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UNITED STATES
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, 2001
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: 1-11852
------------------------
HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
MARYLAND 62 - 1507028
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3310 WEST END AVENUE
SUITE 700
NASHVILLE, TENNESSEE 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that 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 May 1, 2001, 40,559,741 shares of the Registrant's Common Stock
and 3,000,000 shares of the Registrant's Series A Voting Cumulative Preferred
Stock were outstanding.
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HEALTHCARE REALTY TRUST
INCORPORATED
FORM 10-Q
MARCH 31, 2001
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II - Other Information
Item 1. Legal Proceedings 17
Item 6. Reports on Form 8-K 17
Signature 18
3
ITEM 1.
HEALTHCARE REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
ASSETS
Real estate properties:
Land $ 151,972 $ 152,254
Buildings and improvements 1,292,034 1,290,395
Personal property 6,133 5,785
Construction in progress 36,629 30,914
----------- -----------
1,486,768 1,479,348
Less accumulated depreciation (130,089) (120,522)
----------- -----------
Total real estate properties, net 1,356,679 1,358,826
Cash and cash equivalents 313 1,788
Restricted cash 674 577
Mortgage notes receivable 170,449 170,906
Other assets, net 61,258 54,979
----------- -----------
Total assets $ 1,589,373 $ 1,587,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable 548,948 536,781
Accounts payable and accrued liabilities 16,265 22,714
Other liabilities 19,609 19,544
----------- -----------
Total liabilities 584,822 579,039
----------- -----------
Commitments 0 0
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized;
issued and outstanding, 2001 and 2000 - 3,000,000 30 30
Common stock, $.01 par value; 150,000,000 shares authorized;
issued and outstanding, 2001 - 40,557,368; 2000 - 40,314,399 405 403
Additional paid-in capital 1,066,433 1,061,190
Deferred compensation (14,329) (9,730)
Cumulative net income 315,818 295,174
Cumulative dividends (363,806) (339,030)
----------- -----------
Total stockholders' equity 1,004,551 1,008,037
----------- -----------
Total liabilities and stockholders' equity $ 1,589,373 $ 1,587,076
=========== ===========
The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, are an integral part of these financial statements.
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HEALTHCARE REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(Dollars in thousands, except per share data)
2001 2000
----------- -----------
REVENUES:
Master lease rental income $ 25,087 $ 24,017
Property operating income 16,450 15,178
Straight line rent 1,748 1,470
Mortgage interest income 4,539 6,353
Management fees 342 732
Interest and other income 63 509
----------- -----------
48,229 48,259
----------- -----------
EXPENSES:
General and administrative 2,035 2,154
Property operating expenses 6,191 5,464
Interest 9,785 10,526
Depreciation 10,112 9,545
Amortization 80 117
----------- -----------
28,203 27,806
----------- -----------
NET INCOME BEFORE NET GAIN (LOSS) ON SALE OF REAL ESTATE
PROPERTIES 20,026 20,453
NET GAIN (LOSS) ON SALE OF REAL ESTATE PROPERTIES 618 0
----------- -----------
NET INCOME $ 20,644 $ 20,453
=========== ===========
NET INCOME PER COMMON SHARE - BASIC $ 0.48 $ 0.48
=========== ===========
NET INCOME PER COMMON SHARE - DILUTED $ 0.47 $ 0.47
=========== ===========
COMMON SHARES OUTSTANDING - BASIC 39,628,676 39,439,719
=========== ===========
COMMON SHARES OUTSTANDING - DILUTED 40,540,420 40,114,946
=========== ===========
DIVIDENDS DECLARED, PER COMMON SHARE, DURING THE PERIOD $ 0.570 $ 0.550
=========== ===========
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, are an integral part of these financial
statements.
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HEALTHCARE REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(Dollars in thousands)
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,644 $ 20,453
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 10,646 10,143
Deferred compensation amortization 411 308
Increase (decrease) in other liabilities (32) 450
(Increase) decrease in other assets (4,947) (1,828)
Increase (decrease) in accounts payable and accrued liabilities (6,449) (2,908)
Increase in straight line rent (1,748) (1,471)
(Gain) loss on sale of real estate (618) 0
-------- --------
Net cash provided by operating activities 17,907 25,147
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and development of real estate properties (9,388) (7,303)
Funding of mortgages 0 (1,562)
Proceeds from sale of real estate 2,199 1,035
Proceeds from mortgage payments/sales 298 630
-------- --------
Net cash used in investing activities (6,891) (7,200)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes and bonds payable 25,000 15,500
Repayments on notes and bonds payable (12,950) (9,180)
Dividends paid (24,776) (23,723)
Proceeds from issuance of common stock 235 243
-------- --------
Net cash used in financing activities (12,491) (17,160)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,475) 787
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,788 3,396
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 313 $ 4,183
======== ========
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, are an integral part of these financial
statements.
