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: JUNE 30, 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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 AUGUST 1, 1997, 19,254,214 SHARES OF THE REGISTRANT'S COMMON STOCK,
$.01 PAR VALUE, WERE OUTSTANDING.
HEALTHCARE REALTY TRUST INCORPORATED
FORM 10-Q
June 30, 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 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
HEALTHCARE REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited) (1)
ASSETS June 30, 1997 Dec. 31, 1996
------------ ---------------
Real estate properties:
Land $55,192 $53,028
Buildings and improvements 417,682 369,188
Personal property 3,479 3,099
Construction in progress 5,613 13,863
------------ ---------------
481,966 439,178
Less accumulated depreciation (28,641) (23,144)
------------ ---------------
Total real estate properties, net 453,325 416,034
Cash and cash equivalents 11,298 1,354
Short-term investments 18,000 0
Other assets, net 11,032 10,117
------------ ---------------
Total assets $493,655 $427,505
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $103,000 $168,619
Security deposits payable 3,992 4,172
Accounts payable and accrued liabilities 7,698 8,197
Deferred income 920 553
Commitments and contingencies 0 0
------------ ---------------
Total liabilities 115,610 181,541
------------ ---------------
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;
19,254,214 issued and outstanding at June 30, 1997 and
13,898,777 at Dec. 31, 1996 193 139
Additional paid-in capital 401,935 264,614
Deferred compensation (8,110) (4,702)
Cumulative net income 72,163 57,655
Cumulative dividends (88,136) (71,742)
------------ ---------------
Total stockholders' equity 378,045 245,964
------------ ---------------
Total liabilities and stockholders' equity $493,655 $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 JUNE 30, 1997 AND 1996
(Unaudited)
(Dollars in thousands, except per share data)
1997 1996
------------ ---------------
REVENUES:
Master lease rental income $10,619 $8,673
Property operating income 2,202 0
Management fees 319 323
Interest and other income 1,125 140
------------ ---------------
14,265 9,136
------------ ---------------
EXPENSES:
General and administrative 761 525
Property operating expenses 672 0
Interest 1,783 1,510
Depreciation 2,795 2,069
Amortization 84 80
------------ ---------------
6,095 4,184
------------ ---------------
NET INCOME $8,170 $4,952
============ ===============
NET INCOME PER SHARE $0.42 $0.38
============ ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 19,243,357 13,190,730
============ ================
(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 INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(Dollars in thousands, except per share data)
1997 1996
------------ ---------------
REVENUES:
Master lease rental income $20,628 $17,256
Property operating income 4,378 0
Management fees 622 601
Interest and other income 1,478 261
------------ ---------------
27,106 18,118
------------ ---------------
EXPENSES:
General and administrative 1,474 1,040
Property operating expenses 1,279 0
Interest 4,168 3,071
Depreciation 5,496 4,125
Amortization 181 171
------------ ---------------
12,598 8,407
------------ ---------------
NET INCOME $14,508 $9,711
============ ===============
NET INCOME PER SHARE $0.81 $0.74
============ ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 17,927,125 13,134,021
============ ===============
(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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(Dollars in thousands)
1997 1996
------------ ---------------
Cash flows from operating activities:
Net income $14,508 $9,711
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,814 4,313
Deferred compensation 333 227
Increase (decrease) in deferred income 367 (29)
Increase in short-term investments (18,000) 0
Increase in other assets (1,024) (2,224)
Increase (decrease) in accounts payable and accrued
liabilities (489) 390
------------ ---------------
Net cash provided by operating activities 1,509 12,388
------------ ---------------
Cash flows from investing activities:
Acquisition of real estate properties (42,677) (24,711)
Disbursement of security deposits (180) (390)
------------ ---------------
Net cash used in investing activities (42,857) (25,101)
------------ ---------------
Cash flows from financing activities:
Borrowings on long-term notes payable 13,000 17,201
Repayments on long-term notes payable (78,618) (115)
Deferred financing and organization costs paid (31) (30)
Decrease in restricted cash 0 46
Dividends paid (16,394) (12,311)
Proceeds from issuance of common stock 133,335 163
------------ ---------------
Net cash provided by financing activities 51,292 4,954
------------ ---------------
Increase (decrease) in cash and cash equivalents 9,944 (7,759)
Cash and cash equivalents, beginning of period 1,354 9,143
----- -----
Cash and cash equivalents, end of period $11,298 $1,384
============ ===============
(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.)
