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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ..... TO .....
COMMISSION FILE NUMBER 1-8895
- - --------------------------------------------------------------------------
HEALTH CARE PROPERTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- - --------------------------------------------------------------------------
MARYLAND 33-0091377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 473-1990
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS:
YES /X/ NO / /
AS OF JULY 28, 1994 THERE WERE 26,669,574 SHARES OF $1.00 PAR VALUE
COMMON STOCK OUTSTANDING.
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<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993................... 2
Consolidated Statements of Income
Six Months Ended June 30, 1994 and 1993............... 3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993............... 4
Notes to Consolidated Condensed Financial
Statements............................................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 7
PART II. OTHER INFORMATION
Signatures....................................................... 10
<PAGE>
<TABLE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(amounts in thousands)
<CAPTION>
June 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Real Estate Properties
Buildings and Improvements $ 492,839 $ 474,181
Accumulated Depreciation (103,868) (96,350)
------------ ------------
388,971 377,831
Construction in Progress 1,771 4,974
Land 52,882 52,012
------------ ------------
443,624 434,817
Investments in and Advances to Partnerships 10,157 10,709
Loans Receivable 75,532 70,471
Other Assets 6,798 6,431
Cash and Short-Term Investments 9,572 27,210
------------ ------------
TOTAL ASSETS $ 545,683 $ 549,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes due 1998-2003 $ 135,863 $ 135,845
Convertible Subordinated Notes Due 2000 100,000 100,000
Mortgage Notes Payable 7,483 9,446
Accounts Payable and Accrued Expenses 13,036 14,233
Minority Interests in Joint Ventures 19,871 20,241
Commitments
Stockholders' Equity
Common Stock 26,669 26,633
Additional Paid-In Capital 303,687 302,765
Cumulative Net Income 213,546 189,086
Cumulative Dividends (274,472) (248,611)
------------ -------------
Total Stockholders' Equity 269,430 269,873
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 545,683 $ 549,638
============ =============
See accompanying Notes to Consolidated Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
<PAGE>
<TABLE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(amounts in thousands, except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------- -----------------------------------
1994 1993 1994 1993
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Base Rental Income $ 16,179 $ 14,890 $ 31,873 $ 29,700
Additional Rental and Interest Income 4,209 3,764 8,230 7,273
Interest and Other Income 4,437 3,430 7,794 7,271
Facility Operating Revenues 564 570 1,109 1,133
--------------- ------------- -------------- -------------
25,389 22,654 49,006 45,377
--------------- -------------- -------------- --------------
EXPENSES
Interest Expense 5,008 4,679 10,028 9,507
Depreciation/Noncash Charges 4,373 4,475 8,863 8,958
Other Expenses 1,243 1,356 2,610 2,655
Facility Operating Expenses 620 634 1,184 1,248
--------------- --------------- ------------ -----------
11,244 11,144 22,685 22,368
--------------- --------------- ------------ ------------
INCOME FROM OPERATIONS 14,145 11,510 26,321 23,009
Minority Interests (937) (859) (1,861) (1,760)
--------------- --------------- ------------ ------------
NET INCOME $ 13,208 $ 10,651 $ 24,460 $ 21,249
=============== =============== ============= ============
NET INCOME PER SHARE $ 0.50 $ 0.40 0.92 0.80
============== =============== ============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,670 26,595 26,661 26,543
============== =============== ============= ============
See accompanying Notes to Consolidated Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
<PAGE>
<TABLE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands, except per share amounts)
<CAPTION>
Six Months
Ended June 30,
-----------------------------------------
1994 1993
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 24,460 $ 21,249
Depreciation/Noncash Charges 8,863 8,958
Distribution from Partnerships in Excess of Income 156 236
Distribution to Minority Interests in Excess of Income (412) (490)
------------- -------------
FUNDS FROM OPERATIONS 33,067 29,953
Change in Other Assets/Liabilities (1,476) 127
------------- -------------
31,591 30,080
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate (16,325) (15,131)
Advances Repaid by Partnerships, Net 43 5,619
Other Investments and Loans (5,071) 1,299
------------- --------------
(21,353) (8,213)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Bank Notes Payable --- (10,100)
Issuance of Senior Notes Due 2003 --- 10,000
Cash Proceeds from Issuing Common Stock 426 1,863
Final Payments of Mortgages (1,371) ---
Periodic Payments on Mortgages (578) (649)
Dividends Paid (25,861) (24,083)
Other Financing Activities (492) 1,261
------------- --------------
(27,876) (21,708)
------------- --------------
NET (DECREASE)/INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ (17,638) $ 159
============= ==============
See accompanying Notes to Consolidated Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1994
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information furnished herein in the opinion of
management reflects all adjustments which are necessary to fairly state the
Company's financial position, the results of its operations and its cash
flows. The Company presumes that users of the interim financial
information herein have read or have access to the audited financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year ended December 31,
1993 and that the adequacy of additional disclosure needed for a fair
presentation, except in regard to material contingencies, may be determined
in that context. Accordingly, footnotes and other disclosures which would
substantially duplicate the disclosure contained in the Company's most
recent annual report to security holders have been omitted. The interim
financial information contained herein is not necessarily representative of
a full year's operations for various reasons including acquisitions,
changes in rents, interest rates and the timing of debt and equity
financings. These same considerations apply to all year-to-year
comparisons.
