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 SEPTEMBER 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) 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 _____.
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 11,549,064 shares
HEALTH CARE REIT, INC.
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September
30, 1994 and December 31, 1993 3
Consolidated Statements of Income -- Three
months ended September 30, 1994 and 1993;
Nine months ended September 30, 1994 and 1993. 4
Consolidated Statements of Cash Flows--Nine
months ended September 30, 1994 and 1993. 5
Consolidated Statements of Shareholders' Equity
-- Nine months ended September 30, 1994 and 1993. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II. OTHER INFORMATION
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARY
Sept. 30 Dec. 31
1994 1993
(Unaudited) (Note)
------------ ------------
ASSETS
Real Estate Related Investments:
Loans receivable:
Mortgage loans $181,320,059 $165,147,444
Construction and other short-term loans 26,712,840 12,899,830
Working capital loans to related parties 6,664,122 7,234,327
------------ ------------
214,697,021 185,281,601
Investment in operating-lease properties 56,961,970 42,776,361
Investment in direct financing leases 20,338,741 52,950,188
------------ ------------
291,997,732 281,008,150
Less allowance for losses 4,650,000 4,150,000
------------ ------------
NET REAL ESTATE RELATED INVESTMENTS 287,347,732 276,858,150
Other Assets:
Escrow cash 14,173,402
Deferred loan expenses 2,474,183 1,579,134
Cash and cash equivalents 694,204 4,896,314
Receivables and other assets 2,069,933 1,690,783
------------ ------------
19,411,722 8,166,231
------------ ------------
$306,759,454 $285,024,381
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 54,000,000 $ 35,000,000
Other long-term obligations 57,439,996 61,311,115
Accrued expenses and other liabilities 6,942,397 4,581,438
------------ ------------
TOTAL LIABILITIES 118,382,393 100,892,553
Shareholders' Equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares in 1994
Issued and outstanding - none
Common Stock, $1.00 par value:
Authorized - 40,000,000 and 15,000,000
shares in 1994 and 1993, respectively
Issued and outstanding - 11,549,064 in
1994 and 11,446,249 in 1993 11,549,064 11,446,249
Capital in excess of par value 160,275,322 158,013,957
Undistributed net income 16,552,675 14,671,622
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 188,377,061 184,131,828
------------ ------------
$306,759,454 $285,024,381
============ ============
NOTE: The balance sheet as of 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)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
----------------------- ----------- -----------
Gross Income:
Interest and other income $ 7,707,712 $6,166,349 $19,151,904 $16,449,149
Direct financing leases:
Lease income 833,491 1,951,815 4,134,907 6,228,670
Gain on exercise of
options 229,379 267,505 3,851,147 1,861,266
Operating leases:
Rents 1,257,791 862,098 3,497,098 1,818,385
Gain on exercise of
options 100,029
Loan and commitment fees 489,793 498,415 955,035 940,717
----------- ---------- ----------- -----------
10,518,166 9,746,182 31,690,120 27,298,187
Expenses:
Interest:
Long-term obligations 1,479,452 2,455,586 4,625,548 5,393,833
Line of credit arrange-
ments 827,029 981,831 2,253,344 3,202,823
Loan expense 89,897 77,241 450,495 243,735
Management fees 761,170 598,567 2,352,798 1,802,906
Provision for losses 250,000 500,000 150,000
Provision for depreciation 349,229 230,171 998,259 517,038
Other operating expenses 435,222 330,732 1,399,402 985,277
----------- ---------- ----------- -----------
4,191,999 4,674,128 12,579,846 12,295,612
----------- ---------- ----------- -----------
NET INCOME $ 6,326,167 $5,072,054 $19,110,274 $15,002,575
=========== ========== =========== ===========
Average number of shares
outstanding 11,529,947 8,854,311 11,500,842 8,812,722
Net income per share $ .55 $ .57 $ 1.66 $ 1.70
Dividends per share $ .505 $ .485 $ 1.50 $ 1.44
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Nine Months Ended
September 30
1994 1993
----------------------------
OPERATING ACTIVITIES:
Net income $ 19,110,274 $ 15,002,575
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of loan and organization
expenses 452,112 243,735
Provision for losses 500,000 148,502
Provision for depreciation 998,259 517,038
Loan and commitment fees earned less
than cash received 369,159 368,309
Direct financing lease income less
than cash received 785,753 224,150
Interest income less than cash received 2,180,448 203,988
------------ ------------
FUNDS FROM OPERATIONS 24,396,005 16,708,297
Increase in accrued expenses and other
liabilities 1,473,154 2,407,056
Increase in other receivables and
prepaid items (380,768) (375,400)
------------ ------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 25,488,391 18,739,953
