UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 12, 2002
HEALTH CARE REIT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-8923 34-1096634
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification Number)
One SeaGate, Suite 1500, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(419) 247-2800
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
In connection with the Company's Registration Statement on Form S-3 (File No.
333-73936), declared effective December 7, 2001, the Company has entered into a
Purchase Agreement for the purchase and sale of 930,000 shares of the Common
Stock, $1.00 par value per share, of the Company.
Pursuant to SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS, certain assets of the Company are now classified as
discontinued operations due to their sale during the nine months ended September
30, 2002. As a result, the Company is reclassifying in this Report its
operations, including rental income, interest expense and provision for
depreciation related to those assets for prior periods. In so doing, the Company
is amending Items 6, 7 and 8 of its Form 10-K for the year ended December 31,
2001 and those amended items are set forth in their entirety in this Report.
Additionally, the Company is including, for informational purposes, Financial
Statement Schedules III and IV which are unchanged from Item 14 of its Form 10-K
for the year ended December 31, 2001. The application of SFAS No. 144 had no
effect on income available to stockholders.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
None.
(b) Pro Forma Financial Information.
None.
(c) Exhibits.
5 Opinion re legality
10.1 Purchase Agreement
23 Consent of Independent Auditors
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
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TABLE OF CONTENTS
FOR
FORM 10-K
PART II
Page
----
Item 6. Selected Financial Data...........................................4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................5
Item 8. Financial Statements and Supplementary Data......................10
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................................25
-3-
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
2001, are derived from the audited consolidated financial statements of the
Company.
Year ended December 31,
------------------------------------------------------------------
(In thousands, except per share data)
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
OPERATING DATA
Revenues .................................................... $ 129,838 $ 129,949 $ 123,311 $ 93,847 $ 71,824
Expenses:
Interest expense .......................................... 30,492 32,995 25,586 17,122 14,957
Provision for depreciation ................................ 28,831 21,310 16,519 9,545 4,987
General and administrative
and other expenses(1) ................................... 10,853 9,570 8,868 7,399 6,178
Loss on investment ........................................ 2,000
--------- --------- --------- --------- ----------
Total expenses .............................................. 70,176 65,875 50,973 34,066 26,122
--------- --------- --------- --------- ---------
Income from continuing operations
before extraordinary item ............................... 59,662 64,074 72,338 59,781 45,702
Income from discontinued operations, net .................... 1,100 3,982 3,300 2,528 776
--------- --------- --------- --------- ---------
Income before extraordinary item ............................ 60,762 68,056 75,638 62,309 46,478
Extraordinary loss on extinguishment of debt ................ (213)
--------- --------- --------- --------- ---------
Net income .................................................. 60,549 68,056 75,638 62,309 46,478
Preferred stock dividends ................................... 13,505 13,490 12,814 4,160
--------- --------- --------- --------- ---------
Net income available to common stockholders ................. $ 47,044 $ 54,566 $ 62,824 $ 58,149 $ 46,478
========= ========= ========= ========= =========
OTHER DATA
Average number of common shares outstanding:
Basic .................................................. 30,534 28,418 28,128 25,579 21,594
Diluted ................................................ 31,027 28,643 28,384 25,954 21,929
PER SHARE DATA
Basic:
Income from continuing operations and
after preferred stock dividends ...................... $ 1.51 $ 1.78 $ 2.11 $ 2.17 $ 2.11
Discontinued operations, net ........................... 0.04 0.14 0.12 0.10 0.04
Extraordinary item ..................................... (0.01)
--------- --------- --------- --------- ---------
Net income available to common stockholders ............ 1.54 1.92 2.23 2.27 2.15
Diluted:
Income from continuing operations and
after preferred stock dividends ...................... 1.49 1.77 2.09 2.14 2.08
Discontinued operations, net ........................... 0.04 0.14 0.12 0.10 0.04
Extraordinary item ..................................... (0.01)
--------- --------- --------- --------- ---------
Net income available to common stockholders ............ 1.52 1.91 2.21 2.24 2.12
Cash distributions per common share .................... 2.34 2.335 2.27 2.19 2.11
Year ended December 31,
------------------------------------------------------------------
(In thousands)
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
BALANCE SHEET DATA
Net real estate investments ................................. $1,213,564 $1,121,419 $1,241,722 $1,047,511 $ 716,193
Total assets ................................................ 1,269,843 1,156,904 1,271,171 1,073,424 734,327
Total debt .................................................. 491,216 439,752 538,842 418,979 249,070
Total liabilities ........................................... 511,973 458,297 564,175 439,665 264,403
Total stockholders' equity .................................. 757,870 698,607 706,996 633,759 469,924
--------------------------
(1) General and administrative and other expenses include loan expense,
provision for loan losses, and other operating expenses.
-4-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company's net real estate investments totaled
approximately $1,213,564,000, that included 150 assisted living facilities, 57
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.
During the previous two years, the underperformance of publicly owned skilled
nursing and assisted living companies, combined with the much publicized shift
in equity funds flow from income-oriented investments to high-growth
opportunities, impaired the stock valuations in the health care REIT sector. In
2001, certain events took place that improved the access to capital for the
health care REIT sector. First, several of the publicly owned skilled nursing
companies that had previously filed for bankruptcy protection, settled their
claims and emerged from bankruptcy. Assisted living construction declined
significantly, allowing more of the existing projects to improve their occupancy
and stabilize operations. Finally, the broad stock market decline and the drop
in interest rates generated renewed interest in income-oriented investments such
as REITs. As a result of these factors, the Company was able to access the
capital markets during 2001.
In June 2001, the Company issued 3,450,000 shares of common stock, generating
net proceeds of $74,184,000.
In August 2001, the Company issued $175 million of senior notes, due in 2007 at
an effective yield of 7.78%.
During 2001, the Company invested $181,420,000 in real property, provided
permanent mortgage and loan financings of $18,639,000, made construction
advances of $17,075,000 and funded $4,084,000 of subdebt investments. As of
December 31, 2001, the Company had approximately $35,000,000 in unfunded
commitments.
As of December 31, 2001, the Company had stockholders' equity of $757,870,000
and a total outstanding debt balance of $491,216,000, which represents a debt to
total capitalization ratio of 0.39 to 1.0.
In January 2001, the Company extended its primary revolving line of credit
through March 31, 2003. Under the terms of the extension, the total commitment
was reduced from $175 million to $150 million and the effective interest rate
was adjusted to the lender's prime rate or LIBOR plus 1.50%. As of December 31,
2001, the Company had no borrowings outstanding under the Company's revolving
lines of credit. The Company also had a $25 million unsecured line of credit
with no borrowings at December 31, 2001, and a $60 million secured line of
credit, with $33 million outstanding at December 31, 2001.
In February 2002, the Company issued 906,125 shares of common stock, generating
net proceeds of $23,619,000.
As of February 28, 2002, the Company had an effective shelf registration on file
with the Securities and Exchange Commission under which the Company may issue up
to $652,000,000 of securities including debt securities, common and preferred
stock and warrants. Depending upon market conditions, the Company anticipates
issuing securities under its shelf registration to invest in additional health
care facilities and to repay borrowings under the Company's line of credit
arrangements.
The following table summarizes our payments under contractual obligations as of
December 31, 2001:
Payments Due by Period ($000s)
------------------------------------------------------------------
Total 2002 2003-2004 2005-2006 After 2006
--------- --------- --------- --------- ---------
Senior notes $ 412,250 $ 12,250 $ 75,000 $ 50,000 $ 275,000
Mortgages 45,966 368 875 1,258 43,465
--------- --------- --------- --------- ---------
Total contractual obligations $ 458,216 $ 12,618 $ 75,875 $ 51,258 $ 318,465
========= ========= ========= ========= =========
The following table summarizes our other commercial commitments as of December
31, 2001:
Amount of Commitment Expiration Per Period
-----------------------------------------------------------------
Total 2002 2003-2004 2005-2006 After 2006
--------- --------- --------- --------- ---------
Unsecured lines of credit $ 175,000 $ 25,000 $ 150,000 $ $
Secured lines of credit 60,000 60,000
Credit enhancements 11,425 3,500 7,925
--------- --------- --------- --------- ---------
Total commercial commitments $ 246,425 $ 28,500 $ 210,000 $ 0 $ 7,925
========= ========= ========= ========= =========
Credit enhancements include letters of credit provided by the Company and
agreements to purchase facilities in the event that the present owners default
upon their obligations.
-5-
RESULTS OF OPERATIONS DECEMBER 31, 2001 VS. DECEMBER 31, 2000
Revenues were comprised of the following:
Year ended Change
-------------------------------- --------------------
Dec. 31, 2001 Dec. 31, 2000 $ %
-------------- -------------- ----------- --------
(in thousands)
Rental income $ 93,706 $ 82,991 $ 10,715 13%
Interest income 31,294 41,064 (9,770) -24%
Commitment fees and
other income 3,848 5,837 (1,989) -34%
Prepayment fees 990 57 933 1637%
-------- -------- -------- --------
Totals $129,838 $129,949 $ (111) 0%
======== ======== ======== ========
The Company generated increased rental income as a result of the completion of
real property construction projects for which the Company began receiving rent
and the purchase of properties previously financed by the Company. This was
offset by a reduction in interest income due to the repayment of mortgage loans
and the purchase of properties previously financed by the Company.
The reduction in commitment fees and other income is due primarily to the
significant reduction in construction and investing activity.
During 2001, the Company received payoffs on mortgages that had significant
prepayment fee requirements, generating the large increase over the prior year.
Expenses were comprised of the following:
Year ended Change
-------------------------------- --------------------
Dec. 31, 2001 Dec. 31, 2000 $ %
-------------- -------------- --------------------
(in thousands)
Interest expense $ 30,492 $ 32,995 $ (2,503) -8%
Provision for
depreciation 28,831 21,310 7,521 35%
Loss on investment 2,000 (2,000) n/a
General and administrative
expenses 8,078 7,405 673 9%
Loan expense 1,775 1,165 610 52%
Provision for losses 1,000 1,000 0%
-------- -------- -------- --------
Totals $ 70,176 $ 65,875 $ 4,301 7%
======== ======== ======== ========
The decrease in interest expense from 2000 to 2001 was primarily due to lower
average borrowings during the year, offset by 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 that approximates the Company's cost of
financing. The Company's interest expense is reduced by the amount capitalized.
