-----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, EH3/XEMcYTgcBLyMEQfi3kVqk8p1kTjdjLZOA5GQDak+H+66Isvv8H4R1ls5VSeY 9gl10bXGZNWzhBMTzSma2Q== 0001104659-07-001605.txt : 20070109 0001104659-07-001605.hdr.sgml : 20070109 20070109171505 ACCESSION NUMBER: 0001104659-07-001605 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070108 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070109 DATE AS OF CHANGE: 20070109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE PROPERTY INVESTORS INC CENTRAL INDEX KEY: 0000765880 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330091377 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08895 FILM NUMBER: 07521185 BUSINESS ADDRESS: STREET 1: 3760 KILROY AIRPORT WAY STREET 2: SUITE 300 CITY: LONG BEACH STATE: CA ZIP: 90806 BUSINESS PHONE: 562-733-5100 MAIL ADDRESS: STREET 1: 3760 KILROY AIRPORT WAY STREET 2: SUITE 300 CITY: LONG BEACH STATE: CA ZIP: 90806 8-K 1 a06-26652_18k.htm CURRENT REPORT OF MATERIAL EVENTS OR CORPORATE CHANGES

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

January 8, 2007

Date of Report (Date of earliest event reported)

HEALTH CARE PROPERTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

Maryland

 

001-08895

 

33-0091377

(State of Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification Number)

 

3760 Kilroy Airport Way
Suite 300
Long Beach, California 90806
(Address of principal executive offices)  (Zip Code)

(562) 733-5100

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



Item 8.01                                             Other Events.

As previously reported on a current report on Form 8-K filed on October 12, 2006, on October 5, 2006 the registrant completed acquisitions of CNL Retirement Properties, Inc. (“CRP”) and CNL Retirement Corp., the external advisor to CRP (the “Advisor”) (together the “CRP Acquisitions”). HCP is filing this Form 8-K to provide financial information with respect to the CRP Acquisitions, CRP and the Advisor. Specifically, this current report on Form 8-K provides: (1) the registrant’s unaudited pro forma condensed consolidated financial statements relating to the CRP Acquisitions, which are attached hereto as Exhibit 99.1; (2) CRP’s unaudited condensed financial statements as of September 30, 2006 and for the nine months ended September 30, 2006 and 2005, which are attached hereto as Exhibit 99.2 and (3) the Advisor’s unaudited condensed financial statements as of September 30, 2006 and for the nine months ended September 30, 2006 and 2005, which are attached hereto as Exhibit 99.3. The information in Exhibits 99.1, 99.2 and 99.3 is incorporated herein by reference.

Item 9.01                                             Financial Statements and Exhibits.

(d)                  Exhibits.  The following exhibits are being filed herewith:

99.1            HCP Unaudited Pro Forma Condensed Consolidated Financial Statements as of September 30, 2006, and for the year ended December 31, 2005 and the nine months ended September 30, 2006

99.2            CRP Financial Statements as of September 30, 2006 and for the nine months ended September 30, 2006 and 2005

99.3            Advisor Financial Statements as of September 30, 2006 and for the nine months ended September 31, 2006 and 2005

2



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 8, 2007

By:

/s/ Edward J. Henning

 

 

Edward J. Henning

 

 

Senior Vice President, General
Counsel and

 

 

Corporate Secretary

 


 EX-99.1 2 a06-26652_1ex99d1.htm EX-99.1

Exhibit 99.1

HCP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2006 AND FOR THE YEAR ENDED DECEMBER 31, 2005 AND THE THREE
MONTHS ENDED September 30, 2006

 

Page

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2006

 

3

Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 2005

 

4

Unaudited Pro Forma Condensed Consolidated Statement of Income for the three months ended September, 2006

 

5

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

 

6

 



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements presented below have been prepared based on certain pro forma adjustments to the historical consolidated financial statements of HCP, CRP and the Advisor as of and for the nine months ended September 30, 2006 and for the year ended December 31, 2005. The historical consolidated financial statements of HCP are contained in its Current Report on Form 8-K as filed with the SEC on January 5, 2007, for the year ended December 31, 2005 and in its Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2006. The historical consolidated financial statements of CRP and the Advisor, as of and for the nine months ended September 30, 2006, are included as Exhibits 99.2 and 99.3 to this Current Report on Form 8-K. The historical consolidated financial statements of CRP and the Advisor are contained in our Current Report on Form 8-K as filed with the SEC on August 4, 2006, for the year ended December 31, 2005. The historical financial information with respect to HCP and CRP for the year ended December 31, 2005 has been restated to reflect as discontinued operations the results of operations of certain properties that were initially classified as discontinued operations during the nine months ended September 30, 2006. The unaudited pro forma condensed consolidated financial statements relate to the merger of CRP with and into Ocean Acquisition 1, Inc., a wholly owned subsidiary of HCP, which is referred to in this section as the Merger, and the merger of the Advisor with and into Ocean Acquisition 2, LLC, a wholly owned subsidiary of HCP, which is referred to in this section as the Advisor Merger. The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2006 has been prepared as if the Merger and the Advisor Merger and the incurrence of debt by HCP to finance the acquisitions of CRP and the Advisor had occurred as of that date.

The accompanying unaudited pro forma condensed consolidated statements of income for the nine months ended September 30, 2006 and for the year ended December 31, 2005 have been prepared as if the Merger and the Advisor Merger had occurred as of January 1, 2005 and reflect the incurrence of debt by HCP in order to finance the acquisition of CRP, including the cash consideration needed for the Merger. The allocation of the purchase price of CRP and the Advisor as reflected in these unaudited pro forma condensed consolidated financial statements has, with the assistance of independent valuation specialists, been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. In the opinion of HCP’s management, all significant adjustments necessary to reflect the effects of the Merger and the Advisor Merger that can be factually supported within the SEC regulations covering the preparation of pro forma financial statements have been made.

The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily and should not be assumed to be an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed consolidated balance sheet does not include restructuring charges and other related liabilities expected to result from HCP’s integration of CRP and the Advisor. In addition, the completion of the valuation and the impact of ongoing integration activities could cause material differences in the information presented. Furthermore, following consummation of the transaction, HCP expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired in the transaction, which may differ from those reflected in CRP’s historical financial statements and the pro forma financial statements.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP, CRP and the Advisor.

2



 

HEALTH CARE PROPERTY INVESTORS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2006

(In thousands)

 

 

 

 

 

 

 

 

 

 

CRP

 

 

 

Advisor

 

 

 

Consolidated

 

 

 

HCP

 

CRP

 

CRP Reclass-

 

CRP

 

Pro Forma

 

Advisor

 

Pro Forma

 

CRP/Advisor

 

Pro Forma

 

 

 

Historical

 

Historical

 

ifications (B)

 

Reclassified

 

Adjustments (C)

 

Historical

 

Adjustments (M)

 

Eliminations

 

HCP

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate

 

$

4,135,386

 

$

3,349,540

 

$

—

 

$

3,349,540

 

$

1,006,274

(D)

$

—

 

$

—

 

$

—

 

$

8,491,200

 

Less accumulated depreciation and amortization

 

657,552

 

230,834

 

—

 

230,834

 

(230,834

)(D)

—

 

—

 

—

 

657,552

 

Net real estate

 

3,477,834

 

3,118,706

 

—

 

3,118,706

 

1,237,108

 

—

 

—

 

—

 

7,833,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct financing leases

 

—

 

475,878

 

 

 

475,878

 

197,222

(E)

—

 

—

 

—

 

673,100

 

Loans receivable, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joint venture partners and affiliates

 

7,053

 

—

 

46,989

 

46,989

 

—

 

—

 

—

 

—

 

54,042

 

Others

 

138,258

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

138,258

 

Investments in and advances to unconsolidated joint ventures

 

49,757

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

49,757

 

Accounts receivable, net of allowance

 

12,676

 

17,732

 

—

 

17,732

 

—

 

—

 

—

 

—

 

30,408

 

Cash and cash equivalents

 

645,363

 

36,377

 

—

 

36,377

 

(643,979

)(I)

5,085

 

270

(N)

—

 

38,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,085

)(Q)

 

 

 

 

Restricted cash

 

125,165

 

21,862

 

—

 

21,862

 

—

 

—

 

—

 

—

 

147,027

 

Intangibles, net

 

58,501

 

104,199

 

—

 

104,199

 

144,997

(F)

—

 

54,400

(O)

(54,400

)(S)

425,980

 

 

 

 

 

 

 

 

 

 

 

176,795

(F)

 

 

2,900

(O)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,487

(F)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(104,199

)(F)

 

 

21,300

(O)

 

 

 

 

Goodwill

 

—

 

5,791

 

—

 

5,791

 

(5,791

)(G)

—

 

48,669

(P)

—

 

48,669

 

Real estate held for sale, net

 

27,964

 

22,725

 

 

 

22,725

 

 

 

 

 

 

 

 

 

50,689

 

Other assets, net

 

68,930

 

214,587

 

(46,989

)

167,598

 

17,337

(H)

5,472

 

(200

)(N)

(484

)(S)

99,525

 

 

 

 

 

 

 

 

 

 

 

(5,040

)(H)

 

 

(1,947

)(Q)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(131,231

)(H)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,090

)(H)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,820

)(H)

 

 

 

 

 

 

 

 

Total assets

 

$

4,611,501

 

$

4,017,857

 

$

—

 

$

4,017,857

 

$

883,796

 

