HCP, Inc. : HCP Announces Results for the Fourth Quarter and Year Ended December 31, 2011
02/14/2012| 08:10am US/Eastern
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HCP, Inc. (NYSE:HCP):
FOURTH QUARTER HIGHLIGHTS
Diluted FFO per share was $0.37, net of a litigation settlement
charge; diluted FFO as adjusted per share was $0.67; diluted FAD per
share was $0.50; and diluted earnings per share was $0.15
Year-over-year three-month adjusted NOI Same Property Performance
increased 2.2%
Subsequent to year end:
Executed a lease amendment that expands Google's footprint at our
Mountain View campus to a total of 290,000 sq. ft.
Completed a $450 million public offering of 3.75% senior unsecured
notes due 2019
Declared quarterly common stock dividend of $0.50, annualized to
$2.00 for 2012, representing a 4.2% increase over 2011 and the 27th
consecutive year with a dividend increase
FULL YEAR HIGHLIGHTS
Diluted FFO per share decreased 3% to $2.19; diluted FFO as adjusted
per share increased 21% to $2.69; diluted FAD per share increased 13%
to $2.14; and diluted earnings per share increased 29% to $1.29
Achieved total shareholder returns for one year of 18.7% and two years
of 51.3% for periods ending December 31, 2011
Year-over-year adjusted NOI Same Property Performance increased 4.0%
Completed 2.8 million sq. ft. of medical office and life science
leasing with a retention rate of 75%, resulting in an increase in
occupancy to 91%
Closed $7.0 billion of investments, led by our $6.1 billion
acquisition of HCR ManorCare's real estate assets, for which we
replaced the stock consideration due to the seller valued at $33.14
per share with cash
Executed five senior housing loan commitments to fund a total of $101
million of construction financing
Accessed the public markets to raise over $3.7 billion in capital and
renewed our $1.5 billion revolving line of credit facility
Obtained credit upgrades from Fitch and Moody's and placed on positive
credit watch by S&P
Received $330 million from the early payoff of our Genesis debt
investments, realizing a 40% annualized internal rate of return
Continued to lead in sustainability as recognized by the U.S.
Environmental Protection Agency and NAREIT
HCP (the "Company" or "we") (NYSE:HCP) announced results for the fourth
quarter and year ended December 31, 2011 as follows (in thousands,
except per share amounts):
This charge during the quarter ended December 31, 2011 relates to
the Ventas, Inc. ("Ventas") litigation settlement. See the
"Litigation" section of this release for additional information
regarding this settlement.
(2)
See the "Funds From Operations" section of this release for
additional information regarding merger-related items.
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. In addition to the merger-related items, operating results for
the quarter ended December 31, 2010, include the positive impact of
$0.06 per share from the following: (i) other income of $0.03 per share
related to gain on sales of marketable securities and (ii) interest
income of $0.03 per share from the early repayment of a mortgage loan
receivable.
NAREIT recently issued updated reporting guidance that directs
companies, for their computation of NAREIT FFO, to exclude
impairments of depreciable real estate and other assets when
write-downs are driven by measurable decreases in the fair value of
real estate holdings (e.g., investments in joint ventures that
primarily hold real estate). Previously, the Company's calculation
of FFO (consistent with NAREIT's previous guidance) did not exclude
impairments of, or related to, depreciable real estate. Consistent
with this current NAREIT reporting guidance, the Company has
restated its 2010 FFO amounts.
(2)
This charge during the year ended December 31, 2011 relates to the
Ventas litigation settlement. See the "Litigation" section of this
release for additional information regarding this settlement.
(3)
See the "Funds From Operations" section of this release for
additional information regarding impairments or recoveries of
non-depreciable assets ("other impairments") and merger-related
items.
FFO, FFO as adjusted and FAD are supplemental non-GAAP financial
measures that the Company believes are helpful 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 for additional information regarding FAD.
INVESTMENT TRANSACTIONS
During the quarter ended December 31, 2011, we made investments of $40
million to fund development and other capital projects, primarily in our
life science and medical office segments. During the quarter ended
December 31, 2011, we executed two loan commitments to fund up to $35
million of senior housing development.
