FIRST QUARTER 2015 AND RECENT HIGHLIGHTS
-- FFO as adjusted and FAD per share increased year-over-year by
5% to $0.79 and 10% to $0.69, respectively; and FFO per share and
EPS were ($0.26) and ($0.52), respectively
-- Achieved year-over-year three-month cash NOI SPP growth of
3.5%
-- Strengthened Master Lease on our HCR ManorCare portfolio:
-- Agreed to market 50 non-strategic
assets
-- Amended and extended the Master Lease
-- Q1 2015 HCR ManorCare operating results
improved; year-over-year EBITDAR increased 3.6%
-- Completed $487 million of investment transactions:
-- Commenced the first phase, $177 million,
of The Cove, a development project that includes two life science
buildings in South San Francisco representing 253,000 sq. ft.
-- Increased our U.K. HC-One debt investment
by $164 million (£108 million) in a follow-on transaction
-- Completed $146 million of other
investments
-- Executed 537,000 sq. ft. of leasing in our life science and
medical office portfolios
-- Announced an $849 million private pay senior housing
portfolio acquisition from Chartwell in a RIDEA structure with
Brookdale
-- Raised $933 million of capital:
-- Issued $600 million of 10-year 3.4% senior
unsecured notes
-- Completed a $333 million (£220 million)
four-year 1.79% unsecured term loan
-- Through May 5, 2015:
-- Converted £174 million of our £502 million
U.K. HC-One debt investment to fee ownership in a portfolio of 36
care homes
-- Entered into agreements to acquire $192
million of other real estate assets
HCP (the “Company” or “we”) (NYSE:HCP) announced results for the
quarter ended March 31, 2015 as follows (in thousands, except per
share amounts):
Three Months EndedMarch 31, 2015
Three Months EndedMarch 31, 2014
Per Share Amount Per Share Amount Per Share
Change
FFO $ (117,572 ) $ (0.26 ) $ 343,139 $ 0.75 $ (1.01 )
Other impairment(1) 478,464 1.04 — — 1.04 Transaction-related
items(2) 3,390 0.01 495 — 0.01
FFO as adjusted $ 364,282 $ 0.79 $ 343,634 $ 0.75 $ 0.04
FAD $ 319,581 $ 0.69 $ 287,516 $ 0.63 $ 0.06
Net (loss)
income $ (240,949
)
$ (0.52 ) $ 258,047 $ 0.56 $ (1.08 )
________________________________________
(1) This impairment relates to our direct financing lease
(“DFL”) investments with HCR ManorCare, Inc. (“HCRMC”).
(2) Transaction-related items were attributable to acquisition
and pursuit costs.
In addition to the items discussed above, operating results for
the quarter ended March 31, 2015 include the positive impact of $4
million of interest income from the repayment of a development
loan, partially offset by additional interest expense to prefund
all of our 2015 debt maturities from our January senior unsecured
notes offering. Net (loss) income for the quarters ended March 31,
2015 and 2014 also include net gain on sales of real estate of $6
million and $28 million, respectively.
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.
HCR MANORCARE UPDATES
During the quarter ended March 31, 2015, HCP and HCRMC agreed to
market for sale the real estate and operations associated with up
to 50 non-strategic assets that are under the Master Lease and
Security Agreement (the “Master Lease”) for an estimated total
gross sales price between $250 million and $350 million. Six assets
are currently under a letter of intent for sale. HCRMC will receive
an annual rent reduction under the Master Lease based on 7.75% of
the net sales proceeds received by HCP. The asset sales are
expected to occur during the second half of 2015 and the first
quarter of 2016.
