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 June 30, 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: 001-13807
ElderTrust
(Exact name of registrant as specified in its charter)
Maryland 23-2932973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 East State Street, Suite 100, Kennett Square, PA 19348
(Address of principal executive offices) (Zip Code)
(610) 925-4200
(Registrant's telephone number, including area code)
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
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at August 14, 2001
- ------------------------------ --------------------------------
Common shares of beneficial 7,119,000
interest $0.01 par value per share
ELDERTRUST
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION Page
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June
30, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 2001 and 2000 2
Condensed Consolidated Statement of Cash Flows for
the six months ended June 30, 2001 and 2000 3
Notes to Unaudited Condensed Consolidated Financial
Statements. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
PART II: OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
i
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ELDERTRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 30, December 31,
2001 2000
(unaudited)
--------------------------------
ASSETS
Assets:
Real estate properties, at cost $160,216 $148,939
Less - accumulated depreciation (16,867) (14,085)
Land 16,358 14,950
------------ ------------
Net real estate properties 159,707 149,804
Properties held for sale, net of impairment
allowance of $1,467 and $1,433, respectively 9,695 11,365
Real estate loans receivable, net of allowance
of $39 and $7,087, respectively 21,659 41,559
Cash and cash equivalents 3,936 3,105
Restricted cash 9,309 8,409
Accounts receivable, net of allowance of $399
and $1,247, respectively 834 1,466
Accounts receivable from unconsolidated entities 1,809 1,905
Prepaid expenses 542 483
Investment in and advances to unconsolidated
entities, net of allowance of $1,617 and
$1,466, respectively 25,281 18,137
Other assets, net of accumulated amortization
and depreciation of $3,159 and $2,840,
respectively 813 1,454
------------ ------------
$233,585 $237,687
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank credit facility $36,015 $38,720
Accounts payable and accrued expenses 1,246 1,613
Accounts payable to unconsolidated entities 11 12
Mortgages and bonds payable 107,338 107,932
Notes payable to unconsolidated entities 980 1,015
Other liabilities 3,732 3,639
------------ ------------
Total liabilities 149,322 152,931
------------ ------------
Minority interest 4,573 4,657
Shareholders' equity:
Preferred shares, $.01 par value; 20,000,000
shares authorized; none outstanding - -
Common shares, $.01 par value; 100,000,000
shares authorized; 7,119,000 shares issued
and outstanding 71 71
Capital in excess of par value 120,580 120,377
Deficit (40,961) (40,349)
------------ ------------
Total shareholders' equity 79,690 80,099
------------ ------------
Total liabilities and shareholders' equity $233,585 $237,687
============ ============
See accompanying notes to unaudited condensed
consolidated financial statements.
1
ELDERTRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
For the three months For the six months
ended June 30, ended June 30,
2001 2000 2001 2000
-------------------- ------------------
Revenues:
Rental revenues $4,668 $4,686 $9,354 $9,366
Interest, net of amortization
of deferred loan origination
costs 730 991 1,531 2,310
Interest from unconsolidated
equity investees 930 764 1,796 1,711
Other income 64 60 115 118
-------- -------- -------- --------
Total revenues 6,392 6,501 12,796 13,505
Expenses:
Property operating expenses 298 314 590 608
Interest expense, including
amortization of deferred
finance costs 3,038 3,500 6,405 6,887
Depreciation 1,412 1,487 2,792 2,941
General and administrative 555 1,365 1,930 2,012
Loss on impairment of long-
lived assets 450 - - -
Bad debt expense 14 20,267 28 20,267
-------- -------- -------- --------
Total expenses 5,317 26,933 12,195 32,715
-------- -------- -------- --------
Net income (loss) before equity
in losses of unconsolidated
entities and minority interest 1,075 (20,432) 601 (19,210)
Equity in losses of unconsolidated
entities, net (735) (8,216) (1,240) (8,882)
Minority interest (21) 1,926 27 1,886
-------- --------- -------- --------
Net income (loss) $319 ($26,722) ($612)($26,206)
======== ========= ======== ========
Basic weighted average number of
common shares outstanding 7,119 7,119 7,119 7,119
======== ========= ======== ========
Net income (loss) per share - basic $0.04 ($3.75) ($0.09) ($3.68)
======== ========= ======== ========
Diluted weighted average number
of common shares outstanding 7,537 7,119 7,119 7,119
======== ========= ======== ========
Net income (loss) per share
- diluted $0.04 ($3.75) ($0.09) ($3.68)
======== ========= ======== ========
See accompanying notes to unaudited condensed
consolidated financial statements.
2
ELDERTRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six months ended
June 30,
-----------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($612) ($26,206)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,224 3,377
Bad debt expense 28 20,267
Loss on impairment of long-lived assets 450 -
Minority interest and equity in losses from
unconsolidated entities 1,213 6,996
Net changes in assets and liabilities:
Accounts receivable and prepaid expenses 669 (241)
Accounts payable and accrued expenses (368) (69)
Other 114 476
-------- --------
Net cash provided by operating activities 4,718 4,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (37) (93)
Proceeds from collection on advances to
unconsolidated entities 88 620
Net increase in reserve funds and deposits -
restricted cash (900) (479)
Other (30) -
-------- --------
Net cash provided (used) in investing
activities (879) 48
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred financing fees - (488)
Principal payments under Bank Credit Facility (2,362) (521)
Principal payments on mortgages and bonds payable (593) (545)
Purchase of partnership units (18) -
Distributions to shareholders - (4,272)
Distributions to minority interests - (327)
Other (35) (31)
-------- --------
Net cash used in financing activities (3,008) (6,184)
Net increase (decrease) in cash and cash equivalents 831 (1,536)
Cash and cash equivalents, beginning of period 3,105 3,605
-------- --------
Cash and cash equivalents, end of period $3,936 $2,069
======== ========
Supplemental cash flow information:
Cash paid for interest $6,080 $6,738
======== ========
See accompanying notes to unaudited condensed
consolidated financial statements.
3
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying interim unaudited condensed consolidated financial
statements of ElderTrust and its consolidated subsidiaries ("ElderTrust"
or the "Company") do not include all of the footnote disclosures required
for a complete presentation of the financial statements in accordance
with accounting principles generally accepted in the United States of
America. The December 31, 2000 condensed consolidated balance sheet
was derived from audited financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation
of the financial statements for the interim periods presented have been
included. Operating results for the six months ended June 30, 2001 are
not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 2001.
