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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
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 NOVEMBER 14, 1995 THERE WERE 28,546,174 SHARES OF $1.00 PAR VALUE
COMMON STOCK OUTSTANDING.
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HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
Consolidated Statements of Income
Nine Months and Three Months Ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Signatures
<TABLE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(amounts in thousands)
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Real Estate Properties
Buildings and Improvements $ 534,774 $ 522,847
Accumulated Depreciation (118,917) (111,540)
------------ ------------
415,857 411,307
Construction in Progress 11,024 5,674
Land 58,974 58,814
------------ ------------
485,855 475,795
Investments in and Advances to Partnerships 9,324 9,642
Loans Receivable 133,917 79,165
Other Assets 7,863 6,296
Cash and Cash Equivalents 2,070 2,928
------------ ------------
TOTAL ASSETS $ 639,029 $ 573,826
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 21,000 $ 11,200
Senior Notes due 1998-2015 130,493 150,882
Convertible Subordinated Notes due 2000 100,000 100,000
Mortgage Notes Payable 13,716 9,381
Accounts Payable and Accrued Expenses 14,114 13,483
Minority Interests in Partnerships 18,946 19,477
Stockholders' Equity
Common Stock 28,546 26,733
Additional Paid-In Capital 352,794 305,049
Cumulative Net Income 305,329 239,063
Cumulative Dividends (345,909) (301,442)
------------ -------------
Total Stockholders' Equity 340,760 269,403
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 639,029 $ 573,826
============ =============
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 Nine Months
Ended September 30, Ended September 30,
--------------------------------- ----------------------------------
1995 1994 1995 1994
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Base Rental Income $ 17,028 $ 16,365 $ 50,854 $ 48,238
Additional Rental and Interest Income 4,356 4,003 14,059 12,233
Interest and Other Income 4,890 3,547 13,259 11,341
Facility Operating Revenues --- 610 741 1,719
------------- ------------- -------------- -------------
26,274 24,525 78,913 73,531
------------- ------------- -------------- -------------
EXPENSE
Interest Expense 4,643 5,030 14,117 15,058
Depreciation/Noncash Charges 4,822 4,427 14,201 13,290
Other Expenses 1,279 1,177 4,326 3,787
Facility Operating Expenses --- 621 720 1,805
------------- ------------- ------------ ------------
10,744 11,255 33,364 33,940
------------- ------------- ------------ ------------
INCOME FROM OPERATIONS 15,530 13,270 45,549 39,591
Minority Interests (886) (853) (2,833) (2,714)
Gain on Sale of Real Estate Properties --- --- 23,550 ---
------------- ------------- ------------ -----------
NET INCOME $ 14,644 $ 12,417 $ 66,266 $ 36,877
============= ============= ============ ===========
NET INCOME PER SHARE $ 0.51 $ 0.46 $ 2.34 $ 1.38
============= ============= ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 28,544 26,672 28,279 26,665
============= ============= ============ ===========
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)
<CAPTION>
Nine Months
Ended September 30,
-----------------------------------------
1995 1994
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 66,266 $ 36,877
Real Estate Depreciation 12,328 11,890
Noncash Charges 1,873 1,400
Partnership Adjustments (376) (396)
Gain on Sale of Real Estate Properties (23,550) ---
------------- --------------
Funds From Operations 56,541 49,771
Change in Other Assets/Liabilities (133) (843)
------------- --------------
56,408 48,928
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate Properties, Net (38,140) (25,856)
Proceeds from Sale of Real Estate Properties 8,387 ---
Advances Repaid by Partnerships --- 64
Other Investments and Loans (17,500) (8,214)
------------- --------------
(47,253) (34,006)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Bank Notes Payable 9,800 2,000
Repayment of Senior Notes (75,000) ---
Issuance of Senior Notes Due 2000-2015, Net 54,107 ---
Cash Proceeds from Issuing Common Stock 47,109 412
Contribution from Minority Interests 64 67
Final Payments on Mortgages (637) (1,665)
Periodic Payments on Mortgages (844) (879)
Dividends Paid (44,467) (39,197)
Other Financing Activities (145) (237)
------------- --------------
(10,013) (39,499)
------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (858) $ (24,577)
============= ==============
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
September 30, 1995
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments that are necessary to state fairly 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, 1994 and that
the adequacy of additional disclosures needed for a fair presentation,
except in regard to material contingencies, may be determined in that
context. Accordingly, footnotes and other disclosures that would
substantially duplicate the disclosures 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
28,546,174 shares outstanding as of September 30, 1995.
