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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, 2001.
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 12, 2001 there were 55,763,594 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, 2001 and December 31, 2000....................... 2
Condensed Consolidated Statements of Income
Nine and Three Months Ended September 30, 2001 and 2000........ 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000.................. 4
Notes to Condensed Consolidated Financial Statements........... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 24
Signatures.............................................................. 28
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Health Care Property Investors, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
September 30, December 31,
2001 2000
------------------ -----------------
(Unaudited)
Assets
Real Estate Investments:
Buildings and Improvements $ 2,255,563 $2,140,591
Accumulated Depreciation (323,062) (287,719)
------------------ -----------------
1,932,501 1,852,872
Construction in Progress 6,686 ---
Land 255,460 247,637
------------------ -----------------
2,194,647 2,100,509
Loans Receivable 186,467 189,156
Investments in and Advances to Joint Ventures 21,998 22,615
Accounts Receivable 19,746 16,341
Other Assets 10,817 11,459
Cash and Cash Equivalents 9,836 58,623
------------------ -----------------
Total Assets $ 2,443,511 $2,398,703
================== =================
Liabilities and Stockholders' Equity
Bank Notes Payable $ 112,300 $ 204,500
Senior Notes Payable 777,051 777,514
Mortgage Notes Payable 186,797 176,914
Accounts Payable, Accrued Liabilities and Deferred Income 56,994 55,676
Minority Interests in Joint Ventures 13,942 14,709
Minority Interests Convertible into Common Stock 53,743 24,835
Stockholders' Equity:
Preferred Stock 274,487 274,487
Common Stock 55,532 50,874
Additional Paid-In Capital 1,075,512 927,182
Cumulative Net Income 846,915 761,918
Cumulative Dividends (1,009,762) (869,906)
------------------ -----------------
Total Stockholders' Equity 1,242,684 1,144,555
------------------ -----------------
Total Liabilities and Stockholders' Equity $ 2,443,511 $2,398,703
================== =================
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-2-
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,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue
Rental Income, Triple Net Properties $57,925 $58,197 $170,085 $169,587
Rental Income, Managed Properties 20,774 19,887 60,762 59,696
Interest and Other Income 5,438 5,604 16,105 17,027
------------ ------------ ------------ ------------
84,137 83,688 246,952 246,310
------------ ------------ ------------ ------------
Expense
Interest Expense 18,871 22,008 59,420 64,757
Real Estate Depreciation and Amortization 29,222 17,461 66,062 52,054
Operating Expenses, Managed Properties 7,598 7,201 22,158 20,653
General and Administrative Expenses 3,221 3,270 9,986 10,009
Investment Valuation Reserve --- 2,000 --- 2,000
------------ ------------ ------------ ------------
58,912 51,940 157,626 149,473
------------ ------------ ------------ ------------
Income From Operations 25,225 31,748 89,326 96,837
Minority Interests (1,689) (1,326) (4,624) (4,403)
Gain on Sale of Real Estate Properties 537 421 295 4,134
------------ ------------ ------------ ------------
Income Before Extraordinary Item 24,073 30,843 84,997 96,568
Extraordinary Item - Gain on Extinguishment of Debt --- 65 --- 274
------------ ------------ ------------ ------------
Net Income 24,073 30,908 84,997 96,842
Dividends to Preferred Stockholders (6,225) (6,225) (18,675) (18,675)
------------ ------------ ------------ ------------
Net Income Applicable to Common Shares $17,848 $24,683 $ 66,322 $ 78,167
============ ============ ============ ============
Basic Earnings Per Common Share $ 0.32 $ 0.49 $ 1.25 $ 1.53
============ ============ ============ ============
Diluted Earnings Per Common Share $ 0.32 $ 0.48 $ 1.25 $ 1.53
============ ============ ============ ============
Weighted Average Shares Outstanding - Basic 55,360 50,962 53,178 51,105
============ ============ ============ ============
Weighted Average Shares Outstanding - Diluted 55,624 51,027 53,391 51,140
============ ============ ============ ============
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-3-
Health Care Property Investors, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
Nine Months
Ended September 30,
-------------------------------------
2001 2000
--------------- ---------------
Cash Flows From Operating Activities:
Net Income $ 84,997 $ 96,842
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Real Estate Depreciation 66,062 52,054
Non Cash Charges 3,174 3,043
Joint Venture Adjustments 12 1,732
Gain on Sale of Real Estate Properties (295) (4,134)
Gain on Extinguishment of Debt -- (274)
Changes in:
Operating Assets (957) 3,365
Operating Liabilities (1,517) 2,625
--------------- ---------------
Net Cash Provided By Operating Activities 151,476 155,253
--------------- ---------------
Cash Flows From Investing Activities:
Acquisition of Real Estate (140,945) (16,218)
Proceeds from the Sale of Real Estate Properties, Net 27,120 27,210
Final Payment on Mortgage Loan Receivable 14,117 ---
Other Investments and Loans (15,625) 4,662
--------------- ---------------
Net Cash Used In Investing Activities (115,333) 15,654
--------------- ---------------
Cash Flows From Financing Activities:
Net Change in Bank Notes Payable (92,200) (83,500)
Cash Proceeds from Issuing Common Stock 150,226 1,438
Repayment of Senior Notes Payable (1,000) (10,000)
Issuance of Senior Notes --- 24,865
Issuance of Secured Debt --- 83,000
Periodic Payments on Mortgages (3,868) (2,684)
Repurchase of Common and Preferred Stock (24) (15,283)
Repurchase of Convertible Subordinated Notes Payable --- (30,741)
Dividends Paid (139,856) (130,632)
Other Financing Activities 1,792 (10,162)
--------------- ---------------
Net Cash Used In Financing Activities (84,930) (173,699)
--------------- ---------------
Net Decrease In Cash And Cash Equivalents (48,787) (2,792)
Cash And Cash Equivalents, Beginning Of Period 58,623 7,696
--------------- ---------------
Cash And Cash Equivalents, End Of Period $ 9,836 $ 4,904
=============== ===============
Capitalized Interest $ 50 $ 637
=============== ===============
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-4-
HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(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 the 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 both recommend and
presume that users of this interim financial information read or 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, 2000. 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:
We own interests in 100 medical office buildings ("MOBs"), healthcare
laboratory and biotech research facilities and physician group practice clinics
where property management is provided by independent property management
companies ("Managed Portfolio"). These facilities are leased to multiple tenants
under gross, modified gross or triple net leases. Rents and operating income
attributable to these properties are included in Rental Income, Managed
Properties in our financial statements. Expenses related to the operation of
these facilities are recorded as Operating Expenses, Managed Properties.
Reclassifications:
We have made reclassifications, where necessary, for comparative financial
statement presentations.
(2) QUARTERLY RESTATEMENT
During 2000, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements." We adopted this accounting pronouncement as required by the SEC
during the quarter ended December 31, 2000. SAB 101 requires the recognition of
contingent revenues after the performance hurdles of a lease are actually met.
