HIGHLIGHTS
-- FFO as adjusted and FAD per share increased year-over-year by
5% to $0.79 and 10% to $0.69, respectively; FFO per share and EPS
were $0.65 and $0.36, respectively
-- Completed $1.4 billion of investment transactions:
-- $847 million acquisition of private pay
senior housing portfolio in a RIDEA structure with Brookdale
-- $386 million for 12 on-campus medical
office buildings representing 1.9 million sq. ft.
-- $55 million additional funding under our
Tandem Health Care mezzanine loan facility
-- $42 million (£27 million) acquisition of
two U.K. care homes leased to Maria Mallaband
-- $46 million of other investments
-- Executed 1.1 million sq. ft. of leasing in our life science
and medical office portfolios
-- Converted £174 million of our £502 million U.K. HC-One debt
investment to fee ownership in a portfolio of 36 care homes
-- Issued $750 million of 10-year 4.00% senior unsecured
notes
-- Raised full year per share guidance for FFO to $1.97 – $2.03,
FFO as adjusted to $3.14 – $3.20, FAD to $2.68 – $2.74 and EPS to
$0.75 – $0.81
HCP (the “Company” or “we”) (NYSE:HCP) announced results for the
quarter ended June 30, 2015 as follows (in thousands, except per
share amounts):
Three Months EndedJune 30, 2015
Three Months EndedJune 30, 2014
PerShare
Amount Per Share Amount Per Share Change
FFO $
301,934 $ 0.65 $ 336,457 $ 0.73 $ (0.08 ) Other impairment(1)
41,887 0.09 — — 0.09 Transaction-related items 24,045 0.05 7,406
0.02 0.03 Severance-related charge(2) 6,713 0.02 — — 0.02 Foreign
currency remeasurement gains(3) (9,533 ) (0.02 )
— — (0.02 )
FFO as adjusted $ 365,046 $
0.79 $ 343,863 $ 0.75 $ 0.04
FAD $ 318,614 $ 0.69 $ 288,635
$ 0.63 $ 0.06
Net income $ 164,515 $ 0.36 $ 218,396 $ 0.48 $
(0.12 )
(1)
As previously announced in June, the
non-cash impairment relates to our Four Seasons Health Care senior
unsecured notes (“Four Seasons Notes”).
(2)
As previously announced in June, the
severance-related charge relates to the resignation of our former
Executive Vice President and Chief Investment Officer.
(3)
Foreign currency remeasurement gains
represent the non-cash impact from remeasuring assets and
liabilities denominated in British pound sterling into U.S.
dollars.
In addition to the items discussed above, operating results for
the quarter ended June 30, 2015 include the positive impact of $9
million of interest income, or $0.02 per share, from monetizing a
senior housing development loan (described below).
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.
$847 MILLION ACQUISITION OF PRIVATE PAY SENIOR HOUSING
PORTFOLIO
On June 30, 2015, HCP and Brookdale Senior Living, Inc.
(“Brookdale”) acquired a portfolio of 35 private pay senior housing
communities from Chartwell Retirement Residences, including two
leasehold interests, representing 5,025 units for $847 million. The
portfolio was acquired in a RIDEA structure (RIDEA III), with
Brookdale owning a 10% noncontrolling interest. Brookdale has
operated these communities since 2011 after its acquisition of
Horizon Bay, and continues to manage the communities under a
long-term management agreement.
$386 MILLION ACQUISITIONS OF ON-CAMPUS MEDICAL OFFICE
BUILDINGS
In April 2015, we acquired a medical office building (“MOB”) in
Philadelphia, Pennsylvania for $161 million. The MOB is anchored by
Thomas Jefferson University Hospital, which is ranked 2nd among
best hospitals in the Philadelphia metropolitan area by U.S. News
and is owned by ‘A rated’ Thomas Jefferson University. The MOB
contains 705,000 rentable sq. ft. and was 85% occupied at closing.
We continue to have an active leasing pipeline, which increased
occupancy to 92% at the end of the second quarter.
