Business Context and Reporting Period
Company: Health Care REIT, Inc. (d/b/a Welltower Inc.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2009
Business Overview: An equity real estate investment trust (REIT) investing in senior housing and health care real estate. As of September 30, 2009, the portfolio consisted of 608 properties in 39 states, including independent living, assisted living, skilled nursing, specialty care facilities, and medical office buildings.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Revenues | $145.1 million | $428.4 million |
| Net Income (GAAP) | $24.7 million | $156.1 million |
| Net Income Attributable to Common Stockholders | $19.1 million | $139.5 million |
| Earnings Per Share (Diluted) | $0.17 | $1.25 |
| Funds From Operations (FFO) | $60.9 million | $235.5 million |
| Net Operating Income (NOI) | $134.0 million | $402.0 million |
| Cash and Cash Equivalents | $102.4 million | $102.4 million |
| Total Debt Outstanding | $2.42 billion | $2.42 billion |
| Debt to Book Capitalization | 39% | 39% |
Material Changes vs. Prior Period
- Net Income Decline: Net income attributable to common stockholders decreased 64% for the quarter and 41% for the nine-month period compared to 2008. This decline is primarily due to a significant reduction in gains from the sale of properties (discontinued operations) and increased debt extinguishment losses.
- Discontinued Operations: In the prior year (2008), the company recognized substantial gains from property sales ($130.8 million for the nine months). In 2009, gains were significantly lower ($26.9 million), and the company recorded an impairment charge of $1.9 million on medical office buildings held for sale.
- Debt Extinguishment: The company recognized a loss of $26.4 million on the extinguishment of debt for the quarter ended September 30, 2009, compared to a gain of $0.8 million in the same period in 2008. For the nine months, the loss was $24.7 million versus a gain of $2.1 million in 2008.
- Revenue Growth: Despite the net income decline, total revenues increased 4% for the quarter and 9% for the nine-month period, driven by rental income growth from new acquisitions and development completions.
- Capital Structure: The company reduced borrowings under its unsecured line of credit from $570 million at year-end 2008 to $143 million at September 30, 2009, while increasing secured debt to $625.6 million.
Guidance, Outlook, and Risks
- Investment Strategy: Management expects to complete gross new investments of approximately $550 million in 2009, primarily funded by new development. Net new investments are projected at approximately $300 million after sales and loan repayments.
- Liquidity: The company maintains strong liquidity with $102.4 million in cash, $17.5 million in restricted cash, and $1.0 billion of available borrowing capacity under its unsecured line of credit.
- Dividends: The Board approved a quarterly cash dividend of $0.68 per share, consistent with 2008 levels, marking the 154th consecutive quarterly dividend.
- Risks and Contingencies:
- Healthcare Reform: Ongoing legislative proposals to reform the U.S. healthcare system could impact operator financials and reimbursement rates.
- Market Conditions: The severe recession and credit market volatility may limit access to capital and impact tenant/operator ability to meet obligations.
- Asset Impairment: Continued monitoring of medical office buildings held for sale; further impairment charges may be necessary if fair values decline.
Investor Verification Checklist
- Debt Extinguishment Costs: Verify the impact of the $24.7 million loss on debt extinguishment on future earnings and cash flow.
- Discontinued Operations: Assess the sustainability of earnings without the significant property sale gains recorded in 2008.
- Medical Office Building Portfolio: Review the status of the four medical office buildings held for sale and the $1.9 million impairment charge.
- Capital Markets Access: Confirm the company's ability to refinance debt and raise equity in the current volatile market environment.
- Operator Concentration: Monitor the financial health of top tenants (e.g., Senior Living Communities, Brookdale, Signature Healthcare), which represent 25% of the investment portfolio.