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TABLE OF CONTENTS
TABLE OF CONTENTS
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-161721
The information in this preliminary prospectus supplement and the accompanying prospectus is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus Supplement dated December 14, 2010
PROSPECTUS SUPPLEMENT
To Prospectus dated September 4, 2009
31,000,000 Shares
HCP, Inc.
Common Stock
We are offering 31,000,000 shares of our common stock to the public. Our common stock is traded on the New York Stock Exchange under the symbol "HCP." On December 13, 2010, the last reported sale price for our common stock on the New York Stock Exchange was $32.52 per share.
The closing of this offering is not conditioned upon the consummation of our acquisition of the real estate assets of HCR ManorCare, Inc. or the acquisition of HCP Ventures II, a senior housing joint venture in which HCP currently owns a 35% unconsolidated interest, each as described in this prospectus supplement.
Investing in our common stock involves risks. See "Risk Factors" on page S-14 of this prospectus supplement and page 4 of the accompanying prospectus and "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus supplement or the accompanying prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
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Per Share | Total | ||
---|---|---|---|---|
Public offering price | $ | $ | ||
Underwriting discount | $ | $ | ||
Proceeds (before expenses) to HCP | $ | $ |
To the extent the underwriters sell more than 31,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 4,650,000 shares from us.
The underwriters expect to deliver the shares against payment in New York, New York on December , 2010.
Joint Book-Running Managers
Citi | BofA Merrill Lynch | J.P. Morgan | UBS Investment Bank | Wells Fargo Securities |
The date of this prospectus supplement is December , 2010.
You should rely only on the information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus. We have not authorized anyone to provide you with information that is different. We are not making an offer to sell these securities in any jurisdiction where the offer or sale of these securities is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information in this prospectus supplement and the accompanying prospectus is accurate only as of their respective dates and that any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference.
i
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first is this prospectus supplement, which describes the specific terms of this offering. The second part, the accompanying prospectus, gives more general information, some of which may not apply to this offering. This prospectus supplement also adds to, updates and changes information contained in the accompanying prospectus. If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement. The accompanying prospectus is part of a registration statement that we filed with the Securities and Exchange Commission ("SEC") using a shelf registration statement. Under the shelf registration process, from time to time, we may offer and sell debt securities, warrants or other rights, stock purchase contracts, units, common stock, preferred stock or depositary shares, or any combination thereof, in one or more offerings.
It is important that you read and consider all of the information contained in this prospectus supplement and the accompanying prospectus in making your investment decision. You should also read and consider the information in the documents to which we have referred you in "Incorporation by Reference" on page S-4 of this prospectus supplement and "Where You Can Find More Information" on page 2 of the accompanying prospectus.
In this prospectus supplement, unless otherwise indicated herein or the context otherwise indicates:
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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus supplement and the information incorporated by reference in this prospectus supplement and the accompanying prospectus that are not historical factual statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We intend to have our forward-looking statements covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with those provisions. Forward-looking statements include, among other things, statements regarding our and our officers' intent, belief or expectations as identified by the use of words such as "may," "will," "project," "expect," "believe," "intend," "anticipate," "seek," "forecast," "plan," "estimate," "could," "would," "should" and other comparable and derivative terms or the negatives thereof. In addition, we, through our officers, from time to time, make forward-looking oral and written public statements concerning our expected future operations, strategies, securities offerings, growth and investment opportunities, dispositions, capital structure changes, budgets and other developments. Readers are cautioned that, while forward-looking statements reflect our good faith belief and reasonable assumptions based upon current information, we can give no assurance that our expectations or forecasts will be attained. Therefore, readers should be mindful that forward-looking statements are not guarantees of future performance and that they are subject to known and unknown risks and uncertainties that are difficult to predict. As more fully set forth herein under "Risk Factors" in this prospectus supplement and under "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009, factors that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include:
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Except as required by law, we undertake no, and hereby disclaim any, obligation to update any forward-looking statements, whether as a result of new information, changed circumstances or otherwise.
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The Securities and Exchange Commission, or SEC, allows us to "incorporate by reference" information into this prospectus supplement and the accompanying prospectus. This means that we can disclose important information to you by referring you to another document that HCP has filed separately with the SEC that contains that information. The information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus. Information that HCP files with the SEC after the date of this prospectus supplement and that is incorporated by reference in this prospectus supplement will automatically modify and supersede the information included or incorporated by reference in this prospectus supplement and the accompanying prospectus to the extent that the subsequently filed information modifies or supersedes the existing information. We incorporate by reference (other than any portions of any such documents that are not deemed "filed" under the Securities Exchange Act of 1934 in accordance with the Securities Exchange Act of 1934 and applicable SEC rules):
You may request a copy of any of these filings at no cost to you by contacting us by mail, telephone or e-mail using the information set forth below:
Legal
Department
HCP, Inc.
3760 Kilroy Airport Way, Suite 300
Long Beach, California 90806
(562) 733-5100
legaldept@hcpi.com
S-4
The information below is a summary of the more detailed information included elsewhere or incorporated by reference in this prospectus supplement and the accompanying prospectus. You should read carefully the following summary together with the more detailed information contained in this prospectus supplement, the accompanying prospectus and the information incorporated by reference into those documents, including the risk factors described on page S-14 of this prospectus supplement and on page 4 of the accompanying prospectus and the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2009. This summary is not complete and does not contain all of the information you should consider when making your investment decision.
Unless otherwise expressly stated or the context otherwise requires, information in this prospectus supplement assumes that the option granted to the underwriters to purchase up to 4,650,000 additional shares from us has not been exercised.
The closing of this offering is not conditioned upon the closing of the Acquisitions. Except as otherwise indicated, this prospectus supplement does not give pro forma effect to the Acquisitions and the related transactions. Unless otherwise indicated, references to fiscal year refer to the fiscal year of HCP, which ends on December 31. Our financial results on a pro forma basis for the Acquisitions for the fiscal year ended December 31, 2009 and the nine months ended September 30, 2010 and 2009 are set forth below under "Unaudited Pro Forma Condensed Consolidated Financial Statements."
We invest primarily in real estate serving the healthcare industry in the United States, or U.S. We are a Maryland corporation and were organized to qualify as a self-administered real estate investment trust, or REIT, in 1985. We are headquartered in Long Beach, California, with offices in Nashville, Tennessee and San Francisco, California. We acquire, develop, lease, manage and dispose of healthcare real estate and provide financing to healthcare providers. Our portfolio is comprised of investments in the following five healthcare segments: (i) senior housing, (ii) life science, (iii) medical office, (iv) skilled nursing, and (v) hospital. We make investments within our healthcare segments using the following five investment products: (i) properties under lease, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management and (v) non-managing member limited liability companies, or DownREITs. As of September 30, 2010, our portfolio of investments, including properties owned by our Investment Management Platform, consisted of: (i) interests in 670 facilities among the following segments: 250 senior housing, 102 life science, 252 medical office, 45 skilled nursing and 21 hospital; and (ii) $2.0 billion of mezzanine and other secured loans.
The delivery of healthcare services requires real estate and, as a result, tenants and operators depend on real estate, in part, to maintain and grow their businesses. HCP believes that the healthcare real estate market provides investment opportunities due to the following:
Our executive offices are located at 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806, and our telephone number is (562) 733-5100.
HCR ManorCare Facilities Acquisition
On December 13, 2010, we signed a definitive purchase agreement (the "Purchase Agreement") to acquire HCR ManorCare PropCo, which owns substantially all of the post-acute, skilled nursing and assisted living facilities of HCR ManorCare, for a total consideration of $6.1 billion, comprised of
S-5
approximately $852 million of our common stock (a fixed 25.7 million shares), $3.5 billion in cash, and the reinvestment of $1.7 billion resulting from the payoff of HCP's existing debt investments in HCR ManorCare. If the closing of the HCR ManorCare Facilities Acquisition has not occurred prior to April 15, 2011, then the purchase price will decrease by an amount equal to $675,000 multiplied by a fraction (which shall not be greater than one) equal to the gross financing proceeds (including equity and debt) raised by us after the date of the Purchase Agreement divided by $4.1 billion for each day thereafter until the closing occurs. Under the terms of the Purchase Agreement, we can elect to fund all or a portion of the stock portion of the consideration in cash. HCR ManorCare, based in Toledo, Ohio, is owned by private equity funds managed by The Carlyle Group. Upon the closing of the acquisition, we will acquire from HCR ManorCare 338 post-acute, skilled nursing and assisted living facilities principally located in Illinois, Ohio, Pennsylvania, Michigan and Florida. At the closing, we will enter into a long-term triple-net master lease supported by a guaranty from HCR ManorCare under which HCR ManorCare will continue to operate the facilities that we are acquiring. See "The HCR ManorCare Facilities AcquisitionMaster Lease" for additional information.
This acquisition is expected to close in the first quarter of 2011. In addition, the purchase price will be adjusted at closing based on changes in net liabilities associated with the acquired assets, which adjustments may be effected through adjustments in the amount of stock issued to the shareholders of HCR ManorCare. This acquisition will be subject to various customary conditions to closing, the failure of which to occur could delay the closing or result in the transaction not closing. In the event that HCR ManorCare terminates the Purchase Agreement when all of its conditions to closing are satisfied or capable of being satisfied (other than conditions not satisfied because of our breach or default), and we have not consummated the acquisition, then we would be required to pay HCR ManorCare $500 million as its sole and exclusive remedy for such termination.
In addition, upon the closing of the HCR ManorCare Facilities Acquisition, for so long as the stockholders of HCR ManorCare own, in the aggregate, at least 5% of the then-outstanding shares of HCP common stock, such stockholders shall be entitled to designate Paul A. Ormond, Chairman, President and Chief Executive Officer of HCR ManorCare, as a director to serve on the HCP board of directors. We currently anticipate that the HCP board of directors will appoint Paul A. Ormond to HCP's board of directors at the closing of the HCR ManorCare Facilities Acquisition.
In addition, in conjunction with the HCR ManorCare Facilities Acquisition and the terms of the Purchase Agreement, HCP will either (i) have the option to purchase a 9.9% equity interest in HCR ManorCare for $95 million at the consummation of the HCR ManorCare Facilities Acquisition or (ii) be granted a warrant to purchase a 9.9% equity interest, subject to dilution, in HCR ManorCare that is exercisable between the second and seventh anniversaries of the consummation of the HCR ManorCare Facilities Acquisition for $100 million.
In connection with the HCR ManorCare Facilities Acquisition, we entered into a credit agreement providing for a bridge loan facility in an aggregate amount of up to $3.3 billion, which may be used to finance part of the acquisition purchase price. However, we currently anticipate issuing securities in lieu of some of or all borrowings available under the bridge loan facility. See "The HCR ManorCare Facilities Acquisition" for additional information.
On December 10, 2010, we signed a definitive agreement to acquire our partner's 65% interest in a joint venture that owns 25 senior housing facilities. Upon the closing of the HCP Ventures II Purchase, HCP will become the sole owner of these 25 senior housing facilities. Under the terms of the agreement, we will pay approximately $137 million in cash for the interest and assume approximately $650 million of Fannie Mae debt secured by these facilities. The acquisition is expected to close on or
S-6
before January 31, 2011. This acquisition will be subject to various customary conditions to closing, the failure of which to occur could delay the closing or result in the transaction not closing.
Healthcare is the single largest industry in the U.S. based on Gross Domestic Product, or GDP. According to the National Health Expenditures projections dated September 2010 by the Centers for Medicare and Medicaid Services, or CMS: (i) national health expenditures are projected to grow 5.1% in 2010; (ii) the average compound annual growth rate for national health expenditures, over the projection period of 2009 through 2019, is anticipated to be 6.3%; and (iii) the healthcare industry is projected to represent 17.5% of U.S. GDP in 2010.
Senior citizens are the largest consumers of healthcare services. According to CMS, on a per capita basis, the 75-year and older segment of the population spends 76% more on healthcare than the 65 to 74-year old segment and over 200% more than the population average.
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Common stock offered by HCP |
31,000,000 shares | |
Common stock outstanding after this offering(1) |
355,895,064 shares |
|
Use of proceeds |
We estimate that the net proceeds of this offering, after assuming an initial public offering price of $32.52 per share, which is the last reported sale price of our common stock on the New York Stock Exchange, or NYSE, on December 13, 2010, after giving effect to the underwriting discount and estimated expenses payable by us, will be approximately $967 million. We intend to use the net proceeds from this offering, together with future debt offerings, cash on hand, and the reinvestment of $1.7 billion resulting from the payoff of HCP's existing debt investments in HCR ManorCare, to finance the aggregate purchase price of the HCR ManorCare Facilities Acquisition and the HCP Ventures II Purchase and may repay $425 million of secured debt financing obtained from an affiliate of J.P. Morgan Securities LLC. See "The HCR ManorCare Facilities AcquisitionThe Financing Transactions." If the Acquisitions are not consummated, we intend to use the net proceeds from this offering for general corporate purposes and/or working capital purposes, which may include the repayment of indebtedness or other acquisitions or investment opportunities. Pending such uses, the net proceeds may be invested in short-term, investment-grade, interest bearing securities. See "Use of Proceeds." |
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Conflicts of interest |
If greater than 5% of the net proceeds from this offering are used to repay indebtedness owed to at least one of the affiliates of the underwriters, this offering will be conducted in accordance with NASD Rule 2720. See "Use of Proceeds" and "UnderwritingConflicts of Interest." |
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NYSE symbol |
HCP |
You should read carefully and consider the information set forth under "Risk Factors" in this prospectus supplement beginning on page S-14, the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2009 and on page 4 of the accompanying prospectus before deciding to invest in our common stock.
For additional information regarding our common stock, see "Description of the Common Stock."
S-8
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF HCP
The following table sets forth our summary consolidated financial data. You should read this information together with our consolidated financial statements, including the related notes, included in our Annual Report on Form 10-K for the year ended December 31, 2009, as amended by the Current Report on Form 8-K dated November 2, 2010, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, from which such information has been derived, and which are incorporated by reference herein. Our unaudited financial data for the nine months ended September 30, 2010 and 2009 has been prepared on the same basis as our annual consolidated financial statements and includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of this data in all material respects. The results for any interim period are not necessarily indicative of the results of operations to be expected for a full fiscal year. The following data is presented on a historical basis. We completed our acquisition of Slough Estates USA Inc. on August 1, 2007. The results of operations resulting from this acquisition are reflected in our consolidated financial statements from that date.
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Nine Months Ended September 30, |
Year Ended December 31, | ||||||||||||||
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2010 | 2009 | 2009 | 2008 | 2007 | |||||||||||
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(in thousands, except per share data) |
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(unaudited) |
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Revenues: |
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Rental and related revenues |
$ | 697,802 | $ | 656,384 | $ | 878,770 | $ | 867,645 | $ | 751,876 | ||||||
Tenant recoveries |
67,262 | 67,124 | 89,582 | 82,811 | 64,932 | |||||||||||
Income from direct financing leases |
37,238 | 39,302 | 51,495 | 58,149 | 63,852 | |||||||||||
Interest income |
108,004 | 87,791 | 124,146 | 130,869 | 51,565 | |||||||||||
Investment management fee income |
3,755 | 4,133 | 5,312 | 5,923 | 13,581 | |||||||||||
Total revenues |
914,061 | 854,734 | 1,149,305 | 1,145,397 | 945,806 | |||||||||||
Costs and expenses: |
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Depreciation and amortization |
234,008 | 240,308 | 316,803 | 312,089 | 257,008 | |||||||||||
Interest expense |
220,303 | 226,053 | 298,897 | 348,390 | 355,197 | |||||||||||
Operating |
152,028 | 139,767 | 185,829 | 193,064 | 175,704 | |||||||||||
General and administrative |
65,039 | 61,619 | 78,471 | 73,691 | 67,500 | |||||||||||
Litigation provision |
| 101,973 | 101,973 | | | |||||||||||
Impairments (recoveries) |
(11,900 | ) | 20,904 | 75,389 | 18,276 | | ||||||||||
Total costs and expenses |
659,478 | 790,624 | 1,057,362 | 945,510 | 855,409 | |||||||||||
Other income (expense): |
||||||||||||||||
Gain on sale of real estate interest |
| | | | 10,141 | |||||||||||
Other income, net |
7,151 | 5,107 | 7,768 | 25,672 | 24,389 | |||||||||||
Total other income (expense) |
7,151 | 5,107 | 7,768 | 25,672 | 34,530 | |||||||||||
Income before income taxes and equity income from and impairments of investments in unconsolidated joint ventures |
261,734 | 69,217 | 99,711 | 225,559 | 124,927 | |||||||||||
Income taxes |
(1,809 | ) | (1,395 | ) | (1,910 | ) | (4,224 | ) | (1,444 | ) | ||||||
Equity income from unconsolidated joint ventures |
4,078 | 1,993 | 3,511 | 3,326 | 5,645 | |||||||||||
Impairments of investments in unconsolidated joint ventures |
(71,693 | ) | | | | | ||||||||||
Income from continuing operations |
192,310 | 69,815 | 101,312 | 224,661 | 129,128 | |||||||||||
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|
Nine Months Ended September 30, |
Year Ended December 31, | ||||||||||||||
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2010 | 2009 | 2009 | 2008 | 2007 | |||||||||||
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(in thousands, except per share data) |
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(unaudited) |
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|
|
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Discontinued operations: |
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Income before gain on sales of real estate, net of income taxes |
$ | 2,507 | $ | 6,620 | $ | 7,643 | $ | 26,308 | $ | 80,659 | ||||||
Impairments |
| (125 | ) | (125 | ) | (9,175 | ) | | ||||||||
Gain on sales of real estate, net of income taxes |
4,052 | 34,357 | 37,321 | 229,189 | 404,328 | |||||||||||
Total discontinued operations |
6,559 | 40,852 | 44,839 | 246,322 | 484,987 | |||||||||||
Net income |
198,869 | 110,667 | 146,151 | 470,983 | 614,115 | |||||||||||
Noncontrolling interests' share in earnings |
(10,077 | ) | (11,011 | ) | (14,461 | ) | (22,488 | ) | (25,100 | ) | ||||||
Net income applicable to HCP, Inc. |
188,792 | 99,656 | 131,690 | 448,495 | 589,015 | |||||||||||
Preferred stock dividends |
(15,848 | ) | (15,848 | ) | (21,130 | ) | (21,130 | ) | (21,130 | ) | ||||||
Participating securities' share in earnings |
(1,648 | ) | (1,136 | ) | (1,491 | ) | (1,997 | ) | (2,805 | ) | ||||||
Net income applicable to common shares |
$ | 171,296 | $ | 82,672 | $ | 109,069 | $ | 425,368 | $ | 565,080 | ||||||
Basic earnings per common share: |
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Continuing operations |
$ | 0.55 | $ | 0.16 | $ | 0.23 | $ | 0.76 | $ | 0.39 | ||||||
Discontinued operations |
0.02 | 0.15 | 0.17 | 1.03 | 2.33 | |||||||||||
Net income applicable to common shares |
$ | 0.57 | $ | 0.31 | $ | 0.40 | $ | 1.79 | $ | 2.72 | ||||||
Diluted earnings per common share: |
||||||||||||||||
Continuing operations |
$ | 0.55 | $ | 0.16 | $ | 0.23 | $ | 0.76 | $ | 0.39 | ||||||
Discontinued operations |
0.02 | 0.15 | 0.17 | 1.03 | 2.31 | |||||||||||
Net income applicable to common shares |
$ | 0.57 | $ | 0.31 | $ | 0.40 | $ | 1.79 | $ | 2.70 | ||||||
Weighted average shares used to calculate earnings per common share: |
||||||||||||||||
Basic |
299,243 | 267,971 | 274,216 | 237,301 | 207,924 | |||||||||||
Diluted |
300,468 | 268,041 | 274,631 | 237,972 | 208,920 | |||||||||||
Dividends declared per common share |
$ | 1.395 | $ | 1.38 | $ | 1.84 | $ | 1.82 | $ | 1.78 |
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As of December 31, | ||||||||
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|
As of September 30, 2010 |
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|
2009 | 2008 | ||||||||
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(in thousands) |
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|
(unaudited) |
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|
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ | 52,635 | $ | 112,259 | $ | 57,562 | ||||
Total assets |
12,245,299 | 12,209,735 | 11,849,826 | |||||||
Total liabilities |
5,991,515 | 6,251,126 | 6,441,986 | |||||||
Total equity |
6,253,784 | 5,958,609 | 5,407,840 |
S-10
THE HCR MANORCARE FACILITIES ACQUISITION
On December 13, 2010, we signed a definitive purchase agreement (the "Purchase Agreement") to acquire HCR ManorCare PropCo, which owns substantially all of the post-acute, skilled nursing and assisted living facilities of HCR ManorCare (the "Facilities"), for a total consideration of $6.1 billion, comprised of approximately $852 million of our common stock (a fixed 25.7 million shares), $3.5 billion in cash and the reinvestment of $1.7 billion resulting from the payoff of HCP's existing debt investments in HCR ManorCare. If the closing of the HCR ManorCare Facilities Acquisition has not occurred prior to April 15, 2011, then the purchase price will decrease by an amount equal to $675,000 multiplied by a fraction (which shall not be greater than one) equal to the gross financing proceeds (including equity and debt) raised by us after the date of the Purchase Agreement divided by $4.1 billion for each day thereafter until the closing occurs. Under the terms of the Purchase Agreement, we can elect to fund all or a portion of the stock portion of the consideration with cash. HCR ManorCare, based in Toledo, Ohio, is owned by private equity funds managed by The Carlyle Group. Upon the closing of the acquisition, we will acquire from HCR ManorCare 338 post-acute skilled nursing and assisted living facilities principally located in Illinois, Ohio, Pennsylvania, Michigan and Florida. As described below under "Master Lease," at the closing, we will enter into a long-term triple-net master lease supported by a guaranty from HCR ManorCare under which HCR ManorCare will continue to operate the facilities that we are acquiring.
The acquisition is expected to close in the first quarter of 2011. In addition, the purchase price will be adjusted at closing based on changes in net liabilities associated with the acquired assets, which adjustments may be effected through adjustments in the amount of stock issued to the shareholders of HCR ManorCare. The acquisition is subject to various customary conditions to closing, the failure of which to occur could delay the closing or result in the transaction not closing.
The stockholders of HCR ManorCare will be restricted from selling any shares of our common stock that they receive in conjunction with the HCR ManorCare Facilities Acquisition until the earlier of (i) 90 days after the closing of the HCR ManorCare Facilities Acquisition and (ii) 90 days after the later of the closing or the date that HCP completes one or more equity offerings totaling at least $1.5 billion in cash proceeds in the aggregate.
In addition, upon the closing of the HCR ManorCare Facilities Acquisition, for so long as the stockholders of HCR ManorCare own, in the aggregate, at least 5% of the then-outstanding shares of HCP common stock, such stockholders shall be entitled to designate Paul A. Ormond as a director to serve on the HCP board of directors. We currently anticipate that the HCP board of directors will appoint Paul A. Ormond, Chairman, President and Chief Executive Officer of HCR ManorCare, to the board at the closing of the HCR ManorCare Facilities Acquisition.
