SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
____________________
For the fiscal year ended December 31, 1994 Commission File No.
1-8923
HEALTH CARE REIT, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1096634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One SeaGate, Suite 1950, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(419) 247-2800
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ---------------------- -----------------------
Shares of Common Stock New York Stock Exchange
$1.00 par value
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months; and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment of this Form 10-K.
[ ]
The aggregate market value of voting stock held by non-affiliates
of the Registrant on March 31, 1995 was $249,668,563 based on the
reported closing sales price of such shares on the New York Stock
Exchange for that date. As of March 31, 1995, there were
11,649,725 shares outstanding.
This document contains 31 pages.
<PAGE>
FORM 10-K/A
AMENDMENT NO. 1 TO ANNUAL REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
HEALTH CARE REIT, INC.
The undersigned registrant hereby amends the following
items, financial statements, or other portions of its Annual Report
on Form 10-K for the year ended December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<C> <C> <C> <C> <C>
<S>
Gross Income $ 42,732 $ 36,018 $ 28,908 $ 29,248 $ 26,874
Net Income 24,953 20,055 16,515 13,126 11,544
Loans Receivable 254,924 185,282 151,414 123,812 93,689
Investment in Operating-
Lease Properties & Other 57,232 42,776 10,301 14,800 14,850
Investment in Direct
Financing Leases 11,428 52,950 65,411 68,391 78,140
Total Assets 324,102 285,024 226,207 207,204 189,720
Borrowings Under Line of
Credit Arrangements 70,900 35,000 78,900 62,200 74,100
Senior Notes and Other
Long-Term Obligations 57,373 61,311 24,819 28,144 35,563
Shareholders' Equity 189,180 184,132 118,948 113,956 76,621
Cash Distributions to
Shareholders 23,127 18,252 15,922 12,042 10,566
Funds From Operations (1) 31,697 22,780 18,654 14,927 13,308
Average Number of
Shares Outstanding 11,519 9,339 8,629 6,828 6,151
Per Share:
Net Income 2.17 2.15 1.91 1.92 1.88
Distributions 2.01 1.93 1.85 1.77 1.72
In thousands, except per share amounts
</TABLE>
(1) Funds from Operations is defined as net cash provided from
operating activities, but does not consider the effects of changes
in operating assets and liabilities such as other receivables and
accrued expenses. The Company uses Funds from Operations in
evaluating investments and the Company's operating performance.
Funds from Operations does not represent cash generated from
operating activities in accordance with generally accepted
accounting principles, is not necessarily indicative of cash
available to fund cash needs, and should not be considered as an
alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a
measure of liquidity.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT AUDITORS
Shareholders and Directors
Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of
Health Care REIT, Inc. as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended
December 31, 1994. Our audits also include the financial statement
schedule listed in the Index at Item 14(d). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Health Care REIT, Inc. at December 31, 1994
and 1993, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth herein.
ERNST & YOUNG LLP
Toledo, Ohio
February 8, 1995
<PAGE>
HEALTH CARE REIT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31
1994 1993
----------------------------
<C> <C>
<S>
ASSETS
Real estate related investments:
Loans receivable, including amounts from
related parties of $29,283,939 and
$29,212,780 at December 31, 1994 and
1993, respectively $254,923,711 $185,281,601
Investment in operating-lease properties,
less accumulated depreciation of
$2,803,787 and $1,772,288 at December 31,
1994 and 1993, respectively 57,231,651 42,776,361
Investment in direct financing leases 11,427,721 52,950,188
------------ ------------
323,583,083 281,008,150
Less allowance for losses 5,150,000 4,150,000
------------ ------------
Net real estate related investments 318,433,083 276,858,150
Other assets
Deferred loan expenses 2,469,260 1,579,134
Cash and cash equivalents 935,449 4,896,314
Receivables and other assets 2,264,197 1,690,783
------------ ------------
5,668,906 8,166,231
------------ ------------
Total assets $324,101,989 $285,024,381
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 70,900,000 $ 35,000,000
Senior notes 52,000,000 52,000,000
Other long-term obligations 5,372,790 9,311,115
Accrued expenses and other liabilities 6,649,424 4,581,438
------------ ------------
Total liabilities 134,922,214 100,892,553
Shareholders' equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares in 1994
Issued and outstanding - None
Common Stock, $1.00 par value:
Authorized - 40,000,000 shares and
15,000,000 shares in 1994 and 1993,
respectively 11,595,115 11,446,249
Issued and outstanding - 11,595,115
shares in 1994 and 11,446,249 shares
in 1993 11,595,115 11,446,249
Capital in excess of par value 161,086,758 158,013,957
Undistributed net income 16,497,902 14,671,622
------------ ------------
Total shareholders' equity 189,179,775 184,131,828
Commitments and contingencies ------------ ------------
Total liabilities and shareholders' equity $324,101,989 $285,024,381
============ ============
See accompanying notes
</TABLE>
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Year Ended December 31
1994 1993 1992
----------- ----------- -----------
<C> <C> <C>
<S>
Gross income, including amounts from
related parties of $3,810,340,
$3,611,580, and $4,783,393 for 1994,
1993 and 1992, respectively
Interest on loans receivable $26,038,471 $21,603,573 $15,285,337
Direct financing leases:
Lease income 4,353,192 8,094,184 9,696,873
Gain on exercise of options 5,389,399 2,175,334 721,538
Operating leases:
Rents 5,480,232 2,812,468 1,458,630
Gain on exercise of options 100,029 1,030,898
Loan and commitment fees 1,184,024 1,202,516 668,552
Interest and other income 186,684 130,132 46,021
----------- ----------- -----------
42,732,031 36,018,207 28,907,849
Expenses:
Interest:
Line of credit arrangements 3,537,555 3,819,054 3,443,698
Senior notes and other long-term
obligations 6,146,589 6,997,992 4,716,320
Loan expense 637,625 328,187 243,728
Management fees 3,086,988 2,426,639 1,968,666
Provision for depreciation 1,385,077 790,471 382,466
Provision for losses 1,000,000 150,000 601,511
Other operating expenses 1,985,279 1,450,926 1,036,449
----------- ----------- -----------
17,779,113 15,963,269 12,392,838
----------- ----------- -----------
Net income $24,952,918 $20,054,938 $16,515,011
=========== =========== ===========
Net income per share $ 2.17 $ 2.15 $ 1.91
Average number of shares outstanding 11,519,123 9,339,081 8,629,144
See accompanying notes
</TABLE>
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
Capital in
Common Excess of Undistributed
