UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
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15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number: 1-11852
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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 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common stock, $.01 par value per share New York Stock Exchange
87/8% Series A Voting Cumulative Preferred
Stock, $.01 par value per share New York Stock Exchange
101/2% Convertible Subordinated Debentures due 2002 New York Stock Exchange
6.55% Convertible Subordinated Debentures due 2002 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
======
The aggregate market value of the shares of Common Stock and Preferred
Stock (based upon the closing prices of these shares on the New York Stock
Exchange, Inc. on March 11, 1999) of the Registrant held by non-affiliates on
March 11, 1999, were approximately $769,544,429 and $57,750,000, respectively.
As of March 11, 1999, 39,806,032 shares of the Registrant's Common
Stock and 3,000,000 shares of the Registrant's Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into
which the document is incorporated:
Portions of the Registrant's 1998 Annual Report to Shareholders are
incorporated into Part II of this Report.
Portions of the Registrant's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 11, 1999 are incorporated into
Part III of this Report.
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TABLE OF CONTENTS
Page
Item 1. Business..................................................................................................4
The Company.......................................................................................4
Property Acquisition Activity.....................................................................6
Continuing Property Development Activity..........................................................6
Mortgage Portfolio................................................................................6
Investment Policy.................................................................................7
Competition.......................................................................................8
Government Regulation.............................................................................9
Environmental Matters............................................................................10
Insurance........................................................................................11
Employees........................................................................................11
Federal Income Tax Information...................................................................11
ERISA Considerations.............................................................................23
Cautionary Statements............................................................................25
Item 2. Properties...............................................................................................30
Executive Offices................................................................................30
Property Operations..............................................................................30
Item 3. Legal Proceedings........................................................................................35
Item 4. Submission of Matters to a Vote of Securityholders.......................................................35
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................36
Item 6. Selected Financial Data..................................................................................36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............................................36
Item 8. Financial Statements and Supplementary Data..............................................................36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................36
Item 10. Directors and Executive Officers of the Registrant......................................................37
Directors........................................................................................37
Executive Officers...............................................................................37
Item 11. Executive Compensation..................................................................................37
Item 12. Security Ownership of Certain Beneficial Owners and Management..........................................37
Item 13. Certain Relationships and Related Transactions..........................................................38
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................39
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PART I
Item 1. Business
The Company
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Healthcare Realty Trust Incorporated ("Healthcare Realty" or the
"Company") is a self-managed and self-administered real estate investment trust
("REIT") that integrates owning, acquiring, managing and developing
income-producing real estate properties and mortgages associated with the
delivery of healthcare services throughout the United States.
On October 15, 1998, Healthcare Realty completed its acquisition of
Capstone Capital Corporation, a Maryland corporation ("Capstone"), through the
merger of HR Acquisition I Corporation, a wholly owned subsidiary of the
Company, into Capstone. The acquisition is accounted for as a tax-free
reorganization for federal income tax purposes and as a purchase for financial
reporting purposes. The following table sets forth the assets acquired in the
transaction:
Property Type No. of Facilities Amount Invested (Millions)
Ancillary Hospital Facilities 19 $215.3
Assisted Living Facilities 35 174.8
Physician Clinics 18 106.4
Inpatient Rehabilitation Facilities 6 93.0
Comprehensive Ambulatory Care Centers 12 79.9
Skilled Nursing Facilities 11 74.2
Ambulatory Surgery Centers 6 34.6
Other Facilities 4 26.0
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TOTAL 111 $804.2
The Company also acquired $211.6 million in mortgage notes receivable, secured
by mortgages on 45 assisted living facilities, 25 senior nursing facilities and
5 other facility types.
From the commencement of its operations in June 1993 through January
31, 1999, the Company has invested or committed to invest, directly and
indirectly, over $1.7 billion in 280 income-producing real estate properties and
mortgages associated with the delivery of healthcare services. As of December
31, 1998, the Company's real estate portfolio, containing over 9.4 million
square feet, was comprised of nine facility types and was operated pursuant to
contractual arrangements with 35 healthcare providers. Also, the Company's
mortgage portfolio was comprised of four facility types and was operated by 34
healthcare providers. At December 31, 1998, the Company provided property
management services for 322 healthcare-related properties nationwide, totaling
over 7.5 million square feet, and third-party asset management services for 305
properties nationwide, totaling over 1.6 million square feet. The Company
intends to maintain a portfolio of properties that are focused predominantly on
the outpatient services segment of the healthcare industry and are diversified
by tenant, geographic location and facility type.
Healthcare Realty believes that it has a competitive advantage in the
healthcare real estate industry as a result of its use of innovative transaction
structures, the strength of its management expertise and its extensive
experience and client relationships with healthcare providers. Management
believes that the Company is the largest fully integrated real estate company
focused on income-producing real estate properties related to the delivery of
healthcare services. The Company believes that its experience and client
relationships with a diverse group of healthcare providers and its access to the
various capital markets make it one of a limited number of companies that can
acquire, manage and develop income-producing real estate related to healthcare
services on a national scale. Unlike other healthcare REITs, the Company seeks
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to generate internal growth by actively managing the properties within its
portfolio and by controlling and minimizing operating expenses with respect to
its properties, and providing management services for properties owned by
healthcare provider clients.
Healthcare Realty's strategy is to be a full service provider of
integrated real estate solutions to quality healthcare providers. Consistent
with this strategy, the Company seeks to provide a spectrum of services needed
to own, acquire, manage and develop healthcare properties, including leasing,
development, management, market research, budgeting, accounting, collection,
construction management, tenant coordination and financial services. The
Company's development activities are primarily accomplished through pre-leased
build-to-suit projects.
Healthcare Realty was formed as an independent, unaffiliated healthcare
REIT. The Company acquires income-producing real estate properties associated
with a diverse group of quality healthcare provider clients in markets where the
respective healthcare provider maintains a strong presence. Management believes
that because the Company is not affiliated with any of its clients and does not
expect to be affiliated with potential clients, the Company has a strategic
advantage in providing its services to a more diverse group of healthcare
providers.
Management believes that diversification among clients reduces the
Company's potential exposure to unsuccessful healthcare service strategies and
to a concentration of credit with any one healthcare provider. Approximately
76.0% of the Company's real estate investments, at cost, are in properties
associated with publicly-traded companies or private companies with an
investment grade credit rating. The following table sets forth the Company's
five largest healthcare provider clients:
Client Percent of Investments
HealthSouth Corporation 19.1%
Columbia/HCA Healthcare Corporation 14.7%
Tenet Healthcare Corporation 10.2%
MedPartners, Inc. 8.1%
Life Care Centers of America 5.4%
Healthcare Realty focuses predominantly on outpatient healthcare
facilities, which are designed to provide medical services outside of
traditional inpatient hospital or nursing home settings. Management believes the
outpatient services segment of healthcare provides the most cost-effective
delivery setting and, because of increasing cost pressures, this segment of the
healthcare related real estate market offers the greatest potential for future
growth.
The Company acquires existing healthcare facilities, provides property
management, leasing and build-to-suit development services, and capital for the
construction of build-to-suit developments for qualified healthcare operators.
The Company owns a diversified portfolio of healthcare properties, most of which
are subject to long-term leases or financial support arrangements to ensure the
continuity of revenues and coverage of costs and expenses relating to the
properties by the tenants and the related healthcare operators.
Development funding arrangements require the Company to provide funding
to enable healthcare operators to build facilities on property owned or leased
by the Company. Prior to making any funding advance for a development, the
Company enters into a contract to acquire or ground lease the real estate and
enters into a long-term net lease with a healthcare operator or guarantee of the
return on the Company's investment in the property or similar financial support
agreement in favor of the Company. In most development transactions, the Company
either acts as developer, or employs the healthcare operator to act as the
developer of the property, and has approval authority with regard to plans,
specifications, budgets and time schedules for the completion of the development
of the property. Under its customary development funding format, the Company
receives funding fees (the economic equivalent of construction period interest)
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on all funds advanced. Timely completion of the development in compliance with
the plans, specifications, budgets and time schedules is the contractual
responsibility of third parties, and construction costs are guaranteed by the
healthcare operator or developer, or both. All construction and service
contracts relating to the development are collaterally assigned to the Company.
During the term of the development of a facility, funds are advanced pursuant to
requests made by the developer in accordance with the terms and conditions of
the applicable funding agreement based on costs incurred prior to the date of
such requests.
Approximately 97.5% of the Company's investments in properties consist
of properties currently leased to unaffiliated lessees pursuant to long-term net
lease agreements or subject to financial support agreements with the healthcare
operators that provide guarantees of the return on the Company's investment in
the properties. Most of the current property agreements were entered into upon
the conveyance to the Company of the facilities, and have initial terms of ten
to 20 years with, in some cases, one or more renewal terms exercisable by the
healthcare provider of five years each. Most of the agreements are subject to
earlier termination upon the occurrence of certain contingencies. Certain of the
agreements also have an option to repurchase the property at specified times
during the term of the agreements for a price approximately equal to the greater
of the fair market value of such property or the Company's investment in such
property. Base rent or support payments vary by agreement taking into
consideration various factors, including the credit of the property lessee, the
healthcare operator, and the operating performance, location, and physical
condition of the property. Many of the property agreements contain provisions
for additional rent or support payment increases. The existence and nature of
provisions for additional payments in any given agreement relate to, among other
factors, the financial strength of the respective property lessee, the
healthcare operator, or both, as well as other lease terms.
The Company operates so as to qualify as a REIT for federal income tax
purposes. If so qualified, with limited exceptions, the Company will not be
subject to corporate federal income tax with respect to net income distributed
to its shareholders. See "Federal Income Tax Information" below.
Property Acquisition Activity
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In addition to the properties acquired pursuant to the Capstone merger
described previously, during the fourth quarter of 1998, the Company acquired a
25,652 square-foot ancillary hospital facility in Lititz, Pennsylvania for
approximately $4.2 million.
Continuing Property Development Activity
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At December 31, 1998, the Company had commitments to invest in 13
real estate developments and 21 mortgage transactions totaling $62.9 million.
Mortgage Portfolio
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Mortgage notes receivable, substantially all of which were acquired in
the Capstone merger, are recorded at their fair value at the date of
acquisition. Approximately 50% of the mortgage notes receivable are secured by
assisted living facilities and 33% are secured by skilled nursing facilities.
The 77 mortgages in the portfolio at December 31, 1998 represent 35 operators.
Twenty-one of these mortgages, representing $69.4 million or 30% of the balance
at December 31, 1998, are secured by properties under development. The remaining
loan commitment at December 31, 1998 on these transactions totals $28.2 million.
The weighted average maturity of the mortgage portfolio is
approximately seven years, with maturity dates ranging from February 1, 2001 to
August 31, 2009. Interest rates, which range from 8.1% to 12.5%, are generally
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adjustable each year to reflect increases in the Consumer Price Index.
Substantially all mortgages are subject to a prepayment penalty.
Investment Policy
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The Company's investment objectives are to:
Generate current cash flow;
Provide the opportunity for additional returns through rent
provisions in the Company's leases, or for increased support
payments through provisions in financial support agreements and
through participating interest provisions;
Provide the opportunity to realize capital growth resulting from
appreciation, if any, in the residual values of any properties
acquired; and
Preserve and protect the Company's existing capital.
The Company intends to invest in real property principally for the
production of income, although the prospect for capital appreciation is a factor
that will be considered in making such investments. The Company will invest in
healthcare related facilities, including, but not limited to, acute care
hospitals, rehabilitation hospitals, physician clinics, ambulatory surgery
centers, clinical laboratories, ancillary hospital facilities, long-term care
facilities, medical centers, comprehensive ambulatory care centers and office
buildings predominantly occupied by healthcare related companies. The Company,
however, may also consider opportunities in other kinds of income producing real
property. Management has no present intention to invest in properties unrelated
to the healthcare industry.
Management of the Company will conduct market research and analysis for
all potential investments. In evaluating potential investments, the Company will
consider such factors as:
The geographic area, type of property and demographic profile;
The location, construction quality, condition and design of the
property;
The current and anticipated cash available for distribution and
its adequacy to meet operational needs and lease obligations and
to provide a competitive market return on equity to the Company's
investors;
The potential for capital appreciation, if any;
The growth, tax and regulatory environment of the communities in
which the properties are located;
The occupancy and demand for similar health facilities in the same
or nearby communities;
The potential mix of private and government sponsored patients;
Any potential alternative uses of the facilities;
Prospects for liquidity through financing or refinancing;
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Industry segment and operator diversification; and
The suitability of the potential investments in light of maintaining
REIT status.
The Company intends to focus on established, creditworthy healthcare
operators which meet the Company's standards for quality and experience of
management. In order to determine creditworthiness of healthcare operators, the
Company will review historical and prospective financial information of the
healthcare operator, together with appropriate financial information of a
guarantor, if any. Factors considered in connection with such financial review
with respect to the healthcare operator and any guarantor will include the net
worth, profitability and cash flow, debt position, and the ability of the
healthcare operators and any guarantor to provide additional credit
enhancements. The term of any long term net lease, financial support agreement
guaranteeing the return on the investment of the property or similar obligation
in favor of the Company, generally, shall be for a period of not less than ten
years from closing of an acquisition.
Competition
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The Company competes for property acquisitions with, among others:
Investors;
Healthcare providers;
Other healthcare related REITs;
Real estate partnerships; and
Financial institutions.
Since 1992, the REIT industry has been in an expansion mode and the
growth of market valuation of REIT shares had provided REITs with increasing
access to the capital markets. By the end of 1998, however, market valuations of
REIT shares (including the Company's shares) had declined substantially with the
result that the Company presently has limited access to capital from the equity
market. The Company may not be able to obtain additional equity or debt capital
or dispose of assets at the time it requires additional capital. Moreover, the
Company may not be able to obtain capital on terms that will enable it to
acquire healthcare properties on a competitive basis.
The operation of all of the Company's properties is subject to
competition from similar properties. Certain operators of other properties may
have capital resources in excess of those of the operators of the Company's
properties. In addition, the extent to which the Company's properties are
utilized depends upon several factors, including the number of physicians using
the healthcare facilities or referring patients there, competitive systems of
healthcare delivery, and the area population, size and composition. Private,
federal and state payment programs and other laws and regulations may also have
a significant effect on the utilization of the properties. Virtually all of the
Company's properties operate in a competitive environment, and patients and
referral sources, including physicians, may change their preferences for a
healthcare facility from time to time.
The business of providing services relating to the day-to-day
management and leasing of multi-tenanted healthcare properties and to the
supervision of the development of new healthcare facilities is highly
competitive and is subject to price, personnel cost and other competitive
pressures upon its profitability. The Company will compete for management
contracts and development agreements with respect to properties owned or to be
developed by the Company, as well as with respect to properties that are owned
by third parties.
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More information is contained in the section "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
1998 Annual Report to Shareholders which is incorporated by reference herein.
Government Regulation
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The investments made by the Company are with active participants in the
healthcare industry. The healthcare industry is undergoing substantial changes
due to rising costs in the delivery of healthcare services, rising competition
for patients, and reduction of reimbursement by private and governmental payors.
Further, the healthcare industry is faced with increased scrutiny by federal and
state legislative and administrative authorities, thus presenting the industry
and its individual participants with significant uncertainty. The Company
believes that these changes and uncertainties present significant opportunities
for the Company to assist in providing solutions to some of these pressures;
however, these various changes can affect the economic performance of some or
all of its tenants and clients. The Company cannot predict the degree to which
these changes may affect the economic performance of the Company, positively or
negatively.
The facilities leased by the Company are affected by changes in the
reimbursement, licensing and certification policies of federal, state and local
governments for healthcare related facilities. Facilities may also be affected
by changes in accreditation standards or procedures of accrediting agencies that
are recognized by governments in the certification process. In addition,
expansion (including the addition of new beds or services or acquisition of
medical equipment) and occasionally the discontinuation of services of
healthcare facilities are generally subjected to state regulatory approval
through certificate of need programs.
A significant portion of the revenue of healthcare operators is derived
from government reimbursement programs, such as Medicare and Medicaid. Although
lease payments to the Company are not directly affected by the level of
government reimbursement, to the extent that changes in these programs adversely
affect healthcare operators, such changes could have an impact on their ability
to make lease payments to the Company. The Medicare program is highly regulated
and subject to frequent and substantial changes. In recent years, fundamental
changes in the Medicare program (including the implementation of a prospective
payment system in which facilities are reimbursed generally a flat amount based
on a patient's diagnosis and not based on the facilities' cost for inpatient
services at medical surgical hospitals) have resulted in reduced levels of
payment for a substantial portion of healthcare services.
Considerable uncertainties surround the future determination of payment
levels under government reimbursement programs. In addition, governmental
budgetary concerns may significantly reduce future payments made to healthcare
operators as a result of government financed programs. It is possible that
future payment rates will not be sufficient to cover cost increases in providing
services to patients. Reductions in payments pursuant to government healthcare
programs could have an adverse impact on a healthcare operator's financial
condition and, therefore, could adversely affect the ability of such operator to
make rental payments.
Loss by a facility of its ability to participate in government
sponsored programs because of licensing, certification or accreditation
deficiencies or because of program exclusion resulting from violations of law
would have material adverse effects on facility revenues.
Legislative Developments
A number of legislative proposals have been introduced or proposed in
Congress and in some state legislatures that would effect major changes in the
healthcare system, either nationally or at the state level. Among the proposals
under consideration are cost controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
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requirements that all businesses offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. There can be no assurance whether any proposals will
be adopted or, if adopted, what effect, if any, such proposals would have on the
Company's business.
In recent years Congress and various state legislatures have considered
various proposals that would have prohibited or severely limited the ability of
physicians and other referral sources to refer Medicare or Medicaid patients to
ventures with which the referral source has a financial relationship. The
Company's leases require the lessees to covenant that they will comply with all
applicable laws.
Environmental Matters
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Under various federal, state and local environmental laws, ordinances
and regulations, an owner of real property (such as the Company) may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
at, under or disposed of in connection with such property, as well as certain
other potential costs relating to hazardous or toxic substances (including
government fines and injuries to persons and adjacent property). Most, if not
all, of these laws, ordinances and regulations contain stringent enforcement
provisions including, but not limited to, the authority to impose substantial
administrative, civil and criminal fines and penalties upon violators. Such laws
often impose liability without regard to whether the owner knew of, or was
responsible therefor, the presence or disposal of such substances and may be
imposed on the owner in connection with the activities of an operator of the
property. The cost of any required remediation, removal, fines or personal or
property damages and the owner's liability therefor could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or lease such
property or to borrow using such property as collateral.
A property can also be negatively impacted either through physical
contamination or by virtue of an adverse effect on value, from contamination
that has or may have emanated from other properties. Certain of the properties
owned by the Company or managed or developed by its property management
subsidiary are adjacent to or near properties that contain underground storage
tanks or that have released petroleum products or other hazardous or toxic
materials into the soils or groundwater.
Operations of the properties owned, developed or managed by the Company
are and will continue to be subject to numerous federal, state, and local
environmental laws, ordinances and regulations, including those relating to the
generation, segregation, handling, packaging and disposal of medical wastes as
well as facility siting, construction, occupational training and safety,
disposal of non-medical wastes, underground storage tanks and ash emissions from
incinerators. Certain properties owned, developed or managed by the Company
contain, and others may contain or at one time may have contained, underground
storage tanks that are or were used to store waste oils, petroleum products or
other hazardous substances. Such underground storage tanks can be the source of
releases of hazardous or toxic materials. Operations of nuclear medicine
departments at some of such properties also involve the use and handling, and
subsequent disposal of, radioactive isotopes and similar materials, activities
which are closely regulated by the Nuclear Regulatory Commission and state
regulatory agencies. In addition, several of the properties were built during
the period asbestos was commonly used in building construction and other such
facilities may be acquired by the Company in the future. Certain of the
properties contain non-friable asbestos-containing materials, and other
facilities acquired in the future may contain friable and non-friable
asbestos-containing materials. The presence of such materials could result in
significant costs in the event that any friable asbestos-containing materials
requiring immediate removal and/or encapsulation are located in or on any of
such facilities or in the event of any future renovation activities.
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The Company has had environmental assessments conducted on
substantially all of the properties currently owned. The Company is not aware of
any environmental condition or liability that management believes would have a
material adverse effect on the Company's earnings, expenditures or continuing
operations. While it is the Company's policy to seek indemnification relating to
environmental liabilities or conditions, even where sale and purchase agreements
do contain such provisions there can be no assurances that the seller will be
able to fulfill its indemnification obligations. In addition, the terms of the
Company's leases or financial support agreements do not give the Company control
over the operational activities of its lessees or health care operators, nor
will the Company monitor the lessees or healthcare operators with respect to
environmental matters.
