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EXHIBIT 99.3
AMERICAN HEALTH PROPERTIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
June 30, December 31,
1999 1998
---------- ------------
ASSETS (Unaudited)
Real estate investments
Real property and mortgage note $ 784,245 $ 841,618
Construction in progress 21,656 14,247
Accumulated depreciation (113,044) (121,726)
---------- ----------
692,857 734,139
Other notes receivable and direct financing leases 3,940 3,638
Other assets 12,950 12,248
Cash and short-term investments 3,509 3,817
Funds held by intermediary for 1031 exchange 70,576 --
---------- ----------
$ 783,832 $ 753,842
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LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans payable $ 51,000 $ 69,000
Mortgage notes payable 24,484 20,772
Notes and bonds payable 219,219 219,164
Accounts payable and accrued liabilities 15,163 15,278
Dividends payable 14,833 15,031
Deferred income 3,330 3,732
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328,029 342,977
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Commitments and contingencies
Stockholders' equity
Preferred stock $.01 par value; 1,000 shares authorized;
8.60% Cumulative Redeemable Preferred Stock,
Series B; $2,500 liquidation value;
40 shares issued and outstanding 100,000 100,000
Psychiatric Group Preferred Stock;
0 and 208 shares issued and outstanding -- 2
Common stock $.01 par value; 100,000 shares authorized;
24,984 shares issued and outstanding 250 250
Additional paid-in capital 515,952 519,738
Cumulative net income 411,374 329,918
Cumulative dividends (571,773) (539,043)
---------- ----------
455,803 410,865
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$ 783,832 $ 753,842
========== ==========
The accompanying notes are an integral part of these financial statements.
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AMERICAN HEALTH PROPERTIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
REVENUES
Rental income $ 22,397 $ 22,484 $ 46,585 $ 43,842
Mortgage interest income 116 1,655 233 3,308
Additional rental and interest income 3,028 3,400 6,367 6,820
Other property income 735 384 1,435 719
Other interest income 824 220 971 461
---------- ---------- ---------- ----------
27,100 28,143 55,591 55,150
---------- ---------- ---------- ----------
EXPENSES
Depreciation and amortization 5,301 5,159 10,918 10,033
Property operating 1,634 1,352 3,244 2,567
Interest expense 5,155 5,308 10,675 10,250
General and administrative 2,113 2,322 4,337 4,428
Impairment loss on notes receivable -- 2,730 -- 2,730
---------- ---------- ---------- ----------
14,203 16,871 29,174 30,008
---------- ---------- ---------- ----------
Minority interest 46 47 94 94
---------- ---------- ---------- ----------
INCOME BEFORE GAIN ON SALE OF PROPERTIES 12,851 11,225 26,323 25,048
GAIN ON SALE OF PROPERTIES 53,850 -- 55,133 --
---------- ---------- ---------- ----------
NET INCOME $ 66,701 $ 11,225 $ 81,456 $ 25,048
---------- ---------- ---------- ----------
SERIES B PREFERRED DIVIDEND REQUIREMENT $ (2,150) $ (2,150) $ (4,300) $ (4,300)
---------- ---------- ---------- ----------
ATTRIBUTABLE TO COMMON STOCK (NOTE 5) -
Income before gain on sale of property $ 10,716 $ 10,559 $ 21,928 $ 20,993
Gain on sale of property $ 53,850 $ -- $ 53,850 $ --
Net income $ 64,566 $ 10,559 $ 75,778 $ 20,993
Basic per share amounts -
Income before gain on sale of property $ 0.43 $ 0.44 $ 0.88 $ 0.88
Gain on sale of property $ 2.15 $ -- $ 2.15 $ --
Net income $ 2.58 $ 0.44 $ 3.03 $ 0.88
Weighted average common shares 24,988 24,055 24,988 23,887
Diluted per share amounts -
Income before gain on sale of property $ 0.43 $ 0.43 $ 0.87 $ 0.87
Gain on sale of property $ 2.13 $ -- $ 2.14 $ --
Net income $ 2.56 $ 0.43 $ 3.01 $ 0.87
Weighted average common shares and
dilutive potential common shares 25,193 24,314 25,180 24,154
Dividends declared per common share $ 0.565 $ 0.545 $ 1.130 $ 1.090
The accompanying notes are an integral part of these financial statements.