Stock Par Value Net Income Total
----------- ------------ ------------ ------------
<C> <C> <C> <C>
<S>
Balances at January
1, 1992 $ 8,521,515 $ 93,158,295 $ 12,275,771 $113,995,581
Net income 16,515,011 16,515,011
Proceeds from issuance
of 230,457 shares under
the dividend reinvest-
ment and stock option
plans 230,457 4,169,298 4,399,755
Cash dividends paid--
$1.85 per share (15,922,353) (15,922,353)
----------- ------------ ------------ ------------
Balances at December
31, 1992 8,751,972 97,327,593 12,868,429 118,947,994
Net income 20,054,938 20,054,938
Proceeds from the sale
of 2,500,000 shares
less related expenses
of $3,727,470 2,500,000 56,585,030 59,085,030
Proceeds from issuance
of 194,277 shares under
the dividend reinvest-
ment and stock option
plans 194,277 4,101,334 4,295,611
Cash dividends paid--
$1.93 per share (18,251,745) (18,251,745)
----------- ------------ ------------ ------------
Balances at December
31, 1993 11,446,249 158,013,957 14,671,622 184,131,828
Net income 24,952,918 24,952,918
Proceeds from issuance of
of 148,866 shares under
the dividend reinvest-
ment and stock option
plans 148,866 3,072,801 3,221,667
Cash dividends paid--
$2.01 per share (23,126,638) (23,126,638)
----------- ------------ ------------ ------------
Balances at December
31, 1994 $11,595,115 $161,086,758 $ 16,497,902 $189,179,775
=========== ============ ============ ============
See accompanying notes
</TABLE>
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31
1994 1993 1992
------------------------------------------
<C> <C> <C>
<S>
OPERATING ACTIVITIES
Net income $ 24,952,918 $ 20,054,938 $ 16,515,011
Adjustments to reconcile net
income to net cash provided
from operating activities:
Amortization of loan and
organization expenses 639,781 328,546 243,728
Provision for losses 1,000,000 150,000 557,664
Provision for depreciation 1,385,077 790,471 408,502
Loan and commitment fees earned
less than cash received 693,213 494,292 528,050
Direct financing lease income
less than cash received 905,860 376,046 431,167
Operating lease income less
than cash received 1,079,711
Interest income less than
(in excess of) cash received 2,120,035 586,092 (1,109,841)
------------ ------------ ------------
Funds from operations 31,696,884 22,780,385 18,653,992
Increase in accrued expenses
and other liabilities 856,127 547,715 106,703
Increase in receivables and
other assets (575,571) (148,487) (451,589)
------------ ------------ ------------
Net cash provided from operating
activities 31,977,440 23,179,613 18,309,106
INVESTING ACTIVITIES
Investment in loans receivable (118,204,990) (90,650,648) (40,597,098)
Investment in operating-lease
properties (14,053,050) (20,766,000) (5,700,000)
Investment in direct financing
leases (1,300,000)
Principal collected on loans 48,760,717 43,696,715 9,856,237
Proceeds from exercise of
purchase options 38,330,065 12,085,262 15,533,527
Other 135,000 454,387
------------ ------------ ------------
Net cash used in investing
activities (46,467,258) (55,499,671) (20,452,947)
FINANCING ACTIVITIES
Increase in borrowings under
line of credit arrangements 266,900,000 209,400,000 121,500,000
Principal payments on borrow-
ings under line of credit
arrangements (231,000,000) (253,300,000) (104,800,000)
Borrowings under senior notes 52,000,000
Principal payments on other
long-term obligations (3,938,325) (15,508,351) (3,324,343)
Proceeds from the issuance
of shares 3,221,667 67,108,111 4,399,755
Payment of stock issuance
expenses (3,727,470)
Increase in deferred loan and
organization expense (1,527,751) (770,041) (8,222)
Cash distributions to share-
holders (23,126,638) (18,251,745) (15,922,353)
------------ ------------ ------------
Net cash provided from financing
activities 10,528,953 36,950,504 1,844,837
------------ ------------ ------------
(Decrease) increase in cash and
cash equivalents (3,960,865) 4,630,446 (299,004)
Cash and cash equivalents at
beginning of year 4,896,314 265,868 564,872
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 935,449 $ 4,896,314 $ 265,868
============ ============ ============
See accompanying notes
</TABLE>
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ACCOUNTING POLICIES AND RELATED MATTERS
Industry
- --------
The Company is predominantly engaged in financing and leasing of
health care and related properties in domestic markets.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary (organized in 1993) after
the elimination of all significant intercompany accounts and
transactions.
Loans Receivable
- ----------------
Loans receivable consist of construction-period and short-term
loans maturing in two years or less, working capital loans to
related parties, and long-term mortgage loans. Interest income on
loans is recognized as earned based upon the principal amount
outstanding. The loans are generally collateralized by a first or
second mortgage on or assignment of partnership interest in the
related facilities, which consist of nursing homes, assisted living
facilities, retirement centers, rehabilitation facilities,
behavioral care facilities, primary care facilities and specialty
care hospitals.
Investment in Operating-Lease Properties
- ----------------------------------------
Certain properties owned by the Company are leased under operating
leases. These properties are recorded at the lower of cost or
anticipated selling price. Depreciation is provided for at rates
which are expected to amortize the cost of the assets over their
estimated useful lives using the straight line method. Operating
lease income includes the rent payments and certain guaranty
payments by the lessee, which are generally recognized on a
straight-line basis over the minimum lease period.
Investment in Direct Financing Leases
- -------------------------------------
Certain properties owned by the Company are subject to long-term
leases which are accounted for by the direct financing method. The
leases provide for payment of all taxes, insurance and maintenance
by the lessees. The leases are for a term of 20 years and include
an option to purchase the properties generally after a period of
five years. Option prices equal or exceed the Company's original
cost of the property. Income from direct financing leases is
recorded based upon the implicit rate of interest over the lease
term. This income is greater than the amount of cash received
during the first six to seven years of the lease term.
Allowance for Losses
- --------------------
The allowance for losses is maintained at a level believed adequate
to absorb potential losses in the Company's real estate related
investments. The determination of the allowance is based on a
quarterly evaluation of these earning assets (in the case of direct
financing leases, estimated residual values), including general
economic conditions, estimated collectibility of loan and lease
payments, reappraisals (where appropriate), and the recoverability
of the carrying amount of these investments in relationship to
their net realizable value.