The accompanying unaudited condensed consolidated financial statements
should be read together with the consolidated financial statements and
notes thereto for the year ended December 31, 2000 included in the
Company's annual report on Form 10-K filed with the Securities and
Exchange Commission.
2. Certain Significant Risks and Uncertainties
Genesis and Multicare Chapter 11 Bankruptcy Filings; Lease and Loan
Restructurings
Approximately 71% of the Company's consolidated assets at June 30,
2001 consisted of real estate properties leased to or managed by and
loans on real estate properties made to Genesis Health Ventures, Inc.
("Genesis") or its consolidated subsidiaries or entities in which Genesis
accounts for its investment using the equity method of accounting
("Genesis Equity Investees"), under agreements as manager, tenant or
borrower. Revenues recorded by the Company in connection with these
leases and borrowings aggregated $4.0 million in the second quarter of
2001 and $8.1 million for the six months ended June 30, 2001. In addition,
the Company's equity investees have also leased properties to Genesis or
Genesis Equity Investees. As a result of these relationships, the
Company's revenues and ability to meet its obligations depends, in
significant part, upon the ability of Genesis and Genesis Equity Investees
to meet their lease and loan obligations. As well as revenues
derived from, and the successful operation of, the facilities leased to
or managed by Genesis or Genesis Equity Investees.
On June 22, 2000, Genesis, the Company's principal tenant, and The
Multicare Companies, Inc., a 43.6% owned consolidated subsidiary of
Genesis ("Multicare"), filed for protection under Chapter 11 of the
United States Bankruptcy Code. Both companies are currently operating
as debtors-in-possession subject to the jurisdiction of the U.S.
Bankruptcy Court. On January 4, 2001, agreements negotiated in the
prior year between the Company, Genesis and Multicare and Genesis and
Multicare's major creditors were approved by the U.S. Bankruptcy Court
and were consummated on January 31, 2001. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a
description of the principal terms of these agreements.
4
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (consolidated)
On June 5, 2001, Genesis and Multicare filed a joint plan of
reorganization with the U.S. Bankruptcy Court. This plan was revised
and re-filed on July 3, 2001. The revised plan calls for Multicare to
become a wholly-owned subsidiary of Genesis. Additionally, the revised
plan provides for the issuance of notes and common and preferred stock.
The revised plan has been endorsed by both Genesis and Multicare's senior
bank lenders and the official statutory committees of unsecured creditors.
Approval of the revised reorganization plan by the U.S. Bankruptcy Court
will be necessary for Genesis and Multicare to be able to emerge from
bankruptcy.
The independent auditors' report on Genesis' 2000 financial statements,
included in Genesis' Form 10-K for the year ended September 30, 2000,
indicated that there is substantial doubt regarding the ability of Genesis
and Multicare to continue as going concerns. Each company's ability to
continue as a going concern is dependent upon, among other things,
approval of the plan of reorganization, future profitable operations,
the ability to comply with the terms of their debtor-in-possession
financing arrangements and the ability to generate sufficient cash from
operations and financing agreements to meet their obligations. Although
we are hopeful Genesis and Multicare will emerge from bankruptcy and
continue to make lease and loan payments to us, there can be no assurance
that this will occur. Any failure of Genesis and Multicare to continue
their operations and/or to continue to make lease and loan payments to
us could have a significant adverse impact on our operations and cash
flows due to the significant portion of our properties leased to and
loans made to Genesis and Multicare.
Liquidity
The Company has a working capital deficit of $26.2 million at June
30, 2001, resulting primarily from the classification of approximately
$25.5 million of long-term debt as current due to the Company's default
on mortgages for failure to meet certain technical requirements,
including property information requirements and the bankruptcy filing
by Genesis. If the Company is unable to obtain waivers of the failed
covenants, the lenders could exercise their rights to accelerate the
related indebtedness or foreclose on the underlying collateral
immediately. Based, in part, on the Company's favorable payment
history, the Company believes that the lenders will take no action in
regard to these technical defaults.
5
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (consolidated)
3. Real Estate Loans Receivable
The following is a summary of real estate loans receivable (dollars
in thousands):
Stated Scheduled Balance at Balance at
Type of Interest Maturity June 30, December 31,
Property Loan Rate Date 2001 2000
- -------------------------------- --------- -----------------------------------------------
Harbor Place Melbourne, FL Term 10.0% 5/2002 $ 4,828 $ 4,828
Mifflin Shillington, PA Term 9.5% 6/2002 2,474 5,164 (1)
Coquina Place Ormond Beach, FL Term 9.5% 6/2002 1,400 4,577 (1)
Lehigh Macungie, PA Term 10.5% 6/2000 - 6,665 (2)
Berkshire Reading, PA Term 10.5% 6/2000 - 6,167 (2)
Oaks Wyncote, PA Construction 9.0% 6/2002 3,500 5,033 (1)
Montchanin Wilmington, DE Construction 10.5% 8/2000 9,496 9,496
Sanatoga Pottstown, PA Construction 10.5% 1/2001 - 6,716 (2)
--------- ------------
21,698 48,646
Allowance for credit losses (39) (7,087)
--------- ------------
$ 21,659 $ 41,559
========= ============
<FN>
<F1>
(1) Under the terms of the restructuring agreement with Genesis, these loans receivable
have been reduced.
<F2>
(2) Title of property passed to company affiliates at January 31, 2001 under the
restructuring with Genesis.
</FN>
The Company had one term loan in the amount of $4.8 million, with
an original annual interest rate of 9.5%, secured by the Harbor Place
facility. On January 31, 2001, under the restructuring of the
relationships between ElderTrust and Genesis, the Company extended the
term of the loan until May 31, 2002, for a fee of $24,000 which was paid
on January 31, 2001. The Company also increased the interest rate to
10.0% per annum. Principal payments will be made monthly to the extent
of one half of excess cash flow of the property, if any, after payment
of operating expenses, management fee, interest and an amount to be
agreed upon by the parties for capital expenditures.
The loan secured by the Montchanin facility is in default. The
Company is charging the borrower the default interest rate of 3% above
the stated interest rate of 10.5%. This loan matured in August 2000
and has not been re-paid. The Company has begun collection proceedings.
