10-Q 1 10-Q.htm 10-Q  

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

 

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

For the quarterly period ended March 31, 2014

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  ☑  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  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  

 

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  ☑

As of April 30, 2014, the registrant had 291,458,048 shares of common stock outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets — March 31, 2014 and December 31, 2013

3

 

 

Consolidated Statements of Comprehensive Income — Three months ended March 31, 2014 and 2013

4

 

 

Consolidated Statements of Equity — Three months ended March 31, 2014 and 2013

6

 

 

Consolidated Statements of Cash Flows — Three months ended March 31, 2014 and 2013

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

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

25

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

48

 

 

Item 4. Controls and Procedures

49

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

Item 1A. Risk Factors

50

 

50

 

 

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

50

 

 

Item 5. Other Information

50

 

 

Item 6. Exhibits

51

 

 

Signatures

52

 

 

  

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

CONSOLIDATED BALANCE SHEETS

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

 

 

  

(Unaudited)

 

(Note)

Assets:  

 

 

 

 

 

Real estate investments:  

 

 

 

 

 

 

Real property owned:  

 

 

 

 

 

 

 

Land and land improvements  

$

 1,883,866 

 

$

 1,878,877 

 

 

Buildings and improvements  

 

 20,769,414 

 

 

 20,625,515 

 

 

Acquired lease intangibles  

 

 1,066,626 

 

 

 1,070,754 

 

 

Real property held for sale, net of accumulated depreciation  

 

 18,502 

 

 

 18,502 

 

 

Construction in progress  

 

 144,516 

 

 

 141,085 

 

 

 

Gross real property owned  

 

 23,882,924 

 

 

 23,734,733 

 

 

Less accumulated depreciation and amortization  

 

 (2,617,026) 

 

 

 (2,386,658) 

 

 

 

Net real property owned  

 

 21,265,898 

 

 

 21,348,075 

 

Real estate loans receivable  

 

 351,401 

 

 

 332,146 

 

Net real estate investments  

 

 21,617,299 

 

 

 21,680,221 

Other assets:  

 

 

 

 

 

 

 

Investments in unconsolidated entities  

 

 668,171 

 

 

 479,629 

 

 

Goodwill  

 

 68,321 

 

 

 68,321 

 

 

Deferred loan expenses  

 

 68,842 

 

 

 70,875 

 

 

Cash and cash equivalents  

 

 185,928 

 

 

 158,780 

 

 

Restricted cash  

 

 67,797 

 

 

 72,821 

 

 

Receivables and other assets  

 

 534,684 

 

 

 553,310 

 

 

 

Total other assets  

 

 1,593,743 

 

 

 1,403,736 

Total assets  

$

 23,211,042 

 

$

 23,083,957 

 

 

 

 

  

 

 

 

 

 

Liabilities and equity  

 

 

 

 

 

Liabilities:  

 

 

 

 

 

 

 

Borrowings under unsecured line of credit arrangement  

$

 562,000 

 

$

 130,000 

 

 

Senior unsecured notes  

 

 7,377,789 

 

 

 7,379,308 

 

 

Secured debt  

 

 2,917,314 

 

 

 3,058,248 

 

 

Capital lease obligations  

 

 84,371 

 

 

 84,458 

 

 

Accrued expenses and other liabilities  

 

 612,671 

 

 

 640,573 

Total liabilities  

 

 11,554,145 

 

 

 11,292,587 

Redeemable noncontrolling interests  

 

 34,171 

  

  

 35,039 

Equity:  

 

 

 

 

 

 

 

Preferred stock  

 

 1,006,250 

 

 

 1,017,361 

 

 

Common stock  

 

 291,091 

 

 

 289,461 

 

 

Capital in excess of par value  

 

 12,494,410 

 

 

 12,418,520 

 

 

Treasury stock  

 

 (26,454) 

 

 

 (21,263) 

 

 

Cumulative net income  

 

 2,396,244 

 

 

 2,329,869 

 

 

Cumulative dividends  

 

 (4,848,008) 

 

 

 (4,600,854) 

 

 

Accumulated other comprehensive income (loss)  

 

 (25,419) 

 

 

 (24,531) 

 

 

Other equity  

 

 6,241 

 

 

