FOURTH QUARTER 2014 AND RECENT HIGHLIGHTS
-- FFO as adjusted and FAD per share increased year-over-year by
4% to $0.79 and 8% to $0.66, respectively; and FFO per share and
EPS were $0.70 and $0.43, respectively
-- Achieved year-over-year three-month cash NOI SPP growth of
3.5%
-- Completed $813 million of investment transactions:
-- $630 million (£395 million) for our
HC-One debt investment secured by a U.K. care home portfolio
-- $183 million of other investments
-- Executed 1.3 million sq. ft. of leasing in our life science
and medical office portfolios; achieved an all-time high occupancy
of 95.2% in our life science segment
-- Through February 10, 2015:
-- Raised $933 million of debt, including
$333 million (£220 million) from a four-year 1.79% unsecured term
loan and $600 million of ten-year 3.4% senior unsecured notes
-- Increased our U.K. HC-One debt investment
by $165 million (£108 million) in a follow-on transaction,
growing our U.K. investments to over $1 billion (£729 million);
expect to convert £174 million into a sale-leaseback transaction of
equal value for a portfolio of 36 properties
-- Commenced the first phase of The Cove
development project that includes two life science buildings in
South San Francisco representing 253,000 sq. ft.
-- HCP and HCR ManorCare have jointly agreed
to market for sale certain non-strategic assets that are under the
master lease
FULL YEAR 2014 HIGHLIGHTS
-- FFO as adjusted per share increased to $3.04; FAD per share
increased to $2.57; and FFO per share and EPS were $3.00 and $2.00,
respectively
-- Achieved year-over-year cash NOI SPP growth of 3.3%, the 6th
consecutive year exceeding 3.0%
-- Completed $2.1 billion of investments, which included:
-- $777 million (£483 million) in the
U.K.
-- $588 million for our 49% interest in the
industry’s largest CCRC joint venture managed by Brookdale
-- Closed the Brookdale Transaction, which included the
cancellation of tenant purchase options related to $1.3 billion of
our senior housing properties
-- Executed 3.9 million sq. ft. of leasing in our life science
and medical office portfolios
-- Increased our revolving line of credit facility to $2
billion, with improved pricing and extended term
-- Raised $2.1 billion of debt at an average rate of 3.5% during
2014 and through February 10, 2015
-- Named as the Global Leader for the Healthcare Sector by GRESB
and named to the CDP S&P 500 Climate Disclosure Leadership
Index
2015 OUTLOOK AND DIVIDEND
-- Full year guidance, not including the impact of future
acquisitions or dispositions, for FFO per share of $3.14 – $3.20,
representing a growth rate of 6%; FFO as adjusted per share of
$3.15 – $3.21, representing a growth rate of 5%; FAD per share of
$2.73 – $2.79, representing a growth rate of 7%; and EPS of $1.98 –
$2.04. Year-over-year growth rates are based on the mid-point of
2015 estimates over their comparable 2014 amounts.
-- Full year guidance for cash NOI SPP growth of 2.75% –
3.75%
-- Increased quarterly cash dividend 3.7% to $0.565 per share,
which represents our 30th consecutive year with a dividend
increase
-- HCP continues as the only REIT included in the S&P 500
Dividend Aristocrats index
HCP (the “Company” or “we”) (NYSE:HCP) announced results for the
quarter and year ended December 31, 2014 as follows (in thousands,
except per share amounts):
FOURTH QUARTER COMPARISON
Three Months EndedDecember 31, 2014
Three Months EndedDecember 31, 2013
PerShare
Amount Per Share Amount
Per Share Change
FFO $ 324,734 $ 0.70 $ 346,018 $ 0.76 $
(0.06 ) Other impairments(1) 35,913 0.08 — — 0.08
Transaction-related items(2) 4,269 0.01 117 — 0.01
Severance-related charges — — 870 —
—
FFO as adjusted
$ 364,916 $ 0.79 $ 347,005 $ 0.76 $ 0.03
FAD
$ 304,963 $ 0.66 $ 276,946 $ 0.61 $ 0.05
Net income
$ 196,145 $ 0.43 $ 292,625 $ 0.64 $ (0.21 )
________________________________________
(1) This impairment relates to a December 2014 charge for our
9.4% equity ownership interest in HCR ManorCare, Inc.
