EX-99.1 2 a16-12302_16ex99d1.htm EX-99.1

Exhibit 99.1

 

 

 

HCP, INC.

 

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

 

 

Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2016

5

 

 

Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2016

6

 

 

Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2015

7

 

 

Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2015

8

 

 

Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014

9

 

 

Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2013

10

 

 

Notes to Unaudited Pro Forma Consolidated Financial Statements

11

 

1


 

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

On October 31, 2016, HCP, Inc. (“HCP”) completed its previously announced spin-off (the “Spin-Off”) of its subsidiary, Quality Care Properties, Inc. (“QCP”). QCP’s assets include 338 properties (the “Properties”), primary comprised of the HCR ManorCare, Inc. (“HCRMC”) direct financing lease (“DFL”) investments and an equity investment in HCRMC. HCP completed the Spin-Off through a distribution to its shareholders. HCP common shareholders, at the close of business on October 24, 2016 (the “Record Date”), received a distribution of one QCP common share for every five HCP common shares held as of the Record Date, without accounting for cash in lieu of fractional shares. Following the completion of the Spin-Off, QCP is an independent, publicly-traded, self-managed and self-administered real estate investment trust (“REIT”). Contemporaneously, HCP has entered into: (i) a separation and distribution agreement setting forth the mechanics of the Spin-Off and certain organizational matters and (ii) a transition services agreement pursuant to which HCP will provide certain administrative and support services to QCP on a transitional basis. Following the completion of the Spin-Off, HCP is the sole lender to QCP of a $100 million unsecured revolving credit facility maturing in 2018 (the “Unsecured Revolving Credit Facility).

 

In October 2016, HCP entered into definitive agreements to sell 64 assets (the “Brookdale Assets”), currently under triple-net leases with Brookdale Senior Living, Inc. (“Brookdale”), for $1.125 billion to affiliates of Blackstone Real Estate Partners VIII L.P. (the “Brookdale 64 Sale”). The closing of this transaction is expected to occur in the first quarter of 2017 and remains subject to regulatory and third party approvals and other customary closing conditions.  This transaction is a significant disposal and has been reflected as a pro forma adjustment in these unaudited pro forma consolidated financial statements as it represents further re-alignment of the remaining HCP business after the Spin-Off.

 

In May 2016, HCP entered into a master contribution agreement with Brookdale to contribute its ownership interest in RIDEA II to an unconsolidated joint venture owned by HCP and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (the “HCP/CPA JV”). The members have also agreed to recapitalize RIDEA II, which was initially formed and capitalized on August 29, 2014, with an estimated $630 million of debt; of which an estimated $365 million will be provided by a third-party and an estimated $265 million will be provided by HCP. In return, HCP will receive an estimated $470 million in net cash proceeds from the HCP/CPA JV and an estimated $265 million in note receivables and retain an approximately 40% beneficial interest in RIDEA II (the “RIDEA II Transaction”) (the note receivable and 40% beneficial interest will herein be referred to as the “RIDEA II Investments”). HCP’s RIDEA II Investments will be recognized and accounted for as equity method investments This transaction, upon completion, would result in HCP deconsolidating the net assets of RIDEA II because it will not direct the activities that most significantly impact the venture. The closing of this transaction is expected to occur in the fourth quarter of 2016 and remains subject to regulatory and third party approvals and other customary closing conditions.  This transaction is a significant disposal and has been reflected in these unaudited pro forma consolidated financial statements as it represents further re-alignment of the remaining HCP business after the Spin-Off.

 

The cumulative gross proceeds of $3.4 billion in cash from the Spin-off, the RIDEA II Transaction and the Brookdale 64 Sale (collectively, the “Proceeds”) will be used by HCP to: (i) repay debt principal of approximately $3.1 billion, (ii) pay $20 million of accrued interest, (iii) pay $212 million of transaction costs, fees and expenses, including prepayment penalties on the debt less $21 million in transaction related costs already paid by HCP and (iv) $4 million in cash retained by QCP for working capital purposes (collectively the “Use of Proceeds”). Any remaining cash will be retained by HCP for general corporate purposes. Together, the Spin-Off, the RIDEA II Transaction and the Brookdale 64 Sale, along with the Use of Proceeds, will be herein referred to as the “Transactions.”

 

HCP will no longer consolidate the financial results of QCP, RIDEA II or the Brookdale Assets for the purpose of its own financial reporting as of the date each respective transaction closes. Within HCP’s fiscal year ended December 31, 2016 financial statements, the historical financial results of QCP will be reflected in HCP’s consolidated financial statements as discontinued operations for all periods presented through the Spin-Off date. Further, RIDEA II and the Brookdale Assets will be reflected as disposals on their respective closing dates and the Brookdale Assets will be classified as real estate and related assets held for sale.

