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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 SEPTEMBER 30,
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)
- - - --------------------------------------------------------------------------
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)
------------------------------
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 NOVEMBER 10, 1994 THERE WERE 26,733,734 SHARES OF $1.00 PAR
VALUE COMMON STOCK OUTSTANDING.
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HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993.............. 2
Consolidated Statements of Income
Nine Months Ended September 30, 1994 and 1993......... 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 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)
September 30, December 31,
1994 1993
------------ ------------
ASSETS
Real Estate Properties
Buildings and Improvements $ 502,794 $ 474,181
Accumulated Depreciation (107,689) (96,350)
------------ ------------
395,105 377,831
Construction in Progress 2,902 4,974
Land 54,441 52,012
------------ ------------
452,448 434,817
Investments in and Advances to Partnerships 9,841 10,709
Loans Receivable 78,813 70,471
Other Assets 6,548 6,431
Cash and Short-Term Investments 2,633 27,210
------------ ------------
TOTAL ASSETS $ 550,283 $ 549,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 2,000 $ ---
Senior Notes due 1998-2003 135,873 135,845
Convertible Subordinated Notes Due 2000 100,000 100,000
Mortgage Notes Payable 10,024 9,446
Accounts Payable and Accrued Expenses 14,161 14,233
Minority Interests in Joint Ventures 19,653 20,241
Commitments
Stockholders' Equity
Common Stock 26,671 26,633
Additional Paid-In Capital 303,746 302,765
Cumulative Net Income 225,963 189,086
Cumulative Dividends (287,808) (248,611)
------------ -------------
Total Stockholders' Equity 268,572 269,873
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 550,283 $ 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 Nine Months
Ended September 30, Ended September 30,
----------------------------------- -----------------------------------
1994 1993 1994 1993
--------------- ------------- --------------- -------------
REVENUES
Base Rental Income $ 16,365 $ 15,117 $ 48,238 $ 44,817
Additional Rental and Interest Income 4,003 3,674 12,233 10,947
Interest and Other Income 3,547 3,011 11,341 10,282
Facility Operating Revenue 610 571 1,719 1,704
--------------- ------------- -------------- -------------
24,525 22,373 73,531 67,750
--------------- ------------- -------------- -------------
EXPENSES
Interest Expense 5,030 4,744 15,058 14,251
Depreciation/Noncash Charges 4,427 4,116 13,290 13,074
Other Expenses 1,177 1,205 3,787 3,860
Facility Operating Expense 621 517 1,805 1,765
--------------- ------------- -------------- ------------
11,255 10,582 33,940 32,950
--------------- ------------- -------------- ------------
INCOME FROM OPERATIONS 13,270 11,791 39,591 34,800
Minority Interests (853) (832) (2,714) (2,592)
--------------- ------------- -------------- ------------
NET INCOME $ 12,417 $ 10,959 $ 36,877 $ 32,208
=============== ============= ============== ============
NET INCOME PER SHARE $ 0.46 $ 0.41 $ 1.38 $ 1.21
=============== ============= ============== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,672 26,609 26,665 26,565
=============== ============= ============== ============
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)
Nine Months
Ended September 30,
-----------------------------------------
1994 1993
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 36,877 $ 32,208
Depreciation/Noncash Charges 13,290 13,074
Distribution from Partnerships in Excess of Income 212 332
Distribution to Minority Interests in Excess of Income (608) (729)
------------- --------------
FUNDS FROM OPERATIONS 49,771 44,885
Change in Other Assets/Liabilities (843) 1,518
------------- --------------
48,928 46,403
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate (25,856) (22,553)
Advances Repaid by Partnerships, Net 64 5,619
Other Investments and Loans (8,214) 1,481
------------- --------------
(34,006) (15,453)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase/(Decrease) in Bank Notes Payable 2,000 (7,800)
Issuance of Senior Notes Due 2003 --- 11,000
Cash Proceeds from Issuing Common Stock 412 2,249
Increase in Minority Interests 67 ---
Final Payments of Mortgages (1,665) ---
Periodic Payments on Mortgages (879) (940)
Dividends Paid (39,197) (36,456)
Other Financing Activities (237) 1,214
------------- --------------
(39,499) (30,733)
------------- --------------
NET (DECREASE)/INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ (24,577) $ 217
============= ==============
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
September 30, 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 disclosures 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 disclosures 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
26,671,574 shares outstanding as of September 30, 1994.
Funds From Operations
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 third 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") - 24%; and Healthsouth Corporation ("Healthsouth") - 5%. All
of the leases with subsidiaries of 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.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the nine months ended September 30, 1994
(amounts in thousands):
Par Additional Total
Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Capital Net Income Dividends Equity
-----------------------------------------------------------------------------
Balance, December 31, 1993 26,633 $26,633 $302,765 $189,086 ($248,611) $269,873
Issuance of Stock, Net 17 17 575 592
Exercise of Stock Options 21 21 406 427
Net Income 36,877 36,877
Dividends Paid (39,197) (39,197)
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Balance, September 30, 1994 26,671 $26,671 $303,746 $225,963 ($287,808) $268,572
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(4) COMMITMENTS
The Company has remaining outstanding commitments to fund construction
costs and acquire health care facilities aggregating approximately
$49,000,000.
