-----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, NhrRvROaOYqoGfWyfo/h437H5sDEniOE7k17tddTBEMT+C+WLjJ2t36fZMwBeh0/ 0RkfTntOSJgfKCDJJ92IMQ== /in/edgar/work/0001017062-00-002273/0001017062-00-002273.txt : 20001114 0001017062-00-002273.hdr.sgml : 20001114 ACCESSION NUMBER: 0001017062-00-002273 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 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: 761452 BUSINESS ADDRESS: STREET 1: 4675 MACARTHUR COURT 9TH FL 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 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- EX-10.21 2 0002.txt CROSS-COLLATERALIZATION AGREEMENT 7/20/2000 POOL II Tax Account Number: _________________ EXHIBIT 10.21 PREPARED BY, REQUESTED BY AND WHEN RECORDED, RETURN TO: Mitchell Kaplan, Esq. Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York 10103 CROSS-COLLATERALIZATION ,CROSS-CONTRIBUTION ------------------------------------------- AND CROSS-DEFAULT AGREEMENT --------------------------- THIS CROSS-COLLATERALIZATION, CROSS-CONTRIBUTION AND CROSS-DEFAULT AGREEMENT (this "Agreement"), made as of July __, 2000, by HCP MEDICAL OFFICE BUILDINGS --------- II, LLC, a Delaware limited liability company (including its successors and/or assigns, the "CMT Borrower") having an address at 4675 MacArthur Court, Suite -------- 900, Newport Beach, California 92260, and TEXAS HCP MEDICAL OFFICE BUILDINGS, L.P., a Delaware limited partnership (including its successors and/or assigns, the "Texas Borrower"; the CMT Borrower and the Texas Borrower shall each be a "Borrower" and collectively, the "Borrower" or the "Borrowers"), having an address at 4675 MacArthur Court, Suite 900, Newport Beach, California 92660, for the benefit of First Union National Bank, a national banking association and its successors and assigns ("Lender"), having an address at One First Union Center ------ DC-6, Charlotte, North Carolina 28288-0166. W I T N E S S E T H: - - - - - - - - - - WHEREAS, concurrently with the execution of this Agreement, CMT Borrower has executed and delivered to Lender a Promissory Note in the original principal amount EIGHT MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000.00) (the "First Note"), in evidence of a loan in such amount (the "First Loan"); ---------- ---------- WHEREAS, concurrently with the execution of this Agreement, CMT Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of SIX MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($6,500,000.00) (the "Second Note"), in evidence of a loan in such amount (the ----------- "Second Loan"); - ------------ WHEREAS, concurrently with the execution of this Agreement, CMT Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of THREE MILLION NINE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,900,000.00) (the "Third ----- Note"), in evidence of a loan in such amount (the "Third Loan"); - ----- ---------- WHEREAS, concurrently with the execution of this Agreement, CMT Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00) (the "Fourth Note"), in evidence of a loan in such amount (the "Fourth Loan"), - ------------ ----------- WHEREAS, concurrently with the execution of this Agreement, Texas Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of TEN MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($10,600,000.00) (the "Fifth Note"), in evidence of a loan in such amount (the ---------- "Fifth Loan"); - ----------- WHEREAS, concurrently with the execution of this Agreement, Texas Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($4,500,000.00) (the "Sixth Note"), in evidence of a loan in such amount (the ---------- "Sixth Loan"), (the First Loan, the Second Loan, the Third Loan, the Fourth - ----------- Loan, the Fifth Loan and the Sixth Loan are collectively, the "Loans" and each individually a "Loan"); ---- WHEREAS, the First Loan is secured by (i) a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "First Mortgage"), -------------- encumbering the real property located in Minneapolis, Minnesota, described on Exhibit A-1 attached hereto and made a part hereof and recorded in the real - ----------- property records of Hennepin County, together with all improvements thereon and certain other property described in the First Mortgage (collectively, the "First ----- Property"), and (ii) certain other documents and instruments executed in - -------- connection therewith (the First Note, the First Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "First Loan Documents"); -------------------- WHEREAS, the Second Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Second Mortgage"), --------------- encumbering the real property located in Murfreesboro, Tennessee, described on Exhibit A-2 attached hereto and made a part hereof and recorded in the real - ----------- property records of Rutherford County, together with all improvements thereon and certain other property described in the Second Mortgage (collectively, the "Second Property"), and (ii) certain other documents and instruments executed in -------------- connection therewith (the Second Note, the Second Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Second Loan Documents"); --------------------- WHEREAS, the Third Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Third Mortgage"), -------------- encumbering the real property located in San Diego, California, described on Exhibit A-3 attached hereto and made a part hereof and recorded in the real - ----------- property records of San Diego County, together with all improvements thereon and certain other property described in the Third Mortgage (collectively, 2 the "Third Property"), and (ii) certain other documents and instruments executed -------------- in connection therewith (the Third Note, the Third Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Third Loan Documents"); -------------------- WHEREAS, the Fourth Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Fourth Mortgage"), --------------- encumbering the real property located in San Diego, California, described on Exhibit A-4 attached hereto and made a part hereof and recorded in the real - ----------- property records of San Diego County, together with all improvements thereon and certain other property described in the Fourth Mortgage (collectively, the "Fourth Property"), and (ii) certain other documents and instruments executed in - ---------------- connection therewith (the Fourth Note, the Fourth Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Fourth Loan Documents"); --------------------- WHEREAS, the Fifth Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Fifth Mortgage"), -------------- encumbering the real property located in Houston, Texas, described on Exhibit A- --------- 5 attached hereto and made a part hereof and recorded in the real property - - records of Harris County, together with all improvements thereon and certain other property described in the Fifth Mortgage (collectively, the "Fifth ----- Property"), and (ii) certain other documents and instruments executed in - -------- connection therewith (the Fifth Note, the Fifth Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Fifth Loan Documents"); -------------------- WHEREAS, the Sixth Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Sixth Mortgage"), -------------- encumbering the real property located in Plano, Texas, described on Exhibit A-6 ----------- attached hereto and made a part hereof and recorded in the real property records of Collin County, together with all improvements thereon and certain other property described in the Sixth Mortgage (collectively, the "Sixth Property"; -------------- the First Property, the Second Property, the Third Property, the Fourth Property, the Fifth Property and the Sixth Property, collectively, the "Properties" and each individually, a "Property"), and (ii) certain other - ----------- -------- documents and instruments executed in connection therewith (the Sixth Note, the Sixth Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Sixth Loan ---------- Documents"); the First Mortgage, the Second Mortgage, the Third Mortgage, the - --------- Fourth Mortgage, the Fifth Mortgage and the Sixth Mortgage are, collectively, the "Mortgages" and each individually, a "Mortgage"; the First Loan Documents, --------- -------- the Second Loan Documents, the Third Loan Documents, the Fourth Loan Documents, the Fifth Loan Documents and the Sixth Loan Documents are, collectively, the "Loan Documents"; provided, however, that none of the six environmental - --------------- indemnity agreements (collectively, the "Environmental Indemnities") executed as of even date herewith by Borrower and Health Care Property Investors, Inc., a Maryland corporation ("Indemnitor") in connection with the respective Loans nor any of the six indemnity and guaranty agreements executed as of even date herewith by Indemnitor in 3 connection with the respective Loans (collectively, the "Indemnities") shall constitute a First Loan Document, a Second Loan Document, a Third Loan Document, a Fourth Loan Document, a Fifth Loan Document, or a Sixth Loan Document and neither this Agreement, any Mortgage, nor any other Loan Document shall secure the obligations under any Environmental Indemnity or any Indemnity; and WHEREAS, Lender has required that this Agreement be executed and delivered as a condition to making each of the Loans. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency which are hereby acknowledged, the party hereto, in its respective capacities set forth herein, hereby agrees as follows: 1. Cross-Default and Cross-Collateralization. The First Loan Documents, ----------------------------------------- the Second Loan Documents, the Third Loan Documents, the Fourth Loan Documents, the Fifth Loan Documents and the Sixth Loan Documents are hereby amended and modified (such amendment and modification, a "Cross-Collateralization") as ----------------------- follows: a) an Event of Default under the First Note, the First Mortgage or any of the other First Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); b) an Event of Default under the Second Note, the Second Mortgage or any of the other Second Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Third Note, the Third Mortgage and the other Third Loan Documents, the Fourth Note, Fourth Mortgage, and the other Fourth Loan Documents, (as the term "Event of Default" is defined in each of the foregoing); c) an Event of Default under the Third Note, the Third Mortgage or any of the other Third Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); d) an Event of Default under the Fourth Note, the Fourth Mortgage or any of the other Fourth Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan 4 Documents, the Third Note, the Third Mortgage, and the other Third Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); e) an Event of Default under the Fifth Note, the Fifth Mortgage or any of the other Fifth Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage and the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); f) an Event of Default under the Sixth Note, the Sixth Mortgage or any of the other Sixth Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, and the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage and the other Fifth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); g) the First Mortgage and all of the other First Loan Documents securing or guaranteeing the First Note and the obligations of CMT Borrower under the other First Loan Documents (collectively, the "First Borrower Security ----------------------- Documents") also shall secure and guaranty the Second Note, the Second Mortgage, - --------- the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; h) the Second Mortgage and all of the other Second Loan Documents securing or guaranteeing the Second Note and the obligations of CMT Borrower under the other Second Loan Documents (collectively, the "Second Borrower --------------- Security Documents") also shall secure and guaranty the First Note, the First - ------------------ Mortgage, the other First Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; i) the Third Mortgage and all of the other Third Loan Documents securing or guaranteeing the Third Note and the obligations of CMT Borrower under the other Third Loan Documents (collectively, the "Third Borrower Security ----------------------- Documents") also shall secure and guaranty the First Note, the First Mortgage, - --------- the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Fourth Note, the Fourth Mortgage, 5 and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; j) the Fourth Mortgage and all of the other Fourth Loan Documents securing or guaranteeing the Fourth Note and the obligations of CMT Borrower under the other Fourth Loan Documents (collectively, the "Fourth Borrower --------------- Security Documents") also shall secure and guaranty the First Note, the First - ------------------ Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, and the other Third Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; k) the Fifth Mortgage and all of the other Fifth Loan Documents securing or guaranteeing the Fifth Note and the obligations of Texas Borrower under the other Fifth Loan Documents (collectively, the "Fifth Borrower Security ----------------------- Documents") also shall secure and guaranty, the First Note, the First Mortgage, - --------- the other First Loan Documents, Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; l) the Sixth Mortgage and all of the other Sixth Loan Documents securing or guaranteeing the Sixth Note and the obligations of Texas Borrower under the other Sixth Loan Documents (collectively, the "Sixth Borrower Security ----------------------- Documents") also shall secure and guaranty the First Note, the First Mortgage, - --------- the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage and the other Fifth Loan Documents; m) the aggregate principal amount secured by each of the First Mortgage and the other First Loan Documents, the Second Mortgage and the other Second Loan Documents, the Third Mortgage and the other Third Loan Documents, the Fourth Mortgage and the other Fourth Loan Documents, the Fifth Mortgage and the other Fifth Loan Documents, the Sixth Mortgage and the other Sixth Loan Documents shall be FORTY TWO MILLLION DOLLARS ($42,000,000.00); and n) the Borrower acknowledges and agrees that the Mortgages evidence commercial loans and that a trustee's sale with respect to one or more of the Mortgages shall not preclude judicial or non-judicial foreclosure of any of the remaining Mortgages. 