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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________________
Commission file number 1-9028
NATIONWIDE HEALTH PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-3997619
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
610 Newport Center Drive, Suite 1150
Newport Beach, California 92660
(Address of principal executive offices)
(714) 718-4400
(Registrant's telephone number, including area code)
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
------ ------
Shares of registrant's common stock, $.10 par value, outstanding at June 30,
1997 -- 41,803,924.
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NATIONWIDE HEALTH PROPERTIES, INC.
FORM 10-Q
June 30, 1997
TABLE OF CONTENTS
Part I--Financial Information
<TABLE>
<CAPTION>
Page
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets......................................... 2
Condensed Consolidated Statements of Operations............................... 3
Condensed Consolidated Statements of Cash Flows............................... 4
Notes to Condensed Consolidated Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... 7
Part II--Other Information
Item 4. Submission of Matters to a Vote of Security Holders........................... 9
Item 6. Exhibits and Reports on Form 8-K.............................................. 9
</TABLE>
1
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PART I
NATIONWIDE HEALTH PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- -------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Investments in real estate
Real estate properties:
Land................................. $ 83,974 $ 75,252
Buildings and improvements........... 623,754 574,544
Construction in progress............. 10,631 2,213
-------- --------
718,359 652,009
Less accumulated depreciation........ (97,250) (89,967)
-------- --------
621,109 562,042
Mortgage loans receivable, net........ 199,487 160,464
-------- --------
820,596 722,506
Cash and cash equivalents............... 10,686 11,709
Receivables............................. 4,595 4,321
Other assets............................ 8,062 6,448
-------- --------
$843,939 $744,984
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Bank borrowings.............................. $ 46,300 $ 32,300
Senior notes due 2000-2015................... 275,000 190,000
Convertible debentures....................... 64,720 64,920
Notes and bonds payable...................... 9,189 9,229
Accounts payable and accrued liabilities..... 22,666 19,947
Stockholders' equity:
Preferred stock $1.00 par value;
5,000,000 shares authorized;
none issued or outstanding
Common stock $.10 par value;
100,000,000 shares authorized;
issued and outstanding: 1997 -
41,803,924, 1996 - 41,785,001........... 4,181 4,179
Capital in excess of par value........... 462,946 462,534
Cumulative net income.................... 329,748 300,079
Cumulative dividends..................... (370,811) (338,204)
--------- ---------
Total stockholders' equity......... 426,064 428,588
--------- ---------
$ 843,939 $ 744,984
========= =========
</TABLE>
See accompanying notes.
2
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NATIONWIDE HEALTH PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues
Minimum rent.......................... $18,469 $16,472 $36,747 $32,639
Interest and other income............. 5,372 3,972 10,095 7,928
Additional rent and additional
interest............................. 3,357 2,856 6,658 5,664
------- ------- ------- -------
27,198 23,300 53,500 46,231
Expenses:
Interest and amortization of
deferred financing costs............. 6,665 5,300 12,767 10,731
Depreciation and non-cash charges..... 4,694 4,144 9,252 8,256
General and administrative............ 925 847 1,812 1,656
------- ------- ------- -------
12,284 10,291 23,831 20,643
------- ------- ------- -------
Net Income............................... $14,914 $13,009 $29,669 $25,588
======= ======= ======= =======
Net income per share..................... $ .36 $ .33 $ .71 $ .66
======= ======= ======= =======
Dividends paid per share................. $ .39 $ .37 $ .78 $ .74
======= ======= ======= =======
Weighted average shares outstanding...... 41,804 39,168 41,802 39,948
======= ======= ======= =======
</TABLE>
See accompanying notes.
