0000766704-13-000015.txt : 20130507 0000766704-13-000015.hdr.sgml : 20130507 20130507080415 ACCESSION NUMBER: 0000766704-13-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20130331 FILED AS OF DATE: 20130507 DATE AS OF CHANGE: 20130507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE REIT INC /DE/ CENTRAL INDEX KEY: 0000766704 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341096634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08923 FILM NUMBER: 13817994 BUSINESS ADDRESS: STREET 1: 4500 DORR STREET CITY: TOLEDO STATE: OH ZIP: 43615 BUSINESS PHONE: 419-247-2800 MAIL ADDRESS: STREET 1: 4500 DORR STREET CITY: TOLEDO STATE: OH ZIP: 43615 10-Q 1 10-Q.htm 10-Q  

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

þ

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

or

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                      

Commission File number 1-8923

HEALTH CARE REIT, INC.

 

(Exact name of registrant as specified in its charter

 

 

 

Delaware

 

34-1096634

 

 

 

(State or other jurisdiction of

 incorporation or organization)

 

(I.R.S. Employer

 Identification No.)

 

 

 

4500 Dorr Street, Toledo, Ohio

 

43615

 

 

 

(Address of principal executive office)

 

(Zip Code)

(419) 247-2800

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes  þ   No  o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer þ  

 

Accelerated filer o  

 

Non-accelerated filer   o

 (Do not check if a smaller reporting company)

 

Smaller reporting company o  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No  þ 

As of April 30, 2013, the registrant had 261,550,566 shares of common stock outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

      Consolidated Balance Sheets — March 31, 2013 and December 31, 2012

3

 

 

      Consolidated Statements of Comprehensive Income — Three months ended March 31, 2013 and 2012

4

 

 

      Consolidated Statements of Equity — Three months ended March 31, 2013 and 2012

6

 

 

      Consolidated Statements of Cash Flows — Three months ended March 31, 2013 and 2012

7

 

 

      Notes to Unaudited Consolidated Financial Statements

8

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

48

 

 

Item 4. Controls and Procedures

48

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

Item 1A. Risk Factors

49

 

49

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

49

 

 

Item 6. Exhibits

50

 

 

Signatures

51

 

 

2

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

CONSOLIDATED BALANCE SHEETS

HEALTH CARE REIT, INC. AND SUBSIDIARIES

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

2013 

 

2012 

 

 

 

 

  

(Unaudited)

 

(Note)

 

 

 

 

 

 

 

 

 

 

Assets  

(In thousands)

Real estate investments:  

 

 

 

 

 

 

Real property owned:  

 

 

 

 

 

 

 

Land and land improvements  

$

 1,592,792 

 

$

 1,365,391 

 

 

Buildings and improvements  

 

 17,814,940 

 

 

 15,635,127 

 

 

Acquired lease intangibles  

 

 811,495 

 

 

 673,684 

 

 

Real property held for sale, net of accumulated depreciation  

 

 36,096 

 

 

 245,213 

 

 

Construction in progress  

 

 86,820 

 

 

 162,984 

 

 

 

Gross real property owned  

 

 20,342,143 

 

 

 18,082,399 

 

 

Less accumulated depreciation and amortization  

 

 (1,739,767) 

 

 

 (1,555,055) 

 

 

 

Net real property owned  

 

 18,602,376 

 

 

 16,527,344 

 

Real estate loans receivable  

 

 276,876 

 

 

 895,665 

 

Net real estate investments  

 

 18,879,252 

 

 

 17,423,009 

Other assets:  

 

 

 

 

 

 

 

Equity investments  

 

 781,792 

 

 

 438,936 

 

 

Goodwill  

 

 68,321 

 

 

 68,321 

 

 

Deferred loan expenses  

 

 73,735 

 

 

 66,327 

 

 

Cash and cash equivalents  

 

 269,842 

 

 

 1,033,764 

 

 

Restricted cash  

 

 225,360 

 

 

 107,657 

 

 

Receivables and other assets  

 

 490,670 

 

 

 411,095 

 

 

 

Total other assets  

 

 1,909,720 

 

 

 2,126,100 

Total assets  

$

 20,788,972 

 

$

 19,549,109 

 

 

 

 

  

 

 

 

 

 

