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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999 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 1500, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(419) 247-2800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $1.00 par value New York Stock Exchange
8.875% Series B Cumulative New York Stock Exchange
Redeemable Preferred Stock
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 common stock held by non-affiliates of the
Registrant on March 17, 2000 was $420,683,000 based on the reported closing
sales price of such shares on the New York Stock Exchange for that date. As of
March 17, 2000, there were 28,587,994 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the annual
shareholders' meeting to be held May 4, 2000, are incorporated by reference into
Part III.
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HEALTH CARE REIT, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business......................................................... 3
Item 2. Properties.......................................................10
Item 3. Legal Proceedings................................................11
Item 4. Submission of Matters to a Vote of Security Holders..............11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................11
Item 6. Selected Financial Data..........................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......16
Item 8. Financial Statements and Supplementary Data......................17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................33
PART III
Item 10. Directors and Executive Officers of the Registrant...............33
Item 11. Executive Compensation...........................................33
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................33
Item 13. Certain Relationships and Related Transactions...................33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................................34
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PART I
ITEM 1. BUSINESS
GENERAL
Health Care REIT, Inc. (the "Company") is a self-administered real estate
investment trust that invests in health care facilities, primarily nursing homes
and assisted living facilities. The Company also invests in specialty care
facilities. As of December 31, 1999, long-term care facilities, which include
nursing homes and assisted living facilities, comprised approximately 90% of the
investment portfolio. Founded in 1970, the Company was the first real estate
investment trust to invest exclusively in health care facilities.
As of December 31, 1999, the Company had $1,240,223,000 of real estate
investments, inclusive of credit enhancements, in 238 facilities located in 34
states and managed by 38 different operators. At that date, the portfolio
included 182 assisted living facilities, 48 nursing homes, six specialty care
facilities, and two behavioral care facilities. At December 31, 1999, the
Company had approximately $53,356,000 in unfunded commitments.
The Company's primary objectives are to protect shareholders' capital and
enhance shareholder value. The Company seeks to pay consistent cash dividends to
shareholders and create opportunities to increase dividend payments from annual
increases in rental and interest income and portfolio growth. To meet these
objectives, the Company invests primarily in long-term care facilities managed
by experienced operators and diversifies its investment portfolio by operator
and geographic location.
The Company anticipates investing in additional health care facilities through
operating lease arrangements with, and mortgage financings for, qualified health
care operators. Capital for future investments may be provided by borrowing
under the Company's revolving credit facilities, public offerings or private
placements of debt or equity, and the assumption of secured indebtedness.
PORTFOLIO OF PROPERTIES
The following table reflects the diversification of the Company's portfolio as
of December 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE NUMBER NUMBER INVESTMENT NUMBER NUMBER
TYPE OF INVESTMENTS OF OF OF BEDS/ PER BED/ OF OF
FACILITY (1) PORTFOLIO FACILITIES UNITS UNIT (2) OPERATORS (3) STATES (3)
-------------- ----------- ---------- --------- ----------- ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assisted Living
Facilities $ 865,634 70% 182 12,238 $ 74,401 24 29
Nursing Homes 281,595 22% 48 6,807 42,612 13 14
Specialty Care
Facilities 83,807 7% 6 695 120,586 3 5
Behavioral Care
Facilities 9,187 1% 2 294 31,250 1 1
--------- ----- --- ------ -------
Totals $1,240,223 100% 238 20,034
========== ==== === ======
</TABLE>
- --------------------------
(1) Investments include real estate investments and credit enhancements which
amounted to $1,227,798,000 and $12,425,000, respectively.
(2) Investment Per Bed/Unit was computed by using the total investment amount
of $1,293,579,000 which includes real estate investments, unfunded
commitments for which initial funding has commenced, and credit
enhancements which total $1,227,798,000, $53,356,000 and $12,425,000,
respectively.
(3) The Company has investments in properties located in 34 states, managed by
38 different operators.
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Nursing Homes
Skilled nursing facilities provide inpatient skilled nursing and custodial
services as well as rehabilitative, restorative and transitional medical
services. In some instances, nursing facilities supplement hospital care by
providing specialized care for medically complex patients whose conditions
require intense medical and therapeutic services, but who are medically stable
enough to have these services provided in facilities that are less expensive
than acute care hospitals.
Assisted Living Facilities
Assisted living facilities provide services to aid in everyday living, such as
bathing, meals, security, transportation, recreation, medication supervision and
limited therapeutic programs. More intensive medical needs of the resident are
often met within assisted living facilities by home health providers, close
coordination with the resident's physician and skilled nursing facilities.
Assisted living facilities are increasingly successful as lower cost, less
institutional alternatives for the health problems of the elderly or medically
frail.
Specialty Care Facilities
Specialty care facilities provide specialized inpatient services for specific
illnesses or diseases, including, among others, coronary and cardiovascular
services. Specialty care facilities are lower cost alternatives to acute care
hospitals.
Behavioral Care Facilities
Behavioral care facilities offer comprehensive inpatient and outpatient
psychiatric treatment programs. Programs are tailored to the individual and
include individual, group and family therapy.
INVESTMENTS
The Company invests in income producing health care facilities with a primary
focus on long-term care facilities, which include skilled nursing facilities and
assisted living facilities. The Company also invests in specialty care
facilities. The Company intends to continue to diversify its investment
portfolio by operator and geographic location.
In determining whether to finance a facility, the Company focuses on: (a) the
experience of the operator; (b) the financial and operational feasibility of the
property; (c) the financial strength of the borrower or lessee; (d) the security
available to support the financing; and (e) the amount of capital committed to
the property by the borrower or lessee. Management conducts market research and
analysis for all potential investments. In addition, Management reviews the
value of all properties, the interest rates and debt service coverage
requirements of any debt to be assumed and the anticipated sources for repayment
for such debt.
The Company's investments primarily take the form of operating lease
transactions, permanent mortgage loans and construction financings.
Substantially all of the Company's investments are designed with escalating rate
structures. The Company's policy is to structure long term financings to
maximize returns. Depending upon market conditions, the Company believes that
appropriate new investments will be available in the future with substantially
the same spreads over its costs of borrowing.
Mortgage loans and operating leases are normally secured by guarantees and/or
letters of credit. As of December 31, 1999, letters of credit from commercial
banks and cash deposits aggregating $44,790,000 were available to the Company as
security for operating lease, permanent mortgage loan and construction loan
obligations. In addition, the leases and loans are generally cross-defaulted and
the loans are cross-collateralized with any other mortgage loans, leases, or
other agreements between the operator or any affiliate of the operator and the
Company.
The Company typically finances up to 90% of the appraised value of a property.
Economic terms normally include annual rate increases and fair market value
based purchase options in operating leases, and may include contingent interest
for mortgage loans.
The Company monitors its investments through a variety of methods, which are
determined by the type of health care facility and operator. The monitoring
process includes a review and analysis of facility, borrower or lessee, and
guarantor financial statements; periodic site visits; property reviews; and
meetings with operators. Such reviews of operators and facilities generally
encompass licensure and regulatory compliance materials and reports,
contemplated building improvements and other material developments.
For certain investments, the Company receives warrants or other similar equity
instruments that provide the Company with an opportunity to share in an
operator's enterprise value. As of December 31, 1999, the Company had warrants
from 19 operators to purchase their common stock or partnership interest. None
of the warrants are publicly traded.
In connection with investments in two operators, the Company also received
warrants that were converted into shares of common stock. As of December 31,
1999, those shares of common stock were recorded on the Company's balance sheet
at a value of $863,000.
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Operating Leases
Each facility, which includes the land, buildings, improvements and related
rights (the "Leased Properties") owned by the Company is leased to a health care
provider pursuant to a long-term lease (collectively, the "Leases"). The Leases
generally have a fixed term of 10 to 15 years and contain multiple five- to
ten-year renewal options. Each Lease is a triple net lease requiring the lessee
to pay rent and all additional charges incurred in the operation of the Leased
Property. The lessees are required to repair, rebuild and maintain the Leased
Properties.
The net value of the Company's completed leased properties aggregated
approximately $767,825,000 at December 31, 1999. The base rents range from
approximately 7.68% to 14.91% per annum of the Company's net book value in the
leased properties. The rental yield to the Company from Leases depends upon a
number of factors including the initial rent charged, any rental adjustments and
the amount of the commitment fee charged at the inception of the transaction.
The base rents for the renewal periods are generally fixed rents set at a spread
above the Treasury yield for the corresponding period.
Permanent Mortgage Loans
The Company's investments in permanent mortgage loans are structured to provide
the Company with interest income, principal amortization and commitment fees.
Virtually all of the approximately $374,390,000 of permanent mortgage loans as
of December 31, 1998, were first mortgage loans.
The interest rate on the Company's investments in permanent mortgage loans for
operating facilities ranges from 9.00% to 14.04% per annum on the outstanding
balances. The yield to the Company on permanent mortgage loans depends upon a
number of factors, including the stated interest rate, average principal amount
outstanding during the term of the loan, the amount of the commitment fee
charged at the inception of the loan and any interest rate adjustments.
The permanent mortgage loans for operating facilities made through December 31,
1999, are generally subject to seven- to ten-year terms with 25-year
amortization schedules that provide for a balloon payment of the outstanding
principal balance at the end of the term. Generally, the permanent mortgage
loans provide five to seven years of prepayment protection.
Direct Investments
Management determines the appropriate classification of a direct investment at
the time of acquisition and reevaluates such designation as of each balance
sheet date. Debt securities which are classified as held to maturity are stated
at historical cost. Equity investments are stated at historical cost. At
December 31, 1999, direct investments included the preferred stock of one
private corporation, subordinated debt in six private corporations, and
ownership representing a 31% interest in Atlantic Healthcare Finance L.P., a
property investment group that specializes in the financing, through sale and
leaseback transactions, of nursing homes located in the United Kingdom and
continental Europe.
Construction Financing
The Company provides construction financing that by its terms converts either
into a long-term operating lease or mortgage loan upon the completion of the
facility. Generally, the rates on the outstanding balances of the Company's
construction financings are 225 to 350 basis points over the prime rate of a
specified financial institution. The Company also typically charges a commitment
fee at the commencement of the financing. The construction financing period
commences upon funding and terminates upon the earlier of the completion of
development of the applicable facility or the end of a specified period,
generally 12 to 18 months. During the term of the construction financing, funds
are advanced pursuant to draw requests made by the operator in accordance with
the terms and conditions of the applicable financing agreement, which terms
require, among other things, a site visit by a Company representative prior to
the advancement of funds. Monthly payments are made on the total amount of the
proceeds advanced during the development period.
During the construction financing period, the Company generally requires
additional security and collateral in the form of either payment and performance
bonds and/or completion guarantees by either one, or a combination of, the
operator's parent entity, other affiliates of the operator, or one or more of
the individual principals of the operator.
At December 31, 1999, the Company had outstanding construction financings of
$68,862,000 ($58,954,000 leased properties and $9,908,000 mortgage loans) and
was committed to providing additional financing of approximately $53,356,000 to
complete construction.
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BORROWING POLICIES
The Company may arrange for long-term borrowing from banks, private placements
to institutional investors, or public offerings. For other short-term purposes,
the Company may, from time to time, negotiate lines of credit, or arrange for
other short-term borrowing from banks or others.
In addition, the Company may incur mortgage indebtedness on real estate that it
has acquired through purchase, foreclosure or otherwise. When terms are deemed
favorable, the Company may invest in properties subject to existing loans and
mortgages. In addition, the Company may obtain financing for unleveraged
properties in which it has invested or may refinance properties acquired on a
leveraged basis.
Under documents pertaining to existing indebtedness, the Company is subject to
various restrictions with respect to secured and unsecured indebtedness.
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for possible loan losses that is evaluated
quarterly to determine its adequacy. See Notes 1 and 5 of Notes to Financial
Statements. At December 31, 1999, the total allowance of $5,587,000 was not
allocated to any specific properties. The Company believes that its allowance is
adequate.
COMPETITION
The Company competes with other real estate investment trusts, real estate
partnerships, banks, insurance companies and other investors in the acquisition,
leasing and financing of health care facilities.
The operators of the facilities compete on a local and regional basis with
operators of facilities that provide comparable services. Operators compete for
patients and residents based on a number of factors, including quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price.
EMPLOYEES
As of December 31, 1999, the Company employed 23 full-time employees.
CERTAIN GOVERNMENT REGULATIONS
The Company invests in single purpose health care facilities. The Company's
customers must comply with the licensing requirements of federal, state and
local health agencies, and with the requirements of municipal building codes,
health codes, and local fire departments. In granting and renewing a facility's
license, the state health agency considers, among other things, the physical
buildings and equipment, the qualifications of the administrative personnel and
clinical staffs, the quality of health care programs and compliance with
applicable laws.
Many of the facilities operated by the Company's customers receive a substantial
portion of their revenues from the federal Medicare program and state Medicaid
programs; therefore, the Company's revenues may be indirectly affected by
changes in these programs. The amount of program payments can be changed by
legislative or regulatory actions and by determinations by agents for the
programs. Since Medicaid programs are funded by both the states and the federal
government, the amount of payments can be affected by changes at either the
state or federal level. There is no assurance that payments under these programs
will remain at levels comparable to present levels or be sufficient to cover
costs allocable to these patients.
Under Medicare and Medicaid programs, acute care hospitals are generally paid a
fixed amount per discharge (based on the patient's diagnosis) for inpatient
services. Behavioral and rehabilitation hospitals are generally paid on a cost
basis, subject to limitations based on a "target amount" per discharge. The
target amount is based on updates to the facility's costs per discharge in a
base year. Medicare payment rules for such hospitals were changed effective
October 1, 1997 to further limit reimbursable costs, reduce payment incentives
for providers whose costs are below the target amount, and reduce
capital-related payments by 15%. The target amount for any facility is now
capped at the 75th percentile of the target amounts for facilities of the same
type. (For new facilities, the target is 110% of the median costs per discharge
of similar hospitals.) In addition, the target amount update is set at 0% for
federal fiscal 1998. Depending on how the facility's costs per discharge compare
to its target amount, increases thereafter range from 0% to the "market basket"
percentage reflecting the inflation rate for costs of items purchased by similar
facilities.
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In addition, payments to rehabilitation hospitals and units will be based on
fixed rates per discharge that vary according to the nature of the patient's
condition. The new system will be phased in over three years beginning with the
cost reporting year commencing after October 1, 2000.
Medicare and Medicaid programs have traditionally reimbursed nursing facilities
for the reasonable direct and indirect allowable costs incurred in providing
routine services (as defined by the programs), subject to certain cost ceilings.
In 1998, the Medicare cost-based reimbursement system was replaced by a federal
per diem rate based on the patient's condition, which is phased in over three
years. (New facilities are immediately paid based on the federal rate.) The new
per diem rate will be the sole payment for both direct nursing care ("Part A
services") and ancillary services that were previously billed separately from
the cost-based reimbursement system ("Part B services"). Capital costs are also
included in the per diem rate. Many states have also converted to a system based
on prospectively determined fixed rates, which may be based in part on
historical costs. The operations of long-term care companies have been
negatively impacted by these changes in reimbursement, among other factors. Some
of these companies have filed for bankruptcy protection. While the Company has
not been affected by any bankruptcy filings, a reduction in revenues could
result in bankruptcy filings by significant customers of the Company.
Furthermore, any failure by these customers to effectively conduct their
operations could have a material adverse effect on their business reputation or
on their ability to enlist and maintain patients in their facilities.
Due in part to the potential negative effect of the prospective payment system
on the financial condition of long-term care facilities, Standard & Poor's
placed many long-term care facility companies on a `credit watch' in November
1998. In March, 1999, Standard & Poor's lowered the ratings of several long-term
care facility companies, particularly those companies with substantial debt.
On November 29, 1999, the President signed legislation that provides additional
payments for certain Medicare providers. Among other things, Medicare payments
to skilled nursing facilities were increased by 4 percent per year for fiscal
2001 and 2002, and per diem payments for the 15 categories representing the most
medically complex cases were increased by 20 percent.
Until 1997, state Medicaid programs were required to pay hospitals and nursing
facilities based on rates that were reasonable and adequate to meet the costs
that must be incurred by efficiently and economically operated facilities in
order to provide services in conformity with federal and state standards and to
assure reasonable access to patients. This law restricted the ability of the
states to reduce Medicaid payments. Congress repealed this requirement in 1997.
Under the new law, states need only publish the methodology used to develop the
proposed rates, along with a justification for the methodology, and allow public
comment. This change could result in reduced Medicaid payments to facilities
operated by the Company's customers.
Medicare and Medicaid regulations could adversely affect the resale value of the
Company's health care facilities. Medicare regulations provide that effective
December 1, 1997, when a facility changes ownership (by sale or under certain
lease transactions), reimbursement for depreciation and interest will be based
on the cost to the owner of record as of August 5, 1997, less depreciation
allowed. Previously, the buyer would use its cost of purchase up to the original
owner's historical cost BEFORE depreciation. Medicaid regulations allow a
limited increase in the valuation of nursing facilities (but not hospitals)
during the time the seller owned the facility. Other Medicaid regulations
provide that upon resale, facilities are responsible to pay back prior
depreciation reimbursement payments that are "recaptured" as a result of the
sale.
Recent interpretations of the Medicare laws limit the ability of hospitals and
nursing facilities to be reimbursed for interest costs that are deemed to be
unnecessary because the facilities have other funds derived from patient care
activities that were put to other uses (such as investments) or transferred to
related parties. This could reduce reimbursement to Company customers for
interest on loans from the Company.
Health care facilities that participate in Medicare or Medicaid must meet
extensive program requirements, including physical plant and operational
requirements, which are revised from time to time. Such requirements may include
a duty to admit Medicare and Medicaid patients, limiting the ability of the
facility to increase its private pay census beyond certain limits. Medicare and
Medicaid facilities are regularly inspected to determine compliance, and may be
excluded from the programs--in some cases without a prior hearing--for failure
to meet program requirements.
Under the Medicare program, "peer review organizations" have been established to
review the quality and appropriateness of care rendered by health care
providers. These organizations may not only deny claims that fail to meet their
criteria, but can also fine and/or recommend termination of participation in the
program.
Recent changes in the Medicare and Medicaid programs will likely result in
increased use of "managed care" organizations to meet the needs of program
beneficiaries. These organizations selectively contract with health care
facilities, resulting in some facilities being excluded from the ability to
serve program beneficiaries.
Health care facilities also receive a substantial portion of their revenues from
private insurance carriers, health maintenance organizations, preferred provider
organizations, self-insured employees and other health benefit payment
arrangements. Such payment sources increasingly pay facilities under contractual
arrangements that include a limited panel of providers and/or discounted or
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other special payment arrangements, including arrangements that shift the risk
of high utilization to the providers. A number of states have established
rate-setting agencies which control inpatient health care facility rates,
including private pay rates.
Recent federal legislation substantially expanded activities to enforce laws
against fraud and abuse in federally funded health care programs. These laws
prohibit misrepresentations in billings and cost reports, payments to parties
who influence purchases or referrals of covered services, and provision of
unnecessary services.
President Clinton's budget proposal for fiscal 2001 would reduce payments to
Medicare providers by $6.37 billion over five years, $4.3 billion of which comes
from hospitals. The budget does not contain substantial funding reductions in
payments to skilled nursing facilities, according to Administration officials.
The budget also includes funding for new programs to improve quality of care in
Medicare and Medicaid-certified nursing facilities, much of which would be used
to bolster state enforcement efforts and to improve federal oversight of state
agencies. The budget proposal would also maintain and upgrade the Nursing Home
Compare World Wide Web site, which publishes information concerning
certification inspections. It is impossible to predict with any certainty what
form any budget legislation may ultimately take.
In order to meet a federal requirement, most states required providers to obtain
certificates of need prior to construction of inpatient facilities and certain
outpatient facilities. However, in 1987, the federal requirement was repealed.
Some states have repealed these requirements, which may result in increased
competition, and other states are considering similar repeals.
Nursing facilities compete with other subacute care providers, including
rehabilitation centers and hospitals. Many of these providers have underutilized
facilities and are converting some or all of their facilities into nursing
facilities. Some of these entities operate on a tax-exempt basis, which gives
them a capital cost advantage. Furthermore, some states have granted rest homes
the ability to provide limited nursing care services.
Certain states have adopted pre-admission screening and other programs to
promote utilization of outpatient and home-based services as an alternative to
inpatient facility services. Recent changes in Medicaid regulations allow states
to use Medicaid funding for alternatives to traditional inpatient care,
including home health care and assisted living facilities.
TAXATION
General
A corporation, trust or association meeting certain requirements may elect to be
treated as a "real estate investment trust." Beginning with its first fiscal
year and in all subsequent years, the Company has elected to be treated as a
real estate investment trust under Sections 856 to 860, inclusive, of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company intends to
operate in such manner as to continue to qualify as a real estate investment
trust for federal income tax purposes. No assurance can be given that the actual
results of the Company's operations for any one taxable year will satisfy such
requirements.
To qualify as a real estate investment trust, the Company must satisfy a variety
of complex requirements each year, including organizational and stock ownership
tests and percentage tests relating to the sources of its gross income, the
nature of its assets and the distribution of its income.
Generally, for each taxable year during which the Company qualifies as a real
estate investment trust, it will not be taxed on the portion of its taxable
income (including capital gains) that is distributed to shareholders. Any
undistributed income or gains will be taxed to the Company at regular corporate
tax rates. Any undistributed net long-term capital gains taxed to the Company
will be treated as having been distributed to the shareholders and will be
included by them in determining the amount of their capital gains. The tax paid
by the Company on those gains will be allocated among the shareholders and may
be claimed as a credit on their tax returns. The shareholders will receive an
increase in the basis of their shares in the Company equal to the difference the
capital gain income and the tax credit allocated to them. The Company will be
subject to tax at the highest corporate rate on its net income from foreclosure
property, regardless of the amount of its distributions. The highest corporate
tax rate is currently 35%. The Company may elect to treat any real property it
acquires by foreclosure as foreclosure property. This would permit the Company
to hold such property until the end of the third taxable year following the year
of acquisition without adverse consequences. With the consent of the Treasury
Department, this period can be extended for up to three additional taxable
years. Subject to certain limitations, the Company will also be subject to an
additional tax equal to 100% of the net income, if any, derived from prohibited
transactions. A prohibited transaction is defined as a sale or disposition of
inventory-type property or property held by the Company primarily for sale to
customers in the ordinary course of its trade or business, which is not property
acquired on foreclosure.
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The Company is subject to a nondeductible federal excise tax equal to 4% of the
amount, if any, by which 85% of its ordinary income plus 95% of its capital gain
net income (plus distribution deficiencies from prior years) exceeds
distributions actually paid or treated as paid to shareholders during the
taxable year, plus current year income upon which the Company pays tax and any
overdistribution from prior years. Due to the growth of the Company's income,
primarily as a result of large capital gains from the exercise of purchase
options under leases, the Company did not satisfy this requirement in 1998, and
1997 and incurred an excise tax of approximately $315,000 and $360,000
respectively, in those years. This requirement was met for 1999. There is a
cumulative underdistribution of $6,242,000 that will carry over to 2000 and
later years until reduced by distributions in a subsequent year that exceed the
percentage of that year's income that is required to be distributed currently.
