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Health Care REIT Q4 FFO & Revenues Beat, Guides In Line - Analyst Blog

Zacks Equity Research

Health Care REIT Inc. (HCN), a real estate investment trust (“REIT”), reported fourth-quarter 2014 normalized funds from operations (“FFO”) of $1.03 per share, a penny ahead of the Zacks Consensus Estimate and up 4 cents year over year.

The 4% 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.

The company posted revenues of $867.8 million, which beat the Zacks Consensus Estimate of $865 million. It also moved up 10% year over year.

For full year 2014, Health Care REIT came up with normalized FFO per share of $4.13, up from $3.81 reported in the year-ago quarter. Revenues were $3.3 billion, climbing 16.1% from the prior year.  

Inside the Headlines

In the fourth quarter, same-store NOI climbed 3.5% from the year-ago period, driven by 5.7% year-over-year rise in the seniors housing operating portfolio.

Health Care REIT concluded gross investment worth $1.8 billion in the quarter under review. This comprised $1.5 billion in acquisitions/JVs, $89 million in development funding, $170 million in loans and $4 million in capital improvements. Of this, $950 million pertained to the HealthLease/Mainstreet deals.

Health Care REIT exited the year 2014 with cash and cash equivalents of $473.7 million, up significantly from $158.8 million as of the prior-year end.

2015 Outlook

For 2015, Health Care REIT expects its FFO to range between $4.25–$4.35 per share, reflecting a 3–5% increase and blended same-store cash NOI growth of around 3.0–3.5%. The Zacks Consensus Estimate of $4.33 for 2015 also comes within this range.

Notably, Health Care REIT projects around $400 million of dispositions in the first half of 2015. The company also expects to accomplish approximately $250 million of gross investment related to the Mainstreet partnership in 2015.  

Our Take

Health Care REIT’s better-than-expected results, on the back of notable operating portfolio performance, are encouraging. In addition, a rise in senior citizen spending for healthcare promises strong prospects. However, an anticipated rise in interest rate and intense competition remain the pressing concerns.

Health Care REIT currently carries a Zacks Rank #3 (Hold). Investors interested in REITs may consider stocks like Healthcare Realty Trust Inc. (HR), Medical Properties Trust Inc. (MPW) and Public Storage (PSA). All stocks hold a Zacks Rank #2 (Buy).

Note: 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.

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