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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, 1997.
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 (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 May 12, 1997 there were 28,711,569 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.
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Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 . . . . . . . . . . . . 2
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996. . . . . . . . . . 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996. . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-1-
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands)
March 31, December 31,
1997 1996
----------- ------------
ASSETS
Real Estate Investments
Buildings and Improvements $ 694,589 $ 693,586
Accumulated Depreciation (154,065) (147,860)
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540,524 545,726
Construction in Progress 16,878 7,905
Land 72,329 70,103
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629,731 623,734
Loans Receivable 111,881 112,227
Investments in and Advances to Partnerships 6,496 6,531
Other Assets 8,587 8,350
Cash and Cash Equivalents 10,862 2,811
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TOTAL ASSETS $ 767,557 $ 753,653
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LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes Payable $ 277,451 $ 267,470
Convertible Subordinated Notes Payable 100,000 100,000
Mortgage Notes Payable 11,688 12,034
Accounts Payable, Accrued Liabilities and Deferred Income 23,015 19,739
Minority Interests in Partnerships 17,631 17,604
Stockholders' Equity:
Common Stock 28,708 28,678
Additional Paid-In Capital 356,714 355,672
Cumulative Net Income 397,089 379,970
Cumulative Dividends (444,739) (427,514)
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TOTAL STOCKHOLDERS' EQUITY 337,772 336,806
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 767,557 $ 753,653
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-2-
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months
Ended March 31,
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1997 1996
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REVENUE
Base Rental Income $ 21,911 $ 20,184
Additional Rental and Interest Income 5,313 4,782
Interest and Other Income 3,643 3,977
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30,867 28,943
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EXPENSE
Interest Expense 6,762 6,293
Depreciation/Non Cash Charges 6,234 5,253
Other Expenses 1,781 1,752
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14,777 13,298
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INCOME FROM OPERATIONS 16,090 15,645
Minority Interests (1,018) (1,044)
Gain on Sale of Real Estate Properties 2,047 ---
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NET INCOME $ 17,119 $ 14,601
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NET INCOME PER SHARE $ 0.60 $ 0.51
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WEIGHTED AVERAGE SHARES OUTSTANDING 28,701 28,607
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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.
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HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three Months
Ended March 31,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 17,119 $ 14,601
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Real Estate Depreciation 5,482 4,700
Non Cash Charges 752 569
Partnership Adjustments (192) (96)
Gain on Sale of Real Estate Properties (2,047) ---
Changes in:
Operating Assets (355) (614)
Operating Liabilities 3,314 7,508
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NET CASH PROVIDED BY OPERATIONS 24,073 26,668
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate (18,097) (75,282)
Proceeds from Sale of Real Estate Properties 8,624 ---
Other Investments and Loans 892 4,882
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NET CASH USED IN INVESTING ACTIVITIES (8,581) (70,400)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Bank Notes Payable --- (31,700)
Issuance of Senior Notes Payable 9,937 113,329
Cash Proceeds from Issuing Common Stock 168 877
Periodic Payments on Mortgages (247) (329)
Dividends Paid (17,225) (16,021)
Other Financing Activities (74) (308)
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NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (7,441) 65,848
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NET INCREASE IN CASH AND CASH EQUIVALENTS 8,051 22,116
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,811 2,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,862 $ 24,116
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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.
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HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1997
(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 affiliated subsidiaries and partnerships (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, 1996 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 28,708,284
shares outstanding as of March 31, 1997.
Reclassifications
Reclassifications have been made for comparative financial statement
presentations.
(2) MAJOR OPERATORS
Listed below are the Company's major operators and the percentage of current
revenue from these operators and their subsidiaries.
