Exhibit 99.2
SUPPLEMENTAL INFORMATION
DECEMBER 31, 2006
(UNAUDITED)
Table of Contents
2
Overview
About the Company (1)
Health Care Property Investors, Inc. together with its consolidated subsidiaries and joint ventures (collectively, “HCP” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States. Health Care Property Investors, Inc. is a Maryland real estate investment trust (“REIT”) organized in 1985. The Company is headquartered in Long Beach, California, with operations in Nashville, Tennessee and Orlando, Florida, and its portfolio includes interests in 731 properties. The Company acquires healthcare facilities and leases them to healthcare providers and provides mortgage financing secured by healthcare facilities. The Company’s portfolio includes: (i) senior housing, including independent living facilities (“ILFs”), assisted living facilities (“ALFs”), and continuing care retirement communities (“CCRCs”); (ii) medical office buildings (“MOBs”); (iii) hospitals; (iv) skilled nursing facilities (“SNFs”); and (v) other healthcare facilities, including laboratory and office buildings. For business segment financial data, see our consolidated financial statements included elsewhere in this report.
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 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. We make 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. We believe 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 maintaining 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 which we may invest, lease or lend to a single operator. With investments in multiple sectors of healthcare real estate, HCP can focus on opportunities with the best risk/reward profile for the portfolio as a whole, rather than having to choose from transactions within a specific property type.
Conservative Financing. We believe a conservative balance sheet provides us with 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, such as our revolving line of credit. 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.
In underwriting our investments, we structure and adjust the price of the investment in accordance with our assessment of risk. We may structure transactions as master leases, require indemnifications, obtain enhancements in the form of letters of credit or security deposits, and take other measures to mitigate risk. We finance our investments based on our evaluation of available sources of funding. For short-term purposes, we may utilize our revolving line of credit or arrange for other short-term borrowings from banks or other sources. We arrange for longer-term financing through public offerings or from institutional investors. We may incur additional indebtedness or issue preferred or common stock. We may incur additional mortgage indebtedness on real estate we acquire. We may also obtain non-recourse or other mortgage financing on unleveraged properties in which we have invested or may refinance existing debt on properties acquired.
As of December 31, 2006, the Company’s portfolio of properties, excluding assets held for sale and classified as discontinued operations, included 731 properties and consisted of:
· 35 hospitals
· 69 skilled nursing facilities
· 337 senior housing facilities
· 260 medical office buildings
· 30 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.
On our internet website, www.hcpi.com, you can access, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). In addition, the SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, including HCP, that file electronically with the SEC at www.sec.gov.
For more information, contact Mark Wallace, Executive Vice President, Chief Financial Officer and Treasurer at (562) 733-5100.
(1) As of December 31, 2006
4
Company Information (1)
Board of Directors | | |
Mary A. Cirillo-Goldberg | | Harold M. Messmer, Jr. |
Former Chairman and Chief Executive | | Chairman and Chief Executive Officer |
Officer, OPCENTER | | Robert Half International, Inc. |
Compensation Committee | | Compensation Committee |
Nominating and Corporate | | Nominating and Corporate |
Governance Committee | | Governance Committee |
| | |
Robert R. Fanning, Jr. | | Peter L. Rhein |
Managing Director (Retired) | | Partner |
The Huron Consulting Group | | Sarlot & Rhein |
Audit Committee | | Chairperson, Audit Committee |
| | |
James F. Flaherty III | | Kenneth B. Roath |
Chairman and Chief Executive Officer | | Chairman Emeritus |
Health Care Property Investors, Inc. | | Health Care Property Investors, Inc. |
| | |
David B. Henry | | Richard M. Rosenberg |
Vice Chairman and Chief Investment | | Chairman and Chief Executive Officer |
Officer, Kimco Realty Corporation | | (Retired), Bank of America |
Audit Committee | | Lead Director |
Finance Committee | | Chairperson, Nominating and |
Nominating and Corporate | | Corporate Governance Committee |
Governance Committee | | Finance Committee |
| | |
Michael D. McKee | | Joseph P. Sullivan |
Vice Chairman and Chief Operating | | Chairman of the Board of Advisors |
Officer, The Irvine Company | | RAND Health |
Chairperson, Compensation Committee | | Chairperson, Finance Committee |
| | Audit Committee |
Senior Management | | |
George P. Doyle | | Brian J. Maas |
Senior Vice President | | Senior Vice President |
Chief Accounting Officer | | Associate General Counsel |
| | |
Charles A. Elcan | | Stephen R. Maulbetsch |
Executive Vice President | | Executive Vice President |
Medical Office Properties | | Strategic Development |
| | |
James F. Flaherty III | | Stephen I. Robie |
Chairman and | | Senior Vice President |
Chief Executive Officer | | Financial Planning and Analysis |
| | |
Paul F. Gallagher | | Timothy M. Schoen |
Executive Vice President | | Senior Vice President |
Chief Investment Officer | | Investment Management |
| | |
Edward J. Henning | | Susan M. Tate |
Executive Vice President | | Senior Vice President |
General Counsel and | | Asset Management |
Corporate Secretary | | |
| | Mark A. Wallace |
Thomas D. Kirby | | Executive Vice President |
Senior Vice President | | Chief Financial Officer and Treasurer |
Acquisitions and Dispositions | | |
| | |
Thomas M. Klaritch | | |
Senior Vice President | | |
Medical Office Properties | | |
Company Information | | | |
Corporate Headquarters | | Senior Debt Ratings | |
3760 Kilroy Airport Way, Suite 300 | | Fitch | BBB |
Long Beach, CA 90806-2473 | | Moody’s | Baa3 |
(562) 733-5100 | | Standard & Poor’s | BBB |
| | | |
Nashville Office | | Stock Exchange Listing | |
3100 West End Avenue, Suite 800 | | NYSE | (US Dollar) |
Nashville, TN 37203 | | | |
(615) 324-6900 | | Trading Symbol | |
| | HCP | Common Stock |
Orlando Office | | HCP_pe | Series E Preferred |
420 S. Orange Avenue, Suite 500 | | HCP_pf | Series F Preferred |
Orlando, FL 32801 | | | |
(407) 835-3200 | | | |
(1) As of January 29, 2007.
5
Quarterly Highlights (1)
Mergers with CNL Retirement Properties, Inc, and CNL Retirement Corp.
As previously announced, on October 5, 2006, we closed our merger with CRP for aggregate consideration of approximately $5.3 billion. In the merger, we paid an aggregate of $2.9 billion of cash, issued 22.8 million shares of our common stock, and either assumed or refinanced approximately $1.7 billion of CRP’s outstanding debt. Simultaneous with the closing of the merger with CRP, we also merged with CNL Retirement Corp. and issued 4.4 million shares of common stock.
In connection with the CRP merger, we entered into credit agreements with a syndicate of banks providing for aggregate borrowings of $3.4 billion. The credit facilities included a $0.7 billion bridge loan, a $1.7 billion two-year term loan, and a $1.0 billion three-year revolving credit facility. As of December 31, 2006, we had fully repaid the bridge loan and borrowings under the term loan were reduced to $0.5 billion. In addition, through capital market and joint venture transactions in January 2007, we fully repaid the balance outstanding under the term loan.
