Zacks_Analysts' Blog : Health Care REIT Updates Guidance - Analyst Blog

Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate, has recently updated its recurring FFO (funds from operations) and FAD (funds available for distribution) guidance for fiscal 2011 to better reflect the effect of the just-concluded secondary offering of approximately 12.7 million shares.

Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. Funds available for distribution represents FFO adjusted for non-real estate depreciation and the effect of straight-line rent, less capital investments in property.

The company has revised its recurring FFO guidance for fiscal 2011 from the earlier range of $3.38 - $3.43 per share to $3.35 - $3.40. The revised recurring FFO range represents a year-over-year increase of about 9%-10%. Health Care REIT also updated its recurring FAD guidance from $3.03 - $3.08 per share to $3.00 - $3.05, representing an increase of about 6%-7% compared to fiscal 2010.

Headquartered in Toledo, Ohio, Health Care REIT invests across the full spectrum of senior housing and health care real estate properties. Founded in 1970, the company was the first REIT to invest exclusively in healthcare facilities.

Health Care REIT usually has long-term ‘triple-net’ leases in senior housing and healthcare real estate properties that insulates it from market volatility and provides a steady source of revenue despite a challenging macroeconomic environment. Under ‘triple-net’ leases, the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent.

The healthcare sector is one of the more recession-proof real estate sectors and has continually fared comparatively better than other sectors during the commercial real estate downturn. In addition, an aging Baby Boomer generation’s demand for assisted and independent living facilities should increase in the coming years. With a significant presence in these property types, Health Care REIT is poised to maintain its growth curves and simultaneously benefit the shareholders with steadily rising dividends.

We presently have a ‘Neutral’ recommendation on Health Care REIT Inc., which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for HCP Inc. (HCP), one of the competitors of Health Care REIT Inc.