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Healthcare Realty’s (HR) Q4 FFO Beats, Revenues Up Y/Y

Zacks

Healthcare Realty Trust Inc.’s HR fourth-quarter 2016 normalized funds from operations (“FFO”) per share of 41 cents came a penny above the Zacks Consensus Estimate of 40 cents, and remained unchanged year over year.

Total revenue of $105.3 million in the quarter matched the Zacks Consensus Estimate and grew 6.8% from the prior-year period.

For full-year 206, the company reported normalized funds from operations per share (“FFO”) of $1.63, ahead of the year-ago tally of $1.60. This was backed by 6.0% growth in revenues to $411.6 million.

Inside the Headlines

For the trailing 12-month period ended Dec 31, 2016, same store revenue improved 3.4%, operating expenses expanded 0.7% and same store net operating income (“NOI”) increased 5.0%. Further, same-store revenue per average occupied square foot grew 2.8%, while average same store occupancy expanded 50 basis points (bps) from a year ago to 89.2%.

Healthcare Realty’s leasing activity included 132 leases and aggregated 340,000 square feet of space. This comprised 235,000 square feet renewals, and 105,000 square feet of new and expansion leases.

For fourth-quarter 2016, in the company’s same-store multi-tenant portfolio, contractual rent increases averaged 2.9%; while cash leasing spreads were 3.9% on 216,000 square feet renewed. Moreover, tenant retention was 88.5% and the average yield on renewed leases climbed 50 bps.

In addition, for the fourth quarter, acquisitions totaled $63.8 million. This comprised 212,000 square feet at an aggregate leased percentage of 91%. On the other hand, dispositions aggregated $94.7 million for the quarter.

Finally, Healthcare Realty exited the quarter with cash and cash equivalents of $5.4 million, up from $4.1 million at prior-year end.

Dividend Update

On Jan 31, 2017, Healthcare Realty declared a quarterly cash dividend of 30 cents per share. This dividend is payable on Feb 28, 2017 to stockholders of record as of Feb 14 and is equivalent to 73.2% of normalized FFO per share.

Our Take

Rising national healthcare expenditure and an anticipated increase in demand for medical office buildings augur well for Healthcare Realty. However, sturdy competition and an estimated hike in interest rate are likely to curtail the company’s growth momentum in the near term.

Healthcare Realty currently has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Also, shares of Healthcare Realty underperformed the Zacks categorized REIT and Equity Trust – Other industry over the past six months. Over this time frame, Healthcare Realty descended 13.8% against 6.6% decline of the industry.

Key Picks

Investors interested in the REIT industry may consider stocks like The GEO Group, Inc. GEO, Hospitality Properties Trust HPT and Terreno Realty Corporation TRNO. Each of these stocks carries a Zacks Rank #2 (Buy).

The GEO Group’s 2017 estimates climbed 2.0% to $2.99 per share, over the past 30 days.

Hospitality Properties Trust, currently, has a long-term growth rate of 5.0%.

Moreover, Terreno Realty has a long-term growth rate of 7.3%.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All EPS numbers presented in this write up represent FFO per share.

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