HIGHLIGHTS
- FFO per share was $0.82; FFO as
adjusted per share was $0.75; FAD per share was $0.65; and EPS was
$0.54
- Achieved year-over-year three- and
nine-month Cash NOI SPP growth of 3.2% for each period
- Raised full year guidance for FFO to
$3.03 – $3.09 per share, FFO as adjusted to $2.98 – $3.04 per
share, FAD to $2.52 – $2.58 per share and EPS to $2.04 – $2.10
- Closed the previously announced
Brookdale Transaction
- Completed $834 million of investment
transactions, as follows:
- $588 million for our 49% interest in
the CCRC Joint Venture, as part of the Brookdale Transaction;
and
- $246 million of other investments
- Announced a $630 million
(£395 million) debt investment in a UK care home portfolio in
November
- Completed 937,000 sq. ft. of leasing in
our medical office and life science portfolios
- Raised $800 million of 3.875% senior
unsecured notes due 2024
- Named as the Global Leader for the
Healthcare Sector by GRESB and named to the CDP S&P 500 Climate
Disclosure Leadership Index, the Dow Jones Sustainability Index
North America and the FTSE4Good Index
HCP (the “Company” or “we”) (NYSE:HCP) announced results for the
quarter ended September 30, 2014 as follows (in thousands, except
per share amounts):
Three Months EndedSeptember 30, 2014
Three Months EndedSeptember 30, 2013
Per Share Amount Per Share Amount
Per Share Change
FFO $ 377,304 $ 0.82 $
336,071 $ 0.73 $ 0.09 Transaction-related items(1) (31,778
)
(0.07 ) — — (0.07 ) Severance-related charges(2) —
— 26,374 0.06
(0.06 )
FFO as adjusted $ 345,526 $ 0.75 $
362,445 $ 0.79 $ (0.04 )
FAD $ 296,957
$ 0.65 $ 307,879 $ 0.67 $ (0.02 )
EPS $
247,208 $ 0.54 $ 233,282 $ 0.51 $ 0.03
(1) Transaction-related items were primarily
attributable to the positive impact resulting from the Brookdale
Transaction. See the “Brookdale Transaction” section of this
release for additional information. (2) Severance-related charges
were attributable to the termination of the Company’s former
Chairman, Chief Executive Officer and President on October 2, 2013.
Operating results detailed above for the quarter ended September
30, 2013 include the benefit of $0.05 per share or $24 million of
interest income from the par payoff of our Barchester debt
investments.
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.
ENHANCING AND EXPANDING RELATIONSHIP WITH BROOKDALE BY
FORMING A CCRC JOINT VENTURE AND AMENDING LEASES (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. On August 29, 2014,
the Company and Brookdale closed a multiple-element transaction
that has three components:
- formed new unconsolidated joint
ventures that collectively own 14 campuses of continuing care
retirement communities (the “CCRC Joint Venture”). At closing,
Brookdale contributed eight of its owned campuses; we contributed
two campuses previously leased to Brookdale and cash used to
acquire four additional campuses from third parties. HCP and
Brookdale own 49% and 51%, respectively, of the CCRC Joint Venture.
Brookdale continues to manage these communities;
- amended existing lease agreements on
153 HCP-owned senior housing communities, including the termination
of embedded tenant purchase options relating to 30 properties and
future rent reductions; and
- terminated existing lease agreements on
49 HCP-owned senior housing properties, including the termination
of embedded tenant purchase options relating to 19 properties. At
closing, we created a RIDEA partnership with Brookdale as a 20%
equity partner. Brookdale continues to manage the communities.
As a result of converting the 49 senior housing properties from
triple-net leases to a RIDEA structure, we recognized a net gain of
$38 million during the quarter consisting of: (i) $108 million
income based on the fair value of the net consideration received
(i.e., representing the value of the forfeited above-market
contractual rent, partially offset by the value of terminated
tenant purchase options); less (ii) $70 million charge to write-off
the remaining leasing costs and straight-line rent receivables
related to the former in-place leases.
£395 MILLION DEBT INVESTMENT IN UK CARE HOME
PORTFOLIO
On November 3, 2014, we committed to be the lead investor in the
financing for Formation Capital and Safanad’s pending acquisition
of NHP, a company that owns 273 nursing and residential care homes
representing over 12,500 beds in the UK. We will provide a loan
facility (the “Facility”), secured by substantially all of NHP’s
assets, totaling £394.5 million (approximately $630 million),
with £362.5 million funded at closing. The Facility has a
five-year term and is projected to achieve a blended 8.2%
yield-to-maturity. The closing of the acquisition and funding of
the Facility are expected to occur later in November 2014, subject
to customary closing conditions.