In addition, in conjunction with the HCR ManorCare Facilities Acquisition and the terms of the Purchase Agreement, HCP will either (i) have the option to purchase a 9.9% equity interest in HCR ManorCare for $95 million at the consummation of the HCR ManorCare Facilities Acquisition or (ii) be granted a warrant to purchase a 9.9% equity interest, subject to dilution, in HCR ManorCare that is exercisable between the second and seventh anniversaries of the consummation of the HCR ManorCare Facilities Acquisition for $100 million.
In connection with the acquisition, we entered into a credit agreement for a 364-day bridge loan facility (from funding to maturity) in an aggregate amount of up to $3.3 billion, which may be used to finance part of the acquisition purchase price. However, we currently anticipate issuing securities in lieu of some or all borrowings available under the bridge loan facility. See "Description of Certain Indebtedness" for additional information.
The acquisition is subject to certain governmental and regulatory approvals and other closing conditions and is expected to close in the first quarter of 2011. However, we cannot assure you that the acquisition will close or, if it does, when such closing will occur. See "Risk FactorsRisks Related to the Offering and the HCR ManorCare Facilities Aquisition." The acquisition is not subject to a
S-11
financing contingency. In the event that HCR ManorCare terminates the Purchase Agreement when all of its conditions to closing are satisfied or capable of being satisfied (other than conditions not satisfied because of our breach or default), and we have not consummated the acquisition, then we would be required to pay HCR ManorCare $500 million as its sole and exclusive remedy for such termination.
This offering is not conditioned upon the consummation of the HCR ManorCare Facilities Acquisition.
Master Lease
Immediately after the closing of the HCR ManorCare Facilities Acquisition, certain wholly-owned subsidiaries of HCR ManorCare PropCo will lease the Facilities to a wholly-owned subsidiary of HCR ManorCare pursuant to a triple-net master lease (the "Master Lease"). All obligations under the Master Lease will be guaranteed by HCR ManorCare with HCR ManorCare being subject to (i) a fixed charge coverage ratio on a debt incurrence basis and (ii) dividend payment limitations tied to a fixed charge coverage ratio and a percentage of available cash flow after funding capital expenditures and mandatory debt amortization.
To minimize facility renewal risk, the Facilities will be divided into four pools with initial lease terms of between 13 and 17 years. HCR ManorCare will have a one-time lease extension option with respect to each pool for varying extension terms which could extend the total lease terms to between 23 and 35 years in length. The pools are designed to have a comparable mix of Facilities based on location, asset type, and performance.
The Master Lease will provide for minimum rent in the first year of $472.5 million, with minimum rent to increase by 3.5% per year during the subsequent five years of the term and by 3% per year for the remaining portion of the initial term. The minimum rent may also increase by 25% for a period of 18 months in the event that the stockholders of HCR ManorCare elect to sell certain portions of their shares in HCP prior to various fixed dates measured from the commencement date of the Master Lease. Upon the exercise of an extension option, minimum rent will reset to the greater of fair market value rent or 103% of the minimum rent for the prior year. Thereafter, minimum rent will increase by the greater of the annual increase in the consumer price index or 3%.
The Master Lease is structured so that HCR ManorCare will be responsible for all operating costs associated with the Facilities, including the repayment of taxes, insurance, and all repairs. HCR ManorCare will also provide indemnities against liabilities associated with the operation of the Facilities.
On an annual basis, HCR ManorCare is required to make capital improvements to the Facilities equal to a minimum of $1,250/bed for the first three years of the Master Lease and a minimum of $800/bed commencing in year four of the Master Lease, subject to annual escalations. Capital expenditures will be assessed in years 10 and 20 of the Master Lease term with HCR ManorCare being responsible for certain deferred maintenance and capital expenditure requirements based on such assessments.
HCP will have the right of first refusal to provide sale-leaseback or other financing for any purchase options on facilities HCR ManorCare currently leases, any owned facilities not included in the transaction and any development projects currently in HCR ManorCare's pipeline.
The Financing Transactions
Bridge Loan Facility
On December 13, 2010, HCP entered into a credit agreement with Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wells Fargo Securities, LLC, as joint lead arrangers and joint bookrunners, Citicorp North America, Inc., an affiliate of Citigroup Global Markets Inc., Bank of America, N.A., an affiliate of
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Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC and Wells Fargo Bank, National Association an affiliate of Wells Fargo Securities, LLC, as co-syndication agents, UBS AG, Stamford Branch as the administrative agent, and those underwriters and/or their affiliates, as lenders, providing for a 364-day bridge loan facility (from funding to maturity) to HCP in an aggregate amount of up to $3.3 billion upon the terms and conditions set forth therein. The bridge loan facility is undrawn today, and the commitments thereunder are available until June 13, 2011, subject to extension until September 13, 2011 if all regulatory approvals under the Purchase Agreement have not been obtained. The commitments (and any outstanding loans) under the bridge loan facility will be reduced (and any outstanding loans shall be required to be prepaid) by an amount equal to the net cash proceeds from any offering of debt securities by HCP after December 13, 2010, subject to customary exclusions and reinvestment rights, including up to $100 million in asset sales over the term of the bridge loan facility. See "Description of Certain IndebtednessBridge Loan Facility."
Sources and Uses of Funds for the HCR ManorCare Facilities Acquisition
The following table sets forth the expected sources and uses of funds upon completion of the HCR ManorCare Facilities Acquisition, assuming a closing date in the first quarter of 2011. No assurances can be given that the information in the following table will not change depending on the nature of our financing arrangements and/or whether the HCR ManorCare Facilities Acquisition will be consummated in accordance with the anticipated timing or at all. See "Risk FactorsRisks Related to the Offering and the HCR ManorCare Facilities Acquisition."
Sources
|
Amount | Uses
|
Amount | ||||||
---|---|---|---|---|---|---|---|---|---|
|
(in millions) |
|
(in millions) |
||||||
Equity offering |
$ | 866 | (1) | Cash portion of purchase price |
$ | 3,433 | |||
Equity consideration to HCR ManorCare |
852 | Equity portion of purchase price |
852 | ||||||
HCP's loan investment in ManorCare PropCo's debt |
1,718 | HCP's loan investment in ManorCare PropCo's debt |
1,718 | ||||||
Bridge Loan |
2,870 | Repayment of HCP secured debt collateralized by its investment in ManorCare PropCo's mortgage debt |
425 | ||||||
Senior notes |
200 | Estimated fees and expenses |
78 | ||||||
Total |
$ | 6,506 | $ | 6,506 | |||||
On December 10, 2010, we signed a definitive agreement to acquire our partner's 65% interest in a joint venture that owns 25 senior housing facilities. Upon the closing of the HCP Ventures II Purchase, HCP will become the sole owner of these 25 senior housing facilities. The assets were acquired on October 5, 2006, through HCP's acquisition of CNL Retirement Properties, Inc., and subsequently were contributed to the joint venture in January 2007.
In exchange for our partner's interest and the assumption of approximately $650 million of Fannie Mae debt secured by these facilities, we will pay approximately $137 million in cash in a transaction valuing the assets of the venture at $860 million. The acquisition is expected to close on or before January 31, 2011. The HCP Ventures II Purchase will be subject to various customary conditions to closing, the failure of which to occur could delay the closing or result in the transaction not closing.
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An investment in our common stock involves risks. You should carefully consider the following information about these risks, together with the other information included and incorporated by reference in this prospectus supplement, before buying our common stock. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business. We cannot predict future risks or estimate the extent to which they may affect our financial performance.
Risks Related to the Offering and the HCR ManorCare Facilities Acquisition
There can be no assurance that the HCR ManorCare Facilities Acquisition will be consummated in accordance with the anticipated timing or at all, and the closing of this offering is not conditioned on the consummation of the HCR ManorCare Facilities Acquisition. If the HCR ManorCare Facilities Acquisition is not consummated, HCP's common stock will not reflect any actual or anticipated interest in ManorCare PropCo, and if the HCR ManorCare Facilities Acquisition is delayed, this interest will not be reflected during the period of delay.
Although HCP expects to close the HCR ManorCare Facilities Acquisition in the first quarter of 2011, there can be no assurance that the HCR ManorCare Facilities Acquisition will be completed in accordance with the anticipated timing or at all. In order to consummate the HCR ManorCare Facilities Acquisition, HCP and HCR ManorCare must obtain certain regulatory and other approvals and consents in a timely manner. If these approvals or consents are not received, or they are not received on terms that satisfy the conditions set forth in the Purchase Agreement, then HCP and/or HCR ManorCare will not be obligated to complete the HCR ManorCare Facilities Acquisition. The Purchase Agreement also contains customary and other closing conditions, which may not be satisfied or waived. In addition, under circumstances specified in the Purchase Agreement, HCP or HCR ManorCare may terminate the Purchase Agreement.
The closing of this offering is not conditioned on the consummation of the HCR ManorCare Facilities Acquisition. Therefore, upon the closing of this offering, you will become a holder of HCP's common stock irrespective of whether the HCR ManorCare Facilities Acquisition is consummated or delayed. If the HCR ManorCare Facilities Acquisition is not completed, HCP's common stock that you have purchased in this offering, will not reflect any interest in HCR ManorCare PropCo, and if the HCR ManorCare Facilities Acquisition is delayed, this interest will not be reflected during the period of delay. If this offering is consummated and the HCR ManorCare Facilities Acquisition does not occur, your expected earnings per share of our common stock may be significantly reduced. Also, the price of HCP's common stock may decline to the extent that the current market price of HCP's common stock reflects a market assumption that the HCR ManorCare Facilities Acquisition will be consummated and that HCP will realize certain anticipated benefits of the HCR ManorCare Facilities Acquisition. In addition, HCP's business may be harmed to the extent that customers, suppliers and others believe that HCP cannot effectively compete in the marketplace without HCR ManorCare PropCo, or otherwise remain uncertain about HCP.
If HCP is unable to raise sufficient proceeds through other Financing Transactions described elsewhere in this prospectus supplement, HCP may draw down on a bridge loan facility in order to close the HCR ManorCare Facilities Acquisition, which would significantly increase our indebtedness. If HCP elects not to consummate the financing under the bridge loan facility, HCP may seek alternative sources of financing for the HCR ManorCare Facilities Acquisition, the terms of which are unknown to us and could limit our ability to operate our business.
The offering of the common stock forms part of a larger financing plan for the HCR ManorCare Facilities Acquisition described elsewhere in this prospectus supplement. See "The HCR ManorCare Facilities AcquisitionThe Financing Transactions." Concurrently with this offering, HCP has entered
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into a new bridge loan facility pursuant to which the bridge lenders have committed to fund HCP's new senior unsecured bridge facility and to provide, subject to certain conditions, the additional financing required for the HCR ManorCare Facilities Acquisition through a $3.3 billion bridge loan facility in the event that sufficient proceeds are not raised from this offering and/or additional future debt offerings. See "Description of Certain IndebtednessBridge Loan Facility." HCP intends to use this bridge loan facility, together with additional sources of funding, including future debt offerings, to finance the HCR ManorCare Facilities Acquisition. See "Use of Proceeds." HCP's obligations under the Purchase Agreement are not conditioned upon the consummation of any or all of the Financing Transactions.
In the event that HCP is unable to raise sufficient proceeds through the consummation of future debt offerings and this offering, HCP may draw down on the bridge loan facility, in whole or in part, in order to finance the HCR ManorCare Facilities Acquisition. See "Description of Certain IndebtednessBridge Loan Facility." In the event of such draw down, we would be significantly more highly leveraged, which means we will have a larger amount of indebtedness in relation to our equity. Our interest expense would significantly increase.
In the event that HCP does not consummate future debt offerings as currently contemplated and elects not to consummate the financing under the bridge loan facility or fails to satisfy certain of the various conditions pursuant to which the bridge lenders have committed to fund HCP's bridge loan facility, it could seek alternative sources of financing for the HCR ManorCare Facilities Acquisition. There can be no assurance as to the terms on which HCP would issue future additional securities or borrow funds.
We will incur substantial expenses and payments even if the HCR ManorCare Facilities Acquisition is not completed.
We have incurred substantial legal, accounting, financial advisory and other costs and our management has devoted considerable time and effort in connection with the HCR ManorCare Facilities Acquisition. If the HCR ManorCare Facilities Acquisition is not completed, we will bear certain fees and expenses associated with this transaction without realizing the benefits of the acquisition. The fees and expenses may be significant and could have an adverse impact on our results of our operations.
From time to time we have made, and in the future we may seek to make, one or more material acquisitions, which may involve the expenditure of significant funds.
We regularly review potential transactions in order to maximize shareholder value and believe that currently there are available a number of acquisition opportunities that would be complementary to our business, given the recent industry consolidation trend.
From time to time we engage in discussions with potential acquisition candidates, some of which are material. In addition to the expenditures of capital required in connection with the HCR ManorCare Facilities Acquisition and HCP Ventures II Purchase, any future acquisitions could require the issuance of equity securities, the incurrence of debt, contingent liabilities or amortization of expenses related to other intangible assets, any of which could adversely impact our financial condition or results of operations. In addition, equity or debt financing required for such acquisitions may not be available.
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We estimate that the net proceeds of this offering, assuming an initial public offering price of $32.52 per share, which is the last reported sale price of our common stock on the NYSE on December 13, 2010, after giving effect to the underwriting discount and estimated expenses payable by us, will be approximately $967 million. A $1.00 increase (decrease) in the assumed public offering price of $32.52 per share of common stock would increase (decrease) the net proceeds to us from this offering by $29.8 million, assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus supplement, remains the same and after deducting the underwriting discount and estimated expenses payable by us. We intend to use the net proceeds from this offering, together with future debt offerings, cash on hand, and the reinvestment of proceeds from the repayment of HCP's existing debt investments in HCR ManorCare, to finance the aggregate purchase price of the HCR ManorCare Facilities Acquisition and the HCP Ventures II Purchase and may repay $425 million of secured debt used by HCP to finance a portion of the HCR ManorCare debt issued by an affiliate of J.P. Morgan Securities LLC. See "The HCR ManorCare Facilities AcquisitionThe Financing Transactions." If the Acquisitions are not consummated, we intend to use the net proceeds from this offering for general corporate purposes and/or working capital purposes, which may include the repayment of indebtedness or other acquisitions or investment opportunities. Pending such uses, the net proceeds may be invested in short-term, investment-grade, interest bearing securities.
The underwriters and/or their affiliates have provided and in the future may provide investment banking, commercial banking and/or advisory services to us from time to time for which they have received and in the future may receive customary fees and expenses and may have entered into and in the future may enter into other transactions with us. An affiliate of J.P. Morgan Securities LLC is the lender of the $425 million secured debt used by HCP to finance a portion of the HCR ManorCare debt currently held by HCP and which will be repaid with proceeds from this offering. In addition, Banc of America Securities LLC, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated is a joint lead arranger and joint bookrunner, Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, is the administrative agent, Merrill Lynch Bank USA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated is a senior managing agent, UBS Securities LLC is a joint lead arranger, joint bookrunner and syndication agent, Citicorp North America, Inc., an affiliate of Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, and Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities, LLC, are documentation agents, and affiliates of Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Wells Fargo Securities, LLC are lenders under our revolving credit facility. In addition, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Wells Fargo Securities, LLC are joint lead arrangers and joint bookrunners, Citicorp North America, Inc., an affiliate of Citigroup Global Markets Inc., Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, and Wells Fargo Bank, National Association, an affiliate of Wells Fargo Securities, LLC, are co-syndication agents, UBS AG, Stamford Branch, an affiliate of UBS Securities LLC, is the administrative agent, and those underwriters and/or their affiliates may be lenders under our bridge loan facility. To the extent that any portion of the net proceeds from this offering is applied to repay borrowings under our revolving credit facility and/or our bridge loan facility, the underwriters and/or their respective affiliates will receive a portion of the net proceeds so applied through the repayment of borrowings under our revolving credit facility and/or our bridge loan facility. Citigroup Global Markets Inc., UBS Securities LLC, and Wells Fargo Securities, LLC have acted as our financial advisors in connection with the HCR ManorCare Facilities Acquisition. J.P. Morgan Securities LLC has acted as financial advisor to HCR ManorCare in connection with the HCR ManorCare Facilities Acquisition.
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The following table sets forth the capitalization of HCP as of September 30, 2010:
The following table is unaudited and should be read in conjunction with "Summary Historical Consolidated Financial Data of HCP, "The HCR ManorCare Facilities Acquisition," "The HCP Ventures II Purchase," "Use of Proceeds," and "Unaudited Pro Forma Condensed Consolidated Financial Statements," contained elsewhere in this prospectus supplement, and our consolidated annual and interim financial statements and the notes thereto included in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. No assurances can be given that the information in the following table will not change depending on the nature of our financings. In addition, no assurances can be given that the HCR ManorCare Facilities Acquisition and the HCP Ventures II Purchase will be consummated in accordance with the anticipated timing or at all. The consummation of this offering is not conditioned upon the consummation of the HCR ManorCare Facilities Acquisition or the HCP Ventures II Purchase.
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HCP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETCAPITALIZATION
As of September 30, 2010
(in thousands, except share and per share data)
|
Actual | As Adjusted(1)(2) | Pro Forma(1)(3) | Adjusted Pro Forma(1)(3) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Debt obligations: |
|||||||||||||||
Bank line of credit |
$ | 318,000 | $ | 318,000 | $ | 321,313 | $ | 3,313 | |||||||
Bridge loan |
| | 2,870,000 | 2,870,000 | |||||||||||
Senior unsecured notes |
3,324,975 | 3,324,975 | 3,524,975 | 3,524,975 | |||||||||||
Mortgage and other secured debt |
1,682,740 | 1,682,740 | 1,910,370 | 1,910,370 | |||||||||||
Other debt |
93,990 | 93,990 | 93,990 | 93,990 | |||||||||||
Total debt |
5,419,705 | 5,419,705 | 8,720,648 | 8,402,648 | |||||||||||
Stockholders' equity: |
|||||||||||||||
Preferred stock, $1.00 par value per share: 50,000,000 shares authorized; 11,820,000 shares issued and outstanding |
$ | 285,173 | $ | 285,173 | $ | 285,173 | $ | 285,173 | |||||||
Common stock, $1.00 par value per share: 750,000,000 shares authorized; 310,507,413 actual shares, 341,507,413 shares as adjusted, 367,216,413 shares pro forma, 381,016,413 shares adjusted pro forma issued and outstanding |
310,507 | 341,507 | 367,216 | 381,016 | |||||||||||
Additional paid-in capital |
6,237,663 | 7,173,658 | 7,999,349 | 8,451,941 | |||||||||||
Cumulative dividends in excess of earnings |
(761,036 | ) | (761,036 | ) | (727,478 | ) | (727,478 | ) | |||||||
Accumulated other comprehensive income |
(7,426 | ) | (7,426 | ) | (7,426 | ) | (7,426 | ) | |||||||
Total stockholders' equity |
6,064,881 | 7,031,876 | 7,916,834 | 8,383,226 | |||||||||||
Noncontrolling interests: |
|||||||||||||||
Joint venture partners |
14,095 | 14,095 | 14,095 | 14,095 | |||||||||||
Non-managing member unitholders |
174,808 | 174,808 | 174,808 | 174,808 | |||||||||||
Total noncontrolling interests |
188,903 | 188,903 | 188,903 | 188,903 | |||||||||||
Total equity |
6,253,784 | 7,220,779 | 8,105,737 | 8,572,129 | |||||||||||
Total capitalization |
$ | 11,673,489 | $ | 12,640,484 | $ | 16,826,385 | $ | 16,974,777 | |||||||
A $1.00 increase (decrease) in the assumed public offering price of $32.52 per share of common stock would increase (decrease) the net proceeds to us from this offering by $29.8 million, assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus supplement, remains the same and after deducting the underwriting discount and estimated expenses by us.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed on the New York Stock Exchange, or NYSE, under the symbol "HCP." The table below sets forth, for the fiscal quarters indicated, high and low reported sale prices per share of our common stock on the NYSE and the cash dividends per share paid in such periods. The last reported sale price of our common stock on the NYSE on December 13, 2010 was $32.52 per share.
|
Stock Price | |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Dividends Paid | |||||||||
|
High | Low | ||||||||
2007 |
||||||||||
First Quarter |
$ | 42.11 | $ | 35.01 | $ | 0.4450 | ||||
Second Quarter |
38.60 | 28.02 | 0.4450 | |||||||
Third Quarter |
34.49 | 25.11 | 0.4450 | |||||||
Fourth Quarter |
35.24 | 29.30 | 0.4450 | |||||||
2008 |
||||||||||
First Quarter |
$ | 35.14 | $ | 26.80 | $ | 0.4550 | ||||
Second Quarter |
38.75 | 31.14 | 0.4550 | |||||||
Third Quarter |
42.16 | 30.12 | 0.4550 | |||||||
Fourth Quarter |
39.83 | 14.26 | 0.4550 | |||||||
2009 |
||||||||||
First Quarter |
$ | 27.77 | $ | 14.93 | $ | 0.4600 | ||||
Second Quarter |
24.50 | 17.07 | 0.4600 | |||||||
Third Quarter |
30.73 | 19.79 | 0.4600 | |||||||
Fourth Quarter |
33.45 | 26.94 | 0.4600 | |||||||
2010 |
||||||||||
First Quarter |
$ | 34.37 | $ | 26.70 | $ | 0.4650 | ||||
Second Quarter |
34.50 | 28.53 | 0.4650 | |||||||
Third Quarter |
38.05 | 31.08 | 0.4650 | |||||||
Fourth Quarter (through December 13, 2010) |
37.65 | 31.88 | 0.4650 |
As of December 13, 2010, there were approximately 12,740 common stockholders of record.
It has been our policy to declare dividends to the holders of shares of our common stock so as to comply with applicable provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, governing REITs. The cash dividends per share paid on our common stock since January 1, 2007 are set forth in the table above.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following is an excerpt of information contained in our Current Report on Form 8-K, as filed with the SEC on December 13, 2010 and incorporated herein by reference. You should read and consider the information in the documents to which we have referred you in "Incorporation by Reference" including the foregoing Current Report of Form 8-K, before purchasing these securities.
The accompanying unaudited pro forma condensed consolidated financial statements presented below have been prepared based on certain pro forma adjustments to the historical consolidated financial statements of HCP, HCR ManorCare PropCo and HCP Ventures II as of and for the nine months ended September 30, 2010 and for the year ended December 31, 2009. The historical consolidated financial statements of HCP are contained in its Annual Report on Form 10-K for the year ended December 31, 2009, as updated by its Current Report on Form 8-K as filed with the SEC on November 2, 2010, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. The historical consolidated financial statements of HCR ManorCare PropCo are included as Exhibits 99.2 and 99.3 to the Current Report on Form 8-K as filed with the SEC on December 13, 2010.
