Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate, reported first quarter 2011 FFO (funds from operations) of 46 cents per share, compared to 51 cents in the year-earlier quarter.
Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
Excluding one-time items, recurring FFO for the reported quarter was 70 cents per share, compared to 75 cents in the year-ago quarter. The recurring quarterly FFO marginally beat the Zacks Consensus Estimate by a penny.
Total revenues during the reported quarter were $255.5 million compared to $145.4 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $234 million.
During the quarter, Health Care REIT made gross new investments of $1.4 billion, bringing the year-to-date tally to $3.9 billion. The company increased 2011 net investment guidance by $2.5 billion to $3.7 billion.
Health Care REIT has continually invested in assisted and independent living facilities as demand for these facilities is set to increase with an aging Baby Boomer generation. In addition, the healthcare industry is the single largest industry in the U.S., based on Gross Domestic Product (GDP).
Consequently, healthcare REITs are well poised to maintain their growth curves and simultaneously benefit the shareholders with steadily rising dividends.
During the quarter, the company completed the acquisition of Benchmark Senior Living properties. With the deal, Health Care REIT will own a 95% interest in the portfolio and operate 34 senior housing facilities with 3,009 units located primarily in New England.
Post acquisition, Benchmark will continue to manage the facilities and own the remaining 5% interest. The entire portfolio is currently projected to generate a 2011 net operating income (NOI) yield after management fees of approximately 6.8%-7.2%.
At the same time, Health Care REIT completed the acquisition of a 95% ownership interest in Silverado Senior Living. With the deal, the company will operate 18 senior housing facilities with 1,454 beds located primarily in California and Texas.
Post acquisition, Silverado will continue to manage the facilities and own the remaining 5% interest. The portfolio is projected to generate an NOI yield after management fees of approximately 7.5% in 2011.
During the reported quarter, the company acquired 7 additional senior housing facilities with existing operators for a total investment amount of $113 million and a blended initial yield of approximately 8.1%. Furthermore, Health Care REIT received $44 million in proceeds on asset sale during the quarter.
Subsequent to the quarter-end, Health Care REIT completed the acquisition of all the real estate assets of Genesis HealthCare, a leading provider of short-term post-acute, assisted living and long-term care services. With the deal, Health Care REIT will own 147 post-acute, skilled nursing and assisted living facilities across 11 states in the Northeast and mid-Atlantic region of the U.S.
In addition, subsequent to the quarter-end, the company completed the acquisition of 4 combination senior housing facilities in the Chicago and New York metro areas totaling 628 units. Health Care REIT invested $141 million for the acquisition, which included the assumption of $48 million in secured debt at an average rate of 6.5%.
The investment is structured as a triple-net lease with Capital Senior Living (CSU) with an initial term of 15 years and an initial rental yield of 7.25%.
During the reported quarter, Health Care REIT raised approximately $3.5 billion capital from debt and equity offering. At quarter-end, the company had cash and cash equivalents of $2.7 billion. Health Care REIT increased its quarterly dividend from 68 cents per share during first quarter 2010 to 72 cents in the reported quarter, which marked the 160th consecutive quarterly dividend payment.
The latest dividend payout by Health Care REIT reinforces industry expectations of seeing healthcare sector take a lead in dividend payments in the overall U.S. REIT industry in 2011. According to data compiled by Bloomberg, healthcare REITs would have the best dividend payouts in the industry, benefiting from better-than-expected year-over-year revenue growth and accretive results from over $11 billion worth of acquisitions announced in 2010.
For full year 2011, Health Care REIT updated its FFO guidance from the range of $3.25 – $3.35 per share to a range of $3.32 – $3.42. The FFO guidance is based on the assumptions of funded new developments of $253 million during the year and asset sale of $300 million.
We remain encouraged by the strong quarterly results of the company and expect it to meet its earnings expectation in the coming quarters as well. For the long term, we maintain our Neutral recommendation on Health Care REIT, which presently has a Zacks #3 Rank translating into a short-term Hold rating.
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