EX-99.2 3 a05-13976_1ex99d2.htm EX-99.2

 

Exhibit 99.2

 

CELEBRATING 20 YEARS AS A PUBLIC COMPANY

 

SUPPLEMENTAL INFORMATION

JUNE 30, 2005

(UNAUDITED)

 

[LOGO]

 



 

Overview

 

3


 

About the Company

 

Health Care Property Investors, Inc., a Maryland corporation organized in 1985, is a real estate investment trust (“REIT”) that, together with its consolidated subsidiaries and joint ventures, invests in healthcare related properties located throughout the United States. The Company acquires healthcare facilities and leases them to healthcare providers. Additionally, the Company provides mortgage financing on healthcare facilities. References herein to “HCP,” the “Company,” “we,” “us” and “our” include Health Care Property Investors, Inc. and our consolidated subsidiaries and joint ventures, unless the context otherwise requires.

 

The Company is organized to invest in income-producing healthcare related facilities. Our primary goal is to increase shareholder value through profitable growth. Our investment strategy to achieve this goal is based on three principles – opportunistic investing, portfolio diversification and conservative financing.

 

Opportunistic Investing. The Company makes real estate investments that are expected to drive profitable growth and create long-term shareholder value. We attempt to position ourselves to create and take advantage of situations where we believe the opportunities meet our goals and investment criteria. We invest in properties directly and through joint ventures, and provide secured financing, depending on the nature of the investment opportunity.

 

Portfolio Diversification. The Company believes in maintaining a portfolio of healthcare related real estate diversified by sector, geography, operator and investment product. Diversification within the healthcare industry reduces the likelihood that a single event would materially harm our business. This allows us to take advantage of opportunities in different markets based on individual market dynamics. While pursuing our strategy of attaining diversification in our portfolio, there are no specific limitations on the percentage

of our total assets that may be invested in any one property, property type, geographic location or in the number of properties in which we may invest, lease or lend to a single operator.

 

Conservative Financing. The Company believes a conservative balance sheet provides the ability to execute our opportunistic investing approach and portfolio diversification principles. We maintain our conservative balance sheet by actively managing our debt to equity levels and maintaining available sources of liquidity. Our debt is primarily fixed rate, which reduces the impact of rising interest rates on our operations. Generally, we attempt to match the long-term duration of our leases with long-term fixed rate financing.

 

As of June 30, 2005, the Company’s portfolio of properties, excluding assets held for sale but including investments through joint ventures and mortgage loans, included 529 properties in 42 states and consisted of:

 

• 28 hospitals

• 165 skilled nursing facilities

• 121 assisted living and continuing care retirement communities

• 191 medical office buildings

• 24 other healthcare facilities

 

The information in this supplemental information package should be read in conjunction with the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and other information filed with the Securities and Exchange Commission (“SEC”). The Reporting Definitions and Supplemental Financial Disclosures are an integral part of the information presented herein.

 

You can access, free of charge, a copy of the periodic and current reports we file with the SEC on our website at www.hcpi.com. Our periodic and current reports are made available on our website as soon as reasonably practicable after these reports are filed with the SEC.

 

For more information, contact Talya Nevo-Hacohen, Senior Vice President – Strategic Development and Treasurer at (562) 733-5100.

 

4


 

Company Information

 

Board of Directors

 

Mary A. Cirillo

Former Chairman and Chief Executive

Officer, OPCENTER

Compensation Committee

Nominating and Corporate

Governance Committee

 

Robert R. Fanning, Jr.

Chief Operating Officer, Saint Vincent

Catholic Medical Centers of New York

Audit Committee

 

James F. Flaherty III

Chairman and Chief Executive Officer

Health Care Property Investors, Inc.

 

David B. Henry

Vice Chairman and Chief Investment

Officer, Kimco Realty Corporation

Audit Committee

Nominating and Corporate

Governance Committee

 

Michael D. McKee

Vice Chairman and Chief Operating

Officer, The Irvine Company

Chairperson, Compensation Committee

 

Harold M. Messmer, Jr.

Chairman and Chief Executive Officer

Robert Half International, Inc.

Compensation Committee

Nominating and Corporate

Governance Committee

 

Peter L. Rhein

Partner

Sarlot & Rhein

Chairperson, Audit Committee

 

Kenneth B. Roath

Chairman Emeritus

Health Care Property Investors, Inc.

 

Richard M. Rosenberg

Chairman and Chief Executive Officer

(Retired), Bank of America

Lead Director

Chairperson, Nominating and

Corporate Governance Committee

 

Joseph P. Sullivan

Former Chairman and Chief Executive

Officer, Protocare, Inc.

Audit Committee

 

Senior Management

 

Charles A. Elcan

Executive Vice President

Medical Office Properties

 

James F. Flaherty III

Chairman and

Chief Executive Officer

 

Paul F. Gallagher

Executive Vice President

Portfolio Strategy

 

Edward J. Henning

Senior Vice President

General Counsel and

Corporate Secretary

 

F. Scott Kellman

Senior Vice President

Business Development

 

Thomas M. Klaritch

Senior Vice President

Medical Office Properties

 

Stephen R. Maulbetsch

Executive Vice President

Acquisitions and Dispositions

 

Talya Nevo-Hacohen

Senior Vice President

Strategic Development and Treasurer

 

Mark A. Wallace

Senior Vice President

Chief Financial Officer

 

Company Information

 

Corporate Headquarters

3760 Kilroy Airport Way

Suite 300

Long Beach, CA 90806-2473

(562) 733-5100

 

Nashville Office

3100 West End Avenue

Suite 800

Nashville, TN 37203

(615) 324-6900

 

Senior Debt Ratings

Moody’s

 

Baa2

Standard & Poor’s

 

BBB+

Fitch

 

BBB+

 

Stock Exchange Listing

NYSE (US Dollar)

 

Trading Symbol

HCP

 

(Common Stock)

HCP_pe

 

(Series E Preferred)

HCP_pf

 

(Series F Preferred)

 

5


 

Quarterly Highlights (1)

 

REAL ESTATE TRANSACTIONS

 

Year-to-date through August 1, 2005, the Company has made secured loans and acquired interests in properties aggregating $441 million, including the following:

 

On July 22, 2005, the Company acquired twelve independent and assisted living facilities for approximately $252 million, including assumed debt valued at approximately $52 million, through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with three ten-year renewal options. The initial annual lease rate is approximately 7.1% with annual escalators based on the Consumer Price Index (“CPI”) that have a floor of 3%. Eleven of the facilities have an average occupancy of 91%. One facility will be placed into service in August 2005 and is currently 34% pre-leased.

 

On July 1, 2005, the Company acquired an assisted living facility for approximately $16 million through a sale-leaseback transaction. The facility has an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is approximately 8.75% with annual CPI-based escalators that have a floor of 2.75%. The property is currently 96% occupied and a 60-unit expansion is planned.

 

As previously announced, on April 28, 2005, the Company acquired five medical office buildings for approximately $81 million, including assumed debt valued at $29 million. The initial yield is 7.0% with two properties currently in lease-up.  The yield following lease-up is expected to be 8.2%.  The medical office buildings include approximately 537,000 rentable square feet.

 

As previously announced, on April 20, 2005, the Company acquired five assisted living facilities for $58 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is approximately 9.0% with annual CPI-based escalators that have a floor of 2.75%. These properties are included in a new master lease along with five other properties currently leased to the operator.

