Exhibit 13
Annual Report to Shareholders
SELECTED FINANCIAL INFORMATION
The following table sets forth financial information for the Company which
is derived from the Consolidated Financial Statements of the Company (Dollars in
thousands, except per share data):
June 3, 1993
(commencement
of operations)
through
Year Ended December 31, December 31,
----------------------- ------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Statement of Income Data:
Total revenues $ 59,796 $ 38,574 $ 33,361 $ 24,226 $ 7,135
Interest expense $ 7,969 $ 7,344 $ 5,083 $ 1,116 $ 314
Net income $ 31,212 $ 19,732 $ 18,258 $ 15,716 $ 3,950
Net income per share - Basic $ 1.71 $ 1.52 $ 1.41 $ 1.33 $ 0.64
Net income per share - Diluted $ 1.68 $ 1.49 $ 1.41 $ 1.33 $ 0.63
Weighted average shares
outstanding - Basic 18,222,243 13,014,286 12,931,082 11,806,864 6,185,600
Weighted average shares
outstanding - Diluted 18,572,492 13,261,291 12,970,326 11,859,714 6,237,053
Balance Sheet Data (as of the end of the period):
Real estate properties, net $ 470,981 $ 416,034 $ 318,480 $ 280,767 $ 133,393
Total Assets $ 488,514 $ 427,505 $ 336,778 $ 283,190 $ 134,070
Notes and bonds payable $ 101,300 $ 168,618 $ 92,970 $ 40,375 $ 21,000
Total stockholders' equity $ 376,472 $ 245,964 $ 234,448 $ 236,340 $ 108,190
Other Data:
Funds from operations (1) $ 42,337 $ 28,036 $ 25,490 $ 20,919 $ 5,774
Funds from operations per share - $ 2.32 $ 2.15 $ 1.97 $ 1.77 $ 0.93
Basic (1)
Funds from operations per share - $ 2.28 $ 2.11 $ 1.97 $ 1.76 $ 0.93
Diluted (1)
Dividends declared and paid per $ 1.99 $ 1.91 $ 1.83 $ 1.75 $ 0.55
share
(1) See Note 11 to Consolidated Financial Statements.
(9)
OVERVIEW
The Company operates under the Internal Revenue Code of 1986, as amended
(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,
expand its asset base and increase revenue.
Since commencing operations in June, 1993, through December 31, 1997, the
Company has invested or committed to invest, directly and indirectly, over $525
million in 87 income-producing properties related to the delivery of healthcare
services, containing over 4.4 million square feet. The Company's portfolio is
comprised of seven facility types, located in 44 markets nationwide, and
operated pursuant to contractual arrangements with 18 healthcare providers. As
of December 31, 1997, the Company was managing 130 healthcare-related properties
nationwide totaling over 3.9 million square feet, and was providing third-party
asset management services for 251 properties nationwide, totaling over 1.3
million square feet.
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 the Company's healthcare real estate facilities generally ensure that
increased 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 provides 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
1997 Compared to 1996
For the year ended December 31, 1997, net income was $31.2 million, or
$1.71 per basic share of common stock ($1.68 per diluted share), on total
revenues of $59.8 million compared to net income of $19.7 million, or $1.52 per
basic share of common stock ($1.49 per diluted share), on total revenues of
$38.6 million, for the year ended December 31, 1996. Funds from operations
("FFO") was $42.3 million, or $2.32 per basic share ($2.28 per diluted share),
for the year ended December 31, 1997 compared to $28.0 million, or $2.15 per
basic share ($2.11 per diluted share), in 1996.
(Dollars in thousands)
1997 1996
---- ----
Revenues
Master lease rental income $ 40,298 $ 35,329
Property operating income 14,631 1,338
------ -----
Total rental income 54,929 36,667
Management fees 1,499 1,111
Interest and other income 3,368 796
----- ---
59,796 38,574
Expenses
General and administrative 3,807 2,233
Property operating expenses 5,008 269
Interest 7,969 7,344
Depreciation 11,468 8,652
Amortization 332 344
--- ---
28,584 18,842
Net Income $ 31,212 $ 19,732
========== ==========
(10)
Total revenues for the year ended December 31, 1997 compared to the year
ended December 31, 1996, increased $21.2 million or 55%. The increase is
primarily due to master lease rental income and property operating income from
18 properties acquired and two developments completed during the latter part of
the fourth quarter of 1996 and the year ended December 31, 1997, representing an
investment of approximately $102.3 million. Third party property management fees
for the year ended December 31, 1997, compared to the year ended December 31,
1996, increased $0.4 million or 35%, due to the net effect of adding third party
management contracts in Florida and Virginia and converting six master leased
properties (accounted for as third party management) to Company owned and
managed properties. Interest and other income for the year ended December 31,
1997 was $3.4 million compared to $0.8 million for the year ended December 31,
1996. During the first quarter of 1997, the Company completed a secondary
offering and maintained an average cash and short-term investment balance of
$26.1 million during the year ended December 31, 1997 compared to a $2.2 million
average cash balance during the year ended December 31, 1996.