3
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NATIONWIDE HEALTH PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flow from operating activities:
Net income................................................ $ 29,669 $ 25,588
Depreciation and non-cash charges......................... 9,252 8,256
Amortization of deferred financing costs.................. 370 374
Net decrease in other assets and liabilities.............. 271 3,308
--------- ---------
Net cash provided by operating activities............... 39,562 37,526
Cash flow from investing activities:
Acquisition of real estate properties..................... (73,213) (25,220)
Investment in mortgage loans receivable................... (34,095) (3,800)
Principal payments on mortgage loans receivable........... 1,026 4,672
--------- ---------
Net cash used in investing activities................... (106,282) (24,348)
Cash flow from financing activities:
Bank borrowings........................................... 126,000 48,600
Repayment of bank borrowings.............................. (112,000) (127,800)
Issuance of senior unsecured debt......................... 85,000 50,000
Issuance of common stock.................................. - 61,149
Dividends paid............................................ (32,607) (28,662)
Principal payments on notes and bonds..................... (40) (13,482)
Other, net................................................ (656) (470)
--------- ---------
Net cash provided by financing activities................ 65,697 (10,665)
--------- ---------
Increase (decrease) in cash and cash equivalents............ (1,023) 2,513
Cash and cash equivalents, beginning of period.............. 11,709 7,937
--------- ---------
Cash and cash equivalents, end of period.................... $ 10,686 $ 10,450
========= =========
</TABLE>
See accompanying notes.
4
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NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
(i) The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, and include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results of operations for the three-month and six-month periods ended June 30,
1997 and 1996 pursuant to the rules and regulations of the Securities and
Exchange Commission. All of such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. Although
the Company believes that the disclosures in such financial statements are
adequate to make the information presented not misleading, these condensed
consolidated financial statements should be read in conjunction with the
Company's financial statements and the notes thereto included in the Company's
1996 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the three-month and six-month periods
ended June 30, 1997 and 1996 are not necessarily indicative of the results for a
full year.
(ii) Net income per share is calculated by dividing net income by the
weighted average common shares outstanding during the period. The effect of
common stock options is immaterial. The effect of convertible debentures in 1996
is anti-dilutive and in 1997 is immaterial.
(iii) The Company qualifies as a real estate investment trust under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended. The Company
intends to continue to qualify as such and therefore to distribute at least 95
percent of its taxable income to its stockholders. Accordingly, no provision
has been made for federal income taxes.
(iv) The Company invests in health care related real estate and, as of June
30, 1997, had investments in 254 facilities, including 191 long-term health care
facilities, 61 assisted living facilities and two rehabilitation hospitals. The
Company's facilities are operated by 59 different operators.
The Company's facilities which are owned and leased under "net" leases
are accounted for as operating leases. The leases have initial terms ranging
from 10 to 19 years, and the leases generally have two or more multiple-year
renewal options. The Company earns fixed monthly minimum rents and may earn
periodic additional rents. The additional rent payments are generally computed
as a percentage of facility net patient revenues in excess of base amounts
and/or increases in the Consumer Price Index. The base amounts, in most cases,
are net patient revenues for the first year of the lease. Certain of the leases
contain provisions such that the percentage of further revenue increases due to
the Company as additional rent is limited to 1% at such time as additional rent
exceeds 41% of base rent. Under the terms of the leases, the lessee is
responsible for all maintenance, repairs, taxes and insurance on the leased
properties. Forty-three of the facilities were leased to and operated by
subsidiaries of Beverly Enterprises, Inc.
(v) During the six-month period ended June 30, 1997, the Company acquired
twelve assisted living facilities and three long-term health care facilities in
thirteen separate transactions for an aggregate purchase price of $52,735,000.
The acquisitions were funded by bank borrowings on the Company's bank line of
credit and cash on hand. The facilities were concurrently leased under terms
generally similar to the Company's existing leases.
In addition, the Company provided new construction financing of
approximately $11,188,000 for eleven assisted living facilities, one long-term
health care facility and one medical office building and capital improvement
funding in the aggregate amount of approximately $8,045,000 in accordance with
certain existing lease agreements.
5
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During June 1997, the Company sold two long-term health care facilities for
an aggregate purchase price of approximately $6,863,000. The Company received a
mortgage note in the amount of the purchase price, which is secured by the two
facilities. The related gain of approximately $1,676,000 on such sale will be
recognized into income on a deferred basis in proportion to the receipt of
principal payments on the mortgage loans provided by the Company.
