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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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)
(949) 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 October
15, 1998 - 46,205,013.
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NATIONWIDE HEALTH PROPERTIES, INC.
FORM 10-Q/A
September 30, 1998
Amendment to Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company hereby amends its Form 10-Q for the quarter ended September 30,
1998 dated and filed with the Securities and Exchange Commission on October 16,
1998 by adding the following risk factor in connection with the Company's Year
2000 readiness disclosure:
", disruptions caused by the failure of the Company or its vendors,
lessees and borrowers to resolve any Year 2000 Issues affecting
their respective operations,"
and adding the following Year 2000 readiness disclosure:
Year 2000 Readiness Disclosure
All statements contained in the following section are "Year 2000
Readiness Disclosures" within the meaning of the Year 2000 Information and
Disclosure Act.
The Year 2000 issue (the "Year 2000 Issue") in computers arises from
the common industry practice of using two digits to represent a date in
computer software code and databases to enhance processing time and save
storage space. Therefore, when dates in the year 2000 and beyond are
indicated and computer programs read the date "00," the computer may
default to the year "1900" rather than the correct "2000." This could
result in incorrect calculations, faulty data and computer shutdowns, which
would cause disruptions of operations.
The Company is reviewing the risks of the Year 2000 Issue with
regard to the Company's own internal operations, information systems and
software applications and the impact on the Company of its outside
vendors', lessees' and borrowers' ability to operate. The Company believes
its own internal operations, information systems and software applications
are likely to be compliant or will be compliant by mid-1999 based upon
reasonable assurance by vendors and the Company's computer consultant. The
cost to remediate the Year 2000 Issues with regard to the Company's
internal operations, information systems and software applications is not
believed to be material.
The Company's vendors that provide banking, communications and
payroll and the Company's lessees and borrowers will also likely be
affected by the Year 2000 Issue. If the Company's vendors, lessees and
borrowers are not Year 2000 compliant, or if they face disruptions in their
operations or cash flows due to Year 2000 Issues, the Company could face
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significant temporary disruptions in rent and mortgage payments and,
therefore, cash flows after that date.
The Company's lessees and borrowers generally rely extensively on
information systems, including systems for capturing patient and cost
information and for billing and collection reimbursement for health care
services provided. Furthermore, the Company's lessees and borrowers are
dependent on a variety of third parties, including, but not limited to,
Medicare and Medicaid programs, insurance companies, HMO's and other
private payors, governmental agencies, fiscal intermediaries that process
claims and make payments for the Medicare and Medicaid programs, utilities
that provide electricity, water, natural gas and communications services
and vendors of medical supplies and pharmaceuticals used in patient care,
all of whom must also adequately address the Year 2000 Issue. The Company
is currently reviewing publicly filed information of its lessees, borrowers
and vendors regarding their state of readiness with respect to identifying
and remediating their Year 2000 Issues. Beginning in 1999 the Company plans
to send questionnaires to and/or contact its lessees, borrowers and vendors
regarding their state of readiness with respect to identifying and
remediating their Year 2000 Issues. The Company plans to complete the
assessment by mid 1999. However, it is not possible for the Company to
determine or be assured that adequate remediation of the Year 2000 Issue
will be accomplished by such lessees, borrowers and vendors. Furthermore,
it is not possible for the Company to determine or be assured that third
parties upon which the Company's lessees, borrowers and vendors are
dependent, will accomplish adequate remediation of their Year 2000 Issues.
The Company will also have risks associated with Year 2000 Issues in
non-information technology areas as it relates to owned properties. There
is a risk that embedded chips in elevators, security systems, electrical
systems and similar technology-driven devices may stop functioning due to
year 2000 Issues. Substantially all of the Company's owned properties are
leased under triple-net leases and as such, the cost to remediate any of
these items will be paid by the lessees.
Based on currently available information, the Company believes that
the impact of the Year 2000 Issue, as it relates to its internal
operations, information systems and software applications will not be
material. However, there can be no assurance that the Year 2000 Issues of
its vendors, lessees, borrowers and third parties upon which they are
dependent will not have a material impact on the future operations and/or
financial results of the Company.
Readers are cautioned that most of the statements contained in the "Year
2000 Readiness Disclosure" paragraphs are forward looking and should be
read in conjunction with the Company's disclosures under the heading
"STATEMENT REGARDING FORWARD LOOKING DISCLOSURE" set forth above.
Item 2 as amended and restated in its entirety is attached hereto. Unless
otherwise stated, information in the originally filed Form 10-Q is presented as
of the original filing date, and has not been updated in this amended filing.