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HEALTHCARE REALTY TRUST
INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Healthcare Realty Trust Incorporated (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 Article 10 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 which are included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
The results of operations for the three-month period ending March 31,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001.
NOTE 2. ORGANIZATION
The Company invests in healthcare-related properties and mortgages
located throughout the United States. The Company provides management, leasing
and build-to-suit development, and capital for the construction of new
facilities as well as for the acquisition of existing properties. These
activities constitute a single business segment as defined by the Financial
Accounting Standards Board Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information." As of March 31, 2001, the Company had
invested in 266 properties and mortgages (the "Properties") located in 32
states, affiliated with 66 healthcare-related entities. The Properties include:
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NUMBER OF (IN THOUSANDS)
PROPERTIES INVESTMENT
---------- ----------
Ancillary hospital facilities 59 $ 476,889
Physician clinics 34 170,654
Skilled nursing facilities 49 243,313
Comprehensive ambulatory care centers 13 143,838
Assisted living facilities 74 322,785
Inpatient rehabilitation facilities 9 154,589
Medical office buildings 10 47,727
Other outpatient facilities 12 42,639
Other inpatient facilities 6 54,783
---------- ----------
266 $1,657,217
========== ==========
NOTE 3. FUNDS FROM OPERATIONS
The National Association of Real Estate Investment Trusts, Inc.
("NAREIT") revised its definition of funds from operations as described in the
NAREIT White Paper issued October 1999. The adoption of this revised definition
became effective January 1, 2000. Funds from operations, as defined by the
NAREIT 1999 White Paper, means net income before net gains on sales of real
estate properties (computed in accordance with generally accepted accounting
principles) plus depreciation from real estate assets. The Company calculates
its funds from operations ("FFO") using a modified version of the NAREIT's
October 1999 definition of funds from operations. The Company eliminates
straight-line rental revenue in computing FFO although NAREIT's definition of
FFO requires the inclusion of straight-line rental revenue in FFO.
The Company considers FFO to be an informative measure of the
performance of an equity real estate investment trust ("REIT") and consistent
with measures used by analysts to evaluate equity REITs. FFO does not represent
cash generated from operating activities in accordance with generally accepted
accounting principles, is not necessarily indicative of cash available to fund
cash needs, and should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flow as a measure of liquidity.
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FUNDS FROM OPERATIONS(1)
(Dollars in thousands, except per share data)
Three Months Ended March 31,
------------------------------
2001 2000
------------ ------------
Net Income before net gain (loss) on sale of real estate properties
$ 20,026 $ 20,453
Elimination of rental revenues
recognized on a straight line basis(2) (1,748) (1,470)
Preferred Stock Dividend (1,664) (1,664)
Real Estate Depreciation 9,952 9,404
------------ ------------
Total Adjustments 6,540 6,270
------------ ------------
Funds From Operations-Basic $ 26,566 $ 26,723
============ ============
Convertible Subordinated Debenture Interest 71 0
------------ ------------
Funds From Operations - Diluted $ 26,637 $ 26,723
============ ============
Funds From Operations Per Common Share - Basic $ 0.67 $ 0.68
============ ============
Funds From Operations Per Common Share - Diluted $ 0.66 $ 0.67
============ ============
Common Shares Outstanding - Basic 39,628,676 39,439,719
============ ============
Common Shares Outstanding - Diluted 40,540,420 40,114,946
============ ============
(1) FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not
necessarily indicative of cash available to fund cash needs and should
not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flow
as a measure of liquidity.
Management believes the Company's FFO is not directly comparable to
other healthcare REIT's, which own a portfolio of triple net leased
properties or mortgages, as the Company develops projects through a
development and lease-up phase before they reach their targeted cash
flow returns. Furthermore, the Company eliminates, in consolidation,
fee income for developing, leasing and managing owned properties and
expenses or capitalizes, as the case may be, related internal costs.