2. Intentionally Deleted. ---------------------- 3. Documents to be Delivered to Lender. In connection with any Cross- ----------------------------------- Collateralization, the Borrower shall cause to be delivered to Lender: a) endorsements to the title insurance policies issued at the closings of the Loans insuring the liens of the First Mortgage, the Second Mortgage, the Third Mortgage, the 6 Fourth Mortgage, the Fifth Mortgage and the Sixth Mortgage which endorsements shall be in form and substance satisfactory to Lender and shall (i) provide for "tie-in" coverage under such policies up to the aggregate outstanding principal amount of the First Note, the Second Note, the Third Note, the Fourth Note, the Fifth Note and the Sixth Note; and (ii) include "First Loss" and "Last Dollar" endorsements, if available for title insurance policies issued in the states where the properties are located; and b) such other documents and instruments as Lender may require. 5. Costs and Expenses. Borrower shall be responsible for and shall pay ------------------ all reasonable costs and expenses incurred by Lender in connection with a Cross- Collateralization, including, without limitation, reasonably attorneys' fees and expenses, title insurance search fees and premiums, filing and recording fees and taxes, if any. 6. Default. Any default by Borrower in fulfilling any of its obligations ------- hereunder shall, if such default is a monetary default, after ten calendar days, and, for any other default hereunder, after fifteen calendar days from receipt of written notice from Lender to Borrower of such default, constitute an Event of Default under each of the First Loan Documents, the Second Loan Documents, the Third Loan Documents, the Fourth Loan Documents, the Fifth Loan Documents and the Sixth Loan Documents (as the term "Event of Default" is defined therein). The foregoing notice and cure periods shall not affect, in any manner, Borrower's agreement that an Event of Default under any Loan Document shall be an immediate Event of Default (at Lender's option) under all other Loan Documents and no additional notice or cure periods are provided herein. 7. Further Assurances. Borrower agrees to execute and deliver any ------------------ further documents and instruments as Lender may require to effectuate the Cross- Collateralization contemplated hereby. Borrower further acknowledges and agrees that Lender may unilaterally terminate this Agreement, sever this Agreement in order to cover any one or more of the Properties or amend this Agreement at any time and from time to time to remove any of the Properties from the Cross Default and Cross-Collateralization provisions of this Agreement and Borrower hereby agrees to cooperate with Lender and execute any documents reasonably requested by Lender in connection therewith, to pay the reasonable expenses incurred by Lender in connection therewith and, in connection therewith to transfer one or more of the Properties to a new entity that will assume the applicable Loan Documents, such entity to be a single purpose, bankruptcy remote entity reasonably acceptable to Lender with the same beneficial ownership as Borrower. 8. Release of Property. Borrower may not obtain the release of any ------------------- individual Property from the lien of any of the Mortgages in connection with any refinancing of the indebtedness secured thereby or otherwise except: (i) pursuant to a defeasance in strict accordance with the terms of each of the Loan Documents for each respective Loan, which Loan Documents require, inter alia, that Borrower deposit with Lender the Additional Defeasance Deposit (as defined in the respective Loan Documents); (ii) in connection with a prepayment in full permitted under the respective Loan Documents, which prepayment is caused by a 7 condemnation or casualty, and provided that no Event of Default has occurred and is continuing with any of the Loan Documents; or (iii) upon a refinancing of a Loan within three months prior to the Maturity Date of such Loan and upon such conditions as are set forth in the respective Loan Documents including, without limitation, to the extent required therein, the requirement of an additional deposit to be delivered by Borrower to Lender as additional collateral and security for the remaining Loans then subject to this Agreement. Notwithstanding the terms of clause (iii) of this Section 8 or the terms of any of the Loan Documents to the contrary, Borrower shall not obtain the release of any of the Properties from the lien of the Mortgages or from the terms of this Agreement within three months prior to the Maturity Date, if, after such release, the Second Loan would remain subject to the lien of the Second Mortgage and the terms of this Agreement and there would then be fewer than three (3) other Loans (in addition to the Second Loan) subject to this Agreement. 9. Assumption of a Loan or the Loans. Subject to the terms and --------------------------------- conditions of the respective Loan Documents as supplemented, but not limited, hereby, Lender shall consent to one or more Sales (as defined in the Loan Documents) of a particular Property subject, at Borrower's option, to either (i) the provisions in the respective Loan Documents relating to a defeasance (as opposed to a Sale and assumption of the respective Loan) or (ii) the conditions set forth below in this section 9 and, in connection with such Sale, Lender shall release the Property that is the subject of such Sale from the terms and conditions of this Agreement: (i) all conditions for such Sale under the respective Loan Documents have been satisfied; (ii) after such Sale, the Debt Service Coverage Ratio (as defined on schedule 1 attached hereto) for the Properties remaining subject to this agreement shall be no less than 1.40:1; (iii) after such Sale, the Loan to Value Ratio (as defined on schedule 1 attached hereto) for the Properties remaining subject to this agreement shall be no greater than 60%. In the event Borrower fails to satisfy the Debt Service Coverage Ratio in clause 9 (ii) hereof, or fails to satisfy the Loan-to-Value Ratio in this clause 9(iii), Borrower shall have the right to satisfy such requirements by providing Lender with a cash deposit (the "Remaining Crossed ----------------- Properties Deposit") to be held by Payee as additional collateral for the loans - ------------------ and property that will remain subject to this agreement and shall be held in an interest bearing account, or at the election of Borrower, in direct non-callable obligations of the United States of America, provided that Lender shall select the actual direct, non-callable obligations of the United States of America. The Remaining Crossed Properties Deposit shall be equal to the greater of (x) an amount such that, when the interest that will be earned on the Remaining Crossed Properties Deposit (as determined by Lender in its reasonable discretion) is added to Operating Revenues (as defined on Schedule 1), the Debt Service Coverage Ratio in clause 9(ii) hereof will be satisfied and (y) an amount, such that, when included in determining "value" in calculating the Loan to Value Ratio in this clause 9(iii), such Loan to Value Ratio will be satisfied; 8 (iv) the Debt Service Coverage Ratio (as defined on schedule 2 attached hereto) for the Property subject to such Sale shall be no less than as set forth for the applicable Property in Schedule 4 attached hereto. In the event Borrower fails to satisfy the Debt Service Coverage Ratio in this clause (iv), Borrower shall have the right to cause the transferee of the Property subject to such sale to increase the amount of the Release Deposit Amount (as hereinafter defined) such that, when the interest that will be earned on such increase in the Release Deposit Amount (as determined by Lender in its reasonable discretion) is added to Operating Revenues (as defined in Schedule 2), the foregoing Debt Service Coverage Ratio will be satisfied; (v) the Loan to Value Ratio (as defined on Schedule 2 attached hereto) for the Property subject to such Sale shall be no greater than as set forth for the applicable Property in Schedule 4 attached hereto. In the event Borrower fails to satisfy the Loan to Value Ratio in this clause (v), Borrower shall have the right to cause the transferee of the Property subject to such Sale to increase the amount of the Release Deposit Amount such that, when such increase is including in calculating the Loan to Value Ratio (as defined in Schedule 2), the foregoing Loan to Value Ratio will be satisfied; (vi) the transferee of the Property subject to such Sale makes a cash deposit with Lender in like amount (the "Release Deposit Amount") as the face ---------------------- value of the Additional Defeasance Deposit (as defined in the Loan Documents) which would be required if the Loan applicable to the Property that is subject to the proposed Sale were being defeased, which cash deposit shall be held by Lender as additional collateral and security for the Loan being assumed, shall be subject to a pledge and security agreement provided by Lender and shall be held in an interest bearing account, or at the election of Borrower, in direct non-callable obligations of the United States of America, provided that Lender shall select the actual direct, non-callable obligations of the United States of America. Provided that the Debt Service Coverage Ratio and the Loan to Value Ratio referred to in clauses 9(iv) and 9(v) hereof, respectively, are satisfied without including the entire Release Deposit Amount in calculating Operating Revenues or Loan-to-Value Ratio in Schedule 2 hereto, then the Release Deposit Amount (or the portion thereof which is not needed in order to satisfy the requirements in clause 9(iv) and 9(v) hereof) may be deposited by Borrower with Lender as additional collateral and security for the Loans relating to the Properties remaining subject to this agreement and such Release Deposit Amount (or such portion thereof which is not needed in order to satisfy the requirements in clause 9(iv) and 9(v) hereof) shall be included in the calculation of Operating Revenues and Loan-to-Value Ratio in Schedule 1 hereto in a similar manner as Remaining Crossed Properties Deposits are utilized in making such calculations. In all events, however, Borrower shall be required to make a deposit with Lender in the full amount of the Release Deposit Amount, which amount may be divided and held as collateral for the Loan being assumed and/or the Loans relating to the Properties remaining subject to this agreement in accordance with this clause (vi). In lieu of the foregoing cash deposit, the transferee of the Property subject to such Sale shall have the right to provide to Lender a letter of credit in the amount of the Release Deposit Amount for the benefit of Lender, in form and substance, and from a bank, approved by Lender in its reasonable discretion; and 9 (vii) Borrower shall, at Borrower's expense, provide such documents, certificates, requests and agreements as reasonably requested by Lender including, without limitation a new appraisal for each Property (unless an appraisal for such Property has been approved by Lender and is dated within six months of the prospective Sale) and updated rent rolls for each Property. Furthermore, notwithstanding anything contained in this Agreement or in the Second Loan Documents to the contrary, Lender shall have no obligation to consent to any Sale of the Second Property and Borrower shall have no right to effectuate the Sale of the Second Property without Lender's prior written consent, which consent shall be given or withheld in Lender's sole and absolute discretion; provided, however, that Borrower shall have the right to effectuate a Defeasance (as defined in the Second Loan Documents) with respect to the Second Property in accordance with the terms and conditions for a Defeasance set forth in the Second Loan Documents. In addition, notwithstanding anything contained in this Agreement or in any of the Loan Documents to the contrary, Lender shall have no obligation to consent to any Sale of any of the Properties and Borrower shall have no right to effectuate the Sale of any of the Properties without Lender's prior written consent (which consent shall be given or withheld in Lender's sole and absolute discretion) if, after such Sale, the Second Loan would remain subject to the terms and conditions of this Agreement and there would then be fewer than two (2) other Loans (in addition to the Second Loan) subject to this Agreement; provided, however, if after such Sale there would only be two (2) other Loans (in addition to the Second Loan) subject to this Agreement and such other two (2) Loans that would be subject to this Agreement are the First Loan and the Sixth Loan, then Lender's prior written consent (which consent shall be given or withheld in Lender's sole and absolute discretion) would be required in connection with any such proposed Sale. Notwithstanding the foregoing, Lender shall consent to a simultaneous Sale of all of the Properties to one new borrower provided that all of the conditions for a Sale in all of the Loan Documents are satisfied and each Loan then subject to the terms of this Agreement shall remain, after the Sale, subject to the terms and conditions of this Agreement. 