FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,- June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________________________
Health Care REIT, Inc.
(Exact name of registrant as specified in its charter)
Delaware 34-1096634
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One SeaGate, Suite 1950, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (419)-[419] 247-2800
- - -------------------------------------------------------------------_________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No.. No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes _____. No _____.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class: Shares of Common Stock, $1.00 par value
Outstanding 11,494,22911,517,237 shares
HEALTH CARE REIT, INC.
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Unaudited(Unaudited)
Consolidated Balance SheetSheets as of March 31,June 30,
1994 and Audited Consolidated Balance
Sheet as of December 31, 1993. 3
Unaudited Consolidated Statements of Income for the three-- Three
months ended March 31,June 30, 1994 and 1993; Six
months ended June 30, 1994 and 1993. 4
Unaudited
Consolidated Statements of Cash Flows for
the three--
Six months ended March 31,June 30, 1994 and 1993. 5
Unaudited
Consolidated Statements of Shareholders' Equity
for the three-- Six months ended March 31,June 30, 1994 and 1993. 6
Consolidated Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 9
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTSFinancial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)(Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
March 31June 30 December 31
1994 1993
(Unaudited) (Audited)(Note)
------------ ------------
ASSETS
Real Estate Related Investments:
Loans receivable:
Mortgage loans $193,045,645$200,883,663 $165,147,444
Construction and other short-term loans 17,596,02323,218,953 12,899,830
Working capital loans to related parties 6,897,4246,861,610 7,234,327
------------ ------------
217,539,092230,964,226 185,281,601
Investment in operating-lease properties 54,456,434 42,776,361
Investment in direct financing leases 48,855,22221,816,945 52,950,188
Investment in operating-lease properties 49,737,777 42,776,361
------------ ------------
316,132,091307,237,605 281,008,150
Less allowance for losses 4,150,0004,400,000 4,150,000
------------ ------------
NET REAL ESTATE RELATED INVESTMENTS 311,982,091302,837,605 276,858,150
Other Assets:
Deferred loan expenses 1,555,0911,198,821 1,579,134
Cash and cash equivalents 322,690323,620 4,896,314
Receivables and other assets 2,022,7022,483,266 1,690,783
------------ ------------
3,900,4834,005,707 8,166,231
------------ ------------
$315,882,574$306,843,312 $285,024,381
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 64,300,00055,300,000 $ 35,000,000
Other long-term obligations 61,139,10958,555,419 61,311,115
Accrued expenses and other liabilities 5,884,9475,829,963 4,581,438
------------ ------------
TOTAL LIABILITIES 131,324,056119,685,382 100,892,553
Shareholders' Equity:
Common Stock, $1.00 par value:
Authorized - 15,000,000 shares
Issued and outstanding - 11,494,22911,517,237 in
1994 and 11,446,249 in 1993 11,494,22911,517,237 11,446,249
Capital in excess of par value 159,074,314159,597,976 158,013,957
Undistributed net income 13,989,97516,042,717 14,671,622
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 184,558,518187,157,930 184,131,828
------------ ------------
$315,882,574$306,843,312 $285,024,381
============ ============
NOTE: The balance sheet as December 31, 1993 has been derived from
the audited financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Three Months Ended March 31Six Months Ended
June 30 June 30
1994 1993 --------------------------1994 1993
----------------------- ------------------------
Gross Income:
Interest and other income $ 5,236,096 $4,605,0236,208,096 $5,677,229 $11,444,192 $10,282,252
Direct financing leases:
Lease income 1,816,677 2,216,8861,484,739 2,059,969 3,301,416 4,276,855
Gain on exercise of
options 192,275 1,331,3533,429,493 262,408 3,621,768 1,593,761
Operating leases:
Rents 1,018,818 300,4241,220,489 655,863 2,239,307 956,287
Gain on exercise of
options 100,029 100,029
Loan and commitment fees 177,373 149,183287,869 293,119 465,242 442,302
Other real estate owned-net 548 548
----------- ---------- 8,441,239 8,602,869----------- -----------
12,730,715 8,949,136 21,171,954 17,552,005
Expenses:
Interest:
Senior notes and other
long-
termlong-term obligations 1,545,209 1,077,2031,600,887 1,861,044 3,146,096 2,938,247
Line of credit arrangements 528,954 1,182,437arrange-
ments 897,361 1,038,555 1,426,315 2,220,992