The accompanying unaudited pro forma condensed consolidated financial statements give effect to the Acquisitions. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2010 has been prepared as if the Acquisitions had occurred as of that date. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2009 and for the nine months ended September 30, 2010 have been prepared as if the Acquisitions had occurred as of January 1, 2009. Such statements also reflect the incurrence of debt and give effect to certain capital transactions undertaken by HCP in order to finance the Acquisitions.
The allocation of the purchase price of HCR ManorCare PropCo and HCP Ventures II reflected in these unaudited pro forma condensed consolidated financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. A final determination of the fair values of HCR ManorCare PropCo's and HCP Ventures II's assets and liabilities, which cannot be made prior to the completion of the transactions, will be based on the actual valuation of the tangible and intangible assets and liabilities of HCR ManorCare PropCo and HCP Ventures II that exist as of the date of completion of the transactions. Consequently, amounts preliminarily allocated to identifiable tangible and intangible assets and liabilities could change significantly from those used in the pro forma condensed consolidated financial statements presented below and could result in a material change in amortization of tangible and intangible assets and liabilities.
In the opinion of HCP's management, the pro forma financial statements include all significant necessary adjustments that can be factually supported to reflect the effects of the Acquisitions. The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily and should not be assumed to be an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The completion of the valuation, the allocation of the purchase price, the impact of ongoing integration activities, the timing of completion of the transactions and other changes in HCR ManorCare PropCo and HCP Ventures II tangible and intangible assets and liabilities that occur prior to completion of the transactions could cause material differences in the information presented. Furthermore, following consummation of the transactions, HCP expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired in the transaction, which may differ from those reflected in HCR ManorCare PropCo's and HCP Ventures II's historical financial statements and the pro forma financial statements.
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HCP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2010
(In thousands)
|
HCP Historical |
HCR ManorCare PropCo Historical (A) |
HCR ManorCare PropCo Pro Forma Adjustments (B) |
HCP Ventures II Historical (A) |
HCP Ventures II Pro Forma Adjustments (P) |
HCP Pro Forma |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
|||||||||||||||||||||||
Real estate: |
|||||||||||||||||||||||
Buildings, improvements and development |
$ | 8,260,220 | $ | | $ | | $ | 936,957 | $ | (249,404 | )(Q) | $ | 8,947,773 | ||||||||||
Land |
1,558,947 | | | 108,907 | (14,835 | )(Q) | 1,653,019 | ||||||||||||||||
Accumulated depreciation and amortization |
(1,189,998 | ) | | | (105,085 | ) | 105,085 | (Q) | (1,189,998 | ) | |||||||||||||
Net real estate |
8,629,169 | | | 940,779 | (159,154 | ) | 9,410,794 | ||||||||||||||||
Net investment in direct financing leases |
607,392 | 3,123,630 | 2,883,005 | (C) | | | 6,614,027 | ||||||||||||||||
Loans receivable, net |
1,852,521 | | (1,578,697 | )(D) | | | 273,824 | ||||||||||||||||
Investments in and advances to unconsolidated joint ventures |
197,697 | | | | (65,651 | )(R) | 132,046 | ||||||||||||||||
Accounts receivable, net |
38,414 | | | | | 38,414 | |||||||||||||||||
Cash, cash equivalents and restricted cash |
86,858 | 3,420 | | 9,054 | | 99,332 | |||||||||||||||||
Intangible assets, net |
325,859 | | 13,500 | (E) | 36,530 | 41,845 | (S) | 417,734 | |||||||||||||||
Real estate held for sale, net |
12,554 | | | | | 12,554 | |||||||||||||||||
Other assets, net |
494,835 | 35,609 | (6,946 | )(F) | 6,242 | (5,742 | )(T) | 523,998 | |||||||||||||||
Total assets |
$ | 12,245,299 | $ | 3,162,659 | $ | 1,310,862 | $ | 992,605 | $ | (188,702 | ) | $ | 17,522,723 | ||||||||||
LIABILITIES AND EQUITY |
|||||||||||||||||||||||
Bank line of credit |
$ | 318,000 | $ | | $ | 3,313 | (G) | $ | | $ | | $ | 321,313 | ||||||||||
Bridge loan |
| | 2,870,000 | (G) | | | 2,870,000 | ||||||||||||||||
Senior unsecured notes |
3,324,975 | | 200,000 | (G) | | | 3,524,975 | ||||||||||||||||
Mortgage and other secured debt |
1,682,740 | | (424,720 | )(G) | 652,036 | 314 | (U) | 1,910,370 | |||||||||||||||
Long-term debt |
| 4,595,942 | (4,595,942 | )(G) | | | | ||||||||||||||||
Other debt |
93,990 | | | | | 93,990 | |||||||||||||||||
Intangible liabilities, net |
153,522 | | | 989 | (989 | )(V) | 153,522 | ||||||||||||||||
Accounts payable and accrued expenses and deferred revenues |
418,288 | 1,048,549 | (931,259 | )(H) | 7,781 | (543 | )(R) | 542,816 | |||||||||||||||
Total liabilities |
5,991,515 | 5,644,491 | (2,878,608 | ) | 660,806 | (1,218 | ) | 9,416,986 | |||||||||||||||
Equity: |
|||||||||||||||||||||||
Preferred stock |
285,173 | | | | | 285,173 | |||||||||||||||||
Common stock |
310,507 | | 26,616 | (I) | | 4,384 | (I) | 367,216 | |||||||||||||||
|
25,709 | (J) | |||||||||||||||||||||
Additional paid-in capital |
6,237,663 | | 803,576 | (I) | | 132,419 | (I) | 7,999,349 | |||||||||||||||
|
825,691 | (J) | |||||||||||||||||||||
Cumulative dividends in excess of earnings |
(761,036 | ) | | 44,921 | (D) | | 7,662 | (R) | (727,478 | ) | |||||||||||||
|
| | (18,875 | )(B) | | (150 | )(P) | | |||||||||||||||
Accumulated other comprehensive loss |
(7,426 | ) | | | | | (7,426 | ) | |||||||||||||||
Total members' equity (deficit) |
| (2,481,832 | ) | 2,481,832 | (B) | 331,799 | (331,799 | )(P) | | ||||||||||||||
Total stockholders' equity |
6,064,881 | (2,481,832 | ) | 4,189,470 | 331,799 | (187,484 | ) | 7,916,834 | |||||||||||||||
Total noncontrolling interests |
188,903 | | | | | 188,903 | |||||||||||||||||
Total equity |
6,253,784 | (2,481,832 | ) | 4,189,470 | 331,799 | (187,484 | ) | 8,105,737 | |||||||||||||||
Total liabilities and equity |
$ | 12,245,299 | $ | 3,162,659 | $ | 1,310,862 | $ | 992,605 | $ | (188,702 | ) | $ | 17,522,723 | ||||||||||
The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
S-21
HCP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2010
(In
thousands, except per share data)
|
HCP Historical |
HCR ManorCare PropCo Historical (A) |
HCR ManorCare PropCo Pro Forma Adjustments |
HCP Ventures II Historical (A) |
HCP Ventures II Pro Forma Adjustments (P) |
HCP Pro Forma |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues and other income: |
|||||||||||||||||||||
Rental and related revenues |
$ | 697,802 | $ | | $ | | $ | 58,003 | $ | (7,216 | )(W) | $ | 748,589 | ||||||||
Tenant recoveries |
67,262 | | | | | 67,262 | |||||||||||||||
Income from direct financing leases |
37,238 | 331,865 | 143,334 | (K) | | | 512,437 | ||||||||||||||
Interest income |
108,004 | | (83,819 | )(L) | 1 | | 24,186 | ||||||||||||||
Investment management fee income |
3,755 | | | | (1,965 | )(X) | 1,790 | ||||||||||||||
Total revenues |
914,061 | 331,865 | 59,515 | 58,004 | (9,181 | ) | 1,354,264 | ||||||||||||||
Costs and expenses: |
|||||||||||||||||||||
Depreciation and amortization |
234,008 | | | 20,760 | 3,345 | (Y) | 258,113 | ||||||||||||||
Interest expense |
220,303 | 116,183 | 18,080 | (M) | 28,637 | (454) | (Z) | 382,749 | |||||||||||||
Operating |
152,028 | 1,274 | (1,159 | )(N) | 15 | | 152,158 | ||||||||||||||
General and administrative |
65,039 | | | 3,330 | (3,209 | )(X) | 65,160 | ||||||||||||||
Impairments (recoveries) |
(11,900 | ) | | | 54,500 | (54,500 | )(AA) | (11,900 | ) | ||||||||||||
Total costs and expenses |
659,478 | 117,457 | 16,921 | 107,242 | (54,818 | ) | 846,280 | ||||||||||||||
Other income, net |
7,151 | (10,921 | ) | 10,921 | | | 7,151 | ||||||||||||||
Income before income taxes and equity income from and impairments of investments in unconsolidated joint ventures |
261,734 | 203,487 | 53,515 | (49,238 | ) | 45,637 | 515,135 | ||||||||||||||
Income taxes |
(1,809 | ) | (76,923 | ) | 76,923 | (O) | | | (1,809 | ) | |||||||||||
Equity income from unconsolidated joint ventures |
4,078 | | | | (2,749 | )(BB) | 1,329 | ||||||||||||||
Impairments of investments in unconsolidated joint ventures |
(71,693 | ) | | | | 71,693 | (BB) | | |||||||||||||
Income from continuing operations |
192,310 | 126,564 | 130,438 | (49,238 | ) | 114,581 | 514,655 | ||||||||||||||
Noncontrolling interests' share of earnings |
(10,077 | ) | | | | | (10,077 | ) | |||||||||||||
Income from continuing operations applicable to HCP, Inc. |
182,233 | 126,564 | 130,438 | (49,238 | ) | 114,581 | 504,578 | ||||||||||||||
Preferred stock dividends |
(15,848 | ) | | | | | (15,848 | ) | |||||||||||||
Participating securities' share in earnings |
(1,648 | ) | | | | | (1,648 | ) | |||||||||||||
Income from continuing operations applicable to common shares |
$ | 164,737 | $ | 126,564 | $ | 130,438 | $ | (49,238 | ) | $ | 114,581 | $ | 487,082 | ||||||||
Income from continuing operations per common sharebasic(CC) |
$ | 0.55 | $ | 1.37 | |||||||||||||||||
Income from continuing operations per common sharediluted(CC) |
$ | 0.55 | $ | 1.36 | |||||||||||||||||
Weighted average shares used to calculate income per common share: |
|||||||||||||||||||||
Basic(CC) |
299,243 | 52,325 | (DD) | 4,384 | (DD) | 355,952 | |||||||||||||||
Diluted(CC) |
300,468 | 52,325 | (DD) | 4,384 | (DD) | 357,177 | |||||||||||||||
The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
S-22
HCP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2009
(In thousands,
except per share data)
|
HCP Historical |
HCR ManorCare PropCo Historical (A) |
HCR ManorCare PropCo Pro Forma Adjustments |
HCP Ventures II Historical (A) |
HCP Ventures II Pro Forma Adjustments (P) |
HCP Pro Forma |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues and other income: |
|||||||||||||||||||||
Rental and related revenues |
$ | 878,770 | $ | | $ | | $ | 83,510 | $ | (10,084 | )(W) | $ | 952,196 | ||||||||
Tenant recoveries |
89,582 | | | | | 89,582 | |||||||||||||||
Income from direct financing leases |
51,495 | 438,876 | 182,441 | (K) | | | 672,812 | ||||||||||||||
Interest income |
124,146 | | (81,054 | )(L) | 1 | | 43,093 | ||||||||||||||
Investment management fee income |
5,312 | | | | (2,789 | )(X) | 2,523 | ||||||||||||||
Total revenues |
1,149,305 | 438,876 | 101,387 | 83,511 | (12,873 | ) | 1,760,206 | ||||||||||||||
Costs and expenses: |
|||||||||||||||||||||
Depreciation and amortization |
316,803 | | | 28,038 | 4,101 | (Y) | 348,942 | ||||||||||||||
Interest expense |
298,897 | 152,316 | 59,869 | (M) | 38,778 | (605 | )(Z) | 549,255 | |||||||||||||
Operating |
185,829 | 1,802 | (1,649 | )(N) | 7 | | 185,989 | ||||||||||||||
General and administrative |
78,471 | | | 4,682 | (4,291 | )(X) | 78,862 | ||||||||||||||
Litigation provision |
101,973 | | | | | 101,973 | |||||||||||||||
Impairments (recoveries) |
75,389 | | | | | 75,389 | |||||||||||||||
Total costs and expenses |
1,057,362 | 154,118 | 58,220 | 71,505 | (795 | ) | 1,340,410 | ||||||||||||||
Other income, net |
7,768 | (5,757 | ) | 5,757 | | | 7,768 | ||||||||||||||
Income before income taxes and equity income from and impairments of investments in unconsolidated joint ventures |
99,711 |
279,001 |
48,924 |
12,006 |
(12,078 |
) |
427,564 |
||||||||||||||
Income taxes |
(1,910 | ) | (105,408 | ) | 105,408 | (O) | | | (1,910 | ) | |||||||||||
Equity income from unconsolidated joint ventures |
3,511 | | | | (5,541 | )(BB) | (2,030 | ) | |||||||||||||
Income from continuing operations |
101,312 | 173,593 | 154,332 | 12,006 | (17,619 | ) | 423,624 | ||||||||||||||
Noncontrolling interests' share of earnings |
(14,461 |
) |
|
|
|
|
(14,461 |
) |
|||||||||||||
Income from continuing operations applicable to HCP, Inc. |
86,851 | 173,593 | 154,332 | 12,006 | (17,619 | ) | 409,163 | ||||||||||||||
Preferred stock dividends |
(21,130 | ) | | | | | (21,130 | ) | |||||||||||||
Participating securities' share in earnings |
(1,491 | ) | | | | | (1,491 | ) | |||||||||||||
Income from continuing operations applicable to common shares |
$ | 64,230 | $ | 173,593 | $ | 154,332 | $ | 12,006 | $ | (17,619 | ) | $ | 386,542 | ||||||||
Income from continuing operations per common sharebasic(CC) |
$ |
0.23 |
$ |
1.17 |
|||||||||||||||||
Income from continuing operations per common sharediluted(CC) |
$ | 0.23 | $ | 1.17 | |||||||||||||||||
Weighted average shares used to calculate income per common share: |
|||||||||||||||||||||
Basic(CC) |
274,216 | 52,325 | (DD) | 4,384 | (DD) | 330,925 | |||||||||||||||
Diluted(CC) |
274,631 | 52,325 | (DD) | 4,384 | (DD) | 331,340 | |||||||||||||||
The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
S-23
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP and HCR ManorCare PropCo for the year ended December 31, 2009 and as of and for the nine months ended September 30, 2010 that are incorporated herein by reference.
The calculation of the HCR ManorCare Facilities Acquisition total purchase price follows (in thousands):
|
September 30, 2010 |
||||
---|---|---|---|---|---|
Calculation of HCR ManorCare PropCo purchase price |
|||||
Issuance of 25.7 million shares of HCP common stock |
$ | 852,000 | |||
Payment of aggregate cash consideration |
3,432,227 | ||||
HCP's loan investment in HCR ManorCare PropCo's debt settled at fair value |
1,623,618 | ||||
Assumed HCR ManorCare PropCo accrued tax and other liabilities at fair value |
117,290 | ||||
Total purchase price |
$ | 6,025,135 | |||
Estimated fees and costs |
|||||
Advisory fees(1) |
$ | 12,600 | |||
Legal, accounting and other fees and costs(1) |
6,275 | ||||
Share registration rights |
600 | ||||
Debt issuance costs |
23,663 | ||||
Total |
$ | 43,138 | |||
Adjustment to the total members' deficit represents the elimination of such historical deficit balance of HCR ManorCare PropCo.
S-24
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Elimination of HCR ManorCare PropCo's historical deferred debt issuance costs |
$ | (35,442 | ) | |
Elimination of HCR ManorCare PropCo's land parcel not acquired at closing |
(60 | ) | ||
Elimination of HCR ManorCare PropCo's derivative asset settled at closing |
(107 | ) | ||
Fair value of option to purchase a non-controlling interest in the lessee |
5,000 | |||
Deferral of debt issuance costs associated with new borrowings |
23,663 | |||
|
$ | (6,946 | ) | |
Elimination of HCR ManorCare PropCo's historical deferred tax liability |
$ | (907,248 | ) | |
Payment of HCR ManorCare's historical accrued interest on its long-term debt |
(7,746 | ) | ||
Elimination of HCR ManorCare PropCo's net payable to its affiliate |
(16,265 | ) | ||
|
$ | (931,259 | ) | |
S-25
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At closing of the HCR ManorCare Facilities Acquisition, HCP will not be responsible for HCR ManorCare PropCo's recorded amounts of the deferred tax obligations; accordingly, such deferred tax obligations amounts were eliminated.
Number of shares issued |
31,000,000 | ||||
Assumed price of shares of HCP common stock |
$ | 32.52 | (1) | ||
Value of shares issued |
$ | 1,008,120 | |||
Less: Underwriting discount |
(40,325 | ) | |||
Less: share registration and issuance costs |
(800 | ) | |||
Total value of shares issued |
$ | 966,995 | |||
The total value of the shares of HCP common stock issued is presented as follows:
Par value, $1.00 per share |
$ | 31,000 | ||
Additional paid-in capital |
935,995 | |||
|
$ | 966,995 | ||
Number of shares issued |
25,709,113 | ||||
Assumed price of shares of HCP common stock |
$ | 33.14 | (1) | ||
Value of shares issued |
$ | 852,000 | |||
Less: share registration and issuance costs |
(600 | ) | |||
Total value of shares issued |
$ | 851,400 | |||
S-26
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total value of the shares of HCP common stock issued is presented as follows:
Par value, $1.00 per share |
$ | 25,709 | ||
Additional paid-in capital |
825,691 | |||
|
$ | 851,400 | ||
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Eliminate HCR ManorCare PropCo historical income from DFLs |
$ | (331,865 | ) | $ | (438,876 | ) | |
Pro forma amortization of unearned income from DFLs under the effective interest method |
475,199 | 621,317 | |||||
|
$ | 143,334 | $ | 182,441 | |||
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Interest expense and related amortization of issuance costs and fees associated with new borrowings used to finance the HCR ManorCare Facilities Acquisition (See Note G) |
$ | 138,410 | $ | 214,415 | |||
Eliminate HCR ManorCare PropCo's historical interest expense |
(116,183 | ) | (152,316 | ) | |||
Eliminate HCP's historical interest expense related to debt repaid at closing that is secured by HCP's loan investment participation in HCR ManorCare PropCo's mortgage debt |
(4,147 | ) | (2,230 | ) | |||
|
$ | 18,080 | $ | 59,869 | |||
The pro forma increase in interest expense as a result of the assumed issuance of new debt in the HCR ManorCare Facilities Acquisition is calculated using market rates management believes would have been available to HCP for the borrowings assumed to have been issued as of December 13, 2010 (the date that the definitive agreement was executed to acquire HCR ManorCare PropCo). Each 1/8 of 1% increase in the annual interest assumed with respect to the debt would increase pro forma interest expense by $3.8 million for the year ended December 31, 2009 and $2.9 for the nine months ended September 30, 2010.
S-27
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Eliminate HCR ManorCare PropCo's historical operating expenses |
$ | (1,274 | ) | $ | (1,802 | ) | |
Recognize the amortization of acquired ground lease intangibles |
115 | 153 | |||||
|
$ | (1,159 | ) | $ | (1,649 | ) | |
For intangible assets associated with the value of in-place ground leases, a weighted-average remaining lease term of approximately 88 years was used to compute amortization expense. The Company computes amortization using the straight-line method over the remaining lease term of the related lease.
The calculation of the HCP Ventures II Purchase consideration and total purchase price follows (in thousands):
|
September 30, 2010 |
||||
---|---|---|---|---|---|
Calculation of HCP Ventures II purchase price |
|||||
Payment of aggregate cash consideration |
$ | 136,153 | |||
Fair value of 35 percent interest in HCP Ventures II |
73,313 | ||||
All HCP Ventures II debt assumed at par value |
652,350 | ||||
Total purchase price |
$ | 861,816 | |||
S-28
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimated fees and costs |
|||||
Legal, accounting and other fees and costs(1) |
$ | 150 | |||
Debt assumption fees |
500 | ||||
Total |
$ | 650 | |||
Adjustment to the total members' equity represents the elimination of such historical equity balance of HCP Ventures II.
Elimination of HCP's historical carrying value of HCP Ventures II |
$ | 65,108 | ||
Elimination of historical amounts due from HCP Ventures II |
543 | |||
|
65,651 | |||
Elimination of historical amounts due to HCP Ventures II |
$ | 543 | ||
The anticipated consolidation of HCP Ventures II results in an estimated gain of $7.7 million, which represents the estimated fair value of HCP's 35 percent noncontrolling interest in HCP Ventures II that is in excess of its carrying value at September 30, 2010. This gain is directly attributable to the transaction and represents a non-recurring credit; therefore, the anticipated impact on the results of operations was excluded from the pro forma consolidated statements of operations.
Recognition of lease-up related intangible assets associated with acquired leases |
$ | 78,375 | ||
Elimination of HCP Ventures II's historical intangible assets |
(36,530 | ) | ||
|
$ | 41,845 | ||
In-place lease intangible assets acquired include amounts for in-place lease values that are based on HCP's evaluation of the specific characteristics of each tenant's lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. In estimating carrying costs, HCP includes estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, HCP considers leasing commissions, legal and other related costs.
S-29
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferral of debt issuance costs associated with debt assumed in the HCP Ventures II Purchase |
$ | 500 | ||
Elimination of HCP Ventures II's historical deferred debt issuance |
(3,500 | ) | ||
Elimination of HCP Ventures II's leasing incentive assets |
(2,742 | ) | ||
|
$ | 5,742 | ||
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Eliminate HCP Ventures II's historical straight-line rent revenue |
$ | (9,539 | ) | $ | (13,221 | ) | |
Eliminate HCP Ventures II's historical amortization of lease intangibles and lease incentives |
2,323 | 3,137 | |||||
|
$ | (7,216 | ) | $ | (10,084 | ) | |
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Eliminate HCP's historical management fee income related to HCP Ventures II |
$ | (1,965 | ) | $ | (2,789 | ) | |
Eliminate HCP Ventures II's historical management fees paid to HCP |
$ | 3,209 | $ | 4,291 | |||
S-30
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Real estate depreciation expense as a result of the recording of HCP Ventures II's real estate at its estimated fair value |
$ | 17,189 | $ | 22,918 | |||
Represents the incremental amortization expense related to lease-up related intangible assets associated with acquired leases |
6,916 | 9,221 | |||||
Eliminate HCP Ventures II's historical depreciation and amortization |
(20,760 | ) | (28,038 | ) | |||
|
$ | 3,345 | $ | 4,101 | |||
An estimated useful life of 30 years was assumed to compute real estate depreciation. For assets and liabilities associated with the value of in-place leases, a weighted-average remaining lease term of approximately 8.5 years was used to compute amortization expense. The Company computes depreciation and amortization using the straight-line method over the properties estimated useful lives or the remaining lease term of the related intangible.