Total expenses for the year ended December 31, 1997 were $28.6 million
compared to $18.8 million for the year ended December 31, 1996, an increase of
$9.8 million or 52%. General and administrative expenses increased $1.6 million,
primarily due to an increase in payroll associated with the large increase in
property management and other service based activities. Property operating
expenses for the year ended December 31, 1997 compared to the year ended
December 31, 1996. increased $4.7 million due to the conversion from master
leased or acquisition of 19 Company owned and managed properties during the
latter part of the fourth quarter of 1996 and the year ended December 31, 1997.
Interest expense for the year ended December 31, 1997 compared to the year ended
December 31, 1996 increased $0.6 million due to the net effect of a decrease in
average outstanding debt balance and a decrease in average construction in
progress, which reduced capitalized interest by approximately $1.4 million.
Depreciation expense increased $2.8 million due to the acquisition of 18
properties and completion of two properties discussed in the preceding
paragraph.
1996 Compared to 1995
For the year ended December 31, 1996, net income was $19.7 million, or
$1.52 per basic share and $1.49 per diluted share of common stock, on total
revenues of $38.6 million compared to net income of $18.3 million, or $1.41 per
basic and diluted share of common stock, on total revenues of $33.4 million, for
the year ended December 31, 1995. Funds from operations ("FFO") was $28.0
million, or $2.15 per basic share ($2.11 per diluted share), for the year ended
December 31, 1996 compared to $25.5 million, or $1.97 per basic and diluted
share, in 1995.
(Dollars in thousands)
1996 1995
---- ----
Revenues
Master lease rental income $ 35,329 $ 32,402
Property operating income 1,338 -
-----
Total rental income 36,667 32,402
Management fees 1,111 466
Interest and other income 796 493
--- ---
38,574 33,361
Expenses
General and administrative 2,233 2,143
Property operating expenses 269 -
Interest 7,344 5,083
Depreciation 8,652 7,693
Amortization 344 184
18,842 15,103
------ ------
Net Income $ 19,732 $ 18,258
========== ==========
(11)
Total revenues for the year ended December 31, 1996 compared to the year
ended December 31, 1995 increased $5.2 million or 15.6%. The increase was
primarily due to base rent derived from investment of approximately $45.4
million 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 $58.4 million in 14
acquisitions during 1996. Revenues during 1996 also reflect an increase of $0.6
million (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 $0.5 million for the year ended December 31,
1995 to $0.8 million for the year ended December 31, 1996 primarily due to the
short-term refinancing of approximately $30.8 million of mortgage notes for a
current healthcare client.
Total expenses for the year ended December 31, 1996 were $18.8 million
compared to $15.1 million for the year ended December 31, 1995, an increase of
$3.7 million or 24.8%. Depreciation expense increased $1.0 million 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 $90,000, primarily due to an increase in total
employees. Interest expense increased from $5.0 million for the year ended
December 31, 1995 to $7.3 million 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 $122.4 million compared to approximately $70.9
million in 1995. On September 18, 1995, the Company privately placed $90 million
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 $0.2 million for the year ended December 31,
1995 to $0.3 million for the year ended December 31, 1996 due to amortization of
acquired revenue-producing management contracts and other intangible assets.
Liquidity and Capital Resources
Effective December 26, 1996, the Company is a party to a $100.0 million
unsecured bank credit facility (the "Unsecured Credit Facility") with four
commercial banks having a maturity date of December 1999, with two one-year
extensions. Interest on borrowed funds pursuant to the Unsecured Credit Facility
is at LIBOR plus 1.125% or the base rate of NationsBank, N. A. 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. The Unsecured
Credit Facility contains certain representations, warranties and financial and
other covenants customary in such loan agreements. As of March 1, 1998, the
entire Unsecured Credit Facility in borrowing capacity is available to the
Company.
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
under the Unsecured Notes.
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 pertaining to $250.0 million of equity securities, debt
securities and warrants. The Company received $133.4 million in net proceeds,
which were used to repay indebtedness outstanding under the Unsecured Credit
Facility, fund the Company's acquisitions and developments and for general
corporate purposes.
In February, 1998, the Company participated in two unit investment trust
offerings and sold an aggregate of 1,224,026 shares of its common stock. The
Company received an aggregate of $33.3 million in net proceeds from these
transactions. The proceeds of these unit investment trust offerings were applied
to fully pay the outstanding borrowings under the Unsecured Credit Facility,
leaving approximately $10.0 million for acquisitions, development and general
corporate uses. As of March 1, 1998, the Company had stockholders' equity of
$405.5 million. The debt to total capitalization ratio was approximately 18.2%
at March 1, 1998.
As of March 1, 1998, the Company can issue an aggregate of approximately
$108.0 million 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 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.
(12)
The Company generated net cash from operations in 1997 of $40.4 million, an
increase of $10.9 million over 1996 and $13.7 million over 1995. The funds were
used in 1997, along with proceeds from the secondary offering, to pay dividends
to stockholders of $35.8 million, to make additional investments in
income-producing assets and real estate properties totaling approximately $66.5
million and to repay net long-term indebtedness of $67.3 million.