 

2


 

The accompanying unaudited pro forma consolidated financial information gives effect to the Transactions. The unaudited pro forma balance sheet of HCP as of September 30, 2016 is presented as if the Transactions had occurred on September 30, 2016. The accompanying unaudited pro forma consolidated statements of operations of HCP for the nine months ended September 30, 2016 and 2015, and for the year ended December 31, 2015, are presented as if the RIDEA II Transaction and the Brookdale 64 Sale occurred as of January 1, 2015 and the Proceeds were received and used as of January 1, 2015. The Spin-Off, which qualifies for discontinued operations reporting, is reflected in the accompanying unaudited pro forma consolidated statements of operations for all periods presented as if the Spin-Off had occurred on January 1, 2013.

 

The accompanying unaudited pro forma consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the pro forma results of operations and financial position of HCP as of and for the periods indicated. The accompanying unaudited pro forma consolidated financial statements are presented for illustrative and informational purposes only and are not intended to represent or be indicative of the financial condition or results of operations that would have actually occurred had the Transactions occurred on the date or at the beginning of the periods indicated, nor does it purport to represent HCP’s future financial position or results of operations. The unaudited pro forma adjustments are based on information and assumptions that management considers reasonable and factually supportable.

 

The accompanying unaudited pro forma consolidated financial statements do not give effect to the potential impact of cost savings that may result from the transactions described above or for items that will not have a recurring impact.  As such, while HCP is providing QCP with certain administrative and support services on a transitional basis pursuant to a transition services agreement. These services are expected to be less than one year in duration. Accordingly, the accompanying unaudited pro forma consolidated financial statements do not give effect to the transition services agreement with QCP, as the majority of these services are not expected to be recurring in nature and therefore do not have a continuing impact on HCP’s unaudited pro forma consolidated statements of operations.

 

Since the information presented below is only a summary and does not provide all of the information contained in the historical consolidated financial statements of HCP you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and HCP’s historical consolidated financial statements and notes thereto included in HCP’s Annual Report on Form 10-K for the year ended December 31, 2015 and its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016.

 

The following is a brief description of the amounts recorded under each of the column headings in the accompanying unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations:

 

HCP Historical

 

This column reflects HCP’s historical financial position as of September 30, 2016 and historical results of operations for the nine months ended September 30, 2016 and 2015, and for the years ended December 31, 2015, 2014 and 2013, prior to any adjustment for the Transactions and related pro forma adjustments described herein.

 

QCP Spin-Off

 

This column reflects QCP’s historical combined financial position and results of operations, as reflected in HCP’s historical financial statements, as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 and for the years ended December 31, 2015, 2014 and 2013, prior to pro forma adjustments.

 

3


 

RIDEA II

 

This column reflects RIDEA II’s historical financial position and results of operations, as reflected in HCP’s historical financial statements, as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 and for the year ended December 31, 2015, prior to pro forma adjustments.

 

Brookdale 64

 

This column reflects the Brookdale Assets’ historical financial position and results of operations, as reflected in HCP’s historical financial statements, as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 and for the year ended December 31, 2015, prior to pro forma adjustments.

 

Other Pro Forma Adjustments

 

This column represents pro forma adjustments directly attributable to the Transactions. These adjustments are more fully described in the notes to the accompanying unaudited pro forma financial statements. These adjustments have not been reflected in the accompanying unaudited pro forma consolidated statements of operations of HCP for the years ended December 31, 2014 and 2013.

 

4


 

HCP, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

September 30, 2016

(In thousands)

 

 

 

HCP
Historical

 

QCP Spin-
Off
(A)

 

RIDEA II
(D)

 

Brookdale 64
(F)

 

Other
Pro Forma
Adjustments

 

Notes

 

Consolidated
Pro Forma
HCP

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

 

$

12,534,471

 

$

(191,633)

 

$

(694,188)

 

$

(877,051)

 

$

-

 

 

 

$

10,771,599

 

Development costs and construction in progress

 

395,349

 

-

 

(8,462)

 

-

 

-

 

 

 

386,887

 

Land

 

1,971,601

 

(14,147)

 

(109,929)

 

(76,483)

 

-

 

 

 

1,771,042

 

Accumulated depreciation

 

(2,799,969)

 

69,106

 

143,745

 

169,186

 

-

 

 

 

(2,417,932)

 

Net real estate

 

12,101,452

 

(136,674)

 

(668,834)

 

(784,348)

 

-

 

 

 

10,511,596

 

Net investment in direct financing leases

 

5,860,401

 

(5,107,180)

 

-

 

-

 

-

 

 

 

753,221

 

Loans receivable, net

 

682,994

 

-

 

-

 

-

 

-

 

 

 

682,994

 

Investments in and advances to unconsolidated joint ventures

 

592,097

 

-

 

-

 

-

 

265,000

 

