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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
to
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number: 0-14022
MEDITRUST
(Exact name of registrant as specified in its charter)
Massachusetts 04-6532031
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
197 First Avenue, Needham Heights, MA. 02194-9127
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (617) 433-6000
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
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<S> <C>
Shares of Beneficial Interest without par value New York Stock Exchange
9% Convertible Debentures due 2002 New York Stock Exchange
7% Convertible Debentures due 1998 New York Stock Exchange
7 1/2% Convertible Debentures due 2001 New York Stock Exchange
8.54% Convertible Debentures due 2000 New York Stock Exchange
8.56% Convertible Debentures due 2002 New York Stock Exchange
Medium-Term Notes due from 1997 to 2015 New York Stock Exchange
</TABLE>
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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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 to
this Form 10-K X .
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Aggregate market value of voting shares held by non-affiliates as of January 29,
1996: $1,801,322,400 Number of Shares of Beneficial Interest outstanding of
registrant as of January 29, 1996: 51,283,200 The following documents are
incorporated by reference into the indicated Part of this Form 10-K.
<TABLE>
<CAPTION>
Document Part
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<S> <C>
Definitive Proxy Statement for the May 8, 1996 Annual Meeting of
Shareholders, to be filed pursuant to Regulation 14A III
</TABLE>
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PART I
ITEM 1.
BUSINESS
GENERAL
Unless otherwise specified, information regarding Meditrust's business is
given as of December 31, 1995.
Meditrust (the "Company"), a real estate investment trust organized on
August 6, 1985, invests primarily in the health care industry in locations
throughout the United States. The objective of the Company is to enable
shareholders to participate in the investment in health care related facilities
held primarily for the production of income to be distributed to shareholders.
In meeting this objective, the Company invests in high quality facilities that
are managed by experienced operators and achieves diversity in its property
portfolio by sector of the health care industry, geographic location, operator
and form of investment.
The Company was organized to qualify, and intends to continue to
operate, as a real estate investment trust in accordance with federal tax laws
and regulations. So long as the Company so complies, with limited exceptions,
the Company will not be taxed under federal income tax laws on that portion of
its taxable income that it distributes to its shareholders. The Company has
distributed, and intends to continue to distribute, substantially all of its
real estate investment trust taxable income to shareholders.
As of December 31, 1995, the Company had investments in 303 facilities,
consisting of 247 long-term care facilities, 24 rehabilitation hospitals, 14
medical office buildings, 10 alcohol and substance abuse and psychiatric
facilities, seven retirement and assisted living facilities, and one acute care
hospital campus. Included in the 303 facilities are 17 properties under
construction that are expected to be completed during the next three to 12
months. The Company's investments take the form of permanent mortgage loans,
sale/leaseback transactions and development loans. The Company only enters
into development loans if, upon completion of the facility, the Company's
development loan is to be replaced by either a permanent mortgage loan from the
Company or a sale/leaseback transaction with the Company.
The Company's net increase in gross real estate investments totaled
$305,000,000 during 1995 as a result of the Company entering into sale/
leaseback transactions and making permanent mortgage loans and development
loans. Total investments were $1,855,000,000 at December 31, 1995.
Sale/Leaseback Transactions. The Company acquired an acute care
hospital campus located in Arizona, and five long-term care facilities located
in Ohio and West Virginia for $88,700,000. The Company also provided
$2,487,000 for additions to three facilities, and $3,000,000 for land at one
facility that are currently owned by the Company. In addition, the Company
received proceeds of $7,800,000 from the sale of a long-term care facility in
Illinois.
Permanent Mortgage Loans. During 1995, the Company provided permanent
mortgage financing of $100,376,000 for six long-term care facilities located in
Arizona, Massachusetts, Michigan, Tennessee and Washington, three medical
office buildings in Florida and Tennessee, one assisted living facility in
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Michigan, two retirement living centers located in Nevada and Utah, two alcohol
and substance abuse facilities and one psychiatric facility located in New
York. The New York facilities were previously financed for $72,397,000 with a
previous borrower. The previous borrower prepaid this loan with the proceeds
from the sale to the Company of four long-term care facilities in Maryland,
Massachusetts and New Jersey and one rehabilitation hospital in New Jersey.
Also during 1995, the Company provided $51,840,000 in additional
permanent mortgage financing secured by 18 long-term care facilities located in
Kansas, Kentucky, Massachusetts, Missouri, Nevada, Pennsylvania, Tennessee,
Texas, Washington and Wyoming, and two retirement facilities located in
Nebraska and Wyoming.
