UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
(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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 1-11852
________________________
HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 62 - 1507028
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
3310 West End Avenue
Suite 400
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports 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 Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ----
As of May 1, 1997, 19,227,803 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
HEALTHCARE REALTY TRUST
INCORPORATED
FORM 10-Q
March 31, 1997
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
HEALTHCARE REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited) (1)
ASSETS Mar. 31, 1997 Dec. 31, 1996
------------- --------------
Real estate properties:
Land $54,631 $53,028
Buildings and improvements 382,979 369,188
Personal property 3,239 3,099
Construction in progress 8,174 13,863
----- ------
449,023 439,178
Less accumulated depreciation (25,845) (23,144)
------- -------
Total real estate properties, net 423,178 416,034
Cash and cash equivalents 45,822 1,354
Other assets, net 10,463 10,117
------ ------
Total assets $479,463 $427,505
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $90,000 $168,618
Security deposits payable 3,992 4,172
Accounts payable and accrued liabilities 6,086 8,197
Deferred income 646 554
Commitments and contingencies 0 0
- -
Total liabilities 100,724 181,541
------- -------
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; 19,227,803
issued and outstanding at Mar. 31, 1997 and 13,898,777 at Dec. 31, 1996 192 139
Additional paid-in capital 401,470 264,614
Deferred compensation (8,306) (4,702)
Cumulative net income 63,994 57,655
Cumulative dividends (78,611) (71,742)
------- -------
Total stockholders' equity 378,739 245,964
------- -------
Total liabilities and stockholders' equity $479,463 $427,505
======== ========
(1) The balance sheet at Dec. 31, 1996 has been derived from 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.
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, are an integral part of these financial statements.)
1
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Dollars in thousands, except per share data)
1997 1996
------------- --------------
REVENUES:
Master lease rental income $10,010 $8,584
Property operating income 2,176 0
Management fees 304 278
Interest and other income 352 121
--- ---
12,842 8,983
------ -----
EXPENSES:
General and administrative 713 515
Property operating expenses 607 0
Interest 2,384 1,561
Depreciation 2,702 2,059
Amortization 97 90
-- --
6,503 4,225
----- -----
NET INCOME $6,339 $4,758
------ ------
NET INCOME PER SHARE $0.38 $0.36
----- -----
WEIGHTED AVERAGE SHARES OUTSTANDING 16,596,267 13,077,312
========== ==========
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, are an integral part of these financial statements.)
2
HEALTHCARE REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(Dollars in thousands)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,339 $4,758
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 2,868 2,153
Deferred compensation 166 90
Increase (decrease) in deferred income 92 (37)
(Increase) decrease in other assets (394) (659)
Decrease in accounts payable and accrued liabilities (2,100) (1,416)
------ ------
Net cash provided by operating activities 6,971 4,889
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate properties (9,790) (13,379)
Disbursement of security deposits (180) (120)
---- ----
Net cash used in investing activities (9,970) (13,499)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term notes payable 0 6,500
Repayments on long-term notes payable (78,618) 0
Deferred financing and organization costs paid (23) (30)
Dividends paid (6,869) (6,123)
Proceeds from issuance of common stock 132,977 35
------- --
Net cash provided by financing activities 47,467 382
------ ---
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44,468 (8,228)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,354 9,143
===== =====
CASH AND CASH EQUIVALENTS, END OF PERIOD $45,822 $915
======= ====
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, are an integral part of these financial statements.)
3
HEALTHCARE REALTY TRUST
INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Healthcare Realty Trust Incorporated (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements which are included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
The results of operations for the three-month period ending March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
Certain reclassifications have been made for the period January 1, 1996
through March 31, 1996 to conform to the 1997 presentation. These
reclassifications had no effect on the results of operations as previously
reported.