Insurance
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The Company maintains appropriate liability and casualty insurance on
its assets and operations. The Company has also obtained title insurance with
respect to each of the properties it owns in amounts equal to their respective
purchase prices, insuring that the Company holds title to each of the properties
free and clear of all liens and encumbrances except those approved by the
Company. Under their leases or financial support agreements, the healthcare
operators are required to maintain, at their expense, certain insurance
coverages relating to their operations at the leased facilities. In the opinion
of management of the Company, each of the properties owned by the Company is
adequately covered by hazard, liability and rent insurance.
Employees
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As of March 15, 1999, the Company employed 206 people. None of the
employees is a member of a labor union, and the Company considers its relations
with its employees to be excellent.
Federal Income Tax Information
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The Company is and intends to remain qualified as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's
net income which is distributed as dividends to shareholders will be exempt from
federal taxation. Distributions to the Company's shareholders generally will be
includable in their income; however, dividends distributed which are in excess
of current and/or accumulated earnings and profits will be treated for tax
purposes as a return of capital to the extent of a shareholder's basis and will
reduce the basis of shareholders' shares.
Introduction
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The Company believes that it has qualified and intends to remain
qualified to be taxed as a REIT for federal income tax purposes under Sections
856 through 860 of the Code. The following discussion addresses the material tax
considerations relevant to the taxation of the Company and summarizes certain
federal income tax consequences that may be relevant to certain shareholders.
However, the actual tax consequences of holding particular securities issued by
the Company may vary in light of a prospective securities holder's particular
facts and circumstances. Certain holders, such as tax-exempt entities, insurance
companies and financial institutions, are generally subject to special rules. In
addition, the following discussion does not address issues under any foreign,
state or local tax laws. The tax treatment of a holder of any of the securities
issued by the Company will vary depending upon the terms of the specific
securities acquired by such holder, as well as his particular situation, and
this discussion does not attempt to address aspects of federal income taxation
relating to holders of particular securities of the Company. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. The Code, rules, regulations, and administrative and
judicial interpretations are all subject to change (possibly on a retroactive
basis).
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The Company believes that it is organized and is operating in
conformity with the requirements for qualification and taxation as a REIT and
that its method of operation will enable it to continue to meet the requirements
for qualification and taxation as a REIT under the Code. The Company's
qualification and taxation as a REIT depend upon its ability to meet, through
actual annual operating results, the various income, asset, distribution, stock
ownership and other tests discussed below. Accordingly, the Company can not
guarantee that the actual results of operations for any one taxable year will
satisfy such requirements.
If the Company were to cease to qualify as a REIT, and the relief
provisions were found not to apply, the Company's income that it distributed to
shareholders would be subject to the "double taxation" on earnings (once at the
corporate level and again at the shareholder level) that generally results from
investment in a corporation. Failure to maintain qualification as a REIT would
force the Company to significantly reduce its distributions and possibly incur
substantial indebtedness or liquidate substantial investments in order to pay
the resulting corporate taxes. In addition, the Company, once having obtained
REIT status and having thereafter lost such status, would not be eligible to
re-elect REIT status for the four subsequent taxable years, unless its failure
to maintain its qualification was due to reasonable cause and not willful
neglect and certain other requirements were satisfied. In order to elect again
to be taxed as a REIT, just as with its original election, the Company would be
required to distribute all of its earnings and profits accumulated in any
non-REIT taxable year.
Taxation of the Company
As long as the Company remains qualified to be taxed as a REIT, it
generally will not be subject to federal income taxes on that portion of its
ordinary income or capital gain that is currently distributed to shareholders.
However, the Company will be subject to federal income tax as follows:
first, the Company will be taxed at regular corporate rates on any undistributed
"real estate investment trust taxable income," including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference, if any. Third,
if the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business, or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate. Fourth, any net income that the Company has from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business) will be subject to a 100% tax. Fifth, if the Company should
fail to satisfy either the 75% or 95% gross income test (as discussed below),
and has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% gross income test. Sixth, if the Company fails to distribute during each
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from preceding periods, then the Company will be
subject to a four percent excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, to the extent that the Company
recognizes gain from the disposition of an asset with respect to which there
existed "built-in gain" upon its acquisition by the Company from a C corporation
in a carry-over basis transaction and such disposition occurs within a ten-year
recognition period beginning on the date on which it was acquired by the
Company, the Company will be subject to federal income tax at the highest
regular corporate rate on the amount of its "net recognized built-in gain."
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Requirements for Qualification as a REIT
To qualify as a REIT for a taxable year under the Code, the Company
must have no earnings and profits accumulated in any non-REIT year. The Company
also must elect or have in effect an election to be taxed as a REIT and must
meet other requirements, some of which are summarized below, including
percentage tests relating to the sources of its gross income, the nature of the
Company's assets and the distribution of its income to shareholders. Such
election, if properly made and assuming continuing compliance with the
qualification tests described herein, will continue in effect for subsequent
years.
Organizational Requirements and Share Ownership Tests
Section 856(a) of the Code defines a REIT as a corporation, trust or
association: (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable,
but for Sections 856 through 860 of the Code, as a domestic corporation; (4)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons, determined without reference to any rules of attribution
(the "share ownership test"); (6) that during the last half of each taxable year
not more than 50% in value of the outstanding stock of which is owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) (the "five or fewer test"); and (7) which meets certain other
tests, described below, regarding the nature of its income and assets.
Section 856(b) of the Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of fewer than 12 months. The "five or fewer
test" and the share ownership test do not apply to the first taxable year for
which an election is made to be treated as a REIT.
The Company has issued sufficient shares to a sufficient number of
people to allow it to satisfy the share ownership test and the five or fewer
test. In addition, to assist in complying with the five or fewer test, the
Company's Articles of Incorporation contain provisions restricting share
transfers where the transferee (other than specified individuals involved in the
formation of the Company, members of their families and certain affiliates, and
certain other exceptions) would, after such transfer, own (a) more than 9.9%
either in number or value of the outstanding common stock of the Company or (b)
more than 9.9% either in number or value of the outstanding preferred stock of
the Company. Pension plans and certain other tax-exempt entities have different
restrictions on ownership. If, despite this prohibition, stock is acquired
increasing a transferee's ownership to over 9.9% in value of either the
outstanding common stock of the Company or preferred stock of the Company, the
stock in excess of this 9.9% in value is deemed to be held in trust for transfer
at a price which does not exceed what the purported transferee paid for the
stock and, while held in trust, the stock is not entitled to receive dividends
or to vote. In addition, under these circumstances, the Company also has the
right to redeem such stock.
For purposes of determining whether the "five or fewer test" (but not
the "share ownership test") is met, any stock held by a qualified trust
(generally, pension plans, profit-sharing plans and other employee retirement
trusts) is, generally, treated as held directly by the trust's beneficiaries in
proportion to their actuarial interests in the trust, and not as held by the
trust.
Income Tests
In order to maintain qualification as a REIT, three gross income
requirements must be satisfied annually. First, at least 75% of the Company's
gross income (excluding gross income from certain sales of property held
primarily for sale) must be derived directly or indirectly from investments
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relating to real property (including "rents from real property") or mortgages on
real property. When the Company receives new capital in exchange for its shares
(other than dividend reinvestment amounts) or in a public offering of debt
instruments with maturities of five years or longer, income attributable to the
temporary investment of such new capital, if received or accrued within one year
of the Company's receipt of the new capital, is qualifying income under the 75%
test. Second, at least 95% of the Company's gross income (excluding gross income
from certain sales of property held primarily for sale) must be derived from
such real property investments, dividends, interest, certain payments under
interest rate swap or cap agreements, and gain from the sale or other
disposition of stock, securities not held for sale in the ordinary course of
business or from any combination of the foregoing. Third, for taxable years
prior to 1998, short-term gain from the sale or other disposition of stock or
securities, including, without limitation, dispositions of interest rate swap or
cap agreements, and gain from certain prohibited transactions or from other
dispositions of real property and mortgages on real property held for less than
four years (apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of the Company's gross income. For
purposes of these rules, income derived from a "shared appreciation provision"
in a real estate backed mortgage is treated as gain recognized on the sale of
the property to which it relates.
The Company may temporarily invest its working capital in short-term
investments. Although the Company will use its best efforts to ensure that its
income generated by these investments will be of a type which satisfies the 75%
and 95% gross income tests, there can be no assurance in this regard (see the
discussion above of the "new capital" rule under the 75% gross income test).
Moreover, the Company may realize short-term capital gain upon sale or exchange
of such investments, and such short-term capital gain would have been subject to
the limitations imposed by the 30% gross income test for taxable years prior to
1998. The Company has analyzed its gross income through December 31, 1998, and
has determined that it has met and expects to meet in the future the 75% and 95%
gross income tests through the rental of the property it has and acquires, and
by monitoring the sale of assets has not violated the 30% gross income test.
In order to qualify as "rents from real property," the amount of rent
received must not be based on the income or profits of any person, but may be
based on a fixed percentage or percentages of receipts or sales. The Code also
provides that the rents will not qualify as "rents from real property," in
satisfying the gross income tests, if the REIT owns ten percent or more of the
tenant, whether directly or under certain attribution rules. The Company leases
and intends to lease property only under circumstances such that substantially
all, if not all, rents from such property qualify as "rents from real property."
Although it is possible that a tenant could sublease space to a sublessee in
which the Company is deemed to own directly or indirectly ten percent or more of
the tenant, the Company believes that as a result of the provisions of the
Company's Articles of Incorporation which limit ownership to 9.9%, such
occurrence would be unlikely. Application of the ten percent ownership rule is,
however, dependent upon complex attribution rules provided in the Code and
circumstances beyond the control of the Company. Ownership, directly or by
attribution, by an unaffiliated third party of more than ten percent of the
Company's stock and more than ten percent of the stock of any tenant or
subtenant would result in a violation of the rule.
In order to qualify as "interest on obligations secured by mortgages on
real property," the amount of interest received must not be based on the income
or profits of any person, but may be based on a fixed percentage or percentages
of receipts or sales.
In addition, the Company must not manage its properties or furnish or
render services to the tenants of its properties, except through an independent
contractor from whom the Company derives no income unless (i) the Company is
performing services which are usually or customarily furnished or rendered in
connection with the rental of space for occupancy only and the services are of
the sort which a tax-exempt organization could perform without being considered
in receipt of unrelated business taxable income or (ii) for taxable years
beginning after 1997, the income earned by the Company for other services
furnished or rendered by the Company to tenants of a property or for the
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management or operation of the property does not exceed a de minimis threshold
generally equal to 1% of the income from such property. The Company self-manages
some of its properties, but does not believe it provides services to tenants
which are outside the exception.
If rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Generally, this 15% test is applied
separately to each lease. The portion of rental income treated as attributable
to personal property is determined according to the ratio of the tax basis of
the personal property to the total tax basis of the property which is rented.
The determination of what fixtures and other property constitute personal
property for federal tax purposes is difficult and imprecise. Based upon
allocations of value as found in the purchase agreements and/or upon review by
employees of the Company, the Company currently does not have and does not
believe that it is likely in the future to have 15% by value of any of its
properties classified as personal property. If, however, rent payments do not
qualify, for reasons discussed above, as rents from real property for purposes
of Section 856 of the Code, it will be more difficult for the Company to meet
the 95% and 75% gross income tests and continue to qualify as a REIT.
The Company is and expects to continue performing third-party
management and development services. If the gross income to the Company from
this or any other activity producing disqualified income for purposes of the 95%
or 75% gross tests approaches a level which could potentially cause the Company
to fail to satisfy these tests, the Company intends to take such corrective
action as may be necessary to avoid failing to satisfy the 95% or 75% gross
income tests.
If the Company were to fail to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is entitled to relief under certain provisions of the Code.
These relief provisions would generally be available if the Company's failure to
meet such test or tests was due to reasonable cause and not to willful neglect,
if the Company attaches a schedule of the sources of its income to its return,
and if any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to know whether the Company
would be entitled to the benefit of these relief provisions since the
application of the relief provisions is dependent on future facts and
circumstances. If these provisions were to apply, the Company would be subjected
to tax equal to 100% of the net income attributable to the greater of the amount
by which the Company failed either the 75% or the 95% gross income test.
Asset Tests
At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must consist of real estate assets
(including interests in real property and interests in mortgages on real
property as well as its allocable share of real estate assets held by joint
ventures or partnerships in which the Company participates), cash, cash items
and government securities. Second, not more than 25% of the Company's total
assets may be represented by securities other than those includable in the 75%
asset class. Finally, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed five
percent of the value of the Company's total assets, and the Company may not own
more than ten percent of any one issuer's outstanding voting securities. The
Company, however, may own 100% of the stock of a corporation if such stock is
held by the Company at all times during such subsidiary's existence. Such a
subsidiary is called a "qualified REIT subsidiary". Under that circumstance, the
qualified REIT subsidiary is ignored and its assets, income, gain, loss and
other attributes are treated as being owned or generated by the Company for
federal income tax purposes. The Company currently has 28 qualified REIT
subsidiaries which it employs in the conduct of its business.
-15-
If the Company meets the 25% requirement at the close of any quarter,
it will not lose its status as a REIT because of a change in value of its assets
unless the discrepancy exists immediately after the acquisition of any security
or other property which is wholly or partly the result of an acquisition during
such quarter. Where a failure to satisfy the 25% asset test results from an
acquisition of securities or other property during a quarter, the failure can be
cured by disposition of sufficient nonqualifying assets within 30 days after the
close of such quarter. The Company maintains and intends to continue to maintain
adequate records of the value of its assets to maintain compliance with the 25%
asset test and to take such action as may be required to cure any failure to
satisfy the test within 30 days after the close of any quarter.
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
equal to or greater than the excess of (A) the sum of (i) 95% of the Company's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 95% of the
net income, if any, (after tax) from foreclosure property, over (B) the sum of
certain non-cash income (from certain imputed rental income and income from
transactions inadvertently failing to qualify as like-kind exchanges). These
requirements may be waived by the IRS if the REIT establishes that it failed to
meet them by reason of distributions previously made to meet the requirements of
the four percent excise tax described below. To the extent that the Company does
not distribute all of its net long-term capital gain and all of its "real estate
investment trust taxable income," it will be subject to tax thereon. In
addition, the Company will be subject to a four percent excise tax to the extent
it fails within a calendar year to make "required distributions" to its
shareholders of 85% of its ordinary income and 95% of its capital gain net
income plus the excess, if any, of the "grossed up required distribution" for
the preceding calendar year over the amount treated as distributed for such
preceding calendar year. For this purpose, the term "grossed up required
distribution" for any calendar year is the sum of the taxable income of the
Company for the taxable year (without regard to the deduction for dividends
paid) and all amounts from earlier years that are not treated as having been
distributed under the provision. Dividends declared in the last quarter of the
year and paid during the following January will be treated as having been paid
and received on December 31. The Company's distributions for 1998 were adequate
to satisfy its distribution requirement.
It is possible that the Company, from time to time, may have
insufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between the actual receipt of income and
the actual payment of deductible expenses or dividends on the one hand and the
inclusion of such income and deduction of such expenses or dividends in arriving
at "real estate investment trust taxable income" on the other hand. The problem
of not having adequate cash to make required distributions could also occur as a
result of the repayment in cash of principal amounts due on the Company's
outstanding debt, particularly in the case of "balloon" repayments or as a
result of capital losses on short-term investments of working capital.
Therefore, the Company might find it necessary to arrange for short-term, or
possibly long-term, borrowing or new equity financing. If the Company were
unable to arrange such borrowing or financing as might be necessary to provide
funds for required distributions, its REIT status could be jeopardized.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company may in certain circumstances remain liable for the four
percent excise tax described above.
The Company is also required to request annually (within 30 days after
the close of its taxable year) from record holders of specified percentages of
its shares written information regarding the ownership of such shares. A list of
shareholders failing to fully comply with the demand for the written statements
is required to be maintained as part of the Company's records required under the
-16-
Code. Rather than responding to the Company, the Code allows the shareholder to
submit such statement to the IRS with the shareholder's tax return.
Nonqualified REIT Subsidiary
The Company participated in the organization of certain corporations
affiliated with the Company which are not qualified REIT subsidiaries
("Specified Affiliates") to enhance its management flexibility. Current tax law
restricts the ability of REITs to engage in certain activities, such as certain
third party management activities, but these restrictions do not apply to the
activities of a company that is not a REIT, such as these Specified Affiliates,
whose income is subject to federal income tax.
In order to permit the Company to participate in the income of its
third party management business and maintain its status as a REIT, portions of
the Company's business will be conducted by the Specified Affiliates. The
Company owns 100% of the nonvoting preferred stock and approximately 1% of the
voting common stock, and senior executives of the Company own 99% of the voting
common stock of the Specified Affiliates. The nonvoting preferred stock of the
Specified Affiliates represents substantially all of the equity interest in the
Specified Affiliates, but does not enable the Company to elect directors of the
Specified Affiliates who are elected by the senior executives of the Company as
the holders of 99% of the voting common stock of the Specified Affiliates. The
voting common stock held by the senior executives of the Company in the
Specified Affiliates is subject to agreements that are designed to ensure that
such stock will be held by officers of the Company.
Federal Income Tax Treatment of Leases
The availability to the Company of, among other things, depreciation
deductions with respect to the facilities owned and leased by the Company
depends upon the treatment of the Company as the owner of the facilities and the
classification of the leases of the facilities as true leases, rather than as
sales or financing arrangements, for federal income tax purposes. The Company
has not requested nor has it received an opinion that it will be treated as the
owner of the portion of the facilities constituting real property and that the
leases will be treated as true leases of such real property for federal income
tax purposes. Based on the conclusions of the Company and its senior management
as to the values of its personalty, the Company has met and plans to meet in the
future its compliance with the 95% distribution requirement (and the required
distribution requirement) by making distributions on the assumption that it is
not entitled to depreciation deductions for that portion of the leased
facilities which it believes constitutes personal property, but to report the
amount of income taxable to its shareholders by taking into account such
depreciation. The value of real and personal property and whether certain
fixtures are real or personal property are factual evaluations that cannot be
determined with absolute certainty under current IRS regulations.
Other Issues
With respect to property acquired from and leased back to the same or
an affiliated party, the IRS could assert that the Company realized prepaid
rental income in the year of purchase to the extent that the value of the leased
property exceeds the purchase price paid by the Company for that property. In
litigated cases involving sale-leasebacks which have considered this issue,
courts have concluded that buyers have realized prepaid rent where both parties
acknowledged that the purported purchase price for the property was
substantially less than fair market value and the purported rents were
substantially less than the fair market rentals. Because of the lack of clear
precedent and the inherently factual nature of the inquiry, the Company cannot
give complete assurance that the IRS could not successfully assert the existence
of prepaid rental income in such circumstances. The value of property and the
fair market rent for properties involved in sale-leasebacks are inherently
factual matters and always subject to challenge.
-17-
Additionally, it should be noted that Section 467 of the Code
(concerning leases with increasing rents) may apply to those leases of the
Company which provide for rents that increase from one period to the next.
Section 467 provides that in the case of a so-called "disqualified leaseback
agreement," rental income must be accrued at a constant rate. If such constant
rent accrual is required, the Company would recognize rental income in excess of
cash rents and as a result, may fail to have adequate funds available to meet
the 95% dividend distribution requirement. "Disqualified leaseback agreements"
include leaseback transactions where a principal purpose of providing increasing
rent under the agreement is the avoidance of federal income tax. Because Section
467 directs the Treasury to issue regulations providing that rents will not be
treated as increasing for tax avoidance purposes where the increases are based
upon a fixed percentage of lessee receipts, additional rent provisions of leases
containing such clauses should not result in these leases being disqualified
leaseback agreements. In addition, the legislative history of Section 467
indicates that the Treasury should issue regulations under which leases
providing for fluctuations in rents by no more than a reasonable percentage from
the average rent payable over the term of the lease will be deemed to not be
motivated by tax avoidance. This legislative history indicates that a standard
allowing a ten percent fluctuation in rents may be too restrictive for real
estate leases. It should be noted, however, that leases involved in
sale-leaseback transactions are subject to special scrutiny under this Section.
The Company, based on its evaluation of the value of the property and the terms
of the leases, does not believe it has or will have in the future rent subject
to the provisions of Section 467.
Subject to a safe harbor exception for annual sales of up to seven
properties (or properties with a basis of up to 10% of the REIT's assets) that
have been held for at least four years, gain from sales of property held for
sale to customers in the ordinary course of business is subject to a 100% tax.
