Earnings Per Common Share

6 Months Ended

Jun. 30, 2019

Basic income (loss) per common share (“EPS”) is computed based upon the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed based upon the weighted average number of common shares outstanding plus the impact of forward equity sales agreements using the treasury stock method and common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units, and unvested restricted stock units. Only those instruments having a dilutive impact on our basic income (loss) per share are included in diluted income (loss) per share during the periods presented.

Restricted stock and certain performance restricted stock units are considered participating securities, because dividend payments are not forfeited even if the underlying award does not vest, and require use of the two-class method when computing basic and diluted earnings per share.

During the six months ended June 30, 2019, the Company utilized the forward sale provisions under the 2019 ATM Program to sell up to an aggregate of 13.6 million shares of common stock with a one year term. During the three and six months ended June 30, 2019, the Company settled 5.5 million shares under ATM forward contracts, leaving 8.1 million shares outstanding thereunder. Additionally, in December 2018, the Company entered into a forward equity sales agreement to sell up to an aggregate of 15.25 million shares of its common stock by December 13, 2019. During each of the three and six months ended June 30, 2019, the Company settled 1.5 million shares under the December 2018 forward sales agreement, leaving 13.75 million shares outstanding thereunder. The Company expects to settle the remaining forward sales with shares of common stock prior to their respective expiration dates. See Note 10 for further details.

The Company considered the potential dilution resulting from the forward agreements to the calculation of earnings per share. At inception, the agreements do not have an effect on the computation of basic EPS as no shares are delivered until settlement. However, the Company uses the treasury stock method to determine the dilution, if any, resulting from the forward sales agreements during the period of time prior to settlement. The aggregate effect on the Company’s diluted weighted-average common shares for the six months ended June 30, 2019, was 1.3 million weighted-average incremental shares from the forward equity sales agreements, respectively.

The following table illustrates the computation of basic and diluted earnings per share (in thousands, except per share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Numerator
Net income (loss)	$	(9,980	)	$	92,928		$	55,010		$	136,165
Noncontrolling interests' share in earnings	(3,617		)	(2,986		)	(7,137		)	(5,991		)
Net income (loss) attributable to HCP, Inc.	(13,597		)	89,942			47,873			130,174
Less: Participating securities' share in earnings	(394		)	(461		)	(837		)	(852		)
Net income (loss) applicable to common shares	$	(13,991	)	$	89,481		$	47,036		$	129,322
Denominator
Basic weighted average shares outstanding	478,739			469,769			478,260			469,664
Dilutive potential common shares - equity awards	—			172			281			135
Dilutive potential common shares - forward equity agreements⁽¹⁾	—			—			1,344			—
Diluted weighted average common shares	478,739			469,941			479,885			469,799
Basic earnings per common share
Basic	$	(0.03	)	$	0.19		$	0.10		$	0.28
Diluted	$	(0.03	)	$	0.19		$	0.10		$	0.28

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(1)	Represents the current dilutive impact of 22 million shares of common stock under forward sales agreements that have not been settled as of June 30, 2019. Based on the forward price of each agreement as of June 30, 2019, issuance of all 22 million shares would result in approximately $641 million of net proceeds.

For all periods presented in the above table, 7 million shares issuable upon conversion of DownREIT units were not included because they are anti-dilutive. Additionally, for the three and six months ended June 30, 2019, 22 million and 21 million shares of common stock, respectively, issuable pursuant to the settlement of forward equity sales agreements were not included because they are anti-dilutive (see discussion above). For the three months ended June 30, 2019, diluted loss per share is calculated using the weighted-average common shares outstanding during the period. For all other periods presented in the above table, approximately 1 million shares of common stock subject to outstanding equity awards (restricted stock units and stock options) were not included because they are anti-dilutive.