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 June 30, 1996.
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No[ ]
As of August 9, 1996 there were 28,668,914 shares of $1.00 par value common
stock outstanding.
HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995. . . . . . . . . . . . . . .
Consolidated Statements of Income
Six Months and Three Months Ended June 30, 1996 and 1995 . . . .
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995. . . . . . . . . . . . .
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)
(Dollar amounts in thousands)
June 30, December 31,
1996 1995
---------- -----------
ASSETS
Real Estate Properties
Buildings and Improvements $ 658,349 $ 581,152
Accumulated Depreciation (134,906) (121,983)
-------- --------
523,443 459,169
Construction in Progress 12,991 7,508
Land 66,981 61,317
-------- --------
603,415 527,994
Loans Receivable 115,764 120,959
Investments in and Advances to Partnerships 9,113 9,248
Other Assets 8,864 7,630
Cash and Cash Equivalents 14,972 2,000
-------- --------
TOTAL ASSETS $ 752,128 $ 667,831
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ --- $ 31,700
Senior Notes Due 1998 - 2015 153,995 153,994
Senior Notes Due 2006 113,392 ---
Convertible Subordinated Notes Due 2000 100,000 100,000
Mortgage Notes Payable 12,722 13,390
Accounts Payable and Accrued Expenses 13,967 10,568
Minority Interests in Partnerships 18,353 18,719
Stockholders' Equity:
Common Stock 28,665 28,574
Additional Paid-In Capital 355,482 353,166
Cumulative Net Income 349,521 319,329
Cumulative Dividends (393,969) (361,609)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 339,699 339,460
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 752,128 $ 667,831
======== ========
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,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUE
Base Rental Income $ 20,707 $ 16,674 $ 40,891 $ 33,826
Additional Rental and Interest Income 5,768 4,839 10,550 9,703
Interest and Other Income 4,111 4,398 8,088 8,369
Facility Operating Revenues --- --- --- 741
--------- --------- --------- ---------
30,586 25,911 59,529 52,639
--------- --------- --------- ---------
EXPENSE
Interest Expenses 6,609 4,128 12,902 9,474
Depreciation/Noncash Charges 5,693 4,872 10,962 9,379
Other Expenses 1,802 1,630 3,538 3,047
Facility Operating Expenses --- --- --- 720
--------- --------- --------- ---------
14,104 10,630 27,402 22,620
--------- --------- --------- ---------
INCOME FROM OPERATIONS 16,482 15,281 32,127 30,019
Minority Interests (891) (965) (1,935) (1,947)
Gain on Sale of Real Estate Properties --- 23,550 --- 23,550
--------- --------- --------- ---------
NET INCOME $ 15,591 $ 37,866 $ 30,192 $ 51,622
========= ========= ========= =========
NET INCOME PER SHARE $ 0.54 $ 1.33 $ 1.05 $ 1.83
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 28,662 28,532 28,634 28,143
========= ========= ========= =========
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
Ended June 15,
-------------------------
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 30,192 $ 51,622
Real Estate Depreciation 9,760 8,088
Partnership Adjustments (318) (269)
Gain on Sale of Real Estate Properties --- (23,550)
---------- ----------
FUNDS FROM OPERATIONS 39,634 35,891
Noncash Charges 1,202 1,291
Change in Other Assets/Liabilities 4,673 (5,295)
---------- ----------
45,509 31,887
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate, Net (88,344) (18,123)
Proceeds from Sale of Real Estate Properties --- 8,387
Other Investments and Loans 6,782 256
---------- ----------
(81,562) (9,480)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Bank Notes Payable (31,700) (1,100)
Repayment of Senior Notes --- (75,000)
Issuance of Senior Notes Due 1998-2015 113,329 36,715
Cash Proceeds from Issuing Common Stock 1,239 47,109
Increase in Minority Interests --- 64
Final Payments on Mortgages --- (637)
Periodic Payments on Mortgages (728) (543)
Dividends Paid (32,360) (29,053)
Other Financing Activities (755) (435)
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49,025 (22,880)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 12,972 $ (473)
========== ==========
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, 1996
(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
financial position, the results of operations, and cash flows of Health Care
Property Investors, Inc. and its affiliates (the "Company"). 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, 1995 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 28,665,214
shares outstanding as of June 30, 1996.
