HCP Announces Results for the Fourth Quarter and Year Ended December 31, 2012

HCP Announces Results for the Fourth Quarter and Year Ended December 31, 2012

FOURTH QUARTER HIGHLIGHTS

  • FFO and earnings per share increased to $0.71 and $0.53, respectively; FFO as adjusted per share increased 7% to $0.72; FAD per share increased 14% to $0.57

  • Achieved year-over-year three-month Cash NOI SPP growth of 4.3%

  • Closed the acquisition of a $1.7 billion senior housing portfolio of 129 communities and funded a related $52 million secured loan

  • Completed an additional $141 million of investment transactions, including two MOBs related to our previously announced Boyer MOB acquisition

  • Raised $1.8 billion of debt and equity capital consisting of:

    • $800 million of 2.625% senior unsecured notes due in 2020

    • $979 million in common stock

  • Obtained credit rating upgrades from Moody's to 'Baa1' and S&P to 'BBB+'

  • Received NAREIT's 2012 Leader in the Light Award, as the healthcare sector leader in Sustainability

FULL YEAR HIGHLIGHTS

  • FFO and earnings per share increased to $2.72 and $1.90, respectively; FFO as adjusted per share increased 3% to $2.78; FAD per share increased 4% to $2.22

  • Achieved year-over-year Cash NOI SPP growth of 4.2%

  • Completed $2.4 billion of acquisitions representing four of our five property sectors

  • Raised $3.5 billion of debt and equity capital, to fund accretive acquisitions and retire $1 billion of higher coupon debt and preferred securities, consisting of:

    • $1.76 billion in unsecured debt with an average rate of 2.9% and term exceeding 7 years

    • $1.71 billion in common stock

  • Improved the pricing and extended the term of our $1.5 billion revolving line of credit

  • Awarded a total of 35 ENERGY STAR labels in our medical office, life science and senior housing segments


2013 OUTLOOK AND DIVIDEND

  • Full year guidance, not including the impact of any future acquisitions, for FFO of $2.92 - $2.98 per share and FAD of $2.39 - $2.45 per share, representing growth rates, as measured by the mid-point of our estimates, of 6% and 9%, over our 2012 FFO as adjusted and FAD amounts, respectively; earnings per share guidance of $1.95 - $2.01

  • Increased the quarterly cash dividend 5% to $0.525 per share, which represents our 28th consecutive year with a dividend increase

  • HCP continues as the only REIT included in the S&P 500 Dividend Aristocrats index

LONG BEACH, Calif.--(BUSINESS WIRE)-- HCP (the "Company" or "we") (NYS: HCP) announced results for the fourth quarter and year ended December 31, 2012 as follows (in thousands, except per share amounts):

FOURTH QUARTER COMPARISON

Three Months Ended

Three Months Ended

December 31, 2012

December 31, 2011

Per Share

Amount

Per Share

Amount

Per Share

Change

FFO

$

317,839

$

0.71

$

150,578

$

0.37

$

0.34

Litigation settlement charge(1)

125,000

0.30

(0.30

)

Merger-related items(2)

5,642

0.01

0.01

FFO as adjusted

$

323,481

$

0.72

$

275,578

$

0.67

$

0.05

FAD

$

253,841

$

0.57

$

202,890

$

0.50

$

0.07

Net income applicable to common shares

$

239,881

$

0.53

$

61,996

$

0.15

$

0.38

(1)

This 2011 charge relates to the Ventas, Inc. ("Ventas") litigation settlement.

(2)

Merger-related items in 2012 of $0.01 per share associated with the $1.7 billion Senior Housing Portfolio acquisition include direct transaction costs and the impact of the negative carry of prefunding the transaction with the $1.0 billion, or 22 million share, common stock offering completed on October 19, 2012 on the calculation of weighted average shares.

In addition to the litigation settlement charge, operating results for the quarter ended December 31, 2011, include the negative impact of $0.01 per share for the write-down in the carrying value of a marketable security. Net income for the quarters ended December 31, 2012 and 2011 also include gain on sales of real estate of $28 million and $3 million, respectively.

FULL-YEAR COMPARISON

Year Ended

Year Ended

December 31, 2012

December 31, 2011

Per Share

Amount

Per Share

Amount

Per Share

Change

FFO

$

1,166,508

$

2.72

$

877,907

$

2.19

$

0.53

Preferred stock redemption charge(1)

10,432

0.02

0.02

Litigation settlement charge(2)

125,000

0.31

(0.31

)

Impairments(3)

7,878

0.02

15,400

0.04

(0.02

)

Merger-related items(4)

5,642

0.02

26,596

0.15

(0.13

)

FFO as adjusted

$

1,190,460

$

2.78

$

1,044,903

$

2.69

$

0.09

FAD

$

949,306

$

2.22

$

830,651

$

2.14

$

0.08

Net income applicable to common shares

$

812,289

$

1.90

$

515,302

$

1.29

$

0.61

(1)

In connection with the 2012 redemption of our preferred stock, we incurred a one-time, non-cash redemption charge of $10.4 million or $0.02 per share related to the original issuance costs of the preferred stock.