The simultaneous exercise of options to acquire leased property that may be
granted to certain tenants or other events could result in sales of properties
by the Company that exceed this safe harbor. However, the Company believes that
in such event, it will not have held such properties for sale to customers in
the ordinary course of business.
Depreciation of Properties
For tax purposes, the Company's real property is being and will
continue to be depreciated over 31.5 or 39 years using the straight-line method
of depreciation and its personal property over various periods utilizing
accelerated and straight-line methods of depreciation.
Failure to Qualify as a REIT
If the Company were to fail to qualify for federal income tax purposes
as a REIT in any taxable year, and the relief provisions were found not to
apply, the Company would be subject to tax on its taxable income at regular
corporate rates (plus any applicable alternative minimum tax). Distributions to
shareholders in any year in which the Company failed to qualify would not be
deductible by the Company nor would they be required to be made. In such event,
to the extent of current and/or accumulated earnings and profits, all
distributions to shareholders would be taxable as ordinary income and, subject
to certain limitations in the Code, eligible for the 70% dividends received
deductions for corporate shareholders. Unless entitled to relief under specific
statutory provisions, the Company would also be disqualified from taxation as a
REIT for the following four taxable years. It is not possible to state whether
in all circumstances the Company would be entitled to statutory relief from such
disqualification. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent borrowings were
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
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Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
"unrelated business taxable income," even though the REIT may have financed
certain of its activities with acquisition indebtedness. Although revenue
rulings are interpretive in nature and are subject to revocation or modification
by the IRS, based upon the revenue ruling and the analysis therein,
distributions made by the Company to a U.S. shareholder that is a tax-exempt
entity (such as an individual retirement account ("IRA") or a 401(k) plan)
should not constitute unrelated business taxable income unless such tax-exempt
U.S. shareholder has financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code, or the shares are otherwise used
in an unrelated trade or business conducted by such U.S. shareholder.
Special rules apply to certain tax-exempt pension funds (including
401(k) plans but excluding IRAs or government pension plans) that own more than
10% (measured by value) of a "pension-held REIT" at any time during a taxable
year beginning after December 31, 1993. Such a pension fund may be required to
treat a certain percentage of all dividends received from the REIT during the
year as unrelated business taxable income. The percentage is equal to the ratio
of the REIT's gross income (less direct expenses related thereto) derived from
the conduct of unrelated trades or businesses determined as if the REIT were a
tax-exempt pension fund, to the REIT's gross income (less direct expenses
related thereto) from all sources. The special rules will not apply to require a
pension fund to recharacterize a portion of its dividends as unrelated business
taxable income unless the percentage computed is at least 5%.
A REIT will be treated as a "pension-held REIT" if the REIT is
predominantly held by tax-exempt pension funds and if the REIT would otherwise
fail to satisfy the "five or fewer test" discussed above, if the stock or
beneficial interests of the REIT held by such tax-exempt pension funds were not
treated as held directly by their respective beneficiaries. A REIT is
predominantly held by tax-exempt pension funds if at least one tax-exempt
pension fund holds more than 25% (measured by value) of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension funds (each of which
owns more than 10% (measured by value) of the REIT's stock or beneficial
interests) own in the aggregate more than 50% (measured by value) of the REIT's
stock or beneficial interests. The Company believes that it will not be treated
as a pension-held REIT. However, because the shares of the Company will be
publicly traded, no assurance can be given that the Company is not or will not
become a pension-held REIT.
Taxation of Non-U.S. Shareholders
The rules governing United States federal income taxation of any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created in the United States or under the laws of the United States
or of any state thereof, (iii) an estate whose income is includable in income
for U.S. federal income tax purposes regardless of its source or (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States fiduciaries have
the authority to control all substantial decisions of the trust ("Non-U.S.
Shareholders") are highly complex, and the following discussion is intended only
as a summary of such rules. Prospective Non-U.S. Shareholders should consult
with their own tax advisors to determine the impact of United States federal,
state, and local income tax laws on investment in stock of the Company,
including any reporting requirements.
In general, Non-U.S. Shareholders are subject to regular United States
income tax with respect to their investment in stock of the Company in the same
manner as a U.S. shareholder if such investment is "effectively connected" with
the Non-U.S. Shareholder's conduct of a trade or business in the United States.
A corporate Non-U.S. Shareholder that receives income with respect to its
investment in stock of the Company that is (or is treated as) effectively
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connected with the conduct of a trade or business in the United States also may
be subject to the 30% branch profits tax imposed by the Code, which is payable
in addition to regular United States corporate income tax. The following
discussion addresses only the United States taxation of Non-U.S. Shareholders
whose investment in stock of the Company is not effectively connected with the
conduct of a trade or business in the United States.
Ordinary Dividends
Distributions made by the Company that are not attributable to gain
from the sale or exchange by the Company of United States real property
interests and that are not designated by the Company as capital gain dividends
will be treated as ordinary income dividends to the extent made out of current
or accumulated earnings and profits of the Company. Generally, such ordinary
income dividends will be subject to United States withholding tax at the rate of
30% on the gross amount of the dividend paid unless reduced or eliminated by an
applicable United States income tax treaty. The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless a lower treaty rate applies and
the Non-U.S. Shareholder has filed an IRS Form 1001 with the Company, certifying
the Non-U.S.
Shareholder's entitlement to treaty benefits.
Non-Dividend Distributions
Distributions made by the Company in excess of its current and
accumulated earnings and profits to a Non-U.S. Shareholder who holds 5% or less
of the stock of the Company (after application of certain ownership rules) will
not be subject to U.S. income or withholding tax. If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of the Company's current and accumulated earnings and profits, the
distribution will be subject to withholding at the rate applicable to a dividend
distribution. However, the Non-U.S. Shareholder may seek a refund from the IRS
of any amount withheld if it is subsequently determined that such distribution
was, in fact, in excess of the Company's then current and accumulated earnings
and profits.
Capital Gain Dividends
As long as the Company continues to qualify as a REIT, distributions
made by the Company that are attributable to gain from the sale or exchange by
the Company of any United States real property interests ("USRPI") will be taxed
to a Non-U.S. Shareholder under the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Shareholder as if such distributions were gains "effectively connected" with the
conduct of a trade or business in the United States. Accordingly, a Non-U.S.
Shareholder will be taxed on such distributions at the same capital gain rates
applicable to U.S. Shareholders (subject to any applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Distributions subject to FIRPTA also may be subject to the 30%
branch profits tax in the case of a corporate Non-U.S. Shareholder that is not
entitled to treaty relief or exemption. The Company will be required to withhold
tax from any distribution to a Non-U.S. Shareholder that could be designated by
the Company as a USRPI capital gain dividend in an amount equal to 35% of the
gross distribution. The amount of tax withheld is fully creditable against the
Non-U.S. Shareholder's FIRPTA tax liability, and if such amount exceeds the
Non-U.S. Shareholder's federal income tax liability for the applicable taxable
year, the Non-U.S. Shareholder may seek a refund of the excess from the IRS. In
addition, if the Company designates prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding.
-20-
Disposition of Stock of the Company
Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
stock of the Company generally will not be subject to United States taxation
unless such stock constitutes a USRPI within the meaning of FIRPTA. The stock of
the Company will not constitute a USRPI so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock or beneficial interests are held directly or indirectly by Non-U.S.
Shareholders. The Company believes that it will be a "domestically controlled
REIT," and therefore that the sale of stock of the Company will not be subject
to taxation under FIRPTA. However, because the stock of the Company is publicly
traded, no assurance can be given that the Company is or will continue to be a
"domestically controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of stock of the Company that is not otherwise subject to FIRPTA
will be taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States. In such
case, the nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.
If the Company did not constitute a "domestically controlled REIT,"
gain arising from the sale or exchange by a Non-U.S. Shareholder of stock of the
Company would be subject to United States taxation under FIRPTA as a sale of a
USRPI unless (i) the stock of the Company is "regularly traded" (as defined in
the applicable Treasury regulations) and (ii) the selling Non-U.S. Shareholder's
interest (after application of certain constructive ownership rules) in the
Company is 5% or less at all times during the five years preceding the sale or
exchange. If gain on the sale or exchange of the stock of the Company were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
regular United States income tax with respect to such gain in the same manner as
a U.S. Shareholder (subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the stock of the Company (including the
Company) would be required to withhold and remit to the IRS 10% of the purchase
price. Additionally, in such case, distributions on the stock of the Company to
the extent they represent a return of capital or capital gain from the sale of
the stock of the Company, rather than dividends, would be subject to a 10%
withholding tax.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S.
Shareholder's investment in the stock of the Company is effectively connected
with a U.S. trade or business conducted by such Non-U.S. Shareholder, the
Non-U.S. Shareholder will be subject to the same treatment as a U.S. shareholder
with respect to such gain, or (ii) if the Non-U.S. Shareholder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
Information Reporting Requirements and Backup Withholding Tax
The Company will report to its U.S. shareholders and to the IRS the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
U.S. shareholder may be subject to backup withholding, at the rate of 31% on
dividends paid unless such U.S. shareholder (i) is a corporation or falls within
certain other exempt categories and, when required, can demonstrate this fact,
or (ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. shareholder who does not
provide the Company with his correct taxpayer identification number also may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
-21-
will be creditable against the U.S. shareholder's federal income tax liability.
In addition, the Company may be required to withhold a portion of any capital
gain distributions made to U.S. shareholders who fail to certify their
non-foreign status to the Company.
Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders, and Non-U.S.
Shareholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements.
State and Local Taxes
The Company and its shareholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective holders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the stock of the Company.
Tax Legislation Enacted in 1998--Significant REIT Provisions
The Internal Revenue Service Restructuring and Reform Act of 1998 and
the Tax and Trade Relief Extension Act of 1998 (the "1998 Tax Acts") included
various changes to the tax treatment of REITs. Set forth below is a summary of
these changes.
Modification of Distribution Rules. Effective for taxable years
beginning after August 5, 1997, any distribution from a REIT will be deemed to
first come from earnings and profits accumulated in a non-REIT year, if any.
This provision should assist REITs in meeting the requirement for qualification
as a REIT to have no earnings and profits accumulated in a non-REIT year. In the
case of the Company, this provision was effective for its taxable year beginning
January 1, 1998.
Freeze Grandfather Status of Stapled REITs. Effective for taxable years
ending after March 26, 1998, real property interests acquired after March 26,
1998 by certain "stapled REIT groups" are subjected to certain rules that
generally limit the benefits of the stapled REIT structure. Neither the Company
nor any of its subsidiaries or affiliates is a member of a stapled REIT group.
Treatment of Certain Deductible Liquidating Distributions of REITs.
Effective for distributions on or after May 22, 1998, certain otherwise tax-free
liquidating distributions paid by a REIT to an 80-percent corporate owner are
includible in the income of the recipient corporation. The Company has no such
80-percent corporate owner.
Real Estate Investment Trust Tax Proposals.
The Clinton Administration's Fiscal Year 2000 Budget proposal includes
three provisions of interest to REITs in general, two of which potentially
affect the Company. These provisions (i) modify the structure of businesses
which are indirectly conducted by the Company and could limit or negatively
affect the Company's future ability to engage indirectly in certain business
activities that cannot be conducted directly by the Company; (ii) modify
treatment of closely held REITs, unlike the Company; and (iii) repeal tax-free
conversion of large C corporations to S corporations, which would effectively
tax the built-in gains of C corporations prospectively electing tax-free
reorganizations, thus affecting an acquisition format employed by the Company in
the past. The President's Budget proposal includes numerous other revenue
provisions, none of which would materially impact the Company in the event of
its adoption. The last action on the President's Year 2000 Budget proposal was
the release by the Joint Committee on Taxation's "Description of Revenue
Provisions Contained in the President's Fiscal Year 2000 Budget Proposal" on
-22-
February 22, 1999. Congress has yet to debate the broader implications of the
President's Year 2000 Budget proposals, so 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.
Investors must recognize that the present federal income tax treatment
of the Company may be modified by future legislative, judicial or administrative
actions or decisions at any time, which may be retroactive in effect, and, as a
result, any such action or decision may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and by the IRS in
the Treasury Department, resulting in statutory changes as well as promulgation
of new, or revisions to existing, regulations and revised interpretations of
established concepts. No prediction can be made as to the likelihood as to
passage of any new tax legislation or other provisions either directly or
indirectly affecting the Company or its shareholders.
ERISA Considerations
- --------------------
The following is a summary of material considerations arising under
ERISA and the prohibited transaction provisions of Section 4975 of the Code that
may be relevant to a holder of stock of the Company. This discussion does not
propose to deal with all aspects of ERISA or Section 4975 of the Code or, to the
extent not preempted, state law that may be relevant to particular employee
benefit plan shareholders (including plans subject to Title I of ERISA, other
employee benefit plans and IRAs subject to the prohibited transaction provisions
of Section 4975 of the Code, and governmental plans and church plans that are
exempt from ERISA and Section 4975 of the Code but that may be subject to state
law requirements) in light of their particular circumstances.
A fiduciary making the decision to invest in stock of the Company on
behalf of a prospective purchaser which is an ERISA plan, a tax-qualified
retirement plan, an IRA or other employee benefit plan is advised to consult its
own legal advisor regarding the specific considerations arising under ERISA,
Section 4975 of the Code, and (to the extent not preempted) state law with
respect to the purchase, ownership or sale of stock by such plan or IRA.
Employee Benefit Plans, Tax-qualified Retirement Plans and IRAs
Each fiduciary of an employee benefit plan subject to Title I of ERISA
(an "ERISA Plan") should carefully consider whether an investment in stock of
the Company is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require (i)
an ERISA Plan's investments to be prudent and in the best interests of the ERISA
Plan, its participants and beneficiaries, (ii) an ERISA Plan's investments to be
diversified in order to reduce the risk of large losses, unless it is clearly
prudent not to do so, (iii) an ERISA Plan's investments to be authorized under
ERISA and the terms of the governing documents of the ERISA Plan and (iv) that
the fiduciary not cause the ERISA Plan to enter into transactions prohibited
under Section 406 of ERISA. In determining whether an investment in stock of the
Company is prudent for purposes of ERISA, the appropriate fiduciary of an ERISA
Plan should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's portfolio for
which the fiduciary has investment responsibility, to meet the objectives of the
ERISA Plan, taking into consideration the risk of loss and opportunity for gain
(or other return) from the investment, the diversification, cash flow and
funding requirements of the ERISA Plan and the liquidity and current return of
the ERISA Plan's portfolio. A fiduciary should also take into account the nature
of the Company's business, the length of the Company's operating history and
other matters described below under "Cautionary Statements".
The fiduciary of an IRA or of an employee benefit plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA Plan") should consider that such an
-23-
IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.
Status of the Company under ERISA
A prohibited transaction may occur if the assets of the Company are
deemed to be assets of the investing Plans and "parties in interest" or
"disqualified persons" as defined in ERISA and Section 4975 of the Code,
respectively deal with such assets. In certain circumstances where a Plan holds
an interest in an entity, the assets of the entity are deemed to be Plan assets
(the "look-through rule"). Under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is a Plan fiduciary. Plan assets are not defined in ERISA or the Code,
but the United States Department of Labor issued regulations in 1987 (the
"Regulations") that outline the circumstances under which a Plan's interest in
an entity will be subject to the look-through rule.
The Regulations apply only to the purchase by a Plan of an "equity
interest" in an entity, such as common stock or common shares of beneficial
interest of a REIT. However, the Regulations provide an exception to the
look-through rule for equity interests that are "publicly-offered securities."
Under the Regulations, a "publicly-offered security" is a security that
is (i) freely transferable, (ii) part of a class of securities that is
widely-held and (iii) either (a) part of a class of securities that is
registered under section 12(b) or 12(g) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or (b) sold to a Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
longer period allowed by the Securities and Exchange Commission) after the end
of the fiscal year of the issuer during which the offering of such securities to
the public occurred. Whether a security is considered "freely transferable"
depends on the facts and circumstances of each case. Generally, if the security
is part of an offering in which the minimum investment is $10,000 or less, any
restriction on or prohibition against any transfer or assignment of such
security for the purposes of preventing a termination or reclassification of the
entity for federal or state tax purposes will not of itself prevent the security
from being considered freely transferable. A class of securities is considered
"widely-held" if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another.
The Company believes that the stock of the Company will meet the
criteria of the publicly-offered securities exception to the look-through rule
in that the stock of the Company is freely transferable, the minimum investment
is less than $10,000 and the only restrictions upon its transfer are those
required under federal income tax laws to maintain the Company's status as a
REIT. Second, stock of the Company is held by 100 or more investors and at least
100 or more of these investors are independent of the Company and of one
another. Third, the stock of the Company has been and will be part of offerings
of securities to the public pursuant to an effective registration statement
under the Securities Act and will be registered under the Exchange Act within
120 days after the end of the fiscal year of the Company during which an
offering of such securities to the public occurs. Accordingly, the Company
believes that if a Plan purchases stock of the Company, the Company's assets
should not be deemed to be Plan assets and, therefore, that any person who
exercises authority or control with respect to the Company's assets should not
be treated as a Plan fiduciary for purposes of the prohibited transaction rules
of ERISA and Section 4975 of the Code.
-24-
Cautionary Statements
From time to time the Company may make forward-looking statements that
reflect its current opinion about future events and financial performance.
Readers should understand that the following important factors, among others,
could affect the Company's actual results. These factors could cause actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. The Company has discussed many
of these factors in prior filings with the Securities and Exchange Commission.
General Growth Strategy
The Company follows a general growth strategy of providing integrated
real estate services to the healthcare industry, including the following:
Asset management and strategic planning for real estate;
Property administration, management and leasing services;
Build-to-suit development of healthcare properties;
The acquisition of existing healthcare properties; and
Equity co-investment in healthcare provider acquisition
transactions.
By providing these services, the Company believes it can differentiate
its market position, acquire needed capital, expand its asset base and increase
revenue. The Company believes, however, that there are various risks inherent in
this growth strategy. The following factors, among others, could affect the
Company's ability to grow, and investors should consider them carefully.
Market Competition
The Company competes for property management, development and new
purchases with, among others:
Investors;
Healthcare providers;
Other healthcare related real estate investment trusts;
Real estate partnerships; and
Financial institutions.
These participants in the healthcare real estate marketplace are
competing for attractive investments on an increasingly competitive basis,
resulting in significant investment pressure on the Company. Consequently, many
transactions undertaken by the Company's competitors do not meet the standards
that the Company requires of its investments in terms of:
The present and future internal rate of return;
Credit and financial support;
-25-
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, increased
competition for such assets from other REITs and traditional and non-traditional
equity and debt capital sources may affect the growth and financial return of
the Company.
The Company's properties are also subject to competition from the
properties of other healthcare providers, some of which have greater capital
resources than the providers leasing the Company's facilities. All of the
Company's properties operate in a competitive environment and patients and
referral sources, including physicians, may change their preferences for a
healthcare facility from time to time.
Asset Growth
The Company presently has limited access to capital which will slow the
Company's growth. A REIT is required to make dividend distributions and retains
little capital for growth. As a result, a REIT is required to grow through the
steady investment of new capital in real estate assets. Since 1992, the REIT
industry has been in an expansion mode and the growth of market valuation of
REIT shares had provided REITs with increasing access to the capital markets. By
the end of 1998, however, market valuations of REIT shares (including the
Company's shares) had declined substantially with the result that the Company
presently has limited access to capital from the equity market. The Company has
already used all of its existing capital to acquire healthcare properties. It
does, however, retain a significant amount of its available debt commitments and
intends to undertake asset dispositions to release capital for additional
investments. However, the Company may not be able to obtain additional equity or
debt capital or dispose of assets at the time it requires additional capital.
Moreover, the Company may not be able to obtain capital on terms that will
permit it to acquire healthcare properties on a competitive basis.
The Company may not be able to obtain additional capital or dispose of
assets at the time it requires the funds to pay its debt obligations when due.
On October 15, 1998, at the same time as the Capstone merger, the Company repaid
the outstanding balances due under both Capstone's and its own unsecured credit
facilities and entered into a $265.0 million unsecured credit facility (the
"Unsecured Credit Facility") with ten commercial banks. At December 31, 1998,
the Company had available borrowing capacity of $94.0 million under the
Unsecured Credit Facility.
On October 15, 1998, at the time of the Capstone merger, the
Company entered into a $200.0 million term loan (the "Term Loan Facility")
with NationsBank, N. A. The Term Loan matures on April 16, 1999. The Company
intends to exercise the option to extend the maturity date for an additional
six month period in consideration of an extension payment of .30 of 1%.
