EX-99.1 3 a2202307zex-99_1.htm EX-99.1
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Exhibit 99.1

HCP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2010

 
   Page

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2010

   3

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2010

  
4

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

  
5

        The accompanying 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, HCR ManorCare PropCo ("HCR ManorCare PropCo") and HCP Ventures II as of and for the year ended December 31, 2010. The historical financial information of HCP was derived from its consolidated financial statements that are included in its Annual Report on Form 10-K for the year ended December 31, 2010. The historical financial information of HCR ManorCare PropCo was derived from its consolidated financial statements that are included as Exhibits 99.2 to the Current Report on Form 8-K.

        The accompanying unaudited pro forma condensed consolidated financial statements give effect to the proposed acquisition by HCP of all of the equity interest in HCR ManorCare PropCo (the "HCR ManorCare Facilities Acquisition") and the purchase of the remaining 65 percent interest in HCP Ventures II (the "HCP Ventures II Purchase") (collectively, the "Acquisitions"). The unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 has been prepared as if the Acquisitions had occurred as of that date. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2010 has been prepared as if the Acquisitions had occurred as of January 1, 2010. Such statements also reflect the incurrence of debt and give effect to certain capital transactions undertaken by HCP in order to finance the Acquisitions.

        The allocation of the purchase price of HCR ManorCare PropCo and HCP Ventures II 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. A final determination of the fair values of HCR ManorCare PropCo's and HCP Ventures II's assets and liabilities will be based on the actual valuation of the tangible and intangible assets and liabilities of HCR ManorCare PropCo and HCP Ventures II that exist as of the date of completion of the transactions. Consequently, amounts preliminarily allocated to identifiable tangible and intangible assets and liabilities could change significantly from those used in the pro forma condensed consolidated financial statements presented below and could result in a material change in amortization of tangible and intangible assets and liabilities.

        In the opinion of HCP's management, the pro forma financial statements include all significant necessary adjustments that can be factually supported to reflect the effects of the Acquisitions. 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, the allocation of the purchase price, the impact of ongoing integration activities, the timing of completion of the transactions and other changes in HCR ManorCare PropCo and HCP Ventures II tangible and intangible assets and liabilities that occur prior to completion of the transactions could cause material differences in the information presented. Furthermore, following consummation of the transactions, HCP expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired in the transaction, which may differ from those reflected in HCR ManorCare PropCo's and HCP Ventures II's historical financial statements and the pro forma financial statements.

2


HCP, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2010

 
   HCP
Historical 		  HCR
ManorCare
PropCo
Historical
(A) 		  HCR
ManorCare
PropCo
Pro Forma
Adjustments
(B) 		  HCP
Ventures II
Historical
(A) 		  HCP
Ventures II
Pro Forma
Adjustments
(P) 		  HCP
Pro Forma 		 
 
   (in thousands)
  

ASSETS

                                      

Real estate:

                                      
 

Buildings, improvements and development

   $ 8,353,922   $ —   $ —   $ 936,074   $ (252,287 )(P) $ 9,037,709  
 

Land

     1,573,984     —     —     108,907     (28,727 )(P)   1,654,164  
 

Accumulated depreciation and amortization

     (1,251,142 )   —     —     (109,830 )   109,830 (P)   (1,251,142 )
                           
     

Net real estate

     8,676,764     —     —     935,151     (171,184 )   9,440,731  
                           
 

Net investment in direct financing leases

     609,661     3,133,172     2,864,926 (C)   —     —     6,607,759  
 

Loans receivable, net

     2,002,866     —     (1,592,822 )(D)   —     —     410,044  
 

Investments in and advances to unconsolidated joint ventures

     195,847     —     —     —     (64,985 )(Q)   130,862  
 

Accounts receivable, net

     34,504     —     —     —     —     34,504  
 

Cash, cash equivalents and restricted cash

     1,073,020     7,446     (863,252 )(E)   5,738     (136,748 )(O)   86,204  
 

Intangible assets, net

     316,375     —     13,500 (F)   35,458     42,835 (R)   408,168  
 

Other assets, net

     422,886     31,677     (18,614 )(G)   6,999     (6,499 )(S)   436,449  
                           
   

