Filed Pursuant to Rule 424(b)(5)

Reg. Statement No. 333-137225

Prospectus Supplement

(To Prospectus dated September 8, 2006)

GRAPHIC

$600,000,000

HCP, Inc.

6.70% Senior Notes Due 2018


The notes will mature on January 30, 2018. HCP will pay interest on the notes on January 30 and July 30 of each year, beginning January 30, 2008.

The notes are redeemable, in whole or in part, at any time under a make-whole redemption provision described in this prospectus supplement. In addition, if we experience a change in control and the ratings on the notes are downgraded below investment grade as a result, we may be required to repurchase the notes on the terms described in this prospectus supplement.

The notes will be senior unsecured obligations and will rank equally with HCP’s existing and future unsecured senior indebtedness. The notes will be issued only in denominations of $1,000 and integral multiples of $1,000.


Investing in the notes involves risk. See “Risk Factors” beginning on page S-8 of this prospectus supplement and page 4 of the accompanying prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or determined that this prospectus supplement or the accompanying prospectus is accurate or complete. Any representation to the contrary is a criminal offense.


 

Per Note

 

Total

 

Public offering price(1)

 

99.793%

 

$

598,758,000

 

Underwriting discount

 

0.650%

 

$

3,900,000

 

Proceeds (before expenses) to HCP(1)

 

99.143%

 

$

594,858,000

 

 


(1)                Plus accrued interest, if any, from October 15, 2007, if settlement occurs after that date.

The notes will not be listed on any securities exchange. Currently, there is no public market for the notes.

We expect that delivery of the notes will be made to investors through the book-entry delivery system of The Depository Trust Company on or about October 15, 2007.


Joint Book-Running Managers

Barclays Capital

 

UBS Investment Bank

Banc of America Securities LLC


Co-Managers

Credit Suisse

 

Wachovia Securities

Wells Fargo Securities

The date of this prospectus supplement is October 10, 2007




CALCULATION OF REGISTRATION FEE

Title of Securities to be registered

 

 

 

Proposed Maximum 
Aggregate Offering
Price

 

 

 

Amount of 
Registration Fee
(1)

 

6.70% Senior Notes Due 2018

 

 

 

 

$

600,000,000

 

 

 

 

 

$

18,420

 

 

 

(1)          Calculated in accordance with Rule 456(b) and 457(r) of the Securities Act.




You should rely only on the information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus. We have not authorized anyone to provide you with information that is different. We are not making an offer to sell these securities in any jurisdiction where the offer or sale of these securities is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information in this prospectus supplement and the accompanying prospectus is accurate only as of their respective dates and that any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference.


All references in this prospectus supplement to “HCP,” “we,” “us” or “our” mean HCP, Inc., or HCP, its majority-owned subsidiaries and other entities controlled by HCP, except where it is clear from the context that the term means only the issuer, HCP. Unless otherwise stated, currency amounts in this prospectus supplement are stated in United States dollars.


TABLE OF CONTENTS

 

Page

 

Prospectus Supplement

 

 

 

About This Prospectus Supplement

 

S-1

 

Incorporation by Reference

 

S-2

 

Summary

 

S-3

 

Summary Consolidated Financial Data

 

S-7

 

Risk Factors

 

S-8

 

Use of Proceeds

 

S-10

 

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

 

S-11

 

Unaudited Pro Forma Condensed Consolidated Financial Statements

 

S-12

 

Description of the Notes

 

S-23

 

Underwriting

 

S-28

 

Validity of the Notes

 

S-30

 

Experts

 

S-30

 

Prospectus

 

 

 

Where You Can Find More Information

 

2

 

Risk Factors

 

4

 

Cautionary Language Regarding Forward-Looking Statements

 

13

 

The Company

 

14

 

Ratio of Earnings to Fixed Charges

 

14

 

Use of Proceeds

 

15

 

Description of Capital Stock We May Offer

 

15

 

Description of Depositary Shares We May Offer

 

28

 

Description of the Debt Securities We May Offer

 

31

 

Description of Warrants or Other Rights We May Offer

 

37

 

Description of Stock Purchase Contracts We May Offer

 

41

 

Description of Units We May Offer

 

42

 

Legal Ownership and Book-Entry Issuance

 

45

 

Certain Provisions of Maryland Law and HCP’s Charter and Bylaws

 

50

 

United States Federal Income Tax Considerations

 

56

 

Plan of Distribution

 

80

 

Validity of Securities

 

82

 

Experts

 

82

 

 




ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first is this prospectus supplement, which describes the specific terms of this offering. The second part, the accompanying prospectus, gives more general information, some of which may not apply to this offering. This prospectus supplement also adds to, updates and changes information contained in the accompanying prospectus. If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement. The accompanying prospectus is part of a registration statement that we filed with the Securities and Exchange Commission using a shelf registration statement. Under the shelf registration process, from time to time, we may offer and sell debt securities, warrants or other rights, stock purchase contracts, units, common stock, preferred stock or depositary shares, or any combination thereof, in one or more offerings.

It is important that you read and consider all of the information contained in this prospectus supplement and the accompanying prospectus in making your investment decision. You should also read and consider the information in the documents to which we have referred you in “Incorporation by Reference” on page S-2 of this prospectus supplement and “Where You Can Find More Information” on page 2 of the accompanying prospectus.

S-1




INCORPORATION BY REFERENCE

The Securities and Exchange Commission, or SEC, allows us to “incorporate by reference” information into this prospectus supplement and the accompanying prospectus. This means that we can disclose important information to you by referring you to another document that HCP has filed separately with the SEC that contains that information. The information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus. Information that HCP files with the SEC after the date of this prospectus supplement will automatically modify and supersede the information included or incorporated by reference in this prospectus supplement and the accompanying prospectus to the extent that the subsequently filed information modifies or supersedes the existing information. We incorporate by reference (other than any portions of any such documents that are not deemed “filed” under the Securities Exchange Act of 1934 in accordance with the Securities Exchange Act of 1934 and applicable SEC rules):

·       our Current Report on Form 8-K filed on January 5, 2007, two Current Reports on Form 8-K filed on January 9, 2007, each of our Current Reports on Form 8-K filed on January 19, 2007, January 22, 2007, February 1, 2007, February 9, 2007, June 6, 2007, August 1, 2007, August 6, 2007, as amended on September 24, 2007, September 10, 2007, two Current Reports on Form 8-K filed on September 20, 2007 and our Current Report on Form 8-K filed on October 5, 2007;

·       our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007;

·       our Annual Report on Form 10-K for the fiscal year ended December 31, 2006; and

·       any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell all of the securities offered by this prospectus supplement.

