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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,
1999.
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
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.)
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
(Address of principal executive offices)
(949) 221-0600
(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 November 10, 1999 there were 51,498,049 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:
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 ............................................... 2
Condensed Consolidated Statements of Income
Nine Months and Three Months Ended September 30, 1999 and 1998 ......................... 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 ......................................... 4
Notes to Condensed Consolidated Financial Statements ................................... 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations .......................................... 11
PART II. OTHER INFORMATION
Signatures ............................................................................................. 23
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HEALTH CARE PROPERTY INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
September 30, December 31,
1999 1998
------------- -------------
ASSETS
Real Estate Investments
Buildings and Improvements $ 1,283,343 $ 1,143,077
Accumulated Depreciation (215,258) (190,941)
----------- -----------
1,068,085 952,136
Construction in Progress 9,293 26,938
Land 161,445 152,045
----------- -----------
1,238,823 1,131,119
Loans Receivable 187,461 154,363
Investments in and Advances to Joint Ventures 46,184 54,478
Other Assets 23,924 12,148
Cash and Cash Equivalents 8,199 4,504
----------- -----------
TOTAL ASSETS $ 1,504,591 $ 1,356,612
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 100,500 $ 88,000
Senior Notes Payable 551,070 499,162
Convertible Subordinated Notes Payable Due 2000 100,000 100,000
Mortgage Notes Payable 60,596 21,883
Accounts Payable, Accrued Liabilities and Deferred Income 35,150 28,758
Minority Interests in Joint Ventures 39,400 23,390
Stockholders' Equity:
Preferred Stock 187,847 187,847
Common Stock 32,046 30,987
Additional Paid-In Capital 463,456 433,309
Cumulative Net Income 601,153 531,926
Cumulative Dividends (666,627) (588,650)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 617,875 595,419
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,504,591 $ 1,356,612
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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HEALTH CARE PROPERTY INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUE
Rental Income $ 43,259 $ 34,386 $ 128,245 $ 96,657
Tenant Reimbursements 2,323 825 6,394 1,768
Interest and Other Income 6,636 6,955 19,012 18,023
--------- --------- --------- ---------
52,218 42,166 153,651 116,448
--------- --------- --------- ---------
EXPENSE
Interest Expense 13,753 10,291 39,496 26,727
Depreciation/Noncash Charges 10,995 8,366 32,059 23,750
Facility Operating Expenses 4,136 1,466 11,894 3,211
Other Expenses 2,459 2,488 7,440 6,292
--------- --------- --------- ---------
31,343 22,611 90,889 59,980
--------- --------- --------- ---------
INCOME FROM OPERATIONS 20,875 19,555 62,762 56,468
Minority Interests (853) (889) (3,838) (3,109)
Gain on Sale of Real Estate Properties 10,151 6,230 10,303 6,742
--------- --------- --------- ---------
NET INCOME $ 30,173 $ 24,896 $ 69,227 $ 60,101
Dividends to Preferred Stockholders (4,109) (2,060) (12,328) (4,422)
--------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON SHARES $ 26,064 $ 22,836 $ 56,899 $ 55,679
========= ========= ========= =========
BASIC EARNINGS PER COMMON SHARE $ 0.81 $ 0.74 $ 1.80 $ 1.82
========= ========= ========= =========
DILUTED EARNINGS PER COMMON SHARE $ 0.80 $ 0.72 $ 1.80 $ 1.81
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC . 32,045 30,965 31,590 30,666
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 35,456 33,869 34,317 33,601
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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HEALTH CARE PROPERTY INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months
Ended September 30,
------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 69,227 $ 60,101
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Real Estate Depreciation 29,683 21,403
Non Cash Charges 2,158 2,301
Joint Venture Adjustments 1,329 233
Gain on Sale of Real Estate Properties (10,303) (6,742)
Changes in:
Operating Assets (2,832) (1,974)
Operating Liabilities 7,914 14,973
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 97,176 90,295
========= =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate, Gross (166,828) (185,594)
Assumption of Debt on Acquisition of Real Estate 40,856 5,065
Advances to Joint Ventures -- (36,583)
Proceeds from the Sale of Real Estate Properties 46,098 11,703
Other Investments and Loans (40,633) (21,248)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (120,507) (226,657)
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Bank Notes Payable 12,500 (66,900)
Repayment of Senior Notes Payable (10,000) (22,500)
Issuance of Senior Notes Payable 62,000 218,154
Cash Proceeds from Issuing Preferred Stock -- 130,037
Cash Proceeds from Issuing Common Stock 29,638 23,566
Increase (Decrease) in Minority Interests 15,948 (1,000)
Periodic Payments on Mortgages (2,008) (761)
Final Payments on Mortgages (344) --
Dividends Paid (77,977) (64,340)
Other Financing Activities (2,731) (951)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,026 215,305
========= =========
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,695 78,943
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,504 4,084
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,199 $ 83,027
========= =========
CAPITALIZED INTEREST $ 1,305 $ 1,052
========= =========
See accompanying Notes to Condensed Consolidated 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
We, the management of Health Care Property Investors, Inc., believe
that the unaudited financial information contained in this report reflects all
adjustments that are necessary to state fairly the financial position, the
results of operations, and cash flows of the Company. Unless the context
otherwise indicates, the Company or HCPI means Health Care Property Investors,
Inc. and its affiliated subsidiaries and joint ventures. We presume that users
of this interim financial information 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, 1998. Therefore, notes to the financial statements and other disclosures
that would repeat the disclosures contained in our most recent annual report to
security holders have been omitted. This interim financial information does not
necessarily represent a full year's operations for various reasons including
acquisitions and dispositions, changes in rents and interest rates, and the
timing of debt and equity financings.
Facility Operations:
Since November 1997, we have purchased ownership interests (ranging
from 50 to 100 percent) in 42 medical office buildings ("MOBs") that are
operated by independent property management companies on our behalf. We lease
these facilities to multiple tenants. Amounts recovered from tenants as
reimbursements of operating costs incurred under such leases are recorded as
Tenant Reimbursements. Expenses related to the operation of these facilities are
recorded as Facility Operating Expenses.