 

Year-to-date through August 1, 2005, the Company sold interests in ten properties for approximately $48 million and recognized a gain of approximately $9 million. During the quarter ended June 30, 2005, the Company sold interests in six properties for approximately $13 million and recognized a gain of approximately $4 million.

 

CAPITAL MARKETS TRANSACTIONS

 

On June 15, 2005, the Company repaid $10 million of maturing Medium Term Notes which accrued interest at a rate of 7.55%. These notes were repaid with funds available under the Company’s bank line of credit.

 

On June 3, 2005, the Remarketing Dealer exercised its option to redeem the Company’s $200 million principal amount of 6.875% Mandatory Par Put Remarketed Securities (“MOPPRS”). The Remarketing Dealer redeemed the securities from the holders at par plus accrued interest, and reissued ten-year senior notes with a coupon of 7.072%.

 

On April 27, 2005, the Company issued $250 million of 5 5/8% senior unsecured notes due 2017. The notes were priced at 99.585% of the principal amount for an effective yield of 5.673%. The Company received proceeds of $247 million, which were used to repay borrowings under the bank line of credit and for general corporate purposes.

 

OTHER EVENTS

 

On July 27, 2005, the Company announced that its Board declared a quarterly cash dividend of $0.42 per share of common stock. The common stock cash dividend will be paid on August 19, 2005, to stockholders of record as of the close of business on August 8, 2005.

 

On May 16, 2005, the Company announced the election of James F. Flaherty III, President and Chief Executive Officer, as Chairman of the Board of Directors. Flaherty succeeded Kenneth B. Roath who became Chairman Emeritus andremained a director of the Company.

 

On May 12, 2005, the Company announced the promotion of Stephen R. Maulbetsch to Executive Vice President – Acquisitions and Dispositions. Maulbetsch has been with the Company for 20 years, most recently as Senior Vice President – Acquisitions and Dispositions.

 

On April 27, 2005, the Company announced the addition of F. Scott Kellman as Senior Vice President – Business Development effective June 1, 2005. Kellman joined the Company and its senior management team to assist in furtherimplementing growth initiatives at HCP.

 

(1) Includes events subsequent to the current quarter-end through the date of the most recent quarterly earning press release issuance.

 

6


 

Consolidated Information

 

 

Consolidated Information

 

7


 

Consolidated Balance Sheets

 

In thousands

 

 

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

ASSETS

 

 

 

 

 

Real estate:

 

 

 

 

 

Buildings and improvements

 

$

3,141,240

 

$

3,025,707

 

Developments in process

 

13,590

 

25,777

 

Land

 

306,761

 

299,461

 

Less accumulated depreciation and amortization

 

565,559

 

533,764

 

Net real estate

 

2,896,032

 

2,817,181

 

 

 

 

 

 

 

Loans receivable, net:

 

 

 

 

 

Joint venture partners

 

7,006

 

6,473

 

Others

 

140,643

 

139,919

 

Investments in and advances to unconsolidated joint ventures

 

48,694

 

60,506

 

Accounts receivable, net of allowances

 

13,629

 

14,834

 

Cash and cash equivalents

 

18,890

 

16,962

 

Restricted cash

 

16,904

 

3,593

 

Intangibles, net

 

19,725

 

18,872

 

Other assets, net

 

26,237

 

24,294

 

Total assets

 

$

3,187,760

 

$

3,102,634

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Bank line of credit

 

$

115,300

 

$

300,100

 

Senior unsecured notes

 

1,284,476

 

1,046,690

 

Mortgage debt

 

165,933

 

139,416

 

Accounts payable and accrued liabilities

 

62,764

 

59,905

 

Deferred revenue

 

18,430

 

15,300

 

Total liabilities

 

1,646,903

 

1,561,411

 

 

 

 

 

 

 

Minority interests

 

120,436

 

121,781

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock

 

285,173

 

285,173

 

Common stock

 

135,630

 

133,658

 

Additional paid-in capital

 

1,440,380

 

1,403,335

 

Cumulative net income

 

1,434,594

 

1,348,089

 

Cumulative dividends

 

(1,863,313

)

(1,739,859

)

Other equity

 

(12,043

)

(10,954

)

Total stockholders’ equity

 

1,420,421

 

1,419,442

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,187,760

 

$

3,102,634

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

8


 

Consolidated Statements of Income

 

In thousands, except per share data

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

Rental revenues

 

$

112,465

 

$

93,097

 

$

215,268

 

$

178,140

 

Equity income from unconsolidated joint ventures

 

88

 

849

 

299

 

2,086

 

Interest and other income

 

5,989

 

9,980

 

11,196

 

18,503

 

 

 

118,542

 

103,926

 

226,763

 

198,729

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Interest

 

25,372

 

19,743

 

48,610

 

40,957

 

Depreciation and amortization

 

27,253

 

20,457

 

50,997

 

40,318

 

Operating

 

15,419

 

9,894

 

28,742

 

19,139

 

General and administrative

 

8,827

 

8,554

 

16,146

 

15,405

 

Impairments

 

—

 

1,216

 

—

 

1,216

 

 

 

76,871

 

59,864

 

144,495

 

117,035

 

 

 

 

 

 

 

 

 

 

 

Income before minority interests

 

41,671

 

44,062

 

82,268

 

81,694

 

Minority interests

 

(3,031

)

(3,289

)

(6,178

)

(6,153

)

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

38,640

 

40,773

 

76,090

 

75,541

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Operating income

 

241

 

1,771

 

1,511

 

4,830

 

Gain (loss) on sales of real estate, net of impairments

 

4,166

 

(960

)

8,904

 

8,048

 

 

 

4,407

 

811

 

10,415

 

12,878

 

 

 

 

 

 

 

 

 

 

 

Net income

 

43,047

 

41,584

 

86,505

 

88,419

 

Preferred stock dividends

 

(5,283

)

(5,282

)

(10,566

)

(10,565

)

 

 

 

 

 

 

 

 

 

 

Net income applicable to common shares

 

$

37,764

 

$

36,302

 

$

75,939

 

$

77,854

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.25

 

$

0.27

 

$

0.49

 

$

0.50

 

Discontinued operations

 

0.03

 

0.01

 

0.08

 

0.09

 

Net income applicable to common shares

 

$

0.28

 

$

0.28

 

$

0.57

 

$

0.59

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.25

 

$

0.27

 

$

0.49

 

$

0.49

 

Discontinued operations

 

0.03

 

—

 

0.07

 

0.10

 

Net income applicable to common shares

 

$

0.28

 

$

0.27

 

$

0.56

 

$

0.59

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate EPS:

 

 

 

 

 

 

 

 

 

Basic

 

134,445

 

131,653

 

133,968

 

131,196

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

135,214

 

132,856

 

134,871

 

132,778

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

9


 

Consolidated Funds From Operations

 

In thousands, except per share data

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common shares

 

$

37,764

 

$

36,302

 

$

75,939

 

$

77,854

 

Real estate depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

27,253

 

20,457

 

50,997

 

40,318

 

Discontinued operations

 

141

 

720

 

381

 

2,158

 

Gain on real estate dispositions

 

(4,166

)

(286

)

(8,904

)

(10,269

)

Equity income from unconsolidated joint ventures

 

(88

)

(849

)

(299

)

(2,086

)

FFO from unconsolidated joint ventures

 

3,708

 

1,954

 

5,730

 

4,491

 

Minority interests

 

3,031

 

