Healthcare Realty Reports in Sync - Analyst Blog

By Zacks | November 08, 2012 AAA

Healthcare Realty Trust Inc. (HR), a real estate investment trust (REIT), reported third quarter 2012 funds from operations (FFO) of $25.7 million or 33 cents per share compared with $22.6 million or 29 cents per share in the year-earlier quarter. The reported FFO for third quarter 2012 was in line with the Zacks Consensus Estimate.

Funds available for distribution (FAD) in the reported quarter were $27.2 million or 35 cents per share versus $24.1 million or $0.31 per share in the year-ago period. Total revenues during third quarter 2012 were $79.1 million, compared with $73.8 million in the year-ago quarter. Total revenues during the quarter exceeded the Zacks Consensus Estimate of $78 million.

Total multi-tenant same facility net operating income (NOI) increased 5.0% year over year in the quarter to $27.9 million. For the total portfolio, same-facility NOI growth was 4.2% in the quarter compared to the year-ago period to $40.5 million. The same facility portfolio recorded an occupancy level of 90% at quarter-end.

Adjusted NOI for company's stabilizing properties (SIP) improved by approximately $497,000 compared with the previous quarter. Occupancy level for the SIP portfolio increased to 37% on year-over-year basis.

Healthcare Realty's SIP portfolio was 54% leased, up from 51% sequentially and was well on target to reach 60% by year-end 2012. The company's overall development portfolio was 64% leased, including properties that were funded through construction loans.

The company's multi-tenant properties exhibited an uptrend in the quarter, backed by modest weighted average increase in lease rates. While contractual rates for in-place leases inched up 3.2%, average increase in the rate on newly executed leases hovered around 0.4%.

During the reported quarter, the company funded $94.4 million out of an estimated aggregate budget of $203 million in two build-to-suit facilities. Healthcare Realty presently generates mortgage interest income at 6.75% on the funded balances. The company will assume ownership of both the facilities upon completion at an initial yield of 8%.

Subsequent to the quarter-end, Healthcare Realty acquired two medical office buildings (MOBs) in Tennessee and Washington for $20.4 million. Spanning 87,000 square feet of space, the buildings have an average occupancy of 94%.  

Healthcare Realty continued its strategic shift towards lower-risk, on-campus medical office buildings. About 78% of the total medical office properties were located on or adjacent to hospital campuses in the third quarter of 2012, compared to 66% eight quarters ago.

During the reported quarter, Healthcare Realty issued 9.2 million shares for net proceeds of approximately $201.1 million to increase its liquidity. Consequently, the debt-to-EBITDA ratio at the end of the quarter improved to 6.2x and the leverage ratio to 41.7%.  

Cash flow from operations during the quarter was $19.5 million compared to $20.7 million in the prior year. At the end of the quarter, the company had cash and cash equivalents of $8.8 million and long-term debt of $1.2 billion. Healthcare Realty declared a dividend of 30 cents per share in the reported quarter. The dividend is equivalent to 86% of recurring FAD.

Healthcare Realty currently has a Zacks #3 Rank, which translates into a short-term Hold rating. We maintain our long-term Underperform recommendation on the stock. However, we have a Neutral recommendation and a Zacks #3 Rank for HCP Inc. (HCP), one of the competitors of Healthcare Realty.

Note: 1. 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.

2. FAD, a measure to ascertain the ability of REITs to generate cash, is derived by subtracting straight-line rent and non-recurring real estate expenses from funds from operations.

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