Health Care REIT, Inc. Reports Fourth Quarter and Year End 2012 Results

Health Care REIT, Inc. Reports Fourth Quarter and Year End 2012 Results

Completed $2.0 billion of 4Q12 investments
4Q12 same store cash NOI increased 4.0%
2013 normalized FFO and FAD per share guidance up 5%-8%

TOLEDO, Ohio--(BUSINESS WIRE)-- Health Care REIT, Inc. (NYSE: HCN) today announced operating results for the company's fourth quarter ended December 31, 2012.


"Calendar 2012 was a year of significant accomplishment. Our platform continues to distinguish itself through consistent and resilient internal and external growth, including 4% same store NOI growth and a sector leading net new investments of $4.4 billion," commented George L. Chapman, Chairman and CEO of Health Care REIT. "As we enter 2013, we have positioned the company as a clear sector leader by accelerating the closing of the Sunrise Senior Living transaction, including $2.5 billion since January 1, 2013. Our portfolio is comprised of premier quality assets located largely in affluent, high barrier to entry markets and operated by an unparalleled network of best-in-class companies in the United States, Canada and the United Kingdom. Our management team with state of the art, scalable infrastructure is proficiently managing our dynamic operating and transactional platforms positioning the company to continue to deliver excellent returns for our shareholders."

2013 Highlights and Outlook

  • Completed acquisition of Sunrise Senior Living in January

  • Increased unsecured credit facility to $2.75 billion, extended term and reduced borrowing rate

  • Introduced 2013 normalized FFO guidance of $3.70 to $3.80 per diluted share, up 5%-8%

  • Introduced 2013 normalized FAD guidance of $3.25 to $3.35 per diluted share, up 5%-8%

  • Announced 2013 dividend payment rate of $3.06 per share, representing a 3.4% increase above 2012 payments

2012 Highlights

  • Reported 4Q12 normalized FFO and FAD of $0.85 and $0.74 per share

  • Reported 2012 normalized FFO and FAD of $3.52 and $3.11 per share

  • Increased 4Q12 same-store cash NOI by 4.0%, including 8.6% growth in our seniors housing operating portfolio

  • Generated 2012 total shareholder return of 18%

  • Increased private pay mix to 79% in 2012 from 71% in 2011

  • Expanded internationally with investments in Canada and the United Kingdom

  • Completed gross new investments of $2.0 billion in 4Q12, including $846 million with Sunrise and $530 million with Belmont Village

  • Completed gross new investments of $4.9 billion in 2012, including $3.7 billion from existing relationships

  • Received $635 million in proceeds on dispositions in 2012, generating $101 million in gains

  • Raised over $6 billion of equity and debt capital in 2012, including over $1.2 billion in 4Q12

Dividends for Fourth Quarter 2012 As previously announced, the Board of Directors declared a cash dividend for the quarter ended December 31, 2012 of $0.765 per share, as compared to $0.74 per share for the same period in 2011, representing a 3.4% increase. The cash dividend was paid on February 20, 2013 and was the company's 167th consecutive quarterly dividend payment. The declaration and payment of quarterly dividends remains subject to review by and approval of the Board of Directors.

Fourth Quarter Investment Highlights During the quarter, the company completed $1.6 billion in seniors housing operating investments, including $1.1 billion of acquisitions at a blended yield of 6.5% and $581 million of loans. The acquisitions include 11 properties with Belmont Village for $530 million, 11 properties with Brookdale Senior Living (NYS: BKD) for $271 million, and five properties with Sunrise Senior Living for $265 million. The loans were all made to Sunrise in conjunction with the buy-out of certain joint venture partners. The company has subsequently converted the loans to real property with the merger consummation on January 9, 2013.

During the quarter, the company completed $115 million in seniors housing triple-net lease investments at a blended yield of 8.0%. The investments include two acquisitions totaling $52 million at a blended yield of 7.3%. In addition, the company completed five development projects totaling $63 million at a blended yield of 8.5% during the quarter.

During the quarter, the company completed $267 million in medical office building investments at a blended yield of 7.3%. The investments include the acquisition of 11 medical office buildings for $190 million and two development completions, all of which are affiliated with leading health systems. The 11 buildings acquired total 718,000 rentable square feet, with a yield of 7.2% and average occupancy of 96%. The development completions represent a total of 312,000 rentable square feet that are 94% leased with a blended yield of 7.6%.

