Health Care REIT, Inc. Reports 14% Increase in Second Quarter Normalized FFO to a Record $1.06 Per Diluted Share

Grows Second Quarter Same Store NOI 4.4%, Led by 7.7% Growth in Seniors Housing Operating Portfolio
Completes $579 Million of Second Quarter Investments
Increases 2014 FFO and FAD Guidance

TOLEDO, Ohio--()--Health Care REIT, Inc. (NYSE:HCN) today announced operating results for the company’s second quarter ended June 30, 2014.

“Our strategy of partnering with the best-in-class seniors housing and post-acute operators as well as strong regional health systems is continuing to generate exceptional results for our shareholders,” said Tom DeRosa, CEO of HCN. “We are adding value to our high-quality portfolio through innovative programs and partnerships to generate consistent and strong same-store NOI growth, which grew 7.7% in our seniors housing operating portfolio and 4.4% in the total portfolio during the second quarter. We also maintain an investment pipeline that delivers consistent quarterly volume from our network of operating partners. The earnings power of our internal and external growth strategy culminated in 14% FFOPS growth and 15% FADPS growth for the quarter. I am proud to lead this special company positioned to continue delivering high-level performance while fulfilling our mission to improve health care delivery in the U.S., Canada and the U.K.”

Earnings Results The company earned record-high quarterly normalized FFO and FAD per share of $1.06 and $0.94, respectively, representing 14% and 15% increases from the second quarter of 2013. These earnings results are primarily attributable to strong quarterly operating results as well as $2.7 billion of investments over the last twelve months.

Dividends for Second Quarter 2014 As previously announced, the Board of Directors declared a cash dividend for the quarter ended June 30, 2014 of $0.795 per share, as compared to $0.765 per share for the same period in 2013, representing a 4% increase. On August 20, 2014, the company will pay its 173rd 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 Activity The company completed $579 million of gross investments for the quarter including $455 million in acquisitions, $44 million in development funding, $76 million in loan advances and $4 million in capital improvements. The $455 million of acquisitions have a blended initial yield of 6.5%. The acquisitions were primarily with existing relationships and are consistent with HCN’s strategic focus on high-quality properties. They include ten medical office buildings, a post-acute property operated by Genesis, a seniors housing operating property managed by Revera and eight seniors housing triple-net properties operated by existing partners. The $44 million in development funding is expected to yield 8.3% upon completion and includes seniors housing, post-acute and medical office properties. The $76 million of loans were made at a blended rate of 7.8%. In addition to the new investment activity during the quarter, the company placed into service three development properties and one property expansion totaling $65 million with a blended yield of 9.3%.

Unsecured Credit Facility Enhancements As previously announced, the company closed on a new $3.23 billion unsecured credit facility. The expanded, extended and lower-priced facility further enhances the company’s access to efficient capital and financial flexibility. The following is a summary of the key changes (with cost data reflective of HCN’s current credit ratings):

        Prior Capacity     New Capacity     Prior Cost     New Cost     Prior Maturity     New Maturity
Revolver $2,250,000,000 $2,500,000,000 LIBOR+117.5 LIBOR+105 3/31/17 + 1 yrs

10/31/18 + 1 yr

USD term loan $500,000,000 $500,000,000 LIBOR+135 LIBOR+115 3/31/16 + 2 yrs

10/31/18 + 1 yr

CAD term loan(1) $250,000,000 $250,000,000 CDOR+145 CDOR+115 7/27/15 + 1 yrs

10/31/18 + 1 yr

(1) Canadian denominated term loan balance was $232.9 million USD at exchange rate as of July 18, 2014. CDOR stands for Canadian Dealer Offered Rate.

Outlook for 2014 The company is increasing its 2014 guidance and now expects to generate normalized FFO in a range of $4.05 to $4.15 per diluted share from the previous range of $4.03 to $4.13 per diluted share, now representing a 6%-9% increase from 2013. The company is also increasing its normalized FAD guidance to a range of $3.57 to $3.67 per diluted share from the previous range of $3.55 to $3.65 per diluted share, now representing a 6%-9% increase from 2013. The $0.02 increase in our normalized FFO and FAD per share guidance is primarily driven by the company’s strong second quarter operating results and investment activity partially offset by an increase in dispositions guidance to $450 million from $250 million. Net income attributable to common stockholders guidance has been decreased to a range of $1.02 to $1.12 per diluted share from the previous range of $1.04 to $1.14 per diluted share due to CEO transition costs and transaction costs offset by decreased depreciation and amortization and the items noted above.