During the three months ended December 31, 2011, we sold three senior
housing facilities for $19 million, recognizing gain on sales of real
estate of $3.1 million.
LITIGATION
On November 9, 2011, we entered into an agreement with Ventas, Inc. to
settle all remaining claims relating to Ventas's litigation against HCP
arising out of Ventas's 2007 acquisition of Sunrise Senior Living REIT.
We paid $125 million to Ventas and incurred a charge during the quarter
ended December 31, 2011 for the amount paid.
SUSTAINABILITY
HCP's 2011 sustainability accomplishments include the following: (i)
earned 29 ENERGY STAR certifications in its medical office (17), life
science (7) and senior housing (5) segments; (ii) recognized in May 2011
by ENERGY STAR as the leader in ENERGY STAR certifications for the MOB
category; and (iii) awarded NAREIT's "Leader in the Light" Innovator
Award, which recognizes companies demonstrating excellence in energy
efficiency.
FINANCING
On January 23, 2012, we issued $450 million of 3.75% senior unsecured
notes due 2019; net proceeds from the offering were $444 million.
OTHER EVENTS
On February 7, 2012, we executed a lease amendment with Google to expand
its footprint at our Mountain View campus to a total of 290,000 sq. ft.
Under the terms of this amendment, Google will: (i) lease an additional
41,000 sq. ft. building for a term of 10 years, resulting in a
mark-to-market rent increase of 17%; and (ii) extend the term on 124,000
sq. ft. through 2022 (coterminous with the expansion). The terms of the
remaining 125,000 sq. ft. leased to 2021 were unchanged.
DIVIDEND
On January 26, 2012, we announced that our Board of Directors declared a
quarterly cash dividend of $0.50 per common share. The dividend will be
paid on February 22, 2012 to stockholders of record as of the close of
business on February 6, 2012. The annualized distribution rate for 2012
is $2.00, compared to $1.92 for 2011, which represents an increase of
4.2%.
OUTLOOK
For the full year 2012, we expect FFO applicable to common shares to
range between $2.70 and $2.76 per share; FAD applicable to common shares
to range between $2.14 and $2.20 per share; and net income applicable to
common shares to range between $1.81 and $1.87 per share. These
estimates do not reflect, among other things, the potential impact of
future acquisitions or dispositions. See 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
14, 2012 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, 2011. The conference call is accessible by
dialing (877) 724-7556 (U.S.) or (706) 645-4695 (International). The
participant passcode is 42163539. 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 28, 2012, 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 42163539. 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. (NYSE:HCP) 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 27 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 2012.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,
2011
2010
Assets
Real estate:
Buildings and improvements
$
8,937,492
$
8,189,309
Development costs and construction in progress
190,590
144,116
Land
1,731,327
1,572,744
Accumulated depreciation and amortization
(1,473,977
)
(1,245,996
)
Net real estate
9,385,432
8,660,173
Net investment in direct financing leases
6,727,777
609,661
Loans receivable, net
110,253
2,002,866
Investments in and advances to unconsolidated joint ventures
224,052
195,847
Accounts receivable, net of allowance of $1,341 and $5,150,
respectively
26,681
34,504
Cash and cash equivalents
33,506
1,036,701
Restricted cash
41,553
36,319
Intangible assets, net
373,763
316,375
Real estate held for sale, net
--
16,591
Other assets, net
485,458
422,886
Total assets
$
17,408,475
$
13,331,923
Liabilities and equity
Bank line of credit
$
454,000
$
--
Senior unsecured notes
5,416,063
3,318,379
Mortgage debt
1,764,571
1,235,779
Other debt
87,985
92,187
Intangible liabilities, net
124,142
148,072
Accounts payable and accrued liabilities
275,478
313,806
Deferred revenues
65,614
77,653
Total liabilities
8,187,853
5,185,876
Preferred stock, $1.00 par value: 50,000,000 shares authorized;
11,820,000 shares issued and outstanding, liquidation preference of
$25.00 per share
285,173
285,173
Common stock, $1.00 par value: 750,000,000 shares authorized;
408,629,444 and 370,924,887 shares issued and outstanding,
respectively
408,629
370,925
Additional paid-in capital
9,383,536
8,089,982
Cumulative dividends in excess of earnings
(1,024,274
)
(775,476
)
Accumulated other comprehensive loss
(19,582
)
(13,237
)
Total stockholders' equity
9,033,482
7,957,367
Joint venture partners
16,971
14,935
Non-managing member unitholders
170,169
173,745
Total noncontrolling interests
187,140
188,680
Total equity
9,220,622
8,146,047
Total liabilities and equity
$
17,408,475
$
13,331,923
HCP, Inc.
