SELECTED FINANCIAL INFORMATION The following table sets forth financial
information for the Company which is derived from the Consolidated Financial
Statements of the Company.
June 3, 1993
(commencement
of operations)
Year Ended December 31, through
1996 1995 1994 December 31, 1993
Statement of Income Data:
Total revenues $ 38,574,139 $ 33,361,161 $ 24,226,423 $ 7,135,004
Interest expense $ 7,344,141 $ 5,083,172 $ 1,116,436 $ 314,167
Net income $ 19,731,623 $ 18,257,616 $ 15,715,588 $ 3,950,034
Net income per share $ 1.49 $ 1.41 $ 1.33 $ 0.64
Weighted average shares outstanding 13,254,233 12,967,132 11,830,197 6,185,600
Balance Sheet Data (as of the end of the period):
Real estate properties, net $ 416,034,417 $ 318,480,336 $ 280,767,098 $ 133,392,751
Total assets $ 427,505,477 $ 336,777,677 $ 283,189,771 $ 134,069,694
Notes and bonds payable $ 168,618,000 $ 92,970,000 $ 40,375,000 $ 21,000,000
Total stockholders' equity $ 245,964,243 $ 234,447,793 $ 236,340,287 $ 108,190,254
Other Data:
Funds from operations (1) $ 28,036,395 $ 25,490,401 $ 20,918,679 $ 5,773,571
Funds from operations per share (1) $ 2.12 $ 1.97 $ 1.77 $ .93
Dividends declared and paid per share $ 1.91 $ 1.83 $ 1.75 $ .55
(1) See Note 10 to Consolidated Financial Statements.
(1)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company operates under the Internal Revenue Code of 1986 (the Code) as
an indefinite life real estate investment trust (REIT). The Company, a
self-managed and self-administered REIT, follows a general growth strategy that
integrates owning, acquiring, managing, and developing income-producing real
estate properties related to healthcare services throughout the United States.
Management believes that by providing related real estate services, it can
differentiate the Company's competitive market position, acquire needed capital,
expand its asset base and increase revenue.
Since commencing operations in June, 1993, through December 31, 1996, the
Company has invested or committed to invest, directly and indirectly, over
$460,000,000 in 80 income-producing properties related to the delivery of
healthcare services, containing over 3.9 million square feet. The Company's
portfolio is comprised of seven facility types, located in 38 markets
nationwide, and operated pursuant to contractual arrangements with 16 healthcare
providers. The Company is currently managing 83 healthcare-related properties
nationwide totaling over 3.2 million square feet, including 27 which are owned
by the Company.
Substantially all of the Company's revenues are derived from rentals on its
healthcare real estate property facilities, interest earned from the temporary
investment of funds in short-term instruments and from management and
development services. Leases and other financial support arrangements with
respect to its healthcare real estate facilities generally ensure that the costs
and expenses incurred with respect to the operation of the facilities will be
borne by tenants and healthcare providers related to the facilities. The Company
incurs operating and administrative expenses, principally compensation expense
for its officers and other employees, office rental and related occupancy costs
and various expenses incurred in the process of acquiring additional properties.
The Company's strategy is to be a full service provider of integrated real
estate solutions to quality healthcare providers. Consistent with this strategy,
the Company seeks to provide a spectrum of services needed to own, acquire,
manage and develop healthcare properties, including leasing, development,
management, market research, budgeting, accounting, collection, construction
management, tenant coordination and financial services. The Company's
development activities are primarily accomplished through pre-leased
build-to-suit projects.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
For the year ended December 31, 1996, net income was $19,731,623, or $1.49
per share of common stock, on total revenues of $38,574,139 compared to net
income of $18,257,616, or $1.41 per share of common stock, on total revenues of
$33,361,161, for the year ended December 31, 1995. Funds from operations (FFO)
was $28,036,395, or $2.12 per share, for the year ended December 31, 1996
compared to $25,490,401, or $1.97 per share, in 1995.
1996 1995
Revenues
Master lease rental income $ 35,329,475 $ 32,402,507
Property operating income 1,337,779 0
------------ ------------
Total rental income 36,667,254 32,402,507
Management fees 1,110,943 465,766
Interest and other income 795,942 492,888
------------ ------------
38,574,139 33,361,161
============ ============
Expenses
General and administrative 2,232,882 2,143,505
Property operating expenses 269,408 0
Interest 7,344,141 5,083,172
Depreciation 8,651,620 7,693,048
Amortization 344,465 183,820
------------ ------------
18,842,516 15,103,545
------------ ------------
Net Income $ 19,731,623 $ 18,257,616
============ ============
(2)
Total revenues for the year ended December 31, 1996 compared to the year
ended December 31, 1995 provided an increase of $5,212,978 or 15.6%. The
increase is primarily due to base rent derived from investment of approximately
$45,400,000 in six completed development properties in 1996. In addition, total
rental income for the year ended December 31, 1996 includes a partial year of
base rent derived from investment of approximately $58,400,000 in 14
acquisitions during 1996. Revenues during 1996 also reflect an increase of
$645,177 (138.5%) in property management fees. At December 31, 1996, the Company
managed 83 properties compared to 26 properties at December 31, 1995. Interest
and other income increased from $492,888 for the year ended December 31, 1995 to
$795,942 for the year ended December 31, 1996 primarily due to the short-term
refinancing of approximately $30,800,000 of mortgage notes for a current
healthcare client.
Total expenses for the year ended December 31, 1996 were $18,842,516
compared to $15,103,545 for the year ended December 31, 1995, an increase of
$3,738,971 or 24.8%. Depreciation expense increased $958,572 due to the
acquisition of additional properties and the completion of properties under
construction which were discussed in the preceding paragraph. General and
administrative expenses increased $89,377, primarily due to an increase in total
employees. Interest expense increased from $5,083,172 for the year ended
December 31, 1995 to $7,344,141 for the year ended December 31, 1996. During the
year ended December 31, 1996, the Company had an average outstanding total debt
balance of approximately $122,400,000 compared to approximately $70,900,000 in
1995. On September 18, 1995, the Company privately placed $90,000,000 of
unsecured notes (the Unsecured Notes) with 16 credit institutions which also had
the effect of increasing 1996 interest expense since the Unsecured Notes were
outstanding for a full year in 1996 compared to 3.5 months in 1995. Amortization
expense increased from $183,820 for the year ended December 31, 1995 to $344,465
for the year ended December 31, 1996 due to amortization of acquired
revenue-producing management contracts and other intangible assets.
1995 COMPARED TO 1994
For the year ended December 31, 1995, net income was $18,257,616, or $1.41
per share of common stock, on total revenues of $33,361,161 compared to net
income of $15,715,588, or $1.33 per share of common stock, on total revenues of
$24,226,423, for the year ended December 31, 1994. FFO was $1.97 per share for
the year ended December 31, 1995 compared to $1.77 in 1994.
