|• 10-Q • EX-10.1 • EX-10.2 • EX-10.3 • EX-10.4 • EX-10.5 • EX-10.6 • EX-31.1 • EX-31.2 • EX-32.1 • EX-32.2 • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION LABELS LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT|
Washington, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2012.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-08895
(Exact name of registrant as specified in its charter)
3760 Kilroy Airport Way, Suite 300
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO x
As of April 25, 2012, there were 419,503,466 shares of the registrants $1.00 par value common stock outstanding.
(In thousands, except share and per share data)
See accompanying Notes to Condensed Consolidated Financial Statements.
(In thousands, except per share data)
See accompanying Notes to Condensed Consolidated Financial Statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
HCP, Inc., an S&P 500 company, together with its consolidated entities (collectively, HCP or the Company), invests primarily in real estate serving the healthcare industry in the United States (U.S.). The Company is a self-administered, Maryland real estate investment trust (REIT) organized in 1985. The Company is headquartered in Long Beach, California, with offices in Nashville, Tennessee and San Francisco, California. The Company acquires, develops, leases, manages and disposes of healthcare real estate, and provides financing to healthcare providers. The Companys portfolio is comprised of investments in the following five healthcare segments: (i) senior housing, (ii) post-acute/skilled nursing, (iii) life science, (iv) medical office and (v) hospital. The Company makes investments within the healthcare segments using the following five investment products: (i) properties under lease, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management and (v) RIDEA, which represents investments in senior housing operations utilizing the structure permitted by the Housing and Economic Recovery Act of 2008.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Management is required to make estimates and assumptions in the preparation of financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from managements estimates.
The condensed consolidated financial statements include the accounts of HCP, its wholly-owned subsidiaries and joint ventures or variable interest entities (VIEs) that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Companys financial position, results of operations and cash flows have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The accompanying unaudited interim financial information should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Companys Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC).
Certain amounts in the Companys condensed consolidated financial statements have been reclassified for prior periods to conform to the current period presentation. Assets sold or held for sale and associated liabilities have been reclassified on the condensed consolidated balance sheets and the related operating results reclassified from continuing to discontinued operations on the condensed consolidated income statements (see Note 5). Facility-level revenues from 21 senior housing communities that are in a RIDEA structure are presented in resident fees and services on the condensed consolidated income statements; all facility-level resident fee and service revenue previously reported in rental and related revenues has been reclassified to resident fees and services (see Note 12 for additional information regarding the 21 RIDEA facilities).
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). The amendments in this update result in additional fair value measurement and disclosure requirements within U.S. GAAP and International Financial Reporting Standards. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The adoption of ASU 2011-04 on January 1, 2012 did not have an impact on the Companys consolidated financial position or results of operations.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05). The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. In December 2011, the FASB deferred portions of this update in its issuance of Accounting Standards Update No. 2011-12 (see discussion below). The Company has elected the two-statement approach and the required financial statements are presented herein.
In December 2011, the FASB issued Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 to defer indefinitely the requirement of ASU 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.
(3) HCR ManorCare Acquisition
On April 7, 2011, the Company completed its acquisition of substantially all of the real estate assets of HCR ManorCare, Inc. (HCR ManorCare), for a purchase price of $6 billion (HCR ManorCare Acquisition). The purchase price consisted of the following: (i) $4 billion in cash consideration; and (ii) $2 billion representing the fair value of the Companys former HCR ManorCare debt investments that were settled as part of this acquisition. Through this transaction, the Company acquired 334 HCR ManorCare post-acute, skilled nursing and assisted living facilities. The facilities are located in 30 states, with the highest concentrations in Ohio, Pennsylvania, Florida, Illinois and Michigan. A wholly-owned subsidiary of HCR ManorCare operates the assets pursuant to a long-term triple-net master lease agreement supported by a guaranty from HCR ManorCare. Additionally, the Company exercised its option to purchase an ownership interest in HCR ManorCare for $95 million that represented a 9.9% equity interest at closing.
The total purchase price of the HCR ManorCare Acquisition follows (in thousands):
(1) At closing, the Company recognized a gain of approximately $23 million, included in interest income, which represents the fair value of the Companys existing mezzanine and mortgage loan investments in HCR ManorCare in excess of its carrying value on the acquisition date.