$

10,557

 

$

120,307

 

$

(54,884

)

$

9,589,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank lines of credit

 

$

—

 

$

216,000

 

$

—

 

$

216,000

 

$

406,113

(I)

$

—

 

$

5,900

(M)

$

—

 

$

458,000

 

 

 

 

 

 

 

 

 

 

 

45,987

(I)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(216,000

)(I)

 

 

 

 

 

 

 

 

Bridge and term financing

 

—

 

—

 

—

 

—

 

2,405,729

(I)

—

 

—

 

—

 

2,405,729

 

Senior unsecured notes

 

2,471,274

 

—

 

—

 

—

 

(120,000

)(I)

—

 

—

 

—

 

2,351,274

 

Mortgage debt

 

452,154

 

1,324,680

 

—

 

1,324,680

 

(282

)(J)

—

 

—

 

—

 

1,605,352

 

 

 

 

 

 

 

 

 

 

 

(171,200

)(I)

 

 

 

 

 

 

 

 

Construction loans

 

—

 

41,443

 

—

 

41,443

 

—

 

—

 

—

 

—

 

41,443

 

Entrance fee bonds payable

 

—

 

104,510

 

—

 

104,510

 

—

 

—

 

—

 

—

 

104,510

 

Accounts payable, other liabilities and deferred revenue

 

120,743

 

64,271

 

—

 

64,271

 

54,400

(K)

6,859

 

6,000

(O)

(54,400

)(S)

326,681

 

 

 

 

 

 

 

 

 

 

 

7,100

(K)

 

 

(4,018

)(Q)

(484

)(S)

 

 

 

 

 

 

 

 

 

 

—

 

136,961

(K)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

546

(K)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

(4,594

)(K)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

(6,703

)(K)

 

 

 

 

 

 

 

 

Total liabilities

 

3,044,171

 

1,750,904

 

—

 

1,750,904

 

2,538,057

 

6,859

 

7,882

 

(54,884

)

7,292,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interests

 

152,611

 

8,431

 

—

 

8,431

 

—

 

—

 

—

 

—

 

161,042

 

 

 

 

 

 

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

285,173

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

285,173

 

Common stock

 

137,560

 

2,642

 

—

 

2,642

 

22,812

(L)

2

 

4,379

(R)

—

 

164,751

 

 

 

 

 

 

 

 

 

 

 

(2,642

)(L)

 

 

(2

)(R)

 

 

 

 

Additional paid-in capital

 

1,478,990

 

2,373,764

 

—

 

2,373,764

 

582,399

(L)

2,521

 

111,794

(R)

—

 

2,172,183

 

 

 

 

 

 

 

 

 

 

 

(950

)(L)

 

 

(50

)(R)

 

 

 

 

 

 

 

 

 

 

—

 

—

 

(2,373,764

)(L)

 

 

(2,521

)(R)

 

 

 

 

Retained Earnings

 

—

 

—

 

—

 

—

 

—

 

1,175

 

(1,175

)(R)

 

 

 

 

Cumulative net income

 

1,697,419

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

1,697,419

 

Cumulative dividends

 

(2,179,535

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(2,179,535

)

Cumulative distributions in excess of net income

 

—

 

(120,121

)

—

 

(120,121

)

120,121

(L)

—

 

—

 

—

 

—

 

Accumulated other comprehensive income (loss)

 

(4,888

)

2,237

 

—

 

2,237

 

(2,237

)(L)

—

 

—

 

—

 

(4,888

)

Total stockholders’ equity

 

1,414,719

 

2,258,522

 

—

 

2,258,522

 

(1,654,261

)

3,698

 

112,425

 

—

 

2,135,103

 

Total liabilities and stockholders’ equity

 

$

4,611,501

 

$

4,017,857

 

$

—

 

$

4,017,857

 

$

883,796

 

$

10,557

 

$

120,307

 

$

(54,884

)

$

9,589,134

 

 

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

3



 

HEALTH CARE PROPERTY INVESTORS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

For the year ended December 31, 2005

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

CRP

 

 

 

Advisor

 

 

 

Consolidated

 

 

 

HCP

 

CRP

 

CRP Reclass-

 

CRP

 

Pro Forma

 

Advisor

 

Pro Forma

 

CRP/Advisor

 

Pro Forma

 

 

 

Historical (A)

 

Historical

 

ifications (B)

 

Reclassified

 

Adjustments

 

Historical

 

Adjustments

 

Eliminations

 

HCP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other revenues

 

$

433,516

 

$

—

 

$

321,649

 

$

321,649

 

$

44,554

(T)

$

—

 

$

—

 

$

—

 

$

750,832

 

 

 

 

 

 

 

 

 

 

 

(2,738

)(T)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,672

)(T)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

523

(T)

 

 

 

 

 

 

 

 

Seniors’ housing rental income

 

—

 

237,892

 

(237,892

)

—

 

—

 

—

 

—

 

—

 

—

 

Earned income from direct financing leases

 

—

 

58,193

 

—

 

58,193

 

—

 

—

 

—

 

—

 

58,193

 

FF&E reserve income

 

—

 

7,500

 

(7,500

)

—

 

—

 

—

 

—

 

—

 

—

 

Contingent rent

 

—

 

3,955

 

(3,955

)

—

 

—

 

—

 

—

 

—

 

—

 

Medical facilities rental income and other revenues

 

—

 

72,302

 

(72,302

)

—

 

—

 

—

 

—

 

—

 

—

 

Equity income (loss) from unconsolidated joint ventures

 

(1,123

)

227

 

—

 

227

 

—

 

—

 

—

 

—

 

(896

)

Acquisition fees

 

—

 

—

 

—

 

—

 

—

 

6,349

 

—

 

(6,349

)(BB)

—

 

Debt acquisition fees

 

—

 

—

 

—

 

—

 

—

 

13,789

 

—

 

(13,789

)(BB)

—

 

Management fees

 

—

 

—

 

—

 

—

 

—

 

19,144

 

—

 

(19,144

)(BB)

—

 

Interest and other income

 

26,154

 

4,202

 

—

 

4,202

 

—

 

3,035

 

—

 

(3,035

)(BB)

30,356

 

 

 

458,547

 

384,271

 

—

 

384,271

 

(4,333

)

42,317

 

—

 

(42,317

)

838,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

107,201

 

76,171

 

—

 

76,171

 

$

179,775

(U)

—

 

—

 

—

 

$

366,407

 

 

 

 

 

 

 

 

 

 

 

(504

)(U)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,340

(U)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,576

)(U)

 

 

 

 

 

 

 

 

Depreciation and amortization

 

103,579

 

98,446

 

—

 

98,446

 

31,624

(V)

—

 

—

 

—

 

248,405

 

 

 

 

 

 

 

 

 

 

 

8,706

(V)

 

 

6,050

(X)

 

 

 

 

Operating

 

58,983

 

—

 

26,443

 

26,443

 

423

(W)

—

 

—

 

—

 

85,849

 

Seniors’ housing property expenses

 

—

 

1,075

 

(1,075

)

—

 

—

 

—

 

—

 

—

 

—

 

Medical facilities operating expenses

 

—

 

25,368

 

(25,368

)

—

 

—

 

—

 

—

 

—

 

—

 

General and administrative

 

32,712

 

21,355

 

2,706

 

24,061

 

—

 

22,779

 

—

 

(3,035

)(BB)

76,517

 

Asset management fees paid to related party

 

—

 

18,537

 

—

 

18,537

 

—

 

—

 

—

 

(18,641

)(BB)

(104

)

Provision for doubtful accounts

 

—

 

3,082

 

(3,082

)

—

 

 

 

 

 

—

 

 

 

—

 

 

 

302,475

 

244,034

 

(376

)

243,658

 

223,788

 

22,779

 

6,050

 

(21,676

)

777,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before minority interests

 

156,072

 

140,237

 

376

 

140,613

 

(228,121

)

19,538

 

(6,050

)

(20,641

)

61,411

 

Minority interests

 

(12,950

)

(706

)

—

 

(706

)

—

 

—

 

—

 

—

 

(13,656

)

Earnings before income taxes

 

143,122

 

139,531

 

376

 

139,907

 

(228,121

)

19,538

 

(6,050

)

(20,641

)

47,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(700

)

 

 

376

 

376

 

—

 

7,473

 

(7,473

)(Y)

—

 

(324

)

Income from continuing operations

 

143,822

 

139,531

 

—

 

139,531

 

(228,121

)

12,065

 

1,423

 

(20,641

)

48,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: preferred stock dividends

 

(21,130

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(21,130

)

Income from continuing operations applicable to common shares

 

$

122,692

 

$

139,531

 

$

—

 

$

139,531

 

$

(228,121

)

$

12,065

 

$

1,423

 

$

(20,641

)

$

26,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share - basic (Z)

 

$

0.91

 

 

 

 

 

$

0.56

 

 

 

 

 

 

 

 

 

$

0.17

 

Income from continuing operations per common share - diluted (Z)

 

$

0.91

 

 

 

 

 

$

0.56

 

 

 

 

 

 

 

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to calculate income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (Z)

 

134,673

 

 

 

 

 

248,298

 

22,812

(AA)

 

 

4,379

(AA)

 

 

161,864

 

Diluted (Z)

 

135,560

 

 

 

 

 

248,298

 

22,812

(AA)

 

 

4,379

(AA)

 

 

162,751

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

4



 

HEALTH CARE PROPERTY INVESTORS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