4
HEALTHCARE REALTY TRUST
INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and six-month periods ending
June 30, 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 April 1, 1996
through June 30, 1996 and for the period January 1, 1996 through June 30, 1996
to conform to the 1997 presentation. These reclassifications had no effect on
the results of operations as previously reported.
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.
5
The Company commenced operations on June 3, 1993 following the completion
of an initial public offering. As of June 30, 1997, the Company had purchased,
developed or had under development, 84 properties (the "Properties") for an
aggregate investment of $482.0 million located in 42 markets in 14 states, which
are supported by 16 healthcare-related entities. The Properties include:
Number of (in thousands)
Properties Investment
---------- ----------
Ancillary hospital facilities 40 $266,126
Medical office buildings 5 20,211
Physician clinics 13 39,080
Long-term care facilities 17 94,714
Comprehensive ambulatory care centers 4 39,326
Clinical laboratories 2 13,075
Ambulatory surgery centers 3 6,887
Corporate and third party developments 0 2,547
- -----
84 $481,966
== ========
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 June 30, 1997 and 1996, were $10.9 million ($0.57 per
share) and $6.9 million ($0.53 per share), respectively. FFO for the six months
ended June 30, 1997 and 1996, were $19.9 million ($1.11 per share) and $13.7
million ($1.04 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.
6
(Dollars in thousands, except per share data)
Three Months Ended Three Months Ended
------------------ ------------------
June 30, 1997 June 30, 1996
------------- -------------
NAREIT NAREIT
White Paper Previous White Paper Previous
As Reported Methodology As Reported Methodology
----------- ----------- ----------- -----------
Net Income (1) $ 8,170 $ 8,170 $ 4,952 $ 4,952
Non-recurring items 0 0 0 0
Gain or loss on dispositions 0 0 0 0
Straight line rents 0 0 0 0
ADD:
Depreciation
Real estate 2,703 2,703 1,978 1,978
Office F,F&E 0 53 0 44
Leasehold improvements 0 25 0 34
Other non-revenue producing assets 0 14 0 11
- -- - --
2,703 2,795 1,978 2,067
----- ----- ----- -----
Amortization
Acquired property contracts (2) 0 56 0 64
Other non-revenue producing assets 0 26 0 15
Organization costs 0 2 0 2
- - - -
0 84 0 81
- -- - --
Deferred financing costs (3) 0 67 0 92
- -- - --
Total Adjustments 2,703 2,946 1,978 2,240
----- ----- ----- -----
Funds From Operations $ 10,873 $ 11,116 $ 6,930 $ 7,192
======== ======== ======= =======
Weighted Average Shares Outstanding 19,243,357 19,243,357 13,190,730 13,190,730
========== ========== ========== ==========
Funds From Operations Per Share $ 0.57 $ 0.58 $ 0.53 $ 0.55
====== ====== ====== ======
(1) Net income includes $167,125 in 1997 and $136,086 in 1996 of stock
based, long-term incentive compensation expense. This expense never requires the
disbursement of cash.
(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.
7
Dollars in thousands, except per share data)
Six Months Ended Six Months Ended
---------------- ----------------
June 30, 1997 June 30, 1996
------------- -------------
NAREIT NAREIT
White Paper Previous White Paper Previous
As Reported Methodology As Reported Methodology
----------- ----------- ----------- -----------
Net Income (1) $14,508 $14,508 $9,711 $9,711
Non-recurring items (2) 112 112 0 0
Gain or loss on dispositions 0 0 0 0
Straight line rents 0 0 0 0
ADD:
Depreciation
Real estate 5,309 5,309 3,955 3,955
Office F,F&E 0 94 0 81
Leasehold improvements 0 67 0 69
Other non-revenue producing assets 0 28 0 21
- -- - --
5,309 5,498 3,955 4,126
----- ----- ----- -----
Amortization
Acquired property contracts (3) 0 99 0 136
Other non-revenue producing assets 0 78 0 32
Organization costs 0 4 0 3
- - - -
0 181 0 171
- --- - ---
Deferred financing costs (4) 0 135 0 184
- --- - ---
Total Adjustments 5,421 5,926 3,955 4,481
----- ----- ----- -----
Funds From Operations $ 19,929 $ 20,434 $ 13,666 $ 14,192
========= ========= ========= =========
Weighted Average Shares Outstanding 17,927,125 17,927,125 13,134,021 13,134,021
========== ========== ========== ==========
Funds From Operations Per Share $ 1.11 $ 1.14 $ 1.04 $ 1.08
========= ========= ========= =========
(1) Net income includes $333,484 in 1997 and $296,445 in 1996 of stock
based, long-term, incentive compensation expense. This expense never requires
the disbursement of cash.