10. Election of Remedies. Upon the occurrence of an Event of Default under -------------------- any of the Loan Documents, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under any Mortgage or any of the other Loan Documents relating to any Loan at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Loans shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any of the Properties secured by the Mortgages. Any such actions taken by Lender shall be cumulative and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event 10 of Default is continuing (i) Borrower hereby waives any "one action" or "election of remedies" law or rule to the fullest extent permitted by law, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against all or any of the Properties secured by the Mortgages and each Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Loans or the Loans has been paid in full; and Nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to any particular Property for the satisfaction of any of the Loans in preference or priority to any other Property secured by any of the Mortgages, and Lender may seek satisfaction out of each and every Property or any part thereof, in its absolute discretion in respect of the Loans. In addition, Lender shall have the right from time to time to partially foreclose one or more of the Mortgages in any manner and for any amounts of the Loans secured by the Mortgages then due and payable as determined by Lender in its sole discretion, including the following circumstances: (i) in the event of any Event of Default by Borrower caused by a failure to make one or more scheduled payments of principal and interest, Lender may foreclose one or more of the Mortgages to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loans, Lender may foreclose one or more of the Mortgages to recover so much of the principal balance of the Loans as Lender may elect to accelerate, and to recover such other sums secured by one or more of the Mortgages as Lender may elect. Notwithstanding one or more foreclosures or partial foreclosures, each and every Property or part thereof, not subjected to said foreclosure shall remain subject to the Mortgages to secure payment of the Loans not previously recovered. 11. Construction with other Documents. Any requirements imposed on --------------------------------- Borrower pursuant to the terms hereof are in addition to, and not in lieu of, any requirements imposed on Borrower pursuant to the terms of any Loan Document. To the extent of any inconsistency between the terms of any Loan Document and the terms hereof, the terms of this Agreement shall govern. 12. Definitions. To the extent a Loan is released from the terms and ----------- conditions hereof, the terms "Property", "Properties", "Loans" and "Loan Documents" shall, from that time forth, no longer include such released Property, such Loan, and the Loan Documents executed solely in connection with such Loan. 13. Further Assurance. The Borrower agrees to execute and deliver ----------------- any further documents and instruments as Lender may require to effectuate the intent of this Agreement. The Borrowers further acknowledges and agrees that Lender may require that this Agreement be amended at any time and from time to time to remove any of the Properties from this Agreement, and, in accordance with the terms set forth herein, the Borrower agrees to execute and deliver such documents as Lender may require in connection therewith. 14. Notices. All notices, demands, requests or other ------- communications to be sent by one party to the other hereunder or required by law shall be effectuated in the manner set forth in the Mortgages. 11 15. No Waiver; Time of Essence; Business Day. The failure of any ---------------------------------------- party hereto to enforce any right or remedy hereunder, or to promptly enforce any such right or remedy, shall not constitute a waiver thereof nor give rise to any estoppel against such party nor excuse any of the parties hereto from their respective obligations hereunder. Any waiver of such right or remedy must be in writing and signed by the party to be bound. This Agreement is subject to enforcement at law or in equity, including actions for damages or specific performance. Time is of the essence hereof. The term "business day" as used herein shall mean a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in the State in which any Property is located are authorized by law to be closed. 16. Captions for Convenience. The captions and headings of the ------------------------ sections and paragraphs of this Agreement are for convenience of reference only and shall not be construed in interpreting the provisions hereof. 17. Attorneys' Fees. In the event it is necessary for Lender to --------------- retain the services of an attorney or any other consultants for any purpose related to this Agreement, including, without limitation, the enforcement of this Agreement, or any portion thereof, Borrower agrees to pay to Lender any and all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Lender as a result thereof. 18. Reliance. Lender would not make any Loan to Borrower without this -------- Agreement. Accordingly, Borrower intentionally and unconditionally enter into the covenants and agreements as set forth above and understands that, in reliance upon and in consideration of such covenants and agreements, the Loans shall be made and, as part and parcel thereof, specific monetary and other obligations have been, are being and shall be entered into which would not be made or entered into but for such reliance. 19. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. ------------------------------------------------ (1) BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE COUNTY AND STATE WHERE EACH PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION OVER SUCH COUNTY AND STATE, (C) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM. BORROWER FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR NOTICES DESCRIBED IN THE MORTGAGES, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID 12 AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). (2) LENDER AND BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWERS, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. 21. Survival. This Agreement shall be deemed to be continuing in -------- nature and shall remain in full force and effect and shall survive the exercise of any remedy by Lender under any one or more of the Mortgages or any of the other Loan Documents, including, without limitation, any foreclosure or deed in lieu thereof, even if, as a part of such remedy, any Loan is paid or satisfied in full. 22. Entire Agreement; Amendment; Severability. This Agreement ----------------------------------------- contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior agreements, whether written or oral, between the parties respecting such matters. Any amendments or modifications hereto, in order to be effective, shall be in writing and executed by the parties hereto. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision, and any determination that the application of any provision of this Agreement to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances. 23. Contribution. ------------ a) Each of the Borrowers hereby acknowledges and agrees that, due to the fact that the Loans will be cross-defaulted as of the date hereof, each of the Borrowers has a direct and material interest in preventing the occurrence of an Event of Default under any of the Loan Documents (as the term "Event of Default" is defined therein). Accordingly, from and after the date hereof, each of the Borrowers is willing to commit to make or receive loans (each an "Intra-Borrower Loan", and collectively, the "Intra-Borrower Loans") in ------------------- -------------------- order to provide for the payment of all amounts due under the Loan Documents and, in so doing, to avoid an Event of Default thereunder. The Borrowers each acknowledge and agree that the Lender is an intended third party beneficiary of the Borrowers' obligations hereunder. In the event and to the extent that the proceeds from the Mortgaged Property (as defined in the Mortgages) of any Borrower 13 (the "Creditor") are applied with respect of any payments due with respect -------- to the Allocated Loan Amount (as set forth on Exhibit B annexed hereto) --------------------- --------- for the Mortgaged Property owned by another Borrower (the "Debtor") from and ------ after the date hereof, then the Creditor shall be deemed to have made an Intra- Borrower Loan to Debtor in the amount of such proceeds so applied (the "Intra- ----- Borrower Loan Amount"). Such Intra-Borrower Loan shall be deemed to be made on - -------------------- a non-recourse basis and shall be repaid out of the future proceeds of the Mortgaged Property owned by the Debtor, together with interest thereon at a rate to be agreed upon from time to time among the Borrowers. b) All Intra-Borrower Loans deemed to be made under this Agreement shall be evidenced by this Agreement, shall be an obligation of the Debtor which owes such Intra-Borrower Loan solely by its execution of this Agreement and shall not be evidenced by any separate instrument. Each Borrower hereby waives presentment, notice of dishonor, protest and notice of non-payment or non-performance with respect to each Intra-Borrower Loan for which it is liable under this Agreement. Interest and principal on Intra-Borrower Loans shall be paid solely out of net proceeds from the Mortgaged Property owned by the Debtor and shall be subject in all cases to the terms and conditions of the Loan Documents, and the payments from such sources shall be the sole and exclusive remedy available to any Creditor. A Debtor shall not make any payment with respect to an Intra-Borrower Loan after the occurrence of an Event of Default with respect to the Mortgage to which the Debtor is a party. Each such payment of principal or interest on Intra-Borrower Loans shall be subordinate and subject to the prior payment of all amounts payable under the Loan Documents. To the extent such sources of payment are insufficient to pay interest and principal on any Intra-Borrower Loan, the Creditor owed such Intra- Borrower Loan shall not have any claim against the Debtor which owes such Intra- Borrower Loan for such amounts or any lien on or security interest in any of the assets of such Debtor and no further or additional recourse shall be available against the Debtor. All payments pursuant to Intra-Borrower Loans shall be made on a net basis. All payments received on account of any Intra-Borrower Loan under this Agreement shall be credited first to interest, then to principal. Accrued but unpaid interest shall not be compounded. 24. Waivers. To the extent permitted by law, CMT Borrower and Texas ------- Borrower hereby waive and agree not to assert or take advantage of: (a) Any right to require Lender to proceed against either Borrower or any other person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy in Lender's power or under any other agreement before proceeding against either Borrower hereunder; (b) Any defense based upon an election of remedies by Lender; and (c) Any right or claim or right to cause a marshalling of the assets of either Borrower. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. HCP MEDICAL OFFICE BUILDINGS II, LLC, a Delaware limited liability company By: ________________________________ Name: Edward J. Henning Title: Senior Vice President TEXAS HCP MEDICAL OFFICE BUILDINGS, L.P., a Delaware limited partnership By: Texas HCP Medical G.P., Inc., a Delaware corporation its general partner By: ___________________________________ Name: Edward J. Henning Title: Senior Vice President 15 [Add Acknowledgement] [Add Exhibit A-1 through A-6 16 EXHIBIT B --------- Allocated loan Amounts 1. The First Property $ 8,500,000 2. The Second Property $ 6,500,000 3. The Third Property $ 3,900,000 4. The Fourth Property $ 8,000,000 5. The Fifth Property $10,600,000 6. The Sixth Property $ 4,500,000 17 SCHEDULE 1 "Debt Service" shall mean an amount equal to the principal and interest payments due under all of the Loans (except the Loan related to the Property subject to the proposed Sale). "Debt Service Coverage Ratio" shall mean the ratio obtained by dividing the then-current Net Operating Income for all of the Properties (except the Property subject to the proposed Sale) by the total annualized Debt Service. "Net Operating Income" shall mean the amount by which Operating Revenues for all of the Properties (except the Property subject to the proposed Sale) exceeds Operating Expenses for all of the Properties (except the Property subject to the proposed Sale), calculated as of the twelve month period ending as of the date of the most recent financial statements delivered or required to be delivered to Lender pursuant to the Loan Documents and in all cases calculated and reasonably determined by Lender and based on Lender's then reasonable current underwriting standards; if requested by Borrower in connection with a potential defeasance or sale which may be permitted under this Agreement, Lender shall provide Borrower with its then current underwriting standards in determining Net Operating Income for the Properties. "Operating Expenses" shall mean all reasonable and necessary expenses of operating the Properties (except the Property subject to the proposed Sale) in the ordinary course of business which are paid by Borrower and which are directly associated with and fairly allocable to the Properties (except the Property subject to the proposed Sale) for the applicable period, on an accrual basis, including ad valorem real estate taxes and assessments, insurance premiums, regularly scheduled tax impounds paid to Lender in connection with any of the Loans (excluding the Loan attributable to the Property subject to the proposed Sale), if any, maintenance costs, a minimum management fee equal to 4% of base and percentage rent, and costs, accounting, legal, and other professional fees, fees relating to environmental and financial audits, and other expenses incurred by Lender and reimbursed by Borrower under the Loan Documents (excluding the Loan Documents applicable to the Property that is the subject of the proposed Sale), deposits to any capital replacement reserves, if any, required by Lender pursuant to the Loan Documents (excluding the Loan Documents applicable to the Property that is the subject of the proposed Sale), wages, salaries, and personnel expenses and tenant improvement and leasing commissions cost equal to the amount set forth on Schedule 3 annexed hereto and made a part hereof per square foot on an annualized basis for each of the Properties (except the Property subject to the proposed Sale), but excluding Debt Service, capital expenditures, any of the foregoing expenses which are paid from deposits to cash reserves previously included as Operating Expenses, any payment or expense for which Borrower was or is to be reimbursed from proceeds of the Loans (excluding the proceeds from the Loan applicable to the Property that is the subject of the proposed Sale), or insurance or by any third party, and any non-cash charges such as depreciation and amortization, in all cases calculated and determined on a trailing twelve month basis. Operating Expenses shall not include federal, state or local income taxes or legal and other professional fees or expenses unrelated to the operation of the Properties. 18 To the extent that the original Borrower (or any affiliate of the original Borrower) has not owned a particular Property for at least twelve months from the date of the calculation of Operating Expenses, Operating Expenses attributable to such Property shall be determined on an annualized basis. "Operating Revenues" shall mean all receipts of Borrower from operation of the Properties (except the Property subject to the proposed Sale) or otherwise arising in respect of the Properties (except the Property subject to the proposed Sale) after the date hereof which are paid and properly allocable to the Properties (except the Property subject to the proposed Sale) for the applicable period, on an accrual basis, including receipts from leases and parking agreements, concession fees and charges, interest, if any, being earned on (x) any Additional Defeasance Deposit (as defined in the Loan Documents) previously paid in connection with any other loan which was once subject to this Agreement and which Additional Defeasance Deposit secures the remaining Loans; (y) any Additional Cash Deposit (as defined in the Loan Documents) previously paid in connection with any other loan which was once subject to this Agreement and which Additional Cash Deposit secures the remaining Loans; and (z) any Remaining Crossed Properties Deposits or Release Deposit Amounts previously paid in connection with any other loan which was once subject to this Agreement and which Remaining Crossed Properties Deposits or Release Deposit Amounts secures the remaining Loans, and other miscellaneous operating revenues, proceeds from rental or business interruption insurance, withdrawals from cash reserves (except to the extent any operating expenses paid therewith are excluded from Operating Expenses), but excluding security deposits and earnest money deposits until they are forfeited by the depositor, advance rentals until they are earned, and proceeds from a sale or other disposition, in all cases calculated and determined on a trailing twelve month basis. To the extent that the original Borrower hereof (or any affiliate of original Borrower) has not owned a particular Property for at least twelve months from the date of the calculation of Operating Revenue, Operating Revenue attributable to such Property shall be determined on an annualized basis. In addition, operating revenues may, in accordance with Lender's then current underwriting standards, be reduced by the following: 1. a 5% vacancy/credit loss factor; and 2. all or a portion of rents attributable to tenants that are either on month-to-month leases, not in occupancy, or in bankruptcy. "Loan-to-Value Ratio" shall mean the ratio of the outstanding principal amount of the indebtedness for all of the remaining Loans (excluding the Loan applicable to the Property that is the subject of the proposed Sale), to the value of the sum of: (i) all of the remaining Properties (except the Property that is the subject of the proposed Sale), such value being determined by Lender in its reasonable discretion, and (ii) any Additional Defeasance Deposit, Additional Cash Deposit, Release Deposit Amount or Remaining Crossed Properties Deposits previously paid in connection with any other loan which was once subject to this Agreement and which Additional 19 Defeasance Deposit, Additional Cash Deposit, Release Deposit Amount or Remaining Crossed Properties Deposits secures the remaining Loans. To the extent a term is defined in this schedule 1 and is also defined in schedule 2, the term defined herein shall be for use only in connection with this schedule 1 and where this Agreement specifically refers to this schedule 1. 20 SCHEDULE 2 "Debt Service" shall mean an amount equal to the principal and interest payments due under the Loan related to the Property subject to the proposed Sale. "Debt Service Coverage Ratio" shall mean the ratio obtained by dividing the then-current Net Operating Income for the Property subject to the proposed Sale by the total annualized Debt Service (as defined in this schedule 2). "Net Operating Income" shall mean the amount by which Operating Revenues for the Property subject to the proposed Sale exceeds Operating Expenses for the Property subject to the proposed Sale, calculated as of the twelve month period ending as of the date of the most recent financial statements delivered or required to be delivered to Lender pursuant to the applicable Loan Documents and in all cases calculated and reasonably determined by Lender and based on Lender's then reasonable current underwriting standards; if requested by Borrower in connection with a potential defeasance or sale which may be permitted under this Agreement, Lender shall provide Borrower with its then current underwriting standards in determining Net Operating Income for the Property. "Operating Expenses" shall mean all reasonable and necessary expenses of operating the Property subject to the proposed Sale in the ordinary course of business which are paid by Borrower and which are directly associated with and fairly allocable to the Property subject to the proposed Sale for the applicable period, on an accrual basis, including ad valorem real estate taxes and assessments, insurance premiums, regularly scheduled tax impounds paid to Lender in connection with the Loan attributable to the Property subject to the proposed Sale, if any, maintenance costs, a minimum management fee equal to 4% of base and percentage rent, and costs, accounting, legal, and other professional fees, fees relating to environmental and financial audits, and other expenses incurred by Lender and reimbursed by Borrower under the Loan Documents applicable to the Property that is the subject of the proposed Sale, deposits to any capital replacement reserves, if any, required by Lender pursuant to the Loan Documents applicable to the Property that is the subject of the proposed Sale, wages, salaries, and personnel expenses and tenant improvement and leasing commissions cost equal to the amount set forth on Schedule 3 per square foot on an annualized basis for the Property subject to the proposed Sale, but excluding Debt Service, capital expenditures, any of the foregoing expenses which are paid from deposits to cash reserves previously included as Operating Expenses, any payment or expense for which Borrower was or is to be reimbursed from proceeds of the Loan applicable to the Property that is the subject of the proposed Sale, or insurance or by any third party, and any non-cash charges such as depreciation and amortization, in all cases calculated and determined on a trailing twelve month basis. Operating Expenses shall not include federal, state or local income taxes or legal and other professional fees or expenses unrelated to the operation of the Property subject to the proposed Sale. To the extent that the original Borrower (or any affiliate of the original Borrower) has not owned the particular Property for at least twelve months from the date of the calculation of Operating Expenses, Operating Expenses attributable to such Property shall be determined on an annualized basis. 21 "Operating Revenues" shall mean all receipts of Borrower from operation of the Property subject to the proposed Sale or otherwise arising in respect of the Property subject to the proposed Sale after the date hereof which are paid and properly allocable to the Property subject to the proposed Sale for the applicable period, on an accrual basis, including receipts from leases and parking agreements, concession fees and charges, interest, if any, that will be earned on the Release Deposit Amount (as determined by Lender in its reasonable discretion) only if such Release Deposit Amount is to be held by Lender as additional collateral for the Loan being assumed under Section 9 of this Agreement and other miscellaneous operating revenues, proceeds from rental or business interruption insurance, withdrawals from cash reserves (except to the extent any operating expenses paid therewith are excluded from Operating Expenses), but excluding security deposits and earnest money deposits until they are forfeited by the depositor, advance rentals until they are earned, and proceeds from a sale or other disposition, in all cases calculated and determined on a trailing twelve month basis. To the extent that the original Borrower hereof (or any affiliate of original Borrower) has not owned the Property subject to the proposed Sale for at least twelve months from the date of the calculation of Operating Revenue, Operating Revenue attributable to such Property shall be determined on an annualized basis. In addition, operating revenues may, in accordance with Lender's then current underwriting standards, be reduced by the following: 1. a 5% vacancy/credit loss factor; and 2. all or a portion of rents attributable to tenants that are either on month-to-month leases, not in occupancy, or in bankruptcy. "Loan-to-Value Ratio" shall mean the ratio of the outstanding principal amount of the indebtedness for the Loan applicable to the Property that is the subject of the proposed Sale, to the value of the sum of: (i) the Property that is the subject of the proposed Sale, such value being determined by Lender in its reasonable discretion, and (ii) the Release Deposit Amount for the Loan applicable to the Property that is subject to the proposed Sale only if such Release Deposit Amount is to be held by Lender as additional collateral for such Loan. To the extent a term is defined in this schedule 2 and is also defined in schedule 1, the term defined herein shall be for use only in connection with this schedule 2 and where this Agreement specifically refers to this schedule 2. 22 SCHEDULE 3 Tenant Improvement and Leasing Commission Costs for use in calculating Operating Expenses Property Cost Per Square Foot 1. The First Property $1.44 2. The Second Property $1.00 3. The Third Property $1.00 4. The Fourth Property $2.00 5. The Fifth Property $1.34 6. The Sixth Property $1.04 23 SCHEDULE 4 Minimum Debt Service Coverage Ratio for Property Subject to Sale 1. The First Property 1.50:1 2. The Second Property N/A - No Sale Permitted 3. The Third Property 1.40:1 4. The Fourth Property 1.40:1 5. The Fifth Property 1.40:1 6. The Sixth Property 1.45:1 Maximum Loan to Value Ratio for Property Subject to Sale 1. The First Property 50% 2. The Second Property N/A - No Sale Permitted 3. The Third Property 60% 4. The Fourth Property 60% 5. The Fifth Property 60% 6. The Sixth Property 50% 24 EX-10.22 3 0003.txt CROSS-COLLATERALIZATION AGREEMENT 8/31/2000 POOL I EXHIBIT 10.22 REQUESTED BY AND WHEN RECORDED, RETURN TO: Mitchell Kaplan, Esq. Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York 10103 CROSS-COLLATERALIZATION, CROSS-CONTRIBUTION --------------------------------------------- AND CROSS-DEFAULT AGREEMENT --------------------------- THIS CROSS-COLLATERALIZATION, CROSS-CONTRIBUTION AND CROSS-DEFAULT AGREEMENT (this "Agreement"), made as of August __, 2000, by HCP MEDICAL OFFICE BUILDINGS --------- I, LLC, a Delaware limited liability company (including its successors and/or assigns, the "Multiple Property Borrower") having an address at 4675 MacArthur -------------------------- Court, Suite 900, Newport Beach, California 92260, and MEADOWDOME, LLC, a Maryland limited liability company (including its successors and/or assigns, the "Maryland Borrower"; the Multiple Property Borrower and the Maryland Borrower shall each be a "Borrower" and collectively, the "Borrower" or the "Borrowers"), having an address at 4675 MacArthur Court, Suite 900, Newport Beach, California 92660, for the benefit of First Union National Bank, a national banking association and its successors and assigns ("Lender"), having an address at One ------ First Union Center DC-6, Mecklenburg County, 301 South College Street, Charlotte, North Carolina 28288-0166. W I T N E S S E T H: - - - - - - - - - - WHEREAS, concurrently with the execution of this Agreement, Multiple Property Borrower has executed and delivered to Lender a Promissory Note in the original principal amount THIRTEEN MILLION AND NO/100 DOLLARS ($13,000,000.00) (the "First Note"), in evidence of a loan in such amount (the "First Loan"); ---------- ---------- WHEREAS, concurrently with the execution of this Agreement, Multiple Property Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of FOURTEEN MILLION AND NO/100 DOLLARS ($14,000,000.00) (the "Second Note"), in evidence of a loan in such amount (the ----------- "Second Loan"); ----------- WHEREAS, concurrently with the execution of this Agreement, Multiple Property Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of FOUR MILLION ONE HUNDRED SIXTY THOUSAND AND NO/100 DOLLARS ($4,160,000.00) (the "Third Note"), in evidence of a loan in such ---------- amount (the "Third Loan"); ---------- WHEREAS, concurrently with the execution of this Agreement, Multiple Property Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000.00) (the "Fourth Note"), in evidence of a loan in ----------- such amount (the "Fourth Loan"), ----------- WHEREAS, concurrently with the execution of this Agreement, Multiple Property Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of TWO MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($2,700,000.00) (the "Fifth Note"), in evidence of a loan in such ---------- amount (the "Fifth Loan"); ---------- WHEREAS, concurrently with the execution of this Agreement, Maryland Borrower has also executed and delivered to Lender its Promissory Note in the original principal amount of THREE MILLION SIX HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($3,640,000.00) (the "Sixth Note"), in evidence of a loan in such amount ---------- (the "Sixth Loan"), (the First Loan, the Second Loan, the Third Loan, the Fourth ---------- Loan, the Fifth Loan and the Sixth Loan are collectively, the "Loans" and each individually a "Loan"); ---- WHEREAS, the First Loan is secured by (i) a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "First Mortgage"), -------------- encumbering the real property located in Morristown, New Jersey, described on Exhibit A-1 attached hereto and made a part hereof and recorded in the real - ----------- property records of Morris County, together with all improvements thereon and certain other property described in the First Mortgage (collectively, the "First ----- Property"), and (ii) certain other documents and instruments executed in - -------- connection therewith (the First Note, the First Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "First Loan Documents"); -------------------- WHEREAS, the Second Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Second Mortgage"), --------------- encumbering the real property located in Sacramento, California, described on Exhibit A-2 attached hereto and made a part hereof and recorded in the real - ----------- property records of Sacramento County, together with all improvements thereon and certain other property described in the Second Mortgage (collectively, the "Second Property"), and (ii) certain other documents and instruments executed in -------------- connection therewith (the Second Note, the Second Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Second Loan Documents"); --------------------- 2 WHEREAS, the Third Loan is secured by (i) a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Third Mortgage"), -------------- encumbering the real property located in Southgate, Kentucky, described on Exhibit A-3 attached hereto and made a part hereof and recorded in the real - ----------- property records of Campbell County, together with all improvements thereon and certain other property described in the Third Mortgage (collectively, the "Third ----- Property"), and (ii) certain other documents and instruments executed in - -------- connection therewith (the Third Note, the Third Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Third Loan Documents"); -------------------- WHEREAS, the Fourth Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Fourth Mortgage"), --------------- encumbering the real property located in Shrewsbury, Missouri, described on Exhibit A-4 attached hereto and made a part hereof and recorded in the real - ----------- property records of St. Louis County, together with all improvements thereon and certain other property described in the Fourth Mortgage (collectively, the "Fourth Property"), and (ii) certain other documents and instruments executed in - ---------------- connection therewith (the Fourth Note, the Fourth Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Fourth Loan Documents"); --------------------- WHEREAS, the Fifth Loan is secured by (i) an Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Fifth ----- Mortgage"), encumbering the real property located in Harrison, Ohio, described - -------- on Exhibit A-5 attached hereto and made a part hereof and recorded in the real ----------- property records of Hamilton County, together with all improvements thereon and certain other property described in the Fifth Mortgage (collectively, the "Fifth ----- Property"), and (ii) certain other documents and instruments executed in - -------- connection therewith (the Fifth Note, the Fifth Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Fifth Loan Documents"); -------------------- WHEREAS, the Sixth Loan is secured by (i) a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Sixth Mortgage"), -------------- encumbering the real property located in Glen Burnie, Maryland, described on Exhibit A-6 attached hereto and made a part hereof and recorded in the real - ----------- property records of Anne Arundel County, together with all improvements thereon and certain other property described in the Sixth Mortgage (collectively, the "Sixth Property"; the First Property, the Second Property, the Third Property, -------------- the Fourth Property, the Fifth Property and the Sixth Property, collectively, the "Properties" and each individually, a "Property"), and (ii) certain other ---------- -------- documents and instruments executed in connection therewith (the Sixth Note, the Sixth Mortgage and such other documents and instruments executed in connection therewith, as the same from time to time may be amended, consolidated, extended, renewed, modified, restated or replaced, collectively, the "Sixth Loan ---------- Documents"); the First Mortgage, the Second Mortgage, the Third Mortgage, the - --------- Fourth Mortgage, the Fifth Mortgage and the Sixth Mortgage are, collectively, the "Mortgages" and each individually, a "Mortgage"; the First Loan Documents, --------- -------- the Second Loan Documents, the Third Loan Documents, the Fourth Loan Documents, the Fifth Loan Documents and the Sixth Loan Documents are, collectively, the "Loan Documents"; provided, however, that none of the six environmental -------------- indemnity agreements (collectively, the "Environmental Indemnities") 3 executed as of even date herewith by Borrower and Health Care Property Investors, Inc., a Maryland corporation ("Indemnitor") in connection with the respective Loans nor any of the six indemnity and guaranty agreements executed as of even date herewith by Indemnitor in connection with the respective Loans (collectively, the "Indemnities") shall constitute a First Loan Document, a Second Loan Document, a Third Loan Document, a Fourth Loan Document, a Fifth Loan Document, or a Sixth Loan Document and neither this Agreement, any Mortgage, nor any other Loan Document shall secure the obligations under any Environmental Indemnity or any Indemnity; and WHEREAS, Lender has required that this Agreement be executed and delivered as a condition to making each of the Loans. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency which are hereby acknowledged, the party hereto, in its respective capacities set forth herein, hereby agrees as follows: 1. Cross-Default and Cross-Collateralization. The First Loan Documents, ----------------------------------------- the Second Loan Documents, the Third Loan Documents, the Fourth Loan Documents, the Fifth Loan Documents and the Sixth Loan Documents are hereby amended and modified (such amendment and modification, a "Cross-Collateralization") as ----------------------- follows: a) an Event of Default under the First Note, the First Mortgage or any of the other First Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); b) an Event of Default under the Second Note, the Second Mortgage or any of the other Second Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Third Note, the Third Mortgage and the other Third Loan Documents, the Fourth Note, Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); c) an Event of Default under the Third Note, the Third Mortgage or any of the other Third Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); 4 d) an Event of Default under the Fourth Note, the Fourth Mortgage or any of the other Fourth Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, and the other Third Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); e) an Event of Default under the Fifth Note, the Fifth Mortgage or any of the other Fifth Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage and the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); f) an Event of Default under the Sixth Note, the Sixth Mortgage or any of the other Sixth Loan Documents (as the term "Event of Default" is defined therein) shall, at Lender's option, constitute an Event of Default under the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, and the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage and the other Fifth Loan Documents (as the term "Event of Default" is defined in each of the foregoing); g) the First Mortgage and all of the other First Loan Documents securing or guaranteeing the First Note and the obligations of Multiple Property Borrower under the other First Loan Documents (collectively, the "First Borrower -------------- Security Documents") also shall secure and guaranty the Second Note, the Second - ------------------ Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; h) the Second Mortgage and all of the other Second Loan Documents securing or guaranteeing the Second Note and the obligations of Multiple Property Borrower under the other Second Loan Documents (collectively, the "Second Borrower Security Documents") also shall secure and guaranty the First - ----------------------------------- Note, the First Mortgage, the other First Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; i) the Third Mortgage and all of the other Third Loan Documents securing or guaranteeing the Third Note and the obligations of Multiple Property Borrower under the other Third Loan Documents (collectively, the "Third Borrower ------------- Security Documents") also shall - ------------------ 5 secure and guaranty the First Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; j) the Fourth Mortgage and all of the other Fourth Loan Documents securing or guaranteeing the Fourth Note and the obligations of Multiple Property Borrower under the other Fourth Loan Documents (collectively, the "Fourth Borrower Security Documents") also shall secure and guaranty the First - ----------------------------------- Note, the First Mortgage, the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, and the other Third Loan Documents, the Fifth Note, the Fifth Mortgage, the other Fifth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; k) the Fifth Mortgage and all of the other Fifth Loan Documents securing or guaranteeing the Fifth Note and the obligations of Multiple Property Borrower under the other Fifth Loan Documents (collectively, the "Fifth Borrower -------------- Security Documents") also shall secure and guaranty, the First Note, the First - ------------------ Mortgage, the other First Loan Documents, Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, the other Fourth Loan Documents, the Sixth Note, the Sixth Mortgage and the other Sixth Loan Documents; l) the Sixth Mortgage and all of the other Sixth Loan Documents securing or guaranteeing the Sixth Note and the obligations of Maryland Borrower under the other Sixth Loan Documents (collectively, the "Sixth Borrower Security ----------------------- Documents") also shall secure and guaranty the First Note, the First Mortgage, - --------- the other First Loan Documents, the Second Note, the Second Mortgage, the other Second Loan Documents, the Third Note, the Third Mortgage, the other Third Loan Documents, the Fourth Note, the Fourth Mortgage, and the other Fourth Loan Documents, the Fifth Note, the Fifth Mortgage and the other Fifth Loan Documents; m) the aggregate principal amount secured by each of the First Mortgage and the other First Loan Documents, the Second Mortgage and the other Second Loan Documents, the Third Mortgage and the other Third Loan Documents, the Fourth Mortgage and the other Fourth Loan Documents, the Fifth Mortgage and the other Fifth Loan Documents, the Sixth Mortgage and the other Sixth Loan Documents shall be FORTY ONE MILLION DOLLARS ($41,000,000.00); and n) the Borrower acknowledges and agrees that the Mortgages evidence commercial loans and that a trustee's sale with respect to one or more of the Mortgages shall not preclude judicial or non-judicial foreclosure of any of the remaining Mortgages. 