Health Care REIT, Inc. Reports Second Quarter Results

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Health Care REIT, Inc. Reports Second Quarter Results

Completed $1.5 billion of 2Q13 investments and $5 billion year-to-date
Expanded international platform in both Canada and the United Kingdom
2Q13 same store cash NOI increased 3.8%

TOLEDO, Ohio--(BUSINESS WIRE)-- Health Care REIT, Inc. (NYSE: HCN) today announced operating results for the company's second quarter ended June 30, 2013.


"Health Care REIT's unique relationships, immersion in health care, and asset allocation position the company to capture above average growth in all economic climates," commented George L. Chapman, Chairman and CEO of Health Care REIT. "Our portfolio generated excellent 3.8% same store cash NOI growth during the second quarter, headlined by an 8.4% increase in our seniors housing operating portfolio. Our relationship investment strategy generated two new portfolio partners, Revera and Avery Healthcare, in the attractive Canadian and U.K. markets. These investments bring our year-to-date total to $5 billion in high-quality, accretive health care real estate expected to produce attractive cash flow growth and total returns for our shareholders."

Recent Highlights

  • Reported 2Q13 normalized FFO of $0.93 per share, a 4% increase versus 2Q12
  • Reported 2Q13 normalized FAD of $0.82 per share, a 4% increase versus 2Q12
  • Increased 2Q13 same-store cash NOI by 3.8%, including 8.4% growth in the seniors housing operating portfolio
  • Increased private pay mix to 82% in 2Q13 from 74% in 2Q12
  • Issued 23 million shares of common stock, generating $1.7 billion of proceeds in May
  • Received $366 million in proceeds on dispositions in the first half of 2013, generating $52 million in gains
  • Completed gross new investments of $1.5 billion in 2Q13 and $959 million in 3Q13 to-date
  • Expanded international portfolio with $1.3 billion investment in Canada with Revera in May and $213 million investment in the U.K. with Avery Healthcare in July
  • Completed final tranche of $4.3 billion investment with Sunrise Senior Living in July

Dividends for Second Quarter 2013  As previously announced, the Board of Directors declared a cash dividend for the quarter ended June 30, 2013 of $0.765 per share, as compared to $0.74 per share for the same period in 2012, representing a 3.4% increase. On August 20, 2013, the company will pay its 169th consecutive quarterly cash dividend. The declaration and payment of quarterly dividends remains subject to review by and approval of the Board of Directors.

Second Quarter Investment Highlights  During the quarter, the company completed the previously announced $1.3 billion partnership with Revera Inc. to own 47 properties in attractive Canadian markets. The company owns a 75% interest in the portfolio and Revera owns the remaining 25% interest. The portfolio was previously owned 100% by Revera and is primarily comprised of independent living communities, with many offering a continuum of care that includes assisted living and/or memory care. Revera manages the communities under an incentive-based management contract. The company expects the portfolio to generate an initial unlevered NOI yield of 7%. Please see the press release announcing the transaction dated May 8, 2013, for additional highlights of the transaction. The release is available on the Investor Relations tab of the company's website.

Investment Subsequent to Quarter End  Subsequent to the end of the second quarter, the company completed a $213 million (£140 million) sale/leaseback transaction with Avery Healthcare. The acquired portfolio includes 14 seniors housing communities with 940 beds in the United Kingdom. The average age of the communities is two years. Avery is one of England's premier and most active seniors housing developers/operators. The lease is absolute net with capital expenditures funded by Avery. Rent under the lease will generate an initial yield of 7% and increase 3% per year over the initial 20-year lease term. Avery will guarantee the lease. Health Care REIT has an exclusive option to invest in Avery's future acquisitions and new developments. The company expects to acquire up to four new seniors housing communities per year upon completion of construction, and will add each community to the master lease. Avery will fund all working capital associated with the lease-up of each community. The Avery portfolio investment is consistent with the company's strategy to own high-quality, private pay real estate in attractive markets operated by best-in-class providers. Including the 14 Avery communities, the company has investments in 45 seniors housing communities located in attractive U.K. markets with an investment balance of $1.6 billion.

Sunrise Acquisition Update  As previously announced, the company completed the $745.2 million final phase of the Sunrise Senior Living property portfolio acquisition on July 1, 2013. The aggregate $4.3 billion investment includes 120 wholly-owned properties and five properties owned in joint ventures with third parties. The company expects the portfolio to generate an unlevered NOI yield exceeding 6.5% in the second half of 2013.

