FOURTH QUARTER 2013 HIGHLIGHTS
- FFO per share increased 7% to $0.76;
FFO as adjusted per share increased 6% to $0.76; FAD per share
increased 7% to $0.61; and EPS was $0.64
- Achieved year-over-year three-month
cash NOI SPP growth of 3.5%
- Extended leases on three acute care
hospitals with Tenet Healthcare Corporation
- Raised $800 million of 4.25% senior
unsecured notes due 2023
- Awarded NAREIT’s Healthcare Leader in
the Light Award for sustainability achievements for a second
consecutive year and received 19 ENERGY STAR certifications
FULL YEAR 2013 HIGHLIGHTS
- FFO per share increased 8% to $2.95;
FFO as adjusted per share increased 8% to $3.01; FAD per share
increased 14% to $2.52; and EPS was $2.13
- Achieved year-over-year cash NOI SPP
growth of 3.1%
- Completed $598 million of
investments
- Sold real estate assets for $111
million realizing net gains of $68 million
- Added to the CDP, Dow Jones and
FTSE4Good sustainability leadership indices; and named by GRESB as
the Global and North American leader for the healthcare sector
- Earned 37 ENERGY STAR and 5 LEED
certifications bringing our totals, through December 31, 2013, to
130 ENERGY STAR along with 10 LEED certifications
2014 OUTLOOK AND DIVIDEND
- Full year guidance, not including the
impact of potential future acquisitions, for FFO per share is $2.96
– $3.02; FAD per share is $2.47 – $2.53; and earnings per share is
$2.04 – $2.10
- Full year guidance for cash NOI SPP
growth of 3% – 4%
- Increased the quarterly cash dividend
3.8% to $0.545 per share, which represents our 29th consecutive
year with a dividend increase
- HCP continues as the only REIT included
in the S&P 500 Dividend Aristocrats index
HCP (the “Company” or “we”) (NYSE:HCP) announced results for the
quarter and year ended December 31, 2013 as follows (in thousands,
except per share amounts):
FOURTH QUARTER COMPARISON
Three Months Ended
December 31, 2013
Three Months Ended
December 31, 2012
Per Share
Amount Per Share Amount
Per Share Change
FFO $ 346,018 $ 0.76 $ 317,839 $ 0.71 $
0.05 Severance-related charges (1) 870 — — — — Merger-related items
(2) — — 5,642 0.01 (0.01 )
FFO as adjusted $
346,888
$ 0.76 $ 323,481 $ 0.72 $ 0.04
FAD $ 276,829 $ 0.61 $
253,841 $ 0.57 $ 0.04
EPS $ 292,625 $ 0.64 $ 239,881 $ 0.53
$ 0.11
________________________________________
(1) Severance-related charges were attributable to the
termination of the Company’s former Chairman, Chief Executive
Officer and President on October 2, 2013. See the “Funds From
Operations” section of this release for additional information. (2)
The merger-related items were attributable to the $1.7 billion
Senior Housing Portfolio acquisition in the fourth quarter of 2012.
See the “Funds From Operations” section of this release for
additional information.
In addition to the severance-related charges, operating results
for the quarter ended December 31, 2013 include the positive impact
of $0.01 per share or $6 million of equity income from
unconsolidated joint venture related to a capital distribution from
our interest in the Hyde Park senior housing development project.
Earnings per share for the quarters ended December 31, 2013 and
2012, also include gain on sales of real estate, net of
impairments, of $59 million and $29 million, respectively.
FULL YEAR COMPARISON
Year Ended
December 31, 2013
Year Ended
December 31, 2012
Per Share
Amount
Per Share
Amount Per Share Change
FFO(1) $
1,349,264 $ 2.95 $ 1,166,508 $ 2.72 $ 0.23 Severance-related
charges 27,244 0.06 — — 0.06
Preferred stock redemption
charges,merger-related items and impairments
— — 23,952 0.06 (0.06 )
FFO
as adjusted $ 1,376,508 $ 3.01 $ 1,190,460 $ 2.78 $ 0.23
FAD $ 1,151,891 $ 2.52 $ 949,306 $ 2.22 $ 0.30
EPS $
969,103 $ 2.13 $ 812,289 $ 1.90 $ 0.23
___________________________________________________
(1) See the “Funds From Operations” section of this release
for additional information.