OTHER INVESTMENT TRANSACTIONS
During the quarter ended September 30, 2014, we completed and
committed $246 million of other investments. We acquired two
medical office buildings (“MOBs”) for $150 million, including a
436,000 sq. ft. MOB in Philadelphia, Pennsylvania. The Philadelphia
MOB is 98% occupied, anchored by the University of Pennsylvania
(AA+ S&P credit rating) and Children’s Hospital of Philadelphia
(AA S&P credit rating). We funded $67 million of construction
and other capital projects. Additionally, we executed development
agreements and commenced construction on a $29 million MOB located
on the campus of an HCA hospital in Denver, Colorado.
In October, we acquired three additional care homes in our UK
real estate portfolio for $20 million (£12.2 million),
expanding our triple-net portfolio operated by Maria Mallaband to
23 assets.
Our total year-to-date completed and committed investments are
$2.0 billion, including the $630 million debt investment
mentioned above.
MEDICAL OFFICE AND LIFE SCIENCE LEASING HIGHLIGHTS
During the quarter ended September 30, 2014, we completed
937,000 sq. ft. of leasing in our life science and medical office
segments, consisting of 712,000 sq. ft. of renewals and 225,000 sq.
ft. of new leases. Significant leasing transactions include:
- leasing for our life science segment
totaled 387,000 square feet, bringing the year-to-date total
leasing to over 1 million sq. ft.;
- renewals executed during the quarter
address 50% of 2015 expirations, including a 10-year renewal with
Rinat, a subsidiary of Pfizer, for 106,000 sq. ft. in South San
Francisco and a blend-and-extend lease with an 83,000 sq. ft.
tenant in Torrey Pines, extending the term from 2015 to 2022 with a
minimal investment in tenant improvements; and
- we executed 550,000 square feet of new
and renewal leases in our medical office segment.
At September 30, 2014, life science occupancy reached 93.7%,
representing an all-time high for the segment; medical office
occupancy increased to 90.8%.
FINANCING ACTIVITY
On August 14, 2014, we issued $800 million of 3.875% senior
unsecured notes due 2024. The notes were priced at 99.63% of the
principal amount with a yield-to-maturity of 3.92%.
SUSTAINABILITY
HCP has been named the Global Leader for the Healthcare Sector
by the Global Real Estate Sustainability Benchmark (GRESB). This is
the third consecutive year that HCP ranked #1 among all survey
respondents within its sector. Additionally, HCP was named to the
CDP S&P 500 Climate Disclosure Leadership Index for the second
consecutive year. Further, HCP was named to the Dow Jones
Sustainability Index North America for the second consecutive year
and the FTSE4Good Index for the third consecutive year. As of
September 30, 2014, we have been awarded 138 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 October 30, 2014, our Board of Directors declared a quarterly
cash dividend of $0.545 per common share. The dividend will be paid
on November 25, 2014 to stockholders of record as of the close of
business on November 10, 2014.
