1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For The Quarterly Period Ended SEPTEMBER 30, 1996
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 0-14022
MEDITRUST
---------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-6532031
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
197 First Avenue
Needham Heights, Massachusetts 02194-9127
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 433-6000
--------------
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
--- ---
As of September 30, 1996, there were outstanding 60,936,603 Shares of Beneficial
Interest, without par value.
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MEDITRUST
FORM 10-Q
INDEX
Part I. Financial Information Page(s)
-------
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995
(unaudited) 4
Consolidated Statements of Income for the nine months
ended September 30, 1996 and 1995 (unaudited) 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995
(unaudited) 6
Notes to the Consolidated Financial Statements
(unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
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MEDITRUST
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
---------- ----------
(Unaudited) (Audited)
(In thousands)
ASSETS
Real estate investments (Note 3):
Land .................................................................... $ 63,048 $ 47,993
Buildings and improvements, net of
accumulated depreciation of $92,863
and $77,204, respectively ........................................... 846,663 621,182
Real estate mortgages ................................................... 1,246,885 1,108,623
---------- ----------
Total real estate investments ....................................... 2,156,596 1,777,798
Other assets, net (Note 4) .................................................. 69,781 49,400
Fees, interest and other receivables ........................................ 21,418 20,406
Cash and cash equivalents ................................................... 51,184 44,248
---------- ----------
Total assets ....................................................... $2,298,979 $1,891,852
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Indebtedness (Note 5)
Notes payable, net ....................................................... $ 494,774 $ 300,813
Convertible debentures, net .............................................. 289,546 295,209
Bank notes payable, net .................................................. 22,572 113,709
Bonds and mortgages payable, net ......................................... 59,280 52,560
---------- ----------
Total indebtedness ................................................. 866,172 762,291
Deferred income ............................................................. 10,277 9,222
Accrued expenses and other liabilities ...................................... 50,691 58,584
---------- ----------
Total liabilities .................................................. 927,140 830,097
---------- ----------
Commitments and contingencies (Note 3)
Shareholders' equity (Notes 5, 6 and 7) Shares of beneficial interest without
par value:
Unlimited shares authorized; 60,937
and 51,177 shares issued and
outstanding in 1996 and 1995, respectively .......................... 1,505,870 1,192,612
Distributions in excess of net income .................................. (134,031) (130,857)
---------- ----------
Total shareholders' equity ............................................. 1,371,839 1,061,755
---------- ----------
Total liabilities and shareholders' equity ......................... $2,298,979 $1,891,852
========== ==========
The accompanying notes, together with the Notes to the Consolidated
Financial Statements incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1995, are an integral part of these
financial statements.
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MEDITRUST
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(Amounts in thousands
except per Share amounts)
Revenues (Note 3):
Rental income .............................. $28,061 $19,667
Interest income ............................ 36,740 33,086
------- -------
Total revenues ....................... 64,801 52,753
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Expenses:
Interest expense ........................... 15,854 15,146
Depreciation and amortization .............. 5,919 4,374
General and administrative expenses ........ 2,307 1,531
------- -------
Total expenses ....................... 24,080 21,051
------- -------
Net income before extraordinary item .......... 40,721 31,702
Extraordinary item:
Loss on prepayment of debt (Note 5) ........ 33,454
------- -------
Net income (loss) ............................. $40,721 $(1,752)
======= =======
Per Share:
Net income before extraordinary item .......... $ 0.67 $ 0.64
Extraordinary item: Loss on prepayment of debt 0.68
------- -------
Net income (loss) ............................. $ .67 $ (0.04)
======= =======
Weighted average Shares outstanding ........... 60,809 49,589
======= =======
The accompanying notes, together with the Notes to the Consolidated
Financial Statements incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1995, are an integral part of these
financial statements.