(5) SUBSEQUENT EVENT
On October 25, 1994 the Board of Directors declared a quarterly
dividend of $0.51 per share payable on November 18, 1994, to stockholders
of record on the close of business on November 8, 1994.
HEALTH CARE PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1994, the Company's portfolio of properties,
including equity investments of 178 medical facilities located in 32
states, was comprised of 139 long term care facilities, 14 congregate care
and assisted living centers, six acute care hospitals, six rehabilitation
hospitals, 11 medical office buildings, one psychiatric care facility and
one physician clinic. The gross acquisition price of the properties, which
includes partnership acquisitions, was approximately $692,000,000. The
Company had a direct investment in 134 facilities; investments in the
remaining 44 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, the use of short-term bank credit lines, and through internally
generated cash flow.
In November 1993, the Company issued $100,000,000 6% Subordinated
Convertible Notes due 2000. 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 September 30, 1994, the Company had issued a total of $61,000,000 and
had remaining capacity to issue an additional $69,000,000 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 believes it has a strong financial position with
$268,572,000 in stockholders' equity as of September 30, 1994, a total
debt-to-equity ratio of approximately 0.92:1 and committed and unused bank
lines of credit aggregating $98,000,000.
As of September 30, 1994, the Company had commitments to purchase and
construct health care facilities totaling $49,000,000 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 generally 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 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.
The following discussion is derived from public reports distributed by NME.
NME has been involved in significant legal proceedings and investigations
of an unusual nature related principally to its psychiatric business and
has settled the most significant of these matters. Its related reserves
include $75,000,000 for unusual litigation costs and legal fees for matters
that have not been settled as of August 31, 1994 and its estimate of the
net costs of the ultimate disposition of these matters. However, there can
be no assurance that the ultimate liability will not exceed such estimates.
During the quarter ended August 31, 1994, NME generated Net Income of
$64,000,000. As of August 31, 1994, NME's balance sheet reflects
stockholders' equity of $1.4 billion and a ratio of debt to equity of
0.61:1. On October 11, 1994, NME and American Medical Holdings, Inc.
jointly announced the signing of a definitive merger agreement which is
expected to close in the first part of calendar 1995. This new company
will own 85 general hospitals in the U.S. and overseas, and will be the
second largest investor-owned hospital management company.
The Company currently has approximately $30,675,000 in irrevocable
letters of credit from commercial banks to back the obligations of many of
its lessees' lease and borrowers' loan obligations. The Company may draw
upon the letters of credit if there are any defaults under the leases
and/or loans.
The third quarter 1994 dividend of $0.50 per share or $13,336,000 in
the aggregate was paid on August 19, 1994. Total dividends paid during the
nine months ended September 30, 1994 as a percentage of Funds From
Operations for the corresponding period was 79%.
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 September 30, 1994 totaled
$12,417,000 or $0.46 per share, on revenues of $24,525,000 compared to Net
Income of $10,959,000 or $0.41 per share, on revenues of $22,373,000 for
the corresponding quarter in 1993. On a year-to-date basis, Net Income
amounted to $36,877,000 or $1.38 per share compared to $32,208,000 or $1.21
per share for the year ago nine month period which represents an increase
of 14 percent per share over the 1993 results.
Funds From Operations of $16,704,000 were up from $14,932,000 for the
comparable quarter of the prior year. For the nine months ended September
30, 1994, Funds From Operations increased to $49,771,000, compared with
$44,885,000 for the corresponding period in the prior year. Dividends paid
by the Company during the third quarter of 1994 amounted to $0.50 per share
of common stock or a distribution of about 79 percent of aggregate Funds
From Operations for the three month period.
Earnings and Funds From Operations were significantly higher than a
year ago due to increases in rental and interest income. Increases in base
rental income and interest income were generated from new investments,
including the $34,000,000 invested in new facilities during the first nine
months of the year. Additional rental and interest income increased from
$3,674,000 in the third quarter of 1993 to $4,003,000 in the corresponding
quarter of 1994, which was attributable to revenue growth at many of the
Company's facilities and from interest income increases on other
investments.
PART II. OTHER INFORMATION
Items 1. through 6. Not applicable
- - - -------------------
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: November 10, 1994 HEALTH CARE PROPERTY INVESTORS, INC.
(REGISTRANT)
/S/ James G. Reynolds
------------------------------
James G. Reynolds
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/S/ Devasis Ghose
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Devasis Ghose
Vice President-Finance
and Treasurer
(Principal Accounting Officer)