Deferred Loan Expenses
- ----------------------
Deferred loan expenses are costs incurred in acquiring financing
for properties. The Company amortizes these costs by the straight
line method over the term of the debt.
Loan and Commitment Fees
- ------------------------
Loan and commitment fees are earned by the Company for its
agreement to provide direct and standby financing to, and credit
enhancement for, owners of health care facilities. The Company
amortizes loan and commitment fees over the period of the
commitment and the contractual life of the investment.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of all highly liquid investments
with an original maturity of three months or less.
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 8.
Net Income Per Share
- --------------------
Net income per share has been computed by dividing net income by
the weighted daily average number of shares outstanding.
2. LOANS RECEIVABLE
The following is a summary of loans receivable:
<TABLE>
December 31
1994 1993
----------------------------
<C> <C>
<S>
Mortgage loans $208,566,120 $143,338,778
Mortgage loans to related parties 22,215,685 21,808,666
Construction and other short-term loans 17,073,652 12,730,043
Construction loans to related parties 169,787
Working capital loans to related parties 7,068,254 7,234,327
------------ ------------
TOTALS $254,923,711 $185,281,601
============ ============
</TABLE>
Loans to related parties included above are at competitive rates
but not at less than the Company's net interest cost on borrowings
to support such loans. The amount of interest earned on loans to
related parties amounted to $3,220,092, $2,869,911, and $2,463,539
for 1994, 1993 and 1992, respectively.
The following is a summary of mortgage loans at December 31, 1994:
<TABLE>
Final Principal
Payment # of Amount at Carrying
Due Loans Payment Terms Inception Amount
- ------- ----- -------------------------------- ------------ ------------
<C> <C> <C> <C> <C>
<S>
1995 1 Monthly payment of $22,319, $ 1,795,000 $ 1,993,868
including interest of 13.18%
1996 4 3 monthly payments from $24,160
to $38,958 and 1 quarterly
payment of $6,186, including
interest from 12.93% to 16.97% 9,090,000 8,481,129
1997 4 Monthly payments from $2,201 to
$123,368, including interest
from 11.5% to 13.05% 22,598,977 23,106,927
1998 2 1 monthly payment of $57,091 and
1 quarterly payment of $130,767,
including interest from 11.59%
to 12.93% 10,332,150 10,624,132
1999 2 Monthly payments from $15,285 to
$32,988, including interest from
9.42% to 10.65% 6,052,233 6,204,241
2000 1 Quarterly payment of $134,186,
including interest of 11.77% 5,310,000 5,522,400
2002 2 Monthly payments from $56,759
to $58,095, including interest
from 12.3% to 12.91% 10,937,450 10,937,450
2003 1 Monthly payment of $41,065,
including interest of 10.35% 4,761,192 4,761,192
2004 1 Monthly payment of $24,566,
including interest of 14.82% 1,925,000 1,925,000
2007 12 Monthly payments from $3,297
to $49,264, including interest
from 8.75% to 15.5% 30,918,117 27,687,875
2008 18 Monthly payments from $18,008
to $266,030, including interest
from 9.98% to 13.05% 111,850,000 111,707,035
2014 3 Monthly payments from $29,140
to $40,105, including interest
from 11.08% to 13.18% 10,703,150 10,703,150
2025 1 Monthly payment of $69,889,
including interest at 11.05% 7,127,406 7,127,406
------------ ------------
TOTALS $233,400,675 $230,781,805
============ ============
</TABLE>
One loan maturing in 1996 has a prior lien of approximately
$1,195,000; and six loans maturing in 2007 have prior liens
aggregating $1,753,000. A significant portion of monthly mortgage
payments increase by 2% per year with the negative amortization of
principal due at maturity. At December 31, 1994, there was one
delinquent mortgage loan of $3,137,000 with $1,231,000 principal
past due for three months or more.
The Company generally requires that the borrower have a substantial
initial investment in the property. No mortgage loan, or multiple
loans to a single borrower, exceeds 8% of total assets.
3. INVESTMENT IN LEASES
The following are the components of investment in direct financing
leases:
December 31
1994 1993
-----------------------------
Total minimum lease payments
receivable--(i) $ 20,543,530 $106,321,047
Estimated unguaranteed residual
values of leased properties 6,063,649 21,118,637
Unearned income (15,179,458) (74,489,496)
------------ ------------
Investment in direct financing
leases $ 11,427,721 $ 52,950,188
============ ============
(i) The leases contain an option to purchase the leased property.
Total minimum lease payments are computed assuming that the option
will not be exercised.
At December 31, 1994, future minimum lease payments receivable are
as follows:
Direct Financing Operating
Leases Leases
---------------- -----------
1995 $ 1,716,630 $ 5,950,889
1996 1,653,875 5,672,216
1997 1,665,320 5,626,780
1998 1,697,485 5,831,632
1999 1,729,651 5,721,285
Thereafter 12,080,569 26,195,968
----------- -----------
TOTALS $20,543,530 $54,998,770
=========== ===========
During 1994, the Company restructured two direct financing leases;
one into a $3,324,000 mortgage loan and the other into a $3,582,000
operating lease. During 1993, the Company restructured a
$10,500,000 mortgage loan into an operating lease. This noncash
investing activity is appropriately not reflected in the
accompanying statement of cash flows.
4. ALLOWANCE FOR LOSSES
The following is a summary of the allowance for losses for 1994,
1993 and 1992. The portion of the allowance relating to loans
receivable consists of amounts for specifically identified loans
and an unallocated amount for other potential losses in the
portfolio.
<TABLE>
Portion of
Allowance Related to
-------------------------
Other
Loans Real Estate
Receivable Owned Total
---------- ---------- ----------
<C> <C> <C>
<S>
Balances at January 1, 1992 $3,360,000 $ 940,000 $4,300,000
Provision for losses 640,000 (38,489) 601,511
Charge-offs (901,511) (901,511)
---------- ---------- ----------
Balances at December 31,
1992 4,000,000 -0- 4,000,000
Provision for losses 150,000 150,000
---------- ---------- ----------
Balances at December 31,
1993 4,150,000 -0- 4,150,000
Provision for losses 1,000,000 1,000,000
---------- ---------- ----------
Balances at December 31,
1994 $5,150,000 $ -0- $5,150,000
========== ========== ==========
</TABLE>
5. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS
The Company has a credit arrangement with a consortium of ten banks
providing for a revolving line of credit (revolving credit) in the
amount of $150,000,000 which expires on March 31, 1997. 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 1/2% over
LIBOR interest rate (based at the Company's option). In addition,
the Company pays a commitment fee at an annual rate of 1/2% of the
unused line and an annual agent's fee of $75,000. At December 31,
1994, the revolving line of credit was collateralized by 27 real
estate related investments in health care facilities. Principal is
due upon expiration of the agreement, but the total amount
outstanding may not exceed a specified percentage of the agreed-
upon values of the collateral.
