HCP Inc. (HCP), a health care real estate investment trust (REIT), reported fourth quarter 2010 FFO (funds from operations) of $202.6 million or 62 cents per share, compared with $106.0 million or 36 cents in the year-earlier quarter.
Funds 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 $207.0 million or 64 cents per share compared to $160.5 million or 55 cents in the year-ago quarter. The fourth quarter 2010 recurring FFO exceeded the Zacks Consensus Estimate by 5 cents.
For full year 2010, HCP reported FFO of $619.4 million or $2.02 per share, compared with $412.5 million or $1.50 in the previous year. Recurring FFO for the reported fiscal was $683.5 million or $2.23 per share compared to $590.0 million or $2.14 in 2009. Fiscal 2010 recurring FFO exceeded the Zacks Consensus Estimate by 4 cents.
HCP reported total revenues of $341.4 million during the quarter compared with $294.5 million in the year-ago period. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $304.0 million.
For full year 2010, HCP reported total revenues of $1.3 billion compared with $1.1 billion in the year-ago period. Total revenues for the reported fiscal were well ahead of the Zacks Consensus Estimate of $1.1 billion.
During the quarter, HCP acquired the real estate assets of HCR ManorCare Inc., a leading privately owned provider of skilled nursing facilities, for $6.1 billion. Spanning across 30 states, the properties are primarily concentrated in Ohio, Pennsylvania, Florida, Illinois and Michigan.
With the deal, HCP will gain ownership interests in 334 post-acute, skilled nursing and assisted living facilities, located in some of the premium markets of the country typified by high barriers to entry.
HCR ManorCare will continue to operate the healthcare facilities in accordance with the long-term triple-net master lease agreement, under which the lessee pays rent as well as taxes, insurance and maintenance expenses of the property.
The triple-net lease will generate a rent of $472.5 million in the first year and will increase by 3.5% per year after each of the first five years and by 3% for the remaining portion of the fixed term.
During the quarter, 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.
HCP acquired debt investments in Genesis HealthCare, a leading skilled nursing and assisted living facilities provider, for $290 million during fourth quarter 2010. In addition, the company acquired $82 million of real estate assets during the quarter and invested $40 million for construction and other capital projects primarily in the life science segment.
During the quarter, HCP sold investments worth $230 million, which included $154 million of HCA bonds and other debt investments for $76 million. The company recorded gains of $13 million and $21 million respectively related to the asset sale.
Subsequent to the quarter-end, the company acquired 4 life science facilities spanning 200,000 rentable square feet for $67 million, and a medical office building totaling 132,000 rentable square feet for $32 million. In January 2011, HCP also acquired its joint venture partner’s 65% interest that owned 25 senior housing assets, becoming the sole owner of the portfolio.
For the reported quarter, net operating income (NOI) of the company was $230.0 million compared with $210.9 million in the year-ago period. Adjusted NOI for fourth quarter 2010 was $209.8 million compared to $195.7 million in the year-earlier quarter.
During the quarter, HCP raised approximately $2.0 billion from equity issuance. Subsequent to the quarter-end, the company issued a debt offer of senior unsecured notes worth $2.4 billion. HCP utilized the proceeds to fund the acquisition of HCR ManorCare.
HCP increased its quarterly cash dividend from $0.465 to $0.48 per share, which equates to an annualized distribution rate of $1.92 for 2011, compared to $1.86 for 2010 – an increase of 3.2%. At year-end 2010, the company had cash and cash equivalents of $1.0 billion and total debt of $4.6 billion.
For full year 2011, HCP expects FFO before non-recurring items in the range of $2.58 to $2.64 per share. We maintain our ‘Outperform’ rating on the stock, which presently has a Zacks #3 Rank translating into a short-term ‘Hold’ rating.
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