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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-9028
NATIONWIDE HEALTH PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-3997619
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
610 Newport Center Drive, Suite 1150
Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 718-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.10 Par Value New York Stock Exchange
7.677% Series A Cumulative
Preferred None
6.25% Convertible Debentures Due
1999 New York Stock Exchange
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate 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 to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Company is approximately $824,999,000 as of February 28, 1999.
46,216,484
(Number of shares of common stock outstanding as of February 28, 1999)
Part III is incorporated by reference from the registrant's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 19, 1999.
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PART I
ITEM 1. BUSINESS.
Nationwide Health Properties, Inc., a Maryland corporation organized in
October 1985 (the "Company"), is a real estate investment trust ("REIT") which
invests primarily in health care related facilities and provides financing to
health care providers. As of December 31, 1998, the Company had investments in
346 facilities located in 34 states and operated by 59 healthcare providers.
The facilities include 203 skilled nursing facilities, 107 assisted living
facilities, 14 continuing care retirement communities, 17 residential care
facilities for the elderly, 2 rehabilitation hospitals and 3 medical clinics.
As of December 31, 1998, the Company had direct ownership of 161 skilled
nursing facilities, 99 assisted living facilities, 9 continuing care retirement
communities, 17 residential care facilities for the elderly, 2 rehabilitation
hospitals and 3 medical clinics (the "Properties"). Substantially all of the
Company's owned facilities are leased under "net" leases (the "Leases"), which
are accounted for as operating leases, to 45 healthcare providers (the
"Lessees") including Alternative Living Services, American Retirement
Corporation, ARV Assisted Living, Inc., Assisted Living Concepts, Inc., Beverly
Enterprises, Inc. ("Beverly"), Harborside Healthcare Corporation, HEALTHSOUTH
Corporation, Integrated Health Services, Lexington Healthcare Group, Inc.,
Mariner Post-Acute Network, Newcare Health Corporation and Sun Healthcare
Group, Inc. Of the Lessees, only Beverly and Alternative Living Services are
expected to account for more than 10% of the Company's revenues in 1999.
The Leases have initial terms ranging from 9 to 19 years, and the Leases
generally have two or more multiple-year renewal options. The Company earns
fixed monthly minimum rents and may earn periodic additional rents. The
additional rent payments are generally computed as a percentage of facility net
patient revenues in excess of base amounts or as a percentage of the increase
in the Consumer Price Index. Additional rents are generally calculated and
payable monthly or quarterly. Most Leases contain provisions such that the
total rent cannot decrease from one year to the next. Most Leases contain cross
collateralization and cross default provisions tied to other Leases with the
same Lessee, as well as grouped lease renewals and grouped purchase options.
Obligations under the Leases have corporate guarantees, and leases covering 194
facilities are backed by irrevocable letters of credit or security deposits
that cover 2 to 12 months of monthly minimum rents. Under the terms of the
Leases, the Lessee is responsible for all maintenance, repairs, taxes and
insurance on the leased properties.
As of December 31, 1998, the Company held 33 mortgage loans secured by 42
skilled nursing facilities, 8 assisted living facilities, and 5 continuing care
retirement communities. Such loans had an aggregate outstanding principal
balance of approximately $214,765,000 and a net book value of approximately
$206,613,000 at December 31, 1998. The mortgage loans have individual
outstanding balances ranging from approximately $541,000 to $21,500,000 and
have maturities ranging from 2003 to 2025.
During 1998, the Company acquired 17 skilled nursing facilities, 16 assisted
living facilities, 2 continuing care retirement communities and 9 residential
care facilities for the elderly in 26 separate transactions for an aggregate
investment of approximately $123,840,000. The Company also completed the
construction of 1 skilled nursing facility, 11 assisted living facilities, 1
continuing care retirement community and 2 clinics, in which the Company's
total aggregate investment was $103,155,000. Additionally, the Company provided
3 mortgage loans, secured by 1 skilled nursing facility and 2 assisted living
facilities in the aggregate amount of $11,615,000.
The Company anticipates providing lease or mortgage financing for healthcare
facilities to qualified operators and acquiring additional healthcare related
facilities, including skilled nursing facilities, assisted living facilities,
acute care hospitals and medical office buildings. Financing for such future
investments may be provided by borrowings under the Company's bank line of
credit, private placements or public offerings of debt or equity, and the
assumption of secured indebtedness.
1
Taxation of the Company
The Company believes that it has operated in such a manner as to qualify for
taxation as a "real estate investment trust" under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ending December 31, 1985, and the Company intends to continue
to operate in such a manner. If the Company qualifies for taxation as a real
estate investment trust, it will generally not be subject to federal corporate
income taxes on its net income that is currently distributed to stockholders.
This treatment substantially eliminates the "double taxation" (e.g. at the
corporate and stockholder levels) that generally results from investment in
stock of a corporation.
Properties
Of the 346 facilities in which the Company has investments, the Company has
direct ownership of 161 skilled nursing facilities, 99 assisted living
facilities, 9 continuing care retirement communities, 17 residential care
facilities for the elderly, 2 rehabilitation hospitals and 3 medical clinics.
Substantially all of the properties are leased to other parties under terms
which require the lessee, in addition to paying rent, to pay all additional
charges, taxes, assessments, levies and fees incurred in the operation of the
leased properties.
Skilled Nursing Facilities
Skilled nursing facilities provide rehabilitative, restorative, skilled
nursing and medical treatment for patients and residents who do not require
the high-technology, care-intensive, high-cost setting of an acute-care or
rehabilitative hospital. Treatment programs include physical, occupational,
speech, respiratory and other therapeutic programs, including sub-acute
clinical protocols such as wound care and intravenous drug treatment.
Assisted Living Facilities
Assisted living facilities provide services to aid in everyday living, such
as bathing, routine or special meals, security, transportation, recreation,
medication supervision and limited therapeutic programs. More intensive
medical needs of the residents are often met within the Company's assisted
living facilities by home health providers, close coordination with the
individual's physician and skilled nursing facilities. Assisted living
facilities are increasingly successful as lower cost, less institutional
alternatives to the health problems of the elderly or medically frail.
Continuing Care Retirement Communities
Continuing care retirement communities provide a broad continuum of care. At
the most basic level, services are provided which aid in everyday living, much
like in an assisted living facility. At the other end of the spectrum, skilled
nursing, rehabilitation and medical treatment is provided to residents who
need those services. This type of facility offers residents the ability to
have the most independent lifestyle possible while providing a wide range of
social, health and nursing services tailored to meet individual needs.
Residential Care Facilities for the Elderly
Residential care facilities for the elderly offer similar services to an
assisted living facility, except they are provided in a residential home
setting. These facilities are generally three to four bedroom houses in
residential neighborhoods, which are slightly modified to enable adequate
access and care for the residents. There is generally one 24-hour caregiver at
each location to provide meals and assistance with activities such as bathing,
dressing, laundry and cleaning.
Rehabilitation Hospitals
Rehabilitation hospitals provide inpatient and outpatient medical care to
patients requiring high intensity physical, respiratory, neurological,
orthopedic and other treatment protocols and for intermediate periods in their
2
recovery. These programs are often the most effective in treating severe
skeletal or neurological injuries and traumatic diseases such as stroke or
acute arthritis.
The following table sets forth certain information regarding the Company's
owned facilities as of December 31, 1998.
Number Annual 1998
Number of of Beds/ Minimum Additional
Facility Location Facilities Units(1) Investment Rent(2) Rent(2)
- ----------------- ---------- -------- ---------- ------- ----------
(Dollars in Thousands)
Skilled Nursing Facilities:
Arizona..................... 1 130 $ 3,540 $ 481 $ 122
Arkansas.................... 10 1,220 39,972 3,601 295
California.................. 8 963 26,481 3,228 926
Connecticut................. 3 359 7,864 783 177
Florida..................... 9 1,293 29,476 3,064 971
Georgia..................... 1 163 7,343 867 --
Idaho....................... 1 64 792 81 38
Illinois.................... 2 224 5,549 701 196
Indiana..................... 11 1,244 36,070 4,228 826
Kansas...................... 10 732 13,978 1,415 185
Maryland.................... 4 749 22,057 2,634 1,426
Massachusetts............... 17 1,820 68,299 7,074 557
Minnesota................... 10 1,242 37,690 4,392 1,020
Mississippi................. 1 120 4,267 388 --
Missouri.................... 1 108 2,740 337 153
Nevada...................... 1 140 4,034 480 105
New Jersey.................. 1 180 6,809 749 206
North Carolina.............. 1 150 2,360 294 204
Ohio........................ 6 811 29,551 3,304 167
Oklahoma.................... 3 253 3,939 404 154
Oregon...................... 4 326 6,760 833 219
Tennessee................... 10 1,120 35,491 3,631 369
Texas....................... 26 2,953 57,801 6,155 1,793
Virginia.................... 4 605 18,568 2,291 867
Washington.................. 7 717 29,463 3,037 315
Wisconsin................... 9 936 21,169 2,301 1,024
--- ------ -------- ------- -------
Subtotals................. 161 18,622 522,063 56,753 12,315
--- ------ -------- ------- -------
Assisted Living Facilities:
Alabama..................... 2 166 5,952 515 7
Arizona..................... 2 142 7,868 743 9
Arkansas.................... 1 28 1,660 144 --
California.................. 13 1,622 78,830 8,164 771
Colorado.................... 4 419 21,777 2,143 31
Florida..................... 18 1,135 65,241 6,266 190
Idaho....................... 1 158 11,800 1,175 19
Illinois.................... 1 178 11,077 1,037 --
Indiana..................... 1 50 4,648 458 --
Kansas...................... 4 231 13,470 1,196 4
Kentucky.................... 1 44 2,654 273 --
Massachusetts............... 2 185 17,297 1,544 --
Michigan.................... 1 144 7,305 817 109
3
Number Annual 1998
Number of of Beds/ Minimum Additional
Facility Location Facilities Units(1) Investment Rent(2) Rent(2)
- ----------------- ---------- -------- ---------- --------- ----------
(Dollars in Thousands)
Missouri................ 1 31 $ 2,529 $ 222 $ --
Nevada.................. 2 155 13,616 1,254 --
New Jersey.............. 1 52 4,085 353 --
North Carolina.......... 1 42 2,916 257 2
Ohio.................... 10 553 29,486 2,772 51
Oklahoma................ 3 188 8,100 771 33
Oregon.................. 6 536 28,831 2,851 29
South Carolina.......... 4 162 11,038 943 2
Tennessee............... 2 98 8,270 766 7
Texas................... 12 601 37,545 3,432 55
Washington.............. 4 341 22,927 2,347 27
Wisconsin............... 2 422 29,062 1,922 46
--- ------ ---------- --------- --------
Subtotals............. 99 7,683 447,984 42,365 1,392
--- ------ ---------- --------- --------
Continuing Care Retirement
Communities:
California.............. 1 279 12,173 1,184 197
Colorado................ 1 119 3,116 307 26
Georgia................. 1 187 11,492 809 --
Kansas.................. 1 199 13,201 1,267 8
Massachusetts........... 1 168 11,744 561 --
Texas................... 2 550 35,541 3,161 19
Wisconsin............... 2 942 64,351 5,844 89
--- ------ ---------- --------- --------
Subtotals............. 9 2,444 151,618 13,133 339
--- ------ ---------- --------- --------
Residential Care
Facilities for the
Elderly:
California.............. 17 102 5,575 606 1
--- ------ ---------- --------- --------
Rehabilitation Hospitals:
Arizona................. 2 116 16,826 1,770 446
--- ------ ---------- --------- --------
Medical Clinics:
Alabama................. 1 -- 2,431 -- 5
Texas................... 2 -- 6,493 -- --
--- ------ ---------- --------- --------
Subtotals............. 3 -- 8,924 -- 5
--- ------ ---------- --------- --------
Construction in Progress.. -- -- 90,398 -- --
--- ------ ---------- --------- --------
Total All Owned
Facilities............... 291 28,967 $1,243,388 $ 114,627 $ 14,498
=== ====== ========== ========= ========
- --------
(1) Assisted living facilities are measured in units, continuing care
retirement communities are measured in beds and units and all other
facilities are measured by bed count.
(2) Annual Minimum Rent (as defined in the Leases) for each of the Company's
owned properties. Additional rent, generally contingent upon increases in
the facility net patient revenues in excess of a base amount or increases
in the Consumer Price Index, may also be paid. The 1998 additional rent
amounts reflect additional rent accrued in 1998.
As of December 31, 1998, 48 of the Company's 291 owned facilities were being
leased to and operated by subsidiaries of Beverly. Beverly has guaranteed
certain obligations of its subsidiaries and of certain parties unaffiliated
with Beverly in connection with 27 properties operated by such parties. For
additional financial information regarding Beverly, see Appendix 1 attached as
part of this Annual Report on Form 10-K.
4
As of December 31, 1998, 54 of the owned facilities are leased to and
operated by subsidiaries of Alternative Living Services, Inc.
Competition
The Company generally competes with other REITs, real estate partnerships,
health care providers and other investors, including, but not limited to,
banks and insurance companies, in the acquisition, leasing and financing of
health care facilities. The operators of the health care facilities compete on
a local and regional basis with operators of facilities that provide
comparable services. Operators compete for patients based on quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price.
Regulation
Payments for health care services provided by the operators of the Company's
facilities are received principally from four sources: private funds;
Medicaid, a medical assistance program for the indigent, operated by
individual states with the financial participation of the federal government;
Medicare, a federal health insurance program for the aged and certain
chronically disabled individuals; and health and other insurance plans.
Government revenue sources, particularly Medicaid programs, are subject to
statutory and regulatory changes, administrative rulings, and government
funding restrictions, all of which may materially increase or decrease the
rates of payment to nursing facilities and the amount of additional rents
payable to the Company under the Leases. Effective for cost reporting years
beginning after July 1, 1998, the payment methodology for nursing homes under
the Medicare program has been changed. Under the new methodology, Medicare
will reimburse nursing home operators for nursing care, ancillary services and
capital costs at a flat per diem rate. In the past, a cost-based system of
reimbursement was used. This new reimbursement methodology is being phased in
over four years. There is no assurance that payments under such programs will
remain at levels comparable to the present levels or be sufficient to cover
all the operating and fixed costs allocable to Medicaid and Medicare patients.
Any changes in reimbursement levels could have an adverse impact on the
revenues of the operators of the Company's facilities, which could in turn
adversely impact their abilities to make their monthly lease or debt payments
to the Company.
Health care facilities in which the Company invests are also generally
subject to state licensure statutes and regulations and statutes which may
require regulatory approval, in the form of a certificate of need ("CON"),
prior to the addition or construction of new beds, the addition of services or
certain capital expenditures. CON requirements generally do not apply to
assisted living facilities. CON requirements are not uniform throughout the
United States and are subject to change. The Company cannot predict the impact
of regulatory changes with respect to licensure and CON's on the operations of
the Company's lessees and mortgagees.
5
Executive Officers of the Company
The table below sets forth the name, position and age of each executive
officer of the Company. Each executive officer of the Company is appointed by
its Board of Directors, serves at the pleasure of the Board and holds office
until a successor is elected, or until the earliest of death, resignation or
removal. There is no "family relationship" between any of the named executive
officers and/or any director of the Company. All information is given as of
February 28, 1999.
Name Position Age
---- -------- ---
R. Bruce Andrews...... President and Chief Executive Officer 58
Mark L. Desmond....... Senior Vice President and Chief Financial Officer 40
T. Andrew Stokes...... Senior Vice President of Corporate Development 51
Steven J. Insoft...... Vice President of Development 35
John J. Sheehan, Jr... Vice President of Development 41
Gary E. Stark......... Vice President and General Counsel 43
R. Bruce Andrews--President and Chief Executive Officer of the Company since
September 1989 and a director of the Company since October 1989. Mr. Andrews
had previously served as a director of American Medical International, Inc., a
hospital management company, and served as its Chief Financial Officer from
1970 to 1985 and its Chief Operating Officer in 1985 and 1986. From 1986
through 1989, Mr. Andrews was engaged in various private investments. Mr.
Andrews is also a director of CenterTrust Retail Properties, Inc.
Mark L. Desmond--Senior Vice President and Chief Financial Officer of the
Company since January 1996. Mr. Desmond was Vice President and Treasurer of
the Company from May 1990 to December 1995 and Controller, Chief Accounting
Officer and Assistant Treasurer of the Company from June 1988 to April 1990.
From 1986 until joining the Company, Mr. Desmond held various accounting
positions with Beverly, an operator of nursing facilities, pharmacies and
pharmacy related outlets.
