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, 1995
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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
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(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 11,649,725 shares
HEALTH CARE REIT, INC.
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet as of
March 31, 1995 and Audited Consolidated Balance
Sheet as of December 31, 1994. 3
Unaudited Consolidated Statements of Income
for the three months ended March 31, 1995
and 1994. 4
Unaudited Consolidated Statements of Cash Flows for
the three months ended March 31, 1995 and 1994. 5
Unaudited Consolidated Statements of Shareholders'
Equity for the three months ended March 31, 1995
and 1994. 6
Consolidated Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7
Part II. OTHER INFORMATION
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
March 31 March 31
1995 1994
(Unaudited) (Audited)
------------ ------------
ASSETS
Real Estate Related Investments:
Loans receivable:
Mortgage loans $231,122,105 $230,781,805
Construction and other short-term loans 24,628,455 17,073,652
Working capital loans to related parties 6,375,163 7,068,254
------------ ------------
262,125,723 254,923,711
Investment in operating-lease properties 56,841,913 57,231,651
Investment in direct financing leases 11,369,894 11,427,721
------------ ------------
330,337,530 323,583,083
Less allowance for losses 5,150,000 5,150,000
------------ ------------
NET REAL ESTATE RELATED INVESTMENTS 325,187,530 318,433,083
Other Assets:
Deferred loan expenses 2,445,429 2,469,260
Investments 532,000
Cash and cash equivalents 647,286 935,449
Receivables and other assets 2,286,399 2,264,197
------------ ------------
5,911,114 5,668,906
------------ ------------
$331,098,644 $324,101,989
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 76,300,000 $ 70,900,000
Other long-term obligations 57,178,748 57,372,790
Accrued expenses and other liabilities 8,386,728 6,649,424
------------ ------------
TOTAL LIABILITIES 141,865,476 134,922,214
Shareholders' Equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares
in 1995
Issued and outstanding - none
Common Stock, $1.00 par value:
Authorized - 40,000,000 shares
Issued and outstanding - 11,649,725
in 1995 and 11,595,115 in 1994 11,649,725 11,595,115
Capital in excess of par value 162,192,064 161,086,758
Undistributed net income 15,391,379 16,497,902
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 189,233,168 189,179,775
------------ ------------
$331,098,644 $324,101,989
============ ============
See notes to financial statements
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Three Months Ended
March 31
1995 1994
---------------------------
Gross Income:
Interest and other income $ 7,526,250 $ 5,236,096
Operating leases:
Rents 1,541,609 1,149,753
Direct financing leases:
Lease income 382,164 1,685,742
Gain on exercise of options 192,275
Loan and commitment fees 174,970 177,373
----------- -----------
9,624,993 8,441,239
Expenses:
Interest:
Senior notes and other long-
term obligations 1,455,976 1,545,209
Line of credit arrangements 1,668,373 528,954
Loan expense 185,689 74,243
Management fees 645,658 643,054
Provision for depreciation 389,738 301,937
Other operating expenses 414,594 363,592
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4,760,028 3,456,989
----------- -----------
NET INCOME $ 4,864,965 $ 4,984,250
=========== ===========
Average number of shares
outstanding 11,619,386 11,467,040
Net income per share $ .42 $ .43
Dividends per share $ .515 $ .495
See notes to financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Three Months Ended
March 31
1995 1994
-----------------------------
OPERATING ACTIVITIES:
Net income $ 4,864,965 $ 4,984,250
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of loan and organization
expenses 186,228 74,782
Provision for depreciation 389,738 301,937
Loan and commitment fees earned less
than cash received 242,086 368,187
Direct financing lease income less than
cash received 57,827 460,254
Interest income (in excess of) less
than cash received (45,863) 103,012
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
AVAILABLE FOR DISTRIBUTION 5,694,981 6,292,422
Increase in accrued expenses and other
liabilities 1,495,218 935,322
Increase in other receivables and
prepaid items (22,741) (332,458)
------------ ------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 7,167,458 6,895,286
INVESTING ACTIVITIES:
Proceeds from exercise of lease purchase
options 1,610,393
Purchase of investments (532,000)
Investment in loans receivable (10,063,758) (33,390,720)
Investment in operating-lease properties (7,263,353)
Investment in direct financing leases (1,300,000)
Principal collected on loans 2,907,609 4,354,536
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (7,688,149) (35,989,144)
FINANCING ACTIVITIES:
Long-term borrowings under line of
credit arrangements 27,700,000 42,100,000
Principal payments on long-term borrowings
