FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
Health Care REIT, Inc.
(Exact name of registrant as specified in its charter)
Delaware 34-1096634
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One SeaGate, Suite 1500, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (419) 247-2800
______________________________________________________________________________
(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 ______.
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 October 31, 1996.
Class: Shares of Common Stock, $1.00 par value
Outstanding 16,083,931 shares
HEALTH CARE REIT, INC.
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three
months ended September 30, 1996 and 1995;
Nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 5
Consolidated Statements of Shareholders'
Equity - Nine months ended September 30, 1996
and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
September 30 December 31
1996 1995
(Unaudited) (Note)
------------ ------------
ASSETS
Real Estate Related Investments:
Loans receivable:
Mortgage loans $296,308,528 $267,483,683
Construction and other short-term loans 59,196,913 17,735,699
Working capital loans to related parties 4,952,093 6,779,340
------------ ------------
360,457,534 291,998,722
Investment in operating-lease properties 101,270,945 58,628,509
Investment in direct financing leases 10,849,375 11,246,492
------------ ------------
472,577,854 361,873,723
Less allowance for losses 10,925,443 9,950,000
------------ ------------
NET REAL ESTATE RELATED INVESTMENTS 461,652,411 351,923,723
Other Assets:
Deferred loan expenses 1,646,206 1,747,537
Investment securities available for sale 1,438,102 845,297
Cash and cash equivalents 3,475,548 860,350
Receivables and other assets 3,665,375 2,715,146
------------ ------------
10,225,231 6,168,330
------------ ------------
$471,877,642 $358,092,053
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 93,725,000 $106,700,000
Other long-term obligations 92,295,285 56,059,639
Accrued expenses and other liabilities 11,104,755 7,734,618
------------ ------------
TOTAL LIABILITIES 197,125,040 170,494,257
Shareholders' Equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares
Issued and outstanding - none
Common Stock, $1.00 par value:
Authorized - 40,000,000 shares
Issued and outstanding - 16,079,931
in 1996 and 12,034,196 in 1995 16,079,931 12,034,196
Capital in excess of par value 249,750,778 168,800,194
Undistributed net income 7,483,791 5,918,109
Unrealized gains on investment
securities available for sale 1,438,102 845,297
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 274,752,602 187,597,796
------------ ------------
$471,877,642 $358,092,053
============ ============
NOTE: The balance sheet at December 31, 1995 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 consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------------------------ ----------------------
Gross Income:
Interest and other income $ 9,689,598 $ 7,989,863 $26,864,737 $23,026,671
Prepayment Fees 843,948 2,716,923 2,384,558 2,716,923
Operating leases:
Rents 2,488,135 1,581,145 6,713,517 4,705,624
Gain on exercise of
options 155,270
Direct financing leases:
Lease income 365,503 382,164 1,098,588 1,146,492
Gain on exercise of
options 421,167
Loan and commitment fees 681,124 645,420 1,946,430 1,022,324
----------- ----------- ----------- -----------
14,068,308 13,315,515 39,584,267 32,618,034
Expenses:
Interest:
Senior notes and other
long-term obligations 1,749,451 1,265,701 4,556,101 4,023,435
Line of credit arrangements 1,953,946 2,114,652 6,707,316 5,638,735
Loan expense 204,042 187,323 593,513 559,791
Provision for depreciation 636,641 395,108 1,656,074 1,175,183
Provision for losses 150,000 4,000,000 450,000 4,000,000
Disposition of investment 807,791 807,791
Management Fees 547,522 1,808,256
Settlement of management
contract 763,500 763,500
Other operating expenses 1,183,158 694,874 3,184,214 1,800,144
----------- ----------- ----------- -----------
6,685,029 9,968,680 17,955,009 19,769,044
----------- ----------- ----------- -----------
NET INCOME $ 7,383,279 $ 3,346,835 $21,629,258 $12,848,990
=========== =========== =========== ===========
Average number of shares
outstanding 14,817,878 11,708,175 13,315,005 11,667,512
Net income per share $ 0.50 $ 0.29 $ 1.62 $ 1.10
Dividends per share $ 0.52 $ 0.52 $ 1.56 $ 1.555
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Nine Months Ended
September 30
1996 1995
-------------------------------
OPERATING ACTIVITIES
Net income $ 21,629,258 $ 12,848,990
Adjustments to reconcile net income
to net cash:
Provision for depreciation 1,676,366 1,175,183
Provision for losses-net of charge-offs 167,653 4,000,000
Disposition of investment 807,791
Amortization of loan and organization
expenses 595,130 561,408
Capitalized interest (107,328)
Loan and commitment fees earned less
than cash received 1,335,445 528,207
Direct financing lease income less than
cash received 117,117 132,148
