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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, 1999.
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, California 92660
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(Address of principal executive offices)
(949) 221-0600
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(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 August 12, 1999 there were 32,045,176 shares of $1.00 par value
common stock outstanding.
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HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 ............................ 2
Condensed Consolidated Statements of Income
Six Months and Three Months Ended June 30, 1999 and 1998........ 3
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998......................... 4
Notes to Condensed Consolidated Financial Statements............ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 12
PART II. OTHER INFORMATION
Signatures................................................................. 22
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HEALTH CARE PROPERTY INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Real Estate Investments
Buildings and Improvements $ 1,286,948 $ 1,143,077
Accumulated Depreciation (208,803) (190,941)
----------- -----------
1,078,145 952,136
Construction in Progress 20,629 26,938
Land 163,689 152,045
----------- -----------
1,262,463 1,131,119
Loans Receivable 174,460 154,363
Investments in and Advances to Joint Ventures 53,404 54,478
Other Assets 17,251 12,148
Cash and Cash Equivalents 5,416 4,504
----------- -----------
TOTAL ASSETS $ 1,512,994 $ 1,356,612
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 117,700 $ 88,000
Senior Notes Payable 551,106 499,162
Convertible Subordinated Notes Payable 100,000 100,000
Mortgage Notes Payable 61,196 21,883
Accounts Payable, Accrued Liabilities and Deferred Income 28,273 28,758
Minority Interests in Joint Ventures 40,514 23,390
Stockholders' Equity:
Preferred Stock 187,847 187,847
Common Stock 32,044 30,987
Additional Paid-In Capital 463,420 433,309
Cumulative Net Income 570,980 531,926
Cumulative Dividends (640,086) (588,650)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 614,205 595,419
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,512,994 $ 1,356,612
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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HEALTH CARE PROPERTY INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE
Rental Income $ 43,434 $ 31,983 $ 84,986 $ 62,271
Tenant Reimbursements 2,020 447 4,071 943
Interest and Other Income 6,358 5,518 12,376 11,068
--------- --------- --------- ---------
51,812 37,948 101,433 74,282
--------- --------- --------- ---------
EXPENSE
Interest Expense 13,383 8,819 25,743 16,436
Depreciation/Non Cash Charges 10,888 7,962 21,064 15,384
Facility Operating Expenses 4,007 948 7,758 1,745
Other Expenses 2,466 1,932 4,981 3,804
--------- --------- --------- ---------
30,744 19,661 59,546 37,369
--------- --------- --------- ---------
INCOME FROM OPERATIONS 21,068 18,287 41,887 36,913
Minority Interests (1,544) (1,072) (2,985) (2,220)
Gain on Sale of Real Estate Properties 152 512 152 512
--------- --------- --------- ---------
NET INCOME $ 19,676 $ 17,727 $ 39,054 $ 35,205
DIVIDENDS TO PREFERRED STOCKHOLDERS 4,110 1,181 8,219 2,362
--------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON SHARES $ 15,566 $ 16,546 $ 30,835 $ 32,843
========= ========= ========= =========
BASIC EARNINGS PER COMMON SHARE $ 0.49 $ 0.54 $ 0.98 $ 1.07
========= ========= ========= =========
DILUTED EARNINGS PER COMMON SHARE $ 0.49 $ 0.53 $ 0.98 $ 1.06
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 31,680 30,789 31,353 30,740
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 31,791 31,079 31,467 31,050
========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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HEALTH CARE PROPERTY INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 39,054 $ 35,205
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Real Estate Depreciation 19,489 13,891
Non Cash Charges 1,349 1,466
Joint Venture Adjustments 892 44
Gain on Sale of Real Estate Properties (152) (512)
Changes in:
Operating Assets (384) (2,502)
Operating Liabilities 2,184 3,763
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 62,432 51,355
========= =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate, Net (113,058) (125,747)
Advances to Joint Ventures -- (25,764)
Proceeds from the Sale of Real Property 3,231 1,883
Other Investments and Loans (23,122) (30,133)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (132,949) (179,761)
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Bank Notes Payable 29,700 (57,900)
Repayment of Senior Notes Payable -- (17,500)
Issuance of Senior Notes Payable 51,944 223,396
Cash Proceeds from Issuing Common Stock 29,578 23,383
Increase (Decrease) in Minority Interests 16,751 (1,000)
Periodic Payments on Mortgages (1,495) (493)
Final Payments on Mortgages (239) --
Dividends Paid (51,436) (41,844)
Other Financing Activities (3,374) (1,631)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 71,429 126,411
========= =========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 912 (1,995)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,504 4,084
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,416 $ 2,089
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
We, the management of Health Care Property Investors, Inc., believe
that the unaudited financial information contained in this report reflects all
adjustments that are necessary to state fairly the financial position, the
results of operations, and cash flows of the Company. Unless the context
otherwise indicates, the Company or HCPI means Health Care Property Investors,
Inc. and its affiliated subsidiaries and joint ventures. We presume that users
of this interim financial information 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, 1998. Therefore, notes to the financial statements and other disclosures
that would repeat the disclosures contained in our most recent annual report to
security holders have been omitted. This interim financial information does not
necessarily represent a full year's operations for various reasons including
acquisitions, changes in rents and interest rates, and the timing of debt and
equity financings.
Facility Operations:
During 1997 and 1998, we purchased ownership interests (ranging from 90
to 100 percent) in 23 medical office buildings ("MOBs") that are operated by
independent property management companies on our behalf. During the first six
months of 1999, we acquired ownership interests (ranging from 50 to 100 percent)
in 18 additional MOBs. We lease these facilities to multiple tenants. Amounts
recovered from tenants as reimbursements of operating costs incurred under such
leases are recorded as Tenant Reimbursements. Expenses related to the operation
of these facilities are recorded as Facility Operating Expenses.