Liabilities and equity  

 

 

 

 

 

Liabilities:  

 

 

 

 

 

 

 

Borrowings under unsecured line of credit arrangement  

$

 710,000 

 

$

 

 

Senior unsecured notes  

 

 6,610,873 

 

 

 6,114,151 

 

 

Secured debt  

 

 2,452,495 

 

 

 2,336,196 

 

 

Capital lease obligations  

 

 80,560 

 

 

 81,552 

 

 

Accrued expenses and other liabilities  

 

 518,170 

 

 

 462,099 

Total liabilities  

 

 10,372,098 

 

 

 8,993,998 

Redeemable noncontrolling interests  

 

 33,727 

  

  

 34,592 

Equity:  

 

 

 

 

 

 

 

Preferred stock  

 

 1,022,917 

 

 

 1,022,917 

 

 

Common stock  

 

 261,249 

 

 

 260,396 

 

 

Capital in excess of par value  

 

 10,599,290 

 

 

 10,543,690 

 

 

Treasury stock  

 

 (21,238) 

 

 

 (17,875) 

 

 

Cumulative net income  

 

 2,256,479 

 

 

 2,184,819 

 

 

Cumulative dividends  

 

 (3,910,727) 

 

 

 (3,694,579) 

 

 

Accumulated other comprehensive income (loss)  

 

 (33,091) 

 

 

 (11,028) 

 

 

Other equity  

 

 5,893 

 

 

 6,461 

 

 

 

Total Health Care REIT, Inc. stockholders’ equity  

 

 10,180,772 

 

 

 10,294,801 

 

 

Noncontrolling interests  

 

 202,375 

 

 

 225,718 

Total equity  

 

 10,383,147 

 

 

 10,520,519 

Total liabilities and equity  

$

 20,788,972 

 

$

 19,549,109 

 

NOTE: The consolidated balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

 

See notes to unaudited consolidated financial statements

3

 


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013 

 

2012 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share data)

Revenues:

 

 

 

 

 

 

Rental income  

$

 296,834 

 

$

 249,995 

 

Resident fees and services

 

 327,324 

 

 

 158,174 

 

Interest income

 

 9,057 

 

 

 8,141 

 

Other income

 

 700 

 

 

 1,686 

 

 

Total revenues

 

 633,915 

 

 

 417,996 

Expenses:

 

 

 

 

 

 

Interest expense

 

 110,289 

 

 

 88,814 

 

Property operating expenses

 

 253,354 

 

 

 128,801 

 

Depreciation and amortization

 

 187,099 

 

 

 120,907 

 

General and administrative

 

 27,179 

 

 

 27,751 

 

Transaction costs

 

 65,980 

 

 

 5,579 

 

Loss (gain) on derivatives, net

 

 2,309 

 

 

 555 

 

Loss (gain) on extinguishment of debt, net

 

 (308) 

 

 

 

 

Total expenses

 

 645,902 

 

 

 372,407 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

and income from unconsolidated entities

 

 (11,987) 

 

 

 45,589 

Income tax (expense) benefit

 

 (2,763) 

 

 

 (1,470) 

Income from unconsolidated entities

 

 2,262 

 

 

 1,532 

Income (loss) from continuing operations

 

 (12,488) 

 

 

 45,651 

Discontinued operations:

 

 

 

 

 

 

Gain (loss) on sales of properties, net

 

 82,492 

 

 

 769 

 

Income (loss) from discontinued operations, net

 

 1,795 

 

 

 11,038 

 

 

Discontinued operations, net

 

 84,287 

 

 

 11,807 

Net income

 

 71,799 

 

 

 57,458 

Less:

Preferred stock dividends

 

 16,602 

 

 

 19,207 

Less:

Net income (loss) attributable to noncontrolling interests(1)

 

 139 

 

 

 (1,056) 

Net income (loss) attributable to common stockholders

$

 55,058 

 

$

 39,307 

 

 

 

 

 

 

 

 

Average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 260,036 

 

 

 199,661 

 

Diluted

 

 260,036 

 

 

 201,658 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

 

 

 

 

 

attributable to common stockholders

$

 (0.11) 

 

$

 0.14 

 

Discontinued operations, net

 

 0.32 

 

 

 0.06 

 

Net income (loss) attributable to common stockholders*

$

 0.21 

 

$

 0.20 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

 

 

 

 

 

attributable to common stockholders

$

 (0.11) 

 

$

 0.14 

 

Discontinued operations, net

 

 0.32 

 

 

 0.06 

 

Net income (loss) attributable to common stockholders*

$

 0.21 

 

$

 0.19 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

$

 0.765 

 

$

 0.740 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Amounts may not sum due to rounding

(1) Includes amounts attributable to redeemable noncontrolling interests.

