<PAGE>
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 September 30, 2000.
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
(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 November 10, 2000 there were 50,962,752 shares of $1.00 par value
common stock outstanding.
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<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999............................ 2
Condensed Consolidated Statements of Income
Nine Months and Three Months Ended September 30, 2000 and 1999...... 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999....................... 4
Notes to Condensed Consolidated Financial Statements................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 23
Signatures................................................................... 27
</TABLE>
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Health Care Property Investors, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Assets
Real Estate Investments:
Buildings and Improvements $2,177,980 $2,147,592
Accumulated Depreciation (277,193) (230,509)
------------------ ------------------
1,900,787 1,917,083
Construction in Progress 6,498 20,312
Land 254,751 255,593
------------------ ------------------
2,162,036 2,192,988
Loans Receivable 188,723 193,157
Investments in and Advances to Joint Ventures 23,045 47,642
Accounts Receivable 15,231 13,565
Other Assets 10,768 14,342
Cash and Cash Equivalents 4,904 7,696
------------------ ------------------
Total Assets $2,404,707 $2,469,390
================== ==================
Liabilities and Stockholders' Equity
Bank Notes Payable $ 132,000 $ 215,500
Senior Notes Payable 777,335 761,757
Convertible Subordinated Notes Payable Due 2000 68,910 100,000
Mortgage Notes Payable 178,313 102,250
Accounts Payable, Accrued Liabilities and Deferred Income 53,491 49,222
Minority Interests in Joint Ventures 14,897 15,688
Minority Interests Convertible into Common Stock 24,827 24,716
Stockholders' Equity:
Preferred Stock 274,525 275,041
Common Stock 50,962 51,421
Additional Paid-In Capital 929,593 940,471
Cumulative Net Income 725,312 628,151
Cumulative Dividends (825,458) (694,827)
------------------ ------------------
Total Stockholders' Equity 1,154,934 1,200,257
------------------ ------------------
Total Liabilities and Stockholders' Equity $2,404,707 $2,469,390
================== ==================
</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 Nine Months
Ended September 30, Ended September 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue
Rental Income, Triple Net Properties $56,790 $32,282 $169,906 $ 96,286
Rental Income, Managed Properties 19,887 13,300 59,696 38,353
Interest and Other Income 5,604 6,636 17,027 19,012
-------------- -------------- -------------- --------------
82,281 52,218 246,629 153,651
-------------- -------------- -------------- --------------
Expense
Interest Expense 22,008 13,931 64,757 40,060
Real Estate Depreciation and Amortization 17,461 10,196 52,054 29,683
Operating Expenses, Managed Properties 7,201 4,206 20,653 12,034
General and Administrative Expenses 3,270 3,010 10,009 9,112
Investment Valuation Reserve 2,000 --- 2,000 ---
-------------- -------------- -------------- --------------
51,940 31,343 149,473 90,889
-------------- -------------- -------------- --------------
Income From Operations 30,341 20,875 97,156 62,762
Minority Interests (1,326) (853) (4,403) (3,838)
Gain on Sale of Real Estate Properties 421 10,151 4,134 10,303
-------------- -------------- -------------- --------------
Income Before Extraordinary Item 29,436 30,173 96,887 69,227
Extraordinary Item- Gain on Extinguishment of Debt 65 --- 274 ---
-------------- -------------- -------------- --------------
Net Income 29,501 30,173 97,161 69,227
Dividends to Preferred Stockholders (6,225) (4,109) (18,675) (12,328)
-------------- -------------- -------------- --------------
Net Income Applicable to Common Shares $23,276 $26,064 $ 78,486 $ 56,899
============== ============== ============== ==============
Basic Earnings Per Common Share $ 0.46 $ 0.81 $ 1.54 $ 1.80
============== ============== ============== ==============
Diluted Earnings Per Common Share $ 0.46 $ 0.80 $ 1.53 $ 1.80
============== ============== ============== ==============
Weighted Average Shares Outstanding - Basic 50,962 32,045 51,105 31,590
============== ============== ============== ==============
Weighted Average Shares Outstanding - Diluted 51,027 35,456 51,140 34,317
============== ============== ============== ==============
</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>
Nine Months
Ended September 30,
----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 97,161 $ 69,227
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Real Estate Depreciation 52,054 29,683
Non Cash Charges 3,043 2,158
Joint Venture Adjustments 1,732 1,329
Gain on Sale of Real Estate Properties (4,134) (10,303)
Gain on Extinguishment of Debt (274) ---
Changes in:
Operating Assets 3,365 (2,832)
Operating Liabilities 2,306 7,914
----------------- -----------------
Net Cash Provided By Operating Activities 155,253 97,176
================= =================
Cash Flows From Investing Activities:
Acquisition of Real Estate (16,218) (125,972)
Proceeds from the Sale of Real Estate Properties, Net 27,210 46,098
Other Investments and Loans 4,662 (40,633)
----------------- -----------------
Net Cash Used In Investing Activities 15,654 (120,507)
================= =================
Cash Flows From Financing Activities:
Net Change in Bank Notes Payable (83,500) 12,500
Repayment of Senior Notes Payable (10,000) (10,000)
Issuance of Senior Notes 24,865 62,000
Issuance of Secured Debt 83,000 ---
Cash Proceeds from Issuing Common Stock 1,438 29,638
Periodic Payments on Mortgages (2,684) (2,008)
Repurchase of Common and Preferred Stock (15,284) ---
Repurchase of Convertible Subordinated Notes Payable (30,741) ---
Dividends Paid (130,631) (77,977)
Other Financing Activities (9,591) (3,075)
(Decrease) / Increase in Minority Interest (571) 15,948
----------------- -----------------
Net Cash (Used In)/Provided By Financing Activities (173,699) 27,026
================= =================
Net Decrease In Cash And Cash Equivalents (2,792) 3,695
Cash And Cash Equivalents, Beginning Of Period 7,696 4,504
----------------- -----------------
Cash And Cash Equivalents, End Of Period $ 4,904 $ 8,199
================= =================
Capitalized Interest $ 637 $ 1,305
================= =================
</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
September 30, 2000
(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 the 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 both recommend and
presume that users of this interim financial information read or 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, 1999. 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 and dispositions, changes
in rents and interest rates, and the timing of debt and equity financings.
Facility Operations:
We own interests in 95 medical office buildings ("MOBs") and physician
group practice clinics where property management is provided by independent
property management companies. These facilities are leased to multiple tenants
under gross, modified gross or triple net leases. These property management
companies are supervised by the Company's Asset Management Department. Rents and
operating income attributable to these properties is included in Rental Income,
Managed Properties in our financial statements. Expenses related to the
operation of these facilities are recorded as Operating Expenses, Managed
Properties.