Repayment of the Term Loan Facility may require proceeds from additional
equity offerings, disposition of assets, mortgaging its individual assets or
refinancing of the Term Loan Facility.
On or before September 1, 1999, the Company will be required to make an
$18.0 million principal payment on its 7.41% Senior Notes due September 1, 2002.
The Company may also be required to borrow money and mortgage its
properties to fund any shortfall of cash necessary to meet cash distribution
requirements necessary to maintain its REIT status.
-26-
Failure of the Company to maintain or increase its dividend would
reduce the market price of the Company's stock which could make it difficult for
the Company to raise additional equity capital on favorable terms, if at all.
The Company has raised its quarterly dividend each consecutive quarter since the
Company's initial public offering. The ability to maintain or raise its dividend
is dependent, to a large part, on growth of funds from operations. This growth
in turn depends upon increased revenues from additional investments, rental
increases and income from administrative and management services. Also impacting
the Company's ability to continue to increase its dividends are the matters
described below.
The Company's current debt arrangements prohibit it from declaring or
paying dividends at any time it fails to make any payment of principal,
interest, fees or other amounts when due. These arrangements further prohibit
the Company from declaring or paying dividends (other than as the Company
determines are necessary to maintain its status as a REIT) if, at that time, any
other event of default exists. Repayment of any borrowings, as well as the
resulting interest expense and debt amortization, could negatively affect the
Company's cash available for distribution. If the Company defaults on any loan
secured by mortgages on any of its properties, the lenders may foreclose on such
property, and as a result, the Company would lose its investment.
The risks of development funding are greater than the risks associated
with the purchase and lease-back of operating properties because of the
potential for greater Company involvement in the development process due to
developer or contractor failure to perform under the terms of the agreement. The
Company has entered into funding arrangements with respect to 34 real estate
properties currently in progress. The Company believes that development funding
is an effective method to acquire new healthcare facilities that providers have
determined are vital to their business. Development funding arrangements require
the Company to provide the funding to enable healthcare operators to build
facilities on property owned or leased by the Company. Investors must understand
that the current portfolio of development funding may not be completed under the
terms of the agreements.
Transfers of operations of healthcare facilities are subject to
regulatory approvals not required for transfers of other types of commercial
operations and real estate. In addition, many of the properties are
special-purpose facilities that may not be easily adaptable to uses unrelated to
healthcare.
Revenue Growth
The Company's general growth strategy requires continuing growth in the
Company's funds from operations. The following factors, among others, can
negatively affect the Company's funds from operations.
Operators of senior living assets have come under increased financial
pressure which may affect their ability to meet their obligations to the
Company. While the Company had previously maintained approximately 20% of its
portfolio in senior living assets, senior living assets now comprise 32% of its
portfolio as a result of its acquisition of Capstone. The Company expects to
reduce this percentage through prepayments of mortgages and dispositions; and
the Company may dispose of a significant portion of these assets and employ the
proceeds for other Company purposes. The Company may not be able to consummate
such dispositions and consequently the Company may have a greater risk profile
relative to senior living assets. Due to increased competition in the senior
living assets sector, operators of senior living facilities have come under
increased financial pressure; additionally, the implementation of the
"prospective payment system" for Medicare reimbursements has added additional
pressure on the operators. To date, one operator in this sector has declared
bankruptcy, and the Company cannot be certain that additional operator failures
in this sector will not occur. Pressures on the overall senior living sector
will affect revenues and may affect the ability of the operators to fund their
obligations to the Company.
-27-
The investment returns available from equity investments in real estate
depend largely on the amount of income earned and capital appreciation generated
by the related properties, as well as the expenses incurred. Real property
investments are generally subject to varying degrees of risk. To offset the
threat of insufficient revenue to meet operating expenses, debt service, capital
expenditures and dividend payments, the Company requires net master leases or
similar financial support with primary term periods for most of its investments.
Nevertheless, the Company's properties are subject to all of the normal risks
associated with real estate investments.
Healthcare provider operations can affect the lease revenues and values
of the Company's investments. The healthcare service industry continues to be a
profitable, growing segment of the economy, supported by fundamentals that
ensure continued growth. However, the industry is currently experiencing:
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.
The changes can affect the economic performance of some or all of the tenants
and sponsors who provide financial support to the Company's investments and, in
turn, the lease revenues and the value of the Company's property investments.
The Company's concentration on a few healthcare providers would magnify
the negative affect on the Company if a larger provider were to suffer financial
hardships. Currently 57.5% of the Company's real estate portfolio is leased to,
or supported by its five largest healthcare provider clients. To varying
degrees, these providers have experienced the pressures listed above. Negative
performance by one or more of these providers could have an adverse impact to
the support arrangements that the Company has with these providers and require
the Company to rely solely upon rental revenue from occupant tenants. If the
Company is required to rely solely upon tenant occupants with respect to one or
more properties, it will experience the typical risks associated with real
estate investments enjoying no supplemental credit support, including
competition for individual tenants and the renewal or roll-over of existing
leases.
If the inpatient occupancy rate at a hospital near a Company facility
deteriorated to a level at which operating cash flows would be insufficient to
cover the payments to the Company, the Company would have to rely upon the
general credit of the provider or the related guarantor, if any. Most of the
hospitals adjacent to or associated with the Company's current properties and
those to be acquired by the Company are substantially less than fully occupied
on an inpatient basis. Despite such occupancy rates, however, the operating cash
flow produced by such hospitals adequately covers related payments to the
Company.
If a provider lost its licensure or certification, the Company would
have to obtain another provider for the affected facility. Healthcare providers
are subject to federal and state laws and regulations which govern financial and
other arrangements between healthcare operators. The Company cannot be certain
that it could attract another healthcare provider on a timely basis or on
acceptable terms. Failure to do so would hurt the Company's revenues.
A failure of the Company to reinvest the proceeds from securities
offerings and property dispositions could have an adverse effect on the
Company's future revenues. From time to time, the Company will have cash
available from (1) the proceeds of sales of shares of its securities, and (2)
the sale of its properties, including non-elective dispositions, under the terms
of master leases or similar financial support arrangements. These arrangements
-28-
require, among other items, a disposition of properties in the event of a
healthcare provider's default, and upon the healthcare provider's exercise of an
option to repurchase these properties. The Company must re-invest these
proceeds, on a timely basis, in another healthcare investment or in a qualified
short-term investment. While the Company has been able to do so in the past, the
Company may not be able to invest proceeds on a timely basis or on acceptable
terms in the future.
The purchase of one or more properties may not be completed or may be
delayed for various reasons. Acquisition delays will negatively impact revenues
and may have the potential to adversely effect the Company's ability to increase
its distributions to shareholders.
Termination of property management engagements can result in lost
income. The Company is engaged on its own behalf, and for the benefit of
third-party property owners, in the following activities:
Asset and property management;
Day-to-day property management;
Leasing of multi-tenanted healthcare properties; and
Supervision of the development of new healthcare properties.
The terms of these service engagements can vary in duration from month-to-month
to 15 years. Additionally, the Company regularly terminates engagements as a
result of completion of the engagement assignment or the sale of managed
properties by the Company or third-party owners. Termination of engagements
results in lost future income stream. In addition, unamortized capital costs
incurred in obtaining engagements must be charged against current revenues or
established reserves. The Company has experienced significant fluctuation in the
number of engagements in effect at any given time. This fluctuation generates
uncertainty as to the predictability of net revenues. 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 Company may
not be able to continue to be able to market or cross-sell its property
management services successfully.
Failure to maintain its status as a REIT, even in one taxable year,
could cause the Company to reduce its dividends dramatically. The Company
intends to qualify at all times as a REIT under the Code. If in any taxable year
the Company does not qualify as a REIT, it would be taxed as a corporation. As a
result, the Company could not deduct its distributions to the shareholders in
computing its taxable income. Depending upon the circumstances, a REIT that
loses its qualification in one year may not be eligible to re-qualify during the
four succeeding years. Further, certain transactions or other events could lead
to the Company being taxed at rates ranging from four to 100 percent on certain
income or gains.
President Clinton's Budget proposals could affect the Company's
operations. The Clinton Administration's Fiscal Year 2000 Budget proposal
includes three provisions of interest to REITs in general, two of which
potentially affect the Company: (i) modification of the structure of businesses
which are indirectly conducted by the Company, which could limit or negatively
affect the Company's future ability to engage indirectly in certain business
activities that cannot be conducted directly by the Company; and (ii) repeal of
tax-free conversion of large C corporations to S corporations, which would
effectively tax the built-in gains of C corporations prospectively electing
tax-free reorganizations, thus affecting an acquisition format employed by the
Company in the past.
-29-
Item 2. Properties
Executive Offices
- -----------------
The Company's headquarters, located in offices at 3310 West End Avenue
in Nashville, Tennessee, are leased from an unrelated third party. The lease
agreement, covering approximately 20,569 square feet of rented space, expires on
October 31, 2003, with two five-year renewal options. Annual rental is
approximately $382,000.
Property Operations
- -------------------
The following table sets forth information regarding the Company's
properties as of December 31, 1998.
-30-
Facility Facility Total Date
Facility Name Type (1) Operator Location Investment Encumbrances Acquired
Orange Grove Medical Clinic AHF Col/HCA Healthcare Corp. AZ $ 5,273,993 0 1993
Eaton Canyon Medical Building AHF Tenet Healthcare Corp. CA 4,792,781 0 1995
Fountain Valley - AHF 1 AHF Tenet Healthcare Corp. CA 5,556,385 0 1994
Fountain Valley - AHF 2 AHF Tenet Healthcare Corp. CA 5,128,834 0 1994
Fountain Valley - AHF 3 AHF Tenet Healthcare Corp. CA 9,002,040 0 1994
Fountain Valley - AHF 4 AHF Tenet Healthcare Corp. CA 9,065,344 0 1994
Fountain Valley - AHF 5 AHF Tenet Healthcare Corp. CA 15,434,588 0 1997
Valley Presbyterian (15211) AHF Valley Presbyterian Hosp. CA 7,538,204 0 1993
Valley Presbyterian (6840-50) AHF Valley Presbyterian Hosp. CA 5,327,777 0 1993
Deering Medical Plaza AHF Heathcare Realty Trust FL 5,129,587 0 1994
East Pointe Medical Plaza AHF Col/HCA Healthcare Corp. FL 4,981,848 0 1994
Gulf Coast Medical Centre AHF Heathcare Realty Trust FL 4,922,637 0 1994
Southwest Medical Centre Plaza AHF Heathcare Realty Trust FL 8,236,213 0 1994
Southwest Medical Centre Plaza II AHF Col/HCA Healthcare Corp. FL 1,620,558 0 1995
Coral Gables Medical Plaza AHF Tenet Healthcare Corp. FL 11,215,274 0 1994
Palm Beach Medical Group Building AHF Phycor Inc. FL 4,015,316 0 1996
Palms of Pasadena Medical Plaza AHF Tenet Healthcare Corp. FL 5,563,620 0 1994
Candler Parking Garage AHF Candler Health Systems GA 4,201,212 0 1994
Candler Professional Office Bldg (1) AHF Candler Health Systems GA 7,193,045 1,000,000 1994
Candler Regional Heart Center AHF Candler Health Systems GA 9,348,242 0 1995
North Fulton Medical Arts Plaza AHF Heathcare Realty Trust GA 6,286,802 0 1993
Northwest Medical Center AHF Heathcare Realty Trust GA 10,710,322 0 1994
Overland Park Regional Medical Ctr AHF Col/HCA Healthcare Corp. KS 10,463,707 0 1995
Hendersonville Medical Office Building AHF Col/HCA Healthcare Corp. TN 3,138,889 0 1994
Bayshore Doctors Center AHF Col/HCA Healthcare Corp. TX 1,905,817 0 1993
Judson Medical Building AHF Methodist TX 779,908 0 1996
Oregon Medical Building AHF Col/HCA Healthcare Corp. TX 18,485,079 0 1993
Rosewood Professional Building AHF Col/HCA Healthcare Corp. TX 5,252,820 0 1994
Spring Branch Professional Building AHF Col/HCA Healthcare Corp. TX 14,301,748 0 1993
Toepperwein Medical Center AHF Methodist TX 3,057,056 0 1996
Lake Pointe Medical Plaza AHF Tenet Healthcare Corp. TX 1,737,128 0 1993
Southwest General Birthing Center AHF Tenet Healthcare Corp. TX 3,236,289 0 1993
Trinity Valley Birthing Center AHF Tenet Healthcare Corp. TX 3,671,601 0 1994
Chippenham Medical Offices AHF Col/HCA Healthcare Corp. VA 3,771,668 0 1994
Chippenham Medical Offices AHF Col/HCA Healthcare Corp. VA 4,593,463 0 1994
Johnston-Willis Medical Offices AHF Col/HCA Healthcare Corp. VA 8,773,577 0 1994
Johnston-Willis Medical Offices AHF Col/HCA Healthcare Corp. VA 5,855,716 0 1996
Lewis Gale-Clinic, Keagy, Braeburn, Fl AHF Phycor Inc. VA 27,607,442 0 1996
Lewis Gale - Medical Foundation AHF Phycor Inc. VA 1,433,579 0 1996
Trinity West Medical Plaza AHF Tenet Heathcare/HRT, Inc. TX 5,935,565 0 1997
Rothsville Medical Center Complex AHF Ephrata Community Hosp. PA 4,185,189 0 1998
American Sports Medicine Institute AHF Healthsouth AL 4,477,033 0 1998
Beaumont Regional Prof Tower AHF Col/HCA Healthcare Corp. TX 10,720,697 0 1998
Bellaire Medical Plaza AHF Col/HCA Healthcare Corp. TX 9,317,196 0 1998
Birmingham Medical Building I AHF Healthsouth AL 6,576,052 0 1998
Birmingham Medical Building II AHF Healthsouth AL 13,431,121 0 1998
Burbank Mulliken Medical Plaza(3) AHF MedPartners CA 6,681,150 0 1998
Cool Springs Medical Center AHF Cool Springs TN 10,198,967 4,531,786 1998
Daniel Medical Center AHF Winter Park FL 7,610,508 0 1998
Desert Springs Medical Plaza AHF Quorum NV 6,559,142 0 1998
Goodyear Clinic AHF Quorum AL 2,242,890 0 1998
Hamiter Building AHF Quorum AL 6,116,092 0 1998
Larkin Medical Building Annex AHF Healthsouth FL 3,148,220 0 1998
One-7000 Larkin Building AHF Healthsouth FL 18,542,361 0 1998
Gadsden Medical Building II AHF Quorum AL 8,108,661 0 1998
Midway Medical Plaza AHF Tenet Healthcare Corp. CA 27,015,735 0 1998
Richmond Medical Bldg I AHF Healthsouth VA 13,995,570 0 1998
Sarasota Medical Center AHF Col/HCA Healthcare Corp. FL 18,987,150 8,770,158 1998
Southwest General Medical Bldg AHF New Medical Prop. Invest. TX 3,224,271 0 1998
-31-
Sunrise Mountainview Medical Center AHF Col/HCA Healthcare Corp. NV 40,299,044 22,830,034 1998
The Grand Court of Abilene ALF Grand Court TX 10,033,174 0 1998
Outlook Pointe/Creekview(ALCO IV)(3) ALF Balanced Care PA 6,562,185 0 1998
Augusta Gardens ALF Matrix GA 5,948,471 0 1998
Bloomsburg Manor Pers Care Ret Ctr ALF Balanced Care PA 4,109,215 0 1998
Joe Clark Residential Care Home ALF Balanced Care MO 1,525,522 0 1998
Outlook Pointe at Danville(ALCOIII) ALF Balanced Care VA 5,919,470 0 1998
The Grand Court of El Paso ALF Grand Court TX 10,414,123 0 1998
Outlook Pointe at Greensboro(3) ALF Balanced Care NC 3,711,839 0 1998
Outlook Pointe at Harrisburg ALF Balanced Care PA 4,535,119 0 1998
Outlook Pointe at Harrisonburg(ALCOI) ALF Balanced Care VA 5,218,118 0 1998
Kingsley Place of Henderson ALF Senior Lifestyles TX 5,831,076 0 1998
Summervillerville at Hillsborough(3) ALF Summerville NJ 6,268,372 0 1998
Jaylene Manor Nursing Home ALF Senior Lifestyles FL 1,760,492 0 1998
Jenni-Lynn ALF Senior Lifestyles SC 2,998,788 0 1998
Kingston Manor Pers Care & Retir Ctr ALF Balanced Care PA 4,092,720 0 1998
Balanced Care at Lamar ALF Balanced Care MO 1,525,522 0 1998
Kingsley Place of McKinney ALF Senior Lifestyles TX 6,898,713 0 1998
Kingsley Place Med Center of Oakwell ALF Senior Lifestyles TX 7,510,987 0 1998
Mid Valley Manor Pers Care Retire Ctr ALF Balanced Care PA 3,878,305 0 1998
The Terraces at Balanced Care, NV I ALF Balanced Care MO 1,525,522 0 1998
The Terraces at Balanced Care,NV II ALF Balanced Care MO 1,525,522 0 1998
Kingsley Place of Oakwell ALF Senior Lifestyles TX 7,970,947 0 1998
Summervillerville at Ocoee(3) ALF Summerville FL 3,028,408 0 1998
Old Forge Manor Pers care & Retir Ctr ALF Balanced Care PA 2,693,139 0 1998
Outlook Pointe at Ravenna ALF Balanced Care OH 4,329,238 0 1998
River Landings Medical Centre ALF Col/HCA Healthcare Corp. FL 1,526,957 0 1998
Outlook Pointe at Roanoke(ALCOII) ALF Balanced Care VA 5,565,246 0 1998
The Grand Court of San Angelo ALF Grand Court TX 10,940,052 0 1998
Summervillerville at Stafford(3) ALF Summerville NJ 7,258,624 0 1998
Summervillerville at Torrington(3) ALF Summerville CT 9,296,809 0 1998
West View Manor Personal Care ALF Balanced Care PA 2,800,352 0 1998
The Grand Court of Wichita Falls ALF Grand Court TX 11,553,754 0 1998
Zephyrhills Medical Clinic ALF Col/HCA Healthcare Corp. FL 1,390,385 0 1998
Port Orange(3) ALF Summerville FL 3,178,197 0 1998
Bakersfield Surgery Center ASC Healthsouth CA 1,046,229 0 1993
Valley View Surgery Center ASC Healthsouth NV 3,800,571 0 1994
Physicians Daysurgery Center ASC Col/HCA Healthcare Corp. TX 2,039,563 0 1993
Bonita Bay Medical Centre ASC Col/HCA Healthcare Corp. FL 10,655,720 4,716,724 1998
Cape Coral Medical Plaza ASC Col/HCA Healthcare Corp. FL 5,523,307 3,316,446 1998
North Shore Surgical Center ASC Healthsouth IL 1,385,364 0 1998
Northlake Surgical Center ASC Col/HCA Healthcare Corp. GA 1,487,552 0 1998
South County Medical Ctr I ASC Healthsouth MO 11,420,902 0 1998
West County Surgery Center ASC Healthsouth MO 4,092,582 0 1998
St. Andrews(2) CAC Col/HCA Healthcare Corp. FL 11,528,045 0 1996
Five Points Medical Building CAC Tenet Healthcare Corp. FL 10,955,235 0 1995
Huebner Medical Center CAC Huebner TX 12,049,818 0 1993
Huebner Medical Center II CAC Huebner TX 9,666,769 0 1994
Cedar Park Ctr Hlthcare(Navarre)(3) CAC Arcon FL 4,631,479 0 1998
