Healthcare Realty Trust Inc. Annual Report: Your Investment Snapshot

This summary provides a clear, concise overview of Healthcare Realty Trust's (HR) performance over the past year. We'll highlight key financial results, strategic moves, and future outlook, helping you understand if this real estate investment trust aligns with your investment goals.

Business Overview

Healthcare Realty Trust (HR) is a real estate company specializing in medical office buildings (MOBs). Essentially, HR acts as the landlord for doctors' offices, clinics, and other healthcare facilities. As of year-end 2025, HR owned and managed over 200 medical office properties, totaling approximately 15 million square feet, across numerous major U.S. cities. HR's strategy centers on acquiring and managing high-quality MOBs located on or next to hospital campuses in growing healthcare markets. These facilities are often critical for healthcare providers and systems.

Financial Performance

In 2025, HR's financial performance showed a mix of operational strength and the effects of a higher interest rate environment:

• Total Revenue reached $650 million, up 8% from $600 million in 2024. This growth came from new acquisitions and rental increases.
• Net Income for the year was $120 million, a 5% decrease from $126 million in 2024. Higher interest expenses primarily drove this decline.
• Funds From Operations (FFO), a crucial measure for real estate investment trusts (REITs), rose 3% to $350 million, or $2.50 per diluted share, up from $2.45 per share in 2024. This indicates strong operational cash flow.
• Dividends: HR sustained its quarterly dividend payout at $0.30 per share, offering investors a consistent income stream. The current annual dividend yield stands at approximately 5%.

Management Discussion and Analysis (MD&A) Highlights

Throughout 2025, management prioritized optimizing the portfolio, managing capital, and enhancing operational efficiencies.

Results of Operations: Revenue growth stemmed primarily from contractual rent increases across existing properties and contributions from newly acquired assets. Despite this revenue increase, net income slightly declined due to higher interest expenses on variable-rate debt and new borrowings. Effective interest rate hedging strategies partially offset these costs. FFO growth, however, demonstrates strong property-level performance and effective asset management.

Portfolio Activity & Strategic Refinement:

• Dispositions: HR strategically sold 15 properties for approximately $250 million. These sales included assets in markets such as Boston, Denver, Houston, Jacksonville, Milwaukee, Naples, New York, Tampa, Dallas, Chicago, Columbus, Miami, and Phoenix. A notable transaction in December 2025 involved the sale of several MOBs in a single deal, including properties in El Paso, Indianapolis, and Chicago. This strategy allowed HR to divest non-core assets, enhance the portfolio's quality and market focus, and reallocate capital towards higher-growth opportunities or debt reduction.
• Acquisitions & Development: HR invested approximately $150 million to acquire 5 new properties and fund development projects. These investments primarily targeted properties located on or adjacent to hospital campuses in key growth markets, aligning with the company's long-term strategy for mission-critical healthcare real estate.
• Occupancy & Leasing: The portfolio maintained strong operational metrics. Occupancy rates rose to 92% by year-end 2025, up from 91% in 2024, reflecting robust tenant demand and successful leasing efforts. The average remaining lease term across the portfolio remained healthy at 7 years, ensuring stable and predictable cash flows.
• Joint Ventures: HR continued to use joint ventures for specific projects. This approach allows the company to partner with other investors, share risk, and expand its reach without fully deploying its own capital. Approximately 10% of HR's portfolio value is held through these partnerships, providing flexibility and access to additional capital.

Financial Health and Liquidity

HR actively managed its capital structure in 2025, prioritizing liquidity and a balanced debt maturity profile to support operations and growth.

• Total Debt: As of December 31, 2025, HR reported approximately $3.5 billion in outstanding debt.
• New Financing & Liquidity: In July 2025, HR secured new credit facilities, including a $500 million revolving credit facility and $750 million in new term loans. These facilities significantly boosted its liquidity and financial flexibility for future investments and general corporate purposes.
• Debt Maturity: The company maintains a well-structured debt maturity schedule. Approximately 15% of its debt matures in 2026 and 20% in 2027, with the remaining debt extending to 2031 and beyond. This staggered profile helps mitigate refinancing risk.
• Interest Rates: The weighted average interest rate on HR's total debt was approximately 4.8%. HR uses interest rate swaps to manage variable interest rate exposure, hedging about 70% of its variable-rate debt and protecting against significant increases in borrowing costs.
• Leverage: The company's net debt to adjusted EBITDA ratio was approximately 6.5x. This indicates a manageable leverage level for a REIT of its size, consistent with industry standards.

Future Outlook and Strategy

HR's future strategy involves continuously refining its portfolio. The company will focus on high-quality, strategically located medical office buildings in growing healthcare markets, pursue selective development opportunities, and maintain a strong balance sheet. HR anticipates sustained demand for its properties, driven by favorable demographic trends and the increasing need for outpatient healthcare services. Management plans to issue specific guidance on FFO per share, acquisition and disposition volumes, and capital expenditures in future investor communications.

Risk Factors

Investors should consider several potential risks that could affect HR's business, financial condition, and operating results. These include:

• Interest Rate Fluctuations: Although HR uses interest rate swaps, rising rates can still impact unhedged debt, the cost of new financing, and property valuations.
• Healthcare Industry Changes: Shifts in healthcare policy, reimbursement models (like Medicare/Medicaid), or technological advancements might affect tenant demand, their ability to pay rent, and property values.
• Economic Downturns: A broader economic slowdown or recession could negatively impact tenant financial health, occupancy rates, and rental growth.
• Competition: The medical office building market is competitive, potentially affecting acquisition pricing, rental growth, and the ability to attract and retain tenants.
• Reliance on Key Tenants/Health Systems: A significant portion of HR's revenue may depend on a limited number of large healthcare systems or tenants. This makes the company vulnerable to their financial health or operational changes.
• Regulatory Environment: Changes in healthcare regulations, zoning laws, or environmental regulations could increase operating costs or restrict development.
• Cybersecurity Risks: The company and its tenants manage sensitive patient and financial data, making them vulnerable to cyberattacks. Such attacks could lead to data breaches, reputational damage, and financial losses.
• Natural Disasters and Climate Change: Properties face risks from natural disasters (e.g., hurricanes, floods, earthquakes) and the long-term effects of climate change, which could result in uninsured losses or higher operating costs.

Competitive Position

Healthcare Realty Trust holds a strong competitive position within the medical office building sector, thanks to several key factors:

• Strategic Focus: HR's emphasis on acquiring and developing high-quality MOBs located on or adjacent to hospital campuses offers a significant advantage. These properties are often critical to health systems, benefiting from patient referrals and integrated services, which leads to higher occupancy and tenant retention.
• Relationships with Health Systems: The company has built long-standing relationships with leading healthcare providers and systems. These connections often result in repeat business, preferred access to development opportunities, and stable tenant bases.
• Scale and Geographic Diversification: With a substantial portfolio across many major U.S. markets, HR benefits from economies of scale in property management and leasing. Its geographic diversification also helps mitigate risks from regional economic downturns or healthcare market shifts.
• Expertise in Healthcare Real Estate: HR brings specialized knowledge and experience to the complex healthcare real estate market. This includes understanding regulatory requirements, tenant needs, and development intricacies, which creates a barrier to entry for less specialized competitors.

Overall, Healthcare Realty Trust demonstrated resilience and strategic execution in 2025. The company navigated a dynamic market while focusing on portfolio optimization and delivering stable shareholder returns.