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Health Care REIT, Inc. Reports Third Quarter Results

Stocks in this article: HCN

Outlook for 2012  The company is updating its normalized 2012 FFO and FAD guidance to reflect recently announced investment and capital activity. Relative to prior FFO and FAD guidance, the midpoint of our guidance ranges would be increasing by $0.04 per share but for the decision to pre-emptively raise capital to fund the Sunrise acquisition, which negatively impacts expectations by $0.11 per share. As a result, normalized FFO has been updated to a range of $3.49 to $3.53 per diluted share from $3.53 to $3.63 per diluted share and normalized FAD has been updated to a range of $3.07 to $3.11 per diluted share from $3.11 to $3.21 per diluted share. Net income attributable to common stockholders has been revised to a range of $0.91 to $0.95 per diluted share from $1.07 to $1.17 per diluted share. The company now expects up to $700 million of dispositions in 2012, up from the previous expectation of $300 million, which consist primarily of non-strategic skilled nursing facilities.

The company’s guidance does not include any additional 2012 investments beyond what has been announced, nor any additional 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.

Conference Call Information  The company has scheduled a conference call on Tuesday, November 6, 2012 at 10:00 a.m. Eastern Time to discuss its third quarter 2012 results, industry trends, portfolio performance and outlook for 2012. 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 November 20, 2012. To access the rebroadcast, dial 855-859-2056 or 404-537-3406 (international). The conference ID number is 40018571. 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.

Key Performance Indicators

       
            3Q12     3Q11     Change
Net income (loss) attributable to common        
  stockholders (NICS) per diluted share         $ 0.16     $ 0.21     -24%
Normalized FFO per diluted share         $ 0.91     $ 0.89     2%
Normalized FAD per diluted share         $ 0.82     $ 0.79     4%
Dividends per common share         $ 0.74     $ 0.715     3%
Normalized FFO Payout Ratio           81%       80%      
Normalized FAD Payout Ratio           90%       91%      
 

Quarterly Earnings

                           
   

 

NICS

 

 

FFO

 

 

FAD

              3Q12   3Q11   Change     3Q12   3Q11   Change     3Q12   3Q11   Change
Per diluted share         $ 0.16   $ 0.21   -24%     $ 0.75   $ 0.85   -12%     $ 0.67   $ 0.75   -11%
  Includes impact of:                                                          
    Gains (losses/impairments) (1)         $

0.03

  $

-

                                       
    Other items, net (2)         $ (0.16)   $ (0.04)         $ (0.16)   $ (0.04)         $ (0.16)   $ (0.04)    
    Prepaid/straight-line rent receipts (3)                                             $ 0.01   $ 0.01    
Per diluted share - normalized (a)                           $ 0.91   $ 0.89   2%     $ 0.82   $ 0.79   4%

(a)

 

Amounts may not sum due to rounding

(1)

 

$5,875,000 and $185,000 of net gains in 3Q12 and 3Q11, respectively.

(2)

See Exhibit 1.

(3)

$1,956,000 and $1,599,000 of receipts in 3Q12 and 3Q11, respectively.

 

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 September 30, 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 September 30, 2012, the company’s broadly diversified portfolio consisted of 1,030 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 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)
                September 30,
2012     2011
Assets
Real estate investments:
Land and land improvements $ 1,268,757 $ 1,039,079
Buildings and improvements 14,766,557 12,114,068
Acquired lease intangibles 572,765 361,832
Real property held for sale, net of accumulated depreciation 153,458 5,550
Construction in progress   219,705     208,257  
16,981,242 13,728,786
Less accumulated depreciation and intangible amortization   (1,480,293 )   (1,084,746 )
Net real property owned 15,500,949 12,644,040
Real estate loans receivable (1) 284,908 320,611
Less allowance for losses on loans receivable   -     (1,823 )
Net real estate loans receivable   284,908     318,788  
Net real estate investments 15,785,857 12,962,828
Other assets:
Investments in unconsolidated entities 456,552 239,984
Goodwill 68,321 68,321
Deferred loan expenses 57,539 59,446
Cash and cash equivalents 1,382,252 136,676
Restricted cash 140,404 56,675
Receivables and other assets (2)   391,350     337,159  
  2,496,418     898,261  
Total assets $ 18,282,275   $ 13,861,089  
 
Liabilities and equity
Liabilities:
Borrowings under unsecured lines of credit arrangements $ - $ 390,000
Senior unsecured notes 4,921,712 4,432,092
Secured debt 2,314,717 1,888,083
Capital lease obligations 82,596 82,872
Accrued expenses and other liabilities   405,798     342,013  
Total liabilities 7,724,823 7,135,060
Redeemable noncontrolling interests 35,047 32,863
Equity:
Preferred stock 1,022,917 1,010,417
Common stock 259,522 178,772
Capital in excess of par value 10,502,057 6,384,711
Treasury stock (17,531 ) (13,535 )
Cumulative net income 2,077,641 1,849,290
Cumulative dividends (3,485,592 ) (2,826,800 )
Accumulated other comprehensive income (10,432 ) (10,354 )
Other equity   7,445     6,292  
Total Health Care REIT, Inc. stockholders’ equity 10,356,027 6,578,793
Noncontrolling interests   166,378     114,373  
Total equity   10,522,405     6,693,166  
Total liabilities and equity $ 18,282,275   $ 13,861,089  
 

(1)

 

Includes non-accrual loan balances of $13,035,000 and $9,287,000 at September 30, 2012 and 2011, respectively.

