Exhibit 99.2
CELEBRATING 20 YEARS AS A PUBLIC COMPANY
SUPPLEMENTAL INFORMATION
SEPTEMBER 30, 2005
(UNAUDITED)
Table of Contents
2
About the Company
Health Care Property Investors, Inc., a Maryland corporation organized in 1985, is a real estate investment trust (“REIT”) that, together with its consolidated subsidiaries and joint ventures, invests in healthcare related properties located throughout the United States. The Company acquires healthcare facilities and leases them to healthcare providers. Additionally, the Company provides mortgage financing on healthcare facilities. References herein to “HCP,” the “Company,” “we,” “us” and “our” include Health Care Property Investors, Inc. and our consolidated subsidiaries and joint ventures, unless the context otherwise requires.
The Company is organized to invest in income-producing healthcare related facilities. Our primary goal is to increase shareholder value through profitable growth. Our investment strategy to achieve this goal is based on three principles – opportunistic investing, portfolio diversification and conservative financing.
Opportunistic Investing. The Company makes real estate investments that are expected to drive profitable growth and create long-term shareholder value. We attempt to position ourselves to create and take advantage of situations where we believe the opportunities meet our goals and investment criteria. We invest in properties directly and through joint ventures, and provide secured financing, depending on the nature of the investment opportunity.
Portfolio Diversification. The Company believes in maintaining a portfolio of healthcare related real estate diversified by sector, geography, operator and investment product. Diversification within the healthcare industry reduces the likelihood that a single event would materially harm our business. This allows us to take advantage of opportunities in different markets based on individual market dynamics. While pursuing our strategy of attaining diversification in our portfolio, there are no specific limitations on the percentage of our total assets that may be invested in any one property, property type, geographic location or in the number of properties in which we may invest, lease or lend to a single operator.
Conservative Financing. The Company believes a conservative balance sheet provides the ability to execute our opportunistic investing approach and portfolio diversification principles. We maintain our conservative balance sheet by actively managing our debt to equity levels and maintaining available sources of liquidity. Our debt is primarily fixed rate, which reduces the impact of rising interest rates on our operations. Generally, we attempt to match the long-term duration of our leases with long-term fixed rate financing.
As of September 30, 2005 the Company’s portfolio of properties, excluding assets held for sale but including investments through joint ventures and mortgage loans, included 542 properties in 42 states and consisted of:
• 28 hospitals
• 165 skilled nursing facilities
• 138 assisted living and continuing care retirement communities
• 184 medical office buildings
• 27 other healthcare facilities
The information in this supplemental information package should be read in conjunction with the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information filed with the Securities and Exchange Commission (“SEC”). The Reporting Definitions and Supplemental Financial Disclosures are an integral part of the information presented herein.
You can access, free of charge, a copy of the periodic and current reports we file with the SEC on our website at www.hcpi.com. Our periodic and current reports are made available on our website as soon as reasonably practicable after these reports are filed with the SEC.
For more information, contact Talya Nevo-Hacohen, Senior Vice President – Strategic Development and Treasurer at (562) 733-5100.
4
Company Information(1)
Board of Directors
Mary A. Cirillo
Former Chairman and Chief Executive
Officer, OPCENTER
Compensation Committee
Nominating and Corporate
Governance Committee
Robert R. Fanning, Jr.
Chief Operating Officer, Saint Vincent
Catholic Medical Centers of New York
Audit Committee
James F. Flaherty III
Chairman and Chief Executive Officer
Health Care Property Investors, Inc.
David B. Henry
Vice Chairman and Chief Investment
Officer, Kimco Realty Corporation
Audit Committee
Nominating and Corporate
Governance Committee
Michael D. McKee
Vice Chairman and Chief Operating
Officer, The Irvine Company
Chairperson, Compensation Committee
Harold M. Messmer, Jr.
Chairman and Chief Executive Officer
Robert Half International, Inc.
Compensation Committee
Nominating and Corporate
Governance Committee
Peter L. Rhein
Partner
Sarlot & Rhein
Chairperson, Audit Committee
Kenneth B. Roath
Chairman Emeritus
Health Care Property Investors, Inc.
Richard M. Rosenberg
Chairman and Chief Executive Officer
(Retired), Bank of America
Lead Director
Chairperson, Nominating and
Corporate Governance Committee
Joseph P. Sullivan
Former Chairman and Chief Executive
Officer, Protocare, Inc.
Audit Committee
Company Information
Corporate Headquarters
3760 Kilroy Airport Way
Suite 300
Long Beach, CA 90806-2473
(562) 733-5100
Nashville Office
3100 West End Avenue
Suite 800
Nashville, TN 37203
(615) 324-6900
Senior Debt Ratings |
Moody’s | Baa2 |
Standard & Poor’s | BBB+ |
Fitch | BBB+ |
| |
Stock Exchange Listing |
NYSE | (US Dollar) |
| |
Trading Symbol | |
HCP | Common Stock |
HCP_pe | Series E Preferred |
HCP_pf | Series F Preferred |
Senior Management
Charles A. Elcan
Executive Vice President
Medical Office Properties
James F. Flaherty III
Chairman and
Chief Executive Officer
Paul F. Gallagher
Executive Vice President
Portfolio Strategy
Edward J. Henning
Senior Vice President
General Counsel and
Corporate Secretary
F. Scott Kellman
Senior Vice President
Business Development
Thomas M. Klaritch
Senior Vice President
Medical Office Properties
Stephen R. Maulbetsch
Executive Vice President
Acquisitions and Dispositions
Talya Nevo-Hacohen
Senior Vice President
Strategic Development and Treasurer
Mark A. Wallace
Senior Vice President
Chief Financial Officer
5
(1) As of September 30, 2005.
6
Quarterly Highlights (1)
REAL ESTATE TRANSACTIONS
Year-to-date through October 31, 2005, the Company acquired interests in properties and made secured loans aggregating $556 million, including the following:
On October 19, 2005, the Company acquired seven medical office buildings for approximately $52 million, including assumed debt and non-managing member LLC units (“DownREIT units”) valued at $25 million and $11 million, respectively. The medical office buildings include approximately 351,000 rentable square feet and have an initial yield of 8.2%.
On August 31, 2005, the Company acquired five assisted living facilities for $41 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is approximately 8.5% with annual escalators based on the Consumer Price Index (“CPI”) that have a floor of 2.75%. These properties are included in a new master lease that includes 14 other properties currently leased to the operator.
As previously announced, on July 22, 2005, the Company acquired twelve independent and assisted living facilities for approximately $252 million, including assumed debt and DownREIT units valued at approximately $52 million and $19 million, respectively, through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with three ten-year renewal options. The initial annual lease rate is approximately 7.1% with annual CPI-based escalators that have a floor of 3%.
As previously announced, on July 1, 2005, the Company acquired an assisted living facility for approximately $16 million through a sale-leaseback transaction. The facility has an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is approximately 8.75% with annual CPI-based escalators that have a floor of 2.75%.
Year-to-date through October 31, 2005, the Company sold interests in 14 properties for approximately $53 million and recognized a gain of approximately $9 million. During the quarter ended September 30, 2005, the Company sold interests in four properties for approximately $5 million and recognized a gain of approximately $0.3 million.
CAPTIAL MARKETS TRANSACTIONS
As previously announced, on September 16, 2005, the Company issued $200 million of 4 7/8% senior unsecured notes due September 15, 2010. The notes were priced at 99.567% of the principal amount with an effective yield of 4.974%. The Company received net proceeds of $198 million, which were used to repay outstanding indebtedness and for general corporate purposes.
OTHER EVENTS
On October 26, 2005, the Company announced that its Board declared a quarterly cash dividend of $0.42 per share of common stock. The common stock cash dividend will be paid on November 18, 2005, to stockholders of record as of the close of business on November 7, 2005.
On July 28, 2005, in connection with the acquisition of an operator by a third party healthcare services company, the Company sold its securities in the operator and recognized a gain of approximately $2.8 million.
(1) Includes events subsequent to the current quarter-end through the date of the most recent quarterly earning press release issuance.
