Exhibit 99.2
SUPPLEMENTAL INFORMATION
MARCH 31, 2007
(UNAUDITED)
Table of Contents
Overview |
About the Company | | 4 |
Company Information | | 6 |
Quarterly Highlights | | 8 |
| | |
Consolidated Information |
Balance Sheets | | 10 |
Statements of Income | | 11 |
Statements of Cash Flows | | 12-13 |
Funds From Operations | | 14 |
Net Cash Provided by Operating Activities to Adjusted EBITDA Reconciliation | | 15-16 |
Adjusted Fixed Charge Coverage | | 17-18 |
Indebtedness | | 19-20 |
Book Capitalization | | 21-22 |
Market Capitalization | | 23-24 |
Portfolio Overview | | 25-27 |
Same Property Performance | | 28 |
Lease Expirations | | 29 |
| | |
Unconsolidated Joint Ventures |
Joint Ventures Summary | | 31-32 |
Balance Sheets | | 33 |
Statements of Income and EBITDA | | 34 |
Funds From Operations | | 35 |
Indebtedness | | 36 |
Portfolio Overview | | 37 |
| | |
Other Information |
Reporting Definitions | | 39-41 |
Supplemental Financial Measures Disclosures | | 42-45 |
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 730 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 information 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 March 31, 2007, the Company’s portfolio of properties, excluding assets held for sale and classified as discontinued operations, included 730 properties and consisted of:
· 331 senior housing facilities
· 264 medical office buildings
· 39 hospitals
· 67 skilled nursing facilities
· 29 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.
4
For more information, contact Mark A. Wallace, Executive Vice President, Chief Financial Officer and Treasurer at (562) 733-5100.
(1) As of March 31, 2007.
5
Company Information (1)
Board of Directors | |
Mary A. Cirillo-Goldberg | |
Former Chairman and Chief Executive Officer, OPCENTER | |
Compensation Committee | |
Nominating and Corporate Governance Committee | |
| |
Robert R. Fanning, Jr. | |
Managing Director (Retired) | |
The Huron Consulting Group | |
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 | |
Finance 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 |
Finance Committee |
|
Joseph P. Sullivan |
Chairman of the Board of Advisors |
RAND Health |
Chairperson, Finance Committee |
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 | | |
Fitch | | BBB |
Moody’s | | Baa3 |
Standard & Poor’s | | BBB |
| | |
Stock Exchange Listing | | |
NYSE | | (US Dollar) |
| | |
Trading Symbol | | |
HCP | | Common Stock |
HCP_pe | | Series E Preferred |
HCP_pf | | Series F Preferred |
Senior Management |
George P. Doyle |
Senior Vice President |
Chief Accounting Officer |
|
Charles A. Elcan |
Executive Vice President |
Medical Office Properties |
|
James F. Flaherty III |
Chairman and |
Chief Executive Officer |
|
Paul F. Gallagher |
Executive Vice President |
Chief Investment Officer |
|
Edward J. Henning |
Executive Vice President |
General Counsel and |
Corporate Secretary |
|
Thomas D. Kirby |
Senior Vice President |
Acquisitions and Dispositions |
|
Thomas M. Klaritch |
Senior Vice President |
Medical Office Properties |
|
Brian J. Maas |
Senior Vice President |
Associate General Counsel |
|
Stephen R. Maulbetsch |
Executive Vice President |
Strategic Development |
|
Stephen I. Robie |
Senior Vice President |
Financial Planning and Analysis |
|
Timothy M. Schoen |
Senior Vice President |
Investment Management |
|
Susan M. Tate |
Senior Vice President |
Asset Management |
|
Mark A. Wallace |
Executive Vice President |
Chief Financial Officer and Treasurer |
6
(1) As of April 30, 2007.
7
Quarterly Highlights(1)
INVESTMENT TRANSACTIONS
During the three months ended March 31, 2007, we acquired interests in properties aggregating $449 million with an average yield of 8.2%. Our 2007 investments were made in the following healthcare sectors: (i) 54% medical office buildings (“MOBs”), (ii) 45% hospitals, and (iii) 1% other healthcare facilities, and included the following:
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 (“SNFs”) valued at $77 million. We recognized a $47 million gain on the sale of these 11 SNFs. 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 $350 million, including non-managing member LLC units (“DownREIT units”) valued at $179 million. The initial yield on this campus is approximately 7.2%.
On February 28, 2007, we acquired three medical office buildings for $25 million from the Cirrus Group, LLC (“Cirrus”). The three medical office buildings include approximately 131,000 rentable square feet and have an initial yield of 8.2%.
During the three months ended March 31, 2007, we sold 27 properties for proceeds of $170 million and recognized gains of approximately $104 million. Our 2007 dispositions were made in the following healthcare sectors: (i) 63% SNFs (ii) 23% senior housing facilities and (iii) 14% other healthcare facilities. These sales included nine SNFs sold for $52 million with gains of approximately $30 million. During the fourth quarter of 2006, tenants for these nine SNFs exercised rights of first refusal to acquire such facilities.
JOINT VENTURE TRANSACTIONS
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. We retained a 35% interest in the venture, will act as the managing member, and will receive ongoing asset management fees.
On April 30, 2007, we formed a medical office building joint venture with an institutional capital partner. The joint venture includes 55 properties valued at approximately $585 million and encumbered by $344 million of secured debt. Upon formation, we received approximately $196 million in proceeds, which included a one-time acquisition fee of $3 million. Including the $122 million of recently placed secured debt discussed below, we received $318 million in total proceeds. We retained a 20% interest in the venture, will act as the managing member, and will receive ongoing asset management fees.
CAPITAL MARKET TRANSACTIONS
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 fully repay our term loan facility and reduce borrowings under our revolving credit facility.
On April 27, 2007, in anticipation of our joint venture that closed on April 30, 2007, $122 million of 10-year term mortgage notes were placed with an interest rate of 5.53%. The proceeds from the placement of these notes used to repay outstanding indebtedness and for other general corporate purposes.
OTHER EVENTS
On April 25, 2007, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.445 per share. The common stock dividend will be paid on May 18, 2007, to stockholders of record as of the close of business on May 7, 2007.
(1) Includes events subsequent to the current quarter-end through the date of the most recent quarterly earnings press release issuance.