4
NOTE 2. ORGANIZATION
The Company was organized 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. In addition to acquisitions of existing facilities, the Company
provides capital for the construction of new facilities and provides property
management, leasing and build-to-suit development services. The Company
commenced operations on June 3, 1993 following the completion of an initial
public offering. As of March 31, 1997, the Company had purchased, developed or
had under development, 81 properties (the "Properties") for an aggregate
investment of $449.0 million located in 40 markets in 14 states, which are
supported by 16 healthcare-related entities. The Properties include:
Ancillary hospital facilities 39
Medical office buildings 5
Physician clinics 13
Long-term care facilities 15
Comprehensive ambulatory care centers 4
Clinical laboratories 2
Ambulatory surgery centers 3
-
81
==
See Schedule 1 following "Notes to Condensed Consolidated Financial Statements"
for detailed information concerning the Properties.
NOTE 3. FUNDS FROM OPERATIONS
Funds from operations ("FFO"), 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.
The Company considers FFO to be an informative measure of the performance
of an equity REIT and consistent with measures used by analysts to evaluate
equity REITs. FFO do not represent cash generated from operating activities in
accordance with generally accepted accounting principles, are 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. FFO for
the three months ended March 31, 1997 and 1996, were $9.1 million ($0.55 per
share) and $6.7 million ($0.52 per share), respectively.
NAREIT encourages REITs to make reporting changes consistent with the 1995
NAREIT White Paper on FFO no later than fiscal year 1996. Beginning with first
quarter 1996 operations, the Company's policy has been to report FFO calculated
on the NAREIT 1995 White Paper while providing supplemental information based
upon previous methodology.
5
FUNDS FROM OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------------------- -------------------------------
NAREIT NAREIT
White Paper Previous White Paper Previous
As Reported Methodology As Reported Methodology
----------- ----------- ----------- -----------
Net Income $6,339 $6,339 $4,758 $4,758
Non-recurring items (3) 112 112 0 0
Gain or loss on dispositions 0 0 0 0
Straight line rents 0 0 0 0
ADD:
Depreciation
Real estate 2,605 2,605 1,978 1,978
Office F,F&E 0 42 0 36
Leasehold improvements 0 42 0 34
Other non-revenue producing assets 0 13 0 11
- -- - --
2,605 2,702 1,978 2,059
----- ----- ----- -----
Amortization
Acquired property contracts (1) 0 44 0 73
Other non-revenue producing assets 0 51 0 17
Organization costs 0 2 0 1
- - - -
0 97 0 91
- -- - --
Deferred financing costs (2) 0 68 0 92
- -- - --
Total Adjustments 2,717 2,979 1,978 2,242
----- ----- ----- -----
Funds From Operations $ 9,056 $ 9,318 $ 6,736 $ 7,000
======= ======= ======= =======
Weighted Average Shares Outstanding 16,596,267 16,596,267 13,077,312 13,077,312
========== ========== ========== ==========
Funds From Operations Per Share $ 0.55 $ 0.56 $ 0.52 $ 0.54
======= ======= ======= =======
(1) Amortization of the acquisition cost of revenue producing property
management contracts.
(2) Amortization of deferred financing costs is reported as part of interest
expense on the income statement.
(3) Represents a loss from a debt restructuring.
6
NOTE 4. NOTES AND BONDS PAYABLE
Notes and Bonds payable at March 31, 1997 consisted of $90.0 million of
unsecured notes.
Unsecured Notes
On September 18, 1995, the Company privately placed $90.0 million of
unsecured notes (the "Unsecured Notes") with sixteen credit institutions. The
Unsecured Notes bear interest at 7.41%, payable semi-annually, and mature on
September 1, 2002. Beginning on September 1, 1998 and on each September 1
through 2002, the Company must repay $18.0 million 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 $75.0 million unsecured credit facility
(the "Unsecured Credit Facility") with four commercial banks was increased to
$100.0 million and extended to December 30, 1999. At the option of the Company,
borrowings bear interest at either 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 March 31, 1997, the Company had the maximum borrowing capacity available
of $100.0 million under the Unsecured Credit Facility.