The Company has two other lines of credit with two banks for a
total of $18,500,000 which expire at various dates through May 31,
1995. Borrowings under these lines of credit are subject to
interest at each bank's prime rate of interest and are due on
demand.
The following information relates to aggregate borrowings under the
line of credit arrangements:
<TABLE>
Year Ended December 31
1994 1993 1992
-----------------------------------------
<C> <C> <C>
<S>
Balance outstanding at December 31 $ 70,900,000 $ 35,000,000 $78,900,000
Maximum amount outstanding at any
month end 70,900,000 107,900,000 78,900,000
Average amount outstanding (total
of daily principal balances
divided by days in year) 51,422,466 76,241,644 59,103,279
Weighted average interest rate
(actual interest expense
divided by average borrowings
outstanding) 6.88% 5.01% 5.83%
</TABLE>
The Company has two five-year interest rate swap agreements, which
expire at various dates through 1997, aggregating $30,000,000 for
the purpose of reducing the Company's interest rate risk on its
borrowings under the revolving credit. Maximum rates of interest
under the swap agreements are 8.77% and 10%. At December 31, 1994,
the Company had elected to borrow $52,000,000 at three to six-month
LIBOR. The Company also has one two-year variable interest rate
swap agreement which expires in May 1995 which effectively
converts $40,000,000 of fixed interest rate Senior Notes (see
Note 6) to a variable interest rate. The interest rate cost for
the variable interest rate swap at December 31, 1994 is 235 basis
points. The differential to be paid or received is accrued as
interest rates change and are recognized as an interest expense.
The related amount payable to or receivable from counter-parties is
included in other liabilities or assets. The fair value of the
swap agreements are not recognized in the financial statements.
The Company may or may not elect to continue to match certain of
its borrowings with interest rate swap agreements. Such decisions
are principally based on the Company's policy to match its variable
rate investments with comparable borrowings, but is also based on
the general trend in interest rates at the applicable dates and the
Company's perception of future volatility of interest rates. At
December 31, 1994, the Company is at risk for declining interest
rates because its variable interest rate assets exceeds its
variable interest rate debt.
The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap
agreements. However, the Company does not anticipate
nonperformance by the counterparties.
Interest paid amounted to $9,256,551, $10,409,852 and $8,099,808
for 1994, 1993 and 1992, respectively, which includes $1,309,368,
$2,155,260 and $1,824,131, respectively, for the net cost of the
swaps.
6. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS
During 1993, the Company issued $52,000,000 of Senior Notes with
interest ranging from 7.16% to 8.24% and maturing in 1998, 2000 and
2003. These notes are collateralized by 12 real estate related
investments in health care facilities.
The following information relates to other long-term obligations:
December 31
1994 1993
------------------------
Notes payable related to industrial
development bonds, collateralized
by health care facilities--3 in
1994 and 6 in 1993, interest rates
from 10.75% to 15%, maturing at
various dates to 2004 $3,620,000 $7,300,000
Mortgage loans, collateralized by
health care facilities--2 in 1994
and 1993, interest rates from 8.75%
to 15.5%, maturing at various dates
to 2005 1,752,790 2,011,115
---------- ----------
TOTALS $5,372,790 $9,311,115
========== ==========
At December 31, 1994, the annual payments on these long-term
obligations for the succeeding five years are as follows:
Principal Interest Total
----------- ---------- -----------
1995 $ 451,561 $4,599,196 $ 5,050,757
1996 357,969 4,554,129 4,912,098
1997 695,466 4,498,831 5,194,297
1998 23,367,256 3,590,973 26,958,229
1999 242,947 2,709,569 2,952,516
7. STOCK OPTIONS
The Company's 1985 Incentive Stock Option Plan authorized up to
450,000 shares of Common Stock to be issued at the discretion of
the Board of Directors.
The following summarizes the activity in the Plan:
Year Ended December 31
1994 1993
----------------------
Number of shares under option at
beginning of year 152,500 132,673
Options granted 51,000 47,000
Options exercised (20,360) (27,173)
------- -------
Number of shares under option at
end of year 183,140 152,500
======= =======
At end of year:
Shares exercisable 123,166 112,495
======= =======
Shares available to be granted 160,000 61,000
======= =======
At December 31, 1994, the option prices ranged from $11.94 to
$23.94 per share. The option prices were equivalent to the market
prices of the shares on the dates granted. Such options expire ten
years after the date granted. Options exercised during 1994 and
1993 were at prices ranging from $11.94 to $17.69 per share.
During 1994 and 1993, Messrs. Thompson and Wolfe exercised 20,360
and 27,173 shares, respectively, and together have options to
purchase 76,140 shares at December 31, 1994.
8. DISTRIBUTIONS
In order to continue to qualify as a real estate investment trust
for federal income tax purposes, 95% of taxable income (not
including capital gains) must be distributed to shareholders. Real
estate investment trusts which do not distribute a certain amount
of current year taxable income in the current year are also subject
to a 4% federal excise tax. The Company's excise tax expense was
$575,000 and $132,000
for the years ended December 31, 1994 and 1993, respectively.
Undistributed net income for federal income tax purposes amounted
to $18,029,000 at December 31, 1994. The principal reason for the
difference between undistributed net income for federal income tax
purposes and financial statement purposes is the use of the
operating method of accounting for leases for federal income tax
purposes. Cash distributions paid to shareholders, for federal
income tax purposes, are as follows:
Year Ended December 31
1994 1993 1992
-------------------------
Per Share:
Ordinary income $ .72 $1.49 $1.55
Capital gains 1.29 .44 .30
----- ----- -----
TOTALS $2.01 $1.93 $1.85
===== ===== =====
9. COMMITMENTS AND CONTINGENCIES
At December 31, 1994, the Company has outstanding commitments to
provide financing for facilities in the approximate amount of
$114,972,000. The Company also has commitments to provide working
capital loans to related parties of approximately $369,000. The
Company has granted to a partnership a credit facility line to
finance retirement facilities. The Company's board of directors
retains the right to approve the financing of each facility. At
December 31, 1994, the unused portion is $19,800,000. The above
commitments are generally on similar terms as existing financings
of a like nature with rates of return to the Company based upon
current market rates at the time of the commitment.
