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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 MARCH 31, 1997
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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.
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(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 April 30, 1997.
Class: Shares of Common Stock, $1.00 par value
Outstanding 21,887,294 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, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three
months ended March 31, 1997 and 1996 4
Consolidated Statements of Shareholders'
Equity - Three months ended March 31, 1997
and 1996 5
Consolidated Statements of Cash Flows-
Three months ended March 31, 1997 and 1996 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 12
SIGNATURES 13
EXHIBIT INDEX 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
MARCH 31 DECEMBER 31
1997 1996
(UNAUDITED) (NOTE)
----------------- -----------------
(IN THOUSANDS)
ASSETS
Real estate investments:
Loans receivable:
Mortgage loans $ 367,327 $ 292,442
Construction loans 27,303 61,013
Working capital loans 7,425 4,727
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402,055 358,182
Investment in operating leases 196,653 153,623
Investment in direct financing leases 10,804 10,876
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609,512 522,681
Less allowance for losses 9,937 9,787
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NET REAL ESTATE INVESTMENTS 599,575 512,894
Other Assets:
Investment securities available for sale 966 768
Deferred loan expenses 2,002 1,432
Cash and cash equivalents 121 581
Receivables and other assets 5,768 4,156
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8,857 6,937
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TOTAL ASSETS $ 608,432 $ 519,831
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 100,500 $ 92,125
Senior notes 82,000 82,000
Other long-term obligations 10,097 10,270
Accrued expenses and other liabilities 11,401 9,900
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TOTAL LIABILITIES $ 203,998 $ 194,295
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 - 21,737,294
in 1997 and 18,320,291 in 1996 21,737 18,320
Capital in excess of par value 373,443 298,281
Undistributed net income 8,288 8,167
Unrealized gains on investment securities
available for sale 966 768
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TOTAL SHAREHOLDERS' EQUITY 404,434 325,536
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 608,432 $ 519,831
================= =================
NOTE: The balance sheet at December 31, 1996 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
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
1997 1996
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(IN THOUSANDS EXCEPT PER SHARE DATA)
GROSS INCOME:
Interest and other income $ 10,616 $ 8,104
Operating leases:
Rent 4,963 1,960
Direct financing leases:
Lease income 357 368
Loan and commitment fees 584 420
Interest and other income 49 38
------------ ---------------
Gross Income $ 16,569 $ 10,890
EXPENSES:
Interest:
Line of credit arrangements $ 2,161 $ 2,296
Senior notes and other long-
term obligations 1,850 1,215
Loan expense 217 187
Provision for depreciation 1,185 475
Provision for losses 150 150
General and administrative expenses 1,180 890
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Total expenses 6,743 5,213
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Net Income $ 9,826 $ 5,677
=============== =================
Average number of shares outstanding 19,301 12,052
Net income per share $ 0.51 $ 0.47
Dividends per share $ 0.52 $ 0.52
See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
1997 1996
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(IN THOUSANDS)
Balances at beginning of period $ 325,536 $ 187,598
Net income 9,826 5,677
Proceeds from issuance of shares under the
dividend reinvestment plan - 36,577 in
1997 and 33,323 in 1996 887 691
Proceeds from issuance of shares under the
employee stock incentive plans - 50,426
in 1997 and 15,000 in 1996 1,087 261
Net Proceeds from sale of 3,330,000 shares in 1997 76,605
Change in net unrecognized gain on
investment securities available for sale 198 725
Cash dividends paid (9,705) (6,259)
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Balances at end of period $ 404,434 $ 188,693
=============== ==============
See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
1997 1996
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(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 9,826 $ 5,677
Adjustments to reconcile net income to net cash
Provision for depreciation 1,199 470
Provision for losses 150 150
Amortization of loan and organization expenses 218 188
Loan and commitment fees earned less than cash received 452 957
Direct financing lease income less than cash received 72 53
Interest income in excess of cash received (9) (133)
Increase in accrued expenses and other liabilities 1,049 1,418
Increase in other receivables and prepaid items (1,315) (397)
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 11,642 8,383
INVESTING ACTIVITIES
Investment in operating-lease properties (44,216) (8,380)
Investment in loans receivable (44,576) (32,376)
Principal collected on loans 713 1,974
Other (7) 5
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NET CASH USED IN INVESTING ACTIVITIES (88,086) (38,777)
FINANCING ACTIVITIES
Net borrowings under line of credit arrangements 8,375 35,900
Principal payments on long-term obligations (173) (49)
Net proceeds from the issuance of Common Stock 78,275 952
Increase in deferred loan expense (788) (12)
Cash distributions to shareholders (9,705) (6,259)
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NET CASH PROVIDED FROM FINANCING ACTIVITIES 75,984 30,532
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Increase/(decrease) in cash and cash equivalents (460) 138
Cash and cash equivalents at beginning of period 581 860
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 121 $ 998
======== ========
Supplemental Cash Flow Information -- Interest Paid $ 3,359 $ 1,957
======== ========
See notes to consolidated financial statements
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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 three months ended March 31, 1997 are not
necessarily an indication of the results that may be expected for the year ended
December 31, 1997. 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, 1996.