2. Intentionally Deleted. ---------------------- 3. Documents to be Delivered to Lender. In connection with any Cross- ----------------------------------- Collateralization, the Borrower shall cause to be delivered to Lender: 6 a) endorsements to the title insurance policies issued at the closings of the Loans insuring the liens of the First Mortgage, the Second Mortgage, the Third Mortgage, the Fourth Mortgage, the Fifth Mortgage and the Sixth Mortgage which endorsements shall be in form and substance satisfactory to Lender and shall (i) provide for "tie-in" coverage under such policies up to the aggregate outstanding principal amount of the First Note, the Second Note, the Third Note, the Fourth Note, the Fifth Note and the Sixth Note; and (ii) include "First Loss" and "Last Dollar" endorsements, if available for title insurance policies issued in the states where the properties are located; and b) such other documents and instruments as Lender may require. 5. Costs and Expenses. Borrower shall be responsible for and shall pay ------------------ all reasonable costs and expenses incurred by Lender in connection with a Cross- Collateralization, including, without limitation, reasonably attorneys' fees and expenses, title insurance search fees and premiums, filing and recording fees and taxes, if any. 6. Default. Any default by Borrower in fulfilling any of its obligations ------- hereunder shall, if such default is a monetary default, after ten calendar days, and, for any other default hereunder, after fifteen calendar days from receipt of written notice from Lender to Borrower of such default, constitute an Event of Default under each of the First Loan Documents, the Second Loan Documents, the Third Loan Documents, the Fourth Loan Documents, the Fifth Loan Documents and the Sixth Loan Documents (as the term "Event of Default" is defined therein). The foregoing notice and cure periods shall not affect, in any manner, Borrower's agreement that an Event of Default under any Loan Document shall be an immediate Event of Default (at Lender's option) under all other Loan Documents and no additional notice or cure periods are provided herein. 7. Further Assurances. Borrower agrees to execute and deliver any ------------------ further documents and instruments as Lender may require to effectuate the Cross- Collateralization contemplated hereby. Borrower further acknowledges and agrees that Lender may unilaterally terminate this Agreement, sever this Agreement in order to cover any one or more of the Properties or amend this Agreement at any time and from time to time to remove any of the Properties from the Cross Default and Cross-Collateralization provisions of this Agreement and Borrower hereby agrees to cooperate with Lender and execute any documents reasonably requested by Lender in connection therewith, to pay the reasonable expenses incurred by Lender in connection therewith and, in connection therewith to transfer one or more of the Properties to a new entity that will assume the applicable Loan Documents, such entity to be a single purpose, bankruptcy remote entity reasonably acceptable to Lender with the same beneficial ownership as Borrower. 8. Release of Property. Borrower may not obtain the release of any ------------------- individual Property from the lien of any of the Mortgages in connection with any refinancing of the indebtedness secured thereby or otherwise except: (i) pursuant to a defeasance in strict accordance with the terms of each of the Loan Documents for each respective Loan, which Loan Documents require, inter alia, that Borrower deposit with Lender the Additional Defeasance Deposit (as defined in the respective Loan Documents); (ii) in connection with a prepayment in full permitted under the respective Loan Documents, which prepayment is caused by a 7 condemnation or casualty, and provided that no Event of Default has occurred and is continuing with any of the Loan Documents; or (iii) upon a refinancing of a Loan within three months prior to the Maturity Date of such Loan and upon such conditions as are set forth in the respective Loan Documents including, without limitation, to the extent required therein, the requirement of an additional deposit to be delivered by Borrower to Lender as additional collateral and security for the remaining Loans then subject to this Agreement. Notwithstanding the terms of clause (iii) of this Section 8 or the terms of any of the Loan Documents to the contrary, Borrower shall not obtain the release of any of the Properties from the lien of the Mortgages or from the terms of this Agreement within three months prior to the Maturity Date, if, after such release, there would then be fewer than four Loans subject to this Agreement. 9. Assumption of a Loan or the Loans. Subject to the terms and conditions --------------------------------- of the respective Loan Documents as supplemented, but not limited, hereby, Lender shall consent to one or more Sales (as defined in the Loan Documents) of a particular Property subject, at Borrower's option, to either (i) the provisions in the respective Loan Documents relating to a defeasance (as opposed to a Sale and assumption of the respective Loan) or (ii) the conditions set forth below in this section 9 and, in connection with such Sale, Lender shall release the Property that is the subject of such Sale from the terms and conditions of this Agreement: (i) all conditions for such Sale under the respective Loan Documents have been satisfied; (ii) after such Sale, the Debt Service Coverage Ratio (as defined on schedule 1 attached hereto) for the Properties remaining subject to this agreement shall be no less than 1.40:1; (iii) after such Sale, the Loan to Value Ratio (as defined on schedule 1 attached hereto) for the Properties remaining subject to this agreement shall be no greater than 60%. In the event Borrower fails to satisfy the Debt Service Coverage Ratio in clause 9 (ii) hereof, or fails to satisfy the Loan-to-Value Ratio in this clause 9(iii), Borrower shall have the right to satisfy such requirements by providing Lender with a cash deposit (the "Remaining Crossed ----------------- Properties Deposit") to be held by Payee as additional collateral for the loans - ------------------ and property that will remain subject to this agreement and shall be held in an interest bearing account, or at the election of Borrower, in direct non-callable obligations of the United States of America, provided that Lender shall select the actual direct, non-callable obligations of the United States of America. The Remaining Crossed Properties Deposit shall be equal to the greater of (x) an amount such that, when the interest that will be earned on the Remaining Crossed Properties Deposit (as determined by Lender in its reasonable discretion) is added to Operating Revenues (as defined on Schedule 1), the Debt Service Coverage Ratio in clause 9(ii) hereof will be satisfied and (y) an amount, such that, when included in determining "value" in calculating the Loan to Value Ratio in this clause 9(iii), such Loan to Value Ratio will be satisfied; (iv) the Debt Service Coverage Ratio (as defined on schedule 2 attached hereto) for the Property subject to such Sale shall be no less than as set forth for the applicable Property in Schedule 4 attached hereto. In the event Borrower fails to satisfy the Debt Service Coverage Ratio in this clause (iv), Borrower shall have the right to cause the transferee of the Property subject to such sale to increase the amount of the Release Deposit Amount (as hereinafter 8 defined) such that, when the interest that will be earned on such increase in the Release Deposit Amount (as determined by Lender in its reasonable discretion) is added to Operating Revenues (as defined in Schedule 2), the foregoing Debt Service Coverage Ratio will be satisfied; (v) the Loan to Value Ratio (as defined on Schedule 2 attached hereto) for the Property subject to such Sale shall be no greater than as set forth for the applicable Property in Schedule 4 attached hereto. In the event Borrower fails to satisfy the Loan to Value Ratio in this clause (v), Borrower shall have the right to cause the transferee of the Property subject to such Sale to increase the amount of the Release Deposit Amount such that, when such increase is including in calculating the Loan to Value Ratio (as defined in Schedule 2), the foregoing Loan to Value Ratio will be satisfied; (vi) the transferee of the Property subject to such Sale makes a cash deposit with Lender in like amount (the "Release Deposit Amount") as the face ---------------------- value of the Additional Defeasance Deposit (as defined in the Loan Documents) which would be required if the Loan applicable to the Property that is subject to the proposed Sale were being defeased, which cash deposit shall be held by Lender as additional collateral and security for the Loan being assumed, shall be subject to a pledge and security agreement provided by Lender and shall be held in an interest bearing account, or at the election of Borrower, in direct non-callable obligations of the United States of America, provided that Lender shall select the actual direct, non-callable obligations of the United States of America. Provided that the Debt Service Coverage Ratio and the Loan to Value Ratio referred to in clauses 9(iv) and 9(v) hereof, respectively, are satisfied without including the entire Release Deposit Amount in calculating Operating Revenues or Loan-to-Value Ratio in Schedule 2 hereto, then the Release Deposit Amount (or the portion thereof which is not needed in order to satisfy the requirements in clause 9(iv) and 9(v) hereof) may be deposited by Borrower with Lender as additional collateral and security for the Loans relating to the Properties remaining subject to this agreement and such Release Deposit Amount (or such portion thereof which is not needed in order to satisfy the requirements in clause 9(iv) and 9(v) hereof) shall be included in the calculation of Operating Revenues and Loan-to-Value Ratio in Schedule 1 hereto in a similar manner as Remaining Crossed Properties Deposits are utilized in making such calculations. In all events, however, Borrower shall be required to make a deposit with Lender in the full amount of the Release Deposit Amount, which amount may be divided and held as collateral for the Loan being assumed and/or the Loans relating to the Properties remaining subject to this agreement in accordance with this clause (vi). In lieu of the foregoing cash deposit, the transferee of the Property subject to such Sale shall have the right to provide to Lender a letter of credit in the amount of the Release Deposit Amount for the benefit of Lender, in form and substance, and from a bank, approved by Lender in its reasonable discretion; and (vii) Borrower shall, at Borrower's expense, provide such documents, certificates, requests and agreements as reasonably requested by Lender including, without limitation a new appraisal for each Property (unless an appraisal for such Property has been approved by Lender and is dated within six months of the prospective Sale) and updated rent rolls for each Property. Furthermore, notwithstanding anything contained in this Agreement or in the Second Loan Documents to the contrary, Lender shall have no obligation to consent to any Sale of the Second Property and Borrower shall have no right to effectuate the Sale of the Second Property 9 (other than in accordance with the terms of Section 1.13(b)(13) of the Second Mortgage) without Lender's prior written consent, which consent shall be given or withheld in Lender's sole and absolute discretion; provided, however, that Borrower shall have the right to effectuate a Defeasance (as defined in the Second Loan Documents) with respect to the Second Property in accordance with the terms and conditions for a Defeasance set forth in the Second Loan Documents. In addition, notwithstanding anything contained in this Agreement or in any of the Loan Documents to the contrary, Lender shall have no obligation to consent to any Sale of any of the Properties and Borrower shall have no right to effectuate the Sale of any of the Properties without Lender's prior written consent (which consent shall be given or withheld in Lender's sole and absolute discretion) if, after such Sale, there would then be fewer than four (4) Loans subject to this Agreement. Notwithstanding the foregoing, Lender shall consent to a simultaneous Sale of all of the Properties to one new borrower provided that all of the conditions for a Sale in all of the Loan Documents are satisfied and each Loan then subject to the terms of this Agreement shall remain, after the Sale, subject to the terms and conditions of this Agreement. 