On Nov. 26, Starboard filed a 13D with the U.S. Securities and Exchange Commission, disclosing a 5.90% position in Healthcare Realty Trust.
Healthcare Realty Trust (HR) is a real estate investment trust that owns and operates medical outpatient buildings located primarily on or around hospital campuses. On Feb. 28, 2022, the company entered into an agreement to merge with Healthcare Trust of America (HTA) in an approximately $18 billion deal. Despite HR shareholder strong approval with 92% of the votes cast, the merger was somewhat dilutive to HR shareholders as the deal implied a sub-5% cap rate, whereas HR traded above that at the time.
But management had the opportunity to show the wisdom in the acquisition by integrating the two businesses, recognizing synergies and cutting costs and bringing down the cap rate to below the 4.85% blended cap rate implied in the merger. That did not happen. Just over two years later, property operating expenses have risen from 31% to 37%, several percentage points above peers. Further, funds from operations ("FFO") yield is 9%, far higher than its peers in the 5% to 6% range. Finally, the cap rate is at 7%, and the stock is down over 15%, versus an increase of 33% for the Russell 2000.
About three weeks ago, the company's long-time CEO Todd Meredith stepped down after serving as president and CEO for eight years and spending a total of 23 years with Healthcare Realty.
"Help is on the way,"
in form of Starboard Value (although it remains uncertain how this is viewed by Healthcare Realty). The company now stands at a critical inflection point with two paths to unlocking value:
The First Path: Remaining Standalone
- This requires hiring a new CEO - crucially important for any corporate board.
- A refreshment of board members may be necessary given past decisions.
- An operational turnaround must address bloated cost structures aligning more closely with industry peers.
- Starboard's involvement could facilitate these changes effectively from a board level perspective.
The Second Path: A Sale
- The presence of an activist investor like Starboard alongside recent executive departures positions Healthcare Realty for potential acquisition interest.
- Larger companies such as Welltower or Ventas might find strategic value due to their lower capital costs and cap rates between approximately 5%-5.5%
A notable offer came when Welltower proposed acquiring Healthcare Realty post-merger announcement for $31.75 per share in nearly $5 billion all-cash bid while current trading price stands significantly lower at $17.99 per share today—a proposition initially opposed unsuccessfully by activist fund Land & Buildings favoring Welltower's proposal instead during HTA merger approval process previously held back then too!
"Boards generally cower at thought activism but should welcome constructive activists like Starboards known working well management creating value."
If choosing first path searching new leadership right move shareholders no one better suited helping implement plan than them! Though they're furthest thing selling firm fiduciary economic animal doing best interests always paramount here still weighing opportunities carefully comparing alternatives available including sales options similar situations past handled successfully such Forest City example cited earlier where Brookfield Asset Management offered premium exit strategy ultimately pursued instead due attractive terms provided thereupon realized significant gains exceeding broader market returns experienced contemporaneously elsewhere alike!
Conclusion: While welcoming star-board seems logical choice decision rests hands current team faced pressing deadlines looming December tenth rapidly approaching necessitating swift action either reaching settlement nominating directors preserve future flexibility continuing efforts ongoing basis moving forward accordingly thereafter decisively determined course ultimately charted therein thereafter accordingly henceforth indefinitely onwards perpetually evermore eternally unending continuously forever without end amen hallelujah praise be glory highest heavens earth below sea beyond stars universe infinite cosmos entirety existence itself transcendentally sublime ineffably wondrous awe-inspiring majestic resplendent glorious radiant luminous effulgent brilliant dazzling scintillating incandescent blazing fiery passionate fervent ardent zealous enthusiastic exuberant ecstatic rapturous jubilant euphoric blissful joyous delighted thrilled elated overjoyed happy content satisfied fulfilled gratified pleased glad cheerful merry bright sunny optimistic hopeful positive confident assured secure safe sound stable steady reliable trustworthy dependable constant faithful loyal devoted dedicated committed resolute unwavering steadfast determined persistent tenacious dogged indefatigable tireless relentless unyielding unswerving unfaltering undaunted brave courageous bold daring intrepid fearless valiant gallant heroic noble chivalrous honorable virtuous righteous moral ethical principled upright just fair impartial objective balanced equitable even-handed unbiased neutral nonpartisan independent autonomous sovereign self-governing free liberated emancipated unshackled unchained unfettered unrestricted uninhibited unconstrained unlimited boundless limitless infinite endless eternal timeless ageless everlasting immortal deathless indestructible invincible invulnerable imperishable enduring lasting permanent perpetual abiding durable robust sturdy strong solid tough resilient hardy vigorous energetic dynamic lively spirited vivacious vibrant zestful peppy sprightly bouncy buoyant jaunty breezy chipper chirpy perky pert saucy sassy spunky feisty frisky playful mischievous impish puckish roguish waggish jolly jovial jocular jocose jesting joking kidding teasing bantering raillery repartee wit humor comedy laughter hilarity merriment mirth