HCP Announces Third Quarter 2009 Results

http://www.businesswire.com/news/home/20091103005494/en

Highlights

* 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

LONG BEACH, Calif.--(Business Wire)--
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 (800) 706-7748 (U.S.) or
(617) 614-3473 (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
(888) 286-8010 (U.S.) or (617) 801-6888 (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, respectively 36,824 33,834
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; 11,820,000 shares issued and outstanding, liquidation preference of $25.00 per share 285,173 285,173
Common stock, $1.00 par value: 750,000,000 shares authorized 293,145,064 and 253,601,454 shares issued and outstanding, respectively 293,145 253,601
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 income from unconsolidated joint ventures (47,178 ) 100,139 73,945 186,943
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 taxes (152 ) 3,291 1,903 19,158
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 earnings (3,895 ) (6,659 ) (12,147 ) (19,559 )
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 ventures 5,775 8,727
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 options 846,135 1,060,236
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 earnings 3,895 6,659 12,147 19,559
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 operations per common share 285,234 253,531 268,183 240,633

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 merger-related charges on diluted funds from operations $ 0.41 $ 0.02 $ 0.46 $ 0.07
Diluted FFO per common share, before giving effect to impairments, litigation provision and merger-related charges $ 0.52 $ 0.72 $ 1.60 $ 1.84

(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 and litigation provision $ 2.10 $ 2.16

(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.

HCP
Thomas M. Herzog
Executive Vice President - Chief Financial Officer and Treasurer
(562) 733-5309

Copyright Business Wire 2009