Consolidated Statements of Income
In thousands, except per share data
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2011
2010
2011
2010
Revenues:
Rental and related revenues
$
248,521
$
236,522
$
1,015,867
$
917,579
Tenant recoveries
22,494
21,856
92,259
89,012
Resident fees and services
35,305
17,318
50,619
32,596
Income from direct financing leases
154,151
12,200
464,704
49,438
Interest income
665
52,159
99,864
160,163
Investment management fee income
468
911
2,073
4,666
Total revenues
461,604
340,966
1,725,386
1,253,454
Costs and expenses:
Depreciation and amortization
87,362
77,820
356,834
311,218
Interest expense
101,433
68,354
419,337
288,650
Operating
69,049
58,341
220,172
210,202
General and administrative
19,678
18,008
96,150
83,048
Litigation settlement
125,000
--
125,000
--
Impairments (recoveries)
--
--
15,400
(11,900
)
Total costs and expenses
402,522
222,523
1,232,893
881,218
Other income (expense), net
(4,720
)
8,667
12,338
15,818
Income before income taxes and equity income from and impairments
of investments in unconsolidated joint ventures
54,362
127,110
504,831
388,054
Income taxes
(960
)
1,397
(1,249
)
(412
)
Equity income from unconsolidated joint ventures
13,952
692
46,750
4,770
Impairments of investments in unconsolidated joint ventures
--
--
--
(71,693
)
Income from continuing operations
67,354
129,199
550,332
320,719
Discontinued operations:
Income before gain on sales of real estate, net of income taxes
326
454
1,055
3,751
Gain on sales of real estate, net of income taxes
3,107
15,873
3,107
19,925
Total discontinued operations
3,433
16,327
4,162
23,676
Net income
70,787
145,526
554,494
344,395
Noncontrolling interests' share in earnings
(2,943
)
(3,609
)
(15,603
)
(13,686
)
Net income attributable to HCP, Inc.
67,844
141,917
538,891
330,709
Preferred stock dividends
(5,282
)
(5,282
)
(21,130
)
(21,130
)
Participating securities' share in earnings
(566
)
(433
)
(2,459
)
(2,081
)
Net income applicable to common shares
$
61,996
$
136,202
$
515,302
$
307,498
Basic earnings per common share:
Continuing operations
$
0.14
$
0.37
$
1.28
$
0.93
Discontinued operations
0.01
0.05
0.01
0.08
Net income applicable to common shares
$
0.15
$
0.42
$
1.29
$
1.01
Diluted earnings per common share:
Continuing operations
$
0.14
$
0.37
$
1.28
$
0.92
Discontinued operations
0.01
0.05
0.01
0.08
Net income applicable to common shares
$
0.15
$
0.42
$
1.29
$
1.00
Weighted average shares used to calculate earnings per common
share:
Basic
407,907
324,361
398,446
305,574
Diluted
409,730
325,985
400,218
306,900
HCP, Inc.