See notes to unaudited consolidated financial statements

4

 


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2013 

 

2012 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

Net income

 

$

 71,799 

 

$

 57,458 

 

 

 

  

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrecognized gain/(loss) on equity investments

 

 

 172 

 

 

 8 

 

Change in net unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized gain/(loss)

 

 

 471 

 

 

 278 

 

Foreign currency translation gain/(loss)

 

 

 (22,706) 

 

 

Total other comprehensive income (loss)

 

 

 (22,063) 

 

 

 286 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 49,736 

 

 

 57,744 

Total comprehensive income attributable to noncontrolling interests(1)

 

 

 139 

 

 

 (1,056) 

Total comprehensive income attributable to stockholders

 

$

 49,875 

 

$

 56,688 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes amounts attributable to redeemable noncontrolling interests.

 

See accompanying notes

5

 


 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(in thousands)

 

Three Months Ended March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Preferred

Common

Excess of

Treasury

Cumulative

Cumulative

Comprehensive

Other

Noncontrolling

 

 

 

 

 

Stock

Stock

Par Value

Stock

Net Income

Dividends

Income (Loss)

Equity

Interests

Total

Balances at beginning of period

$

 1,022,917 

$

 260,396 

$

 10,543,690 

$

 (17,875) 

$

 2,184,819 

$

 (3,694,579) 

$

 (11,028) 

$

 6,461 

$

 225,718 

$

 10,520,519 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 71,660 

 

 

 

 

 

 

 

 560 

 

 72,220 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 (22,063) 

 

 

 

 

 

 (22,063) 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 50,157 

Net change in noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (23,903) 

 

 (23,903) 

Amounts related to issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from dividend reinvestment and stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

incentive plans, net of forfeitures

 

 

 

 853 

 

 55,600 

 

 (3,363) 

 

 

 

 

 

 

 

 (862) 

 

 

 

 52,228 

Option compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 294 

 

 

 

 294 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 (199,546) 

 

 

 

 

 

 

 

 (199,546) 

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 (16,602) 

 

 

 

 

 

 

 

 (16,602) 

Balances at end of period

$

 1,022,917 

$

 261,249 

$

 10,599,290 

$

 (21,238) 

$

 2,256,479 

$

 (3,910,727) 

$

 (33,091) 

$

 5,893 

$

 202,375 

$

 10,383,147 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Preferred

Common

Excess of

Treasury

Cumulative

Cumulative

Comprehensive

Other

Noncontrolling

 

 

 

 

 

Stock

Stock

Par Value

Stock

Net Income

Dividends

Income (Loss)

Equity

Interests

Total

Balances at beginning of period

$

 1,010,417 

$

 192,299 

$

 7,019,714 

$

 (13,535) 

$

 1,896,806 

$

 (2,972,129) 

$

 (11,928) 

$

 6,120 

$

 153,883 

$

 7,281,647 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 58,514 

 

 

 

 

 

 

 

 (678) 

 

 57,836 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 286 

 

 

 

 

 

 286 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 58,122 

Net change in noncontrolling interests

 

 

 

 

 

 874 

 

 

 

 

 

 

 

 

 

 

 

 4,428 

 

 5,302 

Amounts related to issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from dividend reinvestment and stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

incentive plans, net of forfeitures

 

 

 

 530 

 

 35,546 

 

 (3,730) 

 

 

 

 

 

 

 

 (294) 

 

 

 

 32,052 

Proceeds from issuance of common stock

 

 

 

 20,700 

 

 1,042,038 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1,062,738 

Proceeds from issuance of preferred stock

 

 287,500 

 

 

 

 (9,599) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 277,901 

Option compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1,382 

 

 

 

 1,382 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 (142,919) 

 

 

 

 

 

 

 

 (142,919) 

