HCP Marginally Misses 4Q Estimates

HCP Inc. ( HCP - Analyst Report ) , a health care real estate investment trust (REIT), reported fourth quarter 2011 FFO (funds from operations) of $150.6 million or 37 cents per share, compared with $202.6 million or 62 cents in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Excluding non-recurring items, FFO for the reported quarter was $275.6 million or 67 cents per share compared to $206.9 million or 64 cents in the year-ago quarter. The fourth quarter 2011 recurring FFO marginally missed the Zacks Consensus Estimate by a penny.

For full year 2011, HCP reported FFO of $877.9 million or $2.19 per share, compared with $690.6 million or $2.25 in the previous year. Recurring FFO for the reported fiscal was $1.0 billion or $2.69 per share compared to $683.1 million or $2.23 in 2010. Fiscal 2011 recurring FFO exceeded the Zacks Consensus Estimate by 14 cents.

HCP reported total revenues of $461.6 million during the quarter compared with $341.0 million in the year-ago period. Total revenues for the reported quarter were ahead of the Zacks Consensus Estimate of $459.0 million.

For full year 2011, HCP reported total revenues of $1.7 billion compared with $1.3 billion in the year-ago period. Total revenues for the reported fiscal were also ahead of the Zacks Consensus Estimate of $1.6 billion.

During the reported quarter, HCP invested about $40 million worth of capital to fund development and other capital projects, primarily in the life science and medical office segments. The company also executed 2 loan commitments to fund $35 million worth of senior housing developments. In addition, HCP sold 3 senior housing facilities for $19 million during the quarter, recognizing a gain of $3.1 million.

During fourth quarter 2011, HCP entered into an agreement with Ventas, Inc. ( VTR - Analyst Report ) to settle all remaining claims relating to Ventas' litigation against HCP. The litigation relates to the lawsuit filed by Ventas regarding the ‘Tortious Interference’ by HCP with business expectation arising out of the former’s acquisition of Sunrise Senior Living Inc. ( ) in April 2007.

‘Tortious Interference’ under Kentucky Law relates to intentional interference with prospective contractual relation for causing pecuniary harm by preventing another from acquiring or continuing the prospective relation.

The conflict originated when Sunrise decided to conduct a confidential auction of its assets, wherein both Ventas and HCP were selected for final bids for the purchase. However, negotiations with HCP fell flat in the final rounds and Ventas ultimately managed to acquire the auctioned assets.

Subsequent to the quarter-end, the company issued $450 million of 3.75% senior unsecured notes, scheduled to mature in 2019. The transaction generated net proceeds of approximately $443.7 million, which were utilized to repay the debt under its revolving credit facility and for general corporate purposes.

For the reported quarter, adjusted same-property net operating income (NOI) of the company was $216.5 million compared with $211.7 million in the year-ago period. For full year 2011, adjusted same-property NOI was $837.6 million compared with $805.6 million in 2010.

HCP declared a quarterly cash dividend of 50 cents per share for first quarter 2012, which equates to an annualized distribution rate of $2.00 for 2012, compared to $1.92 for 2011 – an increase of 4.2%. At year-end 2011, the company had cash and cash equivalents of $33.5 million and total debt of approximately $8.4 billion.

For full year 2012, HCP expects FFO in the range of $2.70 to $2.76 per share. We maintain our Neutral rating on the stock, which presently has a Zacks #3 Rank translating into a short-term Hold rating.