(2) The Company calculates its FFO using a modified version of the National
Association of Real Estate Investment Trust's ("NAREIT") October 1999
definition of funds from operations. The Company eliminates
straight-line rental revenue in computing FFO although NAREIT's
definition of funds from operations requires the inclusion of
straight-line rental revenue. If the Company had followed the NAREIT
definition of funds from operations, as other healthcare REITs do, FFO
on a diluted basis would have been $0.70 per common share for each of
the three months ended March 31, 2001 and March 31, 2000.
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NOTE 4. NOTES AND BONDS PAYABLE
Notes and bonds payable at March 31, 2001 consisted of the following
(in thousands):
Unsecured credit facility $285,000
Term loan facility 17,800
Senior notes due 2002 36,000
Senior notes due 2006 70,000
6.55% Convertible subordinated debentures, net 74,675
10.5% Convertible subordinated debentures, net 3,294
Mortgage notes payable 56,928
Other note payable 5,251
--------
$548,948
========
Unsecured Credit Facility
In 1998, the Company entered into a $265.0 million unsecured credit
facility (the "Unsecured Credit Facility") with ten commercial banks. During the
fourth quarter of 2000, the Company entered into an agreement with an additional
bank to increase its Unsecured Credit Facility to $300.0 million. The Unsecured
Credit Facility bears interest at LIBOR rates plus 1.05%, payable quarterly, and
matures on October 15, 2001. In addition, the Company pays, quarterly, a
commitment fee of 0.225 of 1% on the unused portion of funds available for
borrowings. The Unsecured Credit Facility contains certain representations,
warranties, and financial and other covenants customary in such loan agreements.
At March 31, 2001, the Company had additional borrowing capacity of $15 million
under the Unsecured Credit Facility.
Term Loan Facility
In 1998, the Company entered into a $200.0 million term loan facility
(the "Term Loan Facility"). The Term Loan Facility was fully repaid on April 13,
2001.
Senior Notes due 2002
In 1995, the Company privately placed $90.0 million of unsecured senior
notes (the "Senior Notes due 2002") with 16 institutions. The Senior Notes due
2002 bear interest at 7.41%, payable semi-annually, and mature on September 1,
2002. The remaining balance of $36.0 million must be repaid in two equal
installments on September 1, 2001 and 2002. The note agreements pursuant to
which the Senior Notes due 2002 were purchased contain certain representations,
warranties and financial and other covenants customary in such loan agreements.
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Senior Notes due 2006
On April 7, 2000, the Company privately placed $70.0 million of
unsecured senior notes (the "Senior Notes due 2006") with multiple purchasers
affiliated with two lending institutions. The Senior Notes due 2006 bear
interest at 9.49%, payable semi-annually, and mature on April 1, 2006. On April
1, 2004 and 2005, the Company must repay $20.3 million of the principal with the
remaining principal balance of $29.4 million payable upon maturity. The note
agreements pursuant to which the Senior Notes due 2006 were purchased contain
certain representations, warranties and financial and other covenants customary
in such loan agreements.
Convertible Subordinated Debentures
In 1998, the Company assumed in an acquisition and recorded at fair
value $74.74 million aggregate face amount of 6.55% Convertible Subordinated
Debentures (the "6.55% Debentures"). At March 31, 2001, the Company had
approximately $74.68 million aggregate principal amount of 6.55% Debentures
outstanding with a face amount of $74.74 million and unaccreted discount of
$0.06 million. Such rate of interest and accretion of discount represents a
yield to maturity of 7.5% per annum (computed on a semiannual bond equivalent
basis). The 6.55% Debentures are due on March 14, 2002, unless redeemed earlier
by the Company or converted by the holder, and became callable on March 16,
2000. Interest on the 6.55% Debentures is payable on March 14 and September 14
in each year. The 6.55% Debentures are convertible into shares of common stock
of the Company at the option of the holder at any time prior to redemption or
stated maturity, at a conversion rate of 33.6251 shares per $1 thousand bond
(subject to adjustment).
In 1998, the Company assumed in an acquisition and recorded at fair
value $3.75 million aggregate face amount of 10.5% Convertible Subordinated
Debentures (the "10.5% Debentures"). At March 31, 2001, the Company had
approximately $3.294 million aggregate principal amount of 10.5% Debentures
outstanding with a face amount of $3.288 million and unamortized premium of
$0.006 million. Such rate of interest and amortization of premium represents a
yield to maturity of 7.5% per annum (computed on a semiannual bond equivalent
basis). The 10.5% Debentures are due on April 1, 2002, unless redeemed earlier
by the Company or converted by the holder, and became callable on April 5, 2000.