Prior to SAB 101, contingent revenues were estimated and recognized ratably when
it was probable that lease revenue hurdles would be achieved. Due to our
current lease structures, SAB 101 will delay the recognition of additional rents
from the first quarter of a year to subsequent quarters of the year. Rents
affected by SAB 101 generally have been received in cash ahead of what SAB 101
permits for income recognition and, in most cases, the annual revenue
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hurdles have historically been exceeded because of the stability of the revenue
streams in our hospital facilities. The SAB 101 standard creates volatility in
our quarterly earnings and FFO but it should have minimal effect on our annual
earnings and FFO.
In accordance with Statement of Financial Accounting Standards No. 2
"Reporting Accounting Changes in Interim Financial Statements" and for ease of
comparability, the quarterly results for 2000 are restated to reflect the
following quarterly impact of the pronouncement:
SAB 101
As Reported Impact Restated
------------- ------------- -------------
Net Income:
Quarter Ended March 31, 2000....... $ 33,154,000 $ (3,722,000) $ 29,432,000
Quarter Ended June 30, 2000........ 34,506,000 1,996,000 36,502,000
Quarter Ended September 30, 2000... 29,501,000 1,407,000 30,908,000
Quarter Ended December 31, 2000.... 36,606,000 319,000 36,925,000
------------ ------------ -------------
Total Effect of SAB 101 for 2000..... $133,767,000 $ --- $133,767,000
============ ============ =============
Basic Earnings Per Share:
Quarter Ended March 31, 2000........ $ 0.52 $ (0.07) $ 0.45
Quarter Ended June 30, 2000......... 0.55 0.04 0.59
Quarter Ended September 30, 2000.... 0.46 0.03 0.49
Quarter Ended December 31, 2000..... 0.60 --- 0.60
------------ ------------ -------------
Total Effect of SAB 101 for 2000..... $ 2.13 $ --- $ 2.13
============ ============ =============
Funds From Operations:
Quarter Ended March 31, 2000........ $ 43,669,000 $ (3,722,000) $ 39,947,000
Quarter Ended June 30, 2000......... 43,351,000 1,996,000 45,347,000
Quarter Ended September 30, 2000.... 40,844,000 1,407,000 42,251,000
Quarter Ended December 31, 2000..... 43,480,000 319,000 43,799,000
------------ ------------ -------------
Total Effect of SAB 101 for 2000..... $171,344,000 $ --- $171,344,000
============ ============ =============
(3) OPERATORS
At September 30, 2001, we had approximately 95 health care operators in
addition to approximately 675 leases in the Managed Portfolio.
Major Operators:
Listed below are our six largest operators and their respective percentage
of total annualized revenue for the nine months ended September 30, 2001. All
of these operators are publicly traded companies and are subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended, and accordingly file periodic financial statements on Form 10-K and
Form 10-Q with the Securities and Exchange Commission.
Revenue Percentage
--------------- ---------------
(Dollar amounts in 000s)
Tenet Healthcare Corporation (THC) $55,916 18.2%
HealthSouth Corporation (HRC) 17,129 5.6%
Kindred Healthcare, Inc. (KIND.OB) 16,335 5.3%
Emeritus Corporation (ESC) 15,517 5.0%
HCA Inc. (HCA) 14,292 4.7%
Beverly Enterprises (BEV) 12,688 4.1%
-6-
Kindred Healthcare
We have negotiated new ten year leases with Kindred for 22 facilities that
were scheduled to expire in August 2001. The annual rent on these facilities
has increased by $3,300,000 to $16,100,000 in the first lease year. Ten
additional facilities were originally leased to Kindred. Of those ten, nine
will be leased directly to current Kindred sublessees or third parties for lower
rents to us of an estimated $800,000 per year and one is being considered for
sale or lease to a third party.
Other Long-Term Care and Assisted Living Operators:
Several long-term care providers remain in Chapter XI bankruptcy after
filing for protection during 1999 to 2001 in part due to the implementation of
the Medicare Prospective Payment System. Those remaining in bankruptcy with
their respective percentage of our annualized revenue include Sun Healthcare
0.9%, Integrated Health Services 0.5% and Mariner Post Acute Network 0.4%. Most
of the leases with these operators have either been renegotiated, placed with
other operators or are in the process of being placed with other operators. With
the exception of minor pre-petition receivables, which we believe will generally
be collectible once the plans of reorganization are confirmed, most of the
lessees in bankruptcy are current on rents as of September 30, 2001.
We have three facilities under the management of Senior Care. We intend to
sell these facilities or lease them to other operators. As of September 30,
2001, Senior Care was current on rents and we had approximately $1,000,000
advanced under a revolving working capital line of credit collateralized by the
receivables of two of the three facilities.
A slowing economy with lower interest costs is expected to continue to
improve nursing home operations, tempered in part by increased liability
insurance costs and lower increases in government reimbursement. The slowing
economy could also result in lower labor costs, greater availability of nursing
aides and less turnover which could further help the industry. Several long-term
care facility operators, including Kindred Healthcare and Genesis Health
Ventures, two of our lessees, have successfully emerged from bankruptcy
proceedings. However, certain long-term care operators and facilities continue
to experience operating problems including low levels of Medicaid reimbursements
in certain states.
We own ten long-term care facilities in Oklahoma, four long-term care
facilities in North Carolina, four West Coast long-term care facilities, and
three additional long-term care facilities (one in Wisconsin, two in
Massachusetts) whose operations have been negatively affected by reduced
reimbursement and the performance and financial situation of the properties and
their lessees. During the third quarter 2001, we recorded revenue from these 21
properties of about $1,000,000 less than in the third quarter of 2000.
Management expects improved results from higher lease revenue or sales of these
properties in the next 12 months.
We derive 15% of our revenue from the assisted living industry. This
industry has been challenged by overbuilding in certain areas, slower than
projected fill-up rates, margin pressure
-7-
from lower than projected rents and increasing liability insurance costs.
Development activity has slowed and there is some evidence of improving census
in a number of communities. Various assisted living companies continue their
efforts to restructure their capital, debt and lease structures. During the
quarter, we provided an additional $800,000 in reserves against receivables
generated by four under-performing facilities operated by two assisted living
operators.
We cannot assure you that the bankruptcies of certain long-term care
operators and the trouble experienced by assisted living operators would not
have a material adverse effect on our Net Income, FFO or the market value of our
common stock.
(4) REAL ESTATE INVESTMENTS AND DISPOSITIONS
During the nine months ended September 30, 2001, we completed the following
investment activity:
Acquisitions..................... $173,800,000
Facilities Under Construction.... 41,000,000
Loan............................. 10,000,000
------------
Total Investments............. $224,800,000
============
The $173,800,000 in acquisitions was comprised of 24 properties, including
seven skilled nursing facilities, six medical office buildings, five health care
laboratory and biotech research facilities and six continuum of care model
health care facilities that emphasize nursing care and also include assisted
living and Alzheimer care. Facilities under construction include a short stay
hospital and a medical office building. As of September 30, 2001, we had funded
$3,700,000 for construction of these facilities.
