HCP Announces Results for the Fourth Quarter and Year Ended December 31, 2012
HCP Announces Results for the Fourth Quarter and Year Ended December 31,
2012
FOURTH QUARTER HIGHLIGHTS
* FFO and earnings per share increased to $0.71 and $0.53, respectively; FFO
as adjusted per share increased 7% to $0.72; FAD per share increased 14%
to $0.57
* Achieved year-over-year three-month Cash NOI SPP growth of 4.3%
* Closed the acquisition of a $1.7 billion senior housing portfolio of 129
communities and funded a related $52 million secured loan
* Completed an additional $141 million of investment transactions, including
two MOBs related to our previously announced Boyer MOB acquisition
* Raised $1.8 billion of debt and equity capital consisting of:
* $800 million of 2.625% senior unsecured notes due in 2020
* $979 million in common stock
* Obtained credit rating upgrades from Moody’s to ‘Baa1’ and S&P to ‘BBB+’
* Received NAREIT’s 2012 Leader in the Light Award, as the healthcare sector
leader in Sustainability
FULL YEAR HIGHLIGHTS
* FFO and earnings per share increased to $2.72 and $1.90, respectively; FFO
as adjusted per share increased 3% to $2.78; FAD per share increased 4% to
$2.22
* Achieved year-over-year Cash NOI SPP growth of 4.2%
* Completed $2.4 billion of acquisitions representing four of our five
property sectors
* Raised $3.5 billion of debt and equity capital, to fund accretive
acquisitions and retire $1 billion of higher coupon debt and preferred
securities, consisting of:
* $1.76 billion in unsecured debt with an average rate of 2.9% and term
exceeding 7 years
* $1.71 billion in common stock
* Improved the pricing and extended the term of our $1.5 billion revolving
line of credit
* Awarded a total of 35 ENERGY STAR labels in our medical office, life
science and senior housing segments
2013 OUTLOOK AND DIVIDEND
* Full year guidance, not including the impact of any future acquisitions,
for FFO of $2.92 – $2.98 per share and FAD of $2.39 – $2.45 per share,
representing growth rates, as measured by the mid-point of our estimates,
of 6% and 9%, over our 2012 FFO as adjusted and FAD amounts, respectively;
earnings per share guidance of $1.95 – $2.01
* Increased the quarterly cash dividend 5% to $0.525 per share, which
represents our 28^th consecutive year with a dividend increase
* HCP continues as the only REIT included in the S&P 500 Dividend
Aristocrats index
Business Wire
LONG BEACH, Calif. -- February 12, 2013
HCP (the “Company” or “we”) (NYSE:HCP) announced results for the fourth
quarter and year ended December 31, 2012 as follows (in thousands, except per
share amounts):
FOURTH QUARTER COMPARISON
Three Months Ended Three Months Ended
December 31, 2012 December 31, 2011 Per
Share
Amount Per Amount Per Change
Share Share
FFO $ 317,839 $ 0.71 $ 150,578 $ 0.37 $ 0.34
Litigation
settlement — — 125,000 0.30 (0.30 )
charge^(1)
Merger-related 5,642 0.01 — — 0.01
items^(2)
FFO as $ 323,481 $ 0.72 $ 275,578 $ 0.67 $ 0.05
adjusted
FAD $ 253,841 $ 0.57 $ 202,890 $ 0.50 $ 0.07
Net income
applicable to $ 239,881 $ 0.53 $ 61,996 $ 0.15 $ 0.38
common shares
(1) This 2011 charge relates to the Ventas, Inc. (“Ventas”) litigation
settlement.
Merger-related items in 2012 of $0.01 per share associated with the
$1.7 billion Senior Housing Portfolio acquisition include direct
(2) transaction costs and the impact of the negative carry of prefunding
the transaction with the $1.0 billion, or 22 million share, common
stock offering completed on October 19, 2012 on the calculation of
weighted average shares.
In addition to the litigation settlement charge, operating results for the
quarter ended December 31, 2011, include the negative impact of $0.01 per
share for the write-down in the carrying value of a marketable security. Net
income for the quarters ended December 31, 2012 and 2011 also include gain on
sales of real estate of $28 million and $3 million, respectively.
FULL-YEAR COMPARISON
Year Ended Year Ended
December 31, 2012 December 31, 2011 Per
Share
Amount Per Amount Per Change
Share Share
FFO $ 1,166,508 $ 2.72 $ 877,907 $ 2.19 $ 0.53
Preferred stock
redemption 10,432 0.02 — — 0.02
charge^(1)
Litigation
settlement — — 125,000 0.31 (0.31 )
charge^(2)
Impairments^(3) 7,878 0.02 15,400 0.04 (0.02 )
Merger-related 5,642 0.02 26,596 0.15 (0.13 )
items^(4)
FFO as adjusted $ 1,190,460 $ 2.78 $ 1,044,903 $ 2.69 $ 0.09
FAD $ 949,306 $ 2.22 $ 830,651 $ 2.14 $ 0.08
Net income
applicable to $ 812,289 $ 1.90 $ 515,302 $ 1.29 $ 0.61
common shares
In connection with the 2012 redemption of our preferred stock, we
(1) incurred a one-time, non-cash redemption charge of $10.4 million or
$0.02 per share related to the original issuance costs of the
preferred stock.