 
Sunrise Property Count Reconciliation
   

Announced
8/22/12

Completed
5/7/13

Completed
7/1/13

Wholly Owned2071120
Joint Venture105545
Total125125125
 
Sunrise Investments Reconciliation ($ millions)
 

Announced
8/22/12

Completed
5/7/13

Completed
7/1/13

Debt Assumed(1)$970.0$444.6$389.5
Cash Required$950.0$3,084.4$3,884.7
Acquisition Amount$1,920.0$3,529.0$4,274.2
 
(1) Debt assumed is net of payoffs that occurred as of closing or shortly thereafter.
 

Outlook for 2013  The company affirms its 2013 guidance and assumptions as previously announced and continues to expect to generate normalized FFO in a range of $3.70 to $3.80 per diluted share and normalized FAD in a range of $3.25 to $3.35 per diluted share, both representing a 5%-8% increase. The company is revising its 2013 net income guidance primarily to reflect the net impact of the Revera and Avery acquisitions, the May common stock issuance, depreciation and amortization adjustments, normalizing items and gains/losses on property sales. The company now expects to report net income attributable to common stockholders in a range of $0.58 to $0.68 per diluted share. The company's guidance does not include any additional 2013 investments beyond what it has announced, nor any transaction costs, capital transactions, impairments, unanticipated additions to the loan loss reserve or other additional one-time items, including any additional cash payments other than normal monthly rental payments. Please see the exhibits for a reconciliation of the outlook for net income available to common stockholders to normalized FFO and FAD. The company will provide additional detail regarding its 2013 outlook and assumptions on the second quarter 2013 conference call.

Conference Call Information  The company has scheduled a conference call on Tuesday, August 6, 2013 at 10:00 a.m. Eastern Time to discuss its second quarter 2013 results, industry trends, portfolio performance and outlook for 2013. Telephone access will be available by dialing 888-346-2469 or 706-758-4923 (international). For those unable to listen to the call live, a taped rebroadcast will be available beginning two hours after completion of the call through August 20, 2013. To access the rebroadcast, dial 855-859-2056 or 404-537-3406 (international). The conference ID number is 17358998. To participate in the webcast, log on to www.hcreit.com 15 minutes before the call to download the necessary software. Replays will be available for 90 days.

Supplemental Reporting Measures  The company believes that net income attributable to common stockholders (NICS), as defined by U.S. generally accepted accounting principles (U.S. GAAP), is the most appropriate earnings measurement. However, the company considers funds from operations (FFO) and funds available for distribution (FAD) to be useful supplemental measures of its operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means net income, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairments of depreciable assets, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities. Normalized FFO represents FFO adjusted for certain items detailed in Exhibit 1. FAD represents FFO excluding net straight-line rental adjustments, amortization related to above/below market leases and amortization of non-cash interest expenses and less cash used to fund capital expenditures, tenant improvements and lease commissions. Normalized FAD represents FAD excluding prepaid/straight-line rent cash receipts and adjusted for certain items detailed in Exhibit 1. The company believes that normalized FFO and normalized FAD are useful supplemental measures of operating performance because investors and equity analysts may use these measures to compare the operating performance of the company between periods or as compared to other REITs or other companies on a consistent basis without having to account for differences caused by unanticipated and/or incalculable items. The company's supplemental reporting measures and similarly entitled financial measures are widely used by investors and equity analysts in the valuation, comparison and investment recommendations of companies. The company's management uses these financial measures to facilitate internal and external comparisons to historical operating results and in making operating decisions. Additionally, they are utilized by the Board of Directors to evaluate management. The supplemental reporting measures do not represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental reporting measures, as defined by the company, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies. Please see the exhibits for reconciliations of supplemental reporting measures and the supplemental information package for the quarter ended June 30, 2013, which is available on the company's website (www.hcreit.com), for information and reconciliations of additional supplemental reporting measures.

About Health Care REIT, Inc.  Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is a real estate investment trust that invests across the full spectrum of seniors housing and health care real estate. The company also provides an extensive array of property management and development services. As of June 30, 2013, the company's broadly diversified portfolio consisted of 1,183 properties in 46 states, the United Kingdom, and Canada. More information is available on the company's website at www.hcreit.com.