Reclassifications:
We have made reclassifications, where necessary, for comparative
financial statement presentations.
(2) MAJOR OPERATORS
As of June 30, 1999, we owned properties in 43 states operated by 88
operators. In addition, 265 tenants conducted business in the multi-tenant
buildings. Listed below are our major operators, the number of facilities
operated by these operators, the annualized revenue and the percentage of
annualized revenue for the six months ended June 30, 1999 from these operators
and their subsidiaries:
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<TABLE>
<CAPTION>
Annualized Percentage
Revenue for the of
Number of Six Months Ended Annualized
Operators Facilities June 30, 1999 Revenue
- --------- ---------- ---------------- ----------
(Amounts in thousands)
<S> <C> <C> <C>
Beverly Enterprises Inc. ("Beverly") 27 $12,375 6%
HealthSouth Corporation ("HealthSouth") 6 12,109 6
Vencor, Inc. ("Vencor") 20 11,459 6
Emeritus Corporation ("Emeritus") 23 11,316 6
Columbia/HCA Healthcare Corp. ("Columbia") 12 10,276 5
Centennial Healthcare Corp. ("Centennial") 19 8,789 5
Tenet Healthcare Corporation ("Tenet") 2 7,744 4
</TABLE>
Certain facilities leased to operators listed above have been subleased
to other operators with the original lessees remaining liable on the leases. The
number of facilities, annualized revenue, and percentages of our total
annualized revenue applicable to these sublessees are not included above. The
percentage of our total annualized revenue on subleased facilities leased to
Vencor and subleased to other operators was 2.4% for the six months ended June
30, 1999. As discussed in more detail below, rent obligations under most Vencor
leases are guaranteed by Tenet and Ventas, Inc.
All these major operators are subject to the informational filing
requirements of the Securities Exchange Act of 1934 and accordingly file
periodic financial statements on Form 10-K and Form 10-Q with the Securities and
Exchange Commission.
Vencor
On May 1, 1998, Vencor completed a spin-off transaction. As a result,
it became two publicly held entities--Ventas, Inc., a real estate company which
intends to qualify as a REIT, and Vencor, a health care company which at June
30, 1999 leased 36 of HCPI's properties of which 16 are subleased to other
operators. Both Ventas and Vencor are responsible for payments due under the
Vencor leases, including subleased facilities. Tenet guarantees the rent
payments on most of the Vencor leases (see discussion under Tenet below).
According to press releases issued by Vencor, Vencor reported a net
loss of $23.9 million or $0.34 per share for the quarter ended March 31, 1999,
and a net loss from operations of $572.9 million, or $8.39 per share, for the
year ended December 31, 1998. Vencor also announced that it is in discussions
with its senior lenders, Ventas and other creditors regarding an amendment or
restructuring of its bank debt, leases and other obligations. Vencor has
reported that as a result of the uncertainties related to Vencor's ability to
amend or restructure its obligations, approximately $461 million of amounts due
under Vencor's bank credit agreement and $300 million of senior subordinated
notes have been classified as current liabilities in its consolidated balance
sheet at December 31, 1998. The report of Vencor's independent auditors with
respect to its condensed consolidated financial statements for the periods ended
December 31, 1998 has an explanatory paragraph regarding Vencor's ability to
continue as a going concern.
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Vencor also noted in a press release that it included in current
liabilities approximately $90 million of overpayments to Vencor from the
Medicare program since the inception of the new prospective payment system for
nursing centers on July 1, 1998. On April 21, 1999, Vencor announced that it has
reached an agreement with the Health Care Financing Administration to extend the
repayment of the overpayments and will now be obligated to repay the overpayment
over 60 monthly installments. Vencor stated that, "under the agreement, monthly
payments of approximately $1.5 million are due commencing May 8, 1999. After
November, the remaining balance of the overpayments will bear interest at a
statutory rate applicable to Medicare overpayments, as in effect on November 30,
1999. Assuming that the current rate of 13.75% is in effect on November 30,
1999, the monthly payment amount will be approximately $2.0 million through
March 2004." We are unable to predict at this time the effect of any delinquency
of Vencor's Medicare reimbursement payments on its ability to make its lease
payments to us.
Standard & Poor's downgraded the ratings on Vencor's senior
subordinated debt to D (removing such debt from credit watch) on May 3, 1999 and
Moody's downgraded its ratings on such senior subordinated debt to C on May 5,
1999. On August 5, 1999 Vencor and Ventas announced that Vencor was to pay the
monthly rent payable to Ventas for July 1999 pursuant to an agreed upon schedule
during August 1999, and have extended until September 3, 1999 their standstill
agreement not to pursue claims related to their April 1998 reorganization.
In its Annual Report on Form 10-K for the year ended December 31, 1998,
Vencor made a number of cautionary statements regarding its financial condition
and results of operations, and indicated that in the event of certain
circumstances relating to actions by its creditors or its ability to consummate
an alternative financial structure, it "likely would be forced to file for
protection under Chapter 11 of the Bankruptcy Code." If Vencor were to file for
bankruptcy protection, it will have an obligation to pay rent to us during the
pendency of the proceeding. However, Vencor will have the right to assume or
reject its leases with us. If Vencor assumes a lease it must do so pursuant to
the original contract terms, must cure all pre-petition and post-petition
defaults under the lease and provide adequate assurances of future performance.