 6,020 

 

 

 

Total Health Care REIT, Inc. stockholders’ equity  

 

 11,294,355 

 

 

 11,414,583 

 

 

Noncontrolling interests  

 

 328,371 

 

 

 341,748 

Total equity  

 

 11,622,726 

 

 

 11,756,331 

Total liabilities and equity  

$

 23,211,042 

 

$

 23,083,957 

 

NOTE: The consolidated balance sheet at December 31, 2013 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

(In thousands, except per share data)

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2014

 

2013

Revenues:

 

 

 

 

 

 

Rental income  

$

 336,455 

 

$

 292,643 

 

Resident fees and services

 

 456,265 

 

 

 327,324 

 

Interest income

 

 8,594 

 

 

 9,057 

 

Other income

 

 493 

 

 

 700 

 

 

Total revenues

 

 801,807 

 

 

 629,724 

Expenses:

 

 

 

 

 

 

Interest expense

 

 120,833 

 

 

 108,838 

 

Property operating expenses

 

 341,431 

 

 

 252,823 

 

Depreciation and amortization

 

 233,318 

 

 

 184,688 

 

General and administrative

 

 32,865 

 

 

 27,179 

 

Transaction costs

 

 952 

 

 

 65,980 

 

Loss (gain) on derivatives, net

 

 - 

 

 

 2,309 

 

Loss (gain) on extinguishment of debt, net

 

 (148) 

 

 

 (308) 

 

 

Total expenses

 

 729,251 

 

 

 641,509 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

and income from unconsolidated entities

 

 72,556 

 

 

 (11,785) 

Income tax (expense) benefit

 

 (2,260) 

 

 

 (2,763) 

Income (loss) from unconsolidated entities

 

 (5,556) 

 

 

 2,262 

Income (loss) from continuing operations

 

 64,740 

 

 

 (12,286) 

Discontinued operations:

 

 

 

 

 

 

Gain (loss) on sales of properties, net

 

 - 

 

 

 82,492 

 

Income (loss) from discontinued operations, net

 

 460 

 

 

 1,593 

 

 

Discontinued operations, net

 

 460 

 

 

 84,085 

Net income

 

 65,200 

 

 

 71,799 

Less:

Preferred stock dividends

 

 16,353 

 

 

 16,602 

Less:

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

 

 (1,175) 

 

 

 139 

Net income (loss) attributable to common stockholders

$

 50,022 

 

$

 55,058 

 

 

 

 

 

 

 

 

Average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 289,606 

 

 

 260,036 

 

Diluted

 

 290,917 

 

 

 260,036 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

 

 

 

 

 

attributable to common stockholders

$

 0.17 

 

$

 (0.11) 

 

Discontinued operations, net

 

 - 

 

 

 0.32 

 

Net income (loss) attributable to common stockholders*

$

 0.17 

 

$

 0.21 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

 

 

 

 

 

attributable to common stockholders

$

 0.17 

 

$

 (0.11) 

 

Discontinued operations, net

 

 - 

 

 

 0.32 

 

Net income (loss) attributable to common stockholders*

$

 0.17 

 

$

 0.21 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

$

 0.795 

 

$

 0.765 

* 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 (CONTINUED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

Net income

$

 65,200 

 

$

 71,799 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

Unrecognized gain (loss) on equity investments

 

 549 

 

 

 172 

 

Unrealized gains (losses) on cash flow hedges

 

 440 

 

 

 471 

 

Foreign currency translation gain (loss)

 

 (9,889) 

 

 

 (22,706) 

Total other comprehensive income (loss)

 

 (8,900) 

 

 

 (22,063) 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 56,300 

 

 

 49,736 

Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)

 

 (9,187) 

 

 

 139 

Total comprehensive income (loss) attributable to common stockholders

$

 65,487 

 

$

 49,875 

 

 

 

 

 

 

 

 

(1) Includes amounts attributable to redeemable noncontrolling interests.