7
Consolidated Balance Sheets
In thousands
| | September
30, | | December
31, | |
| | 2005 | | 2004 | |
ASSETS | | | | | |
Real estate: | | | | | |
Buildings and improvements | | $ | 3,418,604 | | $ | 3,025,707 | |
Developments in process | | 13,532 | | 25,777 | |
Land | | 347,164 | | 299,461 | |
Less accumulated depreciation and amortization | | 590,284 | | 533,764 | |
Net real estate | | 3,189,016 | | 2,817,181 | |
| | | | | |
Loans receivable, net: | | | | | |
Joint venture partners | | 7,006 | | 6,473 | |
Others | | 142,868 | | 139,919 | |
Investments in and advances to unconsolidated joint ventures | | 49,750 | | 60,506 | |
Accounts receivable, net of allowances | | 13,507 | | 14,834 | |
Cash and cash equivalents | | 38,174 | | 16,962 | |
Restricted cash | | 2,390 | | 4,678 | |
Intangibles, net | | 23,236 | | 18,872 | |
Other assets, net | | 28,997 | | 24,294 | |
Total assets | | $ | 3,494,944 | | $ | 3,103,719 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Bank line of credit | | $ | 170,000 | | $ | 300,100 | |
Senior unsecured notes | | 1,470,386 | | 1,046,690 | |
Mortgage debt | | 213,726 | | 140,501 | |
Accounts payable and accrued liabilities | | 70,527 | | 59,905 | |
Deferred revenue | | 19,018 | | 15,300 | |
Total liabilities | | 1,943,657 | | 1,562,496 | |
| | | | | |
Minority interests | | 140,903 | | 121,781 | |
Stockholders’ equity: | | | | | |
Preferred stock | | 285,173 | | 285,173 | |
Common stock | | 135,858 | | 133,658 | |
Additional paid-in capital | | 1,446,496 | | 1,403,335 | |
Cumulative net income | | 1,479,635 | | 1,348,089 | |
Cumulative dividends | | (1,925,725 | ) | (1,739,859 | ) |
Other equity | | (11,053 | ) | (10,954 | ) |
Total stockholders’ equity | | 1,410,384 | | 1,419,442 | |
| | | | | |
Total liabilities and stockholders’ equity | | $ | 3,494,944 | | $ | 3,103,719 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
9
Consolidated Statements of Income
In thousands, except per share data
| | Three Months Ended September
30, | | Nine Months Ended September
30, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
Revenues and other income: | | | | | | | | | |
Rental revenues | | $ | 117,117 | | $ | 98,110 | | $ | 332,270 | | $ | 275,655 | |
Equity income (loss) from unconsolidated joint ventures | | (531 | ) | (459 | ) | (232 | ) | 1,627 | |
Interest and other income | | 7,806 | | 11,480 | | 19,002 | | 29,984 | |
| | 124,392 | | 109,131 | | 351,040 | | 307,266 | |
Costs and expenses: | | | | | | | | | |
Interest | | 28,262 | | 23,167 | | 76,872 | | 64,125 | |
Depreciation and amortization | | 27,631 | | 22,412 | | 78,607 | | 62,574 | |
Operating | | 13,387 | | 10,866 | | 42,122 | | 30,005 | |
General and administrative | | 7,301 | | 9,446 | | 23,447 | | 24,849 | |
Impairments | | — | | 1,305 | | — | | 1,305 | |
| | 76,581 | | 67,196 | | 221,048 | | 182,858 | |
| | | | | | | | | |
Income before minority interests | | | | | | | | | |
Minority interests | | 47,811 | | 41,935 | | 129,992 | | 124,408 | |
| | (3,415 | ) | (2,946 | ) | (9,593 | ) | (9,099 | ) |
Income from continuing operations | | 44,396 | | 38,989 | | 120,399 | | 115,309 | |
| | | | | | | | | |
Discontinued operations: | | | | | | | | | |
Operating income | | 372 | | 1,537 | | 1,970 | | 6,804 | |
Gain (loss) on sales of real estate, net of impairments | | 273 | | (6,036 | ) | 9,177 | | 796 | |
| | 645 | | (4,499 | ) | 11,147 | | 7,600 | |
| | | | | | | | | |
Net income | | 45,041 | | 34,490 | | 131,546 | | 122,909 | |
Preferred stock dividends | | (5,282 | ) | (5,282 | ) | (15,848 | ) | (15,847 | ) |
Net income applicable to common shares | | $ | 39,759 | | $ | 29,208 | | $ | 115,698 | | $ | 107,062 | |
| | | | | | | | | |
Basic earnings per common share (EPS): | | | | | | | | | |
Continuing operations | | $ | 0.29 | | $ | 0.26 | | $ | 0.78 | | $ | 0.76 | |
Discontinued operations | | — | | (0.04 | ) | 0.08 | | 0.05 | |
Net income applicable to common shares | | $ | 0.29 | | $ | 0.22 | | $ | 0.86 | | $ | 0.81 | |
| | | | | | | | | |
Diluted earnings per common share: | | | | | | | | | |
Continuing operations | | $ | 0.29 | | $ | 0.25 | | $ | 0.78 | | $ | 0.75 | |
Discontinued operations | | — | | (0.03 | ) | 0.08 | | 0.05 | |
Net income applicable to common shares | | $ | 0.29 | | $ | 0.22 | | $ | 0.86 | | $ | 0.80 | |
| | | | | | | | | |
Weighted average shares used to calculate EPS: | | | | | | | | | |
Basic | | 135,225 | | 132,182 | | 134,385 | | 131,525 | |
| | | | | | | | | |
Diluted | | 136,135 | | 133,584 | | 135,291 | | 133,047 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
10
Consolidated Statements of Cash Flows
In thousands
| | Nine Months Ended September
30, | |
| | 2005 | | 2004 | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 131,546 | | $ | 122,909 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization of real estate and in-place lease intangibles: | | | | | |
Continuing operations | | 78,607 | | 62,574 | |
Discontinued operations | | 500 | | 3,046 | |
Amortization of above and below market lease intangibles | | (1,708 | ) | — | |
Stock-based compensation | | 4,779 | | 3,579 | |
Debt issuance costs amortization | | 2,344 | | 2,261 | |
Impairments | | — | | 16,617 | |
Provision (recovery) for loan losses | | (56 | ) | 70 | |
Straight-line rents | | (4,651 | ) | (1,152 | ) |
Equity (income) loss from unconsolidated joint ventures | | 232 | | (1,627 | ) |
Distributions of earnings from unconsolidated joint ventures | | — | | 1,627 | |
Minority interests | | 9,593 | | 9,099 | |
Net gain on sales of real estate | | (9,177 | ) | (17,850 | ) |
Changes in: | | | | | |
Accounts receivable and other assets | | (78 | ) | (3,379 | ) |
Accounts payable, accrued liabilities and deferred revenue | | 11,968 | | 2,967 | |
Net cash provided by operating activities | | 223,899 | | 200,741 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Acquisition and development of real estate | | (376,713 | ) | (219,012 | ) |
Lease commissions and tenant and capital improvements | | (4,474 | ) | (2,951 | ) |
Net proceeds from sales of real estate | | 46,328 | | 120,632 | |
Distributions from unconsolidated joint ventures and other | | 6,712 | | 93,994 | |
Principal repayments on loans receivable and other | | 12,589 | | 28,731 | |
Decrease (increase) in restricted cash | | 2,288 | | (5 | ) |
Investment in loans receivable | | (9,787 | ) | (832 | ) |
Net cash (used in) provided by investing activities | | (323,057 | ) | 20,557 | |
| | | | | |
Cash flows from financing activities: | | | | | |
Repayments under bank line of credit | | (130,100 | ) | (55,200 | ) |
Repayment of mortgage debt | | (15,295 | ) | (12,788 | ) |
Repayment of senior unsecured notes | | (22,500 | ) | (87,000 | ) |
Issuance of senior unsecured notes | | 445,471 | | 87,000 | |
Net proceeds from the issuance of common stock and exercise of options | | 39,788 | | 32,611 | |
Dividends paid on common and preferred stock | | (185,866 | ) | (182,373 | ) |
Distributions to minority interests | | (11,128 | ) | (9,947 | ) |
Net cash provided by (used in) financing activities | | 120,370 | | (227,697 | ) |
Net increase (decrease) in cash and cash equivalents | | 21,212 | | (6,399 | ) |
Cash and cash equivalents, beginning of period | | 16,962 | | 16,829 | |
Cash and cash equivalents, end of period | | $ | 38,174 | | $ | 10,430 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
11
Consolidated Funds From Operations
In thousands, except per share data
| | Three Months Ended September
30, | | Nine Months Ended September
30, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | | | | | | | | |
Net income applicable to common shares | | $ | 39,759 | | $ | 29,208 | | $ | 115,698 | | $ | 107,062 | |
Real estate depreciation and amortization: | | | | | | | | | |
Continuing operations | | 27,631 | | 22,412 | | 78,607 | | 62,574 | |
Discontinued operations | | 98 | | 732 | | 500 | | 3,046 | |
Gain on sales of real estate | | (273 | ) | (5,839 | ) | (9,177 | ) | (16,108 | ) |
Equity (income) loss from unconsolidated joint ventures | | 531 | | 459 | | 232 | | (1,627 | ) |
FFO from unconsolidated joint ventures | | 1,339 | | 2,220 | | 7,069 | | 6,711 | |
Minority interests | | 3,415 | | 2,946 | | 9,593 | | 9,099 | |
Minority interests in FFO | | (3,733 | ) | (3,246 | ) | (10,547 | ) | (9,890 | ) |
| | | | | | | | | |
