UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-9317
HEALTH AND RETIREMENT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-6558834
(State or other jurisdiction (IRS Employer Identification
of incorporation) No.)
400 Centre Street, Newton, Massachusetts 02158
(Address of principal executive offices) (Zip Code)
617-332-3990
(Registrant's 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
November 13, 1997: 98,838,340 shares of beneficial interest, $.01 par value.
HEALT AND RETIREMENT PROPERTIES TRUST
FORM 10-Q
SEPTEMBER 30, 1997
INDEX
PART I Financial Information Page
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996 1
Consolidated Statements of Income - Three and Nine Months
Ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II Other Information
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
HEALTH AND RETIREMENT PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
(unaudited)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Real estate properties, at cost (including properties leased to
affiliates with a cost of $110,885 and $109,843, respectively):
Land $ 188,267 $ 93,522
Buildings and improvements 1,433,255 912,217
----------- -----------
1,621,522 1,005,739
Less accumulated depreciation 99,746 76,921
----------- -----------
1,521,776 928,818
Real estate mortgages and notes, net (including note from an affiliate
of $2,365) 116,941 150,205
Investment in Hospitality Properties Trust 102,465 103,062
Cash and cash equivalents 71,765 21,853
Interest and rents receivable 19,722 11,612
Deferred interest and finance costs, net, and other assets 18,625 13,972
----------- -----------
$ 1,851,294 $ 1,229,522
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 100,000 $ 140,000
Senior notes and bonds payable, net 200,000 124,385
Mortgage notes payable 26,941 --
Convertible subordinated debentures 211,650 227,790
Accounts payable and accrued expenses 35,616 10,711
Prepaid rents 7,077 7,608
Security deposits 2,872 8,387
Due to affiliates 1,336 2,593
Dividends payable 36,571 --
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:
125,000,000 shares and 100,000,000 shares authorized,
respectively, and, 98,838,340 shares and 66,888,917 shares
issued and outstanding, respectively 988 669
Additional paid-in capital 1,370,730 795,263
Cumulative net income 383,775 306,298
Dividends (526,262) (394,182)
----------- -----------
Total shareholders' equity 1,229,231 708,048
----------- -----------
$ 1,851,294 $ 1,229,522
=========== ===========
See accompanying notes
1
HEALTH AND RETIREMENT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
---------- ------------ ---------- -----------
Revenues:
Rental income $ 52,226 $ 24,682 $ 129,518 $ 72,501
Interest and other income 5,078 5,235 16,177 15,521
--------- --------- --------- ---------
Total revenues 57,304 29,917 145,695 88,022
--------- --------- --------- ---------
Expenses:
Operating 8,205 879 16,961 2,421
Interest 9,209 5,580 24,955 15,826
Depreciation and amortization 10,395 5,592 26,633 16,093
General and administrative 3,309 1,709 8,148 4,782
--------- --------- --------- ---------
Total expenses 31,118 13,760 76,697 39,122
--------- --------- --------- ---------
Income before equity in earnings of
Hospitality Properties Trust, gain on
sale of properties and extraordinary item 26,186 16,157 68,998 48,900
Equity in earnings of Hospitality Properties
Trust 2,238 2,301 6,683 6,629
Gain on equity transaction of Hospitality
Properties Trust -- -- -- 3,603
--------- --------- --------- ---------
Income before gain on sale of properties and
extraordinary item 28,424 18,458 75,681 59,132
Gain on sale of properties 2,898 -- 2,898 --
--------- --------- --------- ---------
Income before extraordinary item 31,322 18,458 78,579 59,132
Extraordinary item - early extinguishment of
debt (1,102) -- (1,102) (2,443)
--------- --------- --------- ---------
Net income $ 30,220 $ 18,458 $ 77,477 $ 56,689
========= ========= ========= =========
Weighted average shares outstanding 98,829 66,209 89,918 66,188
========= ========= ========= =========
Per share amounts:
Income before gain on sale of properties
and extraordinary item $0.29 $0.28 $0.84 $0.89
========= ========= ========= =========
Income before extraordinary item $0.32 $0.28 $0.87 $0.89
========= ========= ========= =========
Net income $0.31 $0.28 $0.86 $0.86
========= ========= ========= =========
See accompanying notes
2
HEALTH AND RETIREMENT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Nine Months Ended
September 30,
1997 1996
--------- ----------
