Health Care REIT Earnings Fall Following $5.2 Billion in Investments

Health Care REIT, Inc. (NYSE: HCN) saw its net income fall approximately 91% in the second quarter of 2013 following a number of acquisitions completed during the period.

HCN reported a net income of $7.18 million, or $0.03 per diluted share, for quarter ended June 30, 2013, compared to $76.88 million, or $0.25 per diluted share, reported in the same quarter a year ago.

Recent acquisition and investment activity totals around $5.2 billion, including deals with Revera Inc., Sunrise Senior Living and Merrill Gardens.


During the quarter, HCN completed a previously announced $1.3 billion partnership with Revera Inc. to own 47 properties in Canadian markets. As part of the partnership, HCN owns a 75% interest in the portfolio and Revera owns the remaining 25%. HCN expects this portfolio to generate an unleveled NOI yield of 7%.

HCN also completed a $213 million sale/leaseback transaction with Avery Healthcare based in the United Kingdom. The acquired portfolio includes 14 senior housing communities with 940 beds in the UK.

“Our platforms in Canada and the U.K. are unique within the sector,” said Scott Brinker, executive vice president at HCN. “There are two differentiators in our ability to generate internal and external growth.”


On the home front, HCN completed its Sunrise joint venture buyouts in early July. The buyouts occurred in 15 separate transactions, with all but one was privately negotiated outside of an auction process. The company’s investment in Sunrise real estate is now $4.3 billion, with a yield expected to exceed 6.5% in the second half of the year.

Within the next 60 days, HCN expects to acquire Merrill Garden’s minority interest in 38 senior housing communities for $173 million.

“This is a high-quality, well-located portfolio,” said Brinkman. “We see strong interest from our existing partners. Some prefer the RIDEA structure, others prefer the triple net lease.”

HCN’s portfolio generated a 3.8% growth in same store cash NOI during the second quarter, as well as an 8.4% increase in the company’s senior housing operating portfolio.

The REIT’s FFO rose to $0.93 per diluted share during the quarter, up about 4% from $0.89 per diluted share recorded a year ago.

Revenue for the second quarter came in at $682.13 million, an increase from 2012’s $438.72 million.

HCN affirmed its 2013 guidance and continues to expect to generate normalized FFO in a range of $3.25 to $3.35 per diluted share, both representing an 5%-8% increase.

The company is revising its 2013 net income guidance, primarily to reflect the net impact of the Revera and Avery acquisitions. HCN now expects to report net income attributable to common stockholders in a range of $0.58 to $0.68 per diluted share.

“Looking forward, outlook is favorable,” Brinkman said. “Expenses are under control, new supply is modest in our markets, the housing and employment markets are improving. Most important, the portfolio continues to benefit from demographics and need-based demand.”

Written by Jason Oliva

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