FFO applicable to common shares | | $ | 68,767 | | $ | 48,892 | | $ | 191,975 | | $ | 160,867 | |
| | | | | | | | | |
Distributions on convertible units | | $ | 2,407 | | $ | — | | $ | 6,640 | | $ | 2,195 | |
| | | | | | | | | |
Diluted FFO applicable to common shares | | $ | 71,174 | | $ | 48,892 | | $ | 198,615 | | $ | 163,062 | |
| | | | | | | | | |
Basic FFO per common share | | $ | 0.51 | | $ | 0.37 | | $ | 1.43 | | $ | 1.22 | |
| | | | | | | | | |
Diluted FFO per common share | | $ | 0.50 | | $ | 0.37 | | $ | 1.41 | | $ | 1.21 | |
| | | | | | | | | |
Weighted average shares used to calculate diluted FFO per common share | | 141,866 | | 133,584 | | 140,556 | | 134,799 | |
| | | | | | | | | |
Dividends declared per common share | | $ | 0.4200 | | $ | 0.4175 | | $ | 1.2600 | | $ | 1.2525 | |
| | | | | | | | | |
FFO payout ratio per common share | | 84.0 | % | 112.8 | % | 89.4 | % | 103.5 | % |
| | | | | | | | | |
Selected supplemental cash flow information
Consolidated: | | | | | | | | | |
Impairments | | $ | — | | $ | 13,180 | | $ | — | | $ | 16,617 | |
Capitalized interest | | 110 | | — | | 482 | | 881 | |
Stock-based compensation | | 1,581 | | 1,241 | | 4,779 | | 3,579 | |
Debt issuance costs amortization | | 771 | | 558 | | 2,344 | | 2,261 | |
Amortization of above and below market lease intangibles | | 281 | | — | | 1,708 | | — | |
Straight-line rents | | 1,909 | | 383 | | 4,651 | | 1,152 | |
Change in SAB 101 deferred revenue | | 1,238 | | 277 | | (766 | ) | (1,734 | ) |
Lease commissions and tenant and capital improvements | | 3,010 | | 1,633 | | 4,474 | | 2,951 | |
| | | | | | | | | |
HCP’s share of HCP MOP: | | | | | | | | | |
Debt issuance costs amortization | | $ | 326 | | $ | 79 | | $ | 528 | | $ | 210 | |
Amortization of above and below market lease intangibles | | 329 | | 120 | | 1,021 | | 767 | |
Straight-line rents | | 70 | | 108 | | 208 | | 298 | |
Lease commissions and tenant and capital improvements | | 875 | | 695 | | 2,207 | | 1,570 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
12
Net Cash Provided by Operating Activities to EBITDA Reconciliation
In thousands
| | Three Months Ended September
30, | | Nine Months Ended September
30, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | | | | | | | | |
Net cash provided by operating activities | | $ | 84,041 | | $ | 77,022 | | $ | 223,899 | | $ | 200,741 | |
Changes in: | | | | | | | | | |
Accounts receivable and other assets | | 959 | | (3,575 | ) | 78 | | 3,379 | |
Accounts payable, accrued liabilities and deferred revenue | | (8,395 | ) | (5,459 | ) | (11,968 | ) | (2,967 | ) |
Net gain on sales of real estate | | 273 | | 7,581 | | 9,177 | | 17,850 | |
Minority interests | | (3,415 | ) | (2,946 | ) | (9,593 | ) | (9,099 | ) |
Distributions of earnings from unconsolidated joint ventures | | — | | — | | — | | (1,627 | ) |
Equity income (loss) from unconsolidated joint ventures | | (531 | ) | (459 | ) | (232 | ) | 1,627 | |
Straight-line rents | | 1,909 | | 383 | | 4,651 | | 1,152 | |
(Provision) recovery for loan losses | | — | | 66 | | 56 | | (70 | ) |
Impairments | | — | | (13,180 | ) | — | | (16,617 | ) |
Debt issuance costs amortization | | (771 | ) | (558 | ) | (2,344 | ) | (2,261 | ) |
Stock-based compensation | | (1,581 | ) | (1,241 | ) | (4,779 | ) | (3,579 | ) |
Amortization of above and below market lease intangibles | | 281 | | — | | 1,708 | | — | |
Depreciation and amortization of real estate and in-place lease intangibles: | | | | | | | | | |
Continuing operations | | (27,631 | ) | (22,412 | ) | (78,607 | ) | (62,574 | ) |
Discontinued operations | | (98 | ) | (732 | ) | (500 | ) | (3,046 | ) |
| | | | | | | | | |
Net income | | 45,041 | | 34,490 | | 131,546 | | 122,909 | |
| | | | | | | | | |
Interest expense: | | | | | | | | | |
Continuing operations | | 28,262 | | 23,167 | | 76,872 | | 64,125 | |
Discontinued operations | | — | | 23 | | — | | 374 | |
Income taxes | | (364 | ) | 364 | | (214 | ) | 1,357 | |
Depreciation and amortization of real estate and in-place lease intangibles: | | | | | | | | | |
Continuing operations | | 27,631 | | 22,412 | | 78,607 | | 62,574 | |
Discontinued operations | | 98 | | 732 | | 500 | | 3,046 | |
Equity (income) loss from unconsolidated joint ventures | | 531 | | 459 | | 232 | | (1,627 | ) |
HCP’s share of EBITDA from HCP MOP | | 3,257 | | 3,580 | | 10,782 | | 11,218 | |
| | | | | | | | | |
EBITDA | | $ | 104,456 | | $ | 85,227 | | $ | 298,325 | | $ | 263,976 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
13
Adjusted Fixed Charge Coverage
In thousands
| | Three Months Ended September
30, | | Nine Months Ended September
30, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | | | | | | | | |
Net income | | $ | 45,041 | | $ | 34,490 | | $ | 131,546 | | $ | 122,909 | |
Interest expense: | | | | | | | | | |
Continuing operations | | 28,262 | | 23,167 | | 76,872 | | 64,125 | |
Discontinued operations | | — | | 23 | | — | | 374 | |
Income taxes | | (364 | ) | 364 | | (214 | ) | 1,357 | |
Depreciation and amortization: | | | | | | | | | |
Continuing operations | | 27,631 | | 22,412 | | 78,607 | | 62,574 | |
Discontinued operations | | 98 | | 732 | | 500 | | 3,046 | |
Equity (income) loss from unconsolidated joint ventures | | 531 | | 459 | | 232 | | (1,627 | ) |
HCP’s share of EBITDA from HCP MOP | | 3,257 | | 3,580 | | 10,782 | | 11,218 | |
| | | | | | | | | |
EBITDA | | $ | 104,456 | | $ | 85,227 | | $ | 298,325 | | $ | 263,976 | |
| | | | | | | | | |
Interest expense: | | | | | | | | | |
Continuing operations | | $ | 28,262 | | $ | 23,167 | | $ | 76,872 | | $ | 64,125 | |
Discontinued operations | | — | | 23 | | — | | 374 | |
HCP’s share of interest expense from HCP MOP | | 1,783 | | 1,528 | | 5,013 | | 4,217 | |
Capitalized interest | | 110 | | — | | 482 | | 881 | |
Preferred stock dividends | | 5,282 | | 5,282 | | 15,848 | | 15,847 | |
| | | | | | | | | |
Adjusted fixed charges | | $ | 35,437 | | $ | 30,000 | | $ | 98,215 | | $ | 85,444 | |
| | | | | | | | | |
Adjusted fixed charge coverage | | 2.9 | x | 2.8 | x | 3.0 | x | 3.1 | x |
See Reporting Definitions and Supplemental Financial Measure Disclosures
14
Consolidated Indebtedness
In thousands
| | Debt Maturities and Scheduled Principal Repayments | |
| | September 30, 2005 | |
| | | | | | Senior | | | |
| | | | Bank Line | | Unsecured | | Mortgage | |
| | Total | | of Credit | | Notes | | Debt | |
| | | | | | | | | |
2005 | | $ | 9,980 | | $ | — | | $ | 8,500 | | $ | 1,480 | |
2006 | | 140,053 | | — | | 135,000 | | 5,053 | |
2007 | | 315,454 | | 170,000 | | 140,000 | | 5,454 | |
2008 | | 8,651 | | — | | — | | 8,651 | |
2009 | | 6,178 | | — | | — | | 6,178 | |
2010 | | 272,172 | | — | | 206,421 | | 65,751 | |
2011 | | 15,554 | | — | | — | | 15,554 | |
2012 | | 262,662 | | — | | 250,000 | | 12,662 | |
2013 | | 17,243 | | — | | — | | 17,243 | |
2014 | | 92,988 | | — | | 87,000 | | 5,988 | |
Thereafter | | 716,248 | | — | | 650,000 | | 66,248 | |
| | | | | | | | | |
Subtotal | | 1,857,183 | | 170,000 | | 1,476,921 | | 210,262 | |
| | | | | | | | | |
Discounts and premiums, net | | (3,071 | ) | — | | (6,535 | ) | 3,464 | |
| | | | | | | | | |
Consolidated debt(1) | | $ | 1,854,112 | | $ | 170,000 | | $ | 1,470,386 | | $ | 213,726 | |
| | | | | | | | | |
Weighted average interest rate | | 6.10 | % | 4.50 | % | 6.22 | % | 6.53 | % |
| | | | | | | | | |
Weighted average maturity in years | | 6.96 | | 2.08 | | 7.11 | | 9.80 | |
| | September
30, | | December
31, | |
| | 2005 | | 2004 | |
| | | | | |
Fixed rate debt: | | | | | |
Senior unsecured notes | | $ | 1,445,386 | | $ | 1,021,690 | |
Mortgage debt(2) | | 202,061 | | 128,591 | |
| | 1,647,447 | | 1,150,281 | |
| | | | | |
Variable rate debt: | | | | | |
Bank line of credit | | 170,000 | | 300,100 | |
Senior unsecured notes | | 25,000 | | 25,000 | |
Mortgage debt | | 11,665 | | 11,910 | |
| | 206,665 | | 337,010 | |
| | | | | |
Consolidated debt | | $ | 1,854,112 | | $ | 1,487,291 | |
| | | | | |
Percent of consolidated debt | | | | | |
Fixed rate | | 88.9 | % | 77.3 | % |
Variable rate | | 11.1 | % | 22.7 | % |
| | 100.0 | % | 100.0 | % |
| | | | | |
Unsecured | | 88.5 | % | 90.6 | % |
Secured | | 11.5 | % | 9.4 | % |
| | 100.0 | % | 100.0 | % |
See Reporting Definitions and Supplemental Financial Measure Disclosures
15
(1) Consolidated debt reflects book value.