1995 1994
Revenues
Master lease rental income $ 32,402,507 $ 23,231,345
Management fees 465,766 0
Interest and other income 492,888 995,078
------------ -------------
33,361,161 24,226,423
============ =============
Expenses
General and administrative 2,143,505 2,095,669
Interest 5,083,172 1,116,436
Depreciation 7,693,048 5,233,474
Amortization 183,820 65,256
------------ -------------
15,103,545 8,510,835
------------ -------------
Net Income $ 18,257,616 $ 15,715,588
============ =============
Total revenues for the year ended December 31, 1995 compared to the year
ended December 31, 1994 provided an increase of $9,134,738 or 37.7%. The
increase is primarily due to a full year of rental income derived from the
acquisition of 20 properties during the year ended December 31, 1994 and base
rent derived from eight completed properties which were transferred from
construction in progress subsequent to September 30, 1994. In addition, rental
income for the year ended December 31, 1995 includes a partial year of base rent
derived from the three acquisitions during 1995. Revenues during 1995 also
reflect $465,766 of property management fees. Interest and other income
decreased from $995,078 for the year ended December 31, 1994 to $492,888 for the
year ended December 31, 1995 primarily due to the Company maintaining lower cash
balances. In addition, the 1995 amount reflects $220,140 of gain from a property
disposition.
(3)
Total expenses for the year ended December 31, 1995 were $15,103,545
compared to $8,510,835 for the year ended December 31, 1994, an increase of
$6,592,710 or 77.5%. Depreciation expense increased $2,459,574 due to the
acquisition of additional properties and the completion of properties under
construction which were discussed in the preceding paragraph. General and
administrative expenses increased $47,836, primarily due to an increase in total
employees and an increase in the square footage of the Company's office space
during March 1994. Interest expense increased from $1,116,436 for the year ended
December 31, 1994 to $5,083,172 for the year ended December 31, 1995. The
Company completed a secondary offering on February 16, 1994 and immediately
repaid all $23,100,000 of outstanding indebtedness under the unsecured credit
facility (the Unsecured Credit Facility). The Company did not borrow under the
Unsecured Credit Facility again until August 9, 1994 since proceeds were
available from the secondary offering to fund additional property acquisitions.
During the year ended December 31, 1995, the Company had an average outstanding
debt balance of $70,900,000. On September 18, 1995, the Company privately placed
$90,000,000 of Unsecured Notes with 16 credit institutions which also had the
effect of increasing 1995 interest expense. Amortization increased from $65,256
for the year ended December 31, 1994 to $183,820 for the year ended December 31,
1995 due to amortization of acquired revenue-producing management contracts and
other intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
Effective December 26, 1996, the Company amended its $75,000,000 Unsecured
Credit Facility with four commercial banks to increase the Unsecured Credit
Facility to $100,000,000 and to extend the maturity date from August 1997 to
December 1999, with two one-year extensions. Other modifications include a
reduction in the interest rate to LIBOR plus 1.125% or the base rate of
NationsBank, National Association (previously LIBOR plus 1.25%). The Company
pays a commitment fee of .225 of one percent per annum on the unused portion of
funds available for borrowing under the Unsecured Credit Facility (previously
.250). The Unsecured Credit Facility is unsecured and contains certain
representations, warranties and financial and other covenants customary in such
loan agreements.
Effective February 14, 1997, the Company sold 5,175,000 shares of its
common stock in a secondary offering (the Secondary Offering) under its
currently effective registration statement pertaining to $250,000,000 of equity
securities, debt securities and warrants. The Company received $133,411,500 in
net proceeds. Promptly thereafter, the net proceeds were used, in part, to
extinguish all $71,900,000 of indebtedness outstanding under the Unsecured
Credit Facility, which results in a borrowing capacity of $100,000,000, and
repayment or defeasance of secured indebtedness in the total amount of
$6,718,000. Remaining proceeds of the Secondary Offering of approximately
$57,200,000 have been invested short-term and will be available to finance
additional property acquisitions, build-to-suit property development and for
general corporate purposes. FFO can be negatively affected by delay in the
acquisition of, or investment in, healthcare properties. As of December 31,
1996, the Company had stockholders' equity of $245,964,243; following the
Secondary Offering stockholders equity is approximately $379,375,000. The debt
to total capitalization ratio was approximately 40.7% at December 31, 1996 and
approximately 24.0% following the Secondary Offering.
The Company can issue an aggregate of approximately $143,000,000 of
securities remaining under currently effective registration statements and
intends to continue to offer securities under such registration statements from
time to time to finance future acquisitions and build-to-suit developments as
they occur. The Company may, under certain circumstances, borrow additional
amounts in connection with the renovation or expansion of its properties, the
acquisition or development of additional properties or, as necessary, to meet
distribution requirements for real estate investment trusts under the Code. The
Company may raise additional capital or make investments by issuing, in public
or private transactions, its equity and debt securities, but the availability
and terms of any such issuance will depend upon market and other conditions.
The Company generated net cash from operations in 1996 of $29,554,897, an
increase of $2,817,979 over 1995 and $8,271,137 over 1994. The funds were used
in 1996, along with net borrowings of approximately $51,000,000 under the
Unsecured Credit Facility, to make additional investments in income-producing
assets and real estate properties totaling approximately $63,000,000. Funds were
also used to pay dividends to stockholders of $25,196,467.
On November 15, 1996, the Company acquired Lewis-Gale Building Corporation,
which included two ancillary hospital facilities located adjacent to the
Lewis-Gale Medical Center, operated by Columbia/HCA, two medical office
buildings and six physician clinics in the Roanoke/Salem, Virginia area. The
buildings are either leased to Lewis-Gale Clinic, L.L.C., or are under leases
guaranteed by the Clinic, and are managed by the Company. PhyCor, Inc., a
physician practice management company, owns the related physician practice
assets and has guaranteed the operating lease obligations of the Clinic to the
Company. The Company's investment in these properties, which consists of the
issuance of 687,692 shares of common stock of the Company and the assumption of
liabilities, is approximately $44,000,000. FFO should be positively affected by
the receipts of rentals from these properties for years following 1996.
At December 31, 1996, the Company, in the normal course of business, had
received a fully executed letter of intent to purchase upon completion of
development, one property for approximately $15,000,000. In addition, as of
December 31, 1996, the Company had a net investment of approximately $13,900,000
for three lessee developments in progress with a total remaining funding
commitment of approximately $10,100,000. The Company intends to fund these
commitments with the funds available from the proceeds of the Secondary
Offering.
(4)
During 1996, the Company did not sell any properties. Early in 1997, the
Company entered into a contract of sale for one property located in Houston,
Texas, which if consummated will result in approximate net proceeds of
$3,000,000, an amount approximately equal to the Company's investment. Proceeds
from the sale will be available for general corporate purposes. No additional
property sales are anticipated in the near future.