(“HCRMC”).
(2) Transaction-related items were attributable to acquisition
and pursuit costs.
In addition to the items above, operating results for the
quarter ended December 31, 2013 included the positive impact of
$0.01 per share of equity income from an unconsolidated joint
venture related to a capital distribution from our interest in a
senior housing development project. Net income for the quarters
ended December 31, 2014 and 2013 also included net gain on sales of
real estate of $3 million and $59 million, respectively.
FULL YEAR COMPARISON
Year EndedDecember 31, 2014
Year EndedDecember 31, 2013
PerShare
Amount Per Share Amount
Per Share Change
FFO $ 1,381,634 $ 3.00 $ 1,349,264 $
2.95 $ 0.05 Other impairments 35,913 0.08 — — 0.08
Transaction-related items(1) (18,856 ) (0.04 ) 6,191 0.01 (0.05 )
Severance-related charges(2) — — 27,244
0.06 (0.06 )
FFO as adjusted $ 1,398,691 $ 3.04 $
1,382,699 $ 3.02 $ 0.02
FAD $ 1,178,822 $ 2.57 $ 1,158,082 $
2.54 $ 0.03
Net income $ 919,796 $ 2.00 $ 969,103 $ 2.13 $
(0.13 )
________________________________________
(1) Transaction-related items in 2014 were attributable to the
positive impact resulting from the previously announced transaction
with Brookdale Senior Living, which closed in August 2014 (the
“Brookdale Transaction”), partially offset by acquisition and
pursuit costs. Amounts in 2013 were attributable to acquisition and
pursuit costs.
(2) Severance-related charges were attributable to the 2013
termination of our former chief executive officer.
In addition to the items above, 2013 operating results included
the positive impact of: (i) $0.05 per share of interest income from
the par payoff of our Barchester debt investments; (ii) $0.02 per
share related to gain on sales of marketable securities; and (iii)
$0.01 per share of equity income from a senior housing development
project; partially offset by a $0.02 per share charge resulting
from an adjustment to non-cash rents, primarily in our hospital
segment. Net income for the years ended December 31, 2014 and
2013 also included net gain on sales of real estate of $31 million
and $68 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.
FOURTH QUARTER AND RECENT HIGHLIGHTS
HC-ONE DEBT INVESTMENT IN U.K.
In November 2014, we were the lead investor in the financing for
Formation Capital and Safanad’s acquisition of NHP, a company that,
at closing, owned 273 nursing and residential care homes
representing over 12,500 beds in the U.K. principally operated by
HC-One. We provided a loan facility (the “HC-One Facility”)
totaling $630 million (£395 million), secured by substantially all
of NHP’s assets, with £363 million drawn at closing. The
HC-One Facility has a five-year term and is projected to achieve a
blended 8.2% yield-to-maturity.
In February 2015, we increased our HC-One Facility by $165
million (£108 million) to $795 million (£502 million), in
conjunction with HC-One’s acquisition of Meridian Healthcare. Under
the terms of the amended HC-One Facility, by the end of the first
quarter 2015, we expect to convert £174 million of our HC-One
Facility into a sale-leaseback transaction of equal value for 36
properties with an initial lease yield of 7.3%.
OTHER INVESTMENT TRANSACTIONS
During the quarter ended December 31, 2014, we acquired three
U.K. care homes leased to Maria Mallaband Care Group for $20
million (£12 million) and three medical office buildings for
$51 million. In addition, we funded $112 million for
construction and other capital projects, primarily in our life
science, medical office and senior housing segments.
In February 2015, we began construction on the first phase of
The Cove at Oyster Point, a life science development in South San
Francisco. The first phase includes two buildings totaling
253,000 sq. ft. that are expected to be completed in the third
quarter of 2016.
FINANCING ACTIVITIES
In January 2015, we issued $600 million of 3.4% 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. We intend to use the
remaining proceeds to repay $400 million of unsecured notes
maturing in March and June 2015 and for general corporate
purposes.
Also in January 2015, we completed a $333 million (£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 effectively fixes the rate of the term loan at
1.79%. Proceeds from this term loan were used to repay £220 million
of the GBP balance drawn on our revolving credit facility to fund
the aforementioned November 2014 HC-One debt investment.