At December 31, 1997, the Company, in the normal course of business, had
received a fully executed contract to purchase four properties for approximately
$7.4 million. In addition, as of December 31, 1997, the Company had a net
investment of approximately $19.2 million for three lessee developments and one
expansion of an existing property in progress with a total remaining funding
commitment of approximately $19.3 million. The Company intends to fund these
commitments with the funds available from the operations and proceeds from the
Unsecured Credit Facility.
Under the terms of the leases and other financial support agreements
relating to the properties, tenants or healthcare providers are generally
responsible for increases in 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 material increase in 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 or develops. After the term of the lease or financial
support agreement, or in the event the financial obligations required by the
agreements 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 27, 1998, the Company declared an increase in its quarterly
dividend from $0.505 per share ($2.02 annualized) to $0.51 per share ($2.04
annualized) payable to stockholders of record on February 4, 1998. This dividend
was paid on February 17, 1998. 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 1998 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 1998, should access to new capital not be available to the Company.
Business Outlook
A significant challenge facing the Company is the expansion of the REIT
industry. REITs have had increasing access to the capital markets, resulting in
an acceleration in growth of the number of REITs and the amount of funds REITs
have available for investment. A REIT is required to make dividend distributions
and retains little capital for growth; therefore, it is required to grow through
the steady investment of new capital in real estate assets. The expansion of
available capital to the REIT industry has resulted in significant investment
pressure, with the consequence that many transactions undertaken by competitors
of the Company do not meet the standards that it requires of its investments, in
terms of the present and future internal rate of return, credit and financial
support, weighted average cost of capital and real estate investment
fundamentals. The Company intends to adhere to its established standards and
anticipates that it will be able to maintain steady conservative growth through
the acquisition of quality real estate investments; however, the increased
competition for such assets from other REITs and traditional and non-traditional
equity and debt capital sources may affect the growth of the Company and its
financial return in a manner and to a degree that the Company cannot, at this
time, predict.
The healthcare service industry continues to be a profitable, growing
segment of the economy, supported by fundamentals that ensure continued growth.
The industry is undergoing substantial changes in the method of delivery of
healthcare services, rising competition among healthcare providers for patients,
continuing pressure by private and governmental payors and increased scrutiny by
federal and state authorities. These changes create uncertainties which can
present the Company with the opportunity to assist in providing solutions to the
issues created by these changes; however, the economic performance of some or
all of the providers who provide financial support, as tenants and sponsors, to
the Company's investments can be affected. The degree to which these changes may
affect the economic performance of the Company, positively or negatively, cannot
be predicted at this time.
The Company is engaged on its own behalf, and for the benefit of
third-party property owners, in asset and property management, day-to-day
property management and leasing of multi-tenanted healthcare properties and
supervision of the development of new
(13)
healthcare properties. The Company has experienced net gains in both the number
of, and square footage subject to, its service engagements. The terms of these
engagements can vary in duration from 15 years to month-to-month. Additionally,
engagements are regularly terminated as a result of completion of the engagement
assignment or as a result of the sale of managed properties by the Company or
third-party owners. Termination of engagements must be charged against current
revenues or established reserves. The Company is also subject to significant
uncertainties because of the dynamic nature of the healthcare service industry,
and increased competition from other real estate management companies entering
the healthcare services industry. The degree to which these uncertainties may
affect the economic performance of the Company cannot be predicted at this time.
Impact of Inflation
During the past three years, inflation has not significantly affected the
earnings of the Company because of the moderate inflation rate and the fact that
most of the Company's leases and financial support arrangements require tenants
and sponsors to pay all or some portion of the increases in operating expenses,
thereby reducing the risk of any adverse effects of inflation to the Company. In
addition, inflation will have the effect of increasing the gross revenue the
Company is to receive under the terms of the leases and financial support
arrangements. Leases and financial support arrangements vary in the remaining
terms of obligations from three to 20 years, further reducing the risk of any
adverse effects of inflation to the Company. The Unsecured Credit Facility bears
interest at a variable rate; therefore, the amount of interest payable under the
Unsecured Credit Facility will be influenced by changes in short-term rates,
which tend to be sensitive to inflation.
Real Estate Investment Trust Tax Proposals
On February 2, 1998, the Clinton Administration released proposals for
changes in tax rules governing the operations of REITs. If enacted, the
proposals would among other items, limit the Company's future ability to engage
indirectly in certain business activities that cannot be conducted directly by
the Company and tax the built-in gains of C corporations prospectively electing
tax-free reorganizations, thus affecting the acquisition format employed by the
Company in the past. There is no way to predict the outcome of these proposals
or the eventual economic effect of these proposals on the Company if these
proposals are enacted.
Year 2000
Some of the Company's older computer programs were written using two digits
rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The bulk of the software
employed by the Company is commercially developed applications which are year
2000 compliant. Replacement software represents upgrades that would have been
undertaken by the Company in the ordinary course of events; and, all of the
Company's software is expected to be year 2000 compliant not later than December
31, 1998. The cost of becoming year 2000 compliant is not expected to be
material to the Company.