Serial and Term Bonds Payable
In conjunction with the acquisition of certain facilities (see Note 5), the
Company assumed an obligation for a $2.5 million bond issue of the Industrial
Development Authority of the City of Salem, Virginia. The obligation was secured
by a deed of trust on the related facilities. This obligation was repaid during
the first quarter of 1997.
In conjunction with the acquisition of certain facilities (see Note 5), the
Company assumed an obligation for a $1.6 million bond issue of the Industrial
Development Authority of the City of Roanoke, Virginia. The obligation was
secured by a deed of trust on the related facilities. This obligation was repaid
during the first quarter of 1997.
7
In conjunction with the acquisition of certain facilities in 1994, the
Company assumed an obligation for $1.1 million of Serial Bonds and $2.0 million
of Term Bonds. The obligation was secured by a deed of trust on the related
facilities. The obligation was defeased during the first quarter of 1997. The
resulting loss was not significant.
Other Long-Term Debt Information
During the first quarter of 1997, the Company repaid $78.6 million of
indebtedness from proceeds of a secondary offering (see Note 8). The remaining
indebtedness of Unsecured Notes is due in five $18.0 million annual installments
beginning in 1998.
NOTE 5. ACQUISITIONS OF REAL ESTATE
During November 1996, the Company acquired ten properties, constituting the
assets of Lewis Gale Building Corporation, in exchange for an aggregate of
687,692 shares of the Company's common stock (valued at $16.1 million) and the
assumption of $20.6 million of notes payable, $4.1 million of bonds payable and
$3.0 million of accounts payable and accrued liabilities, and incurred $483,000
in acquisition costs. In addition to the properties, representing an aggregate
investment of $44.1 million, the Company acquired cash of $5,000, accounts
receivable of $58,000, and other assets of $106,000. During 1996, the Company
repaid the notes payable assumed in the acquisition. During the first quarter of
1997, the Company repaid or defeased the bonds payable assumed in the
acquisition.
During the quarter ended March 31, 1997, the Company purchased a 30,277
square foot long-term facility in Globe, Arizona for approximately $2.8 million
and provided the initial funding for a 107,529 square foot long-term care lessee
development in Greeley, Colorado which has a total commitment of $11.9 million.
The acquisitions were funded from proceeds of a secondary offering.
NOTE 6. DEFERRED COMPENSATION
Effective January 31, 1997, 141,666 restricted shares, bringing the total
to 283,332, of the Company's common stock previously reserved were released to
certain officers of the Company upon the achievement of the Company's
performance based criteria in accordance with the terms of the First
Implementation of the Company's 1993 Employees Stock Incentive Plan. These
restricted shares require continued employment, generally for 12 years from the
date of release, prior to vesting.
8
NOTE 7. COMMITMENTS
As of March 31, 1997, the Company had a net investment of approximately
$8.2 million in two build-to-suit developments in progress and one expansion of
an existing facility, which have a total remaining funding commitment of
approximately $15.8 million.
As of March 31, 1997, the Company, in the normal course of business, had
entered into a contract to acquire three long-term care facilities in Tennessee
for an aggregate amount of $20.4 million. The Company has also entered into a
definitive agreement to purchase an ancillary hospital facility in Fountain
Valley, California for approximately $15.0 million. The facility, currently
under construction and financed by a commercial bank, will be purchased upon
completion. The Company will either assume the existing debt, fund the
acquisition from current cash reserves if available or fund the acquisition from
proceeds borrowed under the Unsecured Credit Facility.
NOTE 8. STOCKHOLDERS' EQUITY
On 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. The Company received $133.0 million in net proceeds. The
proceeds were used, in part, to repay or defease outstanding debt and to
purchase or provide initial funding of two long-term care facilities. The
remaining proceeds of the secondary offering have been invested short-term and
will be available to finance additional property acquisitions, build-to-suit
developments and for general corporate purposes.