T. Andrew Stokes--Senior Vice President of Corporate Development of the
Company since January 1996. Mr. Stokes was Vice President of Development of
the Company from August 1992 to December 1995. From 1984 to 1988, Mr. Stokes
served as Vice President, Corporate Development for American Medical
International, Inc., a hospital management company. From 1989 until joining
the Company, Mr. Stokes was Healthcare Group Director of Houlihan, Lokey,
Howard & Zukin, a national financial advisory firm.
Steven J. Insoft--Vice President of Development of the Company since
February 1998. From 1991 to 1997, Mr. Insoft served as President of CMI Senior
Housing & Healthcare, Inc., an operator of nursing facilities. From 1988 to
1991, Mr. Insoft was an Associate in the Capital Markets Group of Prudential
Insurance Company of America.
John J. Sheehan, Jr.--Vice President of Development of the Company since
February 1996. From September 1987 through April 1990, Mr. Sheehan served as
Director of Asset Management for Southmark Corporation, a real estate
syndication company. From April 1990 until joining the Company, Mr. Sheehan
was Vice President, Mortgage Finance for Life Care Centers of America, an
operator and manager of nursing facilities.
Gary E. Stark--Vice President and General Counsel of the Company since
January 1993. From January 1988 to December 1989, Mr. Stark held the position
of General Counsel with Care Enterprises, Inc., an operator of nursing
facilities, pharmacies and other ancillary health care services, and served as
its Corporate Counsel from April 1985 through December 1987. From January 1990
through August 1991, Mr. Stark was engaged in the private practice of law. Mr.
Stark served as Vice President of Legal Services of Life Care Centers of
America, Inc., an operator and manager of nursing facilities and retirement
centers from July 1992 to December 1992 and served as General Counsel from
September 1991 to July 1992.
6
Employees
As of February 28, 1999, the Company employed fourteen full-time employees.
Item 2. Properties.
See Item 1 for details.
Item 3. Legal Proceedings.
There are various legal proceedings pending to which the Company is a party
or to which some of its properties are subject arising in the normal course of
business. The Company does not believe that the ultimate resolution of these
proceedings will have a material adverse effect on the Company's consolidated
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
7
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
The Company's common stock is listed on the New York Stock Exchange. It has
been the Company's policy to declare quarterly dividends to holders of the
Company's common stock so as to comply with applicable sections of the
Internal Revenue Code governing real estate investment trusts. Set forth below
are the high and low sales prices of the Company's common stock from January
1, 1997 to December 31, 1998 as reported by the New York Stock Exchange and
the cash dividends per share paid with respect to such periods.
High Low Dividend
--------- -------- --------
1998
First quarter.................................. $26 15/16 $24 1/4 $.42
Second quarter................................. 25 7/8 23 3/16 .42
Third quarter.................................. 25 3/8 19 3/8 .42
Fourth quarter................................. 23 1/4 20 .42
1997
First quarter.................................. $23 3/8 $21 1/4 $.39
Second quarter................................. 23 1/2 19 7/8 .39
Third quarter.................................. 24 3/4 22 1/16 .39
Fourth quarter................................. 25 7/8 21 3/16 .39
As of February 28, 1999 there were approximately 1,500 holders of record of
the Company's common stock.
8
Item 6. Selected Financial Data.
The following table presents selected financial data with respect to the
Company. Certain of this financial data has been derived from the Company's
audited financial statements included elsewhere in this Annual Report on Form
10-K and should be read in conjunction with those financial statements and
accompanying notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Reference is made to Note 4 of Notes to
Consolidated Financial Statements for information regarding the Company's
acquisitions.
Years ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
(In thousands, except per share data)
Operating Data:
Total revenues........... $ 142,584 $ 115,705 $ 95,776 $ 81,039 $ 69,985
Income from operations... 67,427 62,988 54,944 49,382 44,813
Gain on sale of
facilities.............. 2,321 829 -- 989 --
Net income............... 69,748 63,817 54,944 50,371 44,813
Preferred stock
dividends............... (7,677) (1,962) -- -- --
Net income available to
common stockholders..... 62,071 61,855 54,944 50,371 44,813
Dividends paid on common
stock................... 75,128 65,734 59,581 53,182 47,751
Per Share Data:
Basic/diluted income from
continuing operations
available to common
stockholders (1)........ $ 1.34 $ 1.45 $ 1.36 $ 1.30 $ 1.23
Basic/diluted net income
available to common
stockholders............ 1.39 1.47 1.36 1.33 1.23
Dividends paid on common
stock................... 1.68 1.56 1.48 1.41 1.31
Balance Sheet Data
Investments in real
estate, net............. $1,316,685 $1,053,273 $722,506 $652,231 $501,862
Total assets............. 1,357,303 1,077,394 744,984 670,111 513,809
Senior unsecured notes
due 2000-2038........... 545,150 355,000 190,000 100,000 --
Bank borrowings.......... 42,000 19,600 32,300 93,900 80,200
Convertible debentures... 57,431 64,512 64,920 65,000 67,690
Notes and bonds payable.. 64,623 58,297 9,229 23,364 20,520
Stockholders' equity..... 605,558 553,046 428,588 371,822 336,106
Other Data:
Net cash provided by
operating activities.... $ 106,067 $ 86,010 $ 74,129 $ 66,972 $ 56,756
Net cash used in
investing activities.... (282,968) (267,302) (85,034) (151,476) (83,185)
Net cash provided by
financing activities.... 182,891 179,775 14,677 88,699 26,544
Funds from operations
available to common
stockholders (2)........ 92,726 80,851 71,667 63,267 57,057
Weighted average shares
outstanding............. 44,637 42,164 40,373 37,808 36,356
- --------
(1) For per share purposes, income from continuing operations is defined as
income before the effect of any gains or losses on sales of properties.
(2) Industry analysts generally consider funds from operations to be an
alternative measure of the performance of an equity REIT. The Company
therefore discloses funds from operations, although it is a measurement
that is not defined by generally accepted accounting principles. The
Company uses the NAREIT measure of funds from operations, which is
generally defined as income before extraordinary items plus certain non-
cash items, primarily real estate depreciation, less gains on sales of
facilities. The NAREIT measure may not be comparable to similarly titled
measures used by other REITs. Consequently, the Company's funds from
operations may not provide a meaningful measure of the Company's
performance as compared to that of other REITs. Funds from operations
does not represent cash generated from operating activities as defined by
generally accepted accounting principles (funds from operations does not
include changes in operating assets and liabilities) and, therefore,
should not be considered as an alternative to net income as the primary
indicator of operating performance or to cash flow as a measure of
liquidity.
9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Statement Regarding Forward Looking Disclosure
Certain information contained in this report includes 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. These statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) the following: the
effect of economic and market conditions and changes in interest rates,
government regulations, including changes in Medicare and Medicaid payment
levels, changes in the healthcare industry, the amount of any additional
investments, access to capital markets and changes in the ratings of the
Company's debt securities.
Operating Results
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Minimum rent increased $24,618,000 or 31% in 1998 as compared to 1997. The
increase was primarily due to minimum rent resulting from investments in 57
net additional leased facilities in 1998, combined with a full year of
revenues earned by investments in additional facilities in 1997. Interest and
other income increased by $405,000 or 2% in 1998 as compared to 1997. The
increase was primarily due to the increase in mortgage loans during 1998.
Additional rent and additional interest increased by $1,856,000 or 14% in 1998
as compared to 1997. The increase was attributable to increased additional
rent and additional interest as provided in the Company's existing leases and
mortgage loans receivable based on increases in the facility revenues or the
Consumer Price Index.
Interest and amortization of deferred financing costs increased $8,632,000
or 30% in 1998 as compared to 1997. The increase was primarily due to the
issuance of $190,150,000 in medium-term notes during 1998 and a full year of
interest expense related to the issuance of $165,000,000 of medium-term notes
in 1997. Depreciation and non-cash charges increased $8,151,000 or 41% in 1998
as compared to 1997. The increase was attributable to increased depreciation
due to the acquisition of additional facilities in 1998 and a full year of
depreciation related to facilities acquired in 1997. General and
administrative costs increased $657,000 or 16% in 1998 as compared to 1997.
The increase was due in part to adding two additional employees, increased
wages and increases in other general expenses. The impairment of long-lived
assets was due to recording a provision of $5,000,000 as a reduction in the
carrying amount of the Company's investment in three medical clinics that were
leased to a company that has declared bankruptcy.
The Company expects increased rental revenues and interest income due to the
addition of facilities to its property base and mortgage loans receivable over
the last twelve months. The Company also expects increased additional rent and
additional interest because the Company's leases and mortgages generally
contain provisions under which additional rents or interest income increase
with increases in facility revenues and/or increases in the Consumer Price
Index. Historically, revenues at the Company's facilities and the Consumer
Price Index generally have increased; although, there are no assurances that
they will continue to increase in the future. Sales of facilities or
repayments of mortgages would serve to offset the aforementioned revenue
increases. Additional investments in health care facilities would also
increase rental and/or interest income. As additional investments in
facilities are made, depreciation and/or interest expense could also increase.
Any such increases, however, are expected to be at least partially offset by
rents or interest income associated with the investments.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues increased $19,929,000 or 21% in 1997 as compared to 1996. The
increase was primarily due to increased minimum rent and interest income
resulting from investments in 60 net additional facilities in 1997, combined
with a full year of revenues earned by investments in additional facilities in
1996. The increase was also attributable to increased additional rent and
additional interest as provided in the Company's existing leases and mortgage
loans receivable based on increases in the facility revenues or the Consumer
Price Index.
10
Total expenses increased $11,885,000 or 29% in 1997 as compared to 1996. The
increase was primarily due to an increase in interest expense due to the
issuance of $165,000,000 in medium-term notes during 1997 and the issuance of
$90,000,000 in medium-term notes in 1996. The increase in total expenses was
also attributable to increased depreciation due to the acquisition of
additional facilities in 1997 and 1996.
Liquidity and Capital Resources
During 1998, the Company acquired 17 skilled nursing facilities, 16 assisted
living facilities, 2 continuing care retirement communities and 9 residential
care facilities for the elderly in 26 separate transactions for an aggregate
investment of approximately $123,840,000. During 1998, the Company provided
new construction financing of approximately $143,853,000. Construction of 1
skilled nursing facility, 11 assisted living facilities, 1 continuing care
retirement community and 2 clinics was completed in 1998, in which the
Company's total aggregate investment was $103,155,000; $57,179,000 of this
amount was a current year investment included in the new construction
financing amount above. Upon acquisition or completion of construction, as
applicable, the facilities were concurrently leased under terms generally
similar to the Company's existing leases. The Company also funded
approximately $19,715,000 in capital improvements in accordance with certain
existing lease provisions. Such capital improvements will result in an
increase in the minimum rents earned by the Company on these facilities. The
acquisitions, construction advances and capital improvements were funded by
bank borrowings on the Company's bank line of credit and cash on hand. The
acquisitions were also funded by approximately $4,137,000 of debt assumption
and the issuance of 201,190 shares of the Company's common stock.
During 1998, the Company provided 3 mortgage loans secured by 1 skilled
nursing facility and 2 assisted living facilities in the aggregate amount of
$11,615,000. Such mortgages were funded by bank borrowings on the Company's
bank line of credit and cash on hand. In addition, the Company funded an
additional $7,096,000 on existing mortgage loans. Such additional amounts
funded will result in an increase in interest income earned by the Company on
these loans. The additional amounts funded were financed by borrowings on the
Company's bank line of credit and by cash on hand.
During 1998, the Company sold 2 skilled nursing facilities in 2 separate
transactions for an aggregate price of approximately $5,512,000, less
transaction costs, resulting in an aggregate gain of approximately $2,321,000.
The proceeds of the sales were used to repay borrowings on the Company's bank
line of credit.
During 1998, 2 of the Company's mortgage loans, each secured by a skilled
nursing facility, matured and were repaid in full in an aggregate principal
amount of approximately $5,382,000. During the same period, another mortgage
loan with a principal balance of approximately $2,150,000, secured by two
skilled nursing facilities, was also repaid in full. The proceeds were used to
repay borrowings on the Company's bank line of credit.
During 1998, the Company issued $190,150,000 in aggregate principal amount
of medium-term notes. The notes bear fixed interest at a weighted average
interest rate of 7.2% and have a weighted average maturity of 18.2 years. The
proceeds were used to repay borrowings on the Company's bank line of credit.
At December 31, 1998, the Company had $58,000,000 available under its
$100,000,000 bank line of credit. The Company also had effective shelf
registrations on file with the Securities and Exchange Commission under which
the Company may issue (a) up to $54,850,000 in aggregate principal amount of
medium-term notes and (b) up to $178,247,000 of securities including debt,
convertible debt, common and preferred stock. The Company anticipates issuing
securities under such shelf registrations to repay borrowings under the
Company's bank line of credit, for the financing of additional investments and
for general corporate purposes.
On April 29, 1998, the Company issued 1,048,128 shares of common stock
resulting in aggregate net proceeds of approximately $23,214,000 before
expenses related to the offering. On September 25, 1998, the Company issued
1,500,000 shares of common stock resulting in aggregate net proceeds of
approximately
11
$30,000,000 before expenses related to the offering. The net proceeds from the
offerings were used to repay borrowings under the Company's bank line of
credit.
At December 31, 1998, the Company had $57,431,000 of convertible debentures
due January 1, 1999 outstanding. Subsequent to year end, $8,000 of such
debentures were converted into 356 shares of common stock and the remaining
debentures, totaling $57,423,000, were repaid. The repayment was funded by
bank borrowings on the Company's bank line of credit and cash on hand.
The Company anticipates making additional investments in health care related
facilities. Financing for such future investments may be provided by
borrowings under the Company's bank line, private placements or public
offerings of debt or equity, and the assumption of secured indebtedness. The
Company believes it has sufficient liquidity and financing capability to
finance future investments as well as repay borrowings at or prior to their
maturity.
Year 2000 Readiness Disclosure
All statements contained in the following section are "Year 2000 Readiness
Disclosures" within the meaning of the Year 2000 Information and Disclosure
Act.
The Year 2000 issue (the "Year 2000 Issue") in computers arises from the
common industry practice of using two digits to represent a date in computer
software code and databases to enhance both processing time and save storage
space. Therefore, when dates in the year 2000 and beyond are indicated and
computer programs read the date "00," the computer may default to the year
"1900" rather than the correct "2000." This could result in incorrect
calculations, faulty data and computer shutdowns, which would cause
disruptions of operations.
The Company is reviewing the risks of the Year 2000 Issue with regard to the
Company's own internal operations, information systems and software
applications and the impact on the Company of its outside vendors', lessees'
and borrowers' ability to operate. The Company believes its own internal
operations, information systems and software applications are likely to be
compliant or will be compliant by mid-1999 based upon reasonable assurance by
vendors and the Company's information systems consultant. The Company's
computer information system currently consists of 16 personal computers and 1
network server. The Company anticipates replacing its entire computer system
during the first half of 1999 to enable it to upgrade its accounting software
unrelated to the Year 2000 Issue. The cost to remediate the Year 2000 Issues
with regard to the Company's internal operations, information systems and
software applications is not believed to be material.
The Company's vendors that provide banking, communications and payroll
services and the Company's lessees and borrowers will also likely be affected
by the Year 2000 Issue. If the Company's vendors, lessees and borrowers are
not Year 2000 compliant, or if they face disruptions in their operations or
cash flows due to Year 2000 Issues, the Company could face significant
temporary disruptions in rent and mortgage payments and, therefore, cash flows
after that date.
The Company's lessees and borrowers generally rely extensively on
information systems, including systems for capturing patient and cost
information and for billing and collection of reimbursement for health care
services provided. Furthermore, the Company's lessees and borrowers likewise
are dependent on a variety of third parties, including, but not limited to,
Medicare and Medicaid programs, insurance companies, HMO's and other private
payors, governmental agencies, fiscal intermediaries that process claims and
make payments for the Medicare and Medicaid programs, utilities that provide
electricity, water, natural gas and communications services, and vendors of
medical supplies and pharmaceuticals used in patient care, all of whom must
also adequately address the Year 2000 Issue. The Company is currently
reviewing publicly filed information of its lessees, borrowers and vendors
regarding their state of readiness with respect to identifying and remediating
their Year 2000 Issues. In January of 1999, the Company began sending
questionnaires to and/or contacting its lessees, borrowers and vendors
regarding their state of readiness with respect to identifying and remediating
their Year 2000 Issues. The Company plans to complete the assessment by mid-
1999. However, it is not possible for the Company to determine or be assured
that adequate remediation of the Year 2000 Issue will be accomplished by such
lessees,
12
borrowers and vendors. Furthermore, it is not possible for the Company to
determine or be assured that third parties upon which the Company's lessees,
borrowers and vendors are dependent, will accomplish adequate remediation of
their Year 2000 Issues.