Percentage of
Operators Revenue Total Revenue
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Vencor, Inc. ("Vencor") $ 6,095,000 20%
Tenet Healthcare Corporation ("Tenet") 2,733,000 9
Horizon/CMS Health Care Corporation ("Horizon") 2,441,000 8
Beverly Enterprises, Inc. ("Beverly") 2,408,000 8
Emeritus Corporation 2,213,000 7
Columbia/HCA Healthcare Corp. 2,023,000 7
HealthSouth Corporation ("HealthSouth") 1,575,000 5
Genesis Health Ventures 1,515,000 5
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All of the leases with Tenet and Vencor and one lease with HealthSouth are
unconditionally guaranteed by Tenet. Those leases represent approximately 29%
of the Company's total revenue for the three months ended March 31, 1997.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the Stockholders'
Equity account for the three months ended March 31, 1997 (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, 1996 28,678 $28,678 $355,672 $379,970 $(427,514) $336,806
Issuance of Stock, Net 24 24 880 904
Exercise of Stock Options 6 6 162 168
Net Income 17,119 17,119
Dividends Paid (17,225) (17,225)
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Balance, March 31, 1997 28,708 $28,708 $356,714 $397,089 $(444,739) $337,772
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(4) COMMITMENTS
As of May 1, 1997, the Company has outstanding commitments on closed and to-be-
closed development transactions of approximately $53,000,000 and $6,000,000,
respectively. The Company is also committed to acquire approximately
$65,000,000 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 operator's
inability to obtain required internal or governmental approvals.
(5) SUBSEQUENT EVENTS
On April 23, 1997 the Board of Directors declared a quarterly dividend of $0.61
per share payable on May 20, 1997, to stockholders of record on the close of
business on May 2, 1997.
In addition, during April 1997, the Company completed an acquisition of three
assisted living facilities located in Texas for $21,000,000. This acquisition
was funded in part by the issuance in April of a ten year $10,000,000 Medium
Term Note with a coupon of 7.62%.
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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, 1997, the Company's portfolio of properties, including equity
investments, consisted of 218 facilities located in 38 states. These facilities
are comprised of 134 long-term care facilities, 56 congregate care and assisted
living facilities, 12 medical office buildings, seven 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 $927,114,000 at March 31,
1997.
The Company had commitments to purchase and construct health care facilities
totaling approximately $124,000,000 for funding during 1997 and 1998. The
Company expects that a significant portion of these commitments will be funded
but that a portion may not be funded. (See Note (4) to the Consolidated
Condensed Financial Statements)
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 1997 totaled $17,119,000 or
$0.60 per share of common stock on revenues of $30,867,000 compared to
$14,601,000 or $0.51 per share of common stock on revenues of $28,943,000 for
the same period in 1996. Net Income for the three months ended March 31, 1997
included a $2,047,000 or $0.07 per share gain on the sale of real estate
properties.
Base Rental Income for the three months ended March 31, 1997 increased
$1,727,000 to $21,911,000 primarily as a result of approximately $121,000,000 of
new investments during 1996. Additional Rental and Interest Income increased
$531,000 to $5,313,000 from growth in the existing portfolio. These increases
were off-set by a reduction in Interest and Other Income of $334,000 to
$3,643,000 attributable largely to the paydown or payoff of certain mortgage
loans.
Interest Expense for the three months ended March 31, 1997 increased $469,000 to
$6,762,000 due largely from the issuance in February 1996 of $115,000,000 of
6.5% Senior Notes due 2006. Depreciation/Non Cash Charges for the three months
ended March 31, 1997 increased $981,000 to $6,234,000 due primarily as a result
of a full quarter's depreciation on approximately $117,000,000 of new equity
investments during 1996.
-7-
The Company adopted the definition of Funds From Operations ("FFO") prescribed
by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO 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 real estate depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect FFO on the same basis.
Below is a summary of the calculation of Funds From Operations:
Three Months
Ended March 31,
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1997 1996
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(Amounts in thousands)
Net Income $ 17,119 $ 14,601
Real Estate Depreciation 5,482 4,700
Partnership Adjustments (192) (96)
Gain on Sale of Real Estate Properties (2,047) ---
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Funds From Operations $ 20,362 $ 19,205
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FFO for the three months ended March 31, 1997 increased $1,157,000 to
$20,362,000. The increase is attributable to increases in Base Rental Income
and Additional Rental and Interest Income, as offset by increases in Interest
Expense and decreases in Interest and Other Income which are discussed above.