NOTE 9. CHANGES IN ACCOUNTING PRINCIPLE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Statement
No. 128 is not expected to have a significant impact on the Company's
computation of primary or fully diluted earnings per share.
9
SCHEDULE 1 - REAL ESTATE INVESTMENTS AT MARCH 31, 1997
Total Date
Facility Type/Name Operator State Investment Acquired
- ------------------------------------------------------------------------------
ANCILLARY HOSPITAL FACILITIES
Orange Grove Medical Clinic Col/HCA AZ $ 5,273,993 1993
Eaton Canyon Medical Building Tenet CA 4,444,070 1995
Fountain Valley - AHF 1 Tenet CA 5,520,316 1994
Fountain Valley - AHF 2 Tenet CA 5,107,769 1994
Fountain Valley - AHF 3 Tenet CA 8,785,363 1994
Fountain Valley - AHF 4 Tenet CA 8,989,674 1994
Valley Presbyterian (15211) Valley Pres CA 7,538,204 1993
Valley Presbyterian (6840-50) Valley Pres CA 5,327,777 1993
Coral Gables Medical Plaza Tenet FL 11,213,733 1994
Deering Medical Plaza Col/HCA FL 5,072,041 1994
East Pointe Medical Plaza Col/HCA FL 4,981,848 1994
Gulf Coast Medical Centre Col/HCA FL 4,791,942 1994
Palm Beach Medical Group Bldg First Phys FL 3,830,316 1996
Palms of Pasadena Medical Plaza Tenet FL 5,536,576 1994
Southwest Medical Centre Plaza Col/HCA FL 8,042,864 1994
Southwest Medical Centre Plaza II Col/HCA FL 1,620,558 1995
Candler Parking Garage Candler GA 4,169,090 1994
Candler Professional Office Bldg Candler GA 7,193,045 1994
Candler Regional Heart Center Candler GA 8,974,746 1995
North Fulton Medical Arts Plaza Vest Amer GA 5,784,500 1993
Northwest Medical Center Vest Amer GA 10,236,246 1994
Overland Park Regional Med Ctr Col/HCA KS 8,990,563 1995
Hendersonville Med Office Bldg Col/HCA TN 3,138,890 1994
Bayshore Doctors Center Col/HCA TX 1,905,818 1993
Judson Medical Building Methodist TX 743,283 1996
Lake Pointe Medical Plaza Tenet TX 1,737,128 1993
Oregon Medical Building Col/HCA TX 18,485,079 1993
Rosewood Professional Bldg Col/HCA TX 5,252,820 1994
Southwest General Birthing Ctr Tenet TX 3,236,289 1993
Spring Branch Professional Bldg Col/HCA TX 14,301,747 1993
Toepperwein Medical Center Methodist TX 2,508,812 1996
Trinity Valley Birthing Center Tenet TX 3,671,600 1994
Twelve Oaks Medical Plaza Vest Amer TX 3,772,050 1993
Chippenham Medical Offices Col/HCA VA 3,771,668 1994
Chippenham Medical Offices Col/HCA VA 4,593,463 1994
Johnston-Willis Medical Offices Col/HCA VA 8,773,577 1994
Johnston-Willis Medical Offices Col/HCA VA 5,855,716 1994
Lewis Gale-Clinic,Keagy,Braeburn,Floyd Phycor VA 27,450,189 1996
Lewis Gale - Medical Foundation Phycor VA 1,433,579 1996
---------
252,056,939
-----------
AMBULATORY SURGERY CENTERS
Bakersfield Surgery Center Nat'l Surg Ctrs CA 1,046,229 1993
Valley View Surgery Center Nat'l Surg Ctrs NV 3,800,571 1994
Physicians Daysurgery Center Col/HCA TX 2,039,563 1993
---------
6,886,363
---------
COMPREHENSIVE AMBULATORY CARE CTRS
St. Andrews Col/HCA&St.Andrews FL 7,105,110 1996
Five Points Medical Building Tenet FL 10,873,377 1995
Huebner Medical Center Huebner TX 11,928,764 1993
Huebner Medical Center II Huebner TX 9,185,369 1994
---------
39,092,620
----------
10
Total Date
Facility Type/Name Operator State Investment Acquired
- -----------------------------------------------------------------------------
CLINICAL LABORATORIES
Midtown Medical Center Midtown AL 8,789,812 1993
Puckett Laboratory Path Labs MS 4,285,485 1993
---------
13,075,297
----------
LONG-TERM CARE FACILITIES
Life Care Center of Globe LCC of Amer. AZ 2,787,915 1997
Fountain Valley-Living Care Ctr Tenet CA 12,687,698 1994