In June 2015, we expanded our relationship with Memorial Hermann
Health System (“Memorial Hermann”) through the acquisition of a
portfolio of 11 on-campus MOBs located in Houston, Texas in a
sale-leaseback transaction for $225 million. Memorial Hermann, an
‘A rated’ health system, is the largest not-for-profit system in
Southeast Texas and maintains the largest market share at 24% in
the Houston metro area. The MOB portfolio, located on four
campuses, has an aggregate 1.2 million rentable sq. ft. and is
subject to triple-net master leases with 10-year initial lease
terms and four 5-year renewal terms.
OTHER INVESTMENT TRANSACTIONS
In April 2015, we exercised the purchase option under our $33
million par value development loan to acquire a newly built
assisted living and memory care facility in Germantown, Tennessee
for $72 million. The facility was 93% occupied at closing and was
placed in a RIDEA structure with Brookdale acquiring a 10%
noncontrolling interest and managing the facility.
In May 2015, we increased and extended our mezzanine loan
facility with Tandem Health Care (“Tandem”) to (i) fund an
additional $55 million, which proceeds were used to repay a portion
of Tandem’s existing senior and mortgage debt tranches;
(ii) extend its maturity to October 2018; and (iii) extend the
prepayment penalty period to January 2017. The mezzanine loan
facility now totals $256 million and has an 11.5% blended coupon,
or 11.9% blended yield-to-maturity.
In May 2015, we provided a £27 million ($42 million) loan to
fund Maria Mallaband Care Group’s (“Maria Mallaband”) acquisition
of two care homes in the United Kingdom (“U.K.”). In July 2015, the
loan was converted into fee ownership of the real estate at an
equal value and the properties are triple-net leased to Maria
Mallaband for an initial term of 15 years.
U.K. HC-ONE SALE-LEASEBACK
In April 2015, we converted £174 million of our total £502
million HC-One debt investment to fee ownership in a portfolio of
36 care homes subject to long-term triple-net leases that provide
aggregate rent in the first year of £13 million. The contractual
rent will increase annually by the Retail Price Index (“RPI”) with
rent resets to fair market value at the end of lease years 15 and
25. The triple-net leases have initial terms of 30 years with
lessee termination options at the end of lease years 15 and 25.
LIFE SCIENCE AND MEDICAL OFFICE LEASING HIGHLIGHTS
During the quarter ended June 30, 2015, we completed 1.1 million
sq. ft. of leasing in our life science and medical office segments,
consisting of 325,000 sq. ft. of new leases and 726,000 sq. ft. of
renewals. Significant new leasing transactions included:
- 7 1/2-year lease with a biotechnology
and pharmaceutical development and manufacturing company for an
entire 57,000 sq. ft. building in San Diego, California;
- 6-year lease expansion with a
subsidiary of Johnson & Johnson for an entire 49,000 sq. ft.
building in South San Francisco, California; and
- 5-year lease renewal for 59,000 sq. ft.
in two life science buildings in La Jolla, California.
At June 30, 2015, our life science occupancy reached 97.8%,
representing the 4th consecutive quarterly all-time high for this
segment.
FINANCING ACTIVITIES
In May 2015, we issued $750 million of 4.00% senior unsecured
notes due 2025. The notes were priced at 99.126% of the principal
amount with a yield-to-maturity of 4.107%. Net proceeds were used
to fund a portion of our investment transactions completed to
date.
In June 2015, we established an at-the-market equity offering
program (“ATM Program”), in connection with the renewal of our
Shelf Registration Statement. Under this program, we may sell
shares of our common stock from time to time having an aggregate
gross sales price of up to $750 million through a consortium of
banks acting as sales agents or directly to the banks acting as
principals. As of August 4, 2015, no common stock has been issued
under this program.
SUSTAINABILITY
In June 2015, we were ranked 2nd in the REIT Industry and 51st
overall in the U.S. 500 for corporate environmental performance by
the 2015 Newsweek Green Rankings, which ranks the 500 largest
publicly traded companies in the U.S. and globally. Additionally,
for the fourth consecutive year, we were named as a constituent to
the FTSE4Good Index Series, an equity index series designed to
facilitate investment in companies that meet globally recognized
environmental, social and governance criteria. More information
about HCP’s sustainability efforts can be found on our website at
www.hcpi.com/sustainability.
