Scotiabank cuts Healthcare Realty Trust target to $17, holds rating

Tuesday, Scotiabank (TSX:BNS) analyst Nicholas Yulico adjusted the price target on Healthcare Realty Trust (NYSE:HR) to $17.00 from $18.00, while keeping a Sector Perform rating on the stock. According to InvestingPro data, analyst targets for the $6.06 billion market cap company currently range from $16 to $20, with the stock trading at $16.82. Yulico’s decision came in response to the company’s fiscal year 2025 normalized Funds From Operations Per Share (FFOPS) guidance, which fell short of expectations due to various factors including joint venture contributions, asset dispositions, and a specific bad debt expense.

The company’s guidance for FY25 normalized FFOPS was $1.58 at the midpoint, which was 1.3% lower than Scotiabank’s estimate and 0.6% below the consensus on Wall Street. This miss was attributed to higher-than-anticipated contributions from joint ventures and dispositions, along with the impact of bad debt expense stemming from the new Prospect Medical (TASE:BLWV) bankruptcy, which affected approximately $2.9 million of the company’s Annualized Base Rent (ABR).

Despite the lowered guidance, the fourth quarter showed some positive developments for Healthcare Realty Trust. The company signed approximately 690,000 square feet of new leases, which surpassed the trailing twelve-month average of 497,000 square feet. Additionally, the fiscal year 2024 multi-tenant absorption met management’s expectations with an approximate 150 basis point increase. InvestingPro analysis reveals the company has maintained dividend payments for 33 consecutive years, currently offering a substantial 7.37% yield. This absorption is expected to contribute to an acceleration in same-store cash Net Operating Income (NOI) growth for FY25, excluding the impact of the bankrupt operator, although cash leasing spreads are anticipated to be lower.

The report also pointed out that maintenance capital expenditures remain elevated as the company works on leasing up vacancy. This situation has led to an estimated dividend payout ratio that exceeds 100% of Adjusted Funds From Operations Per Share (AFFOPS), projected at 107% for FY25 and 104% for FY26. With a current ratio of 0.55 and a beta of 0.8, InvestingPro’s comprehensive analysis indicates the stock is currently trading above its Fair Value. Subscribers can access 8 additional ProTips and detailed financial metrics in the Pro Research Report.

In other recent news, Healthcare Realty Trust reported its financial results for the fourth quarter of 2024, highlighting significant developments. The company disclosed headline funds from operations (FFO) per unit at $0.298, slightly down from the previous year, and maintained a strong liquidity position with over $900 million available. Healthcare Realty Trust executed $429 million in real estate asset sales throughout 2024, aligning with its strategic repositioning plan. The company’s portfolio is now 70% located in the United States, with a strong focus on the Sunbelt region, reflecting broader market demand for multifamily units. Despite a 2.8% decline in net operating income (NOI) for the office segment, the industrial segment experienced a 6.3% increase. Analysts from National Bank Financial noted that the multifamily lease spreads might turn positive in the latter half of 2025. Additionally, the company plans minimal new deliveries in 2026, focusing on asset sales and debt refinancing to enhance financial flexibility. CEO Tom Hofstetter commented on the lack of institutional capital interest in office spaces, while expressing optimism for potential growth in multifamily and industrial segments.

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