Loan expense 74,243 64,140expenses 286,355 102,354 360,598 166,494
Management fees 643,054 615,323948,574 589,016 1,591,628 1,204,339
Provision for depreciation 301,937 82,591347,093 204,276 649,030 286,867
Provision for losses 250,000 250,000 150,000
Other operating expenses 363,592 290,566600,588 363,979 964,180 654,545
----------- ---------- 3,456,989 3,462,260----------- -----------
4,930,858 4,159,224 8,387,847 7,621,484
----------- ---------- ----------- -----------
NET INCOME $ 4,984,250 $5,140,6097,799,857 $4,789,912 $12,784,107 $ 9,930,521
=========== ========== =========== ===========
Average number of shares
outstanding 11,467,040 8,771,13711,504,848 8,811,802 11,486,049 8,791,582
Net income per share $ .43.68 $ .59.54 $ 1.11 $ 1.13
Dividends per share $ .495.50 $ .475.48 $ .995 $ .955
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
ThreeSix Months Ended
March 31June 30
1994 1993
---------------------------------------------------------
OPERATING ACTIVITIES:ACTIVITIES
Net income $ 4,984,25012,784,107 $ 5,140,6099,930,521
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of loan and organization
expenses 74,782 64,140361,676 166,494
Provision for losses 250,000 148,502
Provision for depreciation 301,937 82,591649,030 286,867
Loan and commitment fees earned less
than cash received 368,187 313,922327,677 507,280
Direct financing lease income less
than cash received 460,254 8,145634,178 143,142
Interest income less than (in excess
of) cash received 103,012 (193,518)800,810 (193,956)
Increase in accrued expenses and
other liabilities 935,322 554,815402,202 1,263,718
Increase in other receivables and
prepaid items (332,458) (419,688)(793,562) (587,783)
------------ ------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 6,895,286 5,699,51815,416,118 11,664,785
INVESTING ACTIVITIES:ACTIVITIES
Proceeds from exercise of lease purchase
options 1,610,393 5,077,13926,879,323 7,056,207
Decrease in funds held in escrow--net 135,000
Investment in operating-lease properties (10,541,786) (9,700,000)
Investment in loans receivable (33,390,720) (34,957,732)
Investment in operating-lease properties (7,263,353)(53,942,568) (54,648,646)
Investment in direct financing leases (1,300,000)
Principal collected on loans 4,354,536 1,029,48211,110,206 9,448,883
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (35,984,144) (28,716,111)(27,794,825) (47,708,556)
FINANCING ACTIVITIES:ACTIVITIES
Long-term borrowings under line of credit
arrangements 42,100,000 85,100,000arrangments 97,800,000 158,500,000
Principal payments on long-term borrowings
under line of credit arrangements (12,800,000) (56,100,000)(77,500,000) (158,000,000)
Net proceeds from the issuance of shares 1,108,337 923,8571,655,007 1,826,621
Borrowings under other long-term
obligations 52,000,000
Principal payments on other long-term
obligations (172,006) (2,711,669)
Increase(2,755,696) (8,763,514)
Decrease (increase) in deferred loan
expense (50,200) (11,615)19,714 (968,943)
Cash distributions to shareholders (5,665,897) (4,157,190)(11,413,012) (8,378,330)
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 24,520,234 23,043,3837,806,013 36,215,834
------------ ------------
(Decrease) increase in cash and cash
equivalents (4,573,624) 26,790(4,572,694) 172,063
Cash and cash equivalents at beginning
of period 4,896,314 265,868
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 322,690323,620 $ 292,658437,931
============ ============
Supplemental Cash Flow Information --
Interest Paid $ 1,023,5824,512,401 $ 1,871,7214,439,692
============ ============
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)(Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
ThreeSix Months Ended
March 31June 30
1994 1993
---------------------------------------- ------------
Balances at beginning of period $184,131,828 $118,947,994
Net income 4,984,250 5,140,60912,784,107 9,930,521
Proceeds from issuance of shares under the
dividend reinvestment plan - 47,98070,988 in
1994 and 42,07080,551 in 1993 1,108,337 923,8571,655,007 1,826,621
Cash dividend paid (5,665,897) (4,157,190)(11,413,012) (8,378,330)
------------ ------------
Balances at end of period $184,558,518 $120,855,270$187,157,930 $122,326,806
============ ============
( ) Denotes deduction
See notes to consolidated financial statements
CONSOLIDATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HEALTH CARE REIT, INC. AND SUBSIDIARY
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered for a fair
presentation have been included. Operating results for the threesix
months ended March 31,June 30, 1994 are not necessarily an indication of the
results that may be expected for the year ended December 31, 1994.