You may request a copy of any of these filings at no cost by writing to or telephoning us at the following address and telephone number:

Legal Department
HCP, Inc.
3760 Kilroy Airport Way, Suite 300
Long Beach, California 90806
(562) 733-5100
legaldept@hcpi.com

 

S-2




SUMMARY

The information below is a summary of the more detailed information included elsewhere in or incorporated by reference in this prospectus supplement. You should read carefully the following summary together with the more detailed information contained in this prospectus supplement, including the “Risk Factors” section beginning on page S-8, the accompanying prospectus, including the “Risk Factors” section beginning on page 4, and the information incorporated by reference. This summary is not complete and does not contain all of the information you should consider when making your investment decision.

Our Company

We invest primarily in real estate serving the healthcare industry in the United States. We are a Maryland corporation and were organized to qualify as a real estate investment trust, or REIT, in 1985. We are headquartered in Long Beach, California, with operations in Nashville, Tennessee, Chicago, Illinois and San Francisco, California. As of June 30, 2007, our portfolio of properties, excluding assets held for sale but including investments through joint ventures and mortgage loans, included 675 properties and consisted of 273 senior housing facilities, 265 medical office buildings, 42 hospitals, 66 skilled nursing facilities and 29 other healthcare facilities. We acquire healthcare facilities and lease them to healthcare providers and provide mortgage financing secured by healthcare facilities. Our portfolio includes:

·       senior housing, including independent living facilities, assisted living facilities, and continuing care retirement communities;

·       medical office buildings;

·       life science facilities, including laboratories and office buildings;

·       hospitals;

·       skilled nursing facilities; and

·       other healthcare facilities, including physical group practice clinics and health and wellness centers.

Our executive offices are located at 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806, and our telephone number is (562) 733-5100.

Healthcare Industry

In 2004, healthcare was the single largest industry in the United States, representing 16.0% of U.S. Gross Domestic Product and growing at a rate faster than the overall economy, according to data made available by the U.S. Bureau of Labor Statistics and the Centers for Medicare and Medicaid.

The delivery of healthcare services requires real estate and as a consequence, healthcare providers depend on real estate to maintain and grow their businesses. HCP believes that the current healthcare real estate market provides an investment opportunity for investors based on:

·       likelihood of consolidation of the fragmented healthcare real estate sector;

·       specialized nature of healthcare real estate investing; and

·       compelling demographics driving the demand for healthcare services.

Senior citizens are the largest consumers of healthcare services. According to the Centers for Medicare and Medicaid, on a per capita basis, the 75 years and older segment of the population spends 75% more on healthcare than the 65 to 74-year-old segment and nearly 300% more than the population average.

S-3




Recent Developments

Acquisition of Slough Estates USA Inc.

On August 1, 2007, we closed our acquisition of Slough Estates USA Inc. (“SEUSA”) for aggregate consideration of approximately $2.9 billion (the “Acquisition”), subject to certain adjustments. SEUSA’s portfolio is concentrated in the San Francisco Bay Area and San Diego County and comprises 83 existing properties representing approximately 5.2 million square feet of life science/pharma space. In addition to the existing portfolio, SEUSA has an established development infrastructure and a pipeline currently comprised of 3.8 million square feet in the San Francisco Bay Area and San Diego County.

In connection with our acquisition of SEUSA, we obtained from a syndicate of banks a bridge loan for $2.75 billion.

Portfolio Sale to Emeritus Corporation

On August 15, 2007, we closed the sale of 41 senior housing facilities to Emeritus Corporation for an aggregate sales price of $501.5 million.

Change of Corporate Name

On September 7, 2007, we amended our Charter to change our name from Health Care Property Investors, Inc. to HCP, Inc.

Common Stock Offering

On October 5, 2007, we completed a registered offering of 9 million shares of our common stock, par value $1.00 per share, pursuant to an underwriting agreement between us and Goldman, Sachs & Co. (the “Common Stock Issuance”). We also granted Goldman, Sachs & Co. a 10-day option to purchase up to an additional 1,350,000 shares of common stock from us. The net proceeds from this offering were approximately $302.6 million, and would be $348.0 million if Goldman, Sachs & Co. exercises its option to purchase additional shares in full. The net proceeds from the offering will be used to repay a portion of our outstanding indebtedness under our bridge loan.

S-4




The Offering

The summary below describes the principal terms of the notes. Some of the terms and conditions described below are subject to important limitations and exceptions. See “Description of the Notes” for a more detailed description of the terms and conditions of the notes.

Issuer

 

HCP, Inc.

Securities Offered

 

$600,000,000 aggregate principal amount of 6.70% Senior Notes due January 30, 2018.

Issue Price

 

99.793% plus accrued interest, if any, from October 15, 2007.

Interest Payment Dates

  

Interest on the notes is payable semi-annually on January 30 and July 30 of each year, commencing January 30, 2008.

Optional Redemption

 

At any time, we may redeem all or part of the notes under a make-whole redemption provision. See “Description of the Notes—Optional Redemption.”

Offer to Repurchase

 

If we experience a Change of Control and the notes are rated below Investment Grade by Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. as a result, we will offer to repurchase all of the notes at a price equal to 101% of the principal amount plus accrued and unpaid interest to the repurchase date. See “Description of the Notes—Offer to Repurchase Upon a Change of Control Repurchase Event” for further information about the offer to repurchase and for definitions of Change of Control and Investment Grade.

Covenants

 

The indenture governing the notes contains certain covenants. Under specified circumstances, the indenture governing the notes restricts our ability to incur additional indebtedness. See “Description of the Debt Securities We May Offer—Covenants” in the accompanying prospectus.

Ranking

 

The notes will be senior unsecured obligations of HCP, ranking equally in right of payment with other senior unsecured indebtedness of HCP from time to time outstanding.

Form and Denomination

 

We will issue the notes in fully registered form in denominations of $1,000 and integral multiples of $1,000. The notes will be represented by permanent global securities registered in the name of a nominee of The Depository Trust Company, or DTC. You will hold beneficial interests in the notes through DTC, and DTC and its direct and indirect participants will record your beneficial interest on their books. Except under limited circumstances, we will not issue certificated notes.

S-5




 

Use of Proceeds

 

We expect that the net proceeds from this offering will be approximately $594.6 million after deducting expenses. We intend to use the net proceeds from the offering to repay outstanding indebtedness under our bridge loan. See “Use of Proceeds.”

Trustee, Registrar and Paying Agent

 

The Bank of New York Trust Company, N.A.

 

You should carefully consider the information set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, in this prospectus supplement beginning at page S-8 and in the accompanying prospectus beginning on page 4 before deciding to invest in the notes.

For additional information regarding the notes, see “Description of the Notes.”