Total investments include the first phase of a $126,000,000 commitment
entered into in August 2001 to acquire 12 medical office buildings and six
health care laboratory and biotech research facilities from entities controlled
by The Boyer Company. The initial phase included four medical office buildings
and five health care laboratory and biotech research facilities for $73,500,000,
as well as the initial funding of approximately $2,100,000 for the construction
of a $12,300,000 health care research facility. Funding for this acquisition
included the assumption of $13,800,000 in secured debt, the issuance of
approximately $25,700,000 of equity in the form of operating units and the
contribution of $35,000,000 in cash. The second phase of this commitment was
finalized in October 2001 (See Note 9- Subsequent Events). Remaining phases of
this investment will occur over the next two years as buildings are constructed.
During the nine months ended September 30, 2001, we wrote down to net
realizable value 13 facilities we expect to sell. The $11,470,000 and
$13,640,000 one-time charges for the three and nine months ended September 30,
2001, respectively, are included in Real Estate Depreciation Expense.
During the nine months ended September 30, 2001, we sold six clinics, two
long-term care facilities, two medical office buildings, a hospital and a land
parcel for $25,000,000, resulting in a net gain of $295,000.
-8-
In September 2001, we invested $10,000,000 with Red Mortgage Capital, Inc.
for a participation in a $25,500,000 short-term bridge loan to Atria, Inc. due
September 2002. In November 2002, we received a prepayment on this investment
of $7,360,000.
(5) STOCKHOLDERS' EQUITY
The following table provides a summary of the activity for the
Stockholders' Equity account for the nine months ended September 30, 2001
(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, 2000 11,722 $274,487 50,874 $ 50,874 $ 927,182 $ 761,918 $(869,906) $1,144,555
Stock Options Exercised 126 126 2,976 3,102
Stock Grants Issued 85 85 2,688 2,773
Cancelled Shares (1) (1) (23) (24)
Common Stock Issued 4,448 4,448 142,689 147,137
Net Income 84,997 84,997
Dividends Paid - Preferred
Shares (18,675) (18,675)
Dividends Paid - Common
Shares (121,181) (121,181)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 11,722 $274,487 55,532 $55,532 $1,075,512 $846,915 $(1,009,762) $1,242,684
- -----------------------------------------------------------------------------------------------------------------------------
In May 2001, we issued 4,025,000 shares of common stock at $34.80 per
share, realizing net proceeds of $133,000,000. For the nine months ended
September 30, 2001, an additional $14,500,000 has been realized from new common
stock issued under our new Stock Purchase and Dividend Reinvestment Plan. These
proceeds have been utilized to temporarily pay down the revolving line of
credit, pending deployment on long-term investments. An additional $29,100,000
of downREIT units convertible into our common stock have been issued for the
year. HCPI/Utah, LLC issued 84,922 non-managing member units to entities
controlled by The Boyer Company in a private placement under Section 4(2) of the
Securities Act of 1933, as amended, related to the contribution of two medical
office buildings. HCPI/Utah II, LLC issued 738,923 non-managing member units to
entities controlled by The Boyer Company in a private placement under Section
4(2) of the Securities Act of 1933, as amended, in respect of its contribution
of nine buildings. These units which are recorded under Minority Interest in
Joint Ventures are currently convertible into our common stock on a one-for-one
basis.
(6) EARNINGS PER COMMON SHARE
We compute earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic earnings per common
share are computed 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 are calculated including the effect, if any,
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 are not included because they are not dilutive.
-9-
(All amounts in thousands, except per share amounts)
For the Three Months Ended For the Nine Months Ended
-------------------------------------------- ---------------------------------------------
Per Share Per Share
September 30, 2001 Income Shares Amount Income Shares Amount
- ------------------------------------- ------------- ------------- ------------ ------------- ------------- -------------
Basic Earnings Per Common Share:
Net Income Applicable to Common
Shares $17,848 55,360 $0.32 $66,322 53,178 $1.25
============ =============
Dilutive Options --- 264 --- 213
Diluted Earnings Per Common Share:
Net Income Applicable to Common
Shares Plus Assumed Conversions $17,848 55,624 $0.32 $66,322 53,391 $1.25
============ =============
September 30, 2000
- --------------------------------------
Basic Earnings Per Common Share:
Net Income Applicable to Common Shares $24,683 50,962 $0.49 $78,167 51,105 $1.53
============ =============
Dilutive Options --- 65 --- 35
Diluted Earnings Per Common Share:
Net Income Applicable to Common
Shares Plus Assumed Conversions $24,683 51,027 $0.48 $78,167 51,140 $1.53
============ =============
(7) FUNDS FROM OPERATIONS
We are required to report information about operations on the basis that we
use internally to measure performance under Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information.
We believe that Funds From Operations ("FFO") is the most important
supplemental measure of operating performance for a real estate investment
trust. 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. Since real estate values instead have historically risen and fallen
with market conditions, presentations of operating results for a real estate
investment trust that use 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.
We 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 sales of property and
extraordinary items, plus real estate depreciation and real estate related
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 we define it,
-10-
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,
------------------------------ -------------------------------
2001 2000 2001 2000
------------ ------------- ------------- -------------
Net Income Applicable to Common Shares $17,848 $24,683 $ 66,322 $ 78,167
Real Estate Depreciation and Amortization (a) 29,222 17,461 66,062 52,054
Joint Venture Adjustments 19 593 12 1,732
Extraordinary Item/Gain on Extinguishment of Debt --- (65) --- (274)
Gain on Sale of Real Estate Properties (537) (421) (295) (4,134)
------------ ------------- ------------- -------------
Funds From Operations $46,552 $42,251 $132,101 $127,545
============ ============= ============= =============
(a) Included in Real Estate Depreciation and Amortization for the three
and nine months ended September 30, 2001 is a $11,470,000 and a $13,640,000 one
time charge resulting from the write-down of 13 facilities we intend to sell.
(8) COMMITMENTS
We have outstanding commitments to fund approximately $4,600,000 for
capital additions on certain facilities; in addition, we are committed to
construct $34,000,000 of new healthcare facilities and acquire an additional
$41,000,000 of existing healthcare real estate.
(9) SUBSEQUENT EVENTS
Shortly after the end of the third quarter, we obtained commitments for an
expansion of our revolving lines of credit from $310,000,000 to $395,000,000.
Of this amount, $188,000,000 will mature in November 2002, with the balance
maturing in November 2003.
On October 22, 2001, the Board of Directors declared a quarterly dividend
of $0.79 per common share payable on November 20, 2001 to shareholders of record
as of the close of business on November 2, 2001.
The Board of Directors also declared a cash dividend of $0.492188 per share
on its series A cumulative preferred stock, $0.54375 per share on its series B
cumulative preferred stock and $0.5375 per share on its series C cumulative
preferred stock depositary shares. These dividends will be paid on December 31,
2001 to shareholders of record as of the close of business on December 14, 2001.