Net income per share has been computed by dividing net income by the average
number of common shares and common stock equivalents outstanding.
NOTE B - REAL ESTATE INVESTMENTS
During the three months ended March 31, 1997, the Company provided permanent
mortgage financings of $26,304,000, invested $36,891,000 in operating leases and
made construction advances of $26,183,000. During the three months ended March
31, 1997, the Company received principal payments on real estate mortgages of
$685,000 and had net advances on working capital loans of $2,698,000.
With respect to the above-mentioned construction advances, funding associated
with seventeen construction loans represented $18,859,000, and funding for
construction in progress in connection with eight properties owned directly by
the Company totaled $7,324,000. During the three months ended March 31, 1997,
five of the construction loans completed the construction phase of the Company's
investment process and were converted to investments in permanent mortgage
loans, with an aggregate investment of $52,492,000. Also during the three months
ended March 31, 1997, one of the construction properties in progress completed
the construction phase of the Company's investment process and was converted to
a permanent operating lease, with an investment balance of $1,588,000.
At March 31, 1997, the Company had $147,140,000 in unfunded commitments.
NOTE C - INDEBTEDNESS AND SHAREHOLDERS' EQUITY
In January 1997, in connection with the underwriters' exercise of an over
allotment option associated with the Company's December 18, 1996 offering of
2,200,000 shares of common stock, the Company issued 330,000 shares of Common
Stock, $1.00 par value per share, at the price of $23.875 per share, which
generated net proceeds of $7,485,000 to the Company.
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In March 1997, the Company issued 3,000,000 shares of Common Stock, $1.00 par
value per share, at the price of $24.375 per share, which generated net proceeds
to the Company of $69,120,000.
In March 1997, the Company closed a $175 million unsecured credit facility which
replaced the Company's then existing secured credit facility. Simultaneous with
the closing of the new credit facility, all senior noteholders released
collateral which had served as security for the Company's $82 million of senior
indebtedness. The senior unsecured notes are rated `BBB-' (triple-B-minus) by
Duff & Phelps Credit Rating Co.
The Company has a total of $185,000,000 in unsecured credit facilities bearing
interest at the lenders' prime rate or LIBOR plus 1.125%, of which $84,500,000
was available at March 31, 1997.
NOTE D - INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are stated at fair value with
unrealized gains and losses reported in a separate component of shareholders'
equity. At March 31, 1997, available-for-sale securities are the common stock of
a corporation, which were obtained by the Company at no cost.
NOTE E - CONTINGENT LIABILITIES
As disclosed in the financial statements for the year ended December 31, 1996,
the Company was contingently liable for certain obligations amounting to
approximately $18,815,000. No significant change in these contingencies had
occurred as of March 31, 1997.
NOTE F - DISTRIBUTIONS PAID TO SHAREHOLDERS
On February 20, 1997, the Company paid a dividend of $0.52 per share to
shareholders of record on February 4, 1997. This dividend related to the period
from October 1, 1996 through December 31, 1996.