Arcon-Defuniak CAC Arcon FL 6,255,220 0 1998
Crystal Beach Center for Healthcare CAC Arcon FL 5,645,166 0 1998
Hazelwood(3) CAC Healthsouth MO 7,000,358 0 1998
Arcon Mesquite Healthcare CAC Arcon NV 6,155,138 0 1998
-32-
Scottsdale(3) CAC Healthsouth AZ 6,705,071 0 1998
Arcon Soddy Daisy Ctr for Hlthcare CAC Arcon TN 4,555,865 0 1998
Suburban Heights Medical Center CAC MedPartners IL 11,133,061 0 1998
Kerlan Jobe CAC Kerlan Jobe Orthopae Clinic CA 21,852,586 0 1998
Little Rock Rehab Center CAC Healthsouth AR 2,882,403 0 1998
Virginia Beach Rehabilitation Center CAC Healthsouth VA 2,043,725 0 1998
Coral Gables Rehabilitation Center CAC Healthsouth FL 3,218,014 0 1998
HS Rehab Hosp of Montgomery IRF Healthsouth AL 17,388,466 0 1998
HS Rehab Hosp of Nittany Valley IRF Healthsouth PA 19,247,609 0 1998
HS Rehab hosp of Tallahassee IRF Healthsouth FL 11,482,882 0 1998
HS Rehab Hosp of York IRF Healthsouth PA 19,247,609 0 1998
HS Rehab Hosp-Gr Pittsb(Allegheny) IRF Healthsouth PA 17,499,957 0 1998
HS Rehab Hosp of Altoona IRF Healthsouth PA 19,521,299 0 1998
Great Lakes Rehab Hospital IRF Healthsouth PA 20,498,812 0 1998
HS Rehab Hosp of Mechanicsburg IRF Healthsouth PA 14,120,747 0 1998
Richmond Medical Bldg II IRF Healthsouth VA 2,938,560 0 1998
Southeast Texas Rehab Hospital IRF Healthsouth TX 12,673,171 0 1998
Bradley Medical Building MOB Bradley Mem Hosp TN 8,729,905 0 1997
Rowlett Medical Plaza MOB Tenet Healthcare Corp. TX 1,976,372 0 1994
New River Valley Med. Arts Building MOB Col/HCA Healthcare Corp. VA 926,023 0 1993
Valley Medical Center MOB Col/HCA Healthcare Corp. VA 1,015,117 0 1993
Lewis Gale-Business & Child Care Ctr MOB Phycor Inc. VA 6,766,956 0 1996
Lewis Gale - Valley View MOB Phycor Inc. VA 5,121,498 0 1996
Clinica Latina PC Tenet Healthcare Corp. CA 724,470 0 1995
Southwest Florida Orthopedic Center PC Col/HCA Healthcare Corp. FL 3,604,186 0 1994
Medical & Surgical Institute of Ft. Laud PC Tenet Healthcare Corp. FL 5,213,956 0 1994
Doctors' Clinic PC Phycor Inc. FL 10,305,181 0 1993
Woodstock Clinic PC Tenet Healthcare Corp. GA 2,673,880 0 1994
Durham Medical Center PC Durham TX 8,591,752 0 1993
Valley Diag Med and Surgical Ctr PC Phycor Inc. TX 4,458,322 0 1993
Lewis Gale - Bent Mountain Rd Clinic PC Phycor Inc. VA 350,203 0 1996
Lewis Gale - Bohnsack Clinic PC Phycor Inc. VA 674,806 0 1996
Lewis Gale - Craig County Clinic PC Phycor Inc. VA 182,269 0 1996
Lewis Gale - Family Practice Center PC Phycor Inc. VA 1,151,983 0 1996
Lewis Gale - Fincastle Clinic PC Phycor Inc. VA 337,915 0 1996
Lewis Gale - Spartan Drive PC Phycor Inc. VA 901,107 0 1996
Vanderbilt-MetroCenter Healthcare PC Vanderbilt Univ. Med. Ctr. TN 1,889,836 0 1998
Vanderbilt-Hickory Hollow Healthcare PC Vanderbilt Univ. Med. Ctr. TN 2,057,416 0 1998
Vanderbilt-Rivergate Healthcare PC Vanderbilt Univ. Med. Ctr. TN 1,981,966 0 1998
Vanderbilt-Cool Springs Healthcare PC Vanderbilt Univ. Med. Ctr. TN 2,186,828 0 1998
Agawam Health Center PC MedPartners MA 2,515,941 0 1998
Baintree Health Care Center PC MedPartners MA 7,491,318 0 1998
Brookstone Office Building PC MedPartners FL 6,618,440 0 1998
Chicopee Health Care Center PC MedPartners MA 9,036,049 0 1998
Clayton Big Bend Medical Center PC SSM Health Systems, Inc. MO 5,203,944 0 1998
Columbus OB/GYN Clinic PC MedPartners GA 2,575,508 0 1998
Framingham Health Care Center PC MedPartners MA 3,889,036 0 1998
Greenwood Medical Building PC MedPartners TN 2,506,600 0 1998
HS Imaging Center at Highlands PC Healthsouth AL 2,589,996 0 1998
Indialantic Medical Building PC MedPartners FL 2,157,879 0 1998
Kelsey-Seybold Clinic West PC MedPartners TX 16,144,736 0 1998
McCollough Clinic PC MedPartners AL 8,210,985 0 1998
-33-
Melbourne Internal Medicine Clinic PC MedPartners FL 3,820,375 0 1998
Melbourne Medical Building PC MedPartners FL 13,255,550 0 1998
Methuen Health Care Center PC MedPartners MA 7,274,682 0 1998
Par Place Medical Ctr PC MedPartners FL 8,175,460 0 1998
South County Medical Ctr II PC Healthsouth MO 4,069,228 0 1998
West Palm Beach Medical Bldg PC MedPartners FL 840,269 0 1998
Life Care Center of Globe SNF Life Care Ctrs of America AZ 2,873,661 0 1997
Fountain Valley - Living Care Center SNF Tenet Healthcare Corp. CA 12,687,699 0 1994
Life Care Center of Aurora SNF Life Care Ctrs of America CO 6,230,515 0 1994
Life Care Center of Greeley SNF Life Care Ctrs of America CO 12,417,625 0 1997
Life Care Center of Centerville SNF Life Care Ctrs of America TN 5,046,153 0 1997
Life Care Center of Lynchburg SNF Life Care Ctrs of America TN 3,289,203 0 1997
Life Care Center of Westminster SNF Life Care Ctrs of America CO 7,759,595 0 1996
Life Care Center of Orange Park SNF Life Care Ctrs of America FL 10,205,696 0 1995
New Harmonie Healthcare Center SNF Centennial Heathcare IN 3,640,140 0 1993
Life Care Center of Wichita SNF Life Care Ctrs of America KS 7,592,661 0 1996
Fenton Extended Care Center SNF Centennial Heathcare MI 3,540,494 0 1993
Meadows Nursing Center SNF Centennial Heathcare MI 3,284,185 0 1993
Ovid Convalescent Manor SNF Centennial Heathcare MI 3,143,156 0 1993
Wayne Convalescent Center SNF Centennial Heathcare MI 1,049,352 0 1993
Westgate Manor Nursing Home SNF Centennial Heathcare MI 1,697,049 0 1993
Life Care Center of Forth Worth SNF Life Care Ctrs of America TX 9,445,015 0 1995
Life Care Center of Houston SNF Life Care Ctrs of America TX 10,020,503 0 1995
Life Care Center of Columbia SNF Life Care Ctrs of America TN 0 0 1997
Blakely-Pine Health Care Center SNF Balanced Care PA 2,931,114 0 1998
Adams Christian Convalescent Ctr(4) SNF Quality Link VA 6,938,969 16,516,611 1998
The Village Nursing Ctr (Ft Union)(4) SNF Quality Link VA 3,201,294 0 1998
The Laurels of Forest Glen(4) SNF Quality Link VA 6,163,582 0 1998
The Meadows of Goochland(4) SNF Quality Link VA 4,724,495 0 1998
Kingston Health Care Center SNF Balanced Care PA 5,001,045 0 1998
The Brian Ctr Health & Rehab (4) SNF Quality Link VA 5,284,301 0 1998
Mountain View Nursing Home SNF Integrated Health PA 12,643,993 0 1998
Twin Oaks Convalescent Home(4) SNF Quality Link VA 3,451,885 0 1998
IHS of Northern Virginia(Alexandria) SNF Integrated Health VA 12,878,424 0 1998
Gravois Nursing Center SNF Integrated Health MO 10,997,354 0 1998
Midtown Medical Center OTH Midtown AL 8,757,955 0 1993
Puckett Laboratory OTH Pathology Laboratories MS 4,285,485 0 1993
Desert Vista Hospital OTH Ramsay AZ - 0 1998
Mission Vista Hospital OTH Ramsay TX 6,276,614 0 1998
Havenwyck Hospital OTH Ramsay MI 14,443,406 0 1998
Tucson MOB(3) OTH MedCath AZ 2,517,732 0 1998
--------- -
Total Real Estate 1,384,275,234 61,681,759
------------- ----------
Corporate Property 3,279,517 0
Total Property $1,387,554,751 $61,681,759
============== ===========
-34-
(1) This encumbrance is to protect the lessee's interest in their security
deposit.
(2) Consists of three buildings, with one building being an MOB that is in
construction as of 12/31/98.
(3) Development at 12/31/98.
(4) All 6 of the properties are encumbered by one mortgage with a 12/31/98
balance of $16,516,610.
(5) Facility Types:
AHF Ancillary Hospital Facilities
ALF Assisted Living Facilities
ASC Ambulatory Surgery Centers
CAC Comprehensive Ambulatory Care Centers
IRF Inpatient Rehabilitation Facilities
MOB Medical Office Buildings
PC Physician Clinics
SNF Skilled Nursing Facilities
OTH Other
-35-
Item 3. Legal Proceedings
- -------
The Company is not aware of any material legal action pending or
threatened against it.
Item 4. Submission of Matters to a Vote of Securityholders
- -------
On October 15, 1998, the holders of the Company's Common Stock met at a
special meeting and approved the issuance of shares of Common Stock and
Preferred Stock in connection with the merger with Capstone Capital Corporation
described above by the following vote:
Votes Cast Votes Cast Against Abstentions/
in Favor or Withheld Broker Non-votes
13,310,774 200,879 185,547
No other matter was submitted to a vote of shareholders during the
fourth quarter of 1998.
-36-
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------ Matters
Information relating to the Company's Common Stock, set forth on page
36 of the Company's 1998 Annual Report to Shareholders under the caption
"Common Stock," is incorporated herein by reference.
The Company made no private sales of equity securities during 1998.
Item 6. Selected Financial Data
- ------
The Company's selected financial data, set forth on page 9 of its
1998 Annual Report to Shareholders under the caption "Selected Financial
Information," is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
- ------ and Results of Operations
The Company's information relating to management's discussion and
analysis of financial condition, set forth on pages 10 through 17 of the
Company's 1998 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------
See "Market Risk" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," set forth at pages 16 through 17 of
the Company's 1998 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
- ------
The Company's financial statements and the related notes, together with
the report of Ernst & Young LLP thereon, set forth at pages 18 through 34
of the Company's 1998 Annual Report to Shareholders, are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------ and Financial Disclosure
None.
-37-
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------
Directors
Information with respect to directors, set forth on pages one through
three of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 1999 under the caption "Election of
Directors," is incorporated herein by reference.
Executive Officers
The executive officers of the Company are:
Name Age Position
David R. Emery........................ 54 Chairman of the Board, Chief Executive Officer &
President
Timothy G. Wallace.................... 40 Executive Vice President & Chief Financial Officer
Roger O. West......................... 54 Executive Vice President & General Counsel
Mr. Emery formed the Company and has held his current positions since
May 1992. Prior to 1992, Mr. Emery was engaged in the development and management
of commercial real estate in Nashville, Tennessee. Mr. Emery has been active in
the real estate industry for 29 years.
Mr. Wallace has held executive positions with the Company since January
1993. Prior to joining the Company, he was a Senior Manager with responsibility
for healthcare and real estate in the Nashville, Tennessee office of Ernst &
Young LLP from June 1989 to January 1993.
Mr. West has held executive positions with the Company since May 1994.
Prior to joining the Company, he was a senior partner in the law firm of Geary,
Porter and West, P.C. in Dallas, Texas from July 1992 to May 1994. Mr. West
has extensive experience in the areas of corporate, tax and real estate law.
Item 11. Executive Compensation
- -------
Information relating to executive compensation, set forth on pages five
through eight of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 1999 under the caption "Executive
Compensation," is incorporated herein by reference. The Comparative Performance
Graph and the Compensation Committee Report on Executive Compensation also
included in the Proxy Statement are expressly not incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------
Information relating to the security ownership of management and
certain beneficial owners, set forth on pages four through five of the Company's
Proxy Statement relating to the Annual Meeting of Shareholders to be held on May
11, 1999 under the caption "Security Ownership of Certain Beneficial Owners and
Management," is incorporated herein by reference.
-38-
Item 13. Certain Relationships and Related Transactions
- -------
Information relating to certain relationships and related transactions,
set forth on page 13 of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 11, 1999 under the caption "Certain
Relationships and Related Transactions," is incorporated herein by reference.
-39-
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------
(a) Index to Pro Forma and Historical Financial Statements,
Financial Statement Schedules and Exhibits
(1) Financial Statements:
--------------------
The following financial statements of Healthcare
Realty Trust Incorporated are incorporated by reference in
Item 8 from the 1998 Annual Report to Shareholders:
Audited Consolidated Financial Statements
- -----------------------------------------
- Independent Auditors' Report.
- Consolidated Balance Sheets - December 31, 1998 and 1997.
- Consolidated Statements of Income for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, December 31, 1997 and December 31,
1996.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
- Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
-----------------------------
Schedule III -- Real Estate and Accumulated Depreciation at
December 31, 1998.................S-1
Schedule IV - Mortgage Loans on Real Estate at December 31, 1998
All other schedules are omitted because they are not
applicable or not required or because the information is
included in the consolidated financial statements or notes
thereto.
(3) Exhibits:
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 -- Second Articles of Amendment and Restatement of the Registrant.(1)
3.2 -- Second Amended and Restated Bylaws of the Registrant.(2)
4 -- Specimen stock certificate.(1)
10.1 -- 1993 Employees Stock Incentive Plan of Healthcare Realty Trust Incorporated.(1)
10.2 -- 1995 Restricted Stock Plan for Non-Employee Directors of Healthcare Realty Trust
Incorporated.(4)
10.3 -- Executive Retirement Plan, as amended. (5)
10.4 -- Retirement Plan for Outside Directors.(1)
10.5 -- Deferred Compensation Plan.(1)
10.6 -- Dividend Reinvestment Plan.(2)
10.7 -- Amended and Restated Employment Agreement by and between David R. Emery and Healthcare Realty
Trust Incorporated. (5)
10.8 -- Amended and Restated Employment Agreement by and between Roger O. West and Healthcare Realty
Trust Incorporated. (5)
10.9 -- Amended and Restated Employment Agreement by and between Timothy G. Wallace and Healthcare
Realty Trust Incorporated. (5)
-40-
10.10. -- Revolving Credit Agreement, dated as of October 15, 1998, among Healthcare Realty Trust
Incorporated, NationsBank, N.A., First Union National Bank, Societe Generale, and Bank Austria
Creditanstalt Corporate Finance, Inc. (filed herewith)
10.11 -- Term Credit Agreement, dated as of October 15, 1998, among Healthcare Realty Trust
Incorporated, Capstone Capital Corporation, NationsBank, N.A., and the other lending banks
(filed herewith)
10.12 -- Form of Note Purchase Agreement, dated as of September 1, 1995, pertaining to $90,000,000
aggregate principal amount of 7.41% Senior Notes due September 1, 2002.(3)
11 -- Statement re computation of per share earnings (contained in Note 10 to the Notes to the
Consolidated Financial Statement in the Annual Report to Shareholders for the year ended
December 31, 1998 filed herewith as Exhibit 13).
13 -- Annual Report to Shareholders for the year ended December 31, 1998 (filed herewith).
21 -- Subsidiaries of the Registrant (filed herewith).
23 -- Consent of Ernst & Young LLP, independent auditors (filed herewith).
- ---------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-11 (Registration No. 33-60506) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-11 (Registration No. 33-72860) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(3) Filed as an exhibit to the Company's 10-Q for the quarter ended September 30, 1995 and hereby
incorporated by reference.
(4) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995 and hereby
incorporated by reference.
(5) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1996 and hereby
incorporated by reference.
-41-
Executive Compensation Plans and Arrangements
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
1. 1993 Employees Stock Incentive Plan of Healthcare Realty
Trust Incorporated (filed as Exhibit 10.1)
2. 1995 Restricted Stock Plan for Non-Employee Directors of
Healthcare Realty Trust Incorporated (filed as Exhibit 10.2)
3. Executive Retirement Plan, as amended (filed as Exhibit 10.3)
4. Retirement Plan for Outside Directors (filed as Exhibit 10.4)
5. Deferred Compensation Plan (filed as Exhibit 10.5)
6. Amended and Restated Employment Agreement by and between
David R. Emery and Healthcare Realty Trust Incorporated (filed
as Exhibit 10.7)
7. Amended and Restated Employment Agreement by and between
Roger O. West and Healthcare Realty Trust Incorporated (filed
as Exhibit 10.8)
8. Amended and Restated Employment Agreement by and between
Timothy G. Wallace and Healthcare Realty Trust Incorporated
(filed as Exhibit 10.9)
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last quarter of
1998.
Date of Report Items Reported
-------------- --------------
October 30, 1998 2, 7
December 9, 1998 (8-K/A) 7
Said reports included the financial statements and pro forma financial
statements required by Item 2 for the Capstone merger.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(3).
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(2).
-42-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on March 26, 1999.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ David R. Emery
--------------------------------------------
David R. Emery
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities and on the date indicated.
Signature Title Date
/s/ David R. Emery Chairman, President and March 26, 1999
- ------------------------------------------- Chief Executive Officer (Principal
David R. Emery Executive Officer)
/s/ Timothy G. Wallace Executive Vice President March 26, 1999
- ------------------------------------------- and Chief Financial Officer
Timothy G. Wallace (Principal Financial Officer)
/s/ Fredrick M. Langreck Senior Vice President March 26, 1999
- ------------------------------------------- and Treasurer
Fredrick M. Langreck
/s/ Scott W. Holmes Senior Vice President - March 26, 1999
- ------------------------------------------- Financial Reporting
Scott W. Holmes
/s/ Errol L. Biggs, Ph.D. Director March 26, 1999
- -------------------------------------------
Errol L. Biggs, Ph.D.
/s/ Thompson S. Dent Director March 26, 1999
- -------------------------------------------
Thompson S. Dent
-43-
/s/ Charles Raymond Fernandez, M.D. Director March 26, 1999
- -------------------------------------------
Charles Raymond Fernandez, M.D.
/s/ Batey B. Gresham, Jr. Director March 26, 1999
- -------------------------------------------
Batey B. Gresham, Jr.
/s/ Marliese E. Mooney Director March 26, 1999
- -------------------------------------------
Marliese E. Mooney
/s/ Edwin B. Morris, III Director March 26, 1999
- -------------------------------------------
Edwin B. Morris, III
/s/ John Knox Singleton Director March 26, 1999
- -------------------------------------------
John Knox Singleton
-44-
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1998
----------------Land---------------- ----Buildings, Improvements and CIP----
Costs Costs
Capitalized Capitalized
Facility Initial Subsequent Initial Subsequent
to to
Facility Type/Name Operator Location Investment Acquisition Total Investment Acquisition Total
- ------------------ -------- -------- ---------- ----------- ----- ---------- ----------- -----
Ancillary Hospital
Facilities
Orange Grove Medical Col/HCA AZ 308,070 0 308,070 4,965,923 0 4,965,923
Clinic Healthcare
Eaton Canyon Medical Tenet CA 1,337,483 0 1,337,483 3,122,980 332,318 3,455,297
Building Healthcare
Fountain Valley - Tenet CA 2,218,847 0 2,218,847 3,319,804 17,734 3,337,538
AHF 1 Healthcare
Fountain Valley - Tenet CA 2,059,953 0 2,059,953 3,068,881 0 3,068,881
AHF 2 Healthcare
Fountain Valley - Tenet CA 3,149,515 0 3,149,515 5,666,654 185,871 5,852,525
AHF 3 Healthcare
Fountain Valley - Tenet CA 3,160,865 0 3,160,865 5,859,967 44,513 5,904,479
AHF 4 Healthcare
Fountain Valley - Tenet CA 0 0 0 15,342,398 92,190 15,434,588
AHF 5 Healthcare
Valley Presbyterian Valley CA 1,720,127 0 1,720,127 5,797,840 0 5,797,840
(15211) Presbyterian
Hosp.
Valley Presbyterian Valley CA 1,522,222 0 1,522,222 3,787,288 0 3,787,288
(6840-50) Presbyterian
Hosp.