8
Consolidated Information
Consolidated Balance Sheets
In thousands
| | March 31, | | December
31, | |
| | 2007 | | 2006 | |
ASSETS | | | | | |
Real estate: | | | | | |
Buildings and improvements | | $ | 6,992,649 | | $ | 6,597,047 | |
Developments in process | | 31,008 | | 44,210 | |
Land | | 868,486 | | 759,275 | |
Less accumulated depreciation and amortization | | 628,977 | | 578,269 | |
Net real estate | | 7,263,166 | | 6,822,263 | |
| | | | | |
Net investment in direct financing leases | | 679,956 | | 678,013 | |
Loans receivable, net | | 199,303 | | 196,480 | |
Investments in and advances to unconsolidated joint ventures | | 173,689 | | 25,389 | |
Accounts receivable, net | | 33,960 | | 31,026 | |
Cash and cash equivalents | | 102,923 | | 60,687 | |
Intangible assets, net | | 430,011 | | 479,612 | |
Real estate held for sale, net | | 4,830 | | 102,424 | |
Real estate held for contribution | | — | | 1,102,016 | |
Other assets, net | | 503,248 | | 514,839 | |
Total assets | | $ | 9,391,086 | | $ | 10,012,749 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Bank line of credit and term loan | | $ | 190,000 | | $ | 1,129,093 | |
Senior unsecured notes | | 3,232,630 | | 2,748,522 | |
Mortgage debt | | 1,541,877 | | 1,531,086 | |
Mortgage debt on assets held for contribution | | — | | 685,568 | |
Other debt | | 108,307 | | 107,746 | |
Intangible liabilities, net | | 162,211 | | 151,328 | |
Accounts payable and accrued liabilities | | 166,661 | | 182,810 | |
Deferred revenue | | 27,281 | | 20,795 | |
Total liabilities | | 5,428,967 | | 6,556,948 | |
| | | | | |
Minority interests: | | | | | |
Joint venture partners | | 35,515 | | 34,211 | |
Non-managing member unitholders | | 306,216 | | 127,554 | |
Total minority interests | | 341,731 | | 161,765 | |
| | | | | |
Stockholders’ equity: | | | | | |
Preferred stock | | 285,173 | | 285,173 | |
Common stock | | 205,987 | | 198,599 | |
Additional paid-in capital | | 3,378,858 | | 3,108,908 | |
Cumulative net income | | 2,083,981 | | 1,938,693 | |
Cumulative dividends | | (2,352,123 | ) | (2,255,062 | ) |
Accumulated other comprehensive income | | 18,512 | | 17,725 | |
Total stockholders’ equity | | 3,620,388 | | 3,294,036 | |
Total liabilities and stockholders’ equity | | $ | 9,391,086 | | $ | 10,012,749 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
10
Consolidated Statements of Income
In thousands, except per share data
| | Three Months Ended March 31, | |
| | 2007 | | 2006 | |
Revenues and other income: | | | | | |
Rental and related revenues | | $ | 213,000 | | $ | 106,137 | |
Income from direct financing leases | | 14,990 | | — | |
Investment management fee income | | 6,328 | | 1,054 | |
Interest and other income | | 16,130 | | 13,693 | |
| | 250,448 | | 120,884 | |
Costs and expenses: | | | | | |
Interest | | 79,590 | | 32,054 | |
Depreciation and amortization | | 64,033 | | 27,392 | |
Operating | | 42,401 | | 17,445 | |
General and administrative | | 20,593 | | 8,490 | |
| | 206,617 | | 85,381 | |
| | | | | |
Operating income | | 43,831 | | 35,503 | |
Equity income from unconsolidated joint ventures | | 1,214 | | 3,822 | |
Minority interests’ share of earnings | | (5,235 | ) | (3,777 | ) |
Income from continuing operations | | 39,810 | | 35,548 | |
| | | | | |
Discontinued operations: | | | | | |
Operating income | | 1,433 | | 13,749 | |
Gain on sales of real estate, net | | 104,045 | | 8,591 | |
| | 105,478 | | 22,340 | |
| | | | | |
Net income | | 145,288 | | 57,888 | |
Preferred stock dividends | | (5,283 | ) | (5,283 | ) |
Net income applicable to common shares | | $ | 140,005 | | $ | 52,605 | |
| | | | | |
Basic earnings per common share (EPS): | | | | | |
Continuing operations | | $ | 0.17 | | $ | 0.22 | |
Discontinued operations | | 0.52 | | 0.17 | |
Net income applicable to common shares | | $ | 0.69 | | $ | 0.39 | |
| | | | | |
Diluted earnings per common share: | | | | | |
Continuing operations | | $ | 0.17 | | $ | 0.22 | |
Discontinued operations | | 0.51 | | 0.16 | |
Net income applicable to common shares | | $ | 0.68 | | $ | 0.38 | |
| | | | | |
Weighted average shares used to calculate EPS: | | | | | |
Basic | | 204,000 | | 136,040 | |
Diluted | | 205,909 | | 136,856 | |
| | | | | |
Dividends declared per common share | | $ | 0.445 | | $ | 0.425 | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
11
Consolidated Statements of Cash Flows
In thousands
| | Three Months Ended March 31, | |
| | 2007 | | 2006 | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 145,288 | | $ | 57,888 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization of real estate, in-place lease and other intangibles: | | | | | |
Continuing operations | | 64,033 | | 27,392 | |
Discontinued operations | | 340 | | 3,464 | |
Amortization of above and below market lease intangibles, net | | (274 | ) | (359 | ) |
Stock-based compensation | | 2,478 | | 1,843 | |
Debt issuance costs amortization | | 3,654 | | 896 | |
Recovery of loan losses | | (125 | ) | — | |
Interest accretion on direct financing leases and straight-line rents | | (9,781 | ) | (2,398 | ) |
Equity income from unconsolidated joint ventures | | (1,214 | ) | (3,822 | ) |
Distributions of earnings from unconsolidated joint ventures | | 1,011 | | 3,822 | |
Minority interests’ share of earnings | | 5,235 | | 3,777 | |
Gain on sales of equity securities, net | | (1,012 | ) | — | |
Gain on sales of real estate, net | | (104,045 | ) | (8,591 | ) |
Changes in: | | | | | |
Accounts receivable | | (2,934 | ) | (383 | ) |
Other assets | | (7,625 | ) | 1,657 | |
Accounts payable, accrued liabilities and deferred revenue | | (8,347 | ) | 7,025 | |
Net cash provided by operating activities | | 86,682 | | 92,211 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Acquisition and development of real estate | | (222,006 | ) | (190,126 | ) |
Lease commissions and tenant and capital improvements | | (8,080 | ) | (3,898 | ) |
Net proceeds from sales of real estate | | 170,102 | | 21,395 | |
Distributions from unconsolidated joint ventures, net | | 276,209 | | 427 | |
Purchase of equity securities | | — | | (12,895 | ) |
Proceeds from the sale of equity securities | | 4,454 | | — | |
Principal repayments on loans receivable | | 3,832 | | 35,757 | |
Investment in loans receivable and debt securities | | (4,843 | ) | (1,570 | ) |
Decrease (increase) in restricted cash | | 7,837 | | (424 | ) |
Net cash provided by (used in) investing activities | | 227,505 | | (151,334 | ) |
| | | | | | | |
12
| | Three Months Ended March 31, | |
| | 2007 | | 2006 | |
Cash flows from financing activities: | | | | | |
Net borrowings (repayments) under bank lines of credit | | (434,500 | ) | 116,400 | |
Repayments of term loan | | (504,593 | ) | — | |
Repayments of mortgage debt | | (5,295 | ) | (1,470 | ) |
Issuance of mortgage debt, net of issuance costs | | 18,069 | | 22,100 | |
Repayments of senior unsecured notes | | (10,000 | ) | (135,000 | ) |
Issuance of senior unsecured notes, net of issuance costs | | 493,365 | | 148,606 | |
Net proceeds from the issuance of common stock and exercise of options | | 271,460 | | 9,564 | |