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AMERICAN HEALTH PROPERTIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended June 30,
--------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 81,456 $ 25,048
Depreciation, amortization and other non-cash items 12,178 11,319
Deferred income (296) 481
Gain on sale of properties (55,133) --
Impairment loss on notes receivable -- 2,730
Change in other assets (1,136) (388)
Change in accounts payable and accrued liabilities (221) 616
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36,848 39,806
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition and construction of real estate properties (16,227) (114,105)
Net proceeds from sale of properties 75,825 --
Net increase in funds held by intermediary for 1031 exchange (70,576) --
Mortgage note receivable fundings -- (179)
Principal payments on mortgage notes receivable -- 39
Other notes receivable (885) (1,236)
Direct financing leases 583 525
Administrative capital expenditures (20) (61)
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(11,300) (115,017)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on bank loans payable 12,000 75,000
Principal payments on mortgage notes payable (309) (229)
Financing costs paid (53) (7)
Redemption of Psychiatric Group Stock (4,566) --
Proceeds from sale of common stock -- 9,475
Proceeds from exercise of stock options -- 2,653
Cash dividends paid (32,928) (32,880)
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(25,856) 54,012
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INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (308) (21,199)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF PERIOD 3,817 23,053
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CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 3,509 $ 1,854
========== ==========
The accompanying notes are an integral part of these financial statements.
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AMERICAN HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
American Health Properties, Inc., a Delaware corporation (the Company,
which term refers to the Company and its subsidiaries unless the context
otherwise requires), is a self-administered real estate investment trust (REIT)
that commenced operations in 1987. The Company has investments in health care
properties, including acute care, rehabilitation, long-term acute care and
psychiatric hospitals, skilled nursing, assisted living, Alzheimer's care and
medical office/clinic facilities.
Basis of Presentation The consolidated condensed financial statements
of the Company included herein have been prepared by the Company without audit
and include all normal, recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations
pursuant to the rules and regulations of the Securities and Exchange Commission.
These financial statements should be read in conjunction with those included in
the Company's annual report on Form 10-K for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standards Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. It also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133 - an
Amendment of SFAS No. 133", defers the effective date of SFAS No. 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. The required
adoption of this statement is not expected to have a material impact on the
Company's financial statements.
Interest Paid Interest paid by the Company, net of interest
capitalized, was $10,157,000 and $9,311,000 for the six months ended June 30,
1999 and 1998, respectively. The Company had $761,000 and $294,000 of
capitalized interest for the six months ended June 30, 1999 and 1998,
respectively.
2. KENDALL DISPOSITION
On April 16, 1999, the Company completed the sale of Kendall Regional
Medical Center (Kendall) to an affiliate of Columbia/HCA Healthcare Corporation
(Columbia) for a gross purchase price of $105 million. As a result of the
Kendall sale, the Company recognized a gain for book purposes of $53,850,000 in
the second quarter of 1999. Kendall had been leased to a subsidiary of Columbia
and generated aggregate revenues of approximately $10.3 million in 1998, or 9%
of the Company's total revenues. The Kendall sale resulted from Columbia's
exercise of its option to purchase Kendall at fair market value pursuant to the
terms of the lease. To complete the Kendall sale, the purchaser paid $75 million
in cash, and assumed and paid $30 million of borrowings outstanding under the
Company's bank credit facility. Since the Company currently intends to effect a
"deferred like-kind" 1031 exchange for tax purposes, the net cash proceeds of
$73.65 million were delivered to a third-party intermediary, which is using such
proceeds to purchase and convey to the Company like-kind replacement property
selected by the Company. Pursuant to the requirements of
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AMERICAN HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Section 1031 of the Internal Revenue Code, the Company identified approximately
$200 million of potential exchange properties prior to the close of business on
May 28, 1999. The Company must acquire all identified replacement properties it
will acquire as part of the 1031 exchange by October 13, 1999. As of August 6,
1999, approximately $48 million of like-kind replacement properties have been
acquired as part of the 1031 exchange. The Company also has approximately $35
million of additional properties under contract as of August 6, 1999 that will
likely be acquired as part of the 1031 exchange. If the Company is successful in
acquiring a sufficient amount of like-kind replacement properties within the
required time limits, the Company should not recognize current taxable gain and,
accordingly, should incur no tax liability as a result of the transaction.
Furthermore, in that event, there should be no impact on the Company's REIT
distribution requirements. If the Company does not complete the transaction as a
1031 exchange, the tax liability incurred and recognized by the Company for book
purposes, as well as the impact on the Company's REIT distribution requirements,
will depend on the tax position of the Company as a whole. Although the Company
believes that it has developed a sufficiently large pool of replacement
properties to allow the Company to complete the 1031 exchange, the Company
cannot be assured that total revenues generated by replacement properties
acquired to effect the 1031 exchange will equal annual revenues previously
generated by the Kendall investment, nor can the Company be certain that the
1031 exchange will be completed.
