10-Q 1 0001.txt FORM 10-Q DATED SEPTEMBER 30, 2000 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, 2000. OR [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ..... to ....... Commission file number 1-8895 -------------------------------------------------------------------------------- HEALTH CARE PROPERTY INVESTORS, INC. (Exact name of registrant as specified in its charter) -------------------------------------------------------------------------------- Maryland 33-0091377 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 4675 MacArthur Court, Suite 900 Newport Beach, California 92660 (Address of principal executive offices) (949) 221-0600 (Registrant's telephone number, including area code) ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No[ ] As of November 10, 2000 there were 50,962,752 shares of $1.00 par value common stock outstanding. ------------------------------------------------------------------------------- HEALTH CARE PROPERTY INVESTORS, INC. INDEX PART I. FINANCIAL INFORMATION
PAGE NO. -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets September 30, 2000 and December 31, 1999............................ 2 Condensed Consolidated Statements of Income Nine Months and Three Months Ended September 30, 2000 and 1999...... 3 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2000 and 1999....................... 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.................................... 23 Signatures................................................................... 27
-1- Health Care Property Investors, Inc. Condensed Consolidated Balance Sheets (Amounts in thousands)
September 30, December 31, 2000 1999 ------------------ ------------------ (Unaudited) Assets Real Estate Investments: Buildings and Improvements $2,177,980 $2,147,592 Accumulated Depreciation (277,193) (230,509) ------------------ ------------------ 1,900,787 1,917,083 Construction in Progress 6,498 20,312 Land 254,751 255,593 ------------------ ------------------ 2,162,036 2,192,988 Loans Receivable 188,723 193,157 Investments in and Advances to Joint Ventures 23,045 47,642 Accounts Receivable 15,231 13,565 Other Assets 10,768 14,342 Cash and Cash Equivalents 4,904 7,696 ------------------ ------------------ Total Assets $2,404,707 $2,469,390 ================== ================== Liabilities and Stockholders' Equity Bank Notes Payable $ 132,000 $ 215,500 Senior Notes Payable 777,335 761,757 Convertible Subordinated Notes Payable Due 2000 68,910 100,000 Mortgage Notes Payable 178,313 102,250 Accounts Payable, Accrued Liabilities and Deferred Income 53,491 49,222 Minority Interests in Joint Ventures 14,897 15,688 Minority Interests Convertible into Common Stock 24,827 24,716 Stockholders' Equity: Preferred Stock 274,525 275,041 Common Stock 50,962 51,421 Additional Paid-In Capital 929,593 940,471 Cumulative Net Income 725,312 628,151 Cumulative Dividends (825,458) (694,827) ------------------ ------------------ Total Stockholders' Equity 1,154,934 1,200,257 ------------------ ------------------ Total Liabilities and Stockholders' Equity $2,404,707 $2,469,390 ================== ==================
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, ---------------------------------- ---------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Revenue Rental Income, Triple Net Properties $56,790 $32,282 $169,906 $ 96,286 Rental Income, Managed Properties 19,887 13,300 59,696 38,353 Interest and Other Income 5,604 6,636 17,027 19,012 -------------- -------------- -------------- -------------- 82,281 52,218 246,629 153,651 -------------- -------------- -------------- -------------- Expense Interest Expense 22,008 13,931 64,757 40,060 Real Estate Depreciation and Amortization 17,461 10,196 52,054 29,683 Operating Expenses, Managed Properties 7,201 4,206 20,653 12,034 General and Administrative Expenses 3,270 3,010 10,009 9,112 Investment Valuation Reserve 2,000 --- 2,000 --- -------------- -------------- -------------- -------------- 51,940 31,343 149,473 90,889 -------------- -------------- -------------- -------------- Income From Operations 30,341 20,875 97,156 62,762 Minority Interests (1,326) (853) (4,403) (3,838) Gain on Sale of Real Estate Properties 421 10,151 4,134 10,303 -------------- -------------- -------------- -------------- Income Before Extraordinary Item 29,436 30,173 96,887 69,227 Extraordinary Item- Gain on Extinguishment of Debt 65 --- 274 --- -------------- -------------- -------------- -------------- Net Income 29,501 30,173 97,161 69,227 Dividends to Preferred Stockholders (6,225) (4,109) (18,675) (12,328) -------------- -------------- -------------- -------------- Net Income Applicable to Common Shares $23,276 $26,064 $ 78,486 $ 56,899 ============== ============== ============== ============== Basic Earnings Per Common Share $ 0.46 $ 0.81 $ 1.54 $ 1.80 ============== ============== ============== ============== Diluted Earnings Per Common Share $ 0.46 $ 0.80 $ 1.53 $ 1.80 ============== ============== ============== ============== Weighted Average Shares Outstanding - Basic 50,962 32,045 51,105 31,590 ============== ============== ============== ============== Weighted Average Shares Outstanding - Diluted 51,027 35,456 51,140 34,317 ============== ============== ============== ==============
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, ---------------------------------------- 2000 1999 ----------------- ----------------- Cash Flows From Operating Activities: Net Income $ 97,161 $ 69,227 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Real Estate Depreciation 52,054 29,683 Non Cash Charges 3,043 2,158 Joint Venture Adjustments 1,732 1,329 Gain on Sale of Real Estate Properties (4,134) (10,303) Gain on Extinguishment of Debt (274) --- Changes in: Operating Assets 3,365 (2,832) Operating Liabilities 2,306 7,914 ----------------- ----------------- Net Cash Provided By Operating Activities 155,253 97,176 ================= ================= Cash Flows From Investing Activities: Acquisition of Real Estate (16,218) (125,972) Proceeds from the Sale of Real Estate Properties, Net 27,210 46,098 Other Investments and Loans 4,662 (40,633) ----------------- ----------------- Net Cash Used In Investing Activities 15,654 (120,507) ================= ================= Cash Flows From Financing Activities: Net Change in Bank Notes Payable (83,500) 12,500 Repayment of Senior Notes Payable (10,000) (10,000) Issuance of Senior Notes 24,865 62,000 Issuance of Secured Debt 83,000 --- Cash Proceeds from Issuing Common Stock 1,438 29,638 Periodic Payments on Mortgages (2,684) (2,008) Repurchase of Common and Preferred Stock (15,284) --- Repurchase of Convertible Subordinated Notes Payable (30,741) --- Dividends Paid (130,631) (77,977) Other Financing Activities (9,591) (3,075) (Decrease) / Increase in Minority Interest (571) 15,948 ----------------- ----------------- Net Cash (Used In)/Provided By Financing Activities (173,699) 27,026 ================= ================= Net Decrease In Cash And Cash Equivalents (2,792) 3,695 Cash And Cash Equivalents, Beginning Of Period 7,696 4,504 ----------------- ----------------- Cash And Cash Equivalents, End Of Period $ 4,904 $ 8,199 ================= ================= Capitalized Interest $ 637 $ 1,305 ================= =================