Dividends paid on common and preferred stock | | (97,061 | ) | (63,761 | ) |
Distributions to minority interests | | (3,396 | ) | (2,701 | ) |
Net cash provided by (used in) financing activities | | (271,951 | ) | 93,738 | |
| | | | | |
Net increase in cash and cash equivalents | | 42,236 | | 34,615 | |
Cash and cash equivalents, beginning of period | | 60,687 | | 21,342 | |
Cash and cash equivalents, end of period | | $ | 102,923 | | $ | 55,957 | |
| | | | | | | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
13
Consolidated Funds From Operations
In thousands, except per share data
| | Three Months Ended March 31, | |
| | 2007 | | 2006 | |
Net income applicable to common shares | | $ | 140,005 | | $ | 52,605 | |
Real estate depreciation and amortization: | | | | | |
Continuing operations | | 64,033 | | 27,392 | |
Discontinued operations | | 340 | | 3,464 | |
Gain on sales of real estate | | (104,045 | ) | (8,591 | ) |
Equity income from unconsolidated joint ventures | | (1,214 | ) | (3,822 | ) |
FFO from unconsolidated joint ventures | | 4,114 | | 2,233 | |
Minority interests’ share of earnings | | 5,235 | | 3,777 | |
Minority interests’ share of FFO | | (6,030 | ) | (4,092 | ) |
FFO applicable to common shares | | $ | 102,438 | | $ | 72,966 | |
Distributions on convertible units | | $ | 2,629 | | $ | 2,573 | |
Diluted FFO applicable to common shares | | $ | 105,067 | | $ | 75,539 | |
Basic FFO per common share | | $ | 0.50 | | $ | 0.54 | |
Diluted FFO per common share | | $ | 0.50 | | $ | 0.53 | |
Weighted average shares used to calculate diluted FFO per common share | | 211,777 | | 143,090 | |
Dividends declared per common share | | $ | 0.445 | | $ | 0.425 | |
FFO payout ratio per common share | | 89.0 | % | 80.2 | % |
Impact of merger-related charges | | $ | 7,302 | | $ | — | |
Per common share impact of merger-related charges on diluted FFO | | $ | 0.03 | | $ | — | |
FFO payout ratio per common share prior to merger-related charges | | 83.9 | % | 80.2 | % |
Impact of write-offs of acquisition costs | | $ | 2,887 | | $ | — | |
Per common share impact of write-offs of acquisition costs on diluted FFO | | $ | 0.01 | | $ | — | |
Consolidated selected supplemental cash flow information: | | | | | |
Amortization of above and below market lease intangibles, net | | $ | 274 | | $ | 359 | |
Stock-based compensation | | 2,478 | | 1,843 | |
Debt issuance costs amortization | | 3,654 | | 896 | |
Interest accretion on direct financing leases and straight-line rents | | 9,781 | | 2,398 | |
Lease commissions and tenant and capital improvements | | 8,080 | | 3,898 | |
Capitalized interest | | 95 | | 178 | |
Change in SAB 104 deferred revenue | | (3,627 | ) | (3,692 | ) |
HCP’s share of selected supplemental cash flow information from unconsolidated joint ventures(1): | | | | | |
Amortization of above and below market lease intangibles, net | | $ | 287 | | $ | 281 | |
Debt issuance costs amortization | | 65 | | 84 | |
Straight-line rents | | 1,413 | | 206 | |
Lease commissions and tenant and capital improvements | | 11 | | 587 | |
(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 and interest expense from HCP MOP excludes amounts subsequent to HCP’s acquisition of GE’s interest.
See Reporting Definitions and Supplemental Financial Measure Disclosures
14
Net Cash Provided by Operating Activities to Adjusted EBITDA Reconciliation
In thousands
| | Three Months Ended March 31, | |
| | 2007 | | 2006 | |
Net cash provided by operating activities | | $ | 86,682 | | $ | 92,211 | |
Changes in: | | | | | |
Accounts receivable | | 2,934 | | 383 | |
Other assets | | 7,625 | | (1,657 | ) |
Accounts payable, accrued liabilities and deferred revenue | | 8,347 | | (7,025 | ) |
Gain on sales of real estate, net | | 104,045 | | 8,591 | |
Gain on sales of equity securities, net | | 1,012 | | — | |
Minority interests’ share of earnings | | (5,235 | ) | (3,777 | ) |
Distributions of earnings from unconsolidated joint ventures | | (1,011 | ) | (3,822 | ) |
Equity income from unconsolidated joint ventures | | 1,214 | | 3,822 | |
Interest accretion on direct financing leases and straight-line rents | | 9,781 | | 2,398 | |
Recovery of loan losses | | 125 | | — | |
Debt issuance costs amortization | | (3,654 | ) | (896 | ) |
Stock-based compensation | | (2,478 | ) | (1,843 | ) |
Amortization of above and below market lease intangibles, net | | 274 | | 359 | |
Depreciation and amortization of real estate, in-place lease and other intangibles: | | | | | |
Continuing operations | | (64,033 | ) | (27,392 | ) |
Discontinued operations | | (340 | ) | (3,464 | ) |
Net income | | 145,288 | | 57,888 | |
| | | | | |
Interest expense: | | | | | |
Continuing operations | | 79,590 | | 32,054 | |
Discontinued operations | | 54 | | 39 | |
Income taxes | | 477 | | — | |
Depreciation and amortization of real estate, in-place lease and other intangibles: | | | | | |
Continuing operations | | 64,033 | | 27,392 | |
Discontinued operations | | 340 | | 3,464 | |
Equity income from unconsolidated joint ventures | | (1,214 | ) | (3,822 | ) |
HCP’s share of EBITDA from unconsolidated joint ventures (1) | | 7,680 | | 6,748 | |
Other joint venture adjustments | | 435 | | — | |
Minority interests’ share of earnings | | 5,235 | | 3,777 | |
Gain on sale of real estate, net | | (104,045 | ) | (8,591 | ) |
Adjusted EBITDA | | $ | 197,873 | | $ | 118,949 | |
15
(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 and interest expense from HCP MOP excludes amounts subsequent to HCP’s acquisition of GE’s interest.
16
Adjusted Fixed Charge Coverage
In thousands
| | Three Months Ended March 31, | |
| | 2007 | | 2006 | |
Net income | | $ | 145,288 | | $ | 57,888 | |
Interest expense: | | | | | |
Continuing operations | | 79,590 | | 32,054 | |
Discontinued operations | | 54 | | 39 | |
Income taxes | | 477 | | — | |
Depreciation and amortization of real estate, in-place lease and other intangibles: | | | | | |
Continuing operations | | 64,033 | | 27,392 | |
Discontinued operations | | 340 | | 3,464 | |
Equity income from unconsolidated joint ventures | | (1,214 | ) | (3,822 | ) |
HCP’s share of EBITDA from unconsolidated joint ventures(1) | | 7,680 | | 6,748 | |
Other joint venture adjustments | | 435 | | — | |
Minority interests’ share of earnings | | 5,235 | | 3,777 | |
Gain on sales of real estate, net | | (104,045 | ) | (8,591 | ) |
| | | | | |
Adjusted EBITDA | | 197,873 | | 118,949 | |
| | | | | |
Interest expense: | | | | | |
Continuing operations | | $ | 79,590 | | $ | 32,054 | |
Discontinued operations | | 54 | | 39 | |
HCP’s share of interest expense from unconsolidated joint ventures(1) | | 3,877 | | 1,537 | |
Capitalized interest | | 95 | | 178 | |
Preferred stock dividends | | 5,283 | | 5,283 | |
| | | | | |
Fixed charges | | $ | 88,899 | | $ | 39,091 | |
| | | | | |
Adjusted fixed charge coverage | | 2.2 | x | 3.0 | x |
17
(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 and interest expense from HCP MOP excludes amounts subsequent to HCP’s acquisition of GE’s interest.