INVESTING ACTIVITIES:
Proceeds from exercise of lease purchase
options 28,205,953 9,033,205
(Increase) decrease in funds held in
escrow--net (14,173,402) 135,000
Investment in operating-lease properties (13,396,550) (11,250,000)
Investment in loans receivable (75,353,793) (71,233,286)
Investment in direct financing leases (1,300,000)
Principal collected on loans 47,408,995 27,580,383
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (28,608,797) (45,734,698)
FINANCING ACTIVITIES:
Long-term borrowings under line of credit
arrangements 188,100,000 203,000,000
Principal payments on long-term borrowings
under line of credit arrangements (169,100,000) (206,900,000)
Net proceeds from the issuance of shares 2,364,180 2,926,229
Borrowings under other long-term obligations 52,000,000
Principal payments on other long-term
obligations (3,871,119) (10,158,074)
Increase in deferred loan expense (1,345,544) (917,641)
Cash distributions to shareholders (17,229,221) (12,662,108)
------------ ------------
NET CASH (USED IN) PROVIDED
FROM FINANCING ACTIVITIES (1,081,704) 27,288,406
------------ ------------
(Decrease) increase in cash and cash
equivalents (4,202,110) 293,661
Cash and cash equivalents at beginning
of period 4,896,314 265,868
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 694,204 $ 559,529
============ ============
Supplemental Cash Flow Information--
Interest Paid $ 5,747,073 $ 6,983,943
============ ============
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Nine Months Ended
September 30
1994 1993
----------------------------
Balances at beginning of period $184,131,828 $118,947,994
Net income 19,110,274 15,002,575
Proceeds from issuance of shares under the
dividend reinvestment plan - 96,955 in
1994 and 128,277 in 1993 2,264,194 2,926,228
Proceeds from issuance of 5,860 shares
under the employee stock incentive plan 99,986
Cash dividend paid (17,229,221) (12,662,108)
------------ ------------
Balances at end of period $188,377,061 $124,214,689
============ ============
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 nine
months ended September 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 September 30,
1994.
Note C - Dividend Distribution
In order to continue to qualify as a real estate investment
trust for federal income tax purposes, 95% of ordinary taxable
income must be distributed to shareholders. The Company estimates
that by December 31, 1994, undistributed net income for federal
income tax purposes will amount to approximately $15,650,000.
Note D - Noncash Transactions
During the first nine 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
During the first nine months of 1994, the Company financed
nine mortgage loans for a total of $46,838,000. In addition, the
Company advanced approximately $26,161,000 for 16 construction
loans of which three loans are additions to existing facilities.
Thirteen mortgage loans were paid off during the first nine months
of 1994 for a total of $43,422,000. The above loan activity, plus
changes in working capital loans and normal principal payments,
were the principal reasons net loans increased approximately
$29,415,000.
During the first nine months of 1994, the Company purchased
three facilities, made additional advances for two other operating-
lease properties, and completed construction on three other
facilities. In addition, one operating-lease lessee exercised its
option to purchase. The net effect of the above activity, plus the
noncash transaction mentioned in Note D, were the principal reasons
for the increase in operating-lease properties of approximately
$14,186,000. Also, eight direct financing lease purchase options
were exercised while the Company invested in one new direct
financing lease property. The eight lease exercises and one new
investment caused the investment in direct financing leases to
decline $32,611,000.
Effective September 9, 1994, the Company's principal line of
credit was expanded to $150 million and extended to March 31, 1997.
This amended line of credit increased the Company's borrowing
capacity by $40,000,000 and will allow the line to go unsecured
under certain conditions. Since December 31, 1993, borrowings
under lines of credit arrangements increased $19,000,000 partly due
to the investment activity discussed above. However, several
mortgage loans, which collateralized the Company's senior notes,
were paid off late in the third quarter. Until the Company's
proposed substituted investments are accepted by the senior note
holders, the Company has $14,173,000 in escrowed cash and
correspondingly higher line of credit balances. The Company
anticipates the escrowed funds will be released during the fourth
quarter. As of September 30, 1994, the Company had approximately
$113,637,000 in unfunded commitments and total available funding
sources of approximately $128,673,000.
