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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
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 or organization) Identification No.)
10990 Wilshire Boulevard, Suite 1200
Los Angeles, California 90024
(Address of principal executive offices)
Registrant's telephone number: (310) 473-1990
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock* New York Stock Exchange
*The Common Stock has stock purchase rights attached which are registered
pursuant to Section 12(b) of the Act and listed on the New York Stock Exchange.
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
registration was required to file such reports)and (2) has been subject to such
filing requirements for the past 90 days. Yes \x\ No \ \
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. \ \
As of February 1, 1996 there were 28,607,694 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant, based on the closing price of these shares
on February 1, 1996 on the New York Stock Exchange, was approximately
$993,000,000. Portions of the definitive Proxy Statement for the registrant's
1996 Annual Meeting of Stockholders have been incorporated by reference into
Part III of this Report.
PART I
Item 1. BUSINESS
Health Care Property Investors, Inc. (the "Company"), a Maryland
corporation, was organized in March 1985 to qualify as a real estate
investment trust ("REIT"). The Company was organized to invest in health
care related real estate located throughout the United States, including
long term care facilities, acute care and rehabilitation hospitals, assisted
living and congregate care facilities, medical office buildings, physician
group practice clinics and psychiatric facilities. Having commenced
business more than 10 years ago, the Company today is the second oldest REIT
specializing in health care real estate. Presently, the Company is one of
the 10 largest REITs in terms of market value of common stock. At December
31, 1995, the Company owned an interest in 177 properties located in 35
states, which are leased or subleased pursuant to long term leases (the
"Leases") to 44 health care providers (the "Lessees"), including affiliates
of Beverly Enterprises, Inc. ("Beverly"), Columbia/HCA Healthcare Corp.
("Columbia"), Emeritus Corporation, Healthsouth Corporation ("Healthsouth"),
Horizon/CMS Healthcare Corporation ("Horizon"),Tenet Healthcare Corporation
("Tenet"), PhyCor, Inc. ("PhyCor") and Vencor, Inc. ("Vencor"). Of the
Lessees, only Vencor and Beverly account for more than 10% of the Company's
revenues as of December 31, 1995. The Company also holds mortgage loans on
25 properties that are owned and operated by 11 health care providers
including Beverly, Columbia and OrNda Healthcorp ("OrNda").
At December 31, 1995, the gross acquisition price of the Company's 202
leased or mortgaged properties (the "Properties"), including partnership
acquisitions and mortgage loan acquisitions, was approximately $824.8
million. The average age of the Properties is 14 years. 70% of the
Company's revenue is derived from Properties operated by publicly traded
health care providers.
Since receiving its initial senior debt rating of Baa1/BBB by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group
("Standard & Poor's") in 1986, the Company has historically maintained or
improved its ratings. Currently, its senior debt is rated Baa1/BBB+/A- by
Moody's, Standard & Poor's and Duff & Phelps Credit Rating Co. ("Duff &
Phelps"), respectively. The Company believes that it has had an excellent
track record in attracting and retaining key employees. The Company's five
executive officers have worked with the Company on average for 10 years.
The average tenure overall of its employee base is seven years.
The Properties
Of the 202 health care facilities in which the Company has an
investment as of December 31, 1995, the Company directly owns 133 facilities
including 95 long term care facilities, two rehabilitation hospitals, 24
congregate care and assisted living centers, one acute care hospital, nine
medical office buildings and two physician group practice clinics.
The Company has provided mortgage loans on 25 properties, including 17
long term care facilities, two congregate care and assisted living centers,
three acute care hospitals and three medical office buildings.
At December 31, 1995, the Company also had varying percentage interests
in several partnerships that together own 44 facilities, as further
discussed below:
1. A 77% interest in a joint venture which owns two acute care
hospitals, one psychiatric facility and 21 long term care
facilities.
2. A 50% interest in a partnership which owns 11 long term care
facilities. On January 19, 1996, nine of these facilities were
sold to the existing operators.
3. Interests of between 90% and 97% in four joint ventures, each of
which was formed to own a comprehensive rehabilitation hospital.
4. A 50% interest in five partnerships, each of which owns a
congregate care facility.
LONG TERM CARE FACILITIES. The Company and the partnerships in which it
participates own or hold mortgage loan interests in 144 long term care
facilities. These facilities are leased to various health care providers.
Such long term care facilities offer restorative, rehabilitative and
custodial nursing care for people not requiring the more extensive and
sophisticated treatment available at acute care hospitals. Many long term
care facilities have experienced significant growth in ancillary revenues
and subacute care services over the past several years. Ancillary revenues
and subactue care services are derived from providing services to residents
beyond room and board care and include occupational, physical, speech,
respiratory and IV therapy, wound care, oncology treatment, brain injury
care and orthopedic therapy as well as sales of pharmaceutical products and
other services. Such revenues currently relate primarily to Medicare and
private pay residents. These facilities are designed to supplement hospital
care and many have transfer agreements with one or more acute care
hospitals. These facilities depend to some degree upon referrals from
practicing physicians and hospitals. Such services are paid for either from
private sources of the patient or the patient's family, or through the
federal Medicare and state Medicaid programs.
Patients in long term care facilities are generally provided with
accommodations, all meals, medical and nursing care, and rehabilitation
services including speech, physical and occupational therapy.
As a part of the Omnibus Budget Reconciliation Act ("OBRA") of 1981,
Congress established a waiver program under Medicaid to offer an alternative
to institutional long term care services. The provisions of the Act and
subsequent OBRA Acts of 1987 and 1991 allowed states, with federal approval,
greater flexibility in program design as a means of developing cost-effective
alternatives to delivering services traditionally provided in the
long term care setting. Recently this has led to an increase in the number
of assisted living facilities. This may adversely impact some long term
care facilities for a period as individuals are shifted to the lower cost
delivery system provided in the assisted living setting. The fact that
assisted living services may be included as a Medicaid reimbursed service
does not necessarily mean that more Government spending will be available
for the delivery of health care services to the frail elderly.
ACUTE CARE HOSPITALS. The Company has an interest in six acute care
hospitals, of which two each are operated by Tenet and Columbia and one each
by OrNda and Dynamic Health Care, Inc.
Acute care hospitals generally offer a wide range of services such as
general and specialty surgery, intensive care units, clinical laboratories,
physical and respiratory therapy, nuclear medicine, magnetic resonance
imaging, neonatal and pediatric care units, outpatient units and emergency
departments, among others. Such services are paid for either from private
sources of the patient or the patient's family, or through the federal
Medicare and state Medicaid programs.
REHABILITATION HOSPITALS. The Company has an investment in six
rehabilitation hospitals of which three each are leased to Horizon and
HealthSouth. These hospitals provide inpatient and outpatient
care for patients who have sustained traumatic injuries or illnesses, such
as spinal cord injuries, strokes, head injuries, orthopedic problems, work
related disabilities and neurological diseases, as well as treatment for
amputees and patients with severe arthritis. Rehabilitation programs
encompass physical, occupational, speech and inhalation therapies,
rehabilitative nursing and other specialties. Such services are paid for
either from private sources of the patient or the patient's family, or
through the federal Medicare program.
CONGREGATE CARE AND ASSISTED LIVING CENTERS. The Company and its
partnerships have investments in 31 congregate care and assisted living
centers. Congregate care centers typically contain studio and one and two
bedroom apartments which are rented on a month-to-month basis by
individuals, primarily those over 75 years of age. Residents, who must be
ambulatory, are provided meals and eat in a central dining area; they may
also be assisted with some daily living activities. These centers offer
programs and services that allow residents certain conveniences and make it
possible for them to live independently; staff is also available when
residents need assistance and for group activities.
Assisted living centers serve elderly persons who require more
assistance with daily living activities than congregate care residents, but
who do not require the constant supervision nursing homes provide. Services
include personal supervision and assistance with eating, bathing, grooming
and administering medication. Assisted living centers typically contain
larger common areas for dining, group activities and relaxation to encourage
social interaction. Residents typically rent studio and one bedroom units
on a month-to-month basis.
Charges for room and board and other services in both congregate care
and assisted living centers are paid from private sources.
MEDICAL OFFICE BUILDINGS. The Company has investments in 12 medical
office buildings. These buildings are generally located adjacent to,
or a short distance from, acute care hospitals. Medical office buildings
contain physicians' offices and examination rooms, and may also include
pharmacies, hospital ancillary service space and day-surgery operating
rooms. Medical office buildings require more extensive plumbing, electrical,
heating and cooling capabilities than commercial office buildings for sinks,
brighter lights and special equipment physicians typically use. The
Company's owned medical office buildings are master leased to a Lessee which
then subleases office space to physicians or other medical practitioners.
PHYSICIAN GROUP PRACTICE CLINICS. The Company has investments in two
physician group practice clinics. Physician group practice clinics
generally provide a broad range of medical services through organized
physician groups representing various medical specialties.
The Knoxville Orthopedic Clinic is an approximately 37,900 square foot
facility located in Knoxville, Tennessee and is leased to Knoxville
Orthopedic Clinic P.A.
