HIGHLIGHTS
-- FFO per share was $0.73; FFO as adjusted per
share was $0.75; FAD per share was $0.63; and EPS was $0.48
-- Achieved year-over-year three- and six-month
Cash NOI SPP growth of 2.4% and 3.3%, respectively
-- Increased full year guidance for FFO to
$3.01 – $3.07 per share, FFO as adjusted to $2.97 – $3.03 per
share, FAD to $2.50 – $2.56 per share and EPS to $2.02 – $2.08
-- Completed $360 million of investment
transactions consisting of:
-- $127 million (£75.8 million) UK
care home portfolio acquisition; and
-- $233 million of other investment
transactions across our senior housing, life science and medical
office segments
-- Expanded relationship with Brookdale by
amending leases and creating a new $1.2 billion CCRC joint venture
anticipated to close late August 2014
-- Executed 258,000 sq. ft. of new leases and
525,000 sq. ft. of lease renewals in our medical office and life
science portfolios
-- Ranked 2nd for environmental performance in
the real estate industry by the 2014 Newsweek Green Rankings and
earned three ENERGY STAR certifications
-- Appointed James Hoffmann to the Company’s
Board of Directors and its Audit Committee
HCP (the “Company” or “we”) (NYSE:HCP)
announced results for the quarter ended June 30, 2014 as follows
(in thousands, except per share amounts):
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2013
Per Share Amount Per Share Amount Per Share
Change
FFO
$ 336,457 $ 0.73 $ 327,650 $ 0.72 $ 0.01 Transaction-related
items(1) 6,839 0.02 — — 0.02
FFO as adjusted $ 343,296 $ 0.75 $ 327,650 $ 0.72 $ 0.03
FAD $ 288,068 $ 0.63 $ 283,798 $ 0.62 $ 0.01
EPS $
218,396 $ 0.48 $ 213,023 $ 0.47 $ 0.01
________________________________________
(1) Includes direct transaction costs (e.g.,
pursuit, due diligence and closing) for the UK real estate
portfolio investment and the lease amendment and joint venture
activities related to 218 properties in connection with the
Brookdale Transaction. See the “Funds From Operations” section of
this release for additional information.
EPS, FFO and FFO as adjusted results for the
prior-year quarter ended June 30, 2013 include a $0.02 per share
charge resulting from a $9 million adjustment to non-cash
rents primarily in our hospital segment.
FFO, FFO as adjusted and FAD are supplemental
non-GAAP financial measures that we believe are useful in
evaluating the operating performance of real estate investment
trusts. See the “Funds From Operations” and “Funds Available for
Distribution” sections of this release for additional information
regarding these non-GAAP financial measures.
COMPLETED $360 MILLION OF INVESTMENT
TRANSACTIONS
UK Real Estate Portfolio Investment
On June 6, 2014, we acquired a portfolio of 20
care homes for $127 million (£75.8 million) subject to long-term
triple-net leases. These facilities are located throughout the
United Kingdom (“UK”) and represent our first real estate
investment in the UK. The facilities are leased to Maria Mallaband
Care Group (“MMCG”), a leading provider of high quality, mostly
privately funded, residential and nursing care in the UK. Founded
in 1996, MMCG operates over 60 care homes and provides other
ancillary services. The triple-net leases have initial terms of 15
years, plus two 10-year extension options and provide for initial
annual rent of $9.7 million (£5.8 million). The cross-defaulted
contractual rents will escalate based on the Retail Price Index (UK
measure of inflation), subject to a floor of 2% and a ceiling of
4.5%.
In conjunction with the MMCG transaction we:
(i) may purchase three additional care homes in the third quarter
of 2014; (ii) obtained the right of first offer for all future MMCG
acquisitions and development projects; and (iii) executed a GBP/USD
foreign currency swap contract to hedge approximately 75% of the
GBP rent receipts through December 2015.
Other Investment Transactions
During the quarter ended June 30, 2014, we
completed $233 million of additional investments and commitments
including the following:
- $177 million investment in six assets
across our senior housing, life science and medical office
segments; and
- $56 million to fund construction
and other capital projects.
ENHANCING AND EXPANDING RELATIONSHIP WITH
BROOKDALE BY AMENDING LEASES AND CREATING A $1.2 BILLION CCRC JOINT
VENTURE (THE “BROOKDALE TRANSACTION”)
On July 31, 2014, Brookdale Senior Living Inc.
