<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration No. 33-53173
PROSPECTUS SUPPLEMENT
- ---------------------------------
(TO PROSPECTUS DATED JUNE 6, 1994)
6,500,000 SHARES
HEALTH AND RETIREMENT PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
------------------
Health and Retirement Properties Trust (the "Company" or "HRP") is a real
estate investment trust (a "REIT") which invests primarily in retirement
communities, assisted living centers and nursing homes. The Shares are traded on
the New York Stock Exchange (the "NYSE") under the symbol "HRP". On December 18,
1995, the last reported sale price for the Shares on the NYSE was $16.00 per
Share.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
=========================================================================================================
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $ 16.00 $ .85 $ 15.15
- ---------------------------------------------------------------------------------------------------------
Total(3)............................ $104,000,000 $5,525,000 $98,475,000
=========================================================================================================
<FN>
(1) For information regarding indemnification of the Underwriters, see "Underwriting".
(2) Before deducting expenses of the Offering payable by the Company estimated at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
975,000 additional Shares solely to cover over-allotments, if any. See
"Underwriting". If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $119,600,000, $6,353,750 and $113,246,250, respectively.
</TABLE>
------------------
The Shares are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the Shares offered hereby will
be made available for delivery on or about December 21, 1995 at the office of
Smith Barney Inc., 14 Wall Street, New York, New York 10005.
------------------
SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
------------------
December 18, 1995.
<PAGE> 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
In addition to the documents incorporated by reference or deemed
incorporated by reference into the Prospectus dated June 6, 1994 (filed by the
Company prior to the change of the Company's name from "Health and
Rehabilitation Properties Trust" to "Health and Retirement Properties Trust"),
which Prospectus is supplemented by this Prospectus Supplement, the following
documents, which have been filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), are hereby incorporated in this Prospectus Supplement and
specifically made a part hereof by reference: (i) the consolidated financial
statements of Horizon/CMS Healthcare Corp. ("Horizon/CMS"), Commission File No.
1-19369, at and for the fiscal year ended May 31, 1995, incorporated herein by
reference from Horizon/CMS' Report on Form 10-K/A Amendment No. 1, as amended
and restated in Item 7 of Horizon/CMS' Current Report on Form 8-K dated
November 21, 1995; (ii) the consolidated financial statements of Marriott
International, Inc. ("MII"), Commission File No. 1-12188, at and for the fiscal
year ended December 30, 1994, incorporated herein by reference from MII's
Report on Form 10-K for the year ended December 30, 1994; (iii) the
consolidated financial statements of GranCare, Inc. ("GranCare"), Commission
File No. 1-19571, at and for the fiscal year ended December 31, 1994,
incorporated herein by reference from GranCare's Report on Form 10-K for the
year ended December 31, 1994; and (iv) the supplemental consolidated financial
statements of GranCare at and for the fiscal year ended December 31, 1994
included in GranCare's Form 8-K/A dated September 21, 1995. All documents filed
by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Shares offered by the Company shall be
deemed to be incorporated by reference into this Prospectus Supplement and to
be a part hereof from the respective dates of filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein, or in any other subsequently filed document that also is or
is deemed to be incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
The Company will provide without charge to each person to whom this
Prospectus Supplement is delivered, upon the written or oral request of such
person, a copy of any and all of the information that has been incorporated by
reference in this Prospectus Supplement (excluding exhibits unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus Supplement incorporates). Requests for such copies should be made to
the Company at its principal executive offices, 400 Centre Street, Newton,
Massachusetts 02158, Attention: Investor Relations, telephone (617) 332-3990.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus Supplement. Unless otherwise noted, the
information contained in this Prospectus Supplement assumes that (i) the
Underwriters' over-allotment option is not exercised and (ii) the transactions
specifically described below in "Recent Developments" have been completed.
THE COMPANY
The Company has direct and indirect real estate investments, at cost,
totalling over $1 billion in 196 properties that are leased to or operated by
over 40 separate companies. The Company is one of the largest publicly-traded
equity REITs in the United States. Upon completion of this offering (the
"Offering"), the Company expects to have approximately 65.7 million Shares
outstanding, shareholders' equity of $715.0 million and an equity market
capitalization of over $1 billion. Approximately 86% of the Company's
investments, at cost, are in properties leased to or operated by public
companies or high credit quality private companies. The Company's unsecured
senior debt is rated "investment grade" by Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. and Fitch Investors Service, L.P. The Company's
largest tenant is Marriott International, Inc.