Reclassifications:
We have made reclassifications, where necessary, for comparative financial
statement presentations.
(2) BUSINESS COMBINATION
On November 4, 1999, American Health Properties, Inc. ("AHE") merged with
and into HCPI (the Merger) in a stock-for-stock transaction, approved by the
stockholders of both companies, with HCPI being the surviving corporation. Under
the terms of the Merger agreement, each share of AHE common stock was converted
into the right to receive 0.78 share of HCPI's common stock and AHE's 8.60%
series B cumulative redeemable preferred stock was converted into HCPI's 8.60%
series C cumulative redeemable preferred stock. The Merger resulted in the
issuance of approximately 19,430,115 shares of HCPI's common stock and
4,000,0000 depositary shares of HCPI's series C cumulative redeemable preferred
stock. In addition, HCPI assumed $343,000,000 of AHE's debt upon consummation of
the Merger. The transaction was treated as a purchase for financial accounting
purposes. The operating results of
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<PAGE>
AHE have been included in our consolidated financial statements since November
4, 1999 and, accordingly, the results of operations for the three and nine
months ended September 30, 1999 do not reflect the operations of AHE.
Pro Forma Financial Information (Unaudited):
The following unaudited pro forma consolidated statements of income
information present the results of HCPI's operations for the nine months ended
September 30, 1999 as though the acquisition of AHE had occurred at the
beginning of 1999:
September 30,
1999
-------------
(Dollar amounts in 000s, expect per share amounts)
Total Revenues $237,529
Net Income Applicable to Common Shares $142,454
Earnings Per Share
Basic $ 2.79
Diluted $ 2.73
Pro Forma Net Income applicable to common shares and earnings per
basic and diluted share include $65,436,000 or $1.28 and $1.20 per share for
Gain on the Sale of Real Estate Properties, respectively.
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of 1999 or the results that may occur
in the future. The pro forma results include additional interest on borrowed
funds, increased depreciation and decreases in amortization expense associated
with changes in fair value of the AHE depreciable property and other intangible
assets and a reduction in general and administrative expenses.
(3) OPERATORS
Major Operators:
Listed below are our major operators and their respective percentage of
total annualized revenue for the nine months ended September 30, 2000. All of
these operators are publicly traded companies and are subject to the
informational filing requirements of the Securities and Exchange Act of 1934, as
amended, and accordingly file periodic financial statements on Form 10-K and
Form 10-Q with the Securities and Exchange Commission.
Revenue Percentage
-------------- --------------
(Dollar amounts in 000s)
Tenet Healthcare Corporation $ 55,810 18.8%
HealthSouth Corporation 16,725 5.6%
Vencor, Inc. 13,661 4.6%
Emeritus Corporation 13,584 4.5%
HCA - The Healthcare Co. 12,959 4.4%
Beverly Enterprises 12,406 4.2%
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<PAGE>
At September 30, 2000, we had approximately 93 health care operators and
over 650 tenants in multi-tenant buildings.
Vencor:
On May 1, 1998, Vencor completed a spin-off transaction. As a result, it
became two publicly held entities -- Ventas, Inc. and Vencor, a healthcare
company which at September 30, 2000 leased 35 of our properties of which 9 are
subleased to other operators. Vencor is the Company's largest long-term care
lessee at 4.6% of annualized revenue. On September 13, 1999, Vencor filed for
bankruptcy protection. Twenty long-term care facility leases with Vencor
terminate in 2001 and the Company expects to realize a net rent increase for
these facilities at that time. We have recourse to Ventas, Inc. and Tenet
Healthcare Corporation (see discussion below) for most of the rents payable by
Vencor under the terms of the applicable leases. All rents due to us subsequent
to the bankruptcy filing have been received.
Under its filing for bankruptcy protection, Vencor has 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, we have the right to collect rent through the
rejection date and may lease the property to another operator. As of November
10, 2000, Vencor had made no proposals to reject any of their current leases
with us. We have received $735,000 of $1,008,000 of pre-petition rents and
consider the remaining balance to be fully collectible. However, we cannot
assure you that, as a result of Vencor's bankruptcy filing, we would be able to
recover all 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. We have recourse to Tenet for rents under all but five of the
Vencor leases, and on some leases we are receiving direct payment by sublessees
of Vencor, which may reduce the risk to us of not being able to collect on those
leases. However, some of Vencor's sublessees have also filed for bankruptcy
protection and although we are current on lease payments, we cannot assure you
that the bankruptcy filing of Vencor or certain of its sublessees would not have
a material adverse effect on our Net Income, Funds From Operations or the market
value of our common stock.
In late September 2000, Vencor filed its preliminary plan of
reorganization. If the plan of reorganization is approved we believe it will be
positive for the industry, its creditors and for the Company.
Based upon public reports, for the six months ended June 30, 2000, Vencor
had revenue of approximately $1.4 billion and a net loss of approximately $21
million. Based upon public reports, Ventas' revenue and net income for the six
months ended June 30, 2000, were approximately $119 million and $10 million,
respectively. Approximately $114 million of Ventas' revenue resulted from
leases with Vencor. As of June 30, 2000, Ventas had total assets of $1 billion
and a stockholders' equity of $20 million.
Tenet is one of the nation's largest healthcare services companies,
providing a broad range of services through the ownership and management of
healthcare facilities. Based upon public reports, Tenet's revenue and net
income for the three months ended August 31, 2000 were $2.9 billion and $154
million, respectively, and Tenet had total assets of $13.1 billion as of August
31, 2000. Tenet has historically guaranteed Vencor's leases. During 1997, we
reached an agreement with Tenet whereby Tenet agreed to forbear or waive some
renewal and purchase
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<PAGE>
options and related rights of first refusal on facilities leased to Vencor.
Accordingly, we have recourse to Tenet on 30 Vencor leases, all of which will
expire during 2001.
Summerville:
The Company's management recorded a complete write-off of a $2,000,000
equity investment in Summerville Senior Living (SSL), an assisted living
company. Although this investment represents less than 0.1% of gross real
estate investment and is outside the normal investment strategy of the Company,
the write-off reduces net income (see Investment Valuation Reserve) and
therefore affects reported FFO (see Note 9 for a definition of FFO). No income
has been recorded on this equity investment. In addition to the equity
investment, the Company has loaned $13,500,000 to SSL with ten leased facilities
in California as collateral and owns five facilities that are leased to SSL.