DIVIDEND
On July 30, 2015, our Board of Directors declared a quarterly
cash dividend of $0.565 per common share. The dividend will be paid
on August 25, 2015 to stockholders of record as of the close of
business on August 10, 2015.
RAISING FULL YEAR 2015 OUTLOOK
For full year 2015, we expect: FFO per share to range between
$1.97 and $2.03; FFO as adjusted per share to range between $3.14
and $3.20; FAD per share to range between $2.68 and $2.74; and EPS
to range between $0.75 and $0.81. These estimates do not reflect
the potential impact from unannounced future acquisitions and
dispositions. Refer to 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 4, 2015 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, 2015. The
conference call is accessible by dialing (877) 363-5049 (U.S.) or
(760) 536-8594 (International). The participant passcode is
71618708. 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 19,
2015, 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
71618708. The Company’s supplemental information package for the
current period is available with this earnings release 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 30 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,
as well as the GRESB Global Healthcare Sector Leader. 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) earnings, FFO, FFO as adjusted and
FAD applicable to common shares on a diluted basis, and other
financial projections and assumptions for the full year of 2015;
(ii) the payment of the quarterly cash dividend; and (iii)
anticipated outcomes relating to the acquisitions, developments and
financing activities discussed above. 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’s 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: our reliance on a
concentration of a small number of tenants and operators, for a
significant portion of our revenues; the financial weakness of
tenants and operators, including potential bankruptcies and
downturns in their businesses, which results in uncertainties
regarding our ability to continue to realize the full benefit of
such tenants’ and/or operators’ leases; the ability of our tenants
and operators 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 us and our
ability to recover investments made, if applicable, in their
operations; competition for tenants and operators, including with
respect to new leases and mortgages and the renewal or rollover of
existing leases; availability of suitable properties to acquire at
favorable prices and the competition for the acquisition and
financing of those properties; our ability to negotiate the same or
better terms with new tenants or operators if existing leases are
not renewed or we exercise our right to replace an existing tenant
or operator upon default; the risks associated with our investments
in joint ventures and unconsolidated entities, including our lack
of sole decision making authority and our reliance on our partners’
financial condition and continued cooperation; the risk that we may
not be able to achieve the benefits of investments, including those
investments discussed above, within expected time frames or at all,
or within expected cost projections; the potential impact of future
litigation matters, including the possibility of larger than
expected litigation costs, adverse results and related
developments; the effect on healthcare providers of legislation
addressing entitlement programs and related services, including
Medicare and Medicaid, which may result in future reductions in
reimbursements; changes in federal, state or local laws and
regulations, including those affecting the healthcare industry that
affect our costs of compliance or increase the costs, or otherwise
affect the operations, of our tenants and operators; volatility or
uncertainty in the capital markets, the availability and cost of
capital as impacted by interest rates, changes in our credit