OUTLOOK
For full year 2014, including the benefit from the committed UK
debt investment, we expect: FFO to range between $3.03 and $3.09
per share; FFO as adjusted to range between $2.98 and $3.04 per
share; FAD to range between $2.52 and $2.58 per share; and EPS to
range between $2.04 and $2.10. 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,
November 4, 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 September 30, 2014. The
conference call is accessible by dialing (877) 363-5049 (U.S.) or
(760) 536-8594 (International). The participant passcode is
13434322. 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 November 19,
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
13434322. The Company’s supplemental information package for the
current period is included with the earnings release and 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, 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) 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 quarterly cash dividend; and
(iii) anticipated outcomes relating to the Brookdale Transaction
and proposed Facility and their 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: risks
relating to the impact of the Brookdale Transaction and Formation
Capital and Safanad’s acquisition of NHP 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 respective transactions; other risks
relating to Formation Capital and Safanad’s acquisition of NHP,
including in respect of the timing and satisfaction of closing
conditions, unanticipated difficulties relating to the acquisition,
the risk that regulatory approvals required for the acquisition are
not obtained or are obtained subject to unanticipated conditions,
and litigation relating to the acquisition; risks relating to the
proposed Facility, including HCP’s ability to complete or achieve
the benefits of the investment on the proposed terms or at all;
risks related to HCP’s belief that all present contractual
obligations, and the collection and timing of all amounts, owed by
HCR ManorCare, Inc. under its master lease are reasonably assured;
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 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;
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; 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)
September 30,
December 31, 2014 2013
Assets Real estate: Buildings and
improvements $ 10,852,544 $ 10,544,110 Development costs and
construction in progress 261,514 225,869 Land 1,885,081 1,822,862
Accumulated depreciation and amortization (2,159,115 )
(1,965,592 ) Net real estate 10,840,024 10,627,249
Net investment in direct financing leases 7,245,122 7,153,399 Loans
receivable, net 418,801 366,001 Investments in and advances to
unconsolidated joint ventures 647,923 196,576 Accounts receivable,
net of allowance of $4,073 and $1,529, respectively 34,687 27,494
Cash and cash equivalents 83,531 300,556 Restricted cash 54,448
37,229 Intangible assets, net 479,226 489,842 Real estate assets
held for sale, net — 9,819 Other assets, net 941,128
867,705 Total assets $ 20,744,890 $
20,075,870
Liabilities and equity Bank line of
credit $ 70,000 $ — Term loan 222,118 226,858 Senior unsecured
notes 7,625,041 6,963,375 Mortgage debt 1,199,633 1,396,485 Other
debt 97,845 74,909 Intangible liabilities, net 88,490 98,810
Accounts payable and accrued liabilities 329,209 318,427 Deferred
revenue 76,380 65,872 Total liabilities
9,708,716 9,144,736
Common stock, $1.00 par value: 750,000,000 shares authorized;
459,145,515 and 456,960,648 shares issued and outstanding,
respectively 459,146 456,961 Additional paid-in capital 11,409,843
11,334,041 Cumulative dividends in excess of earnings (1,078,400 )
(1,053,215 ) Accumulated other comprehensive loss (17,464 )
(14,487 ) Total stockholders’ equity 10,773,125
10,723,300 Joint venture partners
73,977 23,729 Non-managing member unitholders 189,072
184,105 Total noncontrolling interests 263,049
207,834 Total equity 11,036,174
10,931,134 Total liabilities and equity
$ 20,744,890 $ 20,075,870
HCP,
Inc. Consolidated Statements of Income In thousands,
except per share data (Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2014 2013 2014 2013
Revenues: Rental and related revenues $ 321,451 $ 284,072 $
894,465 $ 843,380 Tenant recoveries 29,323 25,920 81,867 75,266
Resident fees and services 62,213 36,370 138,205 108,509 Income
from direct financing leases 165,687 157,253 495,724 472,409
Interest income 17,517 42,078 51,150 68,611 Investment management
fee income 447 464 1,340
1,406 Total revenues 596,638
546,157 1,662,751 1,569,581