LIFE SCIENCE AND MEDICAL OFFICE LEASING HIGHLIGHTS
During the fourth quarter, we completed 1.3 million sq. ft. of
leasing in our life science and medical office segments, consisting
of 900,000 sq. ft. of renewals and 400,000 sq. ft. of new leases.
Significant new leasing transactions include:
- 15-year lease with the University of
California, Davis for the entire 92,000 sq. ft. medical office
redevelopment project in Sacramento, California
- 7-year lease with a biotechnology
company for a 30,000 sq. ft. building in South San Francisco,
California. HCP will invest $13 million to reposition the life
science building to a first class lab facility
- 10-year, 72,000 sq. ft. lease for 86%
of a recently redeveloped medical office building in San Diego,
California
At December 31, 2014, life science occupancy achieved another
all-time high for the segment at 95.2%, representing an increase of
280 bps over 2013; medical office occupancy was 90.8%.
In January 2015, we executed a 7-year lease with a biotechnology
company for an entire 42,000 sq. ft. building in our Redwood City,
California campus.
SUSTAINABILITY
During the fourth quarter, Building Owners and Managers
Association (“BOMA”) International presented four of our medical
office buildings with The Outstanding Building of the Year (“TOBY”)
award in their respective locations. Additionally, we contributed
to educational and charitable organizations in partnership with our
employees, tenants and peers, including: (i) contributions to the
University of California, Irvine Institute for Memory Impairment
and Neurological Disorders (“UCI MIND”) to advance Alzheimer’s
research, and (ii) participation in the Walk to End Alzheimer’s,
one of the nation’s largest events to raise awareness and funds for
Alzheimer’s care, support and research.
In 2014, HCP was 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 1st among all
survey respondents within its sector. HCP was ranked 2nd for
environmental performance in the real estate industry by the 2014
Newsweek Green Rankings. Additionally, HCP was named to the CDP
S&P 500 Climate Disclosure Leadership Index and was named to
the Dow Jones Sustainability Index North America for the second
consecutive year and the FTSE4Good Index for the third consecutive
year. Through December 31, 2014, we have a total of 149 ENERGY
STAR and 10 LEED certifications. More information about HCP’s
sustainability efforts can be found on our website at
www.hcpi.com/sustainability.
DIVIDEND
On January 29, 2015, our Board of Directors declared a quarterly
cash dividend of $0.565 per common share. The dividend will be paid
on February 24, 2015 to stockholders of record as of the close of
business on February 9, 2015. The annualized distribution rate per
share for 2015 increased 3.7% to $2.26, compared to $2.18 for 2014,
which represents the 30th consecutive year with a dividend
increase. HCP continues as the only REIT included in the S&P
500 Dividend Aristocrats index.
2015 OUTLOOK
We expect 2015 FFO per share to range between $3.14 and $3.20,
representing a growth rate of 6%; FFO as adjusted per share to
range between $3.15 and $3.21, representing a growth rate of 5%;
FAD per share to range between $2.73 and $2.79, representing a
growth rate of 7%; and EPS to range between $1.98 and $2.04. These
estimates do not reflect the potential impact of future
acquisitions or dispositions, and year-over-year growth rates are
based on the mid-point of 2015 estimates over their comparable 2014
amounts. 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,
February 10, 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 and year ended December 31, 2014.
The conference call is accessible by dialing (877) 363-5049 (U.S.)