ratings, and the value of our common stock, and other conditions
that may adversely impact our ability to fund our obligations or
consummate transactions, or reduce the earnings from potential
transactions; changes in global, national and local economic
conditions, and currency exchange rates; changes in the credit
ratings on United States (“U.S.”) government debt securities or
default or delay in payment by the U.S. of its obligations; our
ability to manage our indebtedness level and changes in the terms
of such indebtedness; the ability to maintain our qualification as
a real estate investment trust; and other risks and uncertainties
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) June 30, December 31, 2015 2014
Assets Real estate: Buildings and improvements $ 12,280,851
$ 10,972,973 Development costs and construction in progress 307,622
275,233 Land 2,042,016 1,889,438 Accumulated depreciation and
amortization (2,403,205 ) (2,250,757 ) Net real
estate 12,227,284 10,886,887 Net investment in direct
financing leases 6,863,327 7,280,334 Loans receivable, net 862,621
906,961 Investments in and advances to unconsolidated joint
ventures 641,487 605,448 Accounts receivable, net of allowance of
$3,607 and $3,785, respectively 45,824 36,339 Cash and cash
equivalents 115,770 183,810 Restricted cash 54,369 48,976
Intangible assets, net 577,238 481,013 Other assets, net
960,207 940,172 Total assets $ 22,348,127 $
21,369,940
Liabilities and equity Bank line of credit
$ 1,022,324 $ 838,516 Term loans 561,525 213,610 Senior unsecured
notes 8,567,293 7,626,194 Mortgage debt 967,072 984,431 Other debt
95,144 97,022 Intangible liabilities, net 77,550 84,723 Accounts
payable and accrued liabilities 433,636 432,934 Deferred revenue
96,586 95,411 Total liabilities 11,821,130
10,372,841 Common stock, $1.00 par value:
750,000,000 shares authorized; 462,486,416 and 459,746,267 shares
issued and outstanding, respectively 462,486 459,746 Additional
paid-in capital 11,532,584 11,431,987 Cumulative dividends in
excess of earnings (1,730,168 ) (1,132,541 ) Accumulated other
comprehensive loss (32,115 ) (23,895 ) Total
stockholders’ equity 10,232,787 10,735,297
Joint venture partners 107,867 73,214 Non-managing member
unitholders 186,343 188,588 Total noncontrolling
interests 294,210 261,802 Total equity
10,526,997 10,997,099 Total liabilities and equity $
22,348,127 $ 21,369,940
HCP,
Inc. Consolidated Statements of Operations In
thousands, except per share data (Unaudited)
Three Months EndedJune 30,
Six Months EndedJune 30,
2015 2014 2015 2014
Revenues: Rental and
related revenues $ 276,734 $ 288,191 $ 551,816 $ 573,014 Tenant
recoveries 31,376 27,110 61,272 52,544 Resident fees and services
106,838 37,939 211,851 75,992 Income from direct financing leases
156,181 165,500 323,259 330,037 Interest income 35,945 16,937
69,207 33,633 Investment management fee income 458
444 918 893 Total revenues 607,532
536,121 1,218,323 1,066,113
Costs and
expenses: Interest expense 118,632 106,842 235,412 213,480
Depreciation and amortization 120,403 113,133 234,925 220,521
Operating 136,342 78,867 268,373 154,574 General and administrative
28,845 21,656 53,618 42,555 Acquisition and pursuit costs 18,407
7,406 21,797 7,901 Impairments 44,835 ─
523,299 ─ Total costs and expenses 467,464
327,904 1,337,424 639,031
Other income:
Gain on sales of real estate, net of income taxes 61 ─ 6,325 ─
Other income, net 11,055 709 12,779
2,639 Total other income, net 11,116 709
19,104 2,639
Income (loss) before income taxes and
equity income from unconsolidated joint ventures 151,184
208,926 (99,997 ) 429,721 Income tax benefit (expense) 4,563 (1,339
) 4,640 (2,785 ) Equity income from unconsolidated joint ventures
12,001 14,692 25,602 29,220
Income
(loss) from continuing operations 167,748 222,279
(69,755 ) 456,156
Discontinued
operations: Income before gain on sales of real estate, net of