During the six-month period ended June 30, 1997, the Company provided four
mortgage loans secured by five long-term health care facilities and three
assisted living facilities in four separate transactions in the aggregate amount
of $33,675,000. The loans were funded by bank borrowings under the Company's
bank line of credit and cash on hand.
During the six months ended June 30, 1997, the Company issued $85,000,000
in medium term notes. The notes bear fixed interest at a weighted average rate
of 7.39% and have a weighted average maturity of 10 years. The proceeds were
used to reduce borrowings on the Company's bank line of credit.
6
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NATIONWIDE HEALTH PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1997
Operating Results
Six Months 1997 Compared to Six Months 1996
Revenues for the six-months ended June 30, 1997 increased $7,269,000 or 16%
over the same period in 1996. The increase is due to increased minimum rent and
interest income resulting from additional investments in real estate properties
and mortgage loans receivable during the last twelve months. The increase was
also attributable to increased additional rent and additional interest earned
under the Company's existing leases and mortgage loans receivable based on
increases in the facility revenues and the Consumer Price Index.
Total expenses for the six-month period ended June 30, 1997 increased
$3,188,000 or 15% over the same period in 1996. The increase is due to
increased interest expense as a result of the issuance of fixed rate medium term
notes during the last twelve months and to increased depreciation in connection
with the acquisition of additional facilities during the last twelve months.
Second Quarter 1997 Compared to Second Quarter 1996
Revenues for the three months ended June 30, 1997 increased $3,898,000 or
17% over the same period in 1996. The increase is primarily due to increased
minimum rent and interest income resulting from investments in additional
facilities during the last twelve months. The increase was also attributed to
increased additional rent and additional interest earned under the Company's
existing leases and mortgage loans receivable based on increases in the facility
revenues and Consumer Price Index.
Total expenses for the three-months ended June 30, 1997 increased
$1,993,000 or 19% over the same period in 1996. The increase is primarily due
to increased interest expense as a result of the issuance of fixed rate medium
term notes during the last twelve months and to a lesser extent to increased
depreciation in connection with the acquisition of additional facilities during
the last twelve months.
The Company expects increased rental revenues and interest income due to
the addition of facilities to its property base and mortgage loans receivable
over the last twelve months. The Company also expects increased additional rent
and additional interest because the Company's leases and mortgages generally
contain provisions under which additional rents or interest income increase with
increases in facility revenues and/or increases in the Consumer Price Index.
Historically, revenues at the Company's facilities and the Consumer Price Index
generally have increased; although, there are no assurances that they will
continue to increase in the future. Sales of facilities or repayments of
mortgages would serve to offset the aforementioned revenue increases. Additional
investments in health care facilities would also increase rental and/or interest
income. As additional investments in facilities are made, depreciation and/or
interest expense could also increase. Any such increases, however, are expected
to be more than offset by rents or interest income associated with the
investments.
Statement of Financial Accounting Standards ("SFAS") No. 128 Earnings per
Share and SFAS No. 129 Disclosure of Information about Capital Structure were
issued in February 1997 and are effective for periods ending after December 15,
1997. The Company will adopt SFAS No. 128 and SFAS No. 129 for the period
ending December 31, 1997 and anticipates that such adoption will not materially
impact the Company's financial statements. SFAS No. 130 Reporting Comprehensive
Income and SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information were issued in June 1997. The Company will adopt SFAS No. 130 and
SFAS No. 131 in 1998 and anticipates that such adoption will not materially
impact the Company's financial statements.
7
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Liquidity and Capital Resources
During the six-month period ended June 30, 1997, the Company acquired
twelve assisted living facilities and three long-term health care facilities in
thirteen separate transactions for an aggregate purchase price of $52,735,000.
The acquisitions were funded by bank borrowings under the Company's bank line of
credit and cash on hand. The facilities were concurrently leased under terms
generally similar to the Company's existing leases.