Other Transactions. During the year ended December 31, 1995 the Company
received annual principal payments on real estate mortgages of $6,615,000 and
received $43,232,000 in mortgage prepayments for seven long-term care
facilities located in Connecticut, Massachusetts, Pennsylvania and West
Virginia and one rehabilitation facility located in Nevada.
Conversion of Development Loans to Permanent Mortgage Loans. During
1995, the Company provided ongoing development financing of $8,390,000,
resulting in an aggregate funding of $36,046,000 for four long-term care
facilities located in Connecticut and Massachusetts, which were converted to
permanent mortgage loans.
Development Loans. During 1995, the Company provided net construction
financing of $98,556,000 for 10 long-term care facilities, 11 medical office
buildings and one assisted living facility. Aggregate development funding as
of December 31, 1995 was $119,884,000 and the Company was committed to provide
additional financing of approximately $102,701,000 relating to six long-term
care facilities, 10 medical office buildings, and one assisted living facility
currently under construction and additions to permanent mortgages secured by
five long-term care facilities.
Financings. In March and April 1995, the Company completed the sale of
9,250,000 shares of beneficial interest without par value ("Shares"), at
$30.125 per Share. The net proceeds to the Company from this offering were
used to repay short-term borrowings and for investments in additional health
care facilities.
On July 26, 1995, the Company completed the sale of $125 million of
7.375% Notes due July 15, 2000 and $80 million of 7.6% Notes due July 15, 2001.
The 7.375% Notes were priced at 99.82% to yield 7.418% and the 7.6% Notes were
priced at 99.948% to yield 7.61%. The Company used the net proceeds to repay
indebtedness.
On July 31, 1995, the Company completed the sale of $43,334,000 of 8.54%
Series A convertible senior notes due July 1, 2000 and $51,666,000 of 8.56%
Series B convertible senior notes due July 1, 2002. These notes are
convertible into Shares of beneficial interest of the Company at $32.625 per
Share. The Company used the net proceeds from the offering to repay
indebtedness.
In July and August 1995, the Company prepaid senior unsecured notes and
senior mortgage notes payable of $296,800,000 which were due between 1995 and
2001, with interest rates ranging from 10.00% to 10.86%. The transaction
resulted in prepayment penalties and acceleration of unamortized debt costs
totaling $33,454,000, which was an extraordinary item reflected as a loss from
prepayment of debt on the Company's income statement for the year ended
December 31, 1995. Net proceeds from the issuance of approximately $300
million of notes and convertible debentures with interest rates ranging
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from 7.375% to 8.56% were used for the prepayment. The Company will gain
flexibility from the elimination of certain operational covenants contained in
the agreements relating to prepaid indebtedness and benefit from lower interest
rates and improved interest coverage ratios.
On August 10, 1995, the Company commenced a Medium-Term Note program,
offering on a continuing basis, notes due from nine months to 30 years from
date of issue, as selected by the purchaser and agreed to by the Company at an
aggregate initial public offering price not to exceed $200 million. During
August and September $98,500,000 of these notes were issued with maturity dates
ranging from August 16, 1999 to August 17, 2015, bearing interest at rates
between 7.25% to 8.625%. The net proceeds were utilized to reduce the
outstanding balance of the Company's unsecured credit facilities.
In November 1995, the Company completed the sale of 1,000,000 Shares at
$33.00 per Share exclusively to European investors. The net proceeds to the
Company from this offering were used to repay short-term borrowings and for
investments in additional health care facilities.
During January 1996, through the date hereof, the Company issued
unsecured notes in the aggregate principal amount of $40 million which mature
between January 1997 and January 2006 and bear interest at annual rates ranging
from 6.35% to 7.3%.
The Company has a total of $230 million in unsecured credit facilities
consisting of (i) unsecured revolving lines of credit expiring June 30, 1997 in
the aggregate amount of $205 million bearing interest at the lender's prime
rate or LIBOR plus 1.00%, and (ii) an unsecured short-term borrowing entered
into on January 17, 1996, which expires in April 1996 in the amount of $25
million bearing interest at LIBOR plus 1.25%. A total of approximately $69
million was available under the Company's revolving lines of credit at January
29, 1996. The Company also has an 8% interest rate cap for $100 million of its
unsecured facilites, which expires in January 1997.
In February 1996, the Company completed the sale of 9,200,000 Shares at
$34.00 per Share. The net proceeds to the Company from this offering were used
to repay short-term borrowings and for investments in additional health care
facilities.