 

See notes to unaudited consolidated financial statements

 

5


 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

 

 

 

Three Months Ended March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

 1,017,361 

$

 289,461 

$

 12,418,520 

$

 (21,263) 

$

 2,329,869 

$

 (4,600,854) 

$

 (24,531) 

$

 6,020 

$

 341,748 

$

 11,756,331 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 66,375 

 

 

 

 

 

 

 

 (982) 

 

 65,393 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 (888) 

 

 

 

 (8,012) 

 

 (8,900) 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 56,493 

Net change in noncontrolling interests

 

 

 

  

 

 (2,713) 

 

 

 

 

 

 

 

 

 

 

 

 (4,383) 

 

 (7,096) 

Amounts related to issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from dividend reinvestment and stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

incentive plans, net of forfeitures

 

 

 

 1,397 

 

 67,725 

 

 (5,191) 

 

 

 

 

 

 

 

 (12) 

 

 

 

 63,919 

 Conversion of preferred stock

 

 (11,111) 

 

 233 

 

 10,878 

 

 

 

  

 

 

 

 

 

 

 

 

 

 - 

Option compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 233 

 

 

 

 233 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 (230,801) 

 

 

 

 

 

 

 

 (230,801) 

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 (16,353) 

 

 

 

 

 

 

 

 (16,353) 

Balances at end of period

$

 1,006,250 

$

 291,091 

$

 12,494,410 

$

 (26,454) 

$

 2,396,244 

$

 (4,848,008) 

$

 (25,419) 

$

 6,241 

$

 328,371 

$

 11,622,726 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

Proceeds from issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 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 

 

See notes to unaudited consolidated financial statements

 

6


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

 

Three Months Ended

 

 

 

  

March 31,

 

 

 

  

2014

 

2013

Operating activities:  

 

 

 

 

 

Net income  

$

 65,200 

 

$

 71,799 

Adjustments to reconcile net income to  

 

 

 

 

 

 

net cash provided from (used in) operating activities:  

 

 

 

 

 

 

 

Depreciation and amortization  

 

 233,318 

 

 

 187,122 

 

 

Other amortization expenses  

 

 1,672 

 

 

 4,194 

 

 

Stock-based compensation expense  

 

 7,667 

 

 

 10,508 

 

 

Loss (gain) on derivatives, net  

 

 - 

 

 

 2,309 

 

 

Loss (gain) on extinguishment of debt, net  

 

 (148) 

 

 

 (308) 

 

 

Loss (income) from unconsolidated entities

 

 5,556 

 

 

 (2,262) 

 

 

Rental income in excess of cash received  

 

 (15,323) 

 

 

 (2,538) 

 

 

Amortization related to above (below) market leases, net  

 

 266 

 

 

 172 

 

 

Loss (gain) on sales of properties, net  

 

 - 

 

 

 (82,492) 

 

 

Distributions by unconsolidated entities

 

 4,560 

 

 

 - 

 

 

Increase (decrease) in accrued expenses and other liabilities  

 

 (25,532) 

 

 

 18,276 

 

 

Decrease (increase) in receivables and other assets  

 

 (18,575) 

 

 

 (6,972) 

Net cash provided from (used in) operating activities  

 

 258,661 

 

 

 199,808 

 

 

 

  

 

 

 

 

 

Investing activities:  

 

 

 

 

 

 

Cash disbursed for acquisitions  

 

 (55,041) 

 

 

 (1,786,396) 

 

Cash disbursed for capital improvements to existing properties

 

 (27,406) 

 

 

 (24,129) 

 

Cash disbursed for construction in progress

 

 (52,717) 

 

 

 (40,053) 

 

Capitalized interest  

 

 (1,605) 

 

 

 (1,606) 

 

Investment in real estate loans receivable  

 

 (29,709) 

 

 

 (11,971) 

 

Other investments, net of payments  

 

 1,787 

 

 

 (1,978) 

 

Principal collected on real estate loans receivable  

 

 10,646 

 

 

 49,926 

 

Contributions to unconsolidated entities  

 

 (214,832) 

 

 

 (359,575) 

 

Distributions by unconsolidated entities  

 

 12,462 

 

 

 9,916 

 

Proceeds from (payments on) derivatives  

 

 - 

 

 

 (2,604) 

 

Decrease (increase) in restricted cash  

 

 5,024 

 

 

 (94,840) 

 

Proceeds from sales of real property  

 

 - 

 

 

 294,607 

Net cash provided from (used in) investing activities  

 

 (351,391) 

 

 