Under the terms of the leases and other financial support agreements
relating to the properties, tenants or healthcare providers are generally
responsible for operating expenses and taxes relating to the properties. As a
result of these arrangements, the Company does not believe that it will be
responsible for any major expenses in connection with the properties during the
respective terms of the agreements. The Company anticipates entering into
similar arrangements with respect to additional properties it acquires. After
the term of the lease or financial support agreement, or in the event the
financial obligations required by the agreement are not met, the Company
anticipates that any expenditures it might become responsible for in maintaining
the properties will be funded by cash from operations and, in the case of major
expenditures, possibly by borrowings. To the extent that unanticipated
expenditures or significant borrowings are required, the Company's cash
available for distribution and liquidity may be adversely affected.
On January 21, 1997, the Company declared an increase in its quarterly
dividend from $0.485 per share ($1.94 annualized) to $0.49 per share ($1.96
annualized) payable to stockholders of record on January 28, 1997. This dividend
was paid on February 17, 1997. The Company presently plans to continue to pay
its quarterly dividends, with increases consistent with its current practice. In
the event that the Company cannot make additional investments in 1996 because of
an inability to obtain new capital by issuing equity and debt securities, the
Company will continue to be able to pay its dividends in a manner consistent
with its current practice. No assurance can be made as to the effect upon the
Company's ability to increase its quarterly dividends during periods subsequent
to 1997, should access to new capital not be available to the Company.
This annual report to shareholders of the Company includes forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties which would cause actual results to differ
materially from historical results or those anticipated. For a more detailed
discussion of these factors, see Item 1 of the Company's Form 10K for the fiscal
year ended December 31, 1996.
(5)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Healthcare Realty Trust Incorporated
We have audited the accompanying consolidated balance sheets of Healthcare
Realty Trust Incorporated as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Healthcare
Realty Trust Incorporated at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young L.L.P.
Nashville, Tennessee
February 4, 1997, except for the disclosures
with respect to the 1997 Secondary Offering
of stock referred to in Notes 1, 4, and 12,
as to which the date is March 10, 1997
(6)
CONSOLIDATED BALANCE SHEET DECEMBER 31,
1996 1995
Assets
Real estate properties:
Land $ 53,028,292 $ 41,435,193
Buildings and improvements 369,187,739 273,522,934
Personal property 3,099,382 2,761,458
Construction in progress 13,862,515 15,253,397
------------- -------------
439,177,928 332,972,982
Less accumulated depreciation (23,143,511) (14,492,646)
------------- -----------
Total real estate properties, net 416,034,417 318,480,336
Cash and cash equivalents 1,354,325 9,142,775
Other assets, net 10,116,735 9,154,566
------------- -------------
Total assets $ 427,505,477 $ 336,777,677
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Notes and bonds payable $ 168,618,000 $ 92,970,000
Security deposits payable 4,172,490 4,562,490
Accounts payable and accrued liabilities 8,197,437 4,214,599
Deferred income 553,307 582,795
------------- -------------
Total liabilities $ 181,541,234 $ 102,329,884
============= =============
Commitments and contingencies 0 0
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000
shares authorized; none outstanding 0 0
Common stock, $.01 par value; 150,000,000
shares authorized; issued and outstanding,
1996 - 13,898,777; 1995 - 12,976,796 138,988 129,768
Additional paid-in capital 264,614,431 243,418,805
Deferred compensation (4,701,840) (478,288)
Cumulative net income 57,654,861 37,923,238
Cumulative dividends (71,742,197) (46,545,730)
------------- -------------
Total stockholders' equity 245,964,243 234,447,793
------------- -------------
Total liabilities and stockholders' equity $ 427,505,477 $ 336,777,677
============= =============
See accompanying notes
(7)
CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1996 1995 1994
Revenues
Master lease rental income $ 35,329,475 $ 32,402,507 $ 23,231,345
Property operating income 1,337,779 0 0
Management fees 1,110,943 465,766 0
Interest and other income 795,942 492,888 995,078
------------- ------------- -------------
38,574,139 33,361,161 24,226,423
------------- ------------- -------------
Expenses
General and administrative 2,232,882 2,143,505 2,095,669
Property operating expenses 269,408 0 0
Interest 7,344,141 5,083,172 1,116,436
Depreciation 8,651,620 7,693,048 5,233,474
Amortization 344,465 183,820 65,256
------------- ------------- -------------
18,842,516 15,103,545 8,510,835
------------- ------------- -------------
Net income $ 19,731,623 $ 18,257,616 $ 15,715,588
============= ============= =============
Net income per share $ 1.49 $ 1.41 $ 1.33
============= ============= =============
Weighted average shares outstanding 13,254,233 12,967,132 11,830,197
============= ============= =============
See accompanying notes.
(8)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Additional Cumulative Total
Common Stock Paid-In Deferred Net Cumulative Stockholders
Shares Amount Capital Compensation Income Dividends Equity
Balance at January 1, 1994 6,185,600 $ 61,856 $107,586,630 $ 0 $ 3,950,034 $(3,408,266) $108,190,254
Issuance of stock 6,582,797 65,828 131,687,588 0 0 0 131,753,416
Shares awarded as deferred
stock compensation 35,000 350 686,525 (686,875) 0 0 0
Deferred stock compensation
amortization 0 0 0 91,567 0 0 91,567
Net income 0 0 0 0 15,715,588 0 15,715,588
Dividends ($1.75 per share) 0 0 0 0 0 (19,410,538) (19,410,538)
---------- ------- ----------- ------- ---------- ---------- -----------
Balance at December 31, 1994 12,803,397 128,034 239,960,743 (595,308) 19,665,622 (22,818,804) 236,340,287
Issuance of stock 172,349 1,724 3,436,547 0 0 0 3,438,271
Shares awarded as deferred
stock compensation 1,050 10 21,515 (21,525) 0 0 0
Deferred stock compensation
amortization 0 0 0 138,545 0 0 138,545
Net income 0 0 0 0 18,257,616 0 18,257,616
Dividends ($1.83 per share) 0 0 0 0 0 (23,726,926) (23,726,926)
---------- ------- ----------- ------- ---------- ---------- -----------
Balance at December 31, 1995 12,976,796 129,768 243,418,805 (478,288) 37,923,238 (46,545,730) 234,447,793
Issuance of stock 707,952 7,079 16,396,116 0 0 0 16,403,195
Shares awarded as deferred
stock compensation 203,897 2,040 4,611,264 (4,613,304) 0 0 0
Deferred stock compensation
amortization 0 0 0 389,752 0 0 389,752
Employee stock purchase plan 10,132 101 188,246 0 0 0 188,347
Net income 0 0 0 0 19,731,623 0 19,731,623
Dividends ($1.91 per share) 0 0 0 0 0 (25,196,467) (25,196,467)
---------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at December 31, 1996 13,898,777 $ 138,988 $264,614,431 $(4,701,840) $57,654,861 $(71,742,197) $245,964,243
========== ========= ============ =========== =========== ============ ============
See accompanying notes.
