HCP Announces Third Quarter 2009 Results Highlights

LONG BEACH, Calif., Nov 03, 2009 (BUSINESS WIRE) -- --Impairments and a litigation provision resulted in charges of $0.05 and $0.36 per share, respectively --Diluted FFO per share of $0.52, before giving effect to the impairments and litigation provision; diluted FFO per share of $0.11; and net loss per share of $0.18 --Purchased a $720 million participation in HCR ManorCare's first mortgage debt --Completed $441 million public offering of common stock --Completed transition of 15 Sunrise-managed communities to new operators HCP (the "Company" or "we") (NYSE:HCP) announced results for the quarter ended September 30, 2009. Funds from operations ("FFO") applicable to common shares, before giving effect to impairments and litigation provision was $149.3 million, or $0.52 per diluted share, for the quarter ended September 30, 2009, compared to FFO applicable to common shares, before giving effect to impairments and merger-related charges of $178.8 million, or $0.72 per diluted share, in the year-ago period. FFO applicable to common shares was $32.2 million, or $0.11 per diluted share, for the quarter ended September 30, 2009, compared to FFO applicable to common shares of $174.3 million, or $0.70 per diluted share, in the year-ago period.

FFO applicable to common shares for the quarter ended September 30, 2009 included the negative impact of $0.39 per diluted share of the following: (i) impairments of $0.05 per diluted share; (ii) a charge of $0.36 per diluted share related to an accrued liability in connection with a jury verdict in the Ventas litigation; and (iii) income of $0.02 per diluted share related to sales of marketable debt securities. FFO applicable to common shares for the quarter ended September 30, 2008 included the positive impact of $0.16 per diluted share of the following: (i) lease termination fees of $0.07 per diluted share resulting from the early termination of three leases in our life science segment and a related impairment charge of $0.02 per diluted share; and (ii) income of $0.11 per diluted share related to the settlement of various disputes with Tenet Healthcare Corporation. FFO is a supplemental non-GAAP financial measure that the Company believes is helpful in evaluating the operating performance of real estate investment trusts.

For the quarter ended September 30, 2009, we incurred a net loss of $52.4 million, or $0.18 per diluted share, compared to net income applicable to common shares of $119.6 million, or $0.49 per diluted share, in the year-ago period.

Including the items impacting FFO discussed above, the quarters ended September 30, 2009 and 2008 also included gain on sales of real estate of $2.5 million and $27.8 million, respectively.

INVESTMENTS On August 3, 2009, we purchased a $720 million participation in first mortgage debt of HCR ManorCare, at a discount of $130 million, for approximately $590 million. The $720 million participation bears interest at LIBOR plus 1.25% and represents 45% of the $1.6 billion most senior tranche of HCR ManorCare's mortgage debt incurred as part of the financing for The Carlyle Group's acquisition of Manor Care, Inc. in December 2007. The mortgage debt matures in January 2012, with a one-year extension available at the borrower's option subject to certain performance conditions, and was secured by a first lien on 331 facilities located in 30 states at closing. We obtained favorable financing to fund 72% of the purchase price, resulting in a net cash payment by HCP of $166 million.

During the quarter ended September 30, 2009, we funded $31 million for construction and other capital projects, primarily in our life science segment.

During the quarter ended September 30, 2009, we sold marketable debt securities for $115 million, recognizing aggregate gains of $6 million, and two medical office buildings for $6 million, recognizing gain on sales of real estate of $2.5 million.

FINANCINGS On August 10, 2009, we completed a $441 million public offering of 17.8 million shares of our common stock at a price of $24.75 per share. We received net proceeds of $423 million, which were used to repay the total outstanding indebtedness under our revolving line of credit facility, including borrowings for the additional investment in HCR ManorCare discussed above, with the remainder used for general corporate purposes.

On August 20, 2009, we entered into two interest-rate swap contracts (pay float and receive fixed) with an aggregate notional amount of $500 million that terminate in 2011. The interest-rate swap contracts reduced our net floating rate asset exposure, which had increased as a result of our additional investment in HCR ManorCare and third quarter repayments of floating rate debt, which were both funded with proceeds from our August 2009 public equity offering.

On August 27, 2009, we prepaid $100 million of variable rate mortgage debt. The mortgage debt, with an original maturity of January 2010, was repaid with proceeds from our August 2009 public equity offering and third quarter asset sales.

