Healthcare Realty (NYSE:HR) trades around $23.25 versus its 52-week range of $16.26-$25.16, up 40% in the past 1-year. The stock trades with a FFO multiple of 16 times, which is an 18% premium to the Healthcare REIT average multiple. The stock yields 5.2%. The company's peer Medical Properties Trust (NYSE:MPW) yields 7%, and National Health Investors (NYSE:NHI) yields 5%. On a pure valuation basis, investing in Healthcare Realty is not attractive at this point.
Is the dividend safe? It is important to note that during the start of the recession in 2008-2009, Healthcare Realty was one of the two healthcare REITs that cut its dividend. The other was Medical Properties. After 4 years, the company has not increased the dividend. The fundamentals below discuss the risks associated in investing in the stock.
In the next 2 years, the company has 10 leases expiring, which contribute close to 40% of revenues. This is a significant risk if the company is unable to renew these leases in time to avoid the loss of revenues.
Weak operating trends were reflected in Q3-2012 when the company announced that rent spreads on executed leases averaged 0.4%, lower than the 2.3% increase last year, and 1.8% increase in Q2-2012.
Liquidity on the balance sheet is limited with $8 million cash on the balance sheet.
In the Q3-2012 conference call, management mentioned its 9.2 million additional equity offering. No further information with regards to dilution or the use of proceeds was mentioned. We would imagine further dilution of the stock at the time of the offering.
An investor would need several positive catalysts to get interested in adding this name to their portfolio.
The chart below compares share performance over the past year. "D"s mark dividends paid.
click to enlarge images
Tool provided by Kapitall.
Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.