IRVINE,
Calif., Feb. 13, 2018
/PRNewswire/ -- HCP (NYSE:HCP) announced results for the
fourth quarter and full year ended December 31,
2017.
FOURTH QUARTER 2017 FINANCIAL PERFORMANCE AND RECENT
HIGHLIGHTS
– Net loss, FFO and
FFO as adjusted applicable to common shares were $(0.13), $0.11 and
$0.48 per share,
respectively
–
Commenced Phase I of Sierra Point, our next major life
science development in South San
Francisco
–
Entered into a $115 million
participating development financing agreement for a high-rise
senior living development in downtown Seattle
–
Acquired an 11-asset
portfolio of medical office buildings for $151 million
–
Closed on the previously
announced $228 million acquisition of
the Hayden Research Campus in the Boston life science market
–
As previously announced,
closed on a new $2.0 billion
unsecured revolving credit facility
–
Recognized an $84 million impairment on our Tandem debt
investment
–
Announced Mike McKee to step
down from his role as Executive Chairman and retire from HCP's
Board of Directors at the upcoming Annual Meeting
–
Named as a 2017 ENERGY STAR
Partner of the Year for outstanding efforts to improve our
properties' energy efficiency
FULL YEAR 2017 HIGHLIGHTS
– Net income, FFO
and FFO as adjusted applicable to common shares were $0.88, $1.41 and
$1.95 per share,
respectively
–
Achieved year-over-year Total SPP Cash NOI growth of
3.4%
–
Significantly lowered our Brookdale Senior Living, Inc.
("Brookdale") tenant concentration
with $1.6 billion of closed
dispositions and entered into additional strategic transactions
which, when combined, result in a more diversified senior housing
operator portfolio, improved triple-net lease coverage, and a
stronger balance sheet
–
Closed $562 million of acquisitions, including our entry
into the Boston life science
market
–
Enhanced our financial position with $1.4 billion of debt repayments
– Substantially exited
our high-risk mezzanine debt investments, generating proceeds of
$500 million
–
Launched sales process for
our remaining U.K. investments
–
Executed 4.1 million square
feet of leasing across our medical office and life science
portfolios
–
Recognized for our continued leadership and performance by
several prominent Environmental, Social and Governance ("ESG")
benchmarking institutions
–
Enhanced corporate governance
by opting out of provisions of the Maryland Unsolicited Takeover
Act ("MUTA") and adopting majority-vote standard for stockholder
bylaw amendments
FOURTH QUARTER
COMPARISON
|
|
|
Three Months
Ended
December 31, 2017
|
|
Three Months
Ended
December 31, 2016
|
|
|
(in thousands, except per share amounts)
|
Amount
|
|
Diluted
Per Share
|
|
Amount
|
|
Diluted
Per Share
|
|
Per Share
Change
|
Net income (loss)(1)
|
$
|
(59,298)
|
|
|
$
|
(0.13)
|
|
|
$
|
58,440
|
|
|
$
|
0.12
|
|
|
$
|
(0.25)
|
|
FFO
|
$
|
52,884
|
|
|
$
|
0.11
|
|
|
$
|
162,264
|
|
|
$
|
0.35
|
|
|
$
|
(0.24)
|
|
Transaction-related
items(2)
|
60,100
|
|
|
0.13
|
|
|
62,016
|
|
|
0.13
|
|
|
—
|
|
Other impairments
(recoveries), net(3)
|
84,374
|
|
|
0.18
|
|
|
—
|
|
|
—
|
|
|
0.18
|
|
Severance and related
charges
|
1,111
|
|
|
—
|
|
|
2,501
|
|
|
—
|
|
|
—
|
|
Loss on debt
extinguishments(4)
|
—
|
|
|
—
|
|
|
46,020
|
|
|
0.10
|
|
|
(0.10)
|
|
Litigation
costs(5)
|
8,130
|
|
|
0.02
|
|
|
3,081
|
|
|
0.01
|
|
|
0.01
|
|
Casualty-related
charges (recoveries), net
|
2,039
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency
remeasurement losses (gains)
|
(58)
|
|
|
—
|
|
|
318
|
|
|
—
|
|
|
—
|
|
Tax rate legislation
impact(6)
|
17,028
|
|
|
0.04
|
|
|
—
|
|
|
—
|
|
|
0.04
|
|
FFO as adjusted
|
$
|
225,608
|
|
|
$
|
0.48
|
|
|
$
|
276,200
|
|
|
$
|
0.59
|
|
|
$
|
(0.11)
|
|
FFO as adjusted from
QCP
|
—
|
|
|
—
|
|
|
(26,948)
|
|
|
(0.06)
|
|
|
0.06
|
|
Comparable FFO as
adjusted(7)
|
$
|
225,608
|
|
|
$
|
0.48
|
|
|
$
|
249,252
|
|
|
$
|
0.53
|
|
|
$
|
(0.05)
|
|
FAD
|
$
|
182,603
|
|
|
|
|
$
|
251,251
|
|
|
|
|
|
_______________________________________
|
(1)
|
For the fourth
quarter 2017 and 2016, net income includes net gain on sales of
real estate of $0.07 per share and $0.14 per share (of which $0.04
per share is reflected in equity income from unconsolidated joint
ventures), respectively.
|
(2)
|
For the three months
ended December 31, 2017, includes $55 million of net non-cash
charges related to the right to terminate certain triple-net leases
and management agreements in conjunction with the November 2017
Brookdale transaction. For the three months ended December 31,
2016, primarily relates to the spin-off (the "Spin-Off") of Quality
Care Properties, Inc. ("QCP").
|
(3)
|
Represents the
impairment on our Tandem Health Care mezzanine loan ("Tandem
Mezzanine Loan").
|
(4)
|
Represents penalties
of $46 million from the prepayment of $1.1 billion of senior
unsecured notes and $108 million of mortgage debt using proceeds
from the Spin-Off.
|
(5)
|
For the three months
ended December 31, 2017, primarily relates to a legal settlement.