If Vencor rejects a lease, it may stop paying rent and we may lease the property
to another lessee. However, we cannot assure you, in the event of a Vencor
bankruptcy, that we would be able to recover amounts due under our leases with
Vencor, that we would be able to promptly recover the premises or lease the
property to another lessee or that the rent we would receive from another lessee
would equal amounts due under the Vencor leases. The rents under all but five of
the Vencor leases are guaranteed by Tenet, and on some leases we are receiving
direct payment by sublessees of Vencor, which may reduce the risk to us of a
Vencor bankruptcy. However, we cannot assure you that a bankruptcy filing of
Vencor would not have a material adverse effect on our funds from operations or
the market value of our common stock.
Tenet
Tenet is one of the nation's largest health care services companies,
providing a broad range of services through the ownership and management of
health care facilities. Tenet has historically guaranteed Vencor's leases.
However, during 1997 we reached an agreement with Tenet whereby Tenet agreed to
forbear or waive some renewal and purchase options and related rights of first
refusal on facilities leased to Vencor. As part of that same agreement, Tenet
will only guarantee the rent payments on the Vencor leases until the end of
their base term. Of the 36 guaranteed leases at December 31, 1998, five expired
during the six months ended June 30, 1999. Two of the five were extended by
Vencor but are no longer guaranteed by Tenet. The remaining 31 guaranteed leases
expire during the next three years.
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(3) REAL ESTATE INVESTMENTS
During the six months ended June 30, 1999, we acquired seven clinics,
one assisted living facility, 3 MOBs and an ownership interest in 15 additional
MOBs for an aggregate investment of approximately $135,443,000. The 15 partial
interest MOBs are owned by a limited liability company of which HCPI is the
managing member and owns a 52% interest.
(4) STOCKHOLDERS' EQUITY
The following tabulation is a summary of the activity for the
Stockholders' Equity account for the six months ended June 30, 1999 (amounts in
thousands):
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- ----------------------------------
Par Additional Total
Number of Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Shares Amount Capital Net Income Dividends Equity
--------- -------- --------- ------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,785 $187,847 30,987 $30,987 $433,309 $531,926 $(588,650) $595,419
Issuance of Common Stock, Net 1,057 1,057 30,111 31,168
Net Income 39,054 39,054
Dividends Paid - Preferred Shares (8,219) (8,219)
Dividends Paid - Common Shares (43,217) (43,217)
----- -------- ------ ------- -------- -------- --------- --------
Balance, June 30, 1999 7,785 $187,847 32,044 $32,044 $463,420 $570,980 $(640,086) $614,205
===== ======== ====== ======= ======== ======== ========= ========
</TABLE>
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(5) EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, Earnings Per Share, effective December 15, 1997. As a result, both basic
and diluted earnings per common share are presented for each of the quarters and
six months ended June 30, 1999 and 1998. Prior to 1997, only basic earnings per
common share were disclosed. Basic earnings per common share is computed by
dividing net income applicable to common shares by the weighted average number
of shares of common stock outstanding during the period. Diluted earnings per
common share is calculated including the effect of dilutive securities. Options
to purchase shares of common stock that had an exercise price in excess of the
average market price of the common stock during the period were not included
because they are not dilutive.
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------- -----------------------------------
Per Share Per Share
June 30, 1999 Income Shares Amount Income Shares Amount
- ------------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net Income Applicable to Common Shares $15,566 31,680 $0.49 $30,835 31,353 $0.98
===== =====
Dilutive Options -- 111 -- 114
------- ------ ------- ------
DILUTED EARNINGS PER COMMON SHARE:
Net Income Applicable to Common
Shares Plus Assumed Conversions $15,566 31,791 $0.49 $30,835 31,467 $0.98
------- ------ ===== ------- ------ =====
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------- -----------------------------------
Per Share Per Share
June 30, 1998 Income Shares Amount Income Shares Amount
- ------------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net Income Applicable to Common Shares $16,546 30,789 $0.54 $32,843 30,740 $1.07
===== =====
Dilutive Options -- 173 -- 191
Non Managing Member Units 76 117 153 119
------- ------ ------- ------
DILUTED EARNINGS PER COMMON SHARE:
Net Income Applicable to Common
Shares Plus Assumed Conversions $16,622 31,079 $0.53 $32,996 31,050 $1.06
------- ------ ===== ------- ------ =====
</TABLE>
(6) FUNDS FROM OPERATIONS
Effective in 1998, the Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise, requires that we report
information about our operations on the same basis that is used internally to
measure performance.
We believe that Funds From Operations ("FFO") is our most important
supplemental measure of operating performance. Because the historical cost
accounting convention used for real estate assets requires straight-line
depreciation (except on land) such accounting presentation implies that the
value of real estate assets diminishes predictably over time. Because real
estate values instead have historically risen and fallen with market conditions,
presentations of operating results for a real estate investment trust that uses
historical cost accounting for depreciation could be less informative. The term
FFO was designed by the real estate investment trust industry to address this
problem.
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The Company adopted the definition of FFO prescribed by the National
Association of Real Estate Investment Trusts ("NAREIT"). FFO is defined as net
income applicable to common shares (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate depreciation and real
estate related amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures are calculated to reflect FFO on the same basis.
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.