or (760) 536-8594 (International). The participant passcode is
64143355. The webcast is accessible via the Company’s website at
www.hcpi.com. This link can be found on the “Event Calendar” page,
which is under the “Investor Relations” tab. Through February 25,
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
64143355. 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 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 in 2015; and
(iii) the payment of the quarterly cash dividend. 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: our
reliance on a concentration of a small number of tenants and
operators for a significant portion of our revenues; the financial
weakness of tenants and operators, including potential bankruptcies
and downturns in their businesses, which results in uncertainties
regarding our ability to continue to realize the full benefit of
such tenants’ and/or operators’ leases; the ability of our tenants
and operators to conduct their respective businesses in a manner
sufficient to maintain or increase their revenues and to generate
sufficient income to make rent and loan payments to us and our
ability to recover investments made, if applicable, in their
operations; competition for tenants and operators, including with
respect to new leases and mortgages and the renewal or rollover of
existing leases; availability of suitable properties to acquire at
favorable prices and the competition for the acquisition and
financing of those properties; our ability to negotiate the same or
better terms with new tenants or operators if existing leases are
not renewed or we exercise our right to replace an existing tenant
or operator upon default; the risks associated with our investments
in joint ventures and unconsolidated entities, including our lack
of sole decision making authority and our reliance on our partners’
financial condition and continued cooperation; the risk that we may
not be able to achieve the benefits of investments within expected
time frames or at all, or within expected cost projections; the
potential impact of future litigation matters, including the
possibility of larger than expected litigation costs, adverse
results and related developments; the effect on healthcare
providers of legislation addressing entitlement programs and
related services, including Medicare and Medicaid, which may result
in future reductions in reimbursements; changes in federal, state
or local laws and regulations, including those affecting the
healthcare industry that affect our costs of compliance or increase
the costs, or otherwise affect the operations, of our tenants and
operators; volatility or uncertainty in the capital markets, the
availability and cost of capital as impacted by interest rates,
changes in our credit ratings, and the value of our common stock,
and other conditions that may adversely impact our ability to fund
our obligations or consummate transactions, or reduce the earnings
from potential transactions; changes in global, national and local
economic conditions, and currency exchange rates; changes in the
credit ratings on United States (“U.S.”) government debt securities
or default or delay in payment by the U.S. of its obligations; our
ability to manage our indebtedness level and changes in the terms
of such indebtedness; the ability to maintain our qualification as
a real estate investment trust; and other risks and uncertainties
described from time to time in the Company’s Securities and
Exchange Commission filings. The Company assumes no, and hereby
disclaims any, obligation to update any of the foregoing or any
other forward-looking statements as a result of new information or
new or future developments, except as otherwise required by
law.
HCP, Inc.
Consolidated Balance Sheets
In thousands, except share and per
share data
(Unaudited)
December 31, December 31, 2014 2013
Assets Real estate: Buildings and improvements $ 10,972,973
$ 10,544,110 Development costs and construction in progress 275,233
225,869 Land 1,889,438 1,822,862 Accumulated depreciation and
amortization (2,250,757 ) (1,965,592 ) Net real
estate 10,886,887 10,627,249 Net investment in direct
financing leases 7,280,334 7,153,399 Loans receivable, net 906,961
366,001 Investments in and advances to unconsolidated joint
ventures 605,448 196,576 Accounts receivable, net of allowance of
$3,785 and $1,529, respectively 36,339 27,494 Cash and cash
equivalents 183,810 300,556 Restricted cash 48,976 37,229
Intangible assets, net 481,013 489,842 Real estate assets held for
sale, net — 9,819 Other assets, net 940,172 867,705
Total assets $
21,369,940
$ 20,075,870
Liabilities and equity
Bank line of credit $ 838,516 $ — Term loan 213,610 226,858 Senior
unsecured notes 7,626,194 6,963,375 Mortgage debt 984,431 1,396,485
Other debt 97,022 74,909 Intangible liabilities, net 84,723 98,810
Accounts payable and accrued liabilities 432,934 318,427 Deferred
revenue 95,411 65,872 Total liabilities
10,372,841 9,144,736 Common stock, $1.00 par
value: 750,000,000 shares authorized; 459,746,267 and 456,960,648
shares issued and outstanding, respectively 459,746 456,961
Additional paid-in capital 11,431,987 11,334,041 Cumulative
dividends in excess of earnings (1,132,541 ) (1,053,215 )
Accumulated other comprehensive loss (23,895 )
(14,487 ) Total stockholders’ equity 10,735,297
10,723,300 Joint venture partners 73,214 23,729 Non-managing
member unitholders 188,588 184,105 Total
noncontrolling interests 261,802 207,834 Total
equity 10,997,099 10,931,134 Total liabilities
and equity $ 21,369,940 $ 20,075,870
HCP, Inc.