The Company has the option to purchase this facility for $13.0 million.
In July 2001, the Company was notified that the primary debtor of
the Montchanin property, Senior Life Choice of Wilmington, LLC ("SLC"),
entered into a purchase and sale agreement, with a third-party, to sell
the Montchanin property for approximately $10.0 million. If the sale
of the Montchanin property is completed by SLC, the proceeds to the
Company from the repayment of the SLC mortgage loan will be used to pay
down the Company's Bank Credit Facility. The sale is expected to close
during the third quarter of 2001.
6
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (consolidated)
4. Properties Held for Sale
In April 2001, the Company executed a letter of intent to sell the
Woodbridge assisted living facility. The Company owns through ElderTrust
Operating Limited Partnership 100% of the partnership interests in ET
Sub-Woodbridge, L.P., whose sole asset consists of the Woodbridge assisted
living facility, located in Kimberton, Pennsylvania. During the second
quarter of 2001, the letter of intent was terminated due to the contractual
differences between the Company and the purchaser. This property is
classified as held for sale. After adjusting for impairment losses of
$1.5 million, the property has a net carrying value of $9.7 million as
of June 30, 2001. The Company is currently actively marketing the
Woodbridge assisted living facility for sale.
5. Investments in Unconsolidated Entities
The Company's equity investees represent entities in which the
controlling interests are owned by Mr. D. Lee McCreary, Jr., the
Company's President, Chief Executive Officer and Chief Financial
Officer. As a result, the Company records its investments in, and
results of operations from, these entities using the equity method of
accounting.
Summary unaudited combined financial information as of and for the
six month period ended June 30, 2001 for these unconsolidated entities
is as follows (dollars in thousands):
ET Sub- ET ET Sub- ET Sub-
Meridian, Capital Cabot Cleveland
LLP Corp. Park, LLC Circle, LLC Total
-----------------------------------------------
Current assets $1,113 $185 $92 $141 $1,531
Real estate properties (1) 101,278 - 16,275 13,436 130,989
Notes receivable - 4,239 - - 4,239
Other assets - - 548 519 1,067
Total assets 102,391 4,694 16,916 14,096 138,097
Current liabilities 2,418 385 592 651 4,046
Long-term debt (2) 104,840 9,144 16,606 13,365 143,955
Total deficit (6,575) (4,835) (552) (146) (12,108)
Rental revenue 4,900 - 833 738 6,471
Interest income 58 962 14 14 1,048
Interest expense 4,121 260 676 516 5,573
Depreciation/amortization 1,756 - 280 231 2,267
Bad debt expense 47 743 - - 790
Net income (loss) (1,000) (120) (125) (12) (1,257)
Percent ownership 99% 95% 99% 99%
_______________
(1) Includes properties under capital lease.
(2) Includes capital lease obligations.
7
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (consolidated)
6. Bank Credit Facility
Effective January 31, 2001, the Bank Credit Facility was extended
to August 31, 2002 and the covenants amended to cure the then existing
covenant violations. As a result of this extension the Company is (i)
prohibited from further borrowings under the facility, (ii) required to
make monthly principal payments equal to the cash flow generated by the
Company for the month and (iii) is prevented from paying distributions
to shareholders in excess of 110% of that amount required to maintain
the Company's REIT status under the tax laws.
The amounts outstanding under the Bank Credit Facility bear interest
at a floating rate 3.25% over one-month LIBOR, or 7.31% at June 30, 2001.
The Bank Credit Facility contains various financial and other covenants,
including, but not limited to, minimum net asset value, minimum tangible
net worth, a total leverage ratio and minimum interest coverage ratio.
The Company's owned properties and properties underlying loans receivable
with an aggregate cost basis of $63.1 million are included in the Bank
Credit Facility borrowing base and pledged as collateral at June 30, 2001.
7. Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated (in thousands, except
per share data):
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Basic income (loss) per share:
- ------------------------------
Net income (loss) $319 ($26,722) ($612) ($26,206)
Weighted average common
shares outstanding 7,119 7,119 7,119 7,119
========= ========= ========= =========
Basic net income (loss)
per share $0.04 ($3.75) ($0.09) ($3.68)
========= ========= ========= =========
Diluted loss per share:
- ------------------------------
Net income (loss) $319 ($26,722) ($612) ($26,206)
Weighted average common
shares outstanding 7,119 7,119 7,119 7,119
Common stock equivalents -
stock options & warrants 418 - - -
--------- --------- --------- ---------
Total weighted average
number of diluted shares 7,537 7,119 7,119 7,119
========= ========= ========= =========
Diluted net income (loss)
per share $0.04 ($3.75) ($0.09) ($3.68)
========= ========= ========= =========
8
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (consolidated)
Units of ElderTrust Operating Limited Partnership are not included
in the determination of weighted average common shares outstanding for
purposes of computing diluted income per share since they are redeemable
for cash at the Company's discretion.
8. New York Stock Exchange Listing
On August 8, 2000, the Company was notified by the New York Stock
Exchange ("NYSE") that it had fallen below the continued listing criteria
relating to total market capitalization and minimum share value. Under
the market capitalization requirement, the Company's market capitalization
must, on average over the preceding thirty-trading day period, equal or
exceed $15 million. Under the minimum share value requirement, the
Company's shares must trade at a value exceeding $1 for thirty consecutive
trading days. Under the NYSE rules, the Company submitted a plan
demonstrating that these criteria could be attained within 18 months.