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Amortization of debt issuance costs associated with the assumed debt in the HCP Ventures II Purchase |
$ | 60 | $ | 80 | |||
Eliminate HCP Ventures II's historical debt issuance costs amortization |
(514 | ) | (685 | ) | |||
|
$ | (454 | ) | $ | (605 | ) | |
S-31
HCP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
Nine Months Ended September 30, 2010 |
Year Ended December 31, 2009 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Historical | Pro Forma | Historical | Pro Forma | ||||||||||
Income from continuing operations |
$ | 192,310 | $ | 514,655 | $ | 101,312 | $ | 423,624 | ||||||
Noncontrolling interests' share of earnings |
(10,077 | ) | (10,077 | ) | (14,461 | ) | (14,461 | ) | ||||||
Income from continuing operations applicable to HCP, Inc. |
$ | 182,233 | $ | 504,578 | $ | 86,851 | $ | 409,163 | ||||||
Preferred stock dividends |
(15,848 | ) | (15,848 | ) | (21,130 | ) | (21,130 | ) | ||||||
Participating securities' share in earnings |
(1,648 | ) | (1,648 | ) | (1,491 | ) | (1,491 | ) | ||||||
Income from continuing operations applicable to common shares |
$ | 164,737 | $ | 487,082 | $ | 64,230 | $ | 386,542 | ||||||
Weighted average shares used to calculate earnings per common shareBasic |
299,243 | 355,952 | 274,216 | 330,925 | ||||||||||
Incremental weighted average effect of potentially dilutive instruments |
1,225 | 1,225 | 415 | 415 | ||||||||||
Adjusted weighted average shares used to calculate earnings per common shareDiluted |
300,468 | 357,177 | 274,631 | 331,340 | ||||||||||
Earnings from continuing operations per common shareBasic |
$ | 0.55 | $ | 1.37 | $ | 0.23 | $ | 1.17 | ||||||
Earnings from continuing operations per common shareDiluted |
$ | 0.55 | $ | 1.36 | $ | 0.23 | $ | 1.17 | ||||||
S-32
DESCRIPTION OF CERTAIN INDEBTEDNESS
Bridge Loan Facility
On December 13, 2010 (the "Effective Date"), HCP entered into a credit agreement (the "Credit Agreement") with UBS AG, Stamford Branch, as administrative agent, UBS Securities LLC, as joint lead arranger and joint bookrunner, Citigroup Global Markets Inc., as joint lead arranger and joint bookrunner, Citibank, N.A., as co-syndication agent, Wells Fargo Securities, LLC, as joint lead arranger and joint bookrunner, Wells Fargo Bank, National Association, as co-syndication agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arranger and joint bookrunner, Bank of America, N.A., as co-syndication agent, J.P. Morgan Securities LLC, as joint lead arranger and joint bookrunner, and JPMorgan Chase Bank, N.A., as co-syndication agent providing for a bridge loan facility to HCP in an aggregate amount of up to $3.3 billion upon the terms and conditions set forth therein. The bridge loan facility is undrawn today, and the commitments thereunder are available until June 13, 2011; provided that, if the termination date in the Purchase Agreement is extended until September 13, 2011, the commitments thereunder will be available until such date. The commitments (and any outstanding loans) under the bridge loan facility will be reduced (and any outstanding loans shall be required to be prepaid) by an amount equal to the net cash proceeds from any offering of debt or equity securities by the Company after the Effective Date, excluding up to $575 million raised in any equity offering after the Effective Date, and from any asset sale by the Company after the Effective Date, subject to customary exclusions and reinvestment rights, including up to $100 million in asset sales over the term of the bridge loan facility. Proceeds from the bridge loan facility, if drawn, will be used to fund (in part) the consideration for the HCR ManorCare Facilities Acquisition, to refinance certain existing indebtedness of HCP and ManorCare and to pay related fees and expenses.
Availability under the bridge loan facility is subject to the satisfaction of certain conditions precedent including but not limited to (a) the absence of any material adverse effect with respect to the business of HCR ManorCare (defined in a manner consistent with the conditions in the HCR ManorCare Facilities Acquisition agreement relating to the absence of a material adverse change on HCR ManorCare), (b) substantially concurrent consummation of the HCR ManorCare Facilities Acquisition and (c) the making of certain representations customary for transactions of this type, including representations with respect to corporate power and authority, enforceability, Federal Reserve margin regulations and the Investment Company Act. In addition, the lenders under the credit agreement are not obligated to make loans on the Closing if certain events of default have occurred and are continuing that would result in a material adverse effect on HCP (as defined in the Credit Agreement). Loans outstanding under the bridge loan facility will bear interest at a rate per annum equal to LIBOR plus a margin ranging from 2.0% to 3.5%.
HCP's obligations under the bridge loan facility are senior unsecured obligations of HCP, ranking pari passu with other unsecured, unsubordinated general obligations of HCP. If an event of default occurs and is continuing under the Credit Agreement, HCP may be required immediately to repay the loans and all other amounts outstanding under the Credit Agreement. Lenders holding more than 50% of the loans and commitment under the Credit Agreement may elect to accelerate the maturity of the loans outstanding under the Credit Agreement upon the occurrence and during the continuation of an event of default. Events of default include, but are not limited to nonpayment of principal when due, nonpayment of interest, fees or other amounts, violation of covenants, bankruptcy and a change of control. HCP's obligations under the bridge loan facility are senior unsecured obligations of HCP, ranking pari passu with other unsecured, unsubordinated general obligations of HCP.
DESCRIPTION OF THE COMMON STOCK
For a description of the common stock being offered hereby, please see "Description of Capital Stock We May OfferCommon Stock," "Description of Capital Stock We May OfferTransfer and
S-33
Ownership Restrictions Relating to our Common Stock" and "Certain Provisions of Maryland Law and HCP's Charter and Bylaws" in the accompanying prospectus.
SUPPLEMENTAL MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This discussion is a supplement to, and is intended to be read together with, the discussion in the accompanying prospectus under the heading "Material United States Federal Income Tax Considerations." This summary of material federal income tax considerations is for general information only and is not tax advice. This discussion does not purport to deal with all aspects of taxation that may be relevant to particular holders of our common stock in light of their personal investment or tax circumstances. Notwithstanding anything contained in the accompanying prospectus to the contrary, Skadden, Arps, Slate, Meagher & Flom LLP is our counsel with respect to this offering.
EACH PROSPECTIVE HOLDER IS ADVISED TO CONSULT HIS OR HER TAX ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO HIM OR HER OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OUR COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
REIT Tax Opinion
Skadden, Arps, Slate, Meagher & Flom LLP has rendered an opinion to us to the effect that, commencing with our taxable year ended December 31, 1985, we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT, and that our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including representations made by us in factual certificates. You should be aware that opinions of counsel are not binding on the Internal Revenue Service, and no assurance can be given that the opinion will not be subject to challenge. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Internal Revenue Code, including through actual annual operating results, asset composition, distribution levels and diversity of stock ownership, the results of which have not been and will not be reviewed by Skadden, Arps, Slate, Meagher & Flom LLP. Accordingly, no assurance can be given that our actual results of operation for any particular taxable year have satisfied or will satisfy those requirements. See "Material United States Federal Income Tax ConsiderationsFailure to Qualify" on page 60 of the accompanying base prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has no obligation to update its opinion subsequent to its date.
Annual Distribution Requirements
We expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the REIT distribution requirements. However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of cash and the payment of deductible expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in order to repay debt or for other reasons. If these timing differences occur, we may be required to borrow funds to pay cash dividends or we may be required to pay dividends in the form of taxable stock dividends in order to meet the distribution requirements. Pursuant to IRS Revenue Procedure 2010-12, certain part-stock and part-cash dividends distributed by publicly traded REITs with respect to calendar years 2008 through 2011, and in some cases declared as late as December 31, 2012, will be
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treated as distributions for purposes of the REIT distribution requirements. Under the terms of this Revenue Procedure, up to 90% of our distributions could be paid in shares of our capital stock.
Legislative or Other Actions Affecting REITs and Stockholders
The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time. The REIT rules, as well as all federal tax laws, are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department which may result in statutory changes as well as revisions to regulations and interpretations. For example, Congress is considering proposals that would delay the scheduled increase in the maximum tax rates applicable to individual taxpayers on qualified dividend income and long-term capital gains, for taxable years beginning after December 31, 2010, to 39.6% and 20% respectively. No assurance can be given as to whether, or in what form, the proposals described above (or any other proposals affecting REITs or their stockholders) will be enacted. Changes to the federal tax laws and interpretations thereof could adversely affect an investment in our common stock.
On March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010, which requires U.S. stockholders who meet certain requirements and are individuals, estates or certain trusts to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of stock for taxable years beginning after December 31, 2012. U.S. stockholders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of shares of our common stock.
Recently enacted legislation will require, after December 31, 2012, withholding at a rate of 30% on dividends in respect of, and gross proceeds from the sale of, shares of our common stock held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Secretary of the Treasury to report, on an annual basis, information with respect to shares in the institution held by certain United States persons and by certain non-US entities that are wholly or partially owned by United States persons and to withhold on certain payments. Accordingly, the entity through which shares of our common stock is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and gross proceeds from the sale of, shares of our common stock held by an investor that is a non-financial non-US entity will be subject to withholding at a rate of 30%, unless such entity either (i) certifies to us that such entity does not have any "substantial United States owners" or (ii) provides certain information regarding the entity's "substantial United States owners," which we will in turn provide to the Secretary of the Treasury. We will not pay any additional amounts to stockholders in respect of any amounts withheld. Non-United States stockholders are encouraged to consult with their tax advisors regarding the possible implications of the legislation on their investment in shares of our common stock.
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We are offering the shares of common stock described in this prospectus supplement through a number of underwriters. Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wells Fargo Securities, LLC are acting as joint book-running managers and Citigroup Global Markets Inc. is acting as representative of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discount and commissions set forth on the cover page of this prospectus supplement, the number of shares of common stock listed next to its name in the following table:
Underwriter
|
Number of shares | |||
---|---|---|---|---|
Citigroup Global Markets Inc. | ||||
J.P. Morgan Securities LLC | ||||
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
||||
UBS Securities LLC | ||||
Wells Fargo Securities, LLC | ||||
Total |
31,000,000 |
The underwriters are committed to purchase all the shares of common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.
The underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the public offering price. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.
The underwriters have an option to buy up to 4,650,000 additional shares of common stock from us to cover sales of shares by the underwriters that exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus supplement to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares at the price shown on the cover page of this prospectus supplement less the underwriting discount and less any dividends or distributions declared by us and paid or payable on the shares initially purchased by the underwriters but not on the shares to be purchased upon exercise of the option, and otherwise on the same terms as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $ per share.
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The following table shows the per share and total underwriting discounts to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
|
Without Option | With Option | |||||
---|---|---|---|---|---|---|---|
Per share |
$ | $ | |||||
Total |
$ | $ |
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $800,000.
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed, that, except for common stock issued in this offering and subject to certain additional exceptions, we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act of 1933 relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly announce the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of the representative for a period of 60 days after the date of this prospectus supplement. The representative, in its sole discretion, may waive this lock-up agreement at any time without notice.
Certain of our officers and directors have agreed, subject to certain exceptions, that, for a period of 60 days from the date of this prospectus supplement they will not, without the prior written consent of the representative, dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable or exercisable for our common stock. The representative in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. Our common stock is listed on the NYSE under the symbol "HCP."
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' over-allotment option referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
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The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representative of the underwriters purchases common stock in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.
Conflicts of Interest
The underwriters and/or their affiliates have provided and in the future may provide investment banking, commercial banking and/or advisory services to us from time to time for which they have received and in the future may receive customary fees and expenses and may have entered into and in the future may enter into other transactions with us. An affiliate of J.P. Morgan Securities LLC is the lender of the $425 million secured debt used by HCP to finance a portion of the HCR ManorCare debt currently held by HCP and which may be repaid with proceeds from this offering. In addition, Banc of America Securities LLC, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, is a joint lead arranger and joint bookrunner, Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, is the administrative agent, Merrill Lynch Bank USA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, is a senior managing agent, UBS Securities LLC is a joint lead arranger, joint bookrunner and syndication agent, Citicorp North America, Inc., an affiliate of Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, and Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities, LLC, are documentation agents, and affiliates of Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wells Fargo Securities, LLC are lenders under our revolving credit facility. In addition, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wells Fargo Securities, LLC are joint lead arrangers and joint bookrunners, Citicorp North America, Inc., an affiliate of Citigroup Global Markets Inc., Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC and Wells Fargo Bank, National Association, an affiliate of Wells Fargo Securities, LLC, are co-syndication agents, UBS AG, Stamford Branch, an affiliate of UBS Securities LLC, is the administrative agent, and those underwriters and/or their affiliates may be lenders under our bridge loan facility. To the extent that any portion of the net proceeds from this offering is applied to repay borrowings under our revolving credit facility and/or our bridge loan facility, the underwriters and/or their respective affiliates will receive a portion of the net proceeds so applied through the repayment of borrowings under our revolving credit facility and/or our bridge loan facility. Citigroup Global Markets Inc., UBS Securities LLC and, Wells Fargo Securities, LLC have acted as our financial advisors in connection with the HCR ManorCare Facilities Acquisition. J.P. Morgan Securities LLC has acted as financial advisor to HCR ManorCare in connection with the HCR ManorCare Facilities Acquisition. If greater than 5% of the net proceeds from this offering are used to repay indebtedness owed to at least one of the affiliates of the underwriters, this offering will be conducted in accordance with NASD Rule 2720.
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Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus supplement may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any time:
Each purchaser of shares described in this prospectus supplement located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a "qualified investor" within the meaning of Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an "offer to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.
We have not authorized and do not authorize the making of any offer of shares through any financial intermediary on behalf of us, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus supplement. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of us or the underwriters.
Notice to Prospective Investors in the United Kingdom
This prospectus supplement and the accompanying prospectus are only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a "relevant person"). This prospectus supplement and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
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Notice to Prospective Investors in France
Neither this prospectus supplement nor any other offering material relating to the shares described in this prospectus supplement has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus supplement nor any other offering material relating to the shares has been or will be:
Such offers, sales and distributions will be made in France only:
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
Notice to Prospective Investors in Switzerland
This prospectus supplement and the accompanying prospectus, as well as any other material relating to the shares which are the subject of the offering contemplated by this prospectus supplement, do not constitute an issue prospectus pursuant to Articles 652a and/or 1156 of the Swiss Code of Obligations. The shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the shares, including, but not limited to, this prospectus supplement and the accompanying prospectus, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The shares of common stock are being offered in Switzerland by way of a private placement, i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the shares with the intention to distribute them to the public. The investors will be individually approached by the issuer from time to time. This prospectus supplement and the accompanying prospectus as well as any other material relating to the shares are personal and confidential and do not constitute an offer to any other person. This prospectus supplement and the accompanying prospectus may only be used by those investors to whom they have been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without express consent of the issuer. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus supplement and the accompanying prospectus relate to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority ("DFSA"). This
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prospectus supplement and the accompanying prospectus are intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. They must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement and the accompanying prospectus nor taken steps to verify the information set forth herein or therein and has no responsibility for this prospectus supplement and the accompanying prospectus. The shares to which this prospectus supplement relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus supplement and the accompanying prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the prospectus supplement and accompanying prospectus being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The shares offered in this prospectus supplement and the accompanying prospectus have not been registered under the Securities and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus supplement and the accompanying prospectus have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
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Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
Certain legal matters will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Certain legal matters relating to Maryland law will be passed upon for us by Ballard Spahr LLP, Baltimore, Maryland. Sidley Austin LLP, San Francisco, California, will act as counsel for the underwriters. Paul C. Pringle, a partner of Sidley Austin LLP, owns 60,495 shares of our common stock.
The consolidated financial statements and schedules of HCP, Inc. as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 appearing in HCP, Inc.'s Annual Report on Form 10-K, as amended by the Current Report on Form 8-K dated November 2, 2010, and the effectiveness of HCP, Inc.'s internal control over financial reporting as of December 31, 2009 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements and schedules are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of HCR Properties, LLC as of September 30, 2010 and December 31, 2009 and for the nine months ended September 30, 2010 and each of the two years in the period ended December 31, 2009, which are all incorporated in this prospectus supplement by reference to HCP's Current Report on Form 8-K, filed on December 14, 2010, have been audited by Ernst & Young LLP, independent auditors as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
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PROSPECTUS
HCP, Inc.
Common Stock
Preferred Stock
Depositary Shares
Debt Securities
Warrants or Other Rights
Stock Purchase Contracts
Units
HCP, Inc. from time to time may offer to sell the securities listed above. The preferred stock, debt securities, warrants, rights and stock purchase contracts may be convertible into or exercisable or exchangeable for common or preferred stock or other securities of HCP or debt or equity securities of one or more other entities. Our common stock is quoted on the New York Stock Exchange (the "NYSE") under the symbol "HCP."
HCP may offer and sell these securities directly or to or through one or more underwriters, dealers and/or agents, or directly to purchasers on a continuous or delayed basis.
This prospectus describes some of the general terms that may apply to these securities and the general manner in which they may be offered. The specific terms of any securities to be offered, and the specific manner in which they may be offered, will be described in a supplement to this prospectus.
You should consider the risks discussed in "Risk Factors" beginning on page 4 of this prospectus before you invest in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is September 4, 2009
HCP, Inc.
3760 Kilroy Airport Way, Suite 300
Long Beach, California 90806
(562) 733-5100
All references in this prospectus to "HCP," "we," "us" or "our" mean HCP, Inc., its majority-owned subsidiaries and other entities controlled by HCP, Inc. except where it is clear from the context that the term means only the issuer, HCP, Inc. Unless otherwise stated, currency amounts in this prospectus are stated in United States dollars.
When acquiring any securities discussed in this prospectus, you should rely only on the information contained or incorporated by reference in this prospectus and the applicable prospectus supplement. We have not authorized anyone else to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. An offer to sell these securities will not be made in any jurisdiction where the offer and sale is not permitted. You should not assume that the information appearing in this prospectus, as well as information we previously filed with the Securities and Exchange Commission and incorporated by reference, is accurate as of any date other than the date mentioned on the front cover of those documents. Our business, financial condition, results of operations and prospects may have changed since that date.
This prospectus is part of an automatic shelf registration statement on Form S-3 that we filed with the Securities and Exchange Commission, or the SEC, as a "well-known seasoned issuer" as defined in Rule 405 under the Securities Act of 1933, as amended. As allowed by the SEC rules, this prospectus does not contain all of the information included in the registration statement. For further information, we refer you to the registration statement, including its exhibits. Statements contained in this prospectus about the provisions or contents of any agreement or other document are not necessarily complete. If the SEC's rules and regulations require that an agreement or document be filed as an
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exhibit to the registration statement, please see that agreement or document for a complete description of these matters.
You should read this prospectus and any prospectus supplement together with any additional information you may need to make your investment decision. You should also read and carefully consider the information in the documents we have referred you to in "Where You Can Find More Information" below. Information incorporated by reference after the date of this prospectus is considered a part of this prospectus and may add, update or change information contained in this prospectus. Any information in such subsequent filings that is inconsistent with this prospectus will supersede the information in this prospectus or any earlier prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any materials we file with the SEC at its public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference room of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. You may inspect information that we file with The New York Stock Exchange, as well as our SEC filings, at the offices of The New York Stock Exchange at 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" certain information we file with the SEC, which means that we can disclose important information to you by referring to the other information we have filed with the SEC. We incorporate by reference the following documents we filed with the SEC pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (other than any portions of any such documents that are not deemed "filed" under the Securities Exchange Act of 1934 in accordance with the Securities Exchange Act of 1934 and applicable SEC rules):
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We are also incorporating by reference additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this prospectus and prior to the termination of the offering of the securities described in this prospectus (other than any portions of any such documents that are not deemed "filed" under the Securities Exchange Act of 1934 in accordance with the Securities Exchange Act of 1934 and applicable SEC rules). These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as Proxy Statements. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
Documents incorporated by reference are available from us without charge, excluding all exhibits unless we have specifically incorporated by reference the exhibit in this prospectus. You may obtain documents incorporated by reference in this prospectus by requesting them in writing or by telephone from:
Legal
Department
HCP, Inc.
3760 Kilroy Airport Way, Suite 300
Long Beach, California 90806
(562) 733-5100
legaldept@hcpi.com
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We have included discussions of cautionary factors describing risks relating to our business and an investment in our securities in our Annual Report on Form 10-K for the year ended December 31, 2008, which is incorporated by reference into this prospectus. See "Where You Can Find More Information" for an explanation of how to get a copy of this report. Additional risks related to our securities may also be described in a prospectus supplement. Before purchasing our securities, you should carefully consider the risk factors we describe in any prospectus supplement or in any report incorporated by reference into this prospectus or such prospectus supplement, including our Annual Report on Form 10-K for the year ended December 31, 2008. Although we discuss key risks in those risk factor descriptions, additional risks not currently known to us or that we currently deem immaterial also may impair our business. Our subsequent filings with the SEC may contain amended and updated discussions of significant risks. We cannot predict future risks or estimate the extent to which they may affect our financial performance.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus and the information incorporated by reference in this prospectus or any prospectus supplement within the meaning of the Private Securities Litigation Reform Act of 1995 that are not historical factual statements are "forward-looking statements." We intend to have our forward-looking statements covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with those provisions. Forward-looking statements include, among other things, statements regarding our and our officers' intent, belief or expectations as identified by the use of words such as "may," "will," "project," "expect," "believe," "intend," "anticipate," "seek," "forecast," "plan," "estimate," "could," "would," "should" and other comparable and derivative terms or the negatives thereof. In addition, we, through our officers, from time to time, make forward-looking oral and written public statements concerning our expected future operations, strategies, securities offerings, growth and investment opportunities, dispositions, capital structure changes, budgets and other developments. Readers are cautioned that, while forward-looking statements reflect our good faith belief and reasonable assumptions based upon current information, we can give no assurance that our expectations or forecasts will be attained. Therefore, readers should be mindful that forward-looking statements are not guarantees of future performance and that they are subject to known and unknown risks and uncertainties that are difficult to predict. As more fully set forth under "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008, factors that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include:
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Except as required by law, we undertake no, and hereby disclaim any, obligation to update any forward-looking statements, whether as a result of new information, changed circumstances or otherwise.
We invest primarily in real estate serving the healthcare industry in the United States. We are a Maryland corporation and were organized to qualify as a REIT in 1985. We are headquartered in Long Beach, California, with offices in Chicago, Illinois; Nashville, Tennessee; and San Francisco, California. We acquire, develop, lease, manage and dispose of healthcare real estate and provide financing to healthcare providers. Our portfolio is comprised of investments in the following five healthcare segments: (i) senior housing, (ii) life science, (iii) medical office, (iv) hospital, and (v) skilled nursing. We make investments within our five healthcare segments using the following five investment products: (i) properties under lease, (ii) investment management, (iii) developments, (iv) mezzanine loans, and (v) non-managing member LLC's.