S-6




SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth our summary consolidated financial data. You should read this information together with our financial statements, including the related notes, included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 from which such information has been derived. Our unaudited summary consolidated financial data as of June 30, 2007 and for the three and six months ended June 30, 2006 and 2007 has been prepared on the same basis as our annual consolidated financial statements and includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of this data in all material respects. The results for any interim period are not necessarily indicative of the results of operations to be expected for a full fiscal year. The following data is presented on a historical basis. The data as of and for the three and six months ended June 30, 2006 and 2007 does not include the financial data of SEUSA, which we acquired on August 1, 2007, and the data as of and for the three and six months ended June 30, 2006 does not include the financial data of CNL Retirement Properties, Inc. (“CRP”) and CNL Retirement Corp., the external advisor to CRP (the “Advisor”) (together the “CRP Acquisitions”), which we acquired on October 5, 2006.

 

 

Three Months
Ended
June 30,

 

Six Months
Ended
June 30,

 

 

 

    2007    

 

    2006    

 

    2007    

 

    2006    

 

 

 

(in thousands, except share and per share data)

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and related revenues

 

 

$

204,580

 

 

 

$

109,894

 

 

 

$

407,946

 

 

 

$

209,147

 

 

Income from direct financing leases

 

 

15,215

 

 

 

 

 

 

30,205

 

 

 

 

 

Investment management fee income

 

 

4,220

 

 

 

943

 

 

 

10,459

 

 

 

1,997

 

 

Interest and other income

 

 

18,732

 

 

 

5,395

 

 

 

34,947

 

 

 

19,084

 

 

 

 

 

242,747

 

 

 

116,232

 

 

 

483,557

 

 

 

230,228

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

72,359

 

 

 

33,485

 

 

 

151,337

 

 

 

65,418

 

 

Depreciation and amortization

 

 

60,434

 

 

 

26,975

 

 

 

121,328

 

 

 

52,469

 

 

Operating

 

 

38,949

 

 

 

19,143

 

 

 

81,350

 

 

 

36,589

 

 

General and administrative

 

 

18,292

 

 

 

8,396

 

 

 

38,884

 

 

 

16,868

 

 

 

 

 

190,034

 

 

 

87,999

 

 

 

392,899

 

 

 

171,344

 

 

Operating income

 

 

52,713

 

 

 

28,233

 

 

 

90,658

 

 

 

58,884

 

 

Equity income from unconsolidated joint ventures

 

 

1,302

 

 

 

2,714

 

 

 

2,516

 

 

 

6,536

 

 

Gains on sale of real estate interests, net

 

 

10,141

 

 

 

 

 

 

10,141

 

 

 

 

 

Minority interests’ share of earnings

 

 

(6,739

)

 

 

(4,170

)

 

 

(11,974

)

 

 

(7,947

)

 

Income from continuing operations

 

 

57,417

 

 

 

26,777

 

 

 

91,341

 

 

 

57,473

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

11,796

 

 

 

17,219

 

 

 

19,115

 

 

 

35,820

 

 

Gains on sales of real estate, net of impairments

 

 

2,071

 

 

 

(2,429

)

 

 

106,116

 

 

 

6,162

 

 

 

 

 

13,867

 

 

 

14,790

 

 

 

125,231

 

 

 

41,982

 

 

Net income

 

 

71,284

 

 

 

41,567

 

 

 

216,572

 

 

 

99,455

 

 

Preferred stock dividends

 

 

(5,283

)

 

 

(5,283

)

 

 

(10,566

)

 

 

(10,566

)

 

Net income applicable to common shares

 

 

$

66,001

 

 

 

$

36,284

 

 

 

$

206,006

 

 

 

$

88,889

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

$

0.25

 

 

 

$

0.16

 

 

 

$

0.39

 

 

 

$

0.34

 

 

Discontinued operations

 

 

0.07

 

 

 

0.11

 

 

 

0.62

 

 

 

0.31

 

 

Net income applicable to common shares

 

 

$

0.32

 

 

 

$

0.27

 

 

 

$

1.01

 

 

 

$

0.65

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

$

0.25

 

 

 

$

0.16

 

 

 

$

0.39

 

 

 

$

0.34

 

 

Discontinued operations

 

 

0.07

 

 

 

0.10

 

 

 

0.61

 

 

 

0.31

 

 

Net income applicable to common shares

 

 

$

0.32

 

 

 

$

0.26

 

 

 

$

1.00

 

 

 

$

0.65

 

 

Weighted average shares used to calculate earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

205,755

 

 

 

136,484

 

 

 

204,882

 

 

 

136,262

 

 

Diluted

 

 

207,024

 

 

 

137,192

 

 

 

206,470

 

 

 

137,024

 

 

 

 

 

As of
June 30, 2007

 

As of
December 31, 2006

 

 

 

(in thousands)

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

351,217

 

 

 

$

60,687

 

 

Total assets

 

 

8,879,326

 

 

 

10,012,749

 

 

Total debt

 

 

4,934,137

 

 

 

6,556,948

 

 

Total stockholders’ equity

 

 

3,604,387

 

 

 

3,294,036

 

 

 

S-7




RISK FACTORS

Before purchasing the notes, you should consider carefully the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, in the accompanying prospectus and the following factors, each of which could materially adversely affect our operating results and financial condition. You should also carefully consider the other information included in this prospectus supplement, the accompanying prospectus and other information incorporated by reference herein. Each of the risks described in our Form 10-K, Form 10-Q and the accompanying prospectus and below could result in a decrease in the value of the notes and your investment therein. Although we have tried to discuss what we believe are key risk factors, please be aware that other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial performance or the value of the notes. The information contained, and incorporated by reference, in this prospectus supplement and in the accompanying prospectus includes forward-looking statements that involve risks and uncertainties, and we refer you to the “Cautionary Language Regarding Forward-Looking Statements” section in the accompanying prospectus.

Our indebtedness could adversely affect our financial results and prevent us from fulfilling our obligations under the notes.

In addition to our currently outstanding indebtedness, we may be able to borrow substantial additional unsecured indebtedness in the future. If new indebtedness is added to our current debt levels, the related risks that we now face could increase.

Our indebtedness, including the indebtedness we may incur in the future, could have important consequences for the holders of the notes, including:

·       limiting our ability to satisfy our obligations with respect to the notes;

·       increasing our vulnerability to general adverse economic and industry conditions;

·       limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

·       requiring a substantial portion of our cash flow from operations for the payment of principal of, and interest on, our indebtedness and reducing our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements;

·       limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and

·       putting us at a disadvantage compared to competitors with less indebtedness.

Our business operations may not generate the cash needed to service our indebtedness.