Capitalized interest for the year ended December 31, 2001, totaled $841,000, as
compared with $3,079,000 for the same period in 2000.
The provision for depreciation increased primarily as a result of additional
investment in properties owned directly by the Company.
In 2000, the Company restructured its investments with Summerville Health Care.
As part of the restructuring agreement, Summerville agreed to permit the Company
to re-lease 10 of its 11 facilities to new operators and repaid substantially
all of the Company's subdebt investment. As part of Summerville's
recapitalization, the Company's $2,000,000 non-yielding preferred stock
investment was substantially diluted. Accordingly, the Company wrote off its
investment in 2000, resulting in a $2,000,000 charge.
-6-
Other items: Year ended Change
-------------------------------- ---------------------
Dec. 31, 2001 Dec. 31, 2000 $ %
-------------- -------------- ---------------------
(in thousands)
Gain (loss) on sales of
properties $ (1,250) $ 1,684 $ (2,934) -174%
Discontinued operations 2,350 2,298 52 2%
Loss on extinguishment
of debt (213) (213) n/a
Preferred dividends (13,505) (13,490) (15) 0%
-------- -------- ----------------------
Totals $(12,618) $ (9,508) $ (3,110) 33%
======== ======== ======================
As a result of the various factors mentioned above, net income available to
common stockholders was $47,044,000, or $1.52 per diluted share, for 2001 as
compared with $54,566,000, or $1.91 per diluted share, for 2000.
RESULTS OF OPERATIONS DECEMBER 31, 2000 VS. DECEMBER 31, 1999
Revenues were comprised of the following:
Year ended Change
-------------------------------- ---------------------
Dec. 31, 2000 Dec. 31, 1999 $ %
------------- ------------- ---------------------
(in thousands)
Rental income $ 82,991 $ 67,407 $ 15,584 23%
Interest income 41,064 48,076 (7,012) -15%
Commitment fees and
other income 5,837 6,263 (426) -7%
Prepayment fees 57 1,565 (1,508) -96%
-------- -------- ---------------------
Totals $129,949 $123,311 $ 6,638 5%
======== ======== =====================
The Company generated increased rental income as a result of the completion of
real property construction projects for which the Company began receiving rent
and the purchase of properties previously financed by the Company. This was
partially offset by a reduction in interest income due to the repayment of
mortgage loans and the purchase of properties previously financed by the
Company.
Expenses were comprised of the following:
Year ended Change
-------------------------------- --------------------
Dec. 31, 2000 Dec. 31, 1999 $ %
-------------- -------------- --------------------
(in thousands)
Interest expense $32,995 $25,586 $ 7,409 29%
Provision for
depreciation 21,310 16,519 4,791 29%
Loss on investment 2,000 2,000 n/a
General and administrative
expenses 7,405 7,359 46 1%
Loan expense 1,165 909 256 28%
Provision for losses 1,000 600 400 67%
------- ------- --------------------
Totals $65,875 $50,973 $14,902 29%
======= ======= ====================
The increase in interest expense from 1999 to 2000 was due to higher average
interest rates on the Company's line of credit and secured debt and a reduction
in the amount of capitalized interest offsetting interest expense.
The Company capitalizes certain interest costs associated with funds used to
finance the construction of properties owned directly by the Company. The amount
capitalized is based upon the borrowings outstanding during the construction
period using the rate of interest which approximates the Company's cost of
financing. The Company's interest expense is reduced by the amount capitalized.
Capitalized interest for the year ended December 31, 2000, totaled $3,079,000,
as compared with $8,578,000 for the same period in 1999.
The provision for depreciation increased as a result of additional investment in
properties owned directly by the Company.
In 2000, the Company restructured its investments with Summerville Health Care.
As part of the restructuring agreement, Summerville agreed to permit the Company
to re-lease 10 of its 11 facilities to new operators and repaid substantially
all of the Company's subdebt investment. As part of Summerville's
recapitalization, the Company's $2,000,000 non-yielding preferred stock
investment was substantially diluted. Accordingly, the Company wrote off its
investment in 2000, resulting in a $2,000,000 charge.
-7-
Other items: Year ended Change
----------------------------- -----------------------
Dec. 31, 2000 Dec. 31, 1999 $ %
------------- ------------- -----------------------
(in thousands)
Gain (loss) on sales of
properties $ 1,684 $ 703 $ 981 140%
Discontinued operations 2,298 2,597 (299) -12%
Loss on extinguishment
of debt
Preferred dividends (13,490) (12,814) (676) 5%
-------- -------- -----------------------
Totals $ (9,508) $ (9,514) $ 6 0%
======== ======== =======================
As a result of the various factors mentioned above, net income available to
common stockholders was $54,566,000, or $1.91 per diluted share, for 2000 as
compared with $62,824,000, or $2.21 per diluted share, for 1999.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the U.S., which require the Company to make
estimates and assumptions (see Note 1 to the consolidated financial statements).
The Company believes that of its significant accounting policies, the following
critical accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements.
IMPAIRMENT OF LONG-LIVED ASSETS
The net book value of long-lived assets is reviewed quarterly on a property by
property basis to determine if there are indicators of impairment. These
indicators may include anticipated operating losses at the property level, the
tenant's inability to make rent payments, and changes in the market that may
permanently reduce the value of the property. If indicators of impairment exist,
then the undiscounted future cash flows from the most likely use of the property
are compared to the current net book value. If the undiscounted cash flows are
less than the net book value, an impairment loss would be recognized to the
extent that the net book value exceeds the current fair market value. This
analysis requires the Company to determine if indicators of impairment exist and
to estimate the most likely stream of cash flows to be generated from the
property during the period the property is expected to be held. If the
projections or assumptions change in the future, the Company may be required to
record an impairment charge and reduce the net book value of the property owned.
ALLOWANCE FOR LOAN LOSSES
The Company regularly evaluates the collectibility of its loans receivables
based on a combination of factors. These factors include current economic
conditions, historical loan charge-offs, financial strength of the borrower and
guarantors, and value of the underlying property. If such factors indicate that
there is greater risk of loan charge-offs, additional allowances may be
required.
POTENTIAL RISKS FROM BANKRUPTCIES
The Company is exposed to the risk that its operators may not be able to meet
the rent or principal and interest payments due the Company, which may result in
an operator bankruptcy or insolvency. Although the Company's operating lease
agreements provide the Company the right to evict an operator, demand immediate
payment of rent and exercise other remedies, and the Company's mortgage loans
provide the Company the right to terminate an investment, demand immediate
payment of principal and unpaid interest and foreclose on the collateral, the
bankruptcy laws afford certain rights to a party that has filed for bankruptcy
or reorganization. An operator in bankruptcy may be able to restrict or delay
the Company's ability to collect unpaid rent in the case of a lease or to
receive unpaid principal or interest in the case of a mortgage loan.
The receipt of liquidation proceeds or the replacement of an operator that has
defaulted on its lease or loan could be delayed by the approval process of any
federal, state or local agency necessary for the transfer of the facility or the
replacement of the operator licensed to manage the facility. In addition, the
Company may be required to fund certain expenses (e.g., real estate taxes and
maintenance) to retain control of a facility or to transition it to a new
operator. In some instances, the Company has terminated its lease with an
operator and relet the facility to another operator. In some of those
situations, the Company provided working capital loans and limited
indemnification of the new operator. If the Company cannot transition the
facility to a new operator, it may take possession of a facility, which may
expose the Company to successor liabilities. Should such events occur, the
Company's revenue and operating cash flow may be adversely affected.
IMPACT OF INFLATION
During the past three years, inflation has not significantly affected the
earnings of the Company because of the moderate inflation rate. Additionally,
earnings of the Company are primarily long-term investments with fixed interest
rates. These investments are mainly financed with a combination of equity,
senior notes and borrowings under the revolving lines of credit. During
inflationary periods, that generally are accompanied by rising interest rates,
the Company's ability to grow may be adversely affected because the yield on new
investments may increase at a slower rate than new borrowing costs. Presuming
the current inflation rate remains moderate and
-8-
long-term interest rates do not increase significantly, the Company believes
that inflation will not impact the availability of equity and debt financing.
OTHER INFORMATION
We have made and incorporated by reference statements in this Form 10-K that
constitute "forward-looking statements" as that term is defined in the federal
securities laws. 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," "estimates" 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.