Total assets

   $ 13,331,923   $ 3,172,295   $ 403,738   $ 983,346   $ (336,581 ) $ 17,554,721  
                           

LIABILITIES AND EQUITY

                                      
 

Bank line of credit

   $ —   $ —   $ 179,518 (E) $ —   $ —   $ 179,518  
 

Senior unsecured notes

     3,318,379     —     2,400,000 (E)   —     —     5,718,379  
 

Mortgage and other secured debt

     1,235,779     —     —     649,450     (13,981 )(T)   1,871,248  
 

Long-term debt

     —     4,595,942     (4,595,942 )(E)   —     —     —  
 

Other debt

     92,187     —     —     —     —     92,187  
 

Intangible liabilities, net

     148,072     —     —     962     (962 )(U)   148,072  
 

Accounts payable and accrued expenses and deferred revenues

     391,459     1,081,819     (951,843 )(H)   3,160     (12 )(Q)   524,583  
                           
     

Total liabilities

     5,185,876     5,677,761     (2,968,267 )   653,572     (14,955 )   8,533,987  
                           

Equity:

                                      
 

Preferred stock

     285,173     —     —     —     —     285,173  
 

Common stock

     370,925     —     24,000 (I)   —     —     394,925  
 

Additional paid-in capital

     8,089,982     —     850,228 (I)   —     —     8,940,210  
 

Cumulative dividends in excess of earnings

     (775,476 )   —     22,258 (D)   —     8,298 (Q)   (775,017 )

    —     —     (29,947 )(B)   —     (150 )(O)   —  
 

Accumulated other comprehensive loss

     (13,237 )   —     —     —     —     (13,237 )
 

Total members' equity (deficit)

     —     (2,505,466 )   2,505,466 (B)   329,774     (329,774 )(O)   —  
                           
     

Total stockholders' equity

     7,957,367     (2,505,466 )   3,372,005     329,774     (321,626 )   8,832,054  
                           
     

Total noncontrolling interests

     188,680     —     —     —     —     188,680  
       

Total equity

     8,146,047     (2,505,466 )   3,372,005     329,774     (321,626 )   9,020,734  
                           
   

Total liabilities and equity

   $ 13,331,923   $ 3,172,295   $ 403,738   $ 983,346   $ (336,581 ) $ 17,554,721  
                           

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

3


HCP, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2010

 
   HCP
Historical 		  HCR
ManorCare
PropCo
Historical
(A) 		  HCR
ManorCare
PropCo
Pro Forma
Adjustments
(B) 		  HCP
Ventures II
Historical
(A) 		  HCP
Ventures II
Pro Forma
Adjustments
(O) 		  HCP
Pro Forma 		 
 
   (in thousands, except per share data)
  

Revenues and other income:

                                      
 

Rental and related revenues

   $ 951,855   $ —   $ —   $ 73,193   $ (6,442 )(W) $ 1,018,606  
 

Tenant recoveries

     89,012     —     —     —     —     89,012  
 

Income from direct financing leases

     49,438     442,970     178,347 (J)   —     —     670,755  
 

Interest income

     160,163     —     (112,605) (K)   —     —     47,558  
 

Investment management fee income

     4,666     —     —     —     (2,300 )(X)   2,366  
                           
   

Total revenues

     1,255,134     442,970     65,742     73,193     (8,742 )   1,828,297  
                           

Costs and expenses:

                                      
 

Depreciation and amortization

     311,952     —     —     27,575     4,506 (Y)   344,033  
 

Interest expense

     288,650     155,686     (40,306 )(L)   38,234     1,762 (Z)   444,026  
 

Operating

     210,276     1,700     (1,547 )(M)   15     —     210,444  
 

General and administrative

     83,048     —     —     3,908     (3,538 )(X)   83,418  
 

Impairments (recoveries)

     (11,900 )   —     —     54,500     (54,500 )(AA)   (11,900 )
                           
   

Total costs and expenses

     882,026     157,386     (41,853 )   124,232     (51,770 )   1,070,021  
                           

Other income, net

     15,819     (25,641 )   25,641     1     —     15,820  
                           

Income before income taxes and equity income from and impairments of investments in unconsolidated joint ventures

     388,927     259,943     133,236     (51,038 )   43,028     774,096  
 

Income taxes

     (412 )   (98,283 )   98,283 (N)   —     —     (412 )
 

Equity income from unconsolidated joint ventures

     4,770     —     —     —     (2,839 )(BB)   1,931  
 

Impairments of investments in unconsolidated joint ventures

     (71,693 )   —     —     —     71,693 (BB)   —  
                           

Income from continuing operations

     321,592     161,660     231,519     (51,038 )   111,882     775,615  
 

Noncontrolling interests' share of earnings

     (13,686 )   —     —     —     —     (13,686 )
                           

Income from continuing operations attributable to HCP, Inc. 