Forward-Looking Statements
This annual report to shareholders of the Company includes forward-looking
statements, including, without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar nature, within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. For a more
detailed discussion of these factors, see Item 1 of the Company's Form 10-K for
the fiscal year ended December 31, 1997.
(14)
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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Nashville, Tennessee
January 30, 1998, except for the
2nd paragraph of Note 13, as to
which the date is February 27, 1998.
(15)
Consolidated Balance Sheets December 31,
1997 1996
---- ----
(Dollars in Thousands)
Assets
Real estate properties:
Land $ 58,424 $ 53,028
Buildings and improvements 423,618 369,188
Personal property 4,492 3,099
Construction in progress 19,165 13,863
------ ------
505,699 439,178
Less accumulated depreciation (34,718) (23,144)
------- -------
Total real estate properties, net 470,981 416,034
Cash and cash equivalents 5,325 1,354
Other assets, net 12,208 10,117
------ ------
Total assets $ 488,514 $ 427,505
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Notes and bonds payable $ 101,300 $ 168,619
Accounts payable and accrued liabilities 6,879 8,197
Other liabilities 3,863 4,725
----- -----
Total liabilities 112,042 181,541
------- -------
Commitments - -
Stockholders'equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized;
none outstanding - -
Common stock, $.01 par value; 150,000,000 shares authorized;
issued and outstanding, 1997 - 19,285,927; 1996 - 13,898,777 193 139
Additional paid-in capital 402,607 264,614
Deferred compensation (7,689) (4,702)
Cumulative net income 88,867 57,655
Cumulative dividends (107,506) (71,742)
-------- -------
Total stockholders'equity 376,472 245,964
------- -------
Total liabilities and stockholders'equity $ 488,514 $ 427,505
=========== ==========
See accompanying notes.
(16)
Consolidated Statements of Income
Year Ended December 31,
(Dollars in thousands, except per share data) 1997 1996 1995
- --------------------------------------------- ---- ---- ----
Revenues
Master lease rental income $ 40,298 $ 35,329 $ 32,402
Property operating income 14,631 1,338 -
Management fees 1,499 1,111 466
Interest and other income 3,368 796 493
----- --- ---
59,796 38,574 33,361
------ ------ ------
Expenses
General and administrative 3,807 2,233 2,143
Property operating expenses 5,008 269 -
Interest 7,969 7,344 5,083
Depreciation 11,468 8,652 7,693
Amortization 332 344 184
--- --- ---
28,584 18,842 15,103
------ ------ ------
Net income $ 31,212 $ 19,732 $ 18,258
============ ============ ============
Net income per share - Basic $ 1.71 $ 1.52 $ 1.41
============ ============ ============
Net income per share - Diluted $ 1.68 $ 1.49 $ 1.41
============ ============ ============
Shares outstanding - Basic 18,222,243 13,014,286 12,931,082
========== ========== ==========
Shares outstanding - Diluted 18,572,492 13,261,291 12,970,326
========== ========== ==========
See accompanying notes.
(17)
Consolidated Statements of Stockholder' Equity
Additional Cumulative Total
(Dollars in thousands, Common Stock Paid-In Deferred Net Cumulative Stockholders'
except per share data) Shares Amount Capital Compensation Income Dividends Equity
- ---------------------- ------ ------ ------- ------------ ------ --------- ------
Balance at December 31, 1994 12,803,397 $ 128 $ 239,961 $ (595) $ 19,665 $ (22,819) $ 236,340
Issuance of stock 172,349 2 3,436 - - - 3,438
Shares awarded as deferred
stock compensation 1,050 - 22 (22) - - -
Deferred stock compensation
amortization - - - 139 - - 139
Net income - - - - 18,258 - 18,258
Dividends ($1.83 per share) - - - - - (23,727) (23,727)
Balance at December 31, 1995 12,976,796 130 243,419 (478) 37,923 (46,546) 234,448
Issuance of stock 707,952 7 16,396 - - - 16,403
Shares awarded as deferred
stock compensation 203,897 2 4,611 (4,613) - - -
Deferred stock compensation
amortization - - - 389 - - 389
Employee stock purchase plan 10,132 - 188 - - - 188
Net income - - - - 19,732 - 19,732
Dividends ($1.91 per share) - - - - - (25,196) (25,196)
Balance at December 31, 1996 13,898,777 139 264,614 (4,702) 57,655 (71,742) 245,964
Issuance of stock 5,195,130 52 133,322 - - - 133,374
Shares awarded as deferred
stock compensation 143,716 2 3,880 (3,882) - - -
Shares issued from warrants 7,673 - - - - - -
Deferred stock compensation
amortization - - - 895 - - 895
Employee stock purchase plan 40,631 - 791 - - - 791
Net income - - - - 31,212 - 31,212
Dividends ($1.99 per share) - - - - - (35,764) (35,764)
Balance at December 31, 1997 19,285,927 $ 193 $ 402,607 $ (7,689) $ 88,867 $ (107,506) $ 376,472
========== ======= ========= ========= ======== ========== =========
See accompanying notes.