Below are summaries of the calculation of FFO (all amounts in
thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income Applicable to Common Shares $15,566 $16,546 $30,835 $32,843
Real Estate Depreciation and Amortization 10,101 7,246 19,487 13,891
Joint Venture Adjustments 556 272 892 44
Gain on Sale of Real Estate Properties (152) (512) (152) (512)
------- ------- ------- -------
Funds From Operations $26,071 $23,552 $51,062 $46,266
======= ======= ======= =======
</TABLE>
(7) COMMITMENTS
As of August 12, 1999, the Company has acquired real estate properties
and has outstanding commitments to fund development of facilities on those
properties of approximately $22,970,000.
The Company is also committed to acquire approximately $36,100,000 of
existing health care real estate and committed to $9,583,000 of construction
projects. The Company expects that a significant portion of these commitments
will be funded; however, experience suggests that some committed transactions
will not close. The letters of intent representing such commitments permit
either party to elect not to go forward with the transaction under various
circumstances. We may not close committed transactions for various reasons
including unsatisfied pre-closing conditions, competitive financing sources,
final negotiation differences or the operator's inability to obtain required
internal or governmental approvals.
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(8) NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for fiscal years beginning after June 15, 2000, although earlier
implementation is allowed.
We have not yet quantified the impact of adopting Statement 133 on our
financial statements and have not determined the timing or method of our
adoption of Statement 133. However, the effect is not expected to be material.
(9) SUBSEQUENT EVENTS
On August 4, 1999, HCPI signed a definitive agreement in which American
Health Properties, Inc. ("AHE") will merge with and into HCPI in a
stock-for-stock transaction with Health Care Property Investors being the
surviving corporation. AHE is a real estate investment trust specializing in
health care facilities with a portfolio of 68 health care properties in 22
states. AHE common stockholders will receive a fixed ratio of 0.78 share of
HCPI's common stock for each share of AHE's common stock and holders of AHE
Preferred stock ($100 million) will receive one share of substantially similar
preferred stock of HCPI. Additionally, HCPI will assume $300 million of AHE's
debt. The proposed transaction, valued at an estimated $1 billion, will be
treated as a purchase for financial accounting purposes. The merger, is subject,
among other things, to approval of the shareholders of both companies and the
registration of the shares to be issued in connection with the transaction. The
merger is expected to close by the end of 1999.
On July 21, 1999 the Board of Directors declared a quarterly dividend
of $0.70 per common share payable on August 20, 1999, to shareholders of record
on the close of business on August 2, 1999.
The Board of Directors also declared a cash dividend of $0.492188 per
share on its Series A cumulative preferred stock and $0.54375 per share on its
Series B cumulative preferred stock. These dividends will be paid on September
30, 1999 to shareholders of record as of the close of business on September 15,
1999.
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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
we lease on a long-term basis to health care providers. On a more limited basis,
we have provided mortgage financing on health care facilities. As of June 30,
1999, the Company's portfolio of properties, including equity investments,
consisted of 355 facilities located in 43 states. These facilities are comprised
of 155 long-term care facilities, 85 congregate care and assisted living
facilities, 47 physician group practice clinics, 53 medical office buildings,
eight acute care hospitals, six freestanding rehabilitation facilities and one
psychiatric care facility. The gross investment in the properties, which
includes joint venture acquisitions, was approximately $1.7 billion at June 30,
1999.
We have commitments to purchase and construct health care facilities
totaling approximately $53,000,000 which are expected to fund during 1999 and
2000. We expect that a significant portion of these commitments will be funded
but that a portion may not be funded (see Note (7) to the Condensed Consolidated
Financial Statements).
On August 4, 1999, the Company signed a definitive agreement to merge
with American Health Properties in a stock-for-stock transaction (see Note (9)
to the Condensed Consolidated Financial Statements).
RESULTS OF OPERATIONS
Net Income applicable to common shares for the three and six months
ended June 30, 1999 totaled $15,566,000 and $30,835,000 or $0.49 and $0.98 of
basic earnings per share on revenue of $51,812,000 and $101,433,000,
respectively. This compares to $16,546,000 and $32,843,000 or $0.54 and $1.07 of
basic earnings per share on revenue of $37,948,000 and $74,282,000 for the same
periods in 1998. Net Income applicable to common shares for the three and six
months ended June 30, 1999 and June 30, 1998 included a $152,000 or $0.004 per
share and $512,000 or $0.02 per share gain on the sale of real estate
properties, respectively.
Rental Income and Tenant Reimbursements for the three and six months
ended June 30, 1999 increased $13,024,000 and $25,843,000 to $45,454,000 and
$89,057,000, respectively, as compared to the same period in the prior year. The
majority of the increase in Rental Income was generated by new investments of
approximately $147,000,000 and $458,000,000 made during 1999 and 1998. Interest
and Other Income for the three and six months ended June 30, 1999 increased
$840,000 and $1,308,000 to $6,358,000 and $12,376,000, respectively, primarily
from growth in the lending portfolio. There were $4,007,000 and $7,758,000 in
related Facility Operating Expenses during the three and six months ended June
30, 1999 compared to $948,000 and $1,745,000 during the three and six months
ended June 30, 1998 resulting from additional multi-tenant leases under which
the Company is responsible for operating expenses of the leased facility.
Interest Expense for the three and six months ended June 30, 1999
increased $4,564,000 and $9,307,000, respectively. The increase is primarily the
result of an increase in short-term borrowings used to fund the acquisitions
made during the fourth quarter of 1998 and the first half of 1999 and interest
related to the MOPPRS senior debt issuance during June 1998. The increase in
Depreciation/Non Cash Charges for the three and six months ended June 30, 1999
of $2,926,000 and $5,680,000 to $10,888,000 and $21,064,000, respectively, is
the direct result of the new investments made during 1999 and 1998.