Reclassifications:
We have made reclassifications, where necessary, for comparative
financial statement presentations.
(2) MAJOR OPERATORS
As of September 30, 1999, we owned properties in 42 states operated by
85 operators. In addition, approximately 250 tenants conducted business in our
multi-tenant buildings. Listed below are our major operators, the number of
facilities operated by these operators, the annualized revenue as of September
30, 1999 and the percentage of annualized revenue, in each case, for the nine
months ended September 30, 1999, from these operators and their subsidiaries:
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Annualized Percentage of
Number of Revenue as of Annualized
Operators Facilities September 30, 1999 Revenue
- --------- ---------- ------------------ -------------
(Amounts in thousands)
Beverly Enterprises Inc. ("Beverly") 27 $ 12,387 6.6%
HealthSouth Corporation ("HealthSouth") 6 11,902 6.3
Vencor, Inc. ("Vencor") 22 11,389 6.1
Emeritus Corporation ("Emeritus") 23 11,338 6.0
Columbia/HCA Healthcare Corp. ("Columbia") 12 10,317 5.5
Centennial Healthcare Corp. ("Centennial") 19 8,627 4.6
Tenet Healthcare Corporation ("Tenet") 2 7,776 4.1
Certain facilities leased to operators listed above have been subleased to
other operators with the original lessees remaining liable on the leases. The
number of facilities, annualized revenue, and percentages of our total
annualized revenue applicable to these sublessees are not included above. The
percentage of our total annualized revenue on facilities leased to Vencor and
subleased to other operators was 2.5% as of September 30, 1999. As discussed in
more detail below, we have recourse to Tenet and Ventas, Inc. for rent
obligations under most Vencor leases.
All these major operators are subject to the informational filing
requirements of the Securities Exchange Act of 1934 and accordingly file
periodic financial statements on Form 10-K and Form 10-Q with the Securities and
Exchange Commission.
Vencor
On May 1, 1998, Vencor completed a spin-off transaction. As a result,
it became two publicly held entities--Ventas, Inc., a real estate company which
intends to qualify as a REIT, and Vencor, a health care company which at
September 30, 1999 leased 36 of HCPI's properties of which 14 are subleased to
other operators. On September 13, 1999, Vencor, Inc. filed for bankruptcy
protection. The Company has recourse to Ventas, Inc. and Tenet Healthcare
Corporation (see discussion under Tenet below) for most of the rents payable by
Vencor under its leases. All rents due to the Company subsequent to the filing
have been received.
Vencor has an obligation to pay rents due to the Company prior to
filing for bankruptcy protection. However, Vencor has the right to assume or
reject its leases with us. If Vencor assumes a lease it must do so pursuant to
the original contract terms, must cure all pre-petition and post-petition
defaults under the lease and provide adequate assurances of future performance.
If Vencor rejects a lease, it may stop paying rent and we may lease the property
to another operator. As of November 10, 1999, Vencor had made no proposals to
reject any of their current leases with the Company. We expect to collect
pre-bankruptcy receivables of $993,000 and future rents. However, we cannot
assure you that as a result of Vencor's bankruptcy filing we would be able to
recover all amounts due under our leases with Vencor, that we would be able to
promptly recover the premises or lease the property to another lessee or that
the rent we would receive from another lessee would equal amounts due under the
Vencor leases. We have recourse to Tenet for rents under all but five of the
Vencor leases, and on some leases we are receiving direct payment by sublessees
of Vencor, which may reduce the risk to us of not being able to collect on those
leases. However, we cannot assure you that the bankruptcy filing of Vencor would
not have a material adverse effect on our Net Income, Funds From Operations or
the market value
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of our common stock.
Tenet
Tenet is one of the nation's largest health care services companies,
providing a broad range of services through the ownership and management of
health care facilities. Tenet has historically guaranteed Vencor's leases.
During 1997 we reached an agreement with Tenet whereby Tenet agreed to forbear
or waive some renewal and purchase options and related rights of first refusal
on facilities leased to Vencor. As part of that same agreement, we only have
recourse to Tenet for the rent payments on the Vencor leases until the end of
their base term. Of the 36 leases for which we have recourse to Tenet, at
December 31, 1998, five expired during the nine months ended September 30, 1999.
The remaining 31 guaranteed leases expire during the next two years.
(3) REAL ESTATE INVESTMENTS AND DISPOSITIONS
During the nine months ended September 30, 1999, we acquired seven
clinics, one assisted living facility, 4 MOBs and an ownership interest in 15
additional MOBs for an aggregate investment of approximately $170,000,000.
During the nine months ended September 30, 1999, we sold six facilities
and ownership interests in four facilities, resulting in a net gain of
$10,303,000.
(4) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the nine months ended September 30, 1999
(amounts in thousands):
Preferred Stock Common Stock
---------------- --------------------
Par Additional Total
Number of Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Shares Amount Capital Net Income Dividends Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1998 7,785 $187,847 30,987 $30,987 $433,309 $531,926 $(588,650) $ 595,419
Issuance of Common Stock, Net 1,059 1,059 30,147 31,206
Net Income 69,227 69,227
Dividends Paid - Preferred Shares (12,328) (12,328)
Dividends Paid - Common Shares (65,649) (65,649)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1999 7,785 $187,847 32,046 $32,046 $463,456 $601,153 $(666,627) $ 617,875
- -----------------------------------------------------------------------------------------------------------------------------------
(5) EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, Earnings Per Share, effective December 15, 1997. As a result, both basic
and diluted earnings per common share are presented for each of the quarters and
nine months ended September 30, 1999 and 1998. Prior to 1997, only basic
earnings per common share were disclosed. Basic earnings per common share is
computed
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by dividing Net Income applicable to common shares by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per common share is calculated including the effect of dilutive securities.
Options to purchase shares of common stock that had an exercise price in excess
of the average market price of the common stock during the period were not
included because they are not dilutive.
