Health Care REIT, Inc. Reports 8% Annual Increase in Normalized FFO to a Record $4.13 Per Diluted Share

Completes $3.7 Billion of 2014 Investments

2014 Same Store NOI Increases an Average 4.2%, Led by 7.3% Growth in Seniors Housing Operating Portfolio

TOLEDO, Ohio--()--Health Care REIT, Inc. (NYSE:HCN) today announced operating results for the company’s fourth quarter ended December 31, 2014.

“Calendar 2014 was a resounding success for our organization, shareholders, and portfolio performance,” said Tom DeRosa, CEO of HCN. “We were among the best performing REITs in the S&P 500, generating a 48.5% total-return. Our existing portfolio delivered the consistent, resilient growth that has become our hallmark, with same store cash NOI growth of 4.2% including phenomenal 7.3% growth in our seniors housing operating portfolio. We completed $3.7 billion of new investments and disposed of over $900 million of non-strategic assets. In successfully raising over $3 billion in capital, we enhanced our credit metrics and liquidity position entering 2015. This outstanding performance underscores the strength of our differentiated model, which fosters connectivity across our healthcare industry partners, yields a consistent investment pipeline, and delivers superior growth and returns for our shareholders.”

Earnings Results The company completed a record year of earnings with normalized FFO and FAD per share of $4.13 and $3.66, respectively, representing 8% and 9% increases from 2013. For the quarter, the company generated normalized FFO and FAD per share of $1.03 and $0.91, respectively, representing 4% and 6% increases from the fourth quarter of 2013. Fourth quarter earnings results are primarily attributable to $1.8 billion of high quality gross investments and strong operations as evidenced by 3.5% same store NOI growth, led by 5.7% for the seniors housing operating portfolio.

Dividend Growth As previously announced, the Board of Directors declared a cash dividend for the quarter ended December 31, 2014 of $0.825 per share, as compared to $0.795 per share for the same period in 2013, representing a 4% increase. On February 20, 2015, the company will pay its 175th consecutive quarterly cash dividend. The declaration and payment of quarterly dividends remains subject to review by and approval of the Board of Directors.

Fourth Quarter Investment Activity The company completed $1.8 billion of gross investments for the quarter including $1.5 billion in acquisitions/JVs, $89 million in development funding, $170 million in loans and $4 million in capital improvements. Of the total, $950 million relates to the previously disclosed HealthLease/Mainstreet transactions. The $1.5 billion acquisitions/JVs have a blended yield of 6.9% and are consistent with the company’s strategic focus on high-quality properties. Excluding HealthLease/Mainstreet, the remaining acquisitions were all with existing relationships and include 18 seniors housing triple-net properties, eight medical office buildings, four seniors housing operating properties and one long-term/post-acute property. The $89 million in development funding is expected to yield 7.8% upon completion and the $170 million of loans were made at a blended rate of 9.4%. In addition to the new investment activity during the quarter, the company placed into service four development properties and two property expansions totaling $78 million with a blended yield of 7.9%.

Outlook for 2015 The company is introducing its 2015 guidance and expects to report net income attributable to common stockholders in a range of $1.70 to $1.80 per diluted share; FFO in a range of $4.25 to $4.35 per diluted share, representing a 3%-5% increase; and FAD in a range of $3.83 to $3.93 per diluted share, representing a 5%-7% increase. In preparing its guidance, the company made the following assumptions:

  • Same Store Cash NOI: The company expects blended same store cash NOI growth of approximately 3.0%-3.5% in 2015.
  • Investments: 2015 earnings guidance does not include any 2015 acquisitions beyond what it has announced. In August 2014, the company entered into a partnership with Mainstreet Property Group to acquire 17 state-of-the-art Next Generation communities for approximately $369 million, representing a 7.5% initial cash yield, beginning in 4Q14 through 1Q16. The company anticipates completing approximately $250 million of gross investments associated with the Mainstreet partnership in 2015.
  • Dispositions: The company anticipates approximately $400 million of dispositions in the first half of 2015 at an average yield on sale of approximately 10%.
  • Development: The company anticipates funding additional development of $172 million in 2015 relating to projects underway on December 31, 2014. The company expects development conversions of approximately $196 million in 2015. These investments are currently expected to generate initial yields of approximately 8.4% upon conversion.
  • Cap-ex, Tenant Improvements, Lease Commissions: The company estimates cap-ex, tenant improvements and lease commissions of approximately $63 million in 2015, comprised of $40 million in our seniors housing operating portfolio and $23 million in our medical facilities portfolio.