3,289

 

6,178

 

6,153

 

Minority interests in FFO

 

(3,349

)

(3,589

)

(6,814

)

(6,644

)

 

 

 

 

 

 

 

 

 

 

FFO applicable to common shares

 

$

64,294

 

$

57,998

 

$

123,208

 

$

111,975

 

 

 

 

 

 

 

 

 

 

 

Distributions on convertible units

 

$

2,113

 

$

2,195

 

$

4,233

 

$

2,195

 

 

 

 

 

 

 

 

 

 

 

Diluted FFO applicable to common shares

 

$

66,407

 

$

60,193

 

$

127,441

 

$

114,170

 

 

 

 

 

 

 

 

 

 

 

Basic FFO per common share

 

$

0.48

 

$

0.44

 

$

0.92

 

$

0.85

 

 

 

 

 

 

 

 

 

 

 

Diluted FFO per common share

 

$

0.47

 

$

0.44

 

$

0.91

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate diluted FFO per common share

 

140,246

 

138,115

 

139,903

 

135,407

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.4200

 

$

0.4175

 

$

0.8400

 

$

0.8350

 

 

 

 

 

 

 

 

 

 

 

FFO payout ratio per common share

 

89.4

%

94.9

%

92.3

%

99.4

%

 

 

 

 

 

 

 

 

 

 

Selected supplemental cash flow information

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

 

Impairments

 

$

—

 

$

2,462

 

$

—

 

$

3,437

 

Capitalized interest

 

65

 

707

 

372

 

881

 

Amortization of deferred compensation and debt issuance costs

 

2,590

 

2,368

 

4,771

 

4,041

 

Amortization of other lease intangibles

 

1,405

 

—

 

1,427

 

—

 

Straight-line rents

 

1,113

 

309

 

2,742

 

769

 

Lease commissions and tenant and capital improvements

 

1,064

 

193

 

1,464

 

1,318

 

 

 

 

 

 

 

 

 

 

 

HCP’s share of HCP MOP:

 

 

 

 

 

 

 

 

 

Amortization of deferred financing costs

 

$

92

 

$

131

 

$

202

 

$

131

 

Amortization of other lease intangibles

 

626

 

328

 

692

 

647

 

Straight-line rents

 

28

 

82

 

138

 

190

 

Lease commissions and tenant and capital improvements

 

592

 

241

 

1,332

 

875

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

10


 

Adjusted Fixed Charge Coverage

 

In thousands

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

43,047

 

$

41,584

 

$

86,505

 

$

88,419

 

Interest expense:

 

 

 

 

 

 

 

 

 

Continuing operations

 

25,372

 

19,743

 

48,610

 

40,957

 

Discontinued operations

 

—

 

—

 

—

 

351

 

Income taxes

 

168

 

849

 

150

 

993

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

27,253

 

20,457

 

50,997

 

40,318

 

Discontinued operations

 

141

 

720

 

381

 

2,158

 

Equity income from unconsolidated joint ventures

 

(88

)

(849

)

(299

)

(2,086

)

EBITDA from HCP MOP

 

4,106

 

3,925

 

7,525

 

7,639

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

99,999

 

$

86,429

 

$

193,869

 

$

178,749

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

25,372

 

$

19,743

 

$

48,610

 

$

40,957

 

Discontinued operations

 

—

 

—

 

—

 

351

 

Interest expense from HCP MOP

 

1,621

 

1,542

 

3,230

 

2,689

 

Capitalized interest

 

65

 

707

 

372

 

881

 

Preferred stock dividends

 

5,283

 

5,282

 

10,566

 

10,565

 

 

 

 

 

 

 

 

 

 

 

Adjusted fixed charges

 

$

32,341

 

$

27,274

 

$

62,778

 

$

55,443

 

 

 

 

 

 

 

 

 

 

 

Adjusted fixed charge coverage

 

3.1

x

3.2

x

3.1

x

3.2

x

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

11


 

Net Cash Provided by Operating Activities to EBITDA Reconciliation

 

In thousands

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

67,671

 

$

54,471

 

$

140,157

 

$

124,178

 

Changes in:

 

 

 

 

 

 

 

 

 

Accounts payable, accrued liabilities and deferred revenue

 

940

 

8,896

 

(3,573

)

2,492

 

Other assets

 

1,363

 

6,393

 

324

 

6,348

 

Accounts receivable

 

(596

)

426

 

(1,205

)

606

 

Net gain on sales of real estate

 

4,166

 

286

 

8,904

 

10,269

 

Minority interests

 

(3,031

)

(3,288

)

(6,178

)

(6,153

)

Distributions of earnings from unconsolidated joint ventures

 

(88

)

(849

)

(299

)

(2,086

)

Equity income from unconsolidated joint ventures

 

88

 

849

 

299

 

2,086

 

Straight-line rents

 

1,113

 

309

 

2,742

 

769

 

Provision for loan losses

 

—

 

98

 

56

 

(136

)

Amortization of deferred compensation and debt issuance costs

 

(2,590

)

(2,368

)

(4,771

)

(4,041

)

Impairments

 

—

 

(2,462

)

—

 

(3,437

)

Amortization of other lease intangibles

 

1,405

 

—

 

1,427

 

—

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

(27,253

)

(20,457

)

(50,997

)

(40,318

)

Discontinued operations

 

(141

)

(720

)

(381

)

(2,158

)

 

 

 

 

 

 

 

 

 

 

Net income

 

43,047

 

41,584

 

86,505

 

88,419

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Continuing operations

 

25,372

 

19,743

 

48,610

 

40,957

 

Discontinued operations

 

—

 

—

 

—

 

351

 

Income taxes

 

168

 

849

 

150

 

993

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

27,253

 

20,457

 

50,997

 

40,318

 

Discontinued operations

 

141

 

720

 

381

 

2,158

 

Equity income from unconsolidated joint ventures

 

(88

)

(849

)

(299

)

(2,086

)

EBITDA from HCP MOP

 

4,106

 

3,925

 

7,525

 

7,639

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

99,999

 

$

86,429

 

$

193,869

 

$

178,749

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

12


 

Consolidated Indebtedness

 

In thousands

 

Debt Maturities and Scheduled Principal Repayments June 30, 2005

 

Year

 

Total

 

Bank Line
of Credit

 

Senior
Unsecured
Notes

 

Mortgage
Debt

 

 

 

 

 

 

 

 

 

 

 

2005

 

$

34,962

 

$

—

 

$

21,000

 

$

13,962

 

2006

 

139,707

 

—

 

135,000

 

4,707

 

2007

 

260,386

 

115,300

 

140,000

 

5,086

 

2008

 

8,262

 

—

 

—

 

8,262

 

2009

 

5,763

 

—

 

—

 

5,763

 

2010

 

71,728

 

—

 

6,421

 

65,307

 

2011

 

15,086

 

—

 

—

 

15,086

 

2012

 

257,660

 

—

 

250,000

 

7,660

 

2013

 

19,349

 

—

 

—

 

19,349

 

2014

 

88,251

 

—

 

87,000

 

1,251

 

Thereafter

 

669,500

 

—

 

650,000

 

19,500

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

1,570,654

 

115,300

 

1,289,421

 

165,933

 

 

 

 

 

 

 

 

 

 

 

Discounts and premiums, net

 

(4,945

)

—

 

(4,945

)

—

 

 

 

 

 

 

 

 

 

 

 

Consolidated debt (1)

 