Additionally, HCP and HCRMC agreed to amend the Master Lease
(the “HCRMC Lease Amendment”). Commencing April 1, 2015, HCP
provided an annual net rent reduction of $68 million, which equates
to initial lease year rent of $473 million, compared to $541
million that would have commenced April 1, 2015 prior to the HCRMC
Lease Amendment. The contractual rent will increase by 3.0%
annually during the initial term. In exchange, HCP will receive the
following consideration:
- Fee ownership in nine post-acute
facilities valued at $275 million with a median age of four years,
currently owned and operated by HCRMC, which transfer is expected
to be completed within the next 12 months, subject to customary
licensing and regulatory approvals; until the transfer is complete,
HCP will retain a lease receivable of equal value, earning income
of $19 million annually (included in the amended initial lease year
rent of $473 million above);
- A second lease receivable with an
initial amount of $250 million, payable by HCRMC upon the earlier
of: (i) the end of the initial term of the first renewal pool under
the HCRMC Lease Amendment, or (ii) certain capital or liquidity
events of HCRMC, including an IPO or sale. The $250 million lease
receivable amount will increase each year as follows: 3.0% in April
2016 through 2018, 4.0% in 2019, 5.0% in 2020 and 6.0% in 2021
until the end of the initial lease term; and
- Extension of the initial lease term by
five years, to an average of 16 years.
We recorded a non-cash impairment charge of $478 million related
to our direct financing lease (“DFL”) investments with HCRMC. The
non-cash charge reduced the carrying value of the HCRMC DFL
investments from $6.6 billion to $6.1 billion, which represents the
present value of the future lease payments under the HCRMC Lease
Amendment.
HCRMC’s operating performance for the quarter ended March 31,
2015 reflects year-over-year EBITDAR growth of 3.6%, driven by
reimbursement rate increases and continued cost controls. HCRMC’s
normalized fixed charge coverage ratio for the trailing twelve
months ended March 31, 2015 of 1.08x is consistent with the prior
quarter and does not reflect the net $68 million annual rent
reduction from the HCRMC Lease Amendment (effective on April 1,
2015) or the potential asset sales discussed above. At March 31,
2015, HCRMC’s cash and cash equivalents increased to $142
million.
The United States Department of Justice (“DOJ”) filed a
complaint against HCRMC that was released from seal on April 20,
2015. The DOJ’s complaint follows a civil investigation of three
previously sealed lawsuits filed by former employees of HCRMC under
the “qui tam” provisions of the federal False Claims Act. The DOJ
complaint against HCRMC alleges that HCRMC submitted claims to
Medicare for therapy services that were: (i) not covered by the
skilled nursing facility benefit, (ii) not medically reasonable and
necessary, and (iii) not skilled in nature, and therefore not
entitled to Medicare reimbursement. HCRMC has advised us they
believe the claims are unjust and intend to vigorously defend
against the DOJ’s civil action. Since the case is at a preliminary
stage, the ultimate outcome is uncertain.
NEW LIFE SCIENCE DEVELOPMENT AT THE COVE
In February 2015, we began construction on the first phase, $177
million, of The Cove at Oyster Point, a life science development in
South San Francisco, California. The first phase includes two
“class A” buildings totaling 253,000 sq. ft. that are expected to
be completed in the third quarter of 2016.
HC-ONE INVESTMENT IN U.K.
In February 2015, we increased our U.K. HC-One debt investment
(“HC-One Facility”) by £108 million to £502 million in conjunction
with HC-One’s acquisition of Meridian Healthcare. The HC-One
Facility is secured by 303 nursing and residential care homes
representing over 13,900 beds in the U.K., primarily located in
England and Scotland.
In April 2015, we converted £174 million of our HC-One Facility
to fee ownership in a portfolio of 36 care homes under 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”) and will be reset to fair market rent 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.
OTHER INVESTMENT TRANSACTIONS
In March 2015, we formed a new RIDEA joint venture (“MBK JV”)
with MBK Senior Living (“MBK”), a subsidiary of Mitsui & Co.
Ltd, that acquired three senior housing facilities for $126 million
with HCP and MBK each owning a 50% equity interest. MBK manages
these communities on behalf of this joint venture. At closing, we
contributed $27 million of cash and MBK contributed the three
senior housing facilities, which were encumbered by $78 million of
mortgage debt. The MBK JV intends to acquire additional senior
housing facilities by focusing on off-market transactions.