-12-
<PAGE> 14
We believe that FFO is an important supplemental measure of operating
performance. FFO for the three months ended June 30, 1999 increased $2,521,000
to $26,073,000 as compared to the same period in the prior year. The increase is
attributable to increases in Rental Income, and Interest and Other Income, as
offset by increases in Interest Expense and Facility Operating Expenses, which
are discussed above.
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 we defined it, may not be comparable to
similarly entitled items reported by other real estate investment trusts that do
not use the NAREIT definition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed acquisitions through the sale of common and
preferred stock, issuance of long-term debt, assumption of mortgage debt, 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 our 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, including Medium Term Notes
("MTNs"), or with equity offerings.
MTN FINANCINGS
The following table summarizes the MTN financing activities during 1998
and 1999:
<TABLE>
<CAPTION>
AMOUNT
DATE MATURITY COUPON RATE ISSUED/(REDEEMED)
---- -------- ------------- ---------------
<S> <C> <C> <C>
February 1998 -- 9.88% $(10,000,000)
March 1998 5 years 6.66% 20,000,000
April-November 1998 -- 6.10%-9.70% (17,500,000)
November 1998 3-8 years 7.30%-7.88% 28,000,000
February 1999 5 years 6.92% 25,000,000
April 1999 5 years 7.00%-7.48% 37,000,000
May 1999 -- 10.55%-10.57% (10,000,000)
</TABLE>
SENIOR DEBT OFFERINGS
During June 1998, the Company issued $200 million of 6.875% MandatOry
Par Put Remarketed Securities ("MOPPRS") due June 8, 2015 which are subject to
mandatory tender on June 8, 2005. We received total proceeds of approximately
$203,000,000 (including the present value of a put option associated with the
debt) which was used to repay borrowings under our revolving lines of credit.
The weighted average cost of the debt including the amortization of the option
and offering expenses is 6.77%. The MOPPRS are senior, unsecured obligations of
the Company.
-13-
<PAGE> 15
EQUITY OFFERINGS
Since April 1998, HCPI has completed three equity offerings, summarized
in the table below:
<TABLE>
<CAPTION>
SHARES EQUITY
DATE ISSUANCE ISSUED RAISED NET PROCEEDS
- ---------------- ---------------------------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
April 1998 Common Stock at $33.2217/share to 698,752 $ 23,200,000 $ 23,000,000
a Unit Investment Trust
September 1998 8.70% Series B Cumulative 5,385,000 $135,000,000 $130,000,000
Redeemable Preferred Stock
May 1999 Common Stock at $31.4375/share 1,000,000 $ 31,400,000 $ 29,600,000
</TABLE>
HCPI used the net proceeds from the equity offerings to pay down or pay
off short-term borrowings under its revolving lines of credit. HCPI invested any
excess funds in short-term investments until they were needed for acquisitions
or development.
At June 30, 1999, stockholders' equity totaled $614,205,000 and the
debt to equity ratio was 1.35 to 1.00. For the six months ended June 30, 1999,
FFO (before interest expense) covered Interest Expense 3.0 to 1.0.
AVAILABLE FINANCING SOURCES
During June 1998, the Company registered $600,000,000 of debt and
equity securities under a shelf registration statement filed with the Securities
and Exchange Commission. As of August 12, 1999 we had approximately $397,000,000
remaining on shelf filings for future financings. Of that amount, we had
approximately $110,000,000 available under our MTN senior debt programs. We may
issue securities under our universal shelf, including under our MTN program, up
to these amounts from time to time in the future based on Company needs and then
existing market conditions. On September 30, 1998, we renegotiated our lines of
credit with a group of seven banks. We have two revolving lines of credit
aggregating $180,000,000. As of August 12, 1999, the Company had $100,200,000
available on these lines of credit. Since 1986 the debt rating agencies have
rated our Senior Notes and Convertible Subordinated Notes investment grade.
Current ratings are as follows:
<TABLE>
<CAPTION>
Moody's Standard & Poor's Duff & Phelps
------- ----------------- -------------
<S> <C> <C> <C>
Senior Notes Baa2 BBB+ BBB+
Convertible Subordinated
Notes and Redeemable
Preferred Stock Baa3 BBB BBB
</TABLE>
Since inception in May 1985, the Company has recorded approximately
$741,531,000 in cumulative FFO. Of this amount, we have distributed a total of
$622,088,000 to stockholders as dividends on common stock. We have retained the
balance of $119,443,000 and used it as an additional source of capital.
On August 4, 1999, Moody's lowered the senior note rating from Baa1 to
Baa2 and the Convertible Subordinated Notes and Redeemable Preferred Stock from
Baa2 to Baa3.
-14-
<PAGE> 16
At August 12, 1999, the Company held approximately $42,600,000 in
irrevocable letters of credit from commercial banks to secure the obligations of
many lessees' lease and borrowers' loan obligations. We may draw upon the
letters of credit if there are any defaults under the leases and/or loans.
Amounts available under letters of credit could change based upon facility
operating conditions and other factors and such changes may be material.
We paid the second quarter 1999 dividend of $0.69 per common share or
$22,108,000 in the aggregate on May 20, 1999. Total dividends paid during the
six months ended June 30, 1999, as a percentage of FFO was 85%. The Company
declared a second quarter dividend of $0.70 per common share or approximately
$22,400,000 in the aggregate, payable on August 20, 1999.
FACILITY ROLLOVERS
HCPI has concluded a significant number of "facility rollover"
transactions since 1995 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. The annualized impact was to increase FFO in 1995 by
$900,000 and decrease FFO in each of the years 1996 through 1999 by $1,200,000,
$1,600,000, $3,100,000 and $1,900,000, respectively. Total rollovers were 20
facilities, 20 facilities, 12 facilities, 44 facilities and 11 facilities in
each of the years 1995 - 1999.
