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

 

 

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(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.

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