Interest on the 10.5% Debentures is payable on April 1 and October 1 in each
year. The 10.5% Debentures are convertible into shares of common stock of the
Company at the option of the holder at any time prior to redemption or stated
maturity, at a conversion rate of 52.8248 shares per $1 thousand bond (subject
to adjustment).
Mortgage Notes Payable
At March 31, 2001, the Company had assumed or entered into nine
nonrecourse mortgage notes payable with related collateral, as follows
(dollars in millions):
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Book Value Contractual
Original Contractual Of Collateral at Balance at
Mortgagor Balance Interest Rate Collateral March 31, 2001 March 31, 2001
- ------------------------------------------------------------------------------------------------------------------
Life Insurance Co. $ 23.3 8.500% Ancillary hospital facility $ 43.5 $ 22.3
Life Insurance Co. 4.7 7.625% Ancillary hospital facility 10.7 4.2
Life Insurance Co. 17.1 8.125% Two ambulatory surgery 37.2 16.2
centers & one ancillary
hospital facility
Commercial Bank 14.2 7.750% Two physician clinics, one 16.9 14.2
------- ambulatory surgery center & ------- ------
$ 59.3 one medical office building $ 108.3 $ 56.9
======= ======= ======
The $23.3 million note is payable in monthly installments of principal
and interest based on a 30-year amortization with the final payment due in July
2026. The $4.7 million note is payable in monthly installments of principal and
interest based on a 20-year amortization with the final payment due in January
2017. The three notes totaling $17.1 million are payable in monthly installments
of principal and interest based on a 25-year amortization with a balloon payment
of the unpaid balance due in September 2004. The four notes totaling $14.2
million are payable in monthly installments of interest only with the final
payment due in December 2003.
Other Note Payable
In July 1999, the Company entered into a $7.0 million note with a
commercial bank. The note bears interest at 7.53%, is payable in equal
semi-annual installments of principal and interest and fully amortizes in July
2005.
NOTE 5. COMMITMENTS
As of March 31, 2001, the Company had a net investment of approximately
$36.6 million in seven build-to-suit developments in progress, which have a
total remaining funding commitment of approximately $40.5 million. Further, the
Company has commitments to provide funding for the enhancement of existing
properties totaling $2.6 million at March 31, 2001.
As part of the merger with Capstone Capital Corporation ("Capstone") in
1998, agreements were entered into with three individuals affiliated with
Capstone that restrict competitive practices and which the Company believes will
protect and enhance the value of the real estate properties acquired from
Capstone. These agreements provide for the issuance of 150,000 shares of common
stock of the Company to the individuals on October 15 of the years 1999, 2000,
2001 and 2002, provided all terms of the agreements are met. The Company issued
150,000 shares during 2000 and 1999 pursuant to these agreements.
NOTE 6. ASSET ACQUISITIONS/DISPOSITIONS
During the first quarter of 2001, the Company acquired a 16,984 square
foot medical office building in Cheyenne, Wyoming for a net purchase price of
$2.2 million. The Company
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has an ancillary hospital facility under construction on the same campus as this
medical office building and will provide property management services for both
buildings.
During the first quarter of 2001, the Company sold a 10,855 square foot
ambulatory surgery center in Dallas, Texas for $2.2 million in net proceeds
resulting in a net gain of $0.6 million.
NOTE 7. CONTINGENCIES
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of $4.0 million arising out
of the development and construction of four real estate projects located in
different parts of the United States. Medistar and Medix served as the developer
and contractor, respectively, for the projects. HRT has asserted claims for
damages relating to, among others, alleged breaches of the development and
contracting obligations, failure to perform in accordance with contract terms
and specifications, and other deficiencies in performance by Medistar and Medix.
On June 10, 1999, Medistar and Medix filed its answer and counterclaim asserting
a variety of alleged legal theories, claims for damages for alleged deficiencies
by HRT and the Company in the performance of alleged obligations, and for damage
to their business reputation. Attempts at mediation have not resulted in a
settlement of the disputes. The Company's prosecution of its claims and defense
of the counterclaims will continue to be vigorous. While the Company cannot
predict the range of possible recovery or loss, the Company believes that, even
though the asserted cross claims seek substantial monetary damages, the
allegations made by Medistar and Medix are not factually or legally meritorious,
are subject to sustainable defenses and are, to a significant extent, covered by
liability insurance.