Revenue from SSL equals approximately 1.5% of the Company's total revenue. The
$1,200,000 letter of credit provided in connection with the five facility leases
and the loan (discussed previously) to SSL exceeds revenue due and unpaid from
them.
Other Troubled Providers:
The financial condition of many long-term care providers has been eroded
during the past year, in part due to the implementation of the Medicare
Prospective Payment System. As a result, certain of our long-term care provider
lessees have filed for Chapter XI bankruptcy protection during the past several
months. In addition to Vencor discussed above, lessees that have filed for
bankruptcy and their respective percentage of annualized revenue are Sun
Healthcare, 1.2%; Integrated Health Services, 1.0 %; Genesis Health Ventures,
0.5%; Lenox Healthcare, 0.4%; Mariner Post Acute Network, 0.4 %; and Texas
Health Enterprises, 0.2%.
The lessees in bankruptcy discussed in the previous paragraph were current
on all rents as of September 30, 2000, with the exception of certain pre-
petition rents in the amount of $182,000 which we believe will generally be
payable once the plans of reorganization are confirmed. However, we cannot
assure you that the bankruptcies of those lessees will not have a material
adverse effect on our Net Income, our Funds From Operations or the market value
of our common stock.
Certain of our other operators of long-term care companies have recently
experienced working capital shortfalls and reorganizations resulting in lower
rental income or the possibility of lower future rents. While the vast majority
of these operators remain current, management believes that lower rents from
certain properties, higher interest expense and fewer acquisitions will reduce
our growth in earnings and FFO over the near term.
(4) REAL ESTATE DISPOSITIONS
During the nine months ended September 30, 2000, we sold three long-term
care facilities, two medical office buildings, one land parcel, and one clinic
generating sales proceeds of $28,000,000.
(5) SECURED DEBT
On September 1, 2000, we completed the final phase of a series of secured
debt transactions which in the aggregate resulted in loan proceeds of $83
million on a portfolio of
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twelve medical office buildings and physician clinics with an investment value
of approximately $138 million. The loan features an average coupon of 8.12%
(8.43% effective rate after including all costs) with interest payable over the
first three years and interest plus principal payments based upon a 30 year
amortization thereafter for the remainder of the ten year term. These proceeds
were initially invested in reducing the borrowings under the Company's revolving
lines of credit and were used to fund a portion of the final payment on the
remaining amount of our convertible subordinated notes due November 8, 2000.
(6) STOCKHOLDERS' EQUITY
The following table provides a summary of the activity for the
Stockholders' Equity account for the nine months ended September 30, 2000
(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, 1999 11,745 $275,041 51,421 $51,421 $940,471 $628,151 $(694,827) $1,200,257
Stock Options Exercised 54 54 1,384 1,438
Stock Grants Issued 78 78 1,946 2,024
Stock Repurchase (23) (516) (588) (588) (14,180) (15,284)
Cancelled Shares (3) (3) (28) (31)
Net Income 97,161 97,161
Dividends Paid - Preferred
Shares (18,675) (18,675)
Dividends Paid - Common
Shares (111,956) (111,956)
-----------------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 2000 11,722 $274,525 50,962 $50,962 $929,593 $725,312 $(825,458) $1,154,934
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On June 20, 2000 the Board of Directors adopted a Rights Plan and declared
a dividend distribution of one Preferred Share Purchase Right on each
outstanding share of HCPI common stock. Subject to limited exceptions, the
Rights will be exercisable if a person or group acquires 15% or more of HCPI's
common stock or announces a tender offer for 15% or more of the common stock.
Under certain circumstances, each Right will entitle shareholders to buy one
one-hundredth of a share of newly created Series D Junior Participating
Preferred Stock of the Company at an exercise price of $95.00. The Board of
Directors is entitled to redeem the Rights at $.01 per Right at any time before
a person has acquired 15% or more of the outstanding common stock. The Rights
Plan was adopted to replace HCPI's previous Rights Plan, which was enacted in
1990 and expired on July 30, 2000.
(7) EARNINGS PER COMMON SHARE
We compute earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share. 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, if any, 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 are not included because they are not dilutive.
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<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------------- -------------------------------
Per Share Per Share
September 30, 2000 Income Shares Amount Income Shares Amount
----------------------------------------- --------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Common Share:
Net Income Applicable to Common Shares $23,276 50,962 $0.46 $78,486 51,105 $1.54
---------- ----------
Dilutive Options --- 65 --- 35
Diluted Earnings Per Common Share:
Net Income Applicable to Common Shares Plus
Assumed Conversions $23,276 51,027 $0.46 $78,486 51,140 $1.53
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------------- -------------------------------
Per Share Per Share
September 30, 2000 Income Shares Amount Income Shares Amount
----------------------------------------- --------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Common Share:
Net Income Applicable to Common Shares $26,064 32,045 $0.81 $56,899 31,590 $1.80
---------- ----------
Dilutive Options --- 41 --- 82
Interest and Amortization Applicable to 1,599 2,645 4,798 2,645
Convertible Debt
Non-managing Member Units 532 725 --- ---
Diluted Earnings Per Common Share:
Net Income Applicable to Common Shares Plus
Assumed Conversions $28,195 35,456 $0.80 $61,697 34,317 $1.80
---------- ----------
</TABLE>
(8) STOCK AND DEBT BUYBACK PROGRAM
In December 1999, our Board of Directors approved a stock and debt
repurchase program whereby our common and preferred stock, and our convertible
subordinated notes and senior debt may be repurchased on the open market.
Through September 30, 2000, we had repurchased 63,400 shares of preferred stock
for $947,000; 646,686 shares of common stock for $16,308,000 and had repurchased
$31,090,000 principal amount of convertible debt.
(9) FUNDS FROM OPERATIONS
We believe that Funds From Operations (FFO) is the most important
supplemental measure of operating performance for a real estate investment
trust. 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. Since 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.
We 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 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.
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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 define it, 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 Nine Months
Ended September 30, Ended September 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Income Applicable to Common Shares $23,276 $ 26,064 $ 78,486 $ 56,899
Real Estate Depreciation and Amortization 17,461 10,196 52,054 29,683
Joint Venture Adjustments 593 437 1,732 1,329
Extraordinary Item/Gain on Extinguishment of Debt (65) --- (274) ---
Gain on Sale of Real Estate Properties (421) (10,151) (4,134) (10,303)
------------- -------------- -------------- --------------
Funds From Operations $40,844 $ 26,546 $127,864 $ 77,608
============= ============== ============== ==============
</TABLE>
HCPI is required to report information about operations on the basis that
it uses internally to measure performances under Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, effective beginning in 1998.