Cash flows from operating activities:
Net income $ 77,477 $ 56,689
Adjustments to reconcile net income to cash provided by operating
activities:
Gain on sale of properties (2,898) --
Gain on equity transaction of Hospitality Properties Trust -- (3,603)
Equity in earnings of Hospitality Properties Trust (6,683) (6,629)
Dividends from Hospitality Properties Trust 7,280 6,960
Extraordinary item 1,102 2,443
Depreciation 25,422 15,618
Amortization 1,211 475
Amortization of deferred interest costs 699 1,283
Change in assets and liabilities:
Increase in interest and rents receivable and other assets (4,068) (11,327)
Increase (decrease) in accounts payable and accrued expenses 21,129 (354)
(Decrease) increase in prepaid rents (531) 9
(Decrease) increase in security deposits (5,515) 849
Decrease in due to affiliates (648) (1,193)
--------- ---------
Cash provided by operating activities 113,977 61,220
--------- ---------
Cash flows from investing activities:
Real estate acquisitions (215,310) (66,585)
Acquisition of business, less cash acquired (323,181) --
Investments in mortgage loans (576) (16,369)
Proceeds from repayment of notes and mortgage loans, net of discounts 33,690 6,843
Proceeds from sale of real estate 22,898 --
Repayment and advance of loan to affiliate -- 200
--------- ---------
Cash used for investing activities (482,479) (75,911)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common shares 483,153 6,990
Proceeds from borrowings 375,000 101,000
Payments on borrowings (340,649) (24,620)
Deferred finance costs incurred (3,581) (719)
Dividends paid (95,509) (69,502)
--------- ---------
Cash provided by financing activities 418,414 13,149
--------- ---------
Increase (decrease) in cash and cash equivalents 49,912 (1,542)
Cash and cash equivalents at beginning of period 21,853 18,640
--------- ---------
Cash and cash equivalents at end of period $ 71,765 $ 17,098
========= =========
Supplemental cash flow information:
Interest paid $ 24,400 $ 15,709
========= =========
See accompanying notes
3
HEALTH AND RETIREMENT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Nine Months Ended
September 30,
1997 1996
---------- ----------
Non-cash financing activities:
Issuance of shares $ 16,578 $ --
Conversion of convertible subordinated debentures, net (15,765) --
Non-cash investing activities:
Real estate acquisitions $ (15,739) $ --
Exchange of real estate 10,616 --
--------- ----------
Net cash used to acquire real estate $ (5,123) $ --
========= ==========
Acquisition of business, less cash acquired:
Real estate acquisitions $ 422,920 $ --
Working capital, other than cash 3,904 --
Liabilities assumed (27,588) --
Net cash used to acquire business (323,181) --
--------- ----------
Issuance of shares $ 76,055 $ --
========= ==========
See accompanying notes
4
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1. Basis of Presentation
The financial statements of Health and Retirement Properties Trust (the
"Company") have been prepared in accordance with generally accepted accounting
principals 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. Certain prior year amounts have been reclassified to conform to the
current year's presentation.
The Financial Accounting Standards Board has issued Financial
Accounting Standards Board Statement No. 128 "Earnings Per Share" ("FAS 128"),
Statement No. 129 "Disclosure of Information about Capital Structure" ("FAS
129"), Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") and
Statement No. 131 "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 128 and FAS 129 must be adopted for the Company's
1997 annual financial statements. FAS 130 and FAS 131 must be adopted for the
Company's 1998 financial statements. The Company estimates that the adoption of
FAS 128, FAS 129, FAS 130 and FAS 131 would have no impact on reported results.
Note 2. Shareholders' Equity
During the nine months ended September 30, 1997, the Company issued
27,025,000 common shares in a public offering, raising net proceeds of
approximately $483,153, issued 3,985,028 common shares in a private placement
for the purchase of real estate, issued 895,549 common shares due to the
conversion of $16,140 of its convertible subordinated debentures due 2003 and
issued 32,846 common shares to HRPT Advisors, Inc., (the "Advisor") an
affiliate, as the incentive fee earned for the year ended December 31, 1996.
In July 1997, 9,500 shares were granted to officers of the Company and
certain employees of the Advisor under the 1992 Incentive Share Award Plan.