Our ability to make payments on our indebtedness, including these notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, including these notes, or to fund our other liquidity needs.

Although these notes are referred to as “senior notes,” they will be effectively subordinated to our secured indebtedness and all liabilities of our subsidiaries.

The notes are unsecured and therefore will be effectively subordinated to any secured indebtedness we may incur to the extent of the value of the assets securing such indebtedness. In the event of a bankruptcy or similar proceeding involving us, our assets which serve as collateral will be available to satisfy the obligations under any secured indebtedness before any payments are made on the notes.

S-8




In addition, most of our assets are held through direct or indirect subsidiaries and, accordingly, the notes will be effectively subordinated to all liabilities of our subsidiaries including the guarantees of our new credit facilities issued by certain of our subsidiaries. Our subsidiaries and general and limited partnerships will not guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries or partnerships, creditors of our subsidiaries and partnerships will generally be entitled to payment of their claims from the assets of those subsidiaries and partnerships before any assets are made available for distribution to us, except to the extent we may also have a claim as a creditor.

An active trading market may not develop for the notes.

Prior to this offering, there was no existing trading market for the notes. Although the underwriters have informed us that they currently intend to make a market in the notes after we complete the offering, they have no obligation to do so and may discontinue making a market at any time without notice. We do not intend to apply for listing of the notes on any securities exchange.

The liquidity of any market for the notes will depend on a number of factors, including:

·       the number of holders of the notes;

·       our performance;

·       the market for similar securities;

·       the interest of securities dealers in making a market in the notes; and

·       prevailing interest rates.

We cannot assure you that an active market for the notes will develop or, if developed, that it will continue.

Downgrades or other changes in our credit ratings could affect our financial results and reduce the market value of the notes.

The credit ratings assigned to our unsecured indebtedness, including the notes upon issuance, may affect our ability to obtain new financing and the costs of our financing. It is possible that rating agencies may downgrade our credit ratings or change their outlook about us, which could increase our cost of capital and make our efforts to raise capital more difficult and, in turn, adversely affect our financial results. Such a downgrade in rating may also reduce the price that a subsequent purchaser may be willing to pay for the notes.

S-9




USE OF PROCEEDS

We anticipate that the net proceeds from this offering, after deducting underwriting discounts and estimated expenses payable by us, will be approximately $594.6 million. We intend to use the proceeds from this offering to repay outstanding indebtedness under our bridge loan.

Our bridge loan for $2.75 billion matures on July 31, 2008, and accrues interest at a rate per annum equal to LIBOR plus a margin ranging from 0.425% to 1.25%, depending upon our debt ratings. Based on our debt ratings on October 10, 2007, the margin on the bridge loan facility is 0.70%. The bridge loan facility includes two 6-month extensions.

Affiliates of certain of the underwriters are lenders under our bridge loan and therefore will receive a portion of the net proceeds from the offering through the repayment of debt under that facility.

S-10




RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

The following table sets forth our ratios of earnings to fixed charges and our ratios of earnings to combined fixed charges and preferred stock dividends for the periods indicated. In computing the ratios of earnings to fixed charges, earnings have been based on consolidated income from continuing operations before fixed charges (exclusive of capitalized interest). Fixed charges consist of interest on debt, including amounts capitalized, an estimate of interest in rental expense, and interest expense related to the guaranteed debt of the partnerships and limited liability companies in which we hold an interest. In computing the ratios of earnings to combined fixed charges and preferred stock dividends, preferred stock dividends consist of dividends on our 7.875% Series A Cumulative Redeemable Preferred Stock (until September 10, 2003 when the Series A Cumulative Redeemable Preferred Stock was redeemed), 8.70% Series B Cumulative Redeemable Preferred Stock (until October 1, 2003 when the Series B Cumulative Redeemable Preferred Stock was redeemed), 8.60% Series C Cumulative Redeemable Preferred Stock (until May 2, 2003 when the Series C Cumulative Redeemable Preferred Stock was redeemed), 7.25% Series E Cumulative Redeemable Preferred Stock and 7.10% Series F Cumulative Redeemable Preferred Stock.

 

 

Year Ended December 31,

 

For the Six Months
Ended June 30, 2007

 

 

 

2002

 

2003

 

2004

 

2005

 

2006
Actual

 

2006
Pro Forma(1)

 

Actual

 

Pro Forma(1)

 

Ratio of Earnings to Fixed
Charges(2)

 

1.99

 

2.01

 

2.13

 

1.90

 

 

1.40

 

 

 

 

 

 

1.57

 

 

 

1.02

 

 

Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends(3)

 

1.51

 

1.43

 

1.72

 

1.59

 

 

1.27

 

 

 

 

 

 

1.47

 

 

 

 

 


(1)          The unaudited pro forma condensed consolidated statement of income data used in the pro forma calculations were prepared under the purchase method of accounting as if the acquisition of SEUSA by HCP and related bridge loan had been completed (a) on January 1, 2006 for the Year Ended December 31, 2006 pro forma ratios, and (b) on January 1, 2007 for the Six Months Ended June 30, 2007 pro forma ratios. In addition, the unaudited pro forma condensed consolidated statement of income data used in the pro forma calculations were prepared under the purchase method of accounting as if the CRP Acquisitions and related financings had been completed on January 1, 2006 for the Year Ended December 31, 2006 pro forma ratios. We have included this information only for purposes of illustration, and it does not necessarily indicate what the ratios would have been if the acquisitions and the related financing transactions had actually been completed on those dates. Moreover, this information does not necessarily indicate what the future ratios of earnings to fixed charges will be. You should read this table in conjunction with the “Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements” included elsewhere in this prospectus supplement.

(2)          For the Pro Forma Ratio of Earnings to Fixed Charges for Year Ended December 31, 2006, pro forma fixed charges exceeded pro forma earnings resulting in a deficiency of $135 million.

(3)          For the Pro Forma Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for Year Ended December 31, 2006 and for the Six Months ended June 30, 2007, pro forma fixed charges exceeded pro forma earnings resulting in deficiencies of $156 million and $5 million, respectively.

S-11




UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed consolidated financial statements gives effect to our acquisition of SEUSA and reflect the incurrence of debt in order to finance the Acquisition. The unaudited pro forma condensed consolidated financial statements presented below have been prepared based on certain pro forma adjustments to the historical consolidated financial statements of HCP and SEUSA for the year ended December 31, 2006 and for the six months ended June 30, 2007. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 has been prepared as if the Acquisition had occurred as of that date. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2006 and for the six months ended June 30, 2007 have been prepared as if the Acquisition had occurred as of January 1, 2006.