For the three months ended December 31, 2016, primarily relates to
costs from securities class action litigation.
|
(6)
|
Represents the
remeasurement of deferred tax assets and liabilities as a result of
the Tax Cuts and Jobs Act that was signed into legislation on
December 22, 2017.
|
(7)
|
Represents FFO as
adjusted excluding FFO as adjusted from QCP and interest expense
related to debt repaid using proceeds from the Spin-Off, assuming
these transactions occurred at the beginning of the earliest period
presented. Comparable FFO as adjusted allows management to evaluate
the performance of our remaining real estate portfolio following
the completion of the Spin-Off.
|
FULL YEAR
COMPARISON
|
|
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
|
(in thousands, except per share amounts)
|
|
Amount
|
|
Diluted
Per Share
|
|
Amount
|
|
Diluted
Per Share
|
|
Per Share
Change
|
Net income (loss)(1)
|
|
$
|
413,013
|
|
|
$
|
0.88
|
|
|
$
|
626,549
|
|
|
$
|
1.34
|
|
|
$
|
(0.46)
|
|
FFO
|
|
$
|
661,113
|
|
|
$
|
1.41
|
|
|
$
|
1,119,153
|
|
|
$
|
2.39
|
|
|
$
|
(0.98)
|
|
Transaction-related
items(2)
|
|
62,576
|
|
|
0.13
|
|
|
96,586
|
|
|
0.20
|
|
|
(0.07)
|
|
Other impairments
(recoveries), net(3)
|
|
92,900
|
|
|
0.20
|
|
|
—
|
|
|
—
|
|
|
0.20
|
|
Severance and related
charges
|
|
5,000
|
|
|
0.01
|
|
|
16,965
|
|
|
0.04
|
|
|
(0.03)
|
|
Loss on debt
extinguishments(4)
|
|
54,227
|
|
|
0.11
|
|
|
46,020
|
|
|
0.10
|
|
|
0.01
|
|
Litigation
costs(5)
|
|
15,637
|
|
|
0.03
|
|
|
3,081
|
|
|
0.01
|
|
|
0.02
|
|
Casualty-related
charges (recoveries), net
|
|
10,964
|
|
|
0.02
|
|
|
—
|
|
|
—
|
|
|
0.02
|
|
Foreign currency
remeasurement losses (gains)
|
|
(1,043)
|
|
|
—
|
|
|
585
|
|
|
—
|
|
|
—
|
|
Tax rate legislation
impact(6)
|
|
17,028
|
|
|
0.04
|
|
|
—
|
|
|
—
|
|
|
0.04
|
|
FFO as adjusted
|
|
918,402
|
|
|
$
|
1.95
|
|
|
1,282,390
|
|
|
$
|
2.74
|
|
|
$
|
(0.79)
|
|
FFO as adjusted from
QCP
|
|
—
|
|
|
—
|
|
|
(328,341)
|
|
|
(0.70)
|
|
|
0.70
|
|
Comparable FFO as
adjusted(7)
|
|
$
|
918,402
|
|
|
$
|
1.95
|
|
|
$
|
954,049
|
|
|
$
|
2.04
|
|
|
$
|
(0.09)
|
|
FAD
|
|
$
|
803,720
|
|
|
|
|
$
|
1,215,696
|
|
|
|
|
|
_______________________________________
|
(1)
|
2017 net income
includes net gain on sales of real estate of $0.76 per share and
2016 net income includes: (i) net gain on sales of real estate of
$0.39 per share (of which $0.04 per share is reflected in equity
income from unconsolidated joint ventures) and (ii) $0.04 per share
of interest income from monetizing three senior housing development
loans.
|
(2)
|
For the year ended
December 31, 2017, includes $55 million of net non-cash charges
related to the right to terminate certain triple-net leases and
management agreements in conjunction with the November 2017
Brookdale transaction. For the year ended December 31, 2016,
primarily relates to the Spin-Off.
|
(3)
|
Represents $144
million of impairments on our Tandem Mezzanine Loan throughout
2017, net of a $51 million impairment recovery upon the sale of our
Four Seasons Notes in the first quarter of
2017.
|
(4)
|
For the year ended
December 31, 2017, represents the premium associated with the
prepayment of $500 million of senior unsecured notes. For the year
ended December 31, 2016, penalties of $46 million from the
prepayment of $1.1 billion of senior unsecured notes and $108
million of mortgage debt using proceeds from the
Spin-Off.
|
(5)
|
For the year ended
December 31, 2017, relates to costs from securities class action
litigation and a legal settlement. For the year ended
December 31, 2016, primarily relates to costs from securities class
action litigation.
|
(6)
|
Represents the
remeasurement of deferred tax assets and liabilities as a result of
the Tax Cuts and Jobs Act that was signed into legislation on
December 22, 2017.
|
(7)
|
Represents FFO as
adjusted excluding FFO as adjusted from QCP and interest expense
related to debt repaid using proceeds from the Spin-Off, assuming
these transactions occurred at the beginning of the earliest period
presented. Comparable FFO as adjusted allows management to evaluate
the performance of our remaining real estate portfolio following
the completion of the Spin-Off.
|
FFO, FFO as adjusted, FAD, Comparable FFO as adjusted, and
Total SPP NOI are supplemental non-GAAP financial measures that we
believe are useful in evaluating the operating performance of real
estate investment trusts. See "December 31,
2017 Discussion and Reconciliation of Non-GAAP Financial
Measures" for definitions, discussions of their uses and inherent
limitations, and reconciliations to the most directly comparable
financial measures calculated and presented in accordance with GAAP
on the Investor Relations section of our website at
http://ir.hcpi.com/financial-reconciliation.
