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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2000 Commission File No. 1-8923
HEALTH CARE REIT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1096634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One SeaGate, Suite 1500, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(419) 247-2800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $1.00 par value New York Stock Exchange
8.875% Series B Cumulative New York Stock Exchange
Redeemable Preferred Stock
Securities registered pursuant to Section 12(g) of the Act:
None
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; and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]
The aggregate market value of voting common stock held by non-affiliates of the
Registrant on March 21, 2001 was $582,928,000 based on the reported closing
sales price of such shares on the New York Stock Exchange for that date. As of
March 21, 2001, there were 28,879,061 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the annual
shareholders' meeting to be held May 3, 2001, are incorporated by reference into
Part III.
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HEALTH CARE REIT, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business......................................................... 3
Item 2. Properties.......................................................10
Item 3. Legal Proceedings................................................11
Item 4. Submission of Matters to a Vote of Security Holders..............11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................11
Item 6. Selected Financial Data..........................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......16
Item 8. Financial Statements and Supplementary Data......................17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................33
PART III
Item 10. Directors and Executive Officers of the Registrant...............33
Item 11. Executive Compensation...........................................33
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................33
Item 13. Certain Relationships and Related Transactions...................33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................................34
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PART I
ITEM 1. BUSINESS
GENERAL
Health Care REIT, Inc. (the "Company") is a self-administered real estate
investment trust that invests in health care facilities, primarily nursing homes
and assisted living facilities. The Company also invests in specialty care
facilities. As of December 31, 2000, long-term care facilities, which include
nursing homes and assisted living facilities, comprised approximately 92% of the
investment portfolio. Founded in 1970, the Company was the first real estate
investment trust to invest exclusively in health care facilities.
As of December 31, 2000, the Company had $1,139,225,000 of real estate
investments, inclusive of credit enhancements, in 205 facilities located in 34
states and managed by 38 different operators. At that date, the portfolio
included 150 assisted living facilities, 47 nursing homes, six specialty care
facilities, and two behavioral care facilities. At December 31, 2000, the
Company had approximately $14,663,000 in unfunded commitments.
The Company's primary objectives are to protect shareholders' capital and
enhance shareholder value. The Company seeks to pay consistent cash dividends to
shareholders and create opportunities to increase dividend payments from annual
increases in rental and interest income and portfolio growth. To meet these
objectives, the Company invests primarily in long-term care facilities managed
by experienced operators and diversifies its investment portfolio by operator
and geographic location.
The Company anticipates investing in additional health care facilities through
operating lease arrangements with, and mortgage financings for, qualified health
care operators. Capital for future investments may be provided by borrowing
under the Company's revolving credit facilities, public offerings or private
placements of debt or equity, and the assumption of secured indebtedness.
PORTFOLIO OF PROPERTIES
The following table reflects the diversification of the Company's portfolio as
of December 31, 2000:
Percentage Number Number Investment Number Number
Type of Investments of of of Beds/ Per Bed/ of of
Facility (1) Portfolio Facilities Units Unit(2) Operators(3) States(3)
-------- --- --------- ---------- ----- -------- ------------- ----------
(In thousands)
Assisted Living
Facilities $ 749,333 66% 150 10,150 $75,271 23 29
Nursing Homes 299,365 26% 47 6,625 45,187 15 14
Specialty Care
Facilities 82,918 7% 6 708 117,186 3 5
Behavioral Care
Facilities 7,609 1% 2 294 25,881 1 1
--------- ----- --- ------ -------
Totals $1,139,225 100% 205 17,777
========== ==== === ======
- --------------------------
(1) Investments include real estate investments and credit enhancements which
amounted to $1,127,280,000 and $11,945,000, respectively.
(2) Investment Per Bed/Unit was computed by using the total investment amount of
$1,153,888,000 which includes real estate investments, unfunded commitments
for which initial funding has commenced, and credit enhancements which total
$1,127,280,000, $14,663,000 and $11,945,000, respectively.
(3) The Company has investments in properties located in 34 states, managed by
38 different operators.
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Nursing Homes
Skilled nursing facilities provide inpatient skilled nursing and custodial
services as well as rehabilitative, restorative and transitional medical
services. In some instances, nursing facilities supplement hospital care by
providing specialized care for medically complex patients whose conditions
require intense medical and therapeutic services, but who are medically stable
enough to have these services provided in facilities that are less expensive
than acute care hospitals.
Assisted Living Facilities
Assisted living facilities provide services to aid in everyday living, such as
bathing, meals, security, transportation, recreation, medication supervision and
limited therapeutic programs. More intensive medical needs of the resident are
often met within assisted living facilities by home health providers, close
coordination with the resident's physician and skilled nursing facilities.
Assisted living facilities represent lower cost, less institutional alternatives
for the health problems of the elderly or medically frail.
Specialty Care Facilities
Specialty care facilities provide specialized inpatient services for specific
illnesses or diseases, including, among others, coronary and cardiovascular
services. Specialty care facilities are lower cost alternatives to acute care
hospitals.
Behavioral Care Facilities
Behavioral care facilities offer comprehensive inpatient and outpatient
psychiatric treatment programs. Programs are tailored to the individual and
include individual, group and family therapy.
INVESTMENTS
The Company invests in income producing health care facilities with a primary
focus on long-term care facilities, which include skilled nursing facilities and
assisted living facilities. The Company also invests in specialty care
facilities. The Company intends to continue to diversify its investment
portfolio by operator and geographic location.
In determining whether to finance a facility, the Company focuses on: (a) the
experience of the operator; (b) the financial and operational feasibility of the
property; (c) the financial strength of the borrower or lessee; (d) the security
available to support the financing; and (e) the amount of capital committed to
the property by the borrower or lessee. Management conducts market research and
analysis for all potential investments. In addition, Management reviews the
value of all properties, the interest rates and debt service coverage
requirements of any debt to be assumed and the anticipated sources for repayment
for such debt.
The Company's investments primarily take the form of operating lease
transactions and permanent mortgage loans. Construction financing is provided,
but only as a part of a permanent operating lease or mortgage financing.
Substantially all of the Company's investments are designed with escalating rate
structures. The Company's policy is to structure long term financings to
maximize returns. Depending upon market conditions, the Company believes that
appropriate new investments will be available in the future with substantially
the same spreads over its costs of borrowing.
Operating leases and mortgage loans are normally secured by guarantees and/or
letters of credit. As of December 31, 2000, letters of credit from commercial
banks and cash deposits aggregating $30,767,000 were available to the Company as
security for operating lease and mortgage loan obligations. In addition, the
leases and loans are generally cross-defaulted and the loans are
cross-collateralized with any other mortgage loans, leases, or other agreements
between the operator or any affiliate of the operator and the Company.
The Company typically finances up to 90% of the appraised value of a property.
Economic terms normally include annual rate increases and fair market value
based purchase options in operating leases, and may include contingent interest
for mortgage loans.
The Company monitors its investments through a variety of methods, which are
determined by the type of health care facility and operator. The monitoring
process includes a review and analysis of facility, borrower or lessee, and
guarantor financial statements; periodic site visits; property reviews; and
meetings with operators. Such reviews of operators and facilities generally
encompass licensure and regulatory compliance materials and reports,
contemplated building improvements and other material developments.
For certain investments, the Company receives warrants or other similar equity
instruments that provide the Company with an opportunity to share in an
operator's enterprise value. As of December 31, 2000, the Company had warrants
from 14 operators to purchase their common stock or partnership interest. None
of the warrants are publicly traded.
In connection with investments in two operators, the Company also received
warrants that were converted into shares of common stock. As of December 31,
2000, those shares of common stock were recorded on the Company's balance sheet
at a value of $130,000.
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Operating Leases
Each facility, which includes the land, buildings, improvements and related
rights (the "Leased Properties") owned by the Company is leased to a health care
provider pursuant to a long-term lease (collectively, the "Leases"). The Leases
generally have a fixed term of 10 to 15 years and contain multiple five to
10-year renewal options. Each Lease is a triple net lease requiring the lessee
to pay rent and all additional charges incurred in the operation of the Leased
Property. The lessees are required to repair, rebuild and maintain the Leased
Properties.
The net value of the Company's completed leased properties aggregated
approximately $792,011,000 at December 31, 2000. The base rents range from
approximately 8.0% to 16.1% per annum of the Company's net book value in the
leased properties. The rental yield to the Company from Leases depends upon a
number of factors including the initial rent charged, any rental adjustments and
the amount of the commitment fee charged at the inception of the transaction.
The base rents for the renewal periods are generally fixed rents set at a spread
above the Treasury yield for the corresponding period.
Permanent Mortgage Loans
The Company's investments in permanent mortgage loans are structured to provide
the Company with interest income, principal amortization and commitment fees.
Virtually all of the approximately $301,321,000 of permanent mortgage loans as
of December 31, 2000, were first mortgage loans.
The interest rate on the Company's investments in permanent mortgage loans for
operating facilities ranges from 8.7% to 14.6% per annum on the outstanding
balances. The yield to the Company on permanent mortgage loans depends upon a
number of factors, including the stated interest rate, average principal amount
outstanding during the term of the loan, the amount of the commitment fee
charged at the inception of the loan and any interest rate adjustments.
The permanent mortgage loans for operating facilities made through December 31,
2000, are generally subject to seven to 10-year terms with 25-year amortization
schedules that provide for a balloon payment of the outstanding principal
balance at the end of the term. Generally, the permanent mortgage loans provide
five to seven years of prepayment protection.
Construction Financing
The Company provides construction financing that by its terms converts either
into a long-term operating lease or mortgage loan upon the completion of the
facility. Generally, the rates on the outstanding balances of the Company's
construction financings are 225 to 350 basis points over the prime rate of a
specified financial institution. The Company also typically charges a commitment
fee at the commencement of the financing. The construction financing period
commences upon funding and terminates upon the earlier of the completion of
development of the applicable facility or the end of a specified period,
generally 12 to 18 months. During the term of the construction financing, funds
are advanced pursuant to draw requests made by the operator in accordance with
the terms and conditions of the applicable financing agreement, which terms
require, among other things, a site visit by a Company representative prior to
the advancement of funds. Monthly payments are made on the total amount of the
proceeds advanced during the development period.
During the construction financing period, the Company generally requires
additional security and collateral in the form of either payment and performance
bonds and/or completion guarantees by either one, or a combination of, the
operator's parent entity, other affiliates of the operator, or one or more of
the individual principals of the operator.
At December 31, 2000, the Company had outstanding construction financings of
$16,028,000 ($11,976,000 leased properties and $4,052,000 mortgage loans) and
was committed to providing additional financing of approximately $14,663,000 to
complete construction.
Subdebt Investments
Subdebt investments represent debt instruments in operators of facilities that
have been financed by the Company. Generally, these instruments are for five to
seven-year terms with interest at 11% to 15%. At December 31, 2000, the Company
had provided subdebt financing to six operators.
Equity Investments
Management determines the appropriate classification of an equity investment at
the time of acquisition and reevaluates such designation as of each balance
sheet date. At December 31, 2000, equity investments included the common stock
of a corporation, and ownership representing a 31% interest in Atlantic
Healthcare Finance L.P., a property investment group that specializes in the
financing, through sale and leaseback transactions, of nursing homes located in
the United Kingdom and continental Europe.
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BORROWING POLICIES
The Company may arrange for long-term borrowing from banks, private placements
to institutional investors, or public offerings. For other short-term purposes,
the Company may, from time to time, negotiate lines of credit, or arrange for
other short-term borrowing from banks or others.
In addition, the Company may incur mortgage indebtedness on real estate that it
has acquired through purchase, foreclosure or otherwise. When terms are deemed
favorable, the Company may invest in properties subject to existing loans and
mortgages. In addition, the Company may obtain financing for unleveraged
properties in which it has invested or may refinance properties acquired on a
leveraged basis.
Under documents pertaining to existing indebtedness, the Company is subject to
various restrictions with respect to secured and unsecured indebtedness.
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for possible loan losses that is evaluated
quarterly to determine its adequacy. See Notes 1 and 5 of Notes to Financial
Statements. At December 31, 2000, the total allowance of $5,861,000 was not
allocated to any specific properties. The Company believes that its allowance is
adequate.
COMPETITION
The Company competes with other real estate investment trusts, real estate
partnerships, banks, insurance companies and other investors in the acquisition,
leasing and financing of health care facilities.
The operators of the facilities compete on a local and regional basis with
operators of facilities that provide comparable services. Operators compete for
patients and residents based on a number of factors, including quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price.
EMPLOYEES
As of December 31, 2000, the Company employed 22 full-time employees.
CERTAIN GOVERNMENT REGULATIONS
The Company invests in assisted living facilities (approximately two-third of
investments), nursing facilities (approximately one-quarter of investments) and
hospitals. All of these are single purpose health care facilities. The Company's
customers must comply with the licensing requirements of federal, state and
local health agencies, and with the requirements of municipal building codes,
health codes, and local fire departments. In granting and renewing a facility's
license, the state health agency considers, among other things, the physical
buildings and equipment, the qualifications of the administrative personnel and
clinical staffs, the quality of health care programs and compliance with
applicable laws.
The remainder of the discussion in this section relates to only nursing
facilities and hospitals. Nursing facilities and hospitals receive a substantial
portion of their revenues from the federal Medicare program and state Medicaid
programs; therefore, the Company's revenues may be indirectly affected by
changes in these programs. The amount of program payments can be changed by
legislative or regulatory actions and by determinations by agents for the
programs. Since Medicaid programs are funded by both the states and the federal
government, the amount of payments can be affected by changes at either the
state or federal level. There is no assurance that payments under these programs
will remain at levels comparable to present levels or be sufficient to cover
costs allocable to these patients.