(18)
Consolidated Statements of Cash Flows
Year Ended December 31,
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
Operating Activities
Net income $ 31,212 $ 19,732 $ 18,258
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 12,073 9,017 8,124
Gain on sale of property - - (220)
Deferred compensation 672 377 1
Increase (decrease) in deferred income 114 (29) 314
Increase in other assets (2,346) (933) (921)
Increase (decrease) in accounts payable
and accrued liabilities (1,318) 1,391 1,181
------ ----- -----
Net cash provided by operating activities 40,407 29,555 26,737
------ ------ ------
Investing Activities
Acquisition and development of real estate properties (66,521) (63,069) (50,417)
Proceeds from sale of real estate - - 4,800
Receipt (disbursement) of security deposits (976) (390) (258)
---- ---- ----
Net cash used in investing activities (67,497) (63,459) (45,875)
------- ------- -------
Financing Activities
Borrowings on notes and bonds payable 35,300 101,899 121,700
Repayments on notes and bonds payable (102,618) (50,903) (69,105)
Deferred financing and organization costs paid (22) (169) (1,245)
Dividends paid (35,764) (25,196) (23,727)
Proceeds from issuance of common stock 134,165 484 161
------- --- ---
Net cash provided by financing activities 31,061 26,115 27,784
------ ------ ------
Increase (decrease) in cash and cash equivalents 3,971 (7,789) 8,646
----- ------ -----
Cash and cash equivalents, beginning of period 1,354 9,143 497
----- ----- ---
Cash and cash equivalents, end of period $ 5,325 $ 1,354 $ 9,143
========== ========= =========
See accompanying notes.
(19)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company invests 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, 1997, the Company had invested or
committed to invest in 87 properties (the "Properties") located in 44 markets in
14 states, affiliated with 18 healthcare-related entities.
Basis of Presentation
The audited financial statements include the accounts of the Company, its
wholly owned subsidiaries and certain other affiliated corporations 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 $1.5 million and $1.1 million at
December 31, 1997 and 1996, respectively.
Revenue Recognition
Rental income is recognized as earned over the life of the lease agreements
on a straight-line basis. 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.
(20)
Net Income Per Share
Earnings per share have been restated for Financial Accounting Standards
Board Statement No. 128, Earnings per Share ("FAS 128") and the Securities and
Exchange Commission Staff Accounting Bulletin No. 98 ("SAB 98").
Basic earnings per share is calculated using weighted average shares
outstanding less issued and outstanding but unvested restricted shares of Common
Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of restricted shares of Common Stock and
outstanding stock options, using the treasury stock method and the average stock
price during the period.
2. REAL ESTATE PROPERTY LEASES
The Company's properties are generally leased pursuant to noncancelable,
fixed-term operating leases with expiration dates from 1998 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, 1997 were (in thousands):
1997 1996 1995
---- ---- ----
Columbia/HCA Healthcare Corporation $ 13,297 $ 11,539 $ 11,048
Tenet Healthcare 13,899 8,761 8,217
Phycor 8,218 2,160 1106
Future minimum lease and guaranty payments under the noncancelable
operating leases as of December 31, 1997 are as follows (in thousands):
1998 $ 60,399
1999 53,971
2000 54,279
2001 53,803
2002 52,364
2003 and thereafter 303,203
-------
$ 578,019
==========
(21)
3. REAL ESTATE PROPERTIES
The following table summarizes the Company's real estate properties by type
of facility and by state as of December 31, 1997 (dollars in thousands).
Buildings and
Number of Improvements Personal Accumulated
Facilities (1) Land and CIP Property Total Depreciation
---------- ---- ------- -------- ----- ------------
Ancillary hospital facilities:
Arizona 1 308 4,966 0 5,274 716
California 8 15,169 46,116 39 61,324 3,327
Florida 8 577 44,757 0 45,334 3,567
Georgia 5 1,965 34,606 38 36,609 2,767
Kansas 1 0 10,091 0 10,091 268
Tennessee 2 3,581 5,583 0 9,164 252
Texas 11 7,102 54,147 260 61,509 5,975
Virginia 6 4,285 47,663 0 51,948 2,599
- ----- ------ - ------ -----
42 32,987 247,929 337 281,253 19,471
Ambulatory surgery centers:
California 1 209 829 8 1,046 125
Nevada 1 940 2,860 0 3,800 254
Texas 1 510 1,514 15 2,039 228
- --- ----- -- ----- ---
3 1,659 5,203 23 6,885 607
Comprehensive ambulatory care:
Florida 2 4,136 15,218 0 19,354 375
Texas 2 1,643 19,890 60 21,593 2,160
- ----- ------ -- ------ -----
4 5,779 35,108 60 40,947 2,535
Clinical laboratories:
Alabama 1 181 8,601 8 8,790 1,245
Mississippi 1 538 3,718 30 4,286 419
- --- ----- -- ----- ---
2 719 12,319 38 13,076 1,664
Long-term care facilities:
Arizona 1 267 2,607 0 2,874 55
California 1 1,362 11,326 0 12,688 980
Colorado 3 1,984 20,850 0 22,834 518
Florida 1 1,350 8,856 0 10,206 311
Indiana 1 96 3,512 32 3,640 527
Kansas 1 1,013 6,579 0 7,592 171
Michigan 5 193 12,134 183 12,510 1,694
Tennessee 3 228 12,814 0 13,042 121
Texas 2 1,881 17,670 0 19,551 434
- ----- ------ - ------ ---
18 8,374 96,348 215 104,937 4,811
Medical office buildings:
Texas 1 166 1,810 0 1,976 156
Virginia 4 1,927 11,774 127 13,828 631
- ----- ------ --- ------ ---
5 2,093 13,584 127 15,804 787
Physician clinics:
Florida 3 3,559 15,514 51 19,124 1,857
Georgia 1 586 2,087 0 2,673 203
Texas 2 1,654 10,931 385 12,970 1,478
California 1 393 332 0 725 22
Virginia 6 621 2,977 0 3,598 89
- --- ----- - ----- --
13 6,813 31,841 436 39,090 3,649
-- ----- ------ --- ------ -----
Corporate property 0 0 3,256 3,256 1,194
Third Party Developments 0 451 0 451 0
- --- - --- -
Total property 87 58,424 442,783 4,492 505,699 34,718
== ====== ======= ===== ======= ======
(1) Includes three lessee developments.