The Company will also have risks associated with Year 2000 Issues in non-
information technology areas as it relates to owned properties. There is a
risk that embedded chips in elevators, security systems, electrical systems
and similar technology-driven devices may stop functioning due to Year 2000
Issues. Substantially all of the Company's owned properties are leased under
triple-net leases and as such, the cost to remediate any of these items will
be paid by the lessees.
Based on currently available information, the Company believes that the
impact of the Year 2000 Issue, as it relates to its internal operations,
information systems and software applications will not be material. However,
there can be no assurance that the Year 2000 Issues of its vendors, lessees,
borrowers and third parties upon which they are dependent will not have a
material impact on the future operations and/or financial results of the
Company.
Readers are cautioned that most of the statements contained in the "Year
2000 Readiness Disclosure" paragraphs are forward looking and should be read
in conjunction with the Company's disclosures under the heading "Statement
Regarding Forward Looking Disclosure" set forth above.
Impact of New Accounting Pronouncements
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 Reporting Comprehensive Income in 1998. This Statement requires that
all items that meet the definition of components of comprehensive income be
reported in a financial statement for the period in which they are recognized.
Components of comprehensive income include revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. There are no differences
between the Company's net income, as reported, and comprehensive income, as
defined, for the periods presented, or as of December 31, 1998.
The Company has also adopted SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information in 1998. The Company believes it operates
in only one business segment.
Issue No. 97-11 Accounting for Internal Costs Relating to Real Estate
Property Acquisitions released by the Emerging Issues Task Force of the
Financial Accounting Standards Board which prohibits the capitalization of
internal costs related to the acquisition of operating property was issued
during the first quarter of 1998. The impact of this pronouncement is
immaterial to the Company's financial statements.
Market Risk Exposure
The Company is exposed to market risks related to fluctuations in interest
rates on its mortgage loans receivable and debt. The Company does not utilize
interest rate swaps, forward or option contracts on foreign currencies or
commodities, or other types of derivative financial instruments. The purpose
of the following analyses is to provide a framework to understand the
Company's sensitivity to hypothetical changes in interest rates as of December
31, 1998. Readers are cautioned that many of the statements contained in the
"Market Risk Exposure" paragraphs are forward looking and should be read in
conjunction with the Company's disclosures under the heading "Statement
Regarding Forward Looking Disclosure" set forth above.
The Company provides mortgage loans to operators of healthcare facilities as
part of its normal operations. The majority of the loans have fixed rates.
Four of the mortgage loans have adjustable rates, however, the rates adjust
only once or twice over the loan lives and the minimum adjusted rate is equal
to the current rate. Therefore, all mortgage loans receivable are treated as
fixed rate notes in the table and analysis below.
The Company utilizes debt financing primarily for the purpose of making
additional investments in healthcare facilities. Historically, the Company has
made short-term borrowings on its bank line of credit to fund
13
its acquisitions until market conditions were appropriate, based on
management's judgment, to issue stock or fixed rate debt to provide long-term
financing. The Company holds variable rate debt in the form of housing revenue
bonds, which were assumed in connection with certain healthcare facility
acquisitions because of the favorable interest rates, which in turn provided
favorable lease rates to the sellers/lessees. Pursuant to the associated lease
arrangements, increases or decreases in the interest rates on the housing
revenue bonds would be substantially offset by increases or decreases in the
associated rent received by the Company on the properties securing this debt.
Therefore, there is substantially no market risk associated with the Company's
variable rate debt.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not impact fair market value, but
do affect the future earnings and cash flows. The Company generally cannot
prepay fixed rate debt prior to maturity, therefore, interest rate risk and
changes in fair market value should not have a significant impact on the fixed
rate debt until the Company would be required to refinance such debt. Holding
the variable rate debt balance constant, and including the bank borrowings as
variable rate debt due to its nature, each one percentage point increase in
interest rates would result in an increase in interest expense for the coming
year of approximately $544,000.
The table below details the principal amount and the average interest rates
for the mortgage loans receivable and debt for each category based on the
final maturity dates. Certain of the mortgage loans receivable and certain
items in the various categories of debt, excluding the convertible debentures,
require periodic principal payments prior to the final maturity date. The fair
value estimates for the mortgage loans receivable are based on the estimates
of management and on rates currently prevailing for comparable loans. The fair
market value estimates for debt securities are based on discounting future
cash flows utilizing current rates offered to the Company for debt of the same
type and remaining maturity.
Maturity Date
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
------- ------- ------- ------- ------- ---------- -------- ----------
(Dollars in thousands)
Assets
Mortgage loans
receivable............. -- -- -- -- $ 2,759 $203,854 $206,613 $212,448
Average interest rate.. -- -- -- -- 10.15% 10.27% 10.27%
Liabilities
Debt
Fixed rate............. -- $30,000 $78,150 $50,000 $66,000 $373,270 $597,420 $582,408
Average interest
rate................. -- 7.43% 6.89% 7.35% 7.49% 7.32% 7.29%
Variable rate.......... -- -- -- -- -- $ 12,353 $ 12,353 $ 12,353
Average interest
rate................. -- -- -- -- -- 4.23% 4.23%
Bank borrowings........ -- -- $42,000 -- -- -- $ 42,000 $ 42,005
Average interest
rate................. -- -- 7.05% -- -- -- 7.05%
Convertible
debentures............ $57,431 -- -- -- -- -- $ 57,431 $ 57,431
Average interest
rate................. 6.25% -- -- -- -- -- 6.25%
The Company does not believe that the future market rate risks related to
the above securities will have a material impact on the Company or the results
of its future operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Item 7 for details.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Public Accountants................................. 15
Consolidated Balance Sheets.............................................. 16
Consolidated Statements of Operations.................................... 17
Consolidated Statements of Stockholders' Equity.......................... 18
Consolidated Statements of Cash Flows.................................... 19
Notes to Consolidated Financial Statements............................... 20
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Directors of
Nationwide Health Properties, Inc.
We have audited the accompanying consolidated balance sheets of Nationwide
Health Properties, Inc. (a Maryland corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Nationwide Health
Properties, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
January 22, 1999
15
NATIONWIDE HEALTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
1998 1997
---------- ----------
(In thousands)
ASSETS
Investments in real estate
Real estate properties:
Land............................................... $ 148,388 $ 120,236
Buildings and improvements......................... 1,024,637 809,217
Construction in progress........................... 70,363 31,078
---------- ----------
1,243,388 960,531
Less accumulated depreciation...................... (133,316) (107,077)
---------- ----------
1,110,072 853,454
Mortgage loans receivable, net....................... 206,613 199,819
---------- ----------
1,316,685 1,053,273
Cash and cash equivalents.............................. 16,182 10,192
Receivables............................................ 6,712 4,362
Other assets........................................... 17,724 9,567
---------- ----------
$1,357,303 $1,077,394
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank borrowings........................................ $ 42,000 $ 19,600
Senior notes due 2000-2038............................. 545,150 355,000
Convertible debentures................................. 57,431 64,512
Notes and bonds payable................................ 64,623 58,297
Accounts payable and accrued liabilities............... 42,541 26,939
Commitments and contingencies
Stockholders' equity:
Preferred stock $1.00 par value; 5,000,000 shares
authorized; issued and outstanding: 1,000,000 as of
December 31, 1998 and 1997; stated at liquidation
preference of $100 per share........................ 100,000 100,000
Common stock $.10 par value; 100,000,000 shares
authorized; issued and outstanding: 46,206,128 and
43,128,889 as of December 31, 1998 and 1997,
respectively........................................ 4,621 4,313
Capital in excess of par value......................... 555,998 490,737
Cumulative net income.................................. 433,644 363,896
Cumulative dividends................................... (488,705) (405,900)
---------- ----------
Total stockholders' equity............................. 605,558 553,046
---------- ----------
$1,357,303 $1,077,394
========== ==========
See accompanying notes.
16
NATIONWIDE HEALTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Years ended December 31,
--------------------------
1998 1997 1996
-------- ------- -------
Revenues:
Minimum rent...................................... $104,205 $79,587 $66,536
Interest and other income......................... 22,859 22,454 17,104
Additional rent and additional interest........... 15,520 13,664 12,136
-------- ------- -------
142,584 115,705 95,776
-------- ------- -------
Expenses:
Interest and amortization of deferred financing
costs............................................ 37,531 28,899 20,797
Depreciation and non-cash charges................. 27,976 19,825 16,723
General and administrative........................ 4,650 3,993 3,312
Impairment of long-lived assets................... 5,000 -- --
-------- ------- -------
75,157 52,717 40,832
-------- ------- -------
Income before gain on sale of facilities............ 67,427 62,988 54,944
Gain on sale of facilities.......................... 2,321 829 --
-------- ------- -------
Net income.......................................... 69,748 63,817 54,944
Preferred stock dividends........................... (7,677) (1,962) --
-------- ------- -------
Net income available to common stockholders......... $ 62,071 $61,855 $54,944
======== ======= =======
Per share amounts:
Basic/diluted income from continuing operations
available to common stockholders................. $ 1.34 $ 1.45 $ 1.36
======== ======= =======
Basic/diluted net income available to common
stockholders..................................... $ 1.39 $ 1.47 $ 1.36
======== ======= =======
Weighted average shares outstanding................. 44,637 42,164 40,373
======== ======= =======
See accompanying notes.
17
NATIONWIDE HEALTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Preferred Stock Capital in Total
-------------- --------------- Excess of Cumulative Cumulative Stockholders'
Shares Amount Shares Amount Par Value Net Income Dividends Equity
------- ------ ------ -------- ---------- ---------- ---------- -------------
Balances at December 31,
1995................... 38,720 $3,872 -- $ -- $401,438 $245,135 $(278,623) $371,822
Issuance of common
stock................. 3,058 307 -- -- 60,998 -- -- 61,305
Exercise of common
stock options......... 3 -- -- -- 19 -- -- 19
Conversion of
debentures............ 4 -- -- -- 79 -- -- 79
Net income............. -- -- -- -- -- 54,944 -- 54,944
Common dividends....... -- -- -- -- -- -- (59,581) (59,581)
------- ------ ----- -------- -------- -------- --------- --------
Balances at December 31,
1996................... 41,785 4,179 -- -- 462,534 300,079 (338,204) 428,588
Issuance of common
stock................. 1,326 132 -- -- 30,551 -- -- 30,683
Issuance of preferred
stock................. -- -- 1,000 100,000 (2,750) -- -- 97,250
Conversion of
debentures............ 18 2 -- -- 402 -- -- 404
Net income............. -- -- -- -- -- 63,817 -- 63,817
Preferred dividends.... -- -- -- -- -- -- (1,962) (1,962)
Common dividends....... -- -- -- -- -- -- (65,734) (65,734)
------- ------ ----- -------- -------- -------- --------- --------
Balances at December 31,
1997................... 43,129 4,313 1,000 100,000 490,737 363,896 (405,900) 553,046
Issuance of common
stock................. 2,761 276 -- -- 58,248 -- -- 58,524
Conversion of
debentures............ 316 32 -- -- 7,013 -- -- 7,045
Net income............. -- -- -- -- -- 69,748 -- 69,748
Preferred dividends.... -- -- -- -- -- -- (7,677) (7,677)
Common dividends....... -- -- -- -- -- -- (75,128) (75,128)
------- ------ ----- -------- -------- -------- --------- --------
Balances at December 31,
1998 $46,206 $4,621 1,000 $100,000 $555,998 $433,644 $(488,705) $605,558
======= ====== ===== ======== ======== ======== ========= ========
See accompanying notes.
18
NATIONWIDE HEALTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net income..................................... $ 69,748 $ 63,817 $ 54,944
Depreciation and non-cash charges.............. 27,976 19,825 16,723
Gain on sale of properties..................... (2,321) (829) --
Impairment of long-lived assets................ 5,000 -- --
Amortization of deferred financing costs....... 980 801 772
Net change in other assets and liabilities..... 4,684 2,396 1,690
-------- -------- --------
Net cash provided by operating activities.... 106,067 86,010 74,129
-------- -------- --------
Cash flows from investing activities:
Investment in real estate properties........... (279,384) (239,775) (59,282)
Disposition of real estate properties.......... 5,496 4,812 --
Investment in mortgage loans receivable........ (18,711) (44,947) (31,430)
Principal payments on mortgage loans
receivable.................................... 9,631 12,608 5,678
-------- -------- --------
Net cash used in investing activities.......... (282,968) (267,302) (85,034)
-------- -------- --------
Cash flows from financing activities:
Bank borrowings................................ 308,800 263,700 132,450
Repayment of bank borrowings................... (286,400) (276,400) (194,050)
Issuance of common stock, net.................. 53,062 -- 60,903
Issuance of preferred stock, net............... -- 97,250 --
Issuance of senior unsecured debt.............. 190,150 165,000 90,000
Issuance of notes and bonds.................... 4,507 -- --
Principal payments on notes and bonds payable.. (2,729) (474) (14,135)
Dividends paid................................. (82,805) (67,696) (59,581)
Deferred financing costs....................... (1,694) (1,605) (910)
-------- -------- --------
Net cash provided by financing activities.... 182,891 179,775 14,677
-------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... 5,990 (1,517) 3,772
Cash and cash equivalents, beginning of period... 10,192 11,709 7,937
-------- -------- --------
Cash and cash equivalents, end of period......... $ 16,182 $ 10,192 $ 11,709
======== ======== ========
Supplemental schedule of cash flow information:
Cash interest paid............................. $ 38,402 $ 22,467 $ 12,721
======== ======== ========
See accompanying notes.
19
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998, 1997 and 1996
1. Organization
Nationwide Health Properties, Inc. (the "Company") was incorporated on
October 14, 1985 in the State of Maryland. The Company operates as a real
estate investment trust specializing in investments in health care related
properties and as of December 31, 1998 had investments in 346 health care
facilities, including 203 skilled nursing facilities, 107 assisted living
facilities, 14 continuing care retirement communities, 17 residential care
facilities for the elderly, 2 rehabilitation hospitals and 3 medical clinics.
At December 31, 1998, the Company owned 161 skilled nursing facilities, 99
assisted living facilities, 9 continuing care retirement communities, 17
residential care facilities for the elderly, 2 rehabilitation hospitals and 3
medical clinics. The Company also held 33 mortgage loans secured by 42 skilled
nursing facilities, 8 assisted living facilities and 5 continuing care
retirement communities. In addition, at December 31, 1998, the Company had 26
assisted living facilities under construction. The Company has no foreign
facilities or operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its investment in its majority owned and
controlled joint ventures. All material intercompany accounts and transactions
have been eliminated.
Stock Split
On January 19, 1996, the Board of Directors of Nationwide Health Properties,
Inc. authorized a two-for-one split of the Company's common stock effective on
March 8, 1996. The financial statements included herein have been restated to
reflect the stock split.
Land, Buildings and Improvements
The Company records properties at cost and uses the straight-line method of
depreciation for buildings and improvements over their estimated remaining
useful lives of up to 40 years. The Company provides accelerated depreciation
on certain of its investments based primarily on an estimation of net
realizable value of such investments at the end of the primary lease terms.
Cash and Cash Equivalents
Cash in excess of daily requirements is invested in money market mutual
funds, commercial paper and repurchase agreements with original maturities of
three months or less. Such investments are deemed to be cash equivalents for
purposes of presentation in the financial statements.
Federal Income Taxes
The Company qualifies as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. The Company
intends to continue to qualify as such and therefore to distribute at least
95% of its real estate investment trust taxable income to its stockholders.
Accordingly, the Company will not be subject to Federal income taxes on its
income which is distributed to stockholders. Therefore, no provisions for
Federal income taxes have been made in the Company's financial statements. The
net difference in the tax basis and the reported amounts of the Company's
assets and liabilities as of December 31, 1998 is approximately $2,829,000.
20
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Rental income from operating leases is accrued as earned over the life of
the lease agreements in accordance with generally accepted accounting
principles. There are no step rent provisions in any of the lease agreements.
Additional rent is generally computed as a percentage of facility net patient
revenues in excess of base amounts or as a percentage of the increase in the
Consumer Price Index. Additional rent is generally calculated and payable
monthly or quarterly. Interest income on real estate mortgages is recognized
using the effective interest method based upon the expected payments over the
lives of the mortgages.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Impact of New Accounting Pronouncements
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 Reporting Comprehensive Income in 1998. This Statement requires that
all items that meet the definition of components of comprehensive income be
reported in a financial statement for the period in which they are recognized.