Under Medicare and Medicaid programs, acute care hospitals are generally paid a
fixed amount per discharge (based on the patient's diagnosis) for inpatient
services. Behavioral and rehabilitation hospitals are generally paid on a cost
basis, subject to limitations based on a "target amount" per discharge. The
target amount is based on updates to the facility's costs per discharge in a
base year. Medicare payment rules for such hospitals were changed effective
October 1, 1997, to further limit reimbursable costs, reduce payment incentives
for providers whose costs are below the target amount, and reduce
capital-related payments by 15%. The target amount for any facility is now
capped at the 75th percentile of the target amounts for facilities of the same
type. For new facilities, the target is 110% of the median costs per discharge
of similar hospitals. In addition, the target amount update is set at 0% for
federal fiscal 1998. Depending on how the facility's costs per discharge compare
to its target amount, increases thereafter range from 0% to the "market basket"
percentage reflecting the inflation rate for costs of items purchased by similar
facilities.
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In addition, payments to rehabilitation hospitals and units will be based on
fixed rates per discharge that vary according to the nature of the patient's
condition. The new system is being phased in over three years beginning with the
cost reporting year commencing after October 1, 2000.
Medicare and Medicaid programs have traditionally reimbursed nursing facilities
for the reasonable direct and indirect allowable costs incurred in providing
routine services (as defined by the programs), subject to certain cost ceilings.
In 1998, the Medicare cost-based reimbursement system was replaced by a federal
per diem rate based on the patient's condition, to be phased in over three
years. New facilities were immediately paid based on the federal rate. The new
per diem rate is the sole payment for both direct nursing care ("Part A
services") and ancillary services that were previously billed separately from
the cost-based reimbursement system ("Part B services"). Capital costs are also
included in the per diem rate. Many states have also converted to a system based
on prospectively determined fixed rates, which may be based in part on
historical costs. The operations of long-term care companies have been
negatively impacted by these changes in reimbursement, among other factors. Some
of these companies have filed for bankruptcy protection. In 1999 and the first
half of 2000, approximately 11% of nursing facilities in the United States filed
for bankruptcy protection. A reduction in revenues could result in bankruptcy
filings by significant customers of the Company. Furthermore, any failure by
these customers to effectively conduct their operations could have a material
adverse effect on their business reputation or on their ability to enlist and
maintain patients in their facilities.
On December 21, 2000, the President signed legislation that provides additional
payments for certain Medicare providers. The estimated increase in payments to
skilled nursing facilities is $1.6 billion over 5 years.
Until 1997, state Medicaid programs were required to pay hospitals and nursing
facilities based on rates that were reasonable and adequate to meet the costs
that must be incurred by efficiently and economically operated facilities in
order to provide services in conformity with federal and state standards and to
assure reasonable access to patients. This law restricted the ability of the
states to reduce Medicaid payments. Congress repealed this requirement in 1997.
Under the new law, states need only publish the methodology used to develop the
proposed rates, along with a justification for the methodology, and allow public
comment. This change could result in reduced Medicaid payments to facilities
operated by the Company's customers.
Medicare and Medicaid regulations could adversely affect the resale value of the
Company's health care facilities. Medicare regulations provide that effective
December 1, 1997, when a facility changes ownership (by sale or under certain
lease transactions), reimbursement for depreciation and interest will be based
on the cost to the owner of record as of August 5, 1997, less depreciation
allowed. Previously, the buyer would use its cost of purchase up to the original
owner's historical cost before depreciation. Medicaid regulations allow a
limited increase in the valuation of nursing facilities (but not hospitals)
during the time the seller owned the facility. Other Medicaid regulations
provide that upon resale, facilities are responsible to pay back prior
depreciation reimbursement payments that are "recaptured" as a result of the
sale.
Recent interpretations of the Medicare laws limit the ability of hospitals and
nursing facilities to be reimbursed for interest costs that are deemed to be
unnecessary because the facilities have other funds derived from patient care
activities that were put to other uses (such as investments) or transferred to
related parties. This could reduce reimbursement to Company customers for
interest on loans from the Company.
Health care facilities that participate in Medicare or Medicaid must meet
extensive program requirements, including physical plant and operational
requirements, which are revised from time to time. Such requirements may include
a duty to admit Medicare and Medicaid patients, limiting the ability of the
facility to increase its private pay census beyond certain limits. Medicare and
Medicaid facilities are regularly inspected to determine compliance, and may be
excluded from the programs--in some cases without a prior hearing--for failure
to meet program requirements.
Under the Medicare program, "peer review organizations" have been established to
review the quality and appropriateness of care rendered by health care
providers. These organizations may not only deny claims that fail to meet their
criteria, but can also fine and/or recommend termination of participation in the
program.
Changes in the Medicare and Medicaid programs will likely result in increased
use of "managed care" organizations to meet the needs of program beneficiaries.
These organizations selectively contract with health care facilities, resulting
in some facilities being excluded from the ability to serve program
beneficiaries.
Health care facilities also receive a substantial portion of their revenues from
private insurance carriers, health maintenance organizations, preferred provider
organizations, self-insured employees and other health benefit payment
arrangements. Such payment sources increasingly pay facilities under contractual
arrangements that include a limited panel of providers and/or discounted or
other special payment arrangements, including arrangements that shift the risk
of high utilization to the providers. A number of states have established
rate-setting agencies that control inpatient health care facility rates,
including private pay rates.
Recent federal legislation substantially expanded activities to enforce laws
against fraud and abuse in federally funded health care programs. These laws
prohibit misrepresentations in billings and cost reports, payments to parties
who influence purchases or referrals of covered services, and provision of
unnecessary services.
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In order to meet a federal requirement, most states required providers to obtain
certificates of need prior to construction of inpatient facilities and certain
outpatient facilities. However, in 1987, the federal requirement was repealed.
Some states have repealed these requirements, which may result in increased
competition, and other states are considering similar repeals.
Nursing facilities compete with other sub-acute care providers, including
rehabilitation centers and hospitals. Many of these providers have underutilized
facilities and are converting some or all of their facilities into nursing
facilities. Some of these entities operate on a tax-exempt basis, which gives
them a capital cost advantage. Furthermore, some states have granted rest homes
the ability to provide limited nursing care services.
Certain states have adopted pre-admission screening and other programs to
promote utilization of outpatient and home-based services as an alternative to
inpatient facility services. Recent changes in Medicaid regulations allow states
to use Medicaid funding for alternatives to traditional inpatient care,
including home health care and assisted living facilities.
TAXATION
General
A corporation, trust or association meeting certain requirements may elect to be
treated as a "real estate investment trust." Beginning with its first fiscal
year and in all subsequent years, the Company has elected to be treated as a
real estate investment trust under Sections 856 to 860, inclusive, of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company intends to
operate in such manner as to continue to qualify as a real estate investment
trust for federal income tax purposes. No assurance can be given that the actual
results of the Company's operations for any one taxable year will satisfy such
requirements.
To qualify as a real estate investment trust, the Company must satisfy a variety
of complex requirements each year, including organizational and stock ownership
tests and percentage tests relating to the sources of its gross income, the
nature of its assets and the distribution of its income.
Generally, for each taxable year during which the Company qualifies as a real
estate investment trust, it will not be taxed on the portion of its taxable
income (including capital gains) that is distributed to shareholders. Any
undistributed income or gains will be taxed to the Company at regular corporate
tax rates. Any undistributed net long-term capital gains taxed to the Company
will be treated as having been distributed to the shareholders and will be
included by them in determining the amount of their capital gains. The tax paid
by the Company on those gains will be allocated among the shareholders and may
be claimed as a credit on their tax returns. The shareholders will receive an
increase in the basis of their shares in the Company equal to the difference
between the capital gain income and the tax credit allocated to them. The
Company will be subject to tax at the highest corporate rate on its net income
from foreclosure property, regardless of the amount of its distributions. The
highest corporate tax rate is currently 35%. The Company may elect to treat any
real property it acquires by foreclosure as foreclosure property. This would
permit the Company to hold such property until the end of the third taxable year
following the year of acquisition without adverse consequences. With the consent
of the Treasury Department, this period can be extended for up to three
additional taxable years. Subject to certain limitations, the Company will also
be subject to an additional tax equal to 100% of the net income, if any, derived
from prohibited transactions. A prohibited transaction is defined as a sale or
disposition of inventory-type property or property held by the Company primarily
for sale to customers in the ordinary course of its trade or business, which is
not property acquired on foreclosure.
The Company is subject to a nondeductible federal excise tax equal to 4% of the
amount, if any, by which 85% of its ordinary income plus 95% of its capital gain
net income (plus distribution deficiencies from prior years) exceeds
distributions actually paid or treated as paid to shareholders during the
taxable year, plus current year income upon which the Company pays tax and any
overdistribution from prior years. Primarily as a result of large capital gains
from the exercise of purchase options under leases, the Company did not satisfy
this requirement in 1998 and incurred an excise tax of approximately $315,000 in
that year. This requirement was met for 1999 and 2000.
Failure To Qualify
While the Company intends to operate so as to qualify as a real estate
investment trust under the Code, if in any taxable year the Company fails to
qualify, and certain relief provisions do not apply, its taxable income would be
subject to tax (including alternative minimum tax) at corporate rates. If that
occurred, the Company might have to dispose of a significant amount of its
assets or incur a significant amount of debt in order to pay the resulting
federal income tax. Further distributions to its stockholders would not be
deductible by the Company nor would they be required to be made.
Distributions out of the Company's current or accumulated earnings and profits
would be taxable to stockholders as dividends and would be eligible for the
dividends received deduction for corporations. No portion of any distributions
would be eligible for designation as a capital gain dividend. Further, the
Company would be unable to pass through its undistributed capital gains and the
related tax paid by the Company.
Unless entitled to relief under specific statutory provisions, the Company also
would be disqualified from taxation as a real estate investment trust for the
four taxable years following the year during which qualification was lost.
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Recent Legislation
The Tax Relief Extension Act of 1999 included several modifications to the
provisions of the Code governing the taxation of real estate investment trusts.
Effective for tax years beginning after December 31, 2000, a REIT may not own
more than ten percent of the outstanding voting securities of any issuer or more
than ten percent of the total value of the outstanding securities of any issuer.
Certain types of securities are not subject to these limitations and the
limitations do not apply to certain securities owned on or before July 12, 1999.
The revised asset limitation test must be satisfied at the end of each calendar
quarter. The Company is currently in the process of reviewing its investment
portfolio for compliance with these new standards. If it is determined that
certain investments of the Company do not satisfy these tests, the terms of
those investments will be restructured so that they do comply or a sufficient
portion of those investments will be disposed of prior to March 31, 2001 to
enable the Company to continue complying with the asset limitation tests.
The foregoing is only a summary of some of the significant federal income tax
considerations affecting the Company and is qualified in its entirety by
reference to the applicable provisions of the Code, the rules and regulations
promulgated thereunder, and the administrative and judicial interpretations
thereof. Stockholders of the Company are urged to consult their own tax advisors
as to the effects of these rules and regulations on them. In particular, foreign
stockholders should consult with their tax advisors concerning the tax
consequences of ownership of shares in the Company, including the possibility
that distributions with respect to the shares will be subject to federal income
tax withholding.
SUBSIDIARIES AND AFFILIATES
The Company has formed subsidiaries in connection with its real estate
transactions. As of December 31, 2000, the Company's wholly-owned subsidiaries
consisted of the following entities:
STATE OF ORGANIZATION DATE OF
NAME OF SUBSIDIARY AND TYPE OF ENTITY ORGANIZATION
- ------------------ ------------------ ------------
HCRI Pennsylvania Properties, Inc. Pennsylvania corporation November 1, 1993
HCRI Overlook Green, Inc. Pennsylvania corporation July 9, 1996
HCRI Texas Properties, Inc. Delaware corporation December 27, 1996
HCRI Texas Properties, Ltd. Texas limited partnership December 30, 1996
Health Care REIT International, Inc. Delaware corporation February 11, 1998
HCN Atlantic GP, Inc. Delaware corporation February 20, 1998
HCN Atlantic LP, Inc. Delaware corporation February 20, 1998
HCRI Nevada Properties, Inc. Nevada corporation March 27, 1998
HCRI Southern Investments I, Inc. Delaware corporation June 11, 1998
HCRI Louisiana Properties, L.P. Delaware limited partnership June 11, 1998
HCN BCC Holdings, Inc. Delaware corporation September 25, 1998
HCRI Tennessee Properties, Inc. Delaware corporation September 25, 1998
HCRI Limited Holdings, Inc. Delaware corporation September 25, 1998
Pennsylvania BCC Properties, Inc. Pennsylvania corporation September 25, 1998
HCRI North Carolina Properties, LLC Delaware limited liability company December 10, 1999
HCRI Massachusetts Properties, Inc. Delaware corporation March 17, 2000
HCRI Massachusetts Properties Trust Massachusetts trust March 30, 2000
HCRI Indiana Properties, Inc. Delaware corporation June 15, 2000
HCRI Indiana Properties, LLC Indiana limited liability company June 16, 2000
HCRI Holdings Trust Massachusetts trust September 9, 2000
-9-
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ITEM 2. PROPERTIES
The Company's headquarters are currently located at One SeaGate, Suite 1500,
Toledo, Ohio 43604. The following table sets forth certain information regarding
the facilities that comprise the Company's investments as of December 31, 2000:
(In thousands)
-------------------------
Number
Number of
of Beds/ Total Annualized
Facility Location Facilities Units Investment(1) Income(2)
----------------- ---------- ----- ------------- ---------
SKILLED NURSING FACILITIES:
Arizona............................ 1 163 $ 3,827 $ 413
California......................... 1 122 5,019 620
Colorado........................... 1 180 5,915 638
Florida............................ 8 958 56,980 6,573
Idaho.............................. 3 393 21,073 2,253
Illinois........................... 2 212 13,847 1,688
Kentucky........................... 1 92 4,122 536
Massachusetts...................... 13 1,926 108,766 11,091
Missouri........................... 1 98 6,847 771
Ohio............................... 2 219 8,410 1,004
Oklahoma........................... 2 575 17,940 1,795
Oregon............................. 1 101 5,187 558
Pennsylvania....................... 4 464 23,034 3,058
Texas.............................. 7 1,122 18,397 2,385
-----------------------------------------------
Total............................. 47 6,625 299,364 33,383
ASSISTED LIVING FACILITIES:
Alabama............................ 2 149 $ 10,498 $ 997
Arizona............................ 4 464 26,446 2,766
California......................... 7 341 26,764 3,080
Colorado........................... 1 50 3,890 369
Connecticut........................ 1 62 10,364 884
Florida............................ 18 896 73,222 7,900
Georgia............................ 4 361 36,389 4,133
Illinois........................... 2 321 9,682 148
Indiana............................ 9 462 42,545 5,208
Louisiana.......................... 2 209 21,016 2,397
Maryland........................... 5 431 21,890 2,440
Massachusetts...................... 1 130 10,553 1,210
Minnesota.......................... 1 78 6,354 724
Montana............................ 2 104 9,605 1,173
Nevada............................. 3 294 27,990 3,305
New Jersey......................... 2 400 26,539 3,162
New Mexico......................... 2 158 7,554 871
New York........................... 6 723 61,639 6,813
North Carolina..................... 9 581 57,729 6,774
Ohio............................... 8 664 43,600 5,224
Oklahoma........................... 17 586 24,772 3,137
Oregon............................. 2 70 9,424 1,102
Pennsylvania....................... 4 237 19,933 2,431
South Carolina..................... 5 230 20,531 2,377
Tennessee.......................... 4 194 14,950 1,778
Texas.............................. 26 1,788 106,792 12,190
Utah............................... 1 57 7,764 849
Virginia........................... 1 64 2,345 258
Washington......................... 1 46 8,554 940
-----------------------------------------------
Total............................. 150 10,150 749,334 84,640
SPECIALTY CARE FACILITIES:
Arkansas........................... 1 84 $ 28,646 $ 3,495
California......................... 2 416 31,328 4,018
Minnesota.......................... 1 0 99 12
Texas.............................. 1 60 13,371 1,480
Washington D.C..................... 1 148 9,474 1,185
-----------------------------------------------
Total............................. 6 708 82,918 10,190
BEHAVIORAL CARE FACILITIES:
Florida............................ 2 294 $ 7,609 $ 799
-----------------------------------------------
TOTAL ALL FACILITIES:............. 205 17,777 $1,139,225 $129,012
=== ====== ========== ========
- --------------------------
(1) Investments include real estate investments and credit enhancements which
amounted to $1,127,280,000 and $11,945,000, respectively.