income taxes ─ ─ ─ 1,736 Gain on sales of real estate, net of
income taxes ─ ─ ─ 28,010 Total
discontinued operations ─ ─ ─ 29,746
Net income (loss) 167,748 222,279 (69,755 ) 485,902
Noncontrolling interests’ share in earnings (2,863 )
(3,394 ) (5,974 ) (7,906 )
Net income (loss)
attributable to HCP, Inc. 164,885 218,885 (75,729 ) 477,996
Participating securities’ share in earnings (370 )
(489 ) (704 ) (1,552 )
Net income (loss)
applicable to common shares $ 164,515 $ 218,396 $ (76,433 ) $
476,444
Basic earnings per common share: Continuing
operations $ 0.36 $ 0.48 $ (0.17 ) $ 0.98 Discontinued operations
─ ─ ─ 0.06 Net income (loss) applicable
to common shares $ 0.36 $ 0.48 $ (0.17 ) $ 1.04
Diluted
earnings per common share: Continuing operations $ 0.36 $ 0.48
$ (0.17 ) $ 0.98 Discontinued operations ─ ─ ─
0.06 Net income (loss) applicable to common shares $ 0.36 $
0.48 $ (0.17 ) $ 1.04
Weighted average shares used to
calculate earnings per common share: Basic 461,874
458,247 461,380 457,773 Diluted
462,106 458,588 461,380 458,134
HCP, Inc. Consolidated Statements of Cash Flows In
thousands (Unaudited) Six Months Ended June 30,
2015 2014
Cash flows from operating activities: Net
(loss) income $ (69,755 ) $ 485,902 Adjustments to reconcile net
(loss) income to net cash provided by operating activities:
Depreciation and amortization of real estate, in-place lease and
other intangibles 234,925 220,521 Amortization of market lease
intangibles, net (636 ) (343 ) Amortization of deferred
compensation 15,724 11,006 Amortization of deferred financing
costs, net 9,726 9,474 Straight-line rents (17,748 ) (26,455 ) Loan
and direct financing lease interest accretion (46,997 ) (39,401 )
Deferred rental revenues (1,004 ) (515 ) Equity income from
unconsolidated joint ventures (25,602 ) (29,220 ) Distributions of
earnings from unconsolidated joint ventures 2,493 2,655 Lease
termination income, net (1,103 ) ─ Gain on sales of real estate
(6,325 ) (28,010 ) Foreign exchange and other (gains) losses, net
(9,866 ) 58 Impairments 523,299 ─ Changes in: Accounts receivable,
net (6,464 ) (5,225 ) Other assets (8,473 ) (6,136 ) Accounts
payable and accrued liabilities 1,792 13,394 Net cash provided by
operating activities 593,986 607,705
Cash flows from investing
activities: Acquisition of RIDEA III, net (770,325 ) ─
Acquisitions of other real estate (477,575 ) (285,429 ) Development
of real estate (121,510 ) (72,334 ) Leasing costs and tenant and
capital improvements (28,302 ) (27,458 ) Proceeds from sales of
real estate, net 8,600 36,897 Contributions to unconsolidated joint
ventures (31,512 ) ─ Distributions in excess of earnings from
unconsolidated joint ventures 1,994 1,113 Principal repayments on
loans receivable 53,081 5,547 Investments in loans receivable and
other (276,038 ) (46,434 ) (Increase) decrease in restricted cash
(3,481 ) 2,900 Net cash used in investing activities (1,645,068 )
(385,198 )
Cash flows from financing activities: Net
borrowings under bank line of credit 186,557 310,000 Borrowings
under term loan 333,014 ─ Issuance of senior unsecured notes
1,338,555 350,000 Repayments of senior unsecured notes (400,000 )
(487,000 ) Repayments of mortgage debt (20,333 ) (169,843 )
Deferred financing costs (13,272 ) (9,239 ) Issuance of common
stock and exercise of options 93,118 56,401 Repurchase of common
stock (7,690 ) (11,086 ) Dividends paid on common stock (521,898 )
(500,364 ) Issuance of noncontrolling interests 3,397 113
Distributions to and purchase of noncontrolling interests (8,406 )
(7,980 ) Net cash provided by (used in) financing activities
983,042 (468,998 ) Effect of foreign exchange on cash and cash
equivalents ─ 5 Net decrease in cash and cash equivalents (68,040 )
(246,486 ) Cash and cash equivalents, beginning of period 183,810
300,556 Cash and cash equivalents, end of period $ 115,770 $ 54,070
HCP, Inc.
