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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 JUNE 30, 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 JULY 27, 1995 THERE WERE 28,543,874 SHARES OF $1.00 PAR VALUE
COMMON STOCK OUTSTANDING.
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HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
Consolidated Statements of Income
Six Months and Three Months Ended June 30, 1995 and 1994
Consolidated Statements of Cash Flows
Six Months Ended June 30, 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)
June 30, December 31,
1995 1994
------------ ------------
ASSETS
Real Estate Properties
Buildings and Improvements $ 520,892 $ 522,847
Accumulated Depreciation (114,659) (111,540)
------------ ------------
406,233 411,307
Construction in Progress 7,816 5,674
Land 56,047 58,814
------------ ------------
470,096 475,795
Investments in and Advances to Partnerships 9,397 9,642
Loans Receivable 115,969 79,165
Other Assets 9,259 6,296
Cash and Short-Term Investments 2,455 2,928
------------ ------------
TOTAL ASSETS $ 607,176 $ 573,826
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LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 10,100 $ 11,200
Senior Notes due 1998-2015 112,993 150,882
Convertible Subordinated Notes due 2000 100,000 100,000
Mortgage Notes Payable 14,030 9,381
Accounts Payable and Accrued Expenses 9,334 13,483
Minority Interests in Partnerships 19,219 19,477
Stockholders' Equity
Common Stock 28,544 26,733
Additional Paid-In Capital 352,766 305,049
Cumulative Net Income 290,685 239,063
Cumulative Dividends (330,495) (301,442)
------------ -------------
Total Stockholders' Equity 341,500 269,403
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 607,176 $ 573,826
============ =============
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 Six Months
Ended June 30, Ended June 30,
----------------------------------- -----------------------------------
1995 1994 1995 1994
-------------- ------------- ------------- -------------
REVENUE
Base Rental Income $ 16,674 $ 16,179 $ 33,826 $ 31,873
Additional Rental and Interest Income 4,839 4,209 9,703 8,230
Interest and Other Income 4,398 4,437 8,369 7,794
Facility Operating Revenues --- 564 741 1,109
--------------- ------------- -------------- -------------
25,911 25,389 52,639 49,006
--------------- -------------- -------------- --------------
EXPENSE
Interest Expense 4,128 5,008 9,474 10,028
Depreciation/Noncash Charges 4,872 4,373 9,379 8,863
Other Expenses 1,630 1,243 3,047 2,610
Facility Operating Expenses --- 620 720 1,184
--------------- --------------- ------------ -----------
10,630 11,244 22,620 22,685
--------------- --------------- ------------ ------------
INCOME FROM OPERATIONS 15,281 14,145 30,019 26,321
Minority Interests (965) (937) (1,947) (1,861)
Gain on Sale of Real Estate Properties 23,550 --- 23,550 ---
--------------- --------------- ------------ ------------
NET INCOME $ 37,866 $ 13,208 $ 51,622 $ 24,460
=============== =============== ============= ============
NET INCOME PER SHARE $ 1.33 $ 0.50 $ 1.83 $ 0.92
============== =============== ============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 28,532 26,670 28,143 26,661
============== =============== ============= ============
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)
Six Months
Ended June 30,
-----------------------------------------
1995 1994
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 51,622 $ 24,460
Real Estate Depreciation 8,088 7,941
Noncash Charges 1,291 922
Partnership Adjustments (269) (256)
Gain on Sale of Real Estate Properties (23,550) ---
------------- --------------
Funds From Operations 37,182 33,067
Change in Other Assets/Liabilities (5,295) (1,476)
------------- --------------
31,887 31,591
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate, Net (18,123) (16,325)
Proceeds from Sale of Real Estate Properties 8,387 ---
Advances Repaid by Partnerships --- 43
Other Investments and Loans 256 (5,071)
------------- --------------
(9,480) (21,353)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Bank Notes Payable (1,100) ---
Repayment of Senior Notes (75,000) ---
Issuance of Senior Notes Due 1998-2015 36,715 ---
Cash Proceeds from Issuing Common Stock 47,109 426
Increase in Minority Interests 64 ---
Final Payments on Mortgages (637) (1,371)
Periodic Payments on Mortgages (543) (578)
Dividends Paid (29,053) (25,861)
Other Financing Activities (435) (492)
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(22,880) (27,876)
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NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS $ (473) $ (17,638)
============= ==============
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.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 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
28,543,874 shares outstanding as of June 30, 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.
Adjustments for unconsolidated partnerships 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 second 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") - 6%. All of the leases with
subsidiaries of Tenet and Hillhaven and leases representing approximately 5%
of the revenue received from Healthsouth are unconditionally guaranteed by
Tenet. In addition, 11% of the Company's revenue was received from leases
and loans guaranteed by Beverly Enterprises, Inc.
For the quarter ended June 30, 1995, 4% 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
July 1995, Horizon and CMS merged.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the six months ended June 30, 1995
(amounts in thousands):
Common Stock
------------------
Par Additional Total
Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Capital Net Income Dividends Equity
-----------------------------------------------------------------------------
Balance, December 31, 1994 26,733 $26,733 $305,049 $239,063 ($301,442) $269,403
Issuance of Stock, Net 1,805 1,805 47,613 49,418
Exercise of Stock Options 6 6 104 110
Net Income 51,622 51,622
Dividends Paid (29,053) (29,053)
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Balance, June 30, 1995 28,544 $28,544 $352,766 $290,685 ($330,495) $341,500
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(4) COMMITMENTS
The Company has remaining outstanding commitments to fund construction
costs, acquire health care facilities and provide mortgages on health care
facilities aggregating approximately $70,000,000.
