HCP Inc. (HCP), a health care real estate investment trust (REIT), reported third quarter 2010 FFO (funds from operations) of $96.1 million or 31 cents per share, compared with $32.2 million or 11 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
Excluding non-recurring items, FFO for the reported quarter was $167.8 million or 54 cents per share compared to $149.3 million or 52 cents in the year-ago quarter. The third quarter 2010 recurring FFO was in line with the Zacks Consensus Estimate.
HCP reported total revenues of $317.1 million during the quarter compared with $287.1 million in the year-ago period. Total revenue for the reported quarter was well ahead of the Zacks Consensus Estimate of $287.0 million.
During the quarter, HCP acquired debt investments in Genesis HealthCare, one of the largest long-term care providers in the U.S.with over 200 skilled nursing centers, worth $327.6 million. The company invested $99 million during the quarter, including $63 million in real estate acquisitions and $36 million in construction and other capital projects (primarily in the life science segment). Subsequent to the quarter-end, HCP terminated the management contracts relating to 27 senior housing communities operated by Sunrise Senior Living, Inc. (SRZ). These senior housing communities are now master-leased to and operated by Emeritus Corp. (ESC), one of the largest and most experienced operators of assisted living facilities across the U.S.
During the quarter, HCP sold investments worth $83 million, which included $73 million of debt investments (including $65.4 million of HCA bonds) and three skilled nursing facilities for $10 million. The company recorded gains of $5.6 million and $4 million respectively related to the asset sale. Subsequent to the quarter-end, the company sold its remaining bond investments in HCA for $102 million and recognized gains of $8 million. In addition, HCP entered into an agreement with Assisted Living Concepts Inc. (ALC), which operates senior living residences, to sell nine senior living properties for $27.5 million.
For the reported quarter, net operating income (NOI) of the company (excluding straight-line rents and lease termination fees) was $202.7 million compared with $188.4 million in the year-ago period. At quarter-end, HCP had six redevelopment properties under construction, primarily in California, for an estimated total investment of $205.2 million. In addition, the company had approximately 149 acres of land for future development.
At quarter-end, the company had cash and cash equivalents of $52.6 million and total debt of $5.8 billion. During the quarter, HCP reduced its financial leverage from 43.4% at year-end 2009 to 41.0%. The adjusted fixed charge coverage ratio for the quarter was 2.6x.
For full year 2010, HCP increased its FFO guidance before non-recurring items from the range of $2.10 to $2.16 per share to $2.18 to $2.24. We maintain our Neutral rating on the stock, which presently has a Zacks #4 Rank translating into a short-term “Sell” rating.
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