Failure To Qualify
While the Company intends to operate so as to qualify as a real estate
investment trust under the Code, if in any taxable year the Company fails to
qualify, and certain relief provisions do not apply, its taxable income would be
subject to tax (including alternative minimum tax) at corporate rates. If that
occurred, the Company might have to dispose of a significant amount of its
assets or incur a significant amount of debt in order to pay the resulting
federal income tax. Further distributions to its stockholders would not be
deductible by the Company nor would they be required to be made.
Distributions out of the Company's current or accumulated earnings and profits
would be taxable to stockholders as dividends and would be eligible for the
dividends received deduction for corporations. No portion of any distributions
would be eligible for designation as a capital gain dividend. Further, the
Company would be unable to pass through its undistributed capital gains and the
related tax paid by the Company.
Unless entitled to relief under specific statutory provisions, the Company also
would be disqualified from taxation as a real estate investment trust for the
four taxable years following the year during which qualification was lost.
The foregoing is only a summary of some of the significant federal income tax
considerations affecting the Company and is qualified in its entirety by
reference to the applicable provisions of the Code, the rules and regulations
promulgated thereunder, and the administrative and judicial interpretations
thereof. Stockholders of the Company are urged to consult their own tax advisors
as to the effects of these rules and regulations on them. In particular, foreign
stockholders should consult with their tax advisors concerning the tax
consequences of ownership of shares in the Company, including the possibility
that distributions with respect to the shares will be subject to federal income
tax withholding.
SUBSIDIARIES AND AFFILIATES
The Company has formed subsidiaries in connection with its real estate
transactions. As of December 31, 1999, the Company's wholly-owned subsidiaries
consisted of the following entities:
<TABLE>
<CAPTION>
STATE OF ORGANIZATION DATE OF
NAME OF SUBSIDIARY AND TYPE OF ENTITY ORGANIZATION
- ------------------ --------------------- ------------
<S> <C> <C>
HCRI Pennsylvania Properties, Inc. Pennsylvania corporation November 1, 1993
HCRI Overlook Green, Inc. Pennsylvania corporation July 9, 1996
HCRI Texas Properties, Inc. Delaware corporation December 27, 1996
HCRI Texas Properties, Ltd. Texas limited partnership December 30, 1996
Health Care REIT International, Inc. Delaware corporation February 11, 1998
HCN Atlantic GP, Inc. Delaware corporation February 20, 1998
HCN Atlantic LP, Inc. Delaware corporation February 20, 1998
HCRI Nevada Properties, Inc. Nevada corporation March 27, 1998
HCRI Southern Investments I, Inc. Delaware corporation June 11, 1998
HCRI Louisiana Properties, L.P. Delaware limited partnership June 11, 1998
HCN BCC Holdings, Inc. Delaware corporation September 25, 1998
HCRI Tennessee Properties, Inc. Delaware corporation September 25, 1998
HCRI Limited Holdings, Inc. Delaware corporation September 25, 1998
Pennsylvania BCC Properties, Inc. Pennsylvania corporation September 25, 1998
HCRI North Carolina Properties, LLC Delaware limited liability company December 10, 1999
HCRI Properties, Inc. Rhode Island corporation April 22, 1999
</TABLE>
-9-
<PAGE> 10
ITEM 2. PROPERTIES
The Company's headquarters are currently located at One SeaGate, Suite 1500,
Toledo, Ohio 43604. The following table sets forth certain information regarding
the facilities that comprise the Company's investments as of December 31, 1999.
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------
NUMBER
NUMBER OF
OF BEDS/ TOTAL ANNUALIZED
FACILITY LOCATION FACILITIES UNITS INVESTMENT(1) INCOME(2)
----------------- ---------- ------- ------------- ----------
<S> <C> <C> <C> <C>
SKILLED NURSING FACILITIES:
Arizona............................ 1 163 $ 3,961 $ 413
California......................... 2 216 7,578 911
Colorado........................... 1 180 6,114 638
Florida............................ 8 947 55,864 6,391
Idaho.............................. 3 393 21,702 2,253
Illinois........................... 2 212 12,188 1,450
Kentucky........................... 1 92 4,244 536
Massachusetts...................... 13 1,926 88,279 9,833
Missouri........................... 1 98 6,917 763
Ohio............................... 2 219 8,688 1,004
Oklahoma........................... 2 575 18,132 1,770
Oregon............................. 1 121 5,356 558
Pennsylvania....................... 4 474 23,598 3,024
Texas.............................. 7 1,191 18,973 2,385
------------ -------- ------------- -------------
Total............................. 48 6,807 281,594 31,929
ASSISTED LIVING FACILITIES:
Alabama............................ 2 149 $ 10,498 $ 951
Arizona............................ 4 463 15,765 1,427
California......................... 6 351 22,157 2,469
Colorado........................... 1 50 3,890 404
Connecticut........................ 2 161 20,675 2,206
Florida............................ 20 1,116 83,593 9,327
Georgia............................ 4 361 37,396 3,573
Indiana............................ 9 460 36,243 4,139
Illinois........................... 2 321 10,425 165
Louisiana.......................... 2 209 16,360 1,786
Maryland........................... 4 340 20,739 2,111
Massachusetts...................... 1 130 10,851 1,210
Minnesota.......................... 1 78 6,537 724
Montana............................ 2 104 8,055 902
Nevada............................. 3 298 26,155 2,952
New Jersey......................... 2 400 20,517 2,410
New Mexico......................... 2 158 7,712 890
New York........................... 6 775 61,746 6,306
North Carolina..................... 18 988 87,690 9,083
Ohio............................... 10 819 55,659 6,522
Oklahoma........................... 17 586 25,349 3,107
Oregon............................. 2 70 9,673 1,102
Pennsylvania....................... 10 708 59,183 7,087
South Carolina..................... 5 232 18,259 2,117
Tennessee.......................... 4 204 14,443 1,654
Texas.............................. 39 2,458 156,640 17,512
Utah............................... 1 57 5,903 623
Virginia........................... 2 146 6,740 793
Washington......................... 1 46 6,781 747
------------ -------- ------------- -------------
Total............................. 182 12,238 865,634 94,299
SPECIALTY CARE FACILITIES:
Arkansas........................... 1 117 $ 28,855 $ 3,393
California......................... 2 398 31,621 3,872
Minnesota.......................... 1 0 246 31
Texas.............................. 1 70 13,507 1,436
Washington D.C..................... 1 110 9,578 1,189
------------ -------- ------------- -------------
Total............................. 6 695 83,807 9,921
BEHAVIORAL CARE FACILITIES:
Florida............................ 2 294 $ 9,188 $ 965
------------ -------- ------------- -------------
TOTAL ALL FACILITIES:............. 238 20,479 $1,240,223 $137,132
=== ====== ========== ========
</TABLE>
- --------------------------
(1) Investments include real estate investments and credit enhancements which
amounted to $1,227,798,000 and $12,425,000, respectively.
(2) Reflects contract rate of annual base rent or interest recognized or to be
recognized upon completion of construction.
-10-
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the high and low
prices of the Company's Common Stock on the New York Stock Exchange, as reported
on the Composite Tape and dividends paid per share. There were 5,240
shareholders of record as of December 31, 1999.
<TABLE>
<CAPTION>
SALES PRICE
--------------- DIVIDENDS
HIGH LOW PAID
---- --- ----
<S> <C> <C> <C>
1999
First Quarter....................................... $ 26.6250 $ 21.1875 $ .560
Second Quarter...................................... 25.6250 20.7500 .565
Third Quarter....................................... 23.8750 19.3125 .570
Fourth Quarter...................................... 20.0000 14.6875 .575
1998
First Quarter....................................... $29.2500 $ 26.625 $ .540
Second Quarter...................................... 28.4375 25.375 .545
Third Quarter ...................................... 27.5000 22.375 .550
Fourth Quarter...................................... 26.6250 20.000 .555
</TABLE>
-11-
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1999, are derived from the audited consolidated financial statements of the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
(In thousands, except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues.................................................. $129,307 $97,992 $73,308 $54,402 $44,596
Expenses:
Interest expense........................................ 26,916 18,030 15,365 14,635 12,752
Provision for depreciation.............................. 17,885 10,254 5,287 2,427 1,580
General and administrative
and other expenses (1)................................ 8,868 7,399 6,178 6,664 10,835
Settlement of management
contract
(2)....................................................... 5,794
--------- ------- ------- ------- -------
Total expenses............................................ 53,669 35,683 26,830 23,726 30,961
--------- ------- ------- ------- -------
Net income................................................ 75,638 62,309 46,478 30,676 13,635
Preferred stock dividends................................. 12,814 4,160
--------- ------- ------- ------- -------
Net income available to common shareholders.............. $ 62,824 $58,149 $46,478 $30,676 $13,635
========= ======= ======= ======= =======
OTHER DATA
Average number of common shares outstanding (3):
Basic................................................ 28,128 25,579 21,594 14,093 11,710
Diluted.............................................. 28,384 25,954 21,929 14,150 11,728
Cash available for distribution (4)....................... $ 76,880 $ 68,490 $56,856 $36,705 $27,938
PER SHARE
Net income available to common shareholders:
Basic................................................ $2.23 $2.27 $2.15 $2.18 $1.16
Diluted.............................................. 2.21 2.24 2.12 2.17 1.16
Cash distributions per common share....................... 2.27 2.19 2.11 2.08 2.075
DECEMBER 31,
-------------------------------------------------------
(In thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA
Real estate investments, net.............................. $1,222,211 $1,027,706 $713,557 $512,894 $351,924
Total assets.............................................. 1,271,171 1,073,424 734,327 519,831 358,092
Total debt................................................ 538,842 418,979 249,070 184,395 162,760
Total liabilities......................................... 564,175 439,665 264,403 194,295 170,494
Total shareholders' equity................................ 706,996 633,759 469,924 325,536 187,598
</TABLE>
- --------------------------
(1) General and administrative and other expenses include loan expense,
management fees through November 30, 1995, provision for losses, expenses
related to disposition of investments and other operating expenses.
(2) On November 30, 1995, the Company's advisor merged into the Company.
Consideration for this transaction totaled approximately $5,048,000 which
was solely comprised of 282,407 Shares. In addition, the Company acquired
approximately $46,000 in net assets and incurred approximately $792,000 of
related transaction expenses. The consideration, plus related transaction
expenses, were accounted for as a settlement of a management contract.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and the
impact of Statement No. 128, see the notes to the consolidated financial
statements beginning on page 23.
(4) Cash available for distribution is defined as net cash provided from
operating activities less preferred dividends, but does not consider the
effects of changes in operating assets and liabilities such as other
receivables and accrued expenses. The Company uses cash available for
distribution in evaluating investments and the Company's operating
performance. Cash available for distribution 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.
-12-
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's net real estate investments totaled
approximately $1,222,211,000, which included 182 assisted living facilities, 48
nursing facilities, six specialty care facilities and two behavioral 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 1999, the underperformance of publicly owned nursing home 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 of all health care REITs. The availability of external capital
is limited and expensive, constraining new investment activity and earnings
growth. The Company believes the restrictive capital environment will continue
until the prospects for the long-term care industry improve.
In October 1999, the Company announced a $200 million asset divestiture program,
which is proceeding as planned. The Company believes the limited asset sales
will strengthen the Company's portfolio and generate liquidity, enhancing the
Company's balance sheet. This strategy should position the Company for new
investment and growth opportunities in the future.
During 1999, the Company invested $81,008,000 in real property, provided
permanent mortgage financings of $17,565,000, made construction advances of
$169,085,000, funded $7,462,000 of equity related investments and had net
advances on working capital loans of $9,440,000. During 1999, the Company
received principal payments on real estate mortgages of $4,515,000, proceeds of
$38,216,000 from the prepayment of mortgage loans, and proceeds of $18,112,000
derived from property sales. As of December 31, 1999, the Company had
approximately $53,356,000 in unfunded commitments.
During 1999, 43 of the above-mentioned construction projects completed the
construction phase of the Company's investment process and were converted to
permanent real property investments, with an aggregate investment of
$226,695,000, and twelve construction loans converted to permanent mortgage
loans with an aggregate investment balance of $67,553,000.
As of December 31, 1999, the Company had shareholders' equity of $706,996,000
and a total outstanding debt balance of $538,842,000, which represents a debt to
equity ratio of 0.76 to 1.0.
In January 1999, the Company announced the sale of 3,000,000 shares of
cumulative convertible preferred stock. These shares have a liquidation value of
$25.00 per share and will pay quarterly dividends equivalent to the greater of
$0.5625 or 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.
In February 1999, the Company entered into a $75,000,000 Secured Credit
Facility. The Credit Facility bears interest at the lender's prime rate or LIBOR
plus 2.0%, with a floor of 7.0%. At December 31, 1999, $60,000,000 was advanced
under this Credit Agreement.
In March 1999, the Company completed the sale of $50 million of 8.17% Senior
Unsecured Notes due March 15, 2006.
As of December 31, 1999, the Company had an unsecured revolving line of credit
expiring March 31, 2001 in the amount of $175,000,000 bearing interest at the
lender's prime rate or LIBOR plus 1.0%. In addition, the Company had an
unsecured revolving line of credit in the amount of $20,000,000 bearing interest
at the lender's prime rate expiring April 30, 2000. At December 31, 1999, under
the Company's line of credit arrangements, available funding totaled
$17,500,000.
As of December 31, 1999, the Company has effective shelf registrations on file
with the Securities and Exchange Commission under which the Company may issue up
to $380,319,000 of securities including debt, convertible debt, common and
preferred stock. Depending upon market conditions, the Company anticipates
issuing securities under such shelf registrations to invest in additional health
care facilities and to repay borrowings under the Company's line of credit
arrangements.
-13-
<PAGE> 14
RESULTS OF OPERATIONS DECEMBER 31, 1999 VS. DECEMBER 31, 1998
Revenues for the year ended December 31, 1999, were $129,307,000 compared to
$97,992,000 for the year ended December 31, 1998, an increase of $31,315,000 or
32%. Revenue growth resulted primarily from increased operating rent income of
$30,747,000, from additional real estate investments made during the past twelve
to fifteen months.
Expenses for the year ended December 31, 1999, totaled $53,669,000, an increase
of $17,986,000 from expenses of $35,683,000 for the year ended December 31,
1998. The increase in total expenses for the year ended December 31, 1999 was
primarily related to an increase in interest expense, additional expense
associated with the provision for depreciation, and an increase in general and
administrative expenses.
Interest expense for the year ended December 31, 1999, was $26,916,000 compared
with $18,030,000 for the year ended December 31, 1998. The increase in interest
expense during 1999 was primarily due to the issuance in March 1999 of the
Senior Unsecured Notes Due 2006, the addition of $60,000,000 borrowed under the
Secured Credit Facility and higher average borrowings under the unsecured lines
of credit during 1999, which were offset by the amount of capitalized interest
recorded in 1999.
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, 1999, totaled $8,578,000,
as compared with $7,740,000 for the same period in 1998.
The provision for depreciation for the year ended December 31, 1999, totaled
$17,885,000, an increase of $7,631,000 over the year ended 1998 as a result of
additional real property investments.
General and administrative expense for the year ended December 31, 1999, totaled
$7,359,000 as compared with $6,114,000 for the year ended December 31, 1998. The
expenses for the year ended December 31, 1999, were 5.69% of revenues as
compared with 6.24% for the year ended December 31, 1998.
Dividend payments associated with the Company's outstanding preferred stock for
the year ended December 31, 1999, totaled $12,814,000 as compared with
$4,160,000 for 1998.
As a result of the various factors mentioned above, net income available for
common shareholders for the year ended December 31, 1999, was $62,824,000, or
$2.21 per share, as compared with $58,149,000, or $2.24 per share for the year
ended December 31, 1998.
RESULTS OF OPERATIONS DECEMBER 31, 1998 VS. DECEMBER 31, 1997
Revenues for the year ended December 31, 1998, were $97,992,000 compared to
$73,308,000 for the year ended December 31, 1997, an increase of $24,684,000 or
34%. Revenue growth resulted primarily from increased operating rent income of
$19,775,000, interest income of $1,516,000, and loan and commitment fees of
$2,245,000 from additional real estate investments made during the past twelve
to fifteen months.
Expenses for the year ended December 31, 1998, totaled $35,683,000, an increase
of $8,853,000 from expenses of $26,830,000 for the year ended December 31, 1997.
The increase in total expenses for the year ended December 31, 1998, was
primarily related to an increase in interest expense, additional expense
associated with the provision for depreciation, and an increase in general and
administrative expenses.
Interest expense for the year ended December 31, 1998, was $18,030,000 compared
with $15,365,000 for the year ended December 31, 1997. The increase in interest
expense during 1998 was primarily due to the issuance in March 1998 of the
Senior Unsecured Notes due 2008, which was offset by the amount of capitalized
interest recorded in 1998.
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, 1998, totaled $7,740,000,
as compared with $2,306,000 for the same period in 1997.
The provision for depreciation for the year ended December 31, 1998, totaled
$10,254,000, an increase of $4,967,000 over the year ended 1997 as a result of
additional operating lease investments.
General and administrative expense for the year ended December 31, 1998, totaled
$6,114,000 as compared with $4,858,000 for the year ended December 31, 1997. The
expenses for the year ended December 31, 1998, were 6.24% of revenues as
compared with 6.63% for the year ended December 31, 1997.
-14-
<PAGE> 15
Dividend payments associated with the Company's outstanding preferred stock for
the year ended December 31, 1998, totaled $4,160,000. There were no such
dividend payments in 1997.
As a result of the various factors mentioned above, net income available for
common shareholders for the year ended December 31, 1998, was $58,149,000, or
$2.24 per share, as compared with $46,478,000, or $2.12 per share for the year
ended December 31, 1997.
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, which 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 long-term interest rates do not
increase significantly, the Company believes that inflation will not impact the
availability of equity and debt financing.
YEAR 2000 COMPLIANCE
The Year 2000 compliance issue concerns the inability of certain systems and
devices to properly use or store dates beyond December 31, 1999. This could have
resulted in system failures, malfunctions, or miscalculations that would have
disrupted normal operations. The Company did not experience any Year 2000
related problems. In addition, the Company's outside vendors and
tenant/borrowers did not encounter any significant problems related to Year 2000
issues.
The Company's expenditures for remedies were not material.
The Company does not anticipate any future risk due to the Year 2000, but will
continue to monitor all computer software and hardware throughout the next year.
OTHER INFORMATION
This document and supporting schedules may contain "forward-looking" statements
as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause the Company's actual results in the future to differ materially
from expected results. These risks and uncertainties include, among others,
competition in the financing of health care facilities, the availability and
cost of capital, the ability of the Company's lessees and borrowers to make
payments under their leases and loans, and regulatory and other changes in the
health care sector, as described in the Company's filings with the Securities
and Exchange Commission.
-15-
<PAGE> 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including the potential loss
arising from adverse changes in interest rates. The Company seeks to mitigate
the effects of fluctuations in interest rates by matching the term of new
investments with new long-term fixed rate borrowings to the extent possible.
The market value of the Company's long-term fixed rate borrowings is subject to
interest rate risk. Generally, the market value of fixed rate financial
instruments will decrease as interest rates rise and increase as interest rates
fall. The estimated fair value of the Company's senior unsecured notes were $258
million and $239 million at December 31, 1999 and 1998, respectively. A 1%
increase in interest rates would result in a decrease in fair value of the
Company's senior unsecured notes by approximately $11 million at both December
31, 1999 and 1998.
The Company is subject to risks associated with debt financing, including the
risk that existing indebtedness may not be refinanced or that the terms of such
refinancing may not be as favorable as the terms of current indebtedness. The
majority of the Company's borrowings were completed pursuant to indentures or
contractual agreements which limit the amount of indebtedness the Company may
incur. Accordingly, in the event that the Company is unable to raise additional
equity or borrow money because of these limitations, the Company's ability to
acquire additional properties may be limited.
At December 31, 1999, the Company's variable interest rate debt exceeded its
variable interest rate assets, presenting an exposure to rising interest rates.
The Company may or may not elect to use financial derivative instruments to
hedge variable interest rate exposure. Such decisions are principally based on
the Company's policy to match its variable rate investments with comparable
borrowings, but is also based on the general trend in interest rates at the
applicable dates and the Company's perception of future volatility of interest
rates.
Potential Risks from Bankruptcies
The Company is exposed to the risk that its operators may not be able to meet
the rent and interest payments due the Company, which may result in an operator
bankruptcy or insolvency. Although the Company's operating lease agreements and
loans provide the Company the right to terminate an investment, evict an
operator, demand immediate repayment, and other remedies, 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 the Company's
ability to collect unpaid rent or interest, and collect interest during the
bankruptcy proceeding.
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 property or the
replacement of the operator licensed to manage the facility. In addition, the
Company may be required to fund certain expenses (i.e. real estate taxes and
maintenance) to retain control of a property. In some instances the Company may
take possession of a property, which may expose the Company to successor
liabilities. Should such events occur, the Company's revenue and operating cash
flow may be adversely affected.
-16-
<PAGE> 17
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, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, 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.