On January 12, 2001, the NYSE notified the Company that, based upon
plan accomplishments to date and short-term stock price and market
capitalization improvement through January 11, 2001, the Company met the
continued listing criteria and that the NYSE was prepared to continue
the Company's listing subject to review and continued compliance with
the continued listing criteria and plan performance over an eighteen-
month period ending February 10, 2002. The Company is in compliance
with the NYSE continued listing criteria as of June 30, 2001.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements with
respect to results of operations and financial condition of ElderTrust
and its consolidated subsidiaries (collectively, "ElderTrust" or the
"Company"). In general, these statements are identified by the use of
forward-looking words or phrases, including "intended," "will," "should,"
"could," "may," "continues," "continued," "estimate," "estimated,"
"expects," "expected," "believes," "anticipates" and "anticipated" or
the negative or variations thereof or similar terminology. These
statements are not guarantees of the Company's future performance and
are subject to risks and uncertainties, and other important factors
that could cause the Company's actual performance or achievements to
be materially different from those expressed or implied by these
forward-looking statements. These risks, uncertainties and factors
include, but are not limited to:
* the ability of Genesis Health Ventures, Inc. ("Genesis"), the
Company's principal tenant, and The Multicare Companies, Inc., a
43.6% owned consolidated subsidiary of Genesis ("Multicare"),
to continue making loan and lease payments to the Company;
* the outcome of the Genesis and Multicare bankruptcy proceedings,
including the approval of the revised joint plan of reorganization
as filed on July 3, 2001;
* the Company's ability to further extend or refinance its Bank
Credit Facility when it matures in August 2002;
* fluctuation of interest rates;
* availability, terms and use of capital;
* general economic, business and regulatory conditions;
* federal and state government regulation;
* changes in Medicare and Medicaid reimbursement programs; and
competition.
Refer to the Company's annual report on Form 10-K for the year
ended December 31, 2000 for a discussion of these and other factors
which management believes may impact the Company. The forward-looking
statements included herein represent the Company's judgment as of the
date of this Form 10-Q and should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto
appearing elsewhere in this report. Although the Company believes that
the expectations reflected in these forward-looking statements are
reasonable, there can be no assurance that such expectations will
prove to be correct. All subsequent written and oral forward-
looking statements attributable to the Company are expressly qualified
in their entirety by the cautionary statements. The Company disclaims,
however, any intent or obligation to update its forward-looking statements.
10
General
The Company is a self-managed and self-administered real estate
investment trust ("REIT") that invests principally in senior housing
and other healthcare facilities, including skilled nursing facilities,
assisted and independent living facilities and medical office and other
buildings. The Company conducts primarily all of its operations through
ElderTrust Operating Limited Partnership (the "Operating Partnership"),
of which ElderTrust is the sole general partner. The Company's
consolidated assets consist primarily of the assets of the Operating
Partnership and its consolidated subsidiaries. As of June 30, 2001,
skilled nursing, assisted and independent living facilities comprised
approximately 89% of the Company's consolidated investments in real
estate properties and loans. Approximately 71% of the Company's
consolidated assets at June 30, 2001 consisted of real estate properties
leased to or managed by subsidiaries of Genesis and loans on real estate
properties made to consolidated and unconsolidated subsidiaries of
Genesis or Multicare.
A significant portion of the Company's revenues are currently
derived from rents received under long-term leases of healthcare-related
real estate. The Company has incurred operating and administrative
expenses, which principally consist of compensation expense for its
executive officers and other employees, office rental and related
occupancy costs.
The accompanying unaudited condensed consolidated financial
statements of ElderTrust and its consolidated subsidiaries have been
prepared assuming the Company will continue as a going concern. As
previously discussed, Genesis, the Company's principal tenant, and
Multicare have filed for reorganization under the provisions of
Chapter 11 of the United States Bankruptcy Code. Both companies are
currently operating as debtors-in-possession subject to the jurisdiction
of the U.S. Bankruptcy Court. In addition, the Company has a working
capital deficit of $26.2 million at June 30, 2001, resulting primarily
from the classification of approximately $25.5 million of long-term
debt as current due to the Company's default on mortgages for failure to
meet certain technical requirements, including property information
requirements, and the bankruptcy filing by Genesis. Based, in part,
on the Company's favorable payment history, the Company believes that
the lenders will take no action in regard to these technical defaults.
See Note 2 to consolidated financial statements.
Revenues recorded by the Company for the three months ended June 30,
2001 in connection with leases and loans to Genesis and Multicare totaled
$4.0 million, or 63% of the Company's total revenues, and $8.1 million,
or 64% of the Company's total revenues for the six months ended June 30,
2001. In addition, certain unconsolidated entities of the Company,
accounted for under the equity method, also lease properties to Genesis
and recognized revenues of $3.2 million for the three months ended June
30, 2001, and $6.5 million for the six months ended June 30, 2001, from
these properties.
11
As a result of these relationships, the Company's revenues and it's
ability to meet it's obligations depends, in significant part, upon the:
* ability of Genesis and Genesis Equity Investees to meet their
lease and loan obligations; and
* revenues derived from, and the successful operation of, the
facilities leased to or managed by Genesis or Genesis Equity
Investees.
Included in the Company's consolidated assets at June 30, 2001 are
$12.2 million in loans to wholly-owned subsidiaries of Genesis. These
loans are secured by real estate and are 100% guaranteed by Genesis.
The loans have a weighted average interest rate of 9.6%.
On January 4, 2001, agreements negotiated in the prior year between
the Company, Genesis and Multicare and Genesis and Multicare's major
creditors were approved by the U.S. Bankruptcy Court. These agreements
were consummated on January 31, 2001. Assuming that Genesis and Multicare
successfully emerge from bankruptcy, these agreements resolve differences
between the parties resulting from the bankruptcy filings.
Under the more significant terms of the agreement with Genesis:
1) Twenty-one of the existing twenty-three lease agreements between
Genesis subsidiaries and ElderTrust continued in effect in accordance
with their terms, except as provided below:
* Two leases were modified to reduce combined rents for the
properties by $745,000 per year;
* One lease was modified to create an early termination right
commencing on December 31, 2002; and
* One lease was modified to permit ElderTrust to terminate the
lease during 2001 without penalty if the current tenant is
unable to achieve occupancy targets specified by loan documents
secured by property.
2) Two leases (Windsor Office Building and Windsor Clinic/Training
facility) were terminated when the two properties subject to the
leases were sold to Genesis for $1.25 million, such amount being
paid via an increase in the notes receivable described in 4) below;
3) An $8.5 million loan previously guaranteed by ElderTrust and owed to
Genesis by ET Sub-Meridian, an unconsolidated subsidiary of ElderTrust,
was conveyed to ElderTrust in a manner to effect an $8.5 million
reduction in amounts owed to ElderTrust by Genesis;
12
4) The maturity date for three loans (Oaks, Coquina and Mifflin) by
ElderTrust to Genesis and affiliated entities with unpaid principal
balances totaling approximately $7.5 million at June 30, 2000 (after
taking into account the aforementioned $1.25 million increase and
$8.5 million reduction) were extended to June 30, 2002 at the rates
in effect prior to the Genesis bankruptcy filing; and
5) The maturity date and interest rate for one loan (Harbor Place) with
a principal balance of approximately $4.8 million made by ElderTrust
to an entity in which Genesis owns a 100% limited partner interest
was extended to May 31, 2002 at a 10% interest rate, an increase
of 0.5%.