(9)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1996 1995 1994
Operating Activities
Net income $ 19,731,623 $ 18,257,616 $ 15,715,588
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 9,018,430 8,124,374 5,419,702
Gain on sale of property 0 (220,140) 0
Deferred compensation 376,823 1,196 0
Increase (decrease) in deferred income (29,488) 313,837 232,734
Increase in other assets (933,355) (921,243) (270,425)
Increase in accounts payable and accrued liabilities 1,390,864 1,181,278 186,161
---------- ---------- ----------
Net cash provided by operating activities 29,554,897 26,736,918 21,283,760
========== ========== ==========
Investing Activities
Acquisition and development of real estate properties (63,069,013) (50,417,235) (130,795,615)
Proceeds from sale of real estate 0 4,800,000 0
Receipt (disbursement) of security deposits (390,000) (257,282) 412,114
---------- ---------- -----------
Net cash used in investing activities (63,459,013) (45,874,517) (130,383,501)
Financing Activities
Borrowings on notes and bonds payable 101,900,000 121,700,000 40,300,000
Repayments on notes and bonds payable (50,903,106) (69,105,000) (37,018,633)
Deferred financing and organization costs paid (168,709) (1,244,980) (463,884)
Dividends paid (25,196,467) (23,726,926) (19,410,538)
Proceeds from issuance of common stock 483,948 160,428 126,091,192
---------- ---------- -----------
Net cash provided by financing activities 26,115,666 27,783,522 109,498,137
========== ========== ===========
Increase (decrease) in cash and cash equivalents (7,788,450) 8,645,923 398,396
Cash and cash equivalents, beginning of period 9,142,775 496,852 98,456
------------ ------------ -----------
Cash and cash equivalents, end of period $ 1,354,325 $ 9,142,775 $ 496,852
============ ============ ===========
See accompanying notes.
(10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company commenced operations in 1993 to invest in healthcare-related
properties located throughout the United States, including ancillary hospital
facilities, medical office buildings, physician clinics, long-term care
facilities, comprehensive ambulatory care centers, clinical laboratories and
ambulatory surgery centers. The Company provides management, leasing and
build-to-suit development, and capital for the construction of new facilities as
well as for the acquisition of existing properties. As of December 31, 1996, the
Company had invested or committed to invest in 80 properties (the Properties)
located in 38 markets in 14 states, which are supported by 17 healthcare-related
entities pursuant to long-term leases.
BASIS OF PRESENTATION
The audited financial statements include the accounts of the Company, its
wholly owned subsidiaries and certain other affiliated Corporation's with
respect to which the Company controls the operating activities and receives
substantially all economic benefits. Significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
REAL ESTATE PROPERTIES
Real estate properties are recorded at cost. Transaction fees and
acquisition costs are netted with the purchase price as appropriate. The cost of
real properties acquired is allocated between land, buildings, and personal
property based upon estimated market values at the time of acquisition.
Depreciation is provided for on a straight-line basis over the following
estimated useful lives:
Buildings and improvements 31.5 to 39.0 years
Personal property 3.0 to 7.0 years
CASH AND CASH EQUIVALENTS
Short-term investments with maturities of three months or less at date of
purchase are classified as cash equivalents.
FEDERAL INCOME TAXES
No provision has been made for federal income taxes. The Company intends at
all times to qualify as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. The Company must
distribute at least 95% of its real estate investment trust taxable income to
its stockholders and meet other requirements to continue to qualify as a real
estate investment trust.
OTHER ASSETS
Included in other assets are receivables, deferred costs and intangible
assets. Deferred financing costs are amortized over the term of the related
credit facility using the interest method. Intangible assets are amortized
straight-line over the applicable lives of the assets which range from four to
forty years. Accumulated amortization was $1,060,811 and $518,347 at December
31, 1996 and 1995, respectively.
REVENUE RECOGNITION
Rental income is recognized as earned over the life of the lease
agreements. Any additional rent, as defined in each lease agreement, is
recognized as earned.
STOCK ISSUED TO EMPLOYEES
The Company has elected to follow Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations in accounting for its stock issued to employees.
(11)
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares outstanding during the period, exclusive of common stock equivalents
which resulted in dilution of less than 3%, for each of the three years in the
period ended December 31, 1996.
SUPPLEMENTARY INCOME PER COMMON SHARE
As required by APB Opinion No. 15, "Earnings per Share," supplementary
income per common share data is presented for fiscal 1994 and 1996 to reflect
the payment during February 1994 of $23.1 million of outstanding indebtedness
using a portion of the proceeds of a secondary offering, and to reflect the
payment during the first quarter of 1997 of $78,618,000 of outstanding
indebtedness using a portion of the proceeds from another secondary offering
completed February 14, 1997 (see Note 12). For the 1994 computation of
supplementary income per common share, 1,080,700 common shares issued in the
offering whose proceeds were used to retire the debt were assumed to have been
issued at the beginning of fiscal 1994, and net income was assumed to have not
been reduced by interest expense incurred on the debt. Supplementary income per
common share totaled $1.33 for fiscal 1994. For the 1996 computation of
supplementary income per common share, 3,049,573 common shares issued in the
offering whose proceeds were used to retire the debt were assumed to have been
issued at the beginning of fiscal 1996, and net income was assumed to have not
been reduced by interest expense incurred on the debt. Supplementary income per
common share totaled $1.35 for fiscal 1996.
ADOPTION OF NEW ACCOUNTING RULES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted Statement No. 121 in the first quarter of fiscal 1995
with no impact.
RECLASSIFICATIONS
Certain reclassifications have been made in the financial statements for
the years ended 1995 and 1994 to conform to the 1996 presentation. These
reclassifications had no effect on the results of operations as previously
reported.
2. REAL ESTATE PROPERTY LEASES
The Company's properties are generally leased pursuant to noncancelable,
fixed-term operating leases with expiration dates from 1997 to 2013. Some leases
provide for fixed rent renewal terms of five years, or multiples thereof, in
addition to market rent renewal terms. The leases generally provide the lessee,
during the term of the lease and for a short period thereafter, with an option
and a right of first refusal to purchase the leased property.
Each lease generally requires the lessee to pay minimum rent, additional
rent based upon increases in the Consumer Price Index or increases in net
patient revenues (as defined in the lease agreements), and all taxes (including
property tax), insurance, maintenance and other operating costs associated with
the leased property.