(Amounts in thousands except per share amounts)
For the Three Months Ended For the Nine Months Ended
----------------------------------- ------------------------------------
Per Share Per Share
September 30, 1999 Income Shares Amount Income Shares Amount
- ----------------------------------------- ----------- --------- --------- ---------- ---------- ----------
BASIC EARNINGS PER COMMON SHARE:
Net Income Applicable to Common Shares $26,064 32,045 $0.81 $56,899 31,590 $1.80
===== =====
Dilutive Options -- 41 -- 82
Interest and Amortization Applicable to
Convertible Debt 1,599 2,645 4,798 2,645
Non Managing Member Units 532 725 -- --
======= ====== ======= ======
DILUTED EARNINGS PER COMMON SHARE:
Net Income Applicable to Common
Shares Plus Assumed Conversions $28,195 35,456 $0.80 $61,697 34,317 $1.80
===== =====
September 30, 1998
- -----------------------------------------
BASIC EARNINGS PER COMMON SHARE:
Net Income Applicable to Common Shares $22,836 30,965 $0.74 $55,679 30,666 $1.82
===== =====
Dilutive Options -- 142 -- 172
Interest and Amortization Applicable to
Convertible Debt 1,599 2,645 4,798 2,645
Non Managing Member Units 77 117 230 118
======= ====== ======= ======
DILUTED EARNINGS PER COMMON SHARE:
Net Income Applicable to Common
Shares Plus Assumed Conversions $24,512 33,869 $0.72 $60,707 33,601 $1.81
===== =====
(6) FUNDS FROM OPERATIONS
Effective in 1998, the Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise, requires that we report
information about our operations on the same basis that is used internally to
measure performance.
We believe that Funds From Operations ("FFO") is our most important
internal supplemental measure of operating performance. Because the historical
cost accounting convention used for real estate assets requires straight-line
depreciation (except on land) such accounting presentation implies that the
value of real estate assets diminishes predictably over time. Because 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 less informative. The term
FFO was designed by the real estate investment trust industry to address this
problem.
The Company adopted the definition of FFO prescribed by the National
Association of Real Estate Investment Trusts ("NAREIT"). FFO is defined as Net
Income applicable to common shares (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate depreciation and real
estate related
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amortization, 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.
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.
Below are summaries of the calculation of FFO (all amounts in
thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Income Applicable to Common Shares $ 26,064 $ 22,836 $ 56,899 $ 55,679
Real Estate Depreciation and Amortization 10,196 7,512 29,683 21,403
Joint Venture Adjustments 437 189 1,329 233
Gain on Sale of Real Estate Properties (10,151) (6,230) (10,303) (6,742)
-------- -------- -------- --------
Funds From Operations $ 26,546 $ 24,307 $ 77,608 $ 70,573
======== ======== ======== ========
(7) COMMITMENTS
As of November 10, 1999, the Company has acquired real estate
properties and has outstanding commitments to fund development of health care
facilities of approximately $37,000,000.
The Company is also committed to acquire approximately $15,000,000 of
existing health care real estate. The Company expects that a significant portion
of these commitments will be funded; however, experience suggests that some
committed transactions will not close. The letters of intent representing such
commitments permit either party to elect not to go forward with the transaction
under various circumstances. We may not close committed transactions for various
reasons including unsatisfied pre-closing conditions, competitive financing
sources, final negotiation differences or the operator's inability to obtain
required internal or governmental approvals.
(8) NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for fiscal years beginning after June 15, 2000, although earlier
implementation is allowed.
We have not yet quantified the impact of adopting Statement 133 on our
financial statements and have not determined the timing or method of our
adoption of Statement 133. However, the effect is not expected to be material.
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(9) SUBSEQUENT EVENTS
On November 4, 1999, American Health Properties, Inc. ("AHE") merged
with and into HCPI ("the Merger") in a stock-for-stock transaction, approved by
the stockholders of both companies, with Health Care Property Investors being
the surviving corporation. AHE was a real estate investment trust specializing
in health care facilities with a portfolio of 68 health care properties in 22
states. Under the terms of the merger agreement, each share of AHE common stock
was converted into the right to receive 0.78 share of HCPI's common stock and
each outstanding share of AHE's 8.60% cumulative redeemable preferred stock,
Series B (represented by depository shares) was converted as discussed below
into shares of HCPI 8.60% Series C cumulative redeemable preferred stock (also
represented by depository shares) redeemable at HCPI's option on and after
October 27, 2002. The Merger resulted in the issuance of approximately
19,491,735 shares of HCPI's common stock and 40,000 shares of HCPI's Series C
cumulative redeemable preferred stock with a liquidation preference of $100
million. Additionally, HCPI assumed $325 million of AHE's debt upon consummation
of the Merger. The transaction will be treated as a purchase for financial
accounting purposes. As a result of the Merger, HCPI owns interests in 424
health care properties in 43 states.
On November 2, 1999, HCPI obtained new senior revolving credit
facilities totaling $310,000,000. The new credit facilities became effective on
November 4, 1999 upon consummation of the Merger. These facilities include a
$207,000,000 line which expires after four years and a $103,000,000 line which
expires November 2000. A portion of the proceeds of these facilities was used to
refinance the Company's existing revolving credit facility of $90,000,000 and
$71,000,000 of AHE's revolving credit facilities outstanding immediately prior
to the Merger. As of November 10, 1999, the Company had $133,500,000 in
available borrowings under the new revolving credit facilities.
On October 8, 1999 the Board of Directors declared a quarterly dividend
of $0.71 per common share payable on November 19, 1999, to shareholders of
record on the close of business on October 21, 1999.
The Board of Directors also declared a cash dividend of $0.492188 per
share on its Series A cumulative preferred stock and $0.54375 per share on its
Series B cumulative preferred stock. These dividends will be paid on December
31, 1999 to shareholders of record as of the close of business on December 15,
1999.
On November 3, 1999, the Board of Directors declared a cash dividend,
effective upon the consummation of the merger with American Health Properties,
Inc., of $53.75 per share (representing dividends from August 30, 1999 to
November 30, 1999) for every share of the Company's 8.60% Series C cumulative
redeemable preferred stock ($.5375 per depositary share representing 1/100th of
a share of Series C preferred stock) to be issued in connection with the merger.
This dividend is payable on November 30, 1999 to holders of record of the Series
C preferred stock on November 15, 1999. Also on November 3, 1999, the Board of
Directors declared a cash dividend, effective upon the consummation of the
merger, of $17.9167 per share (representing dividends from December 1 to
December 31, 1999) for every share of the Series C preferred stock ($.179167 per
depositary share representing 1/100th of a share of Series C preferred stock).