The company’s guidance does not include any additional 2015 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 FFO and FAD. The company will provide additional detail regarding its 2015 outlook and assumptions on the fourth quarter 2014 conference call.

Conference Call Information The company has scheduled a conference call on Friday, February 20, 2015 at 10:00 a.m. Eastern Time to discuss its fourth quarter 2014 results, industry trends, portfolio performance and outlook for 2015. Telephone access will be available by dialing 888-346-2469 or 706-758-4923 (international). For those unable to listen to the call live, a taped rebroadcast will be available beginning two hours after completion of the call through March 6, 2015. To access the rebroadcast, dial 855-859-2056 or 404-537-3406 (international). The conference ID number is 67045391. 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 December 31, 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 December 31, 2014, the company’s broadly diversified portfolio consisted of 1,328 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)
  December 31,
2014     2013
Assets
Real estate investments:
Land and land improvements $ 2,046,541 $ 1,878,877
Buildings and improvements 21,799,313 20,625,515
Acquired lease intangibles 1,135,936 1,070,754
Real property held for sale, net of accumulated depreciation 323,818 18,502
Construction in progress   186,327     141,085  
25,491,935 23,734,733
Less accumulated depreciation and intangible amortization   (3,020,908 )   (2,386,658 )
Net real property owned 22,471,027 21,348,075
Real estate loans receivable(1)   380,169     332,146  
Net real estate investments 22,851,196 21,680,221
Other assets:
Investments in unconsolidated entities 744,151 479,629
Goodwill 68,321 68,321
Deferred loan expenses 69,282 70,875
Cash and cash equivalents 473,726 158,780
Restricted cash 79,697 72,821
Receivables and other assets(2)   727,923     553,310  
  2,163,100     1,403,736  
Total assets $ 25,014,296   $ 23,083,957  
 
Liabilities and equity
Liabilities:
Borrowings under primary unsecured credit facility $ - $ 130,000
Senior unsecured notes 7,766,251 7,379,308
Secured debt 2,977,713 3,058,248
Capital lease obligations 84,049 84,458
Accrued expenses and other liabilities   626,825     640,573  
Total liabilities 11,454,838 11,292,587
Redeemable noncontrolling interests 86,409 35,039
Equity:
Preferred stock 1,006,250 1,017,361
Common stock 328,835 289,461
Capital in excess of par value 14,740,712 12,418,520
Treasury stock (35,241 ) (21,263 )
Cumulative net income 2,842,022 2,329,869
Cumulative dividends (5,635,923 ) (4,600,854 )
Accumulated other comprehensive income (77,009 ) (24,531 )
Other equity   5,507     6,020  
Total Health Care REIT, Inc. stockholders’ equity 13,175,153 11,414,583
Noncontrolling interests   297,896     341,748  
Total equity   13,473,049     11,756,331  
Total liabilities and equity $ 25,014,296   $ 23,083,957  

(1)

 

Includes non-accrual loan balances of $21,000,000 and $500,000 at December 31, 2014 and 2013, respectively.

(2)

Includes net straight-line receivable balances of $279,806,000 and $200,436,000 at December 31, 2014 and 2013, respectively.

