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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, 1995
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)
------------------------------
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 11, 1995 THERE WERE 28,541,474 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
March 31, 1995 and December 31, 1994..................
Consolidated Statements of Income
Three Months Ended March 31, 1995 and 1994............
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994............
Notes to Consolidated Condensed Financial
Statements............................................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................
PART II. OTHER INFORMATION
Signatures.....................................................
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(amounts in thousands)
March 31, December 31,
1995 1994
------------ ------------
ASSETS
Real Estate Properties
Buildings and Improvements $ 527,542 $ 522,847
Accumulated Depreciation (115,452) (111,540)
------------ ------------
412,090 411,307
Construction in Progress 4,956 5,674
Land 58,814 58,814
------------ ------------
475,860 475,795
Investments in and Advances to Partnerships 9,484 9,642
Loans Receivable 79,857 79,165
Other Assets 7,735 6,296
Cash and Short-Term Investments 2,063 2,928
------------ ------------
TOTAL ASSETS $ 574,999 $ 573,826
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LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 13,015 $ 11,200
Senior Notes due 1998-2015 102,992 150,882
Convertible Subordinated Notes due 2000 100,000 100,000
Mortgage Notes Payable 8,755 9,381
Accounts Payable and Accrued Expenses 13,034 13,483
Minority Interests in Joint Ventures 19,455 19,477
Stockholders' Equity
Common Stock 28,509 26,733
Additional Paid-In Capital 351,788 305,049
Cumulative Net Income 252,819 239,063
Cumulative Dividends (315,368) (301,442)
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Total Stockholders' Equity 317,748 269,403
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 574,999 $ 573,826
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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,
-----------------------------------
1995 1994
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REVENUE
Base Rental Income $ 17,152 $ 15,694
Additional Rental and Interest Income 4,864 4,021
Interest and Other Income 3,971 3,357
Facility Operating Revenue 741 545
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26,728 23,617
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EXPENSES
Interest Expense 5,346 5,020
Depreciation/Noncash Charges 4,507 4,490
Other Expenses 1,417 1,367
Facility Operating Expenses 720 564
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11,990 11,441
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INCOME FROM OPERATIONS 14,738 12,176
Minority Interests (982) (924)
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NET INCOME $ 13,756 $ 11,252
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NET INCOME PER SHARE $ 0.50 $ 0.42
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WEIGHTED AVERAGE SHARES OUTSTANDING 27,751 26,653
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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)
Three Months
Ended March 31,
-----------------------------------------
1995 1994
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 13,756 $ 11,252
Real Estate Depreciation 3,994 4,025
Noncash Charges 513 465
Joint Venture Adjustments (158) (140)
------------- --------------
Funds From Operations 18,105 15,602
Change in Other Assets/Liabilities (1,153) 147
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16,952 15,749
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate (3,977) (13,331)
Advances Repaid by Partnerships 24 21
Other Investments and Loans (450) 742
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(4,403) (12,568)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Bank Notes Payable 1,800 ---
Repayment of Senior Notes (75,000) ---
Issuance of Senior Notes Due 1998-2015 26,840 ---
Cash Proceeds from Issuing Common Stock 47,109 427
Increase in Minority Interests 64 ---
Final Payments on Mortgages (280) (1,371)
Periodic Payments on Mortgages (327) (266)
Dividends Paid (13,926) (12,793)
Other Financing Activities 306 (362)
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(13,414) (14,365)
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NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS $ (865) $ (11,184)
============= ==============
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, 1995
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information furnished herein, in the opinion of
management reflects all adjustments that are necessary to state fairly 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, 1994 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 that 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
28,509,254 shares outstanding as of March 31, 1995.
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 first quarter of 1995, the following approximate percentages
of the Company's revenue were received from subsidiaries of: Tenet Healthcare
Corporation("Tenet"), formerly National Medical Enterprises, Inc. - 8%; The
Hillhaven Corporation ("Hillhaven") - 22%; and Healthsouth Corporation
("Healthsouth") - 5%. All of the leases with subsidiaries of Tenet,
Hillhaven and Healthsouth are unconditionally guaranteed by Tenet. In
addition, 11% of the Company's revenue was received from leases guaranteed by
Beverly Enterprises, Inc.
For the quarter ended March 31, 1995, 3% and 6% of the Company's revenue
were received from leases guaranteed by Horizon Healthcare Corporation
("Horizon") and Continental Medical Systems, Inc. ("CMS"), respectively. In
March 1995, Horizon and CMS announced the planned merger of their companies.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the three months ended March 31, 1995
(amounts in thousands):
Common Stock
------------------
Par Additional Total
Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Capital Net Income Dividends Equity
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Balance, December 31, 1994 26,733 $26,733 $305,049 $239,063 ($301,442) $269,403
Issuance of Stock, Net 1,772 1,772 46,671 48,443
Exercise of Stock Options 4 4 68 72
Net Income 13,756 13,756
Dividends Paid (13,926) (13,926)
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Balance, March 31, 1995 28,509 $28,509 $351,788 $252,819 ($315,368) $317,748
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(4) COMMITMENTS
The Company has remaining outstanding commitments to fund construction
costs and acquire health care facilities aggregating approximately
$37,000,000.