Additionally, in May 1997, the three independent Trustees were also granted 500
shares each under such plan as part of their annual fee. The shares granted to
the officers of the Company and certain employees of the Advisor vest over a
three-year period and the shares granted to the Trustees vest immediately.
On September 15, 1997, the Trustees declared a dividend on the
Company's common shares with respect to the quarter ended September 30, 1997 of
$.37 per share, which will be distributed on or about November 20, 1997 to
shareholders of record as of September 30, 1997.
Note 3. Real Estate Properties
During the nine months ended September 30, 1997, the Company purchased
eight medical office buildings, one retirement community and 20 medical clinics
for approximately $222,772.
During the first quarter of 1997, the Company entered into an agreement
to acquire 30 office buildings (the "Government Properties"), leased to various
agencies of the United States Government. During the third quarter of 1997, the
Company elected not to acquire one of the Government Properties currently under
development with an aggregate value of approximately $12,000. At September 30,
1997, the Company had completed the purchase of 28 of the Government Properties
for approximately $422,920. The acquisition of the Government Properties was
funded, in part, with the proceeds from the issuance of the Company's common
shares pursuant to a public offering, the issuance of 3,985,028 common shares of
the Company in a private placement and the assumption of $27,588 of debt.
At September 30, 1997, 17% of the Company's real estate properties,
net, and mortgage receivables were in properties leased to Marriott
International, Inc. ("Marriott"). The financial statements of Marriott have been
filed as a part of Marriott's Quarterly Report on Form 10-Q, file number
1-12188, for the quarter ended September 12, 1997.
During the nine months ended September 30, 1997, the Company funded
$3,154 of improvements to existing tenants. At September 30,1997, the Company
had total outstanding commitments aggregating approximately $170,363 to acquire
properties or to provide financing.
5
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 3. Real Estate Properties - continued
The Company had invested approximately $112,000 in properties leased to
or mortgaged by Community Care of America, Inc. ("CCAI"). During the third
quarter of 1997, CCAI was acquired by Integrated Health Services, Inc. ("IHS").
In connection with IHS's acquisition of CCAI, the Company sold 14 nursing homes
to IHS for $33,514 and purchased three nursing homes which were mortgage
financed by the Company for $15,739. In addition, leases for 16 nursing homes
operated by CCAI were assumed by IHS and these leases were modified to provide
rent increases based upon the Consumer Price Index ("CPI") and these leases are
guaranteed by IHS. In connection with this transaction, the Company was paid a
lease modification fee of $3,737 and recognized a gain on sale of properties of
$2,898.
Subsequent to September 30, 1997, the Company purchased three medical
office properties for approximately $204,500, paid for with cash on hand and by
borrowing $110,000 on the Company's revolving credit facility. The Government
Properties and medical office properties owned by the Company are managed by M&P
Partners Limited Partnership, an affiliate of the Company.
Note 4. Investment in Hospitality Properties Trust
At September 30, 1997, the Company owned four million shares of the
common stock of Hospitality Properties Trust ("HPT") with a carrying value of
$102,465 and a market value of $141,500. The Company's percentage ownership of
HPT is 14.9%.
Note 5. Real Estate Mortgages and Notes Receivable, net
During the nine months ended September 30, 1997, the Company funded
improvements for existing properties totaling approximately $576. In addition,
the Company received regularly scheduled principal payments and prepayments of
mortgages secured by nine nursing facilities totaling $34,729, including amounts
received from IHS.
In connection with the acquisition of CCAI by IHS discussed in Note 3,
the Company received $27,980 from IHS representing prepayments of mortgages
secured by six nursing facilities owned by CCAI. Additionally, IHS assumed the
mortgage indebtedness of CCAI secured by nine nursing homes. The terms of the
mortgages have been modified to require interest increases based upon the CPI
and these mortgages are guaranteed by IHS.
Note 6. Indebtedness
In March 1997, the Company extended and modified its $250,000 unsecured
revolving bank credit facility. Subsequently, in July 1997, the Company expanded
the credit facility to $450,000. The credit facility matures in 2001 and bears
interest at LIBOR plus a premium. At September 30, 1997, $100,000 was
outstanding under the credit facility.