ERNST & YOUNG LLP
January 21, 2000
Toledo, Ohio
-17-
<PAGE> 18
HEALTH CARE REIT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Real estate investments:
Real property owned
Land $ 73,234 $ 44,722
Buildings & improvements 730,337 443,574
Construction in progress 58,954 151,317
------------------ ------------------
862,525 639,613
Less accumulated depreciation (35,746) (19,624)
------------------ ------------------
Total real property owned 826,779 619,989
Loans receivable 401,019 412,704
------------------ ------------------
1,227,798 1,032,693
Less allowance for loan losses (5,587) (4,987)
------------------ ------------------
Net real estate investments 1,222,211 1,027,706
Other Assets:
Direct investments 25,361 26,180
Marketable securities 863 4,106
Deferred loan expenses 3,311 2,389
Cash and cash equivalents 2,129 1,269
Receivables and other assets 17,296 11,774
------------------ ------------------
48,960 45,718
------------------ ------------------
Total assets $ 1,271,171 $ 1,073,424
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements $ 177,500 $ 171,550
Senior unsecured notes 290,000 240,000
Secured debt 71,342 7,429
Accrued expenses and other liabilities 25,333 20,686
------------------ -----------------
Total liabilities 564,175 439,665
Shareholders' equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 6,000,000 in 1999
and 3,000,000 in 1998
at liquidation preference 150,000 75,000
Common Stock, $1.00 par value:
Authorized - 75,000,000 shares
Issued and outstanding - 28,532,419
shares in 1999 and 28,240,165
shares in 1998 28,532 28,240
Capital in excess of par value 524,204 520,692
Undistributed net income 8,883 10,434
Accumulated other
comprehensive income 593 3,982
Unamortized restricted stock (5,216) (4,589)
------------------ ------------------
Total shareholders' equity 706,996 633,759
------------------ ------------------
Total liabilities and shareholders' equity $ 1,271,171 $ 1,073,424
================== ==================
</TABLE>
See accompanying notes
-18-
<PAGE> 19
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rental income $ 72,700 $ 41,953 $ 22,178
Interest income 48,076 48,488 47,237
Commitment fees and other income 6,263 5,914 3,364
Prepayment fees 1,565 588 529
-------------- --------------- ---------------
128,604 96,943 73,308
Expenses:
Interest expense 26,916 18,030 15,365
Provision for depreciation 17,885 10,254 5,287
General and administrative 7,359 6,114 4,858
Loan expense 909 685 720
Provision for loan losses 600 600 600
-------------- --------------- ---------------
53,669 35,683 26,830
-------------- --------------- ---------------
Income before gain on sale of properties 74,935 61,260 46,478
Gains on sale of properties 703 1,049
-------------- --------------- ---------------
Net Income 75,638 62,309 46,478
Preferred stock dividends 12,814 4,160
-------------- --------------- ---------------
Net income available to
common shareholders $ 62,824 $ 58,149 $ 46,478
============== =============== ===============
Average number of common shares outstanding:
Basic 28,128 25,579 21,594
Diluted 28,384 25,954 21,929
Net income available to common shareholders
per share:
Basic $ 2.23 $ 2.27 $ 2.15
Diluted $ 2.21 $ 2.24 $ 2.12
</TABLE>
See accompanying notes
-19-
<PAGE> 20
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER UNAMORTIZED
PREFERRED COMMON EXCESS OF UNDISTRIBUTED COMPREHENSIVE RESTRICTED
STOCK STOCK PAR VALUE NET INCOME INCOME STOCK TOTAL
--------- ------- ----------- ------------- ------------- ----------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $ $18,320 $298,281 $ 8,167 $ 768 $ 325,536
Comprehensive income:
Net income 46,478 46,478
Other comprehensive income:
Unrealized gain on marketable 3,903 3,903
securities --------
Total comprehensive income 50,381
--------
Proceeds from issuance of common stock
from dividend reinvestment and stock
incentive plans 455 10,179 (3,789) 6,845
Amortization of restricted stock grants 257 257
Proceeds from sale of common stock,
net of expenses of $7,477 5,566 127,143 132,709
Cash dividends on common stock
--$2.11 per share (45,804) (45,804)
--------- -------- --------- --------- ------ ------- --------
Balances at December 31, 1997 24,341 435,603 8,841 4,671 (3,532) 469,924
Comprehensive income: 62,309 62,309
Net income
Other comprehensive income:
Unrealized loss on marketable (565) (565)
securities
Foreign currency translation adjustment (124) (124)
--------
Total comprehensive income 61,620
--------
Proceeds from issuance of common stock
from dividend reinvestment and stock
incentive plans 440 9,986 (1,658) 8,768
Amortization of restricted stock grants 601 601
Proceeds from sale of common stock,
net of expenses of $4,599 3,459 77,893 81,352
Net proceeds from sale of preferred stock 75,000 (2,790) 72,210
Cash dividends:
Common stock -- $2.19 per share (56,556) (56,556)
Preferred stock -- $1.39 per share (4,160) (4,160)
-------- ------- --------- --------- ------ ------- --------
Balances at December 31, 1998 75,000 28,240 520,692 10,434 3,982 (4,589) 633,759
Comprehensive income:
Net income 75,638 75,638
Other comprehensive income:
Unrealized loss on marketable (3,243) (3,243)
securities
Foreign currency translation adjustment (146) (146)
--------
Total comprehensive income 72,249
--------
Proceeds from issuance of common stock
from dividend reinvestment and stock
incentive plans 292 5,967 (1,707) 4,552
Amortization of restricted stock grants 1,080 1,080
Net proceeds from sale of preferred stock 75,000 (2,455) 72,545
Cash dividends:
Common stock -- $2.27 per share (64,375) (64,375)
Preferred stock, Series B--$2.22 per (6,656) (6,656)
share
Preferred stock, Series C--$2.19
per share (6,158) (6,158)
-------- ------- --------- --------- ------ -------- --------
BALANCES AT DECEMBER 31, 1999 $150,000 $28,532 $524,204 $ 8,883 $ 593 $(5,216) $706,996
======== ======= ========= ========= ====== ======== ========
</TABLE>
See accompanying notes
-20-
<PAGE> 21
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------ ------------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 75,638 $ 62,309 $ 46,478
Adjustments to reconcile net income to
net cash provided from operating
activities:
Provision for depreciation 18,106 10,348 5,361
Amortization 1,998 1,306 980
Provision for losses 600 600 600
Loan and commitment fees earned
less than (greater than) cash (399) 1,222 4,642
received
Direct financing lease income less
than cash received 65 292 372
Rental income in excess of
cash received (6,692) (3,047) (1,548)
Interest income less than (greater
than) cash received 378 (380) (29)
Increase in accrued expenses and
other liabilities 5,045 4,133 790
Decrease (increase) in receivables and
other assets 1,394 (1,037) (1,638)
----------- ----------- -----------
Net cash provided from operating activities 96,133 75,746 56,008
INVESTING ACTIVITIES
Investment in real property (215,491) (270,015) (135,835)
Investment in loans receivable (56,089) (105,282) (123,376)
Other investments, net of payments (2,024) (20,965) (4,964)
Principal collected on loans 42,731 38,629 49,750
Proceeds from sale of properties 18,112 11,378 2,569
Other (444) (328) (213)
------------ ----------- -----------
Net cash used in investing activities (213,205) (346,583) (212,069)
FINANCING ACTIVITIES
Net increase (decrease) under line of
credit arrangements 5,950 93,150 (13,725)
Borrowings under senior notes 50,000 100,000 80,000
Proceeds from issuance of Secured Debt 64,000
Principal payments on other long-term
obligations (87) (23,241) (1,600)
Net proceeds from the issuance of Common Stock 4,552 90,120 139,554
Net proceeds from the issuance of Preferred 72,545 72,210
Stock
Increase in deferred loan expense (1,839) (798) (1,564)
Cash distributions to shareholders (77,189) (60,716) (45,804)
------------ ----------- -----------
Net cash provided from financing activities 117,932 270,725 156,861
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents 860 (112) 800
Cash and cash equivalents at beginning of year 1,269 1,381 581
------------ ----------- ----------
Cash and cash equivalents at end of year $ 2,129 $ 1,269 $ 1,381
============ =========== ==========
Supplemental Cash Flow Information-interest paid $ 32,826 $ 23,714 $ 16,444
============ =========== ==========
</TABLE>
See accompanying notes
-21-
<PAGE> 22
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 nursing homes 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 generally
accepted accounting principles 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, and working capital loans. Interest income on
loans is recognized as earned based upon the principal amount outstanding. The
loans are primarily collateralized by a first mortgage on or assignment of
partnership interest in the related facilities which consist of nursing homes,
assisted living facilities, behavioral care facilities, and specialty care
hospitals.
REAL PROPERTY INVESTMENTS
Certain 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. The carrying 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. As of December 31, 1999, the Company does not believe there is any
indication that the carrying value or the amortization period of its assets
needs to be adjusted. The leases generally extend for a minimum ten-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 $8,578,000, $7,740,000 and $2,306,000
during 1999, 1998 and 1997, 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.
-22-
<PAGE> 23
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.
DIRECT INVESTMENTS
Management determines the appropriate classification of a direct investment at
the time of acquisition and reevaluates such designation as of each balance
sheet date. Debt securities which are classified as held to maturity are stated
at historical cost. Equity investments are stated at historical cost. Direct
investments included the preferred stock of one private corporation,
subordinated debt in six private corporations, and ownership representing a 31%
interest in Atlantic Healthcare Finance L.P., a property investment group that
specializes in the financing, through sale and leaseback transactions, of
nursing homes located in the United Kingdom and continental Europe.
MARKETABLE SECURITIES
Marketable securities available for sale are stated at market value with
unrealized gains and losses reported in a separate component of shareholders'
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,
and the fair value of the common stock related to warrants in one publicly owned
corporation in excess of the exercise price.
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 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
shareholders by the weighted-average number of shares for the period. 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
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes guidelines for the reporting and
display of comprehensive income and its components. Comprehensive income
includes unrealized gains or losses on the Company's marketable securities and
foreign currency translation adjustments. These items are included as a
component of shareholders' equity.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities", which is
effective January 1, 2001. Under the Statement, all financial instruments
meeting the definition of a derivative will be carried at fair value. The impact
that this statement will have on the Company has not been determined. The
Company currently has no derivative instruments nor has engaged in any hedging
activities.
-23-
<PAGE> 24
2. LOANS RECEIVABLE
The following is a summary of loans receivable (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------------
<S> <C> <C>
Mortgage loans $ 349,514 $ 362,715
Mortgage loans to related parties 24,876 0
Construction loans 9,908 42,708
Working capital 13,458 5,532
Working capital loans to related parties 3,263 1,749
------------------ ------------------
TOTALS $ 401,019 $ 412,704
================== ==================
</TABLE>
Mortgage loans include $6,741,000 of direct financing leases in 1998. Loans to
related parties (various entities whose ownership includes two Company
directors) 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 loan and commitment fees
from related parties amounted to $3,639,000, $1,236,000 and $980,000 for 1999,
1998 and 1997, respectively.
The following is a summary of mortgage loans at December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
FINAL NUMBER PRINCIPAL
PAYMENT OF AMOUNT AT CARRYING
DUE LOANS PAYMENT TERMS INCEPTION AMOUNT
------- ------ ------------- --------- --------
<S> <C> <C> <C> <C>
2001 3 Monthly payments from $21,460 $ 11,684 $ 9,434
to $58,932, including interest from
10.50% to 12.00%
2002 12 Monthly payments from $18,360 52,130 51,987
to $47,342, including interest
at 9.00%
2006 1 Monthly payment at $96,412, 12,204 12,204
including interest at 9.48%
2007 2 Monthly payments from $28,403 to 14,698 10,421
$73,860, including interest from
10.70% to 13.20%
2008 1 Monthly payment at $88,967, 7,400 7,228
including interest at 14.04%
2009 1 Monthly payment at $70,577, 7,072 6,917
including interest at 11.26%
2010 2 Monthly payments from $41,253 to 18,025 17,695
$133,235, including interest from
10.85% to 11.19%
</TABLE>
-24-
<PAGE> 25
2. LOANS RECEIVABLE (CONTINUED)
<TABLE>
<CAPTION>
FINAL NUMBER PRINCIPAL
PAYMENT OF AMOUNT AT CARRYING
DUE LOANS PAYMENT TERMS INCEPTION AMOUNT
------- ------ ------------- --------- --------
<S> <C> <C> <C> <C>
2011 6 Monthly payments from $18,921 to $ 20,797 $ 20,588
$38,663, including interest from
9.48% to 11.90%
2012 3 Monthly payments from $42,607 to 38,668 38,492
$305,007, including interest from
9.70% to 11.98%
2013 1 Monthly payment at $45,173, 5,537 5,537
including interest at 9.79%
2015 3 Monthly payments from $53,679 to 26,360 25,461
$122,053, including interest from
11.18% to 12.82%
2016 3 Monthly payments from $44,413 to 25,346 24,962
$119,094, including interest from
10.41% to 11.60%
2017 9 Monthly payments from $26,649 to 75,886 74,733
$233,818, including interest from
9.74% to 12.48%
2018 7 Monthly payments from $24,892 to 48,657 48,022
$187,727, including interest from
9.38% to 10.43%
2019 5 Monthly payments from $22,500 to 20,735 20,709
$47,513, including interest from
10.00% to 10.39%
TOTALS $ 385,199 $ 374,390
========= =========
</TABLE>
-25-
<PAGE> 26
3. REAL ESTATE INVESTMENTS
The following table summarizes certain information about the Company's real
estate properties as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Number of Building & Total Accumulated
Facilities Land Improvements Investment Depreciation
------------ ----------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
NURSING HOMES:
Arizona 1 $ 180 $ 3,988 $ 4,168 $ 207
California 2 2,640 5,212 7,852 274
Colorado 1 370 6,051 6,421 307
Florida 6 3,462 41,258 44,720 1,727
Idaho 3 2,010 20,662 22,672 970
Illinois 2 1,010 11,446 12,456 268
Kentucky 1 130 4,870 5,000 756
Massachusetts 7 3,548 34,051 37,599 3,224
Ohio 2 786 8,778 9,564 876
Oklahoma 1 470 5,673 6,143 215
Oregon 1 300 5,316 5,616 260
Pennsylvania 3 669 17,567 18,236 1,866
Texas 1 663 12,588 13,251 2,359
Construction in Progress 7,576 7,576
- ---------------------------------- ------------- ----------- ----------------- ------------- --------------
31 16,238 185,036 201,274 13,309
- ---------------------------------- ------------- ----------- ----------------- ------------- --------------
ASSISTED LIVING FACILITIES:
Arizona 2 560 6,467 7,027 125
California 1 980 6,195 7,175 159
Connecticut 2 1,230 19,053 20,283 445
Florida 19 8,431 71,847 80,278 3,190
Georgia 2 3,166 24,542 27,708 225
Indiana 9 1,951 34,874 36,825 583
Maryland 1 1,320 13,641 14,961 276
Massachusetts 1 810 10,500 11,310 459
Minnesota 1 322 6,345 6,667 130
Montana 1 360 3,282 3,642 109
Nevada 2 1,706 21,769 23,475 435
New Jersey 1 3,297 14,233 17,530 1,124
New Mexico 1 233 5,355 5,588 323
New York 1 400 10,528 10,928 616
North Carolina 9 7,708 53,667 61,375 1,661
Ohio 8 4,103 40,364 44,467 1,822
Oklahoma 15 1,703 21,408 23,111 2,239
Oregon 2 1,077 8,756 9,833 160
Pennsylvania 10 5,889 55,479 61,368 2,872
South Carolina 4 1,372 13,315 14,687 193
Tennessee 4 1,521 12,461 13,982 168
Texas 25 7,457 93,320 100,777 5,028
Washington 1 1,400 5,476 6,876 95
Construction in Progress 51,378 51,378
- ---------------------------------- ------------- ----------- ----------------- ------------- --------------
122 56,996 604,255 661,251 22,437
- ---------------------------------- ------------- ----------- ----------------- ------------- --------------
TOTAL REAL ESTATE 153 $ 73,234 $ 789,291 $ 862,525 $ 35,746
- ---------------------------------- ------------- ----------- ----------------- ------------- --------------
</TABLE>
-26-
<PAGE> 27
3. REAL ESTATE INVESTMENTS (CONTINUED)
At December 31, 1999, future minimum lease payments receivable under operating
leases are as follows (in thousands):
2000 $ 76,866
2001 83,167
2002 84,916
2003 85,829
2004 86,714
Thereafter 506,662
-------------
TOTAL $ 924,154
=============
The Company converted $16,309,000, $73,430,000, and $13,103,000, of mortgage
loans into operating lease properties in 1999, 1998 and 1997, respectively. This
noncash activity is appropriately not reflected in the accompanying statements
of cash flows.
The Company has leased one nursing home and five assisted living facilities to
an operator that has a director who is also a director of the Company and the
Company is constructing two assisted living facilities that will be leased to
this operator upon completion. The Company recognized $1,266,000 of rental
income from this operator in 1999. The Company did not recognize rental income
from this operator in 1998 or 1997. In 1999, a director of the Company was
appointed as a director of an operator which leases seven facilities from the
Company. The Company recognized $1,546,000 of rental income from this operator
in 1999.
4. CONCENTRATION OF RISK
As of December 31, 1999, long-term care facilities, which include nursing homes
and assisted living facilities, comprised 92% of the Company's real estate
investments and were located in 34 states. Investments in assisted living
facilities comprised 70% of the Company's real estate investments. The Company's
investments with the three largest operators totaled approximately 29%. No
single operator has a real estate investment balance which exceeds 14% 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):
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,987 $ 4,387 $ 9,787
Provision for loan losses 600 600 600
Charge-offs (6,000)
------------- ------------ -------------
Balance at end of year $ 5,587 $ 4,987 $ 4,387
============ ============ ============
</TABLE>
During 1997, two loans with an aggregate balance of $12,073,000 and a
specifically identified allowance of $6,000,000 were extinguished. The Company
recognized payments of $6,073,000 and recorded a charge of $6,000,000 against
the allowance for loan losses.
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS
The Company has an unsecured credit arrangement with a consortium of ten banks
providing for a revolving line of credit (revolving credit) in the amount of
$175,000,000 which expires on March 31, 2001. 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
1.0% over LIBOR interest rate (based at the Company's option). The effective
interest rate at December 31, 1999 was 7.05%. 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
$20,000,000 which expires April 30, 2000. Borrowings under this line of credit
are subject to interest at the bank's prime rate of interest (8.50% at December
31, 1999) and are due on demand.
-27-
<PAGE> 28
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS (CONTINUED)
The following information relates to aggregate borrowings under the line of
credit arrangements (in thousands, except percentages):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding at December 31 $ 177,500 $ 171,550 $ 78,400
Maximum amount outstanding at any
month end 180,950 171,550 158,950
Average amount outstanding (total
of daily principal balances
divided by days in year) 153,318 103,739 78,826
Weighted average interest rate
(actual interest expense divided
by average borrowings outstanding) 6.61% 6.90% 7.63%
</TABLE>
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS
The Company has $290,000,000 of unsecured Senior Notes with interest ranging
from 7.06% to 8.34% and maturing at various dates to 2008.
The Company has two mortgage notes payable, collateralized by two health care
facilities with interest rates from 7.625% to 12% and maturing at various dates
to 2034.
The Company has one secured note collateralized by one health care facility with
interest at 2% over LIBOR (8.16% at December 31, 1999).
The Company has a $75,000,000 secured line of credit, collateralized by fourteen
health care facilities, with interest at 2% over LIBOR (7.69% at December 31,
1999). The outstanding balance at December 31, 1999 was $60,000,000.
The carrying values of the health care properties securing the mortgages and
secured debt totaled $154,224,000 at December 31, 1999.
At December 31, 1999, the annual principal payments on these long-term
obligations are as follows (in thousands):
<TABLE>
<CAPTION>
SECURED LINE OF SECURED
SENIOR NOTES CREDIT NOTE MORTGAGES
-------------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C>
2000 $ 35,000 $ 0 $ 0 $ 99
2001 10,000 0 0 109
2002 20,000 0 0 121
2003 35,000 0 0 133
2004 40,000 60,000 4,000 186
2005 0 0 0 549
2006 50,000 0 0 62
2007 0 0 0 67
2008 100,000 0 0 72
Thereafter 0 0 0 5,944
--------- --------- -------- ---------
Total $ 290,000 $ 60,000 $ 4,000 $ 7,342
========= ========= ======== =========
</TABLE>
8. STOCK INCENTIVE PLANS AND RETIREMENT ARRANGEMENTS
The Company's 1995 Stock Incentive Plan authorized up to 2,200,000 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,
during 1997, the Company adopted a Stock Plan for Non-Employee Directors which
authorizes up to 240,000 shares to be issued.
-28-
<PAGE> 29
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):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
STOCK OPTIONS
- -------------
Options at beginning of year 1,418 $22.06 1,126 $21.56 749 $19.51
Options granted 410 20.17 362 23.00 475 24.44
Options exercised (6) 21.81 (63) 18.57 (84) 19.16
Options terminated (9) 23.90 (7) 24.90 (14) 23.61
-------- ----------- -------- ----------- -------- -----------
1,813 $21.62 1,418 $22.06 1,126 $21.56
======== =========== ======== =========== ======== ===========
At end of year:
Shares exercisable 733 $21.17 466 $20.83 406 $20.79
Weighted average fair value
of options granted during the
year $ 2.11 $ 1.98 $ 1.97
</TABLE>
The stock options generally vest over a five year period and expire ten years
from the date of grant. Options at December 31, 1999, had exercise prices
ranging from $17.875 to $27.375 per share and a weighted average contractual
life of 4.7 years.
The Company issued 86,250, 74,100 and 157,000 restricted shares during 1999,
1998 and 1997, respectively, including 9,000, 2,250 and 2,000 shares for
directors in 1999, 1998 and 1997, respectively. Vesting periods range from six
months for directors to periods of five to ten 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 $1,080,000, $601,000 and $257,000
in 1999, 1998 and 1997, respectively.
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 pro forma disclosures are not likely to be representative of the effects on
reported net income for future years because they do not take into consideration
stock based incentives granted prior to 1995. 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
5.10% to 7.60%, dividend yields of 8% to 9%, expected lives of seven years, and
expected volatility of .18% to .23%. Had compensation cost for the stock based
compensation plans been determined in accordance with FASB 123, net income would
have been reduced by $621,000, $393,000, and $212,000 in 1999, 1998 and 1997,
respectively.
The Company has a 401-(k) Profit Sharing Plan covering all eligible employees.
Under the Plan, eligible employees may make contributions, and the Company may
make a profit sharing contribution. Company contributions to this Plan totaled
$144,000, $120,000, and $110,000 in 1999, 1998 and 1997, respectively.
9. PREFERRED STOCK
In January 1999, the Company announced the sale of 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.
In May 1998, the Company sold 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.
-29-
<PAGE> 30
10. DISTRIBUTIONS
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 $0, $315,000 and
$360,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Undistributed net income for federal income tax purposes amounted to $6,242,000
at December 31, 1999. 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 and
the provision for losses for reporting purposes versus bad debt expense for tax
purposes. Cash distributions paid to shareholders, for federal income tax
purposes, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Per Share:
Ordinary income $ 2.217 $ 2.142 $ 2.085
Capital gains .053 .048 .025
---------- --------- -----------
TOTALS $ 2.270 $ 2.190 $ 2.110
========== ========= ===========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company had outstanding commitments to provide
financing for facilities in the approximate amount of $53,356,000 for ongoing
construction activity expected over the next twelve to fifteen months. 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 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 construction project. At December 31, 1999, obligations under
these agreements for which the Company was contingently liable aggregated
approximately $12,425,000.
12. 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 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 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.
-30-
<PAGE> 31
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share - income available to common
shareholders $ 62,824 $ 58,149 $ 46,478
========= ========= =========
Denominator for basic earnings per
share - weighted average shares 28,128 25,579 21,594
Effect of dilutive securities:
Employee stock options 15 174 182
Nonvested restricted shares 241 201 153
--------- --------- --------
Dilutive potential common shares 256 375 335
--------- --------- --------
Denominator for diluted earnings per
share - adjusted weighted average shares 28,384 25,954 21,929
========= ========= =========
Basic earnings per share $ 2.23 $ 2.27 $ 2.15
========= ========= =========
Diluted earnings per share $ 2.21 $ 2.24 $ 2.12
========= ========= =========
</TABLE>
The diluted earnings per share calculation excludes the dilutive effect of
1,813,000 and 179,000 shares for 1999 and 1998, 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.
Mortgage Loans--The fair value of all mortgage 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 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.
Marketable Securities --The assets are recorded at their fair market value.
Direct Investments--Direct investments are recognized at historical cost, which
the Company believes approximates fair market value.
