Exhibit 99.1
HCP, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
| Page |
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Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2016 | 5 |
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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 |
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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.
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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.
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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.
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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.
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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.
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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. |
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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. |
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