For the nine months ended September 30, 2006

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

CRP

 

 

 

Advisor

 

 

 

Consolidated

 

 

 

HCP

 

CRP

 

CRP Reclass-

 

CRP

 

Pro Forma

 

Advisor

 

Pro Forma

 

CRP/Advisor

 

Pro Forma

 

 

 

Historical (A)

 

Historical

 

ifications (B)

 

Reclassified

 

Adjustments

 

Historical

 

Adjustments

 

Eliminations

 

HCP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other revenues

 

$

376,499

 

$

—

 

$

272,900

 

$

272,900

 

$

33,416

(T)

$

—

 

$

—

 

$

—

 

$

649,274

 

 

 

 

 

 

 

 

 

 

 

(2,054

)(T)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,034

)(T)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

547

(T)

 

 

 

 

 

 

 

 

Seniors’ housing rental income

 

—

 

187,078

 

(187,078

)

—

 

—

 

—

 

—

 

—

 

—

 

Earned income from direct financing leases

 

—

 

45,522

 

—

 

45,522

 

—

 

—

 

—

 

—

 

45,522

 

FF&E reserve income

 

—

 

6,038

 

(6,038

)

—

 

—

 

—

 

—

 

—

 

—

 

Contingent rent

 

—

 

839

 

(839

)

—

 

—

 

—

 

—

 

—

 

—

 

Medical facilities rental income and other revenues

 

—

 

78,945

 

(78,945

)

—

 

—

 

—

 

—

 

—

 

—

 

Equity income (loss) from unconsolidated joint ventures

 

7,580

 

328

 

—

 

328

 

—

 

—

 

—

 

—

 

7,908

 

Acquisition fees

 

—

 

—

 

—

 

—

 

—

 

2,599

 

—

 

(2,599

)(BB)

—

 

Debt acquisition fees

 

—

 

—

 

—

 

—

 

—

 

4,328

 

—

 

(4,328

)(BB)

—

 

Management fees

 

—

 

—

 

—

 

—

 

—

 

15,742

 

—

 

(15,742

)(BB)

—

 

Interest and other income

 

29,709

 

5,773

 

—

 

5,773

 

—

 

2,278

 

—

 

(2,278

)(BB)

35,482

 

 

 

413,788

 

324,523

 

—

 

324,523

 

(125

)

24,947

 

—

 

(24,947

)

738,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

102,701

 

71,164

 

—

 

71,164

 

134,831

(U)

—

 

—

 

—

 

$

309,834

 

 

 

 

 

 

 

 

 

 

 

3,979

(U)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(225

)(U)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,616

)(U)

 

 

 

 

 

 

 

 

Depreciation and amortization

 

93,683

 

84,260

 

—

 

84,260

 

23,718

(V)

—

 

—

 

—

 

212,729

 

 

 

 

 

 

 

 

 

 

 

6,530

(V)

 

 

4,538

(X)

 

 

 

 

Operating

 

56,786

 

—

 

26,372

 

26,372

 

317

(W)

—

 

—

 

—

 

83,475

 

Seniors’ housing property expenses

 

—

 

749

 

(749

)

—

 

—

 

—

 

—

 

—

 

—

 

Medical facilities operating expenses

 

—

 

25,623

 

(25,623

)

—

 

—

 

—

 

—

 

—

 

—

 

General and administrative

 

25,218

 

23,301

 

7,676

 

30,977

 

(7,193

)(CC)

15,002

 

—

 

(2,278

)(BB)

61,726

 

Asset management fees paid to related party

 

—

 

15,597

 

—

 

15,597

 

—

 

—

 

—

 

(15,597

)(BB)

—

 

Provision for doubtful accounts

 

—

 

8,326

 

(8,326

)

—

 

—

 

—

 

—

 

—

 

 

 

Impairments

 

3,087

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

3,087

 

 

 

281,475

 

229,020

 

(650

)

228,370

 

159,341

 

15,002

 

4,538

 

(17,875

)

670,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before minority interests

 

132,313

 

95,503

 

650

 

96,153

 

(159,466

)

9,945

 

(4,538

)

(7,072

)

67,335

 

Minority interests

 

(11,458

)

(414

)

—

 

(414

)

—

 

 

 

—

 

—

 

(11,872

)

Earnings before income taxes

 

120,855

 

95,089

 

650

 

95,739

 

(159,466

)

9,945

 

(4,538

)

(7,072

)

55,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

—

 

—

 

650

 

650

 

—

 

3,804

 

(3,804

)(Y)

—

 

650

 

Income from continuing operations

 

120,855

 

95,089

 

—

 

95,089

 

(159,466

)

6,141

 

(734

)

(7,072

)

54,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: preferred stock dividends

 

(15,848

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(15,848

)

Income from continuing operations applicable to common shares

 

$

105,007

 

$

95,089

 

$

—

 

$

95,089

 

$

(159,466

)

$

6,141

 

$

(734

)

$

(7,072

)

$

38,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per common share - basic (Z)

 

$

0.77

 

 

 

 

 

$

0.36

 

 

 

 

 

 

 

 

 

$

0.24

 

Income from continuing operations per common share - diluted (Z)

 

$

0.77

 

 

 

 

 

$

0.36

 

 

 

 

 

 

 

 

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to calculate income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (Z)

 

136,402

 

 

 

 

 

261,993

 

22,812

(AA)

 

 

4,379

(AA)

 

 

163,593

 

Diluted (Z)

 

139,195

 

 

 

 

 

261,993

 

22,812

(AA)

 

 

4,379

(AA)

 

 

164,400

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

5



HEALTH CARE PROPERTY INVESTORS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP, CRP and the Advisor.

(A)          Includes reclassification of HCP Income taxes from “General and administrative” to a separate line item.

(B)           Includes the following reclassifications to conform certain CRP amounts to HCP’s presentation:

Balance Sheet:

·     Loans receivable have been reclassified to “Loans receivable, net—Joint venture partners and affiliates” from “Other assets, net”.

Statement of Income:

·     “Seniors’ housing rental income,” “FF&E reserve income,” “Contingent rent,” and “Medical facilities rental income and other revenues” have been reclassified to “Rental and other revenues”.

·     “Seniors’ housing property expenses” and “Medical facilities operating expenses” have been reclassified to “Operating”.

·     “Provision for doubtful accounts” has been reclassified to “General and administrative”.

·     Income taxes have been reclassified from “General and administrative” to a separate line item.

(C)           In the Merger, each CRP stockholder received 0.0865 of a share of HCP common stock and $11.1293 in cash, without interest, for each share of CRP common stock that the stockholder owned immediately prior to the effective date of the Merger.

For purposes of the unaudited pro forma condensed consolidated balance sheet presentation, the total purchase price is based on the number of shares of CRP common stock outstanding at September 30, 2006 and $26.53, which represents the average of closing trading prices for each of the two trading days before, the day, and the two trading days after the Merger was announced (April 28, and May 1, 2, 3 and 4, 2006). The calculation of the Merger consideration and total purchase price follows (dollar amounts in thousands):

Calculation of CRP purchase price

 

 

 

Issuance of 22.8 million shares of HCP common stock (based on a conversion ratio of 0.0865) exchanged for 264.2 million shares of CRP common stock

 

$

605,211

 

Payment of aggregate cash consideration

 

2,941,495

 

Total Merger consideration

 

3,546,706

 

CRP secured debt and bonds assumed or repaid at book value

 

1,686,633

 

Adjustment to record CRP secured debt and bonds at fair value under purchase accounting

 

(282

)

All other CRP liabilities at book value

 

64,271

 

Adjustment to record CRP liabilities at fair value under purchase accounting

 

187,710

 

CRP minority interest at book value

 

8,431

 

Estimated fees and other expenses related to the Merger

 

28,650

 

Total purchase price

 

$

5,522,119

 

 

6



The calculation of the estimated fees and other expenses related to the Merger is as follows (in thousands):

Advisory fees

 

$

17,850

 

Legal, accounting and other fees and costs

 

6,850

 

Share registration and issuance costs

 

950

 

Debt assumption fees

 

3,000

 

Total

 

$

28,650

 

 

(D)          CRP’s real estate assets have been adjusted to their estimated fair values as of September 30, 2006 and CRP’s historical accumulated depreciation balance is eliminated when real estate assets are recorded at fair value.

(E)           Adjustment reflects CRP’s existing fixed rate direct financing leases at their estimated fair value based on HCP management’s estimates of current market rates for direct financing leases.

(F)           Adjustments to CRP’s historical balance of intangible assets are as follows (in thousands):

Recognition of lease-up related in-place lease intangible assets

 

$

144,997

 

Recognition of assets associated with the acquired in-place leases that have favorable market rental rates

 

176,795

 

Recognition of assets associated with the acquired ground leases that have favorable market rental rates

 

21,487

 

Elimination of intangible assets

 

(104,199

)

 

 

$

239,080

 

 

(G)           Adjustment reflects the elimination of CRP’s historical goodwill.

(H)          Adjustments to CRP’s historical balance of other assets are as follows (in thousands):

Deferral of issuance costs associated with debt issued in the Merger

 

$

17,337

 

Elimination of historical straight-line rent balance

 

(131,231

)

Elimination of historical deferred debt issuance costs

 

(13,090

)

Elimination of historical deferred leasing costs

 

(7,820

)

Elimination of historical miscellaneous other assets

 

(5,040

)

 

 

$

(139,844

)

 

(I)            Borrowings under lines of credit, short-term borrowings and issuance of senior notes were used to fund the cash consideration and other associated costs of the Merger aggregating $3.4 billion. HCP: (i) issued $1.0 billion of senior notes with a term of between two to ten years; (ii) obtained a 365-day bridge loan of $0.7 billion; (iii) obtained a 2-year term loan of $1.7 billion; and (iv) borrowed approximately $458.0 million on its existing lines of credit. 