Amounts of rental income received from lessees who accounted for more than
10% of the Company's rental income for the three years in the period ended
December 31, 1996 were:
1996 1995 1994
Columbia/HCA Healthcare Corporation $ 11,234,295 $ 10,713,960 $ 5,667,948
OrNda Healthcorp 7,634,690 7,257,939 4,086,002
Future minimum lease payments under the noncancelable operating leases as of
December 31, 1996 are as follows:
1997 $ 46,513,544
1998 46,365,714
1999 46,162,819
2000 46,011,237
2001 45,824,755
2002 and thereafter 301,547,167
--------------
$ 532,425,236
(12)
REAL ESTATE PROPERTIES
The following table summarizes the Company's real estate properties by type of
facility and by state as of December 31, 1996.
Number of Buildings, Personal Accumulated
Facilities (1) Land Improvements and CIP Property Total Depreciation
Ancillary Hospital Facilities
Arizona 1 $ 308,070 $ 4,965,923 $ 0 $ 5,273,993 $ 558,418
California 7 15,169,012 30,505,657 38,504 45,713,173 2,331,170
Florida 8 577,328 44,504,554 0 45,081,882 2,445,367
Georgia 5 1,965,210 34,144,164 38,409 36,147,783 1,878,449
Kansas 1 0 8,606,501 0 8,606,501 33,461
Tennessee 1 395,056 2,743,834 0 3,138,890 190,450
Texas 10 7,102,169 48,218,720 259,536 55,580,423 4,436,154
Virginia 6 4,239,169 47,621,955 0 51,861,124 1,349,678
-- ---------- ----------- ------- ----------- ----------
39 29,756,014 221,311,306 336,449 251,403,769 13,223,147
Ambulatory Surgery Centers
California 1 209,246 828,613 8,370 1,046,229 97,363
Nevada 1 940,000 2,860,571 0 3,800,571 180,308
Texas 1 509,891 1,514,376 15,296 2,039,563 177,942
- --------- --------- ------ --------- -------
3 1,659,137 5,203,560 23,666 6,886,363 455,613
Comprehensive Ambulatory Care
Florida 2 4,135,536 12,898,835 0 17,034,371 49,017
Texas 2 1,642,773 19,407,604 60,148 21,110,525 1,583,717
- --------- ---------- ------ ---------- ---------
4 5,778,309 32,306,439 60,148 38,144,896 1,632,734
Clinical Laboratories
Alabama 1 180,633 8,601,151 8,028 8,789,812 971,214
Mississippi 1 537,660 3,718,165 29,660 4,285,485 319,487
- ------- ---------- ------ ---------- ---------
2 718,293 12,319,316 37,688 13,075,297 1,290,701
Long-term Care Facilities
California 1 1,361,952 11,325,746 0 12,687,698 689,761
Colorado 2 1,651,477 8,934,457 0 10,585,934 278,873
Florida 1 1,203,720 8,388,977 0 9,592,697 85,153
Indiana 1 96,059 3,511,749 32,331 3,640,139 411,065
Kansas 1 1,013,423 5,297,900 0 6,311,323 6,921
Michigan 5 193,096 12,133,668 182,986 12,509,750 1,293,187
Texas 2 690,768 16,656,902 0 17,347,670 28,116
-- --------- ---------- ------- ---------- ---------
13 6,210,495 66,249,399 215,317 72,675,211 2,793,076
Medical Office Buildings
Texas 1 166,123 1,810,249 0 1,976,372 110,248
Virginia 4 1,926,841 11,740,130 126,790 13,793,761 287,504
5 2,092,964 13,550,379 126,790 15,770,133 397,752
Physician Clinics
Florida 3 3,558,945 15,504,117 50,781 19,113,843 1,403,271
Georgia 1 586,435 2,087,444 0 2,673,879 149,424
Texas 2 1,654,025 10,930,721 385,104 12,969,850 1,119,463
California 1 392,785 331,685 0 724,470 13,820
Virginia 6 620,890 2,977,392 0 3,598,282 9,543
-- ---------- ---------- ------- ---------- ---------
13 6,813,080 31,831,359 435,885 39,080,324 2,695,521
(13)
Other 0 278,496 1,863,439 2,141,935 654,967
-- ------------- ------------- ----------- ------------- ------------
Total property 79 $ 53,028,292 $ 383,050,254 $ 3,099,382 $ 439,177,928 $ 23,143,511
== ============= ============= =========== ============= ============
(1) Includes three properties under construction.
(14)
NOTES AND BONDS PAYABLE
Notes and bonds payable at December 31,1996 and 1995 consisted of the following:
December 31,
1996 1995
Unsecured notes $ 90,000,000 $ 90,000,000
Unsecured credit facility 71,900,000 0
Serial and term bonds payable 6,718,000 2,970,000
------------ ------------
$168,618,000 $ 92,970,000
============ ============
UNSECURED NOTES
On September 18, 1995, the Company privately placed $90,000,000 of
unsecured notes (the "Unsecured Notes") with 16 institutions. The Unsecured
Notes bear interest at 7.41%, payable semiannually, and mature on September 1,
2002. Beginning on September 1, 1998 and on each September 1 through 2002, the
Company must repay $18,000,000 of principal. The note agreements pursuant to
which the Unsecured Notes were purchased contain certain representations,
warranties and financial and other covenants customary in such loan agreements.
UNSECURED CREDIT FACILITY
On December 26, 1996, the Company's $75,000,000 unsecured credit facility
(the "Unsecured Credit Facility") with four commercial banks was increased to
$100,000,000 and extended to December 30, 1999. At the option of the Company,
borrowings bear interest at one of the banks' base rate or LIBOR plus 1.125%
(previously 1.250%). In addition, the Company pays a commitment fee of .225
(previously .250) of 1% per annum on the unused portion of funds available for
borrowings under the Unsecured Credit Facility. The Unsecured Credit Facility
contains certain representations, warranties and financial and other covenants
customary in such loan agreements. At December 31, 1996, the Company had
available borrowing capacity of $28,100,000 under the Unsecured Credit Facility.
Subsequent to December 31, 1996, the Company repaid all $71,900,000 indebtedness
under the Unsecured Credit Facility which results in the maximum borrowing
capacity of $100,000,000.
SERIAL AND TERM BONDS PAYABLE
In conjunction with the acquisition of certain facilities (see Note 6), the
Company assumed an obligation for a $2,496,000 bond issue of the Industrial
Development Authority of the City of Salem, Virginia, payable in annual
installments of $208,000 through 2007. Interest on the outstanding principal
balance is payable semi-annually at a rate of 75% of the prime rate or 6.1875%
at December 31, 1996. The obligation was secured by a deed of trust and
guaranteed by Lewis-Gale Clinic, Inc. Subsequent to December 31, 1996, this
obligation was repaid.