Consolidated Statements of
Income
In thousands, except per share
data
(Unaudited)
Three Months EndedDecember 31,
Year EndedDecember 31,
2014 2013 2014 2013
Revenues: Rental and related revenues $ 279,791 $
284,673 $ 1,174,256 $ 1,128,054 Tenant recoveries 28,821 25,383
110,688 100,649 Resident fees and services 103,760 37,780 241,965
146,288 Income from direct financing leases 167,346 164,472 663,070
636,881 Interest income 23,341 17,548 74,491 86,159 Investment
management fee income 469 441 1,809
1,847 Total revenues 603,528 530,297 2,266,279
2,099,878
Costs and expenses: Interest expense
114,987 109,603 439,742 435,252 Depreciation and amortization
116,499 106,140 459,995 423,312 Operating 130,430 76,292 384,603
298,282 General and administrative 20,141 19,073 82,175 103,042
Acquisition and pursuit costs 3,766 117 17,142
6,191 Total costs and expenses 385,823 311,225
1,383,657 1,266,079
Other income: Gain
on sales of real estate, net of income taxes 3,288 — 3,288 — Other
income, net 1,778 1,184 7,528 18,216
Total other income, net 5,066 1,184 10,816
18,216
Income before income taxes and equity
income from and impairment of unconsolidated joint ventures
222,771 220,256 893,438 852,015 Income taxes 2,590 (2,261 ) (250 )
(5,815 ) Equity income from unconsolidated joint ventures 10,182
20,155 49,570 64,433 Impairment of investments in unconsolidated
joint ventures (35,913 ) — (35,913 ) —
Income from continuing operations 199,630
238,150 906,845 910,633
Discontinued
operations: Income before impairment losses and gain on sales
of real estate, net of income taxes — 180 1,736 5,879 Impairment
losses on real estate — (1,372 ) — (1,372 ) Gain on sales of real
estate, net of income taxes — 60,681 28,010
69,866 Total discontinued operations — 59,489
29,746 74,373
Net income
199,630 297,639 936,591 985,006 Noncontrolling interests’ share in
earnings (3,047 ) (4,544 ) (14,358 )
(14,169 )
Net income attributable to HCP, Inc. 196,583
293,095 922,233 970,837 Participating securities’ share in earnings
(438 ) (470 ) (2,437 ) (1,734 )
Net income applicable to common shares $ 196,145 $ 292,625 $
919,796 $ 969,103
Basic earnings per common share:
Continuing operations $ 0.43 $ 0.51 $ 1.94 $ 1.97 Discontinued
operations — 0.13 0.07 0.16 Net income
applicable to common shares $ 0.43 $ 0.64 $ 2.01 $ 2.13
Diluted earnings per common share: Continuing operations $
0.43 $ 0.51 $ 1.94 $ 1.97 Discontinued operations —
0.13 0.06 0.16 Net income applicable to common shares
$ 0.43 $ 0.64 $ 2.00 $ 2.13
Weighted average shares used
to calculate earnings per common share: Basic 459,333
456,334 458,425 455,002 Diluted
459,752 456,631 458,796 455,702
HCP, Inc.
