Health Care REIT Inc. (HCN), a real estate investment trust (REIT), reported third-quarter 2014 normalized funds from operations (FFO) of $1.04 per share, a penny ahead of the Zacks Consensus Estimate and up 7 cents year over year.
The 7% 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.
Moreover, normalized funds available for distribution (FAD) stood at 91 cents per share, up from 86 cents per share in the year-ago period.
Total revenue rose 8.1% year over year to $847.5 million and exceeded the Zacks Consensus Estimate of $835 million.
Inside the Headlines
In the third quarter, same-store NOI increased 4.3% from the year-ago period, driven by 7.6% year-over-year rise in the seniors housing operating portfolio.
Health Care REIT concluded gross investments worth $757 million in the quarter under review. This comprised $653 million in acquisitions, $76 million in development funding, $25 million in loan advances as well as $4 million in capital improvements.
Notably, the third quarter acquisitions comprised 16 medical office buildings, 11 U.K-based seniors housing operating assets (managed by Sunrise), a post-acute asset (operated by Genesis) and three U.K.-based seniors housing triple-net assets (operated by Avery).
Health Care REIT exited the third quarter with cash and cash equivalents of $998.7 million, up significantly from $207.4 million as of Jun 30, 2014.
2014 Outlook Narrowed
Health Care REIT narrowed its full-year 2014 normalized FFO per share guidance range to $4.07–$4.13 from $4.05–$4.15 guided earlier, denoting a 7%–8% increase from 2013. The Zacks Consensus Estimate of $4.12 also lies within the newly guided range. Notably, the company raised its 2014 disposition guidance to $625 million from $450 million.
Also, the company narrowed its normalized FAD per share outlook range to $3.59–$3.65 from the previous range of $3.57–$3.67.
Our Take
Health Care REIT’s better-than-expected results, on the back of notable operating portfolio performance, are encouraging. Going forward, we believe that the strategic portfolio restructuring activities and enhanced liquidity position bodes well for its growth. In addition, rise in senior citizen spending for healthcare reasons promises strong prospects in the future.
Health Care REIT currently carries a Zacks Rank #3 (Hold). Investors interested in REITs may consider stocks like Cousins Properties Incorporated (CUZ), Host Hotels & Resorts, Inc. (HST) and Public Storage (PSA). 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.
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