HCP's CEO Discusses Q1 2012 Results - Earnings Call Transcript

HCP (HCP)

Q1 2012 Earnings Call

May 01, 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

Derek Bower - UBS Investment Bank, Research Division

Wilfredo Guilloty - Morgan Stanley, Research Division

James Milam - Sandler O'Neill + Partners, L.P., Research Division

Jeff Theiler - Green Street Advisors, Inc., Research Division

Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Richard C. Anderson - BMO Capital Markets U.S.

Quentin Velleley - Citigroup Inc, Research Division

Jana Galan - BofA Merrill Lynch, Research Division

Nicholas Yulico - Macquarie Research

Todd Stender - Wells Fargo Securities, LLC, Research Division

Molly McCartin - JP Morgan Chase & Co, Research Division

Philip J. Martin - Morningstar Inc., Research Division

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 HCP Earnings Conference Call. My name is Anisa, and I will be you coordinator today. [Operator Instructions] Now, I would like to turn the presentation over to your host for today's conference call, John Lu, Senior Vice President. You may go ahead, sir.

John Lu

Thank you, Anisa. Good afternoon and good morning. Some of the statements made during today’s conference call will contain forward-looking statements, including the statements about our guidance. These statements are made as of today’s date and reflect the company’s good faith, beliefs and best judgment based upon currently available information. The statements are subject to the risks, uncertainties and assumptions that are described from time to time in the company’s press releases and SEC filings.

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, and welcome to HCP's 2012 First Quarter Earnings Conference Call. Joining me this morning are Executive Vice President, Chief Investment Officer, Paul Gallagher; and Executive Vice President, Chief Financial Officer, Tim Schoen. Let us begin with a review of our first quarter release of this morning. And for that, I turn the call over to Tim.

Timothy M. Schoen

Thank you, Jay. Let me start with our first quarter results. Our real estate portfolio performance exceeded plan, generating same property cash NOI growth of 4.7% compared to the first quarter of 2011. The results were primarily driven by contractual rent increases and a one-time rent payment of $4 million from Google. Paul will review our performance by segment in a few minutes.

We reported FFO as $0.64 per share, which included a nonrecurring charge of $0.03 per share in conjunction with the redemption of all outstanding preferred stock with a weighted average dividend yield of 7.15%. The redemption charge pertains to the non-cash write-off of the original issuance cost.

Excluding this charge, FFO, as adjusted for the quarter, was $0.67 per share and FAD was $0.54 per share, representing year-over-year increases of 20% and 10%, respectively, primarily driven by last year's HCR ManorCare acquisition and strong 2012 cash, Same Property Performance.

During the quarter, we made investments of $40 million to fund development and other capital projects, and sold one medical office building for $7 million, recognizing a gain of $3 million.

Turning now to financing activities and balance sheet. On the capital markets front, we were active during the first quarter and raised $809 million consisting of: $450 million of 7-year senior unsecured notes with a coupon of 3.75%; and $359 million of common stock at a price of $39.93 per share. Proceeds from these offerings were primarily used to clear out the revolver balance at year end and redeem all outstanding preferred stock at par. On April 23, we retired our Series E and Series F preferred stock for a total of $296 million. Going forward, this equity for preferred swap will be accretive to FAD in 2012 and further strengthen our fixed charge coverage ratio.

In addition, during the quarter, we improved the terms of our revolving credit facility that included lowering the funded interest cost by 55 basis points and extending the maturity one additional year to March 2016. Our undrawn revolver provides up to $1.5 billion of immediate liquidity at a current rate of LIBOR plus 1.075%.

Pro forma for the cash used to redeem the $296 million of preferred stock in April, we ended the quarter with $50 million of unrestricted cash.

Our remaining 2012 debt maturities total $317 million, of which $250 million relates to the 6.45% senior unsecured notes maturing next month.

Finally, updates to our 2012 guidance. Based on stronger-than-forecasted performance to date, we are raising our full year, cash same property growth to a range of 3.25% to 4.25%, up 25 basis points from our February guidance. We are updating our FFO guidance to range from $2.68 to $2.74 per share, which is $0.02 lower than our last guidance. This change is primarily due to the $0.03 first quarter preferred stock redemption charge mentioned earlier, less an additional $0.01 for several small items, offset by a positive $0.02 from an insurance recovery of $7 million received in the second quarter for past G&A expenses and increased Same Property Performance.

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