The company’s guidance does not include any additional 2014 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 2014 outlook and assumptions on the second quarter 2014 conference call.

Conference Call Information The company has scheduled a conference call on Friday, August 1, 2014 at 10:00 a.m. Eastern Time to discuss its second quarter 2014 results, industry trends, portfolio performance and outlook for 2014. 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 15, 2014. To access the rebroadcast, dial 855-859-2056 or 404-537-3406 (international). The conference ID number is 72715970. 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 attributable to common stockholders, 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 and noncontrolling interests. 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, 2014, 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. HCN, 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, 2014, the company’s broadly diversified portfolio consisted of 1,224 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 contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. When the company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. In particular, these forward-looking statements include, but are not limited to, those relating to the company’s opportunities to acquire, develop or sell properties; the company’s ability to close its anticipated acquisitions, investments or dispositions on currently anticipated terms, or within currently anticipated timeframes; the expected performance of the company’s operators/tenants and properties; the company’s expected occupancy rates; the company’s ability to declare and to make distributions to shareholders; the company’s investment and financing opportunities and plans; the company’s continued qualification as a real estate investment trust (“REIT”); the company’s ability to access capital markets or other sources of funds; and the company’s ability to meet its earnings guidance. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the company’s actual results to differ materially from the company’s expectations discussed in the forward-looking statements. 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 properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting the company’s properties; 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; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting the company’s properties; changes in rules or practices governing the company’s financial reporting; the movement of U.S. and foreign currency exchange rates; the company’s ability to maintain its qualification as a REIT; key management personnel recruitment and retention; and other risks described in the company’s reports filed from time to time with the Securities and Exchange Commission. Finally, the company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, 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,
2014     2013
Assets
Real estate investments:
Land and land improvements $ 1,916,820 $ 1,710,084
Buildings and improvements 21,151,624 18,776,842
Acquired lease intangibles 1,084,703 928,910
Real property held for sale, net of accumulated depreciation 77,436 31,882
Construction in progress   124,073     137,481  
24,354,656 21,585,199
Less accumulated depreciation and intangible amortization   (2,809,530 )   (1,933,439 )
Net real property owned 21,545,126 19,651,760
Real estate loans receivable(1)   367,186     312,356  
Net real estate investments 21,912,312 19,964,116
Other assets:
Investments in unconsolidated entities 680,558 768,737
Goodwill 68,321 68,321
Deferred loan expenses 65,479 71,218
Cash and cash equivalents 207,354 512,472
Restricted cash 65,139 212,812
Receivables and other assets(2)   574,727     598,717  
  1,661,578     2,232,277  
Total assets $ 23,573,890   $ 22,196,393  
 
Liabilities and equity
Liabilities:
Borrowings under unsecured lines of credit arrangements $ - $ -
Senior unsecured notes 7,411,243 6,604,979
Secured debt 2,850,103 2,875,606
Capital lease obligations 83,850 79,481
Accrued expenses and other liabilities   678,400     539,361  
Total liabilities 11,023,596 10,099,427
Redeemable noncontrolling interests 35,404 32,810
Equity:
Preferred stock 1,006,250 1,022,917
Common stock 308,355 285,085
Capital in excess of par value 13,524,621 12,263,927
Treasury stock (32,289 ) (21,248 )
Cumulative net income 2,484,425 2,264,573
Cumulative dividends (5,096,110 ) (4,127,597 )
Accumulated other comprehensive income (18,642 ) (49,174 )
Other equity   6,159     5,678  
Total Health Care REIT, Inc. stockholders’ equity 12,182,769 11,644,161
Noncontrolling interests   332,121     419,995  
Total equity   12,514,890     12,064,156  
Total liabilities and equity $ 23,573,890   $ 22,196,393  

(1)

 

Includes non-accrual loan balances of $0 and $4,230,000 at June 30, 2014 and 2013, respectively.

(2)

Includes net straight-line receivable balances of $231,668,000 and $174,138,000 at June 30, 2014 and 2013, respectively.

