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Health Care REIT Inc. (HCN - Analyst Report), a real estate investment trust (REIT) that operates senior housing and health care real estate, reported second quarter 2011 FFO (funds from operations) of 84 cents per share, compared to 74 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 90 cents per share, compared to 80 cents in the year-ago quarter. The recurring quarterly FFO beat the Zacks Consensus Estimate by 3 cents.
Total revenues during the reported quarter were $381.1 million compared to $153.7 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $335 million.
During the reported quarter, Health Care REIT made gross new investments of $2.8 billion, bringing the year-to-date tally to $4.2 billion. During second quarter 2011, the company 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 $2.4 billion 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, Health Care REIT completed the acquisition of 4 combination senior housing facilities in the Chicagoand New Yorkmetro areas totaling 628 units. Health Care REIT invested $141.5 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 - Snapshot Report) with an initial term of 15 years and an initial rental yield of 7.25%.
During the reported quarter, the company generated $56 million in profits on asset sale and loan payoffs of $282 million in aggregate. For full year 2011, Health Care REIT expects asset sale of $300 million.
At quarter-end, the company had cash and cash equivalents of $328.8 million. Subsequent to the quarter-end, the company increased its $1.15 billion unsecured revolving credit facility to $2.0 billion. The new facility further has an option to increase the borrowing capacity by an additional $500 million and matures in July 2015 with a one-year extension option.
Health Care REIT increased its quarterly dividend from 69 cents per share during second quarter 2010 to 72 cents in the reported quarter, which marked the 161st 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 $3.32 – $3.42 per share to a range of $3.34 – $3.40. We remain encouraged by the strong quarterly results of the company and expect it to meet its earnings expectation in the coming quarters.
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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