HRP PORTFOLIO BY OPERATOR
The Prospectus Supplement includes a pie chart with the five captions
shown below each indicating the pie wedge with percentages as follows: Other
Public Healthcare Companies--37%; Medicare Office Buildings--7%; 22 Private
Companies--14%; Hospitality Properties Trust--10%; and Marriott
International--32%.
Other Public Healthcare Companies Medical Office Buildings
- --Community Care of America --U.S. Department of Veterans' Affairs
- --GranCare --Boston Children's Medical Center
- --Vencor --Boston's Beth Israel Hospital
- --Horizon/CMS --Harvard Community Health Plan
- --Integrated Health Services --Dana Farber Cancer Institute
- --Multicare --Unilab
- --Sun Healthcare
22 Private Companies
Hospitality Properties Trust
Marriott International
During the past nine years, the Company has paid 35 consecutive
quarterly dividends and has increased its dividend rate ten times. The current
quarterly dividend rate is $.35/Share or $1.40/Share on an annualized basis.
The next quarterly dividend of $.35/Share will be paid to shareholders of
record on January 10, 1996; purchasers of the Shares offered hereby who
continue to hold such Shares through January 10, 1996 will receive this
dividend.
HRP DIVIDEND GROWTH
The Prospectus Supplement contains a bar graph showing the annual
dividends listed below:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 ANNUALIZED
- ----- ----- ----- ----- ----- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1.06 $1.12 $1.14 $1.17 $1.23 $1.26 $1.30 $1.33 $1.40
</TABLE>
S-3
<PAGE> 4
HRP RETURN SINCE DECEMBER 31, 1986
Since its organization in December 1986, an investment in HRP equity has
provided shareholders an average total return, including reinvestment of
dividends and Share price appreciation, of approximately 18% per annum. The
following table shows how $100 invested in HRP Shares at December 31, 1986,
would have grown to $436 as of November 30, 1995, as compared with the return an
investor would have realized from a $100 investment in the equity securities
represented by the Standard & Poor's 500 Index or the National Association of
Real Estate Investments Trusts ("NAREIT") Index.
<TABLE>
<CAPTION>
VALUE AT NOVEMBER 30, 1995
AVERAGE ANNUAL OF A $100 INVESTMENT
RETURN ON DECEMBER 31, 1986
--------------- --------------------------
<S> <C> <C>
HRP.................... 18% $436
S&P Index.............. 14% $331
NAREIT Index........... 6% $165
</TABLE>
<TABLE>
THE OFFERING
<S> <C>
Shares to be offered...................... 6,500,000
Shares to be outstanding after the
Offering................................ 65,690,166
Use of proceeds........................... To repay debt and for working capital and other
general business purposes.
NYSE symbol............................... HRP
</TABLE>
S-4
<PAGE> 5
<TABLE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -----------------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $32,872 $43,835 $48,735 $56,485 $86,683 $61,279 $85,463
Income before
extraordinary item
and gain (loss) on
sale of properties... 14,280 22,079 27,243 37,738 51,872 42,572 47,552
Net income............. 14,280 22,079 27,243 33,417(1) 49,919(2) 44,613(2) 50,028(3)
Dividends(4)........... 18,927 27,179 33,079 44,869 76,317 52,628 60,963
Per Share:
Income before
extraordinary item
and gain (loss) on
sale of
properties........ $.89 $1.01 $1.02 $1.10 $1.10 $.83 $.81
Net income........... .89 1.01 1.02 .97(1) .95(2) .87(2) .85(3)
Dividends(4)......... 1.17 1.23 1.26 1.30 1.33 .99 1.03
Average Shares
outstanding.......... 16,088 21,834 26,760 34,407 52,738 51,172 58,977
OTHER DATA:
Funds From
Operations(5)........ $19,467 $30,059 $36,853 $47,578 $73,846 $53,136 $65,422
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate properties,
net...................... $188,352 $262,557 $310,882 $349,842 $633,513 $ 712,093
Real estate mortgages,
net...................... 87,061 31,760 47,173 157,281 133,477 149,910
Total assets............... 290,099 340,718 374,468 527,662 840,206 1,000,233
Total borrowings........... 125,500 103,000 138,500 73,000 216,513 364,697
Total shareholders'
equity................... 147,760 234,427 228,301 441,135 602,039 617,148
<FN>
- ---------------
(1) Includes, as an extraordinary charge, the write-off of $4.3 million in
deferred finance charges (approximately $.13 per Share) resulting from
prepayment of debt with proceeds from the Company's Share offerings in 1993.
