On Tuesday, Stifel adjusted its stance on Healthcare Realty Trust (NYSE:HR), downgrading the stock from Buy to Hold and reducing the price target to $15 from the previous $19. The revision follows observations that the real estate investment trust's efforts to lease vacant space have not progressed as anticipated since the completion of its merger with HTA on July 20, 2022.
According to Stifel, the total portfolio occupancy for Healthcare Realty Trust has remained static at 87.5% for both the fourth quarter of 2022 and the same period in 2023. This stagnation has resulted in a consistent earnings run-rate of approximately $0.39 per share per quarter, which is below the rate before the merger of $0.42 per share.
The firm also noted concerns regarding the company's dividend, suggesting that it is unlikely to be covered in the following year given the current financial metrics. With a leverage ratio of 6.4x, the analyst suggests that Healthcare Realty Trust's capacity for external growth is limited, and its ability to handle unexpected financial challenges is diminished.
Despite the stock's low valuation at 9.4 times Stifel's 2024 earnings estimate, the firm considers it fairly valued due to the lack of anticipated growth and the existing leverage levels. Stifel emphasizes that increasing occupancy is crucial for addressing the issues highlighted, estimating that an additional 2.6 million square feet of space would need to be leased to cover the projected $56 million dividend shortfall for 2024.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.