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NOTE 8. NET INCOME PER SHARE
The table below sets forth the computation of basic and diluted
earnings per share as required by FASB Statement No. 128 for the three months
ended March 31, 2001 and 2000 (dollars in thousands, except per share data).
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
------------ ------------
BASIC EPS
Weighted Average Common 40,467,373 40,047,184
Shares Outstanding
Actual Restricted Stock Shares (838,697) (607,465)
------------ ------------
Denominator - Basic 39,628,676 39,439,719
============ ============
Net Income $ 20,644 $ 20,453
Preferred Stock Dividend (1,664) (1,664)
------------ ------------
Numerator - Basic $ 18,980 $ 18,789
============ ============
Per Share Amount $ 0.48 $ 0.48
============ ============
DILUTED EPS
Weighted Average Common 40,467,373 40,047,184
Shares Outstanding
Actual Restricted Stock Shares (838,697) (607,465)
Restricted Shares - Treasury 639,657 644,366
Dilution for Convertible
Debentures 175,167 0
Dilution for Employee Stock
Purchase Plan 96,920 30,861
------------ ------------
Denominator - Diluted 40,540,420 40,114,946
============ ============
Numerator - Basic $ 18,980 $ 18,789
Convertible Subordinated
Debenture Interest 71 0
------------ ------------
Numerator - Diluted $ 19,051 $ 18,789
============ ============
Per Share Amount $ 0.47 $ 0.47
============ ============
NOTE 9. SUBSEQUENT EVENTS
In April 2001, the Company entered into six mortgage notes payable with
an aggregate principal balance of $35.0 million related to collateral with a
book value at March 31, 2001 of $78.2 million. These mortgage notes payable and
related collateral are held by special purpose entities whose sole members are
wholly owned subsidiaries of the Company. These mortgages notes payable bear
interest at 7.22%, are payable in monthly installments of principal and
interest, and mature in May, 2011. The proceeds from these mortgages notes
payable were used primarily to repay the Term Loan Facility and partially repay
the Unsecured Credit Facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
First Quarter 2001 Compared to First Quarter 2000
For the three months ended March 31, 2001, net income was $20.6
million, or $0.48 per basic common share ($0.47 per diluted common share), on
total revenues of $48.2 million compared to net income of $20.5 million, or
$0.48 per basic common share ($0.47 per diluted common share), on total revenues
of $48.3 million, for the three months ended March 31, 2000. Funds from
operations ("FFO") was $26.6 million, or $0.67 per basic common share ($0.66 per
diluted common share), for the three months ended March 31, 2001 compared to
$26.7 million, or $0.68 per basic common share ($0.67 per diluted common share),
in 2000.
THREE MONTHS
ENDED MARCH 31,
-----------------
2001 2000
------- -------
(in thousands)
REVENUES:
Master lease rental income $25,087 $24,017
Property operating income 16,450 15,178
Straight line rent 1,748 1,470
Mortgage interest income 4,539 6,353
Management fees 342 732
Interest and other income 63 509
------- -------
48,229 48,259
------- -------
EXPENSES:
General and administrative 2,035 2,154
Property operating expenses 6,191 5,464
Interest 9,785 10,526
Depreciation 10,112 9,545
Amortization 80 117
------- -------
28,203 27,806
------- -------
NET INCOME BEFORE NET GAIN (LOSS) ON SALE OF REAL ESTATE PROPERTIES 20,026 20,453
NET GAIN (LOSS) ON SALE OF REAL ESTATE PROPERTIES 618 0
------- -------
NET INCOME $20,644 $20,453
======= =======
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Total revenues for the three months ended March 31, 2001 compared to
the three months ended March 31, 2000, remained fairly constant although there
were fluctuations in certain line items as discussed below:
- Master lease rental and property operating income increased $2.3
million or 6.0%. During 2000 and 2001, the Company acquired 15 revenue-producing
properties, and one property under construction was completed and began
operations.
- Mortgage interest income decreased $1.8 million or 28.6% for 2001
compared to 2000 due to the repayment of 24 mortgages during 2000 and 2001.