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, 2000 (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, 1999. 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 95 medical office buildings ("MOBs") and physician group practice clinics where property management is provided by independent property management companies. These facilities are leased to multiple tenants under gross, modified gross or triple net leases. These property management companies are supervised by the Company's Asset Management Department. Rents and operating income attributable to these properties is 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) BUSINESS COMBINATION On November 4, 1999, American Health Properties, Inc. ("AHE") merged with and into HCPI (the Merger) in a stock-for-stock transaction, approved by the stockholders of both companies, with HCPI being the surviving corporation. Under the terms of the Merger agreement, each share of AHE common stock was converted into the right to receive 0.78 share of HCPI's common stock and AHE's 8.60% series B cumulative redeemable preferred stock was converted into HCPI's 8.60% series C cumulative redeemable preferred stock. The Merger resulted in the issuance of approximately 19,430,115 shares of HCPI's common stock and 4,000,0000 depositary shares of HCPI's series C cumulative redeemable preferred stock. In addition, HCPI assumed $343,000,000 of AHE's debt upon consummation of the Merger. The transaction was treated as a purchase for financial accounting purposes. The operating results of -5- AHE have been included in our consolidated financial statements since November 4, 1999 and, accordingly, the results of operations for the three and nine months ended September 30, 1999 do not reflect the operations of AHE. Pro Forma Financial Information (Unaudited): The following unaudited pro forma consolidated statements of income information present the results of HCPI's operations for the nine months ended September 30, 1999 as though the acquisition of AHE had occurred at the beginning of 1999: September 30, 1999 ------------- (Dollar amounts in 000s, expect per share amounts) Total Revenues $237,529 Net Income Applicable to Common Shares $142,454 Earnings Per Share Basic $ 2.79 Diluted $ 2.73 Pro Forma Net Income applicable to common shares and earnings per basic and diluted share include $65,436,000 or $1.28 and $1.20 per share for Gain on the Sale of Real Estate Properties, respectively. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place at the beginning of 1999 or the results that may occur in the future. The pro forma results include additional interest on borrowed funds, increased depreciation and decreases in amortization expense associated with changes in fair value of the AHE depreciable property and other intangible assets and a reduction in general and administrative expenses. (3) OPERATORS Major Operators: Listed below are our major operators and their respective percentage of total annualized revenue for the nine months ended September 30, 2000. All of these operators are publicly traded companies and are subject to the informational filing requirements of the Securities and 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 $ 55,810 18.8% HealthSouth Corporation 16,725 5.6% Vencor, Inc. 13,661 4.6% Emeritus Corporation 13,584 4.5% HCA - The Healthcare Co. 12,959 4.4% Beverly Enterprises 12,406 4.2% -6- At September 30, 2000, we had approximately 93 health care operators and over 650 tenants in multi-tenant buildings. Vencor: On May 1, 1998, Vencor completed a spin-off transaction. As a result, it became two publicly held entities -- Ventas, Inc. and Vencor, a healthcare company which at September 30, 2000 leased 35 of our properties of which 9 are subleased to other operators. Vencor is the Company's largest long-term care lessee at 4.6% of annualized revenue. On September 13, 1999, Vencor filed for bankruptcy protection. Twenty long-term care facility leases with Vencor terminate in 2001 and the Company expects to realize a net rent increase for these facilities at that time. We have recourse to Ventas, Inc. and Tenet Healthcare Corporation (see discussion below) for most of the rents payable by Vencor under the terms of the applicable leases. All rents due to us subsequent to the bankruptcy filing have been received. Under its filing for bankruptcy protection, Vencor has the right to assume or reject its leases with us. If Vencor assumes a lease, it must do so pursuant to the original contract terms, must cure all pre-petition and post-petition defaults under the lease and provide adequate assurances of future performance. If Vencor rejects a lease, we have the right to collect rent through the rejection date and may lease the property to another operator. As of November 10, 2000, Vencor had made no proposals to reject any of their current leases with us. We have received $735,000 of $1,008,000 of pre-petition rents and consider the remaining balance to be fully collectible. However, we cannot assure you that, as a result of Vencor's bankruptcy filing, we would be able to recover all amounts due under our leases with Vencor, that we would be able to promptly recover the premises or lease the property to another lessee or that the rent we would receive from another lessee would equal amounts due under the Vencor leases. We have recourse to Tenet for rents under all but five of the Vencor leases, and on some leases we are receiving direct payment by sublessees of Vencor, which may reduce the risk to us of not being able to collect on those leases. However, some of Vencor's sublessees have also filed for bankruptcy protection and although we are current on lease payments, we cannot assure you that the bankruptcy filing of Vencor or certain of its sublessees would not have a material adverse effect on our Net Income, Funds From Operations or the market value of