(2) Reflects contract rate of annual base rent or interest recognized or to be
recognized upon completion of construction.
-10-
11
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the high and low
prices of the Company's Common Stock on the New York Stock Exchange, as reported
on the Composite Tape and dividends paid per share. There were 4,944
shareholders of record as of December 31, 2000.
SALES PRICE DIVIDENDS
----------- ---------
HIGH LOW PAID
---- --- ----
2000
First Quarter....................................... $17.4375 $14.7500 $.580
Second Quarter...................................... 16.7500 13.8125 .585
Third Quarter....................................... 19.2500 16.1875 .585
Fourth Quarter...................................... 18.2500 15.9400 .585
1999
First Quarter....................................... $26.6250 $21.1875 $.560
Second Quarter...................................... 25.6250 20.7500 .565
Third Quarter ...................................... 23.8750 19.3125 .570
Fourth Quarter...................................... 20.0000 14.6875 .575
-11-
12
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
2000, are derived from the audited consolidated financial statements of the
Company.
Year Ended December 31,
-------------------------------------------------------------
(In thousands, except per share data)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
OPERATING DATA
Revenues ................................... $136,954 $129,307 $ 97,992 $ 73,308 $ 54,402
Expenses:
Interest expense ......................... 34,622 26,916 18,030 15,365 14,635
Provision for depreciation ............... 22,706 17,885 10,254 5,287 2,427
General and administrative
and other expenses (1) ................. 9,570 8,868 7,399 6,178 5,856
Loss on investment ....................... 2,000 808
-------- -------- -------- -------- --------
Total expenses ............................. 68,898 53,669 35,683 26,830 23,726
-------- -------- -------- -------- --------
Net income ................................. 68,056 75,638 62,309 46,478 30,676
Preferred stock dividends .................. 13,490 12,814 4,160
-------- -------- -------- -------- --------
Net income available to common shareholders $ 54,566 $ 62,824 $ 58,149 $ 46,478 $ 30,676
======== ======== ======== ======== ========
OTHER DATA
Average number of common shares outstanding:
Basic ................................. 28,418 28,128 25,579 21,594 14,093
Diluted ............................... 28,643 28,384 25,954 21,929 14,150
PER SHARE
Net income available to common shareholders:
Basic ................................. $ 1.92 $ 2.23 $ 2.27 $ 2.15 $ 2.18
Diluted ............................... 1.91 2.21 2.24 2.12 2.17
Cash distributions per common share ........ 2.335 2.27 2.19 2.08 2.11
----------------------------------------------------------
(In thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA
Real estate investments, net.............................. $1,121,419 $1,241,722 $1,047,511 $716,193 $512,894
Total assets.............................................. 1,156,904 1,271,171 1,073,424 734,327 519,831
Total debt................................................ 439,752 538,842 418,979 249,070 184,395
Total liabilities......................................... 458,297 564,175 439,665 264,403 194,295
Total shareholders' equity................................ 698,607 706,996 633,759 469,924 325,536
- --------------------------
(1) General and administrative and other expenses include loan expense,
provision for loan losses, and other operating expenses.
-12-
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company's net real estate investments totaled
approximately $1,121,419,000, which included 150 assisted living facilities, 47
nursing facilities, six specialty care facilities and two behavioral care
facilities. Depending upon the availability and cost of external capital, the
Company anticipates making additional investments in health care related
facilities. New investments are funded from temporary borrowings under the
Company's line of credit arrangements, internally generated cash and the
proceeds derived from asset sales. Permanent financing for future investments,
which replaces funds drawn under the line of credit arrangements, is expected to
be provided through a combination of private and public offerings of debt and
equity securities, and the assumption of secured debt. The Company believes its
liquidity and various sources of available capital are sufficient to fund
operations, meet debt service and dividend requirements, and finance future
investments.
During 2000, the underperformance of publicly owned nursing home and assisted
living companies, combined with the much publicized shift in equity funds flow
from income-oriented investments to high-growth opportunities, impaired the
stock valuations in the health care REIT sector. The availability of external
capital is limited and expensive, constraining new investment activity and
earnings growth. The Company believes the restrictive capital environment will
continue until the prospects for the long-term care industry improve.
In October 1999, the Company announced a $200 million asset divestiture program.
The limited asset dispositions were intended to strengthen the Company's
portfolio and generate liquidity, enhancing the Company's balance sheet. During
2000, the Company received $173 million as a result of the asset disposition
program. Included in these dispositions were $107 million of real property and
$66 million of mortgage loans, which generated $1.7 million in gains and
prepayment fees. These dispositions, along with cash flow from operations,
provided the Company with the funds to pay $35 million of maturing senior note
obligations, reduce the outstanding balances under the revolving line of credit
arrangements from $177.5 million to $119.9 million, and fund additional
investments.
During 2000, the Company invested $18,113,000 in real property, provided
permanent mortgage and loan financings of $5,199,000, made construction advances
of $33,957,000 and funded $15,523,000 of subdebt investments. As of December 31,
2000, the Company had approximately $14,663,000 in unfunded commitments.
During 2000, eight of the above-mentioned construction projects completed the
construction phase of the Company's investment process and were converted to
permanent real property investments, with an aggregate investment of
$61,840,000, and three construction loans converted to permanent mortgage loans
with an aggregate investment balance of $10,690,000.
As of December 31, 2000, the Company had shareholders' equity of $698,607,000
and a total outstanding debt balance of $439,752,000, which represents a debt to
total capitalization ratio of .39 to 1.00.
As of December 31, 2000, the Company had an unsecured revolving line of credit
expiring March 31, 2001, in the amount of $175,000,000 bearing interest at the
lender's prime rate or LIBOR plus 1.0%. In addition, the Company had an
unsecured revolving line of credit in the amount of $25,000,000 bearing interest
at the lender's prime rate expiring April 30, 2001.
In January 2001, the Company extended its primary revolving line of credit
through March 31, 2003. Under the terms of the extension, the total commitment
was reduced from $175 million to $150 million and the effective interest rate
was adjusted to the lender's prime rate or LIBOR plus 1.50%.
As of December 31, 2000, the Company has effective shelf registrations on file
with the Securities and Exchange Commission under which the Company may issue up
to $380,319,000 of securities including debt, convertible debt, common and
preferred stock. Depending upon market conditions, the Company anticipates
issuing securities under such shelf registrations to invest in additional health
care facilities and to repay borrowings under the Company's line of credit
arrangements.
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14
RESULTS OF OPERATIONS DECEMBER 31, 2000 VS. DECEMBER 31, 1999
Revenues were comprised of the following:
Year ended Change
---------------------------- --------------
Dec. 31, 2000 Dec. 31, 1999 $ %
------------- ------------- --------------
(in thousands)
Rental income ............ $ 88,312 $ 72,700 $ 15,612 21%
Interest income .......... 41,064 48,076 (7,012) -15%
Commitment fees and
other income ........ 5,837 6,263 (426) -7%
Prepayment fees .......... 57 1,565 (1,508) -96%
-------- -------- --------------
Totals ................... $135,270 $128,604 $ 6,666 5%
======== ======== ==============
The Company generated increased rental income as a result of the completion of
real property construction projects for which the Company began receiving rent
and the purchase of properties previously financed by the Company. This offsets
a reduction in interest income due to the repayment of mortgage loans and the
purchase of properties previously financed by the Company.
Expenses were comprised of the following:
Year ended Change
---------------------------------- --------------
Dec. 31, 2000 Dec. 31, 1999 $ %
------------- ------------- --------------
(in thousands)
Interest expense $ 34,622 $ 26,916 $ 7,706 29%
Provision for
depreciation 22,706 17,885 4,821 27%
Loss on investment 2,000 0 2,000 n/a
General and
admin. expenses 7,405 7,359 46 1%
Loan expense 1,165 909 256 28%
Provision for losses 1,000 600 400 67%
------------ ------------ --------------
Totals $ 68,898 $ 53,669 $15,229 28%
============ ============ ==============
The increase in interest expense from 1999 to 2000 was due to higher average
interest rates on the Company's line of credit and secured debt and a reduction
in the amount of capitalized interest offsetting interest expense.
The Company capitalizes certain interest costs associated with funds used to
finance the construction of properties owned directly by the Company. The amount
capitalized is based upon the borrowings outstanding during the construction
period using the rate of interest which approximates the Company's cost of
financing. The Company's interest expense is reduced by the amount capitalized.
Capitalized interest for the year ended December 31, 2000, totaled $3,079,000,
as compared with $8,578,000 for the same period in 1999.
The provision for depreciation increased as a result of additional investment in
properties owned directly by the Company.
In 2000, the Company restructured its investments with Summerville Health Care.
As part of the restructuring agreement, Summerville agreed to permit the Company
to re-lease 10 of its 11 facilities to new operators and repaid substantially
all of the Company's subdebt investment. As part of Summerville's
recapitalization, the Company's $2 million non-yielding preferred stock
investment was substantially diluted. Accordingly, the Company wrote off its
investment in 2000, resulting in a $2 million charge.
Other items:
Year ended Change
------------------------------ -------------
Dec. 31, 2000 Dec. 31, 1999 $ %
------------- ------------- ------------
(in thousands)
Other items:
Gain on sales of
properties $ 1,684 $ 703 $ 981 140%
Preferred dividends 13,490 12,814 676 5%
As a result of the various factors mentioned above, net income available to
common shareholders was $54,566,000, or $1.91 per diluted share, for 2000 as
compared with $62,824,000, or $2.21 per diluted share, for 1999.
-14-
15
RESULTS OF OPERATIONS DECEMBER 31, 1999 VS. DECEMBER 31, 1998
Revenues for the year ended December 31, 1999, were $129,307,000 compared with
$97,992,000 for the year ended December 31, 1998, an increase of $31,315,000 or
32%. Revenue growth resulted primarily from increased operating rent income of
$30,747,000, from additional real estate investments made during the past 12 to
15 months.
Expenses for the year ended December 31, 1999, totaled $53,669,000, an increase
of $17,986,000 from expenses of $35,683,000 for the year ended December 31,
1998. The increase in total expenses for the year ended December 31, 1999, was
primarily related to an increase in interest expense, additional expense
associated with the provision for depreciation, and an increase in general and
administrative expenses.
Interest expense for the year ended December 31, 1999, was $26,916,000 compared
with $18,030,000 for the year ended December 31, 1998. The increase in interest
expense during 1999 was primarily due to the issuance in March 1999 of the
Senior Unsecured Notes due 2006, the addition of $60,000,000 borrowed under the
Secured Credit Facility and higher average borrowings under the unsecured lines
of credit during 1999, which were offset by the amount of capitalized interest
recorded in 1999.
The Company capitalizes certain interest costs associated with funds used to
finance the construction of properties owned directly by the Company. The amount
capitalized is based upon the borrowings outstanding during the construction
period using the rate of interest which approximates the Company's cost of
financing. The Company's interest expense is reduced by the amount capitalized.
Capitalized interest for the year ended December 31, 1999, totaled $8,578,000,
as compared with $7,740,000 for the same period in 1998.
The provision for depreciation for the year ended December 31, 1999, totaled
$17,885,000, an increase of $7,631,000 over the year ended 1998 as a result of
additional real property investments.
General and administrative expenses for the year ended December 31, 1999,
totaled $7,359,000, as compared with $6,114,000 for the year ended December 31,
1998. The expenses for the year ended December 31, 1999, were 5.69% of revenues
as compared with 6.24% for the year ended December 31, 1998.
Dividend payments associated with the Company's outstanding preferred stock for
the year ended December 31, 1999, totaled $12,814,000, as compared with
$4,160,000 for 1998.
