Grows Second Quarter Same Store NOI 4.4%,
Led by 7.7% Growth in Seniors Housing Operating
PortfolioCompletes $579 Million of Second Quarter
InvestmentsIncreases 2014 FFO and FAD Guidance
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.
Health Care REIT, Inc.Scott Estes, 419-247-2800Jay Morgan,
419-247-2800
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