This dividend is payable on December 31, 1999 to holders of record of the Series
C preferred stock on December 15, 1999.
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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
we lease on a long-term basis to health care providers. On a more limited basis,
we have provided mortgage financing on health care facilities. As of September
30, 1999, the Company's portfolio of properties, including equity investments,
consisted of 352 facilities located in 42 states. These facilities are comprised
of 157 long-term care facilities, 80 congregate care and assisted living
facilities, 46 physician group practice clinics, 54 medical office buildings,
eight acute care hospitals, six freestanding rehabilitation facilities and one
psychiatric care facility. The gross investment in the properties, which
includes joint venture acquisitions, was approximately $1.7 billion at September
30, 1999.
We have commitments to purchase and construct health care facilities
totaling approximately $52,000,000 which are expected to fund during 1999 and
2000. We expect that a significant portion of these commitments will be funded
but that a portion may not be funded (see Note (7) to the Condensed Consolidated
Financial Statements).
On November 4, 1999, the Company completed a merger with American
Health Properties in a stock-for-stock transaction (see Note (9) to the
Condensed Consolidated Financial Statements).
RESULTS OF OPERATIONS
Net Income applicable to common shares for the three and nine months
ended September 30, 1999 totaled $26,064,000 and $56,899,000 or $0.81 and $1.80
of basic earnings per share on revenue of $52,218,000 and $153,651,000,
respectively. This compares to $22,836,000 and $55,679,000 or $0.74 and $1.82 of
basic earnings per share on revenue of $42,166,000 and $116,448,000 for the same
periods in 1998. Net Income applicable to common shares for the three months
ended September 30, 1999 and September 30, 1998 included a $10,151,000 or $0.32
per share and $6,230,000 or $0.20 per share gain on the sale of real estate
properties, respectively, and the nine months ended September 30, 1999 and 1998
included a $10,303,000 or $0.33 per share and $6,742,000 or $0.22 per share gain
on sale of real estate properties, respectively.
Rental Income and Tenant Reimbursements for the three and nine months
ended September 30, 1999 increased $10,371,000 and $36,214,000 to $45,582,000
and $134,639,000, respectively, as compared to the same period in the prior
year. The majority of the increase in Rental Income was generated by new
investments of approximately $147,000,000 and $458,000,000 made during 1999 and
1998. Interest and Other Income for the three and nine months ended September
30, 1999 decreased $319,000 and increased $989,000 to $6,636,000 and
$19,012,000, respectively, primarily from growth in the lending portfolio offset
but the divestiture of certain partnership interests during the three months
ended September 30, 1999. There were $4,136,000 and $11,894,000 in related
Facility Operating Expenses during the three and nine months ended September 30,
1999 compared to $1,466,000 and $3,211,000 during the three and nine months
ended September 30, 1998 resulting from additional multi-tenant leases under
which the Company is responsible for operating expenses of the leased facility.
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Interest Expense for the three and nine months ended September 30, 1999
increased $3,462,000 and $12,769,000, respectively. The increase is primarily
the result of an increase in short-term borrowings used to fund the acquisitions
made during the fourth quarter of 1998 and the nine months ended September 30,
1999 and interest related to the MOPPRS senior debt issuance during June 1998.
The increase in Depreciation/Non Cash Charges for the three and nine months
ended September 30, 1999 of $2,629,000 and $8,309,000 to $10,995,000 and
$32,059,000, respectively, is the direct result of the new investments made
during 1999 and 1998.
We believe that FFO is an important supplemental measure of operating
performance. FFO for the nine months ended September 30, 1999 increased
$2,239,000 to $26,546,000 as compared to the same period in the prior year. The
increase is attributable to increases in Rental Income, and Interest and Other
Income, as offset by increases in Interest Expense and Facility Operating
Expenses, 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 we defined it, may not be comparable to
similarly entitled items reported by other real estate investment trusts that do
not use the NAREIT definition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed acquisitions through the sale of common and
preferred stock, issuance of long-term debt, assumption of mortgage debt, 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 our existing bank lines. 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, including Medium Term Notes
("MTNs"), or with equity offerings.
MTN FINANCINGS
The following table summarizes the MTN financing activities during 1998
and 1999:
AMOUNT
DATE MATURITY COUPON RATE ISSUED/(REDEEMED
- --------------------- -------- ------------- -------------------
February 1998 -- 9.88% $ (10,000,000)
March 1998 5 years 6.66% 20,000,000
April-November 1998 -- 6.10%-9.70% (17,500,000)
November 1998 3-8 years 7.30%-7.88% 28,000,000
February 1999 5 years 6.92% 25,000,000
April 1999 5 years 7.00%-7.48% 37,000,000
May 1999 -- 10.55%-10.57% (10,000,000)
SENIOR DEBT OFFERINGS
During June 1998, the Company issued $200 million of 6.875% MandatOry
Par Put Remarketed Securities ("MOPPRS") due June 8, 2015 which are subject to
mandatory tender on June 8, 2005. We
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received total proceeds of approximately $203,000,000 (including the present
value of a put option associated with the debt) which was used to repay
borrowings under our revolving lines of credit. The weighted average cost of the
debt including the amortization of the option and offering expenses is 6.77%.
The MOPPRS are senior, unsecured obligations of the Company.
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EQUITY OFFERINGS
Since January 1998, HCPI has completed three equity offerings,
summarized in the table below:
SHARES
DATE ISSUANCE ISSUED EQUITY RAISED NET PROCEEDS
- -------------------- ----------------------------------- ------------ --------------- ----------------
April 1998 Common Stock at $33.2217/share to 698,752 $ 23,200,000 $ 23,000,000
a Unit Investment Trust
September 1998 8.70% Series B Cumulative 5,385,000 $135,000,000 $130,000,000
Redeemable Preferred Stock
May 1999 Common Stock at $31.4375/share 1,000,000 $ 31,400,000 $ 29,600,000
HCPI used the net proceeds from the equity offerings to pay down or pay
off short-term borrowings under its revolving lines of credit. HCPI invested any
excess funds in short-term investments until they were needed for acquisitions
or development.