Net Income Per Share
Net income per share is calculated by dividing net income by the
weighted average common shares outstanding during the period. There were
26,669,574 shares outstanding as of June 30, 1994.
Funds From Operations
In the context of Cash Flows from Operating Activities, the Company
has adopted the following definition for Funds From Operations that has
been prescribed by the National Association of Real Estate Investment
Trusts (NAREIT). Funds From Operations is defined as net income (computed
in accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect Funds From
Operations on the same basis. Funds From Operations does not represent
cash generated from operating activities in accordance with generally
accepted accounting principles, is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative
to net income.
(2) MAJOR LESSEES
During the second quarter of 1994, the following approximate
percentages of the Company's revenue were received from subsidiaries of:
National Medical Enterprises, Inc. ("NME") - 9%, The Hillhaven Corporation
("Hillhaven") - 24% and Healthsouth Corporation ("Healthsouth") - 5%. All
of the leases with NME, Hillhaven and Healthsouth are unconditionally
guaranteed by NME. In addition, 12% of the Company's revenue was received
from leases guaranteed by Beverly Enterprises, Inc.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the three months ended June 30, 1994
(amounts in thousands):
<TABLE>
<CAPTION>
Par Additional Total
Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Capital Net Income Dividends Equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1993 26,633 $26,633 $302,765 $189,086 ($248,611) $269,873
Issuance of Stock, Net 15 15 516 531
Exercise of Stock Options 21 21 406 427
Net Income 24,460 24,460
Dividends Paid (25,861) (25,861)
-----------------------------------------------------------------------------
Balance, June 30, 1994 26,669 $26,669 $303,687 $213,546 ($274,472) $269,430
=============================================================================
</TABLE>
(4) COMMITMENTS
The Company has remaining outstanding commitments to fund construction
costs and acquire health care facilities aggregating approximately
$25,000,000.
(5) SUBSEQUENT EVENT
On July 21, 1994 the Board of Directors declared a quarterly dividend
of $0.50 per share payable on August 19, 1994, to stockholders of record on
the close of business on August 3, 1994.
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1994, the Company's portfolio of properties, including
equity investments, was comprised of 138 long term care facilities, 14
assisted living and congregate care centers, six acute care hospitals, six
rehabilitation hospitals, 11 medical office buildings and one psychiatric
care facility. The gross acquisition price of the properties, which
includes partnership acquisitions, was approximately $676,000,000. The
Company had a direct investment in 124 facilities; investments in the
remaining 52 were owned through partnerships in which the Company is the
managing general partner.
The Company has financed its acquisitions through the sale of Common
Stock, the issuance of long-term debt, the assumption of mortgage notes
payable and the use of short-term bank credit lines.
In November 1993, the Company issued $100,000,000 6% Subordinated
Convertible Notes due 1998. With these proceeds, the Company redeemed
$60,000,000 9-1/2% Senior Notes due 1996, without penalty. This financing
enabled the Company to significantly reduce its average borrowing rates.
As of June 30, 1994, the Company had issued a total of $61,000,000 and had
remaining capacity to issue an additional $69,000,000 under its Medium-Term
Note Programs. On March 31, 1994, the Company instituted a new
$100,000,000 three year revolving line of credit with a group of seven
banks. The Company believes it has a strong financial position with
$269,430,000 in stockholders' equity as of June 30, 1994, a total debt-to-
equity ratio of approximately 0.90:1 and committed and unused bank lines of
credit aggregating $100,000,000.
As of June 30, 1994, the Company had commitments to purchase and
construct health care facilities totaling $25,000,000 which are expected to
be funded during 1994 and 1995. Facilities under construction are
generally financed by means of cash on hand or short-term borrowings under
the Company's existing bank lines. In the future, the Company may use its
Medium-Term Note program to finance a portion of the construction. At the
completion of construction and commencement of the lease, short term
borrowings used are refinanced with new long-term debt or equity offerings.
The Company has the option to prepay without penalty its $75,000,000
9-7/8% Senior Notes due 1998 at any time after February 15, 1995; it may
refinance the foregoing by raising new long term funds in 1994 if it
appears advantageous to do so.
The Company has unconditional guarantees from National Medical
Enterprises, Inc. in respect of Lease obligations of subsidiaries of NME (3
facilities), subsidiaries of Hillhaven (63 facilities) and Healthsouth
Corporation (2 facilities) which are discussed in Footnote (3) to the
consolidated financial statements of the Company as of December 31, 1993.
The following discussion is derived from public reports distributed by NME.