     307,906     161,660     231,519     (51,038 )   111,882     761,929  
                           
 

Preferred stock dividends

     (21,130 )   —     —     —     —     (21,130 )
 

Participating securities' share in earnings

     (2,081 )   —     —     —     —     (2,081 )
                           

Income from continuing operations applicable to common shares

   $ 284,695   $ 161,660   $ 231,519   $ (51,038 ) $ 111,882   $ 738,718  
                           
 

Income from continuing operations per common share—basic(CC)

   $ 0.93                           $ 1.97  
                                   
 

Income from continuing operations per common share—diluted(CC)

   $ 0.93                           $ 1.97  
                                   

Weighted average shares used to calculate income from continuing operations per common share:

                                      
 

Basic(CC)

     305,574           64,045 (DD)         4,455 (DD)   374,074  
                               
 

Diluted(CC)

     306,900           64,045 (DD)         4,455 (DD)   375,400  
                               

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

4


HCP, INC.

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 HCR ManorCare PropCo as of and for the year ended December 31, 2010 that are incorporated herein by reference.

(A)
The historical financial statements of HCR ManorCare PropCo and HCP Ventures II as of and for the year ended December 31, 2010 have been presented based on the financial statement classification utilized by HCP.

(B)
On December 13, 2010, HCP signed a definitive agreement to acquire HCR ManorCare PropCo, a wholly-owned subsidiary of HCR ManorCare, Inc., for a total purchase price of approximately $6.1 billion, comprised of $3.5 billion in cash (adjusted for working capital), the $1.6 billion settlement of HCP's then current loan investments in HCR ManorCare PropCo's debt at its estimated fair value and approximately $852 million of HCP common stock. Under the terms of the purchase agreement, HCP can elect to fund all or a portion of the stock portion of the consideration with cash (See Note I). After the HCR ManorCare Facilities Acquisition is consummated, a wholly-owned subsidiary of HCR ManorCare, Inc. will continue to operate the assets pursuant to a long-term triple-net master lease supported by a guaranty from HCR ManorCare, Inc.

    The calculation of the HCR ManorCare PropCo total purchase price follows (in thousands):

 
   December 31,
2010 		 

Calculation of HCR ManorCare PropCo purchase price

        

Payment of aggregate cash consideration, net of cash acquired

   $ 4,271,542  

HCP's loan investment in HCR ManorCare PropCo's debt settled at fair value

     1,615,080  

Assumed HCR ManorCare PropCo accrued tax and other liabilities at fair value

     129,976  
       
 

Total purchase price

   $ 6,016,598  
       

Estimated fees and costs

        

Advisory fees(1)

   $ 12,600  

Legal, accounting and other fees and costs(1)

     17,347  

Debt issuance costs

     19,135  
       
 

Total

   $ 49,082  
       
(1)
Represents estimated fees and costs that will be expensed. These charges are directly attributable to the transaction and represent non-recurring costs; therefore, the anticipated impact on the results of operations was excluded from the pro forma condensed consolidated statements of operations.

    Adjustment to the total members' deficit represents the elimination of such historical deficit balance of HCR ManorCare PropCo.

(C)
Adjustment has been made to reflect HCR ManorCare PropCo's existing direct financing lease ("DFL") assets at their estimated fair value.

(D)
HCP's historical investments in loan receivables from HCR ManorCare PropCo will be settled at the closing of the HCR ManorCare Facilities Acquisition resulting in an estimated gain on

5


HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

    settlement of $22.3 million, which represents the loan receivables' estimated fair value in excess of their carrying value. This gain is directly attributable to the transaction and represents a non-recurring credit; therefore, the anticipated impact on HCP's results of operations was excluded from the pro forma condensed consolidated statements of operations.