Our executive offices are located at 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806, and our telephone number is (562) 733-5100.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our ratios of earnings to fixed charges and our ratios of earnings to combined fixed charges and preferred stock dividends for the periods indicated. In computing the ratios of earnings to fixed charges, earnings have been based on consolidated income from continuing operations before fixed charges (exclusive of capitalized interest). Fixed charges consist of interest on
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debt, including amounts capitalized, an estimate of interest in rental expense, and interest expense related to the guaranteed debt of the partnerships and limited liability companies in which we hold an interest. In computing the ratios of earnings to combined fixed charges and preferred stock dividends, preferred stock dividends consist of dividends on our 7.25% Series E Cumulative Redeemable Preferred Stock and 7.10% Series F Cumulative Redeemable Preferred Stock.
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For the Six Months Ended |
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Year Ended December 31, | ||||||||||||||||||
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June 30, 2009 | ||||||||||||||||||
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2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||
Ratio of Earnings to Fixed Charges |
1.53 | 1.41 | 1.13 | 1.28 | 1.51 | 1.63 | |||||||||||||
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
1.24 | 1.18 | 1.03 | 1.22 | 1.43 | 1.53 | |||||||||||||
Unless otherwise specified in the applicable prospectus supplement for any offering of securities, the net proceeds, after estimated expenses, we receive from the sale of these securities will be used for general corporate purposes, which may include:
Pending such use, we may temporarily invest net proceeds. We will disclose in the prospectus supplement relating to an offering of securities any intention to use the net proceeds from such offering in connection with an acquisition or to reduce or refinance outstanding debt.
DESCRIPTION OF CAPITAL STOCK WE MAY OFFER
Please note that in this section entitled "Description of Capital Stock We May Offer," references to "holders" mean those who own shares of common stock or preferred stock, registered in their own names, on the books that the registrar or we maintain for this purpose, and not those who own beneficial interests in shares registered in street name or in shares issued in book-entry form through one or more depositaries. Owners of beneficial interests in shares of common stock should also read the section entitled "Legal Ownership and Book-Entry Issuance."
The following description summarizes the material provisions of the common stock and preferred stock we may offer. This description is not complete and is subject to, and is qualified in its entirety by reference to our charter and our bylaws and applicable provisions of the Maryland General Corporation Law, or the MGCL. The specific terms of any series of preferred stock will be described in the applicable prospectus supplement. Any series of preferred stock we issue will be governed by our charter and by the articles supplementary related to that series. We will file the articles supplementary with the SEC and incorporate it by reference as an exhibit to our registration statement at or before the time we issue any preferred stock of that series of authorized preferred stock.
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Our authorized capital stock consists of 750,000,000 shares of common stock, par value $1.00 per share, and 50,000,000 shares of preferred stock, par value $1.00 per share. The following description does not contain all the information that might be important to you.
Common Stock
As of September 1, 2009, there were 293,137,745 shares of common stock outstanding. All shares of common stock participate equally in dividends payable to holders of common stock, when, as and if authorized by our board and declared by us, and in net assets available for distribution to holders of common stock on liquidation, dissolution, or winding up. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of our stockholders. Holders of common stock do not have cumulative voting rights in the election of directors.
All issued and outstanding shares of common stock are, and the common stock offered by this prospectus will be upon issuance, validly issued, fully paid and nonassessable. Holders of common stock do not have preference, conversion, exchange or preemptive rights. The common stock is listed on The New York Stock Exchange (NYSE Symbol: HCP).
The Transfer Agent and Registrar for our common stock is Wells Fargo Shareowner Services.
Preferred Stock
Under our charter, our board is authorized without further stockholder action to establish and issue, from time to time, up to 50,000,000 shares of our preferred stock, in one or more series, with such designations, preferences, powers and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon, including, but not limited to, dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences as shall be stated in the resolution providing for the issue of a series of such stock, adopted, at any time or from time to time, by our board. As of September 1, 2009, we had outstanding 4,000,000 shares of 7.25% Series E Cumulative Redeemable Preferred Stock, or Series E Preferred Stock, with a liquidation preference of $100,000,000 and 7,820,000 shares of 7.10% Series F Cumulative Redeemable Preferred Stock, or Series F Preferred Stock, with a liquidation preference of $195,500,000.
The following description of the terms of the preferred stock sets forth certain general terms and provisions of the preferred stock to which any prospectus supplement may relate. The preferred stock shall have the dividend, liquidation, redemption and voting rights set forth below unless otherwise provided in a prospectus supplement relating to a particular series of the preferred stock. The terms of any particular series of preferred stock will be described in the prospectus supplement relating to that particular series of preferred stock, including:
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other class or classes of stock of the corporation or any other securities, the price or prices or rate or rates of exchange, with such adjustments as shall be provided, at which the shares shall be convertible or exchangeable, whether such rights of conversion or exchange shall be exercisable at the option of the holder of the shares or upon the happening of a specified event and any other terms or conditions of such conversion or exchange; and
The preferred stock will, when issued, be fully paid and nonassessable and will have no preemptive rights. Unless otherwise stated in a prospectus supplement relating to a particular series of preferred stock, each series of preferred stock will rank on a parity as to dividends and distributions of assets with each other series of preferred stock. The rights of the holders of each series of preferred stock will be subordinate to those of our general creditors.
Dividend Rights of Preferred Stock
Holders of shares of preferred stock of each series will be entitled to receive, when, as and if declared by our board of directors, out of funds legally available therefor, cash dividends on the dates and at rates as will be set forth in, or as are determined by the method described in, the prospectus supplement relating to the series of preferred stock. The rate may be fixed or variable or both. Each dividend will be payable to the holders of record as they appear on our stock books on the record dates fixed by our board of directors, as specified in the prospectus supplement relating to the series of preferred stock.
Dividends may be cumulative or noncumulative, as provided in the prospectus supplement relating to the series of preferred stock. If our board of directors fails to declare a dividend payable on a dividend payment date on any series of preferred stock for which dividends are noncumulative, then the holders of the series of preferred stock will have no right to receive a dividend in respect of the dividend period ending on the dividend payment date, and we will have no obligation to pay the dividend accrued for such period, whether or not dividends on the series are declared payable on any future dividend payment dates. Dividends on the shares of each series of preferred stock for which dividends are cumulative will accrue from the date on which we initially issue shares of the series.
So long as the shares of any series of preferred stock are outstanding, except as otherwise provided in the prospectus supplement relating to such series, we may not declare any dividends on our common stock or any other stock ranking as to dividends or distributions of assets junior to the series of preferred stock or make any payment on account of, or set apart money for, the purchase, redemption or other retirement of, or for a sinking or other analogous fund for, any shares of junior stock or make any distribution in respect thereof, whether in cash or property or in obligations or stock, other than junior stock which is neither convertible into, nor exchangeable or exercisable for, any securities other than junior stock:
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Liquidation Preference
In the event of any liquidation, dissolution or winding up of us, voluntary or involuntary, the holders of each series of the preferred stock will be entitled to receive out of our assets legally available for distribution to stockholders, before any distribution of assets or payment is made to the holders of common stock or any other shares of our stock ranking junior as to such distribution or payment to such series of preferred stock, the amount set forth in the prospectus supplement relating to such series of preferred stock. If, upon any voluntary or involuntary liquidation, dissolution or winding up of us, the amounts payable with respect to the preferred stock of any series and any other shares of preferred stock (including any other series of the preferred stock) ranking as to any such distribution on a parity with such series of preferred stock are not paid in full, the holders of the preferred stock of such series and of such other shares of preferred stock will share ratably in any such distribution of our assets in proportion to the full respective preferential amounts to which they are entitled. After payment to the holders of the preferred stock of each series of the full preferential amounts of the liquidating distribution to which they are entitled, the holders of each such series of preferred stock will be entitled to no further participation in any distribution of our assets.
If such payment shall have been made in full to all holders of shares of preferred stock, our remaining assets will be distributed among the holders of any other classes of stock ranking junior to the preferred stock upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, our consolidation or merger with or into any other corporation, or the sale, lease or conveyance of all or substantially all of our property or business, shall not be deemed to constitute a liquidation, dissolution or winding up of us.
In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of our stock or otherwise is permitted under the MGCL, no effect shall be given to amounts that would be needed, if we would be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of shares of our stock whose preferential rights upon dissolution are superior to those receiving the distribution.
Redemption
A series of preferred stock may be redeemable, in whole or from time to time in part, at our option, and may be subject to mandatory redemption pursuant to a sinking fund or otherwise, in each case upon terms, at the times and at the redemption prices set forth in the prospectus supplement relating to such series. Shares of the preferred stock redeemed by us will be restored to the status of authorized but unissued shares of preferred stock.
In the event that fewer than all of the outstanding shares of a series of the preferred stock are to be redeemed, whether by mandatory or optional redemption, the number of shares to be redeemed will be determined by lot or pro rata (subject to rounding to avoid fractional shares) as may be determined by us or by any other method as may be determined by us in our sole discretion to be equitable. From and after the redemption date (unless default shall be made by us in providing for the payment of the redemption price plus accumulated and unpaid dividends, if any), dividends shall cease to accumulate on the shares of the preferred stock called for redemption and all rights of the holders thereof (except the right to receive the redemption price plus accumulated and unpaid dividends, if any) shall cease.
So long as any dividends on shares of any series of preferred stock or any other series of preferred stock ranking on a parity as to dividends and distributions of assets with such series of preferred stock are in arrears, no shares of any such series of the preferred stock or such other series of preferred stock will be redeemed (whether by mandatory or optional redemption) unless all such shares are simultaneously redeemed, and we will not purchase or otherwise acquire any such shares. However, the foregoing will not prevent the purchase or acquisition of such shares of preferred stock of such series
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or of shares of such other series of preferred stock in order to ensure that we continue to meet the requirements for qualification as a REIT for federal and state income tax purposes or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of preferred stock of such series and, unless the full cumulative dividends on all outstanding shares of any cumulative preferred stock of such series and any other stock ranking on a parity with such series as to dividends and upon liquidation shall have been paid or contemporaneously are declared and paid for all past dividend periods, we will not purchase or otherwise acquire directly or indirectly any shares of preferred stock of such series (except by conversion into or exchange for our stock) ranking junior to the preferred stock of such series as to dividends and upon liquidation.
Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record of shares of preferred stock to be redeemed at the address shown on our stock transfer books. After the redemption date, dividends will cease to accrue on the shares of preferred stock called for redemption and all rights of the holders of such shares will terminate, except the right to receive the redemption price without interest plus accumulated and unpaid dividends, if any.
Conversion Rights
The terms, if any, on which shares of preferred stock of any series may be exchanged for or converted (mandatorily or otherwise) into shares of common stock or another series of preferred stock will be set forth in the prospectus supplement relating thereto.
Voting Rights
Except as indicated below or in a prospectus supplement relating to a particular series of preferred stock, the holders of the preferred stock will not be entitled to vote for any purpose.
So long as any shares of preferred stock remain outstanding, we will not, without the consent or the affirmative vote of the holders of two-thirds of the shares of each series of preferred stock outstanding at the time given in person or by proxy, either in writing or at a meeting (such series voting separately as a class):
The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of the preferred stock shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.
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Series E Preferred Stock
Voting Rights
Holders of Series E Preferred Stock generally do not have any voting rights, except in limited circumstances.
If dividends on any shares of Series E Preferred Stock are in arrears for six or more quarterly periods, whether or not consecutive, the holders of Series E Preferred Stock (voting separately as a class with all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable) are entitled to vote for the election of a total of two additional directors of HCP at a special meeting called by the holders of record of at least 25% of the Series E Preferred Stock or the holders of any other class or series of preferred stock so in arrears or at the next annual meeting of stockholders. These voting rights continue at each subsequent annual meeting until all dividends accumulated on such shares of Series E Preferred Stock for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and set aside for payment. In such case, our entire board is increased by two directors.
So long as any shares of Series E Preferred Stock remain outstanding, we shall not, without the consent or the affirmative vote of the holders of at least two-thirds of the shares of Series E Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, with the Series E Preferred Stock voting separately as a class:
The consent of the holders of Series E Preferred Stock is not required for the taking of any corporate action, including any merger or consolidation involving us or a sale of all or substantially all of our assets, regardless of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the Series E Preferred Stock, except as expressly set forth in the provisions of our charter.
Rank
With respect to dividend rights and rights upon liquidation, dissolution or winding up of HCP, the Series E Preferred Stock ranks:
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The term "equity securities" does not include convertible debt securities, which rank senior to the Series E Preferred Stock prior to conversion.
Dividends
Holders of shares of the Series E Preferred Stock are entitled to receive, when, as, and if declared by our board out of funds legally available for the payment of dividends, cumulative preferential annual cash dividends at the rate of 7.25% of the liquidation preference (equivalent to $1.8125 per annum per share).
Dividends on the Series E Preferred Stock are cumulative from the date of original issue and payable quarterly in arrears on or about the last day of each March, June, September and December or, if not a business day, the next succeeding business day.
No dividends may be declared by our board or paid or set apart for payment on the Series E Preferred Stock if the terms of any of our agreements, including any agreement relating to its indebtedness, prohibits such a declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach of or default under such an agreement. Likewise, no dividends may be declared by our board or paid or set apart for payment if such declaration or payment is restricted or prohibited by law.
Dividends on the Series E Preferred Stock accrue, however, whether or not we have earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the Series E Preferred Stock do not bear interest and holders of the Series E Preferred Stock are not entitled to any dividends in excess of full cumulative dividends described above. Any dividend payment made on the Series E Preferred Stock is first credited against the earliest accrued but unpaid dividend due that remains payable.
No full dividends may be declared or paid or set apart for payment on any class or series of preferred stock ranking, as to dividends, on a parity with or junior to the Series E Preferred Stock, other than a dividend in shares of any class of stock ranking junior to the Series E Preferred Stock as to dividends and upon liquidation, for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and set apart for such payment on the Series E Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full, or full payment is not so set apart, upon the Series E Preferred Stock and the shares of any other class or series of preferred stock ranking on a parity as to dividends with the Series E Preferred Stock, all dividends declared upon the Series E Preferred Stock and any other class or series of preferred stock ranking on a parity as to dividends with the Series E Preferred Stock are declared pro rata so that the amount of dividends declared per share of Series E Preferred Stock and such other class or series of preferred stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Series E Preferred Stock and such other class or series of preferred stock, which cannot include any accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend, bear to each other.
Except as provided in the preceding paragraph, unless full cumulative dividends on the Series E Preferred Stock have been or contemporaneously are declared and paid or declared and set apart for payment for all past dividend periods and the then current dividend period, then, other than the
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payment of dividends in shares of common stock or other shares of capital stock ranking junior to the Series E Preferred Stock as to dividends and upon liquidation:
Liquidation Preferences
Upon any liquidation, dissolution or winding up of the affairs of HCP, the holders of Series E Preferred Stock are entitled to be paid out of our assets legally available for distribution to our stockholders a liquidation preference of $25 per share, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of common stock or any other class or series of our capital stock that ranks junior to the Series E Preferred Stock as to liquidation rights.
In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of our stock or otherwise is permitted under the MGCL, no effect is given to amounts that would be needed if we would be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of our stock whose preferential rights upon distribution are superior to those receiving the distribution.
Maturity; Redemption
The Series E Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption. We are entitled to purchase shares of the Series E Preferred Stock in order to preserve our status as a real estate investment trust for federal or state income tax purposes at any time. We may, at our option, redeem the Series E Preferred Stock at $25 per share ($100,000,000 in the aggregate), plus accrued and unpaid dividends.
Transfer and Ownership Restrictions
See "Transfer and Ownership Restrictions Relating to our Preferred Stock."
Series F Preferred Stock
Voting Rights
Holders of the Series F Preferred Stock generally do not have any voting rights, except in limited circumstances.
If dividends on any shares of Series F Preferred Stock are in arrears for six or more quarterly periods, whether or not consecutive, the holders of Series F Preferred Stock (voting separately as a class with all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable, including the Series E Preferred Stock) are entitled to vote for the
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election of a total of two additional directors of HCP at a special meeting called by the holders of record of at least 25% of the Series F Preferred Stock or the holders of any other class or series of preferred stock so in arrears or at the next annual meeting of stockholders. These voting rights continue at each subsequent annual meeting until all dividends accumulated on such shares of Series F Preferred Stock for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and set aside for payment. In such case, our entire board is increased by two directors.
So long as any shares of Series F Preferred Stock remain outstanding, we shall not, without the consent or the affirmative vote of the holders of at least two-thirds of the shares of Series F Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, with the Series F Preferred Stock voting separately as a class:
The consent of the holders of Series F Preferred Stock is not required for the taking of any corporate action, including any merger or consolidation involving us or a sale of all or substantially all of our assets, regardless of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the Series F Preferred Stock, except as expressly set forth in the provisions of our charter.
Rank
With respect to dividend rights and rights upon liquidation, dissolution or winding up of HCP, the Series F Preferred Stock ranks:
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The term "equity securities" does not include convertible debt securities, which rank senior to the Series F Preferred Stock prior to conversion.
Dividends
Holders of the Series F Preferred Stock are entitled to receive, when, as, and if declared by our board, out of funds legally available for the payment of dividends, cumulative preferential annual cash dividends at the rate of 7.10% of the liquidation preference (equivalent to $1.775 per annum per share).
Dividends on the Series F Preferred Stock are cumulative from the date of original issue and payable quarterly in arrears on or about the last day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the Series F Preferred Stock, including dividends payable for any partial dividend period, are computed on the basis of a 360-day year consisting of twelve 30-day months.
No dividends may be declared by our board or paid or set apart for payment on the Series F Preferred Stock if the terms of any of our agreements, including any agreement relating to its indebtedness, prohibits such a declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach of or default under such an agreement. Likewise, no dividends may be declared by our board or paid or set apart for payment if such declaration or payment is restricted or prohibited by law.
Dividends on the Series F Preferred Stock accrue, however, whether or not we have earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the Series F Preferred Stock do not bear interest and holders of the Series F Preferred Stock are not entitled to any dividends in excess of full cumulative dividends described above. Any dividend payment made on the Series F Preferred Stock is first credited against the earliest accrued but unpaid dividend due that remains payable.
No full dividends may be declared or paid or set apart for payment on any class or series of preferred stock ranking, as to dividends, on a parity with or junior to the Series F Preferred Stock, other than a dividend in shares of any class of stock ranking junior to the Series F Preferred Stock as to dividends and upon liquidation, for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and set apart for such payment on the Series F Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or full payment is not so set apart) upon the Series F Preferred Stock and the shares of any other class or series of preferred stock ranking on a parity as to dividends with the Series F Preferred Stock, including the Series E Preferred Stock, all dividends declared upon the Series F Preferred Stock and any other class or series of preferred stock ranking on a parity as to dividends with the Series F Preferred Stock are declared pro rata so that the amount of dividends declared per share of Series F Preferred Stock and such other class or series of preferred stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Series F Preferred Stock and such other class or series of preferred stock, which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend, bear to each other.
Except as provided in the preceding paragraph, unless full cumulative dividends on the Series F Preferred Stock have been or contemporaneously are declared and paid or declared and set apart for payment for all past dividend periods and the then current dividend period, then, other than the
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payment of dividends in shares of common stock or other shares of capital stock ranking junior to the Series F Preferred Stock as to dividends and upon liquidation:
Liquidation Preferences
Upon any liquidation, dissolution or winding up of the affairs of HCP, the holders of Series F Preferred Stock are entitled to be paid out of our assets legally available for distribution to our stockholders a liquidation preference of $25 per share, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of common stock or any other class or series of our capital stock that ranks junior to the Series F Preferred Stock as to liquidation rights.
In determining whether a distribution, other than upon voluntary or involuntary liquidation, by dividend, redemption or other acquisition of shares of our stock or otherwise is permitted under the MGCL, no effect is given to amounts that would be needed if we would be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of our stock whose preferential rights upon distribution are superior to those receiving the distribution.
Maturity; Redemption
The Series F Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption. We are entitled to purchase shares of the Series F Preferred Stock in order to preserve our status as a real estate investment trust for federal or state income tax purposes at any time. We may, at our option, redeem the Series F Preferred Stock at $25 per share ($195,500,000 in the aggregate), plus accrued and unpaid dividends.
Transfer and Ownership Restrictions
See "Transfer and Ownership Restrictions Relating to our Preferred Stock."
Transfer and Ownership Restrictions Relating to our Common Stock
Our charter contains restrictions on the ownership and transfer of our voting stock that are intended to assist us in complying with the requirements to continue to qualify as a REIT. Subject to limited exceptions, no person or entity may own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% (by number or value, whichever is more restrictive) of the outstanding shares of our common stock. Our board may, but is in no event required to, waive the applicable ownership limit with respect to a particular stockholder if it determines that such ownership will not jeopardize our status as a REIT and our board otherwise decides such action would be in our best interests.
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These charter provisions further prohibit:
Any person who acquires or attempts or intends to acquire actual or constructive ownership of shares of our stock that will or may violate any of these restrictions on ownership and transfer is required to give notice immediately to us and provide us with such other information as we may request in order to determine the effect of the transfer on our status as a REIT. Under our charter, if any purported transfer of our stock or any other event would otherwise result in any person violating the applicable ownership limit or such other limit as permitted by our board, then any such purported transfer is void and of no force or effect with respect to the purported transferee as to that number of shares of our stock in excess of the ownership limit or such other limit, and the transferee will acquire no right or interest in such excess shares. Any excess shares described above are transferred automatically, by operation of law, to a trust, the beneficiary of which is a qualified charitable organization selected by us. Such automatic transfer will be deemed to be effective as of the close of business on the business day prior to the date of such violative transfer. Within 20 days of receiving notice from us of the transfer of shares to the trust, the trustee of the trust is required to sell the excess shares to a person or entity who could own the shares without violating the applicable ownership limit, or such other limit as permitted by our board, and distribute to the prohibited transferee an amount equal to the lesser of the price paid by the prohibited transferee for the excess shares or the sales proceeds received by the trust for the excess shares. Any proceeds in excess of the amount distributable to the prohibited transferee are distributed to the beneficiary of the trust. Prior to a sale of any such excess shares by the trust, the trustee is entitled to receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such excess shares, and also is entitled to exercise all voting rights with respect to such excess shares.
Subject to Maryland law, effective as of the date that such shares have been transferred to the trust, the trustee will have the authority, at the trustee's sole discretion:
However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast such vote. Any dividend or other distribution paid to the prohibited transferee, prior to the discovery by us that such shares had been automatically transferred to a trust as described above, are required to be repaid to the trustee upon demand for distribution to the beneficiary of the trust. In the event that the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the ownership limit or such other limit as permitted by our board, then our charter provides that the transfer of the excess shares is void ab initio.