OTHER On September 4, 2009, a jury returned a verdict in favor of Ventas, Inc.

("Ventas"), in an action brought against us in the United States District Court for the Western District of Kentucky for tortious interference with prospective business advantage in connection with Ventas's 2007 acquisition of Sunrise Senior Living REIT. The jury awarded Ventas approximately $102 million in compensatory damages, which we recorded as a litigation provision expense during the quarter ended September 30, 2009. Ventas originally sought approximately $300 million in compensatory damages as well as punitive damages. We filed a motion with the court for post-trial relief and we intend to appeal an adverse judgment. For the three and nine months ended September 30, 2009, in relation to the above matter, we have incurred legal expenses of $6.2 million and $12.7 million, respectively.

On October 1, 2009, we completed the transition of management agreements on 15 communities operated by Sunrise Senior Living, Inc. and its subsidiaries ("Sunrise") that were previously terminated for Sunrise's failure to achieve certain performance thresholds. The transition of these facilities to new operators decreases our Sunrise-managed properties in our portfolio to 75 communities from the original 101 communities we acquired in the 2006 CNL Retirement Properties, Inc. transaction. The termination of the agreements did not require the payment of a termination fee to Sunrise by our tenants or us.

DIVIDEND On October 29, 2009, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.46 per share. The dividend will be paid on November 24, 2009 to stockholders of record as of the close of business on November 9, 2009.

OUTLOOK Our full year 2009 Outlook of FFO applicable to common shares, before giving effect to impairments and litigation provision, remains unchanged. For the full year 2009, we presently expect FFO applicable to common shares to range between $2.10 and $2.16 per diluted share, before giving effect to impairments and litigation provision; FFO applicable to common shares to range between $1.65 and $1.71 per diluted share; and net income applicable to common shares to range between $0.55 and $0.61 per diluted share.

COMPANY INFORMATION HCP has scheduled a conference call and webcast for Tuesday, November 3, 2009 at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time) in order to present the Company's performance and operating results for the quarter ended September 30, 2009. The conference call is accessible by dialing [phone] (U.S.) or [phone] (International). The participant passcode is 11300797. The webcast is accessible via the Company's website at www.hcpi.com. The link can be found on the "Event Calendar" page, which is under the "Investor Relations" tab.

A webcast replay of the conference call will be available after 12:00 p.m.

Pacific Time (3:00 p.m. Eastern Time) on November 3, 2009 through November 17, 2009 on the Company's website and a telephonic replay can be accessed by calling [phone] (U.S.) or [phone] (International) and entering passcode 18966910. 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., an S&P 500 company, is a real estate investment trust (REIT) that, together with its consolidated subsidiaries, invests primarily in real estate serving the healthcare industry in the United States. As of September 30, 2009, the Company's portfolio of properties, excluding assets held for sale but including properties owned by our Investment Management Platform, totaled 677 properties among the following segments: 258 senior housing, 98 life science, 251 medical office, 22 hospital and 48 skilled nursing. For more information, 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 and Section 21E of the Securities Exchange Act of 1934.

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, FFO applicable to common shares on a diluted basis before giving effect to impairments, litigation provision, and gain on sales of real estate, real estate depreciation and amortization, and joint venture adjustments for the full year of 2009. These statements are made as of the date hereof and are subject to known and unknown risks, uncertainties, assumptions and other factors--many of which are out of the Company's control and difficult to forecast--that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks and uncertainties include but are not limited to: national and local economic conditions, including the possibility of a prolonged recession; 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 investment; 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 achieve the expected benefits from acquisitions, including integrating and preserving the goodwill of acquired companies; the Company's ability to sell its properties when desired and on profitable terms; 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 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 to maintain or increase occupancy levels at, and rental income from, the senior housing segment; the Company's ability to realize the benefits of its mezzanine and other loan investments; 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; 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; the Company's ability and willingness to maintain its qualification as a REIT; 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

September 30, December 31,

2009

2008 Assets (Unaudited) Real estate:

Buildings and improvements $ 7,804,118 $ 7,747,015 Development costs and construction in progress 273,567 224,337 Land 1,548,845 1,548,248 Accumulated depreciation and amortization (1,003,177 ) (819,980 ) Net real estate 8,623,353 8,699,620

Net investment in direct financing leases 634,233 648,234 Loans receivable, net 1,674,329 1,076,392 Investments in and advances to unconsolidated joint ventures 261,364 272,929 Accounts receivable, net of allowance of $17,430 and $18,413, 36,824 33,834 respectively