In addition, the accompanying unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2006 gives effect to the CRP Acquisitions, which were completed on October 5, 2006, because the CRP Acquisitions are not fully reflected in our historical statement of operations for the year ended December 31, 2006. Such statement also reflects the incurrence of debt and gives effect to certain capital transactions we have undertaken in order to finance the CRP Acquisitions. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2006 has been prepared based on certain pro forma adjustments as if the CRP Acquisitions had occurred as of January 1, 2006.

The accompanying unaudited pro forma financial statements do not give effect to our recent Common Stock Issuance or to this offering of notes or the application of the net proceeds of either such offering to repay amounts outstanding under our bridge loan.

The allocation of the purchase price of SEUSA reflected in these unaudited pro forma condensed consolidated financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. In the opinion of our management, all significant adjustments necessary to reflect the effects of the Acquisition and CRP Acquisitions that can be factually supported within the SEC regulations covering the preparation of pro forma financial statements have been made.

The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The completion of the valuation and the impact of ongoing integration activities could cause material differences in the information presented. Furthermore, following consummation of the Acquisition and the CRP Acquisitions, we expect to apply our own methodologies and judgments in accounting for the assets and liabilities acquired in the transactions, which may differ from those reflected in SEUSA’s, or CRP’s or the Advisor’s historical financial statements.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP, SEUSA, CRP and the Advisor. The historical financial information with respect to HCP for the year ended December 31, 2006 has been (a) restated to reflect the results of operations of certain properties that were initially classified as discontinued operations in the six months ended June 30, 2007, and (b) includes a reclassification of equity income from unconsolidated joint ventures to conform to the presentation for the six months ended June 30, 2007. The restated historical consolidated financial statements of HCP for the year ended December 31, 2006, are contained in its Form 8-K as filed with the SEC on September 20, 2007. The historical consolidated financial statements of HCP for the six months ended June 30, 2007 are contained in HCP’s Form 10-Q as filed with the SEC on August 6, 2007. The historical consolidated financial statements of SEUSA for the six months ended June 30, 2007 and for the year ended December 31, 2006, are included as Exhibits 99.1 and 99.2 to HCP’s Current Report on Form 8-K/A as filed with the SEC on September 24, 2007, respectively. The historical consolidated financial statements of CRP and the Advisor for the nine months ended September 30, 2006 are contained in HCP’s Current Report on Form 8-K as filed with the SEC on January 9, 2007.

S-12




Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2007
(In thousands)

 

 

HCP 
Historical

 

SEUSA
Historical
(A)

 

Pro Forma
Adjustments
(B)

 

SEUSA and
Pro Forma
Adjustments

 

Consolidated
Pro Forma
HCP

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

 

$

6,205,698

 

$

937,432

 

 

$

569,581

(C)

 

 

$

1,507,013

 

 

 

$

7,712,711

 

 

Developments in process

 

29,056

 

213,493

 

 

96,607

(C)

 

 

310,100

 

 

 

339,156

 

 

Land

 

770,010

 

424,447

 

 

486,008

(C)

 

 

910,455

 

 

 

1,680,465

 

 

Less: accumulated depreciation and amortization

 

618,321

 

182,694

 

 

(182,694

)(C)

 

 

 

 

 

618,321

 

 

Net real estate

 

6,386,443

 

1,392,678

 

 

1,334,890

 

 

 

2,727,568

 

 

 

9,114,011

 

 

Net investment in direct financing leases

 

682,176

 

 

 

 

 

 

 

 

 

682,176

 

 

Loans receivable, net

 

203,147

 

 

 

 

 

 

 

 

 

203,147

 

 

Investments in and advances to unconsolidated joint ventures

 

214,904

 

22,309

 

 

 

 

 

22,309

 

 

 

237,213

 

 

Accounts receivable, net

 

33,652

 

1,628

 

 

 

 

 

1,628

 

 

 

35,280

 

 

Cash and cash equivalents

 

351,217

 

16,577

 

 

(168,521

)(F)

 

 

(151,944

)

 

 

199,273

 

 

Intangible assets, net

 

328,753

 

20,117

 

 

328,489

(D)

 

 

348,606

 

 

 

677,359

 

 

Real estate held for sale, net

 

204,683

 

 

 

 

 

 

 

 

 

204,683

 

 

Other assets, net

 

474,351

 

146,748

 

 

(77,157

)(E)

 

 

69,591

 

 

 

543,942

 

 

Total assets

 

$

8,879,326

 

$

1,600,057

 

 

$

1,417,701

 

 

 

$

3,017,758

 

 

 

$

11,897,084

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank line of credit and term loan

 

$

 

$

550,000

 

 

$

2,200,000

(F)

 

 

$

2,750,000

 

 

 

$

2,750,000

 

 

Due to SEGRO

 

 

210,000

 

 

(210,000

)(F)

 

 

 

 

 

 

 

Senior unsecured notes

 

3,223,422

 

383,608

 

 

(383,608

)(F)

 

 

 

 

 

3,223,422

 

 

Mortgage debt

 

1,260,885

 

52,291

 

 

(19,840

)(F)

 

 

32,451

 

 

 

1,293,336

 

 

Other debt

 

108,497

 

 

 

 

 

 

 

 

 

108,497

 

 

Intangible liabilities, net

 

145,047

 

6,713

 

 

147,734

(G)

 

 

154,447

 

 

 

299,494

 

 

Accounts payable and accrued expenses and deferred revenues

 

196,286

 

143,128

 

 

(62,268

)(H)

 

 

80,860

 

 

 

277,146

 

 

Total liabilities

 

4,934,137

 

1,345,740

 

 

1,672,018

 

 

 

3,017,758

 

 

 

7,951,895

 

 

Minority interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joint venture partners

 

34,305

 

 

 

 

 

 

 

 

 

34,305

 

 

Non-managing member unitholders

 

306,497

 

 

 

 

 

 

 

 

 

306,497

 

 

Total minority interests

 

340,802

 

 

 

 

 

 

 

 

 

340,802

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

285,173

 

185,000

 

 

(185,000

)(I)

 

 

 

 

 

285,173

 

 

Common stock

 

206,379

 

1

 

 

(1

)(I)

 

 

 

 

 

206,379

 

 

Additional paid-in capital

 

3,392,612

 

33,413

 

 

(33,413

)(I)

 

 

 

 

 

3,392,612

 

 

Cumulative net income

 

2,155,265

 

37,485

 

 

(37,485

)(I)

 

 

 

 

 

2,155,265

 

 

Cumulative dividends

 

(2,449,360

)

 

 

 

 

 

 

 

 

(2,449,360

)

 

Accumulated other comprehensive income (loss)

 

14,318

 

(1,582

)

 

