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.
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