At the end of October 2001, we closed on the acquisition of one nursing
home for a purchase price of $6,600,000 and on the second phase of a
$126,000,000 commitment to acquire 12 medical office buildings and six health
care laboratory and biotech research facilities from entities controlled by The
Boyer Company. The second phase included two medical office buildings purchased
for $7,540,000. Funding for this acquisition included the assumption of
$4,800,000 in secured debt, the issuance of approximately $2,200,000 of equity
in the form of operating units and the payment of $540,000 in cash.
-11-
(10) NEW PROUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement 133 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. Statement 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133, as
amended by SFAS 137 and 138, is effective for fiscal years beginning after June
15, 2000. Statement 133 was adopted January 1, 2001. The effect of adopting
statement 133 was not material.
In June 2001, the Financial Accounting Standards Board released Statements
of Financial Accounting Standards No. 141 "Business Combinations," No. 142
"Goodwill and Other Intangible Assets" and No. 143 "Accounting for Asset
Retirement Obligations" and, in August 2001, No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." The effect of these
pronouncements is not expected to be material.
-12-
HEALTH CARE PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
We are in the business of acquiring health care facilities that we lease on a
long-term basis to health care providers. We also lease medical office space to
providers and physicians on a shorter term basis. On a more limited basis, we
have provided mortgage financing on health care facilities. As of September 30,
2001, our portfolio of properties, including equity investments, consisted of
427 facilities located in 42 states. These facilities are comprised of 177
long-term care facilities, 92 congregate care and assisted living facilities, 84
medical office buildings, 21 acute care hospitals, nine freestanding
rehabilitation facilities, six health care laboratory and biotech research
facilities and 38 physician group practice clinics. The gross investment in the
properties, which includes joint venture acquisitions, was approximately $2.7
billion at September 30, 2001.
We have outstanding commitments to fund approximately $4,600,000 for
capital additions on certain facilities; in addition, we are committed to
construct $34,000,000 of new healthcare facilities and acquire an additional
$41,000,000 of existing healthcare real estate. We expect that a significant
portion of these commitments will be funded; however, experience suggests that
some committed transactions may not close for various reasons including
unsatisfied closing conditions, competitive financing sources, final negotiation
differences or the operator's inability to obtain required internal or
governmental approvals.
The financial information presented for 2001 reflects the impact of the
implementation of Securities and Exchange Commission Staff Accounting Bulletin
No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). For
comparison purposes, we have restated the results of operations for the three
and nine months ended September 30, 2000 to reflect the impact of SAB 101 had
the pronouncement been adopted as of January 1, 2000. The effect of SAB 101 on
the three and nine months ended September 30, 2000 was to increase income by
$1,407,000 or $0.03 per share and decrease income $319,000, or $0.01 per share,
respectively.
RESULTS OF OPERATIONS
Net Income applicable to common shares for the three and nine months ended
September 30, 2001 totaled $17,848,000 and $66,322,000 or $0.32 and $1.25 of
basic earnings per share on revenue of $84,137,000 and $246,952,000,
respectively. This compares to $24,683,000 and $78,167,000 or $0.49 and $1.53
of basic earnings per share on revenue of $83,688,000 and $246,310,000 for the
same periods in 2000. Net Income applicable to common shares for the three
months ended September 30, 2001 and September 30, 2000 included a $537,000 or
$0.01 per basic share and $421,000 or $0.01 per basic share gain on the sale of
real estate properties, respectively. Net Income applicable to common shares
for the nine months ended September 30, 2001 and September 30, 2000 included a
$295,000 or $0.01 per basic share gain on the sale of real estate properties and
$4,134,000 or $0.08 per basic share gain on the sale of real estate properties,
respectively. In addition, Net Income applicable to common shares for the three
months ended September 30, 2001 includes an $11,470,000 or $0.21 per basic share
one time charge as a result of the write-down to net realizable value of 11
facilities expected to be sold.
-13-
Net Income applicable to common shares for the nine months ended September 30,
2001 includes a $13,640,000 or $0.25 per basic share one time charge as a result
of the write-down to realizable value of 13 facilities expected to be sold.
Rental Income, Triple Net Properties for the three months ended September
30, 2001 decreased $272,000 to $57,925,000 as compared to the same period in the
prior year. The decrease was primarily the result of dispositions made during
2000 and 2001 and a decreased impact from SAB 101 offset by the positive impact
of acquisitions made during 2001. Rental Income, Triple Net Properties for the
nine months ended September 30, 2001 increased $498,000 to $170,085,000 as
compared to the same period in the prior year. The increase was primarily the
result of net rental income increases earned during 2001 offset by dispositions
made during 2000 and 2001. Rental Income, Managed Properties for the three and
nine months ended September 30, 2001 increased $887,000 and $1,066,000 to
$20,774,000 and $60,762,000, respectively, as compared to the same periods in
the prior year with a related increase in Operating Expenses, Managed Properties
of $397,000 and $1,505,000 to $7,598,000 and $22,158,000. Net operating income
on Managed Properties increased by $490,000 in the three months ended September
30, 2001 compared to the prior year period. The increase in net operating
income was primarily the result of the impact of acquisitions made during 2001
offset by the disposition of facilities during 2000 and 2001. Net operating
income on Managed Properties for the nine months ended September 30, 2001
decreased $439,000 as compared to the same period in the prior year. This
decrease is primarily due to dispositions of facilities in 2000 and 2001,
vacancies in single tenant buildings and increases in operating expenses,
including utility costs. Interest and Other Income for the three and nine
months ended September 30, 2001 decreased $166,000 and $922,000 to $5,438,000
and $16,105,000 compared to the prior year periods primarily as a result of the
payoff of two loans receivable at the beginning of the first quarter of 2001.
Interest Expense for the three and nine months ended September 30, 2001
decreased $3,137,000 and $5,337,000 to $18,871,000 and $59,420,000,
respectively. The decrease is the result of the pay down of the line of credit
with proceeds from the sale of common stock and lower interest rates on short-
term borrowings. The increase in Depreciation for the three and nine months
ended September 30, 2001 of $11,761,000 and $14,008,000 to $29,222,000 and
$66,062,000 is the direct result of the write-down of the facilities held for
sale discussed previously.
We believe that Funds From Operations ("FFO"), the generally accepted
measure of REIT operating performance, is an important supplemental measure of
operating performance. FFO for the three months ended September 30, 2001
increased $4,301,000 to $46,552,000 as compared to the same period in the prior
year. The increase is primarily due to the positive impact of our acquisitions
made during 2001, a decrease in Interest Expense, and the impact of the
valuation of an investment security written down in the third quarter of 2000,
offset by dispositions made during 2000 and 2001 and a decrease in Interest and
Other Income all discussed in more detail 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 define it,
-14-
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
We have financed investments through the issuance of common and preferred
stock, issuance of long-term debt, assumption of mortgage debt, the mortgaging
of certain of our properties, use of short-term bank lines and use of internally
generated cash flows. We have also raised cash through the disposition of
assets. Management believes that our liquidity and sources of capital are
adequate to finance our operations. Future investments in additional facilities
will be dependent upon the availability of cost effective sources of capital.