During July 1997, the Company issued Senior Unsecured Remarketed Reset
Notes totaling $200,000. The notes are due in 2007 and the initial interest rate
is LIBOR plus a premium, reset quarterly. Subsequent to the first year, the
interest rate and interest period on the notes may be fixed for the balance of
the term or a lesser period at the Company's option and the notes are subject to
remarketing. Proceeds from the issuance of the notes were used to prepay
$125,000 of the Company's Floating Rate Senior Notes, Series B, due 1999 and
$75,000 outstanding under the Company's bank credit facility. In connection with
this refinancing, the Company recognized an extraordinary loss from the
write-off of deferred financing fees and bond discounts of $1,102.
6
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 7. Pro Forma Information
The following pro forma summary presents the results of operations of
the Company as if the Government Properties transaction had occurred at the
beginning of January 1996. These pro forma results are not necessarily
indicative of the expected results of operation of the Company for any future
period. Differences could result from, but are not limited to, additional
property investments, changes in interest rates and changes in the capital
structure of the Company.
Nine Months ended
September 30,
-----------------------------
1997 1996
-------- ---------
Revenues $157,662 $129,978
Expenses 85,926 62,338
-------- --------
71,736 67,640
Equity in earnings of HPT 6,683 6,629
-------- --------
Net income $ 78,419 $ 74,269
======== ========
Average shares outstanding 98,838 97,076
======== ========
Net income per share $ 0.79 $ 0.77
======== ========
7
HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended September 30, 1997 Versus 1996
Total revenues for the quarter ended September 30, 1997, increased to
$57.3 million, from $29.9 million for the quarter ended September 30, 1996.
Rental income increased by $27.5 million and interest and other income decreased
by $157,000. Rental income increased because of new real estate investments
subsequent to September 30, 1996 and partly as a result of the Company's
increased investments in "gross leased" real estate assets during the 1997
period as compared to the 1996 period. As the Company's investment in such
"gross leased " assets increases, the Company anticipates rental income and the
corresponding operating expenses from such leases to increase during subsequent
periods. Interest and other income decreased slightly primarily as a result of a
decrease in mortgage interest income, offset by an increase in earnings on the
Company's short-term investments due to higher cash balances in the quarter
ended September 30, 1997 compared to the quarter ended September 30, 1996.
Total expenses for the quarter ended September 30, 1997, increased to
$31.1 million from $13.8 million for the quarter ended September 30, 1996.
Operating expenses increased by $7.3 million as a result of the Company's
increased investment in "gross leased" real estate assets during the 1997
quarter as compared to the 1996 period. Interest expense increased by $3.6
million due to higher borrowings outstanding during the 1997 quarter and the
Company's issuance of convertible debentures in October 1996. Depreciation and
amortization, and general and administrative expense increased by $4.8 million
and $1.6 million, respectively, primarily as a result of new real estate
investments subsequent to September 30, 1996.
Net income for the quarter ended September 30, 1997, increased to $30.2
million or $.31 per share, from $18.5 million or $.28 per share, for the same
quarter in 1996. This increase is primarily a result of new investments since
September 30, 1996, and a gain recognized on the sale of properties in 1997,
offset by an extraordinary loss recognized as a result of the prepayment of the
Company's Floating Rate Senior Notes, Series B in 1997.
The Company bases its dividend primarily on Funds from Operations
("FFO"). The Company has adopted the National Association of Real Estate
Investment Trust's definition of FFO, as income before equity in earnings of
HPT, gain (loss) on sale of properties and extraordinary items, plus
depreciation and other non-cash charges, plus the Company's proportionate share
of HPT's FFO. FFO for the 1997 quarter was $40.1 million, or $.41 per share, as
compared to $24.9 million, or $.38 per share, for the 1996 quarter. Cash
available for distribution may not necessarily equal FFO as the cash flow of the
Company is affected by other factors not included in the FFO calculation. The
dividends declared which relate to these quarters were $36.6 million, or $.37
per share, in 1997 and $23.8 million, or $.36 per share, in 1996.
Nine Months Ended September 30, 1997 Versus 1996
Total revenues for the nine months ended September 30, 1997 increased
to $145.7 million from $88.0 million for the nine months ended September 30,
1996. Rental income increased by $57.0 million and interest and other income
increased by $656,000. Rental income increased because of new real estate
investments subsequent to September 30, 1996 and partly as a result of the
Company's increased investments in "gross leased" real estate assets as compared
to "net leased" assets subsequent to September 30, 1996. As the Company's
investment in such "gross leased" assets increases, the Company anticipates
rental income and the corresponding operating expenses from such leases to
increase during subsequent periods. Interest and other income increased slightly
as a result of earnings on the Company's short-term investments due to higher
cash balances in the 1997 period compared to the 1996 period, which was offset,
in part, by a decrease in mortgage interest income.