(2) Includes $45.6 million of mortgage notes payable that have been hedged through interest rate swap contracts.
See Reporting Definitions and Supplemental Financial Measure Disclosures
16
Consolidated Capitalization
In thousands, except per share data
Market Equity
| | September 30, 2005 | | December 31, 2004 | |
| | Dividend | | Shares/ | | | | | | Shares/ | | | | | |
Security | | Rate | | Units | | Price | | Value | | Units | | Price | | Value | |
Common stock and convertible units: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Common stock | | N/A | | 135,858 | | $ | 26.99 | | $ | 3,666,807 | | 133,658 | | $ | 27.69 | | $ | 3,700,990 | |
Convertible partnership units (2 for 1) (1) | | N/A | | 2,516 | | 53.98 | | 135,814 | | 2,526 | | 55.38 | | 139,890 | |
Convertible partnership units (1 for 1) (2) | | N/A | | 699 | | 26.99 | | 18,866 | | — | | — | | — | |
| | | | | | | | 3,821,487 | | | | | | 3,840,880 | |
Preferred stock: | | | | | | | | | | | | | | | |
Series E | | 7.25 | % | 4,000 | | 25.61 | | 102,440 | | 4,000 | | 26.25 | | 105,000 | |
Series F | | 7.10 | % | 7,820 | | 25.35 | | 198,237 | | 7,820 | | 25.26 | | 197,533 | |
| | | | | | | | 300,677 | | | | | | 302,533 | |
| | | | | | | | | | | | | | | |
Total market equity | | | | | | | | $ | 4,122,164 | | | | | | $ | 4,143,413 | |
| | | | | | | | | | | | | | | | | | | |
Capitalization Ratios
| | September
30, | | December
31, | |
| | 2005 | | 2004 | |
Consolidated debt (3): | | | | | |
Bank line of credit | | $ | 170,000 | | $ | 300,100 | |
Senior unsecured notes | | 1,470,386 | | 1,046,690 | |
Mortgage debt | | 213,726 | | 140,501 | |
| | $ | 1,854,112 | | $ | 1,487,291 | |
| | | | | |
Undepreciated book value: | | | | | |
Buildings and improvements | | $ | 3,418,604 | | $ | 3,025,707 | |
Developments in process | | 13,532 | | 25,777 | |
Land | | 347,164 | | 299,461 | |
Intangibles | | 27,390 | | 19,681 | |
| | $ | 3,806,690 | | $ | 3,370,626 | |
| | | | | |
Consolidated debt / Undepreciated book value | | 48.7 | % | 44.1 | % |
| | | | | |
Total market capitalization: | | | | | |
Consolidated debt | | $ | 1,854,112 | | $ | 1,487,291 | |
Total market equity | | 4,122,164 | | 4,143,413 | |
| | $ | 5,976,276 | | $ | 5,630,704 | |
| | | | | |
Consolidated debt / Total market capitalization | | 31.0 | % | 26.4 | % |
| | | | | |
Total book capitalization: | | | | | |
Consolidated debt | | $ | 1,854,112 | | $ | 1,487,291 | |
Total stockholders’ equity | | 1,410,384 | | 1,419,442 | |
| | $ | 3,264,496 | | $ | 2,906,733 | |
| | | | | |
Consolidated debt / Total book capitalization | | 56.8 | % | 51.2 | % |
(1) Each convertible partnership unit is exchangeable for an amount of cash approximating the then-current market value of two shares of the Company’s common stock at time of conversion or, at the Company’s option, two shares of the Company’s common stock.
See Reporting Definitions and Supplemental Financial Measure Disclosures
17
(2) Each convertible partnership unit is exchangeable for an amount of cash approximating the then-current market value of one share of the Company’s common stock at time of conversion or, at the Company’s option, one share of the Company’s common stock.
(3) Consolidated debt reflects book value.
See Reporting Definitions and Supplemental Financial Measure Disclosures
18
Consolidated Portfolio Overview
As of and for the nine months ended September 30, 2005
Dollars and square feet in thousands
Owned Property and Secured Loan Portfolios
Overview by property type
| | Property | | | | | | Square | | Facility Occupancy % | | Number | |
Sector | | Count | | Beds/Units | | Feet | | 9/30/05 | | 6/30/05 | | of States | |
Hospital | | 28 | | 3,383 | | Beds | | 3,511 | | 58 | | 63 | | 16 | |
Skilled nursing | | 165 | | 20,021 | | Beds | | 6,488 | | 80 | | 80 | | 32 | |
ALF & CCRC | | 134 | | 13,576 | | Units | | 13,067 | | 88 | | 86 | | 33 | |
MOB | | 98 | | N/A | | | | 5,919 | | 94 | | 94 | | 19 | |
Other | | 27 | | N/A | | | | 1,735 | | 100 | | 100 | | 9 | |
Total | | 452 | | | | | | 30,720 | | | | | | | |
Owned Property and Secured Loan Portfolios
Operator concentration
| | Property | | Investment | | Net
Operating | | Interest | | Total | |
Operator | | Count | | Amount | | % | | Income | | Income | | Amount | | % | |
Tenet Healthcare Corporation | | 8 | | $ | 423,497 | | 11 | | $ | 40,297 | | $ | — | | $ | 40,297 | | 13 | |
American Retirement Corporation | | 15 | | 399,852 | | 10 | | 31,129 | | — | | 31,129 | | 10 | |
Áegis Senior Living | | 12 | | 252,245 | | 6 | | 4,259 | | — | | 4,259 | | 1 | |
Emeritus Corporation | | 36 | | 245,797 | | 6 | | 20,047 | | 257 | | 20,304 | | 7 | |
HealthSouth Corporation | | 9 | | 108,301 | | 3 | | 11,090 | | — | | 11,090 | | 4 | |
Summerville Healthcare Group | | 20 | | 181,214 | | 5 | | 7,844 | | 962 | | 8,806 | | 3 | |
Trilogy Health Services | | 14 | | 82,644 | | 2 | | 7,412 | | — | | 7,412 | | 2 | |
Kindred Healthcare, Inc. | | 20 | | 79,554 | | 2 | | 12,507 | | — | | 12,507 | | 4 | |
Pioneer Valley Hospital Inc. | | 2 | | 70,165 | | 2 | | 5,361 | | — | | 5,361 | | 2 | |
Beverly Enterprises, Inc. | | 19 | | 67,301 | | 2 | | 3,520 | | 2,654 | | 6,174 | | 2 | |
HCA Inc. | | 7 | | 66,992 | | 2 | | 5,112 | | — | | 5,112 | | 2 | |
Other Public Companies | | 24 | | 231,472 | | 6 | | 16,513 | | 4,545 | | 21,058 | | 7 | |
Other Operators | | 266 | | 1,718,406 | | 43 | | 125,057 | | 2,788 | | 127,845 | | 43 | |
Total | | 452 | | $ | 3,927,440 | | 100 | | $ | 290,148 | | $ | 11,206 | | $ | 301,354 | | 100 | |
Reconciliation of Net Income to NOI
Net income | | | | | | $ | 131,546 | | | | | | | |
Equity loss from unconsolidated joint ventures | | | | | | 232 | | | | | | | |
Interest and other income | | | | | | (19,002 | ) | | | | | | |
Interest expense | | | | | | 76,872 | | | | | | | |
Depreciation and amortization | | | | | | 78,607 | | | | | | | |
General and administrative | | | | | | 23,447 | | | | | | | |
Minority interests | | | | | | 9,593 | | | | | | | |
Total discontinued operations | | | | | | (11,147 | ) | | | | | | |
Net operating income (NOI) | | | | | | $ | 290,148 | | | | | | | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
19
Consolidated Portfolio Overview (continued)
As of and for the nine months ended September 30, 2005
Dollars and square feet in thousands
Owned Property Portfolio
Overview by type
| | | | | | | | | | | | | | | | Cash | | | | Less | | | |
| | Property | | | | | | | | Square | | Facility Occupancy % | | Flow | | Rental | | Operating | | | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 9/30/05 | | 6/30/05 | | Coverage | | Revenues | | Expenses | | NOI | |
Hospital | | 26 | | $ | 713,391 | | 3,269 | | Beds | | 3,272 | | 58 | | 63 | | 2.2 x | | $ | 67,574 | | $ | — | | $ | 67,574 | |
