Health Care Property Investors, Inc. Citigroup 2007 Global Property CEO Conference. March 2007

Transcription

1 Health Care Property Investors, Inc. Citigroup 2007 Global Property CEO Conference March 2007

2 Forward-looking Statements Some of the statements in this presentation may be forward-looking statements and HCP intends such forward-looking statements to be covered by the safe harbor provisions contained in the Private Securities Litigation Reform Act of Investors are cautioned that, while forwardlooking statements reflect HCP s good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties as more fully described in news releases and SEC reports filed by HCP. Actual results may differ materially from the expectations contained in the forward-looking statements as a result of various factors. Market Data This presentation includes market and industry data that HCP has obtained from market research, publicly available information and industry publications. These sources generally state that the information that they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. The market and industry data is often based on industry surveys and preparers experience in the industry. Similarly, although HCP believes that the surveys and market research that others have performed are reliable, HCP has not independently verified this information. 2

3 Investment Considerations Largest public healthcare REIT $14.6 billion enterprise value is more than 2x nearest peer Capitalizing on paradigm shift created by the institutionalization of healthcare real estate Recently completed $5.3 billion CNL Acquisition High quality, lower risk portfolio age, properties, markets, operators, lease structures and diversification Portfolio heavily weighted towards non-government reimbursed, private pay sectors Accelerating growth driven by new operating platforms Compounded total shareholder return of 19% (1) per annum since IPO in 1985 Management team and infrastructure scaled for growth (1) As of December 31, 2006 and assumes re-investment of dividends on ex-dividend date. 3

4 Seasoned Management with Successful Track Record Years Name Position Professional Experience HCP James F. Flaherty III Chairman and Chief Executive Officer 27 4 Charles A. Elcan EVP Medical Office Properties 21 3 Paul F. Gallagher EVP Chief Investment Officer 21 3 Edward J. Henning EVP General Counsel and Corporate Secretary Stephen R. Maulbetsch EVP Strategic Development Mark A. Wallace EVP Chief Financial Officer and Treasurer 27 3 George P. Doyle SVP Chief Accounting Officer 12 3 Thomas D. Kirby SVP Acquisitions and Dispositions 25 8 Thomas M. Klaritch SVP Medical Office Properties 26 3 Brian J. Maas SVP Associate General Counsel 11 4 Stephen I. Robie SVP Financial Planning and Analysis 16 3 Timothy M. Schoen SVP Investment Management 17 1 Susan M. Tate SVP Asset Management 23 * Significant Management Depth * Susan Tate assumed her new responsibilities on February 1,

5 Company Evolution 2002 (1) Present (2) Portfolio (3) Assets Under Management Largest Operators Senior housing: 22% of portfolio Private pay component: 52% Skilled nursing: 23% of portfolio Property age: 17 $3 billion 463 properties Recycled capital: $21 million Tenet ARC (5) HealthSouth Senior housing: 59% of portfolio Private pay component: 87% Skilled nursing: 3% of portfolio Property age: 12 $10 billion 731 properties Recycled capital: $2.4 billion (4) Sunrise Horizon Bay Brookdale Financial Profile Growth Enterprise value: $4 billion FFO payout ratio: 95% Normal FFO/shr. growth: 2%-4% Organic Property acquisitions Enterprise value: $14.6 billion Expected 07 FFO payout ratio: 79%-83% (4) Expected 07 FFO/shr. growth: 8%-12% (4) Organic Property acquisitions Multiple operating platforms Industry consolidation Accelerating Growth Potential (1) As of and for the year ended December 31, (2) Portfolio data reflects HCP s portfolio as of December 31, (3) Based on the historical cost of real estate investments in HCP s portfolio and HCP s unconsolidated joint ventures. (4) Based on fiscal 2007 Company projections per HCP s press release dated February 12, Estimates exclude merger-related charges and impairments. (5) Brookdale Senior Living Inc. acquired American Retirement Corporation ( ARC ) on July 25,

6 HCP s Leading Market Position Healthcare REIT Capitalization (1) Healthcare REIT Portfolios (2) (In billions) (In billions) $16 $14 $12 $10 $14.6 $16 $14 $12 $10 $8 $7.0 $8 $6 $4 $4.9 $4.5 $2.9 $6 $4 $2 $2 $0 HCP Peer A Peer B Peer C Peer D $0 HCP Peer A Peer B Peer C Peer D Equity Debt Preferred Medical Office Senior Housing Hospital Skilled Nursing Other HCP s Portfolio is Heavily Weighted Towards Higher Quality, Private Pay Sectors (1) As of February 20, 2007, from Citigroup research. (2) Based on company reports. 6