Consolidated Statements of Cash Flows
In thousands
(Unaudited)
Year Ended
December 31,
2011
2010
Cash flows from operating activities:
Net income
$
554,494
$
344,395
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
356,834
311,218
Discontinued operations
561
2,229
Amortization of above and below market lease intangibles, net
(4,510
)
(6,378
)
Amortization of deferred compensation
20,034
14,924
Amortization of debt premiums, discounts and issuance costs, net
25,769
9,856
Straight-line rents
(59,173
)
(47,243
)
Loan and direct financing lease interest accretion
(93,003
)
(69,645
)
Deferred rental revenues
(2,319
)
(3,984
)
Equity income from unconsolidated joint ventures
(46,750
)
(4,770
)
Distributions of earnings from unconsolidated joint ventures
3,273
5,373
Gain upon consolidation of joint venture
(7,769
)
--
Marketable securities (gains) losses, net
5,396
(14,597
)
Gain upon settlement of loans receivable
(22,812
)
--
Gain on sale of real estate
(3,107
)
(19,925
)
Derivative (gains) losses, net
(1,226
)
1,302
Impairments, net of recoveries
15,400
59,793
Changes in:
Accounts receivable, net
2,590
9,222
Other assets
27,582
(6,341
)
Accounts payable and accrued liabilities
(47,103
)
(4,931
)
Net cash provided by operating activities
724,161
580,498
Cash flows from investing activities:
Cash used in the HCR ManorCare Acquisition, net of cash acquired
(4,026,556
)
--
Cash used in the HCP Ventures II purchase, net of cash acquired
(135,550
)
--
Other acquisitions and development of real estate
(198,385
)
(304,847
)
Leasing costs and tenant and capital improvements
(52,903
)
(97,930
)
Proceeds from sales of real estate, net
19,183
32,284
Purchase of an interest in and contributions to unconsolidated joint
ventures
(95,000
)
(6,565
)
Distributions in excess of earnings from unconsolidated joint
ventures
2,408
4,365
Purchases of marketable equity securities
(22,449
)
--
Proceeds from the sales of marketable securities
--
179,215
Principal repayments on loans receivable and direct financing leases
303,941
63,953
Investments in loans receivable
(369,939
)
(298,085
)
Increase in restricted cash
(5,234
)
(3,319
)
Net cash used in investing activities
(4,580,484
)
(430,929
)
Cash flows from financing activities:
Net borrowings under bank line of credit
454,000
--
Repayment of term loan
--
(200,000
)
Issuance of senior unsecured notes
2,400,000
--
Repayment of senior unsecured notes
(292,265
)
(206,422
)
Repayments of mortgage and other secured debt
(169,783
)
(636,096
)
Debt discounts and issuance costs
(43,716
)
(11,850
)
Net proceeds from the issuance of common stock and exercise of
options
1,327,813
2,426,900
Dividends paid on common and preferred stock
(787,689
)
(590,735
)
Sale of noncontrolling interests
14,087
8,395
Purchase of noncontrolling interests
(34,104
)
--
Distributions to noncontrolling interests
(15,215
)
(15,319
)
Net cash provided by financing activities
2,853,128
774,873
Net increase (decrease) in cash and cash equivalents
(1,003,195
)
924,442
Cash and cash equivalents, beginning of year
1,036,701
112,259
Cash and cash equivalents, end of year
$
33,506
$
1,036,701
HCP, Inc.