During the first nine months of 1994, the Company received
$2,364,000 from the sale of its shares under the dividend
reinvestment and stock option plans.
Results of Operations
Gross income for the first nine months of 1994 was $31,690,000
or 16.1% greater than the first nine months of 1993. Except for
direct financing lease income, all major components of gross income
increased. The increase in interest income, operating-lease rents
and, to a lesser extent, loan and commitment fees is attributable
to the growth in the loan and operating-lease properties portfolio.
These are long-term trends which the Company anticipates will
continue. The decrease in direct financing lease income is a
reflection of another long-term trend which should continue due to
the greater market acceptance of mortgage loans and operating
leases.
Contributing to the increase in gross income in the first nine
months of 1994 over the comparable period in 1993 was the gain on
the exercise of lease purchase options. There were nine lessees
exercising options in 1994 versus five in 1993. These 1994
exercises resulted in an increase in gain on the exercise of lease
purchase options of $2,090,000.
Net income totalled $19,110,000 in the first nine months of
1994 versus $15,003,000 for the comparable period in 1993. While
net income increased, net income per share declined to $1.66 versus
$1.70 per share in the first nine months of 1993. The decline in
net income per share was primarily caused by the sale of 2,500,000
additional common shares in the fourth quarter of 1993.
The 1994 third quarter net income was also affected by several
trends. First, average earnings on assets declined 31 basis points
(excluding gains and prepayment fees) in the third quarter of 1994
versus the comparable period in 1993. The decline in average
earnings on assets reversed in the second quarter of 1994, which is
a reflection of the recent general rise in interest rates. The
narrowing of the net interest margin was heightened by an increase
of 156 basis points (1994 versus 1993) in the average cost of
borrowing. The average cost of borrowing increased in the third
quarter of 1994 over the earlier quarters. This increase is
principally due to the general rise in interest rates, the roll-
over to current rates of LIBOR loans and the increased pricing
premium paid under the Company's newly expanded line of credit
(discussed in "Liquidity and Capital Resources").
For the balance of 1994, the Company anticipates a continued
general rise in both its average earnings on assets and its average
cost of debt. Average earnings on assets is anticipated to rise
both because of the general interest rate environment and the
anticipated required conversion of certain variable interest-rate
assets to a higher fixed rate yield. Average cost of 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-equity ratio of .63 to 1 in 1994 versus 1.12 to
1 in the first nine months of 1993. This decrease is solely due to
the 1993 fourth quarter equity offering in which the proceeds were
initially used to pay down debt. The decrease in debt had the
effect of decreasing the Company's interest-related expense, and
thereby, increasing net income.
PART II. OTHER INFORMATION
Item 5. Other Information
On July 19, 1994, the Board of Directors of Health Care REIT,
Inc. appointed a Special Committee to explore the advisability of
the Company becoming self-administered.
On July 20, 1994, the Company issued a press release in which
it announced, among other things, that the Board of Directors voted
to pay a quarterly cash dividend of $.505 payable to shareholders
of record on August 5, 1994, and that net income was $.68, an
increase of $.14 from the second quarter of 1993.
On July 21, 1994, the Company issued a press release in which
it announced, among other things, that the Board of Directors
adopted a Preferred Share Purchase Rights Plan and declared a
distribution of one Preferred Share Purchase Right on each
outstanding share of the Company's common stock.
On September 21, 1994, the Company announced, among other
things, the closing of a new $150 million revolving line of credit
with a consortium of eight banks.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Specimen of Amended and Restated Credit
Agreement dated September 9, 1994
99. Press Release dated July 20, 1994
99. Press Release dated July 21, 1994
99. Press Release dated September 21, 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: November 7, 1994 By: BRUCE G. THOMPSON
Bruce G. Thompson, Chairman
and Chief Executive Officer
Date: November 7, 1994 By: FREDERIC D. WOLFE
Frederic D. Wolfe, President
Date: November 7, 1994 By: ROBERT J. PRUGER
Robert J. Pruger, Chief
Financial Officer
Date: November 7, 1994 By: KATHLEEN S. PREPHAN
Kathleen S. Prephan, Chief
Accounting Officer
INDEX TO EXHIBITS
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 Description Number
- - - ------ -------------- ------------------------ ------
1 10 Amended and Restated 13
Credit Agreement dated
September 9, 1994
2 99 Press Release 319
dated July 20, 1994
3 99 Press Release 321
dated July 21, 1994
4 99 Press Release 322
dated September 21, 1994