Funds From Operations(1)
In thousands, except per share data (Unaudited)
Three Months EndedJune 30,
Six Months EndedJune 30,
2015 2014 2015 2014
Net income (loss) applicable
to common shares $ 164,515 $ 218,396 $ (76,433 ) $ 476,444
Depreciation and amortization of real estate, in-place lease and
other intangibles 120,403 113,133 234,925 220,521 Other
depreciation and amortization(2) 5,128 3,956 11,812 7,802
Impairment of real estate 2,948 ─ 2,948 ─ Gain on sales of real
estate (61 ) ─ (6,325 ) (28,010 ) Equity income from unconsolidated
joint ventures (12,001 ) (14,692 ) (25,602 ) (29,220 ) FFO from
unconsolidated joint ventures 23,943 17,151 48,792 34,112
Noncontrolling interests’ and participating securities’ share in
earnings 3,233 3,883 6,678 9,458 Noncontrolling interests’ and
participating securities’ share in FFO (6,174 )
(5,370 ) (12,367 ) (11,511 ) FFO applicable to common
shares $ 301,934 $ 336,457 $ 184,428 $ 679,596 Distributions on
dilutive convertible units 3,568 3,420 ─
6,840
Diluted FFO applicable to common shares $
305,502 $ 339,877 $ 184,428 $ 686,436 Diluted FFO per common
share $ 0.65 $ 0.73 $ 0.40 $ 1.48 Weighted average shares
used to calculate diluted FFO per share 468,115
464,610 461,649 464,138
Impact of
adjustments to FFO: Other impairments(3) $ 41,887 $ ─ $ 520,351
$ ─ Transaction-related items 24,045 7,406 27,435 7,901
Severance-related charge(4) 6,713 ─ 6,713 ─ Foreign currency
remeasurement gains(5) (9,533 ) ─ (9,533 )
─ $ 63,112 $ 7,406 $ 544,966 $ 7,901 FFO as adjusted
applicable to common shares $ 365,046 $ 343,863 $ 729,394 $ 687,497
Distributions on dilutive convertible units and other 3,474
3,405 6,793 6,825
Diluted FFO as adjusted
applicable to common shares $ 368,520 $ 347,268 $ 736,187 $
694,322 Per common share impact of adjustments on diluted FFO $
0.14 $ 0.02 $ 1.17 $ 0.02
Diluted FFO as adjusted per common
share $ 0.79 $ 0.75 $ 1.57 $ 1.50 Weighted average
shares used to calculate diluted FFO as adjusted per share
468,115 464,610 467,675 464,138
(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 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 (loss)
applicable to common shares (computed in accordance with U.S.
generally accepted accounting principles or “GAAP”), excluding
gains or losses from sales of property, impairments of, or related
to, depreciable real estate, plus real estate and direct financing
lease (“DFL”) depreciation and amortization, and after 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 (loss). We
compute FFO in accordance with the current NAREIT definition;
however, other REITs may report FFO differently or have a different
interpretation of the current NAREIT definition from ours. FFO as
adjusted represents FFO before the impact of severance-related
charges, impairments (recoveries) of non-depreciable assets,
foreign currency remeasurement losses (gains) and
transaction-related items (defined below). Transaction-related
items include acquisition and pursuit costs (e.g., due diligence
and closing) and gains/charges incurred as a result of mergers and
acquisitions and lease amendment or termination activities.
Management believes that FFO as adjusted provides a meaningful
supplemental measurement of our FFO run-rate. This measure is a
modification of the NAREIT definition of FFO and should not be used
as an alternative to net income (loss) (determined in accordance
with GAAP) or NAREIT FFO.
(2)
For the three months ended June 30, 2015,
other depreciation and amortization include: (i) $3 million of DFL
depreciation and (ii) $2 million of lease incentive amortization
(reduction of straight-line rents) for the consideration given to
terminate the 30 purchase options of the 153-property amended lease
portfolio in the 2014 Brookdale Transaction. For the six months
ended June 30, 2015, other depreciation and amortization includes:
(i) $7 million of DFL depreciation and (ii) $5 million of lease
incentive amortization (reduction of straight-line rents) related
to the 2014 Brookdale Transaction.
(3)
For the three months ended June 30, 2015,
the other impairment charge is related to our Four Seasons Notes.
For the six months ended June 30, 2015, other impairment charges
include: (i) $42 million related to our Four Seasons Notes and (ii)
$478 million related to our DFL investments with HCR ManorCare
(“HCRMC”).
(4)
The severance-related charge relates to
the resignation of our former Executive Vice President and Chief
Investment Officer.
(5)
Foreign currency remeasurement gains
represent the non-cash impact from remeasuring assets and
liabilities denominated in British pound sterling into U.S.
dollars.
HCP, Inc.
