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 MARCH 31, 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 1-09582
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
- ---------------------------------------- -----
(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 March 31, 1997, there were outstanding 61,514,108 Shares of Beneficial
Interest, without par value.
2
MEDITRUST
FORM 10-Q
INDEX
Part I. Financial Information Page (s)
-------
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Income for the three months
ended March 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited) 5
Notes to the Consolidated Financial Statements (unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
-2-
3
MEDITRUST
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
---------- ----------
(Unaudited) (Audited)
(In thousands)
ASSETS
Real estate investments (Note 3):
Land............................................. $ 75,639 $ 68,098
Buildings and improvements, net of
accumulated depreciation of $104,054
and $98,082, respectively..................... 975,706 938,162
Real estate mortgages..................... ...... 1,241,741 1,181,818
---------- ----------
Total real estate investments................. 2,293,086 2,188,078
Other assets, net (Note 4).......................... 65,606 65,893
Fees, interest and other receivables................ 22,013 20,178
Cash and cash equivalents........................... 5,666 42,726
---------- ----------
Total assets.................................. $2,386,371 $2,316,875
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Indebtedness (Note 5):
Notes payable, net................................ $ 494,972 $ 494,790
Convertible debentures, net....................... 278,591 280,813
Bank notes payable, net........................... 110,291 24,114
Bonds and mortgages payable, net.................. 58,795 59,043
---------- ----------
Total indebtedness............................ 942,649 858,760
Deferred income..................................... 9,918 9,716
Accrued expenses and other liabilities.............. 47,394 63,458
---------- ----------
Total liabilities............................. 999,961 931,934
---------- ----------
Commitments and contingencies (Notes 3, 8 and 9)
Shareholders' equity (Notes 4, 5, 6 and 9):
Shares of beneficial interest without par value:
Unlimited Shares authorized; 61,514 and
61,349 Shares issued and outstanding
in 1997 and 1996, respectively ............... 1,524,344 1,520,454
Distributions in excess of net income............ (137,934) (135,513)
---------- ----------
Total shareholders' equity....................... 1,386,410 1,384,941
---------- ----------
Total liabilities and shareholders' equity $2,386,371 $2,316,875
========== ==========
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, 1996, are an integral part of these financial
statements.
-3-
4
MEDITRUST
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1997 and 1996
(Unaudited)
----------
1997 1996
---- ----
(In thousands, except
per Share amounts)
Revenues (Note 3):
Rental income............................. $32,293 $23,806
Interest income........................... 35,672 35,521
------- -------
Total revenues.......................... 67,965 59,327
------- -------
Expenses:
Interest.................................. 18,115 16,105
Depreciation and amortization............. 6,476 5,424
General and administrative................ 2,321 2,265
------- -------
Total expenses.......................... 26,912 23,794
------- -------
Net income................................... $41,053 $35,533
======= =======
Net income per Share, based on 61,442
and 55,153 weighted average Shares
outstanding in 1997 and 1996, respectively $ .67 $ .64
======= =======
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, 1996, are an integral part of these financial
statements.
-4-
5
MEDITRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months
ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $41,053 $35,533
Depreciation of real estate............................ 5,972 4,937
Goodwill amortization.................................. 389 389
Shares issued for compensation......................... 608 359
Other depreciation, amortization and other items, net .. 359 492
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
AVAILABLE FOR DISTRIBUTION............................. 48,381 41,710
Net change in other assets and liabilities............. (16,425) (9,883)
------- -------
Net cash provided by operating activities.............. 31,956 31,827
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equity offering.......................... 312,800
Proceeds from bank notes payable....................... 111,000 110,399
Repayment of bank notes payable........................ (25,000) (197,000)
Equity offering and debt issuance costs................ (39) (16,435)
Principal payments on bonds and mortgages payable ...... (254) (227)
Distributions to shareholders.......................... (43,474) (35,257)
Proceeds from stock options............................ 1,923 3,987
------- -------
Net cash provided by financing activities ............ 44,156 178,267
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate and development funding ..... (51,057) (129,607)
Investment in real estate mortgages and
development funding.................................. (64,049) (39,369)
Prepayment proceeds and principal payments
on real estate mortgages............................. 4,190 6,511
Working capital advances............................... (3,295) (9,884)
Collection of receivables and repayment of
working capital advances............................. 1,591 10,614
Investment in equity securities........................ (552)
------- -------
Net cash used in investing activities................. (113,172) (161,735)
------- -------
Net increase (decrease) in cash and cash equivalents . (37,060) 48,359
Cash and cash equivalents at:
Beginning of period................................... 42,726 44,248
------- -------
End of period......................................... $ 5,666 $92,607
======= =======
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, 1996, are an integral part of these financial
statements.