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In addition, shares of common stock held in the trust shall be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of:
We will have the right to accept the offer until the trustee has sold the shares of stock held in the trust. Upon a sale to us, the interest of the beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited transferee.
If any purported transfer of shares of common stock would cause us to be beneficially owned by fewer than 100 persons, such transfer will be null and void ab initio in its entirety and the intended transferee will acquire no rights to the stock.
All certificates representing shares of common stock bear a legend referring to the restrictions described above. The foregoing ownership limitations could delay, defer or prevent a transaction or a change in control of us that might involve a premium price for the common stock or otherwise be in the best interest of our stockholders.
In addition, if our board of directors shall, at any time and in good faith, be of the opinion that direct or indirect ownership of at least 9.9% of the voting shares of capital stock has or may become concentrated in the hands of one beneficial owner, it shall have the power:
If our board of directors fails to grant an exemption from this 9.9% ownership limitation, then the transfer of shares, options, warrants, or other securities convertible into voting shares that would create a beneficial owner of more than 9.9% of the outstanding voting shares shall be deemed void ab initio, and the intended transferee shall be deemed never to have had an interest in the transferred securities. The purchase price for any voting shares of capital stock so redeemed shall be equal to the fair market value of the shares reflected in the closing sales price for the shares, if then listed on a national securities exchange, or the average of the closing sales prices for the shares if then listed on more than one national securities exchange, or if the shares are not then listed on a national securities exchange, the latest bid quotation for the shares if then traded over-the-counter, on the last business day immediately preceding the day on which we send notices of such acquisitions, or, if no such closing sales prices or quotations are available, then the purchase price shall be equal to the net asset value of such stock as determined by the board of directors in accordance with the provisions of applicable law. From and after the date fixed for purchase by the board of directors, the holder of any shares so called for purchase shall cease to be entitled to distributions, voting rights and other benefits with respect to such shares, except the right to payment of the purchase price for the shares.
Business Combination Provisions
Our charter requires that, except in some circumstances, "business combinations" between us and a beneficial holder of 10% or more of our outstanding voting stock (a "Related Person") be approved
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by the affirmative vote of at least 90% of our outstanding voting shares. A "business combination" is defined in our charter as:
The term "Substantial Part" means more than 10% of the book value of our total assets as of the end of our most recent fiscal year ending prior to the time the determination is being made.
In addition to the restrictions on business combinations contained in our charter, Maryland law also contains restrictions on business combinations. See "Certain Provisions of Maryland Law and HCP's Charter and BylawsBusiness Combinations."
The foregoing provisions may have the effect of discouraging unilateral tender offers or other takeover proposals which stockholders might deem to be in their interests or in which they might receive a substantial premium. The HCP board's authority to issue and establish the terms of currently authorized preferred stock, without stockholder approval, may also have the effect of discouraging takeover attempts. See "Preferred Stock."
The foregoing provisions could also have the effect of insulating current management against the possibility of removal and could, by possibly reducing temporary fluctuations in market price caused by accumulations of shares of our common stock, deprive stockholders of opportunities to sell at a temporarily higher market price. Our board believes, however, that inclusion of the business combination provisions in our charter may help assure fair treatment of our stockholders and preserve our assets.
Transfer and Ownership Restrictions Relating to our Preferred Stock
Our charter contains restrictions on the ownership and transfer of preferred stock that are intended to assist us in complying with the requirements to maintain its status as a REIT. Subject to limited exceptions, no person or entity may own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% (by number or value, whichever is more restrictive) of the outstanding shares of Series E Preferred Stock or Series F Preferred Stock. Our board of directors may, but in no event is required to, waive the applicable ownership limit with respect to a particular stockholder if it determines that such ownership will not jeopardize our status as a REIT and our board of directors otherwise decides such action would be in our best interests. The mechanics for the ownership limits on our preferred stock are similar to the mechanics related to our common stock, as described in "Transfer and Ownership Restrictions Relating to our Common Stock" above.
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DESCRIPTION OF DEPOSITARY SHARES WE MAY OFFER
Please note that in this section entitled "Description of the Depositary Shares We May Offer," references to "holders" mean those who own depositary shares registered in their own names, on the books that the registrar or we maintain for this purpose, and not those who own beneficial interests in shares registered in street name or in shares issued in book-entry form through one or more depositaries. Owners of beneficial interests in depositary shares should also read the section entitled "Legal Ownership and Book-Entry Issuance."
This section outlines some of the provisions of the deposit agreement to govern any depositary shares, the depositary shares themselves and the depositary receipts. This information may not be complete in all respects and is qualified entirely by reference to the relevant deposit agreement and depositary receipts with respect to the depositary shares related to any particular series of preferred stock. The specific terms of any series of depositary shares will be described in the applicable prospectus supplement. If so described in the prospectus supplement, the terms of that series of depositary shares may differ from the general description of terms presented below.
Interest in a Fractional Share, or Multiple Shares, of Preferred Stock
We may, at our option, elect to offer depositary shares, each of which would represent an interest in a fractional share, or multiple shares, of our preferred stock instead of whole shares of preferred stock. If so, we will allow a depositary to issue to the public depositary shares, each of which will represent an interest in a fractional share, or multiple shares, of preferred stock as described in the prospectus supplement.
Deposit Agreement
The shares of the preferred stock underlying any depositary shares will be deposited under a separate deposit agreement between us and a bank or trust company acting as depositary with respect to those shares of preferred stock. The prospectus supplement relating to a series of depositary shares will specify the name and address of the depositary. Under the deposit agreement, each owner of a depositary share will be entitled, in proportion of its interest in a fractional share, or multiple shares, of the preferred stock underlying that depositary share, to all the rights and preferences of that preferred stock, including dividend, voting, redemption, conversion, exchange and liquidation rights.
Depositary shares will be evidenced by one or more depositary receipts issued under the deposit agreement. We will distribute depositary receipts to those persons purchasing such depositary shares in accordance with the terms of the offering made by the related prospectus supplement.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash distributions in respect of the preferred stock underlying the depositary shares to each record depositary shareholder based on the number of the depositary shares owned by that holder on the relevant record date. The depositary will distribute only that amount which can be distributed without attributing to any depositary shareholders a fraction of one cent, and any balance not so distributed will be added to and treated as part of the next sum received by the depositary for distribution to record depositary shareholders.
If there is a distribution other than in cash, the depositary will distribute property to the entitled record depositary shareholders, unless the depositary determines that it is not feasible to make that distribution. In that case the depositary may, with our approval, adopt the method it deems equitable and practicable for making that distribution, including any sale of property and the distribution of the net proceeds from this sale to the concerned holders.
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Each deposit agreement will also contain provisions relating to the manner in which any subscription or similar rights we offer to holders of the relevant series of preferred stock will be made available to depositary shareholders.
The amount distributed in all of the foregoing cases will be reduced by any amounts required to be withheld by us or the depositary on account of taxes and governmental charges.
Withdrawal of Stock
Upon surrender of depositary receipts at the office of the depositary and upon payment of the charges provided in the deposit agreement and subject to the terms thereof, a holder of depositary receipts is entitled to have the depositary deliver to such holder the applicable number of shares of preferred stock underlying the depositary shares evidenced by the surrendered depositary receipts. There may be no market, however, for the underlying preferred stock and once the underlying preferred stock is withdrawn from the depositary, it may not be redeposited.
Redemption and Liquidation
The terms on which the depositary shares relating to the preferred stock of any series may be redeemed, and any amounts distributable upon our liquidation, dissolution or winding up, will be described in the applicable prospectus supplement.
Voting
Upon receiving notice of any meeting at which preferred stockholders of any series are entitled to vote, the depositary will mail the information contained in that notice to the record depositary shareholders relating to those series of preferred stock. Each depositary shareholder on the record date will be entitled to instruct the depositary on how to vote the shares of preferred stock underlying that holder's depositary shares. The depositary will vote the shares of preferred stock underlying those depositary shares according to those instructions, and we will take reasonably necessary actions to enable the depositary to do so. If the depositary does not receive specific instructions from the depositary shareholders relating to that preferred stock, it will abstain from voting those shares of preferred stock, unless otherwise discussed in the prospectus supplement.
Charges of Depositary
We will pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. We will also pay all charges of each depositary in connection with the initial deposit and any redemption of the preferred stock. Depositary shareholders will be required to pay any other transfer and other taxes and governmental charges and any other charges expressly provided in the deposit agreement to be for their accounts.
Miscellaneous
Each depositary will forward to the relevant depositary shareholders all our reports and communications that we are required to furnish to preferred stockholders of any series.
The deposit agreement will contain provisions relating to adjustments in the fraction of a share of preferred stock represented by a depositary share in the event of a change in par value, split-up, combination or other reclassification of the preferred stock or upon any recapitalization, merger or sale of substantially all of our assets.
Neither the depositary nor HCP will be liable if it is prevented or delayed by law or any circumstance beyond its control in performing its obligations under any deposit agreement, or subject to any liability under the deposit agreement to holders of depositary receipts other than for the
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relevant party's gross negligence or willful misconduct. The obligations of HCP and each depositary under any deposit agreement will be limited to performance in good faith of their duties under that agreement, and they will not be obligated to prosecute or defend any legal proceeding in respect of any depositary shares or preferred stock unless they are provided with satisfactory indemnity. They may rely upon written advice of counsel or accountants, or information provided by persons presenting preferred stock for deposit, depositary shareholders or other persons believed to be competent and on documents believed to be genuine.
Title
HCP, each depositary and any of their agents may treat the registered owner of any depositary share as the absolute owner of that share, whether or not any payment in respect of that depositary share is overdue and despite any notice to the contrary, for any purpose. See "Legal Ownership and Book-Entry Issuance."
Resignation and Removal of Depositary
A depositary may resign at any time by issuing us a notice of resignation, and we may remove any depositary at any time by issuing it a notice of removal. Resignation or removal will take effect upon the appointment of a successor depositary and its acceptance of appointment. That successor depositary must be appointed within 60 days after delivery of the notice of resignation or removal.
DESCRIPTION OF THE DEBT SECURITIES WE MAY OFFER
Please note that in this section entitled "Description of the Debt Securities We May Offer," references to "holders" mean those who own debt securities registered in their own names on the books that we or the trustee maintain for this purpose, and not those who own beneficial interests in debt securities registered in street name or in debt securities issued in book-entry form through one or more depositaries. Owners of beneficial interests in the debt securities should also read the section entitled "Legal Ownership and Book-Entry Issuance."
The following description summarizes the material provisions of our debt securities. The debt securities are to be issued under an existing indenture dated as of September 1, 1993 between us and The Bank of New York Mellon Trust Company, N.A., as trustee (the "indenture"), which has been filed with the SEC and incorporated by reference in the registration statement of which this prospectus is a part. This description is not complete and is subject to, and is qualified in its entirety by reference to, the indenture and the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The specific terms of any series of debt securities will be described in the applicable prospectus supplement, and may differ from the general description of the terms presented below. Whenever particular defined terms of the indenture, as supplemented or amended from time to time, are referred to in this prospectus or a prospectus supplement, those defined terms are incorporated in this prospectus or such prospectus supplement by reference.
General
The indenture does not limit the aggregate principal amount of debt securities that may be issued under the indenture and provides that the debt securities may be issued from time to time in one or more series. All securities issued under the indenture will rank equally and ratably with all other securities issued under the indenture.
The debt securities will be unsecured and will rank on a parity with all of our other unsecured and unsubordinated indebtedness. The debt securities are not, by their terms, subordinate in right of payment to any of our other indebtedness.
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Because our assets consist principally of interests in the subsidiaries through which we conduct our businesses, our right to participate as an equity holder in any distribution of assets of any of our subsidiaries upon the subsidiary's liquidation or otherwise, and thus the ability of our security holders to benefit from the distribution, is junior to creditors of the subsidiary, except to the extent that any claims we may have as a creditor of the subsidiary are recognized. In addition, dividends, loans and advances to us from some of our subsidiaries are restricted by net capital requirements under the Securities Exchange Act of 1934 and under rules of securities exchanges and other regulatory bodies. Furthermore, because some of our subsidiaries are partnerships in which we are a general partner, we may be liable for their obligations. We also guarantee many of the obligations of our subsidiaries. Any liability we may have for our subsidiaries' obligations could reduce our assets that are available to satisfy our direct creditors, including investors in our securities.
The prospectus supplement and any related pricing supplement will describe certain terms of the debt securities offered by that prospectus supplement, including:
Principal of, premium, if any, and interest, if any, on the debt securities will be payable at the place or places designated by us and set forth in the applicable prospectus supplement. Interest, if any, on the debt securities will be paid, unless otherwise provided in the applicable prospectus supplement, by check mailed to the person in whose name the debt securities are registered at the close of business on the record dates designated in the applicable prospectus supplement at the address of the related holder appearing on the register of debt securities. The trustee will maintain at an office in the Borough of Manhattan, The City of New York, a register for the registration of transfers of debt securities, subject to any restrictions set forth in the applicable prospectus supplement relating to the debt securities.
Unless otherwise provided in the applicable prospectus supplement or pricing supplement, the debt securities will be issued only in fully registered form without coupons and in denominations of $1,000
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or any larger amount that is an integral multiple of $1,000. Debt securities may be presented for exchange and transfer in the manner, at the places and subject to the restrictions set forth in the indenture, the debt securities and the prospectus supplement. These services will be provided without charge, other than any tax or other governmental charge payable in connection with the exchange or transfer, but subject to the limitations provided in the indenture.
Debt securities will bear interest at a fixed rate or a floating rate. The debt securities may be issued at a price less than their stated redemption price at maturity, resulting in the debt securities being treated as issued with original issue discount for United States federal income tax purposes. Any original issue discount debt securities may currently pay no interest or interest at a rate which at the time of issuance is below market rates. Special United States federal income tax and other considerations applicable to any of these discounted notes will be described in the prospectus supplement or pricing supplement.
The indenture provides that all debt securities of any one series need not be issued at the same time and we may, from time to time, issue additional debt securities of a previously issued series without your consent and without notifying you. In addition, the indenture provides that we may issue debt securities with terms different from those of any other series of debt securities and, within a series of debt securities, certain terms (such as interest rate or manner in which interest is calculated and maturity date) may differ.
Conversion Rights
The terms, if any, on which debt securities of a series may be exchanged for or converted into shares of our common stock, preferred stock, debt securities of another series or other securities will be set forth in the prospectus supplement relating to the series. To protect our status as a REIT, a holder may not convert any debt security, and the debt security is not convertible by any holder, if as a result of the conversion any person would then be deemed to beneficially own, directly or indirectly, 9.8% or more of our common stock.
Global Debt Securities
Unless we specify otherwise in the applicable prospectus supplement, the registered debt securities of a series will be issued only in the form of one or more fully registered global securities that will be deposited with a depositary or with a nominee for a depositary identified in the prospectus supplement relating to the series and registered in the name of the depositary or a nominee of the depository. Ownership of beneficial interests in a registered global security will be limited to persons, or participants, that have accounts with the depositary for the registered global security or persons that may hold interests through participants.
Those who own beneficial interests in a global debt security will do so through participants in the depositary's securities clearance system, and the rights of those indirect owners will be governed solely by the applicable procedures of the depositary and its participants. We describe book-entry securities under "Legal Ownership and Book-Entry Issuance."
Covenants
Limitation on Borrowing Money
In the indenture, we have agreed not to create, assume, incur or otherwise become liable in respect of any:
(a) Senior Debt, unless the aggregate principal amount of our Senior Debt outstanding will not, at the time of such creation, assumption or incurrence and after giving effect thereto and to any
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concurrent transactions, exceed the greater of (i) 300% of Capital Base and (ii) 500% of Tangible Net Worth; and
(b) Non-Recourse Debt, unless the aggregate principal amount of our Senior Debt and Non-Recourse Debt outstanding will not, at the time of such creation, assumption or incurrence and after giving effect thereto and to any concurrent transactions, exceed 500% of Capital Base.
For the purpose of this limitation as to borrowing money, the following terms have the following meanings:
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Consolidation, Merger and Sale of Assets
We may not consolidate or merge with or into or transfer or lease our assets substantially as an entirety to any person unless we are the continuing corporation or the successor corporation or person to which the assets are transferred or leased is organized under the laws of the United States or any state of the United States or the District of Columbia and expressly assumes our obligations on the debt securities and under the indenture, and after giving effect to the transaction no event of default under the indenture has occurred and is continuing, and certain other conditions are met.
Additional Covenants
Any additional covenants that we agree to with respect to a series of the debt securities will be set forth in the prospectus supplement or related pricing supplement.
Events of Default
The following are events of default under the indenture with respect to the debt securities of any series:
If an event of default with respect to the outstanding debt securities of any series occurs and is continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding debt securities of that series may declare the principal amount of all the outstanding debt
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securities of that series to be due and payable immediately. At any time after the declaration of acceleration with respect to the debt securities of any series has been made, but before a judgment or decree based on acceleration has been obtained, the holders of a majority in aggregate principal amount of the outstanding debt securities of that series may, under certain circumstances, rescind and annul the acceleration.
The indenture provides that the trustee will, within 90 days after the occurrence of a default with respect to a series of debt securities, give to the holders of the outstanding debt securities of the series notice of all uncured defaults known to it. Except in the case of default in the payment of principal, premium, if any, or interest, if any, on any debt securities of a series, the trustee shall be protected in withholding the notice if the trustee in good faith determines that the withholding of the notice is in the interest of the holders of outstanding debt securities of the series.
The indenture provides that, subject to the duty of the trustee during the continuance of an event of default to act with the required standard of care, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holders, unless the holders shall have offered to the trustee reasonable indemnity. Subject to such provisions for the indemnification of the trustee and subject to certain other limitations, the holders of a majority in aggregate principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceedings for any remedy available to the trustee, or exercising any trust or power conferred on the trustee, with respect to the debt securities of that series.
We are required to furnish to the trustee annually a statement as to our performance of certain obligations under the indenture and as to any default in our performance.
Modification, Waiver and Amendment
The indenture provides that modifications and amendments may be made by us and the trustee to the indenture without the consent of any holders:
The indenture provides that modifications and amendments may be made by us and the trustee to the indenture with the consent of the holders of not less than 662/3% in aggregate principal amount of the outstanding debt securities of each series affected by the modification or amendment. However, no such modification or amendment may, without the consent of the holder of each outstanding debt security affected thereby:
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The holders of a majority in aggregate principal amount of the outstanding debt securities of each series will be able, on behalf of all holders of the debt securities of that series, to waive compliance by us with certain restrictive provisions of the indenture, or any past default under the indenture with respect to the debt securities of that series, except a default in the payment of principal, premium, if any, or interest, if any, or in respect of a provision of the indenture which cannot be amended or modified without the consent of the holder of each outstanding debt security of the series affected.
Satisfaction and Discharge of Indenture
The indenture, with respect to any and all series of debt securities (except for certain specified surviving obligations including, among other things, our obligation to pay the principal of, premium, if any, or interest, if any, on any debt securities), will be discharged and cancelled upon the satisfaction of certain conditions, including the payment in full of the principal of, premium, if any, and interest, if any, on all of the debt securities of that series or the deposit with the trustee of an amount of cash sufficient for the payment or redemption, in accordance with the indenture.
Defeasance
We will be able to terminate certain of our obligations under the indenture with respect to the debt securities of any series on the terms and subject to the conditions contained in the indenture by depositing in trust with the trustee cash or U.S. government obligations (or combination thereof) sufficient to pay the principal of, premium, if any, and interest, if any, on the debt securities of the series to their maturity or redemption date in accordance with the terms of the indenture and the debt securities of the series.
Governing Law and Consent to Jurisdiction
The indenture is and the debt securities issued thereunder will be governed by and construed in accordance with the laws of the State of California.
Concerning the Trustee
The indenture contains certain limitations on the rights of the trustee should it become a creditor of us, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions with us. However, if the trustee acquires any conflicting interest it must eliminate such conflict or resign or otherwise comply with the Trust Indenture Act of 1939, as amended.
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The indenture provides that, in case an event of default should occur and be continuing, the trustee will be required to use the degree of care and skill of a prudent person in the conduct of his or her own affairs in the exercise of its powers.
DESCRIPTION OF WARRANTS OR OTHER RIGHTS WE MAY OFFER
Please note that in this section entitled "Description of Warrants or Other Rights We May Offer," references to "holders" mean those who own warrants or other rights registered in their own names, on the books that we or any applicable trustee or warrant or rights agent maintain for this purpose, and not those who own beneficial interests in warrants or rights registered in street name or in warrants or rights issued in book-entry form through one or more depositaries. Owners of beneficial interests in warrants or rights should also read the section entitled "Legal Ownership and Book-Entry Issuance."
This section outlines some of the provisions of each warrant or rights agreement pursuant to which warrants or rights may be issued, the warrants or rights, and any warrant or rights certificates. This information may not be complete in all respects and is qualified entirely by reference to any warrant agreement or rights agreement with respect to the warrants or rights of any particular series. The specific terms of any series of warrants or rights will be described in the applicable prospectus supplement. If so described in the prospectus supplement, the terms of that series of warrants or rights may differ from the general description of terms presented below.
We may issue warrants or other rights. We may issue these securities in such amounts or in as many distinct series as we wish. This section summarizes the terms of these securities that apply generally. Most of the financial and other specific terms of any such series of securities will be described in the applicable prospectus supplement. Those terms may vary from the terms described here.
When we refer to a series of securities in this section, we mean all securities issued as part of the same series under any applicable indenture, agreement or other instrument. When we refer to the applicable prospectus supplement, we mean the prospectus supplement describing the specific terms of the security you purchase. The terms used in the applicable prospectus supplement generally will have the meanings described in this prospectus, unless otherwise specified in the applicable prospectus supplement.
Warrants
We may issue warrants, options or similar instruments for the purchase of our debt securities, preferred stock, common stock, depositary shares or units. We refer to these collectively as "warrants." Warrants may be issued independently or together with debt securities, preferred stock, common stock, depositary shares or units, and may be attached to or separate from those securities.
Rights
We may also issue rights, on terms to be determined at the time of sale, for the purchase or sale of, or whose cash value or stream of cash payments is determined by reference to, the occurrence or non-occurrence of or the performance, level or value of, one or more of the following:
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We refer to each property described above as a "right property."
We may satisfy our obligations, if any, and the holder of a right may satisfy its obligations, if any, with respect to any rights by delivering, among other things:
The applicable prospectus supplement will describe what we may deliver to satisfy our obligations, if any, and what the holder of a right may deliver to satisfy its obligations, if any, with respect to any rights.
Agreements
Each series of warrants or rights may be evidenced by certificates and may be issued under a separate indenture, agreement or other instrument to be entered into between us and a bank that we select as agent with respect to such series. The warrant or rights agent will act solely as our agent in connection with the warrant or rights agreement or any warrant or rights certificates and will not assume any obligation or relationship of agency or trust for or with any warrant or rights holders. Copies of the forms of agreements and the forms of certificates representing the warrants or rights will be filed with the SEC near the date of filing of the applicable prospectus supplement with the SEC. Because the following is a summary of certain provisions of the forms of agreements and certificates, it does not contain all information that may be important to you. You should read all the provisions of the agreements and the certificates once they are available. Warrants or rights in book-entry form will be represented by a global security registered in the name of a depositary, which will be the holder of all the securities represented by the global security. Those who own beneficial interests in a global security will do so through participants in the depositary's system, and the rights of these indirect owners will be governed solely by the applicable procedures of the depositary and its participants. We describe book-entry securities under "Legal Ownership and Book-Entry Issuance."