For the year ending December 31, 1999, HCPI has 11 facilities that are
subject to lease expiration and mortgage maturities. For the year ended December
31, 2000, HCPI has six facilities that are subject to lease expiration and
mortgage maturities. The facilities remaining which are subject to lease
expiration and mortgage maturities in 1999 and 2000 aggregate 5.7% of annualized
revenue.
During 1997, HCPI reached agreement with Tenet (the holder of
substantially all of the option rights of the Vencor leases) whereby Tenet
agreed to waive renewal and purchase options, and related rights of first
refusal, on up to 51 facilities. As part of these agreements, HCPI has the right
to continue to own the facilities. HCPI paid Tenet $5,000,000 in cash,
accelerated the purchase option on two acute care hospitals leased to Tenet, and
reduced Tenet's guarantees on the facilities leased to Vencor. Leases on 20 of
those 51 facilities had expiration dates through December 31, 2000. HCPI has
increased rents on five of the facilities with leases that have already expired
during 1998, and believes it will be able to increase rents on other facilities
whose lease terms expire through 2001. However, there can be no assurance that
HCPI will be able to realize any increased rents on future rollovers. HCPI 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.
-15-
<PAGE> 17
Management believes that HCPI's liquidity and sources of capital are
adequate to finance its operations as well as its future investments in
additional facilities.
YEAR 2000 ISSUE
The Year 2000 issue is the result of widely used computer programs that
identify the year by two digits, rather than by four. It is believed that
continued use of these programs may result in widespread computer-generated
malfunctions and miscalculations beginning in the year 2000, when the digits
"00" are interpreted as "1900." Those miscalculations could cause disruption of
operations including the temporary inability to process transactions such as
invoices for payment. Those computer programs that identify the year based on
all four digits are considered "Year 2000 compliant." The statements in the
following section include "Year 2000 readiness disclosure" within the meaning of
the Year 2000 Information and Readiness Disclosure Act of 1998.
Status of Year 2000 Issues with HCPI's Own Information Technology Systems and
Non-IT Systems
Our primary use of information technology ("IT") is in our financial
accounting systems, billing and collection systems and other information
management software. We have been working with our computer consultants to test
and continually upgrade our management information systems. We have reasonable
assurance from our vendors, outside computer consultants and through our own
testing that our financial and other information systems are Year 2000
compliant. During 1998 and 1999, we inventoried our information technology
systems (including workstations, servers and software applications) and have
obtained the latest upgrades and patches from our vendors that would result in
all of our systems being Year 2000 compliant. The cost to bring the management
information systems into Year 2000 compliance has not been material. By June 30,
1999, we had completed Y2K testing of our financial accounting system. The test
included mirroring the current environment, posting December 1999 transactions,
closing of the year 1999, posting January 2000 transactions and posting
transactions in the leap year February 29, 2000. Upon completion of the testing,
we found no Y2K issues.
Our operations are conducted out of our corporate offices in Newport
Beach, California where we use and are exposed to non-IT systems such as those
contained in embedded micro-processors in telephone and voicemail systems,
elevators, heating, ventilation and air conditioning (HVAC) systems, lighting
timers, security systems, and other property operational control systems. We
believe that we do not have significant exposure to Year 2000 issues with
respect to our non-IT systems contained in embedded chips used in our corporate
offices. While any disruption in services at our corporate offices due to
failure of non-IT systems may be inconvenient and disruptive to normal
day-to-day activities, it is not expected to have a materially adverse effect on
our financial performance or operations.
Exposure to Third Parties' Year 2000 Issues
Because we believe our own accounting and information systems are Year
2000 compliant, we do not feel there will be material disruption to our
transaction processing on January 1, 2000. However, we depend upon our tenants
for rents and cash flows, our financial institutions for availability of working
capital and capital markets financing and our transfer agent to maintain and
track investor information. As health care providers, our operators, lessees and
mortgagors rely on critical clinical systems, medical devices and equipment in
the delivery of patient care; failures in those systems as a result of Year 2000
issues could have a material adverse effect on their results of operations or
expose them to liability. Furthermore, our operators, lessees and mortgagors are
dependent on a variety of third parties, including insurance companies, HMOs and
other private payors, governmental agencies that
-16-
<PAGE> 18
administer Medicaid and Medicare claims processing and reimbursement, utilities
that provide electricity, water, natural gas and communications services and
vendors of medical supplies, pharmaceuticals, medical devices and equipment, all
of whom must also adequately address the Year 2000 issue. If our primary lessees
and mortgagors are not Year 2000 compliant, or if they face disruptions in their
cash flows due to Year 2000 issues, we could face significant temporary
disruptions in our cash flows after that date. These disruptions could be
exacerbated if the commercial banks that process our cash receipts and
disbursements and our lending institutions are not Year 2000 compliant.
Furthermore, to the extent there are broad market disruptions as a result of
widespread Year 2000 issues, our access to the capital markets to raise cash for
investing activity could be impaired.
To address this concern, during the second quarter of 1998, we
commenced a written survey of all of our major tenants, Bank of New York in its
capacity as agent under our credit facilities, and as common stock Transfer
Agent and Trustee under our senior debt indenture, each other lender under our
credit facility, our primary investment banker for our capital raising
activities, and our independent public accountants and primary outside legal
counsel. The survey asked each respondent to assess its exposure to Year 2000
issues and asked what preparations each has made to deal with the Year 2000
issue with respect to both information technology and non-IT systems. In
addition, we asked each respondent to inform us about their exposure to third
party vendors, customers and payers who may not be Year 2000 compliant.