NOTE G - EARNINGS PER SHARE
In February, 1997, the Financial Accounting Standards Board issued Statement No.
128, Earning per Share, which is required to be adopted on December 31, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share. The impact on primary earnings per share and fully
diluted earnings per share is not expected to be material.
NOTE H - SUBSEQUENT EVENTS
On April 22, 1997, the Company declared a dividend of $0.525 per share payable
on May 20, 1997 to shareholders of record on May 5, 1997. The dividend relates
to the period from January 1, 1997 through March 31, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
LIQUIDITY AND CAPITAL RESOURCES
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At March 31, 1997, the Company's net real estate investments totaled
approximately $599,575,000, which included 59 skilled nursing facilities, 73
assisted living facilities, 11 retirement centers, six specialty care facilities
and two 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 March 31, 1997, the Company had shareholders' equity of $404,434,000 and a
total outstanding debt balance of $192,597,000, which represents a debt to
equity ratio of 0.48 to 1.0.
In January 1997, in connection with the underwriters exercise of an over
allotment option associated with the Company's December 18, 1996 offering of
2,200,000 shares of common stock, the Company issued 330,000 shares of Common
Stock, $1.00 par value per share, at the price of $23.875 per share, which
generated net proceeds of $7,485,000 to the Company.
In March 1997, the Company issued 3,000,000 shares of Common Stock, $1.00 par
value per share, at the price of $24.375 per share, which generated net proceeds
to the Company of $69,120,000.
During the three months ended March 31, 1997, 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.
In March 1997, the Company closed a $175 million unsecured credit facility which
replaced the Company's then existing secured credit facility. Simultaneous with
the closing of the new credit facility, all senior noteholders released
collateral which had served as security for the Company's $82 million of senior
indebtedness. The senior unsecured notes are rated `BBB-' (triple-B-minus) by
Duff & Phelps Credit Rating Co.
As of March 31, 1997, the Company had approximately $147,140,000 in unfunded
commitments. Under the Company's line of credit arrangements, available funding
totaled $84,500,000. 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
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Revenues for three months ended March 31, 1997 were $16,569,000 compared to
$10,890,000 for the three months ended March 31, 1996. Revenue growth resulted
primarily from increased interest income of $2,512,000 and increased operating
lease income of $3,003,000 as a result of additional real estate investments
made during the past twelve months.
Expenses for the three months ended March 31, 1997 totaled $6,743,000, an
increase of $1,530,000 from expenses of $5,213,000 for the same period in 1996.
The increase in total expenses was primarily related to an increase in interest
expense, additional expense associated with the provision for depreciation, and
increased other operating expenses.
Interest expense for the three months ended March 31, 1997 was $4,011,000
compared to $3,511,000 for the same period in 1996. The increase in the 1997
period was primarily due to the issuance of $30,000,000 Senior Notes in April
1996.
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The provision for depreciation for the three month period ended March 31, 1997
totaled $1,185,000, an increase of $710,000 over the comparable period in 1996
as a result of additional operating lease investments.
General and administrative expenses for the three month period in 1997 totaled
$1,180,000, as compared to $890,000 for the same period in 1996. The expenses
for the three month period in 1997 were 7.12% of revenues as compared to 8.17%
for the same period in 1996.
As a result of the various factors mentioned above, net income for the three
month period ended March 31, 1997 was $9,826,000 as compared to $5,677,000 for
the same period in 1996. Net income per share for the three month period ended
March 31, 1997 was $.51 versus $.47 for the comparable 1996 period. The per
share increases resulted from an increase in net income offset by an increase in
average shares outstanding during the 1997 period.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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On January 9, 1997, the Company issued a press release in which it announced
that during the fourth quarter of 1996 it had funded $78.6 million of new
investments.
On January 10, 1997, the Company issued a press release in which it announced
that the underwriters for the Company's December 18, 1996 offering of 2,200,000
common shares exercised an over allotment option to purchase 330,000 additional
shares at a purchase price of $23.875 per share.
