Scandals in the health care sector and a shaky real estate market have taken a toll on one of the nation’s largest health care REITs. Health Care Property Investors (HCP) expects a revenue decline of $350,000 a month (or roughly 7 cents a share per year) over the renegotiation of its lease and loan contracts with Centennial HealthCare Corp. Centennial, a privately held long-term care operator, filed for Chapter 11 bankruptcy protection this past January. As of Nov. 30, 2002, Centennial was obliged to pay HCP roughly $900,000 per month for 20 leased facilities and a secured loan.

HCP also expects a revenue decline of $60,000 per month (or about 1 cent per share) over the withdrawal of Sun Healthcare Group, Inc (SUHG) as lessee or manager of nine facilities. Monthly rent for the nine facilities was about $460,000 per month last year.

HCP also estimates that annual rent income will decline by $500,000 (or 1 cent per share) if Tenet Healthcare Corp. (THC) reduces payments at its eight facilities in accordance with its new policy for calculating Medicare reimbursement for patients who demand high cost treatments, known as outlier payments. Rents from the eight Tenet hospitals account for about 16% of HCP’s annualized cash provided by leases and loans. Tenet’s leases on the facilities expire between February 2004 and May 2005.

About 5% of HCP’s annualized cash provided by leases and loans comes from nine rehabilitation facilities leased to HealthSouth Corp (HLSH). An average of four years remain on the leases of these facilities, and HealthSouth is current on all rent payments through this month. Last month, the SEC charged HealthSouth and its former chief executive with inflating earnings by $1.4 billion since 1999 while overstating assets by $800 million.