(E)

 

857,097

 

Accounts receivable, net

 

41,371

 

(169)

 

(8,698)

 

(423)

 

-

 

 

 

32,081

 

Cash and cash equivalents

 

132,891

 

(2,150)

 

(7,245)

 

-

 

-

 

 

 

123,496

 

Restricted cash

 

71,727

 

-

 

(18,371)

 

-

 

-

 

 

 

53,356

 

Intangible assets, net

 

538,631

 

(16,284)

 

(24,166)

 

(39,562)

 

-

 

 

 

458,619

 

Real estate held for sale

 

372,968

 

-

 

-

 

-

 

-

 

 

 

372,968

 

Other assets, net

 

794,013

 

(7,014)

 

(9,283)

 

(114,335)

 

-

 

 

 

663,381

 

Total assets

 

$

21,188,545

 

$

(5,269,471)

 

$

(736,597)

 

$

(938,668)

 

$

265,000

 

 

 

$

14,508,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank line of credit

 

$

1,372,032

 

$

-

 

$

-

 

$

-

 

$

(1,170,650)

 

(B)

 

$

201,382

 

Term loans

 

462,181

 

-

 

-

 

-

 

-

 

 

 

462,181

 

Senior unsecured notes

 

8,229,731

 

-

 

-

 

-

 

(1,367,559)

 

(B)

 

6,862,172

 

Mortgage debt

 

762,715

 

-

 

-

 

-

 

(617,395)

 

(B)

 

145,320

 

Other debt

 

93,876

 

-

 

-

 

-

 

-

 

 

 

93,876

 

Intangible liabilities, net

 

46,135

 

-

 

-

 

(3,439)

 

-

 

 

 

42,696

 

Intangible liabilities related to assets held for sale, net

 

23,002

 

-

 

-

 

-

 

-

 

 

 

23,002

 

Accounts payable and accrued liabilities

 

487,033

 

(23,318)

 

(22,336)

 

(347)

 

(37,000)

 

(C), (G)

 

404,032

 

Deferred revenue

 

136,406

 

(707)

 

(8,444)

 

-

 

-

 

 

 

127,255

 

Total liabilities

 

11,613,111

 

(24,025)

 

(30,780)

 

(3,786)

 

(3,192,604)

 

 

 

8,361,916

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

467,820

 

-

 

-

 

-

 

-

 

 

 

467,820

 

Additional paid-in capital

 

11,720,552

 

(5,245,446)

 

-

 

-

 

1,680,000

 

(H)

 

8,155,106

 

Cumulative dividends in excess of earnings

 

(2,975,096)

 

-

 

(649,641)

 

(934,882)

 

1,777,604

 

(H)

 

(2,782,015)

 

Accumulated other comprehensive loss

 

(30,164)

 

-

 

-

 

-

 

-

 

 

 

(30,164)

 

Total stockholders’ equity

 

9,183,112

 

(5,245,446)

 

(649,641)

 

(934,882)

 

3,457,604

 

 

 

5,810,747

 

Joint venture partners

 

212,807

 

-

 

(56,176)

 

-

 

-

 

 

 

156,631

 

Non-managing member unitholders

 

179,515

 

-

 

-

 

-

 

-

 

 

 

179,515

 

Total noncontrolling interests

 

392,322

 

-

 

(56,176)

 

-

 

-

 

 

 

336,146

 

Total equity

 

9,575,434

 

(5,245,446)

 

(705,817)

 

(934,882)

 

3,457,604

 

 

 

6,146,893

 

Total liabilities and equity

 

$

21,188,545

 

$

(5,269,471)

 

$

(736,597)

 

$

(938,668)

 

$

265,000

 

 

 

$

14,508,809

 

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

5


 

HCP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2016

(In thousands, except per share data)

 

 

 

HCP
Historical

 

QCP Spin-
Off
(A)

 

RIDEA II
(C)

 

Brookdale 64
(E)

 

Other Pro
Forma
Adjustments

 

Notes

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and related revenues

 

$

893,448

 

$

(20,625)

 

$

-

 

$

(72,249)

 

$

-

 

 

 

$

800,574

 

Tenant recoveries

 

100,862

 

(1,148)

 

-

 

-

 

-

 

 

 

99,714

 

Resident fees and services

 

500,717

 

-

 

(203,015)

 

-

 

-

 

 

 

297,702

 

Income from direct financing leases

 

390,731

 

(345,940)

 

-

 

-

 

-

 

 

 

44,791

 

Interest income

 

71,298

 

-

 

-

 

-

 

-

 

 

 

71,298

 

Total revenues

 

1,957,056

 

(367,713)

 

(203,015)

 

(72,249)

 

-

 

 

 

1,314,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

361,255

 

-

 

-

 

-

 

(102,399)

 

(G)

 

258,856

 