-9-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT AUDITORS
Stockholders and Directors
Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of Health Care
REIT, Inc. as of December 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2001. Our audits also included the
financial statement schedules listed in the Index at Item 14 (a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Health Care REIT,
Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/S/ ERNST & YOUNG LLP
Toledo, Ohio
January 22, 2002,
except for Note 15, as to which the date is
November 11, 2002
-10-
HEALTH CARE REIT, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
2001 2000
-----------------------------
(IN THOUSANDS)
ASSETS
Real estate investments:
Real property owned
Land $ 89,601 $ 74,319
Buildings & improvements 947,794 770,660
Construction in progress 11,976
----------- -----------
1,037,395 856,955
Less accumulated depreciation (80,544) (52,968)
----------- -----------
Total real property owned 956,851 803,987
Loans receivable
Real property loans 240,126 301,321
Subdebt investments 23,448 21,972
----------- -----------
263,574 323,293
Less allowance for loan losses (6,861) (5,861)
----------- -----------
Net real estate investments 1,213,564 1,121,419
Other assets:
Equity investments 6,498 5,450
Deferred loan expenses 7,190 2,939
Cash and cash equivalents 9,826 2,844
Receivables and other assets 32,765 24,252
----------- -----------
56,279 35,485
----------- -----------
Total assets $ 1,269,843 $ 1,156,904
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Senior unsecured notes $ 412,250 $ 255,000
Borrowings under line of credit arrangements 119,900
Secured debt 78,966 64,852
Accrued expenses and other liabilities 20,757 18,545
----------- -----------
Total liabilities 511,973 458,297
Stockholders' equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 6,000,000 shares in 2001 and 2000
at liquidation preference 150,000 150,000
Common Stock, $1.00 par value:
Authorized - 75,000,000 shares
Issued and outstanding - 32,739,826
shares in 2001 and 28,806,151
shares in 2000 32,740 28,806
Capital in excess of par value 608,942 528,138
Cumulative net income 512,837 452,288
Cumulative dividends (540,946) (455,676)
Accumulated other
comprehensive loss (923) (744)
Unamortized restricted stock (4,780) (4,205)
----------- -----------
Total stockholders' equity $ 757,870 $ 698,607
----------- -----------
Total liabilities and stockholders' equity $ 1,269,843 $ 1,156,904
=========== ===========
See accompanying notes
-11-
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Rental income $ 93,706 $ 82,991 $ 67,407
Interest income 31,294 41,064 48,076
Commitment fees and other income 3,848 5,837 6,263
Prepayment fees 990 57 1,565
--------- --------- ---------
129,838 129,949 123,311
Expenses:
Interest expense 30,492 32,995 25,586
Provision for depreciation 28,831 21,310 16,519
Loss on investment 2,000
General and administrative 8,078 7,405 7,359
Loan expense 1,775 1,165 909
Provision for loan losses 1,000 1,000 600
--------- --------- ---------
70,176 65,875 50,973
--------- --------- ---------
Income from continuing operations
before extraordinary item 59,662 64,074 72,338
Discontinued operations:
Net gain (loss) on sales of properties (1,250) 1,684 703
Income from discontinued operations, net 2,350 2,298 2,597
--------- --------- ---------
1,100 3,982 3,300
Income before extraordinary item 60,762 68,056 75,638
Extraordinary loss on extinguishment of debt (213)
--------- --------- ---------
Net income 60,549 68,056 75,638
Preferred stock dividends 13,505 13,490 12,814
--------- --------- ---------
Net income available to
common stockholders $ 47,044 $ 54,566 $ 62,824
========= ========= =========
Average number of common shares outstanding:
Basic 30,534 28,418 28,128
Diluted 31,027 28,643 28,384
Earnings per share:
Basic:
Income from continuing operations and
after preferred stock dividends $ 1.51 $ 1.78 $ 2.11
Discontinued operations, net 0.04 0.14 0.12
Extraordinary item (0.01)
--------- --------- ---------
Net income available to common stockholders $ 1.54 $ 1.92 $ 2.23
Diluted:
Income from continuing operations and
after preferred stock dividends $ 1.49 $ 1.77 $ 2.09
Discontinued operations, net 0.04 0.14 0.12
Extraordinary item (0.01)
--------- --------- ---------
Net income available to common stockholders $ 1.52 $ 1.91 $ 2.21
See accompanying notes
-12-
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL IN
PREFERRED COMMON EXCESS OF CUMULATIVE CUMULATIVE
STOCK STOCK PAR VALUE NET INCOME DIVIDENDS
------------------------------------------------------------------------
(In thousands, except per share data)
Balances at January 1, 1999 $ 75,000 $28,240 $520,692 $ 308,594 $ (298,160)
Comprehensive income:
Net income 75,638
Other comprehensive income:
Unrealized loss on marketable securities
Foreign currency translation adjustment
Total comprehensive income
Proceeds from issuance of common stock from
dividend reinvestment and stock incentive
plans 292 5,967
Amortization of restricted stock grants
Net proceeds from sale of preferred stock 75,000 (2,455)
Cash dividends:
Common stock -- $2.27 per share (64,375)
Preferred stock, Series B -- $2.22 per share (6,656)
Preferred stock, Series C -- $2.19 per share (6,158)
--------- ------- --------- --------- ------------
Balances at December 31, 1999 150,000 28,532 524,204 384,232 (375,349)
Comprehensive income:
Net income 68,056
Other comprehensive income:
Unrealized loss on marketable securities
Foreign currency translation adjustment
Total comprehensive income
Proceeds from issuance of common stock from
dividend reinvestment and stock incentive
plans, net of forfeitures 274 3,934
Amortization of restricted stock grants
Cash dividends:
Common stock -- $2.335 per share (66,837)
Preferred stock, Series B--$2.22 per share (6,656)
Preferred stock, Series C--$2.27 per share (6,834)
--------- ------- --------- --------- ------------
Balances at December 31, 2000 150,000 28,806 528,138 452,288 (455,676)
Comprehensive income:
Net income 60,549
Other comprehensive income:
Unrealized loss on marketable securities
Foreign currency translation adjustment
Total comprehensive income
Proceeds from issuance of common stock from
dividend reinvestment and stock incentive
plans, net of forfeitures 484 10,070
Net proceeds from sale of common stock 3,450 70,734
Amortization of restricted stock grants
Cash dividends:
Common stock -- $2.34 per share (71,765)
Preferred stock, Series B--$2.22 per share (6,656)
Preferred stock, Series C--$2.28 per share (6,849)
--------- ------- --------- --------- ------------
BALANCES AT DECEMBER 31, 2001 $ 150,000 $32,740 $ 608,942 $ 512,837 $ (540,946)
========= ======= ========= ========= ============
ACCUMULATED
OTHER UNAMORTIZED
COMPREHENSIVE RESTRICTED
LOSS STOCK TOTAL
-------------------------------------------------
(In thousands, except per share data)
Balances at January 1, 1999 $ 3,982 $ (4,589) $ 633,759
Comprehensive income:
Net income 75,638
Other comprehensive income:
Unrealized loss on marketable securities (3,242) (3,242)
Foreign currency translation adjustment (147) (147)
-----------
Total comprehensive income 72,249
----------
Proceeds from issuance of common stock from
dividend reinvestment and stock incentive
plans (1,707) 4,552
Amortization of restricted stock grants 1,080 1,080
Net proceeds from sale of preferred stock 72,545
Cash dividends:
Common stock -- $2.27 per share (64,375)
Preferred stock, Series B -- $2.22 per share (6,656)
Preferred stock, Series C -- $2.19 per share (6,158)
------- --------- -----------
Balances at December 31, 1999 593 (5,216) 706,996
Comprehensive income:
Net income 68,056
Other comprehensive income:
Unrealized loss on marketable securities (733) (733)
Foreign currency translation adjustment (604) (604)
-----------
Total comprehensive income 66,719
----------
Proceeds from issuance of common stock from
dividend reinvestment and stock incentive
plans, net of forfeitures (79) 4,129
Amortization of restricted stock grants 1,090 1,090
Cash dividends:
Common stock -- $2.335 per share (66,837)
Preferred stock, Series B--$2.22 per share (6,656)
Preferred stock, Series C--$2.27 per share (6,834)
-------- --------- -----------
Balances at December 31, 2000 (744) (4,205) 698,607
Comprehensive income:
Net income 60,549
Other comprehensive income:
Unrealized loss on marketable securities (52) (52)
Foreign currency translation adjustment (127) (127)
-----------
Total comprehensive income 60,370
----------
Proceeds from issuance of common stock from
dividend reinvestment and stock incentive
plans, net of forfeitures (1,739) 8,815
Net proceeds from sale of common stock 74,184
Amortization of restricted stock grants 1,164 1,164
Cash dividends:
Common stock -- $2.34 per share (71,765)
Preferred stock, Series B--$2.22 per share (6,656)
Preferred stock, Series C--$2.28 per share (6,849)
-------- --------- -----------
BALANCES AT DECEMBER 31, 2001 $ (923) $ (4,780) $ 757,870
======== ========= ==========
See accompanying notes
-13-
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 60,549 $ 68,056 $ 75,638
Adjustments to reconcile net income to
net cash provided from operating
activities:
Provision for depreciation 30,464 22,961 18,106
Amortization 2,977 2,255 1,998
Provision for losses 1,000 1,000 600
Loss on investment 2,000
Commitment fees earned
greater than cash received (1,039) (1,960) (399)
Rental income in excess of
cash received (6,614) (6,732) (6,692)
Equity in earnings of affiliated companies (332) (318) 378
(Gain) loss on sales of properties 1,250 (1,684) (703)
Increase (decrease) in accrued expenses and
other liabilities 3,249 (4,827) 5,045
Decrease (increase) in receivables and
other assets (2,822) 264 1,394
--------- --------- ---------
Net cash provided from operating activities 88,682 81,015 95,365
INVESTING ACTIVITIES
Investment in real property (147,081) (46,449) (215,491)
Investment in loans receivable (48,284) (34,631) (56,089)
Other investments, net of payments (913) (1,828) (2,024)
Principal collected on loans 94,337 70,567 42,731
Proceeds from sale of properties 22,579 108,866 18,815
Other (262) (742) (379)
--------- --------- ---------
Net cash provided by (used in) investing activities (79,624) 95,783 (212,437)
FINANCING ACTIVITIES
Net increase (decrease) under line of
credit arrangements (119,900) (57,600) 5,950
Proceeds from issuance of senior notes and secured
debt 175,000 114,000
Principal payments on
senior notes and secured debt (48,840) (41,491) (87)
Net proceeds from the issuance of Common Stock 82,999 4,129 4,552
Net proceeds from the issuance of Preferred Stock 72,545
Increase in deferred loan expense (6,065) (794) (1,839)
Cash distributions to stockholders (85,270) (80,327) (77,189)
--------- --------- ---------
Net cash provided from (used by) financing activities (2,076) (176,083) 117,932
--------- --------- ---------
Increase in cash and cash equivalents 6,982 715 860
Cash and cash equivalents at beginning of year 2,844 2,129 1,269
--------- --------- ---------
Cash and cash equivalents at end of year $ 9,826 $ 2,844 $ 2,129
========= ========= =========
Supplemental Cash Flow Information-interest paid $ 29,014 $ 39,638 $ 32,826
========= ========= =========
See accompanying notes
-14-
Health Care REIT, Inc.
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES AND RELATED MATTERS
INDUSTRY
The Company is a self-administered real estate investment trust that invests
primarily in long-term care facilities, which include skilled nursing and
assisted living facilities. The Company also invests in specialty care
facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after the elimination of all significant
intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
LOANS RECEIVABLE
Loans receivable consist of long-term mortgage loans, construction-period loans
maturing in two years or less, working capital loans and subdebt investments.