Costs and expenses: Interest expense 111,275 108,088
324,755 325,650 Depreciation and amortization 122,975 104,783
343,496 317,172 Operating 99,599 75,417 254,173 221,990 General and
administrative 24,954 45,326
75,410 90,043 Total costs and expenses
358,803 333,614 997,834
954,855 Other income, net 3,111
1,632 5,750 17,032
Income before income taxes and equity income from unconsolidated
joint ventures 240,946 214,175 670,667 631,758 Income taxes (55
) (1,034 ) (2,840 ) (3,553 ) Equity income from unconsolidated
joint ventures 10,168 13,892
39,388 44,278
Income from continuing
operations 251,059 227,033
707,215 672,483
Discontinued
operations: Income before gain on sales of real estate, net of
income taxes — 1,527 1,736 5,699 Gain on sales of real estate, net
of income taxes — 8,298 28,010
9,185 Total discontinued operations —
9,825 29,746 14,884
Net income 251,059 236,858 736,961 687,367
Noncontrolling interests’ share in earnings (3,405 )
(3,102 ) (11,311 ) (9,625 )
Net income
attributable to HCP, Inc. 247,654 233,756 725,650 677,742
Participating securities’ share in earnings (446 )
(474 ) (1,999 ) (1,330 )
Net income
applicable to common shares $ 247,208 $ 233,282 $
723,651 $ 676,412
Basic earnings per common
share: Continuing operations $ 0.54 $ 0.49 $ 1.52 $ 1.46
Discontinued operations — 0.02
0.06 0.03 Net income applicable to common
shares $ 0.54 $ 0.51 $ 1.58 $ 1.49
Diluted earnings per common share: Continuing
operations $ 0.54 $ 0.49 $ 1.52 $ 1.46 Discontinued operations
— 0.02 0.06 0.03
Net income applicable to common shares $ 0.54 $ 0.51
$ 1.58 $ 1.49
Weighted average
shares used to calculate earnings per common share: Basic
458,799 455,345 458,119
454,553 Diluted 459,141
456,078 458,473 455,388
HCP, Inc. Consolidated Statements of Cash
Flows In thousands (Unaudited)
Nine Months EndedSeptember 30,
2014 2013
Cash flows from operating
activities: Net income $ 736,961 $ 687,367 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 343,496 317,172
Discontinued operations — 4,604 Amortization of above and below
market lease intangibles, net (619 ) (6,414 ) Amortization of
deferred compensation 16,467 33,833 Amortization of deferred
financing costs, net 14,122 13,922 Straight-line rents (35,082 )
(28,559 ) Loan and direct financing lease interest accretion
(58,271 ) (65,296 ) Deferred rental revenues (420 ) 73 Equity
income from unconsolidated joint ventures (39,388 ) (44,278 )
Distributions of earnings from unconsolidated joint ventures 3,895
2,724 Lease termination income, net (38,001 ) — Gain on sales of
real estate (28,010 ) (9,185 ) Marketable securities and other
gains, net (2,143 ) (10,964 ) Changes in: Accounts receivable, net
(7,193 ) 6,389 Other assets (14,345 ) (43,939 ) Accounts payable
and accrued liabilities (8,447 ) (13,769 ) Net cash provided by
operating activities 883,022 843,680
Cash flows
from investing activities: Cash used to acquire the CCRC
unconsolidated joint venture interest, net (370,186 ) —
Acquisitions of real estate (467,147 ) (63,878 ) Development of
real estate (118,732 ) (96,914 ) Leasing costs and tenant and
capital improvements (44,953 ) (33,964 ) Proceeds from sales of
real estate, net 36,938 3,777 Contributions to unconsolidated Joint
Ventures (2,935 ) — Distributions in excess of earnings from
unconsolidated joint ventures 1,986 1,194 Purchases of marketable
debt securities — (16,706 ) Proceeds from the sales of marketable
securities — 28,403 Principal repayments on loans receivable 49,503
231,004 Investments in loans receivable and other (24,480 )
(316,494 ) Increase in restricted cash (17,219 ) (10,376 ) Net cash
used in investing activities (957,225 ) (273,954 )
Cash flows
from financing activities: Net borrowings under bank line of
credit 70,000 283,082 Issuance of senior unsecured notes 1,150,000
— Repayments of senior unsecured notes (487,000 ) (150,000 )
Issuance of mortgage and other debt 39,671 6,798 Repayments of
mortgage debt (202,134 ) (285,005 ) Deferred financing costs
(16,550 ) — Issuance of common stock and exercise of options 73,059
92,504 Repurchase of common stock (11,599 ) — Dividends paid on
common stock (750,835 ) (716,869 ) Issuance of noncontrolling
interests 4,282 12,387 Distributions to and purchase of
noncontrolling interests (11,719 ) (11,536 ) Net cash used in
financing activities (142,825 ) (768,639 ) Effect of foreign
exchange on cash and cash equivalents 3 654 Net decrease in cash
and cash equivalents (217,025 ) (198,259 ) Cash and cash
equivalents, beginning of period 300,556 247,673 Cash
and cash equivalents, end of period $ 83,531 $ 49,414
HCP, Inc.