Under the terms of the agreement with Multicare, ElderTrust acquired
three properties secured by three loans with outstanding principal amounts
totaling approximately $19.5 million, and having a net book value of $12.5
million at December 31, 2000, in exchange for the outstanding indebtedness.
These properties were then leased back to Multicare under long-term operating
lease agreements. ElderTrust had no other transactions with this entity.
On June 5, 2001, Genesis and Multicare filed a joint plan of
reorganization with the U.S. Bankruptcy Court. This plan was revised
and re-filed on July 3, 2001. A significant plan component calls for
Multicare to become a wholly-owned subsidiary of Genesis. Additionally,
the plan provides for the issuance of notes and common and preferred stock.
The revised plan has been endorsed by both Genesis and Multicare's senior
bank lenders and the official statutory committees of unsecured creditors.
Both companies are currently operating as debtors-in-possession subject to
the jurisdiction of the U.S. Bankruptcy Court. Approval of the revised
reorganization plan by the U.S. Bankruptcy Court will be necessary for
Genesis and Multicare to be able to emerge from bankruptcy.
The independent auditors' report on Genesis' 2000 financial
statements, included in Genesis' Form 10-K as of September 30, 2000,
indicated that there is substantial doubt regarding the ability of
Genesis and Multicare to continue as going concerns. Each company's
ability to continue as a going concern is dependent upon, among other
things, approval of their respective plan of reorganization, future
profitable operations, the ability to comply with the terms of their
debtor-in-possession financing arrangements and the ability to generate
sufficient cash from operations and financing agreements to meet their
obligations. Although we are hopeful Genesis and Multicare will emerge
from bankruptcy and continue to make lease and loan payments to us, there
can be no assurance that this will occur. Any failure of Genesis and
Multicare to continue their operations and/or to continue to make lease
and loan payments to us could have a significant adverse impact on our
operations and cash flows due to the significant portion of our properties
leased to and loans made to Genesis and Multicare.
13
Equity Investees
Financial information regarding unconsolidated entities accounted for by
the equity method is as follows:
ET Capital Corp.
ET Capital has notes receivable aggregating $4.2 million at June 30,
2001 from two of the Company's Equity Investees and one of the Company's
consolidated subsidiaries. These loans mature at various dates from April
2008 to December 2011 and bear interest at 14% per annum with interest and
principal payable monthly.
ET Capital's long-term debt includes demand promissory notes from
ElderTrust Operating Partnership aggregating $3.2 million, bearing interest
at 15% and maturing at various dates from April 2008 to December 2011.
Payments on these notes were current at June 30, 2001.
The Company recorded $130,000 and $138,000 in interest income for
the three months ended June 30, 2001 and 2000, respectively, on the note
receivable from ET Capital. The Company also recorded losses of $129,000
and $7.5 million related to the portion of its equity interest in ET
Capital's results of operations for the three months ended June 30, 2001
and 2000, respectively.
The Company recorded interest income of $260,000 and $256,000
related to the note receivable from ET Capital for the six months ended
June 30, 2001 and 2000, respectively. The Company recorded losses of
$114,000 and $7.5 million related to the portion of its equity interest
in ET Capital's results of operations for the six months ended June 30,
2001 and 2000, respectively.
In May 2001, ET Capital Corp. was named as a third party defendant
in a complaint filed against Genesis. The complaint was filed by several
not-for-profit entities, including the AGE Institute of Florida ("AGE"),
who own skilled nursing facilities that were formerly managed by Genesis.
The third party complaints arise from a lawsuit filed by Genesis seeking
payment from AGE of various management fees allegedly owed Genesis by AGE.
In its complaint, AGE asserts, among other things, that acquiring loans
from Genesis secured by second mortgage liens on properties owned by the
AGE Institute of Florida, ET Capital joined with Genesis in an effort to
defraud AGE. These loans total $7.8 million and were acquired by ET Capital
in 1998. ET Capital believes that the complaint is without merit and
intends to vigorously defend its position. During the second quarter
2001, however, ET Capital reserved for legal costs anticipated to be
incurred by it in connection with this matter, which reduced the income
recognized by the Company during the second quarter 2001 relating to its
95% non-voting equity interest in ET Capital.
14
ET Sub-Meridian Limited Partnership, L.L.P.
The Company recorded a loss of $538,000 and $604,000 related to its
equity interest in ET Sub-Meridian's results of operations for the quarters
ended June 30, 2001 and 2000, respectively. ET Sub-Meridian has real estate
investments and long-term debt of $101.3 million and $104.8 million,
respectively, at June 30, 2001. At June 30, 2001, ET Sub-Meridian had a
$17.6 million subordinated demand loan bearing interest at 12% per annum
payable to the Company. The Company recorded $533,000 in interest income
on this loan receivable during the quarters ended June 30, 2001 and 2000,
respectively. The Company also acquired from Genesis a $8.5 million loan
receivable from ET Sub-Meridian on January 31, 2001 and recorded interest
income of $172,000 related to this note for the quarter ended June 30, 2001.
The Company recorded losses of $990,000 and $1.2 million related to its
equity interest in ET Sub-Meridian's results of operations for the six months
ended June 30, 2001 and 2000, respectively. The Company also recorded $1.3
million and $1.1 million in interest income on its loan receivables from ET-Sub
Meridian for the six months ended June 30, 2001 and 2000, respectively.
ET Sub-Cabot Park, LLC
ET Sub-Cleveland Circle, LLC
ET Sub-Cabot Park, LLC and ET Sub-Cleveland Circle, LLC have
subordinated demand loans in the aggregate amount of $6.2 million payable
to the Company at June 30, 2001, bearing interest at 12% per annum. The
Company recorded $95,000 in interest income for each of the quarters ended
June 30, 2001 and 2000, in connection with the demand loans. The Company
recorded $200,000 and $190,000 in interest income for the six months ended
June 30, 2001 and 2000, in connection with the above demand loans.