our common stock. In late September 2000, Vencor filed its preliminary plan of reorganization. If the plan of reorganization is approved we believe it will be positive for the industry, its creditors and for the Company. Based upon public reports, for the six months ended June 30, 2000, Vencor had revenue of approximately $1.4 billion and a net loss of approximately $21 million. Based upon public reports, Ventas' revenue and net income for the six months ended June 30, 2000, were approximately $119 million and $10 million, respectively. Approximately $114 million of Ventas' revenue resulted from leases with Vencor. As of June 30, 2000, Ventas had total assets of $1 billion and a stockholders' equity of $20 million. Tenet is one of the nation's largest healthcare services companies, providing a broad range of services through the ownership and management of healthcare facilities. Based upon public reports, Tenet's revenue and net income for the three months ended August 31, 2000 were $2.9 billion and $154 million, respectively, and Tenet had total assets of $13.1 billion as of August 31, 2000. Tenet has historically guaranteed Vencor's leases. During 1997, we reached an agreement with Tenet whereby Tenet agreed to forbear or waive some renewal and purchase -7- options and related rights of first refusal on facilities leased to Vencor. Accordingly, we have recourse to Tenet on 30 Vencor leases, all of which will expire during 2001. Summerville: The Company's management recorded a complete write-off of a $2,000,000 equity investment in Summerville Senior Living (SSL), an assisted living company. Although this investment represents less than 0.1% of gross real estate investment and is outside the normal investment strategy of the Company, the write-off reduces net income (see Investment Valuation Reserve) and therefore affects reported FFO (see Note 9 for a definition of FFO). No income has been recorded on this equity investment. In addition to the equity investment, the Company has loaned $13,500,000 to SSL with ten leased facilities in California as collateral and owns five facilities that are leased to SSL. Revenue from SSL equals approximately 1.5% of the Company's total revenue. The $1,200,000 letter of credit provided in connection with the five facility leases and the loan (discussed previously) to SSL exceeds revenue due and unpaid from them. Other Troubled Providers: The financial condition of many long-term care providers has been eroded during the past year, in part due to the implementation of the Medicare Prospective Payment System. As a result, certain of our long-term care provider lessees have filed for Chapter XI bankruptcy protection during the past several months. In addition to Vencor discussed above, lessees that have filed for bankruptcy and their respective percentage of annualized revenue are Sun Healthcare, 1.2%; Integrated Health Services, 1.0 %; Genesis Health Ventures, 0.5%; Lenox Healthcare, 0.4%; Mariner Post Acute Network, 0.4 %; and Texas Health Enterprises, 0.2%. The lessees in bankruptcy discussed in the previous paragraph were current on all rents as of September 30, 2000, with the exception of certain pre- petition rents in the amount of $182,000 which we believe will generally be payable once the plans of reorganization are confirmed. However, we cannot assure you that the bankruptcies of those lessees will not have a material adverse effect on our Net Income, our Funds From Operations or the market value of our common stock. Certain of our other operators of long-term care companies have recently experienced working capital shortfalls and reorganizations resulting in lower rental income or the possibility of lower future rents. While the vast majority of these operators remain current, management believes that lower rents from certain properties, higher interest expense and fewer acquisitions will reduce our growth in earnings and FFO over the near term. (4) REAL ESTATE DISPOSITIONS During the nine months ended September 30, 2000, we sold three long-term care facilities, two medical office buildings, one land parcel, and one clinic generating sales proceeds of $28,000,000. (5) SECURED DEBT On September 1, 2000, we completed the final phase of a series of secured debt transactions which in the aggregate resulted in loan proceeds of $83 million on a portfolio of -8- twelve medical office buildings and physician clinics with an investment value of approximately $138 million. The loan features an average coupon of 8.12% (8.43% effective rate after including all costs) with interest payable over the first three years and interest plus principal payments based upon a 30 year amortization thereafter for the remainder of the ten year term. These proceeds were initially invested in reducing the borrowings under the Company's revolving lines of credit and were used to fund a portion of the final payment on the remaining amount of our convertible subordinated notes due November 8, 2000. (6) STOCKHOLDERS' EQUITY The following table provides a summary of the activity for the Stockholders' Equity account for the nine months ended September 30, 2000 (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, 1999 11,745 $275,041 51,421 $51,421 $940,471 $628,151 $(694,827) $1,200,257 Stock Options Exercised 54 54 1,384 1,438 Stock Grants Issued 78 78 1,946 2,024 Stock Repurchase (23) (516) (588) (588) (14,180) (15,284) Cancelled Shares (3) (3) (28) (31) Net Income 97,161 97,161 Dividends Paid - Preferred Shares (18,675) (18,675) Dividends Paid - Common Shares (111,956) (111,956) ----------------------------------------------------------------------------------------------------------------------------------- Balance, September 30, 2000 11,722 $274,525 50,962 $50,962 $929,593 $725,312 $(825,458) $1,154,934 -----------------------------------------------------------------------------------------------------------------------------------
On June 20, 2000 the Board of Directors adopted a Rights Plan and declared a dividend distribution of one Preferred Share Purchase Right on each outstanding share of HCPI common stock. Subject to limited exceptions, the Rights will be exercisable if a person or group acquires 15% or more of HCPI's common stock or announces a tender offer for 15% or more of the common stock. Under certain circumstances, each Right will entitle shareholders to buy one one-hundredth of a share of newly created Series D Junior Participating Preferred Stock of the Company at an exercise price of $95.00. The Board of Directors is entitled to redeem the Rights at $.01 per Right at any time before a person has acquired 15% or more of the outstanding common stock. The Rights Plan was adopted to replace HCPI's previous Rights Plan, which was enacted in 1990 and expired on July 30, 2000. (7) 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 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 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-
