Business Context and Reporting Period
Company: Health Care REIT, Inc. (d/b/a Welltower Inc.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2008
Business Overview: An equity real estate investment trust (REIT) investing in senior housing and health care real estate. As of June 30, 2008, the portfolio consisted of 635 properties in 38 states, including independent living, assisted living, skilled nursing, specialty care facilities, and medical office buildings.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2008) | Amount (in thousands) |
|---|---|
| Total Revenues | $266,736 |
| Net Income | $198,996 |
| Net Income Available to Common Stockholders | $187,065 |
| Funds from Operations (FFO) | $147,900 |
| Net Operating Income (NOI) | $254,102 |
| EBITDA | $350,591 |
| Cash and Cash Equivalents | $25,078 |
| Total Debt Outstanding | $3,056,954 |
| Stockholders' Equity | $2,633,124 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 22% to $266.7 million from $218.1 million in the prior year period, driven by rental income growth (20%) and interest income growth (56%).
- Profitability Surge: Net income available to common stockholders increased 282% to $187.1 million from $49.0 million. This significant increase was primarily due to a $118.2 million gain on sales of properties classified as discontinued operations.
- Discontinued Operations: The company sold 19 assisted living facilities, two independent living facilities, two skilled nursing facilities, and one land parcel, recognizing a gain of $118.2 million. Proceeds totaled $183.1 million.
- Investing Activity: Net cash used in investing activities increased to $552.2 million (from $452.3 million) due to higher real property acquisitions ($313.9 million) and construction in progress ($210.5 million), partially offset by proceeds from sales.
- Debt Utilization: Borrowings under the unsecured line of credit increased significantly, with a net increase of $437.0 million during the period, bringing the outstanding balance to $744.0 million.
Guidance, Outlook, and Risks
- Investment Outlook: Management expects to complete gross new investments of approximately $1.1 billion to $1.4 billion in 2008, including $700 million to $900 million in acquisitions and $400 million to $500 million in funded development.
- Dividend Policy: The quarterly dividend was increased to $0.68 per share, representing the 149th consecutive quarterly payment.
- Liquidity: The company maintains $25.1 million in cash and $406.0 million in available borrowing capacity under its $1.15 billion unsecured line of credit.
- Key Risks:
- Interest Rate Risk: Exposure to variable rate debt (line of credit) and fair value fluctuations in fixed-rate debt.
- Concentration Risk: Top five customers represent 27% of total investments and 31% of revenue.
- Refinancing Risk: Dependence on capital markets to refinance debt and fund new investments.
- Regulatory Risk: Changes in Medicare/Medicaid reimbursement rates affecting tenant operators.
Investor Verification Checklist
- Gain on Sales: Verify the sustainability of earnings by analyzing Net Income excluding the $118.2 million one-time gain from discontinued operations.
- Debt Covenants: Confirm compliance with the adjusted fixed charge coverage ratio covenant (required: 1.75x; reported: 3.13x).
- Line of Credit: Monitor the $744 million outstanding balance against the $1.15 billion facility limit and the August 2011 maturity date.
- Customer Concentration: Assess the financial health of top tenants (Emeritus, Signature Healthcare, Brookdale) which comprise a significant portion of revenue.
- Construction Commitments: Review the $848.2 million in unfunded construction commitments and the ability to fund them without excessive leverage.