Borrowings Under Line of Credit Arrangements--The carrying amount of the line of
credit approximates fair value because the borrowings are interest rate
adjustable.
Senior Unsecured Notes and Industrial Development Bonds--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.
Secured Debt--Same as Line of Credit Arrangements.
-31-
<PAGE> 32
14. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------- ------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Mortgage loans $374,390 $381,082 $355,974 $375,252
Working capital and
construction loans 26,629 26,629 49,989 49,989
Cash and cash equivalents 2,129 2,129 1,269 1,269
Marketable securities 863 863 4,106 4,106
Direct investments 25,361 25,361 26,180 26,180
Financial Liabilities:
Borrowings under line of
credit arrangements 177,500 177,500 171,550 171,550
Senior unsecured notes 290,000 257,679 240,000 239,396
Secured debt 64,000 64,000
Mortgage notes payable 7,342 7,342 7,429 7,429
</TABLE>
15. 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, 1999 and 1998 (in thousands, except
per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 28,164 $ 32,469 $ 34,160 $ 33,811
Net Income Available to
Common Shareholders 16,219 15,787 16,195 14,623
Net Income Available to
Common Shareholders
Basic .58 .56 .57 .52
Diluted .57 .56 .57 .51
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 21,226 $ 23,159 $ 25,837 $ 27,770
Net Income Available to
Common Shareholders 13,409 13,907 14,365 16,468
Net Income Available to
Common Shareholders
Basic .55 .55 .57 .60
Diluted .54 .54 .56 .60
</TABLE>
-32-
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
information under the heading "Election of Three Directors" and "Executive
Officers of the Company" in the definitive proxy statement of the Company which
will be filed with the Commission prior to May 4, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
information under the heading "Remuneration" in the definitive proxy statement
of the Company which will be filed with the Commission prior to May 4, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
information under the heading "Security Ownership of Directors and Management"
in the definitive proxy statement of the Company which will be filed with the
Commission prior to May 4, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
information under the heading "Certain Relationships and Related Transactions"
in the definitive proxy statement of the Company which will be filed with the
Commission prior to May 4, 2000.
-33-
<PAGE> 34
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) 1. The following Consolidated Financial Statements of the Company are
included in Part II, Item 8:
Report of Independent Auditors.......................................................................17
Consolidated Balance Sheets - December 31, 1999 and 1998.............................................18
Consolidated Statements of Income - Years ended December 31, 1999, 1998 and 1997.....................19
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1999, 1998 and 1997...............................................................20
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997...............................................................21
Notes to Consolidated Financial Statements ..........................................................22
</TABLE>
2. The following Financial Statement Schedules are included in Item
14 (d):
III - Real Estate and Accumulated Depreciation
IV - Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
3. Exhibit Index:
3.1 Second Restated Certificate of Incorporation.
3.2 By-Laws, as amended.
4.1 The Registrant, by signing this Report, agrees to furnish
the Securities and Exchange Commission upon its request a
copy of any instrument which defines the rights of holders
of long-term debt of Registrant and which authorizes a
total amount of securities not in excess of 10% of the
total assets of the Registrant.
4.2 Indenture dated as of April 17, 1997 by and between
Health Care REIT, Inc. and Fifth Third Bank.
4.3 First Supplemental Indenture dated as of April 17, 1997
by and between Health Care REIT, Inc. and Fifth Third
Bank.
4.4 Second Supplemental Indenture dated as of March 13, 1998
between Health Care REIT, Inc. and Fifth Third Bank.
4.5 Third Supplemental Indenture dated as of March 18, 1999
between Health Care REIT, Inc. and Fifth Third Bank.
10.1 Rights Agreement.
10.2 Note Purchase Agreement between Health Care REIT, Inc.
and each of the Purchasers a Party thereto, dated as of
April 8, 1993.
10.3 Loan Agreement dated as of March 28, 1997 by and among
Health Care REIT, Inc., its subsidiaries, the banks
signatory thereto, Keybank National Association, as
Administrative Agent, and Fleet Bank, N.A., as
Syndication Agent.
10.4 Note Purchase Agreement between Health Care REIT, Inc.
and each of the Purchasers a Party thereto, dated as of
April 15, 1995.
10.5 The 1985 Incentive Stock Option Plan of Health Care REIT,
Inc. as amended.
-34-
<PAGE> 35
10.6 The Health Care REIT, Inc. 1995 Stock Incentive Plan
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedules (Edgar version only).
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
None.
(c) Exhibits:
The exhibits listed in Item 14(a)(3) above are filed with this Form 10-K.
(d) Financial Statement Schedules:
Financial statement schedules are included in pages 37 through 43.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf on by the undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
(Registrant)
By: /s/GEORGE L. CHAPMAN
-----------------------------------
Chairman, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 20, 2000 by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
-35-
<PAGE> 36
/s/ WILLIAM C. BALLARD, JR.*
- -----------------------------------
William C. Ballard, Jr., Director
/s/ PIER C. BORRA*
- -----------------------------------
Pier C. Borra, Director
/s/ JEFFREY H. DONAHUE*
- -----------------------------------
Jeffrey H. Donahue, Director
/s/BRUCE DOUGLAS*
- -----------------------------------
Bruce Douglas, Director
/s/ PETER J. GRUA*
- -----------------------------------
Peter J. Grua, Director
/s/ SHARON M. OSTER*
- -----------------------------------
Sharon M. Oster, Director
/s/ BRUCE G. THOMPSON*
- -----------------------------------
Bruce G. Thompson, Director
/s/ R. SCOTT TRUMBULL*
- ----------------------------------
R. Scott Trumbull, Director
/s/ RICHARD A. UNVERFERTH*
- ----------------------------------
Richard A. Unverferth, Director
/s/ GEORGE L. CHAPMAN
- ----------------------------------
George L. Chapman, Chairman,
Chief Executive Officer, President
and Director (Principal Executive
Officer)
/s/ EDWARD F. LANGE, JR.*
- ----------------------------------
Edward F. Lange, Jr., Chief
Financial Officer (Principal
Financial Officer)
/s/ MICHAEL A. CRABTREE*
- ----------------------------------
Michael A. Crabtree, Controller
(Principal Accounting Officer)
*By: /s/GEORGE L. CHAPMAN
- -----------------------------------
George L. Chapman, Attorney-in-Fact
-36-
<PAGE> 37
HEALTH CARE REIT, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INITIAL COST
TO COMPANY
------------------------ GROSS AMOUNT AT WHICH
COST CARRIED AT CLOSE OF PERIOD
CAPITALIZED -----------------------------------
BUILDINGS & SUBSEQUENT TO BUILDINGS & ACCUMULATED YEAR YEAR
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS DEPRECIATION ACQUIRED BUILT
----------- ------------ ---- ------------ ------------- ---- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSISTED LIVING
FACILITIES:
Lake Havasu, AZ $ $110 $ 2,244 $ $110 $ 2,244 $ 72 1998 1998
Lake Havasu, AZ 450 4,223 450 4,223 54 1999 1999
Costa Mesa, CA 980 6,195 980 6,195 159 1999 1997
Litchfield, CT 660 8,812 660 8,812 362 1998 1998
South Windsor, CT 570 10,241 570 10,241 83 1999 1999
Bradenton, FL 252 3,298 252 3,298 380 1996 1995
Bradenton, FL 25 450 25 450 28 1997 1992
Bradenton, FL 25 400 25 400 25 1997 1988
Bradenton, FL 50 850 50 850 52 1997 1996
Bradenton, FL 50 850 50 850 52 1997 1996
Clermont, FL 350 5,232 350 5,232 302 1997 1997
Ft. Myers, FL 1,230 13,098 1,230 13,098 346 1999 1999
Haines City, FL 80 1,937 80 1,937 35 1999 1999
Jacksonville, FL 400 3,674 400 3,674 221 1997 1997
Lake Wales, FL 80 1,939 80 1,939 35 1999 1999
Lauderhill, FL 20 1,374 121 20 1,495 74 1998 1995
Leesburg, FL 70 1,170 70 1,170 59 1998 1972
Margate, FL 500 5,343 1,900 500 7,243 385 1998 1972
Naples, FL 1,716 17,306 1,716 17,306 357 1999 1999
North Miami Beach, FL 300 5,621 300 5,621 300 1998 1987
North Miami Beach, FL 150 1,242 628 150 1,870 75 1998 1987
Orange City, FL 80 2,238 80 2,238 98 1998 1998
Plantation, FL 2,578 0 2,578 0 0 1999 1999
Sarasota, FL 475 3,175 475 3,175 365 1996 1995
Atlanta, GA 2,059 14,914 2,059 14,914 17 1999 1999
Roswell, GA 1,107 9,628 1,107 9,628 208 1999 1999
Auburn, IN 145 3,511 145 3,511 76 1999 1999
Avon, IN 170 3,504 170 3,504 44 1999 1999
Kokomo, IN 195 3,709 195 3,709 81 1999 1999
Laporte, IN 165 3,674 165 3,674 80 1999 1999
Marion, IN 175 3,504 175 3,504 4 1999 1999
Merrilville, IN 643 7,084 643 7,084 153 1999 1999
Shelbyville, IN 165 3,497 165 3,497 69 1999 1999
Terre Haute, IN 175 3,499 175 3,499 4 1999 1999
Vincennes, IN 118 2,892 118 2,892 72 1999 1999
Attleboro, MA 810 10,500 810 10,500 459 1998 1998
Ellicott City MD 1,320 13,641 1,320 13,641 276 1999 1999
Rochester, MN 322 6,345 322 6,345 130 1999 1999
</TABLE>
-37-
<PAGE> 38
SCHEDULE III - Continued
<TABLE>
<CAPTION>
INITIAL COST
TO COMPANY
---------------------- GROSS AMOUNT AT WHICH
COST CARRIED AT CLOSE OF PERIOD
CAPITALIZED ----------------------------------
BUILDINGS & SUBSEQUENT TO BUILDINGS & ACCUMULATED YEAR YEAR
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS DEPRECIATION ACQUIRED BUILT
----------- ------------ ---- ------------ ------------- ---- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kalispell, MT $ 360 $ 3,282 $ $ 360 $ 3,282 $ 109 1998 1998
Ashville, NC 204 3,489 204 3,489 73 1999 1999
Cary, NC 1,500 4,350 1,500 4,350 185 1998 1996
Charlotte, NC 640 4,090 640 4,090 279 1997 1997
Durham, NC 1,476 10,659 1,476 10,659 224 1999 1999
Elizabeth City, NC 200 2,760 200 2,760 49 1999 1999
Hendersonville, NC 2,270 11,771 2,270 11,771 488 1998 1998
Pineville, NC 1,009 10,554 1,009 10,554 222 1999 1999
Wake Forest, NC 200 3,003 200 3,003 88 1999 1999
Wilmington, NC 210 2,991 210 2,991 53 1999 1999
Cranford, NJ 3,297 11,703 2,530 3,297 14,233 1,124 1996 1993
Gardnerville, NV 1,326 12,549 1,326 12,549 164 1999 1999
Roswell, NM 233 5,355 233 5,355 323 1997 1996
Henderson, NV 380 9,220 380 9,220 271 1998 1998
Albany, NY 400 10,528 400 10,528 616 1997 1997
Canton, OH 300 2,098 300 2,098 67 1998 1998
Cincinnati, OH 1,728 10,272 1,728 10,272 835 1997 1985
Dayton, OH 80 6,730 80 6,730 279 1998 1997
Findlay, OH 200 1,800 200 1,800 136 1997 1997
Mentor, OH 980 9,868 980 9,868 36 1999 1999
Newark, OH 410 5,711 410 5,711 229 1998 1997
Piqua, OH 204 1,885 204 1,885 94 1998 1998
Troy, OH 200 2,000 200 2,000 145 1997 1997
Bartlesville, OK 100 1,380 100 1,380 154 1994 1995
Chickasha, OK 85 1,395 85 1,395 149 1995 1996
Duncan, OK 103 1,347 103 1,347 135 1995 1996
Edmond, OK 175 1,564 175 1,564 154 1995 1996
Enid, OK 90 1,390 90 1,390 155 1995 1996
Lawton, OK 144 1,456 144 1,456 144 1995 1996
Midwest City, OK 95 1,385 95 1,385 155 1996 1996
Muskogee, OK 150 1,432 150 1,432 129 1996 1996
Norman, OK 55 1,484 55 1,484 176 1995 1996
N. Oklahoma City, OK 87 1,508 87 1,508 131 1995 1996
Oklahoma City, OK 130 1,350 130 1,350 143 1995 1996
Owasso, OK 215 1,380 215 1,380 121 1996 1996
Ponca City, OK 114 1,536 114 1,536 182 1995 1995
Shawnee, OK 80 1,400 80 1,400 155 1995 1996
Stillwater, OK 80 1,400 80 1,400 156 1995 1996
Portland OR 628 3,585 628 3,585 56 1999 1999
Salem, OR 449 5,172 449 5,172 104 1999 1999
Baldwin, PA 535 2,222 1,522 535 3.744 188 1997 1995
Beaver Falls, PA 850 7,910 850 7,910 363 1998 1998
Elizabeth, PA 740 2,561 197 740 2,758 118 1998 1986
Lebanon, PA 400 3,799 400 3,799 18 1999 1999
</TABLE>
-38-
<PAGE> 39
SCHEDULE III - Continued
<TABLE>
<CAPTION>
INITIAL COST
TO COMPANY
-------------------- GROSS AMOUNT AT WHICH
COST CARRIED AT CLOSE OF PERIOD
CAPITALIZED ---------------------------------
BUILDINGS & SUBSEQUENT TO BUILDINGS & ACCUMULATED YEAR YEAR
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS DEPRECIATION ACQUIRED BUILT
----------- ------------ ---- ------------ ------------- ---- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Library, PA $ $ 960 $ 5,040 $ 327 $ 960 $ 5,367 $ 220 1998 1995
Pittsburgh, PA 430 6,736 1,607 430 8,343 744 1996 1989
Pittsburgh, PA 6,431 423 10,158 423 10,158 991 1996 1989
Saxonburg, PA 677 4,669 677 4,669 109 1999 1994
Seven Fields, PA 484 4,663 484 4,663 95 1999 1999
Williamsport, PA 390 4,069 390 4,069 25 1999 1999
Florence, SC 380 2,881 380 2,881 41 1999 1999
Hilton Head, SC 510 6,037 510 6,037 50 1999 1999
N Augusta, SC 332 2,558 332 2,558 52 1999 1999
Walterboro, SC 150 1,838 150 1,838 51 1999 1992
Clarksville, TN 330 2,292 330 2,292 72 1998 1998
Columbia, TN 341 2,295 341 2,295 48 1999 1999
Morristown, TN 400 3,808 400 3,808 23 1999 1999
Oakridge, TN 450 4,066 450 4,066 25 1999 1999
Austin, TX 880 9,520 880 9,520 239 1999 1999
Benbrook, TX 1,050 7,550 27 1,050 7,577 632 1997 1984
Cedar Hill, TX 171 1,490 171 1,490 124 1997 1997
Claremore, TX 155 1,427 155 1,427 128 1996 1996
Corpus Christi, TX 420 4,796 420 4,796 361 1997 1989
Corpus Christi, TX 155 2,935 155 2,935 179 1997 1997
Desoto, TX 205 1,383 205 1,383 115 1997 1997
Ft. Worth, TX 210 3,790 210 3,790 386 1992 1984
Ft. Worth, TX 281 3,473 150 281 3,623 189 1999 1999
Georgetown, TX 200 2,100 200 2,100 152 1997 1997
Granbury, TX 80 2,020 80 2,020 157 1997 1997
Grand Prairie, TX 399 5,161 399 5,161 181 1998 1998
Harlingen, TX 92 2,057 92 2,057 125 1997 1989
Harlingen, TX 340 5,621 340 5,577 291 1998 1998
Houston, (CareMatrix) Tx 550 10,751 550 10,751 227 1999 1999
Houston, TX 261 3,139 261 3,139 302 1994 1995
Kingwood, TX 300 3,309 300 3,309 46 1999 1999
Mt. Pleasant, TX 247 3,868 247 3,868 234 1997 1992
N Richland Hills, TX 330 5,355 330 5,355 142 1999 1999
Palestine, TX 173 1,410 173 1,410 127 1996 1996
San Marcos, TX 355 4,560 355 4,560 159 1998 1998
Texarkana, TX 192 1,403 192 1,403 123 1996 1996
Tyler, TX 147 2,699 47 2,699 165 1997 1991
Waxahachie, TX 154 1,429 154 1,429 128 1996 1996
Wolfforth, TX 110 1,898 110 1,898 117 1997 1990
Everett, WA 1,400 5,476 1,400 5,476 95 1999 1990
------------- ------- --------- --------- ------- ----------- ----------
TOTAL ASSISTED LIVING
FACILITIES: $ 6,431 $56,996 $ 543,868 $ 9,009 $56,996 $ 552,877 $ 22,437
</TABLE>
-39-
<PAGE> 40
SCHEDULE III - Continued
<TABLE>
<CAPTION>
INITIAL COST
TO COMPANY
--------------------- GROSS AMOUNT AT WHICH
COST CARRIED AT CLOSE OF PERIOD
CAPITALIZED -----------------------------------
BUILDINGS & SUBSEQUENT TO BUILDINGS & ACCUMULATED YEAR YEAR
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS DEPRECIATION ACQUIRED BUILT
----------- ------------ ---- ------------ ------------- ---- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SKILLED NURSING
FACILITIES:
Payson, AZ $ $ 180 $ 3,987 $ $ 180 $ 3,987 $ 207 1998 1995
La Mesa, CA 1,180 1,332 1,180 1,332 79 1998 1961
Santa Rosa, CA 1,460 3,880 1,460 3,880 195 1998 1968
Pueblo, CO 370 6,051 370 6,051 307 1998 1989
Hilliard, FL 150 6,990 150 6,990 184 1999 1994
Lakeland, FL 697 4,581 261 697 4,842 222 1998 1984
New Port Richey, FL 624 6,930 377 624 7,307 328 1998 1984
North Fort Myers, FL 636 5,712 314 636 6,026 273 1998 1984
Vero Beach, FL 660 7,642 414 660 8,056 360 1998 1984
West Palm Beach, FL 696 7,623 414 696 8,037 360 1998 1984
Boise, ID 600 7,383 600 7,383 336 1998 1985
Boise, ID 810 5,401 810 5,401 278 1998 1996
Couer D'Alene 600 7,878 600 7,878 355 1998 1996
Granite City IL 400 4,303 400 4,303 58 1999 1964
Granite City, IL 610 7,143 610 7,143 210 1998 1973
Owensboro, KY 130 4,870 130 4,870 756 1993 1967
Braintree, MA 170 6,080 170 6,080 599 1997 1968
Braintree, MA 80 4,245 80 4,245 413 1997 1973
Clark, MA 1,053 902 1,331 1,053 2,233 216 1996 1973
Fall River, MA 620 5,080 620 5,080 505 1996 1966
Falmouth, MA 670 3,022 123 670 3,145 308 1996 1966
South Boston, MA 385 1,463 3,016 385 4,479 341 1995 1961
Webster, MA 570 8,790 570 8,790 841 1995 1982
Kent, OH 215 3,367 215 3,367 612 1989 1983
Westlake, OH 571 5,411 571 5,411 264 1998 1972
Midwest City, OK 470 5,673 470 5,673 215 1998 1958
Eugene, OR 300 5,316 300 5,316 260 1998 1976
Bloomsburg, PA 0 3,918 0 3,918 78 1999 1996
Cheswick, PA 384 6,041 1,293 384 7,334 333 1998 1982
Easton, PA 285 6,315 285 6,315 1,456 1993 1959
San Antonio, TX 662 12,588 662 12,588 2,360 1993 1978
------- ------------ -------- ------- --------- ----------
TOTAL SKILLED
NURSING FACILITIES: $16,238 $ 169,917 $ 7,543 $16,238 $ 177,460 $ 13,309
Construction in
Progress 58,954
---------
TOTAL INVESTMENT IN
PROPERTIES $73,234 $ 713,785 $ 16,554 $73,234 $ 789,291 $ 35,746
======= =========== ======== ======= ========= ==========
</TABLE>
-40-
<PAGE> 41
SCHEDULE III - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investment in Real Estate:
Balance at Beginning of year $ 639,613 $ 309,044 $ 160,105
Additions:
Acquisitions 81,109 110,432 79,727
Improvements 138,694 159,582 56,109
Other (1) 16,309 73,430 13,103
---------- ----------- -------------
Total Additions 236,112 343,444 148,939
Deductions:
Cost of real estate sold (13,200) (12,875)
Other
Total deductions (13,200) (12,875) 0
---------- ----------- -------------
Balance at end of year $ 862,525 $ 639,613 $ 309,044
========== =========== =============
Accumulated depreciation:
Balance at beginning of year $ 19,624 11,769 6,482
Additions:
Depreciation expense 17,885 10,254 5,287
Deductions:
Sale of properties (1,763) (2,399)
----------- ----------- ------------
Balance at end of year $ 35,746 $ 19,624 $ 11,769
=========== =========== ============
</TABLE>
(1) Represents mortgage loans converted to operating leases.
-41-
<PAGE> 42
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
HEALTH CARE REIT, INC.
DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------- PRINCIPAL AMOUNT
OF LOANS SUBJECT
FINAL PERIODIC CARRYING TO DELINQUENT
INTEREST MATURITY PAYMENT PRIOR FACE AMOUNT AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LIENS OF MORTGAGES MORTGAGES INTEREST
- -------------------- -------- -------- -------- ------ ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGES:
McAllen, TX 10.85% 01/01/10 Monthly $13,750 $13,507 None
(Specialty Care Payments
Facility) $133,235
Stoughton, MA 11.17% 01/01/10 Monthly 19,341 19,026 None
(Nursing Home) Payments
$190,343
Little Rock, AK 11.98% 01/01/12 Monthly 29,000 28,855 None
(Specialty Care Payments
Facility) $305,007
Sun Valley, CA 12.48% 01/01/17 Monthly 21,500 21,033 None
(Specialty Care Payments
Facility) $233,818
Briarcliff, NY 10.41% 08/01/16 Monthly 12,810 12,710 None
(Assisted Living Payments
Facility) $119,094
New York City, NY 9.79% 03/01/18 Monthly 21,000 20,814 None
(Assisted Living Facility) Payments
$187,727
Oklahoma City, OK 9.48% 06/1/2006 Monthly 12,204 12,204 None
(Nursing Home) Payments
$96,412
50 mortgage loans relating to 9 From From 255,594 246,241 None
nursing homes, 38 assisted living 9.00% to 08/01/01-
facilities, 14.04% 05/01/19
2 behavioral care facilities and 3
specialty care facilities
6 construction loans (all with From N/A 19,273 9,908 None
first mortgage liens) relating to 6 11.00% to
assisted living facilities 15.00%
--------- --------- ---------
TOTALS $404,472 $384,298 $-0-
========= ========= =========
</TABLE>
-42-
<PAGE> 43
<TABLE>
<CAPTION>
SCHEDULE IV - Continued
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
-----------------------------------
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Reconciliation of mortgage loans:
Balance at beginning of period $398,682 $405,336 $353,455
Additions during period:
New mortgage loans 44,656 105,282 120,705
Negative principal amortization 6 29
------------- ------------- --------------
443,338 510,624 474,189
Deductions during period:
Collections of principal (1) 42,731 38,512 55,750
Other (2) 16,309 73,430 13,103
------------- ------------- --------------
Balance at end of period $384,298 $398,682 $405,336
============= ============= ==============
</TABLE>
(1) Includes collection of negative principal amortization.