In addition to the severance-related charges, operating results
for the year ended December 31, 2013 include the positive impact
of: (i) $0.05 per share of interest income from the full payoff of
our Barchester debt investments; (ii) $0.02 per share related to
gain on sales of marketable securities; and (iii) $0.01 per share
of equity income from Hyde Park; partially offset by (iv) a $0.02
per share charge resulting from an adjustment to non-cash rents,
primarily in our hospital segment. Earnings per share for the year
ended December 31, 2013 also includes net gain on sales of
real estate of $68 million.
In addition to the preferred stock redemption charges,
merger-related items and impairments, operating results for the
year ended December 31, 2012 include the positive impact of $0.02
per share resulting from an insurance recovery of past G&A
expenses. Earnings per share for the year ended December 31,
2012 also includes gain on sales of real estate of $31 million.
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” 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
INVESTMENT TRANSACTIONS
During the quarter ended December 31, 2013, we funded
$57 million for construction and other capital projects,
primarily in our life science, medical office and senior housing
segments; and sold: (i) eight post-acute/skilled nursing facilities
for $68 million, (ii) a senior housing facility for $18 million and
(iii) two medical office buildings for $6 million.
FINANCING ACTIVITIES
On November 12, 2013, we issued $800 million of 4.25% senior
unsecured notes due 2023. The notes were priced at 99.54% of the
principal amount with an effective yield-to-maturity of 4.307%; net
proceeds from this offering were $789 million.
On December 16, 2013, we repaid $400 million of maturing senior
unsecured notes, which accrued interest at a rate of 5.65%. The
senior unsecured notes were repaid with a portion of the proceeds
from our November 2013 bond offering.
SIGNIFICANT LEASING TRANSACTIONS
On October 8, 2013, we executed an eight-year, 69,000 sq. ft.
new lease with a genomic diagnostics tenant, CardioDx, at our
Redwood City, California life science campus. The lease with
CardioDx will anchor approximately 75% of two redevelopment
buildings that were repositioned in 2011.
On November 21, 2013, HCP and Tenet Healthcare Corporation
reached an agreement to modify and extend three acute care hospital
leases representing 656 licensed beds. The leases were extended at
current rent levels and contain annual CPI-based escalators under
staggered terms from three to eight years with purchase options
exercisable for a fixed price at the end of each term.
SUSTAINABILITY
In 2013, HCP was awarded NAREIT’s Healthcare Leader in the Light
Award for the second consecutive year. We have received the NAREIT
Leader in the Light Award six of the past seven years. During the
quarter ended December 31, 2013, we earned 19 ENERGY STAR awards in
our medical office, life science and senior housing segments.
Through December 31, 2013, we have been awarded 130 ENERGY STAR and
10 LEED certifications.
More information about HCP’s sustainability efforts can be found
on our website at www.hcpi.com/sustainability.
DIVIDEND
On January 30, 2014, our Board of Directors declared a quarterly
cash dividend of $0.545 per common share. The dividend will be paid
on February 25, 2014 to stockholders of record as of the close of
business on February 10, 2014. The annualized distribution rate per
share for 2014 increased 3.8% to $2.18, compared to $2.10 for 2013,
which represents the 29th consecutive year with a dividend
increase. HCP continues as the only REIT included in the S&P
500 Dividend Aristocrats index.
2014 OUTLOOK
For full year 2014, we expect: FFO applicable to common shares
to range between $2.96 and $3.02 per share; FAD applicable to
common shares to range between $2.47 and $2.53 per share; and net
income applicable to common shares to range between $2.04 and $2.10
per share. These estimates 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,
February 11, 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 and year ended December 31, 2013.