Funds From Operations(1)
In thousands, except per share data
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2011
2010
2011
2010(2)
Net income applicable to common shares
$
61,996
$
136,202
$
515,302
$
307,498
Depreciation and amortization of real estate, in-place lease and
other intangibles:
Continuing operations
87,362
77,820
356,834
311,218
Discontinued operations
5
237
561
2,229
Direct financing lease ("DFL") depreciation
2,961
--
8,840
--
Gain on sales of real estate
(3,107
)
(15,873
)
(3,107
)
(19,925
)
Gain upon consolidation of joint venture
--
--
(7,769
)
--
Impairments of investments in joint ventures
--
--
--
71,693
Equity income from unconsolidated joint ventures
(13,952
)
(692
)
(46,750
)
(4,770
)
FFO from unconsolidated joint ventures
16,479
5,579
56,887
25,288
Noncontrolling interests' and participating securities' share in
earnings
3,509
4,042
18,062
15,767
Noncontrolling interests' and participating securities' share in FFO
(4,675
)
(4,704
)
(20,953
)
(18,361
)
FFO applicable to common shares
$
150,578
$
202,611
$
877,907
$
690,637
Distributions on dilutive convertible units
--
2,987
6,916
11,847
Diluted FFO applicable to common shares
$
150,578
$
205,598
$
884,823
$
702,484
Diluted FFO per common share
$
0.37
$
0.62
$
2.19
$
2.25
Weighted average shares used to calculate diluted FFO per share
409,730
331,960
403,864
312,797
Impact of adjustments to FFO:
Litigation settlement charge(3)
$
125,000
$
--
$
125,000
$
--
Other impairments (recoveries)(4)
--
--
15,400
(11,900
)
Merger-related items(5)
--
4,339
26,596
4,339
$
125,000
$
4,339
$
166,996
$
(7,561
)
FFO as adjusted applicable to common shares
$
275,578
$
206,950
$
1,044,903
$
683,076
Distributions on dilutive convertible units and other
2,858
2,970
11,646
12,089
Diluted FFO as adjusted applicable to common shares
$
278,436
$
209,920
$
1,056,549
$
695,165
Per common share impact of adjustments on diluted FFO(3)(4)(5)
$
0.30
$
0.02
$
0.50
$
(0.02
)
Diluted FFO as adjusted per common share
$
0.67
$
0.64
$
2.69
$
2.23
Weighted average shares used to calculate diluted FFO as adjusted
per share
415,624
325,960
393,237
311,285
________________________________________
(1)
The Company believes FFO is an important supplemental measure of
operating performance for a real estate investment trust. 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 real estate investment
trust that uses historical cost accounting for depreciation could be
less informative. The term FFO was designed by the real estate
investment trust 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 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 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. The Company's computation of FFO may not
be comparable to FFO reported by other real estate investment trusts
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 the Company. FFO as adjusted represents FFO before
the impact of litigation settlement charges, other impairments,
other impairment recoveries and merger-related items (defined
below). 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.
(2)
NAREIT recently issued updated reporting guidance that directs
companies, for their computation of NAREIT FFO, to exclude
impairments of depreciable real estate and other assets when
write-downs are driven by measurable decreases in the fair value of
real estate holdings (e.g., investments in joint ventures that
primarily hold real estate). Previously, the Company's calculation
of FFO (consistent with NAREIT's previous guidance) did not exclude
impairments of, or related to, depreciable real estate. Consistent
with this current NAREIT reporting guidance, the Company has
restated its 2010 FFO amounts.
(3)
This charge of $125 million, or $0.31 per share, during the year
ended December 31, 2011 relates to the Ventas settlement. See the
"Litigation" section of this release for additional information
regarding this settlement.
(4)
Other impairments of $15.4 million, or $0.04 per share, during the
year ended December 31, 2011 relates to our senior secured loan to
Cirrus Health. Recoveries of $11.9 million, or $0.04 per share,
relate to portions of previous impairment charges related to
investments in three direct financing leases (non-depreciable due to
lessee purchase option) and a participation interest in a senior
construction loan related to Erickson Retirement Communities.
(5)
2011 merger-related items represents the aggregate impact of $0.15
per share include the following: (i) direct transaction costs, (ii)
prefunding activities related to the impact of senior unsecured
notes and common stock issued to prefund the HCR ManorCare
Acquisition, partially offset by (iii) income related to gains upon
the reinvestment of the Company's debt investment in HCR ManorCare
and other miscellaneous items. 2010 merger-related items of $0.02
per share include the following: (i) direct transaction costs; and
(ii) prefunding activities related to the impact of common stock
issued to prefund the HCR ManorCare Acquisition.
HCP, Inc.