Interest income in excess of cash received (128,682) (157,467)
Increase in accrued expenses and other
liabilities 2,034,693 921,814
Increase in other receivables and prepaid
items (790,464) (10,479,957)
NET CASH PROVIDED FROM OPERATING ACTIVITIES 27,336,979 9,530,326
INVESTING ACTIVITIES
Investment in operating-lease properties (33,331,170) (2,976,000)
Investment in loans receivable (118,167,751) (69,551,237)
Principal collected on loans 29,749,620 43,467,256
Proceeds from exercise of lease purchase
options 9,507,988
Decrease in investments (532,000)
Other (181,671)
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (112,422,985) (29,591,981)
FINANCING ACTIVITIES
Borrowings under line of credit
arrangements 243,230,000 152,400,000
Principal payments under line of
credit arrangements (256,205,000) (116,900,000)
Net proceeds from the issuance of
Common Stock 85,083,593 2,600,881
Borrowings under Senior Notes 30,000,000
Assumption of mortgage loan 6,539,434
Principal payments on other long-
term obligations (303,788) (376,974)
Increase/(decrease) in deferred
loan expense (579,458) 75,308
Cash distributions to shareholders (20,063,577) (18,118,531)
------------ -------------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES 87,701,204 19,680,684
Increase (decrease) in cash and cash
equivalents 2,615,198 (380,971)
Cash and cash equivalents at beginning
of period 860,350 935,449
------------ -------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 3,475,548 $ 554,478
============ =============
Supplemental Cash Flow Information --
Interest Paid $ 8,304,548 $ 8,910,157
============ =============
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Nine Months Ended
September 30
1996 1995
----------------------------
Balances at beginning of period $187,597,796 $189,179,775
Net income 21,629,258 12,848,990
Proceeds from issuance of shares under the
dividend reinvestment plan - 96,005 in
1996 and 114,273 in 1995 2,012,272 2,391,492
Proceeds from issuance of shares under the
employee stock incentive plan - 40,000
in 1996 and 14,140 in 1995 713,939 209,389
Net Proceeds from sale of 3,910,000 shares 82,270,109
Change in net unrecognized gain on
investment security available for sale 592,805
Cash dividends paid (20,063,577) (18,118,531)
------------ ------------
Balances at end of period $274,752,602 $186,511,115
============ ============
See notes to consolidated financial statements
NOTES TO 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 nine months ended September 30,
1996 are not necessarily an indication of the results that may be expected for
the year ended December 31, 1996. 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, 1995.
Net income per share has been computed by dividing net income by the average
number of shares outstanding.
Note B - Real Estate Investments
During the nine months ended September 30, 1996, the Company provided
permanent mortgage financings of $47,653,000, invested $28,947,000 in
operating leases and continued to finance 33 construction loans, which
construction advances totaled $74,935,000. During the nine months ended
September 30, 1996, the Company received principal payments on real estate
mortgages of $2,625,000, repayments on working capital loans of $1,827,000
and proceeds of $25,298,000 from the prepayment of mortgage loans.
Also during the nine months ended September 30, 1996, 12 of the above-
mentioned construction loans completed the construction phase of the Company's
investment process and were converted to investments in operating leases, with
an aggregate investment of $20,088,000, and one construction loan converted to
a permanent mortgage loan with an investment balance of $7,000,000.
At September 30, 1996, the Company had $127,552,000 in unfunded commitments.
Note C - Disposition of Investments in Behavioral Care
It is the Company's intention to systematically eliminate its investments in
behavioral care facilities. As a result, the Company has declared a disposi-
tion of investment associated with its portfolio of behavioral care
properties. At December 31, 1995 such investments aggregated $ 36,366,000
in six facilities owned and/or operated by three health care operating
companies. During the three months ended September 30, 1996, the Company
recognized a disposition of investment expense of $808,000, which amount
was added to the Company's unallocated allowance for losses.
At September 30, 1996, the Company had commenced discussions regarding the
early repayment and/or sale of the remaining four mortgage loans. The Company
is not certain that agreements will be reached and what the financial
ramifications will be. The Company believes its allowance for losses with
respect to such properties is adequate.
At September 30, 1996, the Company's overall allowance for losses totaled
$10,925,000. The allowance for losses is maintained at a level which the
Company believes is adequate to absorb potential losses in the Company's real
estate related investments.