Components of comprehensive income include revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. There are no differences
between the Company's net income, as reported, and comprehensive income, as
defined, for the periods presented, or as of December 31, 1998.
The Company has also adopted SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information in 1998. The Company believes it operates
in only one business segment.
Issue No. 97-11 Accounting for Internal Costs Relating to Real Estate
Property Acquisitions released by the Emerging Issues Task Force of the
Financial Accounting Standards Board which prohibits the capitalization of
internal costs related to the acquisition of operating property was issued
during the first quarter of 1998. The impact of this pronouncement is
immaterial to the Company's financial statements.
3. Earnings Per Share
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Income available to common stockholders is calculated by deducting dividends
declared on preferred stock from income from continuing operations and net
income. Diluted earnings per share includes the effect of the potential shares
outstanding; dilutive stock options and dilutive convertible debentures. The
convertible debentures were not dilutive in 1998, 1997 or 1996. The table
below details the components of the basic and diluted earnings per share from
continuing operations calculations.
Years Ended December 31,
----------------------------------------------
1998 1997 1996
--------------- --------------- --------------
Income Shares Income Shares Income Shares
------- ------ ------- ------ ------- ------
(Amounts in thousands)
Income before gain on sale of
facility...................... $67,427 $62,988 $54,944
Less: preferred stock
dividends..................... (7,677) (1,962) --
------- ------- -------
Basic EPS...................... 59,750 44,637 61,026 42,164 54,944 40,373
Effect of dilutive securities:
Stock options................ -- 8 -- 9 -- 4
------- ------ ------- ------ ------- ------
Diluted EPS.................... $59,750 44,645 $61,026 42,173 $54,944 40,377
======= ====== ======= ====== ======= ======
21
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Real Estate Properties
Substantially all of the Company's owned facilities are leased under "net"
leases which are accounted for as operating leases. The leases have initial
terms ranging from 9 to 19 years, and generally the leases have two or more
multiple-year renewal options. The Company earns fixed monthly minimum rents
and may earn periodic additional rents. The additional rent payments are
generally computed as a percentage of facility net patient revenues in excess
of base amounts or as a percentage of the increase in the Consumer Price
Index. Additional rents are generally calculated and payable monthly or
quarterly. Most leases contain provisions such that the total rent cannot
decrease from one year to the next. Certain of the leases contain provisions
such that the percentage of further revenue increases due to the Company as
additional rent is limited to 1% at such time as additional rent exceeds 41%
of minimum rent. Most leases contain cross-collateralization and cross-default
provisions tied to other leases with the same lessee, as well as grouped lease
renewals and grouped purchase options. Obligations under the leases have
corporate guarantees, and leases covering 194 facilities are backed by
irrevocable letters of credit or security deposits that cover 2 to 12 months
of monthly minimum rents. Under the terms of the leases, the lessee is
responsible for all maintenance, repairs, taxes and insurance on the leased
properties.
Minimum future rentals on non-cancelable leases as of December 31, 1998 are
as follows:
Minimum
Year Rentals
---- --------------
(In thousands)
1999............ $112,955
2000............ 100,913
2001............ 93,978
2002............ 89,439
2003............ 86,713
2004............ 83,033
2005............ 79,452
2006............ 72,268
2007............ 59,063
2008............ 48,808
Thereafter...... $128,934
During 1998, the Company acquired 17 skilled nursing facilities, 16 assisted
living facilities, 2 continuing care retirement communities and 9 residential
care facilities for the elderly in 26 separate transactions for an aggregate
investment of approximately $123,840,000. During 1998, the Company provided
new construction financing of approximately $143,853,000. Construction of 1
skilled nursing facility, 11 assisted living facilities, 1 continuing care
retirement community and 2 clinics was completed in 1998, in which the
Company's total aggregate investment was $103,155,000; $57,179,000 of this
amount was a current year investment included in the new construction
financing amount above. Upon acquisition or completion of construction, as
applicable, the facilities were concurrently leased under terms generally
similar to the Company's existing leases. The Company also funded
approximately $19,715,000 in capital improvements in accordance with certain
existing lease provisions. Such capital improvements will result in an
increase in the minimum rents earned by the Company on these facilities. The
acquisitions, construction advances and capital improvements were funded by
bank borrowings on the Company's bank line of credit and cash on hand. The
acquisitions were also funded by approximately $4,137,000 of debt assumption
and the issuance of 201,190 shares of the Company's common stock.
During 1998, the Company sold two skilled nursing facilities in two separate
transactions for an aggregate price of approximately $5,512,000, less
transaction costs, resulting in an aggregate gain of approximately $2,321,000.
The proceeds of the sales were used to repay borrowings on the Company's bank
line of credit.
22
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table lists the Company's real estate properties as of December
31, 1998:
Buildings Notes and
Number of and Total Accumulated Bonds
Facility Location Facilities Land Improvements Investment(1) Depreciation Payable
----------------- ---------- ------- ------------ ------------- ------------ ---------
(Dollar amounts in thousands)
Skilled Nursing
Facilities:
Arizona............... 1 $ 650 $ 2,890 $ 3,540 $ 713 $ --
Arkansas.............. 10 2,900 37,072 39,972 2,551 2,255
California............ 8 7,053 19,428 26,481 4,207 --
Connecticut........... 3 1,044 6,820 7,864 1,598 --
Florida............... 9 4,187 25,289 29,476 6,229 --
Georgia............... 1 801 6,542 7,343 997 --
Idaho................. 1 15 777 792 233 --
Illinois.............. 2 157 5,392 5,549 1,333 --
Indiana............... 11 2,044 34,026 36,070 7,121 --
Kansas................ 10 767 13,211 13,978 2,444 --
Maryland.............. 4 845 21,212 22,057 7,481 --
Massachusetts......... 17 7,488 60,811 68,299 7,218 --
Minnesota............. 10 2,559 35,131 37,690 12,514 --
Mississippi........... 1 750 3,517 4,267 25 --
Missouri.............. 1 51 2,689 2,740 999 --
Nevada................ 1 740 3,294 4,034 597 --
New Jersey............ 1 360 6,449 6,809 3,303 --
North Carolina........ 1 116 2,244 2,360 834 --
Ohio.................. 6 1,316 28,235 29,551 7,553 --
Oklahoma.............. 3 98 3,841 3,939 1,147 --
Oregon................ 4 435 6,325 6,760 2,350 --
Tennessee............. 10 2,354 33,137 35,491 3,912 --
Texas................. 26 4,817 52,984 57,801 11,467 --
Virginia.............. 4 1,036 17,532 18,568 6,515 --
Washington............ 7 2,973 26,490 29,463 2,896 --
Wisconsin............. 9 1,621 19,548 21,169 6,941 --
--- ------- -------- -------- -------- -------
Subtotals........... 161 47,177 474,886 522,063 103,178 2,255
--- ------- -------- -------- -------- -------
Continuing Care
Retirement Communities:
California............ 1 1,600 10,573 12,173 1,111 --
Colorado.............. 1 400 2,716 3,116 430 --
Georgia............... 1 723 10,769 11,492 26 --
Kansas................ 1 687 12,514 13,201 496 2,700
Massachusetts......... 1 1,351 10,393 11,744 293 --
Texas................. 2 2,681 32,860 35,541 989 --
Wisconsin............. 2 11,057 53,294 64,351 1,941 24,359
--- ------- -------- -------- -------- -------
Subtotals........... 9 18,499 133,119 151,618 5,286 27,059
--- ------- -------- -------- -------- -------
23
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes
Buildings and
Number of and Total Accumulated Bonds
Facility Location Facilities Land Improvements Investment(1) Depreciation Payable
----------------- ---------- -------- ------------ ------------- ------------ -------
(Dollar amounts in thousands)
Assisted Living
Facilities:
Alabama............... 2 $ 1,681 $ 4,271 $ 5,952 $ 260 $ --
Arizona............... 2 1,024 6,844 7,868 357 --
Arkansas.............. 1 182 1,478 1,660 25 --
California............ 13 15,105 63,725 78,830 5,862 --
Colorado.............. 4 2,146 19,631 21,777 1,640 --
Florida............... 18 9,143 56,098 65,241 2,586 --
Idaho................. 1 544 11,256 11,800 687 --
Illinois.............. 1 603 10,474 11,077 524 --
Indiana............... 1 805 3,843 4,648 64 --
Kansas................ 4 1,885 11,585 13,470 268 --
Kentucky.............. 1 110 2,544 2,654 67 --
Massachusetts......... 2 3,463 13,834 17,297 173 --
Michigan.............. 1 300 7,005 7,305 760 --
Missouri.............. 1 414 2,115 2,529 55 --
Nevada................ 2 1,219 12,397 13,616 328 6,888
New Jersey............ 1 655 3,430 4,085 21 --
North Carolina........ 1 385 2,531 2,916 47 --
Ohio.................. 10 2,971 26,515 29,486 936 --
Oklahoma.............. 3 745 7,355 8,100 807 --
Oregon................ 6 2,078 26,753 28,831 2,117 9,057
South Carolina........ 4 779 10,259 11,038 102 --
Tennessee............. 2 1,355 6,915 8,270 245 --
Texas................. 12 3,541 34,004 37,545 1,414 --
Washington............ 4 1,840 21,087 22,927 889 --
Wisconsin............. 2 4,843 24,219 29,062 756 19,364
--- -------- ---------- ---------- -------- -------
Subtotals........... 99 57,816 390,168 447,984 20,990 35,309
--- -------- ---------- ---------- -------- -------
Residential Care
Facilities for the
Elderly:
California............ 17 1,228 4,347 5,575 125 --
--- -------- ---------- ---------- -------- -------
Rehabilitation
Hospitals:
Arizona............... 2 1,517 15,309 16,826 3,097 --
--- -------- ---------- ---------- -------- -------
Medical Clinics:
Alabama............... 1 248 2,183 2,431 246 --
Texas................. 2 1,868 4,625 6,493 394 --
--- -------- ---------- ---------- -------- -------
Subtotals........... 3 2,116 6,808 8,924 640 --
--- -------- ---------- ---------- -------- -------
Construction In
Progress............... -- 20,035 70,363 90,398 -- --
--- -------- ---------- ---------- -------- -------
Total Owned Facilities.. 291 $148,388 $1,095,000 $1,243,388 $133,316 $64,623
=== ======== ========== ========== ======== =======
- --------
(1) Also represents the approximate aggregate cost for Federal income tax
purposes.
24
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Mortgage Loans Receivable
During 1998, the Company provided three mortgage loans secured by 1 skilled
nursing facility and 2 assisted living facilities in the aggregate amount of
$11,615,000. In addition, the Company funded an additional $7,096,000 on
existing mortgage loans. Such additional amounts funded will result in an
increase in interest income earned by the Company. Additionally, 2 of the
Company's mortgage loans, each secured by a skilled nursing facility, matured
and were repaid in full in an aggregate principal amount of approximately
$5,382,000. During the same period, another mortgage loan with a principal
balance of approximately $2,150,000, secured by 2 skilled nursing facilities,
was also repaid in full. At December 31, 1998, the Company had 33 mortgage
loans receivable secured by 42 skilled nursing facilities, 8 assisted living
facilities and 5 continuing care retirement communities. The loans have an
aggregate principal balance of approximately $214,765,000 and are reflected in
the Company's financial statements net of an aggregate discount of
approximately $8,152,000. The principal balances of mortgage loans receivable
as of December 31, 1998 mature approximately as follows: $2,653,000 in 1999,
$2,324,000 in 2000, $2,586,000 in 2001, $2,784,000 in 2002, $6,156,000 in 2003
and $198,262,000 thereafter.
The following table lists the Company's mortgage loans receivable at
December 31, 1998:
Final Estimated Original Face Carrying
Number of Interest Maturity Balloon Amount of Amount of
Location of Facilities Facilities Rate Date Payment(1) Mortgages Mortgages(2)
---------------------- ---------- -------- -------- ---------- ------------- ------------
(Dollar amounts in thousands)
Skilled Nursing
Facilities:
Arkansas.............. 3 10.00% 12/06 $ 4,946 $ 5,500 $ 5,071
California............ 1 10.00% 05/25 1,489 8,200 8,174
California............ 2 9.50% 03/09 5,336 7,841 7,403
Connecticut........... 2 10.00% 06/22 -- 8,862 5,661
Florida............... 1 10.75% 07/03 -- 4,400 975
Florida............... 1 11.25% 07/06 4,400 4,400 4,400
Florida............... 2 11.03% 06/09 4,082 4,082 4,082
Georgia............... 1 11.03% 06/09 2,818 2,818 2,818
Illinois.............. 1 9.00% 01/24 -- 9,500 8,037
Indiana............... 1 10.75% 07/03 -- 785 541
Kansas................ 1 9.00% 09/03 1,169 1,550 1,243
Louisiana............. 1 10.89% 04/15 2,407 3,850 3,829
Maryland.............. 1 10.90% 06/21 -- 7,800 7,497
Massachusetts......... 1 8.75% 02/24 -- 9,000 7,303
Michigan.............. 3 12.61% 12/06 6,904 7,817 7,036
Michigan.............. 2 12.17% 01/05 2,506 3,000 2,645
Michigan.............. 1 11.25% 01/05 1,501 1,800 1,638
Missouri.............. 7 10.87% 08/11 17,725 17,725 17,725
South Dakota.......... 1 10.35% 05/05 -- 4,275 865
Tennessee............. 1 9.99% 01/07 8,550 8,550 8,550
Texas................. 1 12.00% 03/08 -- 1,460 915
Texas................. 1 9.50% 09/13 5,760 5,760 5,760
Virginia.............. 1 10.50% 04/13 10,192 16,250 15,934
Washington............ 4 11.00% 10/19 112 6,000 5,762
Wisconsin............. 1 10.35% 05/05 - 1,350 560
--- ------- -------- --------
Subtotals........... 42 79,897 152,575 134,424
--- ------- -------- --------
25
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Final Estimated Original Face Carrying
Number of Maturity Balloon Amount of Amount of
Location of Facilities Facilities Interest Date Payment(1) Mortgages Mortgages(2)
---------------------- ---------- -------- -------- ---------- ------------- ------------
(Dollar amounts in thousands)
Assisted Living
Facilities:
Florida............... 1 10.39% 11/06 $ 5,500 $ 5,500 $ 5,500
Florida............... 2 10.31% 09/20 -- 7,230 7,230
North Carolina........ 2 10.44% 05/07 2,841 2,841 2,841
Pennsylvania.......... 1 8.79% 09/08 2,900 2,900 2,900
South Carolina........ 1 8.79% 09/08 2,955 2,955 2,955
Washington............ 1 9.95% 12/15 6,403 6,557 6,557
--- -------- -------- --------
Subtotals........... 8 20,599 27,983 27,983
--- -------- -------- --------
Continuing Care
Retirement Communities:
California............ 1 9.50% 03/09 2,831 4,159 3,927
Florida............... 1 11.03% 06/09 14,600 14,600 14,600
Massachusetts......... 1 9.52% 06/23 -- 12,350 12,301
Oklahoma.............. 1 9.55% 03/24 2,250 11,200 10,378
Tennessee............. 1 10.20% 02/07 3,000 3,000 3,000
--- -------- -------- --------
Subtotals........... 5 22,681 45,309 44,206
--- -------- -------- --------
Total............. 55 $123,177 $225,867 $206,613
=== ======== ======== ========
- --------
(1) Most loans require monthly principal and interest payments at level
amounts over life to maturity. Some loans are adjustable rate mortgages
with varying principal and interest payments over life to maturity, in
which case the balloon payments reflected are an estimate. Five of the
loans have decreasing principal and interest payments over the life of the
loans. Most loans require a prepayment penalty based on a percentage of
principal outstanding or a penalty based upon a calculation maintaining
the yield the Company would have earned if prepayment had not occurred.
Seven loans have a provision that no prepayments are acceptable.
(2) Also represents the approximate aggregate cost for Federal income tax
purposes.