The Company may raise additional capital from public or private sources
and invest in additional health care related facilities.
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INVESTMENT AND OTHER POLICIES
GENERAL
The Company invests in income-producing health care related facilities
which may include long-term care facilities, rehabilitation hospitals,
retirement and assisted living facilities, medical office buildings, alcohol
and substance abuse treatment facilities, psychiatric hospitals, and other
health care related facilities. These investments are made primarily for the
production of income. Because the Company invests in health care related
facilities, the Company is not in a position to diversify its investment
portfolio to include assets selected to reduce the risks associated with
investment in improved real estate in a single industry. However, the Company
intends to continue to diversify its portfolio by broadening its geographic
base, providing financing to more operators, diversifying the type of health
care facilities in its portfolio and diversifying the types of financing
methods provided.
In evaluating potential investments, the Company considers such factors
as: (1) the current and anticipated cash flow and its adequacy to meet
operational needs and other obligations and to provide a competitive market
return on equity to the Company's shareholders; (2) the geographic area, type
of property and demographic profile; (3) the location, construction quality,
condition and design of the property; (4) the potential for capital
appreciation, if any; (5) the growth and regulatory environment of the
communities in which the properties are located; (6) occupancy and demand for
similar health care facilities in the same or nearby communities; (7) an
adequate mix of private and governmental-sponsored patients; (8) potential
alternative uses of the facilities; and (9) prospects of liquidity through
financing or refinancing.
Management reviews and verifies market research for all potential
investments on behalf of the Company. Management also reviews the value of the
property, the interest rates and debt service coverage requirements of any debt
to be assumed and the anticipated sources of repayment for such debt.
The Company's Declaration of Trust places no limitations on the
percentage of the Company's total assets that may be invested in any one
property or joint venture or on the nature or identity of the operators of such
properties. The independent Trustees of the Company, however, may establish
such limitations as they deem appropriate from time to time.
From time to time, the Company enters into senior debt transactions.
The Company has no current plans to underwrite securities of other issuers.
The Company has authority to offer Shares in exchange for investments which
conform to its standards and to repurchase or otherwise acquire its Shares or
other securities. The Company has no present plans to invest in the securities
of others for the purpose of exercising control, although the Company owns
interests in partnerships which own health care facilities. The Company makes
loans on such terms as the Trustees may approve.
The Company will not, without the prior approval of a majority of
Trustees, including a majority of the independent Trustees of the Company,
acquire from or sell to any Trustee, director, officer or employee of the
Company, or any affiliate thereof, any of the assets or other property of the
Company.
The Company provides its shareholders on request with annual reports
containing audited financial statements and quarterly reports containing
unaudited financial information.
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REINVESTMENT OF SALES PROCEEDS
In the event the Company sells or otherwise disposes of any of its
properties, the independent Trustees will determine whether and to what extent
the Company will acquire additional properties or distribute the proceeds to
the shareholders.
SHORT-TERM INVESTMENTS
The Company invests its cash in certain short-term investments during
interim periods between the receipt of revenues and distributions to
shareholders. Cash not invested in facilities may be invested in
interest-bearing bank accounts, certificates of deposit, short-term
money-market securities, short-term United States government securities,
mortgage-backed securities guaranteed by the Government National Mortgage
Association, mortgages insured by the Federal Housing Administration or
guaranteed by the Veterans Administration, mortgage loans, mortgage loan
participations, and certain other similar investments. The Company's ability
to make certain of these investments may be limited by tax considerations. The
Company's return on these short-term investments may be more or less than its
return on real estate investments.
BORROWING POLICIES
The Company may incur additional indebtedness when, in the opinion of
the Trustees, it is advisable. For short-term purposes, the Company may, from
time to time, negotiate lines of credit, arrange for other short-term
borrowings from banks or others or issue commercial paper. The Company may
arrange for long-term borrowing from banks, insurance companies, public
offerings or private placements to institutional investors. Under the
Company's Declaration of Trust and under documents pertaining to certain
existing indebtedness, the Company is subject to various restrictions with
respect to borrowings. See "Prohibited Investments and Activities."
In addition, the Company may incur mortgage indebtedness on real estate
which it has acquired through purchase, foreclosure or otherwise. When terms
are deemed favorable, the Company may invest in properties subject to existing
loans or mortgages. The Company also may obtain financing for unleveraged
properties in which it has invested or may refinance properties acquired on a
leveraged basis. There is no limitation on the number or amount of mortgages
which may be placed on any one property, but overall restrictions on mortgage
indebtedness are provided under documents pertaining to certain existing
indebtedness.