HCP used the above borrowings to pay; (i) the outstanding balance of CRP’s line of credit of $216.0 million, mortgage debt of $171.2 million in the aggregate and $120 million of senior notes (ii) combined transaction costs of the Merger and the Advisor Merger of $34.6 million and the costs associated with the above debt issued in the Merger of $17.3 million and (iii) the cash consideration of the Merger.

 (J)           Adjustment reflects CRP’s existing fixed rate debt at its estimated fair value based on HCP management’s estimates of the interest rates that would be available to HCP for the issuance of debt with similar terms and remaining maturities. The fixed rate debt of CRP was assumed by HCP in the Merger. The interest rates on

7



the assumed debt are considered to be slightly below market. Estimated market interest rates assumed to compute the fair value adjustments of CRP’s existing fixed rate debt ranged from 5.79% to 6.57%.

(K)          Adjustments to CRP’s historical balance of other liabilities are as follows (in thousands):

Recognition of liability associated with the acquired advisory agreement between the Advisor and CRP

 

$

54,400

 

Recognition of liabilities associated with the acquired in-place leases that have below-market rental rates

 

136,961

 

Recognition of liabilities associated with the acquired ground leases that have below-market rental rates

 

546

 

Recognition of earn-out obligations

 

7,100

 

Elimination of historical intangible liabilities, net

 

(4,594

)

Elimination of historical deferred revenues

 

(6,703

)

 

 

$

187,710

 

 

(L)           Adjustments represent the elimination of historical CRP balances and the issuance of shares of HCP common stock in the Merger. The shares of HCP common stock issued are valued as follows (in thousands, except share and per share data):

Number of shares issued

 

22,812,340

 

Assumed price of shares of HCP common stock

 

$

26.53

 

Value of shares issued

 

$

605,211

 

Less: share registration and issuance costs

 

(950

)

Total value of shares issued

 

$

604,261

 

 

The total value of the shares of HCP common stock issued is presented as follows:

Par value, $1.00 per share

 

$

22,812

 

Additional paid-in capital

 

582,399

 

Less: share registration and issuance costs

 

(950

)

 

 

$

604,261

 

 

(M)         HCP has also agreed to acquire the Advisor for 4,378,918 shares of HCP common stock. The Merger and the Advisor Merger were each conditioned upon the consummation of the other.

For purposes of the unaudited pro forma condensed consolidated balance sheet presentation, the total purchase price is based on an average trading price of HCP’s common stock of $26.53, which represents the average of the closing prices for each of the two trading days before, the day, and the two trading days after the Merger was announced (April 28, and May, 1, 2, 3 and 4, 2006). The calculation of the Advisor Merger consideration and total purchase price is as follows (dollar amounts in thousands):

8



 

Calculation of Advisor purchase price

 

 

 

Issuance of 4,378,918 shares of HCP common stock

 

$

116,173

 

Adjustment to record liabilities at fair value under purchase accounting

 

6,000

 

All Advisor liabilities at book value

 

2,841

 

Estimated fees and other expenses related to the Advisor Merger

 

5,900

 

Total purchase price

 

$

130,914

 

 

The calculation of the estimated fees and other expenses related to the Advisor Merger is as follows:

Advisory fees

 

$

500

 

Legal, accounting and other fees and costs

 

5,350

 

Share registration and issuance costs

 

50

 

Total

 

$

5,900

 

 

(N)          Adjustment reflects the cash of $270,000 that the Advisor will receive in exchange for CRP shares owned by it, with a book value of $200,000 at September 30, 2006.

(O)          Represents intangible assets associated with the advisory agreement between the Advisor and CRP of $54.4 million, employee non-compete agreements of $2.9 million, a non-compete agreement with CNL Financial Group, CNL Real Estate Group and two other named individuals of $21.3 million, and obligations in the aggregate of $6.0 million to various officers of the Advisor.

(P)           Represents the recognition of goodwill for the excess of the purchase price over the fair value of the assets acquired and liabilities assumed.

(Q)          Other assets and liabilities have been adjusted to their estimated fair values.

(R)           Adjustments reflect the elimination of historical Advisor equity balances and the issuance of shares of HCP common stock in the Advisor Merger. The shares of HCP common stock issued are valued as follows (in thousands, except share and per share data):

Number of shares issued

 

4,378,918

 

Assumed price of shares of HCP common stock

 

$

26.53

 

Value of shares issued

 

$

116,173

 

Less: share registration and issuance costs

 

(50

)

Total value of shares issued

 

$

116,123

 

 

The total value of the shares of HCP common stock issued is reported as follows:

Par value, $1.00 per share

 

$

4,379

 

Additional paid-in capital

 

111,794

 

Less: share registration and issuance costs

 

(50

)

 

 

$

116,123

 

 

(S)           Represents the elimination of the intangible for advisory agreement between the Advisor and CRP of $54.4 million, which is an asset to the Advisor and an obligation to CRP (See Note K and Note O), and the elimination of amounts payable of $484,000 to the Advisor from CRP.

9



(T)           Adjustments to rental income and other revenues are as follows (in thousands):

 

Year Ended
December 31,
2005

 

Nine Months
Ended September 30,
2006

 

Recognize the total minimum lease payments provided under the acquired leases on a straight-line basis over the remaining term from the assumed Merger date of January 1, 2005

 

$

44,554

 

$

33,416

 

Recognize the amortization of above- and below-market lease intangibles

 

(2,738

)

(2,054

)

Remove CRP’s historical straight-line rent adjustment

 

(46,672

)

(32,034

)

Eliminate CRP’s historical amortization of above- and below-market lease intangibles

 

523

 

547

 

 

 

$

(4,333

)

$

(125

)

 

 (U)         Adjustments to interest expense are as follows (in thousands):

 

Year Ended
December 31,
2005

 

Nine Months 
Ended September 30,
2006

 

Increase in interest expense associated with new debt issued in the Merger and Advisor Merger

 

$

179,775

 

$

134,831

 

Decrease in interest expense resulting from the amortization of the premium recognized at the Merger date to adjust the assumed CRP secured debt at fair value

 

(504

)

(225

)

Increase in interest expense resulting from the amortization of debt issuance costs associated with the new debt issued in the Merger and Advisor Merger

 

9,340

 

3,979

 

Eliminate historical debt issuance costs and loan premium amortization

 

(5,576

)

(2,616

)

 

 

$

183,035

 

$

135,969

 

 

The pro forma increase in interest expense as a result of the issuance of new debt in the Merger is calculated using rates for the lines of credit and short-term borrowings issued on October 5, 2006 (the date that the Merger was completed). Each 1/8 of 1% increase in the annual interest assumed with respect to the debt will increase pro forma interest expense by $4.2 million for the year ended December 31, 2005 and $3.1.million for the nine months ended September 30, 2006.

(V)           Adjustments to depreciation expense are as follows (in thousands):

 

Year Ended
December 31,
2005

 

Nine Months 
Ended September 30,
2006

 

Represents the increase in real estate depreciation expense as a result of the recording of CRP’s real estate at its estimated fair value at the assumed Merger date of January 1, 2005

 

$

31,624

 

$

23,718

 

Represents the incremental amortization expense related to lease-up related intangible assets associated with acquired leases

 

8,706

 

6,530

 

 

 

$

40,330

 

$

30,248

 

 

10



An estimated useful life of 35 years was assumed to compute the adjustment to real estate depreciation. For assets and liabilities associated with the value of in-place leases, a weighted-average remaining lease term of 7.1 years was used to compute amortization expense.

(W)         Operating expenses are adjusted to include amortization of below-market ground lease intangibles.

(X)          Depreciation and amortization is adjusted to include the amortization of non-compete contract intangibles. A 4 year period was used to compute amortization expense.

Management of HCP expects that the Merger and Advisor Merger will create operational and general and administrative cost savings, including property management costs, costs associated with corporate administrative functions and executive compensation. There can be no assurance that HCP will be successful in achieving these anticipated cost savings. No estimate of these expected future cost savings has been included in the pro forma financial statements. Such adjustments cannot be factually supported within the SEC regulations governing the preparation of pro forma financial statements until such time as the operations of the companies have been fully integrated. Additionally, no adjustment has been made for anticipated property tax increases resulting from the Merger since HCP expects that such increases will not be significant.

(Y)           Income taxes of the Advisor have been eliminated as a result of the Advisor Merger, which is assumed as of January 1, 2005. As a condition to closing of the Merger with CRP, the Advisor Merger is assumed to have been consummated; at the closing of the Advisor Merger, the Advisor will be merged into a Qualifying REIT Subsidiary “QRS”, which assuming the Advisor Merger was effective as of January 1, 2005, would eliminate the Advisor’s income tax obligations.