Deering Medical Plaza Heathcare FL 0 0 0 5,072,041 57,546 5,129,587
Realty Trust
East Pointe Medical Col/HCA FL 45,216 0 45,216 4,936,632 0 4,936,632
Plaza Healthcare
Gulf Coast Medical Heathcare FL 0 0 0 4,843,314 79,323 4,922,637
Centre Realty Trust
Southwest Medical Heathcare FL 0 0 0 8,042,864 193,349 8,236,213
Centre Plaza Realty Trust
Southwest Medical Col/HCA FL 0 0 0 1,620,558 0 1,620,558
Centre Plaza II Healthcare
Coral Gables Medical Tenet FL 532,112 0 532,112 10,677,707 5,454 10,683,162
Plaza Healthcare
Palm Beach Medical Phycor Inc. FL 0 0 0 3,830,316 185,000 4,015,316
Group Building
Palms of Pasadena Tenet FL 0 4,470 4,470 4,245,652 1,199,218 5,444,869
Medical Plaza Healthcare
Candler Parking Candler GA 0 0 0 4,201,212 0 4,201,212
Garage Health Systems
Candler Prof Office Candler GA 0 0 0 7,177,853 15,193 7,193,045
Building (2) Health Systems
Candler Regional Candler GA 0 0 0 9,269,058 79,184 9,348,242
Heart Center Health Systems
North Fulton Medical Heathcare GA 696,248 0 696,248 4,814,870 737,275 5,552,145
Arts Plaza Realty Trust
-S1-
Northwest Medical Heathcare GA 1,268,962 0 1,268,962 8,492,284 937,206 9,429,490
Center Realty Trust
Overland Park Reg Col/HCA KS 0 0 0 10,334,541 120,386 10,454,928
Medical Center Healthcare
Hendersonville Col/HCA TN 395,056 0 395,056 2,643,834 100,000 2,743,834
Medical Office Bldg Healthcare
Bayshore Doctors Col/HCA TX 125,471 0 125,471 1,767,800 0 1,767,800
Center Healthcare
Judson Medical Methodist TX 159,384 0 159,384 598,293 22,230 620,523
Building
Oregon Medical Col/HCA TX 999,193 0 999,193 17,445,918 0 17,445,918
Building Healthcare
Rosewood Col/HCA TX 682,867 0 682,867 4,569,953 0 4,569,953
Professional Building Healthcare
Spring Branch Col/HCA TX 3,833,077 0 3,833,077 10,295,139 0 10,295,139
Professional Building Healthcare
Toepperwein Medical Methodist TX 497,982 0 497,982 2,040,742 518,331 2,559,073
Center
Lake Pointe Medical Tenet TX 217,941 0 217,941 1,507,164 0 1,507,164
Plaza Healthcare
Southwest General Tenet TX 124,000 0 124,000 3,112,289 0 3,112,289
Birthing Center Healthcare
Trinity Valley Tenet TX 73,147 0 73,147 3,598,453 0 3,598,453
Birthing Center Healthcare
Chippenham Medical Col/HCA VA 0 0 0 3,771,668 0 3,771,668
Offices Healthcare
Chippenham Medical Col/HCA VA 874,497 0 874,497 3,718,966 0 3,718,966
Offices Healthcare
Johnston-Willis Col/HCA VA 1,912,645 0 1,912,645 6,860,932 0 6,860,932
Medical Offices Healthcare
Johnston-Willis Col/HCA VA 0 0 0 4,729,002 1,126,714 5,855,716
Medical Offices Healthcare
Lewis Gale-Clinic, Phycor Inc. VA 1,455,813 3136 1,458,949 26,061,170 0 26,061,170
Keagy, Braeburn
Lewis Gale - Medical Phycor Inc. VA 38,604 0 38,604 1,394,974 0 1,394,974
Foundation
Trinity West Medical Tenet TX 0 387,607 387,607 4,707,307 840,651 5,526,591
Plaza Heathcare/HRT
Rothsville Medical Ephrata PA 238,500 0 238,500 3,946,689 0 3,946,689
Center Complex Community
Hosp.
-S2-
American Sports Healthsouth AL 1,138,560 129,712 1,268,272 3,208,761 0 3,208,761
Medicine Institute
Beaumont Regional Col/HCA TX 0 0 0 10,711,597 9,100 10,720,697
Prof Tower Healthcare
Bellaire Medical Col/HCA TX 2,370,993 0 2,370,993 6,946,203 0 6,946,203
Plaza Healthcare
Birmingham Medical Healthsouth AL 970,948 107,063 1,078,011 5,498,041 0 5,498,041
Building I
Birmingham Medical Healthsouth AL 2,583,131 143,999 2,727,130 10,703,991 0 10,703,991
Building II
Burbank Mulliken MedPartners CA 0 0 0 6,681,150 0 6,681,150
Medical Plaza(3)
Cool Springs Medical Cool Springs TN 1,652,013 0 1,652,013 8,546,954 0 8,546,954
Center
Daniel Medical Center Winter Park FL 1,988,552 0 1,988,552 5,621,956 0 5,621,956
Desert Springs Quorum NV 2,028,176 157,340 2,185,516 4,373,626 0 4,373,626
Medical Plaza
Goodyear Clinic Quorum AL 104,667 28,261 132,928 2,109,962 0 2,109,962
Hamiter Building Quorum AL 114,436 62,799 177,235 5,938,857 0 5,938,857
Larkin Medical Healthsouth FL 2,098,275 105,264 2,203,539 944,681 0 944,681
Building Annex
One-7000 Larkin Healthsouth FL 1,021,104 47,716 1,068,820 17,473,541 0 17,473,541
Building
Gadsden Medical Quorum AL 57,218 79,546 136,764 7,971,897 0 7,971,897
Building II
Midway Medical Plaza Tenet CA 5,364,049 26,951 5,391,000 21,624,735 0 21,624,735
Healthcare
Richmond Medical Healthsouth VA 7,155,635 278,085 7,433,720 6,561,850 0 6,561,850
Bldg I
Sarasota Medical Col/HCA FL 0 0 0 18,987,150 0 18,987,150
Center Healthcare
Southwest General New Medical TX 0 0 0 3,224,271 0 3,224,271
Medical Bldg Prop.
Investors
Sunrise Mountainview Col/HCA NV 0 0 0 39,767,625 531,419 40,299,044
Med Ctr Healthcare - - - ---------- ------- ----------
Ancillary Hospital
Facilities 58,295,554 1,561,949 59,857,503 428,157,778 7,430,205 435,566,613
Assisted Living
Facilities
The Grand Court of Grand Court TX 0 0 0 10,033,174 0 10,033,174
Abilene
Outlook Pointe at Balanced Care PA 0 0 0 6,562,185 0 6,562,185
Creekview
Augusta Gardens Matrix GA 0 0 0 5,948,471 0 5,948,471
Bloomsburg Manor Balanced Care PA 98,065 0 98,065 4,011,150 0 4,011,150
Pers Care Ctr
Joe Clark Balanced Care MO 12,868 0 12,868 1,512,654 0 1,512,654
Residential Care Home
Outlook Pointe at Balanced Care VA 374,762 0 374,762 5,544,708 0 5,544,708
Danville(ALCOIII)
The Grand Court of Grand Court TX 0 0 0 10,414,123 0 10,414,123
El Paso
Outlook Pointe at Balanced Care NC 0 0 0 3,711,839 0 3,711,839
Greensboro(3)
-S3-
Outlook Pointe at Balanced Care PA 466,315 0 466,315 4,068,804 0 4,068,804
Harrisburg
Outlook Pointe at Balanced Care VA 233,656 0 233,656 4,984,462 0 4,984,462
Harrisonburg
Kingsley Place of Senior TX 0 0 0 5,831,076 0 5,831,076
Henderson Lifestyles
Summervillerville at Summerville NJ 0 0 0 6,268,372 0 6,268,372
Hillsborough(3)
Jaylene Manor Senior FL 280,506 0 280,506 1,479,986 0 1,479,986
Nursing Home Lifestyles
Jenni-Lynn Senior SC 105,840 0 105,840 2,892,948 0 2,892,948
Lifestyles
Kingston Manor Pers Balanced Care PA 287,456 0 287,456 3,805,264 0 3,805,264
Care & Retir Ctr
Balanced Care at Balanced Care MO 53,472 0 53,472 1,472,050 0 1,472,050
Lamar
Kingsley Place of Senior TX 0 0 0 6,898,713 0 6,898,713
McKinney Lifestyles
Kingsley Place Med Senior TX 0 0 0 7,510,987 0 7,510,987
Ctr of Oakwell Lifestyles
Mid Valley Manor Balanced Care PA 66,445 0 66,445 3,811,860 0 3,811,860
Pers Care Ctr
Terraces at Balanced Balanced Care MO 85,784 0 85,784 1,439,738 0 1,439,738
Care, NV I
Terraces at Balanced Balanced Care MO 53,173 0 53,173 1,472,349 0 1,472,349
Care,NV II
Kingsley Place of Senior TX 0 0 0 7,970,947 0 7,970,947
Oakwell Lifestyles
Summervillerville at Summerville FL 0 0 0 3,028,408 0 3,028,408
Ocoee(3)
Old Forge Manor Pers Balanced Care PA 48,302 0 48,302 2,644,837 0 2,644,837
Care Ctr
Outlook Pointe at Balanced Care OH 173,270 0 173,270 4,155,968 0 4,155,968
Ravenna
River Landings Col/HCA FL 0 0 0 1,526,957 0 1,526,957
Medical Centre Healthcare
Outlook Pointe at Balanced Care VA 279,195 0 279,195 5,286,051 0 5,286,051
Roanoke(ALCOII)
The Grand Court of Grand Court TX 0 0 0 10,940,052 0 10,940,052
San Angelo
Summervillerville at Summerville NJ 0 0 0 7,258,624 0 7,258,624
Stafford(3)
Summervillerville at Summerville CT 0 0 0 9,296,809 0 9,296,809
Torrington(3)
West View Manor Balanced Care PA 50,658 0 50,658 2,749,694 0 2,749,694
Personal Care
The Grand Court of Grand Court TX 0 0 0 10,727,263 826,491 11,553,754
Wichita Falls
Zephyrhills Medical Col/HCA FL 0 0 0 1,390,385 0 1,390,385
Clinic Healthcare
Port Orange(3) Summerville FL 0 0 0 3,178,197 0 3,178,197
- - - --------- - ---------
Assisted Living
Facilities 2,669,767 0 2,669,767 169,829,105 826,491 170,655,596
Ambulatory Surgery
Centers
Bakersfield Surgery Healthsouth CA 209,246 0 209,246 828,613 0 828,613
Center
-S4-
Valley View Surgery Healthsouth NV 940,000 0 940,000 2,860,571 0 2,860,571
Center
Physicians Col/HCA TX 509,891 0 509,891 1,514,376 0 1,514,376
Daysurgery Center Healthcare
Bonita Bay Medical Col/HCA FL 0 0 0 10,655,720 0 10,655,720
Centre Healthcare
Cape Coral Medical Col/HCA FL 0 0 0 5,523,307 0 5,523,307
Plaza Healthcare
North Shore Surgical Healthsouth IL 213,021 57,249 270,270 1,115,094 0 1,115,094
Center
Northlake Surgical Col/HCA GA 0 62,042 62,042 1,425,510 0 1,425,510
Center Healthcare
South County Medical Healthsouth MO 1,597,873 550,595 2,148,468 9,272,434 0 9,272,434
Ctr I
West County Surgery Healthsouth MO 809,526 0 809,526 3,283,056 0 3,283,056
Center ------- - ------- --------- - ---------
Ambulatory Surgery
Centers 4,279,557 669,886 4,949,443 36,478,681 0 36,478,681
Comprehensive
Ambulatory Care
Centers
St. Andrews(3),(5) Col/HCA FL 1,032,261 0 1,032,261 10,495,785 0 10,495,785
Healthcare
Corp.
Five Points Medical Tenet FL 3,103,275 0 3,103,275 7,688,079 163,881 7,851,960
Building Healthcare
Corp.
Huebner Medical Huebner TX 601,475 0 601,475 11,169,134 209,802 11,378,935
Center
Huebner Medical Huebner TX 1,041,298 0 1,041,298 8,518,528 106,943 8,625,471
Center II
Cedar Park Ctr for Arcon FL 0 0 0 4,631,479 0 4,631,479
Hlthcare(Navarre)(3)
Arcon-Defuniak Arcon FL 0 0 0 6,255,220 0 6,255,220
Crystal Beach Center Arcon FL 852,131 0 852,131 4,793,035 0 4,793,035
for Healthcare
Hazelwood(3) Healthsouth MO 0 0 0 7,000,358 0 7,000,358
Arcon Mesquite Arcon NV 0 0 0 6,155,138 0 6,155,138
Healthcare
Scottsdale(3) Healthsouth AZ 0 0 0 6,705,071 0 6,705,071
Arcon Soddy Daisy Arcon TN 0 0 0 4,555,865 0 4,555,865
Ctr for Hlthcare
Suburban Heights MedPartners IL 197,772 0 197,772 10,935,289 0 10,935,289
Medical Center
Kerlan Jobe Kerlan Jobe CA 2,571,192 0 2,571,192 19,281,394 0 19,281,394
Orthopaedic
Clinic
Little Rock Rehab Healthsouth AR 461,482 163,009 624,491 2,257,912 0 2,257,912
Center
Virginia Beach Healthsouth VA 0 62,992 62,992 1,980,733 0 1,980,733
Rehabilitation Center
Coral Gables Healthsouth FL 804,158 74,370 878,528 2,339,486 0 2,339,486
Rehabilitation Center ------- ------ ------- --------- - ---------
Comprehensive
Ambulatory Care
Centers 10,665,044 300,371 10,965,415 114,762,506 480,626 115,243,131
-S5-
Inpatient
Rehabilitation
Facilities
HS Rehab Hosp of Healthsouth AL 0 0 0 17,388,466 0 17,388,466
Montgomery
HS Rehab Hosp of Healthsouth PA 1,191,530 0 1,191,530 18,056,079 0 18,056,079
Nittany Valley
HS Rehab hosp of Healthsouth FL 0 0 0 11,482,882 0 11,482,882
Tallahassee
HS Rehab Hosp of York Healthsouth PA 1,213,750 0 1,213,750 18,033,859 0 18,033,859
HS Rehab Healthsouth PA 0 0 0 17,499,957 0 17,499,957
Hosp-Greater
Pittsb(Allegheny)
HS Rehab Hosp of Healthsouth PA 1,305,036 0 1,305,036 18,216,263 0 18,216,263
Altoona
Great Lakes Rehab Healthsouth PA 0 0 0 20,498,812 0 20,498,812
Hospital
HS Rehab Hosp of Healthsouth PA 964,372 0 964,372 13,156,375 0 13,156,375
Mechanicsburg
Richmond Medical Healthsouth VA 315,450 48,330 363,780 2,574,780 0 2,574,780
Bldg II
Southeast Texas Healthsouth TX 1,095,455 0 1,095,455 11,577,716 0 11,577,716
Rehab Hospital --------- - --------- ---------- - ----------
Inpatient
Rehabilitation
Facilities 6,085,593 48,330 6,133,923 148,485,189 0 148,485,189
Medical Office
Buildings
Bradley Medical Bradley Mem TN 3,212,188 0 3,212,188 5,517,717 0 5,517,717
Building Hosp
Rowlett Medical Plaza Tenet TX 166,123 0 166,123 1,810,249 0 1,810,249
Healthcare
New River Valley Col/HCA VA 43,126 0 43,126 839,285 0 839,285
Med. Arts Building Healthcare
Valley Medical Center Col/HCA VA 64,347 0 64,347 867,590 0 867,590
Healthcare
Lewis Gale - Phycor Inc. VA 1,066,739 0 1,066,739 5,665,960 31,837 5,697,797
Business & Child
Care Cente
Lewis Gale - Valley Phycor Inc. VA 752,629 0 752,629 4,367,295 1,575 4,368,870
View ------- - ------- --------- ----- ---------
Medical Office
Buildings 5,305,152 0 5,305,152 19,068,096 33,412 19,101,508
Physician Clinics
Clinica Latina Tenet CA 392,785 0 392,785 331,685 0 331,685
Healthcare
Southwest Florida Col/HCA FL 468,544 0 468,544 3,135,642 0 3,135,642
Orthopedic Center Healthcare
Medical & Surgical Tenet FL 906,829 0 906,829 3,589,796 717,332 4,307,127
Institute of Ft. Healthcare
Lauderdale Corp.
Doctors' Clinic Phycor Inc. FL 2,183,572 0 2,183,572 8,070,829 0 8,070,829
Woodstock Clinic Tenet GA 586,435 0 586,435 2,087,444 0 2,087,444
Healthcare
-S6-
Durham Medical Center Durham TX 992,738 2,318 995,056 6,865,237 290,550 7,155,787
Valley Diagnostic Phycor Inc. TX 661,287 0 661,287 3,776,918 0 3,776,918
Medical and Surgical
Center
Lewis Gale - Bent Phycor Inc. VA 92,159 0 92,159 258,044 0 258,044
Mountain Road Clinic
Lewis Gale - Phycor Inc. VA 150,526 0 150,526 524,280 0 524,280
Bohnsack Clinic
Lewis Gale - Craig Phycor Inc. VA 33,280 0 33,280 148,990 0 148,990
County Clinic
Lewis Gale - Family Phycor Inc. VA 182,522 0 182,522 969,461 0 969,461
Practice Center
Lewis Gale - Phycor Inc. VA 78,437 0 78,437 259,478 0 259,478
Fincastle Clinic
Lewis Gale - Spartan Phycor Inc. VA 83,967 0 83,967 817,140 0 817,140
Drive
Vanderbilt-MetroCenterVanderbilt TN 460,988 0 460,988 1,409,173 19,674 1,428,848
Healthcare Univ. Med.
Center
Vanderbilt-Hickory Vanderbilt TN 468,627 0 468,627 1,540,396 48,393 1,588,790
Hollow Healthcare Univ. Med.
Center
Vanderbilt-Rivergate Vanderbilt TN 596,917 0 596,917 1,311,313 73,735 1,385,049
Healthcare Univ. Med.
Center
Vanderbilt-Cool Vanderbilt TN 773,898 0 773,898 1,394,700 18,230 1,412,930
Springs Healthcare Univ. Med.
Center
Agawam Health Center MedPartners MA 37,620 0 37,620 2,478,321 0 2,478,321
Baintree Health Care MedPartners MA 1,127,108 0 1,127,108 6,364,210 0 6,364,210
Center
Brookstone Office MedPartners FL 945,166 0 945,166 5,673,274 0 5,673,274
Building
Chicopee Health Care MedPartners MA 1,443,659 0 1,443,659 7,592,390 0 7,592,390
Center
Clayton Big Bend SSM Health MO 1,010,838 0 1,010,838 4,193,106 0 4,193,106
Medical Center Systems, Inc.