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MEDITRUST
CONSOLIDATED STATEMENTS OF INCOME
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(Amounts in thousands
except per Share amounts)
Revenues (Note 3):
Rental income ............................. $ 79,016 $ 62,220
Interest income ........................... 107,285 91,903
-------- --------
Total revenues ............................ 186,301 154,123
-------- --------
Expenses:
Interest expense .......................... 46,450 48,869
Depreciation and amortization ............. 17,103 13,182
General and administrative expenses ....... 6,251 5,258
-------- --------
Total expenses ...................... 69,804 67,309
-------- --------
Net income before extraordinary item ......... 116,497 86,814
Extraordinary item:
Loss on prepayment of debt (Note 5) ....... 33,454
-------- --------
Net income ................................... 116,497 $ 53,360
======== ========
Per Share:
Net income before extraordinary item ......... $ 1.98 $ 1.87
Extraordinary item: Loss on prepayment of debt 0.72
-------- --------
Net income ................................... $ 1.98 $ 1.15
======== ========
Weighted average Shares outstanding .......... 58,883 46,492
======== ========
The accompanying notes, together with the Notes to the Consolidated
Financial Statements incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1995, are an integral part of these
financial statements.
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MEDITRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 116,497 $ 53,360
Loss on prepayment of debt .................................. 33,454
Depreciation of real estate assets .......................... 15,659 11,761
Goodwill amortization ....................................... 1,168 1,168
Shares issued for compensation .............................. 1,591 706
Other debt amortization, depreciation and other items, net .. 832 2,324
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
AVAILABLE FOR DISTRIBUTION .................................. 135,747 102,773
Net change in other assets and liabilities .................. (14,968) (6,331)
--------- ---------
Net cash provided by operating activities ................ 120,779 96,442
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equity offering ............................... 312,800 278,656
Proceeds from debt issuance ................................. 458,399 758,200
Repayment of bank notes payable ............................. (346,500) (436,700)
Repayment of senior unsecured and mortgage notes payable .... (309,300)
Debt prepayment charges ..................................... (31,228)
Equity offering and debt issuance cost ...................... (18,943) (19,720)
Principal payments on bonds and mortgages payable ........... (696) (758)
Distribution to shareholders ................................ (119,671) (93,205)
Proceeds from warrant conversions and stock options ......... 8,106 5,961
--------- ---------
Net cash provided by financing activities ................ 293,495 151,906
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of and additions to real estate ................. (235,219) (73,960)
Investment in real estate mortgages and development financing (218,257) (187,272)
Prepayment proceeds and principal payments on real estate
mortgages and note ....................................... 59,182 21,535
Working capital advances .................................... (28,242) (29,887)
Collection of receivables and repayment of working capital
advances ................................................. 28,707 23,601
Investment in equity securities (Note 4) .................... (13,509)
--------- ---------
Net cash used in investing activities .................... (407,338) (245,983)
--------- ---------
Net increase in short-term cash investments .............. 6,936 2,365
Short-term cash investments at:
Beginning of period ...................................... 44,248 39,937
--------- ---------
End of period ............................................ $ 51,184 $ 42,302
========= =========
Supplemental disclosure of cash flow information (see Note 2)
The accompanying notes, together with the Notes to the Consolidated
Financial Statements incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1995, are an integral part of these
financial statements.
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MEDITRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted in this Form 10-Q in
compliance with the Rules and Regulations of the Securities and Exchange
Commission. However, in the opinion of Meditrust ("the Company"), the
disclosures contained in this Form 10-Q are adequate to make the
information presented not misleading. See Report on Form 10-K for the year
ended December 31, 1995 (and the Report on Form 8-K dated January 29, 1996
incorporated by reference therein) for additional information relevant to
significant accounting policies followed by the Company.
Basis of Presentation
---------------------
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 1996 and the results of operations for each of the
three-and nine-month periods ended September 30, 1996 and 1995 and cash
flows for each of the nine-month periods ended September 30, 1996 and 1995.
The results of operations for the nine month period ended September 30,
1996 are not necessarily indicative of the results which may be expected
for the entire year. Certain 1995 amounts have been reclassified to conform
to the 1996 presentation.