Depreciation and amortization

 

425,582

 

(4,402)

 

(20,785)

 

(24,617)

 

-

 

 

 

375,778

 

Operating

 

545,827

 

(1,450)

 

(156,248)

 

(644)

 

-

 

 

 

387,485

 

General and administrative

 

83,079

 

(938)

 

(105)

 

(26)

 

-

 

 

 

82,010

 

Acquisition and pursuit costs

 

34,570

 

(14)

 

-

 

-

 

(28,170)

 

(F)

 

6,386

 

Total costs and expenses

 

1,450,313

 

(6,804)

 

(177,138)

 

(25,287)

 

(130,569)

 

 

 

1,110,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sales or real estate

 

119,605

 

-

 

-

 

-

 

-

 

 

 

119,605

 

Other income (loss), net

 

5,128

 

(255)

 

(43)

 

(14)

 

250

 

(H)

 

5,066

 

Total other income, net

 

124,733

 

(255)

 

(43)

 

(14)

 

250

 

 

 

124,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity (loss) income from unconsolidated joint ventures

 

631,476

 

(361,164)

 

(25,920)

 

(46,976)

 

130,819

 

 

 

328,235

 

Income tax (expense) benefit

 

(48,822)

 

18,014

 

147

 

61

 

29,797

 

(B)

 

(803)

 

Equity (loss) income from unconsolidated joint ventures

 

(4,028)

 

-

 

-

 

-

 

10,309

 

(D)

 

6,281

 

Net income (loss) from continuing operations

 

578,626

 

(343,150)

 

(25,773)

 

(46,915)

 

170,925

 

 

 

333,713

 

Noncontrolling interests’ share of earnings

 

(9,540)

 

-

 

(1,818)

 

-

 

-

 

 

 

(11,358)

 

Net income (loss) from continuing operations attributable to HCP, Inc.

 

569,086

 

(343,150)

 

(27,591)

 

(46,915)

 

170,925

 

 

 

322,355

 

Participating securities’ share in earnings

 

(977)

 

-

 

-

 

-

 

-

 

 

 

(977)

 

Net income (loss) from continuing operations applicable to common shares

 

$

568,109

 

$

(343,150)

 

$

(27,591)

 

$

(46,915)

 

$

170,925

 

 

 

$

321,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

$

0.69

 

Diluted

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

466,931

 

 

 

 

 

 

 

 

 

 

 

466,931

 

Diluted

 

467,132

 

 

 

 

 

 

 

 

 

 

 

467,132

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

6


 

HCP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2015

(In thousands, except per share data)

 

 

 

HCP
Historical

 

QCP Spin-
Off
(A)

 

RIDEA II
(C)

 

Brookdale 64
(E)

 

Other Pro
Forma
Adjustments

 

Notes

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and related revenues

 

$

845,382

 

$

(20,634)

 

$

-

 

$

(70,815)

 

$

-

 

 

 

$

753,933

 

Tenant recoveries

 

94,356

 

(1,119)

 

-

 

-

 

-

 

 

 

93,237

 

Resident fees and services

 

367,141

 

-

 

(193,882)

 

-

 

-

 

 

 

173,259

 

Income from direct financing leases

 

478,976

 

(432,987)

 

-

 

-

 

-

 

 

 

45,989

 

Interest income

 

89,049

 

-

 

-

 

-

 

-

 

 

 

89,049

 

Total revenues

 

1,874,904

 

(454,740)

 

(193,882)

 

(70,815)

 

-

 

 

 

1,155,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

357,569

 

-

 

-

 

(9)

 

(99,780)

 

(G)

 

257,780

 

Depreciation and amortization

 

369,629

 

(4,410)

 

(18,349)

 

(21,717)

 

-

 

 

 

325,153

 

Operating

 

441,888

 

(1,574)

 

(150,095)

 

(650)

 

-

 

 

 

289,569

 

General and administrative

 

74,152

 

(938)

 

(216)

 

(16)

 

-

 

 

 

72,982

 

Acquisition and pursuit costs

 

23,350

 

-

 

-

 

-

 

-

 

 

 

23,350

 

Impairments, net

 

592,921

 

(478,464)

 

-

 

-

 

-

 

 

 

114,457

 

Total costs and expenses

 

1,859,509

 

(485,386)

 

(168,660)

 

(22,392)

 

(99,780)

 

 

 

1,083,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sales or real estate

 

6,377

 

-

 

-

 

-

 

-

 

 

 

6,377

 

Other income (loss), net

 

13,125

 

(65)

 

-

 

(33)

 

250

 

(H)

 

13,277

 

Total other income, net

 

19,502

 

(65)

 

-

 

(33)

 

250

 

 

 

19,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity income (loss) from and impairments of unconsolidated joint ventures

 

34,897

 

30,581

 

