Health Care REIT Beats FFO Ests, Ups View - Analyst Blog

Health Care REIT Inc. HCN, a real estate investment trust (REIT), reported first-quarter 2014 normalized funds from operations (FFO) of $1.00 per share, 2 cents ahead of the Zacks Consensus Estimate and up 9 cents year over year.

The 10% year-over-year increase in normalized FFO per share is primarily driven by same-store net operating income (NOI) growth and notable portfolio investments in premium assets. Based on these factors, the company has increased its 2014 outlook.

Moreover, normalized funds available for distribution FAD stood at 90 cents per share, up from 81 cents per share in the year-ago period.

Total revenue escalated 27.3% year over year to $801.8 million and marginally exceeded the Zacks Consensus Estimate of $801 million.

Inside the Headlines

In the first quarter, same-store NOI increased 4.4% from the year-ago period, driven by 8.1% year-over-year rise in the seniors housing operating portfolio.

Health Care REIT concluded gross investments worth $542 million in the quarter under review. This included a joint venture investment worth $386 million, $64 million in development financing and $57 million of acquisitions.

Early in the second quarter, Health Care REIT completed the recapitalization of the Sunrise Senior Living management company, upon which, the company now owns 24% interest in Sunrise Senior Living while Revera holds the rest.

Health Care REIT exited the first quarter with cash and cash equivalents of $185.9 million, up from $158.8 million as of Dec 31, 2013.

2014 Outlook Raised

Health Care REIT increased its normalized FFO per share guidance range to $4.03 – $4.13, from $3.93 – $4.03 guided earlier. The new outlook is higher than the Zacks Consensus Estimate of $4.02.

Also, the company raised its normalized FAD per share outlook range to $3.55 – $3.65, from the previous range of $3.53 – $3.63.

Dividend

The board of directors at Health Care REIT declared a quarterly cash dividend of 79.5 cents per share, marking a rise of 4% over the year-ago dividend of 76.5 cents. This marked the company's 172^nd consecutive quarterly dividend payment. It will be paid on May 20, 2014, to stockholders of record as of May 12.

In Conclusion

We are encouraged with the strong results at Health Care REIT, on the back of notable operating portfolio performance. The investments in high-quality properties are expected to further enhance the company's portfolio and extend its reach in the high-barriers-to-entry affluent markets. Also, the guidance increase boosts shareholders confidence in the stock.

Health Care REIT currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Duke Realty Corporation DRE, Cousins Properties Incorporated CUZ and SL Green Realty Corp. SLG. All stocks carry a Zacks Rank #2 (Buy).

Note: 1. FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.

2. FAD, a measure to ascertain the ability of REITs to generate cash, is derived by subtracting straight-line rent and non-recurring real estate expenses from funds from operations.