Health Care REIT In Line - Analyst Blog

By Zacks | May 08, 2012 AAA

Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate, reported first quarter 2012 FFO (funds from operations) of 81 cents per share, compared to 46 cents in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. Excluding one-time items, recurring FFO for the reported quarter was 87 cents per share, compared to 70 cents in the year-ago quarter. The recurring quarterly FFO was in line with the Zacks Consensus Estimate.

Total revenues during the reported quarter were $435.4 million compared to $245.8 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $420 million. Total same-store cash NOI (net operating income) increased 4.2% during the quarter compared to the year-ago period, including 10.3% growth in the senior housing operating portfolio.

During the reported quarter, Health Care REIT made gross new investments of $753 million, bringing the year-to-date tally to $1.3 billion. These included $654 million worth of acquisitions in the reported quarter. The company also received $33 million in proceeds from asset sale and loan payoffs, resulting in $0.8 million in profit for the quarter.

Health Care REIT has continually invested in assisted and independent living facilities as demand for these facilities is set to increase with an aging Baby Boomer generation. In addition, the healthcare industry is the single largest industry in the U.S., based on Gross Domestic Product (GDP). Consequently, healthcare REITs are well poised to maintain their growth curves and simultaneously benefit the shareholders with steadily rising dividends.

During the quarter, the company made about $426 million worth of investments in medical office buildings (MOBs) at a blended yield of 6.7%. These include the purchase of 12 MOBs (average occupancy of 94%) spanning 1 million rentable square feet in aggregate and 1 development conversion (98% leased).

At the same time, the company completed $119 million worth of investments in senior housing triple-net leases at a blended yield of 7.6%. These included the acquisition of 3 facilities operated by Senior Lifestyle - the 10th largest seniors housing provider in the U.S., and 1 development conversion.

In addition, during the reported quarter, Health Care REIT completed the acquisition of 6 communities for $210 million at a blended yield of 6.8%. The acquisition was made in partnership with Belmont Village - the second such transaction recorded with it.

The acquired properties comprise 756 units (100% private pay) located in diverse locations such as California (1 in San Diego), Georgia (2 in Atlanta), Tennessee (1 in Memphis; 1 in Nashville) and Texas (1 in Houston). The properties are spread across attractive metropolitan markets in tune with the investment strategy of the company, and are expected to support an annual NOI growth of 4% to 5%.

During the reported quarter, Health Care REIT issued 20.7 million shares, raising approximately $1.1 billion capital from the equity offering. The company reduced debt to undepreciated book capitalization to 41% at quarter-end from 46% at year-end 2011. At quarter-end, the company had cash and cash equivalents of $469.2 million.

Health Care REIT increased its quarterly dividend from 71.5 cents per share to 74 cents in the reported quarter, which marked the 164th consecutive quarterly dividend payment. The latest dividend payout by Health Care REIT reinforces industry expectations of seeing the healthcare sector paying steadily rising dividends driven by solid growth dynamics.

Health Care REIT updated its recurring FFO guidance for fiscal 2012 to better reflect the effect of an increase in the non-core asset sale target of $300 million from the previous target of $200 million. The company has revised its recurring FFO guidance for fiscal 2012 from the earlier range of $3.53 - $3.63 to $3.50 - $3.60 per share.

We maintain our Neutral recommendation on Health Care REIT, which presently has a Zacks #3 Rank translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for HCP Inc. (HCP), one of the competitors of Health Care REIT.

 
HEALTH CR REIT (HCN): Free Stock Analysis Report
 
HCP INC (HCP): Free Stock Analysis Report
 
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Zacks Investment Research

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