$

1,565,709

 

$

115,300

 

$

1,284,476

 

$

165,933

 

 

 

 

 

 

 

 

 

 

 

Weighted average interest rate

 

6.34

%

4.02

%

6.41

%

7.38

%

 

 

 

 

 

 

 

 

 

 

Weighted average maturity in years

 

7.12

 

2.33

 

7.58

 

6.91

 

 

 

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Fixed rate debt:

 

 

 

 

 

Senior unsecured notes

 

$

1,259,476

 

$

1,021,690

 

Mortgage debt

 

154,268

 

127,506

 

 

 

1,413,744

 

1,149,196

 

 

 

 

 

 

 

Variable rate debt:

 

 

 

 

 

Bank line of credit

 

115,300

 

300,100

 

Senior unsecured notes

 

25,000

 

25,000

 

Mortgage debt

 

11,665

 

11,910

 

 

 

151,965

 

337,010

 

 

 

 

 

 

 

Consolidated debt

 

$

1,565,709

 

$

1,486,206

 

 

 

 

 

 

 

Percent of consolidated debt:

 

 

 

 

 

Fixed rate

 

90.3

%

77.3

%

Variable rate

 

9.7

%

22.7

%

 

 

100.0

%

100.0

%

 

 

 

 

 

 

Unsecured

 

89.4

%

90.6

%

Secured

 

10.6

%

9.4

%

 

 

100.0

%

100.0

%

 

 

(1) Consolidated debt reflects book value.

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

13


 

Consolidated Capitalization

In thousands, except per share data

 

Market Equity

 

 

 

 

 

June 30, 2005

 

December 31, 2004

 

 

 

Dividend

 

Shares/

 

 

 

 

 

Shares/

 

 

 

 

 

Security

 

Rate

 

Units

 

Price

 

Value

 

Units

 

Price

 

Value

 

Common stock and
convertible units:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

N/A

 

135,630

 

$

27.04

 

$

3,667,435

 

133,658

 

$

27.69

 

$

3,700,990

 

Convertible partnership units (1)

 

N/A

 

2,516

 

54.08

 

136,065

 

2,526

 

55.38

 

139,890

 

 

 

 

 

 

 

 

 

3,803,500

 

 

 

 

 

3,840,880

 

Preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series E

 

7.25

%

4,000

 

25.79

 

103,160

 

4,000

 

26.25

 

105,000

 

Series F

 

7.10

%

7,820

 

25.52

 

199,566

 

7,820

 

25.26

 

197,533

 

 

 

 

 

 

 

 

 

302,726

 

 

 

 

 

302,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total market equity

 

 

 

 

 

 

 

$

4,106,226

 

 

 

 

 

$

4,143,413

 

 

 

Capitalization Ratios

 

 

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

Consolidated debt (2):

 

 

 

 

 

Bank line of credit

 

$

115,300

 

$

300,100

 

Senior unsecured notes

 

1,284,476

 

1,046,690

 

Mortgage debt

 

165,933

 

139,416

 

 

 

$

1,565,709

 

$

1,486,206

 

 

 

 

 

 

 

Undepreciated book value:

 

 

 

 

 

Buildings and improvements

 

$

3,141,240

 

$

3,025,707

 

Developments in process

 

13,590

 

25,777

 

Land

 

306,761

 

299,461

 

Intangibles

 

22,777

 

19,681

 

 

 

$

3,484,368

 

$

3,370,626

 

 

 

 

 

 

 

Consolidated debt/Undepreciated book value

 

44.9

%

44.1

%

 

 

 

 

 

 

Total market capitalization:

 

 

 

 

 

Consolidated debt

 

$

1,565,709

 

$

1,486,206

 

Total market equity

 

4,106,226

 

4,143,413

 

 

 

$

5,671,935

 

$

5,629,619

 

 

 

 

 

 

 

Consolidated debt/Total market capitalization

 

27.6

%

26.4

%

 

 

 

 

 

 

Total book capitalization:

 

 

 

 

 

Consolidated debt

 

$

1,565,709

 

$

1,486,206

 

Total stockholders’ equity

 

1,420,421

 

1,419,442

 

 

 

$

2,986,130

 

$

2,905,648

 

 

 

 

 

 

 

Consolidated debt/Total book capitalization

 

52.4

%

51.1

%

 

(1)          Each convertible partnership unit is exchangeable for an amount of cash approximating the market value of two shares of the Company’s common stock at time of conversion or, at the Company’s option, two shares of the Company’s common stock.

(2)          Consolidated debt reflects book value.

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

14


 

Consolidated Portfolio Overview

 

As of and for the six months ended June 30, 2005
Dollars and square feet in thousands

 

Owned Property and Secured Loan Portfolios - Overview by property type

 

 

 

Property

 

 

 

 

 

Square

 

Facility Occupancy %

 

Number

 

Sector

 

Count

 

Beds/Units

 

Feet

 

06/30/05

 

03/31/05

 

of States

 

Hospital

 

28

 

3,383

 

Beds

 

3,511

 

63

 

59

 

16

 

Skilled nursing

 

165

 

20,015

 

Beds

 

6,458

 

80

 

80

 

32

 

ALF & CCRC

 

117

 

12,209

 

Units

 

12,011

 

86

 

86

 

33

 

MOB

 

97

 

N/A

 

 

 

5,987

 

94

 

95

 

19

 

Other

 

24

 

N/A

 

 

 

1,463

 

100

 

100

 

7

 

Total

 

431

 

 

 

 

 

29,430

 

 

 

 

 

 

 

 

Owned Property and Secured Loan Portfolios - Operator concentration

 

 

 

Property

 

Investment

 

Net Operating

 

Interest

 

Total

 

Operator

 

Count

 

Amount

 

%

 

Income

 

Income

 

Amount

 

%

 

Tenet Healthcare Corporation

 

8

 

$

423,497

 

12

 

$

25,676

 

$

—

 

$

25,676

 

13

 

American Retirement Corporation

 

15

 

399,051

 

11

 

20,706

 

—

 

20,706

 

11

 

Emeritus Corporation

 

37

 

248,840

 

7

 

13,382

 

172

 

13,554

 

7

 

HealthSouth Corporation

 

9

 

108,301

 

3

 

7,501

 

—

 

7,501

 

4

 

Summerville Healthcare Group

 

10

 

97,671

 

3

 

2,812

 

689

 

3,501

 

2

 

Trilogy Health Services

 

14

 

81,877

 

2

 

4,923

 

—

 

4,923

 

3

 

Kindred Healthcare, Inc.

 

20

 

79,554

 

2

 

8,325

 

—

 

8,325

 

4

 

Pioneer Valley Hospital Inc.

 

2

 

70,165

 

2

 

3,596

 

—

 

3,596

 

2

 

Beverly Enterprises, Inc.

 

19

 

67,723

 

2

 

2,339

 

1,770

 

4,109

 

2

 

HCA Inc.

 

7

 

66,992

 

2

 

3,387

 

—

 

3,387

 

2

 

Tandem Health Care Inc.