The Holt-Krock Clinic includes approximately 294,000 square feet
comprised of four main clinic buildings, several satellite offices and 33
acres of land located primarily in Fort Smith, Arkansas. Approximately 153
physicians practice primary care and 30 specialties, including oncology,
cardiology, radiology, orthopedics and plastic surgery, at the clinic.
Additionally, the clinic sold certain of its non-real estate assets to
PhyCor and entered into a services agreement whereby PhyCor will provide
management and administrative services to the physician group.
PSYCHIATRIC FACILITY. The Company has an investment in one psychiatric
facility which offers comprehensive, multidisciplinary adult and adolescent
care. A substance abuse program is offered in a separate unit of the
hospital.
COMPETITION. The Company competes for property acquisitions with
health care providers, other health care related real estate investment
trusts, real estate partnerships and other investors.
The Company's Properties are subject to competition from the properties
of other health care providers. Certain of these other operators have
capital resources substantially in excess of some of the operators of the
Company's facilities. In addition, the extent to which the Properties are
utilized depends upon several factors, including the number of physicians
using the health care facilities or referring patients there, competitive
systems of health care delivery and the area population, size and
composition. Private, federal and state payment programs and the effect of
other laws and regulations may also have a significant effect on the
utilization of the Properties. Virtually all of the Properties operate in a
competitive environment and patients and referral sources, including
physicians, may change their preferences for a health care facility from
time to time. The following table shows, with respect to each Property, the
location by state, the number of beds/units, recent occupancy levels, patient
revenue mix, annual rents and interest, and information regarding lease terms by
property type.
Average
Number Private
Number Of Beds/ Patient Annual Average
Of Units Average Revenue Rents/ Remaining
Facility Location Facilities (1) Occupancy (2) Interest Term
- --------------------------------------------------------------------------------------------------------------------------------
(Thousands) (Years)
Long Term Care Facilities
Alabama 1 174 98% 28% $ 766 2
Arizona 1 128 85 56 412 3
Arkansas 9 866 82 45 2,199 9
California 22 2,016 91 46 6,284 4
Colorado 3 420 90 64 1,784 4
Connecticut 1 121 98 40 593 4
Florida 11 1,267 95 55 6,647 7
Illinois 2 201 91 54 464 1
Indiana 13 1,709 83 47 6,831 12
Iowa 1 201 85 30 568 3
Kansas 3 325 84 50 1,765 3
Kentucky 1 100 99 59 391 6
Louisiana 1 120 97 37 541 9
Maryland 3 438 87 36 3,083 2
Massachusetts 5 615 97 43 2,777 6
Michigan 3 286 92 52 885 6
Mississippi 1 120 100 7 344 6
Missouri 11 1,492 69 48 4,364 2
Montana 1 80 75 44 287 3
New Mexico 1 102 97 16 304 2
North Carolina 8 924 80 41 2,888 11
Ohio 9 1,226 93 52 5,214 5
Oklahoma 2 207 88 65 1,773 3
Oregon 1 110 82 53 341 2
Tennessee 10 1,754 97 39 4,967 6
Texas 11 1,242 67 35 3,003 5
Washington 1 84 84 66 293 3
Wisconsin 8 1,143 92 52 4,029 7
- -------------------------------------------------------------------------------------------------------------------------------
Sub-Total 144 17,471 87 46 63,797 6
- -------------------------------------------------------------------------------------------------------------------------------
Acute Care Hospitals
California 1 182 46 92 3,716 3
Florida 1 285 39 95 1,156 7
Louisiana 2 325 49 80 5,125 7
Texas 2 210 54 98 3,073 5
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-Total 6 1,002 47 90 13,070 6
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Page Totals 150 18,473 84% 47% $76,867 6
- ---------------------------------------------------------------------------------------------------------------------------------
Average
Number Private
Number Of Beds/ Patient Annual Average
Of Units Average Revenue Rents/ Remaining
Facility Location Facilities (1) Occupancy (2) Interest Term
- ---------------------------------------------------------------------------------------------------------------------------------
(Thousands) (Years)
(Totals From Previous Page) 150 18,473 84% 47% $ 76,867 6
- ---------------------------------------------------------------------------------------------------------------------------------
Rehabilitation Facilities
Arizona 1 60 57 100 1,571 3
Arkansas 1 60 79 100 1,921 5
Colorado 1 60 73 100 1,587 5
Kansas 1 80 72 100 2,701 3
Texas 2 234 29 100 5,089 5
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-Total 6 494 51 100 12,869 5
- ---------------------------------------------------------------------------------------------------------------------------------
Physician Group
Practice Clinics
Arkansas 1 --- --- 100 2,463 14
Tennessee 1 --- --- 99 506 13
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-Total 2 --- --- 100 2,969 14
- ---------------------------------------------------------------------------------------------------------------------------------
Psychiatric Facility - Georgia 1 108 34 100 561 2
- ---------------------------------------------------------------------------------------------------------------------------------
Congregate Care and
Assisted Living Centers
Arkansas 1 17 95 100 27 14
Arizona 1 98 88 100 466 12
California 3 346 73 100 2,007 14
Colorado 1 98 87 100 602 3
Delaware 1 75 100 100 375 12
Florida 2 162 93 98 651 11
Kansas 1 110 81 100 573 3
Louisiana 2 209 99 100 1,655 4
Maryland 1 86 --- --- --- ---
Missouri 1 73 80 100 411 6
New Jersey 1 116 97 100 602 10
New Mexico 1 135 94 100 795 13
New York 1 75 94 100 410 12
Oregon 1 58 97 97 364 13
Pennsylvania 2 159 97 100 1,354 12
Rhode Island 1 172 98 100 1,526 5
Texas 7 569 28 100 2,183 13
Virginia 1 65 79 100 615 14
Washington 2 139 84 100 640 12
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-Total 31 2,762 74 100 15,256 10
- ---------------------------------------------------------------------------------------------------------------------------------
Medical Office Buildings
California 1 --- --- 100 684 13
Texas 10 --- --- 100 4,778 11
Utah 1 --- --- 100 445 13
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-Total 12 --- --- 100 5,907 11
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FACILITIES 202 21,837 84% 54% $114,429 7
=================================================================================================================================
Congregate Care and Assisted Living centers are measured in units.
Physician Group Practice Clinics and Medical Office Buildings are
measured in square feet and encompass approximately 331,900 and 530,600
square feet, respectively. All other facilities are measured by bed
count.
All revenues including Medicare revenues but excluding Medicaid revenues
are included in "Private Patient" revenues.
On January 19, 1996, the Company sold nine facilities to the existing
operators.
Includes facilities under construction.
Physician group practice clinics and medical office buildings lessees
have use of the leased facilities for their own use or for the use of
sub-lessees.
The following summary of the Company's Properties shows certain pertinent
information grouped by type of facility and equity interest as of December 31,
1995:
Equity Number Number Total
Interest of of Beds/ Investments Annual Rents/
Facility Type Percentage Facilities Units(1) (2) Interest
- --------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
Long Term Care Facilities 100 112 13,731 $354,381 $ 51,010
Long Term Care Facilities 77 21 2,438 56,673 9,803
Long Term Care Facilities 50 11 1,302 23,109 2,984
Acute Care Hospitals 100 4 646 46,063 5,460
Acute Care Hospitals 77 2 356 42,806 7,610
Rehabilitation Hospitals 100 2 186 27,171 4,649
Rehabilitation Hospitals 97 3 200 32,380 6,210
Rehabilitation Hospital 90 1 108 15,113 2,010
Congregate Care & Assisted Living Centers 100 26 2,153 107,331 10,334
Congregate Care & Assisted Living Centers 50 5 609 33,105 4,922
Medical Office Buildings 100 12 --- 54,646 5,907
Physician Group Practice Clinics 100 2 --- 28,143 2,969
Psychiatric Facility 77 1 108 3,919 561
--- ------ -------- --------
202 21,837 $824,840 $114,429
=== ====== ======== ========
Congregate care and assisted living centers are stated in units; all
other facilities are stated in beds, except (3) and (4).
Includes partnership investments, and incorporates all partners' assets
and construction commitments.
The Medical Office Buildings encompass approximately 530,600 square feet.
The Physician Group Practice Clinics encompass approximately 331,900
square feet.
On January 19, 1996, the Company sold nine facilities to the existing
operators. The remaining two facilities were acquired by the Company
from the limited partners.
RELATIONSHIP WITH MAJOR OPERATORS
At December 31, 1995, the Company owned an interest in 202 properties
located in 36 states, which are operated by 51 operators. Listed below are
the Company's major operators and the percentage of total current revenue
from these operators.