Funds Available for Distribution(1)
In thousands, except per share data
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2011
2010
2011
2010
FFO as adjusted applicable to common shares
$
275,578
$
206,950
$
1,044,903
$
683,076
Amortization of above and below market lease intangibles, net
(1,239
)
(1,041
)
(4,510
)
(6,378
)
Amortization of deferred compensation (stock-based)
4,748
3,618
20,034
14,924
Amortization of debt premiums, discounts and issuance costs, net(2)
3,651
1,840
13,716
9,078
Straight-line rents
(12,237
)
(14,374
)
(59,173
)
(47,243
)
DFL accretion(3)
(25,499
)
(2,300
)
(74,007
)
(10,641
)
DFL depreciation
(2,961
)
--
(8,840
)
--
Deferred revenues - tenant improvement related
(237
)
(929
)
(2,371
)
(3,714
)
Deferred revenues - additional rents (SAB 104)
(798
)
(810
)
52
(270
)
Leasing costs and tenant and capital improvements(4)
(21,131
)
(20,853
)
(52,903
)
(54,237
)
Joint venture and other FAD adjustments(3)
(16,985
)
(809
)
(46,250
)
(6,143
)
FAD applicable to common shares
$
202,890
$
171,292
$
830,651
$
578,452
Distributions on dilutive convertible units
1,758
1,714
6,916
6,676
Diluted FAD applicable to common shares
$
204,648
$
173,006
$
837,567
$
585,128
Diluted FAD per common share
$
0.50
$
0.53
$
2.14
$
1.89
Weighted average shares used to calculate diluted FAD per common
share
413,338
323,644
390,944
308,953
________________________________________
(1)
Funds Available for Distribution ("FAD") is defined as FFO as
adjusted after excluding the impact of the following: (i)
straight-line rents; (ii) amortization of acquired above/below
market lease intangibles; (iii) amortization of debt premiums,
discounts and issuance costs; (iv) amortization of stock-based
compensation expense; (v) accretion and depreciation related to
direct financing leases; 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 the Company's share of
FAD from its unconsolidated joint ventures. Other REITs or real
estate companies may use different methodologies for calculating
FAD, and accordingly, HCP's FAD may not be comparable to those
reported by other REITs. Although HCP's FAD computation may not be
comparable to that of other REITs, management believes FAD provides
a meaningful supplemental measure of the Company's ability to fund
its ongoing dividend payments. In addition, management believes that
in order to further understand and analyze the Company's liquidity,
FAD should be compared with cash flows 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 the Company's performance, as an alternative to
net cash flows from operating activities (determined in accordance
with GAAP), or as a measure of the Company's liquidity.
(2)
Excludes $11.3 million related to the write-off of unamortized loan
fees related to an expired bridge loan commitment and $0.8 million
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.
(3)
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 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.
(4)
Excludes $41 million ($2 million in 4Q2010 and $39 million in
3Q2010) of deferred leasing costs related to the buyout of
management contracts for 27 Sunrise-managed communities. On November
1, 2010, we exercised our rights to terminate management contracts
relating to 27 senior housing communities previously operated by
Sunrise; our net investment to acquire these termination rights was
$41 million, which consisted of a $50 million payment to Sunrise
that was partially offset for certain working capital acquired in
conjunction with this transaction.
HCP, Inc.