2. Supplemental Cash Flow Information
----------------------------------
Nine Months Ended
September 30,
------------------
1996 1995
---- ----
(In thousands)
Interest paid during the period ................................... $ 53,754 $ 51,095
Non-cash investing and financing transactions:
Acquisition and lease of real estate (see Note 3):
Value of real estate acquired (sold):
Land and buildings ........................................ 20,976 42,906
Accumulated depreciation .................................. 3,205
Increase (reduction) of real estate mortgages net of
participation reduction ................................... (20,813) (32,725)
Unrealized gain on investment in equity
securities (see Note 4) ................................... 465
Value of Shares issued for:
Conversion of debentures .................................... 6,806 27,311
Executive compensation ...................................... 1,591 706
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MEDITRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Real Estate Investments
-----------------------
During the nine months ended September 30, 1996, the Company acquired 27
assisted living facilities, one medical office building and one long-term
care facility for $188,654,000. In addition, during the nine month period
ended September 30, 1996, the Company provided net funding of $46,565,000
for the construction of 18 assisted living facilities, one medical office
building and one long-term care facility.
During the nine months ended September 30, 1996, the Company provided
permanent mortgage financing of $131,286,000 for 27 long-term care
facilities located in California, Colorado, Missouri, New Mexico, Rhode
Island, and Washington; 11 assisted living facilities located in Michigan,
Ohio and Wisconsin and one retirement living facility located in North
Carolina. The Company also provided $11,043,000 in additional permanent
mortgage financing secured by 12 long-term care facilities located in six
states, and six medical office buildings located in three states.
In addition, during the nine month period ending September 30, 1996, the
Company provided net development financing of $75,928,000 for seven medical
office buildings, two assisted living and seven long-term care facilities.
During the nine months ended September 30, 1996, the Company received
principal payments on real estate mortgages of $32,288,000 and received
$26,894,000 in mortgage prepayments for two facilities located in
Connecticut and North Carolina.
At September 30, 1996, the Company was committed to provide additional
financing of approximately $178,735,000 relating to nine medical office
buildings, seven long-term care facilities, and 20 assisted living
facilities currently under construction and additions to existing
facilities in the portfolio.
4. Accounting For Investments In Equity Securities
-----------------------------------------------
On July 25, 1996, the Company invested approximately $13,509,000 in
exchange for 7,936,000 shares of common stock, representing 19.99% of
Nursing Home Properties Plc (NHP Plc), a property investment group that
specializes in the financing, through sale and leaseback transactions, of
nursing homes located in the United Kingdom.
Pursuant to SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities," the investment is required to be recorded at current
market value with an offsetting adjustment to shareholders equity. As of
September 30, 1996 the market value of this investment was $13,974,000 and
is included in other assets in the accompanying balance sheet. The
resulting unrealized gain, representing the difference between current
market value and cost, was $465,000 which is included in shareholders'
equity in the accompanying balance sheet.
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MEDITRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Accounting For Investments In Equity Securities, continued
------------------------------------------------
NHP Plc is a publicly traded UK property investment company that
specializes in the purchase and leasing of purpose-built nursing homes in
the UK. As of September 30, 1996, NHP Plc has invested or committed to
invest approximately $118,000,000 in 39 nursing homes, totaling 2,318 beds.
The facilities are leased to eight UK nursing home operators on terms and
conditions similar to those contained in the Company's leases.
5. Indebtedness and Shareholders' Equity
-------------------------------------
In July and August 1995, the Company prepaid senior unsecured notes and
senior mortgage notes payable totaling $296,800,000 which were due between
1995 and 2001, with interest rates ranging from 10.00% to 10.86%. The
transaction resulted in prepayment penalties and acceleration of
unamortized debt cost totaling $33,454,000, which is an extraordinary item
reflected as a loss on prepayment of debt in the income statements for the
three and nine month periods ending September 30, 1995. Net proceeds from
the issuance of notes and convertible debentures with interest rates
ranging from 7.375% to 8.56% were used for the prepayment.
In February 1996, the Company completed the sale of 9,200,000 shares of
beneficial interest, without par value ("Shares") at $34.00 per Share. The
net proceeds to the Company from this offering were used to repay
short-term borrowings and for investments in additional health care
facilities.
On September 10, 1996, The Company completed the sale of $175,000,000 of
7.82% notes due September 10, 2026. The notes include a put feature which
gives each noteholder the right to redeem the notes at par on September 10,
2003. The net proceeds from the issuance of these securities were utilized
to repay the outstanding balance of the Company's unsecured credit
facilities and for investments in additional health care facilities.