Funds From Operations
Effective January 1, 1996, the Company adopted the new definition of Funds From
Operations prescribed by the National Association of Real Estate Investment
Trusts. Funds From Operations is now defined as net income (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus real estate
depreciation, 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. Funds From Operations for the periods ended June
30, 1995 have been restated for comparative purposes.
(2) MAJOR OPERATORS
Listed below are the Company's major operators and the percentage of current
revenue from these operators.
Percentage of
Operators Revenue Total Revenue
- --------- ------------- -------------
Vencor, Inc. ("Vencor") $12,018,000 20%
Horizon/CMS Health Corporation 4,960,000 8
Beverly Enterprises, Inc. 4,982,000 8
Tenet Healthcare Corporation ("Tenet") 4,116,000 7
Columbia/HCA Healthcare Corp. 4,115,000 7
Emeritus Corporation 3,961,000 7
Healthsouth Corporation ("Healthsouth") 3,418,000 6
All of the leases with subsidiaries of Tenet, Vencor, and certain leases with
Healthsouth are unconditionally guaranteed by Tenet. Those leases represent
32% of the Company's total revenue for the six months ended June 30, 1996.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the Stockholders'
Equity account for the six months ended June 30, 1996 (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, 1995 28,574 $28,574 $353,166 $319,329 $(361,609) $339,460
Issuance of Stock, Net 33 33 1,135 1,168
Exercise of Stock Options 58 58 1,181 1,239
Net Income 30,192 30,192
Dividends Paid (32,360) (32,360)
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Balance, June 30, 1996 28,665 $28,665 $355,482 $349,521 $(393,969) $339,699
===================================================================================================
(4) COMMITMENTS
The Company has outstanding commitments on closed development transactions of
approximately $36,000,000 and on to-be-closed development transactions of
approximately $68,000,000. The Company is also committed to acquire
approximately $53,000,000 of existing health care facilities. The Company
expects that a significant portion of these commitments will be funded;
however, experience suggests that some committed transactions will not close.
Transactions do not close for various reasons including unsatisfied pre-closing
conditions, competitive financing sources, final negotiation differences, and
the operators' inability to obtain required internal or governmental approvals.
(5) SUBSEQUENT EVENTS
On July 18, 1996 the Board of Directors declared a quarterly dividend of $0.58
per share payable on August 20, 1996, to stockholders of record on the close of
business on August 2, 1996.
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
June 30, 1996, the Company's portfolio of properties, including equity
investments, consisted of 208 facilities located in 37 states. These facilities
are comprised of 136 long term care facilities, 45 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 $884,388,000 at June 30,
1996.
As of June 30, 1996, the Company had commitments to purchase and construct
health care facilities totaling approximately $157,000,000 for funding during
1996 and 1997. The Company expects that a significant portion of these
commitments will be funded and a portion will not be funded. (See (4)
"Commitments.")
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 ("MTN") 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 15, 1996, the Company issued $115,000,000 in Unsecured Senior Notes
due 2006 bearing a coupon of 6.5%. The majority of the proceeds from this debt
issuance was used to fund acquisitions made during the second half of 1995 and
for the first and second quarter of 1996 with the balance invested temporarily
in short term investments pending deployment in long term asset acquisitions. At
June 30, 1996, stockholders' equity in the Company totaled $339,699,000 and the
debt to equity ratio was 1.12 to 1. For the six months ended June 30, 1996,
Funds From Operations covered interest expense 4.1 to 1.