PROHIBITED INVESTMENTS AND ACTIVITIES
The Declaration of Trust prohibits the Company from engaging in any
investment practices or activities that would disqualify the Company as a real
estate investment trust under the provisions of the Internal Revenue Code.
In addition to prohibitions and restrictions imposed by the Declaration
of Trust, there are and may be, from time to time, additional restrictions
imposed by debt instruments or other agreements entered into by the Company.
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POLICY CHANGES
The Declaration of Trust may not be changed by the Trustees without
shareholder approval except in limited circumstances to comply with federal and
state law. All other policies set forth herein may be changed by the Trustees
without shareholder approval.
COMPETITION
The Company competes, primarily on the basis of knowledge of the
industry, economics of the transaction and flexibility of financing structure,
with real estate partnerships, other real estate investment trusts, banks and
other investors generally in the acquisition, leasing and financing of health
care related facilities.
The operators of the facilities compete on a local and regional basis
with other operators of comparable facilities. They compete with independent
operators as well as companies managing multiple facilities, some of which are
substantially larger and have greater resources than the operators of the
Company's facilities. Some of these facilities are operated for profit while
others are owned by governmental agencies or tax-exempt not-for-profit
organizations.
EMPLOYEES
As of December 31, 1995, the operations of the Company were maintained
by 37 employees. The Company has not experienced any significant labor
problems and believes that its employee relations are good.
DECLARATION OF TRUST
The Declaration of Trust of the Company provides that shareholders of
the Company shall not be subject to any liability for the acts or obligations
of the Company and that, as far as is practicable, each written agreement of
the Company is to contain a provision to that effect. No personal liability
will attach to the shareholders for claims under any contract containing such a
provision in writing where adequate notice is given of such provision, except
possibly in a few jurisdictions. With respect to all types of claims in such
jurisdictions and with respect to tort claims, contract claims where the
shareholder liability is not disavowed as described above, claims for taxes and
certain statutory liabilities in other jurisdictions, a shareholder may be held
personally liable to the extent that claims are not satisfied by the Company.
However, the Declaration of Trust provides that, upon payment of any such
liability, the shareholder will be entitled to reimbursement from the general
assets of the Company. The Trustees intend to conduct the operations of the
Company, with the advice of counsel, in such a way as to avoid, as far as is
practicable, the ultimate liability of the shareholders of the Company. The
Trustees do not intend to provide insurance covering such risks to the
shareholders.
GOVERNMENT REGULATION
The amount of percentage rent or additional interest, if any, which
generally is based on the health care facility operator's gross revenues, is in
most cases subject to changes in the reimbursement and licensure policies of
federal, state and local governments. In addition, the acquisition of health
care facilities is generally subject to state and local regulatory approval.
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MEDICARE, MEDICAID, BLUE CROSS AND OTHER PAYORS
Certain of the operators receive payments for patient care from federal
Medicare programs for elderly and disabled patients, state Medicaid programs
for medically indigent and cash grant patients, private insurance carriers,
employers and Blue Cross plans, health maintenance organizations, preferred
provider organizations and directly from patients. In general, Medicare
payments for long-term care services, psychiatric care, and rehabilitative care
are based on allowable costs plus a return on equity for proprietary
facilities. Payments from state Medicaid programs for psychiatric care are
based on reasonable costs or are at fixed rates. Long-term care facilities are
generally paid by the Medicaid programs at fixed rates. Most Medicare and
Medicaid payments are below retail rates. Payments from other payors are
generally also below retail rates. Blue Cross payments in different states and
areas are based on costs, negotiated rates or retail rates.
LONG-TERM CARE FACILITIES
Regulation of long-term care facilities is exercised primarily through
the licensing of such facilities. The particular agency having regulatory
authority and the license qualification standards vary from state to state and,
in some instances, from locality to locality. Licensure standards are
constantly under review and undergo periodic revision. Governmental
authorities generally have the power to review the character, competence and
community standing of the operator and the financial resources and adequacy of
the facility, including its plant, equipment, personnel and standards of
medical care. Long-term care facilities are certified under the Medicare
program and all are eligible to qualify under state Medicaid programs, although
not all participate in the Medicaid programs.
REHABILITATION HOSPITALS
Rehabilitation hospitals are also subject to extensive federal, state
and local legislation and regulation. Rehabilitation hospitals are subject to
periodic inspections and licensure requirements. Inpatient rehabilitation
facilities are cost-reimbursed, receiving the lower of reasonable costs or
reasonable charges. Typically, the fiscal intermediary pays a set rate per day
based on the prior year's costs for each facility. Annual cost reports are
filed with the operator's fiscal intermediary and adjustments are made, if
necessary.
