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Healthcare Realty's (HR) Q2 FFO and Revenues Lag Estimates

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Healthcare Realty Trust Inc. (HR - Free Report) reported second-quarter 2017 normalized funds from operations (FFO) per share of 39 cents, missing the Zacks Consensus Estimate of 40 cents. Total revenue of $105.2 million in the quarter also missed the Zacks Consensus Estimate of $105.9 million.

On a year-over-year basis, FFO per share declined 7.1% primarily due to a 10.4% increase in average share count. However, total revenue grew 2.5% from the prior-year quarter.

Healthcare Realty Trust Incorporated Price, Consensus and EPS Surprise

Note: All EPS numbers presented in this write up represent FFO per share.

Quarter in Details

For the trailing 12-month period ended Jun 30, 2017, same store revenues improved 2.9%, operating expenses expanded 1.3% and same store net operating income (NOI) increased 3.9%. Further, same-store revenue per average occupied square foot grew 2.3% while average same store occupancy expanded 50 basis points (bps) from a year ago to 89.2%.

Second-quarter leasing activity included 136 leases and aggregated 472,000 square feet of space. This comprised 303,000 square feet renewals and 169,000 square feet of new and expansion leases.

For the second quarter, in the company’s same-store multi-tenant portfolio, contractual rent increases averaged 3% while cash leasing spreads were 9.5% on 285,000 square feet renewed. Moreover, tenant retention was 90.3% and the average yield on renewed leases climbed 1.3%.

In addition, for the quarter, dispositions totaled $38.2 million, which included one inpatient rehabilitation facility worth $14.5 million.

The company exited the quarter with cash and cash equivalents of $2 million, down from $5.4 million at prior-year end.

Dividend Update

On Aug 1, 2017, the company declared a quarterly cash dividend of 30 cents per share. This dividend is payable on Aug 31 to stockholders of record as of Aug 11 and is equivalent to 76.9% 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, stiff competition and estimated increase in interest rates are likely to curtail the company’s growth momentum in the near term.

Healthcare Realty currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Also, shares of Healthcare Realty have gained 8% outperforming the 3.4% rally of the industry.

Performance of Other REITs

Cousins Properties Incorporated (CUZ - Free Report) reported second-quarter 2017 FFO per share of 16 cents, surpassing the Zacks Consensus Estimate of 15 cents. However, the figure compared unfavorably with 21 cents recorded in the year-ago period. The quarter witnessed considerable improvement in rental property revenues, which aided results to quite an extent. However, an increase in expenses was a headwind.

Duke Realty Corporation’s (DRE - Free Report) second-quarter 2017 core FFO per share of 32 cents surpassed the Zacks Consensus Estimate of 30 cents. The figure also came in 2 cents higher than the year-ago figure. Total rental and related revenue for the quarter was $165.8 million, up approximately 5% year over year. However, the figure missed the Zacks Consensus Estimate of $185 million.

PS Business Parks, Inc. (PSB - Free Report) reported second-quarter 2017 adjusted FFO of $1.55 per share, surpassing the Zacks Consensus Estimate of $1.52. Moreover, the figure came in 14% higher than $1.36 recorded in the prior-year quarter. The rise stemmed from higher NOI, reduced interest expenses and savings from lower preferred distributions.

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.

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