UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1998.
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.)
4675 MacArthur Court, Suite 900
Newport Beach, CA 92660
(Address of principal executive offices)
(949) 221-0600
(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 (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days: Yes [X]
No [ ]
As of May 11, 1998 there were 30,961,321 shares of $1.00 par value
common stock outstanding.
<PAGE>
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 on health care facilities. As of
March 31, 1998, the Company's portfolio of properties, including equity
investments, consisted of 251 facilities located in 40 states. These facilities
are comprised of 139 long-term care facilities, 75 congregate care and assisted
living facilities, 19 medical office buildings, eight acute care hospitals, six
freestanding rehabilitation facilities, three physician group practice clinics
and one psychiatric care facility. The gross acquisition price of the
properties, which includes joint venture acquisitions, was approximately
$1,148,000,000 at March 31, 1998.
The Company had commitments to purchase and construct health care facilities
totaling approximately $192,000,000 for funding during 1998 and 1999. The
Company expects that a significant portion of these commitments will be funded
but that a portion may not be funded. (See Note (6) to the Consolidated
Condensed Financial Statements.)
RESULTS OF OPERATIONS
Net Income applicable to common shares for the three months ended March 31, 1998
totaled $16,297,000 or $0.54 of basic earnings per common share on revenue of
$36,334,000 compared to $17,119,000 or $0.60 per common share on revenue of
$30,867,000 for the same period in 1997. Net Income for the three months ended
March 31, 1997 included a $2,047,000 or $0.07 of basic earnings per common share
gain on the sale of real estate properties.
Base Rental Income for the three months ended March 31, 1998 increased
$4,167,000 to $26,078,000 primarily as a result of approximately $262,000,000
and $42,000,000 of new investments during 1997 and for the three months ended
March 31, 1998. Interest and Other Income increased $1,202,000 to $4,845,000
from growth in the equity investments and from an increase in income from the
operations of seven medical office buildings purchased during 1997. There were
$797,000 in related Facility Operating Expenses on these medical office
buildings recorded during the first quarter of 1998.
Interest Expense for the three months ended March 31, 1998 increased $855,000 to
$7,617,000 due to increased borrowings utilized to finance recent acquisitions.
Depreciation/Non Cash Charges for the three months ended March 31, 1998
increased $1,188,000 to $7,422,000 attributable directly to the acquisition
activity during 1997 and early 1998.
The Company believes that Funds From Operations ("FFO") is an important
supplemental measure of operating performance. (See Note (5) to the
Consolidated Financial Statements.)
FFO for the three months ended March 31, 1998 increased $2,352,000 to
$22,714,000. The increase is attributable to increases in Base Rental Income
and Interest and Other Income, as offset by increases in Interest Expense and
Facility Operating Expenses which are discussed above.
<PAGE>
FFO 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. FFO, as defined by the Company, may not be comparable to
similarly entitled items reported by other real estate investment trusts that do
not define it exactly as the NAREIT definition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed acquisitions through the sale of common stock,
preferred stock, the issuance of long-term debt, the assumption of mortgage
debt, the use of short-term bank lines and through internally generated cash
flows. Facilities under construction are generally financed by means of cash on
hand or short-term borrowings under the Company's existing bank lines. 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 offerings.
During March and April 1997, the Company issued two ten year $10,000,000 Medium
Term Notes ("MTNs") with coupon rates of 7.30% and 7.62%, respectively. During
June 1997, $12,500,000 in MTNs with coupon rates of 10.20% and 10.30% were
redeemed. On September 26, 1997, the Company issued $60,000,000, 7-7/8% Series
A Cumulative Redeemable Preferred Stock. During December 1997, the Company
raised $55,000,000 of equity in a common stock offering of 1,437,500 shares at
$38.3125 per share. The net proceeds of $57,810,000 and $51,935,000 from the
preferred and common stock offerings, respectively, were utilized to pay down
short-term borrowings under the Company's revolving lines of credit. During
February 1998, $10,000,000 in MTNs with a coupon rate of 9.88% were redeemed.
In March 1998, two five year $10,000,000 MTNs with coupon rates of 6.66% were
issued by the Company. At March 31, 1998, stockholders' equity in the Company
totaled $440,407,000 and the debt to equity ratio was 1.08 to 1. For the three
months ended March 31, 1998, FFO (before interest expense) covered Interest
Expense 3.98 to 1.
As of March 31, 1998, the Company had approximately $280,000,000 available under
its existing shelf registration statements for the future issuance of debt and
equity securities and for its Series B and Series C MTN programs. These amounts
may be issued from time to time in the future based on Company needs and then
existing market conditions. On October 22, 1997, the Company renegotiated its
line of credit with a group of seven banks. The Company now has two revolving
lines of credit, one for $100,000,000 which expires on October 22, 2002 and one
for $50,000,000 which expires on October 22, 1998. The Company expects these
agreements to be renewed for an additional year in October 1998. As of March
31, 1998, the Company also had $68,000,000 available on its $150,000,000
revolving lines of credit. The Company's Senior Notes and Convertible
Subordinated Notes have been rated investment grade by debt rating agencies
since 1986. Current ratings are as follows:
<TABLE>
<CAPTION>
Moody's Standard & Poor's Duff & Phelps
-------- ----------------- --------------
<S> <C> <C> <C>
Senior Notes Baa1 BBB+ A-
Convertible
Subordinated Notes Baa2 BBB BBB+
</TABLE>
<PAGE>
Since inception in May 1985, the Company has recorded approximately $616,927,000
in cumulative FFO. Of this amount, a total of $517,551,000 has been distributed
to stockholders as dividends on common stock. The balance of $99,376,000 has
been retained, and has been an additional source of capital for the Company.
