HCP Profits Up 18% Following $1.73 Billion Emeritus/Blackstone JV Acquisition

HCP Inc.’s (NYSE:HCP) $1.73 billion acquisition of the Blackstone-Emeritus joint venture was the pitch the largest healthcare REIT was waiting for—”a fastball, right down the middle of the plate,” according to chairman and CEO Jay Flaherty on the third quarter earnings call.

During a first quarter earnings call, an analyst had mentioned HCP’s “relatively low level of acquisition activity,” Flaherty recalls. “I referenced Ted Williams’ famous advice of, needing to wait for the right pitch. And on our second quarter call, three months ago, I noted the increasingly attractive outlook from making accretive acquisitions and predicted that HCP’s quarterly deal volumes would ramp sequentially during 2012. Let me now tie these perspectives together with our recent accomplishments: we finally got the pitch we were waiting for.”

The REIT may close on its accretive $1.78 billion senior housing portfolio acquisition as early as Wednesday—about a month sooner than previously anticipated, announced the REIT’s chief financial officer and executive vice president, Timothy Schoen, on the Tuesday call. (Ed. note: see below for an update)


“During the third quarter and throughout October, we executed on $2.3 billion of investments,” said Schoen. “We announced an accretive $1.78 billion senior housing portfolio acquisition that included 133 properties master leased to Emeritus on a long-term triple net basis valued at $1.73 billion, and a 4-year loan of $52 million secured by 9 properties concurrently being purchased by Emeritus. We expect to close on substantially all of the real estate assets as early as tomorrow.”

Net income applicable to common shares rose nearly 18% to $195.6 million, or $.046 per common share, for HCP Inc. (NYSE:HCP) during the third quarter ended Sept. 30, 2012, up from the previous year’s $166.4 million, or $0.41 per common share.

During the quarter, the industry’s largest healthcare real estate investment trust announced the $1.73 billion acquisition for a 133-property portfolio of senior housing communities, along with completing an additional $549 million of investment transactions.


Revenues increased 7.8% to $475.5 million in the third quarter up from last year’s $441.2 million.

Adjusted funds from operations (FFO) were $298.1 million, or $0.69 per common share, up from $274.9 million, or $0.67 during the same period in 2011.

HCP raised its earnings projects to reflect the additional accretion and reduced negative carry in the fourth quarter due to an earlier-than-expected closing date for the Blackstone portfolio acquisition. The REIT has raised its FFO guidance by $0.03 per share to a range of $2.68 to $2.74 per share, and expects 2012 FFO as adjusted to range from $2.75 to $2.81 per share—a cent higher than its previous October 16 guidance.

***Update: HCP announced on Wednesday it had closed the acquisition of 127 of the 133 senior housing communities from the Emeritus/Blackstone joint venture. Concurrent with the closing, Emeritus purchased the nine remaining properties from the Blackstone JV, with HCP providing $52 million in secured debt financing.

Written by Alyssa Gerace

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