Health Care REIT Inc.
), a real estate investment trust (REIT) which operates senior
housing and health care real estate, reported first-quarter 2013
normalized FFO (funds from operations) of 91 cents per share, a
cent ahead of the Zacks Consensus Estimate and up 4 cents year
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The increase in year-over-year FFO per share was primarily
attributable to better-than-expected revenue growth. The company
registered a decent same-store NOI growth and asset value
Funds available for distribution (FAD) in the reported quarter
stood at 81 cents per share compared with 78 cents per share in
the year-ago period.
Behind the Headlines
Total revenue reached $633.9 million, escalating 51.7% year over
year. The figure also exceeded the Zacks Consensus Estimate of
$549 million. Total same-store cash NOI (net operating income)
increased 3.5% from the year-ago period. This included a 5.6%
rise in the seniors housing operating portfolio. The company
increased its private pay mix to 82% in the reported quarter from
73% in the year-ago quarter.
Sunrise Acquisition Update
Health Care REIT completed the acquisition of the Sunrise
property portfolio, the divestiture of the Sunrise management
company and the acceleration of all planned joint venture (JV)
Prior to the culmination of the Sunrise property portfolio
acquisition, the affiliates of investment firms,
Kohlberg Kravis Roberts & Co.
) and Beecken Petty O'Keefe & Company acquired the divested
management company business for $130 million.
Health Care REIT's current investment in Sunrise properties is
worth $3.5 billion and it expects the investment to escalate to
$4.3 billion by Jul 2013, subject to exercising of its rights to
acquire additional JV partner interests at fixed purchase prices.
It expects to make investments worth $4.3 billion for 120
wholly-owned properties and 5 JV properties. The properties are
located in high-barriers-to-entry markets such as London,
Southern California, Chicago, Philadelphia, Boston, Washington
D.C. and Montreal. Health Care REIT anticipates the purchase to
generate an unlevered initial yield of 6.5%, or 6.1% after
During the quarter under review, Health Care REIT accomplished
around $2.5 billion in seniors housing operating acquisitions.
This includes 2 properties with
Brookdale Senior Living Inc.
) for $53 million and the Sunrise Senior Living acquisition. In
addition, it closed the acquisition of 2 seniors housing
triple-net properties aggregating $57 million at an yield of
Health Care REIT completed development projects worth $135.5
million at a blended yield of 8.5%. This comprised $75 million of
seniors housing and care projects at a blended yield of 9.0% and
$60.5 million for a medical office building (having 121,000
rentable square feet and is 100% leased) at a 7.8% yield.
As of Mar 31, 2013, Health Care REIT had cash and cash
equivalents of $269.8 million, compared with $469.2 million as of
the prior-year quarter end. The company raised its unsecured line
of credit facility to $2.25 billion and extended term through Mar
Health Care REIT declared a cash dividend of 76.5 cents per share
for first-quarter 2013, marking a rise of 3.4% over the year-ago
dividend of 74 cents. It will be paid on May 20, 2013, to
stockholders of record on May 7, 2013. This marks the company's
168th consecutive quarterly dividend payment.
For full-year 2013, Health Care REIT reaffirmed its guidance and
expects normalized FFO in a range of $3.70-$3.80 per share. Also,
it expects normalized FAD to range from $3.25- $3.35 per share.
Both the projected ranges represent an increase of 5%-8% over the
2012 reported figures.
We are encouraged with the decent results at Health Care REIT.
The company boasts a strong portfolio of senior housing,
long-term care and medical office facilities. Moreover, the
completion of the Sunrise Senior Living facility acquisition
further boosted the company's high-quality senior housing
portfolio and extended its reach in the high-barriers-to-entry
Notably, the healthcare sector is relatively immune to the
downturn in the economy, and provides a steady source of income
that insulates the company from short-term market volatility.
Yet, a large portion of its revenue originates from a few
tenants, which exposes it to concentration risks, and undermines
its growth potential to some extent.
One of the REITs,
) has yet again come up with impressive first-quarter 2013
results. Its normalized FFO reached $1.03 per share in the first
quarter, 4 cents ahead of the Zacks Consensus Estimate of 99
cents and 13% ahead of the year-ago FFO of 91 cents per share,
primarily driven by strategic investments in 2012.
Health Care REIT currently holds a Zacks Rank #4 (Sell). However,
another REIT stock that is performing better and deserves a look
is Healthcare Trust of America Inc. (HTA), which carries a Zacks
Rank #2 (Buy).
FFO, a widely accepted and reported measure of the
performance of REITs, is derived by adding depreciation,
amortization and other non-cash expenses to net income.
FAD, a measure to ascertain the ability of REITs to generate
cash, is derived by subtracting straight-line rent and
non-recurring real estate expenses from funds from