During the nine months ended September 30, 1996, the Company issued
$20,000,000 in notes payable with a maturity date of January 16, 2006,
bearing interest at 7.3%. The net proceeds from the issuance of this
security were utilized to reduce the outstanding balance of the Company's
unsecured credit facilities and for investments in additional health care
facilities.
During the nine months ended September 30, 1996, $3,800,000 of principal
amount of 9% convertible debentures were converted into 111,324 Shares and
$3,006,000 of principal amount of 7% convertible debentures were converted
into 124,076 Shares.
The Company has a total of $280,000,000 in unsecured lines of credit,
bearing interest at the lenders' prime rate or LIBOR plus .875%, of which
approximately $256,000,000 was available at September 30, 1996.
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MEDITRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Distributions Paid to Shareholders
----------------------------------
On May 15, 1996, the Company paid a dividend of $.6925 per Share to
shareholders of record on April 30, 1996. This dividend relates to the
period from January 1, 1996 through March 31, 1996.
On August 15, 1996 the Company paid a dividend of $.6975 per Share to
shareholders of record on July 31, 1996. This dividend relates to the
period from April 1, 1996 through June 30, 1996.
7. Subsequent Events
-----------------
On October 8, 1996, the Company declared a dividend of $.7025 per Share
payable on November 15, 1996 to shareholders of record on October 31, 1996.
This dividend relates to the period from July 1, 1996 through September 30,
1996.
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MEDITRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Revenues for the three months ended September 30, 1996 were $64,801,000 compared
to $52,753,000 for the three months ended September 30, 1995, an increase of
$12,048,000 or 22.8%. Revenue growth was comprised of increased rental income of
$8,394,000 and increased interest income of $3,654,000, which resulted primarily
from additional real estate investments during the past twelve months.
For the three months ended September 30, 1996, total expenses increased by
$3,029,000 compared to the three months ended September 30, 1995. Interest
expense increased by $708,000 primarily due to increases in debt outstanding
which resulted from additional real estate investments made during the past
twelve months. The increase was partially offset by an equity offering in
February 1996, and lower interest rates on the notes outstanding during the
three months ended September 30, 1996, compared to those outstanding during the
same period in 1995. Depreciation and amortization expenses increased by
$1,545,000, as a result of increased real estate investments during the past
year. General and administrative expenses increased by $776,000.
Revenues for the nine months ended September 30, 1996 were $186,301,000 compared
to $154,123,000 for the nine months ended September 30, 1995, an increase of
$32,178,000 or 20.9%. Revenue growth resulted from increased rental income of
$16,796,000 and increased interest income of $15,382,000, which resulted
primarily from additional real estate investments during the past twelve months.
For the nine months ended September 30, 1996, total expenses increased by
$2,495,000. Interest expense decreased by $2,419,000 primarily due to reductions
in debt outstanding as a result of an equity offering in February 1996, and
lower interest rates on the notes outstanding during the nine months ended
September 30, 1996, compared to those outstanding during the same period in
1995. The decrease was partially offset by increases in debt outstanding
resulting from additional real estate investments during the past twelve months.
Depreciation and amortization expenses increased by $3,921,000, as a result of
increased real estate investments during the past year. General and
administrative expenses increased by $993,000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's gross real estate investments totaled
approximately $2,249,000,000 consisting of 292 long-term care facilities, 24
rehabilitation hospitals, 63 retirement and assisted living facilities, 17
medical office buildings, nine alcohol and substance abuse treatment facilities
and psychiatric hospitals, and one acute care hospital campus. As of September
30, 1996, the Company's outstanding commitments for additional financing totaled
approximately $178,735,000 for the completion of nine medical office buildings,
seven long-term care facilities and 20 assisted living facilities currently
under construction and additions to existing facilities in the portfolio.
The Company had shareholders' equity of $1,371,839,000 and debt constituted 39%
of the Company's total capitalization as of September 30, 1996.