MEDICAL OFFICE BUILDINGS
The individual physicians, groups of physicians and health care
providers which occupy medical office buildings are subject to a variety of
federal, state and local regulations applicable to their specific areas of
practice. Since medical office buildings may contain numerous types of medical
services, a wide variety of regulations may apply. In addition, medical office
buildings must comply with the requirements of municipal building codes, health
codes and local fire departments.
ACUTE CARE HOSPITALS
Acute care hospitals are subject to extensive federal, state and local
legislation and regulation relating to among other things the adequacy of
medical care, equipment, personnel, hygiene, operating policies and procedures,
fire prevention, rate-setting and compliance with building codes and
environmental protection laws. Hospitals must maintain strict standards in
order to obtain their state hospital licenses from a department of health or
other applicable agency in each state. In granting and renewing licenses, a
department of health considers, among other things, the physical buildings and
equipment, the qualifications of the administrative personnel and nursing
staff, the quality of care and
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continuing compliance with the laws and regulations relating to the operation
of the facilities. State licensing of facilities is a prerequisite to
certification under the Medicare and Medicaid programs. Various other licenses
and permits also are required in order to dispense narcotics, operate
pharmacies, handle radioactive materials and operate certain equipment.
Hospital facilities are subject to periodic inspection by governmental and
other authorities to assure continued compliance with the various standards
necessary for their licensing and accreditation.
RETIREMENT AND ASSISTED LIVING
Residential communities such as retirement and assisted living facilities
are subject to varying degrees of regulation and licensing by local and state
health and social service agencies, and other regulatory authorities specific
to their location. Typically these regulations and licensing requirements
relate to fire safety, sanitation, staff training, staffing levels and living
accomodations, as well as requirements specific to certain health related
services offered. Levels of service provided and corresponding regulation vary
considerably from operator to operator as some are similiar to long-term care
facilities, while others fall into the relatively unregulated care of a
retirement community.
ALCOHOL AND SUBSTANCE ABUSE TREATMENT FACILITIES
Alcohol and substance abuse treatment facilities 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, a state health
agency considers, among other things, the physical buildings and equipment, the
qualifications of the administrative personnel and health care staff, the
quality of nursing and other services and the continuing compliance of such
facility with the laws and regulations applicable to its operations.
PSYCHIATRIC HOSPITALS
Psychiatric hospitals generally are subject to extensive federal, state
and local legislation and regulation. Licensing for psychiatric hospitals is
subject to periodic inspections regarding standards of medical care, equipment
and hygiene. In addition, there are specific laws regulating civil commitment
of patients and disclosure of information regarding patients being treated for
chemical dependency. Many states have adopted a "patient's bill of rights"
which sets forth standards, such as using the least restrictive treatment,
allowing patient access to the telephone and mail, allowing the patient to see
a lawyer and requiring the patient to be treated with dignity. Insurance
reimbursement for psychiatric treatment generally is more limited than for
general health care.
HEALTH CARE REFORM AND REGULATION
Many of the operators with which the Company does business rely on
government reimbursement, primarily Medicare and Medicaid, for a significant
portion of their operating revenues. During the 1994 session of the United
States Congress, there was active consideration of various proposals for
national health care reform, including the administration's proposal to cap
national health care spending and the future growth of Medicare and Medicaid
funding. No such legislation was passed during the 1994 session of Congress.
Other recent proposals include replacement of the current Medicaid program
with block grants to the states and other limitations on Medicaid spending.
Some of these proposals, if enacted, could have an impact on operators doing
business with the Company. It is not possible to predict whether and when
health care reform legislation will be passed by Congress and, if passed, what
features such legislation will contain or the effect it may have on the nursing
home, assisted living or rehabilitation care industries, the reimbursements
levels available to health care providers or on the health care industry in
general.
From time to time, Medicaid, Medicare and other governmental payors
have reviewed the billing practices of many health care facilities operators
including certain of the operators with which the Company does business. It is
unclear what impact such reviews may have on these operators. The Company does
not believe, however, that any adverse findings against these operators would
materially affect the Company's financial position.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
MEDITRUST
By:/s/ Lisa P. McAlister
---------------------------
Chief Financial Officer and Treasurer
(and Principal Financial and Accounting
Officer)
Dated: March 5, 1996
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