 

9

 

63,093

 

2

 

3,135

 

—

 

3,135

 

2

 

Other Public Companies

 

25

 

238,618

 

7

 

11,362

 

3,037

 

14,399

 

7

 

Other Operators

 

256

 

1,653,930

 

45

 

79,382

 

1,814

 

81,196

 

41

 

Total

 

431

 

$

 3,599,312

 

100

 

$

 186,526

 

$

 7,482

 

$

 194,008

 

100

 

 

Reconciliation of Net Income to NOI

 

Net income

 

$

86,505

 

Equity income from unconsolidated joint ventures

 

(299

)

Interest and other income

 

(11,196

)

Interest expense

 

48,610

 

Depreciation and amortization

 

50,997

 

General and administrative

 

16,146

 

Minority interests

 

6,178

 

Total discontinued operations

 

(10,415

)

Net operating income (NOI)

 

$

186,526

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

15


 

As of and for the six months ended June 30, 2005

Dollars and square feet in thousands

 

Owned Property Portfolio - Overview by type

 

 

 

Property
Count

 

Investment

 

Beds/Units

 

Square
Feet

 


Facility Occupancy %

 

Cash
Flow
Coverage

 

Rental
Revenues

 

Less
Operating
Expenses

 

 

 

Sector

 

 

 

 

 

06/30/05

 

03/31/05

 

 

 

 

NOI

 

Hospital

 

26

 

$

713,391

 

3,269

 

Beds

 

3,272

 

63

 

58

 

2.1

x

$

43,932

 

$

—

 

$

43,932

 

Skilled nursing

 

152

 

650,294

 

18,165

 

Beds

 

5,918

 

80

 

80

 

1.3

x 

43,673

 

—

 

43,673

 

ALF & CCRC

 

108

 

963,593

 

11,672

 

Units

 

11,604

 

86

 

86

 

1.2

x 

50,481

 

3,781

 

46,700

 

MOB

 

97

 

922,854

 

N/A

 

5,987

 

94

 

95

 

N/A

 

63,469

 

22,468

 

41,001

 

Other

 

24

 

213,424

 

N/A

 

1,463

 

100

 

100

 

N/A

 

13,713

 

2,493

 

11,220

 

Total

 

407

 

$

3,463,556

 

 

 

28,244

 

 

 

 

 

 

 

$

215,268

 

$

28,742

 

$

186,526

 

 

Owned Property Portfolio - Overview by state

 

 

 

Total

 

Hospital

 

Skilled Nursing

 

ALF & CCRC

 

MOB

 

Other

 

State

 

No.

 

No.

 

Beds

 

No.

 

Beds

 

No.

 

Units

 

No.

 

Square
Feet

 

No.

 

Square
Feet

 

TX

 

48

 

4

 

326

 

9

 

1,079

 

25

 

2,634

 

10

 

905

 

—

 

—

 

IN

 

48

 

—

 

—

 

32

 

3,768

 

3

 

233

 

13

 

672

 

—

 

—

 

CA

 

34

 

3

 

745

 

9

 

918

 

8

 

629

 

11

 

608

 

3

 

421

 

FL

 

33

 

2

 

312

 

8

 

930

 

19

 

2,715

 

4

 

138

 

—

 

—

 

UT

 

31

 

1

 

139

 

1

 

120

 

—

 

—

 

21

 

896

 

8

 

510

 

TN

 

21

 

—

 

—

 

14

 

2,161

 

1

 

60

 

4

 

418

 

2

 

101

 

OH

 

16

 

—

 

—

 

12

 

1,543

 

3

 

374

 

1

 

37

 

—

 

—

 

AZ

 

15

 

2

 

94

 

3

 

286

 

3

 

550

 

7

 

253

 

—

 

—

 

KY

 

13

 

—

 

—

 

7

 

532

 

1

 

251

 

5

 

566

 

—

 

—

 

Other

 

148

 

14

 

1,653

 

57

 

6,828

 

45

 

4,226

 

21

 

1,494

 

11

 

431

 

Total

 

407

 

26

 

3,269

 

152

 

18,165

 

108

 

11,672

 

97

 

5,987

 

24

 

1,463

 

 

Secured Loan Portfolio - Overview by type

 

 

 

Property
Count

 

 

 

 

 

Square
Feet

 


Facility Occupancy %

 

Debt
Service
Coverage

 

Interest
Income

 

Sector

 

 

Investment

 

Beds/Units

 

 

06/30/05

 

03/31/05

 

 

 

Hospital

 

2

 

$

57,194

 

114

Beds

 

239

 

74

 

68

 

4.1 x

 

$

3,036

 

Skilled nursing

 

13

 

51,734

 

1,850

Beds

 

540

 

77

 

77

 

2.2 x

 

2,928

 

ALF & CCRC

 

9

 

26,828

 

537

Units

 

407

 

81

 

81

 

1.4 x

 

1,518

 

Total

 

24

 

$

135,756

 

 

 

 

1,186

 

 

 

 

 

 

 

$

7,482

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

16


 

Same Property Performance

 

Dollars and square feet in thousands

 

 

 

 

 

 

 

Skilled

 

ALF &

 

 

 

 

 

 

 

Total

 

Hospital

 

Nursing

 

CCRC

 

MOB

 

Other

 

Owned Property Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property count

 

407

 

26

 

152

 

108

 

97

 

24

 

Investment

 

$

3,463,556

 

$

713,391

 

$

650,294

 

$

963,593

 

$

922,854

 

$

213,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Property Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property count

 

350

 

26

 

134

 

88

 

79

 

23

 

Investment

 

$

2,731,360

 

$

713,391

 

$

543,950

 

$

671,869

 

$

630,005

 

$

172,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of Owned Property Portfolio (by investment)

 

79

%

100

%

84

%

70

%

68

%

81

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

22,797

 

3,272

 

5,110

 

8,725

 

4,457

 

1,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility occupancy at June 30, 2005

 

 

 

63

%

79

%

86

%

95

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility occupancy at June 30, 2004

 

 

 

63

%

79

%

83

%

95

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the six months ended June 30, 2005

 

$

158,221

 

$

43,932

 

$

37,780

 

$

35,121

 

$

32,240

 

$

9,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the six months ended June 30, 2004

 

$

154,503

 

$

43,828

 

$

35,775

 

$

34,198

 

$

31,804

 

$

8,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same property change in NOI

 

2.4

%

0.2

%

5.6

%

2.7

%

1.4

%

2.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the six months ended June 30, 2005

 

$

158,221

 

$

43,932

 

$

37,780

 

$

35,121

 

$

32,240

 

$

9,148

 

Straight-line rents (1)

 

(1,893

)

(428

)

(114

)

(1,260

)

(91

)

—

 

Amortization of other lease intangibles (2)

 

(1,257

)

—

 

—

 

—

 

(1,257

)

—

 

NOI, as adjusted, for the six months ended June 30, 2005

 

$

155,071

 

$

43,504

 

$

37,666

 

$

33,861

 

$

30,892

 

$

9,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the six months ended June 30, 2004

 

$

154,503

 

$

43,828

 

$

35,775

 

$

34,198

 

$

31,804

 

$

8,898

 

Straight-line rents

 

(752

)

(507

)

(198

)

—

 

(47

)

—

 

NOI, as adjusted, for the six months ended June 30, 2004

 

153,751

 

$

43,321

 

$

35,577

 

$

34,198

 

$

31,757

 

$

8,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same property change in NOI, as adjusted

 

0.9

%

0.4

%

5.9

%

-1.0

%

-2.7

%

2.8

%

 

(1)          Straight-line rents for ALF & CCRCs include the impact of straight-line rent recognized for ARC beginning in the fourth quarter of 2004.

(2)          Amortization of other lease intangibles includes the impact of HCP’s purchase price allocation related to its 2003 acquisition of certain properties acquired from MedCap Properties, LLC.