(10) COMMITMENTS
We have acquired real estate properties and have outstanding commitments to
fund the development of facilities on those properties of approximately
$3,500,000, and are committed to acquire an additional $13,000,000 of existing
healthcare real estate.
(11) SUBSEQUENT EVENTS
On October 20, 2000, the Board of Directors declared a quarterly dividend
of $0.75 per common share payable on November 20, 2000, to shareholders of
record on the close of business on November 3, 2000.
The Board of Directors also declared a cash dividend of $0.492188 per share
on its series A cumulative preferred stock, $0.54375 per share on its series B
cumulative preferred stock and $0.5375 per share on its series C cumulative
preferred stock depositary shares. These dividends will be paid on December 29,
2000 to shareholders of record as of the close of business on December 15, 2000.
On November 8, 2000, we redeemed the remaining $68,910,000 principal amount
of convertible subordinated notes.
Pursuant to the Company's 364-Day Revolving Credit Agreement, the Company
received commitments from certain members of its bank group to extend the
original $103,000,000 revolving line of credit until November 2, 2001. The
remaining $207,000,000 of the revolving lines of credit will mature in November
2003. Borrowings under the $310,000,000 line of credit at September 30, 2000
totaled $132,000,000.
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(12) 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.
-12-
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
We are 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 September 30, 2000,
our portfolio of properties, including equity investments, consisted of 421
facilities located in 43 states. These facilities are comprised of 173 long-
term care facilities, 92 congregate care and assisted living facilities, 45
physician group practice clinics, 80 medical office buildings, 22 acute care
hospitals, and nine freestanding rehabilitation facilities. The gross
investment in the properties, which includes joint venture acquisitions, was
approximately $2.6 billion at September 30, 2000.
We have commitments to purchase and construct health care facilities
totaling approximately $16.5 million which are expected to fund during the next
six months. The Company expects that a significant portion of these commitments
will be funded; however, experience suggests that some committed transactions
may not close for various reasons including unsatisfied pre-closing conditions,
competitive financing sources, final negotiation differences or operator's
ability to obtain required internal or governmental approvals.
RESULTS OF OPERATIONS
Net Income applicable to common shares for the three and nine months ended
September 30, 2000 totaled $23,276,000 and $78,486,000 or $0.46 and $1.54 of
basic earnings per share on revenue of $82,281,000 and $246,629,000,
respectively. This compares to $26,064,000 and $56,899,000 or $0.81 and $1.80
of basic earnings per share on revenue of $52,218,000 and $153,651,000 for the
same period in 1999. Net Income applicable to common shares for the three
months ended September 30, 2000 and September 30, 1999 included a $421,000 or
$0.01 per basic share and $10,151,000 or $0.32 per basic share gain on the sale
of real estate properties, respectively. Net Income applicable to common shares
for the nine months ended September 30, 2000 and September 30, 1999 included a
$4,134,000 or $0.08 per basic share and $10,303,000 or $0.33 per basic share
gain on the sale of real estate properties, respectively. In addition, Net
Income applicable to common shares for the three and nine months ended September
30, 2000 includes a $2,000,000 or $0.04 per basic share impact of the
Summerville equity investment write-off (see Note 3).
Rental Income, Triple Net Properties for the three and nine months ended
September 30, 2000 increased $24,508,000 and $73,620,000 to $56,790,000 and
$169,906,000, respectively, as compared to the same period in the prior year.
Rental Income, Managed Properties for the three and nine months ended September
30, 2000 increased by $6,587,000 and $21,343,000 to $19,887,000 and $59,696,000,
respectively as compared to the same period in the prior year with a related
increase in Operating Expenses, Managed Properties of $2,995,000 and $8,619,000
to $7,201,000 and $20,653,000, respectively. These increases were generated
primarily from 1999 acquisition activity, most of which is attributable to the
acquisition of American Health Properties' portfolio. Interest and Other Income
for the three and nine months ended September 30, 2000 decreased $1,032,000 and
$1,985,000 to $5,604,000 and $17,027,000, respectively, primarily from
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<PAGE>
the divestiture in the third quarter of 1999 of certain partnership interests
from which we were receiving income during the first six months of 1999.
Interest Expense for the three and nine months ended September 30, 2000
increased $8,077,000 and $24,697,000, respectively. The increase is primarily
the result of an increase in borrowings used to fund the acquisitions made
during 1999 and interest related to the debt assumed in the merger with American
Health Properties. The increase in Depreciation for the three and nine months
ended September 30, 2000 of $7,265,000 and $22,371,000 to $17,461,000 and
$52,054,000, respectively, is the direct result of the new investments made
during 1999 including the merger with American Health Properties.
We believe that FFO is an important supplemental measure of operating
performance. FFO for the three months ended September 30, 2000 increased
$14,298,000 to $40,844,000 as compared to the same period in the prior year.
The increase is attributable to increases in Rental Income on the Triple Net and
Managed Properties as offset by increases in Interest Expense, Operating
Expenses Managed Properties and the Summerville equity investment write-off
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 define 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
We have financed investments through the issuance of common and preferred
stock, issuance of long-term debt, assumption of mortgage debt, use of short-
term bank lines and use of 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. Management believes that our
liquidity and sources of capital are adequate to finance our operations. Future
investments in additional facilities will be dependent on availability of cost
effective sources of capital.
Secured Debt Financing
On September 1, 2000, we completed the final phase of a secured debt
transaction which in the aggregate resulted in loan proceeds of $83 million on a
portfolio of twelve medical office buildings and physician clinics with an
investment value of approximately $138 million. The transaction was closed in
two approximately equal installments. The loan features an average coupon of
8.12% (8.43% effective rate after including all costs) with interest payable
over the first three years and interest plus principal payments based upon a 30
year amortization thereafter for the remainder of the ten year term. These
proceeds were initially invested in reducing the borrowings under the Company's
revolving lines of credit and were used to fund a portion of the final payment
on the remaining $68,910,000 of our convertible subordinated notes due November
8, 2000.
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<PAGE>
Medium-Term Note Financings
The following table summarizes the Medium-Term Note financing activities
since January 1999:
Amount
Date Maturity Coupon Rate Issued/(Redeemed)
---------------- ------------------ ------------------ ------------------
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)
November 1999 --- 8.81% (5,000,000)
February 2000 --- 8.87% (10,000,000)
February 2000 4 years 9.00% 25,000,000
Other Senior Debt
On November 4, 1999, in connection with the merger with American Health
Properties we assumed two series of outstanding senior notes of American Health
Properties, consisting of $100,000,000 principal amount of 7.05% senior notes
due 2002 and $120,000,000 principal amount of 7.50% senior notes (8.16%
effective rate) due 2007. Additionally, we assumed $56,000,000 of American
Health Properties' mortgage debt with interest rates ranging from 7.00% to 8.52%
due 2003 to 2011.