Skilled nursing | | 152 | | 650,267 | | 18,171 | | Beds | | 5,948 | | 80 | | 80 | | 1.3 x | | 65,572 | | — | | 65,572 | |
ALF & CCRC | | 125 | | 1,270,948 | | 13,039 | | Units | | 12,660 | | 89 | | 86 | | 1.2 x | | 82,148 | | 6,142 | | 76,006 | |
MOB | | 98 | | 896,949 | | N/A | | | | 5,919 | | 94 | | 94 | | | | 92,927 | | 32,353 | | 60,574 | |
Other | | 27 | | 257,483 | | N/A | | | | 1,735 | | 100 | | 100 | | | | 24,049 | | 3,627 | | 20,422 | |
Total | | 428 | | $ | 3,789,038 | | | | | | 29,534 | | | | | | | | $ | 332,270 | | $ | 42,122 | | $ | 290,148 | |
Owned Property Portfolio
Overview by state
| | | | | | | | | | MOB | | Other | |
| | Total | | Hospital | | Skilled Nursing | | ALF & CCRC | | | | Square | | | | Square | |
State | | No. | | No. | | Beds | | No. | | Beds | | No. | | Units | | No. | | Feet | | No. | | Feet | |
TX | | 50 | | 4 | | 326 | | 9 | | 1,079 | | 25 | | 2,634 | | 12 | | 974 | | — | | — | |
IN | | 48 | | — | | — | | 32 | | 3,764 | | 3 | | 233 | | 13 | | 689 | | — | | — | |
CA | | 42 | | 3 | | 745 | | 9 | | 918 | | 16 | | 1,330 | | 11 | | 608 | | 3 | | 421 | |
FL | | 39 | | 2 | | 312 | | 8 | | 930 | | 25 | | 3,229 | | 4 | | 139 | | — | | — | |
UT | | 32 | | 1 | | 139 | | 1 | | 120 | | — | | — | | 21 | | 897 | | 9 | | 549 | |
TN | | 21 | | — | | — | | 14 | | 2,161 | | 1 | | 60 | | 4 | | 418 | | 2 | | 101 | |
AZ | | 16 | | 2 | | 94 | | 3 | | 286 | | 3 | | 550 | | 7 | | 301 | | 1 | | 29 | |
OH | | 16 | | — | | — | | 12 | | 1,543 | | 3 | | 374 | | 1 | | 37 | | — | | — | |
WA | | 14 | | — | | — | | 1 | | 168 | | 7 | | 525 | | 6 | | 586 | | — | | — | |
Other | | 150 | | 14 | | 1,653 | | 63 | | 7,202 | | 42 | | 4,104 | | 19 | | 1,270 | | 12 | | 635 | |
Total | | 428 | | 26 | | 3,269 | | 152 | | 18,171 | | 125 | | 13,039 | | 98 | | 5,919 | | 27 | | 1,735 | |
Secured Loan Portfolio
Overview by type
| | | | | | | | | | | | | | | | Debt | | | | | | | |
| | Property | | | | | | | | Square | | Facility Occupancy % | | Service | | Interest | | | | | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 9/30/05 | | 6/30/05 | | Coverage | | Income | | | | | |
Hospital | | 2 | | $ | 56,948 | | 114 | | Beds | | 239 | | 70 | | 74 | | 4.0 | x | $ | 4,544 | | | | | |
Skilled nursing | | 13 | | 51,438 | | 1,850 | | Beds | | 540 | | 78 | | 77 | | 2.1 | x | 4,394 | | | | | |
ALF & CCRC | | 9 | | 30,016 | | 537 | | Units | | 407 | | 81 | | 81 | | 1.8 | x | 2,268 | | | | | |
Total | | 24 | | $ | 138,402 | | | | | | 1,186 | | | | | | | | $ | 11,206 | | | | | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
20
Same Property Performance
Dollars and square feet in thousands
| | Total | | Hospital | | Skilled
Nursing | | ALF &
CCRC | | MOB | | Other | | | HCP MOP (1) | |
Owned Property Portfolio | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Property count | | 428 | | 26 | | 152 | | 125 | | 98 | | 27 | | | 86 | |
Investment | | $ | 3,789,038 | | $ | 713,391 | | $ | 650,267 | | $ | 1,270,948 | | $ | 896,949 | | $ | 257,483 | | | $ | 467,175 | |
| | | | | | | | | | | | | | | | |
Same Property Portfolio | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Property count | | 349 | | 26 | | 133 | | 88 | | 78 | | 24 | | | 83 | |
Investment | | $ | 2,733,728 | | $ | 713,391 | | $ | 543,712 | | $ | 672,432 | | $ | 587,782 | | $ | 216,411 | | | $ | 439,706 | |
| | | | | | | | | | | | | | | | |
Percent of Owned Property Portfolio (by investment) | | 72 | % | 100 | % | 84 | % | 53 | % | 66 | % | 84 | % | | 94 | % |
| | | | | | | | | | | | | | | | |
Square feet | | 22,848 | | 3,272 | | 5,141 | | 8,725 | | 4,273 | | 1,437 | | | 4,767 | |
| | | | | | | | | | | | | | | | |
Facility occupancy at September 30, 2005 | | | | 58 | % | 79 | % | 88 | % | 95 | % | 100 | % | | 86 | % |
| | | | | | | | | | | | | | | | |
Facility occupancy at September 30, 2004 | | | | 59 | % | 82 | % | 86 | % | 95 | % | 100 | % | | 88 | % |
| | | | | | | | | | | | | | | | |
NOI for the nine months ended September 30, 2005 | | $ | 239,596 | | $ | 67,574 | | $ | 56,744 | | $ | 53,014 | | $ | 44,952 | | $ | 17,312 | | | $ | 33,874 | |
| | | | | | | | | | | | | | | | |
NOI for the nine months ended September 30, 2004 | | $ | 232,453 | | $ | 65,435 | | $ | 55,228 | | $ | 50,917 | | $ | 44,039 | | $ | 16,834 | | | $ | 35,398 | |
| | | | | | | | | | | | | | | | |
Same property change in NOI | | 3.1 | % | 3.3 | % | 2.7 | % | 4.1 | % | 2.1 | % | 2.8 | % | | -4.3 | % |
| | | | | | | | | | | | | | | | |
NOI for the nine months ended September 30, 2005 | | $ | 239,596 | | $ | 67,574 | | $ | 56,744 | | $ | 53,014 | | $ | 44,952 | | $ | 17,312 | | | $ | 33,874 | |
Straight-line rents (2) | | (2,797 | ) | (670 | ) | (129 | ) | (1,869 | ) | (129 | ) | — | | | (527 | ) |
Amortization of other lease intangibles (3) | | (1,432 | ) | — | | — | | — | | (1,432 | ) | — | | | (2,495 | ) |
NOI, as adjusted, for the nine months ended September 30, 2005 | | $ | 235,367 | | $ | 66,904 | | $ | 56,615 | | $ | 51,145 | | $ | 43,391 | | $ | 17,312 | | | $ | 30,852 | |
| | | | | | | | | | | | | | | | |
NOI for the nine months ended September 30, 2004 | | $ | 232,453 | | $ | 65,435 | | $ | 55,228 | | $ | 50,917 | | $ | 44,039 | | $ | 16,834 | | | $ | 35,398 | |
Straight-line rents | | (1,267 | ) | (769 | ) | (338 | ) | — | | (160 | ) | — | | | (819 | ) |
NOI, as adjusted, for the nine months ended | | | | | | | | | | | | | | | (2,285 | ) |
September 30, 2004 | | $ | 231,186 | | $ | 64,666 | | $ | 54,890 | | $ | 50,917 | | $ | 43,879 | | $ | 16,834 | | | $ | 32,294 | |
| | | | | | | | | | | | | | | | |
Same property change in NOI, as adjusted | | 1.8 | % | 3.5 | % | 3.1 | % | 0.4 | % | -1.1 | % | 2.8 | % | | -4.5 | % |
(1) | | Represents 100% of HCP MOP. |
(2) | | Straight-line rents for ALF & CCRCs include the impact of straight-line rent recognized for ARC beginning in the fourth quarter of 2004. |
See Reporting Definitions and Supplemental Financial Measure Disclosures
21
(3) | | Amortization of other lease intangibles includes the impact of HCP’s purchase price allocation related to its 2003 acquisition of certain properties acquired from MedCap Properties, LLC. |
See Reporting Definitions and Supplemental Financial Measure Disclosures
22
Lease Expirations
In thousands
| | | | Expiration Year (1) | |
Sector | | Totals | | 2005 | | 2006 | | 2007 | | 2008 | | 2009 | |
| | | | | | | | | | | | | |
Owned Property Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Hospital: | | | | | | | | | | | | | |
Leases | | 11 | | — | | — | | 3 | | 1 | | 7 | |
Annualized expiring rents | | $ | 47,148 | | $ | — | | $ | — | | $ | 3,359 | | $ | 1,945 | | $ | 41,844 | |
| | | | | | | | | | | | | |
Skilled nursing: | | | | | | | | | | | | | |
Leases | | 50 | | — | | 8 | | 3 | | 26 | | 13 | |
Annualized expiring rents | | $ | 25,831 | | $ | — | | $ | 3,580 | | $ | 962 | | $ | 13,045 | | $ | 8,244 | |
| | | | | | | | | | | | | |