- Management fees decreased $0.4 million or 53.3% for 2001 compared to
2000 due to the loss of 1.1 million square feet in asset managed properties.
- Interest and other income decreased $0.4 million or 87.6% for 2001
compared to 2000 due mainly to inspection fees on many of the properties and
mortgages. Also during the third quarter of 2000, the Company sold a
participating interest in a note receivable decreasing the Company's interest
income on the note by approximately $0.2 million for the three months ended
March 31, 2001.
Total expenses for the three months ended March 31, 2001 were $28.2
million compared to $27.8 million for the same period in 2000, an increase of
$0.4 million or 1.4% as discussed below:
- Property operating expenses and depreciation expense for the three
months ended March 31, 2001 compared to 2000 increased $0.7 million or 13.3% and
$0.6 million or 5.9%, respectively. During 2000 and 2001, the Company acquired
15 revenue-producing properties, and one property under construction was
completed and began operation.
- Interest expense for the three months ended March 31, 2001, compared
to the same period in 2000, decreased $0.7 million, or 7.0%. Interest expense on
the Senior Notes due 2002 decreased $0.3 million for the three months ended
March 31, 2001 compared to the same period in 2000 due to the annual principal
payment of $18.0 million. Further, one mortgage note payable assumed in 1998 was
defeased, by the Company, at maturity in June 2000 which resulted in a decrease
of approximately $0.4 million in interest expense from 2000 to 2001.
LIQUIDITY AND CAPITAL RESOURCES
As discussed in more detail in Note 4, the Company has various
commitments to pay interest and outstanding principal balances on its notes and
bonds payable as follows (dollars in millions):
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- -------------------------------------------------------------------------------------------------------------------
CONTRACTUAL
BALANCE AT MATURITY INTEREST INTEREST
MAR. 31, 2001 DATE RATE PAYMENTS PRINCIPAL PAYMENTS
- -------------------------------------------------------------------------------------------------------------------
Unsecured Credit Facility(1) $ 285.0 10/01 LIBOR + 1.05% Quarterly At maturity
- -------------------------------------------------------------------------------------------------------------------
Term Loan Facility 17.8 Repaid LIBOR + 2.50% Quarterly At maturity
- -------------------------------------------------------------------------------------------------------------------
Senior Notes due 2002 36.0 9/02 7.41% Semi-Annual $18 million annually
- -------------------------------------------------------------------------------------------------------------------
$20.3 million in 2004, 2005
Senior Notes due 2006 70.0 4/06 9.49% Semi-Annual and $29.4 million
in 2006
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10.5% Convertible Subordinated
Debentures, net 3.3 4/02 10.5% Semi-Annual At maturity
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6.55% Convertible Subordinated
Debentures, net 74.7 3/02 6.55% Semi-Annual At maturity
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Mortgage notes payable 56.9 9/04-7/26 7.58%-9.3% Monthly Monthly or at maturity
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Other note payable 5.2 7/05 7.53% Semi-Annual Semi-Annual
-------
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$ 548.9
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(1) The Company pays a quarterly commitment fee of 0.225 of 1% on
the unused portion of its Unsecured Credit Facility.
At March 31, 2001, the Company had $15.0 million available borrowing
capacity under its Unsecured Credit Facility. The Unsecured Credit Facility
matures in October 2001. The Company is currently in negotiation with potential
lenders regarding a new revolving credit facility (the "New Credit Facility").
The Company currently contemplates that the New Credit Facility will be
approximately $150.0 million. It is expected that the New Credit Facility will
replace the Company's existing unsecured credit facility. There can be no
assurance that the Company will enter into the New Credit Facility or, if
entered into, that it will not contain terms less favorable than those currently
contained in the Company's existing unsecured credit facility, as discussed in
Note 4.
As discussed in more detail in Note 9, the Company entered into $35.0
million of secured debt financing in April 2001. The net proceeds from this
transaction were used primarily to repay the Term Loan Facility and to partially
repay the Unsecured Credit Facility.
As of March 31, 2001, the Company can issue an aggregate of $500.0
million of securities remaining under its currently effective registration
statement. Depending on market conditions, the Company may issue securities
under its registration statement from time to time. The Company may, under
certain circumstances, borrow additional amounts in connection with the
renovation or expansion of its properties, the acquisition or development of
additional properties or, as necessary, to meet distribution requirements for
REITs under the Internal Revenue Code. The Company may raise additional capital
or make investments by issuing, in public or private transactions, its equity
and debt securities, but the availability and terms of any such issuance will
depend upon market and other conditions.
