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Business Context and Reporting Period

Company: Health Care Property Investors, Inc. (Note: Input metadata referenced "Healthpeak," but the filing text identifies the registrant as Health Care Property Investors, Inc.)
Reporting Period: Quarterly Report (Form 10-Q) for the period ended September 30, 1998.
Business Overview: The Company acquires health care facilities (long-term care, assisted living, medical office buildings, hospitals) and leases them to health care providers. As of September 30, 1998, the portfolio included 302 facilities in 42 states with a gross acquisition price of approximately $1.34 billion.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased to $116.4 million for the nine months ended Sept 30, 1998, compared to $94.9 million in the prior year period. Base Rental Income rose by $15.3 million, driven by new investments of approximately $262 million made in 1997 and 1998.
• Profitability: Net income applicable to common shares increased to $55.7 million from $48.1 million in the prior year. Diluted EPS rose to $1.81 from $1.66.
• One-Time Gains: Net income included a $6.7 million gain on the sale of real estate properties (three facilities and a partnership interest), compared to a $2.0 million gain in the prior year.
• Expense Increases: Interest expense increased by $5.3 million due to short-term borrowings for acquisitions and new senior debt issuance. Depreciation and non-cash charges increased by $4.7 million due to new investments.
• Liquidity: Cash and cash equivalents surged from $4.1 million at year-end 1997 to $83.0 million, largely due to a $130 million preferred stock issuance and $200 million senior debt offering used to pay down short-term bank notes.

Guidance, Outlook, and Risks

• Capital Resources: The Company has $352 million in commitments to purchase and construct facilities for 1998 and 1999. It maintains $180 million in available revolving credit lines and $518 million remaining on shelf filings for future financings.
• Dividends: A quarterly dividend of $0.67 per common share was declared for the fourth quarter, payable November 20, 1998. Total dividends paid in the first nine months represented 85% of FFO.
• Facility Rollovers: The Company completed or agreed to 37 facility rollovers in 1998. Approximately 13% of annualized revenues are subject to lease expirations or purchase options through December 31, 2000. Management expects to increase rents on some expiring leases but notes no assurance of success.
• Year 2000 Risk: The Company believes its internal systems are compliant. However, it faces significant risk if primary lessees, mortgagors, or government payors (Medicare/Medicaid) are not compliant, which could disrupt cash flows. The General Accounting Office has reported delays in Medicare system compliance.
• Concentration Risk: Tenet Healthcare Corporation leases and guarantees represented approximately 16% of total annualized revenue as of September 30, 1998. Several leases guaranteed by Tenet expired in 1998 and have been re-leased without Tenet guarantees.

Investor Verification Checklist

• Debt Structure: Verify the terms and maturity of the $200 million MOPPRS (Mandatory Par Put Remarketed Securities) issued in June 1998 and the impact of the mandatory tender date in 2005.
• Year 2000 Exposure: Confirm the Year 2000 compliance status of major lessees (e.g., Tenet, HealthSouth, Vencor) and the potential impact of Medicare/Medicaid reimbursement delays on tenant solvency.
• Lease Rollovers: Monitor the success of rent increases on the 29 facilities with leases expiring through 2000, which represent 13% of annualized revenue.
• Preferred Stock Dilution: Review the impact of the $130 million Series B Preferred Stock issuance on common shareholder equity and future dividend obligations.
• Acquisition Pipeline: Assess the likelihood of closing the $352 million in committed acquisitions and the associated funding requirements.