(2) Represents a loss from a debt restructuring.
(3) Amortization of the acquisition cost of revenue producing property
management contracts.
(4) Amortization of deferred financing costs is reported as part of
interest expense on the income statement.
8
Note 4. Notes and Bonds Payable
Notes and Bonds payable at June 30, 1997 consisted of the following (in
thousands):
Unsecured notes $90,000
Unsecured credit facility 13,000
------
$ 103,000
=========
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 June 30, 1997, the Company had borrowed $13.0 million under the
Unsecured Credit Facility which resulted in available borrowing capacity of
$87.0 million. During the first week of July 1997, the Company repaid $6.0
million of the outstanding 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
DevelopmentAuthority 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.
9
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).
Note 5. Acquisitions of Real Estate
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 funding
commitment of $11.9 million.
During the quarter ended June 30, 1997 the Company purchased two long-term
care facilities in Tennessee with an aggregate of 64,539 square feet for a total
of approximately $8.0 million. The Company also purchased a 75,000 square foot
ancillary hospital facility in Los Angeles, California which will have a total
funding commitment of approximately $15.0 million.
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.
Note 7. Commitments
As of June 30, 1997, the Company had a net investment of approximately $5.6
million in one build-to-suit development in progress and one expansion of an
existing facility, which have a total remaining funding commitment of
approximately $11.6 million.
10
As of June 30, 1997, the Company, in the normal course of business, had
entered into a contract to fund the development of one long-term care facility
in Tennessee for approximately $12.4 million.
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 (the "FASB")
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.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in a full set of general purpose financial statements.
Statement 130 is effective for interim and annual periods beginning after
December 15, 1997. Comprehensive income encompasses all changes in shareholders'
equity (except those arising from transactions with owners) and includes net
income, net unrealized capital gains or losses on available for sale securities
and foreign currency translation adjustments. Management of the Company does not
expect the adoption of Statement No. 130 to have an impact on the Company's
financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Statement No. 131 is effective for periods beginning after December 15, 1997.
Management of the Company is currently evaluating the applicability of Statement
No. 131, which may result in expanded segment disclosures.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
Second Quarter 1997 Compared to Second Quarter 1996
Net income for the quarter ended June 30, 1997 increased to $8.2 million
($0.42 per share) from $5.0 million ($0.38 per share) for the same period in
1996, a 65% increase in net income (11% per share). Total revenues for the
quarter ended June 30, 1997 were $14.3 million compared to $9.1 million for the
quarter ended June 30, 1996, which is an increase of $5.2 million or 56%. The
increase is primarily due to master lease rental income and property operating
income derived from approximately $149.7 million of property acquisitions and
properties reclassified from construction in progress subsequent to June 30,
1996. While the number of managed properties rose from 45 properties at June 30,
1996 to 87 properties at June 30, 1997, management fees remained constant due to
the elimination in consolidation of Company owned managed properties. Interest
and other income for the quarter ended June 30, 1997 was $1.1 million compared
to $140,000 for the quarter ended June 30, 1996. The Company maintained an
average cash and short-term investment balance of approximately $42.0 million
during the quarter ended June 30, 1997. In comparison, the Company maintained an
average cash and short-term investment balance of approximately $920,000 during
the quarter ended June 30, 1996 which resulted in significantly higher interest
income. Additionally, 1996 includes $36,000 of third party development fees.
Total expenses for the quarter ended June 30, 1997 were $6.1 million
compared to $4.2 million for the quarter ended June 30, 1996, which is an
increase of $1.9 million or 46%. Depreciation expense increased $726,000 due to
the acquisition of additional properties and the completion of properties under
construction, discussed in the preceding paragraph. General and administrative
expenses increased $236,000 or 45%, primarily due to an increase in enployees
associated with the increase in management contracts. Interest expense increased
from $1.5 million to $1.8 million for the quarters ended June 30, 1996 and 1997,
respectively. During the quarter ended June 30, 1997, the Company had an average
outstanding debt balance of approximately $93.2 million compared to an average
outstanding debt balance of $104.6 million for the quarter ended June 30, 1996.