7 Demographics Driving Healthcare Real Estate Demand U.S. Population Over 65 Years Old is Growing Healthcare Expenditures Rising as a % of GDP 25% % % of Total U.S. Population 20% 15% 10% 5% Populations in Millions % of GDP 19% 16% 13% 16% of GDP CAGR 7.2% 20% of GDP 0% % % % % Population Actual Forecast Source: U.S. Census Bureau, Statistical Abstract of the United States: Source: Centers for Medicare and Medicaid, December

8 Strong Long Term Growth in Senior Housing Highly fragmented market Attractive supply/demand fundamentals Expenditures growing at 7-8% annually (1) Increasing occupancy and pricing power Irrational supply boom of late 1990 s unlikely to repeat Supply constrained by increasing land and construction costs Long development timeline Potential HCP economic gains Lease restructuring Equity kickers Transfer consideration JV contributions Capital recycling New Units 70,000 60,000 50,000 40,000 30,000 20,000 10, % Supply Growth Lags Demand Avg. annual new units declined 53% since 1997 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Source: ASHA publication Senior Housing Construction Report, 2005, and NIC/ASHA publication Seniors Housing Construction Trends Report Includes I/L, A/L and CCRCs. (1) Source: William Blair & Co. research dated September 13,

9 Healthcare Real Estate Experiencing Disruptive Forces Growing institutionalization of healthcare real estate Migration from private to public ownership Significant increase of institutional allocations and capital flows Consolidation of both real estate owners and operators Improving operator financial strength and management expertise Capital access Interest rate environment creates incentives to exercise purchase options Government reimbursement risk ever present particularly hospitals and SNFs Property age and obsolescence creates potential downside risk Superior investment opportunities being cherry picked away from traditional healthcare REIT models Capital available to invest is no longer a differentiating factor for healthcare REITs s and 1990s: cottage industry - Now: challenge of how to differentiate product offering to create value Changing Dynamics Create Opportunities for Selected Players 9

10 Healthcare Real Estate Sector Undergoing Consolidation (In billions) Commercial Real Estate Market - $3 Trillion (In billions) Healthcare Real Estate Market - $750 Billion $3,000 $750 $150 Fragmented Ownership $400 $100 12% 12% $360B $50 $75B $0 Total Market % Owned by Public REITs Sources: Health Forum LLC, ASHA, Irving Levin Associates; PREI, August % $15B 0% $0 0% Total Market % Owned by Public REITs The HCP advantage Attractive acquisition currency Proven platform able to absorb sizeable portfolios Tax-efficient structures Experience in identifying, investing and managing well located & operated facilities Healthcare REITs Acquisition Volume $1.2B $9.2B Source: SDC Platinum. 10

11 HCP Portfolio Younger Assets in More Attractive Sectors Predominantly Private Pay Improved Portfolio Comparatively Younger Assets Higher Hospital Older MedCap 10/03/03 09/30/02 Older Peer A SNF Peer C Acuity Asset Age Asset Age Peer B CCRC Lower I/L MOB Lab/ Pharma A/L 87% of HCP portfolio (1) Younger Today CRP 10/05/06 SNF Disposition 11/29/06 Younger Peer D Lower Gov t Reimbursement Risk Higher Lower Gov t Reimbursement Risk Higher Lower Gov t Reimbursement Risk Higher Source: Company data. (1) Portfolio data as of December 31,

12 Geographically Diverse Portfolio (1) Consists of 731 properties in 44 US states with one property in Mexico 50% of portfolio located in states with top five concentrated senior populations (2) WA CA OR NV ID UT MT WY CO ND SD NE KS MN IA MO WI IL IN MI KY OH WV PA VA NY VT DE MD ME CT NJ NH MA RI Aegis of Dana Point, Dana Point, CA AZ NM OK AR MS TN AL GA SC NC Atrium MOB, Miami, FL Percent of Population over 75 Years of Age in 2010 (2) >5% 2.5% to 5% 2.5% to 1% <1% TX LA FL ARUP Laboratories, Salt Lake City, UT (1) Portfolio data as of December 31, (2) Includes CA, FL, NY, TX, and PA ranked by size of 75+ age group in Source: U.S. Census Bureau, April