NME's operating results were significantly and negatively affected by (1)
adverse media coverage, investigations in certain states, and certain
claims and lawsuits, all in connection with allegations that NME's
psychiatric facilities engaged in certain improper practices and (2)
industry-wide weaknesses in the psychiatric hospital business, including
increased payor restrictions on psychiatric hospitalization and on amounts
paid for psychiatric care. In the past year or more NME has announced that
it has (1) settled or agreed in principle to settle lawsuits with certain
insurance companies for payments by NME aggregating $214,900,000, (2)
settled or reached agreements in principle to settle approximately two
thirds of its psychiatric patient care cases, (3) sold most of its
rehabilitation hospitals and clinics and (4) disposed and agreed to dispose
of the majority of its psychiatric hospitals and substance abuse facilities
to Charter Medical Corporation and (5) settled with the federal government
on all open investigations against NME for net payments of approximately
$363,000,000. Based upon public filings, during the year ended May 31,
1994, NME generated Income from continuing operations, before loss on
discontinued operations and cumulative effect of a change in accounting, of
$216,000,000. Its Net Loss for the same period was $425,000,000, which
took into account the agreements to settle substantially all lawsuits and
governmental investigations discussed above and other costs to dispose of
the majority of its psychiatric care and rehabilitation hospitals. As of
May 31, 1994, NME's balance sheet reflects stockholders' equity of $1.3
billion and a ratio of debt to equity of 0.63:1.
The Company currently has approximately $30,277,000 in irrevocable
letters of credit from commercial banks to back the obligations of many of
its lessees' lease obligations. The largest such letter of credit is for
$11,850,000 from Morgan Guaranty Trust Company, which, like the other
letters of credit, allows the Company to draw down the letter of credit to
the extent of any delinquencies of monetary obligations required under the
leases.
The second quarter 1994 dividend of $0.49 per share or $13,068,000 in
the aggregate was paid on May 20, 1994. Total dividends paid during the
six months ended June 30, 1994 as a percentage of Funds From Operations for
the corresponding period was 78%.
Management believes that the Company's liquidity and sources of
capital are adequate to finance its operations as well as its future
investments in additional facilities.
RESULTS OF OPERATIONS
Net Income for the three months ended June 30, 1994 totaled a record
$13,208,000 or $0.50 per share, on revenues of $25,389,000 compared to Net
Income of $10,651,000 or $0.40 per share, on revenues of $22,654,000 for
the corresponding quarter in 1993. On a year-to-date basis, Net Income
amounted to a new high of $24,460,000 or $0.92 per share compared to
$21,249,000 or $0.80 per share for the year ago six month period.
Funds From Operations for the three months ended June 30, 1994
totaled $17,465,000 compared to Funds From Operations for the comparable
quarter in 1993 of $14,829,000. For the six months ended June 30, 1994,
Funds From Operations registered $33,067,000, an all time high for the
Company, compared with $29,953,000 for the corresponding period in the
prior year.
Funds From Operations and earnings for the current quarter and six
months ended June 30, 1994 were at record levels. The increase was
primarily attributable to improvements in base and additional rents, and in
interest and other income. Base rental income was enhanced by the
commencement of rents in the latter part of 1993 and early 1994 from five
newly constructed medical office buildings, and from two newly acquired
assisted living facilities with investment values of $25,000,000 and
$11,000,000, respectively. Additional rents increased with the growth in
revenues at many of the Company's existing facilities, from $3,764,000 in
the second quarter of 1993 to $4,209,000 in 1994. The Company's financial
results for the quarter were also favorably impacted in the amount of
approximately $1,000,000 or $0.04 per share, from a non-recurring final
settlement related to a partnership investment. In comparing the year-to-
date results it should be noted that the first quarter results in 1993
contained non-recurring earnings and cash flow of approximately $800,000 or
$0.03 per share.
Earnings and Funds From Operations were held down by second quarter
average short-term investments of approximately $13,000,000 at 4.1%, which
represent funds remaining from the $100,000,000 6% Subordinated Convertible
Notes issued by the Company in November 1993. These cash balances are
expected to be deployed in long-term investments in the near future.
PART II. OTHER INFORMATION
Items 1. through 3, 5, 6. Not applicable
- - ---------------------------
Item 4.
- - -------
At the Company's annual meeting on April 21, 1994, the Company adopted
an amendment to its Amended Stock Incentive Plan to increase the number of
shares reserved for issuance from five percent of the number of all shares
of common stock outstanding to a stated number of shares eligible to be
issued under the Plan of 2.5 million shares. The Plan would also provide
for the accrual, crediting and disbursement of dividend shares and limit to
400,000 the number of stock options that may be granted to any single
participant under the Plan during any calendar year. This amendment was
adopted with:
Number of shares of
Common Stock
-------------------
For 14,855,745
Against 4,115,769
Abstain 962,101
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: July 28, 1994 HEALTH CARE PROPERTY INVESTORS, INC.
(REGISTRANT)
James G. Reynolds
------------------------------
James G. Reynolds
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Devasis Ghose
------------------------------
Devasis Ghose
Vice President-Finance
and Treasurer
(Principal Accounting Officer)
