<PAGE>
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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 September 30, 2000
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
31, 2000--46,226,484.
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<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
FORM 10-Q
September 30, 2000
TABLE OF CONTENTS
Part I--Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C> <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.. 8
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K....................................................... 13
</TABLE>
1
<PAGE>
PART I
NATIONWIDE HEALTH PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
(Dollars in thousands)
ASSETS
<S> <C> <C>
Investments in real estate
Real estate properties:
Land....................................................... $ 144,027 $ 146,712
Buildings and improvements................................. 1,185,002 1,146,921
Construction in progress................................... 8,118 37,740
---------- ----------
1,337,147 1,331,373
Less accumulated depreciation.............................. (178,404) (162,671)
---------- ----------
1,158,743 1,168,702
Mortgage loans receivable, net............................. 183,661 203,362
---------- ----------
1,342,404 1,372,064
Cash and cash equivalents...................................... 4,962 16,139
Receivables.................................................... 7,621 7,614
Other assets................................................... 32,957 34,239
---------- ----------
$1,387,944 $1,430,056
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Bank borrowings................................................ $ 47,500 $ 75,300
Senior notes due 2000-2038..................................... 647,900 657,900
Notes and bonds payable........................................ 63,571 64,048
Accounts payable and accrued liabilities....................... 59,932 47,218
Stockholders' equity:
Preferred stock $1.00 par value; 5,000,000 shares authorized;
Issued and outstanding: 2000--1,000,000; 1999--1,000,000,
stated at liquidation preference of $100 per share.......... 100,000 100,000
Common stock $.10 par value; 100,000,000 shares authorized;
Issued and outstanding: 2000--46,226,484; 1999--46,216,484.. 4,623 4,622
Capital in excess of par value............................... 556,600 556,373
Cumulative net income........................................ 558,001 504,457
Cumulative dividends......................................... (650,183) (579,862)
---------- ----------
Total stockholders' equity................................. 569,041 585,590
---------- ----------
$1,387,944 $1,430,056
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
---------------- ------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Minimum rent........................... $33,157 $31,382 $ 98,058 $ 91,938
Interest and other income.............. 5,512 5,850 17,803 17,494
Additional rent and additional
interest.............................. 4,222 4,293 12,659 12,273
------- ------- -------- --------
42,891 41,525 128,520 121,705
Expenses:
Interest and amortization of deferred
financing costs....................... 14,628 13,004 43,800 37,412
Depreciation and non-cash charges...... 9,275 9,130 28,030 26,962
General and administrative............. 1,423 1,697 4,295 4,348
------- ------- -------- --------
25,326 23,831 76,125 68,722
------- ------- -------- --------
Net income before gain (loss) on sale of
properties.............................. 17,565 17,694 52,395 52,983
Gain (loss) on sale of properties........ -- -- 1,149 (335)
------- ------- -------- --------
Net income............................... 17,565 17,694 53,544 52,648
Preferred stock dividends................ (1,919) (1,919) (5,758) (5,758)
------- ------- -------- --------
Net income available to common
stockholders............................ $15,646 $15,775 $ 47,786 $ 46,890
======= ======= ======== ========
Per share amounts:
Basic/diluted income from continuing
operations available to common
stockholders.......................... $ .34 $ .34 $ 1.01 $ 1.02
======= ======= ======== ========
Basic/diluted net income available to
common stockholders................... $ .34 $ .34 $ 1.03 $ 1.01
======= ======= ======== ========
Dividends paid per share............... $ .46 $ .45 $ 1.38 $ 1.35
======= ======= ======== ========
Weighted average shares outstanding...... 46,226 46,216 46,226 46,216
======= ======= ======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income............................................... $ 53,544 $ 52,648
(Gain) loss on sale of properties...................... (1,149) 335
Depreciation and non-cash charges...................... 28,030 26,962
Amortization of deferred financing costs............... 766 684
Net increase (decrease) in other assets and
liabilities........................................... 3,901 (5,435)