During the quarter ended March 31, 2015, we commenced on
$65 million of other development projects.
In March 2015, we exercised the purchase option under our $18
million development loan and acquire a newly developed assisted
living and memory care facility in Houston, Texas for $36 million.
The facility is managed by Brookdale Senior Living Inc.
(“Brookdale”) and at closing was 98.9% occupied and placed in a
RIDEA structure with Brookdale acquiring a 10% noncontrolling
interest.
LIFE SCIENCE AND MEDICAL OFFICE LEASING HIGHLIGHTS
During the quarter ended March 31, 2015, we completed 537,000
sq. ft. of leasing in our life science and medical office segments,
consisting of 434,000 sq. ft. of new leases and 103,000 sq. ft. of
renewals. Significant new leasing transactions include:
- 7-year lease with a biotechnology
company for an entire 42,000 sq. ft. building in our Redwood City,
California campus; and
- 10-year lease with a biotechnology
company for an entire 43,000 sq. ft. building in San Diego,
California.
In April 2015, we executed a 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.
$849 MILLION ACQUISITION OF PRIVATE PAY SENIOR HOUSING
PORTFOLIO
In March 2015, HCP and Brookdale entered into a definitive
agreement to acquire from Chartwell Retirement Residences a
portfolio of 35 private pay senior housing communities, including
two leasehold interests, representing 5,025 units (the “Chartwell
Portfolio”) for $849 million. The Chartwell Portfolio will be
acquired in a RIDEA structure, and Brookdale will acquire a 10%
noncontrolling interest. Brookdale has operated these communities
since 2011 after its acquisition of Horizon Bay, and will continue
to manage the communities post-closing under a long-term management
agreement, which is cancellable under certain conditions, subject
to a fee if terminated within the next seven years. The closing of
this acquisition is expected in the third quarter and remains
subject to regulatory approvals and other customary closing
conditions.
ADDITIONAL INVESTMENTS THROUGH MAY 5, 2015
In April 2015, we acquired a medical office building (“MOB”) for
$161 million. The MOB is located in Philadelphia, Pennsylvania with
705,000 rentable sq. ft. and is currently 85% occupied.
In April 2015, we exercised our purchase option under our $41
million development loan to acquire a newly developed assisted
living and memory care facility in Germantown, Tennessee for $72
million. The facility will be managed by Brookdale and placed in a
RIDEA structure with Brookdale acquiring a 10% noncontrolling
interest. We expect to close this acquisition in the second quarter
of 2015, subject to customary closing conditions.
FINANCING ACTIVITIES
In January 2015, we issued $600 million of 3.40% senior
unsecured notes due 2025. The notes were priced at 99.185% of the
principal amount with a yield-to-maturity of 3.497%. Net proceeds
were used to repay the entire $105 million U.S. dollar amount
outstanding on our revolving credit facility at closing and $200
million of 6.00% senior unsecured notes that matured on March 1,
2015. We intend to use the remaining proceeds to repay $200 million
of 7.00% senior unsecured notes maturing in June 2015 and for
general corporate purposes.
In January 2015, to economically hedge a portion of our foreign
currency risk from the HC-One Facility, we completed a £220 million
four-year unsecured term loan that accrues interest at GBP LIBOR
plus 0.975%, subject to adjustments based on our credit ratings.
Concurrently, we entered into a three-year interest rate swap
agreement that fixes the rate of the term loan at 1.79%, and a
foreign currency swap agreement that fixes the GBP/USD exchange
rate at 1.5149 on interest income from the HC-One debt investment
in excess of interest payments on the term loan. Proceeds from this
term loan repaid £220 million of the GBP balance drawn on our
revolving credit facility that were used to fund our HC-One debt
investment in November 2014.
SUSTAINABILITY
During the first quarter of 2015, we published our first
combined Annual and Sustainability Report. This is our fourth
Sustainability Report, prepared in accordance with the GRI
framework. For the third consecutive year, our Britannia Oyster
Point Life Science campus in South San Francisco, California was
designated as one of the Best Sites by Best Workplaces for
Commuters. The campus was recognized for its commitment to
promoting energy conservation by reducing traffic congestion and
related air pollution. More information about HCP’s sustainability
efforts can be found on our website at
www.hcpi.com/sustainability.