The Company has entered into a number of agreements to purchase
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 generally receives
and recognizes fees annually related to these guarantees. 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 between the years 1997 and 2005.
At December 31, 1994, obligations under these agreements for which
the Company was contingently liable aggregated approximately
$20,175,000, all of which were with related parties.
The Company believes that it has the ability to obtain funds to
meet these commitments. The Company also believes that such
commitments represent no greater than normal risk.
10. MANAGEMENT AGREEMENT AND CERTAIN TRANSACTIONS
WITH RELATED PARTIES
The Company has a management agreement with First Toledo Advisory
Company (the Manager). F. D. Wolfe and B. G. Thompson, two of the
Company's nine directors, are officers and co-owners of the
Manager. The Company accrues a fee to the Manager at a monthly
rate of 1/10 of 1% of the Company's net assets, as defined in the
Management Agreement. Further, the Manager is entitled to an
annual incentive fee equal to 10% of the amount by which net
profits exceed 10% of the monthly average net worth of the Company,
as defined in the Management Agreement.
Messrs. Wolfe and Thompson are also related to various entities:
a) to which the Company has made mortgage loans and working capital
loans yielding interest income (see Note 2); b) with which the
Company has entered into agreements to purchase health care
facilities, or the loans
with respect thereto, upon default of obligations by their present
owners providing fee income of $338,722, $422,438, and $349,650 for
1994, 1993 and 1992, respectively; and c) with which the Company
has entered into operating lease agreements (see Note 3).
The Company recorded income from related parties as follows:
1994 1993 1992
---------- ---------- ----------
Interest income $3,220,092 $2,869,911 $2,463,539
Loan and guaranty fee 377,658 469,362 421,996
Operating lease rents 112,561 272,307 866,960
Gain on exercise of options 100,029 1,030,898
---------- ---------- ----------
TOTALS $3,810,340 $3,611,580 $4,783,393
========== ========== ==========
In accordance with the By-Laws of the Company, such transactions
were approved by a majority of the directors not affiliated with
the transactions.
On February 6, 1995, the Company's Board of Directors approved in
principle the acquisition of the Manager. Under the agreement in
principle, the Company would issue 215,154 shares of common stock
as consideration for the acquisition of the Manager, subject to
adjustment under certain circumstances. In connection with the
closing of the acquisition, Messrs. Thompson and Wolfe would enter
into five-year service agreements and would each purchase 84,191
shares of common stock at a price of $21.38 per share with funds
loaned by the Company. Under the stock purchase and loan
arrangements, 20% of each loan could be forgiven each year if
continued service and stock price performance tests are met. This
agreement is subject to, among other things, shareholder approval
and is anticipated to close in the second quarter of 1995.
11. SHAREHOLDER RIGHTS PLAN
Under the terms of a Shareholder Rights Plan approved by the Board
of Directors in July 1994, a Preferred Share Right (Right) is
attached to and automatically trades with each outstanding share of
Health Care REIT, Inc. 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 Company's stock, or commences a tender or exchange offer
which, if consummated, would result in that person or group owning
at least 15% of the common stock. Once the Rights become
exercisable, they entitle all other shareholders to purchase one
one-thousandth of a share of a new series of junior participating
preferred stock for an exercise price of
$48.00. The Rights will expire on August 5, 2004 unless exchanged
earlier or redeemed earlier by the Company for $.01 per Right at
any time before public disclosure that a 15% position has been
acquired.
12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
Mortgage Loans--The fair value of all mortgage loans, except those
matched with debt, 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. Mortgage loans matched with debt are presumed to be at
fair value.
Working Capital and Construction Loans--The carrying amount is a
reasonable estimate of fair value for working capital and
construction loans because the interest earned on these instruments
is variable.
Cash and Cash Equivalents--The carrying amount approximates fair
value because of the short maturity of these financial instruments.
Borrowings Under Line of Credit Arrangements and Related Items--The
carrying amount of the line of credit approximates fair value
because the borrowings are interest rate adjustable. The fair
value of interest rate swaps is the estimated amount, taking into
account the current interest rate, that the Company would receive
or pay to terminate the swap agreements at the reporting date.
Senior Notes and Industrial Development Bonds--The fair value of
the senior notes payable and the industrial development bonds was
estimated by discounting the future cash flow using the current
borrowing rate available to the Company for similar debt.
Mortgage Loans Payable--Mortgage loans payable is a reasonable
estimate of fair value because they are matched with loan
receivable.
Commitments to Finance and Guarantees of Obligations--The fair
value of the commitments to finance and guarantees of obligations
are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements, and the counterparties' credit standing.
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1994 and 1993 are as follows:
<TABLE>
December 31, 1994 December 31, 1993
-------------------------- --------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
<C> <C> <C> <C>
<S>
Financial Assets:
Mortgage loans $230,781,805 $225,306,000 $165,147,144 $164,371,000
Working capital and
construction loans 24,141,906 24,141,906 20,134,157 20,134,157
Cash and cash
equivalents 935,449 935,449 4,896,314 4,896,314
Financial Liabilities:
Borrowings under line
of credit arrange-
ments 70,900,000 70,900,000 35,000,000 35,000,000
Senior notes payable 52,000,000 46,307,000 52,000,000 51,463,000
Industrial develop-
ment bonds 3,620,000 4,343,000 7,300,000 9,556,000
Mortgage loans
payable 1,752,790 1,752,790 2,011,115 2,011,115
Unrecognized Financial
Instruments:
Interest rate swap
agreements 339,000 2,629,000
Commitments to
finance 135,141,000 135,141,000 41,902,000 41,902,000
Guarantees of
obligations 20,175,000 20,175,000 21,255,000 21,255,000
</TABLE>
13. 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, 1994 and
1993:
<TABLE>
Year Ended December 31, 1994
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------------------------------------
<C> <C> <C> <C>
<S>
Gross Income $8,441,239 $12,730,715 $10,518,166 $11,041,911
Net Income 4,984,250 7,799,857 6,326,167 5,842,644
Net Income Per Share .43 .68 .55 .51
Year Ended December 31, 1993
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------------------------------------
Gross Income $8,602,869 $ 8,949,136 $ 9,746,182 $ 8,720,020
Net Income 5,140,609 4,789,912 5,072,054 5,052,363
Net Income Per Share .59 .54 .57 .45
</TABLE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The By-Laws provide for nine Directors and divide them into three
classes: Class I, Class II, and Class III. The Directors are
elected for a three-year term or until the election and
qualification of their respective successors.
