Health Care REIT Posts Stronger Rental Income

Health Care REIT Inc.’s (HCN) fourth-quarter earnings more than doubled as the company saw stronger rental income and resident fees and posted a significantly higher gain on sales of properties.  HCN will benefit from an aging Baby Boomer generation’s growing demand for assisted and independent living facilities in the coming years. With a significant presence in these property types, Health Care REIT is in a relatively strong position than most of its competitors.

Health Care REIT also announced 2013 dividend payment rate of $3.06per share, representing a 3.4% increase above 2012 payments.   The dividend payout is a current dividend yield of 4.84%. The latest cash dividend was the company’s 167th consecutive quarterly dividend payment.

With strong quarterly results, Health Care REIT is well poised to maintain its growth curves and simultaneously benefit the shareholders with steadily rising dividends.

In the fourth quarter, the company acquired 11 properties with Belmont Village for $530 million, 11 properties with Brookdale Senior Living Inc. (BKD) for $271 million, and five properties with Sunrise Senior Living for $265 million.

According to the U.S. Census Bureau, the elderly population (aged 65 and older) is expected to jump 36% from 2010 to 2020 to 54.8 million people. The latest acquisition by Health Care REIT, therefore, reinforces the buzz in the healthcare REIT industry, spurred by an aging Baby Boomer generation’s increased demand for assisted and independent living facilities.

Health Care REIT reported a profit of $107.2 million, up from $44.5 million a year earlier.  On a per-share basis, earnings improved to $0.35 from $0.15. Excluding gains on properties and other items, funds from operations fell to $0.85 cents from $0.91 cents.

Revenue jumped 30% to $500.7 million. Analysts polled by Thomson Reuters had forecast earnings of $0.28 cents, FFO of $0.84 cents and revenue of $498 million.

Rental income, the biggest top-line contributor, rose 20%.  Resident fees and service revenue jumped 46%.

The latest period included a $54.5 million gain on property sales, compared with a $4.6 million gain a year earlier.

The senior housing- and health-care-focused real-estate investment trust expects 2013 FFO of$3.70 to $3.80 a share.

The shares of Health Care REIT currently trade at 16x the Consensus Estimate for 2013 FFO, a 4.6% premium to the industry average. On a price-to-book basis, Health Care REIT shares trade at 1.6x, a 15.8% discount to the industry average. On a price-to-book basis, the valuation looks fairly valued.

Bottom Line: Health Care REIT (HCN) is a stable, growing dividend play with a fair valuation at this time.  Investors may want to add shares on a price pullback to $60 or lower.