SAME PROPERTY PORTFOLIO OPERATING
SUMMARY
The table below outlines the same property portfolio
operating results for the quarter and full year:
|
|
Year-Over-Year Total
SPP
Cash NOI Growth(1)
|
|
|
Three
Months
|
|
Full Year
|
Senior housing
triple-net
|
|
2.6%
|
|
5.6%
|
Senior housing
operating portfolio ("SHOP")(2)
|
|
(8.3)%
|
|
0.2%
|
Life
science
|
|
5.1%
|
|
4.2%
|
Medical
office
|
|
2.1%
|
|
3.0%
|
Other non-reportable
segments ("Other")(3)
|
|
1.5%
|
|
1.2%
|
Total Portfolio
|
|
1.2%
|
|
3.4%
|
_______________________________________
|
(1)
|
Total SPP Cash NOI
represents SPP Cash NOI plus our pro rata share of Cash NOI from
our unconsolidated joint ventures. See "December 31, 2017
Discussion and Reconciliation of Non-GAAP Financial Measures" for
definition, discussion of its uses and inherent limitations, and
reconciliation to the most directly comparable financial measures
calculated and presented in accordance with GAAP on the Investor
Relations section of our website at
http://ir.hcpi.com/financial-reconciliation.
|
(2)
|
The fourth quarter
2017 SHOP Total SPP Cash NOI growth rate was impacted by: (i)
outsized volume purchase rebates recorded in the fourth quarter of
2016 (3.0%); (ii) a portfolio of recently acquired and transitioned
assets entering the SPP pool in fourth quarter 2017 prior to
reaching stabilized occupancy (2.8%); (iii) an increase in sales
and marketing expenses in fourth quarter 2017 to catch up from
lower spend during the first half of 2017 and to better position
the portfolio for 2018 (2.3%); and (iv) under-accrual by an
operator of a utility bill which was provisioned for in fourth
quarter 2017 (1.0%). Adjusting for these items, normalized fourth
quarter 2017 SHOP Total SPP Cash NOI growth would be
0.8%.
|
(3)
|
Other primarily
includes our hospitals and U.K. real estate
investments.
|
BROOKDALE TRANSACTIONS
UPDATE
In December 2017, we closed
on the acquisition of Brookdale's
10% interest in the RIDEA III joint venture for $32 million. We anticipate closing on both the
purchase of Brookdale's 10%
interest in the RIDEA I joint venture for $63 million and the sale of six assets to
Brookdale for $275 million near the end of the first quarter
2018.
We continue to expect the sale of our remaining 40%
interest in the RIDEA II joint venture to Columbia Pacific Advisors
LLC ("CPA") for $332 million to close mid-2018.
In addition, we are in the process of selling or
transitioning 36 senior housing operating properties and 32
triple-net leased communities currently operated by
Brookdale.
Upon completion, these transactions will significantly
reduce our Brookdale concentration, improve lease
coverage of our remaining triple-net assets leased
to Brookdale, increase tenant diversification in our
portfolio, and enhance our balance sheet and credit
profile.
DEVELOPMENTS AND ACQUISITIONS
THE COVE AND SIERRA POINT LIFE SCIENCE DEVELOPMENT
UPDATE
During 2017, we placed $200 million of development in
service at The Cove, our premier $720 million, class-A life
science development project in South San Francisco. With
Phases I & II of The Cove fully-leased, and strong interest in
Phase III of the project, we recently commenced Sierra Point, our next life science development
in the South San Francisco
market.
Sierra Point is a 600,000
square foot multi-building campus designed to be developed in
phases as demand dictates. Phase I will consist of approximately
215,000 square feet with an estimated cost of $220 million and an initial delivery expected in
late 2019.
We are the largest life science landlord in South San Francisco with over three million
square feet. HCP and its predecessor company have
successfully delivered numerous life science developments in
South San Francisco since the
mid-1990s.
620 TERRY PARTICIPATING DEVELOPMENT
FINANCING
In December, we entered into a participating debt
financing arrangement with CPA to fund the construction of 620
Terry, a $147 million, 243-unit urban
senior living development located in the First Hill neighborhood of
Downtown Seattle. We will provide a participating development
loan of up to $115 million.
Upon expected completion in 2019, 620 Terry will be operated by
Leisure Care, LLC, a leading senior housing operator, and offer a
mix of independent-living, assisted-living, and memory care
units.
ACQUISITIONS
For the fourth quarter, we announced $424
million of acquisitions, bringing our year-to-date total
acquisitions to $562 million. Significant transactions during
the quarter included:
In November, we acquired The Residence at Watertown
Square, a 90-unit senior housing community located in the
Boston suburb of Watertown, Massachusetts for $45 million. We own the community in a
consolidated joint venture with LCB Senior Living, LLC, a leading
senior housing developer and operator focused on the New England
region.
In December, we closed on the previously announced
$228 million acquisition of the
Hayden Research Campus located in the Boston suburb of Lexington. The Hayden
acquisition allowed us to enter the Boston life science
market with immediate scale and align with a leading local
developer, owner and operator, King Street Properties. The
400,000 square foot campus comprises two existing buildings leased
to major life science anchor tenants, including subsidiaries of
Shire plc and Merck & Co., Inc. Additionally, King
Street is currently seeking approvals for the joint venture to
develop 209,000 square feet of life science space on the
campus. The acquisition complements our sizable San Francisco and San Diego life science portfolios and provides
us with an additional market for investment opportunity over
time.
In December, we acquired 11 off-campus medical office
buildings for $151 million. The
378,000 square foot portfolio is anchored by leading hospitals and
was 97% occupied as of December 31,
2017. The portfolio has a weighted average remaining lease
term of eight years and an average building age of eight
years.
