HCP Earnings Skyrocket in Third Quarter, Fueled by Direct Financing Leases

HCP, Inc. (NYSE:HCP) reported a net income applicable to shares of $166.4 million, or $0.41 per share, for the third quarter ending on Sept. 30, 2011, augmented by direct financing lease assets. This represents a nearly tenfold increase from the previous year’s $17 million, and $0.05 per share.

HCP’s assets climbed 30% in the quarter to $17.4 million, with net investments in direct financing leases shooting to $6.7 million, up from last year’s $609,661. Revenues increased 40% to $444.8 million, while expenses rose 24% to $285.5 million.

Funds from operation (FFO) increased to $259.7 million in the quarter, at $0.63 per share, up from $96.1 million and $0.31 per share in 2010. Adjusted FFO was slightly higher, at $0.67 per share, excluding an impairment charge.


In the third quarter, HCP concluded its loan to Cirrus Health was impaired, and recognized a non-cash charge of $15.4 million that reduced the carrying value of its loan from $91.1 million to $75.7 million, representing the fair value of the related collateral supporting this loan.

On Sept. 1, 2011, HCP completed a strategic venture with Brookdale Senior Living that includes 37 HCP-owned senior living communities that were previously leased to or operated by Horizon Bay Retirement Living, which was acquired by Brookdale. As part of the acquisition transaction, Brookdale entered into management contracts and a joint venture agreement for a 10% interest in the real estate and operations for 21 of HCP’s communities in a RIDEA structure, and also assumed or entered into triple-net leases and management contracts for several HCP communities.

For the full year 2011, HCP expects FFO applicable to common shares to range between $2.46 and $2.52 per share; FFO as adjusted applicable to common shares to range between $2.65 and $2.71 per share; and net income applicable to common shares to range between $1.56 and $1.62 per share.


Estimates of FFO and net income applicable to common shares include the impact of the HCR ManorCare Acquisition that closed on April 7, 2011 and the corresponding merger-related items, says HCP, but estimates for adjusted FFO exclude the impact of the Cirrus impairment and merger-related items.

View HCP’s 3Q earnings report here.

Written by Alyssa Gerace