At September 30, 1999, stockholders' equity totaled $617,875,000 and
the debt to equity ratio was 1.31 to 1.00. For the nine months ended September
30, 1999, FFO (before interest expense) covered Interest Expense 3.0 to 1.0.
AVAILABLE FINANCING SOURCES
During June 1998, the Company registered $600,000,000 of debt and
equity securities under a shelf registration statement filed with the Securities
and Exchange Commission. As of November 10, 1999 we had approximately
$397,000,000 remaining on shelf filings for future financings. Of that amount,
we had approximately $110,000,000 available under our MTN senior debt programs.
We may issue securities under our universal shelf, including under our MTN
programs, up to these amounts from time to time in the future based on Company
needs and then existing market conditions. As of November 10, 1999, the Company
had $133,500,000 in available borrowings under its new $310,000,000 revolving
credit facility (See Note (9) to the Condensed Consolidated Financial
Statements). Since 1986 the debt rating agencies have rated our Senior Notes and
Convertible Subordinated Notes investment grade. Current ratings are as follows:
Moody's Standard & Poor's Duff & Phelps
------- ----------------- -------------
Senior Notes Baa2 BBB+ BBB+
Convertible Subordinated
Notes and Redeemable
Preferred Stock Baa3 BBB BBB
Since inception in May 1985, the Company has recorded approximately
$768,077,000 in cumulative FFO. Of this amount, we have distributed a total of
$644,520,000 to stockholders as dividends on common stock. We have retained the
balance of $123,557,000 and used it as an additional source of capital.
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At November 10, 1999, the Company held approximately $42,900,000 in
irrevocable letters of credit from commercial banks to secure the obligations of
many lessees' lease and borrowers' loan obligations. We may draw upon the
letters of credit if there are any defaults under the leases and/or loans.
Amounts available under letters of credit could change based upon facility
operating conditions and other factors and such changes may be material.
We paid the third quarter 1999 dividend of $0.70 per common share or
$22,400,000 in the aggregate on August 20, 1999. Total dividends paid during the
nine months ended September 30, 1999, as a percentage of FFO was 85%. The
Company declared a fourth quarter dividend of $0.71 per common share or
approximately $22,750,000 in the aggregate, payable on November 19, 1999.
Management believes that HCPI's liquidity and sources of capital are
adequate to finance its operations as well as its future investments in
additional facilities.
FACILITY ROLLOVERS
HCPI has concluded a significant number of "facility rollover"
transactions since 1995 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. The annualized impact was to increase FFO in 1995 by
$900,000 and decrease FFO in each of the years 1996 through 1999 by $1,200,000,
$1,600,000, $3,100,000 and $3,200,000, respectively. Total rollovers were 20
facilities, 20 facilities, 12 facilities, 44 facilities and 21 facilities in
each of the years 1995 - 1999.
Between November 10, 1999 and December 31, 2000, HCPI has nine
facilities that are subject to lease expiration and mortgage maturities. The
facilities remaining which are subject to lease expiration and mortgage
maturities during the remaining period in 1999 and 2000 aggregate 2.8% of
annualized revenue.
During 1997, HCPI reached agreement with Tenet (the holder of
substantially all of the option rights of the Vencor leases) whereby Tenet
agreed to waive renewal and purchase options, and related rights of first
refusal, on up to 51 facilities. As part of these agreements, HCPI has the right
to continue to own the facilities. HCPI paid Tenet $5,000,000 in cash,
accelerated the purchase option on two acute care hospitals leased to Tenet, and
reduced Tenet's guarantees on the facilities leased to Vencor. Leases on 20 of
those 51 facilities had expiration dates through December 31, 2000. HCPI has
increased rents on five of the facilities with leases that have already expired
during 1998, and believes it will be able to increase rents on other facilities
whose lease terms expire through 2001. However, there can be no assurance that
HCPI will be able to realize any increased rents on future rollovers.
INTERNAL GROWTH
For the three and nine months ended September 30, 1999, the Company had
internal same facility rent growth of approximately $518,000 and $1,412,000
or 2.5% of prior period rents in its portfolio, respectively.
TENANT ISSUES
We have discussed issues regarding Vencor in Note (2) to the financial
statements. In addition, a number of other nursing home operators have also
been adversely affected by the decrease in Medicare reimbursements following the
adoption of the Prospective Payment System. As discussed in our Annual Report on
Form 10K for the year ended December 31, 1998, during the first quarter of 1999
certain of
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these operators were put on credit watch with negative implications.
Subsequently, three of our operators (other than Vencor discussed separately)
have filed for bankruptcy protection: Texas Health Enterprises, Inc. filed on
August 3, 1999; Sun Healthcare Group filed on October 14, 1999; and Lenox
Healthcare, Inc. filed on November 3, 1999. Collectively, these operators
represented less than 4.8% of our annualized revenues for the period ended
September 30, 1999 and no one of these operators represented more than 1.8% of
annualized revenues for that same period. Giving effect to our merger with
American Health Properties, these operators represented less than 3.0% of
annualized revenue on a pro forma basis for the period ended September 30, 1999.
In addition, because facilities operated by these operators are performing well,
we believe the financial impact to HCPI of the bankruptcies by these tenants
will be minimal.
YEAR 2000 ISSUE
The Year 2000 issue is the result of widely used computer programs that
identify the year by two digits, rather than by four. It is believed that
continued use of these programs may result in widespread computer-generated
malfunctions and miscalculations beginning in the year 2000, when the digits
"00" are interpreted as "1900." Those miscalculations could cause disruption of
operations including the temporary inability to process transactions such as
invoices for payment. Those computer programs that identify the year based on
all four digits are considered "Year 2000 compliant." The statements in the
following section include "Year 2000 readiness disclosure" within the meaning of
the Year 2000 Information and Readiness Disclosure Act of 1998.