Total expenses for the nine months ended September 30, 1997 increased
to $76.7 million from $39.1 million for the nine months ended September 30,
1996. Operating expenses increased by $14.5 million as a result of the Company's
increased investment in "gross leased" real estate assets during the 1997 period
as compared to the 1996 period. Interest expense increased by $9.1 million due
to higher borrowings outstanding during the 1997 period and the Company's
issuance of convertible debentures in October 1996. Depreciation and
amortization, and general and administrative expense increased by $10.5 million
and $3.4 million, respectively, primarily as a result of new real estate
investments subsequent to September 30, 1996.
8
HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Versus 1996 - continued
Net income increased to $77.5 million, or $.86 per share, for the 1997
period from $56.7 million, or $.86 per share, for the 1996 period. Net income
increased primarily as a result of new investments since September 30, 1996, the
recognition of a gain on sale of properties and a decrease in the extraordinary
loss on early extinguishment of debt.
Funds from operations for the nine months ended September 30, 1997,
were $105.2 million, or $1.17 per share, and $73.9 million, or $1.12 per share,
for the 1996 period. The dividends declared which relate to the nine months
ended September 30, 1997 and 1996 were $107.7 million, or $1.09 per share, and
$70.2 million, or $1.06 per share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Total assets of the Company increased to $1.9 billion at September 30,
1997, from $1.2 billion at December 31, 1996. The increase is primarily
attributable to new real estate acquisitions since December 31, 1996.
During the nine months ended September 30, 1997, the Company purchased
eight medical office buildings, one retirement community and 20 medical clinics
for approximately $222.8 million funded with cash on hand and by borrowing on
the Company's revolving credit facility.
In the first quarter of 1997, the Company entered into an agreement to
acquire 30 office buildings leased to the United States Government. Through
September 30, 1997, the Company had purchased 28 of the 30 Government Properties
for approximately $423 million. These acquisitions were funded, in part, with
the proceeds from the issuance of the Company's common shares pursuant to a
public offering, the issuance of 3,985,028 common shares of the Company in a
private placement and the assumption of $27.6 million of debt. During the third
quarter of 1997, the Company elected not to acquire one of the Government
Properties currently under development with an aggregate value of approximately
$12 million. The acquisition of the remaining property is subject to various
conditions customary in real estate transactions and is expected to be completed
by March 31, 1998.
The Company had invested approximately $112 million in properties
leased to or mortgaged by CCAI. During the third quarter of 1997, CCAI was
acquired by IHS. In connection with this transaction, the Company sold 14
nursing homes to IHS for approximately $33.5 million and purchased three nursing
homes which were mortgage financed by the Company for approximately $15.7
million. In addition, leases for 16 nursing homes operated by CCAI were assumed
by IHS. The leases were modified to provide rent increases based upon the CPI
and these leases are now guaranteed by IHS. Also, the Company received
approximately $28 million from IHS as prepayments of mortgages secured by six
nursing facilities owned by CCAI. IHS also assumed the mortgage indebtedness of
CCAI secured by nine nursing homes. These mortgages were modified to require
interest increases based upon the CPI and these mortgages are guaranteed by IHS.
In connection with this transaction, the Company was paid a lease modification
fee of $3.7 million and recognized a gain on sale of properties of $2.9 million.
Subsequent to September 30, 1997, the Company acquired three medical
office properties for approximately $204.5 million, paid for with cash on hand
and by borrowing $110 million on the Company's revolving credit facility.
During the nine months ended September 30, 1997, the Company funded
$3.7 million of improvements to existing facilities and received $34.7 million
of principal payments on mortgages, including the repayment of nine mortgage
loans secured by nine long-term care properties.
In March 1997, the Company issued 27,025,000 common shares in a public
offering yielding net proceeds of approximately $483.2 million. Proceeds of the
offering were used to repay the then outstanding balance on the Company's
revolving credit facility of $140 million and to fund the acquisition of real
estate. During the nine months ended September 30, 1997, the Company issued
895,549 common shares due to the conversion of $16.1 million of its convertible
subordinated debentures.