(2) This 2011 charge relates to the Ventas litigation settlement.
The 2012 impairment charge of $7.9 million, or $0.02 per share,
relates to the sale of a land parcel in our life science segment.
(3) The 2011 impairment charge of $15.4 million, or $0.04 per share,
relates to our senior secured loan to Delphis Operations, L.P.
(“Delphis”).
The 2012 merger-related items of $0.02 per share attributable to the
$1.7 billion Senior Housing Portfolio acquisition include direct
transaction costs and the impact of the negative carry of prefunding
(4) the transaction with the $1.0 billion, or 22 million share, common
stock offering completed on October 19, 2012 on the calculation of
weighted average shares. The 2011 merger-related items of $0.15 per
share are attributable to our HCR ManorCare acquisition, which
closed on April 7, 2011.
In addition to the litigation settlement charge, impairments and
merger-related items, operating results for the year ended December 31, 2011
include interest income of $0.09 per share from the early payoff of our
Genesis debt investments. Net income for the years ended December 31, 2012 and
2011 also include gain on sales of real estate of $31 million and $3 million,
respectively.
FFO, FFO as adjusted and FAD are supplemental non-GAAP financial measures that
the Company believes are useful in evaluating the operating performance of
real estate investment trusts. See the “Funds From Operations” section of this
release for additional information regarding FFO and FFO as adjusted and the
“Funds Available for Distribution” section of this release for additional
information regarding FAD.
FOURTH QUARTER HIGHLIGHTS
ACQUIRED $1.7 BILLION SENIOR HOUSING PORTFOLIO
During the quarter, we acquired 129 senior housing communities for $1.7
billion, from a joint venture between Emeritus Corporation (“Emeritus”) and
Blackstone Real Estate Partners VI, an affiliate of Blackstone (the
“Blackstone JV”). At closing, the 129 communities consisted of 95 that were
stabilized and 34 that were in lease–up. In connection with the transaction,
Emeritus entered into a new triple-net, master lease for the 129 properties
(the “Master Lease”) guaranteed by Emeritus. The Master Lease provides
aggregate contractual rent in the first year that represents a 6.1% lease
yield. The contractual rent will increase annually by the greater of 3.7% on
average or CPI over the initial five years, and thereafter by the greater of
3.0% or CPI for the remaining initial term. At the beginning of the sixth
lease year, rent on the 34 lease–up properties will increase to the greater of
the percentage increase in CPI or fair market, subject to a floor of 103% and
a cap of 130% of the prior year’s rent, allowing HCP to capture potential
upside from these non–stabilized assets.
Located in 29 states, the portfolio encompasses 10,077 units representing a
diversified care mix of 61% assisted living, 25% independent living, 13%
memory care and 1% skilled nursing. We are still evaluating the acquisition of
up to four additional communities related to this transaction.
Concurrent with the acquisition, Emeritus purchased nine communities from the
Blackstone JV, for which we provided secured debt financing of $52 million
with a four-year term. The loan is secured by the underlying real estate and
is prepayable at Emeritus’ option. The interest rate on the loan matches the
yield on the Master Lease, including the annual increases through maturity.
ADDITIONAL INVESTMENT TRANSACTIONS
During the quarter, we made additional investments of $141 million as follows:
(i) $62 million to purchase the two MOBs of our previously announced Boyer MOB
acquisition; and (ii) $79 million to fund development and other capital
projects, primarily in our life science, medical office and senior housing
segments.
During the quarter, we sold two senior housing facilities for $111 million, a
parcel of land in our life science segment for $18 million, and a skilled
nursing facility for $15 million; we also received $38 million in principal
payments from our senior secured loan to Delphis.
FINANCING ACTIVITIES
In connection with funding the $1.7 billion Senior Housing Portfolio
acquisition, we completed the following capital market transactions:
* On October 19, 2012, we completed a public offering of 22 million shares
of common stock and received net proceeds of $979 million.
* On November 19, 2012, we issued $800 million of 2.625% senior unsecured
notes due in 2020. The notes were priced at 99.729% of the principal
amount with an effective yield-to-maturity of 2.667%. Net proceeds from
this offering were $792.8 million. We anticipate that a portion of these
net proceeds will be used to re-pay $150 million of 5.625% senior
unsecured notes that mature in February 2013.
SUSTAINABILITY
During the quarter, we (i) earned 16 ENERGY STAR awards in our medical office
(11) and life science (5) segments as a result of the Company’s energy
conservation programs; and (ii) were awarded NAREIT’s 2012 Leader in the Light
Award, recognizing HCP as the leader in sustainability in the healthcare
sector, which incorporated our results from the Global Real Estate
Sustainability Benchmark (“GRESB”) survey. As of December 31, 2012, our
medical office, life science and senior housing segments have been awarded 93
ENERGY STAR labels. More information about HCP’s sustainability efforts can be
found on our website at www.hcpi.com/sustainability.html.
