What's Next for Healthcare Realty?

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Lately I've been coming across more and more companies that are filing their results late or giving their auditors the heave-ho. Of recent note here are Flagstar Bancorp (NYSE: FBC) and Healthcare Realty (NYSE: HR). Flagstar is a more involved discussion for another day, but let's take a look at Healthcare Realty since the company did file its unaudited results today with the SEC in an 8-K filing.

Healthcare Realty, like Income Investor selection Health Care REIT (NYSE: HCN), acquires and manages properties that provide health-care services. Like all REITs it pays a high dividend. Where Healthcare Realty has had a bit of a thorn in its side of late is that it also has an ownership stake in a company that operates at least one of its facilities and loans with this facility. In a conference call last week to discuss the dismissal of its auditors, Healthcare Realty management discussed this business relationship and the fact that the impact on the financials is small.

Instead of treating this entity as a separate company, Healthcare Realty needs to consolidate its operations on its own books. That's the short version of the story. However, having read the transcript (courtesy of Thomson StreetEvents) and the back and forth between the analysts, I think this specific issue should not be a problem because of its small size in relation to the total business. But that doesn't mean it doesn't have to be accurately accounted for, and that's the hang-up.

While this issue shouldn't materially affect the financials of Healthcare Realty, its somewhat late discovery has created a delay in getting the financials out and apparently has led to a switch in auditors (those are my words, not Healthcare Realty's).

As an investor I much prefer to have the audited financials in front of me. Not because I don't trust management but because the auditor's sign-off in the 10-K is an important piece of the puzzle. Despite all the problems in the media in recent years about auditing firms, the job of the auditors is an important one, and I've seen them add value.

So what's next? Well, I plan to read through the unaudited financials from Healthcare Realty, and I plan to listen to a replay of the earnings conference call that was held today. If the situation is particularly attractive, I may consider it, but I'm far more likely to wait for the fully audited financial statements.

For related Foolishness check out:

• ABCs of REIT FFOs
• The Truth About REITs
• Real Estate & REITs

Nathan Parmelee owns shares in Healthcare REIT but has no financial interest in any of the other companies mentioned. You can view his profile here. The Motley Fool has an ironclad disclosure policy.