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Health Care REIT (HCN)

Q4 2011 Earnings Call

February 16, 2012 10:00 am ET


Jeffrey H. Miller - Executive Vice President of Operations and General Counsel

George L. Chapman - Chairman, Chief Executive Officer, President, Member of Planning Committee, Member of Executive Committee and Member of Investment Committee

Scott A. Estes - Chief Financial Officer and Executive Vice President

Scott M. Brinker - Executive Vice President of Investments

Stephanie Anderson - Chief Acquisitions Officer of Senior Housing

John T. Thomas - Executive Vice President of Medical Facilities

Charles J. Herman - Chief Investment Officer and Executive Vice President


Adam T. Feinstein - Barclays Capital, Research Division

Bryan Sekino - Barclays Capital, Research Division

Richard C. Anderson - BMO Capital Markets U.S.

Jeff Theiler - Green Street Advisors, Inc., Research Division

James Milam - Sandler O'Neill + Partners, L.P., Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Nicholas Yulico - Macquarie Research

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Molly McCartin - JP Morgan Chase & Co, Research Division

Unknown Analyst

Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Todd Stender - Wells Fargo Securities, LLC, Research Division



Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Health Care REIT Earnings Conference Call. My name is Brooke, and I'll be your operator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

Now I would like to turn the call over to Jeff Miller, Executive Vice President, Operations and General Counsel. Please go ahead, sir.

Jeffrey H. Miller

Thank you, Brooke. Good morning, everyone, and thank you for joining us today for Health Care REIT's Fourth Quarter 2011 Conference Call. If you did not receive a copy of the news release distributed this morning, you may access it via the company's website at hcreit.com. We are holding a live webcast of today's call, which may be accessed through the company's website as well.

Certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Health Care REIT believes results projected in any forward-looking statements are based on reasonable assumptions, the company can give no assurance that its projected results will be attained. Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news release and from time to time, in the company's filings with the SEC.

I will now turn the call over to George Chapman, Chairman, CEO and President of Health Care REIT, for his opening remarks. George?

George L. Chapman

Thanks, Jeff. Let me begin by providing some perspective on the growth and transformation of our company. During the last 5 years, we have built a large S&P 500 company with great personnel and scalable processes. Our assets and enterprise value have more than tripled to $14.9 billion and $18.9 billion, respectively. The company has become a full-service health care, real estate organization dedicated to the continuing improvement of health care delivery.

As we reflect on our company's accomplishments, I would like to highlight just a couple of items from 2011. First, last year we generated 1-year and 5-year cumulative total returns of 21% and 71%, respectively, both were best among our Health Care REIT peers. On the investment front, we completed a record level of $6 million -- $6 billion of investments including $1.2 billion of new investments in the fourth quarter. Clearly, our relationship investing program is working. At year end, 71% of our revenues were derived from private-pay sources. We'll move that number to the 80% level in the next year or so.

Health Care REIT continues to differentiate itself from the market with its relationship investment strategy. Our long-standing immersion in healthcare is an inherent part of our ability to execute on this strategy. Because of this knowledge base, we are able to identify healthcare trends early and positioned and even reposition the portfolio for the future. Moreover, we are able to add substantial value to our operators and health systems.

Our success in attracting the leading operators to our portfolio continued in 2011. We generated $5.2 billion in high-quality Senior Living investments. Significant additional investments were made with existing operators including Brandywine Senior Living, Merrill Gardens, Silverado Senior Living and Capital Senior Living. In the last half of the year, we also developed important new relationships with Chelsea Senior Living, Belmont Senior Living and Chartwell Senior Housing REIT.

We're obviously very excited about our partnership with Chartwell, the premier and largest publicly traded operator of senior housing in Canada. This important new relationships establishes a best-in-class platform for Health Care REIT in Canada and extends our proven business model into the Canadian market. The high-quality portfolio is in attractive Metropolitan markets with favorable demographics and will be immediately accretive to FFO, with future NOI growth projected at 4% to 5%. And we expect to grow this partnership in the future with rights to first offer on acquisition and new development opportunities.

In our medical facilities division, we made investments totaling $745 million last year in high-quality health system-affiliated medical facilities. At year end, our sector leading occupancy and retention rates exceeded 93% and 79%, respectively. We continued to increase the average size of our MOBs to 60,000 square feet and the percentage of MOBs affiliated with health systems to 87%. At year end, we owned and managed over 11 million square feet of MOBs.

A touchstone of the long-term success of our relationship investment program is the strength and quality of our portfolio. We have sector-leading portfolio diversification with our top 10 operators constituting only 52% of our portfolio, and in the face of challenging economic times, our aggregate facility coverage was 1.9:1, demonstrating much greater resiliency for health care and senior housing facilities than for other real estate classes. We are enhancing our portfolio by capturing investments that reflect emerging industry trends in the evolving senior housing and healthcare environment and by culling properties from the portfolio that are not aligned with our strategy.

In 2011, we disposed of $352 million of non-core assets. During the 5 years ended 12/31/11, we averaged $230 million of dispositions per year, and most of these dispositions were older, primarily, Medicaid-funded skilled nursing facilities, small unaffiliated MOBs and smaller portfolios. We have positioned our portfolio in high-end high-barrier-to-entry markets across the country.

At year end, 40% of our portfolio was located in the Northeast and Mid-Atlantic areas. 76% of our portfolio and 91% of our RIDEA investments were located in the East and West Coast markets or the top 31 MSAs. Historically, facilities in these high-barrier-to-entry markets generally outperform other facilities. And these concentrations also give us the opportunity to foster collaboration among portfolio partners across the healthcare spectrum.

Health Care REIT's growth, particularly during the last 2 years has been fueled by rapid growth and change within the Health Care market. We expect the growth and consolidation in health care to continue for several years. It is being driven by economies of scale, the clear need for professional management and training and the critical importance of technology to integrate clinical care, accounting and sales and marketing. These larger professionally managed and visible operators in the system should drive significant future investment opportunities for our company.

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