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NATIONWIDE HEALTH PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1998
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: the
effect of economic and market conditions and changes in interest rates,
government regulations, including changes in Medicare and Medicaid payment
levels, changes in the health industry, the amount of any additional
investments, access to capital markets, disruptions caused by the failure of the
Company or its vendors, lessees and borrowers to resolve any Year 2000 issues
affecting their respective operations, and changes in the ratings of the
Company's debt securities or preferred stock.
Operating Results
Nine Months 1998 Compared to Nine Months 1997
Revenues for the nine months ended September 30, 1998 increased $21,478,000 or
26% over the same period in 1997. 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 nine-month period ended September 30, 1998 increased
$12,819,000 or 34% over the same period in 1997. 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.
In addition, during the nine months ended September 30, 1998, the Company
recognized a gain of approximately $2,321,000 from the sale of two skilled
nursing facilities.
Third Quarter 1998 Compared to Third Quarter 1997
Revenues for the three months ended September 30, 1998 increased $7,329,000 or
25% over the same period in 1997. 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,
partially offset by the payoff of certain mortgage loans during the same period.
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 three-month period ended September 30, 1998 increased
$4,716,000 or 35% over the same period in 1997. 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 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
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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.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130 Reporting Comprehensive Income and SFAS No. 131 Disclosures
about Segments of an Enterprise and Related Information which were issued in
June 1997. The adoption of SFAS No. 130 and SFAS No. 131 is required in 1998.
There are no differences between the Company's net income, as reported, and
comprehensive income, as defined, for the periods presented. The Company
believes it operates in only one business segment.
Issue No. 97-11 Accounting for Internal Costs Relating to Real Estate
Property Acquisitions released by the Emerging Issues Task Force of the
Financial Accounting Standards Board which prohibits the capitalization of
internal costs related to the acquisition of operating property was issued
during the first quarter of 1998. The impact of this pronouncement is
immaterial to the Company's financial statements.
EITF Issue 98-9 Accounting for Contingent Rent in Interim Financial Periods
released by the Emerging Issues Task Force of the Financial Accounting Standards
Board requires lessors to defer recognition of contingent rental income in
interim periods until the specific target that triggers the contingent rental
income is achieved. Under most of the Company's Leases the specific targets
that trigger contingent rental income are met either monthly or quarterly and,
therefore, EITF Issue 98-9 would not impact the Company's quarterly accounting
for those Leases. The impact of the deferral of rental income recognition
related to the Company's Leases under which the specific targets are annual is
not material to the Company's financial condition or results of operations.
Liquidity and Capital Resources
During the nine-month period ended September 30, 1998, the Company acquired
11 skilled nursing facilities, 14 assisted living facilities, 2 continuing care
retirement communities and 8 residential care facilities for the elderly in 20
separate transactions for an aggregate investment of approximately $98,582,000.
Construction of 10 assisted living facilities, 1 continuing care retirement
community and 2 clinics was also completed, in which the Company's total
aggregate investment was $82,886,000, $42,771,000 of which was a current year
investment included in the new construction financing amount below. Upon
acquisition or completion of construction, as applicable, the facilities were
concurrently leased under terms generally similar to the Company's existing
leases. During the nine-month period ended September 30, 1998, the Company
provided new construction financing of approximately $107,096,000. The Company
also funded approximately $13,239,000 in capital improvements in accordance with
certain existing lease provisions. Such capital improvements will result in an
increase in the minimum rents earned by the Company. The acquisitions,
construction advances and capital improvement advances were funded by borrowings
on the Company's bank line of credit, approximately $4,137,000 of debt
assumption, the issuance of $3,981,000 of debt, the issuance of 201,190 shares
of the Company's common stock and by cash on hand.
During the nine-month period ended September 30, 1998, the Company provided
three mortgage loans secured by one skilled nursing facility and two assisted
living facilities in an aggregate amount of $11,615,000. The mortgage loans
were funded by borrowings on the Company's bank line of credit and by cash on
hand.
During the nine months ended September 30, 1998, the Company funded an
additional $6,142,000 on existing mortgage loans. Such additional amounts
funded will result in an increase in interest income earned by the Company. The
additional amounts funded were financed by borrowings on the Company's bank line
of credit and by cash on hand.
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During the nine-month period ended September 30, 1998, the Company sold two
skilled nursing facilities in two separate transactions for an aggregate price
of approximately $5,512,000, less transaction costs, resulting in an aggregate
gain of approximately $2,321,000. The proceeds of the sales were used to repay
borrowings on the Company's bank line of credit.
During the nine months ended September 30, 1998, two of the Company's
mortgage loans matured and were repaid in full in an aggregate principal amount
of approximately $5,382,000. The proceeds were used to repay borrowings on the
Company's bank line of credit.
During the nine months ended September 30, 1998, the Company issued
$125,150,000 in aggregate principal amount of medium-term notes. The notes bear
fixed interest at a weighted average rate of 6.89% and have a weighted average
maturity of 16.2 years. The proceeds were used to repay borrowings on the
Company's bank line of credit.