In addition, the Company provided new construction financing of
approximately $11,188,000 for eleven assisted living facilities, one long-term
health care facility and one medical office building, and capital improvement
funding in the aggregate amount of approximately $8,045,000 in accordance with
certain existing lease agreements. New construction and capital improvements
were funded by cash on hand and bank borrowings on the Company's bank line of
credit.
During the six-month period ended June 30, 1997, the Company provided four
mortgage loans secured by five long-term health care facilities and three
assisted living facilities in four separate transactions in the aggregate amount
of $33,675,000. The loans were funded by bank borrowings under the Company's
bank line of credit and cash on hand.
During the first six months of 1997, the Company issued $85,000,000 in
medium term notes. The notes bear fixed interest at a weighted average of 7.39%
and have a weighted average maturity of 10 years. The proceeds were used to
reduce borrowings on the Company's bank line of credit.
During April 1997, the Company's $100,000,000 bank line of credit was
amended to, among other things, extend its maturity to March 31, 2000 and reduce
its current LIBOR borrowing margin from .90% to .75%.
At June 30, 1997, the Company had $53,700,000 available under its
$100,000,000 bank line of credit. The Company has effective shelf registrations
on file with the Securities and Exchange Commission under which the Company may
issue (a) up to $25,000,000 in aggregate principal amount of medium term notes
and (b) up to $333,122,000 of securities including debt, convertible debt,
common and preferred stock. The Company anticipates issuing securities under
such shelf registrations to repay borrowings under the Company's bank line of
credit.
The Company anticipates making additional investments in health care
related facilities. Financing for such future investments may be provided by
borrowings under the Company's bank line, private placements or public offerings
of debt or equity, and the assumption of secured indebtedness. The Company
believes it has sufficient liquidity and financing capability to finance future
investments as well as repay borrowings at or prior to their maturity.
Statement Regarding Forward Looking Disclosure
Certain information contained in this report includes forward looking
statements, which can be identified by the use of forward looking terminology
such as "may," "will," "expect," "should" or comparable terms or the negative
thereof. These statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) the following:
changes in the health industry, government regulations, including changes in
Medicare and Medicaid payment levels, changes in the ratings of the Company's
debt securities, the amount of any additional investments made by the Company,
access to capital markets and the effect of economic and market conditions and
changes in interest rates.
8
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on April 11, 1997 ("Annual
Meeting"). At the Annual Meeting, Sam A. Brooks, Jr. and Jack D. Samuelson were
re-elected as directors to serve for a three-year term until the 2000 Annual
Meeting of Stockholders. The other directors whose term of office continued
after the meeting are Milton J. Brock, Jr., David R. Banks, R. Bruce Andrews and
Charles D. Miller. Additionally, the selection of Arthur Andersen LLP as
independent accountants for the year ended December 31, 1997 was ratified.
Voting at the Annual Meeting was as follows:
<TABLE>
<CAPTION>
Abstentions
Votes Cast Votes cast broker non
For against votes
Matter ---------- ---------- ------------
- ------
<S> <C> <C> <C>
Election of Sam A. Brooks, Jr. 37,496,951 165,119 -
Election of Jack D. Samuelson 37,468,695 193,375 -
Ratification of selection of
Arthur Andersen LLP 37,528,272 45,472 88,326
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the six-month
period ended June 30, 1997.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 24, 1997
NATIONWIDE HEALTH PROPERTIES, INC.
By /s/ MARK L. DESMOND
-----------------------------------------------
Mark L. Desmond
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,686
<SECURITIES> 0
<RECEIVABLES> 4,595
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,062
<PP&E> 718,359
<DEPRECIATION> 97,250
<TOTAL-ASSETS> 843,939
<CURRENT-LIABILITIES> 22,666
<BONDS> 395,209
0
0
<COMMON> 4,181
<OTHER-SE> 421,883
<TOTAL-LIABILITY-AND-EQUITY> 843,939
<SALES> 0
<TOTAL-REVENUES> 53,500
<CGS> 0
<TOTAL-COSTS> 23,831
<OTHER-EXPENSES> 1,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,767
<INCOME-PRETAX> 29,669
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,669
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