Investment Transactions
During 2006, including the CRP merger discussed above, we acquired interests in properties aggregating $5.9 billion with an average yield of 6.9%. Our 2006 investments were made in the following healthcare sectors: (i) 77% senior housing facilities; (ii) 19% medical office buildings (“MOBs”); (iii) 3% hospitals; and (iv) 1% other healthcare facilities.
During 2006, we sold 83 properties for $512 million and recognized gains of approximately $275 million. These sales included 69 skilled nursing facilities (“SNFs”) sold on December 1, 2006, for $392 million with gains of approximately $226 million. On or before December 1, 2006, tenants for nine SNFs exercised rights of first refusal to acquire such facilities. The sales of the nine SNFs for $52 million are expected to be completed by June 30, 2007.
On November 17, 2006, we purchased $300 million of senior secured toggle notes issued by HCA Inc. (“HCA”). These notes accrue interest at 9.625%, mature on November 15, 2016, and are secured by second-priority liens on HCA’s and its subsidiary guarantors’ assets.
On January 31, 2007, we acquired three long-term acute care hospitals and received proceeds of $36 million in exchange for 11 skilled nursing facilities valued at $77 million. The three acquired properties have an initial lease term of ten years, with two ten-year renewal options, and an initial contractual yield of 12% with escalators based on the lessee’s revenue growth. The acquired properties are included in a new master lease that contains 14 properties leased to the same operator.
On February 9, 2007, we acquired the Medical City Dallas campus, which includes two hospital towers, six medical office buildings, and three parking garages, for approximately $347 million, including non-managing member LLC units (“DownREIT units”) valued at $174 million. The initial yield on this campus is approximately 7.3%.
Joint Venture Transactions
On October 27, 2006, we formed an MOB joint venture with an institutional capital partner. The joint venture includes 13 properties valued at $140 million and encumbered by $92 million of mortgage debt. Upon formation, we received approximately $36 million in proceeds, including a one-time acquisition fee of $0.7 million. We retained an effective 26% interest in the venture, will act as the managing member, and will receive ongoing asset management fees.
On November 30, 2006, we acquired the interest held by an affiliate of General Electric Company in HCP Medical Office Portfolio, LLC (“HCP MOP”) for $141 million. We are now the sole owner of the venture and its 59 MOBs, which have approximately four million rentable square feet. At closing, $251 million of mortgage debt encumbered these MOBs.
On January 5, 2007, we formed a senior housing joint venture with an institutional capital partner. The joint venture includes 25 properties valued at $1.1 billion and encumbered by a $686 million secured debt facility. Upon formation, we received approximately $280 million in proceeds, including a one-time acquisition fee of $5.4 million. Including the $446 million recently received from the secured debt facility with Fannie Mae discussed below, we received $726 million in total proceeds. We retained a 35% interest in the venture, will act as the managing member, and will receive ongoing asset management fees.
Capital Market Transactions
On November 10, 2006, we issued 33.5 million shares of our common stock. We received net proceeds of approximately $960 million, which were used to repay our bridge loan facility and borrowings under our term loan and revolving credit facilities.
On December 4, 2006, we issued $400 million of 5.65% senior unsecured notes due in 2013. The notes were priced at 99.768% of the principal amount for an effective yield of 5.69%. We received net proceeds of $396 million, which were used to repay borrowings under our term loan facility.
On December 21, 2006, in anticipation of our senior housing joint venture that closed on January 5, 2007, we expanded an existing secured debt facility with Fannie Mae to $686 million, receiving $446 million in proceeds. The Fannie Mae facility bears interest at a weighted average rate of 5.66%. The funds from the expanded debt facility were used to repay borrowings under our term loan facility.
On January 19, 2007, we issued 6.8 million shares of common stock. We received net proceeds of approximately $261 million, which were used to repay borrowings under our term loan facility.
On January 22, 2007, we issued $500 million of 6.00% senior unsecured notes due in 2017. The notes were priced at 99.323% of the principal amount for an effective yield of 6.09%. We received net proceeds of $493 million, which were used to repay our term loan facility and borrowings under our revolving credit facility.
Other Events
On January 29, 2007, the Company announced that its Board of Directors declared a quarterly common stock cash dividend of $0.445 per share. The common stock dividend will be paid on February 21, 2007, to stockholders of record as of the close of business on February 5, 2007. The annualized rate of distribution for 2007 is $1.78, compared with $1.70 for 2006, which represents a 4.7% increase.
(1) Includes events subsequent to the current quarter-end through the date of the most recent quarterly earnings press release issuance.
6
Consolidated Information
Consolidated Balance Sheets
In thousands | | | | |
| | December 31, | | |
| | 2006 | | 2005 | | | |
ASSETS | | | | | | |
Real estate: | | | | | | |
Buildings and improvements | | $ | 6,651,705 | | $ | 3,078,852 | | |
Developments in process | | 44,221 | | 22,092 | | |
Land | | 766,927 | | 308,827 | | |
Less accumulated depreciation and amortization | | 595,662 | | 473,735 | | |
Net real estate | | 6,867,191 | | 2,936,036 | | |
| | | | | | |
Net investment in direct financing leases | | 678,013 | | — | | |
Loans receivable, net | | 196,480 | | 186,831 | | |
Investments in and advances to unconsolidated joint ventures | | 25,389 | | 48,598 | | |
Accounts receivable, net | | 31,026 | | 13,313 | | |
Cash and cash equivalents | | 60,687 | | 21,342 | | |
Intangible assets, net | | 479,612 | | 36,264 | | |
Real estate held for sale, net | | 57,496 | | 282,959 | | |
Real estate held for contribution | | 1,102,016 | | 25,397 | | |
Other assets, net | | 514,839 | | 46,525 | | |
| | | | | | |
Total assets | | $ | 10,012,749 | | $ | 3,597,265 | | |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Bank line of credit and term loan | | $ | 1,129,093 | | $ | 258,600 | | |