The following table summarizes the changes in mortgage loans receivable
during 1998, 1997 and 1996:
1998 1997 1996
-------- -------- --------
(In thousands)
Balance at January 1,.......................... $199,819 $160,464 $133,226
New mortgage loans........................... 18,711 50,134 31,430
Accretion of discount on loans............... 1,214 1,829 1,486
Reclassification of loan..................... (3,500) -- --
Collection of principal...................... (9,631) (12,608) (5,678)
-------- -------- --------
Balance at December 31,........................ $206,613 $199,819 $160,464
======== ======== ========
26
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Bank Borrowings
The Company has a $100,000,000 unsecured credit agreement with certain banks
which matures on March 31, 2001. The terms of the bank line of credit include
an option to automatically extend the bank line of credit by one year with
concurrence of the bank group. At the option of the Company, borrowings under
the agreement bear interest at prime (7.75% at December 31, 1998) or LIBOR
plus 50 basis points (5.6125% at December 31, 1998). The Company pays a
facility fee of .25% per annum on the total commitment under the agreement.
Under covenants contained in the credit agreement, the Company is required
to maintain, among other things: (i) a minimum net worth of $500,000,000; (ii)
a ratio of cash flow before interest expense and non-cash expenses to
regularly scheduled debt service payments on all debt of at least 2.0 to 1.0;
and (iii) a ratio of total liabilities to net worth of not more than 1.3 to
1.0.
7. Notes and Bonds Payable
Notes and bonds payable are due through the year 2035, at interest rates
ranging from 3.5% to 10.9% and are secured by real estate properties with an
aggregate net book value as of December 31, 1998 of approximately
$114,225,000. The principal balances of the notes and bonds payable as of
December 31, 1998 mature approximately as follows: $942,000 in 1999, $988,000
in 2000, $1,051,000 in 2001, $1,117,000 in 2002, $1,187,000 in 2003, and
$59,338,000 thereafter.
8. Senior Unsecured Notes Due 2000-2038
During 1998, the Company issued $190,150,000 in aggregate principal amount
of medium term notes. The aggregate principal amount of Senior Notes
outstanding at December 31, 1998 was $545,150,000. The weighted average
interest rate on the Senior Notes was 7.3% and the weighted average maturity
was 15.3 years. The principal balances of the Senior Notes as of December 31,
1998 mature approximately as follows: $30,000,000 in 2000, $78,150,000 in
2001, $50,000,000 in 2002, $66,000,000 in 2003 and $321,000,000 thereafter.
There are $55,000,000 of medium term notes due in 2037 which may be put back
to the Company at their face amount at the option of the holder on October 1st
of any of the following years: 2004, 2007, 2009, 2012, 2017, or 2027. There
are $41,500,000 of medium term notes due in 2028 which may be put back to the
Company at their face amount at the option of the holder on November 20th of
any of the following years: 2003, 2008, 2013, 2018, or 2023. There are
$40,000,000 of medium term notes due in 2038 which may be put back to the
Company at their face amount at the option of the holder on July 7th of any of
the following years: 2003, 2008, 2013, 2018, 2023, or 2028.
9. Convertible Debentures
During 1993, the Company issued $65,000,000 of 6.25% unsecured convertible
debentures due January 1, 1999. The debentures are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion
price of $22.4125 per share. During 1998, $7,081,000 of such debentures
converted into 315,921 shares of common stock. During 1997, $408,000 of such
debentures converted into 18,202 shares of common stock. Subsequent to year
end, $8,000 of such debentures were converted into 356 shares of common stock
and the remaining debentures, totaling $57,423,000, were repaid.
10. Preferred Stock
During 1997, the Company sold 1,000,000 shares of 7.677% Series A Cumulative
Preferred Step-Up REIT securities ("Preferred Stock") with a liquidation
preference of $100 per share. Dividends on the Preferred Stock are cumulative
from the date of original issue and are payable quarterly in arrears,
commencing December 31,
27
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997 at the rate of 7.677% per annum of the liquidation preference per share
(equivalent to $7.677 per annum per share) through September 30, 2012 and at a
rate of 9.677% of the liquidation preference per annum per share (equivalent
to $9.677 per annum per share) thereafter. The Preferred Stock is not
redeemable prior to September 30, 2007. On or after September 30, 2007, the
Preferred Stock may be redeemed for cash at the option of the Company, in
whole or in part, at a redemption price of $100 per share, plus accrued and
unpaid dividends, if any, thereon.
11. STOCK INCENTIVE PLAN
Under the terms of a stock incentive plan (the "Plan"), the Company has
reserved for issuance 1,600,000 shares of common stock. Under the Plan, as
amended, the Company may issue stock options, restricted stock, dividend
equivalents and stock appreciation rights. The Company accounts for the Plan
under Accounting Principles Board Opinion No. 25 Accounting for Stock Issued
to Employees. Had compensation cost for the Plan been determined consistent
with SFAS No. 123 Accounting for Stock-Based Compensation, the Company's net
income and net income per share in 1998, 1997 and 1996 would have been the
following pro forma amounts:
1998 1997 1996
----------- ----------- -----------
Net income available to common
stockholders:
As reported......................... $62,071,000 $61,855,000 $54,944,000
Pro forma........................... 61,840,000 61,712,000 54,867,000
Basic/diluted net income per share:
As reported......................... $ 1.39 $ 1.47 $ 1.36
Pro forma........................... 1.39 1.46 1.36
Because the pro forma calculation reflects only amounts attributable to
options granted since January 1, 1995, future pro forma affects may not be
comparable to those above. A summary of the status of the Plan at December 31,
1998, 1997 and 1996 and changes during the years then ended are as follows:
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
Options:
Outstanding at
beginning of year.... 179,000 $21.89 89,000 $20.78 3,400 $5.625
Granted............... 100,000 26.14 90,000 23.00 89,000 20.78
Exercised............. -- -- -- -- (3,400) 5.625
Forfeited............. -- -- -- -- -- --
Expired............... -- -- -- -- -- --
------- ------- -------
Outstanding at end of
year................... 279,000 23.42 179,000 21.89 89,000 20.78
======= ======= =======
Exercisable at end of
year................... 89,328 21.52 29,667 20.78 -- --
Weighted average fair
value of options
granted................ $ 2.69 $ 2.14 $ 2.77
Restricted Stock:
Outstanding at
beginning of year.... 94,900 109,100 103,900
Awarded............... 12,000 10,000 10,000
Vested................ (33,500) (24,200) (4,800)
Forfeited............. -- -- --
------- ------- -------
Outstanding at end of
year................... 73,400 94,900 109,100
======= ======= =======
Weighted average fair
value of restricted
stock awarded.......... $26.12 $23.19 $20.88
28
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock options granted under the Plan become exercisable each year following
the date of grant in annual increments of one-third and are exercisable at the
market price of the Company's common stock on the date of grant. Options at
December 31, 1998 have a weighted average contractual life of 8 years.
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option pricing model with the following weighted average
assumptions:
1998 1997 1996
----- ----- -----
Risk free rate of return.......... 6.30% 6.30% 6.43%
Dividend yield.................... 6.43% 6.78% 7.13%
Option Term....................... 10 10 10
Volatility........................ 16.45% 16.45% 22.78%
The restricted stock awards are granted at no cost. Restricted stock awards
vest at the third anniversary of the award date with respect to non-employee
directors and at the fifth anniversary with respect to officers and employees.
The restricted stock awards are amortized over their respective vesting
periods. Expense is determined based upon the market value at the date of
award of the restricted stock and is recognized over the vesting period.
Expense recorded in 1998, 1997 and 1996 related to restricted stock awards was
approximately $440,000, $368,000 and $372,000, respectively.
Awards of dividend equivalents accompany the 1998, 1997 and 1996 stock
option grants on a one-for-one basis. Such dividend equivalents are payable in
cash until such time as the corresponding stock option is exercised, based
upon a formula approved by the Compensation Committee of the Board of
Directors. That formula depends on the Company's performance measured for a
minimum of a three-year period and up to a five-year period by total return to
stockholders (increase in stock price and dividends paid) compared to peer
companies and other companies comprising a general index of real estate
investment trusts, in each case as selected by the Compensation Committee.
Dividend equivalents may be earned in all or part depending upon the actual
total return to shareholders as compared to peer groups of other real estate
investment trusts. Due to the uncertainty of the ultimate payment of dividend
equivalents, no compensation expense was recorded during 1997 or 1996 with
respect to dividend equivalents. During 1998, compensation expense in the
amount of $210,000 was recorded related to the 1996 awards.
No stock appreciation rights have been issued under the Plan.
12. Pension Plan
During 1991, the Company adopted an unfunded benefit pension plan covering
the current non-employee members of its Board of Directors upon completion of
five years of service on the Board. The benefits, limited to the number of
years of service on the Board, are based upon the then current annual retainer
in effect.
The following tables set forth the amounts recognized in the Company's
financial statements at December 31, 1998 and 1997:
1998 1997
-------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $723,000 $789,000
======== ========
Accumulated benefit obligation......................... $730,000 $834,000
======== ========
Projected benefit obligation............................. $814,000 $887,000
Unrecognized prior service cost.......................... (74,000) (101,000)
Unrecognized net gain.................................... 163,000 10,000
-------- --------
Accrued pension cost..................................... $903,000 $796,000
======== ========
29
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net pension cost for the year included the following components:
1998 1997 1996
-------- -------- --------
Current service cost........................... $ 43,000 $ 47,000 $ 87,000
Interest cost.................................. 61,000 58,000 53,000
Amortization of prior service cost............. 27,000 27,000 27,000
-------- -------- --------
Net periodic pension cost...................... $131,000 $132,000 $167,000
======== ======== ========
Discount rates of 7.0%, 7.5% and 7.0% in 1998, 1997 and 1996, respectively
and a 5.0% increase in the annual retainer every other year were used in
determining the actuarial present value of the projected benefit obligation.
13. Transactions with Beverly Enterprises, Inc. and Alternative Living
Services, Inc.
As of December 31, 1998, 48 of the owned facilities are leased to and
operated by subsidiaries of Beverly Enterprises, Inc. ("Beverly"). Beverly has
guaranteed certain obligations of its subsidiaries and of certain parties
unaffiliated with Beverly in connection with 27 properties operated by such
parties. Additionally, Beverly is the borrower on four of the Company's
mortgage loans. Revenues from Beverly were approximately $21,161,000,
$19,712,000 and $21,837,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
As of December 31, 1998, 54 of the owned facilities are leased to and
operated by subsidiaries of Alternative Living Services, Inc. ("ALS").
Additionally, ALS is the borrower on one of the Company's mortgage loans.
Revenues from ALS were approximately $17,114,000, $10,274,000 and $6,292,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
One of the directors of the Company is also an officer and director of
Beverly.
14. Impairment of Long-lived Assets
During 1998, the Company recorded a provision of $5,000,000 as a reduction
in the value of the Company's investment in three medical clinics constructed
for and leased to a company that declared bankruptcy. The Company is currently
in the process of finding another party to whom it may lease or sell these
facilities. The fair value of the medical clinics was determined based on
discounted estimated future cash flows.
15. Dividends
Dividend payments by the Company to the common stockholders were
characterized in the following manner for tax purposes:
1998 1997 1996
----- ------ -----
Ordinary income........................................... $1.63 $1.505 $1.48
Capital gain.............................................. .05 .055 --
Return of capital......................................... -- -- --
----- ------ -----
Total dividends paid.................................... $1.68 $1.560 $1.48
===== ====== =====
30
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Quarterly Financial Data (unaudited)
Three months ended,
---------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(In thousands except per share amounts)
1998:
Revenues................... $33,158 $34,491 $36,625 $38,310
Net income available to
common stockholders....... 17,971 16,227 16,407 11,467
Basic/diluted net income
per share................. .42 .37 .37 .25
Dividends per share........ .42 .42 .42 .42
1997:
Revenues................... $26,302 $27,198 $29,296 $32,909
Net income available to
common stockholders....... 14,755 14,914 16,499 15,687
Basic/diluted net income
per share................. .35 .36 .39 .36
Dividends per share........ .39 .39 .39 .39
17. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
those instruments.
Mortgage Loans Receivable
Fair values are based upon the estimates of management and on rates
currently prevailing for comparable loans.
Long-Term Debt
The fair value of long-term debt is estimated based on discounting future
cash flows utilizing current rates offered to the Company for debt of the same
type and remaining maturity.
The estimated fair values of the Company's financial instruments are as
follows:
1997 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In thousands)
Cash and cash equivalents............... $ 16,182 $ 16,182 $ 10,192 $ 10,192
Mortgage loans receivable............... 206,613 212,448 199,819 225,997
Long-term debt.......................... 709,204 694,197 497,409 513,034
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Directors of Nationwide Health Properties, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Nationwide Health
Properties, Inc.'s annual report to shareholders included in this Form 10-K,
and have issued our report thereon dated January 22, 1999. Our audit was made
for the purpose of forming an opinion on those statements taken as a whole.
The schedule listed in the index of consolidated financial statements is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
January 22, 1999
32
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
NATIONWIDE HEALTH PROPERTIES, INC.