The conference call is accessible by dialing (877) 724-7556 (U.S.)
or (706) 645-4695 (International). The participant passcode is
33156078. 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,
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
33156078. 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 applicable to common
shares on a diluted basis, FFO 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) cash NOI SPP growth for
the full year of 2014. 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: 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 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 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, 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; the potential impact of future litigation matters,
including 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; the risk that the Company may not be able to achieve
the benefits of investments 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
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. These risks and
uncertainties are described 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, 2013 2012
Assets Real estate: Buildings and
improvements $ 10,544,110 $ 10,448,752 Development costs and
construction in progress 225,869 236,859 Land 1,822,862 1,838,613
Accumulated depreciation and amortization (1,965,592 )
(1,694,892 ) Net real estate 10,627,249 10,829,332
Net investment in direct financing leases 7,153,399 6,881,393 Loans
receivable, net 366,001 276,030 Investments in and advances to
unconsolidated joint ventures 196,576 212,213 Accounts receivable,
net of allowance of $1,529 and $1,668, respectively 27,494 34,150
Cash and cash equivalents 300,556 247,673 Restricted cash 37,229
37,848 Intangible assets, net 489,842 551,737 Real estate and
intangible assets held for sale, net 9,819 56,659 Other assets, net
867,705 788,520 Total assets $ 20,075,870 $
19,915,555
Liabilities and equity Term loan $ 226,858
$ 222,694 Senior unsecured notes 6,963,375 6,712,624 Mortgage debt
1,396,485 1,665,210 Mortgage debt and intangible liabilities on
assets held for sale, net — 13,063 Other debt 74,909 81,958
Intangible liabilities, net 98,810 104,180 Accounts payable and
accrued liabilities 318,427 293,994 Deferred revenue 65,872
68,055 Total liabilities 9,144,736 9,161,778
Common stock, $1.00 par value: 750,000,000
shares authorized; 456,960,648 and 453,191,321shares issued and
outstanding, respectively
456,961 453,191 Additional paid-in capital 11,334,041 11,180,066
Cumulative dividends in excess of earnings (1,053,215 ) (1,067,367
) Accumulated other comprehensive loss (14,487 )
(14,653 ) Total stockholders’ equity 10,723,300
10,551,237 Joint venture partners 23,729 14,752 Non-managing
member unitholders 184,105 187,788 Total
noncontrolling interests 207,834 202,540 Total
equity 10,931,134 10,753,777 Total liabilities
and equity $ 20,075,870 $ 19,915,555
HCP, Inc.
Consolidated Statements of
Income
In thousands, except per share
data
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2013 2012 2013 2012
Revenues: Rental and related revenues $ 284,673 $ 274,029 $
1,128,054 $ 997,767 Tenant recoveries 25,383 25,004 100,649 94,626
Resident fees and services 37,780 34,777 146,288 139,073 Income
from direct financing leases 164,472 156,728 636,881 622,073
Interest income 17,548 12,223 86,159 24,536 Investment management
fee income 441 472 1,847 1,895 Total
revenues 530,297 503,233 2,099,878
1,879,970
Costs and expenses: Interest expense
109,603 107,015 435,252 416,172 Depreciation and amortization
106,140 97,921 423,312 353,704 Operating 76,292 73,286 298,282
280,716 General and administrative 19,190 25,105 109,233 79,395
Impairments — — — 7,878 Total costs and
expenses 311,225 303,327 1,266,079
1,137,865 Other income, net 1,184 304
18,216 2,976
Income before income taxes and equity
income from unconsolidated joint ventures 220,256 200,210
852,015 745,081 Income taxes (2,261 ) 489 (5,815 ) 1,654 Equity
income from unconsolidated joint ventures 20,155
11,652 64,433 54,455
Income from continuing
operations 238,150 212,351 910,633
801,190
Discontinued operations: Income before
impairment losses and gain on sales of real estate, net of income
taxes 180 5,311 5,879 14,198 Impairment losses on real estate
(1,372 ) — (1,372 ) — Gain on sales of real estate, net of income
taxes 60,681 28,598 69,866 31,454 Total
discontinued operations 59,489 33,909 74,373
45,652
Net income 297,639 246,260 985,006
846,842 Noncontrolling interests’ share in earnings (4,544 )
(5,232 ) (14,169 ) (14,302 )
Net income
attributable to HCP, Inc. 293,095 241,028 970,837 832,540
Preferred stock dividends — — — (17,006 ) Participating securities’
share in earnings (470 ) (1,147 ) (1,734 )
(3,245 )
Net income applicable to common
shares $ 292,625 $ 239,881 $ 969,103 $ 812,289
Basic
earnings per common share: Continuing operations $ 0.51 $ 0.46
$ 1.97 $ 1.80 Discontinued operations 0.13 0.08
0.16 0.10 Net income applicable to common shares $
0.64 $ 0.54 $ 2.13 $ 1.90
Diluted earnings per common
share: Continuing operations $ 0.51 $ 0.46 $ 1.97 $ 1.80
Discontinued operations 0.13 0.07 0.16
0.10 Net income applicable to common shares $ 0.64 $ 0.53 $ 2.13 $
1.90
Weighted average shares used to calculate earnings
per common share: Basic 456,334 447,889
455,002 427,047 Diluted 456,631 448,903
455,702 428,316
HCP, Inc.