At September 30, 2001, stockholders' equity totaled $1,242,684,000 and our
equity securities had a market value of $2,495,289,000. Total debt presently
represents 30.1% and 46.4% of our total market and book capitalization,
respectively. Our senior debt is rated BBB+/BBB+/Baa2 by Standard & Poor's,
Fitch and Moody's, respectively, and has been rated medium investment grade
continuously since 1986, when we first received a bond rating. For the three
months ended September 30, 2001, FFO (before interest expense) covered Interest
Expense at a ratio of 3.5 to 1.00.
Tabulated below is the debt maturity by year and in the aggregate.
2001................. $ 14,000,000
2002................. 120,000,000
2003................. 156,000,000
2004................. 106,000,000
2005................. 247,000,000
Thereafter........... 433,000,000
--------------
$1,076,000,000
==============
The next significant refinancing will be the pay-off of $99,000,000 of 7.05%
senior notes, scheduled for January 2002.
Revolving Lines of Credit
At September 30, 2001, we had two revolving lines of credit, one for
$103,000,000 that expired on November 2, 2001 and one for $207,000,000 that
expires on November 3, 2003. At September 30, 2001, we had $194,200,000
available on these lines of credit.
Shortly after the end of the third quarter 2001, we obtained commitments for
an expansion of our revolving lines of credit from $310,000,000 to $395,000,000.
Of this amount, $188,000,000 will mature in November 2002, with the balance
maturing in November 2003. Borrowings under the lines of credit averaged
$56,000,000 for the quarter ended September 30, 2001 and had an average interest
rate of 4.1%. Bank borrowing costs dropped further in October 2001, with recent
borrowing costs averaging 3.2%. Average bank interest rates are 5.9% for 2001
and were 7.3% for 2000.
-15-
Secured Debt
At September 30, 2001, we had a total of $186,797,000 in Mortgage Notes
Payable secured by 33 health care facilities with a net book value of
approximately $330,205,000. Interest rates on the Mortgage Notes ranged from
3.8% to 10.63% with an average rate of 8.07%.
Equity
In May 2001, we issued 4,025,000 shares of common stock at $34.80 per
share, realizing net proceeds of $133,000,000. For the nine months ended
September 30, 2001, a further $14,500,000 was realized from our new Stock
Purchase and Dividend Reinvestment Plan. These proceeds have been utilized to
temporarily pay down the revolving line of credit, pending deployment on long-
term investments.
DownREIT Units Convertible into Common Stock
HCPI/Utah, LLC issued 84,922 non-managing member units to entities
controlled by The Boyer Company in a private placement under Section 4(2) of the
Securities Act of 1933, as amended, related to the contribution of two medical
office buildings. HCPI/Utah II, LLC issued 738,923 non-managing member units to
entities controlled by The Boyer Company in a private placement under Section
4(2) of the Securities Act of 1933, as amended, in respect of its contribution
of nine buildings. These units with an aggregate value of $29,100,000 are
recorded under Minority Interest in Joint Ventures and are convertible into our
common stock on a one-for-one basis.
Available Financing Sources
As of October 2001, we had $232,000,000 available for future financing of
debt and equity securities under a shelf registration statement filed with the
Securities and Exchange Commission. Of that amount, we have approximately
$85,000,000 available under Medium-Term Note senior debt programs. These amounts
may be issued from time to time in the future based on our needs and then
existing market conditions.
Vacant Facilities
As of September 30, 2001, we have eight vacant buildings for which we are
not receiving rent. The fair market value of the eight vacant properties at
September 30, 2001 is estimated to be approximately $12,000,000. They consist
primarily of small physician group practice clinics. We have implemented an
aggressive program to sell or lease these properties. We sold four vacant
facilities during the nine months ended September 30, 2001. When the eight
vacant properties are sold or fully leased, the annual positive effect on FFO is
expected to be approximately $2,000,000.
Letters of Credit
At October 31, 2001, we held approximately $56,000,000 in irrevocable
letters of credit from commercial banks and depositary accounts to secure the
obligations of many lessees' lease and borrowers' loan obligations. We may draw
upon the letters of credit or depositary accounts if
-16-
there are any defaults under the leases and/or loans. Amounts available under
letters of credit or depositary accounts could change based upon facility
operating conditions and other factors and such changes may be material.
Facility Rollovers
As of September 30, 2001, we have 2 facilities that are subject to lease
expiration and mortgage maturities during the remainder of 2001. These
facilities currently represent approximately 0.1% of annualized revenue. For
the year ending December 31, 2002, we have 10 facilities, representing
approximately 1.5% of annualized revenue, that are subject to lease expiration
and mortgage maturities.
SUPPLEMENTARY FINANCIAL AND OPERATING INFORMATION
Internal Growth
For the nine months ended September 30, 2001, we had internal same facility
rent growth, net of rent decreases, of approximately $260,000 or 0.2% of rents
in our Triple Net portfolio.
Acquisitions
During the nine months ended September 30, 2001, we completed the following
investment activity:
Acquisitions............................ $173,800,000
Facilities Under Construction........... 41,000,000
Loan.................................... 10,000,000
------------
Total Investments..................... $224,800,000
============
The $173,800,000 in acquisitions was comprised of 24 properties including
seven skilled nursing facilities, six medical office buildings, five health care
laboratory and biotech research facilities and six continuum of care model
health care facilities that emphasize nursing care, and also include assisted
living and Alzheimer care. Facilities under construction include a short stay
hospital and a medical office building. As of September 30, 2001, we had funded
$3,700,000 for construction of these facilities.
The total investments include the first phase of a $126,000,000 commitment
entered into in August 2001 to acquire 12 medical office buildings and six
health care laboratory and biotech research facilities from entities controlled
by The Boyer Company. The initial phase included four medical office buildings
and five health care laboratory and biotech research facilities for $73,500,000,
as well as the initial funding of approximately $2,100,000 for the construction
of a $12,300,000 health care research facility. Funding for this acquisition
included the assumption of $13,800,000 in secured debt, the issuance of
approximately $25,700,000 of equity in the form of operating units and the
contribution of $35,000,000 in cash. The second phase of this commitment was
finalized in October 2001. Remaining phases of this investment will occur over
the next two years as buildings are constructed.
-17-
In September 2001, we invested $10,000,000 with Red Mortgage Capital, Inc.
for a participation in a $25,500,000 short-term bridge loan to Atria, Inc. due
September 2002. In November 2001, we received a prepayment on the investment of
$7,360,000.
Managed Medical Office And Clinic Portfolio
The 4,481,000 square foot managed medical office building and physician
group practice clinic portfolio produces approximately 19% of our revenue. Third
quarter 2001 occupancy increased to 91%, due in part to the acquisition of The
Boyer Company portfolio, which was fully leased at the time of the acquisition.
Third quarter leasing activity was strong with the execution of 80,000 square
feet of new leases and the renewal of 223,000 square feet of existing leases.
Operations for the remainder of the year are expected to improve due to leases
recently executed in the San Diego market.