DIVIDEND
On April 30, 2015, our Board of Directors declared a quarterly
cash dividend of $0.565 per common share. The dividend will be paid
on May 26, 2015 to stockholders of record as of the close of
business on May 11, 2015.
OUTLOOK
For full year 2015, we expect: FFO per share to range between
$2.02 and $2.08; FFO as adjusted per share to range between $3.09
and $3.15; FAD per share to range between $2.66 and $2.72; and EPS
to range between $0.84 and $0.90. These estimates reflect the
impact of the announced acquisitions, developments and leasing
activities discussed above, including the pending Chartwell
Portfolio acquisition, but do not reflect the potential impact of
other future acquisitions. 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, May
5, 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 March 31, 2015. The conference call
is accessible by dialing (877) 363-5049 (U.S.) or (760) 536-8594
(International). The participant passcode is 22532762. 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 May 20, 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 22532762. The Company’s
supplemental information package for the current period is
available with the 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) net (loss) income, FFO, FFO as
adjusted and FAD applicable to common shares on a diluted basis for
the full year of 2015; (ii) cash NOI SPP growth for the full year
of 2015; (iii) lease coverage, fixed charge coverage and other
financial projections and assumptions; (iv) the payment of the
quarterly cash dividend and (v) anticipated outcomes relating to:
(a) the HCRMC asset sales, the HCRMC Lease Amendment and the DOJ
litigation, (b) additional acquisitions in the MBK JV, (c) the
acquisition of the Chartwell Portfolio and the potential benefits
of a new joint venture between HCP and Brookdale and (d) the other
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: the risk that the Company may not be able
to achieve the benefits of the HCRMC asset sales or the HCRMC Lease
Amendment within expected time-frames or at all; risks relating to
the Company’s ability to fully evaluate HCRMC’s ability to meet its
contractual obligations under the HCRMC Lease Amendment; any
financial, legal, regulatory or reputational difficulties that
HCRMC may experience; the risk that HCRMC’s financial performance
will continue to decline, including as a result of the DOJ
litigation; risks related to the impact of the DOJ lawsuit against
HCRMC, including the possibility of larger than expected litigation
costs, adverse results and related developments; our reliance on a
concentration of a small number of tenants and operators, including
HCRMC, 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, including with respect to
HCRMC; the ability of our tenants and operators, including HCRMC,
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, including
HCRMC; 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)
March 31,
December 31,
2015 2014
Assets Real estate: Buildings and improvements $
10,980,848 $ 10,972,973 Development costs and construction in
progress 293,492 275,233 Land 1,882,476 1,889,438 Accumulated
depreciation and amortization (2,319,791 ) (2,250,757
) Net real estate 10,837,025 10,886,887 Net investment in
direct financing leases 6,827,596 7,280,334 Loans receivable, net
1,025,278 906,961 Investments in and advances to unconsolidated
joint ventures 642,795 605,448 Accounts receivable, net of
allowance of $3,629 and $3,785, respectively 40,153 36,339 Cash and
cash equivalents 137,170 183,810 Restricted cash 47,279 48,976
Intangible assets, net 458,249 481,013 Other assets, net
1,008,897 940,172 Total assets $ 21,024,442 $
21,369,940
Liabilities and equity Bank line of credit
$ 358,555 $ 838,516 Term loans 530,038 213,610 Senior unsecured
notes 8,022,533 7,626,194 Mortgage debt 979,890 984,431 Other debt
95,747 97,022 Intangible liabilities, net 80,387 84,723 Accounts
payable and accrued liabilities 314,226 432,934 Deferred revenue
87,420 95,411 Total liabilities 10,468,796
10,372,841 Common stock, $1.00 par value:
750,000,000 shares authorized; 461,583,731 and 459,746,267 shares
issued and outstanding, respectively 461,584 459,746 Additional
paid-in capital 11,493,988 11,431,987 Cumulative dividends in
excess of earnings (1,633,841 ) (1,132,541 ) Accumulated other
comprehensive loss (28,461 ) (23,895 ) Total
stockholders’ equity 10,293,270 10,735,297
Joint venture partners 75,397 73,214 Non-managing member
unitholders 186,979 188,588 Total noncontrolling
interests 262,376 261,802 Total equity
10,555,646 10,997,099 Total liabilities and equity $
21,024,442 $ 21,369,940
HCP, Inc.