13 What You Should Expect from HCP Opportunistic capital deployment and recycling Active management of portfolio assets New operating platforms that accelerate FFO growth Significant growth in assets under management Structured underwriting processes and risk mitigation Disciplined financial management Industry consolidator focused on institutional quality healthcare real estate Becoming Institutional Partner of Choice for Healthcare Real Estate 13

14 Sustainable Core Portfolio Growth Growth Drivers Comments 2% 3% same store growth Stable recurring cash flow Examples Minimal lease expirations Master leases Property Acquisitions Portfolio Upside Focused on larger, complex transactions Investments across capital spectrum Tax efficient structures Active capital recycling Lease restructurings Medical City Dallas and other DownREITs ARC mezzanine debt Proposed REIT tax legislation Horizon Bay lease restructure Sale of Sierra Health building Kindred swap SNF portfolio sale to CapitalSource Assets Under Management Enhanced ROE Structured for recurring fee stream Potential for promoted interest GE JV New $140 million MOB JV New $1.1 billion senior housing JV Development Higher risk adjusted returns Product type diversification New Cirrus relationship Securities Investment Negotiated equity kickers Healthcare securities HCA 9⅝% senior secured notes SCCI, SRG Industry Consolidation Size and scale advantage Infrastructure investments Attractive currency Creative structuring CNL 2006 MedCap Properties 2003 American Health Properties

15 Accelerating FFO/Share Growth FFO/Share (1) Growth Rate 10% 11% 2007 Growth Drivers (1) 8% 6% 4% 5% Capital Deployment Core Portfolio Investment Management Development and Other 2% 0% F New Operating Platforms Drive FFO/Share Growth (1) Based on fiscal 2006 Company results and the midpoint of fiscal 2007 Company projections per HCP s press release dated February 12, Estimates exclude merger-related charges and impairments. 15

16 Investment Management Platform Rationale Competition for real estate compressing returns Delivers returns above partners cost of capital JV structure enhances HCP ROE Long-term, recurring, and contractual fee income Potential to realize substantial promoted interest Success Criteria Pipeline of institutional quality real estate Institutional partner relationships Asset allocation capabilities Alignment of partners interests and strategies Governance practices Scaleable infrastructure Joint Venture with GE Formed in June 2003 with affiliate of GE HCP 33% interest In October 2003, acquired MedCap Properties from HCA, a portfolio of 100 MOBs for $460 million In January 2004, obtained $288 million of mortgage financing achieving its targeted leverage Sold 44 properties to date October 2006, structured GE exit Cash Flow Acquisition fee Asset mgmt. fee Disposition fee Illustrative Structure HCP Fees 35% HCP / 65% Partner to Threshold IRR (includes return of capital) HCP IRR in Excess of 50% 45% HCP 55% Partner 16

17 Development Platform Focused on MOB product Attractive yield (9.5% -10.0% on average) High-end development with successful hospitals Class A buildings featuring ancillary functions Opportunities for JV platform Cirrus opportunity: North Central Medical Center, Dallas, TX Full service healthcare real estate development and management company Pipeline agreement Secured loan Warrants Expansion of HCP commitment under discussion Sky Ridge, Denver, CO Development/Acquisition Pipeline in Excess of $250 million 17

18 Capital Deployment Acquisitions Dispositions / JV Transfers (In millions) (In millions) $5,300 $1,900 $140 $512 $1,500 $1,062 $647 $417 $438 $ F Total Loan/Equity Acquisitions CNL Acquisition (1) (1) $250 $170 $85 $56 $ F Dispositions JV Transfers (1) (1) Capital Recycling Accelerating (1) Based on fiscal 2006 Company results and the midpoint of fiscal 2007 Company projections per HCP s press release dated February 12,

19 HCP Performance Assets Under Management (1) Growth in Dividends and FFO/Share (2) (In billions) $12 Dividend/FFO per Share $2.20 FFO Payout Ratio 110% $11 $10 $ F CAGR: 26% $ % 100% $8 $1.80 $7 95% $6 $5 Unconsolidated Joint Ventures Consolidated Assets $ % $4 $1.40 $3 85% $2 $ % $1 $ F $1.00 (4) (5) F 75% (3) Diluted FFO /share Dividends FFO Payout ratio Source: Company reports. (1) Represents the historical cost of real estate owned by HCP and its unconsolidated joint ventures, and the carrying amount of mortgage loans. (2) As of March 2, 2004, each shareholder received one additional share of common stock for each share they owned resulting from a 2-for-1 stock split declared by HCP on January 22, The stock split has been reflected in all periods presented. (3) Prior to merger-related charges and impairments. (4) Includes the impact of preferred redemption charges of $0.15 per diluted share. (5) Based on the midpoint of fiscal 2007 Company projections per HCP s press release dated February 12, Estimates exclude merger-related charges and impairments. 19