DIVIDEND
On January 24, 2013, our Board of Directors declared a quarterly cash dividend
of $0.525 per common share. The dividend will be paid on February 19, 2013 to
stockholders of record as of the close of business on February 4, 2013. The
annualized distribution rate for 2013 increased 5% to $2.10, compared to $2.00
for 2012, which represents the 28^th consecutive year with a dividend
increase. HCP continues as the only REIT included in the S&P 500 Dividend
Aristocrats index.
OUTLOOK
For the full year 2013, we expect FFO applicable to common shares to range
between $2.92 and $2.98 per share, which estimate at the mid-point represents
an increase of 6% over the 2012 FFO as adjusted per share amount; FAD
applicable to common shares to range between $2.39 and $2.45 per share, which
estimate at the mid-point represents an increase of 9% over the 2012
comparable amount; net income applicable to common shares to range between
$1.95 and $2.01 per share, which estimate at the mid-point represents an
increase of 4% over the 2012 comparable amount. These estimates do not reflect
the potential impact of future acquisitions or dispositions. See the
“Projected Future Operations” section of this release for additional
information regarding these estimates.
COMPANY INFORMATION
HCP has scheduled a conference call and webcast for Tuesday, February 12, 2013
at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time) in order to present the
Company’s performance and operating results for the quarter and year ended
December 31, 2012. The conference call is accessible by dialing (877) 724-7556
(U.S.) or (706) 645-4695 (International). The participant passcode is
89679770. The webcast is accessible via the Company’s website at www.hcpi.com.
This link can be found on the “Event Calendar” page, which is under the
“Investor Relations” tab. Through February 26, 2013, an archive of the webcast
will be available on our website and a telephonic replay can be accessed by
calling (855) 859-2056 (U.S.) or (404) 537-3406 (International) and entering
passcode 89679770. The Company’s supplemental information package for the
current period will also be available on the Company’s website in the
“Presentations” section of the “Investor Relations” tab.
ABOUT HCP
HCP, Inc. is a fully integrated real estate investment trust (REIT) that
invests primarily in real estate serving the healthcare industry in the United
States. The Company’s portfolio of assets is diversified among five distinct
sectors: senior housing, post-acute/skilled nursing, life science, medical
office and hospitals. A publicly traded company since 1985, HCP: (i) was the
first healthcare REIT selected to the S&P 500 index; (ii) has increased its
dividend per share for 28 consecutive years; and (iii) is the only REIT
included in the S&P 500 Dividend Aristocrats index. For more information
regarding HCP, visit the Company’s website at www.hcpi.com.
FORWARD-LOOKING STATEMENTS
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this release which are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements include among other things, net
income applicable to common shares on a diluted basis, FFO applicable to
common shares on a diluted basis, and FAD applicable to common shares on a
diluted basis for the full year of 2013. These statements are made as of the
date hereof, are not guarantees of future performance and are subject to known
and unknown risks, uncertainties, assumptions and other factors—many of which
are out of the Company and its management’s control and difficult to
forecast—that could cause actual results to differ materially from those set
forth in or implied by such forward-looking statements. These risks and
uncertainties include but are not limited to: national and local economic
conditions; continued volatility in the capital markets, including changes in
interest rates and the availability and cost of capital, which changes and
volatility affect opportunities for profitable investments; the Company’s
ability to access external sources of capital when desired and on reasonable
terms; the Company’s ability to manage its indebtedness levels; changes in the
terms of the Company’s indebtedness; the Company’s ability to maintain its
credit ratings; the potential impact of existing and future litigation
matters, including the possibility of larger than expected litigation costs
and related developments; the Company’s ability to successfully integrate the
operations of acquired companies; risks associated with the Company’s
investments in joint ventures and unconsolidated entities, including its lack
of sole decision-making authority and its reliance on its joint venture
partners’ financial condition and continued cooperation; competition for
lessees and mortgagors (including new leases and mortgages and the renewal or
rollover of existing leases); the Company’s ability to reposition its
properties on the same or better terms if existing leases are not renewed or
the Company exercises its right to replace an existing operator or tenant upon
default; continuing reimbursement uncertainty in the post-acute/skilled
nursing segment; competition in the senior housing segment specifically and in
the healthcare industry in general; the ability of the Company’s operators and
tenants from its senior housing segment to maintain or increase their
occupancy levels and revenues; the ability of the Company’s lessees and
mortgagors to maintain the financial strength and liquidity necessary to
satisfy their respective obligations to the Company and other third parties;
the bankruptcy, insolvency or financial deterioration of the Company’s
operators, lessees, borrowers or other obligors; changes in healthcare laws
and regulations, including the impact of future or pending healthcare reform,
and other changes in the healthcare industry which affect the operations of
the Company’s lessees or obligors, including changes in the federal budget
resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement
rates; the Company’s ability to recruit and retain key management personnel;
costs of compliance with regulations and environmental laws affecting the
Company’s properties; changes in tax laws and regulations; changes in the
financial position or business strategies of HCR ManorCare; the Company’s
ability and willingness to maintain its qualification as a REIT due to
economic, market, legal, tax or other considerations; changes in rules
governing financial reporting, including new accounting pronouncements; and
other risks described from time to time in the Company’s Securities and
Exchange Commission filings. The Company assumes no, and hereby disclaims any,
obligation to update any of the foregoing or any other forward-looking
statements as a result of new information or new or future developments,
except as otherwise required by law.