Life Care Center of Aurora LCC of Amer. CO 6,230,516 1994
Life Care Center of Greeley (1) LCC of Amer. CO 1,254,332 1997
Life Care Ctr of Westminster (1) LCC of Amer. CO 5,595,117 1996
Life Care Center of Orange Park LCC of Amer. FL 10,205,696 1995
New Harmonie Healthcare Ctr Centennial IN 3,640,139 1993
Life Care Center of Wichita LCC of Amer. KS 7,213,831 1996
Fenton Extended Care Center Centennial MI 3,540,494 1993
Meadows Nursing Center Centennial MI 3,284,185 1993
Ovid Convalescent Manor Centennial MI 2,938,669 1993
Wayne Convalescent Center Centennial MI 1,049,352 1993
Westgate Manor Nursing Home Centennial MI 1,697,048 1993
Life Care Center of Forth Worth LCC of Amer. TX 9,505,289 1995
Life Care Center of Houston LCC of Amer. TX 9,163,430 1995
---------
80,793,713
----------
MEDICAL OFFICE BUILDINGS
Rowlett Medical Plaza Tenet TX 1,976,372 1994
New River Valley Med. Arts Bldg Col/HCA VA 926,022 1993
Valley Medical Center Col/HCA VA 1,015,116 1993
Lewis Gale-Business&Child Care Phycor VA 6,732,699 1996
Lewis Gale - Valley View Phycor VA 5,119,923 1996
---------
15,770,133
----------
PHYSICIAN CLINICS
Clinica Latina Tenet CA 724,470 1995
Southwest Florida Orthopedic Center Col/HCA FL 3,604,186 1994
Medical & Surgical Inst.Ft. Lauderdale Tenet FL 5,204,476 1994
Doctors' Clinic Phycor FL 10,305,182 1993
Woodstock Clinic Tenet GA 2,673,879 1994
Durham Medical Center Durham TX 8,511,527 1993
Valley Diagnostic Med.& Surgical Ctr. Phycor TX 4,458,322 1993
Lewis Gale - Bent Mountain Road Clinic Phycor VA 350,203 1996
Lewis Gale - Bohnsack Clinic Phycor VA 674,806 1996
Lewis Gale - Craig County Clinic Phycor VA 182,269 1996
Lewis Gale - Family Practice Center Phycor VA 1,151,983 1996
Lewis Gale - Fincastle Clinic Phycor VA 337,915 1996
Lewis Gale - Spartan Drive Phycor VA 901,106 1996
-------
39,080,323
----------
Total Real Estate $446,755,389
============
Corporate Property 1,977,478
Third Party Developments 290,342
Total Property $449,023,209
============
(1) Lessee development at March 31, 1997
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
First Quarter 1997 Compared to First Quarter 1996
Total revenues for the quarter ended March 31, 1997 were $12.8 million
compared to $8.9 million for the quarter ended March 31, 1996, which is an
increase of $3.9 million or 43%. The increase is primarily due to master lease
rental income and property operating income derived from approximately $120.2
million of property acquisitions and properties reclassified from construction
in progress subsequent to March 31, 1996. In addition, revenues during the
quarter ended March 31, 1997 reflect an increase of $26,000, or 9% of property
management fees. At March 31, 1997, the Company managed 86 properties compared
to 40 properties at March 31, 1996. Interest and other income for the quarter
ended March 31, 1997 was $352,000 compared to $121,000 for the quarter ended
March 31, 1996. While the number of managed properties increased significantly,
management fees do not increase proportionately due to the elimination in
consolidation of Company owned managed properties. During the first quarter of
1997, the Company completed the Secondary Offering and maintained an average
cash balance of approximately $29.0 million during the quarter ended March 31,
1997. In comparison, the Company maintained an average cash balance of
approximately $6.0 million during the quarter ended March 31, 1996 which
resulted in lower interest income. In addition, the 1996 amount includes $54,000
of third party development fees.