9
LIQUIDITY AND CAPITAL RESOURCES - continued
At September 30, 1997, the Company had $71.8 million of cash and cash
equivalents. In July 1997, the Company expanded the credit facility to $450
million. The credit facility matures in 2001 and bears interest at LIBOR plus a
premium. At September 30, 1997, $100 million was outstanding and $350 million
was available for borrowing under the credit facility.
During July 1997, the Company issued Senior Unsecured Remarketed Reset
Notes aggregating $200 million. The notes are due in 2007 and the initial
interest rate is LIBOR plus a premium, reset quarterly. Subsequent to the first
year, the interest rate and interest period on the notes may be fixed for the
balance of the term or a lesser term at the Company's option and the notes are
subject to remarketing. Proceeds from the issuance of the notes were used to
prepay $125 million of the Company's Floating Rate Senior Notes, Series B, due
1999 and $75 million outstanding under the Company's revolving credit facility.
In connection with this refinancing, the Company recognized a loss from the
write-off of deferred financing fees and bond discounts of $1.1 million.
At September 30, 1997, the Company had outstanding commitments to
purchase properties or provide financing totaling approximately $170.4 million.
The Company intends to fund these commitments with a combination of cash on
hand, issuance of common shares of the Company, amounts available under its
existing credit facilities and/or proceeds of mortgage prepayments, if any.
The Company continues to seek new investments to expand and diversify
its portfolio of leased and mortgaged real estate. The Company intends to
balance the use of debt and equity in such a manner that the long term cost of
funds used to acquire or mortgage finance facilities is appropriately matched,
to the extent practicable, with the terms of the investments made with such
funding. As of September 30, 1997, the Company's debt as a percentage of total
market capitalization was approximately 22%.
10
HEALTH AND RETIREMENT PROPERTIES TRUST
CERTAIN IMPORTANT FACTORS
The Company's Quarterly Report on Form 10-Q contains statements which
constitute forward looking statements within the meaning of the Securities
Exchange Act of 1934, as amended. Those statements appear in a number of places
in this Form 10-Q and include statements regarding the intent, belief or
expectations of the Company, its Trustees or its officers with respect to the
declaration or payment of dividends, the consummation of additional
acquisitions, policies and plans of the Company regarding investments,
financings or other matters, the Company's qualification and continued
qualification as a real estate investment trust or trends affecting the
Company's or any property's financial condition or results of operations.
Readers are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contained in the forward looking
statements as a result of various factors. Such factors include without
limitation changes in financing terms, the Company's ability or inability to
complete acquisitions and financing transactions, results of operations of the
Company's properties and general changes in economic conditions not presently
contemplated. The information contained in this Form 10-Q and the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, including the
information under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations", identifies other important factors that
could cause such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY,
DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE
"DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND
TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE
COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO
THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION.
Part II Other Information
Item 2. Changes in Securities.
On July 11, 1997, the Company issued an aggregate of 86,188 common
shares of beneficial interest, par value $.01 per share ("Common Shares") in
connection with the Company's previously disclosed acquisition of office
properties leased to agencies of the United States Federal Government. The
issuance of such Common Shares was made pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended.
On July 2, 1997, pursuant to the Company's Incentive Share Award Plan,
officers of the Company and certain employees of the Advisor received a grant of
9,500 Common Shares valued at $18.5625 per share, the closing price of the
Common Shares on the New York Stock Exchange on July 2, 1997. The grants were
made pursuant to the exemption from registration contained in Section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Agreement (for Property Management and Leasing Agent) between
M&P Partners Limited Partnership and various subsidiaries of
the Company, effective as of March 25, 1997, relating to
properties leased to Agencies of the United States Government.
27. Financial Data Schedule
(b) Reports on Form 8-K:
1. The Company filed a Current Report on Form 8-K, dated
September 2, 1997, with respect to (a) a further acquisition
of a government office property, (b) the Company's agreements
with CCAI, relating to CCAI's acquisition by IHS, and (c)
recent tax law developments. This Report also included pro
forma financial and other data relating to the acquisition of
such government office property.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEALTH AND RETIREMENT PROPERTIES TRUST
By: /s/ David J. Hegarty
David J. Hegarty
President and Chief Operating Officer
Dated: November 14, 1997
By: /s/ Ajay Saini
Ajay Saini
Treasurer and Chief Financial Officer
Dated: November 14, 1997
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