HCP, Inc.
Consolidated Balance Sheets
In thousands, except share and per share data
(Unaudited)
December 31, December 31,
2012 2011
Assets
Real estate:
Buildings and improvements $ 10,537,484 $ 8,816,551
Development costs and construction 236,864 190,590
in progress
Land 1,850,397 1,722,948
Accumulated depreciation and (1,739,718 ) (1,449,579 )
amortization
Net real estate 10,885,027 9,280,510
Net investment in direct financing 6,881,393 6,727,777
leases
Loans receivable, net 276,030 110,253
Investments in and advances to 212,213 224,052
unconsolidated joint ventures
Accounts receivable, net of
allowance of $1,668 and $1,341, 34,150 26,681
respectively
Cash and cash equivalents 247,673 33,506
Restricted cash 37,848 41,553
Intangible assets, net 552,701 372,390
Assets held for sale, net — 106,295
Other assets, net 788,520 485,458
Total assets $ 19,915,555 $ 17,408,475
Liabilities and equity
Bank line of credit $ — $ 454,000
Term loan 222,694 —
Senior unsecured notes 6,712,624 5,416,063
Mortgage debt 1,676,544 1,715,039
Mortgage debt and intangible
liabilities on assets held for sale, — 55,897
net
Other debt 81,958 87,985
Intangible liabilities, net 105,909 117,777
Accounts payable and accrued 293,994 275,478
liabilities
Deferred revenue 68,055 65,614
Total liabilities 9,161,778 8,187,853
Preferred stock, $1.00 par value:
aggregate liquidation preference of — 285,173
$295.5 million as of December 31,
2011
Common stock, $1.00 par value:
750,000,000 shares authorized; 453,191 408,629
453,191,321 and 408,629,444 shares
issued and outstanding, respectively
Additional paid-in capital 11,180,066 9,383,536
Cumulative dividends in excess of (1,067,367 ) (1,024,274 )
earnings
Accumulated other comprehensive loss (14,653 ) (19,582 )
Total stockholders’ equity 10,551,237 9,033,482
Joint venture partners 14,752 16,971
Non-managing member unitholders 187,788 170,169
Total noncontrolling interests 202,540 187,140
Total equity 10,753,777 9,220,622
Total liabilities and equity $ 19,915,555 $ 17,408,475
HCP, Inc.
Consolidated Statements of Income
In thousands, except per share data
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
Revenues:
Rental and
related $ 278,141 $ 245,198 $ 1,013,815 $ 1,002,578
revenues
Tenant 25,002 22,494 94,658 92,258
recoveries
Resident fees 35,921 35,305 143,745 50,619
and services
Income from
direct 156,728 154,151 622,073 464,704
financing
leases
Interest 12,223 665 24,536 99,864
income
Investment
management fee 472 468 1,895 2,073
income
Total revenues 508,487 458,281 1,900,722 1,712,096
Costs and
expenses:
Interest 107,255 100,701 417,130 416,396
expense
Depreciation
and 99,373 84,348 358,245 349,922
amortization
Operating 73,921 69,055 283,998 220,151
General and 25,120 19,679 79,454 96,121
administrative
Litigation
settlement and — 125,000 — 125,000
provision
Impairments — — 7,878 15,400
Total costs 305,669 398,783 1,146,705 1,222,990
and expenses
Other income 254 (4,623 ) 2,776 12,732
(expense), net
Income before
income taxes
and equity 203,072 54,875 756,793 501,838
income from
unconsolidated
joint ventures
Income taxes 505 (960 ) 1,636 (1,250 )
Equity income
from 11,652 13,952 54,455 46,750
unconsolidated
joint ventures
Income from
continuing 215,229 67,867 812,884 547,338
operations
Discontinued
operations:
Income (loss)
before gain on 2,433 (187 ) 2,504 4,049
sales of real
estate
Gain on sales 28,598 3,107 31,454 3,107
of real estate
Total
discontinued 31,031 2,920 33,958 7,156
operations
Net income 246,260 70,787 846,842 554,494
Noncontrolling
interests’ (5,232 ) (2,943 ) (14,302 ) (15,603 )
share in
earnings
Net income
attributable 241,028 67,844 832,540 538,891
to HCP, Inc.
