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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ..... TO .....
COMMISSION FILE NUMBER 1-8895
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HEALTH CARE PROPERTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 33-0091377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 473-1990
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS:
YES /X/ NO / /
AS OF MAY 9, 1994 THERE WERE 26,669,574 SHARES OF $1.00 PAR VALUE
COMMON STOCK OUTSTANDING.
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INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993.................. 2
Consolidated Statements of Income
Three Months Ended March 31, 1994 and 1993............ 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993............ 4
Notes to Consolidated Condensed Financial
Statements............................................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 7
PART II. OTHER INFORMATION
Signatures......................................................... 9
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(amounts in thousands)
March 31, December 31,
1994 1993
------------ ------------
ASSETS
Real Estate Properties
Buildings and Improvements $ 484,945 $ 474,181
Accumulated Depreciation (100,149) (96,350)
------------ ------------
384,796 377,831
Construction in Progress 6,946 4,974
Land 52,607 52,012
------------ ------------
444,349 434,817
Investments in and Advances to Partnerships 10,402 10,709
Loans Receivable 69,724 70,471
Other Assets 6,765 6,431
Cash and Short-Term Investments 16,026 27,210
------------ ------------
TOTAL ASSETS $ 547,266 $ 549,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes due 1998-2003 $ 135,854 $ 135,845
Convertible Subordinated Notes Due 2000 100,000 100,000
Mortgage Notes Payable 7,815 9,446
Accounts Payable and Accrued Expenses 14,171 14,233
Minority Interests in Joint Ventures 20,070 20,241
Commitments
Stockholders' Equity
Common Stock 26,673 26,633
Additional Paid-In Capital 303,749 302,765
Cumulative Net Income 200,338 189,086
Cumulative Dividends (261,404) (248,611)
------------ -------------
Total Stockholders' Equity 269,356 269,873
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 547,266 $ 549,638
============ =============
See accompanying Notes to Consolidated Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(amounts in thousands, except per share amounts)
Three Months
Ended March 31,
-----------------------------------
1994 1993
------------- -------------
REVENUES
Base Rental Income $ 15,694 $ 14,810
Additional Rental and Interest Income 4,021 3,509
Interest and Other Income 3,357 3,841
Facility Operating Revenues 545 563
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23,617 22,723
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EXPENSES
Interest Expense 5,020 4,828
Depreciation/Noncash Charges 4,490 4,483
Other Expenses 1,367 1,299
Facility Operating Expenses 564 614
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11,441 11,224
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INCOME FROM OPERATIONS 12,176 11,499
Minority Interests (924) (901)
-------------- -------------
NET INCOME 11,252 10,598
============== =============
NET INCOME PER SHARE 0.42 0.40
============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,653 26,491
============== =============
See accompanying Notes to Consolidated Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands, except per share amounts)
Three Months
Ended March 31,
-----------------------------------------
1994 1993
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 11,252 $ 10,598
Depreciation/Noncash Charges 4,490 4,483
Distribution from Partnerships in Excess of Income 72 275
Distribution to Minority Interests in Excess of Income (212) (232)
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FUNDS FROM OPERATIONS 15,602 15,124
Change in Other Assets/Liabilities 147 1,831
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15,749 16,955
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate (13,331) (5,612)
Advances Repaid by Partnerships 21 5,619
Other Investments and Loans 742 175
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(12,568) 182
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CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Bank Notes Payable --- (12,700)
Issuance of Senior Notes Due 2003 --- 10,000
Cash Proceeds from Issuing Common Stock 427 1,869
Final Payments of Mortgages (1,371) ---
Periodic Payments on Mortgages (266) (304)
Dividends Paid (12,793) (11,916)
Other Financing Activities (362) 1,417
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(14,365) (11,634)
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NET (DECREASE)/INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ (11,184) $ 5,503
============= ==============
See accompanying Notes to Consolidated Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1994
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information furnished herein in the opinion of
management reflects all adjustments which are necessary to fairly state the
Company's financial position, the results of its operations and its cash
flows. The Company presumes that users of the interim financial
information herein have read or have access to the audited financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year ended December 31,
1993 and that the adequacy of additional disclosure needed for a fair
presentation, except in regard to material contingencies, may be determined
in that context. Accordingly, footnotes and other disclosures which would
substantially duplicate the disclosure contained in the Company's most
recent annual report to security holders have been omitted. The interim
financial information contained herein is not necessarily representative of
a full year's operations for various reasons including acquisitions,
changes in rents, interest rates and the timing of debt and equity
financings. These same considerations apply to all year-to-year
comparisons.