TANDEM DEBT INVESTMENT UPDATE
During our fourth quarter 2017 financial statement close
process, we recorded an $84 million
impairment on our Tandem debt investment and reduced the carrying
value to $105 million. We are
actively evaluating and pursuing a range of strategic alternatives
from selling our loan position to foreclosing on the
collateral. This investment represents our last meaningful
exposure to both post-acute/skilled-nursing assets and
highly-leveraged mezzanine investments.
BALANCE SHEET UPDATE
As previously announced, in October, we closed on a new
$2.0 billion unsecured revolving
credit facility. The new facility reduced our funded interest
cost by five basis points and has a maturity date of October 19, 2021, plus two six-month extension
options at our discretion. Based on our current senior
unsecured long-term debt ratings, the facility bears interest
annually at LIBOR plus 100 basis points and has a facility fee of
20 basis points. The facility also includes the ability to
increase the commitments by an aggregate amount up to $750 million, subject to securing additional
commitments.
At December 31, 2017, we had
$1.0 billion of liquidity from a
combination of cash and availability under our $2.0 billion credit facility and no major senior
notes or secured debt maturities until 2019.
EXECUTIVE LEADERSHIP
As previously announced, Mike McKee will step down
from his role as Executive Chairman, effective March 1, 2018,
and retire from the Board of Directors at HCP's Annual
Meeting. To help facilitate a smooth transition, Mr. McKee
will work with the Company in a consulting capacity until HCP's
Annual Meeting.
Dave Henry, previously the
Lead Independent Director, has been appointed to serve as
non-executive Chairman.
DIVIDEND
On February 1, 2018, our
Board declared a quarterly cash dividend of $0.37 per common share. The dividend will
be paid on March 2, 2018 to
stockholders of record as of the close of business on
February 15, 2018. A copy of the press release is available in
the Investor Relations section of our website at
http://ir.hcpi.com.
SUSTAINABILITY
HCP's leadership and performance in ESG standards was
recognized by the CDP 2017 Climate Change Program (formerly Carbon
Disclosure Project). We received a score of A- for our
disclosure in CDP's annual investor survey and were named to the
Leadership Band. CDP collects and publishes the environmental
data on behalf of more than 800 investors with assets of
$100 trillion. We were also
named a 2017 ENERGY STAR Partner of the Year by the U.S.
Environmental Protection Agency and the U.S. Department of Energy
for outstanding efforts to improve our properties' energy
efficiency.
Additionally, we were included in The Sustainability
Yearbook 2018, a listing of the world's most sustainable
companies. The list is compiled according to the results of
RobecoSAM's annual Corporate Sustainability Assessment, which also
determines constituency for the Dow Jones Sustainability Index
("DJSI") series. HCP was named to the DJSI North America and World
indices for the 5th and 3rd consecutive
times, respectively, earlier this year.
More information about our sustainability efforts is
available on our website at
www.hcpi.com/sustainability.
2018 GUIDANCE
For full year 2018, we have established the following
guidance ranges:
- Net income per share applicable to common shares of
$0.79 to $0.85
- FFO per share of $1.73 to
$1.79
- FFO as adjusted per share of $1.77 to $1.83
- SPP Cash NOI to increase 0.25% to 1.75%
These estimates do not reflect the potential impact from
any unannounced future transactions other than capital recycling
activities. For additional detail, assumptions, and
information regarding these estimates, refer to the "Projected Full
Year 2018 SPP Cash NOI" table below, the 2018 Guidance section of
our corresponding Supplemental Report, and Discussion and
Reconciliation of Non-GAAP Financial Measures, both available in
the Investor Relations section of our website at
http://ir.hcpi.com.
|
|
Projected Full
Year
2018 SPP Cash
NOI(1)
|
|
|
Low
|
|
High
|
Senior housing
triple-net
|
|
0.50%
|
|
1.50%
|
SHOP
|
|
(4.00)%
|
|
0.00%
|
Life
science
|
|
0.25%
|
|
1.25%
|
Medical
office
|
|
1.75%
|
|
2.75%
|
Other
|
|
0.50%
|
|
1.50%
|
SPP Growth
|
|
0.25%
|
|
1.75%
|
_______________________________________
|
(1)
|
Effective 2018,
unconsolidated joint ventures, including our CCRC joint venture,
will be removed from our same property portfolio in order to better
align with how management views our business and improve
comparability of our results to those of our peers. For
additional detail and information, see "2018 Guidance section of
the December 31, 2017 Supplemental Report" and "December 31, 2017
Discussion and Reconciliation of Non-GAAP Financial Measures" on
the Investor Relations section of our website at
http://ir.hcpi.com/.
|
COMPANY INFORMATION
HCP has scheduled a conference call and webcast for
Tuesday, February 13, 2018, at
9:00 a.m. Pacific Time (12:00 p.m. Eastern Time) to
present its performance and operating results for the quarter and
year ended December 31, 2017. The conference call is
accessible by dialing (888) 317-6003 (U.S.) or (412) 317-6061
(International). The conference ID number is 1361246. You may also
access the conference call via webcast at www.hcpi.com. This link
can be found in the "News and Events" section, which is under
"Investor Relations". Through February 28,
2018, an archive of the webcast will be available on our
website, and a telephonic replay can be accessed by dialing (877)
344-7529 (U.S.) or (412) 317-0088 (International) and entering
conference ID number 10116085. Our Supplemental Report for the
current period is available, with this earnings release, on our
website in the "Financial Information" section under "Investor
Relations."
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. HCP owns a large-scale portfolio diversified across
life science, medical office and senior housing. Recognized as a
global leader in sustainability, HCP has been a publicly-traded
company since 1985 and was the first healthcare REIT selected to
the S&P 500 index. For more information regarding HCP, visit
www.hcpi.com.
