WELL Welltower OP Inc

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      

Announced8/22/12

Completed5/7/13

Completed7/1/13

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

Announced8/22/12

Completed5/7/13

Completed7/1/13

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 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 Liabilities: 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 Equity: 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 Revenues: 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   Expenses: 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)   (1,876) Net income (loss) attributable to common stockholders $ (8,508) $ 54,735 $ 46,551 $ 94,037   Average number of common shares outstanding: Basic 273,091 213,498 266,602 206,612 Diluted 276,481 215,138 266,602 208,237   Net income (loss) attributable to common stockholders per share: Basic $ (0.03) $ 0.26 $ 0.17 $ 0.46 Diluted $ (0.03) $ 0.25 $ 0.17 $ 0.45   Common dividends per share $ 0.765 $ 0.74 $ 1.53 $ 1.48    

Normalizing Items

          Exhibit 1 (in thousands, except per share data)         Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Transaction costs $ 28,136 (1) $ 28,691 $ 94,116 $ 34,270 Special stock compensation grants - - - 4,316 Loss (gain) on derivatives, net (2,716)(2) (2,676) (407) (2,121) Loss (gain) on extinguishment of debt, net - 576 (308) 576 Held for sale hospital operating expenses - - - 215 Preferred stock redemption charge - 6,242 - 6,242 Less: Normalizing items attributable to noncontrolling interests and unconsolidated entities, net   (11)   -   (11)   - Total $ 25,409 $ 32,833 $ 93,390 $ 43,498   Average diluted common shares outstanding 276,481 215,138 269,580 208,237 Net amount per diluted share $ 0.09 $ 0.15 $ 0.35 $ 0.21   Notes:   (1) Primarily costs incurred with seniors housing acquisitions. (2) Related to currency hedges executed to lock the exchange rates on international transactions.              

Funds Available for Distribution Reconciliation

Exhibit 2 (in thousands, except per share data)       Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Net income (loss) attributable to common stockholders $ (8,508) $ 54,735 $ 46,551 $ 94,037 Depreciation and amortization(1) 200,477 132,963 387,599 260,385 Losses/impairments (gains) on properties, net 29,997 (32,450) (52,495) (33,219) Noncontrolling interests(2) (6,831) (4,569) (11,911) (9,059) Unconsolidated entities(3) 11,348 6,641 25,269 7,478 Gross straight-line rental income (13,683) (12,792) (28,329) (23,931) Prepaid/straight-line rent receipts 184 2,123 4,441 3,138 Amortization related to above (below) market leases, net 40 47 195 (205) Non-cash interest expense 1,237 2,849 4,731 6,542 Cap-ex, tenant improvements, lease commissions   (12,174)   (10,647)   (24,059)   (19,233) Funds available for distribution 202,087 138,900 351,992 285,933 Normalizing items, net(4) 25,409 32,833 93,390 43,498 Prepaid/straight-line rent receipts   (184)   (2,123)   (4,441)   (3,138) Funds available for distribution - normalized $ 227,312 $ 169,610 $ 440,941 $ 326,293   Average diluted common shares outstanding 276,481 215,138 269,580 208,237   Per share data: Net income (loss) attributable to common stockholders $ (0.03) $ 0.25 $ 0.17 $ 0.45 Funds available for distribution $ 0.73 $ 0.65 $ 1.31 $ 1.37 Funds available for distribution - normalized $ 0.82 $ 0.79 $ 1.64 $ 1.57   Normalized FAD Payout Ratio: Dividends per common share $ 0.765 $ 0.74 $ 1.53 $ 1.48 FAD per diluted share - normalized $ 0.82 $ 0.79 $ 1.64 $ 1.57 Normalized FAD payout ratio 93% 94% 93% 94%   Notes: (1) Depreciation and amortization includes depreciation and amortization from discontinued operations. (2) Represents noncontrolling interests' share of net FAD adjustments. (3) Represents HCN's share of net FAD adjustments from unconsolidated entities. (4) See Exhibit 1.            

Funds From Operations Reconciliation

Exhibit 3 (in thousands, except per share data)       Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Net income (loss) attributable to common stockholders $ (8,508) $ 54,735 $ 46,551 $ 94,037 Depreciation and amortization(1) 200,477 132,963 387,599 260,385 Losses/impairments (gains) on properties, net 29,997 (32,450) (52,495) (33,219) Noncontrolling interests(2) (7,821) (5,190) (13,614) (10,179) Unconsolidated entities(3)   16,521   7,873   33,504   10,759 Funds from operations 230,666 157,931 401,545 321,783 Normalizing items, net(4)   25,409   32,833   93,390   43,498 Funds from operations - normalized $ 256,075 $ 190,764 $ 494,935 $ 365,281   Average diluted common shares outstanding 276,481 215,138 269,580 208,237   Per share data: Net income (loss) attributable to common stockholders $ (0.03) $ 0.25 $ 0.17 $ 0.45 Funds from operations $ 0.83 $ 0.73 $ 1.49 $ 1.55 Funds from operations - normalized $ 0.93 $ 0.89 $ 1.84 $ 1.75   Normalized FFO Payout Ratio: Dividends per common share $ 0.765 $ 0.74 $ 1.53 $ 1.48 FFO per diluted share - normalized $ 0.93 $ 0.89 $ 1.84 $ 1.75 Normalized FFO payout ratio 82% 83% 83% 85%

 

Notes: (1) Depreciation and amortization includes depreciation and amortization from discontinued operations. (2) Represents noncontrolling interests' share of net FFO adjustments. (3) Represents HCN's share of net FFO adjustments from unconsolidated entities. (4) See Exhibit 1.          

Outlook Reconciliations: Year Ended December 31, 2013

Exhibit 4 (in thousands, except per share data)         Prior Outlook Current Outlook Low High Low High

FFO Reconciliation:

Net income attributable to common stockholders $ 0.70 $ 0.80 $ 0.58 $ 0.68 Losses/impairments (gains) on sale of properties, net (0.31) (0.31) (0.19) (0.19) Depreciation and amortization(1)   3.06   3.06   2.97   2.97 Funds from operations 3.45 3.55 3.36 3.46 Normalizing items, net(2)   0.25   0.25   0.34   0.34 Funds from operations - normalized $ 3.70 $ 3.80 $ 3.70 $ 3.80  

FAD Reconciliation:

Net income attributable to common stockholders $ 0.70 $ 0.80 $ 0.58 $ 0.68 Losses/impairments (gains) on sale of properties, net (0.31) (0.31) (0.19) (0.19) Depreciation and amortization(1) 3.06 3.06 2.97 2.97 Net straight-line rent and above/below amortization(1) (0.18) (0.18) (0.18) (0.18) Non-cash interest expense(1) 0.04 0.04 - - Cap-ex, tenant improvements, lease commissions(1)   (0.29)   (0.29)   (0.25)   (0.25)

Funds available for distribution

3.02 3.12 2.93 3.03 Normalizing items, net(2) 0.25 0.25 0.34 0.34 Prepaid/straight-line rent receipts   (0.02)   (0.02)   (0.02)   (0.02) Funds available for distribution - normalized $ 3.25 $ 3.35 $ 3.25 $ 3.35

 

Notes: (1) Amounts presented net of noncontrolling interests' share and HCN's share of unconsolidated entities. (2) See Exhibit 1.