Through this process we have been informed in writing by approximately
95% of those surveyed that they believe that they have computer systems that are
or will be Year 2000 compliant by the end of 1999. All continue to assess their
own exposure to the issue. However neither we nor our lessees and mortgagors can
be assured that the third parties upon which our operators, lessees and
mortgagors depend will accomplish adequate remediation of their Year 2000
issues, nor that the federal and state governments, upon which they rely for
Medicare and Medicaid revenue, will be in compliance in a timely manner.
We are in the process of assessing our exposure to failures of embedded
microprocessors contained in elevators, electrical and HVAC systems, security
systems and the breakdown of other non-IT systems due to the Year 2000 issue at
the properties operated by our tenants. Under a significant portion of our
leases, we are not responsible for the cost to repair such items and are
indemnified by the tenants for losses caused by their operations on the
property. For the managed medical office buildings where we are responsible for
the building operations, we had the management companies inventory and assess
the building systems and our IT systems. We requested that the management
companies represent to us that they have implemented extensive Y2K compliance
programs; as such, we believe that the costs of repairs will be immaterial and
any such costs will be expensed as incurred. We believe that these buildings
will beY2K compliant by the end of 1999.
Risks of Year 2000 Issues
Our exposure to the Year 2000 issue depends primarily on the readiness
of our significant tenants and commercial banks, who in turn, are dependent upon
suppliers, payers and other external parties, all of which is outside our
control. We believe the most reasonably likely worst case scenario faced by us
as a result of the Year 2000 issue is the possibility that reimbursement delays
caused by a failure of federal and state welfare programs responsible for
Medicare and Medicaid could adversely affect our tenants' cash flow, resulting
in their temporary inability to meet their obligations under our leases.
Depending upon the severity of any reimbursement delays and the financial
strength of any particular operator, the operations of our tenants could be
materially adversely affected, which in turn could have a material adverse
effect on our results of operations.
-17-
<PAGE> 19
In September 1998, the General Accounting Office reported that the
Health Care Financing Administration, which runs Medicare, is behind schedule in
taking steps to deal with the Year 2000 issue and that it is highly unlikely
that all of the Medicare systems will be compliant in time to ensure the
delivery of uninterrupted benefits and services into the year 2000. The General
Accounting Office also reported in November 1998 that, based upon its survey of
the states, the District of Columbia and three territories, less than 16% of the
automated systems used by state and local government to administer Medicaid are
reported to be Year 2000 compliant. We do not know at this time whether there
will in fact be a disruption of Medicare or Medicaid reimbursements to our
lessees and mortgagors and we are therefore unable to determine at this time
whether the Year 2000 issue will have a material adverse effect on us or its
future operations.
Contingency Plans
If there are severe disruptions in our cash flow as a result of
disruptions in our tenants' or mortgagors' cash flow, we may be forced to slow
its investment activity, or seek additional liquidity from our lenders.
Readers are cautioned that most of the statements contained in the
"Year 2000 Issue" paragraphs are forward looking and should be read in
conjunction with HCPI's disclosures under the heading "Cautionary Language
Regarding Forward Looking Statements" set forth below.
Cautionary Language Regarding Forward Looking Statements
Statements in this Quarterly Report 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 HCPI 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, HCPI, through its senior management,
from time to time makes forward looking oral and written public statements
concerning HCPI's expected future operations and other developments.
Shareholders and investors are cautioned that, while forward looking statements
reflect HCPI'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:
(a) 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 HCPI's lessees;
(b) Changes in the reimbursement available to HCPI's lessees and mortgagors
by governmental or private payors, including changes in Medicare and
Medicaid payment levels, availability and cost of third party insurance
coverage; such as those contained in the Balanced Budget Act of 1997,
which contains extensive changes to the Medicare and Medicaid programs
intended to significantly reduce the projected amount of increase in
Medicare spending. In particular, the Budget Act's limitation on
reimbursable costs and reductions in payment incentives and capital
related payments as well as the recently implemented prospective payment
system, which is expected to decrease reimbursements to skilled nursing
homes, may have an adverse effect on the operator revenues at the
Company's rehabilitation and long-term acute care facilities;
-18-
<PAGE> 20
(c) Competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases;
(d) Competition for the acquisition and financing of health care facilities;
(e) The ability of HCPI's lessees and mortgagors to operate HCPI's
properties in a manner sufficient to maintain or increase revenues and
to generate sufficient income to make rent and loan payments;
(f) Risks associated with HCPI's multi-tenant medical office buildings, such
as lower than expected occupancy levels, a downturn in market lease
rates for medical office space or higher than expected costs associated
with the maintenance and operation of the such facilities;
(g) The failure to complete the merger with American Health Properties;
(h) Changes in national or regional economic conditions, including changes
in interest rates and the availability and cost of capital to HCPI; and
(i) General uncertainty inherent in the Year 2000 issue, particularly the
uncertainty of the Year 2000 readiness of third parties who are material
to HCPI's business, such as public or private healthcare reimbursers,
over whom HCPI has no control with the result that HCPI cannot ensure
its ability to timely and cost-effectively avert or resolve problems
associated with the Year 2000 issue that may affect its operations and
business.
DISCLOSURES ABOUT MARKET RISK
HCPI is exposed to market risks related to fluctuations in interest
rates on its mortgage loans receivable and on its debt instruments. The
following discussion and table presented below are provided to address the risks
associated with potential changes in HCPI's interest rate environment.