The Company is currently seeking indications of interest for an
offering of $250.0 million of its senior notes through a syndicate of
underwriters. The interest rate and maturity date have not been determined.
There is no assurance that these notes will be issued. If the offering is
completed, the proceeds will be used to repay or reduce the balance of the
Unsecured Credit Facility and, to the extent available, for general corporate
purposes.
As discussed in more detail in Note 6, during the first quarter of
2001, the Company received $2.2 million in net proceeds from the sale of an
ambulatory surgery center. The net proceeds from this transaction were applied
to the partial repayment of the Term Loan Facility, which was fully repaid in
April 2001.
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As of March 31, 2001, the Company had an investment of approximately
$36.6 million in seven build-to-suit developments in progress, which have a
total remaining funding commitment of approximately $40.5 million. Further, the
Company has commitments to provide funding for the enhancement of existing
properties totaling $2.6 million at March 31, 2001. The Company intends to fund
these commitments with internally generated cash flows, proceeds from the sale
of additional assets, proceeds from additional repayments of mortgage notes
receivable, and capital market financings.
At March 31, 2001, the Company had stockholders' equity in excess of
$1.0 billion. The debt to total capitalization ratio was approximately .353 to 1
at March 31, 2001.
On January 23, 2001, the Company declared an increase in its quarterly
common stock dividend from $0.565 per share ($2.26 annualized) to $0.570 per
share ($2.28 annualized) payable to stockholders of record on March 7, 2001.
This dividend was paid on March 7, 2001. In April 2001, the Company announced
payment of a common stock dividend of $0.575 per share ($2.30 annualized)
payable to stockholders of record as of May 15, 2001. This dividend is payable
on June 7, 2001 and relates to the period January 1, 2001 through March 31,
2001. While the Company has no present plans to change its quarterly common
stock dividend policy, the dividend policy is reviewed each quarter by its board
of directors. Should access to new capital not be available, the Company is
uncertain of its ability to increase its quarterly common stock dividend in the
future.
During 2001, the Company expects to pay quarterly dividends on its 8
7/8% Series A Voting Cumulative Preferred Stock in the annualized amount of
$2.22 per share.
Under the terms of the leases and other financial support agreements
relating to most of the properties, tenants or healthcare providers are
generally responsible for operating expenses and taxes relating to the
properties. As a result of these arrangements, with limited exceptions not
material to the performance of the Company, the Company does not believe that
any increases in the property operating expenses or taxes would significantly
impact the operating results of the Company during the respective terms of the
agreements. The Company anticipates entering into similar arrangements with
respect to additional properties it acquires or develops. After the term of the
lease or financial support agreement, or in the event the financial obligations
required by the agreement are not met, the Company anticipates that any
expenditures it might become responsible for in maintaining the properties will
be funded by cash from operations and, in the case of major expenditures,
possibly by borrowings. To the extent that unanticipated expenditures or
significant borrowings are required, the Company's cash available for
distribution and liquidity may be adversely affected.
The Company plans to continue to meet its liquidity needs, including
funding additional investments in 2001, paying its quarterly dividends and
funding its debt service from its cash flows, the proceeds of mortgage loan
repayments, sales of real estate investments, payments of mortgage notes
receivable, and capital market financings. The Company believes that its
liquidity and sources of capital are adequate to satisfy its cash requirements.
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The Company, however, cannot be certain that these sources of funds will be
available at a time and upon terms acceptable to the Company in sufficient
amounts to meet its liquidity needs.
Impact of Inflation
Inflation has not significantly affected the earnings of the Company
because of the moderate inflation rate and the fact that most of the Company's
leases and financial support arrangements require tenants and sponsors to pay
all or some portion of the increases in operating expenses, thereby reducing the
risk of any adverse effects of inflation to the Company. In addition, inflation
will have the effect of increasing the gross revenue the Company is to receive
under the terms of the leases and financial support arrangements. Leases and
financial support arrangements vary in the remaining terms of obligations from
one to 23 years, further reducing the risk of any adverse effects of inflation
to the Company. The Unsecured Credit Facility bears interest at a variable rate;
therefore, the amount of interest payable under the Unsecured Credit Facility
will be influenced by changes in short-term rates, which tend to be sensitive to
inflation. Generally, changes in inflation and interest rates tend to move in
the same direction. During periods where interest rate increases outpace
inflation; the Company's operating results will be negatively impacted.