Funds From Operations
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.
Adjustments for unconsolidated partnerships 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
On September 28, 1995 The Hillhaven Corporation and Vencor, Inc.
("Vencor") completed the merger of the corporations with Vencor as the
surviving entity.
During the third quarter of 1995, the following approximate percentages
of the Company's revenue were received from subsidiaries of: Tenet
Healthcare Corporation ("Tenet"), formerly National Medical Enterprises,
Inc. - 8%; Vencor - 22%; and from HealthSouth Corporation ("HealthSouth") -
6%. All of the leases with subsidiaries of Tenet and Vencor, and certain
leases with HealthSouth are unconditionally guaranteed by Tenet. In
addition, 11% of the Company's revenue was received from leases and loans
guaranteed by Beverly Enterprises, Inc.
The merger of two of the Company's lessees, Horizon Healthcare
Corporation and Continental Medical Systems, Inc., in July 1995 created
Horizon/CMS Healthcare Corporation ("Horizon"). For the quarter ended
September 30, 1995, 10% of the Company's revenue was generated from leases
guaranteed by Horizon.
(3) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the nine months ended September 30, 1995
(amounts in thousands):
<TABLE>
<CAPTION>
Common Stock
------------------
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, December 31, 1994 26,733 $26,733 $305,049 $239,063 ($301,442) $269,403
Issuance of Stock, Net 1,805 1,805 47,613 49,418
Exercise of Stock Options 8 8 132 140
Net Income 66,266 66,266
Dividends Paid (44,467) (44,467)
-----------------------------------------------------------------------------
Balance, September 30, 1995 28,546 $28,546 $352,794 $305,329 ($345,909) $340,760
=============================================================================
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
As of September 30, 1995 the Company has remaining outstanding
commitments to fund construction costs, acquire health care facilities and
provide mortgages on health care facilities aggregating approximately
$65,000,000.
Since December 1985, the Company has been general partner and a 50%
equity interest owner in Health Care Investors I, a California limited
partnership ("HCI"). The aggregate equity investment of the Company and the
five limited partners in HCI was $9,000,000 and the aggregate acquisition
price of the Properties in HCI was approximately $24,970,000. HCI owns 11
long term care facilities in Missouri, Illinois and Arkansas and leases them
to subsidiaries of Vencor. The sublessee of the nine Missouri properties
has exercised options to purchase such facilities in early 1996. Certain of
the limited partners in HCI have recently made claims adverse to the Company
concerning disclosures made at the time HCI was formed and the Company's
purported duties and obligations as general partner of HCI. To evaluate
these claims, and because one of the five HCI limited partners is a director
of the Company, the Company has formed a Special Committee of its Board of
Directors (the "Special Committee"). The Special Committee is engaged in
on-going discussions with certain of the HCI limited partners regarding these
issues. No litigation has been commenced. Management of the Company
believes that the limited partners' claims are without merit and that the
ultimate outcome of this dispute will not have a material adverse effect on
the Company's financial condition or its results of operations; however, no
assurances can be given in this regard.
(5) SUBSEQUENT EVENTS
In September 1995, the Company registered $200,000,000 of debt and
equity securities under a shelf registration statement (the "1995 Shelf
Registration Statement") which was declared effective by the Securities and
Exchange Commission in November 1995.