(2) Includes a $4 million gain on sale of property (approximately $.08 per
Share), a provision for loss on sale of properties of $10 million
(approximately $.19 per Share) and, as an extraordinary charge, the
write-off of $2 million in deferred finance charges (approximately $.04 per
Share) resulting from the prepayment of debt.
(3) Includes a $2.5 million gain on sale of property (approximately $.04 per
Share).
(4) Amounts represent dividends declared with respect to the periods shown.
(5) The Company's "Funds From Operations" represents net income (computed in
accordance with GAAP), before real estate depreciation and amortization
(including deferred finance charges) and includes its pro rata share of
Hospitality Properties Trust's Funds From Operations. Management considers
Funds From Operations to be a measure of the financial performance of an
equity REIT that provides a relevant basis for comparison among REITs, and
Funds From Operations is presented to assist in analyzing the performance of
the Company. Funds From Operations does not represent cash flows from
operating activities (as determined in accordance with GAAP) and should not
be considered as an alternative to net income as an indicator of the
Company's financial performance or to cash flows as a measure of liquidity.
</TABLE>
S-5
<PAGE> 6
RECENT DEVELOPMENTS
From January 1, 1995 through December 8, 1995, the Company has made
approximately $195.8 million in net new investments, including the following:
Net Investment of $100 Million in Hospitality Properties Trust. In March
1995, the Company acquired 21 Courtyard by Marriott(R) hotels for approximately
$179.4 million, which were leased to a subsidiary of Host Marriott Corporation
("Host") and managed by a subsidiary of Marriott International, Inc.
("Marriott"). The investment in these hotels was an outgrowth of the Company's
business relationship with Host and Marriott which arose when the Company
purchased 14 retirement communities from Host in 1994. At that time, the Company
also acquired options and other rights to purchase additional hotel properties
from Host. In August 1995, the Company transferred all of its hotel investments
to a subsidiary, Hospitality Properties Trust ("HPT"), which completed an
initial public offering and purchased an additional 16 hotels. Simultaneously
with the initial public offering by HPT, $79.4 million of the Company's original
investment was repaid to HRP and the balance of $100 million was exchanged for
four million shares of HPT. As a result of its investment in hotel properties,
the Company's outstanding indebtedness was downgraded by two of the three debt
rating agencies which rate the Company's debt securities because, in their view,
the value of hotel real estate is more volatile than health care real estate.
The Company has publicly announced that it does not intend to make any future
direct investments in hotels. On December 8, 1995, the market value of the
Company's four million shares of HPT was approximately $104 million.
$48.3 Million Purchase of Two Medical Office Buildings From Boston's
Children's Medical Center. In September 1995, the Company purchased two medical
office buildings (approximately 390,000 sq. ft.) from a subsidiary of Boston's
Children's Medical Center. These office buildings are located in Boston's
Longwood Medical Area in the vicinity of Harvard Medical School and several
large not-for-profit teaching hospitals. These medical office buildings are
currently 100% leased to various high credit quality tenants including Boston's
Children's Medical Center, Boston's Beth Israel Hospital, Harvard Community
Health Plans and Dana Farber Cancer Institute.
$31.9 Million Purchase of Nine Nursing Homes in Vermont and New
Hampshire. In January 1995, the Company purchased nine nursing homes (916 beds)
located in Vermont and New Hampshire. The purchase price was approximately $31.9
million; of this amount approximately $24.4 was paid in 1,777,766 Shares valued
at then market value and the balance (approximately $7.5 million) was paid in
cash and used by the seller to retire pre-existing debt. Simultaneously with
this purchase, these nursing homes were leased to new corporations organized and
owned by the Company's former president, Mark J. Finkelstein, and by two of the
Company's Trustees, Barry M. Portnoy and Gerard M. Martin. The Company believes
the terms of these leases represent fair market value and these terms were
approved by the unanimous vote of the Trustees not personally involved in this
transaction.
$20 Million Transaction with Community Care of America, Inc. for 14 Nursing
Homes. In April 1995, the Company purchased or mortgage financed 14 nursing
homes (992 beds) located in Nebraska, Iowa, Kansas and Missouri for
approximately $20 million. These facilities were simultaneously leased or sold
to Community Care of America, Inc. ("CCAI"). The Company had previously invested
approximately $67.7 million in properties leased to or mortgaged by CCAI. In
August 1995, CCAI completed an initial public offering of equity securities for
approximately $32.8 million, $10.8 million of which offering proceeds were used
to repay indebtedness due to the Company.