Equity Offerings
In May 1999, we completed an equity offering of 1,000,000 shares of our
common stock which raised $31,400,000 of equity with net proceeds of
$29,600,000. We used the net proceeds from the equity offering to pay down or
pay off short-term borrowings under our revolving lines of credit. We invested
any excess funds in short-term investments until they were needed for
acquisitions or development.
On November 4, 1999, in connection with the merger with American Health
Properties we issued 19,430,115 shares of our common stock and 4,000,000
depositary shares of 8.60% series C cumulative redeemable preferred stock. (See
Note 2 to the Consolidated Financial Statements.)
In January and February 2000, we registered 89,452 and 593,247 shares of
common stock for issuance, from time to time, to the holders of non-managing
member units in two consolidated subsidiaries, HCPI/Indiana, LLC and HCPI/Utah,
LLC, respectively. The non-managing member units are convertible from time to
time by the non-managing members' into shares of our common stock, or at our
option into the right to receive cash.
At September 30, 2000, stockholders' equity totaled $1,154,934,000 and the
debt to equity ratio was 1.00 to 1.00. For the nine months ended September 30,
2000, FFO (before interest expense) covered Interest Expense at a ratio of 3.00
to 1.00.
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<PAGE>
Stock and Debt Buyback Program
In December 1999, our Board of Directors approved a stock and debt
repurchase program. Through September 30, 2000, we had repurchased 63,400
shares of preferred stock for $947,000, 646,686 shares of common stock for
$16,308,000 and had repurchased $31,090,000 principal amount of convertible
debt.
Available Financing Sources
As of September 30, 2000, we had $372,000,000 available for future
financing of debt and equity securities under a shelf registration statement
filed with the Securities and Exchange Commission. Of that amount, we have
approximately $85,000,000 available under Medium-Term Note senior debt programs.
These amounts may be issued from time to time in the future based on our needs
and then existing market conditions.
We have two revolving lines of credit, one for $103,000,000 that expires on
November 2, 2000 and one for $207,000,000 that expires on November 3, 2003. The
Company received commitments from its bank group to renew the 364-day portion of
the revolving line of credit ($103,000,000) until November 2, 2001. Availability
on these lines of credit is reduced by outstanding letters of credit aggregating
$3,500,000. As of September 30, 2000, we had $174,500,000 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:
Moody's Standard & Poor's Fitch
---------------- ---------------------- ----------------
Senior Notes Baa2 BBB+ BBB+
Convertible
Subordinated Notes Baa3 BBB BBB
Since our inception in May 1985, we have recorded approximately
$932,853,000 in cumulative FFO. Of this amount, we have distributed a total of
$779,229,000 to stockholders as dividends on common stock. We have retained the
balance of $153,624,000 and used it as an additional source of capital.
On August 18, 2000, we paid a dividend of $0.74 per common share or
$37,712,000 in the aggregate. Total dividends paid on common stock during the
nine months ended September 30, 2000, as a percentage of FFO, was 84%. During
the fourth quarter of 2000, we declared a dividend of $0.75 per common share or
approximately $38,222,000 in the aggregate to be paid November 20, 2000.
Planned Asset Sales
Through the nine months ended September 30, 2000, the Company has realized
$28,000,000 from the sale of facilities that generally have been utilized to pay
down the revolving line of credit and fund facilities under development. The
sale of these properties has resulted in a net book gain to the Company of
$4,134,000 and a low 8.4% cost of capital. Three of the sales included vacant
land or buildings. The Company expects to sell approximately $90,000,000 of
properties, primarily assisted living facilities and medical office buildings,
in the fourth quarter of
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<PAGE>
2000 and the first quarter of 2001 with an expected cost of capital of
approximately 10.5%. Due to the complexities of real estate transactions, it is
not possible to predict with a high degree of accuracy when, or if, such
transactions will be consummated.
Letters of Credit
At November 10, 2000, we held approximately $62,000,000 in depositary
accounts and 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 or depositary accounts if there are any defaults
under the leases and/or loans. Amounts available under letters of credit or
depositary accounts could change based upon facility operating conditions and
other factors and such changes may be material.
Facility Rollovers
As of September 30, 2000, we have 8 facilities that are subject to lease
expiration and mortgage maturities during the remainder of 2000. These
facilities currently represent approximately 0.3% of annualized revenue. For the
year ending December 31, 2001, we have 40 facilities that are subject to lease
expiration and mortgage maturities. These facilities currently represent
approximately 5.8% of annualized revenue.
INTERNAL GROWTH
For the nine months ended September 30, 2000, we had internal same facility
rent growth, net of rent decreases, of approximately $2,018,000 or 2.3% of rents
in our Triple Net portfolio.
TRENDS WITH HEALTH CARE SERVICE PROVIDERS
Recent developments in the long-term care industry, which represents 26% of
the Company's portfolio, have been fair to good. Many operators are showing
improvement, which is a positive change from the generally poor news over the
past two years. The industry continues to experience higher wage costs and very
high patient liability costs, particularly in Florida. (Eleven of the Company's
173 long-term care facilities are located in Florida.) Offsetting these trends
are revenue increases from Medicare legislation and a cessation of further
Medicare revenue reductions. State Medicaid increases in several states have
been above general inflation levels with some states better recognizing the
needs of the long-term care industry. Several long-term care operators have
recently reported increased facility profitability, while others remain
unchanged to marginally lower.
The acute care hospital industry is currently performing very well.
Hospital operators have become very cost conscious in recent years due to
repeated annual decreases in per diems paid by Medicare and managed care.
Operators are currently reporting pricing improvements in managed care
contracts. The Company's 22 acute care hospitals, at 27% of annualized revenue,
are performing at or near record levels of profitability.
The assisted living industry, 16% of the Company's portfolio, has
experienced overbuilding in some communities and slower fill-up rates than were
originally forecast. This has created a need for more capital to sustain
operators during the fill-up period. A number of
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<PAGE>
operators have received additional capital in the past several months. This
trend is likely to continue through 2001.
FUTURE EARNINGS GROWTH
Management expects that the combination of lower rents from certain
properties, high capital costs and the lack of new acquisitions will lower the
Company's growth in earnings and FFO over the near term. If market conditions
improve enough to allow the Company to access the capital markets efficiently
the Company anticipates that it would be able to once again deploy the proceeds
in positive spread investments, and achieve a growth rate comparable to
historical levels.