Interest income on loans is recognized as earned based upon the principal amount
outstanding. The mortgage and construction loans are primarily collateralized by
a first mortgage on or assignment of partnership interest in the related
facilities, which consist of skilled nursing, assisted living and specialty care
facilities. The working capital loans are generally secured by second mortgages
or interests in receivables. Subdebt investments represent debt instruments to
operators of facilities that have been financed by the Company. These
obligations are generally secured by the operator's leasehold rights and
corporate guaranties.
REAL PROPERTY OWNED
Substantially all of the properties owned by the Company are leased under
operating leases and are recorded at cost. These properties are depreciated on a
straight-line basis over their estimated useful lives which range from fifteen
to forty years for buildings and five to twelve years for fixtures. The net book
value of long-lived assets is reviewed quarterly on a property by property basis
to determine if facts and circumstances suggest that the assets may be impaired
or that the depreciable life may need to be changed. The Company considers
external factors relating to each asset. If these external factors and the
projected undiscounted cash flows of the asset over the remaining amortization
period indicate that the asset will not be recoverable, the carrying value will
be adjusted to the estimated fair value. The leases generally extend for a
minimum 10-year period and provide for payment of all taxes, insurance and
maintenance by the lessees. In general, operating lease income includes base
rent payments plus fixed annual rent increases, which are recognized on a
straight-line basis over the minimum lease period. This income is greater than
the amount of cash received during the first half of the lease term.
CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST
The Company capitalizes interest costs associated with funds used to finance the
construction of properties owned directly by the Company. The amount capitalized
is based upon the borrowings outstanding during the construction period using
the rate of interest which approximates the Company's cost of financing.
The Company capitalized interest costs of $841,000, $3,079,000, and $8,578,000,
during 2001, 2000 and 1999, respectively, related to construction of real
property owned by the Company. The Company's interest expense reflected in the
statement of income has been reduced by the amounts capitalized.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate to
absorb potential losses in the Company's loans receivable. The determination of
the allowance is based on a quarterly evaluation of these loans, including
general economic conditions and estimated collectibility of loan payments.
-15-
1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED)
DEFERRED LOAN EXPENSES
Deferred loan expenses are costs incurred by the Company in connection with the
issuance of short-term and long-term debt. The Company amortizes these costs
over the term of the debt using the straight-line method, which approximates the
interest yield method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with an
original maturity of three months or less.
EQUITY INVESTMENTS
Management determines the appropriate classification of an equity investment at
the time of acquisition and reevaluates such designation as of each balance
sheet date. Included in equity investments are 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 and care homes located in the United Kingdom. The ownership interest is
accounted for under the equity method.
Marketable securities available for sale are stated at market value with
unrealized gains and losses reported in a separate component of stockholders'
equity. Marketable securities reflect the market value of the common stock of
two publicly owned corporations, which were obtained by the Company at no cost.
COMMITMENT FEES
Commitment fees are earned by the Company for its agreement to provide direct
and standby financing to, and credit enhancement for, owners and operators of
health care facilities. The Company amortizes commitment fees over the initial
fixed term of the lease, the mortgage or the construction period related to such
investments.
FEDERAL INCOME TAX
No provision has been made for federal income taxes since the Company has
elected to be treated as a real estate investment trust under the applicable
provisions of the Internal Revenue Code, and the Company believes that it has
met the requirements for qualification as such for each taxable year. See Note
10.
NET INCOME PER SHARE
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of shares for the period adjusted
for non-vested shares of restricted stock. The computation of diluted earnings
per share is similar to basic earnings per share, except that the number of
shares is increased to include the number of additional common shares that would
have been outstanding if the potentially dilutive common shares had been issued.
COMPREHENSIVE INCOME
Comprehensive income includes unrealized gains or losses on the Company's
marketable securities ($78,000 and $130,000 at December 31, 2001 and 2000,
respectively) and foreign currency translation adjustments (($1,001,000) and
($874,000) at December 31, 2001 and 2000, respectively). These items are
included as components of stockholders' equity.
NEW ACCOUNTING STANDARD
In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, that the Company is required to adopt
beginning January 1, 2002 with transition provisions for certain matters. The
new rules on asset impairment supersede Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (FAS
121), and provide a single accounting model for long-lived assets to be disposed
of. The Company does not expect the adoption of this statement to have a
material impact on the consolidated financial statements.
-16-
2. LOANS RECEIVABLE
The following is a summary of loans receivable (in thousands):
DECEMBER 31
2001 2000
---------------------------------------------
Mortgage loans $ 211,722 $ 275,312
Construction loans 4,052
Working capital 27,583 20,720
Mortgage loans to related parties 821 1,237
Subdebt investments 23,448 21,972
------------------ ------------------
TOTALS $ 263,574 $ 323,293
================== ==================
Loans to related parties (an entity whose ownership includes one Company
director) included above are at rates comparable to other third-party borrowers
equal to or greater than the Company's net interest cost on borrowings to
support such loans. The amount of interest income and commitment fees from
related parties amounted to $108,000, $152,000, and $914,000 for 2001, 2000 and
1999, respectively.
The following is a summary of mortgage loans at December 31, 2001 (in
thousands):
Final Number Principal
Payment of Amount at Carrying
Due Loans Payment Terms Inception Amount
---------- ---------- ------------------------------------------ ------------ -----------
2002 16 Monthly payments from $20,400 to $100,715, $ 73,127 $ 69,741
including interest from 10.00% to 15.00%
2003 1 Monthly payment at $27,884, 3,718 3,718
including interest at 9.00%
2004 2 Monthly payments from $30,680 to $32,325, 7,108 6,682
including interest from 10.00% to 12.93%
2006 7 Monthly payments from $3,958 to $98,446, 27,537 25,518
including interest from 8.11% to 14.61%
2007 5 Monthly payments from $9,541 to $77,173, 25,933 20,343
including interest from 8.72% to 12.42%
2008 1 Monthly payment at $3,105, 175 164
including interest at 12.17%
2009 2 Monthly payments from $8,207 to $72,741, 8,635 7,591
including interest from 11.71% to 12.00%
2010 2 Monthly payments from $34,356 to $42,628, 7,663 7,519
including interest from 11.64% to 12.17%
2015 2 Monthly payments from $3,580 to $55,331, 5,795 5,567
including interest from 11.15% to 11.63%
2016 2 Monthly payments from $75,341 to $127,891, 20,810 19,124
including interest from 11.26% to 12.45%
2017 3 Monthly payments from $40,056 to $229,682, 31,875 28,697
including interest from 11.73% to 12.83%
2018 1 Monthly payment at $168,359, 21,000 17,879
including interest at 10.09%
------------ ------------
TOTALS $ 233,376 $ 212,543
============ ============
-17-
3. REAL PROPERTY OWNED
The following table summarizes certain information about the Company's real
property owned as of December 31, 2001 (in thousands):
Number of Building & Total Accumulated
Facilities Land Improvements Investment Depreciation
--------------------------------------------------------------------------
SKILLED NURSING FACILITIES:
Arizona 1 $ 180 $ 3,988 $ 4,168 $ 475
California 1 1,460 3,880 5,340 562
Colorado 1 370 6,051 6,421 705
Florida 8 4,382 56,296 60,678 4,689
Idaho 3 2,010 20,662 22,672 2,229
Illinois 2 1,010 11,446 12,456 925
Kentucky 1 130 4,870 5,000 999
Massachusetts 7 3,548 42,151 45,699 5,856
Ohio 5 4,286 62,592 66,878 1,434
Oklahoma 1 470 5,673 6,143 598
Oregon 1 300 5,316 5,616 598
Pennsylvania 3 669 17,567 18,236 2,886
Tennessee 10 3,450 56,853 60,303 535
Texas 1 663 12,588 13,251 3,067
---------------------------------------------------------------------------------------------------------------------------------
45 22,928 309,933 332,861 25,558
=================================================================================================================================
ASSISTED LIVING FACILITIES:
Arizona 3 1,510 15,554 17,064 769
California 5 4,290 24,554 28,844 502
Connecticut 1 660 9,652 10,312 1,256
Florida 19 8,608 73,733 82,341 8,879
Georgia 2 3,166 24,541 27,707 2,398
Indiana 11 2,171 40,785 42,956 3,395
Louisiana 1 1,100 10,161 11,261 851
Maryland 4 2,670 33,791 36,461 2,004
Massachusetts 1 810 10,500 11,310 1,055
Minnesota 1 322 6,345 6,667 497
Montana 2 910 7,282 8,192 400
Nevada 3 2,086 26,170 28,256 2,265
New Jersey 3 5,037 28,096 33,133 2,595
New York 2 810 14,490 15,300 1,220
North Carolina 9 7,269 52,893 60,162 5,222
Ohio 8 4,253 39,934 44,187 3,562
Oklahoma 17 2,078 25,778 27,856 3,835
Oregon 2 1,077 8,757 9,834 657
Pennsylvania 4 1,951 17,199 19,150 1,253
South Carolina 5 2,072 19,072 21,144 1,163
Tennessee 4 1,521 12,461 13,982 894
Texas 17 5,048 64,587 69,635 7,251
Utah 1 1,059 6,141 7,200 131
Washington 1 1,400 5,476 6,876 399
Wisconsin 1 420 4,007 4,427
---------------------------------------------------------------------------------------------------------------------------------
127 62,298 581,959 644,257 52,453
=================================================================================================================================
SPECIALTY CARE:
Florida 1 950 950
Massachusetts 4 3,425 55,902 59,327 2,533
---------------------------------------------------------------------------------------------------------------------------------
5 4,375 55,902 60,277 2,533
=================================================================================================================================
TOTAL REAL PROPERTY OWNED 177 $ 89,601 $ 947,794 $1,037,395 $ 80,544
------------------------------------------------- ---------- ---------- ---------- ---------- ----------
-18-
3. REAL PROPERTY OWNED (CONTINUED)
At December 31, 2001, future minimum lease payments receivable under operating
leases are as follows (in thousands):
2002 $ 102,636
2003 104,240
2004 103,362
2005 105,486
2006 107,273
Thereafter 812,595
-------------
TOTAL $ 1,335,592
=============
The Company converted $13,683,000, $60,648,000, and $16,309,000 of mortgage
loans into operating lease properties in 2001, 2000 and 1999, respectively. In
2001, the Company acquired properties which included the assumption of mortgages
totaling $45,202,000. These noncash activities are appropriately not reflected
in the accompanying statements of cash flows.