(25,222)

 

(48,456)

 

100,030

 

 

 

91,830

 

Income tax benefit

 

6,620

 

593

 

184

 

83

 

-

 

 

 

7,480

 

Equity income (loss) from unconsolidated joint ventures

 

33,916

 

(39,471)

 

-

 

-

 

10,015

 

(D)

 

4,460

 

Impairment related to unconsolidated joint ventures

 

(27,234)

 

27,234

 

-

 

-

 

-

 

 

 

-

 

Net income (loss) from continuing operations

 

48,199

 

18,937

 

(25,038)

 

(48,373)

 

110,045

 

 

 

103,770

 

Noncontrolling interests’ share of earnings

 

(8,566)

 

-

 

(2,109)

 

-

 

-

 

 

 

(10,675)

 

Net income (loss) from continuing operations applicable to HCP, Inc.

 

39,633

 

18,937

 

(27,147)

 

(48,373)

 

110,045

 

 

 

93,095

 

Participating securities’ share in earnings

 

(1,020)

 

-

 

-

 

-

 

-

 

 

 

(1,020)

 

Net income (loss) from continuing operations applicable to common shares

 

$

38,613

 

$

18,937

 

$

(27,147)

 

$

(48,373)

 

$

110,045

 

 

 

$

92,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

$

0.20

 

Diluted

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate income per common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

462,039

 

 

 

 

 

 

 

 

 

 

 

462,039

 

Diluted

 

462,302

 

 

 

 

 

 

 

 

 

 

 

462,302

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

7


 

HCP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2015

(In thousands, except per share data)

 

 

 

HCP 
Historical

 

QCP Spin-
Off
(A)

 

RIDEA II
(C)

 

Brookdale 64
(E)

 

Other Pro
Forma
Adjustments

 

Notes

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and related revenues

 

$

1,144,482

 

$

(27,651)

 

$

-

 

$

(94,666)

 

$

-

 

 

 

$

1,022,165

 

Tenant recoveries

 

126,485

 

(1,464)

 

-

 

-

 

-

 

 

 

125,021

 

Resident fees and services

 

525,453

 

-

 

(259,164)

 

-

 

-

 

 

 

266,289

 

Income from direct financing leases

 

633,835

 

(572,835)

 

-

 

-

 

-

 

 

 

61,000

 

Interest income

 

112,184

 

-

 

-

 

-

 

-

 

 

 

112,184

 

Investment management fee income

 

1,873

 

-

 

-

 

-

 

-

 

 

 

1,873

 

Total revenues

 

2,544,312

 

(601,950)

 

(259,164)

 

(94,666)

 

-

 

 

 

1,588,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

479,596

 

-

 

-

 

 

(9)

 

(133,223)

 

(G)

 

346,364

 

Depreciation and amortization

 

510,785

 

(5,880)

 

(24,894)

 

(29,498)

 

-

 

 

 

450,513

 

Operating

 

614,375

 

(1,961)

 

(198,808)

 

(856)

 

-

 

 

 

412,750

 

General and administrative

 

96,022

 

(1,250)

 

(235)

 

(19)

 

-

 

 

 

94,518

 

Acquisition and pursuit costs

 

27,309

 

-

 

-

 

-

 

(365)

 

(F)

 

26,944

 

Impairments, net

 

1,403,853

 

(1,295,504)

 

-

 

-

 

-

 

 

 

108,349

 

Total costs and expenses

 

3,131,940

 

(1,304,595)

 

(223,937)

 

(30,382)

 

(133,588)

 

 

 

1,439,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sales or real estate

 

6,377

 

-

 

-

 

-

 

-

 

 

 

6,377

 

Other income (loss), net

 

14,404

 

(70)

 

-

 

(41)

 

500

 

 

 

14,793

 

Total other income (loss), net

 

20,781

 

(70)

 

-

 

(41)

 

500

 

 

 

21,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes and equity income (loss) from and impairments of unconsolidated joint ventures

 

(566,847)

 

702,575

 

(35,227)

 

(64,325)

 

134,088

 

 

 

170,264

 

Income tax benefit

 

9,011

 

798

 

181

 

78

 

-

 

 

 

10,068

 

Equity income (loss) from unconsolidated joint ventures

 

57,313

 

(50,723)

 

-

 

-

 

14,018

 

(D)

 

20,608

 

Impairments related to unconsolidated joint ventures

 

(45,895)

 

45,895

 

-

 

-

 

-

 

 

 

-

 

Net (loss) income from continuing operations

 

(546,418)

 

698,545

 

(35,046)

 

(64,247)

 

148,106

 

 

 

200,940

 

Noncontrolling interests’ share of earnings

 

(12,817)

 

-

 

(2,485)

 

-

 

-

 

 

 

(15,302)

 

Net (loss) income from continuing operations applicable to HCP, Inc.