(5) SUBSEQUENT EVENTS
On April 20, 1995 the Board of Directors declared a quarterly dividend
of $0.53 per share payable on May 19, 1995, to stockholders of record on the
close of business on May 3, 1995.
On April 20, 1995 the Company announced the sale of ten leased
facilities to Beverly Enterprises, Inc. for $43,000,000 resulting in a gain
of $24,000,000. Under the terms of the sale, the Company received net cash
proceeds of $8,000,000 and is providing a 15 year mortgage of $35,000,000.
As part of this transaction, Beverly renewed existing leases on five other
facilities for an additional five year period, extending those leases until
2003. With this transaction, the Company increased the average duration of
the investments on 26 facilities now leased to or mortgaged by Beverly from
approximately three and one half years to over nine years.
HEALTH CARE PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is in the business of acquiring health care facilities that
it leases on a long-term basis to health care providers. On a more limited
basis, the Company has provided mortgage financing on health care facilities.
As of March 31, 1995, the Company's portfolio of properties, including equity
investments, consisted of 183 facilities that are located in 32 states.
These facilities are comprised of 140 long-term care facilities, 16
congregate care and assisted living facilities, 12 medical office buildings,
six acute care hospitals, six rehabilitation facilities, two physician group
practice clinics and one psychiatric care facility. The gross acquisition
price of the properties, which includes partnership acquisitions, was
approximately $725,000,000 at March 31, 1995.
During the quarter ended March 31, 1995, the Company expended
approximately $4,000,000 on investments in health care facilities. As of
March 31, 1995, the Company had commitments to purchase and construct health
care facilities totaling $37,000,000 which are expected to be funded during
1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed acquisitions through the sale of common stock,
the issuance of long-term debt, the assumption of mortgage debt, the use of
short-term bank lines and through internally generated cash flow. 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
costs of construction. At the completion of construction and commencement of
the lease, short-term borrowings used in the construction phase are generally
refinanced with new long-term debt or equity offerings.
On February 9, 1995 the Company issued 1,725,000 shares of Common Stock
at $29 per share with net proceeds of approximately $47,400,000. In February
and March, the Company also issued a total of $27,000,000 of Medium-Term
Notes (MTNs) bearing interest from 8.81% to 9.00% and maturing between 2000
and 2015. On March 13, 1995 the proceeds from the issuance of the stock and
MTNs were used to retire $75,000,000 9-7/8% Senior Unsecured Notes due 1998
without penalty at par plus accrued interest. The new financings resulted in
lowering the Company's leverage and will favorably impact the Company's
future earnings and fixed charge coverage ratios. At March 31, 1995,
Stockholders Equity in the Company totaled $317,748,000 and the Debt to
Stockholders Equity ratio was 0.71.
At March 31, 1995, the Company had approximately $102,000,000 available
under its shelf registration statement for future issuance of capital from
time to time in accordance with then existing market conditions; in addition,
there was $87,000,000 unused on its $100,000,000 revolving line of credit.
This line of credit with a group of seven domestic and international banks
expires on March 31, 1998. The Company's Senior and Convertible Subordinated
Notes have been rated investment grade by debt rating agencies since 1986.
Current ratings are as follows:
Moody's Standard & Poor's Duff & Phelps
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Senior Notes Baa1 BBB+ A-
Convertible
Subordinated Notes Baa2 BBB BBB+
Since inception in May 1985, the Company has recorded approximately
$385,228,000 in cumulative Funds From Operations. Of this amount, a total of
$315,368,000 has been distributed to stockholders as dividends. The balance
of $69,860,000 has been retained, and is an additional source of capital for
the Company.
The first quarter 1995 dividend of $0.52 per share or $13,926,000 in the
aggregate was paid on February 21, 1995. Total dividends paid during the
three months ended March 31, 1995 as a percentage of Funds From Operations
for the corresponding period was 77%.
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, 1995 totaled $13,756,000
or $0.50 per share, on revenues of $26,728,000 compared to Net Income of
$11,252,000 or $0.42 per share, on revenues of $23,617,000 for the
corresponding quarter in 1994. Funds From Operations for the three months
ended March 31, 1995, increased to $18,105,000, compared with $15,602,000 for
the corresponding period in the prior year.
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
$73,000,000 invested in new facilities during 1994. The increase in
additional rental and interest income from $4,021,000 in the first quarter of
1994 to $4,864,000 in the corresponding quarter of 1995 was attributable to
revenue growth at many of the Company's facilities and from interest income
increases on other investments. Interest expense was higher due to the
increase in average borrowings as a result of the issuance of approximately
$42,000,000 of Senior Notes issued from the Medium Term Note program between
November 1994 and March 1995. Subsequent quarters should benefit from the
prepayment of the 9-7/8% Senior Notes as discussed under Liquidity and
Capital Resources.
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 11, 1995 HEALTH CARE PROPERTY INVESTORS, INC.
(REGISTRANT)
/S/ James G. Reynolds
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James G. Reynolds
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/S/ Devasis Ghose
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Devasis Ghose
Senior Vice President-Finance
and Treasurer
(Principal Accounting Officer)