4. CONCENTRATION OF RISK
As of December 31, 2001, long-term care facilities, which include skilled
nursing and assisted living facilities, comprised 93% (92% at December 31, 2000)
of the Company's real estate investments and were located in 33 states.
Investments in assisted living facilities comprised 63% (66% at December 31,
2000) of the Company's real estate investments. The Company's investments with
the three largest operators totaled approximately 28% (27% at December 31,
2000). No single operator has a real estate investment balance, which exceeds
12% (11% at December 31, 2000) of total real estate investments, including
credit enhancements.
5. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the allowance for loan losses (in thousands):
2001 2000 1999
----------- ------------ -----------
Balance at beginning of year $ 5,861 $ 5,587 $ 4,987
Provision for loan losses 1,000 1,000 600
Charge-offs (726)
----------- ------------ -----------
Balance at end of year $ 6,861 $ 5,861 $ 5,587
=========== ============ ===========
In addition, the Company recorded a $2,000,000 loss during 2000 related to an
investment in the preferred stock of a private corporation that became
substantially diluted as a result of a recapitalization of that corporation.
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS
AND RELATED ITEMS
The Company has an unsecured credit arrangement with a consortium of nine banks
providing for a revolving line of credit ("revolving credit") in the amount of
$150,000,000, which expires on March 31, 2003. The agreement specifies that
borrowings under the revolving credit are subject to interest payable in periods
no longer than three months on either the agent bank's base rate of interest or
1.5% over LIBOR interest rate (based at the Company's option). In addition, the
Company pays a commitment fee ranging from an annual rate of 0.20% to 0.375% and
an annual agent's fee of $50,000. Principal is due upon expiration of the
agreement. The Company has another unsecured line of credit with a bank for a
total of $25,000,000, which expires April 30, 2002. Borrowings under this line
of credit are subject to interest at the bank's prime rate of interest (4.75% at
December 31, 2001) and are due on demand. At December 31, 2001, there were no
borrowings under either of the unsecured lines of credit.
-19-
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS
AND RELATED ITEMS (CONTINUED)
The following information relates to aggregate borrowings under the unsecured
line of credit arrangements (in thousands, except percentages):
YEAR ENDED DECEMBER 31
2001 2000 1999
--------------------------------------------------------------
Balance outstanding at December 31 $ $ 119,900 $ 177,500
Maximum amount outstanding at any
month end 140,800 185,000 180,950
Average amount outstanding (total
of daily principal balances
divided by days in year) 66,217 140,981 153,318
Weighted average interest rate
(actual interest expense divided
by average borrowings outstanding) 7.67% 7.77% 6.61%
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS
The Company has $412,250,000 of Unsecured Senior Notes with interest ranging
from 7.39% to 8.34%.
During the year ended December 31, 2001, the Company repurchased $7,750,000 of
Unsecured Senior Notes due March 2002. The Company incurred expenses of $213,000
related to this repurchase, which was recorded as an extraordinary item.
The Company has five mortgage notes payable, collateralized by health care
facilities with interest ranging from 7.69% to 12.00%.
The Company has a $60,000,000 secured line of credit, collateralized by 16
health care facilities, with interest at 2% over LIBOR, with a floor of 7%
(7.00% at December 31, 2001). The Company had $33,000,000 in borrowings
outstanding at December 31, 2001.
The carrying values of the health care properties securing the mortgages and
secured debt totaled $204,603,000 at December 31, 2001.
At December 31, 2001, the annual principal payments on these long-term
obligations are as follows (in thousands):
SECURED LINE OF
SENIOR NOTES CREDIT MORTGAGES
----------------- ----------------------- --------------
2002 $ 12,250 $ $ 368
2003 35,000 400
2004 40,000 33,000 475
2005 860
2006 50,000 398
2007 175,000 430
2008 100,000 464
Thereafter 42,571
--------- --------- ---------
Totals $ 412,250 $ 33,000 $ 45,966
========= ========= =========
8. STOCK INCENTIVE PLANS AND RETIREMENT ARRANGEMENTS
The Company's 1995 Stock Incentive Plan authorizes up to 3,464,000 shares of
Common Stock to be issued at the discretion of the Board of Directors. The 1995
Plan replaced the 1985 Incentive Stock Option Plan. The options granted under
the 1985 Plan continue to vest through 2005 and expire ten years from the date
of grant. Officers and key salaried employees of the Company are eligible to
participate in the 1995 Plan. The 1995 Plan allows for the issuance of stock
options, restricted stock grants and Dividend Equivalency Rights. In addition,
the Company has a Stock Plan for Non-Employee Directors, which authorizes up to
336,000 shares to be issued.
-20-
8. STOCK INCENTIVE PLANS AND RETIREMENT ARRANGEMENTS (CONTINUED)
The following summarizes the activity in the Plans for the years ended December
31 (shares in thousands):
2001 2000 1999
---- ---- ----
AVERAGE Average Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
STOCK OPTIONS
Options at beginning of year 1,953 $20.34 1,813 $21.62 1,418 $22.06
Options granted 515 23.89 507 16.79 410 20.17
Options exercised (111) 18.63 (6) 21.81
Options terminated (20) 17.73 (367) 21.76 (9) 23.90
--------- ----------- -------- ----------- -------- -----------
2,337 $21.23 1,953 $20.34 1,813 $21.62
========= =========== ======== =========== ======== ===========
At end of year:
Options exercisable 1,161 $21.27 949 $21.32 733 $21.17
Weighted average fair value
of options granted during
the year $ 1.43 $ .63 $ 2.11
The stock options generally vest over a five-year period and expire ten years
from the date of grant. The Company issued 77,275, 77,250, and 86,250 restricted
shares during 2001, 2000 and 1999, respectively, including 8,000, 8,000, and
9,000 shares for directors in 2001, 2000 and 1999, respectively. Vesting periods
range from six months for directors to five years for officers and key salaried
employees. Expense, which is recognized as the shares vest based on the market
value at the date of the award, totaled $1,164,000, $1,090,000, and $1,080,000,
in 2001, 2000 and 1999, respectively.
The following table summarizes information about stock options outstanding at
December 31, 2001 (shares in thousands):
Options Outstanding Options Exercisable
--------------------------------------------------------- ----------------------------
Range of Per Weighted Weighted Average Weighted
Share Exercise Number Average Remaining Number Average
Prices Outstanding Exercise Price Contract Life Exercisable Exercise Price
------ ----------- -------------- ------------- ----------- --------------
$16-$20 1,086 $ 18.44 8.3 536 $ 18.11
$20-$25 1,101 23.10 8.0 498 23.64
$25-$30 150 26.07 7.2 127 26.08
------ -------- ----- ----- -------
2,337 $ 21.23 8.0 1,161 $ 21.27
====== ======== ===== ===== =======
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees in accounting for its employee stock options as permitted
under FASB Statement No. 123 ("FASB 123"), Accounting for Stock-Based
Compensation, and, accordingly, recognizes no compensation expense for the stock
option grants when the market price on the underlying stock on the date of grant
equals the exercise price of the Company's employee stock option.
Pro forma information has been determined as if the Company had accounted for
its employee stock options and restricted shares under the fair value method.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following range of assumptions:
risk-free interest rates from 3.44% to 7.60%, dividend yields of 8% to 12%,
expected lives of seven years, and expected volatility of .18% to .244%. Had
compensation cost for the stock-based compensation plans been determined in
accordance with FASB 123, net income would have been reduced by $465,000,
$267,000, and $621,000, in 2001, 2000 and 1999, respectively, and net income per
common share would have been lower by $.01, $.01 and $.02, in 2001, 2000 and
1999, respectively.
The Company has a 401(k) Profit Sharing Plan and Money Purchase Pension Plan
("the Plans") covering all eligible employees. Under the Plans, eligible
employees may make contributions, and the Company may make matching
contributions and a profit sharing contribution. Company contributions to these
Plans totaled $175,000, $171,000, and $144,000, in 2001, 2000 and 1999,
respectively.
The Company has a non-qualified senior executive retirement plan designed to
provide pension benefits for certain officers. Pension benefits are based on
compensation and length of service and the plan is unfunded. The accrued
liability for the plan was $41,000 at December 31, 2001.
-21-
9. PREFERRED STOCK
In January 1999, the Company sold 3,000,000 shares of Series C Cumulative
Convertible Preferred Stock. These shares have a liquidation value of $25.00 per
share and will pay dividends equivalent to the greater of (i) the annual
dividend rate of $2.25 per share (a quarterly dividend rate of $0.5625 per
share); or (ii) the quarterly dividend then payable per common share on an as
converted basis. The preferred shares are convertible into common stock at a
conversion price of $25.625 per share. The Company has the right to redeem the
preferred shares after five years.
The Company has 3,000,000 shares of 8.875% Series B Cumulative Redeemable
Non-Voting Preferred Stock with a liquidation preference of $25.00 per share.
Dividends are payable quarterly in arrears. On and after May 1, 2003, the
Preferred Stock may be redeemed for cash at the option of the Company, in whole
or in part, at $25.00 per share, plus accrued and unpaid dividends thereon to
the redemption date.