 (1,968,703) 

 

 

 

  

 

 

 

 

 

Financing activities:  

 

 

 

 

 

 

Net increase (decrease) under unsecured lines of credit arrangements  

 

 432,000 

 

 

 710,000 

 

Proceeds from issuance of senior unsecured notes  

 

 - 

 

 

 497,862 

 

Payments to extinguish senior unsecured notes  

 

 (1) 

 

 

 - 

 

Net proceeds from the issuance of secured debt  

 

 10,690 

 

 

 - 

 

Payments on secured debt  

 

 (129,539) 

 

 

 (18,931) 

 

Net proceeds from the issuance of common stock  

 

 63,755 

 

 

 45,377 

 

Decrease (increase) in deferred loan expenses  

 

 (2,284) 

 

 

 (9,650) 

 

Contributions by noncontrolling interests(1)

 

 778 

 

 

 1,420 

 

Distributions to noncontrolling interests(1)

 

 (7,386) 

 

 

 (4,522) 

 

Acquisitions of noncontrolling interests

 

 (1,175) 

 

 

 - 

 

Cash distributions to stockholders  

 

 (247,154) 

 

 

 (216,148) 

 

Other financing activities

 

 (87) 

 

 

 (992) 

Net cash provided from (used in) financing activities  

 

 119,597 

 

 

 1,004,416 

Effect of foreign currency translation on cash and cash equivalents

 

 281 

 

 

 557 

Increase (decrease) in cash and cash equivalents  

 

 27,148 

 

 

 (763,922) 

Cash and cash equivalents at beginning of period  

 

 158,780 

 

 

 1,033,764 

Cash and cash equivalents at end of period  

$

 185,928 

 

$

 269,842 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

$

 126,302 

 

$

 99,202 

 

Income taxes paid

 

 10,064 

 

 

 920 

 

 

 

 

 

 

 

 

 

(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, 2014, our diversified portfolio consisted of 1,212 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, 2014 are not necessarily an indication of the results that may be expected for the year ending December 31, 2014. 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, 2013.

     New Accounting Standards     

     In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”), which amends U.S. GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This pronouncement will be effective for the first annual reporting period beginning after December 15, 2014 with early adoption permitted. We adopted ASU 2014-08 on January 1, 2014 on a prospective basis.  The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations.

  

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.

 

 

 

8


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

     Seniors Housing Triple-net Activity

 

 

Three Months Ended

 

(In thousands)

March 31, 2014(1)

March 31, 2013

 

Land and land improvements

 

$

 2,750 

 

$

 8,533 

 

Buildings and improvements

 

 

 30,693 

 

 

 47,993 

 

 

Total assets acquired

 

 

 33,443 

 

 

 56,526 

 

Non-cash acquisition related activity

 

 

 (657) 

 

 

 - 

 

 

Cash disbursed for acquisitions

 

 

 32,786 

 

 

 56,526 

 

Construction in progress additions

 

 

 24,657 

 

 

 23,946 

 

Less:

Capitalized interest

 

 

 (1,170) 

 

 

 (1,227) 

 

 

Foreign currency translation

 

 

 (14) 

 

 

 - 

 

Cash disbursed for construction in progress

 

 

 23,473 

 

  

 22,719 

 

Capital improvements to existing properties

 

 

 5,877 

 

 

 8,336 

 

 

Total cash invested in real property, net of cash acquired

 

$

 62,136 

 

$

 87,581 

 

 

 

 

 

 

 

 

 

 

(1) Includes acquisitions with an aggregate purchase price of $3,402,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

 

 

 

 

 

 

 

 

 

     Seniors Housing Operating Activity

     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, 2013 for information regarding our foreign currency policies.