--------- ---------
Net cash provided by operating activities............ 85,092 75,194
Cash flow from investing activities:
Investment in real estate properties................... (18,111) (93,298)
Disposition of real estate properties.................. 18,949 17,180
Investment in mortgage loans receivable................ (1,696) (280)
Principal payments on mortgage loans receivable........ 13,318 1,627
--------- ---------
Net cash provided by (used in) investing activities.. 12,460 (74,771)
Cash flow from financing activities:
Bank borrowings........................................ 113,800 204,200
Repayment of bank borrowings........................... (141,600) (190,900)
Dividends paid......................................... (70,321) (68,420)
Issuance of senior unsecured debt...................... -- 112,750
Repayments of senior unsecured debt.................... (10,000) --
Principal payments on convertible debentures, notes and
bonds................................................. (368) (57,796)
Other, net............................................. (240) (1,349)
--------- ---------
Net cash used in financing activities................ (108,729) (1,515)
--------- ---------
Decrease in cash and cash equivalents.................... (11,177) (1,092)
Cash and cash equivalents, beginning of period........... 16,139 16,182
--------- ---------
Cash and cash equivalents, end of period................. $ 4,962 $ 15,090
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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 nine-month periods ended
September 30, 2000 and 1999 pursuant to the rules and regulations of the
Securities and Exchange Commission. All 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
the financial statements included herein 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 1999 Annual Report on Form 10-K filed
with the Securities and Exchange Commission. The results of operations for the
three-month and nine-month periods ended September 30, 2000 and 1999 are not
necessarily indicative of the results for a full year.
(ii) The Company invests in healthcare related real estate and, as of
September 30, 2000, had investments in 330 facilities located in 37 states.
The facilities include 183 skilled nursing facilities, 127 assisted living
facilities, 14 continuing care retirement communities, 3 residential care
facilities for the elderly, 2 rehabilitation hospitals and 1 medical clinic.
The Company's facilities are operated by 59 different operators, including the
following publicly traded companies: Alterra Healthcare Corporation, American
Retirement Corporation, ARV Assisted Living, Inc., Balanced Care Corporation,
Beverly Enterprises, Inc., Harborside Healthcare Corporation, HEALTHSOUTH
Corporation, Integrated Health Services, Mariner Post-Acute Network and Sun
Healthcare Group, Inc. Of the operators of the facilities, only Alterra
Healthcare Corporation and Beverly Enterprises, Inc. account for more than 10%
of the Company's revenues. They accounted for 12% and 11%, respectively, of
the Company's total revenues for the nine months ended September 30, 2000.
As of September 30, 2000, the Company directly owned 149 skilled nursing
facilities, 120 assisted living facilities, 9 continuing care retirement
communities, 3 residential care facilities for the elderly, 2 rehabilitation
hospitals and 1 medical clinic. The Company leases substantially all of its
owned facilities under "net" leases (the "Leases"), which the Company accounts
for as operating leases.
The Leases generally have initial terms ranging from 5 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 or as a percentage of the
increase in the Consumer Price Index. Additional rents are generally
calculated and payable monthly or quarterly. Most of the Leases contain
provisions such that the total rent cannot decrease from one year to the next.
In addition, most of the Leases contain cross-collateralization and cross-
default provisions tied to other Leases with the same lessee, as well as
grouped lease renewals and grouped purchase options. Obligations under the
Leases have corporate guarantees, and the Leases covering 202 facilities are
backed by irrevocable letters of credit or security deposits that cover 1 to
12 months of monthly minimum rents. Under the terms of the Leases, the lessee
is responsible for all maintenance, repairs, taxes and insurance on the leased
properties.
As of September 30, 2000, the Company held 34 mortgage loans secured by 34
skilled nursing facilities, 7 assisted living facilities, 5 continuing care
retirement communities and 4 parcels of land. As of September 30, 2000, the
mortgage loans had a net book value of approximately $183,661,000, with
individual outstanding balances ranging from approximately $408,000 to
$15,776,000 and maturity dates ranging from 2001 to 2025.