(Z)           The calculations of basic and diluted earnings from continuing operations attributable to common stock per share are as follows (in thousands, except per share data):

 

 

Year Ended December 31, 2005

 

Nine Months Ended September 30, 2006

 

 

 

HCP
Historical

 

Reclassified
CRP

 

Pro
Forma
HCP

 

HCP
Historical

 

Reclassified
CRP

 

Pro
Forma
HCP

 

Income from continuing operations

 

$

143,822

 

$

139,531

 

$

48,079

 

$

120,855

 

$

95,089

 

$

54,813

 

Less: preferred stock dividends

 

(21,130

)

—

 

(21,130

)

(15,848

)

—

 

(15,848

)

Earnings from continuing operations attributable to common shares—Basic

 

122,692

 

139,531

 

26,949

 

105,007

 

95,089

 

38,965

 

Incremental income effect of potentially dilutive instruments

 

—

 

—

 

—

 

2,533

 

—

 

—

 

Earnings from continuing operations attributable to common shares—Diluted

 

$

122,692

 

$

139,531

 

$

26,949

 

$

107,540

 

$

95,089

 

$

63,140

 

Weighted-average shares used to calculate earnings per common share—Basic

 

134,673

 

248,298

 

161,864

 

136,402

 

261,993

 

163,593

 

Incremental weighted-average effect of potentially dilutive instruments

 

887

 

—

 

887

 

2,793

 

—

 

807

 

Adjusted weighted-average shares used to calculate earnings per common share—Diluted

 

135,560

 

248,298

 

162,751

 

139,195

 

261,993

 

164,400

 

Earnings from continuing operations per common share—Basic

 

$

0.91

 

$

0.56

 

$

0.17

 

$

0.77

 

$

0.36

 

$

0.24

 

Earnings from continuing operations per common share—Diluted

 

$

0.91

 

$

0.56

 

$

0.17

 

$

0.77

 

$

0.36

 

$

0.24

 

 

11



(AA)    The pro forma weighted-average shares outstanding are the historical weighted-average shares of HCP for the periods presented, adjusted for the assumed issuance of 27.2 million shares of HCP common stock on a weighted-average basis for the year ended December 31, 2005, and the nine months ended September 30, 2006.

(BB)     Represents the elimination of acquisition, debt acquisition, management and other fees earned by the Advisor from CRP. Because acquisition fees and debt acquisition fees paid by CRP to the Advisor are capitalized by CRP, only management fees and other fees are eliminated within costs and expenses.

(CC)     Represents the elimination of nonrecurring charges directly attributable to the Merger and Advisor Merger.

12


 EX-99.2 3 a06-26652_1ex99d2.htm EX-99.2

Exhibit 99.2

Contents

Page

Part I - Financial Information

 

 

 

Item 1.   Financial Statements:

 

 

 

Condensed Consolidated Balance Sheets

1

 

 

Condensed Consolidated Statements of Income

2

 

 

Condensed Consolidated Statement of Stockholders’ Equity

3

 

 

Condensed Consolidated Statements of Cash Flows

4

 

 

Notes to Condensed Consolidated Financial Statements

5

 



CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(UNAUDITED)

 

 

September 30,
2006

 

December 31,
2005

 

Assets

 

 

 

 

 

Real estate investment properties:

 

 

 

 

 

Accounted for using the operating method – net of accumulated depreciation of $230,834 and $157,746

 

$

3,118,706

 

$

2,914,817

 

Accounted for using the direct financing method

 

475,878

 

469,238

 

Intangible lease costs – net of accumulated amortization of $34,313 and $26,021

 

104,199

 

99,611

 

 

 

3,698,783

 

3,483,666

 

 

 

 

 

 

 

Cash and cash equivalents

 

36,377

 

94,902

 

Restricted cash

 

21,862

 

21,920

 

Accounts and other receivables – net of allowance for doubtful accounts of $15,600 and $7,200

 

17,732

 

23,486

 

Deferred costs, net

 

20,910

 

24,705

 

Accrued rental income

 

131,231

 

99,219

 

Other assets

 

62,446

 

52,935

 

Real estate held for sale

 

22,725

 

32,137

 

Goodwill

 

5,791

 

5,791

 

 

 

$

4,017,857

 

$

3,838,761

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages payable

 

$

1,324,680

 

$

1,220,190

 

Bonds payable

 

104,510

 

98,016

 

Construction loans payable

 

41,443

 

143,560

 

Line of credit

 

216,000

 

75,000

 

Due to related parties

 

484

 

2,386

 

Accounts payable and other liabilities

 

30,551

 

31,035

 

Intangible lease liability, net

 

4,594

 

4,505

 

Deferred income

 

8,174

 

6,607

 

Security deposits

 

20,468

 

23,954

 

Total liabilities

 

1,750,904

 

1,605,253

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

Minority interests

 

8,431

 

5,701

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, without par value Authorized and unissued 3,000 shares

 

—

 

—

 

Excess shares, $.01 par value per share Authorized and unissued 103,000 shares

 

—

 

—

 

Common stock, $.01 par value per share Authorized one billion shares, issued 270,682 and 260,293 shares, respectively, outstanding 264,204 and 255,527 shares, respectively

 

2,642

 

2,555

 

Capital in excess of par value

 

2,373,764

 

2,295,307

 

Accumulated distributions in excess of net income

 

(120,121

)

(74,894

)

Accumulated other comprehensive income

 

2,237

 

4,839

 

Total stockholders’ equity

 

2,258,522

 

2,227,807

 

 

 

$

4,017,857

 

$

3,838,761

 

 

See accompanying notes to condensed consolidated financial statements.

1



CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Revenues:

 

 

 

 

 

 

 

 

 

Seniors’ Housing:

 

 

 

 

 

 

 

 

 

Rental income from operating leases

 

$

62,324

 

$

61,649

 

$

187,078

 

$

177,425

 

Earned income from direct financing leases

 

15,240

 

14,246

 

45,522

 

43,438

 

FF&E reserve income

 

2,028

 

2,125

 

6,038

 

5,634

 

Contingent rent

 

437

 

24

 

839

 

2,035

 

Medical Facilities:

 

 

 

 

 

 

 

 

 

Rental income from operating leases

 

22,751

 

14,534

 

63,901

 

41,459

 

Tenant expense reimbursements

 

5,283

 

3,084

 

15,044

 

9,588

 

Property management and development fees

 

278

 

1,124

 

901

 

3,623

 

Loan interest income

 

1,430

 

42

 

3,339

 

42

 

 

 

109,771

 

96,828

 

322,662

 

283,244

 

Expenses:

 

 

 

 

 

 

 

 

 

Seniors’ Housing property expenses

 

331

 

215

 

749

 

582

 

Medical Facilities operating expenses

 

8,956

 

6,712

 

25,623

 

18,370

 

General and administrative

 

9,429

 

6,672

 

23,301

 

15,210

 

Asset management fees to related party

 

5,290

 

4,687

 

15,597

 

13,610

 

Provision for doubtful accounts

 

4,799

 

676

 

8,326

 

2,326

 

Depreciation and amortization

 

28,523

 

25,269

 

84,260

 

71,774

 

 

 

57,328

 

44,231

 

157,856

 

121,872

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

52,443

 

52,597

 

164,806

 

161,372

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

296

 

739

 

1,533

 

2,143

 

Interest and loan cost amortization expense

 

(23,178

)

(20,072

)

(71,164

)

(53,783

)

 

 

 

 

 

 

 

 

 

 

Income before equity in earnings of unconsolidated entity, minority interests in income of consolidated subsidiaries and discontinued operations

 

29,561

 

33,264

 

95,175

 

109,732

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entity

 

53

 

82

 

328

 

165

 

 

 

 

 

 

 

 

 

 

 

Minority interests in income of consolidated subsidiaries

 

51

 

2

 

(414

)

(395

)

Income from continuing operations

 

29,665

 

33,348

 

95,089

 

109,502

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

467

 

462

 

(972

)

(5,100

)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

30,132

 

$

33,810

 

$

94,117

 

$

104,402

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share of common stock (basic and diluted)

 

 

 

 

 

 

 

 

 

From continuing operations

 

$

0.11

 

$

0.13

 

$

0.36

 

$

0.44

 

From discontinued operations

 

—

 

0.01

 

—

 

(0.02

)

 

 

$

0.11

 

$

0.14

 

$

0.36

 

$

0.42

 

Weighted average number of shares of common stock outstanding (basic and diluted)

 

264,204

 

250,372

 

261,993

 

246,527

 

Distributions declared per common share

 

$

0.1776

 

$

0.1776

 

$

0.5328

 

$

0.5328

 

 

See accompanying notes to condensed consolidated financial statements.

2



CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2006

(UNAUDITED)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

Accumulated

 

Accumulated

 

 

 

 

 

Common stock

 

Capital in

 

distributions

 

other

 

 

 

 

 

Number

 

Par

 

excess of

 

in excess of

 

comprehensive

 

 

 

 

 

of shares

 

value

 

par value

 

net income

 

income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2005

 

255,527

 

$

2,555

 

$

2,295,307

 

$

(74,894

)

$

4,839

 

$

2,227,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

—

 

—

 

94,117

 

—

 

94,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (see Note 10)

 

 

 

 

 

 

 

 

 

(2,602

)

(2,602

)

Subscriptions received for common stock through public offerings and reinvestment plan

 

10,390

 

104

 

103,079

 

—

 

—

 

103,183

 

Redemption of common stock

 

(1,713

)

(17

)

(16,260

)

—

 

—

 

(16,277

)

Stock issuance costs

 

—

 

—

 

(8,362

)

—

 

—

 

(8,362

)

Distributions declared ($0.5328 per share)

 

—

 

—

 

—

 

(139,344

)

—

 

(139,344

)

Balance at September 30, 2006

 

264,204

 

$

2,642

 

$

2,373,764

 

$

(120,121

)

$

2,237

 

$

2,258,522

 

 

See accompanying notes to condensed consolidated financial statements.