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

(In thousands)

March 31, 2014

March 31, 2013

 

Land and land improvements

 

$

 2,100 

 

$

 216,949 

 

Building and improvements

 

 

 19,069 

 

 

 2,074,770 

 

Acquired lease intangibles

 

 

 1,331 

 

 

 142,054 

 

Restricted cash

 

 

 - 

 

 

 22,863 

 

Receivables and other assets

 

 

 - 

 

 

 3,225 

 

  

Total assets acquired(1)

 

 

 22,500 

 

 

 2,459,861 

 

Secured debt

 

 

 - 

 

 

 (138,259) 

 

Accrued expenses and other liabilities  

 

 

 (245) 

 

 

 (31,302) 

 

 

Total liabilities assumed

 

 

 (245) 

 

 

 (169,561) 

 

Noncontrolling interests

 

 

 - 

 

 

 (4,868) 

 

Non-cash acquisition related activity(2)

 

 

 - 

 

 

 (555,562) 

 

 

Cash disbursed for acquisitions

 

 

 22,255 

 

 

 1,729,870 

 

Construction in progress additions

 

 

 1,026 

 

 

 235 

 

Less:

Capitalized interest

 

 

 (50) 

 

 

 (2) 

 

Cash disbursed for construction in progress

 

 

 976 

 

  

 233 

 

Capital improvements to existing properties

 

 

 13,998 

 

 

 10,604 

 

 

Total cash invested in real property, net of cash acquired

 

$

 37,229 

 

$

 1,740,707 

 

 

 

 

 

 

 

 

 

 

(1) Excludes $245,000 and $51,083,000 of cash acquired during the three months ended March 31, 2014 and 2013, respectively.

(2) Represents Sunrise loan and noncontrolling interests acquisitions.

 

 

 

 

 

 

 

 

 

 

9


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

     Medical Facilities Activity

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

(In thousands)

March 31, 2014

 

March 31, 2013

 

Construction in progress additions

 

$

 38,237 

 

$

 35,139 

 

Less:

Capitalized interest

 

 

 (385) 

 

 

 (377) 

 

 

Accruals(1)

 

 

 (9,584) 

 

 

 (17,661) 

 

Cash disbursed for construction in progress

 

 

 28,268 

 

  

 17,101 

 

Capital improvements to existing properties

 

 

 7,531 

 

 

 5,189 

 

 

Total cash invested in real property

 

$

 35,799 

 

$

 22,290 

 

 

 

 

 

 

 

 

 

 

(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, 2014

 

March 31, 2013

 

Development projects:

 

 

 

 

 

 

 

 

 

 

Seniors housing triple-net

  

 

$

 8,481 

 

 

$

 67,317 

 

 

Medical facilities

 

 

 

 42,799 

 

 

 

 60,536 

 

 

Total development projects

 

 

 

 51,280 

 

 

 

 127,853 

 

Expansion projects

 

 

 

 9,209 

 

 

 

 7,631 

Total construction in progress conversions

  

 

$

 60,489 

 

 

$

 135,484 

 

 

 

 

 

 

 

 

 

 

 

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, 2014

 

December 31, 2013

Assets:

  

 

 

 

 

 

 

In place lease intangibles

  

$

 930,687 

 

$

 937,357 

 

Above market tenant leases

  

 

 57,910 

 

 

 55,939 

 

Below market ground leases

  

 

 59,165 

 

 

 59,165 

 

Lease commissions

  

 

 18,864 

 

 

 18,293 

 

Gross historical cost

  

 

 1,066,626 

 

 

 1,070,754 

 

Accumulated amortization

  

 

 (649,362) 

 

 

 (571,008) 

 

Net book value

  

$

 417,264 

 

$

 499,746 

 

 

  

 

 

 

 

 

 

Weighted-average amortization period in years

  

 

17.3

 

 

16.7

 

 

  

 

 

 

 

 

Liabilities:

  

 

 

 

 

 

 

Below market tenant leases

  

$

 76,340 

 

$

 76,381 

 

Above market ground leases

  

 

 9,490 

 

 

 9,490 

 

Gross historical cost

  

 

 85,830 

 

 

 85,871 

 

Accumulated amortization

  

 

 (36,086) 

 

 

 (34,434) 

 

Net book value

  

$

 49,744 

 

$

 51,437 

 

 

  

 

 

 

 

 

 

Weighted-average amortization period in years

  

 

14.3

 

 

14.3

 

 

 

 

 

 

 

 

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

10


 

HEALTH CARE REIT, INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

  

 

2014

 

2013

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

 

$

 (45) 

 

$

 148 

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

 

 

 (311) 

 

 

 (320) 

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

 

 

 (79,393) 

 

 

 (50,576) 

 

 

 

 

 

 

 

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