Consolidated Statements of Cash
Flows
In thousands
(Unaudited)
Year Ended December 31, 2014 2013
Cash flows from operating
activities:
Net income $ 936,591 $ 985,006 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 459,995 423,312 Discontinued operations —
5,862 Amortization of market lease intangibles, net (949 ) (6,646 )
Amortization of deferred compensation 21,885 39,980 Amortization of
deferred financing costs, net 19,260 18,541 Straight-line rents
(41,032 ) (39,587 ) Loan and direct financing lease interest
accretion (78,286 ) (86,314 ) Deferred rental revenues (1,884 )
(2,843 ) Equity income from unconsolidated joint ventures (49,570 )
(64,433 ) Distributions of earnings from unconsolidated joint
ventures 5,045 3,989 Lease termination income, net (38,001 ) — Gain
on sales of real estate (31,298 ) (69,866 ) Marketable securities
and other gains, net (2,270 ) (10,817 ) Impairments 35,913 1,372
Changes in: Accounts receivable, net (8,845 ) 6,656 Other assets
(6,287 ) (58,290 ) Accounts payable and accrued liabilities 28,354
3,065 Net cash provided by operating activities 1,248,621 1,148,987
Cash flows from investing
activities:
Cash used to acquire the CCRC unconsolidated joint venture
interest, net (370,186 ) — Acquisitions of real estate (503,470 )
(64,678 ) Development of real estate (178,513 ) (130,317 ) Leasing
costs and tenant and capital improvements (71,734 ) (64,557 )
Proceeds from sales and pending sales of real estate, net 104,557
95,816 Contributions to other unconsolidated joint ventures (2,935
) — Distributions in excess of earnings from unconsolidated joint
ventures 2,657 14,102 Purchases of marketable debt securities —
(16,706 ) Proceeds from sales of marketable securities — 28,403
Principal repayments on loans receivable and direct financing
leases 119,511 263,445 Investments in loans receivable and other
(600,019 ) (322,775 ) (Increase) decrease in restricted cash
(11,747 ) 619 Net cash used in investing activities (1,511,879 )
(196,648 )
Cash flows from financing
activities:
Net borrowings under bank line of credit 845,190 — Issuance of
senior unsecured notes 1,150,000 800,000 Repayments of senior
unsecured notes (487,000 ) (550,000 ) Issuance of mortgage and
other debt 35,445 6,798 Repayments of mortgage debt (447,784 )
(302,119 ) Deferred financing costs (16,550 ) (7,300 ) Issuance of
common stock and exercise of options 96,592 114,082 Repurchase of
common stock (12,703 ) — Dividends paid on common stock (1,001,559
) (956,685 ) Issuance of noncontrolling interests 4,674 12,472
Purchase of noncontrolling interests (5,897) — Distributions to
noncontrolling interests (15,611 ) (17,664 ) Net cash provided by
(used in) financing activities 144,797 (900,416 ) Effect of foreign
exchange on cash and cash equivalents 1,715 960 Net increase
(decrease) in cash and cash equivalents (116,746 ) 52,883 Cash and
cash equivalents, beginning of year 300,556 247,673 Cash and cash
equivalents, end of year $ 183,810 $ 300,556
HCP, Inc.
Funds From Operations(1)
In thousands, except per share
data
(Unaudited)
Three Months EndedDecember 31,
Year EndedDecember 31,
2014 2013 2014 2013
Net
income applicable to common shares $ 196,145 292,625 $ 919,796
$ 969,103 Depreciation and amortization of real estate, in-place
lease and other intangibles: Continuing operations 116,499 106,140
459,995 423,312 Discontinued operations — 1,258 — 5,862 Other
depreciation and amortization(2) 6,293 3,737 18,864 14,326 Gain on
sales of real estate (3,288 ) (60,681 ) (31,298 ) (69,866 )
Impairments of real estate — 1,372 — 1,372 Equity income from
unconsolidated joint ventures (10,182 ) (20,155 ) (49,570 ) (64,433
) FFO from unconsolidated joint ventures 22,190 21,785 70,873
74,324 Noncontrolling interests’ and participating securities’
share in earnings 3,485 5,014 16,795 15,903 Noncontrolling
interests’ and participating securities’ share in FFO (6,408
) (5,077 ) (23,821 ) (20,639 ) FFO applicable
to common shares $ 324,734 346,018 $ 1,381,634 $ 1,349,264
Distributions on dilutive convertible units 3,472
3,310 13,799 13,276
Diluted FFO applicable to common
shares
$ 328,206 349,328 $ 1,395,433 $ 1,362,540 Diluted FFO
per common share $ 0.70 $ 0.76 $ 3.00 $ 2.95 Weighted
average shares used to calculate diluted FFO per share
465,832 462,620 464,845 461,710
Impact of adjustments to FFO: Other impairments(3) $ 35,913
$ — $ 35,913 $ — Transaction-related items(4) 4,269 117 (18,856 )
6,191 Severance-related charges — 870 —
27,244 $ 40,182 $ 987 $ 17,057 $ 33,435 FFO as adjusted
applicable to common shares $ 364,916 $ 347,005 $ 1,398,691 $
1,382,699 Distributions on dilutive convertible units and other
3,388 3,310 13,766 13,220
Diluted FFO as adjusted applicable to
common shares
$ 368,304 $ 350,315 $ 1,412,457 $ 1,395,919 Per common share impact
of adjustments on diluted FFO(3) (4) $ 0.09 $ — $ 0.04 $ 0.07
Diluted FFO as adjusted per common share $ 0.79 $
0.76 $ 3.04 $ 3.02 Weighted average shares used to calculate
diluted FFO as adjusted per share 465,832 462,620
464,845 461,710
_______________________________________
(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 or losses from
sales of property, impairments of, or related to, depreciable real
estate, plus real estate and direct financing lease (“DFL”)
depreciation and amortization, and after adjustments for joint
ventures. Adjustments for joint ventures are calculated to reflect
FFO on the same basis. FFO does not represent cash generated from
operating activities 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) and
severance-related charges. Management believes that FFO as adjusted
provides a meaningful supplemental measurement of our FFO run-rate.