 

(559,235)

 

698,545

 

(37,531)

 

(64,247)

 

148,106

 

 

 

185,638

 

Participating securities’ share in earnings

 

(1,317)

 

-

 

-

 

-

 

-

 

 

 

(1,317)

 

Net (loss) income from continuing operations applicable to common shares

 

$

(560,552)

 

$

698,545

 

$

(37,531)

 

$

(64,247)

 

$

148,106

 

 

 

$

184,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.21)

 

 

 

 

 

 

 

 

 

 

 

$

0.40

 

Diluted

 

$

(1.21)

 

 

 

 

 

 

 

 

 

 

 

$

0.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate income per common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

462,795

 

 

 

 

 

 

 

 

 

 

 

462,795

 

Diluted

 

462,795

 

 

 

 

 

 

 

 

 

 

 

462,795

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

8


 

HCP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2014

(In thousands, except per share data)

 

 

 

HCP
Historical

 

QCP Spin-
Off
(A)

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

Rental and related revenues

 

$

1,174,256

 

$

(27,111)

 

$

1,147,145

 

Tenant recoveries

 

110,688

 

(1,029)

 

109,659

 

Resident fees and services

 

241,965

 

-

 

241,965

 

Income from direct financing leases

 

663,070

 

(598,629)

 

64,441

 

Interest income

 

74,491

 

(868)

 

73,623

 

Investment management fee income

 

1,809

 

-

 

1,809

 

Total revenues

 

2,266,279

 

(627,637)

 

1,638,642

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Interest expense

 

439,742

 

-

 

439,742

 

Depreciation and amortization

 

459,995

 

(4,979)

 

455,016

 

Operating

 

384,603

 

(1,479)

 

383,124

 

General and administrative

 

82,175

 

(1,250)

 

80,925

 

Acquisition and pursuit costs

 

17,142

 

(42)

 

17,100

 

Total costs and expenses

 

1,383,657

 

(7,750)

 

1,375,907

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Gain on sales or real estate

 

3,288

 

-

 

3,288

 

Other income (expense), net

 

7,528

 

(85)

 

7,443

 

Total other income (expense), net

 

10,816

 

(85)

 

10,731

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity income (loss) from and impairments in unconsolidated joint ventures

 

893,438

 

(619,972)

 

273,466

 

Income tax (expense) benefit

 

(250)

 

765

 

515

 

Equity income (loss) from unconsolidated joint ventures

 

49,570

 

(53,175)

 

(3,605)

 

Impairment related to unconsolidated joint ventures

 

(35,913)

 

35,913

 

-

 

Net income (loss) from continuing operations

 

906,845

 

(636,469)

 

270,376

 

Noncontrolling interests’ share of earnings

 

(14,358)

 

-

 

(14,358)

 

Net income (loss) from continuing operations applicable to HCP, Inc.

 

892,487

 

(636,469)

 

256,018

 

Participating securities’ share in earnings

 

(2,437)

 

-

 

(2,437)

 

Net income (loss) from continuing operations applicable to common shares

 

$

890,050

 

$

(636,469)

 

$

253,581

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share:

 

 

 

 

 

 

 

Basic

 

$

1.94

 

 

 

$

0.55

 

Diluted

 

$

1.94

 

 

 

$

0.55

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate earnings per common share:

 

 

 

 

 

 

 

Basic

 

458,425

 

 

 

458,425

 

Diluted

 

458,796

 

 

 

458,796

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

9


 

HCP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2013

(In thousands, except per share data)

 

 

 

HCP
Historical

 

QCP Spin-
Off
(A)

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

Rental and related revenues

 

$

1,128,054

 

$

(24,203)

 

$

1,103,851

 

Tenant recoveries

 

100,649

 

-

 

100,649

 

Resident fees and services

 

146,288

 

-

 

146,288

 

Income from direct financing leases

 

636,881

 

(585,042)

 

51,839

 

Interest income

 

86,159

 

-

 

86,159

 

Investment management fee income

 

1,847

 

-

 

1,847

 

Total revenues

 

2,099,878

 

(609,245)

 

1,490,633

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Interest expense

 

435,252

 

14

 

435,266

 

Depreciation and amortization

 

423,312

 

(4,228)

 

419,084

 

Operating

 

298,282

 

(728)

 

297,554

 

General and administrative

 

103,042

 

-

 

103,042

 

Acquisition and pursuit costs

 

6,191

 

(74)

 

6,117

 

Impairments, net

 

-

 

-

 

-

 

Total costs and expenses

 

1,266,079

 

(5,016)

 

1,261,063

 

Other income (loss), net

 

18,216

 

(92)

 

18,124

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity income (loss) from and impairments in unconsolidated joint ventures

 

852,015

 

(604,321)

 

247,694

 

Income tax (expense) benefit

 

(5,815)

 

654

 

(5,161)

 

Equity income (loss) from unconsolidated joint ventures

 

64,433

 

(55,601)

 

8,832

 

Net income (loss) from continuing operations

 

910,633

 

(659,268)

 

251,365

 

Noncontrolling interests’ share of earnings

 

(14,169)

 

-

 

(14,169)

 

Net income (loss) from continuing operations applicable to HCP, Inc.