(“Brookdale”) completed its acquisition of Emeritus Corporation
(“Emeritus”) and became our largest senior housing relationship. In
April 2014, HCP and Brookdale agreed to a multiple-element
transaction that, upon its closing anticipated on or about August
29, 2014, will:
- amend existing lease agreements on 153
HCP-owned senior housing communities, including the removal of
embedded tenant purchase options relating to 30 properties, in
exchange for future rent reductions;
- terminate existing lease agreements on
49 HCP-owned senior housing properties, including the removal of
embedded tenant purchase options relating to 19 properties.
Subsequent to the lease termination, we will contribute the 49
properties to a newly formed consolidated RIDEA partnership;
Brookdale will be a 20% equity partner and manage the facilities on
our behalf; and
- create a new $1.2 billion
unconsolidated joint venture that will own 14 campuses of
continuing care retirement communities in a RIDEA structure (the
“CCRC JV”). HCP will own a 49% equity interest; Brookdale will own
a 51% equity interest and will manage these communities on behalf
of the CCRC JV.
Our year-to-date total investments closed and
committed, including our 49% share of the $1.2 billion CCRC JV, are
$1.1 billion.
SIGNIFICANT LEASING TRANSACTIONS
During the quarter ended June 30, 2014, we
executed three leases (expected to commence in December 2014
through February 2015) for a total of 129,000 sq. ft. in our
639,000 sq. ft. Redwood City life science campus. The leases
include two new five-year leases for a total of 49,000 sq. ft. and
an 80,000 sq. ft. 10-year expansion and extension of an existing
life science tenant. These leases result in a 70% increase from
previous rents for 108,000 sq. ft. of office space converted to
laboratory.
SUSTAINABILITY
In June 2014, we were ranked 2nd in the U.S
real estate industry for environmental performance by the 2014
Newsweek Green Rankings, which ranks the 500 largest publicly
traded companies in the U.S. and globally. Additionally, during the
quarter ended June 30, 2014, we earned three ENERGY STAR awards in
our senior housing segment. As of June 30, 2014, we have been
awarded 137 ENERGY STAR and 10 LEED certifications. More
information about HCP’s sustainability efforts can be found on our
website at www.hcpi.com/sustainability.
JAMES HOFFMANN APPOINTED TO BOARD OF
DIRECTORS
On July 31, 2014, we announced the appointment
of James Hoffmann to the Company’s Board of Directors and its Audit
Committee. Mr. Hoffmann is a former Partner and Senior Vice
President of Wellington Management Company where he served as the
firm’s senior global REIT analyst and portfolio manager, as well as
on numerous internal management oversight committees, from 1997 to
2012.
DIVIDEND
On July 31, 2014, our Board of Directors
declared a quarterly cash dividend of $0.545 per common share. The
dividend will be paid on August 26, 2014 to stockholders of record
as of the close of business on August 11, 2014.
OUTLOOK
For full year 2014, we expect: FFO to range
between $3.01 and $3.07 per share; FFO as adjusted to range between
$2.97 and $3.03 per share; FAD to range between $2.50 and $2.56 per
share; and EPS to range between $2.02 and $2.08. These estimates
reflect the pending impact of the Brookdale Transaction, but do not
reflect the potential impact of future acquisitions. 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, August 5, 2014 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 ended June 30,
2014. The conference call is accessible by dialing (877) 363-5049
(U.S.) or (760) 536-8594 (International). The participant passcode
is 67869569. 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 August 20,
2014, 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
67869569. 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 hospital. 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 29 consecutive years;
(iii) is the only REIT included in the S&P 500 Dividend
Aristocrats index; and (iv) is a global leader in sustainability as
a member of the CDP, Dow Jones and FTSE4Good sustainability
leadership indices, and the Global and North American healthcare
sector leader for GRESB. 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,
the Company’s expectations with respect to (i) net income, FFO, FFO
as adjusted and FAD applicable to common shares on a diluted basis
for the full year of 2014; (ii) the payment of the regular
quarterly dividend; and (iii) anticipated outcomes relating to the
proposed Brookdale Transaction and its potential benefits. 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: the
Company’s ability to complete the transactions described in this
release related to the Brookdale Transaction on the currently
proposed terms or at all; risks relating to the impact of the
transaction on each party’s relationships with its residents,
employees and third parties, and the parties’ inability to obtain,
or delays in obtaining, cost savings and synergies from the
transaction; changes in global, national and local economic
conditions, including a prolonged period of weak economic growth;