under line of credit arrangements (22,300,000) (12,800,000)
Net proceeds from the issuance of shares 1,159,916 1,108,337
Principal payments on other long-term
obligations (194,042) (172,006)
Increase in deferred loan expense (161,858) (50,200)
Cash distributions to shareholders (5,971,488) (5,665,897)
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 232,528 24,520,234
------------ ------------
Decrease in cash and cash equivalents (288,163) (4,573,624)
Cash and cash equivalents at beginning of
period 935,449 4,896,314
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 647,286 $ 322,690
============ ============
Supplemental Cash Flow Information --
Interest Paid $ 1,680,853 $ 1,023,582
============ ============
See notes to financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
HEALTH CARE REIT, INC. AND SUBSIDIARY
Three Months Ended
March 31
1995 1994
----------------------------
Balances at beginning of period $189,179,775 $184,131,828
Net income 4,864,965 4,984,250
Proceeds from issuance of shares
under the dividend reinvestment
plan - 54,610 in 1995 and 47,980
in 1994 1,159,916 1,108,337
Cash dividend paid (5,971,488) (5,665,897)
------------ ------------
Balances at end of period $189,233,168 $184,558,518
============ ============
( ) Denotes deduction
See notes to financial statements
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Health Care REIT, Inc. and Subsidiary
Note A - Basis of Presentation
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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 three
months ended March 31, 1995 are not necessarily an indication of
the results that may be expected for the year ended December 31,
1995. 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, 1994.
Net income per share has been computed by dividing net income
by the average number of shares outstanding.
Note B - Investments
- --------------------
During the first quarter of 1995, the Company purchased common
stock in a privately held company. This investment does not have
a readily determinable fair value. Accordingly, this investment is
recorded at the lower of cost or estimated net realizable value.
Note C - Contingencies
- ----------------------
As disclosed in the financial statements for the year ended
December 31, 1994, the Company was contingently liable for certain
obligations amounting to approximately $20,175,000. No significant
change in these contingencies has occurred as of March 31, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
In the first quarter of 1995, the Company made an additional
$1,000,000 mortgage loan on an existing facility and continued to
finance nine construction loans and one participating loan for
approximately $8,638,000. In addition, the Company received
$1,050,000 principal repayment on a loan, as well as approximately
$693,000 working capital loan repayments. The above loan activity
is the reason total loans receivable increased $7,202,000 in the
first quarter of 1995.
The Company's working capital loans, all to related parties,
are expected to slowly decline as the underlying projects continue
to improve their financial performance and thereby pay down these
loans.
In the first quarter of 1995, the Company paid $532,000 for
common stock in a privately held company with which the Company has
several mortgage loans and operating-lease transactions. The
investment was pursuant to warrants the Company obtained when it
made the mortgage loans and invested in the operating-lease
properties.
Since December 31, 1994, borrowings under line of credit
arrangements increased $5,400,000 due to the investment activity
discussed above. As of March 31, 1995, the Company had
approximately $120,387,000 in unfunded commitments and total
available funding sources of approximately $102,200,000.
During the first quarter of 1995, the Company received
approximately $1,160,000 from the sale of its shares under the
dividend reinvestment plan.
Results of Operations
- ---------------------
Gross income for the first quarter of 1995 was $9,624,993 or
14% more than the first quarter of 1994. Interest income on loans
receivable and operating lease rents increased while direct
financing lease income and gain on exercise of options declined.
The increase in interest income on loans receivable and operating
lease rents is attributable to the growth in the loan and
operating-lease portfolios, two long-term trends which the Company
anticipates will continue. The decrease in direct financing lease
income and gain on exercise of options is a reflection of other
long-term trends which should also continue due to the decrease
market acceptance of direct financing leases.
In the first quarter of 1994, gross income included $192,275
in gains on exercise of options. However, there were no such gains
for the comparable period in 1995. Future gains on exercise of
options are anticipated to be few and modest, since the Company has
only six remaining direct financing lease investments which total
approximately $11,370,000.