Consolidated Statements of Cash
Flows
In thousands
(Unaudited)
Year Ended December 31, 2013
2012
Cash flows from operating activities: Net income
$ 985,006 $ 846,842 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 423,312 353,704 Discontinued operations 5,862 12,808
Amortization of above and below market lease intangibles, net
(6,646 ) (2,232 ) Amortization of deferred compensation 39,980
23,277 Amortization of deferred financing costs, net 18,541 16,501
Straight-line rents (39,587 ) (47,311 ) Loan and direct financing
lease interest accretion (86,314 ) (95,444 ) Deferred rental
revenues (2,843 ) (1,655 ) Equity income from unconsolidated joint
ventures (64,433 ) (54,455 ) Distributions of earnings from
unconsolidated joint ventures 3,989 3,384 Gain on sales of real
estate (69,866 ) (31,454 ) Marketable securities gains, net (11,350
) — Foreign currency and derivative losses, net 533 43 Impairments
1,372 7,878 Changes in: Accounts receivable, net 6,656 (7,469 )
Other assets (58,290 ) (3,814 ) Accounts payable and accrued
liabilities 3,065 14,267 Net cash provided by operating activities
1,148,987 1,034,870
Cash flows from investing activities:
Other real estate acquisitions (64,678 ) (186,478 ) Senior housing
portfolio acquisition — (1,701,410 ) Development of real estate
(130,317 ) (133,596 ) Leasing costs and tenant and capital
improvements (64,557 ) (61,440 ) Proceeds from sales of real
estate, net 95,816 150,943 Distributions in excess of earnings from
unconsolidated joint ventures 14,102 2,915 Purchases of marketable
securities (16,706 ) (214,859 ) Proceeds from the sales of
marketable securities 28,403 — Principal repayments on loans
receivable 263,445 45,046 Investments in loans receivable (322,775
) (218,978 ) Decrease in restricted cash 619 3,705 Net cash used in
investing activities (196,648 ) (2,314,152 )
Cash flows from
financing activities: Net repayments under bank line of credit
— (454,000 ) Borrowings under term loan — 214,789 Issuance of
senior unsecured notes 800,000 1,550,000 Repayments of senior
unsecured notes (550,000 ) (250,000 ) Repayments of mortgage debt
(302,119 ) (155,565 ) Issuance of mortgage and other debt 6,798 —
Deferred financing costs (7,300 ) (27,565 ) Preferred stock
redemption — (295,500 ) Net proceeds from the issuance of common
stock and exercise of options 114,082 1,792,786 Dividends paid on
common and preferred stock (956,685 ) (865,306 ) Issuance of
noncontrolling interests 12,472 1,584 Purchase of noncontrolling
interests — (2,143 ) Distributions to noncontrolling interests
(17,664 ) (15,631 ) Net cash provided by (used in) financing
activities (900,416 ) 1,493,449 Effect of foreign exchange on cash
and cash equivalents 960 — Net increase in cash and cash
equivalents 52,883 214,167 Cash and cash equivalents, beginning of
year 247,673 33,506 Cash and cash equivalents, end of year $
300,556 $ 247,673
HCP, Inc.