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 (19,207) 

 

 

 

 

 

 

 

 (19,207) 

Balances at end of period

$

 1,297,917 

$

 213,529 

$

 8,088,573 

$

 (17,265) 

$

 1,955,320 

$

 (3,134,255) 

$

 (11,642) 

$

 7,208 

$

 157,633 

$

 8,557,018 

 

See notes to unaudited consolidated financial statements

6

 


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

 

 

 

 

Three Months Ended

 

 

 

  

March 31,

 

 

 

  

2013 

 

2012 

Operating activities  

(In thousands)

Net income  

$

 71,799 

 

$

 57,458 

Adjustments to reconcile net income to  

 

 

 

 

 

 

net cash provided from (used in) operating activities:  

 

 

 

 

 

 

 

Depreciation and amortization  

 

 187,122 

 

 

 127,422 

 

 

Other amortization expenses  

 

 4,194 

 

 

 4,984 

 

 

Stock-based compensation expense  

 

 10,508 

 

 

 11,323 

 

 

Loss (gain) on derivatives, net  

 

 2,309 

 

 

 555 

 

 

Loss (gain) on extinguishment of debt, net  

 

 (308) 

 

 

 

 

Income from unconsolidated entities

 

 (2,262) 

 

 

 (1,532) 

 

 

Rental income in excess of cash received  

 

 (2,538) 

 

 

 (10,125) 

 

 

Amortization related to above (below) market leases, net  

 

 172 

 

 

 (252) 

 

 

Loss (gain) on sales of properties, net  

 

 (82,492) 

 

 

 (769) 

 

 

Distributions by unconsolidated entities

 

 

 

 4,009 

 

 

Increase (decrease) in accrued expenses and other liabilities  

 

 18,276 

 

 

 (6,156) 

 

 

Decrease (increase) in receivables and other assets  

 

 (6,972) 

 

 

 (12,873) 

Net cash provided from (used in) operating activities  

 

 199,808 

 

 

 174,044 

 

 

 

  

 

 

 

 

 

Investing activities  

 

 

 

 

 

 

Investment in real property, net of cash acquired  

 

 (1,850,578) 

 

 

 (570,200) 

 

Capitalized interest  

 

 (1,606) 

 

 

 (2,420) 

 

Investment in real estate loans receivable  

 

 (11,971) 

 

 

 (10,661) 

 

Other investments, net of payments  

 

 (1,978) 

 

 

 22,438 

 

Principal collected on real estate loans receivable  

 

 49,926 

 

 

 4,301 

 

Contributions to unconsolidated entities  

 

 (359,575) 

 

 

 

Distributions by unconsolidated entities  

 

 9,916 

 

 

 

Proceeds from (payments on) derivatives  

 

 (2,604) 

 

 

 

Increase in restricted cash  

 

 (94,840) 

 

 

 (13,879) 

 

Proceeds from sales of real property  

 

 294,607 

 

 

 32,584 

Net cash provided from (used in) investing activities  

 

 (1,968,703) 

 

 

 (537,837) 

 

 

 

  

 

 

 

 

 

Financing activities  

 

 

 

 

 

 

Net increase (decrease) under unsecured lines of credit arrangements  

 

 710,000 

 

 

 (605,000) 

 

Proceeds from issuance of senior unsecured notes  

 

 497,862 

 

 

 

Payments to extinguish senior unsecured notes  

 

 

 

 (22) 

 

Net proceeds from the issuance of secured debt  

 

 

 

 111,000 

 

Payments on secured debt  

 

 (18,931) 

 

 

 (41,592) 

 

Net proceeds from the issuance of common stock  

 

 45,377 

 

 

 1,087,777 

 

Net proceeds from the issuance of preferred stock  

 

 

 

 277,901 

 

Decrease (increase) in deferred loan expenses  

 

 (9,650) 

 

 

 (2,324) 

 

Contributions by noncontrolling interests(1)

 

 1,420 

 

 

 8,367 

 

Distributions to noncontrolling interests(1)

 

 (4,522) 

 

 

 (3,477) 

 

Cash distributions to stockholders  

 

 (216,148) 

 

 

 (162,126) 

 

Other financing activities

 

 (992) 

 

 

 (976) 

Net cash provided from (used in) financing activities  

 