FORWARD-LOOKING STATEMENTS
Statements in this release that 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. Forward-looking statements include, among other things,
statements regarding our and our officers' intent, belief or
expectation as identified by the use of words such as "may,"
"will," "project," "expect," "believe," "intend," "anticipate,"
"seek," "forecast," "plan," "potential," "estimate," "could,"
"would," "should" and other comparable and derivative terms or the
negatives thereof. Examples of forward-looking statements include,
among other things, (i) all statements under the heading "2018
Guidance," including without limitation with respect to expected
net income, FFO per share, FFO as adjusted per share, SPP Cash NOI
and other financial projections and assumptions, including those in
the "Projected Full Year 2018 SPP Cash NOI" table in this release,
as well as comparable statements included in other sections of this
release; (ii) statements regarding the payment of a quarterly
cash dividend; (iii) statements regarding leadership changes; and
(iv) statements regarding timing, outcomes and other details
relating to current, pending or contemplated acquisitions,
dispositions, developments, joint venture transactions, capital
recycling and financing activities, and other transactions
discussed in this release, including without limitation those
described under the headings "Brookdale Transactions Update,"
"Developments and Acquisitions" and "Tandem Debt Investment
Update." Forward-looking statements reflect our current
expectations and views about future events and are subject to risks
and uncertainties that could significantly affect our future
financial condition and results of operations. While
forward-looking statements reflect our good faith belief and
assumptions we believe to be reasonable based upon current
information, we can give no assurance that our expectations or
forecasts will be attained. Further, we cannot guarantee the
accuracy of any such forward-looking statement contained in this
release, and such forward-looking statements are subject to known
and unknown risks and uncertainties that are difficult to predict.
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 percentage of our revenues; the
financial condition of our existing and future tenants, operators
and borrowers, including potential bankruptcies and downturns in
their businesses, and their legal and regulatory proceedings, which
results in uncertainties regarding our ability to continue to
realize the full benefit of such tenants' and operators' leases and
borrowers' loans; the ability of our existing and future tenants,
operators 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 us and
our ability to recover investments made, if applicable, in their
operations; competition for the acquisition and financing of
suitable healthcare properties as well as competition for tenants
and operators, including with respect to new leases and mortgages
and the renewal or rollover of existing leases; our concentration
in the healthcare property sector, particularly in senior housing,
life sciences and medical office buildings, which makes our
profitability more vulnerable to a downturn in a specific sector
than if we were investing in multiple industries; our ability to
identify replacement tenants and operators and the potential
renovation costs and regulatory approvals associated therewith; the
risks associated with property development and redevelopment,
including costs above original estimates, project delays and lower
occupancy rates and rents than expected; 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; our ability to achieve the benefits of acquisitions
and other investments, including those discussed above, within
expected time frames or at all, or within expected cost
projections; the potential impact on us and our tenants, operators
and borrowers from current and future litigation matters, including
the possibility of larger than expected litigation costs, adverse
results and related developments; operational risks associated with
third party management contracts, including the additional
regulation and liabilities of our RIDEA lease structures; the
effect on us and our tenants and operators of legislation,
executive orders and other legal requirements, including compliance
with the Americans with Disabilities Act, fire, safety and health
regulations, environmental laws, the Affordable Care Act,
licensure, certification and inspection requirements, and laws
addressing entitlement programs and related services, including
Medicare and Medicaid, which may result in future reductions in
reimbursements or fines for noncompliance; 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; our ability to foreclose on collateral securing our real
estate-related loans; 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 or other conditions, including currency
exchange rates; our ability to manage our indebtedness level and
changes in the terms of such indebtedness; competition for skilled
management and other key personnel; the potential impact of
uninsured or underinsured losses; our reliance on information
technology systems and the potential impact of system failures,
disruptions or breaches; the ability to maintain our qualification
as a real estate investment trust; and other risks and
uncertainties described from time to time in our Securities and
Exchange Commission filings. Except
as required by law, we do not undertake, and hereby disclaim, any
obligation to update any forward-looking statements, which speak
only as of the date on which they are
made.
CONTACT
Andrew Johns
Vice President – Finance and Investor Relations
949-407-0400
HCP, Inc.
|
Consolidated
Balance Sheets
|
In thousands,
except share and per share data
|
|
|
December 31,
2017
|
|
December 31,
2016
|
Assets
|
|
|
|
Real
estate:
|
|
|
|
Buildings and
improvements
|
$
|
11,239,732
|
|
|
$
|
11,692,654
|
|
Development costs and
construction in progress
|
447,976
|
|
|
400,619
|
|
Land
|
1,785,865
|
|
|
1,881,487
|
|
Accumulated
depreciation and amortization
|
(2,741,695)
|
|
|
(2,648,930)
|
|
Net real
estate
|
10,731,878
|
|
|
11,325,830
|
|
Net investment in
direct financing leases
|
714,352
|
|
|
752,589
|
|
Loans receivable,
net
|
313,326
|
|
|
807,954
|
|
Investments in and
advances to unconsolidated joint ventures
|
800,840
|
|
|
571,491
|
|
Accounts receivable,
net of allowance of $4,425 and $4,459, respectively
|
40,733
|
|
|
45,116
|
|
Cash and cash
equivalents
|
55,306
|
|
|
94,730
|
|
Restricted
cash
|
26,897
|
|
|
42,260
|
|
Intangible assets,
net
|
410,082
|
|
|
479,805
|
|
Assets held for sale,
net
|
417,014
|
|
|
927,866
|
|
Other assets,
net
|
578,033
|
|
|
711,624
|
|
Total assets
|
$
|
14,088,461
|
|
|
$
|
15,759,265
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
Bank line of
credit
|
$
|
1,017,076
|
|
|
$
|
899,718
|
|
Term loans
|
228,288
|
|
|
440,062
|
|
Senior unsecured
notes
|
6,396,451
|
|
|
7,133,538
|
|
Mortgage
debt
|
144,486
|
|
|
623,792
|
|
Other debt
|
94,165
|
|
|
92,385
|
|
Intangible
liabilities, net
|
52,579
|
|
|
58,145
|
|
Liabilities of assets
held for sale, net
|
14,031
|
|
|
3,776
|
|
Accounts payable and
accrued liabilities
|
401,738
|
|
|
417,360
|
|
Deferred
revenue
|
144,709
|
|
|
149,181
|
|
Total liabilities
|
8,493,523
|
|
|
9,817,957
|
|
Commitments and
contingencies
|
|
|
|
Common stock, $1.00
par value: 750,000,000 shares authorized; 469,435,678 and
468,081,489 shares issued and outstanding, respectively
|
469,436
|
|
|
468,081
|
|
Additional paid-in
capital
|
8,226,113
|
|
|
8,198,890
|
|
Cumulative dividends
in excess of earnings
|
(3,370,520)
|
|
|
(3,089,734)
|
|
Accumulated other
comprehensive income (loss)
|
(24,024)
|
|
|
(29,642)
|
|
Total stockholders'
equity
|
5,301,005
|
|
|
5,547,595
|
|
|
|
|
|
Joint venture
partners
|
117,045
|
|
|
214,377
|
|
Non-managing member
unitholders
|
176,888
|
|
|
179,336
|
|
Total noncontrolling
interests
|
293,933
|
|
|
393,713
|
|
Total equity
|
5,594,938
|
|
|
5,941,308
|
|
Total liabilities and equity
|
$
|
14,088,461
|
|
|
$
|
15,759,265
|
|
HCP, Inc.
