-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IuHeZZd8q+tTFt7MTwSzQ1GzjtZsnHr3sGAAVZiFK/Ca5Bd4FhwtVDWiJT9k7Y9V LZaRTs4fe8XjmwjHt8CC9g== 0000765880-98-000032.txt : 19980827 0000765880-98-000032.hdr.sgml : 19980827 ACCESSION NUMBER: 0000765880-98-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE PROPERTY INVESTORS INC CENTRAL INDEX KEY: 0000765880 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 330091377 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08895 FILM NUMBER: 98680178 BUSINESS ADDRESS: STREET 1: 4675 MACARTHUR COURT STREET 2: SUITE 900 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9492210600 MAIL ADDRESS: STREET 1: 4675 MACARTHUR COURT STREET 2: SUITE 900 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-Q 1 - - ---------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 1998. 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, CA 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 August 5, 1998 there were 30,963,046 shares of $1.00 par value common stock outstanding. HEALTH CARE PROPERTY INVESTORS, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets June 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . Condensed Consolidated Statements of Income Six Months and Three Months Ended June 30, 1998 and 1997. . . . . Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997 . . . . . . . . . . . . . Notes to Condensed Consolidated Financial Statements . . . . . . Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . PART II. OTHER INFORMATION Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HEALTH CARE PROPERTY INVESTORS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands)
June 30, December 31, 1998 1997 --------------- --------------- ASSETS Real Estate Investments Buildings and Improvements $ 938,707 $ 837,857 Accumulated Depreciation (184,295) (170,502) ---------- ---------- 754,412 667,355 Construction in Progress 15,021 19,627 Land 127,510 99,520 ---------- ---------- 896,943 786,502 Loans Receivable 154,382 125,381 Investments in and Advances to Joint Ventures 39,523 14,241 Other Assets 16,146 10,756 Cash and Cash Equivalents 2,089 4,084 ---------- ---------- Total Assets $1,109,083 $ 940,964 ========== ========== Liabilities and Stockholders' Equity Bank Notes Payable $ 9,000 $ 66,900 Senior Notes Payable 481,003 275,023 Convertible Subordinated Notes Payable 100,000 100,000 Mortgage Notes Payable 10,233 10,935 Accounts Payable, Accrued Liabilities and Deferred Income 27,422 23,492 Minority Interests in Joint Ventures 21,174 22,345 Stockholders' Equity: Preferred Stock 57,810 57,810 Common Stock 30,963 30,216 Additional Paid-In Capital 432,798 408,924 Cumulative Net Income 479,964 444,759 Cumulative Dividends (541,284) (499,440) ---------- ---------- Total Stockholders' Equity 460,251 442,269 ---------- ---------- Total Liabilities and Stockholders' Equity $1,109,083 $ 940,964 ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. HEALTH CARE PROPERTY INVESTORS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except per share amounts)
Three Months Six Months Ended June 30, Ended June 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ----------- ------------ ----------- Revenue Base Rental Income $ 27,494 $ 22,859 $ 53,572 $ 44,770 Additional Rental and Interest Income 5,445 5,300 10,856 10,613 Interest and Other Income 5,009 3,592 9,854 7,235 --------- --------- --------- --------- 37,948 31,751 74,282 62,618 --------- --------- --------- --------- Expense Interest Expense 8,819 7,198 16,436 13,960 Depreciation/Non Cash Charges 7,962 6,301 15,384 12,535 Facility Operating Expenses 948 --- 1,745 --- Other Expenses 1,932 1,855 3,804 3,636 --------- --------- --------- --------- 19,661 15,354 37,369 30,131 --------- --------- --------- --------- Income From Operations 18,287 16,397 36,913 32,487 Minority Interests (1,072) (1,003) (2,220) (2,021) Gain on Sale of Real Estate Properties 512 --- 512 2,047 --------- --------- --------- --------- Net Income $ 17,727 $ 15,394 $ 35,205 $ 32,513 --------- --------- --------- --------- Dividends to Preferred Stockholders 1,181 --- 2,362 --- --------- --------- --------- --------- Net Income Applicable to Common Shares $ 16,546 $ 15,394 $ 32,843 $ 32,513 ========= ========= ========= ========= Basic Earnings Per Common Share $ 0.54 $ 0.54 $ 1.07 $ 1.13 ========= ========= ========= ========= Diluted Earnings Per Common Share $ 0.53 $ 0.53 $ 1.06 $ 1.13 ========= ========= ========= ========= Weighted Average Shares Outstanding - Basic 30,789 28,712 30,740 28,707 ========= ========= ========= ========= Weighted Average Shares Outstanding - Diluted 31,079 28,860 31,050 28,858 ========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. HEALTH CARE PROPERTY INVESTORS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Six Months Ended June 30, -------------------------- 1998 1997 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 35,205 $ 32,513 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Real Estate Depreciation 13,891 10,972 Non Cash Charges 1,466 1,563 Joint Venture Adjustments 44 (384) Gain on Sale of Real Estate Properties (512) (2,047) Changes in: Operating Assets (2,502) (885) Operating Liabilities 3,763 121 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 51,355 41,853 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Real Estate (125,747) (79,733) Proceeds from Sale of Real Estate Properties 1,883 8,624 Advances to Joint Ventures/Partnerships (25,764) --- Other Investments and Loans (30,133) 746 ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (179,761) (70,363) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Bank Notes Payable (57,900) 57,000 Repayment of Senior Notes Payable (17,500) (12,500) Issuance of Senior Notes Payable 223,396 19,876 Cash Proceeds from Issuing Common Stock 23,383 167 Decrease in Minority Interests (1,000) --- Periodic Payments on Mortgages (493) (519) Dividends Paid (41,844) (34,741) Other Financing Activities (1,631) (228) ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 126,411 29,055 ---------- ---------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (1,995) 545 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,084 2,811 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,089 $ 3,356 ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. HEALTH CARE PROPERTY INVESTORS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 (Unaudited) (1) SIGNIFICANT ACCOUNTING POLICIES The unaudited financial information furnished herein, in the opinion of management, reflects all adjustments that are necessary to state fairly the financial position, the results of operations, and cash flows of Health Care Property Investors, Inc. and its affiliated subsidiaries and joint ventures (the "Company"). The Company presumes that users of the interim financial information herein have read or have access to the audited financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for the preceding fiscal year ended December 31, 1997 and that the adequacy of additional disclosures needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures that would substantially duplicate the disclosures contained in the Company's most recent annual report to security holders have been omitted. The interim financial information contained herein is not necessarily representative of a full year's operations for various reasons including acquisitions, changes in rents, interest rates and the timing of debt and equity financings. These same considerations apply to all year-to- year comparisons. Facility Operations: During 1997, the Company purchased 90 - 100 percent ownership interests in seven medical office buildings ("MOBs") which are operated by independent property management companies on behalf of the Company. These MOBs are leased to multiple tenants under gross or triple net leases. Any income attributable to these properties, other than Base Rental Income, is recorded as facility operating revenue and is included in Interest and Other Income. Expenses related to the operation of these MOBs are recorded as Facility Operating Expenses. Reclassifications: Reclassifications have been made, where applicable, for comparative financial statement presentations. (2) MAJOR OPERATORS Listed below are the Company's major operators and the percentage of annualized revenue from these operators and their subsidiaries. Each of these operators is 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 10-Q with the Securities and Exchange Commission. Except as otherwise indicated, all of the financial and other information presented herein with respect to such companies was obtained from such public reports.
