HCP Lowers Outlook Despite Strong 2013 Earnings

An executive swap at the top and interest rate uncertainty surrounding Fed comments contributed to a slower second half of 2013 investments for HCP, Inc. (NYSE: HCP), ultimately leading to a reduced 2014 outlook.

Despite HCP beating fourth quarter sales expectations by nearly $20 million, the company downgraded its outlook for 2014 following its earnings release Tuesday.

The real estate investment trust reported revenue for the three months ending December 31, 2013 at $530.3 million—a 5.4% year over year increase and beating analyst expectations by $19.9 million. Full-year 2013 revenue rose 11.7% from the previous year to $2.1 billion.


HCP also reported full-year 2013 funds from operations (FFO) increased year-over-year by 8% to $1.35 billion, or $2.95 per share, along with an uptick in senior housing occupancy, up 7 basis points to 86.2% during the quarter.

But despite the strong fourth quarter and full-year performance, HCP lowered its outlook for 2014 with FFO in the range of $2.96 to $3.02 per share.

The lowered outlook is due to the “$0.07 [of] positive one-time items” in the REIT’s 2013 results, said HCP Executive Vice President and Chief Financial Officer Timothy M. Schoen.


HCP also stated that operating results for the full-year 2013 included impacts of $0.05 per share of interest income from the full payoff of the company’s Barchester debt investments, as well as $0.02 per share charge resulting from an adjustment to non-cash rents, primarily in the company’s hospital segment.

“As we enter 2014, we find ourselves providing relatively flat year-over-year financial guidance, the result of the strong 2013 one-time profit items impacting the year-over-year comparisons, but also due to the limited investment activity in the second half of the year,” said HCP CEO Lauralee Martin.

Martin attributed reasons for the company’s “investment pause” during the second half of 2013 to the Federal Reserve’s May interest rate comments that “put a pause on overall market transactions,” as well as intense effort and commitment of resources HCP put into the acquisition of the U.K.-based Barchester Healthcare portfolio.

During 2013, HCP completed $598 million of accretive investments and sold $111 million of real estate assets realizing net gains of $68 million, said Martin.

These investments comprised a $189 million debt investment in the Barchester purchase, as well as $145 million of primarily senior housing real estate acquisitions.

Other notable investments during the year included $173 million for development and other capital improvements and $102 million second tranche funding of a mezzanine loan facility provided to Tandem Health Care.

Martin also attributed the company’s “management transition” to the investment pause in the latter half of 2013.

The company’s fourth quarter and full-year earnings revealed that HCP paid $870,000 in severance-related charges stemming from the termination of former Chairman and CEO James Flaherty.

Looking ahead in 2014, HCP intends to further its investments both nationally and abroad, though the company remained mum on its senior housing pipeline.

“In addition to pursuing new investment opportunities both in the U.S. and abroad, we will be working our existing portfolio to continue its strong performance, maximizing our development pipeline for new opportunities as well as seeking monetization of existing investments,” Martin said.

Written by Jason Oliva

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