CLASS I: DIRECTORS (1)
RICHARD C. GLOWACKI
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
62 President of the Danberry 1981 Audit, Executive,
Management Company (real Incentive Stock
estate brokerage and Option, Nominat-
investment activities) ing, Planning and
Special Committees
BRUCE G. THOMPSON
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
65 Chairman and Chief Executive 1971 Executive, Invest-
Officer of the Company; 1994- ment and Planning
Present President and Director Committees
of First Toledo Advisory
Company (Manager of the
Company); President and
Director of First Toledo
Corporation (affiliate of
the Company); Director of
WT Management Company
(affiliate of the Company);
Director of Kingston Health-
Care Company, formerly WTR
Corp (affiliate of the
Company); Director of
Society National Bank,
Toledo (commercial bank);
Director of The Douglas
Company (general contractor);
and Director of Arbor
Health Care Company (devel-
oper and operator of
nursing homes)
RICHARD A. UNVERFERTH
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
71 Chairman of Unverferth 1971 Audit, Executive,
Manufacturing Company, Inc. Incentive Stock
(agricultural equipment Option, Investment,
manufacturer); and Chair- Nominating, Plan-
man of the Board of H.C.F., ning and Special
Inc. (operator of a nursing Committees
home chain)
CLASS II: DIRECTORS (1)
GEORGE CHOPIVSKY, JR.
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
48 Chairman of United Psychi- 1984 Investment, Nomi-
atric Corporation nating and Plan-
(psychiatric hospitals); ning Committees
and Director of Franklin
National Bank (commercial
bank)
BRUCE DOUGLAS
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
62 Chairman of the Board of 1975 Investment and
The Douglas Company (general Planning Committees
contractor)
FREDERIC D. WOLFE
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
65 President of the Company; 1971 Executive, Invest-
1994-Present Chairman of the ment and Planning
Board and Director of First Committees
Toledo Advisory Company
(Manager of the Company);
Chairman of the Board and
Director of First Toledo
Corporation (affiliate of
the Company); Director of
WT Management Company
(affiliate of the Company);
Director of Kingston Health-
Care Company, formerly WTR
Corp (affiliate of the
Company); and Director of
National City Bank, North-
west (commercial bank)
CLASS III: DIRECTORS (1)
PIER C. BORRA
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
55 Chairman, President and 1991 Incentive Stock
Chief Executive Officer of Option, Investment,
Arbor Health Care Company Planning and
(developer and operator of Special Committees
nursing homes)
GEORGE L. CHAPMAN
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
47 Executive Vice President 1994 Planning Committee
and General Counsel of the
Company; 1994-Present
Executive Vice President
and General Counsel of First
Toledo Advisory Company
(Manager of the Company);
Executive Vice President and
General Counsel of First
Toledo Corporation (affiliate
of the Company); and prior to
January 1992, Attorney-at-Law,
Shumaker, Loop & Kendrick
(law firm)
SHARON M. OSTER
Director Board Committee
Age Principal Occupation (2) Since Membership
- --- ---------------------------- -------- ------------------
46 Professor of Management, 1994 Planning Committee
Yale School of Management,
Yale University
_______________
(1) The terms of Messrs. Glowacki, Thompson and Unverferth
expire in 1995. The terms of Messrs. Chopivsky, Douglas and Wolfe
expire in 1996. The terms of Messrs. Borra and Chapman and Ms.
Oster expire in 1997.
(2) Unless otherwise noted, each person has had the same
principal occupation and employment during the last five years.
EXECUTIVE OFFICERS OF THE COMPANY
The following information is furnished as to the Executive Officers
of the Company, each of whom has a term of office of one year or
until their successors are chosen and qualified or until their
earlier resignation or removal:
BRUCE G. THOMPSON
Year
Appointed
Executive
Age Office and Business Experience Officer
- --- -------------------------------------------- ---------
65 Chairman and Chief Executive Officer of the 1971
Company; June 1994-Present President and
Director of First Toledo Advisory Company
(Manager of the Company); President and
Director of First Toledo Corporation
(affiliate of the Company); Director of
WT Management Company (affiliate of the
Company); Director of Kingston HealthCare
Company, formerly WTR Corp (affiliate of
the Company); Director of Society
National Bank, Toledo (commercial bank);
Director of The Douglas Company (general
contractor); and Director of Arbor Health
Care Company (developer and operator of
nursing homes)
FREDERIC D. WOLFE
Year
Appointed
Executive
Age Office and Business Experience Officer
- --- -------------------------------------------- ---------
65 President of the Company; June 1994-Present 1971
Chairman of the Board and Director of First
Toledo Advisory Company (Manager of the
Company); Chairman of the Board and Director
of First Toledo Corporation (affiliate of
the Company); Director of WT Management
Company (affiliate of the Company); Director
of Kingston HealthCare Company, formerly WTR
Corp (affiliate of the Company); and Director
of National City Bank, Northwest (commercial
bank)
GEORGE L. CHAPMAN
Year
Appointed
Executive
Age Office and Business Experience Officer
- --- -------------------------------------------- ---------
47 January 1992-Present Executive Vice Presi- 1992
dent and General Counsel of the Company;
Executive Vice President and General Counsel
of First Toledo Corporation (affiliate of the
Company); June 1994-Present Executive Vice
President and General Counsel of First
Toledo Advisory Company (Manager of the
Company); and 1979-1991 Attorney-at-Law,
Shumaker, Loop & Kendrick (law firm)
ERIN C. IBELE
Year
Appointed
Executive
Age Office and Business Experience Officer
- --- -------------------------------------------- ---------
33 January 1993-Present Vice President and 1987
Corporate Secretary of the Company; 1987-
January 1993 Corporate Secretary of the
Company; and Vice President, Corporate
Secretary and Director of First Toledo
Corporation (affiliate of the Company); and
June 1994-Present Vice President, Corporate
Secretary and Director of First Toledo
Advisory Company (Manager of the Company)
ROBERT J. PRUGER
Year
Appointed
Executive
Age Office and Business Experience Officer
- --- -------------------------------------------- ---------
46 Chief Financial Officer and Treasurer of 1986
the Company; 1986-January 1993 Controller of
the Company; Treasurer and Director of First
Toledo Corporation (affiliate of the Company);
June 1994-Present Treasurer and Director of
First Toledo Advisory Company (Manager of the
Company)
ITEM 11. EXECUTIVE COMPENSATION
Each Executive Officer of the Company is employed and compensated
by the Management Company. See "Certain Relationships and Related
Transactions -- The Manager." No officer of the Company was paid
cash compensation by the Company in excess of $100,000 in 1994.
