Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1998, for Health Care REIT, Inc. (also referenced as Welltower Inc. in metadata). The company operates as a real estate investment trust focused on health care facilities, including skilled nursing, assisted living, and retirement centers. As of June 30, 1998, the portfolio included 56 skilled nursing facilities, 130 assisted living facilities, 15 retirement centers, six specialty care facilities, and two behavioral care facilities.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1998 | Six Months Ended June 30, 1997 |
|---|---|---|
| Total Revenue | $44,385,000 | $35,017,000 |
| Net Income | $28,148,000 | $21,754,000 |
| Net Income Available to Common Shareholders | $27,316,000 | $21,754,000 |
| Diluted EPS (Common) | $1.09 | $1.05 |
| Net Cash from Operating Activities | $37,391,000 | $25,552,000 |
| Total Assets | $926,987,000 | $734,327,000 (Dec 31, 1997) |
| Total Liabilities | $356,380,000 | $264,403,000 (Dec 31, 1997) |
| Shareholders' Equity | $570,607,000 | $469,924,000 (Dec 31, 1997) |
| Debt-to-Equity Ratio | 0.59 to 1.0 | N/A |
| Cash and Cash Equivalents | $1,270,000 | $1,381,000 (Dec 31, 1997) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased by $9,368,000 (27%) for the six-month period compared to 1997. This was driven primarily by a $6,845,000 increase in operating lease income, a $1,429,000 increase in interest income, and a $1,211,000 increase in loan and commitment fees due to expanded real estate investments.
- Expense Increases: Total expenses rose by $2,974,000 to $16,237,000. Increases were attributed to higher interest expense (due to new senior notes issuances), increased depreciation from new property investments, and higher general and administrative expenses.
- Capitalization of Interest: Capitalized interest increased significantly to $2,843,000 for the six months ended June 30, 1998, compared to $628,000 in the prior year, reducing reported interest expense.
- Preferred Stock Dividends: The company began paying preferred stock dividends in 1998 ($832,000 for the six-month period) following the issuance of preferred stock in May 1998. No such dividends were paid in the comparable 1997 period.
Guidance, Outlook, and Risks
- Capital Raising: In March 1998, the company issued $100 million in 7.625% Senior Unsecured Notes. In May 1998, it issued 3,000,000 shares of 8.875% Cumulative Redeemable Preferred Stock for net proceeds of $72,523,000. Additionally, 913,242 shares of Common Stock were sold in March for $23,721,000.
- Liquidity: The company maintains $185,000,000 in unsecured credit facilities, with approximately $95,400,000 available as of June 30, 1998. It also holds $239,345,000 in unfunded commitments.
- Outlook: Management anticipates using shelf registrations to issue up to $441,269,000 in securities to fund future investments and repay borrowings. The company believes current liquidity is sufficient to meet operations, investment, debt service, and dividend requirements.
- Risks: Risks include competition in health care financing, capital availability, and regulatory changes. The company noted that rising interest rates in inflationary periods could adversely affect growth if investment yields do not keep pace with borrowing costs. The Year 2000 issue is not expected to have a material impact.
- Dividends: A dividend of $0.55 per share was declared on July 21, 1998, payable August 20, 1998, for the period April 1 through June 30, 1998.
Investor Verification Checklist
- Verify the impact of the new $100 million Senior Notes and $75 million Preferred Stock issuance on future interest and dividend obligations.
- Confirm the occupancy rates and lease terms for the 56 skilled nursing and 130 assisted living facilities to assess revenue stability.
- Review the $239,345,000 in unfunded commitments to understand future capital deployment requirements.
- Monitor the $95,400,000 available credit line and compliance with covenants to ensure liquidity remains intact.
- Assess the sustainability of the 27% revenue growth rate given the one-time nature of certain fee income and the capital intensity of new construction.