Percentage
of Total
Operators Facilities Revenue Revenue
- --------- ---------- ------- -----------
Vencor 63 $23,085,000 22%
Beverly 26 $11,157,000 11%
Horizon 8 $ 9,987,000 9%
Tenet 3 $ 8,171,000 8%
Columbia 14 $ 7,883,000 7%
HealthSouth 3 $ 6,659,000 6%
On September 27, 1995 shareholders of both Vencor and The Hillhaven
Corporation ("Hillhaven") approved the merger of the corporations, with
Vencor as the surviving entity. This combination created one of the nation's
largest providers of healthcare services. After the merger, Lessees of 63
of the Company's 202 properties are subsidiaries of Vencor (formally
subsidiaries of Hillhaven). Based upon public reports, Vencor's net
operating revenue and net loss for the nine months ended September 30, 1995
were approximately $1.7 billion and $38 million, respectively; and Vencor's
total assets and stockholders' equity as of September 30, 1995 were
approximately $1.8 billion and $591 million, respectively. Included in the
net loss for the nine months ended September 30, 1995 were pretax charges
aggregating $128.4 million primarily in connection with the Hillhaven merger
which included investment advisory and professional fees, employee benefit
plan and severance costs, losses on planned disposition of certain nursing
center properties and losses on certain prior year nursing center third-party
reimbursement issues. Prior to the merger, Hillhaven announced net
operating revenue and net income for the year ended May 31, 1995 of
approximately $1.6 billion and $51 million, respectively. All Properties
leased by the Company to Vencor are unconditionally guaranteed through the
primary lease term by Tenet, formerly the parent of Hillhaven.
Five Properties (two acute care hospitals, two rehabilitation hospitals
and one psychiatric facility) were initially leased to subsidiaries of
Tenet. In January 1994, subsidiaries of Tenet assigned the leases for the
two rehabilitation hospitals to HealthSouth. In March 1995, the lease on
the psychiatric facility was assigned to a new lessee. Tenet remains
financially responsible to the Company under its unconditional guarantee
through the primary lease term on the five Properties. 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.
Based upon public reports for the six months ended November 30, 1995, Tenet
reported net operating revenue and net income of approximately $2.7 billion
and $301 million, respectively. At November 30, 1995, Tenet's net assets
and stockholders' equity were approximately $8.1 billion and $2.4 billion,
respectively. Based on public reports, for the year ended May 31, 1995,
Tenet reported net operating revenue and net income of approximately $3.3
billion and $165 million, respectively, and total assets and stockholders'
equity of approximately $7.9 billion and $2.0 billion, respectively. On
March 1, 1995, National Medical Enterprises, Inc. (as Tenet was formerly
known) acquired American Medical Holdings, Inc., changed its name to Tenet
Healthcare Corporation and became the second largest investor-owned hospital
management company in the United States.
In September 1988, the Company leased 25 long term care facilities and
one congregate care living center to Beverly, which is the largest provider
of long term care in the United States. In April 1995, the Company sold 10
leased facilities to Beverly for $43,450,000, resulting in a gain of
$23,550,000. Under the terms of the sale, the Company received net cash
proceeds of $8,387,000 and is providing a 15 year mortgage to Beverly in the
amount of $34,760,000. This transaction has changed the character of the
revenue from these 10 facilities from rental income to interest income.
Based upon public reports, Beverly's net operating revenue and net loss for
the year ended December 31, 1995 were approximately $3.2 billion and $8.1
million, respectively. Included in the year end loss are pretax charges
aggregating $112.7 million relating primarily to a charge for impaired
assets (related to adoption of Statement of Financial Accounting Standards
No. 121) and the write-off of software and business development costs, as
well as a charge related to an overhead and staff reduction program.
Beverly's total assets and shareholders' equity as of September 30, 1995
were approximately $2.5 billion and $1.0 billion, respectively. For the year
ended December 31, 1994, Beverly reported net operating revenue and net
income of approximately $3.0 billion and $75.0 million, respectively, and
total assets and shareholders' equity of $2.3 billion and $827.2 million,
respectively.
The Company leases eight properties to Horizon. In July 1995, Horizon
Healthcare Corporation ("Horizon Healthcare") and Continental Medical
Systems, Inc. merged to form Horizon. The merger (the "CMS Merger") created
one of the largest specialty health care providers in the United States.
Based on public reports, for the six months ended November 30, 1995,
Horizon reported net operating revenues and net loss of approximately $872.2
million and $31.5 million, respectively, and total assets and stockholders'
equity of approximately $1.5 billion and $627.7 million, respectively.
Included in the net loss for the six months ended November 30, 1995 was a
special charge of approximately $63.5 million (pretax) from the write-off of
costs which had been incurred in completing the CMS Merger and restructuring
measures to combine previously separate companies and an extraordinary loss,
net of tax, of $22.1 million, for retirement of CMS debt. For the year
ended May 31, 1995, Horizon Healthcare reported net operating revenues and
net income of $639.1 million and $31.2 million, respectively, and total
assets and stockholders' equity of approximately $723.8 million and $420.1
million, respectively.
On April 25, 1995, the completion of the acquisition of HealthTrust,
Inc.-The Hospital Company ("HealthTrust") by Columbia was announced. At
December 31, 1995, the Company has provided or has committed to provide
approximately $42.9 million in acquisition or construction funds for seven
medical office buildings which are leased by HealthTrust. All of these
medical office buildings have been completed with the exception of tenant
build out agreements. The Company holds Loans secured by two hospitals and
two medical office buildings initially totaling $34.5 million to First Texas
Medical, Inc. and LMH Investment Company. Both hospitals are managed by and
leased to HCA Health Services of Texas, Inc., a wholly-owned subsidiary of
Columbia. Based upon public reports, Columbia's net operating revenue and
net income for the nine months ended September 30, 1995 were approximately
$13.1 billion and $607 million, respectively; and Columbia's total assets
and stockholders' equity as of September 30, 1995 were approximately $18.2
billion and $6.8 billion, respectively. For the year ended December 31,
1994, Columbia reported net operating revenue and net income of
approximately $11.1 billion and $630 million, respectively, and total assets
and stockholders' equity of approximately $12.3 billion and $5.0 billion,
respectively.
Vencor, Horizon, Tenet, Healthsouth, Beverly and Columbia are subject
to the informational filing requirements of the Securities Exchange Act of
1934, as amended, and accordingly file financial statements on Form 10-K and
Form 10-Q with the Securities and Exchange Commission and the New York Stock
Exchange. For additional financial data with respect to Tenet see Appendix
I attached hereto. All of the financial and other information presented
herein with respect to such companies was obtained from such public reports.
THE LEASES AND LOANS
The initial base rental rates of the Leases entered into by the Company
during the two years ended December 31, 1995 have generally ranged from 9%
to 12% per annum of the acquisition price of the related property. Rental
rates vary by lease, taking into consideration many factors, including, but
not limited to, credit of the Lessee, operating performance of the facility,
interest rates at the commencement of the lease and location, as well as
type and physical condition of the facility. Most of the Leases provide for
additional rents which are based upon a percentage of increased revenue over
specific base period revenue of the leased Properties. Certain Leases have
annual fixed rent increases or rent increases based on inflation indices.
Initial interest rates on mortgage loans ("Loans") held by the Company and
entered into during the two years ended December 31, 1995 have generally
ranged from 10% to 12% per annum. Loans originated by the Company provide
for annual increases in the interest rate. Additional rents and interest
(see Note 2 to the Consolidated Financial Statements in this Annual Report
on Form 10-K) received for the years ended December 31, 1995, 1994 and 1993
were $18.1 million, $16.7 million and $14.7 million, respectively. The
primary or fixed terms of the Leases generally range from 10 to 15 years,
and generally have one or more five-year (or longer) renewal options. The
average remaining base lease term on the Company's portfolio of properties
is approximately seven years; the average remaining term on the Loans is
approximately 10 years.
Most Leases contain security provisions through guarantees, as well as
grouped lease renewals, grouped purchase options, and cross default and
cross collateralization features that may be employed when multiple
facilities are leased to individual operators. Obligations under the Leases,
in most cases, have corporate parent or shareholder guarantees; 89 Leases
and Loans covering 13 facilities are backed by irrevocable letters of credit
from various financial institutions which cover from three to twelve months
of Lease or Loan payments. The Lessees and mortgagors are required to renew
such letters of credit during the Lease or Loan term in amounts which may
change based upon the passage of time, improved operating cash flow or
improved credit ratings. Currently, the Company has approximately $30
million in irrevocable standby letters of credit from financial
institutions. The letters of credit relating to an individual Lease or Loan
may be drawn upon, to the extent of damages incurred by the Company, in the
event of a Lessee's or Mortgagor's default under terms of a Lease or Loan.
Amounts available under letters of credit change from time to time; such
changes may be material.
The Company believes that the security features discussed above provide
it with significant protection for its investment portfolio. The Company is
currently receiving rents and interest in a timely manner from all Lessees
and Mortgagors as provided under the terms of the Leases or Loans. Based
upon information provided to the Company by Lessees or Mortgagors, certain
facilities that are current with respect to monthly rents and mortgage
payments are presently underperforming financially. Individual facilities
may underperform as a result of inadequate Medicaid reimbursement, low
occupancy, less than optimal patient mix, excessive operating costs, other
operational issues or capital needs. Management believes that, even if
these facilities remain at current levels of performance, the lease and Loan
provisions contain sufficient security to assure that material rental and
mortgage obligations will continue to be met for the remainder of the Lease
or Loan terms. In the future it is expected that the Company will have
certain properties with respect to which the Lessees may choose not to renew
their Leases at existing rental rates (see Table below).