Preferred
stock — (5,282 ) (17,006 ) (21,130 )
dividends
Participating
securities’ (1,147 ) (566 ) (3,245 ) (2,459 )
share in
earnings
Net income
applicable to $ 239,881 $ 61,996 $ 812,289 $ 515,302
common shares
Basic earnings
per common
share:
Continuing $ 0.47 $ 0.14 $ 1.83 $ 1.28
operations
Discontinued 0.07 0.01 0.07 0.01
operations
Net income
applicable to $ 0.54 $ 0.15 $ 1.90 $ 1.29
common shares
Diluted
earnings per
common share:
Continuing $ 0.47 $ 0.14 $ 1.83 $ 1.28
operations
Discontinued 0.06 0.01 0.07 0.01
operations
Net income
applicable to $ 0.53 $ 0.15 $ 1.90 $ 1.29
common shares
Weighted
average shares
used to
calculate
earnings per
common share:
Basic 447,889 407,907 427,047 398,446
Diluted 448,903 409,730 428,316 400,218
HCP, Inc.
Consolidated Statements of Cash Flows
In thousands
(Unaudited)
Year Ended December 31,
2012 2011
Cash flows from operating activities:
Net income $ 846,842 $ 554,494
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization of real
estate, in-place lease and other
intangibles:
Continuing operations 358,245 349,922
Discontinued operations 8,267 7,473
Amortization of above and below market (2,232 ) (4,510 )
lease intangibles, net
Amortization of deferred compensation 23,277 20,034
Amortization of deferred financing 16,501 25,769
costs, net
Straight-line rents (47,311 ) (59,173 )
Loan and direct financing lease interest (95,444 ) (93,003 )
accretion
Deferred rental revenues (1,655 ) (2,319 )
Equity income from unconsolidated joint (54,455 ) (46,750 )
ventures
Distributions of earnings from 3,384 3,273
unconsolidated joint ventures
Gain upon consolidation of joint venture — (7,769 )
Marketable securities losses, net — 5,396
Gain upon settlement of loans receivable — (22,812 )
Gain on sale of real estate (31,454 ) (3,107 )
Derivative (gains) losses, net 43 (1,226 )
Impairments 7,878 15,400
Changes in:
Accounts receivable, net (7,469 ) 2,590
Other assets (3,814 ) 27,582
Accounts payable and accrued liabilities 14,267 (47,103 )
Net cash provided by operating 1,034,870 724,161
activities
Cash flows from investing activities:
Cash used in the senior housing (1,701,410 ) —
portfolio acquisition
Other acquisitions (186,478 ) (113,324 )
Cash used in the HCR ManorCare — (4,026,556 )
Acquisition, net of cash acquired
Cash used in the HCP Ventures II — (135,550 )
purchase, net of cash acquired
Development of real estate (133,596 ) (85,061 )
Leasing costs and tenant and capital (61,440 ) (52,903 )
improvements
Proceeds from sales of real estate, net 150,943 19,183
Purchase of an interest in — (95,000 )
unconsolidated joint ventures
Distributions in excess of earnings from 2,915 2,408
unconsolidated joint ventures
Purchase of marketable securities (214,859 ) (22,449 )
Principal repayments on loans receivable 45,046 303,941
Investments in loans receivable (218,978 ) (369,939 )
Decrease (increase) in restricted cash 3,705 (5,234 )
Net cash used in investing activities (2,314,152 ) (4,580,484 )
Cash flows from financing activities:
Net borrowings (repayments) under bank (454,000 ) 454,000
line of credit
Borrowings under term loan 214,789 —
Issuance of senior unsecured notes 1,550,000 2,400,000
Repayment of senior unsecured notes (250,000 ) (292,265 )
Repayments of mortgage debt (155,565 ) (169,783 )
Deferred financing costs (27,565 ) (43,716 )
Preferred stock redemption (295,500 ) —
Net proceeds from the issuance of common 1,792,786 1,327,813
stock and exercise of options
Dividends paid on common and preferred (865,306 ) (787,689 )
stock
Issuance of noncontrolling interests 1,584 14,028
Purchase of noncontrolling interests (2,143 ) (34,104 )
Distributions to noncontrolling (15,631 ) (15,156 )
interests
Net cash provided by financing 1,493,449 2,853,128
activities
Net increase (decrease) in cash and cash 214,167 (1,003,195 )
equivalents
Cash and cash equivalents, beginning of 33,506 1,036,701
year
Cash and cash equivalents, end of year $ 247,673 $ 33,506
HCP, Inc.