18
Indebtedness
In thousands
Debt Maturities and Scheduled Principal Repayments
March 31, 2007
| | Bank Line | | | | | | | | | | | | | |
| | of Credit | | Senior | | | | | | | | HCP’s Share of | | | |
| | and | | Unsecured | | Mortgage | | Other | | Consolidated | | Unconsolidated | | | |
| | Term Loan | | Notes | | Debt | | Debt(3) | | Debt | | Debt | | Total Debt | |
2007 | | $ | — | | $ | 10,000 | | $ | 54,521 | | $ | 108,307 | | $ | 172,828 | | $ | 2,221 | | $ | 175,049 | |
2008 | | — | | 300,000 | | 88,470 | | — | | 388,470 | | 3,141 | | 391,611 | |
2009 | | 190,000 | | — | | 267,113 | | — | | 457,113 | | 3,365 | | 460,478 | |
2010 | | — | | 206,421 | | 292,134 | | — | | 498,555 | | 3,563 | | 502,118 | |
2011 | | — | | 300,000 | | 145,646 | | — | | 445,646 | | 3,773 | | 449,419 | |
2012 | | — | | 250,000 | | 135,227 | | — | | 385,227 | | 3,958 | | 389,185 | |
2013 | | — | | 550,000 | | 60,837 | | — | | 610,837 | | 41,300 | | 652,137 | |
2014 | | — | | 87,000 | | 170,406 | | — | | 257,406 | | 3,643 | | 261,049 | |
2015 | | — | | 400,000 | | 88,426 | | — | | 488,426 | | 3,858 | | 492,284 | |
2016 | | — | | 400,000 | | 142,737 | | — | | 542,737 | | 31,324 | | 574,061 | |
Thereafter | | — | | 750,000 | | 90,431 | | — | | 840,431 | | 166,787 | | 1,007,218 | |
Subtotal | | 190,000 | | 3,253,421 | | 1,535,948 | | 108,307 | | 5,087,676 | | 266,933 | | 5,354,609 | |
| | | | | | | | | | | | | | | |
(Discounts) and premiums, net | | — | | (20,791 | ) | 5,929 | | — | | (14,862 | ) | (238 | ) | (15,100 | ) |
Total | | $ | 190,000 | | $ | 3,232,630 | | $ | 1,541,877 | | $ | 108,307 | | $ | 5,072,814 | | $ | 266,695 | | $ | 5,339,509 | |
| | | | | | | | | | | | | | | |
Weighted average interest rate | | 6.02 | % | 6.10 | % | 6.14 | % | N/A | | 6.11 | % | 5.70 | % | 6.09 | % |
| | | | | | | | | | | | | | | |
Weighted average maturity in years | | 2.59 | | 6.91 | | 6.86 | | N/A | | 6.73 | | 9.08 | | 6.85 | |
Debt Analysis
| | | | December | |
| | March 31, | | 31, | |
| | 2007 | | 2006 | |
Fixed rate debt | | | | | |
Senior unsecured notes | | $ | 2,908,177 | | $ | 2,424,163 | |
Mortgage debt(1)(2) | | 1,284,789 | | 2,001,716 | |
Other debt | | 108,307 | | 107,746 | |
HCP’s share of unconsolidated debt | | 266,695 | | 27,519 | |
| | 4,567,968 | | 4,561,144 | |
Variable rate debt | | | | | |
Bank line of credit and term loan | | 190,000 | | 1,129,093 | |
Senior unsecured notes | | 324,453 | | 324,359 | |
Mortgage debt | | 257,088 | | 214,938 | |
| | 771,541 | | 1,668,390 | |
Total debt | | $ | 5,339,509 | | $ | 6,229,534 | |
| | March 31, | | December 31, | |
| | 2007 | | 2006 | |
Fixed and variable rate ratios | | | | | |
Fixed rate | | 85.6 | % | 73.2 | % |
Variable rate | | 14.4 | % | 26.8 | % |
| | 100.0 | % | 100.0 | % |
| | | | | |
Secured and unsecured debt ratios | | | | | |
Secured | | 33.9 | % | 36.0 | % |
Unsecured | | 66.1 | % | 64.0 | % |
| | 100.0 | % | 100.0 | % |
See Reporting Definitions and Supplemental Financial Measure Disclosures
19
(1) Includes mortgage debt on assets held for contribution at December 31, 2006.
(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
20
Consolidated Book Capitalization
In thousands
Total Debt
| | March 31, | | December
31, | |
| | 2007 | | 2006 | |
Bank line of credit and term loan | | $ | 190,000 | | $ | 1,129,093 | |
Senior unsecured notes | | 3,232,630 | | 2,748,522 | |
Mortgage debt(1) | | 1,541,877 | | 2,216,654 | |
Other debt | | 108,307 | | 107,746 | |
Consolidated debt | | $ | 5,072,814 | | $ | 6,202,015 | |
HCP’s share of unconsolidated debt | | 266,695 | | 27,519 | |
Total debt | | $ | 5,339,509 | | $ | 6,229,534 | |
Book Capitalization
| | March 31, | | December 31, | |
| | 2007 | | 2006 | |
Total debt | | $ | 5,339,509 | | $ | 6,229,534 | |
Total minority interests | | 341,731 | | 161,765 | |
Total stockholders’ equity | | 3,620,388 | | 3,294,036 | |
Total book capitalization | | $ | 9,301,628 | | $ | 9,685,335 | |
Accumulated depreciation and amortization | | 628,977 | | 578,269 | |
HCP’s share of unconsolidated accumulated depreciation and amortization | | 5,897 | | 849 | |
Total undepreciated book capitalization | | $ | 9,936,502 | | $ | 10,264,453 | |
Gross Assets
| | March 31, | | December 31, | |
| | 2007 | | 2006 | |
Consolidated assets | | $ | 9,391,086 | | $ | 10,012,749 | |
Investments in and advances to unconsolidated joint ventures | | (173,689 | ) | (25,389 | ) |
Accumulated depreciation and amortization | | 628,977 | | 578,269 | |
Consolidated gross assets | | $ | 9,846,374 | | $ | 10,565,629 | |
HCP’s share of unconsolidated total assets | | 430,653 | | 45,255 | |
HCP’s share of unconsolidated accumulated depreciation and amortization | | 5,897 | | 849 | |
Total gross assets | | $ | 10,282,924 | | $ | 10,611,733 | |
Capitalization Ratios
| | March 31, | | December
31, | |
| | 2007 | | 2006 | |
Total debt/Total book capitalization | | 57.4 | % | 64.3 | % |
Total debt/Total undepreciated book capitalization | | 53.7 | % | 60.7 | % |
| | | | | |
Consolidated debt/Consolidated gross assets | | 51.5 | % | 58.7 | % |
Total debt/Total gross assets | | 51.9 | % | 58.7 | % |
See Reporting Definitions and Supplemental Financial Measure Disclosures
21
(1) Includes mortgage debt on assets held for contribution at December 31, 2006.