(2) Includes properties originally financed with mortgage loans that were
purchased during the periods indicated.
-43-
<PAGE> 44
EXHIBIT INDEX
The following documents are included in this Form 10-K as an Exhibit:
<TABLE>
<CAPTION>
DESIGNATION
NUMBER UNDER
EXHIBIT ITEM 601 OF EXHIBIT PAGE
NUMBER REGULATION S-K DESCRIPTION NUMBER
------ -------------- ----------- ------
<S> <C> <C> <C>
3.1 3(i) Second Restated Certificate of Incorporation.
3.2(1) 3(ii) By-Laws, as amended.
4.1 4 The Registrant, by signing this Report, agrees to
furnish the Securities and Exchange Commission upon
its request a copy of any instrument which defines
the rights of long-term debt of the Registrant and
which authorizes a total amount of securities not in
excess of 10% of the total assets of the Registrant.
4.2 (2) 4 Indenture dated as of April 17, 1997 by and between
Health Care REIT, Inc. and Fifth Third Bank.
4.3 (3) 4 First Supplemental Indenture dated as of April 17,
1997 by and between Health Care REIT, Inc. and Fifth
Third Bank.
4.4 (4) 4 Second Supplemental Indenture dated as of March 13,
1998 between Health Care REIT, Inc. and Fifth Third
Bank.
4.5 (5) 4 Third Supplemental Indenture dated as of March 18,
1999 between Health Care REIT, Inc. and Fifth Third
Bank.
10.1 (6) 10(ii)(A) Rights Agreement.
10.2 (7) 10(ii)(B) Note Purchase Agreement between Health Care REIT,
Inc. and each of the Purchasers a Party thereto,
dated as of April 8, 1993.
10.3 (8) 10(ii)(C) Loan Agreement dated as of March 28, 1997 by and
among Health Care REIT, Inc., its subsidiaries, the
banks signatory thereto, and Keybank National
Association, as Administrative Agent, and Fleet Bank,
N.A., as Syndication Agent.
10.4 (9) 10(ii)(D) Note Purchase Agreement between Health Care REIT,
Inc. and each of the Purchasers a Party thereto,
dated April 15, 1996.
10.5 (10) 10(iii)(A) The 1985 Incentive Stock Option Plan of Health Care
REIT, Inc., as amended.
10.6 (11) 10(iii)(B) The Health Care REIT, Inc. 1995 Stock Incentive Plan.
21 21 Subsidiaries of the Registrant.
</TABLE>
-44-
<PAGE> 45
<TABLE>
<S> <C> <C>
23 23 Consent of Independent Auditors.
24 24 Powers of Attorney.
27 27 Financial Data Schedule (EDGAR version only).
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 3(ii) to the Registrant's Form 8-K
filed October 24, 1997.
(2) Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K
filed on April 21, 1997.
(3) Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-K
filed on April 21, 1997.
(4) Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-K
filed on March 11, 1998.
(5) Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-K
filed on March 17, 1999.
(6) Incorporated by reference to Exhibit 2 to the Registrant's Form 8-A filed
on August 3, 1994 (File No. 1-8923).
(7) Incorporated by reference to Exhibits 1-4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1993.
(8) Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K
filed on April 8, 1997.
(9) Incorporated by reference to Exhibit 4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
(10) Incorporated by reference to Exhibit 4.4 to the Registrant's Registration
Statement on Form S-8 (File No. 333-1237) filed on February 27, 1996.
(11) Incorporated by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (File No. 333-1239) filed on February 27, 1996.
-45-
<PAGE> 1
Exhibit 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
HEALTH CARE REIT, INC.
-------------------------------
We, Bruce G. Thompson, Chairman of the Board and Chief Executive
Officer, and Erin C. Ibele, Vice President and Corporate Secretary, of Health
Care REIT, Inc., a Delaware corporation (the "Corporation"), do hereby certify
that, in accordance with the General Corporation Law of the State of Delaware,
Title 8, Sections 103 and 245 of the Delaware Code (hereinafter referred to as
the "GCL"), the Corporation's Certificate of Incorporation, which was originally
filed on April 4, 1985, is hereby integrated and restated in its entirety to
state as follows:
1. NAME. The name of the Corporation is Health Care REIT, Inc.
2. REGISTERED OFFICE AND AGENT. The address of the Registered Office of
the Corporation in the State of Delaware is 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
3. PURPOSE. The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the GCL.
4. AUTHORIZED SHARES. The number of shares that the Corporation is
authorized to issue and have outstanding is 50,000,000, consisting of 40,000,000
shares of common stock with par value of $1.00 per share (hereinafter referred
to as the "Common Stock"), and 10,000,000 shares of preferred stock with par
value of $1.00 per share (hereinafter referred to as the "Preferred Stock"),
which Preferred Stock shall have the terms and conditions as specified in a
resolution or resolutions to be adopted by the Board of Directors of the
Corporation.
5. MANAGEMENT OF BUSINESS AND AFFAIRS. The following provisions are
inserted for the management of the business and the conduct of the affairs of
the Corporation, and for further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
<PAGE> 2
(b) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal
the By-Laws of the Corporation.
(c) The initial Board of Directors shall be composed of nine
members, which number may be changed in the manner provided in
the By-Laws of the Corporation. Election of directors need not
be by written ballot unless the By-Laws so provide.
(d) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the
statutes of Delaware, this Certificate of Incorporation, and
the By-Laws of the Corporation; provided, however, that no
By-Law hereafter adopted shall invalidate any prior act of the
directors that would have been valid if such By-Law had not
been adopted.
6. COMPROMISE OR ARRANGEMENT WITH CREDITORS OR STOCKHOLDERS. Whenever a
compromise or arrangement is proposed between this Corporation and its creditors
or any class of them and/or between this Corporation and its stockholders or any
class of them, any court of equitable jurisdiction within the State of Delaware
may, on the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of the GCL or
on or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279 of
the GCL, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned, by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
7. DIRECTOR LIABILITY. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as
-2-
<PAGE> 3
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which
the director derived any improper personal benefit. If the GCL is amended after
approval by the stockholders of this provision to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
extent permitted by the GCL, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
8. Any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual or special
meeting of such holders and may not be effected by any consent in writing by
such holders. Except as otherwise required by law and subject to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of stockholders of
the Company may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
I, Bruce G. Thompson being the Chairman of the Board and Chief
Executive Officer of the Corporation, do hereby declare and certify that the
foregoing Second Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of GCL Sections 103 and 245, and that the
foregoing Second Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation, as amended and supplemented, and that there is no
discrepancy between those provisions and the provisions of this Second Restated
Certificate of Incorporation, and I further state that the execution of the
Second Restated Certificate of Incorporation is my own act and deed and that the
facts hereby stated are true, and accordingly I have hereunto set my hand this
21st day of July, 1994.
/s/ Bruce G. Thompson
------------------------------------
Bruce G. Thompson, Chairman of the
Board and Chief Executive Officer
Attested By /s/ Erin C. Ibele
------------------------------------
Erin C. Ibele, Vice-President and
Corporate Secretary
-3-
<PAGE> 4
STATE OF OHIO )
) SS:
COUNTY OF LUCAS )
The foregoing Second Restated Certificate of Incorporation of Health
Care REIT, Inc. was acknowledged before me this 21st day of July, 1994 by Bruce
G. Thompson, Chairman of the Board and Chief Executive Officer, on behalf of
Health Care REIT, Inc., a Delaware corporation.
/s/ Annette M. Plunkett Nee Langenderfer
----------------------------------------
Notary Public
[ANNETTE M. LANGENDERFER
Notary Public, State of Ohio
My Commission Expires 10-22-96]
-4-
<PAGE> 5
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A
OF
HEALTH CARE REIT, INC.
Pursuant to Section 151 of the Corporation Law
of the State of Delaware
We, Bruce G. Thompson, Chairman of the Board and Chief Executive
Officer, and Erin C. Ibele, Vice President and Corporate Secretary, of Health
Care REIT, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Second Restated Certificate of Incorporation of the said Corporation, the
said Board of Directors on July 19, 1994, adopted the following resolution
creating a series of thirteen thousand (13,000) shares of Preferred Stock
designated as Junior Participating Preferred Stock, Series A:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Second
Restated Certificate of Incorporation a series of Preferred Stock of the
Corporation be, and it hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Junior Participating Preferred Stock, Series A" (the "Series A
Preferred Stock") and the number of shares constituting such series shall be
thirteen thousand (13,000).
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $1.00 per share,
of the Corporation (the "Common Stock") and of any other junior stock,
shall be entitled to receive, when, as and
-5-
<PAGE> 6
if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash
on the fifteenth day of March, June, September and December in
each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock , in
an amount per share (rounded to the nearest cent) equal to the
greater of (a) $25.00 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate
per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time on or after
August 5, 1994, declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision of
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such
case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $25.00 per share on the
Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Preferred
-6-
<PAGE> 7
Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Series A Preferred Stock,
unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not
more than 60 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time on or after August
5, 1994, declare or pay any dividend on Common Stock payable
in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law,
the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock shall vote together as
-7-
<PAGE> 8
one class on all matters submitted to a vote of stockholders
of the Corporation.
(C) Except as set forth herein, holders of Series A
Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any
other distributions on, any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on
a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in
proportion to the total amounts to which the holders
of all such shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock,
or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of
-8-
<PAGE> 9
Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration
of the respective annual dividend rates and other
relative rights and preferences of the respective
series and classes, shall determine in good faith
will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could under, paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of preferred stock and may be reissued as part of a new series
of preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock, and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time on or
after August 5, 1994, declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under the proviso in clause (1) of
-9-
<PAGE> 10
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Preferred Stock then outstanding shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time on or after August 5,
1994, declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. NO REDEMPTION. The shares of Series A. Preferred
Stock shall not be redeemable.
Section 9. AMENDMENT. The Second Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
-10-
<PAGE> 11
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 19th day of July, 1994.
/s/ Bruce G. Thompson
-------------------------------------
Bruce G. Thompson, Chairman of the
Board and Chief Executive Officer
ATTEST:
/s/ Erin C. Ibele
- ----------------------------------------
Erin C. Ibele, Vice-President
and Corporate Secretary
-11-
<PAGE> 12
CERTIFICATE OF MERGER
OF
FIRST TOLEDO ADVISORY COMPANY
(AN OHIO CORPORATION)
WITH AND INTO
HEALTH CARE REIT, INC.
(A DELAWARE CORPORATION)
It is hereby certified that:
FIRST: The name and state of incorporation of Health Care REIT, Inc. is
Delaware and the state of incorporation of First Toledo Advisory Company is
Ohio.
SECOND: An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 252
of the General Corporation Law of the State of Delaware, to wit, by First Toledo
Advisory Company in accordance with the laws of the state of Ohio and by Health
Care REIT, Inc. in the same manner as is provided in Section 251 of the General
Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation in the merger herein
certified is Health Care REIT, Inc., which will continue its existence as said
surviving corporation under its present name upon the effective date of said
merger pursuant to the provisions of the General Corporation Law of the State of
Delaware.
FOURTH: The Certificate of Incorporation of Health Care REIT, Inc. as
now in force and effect, shall continue to be the Certificate of Incorporation
of said surviving corporation until amended and changed in accordance with the
provisions of the General Corporation Law of the State of Delaware.
FIFTH: The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is One SeaGate, Suite
1950, Toledo, Ohio, 43604.
SIXTH: The aforesaid Agreement and Plan of Merger will be furnished by
the aforesaid surviving corporation, upon request and without cost, to any
stockholder of either of the aforesaid constituent corporations.
SEVENTH: The authorized capital stock of First Toledo Advisory Company
consists of 850 shares of common stock, no par value.
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EIGHTH: The merger herein certified shall be effective upon filing of
this Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, for the purpose of effectuating the merger
of the aforesaid constituent corporations, pursuant to the General Corporation
Law of the State of Delaware, under penalties of perjury do hereby declare and
certify that this is the act and deed of the corporation and the facts stated
herein are true and accordingly have hereunto signed this Certificate of Merger
as of the 28th day of November, 1995.
HEALTH CARE REIT, INC.,
a Delaware corporation
By: /s/ Erin C. Ibele
---------------------------------
Erin C. Ibele
Its: Vice President and Secretary
---------------------------------
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<PAGE> 14
CERTIFICATE OF DESIGNATION
OF
8 7/8% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
OF
HEALTH CARE REIT, INC.
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
The undersigned duly authorized officer of Health Care REIT, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), in accordance with the provisions of
Section 151 thereof, DOES HEREBY CERTIFY:
That the Certificate of Incorporation of the Corporation provides that
the Corporation is authorized to issue ten million (10,000,000) shares of
Preferred Stock, par value $1.00 per share ("Preferred Stock"), issuable in
series by the Board. On July 19, 1994, the Corporation authorized the issuance
of thirteen thousand (13,000) shares of Junior Participating Preferred Stock,
Series A, which constitute a separate series of Preferred Stock, which shares
are reserved for issuance. Such shares are the only shares of Preferred Stock
authorized by the Board to be issued.
That pursuant to the authority conferred upon the Board of Directors by
the Second Restated Certificate of Incorporation of the Corporation, the said
Board of Directors on April 21, 1998 and May 7, 1998 adopted the following
resolution creating a series of three million four hundred fifty thousand
(3,450,000) shares of Preferred Stock designated as 8 7/8% Series B Cumulative
Redeemable Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its Second
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be, and it hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitation or restrictions thereof are as follows:
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<PAGE> 15
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "8 7/8% Series B Cumulative Redeemable Preferred Stock" (the
"Series B Preferred Stock") and the number of shares constituting such series
shall be three million four hundred fifty thousand (3,450,000).
Section 2. MATURITY. The Series B Preferred Stock shall have no stated
maturity and will not be subject to any sinking fund or mandatory redemption.
Section 3. RANK. The Series B Preferred Stock shall, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (i) senior to all classes or series of common stock of the
Corporation, and to all equity securities ranking junior to the Series B
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Corporation, (ii) on a parity with all equity
securities issued by the Corporation the terms, of which specifically provide
that such equity securities rank on a parity with the Series B Preferred Stock
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of the Corporation, and (iii) junior to all equity securities issued
by the Corporation the terms of which specifically provide that such equity
securities rank senior to the Series B Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of the Corporation.
Section 4. DIVIDENDS.
(A) Holders of shares of the Series B Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors (or a duly
authorized committee thereof), out of funds of the Corporation legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 8 7/8% of the liquidation preference per annum per share (equivalent to
$2.21875 per share).
(B) Dividends on the Series B Preferred Stock shall be cumulative from
the date of original issue and shall be payable quarterly in arrears on or about
the 15th day of January, April, July and October or, if not a business day, the
next succeeding business day (each, a "Dividend Payment Date"). The first
dividend on the Series B Preferred Stock is scheduled to be paid on July 15,
1998. Any dividend payable on the Series B Preferred Stock for any partial
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends will be payable to holders of record as they
appear in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the last day of the previous calendar
month in which the applicable Dividend Payment Date falls or on such other date
designated by the Board of Directors of the Corporation for the payment of
dividends that is not more than 30 nor less than 10 days prior to such Dividend
Payment Date (each, a "Dividend Record Date").
(C) No dividends on shares of Series B Preferred Stock shall be
declared by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to its indebtedness, prohibits
such declaration, payment or setting apart for payment or provides
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<PAGE> 16
that such declaration, payment or setting apart for payment would constitute a
breach thereof or a default thereunder, or if such declaration or payment shall
be restricted or prohibited by law.
(D) Notwithstanding the foregoing, dividends on the Series B Preferred
Stock will accrue whether or not the Corporation has earnings, whether or not
there are funds legally available for the payment of such dividends and whether
or not such dividends are declared. Accrued but unpaid dividends on the Series B
Preferred Stock will not bear interest and holders of the Series B Preferred
Stock will not be entitled to any dividends in excess of full cumulative
dividends described above. Any dividend payment made on the Series B Preferred
Stock shall first be credited against the earliest accumulated but unpaid
dividend due with respect to such shares that remains payable.
(E) If, for any taxable year, the Corporation elects to designate as
"capital gain dividends" (as defined in Section 857 of the Internal Revenue Code
of 1986, as amended (the "Code")) any portion (the "Capital Gains Amount") of
the dividends (as determined for federal income tax purposes) paid or made
available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to the holders of Series B Preferred Stock shall be the amount that
the total dividends (as determined for federal income tax purposes) paid or made
available to the holders of the Series B Preferred Stock for the year bears to
the Total Dividends. Beginning January 1, 1998, the Corporation will make a
similar allocation with respect to any undistributed long-term capital gains of
the Corporation which are to be included in its shareholders' long-term capital
gains, based on the allocation of the Capital Gains Amount which would have
resulted if such undistributed long-term capital gains had been distributed as
"capital gains dividends" by the Corporation to its shareholders.
(F) No full dividends will be declared or paid or set apart for payment
on any series of preferred stock ranking, as to dividends, on a parity with or
junior to the Series B Preferred Stock (other than a dividend in shares of any
class of stock ranking junior to the Series B Preferred Stock as to dividends
and upon liquidation) for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series B Preferred
Stock for all past dividend periods and the then current dividend period. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon the Series B Preferred Stock and the shares of any other
series of preferred stock ranking on a parity as to dividends with the Series B
Preferred Stock, all dividends declared upon the Series B Preferred Stock and
any other series of preferred stock ranking on a parity as to dividends with the
Series B Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share of Series B Preferred Stock and such other series
of preferred stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Series B Preferred Stock and such other
series of preferred stock (which shall not include any accrual in respect of
unpaid dividends for prior dividend periods if such preferred stock does not
have a cumulative dividend) bear to each other.
(G) Except as provided in the immediately preceding paragraph, unless
full cumulative dividends on the Series B Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for
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<PAGE> 17
payment for all past dividend periods and the then current dividend period, no
dividends (other than in shares of Common Stock or other shares of capital stock
ranking junior to the Series B Preferred Stock as to dividends and upon
liquidation) shall be declared or paid or set aside for payment nor shall any
other distribution be declared or made upon the Common Stock, or any other
capital stock of the Corporation ranking junior to or on a parity with the
Series B Preferred Stock as to dividends or upon liquidation, nor shall any
shares of Common Stock, or any other shares of capital stock of the Corporation
ranking junior to or on a parity with the Series B Preferred Stock as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares of any such stock) by the Corporation
(except by conversion into or exchange for other capital stock of the
Corporation ranking junior to the Series B Preferred Stock as to dividends and
upon liquidation or for the purpose of preserving the Corporation's
qualification as a Real Estate Investment Trust (a "REIT")).
Section 5. LIQUIDATION PREFERENCES. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of the Series B Preferred Stock shall be entitled to be paid out of the
assets of the Corporation legally available for distribution to its shareholders
a liquidation preference of $25.00 per share, plus an amount equal to any
accrued and unpaid dividends to the date of payment, before any distribution of
assets is made to holders of Common Stock or any other class or series of
capital stock of the Corporation that ranks junior to the Series B Preferred
Stock as to liquidation rights. For such purposes, the consolidation or merger
of the Corporation with or into any other corporation, or the sale, lease or
conveyance of all or substantially all of the property or business of the
Corporation, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Corporation.
Section 6. REDEMPTION.
(A) The Series B Preferred Stock shall not be redeemable prior to May
1, 2003. On and after May 1, 2003, the Corporation, at its option, upon not less
than 30 nor more than 60 days' written notice, may redeem shares of the Series B
Preferred Stock, in whole or in part, at any time or from time to time, for cash
at a redemption price of $25.00 per share, plus all accrued and unpaid dividends
thereon to the date fixed for redemption, to the extent the Corporation has
funds legally available therefor. The redemption price (other than the portion
thereof consisting of accrued and unpaid dividends) is payable solely out of the
sale proceeds of other capital stock of the Corporation, which may include
shares of other series of preferred stock. For purposes of the preceding
sentence, "capital stock" means any common stock, preferred stock, depository
shares, interests, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the foregoing.
Holders of Series B Preferred Stock to be redeemed shall surrender such Series B
Preferred Stock at the place designated in such notice and shall be entitled to
the redemption price and any accrued and unpaid dividends payable upon such
redemption following such surrender. If notice of redemption of any shares of
Series B Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Corporation in trust for the benefit of
the holders of any shares of Series B Preferred Stock so called for redemption,
then from and after the redemption date dividends will cease to
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<PAGE> 18
accrue on such shares of Series B Preferred Stock, such shares of Series B
Preferred Stock shall no longer be deemed outstanding and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price. If less than all of the outstanding Series B Preferred Stock
is to be redeemed, the Series B Preferred Stock to be redeemed shall be selected
pro rata (as nearly as may be practicable without creating fractional shares) or
by any other equitable method determined by the Corporation.
(B) Unless full cumulative dividends on all shares of Series B
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no shares of
Series B Preferred Stock shall be redeemed unless all outstanding shares of
Series B Preferred Stock are simultaneously redeemed and the Corporation shall
not purchase or otherwise acquire directly or indirectly any shares of Series B
Preferred Stock (except by exchange for capital stock of the Corporation ranking
junior to the Series B Preferred Stock as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase by the
Corporation of shares of Series B Preferred Stock in order to ensure that the
Corporation continues to meet the requirements for qualification as a REIT, or
the purchase or acquisition of shares of Series B Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Series B Preferred Stock. So long as no dividends are in arrears, the
Corporation shall be entitled at any time and from time to time to repurchase
shares of Series B Preferred Stock in open-market transactions duly authorized
by the Board of Directors and effected in compliance with applicable laws.
(C) Notice of redemption shall be given by publication in a newspaper
of general circulation in the City of New York, such publication to be made once
a week for two successive weeks commencing not less than 30 nor more than 60
days prior to the redemption date. A similar notice furnished by the Corporation
will be mailed, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the Series
B Preferred Stock to be redeemed at their respective addresses as they appear on
the stock transfer records of the transfer agent. No failure to give such notice
or any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any shares of Series B Preferred Stock except
as to the holder to whom notice was defective or not given. Each notice shall
state: (i) the redemption date; (ii) the redemption price; (iii) the number of
shares of Series B Preferred Stock to be redeemed; (iv) the place or places
where the Series B Preferred Stock is to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date. If less than all of the Series B Preferred
Stock held by any holder is to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series B Preferred Stock held by such
holder to be redeemed.
(D) Immediately prior to any redemption of Series B Preferred Stock,
the Corporation shall pay, in cash, any accumulated and unpaid dividends through
the redemption date, unless a redemption date falls after a Dividend Record Date
and prior to the corresponding Dividend Payment Date, in which case each holder
of Series B Preferred Stock at the close of business on such Dividend Record
Date shall be entitled to the dividend payable on such shares
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<PAGE> 19
on the corresponding Dividend Payment Date notwithstanding the redemption of
such shares before such Dividend Payment Date.