Funds From Operations(1)
In thousands, except per share data (Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2014 2013 2014 2013
Net
income applicable to common shares $ 247,208 233,282 $ 723,651
$ 676,412 Depreciation and amortization of real estate, in-place
lease and other intangibles: Continuing operations 122,975 104,783
343,496 317,172 Discontinued operations — 1,509 — 4,604 Other
depreciation and amortization(2) 4,769 3,631 12,571 10,589 Gain on
sales of real estate — (8,298 ) (28,010 ) (9,185 ) Equity income
from unconsolidated joint ventures (10,168 ) (13,892 ) (39,388 )
(44,278 ) FFO from unconsolidated joint ventures 14,571 16,642
48,683 52,539 Noncontrolling interests’ and participating
securities’ share in earnings 3,851 3,576 13,310 10,955
Noncontrolling interests’ and participating securities’ share in
FFO (5,902 ) (5,162 ) (17,425 ) (15,569
) FFO applicable to common shares $ 377,304 336,071 $ 1,056,888 $
1,003,239 Distributions on dilutive convertible units 3,486
3,302 10,327 9,966
Diluted FFO applicable to common shares $ 380,790
339,373 $ 1,067,215 $ 1,013,205
Diluted FFO per common share $ 0.82 0.73 $
2.30 $ 2.20 Weighted average shares used to
calculate diluted FFO per share 465,247
462,082 464,512 461,403
Impact of adjustments to FFO: Transaction-related items(3) $
(31,778 ) $ — $ (24,939 ) $ — Severance-related charges —
26,374 — 26,374 $
(31,778 ) $ 26,374 $ (24,939 ) $ 26,374 FFO as
adjusted applicable to common shares $ 345,526 $ 362,445 $
1,031,949 $ 1,029,613 Distributions on dilutive convertible units
and other 3,554 3,247 10,383
9,907
Diluted FFO as adjusted applicable to
common shares $ 349,080 $ 365,692 $ 1,042,332
$ 1,039,520 Per common share impact of adjustments on
diluted FFO(3) $ (0.07 ) $ 0.06 $ (0.06 ) $ 0.05
Diluted FFO as adjusted per common share $ 0.75
$ 0.79 $ 2.24 $ 2.25 Weighted
average shares used to calculate diluted FFO as adjusted per share
465,247 462,082 464,512
461,403 (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) For the three and nine months ended September 30, 2014,
other depreciation and amortization include: (i) $4 million and $12
million, respectively, of direct financing lease (“DFL”)
depreciation and (ii) $0.7 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 Brookdale Transaction. (3)
Transaction-related items include significant direct costs (e.g.,
pursuit, due diligence and closing) and gains/charges incurred as a
result of mergers and acquisitions and lease amendment or
termination activities. The nine months ended September 30, 2014,
include the benefit of $0.06 per share primarily from the Brookdale
Transaction, consisting of: (i) $0.23 per share of net gains
(included in rental and related revenues) related to the terminated
leases of the HCP owned 49-property portfolio; partially offset by
(ii) $0.15 per share charge (offsetting rental and related
revenues) to write-off the remaining straight-line rents and
intangible other assets related to the terminated leases of the
49-property portfolio; and (iii) $0.02 per share in charges for
direct transaction costs related to the Brookdale Transaction and
other significant acquisitions (primarily included in general and
administrative expenses).
HCP, Inc.
Funds Available for
Distribution(1)
In thousands, except per share data (Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2014 2013 2014 2013
FFO as
adjusted applicable to common shares $ 345,526 $ 362,445 $
1,031,949 $ 1,029,613 Amortization of above and below market lease
intangibles, net (276 ) (346 ) (619 ) (6,414 ) Amortization of
deferred compensation(2) 5,461 5,542 16,467 17,180 Amortization of
deferred financing costs, net 4,648 4,482 14,122 13,922
Straight-line rents (8,627 ) (12,604 ) (35,082 ) (28,559 ) DFL
accretion(3) (18,760 ) (19,822 ) (57,995 ) (65,386 ) Other
depreciation and amortization (4,769 ) (3,631 ) (12,571 ) (10,589 )
Deferred revenues – tenant improvement related (456 ) (388 ) (1,673
) (2,477 ) Deferred revenues – additional rents 551 1,426 1,253
2,550 Leasing costs and tenant and capital improvements(4) (17,044
) (14,026 ) (44,502 ) (33,964 ) Lease restructure payments(5) 4,289
— 4,289 — Joint venture adjustments – CCRC entrance fees(6) 3,978 —
3,978 — Joint venture and other FAD adjustments(3) (17,564 )
(15,199 ) (47,575 ) (40,830 ) FAD applicable
to common shares $ 296,957 $ 307,879 $ 872,041 $ 875,046
Distributions on dilutive convertible units 3,486
3,302 10,327 9,966
Diluted FAD applicable to common shares $ 300,443 $
311,181 $ 882,368 $ 885,012 Diluted FAD
per common share $ 0.65 $ 0.67 $ 1.90 $ 1.92
Weighted average shares used to calculate diluted FAD
per common share 465,247 462,082
464,512 461,403 (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; (vi) deferred revenues.