For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1993.
Net income per share has been computed by dividing net income
by the average number of shares outstanding.
Note B - Contingencies
As disclosed in the financial statements for the year ended
December 31, 1993, the Company was contingently liable for certain
obligations amounting to approximately $21,255,000. No significant
change in these contingencies has occurred as of March 31,June 30, 1994.
Note C - Noncash Transactions
During the first six months, the Company reclassified two
direct financing lease properties, one for approximately $3,324,000
to a mortgage loan and one for approximately $3,582,000 to an
operating-lease property. Both reclassifications were due to
contract changes made in the ordinary course of business.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
InDuring the first quarterhalf of 1994, the Company financed foursix
mortgage loans (including a loan to finance an option exercise
discussed below) for a total of approximately $24,748,000.$37,288,000. In addition, the
Company advanced approximately $7,896,000 on 13$15,461,000 for 14 construction
loans.loans, of which most financing was for new facilities rather than
additions to existing facilities. Five mortgage loans were paid
off during the first six months of 1994 for a total of $8,353,000.
The above loan activity, plus changes in working capital loans and
pay offs of three mortgage loans,normal principal repayments, were the reasons totalnet loans receivable increased
$32,257,000 inapproximately $45,683,000.
During the first quartersix months of 1994.
One1994, the Company purchased
three facilities, made additional advances for two other operating-
lease properties, and continued construction on three other
facilities. In addition, one operating-lease lessee exercised its option to purchase which provided
gross proceeds of $1,610,000. The Company also provided mortgage
loan financing for an amount greater than the option purchase price
to a lessee who exercised its
option to purchase. The net effect of the above activity, plus the
noncash transaction mentioned in Note C, were the principal reasons
for the increase in operating-lease properties of approximately
$11,680,000. Also, seven direct financing lease purchase options
were exercised while the Company also
financedinvested in one new direct
financing lease for $1,300,000.property. The above
activity was primarilyseven lease exercises and one new
investment caused the cause for the $4,095,000 decrease in investment in direct financing leases.
The Company invested in four new operating lease properties
and increased its investment in several other operating lease
properties for a total of approximately $7,263,000.leases to
decline $31,133,000.
Since December 31, 1993, borrowings under lines of credit
arrangements increased $29,300,000$20,300,000 due to the investment activity
discussed above. As of March 31,June 30, 1994, the Company had
$53,637,000approximately $46,537,000 in unfunded commitments and total
available funding sources of approximately $60,700,000.$73,200,000.
During the first quarterhalf of 1994, the Company received
approximately $1,108,000$1,655,000 from the sale of its shares under the
dividend reinvestment plan.