Lessees generally have the right of first refusal to purchase the
Properties during the Lease terms. Most Leases provide one or more five-year
(or longer) renewal options at existing Lease rates and continuing additional
rent formulas although certain Leases provide for Lease renewals at fair
market value. The Lessees also have options to purchase the Properties,
generally for fair market value, and generally at the expiration of the
primary Lease term and/or any renewal term under the Lease. If options are
exercised, such provisions require Lessees to purchase or renew several
facilities together, precluding the possibility of Lessees purchasing or
renewing only those facilities with the best financial outcomes. Thirty-one
properties purchased are not subject to purchase options until 2010 or later
and an additional 17 properties do not have any purchase options.
A table recapping lease expirations, mortgage maturities, properties
subject to purchase options and financial underperformance follows:
Current Annualized Revenues of
-----------------------------------------------------
Properties Subject to Possible Revenue Loss
Lease Expirations Properties Subject to at Underperforming
Year and Mortgage Maturities Purchase Options Properties (3)
- ----- ----------------------- ----------------------- ------------------
% Amount
----- -----------
1996 $ 3,715,000 $ 3,556,000 0.5% $ 600,000
1997 3,369,000 2,236,000 0.4 400,000
1998 14,897,000 11,951,000 1.4 1,600,000
1999 23,010,000 22,597,000 1.5 1,700,000
2000 12,321,000 12,321,000 0.9 1,100,000
Thereafter 57,117,000 41,101,000 0.8 900,000
------------ ----------- ---- ----------
Total $114,429,000 $93,762,000 5.5% $6,300,000
============ =========== ==== ==========
This column includes the revenue impact by year and the total
annualized rental and interest income associated with the Properties
subject to Lessees' renewal options and/or purchase options and
mortgage maturities.
This column includes the revenue impact by year and the total
annualized rental and interest income associated with Properties
subject to purchase options. If a purchase option is exercisable at
more than one date, the convention used in the table is to show the
revenue subject to the purchase option at the earliest possible
purchase date. The total for this column is a component of the total
current annualized revenue of properties subject to lease expirations
and mortgage maturities ($114,429,000).
Based on current market conditions, management estimates that there
could be a revenue loss upon the expiration of the current term of the
Leases in the percentages and amounts shown in the table for
underperforming Properties. Total revenue of the Company has grown at
a compound annual growth rate of 7.41% in the past five years. No
attempt has been made to show the possibility of expected gains, if
any, on Properties which might offset a portion of the possible revenue
loss shown above. The percentages are computed by taking the possible
revenue loss as a percentage of 1995 total revenue.
There are numerous factors that could have an impact on Lease renewals
or purchase options, including the financial strength of the Lessee,
expected facility operating performance, the relative level of interest
rates and individual lessee financing options. Based upon management
expectations of the Company's continued growth, the facilities subject to
renewal and/or purchase options and mortgage maturities and any possible
rent loss therefrom should represent a smaller percentage of revenue in the
year of renewal or purchase.
Each Lease is a "net" lease and the Lessee is responsible thereunder,
in addition to the minimum and additional rents, for all additional charges,
including charges related to non-payment or late payment of rent, all taxes
and assessments, all governmental charges with respect to the leased
property and all utility and other charges incurred with the operation of
the leased property.
Each Lessee is required, at its expense, to maintain its leased
property in good order and repair, except for ordinary wear and tear. The
Company and its affiliates are not required to repair, rebuild or maintain
the Properties.
Each Lessee, at its expense, may make non-capital additions,
modifications or improvements to its leased property. All such alterations,
replacements and improvements must comply with the terms and provisions of
the Lease, and become the property of the Company or its affiliates upon
termination of the Lease. Each Lease requires the Lessee to maintain
adequate insurance on the leased property, naming the Company or its
affiliates and any mortgagees as additional insureds. In certain
circumstances, the Lessee may self-insure pursuant to a prudent program of
self-insurance if the Lessee or the guarantor of its Lease obligations has
substantial net worth. In addition, each Lease requires the Lessee to
indemnify the Company or its affiliates against certain liabilities in
connection with the leased property.
DEVELOPMENT PROGRAM
The Company has a number of "build-to-suit" type agreements that by
their terms require conversion to lease agreements upon the completion of
the development of the facilities. During the construction of the projects,
funds are advanced pursuant to draw requests made by the developers in
accordance with the terms and conditions of the applicable development
agreements which require site visits prior to each advancement of funds.
Since 1987, the Company has committed to the development of 28
facilities, including five rehabilitation hospitals, 11 congregate care and
assisted living facilities, five long term care facilities and seven medical
office buildings, representing an aggregate investment of approximately
$189.6 million. As of December 31, 1995, costs of approximately $155.4
million have been funded and 22 facilities have been completed. The
completed facilities comprise five rehabilitation hospitals, six congregate
care and assisted living facilities, four long term care facilities and
seven medical office buildings. The remaining development projects are
scheduled for completion in 1996 and 1997. Simultaneously with the
commencement of each of the development programs and prior to funding, the
Company enters into a lease agreement with the developer/operator. The base
rent under the lease is generally established at a rate equivalent to a
specified number of basis points over the 10 year United States Treasury
securities' yield at the conclusion of development.
The development program generally includes a variety of additional
forms of security and collateral beyond those provided by the Leases.
During the development period, the Company generally requires additional
security and collateral in the form of more than one of the following: (a)
irrevocable letters of credit from financial institutions; (b) payment and
performance bonds; and (c) completion guarantees by either one or a
combination of the developer's parent entity, other affiliates or one or
more of the individual principals who control the developer. In addition,
prior to any advance of funds by the Company under the development
agreement, the developer must provide (a) satisfactory evidence in the form
of an endorsement to the Company's title insurance policy that no
intervening liens have been placed on the property since the date of the
Company's previous advance; (b) a certificate executed by the project
architect that indicates that all construction work completed on the project
conforms with the requirements of the applicable plans and specifications;
(c) a certificate executed by the general contractor that all work requested
for reimbursement has been completed; and (d) satisfactory evidence that the
funds remaining unadvanced are sufficient for the payment of all costs
necessary for the completion of the project in accordance with the terms and
provisions of the agreement. As a further safeguard during the development
period, the Company generally will retain 10% of construction funds incurred
until it has received satisfactory evidence that the project will be fully
completed in accordance with the applicable plans and specifications. The
Company also monitors the progress of the development of each project and
the accuracy of the developer's draw requests by having its own in-house
inspector perform regular on-site inspections of the project prior to the
release of any requested funds.
FUTURE ACQUISITIONS
The Company anticipates acquiring additional health care related
facilities and leasing them to health care operators or investing in
mortgages secured by health care facilities.
TAXATION OF THE COMPANY
Management of the Company believes that the Company has operated in
such a manner as to qualify for taxation as a "real estate investment trust"
under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended
(the "Code"), commencing with its taxable year ended December 31, 1985, and
the Company intends to continue to operate in such a manner. No assurance
can be given that it has operated or will be able to continue to operate in
a manner so as to qualify or to remain so qualified. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretation thereof.
If the Company qualifies for taxation as a real estate investment
trust, it will generally not be subject to Federal corporate income taxes on
its net income that is currently distributed to stockholders. This
treatment substantially eliminates the "double taxation" (i.e. at the
corporate and stockholder levels) that generally results from investment in
a corporation. However, the Company will continue to be subject to federal
income tax under certain circumstances.
The Code defines a REIT as a corporation, trust or association (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares, or by transferable
certificates of beneficial interest; (iii) which would be taxable, but for
Sections 856 through 860 of the Code, as a domestic corporation; (iv) which
is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is
held by 100 or more persons; (vi) during the last half of each taxable year
not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals; and (vii) which
meets certain other tests, described below, regarding the amount of its
distributions and the nature of its income and assets. The Code provides
that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of
a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months.
There are three gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from Prohibited Transactions
as defined below) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property or from certain types of temporary investment income. Second, at
least 95% of the Company's gross income (excluding gross income from
Prohibited Transactions) for each taxable year must be derived from income
that qualifies under the 75% test and all other dividends, interest and gain
from the sale or other disposition of stock or securities. Third, short-term
gains from the sale or other disposition of stock or securities, gains from
Prohibited Transactions and gains on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions
and sales of foreclosure property) must represent less than 30% of the
Company's gross income for each taxable year. A Prohibited Transaction is a
sale or other disposition of property (other than foreclosure property) held
for sale to customers in the ordinary course of business.
The Company, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets (including stock or debt instruments held for not more
than one year, purchased with the proceeds of a stock offering or long-term
(more than five years) public debt offering of the Company), cash, cash
items and government securities. Second, not more than 25% of the Company's
total assets may be represented by securities other than those in the 75%
asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets and the Company may not own more
than 10% of any one issuer's outstanding voting securities.