(2)

This 2011 charge relates to the Ventas litigation settlement.

(3)

The 2012 impairment charge of $7.9 million, or $0.02 per share, relates to the sale of a land parcel in our life science segment. The 2011 impairment charge of $15.4 million, or $0.04 per share, relates to our senior secured loan to Delphis Operations, L.P. ("Delphis").

(4)

The 2012 merger-related items of $0.02 per share attributable to the $1.7 billion Senior Housing Portfolio acquisition include direct transaction costs and the impact of the negative carry of prefunding the transaction with the $1.0 billion, or 22 million share, common stock offering completed on October 19, 2012 on the calculation of weighted average shares. The 2011 merger-related items of $0.15 per share are attributable to our HCR ManorCare acquisition, which closed on April 7, 2011.

In addition to the litigation settlement charge, impairments and merger-related items, operating results for the year ended December 31, 2011 include interest income of $0.09 per share from the early payoff of our Genesis debt investments. Net income for the years ended December 31, 2012 and 2011 also include gain on sales of real estate of $31 million and $3 million, respectively.

FFO, FFO as adjusted and FAD are supplemental non-GAAP financial measures that the Company believes are useful in evaluating the operating performance of real estate investment trusts. See the "Funds From Operations" section of this release for additional information regarding FFO and FFO as adjusted and the "Funds Available for Distribution" section of this release for additional information regarding FAD.

FOURTH QUARTER HIGHLIGHTS

ACQUIRED $1.7 BILLION SENIOR HOUSING PORTFOLIO

During the quarter, we acquired 129 senior housing communities for $1.7 billion, from a joint venture between Emeritus Corporation ("Emeritus") and Blackstone Real Estate Partners VI, an affiliate of Blackstone (the "Blackstone JV"). At closing, the 129 communities consisted of 95 that were stabilized and 34 that were in lease-up. In connection with the transaction, Emeritus entered into a new triple-net, master lease for the 129 properties (the "Master Lease") guaranteed by Emeritus. The Master Lease provides aggregate contractual rent in the first year that represents a 6.1% lease yield. The contractual rent will increase annually by the greater of 3.7% on average or CPI over the initial five years, and thereafter by the greater of 3.0% or CPI for the remaining initial term. At the beginning of the sixth lease year, rent on the 34 lease-up properties will increase to the greater of the percentage increase in CPI or fair market, subject to a floor of 103% and a cap of 130% of the prior year's rent, allowing HCP to capture potential upside from these non-stabilized assets.

Located in 29 states, the portfolio encompasses 10,077 units representing a diversified care mix of 61% assisted living, 25% independent living, 13% memory care and 1% skilled nursing. We are still evaluating the acquisition of up to four additional communities related to this transaction.

Concurrent with the acquisition, Emeritus purchased nine communities from the Blackstone JV, for which we provided secured debt financing of $52 million with a four-year term. The loan is secured by the underlying real estate and is prepayable at Emeritus' option. The interest rate on the loan matches the yield on the Master Lease, including the annual increases through maturity.

ADDITIONAL INVESTMENT TRANSACTIONS

During the quarter, we made additional investments of $141 million as follows: (i) $62 million to purchase the two MOBs of our previously announced Boyer MOB acquisition; and (ii) $79 million to fund development and other capital projects, primarily in our life science, medical office and senior housing segments.

During the quarter, we sold two senior housing facilities for $111 million, a parcel of land in our life science segment for $18 million, and a skilled nursing facility for $15 million; we also received $38 million in principal payments from our senior secured loan to Delphis.

FINANCING ACTIVITIES

In connection with funding the $1.7 billion Senior Housing Portfolio acquisition, we completed the following capital market transactions:

  • On October 19, 2012, we completed a public offering of 22 million shares of common stock and received net proceeds of $979 million.

  • On November 19, 2012, we issued $800 million of 2.625% senior unsecured notes due in 2020. The notes were priced at 99.729% of the principal amount with an effective yield-to-maturity of 2.667%. Net proceeds from this offering were $792.8 million. We anticipate that a portion of these net proceeds will be used to re-pay $150 million of 5.625% senior unsecured notes that mature in February 2013.

SUSTAINABILITY

During the quarter, we (i) earned 16 ENERGY STAR awards in our medical office (11) and life science (5) segments as a result of the Company's energy conservation programs; and (ii) were awarded NAREIT's 2012 Leader in the Light Award, recognizing HCP as the leader in sustainability in the healthcare sector, which incorporated our results from the Global Real Estate Sustainability Benchmark ("GRESB") survey. As of December 31, 2012, our medical office, life science and senior housing segments have been awarded 93 ENERGY STAR labels. More information about HCP's sustainability efforts can be found on our website at www.hcpi.com/sustainability.html.

DIVIDEND

On January 24, 2013, our Board of Directors declared a quarterly cash dividend of $0.525 per common share. The dividend will be paid on February 19, 2013 to stockholders of record as of the close of business on February 4, 2013. The annualized distribution rate for 2013 increased 5% to $2.10, compared to $2.00 for 2012, which represents the 28th consecutive year with a dividend increase. HCP continues as the only REIT included in the S&P 500 Dividend Aristocrats index.

