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




Wholly Owned 20 71 120
Joint Venture 105 54 5
Total 125 125 125
Sunrise Investments Reconciliation ($ millions)




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 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 (, 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

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.

Financial Exhibits
Consolidated Balance Sheets (unaudited)
(in thousands)
        June 30,
2013   2012
Real estate investments:
Land and land improvements $ 1,710,084 $ 1,189,280
Buildings and improvements 18,776,842 14,057,887
Acquired lease intangibles 928,910 524,145
Real property held for sale, net of accumulated depreciation 31,882 193,307
Construction in progress   137,481   170,785
21,585,199 16,135,404
Less accumulated depreciation and intangible amortization   (1,933,439)   (1,369,449)
Net real property owned 19,651,760 14,765,955
Real estate loans receivable(1)   312,356   300,000
Net real estate investments 19,964,116 15,065,955
Other assets:
Investments in unconsolidated entities 768,737 460,962
Goodwill 68,321 68,321
Deferred loan expenses 71,218 60,597
Cash and cash equivalents 512,472 204,895
Restricted cash 212,812 79,619
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
Borrowings under unsecured lines of credit arrangements $ - $ 393,000
Senior unsecured notes 6,604,979 4,910,871
Secured debt 2,875,606 2,299,674
Capital lease obligations 79,481 81,955
Accrued expenses and other liabilities   539,361   400,065
Total liabilities 10,099,427 8,085,565
Redeemable noncontrolling interests 32,810 34,068
Preferred stock 1,022,917 1,022,917
Common stock 285,085 214,592
Capital in excess of par value 12,263,927 8,129,913
Treasury stock (21,248) (17,272)
Cumulative net income 2,264,573 2,023,769
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' equity 11,644,161 8,058,073
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   2012 2013   2012
Rental income $ 302,465 $ 263,704 $ 598,753 $ 512,662
Resident fees and service 370,995 165,654 698,319 323,828
Interest income 7,640 7,879 16,696 16,020
Other income   1,025   1,482   1,725   3,166
Gross revenues 682,125 438,719 1,315,493 855,676
Interest expense 110,629 91,299 220,585 179,780
Property operating expenses 278,587 135,839 531,941 264,641
Depreciation and amortization 200,108 127,599 386,837 248,136
General and administrative expenses 23,902 25,870 51,081 53,621
Transaction costs 28,136 28,691 94,116 34,270
Loss (gain) on derivatives, net (2,716) (2,676) (407) (2,121)
Loss (gain) on extinguishment of debt, net   -   576   (308)   576
Total expenses 638,646 407,198 1,283,845 778,903
Income (loss) from continuing operations before income taxes                
and income from unconsolidated entities 43,479 31,521 31,648 76,773
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 operations 36,803 31,530 24,472 76,844
Discontinued operations:
Gain (loss) on sales of properties, net (29,997) 32,450 52,495 33,219
Income (loss) from discontinued operations, net   375   12,895   2,013   24,266
  (29,622)   45,345   54,508   57,485
Net income (loss) 7,181 76,875 78,980 134,329
Less: Preferred dividends 16,602 16,719 33,203 35,926
Preferred stock redemption charge - 6,242 - 6,242
Net income (loss) attributable to noncontrolling interests   (913)   (821)   (774)  
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