See Reporting Definitions and Supplemental Financial Measure Disclosures
22
Consolidated Market Capitalization
In thousands, except per share data
Total Debt
| | March 31, | | December
31, | |
| | 2007 | | 2006 | |
Bank line of credit and term loan | | $ | 190,000 | | $ | 1,129,093 | |
Senior unsecured notes | | 3,232,630 | | 2,748,522 | |
Mortgage debt(1) | | 1,541,877 | | 2,216,654 | |
Other debt | | 108,307 | | 107,746 | |
Consolidated debt | | $ | 5,072,814 | | $ | 6,202,015 | |
HCP’s share of unconsolidated debt | | 266,695 | | 27,519 | |
Total debt | | $ | 5,339,509 | | $ | 6,229,534 | |
Market Capitalization
| | March 31, 2007 | | December 31, 2006 | |
Security | | Shares/Units | | Price | | Value | | Shares/Units | | Price | | Value | |
Common stock | | 205,987 | | $ | 36.03 | | $ | 7,421,712 | | 198,599 | | $ | 36.82 | | $ | 7,312,415 | |
| | | | | | | | | | | | | |
Convertible partnership units | | | | | | | | | | | | | |
2 for 1(2) | | 2,510 | | 72.06 | | 180,871 | | 2,533 | | 73.64 | | 186,530 | |
1 for 1(3) | | 5,077 | | 36.03 | | 182,924 | | 887 | | 36.82 | | 32,659 | |
| | | | | | 363,795 | | | | | | 219,189 | |
Preferred stock: | | | | | | | | | | | | | |
7.25% Series E | | 4,000 | | 25.55 | | 102,200 | | 4,000 | | 25.56 | | 102,240 | |
7.10% Series F | | 7,820 | | 25.65 | | 200,583 | | 7,820 | | 25.62 | | 200,348 | |
| | | | | | 302,783 | | | | | | 302,588 | |
| | | | | | | | | | | | | |
Consolidated market equity | | | | | | $ | 8,088,290 | | | | | | $ | 7,834,192 | |
| | | | | | | | | | | | | |
Consolidated debt | | | | | | 5,072,814 | | | | | | 6,202,015 | |
| | | | | | | | | | | | | |
Consolidated market capitalization | | | | | | $ | 13,161,104 | | | | | | $ | 14,036,207 | |
| | | | | | | | | | | | | |
HCP’s share of unconsolidated debt | | | | | | 266,695 | | | | | | 27,519 | |
| | | | | | | | | | | | | |
Total market capitalization | | | | | | $ | 13,427,799 | | | | | | $ | 14,063,726 | |
| | | | | | | | | | | | | | | | | |
Capitalization Ratios
| | March 31, | | December 31, | |
| | 2007 | | 2006 | |
Consolidated debt/Consolidated market capitalization | | 38.5 | % | 44.2 | % |
| | | | | |
Total debt/Total market capitalization | | 39.8 | % | 44.3 | % |
See Reporting Definitions and Supplemental Financial Measure Disclosures
23
(1) Includes mortgage debt on assets held for contribution at December 31, 2006.
(2) 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.
(3) 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.
See Reporting Definitions and Supplemental Financial Measure Disclosures
24
Consolidated Portfolio Overview
As of and for the three months ended March 31, 2007, 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 | | 03/31/07 | | 12/31/06 | | of States | |
Hospital | | 39 | | 4,398 | Beds | | 5,012 | | 53 | | 53 | | 17 | |
Skilled nursing | | 67 | | 7,808 | Beds | | 2,586 | | 85 | | 86 | | 16 | |
Senior housing | | 302 | | 31,110 | Units | | 26,014 | | 90 | | 90 | | 40 | |
MOB | | 250 | | N/A | | 15,821 | | 91 | | 91 | | 29 | |
Other | | 29 | | N/A | | 1,552 | | 88 | | 99 | | 9 | |
Total | | 687 | | | | 50,985 | | | | | | | |
Operator concentration
| | Property | | Investment | | | | Interest and | | Total | |
Operator | | Count | | Amount | | % | | NOI | | DFL Income | | Amount | | % | |
Sunrise Senior Living | | 103 | | $ | 2,254,856 | | 25 | | $ | 26,601 | | $ | 10,913 | | $ | 37,514 | | 20 | |
Brookdale Senior Living | | 22 | | 661,715 | | 7 | | 16,078 | | — | | 16,078 | | 8 | |
Tenet Healthcare Corporation | | 8 | | 423,497 | | 5 | | 11,151 | | — | | 11,151 | | 6 | |
Summerville Healthcare Group | | 31 | | 274,590 | | 3 | | 6,227 | | 226 | | 6,453 | | 3 | |
Aegis Senior Living | | 12 | | 258,008 | | 3 | | 5,601 | | — | | 5,601 | | 3 | |
HCA - Hospital Corporation of America | | 8 | | 233,075 | | 3 | | 4,161 | | — | | 4,161 | | 2 | |
Emeritus Corporation | | 34 | | 213,749 | | 2 | | 6,135 | | 83 | | 6,218 | | 3 | |
Encore Senior Living | | 18 | | 178,035 | | 2 | | 2,524 | | 18 | | 2,542 | | 1 | |
Capital Senior Living | | 14 | | 168,378 | | 2 | | 3,365 | | — | | 3,365 | | 2 | |
Harbor Retirement Associates | | 10 | | 159,060 | | 2 | | (79 | ) | 466 | | 387 | | 1 | |
Other Public Companies | | 49 | | 443,956 | | 5 | | 12,197 | | 2,018 | | 14,215 | | 8 | |
Other Operators | | 378 | | 3,692,928 | | 41 | | 76,638 | | 5,178 | | 81,816 | | 43 | |
| | 687 | | $ | 8,961,847 | | 100 | | $ | 170,599 | | $ | 18,902 | | $ | 189,501 | | 100 | |
| | | | | | | | | | | | | | | |
Reconciliation of Net Income to NOI | | | | | | | | | | | | | | | |
Net income | | | | | | | | $ | 145,288 | | | | | | | |
Income from direct financing leases | | | | | | | | (14,990 | ) | | | | | | |
Investment management fee income | | | | | | | | (6,328 | ) | | | | | | |
Interest and other income | | | | | | | | (16,130 | ) | | | | | | |
Interest expense | | | | | | | | 79,590 | | | | | | | |
Depreciation and amortization | | | | | | | | 64,033 | | | | | | | |
General and administrative | | | | | | | | 20,593 | | | | | | | |
Equity income from unconsolidated joint ventures | | | | | | | | (1,214 | ) | | | | | | |
Minority interests’ share of earnings | | | | | | | | 5,235 | | | | | | | |
Total discontinued operations | | | | | | | | (105,478 | ) | | | | | | |
Net operating income (“NOI”) | | | | | | | | $ | 170,599 | | | | | | | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
25
As of and for the three months ended March 31, 2007, dollars and square feet in thousands
Owned Property Portfolio – Overview by type
| | Property | | | | | | | | Square | | Facility Occupancy% | | Cash Flow | | Rental
and
Related | | Operating | | | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 03/31/07 | | 12/31/06 | | Coverage | | Revenues | | Expenses | | NOI | |
Hospital | | 37 | | $ | 1,073,658 | | 4,228 | | Beds | | 4,701 | | 53 | | 53 | | 2.5 | x | $ | 27,411 | | $ | 248 | | $ | 27,163 | |
Skilled nursing | | 63 | | 307,594 | | 7,212 | | Beds | | 2,389 | | 85 | | 86 | | 1.7 | x | 10,660 | | 25 | | 10,635 | |
Senior housing | | 265 | | 3,940,994 | | 27,787 | | Units | | 23,855 | | 91 | | 89 | | 1.0 | x | 77,898 | | 4,625 | | 73,273 | |
MOB | | 250 | | 2,595,534 | | N/A | | 15,821 | | 91 | | 91 | | | | 89,366 | | 36,010 | | 53,356 | |
Other | | 29 | | 247,558 | | N/A | | 1,552 | | 88 | | 99 | | | | 7,665 | | 1,493 | | 6,172 | |
Total | | 644 | | $ | 8,165,338 | | | | | | 48,318 | | | | | | | | $ | 213,000 | | $ | 42,401 | | $ | 170,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct Financing Lease Portfolio – Overview by type
| | Property | | | | | | | | Square | | Facility Occupancy% | | Cash Flow | | DFL | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 03/31/07 | | 12/31/06 | | Coverage | | Income | |
Senior housing | | 32 | | $ | 675,500 | | 3,143 | | Units | | 1,969 | | 90 | | 90 | | 1.1 | x | $ | 14,990 | |