ALF & CCRC: | | | | | | | | | | | | | |
Leases | | 5 | | — | | 4 | | — | | 1 | | — | |
Annualized expiring rents | | $ | 1,403 | | $ | — | | $ | 1,338 | | $ | — | | $ | 65 | | $ | — | |
| | | | | | | | | | | | | |
MOB: | | | | | | | | | | | | | |
Leases | | 766 | | 120 | | 163 | | 149 | | 186 | | 148 | |
Annualized expiring rents | | $ | 58,042 | | $ | 6,569 | | $ | 8,658 | | $ | 10,822 | | $ | 17,776 | | $ | 14,217 | |
| | | | | | | | | | | | | |
Other: | | | | | | | | | | | | | |
Leases | | 4 | | — | | — | | 1 | | 1 | | 2 | |
Annualized expiring rents | | $ | 8,355 | | $ | — | | $ | — | | $ | 3,672 | | $ | 3,224 | | $ | 1,459 | |
| | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | |
Leases | | 836 | | 120 | | 175 | | 156 | | 215 | | 170 | |
Annualized expiring rents | | $ | 140,779 | | $ | 6,569 | | $ | 13,576 | | $ | 18,815 | | $ | 36,055 | | $ | 65,764 | |
| | | | | | | | | | | | | |
HCP MOP (2) | | | | | | | | | | | | | |
Leases | | 1,004 | | 161 | | 271 | | 245 | | 224 | | 103 | |
Annualized expiring rents | | $ | 58,408 | | $ | 9,366 | | $ | 17,060 | | $ | 13,076 | | $ | 12,950 | | $ | 5,956 | |
(1) Lease expirations through 2009.
(2) Represents 100% of HCP MOP.
See Reporting Definitions and Supplemental Financial Measure Disclosures
23
HCP MOP
Unconsolidated Joint Venture
HCP MOP Balance Sheets
In thousands
| | September
30, | | December 31, | |
| | 2005 | | 2004 | |
ASSETS | | | | | |
Real estate: | | | | | |
Buildings and improvements | | $ | 409,638 | | $ | 402,078 | |
Developments in process | | 9,424 | | 586 | |
Land | | 52,610 | | 53,077 | |
Less accumulated depreciation and amortization | | 23,171 | | 13,950 | |
Net real estate | | 448,501 | | 441,791 | |
| | | | | |
Accounts receivable, net of allowances | | 3,300 | | 2,610 | |
Cash and cash equivalents | | 12,108 | | 18,026 | |
Intangible lease assets, net | | 13,930 | | 23,592 | |
Other assets, net | | 10,545 | | 8,177 | |
Total assets | | $ | 488,384 | | $ | 494,196 | |
| | | | | |
LIABILITIES AND MEMBERS’ CAPITAL | | | | | |
Mortgage debt | | $ | 320,891 | | $ | 322,559 | |
Accounts payable and accrued liabilities | | 12,560 | | 10,553 | |
Intangible lease liabilities, net | | 6,944 | | 9,973 | |
Deferred revenue | | 1,611 | | 1,694 | |
Total liabilities | | 342,006 | | 344,779 | |
| | | | | |
GE’s capital | | 98,073 | | 100,109 | |
HCP’s capital | | 48,305 | | 49,308 | |
| | | | | |
Total liabilities and members’ capital | | $ | 488,384 | | $ | 494,196 | |
See Reporting Definitions and Supplemental Financial Measures Disclosures
25
HCP MOP Statements of Operations and EBITDA
In thousands
| | Three Months Ended September
30, | | Nine Months Ended September
30, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
Revenues and other income: | | | | | | | | | |
Rental revenues | | $ | 20,896 | | $ | 19,471 | | $ | 62,658 | | $ | 59,334 | |
Interest and other income | | 77 | | 213 | | 731 | | 715 | |
| | 20,973 | | 19,684 | | 63,389 | | 60,049 | |
Costs and expenses: | | | | | | | | | |
Interest | | 5,150 | | 4,352 | | 14,352 | | 12,013 | |
Depreciation and amortization | | 5,653 | | 7,471 | | 18,013 | | 16,520 | |
Operating | | 9,844 | | 8,094 | | 27,172 | | 23,936 | |
General and administrative | | 2,119 | | 1,882 | | 6,327 | | 5,733 | |
| | 22,766 | | 21,799 | | 65,864 | | 58,202 | |
| | | | | | | | | |
Income (loss) from continuing operations | | (1,793 | ) | (2,115 | ) | (2,475 | ) | 1,847 | |
| | | | | | | | | |
Discontinued operations: | | | | | | | | | |
Operating income (loss) | | 83 | | (170 | ) | 209 | | 423 | |
Gain (loss) on sales of real estate, net of impairments | | 170 | | 319 | | 611 | | 1,191 | |
| | 253 | | 149 | | 820 | | 1,614 | |
| | | | | | | | | |
Net income (loss) | | $ | (1,540 | ) | $ | (1,966 | ) | $ | (1,655 | ) | $ | 3,461 | |
| | | | | | | | | |
HCP’s equity income (loss) | | $ | (511 | ) | $ | (608 | ) | $ | (549 | ) | $ | 1,145 | |
| | | | | | | | | |
Fees earned by HCP | | $ | 775 | | $ | 772 | | $ | 2,326 | | $ | 2,323 | |
| | | | | | | | | |
Distributions received by HCP | | $ | 1,560 | | $ | 3,217 | | $ | 4,942 | | $ | 96,723 | |
| | | | | | | | | |
Net income (loss) | | $ | (1,540 | ) | $ | (1,966 | ) | $ | (1,655 | ) | $ | 3,461 | |
Interest expense: | | | | | | | | | |
Continuing operations | | 5,150 | | 4,352 | | 14,352 | | 12,013 | |
Discontinued operations | | 252 | | 277 | | 839 | | 765 | |
Depreciation and amortization: | | | | | | | | | |
Continuing operations | | 5,653 | | 7,471 | | 18,013 | | 16,520 | |
Discontinued operations | | 354 | | 713 | | 1,124 | | 1,235 | |
| | | | | | | | | |
EBITDA | | $ | 9,869 | | $ | 10,847 | | $ | 32,673 | | $ | 33,994 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
26
HCP MOP Funds From Operations
In thousands
| | Three Months Ended September
30, | | Nine Months Ended September
30, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | | | | | | | | |
Net income (loss) | | $ | (1,540 | ) | $ | (1,966 | ) | $ | (1,655 | ) | $ | 3,461 | |
Real estate depreciation and amortization: | | | | | | | | | |
Continuing operations | | 5,653 | | 7,471 | | 18,013 | | 16,520 | |
Discontinued operations | | 354 | | 713 | | 1,124 | | 1,235 | |
Gain on sales of real estate | | (170 | ) | (319 | ) | (611 | ) | (1,191 | ) |
| | | | | | | | | |
Funds from operations (FFO) | | $ | 4,297 | | $ | 5,899 | | $ | 16,871 | | $ | 20,025 | |
| | | | | | | | | |
Selected supplemental cash flow information | | | | | | | | | |
Debt issuance costs amortization | | 988 | | 238 | | 1,600 | | 636 | |
Amortization of above and below market lease intangibles | | 996 | | 364 | | 3,094 | | 2,325 | |
Straight-line rents | | 212 | | 328 | | 631 | | 904 | |
Lease commissions and tenant and capital improvements | | 2,651 | | 2,105 | | 6,687 | | 4,757 | |
See Reporting Definitions and Supplemental Financial Measures Disclosures
27
HCP MOP Indebtedness
In thousands
Debt Maturities and Scheduled Principal Repayments
September 30, 2005
| | Mortgage | |
Year | | Debt | |
| | | |
2005 | | $ | 970 | |
2006 | | 37,329 | |
2007 | | 4,244 | |
2008 | | 4,458 | |
2009 | | 95,716 | |
2010 | | 3,308 | |
2011 | | 3,508 | |
2012 | | 10,652 | |
2013 | | 3,742 | |
2014 | | 156,964 | |
| | | |
Total debt (1) | | $ | 320,891 | |
| | | |
Weighted average interest rate | | 5.55 | % |
| | | |
Weighted average maturity in years | | 6.14 | |
| | September
30, | | December
31, | |
| | 2005 | | 2004 | |
| | | | | |
HCP MOP debt: | | | | | |
Fixed rate | | $ | 287,560 | | $ | 276,153 | |
Variable rate | | 33,331 | | 46,406 | |
| | $ | 320,891 | | $ | 322,559 | |
| | | | | |
Percent of HCP MOP debt: | | | | | |
Fixed rate | | 89.6 | % | 85.6 | % |
Variable rate | | 10.4 | % | 14.4 | % |
| | 100.0 | % | 100.0 | % |
See Reporting Definitions and Supplemental Financial Measures Disclosures
28
(1) Total debt reflects book value.