Senior unsecured notes | | 2,748,522 | | 1,462,250 | | |
Mortgage debt | | 1,531,086 | | 236,096 | | |
Mortgage debt on assets held for contribution | | 685,568 | | — | | |
Other debt | | 107,746 | | — | | |
Intangible liabilities, net | | 151,328 | | 5,382 | | |
Accounts payable and accrued liabilities | | 182,810 | | 68,718 | | |
Deferred revenue | | 20,795 | | 17,169 | | |
Total liabilities | | 6,556,948 | | 2,048,215 | | |
| | | | | | |
Minority interests: | | | | | | |
Joint venture partners | | 34,211 | | 20,905 | | |
Non-managing member unitholders | | 127,554 | | 128,379 | | |
Total minority interests | | 161,765 | | 149,284 | | |
| | | | | | |
Stockholders’ equity: | | | | | | |
Preferred stock | | 285,173 | | 285,173 | | |
Common stock | | 198,599 | | 136,194 | | |
Additional paid-in capital | | 3,108,908 | | 1,446,349 | | |
Cumulative net income | | 1,938,693 | | 1,521,146 | | |
Cumulative dividends | | (2,255,062 | ) | (1,988,248 | ) | |
Accumulated other comprehensive income (loss) | | 17,725 | | (848 | ) | |
Total stockholders’ equity | | 3,294,036 | | 1,399,766 | | |
Total liabilities and stockholders’ equity | | $ | 10,012,749 | | $ | 3,597,265 | | |
| | | | | | | | | | | | | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
8
Consolidated Statements of Income
In thousands, except per share data | | | | | | |
| | Three Months Ended December 31, | | Year Ended December 31, | | |
| | 2006 | | 2005 | | 2006 | | 2005 | | |
| | | | |
Revenues and other income: | | | | | | | | | | |
Rental and related revenues | | $ | 209,062 | | $ | 107,565 | | $ | 557,021 | | $ | 396,804 | | |
Equity income (loss) from unconsolidated joint ventures | | 751 | | (891 | ) | 8,331 | | (1,123 | ) | |
Income from direct financing leases | | 15,008 | | — | | 15,008 | | — | | |
Investment management fee income | | 1,220 | | 791 | | 3,895 | | 3,184 | | |
Interest and other income | | 8,857 | | 6,374 | | 34,832 | | 22,922 | | |
| | 234,898 | | 113,839 | | 619,087 | | 421,787 | | |
Costs and expenses: | | | | | | | | | | |
Interest | | 110,603 | | 30,329 | | 213,304 | | 107,201 | | |
Depreciation and amortization | | 56,838 | | 25,724 | | 144,215 | | 94,862 | | |
Operating | | 32,505 | | 16,965 | | 89,186 | | 59,316 | | |
General and administrative | | 22,200 | | 8,474 | | 47,370 | | 31,869 | | |
Impairments | | 3,577 | | — | | 3,577 | | — | | |
| | 225,723 | | 81,492 | | 497,652 | | 293,248 | | |
| | | | | | | | | | |
Income before minority interests | | 9,175 | | 32,347 | | 121,435 | | 128,539 | | |
Minority interests | | (3,347 | ) | (3,357 | ) | (14,805 | ) | (12,950 | ) | |
Income from continuing operations | | 5,828 | | 28,990 | | 106,630 | | 115,589 | | |
| | | | | | | | | | |
Discontinued operations: | | | | | | | | | | |
Operating income | | 8,057 | | 11,542 | | 41,638 | | 47,312 | | |
Gain on sales of real estate, net of impairments | | 227,389 | | 979 | | 269,279 | | 10,156 | | |
| | 235,446 | | 12,521 | | 310,917 | | 57,468 | | |
| | | | | | | | | | |
Net income | | 241,274 | | 41,511 | | 417,547 | | 173,057 | | |
Preferred stock dividends | | (5,282 | ) | (5,282 | ) | (21,130 | ) | (21,130 | ) | |
Net income applicable to common shares | | $ | 235,992 | | $ | 36,229 | | $ | 396,417 | | $ | 151,927 | | |
| | | | | | | | | | |
Basic earnings per common share (EPS): | | | | | | | | | | |
Continuing operations | | $ | — | | $ | 0.17 | | $ | 0.58 | | $ | 0.70 | | |
Discontinued operations | | 1.28 | | 0.10 | | 2.09 | | 0.43 | | |
Net income applicable to common shares | | $ | 1.28 | | $ | 0.27 | | $ | 2.67 | | $ | 1.13 | | |
| | | | | | | | | | |
Diluted earnings per common share: | | | | | | | | | | |
Continuing operations | | $ | — | | $ | 0.17 | | $ | 0.57 | | $ | 0.70 | | |
Discontinued operations | | 1.27 | | 0.10 | | 2.09 | | 0.42 | | |
Net income applicable to common shares | | $ | 1.27 | | $ | 0.27 | | $ | 2.66 | | $ | 1.12 | | |
| | | | | | | | | | |
Weighted average shares used to calculate EPS: | | | | | | | | | | |
Basic | | 183,736 | | 135,536 | | 148,236 | | 134,673 | | |
Diluted | | 185,278 | | 136,366 | | 149,226 | | 135,560 | | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
9
Consolidated Statements of Cash Flows
In thousands | | | |
| | Year Ended December 31 | |
| | 2006 | | 2005 | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 417,547 | | $ | 173,057 | |
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 | | 144,215 | | 94,862 | |
Discontinued operations | | 9,854 | | 13,104 | |
Amortization of above and below market lease intangibles, net | | (797 | ) | (1,912 | ) |
Stock-based compensation | | 8,232 | | 6,495 | |
Debt issuance costs amortization | | 14,533 | | 3,181 | |
Impairments | | 9,581 | | — | |
Recovery of loan losses | | — | | (56 | ) |
Straight-line rents and interest accretion | | (20,723 | ) | (7,257 | ) |
Equity (income) loss from unconsolidated joint ventures | | (8,331 | ) | 1,123 | |
Distributions of earnings from unconsolidated joint ventures | | 8,331 | | — | |
Minority interests | | 14,805 | | 12,950 | |
Gain on sales of equity securities, net | | (1,861 | ) | (4,517 | ) |
Gain on sales of real estate, net | | (275,283 | ) | (10,156 | ) |
Changes in: | | | | | |
Accounts receivable | | 1,295 | | 1,521 | |
Other assets | | (15,243 | ) | (8,524 | ) |
Accounts payable, accrued liabilities and deferred revenue | | 28,061 | | 8,219 | |
Net cash provided by operating activities | | 334,216 | | 282,090 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Acquisition and development of real estate | | (480,137 | ) | (447,152 | ) |
Lease commissions and tenant and capital improvements | | (18,932 | ) | (7,138 | ) |
Net proceeds from sales of real estate | | 512,317 | | 64,564 | |
Cash used in CNL Retirement Properties merger, net of cash acquired | | (3,325,046 | ) | — | |
Cash used in purchase of HCP MOP, net of cash acquired | | (138,166 | ) | — | |
Distributions from unconsolidated joint ventures, net | | 32,115 | | 6,973 | |
Purchase of equity securities | | (13,670 | ) | (6,768 | ) |
Proceeds from the sale of equity securities | | 7,550 | | 6,482 | |
Principal repayments on loans receivable | | 63,535 | | 19,138 | |
Investment in loans receivable and debt securities | | (329,724 | ) | (53,293 | ) |
Decrease in restricted cash | | 388 | | 2,408 | |
Net cash used in investing activities | | (3,689,770 | ) | (414,786 | ) |
| | | | | |
Cash flows from financing activities: | | | | | |
Net borrowings (repayments) under bank lines of credit | | 365,900 | | (41,500 | ) |