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MEDITRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, Continued
------------------------------------------
The Company provides funding for its investments through a combination of
long-term and short-term financing including both debt and equity. The Company
obtains long-term financing through the issuance of Shares, the issuance of
long-term unsecured notes, the issuance of convertible debentures and the
assumption of mortgage notes. The Company obtains short-term financing through
the use of bank lines of credit which are replaced with long-term financing as
appropriate. From time to time, the Company may utilize interest rate caps or
swaps to hedge interest rate volatility. It is the Company's objective to match
mortgage and lease terms with the terms of its borrowings. The Company seeks to
maintain an appropriate spread between its borrowing costs and the rate of
return on its investments. When development loans convert to sale/leaseback
transactions or permanent mortgage loans, the base rent or interest rate, as
appropriate, is fixed at the time of such conversion.
On August 10, 1995, the Company commenced a Medium-Term Note program, offering
on a continuing basis, notes due from nine months to 30 years from date of
issue, as selected by the purchaser and agreed to by the Company at an aggregate
initial public offering price not to exceed $200,000,000. As of September 30,
1996, $139,000,000 of these notes has been issued.
During the nine months ended September 30, 1996, the Company issued $20,000,000
in notes payable with a maturity date of January 16, 2006, bearing interest at
7.3%. The net proceeds from the issuance of this security were utilized to
reduce the outstanding balance of the Company's unsecured credit facilities.
During February 1996, the Company completed the sale of 9,200,000 Shares at
$34.00 per Share. The net proceeds to the Company from this offering were used
to repay short-term borrowings and for investments in additional health care
facilities.
On July 25, 1996, the Company invested approximately $13,509,000 in exchange for
7,936,000 shares of common stock, representing 19.99% of Nursing Home Properties
Plc (NHP Plc), a property investment group that specializes in the financing,
through sale and leaseback transactions, of nursing homes located in the United
Kingdom.
NHP Plc is a publicly traded UK property investment company that specializes in
the purchase and leasing of purpose-built nursing homes in the UK. As of
September 30, 1996, NHP Plc has invested or committed to invest approximately
$118,000,000 in 39 nursing homes, totaling 2,318 beds. The facilities are leased
to eight UK nursing home operators on terms and conditions similar to those
contained in the Company's leases.
On September 10, 1996, The Company completed the sale of $175,000,000 of 7.82%
notes due September 10, 2026. The notes include a put feature which gives each
noteholder the right to redeem the notes at par on September 10, 2003. The net
proceeds from the issuance of these securities were utilized to repay the
outstanding balance of the Company's unsecured credit facilities and for
investments in additional health care facilities.
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MEDITRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, Continued
------------------------------------------
As of October 15, 1996, the Company had unsecured revolving lines of credit
expiring September 23, 1999 in the aggregate amount of $280,000,000 bearing
interest at the lender's prime rate (8.25%) or LIBOR plus .875% (6.26% at
October 15, 1996). The total amount of the revolving credit line was available
at October 15, 1996. In addition, the Company has effective shelf registrations
on file with the Securities and Exchange Commission under which the Company may
issue up to approximately $406,000,000 of securities including Shares, Preferred
Shares of beneficial interest ("Preferred Shares"), debt, convertible debt and
warrants to purchase Shares, Preferred Shares, debt and convertible debt.
The Company believes that its various sources of capital are adequate to finance
its operations as well as pending property acquisitions, mortgage financings and
future dividends. For 1996, however, in the event that the Company identifies
appropriate investment opportunities, the Company may raise additional capital
through the sale of Shares or Preferred Shares or by the issuance of additional
long-term debt.
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MEDITRUST
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
No. Title Method of Filing
- --- ----- ----------------
4 Amended and Restated 1992 Equity Incentive Plan
(effective August 15, 1996)............................ Filed herewith
11 Statement Regarding Computation of Per Share Earnings . Filed herewith
27 Financial Data Schedule................................ Filed herewith
(b) Report on Form 8-K
The Company filed a current report on Form 8-K dated September 6,
1996 which contained the form of Underwriting Agreement and Indenture
Supplement relating to the Company's public offering of 7.82% Notes
due September 10, 2026.
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.
MEDITRUST
Date: October 22, 1996 By: /s/ John G. Demeritt
----------------------------
John G. Demeritt, Controller
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