properties, not just same store. These strong fourth quarter results were achieved through the focus and incredible efforts of our leasing and operations teams. Looking forward, we see a couple areas where we can keep improving. First, retention. We made incremental progress on tenant retention, achieving just over 78% in the fourth quarter compared to 76% in the third quarter. What's significant is that retention at the legacy HTA properties was in line with the HR portfolio. And we see the ability to push retention higher to more than 80%. A second opportunity for improvement is operating expenses. The fourth quarter came in better than expected at just over 4% growth. That's in part due to lower property taxes. We see more opportunity to produce expense growth to the 3% level in 2024. Together, higher retention and lower expenses will help us reach the upper end of our 24 goals. What I'm most excited about is our new leasing momentum. Our leasing team signed new leases totaling 425,000 square feet in the fourth quarter. This marks three consecutive quarters averaging over 400,000 square feet. Strong pace of new signed leases is what fuels the occupancy gains in our bridge and forecast for 2024. As we look more broadly at what will drive our 24 growth, we are seeing an uptick in demand from both health systems and independent physician groups. On top of this, supply has steadily tightened, which provides a favorable backdrop for leasing momentum and occupancy gains. What it comes down to is more tenants chasing fewer MOVs. To illustrate this point, look at replacement rents today versus 2019. Construction costs have escalated at an annual average of more than 7% over the last five years. Couple this with much higher financing costs and you have a recipe for much higher replacement rents. Back in 2019, typical MOB development costs were about $350 a square foot in a place like Dallas. required yields were in the low sixes, putting net rents around $22 per square foot. Five years later, equivalent MOV development costs are approaching $500 a square foot, and rent yields are now around 8%. That means replacement rents are approaching $40, so replacement rents have increased more than 80% in five years, or more than 12% annually. This limits new supply and sets us up to improve occupancy and rates in existing buildings. At Healthcare Realty, we're laser focused on maximizing occupancy gains in 24 with rate accelerations to follow. Now I'll turn it over to Chris for an overview of our financial and operational results. Chris.