Cash and cash equivalents 144,366 57,562 Restricted cash 31,988 35,078 Intangible assets, net 410,366 505,936 Real estate held for sale, net 3,783 27,058 Other assets, net 517,604 493,183

Total assets $ 12,338,210 $ 11,849,826

Liabilities and Equity

Bank line of credit $ -- $ 150,000 Term loan 200,000 200,000 Bridge loan -- 320,000 Senior unsecured notes 3,520,577 3,523,513 Mortgage and other secured debt 1,863,404 1,641,734 Other debt 99,487 102,209 Intangible liabilities, net 207,847 232,630 Accounts payable and accrued liabilities 310,493 211,715 Deferred revenue 86,925 60,185 Total liabilities 6,288,733 6,441,986

Commitments and contingencies

Preferred stock, $1.00 par value: 50,000,000 shares authorized; 285,173 285,173 11,820,000 shares issued and outstanding, liquidation preference of

$25.00 per share

Common stock, $1.00 par value: 750,000,000 shares authorized 293,145 253,601 293,145,064 and 253,601,454 shares issued and outstanding,

respectively

Additional paid-in capital 5,708,534 4,873,727 Cumulative dividends in excess of earnings (407,210 ) (130,068 ) Accumulated other comprehensive loss (9,838 ) (81,162 ) Total stockholders' equity 5,869,804 5,201,271

Joint venture partners 7,927 12,912 Non-managing member unitholders 171,746 193,657 Total noncontrolling interests 179,673 206,569

Total equity 6,049,477 5,407,840

Total liabilities and equity $ 12,338,210 $ 11,849,826

HCP, Inc.

Consolidated Statements of Operations

In thousands, except per share data

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2009

2008 2009 2008

Revenues:

Rental and related revenues $ 218,366 $ 231,561 $ 663,044 $ 650,742 Tenant recoveries 22,464

20,225 67,124 61,817 Income from direct financing leases 13,173

14,543 39,302 43,646 Investment management fee income 1,326

1,523 4,133 4,448 Total revenues 255,329 267,852 773,603 760,653

Costs and expenses:

Depreciation and amortization 82,301

77,292 242,318 232,574 Operating 46,173

49,104 139,812 143,849 General and administrative 22,860

17,077 61,625 55,859 Litigation provision 101,973 -- 101,973 -- Impairments 15,123

3,710 20,904 5,284 Total costs and expenses 268,430 147,183 566,632 437,566

Other income (expense):

Interest and other income, net 39,962

62,283 93,027 128,344 Interest expense (74,039 ) (82,813 ) (226,053 ) (264,488 ) Total other income (expense) (34,077 ) (20,530 ) (133,026 ) (136,144 )

Income (loss) before income tax (expense) benefit and equity (47,178 ) 100,139 73,945 186,943 income from unconsolidated joint ventures

Income tax (expense) benefit 322

(853 ) (1,406 ) (4,327 ) Equity income from unconsolidated joint ventures 1,328

1,227 1,993 3,736 Income (loss) from continuing operations (45,528 ) 100,513 74,532 186,352

Discontinued operations:

Income (loss) before gain on sales of real estate, net of income (152

) 3,291 1,903 19,158 taxes

Impairments --

-- (125 ) (8,141 ) Gain on sales of real estate, net of income taxes 2,460

27,752 34,357 228,395 Total discontinued operations 2,308

31,043 36,135 239,412

Net income (loss) (43,220 ) 131,556 110,667 425,764 Noncontrolling interests' and participating securities' share in (3,895

) (6,659 ) (12,147 ) (19,559 ) earnings

Preferred stock dividends (5,282

) (5,282 ) (15,848 ) (15,848 )

Net income (loss) applicable to common shares $ (52,397 ) $ 119,615 $ 82,672 $ 390,357

Basic earnings (loss) per common share:

Continuing operations $ (0.19

) $ 0.36 $ 0.17 $ 0.65 Discontinued operations 0.01

0.13 0.14 1.03 Net income (loss) applicable to common shares $ (0.18

) $ 0.49 $ 0.31 $ 1.68

Diluted earnings (loss) per common share:

Continuing operations $ (0.19

) $ 0.36 $ 0.17 $ 0.65 Discontinued operations 0.01

0.13 0.14 1.03 Net income (loss) applicable to common shares $ (0.18

) $ 0.49 $ 0.31 $ 1.68

Weighted average shares used to calculate earnings (loss) per

common share:

Basic 284,812 244,572 267,971 232,199

Diluted 284,812 245,482 268,041 233,036

HCP, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2009

2008 Cash flows from operating activities:

Net income $ 110,667 $ 425,764 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 242,318 232,574 Discontinued operations 266

7,178 Amortization of above and below market lease intangibles, net (12,657 ) (6,020 ) Stock-based compensation 11,068 10,637 Amortization of debt premiums, discounts and issuance costs, net 6,187 7,409 Straight-line rents (38,751 ) (28,645 ) Interest accretion (23,813 ) (20,134 ) Deferred rental revenue 10,507 16,227 Equity income from unconsolidated joint ventures (1,993 ) (3,736 ) Distributions of earnings from unconsolidated joint ventures 5,444 3,736 Gain on sales of real estate (34,357 ) (228,395 ) Marketable securities (gains) losses, net (6,420 ) 2,746 Derivative losses, net 922

1,803 Impairments 21,029 13,425 Changes in:

Accounts receivable 11,310 14,881 Other assets (2,991 ) (4,843 ) Accrued liability for litigation provision 101,973 -- Accounts payable and other accrued liabilities (10,989 ) 10,776 Net cash provided by operating activities 389,720 455,383 Cash flows from investing activities:

Acquisitions and development of real estate (71,009 ) (132,436 ) Lease commissions and tenant and capital improvements (27,321 ) (44,734 ) Proceeds from sales of real estate, net 58,046 629,404 Contributions to unconsolidated joint ventures (48

) (2,620 ) Distributions in excess of earnings from unconsolidated joint 5,775 8,727 ventures

Purchase of marketable securities --

(26,101 ) Proceeds from the sale of marketable securities 119,665 10,700 Proceeds from the sales of interests in unconsolidated joint ventures --

2,855 Principal repayments on loans receivable and direct financing leases 8,654 14,590 Investments in loans receivable, net (165,506 ) (2,863 ) Decrease (increase) in restricted cash 3,090 (883 ) Net cash provided by (used in) investing activities (68,654 ) 456,639 Cash flows from financing activities:

Net repayments under bank line of credit (150,000 ) (951,700 ) Repayments of bridge loan (320,000 ) (830,000 ) Repayments of mortgage debt (206,329 ) (63,740 ) Issuance of mortgage debt 1,942 579,078 Repurchase and repayments of senior unsecured notes (7,735 ) (300,000 ) Settlement of cash flow hedge --

(9,658 ) Debt issuance costs (718) (10,068 ) Net proceeds from the issuance of common stock and exercise of 846,135 1,060,236 options

Dividends paid on common and preferred stock (376,798 ) (337,097 ) Purchase of noncontrolling interests (9,097 ) -- Distributions to noncontrolling interests (11,662 ) (28,290 ) Net cash used in financing activities (234,262 ) (891,239 ) Net increase in cash and cash equivalents 86,804 20,783 Cash and cash equivalents, beginning of period 57,562 96,269 Cash and cash equivalents, end of period $ 144,366 $ 117,052

HCP, Inc.

Funds From Operations Information

In thousands, except per share data

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2009

2008 (1) 2009 2008 (1)

Net income (loss) applicable to common shares $ (52,397 ) $ 119,615 $ 82,672 $ 390,357 Depreciation and amortization of real estate, in-place lease and

other intangibles:

Continuing operations 82,301 77,292 242,318 232,574 Discontinued operations 56

414 266 7,178 Gain on sales of real estate (2,460 ) (27,752 ) (34,357 ) (228,395 ) Equity income from unconsolidated joint ventures (1,328 ) (1,227 ) (1,993 ) (3,736 ) FFO from unconsolidated joint ventures 6,433 6,488 19,004 18,216 Noncontrolling interests' and participating securities' share in 3,895 6,659 12,147 19,559 earnings

Noncontrolling interests' and participating securities' share in FFO (4,331 ) (7,202 ) (13,633 ) (21,013 ) Funds from operations applicable to common shares (2) $ 32,169 $ 174,287 $ 306,424 $ 414,740

Distributions on convertible units $ --

$ 3,992 $ -- $ 11,155

Diluted funds from operations applicable to common shares $ 32,169 $ 178,279 $ 306,424 $ 425,895