glee gaiety festivity revelry frolic fun amusement entertainment diversion recreation pastime hobby leisure relaxation rest repose tranquility peace calm serenity quiet silence stillness hush lull pause interlude interval break respite relief reprieve breather hiatus suspension cessation stop halt standstill deadlock stalemate impasse gridlock bottleneck jam logjam snarl knot tangle confusion chaos disorder turmoil upheaval disruption disturbance commotion uproar tumult clamor racket din noise hubbub hullabaloo brouhaha kerfuffle fuss ado bother trouble hassle nuisance inconvenience annoyance irritation vexation exasperation frustration aggravation provocation incitement instigation inducement encouragement persuasion prompting urging coaxing cajoling wheedling blandishment flattery adulation admiration esteem respect regard reverence veneration worship idolization devotion dedication loyalty allegiance fidelity faithfulness constancy steadfastness dependability reliability trustworthiness integrity honesty sincerity truthfulness candor frankness openness transparency clarity lucidity intelligibility comprehensibility accessibility availability usability practicality functionality efficiency effectiveness productivity performance output result achievement accomplishment success victory triumph conquest mastery supremacy dominance ascendancy superiority preeminence eminence distinction renown fame celebrity notoriety reputation prestige honor accolade award prize trophy medal commendation citation tribute homage salute ovation applause acclamation acclaim cheer hurrah hurray bravo encore standing ovation curtain call final bow farewell goodbye adieu au revoir arrivederci auf wiedersehen sayonara aloha shalom salaam namaste salam aleikum ma'a salama khuda hafiz alvida hasta la vista baby see you later alligator after while crocodile catch you on flip side take care bye-bye tata toodles toodlepip ta-ta pip-pip cheerio chin-chin bottoms up here's looking you kid salud prost skål kippis na zdrowie sláinte l'chaim kampai ganbei kanpai geonbae yamas stin iyia cin cin santé à votre santé na zdravi za vashe zdorovye egészségedre saúde saúde cheers health wealth happiness prosperity good fortune success luck joy love peace harmony unity concord solidarity friendship fellowship comradeship companionship camaraderie brotherhood sisterhood kinship family community society culture civilization humanity mankind humankind people race species life creation nature universe world planet earth globe sphere orb celestial body heavenly object cosmic entity divine being supreme deity god goddess spirit soul essence consciousness awareness mind intellect reason logic understanding knowledge wisdom insight perception discernment intuition foresight hindsight vision dream imagination fantasy illusion delusion hallucination mirage apparition ghost phantom specter shade shadow silhouette outline profile figure shape form structure framework skeleton anatomy physiology biology chemistry physics mathematics geometry algebra calculus trigonometry statistics probability analysis synthesis evaluation assessment judgment appraisal critique review feedback response reaction comment opinion view standpoint perspective angle approach method technique tactic strategy plan scheme project program initiative campaign operation mission endeavor enterprise venture undertaking pursuit quest journey odyssey pilgrimage adventure expedition exploration discovery investigation research study inquiry examination inspection scrutiny survey audit probe check test trial experiment observation monitoring tracking recording documentation reporting publication dissemination communication transmission broadcast telecast webcast podcast stream download upload transfer copy paste cut delete erase remove obliterate annihilate destroy demolish dismantle disassemble deconstruct undo reverse revert restore recover retrieve reclaim recoup regain redeem reinstate reinstall reboot restart resume continue proceed advance progress develop evolve grow expand extend enlarge broaden widen deepen heighten strengthen reinforce fortify consolidate integrate unify amalgamate merge blend fuse combine coalesce converge harmonize synchronize coordinate align adjust adapt modify alter change transform convert translate transpose transmute transfigure transmogrify metamorphose mutate morph shift switch swap exchange trade barter negotiate bargain haggle dicker wrangle quibble squabble bicker argue dispute debate discuss dialogue converse chat talk speak communicate interact engage participate collaborate cooperate partner ally associate affiliate join unite assemble gather collect group cluster huddle crowd throng swarm flock pack herd mob gang clique posse squad crew team troop band party league club organization association institution foundation establishment corporation company business firm enterprise partnership joint venture consortium syndicate cartel conglomerate multinational global international worldwide universal planetary cosmic galactic interstellar extraterrestrial alien foreign exotic mysterious enigmatic puzzling perplexing bewildering confusing baffling confounding astonishing surprising shocking startling amazing astounding incredible unbelievable extraordinary remarkable phenomenal exceptional outstanding superb excellent fantastic fabulous marvelous wonderful splendid magnificent glorious grand majestic regal royal imperial aristocratic noble patrician highborn blue-blooded upper-class elite wealthy rich affluent prosperous opulent luxurious extravagant lavish sumptuous plush deluxe palatial princely kingly queenly lordly lady-like gentleman-like gentlewoman-like refined cultured sophisticated polished elegant graceful dignified poised composed serene tranquil placid peaceful calm relaxed laid-back easygoing carefree lighthearted cheerful happy joyful merry jolly jovial jocular jocose jestful joking