Consolidated Statements of
Operations
In thousands, except per share
data
(Unaudited)
Three Months EndedMarch 31,
2015 2014
Revenues: Rental and related
revenues $275,082 $ 284,823 Tenant recoveries 29,896 25,434
Resident fees and services 105,013 38,053 Income from direct
financing leases 167,078 164,537 Interest income 33,262 16,696
Investment management fee income 460 449 Total
revenues 610,791 529,992
Costs and
expenses: Interest expense 116,780 106,638 Depreciation and
amortization 114,522 107,388 Operating 132,031 75,707 General and
administrative 24,773 20,899 Acquisition and pursuit costs 3,390
495 Impairments 478,464 — Total costs and expenses
869,960 311,127
Other income: Gain on
sales of real estate, net of income taxes 6,264 — Other income, net
1,724 1,930 Total other income, net 7,988
1,930
(Loss) income before income taxes and equity
income from unconsolidated joint ventures (251,181 ) 220,795
Income taxes benefit (provision) 77 (1,446 ) Equity income from
unconsolidated joint ventures 13,601 14,528
(Loss)
income from continuing operations (237,503 )
233,877
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 (loss)
income (237,503 ) 263,623 Noncontrolling interests’ share in
earnings (3,111 ) (4,512 )
Net (loss) income
attributable to HCP, Inc. (240,614 ) 259,111 Participating
securities’ share in earnings (335 ) (1,064 )
Net (loss) income applicable to common shares $ (240,949 ) $
258,047
Basic earnings per common share: Continuing
operations $ (0.52 ) $ 0.50 Discontinued operations —
0.06 Net (loss) income applicable to common shares $ (0.52 ) $ 0.56
Diluted earnings per common share: Continuing
operations $ (0.52 ) $ 0.50 Discontinued operations —
0.06 Net (loss) income applicable to common shares $ (0.52 ) $ 0.56
Weighted average shares used to calculate earnings per
common share: Basic 460,880 457,294
Diluted 460,880 457,674
HCP, Inc.
Consolidated Statements of Cash
Flows
In thousands
(Unaudited)
Three Months Ended March 31, 2015 2014
Cash flows
from operating activities: Net (loss) income $ (237,503 ) $
263,623 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 114,522 107,388
Amortization of market lease intangibles, net (378 ) (168 )
Amortization of deferred compensation 6,165 4,890 Amortization of
deferred financing costs, net 4,752 4,965 Straight-line rents
(9,546 ) (13,968 ) Loan and direct financing lease interest
accretion (21,032 ) (21,503 ) Deferred rental revenues (902 ) (145
) Equity income from unconsolidated joint ventures (13,601 )
(14,528 ) Distributions of earnings from unconsolidated joint
ventures 1,159 2,430 Lease termination income, net (1,103 ) — Gain
on sales of real estate (6,264 ) (28,010 ) Marketable securities
and other losses, net 134 63 Impairments 478,464 — Changes in:
Accounts receivable, net (3,814 ) (1,045 ) Other assets (5,839 )
(8,942 ) Accounts payable and accrued liabilities (75,146
)
(47,869 ) Net cash provided by operating activities 230,068 247,181
Cash flows from investing activities: Acquisitions and
pending acquisitions of real estate (71,373 ) (5,473 ) Development
of real estate (61,805 ) (33,983 ) Leasing costs and tenant and
capital improvements (11,540 ) (12,405 ) Proceeds from sales of
real estate, net — 36,753 Contributions to other unconsolidated
joint ventures (27,279 ) — Distributions in excess of earnings from
unconsolidated joint ventures 1,022 772 Principal repayments on
loans receivable 17,496 3,133 Investments in loans receivable and
other (176,504 ) (42,281 ) Decrease in restricted cash 1,697 6,933