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

17


 

Lease Expirations

 

In thousands

 

 

 

 

 

Expiration Year (1)

 

Sector

 

Totals

 

2005

 

2006

 

2007

 

2008

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned Property Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospital:

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

11

 

—

 

—

 

3

 

1

 

7

 

Annualized expiring rents

 

$

47,148

 

$

—

 

$

—

 

$

3,359

 

$

1,945

 

$

41,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Skilled nursing:

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

58

 

4

 

12

 

3

 

26

 

13

 

Annualized expiring rents

 

$

30,489

 

$

2,044

 

$

6,194

 

$

962

 

$

13,045

 

$

8,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALF & CCRC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

5

 

—

 

4

 

—

 

1

 

—

 

Annualized expiring rents

 

$

1,403

 

$

—

 

$

1,338

 

$

—

 

$

65

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MOB:

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

747

 

177

 

144

 

140

 

153

 

133

 

Annualized expiring rents

 

$

56,098

 

$

9,241

 

$

8,050

 

$

10,899

 

$

14,655

 

$

13,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

4

 

—

 

—

 

1

 

1

 

2

 

Annualized expiring rents

 

$

8,355

 

$

—

 

$

—

 

$

3,672

 

$

3,224

 

$

1,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

825

 

181

 

160

 

147

 

182

 

155

 

Annualized expiring rents

 

$

143,493

 

$

11,285

 

$

15,582

 

$

18,892

 

$

32,934

 

$

64,800

 

 

(1)          Lease expirations over the next five years only.

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

18


 

HCP MOP

Unconsolidated Joint Venture

 


 

HCP MOP Balance Sheets

 

In thousands

 

 

 

June 30,
2005

 

December 31,
2004

 

ASSETS

 

 

 

 

 

Real estate:

 

 

 

 

 

Buildings and improvements

 

$

403,944

 

$

402,078

 

Developments in process

 

5,881

 

586

 

Land

 

52,855

 

53,077

 

Less accumulated depreciation and amortization

 

20,404

 

13,950

 

Net real estate

 

442,276

 

441,791

 

 

 

 

 

 

 

Accounts receivable, net of allowances

 

5,170

 

2,610

 

Cash and cash equivalents

 

10,578

 

18,026

 

Intangible lease assets, net

 

16,915

 

23,592

 

Other assets, net

 

7,511

 

8,177

 

Total assets

 

$

482,450

 

$

494,196

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL

 

 

 

 

 

Mortgage debt

 

$

320,575

 

$

322,559

 

Accounts payable and accrued liabilities

 

10,584

 

10,553

 

Intangible lease liabilities, net

 

7,944

 

9,973

 

Deferred revenue

 

1,347

 

1,694

 

Total liabilities

 

340,450

 

344,779

 

 

 

 

 

 

 

GE’s capital

 

95,140

 

100,109

 

HCP’s capital

 

46,860

 

49,308

 

 

 

 

 

 

 

Total liabilities and members’ capital

 

$

482,450

 

$

494,196

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

19


 

HCP MOP Statements of Operations and EBITDA

 

In thousands

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenues

 

$

23,235

 

$

21,297

 

$

44,617

 

$

42,451

 

Interest and other income

 

395

 

225

 

694

 

555

 

 

 

23,630

 

21,522

 

45,311

 

43,006

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Interest

 

4,876

 

4,661

 

9,742

 

8,132

 

Depreciation and amortization

 

7,677

 

4,746

 

13,113

 

9,448

 

Operating

 

9,261

 

8,588

 

18,555

 

17,066

 

General and administrative

 

2,366

 

2,088

 

4,379

 

4,027

 

 

 

24,180

 

20,083

 

45,789

 

38,673

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

(550

)

1,439

 

(478

)

4,333

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(38

)

104

 

(77

)

223

 

Gain on real estate dispositions

 

440

 

872

 

440

 

872

 

 

 

402

 

976

 

363

 

1,095

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(148

)

$

2,415

 

$

(115

)

$

5,428

 

 

 

 

 

 

 

 

 

 

 

HCP’s equity income (loss)

 

$

(49

)

$

779

 

$

(38

)

$

1,753

 

 

 

 

 

 

 

 

 

 

 

Fees earned by HCP

 

$

776

 

$

776

 

$

1,551

 

$

1,551

 

 

 

 

 

 

 

 

 

 

 

Distributions received by HCP

 

$

335

 

$

1,071

 

$

3,382

 

$

93,506

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(148

)

$

2,415

 

$

(115

)

$

5,428

 

Interest expense:

 

 

 

 

 

 

 

 

 

Continuing operations

 

4,876

 

4,661

 

9,742

 

8,132

 

Discontinued operations

 

36

 

12

 

45

 

17

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

7,677

 

4,746

 

13,113

 

9,448

 

Discontinued operations

 

—

 

60

 

17

 

123

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

12,441

 

$

11,894

 

$

22,802

 

$

23,148

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

20


 

HCP MOP Funds From Operations

 

In thousands

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(148

)

$

2,415

 

$

(115

)

$

5,428

 

Real estate depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

7,677

 

4,746

 

13,113

 

9,448

 

Discontinued operations

 

—

 

60

 

17

 

123

 

Gain on real estate dispositions

 

(440

)

(872

)

(440

)

(872

)

 

 

 

 

 

 

 

 

 

 

Funds from operations (FFO)

 

$

7,089

 

$

6,349

 

$

12,575

 

$

14,127

 

 

 

 

 

 

 

 

 

 

 

Selected supplemental cash flow information

 

 

 

 

 

 

 

 

 

Amortization of deferred financing costs

 

$

280

 

$

398

 

$

612

 

$

398

 

Amortization of other lease intangibles

 

1,896

 

995

 

2,098

 

1,961

 

Straight-line rents

 

85

 

247

 

419

 

576

 

Lease commissions and tenant and capital improvements

 

1,793

 

729

 

4,036

 

2,652

 

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

21


 

HCP MOP Indebtedness

 

In thousands

 

Debt Maturities and Scheduled Principal Repayments

June 30, 2005

 

Year

 

Mortgage
Debt

 

 

 

 

 

2005

 

$

1,878

 

2006

 

37,329

 

2007

 

4,244

 

2008

 

4,458

 

2009

 

95,716

 

2010

 

3,308

 

2011

 

3,508

 

2012

 

9,428

 

2013

 

3,742

 

2014

 

156,964

 

 

 

 

 

Total debt (1)

 

$

320,575

 

 

 

 

 

Weighted average interest rate

 

5.57

%

 

 

 

 

Weighted average maturity in years

 

6.20

 

 

 

 

June 30,
2005

 

December 31,
2004

 

 

 

 

 

 

 

HCP MOP debt:

 

 

 

 

 

Fixed rate

 

$

287,251

 

$

276,153

 

Variable rate

 

33,324

 

46,406

 

 

 

$

320,575

 

$

322,559

 

 

 

 

 

 

 

Percent of HCP MOP debt:

 

 

 

 

 

Fixed rate

 

89.6

%

85.6

%

Variable rate

 

10.4

%

14.4

%

 

 

100.0

%

100.0

%

 

(1) Total debt reflects book value.