10. INCOME TAXES AND DISTRIBUTIONS
To qualify as a real estate investment trust for federal income tax purposes,
90% of taxable income (including capital gains) must be distributed to
stockholders. Real estate investment trusts that do not distribute a certain
amount of current year taxable income in the current year are also subject to a
4% federal excise tax. The principal reasons for the difference between
undistributed net income for federal income tax purposes and financial statement
purposes are the recognition of straight-line rent for reporting purposes,
different useful lives and depreciation methods for real property and the
provision for losses for reporting purposes versus bad debt expense for tax
purposes. Cash distributions paid to stockholders, for federal income tax
purposes, are as follows:
YEAR ENDED DECEMBER 31
2001 2000 1999
------------- ------------- -------------
Per Share:
Ordinary income $ 1.673 $ 2.330 $ 2.217
Return of capital .648 .000 .000
Capital gains .019 .005 .053
-------- -------- ---------
TOTALS $ 2.340 $ 2.335 $ 2.270
======== ======== =========
11. COMMITMENTS AND CONTINGENCIES
The Company has agreements to purchase two health care facilities, or the loans
with respect thereto, in the event that the present owners default upon their
obligations. In consideration for these agreements, the Company receives and
recognizes fees annually related to these agreements. Although the terms of
these agreements vary, the purchase prices are equal to the amount of the
outstanding obligations financing the facility. These agreements expire through
the year 2005. In addition, the Company has an outstanding letter of credit
relating to one assisted living project. At December 31, 2001, obligations under
these agreements for which the Company was contingently liable aggregated
approximately $11,425,000.
12. STOCKHOLDER RIGHTS PLAN
Under the terms of a Stockholder Rights Plan approved by the Board of Directors
in July 1994, a Preferred Share Right ("Right") is attached to and automatically
trades with each outstanding share of Common Stock.
The Rights, which are redeemable, will become exercisable only in the event that
any person or group becomes a holder of 15% or more of the Common Stock, or
commences a tender or exchange offer, which, if consummated, would result in
that person or group owning at least 15% of the Common Stock. Once the Rights
become exercisable, they entitle all other stockholders to purchase one
one-thousandth of a share of a new series of junior participating preferred
stock for an exercise price of $48.00. The Rights will expire on August 5, 2004,
unless exchanged earlier or redeemed earlier by the Company for $.01 per Right
at any time before public disclosure that a 15% position has been acquired.
-22-
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
2001 2000 1999
---------- --------- ------
Numerator for basic and diluted earnings
per share - income available to common
stockholders $ 47,044 $ 54,566 $ 62,824
========= ========= =========
Denominator for basic earnings per
share - weighted average shares 30,534 28,418 28,128
Effect of dilutive securities:
Employee stock options 238 15
Nonvested restricted shares 255 225 241
--------- --------- ---------
Dilutive potential common shares 493 225 256
--------- --------- ---------
Denominator for diluted earnings per
share - adjusted weighted average shares 31,027 28,643 28,384
====== ====== =========
Basic earnings per share $ 1.54 $ 1.92 $ 2.23
========= ========= =========
Diluted earnings per share $ 1.52 $ 1.91 $ 2.21
========= ========= =========
The diluted earnings per share calculation excludes the dilutive effect of
1,301,000, 1,954,000, and 1,813,000 options for 2001, 2000 and 1999,
respectively, because the exercise price was greater than the average market
price. The Series C Cumulative Convertible Preferred Stock was not included in
this calculation as the effect of the conversion was anti-dilutive.
14. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Real Property Loans--The fair value of all real property loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Working Capital Loans, Construction Loans and Subdebt Investments--The carrying
amount is a reasonable estimate of fair value based on the interest rates
received, which approximates current market rates.
Cash and Cash Equivalents--The carrying amount approximates fair value.
Marketable Securities--Marketable securities are recorded at their fair market
value.
Borrowings Under Line of Credit Arrangements --The carrying amount of the lines
of credit and secured debt approximates fair value because the borrowings are
interest rate adjustable.
Senior Unsecured Notes --The fair value of the senior unsecured notes payable
was estimated by discounting the future cash flow using the current borrowing
rate available to the Company for similar debt.
Mortgage Notes Payable--Mortgage notes payable is a reasonable estimate of fair
value based on the interest rates paid, which approximates current market rates.
-23-
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 2001 and 2000, are as follows (in thousands):
DECEMBER 31, 2001 December 31, 2000
-------------------------------------- ------------------------------------
CARRYING Carrying
AMOUNT FAIR VALUE Amount Fair Value
----------------- ----------------- ----------------- ----------------
Financial Assets:
Real property loans $ 212,543 $ 229,422 $276,549 $283,244
Working capital loans 27,583 27,583 20,720 20,720
Construction loans 4,052 4,052
Subdebt investments 23,448 23,448 21,972 21,972
Cash and cash equivalents 9,826 9,826 2,844 2,844
Marketable securities 78 78 130 130
Financial Liabilities:
Borrowings under line of
credit arrangements 119,900 119,900
Senior unsecured notes 412,250 418,179 255,000 234,987
Secured debt 33,000 33,000 64,000 64,000
Mortgage notes payable 45,966 45,966 852 852
15. DISCONTINUED OPERATIONS
During the nine months ended September 30, 2002, the Company sold seven assisted
living facilities and one parcel of land with carrying values of $48,935,000.
The rental income, provision for depreciation and allocated interest expense,
along with the net gain (loss) on sales, related to these properties for the
years ended December 31, 2001, 2000 and 1999 have been reflected as discontinued
operations in the accompanying Consolidated Statements of Income.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations of
the Company for the years ended December 31, 2001 and 2000 (in thousands, except
per share data):
YEAR ENDED DECEMBER 31, 2001
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------------------------------------------------------------------------
Revenues $ 31,256 $ 31,445 $ 33,513 $ 33,624
Net Income Available to
Common Stockholders 11,827 11,747 13,591 9,879
Net Income Available to
Common Stockholders
Per Share:
Basic .41 .41 .42 .30
Diluted .41 .40 .41 .30
Year ended December 31, 2000
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------------------------------------------------------------------------
Revenues $ 33,497 $ 32,597 $ 32,021 $ 31,834
Net Income Available to
Common Stockholders 14,758 14,587 13,786 11,435
Net Income Available to
Common Stockholders
Per Share:
Basic .52 .52 .48 .40
Diluted .52 .51 .48 .40
-24-
HEALTH CARE REIT, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
ASSISTED LIVING FACILITIES:
---------------------------
Lake Havasu, AZ $ $ 110 $ 2,244 $
Lake Havasu, AZ 450 4,223
Mesa, AZ 950 9,087
Alhambra, CA 420 2,534
Azusa, CA 570 3,141
Encinitas, CA 1,460 7,721
Marysville, CA 450 4,172 44
San Juan Capistrano, CA 1,390 6,942
Litchfield, CT 660 9,652
Bradenton, FL 251 3,298
Bradenton, FL 25 450
Bradenton, FL 25 400
Bradenton, FL 50 850
Bradenton, FL 50 850
Clermont, FL 350 5,232 200
Ft. Myers, FL 1,230 13,098
Haines City, FL 80 1,937
Lake Wales, FL 80 1,939
Lauderhill, FL 20 1,535
Leesburg, FL 70 1,170 37
Margate, FL 500 7,303 246
Naples, FL 1,716 17,306
North Miami Beach, FL 300 5,708 310
Orange City, FL 80 2,239
Plantation, FL 2,746 0
Sarasota, FL 475 3,175
Vero Beach, FL 263 3,187
Vero Beach, FL 297 3,263
Atlanta, GA 2,059 14,914
Roswell, GA 1,107 9,627
Auburn, IN 145 3,511
Avon, IN 170 3,504
Kokomo, IN 195 3,709
Laporte, IN 165 3,674
Marion, IN 175 3,504
Merrilville, IN 643 7,084 390
Shelbyville, IN 165 3,497
Terre Haute, IN 175 3,499
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ------------ ------------ ------------ -------- -----