(E)
HCP expects to fund $3.3 billion of the cash consideration and other associated costs of the HCR ManorCare Facilities Acquisition primarily with cash on hand, short-term financing and the issuance of senior notes. In January 2011, HCP issued an aggregate $2.4 billion of senior unsecured notes, including $400 million aggregate principal amount of 2.700% senior notes due 2014, $500 million aggregate principal amount of 3.750% senior notes due 2016, $1.2 billion aggregate principal amount of 5.375% senior notes due 2021, and $300 million aggregate principal amount of 6.750% senior notes due 2041. All of HCR ManorCare PropCo's long-term debt, including HCP's aggregate investments in HCR ManorCare PropCo debt with an aggregate face amount of $1.72 billion, is assumed to be settled or repaid at closing.

(F)
Recognition of intangible assets associated with the acquired in-place ground leases that have favorable market rental rates.

(G)
Adjustments to HCR ManorCare PropCo's historical balance of other assets follow (in thousands):

Elimination of HCR ManorCare PropCo's historical deferred debt issuance costs

   $ (31,458 )

Elimination of HCR ManorCare PropCo's land parcel not acquired at closing

     (60 )

Elimination of HCR ManorCare PropCo's derivative asset settled at closing

     (159 )

Elimination of historical deferred costs associated with HCP's bridge loan commitment

     (11,072 )

Fair value of option to purchase a non-controlling interest in the lessee

     5,000  

Deferral of debt issuance costs associated with new borrowings

     19,135  
       

  $ (18,614 )
       
(H)
Adjustments to HCR ManorCare PropCo's historical balance of other liabilities follow (in thousands):

Elimination of HCR ManorCare PropCo's historical deferred tax liability

   $ (922,986 )

Payment of HCR ManorCare's historical accrued interest on its long-term debt

     (8,107 )

Elimination of HCR ManorCare PropCo's net payable to its affiliate

     (20,750 )
       

  $ (951,843 )
       
(I)
Adjustments represent an assumed issuance of 24 million shares of HCP common stock, which estimated net proceeds of approximately $874 million will be used to finance part of the aggregate purchase price of the HCR ManorCare Facilities Acquisition in lieu of issuing 25.7 million shares of HCP common stock directly to the seller of HCR ManorCare PropCo. The shares of HCP

6


HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

    common stock issued in connection with this assumed offering are valued as follows (in thousands, except share and per share data):

Number of shares issued

     24,000,000  

Price of shares of HCP common stock

   $ 37.60 (1)
       

Value of shares issued

   $ 902,400  

Less: Underwriting discount

     (27,072 )

Less: share registration and issuance costs

     (1,100 )
       
 

Total value of shares issued

   $ 874,228  
       
(1)
Based on the last reported sale price of HCP's common stock on the NYSE on March 21, 2011.

            The total value of the shares of HCP common stock issued is presented as follows:

Par value, $1.00 per share

   $ 24,000  

Additional paid-in capital

     850,228  
       

  $ 874,228  
       
(J)
Adjustments to income from DFLs follow (in thousands):

 
   Year Ended
December 31,
2010 		 

Eliminate HCR ManorCare PropCo historical income from DFLs

   $ (442,970 )

Pro forma amortization of unearned income from DFLs utilizing the interest method and based on DFLs' estimated fair value

     621,317  
       

  $ 178,347  
       
(K)
Represents the elimination of interest earned on HCR ManorCare PropCo debt held as loan investments by HCP that will be settled at closing.

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

 
   Year Ended
December 31,
2010 		 

Interest expense and related amortization of issuance costs and fees associated with new borrowings used to finance the HCR ManorCare Facilities Acquisition (Note E)

   $ 120,904  

Eliminate HCR ManorCare PropCo's historical interest expense (Note E)

     (155,686 )

Eliminate HCP's historical interest expense related to debt repaid at closing that is secured by HCP's loan investment participation in HCR ManorCare PropCo's mortgage debt (Note E)

     (5,524 )
       

  $ (40,306 )
       

7


HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(M)
Adjustments to operating expenses follow (in thousands):

 
   Year Ended
December 31,
2010 		 

Eliminate HCR ManorCare PropCo's historical operating expenses

   $ (1,700 )

Recognize the amortization of acquired ground lease intangibles

     153  
       

  $ (1,547 )
       

    For intangible assets associated with the value of in-place ground leases, a weighted-average remaining lease term of approximately 88 years was used to compute amortization expense. HCP computes amortization using the straight-line method over the remaining lease term of the related lease.