Net income totalled $4,864,965 in the first quarter of 1995
versus $4,984,250 for the comparable period in 1994. The decrease
in net income was reflected in the $.42 per share earned in the
first quarter of 1995 versus $.43 per share earned in the first
quarter of 1994. Contributing factors were the absence of a gain
on exercise of options in 1995 (discussed above) and a tightening
in the Company's net interest rate margin, as explained below.
Average earnings on assets (excluding gains) increased 44
basis points in the first quarter of 1995 versus the first quarter
of 1994. The increase would have been higher except for placing
three loans on non-accrual status (discussed below) during the
first quarter of 1995. The increase in average earnings on assets
was a reflection of converting construction loans to higher earning
permanent mortgage loans during 1994 and the general rise in
interest rates during the last 12 months. At the same time, the
Company experienced a 117 basis point increase in its average cost
of borrowing. This was primarily due to the general rise in
interest rates, but the increase was also due to the cost of a
variable interest rate swap, which is due to expire in May 1995.
The Company does not intend to replace the expiring variable
interest rate swap. Therefore, unless there is a renewed increase
in general interest rates, the Company anticipates a moderation of
its average cost of borrowing in the near future.
As the Company continues to fulfill its financing commitments,
its borrowings on the lines of credit will increase even more,
which should favorably affect the average cost of debt.
Lastly, the Company's net income was affected by the average
quarter-end debt to equity ratio of .73 to 1 in 1995 versus .63 to
1 in the first quarter of 1994. The increase is due to the
increase in real estate related investments. The increase in debt
had the effect of increasing the Company's interest related
expense.
In January 1995, the Company filed a lawsuit for collection of
past due interest and principal of approximately $1,994,000 related
to a nursing home in Detroit, Michigan. In March of 1995, the
Company filed two lawsuits in Florida to collect past due interest
and principal on a mortgage loan secured by two behavioral care
facilities. In connection with the March filing, the Company
presented for payment and received $1,125,000 on a letter of credit
securing the Florida mortgage loan. After application of the
letter of credit proceeds, the Company's carrying value of the
Florida mortgage loan is approximately $13,468,000. Each of these
loans was put on non-accrual status effective the beginning of the
month the respective lawsuits were filed. The Company has
evaluated its allowance for losses and believes that the allowance
is adequate, based on the information presently available.
PART II. OTHER INFORMATION
Item 5. Other Information
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On January 18, 1995, the Company issued a press release in
which it announced that the Board of Directors voted to pay a
quarterly dividend of $.515 per share payable to shareholders of
record on February 3, 1995.
On February 6, 1995, the Company issued a press release in
which it announced, among other things, that the Board of Directors
had approved in principle the acquisition of First Toledo Advisory
Company, the manager of the Company. The transaction is subject to
definitive agreements, stockholder approval and other customary
conditions.
On February 9, 1995, the Company issued a press release in
which it announced, among other things, that the 1994 net income
per share for the year was up $.02 or .9% more than 1993.
On March 24, 1995, the Company issued a press release in which
it announced, among other things, that it had filed two lawsuits in
Florida to collect past due interest and principal on a mortgage
loan secured by two behavioral facilities.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
4. Specimen of Note with Fifth Third Bank
99. Press release dated January 18, 1995
99. Press release dated February 6, 1995
99. Press release dated February 9, 1995
99. Press release dated March 24, 1995
(b) Reports on Form 8-K
Reports on Form 8-K were filed on February 13, 1995
announcing the approval in principal to acquire First Toledo
Advisory Company, Manager of the Company, and March 24, 1995
reporting on the filing of a lawsuit to collect past due interest
and principal.
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: May 8, 1995 By: BRUCE G. THOMPSON
Bruce G. Thompson, Chairman and
Chief Executive Officer
Date: May 8, 1995 By: ROBERT J. PRUGER
Robert J. Pruger, Chief
Financial Officer
Date: May 8, 1995 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 Page
Number Regulation S-K Exhibit Description Number
- ------- -------------- ------------------- ------
1 4 Note with Fifth
Third Bank 13
2 99 Press Release dated
January 18, 1995 20
3 99 Press Release dated
February 6, 1995 21
4 99 Press Release dated
February 9, 1995 22
5 99 Press Release dated
March 24, 1995 23