(E) From and after the redemption date (unless default shall be made by
the Corporation in providing for the payment of the redemption price plus
accumulated and unpaid dividends, if any), dividends shall cease to accumulate
on the shares of the Series B Preferred Stock called for redemption and all
rights of the holders thereof (except the right to receive the redemption price
plus accumulated and unpaid dividends, if any) shall cease.
Section 7. VOTING RIGHTS.
(A) Holders of the Series B Preferred Stock shall not have any voting
rights except as set forth in this Section 7 or as otherwise required by law.
(B) Whenever dividends on any shares of Series B Preferred Stock shall
be in arrears for six or more quarterly periods, whether or not consecutive, the
holders of such shares of Series B Preferred Stock (voting separately as a class
with all other series of preferred stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of a
total of two additional directors of the Corporation at a special meeting called
by holders of record of at least 25% of the Series B Preferred Stock or the
holders of any other series of preferred stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of shareholders) or at the next annual meeting of
shareholders, and at each subsequent annual meeting until all dividends
accumulated on such shares of Series B Preferred Stock for the past dividend
periods and the dividend for the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment thereof set aside
for payment. In such case, the entire Board of Directors of the Corporation will
be increased by two directors.
(C) So long as any shares of Series B Preferred Stock remain
outstanding, the Corporation shall not, without the consent of the affirmative
vote of the holders of two-thirds of the shares of Series B Preferred Stock
outstanding at the time given in person or by proxy, either in writing or at a
meeting (such Series B Preferred Stock voting separately as a class) (i)
authorize, create or issue, or increase the authorized or issued amount of, any
series of stock ranking prior to such Series B Preferred Stock with respect to
payment of dividends, or in the distribution of assets on liquidation,
dissolution or winding up, or reclassify any authorized stock of the Corporation
into any such shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares or (ii)
repeal, amend, or otherwise change any of the provisions applicable to the
Series B Preferred Stock in any manner which materially and adversely affects
the powers, preferences, voting power or other rights or privileges of the
Series B preferred Stock or the holders thereof; provided, however, that any
increases in the amount of the authorized preferred stock or the creation or
issuance of other series of Preferred Stock, or any increase in the amount of
authorized shares of such series or of any other series of Preferred Stock, in
each case ranking on a parity with or junior to the Series B Preferred Stock,
shall not be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
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<PAGE> 20
(D) The foregoing voting provisions will not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series B Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
(E) Except as expressly stated in this Certificate of Designation, the
Series B Preferred Stock shall not have any relative, participating, optional or
other special voting rights and powers, and the consent of the holders thereof
shall not be required for the taking of any corporate action, including but not
limited to, any merger or consolidation involving the Corporation or a sale of
all or substantially all of the assets of the Corporation, irrespective of the
effect that such merger, consolidation or sale may have upon the rights,
preferences or voting powers of the holders of the Series B Preferred Stock.
Section 8. CONVERSION. The Series B Preferred Stock shall not be
convertible into or exchangeable for any other property or securities of the
Corporation.
Section 9. RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(A) Limit on Stock Ownership. No person may own more than 9.8% of the
outstanding shares of the Corporation's Series B Preferred Stock (the "Ownership
Limit"), and no Securities, as defined herein, may be issued or transferred to
any person if, following such issuance or transfer, such person's ownership of
Series B Preferred Stock would exceed the Ownership Limit. No person may
actually or constructively own shares of stock of the Corporation that would
result in the Corporation being "closely held" under Section 856(h) of the Code
(including, but not limited to, Ownership that would result in the Corporation
owning (actually or constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Corporation
(either directly or indirectly through one or more partnerships) from such
tenant would cause the Corporation to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code) or otherwise cause the Corporation
to fail to qualify as a REIT. Notwithstanding any other provisions contained in
this Section 9, if any purported transfer of shares of the Series B Preferred
Stock would cause the Corporation to be beneficially owned by fewer than 100
persons, such transfer will be null and void in its entirety and the intended
transferee will acquire no rights to the stock.
(B) Notice and Request for Information. Any person who acquires or
attempts or intends to acquire actual or constructive ownership of shares of
Series B Preferred Stock that will or may violate any of the restrictions on
transferability and ownership contained in this Section 9 is required to give
notice immediately to the Corporation and provide the Corporation with such
other information as the Corporation may request in order to determine the
effect of such transfer on the Corporation's status as a REIT. In addition, each
holder of Series B Preferred Stock shall upon demand be required to disclose to
the Corporation in writing such information as the Corporation may request in
order to determine the effect, if any, of such stockholder's actual and
constructive ownership of the Series B Preferred Stock on the Corporation's
status as a REIT and to ensure compliance with the Ownership Limit, or such
other limit as permitted by the Board of Directors.
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(C) Transfers in Excess of the Ownership Limit. If any purported
transfer of Series B Preferred Stock or any other event would otherwise result
in any person violating the Ownership Limit or such other limit as permitted by
the Board of Directors, then any such purported transfer will be void and of no
force or effect with respect to the purported transferee (the "Prohibited
Transferee") as to that number of shares of Series B Preferred Stock in excess
of the Ownership Limit or such other limit (the "Excess Shares"), and the
Prohibited Transferee shall acquire no right or interest (or, in the case of any
event other than a purported transfer, the person or entity holding record title
to any such Excess Shares (the "Prohibited Owner") shall cease to own any right
or interest) in such Excess Shares. Any such Excess Shares described above will
be transferred automatically, by operation of law, to a trust, the beneficiary
of which will be a qualified charitable organization described in Sections
170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Code and selected by the Corporation
(the "Beneficiary"). Such automatic transfer shall be deemed to be effective as
of the close of business on the business day prior to the date of such violative
transfer. Within 20 days of receiving notice from the Corporation of the
transfer of shares to the trust, the trustee of the trust (who shall be
designated by the Corporation and be unaffiliated with the Corporation and any
Prohibited Transferee or Prohibited Owner) will be required to sell such Excess
Shares to a person or entity who could own such shares without violating the
Ownership Limit, or such other limit as permitted by the Board of Directors, and
distribute to the Prohibited Transferee or Prohibited Owner, as applicable, an
amount equal to the lesser of the price paid by the Prohibited Transferee or
Prohibited Owner for such Excess Shares or the sales proceeds received by the
trust for such Excess Shares. In the case of any Excess Shares resulting from
any event other than a transfer, or from a transfer for no consideration (such
as a gift), the trustee will be required to sell such Excess Shares to a
qualified person or entity and distribute to the Prohibited Owner an amount
equal to the lesser of the Market Price of such Excess Shares as of the date of
such event or the sales proceeds received by the trust for such Excess Shares.
In either case, any proceeds in excess of the amount distributable to the
Prohibited Transferee or Prohibited Owner as applicable will be distributed to
the Beneficiary. Prior to a sale of any such Excess Shares by the trust, the
trustee will be entitled to receive, in trust for the Beneficiary, all dividends
and other distributions paid by the Corporation with respect to such Excess
Shares, and also will be entitled to exercise all voting rights with respect to
such Excess Shares. Subject to Delaware law, effective as of the date that such
shares have been transferred to the trust, the trustee shall have the authority
(at the trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Transferee or Prohibited Owner, as applicable, prior to the discovery
by the Corporation that such shares have been transferred to the trust and (ii)
to recast such vote in accordance with the desires of the trustee acting for the
benefit of the Beneficiary. However, if the Corporation has already taken
irreversible corporate action, then the trustee shall not have the authority to
rescind and recast such vote. Any dividend or other distribution paid to the
Prohibited Transferee or Prohibited Owner (prior to the discovery by the
Corporation that such shares had been automatically transferred to a trust as
described above) will be required to be repaid to the trustee upon demand for
distribution to the Beneficiary. In the event that the transfers to the trust as
described above is not automatically effective (for any reason) to prevent
violation of the Ownership Limit or such other limit as permitted by the Board
of Directors, then the transfer of the Excess Shares shall be void. In addition,
shares of the Series B Preferred Stock of the Corporation held in the trust
shall be deemed to have been offered for sale to the Corporation, or its
designee, at a price
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per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the trustee has sold the shares
of stock held in the trust. Upon such a sale to the Corporation, the interest of
the Beneficiary in the shares sold shall terminate and the trustee shall
distribute the net proceeds of the sale to the Prohibited Transferee or
Prohibited Owner.
(D) Exceptions.
(i) The Board of Directors may, but in no event will be
required to, waive the Ownership Limit with respect to a particular shareholder
if it determines that such ownership will not jeopardize the Corporation's
status as a REIT and the Board of Directors otherwise decides such action would
be in the best interest of the Corporation. As a condition of such waiver, the
Board of Directors may require an opinion of counsel satisfactory to it and/or
undertakings or representations from the applicant with respect to preserving
the REIT status of the Corporation.
(ii) The restrictions on transferability and ownership
contained in this Section 9 will not apply if the Board of Directors determines
that it is no longer in the best interest of the Corporation to attempt to
qualify, or to continue to qualify, as a REIT.
(E) Definitions. For purposes of this Section 9: (i) "Person" includes
an individual, corporation, partnership, association, joint stock company,
trust, unincorporated association or other entity; (ii) "Securities" means
shares of Series B Preferred Stock; (iii) "Ownership" means beneficial ownership
determined on the basis of the beneficial ownership rules applicable under the
Securities Exchange Act of 1934, as amended, or such other basis as the Board of
Directors reasonably determines to be appropriate to effectuate the purposes
hereof; and (iv) "Market Price" means the price of the shares reflected in the
closing sales price for the shares, if then listed on a national securities
exchange, or if the shares are not then listed on a national securities
exchange, the "Market Price" means the redemption price of such shares of Series
B Preferred Stock.
(F) Additional Restrictions. Notwithstanding anything herein to the
contrary, the Corporation and its transfer agent may refuse to transfer any
shares, passing either by voluntary transfer, by operation of law, or under the
last will and testament of any stockholder, if such transfer would or might, in
the opinion of the Board of Directors or counsel to the Corporation, disqualify
the Corporation as a REIT under the Internal Revenue Code. Nothing herein
contained shall limit the ability of the Corporation to impose or to seek
judicial or other imposition of additional restrictions if deemed necessary or
advisable to preserve the Corporation's tax status as a qualified REIT.
(G) Certificate Legend. All certificates representing shares of the
Series B Preferred Stock shall be marked with a legend sufficient under the laws
of the State of Delaware to provide a purchaser of such Securities with notice
of the restrictions on transfer under this Section 9.
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(H) New York Stock Exchange. Nothing in this Section 9, including but
not limited to Paragraph (B), shall preclude the settlement of any transactions
entered into through the facilities of the New York Stock Exchange or any other
stock exchange. The fact that settlement of any transaction takes place shall
not, however, negate the effect of any other provision of this Section 9, and
any transferee, and the shares of capital stock transferred to such transferee
in such a transaction, shall be subject to all of the provisions and limitations
in this Section 9.
(I) Invalidity of Provisions. If any provision of this Article or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issue, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
(J) The provisions set forth in this Section 9 shall apply to the
Series B Preferred Stock notwithstanding any contrary provisions of the Series B
Preferred Stock described in this Certificate of Designation.
Section 10. AMENDMENT. Neither the Second Restated Certificate of
Incorporation of the Corporation nor this Certificate of Designation shall be
amended in any manner which would materially and adversely affect the holders of
the Series B Preferred Stock without the affirmative consent or vote of the
holders of two-thirds of the Series B Preferred Stock outstanding at the time.
Except as otherwise described in this Certificate of Designation, any change in
the Ownership Limit requires an amendment to this Certificate of Designation in
accordance with this Section 10.
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<PAGE> 24
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
certificate and does affirm the foregoing as true under the penalties of perjury
this 7th day of May, 1998.
/s/ George L. Chapman
--------------------------------------
George L. Chapman
Chairman of the Board, Chief Executive
Officer and President
ATTEST:
/s/ Erin C. Ibele
- --------------------------------------
Erin C. Ibele
Vice President and Corporate Secretary
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<PAGE> 25
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES C CUMULATIVE CONVERTIBLE
PREFERRED STOCK
OF
HEALTH CARE REIT, INC.
Health Care REIT, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "GCL"), does hereby certify that, pursuant to authority conferred
upon the Board of Directors of the Company (the "Board") by the Second Restated
Certificate of Incorporation of the Corporation (the "Charter"), and pursuant to
Section 151 of the GCL, the Board at a meeting duly held, adopted resolutions
(i) authorizing a new series of the Corporation's previously authorized
preferred stock, $1.00 par value per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of 3,000,000 shares
of Series C Cumulative Convertible Preferred Stock of the Corporation, as
follows (capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Charter or in the By-Laws of the Corporation (the
"By-Laws")):
RESOLVED, that the Corporation is authorized to issue
3,000,000 shares of Series C Cumulative Convertible Preferred Stock, $1.00 par
value per share (the "Preferred Shares"), which shall have the following powers,
designations, preferences and other special rights:
Section 1. PREFERRED SHARES -- DESIGNATION AND AMOUNT. The
shares of such class of Preferred Stock shall be designated as "Series C
Cumulative Convertible Preferred Stock" and the number of shares constituting
the series so designated shall be 3,000,000. The Preferred Shares shall, with
respect to dividend rights and rights upon liquidation, dissolution or winding
up of the Corporation, rank (i) senior to all classes or series of common stock
of the Corporation, and to all equity securities ranking junior to the Preferred
Shares with respect to dividend rights or rights upon liquidation, dissolution
or winding up of the Corporation, (ii) on a parity with the Corporation's Junior
Participating Preferred Stock, Series A and 8 7/8% Series B Cumulative
Redeemable Preferred Stock and all other equity securities issued by the
Corporation, the terms of which specifically provide that such equity securities
rank on a parity
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<PAGE> 26
with the Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Corporation, and (iii) junior to
all equity securities issued by the Corporation, the terms of which specifically
provide that such equity securities rank senior to the Preferred Shares with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Corporation.
Section 2. PREFERRED SHARES -- DIVIDEND RIGHTS.
(a) GENERAL. Subject to Section 9, and in addition to any other
dividends provided for herein, the Corporation shall pay in cash, when, as and
if declared by the Board, out of funds legally available therefor as provided by
the GCL (the "Legally Available Funds"), dividends at the quarterly rate equal
to the Applicable Dividend Rate (as defined below) per issued and outstanding
Preferred Share, per calendar quarter. Such dividends shall be cumulative and
payable (if declared) quarterly on each January 15, April 15, July 15 and
October 15, with respect to the prior quarter, commencing April 15, 1999 (except
that if such date is not a Business Day (as defined below), then such dividend
will be payable on the next succeeding Business Day) to the holders of record at
the close of business on the date specified by the Board at the time such
dividend is declared no more than thirty (30) days prior to the date fixed for
payment thereof; provided, however, that the Corporation shall have the right to
declare and pay dividends at any time. Dividends shall begin to accrue and be
cumulative from the date of issuance of such Preferred Share to and including
the first to occur of (i) the date on which the Liquidation Value (as defined
herein) of such Preferred Share or Put Payment (plus all accrued and unpaid
dividends thereon whether or not declared) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
Preferred Share by the Corporation, (ii) the last day of the quarter preceding
the quarter in which such Preferred Shares are converted into shares of Common
Stock hereunder if such date is after the record date for the Adjusted
FFO-Derived Dividend (as defined herein) on the Common Stock for the quarter in
which such conversion takes place, (iii) the last day of the quarter second
preceding the quarter in which such Preferred Shares are converted into shares
of Common Stock hereunder if such date is prior to the record date for the
Adjusted FFO-Derived Dividend on the Common Stock for the quarter in which such
conversion takes place, or (iv) the date on which such share is otherwise
acquired and paid for by the Corporation.
(b) CUMULATIVE DIVIDENDS. Each of such dividends shall be fully
cumulative, to the extent not previously paid. Preferred Shares on which
dividends have not been paid in full on the dates set forth above shall accrue
dividends at the rate of $.65625 per Preferred Share per quarter. Dividends not
paid in full on the dates set forth above shall accrue dividends at the rate of
10.5% per annum. Any dividend payment with respect to the Preferred Shares shall
first be credited against any prior accrued and unpaid dividend. No dividends
shall be set apart for or paid upon the Common Stock or any other shares of
stock ranking junior to the Preferred Shares unless all such cumulative
dividends on the Preferred Shares have been paid.
c) APPLICABLE DIVIDEND RATE. With respect to any Preferred Share then
issued and outstanding, the "Applicable Dividend Rate" per fiscal quarter shall
be equal to the greater of (i) the product of the Adjusted FFO-Derived Dividend
payable for the applicable quarter per share of Common Stock and the Conversion
Ratio (as defined in Section 7(a)) and
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<PAGE> 27
(ii) $.5625. The Applicable Dividend Rate shall be pro rated for the actual
number of days in any partial quarter.
(d) PRO RATA DISTRIBUTION. All dividends paid with respect to Preferred
Shares pursuant to this Section 2 shall be paid pro rata in respect of each
Preferred Share entitled thereto. In the event that the Legally Available Funds
available for the payment of dividends shall be insufficient for the payment of
the entire amount of dividends payable with respect to Preferred Shares on any
date on which the Board has declared the payment of a dividend or otherwise, the
amount of any available surplus shall be allocated for the payment of dividends
with respect to the Preferred Shares and any other shares of capital stock that
are pari passu as to dividends pro rata based upon the amount of accrued and
unpaid dividends of such shares of capital stock.
(e) BUSINESS DAY. For purposes hereof, the term "Business Day" shall
mean any Monday, Tuesday, Wednesday, Thursday or Friday which is not a day on
which banking institutions in New York City are authorized or obligated by law
or executive order to close.
Section 3. PREFERRED SHARES -- CERTAIN RESTRICTIONS. Unless the
dividends (including accrued and unpaid dividends in arrears whether or not
declared) described above in Section 2, which pursuant to their terms should
have been paid, have been paid in full or declared and set apart for payment,
the Corporation shall be prohibited from paying dividends on, making any other
distributions on, or redeeming or purchasing or otherwise acquiring for
consideration any capital stock of the Corporation (without regard to its rank,
either as to dividends or upon liquidation, dissolution or winding-up) other
than shares of preferred stock of the Corporation that rank pari passu with the
Preferred Shares, all of which payments shall be made pari passu with the
Preferred Shares. The Corporation shall not permit any subsidiary or
subpartnership of the Corporation to purchase or otherwise acquire for
consideration or make any payment with respect to any shares of capital stock of
the Corporation if the Corporation is prohibited from purchasing or otherwise
acquiring for consideration or making any payment with respect to such shares at
such time and in such manner pursuant to the prior sentence; provided, however,
that the Corporation shall not be prohibited from making a capital contribution
of capital stock of the Corporation to any of its subsidiaries or
subpartnerships.
Section 4. PREFERRED SHARES -- VOTING RIGHTS.
(a) GENERAL. Except as limited by law, the holders of the Preferred
Shares shall be entitled to vote or consent on (i) all matters submitted to the
holders of Common Stock together with the holders of the Common Stock as a
single class and (ii) all matters submitted to holders of the Preferred Shares
as a separate class.
(b) CALCULATION OF VOTES. For the purposes of calculating the votes
cast for a particular matter when voting or consenting on matters submitted to
the holders of Common Stock, each Preferred Share will entitle the holder
thereof to one vote for each share of Common Stock into which such Preferred
Share is convertible as provided in Section 7(b) herein as of the record date
for such vote or consent or, if no record date is specified, as of the date of
such vote or consent.
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<PAGE> 28
(c) SECTION 4(c) DIRECTOR. In addition to the other voting rights
described herein, the number of directors constituting the Board shall be
automatically increased by one (1) member upon the first of the following to
occur: (i) the Corporation's failure to pay the Adjusted FFO-Derived Dividend on
the Common Stock for any quarter in an amount of at least $.55 per share
(adjusted to reverse the effect of any event set forth in Section 7 that would
require an adjustment to the Conversion Price (as defined below) (the "Dividend
Reduction Default")); (ii) the Corporation's failure to pay in full the
quarterly dividend payable hereunder (whether or not declared) at any time in
respect of the Preferred Shares (the "Dividend Payment Default"); (iii) the
Consolidated Financial Ratio of the Corporation (as defined below) as of the
last day of three consecutive fiscal quarters of the Corporation shall be less
than 1.50 (a "Consolidated Financial Ratio Default"); and (iv) any event has
occurred that has caused or, but for notice or passage of time, would cause an
event of default (or equivalent event) under any Indebtedness (as defined below)
of the Corporation or any of its Subsidiaries (a "Debt Default"). The position
on the Board established pursuant to this Section 4(c) shall terminate when (i)
Five Arrows Realty Securities II L.L.C., Rothschild Realty Inc. or the one
hundred percent (100%) member of Five Arrows Realty Securities II L.L.C., or one
of their respective members or partners, ceases to control either at least (A)
50% of the outstanding Preferred Shares of the Corporation or (B) an amount of
voting securities of the Corporation which, if converted into shares of Common
Stock, would exceed 10% of the outstanding Common Stock on a fully diluted basis
(determined on the basis of then convertible, exercisable or exchangeable
securities, warrants or options issued by the Corporation (such amount as set
forth in clauses (A) and (B) above, the "Minimum Threshold"), or (ii) each of
the following has occurred and continues to occur: (1) the Dividend Reduction
Cure (as defined in Section 4(g)) if there has been a Dividend Reduction
Default, (2) there shall have been no Consolidated Financial Ratio Default as of
the last day of three consecutive fiscal quarters of the Corporation, (3) no
Debt Default shall have been in effect or continuing for three consecutive
fiscal quarters of the Corporation and all prior Debt Defaults shall have been
duly cured or waived by all requisite parties, and (4) the Corporation has paid
in full one quarterly dividend payable hereunder in respect of the Preferred
Shares and no dividends are in arrears. Any director elected pursuant to this
section shall be deemed to have resigned upon the position created hereby not
being available pursuant to the immediately preceding sentence.
The term "Adjusted FFO-Derived Dividend" means any cash dividend or
distribution paid in any calendar quarter to the extent that the aggregate
amount of such cash dividend or distribution does not exceed the sum of (i) Net
Cumulative FFO of the Corporation, (ii) Net Cumulative Capital Gains and (iii)
Cumulative Pre-payment Fees. The term "Net Cumulative FFO of the Corporation"
means the excess of (a) the Corporation's reported Funds From Operations (as
defined by the National Association of Real Estate Investment Trusts prior to
1996) ("FFO") calculated on a cumulative basis (reduced by any negative FFO)
from the last fiscal quarter of the Corporation in 1998 through the last
completed fiscal quarter of the Corporation immediately preceding the dividend
or distribution relating to the computation of such term (the "Computation
Period") over (b) all cash dividends and distributions declared on shares of
Common Stock of the Corporation during the Computation Period other than during
the last fiscal quarter of 1998. The term "Net Cumulative Capital Gains" means
all capital gains (reduced by any capital losses), in each case as reported by
the Corporation in the Corporation's financial statements filed with the
Securities and Exchange Commission, to the extent such capital gains and losses
are excluded from the computation of FFO, calculated on a cumulative
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<PAGE> 29
basis during the Computation Period (excluding the last fiscal quarter of 1998).