Also, FAD is computed after: (i) deducting recurring capital
expenditures, including leasing costs and second generation tenant
and capital improvements; and (ii) include lease restructure
payments (see note 5) and adjustments to compute our share of FAD
from our unconsolidated joint ventures that are similar to those in
FFO and those related to CCRC non-refundable entrance fees (see
note 6 regarding 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 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) 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 three and nine months ended
September 30, 2013. (3) For the three and nine months ended
September 30, 2014, DFL accretion reflects an elimination of $15.6
million and $46.8 million, respectively. For the three and nine
months ended September 30, 2013, DFL accretion reflects an
elimination of $15.4 million and $46.6 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. (4)
Leasing costs and tenant and capital improvements, net of amounts
attributable to noncontrolling interests. (5) Over a period
of three years, we will receive installment payments valued at $55
million for terminating the leases on the HCP owned 49-property
portfolio; we include the installment payments in FAD when the
payments are collected. (6) Represents the adjustments to
recognize our 49% share of non-refundable entrance fees in FAD when
the fees are collected by the CCRC JV.
HCP,
Inc.
Net Operating Income and Same Property
Performance(1)(2)
Dollars in thousands (Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2014 2013 2014 2013
Net income $
251,059 $ 236,858 $ 736,961 $ 687,367 Interest income (17,517 )
(42,078 ) (51,150 ) (68,611 ) Investment management fee income (447
) (464 ) (1,340 ) (1,406 ) Interest expense 111,275 108,088 324,755
325,650 Depreciation and amortization 122,975 104,783 343,496
317,172 General and administrative 24,954 45,326 75,410 90,043
Other income, net (3,111 ) (1,632 ) (5,750 ) (17,032 ) Income taxes
55 1,034 2,840 3,553 Equity income from unconsolidated joint
ventures (10,168 ) (13,892 ) (39,388 ) (44,278 ) Total discontinued
operations — (9,825 ) (29,746 )
(14,884 )
NOI $ 479,075 $ 428,198 $ 1,356,088 $ 1,277,574
Straight-line rents (8,627 ) (12,604 ) (35,082 ) (28,559 ) DFL
accretion (18,760 ) (19,822 ) (57,995 ) (65,386 ) Amortization of
above and below market lease intangibles, net (276 ) (346 ) (619 )
(6,414 ) Lease termination fees (37,981 ) (205 ) (38,792 ) (220 )
NOI adjustments related to discontinued operations —
16 (11 ) 32
Cash (adjusted)
NOI $ 413,431 $ 395,237 $ 1,223,589 $ 1,177,027 Non-SPP cash
(adjusted) NOI (25,254 ) (19,107 ) (75,630 )
(64,431 )
Same property portfolio cash (adjusted)
NOI(2) $ 388,177 $
376,130 $ 1,147,959 $
1,112,596 Cash (adjusted) NOI % change –
SPP(2)
3.2
%
3.2
%
(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 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
$
2.04
$ 2.10 Real estate depreciation and amortization 0.98 0.98 Other
depreciation and amortization 0.04 0.04 Gain on sales of real
estate (0.06 ) (0.06 ) Joint venture FFO adjustments 0.03
0.03
Diluted FFO per common share
$ 3.03 $ 3.09 Transaction-related
items(2) (0.05 ) (0.05 )
Diluted FFO as adjusted
per common share $ 2.98 $ 3.04
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 (0.08 ) (0.08 ) DFL accretion(3) (0.17 ) (0.17
) Other depreciation and amortization (0.04 ) (0.04 ) 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) 0.02 0.02 Joint venture and other FAD
adjustments(3) (0.14 ) (0.14 )
Diluted FAD per
common share $ 2.52 $ 2.58
(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) Reflects a $0.05 per share net
benefit primarily from the Brookdale Transaction consisting of: (i)
$0.23 per share of gains related to the terminated leases of the
HCP owned 49-property portfolio; partially offset by (ii) $0.15 per
share charge to write-off the remaining straight-line rents and
intangible other assets related to the terminated leases of the
49-property portfolio; and (iii) $0.03 per share in charges for
direct transaction costs related to the Brookdale Transaction and
other significant acquisitions. (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) Over a period of
three years, we will receive installment payments valued at $55
million for terminating the leases on the HCP owned 49-property
portfolio. We include the installment payments in FAD when the
payments are collected. (5) Represents the adjustments to
recognize our 49% share of non-refundable entrance fees in FAD when
they are collected by the CCRC JV.
HCP, Inc.Timothy M. Schoen, 949-407-0400Executive Vice President
and Chief Financial Officer
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