(N)
At the closing of the HCR ManorCare Facilities Acquisition, 100% of the real estate of HCR ManorCare PropCo will be acquired by a REIT subsidiary of HCP; accordingly, assuming this acquisition was effective January 1, 2010, substantially all of the amounts of the income tax expense would then be eliminated.

(O)
On January 14, 2011, HCP purchased its partner's 65 percent interest in HCP Ventures II, which owned 25 senior housing facilities, resulting in HCP becoming the sole owner of the portfolio. The assets were acquired on October 5, 2006, through HCP's acquisition of CNL Retirement Properties, Inc., and were contributed to HCP Ventures II in January 2007. HCP owned a 35 percent noncontrolling interest in HCP Ventures II that was accounted under the equity method as an unconsolidated joint venture at December 31, 2010. In exchange for its partner's interest and the assumption of approximately $650 million of mortgage debt secured by the assets, HCP paid approximately $137 million in cash for the transaction.

    The calculation of the HCP Ventures II Purchase consideration and total purchase price follows (in thousands):

 
   December 31,
2010 		 

Calculation of HCP Ventures II purchase price

        

Payment of aggregate cash consideration, net of cash acquired

   $ 130,360  

Fair value of 35 percent interest in HCP Ventures II

     73,283  

All HCP Ventures II debt assumed at fair value

     635,469  

Assumed HCP Ventures II other liabilities at fair value

     3,148  
       
 

Total purchase price

   $ 842,260  
       

Estimated fees and costs

        

Legal, accounting and other fees and costs(1)

   $ 150  

Debt assumption fees

     500  
       
 

Total

   $ 650  
       
(1)
Represents estimated fees and costs that will be expensed. These charges are directly attributable to the transaction and represent non-recurring costs; therefore, the anticipated

8


HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

    impact on the results of operations was excluded from the pro forma condensed consolidated statement of operations.

    Adjustment to the total members' equity represents the elimination of such historical equity balance of HCP Ventures II.

(P)
HCP Ventures II's real estate assets have been adjusted to their preliminary estimated fair values as of December 31, 2010 and the related historical accumulated depreciation and amortization balances are eliminated when real estate assets are recorded at fair value.

(Q)
Adjustments to eliminate HCP's historical 35 percent interest in HCP Ventures II follow (in thousands):

Elimination of HCP's historical carrying value of HCP Ventures II

   $ 64,973  

Elimination of historical amounts due from HCP Ventures II

     12  
       

    64,985  
       

Elimination of historical amounts due to HCP by HCP Ventures II

   $ 12  
       

    The consolidation of HCP Ventures II results in an estimated gain of $8.2 million, which represents the estimated fair value of HCP's 35 percent noncontrolling interest in HCP Ventures II that is in excess of its carrying value at December 31, 2010. This gain is directly attributable to the transaction and represents a non-recurring credit; therefore, the impact on the results of operations was excluded from the pro forma consolidated statements of operations.

(R)
Adjustments to intangible assets follow (in thousands):

Recognition of lease-up related intangible assets associated with acquired leases

   $ 78,293  

Elimination of HCP Ventures II's historical intangible assets

     (35,458 )
       

  $ 42,835  
       

    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.

(S)
Adjustments to HCP Ventures II's historical balance of other assets follow (in thousands):

Deferral of debt issuance costs associated with debt assumed in the HCP Ventures II Purchase

   $ 500  

Elimination of HCP Ventures II's historical deferred debt issuance costs

     (4,334 )

Elimination of HCP Ventures II's leasing incentive assets

     (2,665 )
       

  $ (6,499 )
       
(T)
Adjustment to eliminate HCP Ventures II's historical discount on mortgage debt.

9


HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(U)
Adjustment to eliminate HCP Ventures II's historical balance of intangible liabilities associated with acquired in-place leases that have below-market rental rates.