Status of Year 2000 Issues with HCPI's Own Information Technology Systems and
Non-IT Systems
Our primary use of information technology ("IT") is in our financial
accounting systems, billing and collection systems and other information
management software. We have been working with our computer consultants to test
and continually upgrade our management information systems. We have reasonable
assurance from our vendors, outside computer consultants and through our own
testing that our financial and other information systems are Year 2000
compliant. During 1998 and 1999, we inventoried our information technology
systems (including workstations, servers and software applications) and have
obtained the latest upgrades and patches from our vendors that would result in
all of our systems being Year 2000 compliant. The cost to bring the management
information systems into Year 2000 compliance has not been material. By
September 30, 1999, we had completed Y2K testing of our financial accounting
system. The test included mirroring the current environment, posting December
1999 transactions, closing of the year 1999, posting January 2000 transactions
and posting transactions in the leap year February 29, 2000. Upon completion of
the testing, we found no Y2K issues.
Our operations are conducted out of our corporate offices in Newport
Beach, California where we use and are exposed to non-IT systems such as those
contained in embedded micro-processors in telephone and voicemail systems,
elevators, heating, ventilation and air conditioning (HVAC) systems, lighting
timers, security systems, and other property operational control systems. We
believe that we do not have significant exposure to Year 2000 issues with
respect to our non-IT systems contained in embedded chips used in our corporate
offices. While any disruption in services at our corporate offices due to
failure of non-IT systems may be inconvenient and disruptive to normal
day-to-day activities, it is not expected to have a materially adverse effect on
our financial performance or operations.
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Exposure to Third Parties' Year 2000 Issues
Because we believe our own accounting and information systems are Year
2000 compliant, we do not feel there will be material disruption to our
transaction processing on January 1, 2000. However, we depend upon our tenants
for rents and cash flows, our financial institutions for availability of working
capital and capital markets financing and our transfer agent to maintain and
track investor information. As health care providers, our operators, lessees and
mortgagors rely on critical clinical systems, medical devices and equipment in
the delivery of patient care; failures in those systems as a result of Year 2000
issues could have a material adverse effect on their results of operations or
expose them to liability. Furthermore, our operators, lessees and mortgagors are
dependent on a variety of third parties, including insurance companies, HMOs and
other private payors, governmental agencies that administer Medicaid and
Medicare claims processing and reimbursement, utilities that provide
electricity, water, natural gas and communications services and vendors of
medical supplies, pharmaceuticals, medical devices and equipment, all of whom
must also adequately address the Year 2000 issue. If our primary lessees and
mortgagors are not Year 2000 compliant, or if they face disruptions in their
cash flows due to Year 2000 issues, we could face significant temporary
disruptions in our cash flows after that date. These disruptions could be
exacerbated if the commercial banks that process our cash receipts and
disbursements and our lending institutions are not Year 2000 compliant.
Furthermore, to the extent there are broad market disruptions as a result of
widespread Year 2000 issues, our access to the capital markets to raise cash for
investing activity could be impaired.
To address this concern, during the second quarter of 1998, we
commenced a written survey of all of our major tenants, Bank of New York in its
capacity as agent under our credit facilities, and as common stock Transfer
Agent and Trustee under our senior debt indenture, each other lender under our
credit facility, our primary investment banker for our capital raising
activities, and our independent public accountants and primary outside legal
counsel. The survey asked each respondent to assess its exposure to Year 2000
issues and asked what preparations each has made to deal with the Year 2000
issue with respect to both information technology and non-IT systems. In
addition, we asked each respondent to inform us about their exposure to third
party vendors, customers and payers who may not be Year 2000 compliant.
Through this process we have been informed in writing by approximately
95% of those surveyed that they believe that they have computer systems that are
or will be Year 2000 compliant by the end of 1999. All continue to assess their
own exposure to the issue. However neither we nor our lessees and mortgagors can
be assured that the third parties upon which our operators, lessees and
mortgagors depend will accomplish adequate remediation of their Year 2000
issues, nor that the federal and state governments, upon which they rely for
Medicare and Medicaid revenue, will be in compliance in a timely manner.
We are in the process of assessing our exposure to failures of embedded
microprocessors contained in elevators, electrical and HVAC systems, security
systems and the breakdown of other non-IT systems due to the Year 2000 issue at
the properties operated by our tenants. Under a significant portion of our
leases, we are not responsible for the cost to repair such items and are
indemnified by the tenants for losses caused by their operations on the
property. For the managed medical office buildings where we are responsible for
the building operations, we had the management companies inventory and assess
the building systems and our IT systems. The management companies represented to
us that they have implemented extensive Y2K compliance programs; as such, we
believe that the costs of repairs will
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be immaterial and any such costs will be expensed as incurred. We believe that
these buildings will beY2K compliant by the end of 1999.
Risks of Year 2000 Issues
Our exposure to the Year 2000 issue depends primarily on the readiness
of our significant tenants and commercial banks, who in turn, are dependent upon
suppliers, payers and other external parties, all of which is outside our
control. We believe the most reasonably likely worst case scenario faced by us
as a result of the Year 2000 issue is the possibility that reimbursement delays
caused by a failure of federal and state welfare programs responsible for
Medicare and Medicaid could adversely affect our tenants' cash flow, resulting
in their temporary inability to meet their obligations under our leases.
Depending upon the severity of any reimbursement delays and the financial
strength of any particular operator, the operations of our tenants could be
materially adversely affected, which in turn could have a material adverse
effect on our results of operations.
In September 1998, the General Accounting Office reported that the
Health Care Financing Administration, which runs Medicare, is behind schedule in
taking steps to deal with the Year 2000 issue and that it is highly unlikely
that all of the Medicare systems will be compliant in time to ensure the
delivery of uninterrupted benefits and services into the year 2000. The General
Accounting Office also reported in November 1998 that, based upon its survey of
the states, the District of Columbia and three territories, less than 16% of the
automated systems used by state and local government to administer Medicaid are
reported to be Year 2000 compliant. We do not know at this time whether there
will in fact be a disruption of Medicare or Medicaid reimbursements to our
lessees and mortgagors and we are therefore unable to determine at this time
whether the Year 2000 issue will have a material adverse effect on us or its
future operations.
Merger Properties
As of November 4, 1999, the merger with American Health Properties was
completed. The operations of that company will be transferred to our own systems
prior to December 31, 1999. (See Status of Year 2000 Issues with HCPI's Own
Information Technology Systems and Non-IT Systems for a discussion of our Y2K
readiness.)