3



CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

Nine Months Ended September 30,

 

 

 

2006

 

2005

 

Increase (decrease) in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

153,175

 

$

149,053

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Investment in land, buildings and equipment

 

(253,426

)

(355,248

)

Investment in direct financing leases

 

(300

)

(278

)

Investment in intangible lease costs

 

(15,415

)

(14,417

)

Investment in Senior Secured Term Loan

 

(24,500

)

(12,000

)

Proceeds from sale of Properties

 

2,629

 

—

 

Payment of acquisition fees and costs

 

(7,439

)

(18,595

)

Payment of deferred leasing costs

 

(2,745

)

(798

)

Decrease (increase) in restricted cash

 

(1,745

)

1,646

 

Net cash used in investing activities

 

(302,941

)

(399,690

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from borrowings on mortgages payable

 

136,520

 

228,510

 

Principal payments on mortgages payable

 

(31,727

)

(64,153

)

Proceeds from issuance of bonds payable

 

13,280

 

8,189

 

Retirement of bonds payable

 

(6,786

)

(7,116

)

Proceeds from construction loans payable

 

26,032

 

51,961

 

Repayments of construction loans payable

 

(128,149

)

—

 

Net proceeds from line of credit

 

141,000

 

95,000

 

Payment on term loan

 

—

 

(60,000

)

Refund of loan costs

 

2,774

 

—

 

Payment of loan costs

 

(1,954

)

(9,825

)

Contributions from minority interests

 

3,286

 

1,782

 

Distributions to minority interests

 

(871

)

(233

)

Subscriptions received from stockholders

 

103,183

 

172,969

 

Distributions to stockholders

 

(139,344

)

(130,942

)

Redemption of common stock

 

(16,315

)

(32,071

)

Payment of stock issuance costs

 

(9,688

)

(15,250

)

Net cash provided by financing activities

 

91,241

 

238,821

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(58,525

)

(11,816

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

94,902

 

51,781

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

36,377

 

$

39,965

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Mortgage Loans issued in connection with the sale of Properties

 

$

4,800

 

$

—

 

 

 

 

 

 

 

Mortgages assumed on properties purchased

 

$

—

 

$

43,075

 

 

See accompanying notes to condensed consolidated financial statements.

4



CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.                                       Organizational and Basis of Presentation:

Organization – CNL Retirement Properties, Inc., a Maryland corporation, was organized in December 1997 to operate as a real estate investment trust (a “REIT”) for federal income tax purposes.  Throughout this document, CNL Retirement Properties, Inc. and each of its subsidiaries and several consolidated partnerships and joint ventures are referred to as “we,” “us” and “our.”

We acquire primarily real estate properties related to seniors’ housing and health care facilities (the “Properties”) located across the United States.  The Properties may include independent living, assisted living and skilled nursing facilities, continuing care retirement communities (“CCRC”) and life care communities (collectively “Seniors’ Housing”), medical office buildings, specialty and walk-in clinics, free standing ambulatory surgery centers, specialty or general hospitals and other types of health care-related facilities (collectively “Medical Facilities”).  Seniors’ Housing facilities are generally leased on a long-term, triple-net basis and Medical Facilities are generally leased on a shorter-term, gross or triple-net basis.  We may provide mortgage financing loans (“Mortgage Loans”), furniture, fixture and equipment financing (“Secured Equipment Leases”) and other loans to operators or developers of Seniors’ Housing and Medical Facilities.  In addition, we may invest up to a maximum of 5% of total assets in equity interests in businesses, including those that provide services to or are otherwise ancillary to the retirement and health care industries.  We operate in one business segment, which is the ownership, development, management and leasing of health care-related real estate.  At September 30, 2006, we owned 184 Seniors’ Housing facilities, 90 Medical Facilities, including 2 specialty hospitals and 2 walk-in clinics, and a parcel of land.  We also owned two Seniors’ Housing facilities and a parcel of land classified as held for sale.

We retained CNL Retirement Corp. (the “Advisor”) as our advisor to provide management, acquisition, advisory and administrative services relating to our Properties, Mortgage Loans, Secured Equipment Lease program, other loans and other permitted investments pursuant to an advisory agreement dated May 14, 2004 (the “Advisory Agreement”) that was renewed pursuant to a renewal agreement effective May 3, 2005 for a one-year term (the “2005 Renewal Agreement”) and was amended by an amendment to the 2005 Renewal Agreement on July 13, 2005 (the “2005 Renewal Amendment” together with the 2005 Renewal Agreement, the “2005 Renewal Agreements”).  On May 1, 2006, we entered into a renewal agreement (the “2006 Renewal Agreement”) with the Advisor, pursuant to which the Advisory Agreement was renewed, as amended by the 2005 Renewal Agreements, for an additional one-year term commencing on May 3, 2006 and ending on May 3, 2007.  The Advisory Agreement may be terminated at an earlier date upon 60 days prior written notice by either party or by mutual consent of the parties. (See Note 2.)

Strategic Alliances – In 2005, we entered into an agreement with The Cirrus Group, LLC (“Cirrus”), a development and property management company, to acquire, at our election, Medical Facilities, some of which have yet to be developed.  The acquisitions contemplated under this agreement are expected to occur over a five-year term, subject to certain conditions, or until $1.0 billion is invested in Medical Facilities, including specialty hospitals.  We will have minority interest partners in connection with the ownership of each of these Properties, including Cirrus principals, physicians and other investors associated with Cirrus principals.  As of September 30, 2006, we had acquired a majority equity interest in five Medical Facilities for $87.3 million under this agreement, for which Cirrus and its affiliates made $1.5 million in minority interest contributions.  At September 30, 2006, Cirrus managed 26 of our Medical Facilities.

In 2005, we entered into an agreement to provide a Cirrus affiliate with an interest only, five-year senior secured term loan under which up to $85.0 million (plus capitalized interest) may be borrowed to finance the acquisition, development, syndication and operation of new and existing surgical partnerships (“Senior Secured Term Loan”).    At September 30, 2006, the balance outstanding under the Senior Secured Term Loan was $40.5 million.  In connection with the Senior Secured Term Loan, we received stock warrants which are exercisable into a 10% to 15% ownership interest of the borrower.  The stock warrants are exercisable at the earlier of an event of default or the full repayment of the Senior Secured Term Loan and expire in September 2015.

5



We own a 55% controlling interest in The DASCO Companies, LLC (“DASCO”), a development and property management company.  Our relationship with DASCO has provided and may continue to provide opportunities for us to participate in new Medical Facility development and acquisition opportunities as well as Medical Facilities management.  DASCO may also provide development and property management services to third parties.  At September 30, 2006, DASCO managed fifty-five of our Medical Facilities, including two walk-in clinics and was developing four of our Medical Facilities.

Basis of Presentation – The accompanying condensed consolidated financial statements (the “consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements.  The accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.  Operating results for the nine months ended September 30, 2006, may not be indicative of the results that may be expected for the year ending December 31, 2006.  Amounts included in the financial statements as of December 31, 2005, have been derived from the audited financial statements.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of CNL Retirement Properties, Inc. and its subsidiaries for the year ended December 31, 2005.  The accompanying consolidated financial statements include the accounts of our wholly owned subsidiaries, DASCO and other entities in which we own a majority and controlling interest.  Interests of unaffiliated third parties in less than 100% owned and majority controlled entities are reflected as minority interests.  All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications – Certain items in the prior periods’ financial statements have been reclassified to conform to the 2006 presentation, including those related to our real estate held for sale (see Note 6).  These reclassifications had no effect on reported equity or net income.

2.                                       HCP Merger:

On May 1, 2006, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Health Care Property Investors, Inc., a Maryland corporation (“HCP”) and Ocean Acquisition 1, Inc., a Maryland corporation and a wholly owned subsidiary of HCP (“Merger Sub”), pursuant to which we agreed to merge (the “Merger”) with and into Merger Sub, with Merger Sub continuing as the surviving corporation.  We completed the merger on October 5, 2006.  In accordance with the terms of the Merger Agreement, each share of our common stock, par value $0.01, (other than shares held by HCP, Merger Sub, us or any of their or our respective wholly owned subsidiaries, and any dissenting stockholders), was converted into the right to receive consideration equivalent to $11.13 in cash and 0.0865 of a share of HCP common stock, par value $1.00 per share.

As of the closing date, we had approximately 264.2 million shares of common stock outstanding.

Simultaneously with the execution of the Merger Agreement, HCP entered into a merger agreement (the “Advisor Merger Agreement”) with the Advisor and the stockholders of the Advisor, pursuant to which HCP agreed to acquire the Advisor for shares of HCP common stock valued at approximately $120.0 million (the “Advisor Merger”).  The Advisor Merger was completed on October 5, 2006.

3.                                       Public Offerings:

We completed our fifth public offering (the “2004 Offering”) on March 26, 2006.  During 2006, we raised $103.2 million in subscription proceeds from the 2004 Offering.  Total subscription proceeds received from the 2004 Offering and the four prior public offerings amount to $2.7 billion.

The price per share of all of the equity offerings of our common stock was $10.00 per share, with the exception of (i) shares purchased pursuant to volume or other discounts and (ii) shares purchased through our reinvestment plan since the beginning of the 2004 Offering, which have been priced at $9.50 per share.