Sunrise Acquisition Update As previously announced, the company completed its acquisition of the Sunrise property portfolio, the sale of the Sunrise management company, and the acceleration of all planned joint venture buy-outs. The company's investment in Sunrise properties is currently $3.5 billion, and the company expects that investment to increase to $4.3 billion by July 2013 upon exercise of the company's rights to acquire additional joint venture partner interests at favorable fixed purchase prices.

The $4.3 billion investment is expected to include 120 wholly owned properties and five joint venture properties. The 125 properties are among the highest quality seniors housing properties in the marketplace. Approximately 90% of the properties are Sunrise's well regarded mansion prototype, while the average age of these properties is only eight years. The properties generate average monthly rental rates that are nearly 100% higher than the national average, because they are located in markets with high concentrations of age and income-qualified elderly, affluence, and significant barriers to entry. The high quality of these properties is also evidenced by the fact that the median housing value in these markets is 100% higher than the national median. The properties are concentrated in London, Southern California, Chicago, Philadelphia, Boston, Washington D.C., and Montreal. The company expects the $4.3 billion acquisition to generate a 6.5% unlevered initial yield, or 6.1% after capital expenditures.

Immediately prior to the acquisition of the Sunrise property portfolio, an entity led by affiliates of Kohlberg Kravis Roberts & Co. L.P. and affiliates of Beecken Petty O'Keefe & Company acquired the Sunrise management company for approximately $130 million, with the company investing approximately $26 million in the entity for a 20% ownership interest.

Sunrise Investments Reconciliation

($ millions)

Total Completed
as of 2/25/13

Remaining
2013E

Total

Debt Assumed(1)

$

444.6

$

49.4

$

494.0

Cash Required

$

3,084.4

$

695.8

$

3,780.2

Acquisition Amount

$

3,529.0

$

745.2

$

4,274.2

(1) Debt assumed is net of payoffs that occurred as of the respective closings or shortly thereafter and includes our pro rata share of debt at unconsolidated entities.

All amounts included in this announcement relating to acquisitions or investments that have not yet closed are preliminary estimates, are subject to downward or upward adjustment, and are subject to change. Our anticipated acquisitions and investments are in various stages of closing and some or all of the transactions may not be completed on currently anticipated terms, or within currently anticipated timeframes, or at all. The completion of the anticipated acquisitions and investments is subject to the satisfaction of various conditions. For completed transactions, certain amounts are based on exchange rates in effect as of the relevant closing dates.

Outlook for 2013 The company is introducing its 2013 guidance and expects to report net income attributable to common stockholders in a range of $1.30 to $1.40 per diluted share; normalized FFO in a range of $3.70 to $3.80 per diluted share, representing a 5%-8% increase; and normalized FAD in a range of $3.25 to $3.35 per diluted share, representing a 5%-8% increase.

In preparing its guidance, the company made the following assumptions:

  • Same Store Cash NOI: The company expects blended same store cash NOI growth of approximately 3% in 2013.

  • Investments: 2013 earnings guidance does not include any 2013 acquisitions beyond the company's acquisition of Sunrise Senior Living and planned Sunrise joint venture buy-outs in mid-2013.

  • Dispositions: The company anticipates approximately $500 million of dispositions in 2013 at an average yield of 10%.

  • Repositioned Entrance Fee Portfolio: The company repositioned its entrance fee portfolio by transitioning three buildings to a new operator under a rental model, converting one former entrance fee building to a RIDEA structure, and restructuring rents on eight of the remaining 10 entrance fee communities. The aggregate impact to 2013 normalized FFO and FAD as a result of the entrance fee portfolio repositioning is approximately ($0.07) to ($0.08) per share. Entrance fee communities now represent less than 1% of the company's total properties and less than 2% of the company's total NOI.

  • Development: The company anticipates funding additional development of $178 million in 2013 relating to projects underway on December 31, 2012. The company expects development conversions of approximately $249 million in 2013. These investments are currently expected to generate initial yields of approximately 8.3% upon conversion based on in-place contracts as of December 31, 2012.

  • Cap-ex, Tenant Improvements, Lease Commissions: The company estimates cap-ex, tenant improvements and lease commissions of approximately $73 million in 2013, comprised of $54 million associated with our seniors housing operating portfolio and $19 million with our MOB portfolio.

  • G&A Expenses: The company estimates general and administrative expenses of approximately $115 million in 2013. The G&A forecast includes approximately $8.5 million of anticipated expense related to accelerated expensing of stock-based compensation, which will occur in 1Q13.