Total expenses for the quarter ended March 31, 1997 were $6.5 million
compared to $4.2 million for the quarter ended March 31, 1996, which is an
increase of $2.3 million or 54%. Depreciation expense increased $643,000 due to
the acquisition of additional properties and the completion of properties under
construction, discussed in the preceding paragraph. General and administrative
expenses increased $198,000, or 39%, primarily due to an increase in employees
associated with the increase in management contracts. Interest expense increased
from $1.6 million for the quarter ended March 31, 1996 to $2.4 million for
quarter ended March 31, 1997. During the quarter ended March 31, 1997, the
Company had an average outstanding debt balance of approximately $42.0 million
under the Unsecured Credit Facility compared to approximately $3.0 million in
1996. In addition, there was approximately $18.0 million less in the
construction in progress account throughout the quarter during 1997 compared to
1996 which resulted in substantially less capitalized interest during 1997.
There was no significant increase in amortization expense.
12
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had purchased, developed or had under
development, 81 properties (the "Properties") for an aggregate investment of
$449.0 million located in 40 markets in 14 states, which are supported by 16
healthcare-related entities. The Company has financed its acquisitions to date
through the sale or exchange of common stock, long-term indebtedness, borrowings
under its credit facilities, and the assumption of bonds.
Effective February 14, 1997, the Company received $133.0 million in net
proceeds from the Secondary Offering. Promptly thereafter, the net proceeds were
used, in part, to extinguish all $71.9 of indebtedness outstanding under the
Unsecured Credit Facility which results in a borrowing capacity of $100.0
million, and repayment or defeasance of secured indebtedness in the total amount
of $6.7 million. Remaining proceeds of the Secondary Offering of approximately
$45.8 million have been invested short-term and will be available to finance
additional property acquisitions, build-to-suit property developments and for
general corporate purposes. Funds From Operations can be negatively affected by
delay in the acquisition of, or investment in, healthcare properties.
At March 31, 1997, the Company had the maximum borrowing capacity available
of $100.0 million under the Unsecured Credit Facility.
At March 31, 1997, the Company had stockholders' equity of $378.7 million.
The debt to total capitalization ratio was approximately 0.19 to 1.00 at March
31, 1997.
During the quarter ended March 31, 1997, the Company purchased a 30,277
square foot long-term care facility in Globe, Arizona for approximately $2.8
million and provided the initial funding for a 107,529 square foot long-term
care lessee development in Greeley, Colorado which has a total commitment of
$11.9 million. The acquisitions were funded from proceeds of the Secondary
Offering.
During the quarter ended March 31, 1997, the Company funded a net $6.1
million for construction in progress and capital additions. The sources of these
funds were cash provided by Company operations and proceeds from the Secondary
Offering.
On February 17, 1997, the Company paid a dividend of $0.49 per share to the
holders of its common stock as of the close of business on January 28, 1997.
This dividend related to the period from October 1, 1996 through December 31,
1996. In April 1997, the Company announced payment of a dividend of $0.495 per
share to the holders of common shares on May 2, 1997. The dividend will be paid
on May 15, 1997. The dividend relates to the period January 1, 1997 through
March 31, 1997.