5
<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000
(Unaudited)
(iii) Basic earnings per share is computed by dividing income from
continuing operations available to common stockholders by the weighted average
common shares outstanding. Income available to common stockholders is
calculated by deducting dividends declared on preferred stock from income from
continuing operations and net income. Diluted earnings per share includes the
effect of the potential shares outstanding: dilutive stock options.
<TABLE>
<CAPTION>
Three months ended September
30,
-----------------------------
2000 1999
-------------- --------------
Income Shares Income Shares
------- ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C>
Income before gain (loss) on sale of
properties................................. $17,565 $17,694
Less: preferred stock dividends............. 1,919 1,919
------- ------ ------- ------
Amounts used to calculate Basic EPS......... 15,646 46,226 15,775 46,216
Effect of dilutive securities:
Stock options............................. -- 6 -- --
------- ------ ------- ------
Amounts used to calculate Diluted EPS....... $15,646 46,232 $15,775 46,216
======= ====== ======= ======
<CAPTION>
Nine months ended September
30,
-----------------------------
2000 1999
-------------- --------------
Income Shares Income Shares
------- ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C>
Income before gain (loss) on sale of
properties................................. $52,395 $52,983
Less: preferred stock dividends............. 5,758 5,758
------- ------ ------- ------
Amounts used to calculate Basic EPS......... 46,637 46,226 47,225 46,216
Effect of dilutive securities:
Stock options............................. -- 2 -- --
------- ------ ------- ------
Amounts used to calculate Diluted EPS....... $46,637 46,228 $47,225 46,216
======= ====== ======= ======
</TABLE>
(iv) 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 intends to distribute at
least ninety-five percent (95%) of its taxable income to its stockholders.
Accordingly, the Company has made no provision for the payment of federal
income taxes.
(v) During the nine months ended September 30, 2000, the Company has
provided new construction financing of approximately $16,180,000. The Company
completed construction of five assisted living facilities in 2000, in which
the Company's total aggregate investment was approximately $44,979,000;
$10,660,000 of this amount was a current year investment included in the new
construction financing amount above. Upon completion of construction, the
Company concurrently leased the facilities under terms generally similar to
the Company's existing Leases. During the nine-month period ended September
30, 2000, the Company also funded approximately $1,997,000 in capital
improvements at certain facilities in accordance with certain existing lease
provisions. Such capital improvements result in an increase in the minimum
rents the Company earns on these facilities.
During the nine-month period ended September 30, 2000, the Company disposed
of five skilled nursing facilities and two assisted living facilities in four
separate transactions for aggregate proceeds of approximately $18,599,000. The
Company recognized an aggregate gain of $1,149,000 related to the disposal of
these facilities.
6
<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000
(Unaudited)
During the nine months ended September 30, 2000, a loan with a net book
value of approximately $7,509,000 secured by three skilled nursing facilities
was repaid. In addition, a $3,666,000 portion of one of the mortgage loans
secured by one skilled nursing facility was also repaid.
During the nine-month period ended September 30, 2000, the Company acquired
one skilled nursing facility under a purchase option provision of the mortgage
loan provided by the Company. The Company concurrently leased the facility
under terms generally similar to the Company's existing Leases. The Company
also acquired one assisted living facility and one skilled nursing facility
that secured mortgage loans provided by the Company for their respective
mortgage balances plus an aggregate cash payment of $1,200,000. The leases in
place at the time of the acquisitions were assumed by the Company and contain
terms generally similar to the Company's existing Leases.
During the nine months ended September 30, 2000, the Company repaid
$10,000,000 in aggregate principal amount of medium-term notes. The notes bore
interest at a fixed rate of 8.48%.
(vi) The Company capitalizes interest on facilities under construction. The
capitalization rates used are based on rates for the Company's senior
unsecured notes and bank line of credit, as applicable. Capitalized interest
for the nine months ended September 30, 2000 and 1999 was $1,062,000 and
$3,394,000, respectively.
