Health Care REIT, Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. The filing registrant is Health Care REIT, Inc. The company operated as a healthcare and senior-housing REIT, with 727 properties across 44 states. Unless otherwise noted, financial figures below are in millions of dollars.
Financial performance and condition
- Revenue: $255.5, versus $145.4 in Q1 2010, an increase of about 76%. Growth primarily reflects acquisitions and the addition of senior-housing operations; Q1 2010 had no revenue from that segment.
- Profit: Net income was $31.8, compared with $31.7. Net income attributable to common stockholders fell 9% to $23.4; diluted EPS was $0.15 versus $0.21. Continuing-operations income attributable to common stockholders was a loss of $0.02 per share. Q1 2011 results included $26.2 of gains on property sales and $36.1 of transaction costs.
- Operating measures: NOI, a non-GAAP measure, increased 41% to $201.1; FFO increased 12% to $70.9, while diluted FFO per share declined 10% to $0.46. EBITDA was $166.0. Interest coverage was 2.75x and fixed-charge coverage 2.22x, both below Q1 2010.
- Cash flow: Operating cash flow was $115.1, compared with $92.5. Investing used $612.7, including $684.7 invested in real property. Financing provided $3,034.0, principally reflecting debt and equity issuance. Cash increased to $2,668.0 from $131.6 at year-end.
- Debt and liquidity: Debt carrying value totaled $6,139.8: $4,427.9 of senior unsecured notes and $1,712.0 of secured debt. The company reported debt to book capitalization of 48% and debt to market capitalization of 37%. It had no revolver borrowings at quarter-end, $1,150.0 of available revolver capacity, and $38.7 of restricted cash. The company said it was compliant with debt covenants.
- Dividends and capital: Common dividends declared and paid were $0.69 per share, versus $0.68 a year earlier. The quarterly dividend was subsequently raised to $0.715 beginning in May 2011. The company issued $1,358.7 net from common stock and $696.7 from preferred stock during the quarter.
Material changes versus the prior comparable period
- Two RIDEA senior-housing partnerships with Silverado and Benchmark brought 52 communities into the consolidated senior-housing operating segment. This segment reported $71.3 in resident fees and services and a $35.9 loss attributable to common stockholders, including $32.1 of transaction costs.
- Real property acquisitions totaled $1,248.9, compared with $223.2 in Q1 2010; cash invested in real property was $684.7 versus $161.8. Acquisitions and developments also contributed to higher depreciation and interest costs.
- Interest expense increased to $58.9 from $28.4, while depreciation and amortization increased to $73.5 from $40.7. The prior-year period included an $18.0 loss on debt extinguishment; Q1 2011 did not.
- Fourteen senior-housing triple-net properties were sold, generating $26.2 in gains. One medical facility and 18 senior-housing triple-net facilities were classified as held for sale; a $0.2 impairment was recorded.
Outlook, commentary, risks and unusual items
- Management expected 2011 gross new investments of approximately $4,040.3, including acquisitions and joint ventures of $3,787.0 and funded development of $253.3. It anticipated about $300.0 from property sales and loan repayments, with proceeds expected to be reinvested. These are management expectations, not guarantees.
- On April 1, 2011, after quarter-end, the company completed the Genesis HealthCare real-estate acquisition for approximately $2,475.1, comprising $2,400.0 cash and approximately $75.1 in capital lease obligations. The 147 properties were leased back under a 15-year triple-net master lease. First-year base rent is $198.0, with contractual escalators thereafter.
- Management cited market volatility and the availability and cost of capital, and said investment decisions would remain selective and subject to underwriting standards. The company depends on tenants and operators to meet rent and loan obligations; operating difficulties could adversely affect results, liquidity and financial condition.
- Other stated risks include healthcare reimbursement and regulatory changes, operator or joint-venture distress, refinancing and interest-rate exposure, capital-market access, acquisition execution, property dispositions and reinvestment, and maintaining REIT qualification. A $9.5 balance of real-estate loans was on non-accrual, all associated with loans totaling that amount; the allowance for loan losses was $1.5.
- Construction in progress was $353.8, with a further $193.6 committed to complete projects. The company also reported $30.99 of contingent purchase obligations and $5.48 of letters of credit. Preliminary purchase-price allocations for the Silverado and Benchmark transactions remained subject to adjustment.
Important facts for investors to verify
- How the newly consolidated senior-housing operating portfolio performs, including occupancy, operating costs, transaction costs and property-level cash generation.
- Whether acquisition-driven revenue, NOI and FFO growth translate into sustainable per-share performance, given lower reported EPS and FFO per share.
- Genesis lease execution and tenant credit: actual rent collections, coverage, guarantee strength and performance against the $198.0 first-year base rent.
- Funding and completion of planned investments and construction commitments, and the effect of debt, preferred dividends and common-stock dilution on coverage and returns.
- Progress on held-for-sale assets, non-accrual loans and other contingencies, and whether the stated 2011 investment and disposition outlook is achieved.