As a result of the various factors mentioned above, net income available for
common shareholders for the year ended December 31, 1999, was $62,824,000, or
$2.21 per share, as compared with $58,149,000, or $2.24 per share, for the year
ended December 31, 1998.
IMPACT OF INFLATION
During the past three years, inflation has not significantly affected the
earnings of the Company because of the moderate inflation rate. Additionally,
earnings of the Company are primarily long-term investments with fixed interest
rates. These investments are mainly financed with a combination of equity,
senior notes and borrowings under the revolving lines of credit. During
inflationary periods, which generally are accompanied by rising interest rates,
the Company's ability to grow may be adversely affected because the yield on new
investments may increase at a slower rate than new borrowing costs. Presuming
the current inflation rate remains moderate and long-term interest rates do not
increase significantly, the Company believes that inflation will not impact the
availability of equity and debt financing.
-15-
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including the potential loss
arising from adverse changes in interest rates. The Company seeks to mitigate
the effects of fluctuations in interest rates by matching the term of new
investments with new long-term fixed rate borrowings to the extent possible. The
following section is presented to provide a discussion of the risks associated
with potential fluctuations in interest rates.
The Company historically borrows on its revolving lines of credit to make
acquisitions or to finance the construction of health care facilities. Then, as
market conditions dictate, the Company will issue equity or long-term fixed rate
debt to repay the borrowings under the revolving lines of credit.
A change in interest rates will not affect future earnings or cash flow on our
fixed rate debt. Interest rate changes, however, will affect the fair value of
such debt. A 1% increase in interest rates would result in a decrease in fair
value of the Company's Senior Unsecured Notes by approximately $9 million at
December 31, 2000. Changes in the interest rate environment upon maturity of
this fixed rate debt could have an affect on the future cash flows and earnings
of the Company, depending on whether the debt is replaced with other fixed rate
debt, with variable rate debt, with equity or by the sale of assets.
A change in interest rates will not affect the fair value of the Company's
variable rate debt, including its unsecured and secured revolving credit
arrangements. A 1% increase in interest rates related to this variable rate
debt, and assuming no change in the outstanding balance at year-end, would
result in increased annual interest expense of approximately $1,839,000.
The Company is subject to risks associated with debt financing, including the
risk that existing indebtedness may not be refinanced or that the terms of such
refinancing may not be as favorable as the terms of current indebtedness. The
majority of the Company's borrowings were completed pursuant to indentures or
contractual agreements which limit the amount of indebtedness the Company may
incur. Accordingly, in the event that the Company is unable to raise additional
equity or borrow money because of these limitations, the Company's ability to
acquire additional properties may be limited.
At December 31, 2000, the Company's variable interest rate debt exceeded its
variable interest rate assets, presenting an exposure to rising interest rates.
The Company may or may not elect to use financial derivative instruments to
hedge variable interest rate exposure. Such decisions are principally based on
the Company's policy to match its variable rate investments with comparable
borrowings, but is also based on the general trend in interest rates at the
applicable dates and the Company's perception of future volatility of interest
rates.
Potential Risks from Bankruptcies
The Company is exposed to the risk that its operators may not be able to meet
the rent and interest payments due the Company, which may result in an operator
bankruptcy or insolvency. Although the Company's operating lease agreements and
loans provide the Company the right to terminate an investment, evict an
operator, demand immediate repayment, and other remedies, the bankruptcy laws
afford certain rights to a party that has filed for bankruptcy or
reorganization. An operator in bankruptcy may be able to restrict the Company's
ability to collect unpaid rent or interest, and collect interest during the
bankruptcy proceeding.
The receipt of liquidation proceeds or the replacement of an operator that has
defaulted on its lease or loan could be delayed by the approval process of any
federal, state or local agency necessary for the transfer of the property or the
replacement of the operator licensed to manage the facility. In addition, the
Company may be required to fund certain expenses (e.g. real estate taxes and
maintenance) to retain control of a property. In some instances the Company may
take possession of a property, which may expose the Company to successor
liabilities. Should such events occur, the Company's revenue and operating cash
flow may be adversely affected.
OTHER INFORMATION
This document and supporting schedules may contain "forward-looking" statements
as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements (which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "should" or
comparable terms or the negative thereof), involve known and unknown risks and
uncertainties, which may cause the Company's actual results in the future to
differ materially from expected results. These risks and uncertainties include,
among others, competition in the financing of health care facilities, the
availability and cost of capital, the ability of the Company's lessees and
borrowers to make payments under their leases and loans, the ability of the
Company to attract new operators for certain facilities, the amount of any
additional investments, and regulatory and other changes in the health care
sector, as described in the Company's filings with the Securities and Exchange
Commission.
-16-
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT AUDITORS
Shareholders and Directors
Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of Health Care
REIT, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedules listed in the Index at Item 14 (a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Health Care REIT,
Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Toledo, Ohio
January 12, 2001
-17-
18
HEALTH CARE REIT, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
000 1999
----------------------------
ASSETS (IN THOUSANDS)
Real estate investments:
Real property owned
Land $ 74,319 $ 73,234
Buildings & improvements 770,660 730,337
Construction in progress 11,976 58,954
----------- -----------
856,955 862,525
Less accumulated depreciation (52,968) (35,746)
----------- -----------
Total real property owned 803,987 826,779
Loans receivable
Real property loans 301,321 401,019
Subdebt investments 21,972 19,511
----------- -----------
1,127,280 1,247,309
Less allowance for loan losses (5,861) (5,587)
----------- -----------
Net real estate investments 1,121,419 1,241,722
Other assets:
Equity investments 5,450 6,713
Deferred loan expenses 2,939 3,311
Cash and cash equivalents 2,844 2,129
Receivables and other assets 24,252 17,296
----------- -----------
35,485 29,449
----------- -----------
Total assets $ 1,156,904 $ 1,271,171
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 119,900 $ 177,500
Senior unsecured notes 255,000 290,000
Secured debt 64,852 71,342
Accrued expenses and other liabilities 18,545 25,333
----------- -----------
Total liabilities 458,297 564,175
Shareholders' equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 6,000,000 shares in 2000 150,000 150,000
and 1999 at liquidation preference
Common Stock, $1.00 par value:
Authorized - 75,000,000 shares
Issued and outstanding - 28,806,151
shares in 2000 and 28,532,419
shares in 1999 28,806 28,532
Capital in excess of par value 528,138 524,204
Undistributed/(overdistributed) net income (3,388) 8,883
Accumulated other
comprehensive income (744) 593
Unamortized restricted stock (4,205) (5,216)
----------- -----------
Total shareholders' equity $ 698,607 $ 706,996
----------- -----------
Total liabilities and shareholders' equity $ 1,156,904 $ 1,271,171
=========== ===========
See accompanying notes
-18-
19
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
2000 1999 1998
-------------- --------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Rental income $ 88,312 $ 72,700 $ 41,953
Interest income 41,064 48,076 48,488
Commitment fees and other income 5,837 6,263 5,914
Prepayment fees 57 1,565 588
-------------- --------------- ---------------
135,270 128,604 96,943
Expenses:
Interest expense 34,622 26,916 18,030
Provision for depreciation 22,706 17,885 10,254
Loss on investment 2,000
General and administrative 7,405 7,359 6,114
Loan expense 1,165 909 685
Provision for loan losses 1,000 600 600
-------------- --------------- ---------------
68,898 53,669 35,683
-------------- --------------- ---------------
Income before gain on sale of properties 66,372 74,935 61,260
Gains on sale of properties 1,684 703 1,049
-------------- --------------- ---------------
Net Income 68,056 75,638 62,309
Preferred stock dividends 13,490 12,814 4,160
-------------- --------------- ---------------
Net income available to
common shareholders $ 54,566 $ 62,824 $ 58,149
============== =============== ===============
Average number of common shares outstanding:
Basic 28,418 28,128 25,579
Diluted 28,643 28,384 25,954
Net income available to common shareholders per share:
Basic $ 1.92 $ 2.23 $ 2.27
Diluted $ 1.91 $ 2.21 $ 2.24
See accompanying notes
-19-
20
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
CAPITAL IN UNDISTRIBUTED/ OTHER UNAMORTIZED
PREFERRED COMMON EXCESS OF (OVERDISTRIBUTED)COMPREHENSIVE RESTRICTED
STOCK STOCK PAR VALUE NET INCOME INCOME STOCK TOTAL
----- ----- --------- ---------- ------ ----- -----
(In thousands, except per share data)
Balances at January 1, 1998 $ $24,341 $435,603 $ 8,841 $4,671 $(3,532) $469,924
Comprehensive income:
Net income 62,309 62,309
Other comprehensive income:
Unrealized loss on marketable securities (565) (565)
Foreign currency translation adjustment (124) (124)
---------
Total comprehensive income 61,620
--------
Proceeds from issuance of common stock
from dividend reinvestment and stock
incentive plans 440 9,986 (1,658) 8,768
Amortization of restricted stock grants 601 601
Proceeds from sale of common stock,
net of expenses of $4,599 3,459 77,893 81,352
Net proceeds from sale of preferred stock 75,000 (2,790) 72,210
Cash dividends:
Common stock -- $2.19 per share (56,556) (56,556)
Preferred stock -- $1.39 per share (4,160) (4,160)
-------- ------- --------- --------- ------ ------------- --------
Balances at December 31, 1998 75,000 28,240 520,692 10,434 3,982 (4,589) 633,759
Comprehensive income:
Net income 75,638 75,638
Other comprehensive income:
Unrealized loss on marketable securities (3,242) (3,242)
Foreign currency translation adjustment (147) (147)
---------
Total comprehensive income 72,249
--------
Proceeds from issuance of common stock
from dividend reinvestment and stock
incentive plans 292 5,967 (1,707) 4,552
Amortization of restricted stock grants 1,080 1,080
Net proceeds from sale of preferred stock 75,000 (2,455) 72,545
Cash dividends:
Common stock -- $2.27 per share (64,375) (64,375)
Preferred stock, Series B--$2.22 per share (6,656) (6,656)
Preferred stock, Series C--$2.19 per share (6,158) (6,158)
-------- ------- --------- --------- ------ ------------- --------
Balances at December 31, 1999 150,000 28,532 524,204 8,883 593 (5,216) 706,996
Comprehensive income:
Net income 68,056 68,056
Other comprehensive income:
Unrealized loss on marketable securities (733) (733)
Foreign currency translation adjustment (604) (604)
---------
Total comprehensive income 66,719
--------
Proceeds from issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures 274 3,934 (79) 4,129
Amortization of restricted stock grants 1,090 1,090
Net proceeds from sale of preferred stock
Cash dividends:
Common stock -- $2.335 per share (66,837) (66,837)
Preferred stock, Series B--$2.219 per share (6,656) (6,656)
Preferred stock, Series C--$2.27 per share (6,834) (6,834)
-------- ------- --------- --------- ------ ------------- --------
BALANCES AT DECEMBER 31, 2000 $150,000 $28,806 $528,138 $ (3,388) $ (744) $(4,205) $698,607
======== ======= ========= ========= ====== ============= ========
See accompanying notes
-20-
21
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
2000 1999 1998
----------------- ----------------- ----------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 68,056 $ 75,638 $ 62,309
Adjustments to reconcile net income to
net cash provided from operating
activities:
Provision for depreciation 22,961 18,106 10,348
Amortization 2,255 1,998 1,306
Provision for losses 1,000 600 600
Loss on investment 2,000
Loan and commitment fees earned
less than (greater than) cash received (1,960) (399) 1,222
Direct financing lease income less
than cash received 65 292
Rental income in excess of
cash received (6,732) (6,692) (3,047)
Interest income less than (greater than)
cash received (318) 378 (380)
Increase (decrease) in accrued expenses and
other liabilities (4,827) 5,045 4,133
Decrease (increase) in receivables and
other assets 264 1,394 (1,037)
------------ ------------ ----------
Net cash provided from operating activities 82,699 96,133 75,746
INVESTING ACTIVITIES
Investment in real property (46,449) (215,491) (270,015)
Investment in loans receivable (34,631) (56,089) (105,282)
Other investments, net of payments (1,828) (2,024) (20,965)
Principal collected on loans 70,567 42,731 38,629
Proceeds from sale of properties 107,182 18,112 11,378
Other (742) (444) (328)
------------ ------------ ----------
Net cash provided by (used in) investing activities 94,099 (213,205) (346,583)
FINANCING ACTIVITIES
Net increase (decrease) under line of
credit arrangements (57,600) 5,950 93,150
Borrowings under senior notes 50,000 100,000
Proceeds from issuance of Secured Debt 64,000
Principal payments on other long-term
obligations (41,491) (87) (23,241)
Net proceeds from the issuance of Common Stock 4,129 4,552 90,120
Net proceeds from the issuance of Preferred Stock 72,545 72,210
Increase in deferred loan expense (794) (1,839) (798)
Cash distributions to shareholders (80,327) (77,189) (60,716)
------------ ------------ ----------
Net cash provided from (used by) financing activities (176,083) 117,932 270,725
------------ ------------ ----------
Increase (decrease) in cash and cash equivalents 715 860 (112)
Cash and cash equivalents at beginning of year 2,129 1,269 1,381
------------ ------------ ----------
Cash and cash equivalents at end of year $ 2,844 $ 2,129 $ 1,269
============ ============ ==========
Supplemental Cash Flow Information-interest paid $ 39,638 $ 32,826 $ 23,714
============ ============ ==========
See accompanying notes
-21-
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Health Care REIT, Inc.
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES AND RELATED MATTERS
INDUSTRY
The Company is a self-administered real estate investment trust that invests
primarily in long-term care facilities, which include nursing homes and assisted
living facilities. The Company also invests in specialty care facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after the elimination of all significant
intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
LOANS RECEIVABLE
Loans receivable consist of long-term mortgage loans, construction-period loans
maturing in two years or less, working capital loans and subdebt investments.
