SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9317
HEALTH AND REHABILITATION PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland No. 04-6558834
(State of Incorporation) (I.R.S. Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02158
(Address of principal executive office) (Zip Code)
(617) 332-3990
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required 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
Number of Common Shares outstanding at the latest
practicable date, May 14, 1994: 57,372,500 shares of beneficial
interest, $.01 par value.
HEALTH AND REHABILITATION PROPERTIES TRUST
FORM 10-Q
March 31, 1994
INDEX
PART I Financial Information Page
Item 1.
Financial Statements
Balance Sheets - December 31, 1993 and
March 31, 1994 1
Statements of Income - Quarters Ended
March 31, 1993 and 1994 2
Statements of Cash Flows - Quarters Ended
March 31, 1993 and 1994 3
Notes to Financial Statements 4-8
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. Other Information
Item 6.
Exhibits and reports on Form 8-K
Signatures
HEALTH AND REHABILITATION PROPERTIES TRUST
BALANCE SHEETS
(dollars in thousands)
December 31, March 31,
1993 1994
------------ ---------
ASSETS (Unaudited)
Real estate properties, at cost:
Land $ 33,450 $ 31,644
Buildings and improvements 330,988 306,812
Equipment 20,373 18,928
-------- --------
384,811 357,384
Less accumulated depreciation 34,969 32,952
-------- ---------
349,842 324,432
Real estate mortgages and notes, net 157,281 153,795
Cash and cash equivalents 13,887 41,561
Interest and rent receivable 3,039 4,399
Deferred interest and finance costs,
net, and other assets 3,613 5,531
-------- --------
$527,662 $529,718
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank borrowings $ 73,000 $ 73,000
Security deposits 8,300 3,800
Due to affiliate 709 264
Accounts payable and accrued expenses 4,518 1,392
Shareholders' equity:
Preferred shares of beneficial
interest, $.01 par value,
50,000,000 shares authorized,
none issued - -
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized, 44,121,000 shares and
44,722,500 shares issued and
outstanding, respectively 441 447
Additional paid-in capital 470,572 478,807
Cumulative net income 118,889 135,533
Distributions of funds
from operations (148,767) (163,525)
--------- ---------
Total shareholders' equity 441,135 451,262
-------- --------
$527,662 $529,718
======== =========
See accompanying notes
HEALTH AND REHABILITATION PROPERTIES TRUST
STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(Unaudited)
Quarter Ended March 31,
-----------------------
1993 1994
------ -------
Revenues:
Rental income $11,389 $12,470
Interest income 1,261 5,077
------- -------
Total revenues 12,650 17,547
------- -------
Expenses:
Interest 1,269 1,259
Advisory fees 574 775
Depreciation and amortization 2,213 2,618
General and administrative 185 245
------- -------
Total expenses 4,241 4,897
------- -------
Income before gain on sale of
properties and extraordinary
item 8,409 12,650
Gain on sale of properties - 3,994
Extraordinary item - early
extinguishment of debt and
termination costs of interest
rate hedging arrangements ( 3,392) -
-------- -------
Net income $ 5,017 $16,644
======= =======
Weighted average shares
outstanding 31,731 44,596
======= =======
Per share amounts:
Income before gain on sale of
properties and extraordinary
item $ .27 $ .28
======= =======
Net income $ .16 $ .37
======= =======
See accompanying notes
HEALTH AND REHABILITATION PROPERTIES TRUST
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Quarter Ended
March 31,
--------------
1993 1994
-------- -------
Cash flows from operating activities:
Net income $ 5,017 $16,644
Adjustments to reconcile net income to
cash provided by operating activities:
Gain on sale of properties - ( 3,994)
Loss on early extinguishment of debt 3,392 -
Depreciation and amortization 2,213 2,618
Amortization of interest costs 115 158
Decrease in security deposits - ( 4,500)
Deferred finance costs - ( 2,286)
Changes in assets and liabilities:
Increase in interest and
rent receivable and other assets ( 2,106) ( 1,365)
Decrease in accounts payable
and accrued expenses ( 679) ( 3,126)
Decrease in due to affiliate ( 20) ( 445)
-------- --------
Cash provided by operating
activities 7,932 3,704
------- -------
Cash flows from investing activities:
Investments in mortgage loans - (10,557)
Repayment of mortgage loans 94 16,743
Real estate acquisitions ( 626) ( 1,399)
Sale of real estate - 28,400
Loans to affiliates - ( 2,700)
------- --------
Cash provide by (used in)
investing activities ( 532) 30,487
------- -------