Funds Available for
Distribution(1)
In thousands, except per share data (Unaudited)
Three Months EndedJune 30,
Six Months EndedJune 30,
2015 2014 2015 2014
FFO as adjusted applicable to
common shares $ 365,046 $ 343,863 $ 729,394 $ 687,497
Amortization of market lease intangibles, net (258 ) (175 ) (636 )
(343 ) Amortization of deferred compensation(2) 6,665 6,116 12,830
11,006 Amortization of deferred financing costs, net 4,974 4,509
9,726 9,474 Straight-line rents (8,202 ) (12,487 ) (17,748 )
(26,455 ) DFL accretion(3) (21,210 ) (17,813 ) (41,514 ) (39,235 )
Other depreciation and amortization (5,128 ) (3,956 ) (11,812 )
(7,802 ) Deferred revenues – tenant improvement related (647 ) (735
) (1,391 ) (1,217 ) Deferred revenues – additional rents 545 365
387 702 Leasing costs and tenant and capital improvements (16,127 )
(15,053 ) (27,667 ) (27,458 ) Lease restructure payments(4) 5,166 ─
10,301 ─ Joint venture adjustments – CCRC entrance fees(5) 7,469 ─
13,662 ─ Joint venture and other FAD adjustments(3) (19,679
) (15,999 ) (37,224 ) (30,018 ) FAD applicable
to common shares $ 318,614 $ 288,635 $ 638,308 $ 576,151
Distributions on dilutive convertible units 3,568
2,251 7,136 4,502
Diluted FAD applicable to
common shares $ 322,182 $ 290,886 $ 645,444 $ 580,653
Diluted FAD per common share $ 0.69 $ 0.63 $ 1.38 $ 1.26
Weighted average shares used to calculate diluted FAD per common
share 468,115 462,754 467,675 462,282
(1)
Funds Available for Distribution (“FAD”)
is defined as FFO as adjusted after excluding the impact of the
following: (i) amortization of acquired 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 lease
incentive amortization (reduction of straight-line rents); and (vi)
deferred revenues, excluding amounts amortized into rental income
that are associated with tenant funded improvements
owned/recognized by us and up-front cash payments made by tenants
to reduce their contractual rents. Also, FAD is: (i) computed after
deducting recurring capital expenditures, including leasing costs
and second generation tenant and capital improvements; and (ii)
includes lease restructure payments and adjustments to compute our
share of FAD from our unconsolidated joint ventures and those
related to CCRC non-refundable entrance fees. 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 performance and is
frequently used by analysts, investors, and other interested
parties in the evaluation of our performance as a REIT. FAD 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 as an
alternative to net income (loss) determined in accordance with
GAAP.
(2)
Excludes $2.9 million related to the
acceleration of deferred compensation for restricted stock units
and stock options that vested upon the resignation of HCP’s former
Executive Vice President and Chief Investment Officer, which is
included in the severance-related charge for the three and six
months ended June 30, 2015.
(3)
For both the three months ended June 30,
2015 and 2014, DFL accretion reflects an elimination of $15 million
and $16 million, respectively. For both the six months ended June
30, 2015 and 2014, DFL accretion reflects an elimination of $30
million and $31 million, respectively. Our ownership interest in
HCRMC is accounted for using the equity method, which requires an
ongoing elimination of DFL income that is proportional to our
ownership in HCRMC. Further, our share of earnings from HCRMC
(equity income) increases for the corresponding elimination of
related lease expense recognized at the HCRMC entity level, which
we present as a non-cash joint venture FAD adjustment.
(4)
Over a period of three years from the
closing of the 2014 Brookdale Transaction, we will receive
installment payments valued at $55 million for terminating the
leases on the HCP owned 49-property portfolio; we include these
installment payments in FAD as the payments are collected.
(5)
Represents our 49% share of non-refundable
entrance fees included in FAD as the fees are collected by our CCRC
JV.
HCP, Inc.