(5) SUBSEQUENT EVENTS
On July 20, 1995 the Board of Directors declared a quarterly dividend
of $0.54 per share payable on August 18, 1995, to stockholders of record on
the close of business on August 3, 1995.
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 for health care
facilities. As of June 30, 1995, the Company's portfolio of properties,
including equity investments, consists of 187 facilities that are located in
32 states. The portfolio is comprised of 144 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, including partnership acquisitions, is
approximately $754,000,000 at June 30, 1995.
During the quarter ended June 30, 1995, the Company expended
approximately $20,000,000 on investments in health care facilities. As of
June 30, 1995, the Company had commitments of approximately $70,000,000 to
purchase, construct and provide mortgages on health care facilities. These
commitments 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 limited amounts 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.
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 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. In June 1995, the Company
issued $10,000,000 of MTNs bearing interest at 7.55% and maturing in 2005.
The new financings resulted in lowering the Company's leverage which will
favorably impact the Company's future earnings and fixed charge coverage
ratios. At June 30, 1995, Stockholders Equity in the Company totaled
$341,500,000 and the Debt to Stockholders Equity ratio was 0.69. For the
six months ended June 30, 1995, Funds From Operations covered Interest
Expense 4.9 to 1.
At June 30, 1995, the Company had approximately $92,000,000 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 approximately $90,000,000 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
------- ----------------- -------------
Senior Notes Baa1 BBB+ A-
Convertible
Subordinated Notes Baa2 BBB BBB+
Since inception in May 1985, the Company has recorded approximately
$404,305,000 in cumulative Funds From Operations. Of this amount, a total
of $330,495,000 has been distributed to stockholders as dividends. The
balance of $73,810,000 has been retained as an additional source of capital
for the Company.
The second quarter 1995 dividend of $0.53 per share or $15,127,000 in
the aggregate was paid on May 19, 1995. Total dividends paid during the
three months ended June 30, 1995 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 June 30, 1995 was $37,866,000, or
$1.33 per share. These results were favorably impacted by the gain of
$23,550,000, or $0.83 per share, resulting from the sale of certain leased
properties in April 1995. Excluding this gain, Net Income totaled
$14,316,000, or $0.50 per share, on revenue of $25,911,000 compared to Net
Income of $13,208,000, or $0.50 per share, on revenue of $25,389,000 for the
corresponding quarter in 1994. On a year-to-date basis, Net Income before
the Gain on Sale of Real Estate Properties was $28,072,000, or $1.00 per
share, compared to $24,460,000 or $0.92 per share for the six months ended
June 30, 1994. Fund From Operations for the three and six months ended June 30,
1995 were $19,077,000 and $37,182,000, respectively, compared with $17,465,000
and $33,067,000 for the corresponding periods in the prior fiscal 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 $8,230,000 in the
first six months of 1994 to $9,703,000 in the corresponding period of 1995
was attributable to revenue growth at many of the Company's facilities and
from interest income increases on other investments. The decrease in
interest expense reflects the benefit of the retirement of the $75,000,000
9-7/8% Senior Unsecured Notes in the first quarter of 1995. This reduction
in interest expense is offset by the interest charges on the issuance of
approximately $52,000,000 of Senior Notes under the Medium-Term Note program
between November 1994 and June 1995.
In April 1995 the Company sold ten leased facilities to Beverly
Enterprises, Inc. for $43,450,000 resulting in a gain of $23,550,000. Under
the terms of the sale, the Company received net cash proceeds of $8,387,000
and is providing a 15 year mortgage to Beverly of $34,760,000. These new
Beverly mortgage investments have changed the character of the returns on
these assets from rental income to interest income. The second quarter
benefited by the receipt of the final installment of additional rental
income attributable to these sold properties. Additionally, the Company
sold the Michigan facility that it had operated for the past three years.
No gain or loss was recognized on this sale.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
The Company held its annual stockholders meeting on April 20, 1995. The
following matters were voted upon at the meeting:
1. ELECTION OF DIRECTORS
--------------------- VOTES CAST
----------
AGAINST OR
NAME OF DIRECTOR ELECTED FOR WITHHELD
------------------------ ---------- ----------
Paul V. Colony 29,944,841 147,131
Peter L. Rhein 24,962,187 129,785
NAME OF EACH OTHER DIRECTOR
WHOSE TERM OF OFFICE AS DIRECTOR
CONTINUED AFTER THE MEETING
--------------------------------
Robert R. Fanning, Jr.
Michael D. McKee
Orville E. Melby
Harold M. Messmer, Jr.
Kenneth B. Roath
AGAINST OR
2. RATIFICATION OF ARTHUR ANDERSEN LLP FOR WITHHELD
AS THE COMPANY'S INDEPENDENT ---------- ----------
ACCOUNTANTS FOR THE FISCAL YEAR 24,960,252 131,720
ENDING DECEMBER 31, 1995
-----------------------------------
There were no broker nonvotes with regard to the matters voted upon at
the meeting.
Item 6. Exhibits
- -------
EX-3.(ii) Amended and Restated By-Laws of the Company
EX-27 Financial Data Schedule
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: July 27, 1995 HEALTH CARE PROPERTY INVESTORS, INC.
(REGISTRANT)
/S/ James G. Reynolds
------------------------------
James G. Reynolds
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/S/ Devasis Ghose
------------------------------
Devasis Ghose
Senior Vice President-Finance
and Treasurer
(Principal Accounting Officer)