Cash flows from financing activities:
Proceeds from issuance of shares, net 123,138 8,241
Proceeds from borrowings - 40,000
Payments on borrowings (88,500) (40,000)
Termination costs of debt and
interest rate hedging arrangements ( 2,843) -
Payment related to stock surrender ( 3,000) -
Dividends paid (10,804) (14,758)
-------- -------
Cash provided by (used in)
financing activities 17,991 ( 6,517)
------- -------
Increase in cash and cash
equivalents 25,391 27,674
Cash and cash equivalents at
beginning of period 14,104 13,887
------- -------
Cash and cash equivalents at end of period $39,495 $41,561
======= =======
Supplemental cash flow information:
Interest paid $ 2,058 $ 1,287
See accompanying notes
HEALTH AND REHABILITATION PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1993 and 1994
(dollars in thousands, except per share data)
(Unaudited)
1. Basis of presentation
The financial statements of Health and Rehabilitation
Properties Trust ("the Company") have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for interim
periods are not necessarily indicative of the results that may be
expected for the full year.
2. Tax status
The Company is a real estate investment trust under the
Internal Revenue Code of 1986, as amended. Accordingly, the
Company expects not to be subject to federal income taxes on
amounts distributed to shareholders provided it distributes at
least 95% of its real estate investment trust taxable income and
meets certain other requirements for qualifying as a real estate
investment trust.
3. Dividends
On April 11, 1994, the Trustees declared a dividend on the
Company's common shares of beneficial interest with respect to
the quarter ended March 31, 1994, of $.33 per share, which will
be paid on or about May 31, 1994, to shareholders of record at
the close of business on May 16, 1994.
Dividends are principally based on funds from operations
which is defined as net income excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization. Cash available for distribution may not
necessarily equal funds from operations as the cash flow of the
Company is affected by other factors not included in the funds
from operations calculation. Dividends in excess of net income
are a return of capital.
4. Leases
On February 11, 1994, in connection with the merger of
Greenery Rehabilitation Group Inc. (Greenery) into Horizon
Healthcare Corporation (Horizon), the Company sold to Horizon for
$28,400, three facilities that had been leased to Greenery. The
Company realized a capital gain of approximately $3,994 on the
sale of these properties. In addition, Horizon has leased seven
facilities previously leased to Greenery, on substantially
similar terms except the leases were extended through 2005. The
Company has also granted Horizon a ten year option to buy, at the
rate of no more than one facility per year, the seven leased
facilities. Also, the
HEALTH AND REHABILITATION PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1993 and 1994
(dollars in thousands, except per share data)
(Unaudited)
4. Leases - Continued
Company leased the three remaining Greenery facilities to a newly
formed corporation, Connecticut Subacute Corporation II (CSC II),
an affiliate of HRPT Advisors, Inc. (Advisor). These facilities
are being managed by and the lease payments are guaranteed by
Horizon for a term of up to five years. The terms of these lease
arrangements are substantially similar to the original lease
arrangements.
On March 17, 1994, the Company entered into an agreement
with Host Marriott Corporation to acquire 14 retirement
communities containing 3,932 residences or beds for $320,000,
subject to adjustments. The communities are triple net leased
through December 31, 2013 to a wholly owned subsidiary of
Marriott International, Inc. (Marriott). The leases provide for
fixed rent aggregating approximately $28,000 per year and
additional rentals equal to 4.5% of annual revenues from
operations in excess of base amounts determined on a facility by
facility basis. All of the leases are subject to cross default
provisions and are guaranteed by Marriott. In connection with
the execution of the purchase and sale agreement for the Marriott
transaction, the Company provided a $25,000 cash deposit. The
remaining purchase price will be funded by the assumption of
$17,600 of existing debt bearing interest at 8.75%, with the
proceeds of the equity offering described in Note 7, available
cash, future debt financings and funds available to be drawn
under the Company's revolving credit facility. The acquisition
is expected to close in installments during May and June 1994.