Basic funds from operations per common share (2) $ 0.11 $ 0.71 $ 1.14 $ 1.79

Diluted funds from operations per common share (2) $ 0.11 $ 0.70 $ 1.14 $ 1.77

Weighted average shares used to calculate diluted funds from 285,234 253,531 268,183 240,633 operations per common share

Impact of impairments, litigation provision and merger-related

charges:

Impairments $ 15,123 $ 3,710 $ 21,029 $ 13,425 Litigation provision 101,973 -- 101,973 -- Merger-related charges (3) --

843 -- 3,173

$ 117,096 $ 4,553 $ 123,002 $ 16,598 Per common share impact of impairments, litigation provision and $ 0.41 $ 0.02 $ 0.46 $ 0.07 merger-related charges on diluted funds from operations

Diluted FFO per common share, before giving effect to $ 0.52 $ 0.72 $ 1.60 $ 1.84 impairments, litigation provision and merger-related charges

(1) Presentation and certain computational changes have been made for

the adoption of Accounting Standard Codification 260-10, Earnings

Per Share - Overall (formerly FSP EITF 03-6-1, Determining Whether

Instruments Granted in Share Based Payment Transactions Are

Participating Securities), to compute earnings per share and funds

from operations per share under the two-class method.

(2) The Company believes funds from operations applicable to common

shares, diluted funds from operations applicable to common shares

and basic and diluted funds from operations per common share are

important supplemental measures of operating performance for a real

estate investment trust. Because the historical cost accounting

convention used for real estate assets requires 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 real estate investment trust that uses historical cost

accounting for depreciation could be less informative. The term

funds from operations ("FFO") was designed by the real estate

investment trust industry to address this issue.

FFO is defined as net income (loss) applicable to common shares

(computed in accordance with U.S. generally accepted accounting

principles), excluding gains or losses from real estate

dispositions, plus real estate depreciation and amortization, with

adjustments for joint ventures. Adjustments for joint ventures are

calculated to reflect FFO on the same basis. FFO does not represent

cash generated from operating activities in accordance with U.S.

generally accepted accounting principles, is not necessarily

indicative of cash available to fund cash needs and should not be

considered an alternative to net income (loss). The Company's

computation of FFO may not be comparable to FFO reported by other

real estate investment trusts that do not define the term in

accordance with the current National Association of Real Estate

Investment Trusts' ("NAREIT") definition or that have a different

interpretation of the current NAREIT definition from the Company.

(3) Merger-related charges in the periods ended September 30, 2008

include the amortization of fees associated with our acquisition

financing for Slough Estates USA Inc. ("SEUSA"), as well as other

SEUSA integration costs.

HCP, Inc.

Projected Funds From Operations (1)

(Unaudited)

PROJECTED FUTURE OPERATIONS (Full Year 2009): 2009

Low

High

Diluted earnings per common share $ 0.55 $ 0.61

Gain on sales of real estate (0.13 ) (0.13 )

Real estate depreciation and amortization 1.16 1.16

Joint venture adjustments 0.07 0.07

Diluted FFO per common share 1.65 1.71

Impairments 0.08 0.08

Litigation provision 0.37 0.37

Diluted FFO per common share, before giving effect to impairments $ 2.10 $ 2.16

and litigation provision

(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 activities, property dispositions 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, impairments, the bankruptcy or insolvency of the

Company's operators, lessees, borrowers or other obligors, the

effect of any restructuring of the Company's contractual

relationships with such entities, realized gains or losses on

marketable securities, ineffectiveness related to our cash flow

hedges, offerings of debt or equity securities or existing and

future litigation matters including the possibility of larger than

expected litigation costs and related developments. By definition,

FFO does not include real estate-related depreciation and

amortization or gains and losses associated with real estate

disposition activities, but does include impairments. There can be

no assurance that the Company's actual results will not differ

materially from the estimates set forth above. The aforementioned

ranges represent management's best estimate of results 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.

SOURCE: HCP CONTACT: HCP Thomas M. Herzog Executive Vice President -- Chief Financial Officer and Treasurer [phone] Copyright Business Wire 2009 -0- KEYWORD: United States

North America

California INDUSTRY KEYWORD: Health

REIT

Construction & Property

Commercial Building & Real Estate

General Health SUBJECT CODE: Dividend

Earnings

Economic News/Analysis

Conference Call

Webcast