Note D - Indebtedness and Shareholders' Equity
In April 1996, the Company issued Senior Notes in the aggregate principal
amount of $30,000,000 which mature in 2001 and 2003, and have a weighted
average interest rate of 7.18%. The Notes are secured by $40,000,000 of
assets.
In May 1996, the Company issued 2,322,200 shares of Common Stock, $1.00 par
value per share, at the price of $22.00 per share, which generated net
proceeds of $48,103,000 to the Company.
In September 1996, the Company issued 1,587,800 shares of Common Stock, $1.00
par value per share, at the price of $22.00 per share, which generated net
proceeds to the Company of $34,167,000.
During the nine months ended September 30, 1996, the proceeds derived from
the Company's capital raising activities were used to reduce bank debt under
the Company's revolving lines of credit arrangements.
The Company has a total of $185,000,000 in secured and unsecured credit
facilities bearing interest at the lenders' prime rate or LIBOR plus 1.50%,
of which $91,275,000 was available at September 30, 1996.
Note E - Investment Securities
Investment securities available for sale are stated at fair value with
unrealized gains and losses reported in a separate component of shareholders'
equity. At September 30, 1996, available-for-sale securities are the common
stock of a corporation, which were obtained by the Company at no cost.
Note F - Contingent Liabilities
As disclosed in the financial statements for the year ended December 31,
1995, the Company was contingently liable for certain obligations amounting
to approximately $19,530,000. No significant change in these contingencies
had occurred as of September 30, 1996.
Note G - Distributions Paid to Shareholders
On August 20, 1996, the Company paid a dividend of $0.52 per share to
shareholders of record on August 2, 1996. This dividend related to the
period from April 1, 1996 through June 30, 1996.
Note H - Subsequent Events
On October 15, 1996, the Company declared a dividend of $0.52 per share
payable on November 20, 1996 to shareholders of record on November 1, 1996.
The dividend relates to the period from July 1, 1996 through September 30,
1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At September 30, 1996, the Company's net real estate investments totaled
approximately $461,652,000, which included 57 skilled nursing facilities,
52 assisted living facilities, 10 retirement centers, five specialty care
facilities and four behavioral care facilities. The Company funds its
investments through a combination of long-term and short-term financing,
utilizing both debt and equity.
As of September 30, 1996, the Company had shareholders' equity of $274,753,000
and a total outstanding debt balance of approximately $186,020,000, which
represents a debt to equity ratio of 0.68 to 1.0.
During the nine month period ended September 30, 1996, the Company issued
Senior Notes in the aggregate principal amount of $30,000,000 which mature
in 2001 and 2003, and have a weighted average interest rate of 7.18% The
notes are secured by $40,000,000 of assets.
During the second quarter of 1996, the Company issued 2,322,200 shares of
Common Stock, $1.00 par value per share, at the price of $22.00 per share,
which generated net proceeds of $48,103,000 to the Company.
During the three month period ended September 30, 1996, the Company issued
1,587,800 shares of Common Stock, $1.00 par value per share, at the price of
$22.00 per share, which generated net proceeds to the Company of $34,167,000.
As of September 30, 1996, the Company had approximately $127,552,000 in
unfunded commitments. Under the Company's line of credit arrangements,
available funding totaled $91,275,000. The Company believes its liquidity
and various sources of available capital are sufficient to fund operations,
finance future investments, and meet debt service and dividend requirements.
Results of Operations
Revenues for three months ended September 30, 1996 were $14,068,000 compared
to $13,316,000 for the three months ended September 30, 1995. Revenue growth
resulted from increased interest income of $1,700,000 and increased operating
lease income of $907,000 as a result of additional real estate investments
made during the past twelve months. The growth in interest income and rental
income was offset by a high incidence of prepayment fees earned during the
third quarter of 1995, which totaled $2,717,000 as compared to $844,000 for
the same period in 1996.
Revenues for the nine months ended September 30, 1996 were $39,584,000
compared to $32,618,000 for the nine months ended September 30, 1995, an
increase of $6,966,000 or 21.4%. Revenue growth resulted primarily from
increased interest income of $3,838,000 and increased operating lease income
of $2,008,000 as a result of additional real estate investments made during
the past twelve months.
Expenses for the three months ended September 30, 1996 totaled $6,685,000,
a decrease of $3,284,000 from expenses of $9,969,000 for the same period in
1995. Expenses for the nine month period ended September 30, 1996 totaled
$17,955,000, a decrease of $1,814,000 from expenses of $19,769,000 for the
comparable period in 1995. Expenses for the three and nine month periods
ended September 30, 1995 were negatively influenced by nonrecurring charges,
primarily related to a $4,000,000 provision for losses and a $764,000 charge
for the settlement of the management contract, an expense associated with the
merger of the Company's advisor into the Company.