Funds From Operations^(1)
In thousands, except per share data
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
Net income
applicable to $ 239,881 $ 61,996 $ 812,289 $ 515,302
common shares
Depreciation
and
amortization of
real estate,
in-place lease
and other
intangibles:
Continuing 99,373 84,348 358,245 349,922
operations
Discontinued 800 3,019 8,267 7,473
operations
Direct
financing lease 3,330 2,961 12,756 8,840
(“DFL”)
depreciation
Gain on sales (28,598 ) (3,107 ) (31,454 ) (3,107 )
of real estate
Gain upon
consolidation — — — (7,769 )
of joint
venture
Equity income
from (11,652 ) (13,952 ) (54,455 ) (46,750 )
unconsolidated
joint ventures
FFO from
unconsolidated 14,438 16,479 64,933 56,887
joint ventures
Noncontrolling
interests’ and
participating 6,379 3,509 17,547 18,062
securities’
share in
earnings
Noncontrolling
interests’ and
participating (6,112 ) (4,675 ) (21,620 ) (20,953 )
securities’
share in FFO
FFO applicable
to common $ 317,839 $ 150,578 $ 1,166,508 $ 877,907
shares
Distributions
on dilutive 3,631 — 13,028 6,916
convertible
units
Diluted FFO
applicable to $ 321,470 $ 150,578 $ 1,179,536 $ 884,823
common shares
Diluted FFO per $ 0.71 $ 0.37 $ 2.72 $ 2.19
common share
Weighted
average shares
used to 454,992 409,730 434,328 403,864
calculate
diluted FFO per
share
Impact of
adjustments to
FFO:
Preferred stock
redemption — — 10,432 —
charge^(2)
Litigation
settlement — 125,000 — 125,000
charge^(3)
Merger-related 5,642 — 5,642 26,596
items^(4)
Impairments^(5) — — 7,878 15,400
$ 5,642 $ 125,000 $ 23,952 $ 166,996
FFO as adjusted
applicable to $ 323,481 $ 275,578 $ 1,190,460 $ 1,044,903
common shares
Distributions
on dilutive 3,613 2,858 12,957 11,646
convertible
units and other
Diluted FFO as
adjusted $ 327,094 $ 278,436 $ 1,203,417 $ 1,056,549
applicable to
common shares
Per common
share impact of $ 0.01 $ 0.30 $ 0.06 $ 0.50
adjustments on
diluted FFO
Diluted FFO as
adjusted per $ 0.72 $ 0.67 $ 2.78 $ 2.69
common share
Weighted
average shares
used to
calculate 452,122 415,624 433,607 393,237
diluted FFO as
adjusted per
share
We believe Funds From Operations (“FFO”) is an important
supplemental measure of operating performance for a REIT. Because
the historical cost accounting convention used for real estate
assets utilizes straight-line depreciation (except on land), such
accounting presentation implies that the value of real estate assets
diminishes predictably over time. Since real estate values instead
have historically risen and fallen with market conditions,
presentations of operating results for a REIT that use historical
cost accounting for depreciation could be less informative. The term
FFO was designed by the REIT industry to address this issue. FFO is
defined as net income applicable to common shares (computed in
accordance with U.S. generally accepted accounting principles or
“GAAP”), excluding gains or losses from acquisition and dispositions
of depreciable real estate or related interests, impairments of, or
related to, depreciable real estate, plus real estate and DFL
(1) depreciation and amortization, with adjustments for joint ventures.
Adjustments for joint ventures are calculated to reflect FFO on the
same basis. FFO does not represent cash generated from operating
activities determined in accordance with GAAP, is not necessarily
indicative of cash available to fund cash needs and should not be
considered an alternative to net income. Our computation of FFO may
not be comparable to FFO reported by other REITs that do not define
the term in accordance with the current National Association of Real
Estate Investment Trusts’ (“NAREIT”) definition or that have a
different interpretation of the current NAREIT definition from us.
In addition, we present FFO before the impact of litigation
settlement charges, preferred stock redemption charges, impairments
(recoveries) of non-depreciable assets and merger-related items
(“FFO as adjusted”). Management believes FFO as adjusted is a useful
alternative measurement. This measure is a modification of the
NAREIT definition of FFO and should not be used as an alternative to
net income (determined in accordance with GAAP).
In connection with the redemption of our preferred stock, we
(2) incurred a one-time, non-cash redemption charge of $10.4 million or
$0.02 per share related to the original issuance costs of the
preferred stock.
(3) The 2011 charge of $125 million, or $0.31 per share, relates to the
Ventas settlement.
The 2012 merger-related items of $0.02 per share attributable to the
$1.7 billion Senior Housing Portfolio acquisition include direct
transaction costs and the impact of the negative carry of prefunding
(4) the transaction with the $1.0 billion, or 22 million shares, common
stock offering completed on October 19, 2012 on the calculation of
weighted average shares. The 2011 merger-related items of $0.15 per
share are attributable to the HCR ManorCare acquisition, which
closed on April 7, 2011.
The 2012 impairment charge of $7.9 million, or $0.02 per share,
(5) relates to the sale of a land parcel in our life science segment.
The 2011 impairment charge of $15.4 million, or $0.04 per share,
relates to our senior secured loan to Delphis.
HCP, Inc.