Results of Operations
Gross income for the first quarterhalf of 1994 was $8,441,239$21,171,954 or
1.9% less20.6% greater than the first quarterhalf of 1993. Interest income on loans
receivable, operating lease rents and loan and commitment fees
increased whileExcept for direct
financing lease income, and gain on exerciseall major components of options declined.gross income
increased. The increase in interest income on loans receivable,
operating-lease rents and operating lease rentsloan and commitment fees is attributable
to the growth in the loan and operating-lease properties portfolio,
a long-term trendtrends which the Company anticipates will continue. The
decrease in direct financing lease income is a reflection of
another long-term trend which should also
continue due to the greater
market acceptance of mortgage loans and operating leases.
InContributing to the first quarter of 1993,increase in gross income included
$1,331,353 in gains on exercise of options. However, in the first quarterhalf
of 1994 over the comparable period in 1993 was the gain on the
exercise of lease purchase options. There were eight lessees
exercising options was $192,275. The
decline in 1994 versus four in 1993. These 1994
exercises resulted in an increase in gain on the gain is due to a combinationexercise of three exerciseslease
purchase options of $2,128,000.
Net income totalled $12,784,107 in the first quarter of 1993 versus one exercise in the same period in
1994 and the relative sizes of each of the original investments.
Net income totalled $4,984,250 in the first quarterhalf of 1994
versus $5,140,609$9,930,521 for the comparable period in 1993. The decrease
inWhile net
income is reflected in the $.43increased, net income per share earneddeclined to $1.11 versus
$1.13 per share in the first quarter of 1994 versus $.59 per share earned in the first
quarterhalf of 1993. The decline in net
income per share was primarily affectedcaused by the sale of 2,500,000
additional shares in the fourth quarter of 1993.
The 1994 net income was also affected by several trends.
First, average earnings on assets declined 6867 basis points
(excluding gains) in the first quarterhalf of 1994 versus the first quarterhalf
of 1993. This trendThe narrowing of the net interest margin was heightened
by an increase of 7134 basis points (1994 versus 1993) in the average
cost of borrowing. The decline in average earnings on assets
reversed in the second quarter of 1994 and has started to increase,
which is a reflection of long-
term general economic trends which may have bottomed out with the recent rise in interest rates. The
increase in the average cost of borrowing is primarilyalso reversed in the
resultsecond quarter of lower than normal1994 in spite of the general rise in interest
rates. The decline in average cost of borrowing in the second
quarter versus first quarter was due to higher average borrowings
on the lines of credit, which is the Company's lowest cost of debt
financing.
Since late March,For the balance of 1994, the Company has substantially
increasedanticipates a continued
general rise in both its borrowingsaverage earnings on assets and its lines of credit which should reduce
the Company's average
cost of debt financing fordebt. Average earnings on assets is anticipated to rise
both because of the second quartergeneral interest rate environment and the
anticipated required conversion of 1994.
As the Company continuescertain variable interest-rate
assets to fulfill its financing
commitments, its borrowings on the lines of credit will increase
even more, which should favorably affect the averagea higher fixed rate debt. Average cost of debt.debt is
anticipated to rise because of the general interest rate
environment.
Lastly, the Company's net income was affected by the average
quarter-end, debt to equitydebt-to-equity ratio of .63 to 1 in 1994 versus 1.011.09
to 1 in the first quarterhalf of 1993. TheThis decrease is solely due to the
fourth quarter of 1993 equity offering, which was initially used to
pay down debt. The decrease in debt had the effectaffect of decreasing
the Company's interest relatedinterest-related expense, and thereby increasing net
income.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of Health Care REIT, Inc.
was duly called and held on May 18, 1994 in Toledo, Ohio. Proxies
for the meeting were solicited on behalf of the Company's
management and Board of Directors pursuant to Regulation 14A of the
General Rules and Regulations of the Commission. There was no
solicitation in opposition to the management's nominees for
election as directors as listed in the Proxy Statement, and all
such nominees were elected.