20 Financial Overview CNL Transaction Financing De-levering Plan (In billions) Sources Uses Equity consideration $ 0.7 $ 0.7 (In billions) Timing Capital Raised Cash consideration 2.9 Assumption of existing debt Repayment of existing debt 0.4 Bond offering 1.0 Capital markets transactions Asset dispositions Contributions to JVs 3Q06 1Q07 4Q06 4Q06 1Q07 $ Bank financing 2.4 Transaction expenses 0.1 Strategic equity placement 1Q Total $ 5.3 $ 5.3 Total $ 4.6 Senior Debt Ratings S&P BBB Moody s Baa3 Fitch BBB Credit Metrics (1) Pre At Merger (2) Closing (3) Current (4) Leverage ratio 49% 69% 51% Secured debt ratio 12% 20% 17% Unsecured leverage ratio 52% 98% 57% Fixed charge coverage (5) 2.69x 2.46x 2.11x De-levering Plan Complete (1) Credit metrics are calculated from pro forma financial statements which include the pro rata consolidation of material unconsolidated joint ventures. (2) As of June 30, (3) As of October 5, (4) As of February 12, (5) Trailing twelve months; fixed charge coverage at closing presented as if the CNL Acquisition had occurred on January 1,

21 Conclusion Largest public healthcare REIT $14.6 billion enterprise value is more than 2x nearest peer Capitalizing on paradigm shift created by the institutionalization of healthcare real estate Recently completed $5.3 billion CNL Acquisition High quality, lower risk portfolio age, properties, markets, operators, lease structures and diversification Portfolio heavily weighted towards non-government reimbursed, private pay sectors Accelerating growth driven by new operating platforms Compounded total shareholder return of 19% (1) per annum since IPO in 1985 Management team and infrastructure scaled for growth Becoming Institutional Partner of Choice for Healthcare Real Estate (1) As of December 31, 2006 and assumes re-investment of dividends on ex-dividend date. 21

22 Appendix 22

23 Summary Net Income to FFO Reconciliation 2003 (1) Projected 2007 (2) Diluted earnings per common share $ 0.96 $ 1.09 $ 1.08 $ 2.66 $ 1.60 Gain on sales of real estate (0.09) (0.16) (0.07) (1.85) (0.59) Real estate depreciation and amortization Joint venture adjustments (0.02) 0.07 Diluted FFO per common share $ 1.54 $ 1.66 $ 1.89 $ 1.82 $ 2.15 Merger related-costs Impairments Diluted FFO per common share prior to impairments and merger-related costs $ 1.64 $ 1.79 $ 1.89 $ 1.98 $ 2.20 (1) Includes the impact of preferred redemption charges of $0.15 per diluted share. (2) Based on the midpoint of fiscal 2007 Company projections per HCP s press release dated February 12, Estimates exclude merger-related charges and impairments. 23