volatility or uncertainty in the capital markets, including changes
in the availability and cost of capital (impacted by changes in
interest rates and the value of our common stock), which may
adversely impact our ability to consummate transactions or reduce
the earnings from potential transactions; the Company’s ability to
manage its indebtedness level and changes in the terms of such
indebtedness; the effect on healthcare providers, including
Brookdale, of the recently enacted and pending Congressional
legislation addressing entitlement programs and related services,
including Medicare and Medicaid, which may result in future
reductions in reimbursements; the ability of operators, tenants and
borrowers, including Brookdale, to conduct their respective
businesses in a manner sufficient to maintain or increase their
revenues and to generate sufficient income to make rent and loan
payments to the Company and the Company’s ability to recover
investments made, if applicable, in their operations; the financial
weakness of some operators and tenants (potentially including
Brookdale), including potential bankruptcies and downturns in their
businesses, which results in uncertainties regarding the Company’s
ability to continue to realize the full benefit of such operators’
and/or tenants’ leases; changes in federal, state or local laws and
regulations, including those affecting the healthcare industry that
affect the Company’s costs of compliance or increase the costs, or
otherwise affect the operations of operators, tenants and
borrowers, including Brookdale; the potential impact of future
litigation matters, including litigation relating to the Brookdale
Transaction or Brookdale’s acquisition of Emeritus and the
possibility of larger than expected litigation costs, adverse
results and related developments; competition for tenants and
borrowers, including with respect to new leases and mortgages and
the renewal or rollover of existing leases; the Company’s ability
to negotiate the same or better terms with new tenants or operators
if existing leases are not renewed or the Company exercises its
right to replace an existing operator or tenant upon default;
availability of suitable properties to acquire at favorable prices
and the competition for the acquisition and financing of those
properties; the financial, legal, regulatory and reputational
difficulties of significant operators of the Company’s properties,
potentially including Brookdale; the risk that the Company may not
be able to achieve the benefits of investments, including with
respect to the CCRC JV and the Brookdale Transaction, within
expected time-frames or at all, or within expected cost
projections; the ability to obtain financing necessary to
consummate acquisitions on favorable terms; risks associated with
the Company’s investments in joint ventures (including the proposed
CCRC JV) and unconsolidated entities, including its lack of sole
decision-making authority and its reliance on its joint venture
partners’ financial condition and continued cooperation; changes in
the credit ratings on U.S. government debt securities or default or
delay in payment by the U.S. of its obligations; and other risks
and uncertainties described from time to time in the Company’s
Securities and Exchange Commission filings, including its 2013
Annual Report on Form 10-K. 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)
June 30, December 31, 2014 2013
Assets
Real estate: Buildings and improvements $ 10,783,296 $ 10,544,110
Development costs and construction in progress 251,400 225,869 Land
1,880,408 1,822,862 Accumulated depreciation and amortization
(2,100,223 ) (1,965,592 ) Net real estate 10,814,881
10,627,249 Net investment in direct financing leases
7,223,878 7,153,399 Loans receivable, net 375,717 366,001
Investments in and advances to unconsolidated joint ventures
190,730 196,576 Accounts receivable, net of allowance of $3,052 and
$1,529, respectively 32,719 27,494 Cash and cash equivalents 54,070
300,556 Restricted cash 34,329 37,229 Intangible assets, net
477,837 489,842 Real estate assets held for sale, net — 9,819 Other
assets, net 940,008 867,705 Total assets $
20,144,169 $ 20,075,870
Liabilities and equity Bank
line of credit $ 310,000 $ — Term loan 234,352 226,858 Senior
unsecured notes 6,826,884 6,963,375 Mortgage debt 1,229,773
1,396,485 Other debt 73,020 74,909 Intangible liabilities, net
90,426 98,810 Accounts payable and accrued liabilities 339,364
318,427 Deferred revenue 67,756 65,872 Total
liabilities 9,171,575 9,144,736 Common
stock, $1.00 par value: 750,000,000 shares authorized; 458,742,070
and 456,960,648 shares issued and outstanding, respectively 458,742
456,961 Additional paid-in capital 11,388,641 11,334,041 Cumulative
dividends in excess of earnings (1,075,583 ) (1,053,215 )
Accumulated other comprehensive loss (11,669 )
(14,487 ) Total stockholders’ equity 10,760,131
10,723,300 Joint venture partners 23,391 23,729 Non-managing
member unitholders 189,072 184,105 Total
noncontrolling interests 212,463 207,834 Total
equity 10,972,594 10,931,134 Total liabilities
and equity $ 20,144,169 $ 20,075,870
HCP, Inc.