Funds Available for Distribution^(1)
In thousands, except per share data
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
FFO as adjusted
applicable to $ 323,481 $ 275,578 $ 1,190,460 $ 1,044,903
common shares
Amortization of
above and below
market lease (377 ) (1,239 ) (2,232 ) (4,510 )
intangibles,
net
Amortization of
deferred 6,330 4,748 23,277 20,034
compensation
Amortization of
deferred 4,086 3,651 16,501 13,716
financing
costs, net^(2)
Straight-line (13,703 ) (12,237 ) (47,311 ) (59,173 )
rents
DFL (23,168 ) (25,499 ) (94,240 ) (74,007 )
accretion^(3)
DFL (3,330 ) (2,961 ) (12,756 ) (8,840 )
depreciation
Deferred
revenues –
tenant (313 ) (237 ) (1,570 ) (2,371 )
improvement
related
Deferred
revenues – (2,443 ) (798 ) (85 ) 52
additional
rents (SAB 104)
Leasing costs
and tenant and (18,623 ) (21,131 ) (61,440 ) (52,903 )
capital
improvements
Joint venture
and other FAD (18,099 ) (16,985 ) (61,298 ) (46,250 )
adjustments^(3)
FAD applicable
to common $ 253,841 $ 202,890 $ 949,306 $ 830,651
shares
Distributions
on dilutive 2,310 1,758 7,714 6,916
convertible
units
Diluted FAD
applicable to $ 256,151 $ 204,648 $ 957,020 $ 837,567
common shares
Diluted FAD per $ 0.57 $ 0.50 $ 2.22 $ 2.14
common share
Weighted
average shares
used to 450,207 413,338 431,429 390,944
calculate
diluted FAD per
common share
Funds Available for Distribution (“FAD”) is defined as FFO as
adjusted after excluding the impact of the following: (i)
amortization of acquired above/below market lease intangibles, net;
(ii) amortization of deferred compensation expense; (iii)
amortization of deferred financing costs, net; (iv) straight-line
rents; (v) accretion and depreciation related to DFLs; and (vi)
deferred revenues. Further, FAD is computed after deducting
recurring capital expenditures, including leasing costs and second
generation tenant and capital improvements and includes similar
adjustments to compute our share of FAD from our unconsolidated
joint ventures. Other REITs or real estate companies may use
different methodologies for calculating FAD, and accordingly, our
(1) FAD may not be comparable to those reported by other REITs. Although
our FAD computation may not be comparable to that of other REITs,
management believes FAD provides a meaningful supplemental measure
of our ability to fund its ongoing dividend payments. In addition,
management believes that in order to further understand and analyze
our liquidity, FAD should be compared with net cash flows from
operating activities as determined in accordance with GAAP and
presented in its consolidated financial statements. FAD does not
represent cash generated from operating activities determined in
accordance with GAAP, and FAD should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of our performance, as an alternative to net cash flows
from operating activities (determined in accordance with GAAP), or
as a measure of our liquidity.
Excludes $11.3 million related to the write-off of unamortized loan
fees related to an expired bridge loan commitment and $0.8 million
(2) related to the amortization of deferred issuance costs of the senior
notes, which costs are included in merger-related items for the year
ended December 31, 2011.
For the quarter and year ended December 31, 2012, DFL accretion
reflects an elimination of $15.0 million and $59.4 million,
respectively. For the quarter and year ended December 31, 2011, DFL
accretion reflects an elimination of $14.5 million and $42.2
million, respectively. Our ownership interest in HCR ManorCare OpCo
(3) is accounted for using the equity method, which requires an ongoing
elimination of DFL income that is proportional to our ownership in
HCR ManorCare OpCo. Further, our share of earnings from HCR
ManorCare OpCo (equity income) increases for the corresponding
elimination of related lease expense recognized at the HCR ManorCare
OpCo level, which we present as a non-cash joint venture FAD
adjustment.
HCP, Inc.