(2) In August 2011, the Company paid these amounts to certain taxing authorities or the seller.
(3) Represents estimated fees and costs of $15.5 million (general and administrative) and the write-off of unamortized bridge loan fees of $11.3 million (interest expense) upon its termination that were expensed in 2010 and 2011, respectively. These charges are directly attributable to the transaction and represent non-recurring costs.
The following table summarizes the fair value of the HCR ManorCare assets acquired and liabilities assumed at the April 7, 2011 acquisition date (in thousands):
In connection with the HCR ManorCare Acquisition, the Company entered into a credit agreement for a 365-day bridge loan facility (from funding to maturity) in an aggregate amount of up to $3.3 billion, which was terminated in accordance with its terms in March 2011.
The assets and liabilities of the Companys investments related to HCR ManorCare and the related results of operations are included in the condensed consolidated financial statements from the April 7, 2011 acquisition date. For the three months ended March 31, 2012, the Company recognized revenues and earnings from its investments related to HCR ManorCare of $142 million and $155 million, respectively. See Note 8 for additional information regarding the Companys investment related to HCR ManorCare.
Pro Forma Results of Operations
The following unaudited pro forma consolidated results of operations assume that the HCR ManorCare Acquisition, including the Companys equity interest in HCR ManorCare, was completed as of January 1, 2011 (in thousands, except per share amounts):
(4) Other Real Estate Property Investments
During the three months ended March 31, 2012, the Company funded an aggregate of $30 million for construction, tenant and other capital improvement projects, primarily in its life science and medical office segments.
A summary of real estate acquisitions for the three months ended March 31, 2011 follows (in thousands):
(1) Non-managing member limited liability company units.
See discussion of the January 2011 purchase and consolidation of HCP Ventures II in Note 8.
During the three months ended March 31, 2011, the Company funded an aggregate of $22 million for construction, tenant and other capital improvement projects, primarily in its life science and medical office segments. During the three months ended March 31, 2011, two of the Companys life science facilities located in South San Francisco were placed in service representing 88,000 square feet.
(5) Dispositions of Real Estate and Discontinued Operations
During the three months ended March 31, 2012, the Company sold a medical office building for $7 million.
The following table summarizes operating income from discontinued operations (dollars in thousands):
(6) Net Investment in Direct Financing Leases
On April 7, 2011, the Company completed the acquisition of 334 HCR ManorCare properties subject to a single master lease that the Company classified as a direct financing lease (DFL). See discussion of the HCR ManorCare Acquisition in Note 3.
The components of net investment in DFLs consisted of the following (dollars in thousands):
(1) The minimum lease payments receivable are primarily attributable to HCR ManorCare ($24.4 billion and $24.5 billion at March 31, 2012 and December 31, 2011, respectively). The triple-net master lease with HCR ManorCare provides for rent in the first year of $473 million ($489 million beginning April 1, 2012). The rent increases by 3.5% per year after each of the first five years and by 3% for the remaining portion of the initial lease term. The properties are grouped into four pools, and HCR ManorCare has a one-time extension option for each pool with rent increased for the first year of the extension option to the greater of fair market rent or a 3% increase over the rent for the prior year. Including the extension options, which the Company determined to be bargain renewal options, the four leased pools had total initial available terms ranging from 23 to 35 years.
Certain of the non-HCR ManorCare leases contain provisions that allow the tenants to elect to purchase the properties during or at the end of the lease terms for the aggregate initial investment amount plus adjustments, if any, as defined in the lease agreements. Certain leases also permit the Company to require the tenants to purchase the properties at the end of the lease terms.
(7) Loans Receivable
The following table summarizes the Companys loans receivable (in thousands):
Delphis Operations, L.P. Loan
The Company holds a secured term loan made to Delphis Operations, L.P. (Delphis or the Borrower) that is collateralized by all of the assets of the Borrower, which collateral is comprised primarily of interests in partnerships operating surgical facilities, some of which are on the premises of properties owned by the Company or HCP Ventures IV, LLC, an unconsolidated joint venture of the Company. In December 2009, the Company determined that the loan was impaired and recognized a provision for loan loss (impairment) of $4.3 million. In January 2011, the Company placed the loan on cost-recovery status, whereby accrual of interest income was suspended and any payments received from the Borrower are applied to reduce the recorded investment in the loan. In September 2011, the Company determined that the fair value of the collateral assets was no longer in excess of the carrying value of the loan and therefore recognized an additional provision for losses of $15.4 million.