Cash compensation paid to all Executive Officers of the Company as
a group during the year ended December 31, 1994 five persons
equalled $16,500. The information set forth below regarding Mr.
Thompson must be disclosed because Mr. Thompson is the Chief
Executive Officer of the Company, even though his annual salary and
bonus did not exceed $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Name and -------------------- Compensation
Principal Position Year Salary($) Bonus($) Options
- -------------------- ---- --------- -------- ------------
Bruce G. Thompson, 1994 $4,000 -0- 12,000
Chairman and Chief 1993 4,000 -0- 10,000
Executive Officer 1992 4,000 -0- 10,000
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
NAME: BRUCE G. THOMPSON
Number of % of Total
Shares Options Potential Realizable
Underlying Granted to Value at Assumed
Options Employees Exercise Annual Rate of Stock
Granted (#) in Fiscal Price Expiration Price Appreciation for
(1), (2) Year ($/SH) Date Option Term (3)
- ----------- ---------- -------- ---------- ---------------------
<C> <C> <C> <C> <C>
<S>
5%($) 10%($)
-------- --------
12,000 23.53% $23.9375 1-16-2004 $150,543 $381,492
</TABLE>
(1) Of the options granted, no shares are currently exercisable
and options for 3,060 shares, 4,177 shares, 4,177 shares and 586
shares vest in 1997, 1998, 1999 and 2000, respectively.
(2) The terms of the options granted permit cashless exercises
and payment of the option exercise price by delivery of previously
owned shares.
(3) Gains are reported net of the exercise price, but before
taxes associated with the exercise. These amounts represent
certain assumed rates of appreciation only. Actual gains, if any,
on stock option exercises are dependent on the future performance
of the shares, as well as the optionee's continued employment
through the vesting period. The amount reflected in this Table may
not necessarily be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
NAME: BRUCE G. THOMPSON
Shares
Acquired Value Number of Shares Underlying Value of Unexercised In-
On Realized Unexercised Options The-Money Options at
Exercise ($) at Fiscal Year End Fiscal Year End ($)
- -------- -------- --------------------------- ---------------------------
<C> <C> <C> <C> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S>
14,500 $137,094 19,469 22,531 $63,750 $0
</TABLE>
COMPENSATION OF DIRECTORS
In 1994, each Director received a fee of $10,000 for his service as
such, which fee was increased to $12,000 effective January 1, 1995.
In addition, each Director received a fee of $1,200 for each Board
meeting attended. The schedule set forth below indicates the fees
paid to each Director for each committee meeting attended in 1994
and fees to be paid effective January 1, 1995:
Committee FEES
--------- ----
1994 1995
------ ------
Audit $ 750 $1,000
Executive -0- -0-
Incentive Stock Option 400 400
Investment, no quarterly board meetings 1,000 1,200
Investment, quarterly board meetings 500 600
Nominating -0- -0-
Planning 1,200 1,500
Special 1,000 1,000
Messrs. Chapman, Thompson and Wolfe are not paid fees for Board or
committee meetings. The fees paid to the other Directors totalled
$133,947 in 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ending December 31, 1994, the Incentive
Stock Option Committee of the Board consisted of Pier C. Borra,
Richard C. Glowacki and Gregory G. Alexander until his retirement
as a director of the Company in May 1994. On February 6, 1995, Mr.
Unverferth was appointed to the Incentive Stock Option Committee.
The Incentive Stock Option Committee of the Board has the authority
to determine which officers and key employees of the Company will
receive option awards under the Company's 1985 Incentive Stock
Option Plan (the "1985 Plan") and the terms of any options granted
under the Plan.
Mr. Alexander is a partner in the law firm of Shumaker, Loop &
Kendrick, which the Company has retained with respect to various
legal matters. Mr. Borra is the Chairman, President and Chief
Executive Officer of Arbor Health Care Company ("Arbor"). During
the fiscal year ending December 31, 1994, Bruce G. Thompson, the
Chairman and Chief Executive Officer of the Company and a
participant in the Plan, served as a member of the Board of
Directors of Arbor.
REPORT OF THE INCENTIVE STOCK OPTION COMMITTEE
With the exception of incentive stock options awarded under the
Company's Plan, the officers of the Company receive only nominal
compensation from the Company. The aggregate amount of salary
payments made by the Company to officers in 1994 was limited to
$16,500. Although the officers of the Company are principally
employed and compensated by the Management Company, the Board and
the stockholders of the Company adopted the 1985 Plan in order to
reward individual performance and to provide long-term incentives.
Under the terms of the 1985 Plan, the ISO Committee has authority
to approve stock option awards to officers of the Company and to
determine the terms and conditions of such awards. The ISO
Committee meets in January or February of each year.
On January 17, 1994, the ISO Committee granted to officers of the
Company options to purchase 51,000 shares. Such grants included
options to Mr. Thompson, the Chief Executive Officer of the
Company, to acquire 12,000 shares. The criteria considered by the
ISO Committee in deciding whether to grant stock options included
the Company's financial performance during the prior year,
individual performance and potential contributions to the Company's
profitability and long term growth. The ISO Committee's decision
to grant Mr. Thompson an option to acquire 12,000 shares was based
on, among other things, Mr. Thompson's role in the Company's
success during the fiscal year ending December 31, 1993, as well as
the ISO Committee's perception of his past and expected future
contributions to the Company's achievement of its long-term
performance goals.
The ISO Committee believes that stock options provide a desirable
set of incentives to retain and encourage future efforts by the
Company's officers. Since the options are granted at prevailing
market value, the options will only have value if the stock price
increases.
Although the Company does not anticipate that the $1,000,000
compensation limit on federal tax deductions for executive
compensation added to the Code by the 1993 tax legislation will
apply to Mr. Thompson or other executive officers at this time, the
Company is studying the issue and whether any changes to the
Company's compensation policies will be necessary or desirable as
a result.
The foregoing report was prepared by Messrs. Borra, Glowacki and
Unverferth, the members of the ISO Committee.
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a table comparing the yearly percentage change
and the cumulative total stockholder return on the Company's shares
against the cumulative total return of the S & P Composite-500
Stock Index and the NAREIT Hybrid Index prepared by NAREIT. The
data are based on the last closing prices as of December 31 for
each of the five years. 1989 equals $100 and dividends are assumed
to be reinvested.