(vii) Effective January 1, 2000, the Company negotiated a new lease and
settlement with Beverly Enterprises, Inc. ("Beverly") that incorporates 38 of
its 47 leased facilities, which were up for renewal at various dates from
December 1998 to December 2000. As a result of the renewal and settlement,
Beverly will continue to lease 18 of the 38 facilities for an initial five-
year lease term. The Company has also returned 5 facilities to Beverly,
including 2 of the 38 facilities above and 3 other facilities that Beverly had
previously subleased to other operators. In addition, the Company released
Beverly as a guarantor of facilities that it had previously subleased to other
operators and Beverly was not required to renew the leases on the remaining 18
facilities. Beverly will continue to operate the remaining 18 facilities at
reduced rentals until the earlier of January 1, 2001 or the date the Company
is able to lease the facilities to new operators. As of November 1, 2000, the
Company has leased 15 of these facilities to new operators and has decided to
sell 2 of these facilities for which it expects to receive approximately book
value. As a part of the renewal settlement, the Company recorded a note
receivable from Beverly of approximately $16,208,000, net of deferred income
of approximately $8,165,000 that is being recognized under the installment
method. Such revenues are included in additional rent on the accompanying
income statements. The promissory note bears interest at 9.0% and requires
Beverly to make quarterly payments through its final maturity on December 31,
2004.
7
<PAGE>
NATIONWIDE HEALTH PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 2000
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 healthcare industry, deterioration of the operating
results or financial condition, including bankruptcies, of the Company's
tenants, the ability of the Company to attract new operators for certain
facilities, the ability of the Company to sell certain facilities for their
book value, the amount of any additional investments, access to capital
markets and changes in the ratings of the Company's debt securities.
Operating Results
Nine Months 2000 Compared to Nine Months 1999
Minimum rent increased $6,120,000 or 7% over the same period in 1999. The
increase was primarily due to increases in minimum rent as a result of
investments in additional leased facilities during the last twelve months and
to a shift in the characterization of rent from additional rent to minimum
rent due to the lease negotiation discussed below as well as the conversion of
three mortgaged facilities to leases during the year. Interest and other
income increased by $309,000 or 2% over the same period in 1999. The increase
was primarily due to the funding of three mortgage loans during the last
twelve months and interest on the note receivable from Beverly Enterprises,
Inc. ("Beverly") discussed below, partially offset by the conversion of three
mortgaged facilities to a lease, the payoff of a mortgage loan and the partial
payoff of another mortgage loan during the last twelve months. Additional rent
and additional interest increased by $386,000 or 3% over the same period in
1999. The increase was primarily attributable to increases in additional rent
and additional interest based on increases in the facility revenues or the
Consumer Price Index pursuant to the Company's existing leases and mortgage
loans receivable.
Interest and amortization of deferred financing costs increased $6,388,000
or 17% over the same period in 1999. The increase was primarily due to the
issuance of $112,750,000 in fixed rate medium-term notes during the first nine
months of 1999, the interest on which is now included for a full nine months,
increases in the average interest rates on the Company's $100,000,000 bank
line of credit and a reduction in interest capitalized on construction
projects, partially offset by the repayment of $10,000,000 in medium-term
notes in February 2000. Depreciation and non-cash charges increased $1,068,000
or 4% over the same period in 1999. The increase was primarily attributable to
increased depreciation due to the completion of additional facilities over the
last twelve months and depreciation adjustments, partially offset by the
disposal of 14 facilities during the last nine months and 6 facilities during
the last quarter of 1999. General and administrative costs decreased $53,000
or 1% over the same period in 1999. The decrease was primarily due to the
write off, during the third quarter of 1999, of third party costs related to
due diligence for mergers and major portfolio acquisitions which were not
finalized by the Company, partially offset by increases in legal fees incurred
during the first nine months of 2000 related to three operators in bankruptcy
and other general expenses.