As part of a March 2012 agreement (the 2012 Agreement) between Delphis, certain past and current principals of Delphis and the Cirrus Group, LLC (the Guarantors) and the Company, the Company agreed, among other things, to allow the distribution of $1.5 million to certain of the Guarantors from funds generated from sales of assets that were pledged as additional collateral for this loan. In consideration of this distribution, among other things, the Company received cash of $4.5 million (including funds that had been escrowed from past sales of the Guarantors collateral) and the assignment of certain rights to general and limited partnership interests (including the release of claims by such entities). Further, the Company, as part of the 2012 Agreement, agreed to provide financial incentives to the Borrower regarding the liquidation of the primary collateral assets for this loan.
The Company valued the cash payments and other consideration received through the 2012 Agreement (after reducing the consideration by $0.5 million for related legal expenses) at $6.5 million, which the Company applied to the carrying value of the loan, reducing the balance to $69.2 million as of March 31, 2012 from its balance of $75.7 million as of December 31, 2011. During the three months ended March 31 2011, the Company received cash payments from the Borrower of $1.0 million. At March 31, 2012, the Company believes that the fair value of the collateral supporting this loan is in excess of the loans carrying value.
HCR ManorCare Loans
In December 2007, the Company made a $900 million investment (at a discount of $100 million) in HCR ManorCare mezzanine loans, which paid interest at a floating rate of one-month London Interbank Offered Rate (LIBOR) plus 4.0%. Also, in August 2009 and January 2011, the Company purchased $720 million (at a discount of $130 million) and $360 million, respectively, in participations in HCR ManorCare first mortgage debt, which paid interest at LIBOR plus 1.25%.
On April 7, 2011, upon closing of the HCR ManorCare Acquisition, the Companys loans to HCR ManorCare were settled, which resulted in additional interest income of $23 million, which represents the excess of the loans fair values above their carrying values at the acquisition date. See Note 3 for additional discussion related to the HCR ManorCare Acquisition.
Genesis HealthCare Loans
In September and October 2010, the Company purchased participations in a senior loan and mezzanine note of Genesis HealthCare (Genesis) with par values of $278 million (at a discount of $28 million) and $50 million (at a discount of $10 million), respectively. The Genesis senior loan paid interest at LIBOR (subject to a floor of 1.5%, increasing to 2.5% by maturity) plus a spread of 4.75%, increasing to 5.75% by maturity. The senior loan was secured by all of Genesis assets. The mezzanine note paid interest at LIBOR plus a spread of 7.50%. In addition to the coupon interest payments, the mezzanine note required the payment of a termination fee, of which the Companys share prior to the early repayment of this loan was $2.3 million.
On April 1, 2011, the Company received $330.4 million from the early repayment of its loans to Genesis, and recognized additional interest income of $34.8 million, which represents the related unamortized discounts and termination fee.
(8) Investments in and Advances to Unconsolidated Joint Ventures
HCP Ventures II
On January 14, 2011, the Company acquired its partners 65% interest in HCP Ventures II, a joint venture that owned 25 senior housing facilities, becoming the sole owner of the portfolio.
The purchase consideration of HCP Ventures II follows (in thousands):
(1) In January 2011, the Company recognized a gain of approximately $8 million, included in other income, net, which represents the fair value of the Companys 35% interest in HCP Ventures II in excess of its carrying value on the acquisition date.
(2) Represents estimated fees and costs that were expensed and included in general and administrative expenses. These charges are directly attributable to the transaction and represent non-recurring costs.
(3) Represents debt assumption fees that were capitalized as deferred financing costs.
In accordance with the accounting guidance applicable to acquisitions of the partners ownership interests that result in consolidation of previously unconsolidated entities, the Company recorded all of the assets and liabilities of HCP Ventures II at their fair values as of the January 14, 2011 acquisition date. The Company utilized relevant market data and valuation techniques to allocate the acquisition date fair value for HCP Ventures II. Relevant market data and valuation techniques included, but were not limited to, market data comparables for capitalization and discount rates, credit spreads, property specific building cost information and cash flow assumptions. The market data comparables utilized in the Companys valuation model were based on information that it believes to be within a reasonable range of current market transactions.