In conjunction with the acquisition of certain facilities (see Note 6), the
Company assumed an obligation for a $1,575,000 bond issue of the Industrial
Development Authority of the City of Roanoke, Virginia, payable in annual
installments of $175,000 through 2005. Interest is payable semi-annually at a
rate of approximately 77% of the commercial base rate or 6.3525% at December 31,
1996. The obligation was secured by land and building and guaranteed by
Lewis-Gale Clinic, Inc. Subsequent to December 31, 1996, this obligation was
repaid.
In conjunction with the acquisition of certain facilities (see Note 6), the
Company assumed an obligation for $1,095,000 of Serial Bonds and $1,980,000 of
Term Bonds. The obligation is secured by a deed of trust and security agreement
granting the issuer a first mortgage lien and security interest in these
properties and by assignment of and a security interest in the tenant leases of
these properties. The bonds pay interest semiannually at interest rates ranging
from 6.9% to 8.1%. The Serial Bonds mature at annual intervals through 2002 in
amounts ranging from $120,000 to $320,000; the Term Bonds mature in 2010. The
obligation was defeased subsequent to December 31, 1996. The resulting loss was
not significant.
(15)
OTHER LONG-TERM DEBT INFORMATION
Subsequent to December 31, 1996, the Company repaid $78,618,000 of
indebtedness from proceeds of a secondary offering (see Note 12).
The remaining indebtedness of Unsecured Notes is due in five $18,000,000 annual
installments beginning in 1998.
During the years ended December 31, 1996, 1995 and 1994, interest paid
totaled $8,389,712, $3,932,112 and $1,268,680, and capitalized interest totaled
$2,175,113, $888,238 and $424,675, respectively.
5. SECURITY DEPOSITS
The Company is currently obligated to certain lessees, under executed sale
and purchase agreements, for security and related deposits in an aggregate
amount of $4,172,490 and $4,562,490 at December 31, 1996 and 1995, respectively.
These security deposits are repayable at various times, typically upon
expiration of the lease, and generally bear interest at the First National Bank
of Boston or NationsBank prime rate, payable annually.
The security deposits were negotiated with lessees as part of the terms of
the sale and purchase agreements as collateral for lessee performance for future
rental payments and property maintenance in accordance with the lease
agreements. These funds are unrestricted according to the terms of the lease
contracts and may be used at the Company's discretion.
6. ACQUISITIONS AND DISPOSITION OF REAL ESTATE
During November 1996, the Company acquired ten properties, Lewis Gale
Building Corporation, in exchange for an aggregate of 687,692 shares of the
Company's common stock (valued at $16,074,800) and the assumption of $20,566,106
of notes payable, $4,071,000 of bonds payable and $3,037,769 of accounts payable
and accrued liabilities, and incurred $483,328 in acquisition costs. In addition
to the properties, representing an aggregate investment of $44,063,087, the
Company acquired cash of $5,196, accounts receivable of $58,340, and other
assets of $106,382. During 1996, the Company repaid the notes payable assumed in
the acquisition.
On October 31, 1995, the Company sold a 24,189-square-foot ancillary
hospital facility in Van Nuys, California for $4,800,000. The property was sold
to the lessee, pursuant to provisions in the Company's lease agreement, due to
hidden structural damages suffered in the January 1994 Northridge earthquake
that rendered the facility unusable for its intended purpose.
During June 1994, the Company acquired two ancillary hospital facility
complexes in exchange for an aggregate of 328,322 shares of the Company's common
stock (valued at $6,898,944) and the assumption of $13,018,633 of notes payable,
$3,075,000 of bonds payable and $623,465 of accounts payable and accrued
liabilities. In addition to the facilities, representing an aggregate investment
of $21,774,433, the Company acquired cash of $1,258,910, accounts receivable of
$7,719, restricted cash of $455,910, and other assets of $119,071. During the
first week of July 1994, the Company repaid the $13,018,633 of notes payable
assumed in the acquisitions.
7. BENEFIT PLANS
EXECUTIVE RETIREMENT PLAN
The Company has an Executive Retirement Plan, under which an executive
designated by the Compensation Committee of the Board of Directors may receive
upon normal retirement (defined to be when the executive reaches age 65 and has
completed five years of service with the Company) 60% of the executive's final
average earnings (defined as the average of the executive's highest three years'
earnings) plus 6% of final average earnings times years of service after age 60
(but not more than five years), less 100% of benefits paid to the executive from
the Company's contributions to any basic retirement plan of the Company that
covers all employees and from social security.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
The Company has a retirement plan for outside directors which upon
retirement will pay annually, for a period not to exceed 15 years, an amount
equal to the director's pay immediately preceding retirement from the Board.
(16)
RETIREMENT PLAN INFORMATION
Net expense for both the Executive Retirement Plan and the Retirement Plan
for Outside Directors (the Plans) for the three years in the period ended
December 31, 1996 is comprised of the following:
1996 1995 1994
Service cost $ 201,372 $ 367,864 $ 294,528
Interest cost 58,828 40,431 13,099
Other (21,483) (219,006) (137,181)
----------- ---------- ----------
$ 238,717 $ 189,289 $ 170,446
=========== ========== ==========
The Plans are unfunded and benefits will be paid from earnings of the
Company. The following table sets forth the benefit obligations at December 31,
1996 and 1995.
1996 1995
Actuarial present value of benefit obligations:
Vested $ 0 $ 0
Accumulated $ 619,729 $ 345,855
------------- -----------
Actual present value of projected benefit
obligations for services rendered to date $ 743,951 $ 913,682
Unrecognized net gain (loss) 278,211 (112,901)
------------ -----------
Net pension liability in accrued liabilities $ 1,022,162 $ 800,781
============ ===========
Accounting for the Executive Retirement Plan for the years ended December
31, 1996 and 1995 assumes discount rates of 8.5% and 8%, respectively, and
compensation increase rates of 2.7% and 5%, respectively. Accounting for the
Retirement Plan for Outside Directors assumes discount rates of 9% and 8%,
respectively.
(17)
8. STOCK PLANS AND WARRANTS
1993 Employees Stock Incentive Plan
The Company is authorized to issue stock representing up to 7.5% of its
outstanding shares of common stock, (the Employee Plan Shares) under the 1993
Employees Stock Incentive Plan (the Employee Plan). As of December 31, 1996
and 1995, the Company had a total of 812,364 and 716,260 Employee Plan Shares,
respectively, that had not been issued or optioned. Unless terminated earlier,
the Employee Plan will terminate on January 1, 2003.
Under the Employee Plan, the Compensation Committee may grant options (the
Options) to purchase shares of the Company's common stock to employees for
terms not longer than 10 years at prices that may not be less than 95% of the
fair market value of the common stock on the date of grant. The Options may be
subject to any conditions set by the Compensation Committee, may be exercised by
payment of cash, shares valued at fair market value, or, at the option of the
Compensation Committee, by a note secured by shares. As of December 31, 1995,
Options to purchase a total of 222,000 of the Employee Plan Shares at $19.50 per
share were outstanding, all of which were exercisable. During 1996 the Company
canceled all outstanding Options under the Employee Plan.