-5-
6
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 the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 (and the Report on Form 8-K
dated January 31, 1997 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 its financial position as
of March 31, 1997 and its results of operations and cash flows for each of
the three-month periods ended March 31, 1997 and 1996. The results of
operations for the three-month period ended March 31, 1997 are not
necessarily indicative of the results which may be expected for the entire
year.
2. Supplemental Cash Flow Information
----------------------------------
Three Months Ended
March 31,
------------------
1997 1996
------- ------
(In thousands)
Interest paid during the period ........................ $29,931 $23,954
Non-cash investing and financing transactions:
Reduction of real estate mortgages net
of participation reduction ......................... (64) (54)
Change in market value of equity securities in excess
of cost ............................................ (1,159)
Value of Shares issued for conversion of debentures.. 2,552 2,080
3. Real Estate Investments
-----------------------
During the three months ended March 31, 1997, the Company acquired six
assisted living facilities for $33,731,000. In addition, during the three
month period ended March 31, 1997, the Company provided net funding of
$846,000 for the construction of one assisted living facility and
$16,480,000 for ongoing construction of facilities already in the portfolio
prior to 1997.
-6-
7
MEDITRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
Also, during the three months ended March 31, 1997, the Company provided
permanent mortgage financing of $17,750,000 for one long-term care facility
located in Washington, six assisted living facilities in Wisconsin and one
retirement living facility in Ohio. The Company also provided $2,380,000 in
additional permanent mortgage financing secured by two long-term care
facilities located in New Mexico and Washington.
The Company commenced new development funding of $21,752,000 relating to
three long-term care facilities in three states, three assisted living
facilities in three states and two medical office buildings in two states.
The Company also provided $22,167,000 for ongoing construction of
facilities already in the portfolio prior to 1997.
During the three months ended March 31, 1997, the Company received
principal payments on real estate mortgages of $4,190,000.
At March 31, 1997, the Company was committed to provide additional
financing of approximately $176,412,000 relating to 29 assisted living
facilities, ten medical office buildings and nine long-term care facilities
currently under construction, and additions to existing facilities already
in the portfolio.
4. Investment 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 a 19.99%
interest in Nursing Home Properties Plc (NHP Plc), a property investment
group which specializes in the financing, through sale and leaseback
transactions, of nursing homes located in the United Kingdom. The Company
does not have the right to vote more than 9.99% of the shares of NHP Plc.
As of March 31, 1997 the market value of this investment was $14,877,000
and is included in other assets in the accompanying balance sheet. The
resulting difference between the current market value and cost, $1,368,000,
is included in shareholders' equity in the accompanying balance sheet.
5. Indebtedness and Shareholders' Equity
-------------------------------------
During the three months ended March 31, 1997, $1,105,000 of principal
amount of 9% convertible debentures were converted into 40,922 Shares;
$1,427,000 of principal amount of 7% convertible debentures were converted
into 46,594 Shares and $20,000 of principal amount of 7.5% convertible
debentures were converted into 552 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
$168,000,000 was available at March 31, 1997.
-7-
8
MEDITRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Distributions Paid to Shareholders
----------------------------------
On February 14, 1997, the Company paid a dividend of $.7075 per Share to
shareholders of record on January 31, 1997. This dividend related to the
period from October 1, 1996 through December 31, 1996.