Interest income on loans is recognized as earned based upon the principal amount
outstanding. The mortgage, construction and working capital loans are primarily
collateralized by a first mortgage on or assignment of partnership interest in
the related facilities, which consist of nursing homes, assisted living
facilities, behavioral care facilities, and specialty care hospitals. Subdebt
investments represent debt instruments to operators of facilities that have been
financed by the Company. These obligations are generally secured by the
operator's leasehold rights and corporate guaranties.
REAL PROPERTY INVESTMENTS
Substantially all of the properties owned by the Company are leased under
operating leases and are recorded at cost. These properties are depreciated on a
straight-line basis over their estimated useful lives. The carrying value of
long-lived assets is reviewed quarterly on a property by property basis to
determine if facts and circumstances suggest that the assets may be impaired or
that the depreciable life may need to be changed. The Company considers external
factors relating to each asset. If these external factors and the projected
undiscounted cash flows of the asset over the remaining amortization period
indicate that the asset will not be recoverable, the carrying value will be
adjusted to the estimated fair value. The leases generally extend for a minimum
10-year period and provide for payment of all taxes, insurance and maintenance
by the lessees. In general, operating lease income includes base rent payments
plus fixed annual rent increases, which are recognized on a straight-line basis
over the minimum lease period. This income is greater than the amount of cash
received during the first half of the lease term.
CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST
The Company capitalizes interest costs associated with funds used to finance the
construction of properties owned directly by the Company. The amount capitalized
is based upon the borrowings outstanding during the construction period using
the rate of interest, which approximates the Company's cost of financing.
The Company capitalized interest costs of $3,079,000, $8,578,000, and
$7,740,000, during 2000, 1999 and 1998, respectively, related to construction of
real property owned by the Company. The Company's interest expense reflected in
the statement of income has been reduced by the amounts capitalized.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate to
absorb potential losses in the Company's loans receivable. The determination of
the allowance is based on a quarterly evaluation of these loans, including
general economic conditions and estimated collectibility of loan payments.
-22-
23
1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED)
DEFERRED LOAN EXPENSES
Deferred loan expenses are costs incurred by the Company in connection with the
issuance of short-term and long-term debt. The Company amortizes these costs
over the term of the debt using the straight-line method, which approximates the
interest yield method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with an
original maturity of three months or less.
EQUITY INVESTMENTS
Management determines the appropriate classification of an equity investment at
the time of acquisition and reevaluates such designation as of each balance
sheet date. Equity investments included the common stock of a corporation,
valued at historical cost, and ownership representing a 31% interest in Atlantic
Healthcare Finance L.P., a property investment group that specializes in the
financing, through sale and leaseback transactions, of nursing homes located in
the United Kingdom and continental Europe. The ownership interest is accounted
for under the equity method.
MARKETABLE SECURITIES
Marketable securities available for sale are stated at market value with
unrealized gains and losses reported in a separate component of shareholders'
equity. Marketable securities reflect the market value of the common stock of
two publicly owned corporations, which were obtained by the Company at no cost.
LOAN AND COMMITMENT FEES
Loan and commitment fees are earned by the Company for its agreement to provide
direct and standby financing to, and credit enhancement for, owners of health
care facilities. The Company amortizes loan and commitment fees over the initial
fixed term of the lease, the mortgage or the construction period related to such
investments.
FEDERAL INCOME TAX
No provision has been made for federal income taxes since the Company has
elected to be treated as a real estate investment trust under the applicable
provisions of the Internal Revenue Code, and the Company believes that it has
met the requirements for qualification as such for each taxable year. See Note
10.
NET INCOME PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of shares for the period. The
computation of diluted earnings per share is similar to basic earnings per
share, except that the number of shares is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
COMPREHENSIVE INCOME
Comprehensive income includes unrealized gains or losses on the Company's
marketable securities and foreign currency translation adjustments. These items
are included as a component of shareholders' equity.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective January 1, 2001. Under the Statement, all financial instruments
meeting the definition of a derivative will be carried at fair value. The
Company currently has no derivative instruments nor has engaged in any hedging
activities that would require a change in accounting.
RECLASSIFICATIONS
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation. These reclassifications had no effect on net
income, total assets, or shareholders' equity.
-23-
24
2. LOANS RECEIVABLE
The following is a summary of loans receivable (in thousands):
DECEMBER 31
2000 1999
--------------------------------
Mortgage loans $ 275,312 $ 374,390
Construction loans 4,052 9,908
Working capital 20,720 15,221
Mortgage loans to related parties 1,237 1,500
Subdebt investments 21,972 19,511
----------- ------------
TOTALS $ 323,293 $ 420,530
=========== ============
Loans to related parties (an entity whose ownership includes one Company
director) included above are at rates comparable to other third-party borrowers
equal to or greater than the Company's net interest cost on borrowings to
support such loans. The amount of interest income and loan and commitment fees
from related parties amounted to $152,000, $914,000, and $1,160,000 for 2000,
1999 and 1998, respectively.
The following is a summary of mortgage loans at December 31, 2000 (in
thousands):
Final Number Principal
Payment of Amount at Carrying
Due Loans Payment Terms Inception Amount
- --------- ----- ------------- --------- ---------
2001 4 Monthly payments from $17,302 $ 13,462 $ 9,486
to $45,278, including interest from
10.50% to 12.50%
2002 12 Monthly payments from $19,380 52,130 51,986
to $49,973, including interest
at 9.50%
2003 1 Monthly payment at $27,884, 3,718 3,718
including interest at 9.00%
2004 1 Monthly payment at $29,755, 4,108 3,571
including interest at 10.00%
2006 5 Monthly payments from $4,534 to $96,412, 18,179 15,671
including interest from 9.68% to 12.42%
2007 5 Monthly payments from $3,592 to 20,653 13,548
$75,517, including interest from
8.72% to 12.17%
2008 2 Monthly payments from $1,429 to $92,028, 8,400 7,313
including interest from 12.17% to 14.61%
2009 2 Monthly payments from $13,680 to $71,669, 8,635 8,084
including interest from 11.49% to 12.00%
2010 3 Monthly payments from $5,579 to 20,025 18,313
$135,335, including interest from
11.07% to 12.17%
-24-
25
2. LOANS RECEIVABLE (CONTINUED)
Final Number Principal
Payment of Amount at Carrying
Due Loans Payment Terms Inception Amount
------ ----- ------------- --------- --------
2012 1 Monthly payment at $309,651, $ 29,000 $ 28,646
including interest at 12.20%
2015 8 Monthly payments from $1,195 to 29,532 28,242
$124,679, including interest from
9.13% to 14.19%
2016 4 Monthly payments from $9,827 to 26,590 24,550
$125,212, including interest from
10.96% to 14.19%
2017 4 Monthly payments from $3,033 to 33,188 31,124
$239,153, including interest from
11.43% to 14.19%
2018 1 Monthly payment at $189,746, 21,000 20,595
including interest at 9.94%
2019 2 Monthly payments from $35,683 to 8,864 8,741
$48,408, including interest from
10.52% to 10.60%
2020 1 Monthly payment at $28,345, 2,975 2,961
including interest at 10.62%
----------- -----------
TOTALS $ 300,459 $ 276,549
=========== ===========
-25-
26
3. REAL ESTATE INVESTMENTS
The following table summarizes certain information about the Company's real
estate properties as of December 31, 2000 (in thousands):
Number of Building & Total Accumulated
Facilities Land Improvements Investment Depreciation
--------------------------------------------------------------------------
NURSING HOMES:
Arizona 1 $ 180 $ 3,988 $ 4,168 $ 341
California 1 1,460 3,880 5,340 321
Colorado 1 370 6,051 6,421 506
Florida 7 4,022 50,718 54,740 3,000
Idaho 3 2,010 20,662 22,672 1,599
Illinois 2 1,010 11,446 12,456 596
Kentucky 1 130 4,870 5,000 878
Massachusetts 12 6,972 87,695 94,667 5,090
Ohio 2 786 8,778 9,564 1,155
Oklahoma 1 470 5,673 6,143 407
Oregon 1 300 5,316 5,616 429
Pennsylvania 3 669 17,567 18,236 2,375
Texas 1 663 12,588 13,251 2,713
- -----------------------------------------------------------------------------------------------------------------------------
36 19,042 239,232 258,274 19,410
- -----------------------------------------------------------------------------------------------------------------------------
ASSISTED LIVING FACILITIES:
Arizona 3 1,510 15,554 17,064 328
California 2 450 10,315 10,765 77
Connecticut 1 660 9,652 10,312 729
Florida 18 8,198 68,376 76,574 5,132
Georgia 2 3,166 24,541 27,707 1,232
Indiana 9 1,951 34,875 36,826 1,648
Louisiana 1 1,100 10,036 11,136 306
Maryland 1 1,320 13,641 14,961 825
Massachusetts 1 810 10,500 11,310 757
Minnesota 1 322 6,345 6,667 313
Montana 2 910 7,239 8,149 199
Nevada 3 2,086 26,129 28,215 1,205
New Jersey 2 4,597 23,627 28,224 1,685
New Mexico 1 233 5,355 5,588 481
New York 1 400 10,528 10,928 918
North Carolina 9 7,269 52,681 59,950 3,158
Ohio 7 3,512 31,647 35,159 2,305
Oklahoma 16 1,923 24,351 26,274 2,914
Oregon 2 1,077 8,757 9,834 409
Pennsylvania 4 1,951 17,199 19,150 753
South Carolina 5 2,072 18,912 20,984 610
Tennessee 4 1,521 12,461 13,982 532
Texas 21 6,839 83,231 90,070 6,795
Washington 1 1,400 5,476 6,876 247
Construction in Progress 3 11,976
- ------------------------------------------------- ------------- ----------- ----------------- -------------- ----------------
120 55,277 531,428 598,681 33,558
- ------------------------------------------------- ------------- ----------- ----------------- -------------- ----------------
TOTAL REAL ESTATE 156 $74,319 $ 770,660 $ 856,955 $ 52,968
- ------------------------------------------------- ------------- ----------- ----------------- -------------- ----------------
-26-
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3. REAL ESTATE INVESTMENTS (CONTINUED)
At December 31, 2000, future minimum lease payments receivable under operating
leases are as follows (in thousands):
2001 $ 83,237
2002 85,223
2003 85,975
2004 86,918
2005 88,717
Thereafter 516,905
--------
TOTAL $946,975
========
The Company converted $60,648,000, $16,309,000, and $73,430,000 of mortgage
loans into operating lease properties in 2000, 1999 and 1998, respectively. This
noncash activity is appropriately not reflected in the accompanying statements
of cash flows.
4. CONCENTRATION OF RISK
As of December 31, 2000, long-term care facilities, which include nursing homes
and assisted living facilities, comprised 92% (93% at December 31, 1999) of the
Company's real estate investments and were located in 34 states. Investments in
assisted living facilities comprised 66% (70% at December 31, 1999) of the
Company's real estate investments. The Company's investments with the three
largest operators totaled approximately 27% (28% at December 31, 1999). No
single operator has a real estate investment balance which exceeds 11% (14% at
December 31, 1999) of total real estate investments, including credit
enhancements.
5. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the allowance for loan losses (in thousands):
2000 1999 1998
------- ------- -------
Balance at beginning of year $ 5,587 $ 4,987 $ 4,387
Provision for loan losses 1,000 600 600
Charge-offs (726)
------- ------- -------
Balance at end of year $ 5,861 $ 5,587 $ 4,987
======= ======= =======
In addition, the Company recorded a $2,000,000 loss during 2000 related to an
investment in the preferred stock of a private corporation that became
substantially diluted as a result of a recapitalization of that corporation.
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS
AND RELATED ITEMS
The Company has an unsecured credit arrangement with a consortium of 10 banks
providing for a revolving line of credit ("revolving credit") in the amount of
$175,000,000, which expires on March 31, 2001. The agreement specifies that
borrowings under the revolving credit are subject to interest payable in periods
no longer than three months on either the agent bank's base rate of interest or
1.0% over LIBOR interest rate (based at the Company's option). The effective
interest rate at December 31, 2000, was 7.97%. In addition, the Company pays a
commitment fee ranging from an annual rate of 0.20% to 0.375% and an annual
agent's fee of $50,000. Principal is due upon expiration of the agreement. In
January 2001, the Company extended the revolving credit through March 31, 2003.
Under the terms of the extension, the total commitment was reduced from
$175,000,000 to $150,000,000 and the effective interest rate was adjusted to the
agent bank's base rate or 1.5% over LIBOR. The Company has another unsecured
line of credit with a bank for a total of $25,000,000, which expires April 30,
2001. Borrowings under this line of credit are subject to interest at the bank's
prime rate of interest (9.5% at December 31, 2000) and are due on demand.
-27-
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6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS (CONTINUED)
The following information relates to aggregate borrowings under the line of
credit arrangements (in thousands, except percentages):
YEAR ENDED DECEMBER 31
2000 1999 1998
---------------------------------------------------------
Balance outstanding at December 31 $ 119,900 $ 177,500 $ 171,550
Maximum amount outstanding at any
month end 185,000 180,950 171,550
Average amount outstanding (total
of daily principal balances
divided by days in year) 140,981 153,318 103,739
Weighted average interest rate
(actual interest expense divided
by average borrowings outstanding) 7.77% 6.61% 6.90%
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS
The Company has $255,000,000 of Unsecured Senior Notes with interest ranging
from 7.06% to 8.34%.
The Company has one mortgage note payable, collateralized by a health care
facility with an interest rate at 12%.
The Company has one secured note collateralized by one health care facility with
interest at 2% over LIBOR (8.62% at December 31, 2000).
The Company has a $60,000,000 secured line of credit, collateralized by 14
health care facilities, with interest at 2% over LIBOR (8.62% at December 31,
2000).
The carrying values of the health care properties securing the mortgages and
secured debt totaled $139,481,000 at December 31, 2000.