FFO 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. FFO, as defined by the Company, may not be comparable to
similarly entitled items reported by other real estate investment trusts that do
not define it exactly as the NAREIT definition.
The Company believes that FFO is an important supplemental measure of operating
performance. Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes predictably over time.
Since real estate values instead have historically risen and fallen with market
conditions, presentations of operating results for a real estate investment
trust that uses historical cost accounting for depreciation could be
uninformative. The term FFO was designed by the real estate investment trust
industry to address this problem.
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 flows. 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.
-8-
On February 15, 1996, the Company issued $115,000,000 in Unsecured Senior Notes
due 2006 bearing a coupon rate of 6.5%. The majority of the proceeds from this
debt issuance was used to fund acquisitions made since the second half of 1995.
During March and April 1997, the Company issued two ten year $10,000,000 MTNs
with coupon rates of 7.3% and 7.62%, respectively. At March 31, 1997,
stockholders' equity in the Company totaled $337,772,000 and the debt to equity
ratio was 1.15 to 1. For the three months ended March 31, 1997, FFO covered
Interest Expense 4.0 to 1.
As of April 1, 1997, the Company had approximately $30,975,000 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
March 31, 1997, the Company had $100,000,000 available on its revolving line of
credit. This line of credit with a group of six domestic and international
banks expires on March 31, 2000. The Company's Senior Notes 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-
Convertable
Subordinated Notes Baa2 BBB BBB+
Since inception in May 1985, the Company has recorded approximately $531,133,000
in cumulative FFO. Of this amount, a total of $444,739,000 has been distributed
to stockholders as dividends. The balance of $86,394,000 has been retained, and
is an additional source of capital for the Company.
At March 31, 1997, the Company held approximately $34,140,000 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 and such
changes may be material.
The first quarter 1997 dividend of $0.60 per share or $17,225,000 in the
aggregate was paid on February 20, 1997. Total dividends paid during the three
months ended March 31, 1997 as a percentage of FFO for the corresponding period
was 85%. The Company declared a second quarter dividend of $0.61 per share or
approximately $17,512,000 in the aggregate, to be paid on May 20, 1997.
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The Company has concluded a significant number of "facility rollover"
transactions in 1995 and 1996 on properties that have been under long-term
leases and mortgages. "Facility rollover" transactions principally include lease
renewals and renegotiations, exchanges, sales of properties, and, to a lesser
extent, payoffs on mortgage receivables. In 1995, the Company completed 20
facility rollovers including the sale of ten facilities with concurrent "seller
financing" for a gain of $23,550,000. The 1995 facility rollovers generated an
increase of $900,000 in FFO on an annualized basis. During the year ended
December 31, 1996, the Company completed or agreed in principle to complete 20
facility rollovers including the sale of nine facilities in Missouri and the
exchange of the Dallas Rehabilitation Institute for the HealthSouth Sunrise
Rehabilitation Hospital in Fort Lauderdale, Florida. The 1996 facility rollovers
through December 31, 1996, resulted in a decrease of $1,200,000 in Funds From
Operations on an annualized basis. Through December 31, 1999, the Company has
68 more facilities which are subject to lease expiration, mortgage maturities
and purchase options. The 1998 group includes 14, ten, and five long-term care
facilities leased to Vencor, Beverly and Horizon, respectively. The Horizon and
Beverly facilities cannot be renewed or purchased individually but are each
linked together in one and two renewal/purchase groups, respectively. The
Company has completed certain facility rollovers earlier than the scheduled
lease expirations or mortgage maturities and will continue to pursue such
opportunities where it is advantageous to do so.
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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits:
27 Financial Data Schedule
10.43 Health Care Property Investors, Inc.
Second Amended and Restated Directors
Stock Incentive Plan. 1/
10.44 Health Care Property Investors, Inc.
Second Amended and Restated
Stock Incentive Plan. 1/
1/ This exhibit is incorporated by reference to the Company's
proxy statement dated March 21, 1997 filed with the
Securities and Exchange Commission in accordance with
Section 14A of the Securities Exchange Act of 1934.
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: May 12, 1997 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)
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