ASSISTED LIVING FACILITIES:
---------------------------
Lake Havasu, AZ x $ 110 $ 2,244 $ 199 1998 1998
Lake Havasu, AZ 450 4,223 288 1999 1999
Mesa, AZ 950 9,087 282 2000 2000
Alhambra, CA 420 2,534 53 2001 2001
Azusa, CA 570 3,141 69 2001 2001
Encinitas, CA 1,460 7,721 263 2000 2000
Marysville, CA 450 4,216 117 2000 2000
San Juan Capistrano, CA 1,390 6,942 0 2001 2001
Litchfield, CT 660 9,652 1,256 1998 1998
Bradenton, FL 251 3,298 572 1996 1995
Bradenton, FL 25 450 50 1997 1992
Bradenton, FL 25 400 45 1997 1988
Bradenton, FL 50 850 95 1997 1996
Bradenton, FL 50 850 95 1997 1996
Clermont, FL 350 5,432 602 1997 1997
Ft. Myers, FL 1,230 13,098 1,069 1999 1999
Haines City, FL 80 1,937 146 1999 1999
Lake Wales, FL 80 1,939 147 1999 1999
Lauderhill, FL 20 1,535 1,155 1998 1995
Leesburg, FL 70 1,207 133 1998 1972
Margate, FL 500 7,549 1,073 1998 1972
Naples, FL 1,716 17,306 2,067 1999 1999
North Miami Beach, FL 300 6,018 785 1998 1987
Orange City, FL 80 2,239 224 1998 1998
Plantation, FL 2,746 0 0 1999 1999
Sarasota, FL 475 3,175 550 1996 1995
Vero Beach, FL 263 3,187 35 2001 1998
Vero Beach, FL 297 3,263 36 2001 1998
Atlanta, GA 2,059 14,914 1,253 1999 1999
Roswell, GA 1,107 9,627 1,145 1999 1999
Auburn, IN 145 3,511 362 1999 1999
Avon, IN 170 3,504 286 1999 1999
Kokomo, IN 195 3,709 382 1999 1999
Laporte, IN 165 3,674 378 1999 1999
Marion, IN 175 3,504 263 1999 1999
Merrilville, IN 643 7,474 844 1999 1999
Shelbyville, IN 165 3,497 314 1999 1999
Terre Haute, IN 175 3,499 263 1999 1999
-25-
SCHEDULE III - Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
Valparaiso, IN $ $ 112 $ 2,558 $
Valparaiso, IN 108 2,962
Vincennes, IN 118 2,893
Kenner, LA 1,100 10,036 125
Attleboro, MA 810 10,500
Ellicott City, MD 1,320 13,641
Harmans, MD 0 3,000
Satyr Hill, MD 730 8,770
St. Charles, MD 620 8,380
Rochester, MN 322 6,345
Butte, MT 550 3,957
Kalispell, MT 360 3,282 43
Asheville, NC 204 3,489
Cary, NC 1,500 4,350
Durham, NC 1,476 10,659 133
Elizabeth City, NC 200 2,760
Hendersonville, NC 2,270 11,771
Morehead City, NC 200 3,104
Pineville, NC 1,009 10,554 79
Wake Forest, NC 200 3,003
Wilmington, NC 210 2,991
Brick, NJ 1,300 9,394
Cranford, NJ 3,297 14,233
Hamilton , NJ 440 4,469
Gardnerville, NV 1,326 12,549
Henderson, NV 380 4,360 41
Henderson, NV 380 9,220
Albany, NY 400 10,528
Manlius, NY 410 3,962
Canton, OH 300 2,098
Cincinnati, OH 1,728 10,272
Findlay, OH 200 1,800
Newark, OH 410 5,711
Piqua, OH 204 1,885
Sagamore Hills, OH 470 7,881
Troy, OH 200 2,000
Westerville, OH 741 8,287
Bartlesville, OK 100 1,380
Chickasha, OK 85 1,395
Claremore, OK 155 1,428
Duncan, OK 103 1,347
Edmond, OK 175 1,564
Enid, OK 90 1,390
Lawton, OK 144 1,456
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
Valparaiso, IN $ 112 $ 2,558 $ 28 2001 1998
Valparaiso, IN 108 2,962 32 2001 1998
Vincennes, IN 118 2,893 243 1999 1999
Kenner, LA 1,100 10,161 851 2000 2000
Attleboro, MA 810 10,500 1,055 1998 1998
Ellicott City, MD 1,320 13,641 1,553 1999 1999
Harmans, MD 0 3,000 63 2001 1997
Satyr Hill, MD 730 8,770 199 2001 1998
St. Charles, MD 620 8,380 189 2001 1998
Rochester, MN 322 6,345 497 1999 1999
Butte, MT 550 3,957 110 2000 1999
Kalispell, MT 360 3,325 290 1998 1998
Asheville, NC 204 3,489 279 1999 1999
Cary, NC 1,500 4,350 424 1998 1996
Durham, NC 1,476 10,792 1,252 1999 1999
Elizabeth City, NC 200 2,760 221 1999 1999
Hendersonville, NC 2,270 11,771 1,120 1998 1998
Morehead City, NC 200 3,104 190 2000 2000
Pineville, NC 1,009 10,633 1,241 1999 1999
Wake Forest, NC 200 3,003 273 1999 1999
Wilmington, NC 210 2,991 222 1999 1999
Brick, NJ 1,300 9,394 690 2000 2000
Cranford, NJ 3,297 14,233 1,905 1996 1993
Hamilton , NJ 440 4,469 0 2001 1998
Gardnerville, NV 1,326 12,549 1,392 1999 1999
Henderson, NV 380 4,401 120 1998 1998
Henderson, NV 380 9,220 753 2000 2000
Albany, NY 400 10,528 1,220 1997 1997
Manlius, NY 410 3,962 0 2001 1997
Canton, OH 300 2,098 186 1998 1998
Cincinnati, OH 1,728 10,272 1,400 1997 1995
Findlay, OH 200 1,800 237 1997 1997
Newark, OH 410 5,711 544 1998 1997
Piqua, OH 204 1,885 199 1998 1998
Sagamore Hills, OH 470 7,881 365 2000 2000
Troy, OH 200 2,000 256 1997 1997
Westerville, OH 741 8,287 375 2001 2001
Bartlesville, OK 100 1,380 233 1994 1995
Chickasha, OK 85 1,395 229 1995 1996
Claremore, OK 155 1,428 210 1996 1996
Duncan, OK 103 1,347 213 1995 1996
Edmond, OK 175 1,564 243 1995 1996
Enid, OK 90 1,390 235 1995 1996
Lawton, OK 144 1,456 228 1995 1996
-26-
SCHEDULE III - Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
Midwest City, OK $ $ 95 $ 1,385 $
Muskogee, OK 150 1,432
Norman, OK 55 1,484
N. Oklahoma City, OK 87 1,508
Oklahoma City, OK 130 1,350
Oklahoma City, OK 220 2,943
Owasso, OK 215 1,380
Ponca City, OK 114 1,536
Shawnee, OK 80 1,400
Stillwater, OK 80 1,400
Portland OR 628 3,585
Salem, OR 449 5,172
Lebanon, PA 400 3,799
Saxonburg, PA 677 4,669
Seven Fields, PA 484 4,663
Williamsport, PA 390 4,068
Bluffton, SC 700 5,598
Florence, SC 380 2,881
Hilton Head, SC 510 6,037
N Augusta, SC 332 2,558
Walterboro, SC 150 1,838 160
Clarksville, TN 330 2,292
Columbia, TN 341 2,295
Morristown, TN 400 3,808
Oakridge, TN 450 4,066
Austin, TX 880 9,520
Cedar Hill, TX 171 1,490
Corpus Christi, TX 420 4,796
Corpus Christi, TX 155 2,935
Desoto, TX 205 1,383
Ft. Worth, TX 210 3,790
Georgetown, TX 200 2,100
Grand Prairie, TX 400 5,160
Harlingen, TX 92 2,057
Houston, TX 550 10,751
Houston, TX 261 3,139
Kingwood, TX 300 3,309
N Richland Hills, TX 330 5,355
Palestine, TX 173 1,410
San Marcos, TX 355 4,560
Texarkana, TX 192 1,403
Waxahachie, TX 154 1,429
Salt Lake City, UT 1,059 6,141
Everett, WA 1,400 5,476
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
Midwest City, OK $ 95 $ 1,385 $ 234 1996 1996
Muskogee, OK 150 1,432 211 1996 1996
Norman, OK 55 1,484 278 1995 1996
N. Oklahoma City, OK 87 1,508 217 1995 1996
Oklahoma City, OK 130 1,350 220 1995 1996
Oklahoma City, OK 220 2,943 145 2000 2000
Owasso, OK 215 1,380 201 1996 1996
Ponca City, OK 114 1,536 267 1995 1995
Shawnee, OK 80 1,400 235 1995 1996
Stillwater, OK 80 1,400 236 1995 1996
Portland OR 628 3,585 258 1999 1999
Salem, OR 449 5,172 399 1999 1999
Lebanon, PA 400 3,799 248 1999 1999
Saxonburg, PA 677 4,669 386 1999 1994
Seven Fields, PA 484 4,663 365 1999 1999
Williamsport, PA 390 4,068 254 1999 1999
Bluffton, SC 700 5,598 185 2000 2000
Florence, SC 380 2,881 218 1999 1999
Hilton Head, SC 510 6,037 391 1999 1999
N Augusta, SC 332 2,558 200 1999 1999
Walterboro, SC 150 1,998 169 1999 1992
Clarksville, TN 330 2,292 201 1998 1998
Columbia, TN 341 2,295 182 1999 1999
Morristown, TN 400 3,808 248 1999 1999
Oakridge, TN 450 4,066 263 1999 1999
Austin, TX 880 9,520 785 1999 1999
Cedar Hill, TX 171 1,490 213 1997 1997
Corpus Christi, TX 420 4,796 818 1997 1989
Corpus Christi, TX 155 2,935 355 1997 1997
Desoto, TX 205 1,383 195 1997 1997
Ft. Worth, TX 210 3,790 594 1992 1994
Georgetown, TX 200 2,100 267 1997 1997
Grand Prairie, TX 400 5,160 470 1998 1998
Harlingen, TX 92 2,057 247 1997 1989
Houston, TX 550 10,751 1,117 1999 1989
Houston, TX 261 3,139 472 1994 1995
Kingwood, TX 300 3,309 244 1999 1999
N Richland Hills, TX 330 5,355 439 1999 1999
Palestine, TX 173 1,410 208 1996 1996
San Marcos, TX 355 4,560 413 1998 1998
Texarkana, TX 192 1,403 204 1996 1996
Waxahachie, TX 154 1,429 210 1996 1996
Salt Lake City, UT 1,059 6,141 131 2001 2001
Everett, WA 1,400 5,476 399 1990 1990
-27-
SCHEDULE III - Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
Middleton, WI $ $ 420 $ 4,007 $
-------- -------------- --------
TOTAL ASSISTED LIVING FACILITIES: $62,298 $ 580,151 $ 1,808
SKILLED NURSING FACILITIES:
Payson, AZ 180 3,988
Santa Rosa, CA 1,460 3,880
Pueblo, CO 370 6,051
Brevard, FL 360 4,117
Hilliard, FL 150 6,990
Lakeland, FL 696 4,843
New Port Richey, FL 624 7,307
North Fort Myers, FL 636 6,027
Sarasota, FL 560 8,474
Vero Beach, FL 660 9,040 1,461
West Palm Beach, FL 696 8,037
Boise, ID 600 7,383
Boise, ID 810 5,401
Coeur D'Alene, ID 600 7,878
Granite City, IL 610 7,143
Granite City, IL 400 4,303
Owensboro, KY 130 4,870
Braintree, MA 170 7,157 833
Braintree, MA 80 4,849 624
Fall River, MA 620 5,829 1,276
Falmouth, MA 670 3,145
South Boston, MA 385 2,002 4,089
Webster, MA 570 9,639 230
Worcester, MA 1,053 2,266 212
Beachwood, OH 19,880 1,260 23,478
Broadview Heights, OH 9,370 920 12,400
Kent, OH 215 3,367
Westlake, OH 571 5,411
Westlake, OH 15,952 1,320 17,936
Midwest City, OK 470 5,673
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- ---- ------------ ------------ -------- -----