10. Election of Remedies. Upon the occurrence of an Event of Default under -------------------- any of the Loan Documents, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under any Mortgage or any of the other Loan Documents relating to any Loan at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Loans shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any of the Properties secured by the Mortgages. Any such actions taken by Lender shall be cumulative and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) Borrower hereby waives any "one action" or "election of remedies" law or rule to the fullest extent permitted by law, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against all or any of the Properties secured by the Mortgages and each Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Loans or the Loans has been paid in full; and Nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to any particular Property for the satisfaction of any of the Loans in preference or priority to any other Property secured by any of the Mortgages, and Lender may seek satisfaction out of each and every Property or any part thereof, in its absolute discretion in respect of the Loans. In addition, Lender shall have the right from time to time to partially foreclose one or more of the Mortgages in any manner and for any amounts of the Loans secured by the Mortgages then due and payable as determined by Lender in its sole discretion, including the following circumstances: (i) in the event of any Event of Default by Borrower caused by a 10 failure to make one or more scheduled payments of principal and interest, Lender may foreclose one or more of the Mortgages to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loans, Lender may foreclose one or more of the Mortgages to recover so much of the principal balance of the Loans as Lender may elect to accelerate, and to recover such other sums secured by one or more of the Mortgages as Lender may elect. Notwithstanding one or more foreclosures or partial foreclosures, each and every Property or part thereof, not subjected to said foreclosure shall remain subject to the Mortgages to secure payment of the Loans not previously recovered. 11. Construction with other Documents. Any requirements imposed on --------------------------------- Borrower pursuant to the terms hereof are in addition to, and not in lieu of, any requirements imposed on Borrower pursuant to the terms of any Loan Document. To the extent of any inconsistency between the terms of any Loan Document and the terms hereof, the terms of this Agreement shall govern. 12. Definitions. To the extent a Loan is released from the terms and ----------- conditions hereof, the terms "Property", "Properties", "Loans" and "Loan Documents" shall, from that time forth, no longer include such released Property, such Loan, and the Loan Documents executed solely in connection with such Loan. 13. Further Assurance. The Borrower agrees to execute and deliver ----------------- any further documents and instruments as Lender may require to effectuate the intent of this Agreement. The Borrowers further acknowledges and agrees that Lender may require that this Agreement be amended at any time and from time to time to remove any of the Properties from this Agreement, and, in accordance with the terms set forth herein, the Borrower agrees to execute and deliver such documents as Lender may require in connection therewith. 14. Notices. All notices, demands, requests or other ------- communications to be sent by one party to the other hereunder or required by law shall be effectuated in the manner set forth in the Mortgages. 15. No Waiver; Time of Essence; Business Day. The failure of any ---------------------------------------- party hereto to enforce any right or remedy hereunder, or to promptly enforce any such right or remedy, shall not constitute a waiver thereof nor give rise to any estoppel against such party nor excuse any of the parties hereto from their respective obligations hereunder. Any waiver of such right or remedy must be in writing and signed by the party to be bound. This Agreement is subject to enforcement at law or in equity, including actions for damages or specific performance. Time is of the essence hereof. The term "business day" as used herein shall mean a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in the State in which any Property is located are authorized by law to be closed. 16. Captions for Convenience. The captions and headings of the ------------------------ sections and paragraphs of this Agreement are for convenience of reference only and shall not be construed in interpreting the provisions hereof. 17. Attorneys' Fees. In the event it is necessary for Lender to --------------- retain the services of an attorney or any other consultants for any purpose related to this Agreement, 11 including, without limitation, the enforcement of this Agreement, or any portion thereof, Borrower agrees to pay to Lender any and all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Lender as a result thereof. 18. Reliance. Lender would not make any Loan to Borrower without -------- this Agreement. Accordingly, Borrower intentionally and unconditionally enter into the covenants and agreements as set forth above and understands that, in reliance upon and in consideration of such covenants and agreements, the Loans shall be made and, as part and parcel thereof, specific monetary and other obligations have been, are being and shall be entered into which would not be made or entered into but for such reliance. 19. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. ------------------------------------------------ (1) BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE COUNTY AND STATE WHERE EACH PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION OVER SUCH COUNTY AND STATE, (C) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM. BORROWER FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR NOTICES DESCRIBED IN THE MORTGAGES, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). (2) LENDER AND BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWERS, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. 21. Survival. This Agreement shall be deemed to be continuing in -------- nature and shall remain in full force and effect and shall survive the exercise of any remedy by Lender under any one or more of the Mortgages or any of the other Loan Documents, including, without 12 limitation, any foreclosure or deed in lieu thereof, even if, as a part of such remedy, any Loan is paid or satisfied in full. 22. Entire Agreement; Amendment; Severability. This Agreement ----------------------------------------- contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior agreements, whether written or oral, between the parties respecting such matters. Any amendments or modifications hereto, in order to be effective, shall be in writing and executed by the parties hereto. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision, and any determination that the application of any provision of this Agreement to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances. 23. Contribution. ------------ a) Each of the Borrowers hereby acknowledges and agrees that, due to the fact that the Loans will be cross-defaulted as of the date hereof, each of the Borrowers has a direct and material interest in preventing the occurrence of an Event of Default under any of the Loan Documents (as the term "Event of Default" is defined therein). Accordingly, from and after the date hereof, each of the Borrowers is willing to commit to make or receive loans (each an "Intra-Borrower Loan", and collectively, the "Intra-Borrower Loans") in ------------------- -------------------- order to provide for the payment of all amounts due under the Loan Documents and, in so doing, to avoid an Event of Default thereunder. The Borrowers each acknowledge and agree that the Lender is an intended third party beneficiary of the Borrowers' obligations hereunder. In the event and to the extent that the proceeds from the Mortgaged Property (as defined in the Mortgages) of any Borrower (the "Creditor") are applied with respect of any payments due with -------- respect to the Allocated Loan Amount (as set forth on Exhibit B annexed hereto) --------------------- --------- for the Mortgaged Property owned by another Borrower (the "Debtor") from and ------ after the date hereof, then the Creditor shall be deemed to have made an Intra- Borrower Loan to Debtor in the amount of such proceeds so applied (the "Intra- ----- Borrower Loan Amount"). Such Intra-Borrower Loan shall be deemed to be made on - -------------------- a non-recourse basis and shall be repaid out of the future proceeds of the Mortgaged Property owned by the Debtor, together with interest thereon at a rate to be agreed upon from time to time among the Borrowers. b) All Intra-Borrower Loans deemed to be made under this Agreement shall be evidenced by this Agreement, shall be an obligation of the Debtor which owes such Intra-Borrower Loan solely by its execution of this Agreement and shall not be evidenced by any separate instrument. Each Borrower hereby waives presentment, notice of dishonor, protest and notice of non-payment or non-performance with respect to each Intra-Borrower Loan for which it is liable under this Agreement. Interest and principal on Intra-Borrower Loans shall be paid solely out of net proceeds from the Mortgaged Property owned by the Debtor and shall be subject in all cases to the terms and conditions of the Loan Documents, and the payments from such sources shall be the sole and exclusive remedy available to any Creditor. A Debtor shall not make any payment with respect to an Intra-Borrower Loan after the occurrence of an Event of Default with respect to the Mortgage to which the Debtor is a party. Each such payment of principal or interest on Intra-Borrower Loans shall be subordinate and subject to the prior payment of all amounts payable under the Loan Documents. To the extent such sources of 13 payment are insufficient to pay interest and principal on any Intra-Borrower Loan, the Creditor owed such Intra-Borrower Loan shall not have any claim against the Debtor which owes such Intra-Borrower Loan for such amounts or any lien on or security interest in any of the assets of such Debtor and no further or additional recourse shall be available against the Debtor. All payments pursuant to Intra-Borrower Loans shall be made on a net basis. All payments received on account of any Intra-Borrower Loan under this Agreement shall be credited first to interest, then to principal. Accrued but unpaid interest shall not be compounded. 24. Waivers. To the extent permitted by law, Multiple Property ------- Borrower and Maryland Borrower hereby waive and agree not to assert or take advantage of: (a) Any right to require Lender to proceed against either Borrower or any other person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy in Lender's power or under any other agreement before proceeding against either Borrower hereunder; (b) Any defense based upon an election of remedies by Lender; and (c) Any right or claim or right to cause a marshalling of the assets of either Borrower. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. HCP MEDICAL OFFICE BUILDINGS I, LLC, a Delaware limited liability company By: ________________________________ Name: Edward J. Henning Title: Senior Vice President MEADOWDOME, LLC, a Maryland limited liability company By: ___________________________________ Name: Edward J. Henning Title: Senior Vice President 15 [Add Acknowledgement] [Add Exhibit A-1 through A-6 [Note: Exhibit A-1 will have fee and leasehold property and Exhibit A-5 will have leasehold property] 16 EXHIBIT B --------- Allocated loan Amounts 1. The First Property $13,000,000.00 2. The Second Property $14,000,000.00 3. The Third Property $ 4,160,000.00 4. The Fourth Property $ 3,500,000.00 5. The Fifth Property $ 2,700,000.00 6. The Sixth Property $ 3,640,000.00 17 SCHEDULE 1 "Debt Service" shall mean an amount equal to the principal and interest payments due under all of the Loans (except the Loan related to the Property subject to the proposed Sale). "Debt Service Coverage Ratio" shall mean the ratio obtained by dividing the then-current Net Operating Income for all of the Properties (except the Property subject to the proposed Sale) by the total annualized Debt Service. "Net Operating Income" shall mean the amount by which Operating Revenues for all of the Properties (except the Property subject to the proposed Sale) exceeds Operating Expenses for all of the Properties (except the Property subject to the proposed Sale), calculated as of the twelve month period ending as of the date of the most recent financial statements delivered or required to be delivered to Lender pursuant to the Loan Documents and in all cases calculated and reasonably determined by Lender and based on Lender's then reasonable current underwriting standards; if requested by Borrower in connection with a potential defeasance or sale which may be permitted under this Agreement, Lender shall provide Borrower with its then current underwriting standards in determining Net Operating Income for the Properties. "Operating Expenses" shall mean all reasonable and necessary expenses of operating the Properties (except the Property subject to the proposed Sale) in the ordinary course of business which are paid by Borrower and which are directly associated with and fairly allocable to the Properties (except the Property subject to the proposed Sale) for the applicable period, on an accrual basis, including ad valorem real estate taxes and assessments, insurance premiums, regularly scheduled tax impounds paid to Lender in connection with any of the Loans (excluding the Loan attributable to the Property subject to the proposed Sale), if any, maintenance costs, a minimum management fee equal to 4% of base and percentage rent, and costs, accounting, legal, and other professional fees, fees relating to environmental and financial audits, and other expenses incurred by Lender and reimbursed by Borrower under the Loan Documents (excluding the Loan Documents applicable to the Property that is the subject of the proposed Sale), deposits to any capital replacement reserves, if any, required by Lender pursuant to the Loan Documents (excluding the Loan Documents applicable to the Property that is the subject of the proposed Sale), wages, salaries, and personnel expenses and tenant improvement and leasing commissions cost equal to the amount set forth on Schedule 3 annexed hereto and made a part hereof per square foot on an annualized basis for each of the Properties (except the Property subject to the proposed Sale), but excluding Debt Service, capital expenditures, any of the foregoing expenses which are paid from deposits to cash reserves previously included as Operating Expenses, any payment or expense for which Borrower was or is to be reimbursed from proceeds of the Loans (excluding the proceeds from the Loan applicable to the Property that is the subject of the proposed Sale), or insurance or by any third party, and any non-cash charges such as depreciation and amortization, in all cases calculated and determined on a trailing twelve month basis. Operating Expenses shall not include federal, state or local income taxes or legal and other professional fees or expenses unrelated to the operation of the Properties. To the extent that the original Borrower (or any affiliate of the original Borrower) has not owned a particular Property for at least twelve months from the date of the calculation of Operating 18 Expenses, Operating Expenses attributable to such Property shall be determined on an annualized basis. "Operating Revenues" shall mean all receipts of Borrower from operation of the Properties (except the Property subject to the proposed Sale) or otherwise arising in respect of the Properties (except the Property subject to the proposed Sale) after the date hereof which are paid and properly allocable to the Properties (except the Property subject to the proposed Sale) for the applicable period, on an accrual basis, including receipts from leases and parking agreements, concession fees and charges, interest, if any, being earned on (x) any Additional Defeasance Deposit (as defined in the Loan Documents) previously paid in connection with any other loan which was once subject to this Agreement and which Additional Defeasance Deposit secures the remaining Loans; (y) any Additional Cash Deposit (as defined in the Loan Documents) previously paid in connection with any other loan which was once subject to this Agreement and which Additional Cash Deposit secures the remaining Loans; and (z) any Remaining Crossed Properties Deposits or Release Deposit Amounts previously paid in connection with any other loan which was once subject to this Agreement and which Remaining Crossed Properties Deposits or Release Deposit Amounts secures the remaining Loans, and other miscellaneous operating revenues, proceeds from rental or business interruption insurance, withdrawals from cash reserves (except to the extent any operating expenses paid therewith are excluded from Operating Expenses), but excluding security deposits and earnest money deposits until they are forfeited by the depositor, advance rentals until they are earned, and proceeds from a sale or other disposition, in all cases calculated and determined on a trailing twelve month basis. To the extent that the original Borrower hereof (or any affiliate of original Borrower) has not owned a particular Property for at least twelve months from the date of the calculation of Operating Revenue, Operating Revenue attributable to such Property shall be determined on an annualized basis. In addition, operating revenues may, in accordance with Lender's then current underwriting standards, be reduced by the following: 1. a 5% vacancy/credit loss factor; and 2. all or a portion of rents attributable to tenants that are either on month-to-month leases, not in occupancy, or in bankruptcy. "Loan-to-Value Ratio" shall mean the ratio of the outstanding principal amount of the indebtedness for all of the remaining Loans (excluding the Loan applicable to the Property that is the subject of the proposed Sale), to the value of the sum of: (i) all of the remaining Properties (except the Property that is the subject of the proposed Sale), such value being determined by Lender in its reasonable discretion, and (ii) any Additional Defeasance Deposit, Additional Cash Deposit, Release Deposit Amount or Remaining Crossed Properties Deposits previously paid in connection with any other loan which was once subject to this Agreement and which Additional Defeasance Deposit, Additional Cash Deposit, Release Deposit Amount or Remaining Crossed Properties Deposits secures the remaining Loans. 19 To the extent a term is defined in this schedule 1 and is also defined in schedule 2, the term defined herein shall be for use only in connection with this schedule 1 and where this Agreement specifically refers to this schedule 1. 20 SCHEDULE 2 "Debt Service" shall mean an amount equal to the principal and interest payments due under the Loan related to the Property subject to the proposed Sale. "Debt Service Coverage Ratio" shall mean the ratio obtained by dividing the then-current Net Operating Income for the Property subject to the proposed Sale by the total annualized Debt Service (as defined in this schedule 2). "Net Operating Income" shall mean the amount by which Operating Revenues for the Property subject to the proposed Sale exceeds Operating Expenses for the Property subject to the proposed Sale, calculated as of the twelve month period ending as of the date of the most recent financial statements delivered or required to be delivered to Lender pursuant to the applicable Loan Documents and in all cases calculated and reasonably determined by Lender and based on Lender's then reasonable current underwriting standards; if requested by Borrower in connection with a potential defeasance or sale which may be permitted under this Agreement, Lender shall provide Borrower with its then current underwriting standards in determining Net Operating Income for the Property. "Operating Expenses" shall mean all reasonable and necessary expenses of operating the Property subject to the proposed Sale in the ordinary course of business which are paid by Borrower and which are directly associated with and fairly allocable to the Property subject to the proposed Sale for the applicable period, on an accrual basis, including ad valorem real estate taxes and assessments, insurance premiums, regularly scheduled tax impounds paid to Lender in connection with the Loan attributable to the Property subject to the proposed Sale, if any, maintenance costs, a minimum management fee equal to 4% of base and percentage rent, and costs, accounting, legal, and other professional fees, fees relating to environmental and financial audits, and other expenses incurred by Lender and reimbursed by Borrower under the Loan Documents applicable to the Property that is the subject of the proposed Sale, deposits to any capital replacement reserves, if any, required by Lender pursuant to the Loan Documents applicable to the Property that is the subject of the proposed Sale, wages, salaries, and personnel expenses and tenant improvement and leasing commissions cost equal to the amount set forth on Schedule 3 per square foot on an annualized basis for the Property subject to the proposed Sale, but excluding Debt Service, capital expenditures, any of the foregoing expenses which are paid from deposits to cash reserves previously included as Operating Expenses, any payment or expense for which Borrower was or is to be reimbursed from proceeds of the Loan applicable to the Property that is the subject of the proposed Sale, or insurance or by any third party, and any non-cash charges such as depreciation and amortization, in all cases calculated and determined on a trailing twelve month basis. Operating Expenses shall not include federal, state or local income taxes or legal and other professional fees or expenses unrelated to the operation of the Property subject to the proposed Sale. To the extent that the original Borrower (or any affiliate of the original Borrower) has not owned the particular Property for at least twelve months from the date of the calculation of Operating Expenses, Operating Expenses attributable to such Property shall be determined on an annualized basis. 21 "Operating Revenues" shall mean all receipts of Borrower from operation of the Property subject to the proposed Sale or otherwise arising in respect of the Property subject to the proposed Sale after the date hereof which are paid and properly allocable to the Property subject to the proposed Sale for the applicable period, on an accrual basis, including receipts from leases and parking agreements, concession fees and charges, interest, if any, that will be earned on the Release Deposit Amount (as determined by Lender in its reasonable discretion) only if such Release Deposit Amount is to be held by Lender as additional collateral for the Loan being assumed under Section 9 of this Agreement and other miscellaneous operating revenues, proceeds from rental or business interruption insurance, withdrawals from cash reserves (except to the extent any operating expenses paid therewith are excluded from Operating Expenses), but excluding security deposits and earnest money deposits until they are forfeited by the depositor, advance rentals until they are earned, and proceeds from a sale or other disposition, in all cases calculated and determined on a trailing twelve month basis. To the extent that the original Borrower hereof (or any affiliate of original Borrower) has not owned the Property subject to the proposed Sale for at least twelve months from the date of the calculation of Operating Revenue, Operating Revenue attributable to such Property shall be determined on an annualized basis. In addition, operating revenues may, in accordance with Lender's then current underwriting standards, be reduced by the following: 1. a 5% vacancy/credit loss factor; and 2. all or a portion of rents attributable to tenants that are either on month-to-month leases, not in occupancy, or in bankruptcy. "Loan-to-Value Ratio" shall mean the ratio of the outstanding principal amount of the indebtedness for the Loan applicable to the Property that is the subject of the proposed Sale, to the value of the sum of: (i) the Property that is the subject of the proposed Sale, such value being determined by Lender in its reasonable discretion, and (ii) the Release Deposit Amount for the Loan applicable to the Property that is subject to the proposed Sale only if such Release Deposit Amount is to be held by Lender as additional collateral for such Loan. To the extent a term is defined in this schedule 2 and is also defined in schedule 1, the term defined herein shall be for use only in connection with this schedule 2 and where this Agreement specifically refers to this schedule 2. 22 SCHEDULE 3 Tenant Improvement and Leasing Commission Costs for use in calculating Operating Expenses Property Cost Per Square Foot 1. The First Property $1.56 2. The Second Property $1.09 3. The Third Property $1.29 4. The Fourth Property $1.00 5. The Fifth Property $1.00 6. The Sixth Property $1.00 23 SCHEDULE 4 Minimum Debt Service Coverage Ratio for Property Subject to Sale 1. The First Property 1.35:1 2. The Second Property N/A - No Individual Sale Permitted 3. The Third Property 1.50:1 4. The Fourth Property 1.50:1 5. The Fifth Property 1.50:1 6. The Sixth Property 1.50:1 Maximum Loan to Value Ratio for Property Subject to Sale 1. The First Property 60% 2. The Second Property N/A - No Individual Sale Permitted 3. The Third Property 60% 4. The Fourth Property 60% 5. The Fifth Property 60% 6. The Sixth Property 60% 24 EX-27.1 4 0004.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,904 0 0 0 0 0 2,439,229 (277,193) 2,404,707 0 1,024,558 0 274,525 50,962 829,447 2,404,707 0 246,629 0 77,110 12,009 0 64,757 96,887 0 96,887 0 274 0 97,161 1.54 1.53
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