At December 31, 2000, the annual principal payments on these long-term
obligations are as follows (in thousands):
SECURED LINE OF SECURED
SENIOR NOTES CREDIT NOTE MORTGAGES
----------------- ----------------------- ------------ --------------
2001 $ 10,000 $ 0 $ 0 $ 67
2002 20,000 0 0 75
2003 35,000 0 0 84
2004 40,000 60,000 4,000 133
2005 0 0 0 493
2006 50,000 0 0 0
2007 0 0 0 0
2008 100,000 0 0 0
Thereafter 0 0 0 0
--------- --------- -------- ---------
$ 255,000 $ 60,000 $ 4,000 $ 852
========= ========= ======== =========
8. STOCK INCENTIVE PLANS AND RETIREMENT ARRANGEMENTS
The Company's 1995 Stock Incentive Plan authorized up to 2,200,000 shares of
Common Stock to be issued at the discretion of the Board of Directors. The 1995
Plan replaced the 1985 Incentive Stock Option Plan. The options granted under
the 1985 Plan continue to vest through 2005 and expire 10 years from the date of
grant. Officers and key salaried employees of the Company are eligible to
participate in the 1995 Plan. The 1995 Plan allows for the issuance of stock
options, restricted stock grants and Dividend Equivalency Rights. In addition,
during 1997, the Company adopted a Stock Plan for Non-Employee Directors, which
authorizes up to 240,000 shares to be issued.
-28-
29
8. STOCK INCENTIVE PLANS AND RETIREMENT ARRANGEMENTS (CONTINUED)
The following table summarizes the activity in the Plans for the years ended
December 31 (shares in thousands):
2000 1999 1998
---- ---- ----
AVERAGE Average Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Stock Options
- -------------
Options at beginning of year 1,813 $21.62 1,418 $22.06 1,126 $21.56
Options granted 507 16.79 410 20.17 362 23.00
Options exercised (6) 21.81 (63) 18.57
Options terminated (367) 21.76 (9) 23.90 (7) 24.90
-------- ----------- -------- ----------- -------- -----------
1,953 $20.34 1,813 $21.62 1,418 $22.06
======== =========== ======== =========== ======== ===========
At end of year:
Options exercisable 949 $21.32 733 $21.17 466 $20.83
Weighted average fair value
of options granted during the
year $ .63 $ 2.11 $ 1.98
The stock options generally vest over a five-year period and expire 10 years
from the date of grant. Options at December 31, 2000, had exercise prices
ranging from $16.38 to $27.38 per share and a weighted average contractual life
of 7.5 years.
The Company issued 77,250, 86,250, and 74,100 restricted shares during 2000,
1999 and 1998, respectively, including 8,000, 9,000 and 2,250 shares for
directors in 2000, 1999 and 1998, respectively. Vesting periods range from six
months for directors to five years for officers and key salaried employees.
Expense, which is recognized as the shares vest based on the market value at the
date of the award, totaled $1,090,000, $1,080,000, and $601,000, in 2000, 1999
and 1998, respectively.
The following table summarizes information about stock options outstanding at
December 31, 2000 (shares in thousands):
Options Outstanding Options Exerciseable
---------------------------------------------------- -----------------------------------
Weighted Average
Range of Per Share Number Weighted Average Remaining Number Weighted Average
Exercise Prices Outstanding Exercise Price Contract Life Exerciseable Exercise Price
--------------- ----------- -------------- ------------- ------------ --------------
$16-$20 1,164 $ 18.14 8.2 444 $ 18.66
$20-$25 639 23.01 6.4 402 23.03
$25-$30 150 26.08 7.2 103 26.06
------ -------- ----- ----- -------
1,953 $ 20.34 7.5 949 $ 21.32
====== ======== ===== ===== =======
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees in accounting for its employee stock options as permitted
under FASB Statement No. 123 ("FASB 123"), Accounting for Stock-Based
Compensation, and, accordingly, recognizes no compensation expense for the stock
option grants when the market price on the underlying stock on the date of grant
equals the exercise price of the Company's employee stock option.
Pro forma information has been determined as if the Company had accounted for
its employee stock options and restricted shares under the fair value method.
The pro forma disclosures are not likely to be representative of the effects on
reported net income for future years because they do not take into consideration
stock-based incentives granted prior to 1995. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following range of assumptions: risk-free interest rates from
5.10% to 7.60%, dividend yields of 8% to 12%, expected lives of seven years, and
expected volatility of .18% to .244%. Had compensation cost for the stock-based
compensation plans been determined in accordance with FASB 123, net income would
have been reduced by $267,000, $621,000, and $393,000, in 2000, 1999 and 1998,
respectively, and net income per common share would have been lower by $.01,
$.02, and $.02, in 2000, 1999 and 1998, respectively.
The Company has a 401-(k) Profit Sharing Plan covering all eligible employees.
Under the Plan, eligible employees may make contributions, and the Company may
make a profit sharing contribution. Company contributions to this Plan totaled
$171,000, $144,000, and $120,000, in 2000, 1999 and 1998, respectively.
-29-
30
9. PREFERRED STOCK
In January 1999, the Company sold 3,000,000 shares of Series C Cumulative
Convertible Preferred Stock. These shares have a liquidation value of $25.00 per
share and will pay dividends equivalent to the greater of (i) the annual
dividend rate of $2.25 per share (a quarterly dividend rate of $0.5625 per
share); or (ii) the quarterly dividend then payable per common share on an as
converted basis. The preferred shares are convertible into common stock at a
conversion price of $25.625 per share. The Company has the right to redeem the
preferred shares after five years.
In May 1998, the Company sold 3,000,000 shares of 8.875% Series B Cumulative
Redeemable Non-Voting Preferred Stock with a liquidation preference of $25.00
per share. Dividends are payable quarterly in arrears. On and after May 1, 2003,
the Preferred Stock may be redeemed for cash at the option of the Company, in
whole or in part, at $25.00 per share, plus accrued and unpaid dividends thereon
to the redemption date.
10. DISTRIBUTIONS
To qualify as a real estate investment trust for federal income tax purposes,
95% of taxable income (not including capital gains) must be distributed to
shareholders. Real estate investment trusts that do not distribute a certain
amount of current year taxable income in the current year are also subject to a
4% federal excise tax. The Company had no excise tax expense for the years ended
December 31, 2000 and 1999, and $315,000 of excise tax expense for the year
ended December 31, 1998. The principal reasons for the difference between
undistributed net income for federal income tax purposes and financial statement
purposes are the recognition of straight-line rent for reporting purposes and
the provision for losses for reporting purposes versus bad debt expense for tax
purposes. Cash distributions paid to shareholders, for federal income tax
purposes, are as follows:
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------------
Per Share:
Ordinary income $ 2.330 $ 2.217 $ 2.142
Capital gains .005 .053 .048
---------- --------- -----------
TOTALS $ 2.335 $ 2.270 $ 2.190
========== ========= ===========
11. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, the Company had outstanding commitments to provide
financing for facilities in the approximate amount of $14,663,000 for ongoing
construction activity expected over the next 12 to 15 months. The above
commitments are generally on similar terms as existing financings of a like
nature with rates of return to the Company based upon current market rates at
the time of the commitment.
The Company has agreements to purchase two health care facilities, or the loans
with respect thereto, in the event that the present owners default upon their
obligations. In consideration for these agreements, the Company receives and
recognizes fees annually related to these agreements. Although the terms of
these agreements vary, the purchase prices are equal to the amount of the
outstanding obligations financing the facility. These agreements expire through
the year 2005. In addition, the Company has an outstanding letter of credit
relating to one construction project. At December 31, 2000, obligations under
these agreements for which the Company was contingently liable aggregated
approximately $11,945,000.
12. SHAREHOLDER RIGHTS PLAN
Under the terms of a Shareholder Rights Plan approved by the Board of Directors
in July 1994, a Preferred Share Right ("Right") is attached to and automatically
trades with each outstanding share of Common Stock.
The Rights, which are redeemable, will become exercisable only in the event that
any person or group becomes a holder of 15% or more of the Common Stock, or
commences a tender or exchange offer, which, if consummated, would result in
that person or group owning at least 15% of the Common Stock. Once the Rights
become exercisable, they entitle all other shareholders to purchase one
one-thousandth of a share of a new series of junior participating preferred
stock for an exercise price of $48.00. The Rights will expire on August 5, 2004,
unless exchanged earlier or redeemed earlier by the Company for $.01 per Right
at any time before public disclosure that a 15% position has been acquired.
-30-
31
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
2000 1999 1998
---------- --------- ------
Numerator for basic and diluted earnings
per share - income available to common
shareholders $ 54,566 $ 62,824 $ 58,149
========= ========= =========
Denominator for basic earnings per
share - weighted average shares 28,418 28,128 25,579
Effect of dilutive securities:
Employee stock options 15 174
Nonvested restricted shares 225 241 201
--------- --------- ---------
Dilutive potential common shares 225 256 375
--------- --------- ---------
Denominator for diluted earnings per
share - adjusted weighted average shares 28,643 28,384 25,954
========= ========= =========
Basic earnings per share $ 1.92 $ 2.23 $ 2.27
========= ========= =========
Diluted earnings per share $ 1.91 $ 2.21 $ 2.24
========= ========= =========
The diluted earnings per share calculation excludes the dilutive effect of
1,954,000, 1,813,000, and 179,000 options for 2000, 1999 and 1998, respectively,
because the exercise price was greater than the average market price. The Series
C Cumulative Convertible Preferred Stock was not included in this calculation as
the effect of the conversion was anti-dilutive.
14. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Mortgage Loans--The fair value of all mortgage loans is estimated by discounting
the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
Subdebt Investments--The carrying amount is a reasonable estimate of fair value
based on the interest rates received, which approximates current market rates.
Cash and Cash Equivalents--The carrying amount approximates fair value because
of the short maturity of these financial instruments.
Marketable Securities--Marketable securities are recorded at their fair market
value.
Borrowings Under Line of Credit Arrangements and Secured Debt--The carrying
amount of the line of credit and secured debt approximates fair value because
the borrowings are interest rate adjustable.
Senior Unsecured Notes and Industrial Development Bonds--The fair value of the
senior unsecured notes payable was estimated by discounting the future cash flow
using the current borrowing rate available to the Company for similar debt.
Mortgage Notes Payable--Mortgage notes payable is a reasonable estimate of fair
value.
-31-
32
14. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 2000 and 1999, are as follows (in thousands):
DECEMBER 31, 2000 December 31, 1999
-------------------------------------- -----------------------------------
CARRYING Carrying
AMOUNT FAIR VALUE Amount Fair Value
-------- ---------- -------- ----------
Financial Assets:
Mortgage loans $301,321 $308,016 $401,019 $407,711
Subdebt investments 21,972 21,972 19,511 19,511
Cash and cash equivalents 2,844 2,844 2,129 2,129
Marketable securities 130 130 863 863
Financial Liabilities:
Borrowings under line of
credit arrangements 119,900 119,900 177,500 177,500
Senior unsecured notes 255,000 234,987 290,000 257,679
Secured debt 64,000 64,000 64,000 64,000
Mortgage notes payable 852 852 7,342 7,342
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations of
the Company for the years ended December 31, 2000 and 1999 (in thousands, except
per share data):
YEAR ENDED DECEMBER 31, 2000
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------------------------------------------------------------------
Revenues $ 34,828 $ 33,927 $ 33,351 $ 33,164
Net Income Available to
Common Shareholders 14,758 14,587 13,786 11,435
Net Income Available to
Common Shareholders
Per Share
Basic .52 .52 .48 .40
Diluted .52 .51 .48 .40
Year Ended December 31, 1999
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------------------------------------------------------------
Revenues $ 28,164 $ 32,469 $ 34,160 $ 33,811
Net Income Available to
Common Shareholders 16,219 15,787 16,195 14,623
Net Income Available to
Common Shareholders
Per Share
Basic .58 .56 .57 .52
Diluted .57 .56 .57 .51
-32-
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
information under the heading "Election of Three Directors" and "Executive
Officers of the Company" in the definitive proxy statement of the Company which
will be filed with the Commission prior to May 3, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
information under the heading "Remuneration" in the definitive proxy statement
of the Company which will be filed with the Commission prior to May 3, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
information under the heading "Security Ownership of Directors and Management"
in the definitive proxy statement of the Company which will be filed with the
Commission prior to May 3, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
information under the heading "Certain Relationships and Related Transactions"
in the definitive proxy statement of the Company which will be filed with the
Commission prior to May 3, 2001.
-33-
34
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. The following Consolidated Financial Statements of the Company are
included in Part II, Item 8:
Report of Independent Auditors.......................................................................17
Consolidated Balance Sheets - December 31, 2000 and 1999.............................................18
Consolidated Statements of Income - Years ended December 31, 2000, 1999 and 1998.....................19
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 2000, 1999 and 1998...............................................................20
Consolidated Statements of Cash Flows - Years ended
December 31, 2000, 1999 and 1998...............................................................21
Notes to Consolidated Financial Statements ..........................................................22
2. The following Financial Statement Schedules are included in Item
14 (d):
III - Real Estate and Accumulated Depreciation
IV - Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
3. Exhibit Index:
3.1 Second Restated Certificate of Incorporation.
3.2 By-Laws, as amended.
4.1 The Registrant, by signing this Report, agrees to
furnish the Securities and Exchange Commission upon its
request a copy of any instrument which defines the
rights of holders of long-term debt of Registrant and
which authorizes a total amount of securities not in
excess of 10% of the total assets of the Registrant.
4.2 Indenture dated as of April 17, 1997 by and between
Health Care REIT, Inc. and Fifth Third Bank.
4.3 First Supplemental Indenture dated as of April 17, 1997
by and between Health Care REIT, Inc. and Fifth Third
Bank.
4.4 Second Supplemental Indenture dated as of March 13, 1998
between Health Care REIT, Inc. and Fifth Third Bank.
4.5 Third Supplemental Indenture as of March 18, 1999
between Health Care REIT, Inc. and Fifth Third Bank.