|
Consolidated
Statements of Operations
|
In thousands,
except per share data
|
|
|
Three Months
Ended
December 31,
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(unaudited)
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Rental and related
revenues
|
$
|
255,006
|
|
|
$
|
286,968
|
|
|
$
|
1,071,153
|
|
|
$
|
1,159,791
|
|
Tenant
recoveries
|
36,702
|
|
|
34,565
|
|
|
142,496
|
|
|
134,280
|
|
Resident fees and
services
|
132,587
|
|
|
186,118
|
|
|
524,275
|
|
|
686,835
|
|
Income from direct
financing leases
|
13,701
|
|
|
14,789
|
|
|
54,217
|
|
|
59,580
|
|
Interest
income
|
5,263
|
|
|
17,510
|
|
|
56,237
|
|
|
88,808
|
|
Total
revenues
|
443,259
|
|
|
539,950
|
|
|
1,848,378
|
|
|
2,129,294
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Interest
expense
|
71,882
|
|
|
103,148
|
|
|
307,716
|
|
|
464,403
|
|
Depreciation and
amortization
|
136,833
|
|
|
146,927
|
|
|
534,726
|
|
|
568,108
|
|
Operating
|
198,669
|
|
|
195,648
|
|
|
666,251
|
|
|
738,399
|
|
General and
administrative
|
21,485
|
|
|
20,600
|
|
|
88,772
|
|
|
103,611
|
|
Transaction
costs
|
5,459
|
|
|
3,760
|
|
|
7,963
|
|
|
9,821
|
|
Impairments
(recoveries), net
|
84,374
|
|
|
—
|
|
|
166,384
|
|
|
—
|
|
Total costs and
expenses
|
518,702
|
|
|
470,083
|
|
|
1,771,812
|
|
|
1,884,342
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Gain (loss) on sales
of real estate, net
|
33,789
|
|
|
45,093
|
|
|
356,641
|
|
|
164,698
|
|
Loss on debt
extinguishments
|
—
|
|
|
(46,020)
|
|
|
(54,227)
|
|
|
(46,020)
|
|
Other income
(expense), net
|
(9,303)
|
|
|
(1,410)
|
|
|
31,420
|
|
|
3,654
|
|
Total other income
(expense), net
|
24,486
|
|
|
(2,337)
|
|
|
333,834
|
|
|
122,332
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity income
(loss) from unconsolidated joint ventures
|
(50,957)
|
|
|
67,530
|
|
|
410,400
|
|
|
367,284
|
|
Income tax benefit
(expense)
|
(13,297)
|
|
|
(3,372)
|
|
|
1,333
|
|
|
(4,473)
|
|
Equity income (loss)
from unconsolidated joint ventures
|
6,330
|
|
|
15,388
|
|
|
10,901
|
|
|
11,360
|
|
Income (loss) from continuing
operations
|
(57,924)
|
|
|
79,546
|
|
|
422,634
|
|
|
374,171
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
Income (loss) before
transaction costs and income taxes
|
—
|
|
|
40,470
|
|
|
—
|
|
|
400,701
|
|
Transaction
costs
|
—
|
|
|
(58,256)
|
|
|
—
|
|
|
(86,765)
|
|
Income tax benefit
(expense)
|
—
|
|
|
(460)
|
|
|
—
|
|
|
(48,181)
|
|
Total discontinued
operations
|
—
|
|
|
(18,246)
|
|
|
—
|
|
|
265,755
|
|
Net income (loss)
|
(57,924)
|
|
|
61,300
|
|
|
422,634
|
|
|
639,926
|
|
Noncontrolling
interests' share in earnings
|
(778)
|
|
|
(2,639)
|
|
|
(8,465)
|
|
|
(12,179)
|
|
Net income (loss) attributable to HCP,
Inc.
|
(58,702)
|
|
|
58,661
|
|
|
414,169
|
|
|
627,747
|
|
Participating
securities' share in earnings
|
(596)
|
|
|
(221)
|
|
|
(1,156)
|
|
|
(1,198)
|
|
Net income (loss)
applicable to common shares
|
$
|
(59,298)
|
|
|
$
|
58,440
|
|
|
$
|
413,013
|
|
|
$
|
626,549
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.13)
|
|
|
$
|
0.12
|
|
|
$
|
0.88
|
|
|
$
|
1.34
|
|
Diluted
|
$
|
(0.13)
|
|
|
$
|
0.12
|
|
|
$
|
0.88
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate earnings
per common share:
|
|
|
|
|
|
|
|
Basic
|
469,229
|
|
|
467,979
|
|
|
468,759
|
|
|
467,195
|
|
Diluted
|
469,229
|
|
|
468,210
|
|
|
468,935
|
|
|
467,403
|
|
HCP, Inc.