5. Real Estate Mortgages and Notes Receivable
On February 11, 1994, in connection with the Horizon -
Greenery merger, the Company provided Horizon with $9,400 first
mortgage financing for two facilities. One of the facilities
previously was owned by the Company and leased to Greenery. The
mortgage notes bear interest at 11.5% per annum and mature
December 31, 2000.
During the first quarter of 1994, mortgage loans, secured by
six properties, with outstanding principal balances totalling
$16,662 were repaid.
6. Borrowings
On February 24,1994, the Company closed a new $110,000
revolving credit facility from a syndicate of banks. The new
credit facility, which replaced the Company's $40,000 revolving
credit facility scheduled to mature in January 1995, will mature
in 1997, unless extended by the
HEALTH AND REHABILITATION PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1993 and 1994
(dollars in thousands, except per share data)
(Unaudited)
6. Borrowings - Continued
parties. Borrowings under the new credit facility bear interest,
at the Company's option, at a spread over LIBOR or prime. The
Company has drawn on the new credit facility, upon its closing,
to repay the $40,000 outstanding on the previously existing
revolver and, on April 1, 1994, to repay the Company's $33,000
term loan. The interest rate on the $73,000 of debt outstanding
at March 31, 1994 is capped at 5.5% per annum through maturity.
On May 13, 1994, the Company repaid all $73,000 outstanding under
the new credit facility with proceeds of the offering described
in Note 7.
7. Common Shares of Beneficial Interest
On January 19, 1994, the Company received net proceeds of
approximately $8,301 and issued 601,500 shares of the Company's
stock in connection with the exercise of the underwriters over-
allotment option granted in connection with a public offering of
the Company's stock in December 1993. The proceeds were used as
part of the initial deposit on the Marriott transaction.
On May 13, 1994, the Company received net proceeds of
approximately $174,541 from the public offering of 12,650,000
shares of the Company's stock. These proceeds were used, in
part, to repay $73,000 in borrowings under the Company's
revolving credit facility and the Company expects to apply the
balance to fund part of the Marriott transaction.
8. Financing Commitments
During the quarter ended March 31, 1994, the Company
provided improvement financing at existing properties of
approximately $1,392.
As of March 31, 1994, the Company has commitments to provide
additional improvement financing at existing properties totalling
approximately $19,444.
9. Concentration of Credit Risk
Substantially all of the Company's assets are invested in
income producing health care real estate. At March 31, 1994, 28%
of the Company's real estate properties, net and real estate
mortgages and notes, net were subject to mortgages and leases
with Horizon. The financial statements of Horizon have been
filed as a part of Horizon's Quarterly Form 10-Q, file number 1-
9369, for the nine months ended February 28, 1994.
HEALTH AND REHABILITATION PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1993 and 1994
(dollars in thousands, except per share data)
(Unaudited)
10. Subsequent Event
On April 19, 1994, the Company filed a shelf registration
statement with the Securities and Exchange Commission (SEC)
relating to the offering of up to $345,000 of debt securities,
preferred shares of beneficial interest, common shares of
beneficial interest and common share warrants. The shelf
registration statement has not yet been declared effective by the
SEC.
11. Pro Forma Information (Unaudited)
The following summarized Pro Forma Statements of Income
assume that all of the Company's real estate financing
transactions during 1993, both 1993 share offerings, the January
19, 1994 over-allotment option exercise, the Horizon - Greenery
merger and the Marriott transaction and related financing had
occurred on January 1, 1993 and give effect to the Company's
borrowing rates throughout the periods indicated.
The summarized Pro Forma Balance Sheet is intended to present the
financial position of the Company as if the Marriot transaction
and related financing had occurred on March 31, 1994.
These pro forma statements are not necessarily indicative of the
expected results of operations or the Company's financial
position for any future period. Differences could result from,
but are not limited to, additional property investments, changes
in interest rates and changes in the debt and/or equity structure
of the Company.