| | | | | | | | | | | | | | | | | | | | | | |
Secured Loan Portfolio – Overview by type
| | | | | | | | | | | | | | Debt | | | |
| | Property | | | | | | | | Square | | Facility Occupancy% | | Service | | Interest | |
Sector | | Count | | Investment | | Beds/Units | | Feet | | 03/31/07 | | 12/31/06 | | Coverage | | Income | |
Hospital | | 2 | | $ | 75,090 | | 170 | | Beds | | 311 | | 51 | | 50 | | 2.5 | x | $ | 1,625 | |
Skilled nursing | | 4 | | 19,815 | | 596 | | Beds | | 197 | | 84 | | 85 | | 1.9 | x | 579 | |
Senior housing | | 5 | | 26,104 | | 180 | | Units | | 190 | | 84 | | 83 | | 2.3 | x | 1,708 | |
Total | | 11 | | $ | 121,009 | | | | | | 698 | | | | | | | | $ | 3,912 | |
| | | | | | | | | | | | | | | | | | | | | | |
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 | | 114 | | 9 | | 1,064 | | 4 | | 570 | | 36 | | 4,067 | | 64 | | 5,025 | | 1 | | — | |
CA | | 76 | | 4 | | 745 | | 8 | | 819 | | 35 | | 3,778 | | 23 | | 1,430 | | 6 | | 476 | |
FL | | 74 | | 2 | | 312 | | — | | — | | 44 | | 4,980 | | 28 | | 1,436 | | — | | — | |
See Reporting Definitions and Supplemental Financial Measure Disclosures
26
Consolidated Portfolio Overview (continued) | |
VA | | 23 | | 1 | | — | | 9 | | 934 | | 10 | | 1,321 | | 3 | | 211 | | — | | — | |
CO | | 24 | | 1 | | 64 | | 2 | | 240 | | 5 | | 871 | | 16 | | 910 | | — | | — | |
UT | | 35 | | 1 | | 139 | | 1 | | 120 | | 2 | | 233 | | 22 | | 950 | | 9 | | 580 | |
WA | | 18 | | — | | — | | — | | — | | 12 | | 888 | | 6 | | 586 | | — | | — | |
IN | | 34 | | — | | — | | 15 | | 1,554 | | 5 | | 392 | | 14 | | 763 | | — | | — | |
Other | | 246 | | 19 | | 1,904 | | 24 | | 2,975 | | 116 | | 11,257 | | 74 | | 4,510 | | 13 | | 496 | |
Total | | 644 | | 37 | | 4,228 | | 63 | | 7,212 | | 265 | | 27,787 | | 250 | | 15,821 | | 29 | | 1,552 | |
27
Same Property Performance
Dollars and square feet in thousands
| | | | | | Skilled | | Senior | | | | | |
| | Total | | Hospital | | Nursing | | Housing | | MOB | | Other | |
Owned Property Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Property count | | 644 | | 37 | | 63 | | 265 | | 250 | | 29 | |
Investment | | $ | 8,165,338 | | $ | 1,073,658 | | $ | 307,594 | | $ | 3,940,994 | | $ | 2,595,534 | | $ | 247,558 | |
| | | | | | | | | | | | | |
Same Property Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Property count | | 325 | | 26 | | 62 | | 116 | | 102 | | 19 | |
Investment | | $ | 3,373,426 | | 713,931 | | $ | 302,528 | | $ | 1,228,253 | | $ | 954,625 | | $ | 174,089 | |
| | | | | | | | | | | | | |
Percent of Owned Property Portfolio (by investment) | | 41 | % | 66 | % | 98 | % | 31 | % | 37 | % | 70 | % |
| | | | | | | | | | | | | |
Square feet | | 25,073 | | 3,272 | | 2,343 | | 12,004 | | 6,243 | | 1,211 | |
| | | | | | | | | | | | | |
Facility occupancy at March 31, 2007 | | | | 54 | % | 85 | % | 90 | % | 94 | % | 86 | % |
| | | | | | | | | | | | | |
Facility occupancy at March 31, 2006 | | | | 55 | % | 87 | % | 88 | % | 94 | % | 100 | % |
| | | | | | | | | | | | | |
NOI for the three months ended March 31, 2007 | | $ | 90,733 | | $ | 20,374 | | $ | 10,489 | | $ | 30,356 | | $ | 24,995 | | $ | 4,519 | |
| | | | | | | | | | | | | |
NOI for the three months ended March 31, 2006 | | $ | 86,724 | | $ | 19,510 | | $ | 9,977 | | $ | 29,518 | | $ | 23,268 | | $ | 4,451 | |
| | | | | | | | | | | | | |
Same property change in NOI | | 4.6 | % | 4.4 | % | 5.1 | % | 2.8 | % | 7.4 | % | 1.5 | % |
| | | | | | | | | | | | | |
NOI for the three months ended March 31, 2007 | | $ | 90,733 | | $ | 20,374 | | $ | 10,489 | | $ | 30,356 | | $ | 24,995 | | $ | 4,519 | |
Straight-line rents | | (3,453 | ) | (296 | ) | (189 | ) | (1,318 | ) | (1,254 | ) | (396 | ) |
Amortization of above and below market lease intangibles, net | | (244 | ) | — | | 29 | | — | | (273 | ) | — | |
NOI, as adjusted, for the three months ended March 31, 2007 | | $ | 87,036 | | $ | 20,078 | | $ | 10,329 | | $ | 29,038 | | $ | 23,468 | | $ | 4,123 | |
| | | | | | | | | | | | | |
NOI for the three months ended March 31, 2006 | | $ | 86,724 | | $ | 19,510 | | $ | 9,977 | | $ | 29,518 | | $ | 23,268 | | $ | 4,451 | |
Straight-line rents | | (2,266 | ) | (353 | ) | (39 | ) | (1,429 | ) | (477 | ) | 32 | |
Amortization of above and below market lease intangibles, net | | (311 | ) | — | | 29 | | — | | (340 | ) | — | |
NOI, as adjusted, for the three months ended March 31, 2006 | | $ | 84,147 | | $ | 19,157 | | $ | 9,967 | | $ | 28,089 | | $ | 22,451 | | $ | 4,483 | |
| | | | | | | | | | | | | |
Same property change in NOI, as adjusted | | 3.4 | % | 4.8 | % | 3.6 | % | 3.4 | % | 4.5 | % | -8.0 | % |
See Reporting Definitions and Supplemental Financial Measure Disclosures
28
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 | | 8 | | — | | 4 | | 4 | | — | | — | |
Annualized expiring rents | | $ | 5,236 | | $ | — | | $ | 3,016 | | $ | 2,220 | | $ | — | | $ | — | |
| | | | | | | | | | | | | |
Senior housing: | | | | | | | | | | | | | |
Leases | | 16 | | — | | 1 | | — | | 3 | | 12 | |
Annualized expiring rents | | $ | 6,226 | | $ | — | | $ | 70 | | $ | — | | $ | 473 | | $ | 5,683 | |
| | | | | | | | | | | | | |
MOB: | | | | | | | | | | | | | |
Leases | | 2,837 | | 685 | | 673 | | 522 | | 552 | | 405 | |
Annualized expiring rents | | $ | 187,746 | | $ | 34,529 | | $ | 42,291 | | $ | 38,091 | | $ | 42,904 | | $ | 29,931 | |
| | | | | | | | | | | | | |
Other: | | | | | | | | | | | | | |
Leases | | 14 | | 1 | | 1 | | 5 | | 4 | | 3 | |
Annualized expiring rents | | $ | 13,219 | | $ | 3,901 | | $ | 3,453 | | $ | 2,431 | | $ | 2,850 | | $ | 584 | |
| | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | |
Leases | | 2,889 | | 688 | | 680 | | 538 | | 560 | | 423 | |
Annualized expiring rents | | $ | 265,664 | | $ | 40,116 | | $ | 50,827 | | $ | 83,761 | | $ | 49,200 | | $ | 41,760 | |
(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
29
Unconsolidated Joint Ventures
Unconsolidated Joint Ventures Summary
As of and for the three months ended March 31, 2007
Dollars and square feet in thousands
| | | | | | HCP’s | | | | HCP’s Net | | Investment | | | |
| | | | Date | | Ownership | | Gross Real | | Equity | | Management | | Term (in | |
Joint Venture | | Sector | | Established | | Percentage | | Estate | | Investment | | Fee Income | | years) | |
HCP Ventures III | | MOB | | October-06 | | 30.0%(1) | | $ | 140,198 | | $ | 14,080 | | $ | 74 | | 10 | |
HCP Ventures II | | Senior housing | | January-07 | | 35.0 | | 1,097,267 | | 145,999 | | 6,165 | (2) | Indefinite | |
| | | | | | | | | | | | | | | |
| | | | | | | | $ | 1,237,465 | | $ | 160,079 | | $ | 6,239 | | | |
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(1) The Company owns a 85% interest in HCP Birmingham Portfolio, LLC, which owns a 30% interest in HCP Ventures III, LLC.