The provision for depreciation for the three and nine month periods ended
September 30, 1996 totaled $637,000 and $1,656,000 respectively, an increase
of $242,000 and $481,000 over the comparable periods in 1995 as a result of
additional operating lease investments.
Interest expense for the three months ended September 30, 1996 was $3,703,000
compared to $3,380,000 for the same period in 1995. For the nine month period
ended September 30, 1996, interest expense totaled $11,263,000 compared to
$9,662,000 for the same period in 1995. The increases in the 1996 periods
were primarily due to the issuance of $30,000,000 Senior Notes in April 1996
and higher average borrowings under the Company's line of credit arrangements,
which were offset by lower interest rates.
General and administrative expense for the three and nine month periods in
1996 totaled $1,183,000 and $3,184,000 respectively, as compared to
$1,242,000 and $3,608,000 for the same periods in 1995. The expenses for the
three and nine month periods in 1996 were 8.41% and 8.04% of revenues as
compared to 9.33% and 11.06% for the same periods in 1995.
It is the Company's intention to systematically eliminate its investments in
behavioral care facilities and declared a disposition of investment
associated with its behavioral care portfolio. As a result, any gains
realized through the repayment or sale of investments associated with the
Company's behavioral care facilities will be added to the Company's general
allowance for losses and applied against any losses incurred through the
repayment or sale of behavioral care related investments. During the three
months ended September 30, 1996, the Company recorded an $808,000 disposition
of investment expense as an offset to an $808,000 prepayment fee received
from the repayment of two behavioral care related mortgage loans.
As a result of the various factors mentioned above, net income for the three
and nine month periods ended September 30, 1996 was $7,383,000 and
$21,629,000 respectively as compared to $3,347,000 and $12,849,000 for the
same periods in 1995. Net income per share for the three and nine month
periods ended September 30, 1996 was $.50 and $1.62 versus $.29 and $1.10 for
the comparable 1995 periods. The per share increases resulted from an
increase in net income offset by an increase in average shares outstanding
during the 1996 periods.
Under the Company's By-Laws, stockholders must be notified when total
operating expenses (for the twelve-month period then ended) exceed 2% of
average invested assets or 25% of adjusted net income, whichever is greater.
For the twelve-month period ended September 30, 1996, total operating
expenses, which totalled $9,181,000 exceeded 2% of average invested assets
and exceeded 25% of adjusted net income. This was primarily due to costs
incurred by the Company relating to the merger with the Company's former
advisor. When the subject compliance test was adjusted for the expense
associated with the contract settlement, the Company was in compliance.
PART II. OTHER INFORMATION
Item 4. Other Information
On July 17, 1996, the Company issued a press release in which it announced,
among other things, that the Board of Directors voted to pay a quarterly cash
dividend of $.52 per share, payable to shareholders of record on August 2,
1996, and that net income for the first quarter of 1996 was $.66 per share.
On July 19, 1996, the Company issued a press release in which it announced
that during the second quarter of 1996, it had closed $69 million of new
investments.
On September 5, 1996, the Company issued a press release in which it
announced that it had filed a prospectus supplement for an offering of
1,587,800 shares of Common Stock.
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Press release dated July 17, 1996
99.2 Press release dated July 19, 1996
99.3 Press release dated September 5, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on September 5, 1996, reporting
on the terms of an underwriting agreement between Health Care
REIT, Inc. and Alex. Brown & Sons, Incorporated.
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
Date: November 14, 1996 By: GEORGE L. CHAPMAN
George L. Chapman,
Chairman, Chief Executive Officer
and President
Date: November 14, 1996 By: EDWARD F. LANGE, JR.
Edward F. Lange, Jr.,
Chief Financial Officer
Date: November 14, 1996 By: MICHAEL A. CRABTREE
Michael A. Crabtree,
Chief Accounting Officer
EXHIBIT INDEX
The following documents are included in this Form 10-Q as Exhibits:
Designation
Number Under
Item 601 of Page
Exhibit Regulation S-K Exhibit Description Number
- - --------- -------------- ---------------------------------- ------
1 99.1 Press release dated July 17, 1996. 14
2 99.2 Press release dated July 19, 1996. 15
3 99.3 Press release dated September 5, 1996. 17
5 27 Financial Data Schedule 18