DECEMBER 31, 1998
Initial Cost Cost Gross Amount at which
to Company Capitalized Carried at Close of Period(1) Life on
------------ Subsequent --------------------------------- Original which
Facility Type Building and to Building and Accum. Construction Date Depr. is
and Location Improvements Acquisition Land(2) Improvements Total Depr. Date Acquired Computed
- ------------- ------------ ----------- --------- ------------ ---------- --------- ------------ -------- --------
Skilled
Nursing
Facilities:
Benton AR $4,531,579 $ 0 $ 685,000 $4,531,579 $5,216,579 $ 75,526 1992 1998 35
Bryant AR 4,693,350 0 320,000 4,693,350 5,013,350 78,222 1989 1998 35
Hot
Springs AR 2,320,549 0 53,647 2,320,549 2,374,196 823,242 1972 1986 35
Jacksonville AR 3,452,650 0 155,206 3,452,650 3,607,856 1,224,868 1962 1986 35
Lake
Village AR 3,872,414 0 261,000 3,872,414 4,133,414 56,473 1997 1998 40
Monticello AR 3,242,420 0 300,000 3,242,420 3,542,420 47,285 1993 1998 40
Morrilton AR 3,635,054 0 250,000 3,635,054 3,885,054 60,584 1988 1998 35
Morrilton AR 5,092,367 0 308,000 5,092,367 5,400,367 74,264 1996 1998 40
Wilmot AR 2,217,201 0 240,000 2,217,201 2,457,201 43,112 1964 1998 30
Wynne(10) AR 4,015,013 0 327,000 4,015,013 4,342,013 66,917 1990 1998 35
Scottsdale AZ 2,790,266 100,000 650,000 2,890,266 3,540,266 713,427 1963 1991 30
Chowchilla CA 1,119,040 0 108,996 1,119,040 1,228,036 314,730 1964 1987 40
Gilroy CA 1,891,735 0 714,000 1,891,735 2,605,735 457,169 1968 1991 30
Hayward CA 1,221,698 220,882 795,000 1,442,580 2,237,580 332,057 1967 1991 30
Orange CA 5,059,079 0 1,140,921 5,059,079 6,200,000 811,560 1987 1992 40
Pomona CA 1,247,000 0 365,000 1,247,000 1,612,000 463,367 1963 1985 35
San
Diego CA 4,925,213 0 842,000 4,925,213 5,767,213 998,724 1965 1992 30
San Jose CA 1,136,353 571,191 1,595,000 1,707,544 3,302,544 369,817 1968 1991 30
Santa Cruz CA 1,595,864 439,900 1,492,000 2,035,764 3,527,764 458,983 1967 1991 30
Bloomfield CT 2,826,635 0 670,000 2,826,635 3,496,635 400,440 1967 1994 30
Torrington CT 2,555,400 0 140,000 2,555,400 2,695,400 766,620 1969 1987 40
West Haven CT 1,437,616 0 234,521 1,437,616 1,672,137 431,285 1965 1986 40
Ft. Pierce FL 2,758,000 0 125,000 2,758,000 2,883,000 1,024,832 1965 1985 35
Jacksonville FL 1,759,151 0 1,503,375 1,759,151 3,262,526 69,633 1997 1997 40
Jacksonville FL 1,852,616 0 160,748 1,852,616 2,013,364 524,908 1964 1987 40
Jacksonville FL 2,787,093 0 498,000 2,787,093 3,285,093 224,515 1965 1996 30
Lakeland FL 5,028,699 0 1,000,000 5,028,699 6,028,699 712,399 1982 1994 30
Live Oak FL 3,217,008 0 50,390 3,217,008 3,267,398 1,141,272 1983 1986 35
Pensacola FL 1,833,333 0 76,923 1,833,333 1,910,256 527,083 1969 1987 40
Tampa FL 2,726,244 0 563,461 2,726,244 3,289,705 823,554 1971 1986 40
Winter Park FL 3,326,824 0 208,935 3,326,824 3,535,759 1,180,231 1983 1986 35
Lawrenceville GA 3,993,005 2,549,381 800,619 6,542,386 7,343,005 996,864 1988 1991 40
Buhl ID 777,353 0 14,754 777,353 792,107 233,206 1913 1986 40
Lasalle IL 2,702,896 0 127,000 2,702,896 2,829,896 668,216 1975 1991 30
Litchfield IL 2,688,920 0 30,000 2,688,920 2,718,920 664,760 1972 1991 30
Brookville IN 4,119,500 0 80,500 4,119,500 4,200,000 635,090 1987 1992 40
Evansville IN 5,324,304 0 280,000 5,324,304 5,604,304 1,316,286 1968 1991 30
Gas City IN 3,082,041 0 147,000 3,082,041 3,229,041 205,475 1976 1996 30
Ligonier IN 1,668,811 0 54,000 1,668,811 1,722,811 111,254 1976 1997 30
Muncie IN 888,187 0 109,000 888,187 997,187 59,213 1975 1997 30
Muncie IN 1,141,065 662,030 983,000 1,803,095 2,786,095 66,785 1989 1997 35
New Castle IN 5,172,887 0 43,000 5,172,887 5,215,887 1,278,853 1972 1991 30
Petersburg IN 2,351,555 0 32,654 2,351,555 2,384,209 834,242 1968 1986 35
Richmond IN 2,519,523 0 114,022 2,519,523 2,633,545 893,831 1974 1986 35
Rochester IN 4,055,338 250,000 161,000 4,305,338 4,466,338 1,030,439 1969 1991 30
Wabash IN 2,789,896 0 40,000 2,789,896 2,829,896 689,724 1974 1991 30
Belleville KS 1,886,682 0 213,318 1,886,682 2,100,000 361,614 1977 1993 30
Colby KS 599,074 0 49,863 599,074 648,937 182,219 1974 1986 40
Derby KS 2,481,763 0 132,800 2,481,763 2,614,563 558,397 1978 1992 30
Hiawatha KS 787,337 0 150,000 787,337 937,337 5,624 1974 1998 30
Hutchinson KS 1,855,444 160,594 75,000 2,016,038 2,091,038 323,751 1964 1994 30
Kensington KS 638,627 0 6,241 638,627 644,868 226,561 1965 1986 35
Oakley KS 414,311 0 7,123 414,311 421,434 126,020 1964 1986 40
Onaga KS 651,993 0 5,811 651,993 657,804 231,303 1959 1986 35
Salina KS 2,463,266 134,986 27,000 2,598,252 2,625,252 420,231 1981 1994 30
Topeka KS 1,137,152 0 100,000 1,137,152 1,237,152 8,123 1973 1998 30
33
Initial Cost Cost Gross Amount at which
to Company Capitalized Carried at Close of Period(1) Life on
------------ Subsequent ---------------------------------- Original which
Facility Type Building and to Building and Accum. Construction Date Depr. is
and Location Improvements Acquisition Land(2) Improvements Total Depr. Date Acquired Computed
- ------------- ------------ ----------- ---------- ------------ ---------- ---------- ------------ -------- --------
Amesbury MA $4,240,946 $ 523,656 $ 229,000 $4,764,602 $4,993,602 $ 204,807 1971 1997 30
Beverly MA 3,608,000 0 392,000 3,608,000 4,000,000 0 1998 1998 40
Brighton MA 2,211,935 0 300,000 2,211,935 2,511,935 313,357 1969 1994 30
Brockton MA 3,591,375 0 525,000 3,591,375 4,116,375 618,515 1971 1993 30
Buzzards Bay MA 4,815,000 0 415,000 4,815,000 5,230,000 1,789,183 1911 1985 35
Danvers MA 3,210,977 1,082,295 327,000 4,293,272 4,620,272 161,014 1966 1997 30
Danvers MA 2,890,770 331,685 305,000 3,222,455 3,527,455 139,384 1969 1997 30
Danvers MA 4,108,000 0 392,000 4,108,000 4,500,000 0 1998 1998 40
Haverhill MA 1,414,339 0 775,000 1,414,339 2,189,339 243,581 1962 1993 30
Haverhill MA 5,707,175 65,550 660,000 5,772,725 6,432,725 982,903 1973 1993 30
Melrose MA 4,029,329 0 432,000 4,029,329 4,461,329 89,541 1965 1998 30
New Bedford MA 2,357,000 0 93,000 2,357,000 2,450,000 875,863 1889 1985 35
N. Billerica MA 3,137,206 300,000 800,000 3,437,206 4,237,206 520,561 1969 1994 30
Northborough MA 2,509,494 0 300,000 2,509,494 2,809,494 27,883 1969 1998 30
Saugus MA 5,262,295 395,974 374,000 5,658,269 6,032,269 251,931 1967 1997 30
Sharon MA 1,096,678 1,486,259 844,000 2,582,937 3,426,937 94,436 1975 1996 30
Wellesley MA 2,435,000 0 325,000 2,435,000 2,760,000 904,810 1962 1985 35
Clinton MD 5,016,873 0 399,794 5,016,873 5,416,667 1,463,255 1965 1987 40
Cumberland MD 5,260,000 0 150,000 5,260,000 5,410,000 1,954,537 1968 1985 35
Hagerstown MD 4,140,000 0 215,000 4,140,000 4,355,000 1,538,362 1972 1985 35
Westminster MD 6,795,000 0 80,000 6,795,000 6,875,000 2,524,921 1974 1985 35
Duluth MN 7,047,082 0 1,014,000 7,047,082 8,061,082 293,628 1971 1997 30
Faribault MN 2,785,000 0 90,000 2,785,000 2,875,000 1,321,579 1967 1985 35
Minneapolis MN 3,833,000 0 322,000 3,833,000 4,155,000 1,878,904 1962 1985 35
Minneapolis MN 2,934,000 0 141,000 2,934,000 3,075,000 1,848,000 1914 1985 35
Minneapolis MN 5,752,000 0 333,000 5,752,000 6,085,000 2,419,848 1973 1985 35
Minneapolis MN 4,184,000 0 436,000 4,184,000 4,620,000 1,716,270 1961 1985 35
Osseo MN 2,927,000 0 123,000 2,927,000 3,050,000 1,087,630 1957 1985 35
Ostrander MN 947,229 0 8,560 947,229 955,789 286,142 1968 1986 40
Owatonna MN 2,140,014 0 58,680 2,140,014 2,198,694 642,004 1965 1986 40
Willmar MN 2,582,000 0 33,000 2,582,000 2,615,000 1,020,273 1905 1985 35
Maryville MO 2,689,000 0 51,000 2,689,000 2,740,000 999,192 1979 1985 35
Columbus MS 3,517,219 0 750,000 3,517,219 4,267,219 25,123 1976 1998 30
Hendersonville NC 2,244,000 0 116,000 2,244,000 2,360,000 833,837 1979 1985 35
Lakewood NJ 6,448,340 0 360,357 6,448,340 6,808,697 3,302,818 1966 1987 40
Sparks NV 3,294,261 0 740,000 3,294,261 4,034,261 597,085 1988 1991 40
Alliance OH 1,861,961 0 83,000 1,861,961 1,944,961 459,749 1962 1991 30
Boardman OH 7,046,082 0 60,000 7,046,082 7,106,082 1,741,235 1962 1991 30
Columbus OH 4,332,851 0 342,550 4,332,851 4,675,401 1,346,976 1985 1988 40
Galion OH 3,419,603 0 24,000 3,419,603 3,443,603 844,741 1967 1991 30
Warren OH 7,488,606 0 450,000 7,488,606 7,938,606 1,850,597 1967 1991 30
Wash Ct House OH 4,085,813 0 356,047 4,085,813 4,441,860 1,309,912 1983 1988 40
Maud OK 802,731 0 12,464 802,731 815,195 242,491 1960 1986 40
Sapulpa OK 2,243,607 0 67,961 2,243,607 2,311,568 673,082 1970 1986 40
Tonkawa OK 794,801 0 17,838 794,801 812,639 231,817 1962 1987 40
Corvallis OR 1,710,000 0 115,000 1,710,000 1,825,000 635,415 1962 1985 35
Eugene OR 2,280,000 0 140,000 2,280,000 2,420,000 847,219 1969 1985 35
Eugene OR 1,220,000 0 80,000 1,220,000 1,300,000 453,334 1965 1985 35
Portland OR 1,115,000 0 100,000 1,115,000 1,215,000 414,318 1954 1985 35
Brownsville TN 2,957,367 0 100,000 2,957,367 3,057,367 509,324 1970 1993 30
Celina TN 853,001 0 150,000 853,001 1,003,001 146,905 1972 1993 30
Clarksville TN 3,479,066 0 350,000 3,479,066 3,829,066 599,172 1970 1993 30
Columbia TN 2,240,415 0 225,000 2,240,415 2,465,415 330,728 1984 1993 35
Decatur TN 3,328,429 0 193,000 3,328,429 3,521,429 47,549 1981 1998 35
Jonesborough TN 2,550,682 0 65,000 2,550,682 2,615,682 439,283 1981 1993 30
Hohenwald TN 3,732,032 0 90,000 3,732,032 3,822,032 642,739 1975 1993 30
Madison TN 6,412,137 0 1,120,000 6,412,137 7,532,137 45,801 1967 1998 35
Martin TN 4,121,244 0 32,500 4,121,244 4,153,744 709,770 1977 1993 30
Selmer TN 2,262,811 1,200,000 28,000 3,462,811 3,490,811 440,904 1985 1993 35
Baytown TX 1,902,063 0 61,000 1,902,063 1,963,063 392,300 1966 1990 40
Baytown TX 2,388,042 0 90,000 2,388,042 2,478,042 492,534 1975 1990 40
Bogota TX 1,820,005 0 13,463 1,820,005 1,833,468 645,669 1963 1986 35
Bridge City TX 2,212,743 0 60,000 2,212,743 2,272,743 456,378 1970 1990 40
Center TX 1,424,387 0 22,000 1,424,387 1,446,387 293,780 1970 1990 40
34
Initial Cost Cost Gross Amount at which
to Company Capitalized Carried at Close of Period(1) Life on
------------ Subsequent ----------------------------------- Original which
Facility Type Building and to Building and Construction Date Depr. is
and Location Improvements Acquisition Land(2) Improvements Total Accum. Depr. Date Acquired Computed
- ------------- ------------ ----------- ---------- ------------ ----------- ------------ ------------ -------- --------
Eagle Lake TX $ 1,833,093 $ 0 $ 25,000 $ 1,833,093 $ 1,858,093 $ 378,075 1972 1990 40
El Paso TX 1,888,156 0 166,027 1,888,156 2,054,183 574,817 1980 1988 40
Garland TX 1,619,329 0 238,000 1,619,329 1,857,329 333,986 1970 1990 40
Gilmer TX 2,065,000 0 750,000 2,065,000 2,815,000 767,323 1970 1985 35
Gilmer TX 3,032,875 0 248,000 3,032,875 3,280,875 28,885 1990 1998 35
Gladewater TX 2,017,965 0 124,642 2,017,965 2,142,607 375,565 1971 1993 30
Houston TX 4,154,533 0 408,300 4,154,533 4,562,833 784,745 1986 1993 35
Humble TX 1,821,123 0 140,000 1,821,123 1,961,123 375,607 1973 1990 40
Huntsville TX 1,929,525 0 135,000 1,929,525 2,064,525 397,964 1968 1990 40
Linden TX 2,519,626 0 24,909 2,519,626 2,544,535 468,930 1968 1993 30
Marshall TX 864,650 0 19,300 864,650 883,950 262,998 1964 1986 40
McKinney TX 1,455,904 0 1,318,310 1,455,904 2,774,214 427,672 1967 1987 40
Mount Pleasant TX 2,504,551 0 39,960 2,504,551 2,544,511 466,124 1970 1993 30
Nacogdoches TX 1,103,814 0 135,000 1,103,814 1,238,814 227,662 1973 1990 40
New Boston TX 2,366,334 0 44,246 2,366,334 2,410,580 440,401 1966 1993 30
Omaha TX 1,579,149 0 27,907 1,579,149 1,607,056 293,897 1970 1993 30
San Antonio TX 2,033,293 0 32,000 2,033,293 2,065,293 419,367 1963 1990 40
San Antonio TX 1,635,932 0 221,000 1,635,932 1,856,932 337,411 1965 1990 40
Sherman TX 2,075,495 0 67,200 2,075,495 2,142,695 386,272 1971 1993 30
Texarkana TX 1,243,520 0 87,270 1,243,520 1,330,790 441,154 1983 1986 35
Waxahachie TX 3,493,338 0 318,798 3,493,338 3,812,136 997,057 1976 1987 40
Annandale VA 7,752,000 0 487,000 7,752,000 8,239,000 2,880,528 1961 1985 35
Charlottesville VA 4,620,250 0 362,000 4,620,250 4,982,250 1,716,817 1966 1985 35
Petersburg VA 2,214,500 0 93,000 2,214,500 2,307,500 822,876 1973 1985 35
Petersburg VA 2,944,750 0 94,000 2,944,750 3,038,750 1,094,225 1977 1985 35
Battleground WA 2,225,787 0 84,100 2,225,787 2,309,887 667,736 1963 1986 40
Kennewick WA 4,459,371 0 297,000 4,459,371 4,756,371 198,194 1959 1997 30
Moses Lake WA 2,384,662 0 164,000 2,384,662 2,548,662 344,451 1988 1994 30
Moses Lake WA 4,306,902 1,325,841 304,000 5,632,743 5,936,743 578,833 1972 1994 35
Seattle WA 5,752,182 0 1,222,737 5,752,182 6,974,919 647,120 1993 1994 40
Shelton WA 4,531,761 0 326,528 4,531,761 4,858,289 9,085 1998 1998 40
Tacoma WA 1,503,190 0 575,000 1,503,190 2,078,190 450,957 1939 1987 40
Chilton WI 2,275,183 0 54,953 2,275,183 2,330,136 807,148 1964 1986 35
Florence WI 1,529,108 0 14,984 1,529,108 1,544,092 542,469 1971 1986 35
Green Bay WI 2,254,673 0 299,765 2,254,673 2,554,438 799,872 1969 1986 35
Oconto WI 2,070,879 0 49,976 2,070,879 2,120,855 734,669 1972 1986 35
Sheboygan WI 1,696,673 0 219,243 1,696,673 1,915,916 597,875 1969 1986 35
Shorewood WI 5,743,643 0 705,880 5,743,643 6,449,523 2,023,950 1971 1986 35
St. Francis WI 535,325 0 79,725 535,325 615,050 188,637 1968 1986 35
Tomah WI 1,745,000 0 115,000 1,745,000 1,860,000 648,416 1975 1985 35
Wisconsin Dells WI 1,697,231 0 81,432 1,697,231 1,778,663 598,072 1972 1986 35
----------- ---------- ---------- ----------- ----------- ------------
463,085,685 11,800,224 47,177,234 474,885,909 522,063,143 103,177,921
----------- ---------- ---------- ----------- ----------- ------------
Assisted
Living
Facilities:
Decatur AL 1,824,028 0 1,484,000 1,824,028 3,308,028 117,254 1987 1996 35
Hanceville AL 2,447,169 0 197,000 2,447,169 2,644,169 142,751 1996 1996 40