For the Three Months Ended For the Nine Months Ended -------------------------------- ------------------------------- Per Share Per Share September 30, 2000 Income Shares Amount Income Shares Amount ----------------------------------------- --------- ---------- ---------- --------- --------- ---------- Basic Earnings Per Common Share: Net Income Applicable to Common Shares $23,276 50,962 $0.46 $78,486 51,105 $1.54 ---------- ---------- Dilutive Options --- 65 --- 35 Diluted Earnings Per Common Share: Net Income Applicable to Common Shares Plus Assumed Conversions $23,276 51,027 $0.46 $78,486 51,140 $1.53 ---------- ----------
For the Three Months Ended For the Nine Months Ended -------------------------------- ------------------------------- Per Share Per Share September 30, 2000 Income Shares Amount Income Shares Amount ----------------------------------------- --------- ---------- ---------- --------- --------- ---------- Basic Earnings Per Common Share: Net Income Applicable to Common Shares $26,064 32,045 $0.81 $56,899 31,590 $1.80 ---------- ---------- Dilutive Options --- 41 --- 82 Interest and Amortization Applicable to 1,599 2,645 4,798 2,645 Convertible Debt Non-managing Member Units 532 725 --- --- Diluted Earnings Per Common Share: Net Income Applicable to Common Shares Plus Assumed Conversions $28,195 35,456 $0.80 $61,697 34,317 $1.80 ---------- ----------
(8) STOCK AND DEBT BUYBACK PROGRAM In December 1999, our Board of Directors approved a stock and debt repurchase program whereby our common and preferred stock, and our convertible subordinated notes and senior debt may be repurchased on the open market. Through September 30, 2000, we had repurchased 63,400 shares of preferred stock for $947,000; 646,686 shares of common stock for $16,308,000 and had repurchased $31,090,000 principal amount of convertible debt. (9) FUNDS FROM OPERATIONS 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 uses historical cost accounting for depreciation could be less informative. The term FFO was designed by the real estate investment trust industry to address this problem. 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, 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. -10- 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, 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, --------------------------------- ---------------------------------- 2000 1999 2000 1999 ------------- -------------- -------------- -------------- Net Income Applicable to Common Shares $23,276 $ 26,064 $ 78,486 $ 56,899 Real Estate Depreciation and Amortization 17,461 10,196 52,054 29,683 Joint Venture Adjustments 593 437 1,732 1,329 Extraordinary Item/Gain on Extinguishment of Debt (65) --- (274) --- Gain on Sale of Real Estate Properties (421) (10,151) (4,134) (10,303) ------------- -------------- -------------- -------------- Funds From Operations $40,844 $ 26,546 $127,864 $ 77,608 ============= ============== ============== ==============
HCPI is required to report information about operations on the basis that it uses internally to measure performances under Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, effective beginning in 1998. (10) COMMITMENTS We have acquired real estate properties and have outstanding commitments to fund the development of facilities on those properties of approximately $3,500,000, and are committed to acquire an additional $13,000,000 of existing healthcare real estate. (11) SUBSEQUENT EVENTS On October 20, 2000, the Board of Directors declared a quarterly dividend of $0.75 per common share payable on November 20, 2000, to shareholders of record on the close of business on November 3, 2000. 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 29, 2000 to shareholders of record as of the close of business on December 15, 2000. On November 8, 2000, we redeemed the remaining $68,910,000 principal amount of convertible subordinated notes. Pursuant to the Company's 364-Day Revolving Credit Agreement, the Company received commitments from certain members of its bank group to extend the original $103,000,000 revolving line of credit until November 2, 2001. The remaining $207,000,000 of the revolving lines of credit will mature in November 2003. Borrowings under the $310,000,000 line of credit at September 30, 2000 totaled $132,000,000. -11- (12) NEW PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Statement 133 is effective for fiscal years beginning after June 15, 2000, although earlier implementation is allowed. We have not yet quantified the impact of adopting Statement 133 on our financial statements and have not determined the timing or method of our adoption of Statement 133. However, the effect is not expected to be material. -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. On a more limited basis, we have provided mortgage financing on health care facilities. As of September 30, 2000, our portfolio of properties, including equity investments, consisted of 421 facilities located in 43 states. These facilities are comprised of 173 long- term care facilities, 92 congregate care and assisted living facilities, 45 physician group practice clinics, 80 medical office buildings, 22 acute care hospitals, and nine freestanding rehabilitation facilities. The gross investment in the properties, which includes joint venture acquisitions, was approximately $2.6 billion at September 30, 2000. We have commitments to purchase and construct health care facilities totaling approximately $16.5 million which are expected to fund during the next six months. The Company expects 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 pre-closing conditions, competitive financing sources, final negotiation differences or operator's ability to obtain required internal or governmental approvals. RESULTS OF OPERATIONS Net Income applicable to common shares for the three and nine months ended September 30, 2000 totaled $23,276,000 and $78,486,000 or $0.46 and $1.54 of basic earnings per share on revenue of $82,281,000 and $246,629,000, respectively. This compares to $26,064,000 and $56,899,000 or $0.81 and $1.80 of basic earnings per share on revenue of $52,218,000 and $153,651,000 for the same period in 1999. Net Income applicable to common shares