The Company owns interests in various partnerships. In the case of a
REIT that is a partner in a partnership, Treasury Regulations provide that
for purposes of the REIT income and asset tests, the REIT will be deemed to
own its proportionate share of the assets of the partnership and will be
deemed to be entitled to the income of the partnership attributable to such
share. The ownership of an interest in a partnership by a REIT may involve
special tax risks, including the challenge by the Internal Revenue Service
of the allocations of income and expense items of the partnership, which
would affect the computation of taxable income of the REIT, and the status
of the partnership as a partnership (as opposed to an association taxable as
a corporation) for federal income tax purposes. The Company also owns
interests in a number of subsidiaries which are intended to be treated as
"qualified real estate investment trust subsidiaries." The Code provides
that such subsidiaries will be ignored for federal income tax purposes and
all assets, liabilities and items of income, deduction and credit of such
subsidiaries will be treated as assets, liabilities and such items of the
Company. If any partnership or subsidiary in which the Company owns an
interest were treated as a regular corporation (and not as a partnership or
qualified REIT subsidiary) for federal income tax purposes, the Company
would likely fail to satisfy the REIT asset tests described above and would
therefore fail to qualify as a REIT. The Company believes that each of the
partnerships and subsidiaries in which it owns an interest will be treated
for tax purposes as a partnership or qualified REIT subsidiary,
respectively, although no assurance can be given that the Internal Revenue
Service will not successfully challenge the status of any such organization.
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders in an
amount at least equal to (A) the sum of (i) 95% of the Company's "real
estate investment trust taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 95% of
the net income, if any (after tax), from foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year, if
paid on or before the first regular dividend payment date after such
declaration and if the Company so elects and specifies the dollar amount in
its tax return. To the extent that the Company does not distribute all of
its net long-term capital gain or distributes at least 95%, but less than
100%, of its "real estate investment trust taxable income," as adjusted, it
will be subject to tax thereon at regular corporate tax rates. Furthermore,
if the Company should fail to distribute during each calendar year at least
the sum of (i) 85% of its real estate investment trust ordinary income for
such year, (ii) 95% of its real estate investment capital gain income for
such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such
required distributions over the amounts actually distributed.
If the Company fails to qualify for taxation as a REIT in any taxable
year, and certain relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders
in any year in which the Company fails to qualify will not be deductible by
the Company nor will they be required to be made. Unless entitled to relief
under specific statutory provisions, the Company will also be disqualified
from taxation as a real estate investment trust for the four taxable years
following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to the
statutory relief. Failure to qualify for even one year could substantially
reduce distributions to stockholders and could result in the Company's
incurring substantial indebtedness (to the extent borrowings are feasible)
or liquidating substantial investments in order to pay the resulting taxes.
Distributions made to the Company's stockholders out of current or
accumulated earnings and profits will be taken into account by them as
ordinary income. Such distributions will not be eligible for the dividends
received deductions for corporations as long as the Company qualifies as a
REIT. Distributions that are designated as capital gain dividends will be
taxed as long-term capital gains to the extent they do not exceed the
Company's actual net capital gain for the taxable year, although corporate
stockholders may be required to treat up to 20% of any such capital gain
dividend as ordinary income. Distributions in excess of current or
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's
shares. To the extent that such distributions exceed the adjusted basis of
a stockholder's shares they will be included in income as long-term or
short-term capital gain (as described below with respect to the sale or
exchange of the shares) assuming the shares are held as a capital asset in
the hands of the stockholder. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of
the Company.
In general, any gain or loss upon a sale or exchange of shares by a
stockholder who has held such shares as a capital asset will be long-term or
short-term depending on whether the stock was held for more than one year;
provided however, any loss on the sale or exchange of shares that have been
held by such stockholder for six months or less will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such stockholder as long-term capital gain.
The Company and its stockholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which
it or they transact business or reside. The state and local tax treatment
of the Company and its shareholders may not conform to the federal income
tax consequences discussed above.
GOVERNMENT REGULATION
The Company is indirectly affected by government regulation of the
health care industry in that the Company's additional rents are generally
based on its Lessees' gross revenues from operations. Aggressive efforts by
health insurers and governmental agencies to limit the cost of hospital
services and to reduce utilization of hospital and other health care
facilities may reduce future revenues or slow revenue growth from inpatient
facilities and shift utilization from inpatient to outpatient facilities.
In addition, contingent or percentage rent arrangements are subject to
federal and state laws and regulations governing illegal rebates and
kickbacks where the Company's co-investors are physicians or others in a
position to refer patients to the facilities. The goal of these laws and
regulations is to prohibit, through the imposition of criminal and civil
penalties that may include exclusion from reimbursement programs, payment
arrangements that include compensation for patient referrals. Although only
limited interpretive or enforcement guidance is available, the Company has
structured its rent arrangements in a manner which it believes complies with
such laws and regulations.
Health care facilities are also subject to a wide variety of federal,
state and local environmental and occupational health and safety laws and
regulations which affect facility operations.
Expansion, including the addition of new beds or services or
acquisition of medical equipment, and occasionally the contraction of health
care facilities, may be subject to state and local regulatory approval
through certificate of need ("CON") programs. States vary in their
utilization of CON controls.
Revenues of Lessees are generally derived from payments for patient
care. Such payments are received from the federal Medicare program, state
Medicaid programs, private insurance carriers, health care service plans,
health maintenance organizations, preferred provider arrangements, self-insured
employers and directly from patients. Medicare payments for psychiatric,
long term and rehabilitative care are based on allowable costs plus a return
on equity for proprietary facilities. Medicare payments to acute care
hospitals for inpatient services are made pursuant to the Prospective Payment
System ("PPS") under which a hospital is paid a prospectively established
rate based on the category of the patient's diagnosis ("Diagnostic Related
Groups" or "DRG's"). In 1991, Medicare began to phase in over a period of
years reimbursement to hospitals for capital-related inpatient costs under
PPS using a federal rate rather than the cost-based reimbursement system
previously used. DRG rates are subject to adjustment on an annual basis as
part of the federal budget reconciliation process. For example, as a part of
the Omnibus Budget Reconciliation Act, the 1993 Congress provided for over
$50 billion in cuts to the Medicare program over the next five years,
including approximately $23 billion in cuts in Medicare spending for hospitals.
Medicaid programs generally pay for acute, rehabilitative and
psychiatric care based on reasonable costs at fixed rates; long term care
facilities are generally reimbursed using fixed daily rates. Both Medicare
and Medicaid payments are generally below retail rates for Lessee-operated
facilities. Increasingly, states have experimented with the introduction of
managed care contracting techniques in the administration of Medicaid
programs. Such mechanisms could have the impact of reducing utilization of
or reimbursement to Lessee-operated facilities.
Third party payors in various states and areas base payments on costs,
retail rates or, increasingly, negotiated rates, including discounts from
normal charges, fixed daily rates and prepaid capitated rates.
LONG TERM CARE FACILITIES. Regulation of long term care facilities is
exercised primarily through the licensing of such facilities. Against a
common background established by federal law enacted as part of the Omnibus
Budget Reconciliation Act of 1987 (OBRA'87) Regulatory authorities and
licensing standards vary from state to state, and in some instances from
locality to locality. These standards are constantly reviewed and revised.
Agencies periodically inspect facilities, at which time deficiencies may be
identified which must be corrected as a condition to continued licensing or
certification and participation in government reimbursement programs.
Depending on the nature of such deficiencies, remedies can be routine or
costly. Similarly, compliance with regulations which cover a broad range of
areas such as patients' rights, staff training, quality of life and quality
of resident care may increase facility start-up and operating costs.
ACUTE CARE HOSPITALS. Acute care hospitals are subject to extensive
federal, state and local regulation. Acute care hospitals undergo periodic
inspections regarding standards of medical care, equipment and hygiene as a
condition of licensure. Various licenses and permits also are required for
purchasing and administering narcotics, operating laboratories and
pharmacies and the use of radioactive materials and certain equipment. Each
of the Company's facilities, the operation of which requires accreditation,
is accredited by the Joint Commission on Accreditation of Healthcare
Organizations. Such accreditation is generally required for continued
licensing and for participation in government sponsored provider programs.
Acute care hospitals must comply with requirements for various forms
of utilization review. In addition, under PPS, each state must have a
Professional Review Organization carry out federally mandated reviews of
Medicare patient admissions, treatment and discharges in acute care
hospitals.
PSYCHIATRIC AND REHABILITATION HOSPITALS. Psychiatric and
rehabilitation hospitals are subject to extensive federal, state and local
legislation, regulation, inspection and licensure requirements similar to
those of acute care hospitals. For psychiatric hospitals, there are
specific laws regulating civil commitment of patients and disclosure of
information. Many states have adopted a "patient's bill of rights" which
sets forth certain higher standards for patient care that are designed to
decrease restrictions and enhance dignity in treatment. Insurance
reimbursement for psychiatric treatment generally is more limited than for
general health care.
PHYSICIAN GROUP PRACTICE CLINICS. Physician group practice clinics are
subject to extensive federal, state and local legislation and regulation.
Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and
state laws regulate health maintenance organizations and other managed care
organizations with which physician groups may have contracts. Many states
require regulatory approval, including certificates of need, before
establishing certain types of physician-directed clinics, offering certain
services or making expenditures in excess of statutory thresholds for
healthcare equipment, facilities or programs. In connection with the
expansion of existing operations and the entry into new markets, physician
clinics and affiliated practice groups may become subject to compliance with
additional regulation.
HEALTH CARE REFORM. The health care industry is facing various
challenges, including increased government and private payer pressure on
health care providers to control costs, the migration of patients from acute
care facilities into extended care and home care settings and the vertical
and horizontal consolidation of health care providers. The pressure to
control health care costs intensified during 1993 and 1994 as a result of
the national health care reform debate and has continued into 1996 as
Congress attempts to slow the rate of growth of federal health care
expenditures as part of its effort to balance the federal budget. For
example, bills have been passed by the House and the Senate in the context
of the federal budget reconciliation process which call for reduced future
reimbursement to hospitals under the existing Medicare system, the
establishment of a prospective payment system for Medicare reimbursement of
long term care, reduced growth in future Medicaid reimbursement and the
establishment of a "block grant" program that would give states greater
discretion in designing and administering their Medicaid programs than
presently afforded under federal law.
Spending in the United States Health Care Industry during 1994 was
approximately $938.0 billion, representing 14% of Gross Domestic Product.
The Company believes that government and private efforts to contain or
reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for certain services provided by
some of the Company's Lessees. The Company believes that the vast nature of
the health care industry, the financial strength and operating flexibility
of its operators and the diversity of its portfolio will mitigate against
the impact of any such diminution in reimbursements. However, the Company
cannot predict whether any of the above proposals or any other proposals
will be adopted and, if adopted, no assurance can be given that the
implementation of such reforms will not have a material adverse effect on
the Company's financial condition or results of operations.
OBJECTIVES AND POLICIES
The Company is organized to invest in income-producing health care
related facilities. In evaluating potential investments, the Company
considers such factors as (1) the geographic area, type of property and
demographic profile; (2) the location, construction quality, condition and
design of the property; (3) the current and anticipated cash flow and its
adequacy to meet operational needs and lease obligations and to provide a
competitive market return on equity to the Company's investors; (4) the
potential for capital appreciation, if any; (5) the growth, tax and
regulatory environment of the communities in which the properties are
located; (6) occupancy and demand for similar health facilities in the same
or nearby communities; (7) an adequate mix of private and government
sponsored patients; (8) potential alternative uses of the
facilities; and (9) prospects for liquidity through financing or
refinancing.
There are no limitations on the percentage of the Company's total
assets that may be invested in any one property or partnership. The
Investment Committee of the Board of Directors may establish limitations as
it deems appropriate from time to time. No limits have been set on the
number of properties in which the Company will seek to invest, or on the
concentration of investments in any one facility or any one city or state.
The Company acquires its investments primarily for income.
Since its inception, the Company has issued four classes of securities
which are senior to the Common Stock, of which two classes are outstanding
at December 31, 1995. In 1986, the Company issued $60,000,000 of 9-1/2%
Senior Notes due December 1, 1996. In 1988, the Company issued $75,000,000
of 9-7/8% Senior Notes due February 15, 1998. In April 1989, the Company
authorized a $75,000,000 Medium Term Note program (Series A MTN) in
accordance with which it has issued $55,000,000 of unsecured Medium Term
Notes at coupon rates of 8.00% to 10.57% due 1999 - 2003. In September 1993,
the Company authorized a $75,000,000 Medium Term Note Program (Series B
MTN), out of a $200,000,000 combined debt and equity shelf filed in August
1993. In August 1995 the Series B MTN authorized amount was increased to
approximately $150,000,000. As of February 1, 1996 the Company has issued
$99,000,000 of Series B MTNs at coupon rates ranging from 6.62% to 9.10% due
1998-2015. In November 1993, the Company issued $100,000,000 in 6%
Convertible Subordinated Notes due 2000. Proceeds of these Notes were
utilized to redeem without penalty the $60,000,000 of 9 1/2% Senior Notes
due December 1, 1996, on which the Company had a call provision as of
December 1, 1993. On March 13, 1995, the Company used the net proceeds of
the offering of 1,725,000 shares of common stock (approximately $47,000,000)
and $27,000,000 principal amount of the Series B MTNs issued in February and
March 1995 to redeem without penalty or premium the $75,000,000 of 9-7/8%
Senior Notes due February 15, 1998 on which the Company had a call provision
as of February 15, 1995. In September 1995, the Company registered $200
million of debt and equity Securities under a shelf registration statement
filed with the Securities Exchange Commission. The Company may, in the
future, issue debt securities which will be senior to the Common Stock. The
Company has no present plans to issue senior equity securities, although the
Board of Directors is authorized to issue up to 50,000,000 shares of
preferred stock. The Company has authority to offer shares of its capital
stock in exchange for investments which conform to its standards and to
repurchase or otherwise acquire its shares or other securities, but does not
presently intend to do so.
The Company may incur additional indebtedness when, in the opinion of
its management and Directors, it is advisable. For short-term purposes the
Company from time to time negotiates lines of credit, or arranges for other
short-term borrowings from banks or otherwise. The Company may arrange for
long-term borrowings through public offerings or from institutional
investors. Under its Bylaws, the Company is subject to various restrictions
with respect to borrowings.
In addition, the Company may incur additional mortgage indebtedness on
real estate which it has acquired through purchase, foreclosure or
otherwise. Where leverage is present on terms deemed favorable, the Company
invests in properties subject to existing loans, or secured by mortgages,
deeds of trust or similar liens on the properties. The Company also may
obtain non-recourse or other mortgage financing on unleveraged properties in
which it has invested or may refinance properties acquired on a leveraged
basis.
In July, 1990, the Company adopted a Rights Agreement whereby Company
stockholders received, for each share of Common Stock owned, one right to
purchase shares of Common Stock of the Company, or securities of an
acquiring entity, at one-half market value (the "Rights"). The Rights will
be exercisable only if and when certain circumstances occur, including the
acquisition by a person or group of 15% or more of the Company's outstanding
common shares, or the making of a tender offer for 30% or more of the
Company's common shares. The Rights are intended to protect stockholders of
the Company from takeover tactics that could deprive them of the full value
of their shares.
The Company will not, without the prior approval of a majority of
Directors, acquire from or sell to any Director, officer or employee of the
Company, or any affiliate thereof, as the case may be, any of the assets or
other property of the Company.
The Company provides to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
information.
The policies set forth herein have been established by the Board of
Directors of the Company and may be changed without stockholder approval.
Item 2. PROPERTIES
See Item 1. for details.
Item 3. LEGAL PROCEEDINGS
During 1995, the Company was not a party to any material legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed on the New York Stock Exchange.
Set forth below for the fiscal quarters indicated are the reported high and
low sales prices of the Company's Common Stock on the New York Stock
Exchange.
1995 1994 1993
High Low High Low High Low
------------------ ------------------ ------------------
First Quarter $30 3/8 $28 $32 $27 1/4 $32 $24
Second Quarter 32 3/4 29 1/2 32 5/8 29 1/2 32 1/4 27 1/4
Third Quarter 34 7/8 31 5/8 31 1/4 27 7/8 31 5/8 28 1/4
Fourth Quarter 35 1/4 31 1/2 30 7/8 26 1/4 33 5/8 25
As of January 31, 1996 there were approximately 1,831 stockholders of
record and in excess of 32,500 beneficial stockholders of the Company's Common
Stock.
It has been the Company's policy to declare quarterly dividends to the
holders of its shares of Common Stock so as to comply with applicable
sections of the Internal Revenue Code governing REITs. The cash dividends
per share paid by the Company are set forth below:
1995 1994 1993
---- ---- ----
First Quarter $ .5200 $ .4800 $ .4500
Second Quarter .5300 .4900 .4575
Third Quarter .5400 .5000 .4650
Fourth Quarter .5500 .5100 .4725
------- ------- -------
$2.1400 $1.9800 $1.8450
======= ======= =======
Item 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data with respect to the Company
for the years ended December 31, 1995, 1994, 1993, 1992, and 1991.
Year Ended December 31,
1995 1994 1993 1992 1991
----------------------------------------------------------------
(Amounts in thousands, except per share data)
Total Revenue $105,696 $ 98,996 $ 92,549 $ 83,727 $ 79,417
Net Income 80,266 49,977 44,087 35,715 26,451
Funds From Operations 75,428 66,966 61,427 53,580 45,075
Dividends Paid 60,167 52,831 49,030 44,136 37,299
Total Assets 667,831 573,826 549,638 509,150 458,579
Debt Obligations 299,084 271,463 245,291 205,760 212,431
Stockholders' Equity 339,460 269,403 269,873 271,375 211,274
Net Income Per Share 2.83 1.87 1.66 1.38 1.15
Dividends Paid Per Share 2.1400 1.9800 1.8450 1.7250 1.6175
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is in the business of acquiring health care facilities that
it leases on a long-term basis to health care providers. On a more limited
basis, the Company has provided mortgage financing for health care facilities.