The Company recorded an aggregate loss of $68,000 and $75,000 related
to its equity interest in ET-Sub-Cabot Park, LLC's and ET Sub-Cleveland
Circle, LLC's results of operations for the quarters ended June 30, 2001
and 2000, respectively. These two entities have real estate investments
and aggregate long-term debt of $30.0 million at June 30, 2001. The real
estate investments and aggregate long-term debt at June 30, 2000 were $30.7
million and $30.5 million, respectively.
The company recorded an aggregate loss of $136,000 and $171,000
related to its equity interest in ET-Sub-Cabot Park, LLC's and ET Sub-
Cleveland Circle, LLC's results of operations for the six months ended
June 30, 2001 and 2000, respectively.
15
Results of Operations
Three months ended June 30, 2001 compared with the three months ended
June 30, 2000
Revenues
Rental revenues were $4.7 million for each of the quarters ended
June 30, 2001 and 2000. Interest income was $1.7 million and $1.8 million
for the quarters ended June 30, 2001 and 2000, respectively.
Expenses
Interest expense, which included amortization of deferred financing
costs of $74,000 and $155,000, was $3.0 million for the quarter ended June
30, 2001 and $3.5 million for the quarter ended June 30, 2000. The
Company's interest expense decreased primarily due to the decrease in the
one-month LIBOR from 6.69% at June 30, 2000 to 4.06% at June 30, 2001.
The Company's interest rate on its Bank Credit Facility was 7.31% at June
30, 2001 compared to 9.44% at June 30, 2000. The Company's interest rate
on its variable rate mortgages was 7.06% at June 30, 2001 compared to 9.69%
at June 30, 2000.
General and administrative expenses were $0.6 million for the
quarter ended June 30, 2001 as compared to $1.4 million for the corresponding
period in 2000. This decrease of 57% is the primary result of a second quarter
2000 write-off of $682,000 of costs incurred in connection with property due
diligence for investment transactions that were not completed because of
adverse conditions in the capital markets and a reduction in legal fees
incurred in connection with the June 22, 2000 Chapter 11 filings of Genesis
and Multicare following the completion of the Company's restructuring
arrangements with Genesis and Multicare.
Bad debt expense was $14,000 and $20.3 million for the quarters
ended June 30, 2001 and 2000, respectively. This decrease was a result of
impairment charges recorded on real estate loans receivable of $18.1 million,
investments in and advances to unconsolidated entities of $1.2 million and a
note receivable from a former officer of the Company of $990,00 which were
recorded in the quarter ended June 30, 2000.
16
Six months ended June 30, 2001 compared with the six months ended
June 30, 2000
Revenues
Rental revenues were $9.4 million for the six months ended June 30,
2001 and 2000.
Interest income, net of amortization of deferred loan costs of $0
and $127,000, was $1.5 million and $2.3 million for the six months ended
June 30, 2001 and 2000, respectively. This decrease of 35.0% was primarily
due to the decrease in interest earned on the term and construction loans
resulting from the Genesis and Multicare lease and loan restructuring
agreements. As part of the restructuring, properties securing two term
loans and one construction loan (Lehigh, Berkshire and Sanatoga) were
purchased by the Company, effective January 31, 2001, resulting in no
interest income on these loans recorded for the quarter ended June 30,
2001 as compared to three months of interest income of approximately
$894,000 for the quarter ended June 30, 2000. In addition, the principal
amounts of two term loans and one construction loan (Mifflin, Coquina
Place and Oaks), were reduced by $7.4 million effective January 31, 2001,
as part of the Genesis and Multicare lease and loan restructuring agreements,
further reducing interest income for the quarter ended June 30, 2001 by
approximately $411,000.
Expenses
Interest expense, which included amortization of deferred financing
costs of $310,000 and $309,000, was $6.4 million for the six months ended
June 30, 2001 as compared to $6.9 million for the six months ended June
30, 2000. The Company's interest expense decreased primarily due to the
decrease in the one-month LIBOR from 6.69% at June 30, 2000 to 4.06% at
June 30, 2001. The Company's interest rate on the Bank Credit Facility
was 7.31% at June 30, 2001 compared to 9.44% at June 30, 2000. The
Company's interest rate on its variable rate mortgages was 7.06% at
June 30, 2001 compared to 9.69% at June 30, 2000.
General and administrative expenses of $1.9 million for the six
months ended June 30, 2001 were consistent with $2.0 million for the
corresponding period in 2000.
Bad debt expense was $28,000 and $20.3 million for the six months
ended June 30, 2001 and 2000, respectively. This decrease was a result
of impairment charges recorded on real estate loans receivable of $18.1
million, investments in and advances to unconsolidated entities of $1.2
million and a note receivable from a former officer of the Company of
$990,00 which were recorded in the six months ended June 30, 2000.
17
Liquidity and Capital Resources
Net cash provided by operating activities was $4.7 million for the
six months ended June 30, 2001 compared to $4.6 million for the
corresponding period in 2000.
Net cash used in investing activities was $879,000 for the six
months ended June 30, 2001 compared to net cash provided by investing
activities of $48,000 for the corresponding period in 2000. This
increase in cash used was principally a result of the net increase in
restricted cash of $421,000 and a reduction in collections on advances
to unconsolidated entities of $532,000.
Net cash used in financing activities was $3.0 million for the six
months ended June 30, 2001 compared to $6.2 million for the corresponding
period in 2000. The decrease in net cash used in financing activities
was primarily a result of the suspension of distributions to shareholders
and minority interests, which were $4.6 million for the six months ended
June 30, 2000. The effect of the suspension of these distributions was
partially offset by the net increase in principal payments made on the
Bank Credit Facility of $1.8 million.
As of June 30, 2001, the Company had shareholders' equity of $79.7
million and Bank Credit Facility borrowings and mortgages and bonds
payable to third parties aggregating $144.3 million, net of discount on
the Bank Credit Facility of $342,000, which represents a debt to equity
ratio of 1.81 to 1. The debt to equity ratio was 1.83 to 1 at December
31, 2000.
At June 30, 2001, the Company's third party indebtedness of $144.3
million consisted of $66.0 million in variable rate debt and $78.3
million in fixed rate debt. The weighted average annual interest rate
on this debt was 7.67% at June 30, 2001. Based on interest rates at
June 30, 2001, quarterly debt service requirements related to this debt
approximates $3.9 million.