Middleton, WI $ 420 $ 4,007 $ 0 2001 1991
-------- ------------ ---------
TOTAL ASSISTED LIVING FACILITIES: $62,298 $ 581,959 $ 52,453
SKILLED NURSING FACILITIES:
Payson, AZ 180 3,988 475 1998 1995
Santa Rosa, CA 1,460 3,880 562 1998 1968
Pueblo, CO 370 6,051 705 1998 1989
Brevard, FL 360 4,117 96 2001 1970
Hilliard, FL 150 6,990 605 1999 1994
Lakeland, FL 696 4,843 513 1998 1984
New Port Richey, FL 624 7,307 757 1998 1984
North Fort Myers, FL 636 6,027 630 1998 1984
Sarasota, FL 560 8,474 413 2001 2001
Vero Beach, FL 660 10,501 845 1998 1984
West Palm Beach, FL 696 8,037 830 1998 1984
Boise, ID 600 7,383 773 1998 1985
Boise, ID 810 5,401 640 1998 1996
Coeur D'Alene, ID 600 7,878 816 1998 1996
Granite City, IL 610 7,143 614 1999 1964
Granite City, IL 400 4,303 311 1998 1973
Owensboro, KY 130 4,870 999 1993 1967
Braintree, MA 170 7,990 1,254 1997 1973
Braintree, MA 80 5,473 758 2001 1973
Fall River, MA 620 7,105 861 1996 1966
Falmouth, MA 670 3,145 516 1996 1966
South Boston, MA 385 6,091 652 1995 1961
Webster, MA 570 9,869 1,422 1995 1982
Worcester, MA 1,053 2,478 393 1996 1973
Beachwood, OH 1,260 23,478 0 2001 1990
Broadview Heights, OH 920 12,400 0 2001 1984
Kent, OH 215 3,367 827 1989 1983
Westlake, OH 571 5,411 607 1998 1972
Westlake, OH 1,320 17,936 0 2001 1980
Midwest City, OK 470 5,673 598 1998 1958
-28-
SCHEDULE III - Continued
Initial Cost
to Company
-----------------------------
Cost
Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------- ------------ ---- ------------ ------------
Eugene, OR $ $ 300 $ 5,316 $
Bloomsburg, PA 0 3,918
Cheswick, PA 384 6,041 1,293
Easton, PA 285 6,315
Cleveland, TN 350 5,000
Elizabethton, TN 310 4,604
Erin, TN 440 8,060
Harriman, TN 590 8,060
Mountain City, TN 220 5,896
Pigeon Forge, TN 320 4,180
Ridgely, TN 300 5,700
Rockwood, TN 500 7,116
Spring City, TN 420 6,085
Westmoreland, TN 0 2,152
San Antonio, TX _____________ 663 12,588
--------- ---------- ---------
TOTAL SKILLED NURSING FACILITIES: $ 45,202 $ 22,928 $ 299,915 $ 10,018
SPECIALTY CARE FACILITIES:
Clearwater, FL 950 0
Braintree ,MA 350 9,304 292
Springfield, MA 2,100 14,978 995
Stoughton, MA 975 20,021 973
Waltham, MA 0 9,339
--------- ---------- ---------
TOTAL SPECIALTY CARE FACILITIES $ 4,375 $ 54,637 $ 1,265
TOTAL INVESTMENT IN PROPERTIES
$ 45,202 $ 89,601 $ 934,703 $ 13,091
========= ========== =========
Gross Amount at Which
Carried at Close of Period
--------------------------------------------
Buildings & Accumulated Year Year
Description Land Improvements Depreciation Acquired Built
----------- --------- ------------ ------------ -------- -----
Eugene, OR $ 300 $ 5,316 $ 598 1998 1996
Bloomsburg, PA 0 3,918 273 1999 1982
Cheswick, PA 384 7,334 754 1998 1959
Easton, PA 285 6,315 1,859 1993 1978
Cleveland, TN 350 5,000 12 2001 1987
Elizabethton, TN 310 4,604 90 2001 1980
Erin, TN 440 8,060 19 2001 1981
Harriman, TN 590 8,060 20 2001 1972
Mountain City, TN 220 5,896 116 2001 1976
Pigeon Forge, TN 320 4,180 11 2001 1986
Ridgely, TN 300 5,700 14 2001 1990
Rockwood, TN 500 7,116 134 2001 1979
Spring City, TN 420 6,085 115 2001 1987
Westmoreland, TN 0 2,152 4 2001 1994
San Antonio, TX 663 12,588 3,067 1993 1978
--------- --------- --------
TOTAL SKILLED NURSING FACILITIES: $ 22,928 $ 309,933 $ 25,558
SPECIALTY CARE FACILITIES:
Clearwater, FL 950 0 0 2000
Braintree ,MA 350 9,596 559 1997 1968
Springfield, MA 2,100 15,973 500 2000 1996
Stoughton, MA 975 20,994 944 2000 1996
Waltham, MA 0 9,339 530 2000 1958
--------- --------- --------
TOTAL SPECIALTY CARE FACILITIES $ 4,375 $ 55,902 $ 2,533
TOTAL INVESTMENT IN PROPERTIES
$ 89,601 $ 947,794 $ 80,544
========= ========= ========
-29-
SCHEDULE III - Continued
Year ended December 31
2001 2000 1999
----------- ----------- -----------
Investment in Real Estate:
Balance at Beginning of year $ 856,955 $ 862,525 $ 639,613
Additions:
Acquisitions 181,420 0 81,109
Improvements 10,863 46,449 138,694
Other (1) 14,637 60,648 16,309
----------- ----------- -----------
Total Additions 206,920 107,097 236,112
Deductions:
Cost of real estate sold (26,480) (112,667) (13,200)
Other
----------- ----------- -----------
Total deductions (26,480) (112,667) (13,200)
----------- ----------- -----------
Balance at end of year $ 1,037,395 $ 856,955 $ 862,525
=========== =========== ===========
Accumulated depreciation:
Balance at beginning of year $ 52,968 $ 35,746 $ 19,624
Additions:
Depreciation expense 30,227 22,707 17,885
Deductions:
Sale of properties (2,651) (5,485) (1,763)
----------- ----------- -----------
Balance at end of year $ 80,544 $ 52,968 $ 35,746
=========== =========== ===========
(1) Represents mortgage loans converted to operating leases and $954,000 of
land reclassed from other assets in 2001.
(2) The aggregate cost for tax purposes for real property equals
$1,035,650,000 at December 31, 2001.
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SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
HEALTH CARE REIT, INC.
DECEMBER 31, 2001
FINAL PERIODIC
INTEREST MATURITY PAYMENT
DESCRIPTION RATE DATE TERMS
-------------------- ---------- --------- ----------
Sun Valley, CA 12.83% 01/01/17 Monthly
(Specialty Care Payments
Facility) $229,682
Briarcliff, NY 11.26% 08/01/16 Monthly
(Assisted Living Payments
Facility) $127,891
New York City, NY 10.09% 03/01/18 Monthly
(Assisted Living Facility) Payments
$168,359
Oklahoma City, OK 9.88% 06/01/06 Monthly
(Nursing Home) Payments
$98,446
Five nursing homes in Texas 10.78% 12/01/07 Monthly
Payments
$77,173
Bala, PA 14.61% 1/01/06 Monthly
(Nursing Home) Payments
$86,987
St. Louis, MO 11.71% 6/01/09 Monthly
(Nursing Home) Payments
$72,741
Chestnut Ridge, NY 12.45% 12/01/16 Monthly
(Assisted Living Facility) Payments
$75,341
Tucson, AZ 15.00% 3/1/02 Monthly
(Assisted Living Facility) Payments
$100,715
35 mortgage loans relating to 4 From From
nursing homes, 29 assisted living 8.11% to 3/01/02-
facilities and 2 specialty care 12.93% 12/01/17
facilities
(IN THOUSANDS)
-------------------------------
PRINCIPAL AMOUNT
OF LOANS SUBJECT
CARRYING TO DELINQUENT
PRIOR FACE AMOUNT AMOUNT OF PRINCIPAL OR
DESCRIPTION LIENS OF MORTGAGES MORTGAGES INTEREST
-------------------- ----------- ------------ --------- ---------------
Sun Valley, CA 21,500 18,797 None
(Specialty Care
Facility)
Briarcliff, NY 12,810 12,471 None
(Assisted Living
Facility)
New York City, NY 21,000 17,879 None
(Assisted Living Facility)
Oklahoma City, OK 12,204 12,204 None
(Nursing Home)
Five nursing homes in Texas 12,198 7,733 None
Bala, PA 7,400 7,145 None
(Nursing Home)
St. Louis, MO 7,072 6,771 None
(Nursing Home)
Chestnut Ridge, NY 8,000 6,652 None
(Assisted Living Facility)
Tucson, AZ 8,057 8,057 None
(Assisted Living Facility)
35 mortgage loans relating to 4 123,135 114,834 None
nursing homes, 29 assisted living
facilities and 2 specialty care
facilities
------------- ------------- ---------
TOTALS $233,376 $212,543 $-0-
============= ============= =========
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(in thousands)
YEAR ENDED DECEMBER 31
----------------------------------------------------
2001 2000 1999
------------- ------------- -------------
Reconciliation of mortgage loans:
Balance at beginning of period $ 280,601 $384,298 $398,682
Additions during period:
New mortgage loans 17,791 28,244 44,656
------------- ------------- -------------
$ 298,392 412,542 443,338
Deductions during period:
Collections of principal (1) 72,166 70,567 42,731
Charge-offs 726
Other (2) $ 13,683 60,648 16,309
--------- --------- ---------
Balance at end of period $ 212,543 $280,601 $384,298
========= ======== ========
(1) Includes collection of negative principal amortization.
(2) Includes properties originally financed with mortgage loans that were
purchased during the periods indicated.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant had duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
By: /s/ George L. Chapman
-------------------------------
George L. Chapman
Its: Chairman of the Board and Chief Executive Officer
Dated: November 12, 2002
EXHIBIT INDEX
Designation
Number Under
Exhibit No. Item 601 of Regulation S-K Description
5 5 Opinion re Legality
10.1 10 Purchase Agreement
23 23 Consent of Independent Auditors
99.1 99 Certification pursuant to 18 U.S.C.
Section 1350 by Chief Executive Officer
99.2 99 Certification pursuant to 18 U.S.C.
Section 1350 by Chief Financial Officer
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