HCPI provides mortgage loans to operators of healthcare facilities in
the normal course of business. All of the mortgage loans receivable have fixed
interest rates or interest rates with periodic fixed increases. Therefore, the
mortgage loans receivable are all considered to be fixed rate loans, and the
current interest rate (the lowest rate) is used in the computation of market
risk provided in the table below if material.
HCPI generally borrows on its short-term bank lines of credit to
complete acquisition transactions. These borrowings are then repaid using
proceeds from subsequent long-term debt and equity offerings. HCPI may also
assume mortgage notes payable already in place as part of an acquisition
transaction. Currently HCPI has two mortgage notes payable with variable
interest rates and the remaining mortgage notes payable have fixed interest
rates or interest rates with fixed periodic increases. HCPI's senior notes and
convertible debt are at fixed rates. The variable rate loans are at interest
rates at or below the current prime rate of 8.0%, and fluctuations are tied to
the prime rate or to a rate currently below the prime rate.
Fluctuation in the interest rate environment will not impact HCPI's
future earnings and cash flows on its fixed rate debt until that debt matures
and must be replaced or refinanced. Interest rate changes will affect the fair
value of the fixed rate instruments. Conversely, changes in interest rates on
variable rate debt would change the future earnings and cash flows of HCPI, but
not affect the fair value on those instruments. Assuming a one percentage point
increase in the interest rate related to the variable rate debt including the
mortgage notes payable and the bank lines of credit, and assuming no change in
the outstanding balance as of the quarter ended June 30, 1999, interest expense
for the coming year would increase by approximately $1,401,000. Approximately
50% of the increase in interest expense related to the bank lines of credit, or
$590,000, would be capitalized into construction projects.
-19-
<PAGE> 21
The principal amount and the average interest rates for the mortgage
loans receivable and debt categorized by the final maturity dates are presented
in the table below. Certain of the mortgage loans receivable and certain of the
debt securities, excluding the convertible debentures, require periodic
principal payments prior to the final maturity date. The fair value estimates
for the mortgage loans receivable are based on the estimates of management and
on rates currently prevailing for comparable loans. The fair market value
estimates for debt securities are based on discounting future cash flows
utilizing current rates offered to HCPI for debt of the same type and remaining
maturity.
<TABLE>
<CAPTION>
|------------------------------MATURITY-------------------------|
--------------------------------------------------------------------------
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Mortgage Loans Receivable $16,815 $2,498 $142,367 $161,680 $165,823
Weighted Average Interest Rate 13.03% 10.17% 9.82% 10.16%
LIABILITIES
Variable Rate Debt:
Bank Notes Payable 117,700 117,700 117,700
Weighted Average Interest Rate 5.29% 5.29%
Mortgage Notes Payable 2,767 2,576 12,350 4,757 22,450 21,237
Weighted Average Interest Rate 7.75% 7.75% 7.52% 5.75% 7.20%
Fixed Rate Debt:
Senior Notes Payable 5,000 10,000 13,000 17,000 31,000 475,106 551,106 517,566
Weighted Average Interest Rate 8.81% 8.87% 7.88% 8.40% 7.09% 6.89% 7.05%
Convertible Subordinated
Notes Payable 100,000 100,000 99,452
Weighted Average Interest Rate 6.00% 6.00%
Mortgage Notes Payable 515 38,231 38,746 38,838
Weighted Average Interest Rate 9.00% 8.31% 8.33%
</TABLE>
HCPI does not believe that the future market rate risks related to the
above securities will have a material impact on HCPI or the results of its
future operations. Readers are cautioned that most of the statements contained
in these "Disclosures about Market Risk" paragraphs are forward looking and
should be read in conjunction with HCPI's disclosures under the heading
"Cautionary Language Regarding Forward Looking Statements" set forth above.
-20-
<PAGE> 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual stockholders meeting on April 28,
1999. The following matters were voted upon at the meeting:
1. Election of Directors
Votes Cast
---------------------------
Against or
Name of Director Elected For Withheld
------------------------ ---------- ----------
Orville E. Melby 28,041,904 299,982
Kenneth B. Roath 28,064,805 277,081
Name of Each Other Director
Whose Term of Office as Director
Continued After the Meeting
--------------------------------
Paul V. Colony
Robert R. Fanning, Jr.
Michael D. McKee
Harold M. Messmer, Jr.
Peter L. Rhein
2. Ratification of Arthur Andersen LLP
As the Company's Independent
Accountants for the Fiscal Year
Ending December 31, 1999
-----------------------------------
For Against Abstain
-------------------------------------------
28,205,575 55,406 80,905
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 -- Financial Data Schedule
(b) Reports on Form 8-K:
HCPI filed a Current Report on Form 8-K dated August 4, 1999,
reporting the signing of a definitive merger agreement between
American Health Properties and HCPI.
-21-
<PAGE> 23
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: August 12, 1999 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)
-22-
<PAGE> 24
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,416
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,471,266
<DEPRECIATION> 208,803
<TOTAL-ASSETS> 1,512,994
<CURRENT-LIABILITIES> 0
<BONDS> 712,302
0
187,847
<COMMON> 32,044
<OTHER-SE> 394,314
<TOTAL-LIABILITY-AND-EQUITY> 1,512,994
<SALES> 0
<TOTAL-REVENUES> 101,433
<CGS> 0
<TOTAL-COSTS> 23,897
<OTHER-EXPENSES> 12,739
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,743
<INCOME-PRETAX> 39,054
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,054
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.98
</TABLE>