As of December 31, 1995, the Company's portfolio of properties, including equity
investments, consists of 202 facilities that are located in 36 states. The
portfolio is comprised of 144 long term care facilities, 31 congregate care and
assisted living facilities, 12 medical office buildings, six acute care
hospitals, six rehabilitation facilities, two physician group practice clinics
and one psychiatric care facility. The gross acquisition price of the
properties, including partnership acquisitions, is approximately $824,840,000
at December 31, 1995.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
Funds From Operations totaled $75,428,000 for the year ended December
31, 1995, an increase of 12.6% or $8,462,000 as compared to $66,966,000 for
the year ended December 31, 1994. Net income for the year ended December
31, 1995 was $80,266,000, or $2.83 per share, on revenues of $105,696,000.
This is compared to net income for the prior year of $49,977,000, or $1.87
per share, on revenues of $98,996,000. Net income and net income per share
for the year ended December 31, 1995 included a $23,550,000, or $0.83 per
share, gain on the sale of 10 leased real estate properties. Under the
terms of the sale, the Company received net cash proceeds of $8,387,000 and
is providing a 15 year mortgage in the initial amount of $34,760,000.
Additionally, net income for the year ended December 31, 1994 was favorably
influenced by a $1,000,000 final settlement related to a partnership
investment.
The increase in total revenue of $6,700,000, or 6.8% is due primarily
to increased base rents from facilities acquired in 1995 and a full year's
rents on the 1994 acquisitions. In addition, the increases in additional
rents and interest income of $1,371,000 were the result of increases at most
of the facilities that are eligible to pay such rents. The growth in
additional rents and interest income was slowed somewhat by the sale and
concurrent financing of certain real estate properties. Those sales
converted the character of the returns on the assets from the base and
additional rental income to interest income. Interest and other income
increased $3,118,000 primarily as a result of the addition of approximately
$42,954,000 in loans receivables during 1995.
Interest expense decreased $794,000, or 3.9% to $19,339,000 for the
year ended December 31, 1995 as compared to $20,133,000 for the prior year.
The decrease is primarily due to lower interest rates and lower average
borrowings from the Company redeeming in March 1995, without penalty,
$75,000,000 of 9-7/8% Senior Notes that were due in 1998. This was offset
by the Company issuing approximately $78,000,000 in Senior Notes during 1995
with interest rates averaging 7.8%.
YEAR ENDED DECEMBER 31, 1994 VS. YEAR ENDED DECEMBER 31, 1993
Funds From Operations totaled $66,966,000 for the year ended December
31, 1994, an increase of 9.0% or $5,539,000 over the $61,427,000 for the
prior year. Net Income for the year ended December 31, 1994 was
$49,977,000, or $1.87 per share, on revenues of $98,996,000, compared to net
income of $44,087,000, or $1.66 per share, on revenues of $92,549,000 for
the prior year. These increases were primarily attributable to higher base
rents and from higher levels of additional rental and interest income.
Additionally, both the years ended December 31, 1994 and 1993 were favorably
influenced by non-recurring income items totaling $1,000,000 and $2,000,000,
respectively.
The increase in base rents of $4,422,000 to $64,811,000 was attributed
to rents received in 1994 from newly acquired facilities and from a full
year's rents on 1993 acquisitions.
Additional rental and interest income increased by $2,009,000 over the
prior year to $16,707,000 for 1994. Additional rental and interest income
is a function of increases in facility revenues over specified base year
revenues and/or increases based on inflation indices or other factors. The
majority of the Company's investments, other than new facilities, contributed
to this increase.
Interest expense increased by $405,000 to $20,133,000 stemming
primarily from higher long term borrowings. In November 1993, the Company
issued $100,000,000 of 6% Convertible Subordinated Notes due 2000. A
portion of that offering was utilized early in December 1993 to redeem,
without penalty, the $60,000,000 of 9-1/2% Senior Notes due 1996. The
remaining $40,000,000 supported the Company's acquisitions and construction
projects in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed acquisitions through the sale of common stock,
the issuance of long-term debt, the assumption of limited amounts of
mortgage debt, the use of short-term bank lines and through internally
generated cash flow. Facilities under construction are generally financed
by means of cash on hand or short-term borrowings under the Company's
existing bank lines. In the future, the Company may use its Medium-Term
Note ("MTN") program to finance a portion of the costs of construction. At
the completion of construction and commencement of the lease, short-term
borrowings used in the construction phase are generally refinanced with new
long-term debt or equity.
On February 9, 1995, the Company issued 1,725,000 shares of Common
Stock at $29 per share with net proceeds of approximately $47,400,000.
During 1995, the Company issued a total of $78,000,000 of MTNs, bearing
interest from 6.62% to 9.00% and maturing between 2000 and 2015. On March
13, 1995 the proceeds from the issuance of the stock and MTNs were used to
retire $75,000,000 9-7/8% Senior Notes due 1998 without penalty at par plus
accrued interest. At December 31, 1995, stockholders equity in the Company
totaled $339,460,000 and the debt to equity ratio was 0.88 to 1. For the
year ended December 31, 1995, Funds From Operations covered interest expense
4.9 to 1.
At December 31, 1995, the Company had approximately $51,000,000
available under its 1993 shelf registration statement for future issuance of
MTNs from time to time based on Company needs and then existing market
conditions. In September, 1995, the Company registered $200,000,000 of debt
and equity securities under a shelf registration statement filed with the
Securities and Exchange Commission. At December 31, 1995, there was
approximately $68,000,000 unused on its $100,000,000 revolving line of
credit. This line of credit with a group of seven domestic and
international banks expires on March 31, 1998. The Company's Senior and
Convertible Subordinated Notes have been rated investment grade by debt
rating agencies since 1986. Current ratings are as follows:
Moody's Standard & Poor's Duff & Phelps
------- ---------------- -------------
Senior Notes Baa1 BBB+ A-
Convertible Subordinated
Notes Baa2 BBB BBB+
Since inception in May 1985, the Company has recorded approximately
$442,551,000 in cumulative Funds From Operations. Of this amount, a total
of approximately $361,609,000 has been distributed to stockholders as
dividends. The balance of approximately $80,942,000 has been retained as an
additional source of capital for the Company. Dividends paid or payable as
a percentage of Funds From Operations were 80%, 79% and 80% for the years
ended December 31, 1995, 1994 and 1993. Since commencing business in 1985,
the Company has paid dividends equal to approximately 82% of Funds From
Operations.
As of December 31, 1995, the Company had commitments to purchase and
construct health care facilities totaling approximately $127,997,000 which
were expected to be funded during 1996 or in 1997. Of the foregoing, on
February 1, 1996, the Company invested in five long term care campuses in
North and South Carolina for $49,000,000. These campuses include 631
congregate or assisted living units and 222 long term care beds. The
Company has leased 10 facilities to Emeritus Corporation ("Emeritus") for a
15 year term and made a loan to Emeritus for the remaining facility.
Emeritus is one of the largest publicly traded providers of assisted living
services in the United States. With this transaction it is expected that
revenues from Emeritus will approximate 10 percent of the Company's current
portfolio of rents.
At December 31, 1995, the Company had approximately $30,000,000 in
irrevocable letters of credit from commercial banks to back the obligations
of many of its Lessees' Lease and borrowers' Loan obligations. The Company
may draw upon the letters of credit if there are any defaults under the
Leases and/or Loans. Amounts available under letters of credit change from
time to time; such changes may be material.
Management believes that the Company's liquidity and sources of capital
are adequate to finance its operations as well as its future investments in
additional facilities.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Balance Sheets as of December 31, 1995 and
1994 and its Consolidated Statements of Income, Stockholders' Equity, and
Cash Flows for the years ended December 31, 1995, 1994 and 1993, together
with the report of Arthur Andersen LLP, independent public accountants, are
included elsewhere herein. Reference is made to the "Index to Consolidated
Financial Statements".
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company were as follows on February 1,
1996:
Name Age Position
- --------------------------- ----- -------------------------------------------------
Kenneth B. Roath 60 Chairman, President and Chief Executive Officer
James G. Reynolds 44 Executive Vice President and Chief Financial Officer
Devasis Ghose 42 Senior Vice President - Finance and Treasurer
Edward J. Henning 42 Senior Vice President, General Counsel and Corporate Secretary
Stephen R. Maulbetsch 38 Senior Vice President - Property and Acquisitions Analysis
There is hereby incorporated by reference the information appearing under
the captions "Board of Directors and Officers" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Registrant's definitive
proxy statement relating to its Annual Meeting of Stockholders to be held on
April 25, 1996.
Item 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information under the
caption "Executive Compensation" in the Registrant's definitive proxy statement
relating to its Annual Meeting of Stockholders to be held on April 25, 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information under the
captions "Principal Stockholders" and "Board of Directors and Officers" in the
Registrant's definitive proxy statement relating to its Annual Meeting of
Stockholders to be held on April 25, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information under the
caption "Certain Transactions" in the Registrant's definitive proxy statement
relating to its Annual Meeting of Stockholders to be held on April 25, 1996.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
a) Financial Statements:
1) Report of Independent Public Accountants
2) Financial Statements
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity - for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Note - All schedules have been omitted because the required
information is presented in the financial statements and the
related notes or because the schedules are not applicable.