Net Operating Income and Same Property Performance^(1)(2)
Dollars in thousands
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
Net income $ 246,260 $ 70,787 $ 846,842 $ 554,494
Interest (12,223 ) (665 ) (24,536 ) (99,864 )
income
Investment
management fee (472 ) (468 ) (1,895 ) (2,073 )
income
Interest 107,255 100,701 417,130 416,396
expense
Depreciation
and 99,373 84,348 358,245 349,922
amortization
General and 25,120 19,679 79,454 96,121
administrative
Litigation — 125,000 — 125,000
settlement
Impairments — — 7,878 15,400
Other income, (254 ) 4,623 (2,776 ) (12,732 )
net
Income taxes (505 ) 960 (1,636 ) 1,250
Equity income
from (11,652 ) (13,952 ) (54,455 ) (46,750 )
unconsolidated
joint ventures
Total
discontinued
operations, (31,031 ) (2,920 ) (33,958 ) (7,156 )
net of income
taxes
NOI^(1) $ 421,871 $ 388,093 $ 1,590,293 $ 1,390,008
Straight-line (13,703 ) (12,237 ) (47,311 ) (59,173 )
rents
DFL accretion (23,168 ) (25,499 ) (94,240 ) (74,007 )
Amortization
of above and
below market (377 ) (1,239 ) (2,232 ) (4,510 )
lease
intangibles,
net
Lease
termination (63 ) (2,457 ) (636 ) (5,873 )
fees
NOI
adjustments
related to 49 477 1,486 2,061
discontinued
operations
Adjusted $ 384,609 $ 347,138 $ 1,447,360 $ 1,248,506
NOI^(1)
Non-SPP (20,691 ) 1,649 (563,681 ) (400,643 )
adjusted NOI
Same property
portfolio $ 363,918 $ 348,787 $ 883,679 $ 847,863
adjusted
NOI^(2)
Adjusted NOI %
change – 4.3% 4.2%
SPP^(2)
We believe Net Operating Income from Continuing Operations (“NOI”)
provides investors relevant and useful information because it
reflects only income and operating expense items that are incurred
at the property level and presents them on an unleveraged basis. We
use NOI and adjusted NOI to make decisions about resource
allocations, to assess and compare property level performance, and
(1) evaluate SPP. We believe that net income is the most directly
comparable GAAP measure to NOI. NOI should not be viewed as an
alternative measure of operating performance to net income
(determined in accordance with GAAP) since it excludes certain
components from net income. Further, NOI may not be comparable to
that of other REITs, as they may use different methodologies for
calculating NOI.
NOI is defined as rental and related revenues, including tenant
recoveries, resident fees and services, and income from DFLs, less
property level operating expenses. NOI excludes interest income,
investment management fee income, interest expense, depreciation and
amortization, general and administrative expenses, litigation
settlement, impairments, impairment recoveries, other income, net,
income taxes, equity income from and impairments of unconsolidated
joint ventures, and discontinued operations. Adjusted NOI is
calculated as NOI eliminating the effects of straight-line rents,
DFL accretion, amortization of above and below market lease
intangibles, and lease termination fees. Adjusted NOI is sometimes
referred to as “cash NOI.”
Same property portfolio (“SPP”) statistics allow management to
evaluate the performance of the Company’s real estate portfolio
under a consistent population, which eliminates the changes in the
composition of the Company’s portfolio of properties. The Company
identifies its SPP as stabilized properties that remained in
(2) operations and were consistently reported as leased properties or
operating properties (RIDEA) for the duration of the year-over-year
comparison periods presented. Accordingly, it takes a stabilized
property a minimum of 12 months in operations under a consistent
reporting structure to be included in the Company’s SPP. SPP NOI
excludes certain non-property specific operating expenses that are
allocated to each operating segment on a consolidated basis.
HCP, Inc.
Projected Future Operations^(1)
(Unaudited)
Full Year 2013
Low High
Diluted earnings per common share $ 1.95 $ 2.01
Real estate depreciation and amortization 0.92 0.92
DFL depreciation 0.03 0.03
Joint venture FFO adjustments 0.02 0.02
Diluted FFO per common share $ 2.92 $ 2.98
Amortization of net below market lease (0.01 ) (0.01 )
intangibles and deferred revenues
Amortization of deferred compensation 0.05 0.05
Amortization of deferred financing costs, net 0.04 0.04
Straight-line rents (0.12 ) (0.12 )
DFL accretion^(2) (0.20 ) (0.20 )
DFL depreciation (0.03 ) (0.03 )
Leasing costs and tenant and capital (0.14 ) (0.14 )
improvements
Joint venture and other FAD adjustments^(2) (0.12 ) (0.12 )
Diluted FAD per common share $ 2.39 $ 2.45
Except as otherwise noted above, the foregoing projections reflect
management's view of current and future market conditions, including
assumptions with respect to rental rates, occupancy levels,
development items and the earnings impact of the events referenced
in this release. Except as otherwise noted, these estimates do not
reflect the potential impact of future acquisitions, dispositions,
other impairments or recoveries, the future bankruptcy or insolvency
of our operators, lessees, borrowers or other obligors, the effect
of any future restructuring of our contractual relationships with
(1) such entities, gains or losses on marketable securities,
ineffectiveness related to our cash flow hedges, or existing and
future litigation matters including the possibility of larger than
expected litigation costs and related developments. There can be no
assurance that our actual results will not differ materially from
the estimates set forth above. The aforementioned ranges represent
management’s best estimate of results based upon the underlying
assumptions as of the date of this press release. Except as
otherwise required by law, management assumes no, and hereby
disclaims any, obligation to update any of the foregoing projections
as a result of new information or new or future developments.
Our ownership interest in HCR ManorCare OpCo is accounted for using
the equity method, which requires an ongoing elimination of DFL
income that is proportional to our ownership in HCR ManorCare OpCo.
(2) Further, our share of earnings from HCR ManorCare OpCo (equity
income) increases for the corresponding elimination of related lease
expense recognized at the HCR ManorCare OpCo level, which we present
as a non-cash joint venture FAD adjustment.
Contact:
HCP, Inc.
Timothy M. Schoen
Executive Vice President and Chief Financial Officer
562-733-5309
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