Future Earnings and FFO Growth
We raised $177,000,000 during 2001 from the issuance of common stock and
units convertible into common stock. In addition, between December 2000 and
September 2001, we raised $87,000,000 from the sale of facilities and a mortgage
pay-off. Funds remaining, after amounts invested, of $100,000,000 have been
initially utilized to pay down short-term bank borrowings, with a corresponding
current reduction in earnings of approximately $500,000 per month, which will
decrease as remaining proceeds are reinvested in long-term investments. The
short-term dilution resulting from the issuance of equity, property sales
transactions, the write down of facilities held for sale, and lower rents, have
reduced our earnings and FFO in 2001. Improved earnings and FFO in 2002 is
predicated on a $400,000,000 acquisition program, stable capital costs and an
early resolution of customer reorganizations and bankruptcies. As market
conditions continue to improve, we anticipate that we will deploy new capital in
positive spread investments, thereby improving future FFO growth rates.
-18-
PORTFOLIO OVERVIEW:
(Dollar amounts in thousands, except per bed and per square foot data)
Congregate Physician
Acute Long-Term Medical Care/ Group Rehab-
Care Care Office Assisted Practice ilitation
Hospitals Facilities Buildings Living Facilities Clinics Hospitals
- ---------------------------------------------------------------------------------------------------------------------
Revenue by State /(1)/
California $ 28,193 $ 5,544 $ 11,564 $ 5,401 $ 4,485 $ -
Texas 6,687 1,898 11,076 10,321 1,541 1,753
Indiana - 18,722 6,788 1,436 - -
Florida 7,450 6,720 1,738 3,504 2,593 2,250
Utah 8,087 494 10,193 - - -
Tennessee - 10,811 1,285 12 1,660 -
North Carolina 7,676 3,156 - 1,394 516 -
Other (35 States) 21,960 36,384 18,405 25,272 3,512 12,012
- ---------------------------------------------------------------------------------------------------------------------
Total (42 States) $ 80,053 $ 83,729 $ 61,049 $ 47,340 $ 14,307 $ 16,015
=====================================================================================================================
Percentage of Total Revenue 26.0% 27.2% 19.8% 15.4% 4.7% 5.2%
Investment /(2)/ $ 659,325 $ 656,882 $ 641,920 $ 442,048 $ 149,836 $108,477
Return on Investments /(5)/ 12.2% 12.8% 9.5% 10.7% 9.6% 14.8%
Number of Properties 21 177 84 92 38 9
Vacant Properties - 4 1 - 3 -
Number of Beds/Units 2,785 21,468 - 7,228 - 685
Number of Square Feet 2,939,000 6,431,000 4,627,000 5,111,000 1,056,000 708,000
Investment per Bed/Unit /(5)/ $ 237 $ 31 $ - $ 61 $ - $ 158
Investment per Square Foot /(5)/ $ 233 $ 102 $ 139 $ 86 $ 142 $ 153
Occupancy Data--Current
Quarter /(4)/ 53% 83% - 82% - 76%
Occupancy Data--Prior
Quarter /(4)/ 52% 83% - 81% - 75%
- ---------------------------------------------------------------------------------------------------------------------
Healthcare
Laboratory Percentage
and of
Biotech Portfolio Portfolio Managed Portfolio
Research Total Total (3)
- -----------------------------------------------------------------------------------------------------
Revenue by State /(1)/
California $ - $ 55,187 17.9%
Texas - 33,276 10.8%
Indiana - 26,946 8.8%
Florida - 24,255 7.9%
Utah 5,148 23,922 7.8%
Tennessee - 13,768 4.5%
North Carolina - 12,742 4.1%
Other (35 States) - 117,545 38.2%
- -----------------------------------------------------------------------------------------------------
Total (42 States) $ 5,148 $ 307,641 100.0% $ 59,711
=====================================================================================================
Percentage of Total Revenue 1.7% 100.0% 19.4%
Investment /(2)/ $ 52,252 $ 2,710,740 $ 643,878
Return on Investments /(5)/ 10.4% 11.4% -
Number of Properties 6 427 100
Vacant Properties - 8 -
Number of Beds/Units - 32,166 -
Number of Square Feet 432,000 21,304,000 4,481,000
Investment per Bed/Unit /(5)/ $ - $ -
Investment per Square Foot /(5)/ $ 132 $ 146
Occupancy Data--Current
Quarter /(4)/ - 91%
Occupancy Data--Prior
Quarter /(4)/ - 89%
=====================================================================================================
(1) Annualized rental and interest income on total investments above. Includes
net operating income (NOI) on managed portfolio.
(2) Includes joint venture investments and incorporates all partners' assets.
Includes $6,686 of construction in process and related land purchases.
(3) Includes managed Medical Office Buildings, Physician Group Practice
Clinics, and Healthcare Laboratory and Biotech Research included in the
preceding totals.
(4) Excludes facilities under construction and newly completed facilities under
start up.
(5) Excludes facilities under construction.
-19-
PORTFOLIO BY OPERATOR/TENANT:
(Dollar amounts in thousands)
Operator/Tenant /(1)/ Revenue /(2)/ Percentage
- ----------------------------------------------------------------------------------------------------------
Tenet Healthcare $ 55,916 18.2%
HealthSouth Corporation 17,129 5.6%
Kindred Healthcare, Inc. 16,335 5.3%
Emeritus Corporation 15,517 5.0%
HCA - The Healthcare Company 14,292 4.7%
Beverly Enterprises 12,688 4.1%
Centennial Healthcare 8,787 2.9%
Not-For-Profit Investment Grade Tenants 6,272 2.0%
Other Publicly Traded Operators or Guarantors
(16 Operators) 35,746 11.6%
Other Non Public Operators and Tenants 124,959 40.6%
------------------------------------
Grand Total $307,641 100.0%
====================================
OPERATORS AT RISK:
(Dollar amounts in thousands)
Annual Rental
Operator Income to HCPI
- ------------------------------------------------------------------------
Sun Healthcare $ 2,844
Integrated Health Services 1,601
Mariner Post Acute Network 1,237
Other Non Public Operators and Tenants 5,677
--------
$ 11,359
========
Percent of Revenue 3.7%
========
Near Term Potential Future Rent
Reduction From the Above Operators $ 2,161
========
Percent of Revenue 0.7%
========
RENEWAL INFORMATION:
(Dollar amounts in thousands)
Lease Expirations and
Mortgage Maturities
---------------------------------------
Year Revenue (2) (3) Percentage
- -------------------------------------------------------------------------------------
2001 $ 352 0.1%
2002 4,585 1.5%
2003 8,690 2.8%
2004 66,362 21.6%
2005 28,867 9.4%
Thereafter 198,785 64.6%
---------------------------------------
Total $307,641 100.0%
=======================================
(1) At September 30, 2001, we had approximately 95 health care operators and
approximately 675 leases in the managed portfolio.
(2) Annualized rental and interest income on total investments above. Includes
net operating income (NOI) on managed portfolio.