However, there was approximately $24.4 million less in construction in progress
throughout the quarter during 1997 compared to 1996 which resulted in
substantially less capitalized interest in 1997. There was no significant
variation in amortization expense.
12
Six Months ended June 30, 1997 Compared to Six Months ended June 30, 1996
Net income for the six months ended June 30, 1997 increased to $14.5
million ($0.81 per share) from $9.7 million ($0.74 per share) for the same
period in 1996, a 49% increase in net income (9% per share). Total revenues for
the six months ended June 30, 1997 were $27.1 million compared to $18.1 million
for the six months ended June 30, 1996, which is an increase of $9.0 million, or
50%. The increase is primarily due to master lease rental income and property
operating income derived from approximately $149.7 million of property
acquisitions and properties reclassified from construction in progress
subsequent to June 30, 1996. For the six months ended June 30, 1997 compared to
the six months ended June 30, 1996, there was no significant variation in
property management fees. At June 30, 1997, the Company managed 87 properties
compared to 45 properties at June 30, 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. Interest and other income for the six months ended June 30, 1997 was
$1.5 million compared to $261,000 for the six months ended June 30, 1996. During
the first quarter of 1997, the Company completed the Secondary Offering and
maintained an average cash and short-term investment balance of $33.2 million
during the six months ending June 30, 1997 compared to $2.8 million during the
six months ending June 30, 1996. Additionally, the six months ended June 30,
1996 includes $90,000 in third party development fees.
Total expenses for the six months ended June 30, 1997 were $12.6 million
compared to $8.4 million for the six months ended June 30, 1996, which is an
increase of $4.2 million, or 50%. Depreciation expense increased $1.4 million
due to the acquisition of additional properties and the completion of properties
under construction, discussed in the preceding paragraph. General and
administrative expenses increased $434,000, or 42%, primarily due to an increase
in employees associated with the increase in management contracts. Interest
expense increased from $3.1 million to $4.2 million for the six months ended
June 30, 1996 and 1997, respectively. During the six months ended June 30, 1997,
the Company had an average outstanding debt balance of approximately $115.7
million compared to an average outstanding debt balance of $99.9 million for the
six months ended June 30, 1996. In addition, there was approximately $42.4
million less in construction in progress throughout the six months ending June
30, 1997 compared to 1996 which resulted in substantially less capitalized
interest in 1997. There was no significant variation in amortization expense.
13
Liquidity and Capital Resources
As of June 30, 1997, the Company had purchased, developed or had under
development, 84 properties (the "Properties") for an aggregate investment of
$482.0 million located in 42 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 resulted in a borrowing capacity of $100.0
million, and repayment or defeasance of secured indebtedness in the total amount
of $6.7 million. The remaining proceeds of the Secondary Offering have been used
to finance additional acquisitions or have been invested short-term and will be
available to finance additional property acquisitions, build-to-suit
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 June 30, 1997, the Company had borrowing capacity available of $87.0
million under the Unsecured Credit Facility. During the first week of July 1997,
the Company repaid $6.0 million of the outstanding Unsecured Credit Facility
from the maturity of a short-term investment. The Company currently has a $93.0
million borrowing capacity under the Unsecured Credit Facility.
At June 30, 1997, the Company had stockholders' equity of $378.0 million.
The debt to total capitalization ratio was approximately 0.21 to 1.00 at June
30, 1997.
During the quarter ended June 30, 1997, the Company purchased two long-term
care facilities in Tennessee with an aggregate of 64,539 square feet for
approximately $8.0 million and purchased a 75,000 square foot ancillary hospital
facility in Los Angeles, California which will have a total funding commitment
of approximately $15.0 million. The acquisitions were provided from proceeds of
the Secondary Offering.
During the quarter ended June 30, 1997, the Company funded a net $5.6
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 May 15, 1997, the Company paid a dividend of $0.495 per share to the
holders of its common stock as of the close of business on May 2, 1997. This
dividend related to the period from January 1, 1997 through March 31, 1997. In
July 1997, the Company announced payment of a dividend of $0.50 per share to the
holders of common shares on August 4, 1997. The dividend will be paid on August
15, 1997. The dividend relates to the period April 1, 1997 through June 30,
1997.
