Activist investor Starboard Value has taken a 5.9% position in Healthcare Realty Trust (HR), according to a filing with the SEC. Now Starboard has negotiated with the REIT for multiple positions on the board of directors — but there are issues to work through.
Effectively immediately through a cooperation agreement with Starboard, the HR board elected current director Tom Bohjalian as independent chair of the board and also appointed three new independent directors “with deep industry and leadership experience," according to HR. That's David Henry, Glenn Rufrano, and Don Wood. Henry and Rufrano will also serve on the committee overseeing a previously announced CEO search committee. Rufrano will serve as committee chair.
“David, Glenn and Don bring meaningful experience and fresh perspectives to the Board, and we look forward to working with them as we continue to take actions that will drive sustainable value and execute on strategic initiatives that further positions Healthcare Realty for long-term growth,” said Bohjalian in prepared remarks.
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According to Starboard, the firm “seeks to invest in deeply undervalued companies and actively engage with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders.”
S&P Global Market Intelligence noted that HR specializes in medical outpatient buildings near major hospital campuses.
What may have set off the current events is a large merger the REIT performed in February 2022, according to a report from CNBC. The target was Healthcare Trust of America in an $18 billion deal and 92% of HR shareholders voted for it.
For the deal to work, HR management would have needed to integrate the two companies, reduce costs, work together with their complementary holdings, and improve operations so the resulting cap rate would be below the 4.85% blended rate the merger implied. It didn’t quite happen.
CNBC noted that in 2024 — two years in — property operating expenses went from 31% to 37%, several hundred basis points above competitors. The cap rate is at 7% and the stock is down 15%. Long-time CEO Todd Meredith stepped down as chief executive and president in November 2024.
CNBC suggested there were two paths to improvement. One is to remain a single company with a new CEO. The other would be a sale of the company. Given that some of the new Starboard-backed board members are on the CEO search committee, it sounds as though, at least for now, the first option is being tried.
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