13
As of March 31, 1997, the Company had a net investment of $8.2 million in
two build-to-suit developments in progress and one expansion of an existing
facility, which have a total remaining funding commitment of $15.8 million.
These commitments will be funded from Company operations, remaining proceeds
from the Secondary Offering, and if necessary, proceeds borrowed under the
Unsecured Credit Facility.
As of March 31, 1997, the Company, in the normal course of business had
entered into a contract to acquire or fund development of three long-term care
facilities in Tennessee for an aggregate amount of $20.4 million. The Company
has also entered into a definitive agreement to purchase an ancillary hospital
facility in Fountain Valley, California for approximately $15.0 million. The
facility, currently under construction and financed by a commercial bank, will
be purchased upon completion. The Company will either assume the existing debt,
fund the acquisition from remaining proceeds from the Secondary Offering, and if
necessary, fund the acquisition from proceeds borrowed under the Unsecured
Credit Facility.
The Company can issue an aggregate of approximately $143.0 million of
securities remaining under currently effective registration statements. The
Company intends 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 REITs 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.
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. 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.
Management believes that inflation should not have a materially adverse
effect on the Company. The majority of the leases contain some provision for
additional rent payments based on increases in various economic measures.
14
The Company plans to continue to make additional investments in 1997, pay
its quarterly dividends, with increases consistent with its current practices,
and meet all other liquidity needs. The Company provides no assurance, however,
that it will be able to obtain additional financing or capital on terms
acceptable to the Company in sufficient amounts to meet its liquidity needs.
This March 31, 1997 Form 10-Q 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.
15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement re: Computation of Per-Share Earnings
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the first
quarter of 1997.
Date of Earliest Event Reported Date Filed Items Reported
- ------------------------------- ---------- --------------
November 15, 1996 (Form 8K/A) January 10, 1997 7. Financial Statements, Pro Forma
Financial Information and
Exhibits (1)
November 15, 1996 (Form 8K/A) February 7, 1997 7. Financial Statements, Pro Forma
Financial Information and
Exhibits
December 26, 1996 February 7, 1997 5. Other Events
7. Financial Statements, Pro Forma
Financial Information and
Exhibits
February 11, 1997 February 14, 1997 7. Financial Statements, Pro Forma
Financial Information and
Exhibits
(1) Included required financial statements for acquisition reported on in Item 2 of Current Report dated November 15, 1996
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ Timothy G. Wallace
----------------------
Timothy G. Wallace
Executive Vice President, Finance
and Chief Financial Officer
Date: May 14, 1997
17
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
11.1 Statement re: Computation of Per-Share Earnings
18
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
WEIGHTED AVERAGE
- ----------------
Average Shares Outstanding 16,596,267 13,077,312
========== ==========
Net income $6,338,354 $4,758,183
========== ==========
Per share amount $0.38 $0.36
===== =====
PRIMARY (1)
- -----------
Average Shares Outstanding 16,596,267 13,077,312
Net effect of dilutive stock options--
based on treasury stock method 47,919 22,126
------ ------
Total 16,644,186 13,099,438
========== ==========
Net income $6,338,354 $4,758,183
========== ==========
Per share amount $0.38 $0.36
===== =====
FULLY DILUTED (1)
- -----------------
Average Shares Outstanding 16,596,267 13,077,312
Net effect of dilutive stock options--
based on treasury stock method 47,919 22,126
------ ------
Total 16,644,186 13,099,438
========== ==========
Net income $6,338,354 $4,758,183
========== ==========
Per share amount $0.38 $0.36
===== =====
(1) In accordance with footnote 2 of paragraph 15 of APB Opinion No. 15,
"Earnings Per Share", because the reduction is less than 3%, the weighted
average shares outstanding were used in the computation of per share earnings.
19