(22)
4. NOTES AND BONDS PAYABLE
Notes and bonds payable at December 31, 1997 and 1996 consisted of the
following (in thousands):
December 31,
1997 1996
---- ----
Unsecured notes $ 90,000 $ 90,000
Unsecured credit facility 11,300 71,900
Serial and term bonds payable - 6,719
-----
$ 101,300 $ 168,619
=========== ===========
Unsecured Notes
On September 18, 1995, the Company privately placed $90.0 million 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 $18.0 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 one of the banks' base rate or LIBOR plus 1.125%. In
addition, the Company pays a commitment fee of .225 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, 1997, the Company had available borrowing capacity of $88.7
million under the Unsecured Credit Facility.
Serial and Term Bonds Payable
In conjunction with the acquisition of certain facilities, the Company
assumed serial and term bonds payable, totaling $7.2 million. These bonds
payable were repaid or defeased during 1996 and 1997. The Company placed funds
in an irrevocable trust to defease $2.9 million of serial and term bonds, which
paid interest semi-annually at interest rates ranging from 6.9% to 8.1%. The
resulting loss from the defeasance was not material.
Other Long-Term Debt Information
During the years ended December 31, 1997, 1996 and 1995, interest paid
totaled $9.0 million, $8.4 million and $3.9 million, and capitalized interest
totaled $0.7 million, $2.2 million and $0.9 million, respectively.
5. NON-CASH ACQUISITIONS OF REAL ESTATE
During November 1996, the Company acquired ten properties, 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 $0.5 million in acquisition costs. In addition to the properties,
representing an aggregate investment of $44.1 million, the Company acquired $0.2
million of other assets. The Company has repaid the notes and bonds payable
assumed in the acquisition.
6. SECONDARY OFFERING
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 $250.0 million of
equity securities, debt securities and warrants. The Company received $133.4
million in net proceeds. Promptly thereafter, the net proceeds were used, in
part, to extinguish all $71.9 million of indebtedness outstanding under the
Unsecured Credit Facility, and to repay or defease secured indebtedness in the
total amount of $6.7 million. Remaining proceeds of the Secondary Offering of
approximately $57.2 million have been invested in additional property
acquisitions, build-to-suit property development and for general corporate
purposes.
(23)
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 certain other retirement benefits
received by the executive.
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.
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, 1997 is comprised of the following (in thousands):
1997 1996 1995
---- ---- ----
Service cost $ 218 $ 201 $ 368
Interest cost 73 59 40
Other (10) (21) (219)
--- --- ----
$ 281 $ 239 $ 189
======== ======= =======
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,
1997 and 1996 (in thousands).
1997 1996
---- ----
Actuarial present value of benefit obligations:
Vested $ - $ -
Accumulated $ 997 $ 620
========= ========
Actual present value of projected benefit
obligations for services rendered to date $ 1,213 744
Unrecognized net gain 90 278
-- ---
Net pension liability in accrued liabilities $ 1,303 $ 1,022
========= ========
Accounting for the Executive Retirement Plan for the years ended December
31, 1997 and 1996 assumes discount rates of 7.6% and 8.5%, respectively, and
compensation increase rates of 2.7% and 2.7%, respectively. Accounting for the
Retirement Plan for Outside Directors assumes discount rates of 7.6% and 9%,
respectively.
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, 1997
and 1996, the Company had a total of 1,073,735 and 812,364 Employee Plan Shares
authorized, respectively, that had not been issued. Unless terminated earlier,
the Employee Plan will terminate on January 1, 2003. As of December 31, 1997 and
1996, the Company had issued a total of 372,710 and 230,044, and had
specifically reserved, but not issued, a total of 141,668 and 283,334 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
(24)
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. For 1997 and 1996,
compensation expense resulting from the amortization of the value of these
shares was $0.6 million and $0.3 million, respectively.
Non-Employee Directors' Stock Plans
Prior to May 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"). During 1996 the Company
canceled all unexercised options granted pursuant to the 1993 Director Plan.