 1,004,416 

 

 

 669,528 

Effect of foreign currency translation on cash and cash equivalents

 

 557 

 

 

Increase (decrease) in cash and cash equivalents  

 

 (763,922) 

 

 

 305,735 

Cash and cash equivalents at beginning of period  

 

 1,033,764 

 

 

 163,482 

Cash and cash equivalents at end of period  

$

 269,842 

 

$

 469,217 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

$

 99,202 

 

$

 96,426 

 

Income taxes paid

 

 920 

 

 

 2,596 

 

 

 

 

 

 

(1)     Includes amounts attributable to redeemable noncontrolling interests.

See notes to unaudited consolidated financial statements

7

 


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Business

 

     Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is an equity real estate investment trust (“REIT”) that invests in seniors housing and health care real estate. Our full service platform offers property management and development services to our customers. As of March 31, 2013, our diversified portfolio consisted of 1,133 properties in 46 states, the United Kingdom, and Canada.  Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities.

 

2. Accounting Policies and Related Matters

Basis of Presentation

      The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2013 are not necessarily an indication of the results that may be expected for the year ending December 31, 2013. For further information, refer to the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

New Accounting Standards      

     In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires companies to provide information about the amounts that are reclassified out of accumulated other comprehensive income by component. Additionally, companies are required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amendment to authoritative guidance associated with comprehensive income was effective for the Company on January 1, 2013. The adoption of this guidance did not have a material impact on our unaudited consolidated financial statements.

 

3. Real Property Acquisitions and Development

     The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their respective fair values in accordance with our accounting policies. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments.  Transaction costs primarily represent costs incurred with property acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs.  During the three months ended March 31, 2013, we finalized our purchase price allocation of certain previously reported acquisitions and there were no material changes from those previously disclosed.

 

     Seniors Housing Triple-net Activity

 

 

 

Three Months Ended

 

 

 

March 31, 2013(1)

March 31, 2012

 

 

 

(in thousands)

 

Land and land improvements

 

$

 8,533 

 

$

 5,950 

 

Buildings and improvements

 

 

 47,993 

 

 

 89,333 

 

 

Total assets acquired

 

 

 56,526 

 

 

 95,283 

 

Accrued expenses and other liabilities  

 

 

 - 

 

 

 (232) 

 

 

Cash disbursed for acquisitions

 

 

 56,526 

 

 

 95,051 

 

Construction in progress additions

 

 

 23,946 

 

 

 38,467 

 

Less:

Capitalized interest

 

 

 (1,227) 

 

 

 (1,242) 

 

Cash disbursed for construction in progress

 

 

 22,719 

 

  

 37,225 

 

Capital improvements to existing properties

 

 

 8,336 

 

 

 9,948 

 

 

Total cash invested in real property, net of cash acquired

 

$

 87,581 

 

$

 142,224 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes acquisitions with an aggregate purchase price of $56,526,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

 

     Seniors Housing Operating Activity

8

 


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

     Acquisitions of seniors housing operating properties are structured under RIDEA, which is described in Note 18.  This structure results in the inclusion of all resident revenues and related property operating expenses from the operation of these qualified health care properties in our consolidated statements of comprehensive income.  Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. See Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 for information regarding our foreign currency policies.

 

 

 

Three Months Ended

 

 

 

March 31, 2013(2)

March 31, 2012

 

 

 

 

(In thousands)

 

Land and land improvements

 

$

 216,949 

 

$

 18,980 

 

Building and improvements

 

 

 2,074,770 

 

 

 174,467 

 

Acquired lease intangibles

 

 

 142,054 

 

 

 16,656 

 

Restricted cash

 

 

 22,863 

 

 

 - 

 

Receivables and other assets

 

 

 3,225 

 

 

 1,182 

 

  

Total assets acquired(1)

 

 

 2,459,861 

 

 

 211,285 

 

Secured debt

 

 

 (138,259) 

 

 

 - 

 

Accrued expenses and other liabilities  

 

 

 (31,302) 

 

 

 (1,649) 

 

 

Total liabilities assumed

 

 

 (169,561) 

 

 

 (1,649) 

 

Noncontrolling interests

 

 

 (4,868) 

 

 

 (2,054) 

 

Non-cash acquisition related activity(3)