Borrowings under term and bridge loans | | 2,396,385 | | — | |
Repayments of term and bridge loans | | (1,901,136 | ) | — | |
Repayments of mortgage debt | | (66,689 | ) | (17,889 | ) |
Issuance of mortgage debt, net of issuance costs | | 614,473 | | — | |
Repayments of senior unsecured notes | | (255,000 | ) | (31,000 | ) |
Issuance of senior unsecured notes, net of issuance costs | | 1,539,449 | | 445,471 | |
Net proceeds from the issuance of common stock and exercise of options | | 989,039 | | 45,238 | |
Dividends paid on common and preferred stock | | (266,814 | ) | (248,389 | ) |
Settlement of cash flow hedges | | (4,354 | ) | — | |
Distributions to minority interests | | (16,354 | ) | (14,855 | ) |
Net cash provided by financing activities | | 3,394,899 | | 137,076 | |
| | | | | |
Net increase in cash and cash equivalents | | 39,345 | | 4,380 | |
Cash and cash equivalents, beginning of year | | 21,342 | | 16,962 | |
Cash and cash equivalents, end of year | | $ | 60,687 | | $ | 21,342 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
10
Consolidated Funds From Operations
In thousands, except per share data | | | | | | | | | |
| | Three Months Ended December 31, | | Year Ended December 31, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
Net income applicable to common shares | | $ | 235,992 | | $ | 36,229 | | $ | 396,417 | | $ | 151,927 | |
Real estate depreciation and amortization: | | | | | | | | | |
Continuing operations | | 56,838 | | 25,724 | | 144,215 | | 94,862 | |
Discontinued operations | | 1,406 | | 3,135 | | 9,854 | | 13,104 | |
Gain on sales of real estate | | (228,682 | ) | (979 | ) | (275,283 | ) | (10,156 | ) |
Equity (income) loss from unconsolidated joint ventures | | (751 | ) | 891 | | (8,331 | ) | 1,123 | |
FFO from unconsolidated joint ventures | | 1,631 | | 1,071 | | 7,321 | | 8,140 | |
Minority interests | | 3,347 | | 3,357 | | 14,805 | | 12,950 | |
Minority interests in FFO | | (4,152 | ) | (3,677 | ) | (16,245 | ) | (14,224 | ) |
FFO applicable to common shares | | $ | 65,629 | | $ | 65,751 | | $ | 272,753 | | $ | 257,726 | |
| | | | | | | | | |
Distributions on convertible units | | $ | — | | $ | 2,426 | | $ | 7,832 | | $ | 9,066 | |
| | | | | | | | | |
Diluted FFO applicable to common shares | | $ | 65,629 | | $ | 68,177 | | $ | 280,585 | | $ | 266,792 | |
| | | | | | | | | |
Basic FFO per common share | | $ | 0.36 | | $ | 0.49 | | $ | 1.84 | | $ | 1.91 | |
| | | | | | | | | |
Diluted FFO per common share | | $ | 0.35 | | $ | 0.48 | | $ | 1.82 | | $ | 1.89 | |
| | | | | | | | | |
Weighted average shares used to calculate diluted FFO per common share | | 185,278 | | 142,405 | | 153,831 | | 141,018 | |
| | | | | | | | | |
Dividends declared per common share | | $ | 0.425 | | $ | 0.420 | | $ | 1.700 | | $ | 1.680 | |
| | | | | | | | | |
FFO payout ratio per common share | | 121.4 | % | 87.5 | % | 93.4 | % | 88.9 | % |
| | | | | | | | | |
Consolidated selected supplemental cash flow information: | | | | | | | | | |
Impairments | | $ | 4,870 | | $ | — | | $ | 9,581 | | $ | — | |
Capitalized interest | | 307 | | 155 | | 895 | | 637 | |
Stock-based compensation | | 2,172 | | 1,716 | | 8,232 | | 6,495 | |
Debt issuance costs amortization | | 11,787 | | 837 | | 14,533 | | 3,181 | |
Amortization of above and below market lease intangibles, net | | (586 | ) | 204 | | 797 | | 1,912 | |
Straight-line rents and interest accretion | | 13,287 | | 2,606 | | 20,723 | | 7,257 | |
Change in SAB 104 deferred revenue | | (877 | ) | (221 | ) | (517 | ) | 546 | |
Lease commissions and tenant and capital improvements | | 6,929 | | 2,664 | | 18,932 | | 7,138 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
11
Net Cash Provided by Operating Activities to EBITDA Reconciliation
In thousands | | | | | | | | | |
| | Three Months Ended
December 31, | | Year Ended
December 31, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
Net cash provided by operating activities | | $ | 79,723 | | $ | 61,049 | | $ | 334,216 | | $ | 282,090 | |
Changes in: | | | | | | | | | |
Accounts receivable | | (658 | ) | (194 | ) | (1,295 | ) | (1,521 | ) |
Other assets | | 8,345 | | 7,119 | | 15,243 | | 8,524 | |
Accounts payable, accrued liabilities and deferred revenue | | (7,408 | ) | 3,649 | | (28,061 | ) | (8,219 | ) |
Gain on sales of real estate, net | | 228,682 | | 979 | | 275,283 | | 10,156 | |
Gain on sales of equity securities, net | | 309 | | 1,759 | | 1,861 | | 4,517 | |
Minority interests | | (3,347 | ) | (3,357 | ) | (14,805 | ) | (12,950 | ) |
Distributions of earnings from unconsolidated joint ventures | | (751 | ) | — | | (8,331 | ) | — | |
Equity income (loss) from unconsolidated joint ventures | | 751 | | (891 | ) | 8,331 | | (1,123 | ) |
Straight-line rents and interest accretion | | 13,287 | | 2,606 | | 20,723 | | 7,257 | |
Recovery of loan losses | | — | | — | | — | | 56 | |
Impairments | | (4,870 | ) | — | | (9,581 | ) | — | |
Debt issuance costs amortization | | (11,787 | ) | (837 | ) | (14,533 | ) | (3,181 | ) |
Stock-based compensation | | (2,172 | ) | (1,716 | ) | (8,232 | ) | (6,495 | ) |
Amortization of above and below market lease intangibles, net | | (586 | ) | 204 | | 797 | | 1,912 | |
Depreciation and amortization of real estate and in-place lease intangibles: | | | | | | | | | |
Continuing operations | | (56,838 | ) | (25,724 | ) | (144,215 | ) | (94,862 | ) |
Discontinued operations | | (1,406 | ) | (3,135 | ) | (9,854 | ) | (13,104 | ) |
Net income | | 241,274 | | 41,511 | | 417,547 | | 173,057 | |
| | | | | | | | | |
Interest expense: | | | | | | | | | |
Continuing operations | | 110,603 | | 30,329 | | 213,304 | | 107,201 | |
Discontinued operations | | 27 | | — | | 27 | | — | |
Income taxes | | 46 | | (494 | ) | 155 | | (708 | ) |
Depreciation and amortization of real estate and in-place lease intangibles: | | | | | | | | | |
Continuing operations | | 56,838 | | 25,724 | | 144,215 | | 94,862 | |
Discontinued operations | | 1,406 | | 3,135 | | 9,854 | | 13,104 | |
Equity (income) loss from unconsolidated joint ventures | | (751 | ) | 891 | | (8,331 | ) | 1,123 | |
HCP’s share of EBITDA from HCP MOP(1) | | 2,330 | | 2,875 | | 18,293 | | 13,657 | |
EBITDA | | $ | 411,773 | | $ | 103,971 | | $ | 795,064 | | $ | 402,296 | |
(1) Prior to November 30, 2006, HCP MOP was an unconsolidated joint venture formed between the Company and an affiliate of General Electric Company (“GE”), for which the Company was the managing member and had a 33% interest therein. HCP’s share of EBITDA from HCP MOP excludes amounts subsequent to HCP’s acquisition of GE’s interest.