6



Redemption Plan – As a result of the pending Merger, our Board of Directors determined that it was in our best interest to suspend our redemption plan, beginning with the second quarter of 2006.  The suspension of our redemption plan was effective as of June 15, 2006, and therefore beginning with the second quarter of 2006, no shares of our common stock were redeemed.

Reinvestment Plan – Also as a result of the pending Merger, our Board of Directors determined that it was in our best interest to terminate our distribution reinvestment plan, beginning with the second quarter of 2006.  The termination of our distribution reinvestment plan was effective as of June 15, 2006, and therefore beginning with the second quarter of 2006, no distributions to our stockholders were reinvested in shares of our common stock pursuant to our distribution reinvestment plan.

4.                                       Acquisitions:

In January 2006, we acquired majority equity interests in seven Medical Facilities for $84.5 million which we funded, in part, with proceeds from a new $56.3 million, ten-year mortgage loan.  Four of the acquired Properties are located in Texas, two are in Arizona and one is in Missouri, and in aggregate they contain 323,000 square feet.  Cirrus manages the Properties.

In February 2006, we acquired a Seniors’ Housing Property that is being developed.  The project is expected to be completed in the fourth quarter of 2006 with an estimated cost of $5.7 million.  The 46-unit assisted living facility is located in Michigan.

In March 2006, we acquired majority equity interests in five Medical Facilities for $72.6 million which we funded, in part, with proceeds from a new $47.2 million, ten-year mortgage loan.  Four of the Medical Facilities are located in Texas, and one is in Oklahoma, and in aggregate they contain 268,000 square feet.  Cirrus manages the Properties.

In March 2006, we acquired a majority equity interest in a Medical Facility for $24.5 million.  The Medical Facility is located in California and contains 55,000 square feet.  Cirrus manages the Property.

In May 2006, we acquired majority equity interests in two Medical Facilities for $27.8 million.  The acquired Properties are located in Texas and Utah and, in aggregate they contain 134,000 square feet.  Cirrus manages the Properties.

In June 2006, we acquired a majority equity interest in a Medical Facility in Ohio for $3.6 million.  The acquired Property contains 31,000 square feet and is managed by Cirrus.

In September 2006, we acquired an interest in a parcel of land in Texas for $3.3 million.  Cirrus will develop the Property.

7



5.                                       Other Assets:

Other assets included the following (in thousands):

 

September 30,
2006

 

December 31,
2005

 

Senior Secured Term Loan

 

$

40,500

 

$

16,000

 

Property acquisition deposits

 

—

 

10,601

 

Deferred receivables

 

8,320

 

6,638

 

Fair value of cash flow hedges

 

—

 

4,839

 

Mortgage Loan receivable

 

4,800

 

—

 

Prepaid expenses

 

2,096

 

4,950

 

Acquisition costs

 

2,599

 

7,633

 

Other

 

4,131

 

2,274

 

 

 

$

62,446

 

$

52,935

 

 

6.                                       Real Estate Held For Sale:

In July 2006, we sold a Property which was classified as held for sale.  We received net proceeds of $1.5 million and recorded a net loss of $0.2 million on the sale.

In June 2006, we entered into an agreement with the lessee of one of our Properties accounted for under the direct financing method allowing them to exercise a purchase option.  In accordance with the agreement, the lessee has deposited the option purchase price with an escrow agent, and we expect the transaction to close in October 2006.  Accordingly, we have reclassified the Property as held for sale and recognized an impairment charge of $2.4 million to reduce the Property’s carrying value to the option purchase price less estimated closing costs.  Previously reported results were restated to reflect the reclassification on a comparable basis.

In March 2006, we sold two Properties which were classified as held for sale to an unrelated third party for $6.0 million and recorded a net loss of $0.5 million.  We issued a Mortgage Loan receivable with a three-year term secured by the Properties in the amount of $4.8 million.  This amount is included in other assets on our consolidated balance sheet as of September 30, 2006.  Interest is payable annually at a rate of 6.0% and principal is due at maturity.

As of September 30, 2006, real estate held for sale included two Seniors’ Housing facilities and a parcel of land with an aggregate net carrying value of $22.7 million.

The operational results associated with Properties classified as held for sale were presented as Income (loss) from discontinued operations in the accompanying consolidated statements of income.  Summarized financial information was as follows (in thousands):

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Rental and earned income

 

$

708

 

$

1,146

 

$

2,403

 

$

3,699

 

Provision for doubtful accounts

 

—

 

(616

)

(124

)

(616

)

Impairment provisions

 

—

 

—

 

(2,387

)

(7,740

)

Net loss on disposal of Properties

 

(170

)

—

 

(620

)

—

 

Income (loss) from discontinued operations

 

467

 

462

 

(972

)

(5,100

)

 

7.                                       Indebtedness:

Mortgages payable – At September 30, 2006, we had $1.3 billion in mortgage debt collateralized by Properties with an aggregate carrying amount of $2.4 billion.  Interest rates on the mortgage notes ranged from 4.85% to 8.42% with a weighted-average rate of 6.13% at September 30, 2006.

8



In January 2006, we entered into a $56.3 million, ten-year mortgage loan that bears fixed-rate interest at 5.59%.  Payments for the first five years are interest only, with principal payments beginning in March 2011.

In February 2006, we entered into a $33.0 million mortgage loan and used the proceeds and cash on hand to pre-pay a $48.0 million construction loan facility with a principal balance of $41.9 million.  The new interest-only, five-year loan bears interest at a rate equal to LIBOR plus 150 basis points (6.83% all-in rate at September 30, 2006).

In March 2006, we entered into a $47.2 million, ten-year mortgage loan that bears fixed-rate interest at 5.81%.  Payments for the first five years are interest only, with principal payments beginning in May 2011.

In August 2006 we repaid two mortgage loans with an aggregate principal balance of $22.0 million.

Construction loans payable – Total construction loans outstanding at September 30, 2006 were $41.4 million, and total liquidity remaining was $17.6 million.  During the nine months ended September 30, 2006, we prepaid construction loan facilities with an aggregate balance of $128.1 million, entered into a new construction loan facility of $7.7 million and collectively drew a net of $26.0 million under all of our construction loans related to certain Properties in various stages of development.  The loans are variable interest rate loans and mature from July 2009 through December 2013.  We anticipate that we will obtain permanent financing to repay the construction loans as they become due.

Line of Credit – At September 30, 2006, $216.0 million was outstanding under our $320.0 million two-year senior secured revolving line of credit (the “Revolving LOC”).  The Revolving LOC requires interest-only payments with an all-in rate of 9.10% at September 30, 2006, which represents a pricing of prime plus 85 basis points.  The amount available for use under the Revolving LOC is subject to certain limitations based on the pledged collateral.  As of September 30, 2006, the Revolving LOC was collateralized by 36 Properties with a carrying value of $388.8 million that, in the aggregate, allowed us to draw up to $283.0 million.

The Merger Agreement with HCP provided, among other things, that we could not incur further indebtedness other than an additional $25.0 million in draw downs under our Revolving LOC or issue equity or convertible securities without the prior written consent of HCP.  In addition, the Merger Agreement limited our ability to invest in and encumber assets, make loans and dispose of assets without the prior written consent of HCP.

8.                                       Financial Instruments – Derivatives and Hedging:

In May 2005, we entered into two interest rate swap agreements effective June 1, 2005, and one interest rate swap agreement effective July 1, 2005, for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in interest rates on our variable interest rate mortgage notes payable.  On September 29, 2006, we terminated these swaps and received cash proceeds of $5.2 million, representing the fair value of the swaps on the termination date.  In the third quarter of 2006, $3.0 million of the gain on these swaps was recognized as a reclassification from accumulated other comprehensive income to interest expense because the original forcasted transactions were no longer probable.  The remaining $2.2 million of the gain will be amortized as an offset to interest expense over the life of the related debt.

9.                                       Related Party Transactions:

Pursuant to the Advisory Agreement, as amended and renewed, the Advisor and its affiliates earn certain fees and are entitled to receive reimbursement of certain expenses.

Acquisition fees – During the nine months ended September 30, 2006 and 2005, we incurred acquisition fees of $7.2 million and $16.0 million, respectively, for, among other things, identifying Properties and structuring the terms of the leases (equal to 3.0% of gross offering proceeds and loan proceeds from permanent financing from May 3, 2005 until the present and equal to 4.0% of gross offering proceeds and loan proceeds from May 14, 2004 through May 2, 2005).  These fees are included in other assets in the accompanying consolidated balance sheets prior to being allocated to individual Properties or intangible lease costs.

9



Management fees – During the quarter and nine months ended September 30, 2006, we incurred monthly asset management fees totaling $5.3 million and $15.7 million, respectively.  Monthly asset management fees incurred during the quarter and nine months ended September 30, 2005 totaled $4.9 million and $14.2 million, respectively (0.05% of the amount actually paid or allocated to the purchase, development, construction or improvement of a property, exclusive of acquisition fees and acquisition expenses, and the outstanding principal balance of any Mortgage Loans as of the end of the preceding month).

Administrative services – Our Advisor and its affiliates provide various administrative services, including, but not limited to, accounting; financial, tax, insurance administration and regulatory compliance reporting; stockholder distributions and reporting; due diligence and marketing; and investor relations.  During the quarter and nine months ended September 30, 2006, we incurred $1.4 million and $3.1 million for these services, respectively.  During the quarter and nine months ended September 30, 2005, we incurred $1.6 million and $4.3 million for these services, respectively.