Net Operating Income and Same Property Performance(1)(2)
Dollars in thousands
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2011
2010
2011
2010
Net income
$ 70,787
$ 145,526
$ 554,494
$ 344,395
Interest income
(665
)
(52,159
)
(99,864
)
(160,163
)
Investment management fee income
(468
)
(911
)
(2,073
)
(4,666
)
Depreciation and amortization
87,362
77,820
356,834
311,218
Interest expense
101,433
68,354
419,337
288,650
General and administrative
19,678
18,008
96,150
83,048
Litigation settlement
125,000
--
125,000
--
Impairments (recoveries)
--
--
15,400
(11,900
)
Other (Income) expense, net
4,720
(8,667
)
(12,338
)
(15,818
)
Income taxes
960
(1,397
)
1,249
412
Equity income from unconsolidated joint ventures
(13,952
)
(692
)
(46,750
)
(4,770
)
Impairments of investments in unconsolidated joint ventures
--
--
--
71,693
Total discontinued operations, net of income taxes
(3,433
)
(16,327
)
(4,162
)
(23,676
)
NOI(1)
$ 391,422
$ 229,555
$ 1,403,277
$ 878,423
Straight-line rents
(12,237
)
(14,374
)
(59,173
)
(47,243
)
DFL accretion
(25,499
)
(2,300
)
(74,007
)
(10,641
)
Amortization of above and below market lease intangibles, net
(1,239
)
(1,041
)
(4,510
)
(6,378
)
Lease termination fees
(2,457
)
(2,500
)
(5,873
)
(7,665
)
NOI adjustments related to discontinued operations
--
--
--
27
Adjusted NOI(1)
$ 349,990
$ 209,340
$ 1,259,714
$ 806,523
Non-SPP adjusted NOI(1)(2)
(133,519
)
2,400
(422,158
)
(955
)
Same property portfolio adjusted NOI(1)(2)
$ 216,471
$ 211,740
$ 837,556
$ 805,568
Adjusted NOI % change - SPP
2.2%
4.0%
________________________________________
(1)
The Company believes Net Operating Income from Continuing Operations
("NOI") provides investors relevant and useful information because
it measures the operating performance of the Company's leased
properties (i.e., real estate and DFLs) at the property level on an
unleveraged basis. NOI is used to evaluate the operating performance
of leased properties and SPP. The Company uses NOI and NOI, as
adjusted, to make decisions about resource allocations, to assess
and compare property level performance, and evaluate SPP. The
Company believes 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 as defined by GAAP
since it does not reflect the aforementioned excluded items.
Further, NOI may not be comparable to that of other real estate
investment trusts, as they may use different methodologies for
calculating NOI.
NOI is defined as rental revenues, including tenant reimbursements,
resident fees and services, and income from direct financing leases,
less property level operating expenses. NOI excludes interest
income, investment management fee income, depreciation and
amortization, interest expense, general and administrative expenses,
litigation settlement, impairments, impairment recoveries, other
income, net, income tax expenses, equity income from unconsolidated
joint ventures and discontinued operations. NOI, as adjusted, 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. NOI, as adjusted, is
sometimes referred to as "adjusted NOI" or "cash NOI."
(2)
Same property statistics allow management to evaluate the
performance of the Company's leased property portfolio under a
consistent population, which eliminates the changes in the
composition of our portfolio of properties. The Company identifies
its SPP as stabilized properties that are, and remained, in
operations for the duration of the year-over-year comparison periods
presented. Accordingly, it takes a stabilized property a minimum of
12 months in operations to be included in the Company's same
property portfolio. 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 2012
Low
High
Diluted earnings per common share
$
1.81
$
1.87
Real estate depreciation and amortization
0.85
0.85
DFL depreciation
0.03
0.03
Joint venture FFO adjustments
0.01
0.01
Diluted FFO per common share
$
2.70
$
2.76
Amortization of net below market lease intangibles and deferred
revenues
(0.01
)
(0.01
)
Stock-based compensation
0.05
0.05
Amortization of debt premiums, discounts and issuance costs, net
0.04
0.04
Straight-line rents
(0.10
)
(0.10
)
DFL accretion(2)
(0.23
)
(0.23
)
DFL depreciation
(0.03
)
(0.03
)
Leasing costs and tenant and capital improvements
(0.14
)
(0.14
)
Joint venture and other FAD adjustments(2)
(0.14
)
(0.14
)
Diluted FAD per common share
$
2.14
$
2.20
________________________________________
(1)
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 the Company's operators, lessees, borrowers or other obligors,
the effect of any future restructuring of the Company's contractual
relationships with such entities, gains or losses on marketable
securities, ineffectiveness related to our cash flow hedges,
offerings of debt or existing and future litigation matters
including the possibility of larger than expected litigation costs
and related developments. There can be no assurance that the
Company's 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.
(2)
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.
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 Timothy M. Schoen Executive Vice President and Chief
Financial Officer (562) 733-5309
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