Net cash used in investing activities (328,286 ) (46,551 )
Cash
flows from financing activities: Net repayments under bank line
of credit (455,506 ) — Borrowings under term loan 333,014 —
Issuance of senior unsecured notes 595,110 350,000 Repayments of
senior unsecured notes (200,000 ) (400,000 ) Repayments of mortgage
debt (6,354 ) (162,739 ) Deferred financing costs (7,687 ) (9,239 )
Issuance of common stock and exercise of options 62,425 32,728
Repurchase of common stock (6,096 ) (8,068 ) Dividends paid on
common stock (260,686 ) (250,198 ) Issuance of noncontrolling
interests 1,626 41 Distributions to and purchase of noncontrolling
interests (4,124 ) (3,975 ) Net cash provided by (used in)
financing activities 51,722 (451,450 ) Effect of foreign exchange
on cash and cash equivalents (144 ) 2 Net decrease in cash and cash
equivalents (46,640 ) (250,818 ) Cash and cash equivalents,
beginning of year 183,810 300,556 Cash and cash equivalents, end of
year $ 137,170 $ 49,738
HCP, Inc.
Funds From Operations(1)
In thousands, except per share
data
(Unaudited)
Three Months Ended
March 31,
2015 2014
Net (loss) income applicable to common
shares $ (240,949 )
$
258,047 Depreciation and amortization of real estate, in-place
lease and other intangibles 114,522 107,388 Other depreciation and
amortization(2) 6,684 3,846 Gain on sales of real estate (6,264 )
(28,010 ) Equity income from unconsolidated joint ventures (13,601
) (14,528 ) FFO from unconsolidated joint ventures 24,849 16,961
Noncontrolling interests’ and participating securities’ share in
earnings 3,446 5,576 Noncontrolling interests’ and participating
securities’ share in FFO (6,259 ) (6,141 ) FFO
applicable to common shares $ (117,572 )
$
343,139 Distributions on dilutive convertible units —
3,420
Diluted FFO applicable to common shares $ (117,572 )
$
346,559 Diluted FFO per common share $ (0.26 )
$
0.75 Weighted average shares used to calculate diluted FFO
per share 460,880 463,661
Impact of
adjustments to FFO: Other impairment(3) $ 478,464 $ —
Transaction-related items(4) 3,390 495 $ 481,854 $
495 FFO as adjusted applicable to common shares $ 364,282 $
343,634 Distributions on dilutive convertible units and other
3,194 3,420
Diluted FFO as adjusted applicable to
common shares $ 367,476 $ 347,054 Per common share impact of
adjustments on diluted FFO(3) (4) $ 1.05 $ —
Diluted FFO
as adjusted per common share $ 0.79 $ 0.75 Weighted
average shares used to calculate diluted FFO as adjusted per share
467,229 463,661
_______________________________________
(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 (loss) income 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, direct financing lease (“DFL”) and other
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 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 (loss) income. 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 impairments
(recoveries) of non-depreciable assets, transaction-related items
(defined below) and severance-related charges. 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 (loss) income (determined in accordance
with GAAP) or NAREIT FFO.
(2) For the quarter ended March 31, 2015, other depreciation and
amortization includes: (i) $4 million of DFL depreciation and (ii)
$3 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.
(3) The other impairment charge of $478 million relates to our
DFL investments with HCRMC.
(4) Transaction-related items were attributable to acquisition
and pursuit costs.
HCP, Inc.