The following table summarizes the fair values of the HCP Ventures II assets acquired and liabilities assumed at the January 14, 2011 acquisition date (in thousands):
The related assets, liabilities and results of operations of HCP Ventures II are included in the condensed consolidated financial statements from the January 14, 2011 acquisition date.
Summary of Unconsolidated Joint Venture Information
The Company owns interests in the following entities that are accounted for under the equity method at March 31, 2012 (dollars in thousands):
(1) These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures. See Note 2 to the Consolidated Financial Statements for the year ended December 31, 2011 in the Companys Annual Report on Form 10-K filed with the SEC regarding the Companys policy on consolidation.
(2) Represents the carrying value of the Companys investment in the unconsolidated joint venture. See Note 2 to the Consolidated Financial Statements for the year ended December 31, 2011 in the Companys Annual Report on Form 10-K filed with the SEC regarding the Companys policy for accounting for joint venture interests.
(3) Presented after adjusting the Companys 9.9% ownership rate for the dilution of certain equity awards. See HCR ManorCare Acquisition discussion in Note 3.
(4) Includes three unconsolidated joint ventures between the Company and an institutional capital partner for which the Company is the managing member. HCP Life Science includes the following partnerships: (i) Torrey Pines Science Center, LP (50%); (ii) Britannia Biotech Gateway, LP (55%); and (iii) LASDK, LP (63%).
Summarized combined financial information for the Companys unconsolidated joint ventures follows (in thousands):
(1) The combined basis difference of the Companys investments in these joint ventures of $36 million, as of March 31, 2012, is primarily attributable to goodwill, real estate, capital lease obligations, deferred tax assets and lease related net intangibles.
(1) Includes the financial information of HCR ManorCare, in which the Company acquired an interest for $95 million that represented a 9.9% equity interest at closing.
(2) Includes the financial information of HCP Ventures II, which was consolidated on January 14, 2011.
(3) The Companys joint venture interest in HCR ManorCare is accounted for using the equity method and results in an ongoing reduction of DFL income, proportional to HCPs ownership in HCR ManorCare. Further, the Companys share of earnings from HCR ManorCare (equity income) increases for the corresponding reduction of related lease expense recognized at the HCR ManorCare level.
At March 31, 2012 and December 31, 2011, intangible lease assets, comprised of lease-up intangibles, above market tenant lease intangibles, below market ground lease intangibles and intangible assets related to non-compete agreements, were $562.6 million and $574.0 million, respectively. At March 31, 2012 and December 31, 2011, the accumulated amortization of intangible assets was $202.5 million and $200.2 million, respectively.
At March 31, 2012 and December 31, 2011, intangible lease liabilities, comprised of below market lease intangibles and above market ground lease intangible liabilities were $206.7 million and $219.6 million, respectively. At March 31, 2012 and December 31, 2011, the accumulated amortization of intangible liabilities was $87.3 million and $95.5 million, respectively.
(10) Other Assets
The Companys other assets consisted of the following (in thousands):
(1) Includes a $5.4 million allowance for losses related to accrued interest receivable on the Delphis loan, which accrued interest is included in other assets. At both March 31, 2012 and December 31, 2011, the carrying value of interest accrued related to the Delphis loan was zero. See Note 7 for additional information about the Delphis loan and the related impairment.
At March 31, 2012, the fair value and adjusted cost basis of marketable equity securities was $18.4 million and $17.1 million, respectively. At December 31, 2011, the fair value and adjusted cost basis of marketable equity securities were $17.1 million.
Bank Line of Credit
On March 27, 2012, the Company executed an amendment to its existing $1.5 billion unsecured revolving line of credit facility (the Facility). This amendment reduces the cost to the Company of the Facility (lower borrowing rate and facility fee) and extends the Facilitys maturity by one additional year to March 2016. The Facility contains a one-year extension option. Borrowings under this Facility accrue interest at LIBOR plus a margin that depends on the Companys debt ratings. The Company pays a facility fee on the entire revolving commitment that depends upon its debt ratings. Based on the Companys debt ratings at March 31, 2012, the margin on the Facility was 1.075%, and the facility fee was 0.175%. The Company has the right to increase the commitments under the Facility by an aggregate amount of up to $500 million, subject to customary conditions. At March 31, 2012, the Company had no balance outstanding under this Facility.