Consolidated Statements of
Income
In thousands, except per share
data
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
Revenues: Rental and related
revenues $ 288,191 $ 277,769 $ 573,014 $ 559,308 Tenant recoveries
27,110 25,144 52,544 49,346 Resident fees and services 37,939
36,394 75,992 72,139 Income from direct financing leases 165,500
158,286 330,037 315,156 Interest income 16,937 14,147 33,633 26,533
Investment management fee income 444 499 893
942 Total revenues 536,121 512,239
1,066,113 1,023,424
Costs and expenses:
Interest expense 106,842 108,452 213,480 217,562 Depreciation and
amortization 113,133 109,210 220,521 212,389 Operating 78,867
73,887 154,574 146,573 General and administrative 29,062
24,062 50,456 44,717 Total costs and expenses
327,904 315,611 639,031 621,241
Other income, net 709 3,288 2,639
15,400
Income before income taxes and equity income from
unconsolidated joint ventures 208,926 199,916 429,721 417,583
Income taxes (1,339 ) (1,604 ) (2,785 ) (2,519 ) Equity income from
unconsolidated joint ventures 14,692 15,585
29,220 30,386
Income from continuing operations
222,279 213,897 456,156 445,450
Discontinued operations: Income before gain on sales of real
estate, net of income taxes — 1,941 1,736 4,172 Gain on sales of
real estate, net of income taxes — 887 28,010
887 Total discontinued operations — 2,828
29,746 5,059
Net income 222,279 216,725
485,902 450,509 Noncontrolling interests’ share in earnings
(3,394 ) (3,324 ) (7,906 ) (6,523 )
Net
income attributable to HCP, Inc. 218,885 213,401 477,996
443,986 Participating securities’ share in earnings (489 )
(378 ) (1,552 ) (856 )
Net income
applicable to common shares $ 218,396 $ 213,023 $ 476,444 $
443,130
Basic earnings per common share: Continuing
operations $ 0.48 $ 0.46 $ 0.98 $ 0.96 Discontinued operations
— 0.01 0.06 0.02 Net income applicable
to common shares $ 0.48 $ 0.47 $ 1.04 $ 0.98
Diluted
earnings per common share: Continuing operations $ 0.48 $ 0.46
$ 0.98 $ 0.96 Discontinued operations — 0.01
0.06 0.01 Net income applicable to common shares $ 0.48 $
0.47 $ 1.04 $ 0.97
Weighted average shares used to
calculate earnings per common share: Basic 458,247
454,618 457,773 454,137 Diluted
458,588 455,431 458,134 455,024
HCP, Inc.