General Terms of Warrants or Rights
The prospectus supplement relating to a series of warrants or rights will identify the name and address of the warrant or rights agent, if any. The prospectus supplement will describe the terms of the series of warrants or rights in respect of which this prospectus is being delivered, including:
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Warrant or rights certificates may be exchanged for new certificates of different denominations and may be presented for transfer of registration and, if exercisable for other securities or other property, may be exercised at the warrant or rights agent's corporate trust office or any other office indicated in the prospectus supplement. If the warrants or rights are not separately transferable from any securities with which they were issued, an exchange may take place only if the certificates representing the related securities are also exchanged. Prior to exercise of any warrant or right exercisable for other securities or other property, warrant or rights holders will not have any rights as holders of the underlying securities, including the right to receive any principal, premium, interest, dividends, or payments upon our liquidation, dissolution or winding up or to exercise any voting rights.
Exercise of Warrants or Rights
If any warrant or right is exercisable for other securities or other property, the following provisions will apply. Each such warrant or right may be exercised at any time up to any expiration date and time mentioned in the prospectus supplement relating to those warrants or rights as may otherwise be stated in the prospectus supplement. After the close of business on any applicable expiration date, unexercised warrants or rights will become void.
Warrants or rights may be exercised by delivery of the certificate representing the securities to be exercised, or in the case of global securities, as described below under "Legal Ownership and Book-Entry Issuance," by delivery of an exercise notice for those warrants or rights, together with certain information, and payment to any warrant or rights agent in immediately available funds, as provided in the prospectus supplement, of the required purchase amount, if any. Upon receipt of payment and the properly executed certificate or exercise notice at the office indicated in the prospectus supplement, we will, within the time period in the relevant agreement, issue and deliver the securities or other property purchasable upon such exercise. If fewer than all of the warrants or rights represented by such certificates are exercised, a new certificate will be issued for the remaining amount of warrants or rights. The warrant or rights holder will be required to pay any tax or other governmental charge that may be imposed in connection with any transfer involved in the issuance of the underlying securities or property.
If mentioned in the prospectus supplement, securities may be surrendered as all or part of the exercise price for warrants or rights.
Preferred Stock, Depositary Shares and Common Stock Warrant Adjustment
In the case of warrants or rights to purchase preferred stock, common stock or depositary shares the exercise price payable and the number of shares of common stock purchasable upon warrant exercise may be adjusted in certain events. The terms and conditions on which adjustments may be made will be set forth in the warrant or rights certificate and the applicable prospectus supplement. Such description will include information about:
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The prospectus supplement will describe which, if any, of these provisions shall apply to a particular series of warrants or rights. Unless otherwise specified in the applicable prospectus supplement, no adjustment in the number of shares purchasable upon warrant or right exercise will be required until cumulative adjustments require an adjustment of at least 1% of such number and no fractional shares will be issued upon warrant or right exercise, but we will pay the cash value of any fractional shares otherwise issuable.
Consolidation, Merger and Sale of Assets
Any agreement with respect to warrants or rights will provide that we are generally permitted to merge or consolidate with another corporation or other entity. Any such agreement will also provide that we are permitted to sell our assets substantially as an entirety to another corporation or other entity. With regard to any series of securities, however, we may not take any of these actions unless all of the following conditions are met:
Enforcement by Holders of Warrants or Rights
Any warrant or rights agent for any series of warrants or rights will act solely as our agent under the relevant agreement and will not assume any obligation or relationship of agency or trust for any warrant or rights holder.
A single bank or trust company may act as agent for more than one issue of securities. Any such agent will have no duty or responsibility in case we default in performing our obligations under the relevant agreement or warrant or right, including any duty or responsibility to initiate any legal proceedings or to make any demand upon us. Any warrant or rights holder may, without the agent's consent or consent of any other securityholder, enforce by appropriate legal action its right to exercise any warrant or right exercisable for any property.
Replacement of Certificates
We will replace any destroyed, lost, stolen or mutilated warrant or rights certificate upon delivery to us and any applicable agent of satisfactory evidence of the ownership of that certificate and of its destruction, loss, theft or mutilation, and (in the case of mutilation) surrender of that certificate to us or any applicable agent, unless we have, or the agent has, received notice that the certificate has been acquired by a bona fide purchaser. That warrant or rights holder will also be required to provide indemnity satisfactory to us and the relevant warrant or rights agent before a replacement certificate will be issued.
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Title
HCP, any warrant or rights agents for any series of warrants or rights and any of their agents may treat the registered holder of any certificate as the absolute owner of the warrants or rights evidenced by that certificate for any purpose and as the person entitled to exercise the rights attaching to such warrants or rights so requested, despite any notice to the contrary. See "Legal Ownership and Book-Entry Issuance."
DESCRIPTION OF STOCK PURCHASE CONTRACTS WE MAY OFFER
Please note that in this section entitled "Description of Stock Purchase Contracts We May Offer," references to "holders" mean those who own stock purchase contracts registered in their own names, on the books that we or our agent maintain for this purpose, and not those who own beneficial interests in stock purchase contracts registered in street name or in stock purchase contracts issued in book-entry form through one or more depositaries. Owners of beneficial interests in the stock purchase contracts should read the section below entitled "Legal Ownership and Book-Entry Issuance."
This section outlines some of the provisions of the stock purchase contracts, the stock purchase contract agreement and the pledge agreement. This information is not complete in all respects and is qualified entirely by reference to the stock purchase contract agreement and pledge agreement with respect to the stock purchase contracts of any particular series. The specific terms of any series of stock purchase contracts will be described in the applicable prospectus supplement. If so described in a prospectus supplement, the specific terms of any series of stock purchase contracts may differ from the general description of terms presented below.
Unless otherwise specified in the applicable prospectus supplement, we may issue stock purchase contracts, including contracts obligating holders to purchase from us and us to sell to the holders, a specified number of shares of common stock, preferred stock, depositary shares or other security or property at a future date or dates. Alternatively, the stock purchase contracts may obligate us to purchase from holders, and obligate holders to sell to us, a specified or varying number of shares of common stock, preferred stock, depositary shares or other security or property. The consideration per share of common stock or preferred stock or per depositary share or other security or property may be fixed at the time the stock purchase contracts are issued or may be determined by a specific reference to a formula set forth in the stock purchase contracts. The stock purchase contracts may provide for settlement by delivery by or on behalf of HCP of shares of the underlying security or property or, they may provide for settlement by reference or linkage to the value, performance or trading price of the underlying security or property. The stock purchase contracts may be issued separately or as part of stock purchase units consisting of a stock purchase contract and debt securities, preferred stock or debt obligations of third parties, including U.S. treasury securities, other stock purchase contracts or common stock, or other securities or property, securing the holders' obligations to purchase or sell, as the case may be, the common stock or the preferred stock under the stock purchase contracts. The stock purchase contracts may require us to make periodic payments to the holders of the stock purchase units or vice versa, and such payments may be unsecured or prefunded on some basis and may be paid on a current or on a deferred basis. The stock purchase contracts may require holders to secure their obligations thereunder in a specified manner and may provide for the prepayment of all or part of the consideration payable by holders in connection with the purchase of the underlying security or other property pursuant to the stock purchase contracts.
The securities related to the stock purchase contracts may be pledged to a collateral agent for HCP's benefit pursuant to a pledge agreement to secure the obligations of holders of stock purchase contracts to purchase the underlying security or property under the related stock purchase contracts. The rights of holders of stock purchase contracts to the related pledged securities will be subject to HCP's security interest therein created by the pledge agreement. No holder of stock purchase contracts
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will be permitted to withdraw the pledged securities related to such stock purchase contracts from the pledge arrangement except upon the termination or early settlement of the related stock purchase contracts or in the event other securities, cash or property is made subject to the pledge agreement in lieu of the pledged securities, if permitted by the pledge agreement, or as otherwise provided in the pledge agreement. Subject to such security interest and the terms of the stock purchase contract agreement and the pledge agreement, each holder of a stock purchase contract will retain full beneficial ownership of the related pledged securities.
Except as described in the applicable prospectus supplement, the collateral agent will, upon receipt of distributions on the pledged securities, distribute such payments to HCP or the stock purchase contract agent, as provided in the pledge agreement. The purchase agent will in turn distribute payments it receives as provided in the stock purchase contract agreement.
DESCRIPTION OF UNITS WE MAY OFFER
Please note that in this section entitled "Description of Units We May Offer," references to "holders" mean those who own units registered in their own names, on the books that we or our agent maintain for this purpose, and not those who own beneficial interests in units registered in street name or in units issued in book-entry form through one or more depositaries. Owners of beneficial interests in the units should read the section below entitled "Legal Ownership and Book-Entry Issuance."
This section outlines some of the provisions of the units and the unit agreements. This information may not be complete in all respects and is qualified entirely by reference to the unit agreement with respect to the units of any particular series. The specific terms of any series of units will be described in the applicable prospectus supplement. If so described in a particular supplement, the specific terms of any series of units may differ from the general description of terms presented below.
We may issue units comprised of two or more debt securities, shares of common stock, shares of preferred stock, stock purchase contracts, warrants, rights and other securities in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified date.
The applicable prospectus supplement may describe:
The provisions described in this section, as well as those described under "Description of the Debt Securities We May Offer," "Description of Warrants or Other Rights We May Offer," "Description of Stock Purchase Contracts We May Offer," "Description of Capital Stock We May OfferCommon Stock" and "Description of Capital Stock We May OfferPreferred Stock" will apply to the securities included in each unit, to the extent relevant.
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Issuance in Series
We may issue units in such amounts and in as many distinct series as we wish. This section summarizes terms of the units that apply generally to all series. Most of the financial and other specific terms of your series will be described in the applicable prospectus supplement.
Unit Agreements
We will issue the units under one or more unit agreements to be entered into between us and a bank or other financial institution, as unit agent. We may add, replace or terminate unit agents from time to time. We will identify the unit agreement under which each series of units will be issued and the unit agent under that agreement in the applicable prospectus supplement.
The following provisions will generally apply to all unit agreements unless otherwise stated in the applicable prospectus supplement.
Enforcement of Rights
The unit agent under a unit agreement will act solely as our agent in connection with the units issued under that agreement. The unit agent will not assume any obligation or relationship of agency or trust for or with any holders of those units or of the securities comprising those units. The unit agent will not be obligated to take any action on behalf of those holders to enforce or protect their rights under the units or the included securities.
Except as indicated in the next paragraph, a holder of a unit may, without the consent of the unit agent or any other holder, enforce its rights as holder under any security included in the unit, in accordance with the terms of that security and the indenture, warrant agreement, rights agreement or other instrument under which that security is issued. Those terms are described elsewhere in this prospectus under the sections relating to debt securities, warrants, stock purchase contracts, common stock and preferred stock, as relevant.
Notwithstanding the foregoing, a unit agreement may limit or otherwise affect the ability of a holder of units issued under that agreement to enforce its rights, including any right to bring a legal action, with respect to those units or any securities, other than debt securities, that are included in those units. Limitations of this kind will be described in the applicable prospectus supplement.
Unit Agreements Will Not Be Qualified Under Trust Indenture Act
No unit agreement will be qualified as an indenture, and no unit agent will be required to qualify as a trustee, under the Trust Indenture Act. Therefore, holders of units issued under unit agreements will not have the protections of the Trust Indenture Act with respect to their units.
Mergers and Similar Transactions Permitted; No Restrictive Covenants or Events of Default
The unit agreements will not restrict our ability to merge or consolidate with, or sell our assets to, another corporation or other entity or to engage in any other transactions. If at any time we merge or consolidate with, or sell our assets substantially as an entirety to, another corporation or other entity, the successor entity will succeed to and assume our obligations under the unit agreements. We will then be relieved of any further obligation under these agreements.
The unit agreements will not include any restrictions on our ability to put liens on our assets, including our interests in our subsidiaries, nor will they restrict our ability to sell our assets. The unit agreements also will not provide for any events of default or remedies upon the occurrence of any events of default.
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Governing Law
The unit agreements and the units will be governed by New York law.
Form, Exchange and Transfer
We will issue each unit in globali.e., book-entryform only. Units in book-entry form will be represented by a global security registered in the name of a depositary, which will be the holder of all the units represented by the global security. Those who own beneficial interests in a unit will do so through participants in the depositary's system, and the rights of these indirect owners will be governed solely by the applicable procedures of the depositary and its participants. We describe book-entry securities below under "Legal Ownership and Book-Entry Issuance."
Each unit and all securities comprising the unit will be issued in the same form.
If we issue any units in registered, non-global form, the following will apply to them.
The units will be issued in the denominations stated in the applicable prospectus supplement. Holders may exchange their units for units of smaller denominations or combined into fewer units of larger denominations, as long as the total amount is not changed.
Only the depositary will be entitled to transfer or exchange a unit in global form, since it will be the sole holder of the unit.
Payments and Notices
In making payments and giving notices with respect to our units, we will follow the procedures we plan to use with respect to our debt securities, where applicable. We describe those procedures above under "Description of the Debt Securities We May OfferGeneral" and "Description of the Debt Securities We May OfferGlobal Debt Securities."
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LEGAL OWNERSHIP AND BOOK-ENTRY ISSUANCE
In this section, we describe special considerations that will apply to registered securities issued in globali.e., book-entryform. First, we describe the difference between legal ownership and indirect ownership of registered securities. Then, we describe special provisions that apply to global securities.
Who is the Legal Owner of a Registered Security?
Each security in registered form will be represented either by a certificate issued in definitive form to a particular investor or by one or more global securities representing the entire issuance of securities. We refer to those who have securities registered in their own names, on the books that we or the trustee, warrant agent or other agent maintain for this purpose, as the "holders" of those securities. These persons are the legal holders of the securities. We refer to those who, indirectly through others, own beneficial interests in securities that are not registered in their own names as indirect owners of those securities. As we discuss below, indirect owners are not legal holders, and investors (i.e., persons or institutions purchasing securities in the offering to which a prospectus supplement relates) in securities issued in book-entry form or in street name will be indirect owners.
Book-Entry Owners
We will issue each security in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means securities will be represented by one or more global securities registered in the name of a financial institution that holds them as depositary on behalf of other financial institutions that participate in the depositary's book-entry system. These participating institutions, in turn, hold beneficial interests in the securities on behalf of themselves or their customers.
Under the indenture with respect to our debt securities, only the person in whose name a security is registered is recognized as the holder of that security. Consequently, for securities issued in global form, we will recognize only the depositary as the holder of the securities and we will make all payments on the securities, including deliveries of any property other than cash, to the depositary. The depositary passes along the payments it receives to its participants, which in turn pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the securities.
As a result, investors will not own securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositary's book-entry system or holds an interest through a participant. As long as the securities are issued in global form, investors will be indirect owners, and not holders, of the securities.
Street Name Owners
In the future we may terminate a global security or issue securities initially in non-global form. In these cases, investors may choose to hold their securities in their own names or in street name. Securities held by an investor in street name would be registered in the name of a bank, broker or other financial institution that the investor chooses, and the investor would hold only a beneficial interest in those securities through an account he or she maintains at that institution.
For securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the securities are registered as the holders of those securities and we will make all payments on those securities, including deliveries of any property other than cash, to them. These institutions pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because
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they are legally required to do so. Investors who hold securities in street name will be indirect owners, not holders, of those securities.
Legal Holders
Our obligations as well as the obligations of any trustee under any indenture and the obligations, if any, of any warrant agents and unit agents and any other third parties employed by us, the trustee or any of those agents, run only to the holders of the securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a security or has no choice because we are issuing the securities only in global form.
For example, once we make a payment or give a notice to the holder, we have no further responsibility for that payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect owners but does not do so. Similarly, if we want to obtain the approval of the holders for any purposee.g., to amend an indenture for a series of debt securities or warrants or the warrant agreement for a series of warrants or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenturewe would seek the approval only from the holders, and not the indirect owners, of the relevant securities. Whether and how the holders contact the indirect owners is up to the holders.
When we refer to "you" in this prospectus, we mean those who invest in the securities being offered by this prospectus, whether they are the holders or only indirect owners of those securities. When we refer to "your securities" in this prospectus, we mean the securities in which you will hold a direct or indirect interest.
Special Considerations for Indirect Owners
If you hold securities through a bank, broker or other financial institution, either in book-entry form or in street name, you should check with your own institution to find out:
What is a Global Security?
We will issue each security in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. Each security issued in book-entry form will be represented by a global security that we deposit with and register in the name of one or more financial institutions or their nominees,
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which we select. A financial institution that we select for any security for this purpose is called the "depositary" for that security. A security will usually have only one depositary but it may have more.
Each series of securities will have one or more of the following as the depositaries:
The depositaries named above may also be participants in one another's systems. Thus, for example, if DTC is the depositary for a global security, investors may hold beneficial interests in that security through Euroclear or Clearstream, as DTC participants. The depositary or depositaries for your securities will be named in the applicable prospectus supplement; if none is named, the depositary will be DTC.
A global security may represent one or any other number of individual securities. Generally, all securities represented by the same global security will have the same terms. We may, however, issue a global security that represents multiple securities of the same kind, such as debt securities, that have different terms and are issued at different times. We call this kind of global security a master global security. Your prospectus supplement will not indicate whether your securities are represented by a master global security.
A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under "Holder's Option to Obtain a Non-Global Security; Special Situations When a Global Security Will Be Terminated." As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that does. Thus, an investor whose security is represented by a global security will not be a holder of the security, but only an indirect owner of a beneficial interest in the global security.
If the prospectus supplement for a particular security indicates that the security will be issued in global form only, then the security will be represented by a global security at all times unless and until the global security is terminated. We describe the situations in which this can occur below under "Holder's Option to Obtain a Non-Global Security; Special Situations When a Global Security Will Be Terminated." If termination occurs, we may issue the securities through another book-entry clearing system or decide that the securities may no longer be held through any book-entry clearing system.
Special Considerations for Global Securities
As an indirect owner, an investor's rights relating to a global security will be governed by the account rules of the depositary, those of the investor's financial institution (e.g., Euroclear and Clearstream, if DTC is the depositary), as well as general laws relating to securities transfers. We do not recognize this type of investor or any intermediary as a holder of securities and instead deal only with the depositary that holds the global security.
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If securities are issued only in the form of a global security, an investor should be aware of the following:
Holder's Option to Obtain a Non-Global Security; Special Situations When a Global Security Will Be Terminated
If we issue any series of securities in book-entry form but we choose to give the beneficial owners of that series the right to obtain non-global securities, any beneficial owner entitled to obtain non-global securities may do so by following the applicable procedures of the depositary, any transfer agent or registrar for that series and that owner's bank, broker or other financial institution through which that owner holds its beneficial interest in the securities.
In addition, in a few special situations described below, a global security will be terminated and interests in it will be exchanged for certificates in non-global form representing the securities it represented. After that exchange, the choice of whether to hold the securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have
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their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of holders and street name investors above under "Who is the Legal Owner of a Registered Security."
The special situations for termination of a global security are as follows:
If a global security is terminated, only the depositary, and neither we, the trustee for any debt security, the warrant agent for any warrants or the unit agent for any units, is responsible for deciding the names of the institutions in whose names the securities represented by the global security will be registered and, therefore, who will be the holders of those securities.
Considerations Relating to Euroclear and Clearstream
Euroclear and Clearstream are securities clearance systems in Europe. Both systems clear and settle securities transactions between their participants through electronic, book-entry delivery of securities against payment.
As long as any global security is held by Euroclear or Clearstream, you may hold an interest in the global security only through an organization that participates, directly or indirectly, in Euroclear or Clearstream. If you are a participant in either of those systems, you may hold your interest directly in that system. If you are not a participant, you may hold your interest indirectly through organizations that are participants in that system.
If Euroclear or Clearstream is the depositary for a global security and there is no depositary in the United States, you will not be able to hold interests in that global security through any securities clearance system in the United States.
If Euroclear or Clearstream is the depositary for a global security, or if DTC is the depositary for a global security and Euroclear and Clearstream hold interests in the global security as participants in DTC, then Euroclear and Clearstream will hold interests in the global security on behalf of the participants in their systems.
Payments, deliveries, transfers, exchanges, notices and other matters relating to the securities made through Euroclear or Clearstream must comply with the rules and procedures of those systems. Those systems could change their rules and procedures at any time. We have no control over those systems or their participants and we take no responsibility for their activities. Transactions between participants in Euroclear or Clearstream on one hand, and participants in DTC, on the other hand, when DTC is the depositary, would also be subject to DTC's rules and procedures.
Special Timing Considerations for Transactions in Euroclear and Clearstream
Investors will be able to make and receive through Euroclear and Clearstream payments, notices and other communications and deliveries involving any securities held through those systems only on days when those systems are open for business. Those systems may not be open for business on days when banks, brokers and other institutions are open for business in the United States.
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In addition, because of time-zone differences, U.S. investors who hold their interests in the securities through these systems, and wish to transfer their interests, or to receive or make a payment or delivery with respect to their interests, on a particular day may find that the transaction will not be effected until the next business day in Luxembourg or Brussels, as applicable. Investors who hold their interests through both DTC and Euroclear or Clearstream may need to make special arrangements to finance any purchases or sales of their interests between the U.S. and European clearing systems, and those transactions may settle later than would be the case for transactions within one clearing system.
CERTAIN PROVISIONS OF MARYLAND LAW AND HCP'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and of our charter and bylaws. This is a summary, and does not completely describe Maryland law, our charter or our bylaws. For a complete description, we refer you to the MGCL, our charter and our bylaws. We have incorporated by reference our charter and bylaws as exhibits to the registration statement of which this prospectus is a part.
Election of Directors
Our bylaws provide that our board of directors may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than three nor more than eleven. At each annual meeting of stockholders, the election of directors shall be by a plurality of the votes cast. Holders of common stock have no right to cumulative voting for the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the outstanding shares of our common stock can elect all of our directors. A vacancy resulting from an increase in the number of directors may be filled by a majority vote of the entire board of directors or by the affirmative vote of the holders of a majority of our shares then entitled to vote at an election of directors. Other vacancies may be filled by the vote of a majority of the remaining directors.
Removal of Directors
Our charter provides that a director of ours may be removed by the affirmative vote of the holders of two-thirds of the outstanding shares of our voting stock or by a unanimous vote of all other directors. Our stockholders may elect a successor to fill any vacancy which results from the removal of a director.
Business Combinations
Under Maryland law, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
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After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. None of these provisions of the Maryland law will apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the interested stockholder becomes an interested stockholder.