Percentage of Annualized Operators Revenue Total Revenue - - ------------ ------------- ----------------- (in thousands) Vencor, Inc. (" New Vencor") $ 19,398 12% HealthSouth Corporation 12,253 7 Emeritus Corporation 11,094 7 Centennial Healthcare Corporation 9,281 6 Tenet Healthcare Corporation ("Tenet") 8,933 5 Columbia/HCA Healthcare Corp. 8,116 5
On May 1, 1998, Vencor, Inc. ("Old Vencor") completed a spinoff transaction pursuant to which it became two publicly held entities - Ventas, Inc. ("Ventas"), a real estate company which intends to qualify as a REIT, and New Vencor, a healthcare company which at June 30, 1998 leased 42 of the Company's properties. As of June 30, 1998, 36% of annualized revenue on facilities leased to New Vencor relates to facilities sub-leased and operated by other providers. Both Ventas and New Vencor are responsible for payments due under the New Vencor leases and substantially all are guaranteed by Tenet. Based upon public reports, Old Vencor's pre spin-off revenue and net income for the three months ended March 31, 1998 were approximately $823.3 million and $18.9 million, respectively; Old Vencor's total assets and stockholders' equity as of March 31, 1998 were approximately $3.4 billion and $930.8 million, respectively. Based upon public reports, Old Vencor's revenue and net income for the year ended December 31, 1997 were approximately $3.1 billion and $130.9 million, respectively; Old Vencor's total assets and stockholders' equity as of December 31, 1997 were approximately $3.3 billion and $905.4 million, respectively. Based upon a recent press release, New Vencor's revenue, loss excluding non- recurring transactions and net loss for the three months ended June 30, 1998 (which includes the combined results of the predecessor company for all periods prior to May 1, 1998) were approximately $778.7 million, $4.7 million and $101.4 million, respectively. Based upon a recent press release, Ventas' revenue, income from operations and net income for the two months ended June 30, 1998 since commencing operations were approximately $37.4 million, $8.2 million and $228,000, respectively. Ventas' total assets and stockholders' deficit as of June 30, 1998 was $961.2 million and $39.4 million, respectively. Tenet leases and those guaranteed by Tenet represented approximately 17% of the Company's total annualized revenue as of June 30, 1998. During 1998, 14 of the New Vencor leases expire. As of June 30, 1998, 12 of these leases have been re-leased or have agreements to re-lease in place with other operators. (3) ISSUANCE OF SENIOR DEBT During June 1998, the Company issued $200,000,000 of senior unsecured debt in the form of 6.875% MandatOry Par Put Remarketed Securities ("MOPPRS") due June 8, 2015 which are subject to mandatory tender on June 8, 2005. The Company received total proceeds of approximately $203,000,000 including the present value of the put option at June 8, 2005 associated with the debt instrument. The option is being amortized to interest expense over 17 years. The weighted average cost of the debt including the amortization of the option and offering expenses is 6.77%. The proceeds were used to repay outstanding borrowings under the Company's revolving lines of credit. (4) STOCKHOLDERS' EQUITY The following tabulation is a summary of the activity for the Stockholders' Equity account for the six months ended June 30, 1998 (amounts in thousands):
Preferred Stock Common Stock ----------------- --------------------------------- Par Additional Total Number of Number of Value Paid-In Cumulative Stockholders' Shares Amount Shares Amount Capital Net Income Dividends Equity - - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 2,400 $57,810 30,216 $30,216 $408,924 $444,759 $(499,440) $442,269 Issuance of Common Stock, Net 747 747 23,874 24,621 Net Income 35,205 35,205 Dividends Paid - Preferred Shares (2,362) (2,362) Dividends Paid - Common Shares (39,482) (39,482) - - ----------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1998 2,400 $57,810 30,963 $30,963 $432,798 $479,964 $(541,284) $460,251 ===================================================================================================================================
During April 1998, the Company sold 698,752 shares of common stock at $33.2217 per share. The net proceeds of approximately $23,000,000 were used to pay down short-term borrowings under the Company's revolving lines of credit. (5) EARNINGS PER COMMON SHARE In 1997, the Company adopted Statement of Financial Accountings 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 six months ended June 30, 1998 and 1997. In prior years, only basic earnings per common share data was disclosed. Basic earnings per common share is 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 is calculated using only dilutive securities. The convertible debt and options to purchase shares of common stock which have an exercise price in excess of the average market price during the periods presented are not included because they are not dilutive. (Amounts in thousands except per share amounts)