4.6 Form of Certificate of Designation of 8-7/8% Series B
Cumulative Redeemable Preferred Stock.
4.7 Certificate of Designations, Preferences and Rights of
Series C Cumulative Convertible Preferred Stock of
Health Care REIT, Inc.
10.1 Rights Agreement.
10.2 Note Purchase Agreement between Health Care REIT, Inc.
and each of the Purchasers a Party thereto, dated as of
April 8, 1993.
10.3 Loan Agreement dated as of March 28, 1997 by and among
Health Care REIT, Inc., its subsidiaries, the banks
signatory thereto, KeyBank National Association, as
Administrative Agent, and Fleet Bank N.A., as
Syndication Agent.
10.4 Note Purchase Agreement between Health Care REIT, Inc.
and each of the Purchasers a Party thereto, dated as of
April 15, 1995.
10.5 The 1985 Incentive Stock Option Plan of Health Care
REIT, Inc. as amended.
-34-
35
10.6 The Health Care REIT, Inc. 1995 Stock Incentive Plan
10.7 Credit Agreement by and among Health Care REIT, Inc.,
and certain subsidiaries, Bank United and other lenders
party thereto, dated as of February 24, 1999.
10.8 Amendment No. 1 to Loan Agreement dated as of October 1,
1998 by and among Health Care REIT, Inc., its
subsidiaries, the banks signatory thereto, and Key
Corporate Capital Inc.
10.9 Amendment No. 2 to Loan Agreement dated as of January
29, 2001 by and among Health Care REIT, Inc., its
subsidiaries, the banks signatory thereto and Key
Corporate Capital Inc.
10.10 Amendment No. 1 to Credit Agreement by and among Health
Care REIT, Inc. and certain subsidiaries, Bank United
and other lenders party thereto, dated as of
April 5, 1999.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
99.1 Press Release dated October 12, 2000.
99.2 Press Release dated October 17, 2000.
(b) Reports on Form 8-K filed in the fourth quarter of 2000:
None.
(c) Exhibits:
The exhibits listed in Item 14(a)(3) above are either filed with this Form
10-K or incorporated by reference in accordance with Rule 12b-32 of the
Exchange Act.
(d) Financial Statement Schedules:
Financial statement schedules are included in pages 37 through 43.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
(Registrant)
By: /S/GEORGE L. CHAPMAN
--------------------------------------
Chairman, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 23, 2001 by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
-35-
36
/S/ WILLIAM C. BALLARD, JR.* /S/ R. SCOTT TRUMBULL*
- ----------------------------------- -----------------------------
William C. Ballard, Jr., Director R. Scott Trumbull, Director
/S/ PIER C. BORRA* /S/ RICHARD A. UNVERFERTH*
- ----------------------------------- -----------------------------
Pier C. Borra, Director Richard A. Unverferth, Director
/S/ JEFFREY H. DONAHUE* /S/GEORGE L. CHAPMAN
- ----------------------------------- -----------------------------
Jeffrey H. Donahue, Director George L. Chapman, Chairman, Chief Executive
Officer, President and Director (Principal Executive
Officer)
/S/ PETER J. GRUA* /S/ RAYMOND W. BRAUN*
- ----------------------------------- -----------------------------
Peter J. Grua, Director Raymond W. Braun, Executive Vice President,
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
/S/ SHARON M. OSTER* /S/ MICHAEL A. CRABTREE*
- ----------------------------------- -----------------------------
Sharon M. Oster, Director Michael A. Crabtree, Treasurer & Controller
(Principal Accounting Officer)
/S/ BRUCE G. THOMPSON* *By: /S/GEORGE L. CHAPMAN
- ----------------------------------- -----------------------------
Bruce G. Thompson, Director George L. Chapman, Attorney-in-Fact
-36-
37
HEALTH CARE REIT, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
ASSISTED LIVING FACILITIES:
Lake Havasu, AZ $ $110 $2,244 $
Lake Havasu, AZ 450 4,223
Mesa, AZ 950 9,087
Encinitas, CA 0 6,143
Marysville, CA 450 4,172
Litchfield, CT 660 8,812 840
Bradenton, FL 251 3,298
Bradenton, FL 25 450
Bradenton, FL 25 400
Bradenton, FL 50 850
Bradenton, FL 50 850
Clermont, FL 350 5,232
Ft. Myers, FL 1,230 13,098
Haines City, FL 80 1,937
Lake Wales, FL 80 1,939
Lauderhill, FL 20 1,374 161
Leesburg, FL 70 1,170
Margate, FL 500 5,343 1,960
Naples, FL 1,716 17,306
North Miami Beach, FL 300 5,621 88
North Miami Beach, FL 150 1,242 643
Orange City, FL 80 2,239
Plantation, FL 2,746 0
Sarasota, FL 475 3,175
Atlanta, GA 2,059 14,914
Roswell, GA 1,107 9,627
Auburn, IN 145 3,511
Avon, IN 170 3,504
Kokomo, IN 195 3,709
Laporte, IN 165 3,674
Marion, IN 175 3,504
Merrilville, IN 643 7,084
Shelbyville, IN 165 3,497
Terre Haute, IN 175 3,499
Vincennes, IN 118 2,893
Kenner, LA 1,100 10,036
Attleboro, MA 810 10,500
Ellicott City, MD 1,320 13,641
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
ASSISTED LIVING FACILITIES:
Lake Havasu, AZ $110 $2,244 $ 135 1998 1998
Lake Havasu, AZ 450 4,223 171 1999 1999
Mesa, AZ 950 9,087 22 2000 2000
Encinitas, CA 0 6,143 77 2000 2000
Marysville, CA 450 4,172 0 2000 2000
Litchfield, CT 660 9,652 729 1998 1998
Bradenton, FL 251 3,298 476 1996 1995
Bradenton, FL 25 450 39 1997 1992
Bradenton, FL 25 400 35 1997 1988
Bradenton, FL 50 850 73 1997 1996
Bradenton, FL 50 850 73 1997 1996
Clermont, FL 350 5,232 451 1997 1997
Ft. Myers, FL 1,230 13,098 707 1999 1999
Haines City, FL 80 1,937 91 1999 1999
Lake Wales, FL 80 1,939 91 1999 1999
Lauderhill, FL 20 1,535 117 1998 1995
Leesburg, FL 70 1,170 96 1998 1972
Margate, FL 500 7,303 619 1998 1972
Naples, FL 1,716 17,306 1,059 1999 1999
North Miami Beach, FL 300 5,709 461 1998 1987
North Miami Beach, FL 150 1,885 125 1998 1987
Orange City, FL 80 2,239 161 1998 1998
Plantation, FL 2,746 0 0 1999 1999
Sarasota, FL 475 3,175 458 1996 1995
Atlanta, GA 2,059 14,914 621 1999 1999
Roswell, GA 1,107 9,627 611 1999 1999
Auburn, IN 145 3,511 173 1999 1999
Avon, IN 170 3,504 138 1999 1999
Kokomo, IN 195 3,709 182 1999 1999
Laporte, IN 165 3,674 180 1999 1999
Marion, IN 175 3,504 107 1999 1999
Merrilville, IN 643 7,084 448 1999 1999
Shelbyville, IN 165 3,497 165 1999 1999
Terre Haute, IN 175 3,499 107 1999 1999
Vincennes, IN 118 2,893 148 1999 1999
Kenner, LA 1,100 10,036 306 2000 2000
Attleboro, MA 810 10,500 757 1998 1998
Ellicott City, MD 1,320 13,641 825 1999 1999
-37-
38
SCHEDULE III -Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
Rochester, MN $ $ 322 $ 6,345
Butte, MT 550 3,957
Kalispell, MT 360 3,282
Asheville, NC 204 3,489
Cary, NC 1,500 4,350
Durham, NC 1,476 10,659
Elizabeth City, NC 200 2,760
Hendersonville, NC 2,270 11,771
Morehead City, NC 200 3,104
Pineville, NC 1,009 10,554
Wake Forest, NC 200 3,003
Wilmington, NC 210 2,991
Brick, NJ 1,300 9,394
Cranford, NJ 3,297 11,703 2,530
Roswell, NM 233 5,355
Gardnerville, NV 1,326 12,549
Henderson, NV 380 9,220
Henderson, NV 380 4,360
Albany, NY 400 10,528
Canton, OH 300 2,098
Cincinnati, OH 1,728 10,272
Findlay, OH 200 1,800
Newark, OH 410 5,711
Piqua, OH 204 1,885
Sagamore Hills, OH 470 7,881
Troy, OH 200 2,000
Bartlesville, OK 100 1,380
Chickasha, OK 85 1,395
Duncan, OK 103 1,347
Edmond, OK 175 1,564
Enid, OK 90 1,390
Lawton, OK 144 1,456
Midwest City, OK 95 1,385
Muskogee, OK 150 1,433
Norman, OK 55 1,484
N. Oklahoma City, OK 87 1,508
Oklahoma City, OK 130 1,350
Oklahoma City, OK 220 2,943
Owasso, OK 215 1,380
Ponca City, OK 114 1,536
Shawnee, OK 80 1,400
Stillwater, OK 80 1,400
Portland OR 628 3,585
Salem, OR 449 5,172
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
Rochester, MN $ 322 $ 6,345 $ 313 1999 1999
Butte, MT 550 3,957 0 2000 1999
Kalispell, MT 360 3,282 199 1998 1998
Asheville, NC 204 3,489 176 1999 1999
Cary, NC 1,500 4,350 305 1998 1996
Durham, NC 1,476 10,659 666 1999 1999
Elizabeth City, NC 200 2,760 135 1999 1999
Hendersonville, NC 2,270 11,771 804 1998 1998
Morehead City, NC 200 3,104 94 2000 2000
Pineville, NC 1,009 10,554 660 1999 1999
Wake Forest, NC 200 3,003 180 1999 1999
Wilmington, NC 210 2,991 138 1999 1999
Brick, NJ 1,300 9,394 170 2000 2000
Cranford, NJ 3,297 14,233 1,515 1996 1993
Roswell, NM 233 5,355 481 1997 1996
Gardnerville, NV 1,326 12,549 693 1999 1999
Henderson, NV 380 9,220 512 1998 1998
Henderson, NV 380 4,360 0 2000 2000
Albany, NY 400 10,528 918 1997 1997
Canton, OH 300 2,098 126 1998 1998
Cincinnati, OH 1,728 10,272 1,118 1997 1995
Findlay, OH 200 1,800 187 1997 1997
Newark, OH 410 5,711 387 1998 1997
Piqua, OH 204 1,885 146 1998 1998
Sagamore Hills, OH 470 7,881 140 2000 2000
Troy, OH 200 2,000 201 1997 1997
Bartlesville, OK 100 1,380 194 1994 1995
Chickasha, OK 85 1,395 189 1995 1996
Duncan, OK 103 1,347 174 1995 1996
Edmond, OK 175 1,564 198 1995 1996
Enid, OK 90 1,390 195 1995 1996
Lawton, OK 144 1,456 186 1995 1996
Midwest City, OK 95 1,385 194 1996 1996
Muskogee, OK 150 1,433 170 1996 1996
Norman, OK 55 1,484 226 1995 1996
N. Oklahoma City, OK 87 1,508 174 1995 1996
Oklahoma City, OK 130 1,350 181 1995 1996
Oklahoma City, OK 220 2,943 56 2000 2000
Owasso, OK 215 1,380 161 1996 1996
Ponca City, OK 114 1,536 225 1995 1995
Shawnee, OK 80 1,400 195 1995 1996
Stillwater, OK 80 1,400 196 1995 1996
Portland OR 628 3,585 157 1999 1999
Salem, OR 449 5,172 252 1999 1999
-38-
39
SCHEDULE III - Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
Lebanon, PA $ $ 400 $ 3,799 $
Saxonburg, PA 677 4,669
Seven Fields, PA 484 4,663
Williamsport, PA 390 4,068
Bluffton, SC 700 5,598
Florence, SC 380 2,881
Hilton Head, SC 510 6,037
N Augusta, SC 332 2,558
Walterboro, SC 150 1,838
Clarksville, TN 330 2,292
Columbia, TN 341 2,295
Morristown, TN 400 3,808
Oakridge, TN 450 4,066
Austin, TX 880 9,520
Benbrook, TX 1,050 7,550 27
Cedar Hill, TX 171 1,490
Claremore, TX 155 1,427
Corpus Christi, TX 420 4,796
Corpus Christi, TX 155 2,935
Desoto, TX 205 1,383
Ft. Worth, TX 210 3,790
Ft. Worth, TX 247 3,868 150
Georgetown, TX 200 2,100
Grand Prairie, TX 399 5,161
Harlingen, TX 92 2,057
Harlingen, TX 340 5,621
Houston, TX 550 10,751
Houston, TX 261 3,139
Kingwood, TX 300 3,309
N Richland Hills, TX 330 5,355
Palestine, TX 173 1,410
San Marcos, TX 355 4,560
Texarkana, TX 192 1,403
Waxahachie, TX 154 1,429
Everett, WA 1,400 5,476
-------- -------- ------
TOTAL ASSISTED LIVING FACILITIES: $55,277 $525,029 $6,399
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
Lebanon, PA $ 400 $ 3,799 $ 136 1999 1999
Saxonburg, PA 677 4,669 248 1999 1994
Seven Fields, PA 484 4,663 230 1999 1999
Williamsport, PA 390 4,068 139 1999 1999
Bluffton, SC 700 5,598 26 2000 2000
Florence, SC 380 2,881 129 1999 1999
Hilton Head, SC 510 6,037 221 1999 1999
N Augusta, SC 332 2,558 126 1999 1999
Walterboro, SC 150 1,838 108 1999 1992
Clarksville, TN 330 2,292 137 1998 1998
Columbia, TN 341 2,295 115 1999 1999
Morristown, TN 400 3,808 136 1999 1999
Oakridge, TN 450 4,066 144 1999 1999
Austin, TX 880 9,520 512 1999 1999
Benbrook, TX 1,050 7,577 846 1997 1994
Cedar Hill, TX 171 1,490 169 1997 1997
Claremore, TX 155 1,427 169 1996 1996
Corpus Christi, TX 420 4,796 519 1997 1989
Corpus Christi, TX 155 2,935 266 1997 1997
Desoto, TX 205 1,383 155 1997 1997
Ft. Worth, TX 210 3,790 490 1992 1994
Ft. Worth, TX 247 4,018 356 1999 1996
Georgetown, TX 200 2,100 210 1997 1997
Grand Prairie, TX 399 5,161 326 1998 1998
Harlingen, TX 92 2,057 186 1997 1989
Harlingen, TX 340 5,621 455 1998 1998
Houston, TX 550 10,751 528 1999 1999
Houston, TX 261 3,139 387 1994 1995
Kingwood, TX 300 3,309 145 1999 1999
N Richland Hills, TX 330 5,355 291 1999 1999
Palestine, TX 173 1,410 167 1996 1996