Effective January 1, 2000, the Company negotiated a new lease and
settlement with Beverly that incorporates 38 of its 47 leased facilities, most
of which were up for renewal in 2000. The other 9 facilities leased to Beverly
are on a separate lease that does not expire until 2010. The new lease
provides for an initial five-year lease term for 18 of the 38 facilities. As
part of the renewal settlement, 2 of the 38 facilities as well as 3 other
8
<PAGE>
facilities that Beverly had previously subleased to other operators were
returned to Beverly. The renewal settlement included a promissory note of
approximately $16,208,000 that bears interest at 9.0% and requires Beverly to
make quarterly payments through its final maturity on December 31, 2004. The
future revenues related to the promissory note will decrease as the Company
receives the quarterly principal payments. Pursuant to the settlement, Beverly
will operate the remaining 18 facilities at reduced rentals until the earlier
of January 1, 2001 or the date the Company is able to lease the facilities to
new operators. As of November 1, 2000, the Company has leased 15 of these
facilities to new operators, has decided to sell 2 for which it expects to
receive approximately book value and anticipates having a new operator in
place at the remaining facility by December 31, 2000 at rental rates
approximately equal to the aggregate rental currently being paid by Beverly;
however there is no guarantee that a new operator will be in place by that
date, that the Company will receive rental rates equal to the aggregate rental
currently being paid by Beverly, or that the Company will receive book value
for the 2 facilities it plans to sell.
Third Quarter 2000 Compared to Third Quarter 1999
Minimum rent increased $1,775,000 or 6% over the same period in 1999. The
increase was primarily due to increases in minimum rent as a result of
investments in additional leased facilities during the last twelve months and
to a shift in the characterization of rent from additional rent to minimum
rent due to the lease negotiation discussed above as well as the conversion of
three mortgaged facilities to leases during the year. Interest and other
income decreased by $338,000 or 6% over the same period in 1999. The decrease
was primarily due to the conversion of three mortgaged facilities to leases,
the payoff of a mortgage loan and the partial payoff of another mortgage loan
during the last twelve months, partially offset by the funding of three
mortgage loans during the last twelve months and interest on the note
receivable from Beverly Enterprises, Inc. discussed above. Additional rent and
additional interest decreased by $71,000 or 2% over the same period in 1999.
The decrease was primarily attributable to the shift in the characterization
of rent from additional rent to minimum rent as discussed above, offset by
increases in additional rent and additional interest based on increases in the
facility revenues or the Consumer Price Index pursuant to the Company's
existing leases and mortgage loans receivable.
Interest and amortization of deferred financing costs increased $1,624,000
or 12% over the same period in 1999. The increase was primarily due to the
issuance of $44,000,000 in fixed rate medium-term notes during September of
1999, increases in the average interest rates on the Company's $100,000,000
bank line of credit and a reduction in interest capitalized on construction
projects, partially offset by the repayment of $10,000,000 in medium-term
notes in February 2000. Depreciation and non-cash charges increased $145,000
or 2% over the same period in 1999. The increase was primarily attributable to
increased depreciation due to the completion of additional facilities over the
last twelve months and depreciation adjustments, partially offset by the
disposal of facilities during the last twelve months. General and
administrative costs decreased $274,000 or 16% over the same period in 1999.
The decrease was primarily due to the write off, during the third quarter of
1999, of third party costs related to due diligence for mergers and major
portfolio acquisitions which were not finalized by the Company, partially
offset by increases in legal fees during the third quarter of 2000 related to
three operators in bankruptcy and other general expenses.
The Company expects to receive 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 to
receive increased additional rent and additional interest at individual
facilities 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 offset the aforementioned revenue increases, and if sales and
repayments exceed additional investments, would actually reduce revenues. The
Company expects that additional rent and additional interest may decrease due
to lease renewals that may result in a shift in the characterization of
revenue from additional rent to minimum rent. The
9
<PAGE>
aggregate impact of this shift in the characterization of revenue may be a
decrease in the total rent received by the Company. Additional investments in
healthcare facilities would 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
at least partially offset by rents or interest income associated with the
investments.