Funds Available for
Distribution(1)
In thousands, except per share
data
(Unaudited)
Three Months Ended
March 31,
2015 2014
FFO as adjusted applicable to common
shares $ 364,282 $ 343,634 Amortization of market lease
intangibles, net (378 ) (168 ) Amortization of deferred
compensation 6,165 4,890 Amortization of deferred financing costs,
net 4,752 4,965 Straight-line rents (9,546 ) (13,968 ) DFL
accretion(2) (20,304 ) (21,422 ) Other depreciation and
amortization (6,684 ) (3,846 ) Deferred revenues – tenant
improvement related (744 ) (482 ) Deferred revenues – additional
rents (158 ) 337 Leasing costs and tenant and capital improvements
(11,540 ) (12,405 ) Lease restructure payments(3) 5,135 — Joint
venture adjustments – CCRC entrance fees(4) 6,193 — Joint venture
and other FAD adjustments(2) (17,592 ) (14,019 ) FAD
applicable to common shares $ 319,581 $ 287,516
Distributions on dilutive convertible units 3,568
2,251
Diluted FAD applicable to common shares $
323,149 $ 289,767 Diluted FAD per common share $ 0.69 $ 0.63
Weighted average shares used to calculate diluted FAD per
common share 467,229 461,804
________________________________________
(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 (loss) income
determined in accordance with GAAP.
(2) For both the quarters ended March 31, 2015 and 2014, DFL
accretion reflects an elimination of $16 million. 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.
(3) 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.
(4) 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 Ended
March 31,
2015 2014
Net (loss) income $ (237,503
)
$ 263,623 Interest income (33,262
)
(16,696 ) Investment management fee income (460
)
(449 ) Interest expense 116,780 106,638 Depreciation and
amortization 114,522 107,388 General and administrative 24,773
20,899 Acquisition and pursuit costs 3,390 495 Impairments 478,464
— Gain on sales of real estate, net of income taxes (6,264
)
— Other income, net (1,724
)
(1,930 ) Income taxes (benefit) provision (77
)
1,446 Equity income from unconsolidated joint ventures (13,601
)
(14,528 ) Total discontinued operations —
(29,746 )
NOI $ 445,038 $ 437,140 Straight-line rents (9,546
)
(13,968 ) DFL accretion (20,304
)
(21,422 ) Amortization of market lease intangibles, net (378
)
(168 ) Lease termination fees 1,043 (578 ) NOI adjustments related
to discontinued operations — (11
)
Cash (adjusted) NOI $ 415,853 $ 400,993 Non-SPP cash
(adjusted) NOI (24,831
)
(23,015
)
Same property portfolio cash (adjusted) NOI(2)
$ 391,022 $ 377,978 Cash
(adjusted) NOI % change – SPP(2) 3.5
%
________________________________________
(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
(loss) income is the most directly comparable GAAP measure to NOI.
NOI should not be viewed as an alternative measure of operating
performance to net (loss) income (determined in accordance with
GAAP) since it excludes certain components from net (loss) 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 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, 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. 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
$
0.84
$ 0.90 Real estate depreciation and amortization 1.07 1.07 Other
depreciation and amortization 0.05 0.05 Gain on sales of real
estate (0.01 ) (0.01 ) Joint venture FFO adjustments 0.07
0.07
Diluted FFO per common share
$ 2.02 $ 2.08 Other impairment(2) 1.03
1.03 Transaction-related items 0.04 0.04
Diluted FFO as adjusted per common share $
3.09 $ 3.15 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 (0.06 ) (0.06 ) DFL
accretion(3) (0.18 ) (0.18 ) Other depreciation and amortization
(0.05 ) (0.05 ) Leasing costs and tenant and capital improvements
(0.18 ) (0.18 ) Lease restructure payments(4) 0.05 0.05 Joint
venture adjustments – CCRC entrance fees(5) 0.06 0.06 Joint venture
and other FAD adjustments(3) (0.15 ) (0.15 )
Diluted FAD per common share $ 2.66
$ 2.72
________________________________________
(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.
(2) The other impairment charge of $478 million, or $1.03 per
diluted share, relates to our DFL investments with HCRMC.
(3) 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 they are collected by our CCRC JV.
HCP, Inc.Timothy M. SchoenExecutive Vice President and Chief
Financial Officer949-407-0400
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