(3) This column includes the revenue impact by year and the total annualized
rental and interest income associated with the properties subject to lease
expiration, lessees' renewal option and/or purchase options and mortgage
maturities.
-20-
SAME STORE GROWTH:
(Dollar amounts in thousands)
Rent Growth on Comparable Facilities for the
Nine Months Ended September 30, 2001 vs. September 30, 2000
Triple Net Properties:
Number of Facilities 270
Revenue Increase $ 260
Managed Properties:
Number of Facilities 82
Occupancy Percentage at September 30, 2001 93%
Occupancy Percentage Change from
September 30, 2000 -
Net Operating Income Decrease $ 295
LEASE UP STATISTICS ON NEW ASSISTED LIVING FACILITIES:
(Dollar amounts in thousands)
Average Months Percent of
Occupancy Facilities in Operation Rents Revenue
- -----------------------------------------------------------------------------
0% - 50% 2 20.1 $1,066 0.35%
50% - 70% 6 29.7 2,491 0.81%
70% - 90% 6 28.7 4,432 1.44%
------------
2.60%
============
CAPITAL EXPENDITURES:
(Dollar amounts in thousands)
Three Months Nine Months
Ended Ended
September 30, 2001 September 30, 2001
--------------------------------------------
Acquisitions $117,400 $173,800
Construction in Progress $ 6,686 $ 6,686
Rentable Square Footage 1,112 1,460
CASH FLOW COVERAGE:
Current Quarter Prior Quarter
--------------------------------------------
Cash Flow Coverage Before 2.5 2.6
Management Fees
Cash Flow Coverage After 2.2 2.3
Management Fees
21
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, we, through our senior management,
from time to time make forward looking oral and written public statements
concerning our expected future operations and other developments. Shareholders
and investors are cautioned that, while forward looking statements reflect our
good faith belief 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. In
addition to the factors set forth under the caption Risk Factors in our annual
report on Form 10-K, readers should consider the following:
(a) Legislative, regulatory, or other changes in the health care industry at
the local, state or federal level which increase the costs of or otherwise
affect the operations of our lessees;
(b) Changes in the reimbursement available to our lessees and mortgagors by
governmental or private payors, including changes in Medicare and Medicaid
payment levels and the availability and cost of third party insurance
coverage;
(c) Competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases;
(d) Changes and uncertainties in national or regional economic or political
conditions, including changes in interest rates and the availability and
cost of capital for us and the uncertainties caused by the September 11,
2001 terrorist attacks and related events;
(e) Availability of suitable health care facilities to acquire at a favorable
cost of capital and the competition for such acquisition and financing of
health care facilities;
(f) The ability of our lessees and mortgagors to operate our properties in a
manner sufficient to maintain or increase revenues and to generate
sufficient income to make rent and loan payments;
(g) The financial weakness of operators in the long-term care and assisted
living sectors, including the bankruptcies of certain of our tenants, which
results in uncertainties in our ability to continue to realize the full
benefit of such operators' leases; and
(h) The risk that we will not be able to sell or lease facilities that are
currently vacant.
DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our mortgage loans receivable and on our debt instruments.
We provide mortgage loans to operators of health care facilities in the
normal course of business. All of the mortgage loans receivable have fixed
interest rates or interest rates with periodic fixed increases.
-22-
We may assume mortgage notes payable already in place as part of an
acquisition transaction. Currently we have 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. Our Senior
Notes are at fixed rates. The variable rate loans are at interest rates below
the current prime rate of 5.50%, 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 affect our future
earnings and cash flows on our 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 our future earnings and cash flows, 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 year end, interest expense for 2001 would increase by
approximately $1,173,000.
We do not believe that the future market rate risks related to our mortgage
loans receivable or debt instruments will have a material impact on us or the
results of our 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 our disclosures under the
heading "Cautionary Language Regarding Forward Looking Statements" set forth
above.
NEW PRONOUNCEMENTS
See Note 10 to the financial statements for a discussion of our
implementation of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and Note 2 for a discussion of our adoption of Staff
Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements" released by the Securities and Exchange Commission ("SEC").
In June 2001, the Financial Accounting Standards Board released Statements
of Financial Accounting Standards No. 141 "Business Combinations," No. 142
"Goodwill and Other Intangible Assets" and No. 143 "Accounting for Asset
Retirement Obligations" and, in August 2001, No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." The effect of these
pronouncements is not expected to be material.
-23-
PART II. OTHER INFORMATION
8. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
3.1 Articles of Restatement of HCPI (incorporated herein by reference
to exhibit 3.1 of HCPI's quarterly report on Form 10-Q for the
period ended June 30, 2001).
3.2 Second Amended and Restated Bylaws of HCPI (incorporated herein
by reference to exhibit 3.2 of HCPI's quarterly report on form
10-Q for the period ended March 31, 1999).
4.1 Rights agreement, dated as of July 27, 2000, between Health Care
Property Investors, Inc. and the Bank of New York which includes
the form of Certificate of Designations of the Series D Junior
Participating Preferred Stock of Health Care Property Investors,
Inc. as Exhibit A, the form of Right Certificate as Exhibit B and
the Summary of Rights to Purchase Preferred Shares as Exhibit C
(incorporated by reference to exhibit 4.1 of Health Care Property
Investors, Inc.'s Current Report on Form 8-K dated July 28,
2000).
4.2 Indenture, dated as of September 1, 1993, between HCPI and The
Bank of New York, as Trustee, with respect to the Series C and D
Medium Term Notes, the Senior Notes due 2006 and the Mandatory
Par Put Remarketed Securities due 2015 (incorporated by reference
to exhibit 4.1 to HCPI's registration statement on Form S-3 dated
September 9, 1993).
4.3 Indenture, dated as of April 1, 1989, between HCPI and The Bank
of New York for Debt Securities (incorporated by reference to
exhibit 4.1 to HCPI's registration statement on Form S-3 dated
March 20, 1989).
4.4 Form of Fixed Rate Note (incorporated by reference to exhibit 4.2
to HCPI's registration statement on Form S-3 dated March 20,
1989).
4.5 Form of Floating Rate Note (incorporated by reference to exhibit
4.3 to HCPI's registration statement on Form S-3 dated March 20,
1989).
4.6 Registration Rights Agreement dated November 20, 1998 between
HCPI and James D. Bremner (incorporated by reference to exhibit
4.8 to HCPI's annual report on Form 10-K for the year ended
December 31, 1999). This exhibit is identical in all material
respects to two other documents except the parties thereto. The
parties to these other documents, other than HCPI, were James P.
Revel and Michael F. Wiley.
