Business Context and Reporting Period
Company: Health Care REIT, Inc. (Welltower Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: An equity real estate investment trust (REIT) investing in senior housing and health care real estate. As of March 31, 2010, the portfolio consisted of 608 properties in 39 states, including senior housing facilities, skilled nursing facilities, hospitals, medical office buildings, and life science buildings.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $152,759,000 | $138,846,000 |
| Net Income | $31,694,000 | $66,645,000 |
| Net Income Attributable to Common Stockholders | $25,812,000 | $61,119,000 |
| Earnings Per Share (Diluted) | $0.21 | $0.56 |
| Funds From Operations (FFO) | $63,087,000 | $85,322,000 |
| Net Operating Income (NOI) | $143,055,000 | $134,819,000 |
| EBITDA | $105,344,000 | $136,032,000 |
| Cash and Cash Equivalents | $36,558,000 | $19,180,000 |
| Total Debt Outstanding | $2,828,487,000 | $2,559,735,000 (Liabilities) |
| Dividends Declared (Common) | $0.68 per share | $0.68 per share |
Material Changes vs. Prior Period
- Net Income Decline: Net income attributable to common stockholders decreased 58% to $25.8 million from $61.1 million in Q1 2009. This was primarily driven by a significant loss on the extinguishment of debt and reduced gains from discontinued operations.
- Debt Extinguishment Loss: The company recognized a loss of $18,038,000 on the extinguishment of debt in Q1 2010, compared to a gain of $1,678,000 in Q1 2009. This resulted from repurchasing convertible senior unsecured notes.
- Discontinued Operations: Net gain on sales of properties in discontinued operations dropped to $6,718,000 from $17,036,000 in the prior year.
- Revenue Growth: Total revenues increased 10% to $152.8 million, driven by a 12% increase in rental income due to new property conversions and acquisitions.
- Investing Activity: Net cash used in investing activities was $291.9 million, a significant shift from the $20.1 million provided in Q1 2009. This was due to a $160 million investment in a joint venture with Forest City Enterprises and continued real property acquisitions.
Guidance, Outlook, and Risks
- Investment Outlook: Management expects to complete gross new investments of $1.0 billion to $1.4 billion in 2010, comprising $700 million to $1.0 billion in acquisitions/joint ventures and $300 million to $400 million in funded development.
- Health Reform Impact: The filing details the impact of the Patient Protection and Affordable Care Act (PPACA). While some provisions may increase coverage, others (such as productivity adjustments and reduced market basket updates) may negatively impact reimbursement rates for operators and tenants, potentially affecting their ability to pay rent.
- Liquidity: The company maintains a $1.15 billion unsecured line of credit with $725 million available as of March 31, 2010. Management emphasizes capital preservation and liquidity in the current economic environment.
- Joint Venture: A new 49% interest in a life science campus in Cambridge, MA, was acquired, adding $160 million in equity investment and $142 million in assumed non-recourse debt.
Key Investor Verification Points
- Debt Restructuring Costs: Verify the long-term impact of the $18 million loss on debt extinguishment and the sustainability of the new debt profile following the issuance of $342 million in new convertible notes.
- Discontinued Operations Volatility: Assess the reliance on gains from property sales in discontinued operations, which dropped significantly year-over-year.
- Health Reform Exposure: Evaluate the specific exposure of the portfolio's operators to Medicare/Medicaid reimbursement cuts mandated by the PPACA.
- Joint Venture Performance: Monitor the performance of the new Forest City Enterprises joint venture, which represents a significant portion of recent capital deployment.
- Dividend Coverage: Confirm that Funds From Operations (FFO) of $0.51 per share continues to adequately cover the $0.68 per share quarterly dividend.