Effective May 1995, the Company enacted the 1995 Restricted Stock Plan for
Non-Employee Directors (the "1995 Directors' Plan"). 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 Director's service, at
no cost to the Company. As of December 31, 1997 and 1996, the Company had a
total of 96,850 and 97,900 shares under the 1995 Directors' Plan authorized,
respectively, that had not been issued. As of December 31, 1997 and 1996, the
Company had issued a total of 12,423 and 11,373 shares, respectively, pursuant
to the Non-Employee Directors' Stock Plans. For 1997 and 1996, compensation
expense resulting from the amortization of the value of these shares was $79,345
and $70,672 respectively.
1995 Employee Stock Purchase Plan
Effective May 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, 1997 and 1996, the Company had a total of 883,664 and
918,795 shares authorized under the Employee Purchase Plan, respectively, that
had not been issued or optioned. Under the Employee Purchase Plan, each eligible
employee as of May 1995 and each subsequent January 1 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 date of grant 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 date of grant.
The number of shares subject to each year's option becomes fixed on the date of
grant. Eligible employees include those employees who were employed by the
Company or a subsidiary on a full-time basis as of May 1995 and those employees
with six months of service who are so employed by the Company or subsidiary as
of each subsequent January 1. Options granted under the Employee Purchase Plan
expire if not exercised 27 months after each such option's date of grant.
A summary of Employee Purchase Plan activity and related information for
the years ended December 31 is as follows:
Options
1997 1996 1995
---- ---- ----
Outstanding, beginning of year 71,073 47,268 -
Granted 69,930 47,564 47,268
Exercised (40,631) (10,132) -
Forfeited (23,723) (13,627) -
Expired (11,076) - -
-------
Outstanding and exercisable at end of year 65,573 71,073 47,268
Weighted-average fair value of
options granted during the year
(calculated as of the grant date) $ 3.12 $ 2.70 $ 2.56
Weighted-average exercise price of
options exercised during the year $ 19.48 $ 18.59 -
Weighted-average exercise price of
options outstanding (calculated as
of December 31) $ 21.58 $ 19.09 $ 18.46
Range of exercise prices of options
outstanding (calculated as of December 31) $19.71- $22.47 $18.46-$19.71 $ 18.46
Weighted-average contractual life of
outstanding options (calculated as of
December 31, in years) 0.9 0.9 1.6
(25)
The fair value for these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following assumptions for 1997,
1996 and 1995; risk-free interest rates of 6.00%, 6.30% and 6.30%; a dividend
yield of 8.02%, 8.60% and 8.90%; a volatility factor of the expected market
price of the Company's Common Stock of .096, .121 and .121; and an expected life
of the option of 1.13 years, respectively. The Company has determined that the
pro forma effect on net income and earnings per share for the three years in the
period ended December 31, 1997 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, 1997 and 1996,
the Company had a total of 162,712and 188,712 shares, respectively, eligible for
purchase pursuant to the Warrants. As of December 31, 1997 and 1996, the Company
had issued a total of 7,673 and zero shares, respectively, and had cancelled
18,327 and zero shares, respectively, pursuant to the Warrants.
At December 31, 1997 and 1996, the Company had reserved 2,216,961 and
2,017,771 shares, respectively, for future issuance.
9. NET INCOME PER SHARE
The table below sets forth the computation of basic and diluted earnings
per share as required by FASB Statement No. 128 for the three years in the
period ended December 31, 1997.
Year Year Year
Ended Ended Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
------------- ------------- -------------
Basic EPS
- ---------
Average Shares Outstanding 18,605,876 13,254,233 12,967,132
Actual Restricted Stock Shares (383,633) (239,947) (36,050)
-------- -------- -------
Denominator 18,222,243 13,014,286 12,931,082
========== ========== ==========
Numerator $31,212,289 $19,731,623 $18,257,616
=========== =========== ===========
Per share amount $1.71 $1.52 $1.41
===== ===== =====
Diluted EPS
- -----------
Denominator for Basic EPS 18,222,243 13,014,286 12,931,082
Restricted Shares - Treasury 276,890 205,097 23,772
Dilution For Employee Stock Purchase Plan 25,032 13,981 2,447
Dilution For Warrants 48,327 27,927 13,025
------ ------ ------
Denominator 18,572,492 13,261,291 12,970,326
========== ========== ==========
Numerator $31,212,289 $19,731,623 $18,257,616
=========== =========== ===========
Per share amount $1.68 $1.49 $1.41
===== ===== =====
10. COMMITMENTS
At December 31, 1997, the Company, in the normal course of business, had
received a fully executed letter of intent to purchase 4 properties for
approximately $7.4 million. In addition, as of December 31, 1997, the Company
had a net investment of approximately $19.2 million for three lessee
developments and one expansion of an existing property in progress with a total
remaining funding commitment of approximately $19.3 million.
(26)
11. OTHER DATA
Funds From Operations (Unaudited)
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.