 

896,464

 

(659,268)

 

237,196

 

Participating securities’ share in earnings

 

(1,734)

 

-

 

(1,734)

 

Net income (loss) from continuing operations applicable to common shares

 

$

894,730

 

$

(659,268)

 

$

235,462

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share:

 

 

 

 

 

 

 

Basic

 

$

1.97

 

 

 

$

0.52

 

Diluted

 

$

1.96

 

 

 

$

0.52

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate income per common share:

 

 

 

 

 

 

 

Basic

 

455,002

 

 

 

455,002

 

Diluted

 

455,702

 

 

 

455,702

 

 

The accompanying notes are an integral part of these unaudited pro forma financial statements.

 

10


 

HCP, INC.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 – BASIS OF PRESENTATION

 

QCP Spin-Off

 

On October 31, 2016, HCP completed the Spin-Off of QCP, which included the Properties and an equity investment in HCRMC. HCP effected the separation on October 31, 2016 with the pro rata distribution of QCP common stock to holders of HCP common stock. In connection with the Spin-Off, HCP will receive $1.75 billion from QCP prior to payment of any debt and transaction costs.

 

Following the completion of the Spin-Off, HCP is the sole lender to QCP of a $100 million unsecured revolving credit facility maturing in 2018 (the “Unsecured Revolving Credit Facility). Borrowings under the Unsecured Revolving Credit Facility bear interest at a rate equal to LIBOR, subject to a 1.00% floor, plus an applicable margin of 6.25%. In addition to paying interest on outstanding principal under the Unsecured Revolving Credit Facility, QCP will be required to pay a facility fee equal to 0.50% per annum of the unused capacity under the Unsecured Revolving Credit Facility to HCP, payable quarterly and a commitment fee equal to 1.0% on the borrowing date.

 

HCP determined that it may sell assets during the next five years and therefore, recorded a deferred tax liability representing its estimated exposure to state built-in-gain tax. The built-in-gain tax is related to the properties leased to HCRMC and, upon completion of the Spin-Off, the liability will be transferred from HCP to QCP and therefore, HCP will no longer recognize a deferred tax liability of $47 million.

 

Brookdale 64 Sale and RIDEA II Transaction

 

In October 2016, HCP entered into definitive agreements to sell the Brookdale Assets for $1.125 billion. The closing of this transaction is expected to occur in the first quarter of 2017 and remains subject to regulatory and third party approvals and other customary closing conditions.

 

In May 2016, HCP entered into a master contribution agreement with Brookdale to contribute its ownership interest in RIDEA II to an unconsolidated joint venture owned by HCP and an investor group led by CPA. The members have also agreed to recapitalize RIDEA II with an estimated $630 million of debt; of which an estimated $365 million will be provided by a third-party and an estimated $265 million will be provided by HCP. In return, HCP will receive an estimated $470 million in net cash proceeds from the HCP/CPA JV and an estimated $265 million in note receivables and retain an approximately 40% beneficial interest in RIDEA II. HCP’s RIDEA II Investments will be recognized and accounted for as equity method investments This transaction, upon completion, would result in HCP deconsolidating the net assets of RIDEA II because it will not direct the activities that most significantly impact the venture. The closing of this transaction is expected to occur in the fourth quarter of 2016 and remains subject to regulatory and third party approvals and other customary closing conditions.

 

The RIDEA II Transaction and Brookdale 64 Sale will generate net proceeds of $1.6 billion, after transaction fees.

 

11


 

Use of Proceeds

 

In connection with the Spin-Off, the Brookdale 64 Sale and the RIDEA II Transaction, HCP will receive the Proceeds, which will be used by HCP to: (i) repay debt principal of approximately $3.1 billion, (ii) pay $20 million of accrued interest, (iii) pay $212 million of transaction costs, fees and expenses, including prepayment penalties on the debt less $21 million in transaction related costs already paid by HCP and (iv) $4 million in cash retained by QCP for working capital purposes The following table shows the principal amount of debt that will be repaid (in thousands):

 

Types of Debt

Principal Repaid

Senior Notes

$1,350,000

Mortgage Debt

614,530

Line of Credit

1,170,650

Total

$3,135,180

 

The accompanying unaudited pro forma consolidated balance sheet as of September 30, 2016 and the accompanying unaudited pro forma statements of operations for the nine months ended September 30, 2016 and 2015 and the year ended December 31, 2015 are presented to reflect the following:

 

·                  QCP Spin-Off;

·                  RIDEA II Transaction;

·                  Brookdale 64 Sale; and

·                  Use of Proceeds.