San Marcos, TX 355 4,560 286 1998 1998
Texarkana, TX 192 1,403 163 1996 1996
Waxahachie, TX 154 1,429 169 1996 1996
Everett, WA 1,400 5,476 247 1999 1990
-------- -------- -------
TOTAL ASSISTED LIVING FACILITIES: $55,277 $531,428 $33,558
-39-
40
SCHEDULE III-Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
SKILLED NURSING FACILITIES:
- ---------------------------
Payson, AZ $ $180 $3,988 $
Santa Rosa, CA 1,460 3,880
Pueblo, CO 370 6,051
Hilliard, FL 150 6,990
Lakeland, FL 696 4,581 262
New Port Richey, FL 624 6,930 377
North Fort Myers, FL 636 5,712 315
Sarasota, FL 560 8,474
Vero Beach, FL 660 7,642 1,398
West Palm Beach, FL 696 7,623 414
Boise, ID 600 7,383
Boise, ID 810 5,401
Coeur D'Alene 600 7,878
Granite City IL 400 4,303
Granite City, IL 610 7,143
Owensboro, KY 130 4,870
Braintree, MA 350 9,304
Braintree, MA 170 6,080 1,364
Braintree, MA 80 4,245 604
Fall River, MA 620 5,080 722
Falmouth, MA 670 3,022 123
South Boston, MA 385 1,463 342
Springfield, MA 2,100 8,845
Stoughton, MA 975 17,997 1,962
S. Boston, MA 0 3,016 115
Waltham, MA 0 11,516
Webster, MA 570 8,790 849
Worcester, MA 1,052 902 1,354
Kent, OH 215 3,367
Westlake, OH 571 5,411
Midwest City, OK 470 5,673
Eugene, OR 300 5,316
Bloomsburg, PA 0 3,918
Cheswick, PA 384 6,041 1,293
Easton, PA 285 6,315
San Antonio, TX 663 12,588
--------- ---------- --------
TOTAL SKILLED NURSING FACILITIES: $ 19,042 $ 227,738 $ 11,494
Construction in Progress 11,976
TOTAL INVESTMENT IN PROPERTIES $ 74,319 $ 764,743 $ 17,893
========= ========== ========
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
SKILLED NURSING FACILITIES:
- ---------------------------
Payson, AZ $180 $3,988 $341 1998 1995
Santa Rosa, CA 1,460 3,880 321 1998 1968
Pueblo, CO 370 6,051 506 1998 1989
Hilliard, FL 150 6,990 395 1999 1994
Lakeland, FL 696 4,843 352 1998 1984
New Port Richey, FL 624 7,307 519 1998 1984
North Fort Myers, FL 636 6,027 432 1998 1984
Sarasota, FL 560 8,474 159 2000 2000
Vero Beach, FL 660 9,040 574 1998 1984
West Palm Beach, FL 696 8,037 569 1998 1984
Boise, ID 600 7,383 554 1998 1985
Boise, ID 810 5,401 459 1998 1996
Coeur D'Alene 600 7,878 586 1998 1996
Granite City IL 400 4,303 184 1999 1964
Granite City, IL 610 7,143 412 1998 1973
Owensboro, KY 130 4,870 878 1993 1967
Braintree, MA 350 9,304 203 1997 1968
Braintree, MA 170 7,444 806 1997 1973
Braintree, MA 80 4,849 561 2000 1973
Fall River, MA 620 5,802 671 1996 1966
Falmouth, MA 670 3,145 412 1996 1966
South Boston, MA 385 1,805 243 1995 1961
Springfield, MA 2,100 8,845 167 2000 1996
Stoughton, MA 975 19,959 367 2000 1996
S. Boston, MA 0 3,131 236 2000 1958
Waltham, MA 0 11,516 0 2000 1998
Webster, MA 570 9,639 1,120 1995 1982
Worcester, MA 1,052 2,256 304 1996 1973
Kent, OH 215 3,367 719 1989 1983
Westlake, OH 571 5,411 436 1998 1972
Midwest City, OK 470 5,673 407 1998 1958
Eugene, OR 300 5,316 429 1998 1976
Bloomsburg, PA 0 3,918 175 1999 1996
Cheswick, PA 384 7,334 543 1998 1982
Easton, PA 285 6,315 1,657 1993 1959
San Antonio, TX 663 12,588 2,713 1993 1978
--------- ----------- -----------
TOTAL SKILLED NURSING FACILITIES: $ 19,042 $ 239,232 $ 19,410
Construction in Progress 11,976
TOTAL INVESTMENT IN PROPERTIES $ 74,319 $ 782,636 $ 52,968
========= =========== ===========
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SCHEDULE III - Continued
Year ended December 31
2000 1999 1998
---- ---- ----
Investment in Real Estate:
Balance at Beginning of year $ 862,525 $ 639,613 $ 309,044
Additions:
Acquisitions 0 81,109 110,432
Improvements 46,449 138,694 159,582
Other (1) 60,648 16,309 73,430
---------- ---------- -----------
TOTAL ADDITIONS 107,097 236,112 343,444
Deductions:
Cost of real estate sold (112,667) (13,200) (12,875)
Other
Total deductions (112,667) (13,200) (12,875)
---------- ---------- -----------
Balance at end of year $ 856,955 $ 862,525 $ 639,613
========== ========== ===========
Accumulated depreciation:
Balance at beginning of year $ 35,746 $ 19,624 11,769
Additions:
Depreciation expense 22,706 17,885 10,254
Deductions:
Sale of properties (5,484) (1,763) (2,399)
---------- ----------- -----------------
Balance at end of year $ 52,968 $ 35,746 $ 19,624
========== ========== ===========
(1) Represents mortgage loans converted to operating leases.
(2) The tax basis for real property equals $788,674,000 at December 31,
2000.
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SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
HEALTH CARE REIT, INC.
DECEMBER 31, 2000
(IN THOUSANDS)
------------------------- PRINCIPAL AMOUNT
OF LOANS SUBJECT
FINAL PERIODIC CARRYING TO DELINQUENT
INTEREST MATURITY PAYMENT PRIOR FACE AMOUNT AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LIENS OF MORTGAGES MORTGAGES INTEREST
----------- ---- ---- ----- ----- ------------ --------- --------
First Mortgages:
- ---------------
McAllen, TX 11.07% 01/01/10 Monthly $13,750 $13,371 None
(Specialty Care Payments
Facility) $135,335
Little Rock, AK 12.20% 01/01/12 Monthly 29,000 28,646 None
(Specialty Care Payments
Facility) $309,651
Sun Valley, CA 12.83% 01/01/17 Monthly 21,500 20,851 None
(Specialty Care Payments
Facility) $239,153
Briarcliff, NY 10.96% 08/01/16 Monthly 12,810 12,594 None
(Assisted Living Payments
Facility) $125,212
New York City, NY 9.94% 03/01/18 Monthly 21,000 20,595 None
(Assisted Living Facility) Payments
$189,746
Oklahoma City, OK 9.68% 06/01/06 Monthly 12,204 12,204 None
(Nursing Home) Payments
$96,412
Brea, CA 13.17% 07/01/15 Monthly 11,000 10,477 None
(Specialty Care Facility) Payments
$124,679
49 mortgage loans relating to 6 From From 179,195 168,288 None
nursing homes, 39 assisted living 8.72% to 12/01/01-
facilities, 14.19% 05/01/20
6 behavioral care facilities and 1
specialty care facilities
2 construction loans (all with From N/A 7,010 4,052 None
first mortgage liens) relating to 2 12.40% to ---------- ---------- --------
assisted living facilities 15.00%
TOTALS $307,469 $280,601 $-0-
========== ========== =========
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SCHEDULE IV - Continued
(in thousands)
Year Ended December 31
---------------------------------------------------
2000 1999 1998
---- ---- ----
Reconciliation of mortgage loans:
Balance at beginning of period $384,298 $398,682 $405,336
Additions during period:
New mortgage loans 28,244 44,656 105,282
Negative principal amortization 6
------------- ------------- -------------
412,542 443,338 510,624
Deductions during period:
Collections of principal (1) 70,567 42,731 38,512
Charge-offs 726
Other (2) 60,648 16,309 73,430
------------- ------------- -------------
Balance at end of period $280,601 $384,298 $398,682
============= ============= =============
(1) Includes collection of negative principal amortization.
(2) Includes properties originally financed with mortgage loans that were
purchased during the periods indicated.
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44
EXHIBIT INDEX
The following documents are included in this Form 10-K as an Exhibit:
DESIGNATION
NUMBER UNDER
EXHIBIT ITEM 601 OF EXHIBIT PAGE
NUMBER REGULATION S-K DESCRIPTION NUMBER
------- -------------- ------------ ------
3.1(1) 3(i) Second Restated Certificate of Incorporation.
3.2(2) 3(ii) By-Laws, as amended.
4.1 4 The Registrant, by signing this Report, agrees to
furnish the Securities and Exchange Commission upon
its request a copy of any instrument which defines
the rights of long-term debt of the Registrant and
which authorizes a total amount of securities not in
excess of 10% of the total assets of the Registrant.
4.2(3) 4 Indenture dated as of April 17, 1997 by and between
Health Care REIT, Inc. and Fifth Third Bank.
4.3(4) 4 First Supplemental Indenture dated as of April 17,
1997 by and between Health Care REIT, Inc. and Fifth
Third Bank.
4.4(5) 4 Second Supplemental Indenture dated as of March 13,
1998 between Health Care REIT, Inc. and Fifth Third
Bank.
4.5(6) 4 Third Supplemental Indenture dated as of March 18,
1999 between Health Care REIT, Inc. and Fifth Third
Bank.
4.6(6) 4 Form of Certificate of Designation of 8-7/8% Series B
Cumulative Redeemable Preferred Stock
4.7(6) 4 Certificate of Designations, Preferences and Rights
of Series C Cumulative Convertible Preferred Stock of
Health Care REIT, Inc.
10.1(7) 10(ii)(A) Rights Agreement.
10.2(8) 10(ii)(A) Note Purchase Agreement between Health Care REIT,
Inc. and each of the Purchasers a Party thereto,
dated as of April 8, 1993.
10.3(9) 10(i) Loan Agreement dated as of March 28, 1997 by and
among Health Care REIT, Inc., its subsidiaries, the
banks signatory thereto, and KeyBank National
Association, as Administrative Agent, and Fleet Bank,
N.A., as Syndication Agent.
10.4(10) 10(ii) Note Purchase Agreement between Health Care REIT,
Inc. and each of the Purchasers a Party thereto,
dated April 15, 1996.
10.5(11) 10(iii)(A) The 1985 Incentive Stock Option Plan of Health Care
REIT, Inc., as amended.
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45
10.6(12) 10(iii)(A) The Health Care REIT, Inc. 1995 Stock Incentive Plan,
as amended.
10.7 10(i) Credit Agreement by and among Health Care REIT Inc.,
and certain subsidiaries, Bank United and other
lenders party thereto, dated as of February 24, 1999.
10.8 10(i) Amendment No. 1 to Loan Agreement dated as of October
1, 1998 by and among Health Care REIT, Inc., its
subsidiaries, the banks signatory thereto, and Key
Corporate Capital Inc.
10.9 10(i) Amendment No. 2 to Loan Agreement dated as of January
29, 2001 by and among Health Care REIT, Inc., as
certain subsidiaries, the banks signatory thereto and
Key Corporate Capital Inc.
10.10 10(i) Amendment No. 1 to Credit Agreement by and among Health
Care REIT, Inc. and certain subsidiaries, Bank United and
other lenders party thereto, dated as of April 5, 1999.
21 21 Subsidiaries of the Registrant.
23 23 Consent of Independent Auditors.
24 24 Powers of Attorney.
99.1 99 Press Release dated October 12, 2000.
99.2 99 Press Release dated October 17, 2000.
- ---------------
(1) Incorporated by reference to Exhibit 3.1 to the Registrant's Form
10-K filed March 20, 2000.
(2) Incorporated by reference to Exhibit 3.1 to the Registrant's Form
8-K filed October 24, 1997.
(3) Incorporated by reference to Exhibit 4.1 to the Registrant's Form
8-K filed on April 21, 1997.
(4) Incorporated by reference to Exhibit 4.2 to the Registrant's Form
8-K filed on April 21, 1997.
(5) Incorporated by reference to Exhibit 4.2 to the Registrant's Form
8-K filed on March 11, 1998.
(6) Incorporated by reference to Exhibit 4.2 to the Registrant's Form
8-A filed on March 17, 1999.
(7) Incorporated by reference to Exhibit 2 to the Registrant's Form 8-A
filed on August 3, 1994 (File No. 1-8923).
(8) Incorporated by reference to Exhibits 1-4 of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1993.
(9) Incorporated by reference to Exhibit 10.1 of the Registrant's Form
8-K filed on April 8, 1997.
(10) Incorporated by reference to Exhibit 4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
(11) Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (File No. 333-1237) filed on
February 27, 1996.
(12) Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 (File No. 333-1239) filed on
February 27, 1996.
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