24 Reporting Definitions Annualized Revenues. The most recent monthly base rent due to HCP as of period end annualized for twelve months plus additional rents received by HCP over the most recent twelve month period as of period end. The Company uses Annualized Revenues for purposes of measuring operator concentration and determining certain property level metrics Beds/Units/Square Feet. Hospitals and skilled nursing facilities are measured by licensed bed count. Senior housing facilities are stated in units (e.g., studio, one or two bedroom units). MOBs and other healthcare facilities are measured in square feet Book Value. The carrying amount as reported in the Company s financial statements CAGR. Compounded annual growth rate GAAP. U.S. generally accepted accounting principles HCP MOP. Prior to November 30, 2006, HCP Medical Office Portfolio, LLC, was an unconsolidated joint venture formed between the Company and an affiliate of General Electric Company ( GE ), for which the Company was the managing member and had a 33% interest therein Investment. The carrying amount of real estate assets, including intangibles, after adding back accumulated depreciation and amortization and the carrying amount of mortgage loans receivable. Excludes assets held for sale and classified as discontinued operations Market Equity. The total number of outstanding shares of the Company s common stock multiplied by the closing price per share of its common stock on the New York Stock Exchange as of period end plus the total number of convertible partnership units multiplied by the closing price per share of its common stock on the New York Stock Exchange as of period end (adjusted for stock splits) plus the total number of outstanding shares of the Company s preferred stock multiplied by the closing price of its preferred stock on the New York Stock Exchange as of period end Other Property Type. Physician group practice clinics, healthcare laboratory and laboratory research facilities, and health and wellness centers Total Market Capitalization. Consolidated debt at Book Value plus total Market Equity Adjusted Fixed Charges. Total interest expense plus capitalized interest plus preferred stock dividends. The Company uses Adjusted Fixed Charges to measure its interest payments on outstanding debt and dividends to its preferred shareholders for purposes of presenting Adjusted Fixed Charge Coverage. However, the usefulness of Adjusted Fixed Charges is limited as, among other things, it does not include all contractual obligations. The Company s computation of Adjusted Fixed Charges should not be considered an alternative to fixed charges as defined by Item 503(d) of Regulation S-K and may not be comparable to fixed charges reported by other companies Adjusted Fixed Charge Coverage. EBITDA divided by Adjusted Fixed Charges. The Company uses Adjusted Fixed Charge Coverage, a non-gaap financial measure, as a measure of liquidity. The Company believes Adjusted Fixed Charge Coverage provides investors, particularly fixed income investors, relevant and useful information because it measures the Company s ability to meet its interest payments on outstanding debt and pay dividends to its preferred shareholders. The Company s various debt agreements contain covenants that require the Company to maintain ratios similar to Adjusted Fixed Charge Coverage and credit rating agencies utilize similar ratios in evaluating and determining the credit rating on certain debt instruments of the Company. However, since this ratio is derived from EBITDA and Adjusted Fixed Charges, its usefulness is limited by the same factors that limit the usefulness of EBITDA and Adjusted Fixed Charges. Further, the Company s computation of Adjusted Fixed Charge Coverage may not be comparable to similar fixed charge coverage ratios reported by other companies 24

25 Reporting Definitions (cont d) EBITDA. The real estate industry uses earnings before interest, taxes, depreciation and amortization ( EBITDA ), a non-gaap financial measure, as a measure of both operating performance and liquidity. The Company s presentation of EBITDA herein is solely as a non-gaap liquidity measure in connection with the presentation of Adjusted Fixed Charge Coverage. As a liquidity measure, the Company believes that EBITDA helps investors analyze the Company s ability to meet its interest payments on outstanding debt and to make preferred dividend payments. The Company s various debt agreements contain covenants that require the Company to maintain ratios similar to Adjusted Fixed Charge Coverage and credit rating agencies utilize similar ratios in evaluating and determining the credit rating on certain debt instruments of the Company. The Company believes investors should consider EBITDA in conjunction with cash flow from operating activities, and other required measures under GAAP, to improve their understanding of the Company s liquidity. EBITDA has limitations as an analytical tool and should be used in conjunction with the Company s required GAAP presentations. EBITDA does not reflect the Company s historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. Also, EBITDA does not reflect the cash required to make interest and principal payments on the Company s outstanding debt. The Company believes cash flow from operating activities is the most directly comparable GAAP measure to EBITDA. EBITDA does not represent net income or cash flow from operations as defined by GAAP and should not be considered an alternative to those indicators. Further, the Company s computation of EBITDA may not be comparable to similar measures reported by other companies Funds From Operations ( FFO ). The Company believes that net income as defined by GAAP is the most appropriate earnings measure. The Company also believes that Funds From Operations, or FFO, as defined by the National Association of Real Estate Investment Trusts ( NAREIT ), FFO applicable to common shares, Diluted FFO applicable to common shares, and Basic and Diluted FFO per common share are important non-gaap supplemental measures of operating performance for a real estate investment trust. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a real estate investment trust that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization, with adjustments to derive the Company s pro rata share of FFO from consolidated and unconsolidated joint ventures. Adjustments for joint ventures are calculated to reflect FFO on the same basis. The Company believes that the use of FFO, combined with the required GAAP presentations, improves the understanding of operating results of real estate investment trusts among investors and makes comparisons of operating results among such companies more meaningful. The Company considers FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help investors compare the operating performance of a real estate investment trust between periods or as compared to other companies. While FFO is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating the Company s liquidity or operating performance. FFO also does not consider the costs associated with capital expenditures related to the Company s real estate assets nor is FFO necessarily indicative of cash available to fund the Company s future cash requirements. Further, the Company s computation of FFO may not be comparable to FFO reported by other real estate investment trusts that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently from the Company FFO Payout Ratio per Common Share. Dividends declared per common share divided by Diluted FFO per common share for a given period. The Company believes the FFO Payout Ratio provides investors relevant and useful information because it measures the portion of FFO being declared as dividends to common shareholders 25