At March 31, 1998, the Company held approximately $40,500,000 in irrevocable
letters of credit from commercial banks to secure the obligations of many
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 based upon facility operating
conditions and other factors and such changes may be material.
The first quarter 1998 dividend of $0.64 per share or $19,358,000 in the
aggregate was paid on February 20, 1998. Total dividends paid during the three
months ended March 31, 1998 as a percentage of FFO for the corresponding period
was 85%. The Company declared a second quarter dividend of $0.65 per share or
approximately $19,660,000 in the aggregate, to be paid on May 20, 1998.
The Company has concluded a significant number of "facility rollover"
transactions in 1995, 1996, 1997 and 1998 on properties that have been under
long-term leases and mortgages. "Facility rollover" transactions principally
include lease renewals and renegotiations, exchanges, sales of properties, and,
to a lesser extent, payoffs on mortgage receivables.
<TABLE>
<CAPTION>
Increase/(Decrease)
Year In FFO
- ----- -------------------
<S> <C> <C>
1995 Completed 20 facility rollovers including the sale $ 900,000
of ten facilities with concurrent "seller financing"
for a gain of $23,550,000.
1996 Completed 20 facility rollovers including the sale of (1,200,000)
nine facilities in Missouri and the exchange of the
Dallas Rehabilitation Institute for the HealthSouth
Sunrise Rehabilitation Hospital in Fort Lauderdale,
Florida.
1997 Completed 10 facility rollovers (1,300,000)
1998 Completed four facility rollovers (250,000)
</TABLE>
Through December 31, 2000, the Company has 58 more facilities that are subject
to lease expiration, mortgage maturities and purchase options (which management
believes may be exercised) representing approximately 28% of annualized
revenues. During 1997, the Company concluded agreements with Tenet and Beverly
that result in their forbearance or waiver of certain renewal and purchase
options and related rights of first refusal on up to 57 facilities currently
leased to Vencor and Beverly, of which 27 facilities have leases expiring
through December 31, 2000. As part of these agreements, continued ownership of
the facilities will remain with the Company. As a result of the forbearance or
waiver of these options, the Company believes that, based upon recent operating
results, it may be able to increase rents on approximately 12 facilities whose
lease terms expire between 1998 and 2001; however, there can be no assurance
that the Company will be able to realize any increased rents. The 1998 lease
expirations include 14, seven, and five long-term care facilities leased to
Vencor, Beverly and Integrated Health Services, respectively. The Company has
completed certain facility rollovers earlier than the scheduled lease
expirations or mortgage maturities and will continue to pursue such
opportunities where it is advantageous to do so.
<PAGE>
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.
YEAR 2000 ISSUE
Management believes it does not have any significant exposure to Year 2000
issues with respect to its own accounting and information systems. The Company
is discussing Year 2000 compliance requirements with its lessees, bankers and
others.
CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q that are not historical factual
statements are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The statements include, among other
things, statements regarding the intent, belief or expectations of the Company
and its officers and can be identified by the use of terminology such as "may",
"will", "expect", "believe", "intend", "plan", "estimate", "should" and other
comparable terms or the negative thereof. In addition, the Company, through its
senior management, from time to time makes forward looking oral and written
public statements concerning the Company's expected future operations and other
developments. Shareholders and investors are cautioned that, while forward
looking statements reflect the Company's good faith beliefs and best judgment
based upon current information, they are not guarantees of future performance
and are subject to known and unknown risks and uncertainties. Actual results
may differ materially from the expectations contained in the forward looking
statements as a result of various factors. Such factors include (i)
legislative, regulatory, or other changes in the healthcare industry at the
local, state or federal level which increase the costs of or otherwise affect
the operations of the Company's Lessees; (ii) changes in the reimbursement
available to the Company's Lessees by governmental or private payors, including
changes in Medicare and Medicaid payment levels and the availability and cost of
third party insurance coverage; (iii) competition for tenants and mortgagors,
including with respect to new leases and mortgages and the renewal or roll-over
of existing leases; (iv) competition for the acquisition and financing of health
care facilities; (v) the ability of the Company's Lessees and Mortgagors to
operate the Company's properties in a manner sufficient to maintain or increase
revenues and to generate sufficient income to make rent and loan payments; and,
(vi) changes in national or regional economic conditions, including changes in
interest rates and the availability and cost of capital to the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
----------------------------------
a) Exhibits:
27 Financial Data Schedule
b) Reports on Form 8-K:
None
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: May 20, 1998 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)
