10-QPeriod: Q2 FY2005

WELLTOWER INC. Quarterly Report for Q2 Ended Jun 30, 2005

Filed July 22, 2005For Securities:WELL

Summary

Health Care REIT, Inc. (WELL) reported its financial results for the quarter and six months ended June 30, 2005. The company experienced a net loss available to common stockholders of $1.6 million for the quarter, largely driven by a significant $18.4 million charge related to the extinguishment of debt. This contrasts with a net income of $19.2 million in the same quarter of the prior year. For the six-month period, net income available to common stockholders decreased to $16.2 million from $37.9 million in the prior year, also impacted by debt extinguishment costs. Despite the quarterly loss, the company's revenue saw a healthy increase of 16% for both the quarter and six-month period, primarily driven by growth in rental income resulting from strategic property acquisitions. Management highlighted increased financial flexibility through new and expanded credit facilities and successful senior note offerings aimed at refinancing existing debt at more favorable terms. The company continues to focus on its core strategy of investing in long-term care facilities, with assisted living and skilled nursing facilities forming the vast majority of its portfolio. Payment coverages in the portfolio remain a key focus, showing improvement in assisted living and continued strength in skilled nursing and specialty care segments.

Key Highlights

  • 1Net loss available to common stockholders of $(1.6) million for the quarter ended June 30, 2005, compared to a net income of $19.2 million in the prior year quarter.
  • 2Significant charge of $18.4 million for loss on extinguishment of debt in the second quarter of 2005 impacted profitability.
  • 3Total revenues increased by 16% for both the three and six months ended June 30, 2005, driven primarily by increased rental income from property acquisitions.
  • 4Closed on a $500 million unsecured revolving credit facility, replacing a smaller facility and reducing borrowing costs.
  • 5Issued $250 million of 5.875% senior unsecured notes and used proceeds to refinance and redeem older, higher-interest debt.
  • 6Assisted Living Facilities portfolio saw an increase in investment balance to $1.33 billion, with payment coverage at 1.49x.
  • 7Maintained a strong focus on corporate governance and compliance with Sarbanes-Oxley Act requirements.

Frequently Asked Questions

The company reported a net loss available to common stockholders of $(1.6) million for the quarter ended June 30, 2005, primarily due to a significant one-time charge of $18.4 million related to the extinguishment of debt. This charge arose from the company's efforts to refinance its outstanding senior unsecured notes.

Health Care REIT, Inc. enhanced its financial flexibility by closing on a new $500 million unsecured revolving credit facility and a $40 million unsecured line of credit. The company also issued $250 million of new senior unsecured notes and used the proceeds to redeem and tender for older, higher-interest debt, effectively lowering its overall borrowing costs and extending debt maturities.

The company's real estate portfolio, primarily consisting of assisted living and skilled nursing facilities, showed positive revenue growth of 16% for the six months ended June 30, 2005, driven by acquisitions. Key performance indicators such as payment coverage showed improvement in the assisted living segment and remained strong in skilled nursing and specialty care facilities, indicating a stable underlying operational performance despite the impact of debt extinguishment charges on net income.

The company employs a proactive risk management strategy that includes close monitoring of operator financial statements and credit, periodic facility inspections, and ensuring covenant compliance. Investments are structured to mitigate risk, with typical financing of up to 90% of appraised value and operating leases and loans often credit-enhanced by guarantees and letters of credit. Cross-default and cross-collateralization clauses are also utilized to strengthen security.