American Health Properties had conducted Year 2000 compliance of their
lessees and operators and concluded that their lessees would be compliant. In
addition, the management companies that manage their multi-tenant medical office
buildings represented to them that they had implemented extensive Year 2000
compliance programs. To the best of our knowledge, we believe that such lessees
and multi-tenant buildings will be Year 2000 compliant.
Contingency Plans
If there are severe disruptions in our cash flow as a result of
disruptions in our tenants' or mortgagors' cash flow, we may be forced to slow
our investment activity, or seek additional liquidity from our lenders.
Readers are cautioned that most of the statements contained in the
"Year 2000 Issue" paragraphs are forward looking and should be read in
conjunction with HCPI's disclosures under the heading "Cautionary Language
Regarding Forward Looking Statements" set forth below.
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Cautionary Language Regarding Forward Looking Statements
Statements in this Quarterly Report that are not historical factual
statements are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The statements include, among other
things, statements regarding the intent, belief or expectations of HCPI and its
officers and can be identified by the use of terminology such as "may", "will",
"expect", "believe", "intend", "plan", "estimate", "should" and other comparable
terms or the negative thereof. In addition, HCPI, through its senior management,
from time to time makes forward looking oral and written public statements
concerning HCPI's expected future operations and other developments.
Shareholders and investors are cautioned that, while forward looking statements
reflect HCPI's good faith beliefs and best judgment based upon current
information, they are not guarantees of future performance and are subject to
known and unknown risks and uncertainties. Actual results may differ materially
from the expectations contained in the forward looking statements as a result of
various factors. Such factors include:
(a) Legislative, regulatory, or other changes in the healthcare industry
at the local, state or federal level which increase the costs of or
otherwise affect the operations of HCPI's lessees;
(b) Changes in the reimbursement available to HCPI's lessees and
mortgagors by governmental or private payors, including changes in
Medicare and Medicaid payment levels, availability and cost of third
party insurance coverage; such as those contained in the Balanced
Budget Act of 1997, which contains extensive changes to the Medicare
and Medicaid programs intended to significantly reduce the projected
amount of increase in Medicare spending. In particular, the Budget
Act's limitation on reimbursable costs and reductions in payment
incentives and capital related payments as well as the recently
implemented prospective payment system, which is expected to decrease
reimbursements to skilled nursing homes, may have an adverse effect on
the operator revenues at the Company's rehabilitation and long-term
acute care facilities;
(c) Competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases;
(d) Competition for the acquisition and financing of health care
facilities;
(e) The ability of HCPI's lessees and mortgagors to operate HCPI's
properties in a manner sufficient to maintain or increase revenues and
to generate sufficient income to make rent and loan payments;
(f) Risks associated with HCPI's multi-tenant medical office buildings,
such as lower than expected occupancy levels, a downturn in market
lease rates for medical office space or higher than expected costs
associated with the maintenance and operation of the such facilities;
(g) Changes in national or regional economic conditions, including changes
in interest rates and the availability and cost of capital to HCPI;
and
(h) General uncertainty inherent in the Year 2000 issue, particularly the
uncertainty of the Year 2000 readiness of third parties who are
material to HCPI's business, such as public or private healthcare
reimbursers, over whom HCPI has no control with the result that HCPI
cannot ensure its ability to timely and cost-effectively avert or
resolve problems associated with the Year 2000 issue that may affect
its operations and business.
DISCLOSURES ABOUT MARKET RISK
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HCPI is exposed to market risks related to fluctuations in interest
rates on its mortgage loans receivable and on its debt instruments. The
following discussion and table presented below are provided to address the risks
associated with potential changes in HCPI's interest rate environment.
HCPI provides mortgage loans to operators of healthcare facilities in
the normal course of business. All of the mortgage loans receivable have fixed
interest rates or interest rates with periodic fixed increases. Therefore, the
mortgage loans receivable are all considered to be fixed rate loans, and the
current interest rate (the lowest rate) is used in the computation of market
risk provided in the table below if material.
HCPI generally borrows on its short-term bank lines of credit to
complete acquisition transactions. These borrowings are then repaid using
proceeds from subsequent long-term debt and equity offerings. HCPI may also
assume mortgage notes payable already in place as part of an acquisition
transaction. As of September 30, 1999, HCPI has two mortgage notes payable with
variable interest rates and the remaining mortgage notes payable have fixed
interest rates or interest rates with fixed periodic increases. HCPI's senior
notes and convertible debt are at fixed rates. The variable rate loans are at
interest rates at or below the current prime rate of 8.25%, and fluctuations are
tied to the prime rate or to a rate currently below the prime rate.
Fluctuation in the interest rate environment will not impact HCPI's
future earnings and cash flows on its fixed rate debt until that debt matures
and must be replaced or refinanced. Interest rate changes will affect the fair
value of the fixed rate instruments. Conversely, changes in interest rates on
variable rate debt would change the future earnings and cash flows of HCPI, but
not affect the fair value on those instruments. Assuming a one percentage point
increase in the interest rate related to the variable rate debt including the
mortgage notes payable and the bank lines of credit, and assuming no change in
the outstanding balance as of September 30, 1999, interest expense for the
coming year would increase by approximately $1,229,000. Approximately 20% of the
increase in interest expense related to the bank lines of credit, or $246,000,
would be capitalized into construction projects.