Year Ended Three Months Ended
December 31, March 31,
------------ ------------------
1993 1993 1994
------------ -------- --------
(Unaudited)
Pro Forma Statement of Income
Total revenues $94,622 $23,346 $24,040
Total expenses 34,917 8,519 9,329
------- ------- -------
Net income $59,705 $14,827 $14,711
======= ======= =======
Weighted average shares
outstanding 57,373 57,373 57,373
======= ======= =======
Net income per share $ 1.04 $ .26 $ .26
======= ======= =======
HEALTH AND REHABILITATION PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1993 and 1994
(dollars in thousands, except per share data)
(Unaudited)
March 31,
1994
-----------
(Unaudited)
Pro Forma Balance Sheet
Real estate properties, net $649,432
Real estate mortgages and notes, net 153,795
Other assets 26,491
--------
Total Assets $829,718
========
Borrowings $198,459
Other liabilities 5,456
Shareholder's equity 625,803
--------
Total Liabilities and
Shareholder's Equity $829,718
========
HEALTH AND REHABILITATION PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1994,
increased to $17,547,000 from $12,650,000 for the quarter ended
March 31, 1993. Rental income increased to $12,470,000 from
$11,389,000 and interest income increased to $5,077,000 from
$1,261,000 during the comparable period. Rental income increased
primarily as a result of new investments in real estate
subsequent to March 31, 1993. Interest income increased
primarily due to the acquisition of three pools of performing
mortgage loans subsequent to March 31, 1993.
Total expenses for the quarter ended March 31, 1994,
increased to $4,897,000 from $4,241,000 for the quarter ended
March 31, 1993. The increase is primarily the result of
increases in depreciation and advisory fees of $405,000 and
$201,000, respectively. Depreciation and advisory fees increased
as a result of new investments since March 31, 1993.
Income before gain on sale of properties and extraordinary
item increased to $12,650,000 or $.28 per share for the 1994
quarter from $8,409,000 or $.27 per share for the 1993 quarter.
The increase in income before extraordinary item is primarily a
result of the new investments since March 31, 1993.
The Company bases its dividend primarily on funds from
operations during the quarter. Funds from operations means net
income excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization. Cash
available for distribution may not necessarily equal funds from
operations as the cash flow of the Company is affected by other
factors not included in the funds from operations calculation.
Funds from operations for the 1994 quarter was $15,458,000 or
$.35 per share for the 1994 quarter and $10,737,000 or $.34 per
share, for the 1993 quarter.
The dividends declared which relate to these quarters were
$18,932,925 or $.33 per share in 1994 and $11,236,000 or $.32 per
share in 1993. Dividends for the 1994 and 1993 quarter exceeded,
in the aggregate, the funds from operations because dividends
were declared on 12,650,000 and 10,350,000 shares, respectively,
which were not outstanding for the entire quarter.
LIQUIDITY AND CAPITAL RESOURCES
Assets of the Company increased to $529,718,000 at March 31,
1994 from $527,662,000 at December 31, 1993. The increase is
principally the net result of increases in cash and cash
equivalents, interest and rent receivables and deferred finance
costs of $27,674,000, $1,360,000 and $1,918,000, respectively and
decreases in real estate properties, net and real estate
mortgages and notes receivable, net of $25,410,000 and
$3,486,000, respectively. Cash and cash equivalents increased
primarily as a result of cash retained from the December 1993
equity offering, the
HEALTH AND REHABILITATION PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES - Continued
January 1994 underwriter's over-allotment exercise and proceeds
from prepayments of mortgage loans during the quarter. Real
estate properties, net decreased as a result of the sale of three
properties in connection
with the February 11, 1994 merger of Greenery Rehabilitation
Group Inc.
(Greenery) into Horizon Healthcare Corporation (Horizon). Real
estate mortgages and notes, net, decreased principally due to the
prepayment of mortgage investments secured by six properties,
totalling $16,662,000 net of new mortgage financings totalling
$10,557,000 primarily in connection with the Horizon - Greenery
merger.
On February 11, 1994, in connection with the Horizon-
Greenery merger, the Company sold to Horizon for $28,400,000
three facilities that had been leased to Greenery. The Company
realized a capital gain of approximately $3,994,000 on the sale
of these properties. In addition, Horizon has leased seven
facilities previously leased to Greenery, on substantially
similar terms except the leases were extended through 2005. The
Company has also granted Horizon a ten year option to buy, at the
rate of no more than one facility per year, the seven leased
facilities. Also, the Company leased the three remaining
Greenery facilities to a newly formed corporation, Connecticut
Subacute Corporation II (CSC II), an affiliate of HRPT Advisors,
Inc. (Advisor). These facilities are being managed by and the
lease payments are guaranteed by Horizon for a term of up to five
years. The terms of these lease arrangements are substantially
similar to the original lease arrangements.