 
 
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
        Three Months Ended     Six Months Ended
June 30, June 30,
2014   2013 2014   2013
Revenues:
Rental income $ 347,847 $ 298,873 $ 684,303 $ 591,516
Resident fees and service 467,639 370,995 923,904 698,319
Interest income 8,933 7,640 17,527 16,696
Other income 2,027   1,025   2,520   1,725  
Gross revenues 826,446 678,533 1,628,254 1,308,256
 
Expenses:
Interest expense 121,065 109,465 241,898 218,303
Property operating expenses 343,754 277,958 685,185 530,780
Depreciation and amortization 214,449 198,062 447,766 382,750
General and administrative expenses 51,660 23,902 84,524 51,081
Transaction costs 7,040 28,136 7,993 94,116
Loss (gain) on derivatives, net 351 (2,716 ) 351 (407 )
Loss (gain) on extinguishment of debt, net   531     -     383     (308 )
Total expenses 738,850 634,807 1,468,100 1,276,315
 
Income (loss) from continuing operations before income taxes                
and income from unconsolidated entities 87,596 43,726 160,154 31,941
Income tax (expense) benefit (1,569 ) (1,215 ) (3,830 ) (3,978 )
Income (loss) from unconsolidated entities   (11,516 )   (5,461 ) (17,073 ) (3,198 )
Income (loss) from continuing operations 74,511 37,050 139,251 24,765
 
Discontinued operations:
Gain (loss) on sales of discontinued properties, net 6,411 (29,997 ) 6,411 52,495
Income (loss) from discontinued operations, net   264     128   724   1,720  
6,675 (29,869 ) 7,135 54,215
Gain (loss) on real estate dispositions, net   6,668     -     6,668     -  
Net income (loss) 87,854 7,181 153,054 78,980
Less: Preferred dividends 16,352 16,602 32,705 33,203
Net income (loss) attributable to noncontrolling interests   (327 )   (913 )   (1,502 )   (774 )
Net income (loss) attributable to common stockholders $ 71,829   $ (8,508 ) $ 121,851     46,551  
 
Average number of common shares outstanding:
Basic 296,256 273,091 293,046 266,602
Diluted 297,995 276,481 294,590 266,602
 
Net income (loss) attributable to common stockholders per share:
Basic $ 0.24 $ (0.03 ) $ 0.42 $ 0.17
Diluted $ 0.24 $ (0.03 ) $ 0.41 $ 0.17
 
Common dividends per share $ 0.795 $ 0.765 $ 1.59 $ 1.53
 
       

Normalizing Items

Exhibit 1
(in thousands, except per share data) Three Months Ended     Six Months Ended
June 30, June 30,
2014   2013 2014   2013
Transaction costs $

7,040(1)

$ 28,136 $ 7,993 $ 94,116
Loss (gain) on derivatives, net

351(2)

(2,716 ) 351 (407 )
Loss (gain) on extinguishment of debt, net

531(3)

- 383 (308 )
CEO transition costs

19,688(4)

- 19,688 -
Normalizing items attributable to noncontrolling interests and unconsolidated entities, net  

4,502(5)

  (11 )   4,607   (11 )
Total $ 32,112 $ 25,409 $ 33,022 $ 93,390
 
Average diluted common shares outstanding 297,995 276,481 294,590 269,580
Net amount per diluted share $ 0.11 $ 0.09 $ 0.11 $ 0.35
Notes:  

(1)

 

Primarily costs incurred with seniors housing transactions.

   

(2)

Related to settlement of currency hedges on foreign investments.

(3)

Primarily related to seniors housing secured debt extinguishments.

(4)

Costs associated with CEO retirement and transition, including compensation and professional services.

(5)

Primarily related to costs incurred with unconsolidated seniors housing transactions.

 
       