The Bank Credit Facility currently matures on August 31, 2002. If
the Company is unable to pay-off or obtain replacement financing by August
31, 2002, or is unable to negotiate a further extension of the current
Bank Credit Facility at that time, or for any other reason the Company
were to be in default under the Bank Credit Facility prior to its maturity,
Deutsche Bank could exercise its rights under the Bank Credit Facility,
including the right to foreclose on the collateral securing the Bank
Credit Facility. These remedies would have a significant adverse affect
on the Company's ability to continue its operations and meet its
obligations.
Future increases in interest rates, as well as any defaults by
tenants or borrowers on their leases or loans, also could adversely
affect the Company's cash flow and its ability to pay its obligations.
18
To qualify as a REIT, the Company must distribute to its shareholders
each year at least 90% of its net taxable income, excluding any net
capital gain. If the Company is unable to make required shareholder
distributions, then the Company may be unable to qualify as a REIT and
be subject to federal income taxes. The Company does not expect to have
net taxable income for the year ended December 31, 2001, and therefore,
the Company's suspension of quarterly distributions to its shareholders
should not affect its REIT status.
Facilities owned by the Company and leased to third parties under
percentage and minimum rent triple net leases require the lessee to pay
substantially all expenses associated with the operation of such facilities.
Facilities owned by the Company and subject to percentage and minimum rent
leases represent approximately 88% of the Company's investments in owned
facilities at June 30, 2001. As a result of these arrangements, the
Company does not believe it will be responsible for significant expenses
in connection with the facilities during the terms of the leases. However,
there can be no assurance the Company will not be responsible for
significant expenses of its leased properties in the event one or more of
its lessees default on their leases with the Company.
Funds from Operations
The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT defines Funds from Operations ("FFO") as net income
(loss), computed in accordance with accounting principles generally
accepted in the United States of America, excluding gains (losses) from
sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect FFO on the same basis. The Company believes that
FFO is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes FFO using standards established by NAREIT which may not be
comparable to FFO reported by other REITs that do not define the term
using the current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. FFO does not represent cash
generated from operating activities using accounting principles generally
accepted in the United States of America and should not be considered
as an alternative to net income as an indication of the Company's
financial performance, or to cash flow from operating activities as a
measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to
make cash distributions. FFO includes both recurring and non-recurring
items, except those results defined as "extraordinary items" under
accounting principles generally accepted in the United States of America
and gains and losses from sales of depreciable operating property.
19
The following table presents the Company's Funds from Operations
for the periods presented below:
For the three months For the six months
Ended June 30, Ended June 30,
----------------------------------------
2001 2000 2001 2000
----------------------------------------
(in thousands)
Funds from Operations:
Net income (loss) $319 ($26,722) ($612) ($26,206)
Minority interest 21 (1,926) (27) (1,886)
Net income (loss) before
minority interest 340 (28,648) (639) (28,092)
Adjustments:
Real estate depreciation and
amortization:
Consolidated entities 2,277 1,571 4,521 3,059
Unconsolidated entities 253 1,122 506 2,244
Other items:
Impairment charges on real
estate properties - - 450 -
----------------------------------------
Funds from Operations before
allocation to minority
interest 2,870 (25,955) 4,838 (22,789)
Less:
Funds from Operations
allocable to minority
interest (150) 1,745 (254) 1,530
----------------------------------------
Funds from Operations
attributable to the common
shareholders $2,720 ($24,210) $4,584 ($21,259)
========================================
The following is a summary of capital expenditures for the three
and six months ended June 30, 2001 and 2000:
For the three months For the six months
Ended June 30, Ended June 30,
----------------------------------------
2001 2000 2001 2000
----------------------------------------
(in thousands)
Recurring capital expenditures:
Corporate / Administrative $ - $ - $ - $ -
Equipment Replacement - 5 - 19
Capital improvements 8 34 17 35
----------------------------------------
8 39 17 54
----------------------------------------
Major renovations 14 19 20 39
----------------------------------------
Total capital expenditures $22 $58 $37 $93
========================================
Recurring capital expenditures include those expenditure made in the
normal course of operations for corporate/administrative items and for
routine improvements to the Company's existing properties.
20
Major renovations include those expenditures which are larger in
scope than recurring capital expenditures both in dollar value and time
to complete and generally enhance the marketability and revenue producing
capacity of the property.
Summary Condensed Consolidated Financial Data of Genesis
As leases with and loans to Genesis represent a significant portion
of the Company's consolidated assets and revenues, the Company has
included certain summary condensed consolidated financial data of Genesis
for the periods presented below. The summary condensed consolidated
financial data of Genesis were obtained from Genesis' quarterly report
on Form 10-Q for the quarter ended March 31, 2001 as filed with the
Securities and Exchange Commission (the "SEC").
The Genesis financial data presented includes only the most recent
interim reporting period. The Company can make no representation as to
the accuracy and completeness of Genesis' public filings. It should be
noted that Genesis has no duty, contractual or otherwise, to advise the
Company of any events subsequent to such dates which might affect the
significance or accuracy of such information.
Genesis is subject to the information filing requirements of the
Securities and Exchange Act of 1934, as amended, and in accordance
therewith, is obligated to file periodic reports, proxy statements and
other information with the SEC relating to its business, financial
condition and other matters. Such reports, proxy statements and other
information may be inspected at the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an
Internet web site that contains reports, proxy statements and other
information regarding issuers, like Genesis, that file electronically
with the SEC. The address of that site is http://www.sec.gov.
The following table sets forth certain summary unaudited condensed
consolidated financial data for Genesis as of and for the periods indicated.
Genesis consolidates the results of Multicare, in which Genesis has a
43.6% interest. The non-Genesis shareholders' remaining 56.4% in
Multicare is recorded as minority interest.