LIQUIDITY AND CAPITAL RESOURCES (continued)
At June 30, 1996, the Company had approximately $50,975,000 available under its
Medium Term Note Program registered pursuant to a shelf registration statement
for future issuance of MTNs from time to time based on Company needs and then
existing market conditions. In September 1995, the Company registered
$200,000,000 of debt and equity securities under a shelf registration statement
filed with the Securities and Exchange Commission of which $85,000,000 in debt
or equity securities remains available to be offered by the Company. As of June
30, 1996, the Company had $100,000,000 available on its revolving line of
credit. This line of credit with a group of seven domestic and international
banks expires on March 31, 1999. 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 $469,888,000
in cumulative Funds From Operations. Of this amount, a total of $393,969,000
has been distributed to stockholders as dividends. The balance of $75,919,000
has been retained, and is an additional source of capital for the Company.
At June 30, 1996, the Company had approximately $30,700,000 in irrevocable
letters of credit from commercial banks to secure the obligations of many
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.
Amounts available under letters of credit change from time to time; such changes
may be material.
The second quarter 1996 dividend of $0.57 per share or $16,339,000 in the
aggregate was paid on May 20, 1996. Total dividends paid during the three
months ended June 30,1996 as a percentage of Funds From Operations for the
corresponding period was 80.0%. The Company declared a third quarter dividend
of $0.58 per share or $16,626,000 in the aggregate, to be paid on August 20,
1996.
One of the Company's lessees, a major provider of health care services, has
closed the Company's Dallas rehabilitation hospital in breach of its lease
agreement. Rent on the Dallas facility is current and aggregates approximately
$3.1 million annually. The lease obligations extend through June 1999 and are
guaranteed both by the provider and a significant third party. Management of
the Company is discussing possible remedies with the provider and anticipates a
future diminution in the rent payment stream or other economics of the Dallas
property prior to the end of the lease term. The Company invested approximately
$18 million in the facility when it was purchased in 1985.
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, 1996 totaled $15,591,000 or $0.54
per share, on revenues of $30,586,000 compared to Net Income of $37,866,000 or
$1.33 per share, on revenues of $25,911,000 for the corresponding quarter in
1995. The 1995 quarter included a gain on sale of real estate properties of
$23,550,000 or $0.83 per share. Funds From Operations for the six months ended
June 30, 1996, increased to $39,634,000, compared with $35,891,000 for the
corresponding period in the prior year.
Earnings and Funds From Operations were significantly higher than a year ago due
to increases in base rents and lower relative financing costs. Base rents for
the three months ended June 30, 1996, increased by $4,033,000 over the
corresponding period in 1995 from $16,674,000 to $20,707,000. The majority of
the increase in base rents came from new long term investments made in 1995 and
the first half of 1996 of $102,000,000 and $87,000,000, respectively. Interest
expense was higher due to the increase in average borrowings as a result of the
issuance of Senior Notes mentioned above.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual stockholders meeting on April 25, 1996. The
following matters were voted upon at the meeting:
1. Election of Directors
-------------------------
Votes Cast
----------------
Against or
Name of Director Elected For Withheld
------------------------------- ---------- -----------
Kenneth B. Roath 24,721,271 169,537
Orville E. Melby 24,721,370 169,438
Name of Each other Director
Whose Term of Office as Director
Continued after the meeting
--------------------------------
Paul V. Colony
Robert R. Fanning, Jr.
Michael D. McKee
Harold M. Messmer, Jr.
Peter L. Rhein
Against or
2. Ratification of Arthur Andersen LLP For Withheld
As the Company's Independent ---------- -----------
Accountants for the Fiscal Year 24,600,717 290,091
Ending December 31,1996
-----------------------------------
There were no broker nonvotes with regard to the matters voted upon
at the meeting.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
EX-27 Financial Data Schedule
b) Reports on Form 8-K:
None
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: August 9, 1996 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)