for the three months ended September 30, 2000 and September 30, 1999 included a $421,000 or $0.01 per basic share and $10,151,000 or $0.32 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, 2000 and September 30, 1999 included a $4,134,000 or $0.08 per basic share and $10,303,000 or $0.33 per basic share gain on the sale of real estate properties, respectively. In addition, Net Income applicable to common shares for the three and nine months ended September 30, 2000 includes a $2,000,000 or $0.04 per basic share impact of the Summerville equity investment write-off (see Note 3). Rental Income, Triple Net Properties for the three and nine months ended September 30, 2000 increased $24,508,000 and $73,620,000 to $56,790,000 and $169,906,000, respectively, as compared to the same period in the prior year. Rental Income, Managed Properties for the three and nine months ended September 30, 2000 increased by $6,587,000 and $21,343,000 to $19,887,000 and $59,696,000, respectively as compared to the same period in the prior year with a related increase in Operating Expenses, Managed Properties of $2,995,000 and $8,619,000 to $7,201,000 and $20,653,000, respectively. These increases were generated primarily from 1999 acquisition activity, most of which is attributable to the acquisition of American Health Properties' portfolio. Interest and Other Income for the three and nine months ended September 30, 2000 decreased $1,032,000 and $1,985,000 to $5,604,000 and $17,027,000, respectively, primarily from -13- the divestiture in the third quarter of 1999 of certain partnership interests from which we were receiving income during the first six months of 1999. Interest Expense for the three and nine months ended September 30, 2000 increased $8,077,000 and $24,697,000, respectively. The increase is primarily the result of an increase in borrowings used to fund the acquisitions made during 1999 and interest related to the debt assumed in the merger with American Health Properties. The increase in Depreciation for the three and nine months ended September 30, 2000 of $7,265,000 and $22,371,000 to $17,461,000 and $52,054,000, respectively, is the direct result of the new investments made during 1999 including the merger with American Health Properties. We believe that FFO is an important supplemental measure of operating performance. FFO for the three months ended September 30, 2000 increased $14,298,000 to $40,844,000 as compared to the same period in the prior year. The increase is attributable to increases in Rental Income on the Triple Net and Managed Properties as offset by increases in Interest Expense, Operating Expenses Managed Properties and the Summerville equity investment write-off which are discussed above. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles, is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to Net Income. FFO, as we define it, may not be comparable to similarly entitled items reported by other real estate investment trusts that do not use the NAREIT definition. LIQUIDITY AND CAPITAL RESOURCES We have financed investments through the issuance of common and preferred stock, issuance of long-term debt, assumption of mortgage debt, use of short- term bank lines and use of internally generated cash flows. Facilities under construction are generally financed by means of cash on hand or short-term borrowings under our existing bank lines. Management believes that our liquidity and sources of capital are adequate to finance our operations. Future investments in additional facilities will be dependent on availability of cost effective sources of capital. Secured Debt Financing On September 1, 2000, we completed the final phase of a secured debt transaction which in the aggregate resulted in loan proceeds of $83 million on a portfolio of twelve medical office buildings and physician clinics with an investment value of approximately $138 million. The transaction was closed in two approximately equal installments. The loan features an average coupon of 8.12% (8.43% effective rate after including all costs) with interest payable over the first three years and interest plus principal payments based upon a 30 year amortization thereafter for the remainder of the ten year term. These proceeds were initially invested in reducing the borrowings under the Company's revolving lines of credit and were used to fund a portion of the final payment on the remaining $68,910,000 of our convertible subordinated notes due November 8, 2000. -14- Medium-Term Note Financings The following table summarizes the Medium-Term Note financing activities since January 1999: Amount Date Maturity Coupon Rate Issued/(Redeemed) ---------------- ------------------ ------------------ ------------------ February 1999 5 years 6.92% 25,000,000 April 1999 5 years 7.00% - 7.48% 37,000,000 May 1999 --- 10.55%-10.57% (10,000,000) November 1999 --- 8.81% (5,000,000) February 2000 --- 8.87% (10,000,000) February 2000 4 years 9.00% 25,000,000 Other Senior Debt On November 4, 1999, in connection with the merger with American Health Properties we assumed two series of outstanding senior notes of American Health Properties, consisting of $100,000,000 principal amount of 7.05% senior notes due 2002 and $120,000,000 principal amount of 7.50% senior notes (8.16% effective rate) due 2007. Additionally, we assumed $56,000,000 of American Health Properties' mortgage debt with interest rates ranging from 7.00% to 8.52% due 2003 to 2011. Equity Offerings In May 1999, we completed an equity offering of 1,000,000 shares of our common stock which raised $31,400,000 of equity with net proceeds of $29,600,000. We used the net proceeds from the equity offering to pay down or pay off short-term borrowings under our revolving lines of credit. We invested any excess funds in short-term investments until they were needed for acquisitions or development. On November 4, 1999, in connection with the merger with American Health Properties we issued 19,430,115 shares of our common stock and 4,000,000 depositary shares of 8.60% series C cumulative redeemable preferred stock. (See Note 2 to the Consolidated Financial Statements.) In January and February 2000, we registered 89,452 and 593,247 shares of common stock for issuance, from time to time, to the holders of non-managing member units in two consolidated subsidiaries, HCPI/Indiana, LLC and HCPI/Utah, LLC, respectively. The non-managing member units are convertible from time to time by the non-managing members' into shares of our common stock, or at our option into the right to receive cash. At September 30, 