21
For the three months For the six months
ended March 31, ended March 31,
-------------------------------------------
2001 2000 2001 2000
-------------------------------------------
(in thousands, except per share data)
Operations Data
- ---------------------------------------
Net revenues $630,082 $604,843 $1,259,101 $1,191,727
Debt restructuring, reorganization
and other costs 13,997 36,393 28,206 44,113
Gain on sale of assets - - 1,770 -
Loss on sale of assets 2,310 - 2,310 -
Multicare joint venture restructuring
charge - - - 420,000
Depreciation and amortization 26,461 29,037 53,387 58,155
Lease expense 9,096 9,486 18,501 19,013
Interest expense, net 31,613 56,726 65,767 109,502
Loss before income taxes, minority
interest, equity in net loss of
unconsolidated affiliates, and
cumulative effect of accounting
change (29,047) (58,112) (51,953) (503,783)
Income tax benefit - 8,455 - 15,735
Loss before minority interest, equity
in net loss of unconsolidated
affiliates and cumulative effect of
accounting change (29,047) (49,657) (51,953) (488,048)
Minority interest 3,573 6,100 5,168 13,027
Loss before cumulative effect of
accounting change (25,474) (43,557) (46,785) (475,021)
Cumulative effect of accounting
change (1) - - - (10,412)
Net Loss (25,474) (43,557) (46,785) (485,433)
Net loss available to common
shareholders (2) ($36,723) ($54,932) ($69,534) ($505,114)
Per common share data:
Basic and diluted
Loss before income tax benefit,
minority interest, equity in net
loss of unconsolidated affiliates
and cumulative effect of accounting
change ($0.75) ($1.13) ($1.43) ($10.87)
Net loss ($0.75) ($1.13) ($1.43) ($11.10)
Weighted average shares common stock
and equivalents 48,641,456 48,640,162 48,641,456 45,498,085
_______________
(1) Cumulative effect of accounting change relates to October 1, 1999
adoption of American Institute of Certified Public Accountant's
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities," which requires start-up costs to be expensed as incurred.
(2) Net loss reduced by preferred stock dividends.
March 31, September 31,
--------------------------
2001 2000
--------------------------
(dollars in thousands)
Balance Sheet Data
- ----------------------------------------------
Working capital $ 274,382 $ 304,241
Total assets 3,083,802 3,127,899
Long-term debt 15,064 10,441
Liabilities subject to compromise 2,420,124 2,446,673
Shareholders' deficit ($ 315,060) ($ 246,926)
22
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company provides fixed rate mortgage loans to operators of
healthcare facilities as part of its normal operations. The Company
also has mortgages and bonds payable which bear interest at fixed rates.
Changes in interest rates generally affect the fair market value of the
underlying fixed interest rate loans receivable or payable, but not
earnings or cash flows. Refer to the Company's annual report on Form
10-K for the year ended December 31, 2000 for discussion of the market
risk associated with these financial instruments.
For variable rate debt, changes in interest rates generally do not
impact fair market value, but do affect future earnings and cash flows.
The weighted average interest rate on borrowings outstanding under the
Bank Credit Facility and variable rate mortgages was 7.20% at June 30,
2001. Assuming the Bank Credit Facility and variable rate mortgage
balances outstanding at June 30, 2001 of $66.0 million, net of $343,000
discount, remains constant, each one percentage point increase in interest
rates from 7.20% at June 30, 2001 would result in an increase in interest
expense for the next twelve months of approximately $660,000. Amounts
outstanding under the Bank Credit Facility bear interest at 3.25% over
one-month LIBOR. Variable rate mortgages bear interest at 3.00% over
one-month LIBOR.
The Company is exposed to market risks related to fluctuations in
interest rates on its Bank Credit Facility and variable rate mortgages.
The Company utilized interest rate cap provisions within some of its
binding agreements to limit the impact that interest rate fluctuations
have on its variable rate mortgages. The interest rate cap provisions
embedded in the basic lending agreement do not meet the criteria for
separate fair value accounting under SFAS No. 133. The Company does
not utilize interest rate swaps, forward or option contracts on foreign
currencies or commodities, or any other type of derivative financial
instrument.
The Company may borrow additional money with variable interest rates
in the future. Increases in interest rates, therefore, would result in
increases in interest expense, which could adversely affect the Company's
cash flow and its ability to pay its obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- - Liquidity and Capital Resources."
PART II - OTHER INFORMATION
ITEM 3. Defaults Upon Senior Securities
The Company is in default on four mortgages totaling approximately
$25.5 million for failure to meet certain technical requirements,
including property information requirements and the bankruptcy filing
by Genesis. If the Company is unable to obtain waivers of the failed
covenants, the lenders could exercise their rights to accelerate the
related indebtedness or foreclose on the underlying collateral
immediately. Based, in part, on the Company's favorable payment history,
the Company believes that the lenders will take no action in regard to
these technical defaults.
23
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 22, 2001.
At the meeting, shareholders elected two trustees.
The following nominees for trustee, who were each elected for a
term of three years and until their successors are duly elected and
qualified, received the following votes at the meeting:
For Withhold Authority
------------------ ------------------
Michael R. Walker 5,860,487 116,972
Harold L. Zuber, Jr. 5,886,025 91,434
In addition, the term of office of each of the following trustees
continued after the meeting: John G. Foos, D. Lee McCreary, Jr. and
Rodman W. Moorhead, III.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed with this report are listed in the exhibit index
on page 26.
(b) Reports on Form 8-K
None
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized on August 14, 2001.
ELDERTRUST
/s/ D. Lee McCreary, Jr.
-------------------------
D. Lee McCreary, Jr.
President, Chief Executive Officer,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
25
EXHIBIT INDEX
Exhibit No. Description
- ----------- ----------------
11.1 Computation of basic and diluted income (loss) per share
for the three and six months ended June 30, 2001 and 2000.
26
EXHIBIT 11.1
COMPUTATION OF BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
The following calculation is submitted in accordance with
requirements of the Securities Exchange Act of 1934:
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Basic income (loss) per share:
- ------------------------------
Net income (loss) $319 ($26,722) ($612) ($26,206)
Weighted average common
shares outstanding 7,119 7,119 7,119 7,119
========= ========= ========= =========
Basic net income (loss)
per share $0.04 ($3.75) ($0.09) ($3.68)
========= ========= ========= =========
Diluted loss per share:
- ------------------------------
Net income (loss) $319 ($26,722) ($612) ($26,206)
Weighted average common
shares outstanding 7,119 7,119 7,119 7,119
Common stock equivalents -
stock options & warrants 418 - - -
--------- --------- --------- ---------
Total weighted average
number of diluted shares 7,537 7,119 7,119 7,119
========= ========= ========= =========
Diluted net income (loss)
per share $0.04 ($3.75) ($0.09) ($3.68)
========= ========= ========= =========
27