For the Three Months Ended For the Six Months Ended ---------------------------- ------------------------------ Per Share Per Share June 30, 1998 Income Shares Amount Income Shares Amount - - ------------------------------------------------------------------------------------------------------------------------ Basic Earnings Per Common Share: Net Income Applicable to Common Shares $16,546 30,789 $ 0.54 $32,843 30,740 $ 1.07 ====== ====== Dilutive Options --- 173 --- 191 Non Managing Member Units 76 117 153 119 ------- ------- ------- ------- Diluted Earnings Per Common Share: Net Income Applicable to Common Shares Plus Assumed Conversions $16,622 31,079 $ 0.53 $32,996 31,050 $ 1.06 ====== ====== June 30, 1997 - - --------------------------------------- Basic Earnings Per Common Share: Net Income Applicable to Common Shares $ 15,394 28,712 $ 0.54 $ 32,513 28,707 $ 1.13 ====== ====== Dilutive Options --- 148 --- 151 ------- ------- ------- ------- Diluted Earnings Per Common Share: Net Income Applicable to Common Shares Plus Assumed Conversions $ 15,394 28,860 $ 0.53 $32,513 28,858 $ 1.13 ====== ======
(6) FUNDS FROM OPERATIONS Under Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise, effective beginning in 1998, the Company is required to report information about its operations on the basis that the information is used internally for evaluating the Company's performance. The Company believes that Funds From Operations ("FFO") is an important supplemental measure of operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a real estate investment trust that uses historical cost accounting for depreciation could be uninformative. The term FFO was designed by the real estate investment trust industry to address this problem. 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 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 and FFO per share of common stock (all amounts in thousands except per share amounts):
Three Months Six Months Ended June 30, Ended June 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ----------- ------------ ----------- Net Income Applicable to Common Shares $16,546 $15,394 $32,843 $32,513 Real Estate Depreciation and Amortization 7,246 5,490 13,891 10,972 Joint Venture Adjustments 272 (192) 44 (384) Gain on Sale of Real Estate Properties (512) --- (512) (2,047) --------- --------- --------- --------- Funds From Operations $23,552 $20,692 $46,266 $41,054 ========= ========= ========= =========
For the Three Months Ended For the Six Months Ended ---------------------------- ------------------------------ Per Share Per Share June 30, 1998 FFO Shares Amount FFO Shares Amount - - ------------------------------------------------------------------------------------------------------------------------ Basic Funds From Operations per Share: $ 23,552 30,789 $ 0.76 $ 46,266 30,740 $ 1.51 ====== ====== Interest and Amortization applicable to Convertible Debt 1,599 2,645 3,199 2,645 Dilutive Options --- 173 --- 191 Non Managing Member Units 76 117 153 119 ------- ------- ------- ------- Diluted Funds From Operations per Share: $ 25,227 33,724 $ 0.75 $ 49,618 33,695 $ 1.47 ====== ====== June 30, 1997 - - ----------------------------------------- Basic Funds From Operations per Share: $ 20,692 28,712 $ 0.72 $ 41,054 28,707 $ 1.43 ====== ====== Interest and Amortization applicable to Convertible Debt 1,599 2,645 3,199 2,645 Dilutive Options --- 148 --- 151 ------- ------- ------- ------- Diluted Funds From Operations per Share: $ 22,291 31,505 $ 0.71 $ 44,253 31,503 $ 1.40 ====== ======
(7) COMMITMENTS As of August 7, 1998, the Company has outstanding commitments on closed and to- be-closed development transactions of approximately $68,000,000 and $97,000,000, respectively. The Company is also committed to acquire approximately $78,000,000 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. Transactions do not close for various reasons including unsatisfied pre-closing conditions, competitive financing sources, final negotiation differences and the operator's inability to obtain required internal or governmental approvals. (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. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). Statement 133 cannot be applied retroactively. Statement 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). We have not yet quantified the impacts of adopting Statement 133 on our financial statements and have not determined the timing of or method of our adoption of Statement 133. However, the effect is not expected to be material. (9) SUBSEQUENT EVENTS On July 16, 1998 the Board of Directors declared a quarterly dividend of $0.66 per common share payable on August 20, 1998, to shareholders of record on the close of business on August 3, 1998. The Board of Directors also declared a cash dividend of $0.492188 per share on its Series A cumulative preferred stock. This dividend will be paid on September 30, 1998 to shareholders of record as of the close of business on September 15, 1998. HEALTH CARE PROPERTY INVESTORS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is in the business of acquiring health care facilities that it leases on a long-term basis to health care providers. On a more limited basis, the Company has provided mortgage financing on health care facilities. As of June 30, 1998, the Company's portfolio of properties, including equity investments, consisted of 292 facilities located in 41 states. These facilities are comprised of 143 long-term care facilities, 79 congregate care and assisted living facilities, 20 medical office buildings, eight acute care hospitals, six freestanding rehabilitation facilities, 35 physician group practice clinics and one psychiatric care facility. The gross acquisition price of the properties, which includes joint venture acquisitions, was approximately $1,293,000,000 at June 30, 1998. The Company had commitments to purchase and construct health care facilities totaling approximately $243,000,000 for funding during 1998 and 1999. The Company expects 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). RESULTS OF OPERATIONS Net Income applicable to common shares for the three and six months ended June 30, 1998 totaled $16,546,000 and $32,843,000 or $0.54 and $1.07 of basic earnings per share on revenue of $37,948,000 and $74,282,000, respectively. This compares to $15,394,000 and $32,513,000 or $.54 and $1.13 of basic earnings per share on revenue of $31,751,000 and $62,618,000 for the same periods in 1997. Net Income applicable to common shares for the three and six months ended June 30, 1998 included a $512,000 or $0.02 per share gain on the sale of real estate properties. Net Income applicable to common shares for the six months ended June 30, 1997 included a $2,047,000 or $0.07 per share gain on the sale of real estate properties. Base Rental Income for the three and six months ended June 30, 1998 increased $4,635,000 and $8,802,000 to $27,494,000 and $53,572,000, respectively, as compared to the same period in the prior year. The majority of the increase in Base Rental Income was generated by new investments of approximately $178,000,000 and $262,000,000 made during 1998 and 1997. Interest and Other Income for the three and six months ended June 30, 1998 increased $1,417,000 and $2,619,000 to $5,009,000 and $9,854,000, respectively, primarily from growth in the lending portfolio and from an increase in income from the operations of seven medical office buildings purchased during 1997 and one clinic purchased during 1998. There were $948,000 and $1,745,000 in related Facility Operating Expenses during the three and six months ended June 30, 1998. Interest Expense for the three and six months ended June 30, 1998 increased $1,621,000 and $2,476,000, 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 1997 and the first half of 1998 and interest related to the MOPPRS senior debt issuance during June 1998 (see Note (3) to the Condensed Consolidated Financial Statements). The increase in Depreciation/Non Cash Charges for the three and six months ended June 30, 1998 of $1,661,000 and $2,849,000 to $7,962,000 and $15,384,000, respectively, is the direct result of the new investments made during 1998 and 1997. The Company believes that Funds From Operations ("FFO") is an important supplemental measure of operating performance. (See Note (6) to the Condensed Consolidated Financial Statements.) FFO for the three months ended June 30, 1998 increased $2,860,000 to $23,552,000. The increase is attributable to increases in Base 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 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. 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 the Company's 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. The following table summarizes the MTN financing activities during 1997 and 1998:
Amount Date Maturity Coupon Rate Issued/(Redeemed) --------------------------------------------------------------------- March 1997 10 years 7.30% $ 10,000,000 April 1997 10 years 7.62% 10,000,000 June 1997 --- 10.20% - 10.30% (12,500,000) February 1998 --- 9.88% (10,000,000) March 1998 5 years 6.66% 20,000,000 April 1998 --- 9.48% (1,000,000) May 1998 --- 9.44%- 9.62% (6,500,000)