At September 30, 1998, the Company had $69,600,000 available under its
$100,000,000 bank line of credit. The Company has shelf registrations on file
with the Securities and Exchange Commission under which the Company may issue
(a) up to $119,850,000 in aggregate principal amount of medium term notes and
(b) up to approximately $208,622,000 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.
On April 29, 1998, the Company issued 1,048,128 shares of common stock
resulting in aggregate proceeds, net of the underwriter's fee, of approximately
$23,214,000 before expenses related to the offering. The net proceeds were used
to repay borrowings under the Company's bank line of credit.
On September 25, 1998, the Company issued 1,500,000 shares of common stock
resulting in aggregate proceeds, net of the underwriter's fee, of approximately
$30,000,000 before expenses related to the offering. The net proceeds were used
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 of credit, 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.
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Year 2000 Readiness Disclosure
All statements contained in the following section are "Year 2000 Readiness
Disclosures" within the meaning of the Year 2000 Information and Disclosure Act.
The Year 2000 issue (the "Year 2000 Issue") in computers arises from the
common industry practice of using two digits to represent a date in computer
software code and databases to enhance processing time and save storage space.
Therefore, when dates in the year 2000 and beyond are indicated and computer
programs read the date "00," the computer may default to the year "1900" rather
than the correct "2000." This could result in incorrect calculations, faulty
data and computer shutdowns, which would cause disruptions of operations.
The Company is reviewing the risks of the Year 2000 Issue with regard to
the Company's own internal operations, information systems and software
applications and the impact on the Company of its outside vendors', lessees' and
borrowers' ability to operate. The Company believes its own internal
operations, information systems and software applications are likely to be
compliant or will be compliant by mid-1999 based upon reasonable assurance by
vendors and the Company's computer consultant. The cost to remediate the Year
2000 Issues with regard to the Company's internal operations, information
systems and software applications is not believed to be material.
The Company's vendors that provide banking, communications and payroll and
the Company's lessees and borrowers will also likely be affected by the Year
2000 Issue. If the Company's vendors, lessees and borrowers are not Year 2000
compliant, or if they face disruptions in their operations or cash flows due to
Year 2000 Issues, the Company could face significant temporary disruptions in
rent and mortgage payments and, therefore, cash flows after that date.
The Company's lessees and borrowers generally rely extensively on
information systems, including systems for capturing patient and cost
information and for billing and collection reimbursement for health care
services provided. Furthermore, the Company's lessees and borrowers are
dependent on a variety of third parties, including, but not limited to, Medicare
and Medicaid programs, insurance companies, HMO's and other private payors,
governmental agencies, fiscal intermediaries that process claims and make
payments for the Medicare and Medicaid programs, utilities that provide
electricity, water, natural gas and communications services and vendors of
medical supplies and pharmaceuticals used in patient care, all of whom must also
adequately address the Year 2000 Issue. The Company is currently reviewing
publicly filed information of its lessees, borrowers and vendors regarding their
state of readiness with respect to identifying and remediating their Year 2000
Issues. Beginning in 1999 the Company plans to send questionnaires to and/or
contact its lessees, borrowers and vendors regarding their state of readiness
with respect to identifying and remediating their Year 2000 Issues. The Company
plans to complete the assessment by mid 1999. However, it is not possible for
the Company to determine or be assured that adequate remediation of the Year
2000 Issue will be
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accomplished by such lessees, borrowers and vendors. Furthermore, it is not
possible for the Company to determine or be assured that third parties upon
which the Company's lessees, borrowers and vendors are dependent, will
accomplish adequate remediation of their Year 2000 Issues.
The Company will also have risks associated with Year 2000 Issues in non-
information technology areas as it relates to owned properties. There is a risk
that embedded chips in elevators, security systems, electrical systems and
similar technology-driven devices may stop functioning due to year 2000 Issues.
Substantially all of the Company's owned properties are leased under triple-net
leases and as such, the cost to remediate any of these items will be paid by the
lessees.
Based on currently available information, the Company believes that the
impact of the Year 2000 Issue, as it relates to its internal operations,
information systems and software applications will not be material. However,
there can be no assurance that the Year 2000 Issues of its vendors, lessees,
borrowers and third parties upon which they are dependent will not have a
material impact on the future operations and/or financial results of the
Company.
Readers are cautioned that most of the statements contained in the "Year 2000
Readiness Disclosure" paragraphs are forward looking and should be read in
conjunction with the Company's disclosures under the heading "STATEMENT
REGARDING FORWARD LOOKING DISCLOSURE" set forth above.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: January 13, 1999
NATIONWIDE HEALTH PROPERTIES, INC.
By /s/ MARK L. DESMOND
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Mark L. Desmond
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
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