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1995.
c) Exhibits
3.1 Articles of Restatement of the Company. 10/
3.2 Amended and Restated Bylaws of the Company. 1/
4.1 Rights Agreement, dated as of July 5, 1990, between the
Company and Manufacturers Hanover Trust Company of California,
as Rights Agent. 11/
4.2 Indenture dated as of September 1, 1993 between the Company
and The Bank of New York, as Trustee. 12/
4.3 Indenture dated as of April 1, 1989 between the Company and
The Bank of New York for Debt Securities. 2/
4.4 Form of Fixed Rate Note. 2/
4.5 Form of Floating Rate Note. 2/
10.1 Amendment No. 1, dated as of May 30, 1985, to Partnership
Agreement of Health Care Property Partners, a California
general partnership ("HCPP"), the general partners of which
consist of the Company and certain affiliates of Tenet
Healthcare Corporation ("Tenet"). 3/
10.9 Corporate Guaranty of Obligations of Subsidiaries Pursuant to
Leases, Percentage Rent Agreement and Contract of Acquisition,
dated as of May 30, 1985, from Tenet in favor of HCPP. 3/
10.10 Deferred Compensation Plan of the Company. 3/
10.27 Employment Agreement dated April 28, 1988 between the Company
and Kenneth B. Roath. 5/
10.28 Health Care Property Investors, Inc. Executive Retirement
Plan. 4/
10.29 Health Care Property Investors, Inc. Amended Stock Incentive
Plan, as amended. 8/
10.30 Health Care Property Investors, Inc. Directors Stock Incentive
Plan, as amended. 8/
10.34 First Amendment to Employment Agreement dated February 1, 1990
between the Company and Kenneth B. Roath. 6/
10.36 Retirement Plan for Outside Directors of Health Care Property
Investors, Inc. as of January 1, 1991. 7/
10.37 Revolving Credit Agreement dated as of March 31, 1994 among
Health Care Property Investors, certain banks and The Bank of
New York as agent. 9/
10.38 Letter from The Bank of New York and banks that are
signatories to Revolving Credit Agreement extending
commitment. 13/
10.39 Amendment No. 1 to Health Care Property Investors, Inc.
Executive Retirement Plan. 13/
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule
1/ This exhibit is incorporated by reference to the exhibit
numbered 3(ii) in the Company's quarterly report on Form 10-Q
for the period ended June 30, 1995
2/ This exhibit is incorporated by reference to exhibit 4.1, 4.2
and 4.3 in the Company's Form S-3 Registration Statement dated
March 20, 1989.
3/ This exhibit is incorporated by reference to the corresponding
numbered exhibit in the Company's annual report on Form 10-K
for the year ended December 31, 1985.
4/ This exhibit is incorporated by reference to the corresponding
numbered exhibit in the Company's annual report on Form 10-K
for the year ended December 31, 1987.
5/ This exhibit is incorporated by reference to the corresponding
numbered exhibit in the Company's annual report on Form 10-K
for the year ended December 31, 1988.
6/ This exhibit is incorporated by reference to Appendix B of the
Company's Form 10-K for the year ended December 31, 1990.
7/ This exhibit is incorporated by reference to Appendix B of the
Company's Form 10-K for the year ended December 31, 1991.
8/ This exhibit is incorporated by reference to the corresponding
numbered exhibit in the Company's annual report on Form 10-K
for the year ended December 31, 1992.
9/ The exhibit is incorporated by reference to the corresponding
numbered exhibit in the Company's Form 8-K as of February 8,
1995.
10/ This exhibit is incorporated by reference to exhibit 3.1 in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
11/ This exhibit is incorporated by reference to exhibit 1 to the
Company's Registration Statement on Form 8-A filed with the
Commission on July 17, 1990.
12/ This exhibit is incorporated by reference to exhibit 4.1 to
the Company's Registration Statement on Form S-3 dated
September 9, 1993.
13/ This exhibit is incorporated by reference to the corresponding
numbered exhibit in the Company's annual report on Form 10-K
for the year ended December 31, 1994.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statement on Form
S-8 Nos. 33-28483 (filed May 11, 1989):
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: February 6, 1996
HEALTH CARE PROPERTY INVESTORS, INC.
(Registrant)
/s/ KENNETH B. ROATH
---------------------------------------------------
Kenneth B. Roath, Chairman of the Board of
Directors, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Signature and Title
- ---- -------------------
February 6, 1996 /s/ KENNETH B. ROATH
-------------------------------------------------
Kenneth B. Roath, Chairman of the Board of
Directors, President and Chief Executive Officer
(Principal Executive Officer)
February 6, 1996 /s/ JAMES G. REYNOLDS
-------------------------------------------------
James G. Reynolds, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
February 6, 1996 /s/ DEVASIS GHOSE
-------------------------------------------------
Devasis Ghose, Senior Vice President- Finance
and Treasurer (Principal Accounting Officer)
February 6, 1996 /s/ PAUL V. COLONY
-------------------------------------------------
Paul V. Colony, Director
February 6, 1996 /s/ ROBERT R. FANNING, JR.
-------------------------------------------------
Robert R. Fanning, Jr., Director
February 6, 1996 /s/ MICHAEL D. MCKEE
-------------------------------------------------
Michael D. McKee, Director
February 6, 1996 /s/ ORVILLE E. MELBY
-------------------------------------------------
Orville E. Melby, Director
February 6, 1996 /s/ HAROLD M. MESSMER, JR.
-------------------------------------------------
Harold M. Messmer, Jr., Director
February 6, 1996 /s/ PETER L. RHEIN
-------------------------------------------------
Peter L. Rhein, Director
EXHIBIT INDEX
Ex. 21.1 List of Subsidiaries
Ex. 23.1 Consent of Independent Public Accountants
Ex. 27.1 Financial Data Schedule
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets - as of December 31, 1995 and 1994
Consolidated Statements of Income -
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity -
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -
for the years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Health Care Property Investors, Inc.:
We have audited the accompanying consolidated balance sheets of Health
Care Property Investors, Inc. (a Maryland corporation) as of December 31, 1995
and 1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Health Care Property
Investors, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 16, 1996 (except with respect to the matters discussed in Note
13, as to which the date is February 1, 1996)
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except par values)
December 31,
1995 1994
-----------------------------------------
ASSETS
Real Estate Properties
Buildings and Improvements $ 581,152 $ 522,847
Accumulated Depreciation (121,983) (111,540)
------------ ------------
459,169 411,307
Construction in Progress 7,508 5,674
Land 61,317 58,814
------------ ------------
527,994 475,795
Loans Receivable 120,959 79,165
Investments in and Advances to Partnerships 9,248 9,642
Other Assets 7,630 6,296
Cash and Cash Equivalents 2,000 2,928
------------ ------------
TOTAL ASSETS $ 667,831 $ 573,826
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 31,700 $ 11,200
Senior Notes Due 1998-2015 153,994 150,882
Convertible Subordinated Notes Due 2000 100,000 100,000
Mortgage Notes Payable 13,390 9,381
Accounts Payable and Accrued Expenses 10,568 13,483
Minority Interests in Partnerships 18,719 19,477
Commitments
Stockholders' Equity:
Preferred Stock, $1.00 par value, 50,000,000
shares authorized; none outstanding. --- ---
Common Stock, $1.00 par value; 100,000,000
shares authorized; 28,574,194 and 26,733,734
outstanding as of December 31, 1995 and 1994,
respectively. 28,574 26,733
Additional Paid-In Capital 353,166 305,049
Cumulative Net Income 319,329 239,063
Cumulative Dividends (361,609) (301,442)
------------ ------------
Total Stockholders' Equity 339,460 269,403
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 667,831 $ 573,826
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
Year Ended December 31,
--------------------------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
REVENUE
Base Rental Income $ 68,717 $ 64,811 $ 60,389
Additional Rental and Interest Income 18,078 16,707 14,698
Interest and Other Income 18,160 15,042 15,188
Facility Operating Revenue 741 2,436 2,274
-------------- -------------- --------------
105,696 98,996 92,549
-------------- -------------- --------------
EXPENSES
Interest Expense 19,339 20,133 19,728
Depreciation/Noncash Charges 19,208 17,521 17,862
Other Expenses 6,034 5,185 5,147
Facility Operating Expenses 720 2,595 2,306
-------------- -------------- --------------
45,301 45,434 45,043
-------------- -------------- --------------
INCOME FROM OPERATIONS 60,395 53,562 47,506
Minority Interests (3,679) (3,585) (3,419)
Gain on Sale of Real Estate Properties 23,550 --- ---
-------------- -------------- --------------
NET INCOME $ 80,266 $ 49,977 $ 44,087
============== ============== ==============
NET INCOME PER SHARE $ 2.83 $ 1.87