(2) Includes one-time acquisition fee of $5.4 million.
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Unconsolidated Balance Sheets
In thousands
| | March 31, 2007 | | December 31, 2006 | |
| | HCP Ventures
III | | HCP Ventures II | | HCP Ventures
III | | HCP Ventures II(1) | |
ASSETS | | | | | | | | | |
Real estate: | | | | | | | | | |
Buildings and improvements | | $ | 129,254 | | $ | 936,095 | | $ | 129,239 | | — | |
Developments in process | | 70 | | — | | 50 | | — | |
Land | | 1,780 | | 108,907 | | 1,780 | | — | |
Less accumulated depreciation and amortization | | 3,692 | | 13,684 | | 2,829 | | — | |
Net real estate | | 127,412 | | 1,031,318 | | 128,240 | | — | |
| | | | | | | | | |
Accounts receivable, net | | 700 | | 945 | | 572 | | — | |
Cash and cash equivalents | | 4,601 | | 3,014 | | 5,312 | | — | |
Intangible assets, net | | 13,761 | | 51,537 | | 13,904 | | — | |
Other assets, net | | 2,720 | | 15,742 | | 2,821 | | — | |
Total assets | | $ | 149,194 | | $ | 1,102,556 | | $ | 150,849 | | $ | — | |
| | | | | | | | | |
LIABILITIES AND MEMBERS’ CAPITAL | | | | | | | | | |
Mortgage debt | | $ | 91,730 | | $ | 683,361 | | $ | 91,730 | | $ | — | |
Intangible liabilities, net | | 6,072 | | 1,363 | | 6,236 | | — | |
Accounts payable and accrued liabilities | | 4,276 | | 692 | | 5,103 | | — | |
Deferred revenue | | 182 | | — | | 91 | | — | |
Total liabilities | | 102,260 | | 685,416 | | 103,160 | | — | |
| | | | | | | | | |
HCP’s capital | | 14,080 | | 145,999 | | 14,307 | | — | |
Partners’ capital | | 32,854 | | 271,141 | | 33,382 | | — | |
Total liabilities and members’ capital | | $ | 149,194 | | $ | 1,102,556 | | $ | 150,849 | | $ | — | |
(1) | At December 31, 2006, HCP Ventures II was a wholly owned subsidiary of the Company. |
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Unconsolidated Statements of Income and EBITDA
In thousands
| | Three Months Ended March 31, 2007 | |
| | HCP Ventures
III | | HCP Ventures II | |
| | | | | |
Rental and related revenues | | $ | 4,527 | | $ | 20,609 | |
| | | | | |
Costs and expenses: | | | | | |
Interest | | 1,436 | | 9,846 | |
Depreciation and amortization | | 984 | | 7,218 | |
Operating | | 1,505 | | — | |
General and administrative | | 136 | | 1,141 | |
| | 4,061 | | 18,205 | |
| | | | | |
Net income | | $ | 466 | | $ | 2,404 | |
| | | | | |
Interest expense | | 1,436 | | 9,846 | |
Depreciation and amortization | | 984 | | 7,218 | |
| | | | | |
EBITDA | | $ | 2,886 | | $ | 19,468 | |
| | | | | |
HCP’s share of venture’s EBITDA | | $ | 866 | | $ | 6,814 | |
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Unconsolidated Funds From Operations
In thousands
| | Three Months Ended March 31, 2007 | |
| | HCP Ventures
III | | HCP Ventures II | |
| | | | | |
Net income | | $ | 466 | | $ | 2,404 | |
Real estate depreciation and amortization | | 984 | | 7,218 | |
| | | | | |
Funds from operations (FFO) | | $ | 1,450 | | $ | 9,622 | |
| | | | | |
HCP’s share of FFO from unconsolidated joint ventures | | $ | 435 | | $ | 3,368 | |
| | | | | |
Selected supplemental cash flow information: | | | | | |
Amortization of above and below market lease intangibles, net | | $ | 142 | | $ | 697 | |
Debt issuance costs amortization | | 38 | | 152 | |
Straight-line rents | | 250 | | 3,824 | |
Lease commissions and tenant and capital improvements | | 35 | | — | |
| | | | | |
Unconsolidated joint venture contribution to FFO: | | | | | |
HCP’s share of FFO from unconsolidated joint ventures | | $ | 435 | | $ | 3,368 | |
Fees paid to HCP | | 74 | | 6,165 | |
| | | | | |
| | $ | 509 | | $ | 9,533 | |
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Unconsolidated Indebtedness
In thousands
Debt Maturities and Scheduled Principal Repayments
March 31, 2007
| | | | | | | | HCP’s Share of | |
| | HCP | | HCP | | | | Unconsolidated | |
| | Ventures III | | Ventures II | | Total | | Debt | |
| | | | | | | | | |
2007 | | $ | — | | $ | 6,347 | | $ | 6,347 | | $ | 2,221 | |
2008 | | — | | 8,974 | | 8,974 | | 3,141 | |
2009 | | — | | 9,613 | | 9,613 | | 3,365 | |
2010 | | — | | 10,179 | | 10,179 | | 3,563 | |
2011 | | — | | 10,779 | | 10,779 | | 3,773 | |
2012 | | — | | 11,308 | | 11,308 | | 3,958 | |
2013 | | — | | 118,000 | | 118,000 | | 41,300 | |
2014 | | — | | 10,409 | | 10,409 | | 3,643 | |
2015 | | — | | 11,023 | | 11,023 | | 3,858 | |
2016 | | 91,730 | | 10,873 | | 102,603 | | 31,324 | |
Thereafter | | — | | 476,535 | | 476,535 | | 166,787 | |
Subtotal | | 91,730 | | 684,040 | | 775,770 | | 266,933 | |
| | | | | | | | | |
(Discounts) and premiums, net | | — | | (679 | ) | (679 | ) | (238 | ) |
| | | | | | | | | |
Total debt | | $ | 91,730 | | $ | 683,361 | | $ | 775,091 | | $ | 266,695 | |
| | | | | | | | | |
HCP’s share of total debt | | $ | 27,519 | | $ | 239,176 | | $ | 266,695 | | | |
| | | | | | | | | |
Weighted average interest rate | | 6.00 | % | 5.66 | % | 5.70 | % | | |
| | | | | | | | | |
Weighted average interest maturity in years | | 9.20 | | 9.06 | | 9.08 | | | |
Total Debt Analysis
| | March 31, 2007 | | December 31, 2006 | |
| | HCP Ventures
III | | HCP Ventures
II | | Total | | HCP Ventures
III | | HCP Ventures II | | Total | |
| | | | | | | | | | | | | |
Fixed rate debt | | $ | 91,730 | | $ | 683,361 | | $ | 775,091 | | $ | 91,730 | | $ | — | | $ | 91,730 | |
Variable rate debt | | — | | — | | — | | — | | — | | — | |
Total debt | | $ | 91,730 | | $ | 683,361 | | $ | 775,091 | | $ | 91,730 | | $ | — | | $ | 91,730 | |
| | | | | | | | | | | | | |
HCP’s share of total debt | | | | | | | | | | | | | |
Fixed rate | | $ | 27,519 | | $ | 239,176 | | $ | 266,695 | | $ | 27,519 | | $ | — | | $ | 27,519 | |
Variable rate | | — | | — | | — | | — | | — | | — | |
| | $ | 27,519 | | $ | 239,176 | | $ | 266,695 | | $ | 27,519 | | $ | — | | $ | 27,519 | |
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Unconsolidated Portfolio Overview
As of and for the year ended March 31, 2007, dollars and square feet in thousands
Portfolio Overview
| | | | Property | | | | | | Facility Occupancy % | | Number of | |
Joint Venture | | Sector | | Count | | Units | | Square Feet | | 03/31/07 | | 12/31/06 | | States | |
HCP Ventures III | | MOB | | 13 | | N/A | | 789 | | 100 | | 100 | | 5 | |
HCP Ventures II | | Senior housing | | 25 | | 5,633 | | 5,566 | | 93 | | 93 | | 6 | |
| | | | 38 | | | | 6,355 | | | | | | | |
Operator Concentration
| | Property | | Investment | | Net Operating Income | |
Operator | | Count | | Amount | | % | | Amount | | % | |
Horizon Bay | | 25 | | $ | 1,097,267 | | 89 | | $ | 20,609 | | 87 | |
Other operators | | 13 | | 140,198 | | 11 | | 3,022 | | 13 | |
