HCP (HCP) Q4 2011 Earnings Call February 14, 2012 12:00 pm ET Executives John Lu - Vice President of Investment Management James F. Flaherty - Chairman and Chief Executive Officer Timothy M. Schoen - Chief Financial officer and Executive Vice President Paul F. Gallagher - Chief Investment Officer and Executive Vice President Analysts Adam T. Feinstein - Barclays Capital, Research Division Bryan Sekino - Barclays Capital, Research Division Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division Paul Morgan - Morgan Stanley, Research Division Jeff Theiler - Green Street Advisors, Inc., Research Division Ross T. Nussbaum - UBS Investment Bank, Research Division Quentin Velleley - Citigroup Inc, Research Division Michael Bilerman - Citigroup Inc, Research Division James Milam - Sandler O'Neill + Partners, L.P., Research Division Richard C. Anderson - BMO Capital Markets U.S. Todd Stender - Wells Fargo Securities, LLC, Research Division Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division Michael W. Mueller - JP Morgan Chase & Co, Research Division Nicholas Yulico - Macquarie Research Presentation Operator
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Forward-looking statements are not guarantees of future performance. Some of these statements may include projections of financial measures that may not be updated until the next earnings announcement or at all. Events prior to the company’s next earnings announcement could render the forward-looking statements untrue, and the company expressly disclaims any obligation to update earlier statements, as a result of new information.Additionally, certain non-GAAP financial measures will be discussed during the course of this call. We have provided reconciliations of these measures to the most comparable GAAP measures, as well as certain related disclosures in our supplemental information package and earnings release, each of which has been furnished to the SEC today and is available on our website at www.hcpi.com. I will now turn the call over to our Chairman and CEO, Jay Flaherty. James F. Flaherty Thanks, John. Happy Valentines Day, everyone, and welcome to HCP's 2011 Fourth Quarter Earnings Conference Call. Joining me this morning are Executive Vice President and Chief Investment Officer, Paul Gallagher; and Executive Vice President, Chief Financial Officer, Tim Schoen. Let us begin with a review of the fourth quarter results that we released this morning. And for that, I turn the call over to Tim. Timothy M. Schoen Thank you, Jay. 2011 was another strong and productive year for HCP. One, we generated cash, same property growth of 4% over 2010; two, increased FFO as adjusted by 21% year-over-year to $2.69 per share and FAD by 13% to $2.14 per share, both of which are at or above the midpoint of our last guidance and represented all-time highs for HCP; three, closed on $7 billion of investments led by our $6.1 billion acquisition of HCR ManorCare's real estate assets for which we replaced all stock consideration due seller valued at $33.14 per share with cash; four, transitioned 37 senior housing communities to Brookdale, including 21 under our RIDEA structure; five, raised $3.7 billion in the capital markets and renewed our $1.5 billion revolver; six, improved our investment grade credit profile and received positive rating changes from all 3 rating agencies; seven, delivered 18.7% total shareholder return; and eight, continued to be a leader in sustainability as recognized by the U.S. Environmental Protection Agency and NAREIT.
With that summary, there are several topics I will cover today: Our fourth quarter and full-year 2011 results; our investment and disposition transactions; our financing activities and balance sheet; our 2012 guidance; and finally, our dividend.Let me start with our fourth quarter and full-year 2011 results. For the fourth quarter, we generated year-over-year cash Same Property Performance of 2.2% which was negatively impacted by a working capital adjustment in the fourth quarter of 2010 related to the transition of 27 properties from Sunrise to Emeritus. Excluding this, cash Same Property Performance increased by 3.1%. Paul will review our performance by segment in a few minutes. We reported fourth quarter FFO of $0.37 per share which included the charge resulting from the settlement of all outstanding litigation with Ventas. Excluding this charge, FFO as adjusted was $0.67 per share and FAD was $0.50 per share. Turning to our full-year 2011 results. 2011 cash SPP increased 4% over 2010 which was 25 basis points above the midpoint of our last guidance, primarily driven by improved fourth quarter performance in our senior housing segment. We reported full-year 2011 FFO of $2.19 per share, $0.01 above the midpoint of our most recent guidance. The results included a fourth quarter litigation settlement of $0.31 per share, a third quarter impairment of $0.04 per share related to our Cirrus loan and HCR ManorCare merger-related items of $0.15 per share. Excluding these items, FFO as adjusted for the year was $2.69 per share which also exceeded the midpoint of our guidance by $0.01, and FAD of $2.14 per share was in line with the midpoint of guidance. The results reflected several one-time items, most notably a 9% gain from the early par payoff of our Genesis debt investments in Q2. Turning to our investment and disposition transactions. During 2011, we invested $7 billion as follows: $6.1 billion acquisition of HCR ManorCare's real estate portfolio; $560 million representing the buyout of our partners' 65% interest in Ventures II, inclusive of assumed debt; and $300 million for other real estate acquisition, development and capital improvements. During the fourth quarter, we sold 3 senior housing properties for $19 million and recognized gains of $3 million.
Next, our financing activities and balance sheet. In 2011, we raised $3.7 billion in the capital markets, consisting of $2.4 billion of senior unsecured notes and $1.3 billion of common stock. Proceeds from these offerings were used to fund a portion of our HCR ManorCare acquisition. In particular, $852 million of the equity proceeds issued at $35.79 per share were used to replace, at our option, all of the stock consideration due to the seller, valued at $33.14 per share, which resulted in a $68 million benefit to HCP.Read the rest of this transcript for free on seekingalpha.com