Votes were cast at the meeting upon the proposals described in
the Proxy Statement for the meeting (filed with the Commission
pursuant to Regulation 14A and incorporated herein by reference) as
follows:
Proposal #1 - The election of two directors:
Nominee For Against
----------------- ---------- -------
Pier C. Borra 10,202,037 130,795
George L. Chapman 10,205,304 127,528
The terms of Messrs. Chopivsky, Douglas, Glowacki, Thompson,
Unverferth and Wolfe continue.
Proposal #2 - to approve the increase in the number of common
stock and to authorize preferred stock:
For 9,176,911
Against 972,269
Abstain 183,652
Proposal #3 - to approve amendments to the Company's Restated
Certificate of Incorporation and By-Laws regarding stockholder
proposals:
For 5,784,847
Against 1,252,871
Abstain 185,000
Proposal #4 - to approve an amendment to the Company's
Incentive Stock Option Plan:
For 9,618,927
Against 491,289
Abstain 222,621
Proposal #5 - to ratify the Management Agreement between
Health Care REIT, Inc. and First Toledo Corporation or its
assignee:
For 10,032,965
Against 95,918
Abstain 203,948
Proposal #6 - to ratify the appointment of Ernst & Young as
independent auditors for 1994:
For 10,189,632
Against 57,571
Abstain 85,629
Item 5. Other Information
On January 18, 1994, the Company issued a press release in
which it announced that the Board of Directors voted to pay a
quarterly dividend of $.495 per share payable to shareholders of
record on February 4, 1994.
On February 10,April 20, 1994, the Company issued a press release in which
it announced, among other things, that the 1993Board of Directors voted
to pay a quarterly cash dividend of $.50 payable to shareholders of
record on May 6, 1994, and that net income per share forwas $.43, a decrease of
$.16 from the year was up $.24 or 12.6% more than 1992.
On February 11, 1994, the Company issued a press release in
which it announced, among other things, that it had provided $14.7
million first mortgage financings for one nursing home and three
primary care facilities.
On February 23, 1994, the Company issued a press release in
which it announced, among other things, that it had provided $2.7
million in financings for two facilities.
On March 22, 1994, the Company issued a press release in
which it announced, among other things, that it had provided $26.8
million in financings for six facilities.
On March 25, 1994, the Company issued a press release in
which it announced, among other things, that it had signed an
agreement to purchase a $10 million participation in an $86 million
first mortgage loan for a combination health care facility in
Austin, Texas.quarter of 1993.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
994. Specimen of Note with Fifth Third Bank
4. Specimen of Note with Capital Bank
99. Press releaseRelease dated January 18, 1994
99 Press release dated February 10, 1994
99 Press release dated February 11, 1994
99 Press release dated February 23, 1994
99 Press release dated March 22, 1994
99 Press release dated March 25,April 20, 1994
(b) Reports on Form 8-K
None
Pursuant to the requirement of the Securities and Exchange Act
of 1934, the Registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
Date: April 29,July 28, 1994 By: BRUCE G. THOMPSON
Bruce G. Thompson, Chairman
and Chief Executive Officer
Date: April 29,July 28, 1994 By: FREDERIC D. WOLFE
Frederic D. Wolfe, President
Date: July 28, 1994 By: ROBERT J. PRUGER
Robert J. Pruger, Chief
Financial Officer
Date: April 29,July 28, 1994 By: KATHLEEN S. PREPHAN
Kathleen S. Prephan, Chief
Accounting Officer
EXHIBIT INDEX
The following documents are included in this Form 10-Q as Exhibits:
Designation
Number Under
Exhibit Item 601 of Exhibit Page
Number Regulation S-K Exhibit Description Number
- - ------- -------------- -------------------------- ------
1 99 Press release dated
January 18, 19944 Note with Fifth Third Bank 13
2 99 Press release dated
February 10, 1994 144 Note with Capital Bank 20
3 99 Press releaseRelease
dated February 11,April 20, 1994 16
4 99 Press release dated
February 23, 1994 17
5 99 Press release dated
March 22
1994 18
6 99 Press release dated
March 25, 1994 19