(V)
Intentionally left blank.

(W)
Adjustments to rental and related revenues follow (in thousands):

 
   Year Ended
December 31,
2010 		 

Eliminate HCP Ventures II's historical straight-line rent revenue

   $ (9,539 )

Eliminate HCP Ventures II's historical amortization of lease intangibles and lease incentives

     3,097  
       

  $ (6,442 )
       
(X)
Adjustments to eliminate management fees follow (in thousands):

 
   Year Ended
December 31,
2010 		 

Eliminate HCP's historical management fee income related to HCP Ventures II

   $ (2,300 )
       

Eliminate HCP Ventures II's historical management fees paid to HCP

   $ 3,538  
       
(Y)
Adjustments to depreciation and amortization expense follow (in thousands):

 
   Year Ended
December 31,
2010 		 

Real estate depreciation expense as a result of the recording of HCP Ventures II's real estate at its estimated fair value

   $ 22,870  

Represents the incremental amortization expense related to lease-up related intangible assets associated with acquired leases

     9,211  

Eliminate HCP Ventures II's historical depreciation and amortization

     (27,575 )
       

  $ 4,506  
       

        An estimated useful life of 30 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 8.5 years was used to compute amortization expense. HCP computes depreciation and amortization using the straight-line method over the properties estimated useful lives or the remaining lease term of the related intangible.

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HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 
   Year Ended
December 31,
2010 		 

Increase in interest expense resulting from the amortization of discount recognized at the purchase date to adjust the assumed HCP Ventures II debt at fair value

   $ 2,283  

Amortization of debt issuance costs associated with the assumed debt in the HCP Ventures II Purchase

     80  

Eliminate HCP Ventures II's historical debt issuance costs amortization

     (601 )
       

  $ 1,762  
       
(AA)
Adjustment eliminates HCP Ventures II's historical impairment of its straight-line rent assets. In October 2010, HCP Ventures II determined that the collectability of the straight-line rents was not reasonably assured and as a result established an allowance to fully impair the carrying value of its straight-line rent assets effective July 1, 2010. Further, HCP Ventures II limited its recognition of rental revenues to amounts collected from the related tenant. Assuming the HCP Ventures II Purchase occurred on January 1, 2010, no value would be attributed to straight-line asset in purchase accounting; therefore, no impairment of straight-line rent assets would have occurred.

(BB)
Represents the elimination of HCP's historical equity income from and related impairment of its 35 percent interest in HCP Ventures II, which resulted from the pro forma consolidation of HCP Ventures II assumed on January 1, 2010.

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HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 
   Year Ended
December 31, 2010 		 
 
   Historical   Pro Forma  

Income from continuing operations

   $ 321,592   $ 775,615  
 

Noncontrolling interests' share of earnings

     (13,686 )   (13,686 )
           

Income from continuing operations attributable to HCP, Inc. 

   $ 307,906   $ 761,929  
 

Preferred stock dividends

     (21,130 )   (21,130 )
 

Participating securities' share in earnings

     (2,081 )   (2,081 )
           

Income from continuing operations applicable to common shares

   $ 284,695   $ 738,718  
           
 

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

     305,574     374,074  
 

Incremental weighted average effect of potentially dilutive instruments

     1,326     1,326  
           
 

Adjusted weighted average shares used to calculate earnings per common share—Diluted

     306,900     375,400  
           
 

Earnings from continuing operations per common share—Basic

   $ 0.93   $ 1.97  
           
 

Earnings from continuing operations per common share—Diluted

   $ 0.93   $ 1.97  
           
(DD)
The pro forma weighted-average shares outstanding are the historical weighted-average shares of HCP for the year ended December 31, 2010, adjusted for the assumed issuance of 24 million shares of HCP common stock on a weighted-average basis for the year ended December 31, 2010. Additionally, the historical weighted-average shares of HCP for the year ended December 31, 2010 have been adjusted for the impact of the December 2010 issuance of 46 million shares of HCP common stock as if the issuance had occurred as of January 1, 2010 as such shares were issued in order to finance the Acquisitions.

12



QuickLinks

HCP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET December 31, 2010
HCP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2010
HCP, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS