1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION DRAFT
WASHINGTON, D. C. 20549
(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 1-8923
HEALTH CARE REIT, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 34-1096634
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Seagate, Suite 1500, Toledo, Ohio 43604
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(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (419) 247-2800
--------------------------
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(Former name, former address and former fiscal year,
if changed since last report)
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____. No _____.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 10, 2001.
Class: Shares of Common Stock, $1.00 par value
Outstanding 28,879,061 shares
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HEALTH CARE REIT, INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2001
and December 31, 2000 3
Consolidated Statements of Income - Three
months ended March 31, 2001 and 2000 4
Consolidated Statements of Shareholders'
Equity - Three months ended March 31, 2001
and 2000 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 2001 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
EXHIBIT INDEX 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
MARCH 31 DECEMBER 31
2001 2000
(UNAUDITED) (NOTE)
ASSETS (IN THOUSANDS)
Real estate investments:
Real property owned:
Land $ 77,109 $ 74,319
Buildings & improvements 792,745 770,660
Construction in progress 7,641 11,976
------------------ -----------------
877,495 856,955
Less accumulated depreciation (59,754) (52,968)
------------------ ------------------
Total real property owned 817,741 803,987
Loans receivable
Real property loans 268,377 301,321
Subdebt investments 22,225 21,972
------------------ -----------------
1,108,343 1,127,280
Less allowance for loan losses (6,111) (5,861)
------------------ ------------------
Net real estate investments 1,102,232 1,121,419
Other Assets:
Equity investments 5,501 5,450
Cash and cash equivalents 2,537 2,844
Deferred loan expenses 3,915 2,939
Receivables and other assets 27,096 24,252
------------------ -----------------
39,049 35,485
------------------ -----------------
TOTAL ASSETS $ 1,141,281 $ 1,156,904
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit obligations $ 110,300 $ 119,900
Senior unsecured notes 255,000 255,000
Secured debt 64,835 64,852
Accrued expenses and other liabilities 16,311 18,545
------------------ -----------------
TOTAL LIABILITIES 446,446 458,297
Shareholders' equity:
Preferred stock 150,000 150,000
Common stock 28,881 28,806
Capital in excess of par value 529,417 528,138
Undistributed/(overdistributed) net income (8,416) (3,388)
Accumulated other
comprehensive income (loss) (994) (744)
Unamortized restricted stock (4,053) (4,205)
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 694,835 698,607
------------------ -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,141,281 $ 1,156,904
================== =================
NOTE: The consolidated balance sheet at December 31, 2000 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to unaudited consolidated financial statements
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
2001 2000
----------------------- ---------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
REVENUES:
Rental income $ 22,608 $ 21,630
Interest income 8,945 11,521
Commitment fees and other income 890 1,676
Prepayment fees 134 -
------------------ -----------------
Total revenue 32,577 34,827
EXPENSES:
Interest expense 8,112 9,101
Loan expense 375 317
Provision for depreciation 6,786 5,263
Provision for losses 250 250
General and administrative expenses 1,851 1,900
------------------ ------------------
Total expenses 17,374 16,831
------------------ ------------------
Net income before gains on sale of properties 15,203 17,996
Gains on sale of properties - 123
------------------ ------------------
Net income 15,203 18,119
Preferred stock dividends 3,376 3,362
----------------- -----------------
Net Income Available to Common Shareholders $ 11,827 $ 14,757
================== ==================
Average number of shares outstanding:
Basic 28,617 28,315
Diluted 28,871 28,546
Net income per share:
Basic $ 0.41 $ 0.52
Diluted 0.41 0.52
Dividends declared and paid per common share $ 0.585 $ 0.580
See notes to unaudited consolidated financial statements
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Three months ended March 31, 2001
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Capital In Unamortized Accum. Other
Preferred Common Excess of Restricted Undistributed Comprehensive
In thousands Stock Stock Par Value Stock Net Income Income/Loss Total
--------------------------------------------------------------------------------------------
Balance at beginning of period $150,000 28,806 $528,138 $(4,205) $ (3,388) $ (744) $698,607
Comprehensive income:
Net income 15,203 15,203
Unrealized losses on securities (58) (58)
Foreign currency translation adjustment (192) (192)
--------
Comprehensive income 14,953
Proceeds from issuance of common
stock from dividend reinvestment and 75 1,279 (141) 1,213
stock incentive plans, net of forfeitures
Restricted stock amortization 293 293
Cash dividends paid (20,231) (20,231)
------- ------- ------- -------- ---------- --------- ----------
Balance at end of period $150,000 $28,881 $529,417 $(4,053) $ (8,416) $ (994) $694,835
======== ======= ======== ======== ========== ========= ========
Three months ended March 31, 2000
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Capital In Unamortized Accum. Other
Preferred Common Excess of Restricted Undistributed Comprehensive
Stock Stock Par Value Stock Net Income Income Total
--------------------------------------------------------------------------------------------
Balance at beginning of period $150,000 $28,532 $524,204 $(5,216) $ 8,883 $ 593 $706,996
Comprehensive income:
Net income 18,119 18,118
Unrealized losses on securities (318) (318)
Foreign currency translation
adjustment (27) (27)
--------
Comprehensive income 17,774
Proceeds from issuance of common stock
from dividend reinvestment and
stock incentive plans, net of forfeitures 45 574 118 737
Restricted stock amortization 317 317
Cash dividends paid (19,915) (19,915)
------- ------- --------- -------- --------- --------- --------
Balance at end of period $150,000 $28,577 $524,778 $(4,781) $ 7,087 $ 248 $705,909
======== ======= ========= ======== ========== ========= ========
See notes to unaudited consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
2001 2000
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(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 15,203 $ 18,119
Adjustments to reconcile net income to net cash
Provision for depreciation 6,845 5,484
Provision for losses 250 250
Amortization 668 633
Loan and commitment fees earned (more) less than cash received (559) (1,154)
Rental income in excess of cash received (2,154) (1,697)
Interest and other income in excess of cash received (84) (75)
Increase/(decrease) in accrued expenses and other liabilities (1,676) (2,440)
Increase in receivables and other assets (669) (2,060)
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 17,824 17,060
INVESTING ACTIVITIES
Investment in real properties (6,857) (10,188)
Investment in loans receivable (5,719) (3,799)
Other investments, net (228) (5,754)
Principal collected on loans 24,738 630
Proceeds from sale of properties - 26,248
Other (79) (679)
------------ ------------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES 11,855 6,458
FINANCING ACTIVITIES
Net payments under line of credit arrangements (9,600) (4,600)
Principal payments on long-term obligations (17) (24)
Net proceeds from the issuance of Common Stock 1,213 737
Net proceeds from the issuance of Preferred Stock - -
Proceeds from issuance of Senior Notes - -
Proceeds from issuance of Secured Debt - -
Increase in deferred loan expense (1,351) (466)
Cash distributions to shareholders (20,231) (19,914)
------------ ------------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (29,986) (24,267)
------------ -----------
Decrease in cash and cash equivalents (307) (749)
Cash and cash equivalents at beginning of period 2,844 2,129
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,537 $ 1,380
============ ===========
Supplemental Cash Flow Information -- Interest Paid $ 9,770 $ 11,522
============ ===========
See notes to unaudited consolidated financial statements
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered for a fair presentation have been
included. Operating results for the three months ended March 31, 2001, are not
necessarily an indication of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2000.
NOTE B - REAL ESTATE INVESTMENTS
During the three months ended March 31, 2001, the Company invested $2,164,000 in
real property, made construction advances of $6,777,000 and funded $273,000 of
equity related investments. During the three months ended March 31, 2001, the
Company received principal payments on real estate mortgages of $24,738,000.
With respect to the above-mentioned construction advances, funding for
construction in progress in connection with four properties owned directly by
the Company totaled $4,694,000, and funding associated with two construction
loans represented $2,083,000. During the three months ended March 31, 2001, one
of the construction properties in progress with an investment balance of
$9,027,000 completed the construction phase of the Company's investment process
and was converted to permanent operating leases.
NOTE C - EQUITY INVESTMENTS
Management determines the appropriate classification of an equity investment at
the time of acquisition and reevaluates such designation as of each balance
sheet date. At March 31, 2001, equity investments include the common stock of a
corporation, valued at historical cost, and ownership representing a 31%
interest in Atlantic Healthcare Finance L.P., a property investment group that
specializes in the financing, through sale and leaseback transactions, of
nursing homes located in the United Kingdom and continental Europe. The
ownership interest is accounted for under the equity method.
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NOTE D - CONTINGENT LIABILITIES
As disclosed in the financial statements for the year ended December 31, 2000,
the Company was contingently liable for certain obligations amounting to
$11,945,000.
NOTE E - DISTRIBUTIONS PAID TO COMMON SHAREHOLDERS
On February 20, 2001, the Company paid a dividend of $0.585 per share to
shareholders of record on January 31, 2001. This dividend related to the period
from October 1, 2000 through December 31, 2000.