The Facility contains certain financial restrictions and other customary requirements, including cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in the agreement (i) limit the ratio of Consolidated Total Indebtedness to Consolidated Total Asset Value to 60%, (ii) limit the ratio of Secured Debt to Consolidated Total Asset Value to 30%, (iii) limit the ratio of Unsecured Debt to Consolidated Unencumbered Asset Value to 60%, (iv) require a minimum Fixed Charge Coverage ratio of 1.5 times and (v) require a formula-determined Minimum Consolidated Tangible Net Worth of $8.0 billion at March 31, 2012. At March 31, 2012, the Company was in compliance with each of these restrictions and requirements of the Facility.
Senior Unsecured Notes
At March 31, 2012, the Company had senior unsecured notes outstanding with an aggregate principal balance of $5.9 billion. At March 31, 2012, interest rates on the notes ranged from 1.37% to 7.07% with a weighted average effective rate of 5.57% and a weighted average maturity of 6.15 years. Discounts and premiums are amortized to interest expense over the term of the related senior unsecured notes. The senior unsecured notes contain certain covenants including limitations on debt, cross-acceleration provisions and other customary terms. The Company believes it was in compliance with these covenants at March 31, 2012.
On January 23, 2012, the Company issued $450 million of 3.75% senior unsecured notes due in 2019; net proceeds from the offering were $444 million.
In September 2011, the Company repaid $292 million of maturing senior unsecured notes, which accrued interest at a rate of 4.82%. The senior unsecured notes were repaid with funds available under the Facility.
On January 24, 2011, the Company issued $2.4 billion of senior unsecured notes as follows: (i) $400 million of 2.70% notes due 2014; (ii) $500 million of 3.75% notes due 2016; (iii) $1.2 billion of 5.375% notes due 2021; and (iv) $300 million of 6.75% notes due 2041. The notes had an initial weighted average maturity of 10.3 years and a weighted average yield of 4.83%; net proceeds from the offering were $2.37 billion.
At March 31, 2012, the Company had $1.8 billion in aggregate principal amount of mortgage debt outstanding that is secured by 138 healthcare facilities (including redevelopment properties) with a carrying value of $2.2 billion. At March 31, 2012, interest rates on the mortgage debt ranged from 1.94% to 8.75% with a weighted average effective interest rate of 6.12% and a weighted average maturity of 4.13 years.
Mortgage debt generally requires monthly principal and interest payments, is collateralized by real estate assets and is generally non-recourse. Mortgage debt typically restricts transfer of the encumbered assets, prohibits additional liens, restricts prepayment, requires payment of real estate taxes, requires maintenance of the assets in good condition, requires maintenance of insurance on the assets and includes conditions to obtain lender consent to enter into and terminate material leases. Some of the mortgage debt is also cross-collateralized by multiple assets and may require tenants or operators to maintain compliance with the applicable leases or operating agreements of such real estate assets.
At March 31, 2012, the Company had $87 million of non-interest bearing life care bonds at two of its continuing care retirement communities and non-interest bearing occupancy fee deposits at two of its senior housing facilities, all of which were payable to certain residents of the facilities (collectively, Life Care Bonds). At March 31, 2012, $30 million of the Life Care Bonds were refundable to the residents upon the resident moving out or to their estate upon death, and $57 million of the Life Care Bonds were refundable after the unit is successfully remarketed to a new resident.
The following table summarizes the Companys stated debt maturities and scheduled principal repayments at March 31, 2012 (in thousands):
(1) Excludes $87 million of other debt that represents the Life Care Bonds that have no scheduled maturities.
(12) Commitments and Contingencies
From time to time, the Company is a party to legal proceedings, lawsuits and other claims that arise in the ordinary course of the Companys business. The Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Companys business, prospects, financial condition or results of operations. The Companys policy is to accrue legal expenses as they are incurred.