1,582

(I)

 

 

 

 

 

14,318

 

 

Total stockholders’ equity

 

3,604,387

 

254,317

 

 

(254,317

)

 

 

 

 

 

3,604,387

 

 

Total liabilities and stockholders’ equity

 

$

8,879,326

 

$

1,600,057

 

 

$

1,417,701

 

 

 

$

3,017,758

 

 

 

$

11,897,084

 

 

 

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

S-13




Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the six months ended June 30, 2007
(In thousands, except per share data)

 

 

HCP
Historica
l

 

SEUSA
Historical (A)

 

Pro Forma
Adjustments

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and related revenues

 

$

407,946

 

 

$

76,277

 

 

 

$

15,605

(J)

 

 

$

499,828

 

 

Income from direct financing leases

 

30,205

 

 

 

 

 

 

 

 

30,205

 

 

Investment management fee income

 

10,459

 

 

 

 

 

 

 

 

10,459

 

 

Interest and other income

 

34,947

 

 

880

 

 

 

 

 

 

35,827

 

 

 

 

483,557

 

 

77,157

 

 

 

15,605

 

 

 

576,319

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

151,337

 

 

58,335

 

 

 

28,027

(K)

 

 

237,699

 

 

Depreciation and amortization

 

121,328

 

 

29,017

 

 

 

14,861

(L)

 

 

165,206

 

 

Operating

 

81,350

 

 

10,748

 

 

 

9,512

(M)

 

 

101,610

 

 

General and administrative

 

38,884

 

 

16,583

 

 

 

 

 

 

55,467

 

 

 

 

392,899

 

 

114,683

 

 

 

52,400

 

 

 

559,982

 

 

Operating income / (loss)

 

90,658

 

 

(37,526

)

 

 

(36,795

)

 

 

16,337

 

 

Equity income from unconsolidated joint ventures

 

2,516

 

 

4,668

 

 

 

 

 

 

7,184

 

 

Gains on sale of real estate interests, net

 

10,141

 

 

 

 

 

 

 

 

10,141

 

 

Minority interests’ share of earnings

 

(11,974

)

 

(338

)

 

 

338

(N)

 

 

(11,974

)

 

Income / (loss) before income taxes

 

91,341

 

 

(33,196

)

 

 

(36,457

)

 

 

21,688

 

 

Income tax expense

 

 

 

(12,997

)

 

 

12,997

(O)

 

 

 

 

Income / (loss) from continuing operations

 

91,341

 

 

(20,199

)

 

 

(49,454

)

 

 

21,688

 

 

Less: preferred stock dividends

 

(10,566

)

 

 

 

 

 

 

 

(10,566

)

 

Income / (loss) from continuing operations applicable to common stocks

 

$

80,775

 

 

(20,199

)

 

 

(49,454

)

 

 

11,122

 

 

Income (loss) from continuing operations per common share—basic(P)

 

$

0.39

 

 

 

 

 

 

 

 

 

 

$

0.05

 

 

Income (loss) from continuing operations per common share—diluted(P)

 

$

0.39

 

 

 

 

 

 

 

 

 

 

$

0.05

 

 

Weighted average shares used to calculate income per common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic(P)

 

204,882

 

 

 

 

 

 

1,353

(Q)

 

 

206,235

 

 

Diluted(P)

 

206,470

 

 

 

 

 

 

1,353

(Q)

 

 

207,823

 

 

 

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

S-14




Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2006
(In thousands, except per share data)

 

 

HCP
Historical
Restated

 

SEUSA
Historical(A)

 

Pro Forma
Adjustments

 

Total HCP
Pro Forma
For SEUSA

 

Pro Forma
CRP
Acquisitions
(R)

 

Consolidated
Pro Forma
HCP

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and related revenues

 

 

$

519,337

 

 

 

$

120,356

 

 

 

$

28,284

(J)

 

 

$

667,977

 

 

 

$

261,396

 

 

 

$

929,373

 

 

Income from direct financing
leases

 

 

15,008

 

 

 

 

 

 

 

 

 

15,008

 

 

 

45,522

 

 

 

60,530

 

 

Investment management fee
income

 

 

3,895

 

 

 

 

 

 

 

 

 

3,895

 

 

 

 

 

 

3,895

 

 

Interest and other income

 

 

36,184

 

 

 

1,026

 

 

 

 

 

 

37,210

 

 

 

5,773

 

 

 

42,983

 

 

 

 

 

574,424

 

 

 

121,382

 

 

 

28,284

 

 

 

724,090

 

 

 

312,691

 

 

 

1,036,781

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

212,188

 

 

 

29,192

 

 

 

143,534

(K)

 

 

384,914

 

 

 

167,634

 

 

 

552,548

 

 

Depreciation and amortization

 

 

133,714

 

 

 

47,338

 

 

 

40,419

(L)

 

 

221,471

 

 

 

116,322

 

 

 

337,793

 

 

Operating

 

 

89,139

 

 

 

15,932

 

 

 

19,023

(M)

 

 

124,094

 

 

 

26,689

 

 

 

150,783

 

 

General and administrative

 

 

47,290

 

 

 

23,250

 

 

 

 

 

 

70,540

 

 

 

36,508

 

 

 

107,048

 

 

Impairments

 

 

3,577

 

 

 

 

 

 

 

 

 

3,577

 

 

 

 

 

 

3,577

 

 

 

 

 

485,908

 

 

 

115,712

 

 

 

202,976

 

 

 

804,596

 

 

 

347,153

 

 

 

1,151,749

 

 

Operating income / (loss)

 

 

88,516

 

 

 

5,670

 

 

 

(174,692

)

 

 

(80,506

)

 

 

(34,462

)

 

 

(114,968

)

 

Equity income from unconsolidated joint ventures

 

 

8,331

 

 

 

10,428

 

 

 

 

 

 

18,759

 

 

 

328

 

 

 

19,087

 

 

Loss on sale of real estate interests and other investments, net

 

 

 

 

 

(546

)

 

 

 

 

 

(546

)

 

 

 

 

 

(546

)

 

Minority interests

 

 

(14,805

)

 

 

(1,652

)

 

 

1,652

(N)

 

 

(14,805

)

 

 

(414

)

 

 

(15,219

)

 

Income / (loss) before income taxes

 

 

82,042

 

 

 

13,900

 

 

 

(173,040

)

 

 

(77,098

)

 

 

(34,548

)

 

 

(111,646

)

 

Income tax expense

 

 

 

 

 

4,630

 

 

 

(4,630

)(O)

 

 

 

 

 

650

 

 

 

650

 

 

Income / (loss) from continuing operations

 

 

82,042

 

 

 

9,270

 

 

 