Information Regarding Certain Operators
Three of the companies that operate facilities owned by the Company have
filed for bankruptcy protection. The table below summarizes the filing dates
of the bankruptcies, the number of the Company's owned facilities currently
operated by each operator, the Company's current investment in facilities
subject to the bankruptcies, the percentage of the Company's revenue for the
nine months ended September 30, 2000 relating to the facilities operated by
each operator and cash deposits and letters of credit currently held by the
Company as security for each operator.
<TABLE>
<CAPTION>
Number of Investment Percentage
Bankruptcy Facilities in of 2000 Security
Operator Filing Date Operated Facilities Revenues Deposits
-------- ---------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Mariner Post-Acute
Network................ January 18, 2000 20 $ 60,354,000 6% $2,655,000
Sun Healthcare Group,
Inc.................... October 14, 1999 19 65,167,000 4 1,929,000
Integrated Health
Services, Inc.......... February 2, 2000 7 35,110,000 3 643,000
--- ------------ --- ----------
Totals.............. 46 $160,631,000 13% $5,227,000
=== ============ === ==========
</TABLE>
In addition to the above, the Company has one mortgage loan directly with
Mariner Post-Acute Network in the amount of $7,497,000 that is secured by one
facility. The revenues from this mortgage loan represent approximately 1% of
the Company's revenues for the nine months ended September 30, 2000 and the
mortgage loan has a security deposit in the amount of $400,000. The Company
has not received any payments on this mortgage loan subsequent to March 2000.
Under bankruptcy statutes, the tenant must either affirm the Company's
leases or reject them and return the properties to the Company. If the tenant
affirms the leases, it is required to assume the leases under the existing
terms; the court cannot order the leases modified as part of the assumption
without the consent of the Company. The likelihood that the Company's leases
would be affirmed rests primarily on whether the properties that are operated
by the tenant are providing positive cash flows. Only a few of the 46
facilities leased to and operated by these three companies are not providing
adequate cash flows on their own to cover the rent under the leases. The
Company's rent has been paid each month on a timely basis. Although there is a
possibility that these properties may be returned by the courts, the Company
has identified parties interested in leasing these facilities; however, such
leases may be at a lower rental rate.
Liquidity and Capital Resources
During the nine months ended September 30, 2000, the Company provided new
construction financing of approximately $16,180,000. The Company completed
construction of five assisted living facilities in 2000, in which the
Company's total aggregate investment was $44,979,000; $10,660,000 of this
amount was a current year investment included in the new construction
financing amount above. Upon completion of construction, the Company
concurrently leased the facilities under terms generally similar to the
Company's existing leases. During the nine-month period ended September 30,
2000, the Company also funded approximately $1,997,000 in capital improvements
at certain facilities in accordance with certain existing lease provisions.
Such capital improvements result in an increase in the minimum rents the
Company earns on these facilities. The Company funded the construction
advances and capital improvement advances with borrowings on the Company's
bank line of credit and cash on hand.
During the nine-month period ended September 30, 2000, the Company disposed
of five skilled nursing facilities and two assisted living facilities in four
separate transactions for aggregate proceeds of approximately
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$18,599,000. The Company recognized an aggregate gain of $1,149,000 related to
the disposal of these facilities. The Company used the proceeds to repay
borrowings on the Company's bank line of credit.
During the nine months ended September 30, 2000, a loan with a net book
value of approximately $7,509,000 secured by three skilled nursing facilities
was repaid. In addition, a $3,666,000 portion of one of the mortgage loans
secured by one skilled nursing facility was also repaid. The Company used the
proceeds to repay borrowings on the Company's bank line of credit.
During the nine-month period ended September 30, 2000, the Company repaid
$10,000,000 in aggregate principal amount of medium-term notes. The notes bore
interest at a fixed rate of 8.48%. The Company funded the repayment with
borrowings on the Company's bank line of credit and cash on hand.
At September 30, 2000, the Company had $52,500,000 available under its
$100,000,000 bank line of credit. During the second quarter, the bank line of
credit was amended, resulting in an extension of the maturity by one year to
March 31, 2003. The amendment also modified the rates and covenants under the
bank line of credit. At the option of the Company, borrowings under the
agreement bear interest at prime or LIBOR plus 115 basis points. The Company
pays a facility fee of .35% per annum on the total commitment under the
agreement. Under covenants contained in the credit agreement, the Company is
required to maintain, among other things: (i) a minimum net worth of
$475,000,000; (ii) a ratio of cash flow before interest expense and non-cash
expenses to regularly scheduled debt service payments on all debt of at least
2.5 to 1.0; (iii) a ratio of total liabilities to net worth of not more than
1.6 to 1.0; and (iv) a gross asset value coverage ratio of at least 1.45 to
1.0.
The Company has shelf registrations on file with the Securities and
Exchange Commission under which the Company may issue (a) up to $442,100,000
in aggregate principal amount of medium term notes and (b) up to approximately
$178,247,000 of securities including debt, convertible debt, common and
preferred stock.
The Company may make additional investments in healthcare related
facilities. However, the level of the Company's new investments has decreased
and the Company does not anticipate making additional investments beyond its
current commitments until such time as access to long-term capital is under
more favorable terms. Financing for future investments by the Company 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 anticipates the repayment of certain
mortgages and the possible sale of certain facilities during the remainder of
2000 and during 2001. In an effort to reduce the mortgage loan portfolio, the
Company has waived any prepayment penalties through December 31, 2000 on all
mortgage loans and is encouraging borrowers to refinance. In the event that
there are mortgage repayments or facility sales in excess of new investments,
revenues may decrease. The Company anticipates using the proceeds from any
mortgage repayments or facility sales to reduce the outstanding balance on the
Company's bank line of credit. Any such reduction would result in reduced
interest expense that the Company believes would partially offset any decrease
in revenues. The Company believes it has sufficient liquidity and financing
capability to finance anticipated future investments, maintain its current
dividend level and repay borrowings at or prior to their maturity.
Market Risk Exposure
This "Market Risk Exposure" discussion is an update of material changes to
the "Market Risk Exposure" discussion included in the Company's 1999 Annual
Report on Form 10-K filed with the Securities and Exchange Commission and
should be read in conjunction with such discussion. Readers are cautioned that
many of the statements contained in the "Market Risk Exposure" discussion 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.
The Company is exposed to market risks related to fluctuations in interest
rates on its mortgage loans receivable and debt. The Company does not utilize
interest rate swaps, forward or option contracts on foreign currencies or
commodities, or other types of derivative financial instruments.
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The Company provides mortgage loans to operators of healthcare facilities
as part of its normal operations. The majority of the loans have fixed rates.
Four of the mortgage loans have adjustable rates, although the rates adjust
only once or twice over the loan lives and the minimum adjusted rate is equal
to the current rate. Therefore, all mortgage loans receivable are treated as
fixed rate notes.
The Company utilizes debt financing primarily for the purpose of investing
in additional healthcare facilities. Historically, the Company has made short-
term borrowings on its variable rate bank line of credit to fund its
acquisitions until, based on management's judgment, market conditions were
appropriate to issue stock or fixed rate debt to provide long-term financing.
During the nine months ended September 30, 2000, the Company repaid
$10,000,000 of fixed rate debt at a rate of 8.48%. In addition, the bank
borrowings under the Company's bank line of credit have decreased to
$47,500,000 from $75,300,000.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but do not affect earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not impact fair
market value, but do affect future earnings and cash flows.
Increases in interest rates during 1999 resulted in an increase in interest
expense for the Company primarily related to the bank line of credit and
medium-term notes issued during the year at rates somewhat higher than in
prior years. Increases in interest rates during 2000 have resulted in an
additional increase in interest expense related to the bank line of credit.
These interest rate increases made it more expensive for the Company to borrow
on its bank line of credit and to access debt capital through its medium-term
note program. Any future interest rate increases will further increase the
cost of any borrowings to finance future acquisitions or replace current long-
term debt as it matures.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
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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: November 9, 2000
NATIONWIDE HEALTH PROPERTIES, INC.
By /s/ Mark L. Desmond
-----------------------------------
Mark L. Desmond
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
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