14
As of June 30, 1997, the Company had a net investment of $5.6 million in
one build-to-suit development in progress and one expansion of an existing
facility, which have a total remaining funding commitment of $11.6 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 June 30, 1997, the Company, in the normal course of business had
entered into a contract to fund the development of one long-term care facility
in Tennessee for approximately $12.4 million. This commitment will be funded
from Company operations, remaining proceeds from the Secondary Offering, and if
necessary, proceeds borrowed under the Unsecured Credit Facility.
FFO increased to $10.9 million ($0.57 per share) for the quarter ended June
30, 1997 compared to $6.9 million ($0.53 per share) for the same period in 1996.
For the six month period ending June 30, 1997, FFO increased to $19.9 million
($1.11 per share) from $13.7 million ($1.04 per share) for the six months ending
June 30, 1996. Although FFO is not based upon generally accepted accounting
principles, the Company considers it to be an informative measure of the
performance of an equity REIT and consistent with measures used by analysts to
evaluate equity REITs.
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.
15
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 June 30, 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.
16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 12, 1997. At
this meeting, the following matters were voted upon by the Company's
shareholders:
(a) Election of Class 1 Directors
-----------------------------
Charles Raymond Fernandez, M.D. and Errol L. Biggs, Ph.D. were elected to
serve as Class 1 directors of the Company until the annual meeting of
shareholders in 2000 or until their respective successors are elected and
qualified. The vote was as follows:
Votes Cast Votes Cast Against Abstentions/
---------- ------------------ ------------
In Favor or Withheld Non Votes
-------- ----------- ---------
Charles Raymond Fernandez, M.D. 16,137,736 93,996 0
Errol L. Biggs, Ph.D. 16,132,336 99,396 0
The following directors continued in office following the meeting:
Name Term Expires
---- ------------
Marliese E. Mooney 1998
Edwin B. Morris, III 1998
John Knox Singleton 1998
David R. Emery 1999
Thompson S. Dent 1999
Batey M. Gresham, Jr. 1999
(b) Selection of Auditors
---------------------
The shareholders of the Company ratified the appointment of Ernst & Young,
LLP as the Company's independent auditors for the fiscal year ended December 31,
1997 by the following vote:
Votes Cast Votes Cast Against Abstentions/
---------- ------------------ ------------
In Favor or Withheld Non Votes
-------- ----------- ---------
16,132,271 32,942 66,519
17
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
No reports on Form 8-K were filed by the Company during the three
months ended June 30, 1997.
18
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: August 13, 1997
19
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
11.1 Statement re: Computation of Per-Share Earnings
20
EXHIBIT
11.1
Statement
Re: Computation of Per Share Earnings
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
Weighted Average
- ----------------
Average Shares Outstanding 19,243,357 13,190,730 17,927,125 13,134,021
========== ========== ========== ==========
Net income $8,169,605 $4,952,468 $14,507,959 $9,710,651
========== ========== =========== ==========
Per share amount $0.42 $0.38 $0.81 $0.74
===== ===== ===== =====
Primary (1)
- -----------
Average Shares Outstanding 19,243,357 13,190,730 17,927,125 13,134,021
Net effect of dilutive stock options--
based on treasury stock method 42,070 24,211 44,994 23,169
------ ------ ------ ------
Total 19,285,427 13,214,941 17,972,119 13,157,190
========== ========== ========== ==========
Net income $8,169,605 $4,952,468 $14,507,959 $9,710,651
========== ========== =========== ==========
Per share amount $0.42 $0.37 $0.81 $0.74
===== ===== ===== =====
Fully Diluted (1)
- -----------------
Average Shares Outstanding 19,243,357 13,190,730 17,927,125 13,134,021
Net effect of dilutive stock options--
based on treasury stock method 48,887 33,770 48,403 27,948
------ ------ ------ ------
Total 19,292,244 13,224,500 17,975,528 13,161,969
========== ========== ========== ==========
Net income $8,169,605 $4,952,468 $14,507,959 $9,710,651
========== ========== =========== ==========
Per share amount $0.42 $0.37 $0.81 $0.74
===== ===== ===== =====
(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.