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. The Company received total proceeds of approximately $203,000,000 (including the present value of the put option associated with the debt) which was used to repay borrowings under the Company's 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. During the past year, the Company has completed three equity offerings. On September 26, 1997, the Company issued $60,000,000, 7-7/8% Series A Cumulative Redeemable Preferred Stock. During December 1997, the Company raised $55,000,000 of equity in a common stock offering of 1,437,500 shares at $38.3125 per share. During April 1998, the Company sold 698,752 shares of common stock in a common stock offering at $33.2217 per share. The net proceeds of $57,810,000, $51,935,000 and $23,000,000 from the preferred and common stock offerings, respectively, were utilized to pay down short-term borrowings under the Company's revolving lines of credit. At June 30, 1998, stockholders' equity in the Company totaled $460,251,000 and the debt to equity ratio was 1.30 to 1. For the six months ended June 30, 1998, FFO (before interest expense) covered Interest Expense 3.81 to 1. 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. The Company also had approximately $52,900,000 available under its Series B and C MTN programs, for a total of $652,900,000 available as of June 30, 1998. These amounts may be issued from time to time in the future based on Company needs and then existing market conditions. On October 22, 1997, the Company renegotiated its line of credit with a group of seven banks. The Company now has two revolving lines of credit, one for $100,000,000 that expires on October 22, 2002 and one for $50,000,000 that expires on October 22, 1998. As of June 30, 1998, the Company also had $141,000,000 available on its $150,000,000 revolving lines of credit. The Company's Senior Notes and Convertible Subordinated Notes have been rated investment grade by debt rating agencies since 1986. Current ratings are as follows: Moody's Standard & Poor's Duff & Phelps -------------------------------------------------- Senior Notes Baa1 BBB+ A- Convertible Subordinated Notes Baa2 BBB BBB+ Since inception in May 1985, the Company has recorded approximately $640,479,000 in cumulative FFO. Of this amount, a total of $537,675,000 has been distributed to stockholders as dividends on common stock. The balance of $102,804,000 has been retained, and has been an additional source of capital for the Company. At June 30, 1998, the Company held approximately $40,000,000 in irrevocable letters of credit from commercial banks to secure the obligations of many lessees' lease and borrowers' loan obligations. The Company may draw upon the letters of credit if there are any defaults under the leases and/or loans. Amounts available under letters of credit change based upon facility operating conditions and other factors and such changes may be material. The second quarter 1998 dividend of $0.65 per common share or $20,124,000 in the aggregate was paid on May 20, 1998. Total dividends paid during the six months ended June 30, 1998 as a percentage of FFO for the corresponding period was 85%. The Company declared a third quarter dividend of $0.66 per common share or approximately $20,436,000 in the aggregate, to be paid on August 20, 1998. The Company has concluded a significant number of "facility rollover" transactions in 1995, 1996, 1997 and 1998 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.
Annualized Increase/(Decrease) Year In FFO - - ----- ------------------- 1995 Completed 20 facility rollovers including the sale of ten facilities with concurrent "seller financing" for a gain of $23,550,000. $ 900,000 1996 Completed 20 facility rollovers including the sale of nine facilities in Missouri and the exchange of the Dallas Rehabilitation Institute for the HealthSouth Sunrise Rehabilitation Hospital in Fort Lauderdale, Florida. (1,200,000) 1997 Completed 12 facility rollovers. (1,600,000) 1998 Completed or agreed to complete 28 facility rollovers. (1,600,000)
Through December 31, 2000, the Company has 39 more facilities that are subject to lease expiration, mortgage maturities or purchase options (which manage- ment believes may be exercised) representing approximately 18% of annualized revenues. During 1997, the Company concluded agreements with Tenet and Beverly Enterprises, Inc. ("Beverly") that resulted in their forbearance or waiver of certain renewal and purchase options and related rights of first refusal on up to 57 facilities leased to New Vencor and Beverly, of which 27 facilities had leases expiring through December 31, 2000. As part of these agreements, continued ownership of most of the facilities will remain with the Company. As a result of the forbearance or waiver of these options, the Company believes that, based upon recent operating results, it has increased or may be able to increase rents on approximately 12 facilities whose lease terms expire between 1998 and 2001; however, there can be no assurance that the Company will be able to realize any increased rents. The Company has completed certain facility rollovers earlier than the scheduled lease expirations or mortgage maturities and will continue to pursue such opportunities where it