Healthcare Realty FFO a Penny Short - Analyst Blog

Hurt by expenses tied to cold winters, Healthcare Realty Trust Inc.'s HR first-quarter 2014 normalized funds from operations (FFO) per share of 35 cents missed the Zacks Consensus Estimate by a whisker.

However, notable growth in revenue helped it to exceed the year-ago quarter figure by 3 cents. Also, normalized funds available for distribution FAD in the reported quarter were 36 cents per share, up from 34 cents in the year-ago period.

Total revenue increased 14.5% year over year to $91.9 million in the reported quarter and exceeded the Zacks Consensus Estimate of $87 million.

Quarter in Details

Healthcare Realty signed or renewed leases aggregating 441,000 square feet of space. The tenant retention rate was 82%.

Same-store revenues climbed up 2.5% year over year to $67.8 million. On the other hand, same-store expenses rose 6.1% year over year to $24.3 million. Thus, same store properties net operating income (NOI) increased just 0.5% year over year to $43.5 million. Higher snow removal and utilities costs, resulting from bad weather conditions dampened the NOI growth.

Also, occupancy remained flat at 91% in its same store properties. At the quarter-end, the 12 development conversion properties were 81% leased and 66% occupied.

Liquidity

As of Mar 31, 2014, Healthcare Realty had cash and cash equivalents worth approximately $10.2 million, up from $8.7 million at the end of 2013.

Dividend Update

On Apr 29, 2014, Healthcare Realty declared a quarterly dividend of 30 cents per share. This dividend is payable on May 30, 2014 to shareholders of record as of May 16. The dividend is equivalent to 83.3% of normalized FAD.

Our Take

Although rise in expenses acted as the dampener, higher revenues and significant leasing activity led to improving quarterly results at Healthcare Realty. Moreover, the company's strong balance sheet position is a positive and solid healthcare industry fundamentals promise decent upside potential going forward.

Healthcare Realty currently has a Zacks Rank #2 (Buy). A better-ranked healthcare REIT is National Health Investors Inc. NHI having the same rank as Healthcare Realty.

We now look forward to the results of other healthcare REITs – HCP, Inc. HCP and Health Care REIT, Inc. HCN – that are scheduled to report in the coming week.

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.