(168,410

)

 

 

(77,098

)

 

 

(35,198

)

 

 

(112,296

)

 

Less: preferred stock dividends

 

 

(21,130

)

 

 

 

 

 

 

 

 

(21,130

)

 

 

 

 

 

(21,130

)

 

Income / (loss) from continuing operations applicable to common stocks

 

 

$

60,912

 

 

 

$

9,270

 

 

 

$

(168,410

)

 

 

$

(98,228

)

 

 

$

(35,198

)

 

 

$

(133,426

)

 

Income / (loss) from continuing operations per common
share—basic(P)

 

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

$

(0.66

)

 

 

 

 

 

 

$

(0.65

)

 

Income / (loss) from continuing operations per common share—diluted(P)

 

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

$

(0.66

)

 

 

 

 

 

 

$

(0.65

)

 

Weighted-average shares used to calculate income / (loss) per common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic(P)

 

 

148,236

 

 

 

 

 

 

 

 

 

 

 

148,236

 

 

 

56,149

(Q)

 

 

204,385

 

 

Diluted(P)

 

 

149,226

 

 

 

 

 

 

 

 

 

 

 

148,236

 

 

 

56,149

(Q)

 

 

204,385

 

 

 

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

S-15




Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP and SEUSA for the year ended December 31, 2006 and as of and for the six months ended June 30, 2007.

(A)       The historical financial statements of SEUSA for the year ended December 31, 2006 and as of and for the six months ended June 30, 2007 have been presented based on the financial statement classification of HCP.

(B)        On August 1, 2007, HCP completed the acquisition of SEUSA, which was a wholly-owned subsidiary of SEGRO plc, a public limited company incorporated under the laws of England and Wales (“SEGRO”), pursuant to the Share Purchase Agreement, entered into between HCP and SEGRO, dated as of June 3, 2007 (the “Share Purchase Agreement”). The Acquisition was effected by HCP acquiring 100% of the capital stock of SEUSA, with SEUSA surviving as a wholly-owned subsidiary of HCP. Under the terms of the Share Purchase Agreement, HCP paid SEGRO cash consideration of approximately $2.9 billion, subject to certain adjustments. The calculation of the Acquisition consideration and total purchase price follow (in thousands):

Calculation of SEUSA purchase price

 

 

 

Payment of aggregate cash consideration

 

$ 2,900,000

 

SEUSA intangible liabilities at book value

 

6,713

 

All other SEUSA liabilities at book value

 

143,128

 

Adjustment to record SEUSA intangible liabilities at fair value
(Note G)

 

147,734

 

Adjustment to record SEUSA other liabilities at fair value (Note H)

 

(62,268

)

Estimated fees and other expenses related to the Acquisition

 

10,000

 

Total purchase price

 

$ 3,145,307

 

 

The calculation of the estimated fees and other expenses related to the Acquisition follow (in thousands):

Advisory fees

 

$ 2,000

 

Legal, accounting and other fees and costs

 

8,000

 

Total

 

$ 10,000

 

 

(C)        SEUSA’s real estate assets have been adjusted to their preliminary estimated fair values as of June 30, 2007 and SEUSA’s historical accumulated depreciation and amortization balances are eliminated when real estate assets are recorded at fair value.

(D)       Adjustments to SEUSA’s historical balance of intangible assets follow (in thousands):

Recognition of assets associated with the acquired in-place leases that have favorable market rental rates

 

$ 114,164

 

Recognition of other related in-place lease intangibles

 

234,442

 

Elimination of historical carrying value of in-place lease intangible assets

 

(20,117

)

 

 

$ 328,489

 

 

S-16




Other related in-place lease intangible assets acquired include amounts for in-place lease values that are based on HCP’s evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. In estimating carrying costs, HCP includes estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, HCP considers leasing commissions, legal and other related costs.

(E)        Adjustments to SEUSA’s historical balance of other assets follow (in thousands):

Deferral of issuance costs associated with debt issued in the Acquisition

 

$   8,521

 

Elimination of historical straight-line rent receivable balance

 

(61,814

)

Elimination of historical deferred debt issuance and leasing costs and leasing commissions

 

(23,864

)

 

 

$ (77,157

)

 

(F)         On August 1, 2007, HCP obtained a $2.75 billion bridge loan maturing on July 31, 2008 which also includes two six-month extension periods. In reflecting the funding for the Acquisition on the balance sheet as of June 30, 2007 to fund the consideration of $2.9 billion, estimated fees and costs related to the Acquisition of $10 million (Note B), and the $8.5 million bridge loan debt issuance costs (Note E), HCP was assumed to have used $169 million of cash on hand. Prior to August 1, 2007, SEUSA repaid its bank line of credit, senior unsecured notes and $20 million of mortgage debt using advances from SEGRO. The SEGRO advances were repaid in full at the date of closing of the SEUSA acquisition.

(G)      Adjustments to SEUSA’s historical balance of intangible liabilities follow (in thousands):

Recognition of liabilities associated with the acquired in-place leases that have below-market rental rates

 

$ 154,447

 

Elimination of liabilities associated with acquired in-place leases that have below-market rental rates

 

(6,713

)

 

 

$ 147,734

 

 

(H)      Adjustments to SEUSA’s historical balance of other liabilities follow (in thousands):

Elimination of historical deferred tax liability

 

$ (46,527

)

Elimination of deferred revenue

 

(15,741

)

 

 

$ (62,268

)

 

(I)            Adjustments represent the elimination of historical SEUSA balances. Because the acquisition of SEUSA was financed with cash, no additional shares of HCP were issued in connection with the Acquisition.

S-17




(J)           Adjustments to rental income and other revenues follow (in thousands):

 

 

Year Ended

 

Six Months

 

 

 

December 31,

 

Ended June 30,

 

 

 

2006

 

2007

 

Recognize the total minimum lease payments provided under the acquired leases on a straight-line basis over the remaining term from the assumed acquisition date of January 1, 2006

 

 

$ 8,824

 

 

 

$ 3,742

 

 

Recognize the amortization of above-and below-market lease intangibles

 

 

3,362

 

 

 

1,681

 

 

Increase in tenant expense recoveries related to increase in real estate taxes (see Note M)

 

 

19,023

 

 

 

9,512

 

 

Eliminate SEUSA’s historical straight-line rent and deferred revenue adjustment, net

 

 

314

 

 

 

2,254

 

 

Eliminate SEUSA’s historical amortization of above- and below-market lease intangibles

 

 

(3,239

)

 

 

(1,584

)

 

 

 

 

$ 28,284

 

 

 

$ 15,605

 

 

 

(K)       Adjustments to interest expense follow (in thousands):

 

 

Year Ended

 