Funds Available for Distribution Reconciliation

Exhibit 2
(in thousands, except per share data) Three Months Ended     Six Months Ended
June 30, June 30,
2014   2013 2014   2013
Net income (loss) attributable to common stockholders $ 71,829 $ (8,508 ) $ 121,851 $ 46,551
Depreciation and amortization(1) 214,449 200,477 447,766 387,599
Losses/impairments (gains) on properties, net (13,079 ) 29,997 (13,079 ) (52,495 )
Noncontrolling interests(2) (8,361 ) (6,831 ) (17,885 ) (11,911 )
Unconsolidated entities(3) 18,881 11,348 33,304 25,269
Gross straight-line rental income (22,958 ) (13,683 ) (39,550 ) (28,329 )
Prepaid/straight-line rent receipts 2,656 184 3,117 4,441
Amortization related to above (below) market leases, net 280 40 365 195
Non-cash interest expense 1,649 1,237 1,980 4,731
Cap-ex, tenant improvements, lease commissions   (13,796 )   (12,174 )   (26,188 )   (24,059 )
Funds available for distribution 251,550 202,087 511,681 351,992
Normalizing items, net(4) 32,112 25,409 33,022 93,390
Prepaid/straight-line rent receipts   (2,656 )   (184 )   (3,117 )   (4,441 )
Funds available for distribution - normalized $ 281,006 $ 227,312 $ 541,586 $ 440,941
 
Average diluted common shares outstanding 297,995 276,481 294,590 269,580
 
Per share data:
Net income (loss) attributable to common stockholders $ 0.24 $ (0.03 ) $ 0.41 $ 0.17
Funds available for distribution $ 0.84 $ 0.73 $ 1.74 $ 1.31
Funds available for distribution - normalized $ 0.94 $ 0.82 $ 1.84 $ 1.64
 
Normalized FAD Payout Ratio:
Dividends per common share $ 0.795 $ 0.765 $ 1.59 $ 1.53
FAD per diluted share - normalized $ 0.94   $ 0.82   $ 1.84   $ 1.64  
Normalized FAD payout ratio 85 % 93 % 86 % 93 %
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,
2014 2013 2014 2013
Net income (loss) attributable to common stockholders $ 71,829 $ (8,508 ) $ 121,851 $ 46,551
Depreciation and amortization(1) 214,449 200,477 447,766 387,599
Losses/impairments (gains) on properties, net (13,079 ) 29,997 (13,079 ) (52,495 )
Noncontrolling interests(2) (9,741 ) (7,821 ) (20,259 ) (13,614 )
Unconsolidated entities(3)   20,787     16,521     36,770     33,504  
Funds from operations 284,245 230,666 573,049 401,545
Normalizing items, net(4)   32,112     25,409     33,022     93,390  
Funds from operations - normalized $ 316,357 $ 256,075 $ 606,071 $ 494,935
 
Average diluted common shares outstanding 297,995 276,481 294,590 269,580
 
Per share data:
Net income (loss) attributable to common stockholders $ 0.24 $ (0.03 ) $ 0.41 $ 0.17
Funds from operations $ 0.95 $ 0.83 $ 1.95 $ 1.49
Funds from operations - normalized $ 1.06 $ 0.93 $ 2.06 $ 1.84
 
Normalized FFO Payout Ratio:
Dividends per common share $ 0.795 $ 0.765 $ 1.59 $ 1.53
FFO per diluted share - normalized $ 1.06   $ 0.93   $ 2.06   $ 1.84  
Normalized FFO payout ratio 75 % 82 % 77 % 83 %
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, 2014

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

FFO Reconciliation:

Net income attributable to common stockholders $ 1.04 $ 1.14 $ 1.02 $ 1.12
Depreciation and amortization(1)   2.99     2.99     2.92     2.92  
Funds from operations 4.03 4.13 3.94 4.04
Normalizing items, net(2)   -     -     0.11   0.11  
Funds from operations - normalized $ 4.03 $ 4.13 $ 4.05 $ 4.15
 

FAD Reconciliation:

Net income attributable to common stockholders $ 1.04 $ 1.14 $ 1.02 $ 1.12
Depreciation and amortization(1) 2.99 2.99 2.92 2.92
Net straight-line rent and above/below amortization(1) (0.26 ) (0.26 ) (0.26 ) (0.26 )
Cap-ex, tenant improvements, lease commissions(1)   (0.22 )   (0.22 )   (0.22 )   (0.22 )
Funds available for distribution 3.55 3.65 3.46 3.56
Normalizing items, net(2)   -     -     0.11     0.11  
Funds available for distribution - normalized $ 3.55 $ 3.65 $ 3.57 $ 3.67
Notes:  

(1)

 

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

   

(2)

See Exhibit 1.

 

Contacts

Health Care REIT, Inc.
Scott Estes, 419-247-2800
Jay Morgan, 419-247-2800

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Contacts

Health Care REIT, Inc.
Scott Estes, 419-247-2800
Jay Morgan, 419-247-2800