In addition to the restrictions on business combinations provided under Maryland law, our charter also contains restrictions on business combinations. See "Description of Capital Stock We May OfferBusiness Combination Provisions."
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. "Control shares" are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or shares of stock for which the acquiror is able to exercise or direct the exercise of voting power except solely by virtue of a revocable proxy, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:
Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. Except as otherwise specified in the statute, a "control share acquisition" means the acquisition of control shares.
Once a person who has made or proposes to make a control share acquisition has undertaken to pay expenses and satisfied other conditions, the person may compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may be able to redeem any or all of the control shares for fair value, except for control shares for which voting rights previously have been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined without regard to the absence of voting rights for control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of
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stockholders at which the voting rights of control shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of these appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. Some of the limitations and restrictions otherwise applicable to the exercise of dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or to acquisitions approved or exempted by the charter or bylaws of the corporation. Our charter and bylaws do not provide for any such exemption.
Duties of Directors with Respect to Unsolicited Takeovers
Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other things, the duties of the directors in unsolicited takeover situations. The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) make a determination under the Maryland business combination or control share acquisition statutes described above, or (c) act or fail to act solely because of the effect the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition. Moreover, under Maryland law the act of a director of a Maryland corporation relating to or affecting an acquisition or potential acquisition of control is not subject to any higher duty or greater scrutiny than is applied to any other act of a director. Maryland law also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under Maryland law.
Unsolicited Takeovers
Under Maryland law, a Maryland corporation with a class of equity securities registered under the Securities Exchange Act of 1934, as amended, and at least three independent directors may elect to be subject to certain statutory provisions relating to unsolicited takeovers which, among other things, would automatically classify the board of directors into three classes with staggered terms of three years each and vest in the board of directors the exclusive right to determine the number of directors and the exclusive right, by the affirmative vote of a majority of the remaining directors, to fill vacancies on the board of directors, even if the remaining directors do not constitute a quorum. These statutory provisions relating to unsolicited takeovers also provide that any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, rather than the next annual meeting of directors as would otherwise be the case, and until his successor is elected and qualified.
An election to be subject to any or all of the foregoing statutory provisions may be made in our charter or bylaws, or by resolution of our board of directors without stockholder approval. Any such statutory provision to which we elect to be subject will apply even if other provisions of Maryland law or our charter or bylaws provide to the contrary. Neither our charter nor our bylaws provides that we are subject to any of the foregoing statutory provisions relating to unsolicited takeovers. However, our board of directors could adopt a resolution, without stockholder approval, to elect to become subject to some or all of these statutory provisions.
If we made an election to be subject to such statutory provisions and our board of directors were divided into three classes with staggered terms of office of three years each, the classification and staggered terms of office of our directors would make it more difficult for a third party to gain control
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of our board of directors since at least two annual meetings of stockholders, instead of one, generally would be required to effect a change in the majority of our board of directors.
Amendments to the Charter
Provisions of our charter on business combinations, the number of directors and certain ownership restrictions may be amended only if approved by our board of directors and by our stockholders by the affirmative vote of two-thirds of all of the votes entitled to be cast by our stockholders on the matter. Other amendments to our charter require approval by our board of directors and approval by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast by our stockholders on the matter.
Amendment to the Bylaws
Provisions of our bylaws on the number of directors, in certain circumstances, and the vote required to amend the bylaws may be amended only by unanimous vote of the board of directors or by the affirmative vote of not less than 90% of all of the votes entitled to be cast by our stockholders on the matter. Other amendments to our bylaws require the affirmative vote of a majority of the entire board of directors or the affirmative vote of two-thirds of all of the votes entitled to be cast by our stockholders on the matter.
Dissolution of HCP, Inc.
Our dissolution must be approved by our board of directors by a majority vote of the entire board and by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast by our stockholders on the matter.
Advance Notice of Director Nominations and New Business; Procedures of Special Meetings Requested by Stockholders
Our bylaws provide that nominations of persons for election to the board of directors and the proposal of business to be considered by stockholders at the annual or special meeting of stockholders may be made only:
Our bylaws also provide that only the business specified in our notice of meeting may be brought before a special meeting of stockholders. Our bylaws provide that our stockholders have the right to call a special meeting only upon the written request of the stockholders holding in the aggregate not less than 50% of the outstanding shares entitled to vote on the business proposed to be transacted at such meeting.
Anti-Takeover Effect of Provisions of Maryland Law and of the Charter and Bylaws
The provisions in the charter on removal of directors and business combinations, the business combinations and control share acquisition provisions of Maryland law, the advance notice provisions of our bylaws and the provisions of our bylaws relating to stockholder-requested special meetings may delay, defer or prevent a change of control or other transaction in which holders of some, or a
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majority, of the common stock might receive a premium for their common stock over the then prevailing market price or which such holders might believe to be otherwise in their best interests.
Limitation of Liability and Indemnification
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages. However, a Maryland corporation may not limit liability resulting from actual receipt of an improper benefit or profit in money, property or services. Also, liability resulting from active and deliberate dishonesty may not be eliminated if a final judgment establishes that the dishonesty is material to the cause of action. Our charter contains a provision which limits the liability of directors and officers for money damages to the maximum extent permitted by Maryland law. This provision does not limit our right or that of our stockholders to obtain equitable relief, such as an injunction or rescission.
Our bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination as to the ultimate entitlement to indemnification, to pay or reimburse reasonable expenses before final disposition of a proceeding to:
The bylaws authorize us, with the approval of our board of directors, to provide indemnification and advancement of expenses to our agents and employees.
Unless limited by a corporation's charter, Maryland law requires a corporation to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party by reason of his service in that capacity, or in the defense of any claim, issue or matter in the proceeding. Our charter does not alter this requirement.
Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against:
Maryland law does not permit a corporation to indemnify its present and former directors and officers if it is established that:
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Under Maryland law, a Maryland corporation generally may not indemnify for an adverse judgment in a suit by or in the right of the corporation. Also, a Maryland corporation generally may not indemnify for a judgment of liability on the basis that personal benefit was improperly received. In either of these cases, a Maryland corporation may indemnify for expenses only if a court so orders.
Maryland law permits a corporation to advance reasonable expenses to a director or officer. First, however, the corporation must receive a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation. The corporation must also receive a written undertaking, either by the director or officer or on his behalf, to repay the amount paid or reimbursed by the corporation if it shall ultimately be determined that the standard of conduct was not met. The termination of any proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the requisite standard of conduct required for indemnification to be permitted.
It is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material United States federal income tax considerations regarding our election to be taxed as a REIT and the ownership and disposition of certain of the securities offered by this prospectus. This summary does not purport to be a complete analysis of all of the potential tax considerations relating thereto. This summary is based on current law, is for general information only and is not tax advice. For purposes of this summary under the heading "Material United States Federal Income Tax Considerations," references to "HCP," "we," "our," and "us" mean only HCP, Inc., and not its subsidiaries, except as otherwise indicated.
The information in this summary is based on:
in each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the Internal Revenue Service include its practices and policies as expressed in private letter rulings that are not binding on the Internal Revenue Service except with respect to the particular taxpayers who requested and received those rulings. Future legislation, Treasury Regulations, administrative interpretations and practices and/or court decisions may change or adversely affect the tax considerations described in this prospectus. Any such change could apply retroactively to transactions preceding the date of the change. We have not requested and do not intend to request a ruling from the Internal Revenue Service that we qualify as a REIT or concerning the treatment of the securities offered by this prospectus, and the statements in this prospectus are not binding on the Internal Revenue Service or any court. Thus, we can provide no assurance that the tax considerations
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contained in this summary will not be challenged by the Internal Revenue Service or will be sustained by a court if so challenged.
This summary assumes that the securities offered by this prospectus are held as "capital assets" (generally, property held for investment within the meaning of Section 1221 of the Internal Revenue Code). Your tax treatment will vary depending on the terms of the specific securities that you acquire, as well as your particular situation. Supplemental United States federal income tax considerations relevant to your ownership of the particular securities offered by this prospectus may be provided in the prospectus supplement that relates to those securities. This discussion does not purport to deal with all aspects of taxation that may be relevant to holders of our securities in light of their personal investment or tax circumstances, or to holders who receive special treatment under the United States federal income tax laws except to the extent discussed specifically herein. Holders of securities offered by this prospectus receiving special treatment include, without limitation:
In addition, this discussion does not address any state, local or foreign tax consequences associated with the ownership of the securities offered by this prospectus or our election to be taxed as a REIT.
You are urged to consult your tax advisor regarding the specific tax consequences to you of:
Taxation of the Company
General
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year ended December 31, 1985. We believe we have been organized and have operated in a manner which allows us to qualify for taxation as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 1985. We currently intend to continue to be organized and operate in this manner. However, qualification and taxation as a REIT
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depend upon our ability to meet the various qualification tests imposed under the Internal Revenue Code, including through actual annual operating results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that we have been organized and have operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified as a REIT. See "Failure to Qualify."
The sections of the Internal Revenue Code and the corresponding Treasury Regulations that relate to the qualification and taxation as a REIT are highly technical and complex. The following sets forth the material aspects of the sections of the Internal Revenue Code that govern the United States federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety by the applicable Internal Revenue Code provisions, Treasury Regulations, and related administrative and judicial interpretations thereof. Latham & Watkins LLP has acted as our tax counsel in connection with this prospectus and our election to be taxed as a REIT.
Latham & Watkins LLP has rendered an opinion to us to the effect that, commencing with our taxable year ended December 31, 1985, we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT, and that our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including representations made by us in factual certificates provided by one of our officers. In addition, this opinion was based upon our factual representations set forth in this prospectus. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Internal Revenue Code which are discussed below, including through actual annual operating results, asset composition, distribution levels and diversity of stock ownership, the results of which have not been and will not be reviewed by Latham & Watkins LLP. Accordingly, no assurance can be given that our actual results of operation for any particular taxable year have satisfied or will satisfy those requirements. See "Failure to Qualify." Further, the anticipated income tax treatment described in this prospectus may be changed, perhaps retroactively, by legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion subsequent to its date.
Provided we qualify for taxation as a REIT, we generally will not be required to pay United States federal corporate income taxes on our REIT taxable income that is currently distributed to our stockholders. This treatment substantially eliminates the "double taxation" that ordinarily results from investment in a C corporation. A C corporation is a corporation that is generally required to pay tax at the corporate-level. Double taxation generally means taxation that occurs once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. We will be required to pay United States federal income tax, however, as follows:
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foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business.
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Requirements for Qualification as a REIT
The Internal Revenue Code defines a REIT as a corporation, trust or association:
The Internal Revenue Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of twelve months, or during a proportionate part of a taxable year of less than twelve months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), the term "individual" includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.
We believe that we have been organized, have operated and have issued sufficient shares of capital stock with sufficient diversity of ownership to allow us to satisfy conditions (1) through (7) inclusive, during the relevant time periods. In addition, our charter documents provide for restrictions regarding ownership and transfer of our shares which are intended to assist us in continuing to satisfy the ownership requirements described in conditions (5) and (6) above. These stock ownership and transfer restrictions are described in "Description of Capital Stock We May OfferTransfer and Ownership Restrictions Relating to our Common Stock," "Description of Capital Stock We May OfferBusiness Combination Provisions" and "Description of Capital Stock We May OfferTransfer and Ownership Restrictions Relating to our Preferred Stock." These restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share ownership requirements, except as provided in the next two sentences, our status as a REIT will terminate. See "Failure to Qualify." If, however, we comply with the rules contained in applicable Treasury Regulations that require us to ascertain the actual ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement described in condition (6) above, we will be treated as having met this requirement.
In addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a calendar taxable year.
Ownership of Interests in Partnerships and Limited Liability Companies
We own and operate one or more properties through partnerships and limited liability companies. Treasury Regulations provide that if we are a partner in a partnership, we will be deemed to own our proportionate share of the assets of the partnership based on our interest in partnership capital, subject
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to special rules relating to the 10% REIT asset test described below. Also, we will be deemed to be entitled to our proportionate share of the income of the partnership. The assets and gross income of the partnership retain the same character in our hands, including for purposes of satisfying the gross income tests and the asset tests. In addition, for these purposes, the assets and items of income of any partnership in which we own a direct or indirect interest include such partnership's share of assets and items of income of any partnership in which it owns an interest. A brief summary of the rules governing the United States federal income taxation of partnerships and their partners is included below in "Tax Aspects of the Partnerships." The treatment described above also applies with respect to the ownership of interests in limited liability companies or other entities that are treated as partnerships for tax purposes.
We have direct or indirect control of certain partnerships and limited liability companies and intend to continue to operate them in a manner consistent with the requirements for our qualification as a REIT. We are a limited partner or non-managing member in certain partnerships and limited liability companies. If any such partnership or limited liability company were to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT income or asset test, and that we would not become aware of such action in a time frame which would allow us to dispose of our interest in the applicable entity or take other corrective action on a timely basis. In that case, unless we were entitled to relief, as described below, we would fail to qualify as a REIT.
Ownership of Interests in Qualified REIT Subsidiaries
We may, from time to time, own interests in subsidiary corporations. We own and operate a number of properties through our wholly-owned subsidiaries that we believe will be treated as "qualified REIT subsidiaries" under the Internal Revenue Code. A corporation will qualify as our qualified REIT subsidiary if we own 100% of its outstanding stock and if we do not elect with the subsidiary to treat it as a "taxable REIT subsidiary," as described below. A corporation that is a qualified REIT subsidiary is not treated as a separate corporation for United States federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, deduction and credit (as the case may be) of the parent REIT for all purposes under the Internal Revenue Code (including all REIT qualification tests). Thus, in applying the United States federal tax requirements described in this prospectus, the subsidiaries in which we own a 100% interest (other than any taxable REIT subsidiaries) are ignored, and all assets, liabilities and items of income, deduction and credit of such subsidiaries are treated as our assets, liabilities and items of income, deduction and credit. A qualified REIT subsidiary is not required to pay United States federal income tax, and our ownership of the stock of a qualified REIT subsidiary does not violate the restrictions on ownership of securities of any one issuer which constitute more than 10% of the voting power or value of such issuer's securities or more than 5% of the value of our total assets, as described below in "Asset Tests."
Ownership of Interests in Subsidiary REITs
We own an interest in HCP Life Science REIT, Inc. ("HCP Life Science REIT") which has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with its initial taxable year ending December 31, 2007. Provided that HCP Life Science REIT qualifies as a REIT, our interest in HCP Life Science REIT will be treated as a qualifying real estate asset for purposes of the REIT asset tests and any dividend income or gains derived by us from HCP Life Science REIT will generally be treated as income that qualifies for purposes of the REIT gross income tests. To qualify as a REIT, HCP Life Science REIT must independently satisfy the various REIT qualification requirements described in this summary. If HCP Life Science REIT were to fail to qualify
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as a REIT, and certain relief provisions do not apply, it would be treated as a regular taxable corporation and its income would be subject to United States federal income tax. In addition, a failure of HCP Life Science REIT to qualify as a REIT would have an adverse effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify as a REIT.
Ownership of Interests in Taxable REIT Subsidiaries
A taxable REIT subsidiary of ours is an entity treated as a corporation (other than a REIT) in which we directly or indirectly hold stock, and that has made a joint election with us to be treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes any entity treated as a corporation (other than a REIT) with respect to which a taxable REIT subsidiary owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. A taxable REIT subsidiary generally may engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT, except that a taxable REIT subsidiary may not directly or indirectly operate or manage a lodging or healthcare facility or directly or indirectly provide to any other person (under a franchise, license or otherwise) rights to any brand name under which any lodging or healthcare facility is operated. A taxable REIT subsidiary is subject to United States federal income tax, and state and local income tax where applicable, as a regular C corporation. In addition, a taxable REIT subsidiary may be prevented from deducting interest on debt funded directly or indirectly by its parent REIT if certain tests regarding the taxable REIT subsidiary's debt to equity ratio and interest expense are not satisfied. We currently own interests in several taxable REIT subsidiaries, and may acquire interests in additional taxable REIT subsidiaries in the future. Our ownership of securities of our taxable REIT subsidiaries will not be subject to the 5% or 10% asset tests described below. See "Asset Tests."
Income Tests
We must satisfy two gross income requirements annually to maintain our qualification as a REIT:
For these purposes, the term "interest" generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or percentages of receipts or sales.
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Rents we receive from a tenant will qualify as "rents from real property" for the purpose of satisfying the gross income requirements for a REIT described above only if all of the following conditions are met:
We generally do not intend to receive rent which fails to satisfy any of the above conditions. Notwithstanding the foregoing, we may have taken and may continue to take actions which fail to
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satisfy one or more of the above conditions to the extent that we determine, based on the advice of our tax counsel, that those actions will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental of personal property, we have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no assurance that the Internal Revenue Service will agree with our determinations of value.
Income we receive that is attributable to the rental of parking spaces at our properties will constitute rents from real property for purposes of the REIT gross income tests if any services provided with respect to the parking facilities are performed by independent contractors from whom we derive no income, either directly or indirectly, or by a taxable REIT subsidiary, and certain other requirements are met. With the exception of some parking facilities we operate, we believe that the income we receive that is attributable to parking facilities meets these tests and, accordingly, will constitute rents from real property for purposes of the REIT gross income tests.
From time to time, we enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts. Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is clearly identified as a hedging transaction as specified in the Internal Revenue Code will not constitute gross income and thus will be exempt from the 95% gross income test to the extent such a hedging transaction is entered into on or after January 1, 2005, and from the 75% gross income test to the extent such hedging transaction is entered into after July 30, 2008. Income and gain from a hedging transaction, including gain from the sale or disposition of such a transaction will be treated as nonqualifying income for purposes of the 75% gross income test if entered into on or prior to July 30, 2008 and will be treated as qualifying income for purposes of the 95% gross income test if entered into prior to January 1, 2005. The term "hedging transaction," as used above, generally means any transaction we enter into in the normal course of our business primarily to manage risk of (1) interest rate changes or fluctuations with respect to borrowings made or to be made by us to acquire or carry real estate assets, or (2) for hedging transactions entered into after July 30, 2008, currency fluctuations with respect to an item of qualifying income under the 75% or 95% gross income test. To the extent that we do not properly identify such transactions as hedges, we hedge other risks or we hedge with other types of financial instruments, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
We have made an investment in a property located in Mexico. This investment could cause us to incur foreign currency gains or losses. Prior to July 30, 2008, the characterization of any such foreign currency gains for purposes of the REIT gross income tests was unclear, though the Internal Revenue Service had indicated that REITs may apply the principles of proposed Treasury Regulations to determine whether such foreign currency gain constitutes qualifying income under the REIT income tests. As a result, we anticipate that any foreign currency gain we recognized relating to rents we receive from our property located in Mexico was qualifying income for purposes of the 75% and 95% gross income tests. Any foreign currency gains recognized after July 30, 2008, to the extent attributable to specific items of qualifying income or gain, or specific qualifying assets, however, generally will not constitute gross income for purposes of the 75% and 95% gross income tests, and therefore will be exempt from these tests.
Dividends we receive from our taxable REIT subsidiaries will qualify under the 95%, but not the 75%, REIT gross income test.
The Department of Treasury has the authority to determine whether any item of income or gain recognized after July 30, 2008, which does not otherwise qualify under the 75% or 95% gross income
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tests, may be excluded as gross income for purposes of such tests or may be considered income that qualifies under either such test.
We believe that the aggregate amount of our nonqualifying income, from all sources, in any taxable year will not exceed the limit on nonqualifying income under the gross income tests. If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain provisions of the Internal Revenue Code. Commencing with our taxable year beginning January 1, 2005, we generally may make use of the relief provisions if:
It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the Internal Revenue Service could conclude that our failure to satisfy the tests was not due to reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. As discussed above in "Taxation of the CompanyGeneral," even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to comply with the gross income tests for REIT qualification despite our periodic monitoring of our income.
Prohibited Transaction Income
Any gain that we realize on the sale of property held as inventory or otherwise held primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Our gain would include any gain realized by our qualified REIT subsidiaries and our share of any gain realized by any of the partnerships or limited liability companies in which we own an interest. This prohibited transaction income may also adversely affect our ability to satisfy the income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. We intend to hold our properties for investment with a view to long-term appreciation and to engage in the business of acquiring, developing and owning our properties. We have made, and may in the future make, occasional sales of the properties consistent with our investment objectives. We do not intend to enter into any sales that are prohibited transactions. The Internal Revenue Service may contend, however, that one or more of these sales is subject to the 100% penalty tax.
Like-Kind Exchanges
We have in the past disposed of properties in transactions intended to qualify as like-kind exchanges under the Internal Revenue Code, and may continue this practice in the future. Such like-kind exchanges are intended to result in the deferral of gain for United States federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange could subject us to United States federal income tax, possibly including the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.
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Penalty Tax
Any redetermined rents, redetermined deductions or excess interest we generate will be subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services furnished by one of our taxable REIT subsidiaries to any of our tenants, and redetermined deductions and excess interest represent any amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm's-length negotiations. Rents we receive will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Internal Revenue Code.
We believe that, in all instances in which our taxable REIT subsidiaries provide services to our tenants, the fees paid to such taxable REIT subsidiaries for such services are at arm's-length rates, although the fees paid may not satisfy the safe harbor provisions referenced above. These determinations are inherently factual, and the Internal Revenue Service has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective incomes. If the Internal Revenue Service successfully made such an assertion, we would be required to pay a 100% penalty tax on the excess of an arm's-length fee for tenant services over the amount actually paid.
Asset Tests
At the close of each calendar quarter of our taxable year, we also must satisfy four tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets, including assets held by our qualified REIT subsidiaries and our allocable share of the assets held by the partnerships and other entities treated as partnerships for United States federal income tax purposes in which we own an interest, must be represented by real estate assets, cash, cash items and government securities. For purposes of this test, the term "real estate assets" generally means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other REITs, as well as any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public debt offering with a term of at least five years, but only for the one-year period beginning on the date we receive such proceeds.
Second, not more than 25% of the value of our total assets may be represented by securities other than those securities includable in the 75% asset test.
Third, of the investments included in the 25% asset class and except for certain investments in other REITs, our qualified REIT subsidiaries and our taxable REIT subsidiaries, the value of any one issuer's securities may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer, except, in the case of the 10% value test, securities satisfying the "straight debt" safe-harbor or securities issued by a partnership that itself would satisfy the 75% income test if it were a REIT. Certain types of securities are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, commencing with our taxable year beginning January 1, 2005, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership or limited liability company in which we own an interest will be based on our proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Internal Revenue Code. For years prior to 2001, the 10% limit applies only with respect to voting securities of any issuer and not to the value of the securities of any issuer.
Fourth, commencing with our taxable years beginning on or after January 1, 2009, not more than 25% (20% for taxable years beginning on or after January 1, 2001 and ending on or before
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December 31, 2008) of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries.
We currently own some or all of the outstanding stock of several subsidiaries that have elected, together with us, to be treated as taxable REIT subsidiaries. So long as these subsidiaries qualify as taxable REIT subsidiaries, we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership of t