HCN Marginally Misses - Analyst Blog

Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate, reported third quarter 2010 FFO (funds from operations) of $41.1 million or 33 cents per share, compared to $60.9 million or 53 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.

The decrease in year-over-year FFO was primarily due to non-recurring charges of $58.3 million. Excluding one-time items, recurring FFO for the quarter was $99.4 million or 79 cents per share, compared to $89.2 million or 77 cents in the year-ago quarter. The recurring quarterly FFO marginally missed the Zacks Consensus Estimate of 81 cents.

Total revenues during the reported quarter were $176.1 million compared to $140.1 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $171 million.

During the quarter, Health Care REIT invested $702.5 million bringing the year-to-date tally to $1.6 billion. For full year 2010, the company increased the gross investment guidance by $500 million to $2.3 billion – $2.7 billion. The year-over-year increase in gross investments in healthcare facilities show positive signs of market stabilization.

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.

Health Care REIT reported medical office occupancy of 93% during the quarter and trailing twelve month retention of 84%. Payment coverage before management fees on a trailing twelve month basis was 2.11x – the highest in the company's history. Health Care REIT received $82.2 million in proceeds from asset sale during the quarter, generating a profit of $10.5 million.

Health Care REIT issued $450 million of 4.75% senior unsecured notes during the quarter. In addition, the company raised $449 million through an equity issue and prepaid $159 million of secured debt. The company extended the average debt maturity from 4.4 years at year-end 2009 to 6.5 years as of September 30, 2010. At quarter-end, the company had a liquidity of $1.3 billion, including cash and cash equivalents of $181.1 million.

Health Care REIT maintained its quarterly dividend of 69 cents per share, which marked the 158th consecutive quarterly dividend payment. The company expects to complete acquisitions and joint venture investments worth $2.0 to $2.3 billion during fiscal 2010 and asset sale worth $200 million. The company expects funded new development of $300 to $400 million for full year 2010, resulting in net new investments of $2.1 to $2.5 billion.

Health Care REIT revised its recurring FFO guidance for full year 2010 from the range of $3.13 – $3.20 per share to $3.13 – $3.16. For the long term, we maintain our Neutral rating on the stock,  which presently has a Zacks #4 Rank translating into a short-term “Sell” rating.