See Reporting Definitions and Supplemental Financial Measure Disclosures
12
Adjusted Fixed Charge Coverage
In thousands | | | | | | | | | |
| | Three Months Ended
December 31, | | Year Ended
December 31, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
Net income | | $ | 241,274 | | $ | 41,511 | | $ | 417,547 | | $ | 173,057 | |
Interest expense: | | | | | | | | | |
Continuing operations | | 110,603 | | 30,329 | | 213,304 | | 107,201 | |
Discontinued operations | | 27 | | — | | 27 | | — | |
Income taxes | | 46 | | (494 | ) | 155 | | (708 | ) |
Depreciation and amortization of real estate and in-place lease intangibles: | | | | | | | | | |
Continuing operations | | 56,838 | | 25,724 | | 144,215 | | 94,862 | |
Discontinued operations | | 1,406 | | 3,135 | | 9,854 | | 13,104 | |
Equity (income) loss from unconsolidated joint ventures | | (751 | ) | 891 | | (8,331 | ) | 1,123 | |
HCP’s share of EBITDA from HCP MOP(1) | | 2,330 | | 2,875 | | 18,293 | | 13,657 | |
EBITDA | | $ | 411,773 | | $ | 103,971 | | $ | 795,064 | | $ | 402,296 | |
| | | | | | | | | |
Interest expense: | | | | | | | | | |
Continuing operations | | $ | 110,603 | | $ | 30,329 | | $ | 213,304 | | $ | 107,201 | |
Discontinued operations | | 27 | | — | | 27 | | — | |
HCP’s share of interest expense from HCP MOP(1) | | 887 | | 1,735 | | 5,181 | | 6,748 | |
Capitalized interest | | 307 | | 155 | | 895 | | 637 | |
Preferred stock dividends | | 5,282 | | 5,282 | | 21,130 | | 21,130 | |
Adjusted fixed charges | | $ | 117,106 | | $ | 37,501 | | $ | 240,537 | | $ | 135,716 | |
| | | | | | | | | |
Adjusted fixed charge coverage | | 3.5 | x | 2.8 | x | 3.3 | x | 3.0 | x |
(1) Prior to November 30, 2006, HCP MOP was an unconsolidated joint venture formed between the Company and an affiliate of General Electric Company (“GE”), for which the Company was the managing member and had a 33% interest therein. HCP’s share of EBITDA from HCP MOP excludes amounts subsequent to HCP’s acquisition of GE’s interest.
See Reporting Definitions and Supplemental Financial Measure Disclosures
13
Consolidated Indebtedness
In thousands | | | | | | | | | | | |
| | Debt Maturities and Scheduled Principal Repayments | |
| | | |
| | December 31, 2006 | |
| | Total | | Bank Lines
of Credit and
Term Loan | | Senior
Unsecured
Notes | | Mortgage
Debt(2) | | Other
Debt(3) | |
| | | | | | | | | | | |
2007 | | $ | 196,718 | | $ | — | | $ | 20,000 | | $ | 68,972 | | $ | 107,746 | |
2008 | | 902,821 | | 504,593 | | 300,000 | | 98,228 | | — | |
2009 | | 900,907 | | 624,500 | | — | | 276,407 | | — | |
2010 | | 508,595 | | — | | 206,421 | | 302,174 | | — | |
2011 | | 457,520 | | — | | 300,000 | | 157,520 | | — | |
2012 | | 402,496 | | — | | 250,000 | | 152,496 | | — | |
2013 | | 723,599 | | — | | 550,000 | | 173,599 | | — | |
2014 | | 268,682 | | — | | 87,000 | | 181,682 | | — | |
2015 | | 500,382 | | — | | 400,000 | | 100,382 | | — | |
2016 | | 1,023,615 | | — | | 400,000 | | 623,615 | | — | |
Thereafter | | 324,933 | | — | | 250,000 | | 74,933 | | — | |
| | | | | | | | | | | |
Subtotal | | 6,210,268 | | 1,129,093 | | 2,763,421 | | 2,210,008 | | 107,746 | |
| | | | | | | | | | | |
(Discounts) and premiums, net | | (8,253 | ) | — | | (14,899 | ) | 6,646 | | — | |
Consolidated debt(1) | | $ | 6,202,015 | | $ | 1,129,093 | | $ | 2,748,522 | | $ | 2,216,654 | | $ | 107,746 | |
| | | | | | | | | | | |
Weighted average interest rate | | 5.97 | % | 6.12 | % | 5.88 | % | 6.00 | % | N/A | |
| | | | | | | | | | | |
Weighted average maturity in years | | 5.92 | | 2.30 | % | 6.63 | % | 6.89 | | N/A | |
| | December 31,
2006 | | December 31,
2005 | |
Fixed rate debt: | | | | | |
Senior unsecured notes | | $ | 2,424,163 | | $ | 1,437,250 | |
Mortgage debt(2) | | 2,001,716 | | 224,431 | |
Other debt(3) | | 107,746 | | — | |
| | 4,533,625 | | 1,661,681 | |
| | | | | |
Variable rate debt: | | | | | |
Bank lines of credit and term loan | | 1,129,093 | | 258,600 | |
Senior unsecured notes | | 324,359 | | 25,000 | |
Mortgage debt | | 214,938 | | 11,665 | |
| | 1,668,390 | | 295,265 | |
| | | | | |
Consolidated debt | | $ | 6,202,015 | | $ | 1,956,946 | |
| | | | | |
Percent of consolidated debt | | | | | |
Fixed rate | | 73.1 | % | 84.9 | % |
Variable rate | | 26.9 | % | 15.1 | % |
| | 100.0 | % | 100.0 | % |
| | | | | |
Unsecured | | 64.3 | % | 87.9 | % |
Secured | | 35.7 | % | 12.1 | % |
| | 100.0 | % | 100.0 | % |
(1) Consolidated debt reflects carrying value.
(2) Includes $45.6 million of mortgage debt that has been hedged through interest rate swap contracts.
(3) In connection with the CRP merger on October 5, 2006, the Company assumed non-interest bearing life care bonds at two of its CCRCs and non-interest bearing occupancy fee deposits at another of its senior housing facilities, all of which are payable to certain residents of the facilities.