OUTLOOK

For the full year 2013, we expect FFO applicable to common shares to range between $2.92 and $2.98 per share, which estimate at the mid-point represents an increase of 6% over the 2012 FFO as adjusted per share amount; FAD applicable to common shares to range between $2.39 and $2.45 per share, which estimate at the mid-point represents an increase of 9% over the 2012 comparable amount; net income applicable to common shares to range between $1.95 and $2.01 per share, which estimate at the mid-point represents an increase of 4% over the 2012 comparable amount. These estimates do not reflect the potential impact of future acquisitions or dispositions. See the "Projected Future Operations" section of this release for additional information regarding these estimates.

COMPANY INFORMATION

HCP has scheduled a conference call and webcast for Tuesday, February 12, 2013 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, 2012. The conference call is accessible by dialing (877) 724-7556 (U.S.) or (706) 645-4695 (International). The participant passcode is 89679770. 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 26, 2013, 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 89679770. The Company's supplemental information package for the current period will also be available on the Company's website in the "Presentations" section of the "Investor Relations" tab.

ABOUT HCP

HCP, Inc. is a fully integrated real estate investment trust (REIT) that invests primarily in real estate serving the healthcare industry in the United States. The Company's portfolio of assets is diversified among five distinct sectors: senior housing, post-acute/skilled nursing, life science, medical office and hospitals. 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 28 consecutive years; and (iii) is the only REIT included in the S&P 500 Dividend Aristocrats index. 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, net income applicable to common shares on a diluted basis, FFO applicable to common shares on a diluted basis, and FAD applicable to common shares on a diluted basis for the full year of 2013.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: national and local economic conditions; continued volatility in the capital markets, including changes in interest rates and the availability and cost of capital, which changes and volatility affect opportunities for profitable investments; the Company's ability to access external sources of capital when desired and on reasonable terms; the Company's ability to manage its indebtedness levels; changes in the terms of the Company's indebtedness; the Company's ability to maintain its credit ratings; the potential impact of existing and future litigation matters, including the possibility of larger than expected litigation costs and related developments; the Company's ability to successfully integrate the operations of acquired companies; risks associated with the Company's investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners' financial condition and continued cooperation; competition for lessees and mortgagors (including new leases and mortgages and the renewal or rollover of existing leases); the Company's ability to reposition its properties on the same or better terms if existing leases are not renewed or the Company exercises its right to replace an existing operator or tenant upon default; continuing reimbursement uncertainty in the post-acute/skilled nursing segment; competition in the senior housing segment specifically and in the healthcare industry in general; the ability of the Company's operators and tenants from its senior housing segment to maintain or increase their occupancy levels and revenues; the ability of the Company's lessees and mortgagors to maintain the financial strength and liquidity necessary to satisfy their respective obligations to the Company and other third parties; the bankruptcy, insolvency or financial deterioration of the Company's operators, lessees, borrowers or other obligors; changes in healthcare laws and regulations, including the impact of future or pending healthcare reform, and other changes in the healthcare industry which affect the operations of the Company's lessees or obligors, including changes in the federal budget resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; the Company's ability to recruit and retain key management personnel; costs of compliance with regulations and environmental laws affecting the Company's properties; changes in tax laws and regulations; changes in the financial position or business strategies of HCR ManorCare; the Company's ability and willingness to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations; changes in rules governing financial reporting, including new accounting pronouncements; and other risks 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,

2012

2011

Assets

Real estate:

Buildings and improvements

$

10,537,484

$

8,816,551

Development costs and construction in progress

236,864

190,590

Land

1,850,397

1,722,948

Accumulated depreciation and amortization

(1,739,718

)

(1,449,579

)

Net real estate

10,885,027

9,280,510

Net investment in direct financing leases

6,881,393

6,727,777

Loans receivable, net

276,030

110,253

Investments in and advances to unconsolidated joint ventures

212,213

224,052

Accounts receivable, net of allowance of $1,668 and $1,341, respectively

34,150

26,681

Cash and cash equivalents

247,673

33,506

Restricted cash

37,848

41,553

Intangible assets, net

552,701

372,390

Assets held for sale, net

106,295

Other assets, net

788,520

485,458

Total assets

$

19,915,555

$

17,408,475

Liabilities and equity

Bank line of credit

$

$

454,000

Term loan

222,694

Senior unsecured notes

6,712,624

5,416,063

Mortgage debt

1,676,544

1,715,039

Mortgage debt and intangible liabilities on assets held for sale, net

55,897

Other debt

81,958

87,985

Intangible liabilities, net

105,909

117,777

Accounts payable and accrued liabilities

293,994

275,478

Deferred revenue

68,055

65,614

Total liabilities

9,161,778

8,187,853

Preferred stock, $1.00 par value: aggregate liquidation preference of $295.5 million as of December 31, 2011

285,173

Common stock, $1.00 par value: 750,000,000 shares authorized; 453,191,321 and 408,629,444 shares issued and outstanding, respectively

453,191

408,629