Concentration of Credit Risk
Concentrations of credit risks arise when a number of operators, tenants or obligors related to the Companys investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company regularly monitors various segments of its portfolio to assess potential concentrations of risks. Management believes the current portfolio is reasonably diversified across healthcare related real estate and does not contain any other significant concentration of credit risks, except as disclosed herein. The Company does not have significant foreign operations.
The following table provides information regarding the Companys concentration with respect to certain operators; the information provided is presented for the gross assets and revenues that are associated with certain operators as percentages of the respective segments and total Companys gross assets and revenues:
Total Company Concentrations:
(1) On April 7, 2011, the Company completed the acquisition of HCR ManorCares real estate assets, which included the settlement of the Companys HCR ManorCare debt investments, see Notes 3 and 7 for additional information.
(2) For the three months ended March 31, 2012, Brookdale percentages exclude $35.1 million of senior housing revenues and $683.9 million of senior housing assets, related to 21 senior housing facilities that Brookdale operates on the Companys behalf under a RIDEA structure. Assuming that these assets were attributable to Brookdale, the percentage of segment and total assets for Brookdale would be 27% and 9%, respectively, as of both March 31, 2012 and December 31, 2011. Assuming that these revenues were attributable to Brookdale, the percentage of segment and total revenues for Brookdale would be 39% and 13%, respectively, for the three months ended March 31, 2012.
(3) Certain of the Companys properties are leased to tenants who have entered into management contracts with Sunrise to operate the respective property on their behalf. The Companys concentration of gross assets includes properties directly leased to Sunrise and properties that are managed by Sunrise on behalf of third party tenants.
On September 1, 2011, the Company completed a strategic venture with Brookdale that includes the operation of 37 HCP-owned senior living communities previously leased to or operated by Horizon Bay Retirement Living (Horizon Bay). As part of this transaction, Brookdale acquired Horizon Bay and: (i) assumed an existing triple-net lease for nine HCP communities; (ii) entered into a new triple-net lease related to four HCP communities; (iii) assumed Horizon Bays management of three HCP communities, one of which was developed by HCP; and (iv) entered into management contracts and a joint venture agreement for a 10% interest in the real estate and operations for 21 of the Companys communities that are in a RIDEA structure. In connection with these transactions, the Company purchased $22.4 million of Brookdales common stock in June 2011 (see Note 10 for additional information regarding these marketable equity securities).
Under the provisions of RIDEA, a REIT may lease qualified healthcare properties on an arms length basis to a taxable REIT subsidiary if the property is operated on behalf of such subsidiary by a person who qualifies as an eligible independent contractor. The three months ended March 31, 2012 include $35.1 million and $20.7 million in revenues and operating expenses, respectively, as a result of reflecting the facility-level results for the 21 RIDEA facilities operated by Brookdale beginning September 1, 2011.
To mitigate credit risk of leasing properties to certain senior housing and post-acute/skilled nursing operators, leases with operators are often combined into portfolios that contain cross-default terms, so that if a tenant of any of the properties in a portfolio defaults on its obligations under its lease, the Company may pursue its remedies under the lease with respect to any of the properties in the portfolio. Certain portfolios also contain terms whereby the net operating profits of the properties are combined for the purpose of securing the funding of rental payments due under each lease.
Credit Enhancement Guarantee
Certain of the Companys senior housing facilities serve as collateral for $121 million of debt (maturing May 1, 2025) that is owed by a previous owner of the facilities. This indebtedness is guaranteed by the previous owner who has an investment grade credit rating. These senior housing facilities, which are classified as DFLs, had a carrying value of $371 million as of March 31, 2012.
On April 23, 2012, the Company redeemed all of its outstanding preferred stock consisting of 4,000,000 shares of its 7.25% Series E and the 7,820,000 shares of its 7.10% Series F preferred stock. The shares of Series E and Series F preferred stock were redeemed at a price of $25.00 per share, or $295.5 million in aggregate, plus all accrued and unpaid dividends to the redemption date. As a result of the redemption, which was announced on March 22, 2012, the Company incurred a charge of $10.4 million related to the original issuance costs of the preferred stock and recognized an incremental preferred stock dividend of $1.3 million representing the acceleration of the accrued dividend from April 1, 2012 to the redemption date (the aggregate charge of $11.7 million is presented as an additional preferred stock dividend in the Companys consolidated income statement for the three months ended March 31, 2012).