| | 38 | | $ | 1,237,465 | | 100 | | $ | 23,631 | | 100 | |
| | HCP Ventures III | | HCP Ventures II | | Total | |
Reconciliation of net income to NOI | | | | | | | |
Net income | | $ | 466 | | $ | 2,404 | | $ | 2,870 | |
Interest expense | | 1,436 | | 9,846 | | 11,282 | |
Depreciation and amortization | | 984 | | 7,218 | | 8,202 | |
General and administrative | | 136 | | 1,141 | | 1,277 | |
Net operating income (“NOI”) | | $ | 3,022 | | $ | 20,609 | | $ | 23,631 | |
Lease Expiration Summary (1)
| | | | Expiration Year | |
Joint Venture | | Total | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | |
| | | | | | | | | | | | | |
HCP Ventures III | | | | | | | | | | | | | |
Leases | | 43 | | 2 | | 3 | | 15 | | 12 | | 11 | |
Annualized expiring rents | | $ | 3,367 | | $ | 70 | | $ | 232 | | $ | 1,328 | | $ | 1,030 | | $ | 707 | |
| | | | | | | | | | | | | | | | | | | |
(1) All leases associated with HCP Ventures II expire in years later than 2011.
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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.
Consolidated Assets. Total assets as reported in the Company’s financial statements.
Consolidated Book Capitalization. The carrying amount of (i) Consolidated Debt plus (ii) total minority interests plus (iii) total stockholders’ equity as reported in the Company’s financial statements.
Consolidated Debt. The carrying amount of bank lines of credit, bridge loans (if applicable), term loans (if applicable), senior unsecured notes, mortgage debt and other debt as reported in the Company’s financial statements.
Consolidated Gross Assets. The carrying amount of total assets, excluding investments in and advances to unconsolidated joint ventures, after adding back accumulated depreciation and amortization.
Consolidated Market Capitalization. Consolidated Debt at Book Value plus Consolidated Market Equity.
Consolidated 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.
Consolidated Undepreciated Book Capitalization. Consolidated Book Capitalization after adding back accumulated depreciation and amortization on the Company’s real estate assets.
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.
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
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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.
HCP Ventures II. An unconsolidated joint venture formed on January 5, 2007 between the Company and an institutional capital partner, for which the Company is managing member and has a 35% interest therein.
HCP Ventures III. An unconsolidated joint venture formed on October 27, 2006 between the Company and an institutional capital partner, for which the Company is managing member and has an effective 25.5% 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.
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.
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.
40
Total Book Capitalization. Total Debt plus the carrying amount of total minority interests plus the carrying amount of total stockholders’ equity.
Total Debt. Consolidated Debt at Book Value plus the Company’s pro rata share of debt from unconsolidated joint ventures.
Total Gross Assets. Consolidated Gross Assets plus the Company’s pro rata share of total assets from unconsolidated joint ventures, after adding back accumulated depreciation and amortization.
Total Market Capitalization. Total Debt plus Consolidated Market Equity.
Total Undepreciated Book Capitalization. Total Book Capitalization after adding back accumulated depreciation and amortization on the Company’s real estate assets and the Company’s pro rata share of accumulated depreciation and amortization on real estate assets in unconsolidated joint ventures.
41
Supplemental Financial Measures Disclosures
Adjusted Fixed Charge Coverage. Adjusted EBITDA divided by 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 Adjusted EBITDA and Fixed Charges, its usefulness is limited by the same factors that limit the usefulness of Adjusted EBITDA and 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. Adjusted EBITDA is calculated as EBITDA excluding minority interests’ share of earnings and gains or losses from real estate dispositions. The Company’s presentations of EBITDA and Adjusted EBITDA herein are solely as non-GAAP liquidity measures in connection with the presentation of Fixed Charge Coverage and Adjusted Fixed Charge Coverage. As a liquidity measure, the Company believes that EBITDA and Adjusted EBITDA help 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 Fixed Charge Coverage and 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 and Adjusted 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 and Adjusted EBITDA have limitations as analytical tools and should be used in conjunction with the Company’s required GAAP presentations. EBITDA and Adjusted EBITDA do not reflect the Company’s historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. Also, EBITDA and Adjusted EBITDA do 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 and Adjusted EBITDA. EBITDA and Adjusted EBITDA do 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 and Adjusted EBITDA may not be comparable to similar measures reported by other companies.
Fixed Charges. Total interest expense plus capitalized interest plus preferred stock dividends. The Company uses Fixed Charges to measure its interest payments on outstanding debt and dividends to its preferred shareholders for purposes of presenting Fixed Charge Coverage and Adjusted Fixed Charge Coverage. However, the usefulness of Fixed Charges is limited as, among other things, it does not include all contractual obligations. The Company’s computation of 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.
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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.
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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.
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 include the Company’s estimate of net income per diluted common share, FFO per diluted common share, and FFO per diluted common share before giving effect to merger-related charges for 2007. 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 the ability of the Company to achieve its expected benefits from acquisitions; 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 senior housing 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
44
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.
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