Unburdened by Litigation Costs, HCP’s Q4 Profits More Than Triple to $240 Million

HCP Inc. (NYSE:HCP) saw its profits more than triple to $239.9 million, or $0.53 per share, for the fourth quarter ended Dec. 31, 2012 compared to the previous year, when net income was affected by a $125 million legal settlement. 

Net income applicable to common shares for all of 2012 totaled $812.3 million, up nearly 58% from the previous year. 

Total revenue rose nearly 11% to $508.5 million in the fourth quarter. Full-year revenues, at $1.9 billon, were 11% higher than 2011’s $1.71 billion. 


Funds from operations more than doubled  to $321.5 million, or $0.71 per share, above the $150.6 million, or $0.37 per share reported in the same period of 2011. 

Jay Flaherty, chairman and CEO of HCP, characterized 2012 as “a very good year” for HCP during the REIT’s earnings call with analysts, based on establishing “new, all-time bests” in operating efficiency, sustainability, and occupancy for its life science and medical office sectors. 

On the senior housing side, same store occupancy rate was 86.2%, up 90 basis points from the previous quarter, and 80 basis points compared to the same period in 2011. 


The 11.1% average cuts to Medicare reimbursements to skilled nursing providers announced in October 2011 have had the impact of reducing HCR ManorCare’s reimbursement and increasing therapy costs by $225 million, said Paul Gallagher, HCP’s CIO and executive vice president.

However, HCR was successful in mitigating more than $100 million of that impact through cost reduction program, growth in home health and hospice, and new revenue from developments and expansions placed into service, Gallagher said. 

During the fourth quarter, HCP closed the $1.7 billion acquisition of the Blackstone/Emeritus joint venture portfolio. As of this week, the REIT had closed on 129 of 133 properties in the portfolio. 

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“Based on two months of actual data, EBITDAR is up relative to both where it was at the time of closing, but  more importantly up relative to our underwriting, which is accretive to the coverage ratio,” Flaherty said. 

The properties are performing ahead of schedule in terms of lease-up, according to Gallagher. 

Relative to a couple years ago, more acquisition opportunities are presenting themselves, according to Flaherty, who said the deal pipeline is “quite robust” and that there are a number of opportunities where HCP is in dialogues or is doing due diligence. 

By the end of 2012, HCP had $248 million of unrestricted cash, including proceeds from asset sales in the fourth quarter that generated a $17 million gain and excess proceeds from the REIT’s November bond issuance after funding the Blackstone JV acquisition. HCP said it intends to use cash on hand to repay $150 million of senior unsecured notes that are maturing on Feb. 28. 

Looking ahead, HCP forecasts FFO to range from $2.92 to $2.98 per share.

“Turning to 2013, the double-barreled engine of strong profit performance and last year’s accretive acquisitions position the company’s Board of Directors to raise HCP’s dividend by 5% three weeks ago, the largest increase in over 10 years,” Flaherty said.  

View HCP’s fourth quarter earnings report.  

Written by Alyssa Gerace

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