4.7 Registration Rights Agreement dated January 20, 1999 between HCPI
and Boyer Castle Dale Medical Clinic, L.L.C. (incorporated by
reference to exhibit 4.9 to HCPI's annual report on Form 10-K for
the year ended December 31, 1999). This exhibit is identical in
all material respects to 13 other documents except the parties
thereto. The parties to these other documents, other than HCPI,
were Boyer Centerville Clinic Company, L.C., Boyer Elko, L.C.,
Boyer Desert Springs, L.C., Boyer Grantsville Medical, L.C.,
Boyer-Ogden Medical Associates, LTD., Boyer Ogden Medical
Associates No. 2, LTD., Boyer Salt Lake Industrial Clinic
Associates, LTD., Boyer-St. Mark's Medical Associates, LTD.,
Boyer
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McKay-Dee Associates, LTD., Boyer St. Mark's Medical Associates
#2, LTD., Boyer Iomega, L.C., Boyer Springville, L.C., and -
Boyer Primary Care Clinic Associates, LTD. #2.
4.8 Form of Deposit Agreement (including form of Depositary Receipt
with respect to the Depositary Shares, each representing one-one
hundredth of a share of our 8.60% Cumulative Redeemable Preferred
Stock, Series C) (incorporated by reference to exhibit 4.8 to
HCPI's quarterly report on Form 10-Q for the period ended March
31, 2001) dated as of March 1, 2001 by and among HCPI, Wells
Fargo Bank Minnesota, N.A. and the holders from time to time of
the Depositary Shares described therein.
4.9 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).
4.10 First Supplemental Indenture, dated as of November 4, 1999,
between HCPI and The Bank of New York, as trustee (incorporated
by reference to HCPI's quarterly report on Form 10-Q for the
period ended September 30, 1999).
4.11 Dividend Reinvestment and Stock Purchase Plan, dated November 9,
2000 (incorporated by reference to exhibit 99.1 to HCPI's
registration statement on Form S-3 dated November 13, 2000,
registration number 333-49796).
10.1 Amendment No. 1, dated as of May 30, 1985, to Partnership
Agreement of Health Care Property Partners, a California general
partnership, the general partners of which consist of HCPI and
certain affiliates of Tenet (incorporated by reference to exhibit
10.1 to HCPI's annual report on Form 10-K for the year ended
December 31, 1985).
10.2 HCPI Second Amended and Restated Directors Stock Incentive Plan
(incorporated by reference to exhibit 10.43 to HCPI's quarterly
report on Form 10-Q for the period ended March 31, 1997).*
10.3 HCPI Second Amended and Restated Stock Incentive Plan
(incorporated by reference to exhibit 10.44 to HCPI's quarterly
report on Form 10-Q for the period ended March 31, 1997).*
10.4 First Amendment to Second Amended and Restated Directors Stock
Incentive Plan, effective as of November 3, 1999 (incorporated by
reference to exhibit 10.1 to HCPI's quarterly report on Form 10-Q
for the period ended September 30, 1999).*
10.5 Second Amendment to Second Amended and Restated Directors Stock
Incentive Plan, effective as of January 4, 2000 (incorporated by
reference to exhibit 10.15 to HCPI's annual report on Form 10-K
for the year ended December 31, 1999).*
10.6 First Amendment to Second Amended and Restated Stock Incentive
Plan effective as of November 3, 1999 (incorporated by reference
to exhibit 10.3 to HCPI's quarterly report on Form 10-Q for the
period ended September 30, 1999).*
10.7 HCPI 2000 Stock Incentive Plan, effective as of March 23, 2000
(incorporated by reference to Appendix A of HCPI's Proxy
Statement used at the annual meeting of stockholders held on May
9, 2000).*
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10.8 HCPI Second Amended and Restated Directors Deferred Compensation
Plan (incorporated by reference to exhibit 10.45 to HCPI's
quarterly report on Form 10-Q for the period ended September 30,
1997).*
10.9 Second Amendment to Second Amended and Restated Directors
Deferred Compensation Plan, effective as of November 3, 1999
(incorporated by reference to exhibit 10.2 to HCPI's quarterly
report on Form 10-Q for the period ended September 30, 1999).
10.10 Fourth Amendment to Second Amended and Restated Director Deferred
Compensation Plan, effective as of January 4, 2000 (incorporated
by reference to exhibit 10.17 to HCPI's annual report on Form 10-
K for the year ended December 31, 1999).*
10.11 Employment Agreement dated October 13, 2000 between HCPI and
Kenneth B. Roath (incorporated by reference to exhibit 10.11 to
HCPI's annual report on Form 10-K for the year ended December 31,
2000).*
10.12 Various letter agreements, each dated as of October 16, 2000,
among HCPI and certain key employees of the Company (incorporated
by reference to exhibit 10.12 to HCPI's annual report on Form
10-K for the year ended December 31, 2000).*
10.13 HCPI Executive Retirement Plan (incorporated by reference to
exhibit 10.28 to HCPI's annual report on Form 10-K for the year
ended December 31, 1987).*
10.14 Amendment No. 1 to HCPI Executive Retirement Plan (incorporated
by reference to exhibit 10.39 to HCPI's annual report on Form
10-K for the year ended December 31, 1995).*
10.15 Stock Transfer Agency Agreement between HCPI and The Bank of New
York dated as of July 1, 1996 (incorporated by reference to
exhibit 10.40 to HCPI's quarterly report on Form 10-Q for the
period ended September 30, 1996).
10.16 Amended and Restated Limited Liability Company Agreement dated
November 20, 1998 of HCPI/Indiana, LLC (incorporated by reference
to exhibit 10.15 to HCPI's annual report on Form 10-K for the
year ended December 31, 1998).
10.17 Amended and Restated Limited Liability Company Agreement dated
January 20, 1999 of HCPI/Utah, LLC (incorporated by reference to
exhibit 10.16 to HCPI's annual report on Form 10-K for the year
ended December 31, 1998).
10.18 Revolving Credit Agreement, dated as of November 3, 1999, among
HCPI, 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 (incorporated by reference to exhibit
10.4 to HCPI's quarterly report on Form 10-Q for the period ended
September 30, 1999).
10.19 364-Day Revolving Credit Agreement, dated as of November 3, 1999
among HCPI, 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 (incorporated by
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reference to exhibit 10.5 to HCPI's quarterly report on Form 10-Q
for the period ended September 30, 1999).
10.20 Cross-Collateralization, Cross-Contribution and Cross-Default
Agreement, dated as of July 20, 2000, by HCP Medical Office
Buildings II, LLC, and Texas HCP Medical Office Buildings, L.P.,
for the benefit of First Union National Bank (incorporated by
reference to exhibit 10.20 to HCPI's annual report on Form 10-K
for the year ended December 31, 2000).
10.21 Cross-Collateralization, Cross-Contribution and Cross-Default
Agreement, dated as of August 31, 2000, by HCP Medical Office
Buildings I, LLC, and Meadowdome, LLC, for the benefit of First
Union National Bank (incorporated by reference to exhibit 10.21
to HCPI's annual report on Form 10-K for the year ended December
31, 2000).
10.22 Amendment No. 2 to HCPI Executive Retirement Plan (incorporated
by reference to exhibit 10.22 to HCPI's quarterly report on Form
10-Q for the period ended March 31, 2001).*
* Management Contract or Compensatory Plan or Arrangement.
b) Reports on Form 8-K:
None
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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, 2001 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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