See Reporting Definitions and Supplemental Financial Measures Disclosures
29
HCP MOP Portfolio Overview and Lease Expirations
As of and for the nine months ended September 30, 2005
Dollars and square feet in thousands
Portfolio Overview(1)
| | | | | | | | | | | | Less | | | |
| | Property | | | | Square | | Facility Occupancy % | | Rental | | Operating | | | |
Sector | | Count | | Investment | | Feet | | 9/30/05 | | 6/30/05 | | Revenues | | Expense | | NOI | |
MOB | | 86 | | $ | 467,175 | | 4,955 | | 86 | | 87 | | $ | 62,658 | | $ | 27,172 | | $ | 35,486 | |
| | | | | | | | | | | | | | | | | | | | | |
Lease expiration summary
| | | | Expiration Year (2) | |
| | Totals | | 2005 | | 2006 | | 2007 | | 2008 | | 2009 | |
| | | | | | | | | | | | | |
Leases | | 1,004 | | 161 | | 271 | | 245 | | 224 | | 103 | |
Annualized expiring rents | | $ | 58,408 | | $ | 9,366 | | $ | 17,060 | | $ | 13,076 | | $ | 12,950 | | $ | 5,956 | |
| | | | | | | | | | | | | | | | | | | |
See Reporting Definitions and Supplemental Financial Measures Disclosures
30
(1) Portfolio overview includes four medical office buildings in Louisiana that incurred substantial damage due to hurricanes Katrina and Rita. The four buildings are currently unoccupied. Facility occupancy % as of September 30, 2005 reflects economic occupancy from these four buildings as tenant rent is still accruing. These four buildings are also included in property count and same property performance.
(2) Lease expirations through 2009.
See Reporting Definitions and Supplemental Financial Measures Disclosures
31
HCP MOP Same Property Performance
Dollars and square feet in thousands
| | Total | |
HCP MOP Portfolio(1) | | | |
| | | |
Property count | | 86 | |
Investment | | $ | 467,175 | |
| | | |
HCP MOP Same Property Portfolio(1) | | | |
| | | |
Property count | | 83 | |
Investment | | $ | 439,706 | |
| | | |
Percent of Owned Property Portfolio (by investment) | | 94 | % |
| | | |
Square feet | | 4,767 | |
| | | |
Facility occupancy at September 30, 2005 | | 86 | % |
| | | |
Facility occupancy at September 30, 2004 | | 88 | % |
| | | |
NOI for the nine months ended September 30, 2005 | | $ | 33,874 | |
| | | |
NOI for the nine months ended September 30, 2004 | | $ | 35,398 | |
| | | |
Same property change in NOI | | -4.3 | % |
| | | |
NOI for the nine months ended September 30, 2005 | | $ | 33,874 | |
Straight-line rents | | (527 | ) |
Amortization of other lease intangibles | | (2,495 | ) |
NOI, as adjusted, for the nine months ended September 30, 2005 | | $ | 30,852 | |
| | | |
NOI for the nine months ended September 30, 2004 | | $ | 35,398 | |
Straight-line rents | | (819 | ) |
Amortization of other lease intangibles | | (2,285 | ) |
NOI, as adjusted, for the nine months ended September 30, 2004 | | $ | 32,294 | |
| | | |
Same property change in NOI, as adjusted | | -4.5 | % |
(1) HCP MOP Portfolio and HCP MOP Same Property Portfolio includes four medical office buildings in Louisiana that incurred substantial damage due to hurricanes Katrina and Rita. The four buildings are currently unoccupied. Facility occupancy as of September 30, 2005 reflects economic occupancy from these four buildings as tenant rent is still accruing. These four buildings are also included in property count and same property performance.
See Reporting Definitions and Supplemental Financial Measures Disclosures
32
Reporting Definitions
ALF. Assisted living facility.
Annualized Debt Service. The most recent monthly interest and principal amortization due to HCP as of period end annualized for twelve months. The Company uses Annualized Debt Service for purposes of determining Debt Service Coverage.
Annualized Expiring Rent. The annualized future minimum rents due to HCP in the year of lease expiration.
Annualized Rent. The most recent monthly base rent due to HCP as of period end annualized for twelve months plus additional rents received by HCP over the most recent twelve month period as of period end. The Company uses Annualized Rent for purposes of determining property level Cash Flow Coverage.
Assets Held for Sale. Assets of discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Beds/Units/Square Feet. Hospitals and skilled nursing facilities are measured by licensed bed count. ALFs and CCRCs are stated in units (e.g., studio, one or two bedroom units). MOBs and other healthcare facilities are measured in square feet.
Book Value. The carrying amount as reported in the Company’s financial statements.
Cash Flow Coverage. Facility level EBITDAR of the property’s operator (not the Company) for the most recent twelve months of available data divided by the Annualized Rent. Cash Flow Coverage is a supplemental measure of the property’s ability to generate cash flow to meet related rent and other obligations to the Company. However, its usefulness is limited by, among other things, the same factors that limit the usefulness of EBITDAR. The coverages shown exclude newly completed facilities under start-up, vacant facilities and facilities for which data is not available or meaningful. Results exclude data related to hospitals leased to HealthSouth until HealthSouth provides assurance about its financial information. Results also exclude data related to ALFs leased to Emeritus since the operator has elected not to allocate the cost of a recent liability judgment to each of the facilities until the ultimate outcome of that judgment is clear.
CCRC. Continuing care retirement community.
Debt Service. The periodic payment of interest expense and principal amortization on secured loans.
Debt Service Coverage. Facility level EBITDAR of the property’s operator (not the Company) for the most recent twelve months of available data divided by the Annualized Debt Service. Debt Service Coverage is a supplemental measure of the property’s ability to generate sufficient cash flow to meet related obligations to the Company under loan agreements. However, its usefulness is limited by the same factors that limit the usefulness of EBITDAR. The coverages shown exclude newly completed facilities under start-up, vacant facilities and facilities for which data is not available or meaningful. Results exclude data related to one ALF that secures a loan to Emeritus since the operator has elected not to allocate the cost of a recent liability judgment to this facility until the ultimate outcome of that judgment is clear.
Facility EBITDAR. Earnings before interest, taxes, depreciation, amortization and rent for a particular facility accruing to the operator of the property (not the Company). The Company uses Facility EBITDAR in determining Debt Service Coverage and Cash Flow Coverage. EBITDAR as an analytical tool has limitations similar to EBITDA. However, the Company receives periodic financial information from operators regarding the performance of the Company’s facilities under the operator’s management. The Company utilizes Facility EBITDAR as a supplemental measure of the ability of those properties to generate sufficient liquidity to meet related obligations to the Company. Facility EBITDAR includes an imputed management fee of 2% for acute care hospitals and 5% for skilled nursing facilities, ALFs and CCRCs which the Company believes represents typical management fees in their respective industries. All facility financial performance data was derived solely from information provided by lessees and borrowers without verification by the Company.
