-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V46yBLhufUVWuFpHVcf46hgDFeYpJfzkhaJL8CM2Eovie2jCIqx+9NszM85drsmO +/o1WilYw8le8x0WFj7J6w== 0000950152-02-006410.txt : 20020814 0000950152-02-006410.hdr.sgml : 20020814 20020814152446 ACCESSION NUMBER: 0000950152-02-006410 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE REIT INC /DE/ CENTRAL INDEX KEY: 0000766704 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341096634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08923 FILM NUMBER: 02735729 BUSINESS ADDRESS: STREET 1: ONE SEAGATE STE 1500 STREET 2: P O BOX 1475 CITY: TOLEDO STATE: OH ZIP: 43604 BUSINESS PHONE: 4192472800 10-Q 1 l94963ae10vq.txt HEALTH CARE REIT > FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 ------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] For the transition period from __________________ to __________________ COMMISSION FILE NUMBER 1-8923 HEALTH CARE REIT, INC. - ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 34-1096634 - -------- ---------- (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE SEAGATE, SUITE 1500, TOLEDO, OHIO 43604 - ------------------------------------- ----- (Address of principal executive office) (Zip Code) (Registrant's telephone number, including area code) (419) 247-2800 ----------------------- - ---------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ]. No [ ]. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 1, 2002. Class: Shares of Common Stock, $1.00 par value Outstanding 38,989,230 shares INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - June 30, 2002 and December 31, 2001.................................................................... 3 Consolidated Statements of Income - Three and six months ended June 30, 2002 and 2001.............................................. 4 Consolidated Statements of Shareholders' Equity - Six months ended June 30, 2002 and 2001................................................................................. 5 Consolidated Statements of Cash Flows - Six months ended June 30, 2002 and 2001.................................................. 6 Notes to Unaudited Consolidated Financial Statements..................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk................................ 12 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...................................... 13 Item 5. Other Information........................................................................ 14 Item 6. Exhibits and Reports on Form 8-K......................................................... 14 SIGNATURES ......................................................................................... 15 EXHIBIT INDEX......................................................................................... 16
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
JUNE 30 DECEMBER 31 2002 2001 (UNAUDITED) (NOTE) ----------- ----------- (IN THOUSANDS) ASSETS Real estate investments: Real property owned: Land ...................................................................... $ 106,299 $ 89,601 Buildings & improvements................................................... 1,155,541 947,794 ------------- -------------- 1,261,840 1,037,395 Less accumulated depreciation.............................................. (98,637) (80,544) ------------- -------------- Total real property owned............................................... 1,163,203 956,851 Loans receivable Real property and other loans........................................... 226,158 240,126 Subdebt investments..................................................... 24,132 23,448 ------------- -------------- 250,290 263,574 Less allowance for loan losses............................................. (7,361) (6,861) ------------- -------------- Net real estate investments............................................. 1,406,132 1,213,564 Other Assets: Equity investments......................................................... 6,891 6,498 Deferred loan expenses..................................................... 6,358 7,190 Cash and cash equivalents.................................................. 9,256 9,826 Receivables and other assets............................................... 37,667 32,765 ------------- -------------- ................................................................. 60,172 56,279 ------------- -------------- TOTAL ASSETS ................................................................. $ 1,466,304 $ 1,269,843 ============= ============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Borrowings under line of credit obligations................................ $ 99,000 $ 0 Senior unsecured notes..................................................... 365,000 412,250 Secured debt............................................................... 112,033 78,966 Accrued expenses and other liabilities..................................... 19,114 20,757 ------------- -------------- TOTAL LIABILITIES............................................................. 595,147 511,973 Shareholders' equity: Preferred stock............................................................ 135,000 150,000 Common stock............................................................... 38,116 32,740 Capital in excess of par value............................................. 743,875 608,942 Cumulative net income...................................................... 545,557 512,837 Cumulative dividends....................................................... (586,669) (540,946) Accumulated other comprehensive loss....................................... (558) (923) Unamortized restricted stock............................................... (4,164) (4,780) ------------- -------------- TOTAL SHAREHOLDERS' EQUITY.................................................... 871,157 757,870 ------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $ 1,466,304 $ 1,269,843 ============= ==============
NOTE: The consolidated balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See notes to unaudited consolidated financial statements -3- CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2002 2001 2002 2001 ------------------------------------ ---------------------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) REVENUES: Rental income.............................. $ 32,782 $ 23,819 $ 62,784 $ 46,384 Interest income ............................ 7,107 7,842 13,894 16,787 Commitment fees and other income............ 749 1,037 1,306 1,927 Prepayment fees............................. 0 0 0 134 ---------------- ---------------- ------------- ------------ Total revenue.......................... 40,638 32,698 77,984 65,232 EXPENSES: Interest expense............................ 10,278 7,968 20,009 16,072 Loan expense................................ 580 389 1,157 764 Provision for depreciation.................. 9,634 6,982 18,300 13,757 Impairment of assets........................ 550 0 550 0 Provision for losses........................ 250 250 500 500 General and administrative expenses......... 2,285 2,034 4,546 3,885 ---------------- ---------------- ------------- ------------ Total expenses.......................... 23,577 17,623 45,062 34,978 ---------------- ---------------- ------------- ------------ Income from continuing operations before extraordinary item................... 17,061 15,075 32,922 30,254 DISCONTINUED OPERATIONS: Gain on sale of properties.................. 145 23 145 23 Income from discontinued operations, net.... 28 25 56 49 ---------------- ---------------- ------------- ------------ Income before extraordinary item................. 17,234 15,123 33,123 30,326 Loss on extinguishment of debt................... (403) 0 (403) 0 ---------------- ---------------- ------------- ------------ Net income....................................... 16,831 15,123 32,720 30,326 Preferred stock dividends........................ 3,341 3,376 6,718 6,752 ---------------- ---------------- ------------- ------------ Net income available to common shareholders......................... $ 13,490 $ 11,747 $ 26,002 $ 23,574 ================ ================ ============= ============ Average number of common shares outstanding: Basic................................... 35,446 28,985 34,196 28,802 Diluted................................. 36,223 29,402 34,954 29,137 Earnings per share Basic: Income from continuing operations and after preferred stock dividends....... $ 0.39 $ 0.41 $ 0.77 $ 0.82 Discontinued operations................. 0.00 0.00 0.00 0.00 Extraordinary item...................... (0.01) 0.00 (0.01) 0.00 Income available to common shareholders.......................... $ 0.38 $ 0.41 $ 0.76 $ 0.82 Diluted: Income from continuing operations and after preferred stock dividends....... $ 0.38 $ 0.40 $ 0.75 $ 0.81 Discontinued operations................. 0.00 0.00 0.00 0.00 Extraordinary item...................... (0.01) 0.00 (0.01) 0.00 Income available to common shareholders.......................... $ 0.37 $ 0.40 $ 0.74 $ 0.81 Dividends declared and paid per common share................................ $ 0.585 $ 0.585 $ 1.170 $ 1.170
See notes to unaudited consolidated financial statements -4- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
Six months ended June 30, 2002 ---------------------------------------------------------------------------------------------------- Capital In Unamortized Accum. Other Preferred Common Excess of Restricted Cumulative Cumulative Comprehensive IN THOUSANDS Stock Stock Par Value Stock Earnings Dividends Income/(Loss) Total ---------------------------------------------------------------------------------------------------- Balance at beginning of period $150,000 32,740 $608,942 $(4,780) $512,837 $(540,946) $ (923) $757,870 Comprehensive income: Net income 32,720 32,720 Unrealized losses on securities (37) (37) Foreign currency 402 402 translation adjustment ------- Comprehensive income 33,085 Proceeds from issuance from dividend reinvestment and stock incentive plans, net of forfeitures 435 9,548 (189) 9,794 Proceeds from issuance of common shares 4,356 110,970 115,326 Conversion of preferred stock (15,000) 585 14,415 0 Restricted stock amortization 805 805 Cash dividends paid (45,723) (45,723) -------- ------- -------- ------- -------- --------- -------- -------- Balance at end of period $135,000 $38,116 $743,875 $(4,164) $545,557 $(586,669) $ (558) $871,157 ======== ======= ======== ======= ======== ========= ======== ========
Six months ended June 30, 2001 ---------------------------------------------------------------------------------------------------- Capital In Unamortized Accum. Other Preferred Common Excess of Restricted Cumulative Cumulative Comprehensive Stock Stock Par Value Stock Earnings Dividends Income/(Loss) Total ---------------------------------------------------------------------------------------------------- Balance at beginning of period $150,000 $28,806 $528,138 $(4,205) $452,288 $(455,676) $ (744) $698,607 Comprehensive income: Net income 30,326 30,326 Unrealized losses on securities (82) (82) Foreign currency translation adjustment (333) (333) ------- Comprehensive income 29,911 Proceeds from issuance from dividend reinvestment and stock incentive plans, net of forfeitures 133 2,500 (99) 2,534 Proceeds from issuance of common shares 3,450 70,863 74,313 Restricted stock amortization 584 584 Cash dividends paid (40,502) (40,502) -------- ------- -------- ------- -------- --------- -------- -------- Balance at end of period $150,000 $32,389 $601,501 $(3,720) $482,614 $(496,178) $ (1,159) $765,447 ======== ======= ======== ======= ======== ========= ======== ========
See notes to unaudited consolidated financial statements -5- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
SIX MONTHS ENDED JUNE 30 2002 2001 ------------------------------ (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 32,720 $ 30,326 Adjustments to reconcile net income to net cash Provision for depreciation 18,391 13,897 Provision for losses 500 500 Provision for asset impairment 550 0 Amortization 1,961 1,349 Loan and commitment fees earned in excess of cash received (799) (1,202) Rental income in excess of cash received (4,531) (3,874) Interest and other income less than (in excess of) cash received 200 (166) Gain on sales of properties (145) (23) Decrease in accrued expenses and other liabilities (844) (1,357) Increase in receivables and other assets (383) (1,739) ---------- ---------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 47,620 37,711 INVESTING ACTIVITIES Investment in real properties (204,682) (42,957) Investment in loans receivable (39,539) (12,510) Other investments, net (228) (457) Principal collected on loans 32,664 43,217 Proceeds from sale of properties 2,011 11,611 Other (58) (142) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (209,832) (1,238) FINANCING ACTIVITIES Net increase (decrease) under unsecured lines of credit 99,000 (58,400) Net increase under secured lines of credit 31,000 0 Principal payments on long-term obligations (47,430) (10,034) Net proceeds from the issuance of Common Stock 125,120 76,847 Increase in deferred loan expense (325) (1,374) Cash distributions to shareholders (45,723) (40,502) ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES 161,642 (33,463) ------------ ------------ (Decrease) increase in cash and cash equivalents (570) 3,010 Cash and cash equivalents at beginning of period 9,826 2,844 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,256 $ 5,854 ============ =========== Supplemental Cash Flow Information -- Interest Paid $ 21,026 $ 17,379 ============ ===========
See notes to unaudited consolidated financial statements -6- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS HEALTH CARE REIT, INC. AND SUBSIDIARIES NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered for a fair presentation have been included. Operating results for the three months ended June 30, 2002, are not necessarily an indication of the results that may be expected for the year ending December 31, 2002. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. NOTE B - REAL ESTATE INVESTMENTS During the six months ended June 30, 2002, the Company invested $206,930,000 in real property, made loan advances of $17,375,000 and funded $1,112,000 of equity related investments. During the six months ended June 30, 2002, the Company sold properties with carrying values of $1,866,000 and received prepayments on loans totaling $31,455,000. NOTE C - EQUITY INVESTMENTS Management determines the appropriate classification of an equity investment at the time of acquisition and reevaluates such designation as of each balance sheet date. At June 30, 2002, equity investments include the common stock of a corporation, valued at historical cost, and ownership representing a 31% interest in Atlantic Healthcare Finance L.P., a property investment group that specializes in the financing, through sale and leaseback transactions, of nursing homes located in the United Kingdom and continental Europe. The ownership interest in Atlantic Healthcare Finance L.P. is accounted for under the equity method. NOTE D - DISCONTINUED OPERATIONS In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. The Company adopted the standard effective January 1, 2002. During the second quarter of 2002 the Company sold one assisted living facility at a gain of $145,000. The property generated $99,000 of rental revenue and had expenses associated with the property of $43,000, generating income from discontinued operations of $56,000 for the six months ended June 30, 2002. For the six months ended June 30, 2001 the property generated $87,000 of rental revenue and had expenses associated with the property of $38,000, generating income from discontinued operations of $49,000 for that period. NOTE E - IMPAIRMENT OF ASSETS Management reviews its real estate portfolio on a quarterly basis to determine if there are any indicators of impairment. If indicators of impairment exist, management determines, using moderate assumptions and the information available at that time, if the projected undiscounted cash flows exceed the net book value of the property. If the projected undiscounted cash flows do not exceed the net book value, the property is written down to fair market value. During the quarter ended June 30, 2002, it was determined that the projected cash flows from a parcel of land did not exceed its net book value and a charge of $550,000 was recorded to reduce the property to its fair market value. The fair market value of the property was determined by an offer to purchase the property by a third party. NOTE F - CONTINGENT LIABILITIES As disclosed in the financial statements for the year ended December 31, 2001, the Company was contingently liable for certain obligations amounting to $11,425,000. -7- NOTE G - DISTRIBUTION PAID TO COMMON SHAREHOLDERS On February 20, 2002, the Company paid a dividend of $0.585 per share to shareholders of record on January 31, 2002. This dividend related to the period from October 1, 2001 through December 31, 2001. On May 20, 2002, the Company paid a dividend of $0.585 per share to shareholders of record on April 30, 2002. This dividend related to the period from January 1, 2002 through March 31, 2002. NOTE H - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three months ended June 30 Six months ended June 30 --------------------------------- ---------------------------------- 2002 2001 2002 2001 --------- --------- --------- ---------- Numerator for basic and diluted earnings per share-income available to common shareholders $ 13,490 $ 11,747 $ 26,002 $ 23,574 ========= ========= ========= ========= Denominator for basic earnings per share - weighted average shares 35,446 28,985 34,196 28,802 Effect of dilutive securities: Employee stock options 522 192 503 110 Nonvested restricted shares 255 225 255 225 --------- --------- --------- --------- Dilutive potential common shares 777 417 758 335 --------- --------- --------- --------- Denominator for diluted earnings per share - adjusted weighted average shares 36,223 29,402 34,954 29,137 ========= ========= ========= ========= Basic earnings per share $ 0.38 $ 0.41 $ 0.76 $ 0.82 Diluted earnings per share $ 0.37 $ 0.40 $ 0.74 $ 0.81
The diluted earnings per share calculation excludes the dilutive effect of 10,000 and 1,350,000 shares for the periods ended June 30, 2002 and June 30, 2001, respectively, because the exercise price was greater than the average market price. The Series C Cumulative Convertible Preferred Stock was not included in this calculation as the effect of the conversion was anti-dilutive. NOTE I - COMPREHENSIVE INCOME Comprehensive income for the three months ended June 30, 2002 and 2001, totaled $17,269,000 and $14,958,000, respectively. NOTE J - NEW ACCOUNTING POLICY In April 2002, FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections. Statement 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement 4. Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. Statement 145 will be effective for fiscal years beginning after December 15, 2002 and the Company will reclassify prior periods upon adoption. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002, the Company's net real estate investments totaled $1,406,132,000 which included 157 assisted living facilities, 65 skilled nursing facilities and seven specialty care facilities. Depending upon the availability and cost of external capital, the Company anticipates making additional investments in health care related facilities. New investments are funded from temporary borrowings under the Company's line of credit arrangements, internally generated cash and the proceeds derived from asset sales. Permanent financing for future investments, which replaces funds drawn under the line of credit arrangements, is expected to be provided through a combination of private and public offerings of debt and equity securities and the assumption of secured debt. The Company believes its liquidity and various sources of available capital are sufficient to fund operations, meet debt service and dividend requirements and finance future investments. In February, 2002, the Company issued 906,125 shares of Common Stock, $1 par value, at a price of $27.59 per share, which generated net proceeds of $23,657,000. In May, 2002, the Company issued 3,450,000 shares of Common Stock, $1 par value, at a price of $28.00 per share, which generated net proceeds of $91,669,000. During the quarter ended June 30, 2002, the holder of the Company's Series C Convertible Preferred Stock converted 600,000 shares into 585,000 shares of Common Stock. As of June 30, 2002, the Company had a total outstanding debt balance of $576,033,000 and shareholders' equity of $871,157,000 which represents a debt to equity ratio of .66 to 1.0, and a debt to total capitalization ratio of .40 to 1.0. As of June 30, 2002, the Company had an unsecured revolving line of credit expiring March 31, 2003 in the amount of $150,000,000 bearing interest at the lender's prime rate or LIBOR plus 1.5%. In addition, the Company had an unsecured revolving line of credit in the amount of $25,000,000 bearing interest at the lender's prime rate which expires June 30, 2003. Also, at June 30, 2002, the Company had secured line of credit arrangements totaling $64,000,000. At June 30, 2002, the Company had $99,000,000 in borrowings under the unsecured line of credit arrangements and $64,000,000 outstanding on the secured line of credit arrangements. As of June 30, 2002, the Company had an effective shelf registration on file with the Securities and Exchange Commission under which the Company may issue up to $560,574,000 of securities including debt securities, common and preferred stock and warrants. Depending upon market conditions, the Company anticipates issuing securities under such shelf registrations to invest in additional health care facilities and to repay borrowings under the Company's line of credit arrangements. RESULTS OF OPERATIONS Revenues were comprised of the following:
Three months ended Change Year to date through Change ---------------------------- --------------------- ----------------------------- --------------------- June 30, 2002 June 30, 2001 $ % June 30, 2002 June 30, 2001 $ % ------------- ------------- --------- --------- ------------- ------------- -------- --------- (000's) Rental income $ 32,782 $ 23,819 $ 8,963 38% $ 62,784 $ 46,384 $ 16,400 35% Interest income 7,107 7,842 (735) -9% 13,894 16,787 (2,893) -17% Commitment fees and other income 749 1,037 (288) -28% 1,306 1,927 (621) -32% Prepayment fees - - - -% - 134 (134) -100% ------------ ------------ --------- --------- ------------ ------------ -------- --------- Total $ 40,638 $ 32,698 $ 7,940 24% $ 77,984 $ 65,232 $ 12,752 20% ============ ============ ========= ========= ============ ============ ======== =========
For the three and six months ended June 30, 2002, the Company generated increased rental income as a result of the acquisition of properties for which the Company receives rent. This offset a reduction in interest income due to the repayment of mortgage loans. Commitment fees and other income decreased primarily as a result of the completion of construction projects. -9- Expenses were comprised of the following:
Three months ended Change Year to date through Change ------------------------------ --------------------- ----------------------------- -------------------- June 30, 2002 June 30, 2001 $ % June 30, 2002 June 30, 2001 $ % ------------- ------------- -------- -------- -------------- ------------- -------- --------- (000's) Interest expense $ 10,278 $ 7,968 $ 2,310 29% $ 20,009 $ 16,072 $ 3,937 24% Loan expense 580 389 191 49% 1,157 764 393 51% Provision for depreciation 9,634 6,982 2,652 38% 18,300 13,757 4,543 33% Provision for losses 250 250 - -% 500 500 - -% Impairment of assets 550 - 550 100% 550 - 550 100% General and admin. expenses 2,285 2,034 251 12% 4,546 3,885 661 17% ------------ ------------ -------- --------- ------------ ------------ ------- --------- Total $ 23,577 $ 17,623 $ 5,954 34% $ 45,062 $ 34,978 $10,084 29% ============ ============ ======== ========= ============ ============ ======= =========
The increase in interest expense for both the three month and year-to-date periods was primarily due to the issuance of $175 million in unsecured senior notes in August, 2001. This was offset by lower average borrowings on the Company's lines of credit and lower interest rates. In addition, there was a reduction in the amount of capitalized interest offsetting interest expense. The Company capitalizes certain interest costs associated with funds used to finance the construction of properties owned directly by the Company. The amount capitalized is based upon the borrowings outstanding during the construction period using the rate of interest which approximates the Company's cost of financing. Capitalized interest for the three-month and year-to-date periods totaled $0 and $0, respectively as compared with $205,000 and $539,000 for the same periods in 2001. The provision for depreciation increased over the comparable periods in 2001 primarily as a result of additional investments in properties owned directly by the Company. General and administrative expenses as a percentage of revenues for the three-month and year-to-date periods were 5.63% and 5.83% as compared with 6.21% and 5.95% for the same periods in 2001. Other Items:
Three months ended Change Year to date through Change ------------------------------ --------------------- ------------------------------ -------------------- June 30, 2002 June 30, 2001 $ % June 30, 2002 June 30, 2001 $ % ------------- ------------- -------- ---------- -------------- ------------- --------- -------- (000's) Discontinued operations $ 173 $ 48 $ 125 260% $ 201 $ 72 $ 129 179% Loss on extinguishment of debt (403) - (403) (100%) (403) - (403) (100%) Preferred dividends 3,341 3,376 (35) (1%) 6,718 6,752 (34) (1%) ------------ ------------ -------- -------- ------------ ------------ ------- -------- Total $ 3,111 $ 3,424 $ (313) (9%) $ 6,516 $ 6,824 $ (308) (5%) ============ ============ ======== ======== ============ ============ ======= ========
During the second quarter of 2002 the Company sold properties with carrying values of $1,866,000 for a gain of $145,000. In addition, this property generated $56,000 of income after deducting depreciation and interest expense from rental income for the six months ended June 30, 2002. In April, 2002 the Company purchased $35,000,000 of unsecured senior notes that were due in 2003. The Company recorded a charge of $403,000 in connection with this early extinquishment. As a result of the various factors mentioned above, net income available to common shareholders for the three-month and year-to-date periods was $13,490,000, or $0.37 per diluted share, and $26,002,000, or $0.74 per diluted share, respectively, as compared with $11,747,000, or $0.40 per diluted share, and $23,574,000 or $0.81 per diluted share for the comparable periods in 2001. ACCOUNTING POLICIES Management reviews the adequacy of the allowance for loan losses on a quarterly basis. The Company makes mortgage loans and sometimes provides working capital and subdebt loans to operators of health care facilities in its portfolio. When reviewing the ultimate collectibility of these loans, management uses moderate assumptions of operating performance to determine the operator's ability to repay the obligation. As facts and circumstances change, management takes these into account to determine if the allowance for loan losses is adequate. -10- Management reviews its real estate portfolio on a quarterly basis to determine if there are any indicators of impairment. If indicators of impairment exist, management determines, using moderate assumptions and the information available at that time, if the projected undiscounted cash flows exceed the net book value of the property. If the projected undiscounted cash flows do not exceed the net book value, the property is written down to fair market value. During the quarter ended June 30, 2002, it was determined that the projected cash flows from a parcel of land did not exceed its net book value and a charge of $550,000 was recorded to reduce the property to its fair market value. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE This report on Form 10-Q of the Company may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to obtain new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believes", "expects", "anticipates", or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements." -11- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Company is exposed to various market risks, including the potential loss arising from adverse changes in interest rates. The Company seeks to mitigate the effects of fluctuations in interest rates by matching the term of new investments with new long-term fixed rate borrowings to the extent possible. The following section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates. The Company historically borrows on its revolving lines of credit to make acquisitions or to finance the construction of health care facilities. Then, as market conditions dictate, the Company will issue equity or long-term fixed rate debt to repay the borrowings under the revolving lines of credit. A change in interest rates will not affect future earnings or cash flow on our fixed rate debt. Interest rate changes, however, will affect the fair value of such debt. A 1% increase in interest rates would result in a decrease in fair value of the Company's Senior Unsecured Notes by approximately $15 million at June 30, 2002. Changes in the interest rate environment upon maturity of this fixed rate debt could have an affect on the future cash flows and earnings of the Company, depending on whether the debt is replaced with other fixed rate debt, with variable rate debt, with equity or by the sale of assets. A change in interest rates will not affect the fair value of the Company's variable rate debt, including its unsecured and secured revolving credit arrangements. At June 30, 2002, a 1% increase in interest rates related to this variable rate debt and assuming no changes in outstanding balances, would result in increased annual interest expense of $990,000. The Company is subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of such refinancing may not be as favorable as the terms of current indebtedness. The majority of the Company's borrowings were completed pursuant to indentures or contractual agreements which limit the amount of indebtedness the Company may incur. Accordingly, in the event that the Company is unable to raise additional equity or borrow money because of these limitations, the Company's ability to acquire additional properties may be limited. From time to time, the Company's variable interest rate debt may exceed its variable interest rate assets, presenting an exposure to rising interest rates. The Company may or may not elect to use financial derivative instruments to hedge variable interest rate exposure. Such decisions are principally based on the Company's policy to match its variable rate investments with comparable borrowings, but is also based on the general trend in interest rates at the applicable dates and the Company's perception of future volatility of interest rates. -12- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------- The annual meeting of shareholders of Health Care REIT, Inc. was duly called and held on May 3, 2002 in Toledo, Ohio. Proxies for the meeting were solicited on behalf of the Company's management and Board of Directors pursuant to Regulation 14A of the General Rules and Regulations of the Commission. There was no solicitation in opposition to the management's nominees for election as directors as listed in the Proxy Statement and all such nominees were elected. Votes were cast at the meeting upon the proposals described in the Proxy Statement for the meeting (filed with the Commission pursuant to Regulation 14A and incorporated herein by reference) as follows: Proposal #1 - The election of three directors:
Nominee For Withheld --------------------------- ------------------------- ------------------------- William C. Ballard, Jr. 32,281,188 328,220 Peter J. Grua 32,279,512 329,896 R. Scott Trumbull 32,270,005 339,403
Proposal #2 - The ratification of the appointment of Ernst & Young LLP as independent auditors for the fiscal year 2002: For 32,063,450 Against 435,789 Abstain 110,169 -13- PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION ----------------- On May 7, 2002, the Company issued a press release announcing an offering of 3,000,000 shares of common stock. On May 9, 2002, the Company issued a press release announcing the pricing of 3,000,000 shares of common stock at $28.00 per share. On July 2, 2002, the Company issued a press release announcing release date of July 17, 2002 for earnings and second quarter conference call. On July 9, 2002, the Company issued a press release announcing investments of $124 million for second quarter. On July 16, 2002, the Company issued a press release announcing earnings results for second quarter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits 10.1 Credit Agreement between Health Care REIT, Inc. and Fifth Third Bank dated as of May 31, 2002. 99.1 Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer. 99.2 Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer. 99.3 Press release dated May 7, 2002. 99.4 Press release dated May 9, 2002. 99.5 Press release dated July 2, 2002. 99.6 Press release dated July 9, 2002. 99.7 Press release dated July 16, 2002. (b) Reports on Form 8-K Form 8-K filed on May 8, 2002. Form 8-K/A filed on May 8, 2002. -14- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HEALTH CARE REIT, INC. Date: August 14, 2002 By: /S/ GEORGE L. CHAPMAN ------------------------------ --------------------------------- George L. Chapman, Chairman and Chief Executive Officer Date: August 14, 2002 By: /S/ RAYMOND W. BRAUN ------------------------------ --------------------------------- Raymond W. Braun, President and Chief Financial Officer Date: August 14, 2002 By: /S/ MICHAEL A. CRABTREE - ----------------------------------- --------------------------------- Michael A. Crabtree, Chief Accounting Officer -15- EXHIBIT INDEX The following documents are included in this Form 10-Q as Exhibits:
DESIGNATION NUMBER UNDER ITEM 601 OF REGULATION S-K EXHIBIT DESCRIPTION -------------- ------------------- 10.1 Credit Agreement between Health Care REIT, Inc. and Fifth Third Bank dated as of May 31, 2002. 99.1 Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer. 99.2 Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer. 99.3 Press release dated May 7, 2002. 99.4 Press release dated May 9, 2002. 99.5 Press release dated July 2, 2002. 99.6 Press release dated July 9, 2002. 99.7 Press release dated July 16, 2002.
-16- EX-10.1 3 l94963aexv10w1.txt EX-10.1 EXHIBIT 10.1 CREDIT AGREEMENT This Credit Agreement (the "Agreement") is entered into as of the 31st day of May, 2002, by and between HEALTH CARE REIT, INC., a Delaware corporation ("Borrower") and FIFTH THIRD BANK, an Ohio banking corporation ("Bank"). Section 1. DEFINITIONS. All financial terms used in the Agreement but not defined in the Loan Documents have the meanings given to them by generally accepted accounting principles ("GAAP"). All other undefined terms have the meanings given to them in the Ohio Uniform Commercial Code. Section 2. LOAN. 2.01. REVOLVING CREDIT LOAN. (a) Subject to the terms and conditions hereof, Bank hereby extends to Borrower a line of credit facility (the "Facility") (the "Loan") under which Bank may make loans (the Revolving Loans") to Borrower at Borrower's request from time to time during the term of this Agreement. Bank will have discretion at all times as to whether or not to make any Revolving Loan, if there is any Event of Default. Borrower may borrow, prepay, and reborrow under the Facility, provided that the principal amount of all Revolving Loans outstanding at any one time under the Facility will not exceed the foregoing limits or those limits specified in the Revolving Note. If the amount of the Revolving Loans outstanding at any time under the Facility exceeds the limits set forth above or in the Revolving Note, Borrower will immediately pay the amount of such excess to Bank. Bank has agreed to make this loan upon the terms and subject to the conditions of this Agreement and all documents executed pursuant to or in connection with this Agreement (all such documents and this Agreement will be called ("Loan Documents"), provided the loan is secured as set forth in this Agreement. (b) Borrower may request a Revolving Loan by written or telephone notice to Bank. Bank will make a Revolving Loan by wire transfer to any account designated by Borrower. Loan proceeds may be used for purposes not prohibited herein. (c) On the date hereof, Borrower will duly issue and deliver to Bank a Revolving Note (the "Revolving Note"), in the principal amount of TWENTY FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00) bearing interest as specified in Section 2.02 herein. (d) The term of the Facility will expire on MAY 31, 2003 and the Revolving Note will become payable in full on that date. 2.03 INTEREST ON REVOLVING CREDIT LOAN. The principal amounts outstanding hereunder shall bear interest commencing on the date of the first advance hereunder at the rate or rates per annum set forth below which shall be designated by Borrower as more fully set forth herein. At any time, from time to time, during the term of this note, so long as no Event of Default exists and so long as such Borrowings are not then subject to an Interest Rate Election, Borrower may notify Bank that it wishes to exercise its right to adjust the rate of interest accruing on some or all amounts of principal outstanding under this Note (in a minimum amount of $500,000.00) to one of the rates set forth below, however, once the rate of interest accruing against any amounts outstanding hereunder is adjusted to one of the following interest rates during an Interest Period, Borrower may not elect to adjust such interest rate to a different interest rate until the expiration of such Interest Period: (a) LIBOR RATE. Upon telephonic notice by Borrower to Bank, Borrower may elect to have all or any portion of the Borrowings in a minimum amount of $500,000.00 per election bear interest at the per annum rate equal to two hundred basis points (200) in excess of the LIBOR Rate (a "LIBOR Rate Election"). Such notice shall inform Bank of the amount of Borrowings to be subject to the LIBOR Rate Election, the LIBOR interest period and the effective date of the LIBOR interest period. 1 Borrower's right to make a LIBOR Rate Election shall be terminated automatically if Bank, by telephonic notice, shall notify Borrower that LIBOR deposits with a maturity corresponding to the maturity of the LIBOR Interest Period, in an amount equal to the Borrowings to be subject to the LIBOR Rate Election are not readily available in the London Inter-Bank Offered Rate Market, or that, by reason of circumstances affecting such Market, adequate and reasonable methods do not exist for ascertaining the interest rate applicable to such deposits for the proposed LIBOR Interest Period. In addition, notwithstanding anything herein contained to the contrary, if, prior to or during any period with respect to which a LIBOR Rate is in effect, any change in any law, regulation or official directive, or in the interpretation thereof, by any governmental body charged with the administration thereof, shall make it unlawful for the Bank to find or maintain its funding in Eurodollars of any portion of the Borrowings subject to the LIBOR Rate or otherwise to give effect to Bank's obligations as contemplated hereby, (i) Bank may by written notice to Borrower, declare Bank's obligations in respect of the LIBOR Rate to be terminated forthwith, and (ii) the LIBOR Rate with respect to Bank shall forthwith cease to be in effect, and interest shall from and after such date be calculated at Prime Rate, unless Borrower shall thereafter elect one or more other Interest Rate Election. (b) PRIME RATE. Upon telephonic notice by Borrower to Bank prior to or on the Effective Date, Borrower may elect to have all or part of the Borrowings (provided such Borrowings are not then subject to an Interest Rate Election) bear interest at the per annum rate equal to the Prime Rate ("Prime Rate Election"). Such telephonic notice shall inform Bank of the amount of the Borrowings to be subject to the Prime Rate Election, the Prime Rate Interest Period and the Effective Date for the Prime Rate Interest Period. If at any time during the term hereof (i) the outstanding principal hereunder is less than $500,000.00, or (ii) Borrower fails to designate one of the interest rates set forth above or at any time after Borrower has elected to adjust the interest rate accruing on any principal outstanding hereunder to a rate other than the fixed rate set forth above, at the expiration of any Interest Period, if Borrower has not made another Interest Rate Election hereunder, then in either such event, such outstanding amounts of principal will accrue interest at a rate of interest equal to the Prime Rate. As used herein, the following terms will have the meanings set forth below: (a) "Effective Date" means the date on which a LIBOR Rate Election or Prime Rate Election will begin. (b) "Interest Rate Election" means a LIBOR Rate Election, or a Prime Rate Election or any one or more of the foregoing. (c) "LIBOR Interest Period" means, with respect to a Borrowing elected to accrue interest at the LIBOR Rate, a period of 90 days commencing on a business day selected by the Borrower pursuant to this Note. Such LIBOR Interest Period shall end on the day in the succeeding calendar month which corresponds numerically to the beginning day of such LIBOR Interest Period, provided, however, that if there is no such numerically corresponding day in such succeeding month, such LIBOR Interest Period shall end on the last business day of such succeeding month. If a LIBOR Interest Period would otherwise end on a day which is not a business day, such LIBOR Interest Period shall end on the next succeeding business day, provided, however, that if said next succeeding business day falls in a new month, such LIBOR Interest Period shall end on the immediately preceding business day. 2.03 STATEMENTS. After the end of each quarter, Bank will render to Borrower a statement on each of Borrower's loan accounts with Bank hereunder, which statement will be considered correct and will be conclusively binding upon Borrower unless Borrower notifies Bank in writing of any discrepancy within thirty (30) days from the date of such statement. Section 3. REPRESENTATIONS AND WARRANTIES. 2 Borrower hereby warrants and represents to Bank the following: 3.01 ORGANIZATION AND QUALIFICATION. Borrower is duly organized and validly existing under the laws of its state of organization and has the power to own its assets and to transact the business in which it is presently engaged and in which it proposes to be engaged. Borrower is in good standing in its state of organization and in each state in which it is qualified to do business unless the failure to so qualify would have a material adverse effect on Borrower. 3.02 DUE AUTHORIZATION. The execution, delivery and performance by Borrower of this Agreement, the Loan and any other Loan Documents have been duly authorized by all necessary corporate action, and will not contravene any law or any governmental rule or order binding on Borrower, or the Articles of Incorporation, Code of Regulations or Bylaws of Borrower, nor violate any agreement or instrument by which Borrower is bound nor result in the creation of a lien on any assets of Borrower except the lien to Bank granted herein. Borrower has duly executed and delivered this Agreement and the other Loan Documents and they are valid and binding obligations of Borrower enforceable according to their respective terms except as limited by equitable principles and by bankruptcy, insolvency or similar laws affecting the rights of creditors generally. No notice to or consent by any governmental body is needed in connection with this transaction. 3.03 LITIGATION. There is no litigation, nor are there any proceedings by or before any public body, agency or authority presently pending or threatened against Borrower or any other person, the outcome of which might materially and adversely affect the continued operations or assets of Borrower, or the transactions contemplated by this Agreement. 3.04 BUSINESS. Borrower is not a party to or subject to any agreement or restriction which in the opinion of Borrower's management is so unusual or burdensome that it might have a material adverse effect on Borrower's business, properties or prospects. 3.05 LAWS AND TAXES. To the best of Borrower's knowledge, Borrower is in compliance with all laws, regulations, rulings, orders, injunctions, decrees, conditions or other requirements applicable to or imposed upon Borrower by any law or by any governmental authority, court or agency. Borrower has filed all required tax returns and reports that are now required to be filed by it in connection with any federal, state and local tax, duty or charge levied, assessed or imposed upon Borrower or its assets, including unemployment, social security, and real estate taxes. Borrower has paid all taxes which are now due and payable. No taxing authority has asserted or assessed any additional tax liabilities against Borrower which are outstanding on the date of this Agreement, and Borrower has filed timely requests for extensions to file its 2000 tax returns. 3.06 FINANCIAL CONDITION. All financial information relating to Borrower which has been or may hereafter be delivered to Bank is true and correct and has been prepared in accordance with generally accepted accounting principles consistently applied. Borrower has no material obligations or liabilities of any kind not disclosed in that financial information, and there has been no material adverse change in the financial condition of Borrower nor has Borrower suffered any damage, destruction or loss which has adversely affected its business or assets since the submission of the most recent financial information to Bank. 3.07 TITLE TO PROPERTIES. Borrower has good and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary course of its business, except for such defects in title as could not individually or in the aggregate, have a material adverse effect on Borrower. 3.08 DEFAULTS. Borrower is in compliance with all material agreements applicable to it and to the best of Borrower's knowledge, there does not now exist any default or violation by Borrower of or under any of the terms, conditions or obligations of (a) its Articles of Incorporation or Bylaws, or (b) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement or other instrument to which Borrower is a party or by which it is bound, and the consummation of the transactions contemplated by this Agreement will not result in such default or violation, which default could have a material adverse effect on Borrower. 3.09 SUBSIDIARIES. If Borrower has any additional subsidiaries at any time during the term of this Agreement, the term "Borrower" in each representation, warranty and covenant herein will mean "Borrower and each subsidiary individually 3 and in the aggregate," and Borrower will cause each subsidiary to be in compliance therewith. 3.10 ERISA. To the best of Borrower's knowledge, Borrower is in compliance with all of its obligations to contribute to any employee benefit plan or pension plan regulated by the Federal Employee Retirement Income Security Act of 1974 ("ERISA"). Borrower has not received notice informing it that it is not in full compliance with any of the requirements of ERISA, and the regulations promulgated thereunder and, there exists no event described in Section 4043(3) thereof ("Reportable Event"). 3.11 ENVIRONMENTAL LAWS. To the best of Borrower's knowledge, (a) Borrower has obtained all permits, licenses and other authorizations which are required under environmental laws and Borrower is in compliance in all material respects with all terms and conditions of the required permits, licenses and authorizations, and is also in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the environmental laws, which failure to obtain or noncompliance could have a material adverse effect on Borrower. (b) To the best of Borrower's knowledge, Borrower is not aware of, and has not received notice of, any past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance, in any material respect, with Environmental Laws, or may give rise to any material common law or legal liability, or otherwise from the basis of any material claim, action, demand, suit, proceeding, hearing, study, or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or waste, which could have a material adverse effect on Borrower. (c) There is no civil, criminal or administrative action, suit, demand, claim, hearing, notice or demand letter, notice of violation, investigation or proceeding pending or to the best of Borrower's knowledge, threatened against Borrower, relating in any way to environmental laws, which could have a material adverse effect on Borrower. 3.12 MARGIN STOCK. No part of the Facility will be used to purchase or carry, or to reduce or retire or refinance credit incurred to purchase or carry, any margin stock (within the meaning of Regulations U and X of the Board of Governors of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any margin stock. If requested by Bank, Borrower will furnish to Bank statements in conformity with the requirements of Federal Reserve Form U-1. 3.13 LICENSES, ETC. Borrower has obtained any and all licenses, permits, franchises, governmental authorizations, patents, trademarks, copyrights or other rights necessary for the ownership of its properties and the advantageous conduct of its business, the failure of which could have a material adverse effect on Borrower. Borrower possesses adequate licenses, patents, patent applications, copyrights, trademarks, trademark applications, and trade names to continue to conduct its business as heretofore conducted by it, without any conflict with the rights of any other person or entity, which the lack thereof could have a material adverse effect on Borrower. All of the foregoing are in full force and effect and none of the foregoing are known to conflict with the rights of others, which conflict could have a material adverse effect on Borrower. Section 4. AFFIRMATIVE COVENANTS. 4.01 AFFIRMATIVE COVENANTS. Borrower shall comply with the Affirmative Covenants set forth in either (a) Article 6 of the Loan Agreement by and among Health Care REIT, Inc., the Bank signatory thereto, Key Corporate Capital Inc. (f/k/a Key Bank National Association) and Fleet National Bank (formerly Fleet Bank, NA), dated March 28, 1997, as amended by Amendment No. 1 dated October 1, 1998, as further amended by Amendment No.2 dated January 29, 2001, and as such agreement may be amended (the "Key/Fleet Agreement"), or (b) a replacement loan agreement. 4.02 CLOSING COSTS. Borrower shall pay to Bank its fees, costs and expenses (including, without limitation, reasonable attorneys' fees, court costs, litigation and other expense) (collectively, "Costs") incurred or paid by Bank in negotiating, documenting, administering, and enforcing the Loan Documents and Bank's security interest in the Collateral or 4 any other property pledged to secure the Facility. The costs will be due upon demand by Bank. If Borrower fails to pay the Costs when upon such demand, Bank is entitled to disburse such sums as an advance under the Facility, thereafter the Costs will bear interest from the date incurred or disbursed at the highest rate set forth in the Note. Borrower shall be responsible for all out of pocket expenses incurred by Borrower and Bank. 4.03 OTHER AMOUNTS DEEMED LOAN. If Borrower fails to pay any tax, assessment, governmental charge or levy or to maintain insurance within the time permitted by this Agreement, or to discharge any lien prohibited hereby, or to comply with any other obligation, Bank may, but shall not be obligated to, pay, satisfy, discharge or bond the same for the account of Borrower, and to the extent permitted by law and at the option of Bank, all monies so paid by Bank on behalf of Borrower will be deemed Revolving Loans and Obligations. Section 5. EVENTS OF DEFAULT AND REMEDIES. 5.01 EVENTS OF DEFAULT. (a) If any one or more of the following events ("Events of Default") shall occur and be continuing, the Loan shall terminate and the entire unpaid balance of the principal of and interest on the Loan outstanding and all other obligations and indebtedness of the Borrower to the Bank arising hereunder and under the Loan Documents shall immediately become due and payable upon written notice to that effect given to the Borrower by the Bank (except in the case of the occurrence of any Event of Default described in Section 5.01(c), (d) or (f) no such notice shall be required), without presentment or demand for payment, notice of non-payment, protest or further notice or demand of any kind, all of which are expressly waived by the Borrower. (b) Borrower defaults in the payment of any principal or interest on any Obligation when due and payable, by acceleration or otherwise; or (c) a court enters a decree or order for relief with respect to Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law then in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of Borrower or for any substantial part of its property, or orders the wind-up or liquidation of its affairs; or a petition initiating an involuntary case under any such bankruptcy, insolvency or similar law is filed and is pending for thirty (30) days without dismissal; or (d) Borrower commences a voluntary case under any applicable bankruptcy, insolvency or other similar law in effect, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts as such debts become due, or takes corporate action in furtherance of any of the foregoing; or (e) final judgment of the payment of money in excess of $1,500,000.00 is rendered against Borrower and remains undischarged for 10 days during which execution is not effectively stayed; or (f) the dissolution of Borrower; or, (g) Borrower shall fail to comply with the covenants as set forth in either (a) Article 6 of the Key/Fleet Agreement, or (b) a replacement agreement. 5.02 REMEDIES. If any Event of Default will occur, Bank may cease advancing money hereunder, and/or declare all Obligations to be due and payable forthwith, whereupon they will forthwith become due and payable without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived by Borrower. 5 5.03 SETOFF. If any Event of Default will occur, Bank is authorized, without notice to Borrower, to offset and apply to all or any part of the Obligations all moneys, credits and other property of any nature whatsoever of Borrower now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with (whether held by Borrower individually or jointly with another party), Bank, including but not limited to certificates of deposit. 5.04 DEFAULT RATE. After the occurrence of an Event of Default, the Bank may increase the interest rate on any loan in accordance with the provisions of any note evidencing the loan. This provision does not constitute a waiver of any Events of Default or an agreement by Bank to permit any late payments whatsoever. 5.05 LATE PAYMENT PENALTY. If any payment is not paid when due (whether by acceleration or otherwise), Borrower agrees to pay to Bank a late payment fee equal to five percent (5%) of the payment amount, with a minimum fee of $20.00. 5.06 NO REMEDY EXCLUSIVE. No remedy set forth herein is exclusive of any other available remedy or remedies, but each is cumulative and in addition to every other remedy available under this Agreement, the Loan Documents or as maybe now or hereafter existing at law, in equity or by statute. Borrower waives any requirement of marshalling of assets which may be secured by any of the Loan Documents. 5.07 EFFECT OF TERMINATION. The termination of this Agreement will not affect any rights of either party or any obligation of either party to the other, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights created or Obligations incurred prior to such termination have been fully disposed of, concluded or liquidated. The security interest, lien and rights granted to Bank hereunder and under the Loan Documents will continue in full force and effect, notwithstanding the termination of this Agreement or the fact that no Loans are outstanding to Borrower, until all of the Obligations, have been paid in full. Section 6. CONDITIONS PRECEDENT. 6.01 CONDITIONS TO LOAN. Bank will have no obligation to make or advance any Loan until Borrower has delivered to Bank at or before the closing date, in form and substance satisfactory to Bank: (a) An executed Revolving Note of even date herewith. (b) A Corporate Resolution of Borrower. (c) An executed Credit Agreement. (d) Such additional information and materials as Bank may reasonably request. 6.02 CONDITIONS TO EACH LOAN. On the date of the Revolving Loan, the following statements will be true: (a) All of the representations and warranties contained herein and in the Loan Documents will be correct in all material respects as though made on such date. (b) No event will have occurred and be continuing, or would result from such Loan, which constitutes an Event of Default, or would constitute an Event of Default but for the requirement that notice be given or lapse of time or both. (c) The aggregate unpaid principal amount of the Revolving Loans after giving effect to such Revolving Loans will not violate the lending limits set forth in Section 2.01 of this Agreement. 6 The acceptance by Borrower of the proceeds of each Loan will be deemed to constitute a representation and warranty by Borrower that the conditions in Section 7.02 of this Agreement, other than those that have been waived in writing by Bank, have been satisfied. Section 7. MISCELLANEOUS PROVISIONS. 7.01 MISCELLANEOUS. This Agreement, the exhibits and the other Loan Documents are the complete agreement of the parties hereto and supersede all previous understandings relating to the subject matter hereof. This Agreement may be amended only in writing signed by the party against whom enforcement of this amendment is sought. This Agreement may be executed in counterparts. If any part of this Agreement is held invalid, the remainder of this Agreement will not be affected thereby. This Agreement is and is intended to be a continuing agreement and will remain in full force and effect until the Loan is finally and irrevocably paid in full. 7.02 WAIVER BY BORROWER. Borrower waives notice of non-payment, demand, presentment, protest or notice of protest of any accounts, and all other notices (except those notices specifically provided for in this Agreement or other Loan Documents); consents to any renewals or extensions of time of payment thereof; and generally waives any all suretyship defenses and defenses in the nature thereof. 7.03 BINDING EFFECT. This Agreement will be binding upon and inure to the benefit of the respective legal representatives, successors and assigns of the parties hereto; however, Borrower may not assign any of its rights or delegate any of its obligations hereunder. Bank (and any subsequent assignee) may transfer and assign this Agreement or may assign partial interests or participation in the Loans to other persons. Bank may disclose to all prospective and actual assignees and participants all financial, business and other information about Borrower which Bank may possess at any time. 7.04 SUBSIDIARIES. If Borrower has any Subsidiaries at any time during the term of this Agreement, the term "Borrower" in each representation, warranty and covenant herein will mean "Borrower" and each Subsidiary individually and in the aggregate, and Borrower will cause each Subsidiary to be in compliance therewith. 7.05 SURVIVAL. All representations, warranties, covenants and agreements made by Borrower herein and in the Loan Documents will survive the execution and delivery of this Agreement, the Loan Documents and the issuance of the Note. 7.06 DELAY OR OMISSION. No delay or omission on the part of Bank in exercising any right, remedy or power arising from any Event of Default will impair any such right, remedy or power; or any other right, remedy or power to be considered a waiver; or any right, remedy or power or any Event of Default nor will the action or omission to act by Bank upon the occurrence of any Event of Default impair any right, remedy or power arising as a result thereof or affect any subsequent Event of Default of the same or different nature. 7.07 NOTICES. Any notices under or pursuant to this Agreement will be deemed duly sent when delivered in hand or when mailed by registered or certified mail, return receipt requested, addressed as follows: To Borrower: Health Care REIT, Inc. One Seagate, Suite 1950 Toledo, Ohio 43603 Attention: Michael A. Crabtree, Treasurer To Bank: Fifth Third Bank 606 Madison Avenue Toledo, Ohio, 43604 Attention: Dirk VanHeyst, Senior Vice President Either party may change such address by sending notice of the change to the other party. 7.08 NO PARTNERSHIP. Nothing contained herein or in any of the Loan Documents is intended to create or will be 7 construed to create any relationship between Bank and Borrower other than as expressly set forth herein or therein and will not create any joint venture, partnership or other relationship. 7.09 INDEMNIFICATION. If after receipt of any payment of all or part of the Obligations, Bank is for any reason compelled to surrender such payment to any person or entity, because such payment is determined to be void or voidable as a preference, impermissible setoff, or diversion of trust funds, or for any other reason, this Agreement will continue in full force and effect and Borrower will be liable to, and will indemnify, save and hold Bank, its officers, directors, attorneys, and employees harmless of and from the amount of such payment surrendered. The provisions of this Section will be and remain effective notwithstanding any contrary action which may have been taken by Bank in reliance on such payment, and any such contrary action so taken will be without prejudice to Bank's rights under this Agreement and will be deemed to have been conditioned upon such payment becoming final, indefeasible and irrevocable. In addition, Borrower will indemnify, defend, save and hold Bank, its officers, directors, attorneys, and employees harmless of, from and against all claims, demands, liabilities, judgments, losses, damages, costs and expenses, joint or several (including all accounting fees and attorneys' fees reasonably incurred), that Bank or any such indemnified party may incur arising out of this Agreement, any of the Loan Documents or any act taken by Bank hereunder except for the willful misconduct or gross negligence of such indemnified party. The provisions of this Section will survive the termination of this Agreement. 7.10 GOVERNING LAW; JURISDICTION. This Agreement, the Note and the other Loan Documents, will be governed by the domestic laws of the State of Ohio. Borrower agrees that the state and federal courts in Lucas County, Ohio, or any other court in a jurisdiction in which Borrower does business and in which Bank initiates proceedings have exclusive jurisdiction over all matters arising out of this Agreement, and that service of process in any such proceeding will be effective if mailed to Borrower at its address described in the Notices section of this Agreement. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by their duly authorized officers as of the date first above written. BORROWER: HEALTH CARE REIT, INC., A DELAWARE CORPORATION By: ------------------------------------------- George L. Chapman, Chairman of the Board FIFTH THIRD BANK, AN OHIO BANKING CORPORATION By: ------------------------------------------- Dirk VanHeyst, Senior Vice President 8 EX-99.1 4 l94963aexv99w1.txt EX-99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350 I, George L. Chapman, the Chief Executive Officer of Health Care REIT, Inc. (the "Company"), certify that (i) the Quarterly Report on Form 10-Q for the Company for the quarter ended June 30, 2002 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. ------------------------------- George L. Chapman Chief Executive Officer Dated: April 14, 2002 -17- EX-99.2 5 l94963aexv99w2.txt EX-99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350 I, Raymond W. Braun, the Chief Financial Officer of Health Care REIT, Inc. (the "Company"), certify that (i) the Quarterly Report on Form 10-Q for the Company for the quarter ended June 30, 2002 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. ----------------------- Raymond W. Braun Chief Financial Officer Dated: April 14, 2002 -18- EX-99.3 6 l94963aexv99w3.txt EX-99.3 EXHIBIT 99.3 F O R I M M E D I A T E R E L E A S E May 7, 2002 For more information contact: Ray Braun (419) 247-2800 Mike Crabtree (419) 247-2800 HEALTH CARE REIT, INC. ANNOUNCES OFFERING OF 3,000,000 SHARES OF COMMON STOCK Toledo, Ohio, May 7, 2002........HEALTH CARE REIT, INC. (NYSE/HCN) announced that it has commenced a public offering of 3,000,000 shares of common stock. The underwriters for the offering are Deutsche Bank Securities Inc., UBS Warburg, Legg Mason Wood Walker Incorporated and Raymond James. The net proceeds of the offering will be used to repay borrowings under the company's revolving line of credit arrangements and to invest in additional health care properties. Health Care REIT, Inc., with headquarters in Toledo, Ohio, is a real estate investment trust that invests in health care facilities, primarily skilled nursing and assisted living facilities. At March 31, 2002, the company had investments in 226 health care facilities in 34 states and had total assets of approximately $1.4 billion. For more information on Health Care REIT, Inc., via facsimile at no cost, dial 1-800-PRO-INFO and enter the company code - HCN. More information is available on the Internet at http://www.hcreit.com. This document may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to obtain new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. #### -19- EX-99.4 7 l94963aexv99w4.txt EX-99.4 EXHIBIT 99.4 [Health Care REIT Logo] F O R I M M E D I A T E R E L E A S E May 9, 2002 For more information contact: Ray Braun (419) 247-2800 Mike Crabtree (419) 247-2800 HEALTH CARE REIT, INC. ANNOUNCES PRICING OF 3,000,000 SHARES OF COMMON STOCK AT $28.00 PER SHARE Toledo, Ohio, May 9, 2002..........HEALTH CARE REIT, INC. (NYSE/HCN) announced that it has successfully priced a public offering of 3,000,000 shares of common stock at $28.00 per share for gross proceeds totaling $84 million. The company will now have a total of 37 million shares outstanding. It is anticipated that closing and delivery will occur on Tuesday, May 14, 2002. The underwriters for the offering were Deutsche Bank Securities Inc., UBS Warburg, Legg Mason Wood Walker Incorporated and Raymond James. The company has granted the underwriters an option for thirty days to purchase up to 450,000 additional shares of common stock to cover over-allotments, if any. The net proceeds of the offering will be used to repay borrowings under the company's revolving line of credit arrangements and to invest in additional health care properties. "We have made great strides in building a pipeline of solid new investments," commented George L. Chapman, chairman and chief executive officer. "This equity offering demonstrates the capital markets' confidence in our ability to execute our investment program and create value for our investors." Health Care REIT, Inc., with headquarters in Toledo, Ohio, is a real estate investment trust that invests in health care facilities, primarily skilled nursing and assisted living facilities. At March 31, 2002, the company had investments in 226 health care facilities in 34 states and total assets of approximately $1.4 billion. For more information on Health Care REIT, Inc., via facsimile at no cost, dial 1-800-PRO-INFO and enter the company code - HCN. More information is available on the Internet at http://www.hcreit.com. This document may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to obtain new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate -20- investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. ##### -21- EX-99.5 8 l94963aexv99w5.txt EX-99.5 EXHIBIT 99.5 [Health Care REIT Logo] F O R I M M E D I A T E R E L E A S E July 2, 2002 For more information contact: Ray Braun (419) 247-2800 Mike Crabtree (419) 247-2800 HEALTH CARE REIT, INC. TO RELEASE EARNINGS AND HOLD SECOND-QUARTER CONFERENCE CALL SET FOR JULY 17, 2002 Toledo, Ohio, July 2, 2002.....HEALTH CARE REIT, INC. (NYSE/HCN) announced today that it will release its 2002 second quarter earnings on Tuesday, July 16, 2002, after the market closes. At 11:00 a.m. Eastern Time on Wednesday, July 17, 2002, the company will hold a conference call to discuss its results and performance for the second quarter. The conference call will be accessible by telephone and through the Internet. Telephone access will be available by dialing 800-240-2430 or 303-436-9226. Callers to this number will be able to listen to the company's business update. For those unable to listen to the call live, a taped rebroadcast will be available beginning two hours after completion of the live call on July 17, 2002. To access the rebroadcast, dial 800-405-2236 or 303-590-3000. The conference ID number is 481296. To participate via the webcast, log on to www.hcreit.com or www.ccbn.com 15 minutes before the call to download the necessary software. Replay will be available for 90 days through the same websites. Health Care REIT, Inc., with headquarters in Toledo, Ohio, is a real estate investment trust that invests in health care facilities, primarily skilled nursing and assisted living facilities. At March 31, 2002, the company had investments in 226 health care facilities in 34 states and total assets of approximately $1.4 billion. For more information on Health Care REIT, Inc., via facsimile at no cost, dial 1-800-PRO-INFO and enter the company code - HCN. More information is available on the Internet at http://www.hcreit.com. This document may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to obtain new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected -22- results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. ##### -23- EX-99.6 9 l94963aexv99w6.txt EX-99.6 EXHIBIT 99.6 [Health Care REIT Logo] F O R I M M E D I A T E R E L E A S E July 9, 2002 For more information contact: Ray Braun (419) 247-2800 Mike Crabtree (419) 247-2800 HEALTH CARE REIT, INC. ANNOUNCES INVESTMENTS OF $124 MILLION FOR SECOND QUARTER Toledo, Ohio, July 9, 2002.....HEALTH CARE REIT, INC. (NYSE/HCN) announced today that it had completed $124 million of investments during the second quarter of 2002. The investment activity during the quarter was approximately 87% real property investments and 13% loans. Facility-based investments include 57% assisted living facilities, 37% skilled nursing facilities and 6% specialty care facilities. Aggregate funding was provided to 17 operators in 13 states. Also during the quarter, the company had $33 million of loan payoffs and asset sales relating to six assisted living facilities. Through June 30, 2002, the company has completed net new investments of $192 million. Health Care REIT, Inc., with headquarters in Toledo, Ohio, is a real estate investment trust that invests in health care facilities, primarily skilled nursing and assisted living facilities. At March 31, 2002, the company had investments in 226 health care facilities in 34 states and total assets of approximately $1.4 billion. For more information on Health Care REIT, Inc., via facsimile at no cost, dial 1-800-PRO-INFO and enter the company code - HCN. More information is available on the Internet at http://www.hcreit.com. This document may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to obtain new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. ##### -24- EX-99.7 10 l94963aexv99w7.txt EX-99.7 EXHIBIT 99.7 F O R I M M E D I A T E R E L E A S E JULY 16, 2002 FOR MORE INFORMATION CONTACT: RAY BRAUN - (419) 247-2800 MIKE CRABTREE - (419) 247-2800 HEALTH CARE REIT, INC. REPORTS SECOND QUARTER RESULTS Toledo, Ohio, July 16, 2002........HEALTH CARE REIT, INC. (NYSE/HCN) today announced operating results for its second quarter of 2002. The company continues to meet its financial and operational expectations. "We are pleased with the company's performance for the quarter," commented George L. Chapman, chief executive officer. "Our stock has performed well, allowing us to access the capital markets and execute a 3.45 million share offering in May. With our solid investment pipeline, we were able to close $124 million of acquisitions and investments during the quarter. We continue to see attractive acquisitions in the market and have the financial flexibility to capitalize on these growth opportunities. Given the current market conditions and our strong balance sheet, we believe we will be able to close on an additional $100 million of net investments this year, with a year-end goal of $292 million." The Board of Directors declared a dividend for the quarter ended June 30, 2002, of $0.585 per share. The dividend represents the 125th consecutive dividend payment. The dividend will be payable August 20, 2002, to shareholders of record on July 31, 2002. SUMMARY OF SECOND QUARTER RESULTS - --------------------------------- (In thousands, except per share numbers)
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 2002 JUNE 30, 2001 ------------------ ------------------ Revenues $40,589 $32,742 Net Income Available to Common Shareholders $13,490 $11,747 Funds From Operations (FFO) $23,942 $18,716 Net Income Per Diluted Share $0.37 $0.40 FFO Per Diluted Share $0.66 $0.64 Dividend Per Share $0.585 $0.585 FFO Payout Ratio 89% 91%
Funds from operations (FFO), the generally accepted measure of operating performance for the real estate investment trust industry, totaled $23.9 million, or $0.66 per diluted share, for the second three months of 2002, compared with $18.7 million, or $0.64 per diluted share, for the same period in 2001. SUMMARY OF YEAR TO DATE RESULTS - ------------------------------- (In thousands, except per share numbers)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2002 JUNE 30, 2001 ---------------- ---------------- Revenues $77,984 $65,319 Net Income Available to Common Shareholders $26,002 $23,574 Funds From Operations (FFO) $45,131 $37,195 Net Income Per Diluted Share $0.74 $0.81 FFO Per Diluted Share $1.29 $1.28 Dividend Per Share $1.170 $1.170 FFO Payout Ratio 91% 91%
-25- FFO totaled $45.1 million, or $1.29 per diluted share for the six months ended June 30, 2002, compared with $37.2 million, or $1.28 per diluted share, for the same period in 2001. The company had a total outstanding debt balance of $576.3 million at June 30, 2002, as compared with $371.3 million in second quarter 2001, and shareholders' equity of $871.2 million, which represents a debt to total capitalization ratio of 40 percent. The company's coverage ratio of EBITDA to interest was 3.80 to 1.00 for the twelve months ended June 30, 2002. PORTFOLIO UPDATE. The portfolio results met the company's expectations. The seasoning of the assisted living portfolio is on target. The company ended the quarter with 17 assisted living facilities remaining in fill-up representing 10 percent of revenues. Four assisted living facilities, representing 3 percent of revenues, have occupancy less than 50 percent. OUTLOOK FOR 2002 & 2003. Based upon the investment activity through the second quarter, the company expects to report FFO in the range of $2.64 to $2.68 per share for the full year 2002 and $2.80 to $2.85 for the year 2003. CONFERENCE CALL INFORMATION. Health Care REIT, Inc. has scheduled a conference call on July 17, 2002, at 11:00 A.M. EST to discuss its second quarter 2002 performance, industry trends, portfolio performance, and its outlook for the remainder of 2002. To participate on the webcast, log on to www.hcreit.com or www.ccbn.com 15 minutes before the call to download the necessary software. Replays will be available for 90 days through the same websites. Health Care REIT, Inc., with headquarters in Toledo, Ohio, is a real estate investment trust that invests in health care facilities, primarily skilled nursing facilities and assisted living facilities. At June 30, 2002, the company had investments in 229 health care facilities in 34 states and had total assets of approximately $1.5 billion. For more information on Health Care REIT, Inc., via facsimile at no cost, dial 1-800-PRO-INFO and enter the company code - HCN. More information is available on the Internet at http://www.hcreit.com. This document and supporting schedules may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to obtain new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believes", "expects", "anticipates", or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. FINANCIAL SCHEDULES FOLLOW ##### -26- HEALTH CARE REIT, INC. FINANCIAL SUPPLEMENT CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AMOUNTS IN THOUSANDS)
JUNE 30 ----------------------------- 2002 2001 ----------- ----------- ASSETS Real estate investments: Real property owned Land $ 106,299 $ 77,622 Buildings & improvements 1,155,541 812,767 Construction in progress 0 10,314 ----------- ----------- 1,261,840 900,703 Less accumulated depreciation (98,637) (65,443) ----------- ----------- Total real property owned 1,163,203 835,260 Loans receivable Real property loans 226,158 255,367 Subdebt investments 24,132 23,269 ----------- ----------- 250,290 278,636 Less allowance for losses on loans receivable (7,361) (6,361) ----------- ----------- 242,929 272,275 ----------- ----------- Net real estate investments 1,406,132 1,107,535 Other assets: Equity investments 6,891 5,924 Deferred loan expenses 6,358 3,549 Cash and cash equivalents 9,256 5,854 Receivables and other assets 37,667 29,891 ----------- ----------- 60,172 45,218 ----------- ----------- TOTAL ASSETS $ 1,466,304 $ 1,152,753 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Borrowings under line of credit obligations $ 99,000 $ 61,500 Senior unsecured notes 365,000 245,000 Secured debt 112,033 64,818 Accrued expenses and other liabilities 19,114 15,988 ----------- ----------- Total liabilities $ 595,147 $ 387,306 Shareholders' equity: Preferred Stock 135,000 150,000 Common Stock 38,116 32,389 Capital in excess of par value 743,875 601,501 Cumulative net income 545,557 482,614 Cumulative dividends (586,669) (496,178) Accumulated other comprehensive income (558) (1,159) Unamortized restricted stock (4,164) (3,720) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY $ 871,157 $ 765,447 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,466,304 $ 1,152,753 =========== ===========
-27- HEALTH CARE REIT, INC. FINANCIAL SUPPLEMENT CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenues: Operating lease rents $ 32,733 $ 23,863 $ 62,784 $ 46,471 Interest income 7,107 7,842 13,894 16,787 Commitment fees and other income 749 1,037 1,306 1,927 Prepayment fees 0 0 0 134 -------- -------- -------- -------- Gross Revenues 40,589 32,742 77,984 65,319 Expenses: Interest expense $ 10,268 $ 7,977 $ 20,009 $ 16,089 Provision for depreciation 9,623 6,992 18,300 13,778 General and administrative 2,285 2,034 4,546 3,885 Loan expense 580 389 1,157 764 Impairment of assets 550 0 550 0 Provision for losses 250 250 500 500 -------- -------- -------- -------- Total Expenses 23,556 17,642 45,062 35,016 -------- -------- -------- -------- Income from continuing operations and before extraordinary item 17,033 15,100 32,922 30,303 Discontinued operations: Gain on sale of properties 145 23 145 23 Income from discontinued operations, net 56 0 56 0 -------- -------- -------- -------- 201 23 201 23 Income before extraordinary item 17,234 15,123 33,123 30,326 Loss on extinguishment of debt (403) 0 (403) 0 -------- -------- -------- -------- Net income 16,831 15,123 32,720 30,326 Preferred dividends 3,341 3,376 6,718 6,752 -------- -------- -------- -------- Net income available to common shareholders $ 13,490 $ 11,747 $ 26,002 $ 23,574 ======== ======== ======== ======== Average number of common shares outstanding: Basic 35,446 28,985 34,451 28,802 Diluted 36,223 29,402 34,954 29,137 Net income per share: Basic $ 0.38 $ 0.41 $ 0.75 $ 0.82 Diluted 0.37 0.40 0.74 0.81 Funds from operations: $ 23,942 $ 18,716 $ 45,131 $ 37,195 Funds from operations per share: Basic $ 0.68 $ 0.65 $ 1.31 $ 1.29 Diluted 0.66 0.64 1.29 1.28 Dividends per share $ 0.585 $ 0.585 $ 1.170 $ 1.170
-28- HEALTH CARE REIT, INC. FINANCIAL SUPPLEMENT - JUNE 30, 2002 PORTFOLIO COMPOSITION ($000'S) EXHIBIT 1 - ------------------------------
BALANCE SHEET DATA # Properties # Beds/Units Balance % Balance ---------------------------------------------------------------------------- Real Property 198 17,106 $ 1,163,203 82% Loans Receivable 31 3,679 226,158 16% Subdebt Investments 0 0 24,132 2% ---------------------------------------------------------------------------- Total Investments 229 20,785 $ 1,413,493 100% INVESTMENT DATA # Properties # Beds/Units Investment (1) % Investment ---------------------------------------------------------------------------- Assisted Living Facilities 157 10,513 $ 875,071 61% Skilled Nursing Facilities 65 8,989 452,805 32% Specialty Care Facilities 7 1,283 96,477 7% ---------------------------------------------------------------------------- Real Estate Investments 229 20,785 $ 1,424,353 100% INVESTMENT BY OWNER TYPE # Properties # Beds/Units Investment (1) % Investment ---------------------------------------------------------------------------- Publicly Traded 61 3,616 $ 242,859 17% Key Private 81 8,473 626,684 44% Privately Held 87 8,696 554,810 39% ---------------------------------------------------------------------------- Real Estate Investments 229 20,785 $ 1,424,353 100%
NOTES: (1) REAL ESTATE INVESTMENTS INCLUDE GROSS REAL ESTATE INVESTMENTS AND CREDIT ENHANCEMENTS WHICH AMOUNTED TO $1,413,493,000 AND $10,860,000, RESPECTIVELY. REVENUE COMPOSITION ($000'S) EXHIBIT 2 - ----------------------------
Three Months Ended Six Months Ended June 30, 2002 (1) June 30, 2002 (1) ---------------------------------- ------------------------------ REVENUE BY INVESTMENT TYPE Real Property $ 33,324 82% $ 63,671 82% Loans Receivable & Other 7,264 17% 13,763 17% Subdebt Investments 245 1% 794 1% --------------------------------- ------------------------------ Total $ 40,833 100% $ 78,228 100% REVENUE BY FACILITY TYPE Assisted Living Facilities $ 25,951 64% $ 49,699 64% Skilled Nursing Facilities 13,591 33% 25,901 33% Specialty Care Facilities 1,291 3% 2,628 3% --------------------------------- ------------------------------ Total $ 40,833 100% $ 78,228 100% REVENUE BY OWNER TYPE Publicly Traded $ 8,777 22% $ 16,737 21% Key Private 17,222 42% 35,770 46% Privately Held 14,834 36% 25,721 33% --------------------------------- ------------------------------ Total $ 40,833 100% $ 78,228 100%
NOTES: (1) REVENUES INCLUDE GROSS REVENUES, GAIN ON SALES, AND REVENUES FROM DISCONTINUED OPERATIONS. -29- REVENUE COMPOSITION (CONTINUED) ($000'S) EXHIBIT 3 - ---------------------------------------- OPERATING LEASE EXPIRATIONS & LOAN MATURITIES
Current Lease Current Interest Interest and Year Revenue (1) Revenue (1) Lease Revenue % of Total - ------------------------------------------------------------------------------------------------------------- 2002 $ 0 $ 905 $ 905 1% 2003 3,670 0 3,670 2% 2004 410 2,974 3,384 2% 2005 0 4,025 4,025 3% 2006 5,044 5,336 10,380 6% Thereafter 124,688 12,673 137,361 86% ----------------------------------------------------------------------------------------- Total $ 133,812 $ 25,913 $ 159,725 100%
NOTES: (1) REVENUE IMPACT BY YEAR, ANNUALIZED COMMITTED INVESTMENT BALANCES EXHIBIT 4 - ------------------------------ ($000'S EXCEPT INVESTMENT PER BED/UNIT)
Committed Investment per # Properties # Beds/Units Balance (1) Bed/Unit ----------------------------------------------------------------------------- Assisted Living Facilities 157 10,513 $ 877,411 $ 83,460 Skilled Nursing Facilities 65 8,989 451,564 50,235 Specialty Care Facilities 7 1,283 96,477 75,196 ----------------------------------------------------------------------------- Total 229 20,785 $ 1,425,452 -na-
NOTES: (1) COMMITTED BALANCE INCLUDES GROSS REAL ESTATE INVESTMENTS, CREDIT ENHANCEMENTS AND UNFUNDED COMMITMENTS FOR WHICH INITIAL FUNDING HAD COMMENCED. OPERATOR CONCENTRATION ($000'S) EXHIBIT 5 - -------------------------------
CONCENTRATION BY INVESTMENT # Properties Investment % Investment -------------------------------------------------------------------- Merrill Gardens 21 $ 150,779 11% Commonwealth Communities 10 144,868 10% Home Quality Management 19 116,228 8% Alterra Healthcare 45 107,837 8% Life Care Centers of America, Inc. 13 83,276 6% Remaining Operators 121 821,365 57% -------------------------------------------------------------------- Total 229 $ 1,424,353 100% CONCENTRATION BY REVENUE # Properties Revenue (1) % Revenue -------------------------------------------------------------------- Alterra Healthcare 45 $ 7,428 9% Merrill Gardens 21 7,271 9% Home Quality Management 19 6,747 9% Commonwealth Communities 10 6,688 9% Life Care Centers of America, Inc. 13 4,809 6% Remaining Operators 121 45,285 58% -------------------------------------------------------------------- Total 229 $ 78,228 100%
NOTES: (1) SIX MONTHS ENDED JUNE 30, 2002 -30- SELECTED FACILITY DATA EXHIBIT 6 - ----------------------
Coverage Data % Payor Mix ---------------------------------- ----------------------------------- Before After Census Private Medicare Mgt. Fees Mgt. Fees ------------------------------------------------------------------------------------------ Assisted Living Facilities 86% 100% 0% 1.32x 1.12x Skilled Nursing Facilities 84% 20% 14% 1.79x 1.34x Specialty Care Facilities 61% 12% 25% 3.03x 2.41x ---------------------------------- Weighted Averages 1.61x 1.29x
SECURITY DEPOSITS & OTHER CREDIT SUPPORT ($000'S) EXHIBIT 7 - -------------------------------------------------
Balance % Investment ---------------------------- Cross Defaulted $ 1,365,903 96% of gross real estate investments Cross Collateralized 189,759 84% of mortgage loans CURRENT CAPITALIZATION ($000'S) Balance % Balance LEVERAGE & PERFORMANCE RATIOS - ------------------------------- ----------------------------- ------------------------------------ Borrowings Under Bank Lines $ 99,000 7% Debt/Total Book Cap 40% Long-Term Debt Obligations 477,033 33% Debt/Total Mkt. Cap 31% Shareholders' Equity 871,157 60% Interest Coverage 3.71x 2nd Qtr. ----------------------------- 3.80x L12M Total Book Capitalization $ 1,447,190 100% FFO Payout Ratio 89% 2nd Qtr. 93% L12M
DEBT MATURITIES AND PRINCIPAL PAYMENTS ($000'S) EXHIBIT 8 - ----------------------------------------------- Year Lines of Credit (1) Senior Notes Secured Debt (1) Total - ------------------------------------------------------------------------------------------------------------ 2002 $ 0 $ 0 $ 368 $ 368 2003 175,000 0 400 175,400 2004 0 40,000 64,474 104,474 2005 0 0 862 862 2006 0 50,000 398 50,398 2007 0 175,000 430 175,430 2008 0 100,000 464 100,464 0 0 44,637 44,637 Thereafter ---------------------------------------------------------------------------------------- Total $ 175,000 $ 365,000 $ 112,033 $ 652,033
NOTES: (1) LINES OF CREDIT REFLECT 100% CAPACITY -31- INVESTMENT ACTIVITY ($000'S) EXHIBIT 9 ----------------------------
Three Months Ended Six Months Ended June 30, 2002 June 30, 2002 --------------------------------- --------------------------------- FUNDING BY INVESTMENT TYPE Real Property $ 107,023 87% $ 206,930 92% Mortgage & Other Loans 16,637 13% 17,375 7% Subdebt Investments 59 0% 1,112 1% --------------------------------- --------------------------------- Total $ 123,719 100% $ 225,417 100% REAL ESTATE INVESTMENTS Assisted Living Facilities $ 70,566 57% $ 135,049 60% Skilled Nursing Facilities 45,887 37% 81,767 36% Specialty Care Facilities 7,266 6% 8,601 4% --------------------------------- --------------------------------- Total $ 123,719 100% $ 225,417 100%
GEOGRAPHIC CONCENTRATION ($000'S) EXHIBIT 10 - ---------------------------------
CONCENTRATION BY REGION # Properties Investment % Investment -------------------------------------------------------------------- South 124 $ 611,878 43% Northeast 38 349,193 25% West 33 247,735 17% Midwest 34 215,547 15% -------------------------------------------------------------------- Total 229 $ 1,424,353 100% CONCENTRATION BY STATE # Properties Investment % Investment -------------------------------------------------------------------- Massachusetts 17 $ 187,949 13% Florida 30 150,352 11% Ohio 13 105,790 7% Texas 29 99,852 7% California 10 85,503 6% Remaining States 130 794,907 56% -------------------------------------------------------------------- Total 229 $ 1,424,353 100% REVENUE BY STATE (1) # Properties Revenue (1) % Revenue -------------------------------------------------------------------- Florida 30 $ 10,049 13% Massachusetts 17 9,111 11% Texas 29 6,507 8% Ohio 13 5,974 8% California 10 5,205 7% Remaining States 130 41,382 53% -------------------------------------------------------------------- Total 229 $ 78,228 100%
NOTES: (1) SIX MONTHS ENDED JUNE 30, 2002 -32- FUNDS FROM OPERATIONS COMPUTATION ($000'S) EXHIBIT 11 - ------------------------------------------
Three Months Ended Six Months Ended June 30, 2002 June 30, 2002 --------------------------------------------------------- Net Income Available to Common Shareholders $ 13,490 $ 26,002 Add: Depreciation Expense 9,623 18,300 Depreciation Expense-Discontinued Ops 21 21 Loss on Extinguishment 403 403 Loss on Sale of Assets 0 0 Asset Impairment 550 550 Deduct: Gain on Sale of Assets 145 145 Prepayment Fees 0 0 --------------------------------------------------------- Funds From Operations (FFO) $ 23,942 $ 45,131 Average Common Shares Outstanding: Basic 35,446 34,451 Diluted 36,223 34,954 FFO Per Common Share: Basic $ 0.68 $ 1.31 Diluted $ 0.66 $ 1.29
DISPOSITION ACTIVITY EXHIBIT 12 --------------------
Three Months Ended Six Months Ended June 30, 2002 June 30, 2002 --------------------------------- --------------------------------- DISPOSITIONS BY INVESTMENT TYPE Real Property $ 1,355 4% $ 1,355 4% Mortgage & Other Loans 31,455 96% 31,455 96% ----------- ----- ----------- ------ Total $ 32,810 100% $ 32,810 100% =========== ==== =========== ==== REAL ESTATE INVESTMENTS Assisted Living Facilities $ 32,810 100% $ 32,810 100% Skilled Nursing Facilities 0 0% 0 0% Specialty Care Facilities 0 0% 0 0% ----------- -------- ----------- ------ Total $ 32,810 100% $ 32,810 100% =========== ========= =========== ----
LEASE UP STATISTICS ON ASSISTED LIVING FACILITIES EXHIBIT 13 - -------------------------------------------------
OCCUPANCY FACILITIES MONTHS IN OPERATION REVENUE (1) % OF REVENUE ---------------------------------------------------------------------------- 00% - 50% 4 14.0 $ 2,722 3% 50% - 70% 5 25.2 $ 2,068 3% 70% + 8 28.4 $ 3,105 4%
NOTES: (1) INTEREST AND RENTAL INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2002. -33- -----END PRIVACY-ENHANCED MESSAGE-----