See Reporting Definitions and Supplemental Financial Measure Disclosures
14
Consolidated Capitalization
In thousands, except per share data | | | |
| | | |
Market Equity | |
| | December 31, 2006 | | December 31, 2005 | |
| | Dividend | | Shares/ | | | | | | Shares/ | | | | | |
Security | | Rate | | Units | | Price | | Value | | Units | | Price | | Value | |
Common stock and convertible units: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Common stock | | N/A | | 198,599 | | $ | 36.82 | | $ | 7,312,415 | | 136,194 | | $ | 25.56 | | $ | 3,481,119 | |
Convertible partnership units (2 for 1)(1) | | N/A | | 2,533 | | 73.64 | | 186,530 | | 2,670 | | 51.12 | | 136,490 | |
Convertible partnership units (1 for 1)(2) | | N/A | | 887 | | 36.82 | | 32,659 | | 699 | | 25.56 | | 17,866 | |
| | | | | | | | 7,531,604 | | | | | | 3,635,475 | |
Preferred stock: | | | | | | | | | | | | | | | |
Series E | | 7.25 | % | 4,000 | | 25.56 | | 102,240 | | 4,000 | | 25.16 | | 100,640 | |
Series F | | 7.10 | % | 7,820 | | 25.62 | | 200,348 | | 7,820 | | 25.10 | | 196,282 | |
| | | | | | | | 302,588 | | | | | | 296,922 | |
| | | | | | | | | | | | | | | |
Total market equity | | | | | | | | $ | 7,834,192 | | | | | | $ | 3,932,397 | |
| | | | | | | | | | | | | | | | | | | |
Capitalization Ratios
| | December 31,
2006 | | December 31,
2005 | |
Consolidated debt(3): | | | | | |
Bank line of credit and term loan | | $ | 1,129,093 | | $ | 258,600 | |
Senior unsecured notes | | 2,748,522 | | 1,462,250 | |
| | | | | |
Mortgage debt | | 2,216,654 | | 236,096 | |
Other debt | | 107,746 | | — | |
| | $ | 6,202,015 | | $ | 1,956,946 | |
Total undepreciated investments: | | | | | |
Buildings and improvements | | $ | 6,651,705 | | $ | 3,078,852 | |
Developments in process | | 44,221 | | 22,092 | |
Land | | 766,927 | | 308,827 | |
Net investment in direct financing leases | | 678,013 | | — | |
Loans receivable, net | | 196,480 | | 186,831 | |
| | | | | |
Investments in and advances to unconsolidated joint ventures | | 25,389 | | 48,598 | |
Intangible real estate assets, gross | | 508,347 | | 44,215 | |
| | | | | |
Real estate held for sale, gross | | 95,279 | | 423,313 | |
Real estate held for contribution, gross | | 1,102,016 | | 25,397 | |
Marketable securities | | 337,659 | | 6,333 | |
Intangible real estate liabilities, gross | | (158,519 | ) | (7,566 | ) |
| | $ | 10,247,517 | | $ | 4,136,892 | |
Consolidated debt / Undepreciated investments | | 60.5 | % | 47.3 | % |
| | | | | |
Total market capitalization: | | | | | |
Consolidated debt | | $ | 6,202,015 | | $ | 1,956,946 | |
Total market equity | | 7,834,192 | | 3,932,397 | |
| | $ | 14,036,207 | | $ | 5,889,343 | |
| | | | | |
Consolidated debt / Total market capitalization | | 44.2 | % | 33.2 | % |
| | | | | |
Total book capitalization: | | | | | |
Consolidated debt | | $ | 6,202,015 | | $ | 1,956,946 | |
Total stockholders’ equity | | 3,294,036 | | 1,399,766 | |
| | $ | 9,496,051 | | $ | 3,356,712 | |
| | | | | |
Consolidated debt / Total book capitalization | | 65.3 | % | 58.3 | % |
(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.
(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
15
Consolidated Portfolio Overview
As of and for the year ended December 31, 2006, dollars and square feet in thousands
Owned Property, Secured Loan and Direct Financing Lease Portfolios
Overview by property type
| | Property | | | | | | Square | | Facility Occupancy % | | Number | |
Sector | | Count | | Beds/Units | | Feet | | 12/31/06 | | 09/30/06 | | of States | |
Hospital | | 35 | | 3,526 | | Beds | | 3,961 | | 53 | | 55 | | 16 | |
Skilled nursing | | 69 | | 8,000 | | Beds | | 2,644 | | 86 | | 80 | | 17 | |
Senior housing | | 308 | | 31,656 | | Units | | 26,409 | | 90 | | 89 | | 40 | |
MOB | | 246 | | N/A | | 14,952 | | 90 | | 94 | | 28 | |
Other | | 30 | | N/A | | 1,626 | | 99 | | 99 | | 9 | |
Total | | 688 | | | | | | 49,592 | | | | | | | |
Operator concentration
| | Property | | Investment | | | | Interest and | | Total | |
Operator | | Count | | Amount | | % | | NOI | | DFL Income | | Amount | | % | |
Sunrise Senior Living | | 106 | | $ | 2,245,673 | | 23 | | $ | 22,125 | | $ | 10,383 | | $ | 32,508 | | 7 | |
Brookdale Senior Living(1) | | 23 | | 668,637 | | 7 | | 48,417 | | — | | 48,417 | | 10 | |
Tenet Healthcare Corporation | | 8 | | 423,497 | | 4 | | 53,753 | | — | | 53,753 | | 11 | |
Summerville Healthcare Group | | 31 | | 274,842 | | 3 | | 21,956 | | 984 | | 22,940 | | 5 | |
Aegis Senior Living | | 12 | | 258,008 | | 3 | | 22,179 | | — | | 22,179 | | 4 | |
Emeritus Corporation | | 36 | | 245,676 | | 3 | | 27,877 | | 336 | | 28,213 | | 6 | |
Encore Senior Living | | 18 | | 177,080 | | 2 | | 2,489 | | 75 | | 2,564 | | 1 | |
Capital Senior Living | | 14 | | 168,325 | | 2 | | 4,934 | | — | | 4,934 | | 1 | |
Harbor Retirement Associates | | 10 | | 158,886 | | 2 | | 1,713 | | 496 | | 2,209 | | — | |
Erickson Retirement Communities | | 6 | | 116,274 | | 1 | | — | | 5,046 | | 5,046 | | 1 | |
Other Public Companies | | 53 | | 448,609 | | 5 | | 49,559 | | 8,204 | | 57,763 | | 12 | |
Other Operators | | 371 | | 3,394,475 | | 34 | | 183,974 | | 690 | | 184,664 | | 37 | |
| | 688 | | $ | 8,579,982 | | 89 | | $ | 438,976 | | $ | 26,214 | | $ | 465,190 | | 95 | |
Investments held for contribution(2): | | | | | | | | | | | | | | | |
Horizon Bay | | 25 | | 1,100,600 | | 11 | | 20,043 | | — | | 20,043 | | 4 | |
Other Operators | | — | | — | | — | | 8,816 | | — | | 8,816 | | 1 | |
| | 713 | | $ | 9,680,582 | | 100 | | $ | 467,835 | | $ | 26,214 | | $ | 494,049 | | 100 | |
Reconciliation of Net Income to NOI | | | | | | | | | | | | | | | |
Net income | | | | | | | | $ | 417,547 | | | | | | | |
Equity income from unconsolidated joint ventures | | | | | | | | (8,331 | ) | | | | | | |
Income from direct financing leases | | | | | | | | (15,008 | ) | | | | | | |
Investment management fee and other income | | | | | | | | (38,727 | ) | | | | | | |
Interest expense | | | | | | | | 213,304 | | | | | | | |
Depreciation and amortization | | | | | | | | 144,215 | | | | | | | |
General and administrative | | | | | | | | 47,370 | | | | | | | |
Impairments | | | | | | | | 3,577 | | | | | | | |
Minority interests | | | | | | | | 14,805 | | | | | | | |
Total discontinued operations | | | | | | | | (310,917 | ) | | | | | | |
Net operating income (“NOI”) | | | | | | | | $ | 467,835 | | | | | | | |
(1) Brookdale Senior Living Inc. acquired American Retirement Corporation (“ARC”) on July 25, 2006.