(Dollars in thousands)
Year Ended Dec. 31, 1997 Year Ended Dec. 31, 1996
(Unaudited) (Unaudited)
NAREIT NAREIT
White Paper Previous White Paper Previous
As Reported Methodology As Reported Methodology
----------- ----------- ----------- -----------
Net Income (1) $31,212 $31,212 $19,732 $19,732
Non-recurring items (4) 112 112 - -
Gain or loss on dispositions - - - -
Straight line rents - - - -
ADD:
Depreciation
Real estate 11,013 11,012 8,304 8,305
Office F,F&E 0 255 0 168
Leasehold improvements 0 120 0 140
Other non-revenue producing assets 0 82 0 38
- -- - --
11,013 11,469 8,304 8,651
------ ------ ----- -----
Amortization
Acquired property contracts (2) 0 194 0 338
Other non-revenue producing assets 0 131 0 0
Organization costs 0 7 0 7
- - - -
0 332 0 345
- --- - ---
Deferred financing costs (3) 0 273 0 359,744
-- - --- - -------
Total Adjustments 11,125 12,186 8,304 9,356
------ ------ ----- -----
Funds From Operations $42,337 $43,398 $28,036 $29,088
======= ======= ======= =======
Shares Outstanding - Basic 18,222,243 18,222,243 13,014,286 13,014,286
========== ========== ========== ==========
Shares Outstanding - Diluted 18,572,492 18,572,492 13,261,291 13,261,291
========== ========== ========== ==========
Funds From Operations Per Share - Basic $2.32 $2.38 $2.15 $2.24
===== ===== ===== =====
Funds From Operations Per Share - Diluted $2.28 $2.34 $2.11 $2.19
===== ===== ===== =====
(1) 1997 and 1996 amounts include $0.6 million and $0.4 million,
respectively, 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.
(4) Represents a loss from a debt restructuring.
(27)
Return of Capital
Distributions in excess of earnings and profits generally constitute a
return of capital. For the years ended December 31, 1997, 1996 and 1995,
dividends paid per share were $1.99, $1.91 and $1.83, respectively, which
consisted of ordinary income per share of $1.72, $1.65 and $1.42 and return of
capital per share of $0.27, $.26 and $.41, respectively.
12. 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.
13. SUBSEQUENT EVENTS
On January, 1998, the Company declared an increase in its quarterly
dividend from $.505 per share ($2.02 annualized) to $.51 per share ($2.04
annualized) payable on February 16, 1998 to shareholders of record on February
4, 1998.
In February 1998, the Company participated in two unit investment trust
offerings and sold an aggregate of 1,224,026 shares of its common stock. The
Company received an aggregate of $33.3 million in net proceeds from these
transactions. The proceeds of these unit investment trust offerings were applied
to fully pay the outstanding borrowings under the Unsecured Credit Facility,
leaving approximately $10.0 million for acquisitions, development and general
corporate uses.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 1997 and
1996 is summarized below:
Quarter Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In thousands, except per share data)
1997
Total revenue $ 12,842 $ 14,265 $ 15,865 $ 16,824
Net income $ 6,339 $ 8,170 $ 8,328 $ 8,375
Funds from operations $ 9,056 $ 10,873 $ 11,122 $ 11,286
Net income per share - Basic $ 0.39 $ 0.43 $ 0.44 $ 0.44
Net income per share - Diluted $ 0.38 $ 0.42 $ 0.43 $ 0.44
Funds from operations per share - Basic $ 0.56 $ 0.58 $ 0.59 $ 0.6
Funds from operations per share - Diluted $ 0.55 $ 0.57 $ 0.58 $ 0.59
1996
Total revenue $ 8,983 $ 9,136 $ 9,509 $ 10,946
Net income $ 4,758 $ 4,952 $ 4,914 $ 5,108
Funds from operations $ 6,736 $ 6,930 $ 6,937 $ 7,434
Net income per share - Basic $ 0.37 $ 0.38 $ 0.38 $ 0.38
Net income per share - Diluted $ 0.36 $ 0.38 $ 0.37 $ 0.38
Funds from operations per share - Basic $ 0.52 $ 0.54 $ 0.54 $ 0.56
Funds from operations per share - Diluted $ 0.51 $ 0.52 $ 0.53 $ 0.55
(28)
Common Stock
Healthcare Realty Trust Incorporated common stock is traded on The New York
Stock Exchange under the symbol HR. As of March 11, 1998, there were
approximately 1,109 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.
High Low
---- ---
1997
First Quarter $ 29.125 $ 26.000
Second Quarter 27.875 25.500
Third Quarter 29.000 27.375
Fourth Quarter 29.875 27.813
1996
First Quarter $ 23.125 $ 20.875
Second Quarter 23.750 21.500
Third Quarter 24.125 21.500
Fourth Quarter 26.875 23.000
1995
First Quarter $ 21.000 $ 19.000
Second Quarter 20.500 18.500
Third Quarter 20.750 19.375
Fourth Quarter 23.000 20.000
1994
First Quarter $ 22.500 $ 19.375
Second Quarter 21.375 19.500
Third Quarter 22.125 19.875
Fourth Quarter 21.125 19.375
Annual Shareholders Meeting The annual meeting of shareholders will be held
on May 11, 1998, at 10:00 a.m. at the Cumberland Club, 511 Union Street,
Nashville, Tennessee.
(30)