Net Income Per Share
Net income per share is calculated by dividing net income by the
weighted average common shares outstanding during the period. There were
26,672,774 shares outstanding as of March 31, 1994.
Funds From Operations
In the context of Cash Flows from Operating Activities, the Company
has adopted the following definition for Funds From Operations that has
been prescribed by the National Association of Real Estate Investment
Trusts (NAREIT). Funds From Operations is defined as net income (computed
in accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect Funds From
Operations on the same basis. Funds From Operations does not represent
cash generated from operating activities in accordance with generally
accepted accounting principles, is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative
to net income.
(2) MAJOR LESSEES
During the first quarter of 1994, the following approximate
percentages of the Company's revenue were received from subsidiaries of:
National Medical Enterprises, Inc. ("NME") - 8%, The Hillhaven Corporation
("Hillhaven") - 26% and Healthsouth Corporation ("Healthsouth") - 5%. All
of the leases with NME, Hillhaven and Healthsouth are unconditionally
guaranteed by NME. In addition, 12% of the Company's revenue was received
from leases guaranteed by Beverly Enterprises, Inc.
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the three months ended March 31, 1994
(amounts in thousands):
Par Additional Total
Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Capital Net Income Dividends Equity
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Balance, Dec. 31, 1993 26,633 $26,633 $302,765 $189,086 ($248,611) $269,873
Issuance of Stock 19 19 578 597
Exercise of Stock Options 21 21 406 427
Net Income 11,252 11,252
Dividends Paid (12,793) (12,793)
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Balance, March 31, 1994 26,673 $26,673 $303,749 $200,338 ($261,404) $269,356
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(4) COMMITMENTS
The Company has remaining outstanding commitments to fund construction
costs and acquire health care facilities aggregating approximately
$30,000,000.
(5) SUBSEQUENT EVENT
On April 21, 1994 the Board of Directors declared a quarterly dividend
of $0.49 per share payable on May 20, 1994, to stockholders of record on
the close of business on May 3, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1994, the Company's portfolio of properties, including
equity investments, was comprised of 138 long term care facilities, 14
assisted living and congregate care centers, six acute care hospitals, six
rehabilitation hospitals, nine medical office buildings and one psychiatric
care facility. The gross acquisition price of the properties, which
includes partnership acquisitions, was approximately $668,000,000. The
Company had a direct investment in 122 facilities; investments in the
remaining 52 were owned through partnerships in which the Company is the
managing general partner.
The Company has financed its acquisitions through the sale of Common
Stock, the issuance of long-term debt, the assumption of mortgage notes
payable and the use of short-term bank credit lines.
In November 1993, the Company issued $100,000,000 6% Subordinated
Convertible Notes due 1998. With these proceeds, the Company redeemed
$60,000,000 9-1/2% Senior Notes due 1996, without penalty. This financing
enabled the Company to significantly reduce its average borrowing rates.
As of March 31, 1994, the Company had issued a total of $61,000,000 under
its Medium-Term Note Programs. On March 31, 1994, the Company instituted a
new $100,000,000 three year revolving line of credit with a group of seven
banks. The Company has a strong financial position with $269,356,000 in
stockholders' equity as of March 31, 1994, a total debt-to-equity ratio of
approximately 0.90:1 and committed and unused bank lines of credit
aggregating $100,000,000.
As of March 31, 1994, the Company had commitments to purchase and
construct health care facilities totaling $30,000,000 which are expected to
be funded during 1994 and 1995. Facilities under construction are
generally financed by means of cash on hand or short-term borrowings under
the Company's existing bank lines. In the future, the Company may use its
Medium-Term Note program to finance a portion of the construction. At the
completion of construction and commencement of the lease, short term
borrowings used are refinanced with new long-term debt or equity offerings.