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

22


 

HCP MOP Portfolio Overview and Lease Expirations

 

As of and for the six months ended June 30, 2005

Dollars and square feet in thousands

 

Portfolio overview

 

 

 

Property

 

 

 

Square

 

Facility Occupancy%

 

Rental

 

Less
Operating

 

 

 

Sector

 

Count

 

Investment

 

Feet

 

06/30/05

 

03/31/05

 

Revenues

 

Expenses

 

NOI

 

MOB

 

94

 

$

487,748

 

5,364

 

87

 

88

 

$

44,617

 

$

18,555

 

$

26,062

 

 

Lease expiration summary

 

 

 

 

 

Expiration Year (1)

 

 

 

Totals

 

2005

 

2006

 

2007

 

2008

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

1,091

 

289

 

256

 

242

 

203

 

101

 

Annualized expiring rents

 

$

55,416

 

$

11,952

 

$

12,456

 

$

13,716

 

$

11,364

 

$

5,928

 

 

(1)  Lease expirations over the next five years only.

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

23


 

HCP MOP Same Property Performance

 

Dollars and square feet in thousands

 

 

 

MOB

 

HCP MOP Portfolio

 

 

 

 

 

 

 

Property count

 

94

 

Investment

 

$

487,748

 

 

 

 

 

HCP MOP Same Property Portfolio

 

 

 

 

 

 

 

Property count

 

92

 

Investment

 

$

469,647

 

 

 

 

 

Percent of HCP MOP Portfolio (by investment)

 

96

%

 

 

 

 

Square feet

 

5,176

 

 

 

 

 

Facility occupancy at June 30, 2005

 

87

%

 

 

 

 

Facility occupancy at June 30, 2004

 

87

%

 

 

 

 

NOI for the six months ended June 30, 2005

 

$

24,959

 

 

 

 

 

NOI for the six months ended June 30, 2004

 

$

25,385

 

 

 

 

 

Same property change in NOI

 

-1.7

%

 

 

 

 

NOI for the six months ended June 30, 2005

 

$

24,959

 

Straight-line rents

 

(372

)

Amortization of other lease intangibles

 

(1,749

)

NOI, as adjusted, for the six months ended June 30, 2005

 

$

22,838

 

 

 

 

 

NOI for the six months ended June 30, 2004

 

$

25,385

 

Straight-line rents

 

(576

)

Amortization of other lease intangibles

 

(1,961

)

NOI, as adjusted, for the six months ended June 30, 2004

 

$

22,848

 

 

 

 

 

Same property change in NOI, as adjusted

 

0.0

%

 

See Reporting Definitions and Supplemental Financial Measures Disclosures

 

24


 

Other Information

 


 

Reporting Definitions

 

ALF.  Assisted living facility.

 

Annualized Debt Service.  The most recent monthly interest and principal amortization due to HCP as of period end annualized for twelve months.  The Company uses Annualized Debt Service for purposes of determining Debt Service Coverage.

 

Annualized Expiring Rent. The annualized future minimum rents due to HCP in the year of lease expiration.

 

Annualized Rent.  The most recent monthly base rent due to HCP as of period end annualized for twelve months plus additional rents received by HCP over the most recent twelve month period as of period end.  The Company uses Annualized Rent for purposes of determining property level Cash Flow Coverage.

 

Assets Held for Sale.  Assets of discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

 

Beds/Units/Square Feet.  Hospitals and skilled nursing facilities are measured by licensed bed count.  ALFs and CCRCs are stated in units (e.g., studio, one or two bedroom units).  MOBs and other healthcare facilities are measured in square feet.

 

Book Value.  The carrying amount as reported in the Company’s financial statements.

 

Cash Flow Coverage.  Facility level EBITDAR of the property’s operator (not the Company) for the most recent twelve months of available data divided by the Annualized Rent.  Cash Flow Coverage is a supplemental measure of the property’s ability to generate cash flow to meet related rent and other obligations to the Company.  However, its usefulness is limited by, among other things, the same factors that limit the usefulness of EBITDAR.  The coverages shown exclude newly completed facilities under start-up, vacant facilities and facilities for which data is not available or meaningful.  Results exclude data related to hospitals leased to HealthSouth until HealthSouth provides assurance about its financial information. Results also exclude data related to ALFs leased to Emeritus since the operator has elected not to allocate the cost of a recent liability judgment to each of the facilities until the ultimate outcome of that judgment is clear.

 

CCRC.  Continuing care retirement community.

 

Debt Service.  The periodic payment of interest expense and principal amortization on secured loans.

 

Debt Service Coverage. Facility level EBITDAR of the property’s operator (not the Company) for the most recent twelve months of available data divided by the Annualized Debt Service. Debt Service Coverage is a supplemental measure of the property’s ability to generate sufficient cash flow to meet related obligations to the Company under loan agreements.  However, its usefulness is limited by the same factors that limit the usefulness of EBITDAR.  The coverages shown exclude newly completed facilities under start-up, vacant facilities and facilities for which data is not available or meaningful. Results exclude data related to one ALF that secures a loan to Emeritus since the operator has elected not to allocate the cost of a recent liability judgment to this facility until the ultimate outcome of that judgment is clear.

 

Facility EBITDAR.  Earnings before interest, taxes, depreciation, amortization and rent for a particular facility accruing to the operator of the property (not the Company). The Company uses Facility EBITDAR in determining Debt Service Coverage and Cash Flow Coverage.  EBITDAR as an analytical tool has limitations similar to EBITDA.  However, the Company receives periodic financial information from operators regarding the performance of the Company’s facilities under the operator’s management.  The Company utilizes Facility EBITDAR as a supplemental measure of the ability of those properties to generate sufficient liquidity to meet related obligations to the Company.  Facility EBITDAR includes an imputed management fee of 2% for acute care hospitals and 5% for skilled nursing facilities, ALFs and CCRCs which the Company believes represents typical management fees in their respective industries.  All facility financial performance data was derived solely from information provided by lessees and borrowers without verification by the Company.

 

Facility Occupancy. For MOBs and other healthcare properties, facility occupancy represents the percentage of rentable square feet occupied. For hospitals, skilled nursing facilities, ALFs and CCRCs, facility occupancy represents the facilities’ operating occupancy for each quarter based on the most recent quarter of available data.  The percentages are calculated based on licensed beds, available beds and units for hospitals, skilled nursing facilities, ALFs and CCRCs, respectively.  The percentages shown exclude newly completed facilities under start-up, vacant facilities and facilities for which data is not available or meaningful.  All facility financial performance data were derived solely from information provided by lessees and borrowers.

 

25


 

Future Minimum Rents.  Future minimum lease payments to be received by HCP, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of period end.

 

GAAP.  U.S. generally accepted accounting principles.

 

HCP MOP.  HCP Medical Office Portfolio, LLC, an unconsolidated joint venture formed between the Company and an affiliate of General Electric Company (“GE”), for which the Company is managing member and has a 33% interest therein.

 

Investment.  The carrying amount of real estate assets, including intangibles, after adding back accumulated depreciation and amortization and the carrying amount of mortgage loans receivable.  Excludes assets held for sale and classified as discontinued operations.

 

Market Equity.  The total number of outstanding shares of the Company’s common stock and convertible partnership units multiplied by the closing price per share of its common stock on the New York Stock Exchange as of period end plus the total number of outstanding shares of the Company’s preferred stock multiplied by the closing price of its preferred stock on the New York Stock Exchange as of period end.

 

MOB.  Medical office building.

 

“Other” Property Type.  Physician group practice clinics, healthcare laboratory and laboratory research facilities, and health and wellness centers.