 

The accompanying unaudited pro forma statements of operations for the years ended December 31, 2014 and 2013 are presented to reflect the following:

 

·                  QCP Spin-Off (except for the impact of the Unsecured Revolving Credit Facility).

 

NOTE 2 – ADJUSTMENTS TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

 

A)                               Reflects the transfer of the assets and liabilities of QCP’s Predecessors, which includes the Properties\ and the equity method investment in HCRMC from HCP to QCP and the related reduction of additional paid-in capital.

 

12


 

B)                                Reflects the receipt of cumulative gross proceeds of $3.4 billion of cash from the Spin-Off, the Brookdale 64 Sale and the RIDEA II Transaction and the retirement of $3.1 billion in aggregate principal outstanding indebtedness and $20 million in accrued interest. The following tables present the sources and uses of cash in thousands:

 

 

Sources

 

 

Amount

QCP Spin-Off

 

$1,750,000

RIDEA II Transaction

 

476,000

Brookdale 64 Sale

 

1,125,000

Total Sources

 

$3,351,000

 

 

Uses

 

 

Amount

Senior Notes

 

$1,367,559

Mortgage Debt

 

617,395

Line of Credit

 

1,170,650

Total fees, costs, and expenses

 

191,396

Cash retained by QCP

 

4,000

Total Uses

 

$3,351,000

 

(1)      Of the total fees, costs, and expenses, $74 million will be for financing fees, $91 million for transaction costs, $47 million in prepayment penalties, less $21 million in fees that have already been paid through September 30, 2016.

 

C)

Reflects an adjustment to HCP’s deferred tax liability to reflect the liability retained by QCP subsequent to Spin-Off and the related reduction of cumulative dividends in excess of earnings.

 

 

D)

Reflects the removal of the assets and liabilities associated with the RIDEA II Transaction and the related reduction of cumulative dividends in excess of earnings.

 

 

E)

Reflects equity investment related to HCP’s 40% interest in the HCP/CPA JV.

 

 

F)

Reflects the removal of the assets and liabilities associated with the sale of the Brookdale Assets and the related reduction of cumulative dividends in excess of earnings.

 

 

G)

Reflects the payment of accrued transaction-related expenses paid by HCP.

 

 

H)

Represents: (i) the impact to additional paid-in capital of $1.7 billion for the consideration received from QCP in connection with the Spin-Off, comprised of the gross proceeds of $1.75 billion less the direct financing costs of $70 million and the $4 million of cash retained by QCP for working capital and (ii) the impact to cumulative dividends in excess of earnings of $1.8 billion from the consideration received from the Brookdale 64 Sale of $1.125 billion and consideration from the RIDEA Transaction of $735 million (comprised of $470 million in net cash and a $265 million note receivable), less the reversal of the deferred tax liability of $29.8 million, and net transaction costs of $7.2 million not incurred in the historical HCP financial statements.

 

13


 

NOTE 3 – ADJUSTMENTS TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

 

A)

Reflects the removal of the historical results of operations of QCP’s Predecessor’s, which include the Properties and the equity method investment in HCRMC.

 

 

B)

Reflects the removal of income tax expense recognized in connection with the deferred tax liability that was recorded during the nine months ended September 30, 2016 less the portion recognized by QCP.

 

 

C)

Reflects the removal of the historical operations of RIDEA II.

 

 

D)

Reflects equity income from the HCP/CPA JV of $10.3 million, $10.0 million and $14.0 million for the nine months ended September 30, 2016 and 2015 and year ended December 31, 2015, respectively.

 

 

E)

Reflects the removal of the historical operations of the Brookdale Assets.

 

 

F)

Reflects the removal of transaction costs related to the Spin-Off that had been incurred through September 30, 2016 of $21 million. In total, the unpaid transaction costs, fees and expenses, including prepayment penalties on the debt retired, are estimated to be $191 million. As these costs have not been incurred and are non-recurring in nature, they have not been reflected in the pro forma consolidated statements of operations.

 

 

G)

Reflects a reduction in interest expense based on the anticipated retirement of approximately $3.1 billion in aggregate principal indebtedness. This adjustment reflects a reduction of interest expense of $102.4 million, $99.8 million and $133.2 million for the nine months ended September 30, 2016 and 2015 and year ended December 31, 2015, respectively.

 

 

H)

Reflects interest income for the facility fee of 0.50% per annum on the unused capacity under the Unsecured Revolving Credit Facility. The commitment fee of 1.0% is not recurring in nature and has therefore not been reflected in the unaudited pro forma consolidated financial statements.

 

 

14