The term "Cumulative Pre-payment Fees" means, to the extent otherwise excluded
from the computation of FFO, the aggregate of all fees paid to the Corporation
as a consequence of the payment in full of a debt owed to the Corporation when
such payment in full is made prior to the maturity date of such debt net of any
penalties or premiums charged to the Corporation as a consequence of the payment
of debt owed by the Corporation when such payment is made prior to the maturity
date thereof, in each case as reported by the Corporation in the Corporation's
financial statements filed with the Securities and Exchange Commission,
calculated on a cumulative basis during the Computation Period (excluding the
last fiscal quarter of 1998).
The term "Consolidated Financial Ratio of the Corporation" means the
Consolidated EBITDA of the Corporation divided by the Corporation's Consolidated
Periodic Cost of Debt.
The term "Consolidated EBITDA of the Corporation" means, for any
period, with respect to the Corporation on a consolidated basis, determined in
accordance with generally accepted accounting principles in the United States
("GAAP"), the sum of net income (or net loss) for such period PLUS the sum of
all amounts treated as expenses for: (a) interest, (b) depreciation, (c)
amortization, and (d) all accrued taxes on or measured by income to the extent
included in the determination of such net income (or net loss); PROVIDED,
HOWEVER, that net income (or net loss) shall be computed without giving effect
to extraordinary losses or gains.
The term "Corporation's Consolidated Periodic Cost of Debt" means all
interest expense paid or accrued in accordance with GAAP for such period
(including financing fees and amortization of deferred financing fees and
amortization of original issue discount).
The term "Indebtedness" means (without duplication) all obligations,
contingent and otherwise, which in accordance with GAAP should be classified
upon the obligor's balance sheet as liabilities, including without limitation,
in any event and whether or not so classified: (i) all debt and similar monetary
obligations, whether direct or indirect; (ii) all liabilities secured by any
mortgage, pledge, security interest, lien, charge, or other encumbrance existing
on property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; (iii) all guaranties, endorsements and
other contingent obligations whether direct or indirect in respect of such
liabilities of others, including any obligation to supply funds to or in any
manner to invest in, directly or indirectly, the debtor, to purchase such
liabilities, or to assure the owner of any such liabilities against loss,
through an agreement to purchase goods, supplies, or services for the purpose of
enabling the debtor to make payment of any such liabilities held by such owner
or otherwise, and (iv) obligations to reimburse the issuer of any letters of
credit.
(d) SECTION 4(d) DIRECTORS. In addition to the other voting rights
described herein, at any time after the Minimum Threshold ceases to be satisfied
and a Dividend Payment Default occurs for three consecutive fiscal quarters, the
number of directors constituting the Board shall be automatically increased by
two (2) members. The positions on the Board created pursuant to this Section
4(d) shall continue to be available until the earlier to occur of such time as
(i) there are no Preferred Shares of the Corporation outstanding and (ii) the
Dividend Payment Cure (as defined herein). Any director elected pursuant to this
section shall be deemed to have resigned upon the position created hereby not
being available.
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<PAGE> 30
(e) ELECTION OF PREFERRED DIRECTORS. The holders of the Preferred
Shares shall have the special right, voting separately as a single class, to
elect as soon as practical, a director to fill each vacancy created pursuant to
Section 4(c) or 4(d) and to elect their respective successors at each succeeding
annual meeting of the Corporation thereafter at which such successor is to be
elected. The director so elected from time to time in respect of Section 4(c)
shall be referred to herein as the "Section 4(c) Director." The directors so
elected from time to time in respect of Section 4(d) shall be referred to herein
as the "Section 4(d) Directors." As used herein, the term "Preferred Director"
shall refer to the Section 4(c) Director or a Section 4(d) Director, as
appropriate, and the term "Preferred Directors" shall refer to all such
directors. At no time shall there be more than two Preferred Directors on the
Board.
(f) CLASSIFICATION OF BOARD. Each vacancy created upon the Board from
time to time pursuant to Section 4(c) or Section 4(d), as the case may be, shall
be apportioned among the classes of directors, if any, so that the number of
directors in each of the classes of directors is as nearly equal in number as
possible. The Preferred Directors shall be classified accordingly.
(g) CURES.
(i) Upon the occurrence of a Dividend Reduction Default, the
same shall be deemed to continue to exist until such time as (the "Dividend
Reduction Cure") (x) the Adjusted FFO-Derived Dividend paid in the immediately
preceding quarter on the Common Stock shall be at least $.55 per share (adjusted
to reverse the effect of any event set forth in Section 7 that would require an
adjustment to the Conversion Price) and (y) all dividends, and all other accrued
and unpaid dividends whether or not declared, on the Preferred Shares have been
paid or made available for payment.
(ii) Upon the occurrence of the Dividend Payment Default, the
same shall be deemed to continue and exist until (the "Dividend Payment Cure")
such time as the earlier to occur of (x) none of the Preferred Shares shall
remain outstanding or (y) all dividends, including accrued and unpaid dividends
on the Preferred Shares whether or not declared, have been paid or made
available for payment.
(h) BOARD COMMITTEES. The 4(c) Director shall be designated as a member
of every committee of the Board.
(i) VOTING PROCEDURES. At each meeting of the stockholders of the
Corporation at which the holders of the Preferred Shares shall have the right to
vote as a single class, as provided in this Section 4, the presence in person or
by proxy of the holders of record of a majority of the total number of Preferred
Shares then outstanding shall be necessary and sufficient to constitute a quorum
of such class for such election by such stockholders as a class. At any such
meeting or adjournment thereof the absence of a quorum of holders of Preferred
Shares shall not prevent the election of directors other than the Preferred
Directors, and the absence of a quorum of the holders of any other class or
series of stock for the election of such other directors shall not prevent the
election of any Preferred Directors by the holders of the Preferred Shares.
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<PAGE> 31
(j) VACANCY. In case any vacancy shall occur among the directors
elected by the holders of the Preferred Shares, such vacancy shall be filled by
the vote of holders of the Preferred Shares, voting as a single class, at a
special meeting of such stockholders called for that purpose.
(k) WRITTEN CONSENT. Notwithstanding the foregoing, any action required
or permitted to be taken by holders of Preferred Shares at any meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a unanimous consent, in writing, setting forth the action so taken,
shall be signed by each of the holders of Preferred Shares and shall be executed
and delivered to the Secretary of the Corporation for placement among the
minutes of proceedings of the stockholders of the Corporation.
(l) APPROVAL BY THE CORPORATION. The Corporation acting through a
majority of its Directors shall have the right to approve the nomination of any
Section 4(c) Director, such approval not to be unreasonably withheld.
(m) RESTRICTIONS. So long as Preferred Shares of the Corporation are
outstanding, without the consent of the holders of at least the majority of the
Preferred Shares at the time outstanding, given in person or by proxy, at a
meeting called for that purpose at which the holders of the Preferred Shares
shall vote separately as a class, or by the unanimous consent in writing of all
of the holders of the Preferred Shares (in addition to any other vote or consent
of stockholders required by law or by the Charter), the Corporation may not (i)
effect or validate the amendment, alteration or repeal of any provision of this
Certificate of Designation, (ii) effect or validate the amendment, alteration or
repeal of any provision of the Charter of the Corporation which would adversely
affect the rights of the holders of the Preferred Shares as such, (iii) effect
or validate the amendment, alteration or repeal of any provision of the Charter
of the Corporation which would increase in any respect the restrictions or
limitations on ownership applicable to the Preferred Shares pursuant thereto,
(iv) effect or validate the amendment, alteration or repeal of any provision of
the Charter of the Corporation or By-Laws of the Corporation so as to limit the
right to indemnification provided to any present or future member or members of
the Board elected by the holders of the Preferred Shares, (v) other than the
3,000,000 Preferred Shares authorized herein, issue shares of preferred stock
(or a series of preferred stock) that would vote as a class with the Preferred
Shares with respect to the election of any Preferred Director or shares of stock
ranking senior to the Preferred Shares (as to dividends or upon liquidation,
dissolution or winding up), or (vi) effect or validate the amendment, alteration
or repeal of any provision of the Charter of the Corporation or By-Laws of the
Corporation so as to increase the number of members of the Board beyond 15
members (not including any Preferred Directors). Nothing in this Section 4(m)
shall prevent the Corporation from issuing any shares of stock of the
Corporation which rank junior (as to dividends and upon liquidation, dissolution
or winding up) to the Preferred Shares upon such terms as the Board shall
authorize from time to time.
(n) REPORTS. The Corporation shall mail to each holder of record of
Preferred Shares, at such holder's address in the records of the Corporation,
within 45 days after the end of the first three fiscal quarters of each fiscal
year and within 90 days after the end of each fiscal year, its financial reports
for such fiscal period in such form and containing such independent accountants
report as set forth under the rules of the Securities and Exchange Commission
irrespective of whether the Corporation is then required to file reports under
such rules.
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<PAGE> 32
Section 5. PREFERRED SHARE -- REDEMPTION RIGHTS.
(a) GENERAL. The Corporation may, at its option, to the extent it shall
have Legally Available Funds therefor, redeem all (but not less than all) of the
outstanding Preferred Shares, at any time on or after the date which is the
fifth anniversary of the original date of issuance of Preferred Shares.
(b) NOTICE. The option of the Corporation to redeem the Preferred
Shares pursuant to this Section 5 shall be exercised by mailing of a written
notice of election (a "Redemption Notice") by the Corporation to the holders of
the Preferred Shares at such holder's address appearing on the records of the
Corporation, which notice shall be mailed at least 30 days prior to the date
specified therein for the redemption of the Preferred Shares. Any such notice
under this Section 5(b) shall state, at a minimum, the amount of Preferred
Shares to be redeemed, the date on which such redemption shall occur and the
last date on which such holder can exercise the conversion rights provided for
in Section 7 herein (the "Final Conversion Date"). Any notice which was mailed
in the manner herein provided shall be conclusively presumed to have been given
on the date mailed whether or not the holder receives such notice.
(c) CONVERSION. During the period beginning on the date on which the
Corporation mailed to each holder of the Preferred Shares a written notice of
election pursuant to paragraph (b) above and ending at 5:00 p.m. (New York time)
on the thirtieth day following the date of such mailing, each holder of the
Preferred Shares may exercise its rights pursuant to Section 7 herein.
(d) REDEMPTION PRICE. Upon the thirtieth day following the mailing to
the holder of the Preferred Shares of a written notice of election pursuant to
paragraph (b) above, the Corporation shall be required, unless such holder of
Preferred Shares has exercised its rights pursuant to paragraph (c) above, to
purchase from such holder of Preferred Shares (upon surrender by such holder at
the Corporation's principal office of the certificate(s) representing such
Share(s)), such Preferred Shares specified in the Redemption Notice, at a price
equal to the product of (i) $25.00 per share plus accrued and unpaid dividends
(whether or not declared and accrued through the date of payment for redemption
or the date payment is made available for payment to the holder thereof) plus a
premium equal to the following percentage of $25.00:
<TABLE>
<CAPTION>
Redemption Occurs
On or After But Prior to % Premium
- ----------- ------------ ---------
<S> <C> <C>
January 1, 2004 January 1, 2005 5.0
January 1, 2005 January 1, 2006 4.0
January 1, 2006 January 1, 2007 3.0
January 1, 2007 January 1, 2008 2.0
January 1, 2008 January 1, 2009 1.0
January 1, 2009 0.0
</TABLE>
and (ii) the number of Preferred Shares to be redeemed as provided in the
Redemption Notice (the "Redemption Price").
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<PAGE> 33
(e) DIVIDENDS. No Preferred Share is entitled to any dividends accruing
thereon after the date on which the payments provided by and in accordance with
Section 5(d) are paid or made available for payment to the holder thereof. On
such date all rights of the holder of such Preferred Share shall cease, and such
Preferred Share shall not be deemed to be outstanding.
Section 6. PREFERRED SHARES -- LIQUIDATION RIGHTS.
(a) LIQUIDATION PAYMENT. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, then out of
the assets of the Corporation before any distribution or payment to the holders
of shares of capital stock of the Corporation ranking junior to the Preferred
Shares (as to dividends or upon liquidation, dissolution or winding up), and on
a pari passu basis with the holders of shares of preferred stock of the
Corporation that rank pari passu with the Preferred Shares, the holders of the
Preferred Shares shall be entitled to be paid $25.00 per share (the "Liquidation
Value") plus accrued and unpaid dividends whether or not declared, if any (or a
pro rata portion thereof with respect to fractional shares), to the date (i) of
the final distribution or (ii) that the distribution is made available;
PROVIDED, HOWEVER, that if such liquidation, dissolution or winding up of the
Corporation occurs in connection with or subsequent to a Change of Control (as
defined in Section 8(e)), then the holders of the Preferred Shares shall be
entitled to be paid the Put Payment (as defined herein). Except as provided in
this Section 6, the holders of the Preferred Shares shall be entitled to no
other or further distribution in connection with such liquidation, dissolution
or winding up.
(b) PRO RATA DISTRIBUTION. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation available for
distribution to the holders of Preferred Shares shall be insufficient to permit
payment in full to such holders the sums which such holders are entitled to
receive in such case, then all of the assets available for distribution to the
holders of the Preferred Shares shall be distributed among and paid to the
holders of Preferred Shares ratably in proportion to the respective amounts that
would be payable to such holders if such assets were sufficient to permit
payment in full; PROVIDED that all such distributions and payments to the
holders of Preferred Shares shall be made on a pari passu basis with the holders
of shares of preferred stock of the Corporation that rank pari passu with the
Preferred Shares.
Section 7. PREFERRED SHARES -- CONVERSION.
(a) CONVERSION RIGHTS. Subject to and upon compliance with the
provisions of this Section 7, a holder of Preferred Shares shall have the right,
at such holder's option, at any time to convert all or a portion of such shares
into the number of fully paid and non-assessable shares of Common Stock obtained
by multiplying the number of Preferred Shares being converted by the Conversion
Ratio (as defined below and as in effect at the time and on the date provided
for in this Section 7) by surrendering such Preferred Shares to be converted.
Such surrender shall be made in the manner provided in paragraph (b) of this
Section 7; PROVIDED, HOWEVER, that the right to convert any Preferred Shares
called for redemption pursuant to Section 5 shall terminate at the close of
business on the Final Conversion Date, unless the Corporation shall default in
making payment of any cash payable upon such redemption under Section 5
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<PAGE> 34
hereof. The "Conversion Ratio" with respect to any Preferred Shares will
initially be equal to 0.97561, subject to adjustment as described below, and the
"Conversion Price" with respect to any Preferred Shares will initially be equal
to $25.625 per share of Common Stock, subject to adjustment as described below.
Any adjustment to the "Conversion Ratio" or to the "Conversion Price" shall
automatically adjust the other on an equivalent basis so that the product of the
two will remain at $25.00. For example, if the "Conversion Ratio" were to be
increased to 1.0, the "Conversion Price" would be reduced to $25.00, and if the
"Conversion Ratio" were to be reduced to 0.9, the "Conversion Price" would be
increased to $27.778.
(b) MANNER OF CONVERSION.
(i) In order to exercise the conversion right, the holder of
each Preferred Share to be converted shall surrender to the Corporation the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, accompanied by written notice to the Corporation that
the holder thereof elects to convert such Preferred Shares. Unless the shares of
Common Stock issuable on conversion are to be issued in the same name as the
name in which such Preferred Shares are registered, each Preferred Share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
(ii) As promptly as practicable after the surrender of
certificates of Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on such holder's written order,
a certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Preferred Shares in accordance with the
provisions of this Section 7, and any fractional interest in respect of a share
of Common Stock arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 7.
(iii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which certificates for
Preferred Shares have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date, and such conversion
shall be at the Conversion Ratio in effect at such time on such date unless the
stock transfer books of the Corporation shall be closed on that date, in which
event such conversion shall have been deemed to have been effected and such
person or persons shall be deemed to have become the holder or holders of record
at the close of business on the next succeeding day on which such stock transfer
books are open, but such conversion shall be at the Conversion Ratio in effect
on the date on which such shares shall have been surrendered and such notice
received by the Corporation.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractions of shares of Common Stock shall be issued upon conversion of the
Preferred Shares. Instead of any fractional interest in a share of Common Stock
that would otherwise be deliverable upon the conversion of Preferred Shares, the
Corporation shall pay to the holder of such Preferred Shares
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an amount in cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more than one
Preferred Share shall be surrendered for conversion at one time a holder of
Preferred Shares, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
Preferred Shares so surrendered.
(d) ADJUSTMENT OF CONVERSION RATIO. The Conversion Ratio shall be
adjusted from time to time as follows:
(i) PAYMENT OF DIVIDENDS; SUBDIVISIONS, COMBINATIONS,
RECLASSIFICATIONS. If the Corporation shall, while any Preferred Shares are
outstanding, (A) pay a dividend or make a distribution with respect to its
capital stock in shares of its Common Stock, (B) subdivide its outstanding
Common Stock into a greater number of shares, (C) combine its outstanding Common
Stock into a smaller number of shares or (D) issue any shares of capital stock
by reclassification of its Common Stock, the Conversion Ratio in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or distribution
or at the opening of business on the day following the day on which such
subdivision, combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any Preferred Shares thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock that such holder would have owned or have been entitled to receive
after the happening of any of the events described above had such Preferred
Shares been converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the opening of
business on the day next following the record date (except as provided in
paragraph (h) below) in the case of a dividend or distribution and shall become
effective immediately after the opening of business on the day next following
the effective date in the case of a subdivision, combination or
reclassification.
(ii) RIGHTS, OPTIONS AND WARRANTS. If the Corporation shall,
while any Preferred Shares are outstanding, issue rights, options or warrants to
all holders of Common Stock entitling them (for a period expiring within 45 days
after the record date mentioned below) to subscribe for or purchase Common Stock
at a price per share less than the Current Market Price per share of Common
Stock on the record date for the determination of stockholders entitled to
receive such rights or warrants, then the Conversion Ratio in effect at the
opening of business on the day next following such record date shall be adjusted
to equal the ratio determined by dividing (I) the Conversion Ratio in effect
immediately prior to the opening of business on the day next following the date
fixed for such determination by (II) a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding on the close of
business on the date fixed for such determination and (B) the number of shares
that the aggregate proceeds to the Corporation from the exercise of such rights
or warrants for Common Stock would purchase at such Current Market Price, and
the denominator of which shall be the sum of (A) the number of Shares of Common
Stock outstanding on the close of business on the date fixed for such
determination and (B) the number of additional shares of Common Stock offered
for subscription or purchase pursuant to such rights or warrants. Such
adjustment shall become effective immediately after the opening of business on
the day next following such record date (except as provided in paragraph (h)
below). In determining whether
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any rights or warrants entitle the holders of Common Stock to subscribe for or
purchase shares of Common Stock at less than such Current Market Price, there
shall be taken into account any consideration received by the Corporation upon
issuance and upon exercise of such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
If at the end of the period during which such rights, options or warrants are
exercisable, not all rights, options or warrants shall have been exercised, the
Conversion Ratio shall immediately be readjusted to what it would have been if
the rights, options or warrants referenced in the preceding calculation had been
limited to the rights, options or warrants that were ultimately exercised.
(iii) ISSUANCE OF SECURITIES. If the Corporation shall
distribute to all holders of its Common Stock any shares of capital stock of the
Corporation (other than Common Stock) or evidence of its indebtedness or assets
other than cash or rights or warrants to subscribe for or purchase any of its
securities (excluding those rights and warrants issued to all holders of Common
Stock entitling them for a period expiring within 45 days after the record date
referred to in subparagraph (ii) above to subscribe for or purchase Common
Stock, which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in this
subparagraph (iii) called the "Securities"), then in each such case each holder
of Preferred Shares shall receive concurrently with the receipt by holders of
the Common Stock the kind and amount of such Securities that it would have owned
or been entitled to receive had such Preferred Shares been converted immediately
prior to such distribution or related record date, as the case may be.
(iv) CONVERTIBLE OR EXCHANGEABLE SECURITIES. If the
Corporation, before July 15, 2000, shall issue any securities which are
convertible into or exchangeable for Common Stock at a conversion price (or
comparable term) that is less than the then Conversion Price, the Conversion
Price of the Preferred Shares shall be automatically decreased to be identical
to such conversion price (or shall be automatically decreased to be equivalent,
with respect to converting securities into Common Stock, to such comparable
term). In no event shall the Conversion Price be increased pursuant to this
Section 7(d)(iv).
(v) DISTRIBUTION OF CASH. In case the Corporation shall pay or
make a dividend or other distribution on its Common Stock in cash exclusively
(excluding Adjusted FFO-Derived Dividends), each holder of Preferred Shares
shall receive concurrently with the receipt by holders of the Common Stock the
kind and amount of any such distribution that it would have owned or been
entitled to receive had such Preferred Shares been converted immediately prior
to such distribution or related record date, as the case may be.
(vi) MINIMUM ADJUSTMENT. No adjustment in the Conversion Ratio
shall be required unless such adjustment would require a cumulative increase or
decrease of at least 1% thereof; PROVIDED, HOWEVER, that any adjustments that by
reason of this subparagraph (vi) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until made.
Notwithstanding any other provisions of this Section 7, the Corporation shall
not be required to make any adjustment of the Conversion Ratio or any
distribution as provided in this Section 7 for (x) the issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Corporation and the investment of
additional optional amounts in shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends or interest payable on securities of
the Corporation and the investment of additional optional amounts in shares of
Common
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Stock under such plan, (y) the issuance of contingent rights issued pursuant to
a stockholders' rights plan adopted by the Corporation pursuant to which the
acquisition by any third party of a specified percentage of Common Stock
triggers the exercisability of such rights to purchase Common Stock, for so long
as no event has occurred triggering such rights to exercise, and (z) the
issuance of Common Stock or options to purchase Common Stock pursuant to an
employee benefit plan. All calculations under this Section 7 shall be made to
the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth
of a share (with .05 of a share being rounded upward), as the case may be.
Anything in this paragraph (d) to the contrary notwithstanding, the Corporation
shall be entitled, to the extent permitted by law, to make such reductions in
the Conversion Ratio, in addition to those required by this paragraph (d), as it
in its discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or combination of shares,
distribution of rights or warrants to purchase stock or securities, or a
distribution of other assets (other than cash dividends) hereafter made by the
Corporation to its stockholders shall not be taxable, or if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event.
(e) ADJUSTMENT OF CONVERSION RATIO UPON CERTAIN TRANSACTIONS.