 

Same Property Performance (“SPP”).  An important component of the Company’s evaluation of the operating performance of its properties.  The Company defines its same property portfolio each quarter as those properties that have been in operation throughout the current year and the prior year and that were also in operation at January 1st of the prior year.  Newly acquired assets, developments in process and assets held for sale are excluded from the same property portfolio.  Accordingly, when a property is disposed of to a third party, it will be removed from the same property portfolio for the current and prior year reporting periods, but previously presented quarterly information will not be changed.  Same property statistics allow management to evaluate the NOI of its real estate portfolio as a consistent population from period to period and eliminates the effects of changes in the composition of the properties on performance measures.

 

Secured Debt.  Mortgage debt secured by real estate.

 

Square Feet Owned.  The square footage for properties either owned directly by the Company or which the Company has a controlling interest (e.g., consolidated joint ventures) and excludes square footage for development properties prior to completion.

 

Total Book Capitalization.  The carrying amount of consolidated debt plus the carrying amount of stockholders’ equity.

 

Total Market Capitalization.  Consolidated debt at Book Value plus total Market Equity.

 

Undepreciated Book Value.  The carrying amount of the Company’s real estate assets, including intangibles, after adding back accumulated depreciation and amortization.

 

26


 

Supplemental Financial Measures Disclosures

 

Adjusted Fixed Charges.  Total interest expense plus capitalized interest plus preferred stock dividends.  The Company uses Adjusted Fixed Charges to measure its interest payments on outstanding debt and dividends to its preferred shareholders for purposes of presenting Adjusted Fixed Charge Coverage. However, the usefulness of Adjusted Fixed Charges is limited as, among other things, it does not include all contractual obligations.  The Company’s computation of Adjusted Fixed Charges should not be considered an alternative to fixed charges as defined by Item 503(d) of Regulation S-K and may not be comparable to fixed charges reported by other companies.

 

Adjusted Fixed Charge Coverage.  EBITDA divided by Adjusted Fixed Charges.  The Company uses Adjusted Fixed Charge Coverage to measure its liquidity. The Company believes Adjusted Fixed Charge Coverage provides investors, particularly fixed income investors, relevant and useful information because it measures the Company’s ability to meet its interest payments on outstanding debt and pay dividends to its preferred shareholders. The Company’s various debt agreements contain covenants that require the Company to maintain ratios similar to Adjusted Fixed Charge Coverage and credit rating agencies utilize similar ratios in evaluating and determining the credit rating on certain debt instruments of the Company.  However, since this ratio is derived from EBITDA and Adjusted Fixed Charges, its usefulness is limited by the same factors that limit the usefulness of EBITDA and Adjusted Fixed Charges.  Further, the Company’s computation of Adjusted Fixed Charge Coverage may not be comparable to similar fixed charge coverage ratios reported by other companies.

 

EBITDA.  The real estate industry uses earnings before interest, taxes, depreciation and amortization (“EBITDA”) to measure both operating performance and liquidity.  The Company’s presentation of EBITDA herein is solely as a non-GAAP liquidity measure in connection with the presentation of Adjusted Fixed Charge Coverage.  As a liquidity measure, the Company believes that EBITDA helps investors analyze the Company’s ability to meet its interest payments on outstanding debt and to make preferred dividend payments. The Company’s various debt agreements contain covenants that require the Company to maintain ratios similar to Adjusted Fixed Charge Coverage and credit rating agencies utilize similar ratios in evaluating and determining the credit rating on certain debt instruments of the Company.  The Company believes investors should consider EBITDA in conjunction with cash flow from operating activities, and other required measures under GAAP, to improve their understanding of the Company’s liquidity.  EBITDA has limitations as an analytical tool and should be used in conjunction with the Company’s required GAAP presentations.  EBITDA does not reflect the Company’s historical cash expenditures or future cash requirements for capital expenditures or contractual commitments.  Also, EBITDA does not reflect the cash required to make interest and principal payments on the Company’s outstanding debt.  The Company believes cash flow from operating activities is the most directly comparable GAAP measure to EBITDA.  EBITDA does not represent net income or cash flow from operations as defined by GAAP and should not be considered an alternative to those indicators. Further, the Company’s computation of EBITDA may not be comparable to similar measures reported by other companies.

 

Funds From Operations (“FFO”).  The Company believes that net income as defined by GAAP is the most appropriate earnings measure.  The Company also believes that Funds From Operations, or FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and Basic and Diluted FFO per common share are important non-GAAP supplemental measures 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.  However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a real estate investment trust that use historical cost accounting for depreciation could be less informative.  Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization, with adjustments to derive the Company’s pro rata share of FFO from consolidated and unconsolidated joint ventures.  Adjustments for joint ventures are calculated to reflect FFO on the same basis.  The Company believes that the use of FFO, combined with the required GAAP presentations, improves the understanding of operating results of real estate investment trusts among investors and makes comparisons of operating results among such companies more meaningful.  The Company considers FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help investors compare the operating performance of a real estate investment trust between periods or as compared to other companies. While FFO is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating the Company’s liquidity or operating performance. FFO also does not consider the costs associated with capital expenditures related to the Company’s real estate assets nor is FFO necessarily indicative of cash available to fund the Company’s future cash requirements. Further, the Company’s computation of FFO may not be comparable to FFO reported by other real estate investment trusts that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently from the Company.

 

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FFO Payout Ratio per Common Share.  Dividends declared per common share divided by Diluted FFO per common share for a given period.  The Company believes the FFO Payout Ratio provides investors relevant and useful information because it measures the portion of FFO being declared as dividends to common shareholders.

 

Net Operating Income from Continuing Operations (“NOI”).  A supplemental financial measure used to evaluate the operating performance of real estate properties and same property performance, or “SPP.”  The Company defines NOI from continuing operations as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses and interest expense.  The Company believes NOI provides investors relevant and useful information because it measures the operating performance of the Company’s real estate at the property level on an unleveraged basis, independent of related secured debt. NOI, as adjusted, is calculated as NOI eliminating the effects of straight-line rents, amortization of other lease intangibles and lease termination fees.  The Company uses NOI and NOI, as adjusted, to make decisions about resource allocations, to assess and compare property level performance, and evaluate SPP.  The company believes that net income is the most directly comparable GAAP measure to NOI.  NOI should not be viewed as an alternative measure of operating performance to net income as defined by GAAP since it does not reflect the aforementioned excluded items.  Further, NOI may not be comparable to that of other real estate investment trusts, as they may use different methodologies for calculating NOI.

 

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this supplemental information package and the conference call to be held in connection therewith, which are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks and uncertainties include competition for the acquisition and financing of health care facilities, competition for lessees and mortgagors (including new leases and mortgages and the renewal or rollover of existing leases); continuing operational difficulties in the skilled nursing and assisted living sectors; the Company’s ability to acquire, sell or lease facilities and the timing of acquisitions, sales and leasings; changes in healthcare laws and regulations and other changes in the healthcare industry which affect the operations of the Company’s lessees or mortgagors; changes in management; costs of compliance with building regulations; changes in tax laws and regulations; changes in the financial position of the Company’s lessees and mortgagors; changes in rules governing financial reporting, including new accounting pronouncements; and changes in economic conditions, including changes in interest rates and the availability and cost of capital, which affect opportunities for profitable investments. Some of these risks, and other risks, are described from time to time in Health Care Property Investors, Inc.’s Securities and Exchange Commission filings.

 

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