2000, stockholders' equity totaled $1,154,934,000 and the debt to equity ratio was 1.00 to 1.00. For the nine months ended September 30, 2000, FFO (before interest expense) covered Interest Expense at a ratio of 3.00 to 1.00. -15- Stock and Debt Buyback Program In December 1999, our Board of Directors approved a stock and debt repurchase program. Through September 30, 2000, we had repurchased 63,400 shares of preferred stock for $947,000, 646,686 shares of common stock for $16,308,000 and had repurchased $31,090,000 principal amount of convertible debt. Available Financing Sources As of September 30, 2000, we had $372,000,000 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. We have two revolving lines of credit, one for $103,000,000 that expires on November 2, 2000 and one for $207,000,000 that expires on November 3, 2003. The Company received commitments from its bank group to renew the 364-day portion of the revolving line of credit ($103,000,000) until November 2, 2001. Availability on these lines of credit is reduced by outstanding letters of credit aggregating $3,500,000. As of September 30, 2000, we had $174,500,000 available on these lines of credit Since 1986, the debt rating agencies have rated our Senior Notes and Convertible Subordinated Notes investment grade. Current ratings are as follows: Moody's Standard & Poor's Fitch ---------------- ---------------------- ---------------- Senior Notes Baa2 BBB+ BBB+ Convertible Subordinated Notes Baa3 BBB BBB Since our inception in May 1985, we have recorded approximately $932,853,000 in cumulative FFO. Of this amount, we have distributed a total of $779,229,000 to stockholders as dividends on common stock. We have retained the balance of $153,624,000 and used it as an additional source of capital. On August 18, 2000, we paid a dividend of $0.74 per common share or $37,712,000 in the aggregate. Total dividends paid on common stock during the nine months ended September 30, 2000, as a percentage of FFO, was 84%. During the fourth quarter of 2000, we declared a dividend of $0.75 per common share or approximately $38,222,000 in the aggregate to be paid November 20, 2000. Planned Asset Sales Through the nine months ended September 30, 2000, the Company has realized $28,000,000 from the sale of facilities that generally have been utilized to pay down the revolving line of credit and fund facilities under development. The sale of these properties has resulted in a net book gain to the Company of $4,134,000 and a low 8.4% cost of capital. Three of the sales included vacant land or buildings. The Company expects to sell approximately $90,000,000 of properties, primarily assisted living facilities and medical office buildings, in the fourth quarter of -16- 2000 and the first quarter of 2001 with an expected cost of capital of approximately 10.5%. Due to the complexities of real estate transactions, it is not possible to predict with a high degree of accuracy when, or if, such transactions will be consummated. Letters of Credit At November 10, 2000, we held approximately $62,000,000 in depositary accounts and irrevocable letters of credit from commercial banks to secure the obligations of many lessees' lease and borrowers' loan obligations. We may draw upon the letters of credit or depositary accounts if 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, 2000, we have 8 facilities that are subject to lease expiration and mortgage maturities during the remainder of 2000. These facilities currently represent approximately 0.3% of annualized revenue. For the year ending December 31, 2001, we have 40 facilities that are subject to lease expiration and mortgage maturities. These facilities currently represent approximately 5.8% of annualized revenue. INTERNAL GROWTH For the nine months ended September 30, 2000, we had internal same facility rent growth, net of rent decreases, of approximately $2,018,000 or 2.3% of rents in our Triple Net portfolio. TRENDS WITH HEALTH CARE SERVICE PROVIDERS Recent developments in the long-term care industry, which represents 26% of the Company's portfolio, have been fair to good. Many operators are showing improvement, which is a positive change from the generally poor news over the past two years. The industry continues to experience higher wage costs and very high patient liability costs, particularly in Florida. (Eleven of the Company's 173 long-term care facilities are located in Florida.) Offsetting these trends are revenue increases from Medicare legislation and a cessation of further Medicare revenue reductions. State Medicaid increases in several states have been above general inflation levels with some states better recognizing the needs of the long-term care industry. Several long-term care operators have recently reported increased facility profitability, while others remain unchanged to marginally lower. The acute care hospital industry is currently performing very well. Hospital operators have become very cost conscious in recent years due to repeated annual decreases in per diems paid by Medicare and managed care. Operators are currently reporting pricing improvements in managed care contracts. The Company's 22 acute care hospitals, at 27% of annualized revenue, are performing at or near record levels of profitability. The assisted living industry, 16% of the Company's portfolio, has experienced overbuilding in some communities and slower fill-up rates than were originally forecast. This has created a need for more capital to sustain operators during the fill-up period. A number of -17- operators have received additional capital in the past several months. This trend is likely to continue through 2001. FUTURE EARNINGS GROWTH Management expects that the combination of lower rents from certain properties, high capital costs and the lack of new acquisitions will lower the Company's growth in earnings and FFO over the near term. If market conditions improve enough to allow the Company to access the capital markets efficiently the Company anticipates that it would be able to once again deploy the proceeds in positive spread investments, and achieve a growth rate comparable to historical levels. SUPPLEMENTARY PORTFOLIO INFORMATION