$15 Million Purchase of U.S. Veterans' Administration Clinic. In November
1995, the Company entered into an agreement to acquire for $15 million an
approximately 157,000 sq. ft. medical clinic located in downtown Boston,
Massachusetts which is 100% leased to the United States Department of Veterans'
Affairs. This purchase is expected to close in late December 1995.
$13 Million Sale Leaseback with Multicare Companies. In September 1995,
the Company purchased a nursing home located in New Jersey for $13 million and
simultaneously leased that facility to The Multicare Companies, Inc., a NYSE
listed nursing home operating company. This facility was recently constructed
and opened in 1994.
S-6
<PAGE> 7
$11.5 Million First Mortgage for Four Assisted Living Facilities in North
Carolina. In January 1995, the Company provided $11.5 million of first mortgage
financing secured by four assisted living facilities (405 beds) located in North
Carolina. This mortgage loan was made to an unaffiliated, privately owned
borrower.
Improvement Financing. In the ordinary course of its business the Company
occasionally provides financing to tenants or mortgagors for improvements to
properties owned or mortgaged by the Company. When such financing is provided,
the rent or interest payable to the Company is correspondingly increased. From
January 1, 1995 through December 8, 1995, such financings aggregated
approximately $9.7 million, net.
Property Dispositions. In addition to the repayment which the Company
received from the proceeds of the initial public offerings of HPT and CCAI (see
"-- Net Investment of $100 Million in Hospitality Properties Trust" and "-- $20
Million Transaction with Community Care of America, Inc. for 14 Nursing Homes"),
the Company receives regularly scheduled principal payments and occasional
prepayments of its mortgage receivables. From January 1, 1995 to December 8,
1995, these principal repayments and prepayments totalled $26.7 million. Also,
in December 1994, Horizon/CMS, one of the Company's tenants, exercised its
purchase option affecting one of the healthcare facilities which it leased from
the Company. This specialty rehabilitation facility in Slidell, Louisiana was
purchased by Horizon/CMS in February 1995 for $24.5 million and the purchase
price was paid $5 million in cash and the balance in a purchase money note
secured by a first mortgage on this facility due in 2000; the Company recognized
a gain of $2.5 million on this sale. Also, in November 1995, the Company
completed the sale of two psychiatric hospitals that it owned in Louisville,
Kentucky and Hickory, North Carolina to the former tenant of these hospitals.
These facilities were sold for approximately $12 million in cash. During 1994,
when these psychiatric hospitals were classified as assets held for sale, the
Company recognized a loss of $10 million on the expected disposition and no
further loss was realized as a result of the sale. The Company currently has no
investments in psychiatric hospitals.
Increased Revolving Bank Credit Facility. During 1995, the Company
increased its revolving bank credit facility to $250 million. The current
facility matures in 1998 and funds may be drawn and repaid periodically during
the term. The funding is provided by a bank syndicate and borrowings under this
credit facility are unsecured and bear interest, at the Company's option, at
prime or a spread over LIBOR. See "Use of Proceeds".
Change of Personnel. During 1995, Mark J. Finkelstein resigned as
President of the Company to form companies which lease certain nursing homes
from the Company. See "-- $31.9 Million Purchase of Nine Nursing Homes in
Vermont and New Hampshire". David J. Hegarty, formerly Executive Vice President,
was promoted to replace Mr. Finkelstein as President and Chief Operating
Officer. Upon consummation of the initial public offering for HPT (see "-- Net
Investment of $100 Million in Hospitality Properties Trust"), John Murray
resigned as the Company's Chief Financial Officer to assume a comparable
position at HPT, and two Trustees of the Company, Arthur Koumantzelis and John
Harrington, resigned to become Trustees of HPT. Mr. Murray was replaced as Chief
Financial Officer of the Company by Ajay Saini who had previously served as the
Company's Chief Accounting Officer. Messrs. Koumantzelis and Harrington have
been replaced on the Company's Board of Trustees by Bruce M. Gans, M.D. and
Ralph J. Watts; Dr. Gans is President of the Detroit Rehabilitation Institute
and Mr. Watts is President and Chief Executive Officer of Cardiovascular
Ventures, Inc. See "Management".