Columbus OB/GYN MedPartners GA 414,216 0 414,216 2,161,292 0 2,161,292
Clinic
Framingham Health MedPartners MA 1,126,164 0 1,126,164 2,762,872 0 2,762,872
Care Center
Greenwood Medical MedPartners TN 490,588 139,140 629,728 1,876,872 0 1,876,872
Building
HS Imaging Center at Healthsouth AL 624,786 0 624,786 1,965,210 0 1,965,210
Highlands
Indialantic Medical MedPartners FL 840,617 0 840,617 1,317,262 0 1,317,262
Building
Kelsey-Seybold MedPartners TX 4,893,804 0 4,893,804 11,250,932 0 11,250,932
Clinic West
McCollough Clinic MedPartners AL 1,633,607 123,882 1,757,489 6,453,496 0 6,453,496
Melbourne Internal MedPartners FL 1,028,155 0 1,028,155 2,792,220 0 2,792,220
Medicine Clinic
Melbourne Medical MedPartners FL 4,624,421 0 4,624,421 8,631,129 0 8,631,129
Building
Methuen Health Care MedPartners MA 469,142 0 469,142 6,805,540 0 6,805,540
Center
Par Place Medical Ctr MedPartners FL 931,064 0 931,064 7,244,396 0 7,244,396
South County Medical Healthsouth MO 0 0 0 4,069,228 0 4,069,228
Ctr II
West Palm Beach MedPartners FL 130,007 38,323 168,330 671,939 0 671,939
------- ------ ------- ------- - -------
Medical Bldg
Physician
Clinics 30,884,473 303,663 31,188,136 120,794,215 1,167,914 121,962,131
-S7-
Skilled Nursing
Facilities
Life Care Center of Life Care AZ 266,596 0 266,596 2,521,319 85,746 2,607,065
Globe Centers of
America
Fountain Valley - Tenet CA 1,361,952 0 1,361,952 11,325,746 0 11,325,746
Living Care Center Healthcare
Life Care Center of Life Care CO 1,651,477 0 1,651,477 4,579,039 0 4,579,039
Aurora Centers of
America
Life Care Center of Life Care CO 901,650 0 901,650 11,411,187 104,788 11,515,975
Greeley Centers of
America
Life Care Center of Life Care TN 82,945 0 82,945 4,963,209 0 4,963,209
Centerville Centers of
America
Life Care Center of Life Care TN 145,402 0 145,402 3,143,801 0 3,143,801
Lynchburg Centers of
America
Life Care Center of Life Care CO 332,149 0 332,149 7,389,813 37,633 7,427,446
Westminster Centers of
America
Life Care Center of Life Care FL 1,349,775 0 1,349,775 8,855,920 0 8,855,920
Orange Park Centers of
America
New Harmonie Centennial IN 96,059 0 96,059 3,511,749 0 3,511,749
Healthcare Center Heathcare
Life Care Center of Life Care KS 1,013,423 0 1,013,423 6,477,785 101,453 6,579,238
Wichita Centers of
America
Fenton Extended Care Centennial MI 40,463 0 40,463 3,467,687 0 3,467,687
Center Heathcare
Meadows Nursing Centennial MI 6,984 0 6,984 3,241,786 0 3,241,786
Center Heathcare
Ovid Convalescent Centennial MI 62,326 0 62,326 1,187,348 1,844,691 3,032,039
Manor Heathcare
Wayne Convalescent Centennial MI 52,468 0 52,468 963,336 0 963,336
Center Heathcare
Westgate Manor Centennial MI 30,855 0 30,855 1,633,306 0 1,633,306
Nursing Home Heathcare
Life Care Center of Life Care TX 605,036 0 605,036 8,772,078 67,901 8,839,979
Forth Worth Centers of
America
Life Care Center of Life Care TX 1,190,364 0 1,190,364 8,738,144 91,995 8,830,139
Houston Centers of
America
Life Care Center of Life Care TN 0 0 0 0 0 0
Columbia Centers of
America
Blakely-Pine Health Balanced Care PA 27,096 0 27,096 2,904,018 0 2,904,018
Care Center
Avis B. Adams Quality Link VA 260,970 0 260,970 6,677,999 0 6,677,999
Christian
Convalescent Ctr(4)
The Village Nursing Quality Link VA 82,080 0 82,080 3,119,214 0 3,119,214
Center(Fort Union)(4)
The Laurels of Quality Link VA 416,697 0 416,697 5,746,885 0 5,746,885
Forest Glen(4)
-S8-
The Meadows of Quality Link VA 93,948 0 93,948 4,630,547 0 4,630,547
Goochland(4)
Kingston Health Care Balanced Care PA 146,023 0 146,023 4,855,022 0 4,855,022
Center
The Brian Ctr Health Quality Link VA 134,549 0 134,549 5,149,752 0 5,149,752
&
Rehab/Lawrencevil(4)
Mountain View Integrated PA 266,462 38,742 305,204 12,338,789 0 12,338,789
Nursing Home Health
Twin Oaks Quality Link VA 486,123 0 486,123 2,965,762 0 2,965,762
Convalescent Home(4)
IHS of Northern Integrated VA 396,021 0 396,021 12,482,403 0 12,482,403
Virginia(Alexandria) Health
Gravois Nursing Integrated MO 1,826,963 232,076 2,059,039 8,938,315 0 8,938,315
Center Health --------- ------- --------- --------- - ---------
Skilled Nursing
Facilities 13,326,856 270,818 13,597,674 161,991,959 2,334,207 164,326,166
Other
Midtown Medical Midtown AL 180,633 0 180,633 8,569,294 0 8,569,294
Center
Puckett Laboratory Pathology MS 537,660 0 537,660 3,718,165 0 3,718,165
Laboratories
Desert Vista Hospital Ramsay AZ 0 0 0 0 0 0
Mission Vista Ramsay TX 379,470 159,861 539,331 5,737,284 0 5,737,284
Hospital
Havenwyck Hospital Ramsay MI 4,692,274 0 4,692,274 9,751,133 0 9,751,133
Tucson MOB(3) MedCath AZ 0 0 0 2,517,733 0 2,517,733
- - - --------- - ---------
Other 5,790,037 159,861 5,949,898 30,293,609 0 30,293,609
Total Real Estate 137,302,033 3,314,878 140,616,911 1,229,861,138 12,272,855 1,242,112,624
----------- --------- ----------- ------------- ---------- -------------
Corporate Property 0 0 0 0 0 0
Total Property 137,302,033 3,314,878 140,616,911 1,229,861,138 12,272,855 1,242,112,624
=========== ========= =========== ============= ========== =============
-S9-
(1), (6)
Personal (6),(7) Accum. Date Date
Facility Type / Name Property Total Assets Depreciation Encumbrances Acquired Const.
- -------------------- -------- ------------ ------------ ------------ -------- ------
Ancillary Hospital Facilities
Orange Grove Medical 0 5,273,993 873,695 0 1993 1988
Clinic
Eaton Canyon Medical 0 4,792,781 310,022 0 1995 1984
Building
Fountain Valley - AHF 1 0 5,556,385 364,056 0 1994 1973
Fountain Valley - AHF 2 0 5,128,834 336,214 0 1994 1975
Fountain Valley - AHF 3 0 9,002,040 622,328 0 1994 1981
Fountain Valley - AHF 4 0 9,065,344 643,078 0 1994 1984
Fountain Valley - AHF 5 0 15,434,588 582,309 0 1997 1997
Valley Presbyterian 20,237 7,538,204 1,035,962 0 1993 1981
(15211)
Valley Presbyterian 18,267 5,327,777 680,682 0 1993 1961,1968
(6840-50) 1984-85
Deering Medical Plaza 0 5,129,587 579,806 0 1994 1994
East Pointe Medical 0 4,981,848 522,168 0 1994 1994
Plaza
Gulf Coast Medical 0 4,922,637 500,607 0 1994 1994
Centre
Southwest Medical 0 8,236,213 867,882 0 1994 1994
Centre Plaza
Southwest Medical 0 1,620,558 157,554 0 1995 1977
Centre Plaza II
Coral Gables Medical 0 11,215,274 1,289,224 0 1994 1991
Plaza
Palm Beach Medical 0 4,015,316 224,398 0 1996 1994
Group Building
Palms of Pasadena 114,280 5,563,620 557,656 0 1994 1994
Medical Plaza
Candler Parking Garage 0 4,201,212 352,718 0 1994 1995
Candler Prof Office 0 7,193,045 821,399 1,000,000 1994 1981
Building (2)
Candler Regional Heart 0 9,348,242 740,712 0 1995 1995
Center
North Fulton Medical 38,409 6,286,802 685,095 0 1993 1983
Arts Plaza
Northwest Medical 11,870 10,710,322 1,075,876 0 1994 1975
Center
Overland Park Reg 8,779 10,463,707 538,077 0 1995 1996
Medical Center
Hendersonville Medical 0 3,138,889 322,185 0 1994 1991
Office Bldg
Bayshore Doctors Center 12,547 1,905,817 320,882 0 1993 1989
Judson Medical Building 0 779,908 31,773 0 1996 1990
Oregon Medical Building 39,968 18,485,079 3,100,807 0 1993 1992
Rosewood Professional 0 5,252,820 541,969 0 1994 1982
Building
Spring Branch 173,532 14,301,748 1,947,643 0 1993 1985
Professional Building
Toepperwein Medical 0 3,057,056 122,983 0 1996 1990
Center
-S10-
Lake Pointe Medical 12,023 1,737,128 204,282 0 1993 1988
Plaza
Southwest General 0 3,236,289 342,485 0 1993 1994
Birthing Center
Trinity Valley 0 3,671,601 307,154 0 1994 1995
Birthing Center
Chippenham Medical 0 3,771,668 764,916 0 1994 1972-80
Offices
Chippenham Medical 0 4,593,463 91,385 0 1994 1994
Offices
Johnston-Willis 0 8,773,577 1,356,815 0 1994 1980
Medical Offices 1987-88
Johnston-Willis 0 5,855,716 84,966 0 1996 1993-1994
Medical Offices
Lewis Gale-Clinic, 87,323 27,607,442 1,463,692 0 1996 1984
Keagy, Braeburn
Lewis Gale - Medical 0 1,433,579 77,499 0 1996 1981
Foundation
Trinity West Medical 21,367 5,935,565 397,073 0 1997 1998
Plaza
Rothsville Medical 0 4,185,189 16,844 0 1998 1982
Center Complex
American Sports 0 4,477,033 14,894 0 1998 1992-1993
Medicine Institute
Beaumont Regional Prof 0 10,720,697 45,776 0 1998 1995
Tower
Bellaire Medical Plaza 0 9,317,196 29,685 0 1998 1995
Birmingham Medical 0 6,576,052 24,471 0 1998 1981
Building I
Birmingham Medical 0 13,431,121 47,054 0 1998 1991
Building II
Burbank Mulliken 0 6,681,150 0 0 1998 under
Medical Plaza(3) construction
Cool Springs Medical 0 10,198,967 36,525 4,531,786 1998 1992
Center
Daniel Medical Center 0 7,610,508 24,025 0 1998 1994
Desert Springs Medical 0 6,559,142 20,122 0 1998 1974
Plaza
Goodyear Clinic 0 2,242,890 9,274 0 1998 1977
Hamiter Building 0 6,116,092 25,951 0 1998 1979
Larkin Medical 0 3,148,220 4,996 0 1998 1970;1980
Building Annex
One-7000 Larkin 0 18,542,361 75,108 0 1998 1973
Building 1989-1990
Gadsden Medical 0 8,108,661 34,792 0 1998 1993
Building II
Midway Medical Plaza 0 27,015,735 92,656 0 1998 1984-5
Richmond Medical Bldg I 0 13,995,570 31,015 0 1998 1977
Sarasota Medical Center 0 18,987,150 81,142 8,770,158 1998 1995
Southwest General 0 3,224,271 13,779 0 1998 1983
Medical Bldg
Sunrise Mountainview 0 40,299,044 171,083 22,830,034 1998 1996
Med Ctr - ---------- ------- ----------
Ancillary Hospital
Facilities 558,601 495,982,719 26,639,220 37,131,979
Assisted Living Facilities
The Grand Court of 0 10,033,174 42,877 0 1998 1998
Abilene
-S11-
Outlook Pointe at 0 6,562,185 0 0 1998 under
Creekview construction
Augusta Gardens 0 5,948,471 25,421 0 1998 1997
Bloomsburg Manor Pers 0 4,109,215 17,142 0 1998 1996
Care Ctr
Joe Clark Residential 0 1,525,522 6,464 0 1998 1996
Care Home
Outlook Pointe at 0 5,919,470 23,049 0 1998 1998
Danville(ALCOIII)
The Grand Court of El 0 10,414,123 44,505 0 1998 1997
Paso
Outlook Pointe at 0 3,711,839 0 0 1998 under
Greensboro(3) construction
Outlook Pointe at 0 4,535,119 17,388 0 1998 1998
Harrisburg
Outlook Pointe at 0 5,218,118 21,301 0 1998 1998
Harrisonburg
Kingsley Place of 0 5,831,076 24,919 0 1998 1997
Henderson
Summervillerville at 0 6,268,372 0 0 1998 under
Hillsborough(3) construction
Jaylene Manor Nursing 0 1,760,492 6,325 0 1998 1976
Home
Jenni-Lynn 0 2,998,788 12,363 0 1998 1993;1995
Kingston Manor Pers 0 4,092,720 16,262 0 1998 1992;1994
Care & Retir Ctr
Balanced Care at Lamar 0 1,525,522 6,291 0 1998 1996
Kingsley Place of 0 6,898,713 29,482 0 1998 1997
McKinney
Kingsley Place Med Ctr 0 7,510,987 32,098 0 1998 1997
of Oakwell
Mid Valley Manor Pers 0 3,878,305 16,290 0 1998 1989;1993
Care Ctr
Terraces at Balanced 0 1,525,522 6,153 0 1998 1993;1994
Care, NV I
Terraces at Balanced 0 1,525,522 6,292 0 1998 1995
Care,NV II
Kingsley Place of 0 7,970,947 34,064 0 1998 1997
Oakwell
Summervillerville at 0 3,028,408 0 0 1998 under
Ocoee(3) construction
Old Forge Manor Pers 0 2,693,139 11,303 0 1998 1990
Care Ctr
Outlook Pointe at 0 4,329,238 17,761 0 1998 1998
Ravenna
River Landings Medical 0 1,526,957 6,525 0 1998 1998
Centre
Outlook Pointe at 0 5,565,246 22,590 0 1998 1998
Roanoke(ALCOII)
The Grand Court of San 0 10,940,052 46,752 0 1998 1997
Angelo
Summervillerville at 0 7,258,624 0 0 1998 under
Stafford(3) construction
Summervillerville at 0 9,296,809 0 0 1998 under
Torrington(3) construction
West View Manor 0 2,800,352 11,751 0 1998 1993
Personal Care
The Grand Court of 0 11,553,754 45,843 0 1998 1997
Wichita Falls
Zephyrhills Medical 0 1,390,385 5,942 0 1998 1998
Clinic
-S12-
Port Orange(3) 0 3,178,197 0 0 1998 under
- --------- - - construction
Assisted Living
Facilities 0 173,325,363 557,153 0
Ambulatory Surgery Centers
Bakersfield Surgery 8,370 1,046,229 152,361 0 1993 1985
Center
Valley View Surgery 0 3,800,571 327,004 0 1994 1994
Center
Physicians Daysurgery 15,297 2,039,563 278,456 0 1993 1985
Center
Bonita Bay Medical 0 10,655,720 45,537 4,716,724 1998 1995
Centre
Cape Coral Medical 0 5,523,307 23,604 3,316,446 1998 1995
Plaza
North Shore Surgical 0 1,385,364 5,296 0 1998 1960's;1988
Center
Northlake Surgical 0 1,487,552 6,660 0 1998 1993
Center
South County Medical 0 11,420,902 44,763 0 1998 1993
Ctr I
West County Surgery 0 4,092,582 14,030 0 1998 1988
Center - --------- ------ -
Ambulatory Surgery
Centers 23,667 41,451,790 897,711 8,033,170
Comprehensive Ambulatory
Care Centers
St. Andrews(3),(5) 0 11,528,045 298,874 0 1996 under
construction
Five Points Medical 0 10,955,235 407,311 0 1995 1996
Building
Huebner Medical Center 69,408 12,049,818 2,027,168 0 1993 1991
Huebner Medical Center 0 9,666,769 733,761 0 1994 1995
II
Cedar Park Ctr for 0 4,631,479 0 0 1998 under
Hlthcare(Navarre)(3) construction
Arcon-Defuniak 0 6,255,220 26,732 0 1998 1997
Crystal Beach Center 0 5,645,166 20,483 0 1998 1996
for Healthcare
Hazelwood(3) 0 7,000,358 0 0 1998 under
construction
Arcon Mesquite 0 6,155,138 26,304 0 1998 1997
Healthcare
Scottsdale(3) 0 6,705,071 0 0 1998 under
construction
Arcon Soddy Daisy Ctr 0 4,555,865 19,470 0 1998 1997
for Hlthcare
Suburban Heights 0 11,133,061 46,732 0 1998 1973
Medical Center 1984;1989
Kerlan Jobe 0 21,852,586 82,399 0 1998 1997
Little Rock Rehab 0 2,882,403 11,133 0 1998 1991
Center
Virginia Beach 0 2,043,725 9,040 0 1998 1993
Rehabilitation Center
Coral Gables 0 3,218,014 10,675 0 1998 1960;1986
Rehabilitation Center - --------- ------ -
Comprehensive Ambulatory
Care 69,408 126,277,953 3,720,082 0
Inpatient Rehabilitation
Facilities
HS Rehab Hosp of 0 17,388,466 108,294 0 1998 1987
Montgomery
-S13-
HS Rehab Hosp of 0 19,247,609 112,234 0 1998 1983
Nittany Valley
HS Rehab hosp of 0 11,482,882 71,514 0 1998 1986
Tallahassee
HS Rehab Hosp of York 0 19,247,609 112,092 0 1998 1983
HS Rehab Hosp-Greater 0 17,499,957 74,786 0 1998 1987
Pittsb(Allegheny)
HS Rehab Hosp of 0 19,521,299 77,847 0 1998 1986
Altoona
Great Lakes Rehab 0 20,498,812 87,602 0 1998 1986
Hospital
HS Rehab Hosp of 0 14,120,747 56,224 0 1998 1987
Mechanicsburg
Richmond Medical Bldg 0 2,938,560 11,079 0 1998 1992
II
Southeast Texas Rehab 0 12,673,171 49,477 0 1998 1991
Hospital - ---------- ------ -
Inpatient Rehabilitation
Facilities 0 154,619,112 761,149 0
Medical Office Buildings
Bradley Medical 0 8,729,905 58,254 0 1997 1998
Building
Rowlett Medical Plaza 0 1,976,372 201,933 0 1994 1994
New River Valley Med. 43,611 926,023 181,931 0 1993 1988
Arts Building
Valley Medical Center 83,179 1,015,117 218,002 0 1993 1989
Lewis Gale - Business 2420 6,766,956 316,500 0 1996 1995
& Child Care Cente
Lewis Gale - Valley 0 5,121,498 242,698 0 1996 1990
View - --------- ------- -
Medical Office Buildings 129,210 24,535,871 1,219,318 0
Physician Clinics
Clinica Latina 0 724,470 30,830 0 1995 1991
Southwest Florida 0 3,604,186 371,869 0 1994 1984
Orthopedic Center
Medical & Surgical 0 5,213,956 479,091 0 1994 1991
Institute of Ft.
Lauderdale
Doctors' Clinic 50,781 10,305,181 1,459,868 0 1993 1969;1973
Woodstock Clinic 0 2,673,880 256,472 0 1994 1991
Durham Medical Center 440,909 8,591,752 1,203,724 0 1993 1993
Valley Diagnostic 20,117 4,458,322 680,311 0 1993 1982
Medical and Surgical C
Lewis Gale - Bent 0 350,203 14,336 0 1996 1984
Mountain Road Clinic
Lewis Gale - Bohnsack 0 674,806 29,127 0 1996 1995
Clinic
Lewis Gale - Craig 0 182,269 8,277 0 1996 1973
County Clinic
Lewis Gale - Family 0 1,151,983 53,859 0 1996 1905
Practice Center
Lewis Gale - Fincastle 0 337,915 14,415 0 1996 1986
Clinic
Lewis Gale - Spartan 0 901,107 45,397 0 1996 1992
Drive
-S14-
Vanderbilt-MetroCenter 0 1,889,836 29,291 0 1998 1992
Healthcare
Vanderbilt-Hickory 0 2,057,416 32,162 0 1998 1982
Hollow Healthcare
Vanderbilt-Rivergate 0 1,981,966 27,593 0 1998 1982
Healthcare
Vanderbilt-Cool 0 2,186,828 28,849 0 1998 1995
Springs Healthcare
Agawam Health Center 0 2,515,941 10,591 0 1998 1987
Baintree Health Care 0 7,491,318 27,197 0 1998 1982
Center
Brookstone Office 0 6,618,440 24,245 0 1998 1991
Building
Chicopee Health Care 0 9,036,049 32,446 0 1998 1968
Center
Clayton Big Bend 0 5,203,944 17,919 0 1998 1996
Medical Center
Columbus OB/GYN Clinic 0 2,575,508 9,236 0 1998 1991
Framingham Health Care 0 3,889,036 11,807 0 1998 1963
Center
Greenwood Medical 0 2,506,600 9,289 0 1998 1955
Building
HS Imaging Center at 0 2,589,996 8,398 0 1998 1997
Highlands
Indialantic Medical 0 2,157,879 5,629 0 1998 1978
Building
Kelsey-Seybold Clinic 0 16,144,736 48,081 0 1998 1997
West
McCollough Clinic 0 8,210,985 28,703 0 1998 1991
Melbourne Internal 0 3,820,375 11,933 0 1998 1978
Medicine Clinic
Melbourne Medical 0 13,255,550 36,885 0 1998 1990
Building
Methuen Health Care 0 7,274,682 29,084 0 1998 1985
Center
Par Place Medical Ctr 0 8,175,460 30,959 0 1998 1986
South County Medical 0 4,069,228 17,390 0 1998 1994
Ctr II
West Palm Beach 0 840,269 3,224 0 1998 1973
Medical Bldg - ------- ----- -
Physician Clinics 511,807 153,662,072 5,128,487 0
Skilled Nursing Facilities
Life Care Center of 0 2,873,661 121,822 0 1997 1972
Globe
Fountain Valley - 0 12,687,699 1,270,568 0 1994 1989
Living Care Center
Life Care Center of 0 6,230,515 513,695 0 1994 1994
Aurora
Life Care Center of 0 12,417,625 232,868 0 1997 1998
Greeley
Life Care Center of 0 5,046,153 201,498 0 1997 1981
Centerville
Life Care Center of 0 3,289,203 127,633 0 1997 1991
Lynchburg
Life Care Center of 0 7,759,595 312,014 0 1996 1998
Westminster
Life Care Center of 0 10,205,696 538,414 0 1995 1996
Orange Park
-S15-
New Harmonie 32,332 3,640,140 643,256 0 1993 1987
Healthcare Center
Life Care Center of 0 7,592,661 339,337 0 1996 1997
Wichita
Fenton Extended Care 32,345 3,540,494 635,522 0 1993 1968
Center
Meadows Nursing Center 35,415 3,284,185 598,182 0 1993 1971;1977
Ovid Convalescent Manor 48,791 3,143,156 357,266 0 1993 1968
Wayne Convalescent 33,548 1,049,352 195,849 0 1993 1967
Center
Westgate Manor Nursing 32,887 1,697,049 313,202 0 1993 1964;1974
Home
Life Care Center of 0 9,445,015 478,465 0 1995 1996
Forth Worth
Life Care Center of 0 10,020,503 408,629 0 1995 1997
Houston
Life Care Center of 0 0 0 0 1997 1998
Columbia
Blakely-Pine Health 0 2,931,114 12,410 0 1998 1992
Care Center
Avis B. Adams 0 6,938,969 28,538 16,516,610 1998 1971/77
Christian Convalescent
Ctr(4)
The Village Nursing 0 3,201,294 13,330 0 1998 1991
Center(Fort Union)(4)
The Laurels of Forest 0 6,163,582 24,559 0 1998 1991
Glen(4)
The Meadows of 0 4,724,495 19,789 0 1998 1991
Goochland(4)
Kingston Health Care 0 5,001,045 20,748 0 1998 1995
Center
The Brian Ctr Health & 0 5,284,301 22,007 0 1998 1989
Rehab/Lawrencevil(4)
Mountain View Nursing 0 12,643,993 53,076 0 1998 1976
Home
Twin Oaks Convalescent 0 3,451,885 12,674 0 1998 1966
Home(4)
IHS of Northern 0 12,878,424 53,344 0 1998 late 1950's;
Virginia(Alexandria) 1970's
Gravois Nursing Center 0 10,997,354 40,273 0 1998 1966;1975
- ---------- ------ -
Skilled Nursing
Facilities 215,318 178,139,158 7,588,968 16,516,610
Other
Midtown Medical Center 8,028 8,757,955 1,519,578 0 1993 1906;1986
Puckett Laboratory 29,660 4,285,486 518,635 0 1993 1986;1991
Desert Vista Hospital 0 0 0 0 1998 1987
Mission Vista Hospital 0 6,276,615 26,015 0 1998 1983
Havenwyck Hospital 0 14,443,407 41,672 0 1998 1983
Tucson MOB(3) 0 2,517,733 0 0 1998 under
construction
- --------- - -
Other 37,688 36,281,196 2,105,900 0
Total Real Estate 1,545,699 1,384,275,234 48,617,989 61,681,759
--------- ------------- ---------- ----------
Corporate Property 3,279,517 3,279,517 1,498,164 0
Total Property 4,825,216 1,387,554,751 50,116,153 61,681,759
========= ============= ========== ==========
-S16-
(1) Depreciation is provided on buildings and improvements over 31.5 to 39.0
years and personal property over 3.0 to 7.0 years.