On January 26, 2012, the Company announced that its Board declared a quarterly cash dividend of $0.45313 per share on its Series E cumulative redeemable preferred stock and $0.44375 per share on its Series F cumulative redeemable preferred stock. These dividends were paid on March 30, 2012 to stockholders of record as of the close of business on March 15, 2012.
The following table lists the common stock cash dividends paid and declared by the Company in 2012:
In March 2012, the Company completed a $359 million offering of 9.0 million shares of common stock at a price of $39.93 per share, which proceeds were primarily used to redeem the Companys preferred stock.
In March 2011, the Company completed a $1.273 billion public offering of 34.5 million shares of common stock at a price of $36.90 per share. The Company received total net proceeds of $1.235 billion, which proceeds were used to fund the HCR ManorCare Acquisition. See Note 3 for additional information on the HCR ManorCare Acquisition.
The following is a summary of the Companys other common stock issuances (shares in thousands):
(1) Issued under the Companys 2006 Performance Incentive Plan.
Accumulated Other Comprehensive Income (Loss)
The following is a summary of the Companys accumulated other comprehensive loss (in thousands):
At March 31, 2012, there were 4.2 million non-managing member units outstanding in five DownREIT LLCs, for which the Company is the managing member. At March 31, 2012, the carrying and fair values of these DownREIT units were $169.1 million and $231.4 million, respectively.
(14) Segment Disclosures
The Company evaluates its business and makes resource allocations based on its five business segments: (i) senior housing, (ii) post-acute/skilled nursing, (iii) life science, (iv) medical office and (v) hospital. Under the senior housing, post-acute/skilled nursing, life science and hospital segments, the Company invests or co-invests primarily in single operator or tenant properties, through the acquisition and development of real estate, management of operations and by debt issued by operators in these sectors. Under the medical office segment, the Company invests or co-invests through the acquisition and development of medical office buildings (MOBs) that are leased under gross, modified gross or triple-net leases, generally to multiple tenants, and which generally require a greater level of property management. The accounting policies of the segments are the same as those described in Note 2 to the Consolidated Financial Statements for the year ended December 31, 2011 in the Companys Annual Report on Form 10-K filed with the SEC. There were no intersegment sales or transfers during the three months ended March 31, 2012 and 2011. The Company evaluates performance based upon property net operating income from continuing operations (NOI), adjusted NOI and interest income of the combined investments in each segment.
Non-segment assets consist primarily of real estate held-for-sale and corporate assets including cash, restricted cash, accounts receivable, net, marketable equity securities and deferred financing costs. Interest expense, depreciation and amortization and non-property specific revenues and expenses are not allocated to individual segments in determining the Companys performance measure. See Note 12 for other information regarding concentrations of credit risk.
Summary information for the reportable segments follows (in thousands):
For the three months ended March 31, 2012:
For the three months ended March 31, 2011:
(1) Represents rental and related revenues, tenant recoveries, and income from DFLs.
(2) NOI is a non-GAAP supplemental financial measure used to evaluate the operating performance of real estate. The Company defines NOI as rental revenues, including tenant recoveries, resident fees and services, and income from direct financing leases, less property level operating expenses. NOI excludes interest income, investment management fee income, depreciation and amortization, interest expense, general and administrative expenses, impairments, impairment recoveries, other income, net, income taxes, equity income from and impairments of investments in unconsolidated joint ventures, and discontinued operations. The Company believes NOI provides relevant and useful information because it reflects only income and operating expense items that are incurred at the property level and presents them on an unleveraged basis. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL accretion, amortization of above and below market lease intangibles, and lease termination fees. Adjusted NOI is sometimes referred to as cash NOI. The Company uses NOI and adjusted NOI to make decisions about resource allocations and to assess and compare property level performance. The Company believes that net income is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income as defined by GAAP because it does not reflect the aforementioned excluded items. Further, the Companys definition of NOI may not be comparable to the definition used by other REITs, as those companies may use different methodologies for calculating NOI.
The following is a reconciliation from reported net income to NOI and adjusted NOI (in thousands):