Facility Occupancy. For MOBs and other healthcare properties, facility occupancy represents the percentage of rentable square feet occupied. For hospitals, skilled nursing facilities, ALFs and CCRCs, facility occupancy represents the facilities’ operating occupancy for each quarter based on the most recent quarter of available data. The percentages are calculated based on licensed beds, available beds and units for hospitals, skilled nursing facilities, ALFs and CCRCs, respectively. The percentages shown exclude newly completed facilities under start-up, vacant facilities and facilities for which data is not available or meaningful. All facility financial performance data were derived solely from information provided by lessees and borrowers.
Future Minimum Rents. Future minimum lease payments to be received by HCP, excluding operating expense reimbursements, from lessees under non-cancelable operating leases as of period end.
GAAP. U.S. generally accepted accounting principles.
HCP MOP. HCP Medical Office Portfolio, LLC, an unconsolidated joint venture formed between the Company and an affiliate of General Electric Company (“GE”), for which the Company is managing member and has a 33% interest therein.
Investment. The carrying amount of real estate assets, including intangibles, after adding back accumulated depreciation and amortization and the carrying amount of mortgage loans receivable. Excludes assets held for sale and classified as discontinued operations.
Market Equity. The total number of outstanding shares of the Company’s common stock and convertible partnership units multiplied by the closing price per share of its common stock on the New York Stock Exchange as of period end plus the total number of outstanding shares of the Company’s preferred stock multiplied by the closing price of its preferred stock on the New York Stock Exchange as of period end.
MOB. Medical office building.
“Other” Property Type. Physician group practice clinics, healthcare laboratory and laboratory research facilities, and health and wellness centers.
34
Same Property Performance (“SPP”). An important component of the Company’s evaluation of the operating performance of its properties. The Company defines its same property portfolio each quarter as those properties that have been in operation throughout the current year and the prior year and that were also in operation at January 1st of the prior year. Newly acquired assets, developments in process and assets held for sale are excluded from the same property portfolio. Accordingly, when a property is disposed of to a third party, it will be removed from the same property portfolio for the current and prior year reporting periods, but previously presented quarterly information will not be changed. Same property statistics allow management to evaluate the NOI of its real estate portfolio as a consistent population from period to period and eliminates the effects of changes in the composition of the properties on performance measures.
Secured Debt. Mortgage debt secured by real estate.
Square Feet Owned. The square footage for properties either owned directly by the Company or which the Company has a controlling interest (e.g., consolidated joint ventures) and excludes square footage for development properties prior to completion.
Total Book Capitalization. The carrying amount of consolidated debt plus the carrying amount of stockholders’ equity.
Total Market Capitalization. Consolidated debt at Book Value plus total Market Equity.
Undepreciated Book Value. The carrying amount of the Company’s real estate assets, including intangibles, after adding back accumulated depreciation and amortization.
35
Supplemental Financial Measures Disclosures
Adjusted Fixed Charges. Total interest expense plus capitalized interest plus preferred stock dividends. The Company uses Adjusted Fixed Charges to measure its interest payments on outstanding debt and dividends to its preferred shareholders for purposes of presenting Adjusted Fixed Charge Coverage. However, the usefulness of Adjusted Fixed Charges is limited as, among other things, it does not include all contractual obligations. The Company’s computation of Adjusted Fixed Charges should not be considered an alternative to fixed charges as defined by Item 503(d) of Regulation S-K and may not be comparable to fixed charges reported by other companies.
Adjusted Fixed Charge Coverage. EBITDA divided by Adjusted Fixed Charges. The Company uses Adjusted Fixed Charge Coverage, a non-GAAP financial measure, as a measure of liquidity. The Company believes Adjusted Fixed Charge Coverage provides investors, particularly fixed income investors, relevant and useful information because it measures the Company’s ability to meet its interest payments on outstanding debt and pay dividends to its preferred shareholders. The Company’s various debt agreements contain covenants that require the Company to maintain ratios similar to Adjusted Fixed Charge Coverage and credit rating agencies utilize similar ratios in evaluating and determining the credit rating on certain debt instruments of the Company. However, since this ratio is derived from EBITDA and Adjusted Fixed Charges, its usefulness is limited by the same factors that limit the usefulness of EBITDA and Adjusted Fixed Charges. Further, the Company’s computation of Adjusted Fixed Charge Coverage may not be comparable to similar fixed charge coverage ratios reported by other companies.
EBITDA. The real estate industry uses earnings before interest, taxes, depreciation and amortization (“EBITDA”), a non-GAAP financial measure, as a measure of both operating performance and liquidity. The Company’s presentation of EBITDA herein is solely as a non-GAAP liquidity measure in connection with the presentation of Adjusted Fixed Charge Coverage. As a liquidity measure, the Company believes that EBITDA helps investors analyze the Company’s ability to meet its interest payments on outstanding debt and to make preferred dividend payments. The Company’s various debt agreements contain covenants that require the Company to maintain ratios similar to Adjusted Fixed Charge Coverage and credit rating agencies utilize similar ratios in evaluating and determining the credit rating on certain debt instruments of the Company. The Company believes investors should consider EBITDA in conjunction with cash flow from operating activities, and other required measures under GAAP, to improve their understanding of the Company’s liquidity. EBITDA has limitations as an analytical tool and should be used in conjunction with the Company’s required GAAP presentations. EBITDA does not reflect the Company’s historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. Also, EBITDA does not reflect the cash required to make interest and principal payments on the Company’s outstanding debt. The Company believes cash flow from operating activities is the most directly comparable GAAP measure to EBITDA. EBITDA does not represent net income or cash flow from operations as defined by GAAP and should not be considered an alternative to those indicators. Further, the Company’s computation of EBITDA may not be comparable to similar measures reported by other companies.
Funds From Operations (“FFO”). The Company believes that net income as defined by GAAP is the most appropriate earnings measure. The Company also believes that Funds From Operations, or FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO applicable to common shares, Diluted FFO applicable to common shares, and Basic and Diluted FFO per common share are important non-GAAP supplemental measures of operating performance for a real estate investment trust. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a real estate investment trust that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization, with adjustments to derive the Company’s pro rata share of FFO from consolidated and unconsolidated joint ventures. Adjustments for joint ventures are calculated to reflect FFO on the same basis. The Company believes that the use of FFO, combined with the required GAAP presentations, improves the understanding of operating results of real estate investment trusts among investors and makes comparisons of operating results among such companies more meaningful. The Company considers FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help investors compare the operating performance of a real estate investment trust between periods or as compared to other companies. While FFO is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating the Company’s liquidity or operating performance. FFO also does not consider the costs associated with capital expenditures related to the Company’s real estate assets nor is FFO necessarily indicative of cash available to fund the Company’s future cash requirements. Further, the Company’s computation of FFO may not be comparable to FFO reported by other real estate investment trusts that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently from the Company.
FFO Payout Ratio per Common Share. Dividends declared per common share divided by Diluted FFO per common share for a given period. The Company believes the FFO Payout Ratio provides investors relevant and useful information because it measures the portion of FFO being declared as dividends to common shareholders.
36
Net Operating Income from Continuing Operations (“NOI”). A non-GAAP supplemental financial measure used to evaluate the operating performance of real estate properties and same property performance, or “SPP.” The Company defines NOI from continuing operations as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses and interest expense. The Company believes NOI provides investors relevant and useful information because it measures the operating performance of the Company’s real estate at the property level on an unleveraged basis, independent of related secured debt. NOI, as adjusted, is calculated as NOI eliminating the effects of straight-line rents, amortization of other lease intangibles and lease termination fees. The Company uses NOI and NOI, as adjusted, to make decisions about resource allocations, to assess and compare property level performance, and evaluate SPP. The company believes that net income is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income as defined by GAAP since it does not reflect the aforementioned excluded items. Further, NOI may not be comparable to that of other real estate investment trusts, as they may use different methodologies for calculating NOI.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this supplemental information package and the conference call to be held in connection therewith, which are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks and uncertainties include competition for the acquisition and financing of health care facilities, competition for lessees and mortgagors (including new leases and mortgages and the renewal or rollover of existing leases); continuing operational difficulties in the skilled nursing and assisted living sectors; the Company’s ability to acquire, sell or lease facilities and the timing of acquisitions, sales and leasings; changes in healthcare laws and regulations and other changes in the healthcare industry which affect the operations of the Company’s lessees or mortgagors; changes in management; costs of compliance with building regulations; changes in tax laws and regulations; changes in the financial position of the Company’s lessees and mortgagors; changes in rules governing financial reporting, including new accounting pronouncements; and changes in economic conditions, including changes in interest rates and the availability and cost of capital, which affect opportunities for profitable investments. Some of these risks, and other risks, are described from time to time in Health Care Property Investors, Inc.’s Securities and Exchange Commission filings.
37