SUPPLEMENTARY PORTFOLIO INFORMATION
<TABLE>
<CAPTION>
PORTFOLIO BY TYPE
# of # of # of Investment Investment
Properties Investment/(1)/, /(3)/ Beds/Units Sq. Ft. Per Bed/Unit /(2)/ Per Sq. Ft. /(2)/
----------- ------------ ----------- ------------ ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Acute Care Hospitals 22 $ 658,959 3,082 3,204,000 $ 214 $ 206
Long-Term Care Facilities 173 623,337 21,026 6,263,000 30 100
Medical Office Buildings 80 613,162 --- 4,535,000 --- 135
Congregate Care/
Assisted Living 92 457,780 7,316 5,146,000 65 92
Facilities
Physician Group Practice 45 172,697 --- 1,219,000 --- 143
Clinics
Rehabilitation Hospitals 9 112,593 685 708,000 164 159
----------- ------------ ----------- -----------
Grand Total 421 $2,638,528 32,109 21,075,000
=========== ============ =========== ==========
Managed Portfolio (5) 92 $ 565,488 3,926,000 $ 144
=========== ============ ========== =========
</TABLE>
<TABLE>
<CAPTION>
Return on
Revenue /(4)/ Percentage Investment /(2)/
-------------- -------------- -------------
<S> <C> <C> <C>
Acute Care Hospitals $ 81,213 27.3% 12.3%
Long-Term Care Facilities 77,549 26.0% 12.4%
Medical Office Buildings 58,885 19.8% 9.6%
Congregate Care/
Assisted Living 46,516 15.6% 10.2%
Facilities
Physician Group Practice 17,703 6.0% 10.3%
Clinics
Rehabilitation Hospitals 15,763 5.3% 14.0%
----------- -------------- -------------
Grand Total $297,629 100.0% 11.3%
=========== ============== =============
Managed Portfolio /(4)/, /(5)/ $ 51,930 17.4% 9.2%
=========== ============== =============
</TABLE>
At September 30, 2000, the Company had approximately 93 health care operators
and over 650 leases in multi-tenant buildings.
(1) Includes joint venture investments and incorporates all partners' assets.
(2) Investment per bed/unit/square foot and return on investment, excludes
projects under construction.
(3) Includes $1,613 of construction in progress and related land purchases.
(4) Annualized rental and interest income on total investments above.
Includes net operating income (NOI) on managed
portfolio.
(5) Includes managed Medical Office Buildings and Physician Group Practice
Clinics included in the preceding totals.
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<PAGE>
PORTFOLIO BY STATE
Revenue /(1)/,/(2)/ Percentage
------------------ ----------------
California $ 56,312 18.9%
Texas 36,201 12.2%
Florida 24,572 8.3%
Indiana 23,005 7.7%
Utah 16,025 5.4%
Other (38 States) 141,514 47.5%
------------------ ----------------
Grand Total (43 States) $297,629 100.0%
================== ================
RENEWAL INFORMATION
Lease Expirations and
Year Mortgage Maturities
-------------------------- -----------------------------------
Revenue /(1)/, /(2)/ Percentage
-------------- --------------
2000 $ 824 0.3%
2001 17,192 5.8%
2002 16,487 5.5%
2003 9,624 3.2%
2004 68,595 23.0%
Thereafter 184,907 62.2%
-------------- --------------
Grand Total $297,629 100.0%
============== ==============
FACILITY RELATED INFORMATION
Prior Current
Quarter Quarter
----------- ----------
Selected Occupancy Data:
Long-Term Care Facilities /(3)/ 80% 80%
Congregate Care/Assisted Living Facilities /(3)/ 82% 81%
Acute Care Hospitals 52% 51%
Rehabilitation Hospitals 77% 76%
Managed Multi-tenant Medical Office Buildings 93% 90%
Cash Flow Coverage Before Management Fees 2.5 2.4
Cash Flow Coverage After Management Fees 2.2 2.1
For the Nine Months Ended September 30, 2000:
"Same Store" Triple Net Facility/Rent Growth $2,018
Dollars Expended on Leasing Commissions, Tenant
Improvements and Capital Improvements $2,251
(1) Annualized rental and interest income on total investments above. Includes
net operating income on managed medical office buildings.
(2) This column includes the revenue impact by year and the total annualized
rental and interest income associated with the properties subject to lease
expiration, lessees' renewal options and/or purchase options, and mortgage
maturities.
(3) Excludes facilities under construction and newly completed facilities
under start up.
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<PAGE>
OTHER KEY INFORMATION:
LEASE UP STATISTICS ON NEW ASSISTED LIVING FACILITIES:
Average Months Percent of
Occupancy Facilities In Operation Revenue Revenues
----------------- ---------------- ---------------- ------------- -----------
0% - 50% 7 13.9 $2,727 0.9%
50% - 70% 5 15.3 $2,981 1.0%
70% - 90% 7 17.7 $3,944 1.3%
-----------
3.2%
===========
YEAR 2000 ISSUE
The Year 2000 issue was the result of widely used computer programs that
identify the year by two digits, rather than by four digits. It was 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." It was believed that 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 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.
Preparing for Year 2000 had been a high priority for us. Internal and
external resources were engaged to achieve Year 2000 readiness. We successfully
completed our Year 2000 preparedness plans including the upgrade and replacement
of all systems, as well as full-scale testing and implementation of those
systems. Our contingency plans were also thoroughly tested. The cost of the
foregoing was not material. To date, we have not seen any adverse impact or
disruption in cash flows as a result of the Year 2000 transition on any of our
systems or those of our lessees or vendors.
CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Annual 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, we, through our senior management, from time
to time make forward looking oral and written public statements concerning our
expected future operations and other developments. Shareholders and investors
are cautioned that, while forward looking statements reflect our good faith
belief 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. In
addition to the factors set forth under the caption Risk Factors in our annual
report on Form 10-K, readers should consider the following:
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<PAGE>
(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 our lessees;
(b) Changes in the reimbursement available to our lessees and mortgagors by
governmental or private payors, including changes in Medicare and Medicaid
payment levels and the availability and cost of third party insurance
coverage which may result in operators experiencing financial difficulties,
seeking rent concessions or filing for bankruptcies;
(c) Competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases which
make it difficult to continue to expand our portfolio;
(d) Competition for the acquisition and financing of healthcare facilities
which make it difficult to continue to expand our portfolio;
(e) The ability of our lessees and mortgagors to operate our properties in a
manner sufficient to maintain or increase revenues and to generate
sufficient income to make rent and loan payments;
(f) Changes in national or regional economic conditions, including changes in
interest rates and the availability and cost of capital for us;
(g) The expected benefits from the merger with American Health Properties, such
as cost savings, operating efficiencies and other synergies may not be
realized due to increased demands on our management resources following the
merger; and
(h) Deteriorating tenant operations for a variety of reasons.
DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our mortgage loans receivable and on our debt instruments. We provide the
following discussion and table presented below to address the risks associated
with potential changes in our interest rate environment.
We provide 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.
We generally borrow on our short-term bank lines of credit to complete
acquisition transactions. We then repay borrowings using proceeds from
subsequent long-term debt and equity offerings. We may also assume mortgage
notes payable already in place as part of an acquisition transaction. Currently
we have 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. Our Senior Notes and Convertible Subordinated
Notes are at fixed rates. The variable rate loans are at interest rates below
the current prime rate of 9.5%, 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 affect our future
earnings and cash flows on our 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 our future earnings and cash flows, 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 year end, interest expense for 2000 would increase by
approximately $1,377,000. Approximately 10% of the
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<PAGE>
increase in interest expense related to the bank lines of credit, or $135,000,
would be capitalized into construction projects.
The principal amount and the average interest rates for the mortgage
loans receivable and debt categorized by the final maturity dates is 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 us for debt of the same type and remaining
maturity.
<TABLE>
<CAPTION>
Maturity
------------------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Mortgage Loans Receivable $12,846 $ 980 $146,114 $159,940 $160,006
Weighted Average Interest Rate 13.52% 9.50% 10.29% 10.55%
LIABILITIES
Variable Rate Debt:
Bank Notes Payable 132,000 132,000 132,000
Weighted Average Interest Rate 7.54% 7.54%
Mortgage Notes Payable 962 4,730 5,692 4,897
Weighted Average Interest Rate 5.87% 5.75% 5.77%
Fixed Rate Debt:
Senior Notes Payable 13,000 117,000 31,000 92,000 524,335 777,335 747,418
Weighted Average Interest Rate 7.88% 7.25% 7.09% 7.78% 7.18% 7.27%
Convertible Subordinated 68,910 68,910 68,910
Notes Payable
Weighted Average Interest Rate 6.00% 6.00%
Mortgage Notes Payable 157 9,085 10,181 153,198 172,621 157,080
Weighted Average Interest Rate 9.00% 8.52% 7.59% 8.07% 8.07%
</TABLE>
We do not believe that the future market rate risks related to our mortgage
loans receivable or debt instruments will have a material impact on us or the
results of our 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 our disclosures under the
heading "Cautionary Language Regarding Forward Looking Statements" set forth
above.
NEW PRONOUNCEMENTS
See Note 12 to the financial statements for a discussion of our
implementation of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and hedging Activities.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
2.1 Agreement and Plan of Merger, dated as of August 4, 1999,
between HCPI and American Health Properties, Inc.
(incorporated herein by reference to exhibit 2.1 to HCPI's
current report on form 8-K dated August 4, 1999).
3.1 Articles of Restatement of HCPI (incorporated herein by
reference to exhibit 3.1 to HCPI's annual report on form 10-
K for the year ended December 31, 1994).
3.2 Second amended and restated bylaws of HCPI (incorporated
herein by reference to exhibit 3.2 of HCPI's quarterly
report on form 10-Q for the period ended March 31, 1999).
3.3 Articles supplementary establishing the terms of the 7 7/8%
Series A Cumulative Redeemable Preferred Stock (incorporated
by reference to exhibit 2.3 to HCPI's registration statement
on form 8-A filed on September 25, 1997).
3.4 Articles supplementary establishing and fixing the rights
and preferences of the 8.70% Series B Cumulative Preferred
Stock (incorporated herein by reference to exhibit 3.3 to
HCPI's registration statement on form 8-A dated September 2,
1998).
3.5 Articles supplementary establishing and fixing the rights
and preferences of the 8.60% Series C Cumulative Redeemable
Preferred Stock (incorporated herein by reference to exhibit
2.1 to HCPI's current report on form 8-K dated August 4,
1999).
4.1 Rights agreement, dated as of July 27, 2000, between Health
Care Property Investors, Inc. and the Bank of New York which
includes the form of Certificate of Designations of the
Series D Junior Participating Preferred Stock of Health Care
Property Investors, Inc. as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated by
reference to Exhibit 4.1 of Health Care Property Investors,
Inc.'s Current Report on Form 8-K dated July 28, 2000).
4.2 Indenture, dated as of September 1, 1993, between HCPI and
The Bank of New York, as Trustee, with respect to the Series
B Medium Term Notes and the Senior Notes due 2006
(incorporated by reference to exhibit 4.1 to HCPI's
registration statement on form S-3 dated September 9, 1993).
4.3 Indenture, dated as of April 1, 1989, between HCPI and The
Bank of New York for Debt Securities (incorporated by
reference to exhibit 4.1 to HCPI's registration statement on
form S-3 dated March 20, 1989).
4.4 Form of Fixed Rate Note (incorporated by reference to
exhibit 4.2 to HCPI's registration statement on form S-3
dated March 20, 1989).
4.5 Form of Floating Rate Note (incorporated by reference to
exhibit 4.3 to HCPI's registration statement on form S-3
dated March 20, 1989).
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<PAGE>
4.8 Registration Rights Agreement dated November 20, 1998 between
HCPI and James D. Bremner (incorporated by reference to exhibit
4.8 to HCPI's annual report on form 10-K for the year ended
December 31, 1999). This exhibit is identical in all material
respects to two other documents except the parties thereto. The
parties to these other documents, other than HCPI, were James P.
Revel and Michael F. Wiley.
4.9 Registration Rights Agreement dated January 20, 1999 between HCPI
and Boyer Castle Dale Medical Clinic, L.L.C. (incorporated by
reference to exhibit 4.9 to HCPI's annual report on form 10-K for
the year ended December 31, 1999). This exhibit is identical in
all material respects to 13 other documents except the parties
thereto. The parties to these other documents, other than HCPI,
were Boyer Centerville Clinic Company, L.C., Boyer Elko, L.C.,
Boyer Desert Springs, L.C., Boyer Grantsville Medical, L.C.,
Boyer-Ogden Medical Associates, LTD., Boyer Ogden Medical
Associates No. 2, LTD., Boyer Salt Lake Industrial Clinic
Associates, LTD., Boyer-St. Mark's Medical Associates, LTD.,
Boyer McKay-Dee Associates, LTD., Boyer St. Mark's Medical
Associates #2, LTD., Boyer Iomega, L.C., Boyer Springville, L.C.,
and - Boyer Primary Care Clinic Associates, LTD. #2.