3. OTHER COMMITMENTS
As of June 30, 1999, the Company had funded $8,559,000 of a $9.5
million commitment to develop a skilled nursing facility in Las Vegas, Nevada to
be operated by an experienced operator of skilled nursing facilities. The
Company acquired the completed facility in July 1999, whereupon the lease
commenced. As of June 30, 1999, the Company had funded $8,500,000 of a $13.8
million commitment to develop two assisted living facilities to be managed by an
experienced operator of assisted living facilities. The Company has a $22.5
million forward funding commitment to develop up to nine Alzheimer's care
facilities to be operated by the same operator that currently operates two
existing Alzheimer's care facilities owned by the Company. As of June 30, 1999,
$2,650,000 was funded under this commitment for the development of two
facilities having a total development cost of approximately $5.6 million. The
Company has also funded $1,947,000 as of June 30, 1999 toward completion of a
$5.7 million medical office/clinic facility under development in Roseburg,
Oregon that is master-leased to the operator of the adjacent hospital.
4. STOCKHOLDERS' EQUITY
Stock Incentive Plans During the six months ended June 30, 1999,
options to purchase 358,000 shares of common stock at a weighted average
exercise price of $20.27 per share were issued pursuant to the Company's stock
incentive plans. Options to purchase 10,000 shares of common stock at a weighted
average exercise price of $23.18 per share and options to purchase 45,444
Psychiatric Group Depositary Shares at a weighted average exercise price of
$22.16 per share expired during the six months ended June 30, 1999. During the
six months ended June 30, 1999, 63,172 Psychiatric Group Depositary Shares were
issued for vested accumulated DERs.
Redemption of Psychiatric Group Stock On May 21, 1999, the Company
redeemed all outstanding Psychiatric Group Depositary Shares and the underlying
Psychiatric Group Preferred Stock represented thereby (collectively the
"Psychiatric Group Stock") at a redemption price of $2.08 per depositary share.
The total cost of redemption was $4,566,000.
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AMERICAN HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. INCOME ATTRIBUTABLE TO COMMON STOCK AND EARNINGS PER SHARE
The following is a reconciliation of the income and share amounts used
in the basic and diluted per share computations of income before gain on sale of
property attributable to common stock:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------- ----------------------------------------------
1999 1998 1999 1998
--------------------- -------------------- --------------------- ---------------------
(In thousands) Income Shares Income Shares Income Shares Income Shares
-------- -------- -------- -------- -------- -------- -------- --------
Income before gain on sale of
properties $ 12,851 -- $ 11,225 -- $ 26,323 -- $ 25,048 --
Less Series B preferred
dividend requirement (2,150) -- (2,150) -- (4,300) -- (4,300) --
Loss (income) attributed to
Psychiatric Group Stock 15 -- 1,484 -- (95) -- 245 --
Outstanding common shares -- 24,984 -- 24,054 -- 24,984 -- 23,886
Deferred common shares -- 4 -- 1 -- 4 -- 1
-------- -------- -------- -------- -------- -------- -------- --------
Basic EPS components 10,716 24,988 10,559 24,055 21,928 24,988 20,993 23,887
Effect of dilutive potential
common shares -
Stock options -- 10 -- 116 -- 7 -- 130
DERs -- 195 -- 143 -- 185 -- 137
Subordinated convertible
bonds payable -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Diluted EPS components $ 10,716 25,193 $ 10,559 24,314 $ 21,928 25,180 $ 20,993 24,154
======== ======== ======== ======== ======== ======== ======== ========
Prior to redemption of the Psychiatric Group Stock on May 21, 1999, a
portion of the Company's income (loss) was attributable to the Psychiatric Group
Stock. The income (loss) before gain on sale of properties attributable to the
Psychiatric Group Stock is shown in the table above. The gain on sale of
properties attributable to the Psychiatric Group Stock for the six months ended
June 30, 1999 was $1,283,000. There was no such gain on sale of properties
attributable to the Psychiatric Group Stock for the three months ended June 30,
1999 and 1998 or the six months ended June 30, 1998.
6. SUBSEQUENT EVENT - MERGER AGREEMENT
On August 4, 1999, the Company entered into a definitive agreement and
plan of merger with Health Care Property Investors, Inc. (HCPI) in which the
Company will merge with and into HCPI in a stock-for-stock transaction, with
HCPI being the surviving corporation. The common shareholders of the Company
will receive a fixed exchange ratio of 0.78 of a share of HCPI common stock for
each share of the Company's common stock. In addition, holders of the Company's
preferred stock will receive one share of substantially similar HCPI preferred
stock in exchange for each share of the Company's preferred stock. The
transaction is subject to, among other things, the approval of the shareholders
of both companies and the registration of the shares to be issued in connection
with the transaction. The transaction will be treated as a purchase for
financial accounting purposes, will be tax-free to the Company's shareholders
and is expected to close by the end of 1999.
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