Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate, reported fourth quarter 2010 FFO (funds from operations) of $82.7 million or 60 cents per share, compared to $56.3 million or 46 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 $104.1 million or 75 cents per share, compared to $92.7 million or 75 cents in the year-ago quarter. The recurring quarterly FFO marginally missed the Zacks Consensus Estimate of 77 cents.

For full year 2010, Health Care REIT reported FFO of $279.1 million or $2.18 per share, compared to $291.8 million or $2.55 in the previous year. Recurring FFO for the reported fiscal was $395.1 million or $3.08 per share, compared to $358.8 million or $3.13 in 2009. The recurring fiscal 2010 FFO missed the Zacks Consensus Estimate by 6 cents.

Total revenues during the reported quarter were $202.5 million compared to $141.4 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $187 million.

For full year 2010, total revenues were $680.5 million compared to $546.1 million in 2009. Total revenues for the reported fiscal exceeded the Zacks Consensus Estimate of $657 million.

During the quarter, Health Care REIT invested $1.6 billion in healthcare facilities, bringing fiscal year 2010 tally to $3.2 billion. For full year 2010, the company had earlier expected gross investment in the range of $2.3 billion – $2.7 billion. During the reported fiscal, the company forged new business partnerships with 23 premier senior housing and health systems operators.

Year-to-date in 2011, the company had announced $1.3 billion of gross investments, majority of which were originated through long-term industry relationships. 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 2010, Health Care REIT reported record levels of medical office occupancy at 93% and trailing twelve month retention of 85%. Payment coverage before management fees on a trailing twelve month basis was 2.12x – the highest in the company’s history. Health Care REIT received $232 million in proceeds from asset sale during the reported year, generating a profit of $36 million.

During the fiscal, Health Care REIT raised approximately $3 billion capital from debt and equity offering, including $1 billion in fourth quarter 2010. At year-end 2010, the company had a liquidity of $982 million.

Health Care REIT maintained its quarterly dividend of 69 cents per share during fourth quarter 2010, which marked the 159th consecutive quarterly dividend payment. For full year 2011, the company has announced an annualized dividend of $2.86 per share, representing a 3.6% year-over-year increase.

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 complied 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 acquisitions announced in 2010.

For full year 2011, Health Care REIT expects FFO in the range of $3.25 – $3.35 per share. The FFO guidance is based on the assumptions of funded new developments of $212 million during the year and asset sale of $300 million at an average yield of approximately 11%.

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. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Nationwide Health Properties Inc. (NHP), a competitor of Health Care REIT.

 
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