4.10 Form of Deposit Agreement (including form of Depositary Receipt
with respect to the Depositary Shares, each representing one-one
hundredth of a share of our 8.60% Cumulative Redeemable Preferred
Stock, Series C) dated as of November 4, 1999 by and among HCPI,
ChaseMellon Shareholder Services, L.L.C. and the holders from
time to time of the Depositary Shares described therein
(incorporated herein by reference to exhibit 4 to HCPI's
registration statement on form 8-A filed on November 4, 1999).
4.11 Indenture, dated as of January 15, 1997, between American Health
Properties, Inc. and The Bank of New York, as trustee
(incorporated herein by reference to exhibit 4.1 to American
Health Properties, Inc.'s current report on form 8-K (file no.
001-09381), dated January 21, 1997).
4.12 First Supplemental Indenture, dated as of November 4, 1999,
between HCPI and The Bank of New York, as trustee (incorporated
by reference to HCPI's quarterly report on form 10-Q for the
period ended September 30, 1999).
10.1 Amendment No. 1, dated as of May 30, 1985, to Partnership
Agreement of Health Care Property Partners, a California general
partnership, the general partners of which consist of HCPI and
certain affiliates of Tenet (incorporated by reference to exhibit
10.1 to HCPI's annual report on form 10-K for the year ended
December 31, 1985).
10.2 HCPI Second Amended and Restated Directors Stock Incentive Plan
(incorporated by reference to exhibit 10.43 to HCPI's quarterly
report on form 10-Q for the period ended March 31, 1997).*
10.3 HCPI Second Amended and Restated Stock Incentive Plan
(incorporated by reference to exhibit 10.44 to HCPI's quarterly
report on form 10-Q for the period ended March 31, 1997).*
10.4 HCPI Second Amended and Restated Directors Deferred Compensation
Plan (incorporated by reference to exhibit 10.45 to HCPI's
quarterly report on form 10-Q for the period ended September 30,
1997).*
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<PAGE>
10.5 Employment Agreement dated April 28, 1988 between HCPI and
Kenneth B. Roath (incorporated by reference to exhibit 10.27 to
HCPI's annual report on form 10-K for the year ended December
31, 1988).*
10.6 First Amendment to Employment Agreement dated February 1, 1990
between HCPI and Kenneth B. Roath (incorporated by reference to
Appendix B of HCPI's annual report on form 10-K for the year
ended December 31, 1990).*
10.7 HCPI Executive Retirement Plan (incorporated by reference to
exhibit 10.28 to HCPI's annual report on Form 10-K for the year
ended December 31, 1987).*
10.8 Amendment No. 1 to HCPI Executive Retirement Plan (incorporated
by reference to exhibit 10.39 to HCPI's annual report on form
10-K for the year ended December 31, 1995).*
10.9 Stock Transfer Agency Agreement between HCPI and The Bank of
New York dated as of July 1, 1996 (incorporated by reference to
exhibit 10.40 to HCPI's quarterly report on form 10-Q for the
period ended September 30, 1996).
10.12 Amended and Restated Limited Liability Company Agreement dated
November 20, 1998 of HCPI/Indiana, LLC (incorporated by
reference to exhibit 10.15 to HCPI's annual report on form 10-k
for the year ended December 31, 1998).
10.13 Amended and Restated Limited Liability Company Agreement dated
January 20, 1999 of HCPI/Utah, LLC (incorporated by reference
to exhibit 10.16 to HCPI's annual report on form 10-K for the
year ended December 31, 1998).
10.14 First Amendment to Second Amended and Restated Directors Stock
Incentive Plan, effective as of November 3, 1999 (incorporated
by reference to exhibit 10.1 to HCPI's quarterly report on form
10-Q for the period ended September 30, 1999).
10.15 Second Amendment to Second Amended and Restated Directors Stock
Incentive Plan, effective as of January 4, 2000 (incorporated
by reference to exhibit 10.15 to HCPI's annual report on form
10-K for the year ended December 31, 1999).*
10.16 Second Amendment to Second Amended and Restated Directors
Deferred Compensation Plan, effective as of November 3, 1999
(incorporated by reference to exhibit 10.2 to HCPI's quarterly
report on form 10-Q for the period ended September 30, 1999).
10.17 Fourth Amendment to Second Amended and Restated Director
Deferred Compensation Plan, effective as of January 4, 2000
(incorporated by reference to exhibit 10.17 to HCPI's annual
report on form 10-K for the year ended December 31, 1999).*
10.18 First Amendment to Second Amended and Restated Stock Incentive
Plan effective as of November 3, 1999 (incorporated by
reference to exhibit 10.3 to HCPI's quarterly report on form
10-Q for the period ended September 30, 1999).
10.19 Revolving Credit Agreement, dated as of November 3, 1999, among
HCPI, each of the banks identified on the signature pages
hereof, The Bank of New York, as agent for the banks and as
issuing bank, and Bank of America, N.A. and Wells Fargo Bank,
N.A., as co-documentation agents, with BNY Capital Markets,
Inc., as lead arranger and Book
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<PAGE>
Manager (incorporated by reference to exhibit 10.4 to HCPI's
quarterly report on form 10-Q for the period ended September
30, 1999).
10.20 364-Day Revolving Credit Agreement, dated as of November 3,
1999 among HCPI, each of the banks identified on the signature
pages hereof, The Bank of New York, as agent for the banks, and
Bank of America, N.A. and Wells Fargo Bank, N.A., as co-
documentation agents, with BNY Capital Markets, Inc., as lead
arranger and book manager (incorporated by reference to exhibit
10.5 to HCPI's quarterly report on form 10-Q for the period
ended September 30, 1999).
10.21 Cross-Collateralization, Cross-Contribution and Cross-Default
Agreement , dated as of July 20, 2000, by HCP Medical Office
Buildings II, LLC, and Texas HCP Medical Office Buildings,
L.P., for the benefit of First Union National Bank.
10.22 Cross-Collateralization, Cross-Contribution and Cross-Default
Agreement, dated as of August 31, 2000, by HCP Medical Office
Buildings I, LLC, and Meadowdome, LLC, for the benefit of First
Union National Bank.
27.1 Financial Data Schedule.
* Management Contract or Compensatory Plan or Arrangement.
b) Reports on Form 8-K:
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 2000 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)
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