Healthcare Realty (HR) Beats Q3 FFO Estimates by a Penny
Healthcare Realty Trust Inc. HR, a real estate investment trust (“REIT”), reported third-quarter 2015 normalized funds from operations (“FFO”) of 41 cents per share that came a penny ahead of the Zacks Consensus Estimate and increased from the prior-year quarter figure of 38 cents.
Total revenue of $96.7 million in the quarter missed the Zacks Consensus Estimate of $98 million but was up 3.3% year over year.
Inside the Headlines
In the same-store multi-tenant portfolio, contractual increases for in-place leases ("annual bumps") averaged 2.9%, while cash leasing spreads were 2.1% on 369,000 square feet renewed. Moreover, tenant retention was 82.4% and the average yield on renewed leases moved up 40 basis points.
Same-store net operating income (NOI) increased 5.9% year over year for the trailing 12 months ended Sep 30, 2015. Same-store occupancy increased marginally to 89.6%. Same-store revenue per average occupied square foot increased 2.1% for the trailing 12 months.
During the quarter, the company purchased a fully leased medical office property (53,000 square feet) in Seattle, WA for $28.0 million. This property is positioned on the campus of Providence Health's Swedish Medical Center.
Moreover, the company acquired a 73% leased medical office building (48,000 square feet) in Denver, CO for $6.5 million. This asset is located near Catholic Health Initiatives' St. Anthony Hospital.
On the other hand, the company sold 4 medical office buildings in Pennsylvania, Florida, Arizona and Missouri, aggregating 238,000 square feet for $40.7 million.
Finally, Healthcare Realty exited third-quarter 2015 with cash and cash equivalents of $8.5 million, up from $3.5 million at prior-year end.
Dividend
On Nov 3, 2015, Healthcare Realty declared a quarterly dividend of 30 cents per share. This dividend is payable on Nov 30 to stockholders of record as of Nov 16. The dividend is equivalent to 73.2% of normalized FFO.
Our Take
Rising national healthcare expenditure and an expected rise in demand for medical office buildings is expected to offer Healthcare Realty ample opportunities to grow. However, an anticipated rise in interest rates and strong competition might hamper its growth momentum.
Healthcare Realty currently has a Zacks Rank #4 (Sell). Investors interested in the REIT industry may consider stocks like Highwoods Properties Inc. HIW, Public Storage PSA and SL Green Realty Corp. SLG. All these stocks have a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.
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