On October 19, 1995 the Board of Directors declared a quarterly
dividend of $0.55 per share payable on November 20, 1995, to stockholders of
record on the close of business on November 3, 1995.
HEALTH CARE PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is in the business of acquiring health care facilities that
it leases on a long-term basis to health care providers. On a more limited
basis, the Company has provided mortgage financing for health care
facilities. As of September 30, 1995, the Company's portfolio of properties,
including equity investments, consists of 193 facilities that are located in
33 states. The portfolio is comprised of 144 long term care facilities, 22
congregate care and assisted living facilities, 12 medical office buildings,
six acute care hospitals, six rehabilitation facilities, two physician group
practice clinics and one psychiatric care facility. The gross acquisition
price of the properties, including partnership acquisitions, is
approximately $792,000,000 at September 30, 1995.
During the quarter ended September 30, 1995, the Company expended
approximately $38,000,000 on investments in health care facilities. As of
September 30, 1995, the Company had commitments of approximately $65,000,000
to purchase, construct and provide mortgages on health care facilities.
These commitments are expected to be funded during the rest of 1995 and
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed acquisitions through the sale of common stock,
the issuance of long-term debt, the assumption of limited amounts of
mortgage debt, the use of short-term bank lines and through internally
generated cash flow. 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 (described below) to finance a portion of the costs of
construction. At the completion of construction and commencement of the
lease, short-term borrowings used in the construction phase are generally
refinanced with new long-term debt or equity.
On February 9, 1995 the Company issued 1,725,000 shares of Common Stock
at $29 per share with net proceeds of approximately $47,400,000. In
February and March 1995, the Company issued a total of $27,000,000 of
Medium-Term Notes (MTNs) bearing interest from 8.81% to 9.00% and maturing
between 2000 and 2015. On March 13, 1995 the proceeds from the issuance of
the stock and MTNs were used to retire $75,000,000 9-7/8% Senior Unsecured
Notes due 1998 without penalty at par plus accrued interest. Between June
and September 1995 the Company issued $27,500,000 of MTNs bearing interest
from 7.23% to 7.79% and maturing in seven to ten years, the proceeds of
which were used to fund new investments. At September 30, 1995,
Stockholders Equity in the Company totaled $340,760,000 and the Debt to
Stockholders Equity ratio was 0.78 to 1. For the nine months ended
September 30, 1995, Funds From Operations covered Interest Expense 5 to 1.
At September 30, 1995, the Company had approximately $74,000,000
available under its Medium Term Note program for future issuance of capital
from time to time based on Company needs and then existing market
conditions; in addition, there was approximately $79,000,000 unused on its
$100,000,000 revolving line of credit. This line of credit with a group of
seven domestic and international banks expires on March 31, 1998. The
Company's Senior and Convertible Subordinated Notes have been rated
investment grade by debt rating agencies since 1986. Current ratings are as
follows:
Moody's Duff & Phelps
Investors Standard & Poor's Credit Rating
Service, Inc. Rating Group Co.
------------- ----------------- -------------
Senior Notes Baa1 BBB+ A-
Convertible
Subordinated Notes Baa2 BBB BBB+
Since inception in May 1985, the Company has recorded approximately
$423,664,000 in cumulative Funds From Operations. Of this amount, a total
of $345,909,000 has been distributed to stockholders as dividends. The
balance of $77,755,000 has been retained as an additional source of capital
for the Company.
In September 1995 the Company registered $200,000,000 of debt and
equity securities under a shelf registration statement filed with the
Securities and Exchange Commission.
At September 30, 1995, the Company had approximately $27,000,000 in
irrevocable letters of credit from commercial banks to back the obligations
of many of its Lessees' Lease and borrowers' Loan obligations. The Company
may draw upon the letters of credit if there are any defaults under the
Leases and/or Loans. Amounts available under letters of credit change from
time to time; such changes may be material.