Offering expenses – Offering expenses incurred by the Advisor and its affiliates on our behalf, together with selling commissions, the marketing support fee and due diligence expense reimbursements were $8.4 million and $15.4 million during the nine months ended September 30, 2006 and 2005, respectively.  These amounts are treated as stock issuance costs and charged to stockholders’ equity.

10.                                 Comprehensive Income:

The components of our comprehensive income for the quarter and nine months ended September 30, 2006 and 2005 were as follows (in thousands):

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Net income

 

$

30,132

 

$

33,810

 

$

94,117

 

$

104,402

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on cash flow hedge

 

(4,539

)

4,956

 

385

 

2,954

 

Less reclassification adjustment included in net income

 

(2,987

)

—

 

(2,987

)

—

 

Total comprehensive income

 

$

22,606

 

$

38,766

 

$

91,515

 

$

107,356

 

 

 

 

10


 EX-99.3 4 a06-26652_1ex99d3.htm EX-99.3

Exhibit 99.3

CNL RETIREMENT CORP.

AND SUBSIDIARY

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

As of September 30, 2006 and December 31, 2005 and

for the Nine Months Ended September 30, 2006 and 2005



CNL RETIREMENT CORP.

AND SUBSIDIARY

CONTENTS

 

Page

Condensed Consolidated Financial Statements as of September 30, 2006 and December 31, 2005 and for the Nine Months Ended September 30, 2006 and 2005:

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

Condensed Consolidated Statements of Income

 

2

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

3

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 



CNL RETIREMENT CORP.

AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

5,084,839

 

$

1,492,063

 

Due from related parties

 

484,252

 

2,129,615

 

Prepaid expenses and other assets

 

1,249,820

 

70,057

 

Total current assets

 

6,818,911

 

3,691,735

 

 

 

 

 

 

 

Property and equipment, net

 

3,537,635

 

2,466,460

 

Other assets, at cost

 

200,000

 

245,137

 

 

 

 

 

 

 

 

 

$

10,556,546

 

$

6,403,332

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

751,400

 

$

3,678,057

 

Due to related parties

 

6,045,933

 

—

 

Total current liabilities

 

6,797,333

 

3,678,057

 

 

 

 

 

 

 

Deferred rent expense

 

61,492

 

202,133

 

 

 

 

 

 

 

Total liabilities and deferred expense

 

6,858,825

 

3,880,190

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Class A common stock; $1 par value per share; 10,000 shares authorized; 1,000 shares issued and outstanding

 

1,000

 

1,000

 

Class B common stock; $1 par value per share; 5,000 shares authorized; 1,027 shares issued and outstanding

 

1,027

 

1,027

 

Additional paid-in capital

 

2,521,115

 

2,521,115

 

Retained earnings

 

1,174,579

 

—

 

 

 

 

 

 

 

Total stockholders’ equity

 

3,697,721

 

2,523,142

 

 

 

 

 

 

 

 

 

$

10,556,546

 

$

6,403,332

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1



CNL RETIREMENT CORP.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2006

 

2005

 

Revenue:

 

 

 

 

 

Acquisition fees

 

$

2,598,793

 

$

5,480,938

 

Debt acquisition fees

 

4,327,935

 

11,101,578

 

Management fees

 

15,741,821

 

14,116,867

 

Interest and other income

 

2,278,260

 

2,124,566

 

 

 

24,946,809

 

32,823,949

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

Corporate services provided by related parties

 

866,264

 

3,459,802

 

Salaries and benefits

 

9,650,908

 

7,156,158

 

General and administrative

 

2,840,453

 

3,031,067

 

Rent

 

995,892

 

677,370

 

Depreciation and amortization

 

648,393

 

513,617

 

 

 

15,001,910

 

14,838,014

 

 

 

 

 

 

 

Income before provision for income taxes

 

9,944,899

 

17,985,935

 

 

 

 

 

 

 

Provision for income taxes

 

(3,803,924

)

(6,879,620

)

 

 

 

 

 

 

Net income

 

$

6,140,975

 

$

11,106,315

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2



CNL RETIREMENT CORP.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Nine Months Ended September 30, 2006

 

 

Class A

 

Class B

 

 

 

 

 

 

 

 

 

Common Stock

 

Common Stock

 

Additional

 

 

 

 

 

 

 

Shares

 

Par

 

Shares

 

Par

 

Paid-In

 

Retained

 

 

 

 

 

Outstanding

 

Value

 

Outstanding

 

Value

 

Capital

 

Earnings

 

Total

 

Balance at December 31, 2005

 

1,000

 

$

1 ,000

 

1,027

 

$

1,027

 

$

2,521,115

 

$

—

 

$

2,523,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

—

 

—

 

—

 

—

 

—

 

(4,966,396

)

(4,966,396

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

—

 

—

 

—

 

—

 

6,140,975

 

6,140,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2006

 

1,000

 

$

1,000

 

1,027

 

$

1,027

 

$

2,521,115

 

$

1,174,579

 

$

3,697,721

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



CNL RETIREMENT CORP.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2006

 

2005

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

6,140,975

 

$

11,106,315

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

648,393

 

513,617

 

Loss on retired assets

 

202,105

 

—

 

Changes in operating assets and liabilities:

 

 

 

 

 

Due from related parties

 

1,645,363

 

(511,492

)

Prepaid expenses and other assets

 

(1,179,763

)

27,924

 

Other assets

 

45,137

 

—

 

Accounts payable and accrued expenses

 

(2,926,657

)

(1,174,002

)

Due to related parties

 

6,045,933

 

231,666

 

Deferred rent expense

 

(140,641

)

28,395

 

Net cash provided by operating activities

 

10,480,845

 

10,222,423

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(2,437,302

)

(870,625

)

Proceeds from sale of assets

 

515,629

 

—

 

Net cash used in investing activities

 

(1,921,673

)

(870,625

)

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Dividends paid to stockholders

 

(4,966,396

)

(14,580,249

)

Net cash used in financing activities

 

(4,966,396

)

(14,580,249

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

3,592,776

 

(5,228,451

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1,492,063

 

5,235,669

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

5,084,839

 

$

7,218

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for income taxes

 

$

3,803,924

 

$

6,879,620

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



CNL RETIREMENT CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Quarters Ended September 30, 2006 and 2005

1.                                      Organization and Nature of Business

CNL Retirement Corp. (the “Company”) and its wholly owned subsidiary, CNL Retirement Development Company, provide management, advisory and administrative services and assist in identifying and acquiring seniors’ housing and health care-related  properties and obtaining financing for CNL Retirement Properties, Inc. and it’s subsidiaries (“CRP”).

2.                                      Interim Period Financial Statements

The interim statements have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company’s management believes the disclosures made are adequate to make the interim financial information presented not misleading.

In the opinion of management, the accompanying interim statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2006 and the results of operations and cash flows for the nine months ended September 30, 2006 and 2005. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations.

Amounts included in the financial statements as of December 31, 2005, have been derived from the audited financial statements of the Company for the year then ended.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of CNL Retirement Corp. for the year ended December 31, 2005. The accompanying unaudited condensed consolidated financial statements include the accounts of CNL Retirement Corp. and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated.

3.                                      Related Party Transactions

One of the principal stockholders of the Company’s parent is a stockholder, director and officer of CRP and is also an officer and director of the Company. Additionally, the President of the Company’s parent is an officer and director of the Company as well as an officer and director of CRP.

The Company’s fee revenue is primarily earned for services provided to CRP. In addition, the Company provides accounting and administrative services to CRP and other related companies for which it receives personnel reimbursements. For the nine months ended September 30, 2006 and 2005 such reimbursements amounted to $2,199,005 and $2,070,163, respectively and are included in interest and other income.

5



 

Amounts due from related parties at September 30, 2006 and December 31, 2005 consist of the following:

 

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

Acquisition fees

 

$

—

 

$

309,191

 

Other

 

484,252

 

1,820,424

 

 

 

$

484,252

 

$

2,129,615

 

 

Amounts due to related parties at September 30, 2006 and December 31, 2005 consist of the following:

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

 

 

 

 

 

 

Amounts paid by Parent on behalf of the Company and Accounting and administrative services

 

$

3,205,272

 

$

—

 

Amounts due for furniture deposits paid by Parent

 

2,840,661

 

—

 

 

 

$

6,045,933

 

$

—

 

 

Amounts due are unsecured, non-interest bearing and due on demand.

The Company maintains bank accounts in a bank in which certain officers and directors serve as directors and are stockholders. The amounts deposited with this bank were $5,084,839 and $1,492,063 as of September 30, 2006 and December 31, 2005, respectively.

4. Merger Agreement

On May 1, 2006, CRP entered into a definitive merger agreement with Health Care Property Investors, Inc. (“HCP”). In connection with the merger with CRP, HCP also entered into a definitive merger agreement with respect to the Company, pursuant to which all outstanding shares of the Company’s capital stock would be converted into the right to receive in the aggegate 4,378,923 shares of HCP common stock. The merger with CRP and the merger with the Company were conditioned upon the consummation of each other. In September of 2006 the Company entered into agreements with certain executives that would require payments of approximately $6,000,000 in the event the mergers were consummated.

In October of 2006 the mergers were consummated and the payments to the executives were made.

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