<TABLE>
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
<S>
S & P 500 100.00 96.83 126.41 136.10 149.70 151.66
Company 100.00 104.18 181.22 203.04 235.51 224.41
Hybrid 100.00 71.79 99.90 116.47 141.14 146.79
</TABLE>
Except to the extent the Company specifically incorporates this
information by reference, the foregoing Report of the ISO Committee
and Stock Price Performance Table shall not be deemed incorporated
by reference by any general statement incorporating by reference
the Company's Report Form 10-K into any filing under the Securities
Act of 1933 or under the Securities Exchange Act of 1934. This
information shall not otherwise be deemed filed under such Acts.
Section 16(a) Compliance
- ------------------------
Section 16(a) of the Securities and Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own
beneficially more than ten percent (10%) of the Common Stock of the
Company, to file reports of ownership and changes of ownership with
the Securities and Exchange Commission and the New York Stock
Exchange. Copies of all filed reports are required to be furnished
to the Company pursuant to Section 16(a). Based solely on the
reports received by the Company and on written representations from
reporting persons, the Company believes that the directors and
executive officers complied with all applicable filing requirements
during the fiscal year ended December 31, 1994, except for Frederic
D. Wolfe, the President and a director of the Company, who filed
late Form 4's for the months of November 1993 and June 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of January 31, 1995, unless
otherwise specified, certain information with respect to the
beneficial ownership of the Company's shares by each person who is
a Director of the Company and by the Directors and officers of the
Company as a group. The Company's Management is not aware of any
person who, as of December 31, 1994, was the beneficial owner of
more than 5% of the outstanding shares of the Company.
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
Amount and Nature of Beneficial
Name of Ownership of Common Stock Percent
Beneficial Owner as of January 1, 1995 of Class
- --------------------- ---------------------------------- --------
Pier C. Borra Sole voting power 0 N/A
Shared voting power 0 N/A
Sole investment power 0 N/A
Shared investment power 5,140 .04
George L.Chapman Sole voting power 22,423(1) .19
Shared voting power 0 N/A
Sole investment power 22,423(1) .19
Shared investment power 0 N/A
George Chopivsky, Jr. Sole voting power 3,076 .03
Shared voting power 0 N/A
Sole investment power 3,076 .03
Shared investment power 0 N/A
Bruce Douglas Sole voting power 36,976 .32
Shared voting power 0 N/A
Sole investment power 36,976 .32
Shared investment power 0 N/A
Richard C. Glowacki Sole voting power 16,202 .14
Shared voting power 0 N/A
Sole investment power 16,202 .14
Shared investment power 0 N/A
Sharon M. Oster Sole voting power 100 .00
Shared voting power 0 N/A
Sole investment power 100 .00
Shared investment power 0 N/A
Bruce G. Thompson Sole voting power 61,809(1) .53
Shared voting power 0 N/A
Sole investment power 61,809(1) .53
Shared investment power 606 .01
Richard A. Unverferth Sole voting power 0 N/A
Shared voting power 0 N/A
Sole investment power 0 N/A
Shared investment power 3,816 .03
Frederic D. Wolfe Sole voting power 111,623(1) .95
Shared voting power 35,075 .30
Sole investment power 111,623(1) .95
Shared investment power 35,075 .30
All Directors and Sole voting power 308,341(2) 2.63
Officers as a Shared voting power 35,075 .30
group (11 persons) Sole investment power 308,341(2) 2.63
Shared investment power 44,637 .38
___________________
(1) Includes shares not actually owned by such individuals as of
January 31, 1995, but of which beneficial ownership could be
acquired currently by such individuals upon the exercise of
outstanding options.
(2) Includes an aggregate of 116,534 shares not actually owned by
such Directors and officers as of January 31, 1995, but of which
beneficial ownership could be acquired currently by such Directors
and officers upon the exercise of outstanding options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Partnership Financings
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The Company has provided direct loans and credit enhancements to
five partnerships in connection with four assisted living and
retirement facilities and two nursing homes. First Toledo
Corporation, which is wholly owned by Messrs. Thompson and Wolfe,
serves as a general partner in each partnership in order to monitor
and manage the affairs of the partnerships and the development and
operations of the projects. The partnership structures facilitated
industrial development bond financing in four of the projects and
credit enhancements were provided in the form of the Company's
agreement to purchase the facilities or the bonds in the event of
default by the partnerships. As of December 31, 1994, the Company
had $5,418,000 outstanding in loans to three of these partnerships
and was obligated to make additional loans aggregating $369,000.
The Company has contingent obligations under the agreements to
purchase which currently total $20,175,000. For the years ended
1994, 1993 and 1992, the Company received $339,000, $422,000 and
$350,000, respectively in connection with its contingent
obligations in the agreements to purchase. Messrs. Thompson and
Wolfe are limited partners in three of the partnerships, an
affiliate of Mr. Douglas, a director of the Company, serves as a
general partner of one of the partnerships, and an affiliate of
Messrs. Thompson and Wolfe, Kingston HealthCare Company, manages
four of the facilities.
The Manager
- -----------
Messrs. Thompson and Wolfe, Chairman and Chief Executive Officer
and Director, and President and Director of the Company,
respectively, each own 50% of First Toledo Advisory Company, the
Manager of the Company. In 1994, 1993 and 1992, the Manager was
paid $3,087,000, $2,427,000 and $1,969,000, respectively in
management fees by the Company.
Other Relationships
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George Chopivsky, Jr., a Director of the Company, and his
affiliates have interests in two behavioral care facilities for
which the Company is providing financing in the total amount of
$12,641,000.
Bruce G. Thompson, Chairman, Chief Executive Officer and Director
of the Company, is a Director of Society National Bank, Toledo,
which is a participant in the Company's revolving line of credit.
Frederic D. Wolfe, President and a Director of the Company, is a
Director of National City Bank, Northwest (NCB), which is a
participant in the Company's revolving line of credit. NCB is an
affiliate of National City Bank of Cleveland, which is agent for,
and a participant in, the Company's revolving line of credit.
For the years ended 1994, 1993 and 1992, the Company recorded lease
income from Kingston in the amounts of $113,000, $272,000 and
$439,000, respectively.
General
- -------
All of the related party matters were approved by a majority of
Directors unaffiliated with the transactions. For the years ended
December 31, 1994, 1993 and 1992, gross income from related parties
totalled $3,810,000 $3,612,000, and $4,783,000 or 8.92%, 10.03% and
16.55%, respectively, of the gross income of the Company.