Funds From Operations(1)
In thousands, except per share
data
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2013 2012 2013 2012
Net
income applicable to common shares $ 292,625 $ 239,881 $
969,103 $ 812,289 Depreciation and amortization of real estate,
in-place lease and other intangibles: Continuing operations 106,140
97,921 423,312 353,704 Discontinued operations 1,258 2,252 5,862
12,808 Impairments of real estate 1,372 — 1,372 — Direct financing
lease (“DFL”) depreciation 3,737 3,330 14,326 12,756 Gain on sales
of real estate (60,681 ) (28,598 ) (69,866 ) (31,454 ) Equity
income from unconsolidated joint ventures (20,155 ) (11,652 )
(64,433 ) (54,455 ) FFO from unconsolidated joint ventures 21,785
14,438 74,324 64,933 Noncontrolling interests’ and participating
securities’ share in earnings 5,014 6,379 15,903 17,547
Noncontrolling interests’ and participating securities’ share in
FFO (5,077 ) (6,112 ) (20,639 ) (21,620
) FFO applicable to common shares $ 346,018 $ 317,839 $ 1,349,264 $
1,166,508 Distributions on dilutive convertible units 3,310
3,631 13,276 13,028
Diluted FFO applicable
to common shares $ 349,328 $ 321,470 $ 1,362,540 $ 1,179,536
Diluted FFO per common share $ 0.76 $ 0.71 $ 2.95 $ 2.72
Weighted average shares used to calculate diluted FFO per
share 462,620 454,992 461,710 434,328
Impact of adjustments to FFO: Severance-related
charges (2) $ 870 $ — $ 27,244 $ — Preferred stock redemption
charge (3) — — — 10,432 Merger-related items (4) — 5,642 — 5,642
Impairments (5) — — — 7,878 $ 870 $
5,642 $ 27,244 $ 23,952 FFO as adjusted applicable to common
shares $ 346,888 $ 323,481 $ 1,376,508 $ 1,190,460 Distributions on
dilutive convertible units and other 3,310 3,613
13,220 12,957
Diluted FFO as adjusted applicable
to common shares $ 350,198 $ 327,094 $ 1,389,728 $ 1,203,417
Per common share impact of adjustments on diluted FFO $ — $ 0.01 $
0.06 $ 0.06
Diluted FFO as adjusted per common share
$ 0.76 $ 0.72 $ 3.01 $ 2.78 Weighted average shares used to
calculate diluted FFO as adjusted per share 462,620
452,122 461,710 433,607
________________________________________
(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 use historical
cost accounting for depreciation could be less informative. The
term FFO was designed 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 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 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. In
addition, we present FFO before the impact of severance-related
charges, 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). (2) The Company’s Board of Directors terminated its
former Chairman, Chief Executive Officer and President on October
2, 2013. As a result of the termination, we incurred
severance-related charges of $27.2 million that include: (i) the
acceleration of $16.7 million of deferred compensation for
restricted stock units and options that vested upon termination;
and (ii) severance payments and other costs of approximately $10.5
million. (3) In connection with the redemption of our
preferred stock, we incurred a one-time, non-cash redemption charge
of $10.4 million related to the original issuance costs of the
preferred stock. (4) The 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 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. (5)
The impairment charge of $7.9 million relates to the sale of a land
parcel in our life science segment.
HCP, Inc.