PORTFOLIO BY TYPE # of # of # of Investment Investment Properties Investment/(1)/, /(3)/ Beds/Units Sq. Ft. Per Bed/Unit /(2)/ Per Sq. Ft. /(2)/ ----------- ------------ ----------- ------------ ------------------- ---------------- Acute Care Hospitals 22 $ 658,959 3,082 3,204,000 $ 214 $ 206 Long-Term Care Facilities 173 623,337 21,026 6,263,000 30 100 Medical Office Buildings 80 613,162 --- 4,535,000 --- 135 Congregate Care/ Assisted Living 92 457,780 7,316 5,146,000 65 92 Facilities Physician Group Practice 45 172,697 --- 1,219,000 --- 143 Clinics Rehabilitation Hospitals 9 112,593 685 708,000 164 159 ----------- ------------ ----------- ----------- Grand Total 421 $2,638,528 32,109 21,075,000 =========== ============ =========== ========== Managed Portfolio (5) 92 $ 565,488 3,926,000 $ 144 =========== ============ ========== =========
Return on Revenue /(4)/ Percentage Investment /(2)/ -------------- -------------- ------------- Acute Care Hospitals $ 81,213 27.3% 12.3% Long-Term Care Facilities 77,549 26.0% 12.4% Medical Office Buildings 58,885 19.8% 9.6% Congregate Care/ Assisted Living 46,516 15.6% 10.2% Facilities Physician Group Practice 17,703 6.0% 10.3% Clinics Rehabilitation Hospitals 15,763 5.3% 14.0% ----------- -------------- ------------- Grand Total $297,629 100.0% 11.3% =========== ============== ============= Managed Portfolio /(4)/, /(5)/ $ 51,930 17.4% 9.2% =========== ============== =============
At September 30, 2000, the Company had approximately 93 health care operators and over 650 leases in multi-tenant buildings. (1) Includes joint venture investments and incorporates all partners' assets. (2) Investment per bed/unit/square foot and return on investment, excludes projects under construction. (3) Includes $1,613 of construction in progress and related land purchases. (4) Annualized rental and interest income on total investments above. Includes net operating income (NOI) on managed portfolio. (5) Includes managed Medical Office Buildings and Physician Group Practice Clinics included in the preceding totals. -18- PORTFOLIO BY STATE Revenue /(1)/,/(2)/ Percentage ------------------ ---------------- California $ 56,312 18.9% Texas 36,201 12.2% Florida 24,572 8.3% Indiana 23,005 7.7% Utah 16,025 5.4% Other (38 States) 141,514 47.5% ------------------ ---------------- Grand Total (43 States) $297,629 100.0% ================== ================ RENEWAL INFORMATION Lease Expirations and Year Mortgage Maturities -------------------------- ----------------------------------- Revenue /(1)/, /(2)/ Percentage -------------- -------------- 2000 $ 824 0.3% 2001 17,192 5.8% 2002 16,487 5.5% 2003 9,624 3.2% 2004 68,595 23.0% Thereafter 184,907 62.2% -------------- -------------- Grand Total $297,629 100.0% ============== ============== FACILITY RELATED INFORMATION Prior Current Quarter Quarter ----------- ---------- Selected Occupancy Data: Long-Term Care Facilities /(3)/ 80% 80% Congregate Care/Assisted Living Facilities /(3)/ 82% 81% Acute Care Hospitals 52% 51% Rehabilitation Hospitals 77% 76% Managed Multi-tenant Medical Office Buildings 93% 90% Cash Flow Coverage Before Management Fees 2.5 2.4 Cash Flow Coverage After Management Fees 2.2 2.1 For the Nine Months Ended September 30, 2000: "Same Store" Triple Net Facility/Rent Growth $2,018 Dollars Expended on Leasing Commissions, Tenant Improvements and Capital Improvements $2,251 (1) Annualized rental and interest income on total investments above. Includes net operating income on managed medical office buildings. (2) 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 options and/or purchase options, and mortgage maturities. (3) Excludes facilities under construction and newly completed facilities under start up. -19- OTHER KEY INFORMATION: LEASE UP STATISTICS ON NEW ASSISTED LIVING FACILITIES: Average Months Percent of Occupancy Facilities In Operation Revenue Revenues ----------------- ---------------- ---------------- ------------- ----------- 0% - 50% 7 13.9 $2,727 0.9% 50% - 70% 5 15.3 $2,981 1.0% 70% - 90% 7 17.7 $3,944 1.3% ----------- 3.2% =========== YEAR 2000 ISSUE The Year 2000 issue was the result of widely used computer programs that identify the year by two digits, rather than by four digits. It was believed that continued use of these programs may result in widespread computer-generated malfunctions and miscalculations beginning in the year 2000, when the digits "00" are interpreted as "1900." It was believed that those miscalculations could cause disruption of operations including the temporary inability to process transactions such as invoices for payment. Those computer programs that identify the year based on four digits are considered "Year 2000 compliant." The statements in the following section include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998. Preparing for Year 2000 had been a high priority for us. Internal and external resources were engaged to achieve Year 2000 readiness. We successfully completed our Year 2000 preparedness plans including the upgrade and replacement of all systems, as well as full-scale testing and implementation of those systems. Our contingency plans were also thoroughly tested. The cost of the foregoing was not material. To date, we have not seen any adverse impact or disruption in cash flows as a result of the Year 2000 transition on any of our systems or those of our lessees or vendors. CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS Statements in this Annual 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: -20- (a) Legislative, regulatory, or other changes in the healthcare industry at the local, state or federal level which increase the costs of or otherwise affect the operations of 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 which may result in operators experiencing financial difficulties, seeking rent concessions or filing for bankruptcies; (c) Competition for lessees and mortgagors, including with respect to new leases and mortgages and the renewal or rollover of existing leases which make it difficult to continue to expand our portfolio; (d) Competition for the acquisition and financing of healthcare facilities which make it difficult to continue to expand our portfolio; (e) 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; (f) Changes in national or regional economic conditions, including changes in interest rates and the availability and cost of capital for us; (g) The expected benefits from the merger with American Health Properties, such as cost savings, operating efficiencies and other synergies may not be realized due to increased demands on our management resources following the merger; and (h) Deteriorating tenant operations for a variety of reasons. 