Healthcare Realty Trust Incorporated (HR) Earnings & Analysis

Latest quarter

Healthcare Realty reported Q3 revenue of $286.6 million, down from $297.8 million a year earlier. The revenue measure used for the consensus comparison, $277.6 million in rental income, exceeded the $271.7 million consensus. Normalized funds from operations (FFO) were $0.42 per share, above the $0.41 consensus adjusted EPS estimate.

The company’s filing said quarterly rental income fell $9.8 million from a year earlier: property dispositions reduced it by $28.7 million, while leasing activity added $15.6 million. The filing also attributed lower general and administrative expenses primarily to reduced restructuring and severance charges.

Healthcare Realty reported a diluted loss per share of −$0.05, compared with −$0.17 a year earlier. Its operating margin was 14.6%, compared with 8.25% a year ago. Free cash flow was $152.1 million, down from $437.1 million in the prior-year quarter. For the first nine months of 2026, the filing showed operating cash flow of $317.3 million, compared with $324.8 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Pete Scott said demand for Healthcare Realty’s space and rents were rising as care shifts toward outpatient settings. He said construction and financing costs were constraining new medical office supply. The company signed 1.5 million sq ft of leases in the quarter, including 430,000 sq ft of new leases, and same-store occupancy reached 93.1%, he said.

Scott reported cash leasing spreads of 8.6%. Asked about that figure, he said the West Campus and Ascension contributed to it, but spreads remained above 6% without them. He said the company would keep trying to achieve spreads in the 5% area or better. Scott added that 3% is generally the minimum rent escalator in new deals, except where tenants have older renewal options.

When asked about capital costs in leases, Scott said redevelopment leasing had contributed to a quarterly increase because those properties can require higher tenant improvement spending. He said tenants were paying more of their own build-out costs and that retaining tenants reduces Healthcare Realty’s capital outlay. Scott said the company’s leasing model focuses on economic returns rather than volume; since its introduction, lease internal rates of return had improved nearly 3,000 basis points and payback periods had fallen 25%.

On investment, Scott said Healthcare Realty and its partners had acquired eight medical office buildings year to date and had another under contract, totaling $338 million, or $67 million at the company’s share. He said the company had repurchased $75 million of stock during the quarter and through October, bringing the year-to-date total to $250 million.

Asked about future acquisitions and repurchases, Scott said neither was included in guidance. He said strategic asset sales could fund those priorities. For the fourth quarter, he said the outlook assumes less absorption than in prior quarters; executive Dan Gabbay cited the comparison with occupancy gains late last year.

Guidance

Healthcare Realty raised its 2026 normalized FFO guidance to $1.65 to $1.67 per diluted share, with an increase at the midpoint from its July outlook. The company also raised its full-year same-store cash net operating income growth range to 5.00% to 5.25%, increasing both ends of the previous range. Scott said the fourth-quarter outlook assumes less absorption than in prior quarters.