Healthcare Realty Trust: Navigating Tenant Bankruptcy and Conference Participation

Healthcare Realty Trust (NYSE: HR) recently announced its participation in Citi's 2025 Global Property CEO Conference, scheduled for March 3-4, 2025. Additionally, the company provided an update on rent collection from Prospect Medical, which filed for Chapter 11 bankruptcy protection on January 11, 2025. This article explores the implications of these developments and their potential impact on the company's financial projections and tenant credit evaluation processes.



Partial Rent Collection from Prospect Medical

Healthcare Realty Trust collected partial rent payments from Prospect Medical for January and February 2025, totaling $0.4 million. Prospect Medical leases 81,000 square feet from the Company, representing approximately $2.9 million of annual revenue. The Company has not provided any assurance that it will be able to recover additional unpaid rent or timely relet space related to any leases rejected in bankruptcy.

The partial rent collection from Prospect Medical impacts Healthcare Realty Trust's financial projections for the current fiscal year by creating uncertainty around $2.9 million in annual revenue from Prospect's 81,000 square feet of leased space. This exposure represents a minimal portion of the Company's extensive portfolio (650+ properties totaling 38.4 million square feet), but the bankruptcy introduces several considerations for investors.

To mitigate potential revenue losses, the Company is actively working to re-let the vacated spaces and recover unpaid rent of $2.8 million. However, there is considerable uncertainty surrounding these efforts, and the ongoing discussions regarding the remaining leases add to the complexity of the situation. The Company has not provided any specific strategies to mitigate potential revenue losses, but it is likely that they are exploring various options to minimize the impact of the bankruptcy on their financial projections.

Potential Impact on Occupancy Rates and Same-Store NOI

The bankruptcy of Prospect Medical and the potential lease rejections could temporarily pressure occupancy rates and same-store NOI in the affected properties for Healthcare Realty Trust. Prospect Medical leases 81,000 square feet from Healthcare Realty, representing approximately $2.9 million in annual revenue. If the bankruptcy process results in lease rejections, this space could become vacant, leading to a decrease in occupancy rates. Although this exposure represents a minimal portion of Healthcare Realty's total square footage (less than 1%), the loss of a tenant like Prospect Medical could still impact overall occupancy rates, especially if the space is not quickly relet.

The bankruptcy proceedings and potential space rejections could also pressure same-store NOI in the affected properties. If additional unpaid rent cannot be recovered and the space remains vacant for an extended period, this would directly impact the net operating income (NOI) of those properties. Even if the space is eventually relet, there may be a delay in achieving the same level of rental income as previously generated by Prospect Medical, further impacting same-store NOI.

Reassessing Tenant Credit Evaluation Processes

In light of the tenant credit risk event involving Prospect Medical, Healthcare Realty Trust should reassess and strengthen its tenant credit evaluation processes to prevent similar occurrences in the future. This could involve implementing more rigorous credit underwriting processes, diversifying the tenant base, regularly monitoring the financial health of tenants, improving lease documentation, and conducting stress tests to assess the impact of various financial scenarios on the portfolio.



Healthcare Realty Trust's participation in Citi's 2025 Global Property CEO Conference provides an opportunity for the company to discuss its strategies for navigating tenant bankruptcy and maintaining financial stability. Investors should monitor upcoming earnings calls for management commentary on backfilling strategies and whether this signals any broader concerns about tenant financial health across their portfolio. The geographic concentration of these affected properties will also influence how quickly the space could be released if necessary.

In conclusion, Healthcare Realty Trust faces challenges in the form of tenant bankruptcy and potential lease rejections, which could temporarily pressure occupancy rates and same-store NOI in the affected properties. However, the company's participation in Citi's 2025 Global Property CEO Conference offers a platform to discuss its strategies for mitigating these risks and maintaining financial stability. By reassessing and strengthening its tenant credit evaluation processes, Healthcare Realty Trust can better manage tenant credit risk and prevent similar occurrences in the future.