On January 15, 1997, the Company issued a press release in which it announced
that during 1996 it had funded $230 million of new investments.
On January 16, 1997, the Company issued a press release in which it announced
that it had filed a shelf registration with the Securities and Exchange
Commission enabling the Company to offer in the future up to an aggregate of
$300 million of securities.
On January 20, 1997, the Company issued a press release in which it announced
that the Board of Directors voted to pay a quarterly cash dividend of $.52 per
share, payable to shareholders of record on February 20, 1997.
On January 21, 1997, the Company issued a press release in which it announced
that Raymond W. Braun had been appointed Chief Operating Officer of the Company.
On February 4, 1997, the Company issued a press release in which it announced
that during the month of January 1997 it had funded $62.8 million of new
investments.
On February 5, 1997, the Company issued a press release in which it announced
financial results for the fourth quarter 1996 and the year ended 1996.
On March 7, 1997, the Company issued a press release in which it announced that
it had filed a prospectus supplement for an offering of 3,000,000 shares of
Common Stock.
On March 31, 1997, the Company issued a press release in which it announced that
it had closed a $175 million unsecured credit facility.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Reports
10.1 Employment Agreement dated as of January 1, 1997 by
and between Health Care REIT, Inc. and George L.
Chapman
10.2 Employment Agreement dated as of January 1, 1997 by
and between Health Care REIT, Inc. and Raymond W.
Braun
10.3 Employment Agreement dated as of January 1, 1997 by
and between Health Care REIT, Inc. and Edward F.
Lange, Jr.
10.4 Employment Agreement dated as of January 1, 1997 by
and between Health Care REIT, Inc. and Erin C. Ibele
10.5 Stock Plan for Non-Employee Directors
27 Financial Data Schedule
99.1 Press release dated January 9, 1997
99.2 Press release dated January 10, 1997
99.3 Press release dated January 15, 1997
99.4 Press release dated January 16, 1997
99.5 Press release dated January 20, 1997
99.6 Press release dated January 21, 1997
99.7 Press release dated February 4, 1997
99.8 Press release dated February 5, 1997
99.9 Press release dated March 7, 1997
99.10 Press release dated March 31, 1997
(b) Reports on Form 8-K
Form 8-K filed on March 6, 1997
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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: May 12, 1997 By: GEORGE L. CHAPMAN
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George L. Chapman,
Chairman, Chief Executive
Office, and President
Date: May 12, 1997 By: EDWARD F. LANGE, JR.
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Edward F. Lange, Jr.,
Chief Financial Officer
Date: May 12, 1997 By: MICHAEL A. CRABTREE
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Michael A. Crabtree,
Chief Accounting Officer
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EXHIBIT INDEX
The following documents are included in this Form 10-Q as Exhibits:
DESIGNATION
NUMBER UNDER
ITEM 601 OF PAGE
REGULATION S-K EXHIBIT DESCRIPTION NUMBER
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10.1 Employment Agreement dated as
of January 1, 1997 by and
between Health Care REIT,
Inc. and George L. Chapman
10.2 Employment Agreement dated as
of January 1, 1997 by and
between Health Care REIT,
Inc. and Raymond W. Braun
10.3 Employment Agreement dated as
of January 1, 1997 by and
between Health Care REIT,
Inc. and Edward F. Lange, Jr.
10.4 Employment Agreement dated as
of January 1, 1997 by and
between Health Care REIT,
Inc. and Erin C. Ibele
10.5 Stock Plan for Non-Employee Directors
27 Financial Data Schedule
99.1 Press release dated January 9, 1997
99.2 Press release dated January 10, 1997
99.3 Press release dated January 15, 1997
99.4 Press release dated January 16, 1997
99.5 Press release dated January 20, 1997
99.6 Press release dated January 21, 1997
99.7 Press release dated February 4, 1997
99.8 Press release dated February 5, 1997
99.9 Press release dated March 7, 1997
99.10 Press release dated March 31, 1997
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