The principal amount and the average interest rates for the mortgage
loans receivable and debt categorized by the final maturity dates are presented
in the table below. Certain of the mortgage loans receivable and certain of the
debt securities, excluding the convertible debentures, require periodic
principal payments prior to the final maturity date. The fair value estimates
for the mortgage loans receivable are based on the estimates of management and
on rates currently prevailing for comparable loans. The fair market value
estimates for debt securities are based on discounting future cash flows
utilizing current rates offered to HCPI for debt of the same type and remaining
maturity.
|-----------------------------MATURITY------------------------------|
----------------------------------------------------------------------------------
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
----------------------------------------------------------------------------------
ASSETS
Mortgage Loans Receivable -- $16,125 $2,655 $151,946 $170,726 $176,011
Weighted Average Interest Rate 13.55% 10.12% 9.90% 10.25%
LIABILITIES
Variable Rate Debt:
Bank Notes Payable 100,500 100,500 100,500
Weighted Average Interest Rate 5.38% 5.38%
Mortgage Notes Payable 2,767 2,560 12,250 4,846 22,423 21,177
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|-----------------------------MATURITY------------------------------|
----------------------------------------------------------------------------------
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
----------------------------------------------------------------------------------
Weighted Average Interest Rate 7.75% 7.75% 7.54% 5.75% 7.20%
Fixed Rate Debt:
Senior Notes Payable 5,000 10,000 13,000 17,000 31,000 475,070 551,070 518,236
Weighted Average Interest Rate 8.81% 8.87% 7.88% 8.40% 7.09% 6.89% 7.05%
Convertible Subordinated Notes Payable 100,000 100,000 98,596
Weighted Average Interest Rate 6.00% 6.00%
Mortgage Notes Payable 423 37,749 38,172 37,467
Weighted Average Interest Rate 9.00% 8.30% 8.32%
HCPI does not believe that the future market rate risks related to the
above securities will have a material impact on HCPI or the results of its
future operations. Readers are cautioned that most of the statements contained
in these "Disclosures about Market Risk" paragraphs are forward looking and
should be read in conjunction with HCPI's disclosures under the heading
"Cautionary Language Regarding Forward Looking Statements" set forth above.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
2.1 Agreement and Plan of Merger, dated as of August 4,
1999, between Health Care Property Investors, Inc. and
American Health Properties, Inc. (incorporated herein
by reference to exhibit 2.1 to Health Care Property
Investors, Inc.'s current report on form 8-K (file no.
001-08895) dated August 4, 1999).
3.1 Articles of restatement of Health Care Property
Investors, Inc. (incorporated herein by reference to
exhibit 3.1 to our annual report on form 10-K (file no.
001-08895) for the year ending December 31, 1994).
3.2 Second amended and restated bylaws of Health Care
Property Investors, Inc. (incorporated herein by
reference to exhibit 3.2 of our quarterly report on
form 10-Q (file no. 001-08895) for the period ended
March 31, 1999).
4.1 Articles Supplementary establishing and fixing the
rights and preferences of the 8.60% Series C Cumulative
Redeemable Preferred Stock (incorporated herein by
reference to exhibit 2.1 to our current report on form
8-K (file no. 001-08895), dated August 4, 1999).
4.2 Form of Deposit Agreement (including form of Depositary
Receipt with respect to the Depositary Shares, each
representing one-one hundredth of a share of Health
Care Property Investors, Inc. 8.60% Cumulative
Redeemable Preferred Stock, Series C) dated as of
November 4, 1999 by and among Health Care Property
Investors, Inc., ChaseMellon Shareholder Services,
L.L.C. and the holders from time to time of the
Depositary Shares described therein (incorporated
herein by reference to exhibit 4 to our form 8-A (file
no. 001-08895) filed with the Commission on November 4,
1999).
4.3 Indenture dated as of January 15, 1997 between American
Health Properties, Inc. and The Bank of New York, as
trustee (incorporated herein by reference to exhibit
4.1 to American Health Properties, Inc.'s current
report on form 8-K (file no. 001-09381) dated January
21, 1997).
4.4 First Supplemental Indenture, dated as of November 4,
1999, between Health Care Property Investors, Inc. and
The Bank of New York, as trustee.
10.1 First Amendment to Second Amended and Restated
Directors Stock Incentive Plan effective as of November
3, 1999.
10.2 Second Amendment to Second Amended and Restated
Directors Deferred Compensation Plan effective as of
November 3, 1999.
10.3 First Amendment to Second Amended and Restated Stock
Incentive Plan effective as of November 3, 1999.
10.4 Revolving Credit Agreement, dated as of November 3,
1999, among Health Care Property Investors, Inc., each
of the banks identified on the signature pages hereof,
The Bank of New York, as agent for the banks and as
issuing bank, and Bank of America, N.A. and Wells Fargo
Bank, N.A., as co-documentation agents, with BNY
Capital Markets, Inc., as lead arranger and Book
Manager.
10.5 364-Day Revolving Credit Agreement, dated as of
November 3, 1999 among Health Care Property Investors,
Inc., each of the banks identified on the signature
pages hereof, The Bank of New York, as agent for the
banks, and Bank of America, N.A. and Wells Fargo Bank,
N.A., as co-documentation agents, with BNY Capital
Markets, Inc., as lead arranger and book manager.
27 Financial Data Schedule
b) Reports on Form 8-K:
HCPI filed a Current Report on Form 8-K dated August 4, 1999,
reporting the signing of a definitive merger agreement
between American Health Properties and HCPI.
HCPI filed a Current Report on Form 8-K dated November 4,
1999, reporting the completion of the merger between American
Health Properties and HCPI.
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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: November 12, 1999 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)
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ATTACHED EXHIBITS
4.4 First Supplemental Indenture, dated as of November 4, 1999, between
Health Care Property Investors, Inc. and The Bank of New York, as
trustee.
10.1 First Amendment to Second Amended and Restated Directors Stock
Incentive Plan effective as of November 3, 1999.
10.2 Second Amendment to Second Amended and Restated Directors Deferred
Compensation Plan effective as of November 3, 1999.
10.3 First Amendment to Second Amended and Restated Stock Incentive Plan
effective as of November 3, 1999.
10.4 Revolving Credit Agreement, dated as of November 3, 1999, among Health
Care Property Investors, Inc., each of the banks identified on the
signature pages hereof, The Bank of New York, as agent for the banks
and as issuing bank, and Bank of America, N.A. and Wells Fargo Bank,
N.A., as co-documentation agents, with BNY Capital Markets, Inc., as
lead arranger and Book Manager.
10.5 364-Day Revolving Credit Agreement, dated as of November 3, 1999 among
Health Care Property Investors, Inc., each of the banks identified on
the signature pages hereof, The Bank of New York, as agent for the
banks, and Bank of America, N.A. and Wells Fargo Bank, N.A., as
co-documentation agents, with BNY Capital Markets, Inc., as lead
arranger and book manager.
27 Financial Data Schedule