Funds Available for
Distribution(1)
In thousands, except per share
data
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2013 2012 2013 2012
FFO as
adjusted applicable to common shares $ 346,888 $ 323,481 $
1,376,508 $ 1,190,460 Amortization of above and below market lease
intangibles, net (232 ) (377 ) (6,646 ) (2,232 ) Amortization of
deferred compensation(2) 6,147 6,330 23,327 23,277 Amortization of
deferred financing costs, net 4,619 4,086 18,541 16,501
Straight-line rents (11,028 ) (13,703 ) (39,587 ) (47,311 ) DFL
accretion(3) (20,669 ) (23,168 ) (86,055 ) (94,240 ) DFL
depreciation (3,737 ) (3,330 ) (14,326 ) (12,756 ) Deferred
revenues – tenant improvement related (429 ) (313 ) (2,906 ) (1,570
) Deferred revenues – additional rents (SAB 104) (2,487 ) (2,443 )
63 (85 ) Leasing costs and tenant and capital improvements (30,593
) (18,623 ) (64,557 ) (61,440 ) Joint venture and other FAD
adjustments(3) (11,650 ) (18,099 ) (52,471 )
(61,298 ) FAD applicable to common shares $ 276,829 $
253,841 $ 1,151,891 $ 949,306 Distributions on dilutive
convertible units 2,174 2,310 13,276
7,714
Diluted FAD applicable to common shares $
279,003 $ 256,151 $ 1,165,167 $ 957,020 Diluted FAD per
common share $ 0.61 $ 0.57 $ 2.52 $ 2.22 Weighted average
shares used to calculate diluted FAD per common share
460,761 450,207 461,710 431,429
________________________________________
(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. 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
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 determined in accordance with
GAAP and presented in our 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.
(2) Excludes $16.7 million related to the acceleration of deferred
compensation for restricted stock units and options that vested
upon termination of the Company’s former Chairman, Chief Executive
Officer and President on October 2, 2013, which is included in
severance-related charges for the year ended December 31, 2013.
(3) For the three and twelve months ended December 31, 2013,
DFL accretion reflects an elimination of $15.5 million and $62.1
million, respectively. For the three and twelve months ended
December 31, 2012, DFL accretion reflects an elimination of $15.0
million and $59.4 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
December 31,
Year Ended
December 31,
2013 2012 2013 2012
Net income $ 297,639 $ 246,260 $ 985,006 $ 846,842 Interest
income (17,548 ) (12,223 ) (86,159 ) (24,536 ) Investment
management fee income (441 ) (472 ) (1,847 ) (1,895 ) Interest
expense 109,603 107,015 435,252 416,172 Depreciation and
amortization 106,140 97,921 423,312 353,704 General and
administrative 19,190 25,105 109,233 79,395 Impairments — — — 7,878
Other income, net (1,184 ) (304 ) (18,216 ) (2,976 ) Income taxes
2,261 (489 ) 5,815 (1,654 ) Equity income from unconsolidated joint
ventures (20,155 ) (11,652 ) (64,433 ) (54,455 ) Total discontinued
operations (59,489 ) (33,909 ) (74,373 )
(45,652 )
NOI $ 436,016 $ 417,252 $ 1,713,590 $
1,572,823 Straight-line rents (11,028 ) (13,703 ) (39,587 ) (47,311
) DFL accretion (20,669 ) (23,168 ) (86,055 ) (94,240 )
Amortization of above and below market lease intangibles, net (232
) (377 ) (6,646 ) (2,232 ) Lease termination fees 3 (63 ) (217 )
(636 ) NOI adjustments related to discontinued operations
(77 ) 45 (47 ) 1,585
Cash (Adjusted)
NOI $ 404,013 $ 379,986 $ 1,581,038 $ 1,429,989 Non-SPP cash
(adjusted) NOI (29,921 ) (18,539 ) (133,918 )
(26,023 )
Same property portfolio cash (adjusted)
NOI(2) $ 374,092 $ 361,447
$ 1,447,120 $ 1,403,966 Cash
(Adjusted) NOI % change – SPP(2) 3.5%
3.1%
________________________________________
(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, 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.” (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
$
2.04
$ 2.10 Real estate depreciation and amortization 0.92 0.92 DFL
depreciation 0.03 0.03 Gain on sales of real estate (0.04 ) (0.04 )
Joint venture FFO adjustments 0.01 0.01
Diluted FFO per common share $ 2.96 $
3.02 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(2)
(0.17 ) (0.17 ) DFL depreciation (0.03 ) (0.03 ) Leasing costs and
tenant and capital improvements (0.15 ) (0.15 ) Joint venture and
other FAD adjustments(2) (0.13 ) (0.13 )
Diluted
FAD per common share $ 2.47 $
2.53
________________________________________
(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) 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, Inc.Timothy M. SchoenExecutive Vice President and Chief
Financial Officer562-733-5309
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