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Tickers in this Article: HCP, ESC, BX
HCP, Inc (HCP), a real estate investment trust (REIT), reported third quarter 2012 FFO (funds from operations) of $290.2 million or 67 cents per share compared with $259.6 million or 63 cents per share in the year-earlier quarter.

Excluding non-recurring items, FFO for the reported quarter was $298.1 million or 69 cents per share compared with 275.0 million or 67 cents per share in the year-ago quarter. Recurring FFO in the reported quarter was in line with the Zacks Consensus Estimate.

HCP reported total revenue of $475.5 million during the quarter compared with $441.2 million in the year-ago period. Total revenue in the reported quarter was  marginally ahead of the Zacks Consensus Estimate of $475.0 million. Adjusted same-property net operating income (NOI) of the company stood at $344.2 million in the quarter versus $332.2 million in the year-ago period.
 
During the reported quarter, HCP invested about $63 million to fund development and other capital projects, primarily in the life science, medical office and senior housing segments.  The company acquired a portfolio of 12 medical office building MOBs (spanning 758,000 square feet) from The Boyer Company for $186 million during the months of July to October. HCP also completed the acquisition of eight on-campus MOBs for $81 million from Scottsdale Healthcare and an additional MOB for $14 million.  At the same time, HCP closed a $205 million mezzanine loan facility.

Subsequent to the end of the quarter, HCP entered into an agreement to acquire 133 senior housing communities for $1.73 billion .The properties would be acquired from a joint venture between Emeritus Corp (ESC) and an affiliate company of The Blackstone Group LP (BX). Spread across a wide geographical area spanning 29 states, the acquired portfolio includes a diversified mix of healthcare facilities totaling 10,350 units. By segment the properties comprise a mix of 61% for assisted living, 25% independent living, 13% memory care and 1% for skilled nursing.  In accordance with the acquisition, Emeritus will purchase 9 communities from the Blackstone JV, for a secured debt financing of $52 million.

During the quarter, the company issued $300 million of 3.15% senior unsecured notes scheduled to mature in 2022. The transaction generated net proceeds of approximately $293.7 million. Also the company entered into an into a credit agreement for a four-year 1.81% unsecured loan worth $215 million.

Subsequent to the quarter-end, the company completed an equity offering of 22 million shares and generated proceeds of $979 million.

At the end of the quarter, the company had cash and cash equivalents of $96.5 million. For full-year 2012, HCP expects adjusted FFO in the range of $2.75 to $2.81  per share. The company also expects cash same-property NOI to be in the range of 4.0%-4.5%.

HCP currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

Note: FFO, 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.

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