Six Months

 

 

 

December 31,

 

Ended June 30,

 

 

 

2006

 

2007

 

Interest expense associated with debt issued and assumed in the Acquisition

 

 

$ 167,360

 

 

 

$ 83,680

 

 

Amortization of the premium recognized on assumed debt

 

 

(315

)

 

 

(158

)

 

Amortization of debt issuance costs associated with new debt issued in the Acquisition

 

 

5,681

 

 

 

2,840

 

 

Eliminate SEUSA’s historical interest expense

 

 

(29,192

)

 

 

(58,335

)

 

 

 

 

$ 143,534

 

 

 

$ 28,027

 

 

 

The pro forma increase in interest expense as a result of the issuance of new debt in the Acquisition is calculated using rates for the lines of credit and short-term borrowings issued on August 1, 2007 (the date that the Acquisition was completed). Each 1/8 of 1% increase in the annual interest assumed with respect to the debt will increase pro forma interest expense by $3.4 million for the year ended December 31, 2006 and $1.7 million for the six month period ended June 30, 2007.

(L)         Adjustments to depreciation and amortization expense follow (in thousands):

 

 

Year Ended

 

Six Months

 

 

 

December 31,

 

Ended June 30,

 

 

 

2006

 

2007

 

Real estate depreciation expense as a result of the recording of SEUSA’s real estate at its estimated fair value at the assumed acquisition date of January 1, 2006

 

 

$ 47,599

 

 

 

$ 23,799

 

 

Amortization expense related to lease-up related intangible assets associated with acquired leases

 

 

40,158

 

 

 

20,079

 

 

Eliminate SEUSA’s historical depreciation and amortization

 

 

(47,338

)

 

 

(29,017

)

 

 

 

 

$ 40,419

 

 

 

$ 14,861

 

 

 

An estimated useful life of 35 years was assumed to compute real estate depreciation. For assets and liabilities associated with the value of in-place leases, a weighted-average remaining lease term of approximately 9 years was used to compute amortization expense. The Company computes depreciation

S-18




and amortization using the straight-line method over the estimated useful lives of the properties or the remaining lease term of the related intangible.

(M)     Net impact in real estate tax expense based on the step-up in basis of certain properties as a result of the Acquisition.

(N)       Minority interests’ share of earnings of SEUSA has been eliminated because HCP acquired the interests of all minority shareholders in the Acquisition.

(O)      At the closing of this Acquisition, 100% of the capital stock of SEUSA was acquired by a REIT subsidiary of HCP, which, assuming the acquisition was effective January 1, 2006, substantially all of the amounts of the deferred tax obligations and income tax expense would then be eliminated.

(P)         The calculations of basic and diluted earnings from continuing operations attributable to common stock per share follow (in thousands, except per share data):

 

 

Year Ended December 31, 2006

 

Six Months Ended
June 30, 2007

 

 

 

 

 

 

 

Total HCP

 

 

 

 

 

 

 

Total HCP

 

Pro Forma

 

__

 

 

 

HCP

 

Pro Forma

 

for SEUSA

 

HCP

 

Pro Forma

 

 

 

Historical

 

for SEUSA

 

and CRP_

 

Historical

 

HCP__

 

Income (loss) from continuing operations

 

$ 82,042

 

 

$ (77,098

)

 

$ (112,296

)

$ 91,341

 

$ 21,688

 

Less: preferred stock dividends

 

(21,130

)

 

(21,130

)

 

(21,130

)

(10,566

)

(10,566

)

Earnings (loss) from continuing operations attributable to common stocks

 

$ 60,912

 

 

$ (98,228

)

 

$ (133,426

)

$ 80,775

 

$ 11,122

 

Weighted average shares used to calculate earnings per common stock—Basic

 

148,236

 

 

148,236

 

 

204,385

 

204,882

 

206,235

 

Incremental weighted average effect of potentially dilutive instruments

 

$      990

 

 

 

 

 

1,588

 

1,588

 

Adjusted weighted average shares used to calculate earnings (loss) per common stock—Diluted

 

149,226

 

 

148,236

 

 

$ 204,385

 

$ 206,470

 

$ 207,823

 

Earnings (loss) from continuing operations per common Stock—Basic

 

$     0.41

 

 

$    (0.66

)

 

$     (0.65

)

$     0.39

 

$     0.05

 

Earnings (loss) from continuing operations per common Stock—Diluted

 

$     0.41

 

 

$    (0.66

)

 

$     (0.65

)

$     0.39

 

$     0.05

 

 

(Q)      The pro forma weighted-average shares outstanding are the historical weighted-average shares of HCP for the periods presented, adjusted for the issuance of 40.3 million shares (33.5 million shares issued in November 2006 and 6.8 million shares issued in January 2007) of HCP common stock whose proceeds were used to repay debt initially used to finance the CRP Acquisitions and the issuance of 27.2 million shares of HCP common stock issued in conjunction with the CRP Acquisitions, which were assumed to have been issued at January 1, 2006.

(R)       Because the results of CRP and the Advisor are not fully reflected in the historical statement of operations of HCP for the year ended December 31, 2006, pro forma information to reflect the CRP Acquisitions for the year ended December 31, 2006 is presented (collectively, “Pro Forma CRP Acquisitions”). Additionally, HCP entered into certain capital market and financing transactions subsequent to the CRP Acquisitions but related to the CRP Acquisitions, which are not fully reflected in the historical statement of operations of HCP for year ended December 31, 2006. These Pro Forma CRP Acquisitions adjustments for the year ended December 31, 2006 have been prepared as if they had occurred as of January 1, 2006 for the year ended December 31, 2006. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective

S-19




historical financial statements and the notes thereto of CRP and the Advisor for the year ended December 31, 2005 and as of and for the nine months ended September 30, 2006.

 

 

CRP
Historical
Nine
Months
ended
September 30,
2006

 

CRP Re-
Classifications

(R1)

 

CRP
Reclassified

 

CRP
Pro Forma
Adjustments

 

Advisor
Historical
Nine Months
ended
September 30,
2006

 

Advisor 
Pro Forma
Adjustments

 

CRP/
Advisor
Eliminations

 

Pro Forma
CRP
Acquisitions

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other revenues

 

 

$        —

 

 

 

$ 272,900

 

 

 

$ 272,900

 

 

 

$   33,416

(R2)

 

 

$      —

 

 

 

$      —

 

 

 

$        —

 

 

 

$ 261,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,054

)(R2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,034

)(R2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

547

(R2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,379

)(R2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seniors’ housing rental income

 

 

187,078

 

 

 

(187,078

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned income from direct financing leases

 

 

45,522

 

 

 

 

 

 

45,522