NOTE F - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three months ended
March 31
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2001 2000
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Numerator for basic and diluted earnings per
share-income available to common shareholders $ 11,827 $ 14,757
========= =========
Denominator for basic earnings per share -
weighted average shares 28,617 28,315
Effect of dilutive securities:
Employee stock options 29 -
Nonvested restricted shares 225 231
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Dilutive potential common shares 254 231
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Denominator for diluted earnings per share -
adjusted weighted average shares 28,871 28,546
========= ==========
Basic earnings per share $ 0.41 $ 0.52
Diluted earnings per share $ 0.41 $ 0.52
The diluted earnings per share calculation excludes the dilutive effect of
1,350,000 and 1,813,000 shares for the three months ended March 31, 2001 and
2000, respectively, because the exercise price was greater than the average
market price. The Series C Cumulative Convertible Preferred Stock was not
included in this calculation as the effect of the conversion was anti-dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company's net real estate investments totaled
$1,102,232,000 which included 148 assisted living facilities, 43 nursing
facilities and ten specialty care facilities. Depending upon the availability
and cost of external capital, the Company anticipates making additional
investments in health care related facilities. New investments are funded from
temporary borrowings under the Company's line of credit arrangements, internally
generated cash and the proceeds derived from asset sales. Permanent financing
for future investments, which replaces funds drawn under the line of credit
arrangements, is expected to be provided through a combination of private and
public offerings of debt and equity securities and the assumption of secured
debt. The Company believes its liquidity and various sources of available
capital are sufficient to fund operations, meet debt service and dividend
requirements and finance future investments.
During 1999 and 2000, the underperformance of publicly owned nursing home and
assisted living companies, combined with the much publicized shift in equity
funds flow from income-oriented investments to high-growth opportunities,
impaired the stock valuations of all health care REITs. The availability of
external capital is limited and expensive, constraining new investment activity
and earnings growth. The Company believes the restrictive capital environment
will continue until the prospects for the long-term care industry improve.
In October 1999, the Company announced a $200 million asset divestiture program
from which the Company has received $195,000,000 in proceeds through March 31,
2001. The Company believes the limited asset sales and loan prepayments have
strengthened the Company's portfolio and generated liquidity, enhancing the
Company's balance sheet. The completion of this program should position the
Company for new investment and growth opportunities in the future.
As of March 31, 2001, the Company had a total outstanding debt balance of
$430,135,000 and shareholders' equity of $694,835,000 which represents a debt to
equity ratio of .62 to 1.0, and a debt to total capitalization ratio of .38 to
1.0.
As of March 31, 2001, the Company had an unsecured revolving line of credit
expiring March 31, 2003 in the amount of $150,000,000 bearing interest at the
lender's prime rate or LIBOR plus 1.5%. In addition, the Company had an
unsecured revolving line of credit in the amount of $25,000,000 bearing interest
at the lender's prime rate expiring April 30, 2002. At March 31, 2001, under the
Company's line of credit arrangements, available funding, subject to customary
lending conditions, totaled $64,700,000.
As of March 31, 2001, the Company had effective shelf registrations on file with
the Securities and Exchange Commission under which the Company may issue up to
$380,319,000 of securities including debt, convertible debt, common and
preferred stock. Depending upon market conditions, the Company anticipates
issuing securities under such shelf registrations to invest in additional health
care facilities and to repay borrowings under the Company's line of credit
arrangements.
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RESULTS OF OPERATIONS
Revenues were comprised of the following:
Three months ended Change
------------------------------------- ----------------
March 31, 2001 March 31, 2000 $ %
-------------- -------------- ----------------
(000's)
Rental income $ 22,608 $ 21,630 $ 978 5%
Interest income 8,945 11,521 (2,576) -22%
Commitment fees and
other income 890 1,676 (786) -47%
Prepayment fees 134 - 134 -
------------ -------------- ----------------
Total $ 32,577 $ 34,827 $(2,250) -6%
============ ============== ================
For the three months ended March 31, 2001, the Company generated increased
rental income as a result of the completion of real property construction
projects for which the Company began receiving rent and the purchase of
properties previously financed by the Company. This offset a reduction in
interest income due to the repayment of mortgage loans and the purchase of
properties previously financed by the Company with mortgage loans. Commitment
fees and other income decreased as a result of the completion of construction
projects and curtailment of investing activity.
Expenses were comprised of the following:
Three months ended Change
------------------------------------- ----------------------
March 31, 2001 March 31, 2000 $ %
-------------- -------------- ----------------------
(000's)
Interest expense $ 8,112 $ 9,101 $ (989) -11%
Loan expense 375 317 58 18%
Provision for
depreciation 6,786 5,263 1,523 29%
Provision for losses 250 250 - -
General and
admin. expenses 1,851 1,900 (49) -3%
------------ -------------- ----------------
Total $ 17,374 $ 16,831 $ 543 3%
============ ============== ================
The decrease in interest expense was primarily due to lower average borrowings
on the Company's lines of credit and senior notes partially offset by a
reduction in the amount of capitalized interest offsetting interest expense. The
Company capitalizes certain interest costs associated with funds used to finance
the construction of properties owned directly by the Company. The amount
capitalized is based upon the borrowings outstanding during the construction
period using the rate of interest which approximates the Company's cost of
financing. Capitalized interest for the three-month period ended March 31, 2001
totaled $334,000 as compared with $1,220,000 for the same period in 2000.
The provision for depreciation increased over the comparable periods in 2000
primarily as a result of additional investments in properties owned directly by
the Company.
General and administrative expenses for the three-month period was 5.68% of
revenues as compared with 5.44% for the same period in 2000.
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Other items:
Three months ended Change
----------------------------------- ----------------------
March 31, 2001 March 31, 2000 $ %
-------------- -------------- ----------------------
(000's)
Other items:
Gain on sales of
properties $ - $ 123 $ (123) -100%
Preferred dividends 3,376 3,362 14 -
As a result of the various factors mentioned above, net income available to
common shareholders for the three-month period was $11,827,000, or $0.41 per
diluted share, as compared with $14,757,000, or $0.52 per diluted share for the
comparable period in 2000.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
This report on Form 10-Q of the Company includes forward looking statements that
reflect the Company's current view with respect to future events and financial
performance. The words "believe", "expect", "anticipate" and similar expressions
identify forward-looking statements. These statements involve risks and
uncertainties that could cause actual results to differ materially from those
described in the statements. These risks and uncertainties include (without
limitation) the following: the effect of economic and market conditions and
changes in interest rates, government regulations, including changes in Medicare
and Medicaid payment levels, changes in the healthcare industry, deterioration
of the operating results or financial condition, including bankruptcies, of the
Company's tenants and borrowers, the ability of the Company to attract new
operators for certain facilities, the amount of any additional investments,
access to capital markets and changes in the ratings of the Company's debt
securities. Forward-looking statements are not a guarantee of future performance
and actual results or developments may differ materially from expectations. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
For information on the Company's exposure to various market risks, see the
discussion in the Company's annual report on Form 10-K for the year ended
December 31, 2000.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-----------------
On January 16, 2001, the Company declared fourth quarter dividend and conference
call date.
On January 29, 2001, the Company issued a press release announcing the extension
of unsecured Bank Credit Facility.
On January 30, 2001, the Company issued a press release reporting on the closing
of Summerville transaction.
On February 1, 2001, the Company issued a press release reporting its 2000
operating results.
On February 27, 2001, the Company issued a press release reporting on the status
of its portfolio with Alterra Healthcare Corporation.
On April 10, 2001, the Company issued a press release announcing the schedule of
its first quarter conference call.
On April 17, 2001, the Company issued a press release declaring its regular
dividend.
On May 3, 2001, the Company issued a press release reporting on the first
quarter results.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
99.1 Press release dated January 16, 2001
99.2 Press release dated January 29, 2001
99.3 Press release dated January 30, 2001
99.4 Press release dated February 1, 2001
99.5 Press release dated February 27, 2001
99.6 Press release dated April 10, 2001
99.7 Press release dated April 17, 2001
99.8 Press release dated May 3, 2001
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
Date: May 14, 2001 By: /s/ GEORGE L. CHAPMAN
-------------------- -------------------------------------
George L. Chapman,
Chairman, Chief Executive Officer and
President
Date: May 14, 2001 By: /s/ RAYMOND W. BRAUN
-------------------- -------------------------------------
Raymond W. Braun,
Chief Financial Officer
Date: May 14, 2001 By: /s/ MICHAEL A. CRABTREE
-------------------- -------------------------------------
Michael A. Crabtree,
Chief Accounting Officer
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EXHIBIT INDEX
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The following documents are included in this Form 10-Q as Exhibits:
DESIGNATION
NUMBER UNDER
ITEM 601 OF
REGULATION S-K EXHIBIT DESCRIPTION
-------------- -------------------
99.1 Press release dated January 16, 2001
99.2 Press release dated January 29, 2001
99.3 Press release dated January 30, 2001
99.4 Press release dated February 1, 2001
99.5 Press release dated February 27, 2001
99.6 Press release dated April 10, 2001
99.7 Press release dated April 17, 2001
99.8 Press release dated May 3, 2001
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