On February 11, 1994, in connection with the Horizon -
Greenery merger, the Company provided Horizon with $9,400,000
first mortgage financing for two facilities. One of the
facilities previously was owned by the Company and leased to
Greenery. The mortgage notes bear interest at 11.5% per annum
and mature December 31, 2000.
On March 17, 1994, the Company entered into an agreement
with Host Marriott Corporation to acquire 14 retirement
communities containing 3,932 residences or beds for $320,000,000,
subject to adjustments. The communities are triple net leased
through December 31, 2013 to a wholly owned subsidiary of
Marriott International, Inc. (Marriott). The leases provide for
fixed rent aggregating approximately $28 million per year and
additional rentals equal to 4.5% of annual revenues from
operations in excess of base amounts determined on a facility by
facility basis. All of the leases are subject to cross default
provisions and are guaranteed by Marriott. In connection with
the execution of the purchase and sale agreement for the Marriott
transaction, the Company provided a $25,000,000 cash deposit.
The remaining purchase price will be funded by the assumption of
$17,600,000 of existing debt bearing interest at 8.75%, with the
proceeds of the equity offering described below, available cash,
future
HEALTH AND REHABILITATION PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES - Continued
debt financings and funds available to be drawn under the
Company's revolving credit facility. The acquisition is expected
to close in installments during May and June, 1994.
During the first quarter of 1994, mortgage loans, secured by
six properties, with outstanding principal balances totalling
$16,662,000, were repaid.
At March 31, 1994, the Company had $41,561,000 of cash and
cash equivalents, including the $25,000,000 cash deposit with
Marriott, and the ability to borrow up to $28,550,000 under its
existing revolving credit facility. At March 31, 1994, the
Company had outstanding commitments to provide $19,444,000 in
improvement financing for existing investments. On May 13, 1994
the Company received net proceeds of approximately $174,541,000
from the public offering of 12,650,000 shares of beneficial
interest (including the underwriter's over-allotment). A portion
of the proceeds were used to repay the outstanding balance of
$73,000,000 on the Company's revolving credit facility and the
Company expects to apply the remainder to fund part of the
Marriott transaction. Also, on April 19, 1994, the Company filed
a shelf registration statement with the Securities and Exchange
Commission (SEC) relating to the offering of up to $345,000,000
of debt securities, preferred shares of beneficial interest,
common shares of beneficial interest and common share warrants.
This shelf registration has not yet been declared effective by
the SEC.
The Company is continuing to seek new investments to expand
and diversify its portfolio of leased and mortgaged health care
related real estate. The Company believes that the new
investments described above substantially improve the quality and
diversity of lessees and mortgagors in its portfolio and also the
security of its future cash flows and dividends. Upon completion
of the Marriott transaction approximately 70% of the Company's
portfolio will be leased to or mortgage financed with seven New
York Stock Exchange listed companies. Also, Marriott, which is
an A- investment grade rated company, will be the Company's
largest single tenant.The Company intends to balance the use of
debt and equity in such a manner that the long term cost of funds
borrowed to acquire or mortgage finance facilities is
appropriately matched, to the extend practicable, to the terms of
the investments made with such borrowed funds. As of March 31,
1994, the Company's debt as a percentage of total capitalization
was approximately 14%. Current expenses and dividends are
provided for by funds from operations.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment to Marriott Senior Living Services
Purchase and Sale Agreement (*)
10.2 Letter Agreement regarding Marriott Senior Living
Services Purchase and Sale Agreement (*)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company
during the quarter ended March 31, 1994.
(*) Filed herewith.
HEALTH AND REHABILITATION PROPERTIES TRUST
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned duly authorized.
HEALTH AND REHABILITATION
PROPERTIES TRUST
(Registrant)
DATE May 16, 1994 BY /s/ Mark J. Finkelstein
Mark J. Finkelstein, President
DATE May 16, 1994 BY /s/ David J. Hegarty
David J. Hegarty, Executive
Vice President and CFO