(2)

Includes net straight-line receivable balances of $155,495,000 and $107,871,000 at September 30, 2012 and 2011, respectively.

 
 
 
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
              Three Months Ended     Nine Months Ended
September 30, September 30,
2012   2011 2012   2011
Revenues:
Rental income $ 290,225 $ 235,938 $ 826,627 $ 615,219
Resident fees and service 174,464 125,125 498,295 319,559
Interest income 8,111 7,858 24,131 32,433
Other income   1,339     1,809     4,505     9,974  
Gross revenues 474,139 370,730 1,353,558 977,185
 
Expenses:
Interest expense 94,580 84,429 280,058 220,527
Property operating expenses 144,479 103,127 409,606 266,081
Depreciation and amortization 132,150 111,582 387,053 286,623
General and administrative expenses 23,679 19,735 77,302 57,009
Transaction costs 8,264 6,739 42,535 56,542
Loss (gain) on derivatives, net 409 - (1,712 ) -
Loss (gain) on extinguishment of debt, net 215 - 791 -
Provision for loan losses   27,008     132     27,008     547  
Total expenses 430,784 325,744 1,222,641 887,329
 
Income (loss) from continuing operations before income taxes                
and income from unconsolidated entities 43,355 44,986 130,917 89,856
 
Income tax (expense) benefit (836 ) (223 ) (3,754 ) (563 )
Income (loss) from unconsolidated entities   (739 )   1,642     2,250     4,156  
Income (loss) from continuing operations 41,780 46,405 129,413 93,449
 
Discontinued operations:
Gain (loss) on sales of properties, net 12,827 185 46,046 56,565
Impairment of assets (6,952 ) - (6,952 ) (202 )
Income (loss) from discontinued operations, net   5,851     5,763     19,329     20,561  
  11,726     5,948     58,423     76,924  
Net income (loss) 53,506 52,353 187,836 170,373
Less: Preferred dividends 16,602 17,234 52,527 43,268
Preferred stock redemption charge - - 6,242 -
Net income (loss) attributable to noncontrolling interests   (365 )   (1,488 )   (2,241 )   (2,721 )
Net income (loss) attributable to common stockholders $ 37,269   $ 36,607   $ 131,308   $ 129,826  
 
Average number of common shares outstanding:
Basic 224,391 177,272 212,592 169,636
Diluted 226,258 177,849 214,075 170,301
 
Net income (loss) attributable to common stockholders per share:
Basic $ 0.17 $ 0.21 $ 0.62 $ 0.77
Diluted $ 0.16 $ 0.21 $ 0.61 $ 0.76
 
Common dividends per share $ 0.74 $ 0.715 $ 2.22 $ 2.12
 
               
 

Normalizing Items

Exhibit 1
(in thousands, except per share data)  
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Transaction costs $

8,264

(1)

$ 6,739 $ 42,535 $ 56,542
Special stock compensation grants - - 4,316 -
Loss (gain) on derivatives, net

409

(2)

- (1,712 ) -
Loss (gain) on extinguishment of debt, net

215

(3)

- 791 -
Provision for loan losses

27,008

(4)

132 27,008 547
Held for sale hospital operating expenses - 212 215 1,306
Non-recurring other income - - - (3,774 )
Preferred stock redemption charge   -     -   6,242     -  
Total $ 35,896 $ 7,083 $ 79,395 $ 54,621
 
Average diluted common shares outstanding 226,258 177,849 214,075 170,301
Net amount per diluted share $ 0.16 $ 0.04 $ 0.37 $ 0.32
 
  Notes:  

(1)

 

Primarily costs incurred with seniors housing acquisitions.

(2)

Related to currency hedges executed to lock the exchange rates on international transactions.

(3)

Related to secured debt extinguishments during the quarter.

(4)

Primarily related to one seniors housing loan.