This measure is a modification of the NAREIT definition of FFO and
should not be used as an alternative to net income or NAREIT
FFO.
(2) For the quarter and year ended December 31, 2014, other
depreciation and amortization includes: (i) $4 million and $16
million, respectively, of DFL depreciation and (ii) $2 million and
$3 million, respectively, 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) The other impairment charge of $35.9 million, or $0.08 per
share, relates to our 9.4% equity ownership interest in HCRMC.
(4) 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. The year ended December 31, 2014, includes
the $0.04 per share net benefit from the Brookdale Transaction of
$0.08 per share, partially offset by acquisition and pursuit costs
of $0.04 per share.
HCP, Inc.
Funds Available for
Distribution(1)
In thousands, except per share
data
(Unaudited)
Three Months EndedDecember 31,
Year EndedDecember 31,
2014 2013 2014 2013
FFO as adjusted
applicable to common shares $ 364,916 $ 347,005 $ 1,398,691 $
1,382,699 Amortization of market lease intangibles, net (330 ) (232
) (949 ) (6,646 ) Amortization of deferred compensation(2) 5,418
6,147 21,885 23,327 Amortization of deferred financing costs, net
5,138 4,619 19,260 18,541 Straight-line rents (5,950 ) (11,028 )
(41,032 ) (39,587 ) DFL accretion(3) (19,573 ) (20,669 ) (77,568 )
(86,055 ) Other depreciation and amortization (6,293 ) (3,737 )
(18,864 ) (14,326 ) Deferred revenues – tenant improvement related
(633 ) (429 ) (2,306 ) (2,906 ) Deferred revenues – additional
rents (831 ) (2,487 ) 422 63 Leasing costs and tenant and capital
improvements(4) (29,962 ) (30,593 ) (74,464 ) (64,557 ) Lease
restructure payments(5) 5,136 — 9,425 — Joint venture adjustments –
CCRC entrance fees(6) 7,414 — 11,443 — Joint venture and other FAD
adjustments(3) (19,487 ) (11,650 ) (67,121 )
(52,471 ) FAD applicable to common shares $ 304,963 $
276,946 $ 1,178,822 $ 1,158,082 Distributions on dilutive
convertible units 3,472 2,174 13,799
13,276
Diluted FAD applicable to common
shares
$ 308,435 $ 279,120 $ 1,192,621 $ 1,171,358
Diluted FAD per common share
$ 0.66 $ 0.61 $ 2.57 $ 2.54 Weighted average shares used to
calculate diluted FAD per common share 465,832
460,761
464,845 461,710
________________________________________
(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 (vi) deferred
revenues, effective 2014, 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 (see note 5) and adjustments to
compute our share of FAD from our unconsolidated joint ventures and
those related to CCRC non-refundable entrance fees (see note 6).
Other REITs or real estate companies may use different
methodologies for calculating FAD, and accordingly, our FAD may not
be comparable to similar metrics (e.g., FAD or AFFO) 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 not be compared
with net cash flows from operating activities as determined in
accordance with GAAP and presented in our consolidated financial
statements. FAD does not represent cash generated from operating
activities determined in accordance with GAAP, and FAD should not
be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of our performance, as an
alternative to net cash flows from operating activities (determined
in accordance with GAAP), or as a measure of our liquidity.
(2) Excludes $16.7 million related to the acceleration of
deferred compensation for restricted stock units and options that
vested upon termination of our former chief executive officer on
October 2, 2013, which is included in severance-related charges for
the quarter and year ended December 31, 2013.