|
Funds From
Operations
|
In thousands,
except per share data
|
(unaudited)
|
|
|
|
Three Months
Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income (loss) applicable to common
shares
|
|
$
|
(59,298)
|
|
|
$
|
58,440
|
|
|
$
|
413,013
|
|
|
$
|
626,549
|
|
Real estate related
depreciation and amortization
|
|
136,833
|
|
|
147,415
|
|
|
534,726
|
|
|
572,998
|
|
Real estate related
depreciation and amortization on unconsolidated joint
ventures
|
|
12,347
|
|
|
12,696
|
|
|
60,058
|
|
|
49,043
|
|
Real estate related
depreciation and amortization on noncontrolling interests and
other
|
|
(3,425)
|
|
|
(5,317)
|
|
|
(15,069)
|
|
|
(21,001)
|
|
Other depreciation
and amortization
|
|
1,646
|
|
|
2,998
|
|
|
9,364
|
|
|
11,919
|
|
Loss (gain) on sales
of real estate, net
|
|
(33,789)
|
|
|
(45,093)
|
|
|
(356,641)
|
|
|
(164,698)
|
|
Loss (gain) on sales
of real estate, net on unconsolidated joint ventures
|
|
(1,430)
|
|
|
(16,118)
|
|
|
(1,430)
|
|
|
(16,332)
|
|
Loss (gain) on sales
of real estate, net on noncontrolling interests
|
|
—
|
|
|
226
|
|
|
—
|
|
|
224
|
|
Taxes associated with
real estate dispositions(1)
|
|
—
|
|
|
7,017
|
|
|
(5,498)
|
|
|
60,451
|
|
Impairments
(recoveries) of real estate, net
|
|
—
|
|
|
—
|
|
|
22,590
|
|
|
—
|
|
FFO applicable to
common shares
|
|
$
|
52,884
|
|
|
$
|
162,264
|
|
|
$
|
661,113
|
|
|
$
|
1,119,153
|
|
Distributions on
dilutive convertible units
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,732
|
|
Diluted FFO applicable to common
shares
|
|
$
|
52,884
|
|
|
$
|
162,264
|
|
|
$
|
661,113
|
|
|
$
|
1,127,885
|
|
Diluted FFO per
common share
|
|
$
|
0.11
|
|
|
$
|
0.35
|
|
|
$
|
1.41
|
|
|
$
|
2.39
|
|
Weighted average
shares used to calculate diluted FFO per common
share
|
|
469,388
|
|
|
468,210
|
|
|
468,935
|
|
|
471,566
|
|
Impact of adjustments to FFO:
|
|
|
|
|
|
|
|
|
Transaction-related items(2)
|
|
$
|
60,100
|
|
|
$
|
62,016
|
|
|
$
|
62,576
|
|
|
$
|
96,586
|
|
Other
impairments (recoveries), net(3)
|
|
84,374
|
|
|
—
|
|
|
92,900
|
|
|
—
|
|
Severance and
related charges(4)
|
|
1,111
|
|
|
2,501
|
|
|
5,000
|
|
|
16,965
|
|
Loss on debt
extinguishments(5)
|
|
—
|
|
|
46,020
|
|
|
54,227
|
|
|
46,020
|
|
Litigation
costs(6)
|
|
8,130
|
|
|
3,081
|
|
|
15,637
|
|
|
3,081
|
|
Casualty-related charges (recoveries), net
|
|
2,039
|
|
|
—
|
|
|
10,964
|
|
|
—
|
|
Foreign
currency remeasurement losses (gains)
|
|
(58)
|
|
|
318
|
|
|
(1,043)
|
|
|
585
|
|
Tax rate
legislation impact(7)
|
|
17,028
|
|
|
—
|
|
|
17,028
|
|
|
—
|
|
|
|
$
|
172,724
|
|
|
$
|
113,936
|
|
|
$
|
257,289
|
|
|
$
|
163,237
|
|
FFO as adjusted
applicable to common shares
|
|
$
|
225,608
|
|
|
$
|
276,200
|
|
|
$
|
918,402
|
|
|
$
|
1,282,390
|
|
Distributions on
dilutive convertible units and other
|
|
(98)
|
|
|
2,315
|
|
|
6,657
|
|
|
12,849
|
|
Diluted FFO as adjusted applicable to common
shares
|
|
$
|
225,510
|
|
|
$
|
278,515
|
|
|
$
|
925,059
|
|
|
$
|
1,295,239
|
|
Per common share
impact of adjustments on diluted FFO
|
|
$
|
0.37
|
|
|
$
|
0.24
|
|
|
$
|
0.54
|
|
|
$
|
0.35
|
|
Diluted FFO as adjusted per common
share
|
|
$
|
0.48
|
|
|
$
|
0.59
|
|
|
$
|
1.95
|
|
|
$
|
2.74
|
|
Weighted average
shares used to calculate diluted FFO as adjusted per common
share
|
|
469,388
|
|
|
474,318
|
|
|
473,620
|
|
|
473,340
|
|
FFO as adjusted from
QCP
|
|
$
|
—
|
|
|
$
|
26,948
|
|
|
$
|
—
|
|
|
$
|
328,341
|
|
Diluted Comparable FFO as adjusted applicable to
common shares(8)
|
|
$
|
225,510
|
|
|
$
|
251,567
|
|
|
$
|
925,059
|
|
|
$
|
966,898
|
|
FFO as adjusted from
QCP per common share
|
|
$
|
—
|
|
|
$
|
(0.06)
|
|
|
$
|
—
|
|
|
$
|
(0.70)
|
|
Diluted Comparable FFO as adjusted per common
share
|
|
$
|
0.48
|
|
|
$
|
0.53
|
|
|
$
|
1.95
|
|
|
$
|
2.04
|
|
_______________________________________
|
(1)
|
For the year ended
December 31, 2017, represents income tax benefit associated with
the disposition of real estate assets in our RIDEA II transaction.