 

 

 (555,562) 

 

 

 - 

 

 

Cash disbursed for acquisitions

 

 

 1,729,870 

 

 

 207,582 

 

Construction in progress additions

 

 

 235 

 

 

 - 

 

Less:

Capitalized interest

 

 

 (2) 

 

 

 - 

 

Cash disbursed for construction in progress

 

 

 233 

 

  

 - 

 

Capital improvements to existing properties

 

 

 10,604 

 

 

 3,040 

 

 

Total cash invested in real property, net of cash acquired

 

$

 1,740,707 

 

$

 210,622 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Excludes $51,803,000 and $1,619,000 of cash acquired during the three months ended March 31, 2013 and 2012, respectively.

(2) Includes acquisitions with an aggregate purchase price of $2,819,436,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

(3) Represents Sunrise loan and noncontrolling interests acquisitions.

 

 

     Sunrise Merger

 

     In August 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sunrise Senior Living, Inc. (“Sunrise”), pursuant to which we agreed to acquire Sunrise in an all-cash merger (the “Merger”) in which Sunrise stockholders would receive $14.50 in cash for each share of Sunrise common stock. On January 9, 2013, we completed our acquisition of the Sunrise property portfolio.  The Sunrise Merger advances our strategic vision to own higher-end, private pay properties located in major metropolitan markets.  As of March 31, 2013, 71 properties are wholly owned and 54 properties are held in unconsolidated entities (see Note 7 for additional information). The total estimated purchase price of approximately $2,763,336,000, including approximately $2,041,893,000 of cash consideration has been allocated on a preliminary basis to the tangible and identifiable intangible assets and liabilities in the table above based on respective fair values in accordance with our accounting policies. We funded the cash consideration and other associated costs of the acquisition from cash on-hand as well as draws on our primary unsecured line of credit and unsecured term loan (see Notes 9 and 10 for additional information).

 

     Subsequent to the date of acquisition, we recognized $112,093,000 of revenues and $36,901,000 of net operating income from continuing operations related to the Sunrise portfolio during the three months ended March 31, 2013.  In addition, we incurred $63,779,000 of transaction costs, which include advisory fees, due diligence costs, severances, and fees for legal and valuation services.  These amounts are included in the seniors housing operating results reflected in Note 17.

9

 


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following unaudited pro forma consolidated results of operation have been prepared as if the Sunrise merger had occurred as of January 1, 2012 based on the preliminary purchase price allocations discussed above. Amounts are in thousands, except per share data:

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2013 

 

2012 

Revenues

 

$

 647,269 

 

$

 531,936 

Income (loss) from continuing operations attributable to common stockholders

 

$

 (30,479) 

 

$

 23,164 

Income (loss) from continuing operations attributable to common stockholders per share:

 

 

 

 

 

 

 

Basic

 

$

 (0.12) 

 

$

 0.12 

 

Diluted

 

$

 (0.12) 

 

$

 0.11 

 

     Medical Facilities Activity

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

 

(In thousands)

 

Land and land improvements

 

$

 - 

 

$

 9,509 

 

Buildings and improvements

 

 

 - 

 

 

 320,481 

 

Acquired lease intangibles

 

 

 - 

 

 

 39,619 

 

Receivables and other assets

 

 

 - 

 

 

 4,158 

 

  

Total assets acquired

 

 

 - 

 

  

 373,767 

 

Secured debt

 

 

 - 

 

 

 (172,856) 

 

Accrued expenses and other liabilities

 

 

 - 

 

 

 (9,255) 

 

 

Total liabilities assumed  

 

 

 

 

 

 (182,111) 

 

 

Cash disbursed for acquisitions

 

 

 

 

 191,656 

 

Construction in progress additions

 

 

 35,139 

 

 

 40,557 

 

Less:

Capitalized interest

 

 

 (377) 

 

 

 (1,178) 

 

 

Accruals(1)

 

 

 (17,661) 

 

 

 (20,752) 

 

Cash disbursed for construction in progress

 

 

 17,101 

 

  

 18,627 

 

Capital improvements to existing properties

 

 

 5,189 

 

 

 7,071 

 

 

Total cash invested in real property

 

$

 22,290 

 

$

 217,354 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents non-cash accruals for amounts to be paid in future periods relating to properties that converted in the periods noted above.