(2) On January 5, 2007, we formed a joint venture for 25 senior housing assets and retained a 35% interest in the venture. The carrying value of the 25 senior housing facilities is classified as real estate held for contribution on our consolidated balance sheet at December 31, 2006. On October 13, 2006, we formed a joint venture for 13 MOBs and retained an effective 26% interest in the venture. Under SFAS No. 144, these assets meet the criteria to qualify as held for sale, however, their operating results are not classified as discontinued operations due to our continuing interest in the ventures. The operating results of these properties prior to the formation of the ventures are included in the Company’s continuing operations. The number of properties, capacity, square footage, and investment for the 13 MOBs are not included as such properties are included in an unconsolidated joint venture as of December 31, 2006.
See Reporting Definitions and Supplemental Financial Measure Disclosures
16
As of and for the year ended December 31, 2006, 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 | | 12/31/06 | | 09/30/06 | | Coverage | | Revenues | | Expenses | | NOI | |
Hospital | | 33 | | $ | 871,394 | | 3,356 | | Beds | | 3,650 | | 53 | | 55 | | 2.1 | x | $ | 94,481 | | $ | — | | $ | 94,481 | |
Skilled nursing | | 65 | | 313,180 | | 7,404 | | Beds | | 2,447 | | 86 | | 80 | | 1.7 | x | 42,253 | | 94 | | 42,159 | |
Senior housing | | 271 | | 3,968,837 | | 28,333 | | Units | | 24,251 | | 89 | | 89 | | 1.1 | x | 181,500 | | 12,491 | | 169,009 | |
MOB | | 246 | | 2,366,692 | | N/A | | 14,952 | | 90 | | 94 | | N/A | | 176,840 | | 66,528 | | 110,312 | |
Other | | 30 | | 262,898 | | N/A | | 1,626 | | 99 | | 99 | | N/A | | 29,024 | | 6,009 | | 23,015 | |
Total | | 645 | | 7,783,001 | | | | | | 46,926 | | | | | | | | 524,098 | | 85,122 | | 438,976 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Investments held for contribution(1): | | |
Senior housing | | 25 | | 1,100,600 | | 5,633 | | Units | | 5,566 | | 93 | | N/A | | 1.0 | x | 20,043 | | — | | 20,043 | |
MOB | | — | | — | | N/A | | — | | N/A | | N/A | | N/A | | 12,880 | | 4,064 | | 8,816 | |
| | 670 | | $ | 8,883,601 | | | | | | 52,492 | | | | | | | | $ | 557,021 | | $ | 89,186 | | $ | 467,835 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct Financing Lease Portfolio — Overview by type
| | | | | | | | | | | | | | | | Cash | | | |
| | Property | | | | | | | | Square | | Facility Occupancy % | | Flow | | DFL | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 12/31/06 | | 09/30/06 | | Coverage | | Income | |
Senior housing | | 32 | | $ | 675,500 | | 3,143 | | Units | | 1,969 | | 90 | | N/A | | 1.1 | x | $ | 15,008 | |
| | | | | | | | | | | | | | | | | | | | | |
Secured Loan Portfolio — Overview by type
| | | | | | | | | | | | | | | | Debt | | | |
| | Property | | | | | | | | Square | | Facility Occupancy % | | Service | | Interest | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 12/31/06 | | 09/30/06 | | Coverage | | Income | |
Hospital | | 2 | | $ | 75,083 | | 170 | | Beds | | 311 | | 50 | | 55 | | 2.1 | x | $ | 6,603 | |
Skilled nursing | | 4 | | 19,987 | | 596 | | Beds | | 197 | | 85 | | 85 | | 1.6 | x | 2,290 | |
Senior housing | | 5 | | 26,411 | | 180 | | Units | | 189 | | 83 | | 92 | | 2.1 | x | 2,313 | |
Total | | 11 | | $ | 121,481 | | | | | | 697 | | | | | | | | $ | 11,206 | |
17
Owned Property Portfolio — Overview by state
| | Total | | Hospital | | Skilled Nursing | | Senior Housing | | MOB | | Other | |
| | | | | | | | | | | | | | | | | | Square | | | | Square | |
State | | No. | | No. | | Beds | | No. | | Beds | | No. | | Units | | No. | | Feet | | No. | | Feet | |
TX | | 111 | | 7 | | 326 | | 4 | | 570 | | 38 | | 4,067 | | 61 | | 4,248 | | 1 | | — | |
FL | | 74 | | 2 | | 312 | | — | | — | | 44 | | 4,979 | | 28 | | 1,435 | | — | | — | |
CA | | 70 | | 4 | | 745 | | 8 | | 819 | | 35 | | 3,778 | | 16 | | 899 | | 7 | | 581 | |
UT | | 35 | | 1 | | 139 | | 1 | | 120 | | 2 | | 233 | | 22 | | 950 | | 9 | | 549 | |
IN | | 34 | | — | | — | | 15 | | 1,554 | | 5 | | 392 | | 14 | | 763 | | — | | — | |
Other | | 321 | | 19 | | 1,834 | | 37 | | 4,341 | | 147 | | 14,884 | | 105 | | 6,657 | | 13 | | 496 | |
Total | | 645 | | 33 | | 3,356 | | 65 | | 7,404 | | 271 | | 28,333 | | 246 | | 14,952 | | 30 | | 1,626 | |
(1) On January 5, 2007, we formed a joint venture for 25 senior housing assets and retained a 35% interest in the venture. The carrying value of the 25 senior housing facilities is classified as real estate held for contribution on our consolidated balance sheet at December 31, 2006. On October 13, 2006, we formed a joint venture for 13 MOBs and retained an effective 26% interest in the venture. Under SFAS No. 144, these assets meet the criteria to qualify as held for sale, however, their operating results are not classified as discontinued operations due to our continuing interest in the ventures. The operating results of these properties prior to the formation of the ventures are included in the Company’s continuing operations. The number of properties, capacity, square footage, and investment for the 13 MOBs are not included as such properties are included in an unconsolidated joint venture as of December 31, 2006.