The Company has the option to prepay without penalty its $75,000,000
9-7/8% Senior Notes due 1998 at any time after February 15, 1995; it may
refinance the foregoing by raising new long term funds in 1994 if it
appears advantageous to do so.
The Company has unconditional guarantees from National Medical
Enterprises, Inc. in respect of Lease obligations of subsidiaries of NME (3
facilities), subsidiaries of Hillhaven (63 facilities) and Healthsouth
Corporation (2 facilities) which are discussed in Footnote (3) to the
consolidated financial statements of the Company as of December 31, 1993.
NME's operating results according to published reports distributed by NME
were significantly and negatively affected by (1) adverse media coverage,
investigations in certain states, and certain claims and lawsuits, all in
connection with allegations that NME's psychiatric facilities engaged in
certain improper practices and (2) industry-wide weaknesses in the
psychiatric hospital business, including increased payor restrictions on
psychiatric hospitalization and on amounts paid for psychiatric care. In
the past several months NME has announced that it has (1) settled or agreed
in principle to settle lawsuits with certain insurance companies for
payments by NME aggregating $214,900,000, (2) settled or reached agreements
in principle to settle approximately half of its psychiatric patient care
cases, (3) sold most of its rehabilitation hospitals and clinics for
approximately $350,000,000, and (4) agreed to dispose of the majority of
its psychiatric hospitals and substance abuse facilities to Charter Medical
Corporation as of May 31, 1994 and (5) agreed in principle with the U.S.
Department of Justice and Health and Human Services to close all open
investigations against NME for net payments of approximately $375,000,000.
Based upon public filings, during the nine months ended February 28, 1994,
NME generated Income from continuing operations, before cumulative effect
of a change in accounting, of $205,000,000. Its Net Loss for the same
period was $431,000,000, which took into account the agreements to settle
substantially all lawsuits and governmental investigations discussed above
and other costs to dispose of the majority of its psychiatric care and
rehabilitation hospitals. As of February 28, 1994, NME's balance sheet
reflects stockholders' equity of $1.3 billion and a ratio of long-term debt
to equity of 0.55:1.
The Company currently has approximately $30,199,000 in irrevocable
letters of credit from commercial banks to back the obligations of the
majority of its lessees' lease obligations not affiliated with NME,
Hillhaven and Healthsouth. The largest such letter of credit is for
$11,850,000 from Morgan Guaranty Trust Company, which, like the other
letters of credit, allows the Company to draw down the letter of credit to
the extent of any delinquencies of monetary obligations required under the
leases.
The first quarter 1994 dividend of $0.48 per share or $12,793,000 in
the aggregate was paid on February 18, 1994. Total dividends paid during
the three months ended March 31, 1994 as a percentage of Funds From
Operations for the corresponding period was 82%.
Management believes that the Company's liquidity and sources of
capital are adequate to finance its operations as well as its future
investments in additional facilities.
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 1994 totaled
$11,252,000, or $0.42 per share, on revenues of $23,617,000 compared to Net
Income of $10,598,000, or $0.40 per share, on revenues of $22,723,000 for
the corresponding quarter in 1993.
Funds From Operations, the key measure of real estate investment trust
performance prescribed by the National Association of Real Estate
Investment Trusts, of $15,602,000 were up from $15,124,000 for the
comparable quarter of the prior year.
The increase in earnings and Funds From Operations for the current
quarter over the comparable quarter in the prior year are significant
considering that the first quarter of 1993 included approximately $800,000
of non-recurring income. Significantly lower average interest rates on
long term debt, higher additional rents and rents and interest from
investments consummated in 1993 and 1994 contributed to the improved
results.
Future earnings and Funds From Operations will be positively impacted
as first quarter average short-term investments of approximately
$25,000,000 are deployed into long-term investments. These short-term
investments represent funds remaining from the $100,000,000 6% Subordinated
Convertible Notes issued by the Company in November 1993.
PART II. OTHER INFORMATION
Items 1. through 6. Not applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 9, 1994 HEALTH CARE PROPERTY INVESTORS, INC.
(REGISTRANT)
James G. Reynolds
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James G. Reynolds
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Devasis Ghose
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Devasis Ghose
Vice President-Finance
and Treasurer
(Principal Accounting Officer)