Benton AR 1,478,123 0 182,000 1,478,123 1,660,123 24,635 1988 1998 35
Chandler AZ 2,752,714 0 505,000 2,752,714 3,257,714 30,418 1998 1998 40
Mesa AZ 1,391,652 2,700,025 519,000 4,091,677 4,610,677 326,437 1985 1996 35
Capistrano CA 3,833,162 117,529 1,225,000 3,950,691 5,175,691 401,569 1985 1995 35
Capistrano CA 6,344,458 75,362 700,000 6,419,820 7,119,820 543,811 1985 1995 35
Carmichael CA 7,928,799 755,452 1,500,000 8,684,251 10,184,251 1,009,407 1983 1995 30
Chula Vista CA 6,280,839 72,030 950,000 6,352,869 7,302,869 568,266 1989 1995 35
Encinitas CA 5,016,511 126,382 1,000,000 5,142,893 6,142,893 557,885 1984 1995 35
Mission Viejo CA 3,544,429 17,267 900,000 3,561,696 4,461,696 362,882 1985 1995 35
Novato CA 3,657,065 144,759 2,500,000 3,801,824 6,301,824 386,023 1978 1995 30
Placentia CA 3,800,106 183,501 1,320,000 3,983,607 5,303,607 453,902 1983 1995 30
Rancho Cucamonge CA 4,155,552 148,626 610,000 4,304,178 4,914,178 425,449 1987 1995 35
San Dimas CA 3,576,323 224,786 1,700,000 3,801,109 5,501,109 377,501 1975 1995 30
San Jose CA 7,251,670 0 850,000 7,251,670 8,101,670 135,969 1998 1998 40
Santa Maria CA 2,649,424 37,789 1,500,000 2,687,213 4,187,213 279,661 1977 1995 30
Vista CA 3,700,603 82,037 350,000 3,782,640 4,132,640 359,781 1980 1996 30
35
Initial Cost Cost Gross Amount at which
to Company Capitalized Carried at Close of Period(1) Life on
------------ Subsequent ---------------------------------- Original which
Facility Type Building and to Building and Accum. Construction Date Depr. is
and Location Improvements Acquisition Land(2) Improvements Total Depr. Date Acquired Computed
- ------------- ------------ ----------- --------- ------------ ----------- -------- ------------ -------- --------
Aurora CO $ 7,922,586 $ 0 $ 919,116 $ 7,922,586 $ 8,841,702 $792,259 1983 1995 30
Boulder CO 4,738,529 0 184,356 4,738,529 4,922,885 406,160 1992 1995 40
Boulder CO 4,811,336 0 832,530 4,811,336 5,643,866 360,850 1985 1995 35
Brighton CO 2,158,078 0 210,000 2,158,078 2,368,078 80,928 1997 1997 40
Gainesville FL 2,699,035 0 356,000 2,699,035 3,055,035 95,591 1997 1997 40
Gainesville FL 3,308,524 0 310,047 3,308,524 3,618,571 0 1998 1998 40
Hudson FL 8,137,951 549,771 1,665,000 8,687,722 10,352,722 678,224 1987 1996 35
Jacksonville FL 2,375,479 0 366,000 2,375,479 2,741,479 103,927 1997 1997 40
Jacksonville FL 2,770,454 0 226,000 2,770,454 2,996,454 86,577 1997 1997 40
LeHigh Acres FL 2,599,506 0 307,000 2,599,506 2,906,506 75,819 1997 1997 40
Naples FL 4,083,955 0 1,182,453 4,083,955 5,266,408 144,640 1997 1997 40
North Miami FL 3,467,124 0 261,000 3,467,124 3,728,124 404,498 1970 1995 30
Palm Coast FL 2,579,797 0 406,000 2,579,797 2,985,797 64,495 1997 1997 40
Panama City FL 2,658,760 0 353,000 2,658,760 3,011,760 27,695 1998 1998 40
Pensacola FL 1,580,083 400,000 170,000 1,980,083 2,150,083 156,416 1979 1996 30
Port Charlotte FL 2,655,252 0 245,000 2,655,252 2,900,252 88,508 1997 1997 40
Punta Gorda FL 2,691,405 0 210,000 2,691,405 2,901,405 95,321 1997 1997 40
Rotunda FL 2,628,072 0 267,000 2,628,072 2,895,072 65,702 1997 1997 40
St. Petersburg FL 2,396,070 984,802 2,000,000 3,380,872 5,380,872 242,408 1993 1995 40
Travares FL 2,466,463 0 156,000 2,466,463 2,622,463 102,771 1997 1997 40
Venice FL 2,534,967 0 376,000 2,534,967 2,910,967 73,937 1997 1997 40
Winter Haven FL 2,530,512 0 287,000 2,530,512 2,817,512 79,079 1997 1997 40
Boise ID 5,586,258 5,670,090 543,691 11,256,348 11,800,039 687,232 1978 1995 30
Oak Park IL 10,473,486 0 603,000 10,473,486 11,076,486 523,674 1993 1997 40
Carmel IN 3,843,258 0 804,659 3,843,258 4,647,917 64,054 1998 1998 40
Lawrence KS 3,821,694 0 932,000 3,821,694 4,753,694 63,695 1995 1998 40
Salina KS 1,921,388 0 200,000 1,921,388 2,121,388 84,061 1997 1997 40
Salina KS 2,886,947 0 329,000 2,886,947 3,215,947 54,989 1989 1998 35
Topeka KS 2,955,082 0 424,000 2,955,082 3,379,082 65,669 1986 1998 30
Murray KY 2,544,039 0 110,000 2,544,039 2,654,039 66,738 1998 1998 40
Centerville MA 4,782,428 0 1,704,760 4,782,428 6,487,188 59,780 1998 1998 40
Pittsfield MA 9,051,893 0 1,758,084 9,051,893 10,809,977 113,149 1998 1998 40
Riverview MI 6,938,730 66,611 300,000 7,005,341 7,305,341 759,956 1987 1995 35
Jackson MO 2,114,938 0 414,000 2,114,938 2,528,938 55,391 1990 1998 35
Hickory NC 2,531,199 0 385,000 2,531,199 2,916,199 47,460 1997 1998 40
Deptford NJ 3,429,878 0 655,000 3,429,878 4,084,878 21,437 1998 1998 40
Sparks(3) NV 5,119,174 0 505,000 5,119,174 5,624,174 146,262 1991 1997 40
Sparks(4) NV 7,277,602 0 714,000 7,277,602 7,991,602 181,940 1993 1997 40
Dayton OH 1,916,264 0 270,000 1,916,264 2,186,264 51,899 1997 1997 40
Dublin OH 5,789,013 0 355,975 5,789,013 6,144,988 60,302 1998 1998 40
Fairfield OH 1,917,248 0 270,000 1,917,248 2,187,248 67,903 1997 1997 40
Greenville OH 2,310,800 0 215,000 2,310,800 2,525,800 81,841 1997 1997 40
Lancaster OH 2,083,762 0 350,000 2,083,762 2,433,762 17,365 1998 1998 40
Newark OH 2,047,242 0 225,000 2,047,242 2,272,242 76,772 1997 1997 40
Sharonville OH 4,012,894 37,045 225,000 4,049,939 4,274,939 439,507 1987 1995 35
Springdale OH 2,091,938 0 440,000 2,091,938 2,531,938 65,373 1997 1997 40
Urbana OH 2,117,731 0 150,000 2,117,731 2,267,731 61,767 1997 1997 40
Youngstown OH 2,190,692 0 470,000 2,190,692 2,660,692 13,692 1998 1998 40
Broken
Arrow OK 1,444,901 0 178,000 1,444,901 1,622,901 72,245 1996 1997 40
Oklahoma
City OK 3,897,246 481,666 392,000 4,378,912 4,770,912 658,501 1982 1994 30
Oklahoma
City OK 1,531,497 0 175,000 1,531,497 1,706,497 76,575 1996 1997 40
Albany(5) OR 2,465,356 0 92,160 2,465,356 2,557,516 246,536 1984 1995 35
Albany OR 3,656,555 4,530,805 511,290 8,187,360 8,698,650 578,870 1968 1995 30
Forest
Grove(6) OR 3,151,903 0 401,187 3,151,903 3,553,090 270,163 1994 1995 40
Gresham OR 4,646,900 0 0 4,646,900 4,646,900 398,306 1988 1995 35
McMinnville(7) OR 3,975,918 0 760,000 3,975,918 4,735,918 298,194 1989 1995 35
Medford OR 4,325,518 0 313,389 4,325,518 4,638,907 324,414 1990 1995 35
Clinton SC 2,558,952 0 87,000 2,558,952 2,645,952 15,993 1997 1998 40
Columbia SC 2,664,229 0 210,000 2,664,229 2,874,229 49,954 1997 1998 40
Greenwood SC 2,646,418 0 107,000 2,646,418 2,753,418 16,540 1998 1998 40
Greer SC 2,388,964 0 375,000 2,388,964 2,763,964 19,908 1998 1998 40
Brentwood TN 2,301,599 0 600,000 2,301,599 2,901,599 206,185 1995 1995 40
Germantown TN 4,614,050 0 754,839 4,614,050 5,368,889 38,450 1998 1998 40
Corsicana TX 1,494,497 0 117,000 1,494,497 1,611,497 77,838 1996 1996 40
36
Initial Cost Cost Gross Amount at which
to Company Capitalized Carried at Close of Period(1) Life on
------------ Subsequent ------------------------------------- Original which
Facility Type Building and to Building and Accum. Construction Date Depr. is
and Location Improvements Acquisition Land(2) Improvements Total Depr. Date Acquired Computed
- ------------- ------------ ----------- ----------- ------------ ------------ ----------- ------------ -------- --------
Dallas TX 3,499,928 718,334 308,000 4,218,262 4,526,262 622,376 1982 1994 30
Denton TX 1,425,035 0 185,000 1,425,035 1,610,035 74,221 1996 1996 40
Ennis TX 1,408,954 0 119,000 1,408,954 1,527,954 73,383 1996 1996 40
Houston TX 7,190,231 0 1,235,468 7,190,231 8,425,699 89,878 1998 1998 40
Lewisville TX 1,891,780 0 260,000 1,891,780 2,151,780 74,883 1997 1997 40
Mansfield TX 1,574,961 0 225,000 1,574,961 1,799,961 78,748 1996 1997 40
Paris TX 1,464,890 0 166,000 1,464,890 1,630,890 76,296 1996 1996 40
Pearland TX 7,919,696 0 492,656 7,919,696 8,412,352 98,996 1998 1998 40
Richland Hills TX 1,616,047 0 223,000 1,616,047 1,839,047 80,802 1996 1997 40
Richland Hills TX 2,204,105 0 65,000 2,204,105 2,269,105 0 1998 1998 40
Weatherford TX 1,595,983 0 145,000 1,595,983 1,740,983 66,499 1996 1997 40
Bellevue WA 4,460,365 0 765,960 4,460,365 5,226,325 43,205 1998 1998 40
Richland WA 6,051,886 118,689 172,102 6,170,575 6,342,677 522,620 1990 1995 35
Tacoma WA 5,207,688 0 402,500 5,207,688 5,610,188 195,288 1997 1997 40
Yakima WA 5,247,778 0 500,000 5,247,778 5,747,778 128,057 1997 1997 40
Menomonee
Falls(8) WI 13,190,259 0 4,161,000 13,190,259 17,351,259 471,081 1990 1997 30
West Allis(9) WI 8,117,356 2,911,035 682,000 11,028,391 11,710,391 284,636 1996 1997 30
------------ ----------- ----------- ------------ ------------ -----------
369,013,588 21,154,393 57,816,222 390,167,981 447,984,203 20,990,955
------------ ----------- ----------- ------------ ------------ -----------
CCRCs:
Palm Desert CA 9,099,576 1,473,653 1,600,000 10,573,229 12,173,229 1,111,116 1989 1994 40
Sterling CO 2,715,537 0 400,000 2,715,537 3,115,537 429,960 1979 1994 30
Lawrenceville GA 10,769,289 0 722,850 10,769,289 11,492,139 25,708 1998 1998 40
Andover(11) KS 12,514,390 0 687,000 12,514,390 13,201,390 496,282 1987 1997 35
Norton MA 8,270,820 2,121,943 1,350,659 10,392,763 11,743,422 292,698 1968 1996 30
College Station TX 6,007,214 0 833,000 6,007,214 6,840,214 62,575 1994 1998 40
Corpus Christi TX 14,923,859 11,928,630 1,848,000 26,852,489 28,700,489 926,539 1985 1997 40
Glendale(12) WI 22,905,471 0 3,824,000 22,905,471 26,729,471 788,969 1988 1997 30
Waukesha(13) WI 28,561,890 1,826,824 7,233,000 30,388,714 37,621,714 1,151,931 1973 1997 30
------------ ----------- ----------- ------------ ------------ -----------
115,768,046 17,351,050 18,498,509 133,119,096 151,617,605 5,285,778
------------ ----------- ----------- ------------ ------------ -----------
Residential Care
Facilities for
the Elderly:
Costa Mesa CA 229,483 0 60,000 229,483 289,483 9,562 1970 1997 30
Irvine CA 338,141 0 78,000 338,141 416,141 11,253 1976 1997 30
Irvine CA 340,515 0 90,000 340,515 430,515 14,188 1975 1997 30
Laguna Hills CA 208,481 0 72,000 208,481 280,481 8,687 1977 1997 30
Laguna Niguel CA 347,937 0 86,000 347,937 433,937 3,866 1973 1998 30
Lake Forest CA 167,492 0 160,000 167,492 327,492 6,979 1975 1997 30
Lake Forest CA 186,473 0 64,000 186,473 250,473 7,770 1973 1997 30
Murieta CA 201,704 0 49,694 201,704 251,398 4,802 1990 1998 35
Murieta CA 154,296 0 37,842 154,296 192,138 3,673 1990 1998 35
Murieta CA 201,704 0 49,694 201,704 251,398 4,802 1990 1998 35
Murieta CA 144,172 0 35,311 144,172 179,483 3,432 1990 1998 35
Murieta CA 127,461 0 31,133 127,461 158,594 3,034 1990 1998 35
Murieta CA 117,307 0 28,326 117,307 145,633 838 1988 1998 35
Newport Beach CA 302,170 0 69,000 302,170 371,170 10,930 1962 1997 30
Newport Beach CA 444,731 0 111,000 444,731 555,731 14,824 1965 1997 30
Newport Beach CA 518,572 0 128,000 518,572 646,572 14,404 1964 1998 30
Yorba Linda CA 316,419 0 78,000 316,419 394,419 1,507 1982 1998 30
------------ ----------- ----------- ------------ ------------ -----------
4,347,058 0 1,228,000 4,347,058 5,575,058 124,551
------------ ----------- ----------- ------------ ------------ -----------
Rehabilitation
Hospitals:
Scottsdale AZ 5,874,213 0 241,762 5,874,213 6,115,975 1,554,219 1986 1988 40
Tucson AZ 9,434,562 0 1,275,438 9,434,562 10,710,000 1,542,944 1992 1992 40
------------ ----------- ----------- ------------ ------------ -----------
15,308,775 0 1,517,200 15,308,775 16,825,975 3,097,163
------------ ----------- ----------- ------------ ------------ -----------
37
Initial Cost Cost Gross Amount at which
to Company Capitalized Carried at Close of Period(1)
-------------- Subsequent ------------------------------------------ Original
Facility Type Building and to Building and Construction Date
and Location Improvements Acquisition Land(2) Improvements Total Accum. Depr. Date Acquired
- ------------- ------------ ----------- ------------ -------------- -------------- ------------ ------------ --------
Clinics:
Heflin AL $ 2,099,598 $ 83,012 $ 248,000 $ 2,182,610 $ 2,430,610 $ 246,136 1997 1997
Cedar Park TX 2,406,154 0 872,915 2,406,154 3,279,069 204,414 1998 1998
Pflugerville TX 2,219,447 0 995,000 2,219,447 3,214,447 189,102 1998 1998
-------------- ----------- ------------ -------------- -------------- ------------
6,725,199 83,012 2,115,915 6,808,211 8,924,126 639,652
-------------- ----------- ------------ -------------- -------------- ------------
Construction
in Progress: 70,363,033 0 20,034,562 70,363,033 90,397,595 0
-------------- ----------- ------------ -------------- -------------- ------------
GRAND TOTAL $1,044,611,384 $50,388,679 $148,387,642 $1,095,000,063 $1,243,387,705 $133,316,020
============== =========== ============ ============== ============== ============
Life on
which
Facility Type Depr. is
and Location Computed
- ------------- --------
Clinics:
Heflin 40
Cedar Park 40
Pflugerville 40
Construction
in Progress:
GRAND TOTAL
- -------
(1) Also represents the approximate cost for Federal income tax purposes.
(2) Gross amount at which land is carried at close of period also represents
initial cost to the Company.
(3) Real estate is security for notes payable in the aggregate of $3,683,218
at 12/31/98.
(4) Real estate is security for notes payable in the aggregate of $3,204,878
at 12/31/98.
(5) Real estate is security for notes payable in the aggregate of $2,088,948
at 12/31/98.
(6) Real estate is security for notes payable in the aggregate of $3,366,783
at 12/31/98.
(7) Real estate is security for notes payable in the aggregate of $3,601,226
at 12/31/98.
(8) Real estate is security for notes payable in the aggregate of $11,035,786
at 12/31/98.
(9) Real estate is security for notes payable in the aggregate of $8,328,342
at 12/31/98.
(10) Real estate is security for notes payable in the aggregate of $2,255,000
at 12/31/98.
(11) Real estate is security for notes payable in the aggregate of $2,700,000
at 12/31/98.
(12) Real estate is security for notes payable in the aggregate of $13,124,316
at 12/31/98.
(13) Real estate is security for notes payable in the aggregate of $11,234,408
at 12/31/98.