7. Accounting for Net Income Per Share
-----------------------------------
Financial Accounting Standards Board Statement No. 128 ("FAS No. 128")
"Earning Per Share" is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. The
Company intends to adopt the requirements of this pronouncement in its
financial statements for the year ended December 31, 1997. FAS No. 128
specifies the computation, presentation and disclosure requirements for net
income per share. As stated in the Summary of Significant Accounting
Policies included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 (and the Report on Form 8-K dated January 31, 1997
incorporated by reference therein), net income per Share is calculated
using weighted average number of Shares outstanding during the year and the
affect of common stock equivalents is immaterial. The Company does not
believe that the presentation of basic net income per Share as required by
FAS No. 128 will have a material impact on it's financial statements. FAS
No. 128 also requires the presentation of diluted net income per share
which the Company was not previously required to present under generally
accepted accounting principles.
8. Contingency
-----------
On April 23, 1997, the Company and certain of its subsidiaries were served
with a complaint in an action in the Suffolk County, Massachusetts
Superior Court entitled Temkin, et al. vs. Meditrust, et al., alleging
that a former borrower of the Company had transferred funds to the Company
without fair consideration at a time when the transferors were insolvent.
The plaintiffs, who are unsecured creditors of the transferors, seek
damages against the Company in the amount of approximately $6.5 million,
plus costs, attorneys fees and multiple damages. The Company believes that
there is no basis for these claims and will defend the matter
vigorously.
9. Subsequent Events
-----------------
On April 8, 1997, the Company declared a dividend of $.7125 per Share
payable on May 15, 1997 to shareholders of record on April 30, 1997. This
dividend relates to the period from January 1, 1997 through March 31, 1997.
On April 13, 1997, the Company and its wholly-owned subsidiary, Meditrust
Acquisition Corporation IV (together, "Meditrust") entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company (together,
"Santa Anita"). When the transaction is consummated, Meditrust will be
merged into Santa Anita, and shareholders of Meditrust will receive 1.2016
paired common shares of Santa Anita for each share of Meditrust they own in
a tax-free exchange of shares. Based on the closing price of Meditrust on
April 11, 1997 of $37.25 per share, the transaction will have an initial
value to the shareholders of Santa Anita of approximately $383 million or
$31.00 per paired common share. Upon completion of the merger, the
surviving corporations will be called Meditrust Corporation and Meditrust
Operating Company.
Meditrust has agreed to buy approximately 1.2 million paired common shares
of Santa Anita at $31.00 per paired common share. In addition, Santa Anita
has agreed to sell to one or more independent parties designated by
Meditrust approximately 1.0 million Santa Anita paired common shares at a
price of $31.00 per paired common share. As of March 31, 1997, there were
approximately 61.5 million shares of beneficial interest of Meditrust
outstanding and there were approximately 11.5 million paired shares of
common stock and approximately 867,000 paired shares of preferred stock of
Santa Anita outstanding.
The Merger Agreement also provides that, if requested by Santa Anita,
Meditrust will make available to Santa Anita $100 million (less the
purchase price of the 1.2 million paired common shares acquired by
Meditrust) to be used by Santa Anita for a cash self tender or cash
election to its shareholders at a price of $31.00 per paired common share.
The transaction, which has been approved unanimously by the Board of
Trustees of Meditrust and the Boards of Directors of Santa Anita, is
subject to regulatory approvals and approvals of the shareholders of both
Meditrust and Santa Anita. The merger is not subject to any financing
conditions. The parties intend to file proxy materials for the proposed
transaction as soon as possible. The transaction is expected to close in
the fall of 1997.
-8-
9
MEDITRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Revenues for the three months ended March 31, 1997 were $67,965,000
compared to $59,327,000 for the three months ended March 31, 1996, an
increase of $8,638,000 or 14.6%. Revenue growth was attributed to increased
rental income of $8,487,000 and increased interest income of $151,000.
These increases were principally the result of additional real estate
investments made during the past year.
For the three months ended March 31, 1997, total expenses increased by
$3,118,000 compared to the three months ended March 31, 1996. Interest
expense increased by $2,010,000 due to increases in debt outstanding
resulting from additional real estate investments made during the past
year. Depreciation and amortization increased by $1,052,000, as a result of
increased real estate investments. General and administrative expenses
increased by $56,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of March 31, 1997, the Company's gross real estate investments totaled
approximately $2,397,140,000 consisting of 276 long-term care facilities,
26 rehabilitation hospitals, 102 retirement and assisted living facilities,
20 medical office buildings, six alcohol and substance abuse treatment
facilities and psychiatric hospitals, and one acute care hospital campus.