If the Corporation shall be a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self tender offer
for all or substantially all shares of Common Stock, sale of all or
substantially all of the Corporation's assets or recapitalization of the Common
Stock and excluding any transaction as to which subparagraph (d)(i) of this
Section 7 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Common Stock shall
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each Preferred Share that is not
converted into the right to receive stock, securities or other property in
connection with such Transaction shall thereafter be convertible into the kind
and amount of shares of stock, securities and other property (including cash or
any combination thereof) receivable upon the consummation of such Transaction by
a holder of that number of shares of Common Stock into which one Preferred Share
was convertible immediately prior to such Transaction, assuming such holder of
Common Stock (i) is not a person with which the Corporation consolidated or into
which the Corporation merged or which merged into the Corporation or to which
such sale or transfer was made, as the case may be (a "Constituent Person"), or
an affiliate of a Constituent Person or (ii) failed to exercise his or her
rights of election, if any, as to the kind or amount of stock, securities and
other property (including cash) receivable upon such Transaction (provided that
if the kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction is not the same for each share of Common Stock
of the Corporation held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this paragraph (e) the kind and amount of stock, securities and other
property (including cash) receivable upon such Transaction by each Non-electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-electing Shares). The Corporation shall not be a party to
any Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (e), and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into an
agreement with the successor or purchasing entity, as the case may be, for the
benefit of the holders of the
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Preferred Shares that will contain provisions enabling the holders of the
Preferred Shares that remain outstanding after such Transaction to convert into
the consideration received by holders of Common Stock at the Conversion Ratio in
effect immediately prior to such Transaction.
(f) NOTICE OF CERTAIN EVENTS. If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than an Adjusted FFO-Derived Dividend);
or
(ii) the Corporation shall authorize the granting to all
holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification of the Common Stock
(other than any event to which subparagraph (d)(i) of this Section 7 applies) or
any consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or a statutory
share exchange, or self tender offer by the Corporation for all or substantially
all of its outstanding shares of Common Stock or the sale or transfer of all or
substantially all of the assets of the Corporation as an entity; or
(iv) there shall occur the involuntary or voluntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be mailed to the holders of Preferred
Shares, at the address as shown on the stock records of the Corporation, as
promptly as possible, but at least 15 Business Days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights or warrants, or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or rights or warrants
are to be determined or (B) the date on which such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock shall be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up. Failure to
give or receive such notice or any defect therein shall not affect the legality
or validity of the proceedings described in this Section 7.
(g) NOTICE OF ADJUSTMENT OF CONVERSION RATIO. Whenever the
Conversion Ratio is adjusted as herein provided, the Corporation shall prepare a
notice of such adjustment of the Conversion Ratio setting forth the adjusted
Conversion Ratio and the effective date of such adjustment and shall mail such
notice of such adjustment of the Conversion Ratio to the holders of the
Preferred Shares at such holders' last address as shown on the stock records of
the Corporation.
(h) TIMING OF ADJUSTMENT. In any case in which paragraph (d)
of this Section 7 provides that an adjustment shall become effective on the day
next following the record date for an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of Preferred Shares converted
after such record date and before the occurrence of such
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event the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 7.
(i) NO DUPLICATION OF ADJUSTMENTS. There shall be no adjustment of the
Conversion Ratio in case of the issuance of any stock of the Corporation in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 7. If any action or transaction would require
adjustment of the Conversion Ratio pursuant to more than one paragraph of this
Section 7, only one adjustment shall be made and such adjustment shall be the
amount of adjustment that has the highest absolute value. Notwithstanding the
foregoing, the provisions of this Section 7 shall similarly apply to successive
transactions giving rise to any such adjustment.
(j) OTHER ADJUSTMENTS TO CONVERSION RATIO. If the Corporation shall
take any action affecting the Common Stock, other than action described in this
Section 7, that would materially adversely affect the conversion rights of the
holders of the Preferred Shares or the value of such conversion rights, the
Conversion Ratio for the Preferred Shares may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Directors, in its sole discretion, may determine to be equitable in the
circumstances.
(k) RESERVATION, VALIDITY, LISTING AND SECURITIES LAW COMPLIANCE WITH
RESPECT TO SHARES OF COMMON STOCK.
(i) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock for the purpose of effecting
conversion of the Preferred Shares, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding Preferred Shares not
theretofore converted. Before taking any action which would cause an adjustment
in the Conversion Ratio such that Common Stock issuable upon the conversion of
Preferred Shares would be issued below par value of the Common Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be reasonably necessary in order that the Corporation may validly and
legally issue fully-paid and nonassessable shares of Common Stock at such
adjusted Conversion Ratio.
(ii) The Corporation covenants that any shares of Common Stock
issued upon the conversion of the Preferred Shares shall be validly issued,
fully paid and non-assessable.
(iii) The Corporation shall endeavor to list the shares of
Common Stock required to be delivered upon conversion of the Preferred Shares,
prior to such delivery, upon each national securities exchange, if any, upon
which the outstanding Common Stock is listed at the time of such delivery.
(iv) Prior to the delivery of any securities that the
Corporation shall be obligated to deliver upon conversion of the Preferred
Shares, the Corporation shall endeavor to comply with all federal and state laws
and regulations thereunder requiring the registration of
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such securities with, or any approval of or consent to the delivery thereof by,
any governmental authority.
(l) TRANSFER TAXES. The Corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock or other securities or property on conversion
of the Preferred Shares pursuant hereto; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of shares of Common Stock or other
securities or property in a name other than that of the holder of the Preferred
Shares to be converted, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
(m) CERTAIN DEFINED TERMS. The following definitions shall apply to
terms used in this Section 7:
(i) CURRENT MARKET PRICE. For the purpose of any computation under this
Section 7, the Current Market Price per share of Common Stock on any
date in question shall be deemed to be the average of the daily closing
prices for the twenty consecutive Trading Days preceding such date in
question; PROVIDED, HOWEVER, that if an event occurs that would require
an adjustment pursuant to paragraph (f) through (j), inclusive, the
Board may make such adjustments to the closing prices during such
twenty Trading Day period as it deems appropriate to effectuate the
intent of the adjustments in this Section 7, in which case any such
determination by the Board shall be set forth in a resolution of the
Board and shall be conclusive.
(ii) "Trading Day" shall mean a day on which the Common Stock is traded
on the New York Stock Exchange, or other national exchange or quotation
system used to determine the Closing Price.
Section 8. PREFERRED SHARES -- CHANGE OF CONTROL AND PUT OPTION.
(a) Subject to the last sentence of this Section 8(a), if a Change of
Control or Put Event (as defined in paragraph (f) of this Section 8) occurs, in
either case as a result of the voluntary (and not legally compelled) act,
omission or participation of the Corporation, which act, omission or
participation the Corporation had the discretion under existing laws and
regulations to refrain from, then each holder of Preferred Shares will have the
right to require that the Corporation, to the extent it shall have Legally
Available Funds therefor, redeem such holder's Preferred Shares at a redemption
price payable in cash in an amount equal to 102% of the Liquidation Value
thereof, plus accrued and unpaid dividends whether or not declared, if any (the
"Put Payment"), to the date of purchase or the date payment is made available
(the "Put Date") pursuant to the offer described in paragraph (b) below (the
"Put Offer"). If a Change of Control or Put Event occurs that is not the result
of such voluntary act, omission or participation of the Corporation, the
Corporation may elect not to make the foregoing Put Payment by not commencing
the Put Offer on the Put Date, in which event the Conversion Ratio shall be
revised to the greater of (i) 120% of the then current Conversion Ratio so that
each Preferred Share will be convertible into 120% of the number of shares of
Common Stock into which it would
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otherwise have been convertible and (ii) a fraction the denominator of which is
83.33% of the Current Market Price and the numerator of which is $25.00.
Notwithstanding the foregoing, if the Securities and Exchange Commission or its
staff, by written communication to the Corporation indicates that, or by rule,
release or other written directive which would have the effect that, the
application of the provisions of the first sentence of this Section 8(a) would
preclude the Corporation from treating the Preferred Shares as equity on its
financial statements, then the Corporation shall have the right, in lieu of
application of the first sentence of this Section 8(a), to apply the Conversion
Ratio revision alternative set forth in the second sentence of this Section
8(a).
(b) Within 15 days following the Corporation becoming aware that an
event has occurred that has resulted in any Change of Control or Put Event, in
either case as a result of the voluntary (and not legally compelled) act,
omission or participation of the Corporation, which act, omission or
participation the Corporation had the discretion under existing laws and
regulations to refrain from, the Corporation shall mail a notice to each holder
of Preferred Shares, at such holder's address appearing in the records of the
Corporation, stating (i) that a Change of Control or Put Event, as applicable,
has occurred and that such holder has the right to require the Corporation to
redeem such holder's Preferred Shares in cash, (ii) the date of redemption
(which shall be a Business Day, no earlier than 30 days and no later than 60
days from the date such notice is mailed, or such later date as may be necessary
to comply with the requirements of applicable law including the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in no event shall
such date be earlier than 20 business days after the notice was mailed pursuant
to the second sentence of Section 5(b) herein,), (iii) the redemption price for
the redemption, and (iv) the instructions determined by the Corporation,
consistent with this paragraph, that a holder must follow in order to have its
Preferred Shares redeemed.
(c) On the Put Date, the Corporation will, to the extent lawful, accept
for payment Preferred Shares or portions thereof tendered pursuant to the Put
Offer and pay an amount equal to the Put Payment in respect of all Preferred
Shares or portions thereof so tendered. The Corporation shall promptly mail to
each holder of Preferred Shares to be redeemed the Put Payment for such
Preferred Shares.
(d) Notwithstanding anything else herein, to the extent they are
applicable to any Change of Control, the Corporation will comply with Section 14
of the Exchange Act and the provisions of Regulation 14D and 14E and any other
tender offer rules under the Exchange Act and any other federal and state
securities laws, rules and regulations and all time periods and requirements
shall be adjusted accordingly.
(e) "Change of Control" means each occurrence of any of the following:
(i) the acquisition, directly or indirectly, by any individual or entity or
group (as such term is used in Section 13(d)(3) of the Exchange Act) of
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act, except
that such individual or entity shall be deemed to have beneficial ownership of
all shares that any such individual or entity has the right to acquire, whether
such right is exercisable immediately or, in a transaction to which the
Corporation is a party thereto or otherwise is a participant, only after passage
of time) of more than 33% of the aggregate outstanding voting power of capital
stock of the Corporation (other than when such an acquisition is made by Five
Arrows Realty Securities II L.L.C., Rothschild Realty Inc. or the one
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hundred percent (100%) member of Five Arrows Realty Securities II L.L.C., or one
of their respective members or partners, or any other holder of a majority of
the Preferred Shares); (ii) other than with respect to the election, resignation
or replacement of the Preferred Directors, during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Corporation (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
the Corporation was approved by a vote of at least 66 2/3% of the directors of
the Corporation (excluding Preferred Directors) then still in office who were
either directors at the beginning of such period, or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Corporation then in
office; and (iii) (A) the Corporation consolidates with or merges into another
entity (the "Merger Entity) or conveys, transfers or leases all or substantially
all of its respective assets (including, but not limited to, real property
investments) to any individual or entity (the "Acquiring Entity", and, together
with the Merger Entity, the "Successor Entity"), or (B) any corporation
consolidates with or merges into the Corporation, which in either event (A) or
(B) is pursuant to a transaction in which the outstanding voting capital stock
of the Corporation is reclassified or changed into or exchanged for cash,
securities or other property (unless the holders of the voting capital stock of
the Corporation immediately prior to such transaction hold immediately after
such transaction more than 50% of the outstanding voting capital stock of the
Successor Entity).
(f) "Put Event" means each occurrence of any of (i) the Corporation
fails to qualify as a real estate investment trust as described in Section 856
of the Internal Revenue Code of 1986, as amended (the "Code"), other than as a
result of any action, or unreasonable failure to act, by any holder of Preferred
Shares; (ii) the Corporation becomes a "closely-held" REIT as defined in Section
856(h) of the Code, other than as a result of any action, or unreasonable
failure to act, by any holder of Preferred Shares; (iii) the Corporation becomes
a "Pension-held REIT" as defined in Section 856(h)(3)(D) of the Code, other than
as a result of any action, or unreasonable failure to act, by any holder of
Preferred Shares; or (iv) the Corporation ceases to be engaged primarily in the
business of investing in health care facilities (primarily nursing homes),
assisted living facilities and retirement centers, as well as specialty care
facilities, directly, or through subsidiaries, as carried on as of the date
hereof and described in the Corporation's Annual Report on Form 10-K, as
amended, as filed with the Securities and Exchange Commission for the year ended
December 31, 1997.
Section 9. PREFERRED SHARES -- RESTRICTIONS ON OWNERSHIP TRANSFER TO
PRESERVE TAX BENEFIT.
(a) The Preferred Shares shall be governed by the restrictions on
ownership and transfer set forth in Article VI of the By-Laws.
(b) So long as Preferred Shares are outstanding, without the consent of
the holders of at least a majority of the Preferred Shares at the time
outstanding, given in person or by proxy, at a meeting called for that purpose
at which the holders of the Preferred Shares shall vote separately as a class,
or by unanimous written consent in writing of all holders of the Preferred
Shares, the Corporation will not effect or validate any amendment, alteration or
repeal of any Section of the Charter or the By-Laws, so as to increase in any
respect the restrictions or limitations on ownership applicable to the Preferred
Shares pursuant thereto.
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Section 10. PREFERRED SHARES -- CONVERSION AND EXCESS SECURITIES.
Preferred Shares converted into Excess Securities pursuant to Section 2 of
Article VI of the By-Laws shall be governed by Article VI of the By-Laws.
Section 11. MISCELLANEOUS.
(a) EXCHANGE OR MARKET TRANSACTIONS. Nothing in Section 9, Section 10
or this Section 11 shall preclude the settlement of any transaction entered into
through the facilities of the New York Stock Exchange or any other national
securities exchange or automated inter-dealer quotation system. However, as set
forth in Section 9, Section 10 or this Section 11, certain transactions may be
settled by providing shares of Excess Securities.
(b) SEVERABILITY. If any provision of Section 9, Section 10 or this
Section 11 or any application of any such provision is determined to be invalid
by any federal or state court having jurisdiction over the issues, the validity
of the remaining provisions shall not be affected and other applications of such
provisions shall be affected only to the extent necessary to comply with the
determination of such court.
(c) MAILINGS. All mailings shall be made by overnight United States
mail or by another overnight courier service.
(d) REACQUIRED SHARES. Any Preferred Shares purchased or otherwise
acquired by the Corporation in any matter whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be classified again and reissued as part of a new series or class of
Preferred Stock to be created by the Board pursuant to its power contained in
the Charter, subject to conditions and restrictions on issuance set forth
herein.
-43-
<PAGE> 44
IN WITNESS WHEREOF, HEALTH CARE REIT, INC. has caused its corporate
seal to be hereunto affixed and this Certificate of Designation to be signed by
its Chairman, CEO and President, George L. Chapman, and attested by its
Secretary, Erin C. Ibele, this 21st day of January, 1999.
HEALTH CARE REIT, INC.
By: /s/ George L. Chapman
----------------------------------
Name: George L. Chapman
Title: Chairman, CEO
& President
THE UNDERSIGNED, Secretary of Health Care REIT, Inc., hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Certificate of Designation to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof or
otherwise required to be verified under oath are true in all material respects,
under the penalties of perjury.
By: /s/ Erin C. Ibele
---------------------------------
Name: Erin C. Ibele
Title: Secretary
Corporate Seal
-44-
<PAGE> 45
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF SECOND RESTATED CERTIFICATE OF INCORPORATION
OF HEALTH CARE REIT, INC.
Health Care REIT, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of Board of Directors of the Corporation
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring the amendment to be
advisable and calling for the proposed amendment to be submitted for the
approval of the Corporation's shareholders at the annual meeting of
shareholders. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Section 4 of the Second Restated Certificate of
Incorporation shall be amended to read as follows:
The number of shares that the Corporation is authorized to issue
and have outstanding is 85,000,000, consisting of 75,000,000 shares
of common stock with par value of $1.00 per share (hereinafter
referred to as the "Common Stock"), and 10,000,000 shares of
preferred stock with par value of $1.00 per share (hereinafter
referred to as the "Preferred Stock"), which Preferred Stock shall
have the terms and conditions as specified in a resolution or
resolutions to be adopted by the Board of Directors of the
Corporation.
SECOND: That thereafter, the annual meeting of the stockholders of the
Corporation was duly called and held upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Erin C. Ibele, Vice President and Corporate Secretary and an
authorized officer of the Corporation, this 16th day of July, 1999.
By: /s/ Erin C. Ibele
-------------------------------------------------
Erin C. Ibele, Vice President and Corporate Secretary
-45-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF ORGANIZATION DATE OF
NAME OF SUBSIDIARY AND TYPE OF ENTITY ORGANIZATION
- ------------------ --------------------- ------------
<S> <C> <C>
HCRI Pennsylvania Properties, Inc. Pennsylvania corporation November 1, 1993
HCRI Overlook Green, Inc. Pennsylvania corporation July 9, 1996
HCRI Texas Properties, Inc. Delaware corporation December 27, 1996
HCRI Texas Properties, Ltd. Texas limited partnership December 30, 1996
Health Care REIT International, Inc. Delaware corporation February 11, 1998
HCN Atlantic GP, Inc. Delaware corporation February 20, 1998
HCN Atlantic LP, Inc. Delaware corporation February 20, 1998
HCRI Nevada Properties, Inc. Nevada corporation March 27, 1998
HCRI Southern Investments I, Inc. Delaware corporation June 11, 1998
HCRI Louisiana Properties, L.P. Delaware limited partnership June 11, 1998
HCN BCC Holdings, Inc. Delaware corporation September 25, 1998
HCRI Tennessee Properties, Inc. Delaware corporation September 25, 1998
HCRI Limited Holdings, Inc. Delaware corporation September 25, 1998
Pennsylvania BCC Properties, Inc. Pennsylvania corporation September 25, 1998
HCRI North Carolina Properties, LLC Delaware limited liability company December 10, 1999
HCRI Properties, Inc. Rhode Island corporation April 22, 1999
</TABLE>
-46-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-46561) dated March 20, 1992 pertaining to The 1985 Incentive Stock
Option Plan of Health Care REIT, Inc., the Registration Statement (Form S-8 No.
333-1237) dated February 27, 1996 pertaining to The 1985 Incentive Stock Option
Plan of Health Care REIT, Inc., the Registration Statement (Form S-8 No.
333-1239) dated February 27, 1996 pertaining to the Health Care REIT, Inc. 1995
Stock Incentive Plan, the Registration Statement (Form S-3 No. 333-19537) dated
January 10, 1997 of Health Care REIT, Inc., the Registration Statement (Form S-8
No. 333-40769) dated November 21, 1997 pertaining to the Health Care REIT, Inc.
Stock Plan for non-employee Directors of Health Care REIT, Inc., the
Registration Statement (Form S-8 No. 333-40771) dated November 21, 1997
pertaining to the Health Care REIT, Inc. 1995 Stock Incentive Plan of Health
Care REIT, Inc., and Amendment No. 1 to the Registration Statement (Form S-3 No.
333-43177) dated January 7, 1998 of Health Care REIT, Inc. of our report dated
January 21, 2000 with respect to the consolidated financial statements and
schedules of Health Care REIT, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1999.
ERNST & YOUNG LLP
Toledo, Ohio
March 15, 2000
-47-
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 14th
day of March, 2000.
/s/ William C. Ballard, Jr.
-----------------------------------
William C. Ballard, Jr., Director
-48-
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 10th
day of March, 2000.
/s/ Pier C. Borra
-----------------------------------
Pier C. Borra, Director
-49-
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity of director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 13th
day of March, 2000.
/s/ Jeffrey H. Donahue
------------------------------
Jeffrey H. Donahue, Director
-50-
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity of director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 8th
day of March, 2000.
/s/ Peter J. Grua
------------------------------
Peter J. Grua, Director
-51-
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN her true and lawful attorney-in-fact and agent, with
full power to act, her true and lawful attorney-in-fact and agent, for her and
in her name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as she might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets her hand this 13th
day of March, 2000.
/s/ Sharon M. Oster
------------------------------
Sharon M. Oster, Director
-52-
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity of director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 10th
day of March, 2000.
/s/ Bruce G. Thompson
------------------------------
Bruce G. Thompson, Director
-53-
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity of director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 13th
day of March, 2000.
/s/ R. Scott Trumbull
------------------------------
R. Scott Trumbull, Director
-54-
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 10th
day of March, 2000.
/s/ Richard A. Unverferth
--------------------------------
Richard A. Unverferth, Director
-55-
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director and the
Chairman of the Board and Principal Executive Officer of Health Care REIT, Inc.
(the "Company"), a Delaware corporation that is about to file with the
Securities and Exchange Commission, Washington, D.C. 20549, under the provisions
of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report
for the year ended December 31, 1999, hereby constitutes and appoints EDWARD F.
LANGE, JR., his true and lawful attorney-in-fact and agent, with full power to
act, his true and lawful attorney-in-fact and agent, for him and in his name,
place and stead, in the capacities as director and Chairman of the Board and
Principal Executive Officer, to sign such Form 10-K which is about to be filed,
and any and all amendments to such Form 10-K, and to file such Form 10-K and
each such amendment so signed, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorney-in-fact and agent, full power and authority
to do and perform any and all acts and things requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 13th
day of March, 2000.
/s/ George L. Chapman
------------------------------
George L. Chapman, Director,
Chairman of the Board and
Principal Executive Officer
-56-
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, the Principal
Financial Officer and the Principal Accounting Officer of Health Care REIT, Inc.
(the "Company"), a Delaware corporation that is about to file with the
Securities and Exchange Commission, Washington, D.C. 20549, under the provisions
of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report
for the year ended December 31, 1999, hereby constitutes and appoints GEORGE L.
CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act,
his true and lawful attorney-in-fact and agent, for him and in his name, place
and stead, in the capacities as the Principal Financial Officer and Principal
Accounting Officer, to sign such Form 10-K which is about to be filed, and any
and all amendments to such Form 10-K, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorney-in-fact and agent, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 9th
day of March, 2000.
/s/ Edward F. Lange, Jr.
-----------------------------------
Edward F. Lange, Jr., Principal
Financial Officer and
Principal Accounting Officer
-57-
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, the Controller of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1999, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for his and
in his name, place and stead, in the capacity as Controller, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 9th
day of March, 2000.
/s/ Michael A. Crabtree
-----------------------------------
Michael A. Crabtree, Controller
-58-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000766704
<NAME> HEALTH CARE REIT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,129
<SECURITIES> 863
<RECEIVABLES> 17,296
<ALLOWANCES> 5,587
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 826,779
<DEPRECIATION> 35,746
<TOTAL-ASSETS> 1,271,171
<CURRENT-LIABILITIES> 0
<BONDS> 538,842
0
150,000
<COMMON> 28,532
<OTHER-SE> 528,464
<TOTAL-LIABILITY-AND-EQUITY> 1,271,171
<SALES> 0
<TOTAL-REVENUES> 128,604
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,794
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 26,916
<INCOME-PRETAX> 75,638
<INCOME-TAX> 0
<INCOME-CONTINUING> 75,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,638
<EPS-BASIC> 2.23
<EPS-DILUTED> 2.21
</TABLE>