For the year ended December 31, 2016, represents income tax
expense associated with the state built-in gain tax payable upon
the disposition of specific real estate assets, of which $49
million relates to the HCRMC real estate portfolio.
|
(2)
|
For the three months
and year ended December 31, 2017, includes $55 million of net
non-cash charges related to the right to terminate certain
triple-net leases and management agreements in conjunction with the
November 2017 Brookdale transaction. For the three months and year
ended December 31, 2016, primarily relates to the
Spin-Off.
|
(3)
|
For the three months
ended December 31, 2017, represents the impairment on our Tandem
Health Care mezzanine loan ("Tandem Mezzanine Loan"). For the year
ended December 31, 2017, represents $144 million of impairments on
our Tandem Mezzanine Loan throughout 2017, net of a $51 million
impairment recovery upon the sale of our Four Seasons Notes in the
first quarter of 2017.
|
(4)
|
For the year ended
December 31, 2017, primarily relates to the departure of our former
Executive Vice President and Chief Accounting Officer. For the year
ended December 31, 2016, primarily relates to the departure of our
former President and Chief Executive Officer.
|
(5)
|
For the year ended
December 31, 2017, represents the premium associated with the
prepayment of $500 million of senior unsecured notes. For the three
months and year ended December 31, 2016, represents penalties of
$46 million from the prepayment of $1.1 billion of senior unsecured
notes and $108 million of mortgage debt using proceeds from the
Spin-Off.
|
(6)
|
For the three months
ended December 31, 2017, primarily relates to a legal settlement.
For the year ended December 31, 2017, relates to costs from
securities class action litigation and a legal settlement. For the
three months and year ended December 31, 2016, primarily relates to
costs from securities class action litigation. See Note 3 in the
Consolidated Financial Statements for the year ended December 31,
2017 included in the Company's Annual Report on Form 10-K filed
with the SEC for additional information.
|
(7)
|
Represents the
remeasurement of deferred tax assets and liabilities as a result of
the Tax Cuts and Jobs Act that was signed into legislation on
December 22, 2017.
|
(8)
|
Represents FFO as
adjusted excluding FFO as adjusted from QCP and interest expense
related to debt repaid using proceeds from the Spin-Off, assuming
these transactions occurred at the beginning of the earliest period
presented. Comparable FFO as adjusted allows management to evaluate
the performance of our remaining real estate portfolio following
the completion of the Spin-Off.
|
HCP, Inc.
|
Funds
Available for Distribution
|
In
thousands
|
(unaudited)
|
|
|
Three Months
Ended
December 31,
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
FFO as adjusted
applicable to common shares
|
$
|
225,608
|
|
|
$
|
276,200
|
|
|
$
|
918,402
|
|
|
$
|
1,282,390
|
|
Amortization of
deferred compensation(1)
|
3,180
|
|
|
2,687
|
|
|
13,510
|
|
|
15,581
|
|
Amortization of
deferred financing costs
|
3,428
|
|
|
4,416
|
|
|
14,569
|
|
|
20,014
|
|
Straight-line
rents
|
(5,881)
|
|
|
(5,980)
|
|
|
(23,933)
|
|
|
(27,560)
|
|
FAD capital
expenditures(2)
|
(44,272)
|
|
|
(27,231)
|
|
|
(124,176)
|
|
|
(93,407)
|
|
Lease restructure
payments
|
305
|
|
|
2,124
|
|
|
1,470
|
|
|
16,604
|
|
CCRC entrance
fees(3)
|
6,949
|
|
|
4,763
|
|
|
21,385
|
|
|
21,287
|
|
Deferred income
taxes(4)
|
(4,967)
|
|
|
(4,714)
|
|
|
(15,490)
|
|
|
(13,692)
|
|
Other FAD
adjustments
|
(1,747)
|
|
|
(1,014)
|
|
|
(2,017)
|
|
|
(5,521)
|
|
FAD applicable to
common shares
|
$
|
182,603
|
|
|
$
|
251,251
|
|
|
$
|
803,720
|
|
|
$
|
1,215,696
|
|
Distributions on
dilutive convertible units
|
—
|
|
|
2,466
|
|
|
—
|
|
|
13,088
|
|
Diluted FAD
applicable to common shares
|
$
|
182,603
|
|
|
$
|
253,717
|
|
|
$
|
803,720
|
|
|
$
|
1,228,784
|
|
_______________________________________
|
(1)
|
Excludes $0.7 million
related to the acceleration of deferred compensation for restricted
stock units that vested upon the departure of our former Executive
Vice President and Chief Accounting Officer, which is included in
the severance and related charges for the year ended December 31,
2017. Excludes $7 million related to the acceleration of deferred
compensation for restricted stock units that vested upon the
departure of our former President and Chief Executive Officer,
which is included in severance and related charges for the year
ended December 31, 2016.
|
(2)
|
Includes our share of
recurring capital expenditures, leasing costs, and tenant and
capital improvements from unconsolidated joint ventures.
|
(3)
|
Represents our 49%
share of non-refundable entrance fees as the fees are collected by
our CCRC JV, net of reserves and CCRC JV entrance fee
amortization.
|
(4)
|
Excludes $17 million
of deferred tax expenses, which is included in tax rate legislation
impact for the three months and year ended December 31, 2017.
Additionally, the year ended December 31, 2017, excludes $1 million
of deferred tax benefit from the casualty-related charges, which is
included in casualty-related charges (recoveries), net.
|
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SOURCE HCP, Inc.