(3) For the quarter and year ended December 31, 2014, DFL
accretion reflects an elimination of $15.6 million and $62.4
million, respectively. For the quarter and year ended December 31,
2013, DFL accretion reflects an elimination of $15.5 million and
$62.1 million, respectively. Our ownership interest in HCRMC is
accounted for using the equity method, which requires an ongoing
elimination of DFL income that is proportional to our ownership in
HCRMC. Further, our share of earnings from HCRMC (equity income)
increases for the corresponding elimination of related lease
expense recognized at the HCRMC entity level, which we present as a
non-cash joint venture FAD adjustment.
(4) Leasing costs and tenant and capital improvements, net of
amounts attributable to noncontrolling interests.
(5) Over a period of three years from the closing of the
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.
(6) 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 EndedDecember 31,
Year EndedDecember 31,
2014 2013 2014 2013
Net income $
199,630 $ 297,639 $ 936,591 $ 985,006 Interest income (23,341 )
(17,548 ) (74,491 ) (86,159 ) Investment management fee income (469
) (441 ) (1,809 ) (1,847 ) Interest expense 114,987 109,603 439,742
435,252 Depreciation and amortization 116,499 106,140 459,995
423,312 Acquisition and pursuit costs 3,766 117 17,142 6,191
General and administrative 20,141 19,073 82,175 103,042 Gain on
sales of real estate, net of income taxes (3,288 ) — (3,288 ) —
Other income, net (1,778 ) (1,184 ) (7,528 ) (18,216 ) Income taxes
(2,590 ) 2,261 250 5,815 Equity income from unconsolidated joint
ventures (10,182 ) (20,155 ) (49,570 ) (64,433 ) Impairment of
investment in unconsolidated joint venture 35,913 — 35,913 — Total
discontinued operations — (59,489 ) (29,746 )
(74,373 )
NOI $ 449,288 $ 436,016 $ 1,805,376 $
1,713,590 Straight-line rents (5,950 ) (11,028 ) (41,032 ) (39,587
) DFL accretion (19,573 ) (20,669 ) (77,568 ) (86,055 )
Amortization of market lease intangibles, net (330 ) (232 ) (949 )
(6,646 ) Lease termination fees (24 ) 3 (38,816 ) (217 ) NOI
adjustments related to discontinued operations — (77
) (11 ) (47 )
Cash (adjusted) NOI $ 423,411 $
404,013 $ 1,647,000 $ 1,581,038 Non-SPP cash (adjusted) NOI
(26,975 ) (20,924 ) (106,540 ) (89,488 )
Same property portfolio cash (adjusted) NOI(2)
$ 396,436 $ 383,089 $
1,540,460 $ 1,491,550 Cash
(adjusted) NOI % change – SPP(2) 3.5%
3.3%
________________________________________
(1) We believe Net Operating Income from Continuing Operations
(“NOI”) provides investors relevant and useful information because
it reflects only income and operating expense items that are
incurred at the property level and presents them on an unleveraged
basis. We use NOI and cash NOI to make decisions about resource
allocations, to assess and compare property level performance, and
evaluate our same property portfolio (“SPP”). We believe that net
income 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 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.
HCP, Inc.
Projected Future
Operations(1)
(Unaudited)
Full Year 2015 Low
High Diluted earnings per common share
$
1.98
$ 2.04 Real estate depreciation and amortization 1.04 1.04 Other
depreciation and amortization 0.06 0.06 Gain on sales of real
estate(2) (0.01 ) (0.01 ) Joint venture FFO adjustments 0.07
0.07
Diluted FFO per common share
$
3.14
$ 3.20 Transaction-related items 0.01
0.01
Diluted FFO as adjusted per common
share
$ 3.15 $ 3.21 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) (0.15 ) (0.15 ) Other depreciation and
amortization (0.06 ) (0.06 ) 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) (0.16 )
(0.16 )
Diluted FAD per common share
$ 2.73 $ 2.79
________________________________________
(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 the gain on sale related to eight senior housing
communities that were sold in January 2015 to Brookdale.
(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
Brookdale Transaction in 2014, 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. Schoen, 949-407-0400Executive Vice President
and Chief Financial Officer
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