 
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)
  Three Months Ended   Twelve Months Ended
December 31, December 31,
2014   2013 2014   2013
Revenues:
Rental income $ 367,316 $ 327,497 $ 1,405,767 $ 1,227,589
Resident fees and service 485,921 451,844 1,892,237 1,616,290
Interest income 10,796 8,338 37,667 32,663
Other income   3,736     898     7,875     4,066  
Gross revenues 867,769 788,577 3,343,546 2,880,608
 
Expenses:
Interest expense 120,707 124,223 481,039 458,360
Property operating expenses 363,016 334,111 1,403,358 1,206,813
Depreciation and amortization 195,393 242,023 844,130 865,800
General and administrative expenses 27,616 28,519 142,943 108,318
Transaction costs 47,991 15,693 69,538 133,401
Loss (gain) on derivatives, net (1,895 ) 6 (1,495 ) 4,470
Loss (gain) on extinguishment of debt, net 6,484 3,467 9,558 (909 )
Provision for loan losses - 2,110 - 2,110
Other expenses   -     -     10,262     -  
Total expenses 759,312 750,152 2,959,333 2,778,363
 
Income (loss) from continuing operations before income taxes                
and income from unconsolidated entities 108,457 38,425 384,213 102,245
Income tax (expense) benefit (5,101 ) (435 ) 1,267 (7,491 )
Income (loss) from unconsolidated entities   (7,721 )   (4,659 )   (27,426 )   (8,187 )
Income (loss) from continuing operations 95,635 33,331 358,054 86,567
 
Discontinued operations:
Gain (loss) on sales of discontinued properties, net - (8,064 ) 6,411 49,138
Income (loss) from discontinued operations, net   -     429     724     2,575  
- (7,635 ) 7,135 51,713
Gain (loss) on real estate dispositions, net   110,839     -     147,111     -  
Net income (loss) 206,474 25,696 512,300 138,280
Less: Preferred dividends 16,352 16,531 65,408 66,336
Net income (loss) attributable to noncontrolling interests   1,486     (2,308 )   147     (6,770 )
Net income (loss) attributable to common stockholders $ 188,636   $ 11,473   $ 446,745   $ 78,714  
 
Average number of common shares outstanding:
Basic 327,492 288,133 306,272 276,929
Diluted 329,130 289,677 307,747 278,761
 
Net income (loss) attributable to common stockholders per share:
Basic $ 0.58 $ 0.04 $ 1.46 $ 0.28
Diluted $ 0.57 $ 0.04 $ 1.45 $ 0.28
 
Common dividends per share $ 0.795 $ 0.765 $ 3.18 $ 3.06
 
               

Normalizing Items

Exhibit 1
(in thousands, except per share data) Three Months Ended Twelve Months Ended
  December 31, December 31,
2014 2013 2014 2013
Transaction costs $

47,991 (1)

$ 15,693 $ 69,538 $ 133,401
Loss (gain) on derivatives, net

(1,895)(2)

6 (1,495 ) 4,470
Loss (gain) on extinguishment of debt, net

6,484 (3)

3,467 9,558 (909 )
Provision for loan losses - 2,110 - 2,110
CEO transition costs - - 19,688 -
Nonrecurring income tax benefits - - (17,426 ) -
Other expenses - - 10,262 -
Normalizing items attributable to noncontrolling interests and unconsolidated entities, net  

566 (4)

  (127 )   5,661     (1,985 )
Total $ 53,146 $ 21,149 $ 95,786 $ 137,087
 
Average diluted common shares outstanding 329,130 289,677 307,747 278,761
Net amount per diluted share $ 0.16 $ 0.07 $ 0.31 $ 0.49
Notes:

 (1)

Primarily costs incurred with seniors housing transactions.

 (2)

Related to settlement of currency hedges on foreign investments.

 (3)

Primarily related to discharge of senior notes due 2015.

