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Health Care REIT [Annual Report] February 28, 2011

Posted by shaferfinancial in Finance.
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Health Care REIT is one of my three core holdings. They reported their 2010 results last week.
Here are some of the highlights:
New Real Estate Investments of $3.2B with almost half of that in the last quarter;
Expected FFO for 2011 up 6-9% as a result of the acquisitions;
Senior Housing payment coverage of 1.54 with occupancy up to 89%;
Skilled nursing payment coverage to 2.42 with occupancy up to 85%;
Entrance fee properties were able to increase rent by 8.3%;
Medical facilities coverage up to 2.7;
Medical Office Buildings occupancy up to 93%+;
Normalized FFO was $3.08 for the year; and
Increased dividend 4%.

The last couple years have been very good years for HCN in terms of re-setting their portfolio from a nursing home dominated portfolio to a balanced portfolio across all types of medical oriented facilities. The issue of the last two years was the entrance-fee properties as the recession caused their to be a loll in folks able to sell their homes and make the move into senior campus housing. That now seems to be resolving itself and the lost rents are being made up over the next few years. Meanwhile the more dynamic sectors of the portfolio have made great strides in both increased rent and higher occupancy.

One concern I have is the current price of $51.70. This is getting pretty pricey and driving down the yield to 5.3%. The analysis to buy must really look closely at HCNs ability to increase those dividends at a decent rate. I am not satisfied with the 4% raise this year and hope to see larger dividend raises in 2012 and beyond. By all accounts they are being a little conservative this year in order to fund future acquisitions and development projects that should drive up FFO in the next decade. I will closely monitor this activity. The $3.2B in new projects was a significant amount in 2010 and they are expecting at least $1.5B more for 2011. They report strong relationships enabling them to develop projects with higher than average return expectations.

So far management has been able to drive FFO up significantly over the last 10 years, a time of less than stellar general real estate returns. If management is able to continue this then the increase dividends should average much more than the 4% increase this year.



1. Joshua - March 1, 2011

Great analysis and foresight!

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