is advantageous to do so. Management believes that the Company's liquidity and sources of capital are adequate to finance its operations as well as its future investments in additional facilities. YEAR 2000 ISSUE Management believes it does not have any significant exposure to Year 2000 issues with respect to its own accounting and information systems and has reasonable assurance that its own systems are compliant with Year 2000. During the second quarter of 1998, the Company commenced a survey of its investment banks, commercial banks, primary lessees and major vendors in order to assess what preparations each has made to deal with the issue. Through this process the Company hopes to find out what potentially detrimental exposures that these third parties, and therefore the Company, need to be prepared for before the end of 1999. The Company, therefore, is not able to determine whether the Year 2000 issue will have a material adverse effect on the Company or its future operations. CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS Statements in this Quarterly Report on Form 10-Q 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 the Company 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, the Company, through its senior management, from time to time makes forward looking oral and written public statements concerning the Company's expected future operations and other developments. Shareholders and investors are cautioned that, while forward looking statements reflect the Company'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 (i) 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 the Company's lessees; (ii) changes in the reimbursement available to the Company's 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; (iii) competition for lessees and mortgagors, including with respect to new leases and mortgages and the renewal or roll-over of existing leases; (iv) competition for the acquisition and financing of health care facilities; (v) the ability of the Company's lessees and mortgagors to operate the Company's properties in a manner sufficient to maintain or increase revenues and to generate sufficient income to make rent and loan payments; and, (vi) changes in national or regional economic conditions, including changes in interest rates and the availability and cost of capital to the Company. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual stockholders meeting on May 12, 1998. The following matters were voted upon at the meeting: 1. Election of Directors ---------------------- Votes Cast ---------- Against or Name of Director Elected For Withheld ------------------------ --------------- ---------- Paul V. Colony 27,387,706 291,397 Peter L. Rhein 27,387,800 291,303 Name of Each Other Director Whose Term of Office as Director Continued After the Meeting -------------------------------- Robert R. Fanning, Jr. Michael D. McKee Orville E. Melby Harold M. Messmer, Jr. Kenneth B. Roath 2. Ratification of Arthur Andersen LLP As the Company's Independent Accountants for the Fiscal Year Ending December 31,1998 ----------------------------------- For Against Abstain ------------------------------ 27,212,446 344,437 122,220 Item 6. Exhibits and Reports on Form 8-K ---------------------------------- a) Exhibits: 27 Financial Data Schedule b) Reports on Form 8-K: On April 16, 1998, the Company filed a Report on Form 8-K with the Securities and Exchange Commission ("SEC") regarding the press release announcing the Company's operating results for the quarter ended March 31, 1998. On April 23, 1998, the Company filed a Report on Form 8-K with the SEC regarding the Purchase Agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated pursuant to which the Company agreed to issue and sell up to 698,752 shares of the Company's common stock. On June 3, 1998, the Company filed a Report on Form 8-K with the SEC regarding the Purchase Agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Nationsbanc Montgomery Securities LLC and Salomon Brothers Inc., pursuant to which the Company agreed to issue and sell up to $200,000,000 aggregate principal amount of the Company's 6.875% MandatOry Par Put Remarketed Securities due June 8, 2015 (the "MOPPRS"). On June 17, 1998, the Company filed a Report on Form 8-K with the SEC regarding the acquisition on nine long-term care facilities and 33 clinics in 11 separate transactions at an aggregate purchase price of approximately $99,800,000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 7, 1998 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) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000765880 HEALTH CARE PROPERTY INVESTORS, INC. 1,000 6-MOS DEC-31-1998 JUN-30-1998 2,089 0 0 0 0 0 1,081,238 184,295 1,109,083 0 591,236 0 57,810 30,963 371,478 1,109,083 0 74,282 0 17,604 5,549 0 16,436 35,205 0 35,205 0 0 0 35,205 1.07 1.06
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