Net Operating Income and Same Property
Performance(1)(2)
Dollars in thousands (Unaudited)
Three Months EndedJune 30,
Six Months EndedJune 30,
2015 2014 2015 2014
Net income (loss) $
167,748 $ 222,279 $ (69,755 ) $ 485,902 Interest income (35,945 )
(16,937 ) (69,207 ) (33,633 ) Investment management fee income (458
) (444 ) (918 ) (893 ) Interest expense 118,632 106,842 235,412
213,480 Depreciation and amortization 120,403 113,133 234,925
220,521 General and administrative 28,845 21,656 53,618 42,555
Acquisition and pursuit costs 18,407 7,406 21,797 7,901 Impairments
44,835 ─ 523,299 ─ Gain on sales of real estate, net of income
taxes (61 ) ─ (6,325 ) ─ Other income, net (11,055 ) (709 ) (12,779
) (2,639 ) Income tax (benefit) expense (4,563 ) 1,339 (4,640 )
2,785 Equity income from unconsolidated joint ventures (12,001 )
(14,692 ) (25,602 ) (29,220 ) Total discontinued operations
─ ─ ─ (29,746 )
NOI $ 434,787 $ 439,873
$ 879,825 $ 877,013 Straight-line rents (8,202 ) (12,487 ) (17,748
) (26,455 ) DFL accretion (21,210 ) (17,813 ) (41,514 ) (39,235 )
Amortization of market lease intangibles, net (258 ) (175 ) (636 )
(343 ) Lease termination fees 8,142 (233 ) 9,185 (811 ) NOI
adjustments related to discontinued operations ─ ─
─ (11 )
Cash (adjusted) NOI $ 413,259 $
409,165 $ 829,112 $ 810,158 Non-SPP cash (adjusted) NOI
(94,744 ) (25,116 ) (58,012 ) (49,289 )
Same property portfolio cash (adjusted) NOI(2) $
318,515 $ 384,049 $ 771,100 $ 760,869
Cash (adjusted) NOI %
change – SPP(2) (0.7)% 1.3%
(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 cash NOI to make
decisions about resource allocations, to assess and compare
property level performance, and evaluate our same property
portfolio (“SPP”). We believe that net income (loss) is the most
directly comparable GAAP measure to NOI. NOI should not be viewed
as an alternative measure of operating performance to net income
(loss) as defined by GAAP since it does not reflect various
excluded items. Further, our definition of NOI may not be
comparable to the definition used by 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 all of the other
financial statement amounts itemized above. Cash NOI is calculated
as NOI after eliminating the effects of straight-line rents, DFL
accretion, amortization of market lease intangibles and lease
termination fees. Cash NOI is oftentimes referred to as “adjusted
NOI.”
(2)
SPP statistics allow management to
evaluate the performance of our real estate portfolio under a
consistent population by eliminating 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. Newly acquired operating assets are generally
considered stabilized at the earlier of lease up (typically when
the tenant(s) controls the physical use of at least 80% of the
space) or 12 months from the acquisition date. Newly completed
developments and redevelopments are considered stabilized at the
earlier of lease up or 24 months from the date the property is
placed in service. SPP NOI excludes certain non-property specific
operating expenses that are allocated to each operating segment on
a consolidated basis. A property is removed from our SPP when it is
sold, placed into redevelopment or contributed to partnerships
under a RIDEA structure.
HCP, Inc.
Projected Future
Operations(1)
(Unaudited) Full Year 2015 Low High
Diluted earnings per common share
$
0.75
$ 0.81 Real estate depreciation and amortization 1.10 1.10 Other
depreciation and amortization 0.05 0.05 Impairment of real estate
0.01 0.01 Gain on sales of real estate (0.01 ) (0.01 ) Joint
venture FFO adjustments 0.07 0.07
Diluted FFO per common share $ 1.97 $
2.03 Other impairments 1.12 1.12 Transaction-related items
0.06 0.06 Severance-related charge 0.01 0.01 Foreign currency
remeasurement gains (0.02 ) (0.02 )
Diluted FFO as
adjusted per common share $ 3.14 $
3.20 Amortization of net 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 (0.07 ) (0.07 ) DFL accretion
(0.18 ) (0.18 ) Other depreciation and amortization (0.05 ) (0.05 )
Leasing costs and tenant and capital improvements (0.19 ) (0.19 )
Lease restructure payments 0.05 0.05 Joint venture adjustments –
CCRC entrance fees 0.06 0.06 Joint venture and other FAD
adjustments (0.16 ) (0.16 )
Diluted FAD per common
share $ 2.68 $ 2.74
(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 unannounced 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150804005710/en/
HCP, Inc.Timothy M. SchoenExecutive Vice President and Chief
Financial Officer949-407-0400
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