Healthcare Realty’s medical office portfolio continues to perform well, highlighted by the company’s solid fundamentals and operational proficiency. So said CEO Todd Meredith on the firm’s Q1 earnings call.
Same-store NOI growth in the first quarter exceeded 4% and stands out relative to most peers whose MOBs average closer to 2%, some even lower. Healthcare Realty’s leading performance has been consistent, not transitory, Meredith said.
“Our same-store growth of 3% to 4% is derived from stable in-place rent bumps, high tenant retention, steady cash leasing spreads, and solid cost containment efforts. The reliability of these metrics reveals the underlying strength of our properties. With 25 years of experience, continuously improving our medical office portfolio, we’ve gained confidence in our ability to generate above-average growth throughout market cycles by remaining focused and disciplined around proven characteristics that correlate with steady growth and low risk. Properties that are located primarily on-hospital campuses align with market-leading health systems and concentrated in larger fast-growing markets.”
He explains that the firm continues to be pleased that investors recognize the superior attributes of the company’s MOBs relative to its healthcare peers and most REITs. “Valuation levels, most notably, forward FFO multiples have long reflected these differences in performance and safety, and our spread has widened in recent years. Including a broad cross section of 130 REITs, our multiple has advanced towards the 80th percentile in the last 3 to 4 years compared to the mid-60th percentile in the prior four to five years.”
While popularity may drive others’ valuation higher from time to time, he explains that it can be cyclical and short-lived. “In contrast, our well-differentiated portfolio has yielded steady improvements in our relative valuation over many years. Looking ahead, our objective is to continue articulating the value of our approach to MOBs and demonstrating the exceptional characteristics that deliver reliable growth and safety that investors have come to know and expect from the medical office sector.”
In addition to embedded internal growth, he says, “we continue to pursue investments that deliver strong results in the near term and across cycles, creating lasting value. While we remain disciplined, we will move decisively to expand our portfolio for the right properties. In March and April, we acquired several high-quality MOBs for $121 million and swiftly match-funded these properties with a 100% equity capital. And with low leverage, notably below most peers, we are well positioned to pursue additional investments. We are encouraged by our acquisition pipeline, as well as increasing activity around development and redevelopment.”