  • Long Term Leverage Target: The company continues to manage the balance sheet to a debt-to-undepreciated book capitalization target of approximately 40% over the long term.

The company's guidance does not include any additional 2013 investments beyond the announced Sunrise related investments, 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 fourth quarter 2012 conference call.

Conference Call Information The company has scheduled a conference call on Tuesday, February 26, 2013 at 9:00 a.m. Eastern Time to discuss its fourth quarter 2012 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 March 12, 2013. To access the rebroadcast, dial 855-859-2056 or 404-537-3406 (international). The conference ID number is 92396483. 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 at medical office buildings. 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 December 31, 2012, 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 December 31, 2012, the company's broadly diversified portfolio consisted of 1,025 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)

December 31,

2012

2011

Assets

Real estate investments:

Land and land improvements

$

1,365,391

$

1,116,756

Buildings and improvements

15,635,127

13,073,747

Acquired lease intangibles

673,684

428,199

Real property held for sale, net of accumulated depreciation

245,213

36,115

Construction in progress

162,984

189,502

18,082,399

14,844,319

Less accumulated depreciation and intangible amortization

(1,555,055)

(1,194,476)

Net real property owned

16,527,344

13,649,843

Real estate loans receivable(1)

895,665

292,507

Net real estate investments

17,423,009

13,942,350

Other assets:

Investments in unconsolidated entities

438,936

241,722

Goodwill

68,321

68,321

Deferred loan expenses

66,327

58,584

Cash and cash equivalents

1,033,764

163,482

Restricted cash

107,657

69,620

Receivables and other assets(2)

411,095

380,527

2,126,100

982,256

Total assets

$

19,549,109

$

14,924,606

Liabilities and equity

Liabilities:

Borrowings under unsecured lines of credit arrangements

$

-

$

610,000

Senior unsecured notes

6,114,151

4,434,107

Secured debt

2,336,196

2,112,649

Capital lease obligations

81,552

83,996

Accrued expenses and other liabilities

462,099

371,557

Total liabilities

8,993,998

7,612,309

Redeemable noncontrolling interests

34,592

33,650

Equity:

Preferred stock

1,022,917

1,010,417

Common stock

260,396

192,299

Capital in excess of par value

10,543,690

7,019,714

Treasury stock

(17,875)

(13,535)

Cumulative net income

2,184,819

1,893,806

Cumulative dividends

(3,694,579)

(2,972,129)

Accumulated other comprehensive income

(11,028)

(11,928)

Other equity

6,461

6,120

Total Health Care REIT, Inc. stockholders' equity

10,294,801

7,124,764

Noncontrolling interests

225,718

153,883

Total equity

10,520,519

7,278,647

Total liabilities and equity

$

19,549,109

$

14,924,606

(1) Includes non-accrual loan balances of $4,230,000 and $6,244,000 at December 31, 2012 and 2011, respectively.
(2) Includes net straight-line receivable balances of $156,300,000 and $119,555,000 at December 31, 2012 and 2011, respectively.

Consolidated Statements of Income (unaudited)

(in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2012

2011

2012

2011

Revenues:

Rental income

$

285,763

$

238,086

$

1,080,269

$

821,610

Resident fees and service

199,199

136,525

697,494

456,085

Interest income

14,935

8,637

39,065

41,070

Other income

766

1,317

5,271

11,295

Gross revenues

500,663

384,565

1,822,099

1,330,060

Expenses:

Interest expense

94,155

84,322

367,083

297,373

Property operating expenses

161,452

112,275

570,117

377,739

Depreciation and amortization

137,725

115,290

515,888

393,882

General and administrative expenses

20,039

20,190

97,341

77,201

Transaction costs

19,074

13,682

61,609

70,224

Loss (gain) on derivatives, net

(113)

-

(1,825)

-

Loss (gain) on extinguishment of debt, net

(1,566)

(979)

(775)

(979)

Provision for loan losses

-

1,463

27,008

2,010

Total expenses

430,766

346,243

1,636,446

1,217,450

Income (loss) from continuing operations before income taxes

and income from unconsolidated entities

69,897

38,322

185,653

112,610

Income tax (expense) benefit

(3,858)

(825)

(7,612)

(1,388)

Income (loss) from unconsolidated entities

232

1,616

2,482

5,772

Income (loss) from continuing operations

66,271

39,113

180,523

116,994

Discontinued operations:

Gain (loss) on sales of properties, net

54,502

4,594

100,549

61,160

Impairment of assets

(22,335)

(11,992)

(29,287)

(12,194)

Income (loss) from