The third quarter 1995 dividend of $0.54 per share or $15,414,000 in
the aggregate was paid on August 19, 1995. Total dividends paid during the
three months ended September 30, 1995 as a percentage of Funds From
Operations for the corresponding period was 79%. The Company has declared a
fourth quarter dividend of $0.55 per share or $15,700,000 in the aggregate,
to be paid on November 20, 1995.
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 nine months ended September 30, 1995 totaled
$66,266,000 or $2.34 per share of common stock on revenue of $78,913,000
compared to $36,877,000 or $1.38 per share of common stock on revenue of
$73,531,000 for the year earlier nine month period. For the nine months
ended September 30, 1995, net income included a gain on the sale of certain
properties (discussed below) of $23,550,000 or $0.83 per share of common
stock. Before the sale of properties, net income amounted to a new high of
$42,716,000, a per share increase of 9% over the prior year nine month
period. For the nine months ended September 30, 1995, Funds From Operations
increased to $56,541,000, compared with $49,771,000 for the corresponding
period in the prior year.
Earnings and Funds From Operations were higher in 1995 due to increases
in rental and interest income. Increases in base rental income and interest
income were generated from new investments closed in 1994 and 1995.
Additional rental and interest income increased from $12,233,000 for the
nine months ended September 30, 1994 to $14,059,000 in the corresponding
period of 1995, which was attributable to revenue growth at many of the
Company's facilities and from interest income increases on other investments.
The decrease in interest expense reflects the benefit of the retirement
of the $75,000,000 9-7/8% Senior Unsecured Notes in the first quarter of
1995. This reduction in interest expense is offset by the interest charges
on the issuance of approximately $74,500,000 of Senior Notes under the
Medium-Term Note program between November 1994 and September 1995.
In April 1995 the Company sold ten leased properties to Beverly
Enterprises, Inc. for $43,450,000 resulting in a gain of $23,550,000. Under
the terms of the sale, the Company received net cash proceeds of $8,387,000
and is providing a 15 year mortgage to Beverly of $34,760,000. These new
Beverly mortgage investments have changed the character of the returns on
these assets from rental income to interest income. Additionally, the
Company sold the Michigan facility that it had operated for the past three
years. No gain or loss was recognized on this sale.
RECENT DEVELOPMENTS
The Company announced $58,300,000 of new investments during the nine
months ended September 30, 1995. In October 1995, the Company acquired four
assisted living facilities for a total of $22,600,000. Additionally, in
October 1995, the Company began construction on a $10,700,000 assisted
living facility. In the aggregate, investments year to date by the Company
totaled $91,600,000.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS121): "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to be
Disposed Of". The Company has performed a preliminary review of its long
lived assets subject to SFAS 121 and believes that adoption of this new
accounting standard will not have an impact on the Company's financial
condition and results of operations.
PART II. OTHER INFORMATION
Item 6. Exhibits
- -------
EX-27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1995 HEALTH CARE PROPERTY INVESTORS, INC.
(REGISTRANT)
/S/ James G. Reynolds
------------------------------
James G. Reynolds
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/S/ Devasis Ghose
------------------------------
Devasis Ghose
Senior Vice President-Finance
and Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000765880
<NAME> HEALTH CARE PROPERTY INVESTORS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2070
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 604772
<DEPRECIATION> 118917
<TOTAL-ASSETS> 639029
<CURRENT-LIABILITIES> 0
<BONDS> 265209
<COMMON> 28546
0
0
<OTHER-SE> 312214
<TOTAL-LIABILITY-AND-EQUITY> 639029
<SALES> 0
<TOTAL-REVENUES> 78913
<CGS> 0
<TOTAL-COSTS> 17754
<OTHER-EXPENSES> 4326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14117
<INCOME-PRETAX> 66266
<INCOME-TAX> 0
<INCOME-CONTINUING> 66266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66266
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
</TABLE>