Consolidated Statements of Cash
Flows
In thousands
(Unaudited)
Six Months Ended June 30, 2014 2013
Cash flows from
operating activities: Net income $ 485,902 $ 450,509
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 220,521
212,389 Discontinued operations — 3,095 Amortization of above and
below market lease intangibles, net (343 ) (6,068 ) Amortization of
deferred compensation 11,006 11,638 Amortization of deferred
financing costs, net 9,474 9,440 Straight-line rents (26,455 )
(15,955 ) Loan and direct financing lease interest accretion
(39,401 ) (45,539 ) Deferred rental revenues (515 ) (965 ) Equity
income from unconsolidated joint ventures (29,220 ) (30,386 )
Distributions of earnings from unconsolidated joint ventures 2,655
1,624 Gain on sales of real estate (28,010 ) (887 ) Marketable
securities and other (gains) losses, net 58 (10,197 ) Changes in:
Accounts receivable, net (5,225 ) 462 Other assets (6,136 ) (12,852
) Accounts payable and accrued liabilities 13,394 5,294 Net cash
provided by operating activities 607,705 571,602
Cash flows from
investing activities: Acquisitions of real estate (285,429 )
(60,353 ) Development of real estate (72,334 ) (67,983 ) Leasing
costs and tenant and capital improvements (27,458 ) (19,938 )
Proceeds from sales of real estate, net 36,897 3,777 Distributions
in excess of earnings from unconsolidated joint ventures 1,113 904
Purchases of marketable debt securities — (16,706 ) Proceeds from
the sales of marketable securities — 28,030 Principal repayments on
loans receivable 5,547 19,112 Investments in loans receivable and
other (46,434 ) (300,673 ) (Increase) decrease in restricted cash
2,900 (7,105 ) Net cash used in investing activities (385,198 )
(420,935 )
Cash flows from financing activities: Net
borrowings under bank line of credit 310,000 265,049 Issuance of
senior unsecured notes 350,000 — Repayments of senior unsecured
notes (487,000 ) (150,000 ) Repayments of mortgage debt (169,843 )
(40,380 ) Deferred financing costs (9,239 ) — Issuance of common
stock and exercise of options 56,401 61,860 Repurchase of common
stock (11,086 ) — Dividends paid on common stock (500,364 )
(477,453 ) Issuance of noncontrolling interests 113 3,141
Distributions to and purchase of noncontrolling interests (7,980 )
(7,506 ) Net cash used in financing activities (468,998 ) (345,289
) Effect of foreign exchange on cash and cash equivalents 5 63 Net
decrease in cash and cash equivalents (246,486 ) (194,559 ) Cash
and cash equivalents, beginning of period 300,556 247,673 Cash and
cash equivalents, end of period $ 54,070 $ 53,114
HCP, Inc.
Funds From Operations(1)
In thousands, except per share
data
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
Net income applicable
to common shares $ 218,396 $ 213,023 $ 476,444 $ 443,130
Depreciation and amortization of real estate, in-place lease and
other intangibles: Continuing operations 113,133 109,210 220,521
212,389 Discontinued operations — 1,557 — 3,095 Direct financing
lease (“DFL”) depreciation 3,956 3,529 7,802 6,958 Gain on sales of
real estate — (887 ) (28,010 ) (887 ) Equity income from
unconsolidated joint ventures (14,692 ) (15,585 ) (29,220 ) (30,386
) FFO from unconsolidated joint ventures 17,151 18,356 34,112
35,897 Noncontrolling interests’ and participating securities’
share in earnings 3,883 3,702 9,458 7,379 Noncontrolling interests’
and participating securities’ share in FFO (5,370 )
(5,255 ) (11,511 ) (10,397 ) FFO applicable to common
shares $ 336,457 $ 327,650 $ 679,596 $ 667,178 Distributions on
dilutive convertible units 3,420 3,336 6,840
6,664
Diluted FFO applicable to common shares $
339,877 $ 330,986 $ 686,436 $ 673,842 Diluted FFO per common
share $ 0.73 $ 0.72 $ 1.48 $ 1.46 Weighted average shares
used to calculate diluted FFO per share 464,610
461,462 464,138 461,058
Impact of
adjustments to FFO: Transaction-related items(2) $ 6,839 $ — $
6,839
$ — FFO as adjusted applicable to common shares $ 343,296 $
327,650 $ 686,435 $ 667,178 Distributions on dilutive convertible
units and other 3,405 3,336 6,825 6,664
Diluted FFO as adjusted applicable to common shares $
346,701 $ 330,986 $ 693,260 $ 673,842 Per common share impact of
adjustments on diluted FFO $ 0.02 $ — $ 0.01 $ —
Diluted
FFO as adjusted per common share $ 0.75 $ 0.72 $ 1.49 $ 1.46
Weighted average shares used to calculate diluted FFO as
adjusted per share 464,610 461,462 464,138
461,058
________________________________________
(1) 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 uses
historical cost accounting for depreciation could be less
informative. The term FFO was developed by the REIT industry to
address this issue. FFO as defined by the National Association of
Real Estate Investment Trusts (“NAREIT”) is net income applicable
to common shares (computed in accordance with U.S. generally
accepted accounting principles or “GAAP”), excluding gains from
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 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 NAREIT definition or that have a different interpretation
of the current NAREIT definition from ours. FFO as adjusted
represents FFO before the impact of impairments (recoveries) of
non-depreciable assets, transaction-related items (defined below),
severance-related items and preferred stock redemption charges.
Management believes that FFO as adjusted is useful to investors,
because it allows investors to compare the Company's results to
prior reporting periods without the effect of items that by their
nature would not be comparable. This measure is a modification of
the NAREIT definition of FFO and should not be used as an
alternative to net income or NAREIT FFO.