 (4)

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 Twelve Months Ended
December 31, December 31,
2014 2013 2014 2013
Net income (loss) attributable to common stockholders $ 188,636 $ 11,473 $ 446,745 $ 78,714
Depreciation and amortization(1) 195,393 243,380 844,130 873,960
Losses/impairments (gains) on properties, net (110,839 ) 8,064 (153,522 ) (49,138 )
Noncontrolling interests(2) (6,936 ) (9,267 ) (32,978 ) (32,031 )
Unconsolidated entities(3) 18,420 9,659 68,718 43,422
Gross straight-line rental income (24,439 ) (15,836 ) (88,073 ) (58,880 )
Prepaid/straight-line rent receipts 3,382 1,278 6,264 6,229
Amortization related to above (below) market leases, net 236 54 739 217
Non-cash interest expense (100 ) 363 2,427 4,142
Cap-ex, tenant improvements, lease commissions   (15,178 )   (19,568 )   (59,134 )   (60,984 )
Funds available for distribution 248,575 229,600 1,035,316 805,651
Normalizing items, net(4) 53,146 21,149 95,786 137,087
Prepaid/straight-line rent receipts   (3,382 )   (1,278 )   (6,264 )   (6,229 )
Funds available for distribution - normalized $ 298,339 $ 249,471 $ 1,124,838 $ 936,509
 
Average diluted common shares outstanding 329,130 289,677 307,747 278,761
 
Per share data:
Net income (loss) attributable to common stockholders $ 0.57 $ 0.04 $ 1.45 $ 0.28
Funds available for distribution $ 0.76 $ 0.79 $ 3.36 $ 2.89
Funds available for distribution - normalized $ 0.91 $ 0.86 $ 3.66 $ 3.36
 
Normalized FAD Payout Ratio:
Dividends per common share $ 0.795 $ 0.765 $ 3.18 $ 3.06
FAD per diluted share - normalized $ 0.91   $ 0.86   $ 3.66   $ 3.36  

Normalized FAD payout ratio

87 % 89 % 87 % 91 %
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 Twelve Months Ended
December 31, December 31,
2014 2013 2014 2013
Net income (loss) attributable to common stockholders $ 188,636 $ 11,473 $ 446,745 $ 78,714
Depreciation and amortization(1) 195,393 243,380 844,130 873,960
Losses/impairments (gains) on properties, net (110,839 ) 8,064 (153,522 ) (49,138 )
Noncontrolling interests(2) (8,234 ) (10,362 ) (37,852 ) (36,304 )
Unconsolidated entities(3)   19,560     12,522     74,580     57,652  
Funds from operations - NAREIT 284,516 265,077 1,174,081 924,884
Normalizing items, net(4)   53,146     21,149     95,786     137,087  
Funds from operations - normalized $ 337,662 $ 286,226 $ 1,269,867 $ 1,061,971
 
Average diluted common shares outstanding 329,130 289,677 307,747 278,761
 
Per share data:
Net income (loss) attributable to common stockholders $ 0.57 $ 0.04 $ 1.45 $ 0.28
Funds from operations - NAREIT $ 0.86 $ 0.92 $ 3.82 $ 3.32
Funds from operations - normalized $ 1.03 $ 0.99 $ 4.13 $ 3.81
 
Normalized FFO Payout Ratio:
Dividends per common share $ 0.795 $ 0.765 $ 3.18 $ 3.06
FFO per diluted share - normalized $ 1.03   $ 0.99   $ 4.13   $ 3.81  
Normalized FFO payout ratio 77 % 77 % 77 % 80 %
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, 2015

Exhibit 4
(dollars per fully diluted share)      
      Current Outlook

Low

High

FFO Reconciliation:

Net income attributable to common stockholders $ 1.70 $ 1.80
Depreciation and amortization(1)   2.55     2.55  
Funds from operations - NAREIT $ 4.25 $ 4.35
 

FAD Reconciliation:

Net income attributable to common stockholders $ 1.70 $ 1.80
Depreciation and amortization(1) 2.55 2.55
Net straight-line rent and above/below amortization(1) (0.23 ) (0.23 )
Cap-ex, tenant improvements, lease commissions(1)   (0.19 )   (0.19 )
Funds available for distribution $ 3.83 $ 3.93
Notes:

 (1)

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

Contacts

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

Contacts

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