Forward-Looking Statements and Risk Factors  This document may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern and are based upon, among other things, the possible expansion of the company's portfolio; the sale of facilities; the performance of its operators/tenants and facilities; its ability to enter into agreements with viable new tenants for vacant space or for facilities that the company takes back from financially troubled tenants, if any; its occupancy rates; its ability to acquire, develop and/or manage facilities; its ability to make distributions to stockholders; its policies and plans regarding investments, financings and other matters; its ability to successfully manage the risks associated with international expansion and operations; its tax status as a real estate investment trust; its critical accounting policies; its ability to appropriately balance the use of debt and equity; its ability to access capital markets or other sources of funds; and its ability to meet its earnings guidance. When the company uses words such as "may," "will," "intend," "should," "believe," "expect," "anticipate," "project," "estimate" or similar expressions, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The company's expected results may not be achieved, and actual results may differ materially from expectations. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators'/tenants' difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care, seniors housing and life science industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the company's ability to transition or sell facilities with profitable results; the failure to make new investments as and when anticipated; acts of God affecting the company's facilities; the company's ability to re-lease space at similar rates as vacancies occur; the company's ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; regulatory approval and market acceptance of the products and technologies of life science tenants; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future acquisitions; environmental laws affecting the company's facilities; changes in rules or practices governing the company's financial reporting; the movement of U.S. and foreign currency exchange rates; and legal and operational matters, including real estate investment trust qualification and key management personnel recruitment and retention. Finally, the company assumes no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements.

 
HEALTH CARE REIT, INC.
Financial Exhibits
 
Consolidated Balance Sheets (unaudited)
(in thousands)
    June 30,
2013 2012
Assets
Real estate investments:
Land and land improvements$1,710,084$1,189,280
Buildings and improvements18,776,84214,057,887
Acquired lease intangibles928,910524,145
Real property held for sale, net of accumulated depreciation31,882193,307
Construction in progress 137,481 170,785
21,585,19916,135,404
Less accumulated depreciation and intangible amortization (1,933,439) (1,369,449)
Net real property owned19,651,76014,765,955
Real estate loans receivable(1) 312,356 300,000
Net real estate investments19,964,11615,065,955
Other assets:
Investments in unconsolidated entities768,737460,962
Goodwill68,32168,321
Deferred loan expenses71,21860,597
Cash and cash equivalents512,472204,895
Restricted cash212,81279,619
Receivables and other assets(2) 598,717 407,077
 2,232,277 1,281,471
Total assets$22,196,393$16,347,426
 
Liabilities and equity
Liabilities:
Borrowings under unsecured lines of credit arrangements$-$393,000
Senior unsecured notes6,604,9794,910,871
Secured debt2,875,6062,299,674
Capital lease obligations79,48181,955
Accrued expenses and other liabilities 539,361 400,065
Total liabilities10,099,4278,085,565
Redeemable noncontrolling interests32,81034,068
Equity:
Preferred stock1,022,9171,022,917
Common stock285,085214,592
Capital in excess of par value12,263,9278,129,913
Treasury stock(21,248)(17,272)
Cumulative net income2,264,5732,023,769
Cumulative dividends(4,127,597)(3,309,558)
Accumulated other comprehensive income(49,174)(13,590)
Other equity 5,678 7,302
Total Health Care REIT, Inc. stockholders' equity11,644,1618,058,073
Noncontrolling interests 419,995 169,720
Total equity 12,064,156 8,227,793
Total liabilities and equity$22,196,393$16,347,426
 
(1) Includes non-accrual loan balances of $4,230,000 and $12,956,000 at June 30, 2013 and 2012, respectively.
(2) Includes net straight-line receivable balances of $174,138,000 and $144,612,000 at June 30, 2013 and 2012, respectively.
 
 
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
   Three Months Ended Six Months Ended
June 30,June 30,
2013 20122013 2012
Revenues:
Rental income$302,465$263,704$598,753$512,662
Resident fees and service370,995165,654698,319323,828
Interest income7,6407,87916,69616,020
Other income 1,025 1,482 1,725 3,166
Gross revenues682,125438,7191,315,493855,676
 
Expenses:
Interest expense110,62991,299220,585179,780
Property operating expenses278,587135,839531,941264,641
Depreciation and amortization200,108127,599386,837248,136
General and administrative expenses23,90225,87051,08153,621
Transaction costs28,13628,69194,11634,270
Loss (gain) on derivatives, net(2,716)(2,676)(407)(2,121)
Loss (gain) on extinguishment of debt, net - 576 (308) 576
Total expenses638,646407,1981,283,845778,903
 
Income (loss) from continuing operations before income taxes        
and income from unconsolidated entities43,47931,52131,64876,773
 
Income tax (expense) benefit(1,215)(1,447)(3,978)(2,918)
Income (loss) from unconsolidated entities (5,461) 1,456 (3,198) 2,989
Income (loss) from continuing operations36,80331,53024,47276,844
 
Discontinued operations:
Gain (loss) on sales of properties, net(29,997)32,45052,49533,219
Income (loss) from discontinued operations, net 375 12,895 2,013 24,266
 (29,622) 45,345 54,508 57,485
Net income (loss)7,18176,87578,980134,329
Less:Preferred dividends16,60216,71933,20335,926
Preferred stock redemption charge-6,242-6,242
Net income (loss) attributable to noncontrolling interests (913) (821) (774)  Read Full Story

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