 
                 

Funds Available for Distribution Reconciliation

Exhibit 2
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Net income (loss) attributable to common stockholders $ 37,269 $ 36,607 $ 131,308 $ 129,826
Depreciation and amortization (1) 132,858 115,640 393,243 301,461
Losses/impairments (gains) on properties, net (5,875 ) (185 ) (39,094 ) (56,363 )
Noncontrolling interests (2) (4,631 ) (2,330 ) (13,689 ) (11,802 )
Unconsolidated entities (3) 8,518 1,631 15,996 4,476
Gross straight-line rental income (13,231 ) (11,891 ) (37,162 ) (27,909 )
Prepaid/straight-line rent receipts 1,956 1,599 5,093 8,312
Amortization related to above (below) market leases, net 972 (532 ) 767 (1,588 )
Non-cash interest expense 2,241 3,714 8,782 10,129
Cap-ex, tenant improvements, lease commissions   (9,345 )   (9,992 )   (28,578 )   (26,873 )
Funds available for distribution 150,732 134,261 436,666 329,669
Normalizing items, net (4) 35,896 7,083 79,395 54,621
Prepaid/straight-line rent receipts   (1,956 )   (1,599 )   (5,093 )   (8,312 )
Funds available for distribution - normalized $ 184,672 $ 139,745 $ 510,968 $ 375,978
 
Average diluted common shares outstanding 226,258 177,849 214,075 170,301
 
Per diluted share data:
Net income (loss) attributable to common stockholders $ 0.16 $ 0.21 $ 0.61 $ 0.76
Funds available for distribution $ 0.67 $ 0.75 $ 2.04 $ 1.94
Funds available for distribution - normalized $ 0.82 $ 0.79 $ 2.39 $ 2.21
 
Normalized FAD Payout Ratio:
Dividends per common share $ 0.74 $ 0.715 $ 2.22 $ 2.12
FAD per diluted share - normalized $ 0.82   $ 0.79   $ 2.39   $ 2.21  
Normalized FAD payout ratio 90 % 91 % 93 % 96 %
 
  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 Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Net income (loss) attributable to common stockholders $ 37,269 $ 36,607 $ 131,308 $ 129,826

Depreciation and amortization (1)

132,858 115,640 393,243 301,461
Losses/impairments (gains) on properties, net (5,875 ) (185 ) (39,094 ) (56,363 )
Noncontrolling interests (2) (5,440 ) (4,706 ) (15,619 ) (13,353 )
Unconsolidated entities (3)   11,913     3,020     22,673     9,411  
Funds from operations 170,725 150,376 492,511 370,982
Normalizing items, net (4)   35,896     7,083     79,395     54,621  
Funds from operations - normalized $ 206,621 $ 157,459 $ 571,906 $ 425,603
 
Average diluted common shares outstanding 226,258 177,849 214,075 170,301
 
Per diluted share data:
Net income (loss) attributable to common stockholders $ 0.16 $ 0.21 $ 0.61 $ 0.76
Funds from operations $ 0.75 $ 0.85 $ 2.30 $ 2.18
Funds from operations - normalized $ 0.91 $ 0.89 $ 2.67 $ 2.50
 
Normalized FFO Payout Ratio:
Dividends per common share $ 0.74 $ 0.715 $ 2.22 $ 2.12
FFO per diluted share - normalized $ 0.91   $ 0.89   $ 2.67   $ 2.50  
Normalized FFO payout ratio 81 % 80 % 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, 2012

Exhibit 4
(in thousands, except per share data)  
Prior Outlook Current Outlook
Low High Low High
FFO Reconciliation:
Net income attributable to common stockholders $ 1.07 $ 1.17 $ 0.91 $ 0.95
Losses/impairments (gains) on properties, net (0.16) (0.16) (0.17) (0.17)

Depreciation and amortization (1)

  2.42     2.42     2.40     2.40
Funds from operations 3.33 3.43 3.14 3.18
Normalizing items, net (2)   0.20   0.20 0.35   0.35
Funds from operations - normalized $ 3.53 $ 3.63 $ 3.49 $ 3.53
 
FAD Reconciliation:
Net income attributable to common stockholders $ 1.07 $ 1.17 $ 0.91 $ 0.95
Losses/impairments (gains) on properties, net (0.16) (0.16) (0.17) (0.17)
Depreciation and amortization (1) 2.42 2.42 2.40 2.40
Net straight-line rent and above/below amortization (1) (0.22) (0.22) (0.22) (0.22)
Non-cash interest expense (1) 0.06 0.06 0.06 0.06
Cap-ex, tenant improvements, lease commissions (1)   (0.25)   (0.25)   (0.24)   (0.24)
Funds available for distribution 2.92 3.02 2.74 2.78
Normalizing items, net (2) 0.20 0.20 0.35 0.35
Prepaid/straight-line rent receipts   (0.01) (0.01) (0.02) (0.02)
Funds available for distribution - normalized $ 3.11 $ 3.21 $ 3.07 $ 3.11
 
  Notes:  

(1)

 

Amounts presented net of noncontrolling interests' share and HCN's share of unconsolidated entities.

(2)

See Exhibit 1.

 




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