Likewise, when increases in inflation outpace increases in interest rates, the
Company's operating results will be positively impacted.
Market Risk
The Company is exposed to market risks, in the form of changing
interest rates, on its debt and mortgage notes receivable. The Company has no
market risk with respect to derivatives and foreign currency fluctuations.
Management uses daily monitoring of market conditions and analytical techniques
to manage this risk. The Company does not believe there have been significant
changes in its market risk since December 31, 2000. For a more detailed
discussion, see page 8 of Exhibit 13 "Annual Report to Shareholders" of the
Company's Form 10-K for the fiscal year ended December 31, 2000.
Cautionary Language Regarding Forward Looking Statements
This Form 10-Q and other materials the Company has filed or may file
with the Securities and Exchange Commission, as well as information included in
oral statements or other written statements made, or to be made, by senior
management of the Company, contain, or will contain, disclosures which are
"forward-looking statements." Forward-looking statements include all statements
that do not relate solely to historical or current facts and can be identified
by the use of words such as "may," "will," "expect," "believe," "intend,"
"plan," "estimate," "project," "continue," "should" and other comparable terms.
These forward-looking statements are based on the current plans and expectations
of management and are subject to a number of risks and uncertainties that could
significantly affect the Company's current plans and expectations and future
financial condition and results. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Shareholders and investors are
cautioned not to unduly rely on such forward-looking statements when evaluating
the information presented in the Company's filings and reports. For a detailed
discussion of the risk factors associated with the Company, please refer to the
Company's filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K for the year ended December 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of $4.0 million arising out
of the development and construction of four real estate projects located in
different parts of the United States. Medistar and Medix served as the developer
and contractor, respectively, for the projects. HRT has asserted claims for
damages relating to, among others, alleged breaches of the development and
contracting obligations, failure to perform in accordance with contract terms
and specifications, and other deficiencies in performance by Medistar and Medix.
On June 10, 1999, Medistar and Medix filed its answer and counterclaim asserting
a variety of alleged legal theories, claims for damages for alleged deficiencies
by HRT and the Company in the performance of alleged obligations, and for damage
to their business reputation. Attempts at mediation have not resulted in a
settlement of the disputes. The Company's prosecution of its claims and defense
of the counterclaims will continue to be vigorous. While the Company cannot
predict the range of possible recovery or loss, the Company believes that, even
though the asserted cross claims seek substantial monetary damages, the
allegations made by Medistar and Medix are not factually or legally meritorious,
are subject to sustainable defenses and are, to a significant extent, covered by
liability insurance.
ITEM 6. REPORTS ON FORM 8-K
The Company filed one report on Form 8-K during the first quarter of
2001.
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DATE OF EARLIEST
EVENT REPORTED DATE FILED ITEMS REPORTED
- -------------------------------------------------------------------------------------------------------------------
February 23, 2001 February 23, 2001 Item 5. Other Events
- -------------------------------------------------------------------------------------------------------------------
Further, the Company furnished in accordance with Regulation FD the
following reports on Form 8-K or Forms 8-K/A during the first quarter of 2001:
- -------------------------------------------------------------------------------------------------------------------
DATE OF EARLIEST
EVENT REPORTED DATE FILED ITEMS REPORTED
- -------------------------------------------------------------------------------------------------------------------
January 8, 2001 January 8, 2001 Item 7. Financial Statements and Exhibits
Item 9. Regulation FD Disclosure
- -------------------------------------------------------------------------------------------------------------------
January 26, 2001 January 26, 2001 Item 7. Financial Statements and Exhibits
Item 9. Regulation FD Disclosure
- -------------------------------------------------------------------------------------------------------------------
February 2, 2001 February 2, 2001 Item 7. Financial Statements and Exhibits
Item 9. Regulation FD Disclosure
- -------------------------------------------------------------------------------------------------------------------
February 12, 2001 February 12, 2001 Item 7. Financial Statements and Exhibits
Item 9. Regulation FD Disclosure
- -------------------------------------------------------------------------------------------------------------------
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SIGNATURE
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.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ Timothy G. Wallace
----------------------------------------
Timothy G. Wallace
Executive Vice President, Finance
and Chief Financial Officer
Date: May 8, 2001
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