(2) This encumbrance is to protect the lessee's interest in their security
deposit.
(3) Development at 12/31/98.
(4) All 6 of the properties are encumbered by one mortgage with a 12/31/98
balance of $16,516,610.
(5) St. Andrews consists of three buildings, with one building being an MOB that
is in construction as of 12/31/98.
(6) Total assets at December 31, 1998 have an estimated aggregate total cost of
$1,061,900,408 for Federal Income
Tax purposes.
(7) Reconciliation of Total Property and Accumulated Depreciation for the
twelve months ended Dec.31, 1998, 1997 and 1996:
Year to Date Ending 12/31/98 Year to Date Ending 12/31/97 Year to Date Ending 12/31/96
---------------------------- ---------------------------- ----------------------------
Total Accumulated Total Accumulated Total Accumulated
Property Depreciation Property Depreciation Property Depreciation
-------- ------------ -------- ------------ -------- ------------
Beginning Balance $505,698,610 $34,718,380 $439,177,928 $ 23,143,511 $ 332,972,982 $ 14,492,646
Retirements/dispositions:
Real Estate (11,410,200) (423,339) (71,148) (32,343) (5,033) (755)
Corporate Property 0 0 0 0 0 0
Additions during the period:
Acquisitions/Improvements 847,262,872 15,507,502 59,822,598 11,035,703 107,249,244 8,304,776
Corporate Property 119,604 313,612 1,467,143 571,509 351,617 346,844
Construction in Progress 45,883,866 0 5,302,089 0 (1,390,882) 0
---------- - --------- - ---------- -
Ending Balance $1,387,554,751 $50,116,154 $505,698,610 $ 34,718,380 $ 439,177,928 $ 23,143,511
============== =========== ============ ============ ============= ============
-S17-
Schedule IV - Mortgage Loans on Real Estate
As of December 31, 1998
(dollars in thousands)
Interest Periodic Balloon
Facility Rate Payment Payment
Encumbered Property Name Type State at 12/31/98 Maturity Date Terms at Maturity
(If pplicable)
Construction Loans:
Bay Area Medical Plaza AHF FL 8.75% 10 yrs after cnvrsn or 25th yr-lendor (2) (7)
may demand pmt
Blue Oaks Assisted Living Facility ALF CA 10.00% 5 yrs after conv. Or June 2003 (2) (7)
Columbia Cottage of Mountain Brook ALF PA 9.25% 4/30/04 (2) (7)
Country Cottage Alabama ALF AL 9.25% 4/10/04 (2) (7)
Country Cottage Mississippi ALF MS 9.25% 4/10/04 (2) (7)
Country Cottage Tennessee ALF TN 9.25% 4/10/04 (2) (7)
Urbana Assisted Living Facility ALF IL 8.25% 60 mnths (5 yrs) from the 1st day of (2) (7)
the Term Period
Sierra Hills Assisted ALF WY 8.25% 60 mnths (5 yrs) from the 1st day of (2) (7)
Living(Cheyenne) the Term Period
Biloxi Assisted Living Facility ALF MS 10.00% Earlier of 11/1/00 (cnvrsn date) or (2) (7)
tenant lease dates
Greenville ALF MS 9.75% 10 yrs if Borrower does not select (2) (7)
Term Period (10, 7. or 5)
Wellington Place at Kennesaw ALF GA 9.75% 10 yrs if Borrower does not select (2) (7)
Term Period (10, 7. or 5)
Sterling House at Ames ALF IA 10.25% 12/1/03 (2) (7)
Sterling House at Cedar Falls ALF IA 10.25% 12/1/03 (2) (7)
Sierra Vista ALF AZ 10.04% 5/15/06 (2) (7)
Healthcare Prop-XX(Muscle Shoals) ALF AL 9.75% 9/30/04 (2) (7)
Healthcare Prop-XVIII(Newport) ALF TN 9.75% 9/30/04 (2) (7)
ILC/Medistar Galleria ALF TX 8.75% 8/11/08 (2) (7)
Park Place of Gainesville SNF FL 8.62% 11/30/08 (2) (7)
Roberts Health SNF AL 10.75% 8/31/09 (2) (7)
Rivers Bend Retirement Community SNF KY 10.00% 2/28/99, unless extended to 2/19/2000 (2) (7)
(Lake Clough)
Life Care Center of Charleston SNF SC 9.50% 84 mnths (7 yrs) from the 1st day of (2) (7)
the Term Period
Prestige Green Valley ALF AZ 10.04% 12/31/06 (2) (7)
Permanent Loans:
Hearthstone Nashville ALF TN 12.00% 12/31/03 (3)
731
-S18-
Augusta Nursing & Rehabilitation ALF VA 9.46% 10/31/08 (1)
Center (Staunton) 1,943
Hearthstone Albuquerque ALF NM 12.00% 11/30/03 (3)
731
Chapman General Hospital ACH CA 11.75% 8/10/09 (1)
6,988
El Paso AHF TX 10.50% 2/1/01 (4)
2,400
Capri Retirement Villa ALF CA 11.17% 5/1/02 (1)
4,150
Imperial Oasis / Brawley ALF CA 11.04% 5/1/07 (1)
2,659
Oak Park Manor / Claremont ALF CA 10.98% 5/7/01 (1) (8)
Chico Assisted Living ALF CA 8.11% 11/1/05 (1) (9)
Prestige Assisted Living at ALF CA 9.20% 10/31/03 (1) (9)
Oroville
Park Place of Carrollwood ALF FL 9.49% 1/1/08 (1) (8)
Carillon at Asheboro ALF NC 9.45% 3/1/03 (1) (9)
Carillon at Harrisburg ALF NC 9.36% 3/1/03 (1) (9)
Columbia Cottage of Collegeville ALF PA 12.00% 6/30/03 (1) (9)
Columbia Cottage of Florence ALF AL 12.00% 3/25/02 (1) (8)
Columbia Cottage of Wyomissing ALF PA 12.00% 6/30/03 (1) (8)
Wexford House Denver Assisted Liv. ALF NC 10.00% 9/17/08 (1) (8)
Lancaster Village ALF OR 9.73% 2/13/08 (1)
2,551
Ivy Hall (Atlanta) ALF GA 12.00% 6/30/08 (1) (8)
Walden House Assisted Living ALF NC 10.30% 10/3/07 (1) (8)
Facility
Eastside Gardens of Snellville ALF GA 12.00% 9/20/01 (1) (8)
Northlake Gardens Assisted Care ALF GA 12.00% 9/20/01 (1) (8)
Facility
Sterling House at Burlington ALF IA 9.86% 12/1/03 (1) 1,043
Sterling House at Clinton ALF IA 9.86% 12/1/03 (1) 1,019
-S19-
Sterling House at Fort Dodge ALF IA 9.86% 12/1/03 (1) 1,043
Sterling House at Grand Island ALF NE 9.86% 12/1/03 (1) 1,035
Sterling House at Marshalltown ALF IA 9.86% 12/1/03 (1) 1,096
Sterling House at Muscatine ALF IA 9.86% 12/1/03 (1) 1,074
Cardinal Retirement Village of ALF OH 12.50% 9/2/02 (1) 1,544
Cuyahoga Falls
Autumn Wind Residence Assisted ALF ID 10.03% 10/1/02 (1) 4,700
Living Facility
Grand Park Assisted Living ALF MT 9.37% 4/1/03 (1) 1,968
Community
Living Court Assisted Living of ALF WA 10.02% 9/3/02 (1) 1,714
Enumclaw
Tucson Heart Hospital SH AZ 9.04% 8/31/05 (1) 16,278
Diana Lynn Lodge SNF CA 10.00% 5/1/07 (1) 4,911
Diana Lynn Lodge West L.A. SNF CA 10.30% 5/1/07 (1) 307
Pavillion II
Carlyle House SNF MA 11.15% 5/31/02 (1) (8)
Colonial Village Nursing Home SNF OK 9.25% 12/24/02 (1) 525
Temple Manor Nursing Home SNF OK 9.25% 12/24/02 (1) 643
Tuttle Care Center SNF OK 9.25% 12/24/02 (1) 482
Western Hills Health Care Center SNF OK 9.25% 12/24/02 (1) 2,165
Willow Park Health Care Center SNF OK 9.25% 12/24/02 (1) 2,002
Woodland Care Center SNF OK 9.25% 12/24/02 (1) 476
Charter House (Farmington and SNF MI 10.82% 2/15/07 (1) 8,532
Novi)
Cogburn-Midtown (Ideal) SNF MI 12.10% 8/31/09 (1) (8)
-S20-
Cogburn Nursing Health Center SNF AL 12.09% 8/31/09 (1) (8)
Tri-State Manor SNF TN 12.48% 1/31/02 (1) (8)
Canton Harbor Nursing & SNF MD 10.00% 2/15/02 (1) 8,497
Rehabilitation Center
Cedar Knoll Care Center Grasslake SNF MI 11.25% 5/25/02 (1) (8)
HP/Florida I Nursing Home SNF FL 12.00% 2/4/02 (1) (8)
Johnson Health Care Center SNF TN 10.26% 5/25/07 (1) (9)
Carrington Nursing Home SNF VA 10.11% 6/25/02 (1) (9)
Old Court Nursing Home SNF MD 10.00% 5/5/03 (3) 5,985
Cuyahoga Falls Country Place SNF OH 12.50% 9/2/02 (1) 579
Tri-County Convalescent Home SNF TN 11.36% 11/25/01 (1) (8)
Life Care Columbia SNF TN 10.09% 8/14/13;10/27/13 (4) 12,380
------
Total Mortgage Notes Receivable $ 102,151
=========
-S21-
Schedule IV - Mortgage Loans on Real Estate
As of December 31, 1998
(dollars in thousands)
(5), (12)
Carrying Amount
Original Face of Mortgage Note
Encumbered Property Name Value of Note as of 12/31/98 Prepayment Penalties/Fees
Construction Loans:
Bay Area Medical Plaza $ 9,100 $ 8,555 No PPMT until 5th anniversary, then 5% penalty,
scales down 1% per year
Blue Oaks Assisted Living Facility 7,100 6,877 None.
Columbia Cottage of Mountain Brook 3,120 699 (10)
Country Cottage Alabama 1,230 970 (10)
Country Cottage Mississippi 1,350 768 (10)
Country Cottage Tennessee 1,195 868 (10)
Urbana Assisted Living Facility 7,620 6,983 None
Sierra Hills Assisted Living(Cheyenne) 6,285 5,866 None
Biloxi Assisted Living Facility 6,020 4,756 None
Greenville 2,995 2,302 (10)
Wellington Place at Kennesaw 3,570 2,979 (10)
Sterling House at Ames 2,215 1,225 (10)
Sterling House at Cedar Falls 2,220 1,148 (10)
Sierra Vista 4,665 2,023 (10)
Healthcare Prop-XX(Muscle Shoals) 3,665 1,006 (10)
Healthcare Prop-XVIII(Newport) 3,335 571 (10)
ILC/Medistar Galleria 12,133 10,221 Cannot prepay before 8/02 with 3% penalty
Healthsouth Ambulatory Care Building
Park Place of Gainesville 6,300 6,251 (10)
Roberts Health 4,000 1,796 Cannot prepay before 8/99, then 1% premium
Rivers Bend Retirement Community
(Lake Clough) 2,250 2,318 None.
Life Care Center of Charleston 3,068 3,131 (10)
Prestige Green Valley 4,720 380 (10)
-S22-
Permanent Loans:
Hearthstone Nashville 750 750 Exit fee to allow 22% Internal Rate of Return
Augusta Nursing & Rehabilitation Ctr 2,300 2,363 (10)
Hearthstone Albuquerque 750 765 Exit fee to allow 22% Internal Rate of Return
Chapman General Hospital 8,000 8,061 Cannot prepay before 12/01; 3% premium til 8/02
then scales down 1% per year.
El Paso 2,400 2,473 5% Prepayment Premium
Capri Retirement Villa 4,300 4,374 (10)
Imperial Oasis / Brawley 3,400 3,051 (11)
Oak Park Manor / Claremont 2,188 2,220 (11)
Chico Assisted Living 5,300 2,727 (10)
Prestige Assisted Living at Oroville 4,800 2,466 (10)
Park Place of Carrollwood 5,735 5,869 (10)
Carillon at Asheboro 1,250 1,281 (10)
Carillon at Harrisburg 1,250 1,282 (10)
Columbia Cottage of Collegeville 512 526 Penalty: 1st & 2nd yr premium of 4%, scales dow
1% each year thereafter
Columbia Cottage of Florence 350 359 (10)
Columbia Cottage of Wyomissing 488 501 (10)
Wexford House Denver Assisted Liv. 1,700 1,749 (10)
Lancaster Village 2,950 3,014 Cannot prepay before 2/03, then 5% penalty which
scales down 1% per year
Ivy Hall (Atlanta) 1,125 1,157 (10)
Walden House Assisted Living Facility 1,700 1,734 (10)
Eastside Gardens of Snellville 704 719 Penalty: year 1 - 4%, scales down 1% each year
Northlake Gardens Assisted Care Facility 864 840 Penalty: year 1 - 6%, scales down 1% each year
Sterling House at Burlington 2,160 1,109 (10)
Sterling House at Clinton 2,110 1,083 (10)
Sterling House at Fort Dodge 2,140 1,098 (10)
Sterling House at Grand Island 2,125 1,091 (10)
Sterling House at Marshalltown 2,250 1,155 (10)
Sterling House at Muscatine 2,205 1,132 (10)
Cardinal Retirement Village of
Cuyahoga Falls 1,600 1,636 Min. of $250k ppmt with exit fee
Autumn Wind Residence Assisted
Living Facility 4,970 5,063 (10)
Grand Park Assisted Living Community 2,080 2,129 (10)
Living Court Assisted Living of Enumclaw 1,800 1,833 (10)
Tucson Heart Hospital 17,800 18,294 Cannot prepay until 4th year, then 3% penalty
scaling down 1% each year
-S23-
Diana Lynn Lodge 5,830 5,914 (11)
Diana Lynn Lodge West L.A. Pavillion II 350 356 (11)
Carlyle House 2,249 2,290 (10)
Colonial Village Nursing Home 542 553 (10)
Temple Manor Nursing Home 664 678 (10)
Tuttle Care Center 498 508 (10)
Western Hills Health Care Center 2,236 2,283 (10)
Willow Park Health Care Center 2,068 2,111 (10)
Woodland Care Center 492 502 (10)
Charter House (Farmington and Novi) 9,600 9,729 (10)
Cogburn-Midtown (Ideal) 4,890 4,994 No prepayment before 8/99; then 1% fee
Cogburn Nursing Health Center 4,000 4,035 No prepayment before 8/99; then 1% fee
Tri-State Manor 1,000 1,017 (10)
Canton Harbor Nursing & Rehabilitation Ctr 8,800 9,046 (10)
Cedar Knoll Care Center Grasslake 1,625 1,653 (10) and a 7% exit fee
HP/Florida I Nursing Home 609 624 Penalty: year 1 - 4%, scales down 1% each year;
7% exit fee
Johnson Health Care Center 2,150 2,185 (10)
Carrington Nursing Home 2,250 2,286 (10) and a 3.5% exit fee
Old Court Nursing Home 6,200 6,388 (11)
Cuyahoga Falls Country Place 600 613 Min. of $250k ppmt with exit fee
Tri-County Convalescent Home 2,250 2,264 (10) and a 7% exit fee
Life Care Columbia 12,380 12,916 (6)
------ ------
Total Mortgage Notes Receivable $ 263,495 $ 228,542
========= =========
(1) Paid in monthly installments of Principal and Interest. Principal payable
in full at maturity date. Amortized over 300 months.
(2) Interest only while in development. Then identical to (1).
(3) Interest only for 12 months. Then identical to (1).
(4) Interest only until maturity. Then Principal payable in full.
(5) The aggregate cost for Federal income tax purposes is estimated at $222.6
million at 12/31/98.
-S24-
(6) No Prepayment Fee after 85th month. Prior to 85th month, a fee equal to
"Loss of Yield" (minimum of 2%) multiplied by the loan balance. Loss of
Yield is difference between 10.09% on this note and comparable term US
Treasury Rate.
(7) Amount can not be calculated at this time because the property is under
construction and the total loan amount is currently unknown.
(8) Amount can not be calculated at this time because the interest rate
increases based on CPI which is unknown at this time.
(9) Amount can not be calculated at this time because the interest rate varies
and is calculated by a participating bank.
(10)Yield Maintenance Amount is defined generally to be an amount equal to:
= % of Principal Amount Being Prepaid x [(Present value of the Principal
and Interest payments remaining to maturity at a discount rate) - (Principal
amount outstanding at time of prepayment)].
(11)Prepayment before a certain date requires a replacement loan of a comparable
amount and a 1% penalty, otherwise the Yield Maintenance Amount would
apply (see Note 10).
(12)Reconciliation of mortgage notes receivable for the years ended
December 31, 1998 and 1997 (in thousands):
Years Ended December 31,
------------------------
1998 1997
---- ----
Balance at beginning of period $ 4,708 $ -
Additions during period:
New or assumed mortgages 211,970 -
Capitalization of non cash interest 626 -
Construction fundings 19,864 4,488
Other 121 220
--- ---
232,581 4,708
Deductions:
Collections of principal (164) -
Cost of mortgages sold (8,388) -
Amortization of premium (195) -
---- -
(8,747) -
------ -
Balance at close of period $ 228,542 $ 4,708
======= =====
-S25-