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 the following discussion and table presented below to address the risks associated with potential changes in our interest rate environment. We provide mortgage loans to operators of healthcare facilities in the normal course of business. All of the mortgage loans receivable have fixed interest rates or interest rates with periodic fixed increases. Therefore, the mortgage loans receivable are all considered to be fixed rate loans, and the current interest rate (the lowest rate) is used in the computation of market risk provided in the table below if material. We generally borrow on our short-term bank lines of credit to complete acquisition transactions. We then repay borrowings using proceeds from subsequent long-term debt and equity offerings. We may also 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 and Convertible Subordinated Notes are at fixed rates. The variable rate loans are at interest rates below the current prime rate of 9.5%, 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 2000 would increase by approximately $1,377,000. Approximately 10% of the -21- increase in interest expense related to the bank lines of credit, or $135,000, would be capitalized into construction projects. The principal amount and the average interest rates for the mortgage loans receivable and debt categorized by the final maturity dates is presented in the table below. Certain of the mortgage loans receivable and certain of the debt securities, excluding the convertible debentures, require periodic principal payments prior to the final maturity date. The fair value estimates for the mortgage loans receivable are based on the estimates of management and on rates currently prevailing for comparable loans. The fair market value estimates for debt securities are based on discounting future cash flows utilizing current rates offered to us for debt of the same type and remaining maturity.
Maturity ------------------------------------------------------------------------------------ Fair 2000 2001 2002 2003 2004 Thereafter Total Value ------------------------------------------------------------------------------------ ASSETS Mortgage Loans Receivable $12,846 $ 980 $146,114 $159,940 $160,006 Weighted Average Interest Rate 13.52% 9.50% 10.29% 10.55% LIABILITIES Variable Rate Debt: Bank Notes Payable 132,000 132,000 132,000 Weighted Average Interest Rate 7.54% 7.54% Mortgage Notes Payable 962 4,730 5,692 4,897 Weighted Average Interest Rate 5.87% 5.75% 5.77% Fixed Rate Debt: Senior Notes Payable 13,000 117,000 31,000 92,000 524,335 777,335 747,418 Weighted Average Interest Rate 7.88% 7.25% 7.09% 7.78% 7.18% 7.27% Convertible Subordinated 68,910 68,910 68,910 Notes Payable Weighted Average Interest Rate 6.00% 6.00% Mortgage Notes Payable 157 9,085 10,181 153,198 172,621 157,080 Weighted Average Interest Rate 9.00% 8.52% 7.59% 8.07% 8.07%
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 12 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. -22- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits: 2.1 Agreement and Plan of Merger, dated as of August 4, 1999, between HCPI and American Health Properties, Inc. (incorporated herein by reference to exhibit 2.1 to HCPI's current report on form 8-K dated August 4, 1999). 3.1 Articles of Restatement of HCPI (incorporated herein by reference to exhibit 3.1 to HCPI's annual report on form 10- K for the year ended December 31, 1994). 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). 3.3 Articles supplementary establishing the terms of the 7 7/8% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to exhibit 2.3 to HCPI's registration statement on form 8-A filed on September 25, 1997). 3.4 Articles supplementary establishing and fixing the rights and preferences of the 8.70% Series B Cumulative Preferred Stock (incorporated herein by reference to exhibit 3.3 to HCPI's registration statement on form 8-A dated September 2, 1998). 3.5 Articles supplementary establishing and fixing the rights and preferences of the 8.60% Series C Cumulative Redeemable Preferred Stock (incorporated herein by reference to exhibit 2.1 to HCPI's current report on form 8-K dated August 4, 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 B Medium Term Notes and the Senior Notes due 2006 (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). -23- 4.8 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. 4.9 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 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. 4.10 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) dated as of November 4, 1999 by and among HCPI, ChaseMellon Shareholder Services, L.L.C. and the holders from time to time of the Depositary Shares described therein (incorporated herein by reference to exhibit 4 to HCPI's registration statement on form 8-A filed on November 4, 1999). 4.11 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). 4.12 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). 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 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).* -24- 10.5 Employment Agreement dated April 28, 1988 between HCPI and Kenneth B. Roath (incorporated by reference to exhibit 10.27 to HCPI's annual report on form 10-K for the year ended December 31, 1988).* 10.6 First Amendment to Employment Agreement dated February 1, 1990 between HCPI and Kenneth B. Roath (incorporated by reference to Appendix B of HCPI's annual report on form 10-K for the year ended December 31, 1990).* 10.7 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).* 10.8 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).* 10.9 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). 10.12 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). 10.13 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). 10.14 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). 10.15 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).* 10.16 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). 10.17 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).* 10.18 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). 10.19 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 -25- Manager (incorporated by reference to exhibit 10.4 to HCPI's quarterly report on form 10-Q for the period ended September 30, 1999). 10.20 364-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 reference to exhibit 10.5 to HCPI's quarterly report on form 10-Q for the period ended September 30, 1999). 10.21 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. 10.22 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. 27.1 Financial Data Schedule. * Management Contract or Compensatory Plan or Arrangement. b) Reports on Form 8-K: None -26- 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 10, 2000 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) -27-