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HCN; How did they do in the 3rd Quarter??? November 12, 2009

Posted by shaferfinancial in Finance, Uncategorized.
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As my regular readers know, I own three different equities.  I commented on the largest ownership, BRKb a couple of days ago.  Today I will comment on third quarter results for HCN.

First HCN.  This REIT has performed admirably through the real estate issues of the last year and a half.  It has maintained its dividend payout of .68/quarter.  This gives me a dividend yield of over 11% on my cost.  Gross additional investments for the quarter were $156 M making it over $500M for the year.  It also raised $434 M in an equity offering in September which it used mostly to pay down debt.  The debt to equity ratio has been driven down to a very conservative 40%.  Outstanding debt with rates of around 7.2-8% were retired and some replaced with debt at rates of 5.9%.  The maturity of debt was also moved out several years, so there should be no problem with near side risk for debt.  Their is a $1B line of credit available.

Some properties were sold as per company strategy.  The company continues to lower the ratio of nursing homes and off campus MOBs in favor of CCRCs and on campus facilities.  The CCRCs did not perform as well during the last year mainly due to general real estate malaise.

Of concern is the lowering of Funds Available for Distribution which dropped from $.82 to $.72 compared to the third quarter of last year.  For the year it has dropped from $2.39 to $2.24 year on year.  This has driven the payout ratio to 91% for the year as compared to 85% for same period last year.  However, this result is due to the lowering of the leverage and the  using of funds for capital investments.  As I have stated before this is a conservatively run REIT, that aims for long term results instead of short term gains.  I feel comfortable with lowering of the leverage for the time being with the credit markets still impaired.  I also note that rents continue to increase and the quality of projects also continue to be improved.  The CCRCs I believe are the wave of the future and will improve dramatically as seniors are able to sell their homes into an improving real estate market.

I note that between 2008 and 2009 there will be an additional $2Billion in real estate owned for HCN, continuing its remarkable pace of 25% average yearly increases since 2003.

I will add to this position going forward as long as it stays below $47/share.  It is goes above, I will have to rethink any further purchases as it will be IMHO overly priced at that point.



1. Joshua - November 14, 2009

Thank you for the analysis.

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