Under the Employee Plan, the Compensation Committee may also grant
incentive stock awards to employees. Incentive stock awards granted under the
Employee Plan may be subject to any conditions set by the Compensation
Committee. As of December 31, 1996 and 1995, the Company had specifically
reserved, but not issued, a total of 283,334 and 425,000 Employee Plan Shares
(the Reserved Stock), respectively, for performance-based awards to employees
under the Employee Plan. The issue of Reserved Stock to eligible employees is
contingent upon the achievement of specific performance criteria. The Reserved
Stock awards are subject to fixed vesting periods varying from four to twelve
years beginning on the date of issue. If an employee voluntarily terminates
employment with the Company before the end of the vesting period, the shares are
forfeited, at no cost to the Company. Once the Reserved Stock has been issued,
the employee has the right to receive dividends and the right to vote the
shares.
As of December 31, 1996 and 1995, performance criteria had been met for the
award of, and the Company had issued, a total of 230,044 and 35,000 Employee
Plan Shares, respectively. For 1996 and 1995, compensation expense resulting
from the amortization of the value of these shares was $319,120 and $137,349,
respectively.
NON-EMPLOYEE DIRECTORS STOCK PLANS
Prior to May 16, 1995, the Company was authorized to issue stock options
for up to 2% of its outstanding shares of common stock under the 1993 Outside
Directors Stock Incentive Plan (the 1993 Director Plan). Under the 1993
Director Plan, each member of the Board of Directors of the Company who was not
an employee of the Company, its subsidiaries or affiliates received an option to
purchase 3,000 shares on January 1, 1994 at an exercise price equal to the
market price of the common stock on the date of grant. As of December 31, 1995,
options to purchase a total of 19,530 shares were outstanding under the 1993
Director Plan, all of which were exercisable. During 1996 the Company canceled
all unexercised options granted pursuant to the 1993 Director Plan.
Effective May 16, 1995, the Company enacted the 1995 Restricted Stock Plan
for Non-Employee Directors (the 1995 Directors Plan). As of December 31, 1996
and 1995, the Company had a total of 97,900 and 98,950 shares under the 1995
Directors Plan, respectively, that had not been issued. Under the 1995
Directors Plan, each member of the Board of Directors of the Company who is not
an employee of the Company, its subsidiaries or affiliates, receives an award of
shares of common stock (the Directors Stock) at the conclusion of the
Company's annual meeting of shareholders. The Directors Stock vests in each
Director upon the date three years from the date of issue and is subject to
forfeiture prior to such date upon termination of the Directors service, at no
cost to the Company. Once the Directors' Stock has been issued, the Director has
the right to receive dividends and the right to vote the shares.
As of December 31, 1996 and 1995, the Company had issued a total of 9,903
and 1,050 shares, respectively, pursuant to the Non-Employee Directors Stock
Plans. For 1996 and 1995, compensation expense resulting from the amortization
of the value of these shares was $70,672 and $1,196, respectively.
1995 EMPLOYEE STOCK PURCHASE PLAN
Effective May 16, 1995, the Company adopted an Employee Stock Purchase Plan
(the Employee Purchase Plan) pursuant to which the Company is authorized to
issue shares of common stock (the Employee Purchase Plan Shares). As of
December 31, 1996 and 1995, the Company had a total of 918,795 and 952,732
shares under the Employee Purchase Plan, respectively, that had not been issued
or optioned. Under the Employee Purchase Plan, each eligible employee as of May
16, 1995 and each subsequent January 1 (the Grant Dates) has been or shall be
granted an option to purchase up to $25,000 of common stock at the lesser of 85%
of the market price on the Grant Date or 85% of the market price on the date of
exercise of such option (the Exercise Date), but at not less than book value
per share as of the December 31 immediately preceding the Grant Date. The number
of shares subject to each year's option becomes fixed on the Grant Date.
Eligible employees include those employees who were employed by the Company or a
subsidiary on a full-time basis as of May 16, 1995 and those employees with six
months of service who are employed by the Company or subsidiary as of each
subsequent Grant Date. Options granted under the Employee Purchase Plan expire
if not exercised 27 months after each such option's Grant Date.
(18)
A summary of Employee Purchase Plan activity and related information for the
years ended December 31 is as follows:
Options
1996 1995
Outstanding, beginning of year 47,268 0
Granted 47,564 47,268
Exercised (10,132) 0
Forfeited (13,627) 0
------ ------
Outstanding, end of year 71,073 47,268
Exercisable at end of year 71,073 47,268
====== ======
Weighted-average fair value of options granted
during the year (calculated as of the grant date) $ 2.70 $ 2.56
Weighted-average exercise prices of options
exercised during the year $ 18.59 $ 0
Weighted-average exercise prices of options
outstanding (calculated as of December 31) $ 19.09 $ 18.46
Weighted-average contractual life of outstanding
options (calculated as of December 31, in years) 0.9 1.6
The Company has determined that the pro forma effect on net income and
earnings per share for the two years in the period ended December 31, 1996 of
adopting Statement of Financial Accounting Standards No. 123 Accounting for
Stock-Based Compensation is not material.
OTHER
In 1993, the Company issued warrants to purchase up to 188,712 shares of
common stock (the Warrants). The Warrants are exercisable for a period of four
years commencing July 1, 1994 at a price of $19.50 per share, the then current
fair market value, subject to adjustment under applicable antidilution
provisions. The holders of the Warrants have the right to require the Company to
include the common stock underlying such Warrants in any registration statement
filed by the Company at the Company's expense. At December 31, 1996 and 1995,
the Company had reserved 2,017,771 and 1,956,654 shares, respectively, for
future issuance.
9. COMMITMENTS
At December 31, 1996, the Company, in the normal course of business, had
received a fully executed letter of intent to purchase upon completion of
development, one property for approximately $15,000,000. In addition, as of
December 31, 1996, the Company had a net investment of approximately $13,900,000
for three lessee developments in progress with a total remaining funding
commitment of approximately $10,100,000.