See Reporting Definitions and Supplemental Financial Measure Disclosures
18
Same Property Performance
Dollars and square feet in thousands | | | | | | | | | | | | | |
| | Total | | Hospital | | Skilled
Nursing | | Senior
Housing | | MOB | | Other | |
Owned Property Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Property count | | 645 | | 33 | | 65 | | 271 | | 246 | | 30 | |
Investment | | $ | 7,783,001 | | $ | 871,394 | | $ | 313,180 | | $ | 3,968,837 | | $ | 2,366,692 | | $ | 262,898 | |
| | | | | | | | | | | | | |
Same Property Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Property count | | 291 | | 26 | | 64 | | 94 | | 88 | | 19 | |
Investment | | $ | 2,898,162 | | $ | 713,806 | | $ | 308,114 | | $ | 875,739 | | $ | 806,833 | | $ | 193,670 | |
| | | | | | | | | | | | | |
Percent of Owned Property Portfolio (by investment) | | 37 | % | 82 | % | 98 | % | 22 | % | 34 | % | 74 | % |
| | | | | | | | | | | | | |
Square feet | | 23,008 | | 3,272 | | 2,401 | | 10,793 | | 5,258 | | 1,284 | |
| | | | | | | | | | | | | |
Facility occupancy at December 31, 2006 | | | | 53 | % | 86 | % | 89 | % | 94 | % | 100 | % |
| | | | | | | | | | | | | |
Facility occupancy at December 31, 2005 | | | | 55 | % | 86 | % | 89 | % | 95 | % | 100 | % |
| | | | | | | | | | | | | |
NOI for the year ended December 31, 2006 | | $ | 325,769 | | $ | 91,506 | | $ | 41,655 | | $ | 91,546 | | $ | 80,733 | | $ | 20,329 | |
| | | | | | | | | | | | | |
NOI for the year ended December 31, 2005 | | $ | 319,043 | | $ | 91,130 | | $ | 40,281 | | $ | 87,976 | | $ | 79,518 | | $ | 20,138 | |
| | | | | | | | | | | | | |
Same property change in NOI | | 2.1 | % | 0.4 | % | 3.4 | % | 4.1 | % | 1.5 | % | 0.9 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
NOI for the year ended December 31, 2006 | | $ | 325,769 | | $ | 91,506 | | $ | 41,655 | | $ | 91,546 | | $ | 80,733 | | $ | 20,329 | |
Straight-line rents | | (5,120 | ) | (1,313 | ) | (216 | ) | (1,698 | ) | (2,050 | ) | 157 | |
Amortization of above and below market lease intangibles | | (528 | ) | — | | 116 | | — | | (644 | ) | — | |
NOI, as adjusted, for the year ended December 31, 2006 | | $ | 320,121 | | $ | 90,193 | | $ | 41,555 | | $ | 89,848 | | $ | 78,039 | | $ | 20,486 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
NOI for the year ended December 31, 2005 | | $ | 319,043 | | $ | 91,130 | | $ | 40,281 | | $ | 87,976 | | $ | 79,518 | | $ | 20,138 | |
Straight-line rents | | (5,197 | ) | (1,290 | ) | (357 | ) | (1,918 | ) | (1,461 | ) | (171 | ) |
Amortization of above and below market lease intangibles | | (1,732 | ) | — | | 54 | | — | | (1,786 | ) | — | |
NOI, as adjusted, for the year ended December 31, 2005 | | $ | 312,114 | | $ | 89,840 | | $ | 39,978 | | $ | 86,058 | | $ | 76,271 | | $ | 19,967 | |
| | | | | | | | | | | | | |
Same property change in NOI, as adjusted | | 2.6 | % | 0.4 | % | 3.9 | % | 4.4 | % | 2.3 | % | 2.6 | % |
See Reporting Definitions and Supplemental Financial Measure Disclosures
19
Lease Expirations (1)
Dollars in thousands | | | | | |
| | | | Expiration Year(2) | |
Sector | | Totals | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | |
| | | | | | | | | | | | | |
Owned Property Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Hospital: | | | | | | | | | | | | | |
Leases | | 14 | | 2 | | 1 | | 7 | | 1 | | 3 | |
Annualized expiring rents | | $ | 53,237 | | $ | 1,686 | | $ | 1,997 | | $ | 41,019 | | $ | 2,973 | | $ | 5,562 | |
| | | | | | | | | | | | | |
Skilled nursing: | | | | | | | | | | | | | |
Leases | | 16 | | — | | 5 | | 4 | | 4 | | 3 | |
Annualized expiring rents | | $ | 11,925 | | $ | — | | $ | 3,232 | | $ | 2,220 | | $ | 3,635 | | $ | 2,838 | |
| | | | | | | | | | | | | |
Senior housing: | | | | | | | | | | | | | |
Leases | | 23 | | — | | 1 | | — | | 3 | | 19 | |
Annualized expiring rents | | $ | 9,132 | | $ | — | | $ | 70 | | $ | — | | $ | 473 | | $ | 8,589 | |
| | | | | | | | | | | | | |
MOB: | | | | | | | | | | | | | |
Leases | | 2,578 | | 653 | | 623 | | 465 | | 483 | | 354 | |
Annualized expiring rents | | $ | 173,201 | | $ | 35,811 | | $ | 40,158 | | $ | 33,601 | | $ | 37,850 | | $ | 25,781 | |
| | | | | | | | | | | | | |
Other: | | | | | | | | | | | | | |
Leases | | 14 | | 1 | | 1 | | 5 | | 4 | | 3 | |
Annualized expiring rents | | $ | 13,219 | | $ | 3,901 | | $ | 3,453 | | $ | 2,431 | | $ | 2,850 | | $ | 584 | |
| | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | |
Leases | | 2,645 | | 656 | | 631 | | 481 | | 495 | | 382 | |
Annualized expiring rents | | $ | 260,714 | | $ | 41,398 | | $ | 48,910 | | $ | 79,271 | | $ | 47,781 | | $ | 43,354 | |
(1) The table reflects the number of leases and annualized expiring rents in the year of expiration absent the impact of renewals, if any.
(2) Lease expirations through 2011.
See Reporting Definitions and Supplemental Financial Measure Disclosures
20
Other Information
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.
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.
DFL. Direct financing lease.
Marketable securities. The Company classifies its existing marketable equity and debt securities as available-for-sale in accordance with provisions of SFAS No. 115. These securities are carried at fair market value, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive income.
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 the greater of (i) contractual management fees or (ii) an imputed management fee of 2% for acute care hospitals and 5% for skilled nursing facilities, ILFs, 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, ILFs, 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 without verification by the Company.
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. Prior to November 30, 2006, HCP Medical Office Portfolio, LLC, was an unconsolidated joint venture formed between the Company and an affiliate of General Electric Company (“GE”), for which the Company was the managing member and had a 33% interest therein.
ILF. Independent living facility.
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.
22
Market Equity. The total number of outstanding shares of the Company’s common stock 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 convertible partnership units multiplied by the closing price per share of its common stock on the New York Stock Exchange as of period end (adjusted for stock splits) 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.
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 classified in discontinued operations are excluded from the same property portfolio. 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 investments. The carrying amount of the Company’s real estate assets, including intangibles, after adding back accumulated depreciation and amortization plus net loans receivable plus investments in and advances to unconsolidated joint ventures.
23
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.
24
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 as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments, interest expense and discontinued operations. 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. NOI, as adjusted, is calculated as NOI eliminating the effects of straight-line rents, amortization of above and below market 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 release 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, which include a statement about expected stabilized yields on certain acquired properties, 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 healthcare 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.
25