(2) Transaction-related items include
significant direct costs (e.g., pursuit, due diligence and closing)
and unusual gains/charges incurred as a result of mergers and
acquisitions and lease amendment or restructure activities. The
three and six months ended June 30, 2014, include the impact of
$6.8 million resulting from the Brookdale Transaction (primarily
pre-closing legal fees) and UK real estate portfolio investment
(primarily stamp-duty taxes that are common for UK real estate
transactions).
HCP, Inc.
Funds Available for
Distribution(1)
In thousands, except per share
data
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
FFO as adjusted
applicable to common shares $ 343,296 $ 327,650 $ 686,435 $
667,178 Amortization of above and below market lease intangibles,
net (175 ) (5,990 ) (343 ) (6,068 ) Amortization of deferred
compensation 6,116 6,208 11,006 11,638 Amortization of deferred
financing costs, net 4,509 4,796 9,474 9,440 Straight-line rents
(12,487 ) 2,838 (26,455 ) (15,955 ) DFL accretion(2) (17,813 )
(21,394 ) (39,235 ) (45,564 ) DFL depreciation (3,956 ) (3,529 )
(7,802 ) (6,958 ) Deferred revenues – tenant improvement related
(735 ) (1,645 ) (1,217 ) (2,089 ) Deferred revenues – additional
rents 365 (577 ) 702 1,124 Leasing costs and tenant and capital
improvements (15,053 ) (10,979 ) (27,458 ) (19,938 ) Joint venture
and other FAD adjustments(2) (15,999 ) (13,580 )
(30,018 ) (25,629 ) FAD applicable to common shares $
288,068 $ 283,798 $ 575,089 $ 567,179 Distributions on
dilutive convertible units 2,251 3,336 4,502
6,665
Diluted FAD applicable to common shares
$ 290,319 $ 287,134 $ 579,591 $ 573,844 Diluted FAD per
common share $ 0.63 $ 0.62 $ 1.25 $ 1.24 Weighted average
shares used to calculate diluted FAD per common share
462,754 461,462 462,282 461,058
________________________________________
(1) 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. Also, FAD is computed after
deducting recurring capital expenditures, including leasing costs
and second generation tenant and capital improvements and includes
adjustments to compute our share of FAD from our unconsolidated
joint ventures that are similar to those in FFO. Other REITs or
real estate companies may use different methodologies for
calculating FAD, and accordingly, our 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
our 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
presented in our consolidated financial statements prepared in
accordance with GAAP. 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.
(2) For the three and six months ended June 30,
2014, DFL accretion reflects an elimination of $15.7 million and
$31.2 million, respectively. For the three and six months ended
June 30, 2013, DFL accretion reflects an elimination of $15.3
million and $31.2 million, respectively. Our ownership interest in
HCR ManorCare, Inc. (“HCR ManorCare”) is accounted for using the
equity method, which requires an ongoing elimination of DFL income
that is proportional to our ownership in HCR ManorCare. Further,
our share of earnings from HCR ManorCare (equity income) increases
for the corresponding elimination of related lease expense
recognized at the HCR ManorCare 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
June 30,
Six Months Ended
June 30,
2014 2013 2014 2013
Net income
$ 222,279 $ 216,725 $ 485,902 $ 450,509 Interest income (16,937 )
(14,147 ) (33,633 ) (26,533 ) Investment management fee income (444
) (499 ) (893 ) (942 ) Interest expense 106,842 108,452 213,480
217,562 Depreciation and amortization 113,133 109,210 220,521
212,389 General and administrative 29,062 24,062 50,456 44,717
Other income, net (709 ) (3,288 ) (2,639 ) (15,400 ) Income taxes
1,339 1,604 2,785 2,519 Equity income from unconsolidated joint
ventures (14,692 ) (15,585 ) (29,220 ) (30,386 ) Total discontinued
operations — (2,828 ) (29,746 ) (5,059
)
NOI
$ 439,873 $ 423,706 $ 877,013 $ 849,376 Straight-line rents (12,487
) 2,838 (26,455 ) (15,955 ) DFL accretion (17,813 ) (21,394 )
(39,235 ) (45,564 ) Amortization of above and below market lease
intangibles, net (175 ) (5,990 ) (343 ) (6,068 )
Lease termination fees
(233 ) (15 ) (811 ) (15 ) NOI adjustments related to discontinued
operations — 21 (11 ) 16
Cash (adjusted) NOI
$ 409,165 $ 399,166 $ 810,158 $ 781,790 Non-SPP cash (adjusted) NOI
(2,073 ) (1,733 ) (4,758 ) (2,246 )
Same property portfolio cash (adjusted) NOI(2)
$ 407,092 $ 397,433 $
805,400 $ 779,544 Cash (adjusted) NOI %
change – SPP(2) 2.4% 3.3%
________________________________________
(1) 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 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, our
NOI may not be comparable to that of other REITs or real estate
companies, 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, impairments, impairment recoveries, other income, net,
income taxes, equity income from unconsolidated joint ventures, and
discontinued operations. Cash 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.
