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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): June 23, 2000
ElderTrust
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(Exact name of registrant as specified in its charter)
Maryland 001-13807 23-2932973
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
101 East State Street, Suite 100, Kennett Square, Pennsylvania 19348
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(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 925-4200
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
ElderTrust announced on June 23, 2000 that it had begun the
process of assessing the impact on the Company of the June 22, 2000 Chapter 11
bankruptcy filings by Genesis Health Ventures, Inc. (NYSE:GHV), The Multicare
Companies, Inc., a 43.6% owned consolidated subsidiary of Genesis, and their
subsidiaries. The Genesis and Multicare bankruptcy filings follow debt
restructuring discussions between those entities and their senior lenders.
Approximately 70% of ElderTrust's consolidated assets at March
31, 2000 consisted of real estate properties leased to or managed by
subsidiaries of Genesis and loans on real estate properties made to consolidated
and unconsolidated subsidiaries of Genesis or Multicare. Revenues recorded by
ElderTrust in connection with these leases and loans totaled $4.7 million, or
67% of ElderTrust's total revenues, for the quarter ended March 31, 2000. In
addition, unconsolidated entities of ElderTrust, in which ElderTrust had
investments in and advances to totaling $18 million at March 31, 2000, also
lease properties to these entities and recognized revenues of $3.2 million for
the same period.
Included in ElderTrust's consolidated assets at March 31, 2000
are approximately $20 million in secured loans outstanding to subsidiaries of
Multicare (with a weighted average annual interest rate of 10.5%), 20% of the
principal balance of which is guaranteed by Multicare. ElderTrust also has
approximately $20 million in loans to subsidiaries of Genesis (with a weighted
average annual interest rate of 9.4%), 100% of the principal amount of which is
guaranteed by Genesis.
As previously disclosed, ElderTrust, Genesis and Multicare
have been discussing a proposed restructuring of the loan and other
relationships among the parties. These discussions continue. However, in light
of the Genesis and Multicare bankruptcy filings, any agreement reached by the
parties will be subject to bankruptcy court approval.
In addition, as a result of the bankruptcy filings, it is not
expected that the Genesis and Multicare subsidiaries that are the borrowers on
the loans will be permitted to make further interest payments to ElderTrust
until the borrowers' bankruptcy plans are approved. ElderTrust will retain its
security position in the collateral underlying the loans but may be unable to
recover the full amount of its principal. Such recovery is ultimately dependant
upon the value of the underlying collateral and, to the extent the loan exceeds
such collateral value, to the general unsecured creditors' recovery on their
prepetition claims.
2.
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Further, although the subsidiaries of Genesis that are the
lessees initially are required to continue to make lease payments to ElderTrust,
in bankruptcy these entities can assume or reject the leases to which they are
parties. If one or more of the leases are rejected, ElderTrust would be required
to find new lessees for the affected properties or renegotiate the lease terms
with the existing lessees, which could result in substantially lower rental
rates being paid to ElderTrust under the new or revised leases. If a new lease
arrangement is not immediately obtainable, the Company may be required to
operate the returned property. If this occurs, ElderTrust may have insufficient
cash to operate the property.
As Genesis and Multicare may not be permitted to make interest
payments to ElderTrust during the bankruptcy period, these filings may
significantly reduce the Company's cash flow. As a result, the Company expects
that distributions to shareholders will be significantly reduced or suspended.
The Company believes the distributions made to shareholders to date during 2000
will be adequate to satisfy the REIT distribution requirements for 2000.
ElderTrust believes that it can continue to meet its debt service requirements
after giving effect to this reduction in cash flow, however, any further
reduction in cash flow would adversely affect ElderTrust's ability to continue
to meet its debt service requirements and could significantly and adversely
affect their ability to continue its operations.
Because of the increased uncertainty surrounding ElderTrust's
ability to recover on the Genesis and Multicare loan guarantees referred to
above due to the bankruptcy filings by these entities, ElderTrust has begun
assessing the impact of the Genesis and Multicare bankruptcy filings on the
carrying values of ElderTrust's assets. Depending on various factors, such as
the reduction in loan fair market values resulting from the inability to recover
under the Genesis and Multicare corporate guarantees, such assessment could
result in ElderTrust having to record significant charges in the quarter ending
June 30, 2000 or subsequently to reflect any reduction in the net realizable
value of its assets.
ElderTrust also announced on June 23, 2000 that it expects to
record a significant and separate impairment charge during the quarter ending
June 30, 2000, relating to its aggregate $12 million investment in ET Capital
Corp at March 31, 2000. ET Capital, an entity owned 95% by ElderTrust, has a
$7.8 million loan to The AGE Institute of Florida. The loan, which has an
interest rate of 13%, is secured by a second lien on 11 nursing facilities
located in Florida that are managed by Genesis. AGE has ceased making interest
payments to ET Capital. Genesis is the guarantor on the $40 million first
mortgage loan secured by the 11 nursing facilities, and the first lien holder
has declared Genesis in default on such guarantee, and, additionally, is seeking
recovery from ET Capital of an interest payment totaling approximately $250,000
received by ET Capital from AGE in April 2000. The precise amount of the
impairment charge has not yet been determined.
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Finally, ElderTrust announced on June 23, 2000 that events of
default have been declared under two mortgage loans totaling approximately $20
million as it does not meet certain financial covenant requirements under
guarantee agreements relating to the underlying mortgages. The anticipated
impairment charge on ElderTrust's investment in ET Capital and any additional
charges recorded as to loans and leases to Genesis and Multicare and related
entities, when recorded, is expected to cause ElderTrust to violate net worth
covenants under the two mortgage loans referred to above and under its Bank
Credit Facility with a current balance outstanding of $39.3 million.
Certain matters discussed within this Form 8-K may be deemed
to be forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although ElderTrust believes the expectations
reflected in such forward-looking statements are reasonable assumptions, it can
give no assurance that its expectations will be attained. Factors that could
cause actual results to differ materially from ElderTrust's expectations include
the extent to which Genesis and Multicare continue to make lease and loan
payments to the Company, the outcome of the Genesis and Multicare bankruptcy
proceedings, real estate conditions, the Company's ability to refinance its
existing bank credit facility when it matures in June 2001, changes in the
economic conditions and other risks detailed from time to time in the Company's
SEC reports and filings. The Company assumes no obligation to update or
supplement forward-looking statements that become untrue because of subsequent
events.
A copy of ElderTrust's June 23, 2000 press release is attached
hereto as exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit
Number Exhibit Description
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99.1 Press release of June 23, 2000
4.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELDERTRUST
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(Registrant)
/s/ D. Lee McCreary, Jr.
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D. Lee McCreary, Jr.
President, Chief Executive
Officer and Chief Financial
Officer
Date: July 7, 2000
5.
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INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
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99.1 Press release of June 23, 2000
6.