 

 

     Construction Activity

 

     The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands):

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 2013

 

March 31, 2012

 

Development projects:

 

 

 

 

 

 

 

 

 

 

Seniors housing triple-net

  

 

$

 67,317 

 

 

$

 23,859 

 

 

Medical facilities

 

 

 

 60,536 

 

 

 

 93,676 

 

 

Total development projects

 

 

 

 127,853 

 

 

 

 117,535 

 

Expansion projects

 

 

 

 7,631 

 

 

 

 240 

Total construction in progress conversions

  

 

$

 135,484 

 

 

$

 117,775 

10

 


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

4. Real Estate Intangibles

 

     The following is a summary of our real estate intangibles, excluding those classified as held for sale, as of the dates indicated (dollars in thousands):

 

 

 

 

March 31, 2013

 

December 31, 2012

Assets:

  

 

 

 

 

 

 

In place lease intangibles

  

$

 678,368 

 

$

 541,729 

 

Above market tenant leases

  

 

 56,024 

 

 

 56,086 

 

Below market ground leases

  

 

 61,461 

 

 

 61,450 

 

Lease commissions

  

 

 15,642 

 

 

 14,419 

 

Gross historical cost

  

 

 811,495 

 

 

 673,684 

 

Accumulated amortization

  

 

 (315,229) 

 

 

 (257,242) 

 

Net book value

  

$

 496,266 

 

$

 416,442 

 

 

  

 

 

 

 

 

 

Weighted-average amortization period in years

  

 

13.7 

 

 

16.4 

 

 

  

 

 

 

 

 

Liabilities:

  

 

 

 

 

 

 

Below market tenant leases

  

$

 77,058 

 

$

 77,036 

 

Above market ground leases

  

 

 9,490 

 

 

 9,490 

 

Gross historical cost

  

 

 86,548 

 

 

 86,526 

 

Accumulated amortization

  

 

 (29,652) 

 

 

 (27,753) 

 

Net book value

  

$

 56,896 

 

$

 58,773 

 

 

  

 

 

 

 

 

 

Weighted-average amortization period in years

  

 

14.2 

 

 

14.3 

 

     The following is a summary of real estate intangible amortization for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

March 31,

  

 

2013 

 

2012 

Rental income related to above/below market tenant leases, net

 

$

 148 

 

$

 552 

Property operating expenses related to above/below market ground leases, net

 

 

 (320) 

 

 

 (300) 

Depreciation and amortization related to in place lease intangibles and lease commissions

 

 

 (50,576) 

 

 

 (27,605) 

 

     The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):

 

 

 

 

Assets

 

 

Liabilities

2013 

 

$

 162,891 

 

$

 5,296 

2014 

 

 

 91,723 

 

 

 6,608 

2015 

 

 

 29,373 

 

 

 5,604 

2016 

 

 

 23,039 

 

 

 5,220 

2017 

 

 

 23,504 

 

 

 4,899 

Thereafter

 

 

 165,736 

 

 

 29,269 

Totals

 

$

 496,266 

 

$

 56,896 

11

 


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

5. Dispositions, Assets Held for Sale and Discontinued Operations

The following is a summary of our real property disposition activity for the periods presented (in thousands):

 

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

March 31, 2012

Real property dispositions:

 

 

 

 

 

 

 

 

 

Seniors housing triple-net

 

 

$

 76,331 

 

 

$

 

Medical facilities

 

 

 

 135,784 

 

 

 

 31,815 

 

Total dispositions

 

 

 

 212,115 

 

 

 

 31,815 

Add: Gain (loss) on sales of real property, net

 

 

 

 82,492 

 

 

 

 769 

Proceeds from real property sales

 

 

$

 294,607 

 

 

$

 32,584 

 

At March 31, 2013, $139,758,000 of sales proceeds is on deposit in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary.  We have reclassified the income and expenses attributable to all properties sold prior to or held for sale at March 31, 2013 to discontinued operations.  Expenses include an allocation of interest expense based on property carrying values and our weighted-average cost of debt.  The following illustrates the reclassification impact as a result of classifying properties as discontinued operations for the periods presented (in thousands):

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

2013 

 

2012 

Revenues:

 

&nb