Real Estate Accumulated
Properties Depreciation
----------- ------------
(in thousands)
Balances at December 31, 1995: $ 592,727 $ 73,722
Acquisitions.................................. 48,963 15,797
Improvements.................................. 10,319 448
Sales......................................... -- --
---------- --------
Balances at December 31, 1996: 652,009 89,967
---------- --------
Acquisitions.................................. 304,213 18,665
Improvements.................................. 15,608 574
Sales......................................... (11,299) (2,129)
---------- --------
Balances at December 31, 1997: 960,531 107,077
---------- --------
Acquisitions.................................. 261,702 26,193
Improvements.................................. 26,800 1,016
Reclassifications............................. 3,500 --
Impairment of long-lived assets............... (5,000) --
Sales......................................... (4,145) (970)
---------- --------
Balances at December 31, 1998: $1,243,388 $133,316
========== ========
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
38
PART III
Item 10. Directors and Executive Officers of the Registrant.
See Item 1 for details regarding executive officers. Details regarding
directors are incorporated herein by reference from the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held on April 19,
1999, filed or to be filed pursuant to Regulation 14A.
Item 11. Executive Compensation.
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 19, 1999,
filed or to be filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 19, 1999,
filed or to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on April 19, 1999,
filed or to be filed pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements.
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Report of Independent Public Accountants
Schedule III Real Estate and Accumulated Depreciation
(b) Reports on Form 8-K
A Form 8-K dated September 22, 1998 was filed on October 8, 1998 with
respect to the direct placement of 1,500,000 shares of common stock issued
and sold on September 25, 1998 which resulted in net proceeds of
approximately $30,000,000.
A Form 8-K dated October 16, 1998 was filed with respect to the
acquisition of assets during the period January 1, 1998 through October 1,
1998, including audited proforma statements of income for the acquired
facilities and unaudited proforma financial statements for the Company
giving effect to the acquisitions.
39
(c) Exhibits
Exhibit No. Description
----------- -----------
2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Agreement to Merge, dated August 19, 1997, among the Company,
Laureate Investments, Inc. and Laureate Properties, Inc., filed as
Exhibit 2.1 to the Company's Form 8-K dated October 7, 1997, and
incorporated herein by this reference.
3. Articles of Incorporation and Bylaws
3.1(a) Restated Articles of Incorporation, filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-11 (No. 33-1128),
effective December 19, 1985, and incorporated herein by this
reference.
3.1(b) Articles of Amendment of Amended and Restated Articles of
Incorporation of the Company, filed as Exhibit 3.1 to the
Company's Form 10-Q for the quarter ended March 31, 1989, and
incorporated herein by this reference.
3.1(c) Articles of Amendment of Amended and Restated Articles of
Incorporation of the Company, filed as Exhibit 3.1(c) to the
Company's Registration Statement on Form S-11 (No. 33-32251),
effective January 23, 1990, and incorporated herein by this
reference.
3.1(d) Articles of Amendment of Amended and Restated Articles of
Incorporation of the Company, filed as Exhibit 3.1(d) to the
Company's Form 10-K for the year ended December 31, 1994, and
incorporated herein by this reference.
3.1(e) Articles Supplementary to the Registrant's Amended and Restated
Articles of Incorporation, dated September 24, 1997, filed as
Exhibit 3.1 to the Company's Form 8-K dated September 24, 1997,
and incorporated herein by this reference.
3.2 Bylaws of the Company as amended January 19, 1996, filed as
Exhibit 3.2 to the Company's Form 10-K for the year ended December
31, 1995, and incorporated herein by this reference.
3.3 Amended and Restated Bylaws of the Company, filed as Exhibit 3.1
to the Company's Form 10-Q for the quarter ended September 30,
1998, and incorporated herein by this reference.
4. Instruments Defining Rights of Security Holders, Including
Indentures
4.1 Indenture dated as of November 16, 1992, between Nationwide Health
Properties, Inc., Issuer to The Chase Manhattan Bank (National
Association), Trustee, filed as Exhibit 4.1 to the Company's Form
S-3 (No. 33-54870) dated November 24, 1992, and incorporated
herein by this reference.
4.2 Indenture dated as of June 30, 1993, between the Company and First
Interstate Bank of California, as Trustee, filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-3 (No. 33-64798),
effective July 12, 1993, and incorporated herein by this
reference.
4.3 First Supplemental Indenture dated November 15, 1993, between the
Company and First Interstate Bank of California, as Trustee, filed
as Exhibit 4.1 to the Company's Form 8-K dated November 15, 1993,
and incorporated by reference herein.
4.4 Indenture dated as of January 12, 1996, between the Company and
The Bank of New York, as Trustee, filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (No 33-65423) dated
December 27, 1995, and incorporated herein by this reference.
10. Material Contracts
10.1 Master Lease Document--General Terms and Conditions dated December
30, 1985, for Leases between various subsidiaries of Beverly as
Lessees and the Company as Lessor, filed as Exhibit 10.3 to the
Company's Form 10-K for the year ended December 31, 1985, and
incorporated herein by this reference.
40
Exhibit No. Description
----------- -----------
10.2 Guaranty by and between the Company and Beverly filed as Exhibit
10.7 to the Company's Registration Statement on Form S-11 (No. 33-
1128), effective December 19, 1985, and incorporated herein by
this reference.
10.3 Corporate Guaranty of Obligations of Subsidiaries pursuant to
Leases and Contract of Acquisition, dated as of August 1, 1986, of
Beverly as Guarantor in favor of the Company filed as Exhibit 10.3
to the Company's Registration Statement on Form S-11 (No. 33-
32251), effective January 23, 1990, and incorporated herein by
this reference.
10.4 Corporate Guaranty of Obligations of Subsidiaries pursuant to
Leases and Contract of Acquisition, dated as of November 1, 1986,
of Beverly as Guarantor in favor of the Company filed as Exhibit
10.4 to the Company's Registration Statement on Form S-11 (No. 33-
32251), effective January 23, 1990, and incorporated herein by
this reference.
10.5 Corporate Guaranty of Obligations of Subsidiaries pursuant to
Leases, dated as of July 31, 1987, of Beverly as Guarantor in
favor of the Company filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-11 (No. 33-32251), effective
January 23, 1990, and incorporated herein by this reference.
10.6 1989 Stock Option Plan of the Company as Amended and Restated
January 19, 1996, filed as Exhibit 10.6 to the Company's 10-K for
the year ended December 31, 1996, and incorporated herein by this
reference.
10.7 The Company's Retirement Plan for Directors effective July 26,
1991 filed as Exhibit 10.13 to the Company's Form 10-K for the
year ended December 31, 1991, and incorporated herein by this
reference.
10.8 Deferred Compensation Plan of the Company effective September 1,
1991 filed as Exhibit 10.14 to the Company's Form 10-K for the
year ended December 31, 1991, and incorporated herein by this
reference.
10.9 Commercial and Multi-family Mortgage Loan Sale Agreement dated as
of June 5, 1992 by and between Resolution Trust Corporation, as
Receiver, and Nationwide Health Properties, Inc. filed as Exhibit
A to the Company's Form 8-K dated May 29, 1992, and incorporated
herein by this reference.
10.10 Credit Agreement dated as of May 20, 1993 between the Company and
Wells Fargo Bank National Association, National Westminster Bank
USA, The Daiwa Bank Limited and Sanwa Bank of California filed as
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June
30, 1993, and incorporated herein by this reference.
10.10(a) Amendment Number One to Credit Agreement dated as of May 20, 1993
between the Company and Wells Fargo Bank, National Association,
National Westminster Bank USA, The Daiwa Bank, Limited, and Sanwa
Bank California filed as Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended March 31, 1994, and incorporated herein by
this reference.
10.10(b) Amendment Number Two to Credit Agreement dated as of May 20, 1993
between the Company and Wells Fargo Bank, National Association,
National Westminster Bank USA, The Daiwa Bank, Limited and Sanwa
Bank California, filed as Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended June 30, 1995, and incorporated herein by
this reference.
10.10(c) Amendment Number Three to Credit Agreement dated as of January 22,
1996 between the Company and Wells Fargo Bank, National
Association, National Westminster Bank USA, The Daiwa Bank,
Limited and Sanwa Bank California, filed as Exhibit 10.10 (c) to
the Company's Form 10-K for the year ended December 31, 1995, and
incorporated herein by this reference.
41
Exhibit No. Description
----------- -----------
10.10(d) Amendment Number Four and Waiver to Credit Agreement dated
December 10, 1996 between the Company and Wells Fargo Bank,
National Association, The Sumitomo Bank Limited, The Bank of New
York, Sanwa Bank California and BHF-Bank Aktiengesellschaft, filed
as Exhibit 10.10 (d) to the Company's Form 10-K for the year ended
December 31, 1996, and incorporated herein by this reference.
10.10(e) Amendment Number Five to Credit Agreement dated April 1, 1997
between the Company and Wells Fargo Bank, National Association,
The Sumitomo Bank Limited, The Bank of New York, Sanwa Bank
California and BHF-Bank Aktiengesellschaft, filed as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended March 31, 1997,
and incorporated herein by this reference.
10.10(f) Amendment Number Six to Credit Agreement dated August 15, 1997
between the Company and Wells Fargo Bank, National Association,
the Sumitomo Bank Limited, The Bank of New York, Sanwa Bank
California and BHF-Bank Aktiengesellschaft, filed as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by this reference.
10.10(g) Amendment Number Seven and Restatement of Amendments One through
Six to Credit Agreement dated as of April 6, 1997 between the
Company and Wells Fargo Bank, National Association, The Bank of
New York, Sanwa Bank California, the Sumitomo Bank Limited and
BHF-Bank Aktiengesellschaft, filed as Exhibit 10.1 to the
Company's 10-Q for the quarter ended June 30, 1998, and
incorporated herein by this reference.
10.10(h) Assumption Agreement dated as of May 28, 1998 between the Company
and Wells Fargo Bank, National Association, The Bank of New York,
Sanwa Bank California and Nationsbank, N.A., filed as Exhibit 10.2
to the Company's Form 10-Q for the quarter ended June 30, 1998,
and incorporated herein by this reference.
10.10(i) Amendment Number Eight to Credit Agreement dated as of January 29,
1999 between the Company and Wells Fargo Bank, National
Association, The Bank of New York, Nationsbank, N.A. and Sanwa
Bank of California.
10.11 Form of Indemnity Agreement between officers and directors of the
Company including John C. Argue, David R. Banks, Milton J. Brock,
Jr., Sam A. Brooks, Jr., Charles D. Miller and Jack D. Samuelson,
R. Bruce Andrews, Mark L. Desmond, Stephen J. Insoft, Don M.
Pearson, Gary E. Stark, and T. Andrew Stokes, and John J. Sheehan,
Jr., filed as Exhibit 10.11 to the Company's Form 10-K for the
year ended December 31, 1995, and incorporated herein by this
reference.
10.12 Executive Employment Security Policy, filed as Exhibit 10.12 to
the Company's Form 10-K for the year ended December 31, 1995, and
incorporated herein by this reference.
10.13 Employment agreement entered into by and between Nationwide Health
Properties, Inc. and R. Bruce Andrews dated as of February 25,
1998.
10.14 Employment agreement entered into by and between Nationwide Health
Properties, Inc. and T. Andrew Stokes dated as of February 25,
1998.
10.15 Employment agreement entered into by and between Nationwide Health
Properties, Inc. and Mark L. Desmond dated as of February 25,
1998.
21. Subsidiaries of the Company
23. Consents of Experts and Counsel
23.1 Consent of Arthur Andersen LLP
27. Financial Data Schedule
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NATIONWIDE HEALTH PROPERTIES, INC.
By: /s/ R. Bruce Andrews
-----------------------------------
R. Bruce Andrews
President and Chief Executive
Officer
Dated: March 8, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Charles D. Miller Chairman and Director March 8, 1999
____________________________________
Charles D. Miller
/s/ R. Bruce Andrews President, Chief Executive March 8, 1999
____________________________________ Officer and Director
R. Bruce Andrews (Principal Executive
Officer)
/s/ Mark L. Desmond Senior Vice President and March 8, 1999
____________________________________ Chief Financial Officer
Mark L. Desmond (Principal Financial and
Accounting Officer)
/s/ John C. Argue Director March 8, 1999
____________________________________
John C. Argue
/s/ David R. Banks Director March 8, 1999
____________________________________
David R. Banks
/s/ Sam A. Brooks Director March 8, 1999
____________________________________
Sam A. Brooks
/s/ Jack D. Samuelson Director March 8, 1999
____________________________________
Jack D. Samuelson
43
APPENDIX 1
BEVERLY ENTERPRISES, INC.
SET FORTH BELOW IS CERTAIN CONDENSED FINANCIAL DATA OF BEVERLY ENTERPRISES,
INC. ("BEVERLY") WHICH IS TAKEN FROM BEVERLY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION") UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND THE BEVERLY QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AS FILED WITH THE COMMISSION.
The information and financial data contained herein concerning Beverly was
obtained and has been condensed from Beverly's public filings under the
Exchange Act. The Beverly financial data presented includes only the most
recent interim and fiscal year end reporting periods. The Company can make no
representation as to the accuracy and completeness of Beverly's public filings
but has no reason not to believe the accuracy and completeness of such
filings. It should be noted that Beverly has no duty, contractual or
otherwise, to advise the Company of any events subsequent to such dates which
might affect the significance or accuracy of such information.
Beverly is subject to the information filing requirements of the Exchange
Act, and in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Such reports, proxy statements and
other information may be inspected at the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and should also be available at
the following Regional Offices of the Commission: 7 World Trade Center, New
York, N.Y. 10048, and 500 West Madison Street, Suite 1400, Chicago, IL 60661.
Such reports and other information concerning Beverly can also be inspected at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, Room 1102,
New York, New York 10005.
A-1-1
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1998 1997
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Total current assets................................. $ 599,820 $ 626,318
Property and equipment, net.......................... 1,148,711 1,158,329
Total other assets................................... 450,422 288,822
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Total assets......................................... $2,198,953 $2,073,469
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Total current liabilities............................ $ 335,952 $ 344,017
Long-term obligations................................ 818,775 686,941
Other liabilities and deferred items................. 175,680 180,006
Total stockholders' equity........................... 868,546 862,505
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Total liabilities and stockholders' equity........... $2,198,953 $2,073,469
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BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Years ended December
Nine months ended 31,
September 30, ---------------------
1998 1997 1996
----------------- ---------- ----------
Revenues............................. $2,115,710 $3,230,300 $3,281,028
Costs and expenses:
Operating and administrative....... 1,899,295 2,888,021 2,958,942
Interest........................... 48,869 82,713 91,111
Depreciation and amortization...... 69,947 107,060 105,468
Transaction costs.................. -- 44,000 --
Year 2000 remediation.............. 3,875 -- --
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2,021,986 3,121,794 3,155,521
Income (loss) before provision for
income taxes and extraordinary
charge.............................. 93,724 108,506 125,507
Provision for income taxes........... 32,803 49,913 73,481
Extraordinary charge, net of income
taxes............................... -- -- (1,726)
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Net income (loss).................... $ 60,921 $ 58,593 $ 50,300
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Income (loss) per share of common
stock:
Basic:
Before extraordinary charge........ $ .58 $ .57 $ .53
Extraordinary charge............... -- -- (.02)
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Net income per share................. $ .58 $ .57 $ .51
========== ========== ==========
Shares used to compute per share
amounts............................. $ 104,225 102,060 98,574
========== ========== ==========
Diluted:
Before extraordinary charge........ $ .58 $ .57 $ .50
Extraordinary change............... -- -- (.01)
---------- ---------- ----------
Net income per share................. $ .58 $ .57 $ .49
========== ========== ==========
Shares used to compute per share
amounts............................. $ 105,391 $ 103,422 $ 110,726
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A-1-3
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended Years ended December 31,
September 30, --------------------------
1998 1997 1996
----------------- ------------ ------------
Cash flows from operating
activities:
Net income...................... $ 60,921 $ 58,593 $ 50,300
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Adjustments to reconcile net
income to net cash provided by
operating activities........... (28,649) 85,611 82,880
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Net cash provided by operating
activities....................... 32,272 144,204 133,180
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Net cash provided by (used for)
investing activities............. (189,788) 230,853 (91,501)
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Net cash provided by (used for)
financing activities............. 75,824 (339,588) (28,221)
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Net increase (decrease) in cash
and cash equivalents............. (81,692) 35,469 13,458
Cash and cash equivalents at
beginning of period.............. 105,230 69,761 56,303
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Cash and cash equivalents at end
of period........................ $ 23,538 $ 105,230 $ 69,761
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