Cash NOI is sometimes referred to as “adjusted
NOI.”
(2) Same property portfolio (“SPP”) statistics
allow management to evaluate the performance of our real estate
portfolio under a consistent population, which eliminates the
changes in the composition of our portfolio of properties. We
identify our SPP as stabilized properties that remained in
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 our 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 2014 Low High Diluted earnings per
common share
$
2.02
$ 2.08 Real estate depreciation and amortization 0.98 0.98 DFL
depreciation 0.03 0.03 Gain on sales of real estate (0.06 ) (0.06 )
Joint venture FFO adjustments 0.04 0.04
Diluted FFO per common share
$ 3.01 $ 3.07 Transaction-related
items(2) (0.04 ) (0.04 )
Diluted FFO as adjusted per common
share
$ 2.97 $ 3.03 Amortization of net below
market lease intangibles and deferred revenues (0.01 ) (0.01 )
Amortization of deferred compensation 0.05 0.05 Amortization of
deferred financing costs, net 0.04 0.04 Straight-line rents (0.09 )
(0.09 ) DFL accretion(3) (0.17 ) (0.17 ) DFL depreciation (0.03 )
(0.03 ) Leasing costs and tenant and capital improvements (0.15 )
(0.15 ) Lease restructure payments(4) 0.02 0.02 Joint venture
adjustments – CCRC entrance fees(5) 0.01 0.01 Joint venture and
other FAD adjustments(3) (0.14 ) (0.14 )
Diluted FAD per common share
$ 2.50 $ 2.56
________________________________________
(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 our operators,
lessees, borrowers or other obligors, the effect of any future
restructuring of our contractual relationships with 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
estimates 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) Include a $0.02 per share charge in 2Q 2014
for direct costs relating to the UK real estate portfolio and
Brookdale transactions and an anticipated $0.06 per share net
benefit in 3Q 2014 relating to the Brookdale Transaction, at
closing. The combined $0.04 per share net benefit for 2014 consists
of:
(i) $0.23 per share, or $106
million, of net gains as consideration received related to the
terminated leases of the HCP owned 49-property portfolio; partially
offset by a
(ii) $0.15 per share, or $70
million, charge to write-off the existing straight-line rents and
intangible other assets, net related to the terminated leases of
the HCP owned 49-property portfolio; and
(iii) $0.04 per share, or $15
million (includes the $0.02 per share in 2Q 2014), in charges for
direct costs, primarily consisting of stamp-duty taxes, and legal
and other professional fees.
(3) 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) Represents adjustments to reflect cash
installment payments when they are collected from Brookdale. Over a
period ranging from 2 to 3 years, we will receive installment
payments valued at $54 million (included in the $106 million of
consideration discussed in footnote (2)(i) above) for terminating
the leases on the HCP owned 49-property portfolio; GAAP and FFO
recognize these installment payments up-front. However, we include
the installment payments in FAD when the payments are collected and
remove the corresponding up-front benefit of these installment
payments from FFO as adjusted through transaction-related
items.
(5) Represents the adjustments to recognize our
49% share of non-refundable entrance fees in FAD when they are
collected by the CCRC JV; GAAP and FFO recognize non-refundable
entrance fees over the actuarial life of the respective residents,
rather than when the payments are collected. Therefore, we include
the non-refundable entrance fees in FAD when the payments are
collected and remove the corresponding GAAP/FFO amortization from
FAD.
HCP, Inc.Timothy M. Schoen,
949-407-0400Executive Vice President and Chief Financial
Officer
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