10. OTHER DATA
FUNDS FROM OPERATIONS
Funds from operations, as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT") 1995 White Paper, means net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation from real estate assets. NAREIT encourages REITs to make reporting
changes consistent with the 1995 NAREIT White Paper on Funds from Operations no
later than fiscal year 1996. Beginning with the first quarter 1996 operations,
the Company's policy has been to report funds from operations calculated on the
NAREIT 1995 White Paper while providing supplemental information based upon
previous methodology. Funds from operations does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles, is not necessarily indicative of cash available to fund cash needs,
and should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
(19)
Year ended Year ended
December 31, 1996 December 31, 1995
(Unaudited) (Unaudited)
1995 NAREIT Previous
White Paper Previous 1995 NAREIT Methodology
As Reported Methodology White Paper As Reported
Net income (1) $ 19,731,623 $ 19,731,623 $ 18,257,616 $ 18,257,616
Non-recurring items 0 0 0 0
Gain on disposition 0 0 (220,140) (220,140)
Straight line rents 0 0 0 0
ADD
Depreciation
Real estate 8,304,772 8,304,772 7,452,925 7,452,925
Other non-revenue producing assets 0 346,848 0 240,123
------------- --------- --------- ---------
8,304,772 8,651,620 7,452,925 7,693,048
------------- --------- --------- ---------
Amortization
Acquired property management contracts (2) 0 337,722 0 178,420
Organization costs 0 6,743 0 5,400
0 ------- 0 -------
0 344,465 0 183,820
------------- ------------- ------------- -------------
Deferred financing costs (3) 0 359,744 0 247,506
------------- ------------- ------------- -------------
Total adjustments 8,304,772 9,355,829 7,232,785 7,904,234
------------- ------------- ------------- -------------
Funds from operations $ 28,036,395 $ 29,087,452 $ 25,490,401 $ 26,161,850
============= ============= ============= =============
Weighted average shares outstanding 13,254,233 13,254,233 12,967,132 12,967,132
============= ============= ============= =============
Funds from operations per share $ 2.12 $ 2.19 $ 1.97 $ 2.02
============= ============= ============= =============
(1) 1996 amounts include $389,752 ($0.03 per share) of stock based,
long-term, incentive compensation expense, a non-cash expense.
(2) Amortization of the acquisition cost of revenue producing property
management contracts.
(3) Amortization of deferred financing costs is reported as part of
interest expense on the income statement.
RETURN OF CAPITAL
Distributions in excess of net income generally constitute a return of
capital. For the years ended December 31, 1996, 1995 and 1994, dividends paid
per share were $1.91, $1.83 and $1.75, respectively, which consisted of ordinary
income per share of $1.65, $1.42 and $1.59 and return of capital per share of
$.26, $.41 and $.16, respectively.
(20)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and receivables are a reasonable estimate of
their fair value due to their short-term nature. The fair value of notes and
bonds payable is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The difference between the carrying amount and the fair value of
the Company's notes and bonds payable is not significant.
12. SUBSEQUENT EVENTS
On January 21, 1997, the Company declared an increase in its quarterly
dividend from $.485 per share ($1.94 annualized) to $.49 per share ($1.96
annualized) payable on February 17, 1997 to shareholders of record on January
28, 1997.
Effective February 14, 1997, the Company sold 5,175,000 shares of its
common stock in a secondary offering (the Secondary Offering) under its
currently effective registration statement pertaining to $250,000,000 of equity
securities, debt securities and warrants. The Company received $133,411,500 in
net proceeds. Promptly thereafter, the net proceeds were used, in part, to
extinguish all $71,900,000 of indebtedness outstanding under the Unsecured
Credit Facility, which results in a borrowing capacity under the Unsecured
Credit Facility of $100,000,000, and repayment or defeasance of secured
indebtedness in the total amount of $6,718,000. Remaining proceeds of the
Secondary Offering of approximately $57,200,000 have been invested short-term
and will be available to finance additional property acquisitions, build-to-suit
property development and for general corporate purposes.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1995 is summarized below:
Quarter ended
March 31 June 30 September 30 December 31
1996
Total revenue $ 8,982,907 $ 9,135,538 $ 9,509,019 $ 10,946,673
Net income $ 4,758,183 $ 4,952,468 $ 4,913,700 $ 5,107,272
Funds from operations $ 6,735,694 $ 6,929,979 $ 6,936,857 $ 7,433,866
Net income per share $ 0.36 $ 0.38 $ 0.37 $ 0.38
Funds from operations per share $ 0.52 $ 0.53 $ 0.53 $ 0.55
1995
Total revenue $ 7,894,137 $ 7,978,111 $ 8,376,569 $ 9,112,344
Net income $ 4,505,272 $ 4,519,300 $ 4,526,268 $ 4,706,776
Funds from operations $ 6,307,622 $ 6,340,191 $ 6,413,618 $ 6,428,970
Net income per share $ 0.35 $ 0.35 $ 0.35 $ 0.36
Funds from operations per share $ 0.49 $ 0.49 $ 0.49 $ 0.50
(21)
CORPORATE DATA
CORPORATE ADDRESS
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 400
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
INDEPENDENT PUBLIC AUDITORS
Ernst & Young LLP
NationsBank Plaza
414 Union St.
Nashville, Tennessee 37219-1779
TRANSFER AGENT
TRANSFER OF SHARES
Boston EquiServe
Stock Transfer Department
P.O. Box 1865
Mail Stop 45-02-62
Boston, Massachusetts 02105-1865
Phone: (617) 575-3400
CUSIP #: 421946104
Street Address for Courier Service
Boston EquiServe
Blue Hills Office Park
Mail Stop 45-02-62
150 Royall Street
Canton, Massachusetts 02021-1031
INTERNET SITE
http://www.equiserve.com
CORPORATE INTERNET SITE
http://www.healthcarerealty.com
CORPORATE EMAIL ADDRESS
hrinfo@healthcarerealty.com
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan is offered as a convenience to stockholders
who wish to increase their holdings in the Company. Additional shares may be
purchased, without a service or sales charge, through automatic reinvestment of
quarterly cash dividends. For information write Investor Relations, Boston
EquiServe, 150 Royall Street, Canton, Massachusetts 02021 or call (617)
575-3400.
FORM 10K
The Company has filed an Annual Report on Form 10K for the year ended
December 31, 1996, with the Securities and Exchange Commission. Shareholders may
obtain a copy of this report, without charge, by writing: Investor Relations,
Healthcare Realty Trust, Inc., 3310 West End Avenue, Suite 400, Nashville,
Tennessee 37203. Or, via e-mail: hrinfo@healthcarerealty.com
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MEMBER
National Association of Real Estate Investment Trusts, Inc. (NAREIT)
COMMON STOCK
Healthcare Realty Trust Incorporated common stock is traded on The New York
Stock Exchange under the symbol HR. As of March 12, 1997, there were
approximately 1,086 shareholders of record. The following table shows, for the
fiscal periods indicated, the quarterly range of high and low closing sales
prices of the common stock.
1996 1995 1994
High Low High Low High Low
First Quarter $ 23.125 $ 20.875 $21.000 $ 19.000 $22.500 $19.375
Second Quarter 23.750 21.500 20.500 18.500 21.375 19.500
Third Quarter 24.125 21.500 20.750 19.375 22.125 19.875
Fourth Quarter 26.875 23.000 23.000 20.000 21.125 19.375
ANNUAL SHAREHOLDERS MEETING
The annual meeting of shareholders will be held on May 12, 1997, at 10:00
a.m. at the Cumberland Club, 511 Union Street, Nashville, Tennessee.
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