As of March 31, 1997, the Company's outstanding commitments for additional
financing totaled approximately $176,412,000 for the completion of 48
facilities under construction and additions to existing facilities in the
portfolio.
The Company had shareholders' equity of $1,386,410,000 and debt constituted
40% of the Company's total capitalization as of March 31, 1997.
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 unsecured notes and 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.
-9-
10
MEDITRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
Liquidity and Capital Resources, Continued
------------------------------------------
On April 13, 1997, Meditrust and its wholly-owned subsidiary, Meditrust
Acquisition Corporation IV (together, "Meditrust") entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company (together,
"Santa Anita"). When the transaction is consummated, Meditrust will be
merged into Santa Anita, and shareholders of Meditrust will receive 1.2016
paired common shares of Santa Anita for each share of Meditrust they own in
a tax-free exchange of shares. Based on the closing price of Meditrust on
April 11, 1997 of $37.25 per share, the transaction will have an initial
value to the shareholders of Santa Anita of approximately $383 million or
$31.00 per paired common share. Upon completion of the merger, the
surviving corporations will be called Meditrust Corporation and Meditrust
Operating Company.
Meditrust has agreed to buy approximately 1.2 million paired common shares
of Santa Anita at $31.00 per paired common share. In addition, Santa Anita
has agreed to sell to one or more independent parties designated by
Meditrust approximately 1.0 million Santa Anita paired common shares at a
price of $31.00 per paired common share. As of March 31, 1997, there were
approximately 61.5 million shares of beneficial interest of Meditrust
outstanding and there were approximately 11.5 million paired shares of
common stock and approximately 867,000 paired shares of preferred stock of
Santa Anita outstanding.
The Merger Agreement also provides that, if requested by Santa Anita,
Meditrust will make available to Santa Anita $100 million (less the
purchase price of the 1.2 million paired common shares acquired by
Meditrust) to be used by Santa Anita for a cash self tender or cash
election to its shareholders at a price of $31.00 per paired common share.
The transaction, which has been approved unanimously by the Board of
Trustees of Meditrust and the Boards of Directors of Santa Anita, is
subject to regulatory approvals and approvals of the shareholders of both
Meditrust and Santa Anita. The merger is not subject to any financing
conditions. The parties intend to file proxy materials for the proposed
transaction as soon as possible. The transaction is expected to close in
the fall of 1997.
As of April 15, 1997, 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 (8.5%) or LIBOR plus .875%
(6.5625% at April 15, 1997), of which $143,000,000 was available at that
date. 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.
-10-
11
MEDITRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
Liquidity and Capital Resources, Continued
------------------------------------------
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 1997, 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 or through a securitization
transaction.
-11-
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On April 23, 1997, the Company and certain of its subsidiaries were served with
a complaint in an action in the Suffork County, Massachusetts Superior Court
entitled Temkin, et al. v. Meditrust, et al., alleging that a former borrower
of the Company had transferred funds to the Company without fair consideration
at a time when the transferors were insolvent. The plaintiffs, who are
unsecured creditors of the transferors, seek damages against the Company in the
amount of approximately $6.5 million, plus costs, attorneys fees and multiple
damages. The Company believes that there is no basis for these claims and will
defend the matter vigorously.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
No. Title Method of Filing
- --- ----- ----------------
10.1 Revolving Credit Agreement by and among
Meditrust the "Banks" and Fleet National
Bank as agent dated September 23, 1996 ......... Filed herewith
10.2 Revolving Credit Agreement by and between
Meditrust and Via Banque dated
December 12, 1996............................... Filed herewith
11 Statement Regarding Computation of Per
Share Earnings.................................. Filed herewith
27 Financial Data Schedule......................... Filed herewith
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed a current report on
Form 8-K dated January 31, 1997, which included the consolidated financial
statements of the Company for the year ended December 31, 1996.
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: May 1, 1997 By: /s/ LAURIE TIDOR
----------------------------------------
Laurie Tidor, Chief Financial Officer
-12-