Other Transactions. In the ordinary course of its business, the Company
regularly evaluates investment opportunities and enters into contracts to
purchase and lease or mortgage finance health care related real estate. Several
such possible investments are currently under consideration and at various
stages of the contractual process. Similarly, the Company is regularly engaged
in discussions with its existing tenants and mortgagors concerning lease and
loan extensions and other modifications of the terms of existing leases and
mortgages. The Company does not believe the consummation of any one or all of
these various transactions would have a material impact upon its financial
condition or operations.
S-7
<PAGE> 8
THE COMPANY
HRP invests principally in retirement communities, assisted living centers,
nursing homes and other income producing health care related real estate. At
December 8, 1995, the Company had direct and indirect real estate investments,
at cost, totalling over $1 billion in 196 properties that are leased to or
operated by over 40 separate companies.
LOCATION OF COMPANY PROPERTIES
The Prospectus Supplement contains a map of the continental United States with
the states listed below shaded.
<TABLE>
<CAPTION>
TOTAL
NUMBER OF INVESTMENT
STATE PROPERTIES (IN THOUSANDS)
----- --------- --------------
<S> <C> <C>
Arizona............... 5 $ 28,062
California............ 15 74,992
Colorado.............. 11 36,097
Connecticut........... 9 86,313
Florida............... 6 132,938
Georgia............... 1 1,830
Illinois.............. 2 39,453
Iowa.................. 13 20,053
Kansas................ 9 14,594
Kentucky.............. 1 1,348
Louisiana............. 1 19,500
Maryland.............. 1 33,080
Massachusetts......... 8 145,321
Michigan.............. 2 9,400
Missouri.............. 3 5,258
Nebraska.............. 16 14,777
North Carolina........ 11 24,173
<CAPTION>
TOTAL
NUMBER OF INVESTMENT
STATE PROPERTIES (IN THOUSANDS)
----- --------- --------------
<S> <C> <C>
New Hampshire......... 1 3,689
New Jersey............ 1 13,000
Ohio.................. 7 25,098
Pennsylvania.......... 2 18,396
South Dakota.......... 3 7,589
Texas................. 6 16,838
Vermont............... 8 29,762
Virginia.............. 3 57,666
Washington............ 1 5,193
Wisconsin............. 9 43,650
Wyoming............... 4 8,308
--- ----------
Total Health Care
Related
Properties.......... 159 $ 916,378
HPT Investment........ 37 99,938
--- ----------
Total -- All
Properties.......... 196 $1,016,316
=== ==========
</TABLE>
S-8
<PAGE> 9
DISTRIBUTIONS
The Company has paid 35 consecutive quarterly dividends since its initial
public offering in December 1986. Dividends for 1987, 1988, 1989, 1990, 1991,
1992, 1993, 1994 and the first nine months of 1995 totalled $1.06, $1.12, $1.14,
$1.17, $1.23, $1.26, $1.30, $1.33 and $1.03, respectively. The regular quarterly
dividend of $.35 per Share for the period ended December 31, 1995 will be paid
on or about February 20, 1996 to shareholders of record on January 10, 1996;
purchasers of the Shares offered hereby who continue to hold such Shares through
January 10, 1996 will receive that dividend.
The Company intends to continue to declare and pay future dividends in cash
on a quarterly basis, but may, from time to time, declare and pay special
dividends. There can be no assurance that the Company will be able to increase
its quarterly dividend or maintain it at the current level. Payment of dividends
by the Company is subject to continued compliance with certain restrictions
contained in the Company's loan agreements. In the past, the Company's dividends
have been based upon Funds From Operations, which has exceeded earnings. Cash
available for distribution may not necessarily equal Funds From Operations as
the cash flow of the Company is affected by other factors not included in the
Funds From Operations calculation. Management expects that the Company will
continue to pay dividends based upon Funds From Operations and that such
dividends may exceed earnings. Accordingly, the Company expects a portion of the
Company's dividends to be considered a return of capital which may not be
subject to income tax until the Shares are sold. See "Federal Income Tax and
ERISA Considerations". Information about dividends on a quarterly basis is
summarized in the following table:
<TABLE>
HRP DIVIDENDS PER SHARE(1)
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter............ $.275(2) $.28 $.28 $.29 $.30 $.31 $.32 $.33 $.34
Second Quarter........... .26 .28 .28 .29 .31 .31 .32 .33 .34
Third Quarter............ .27 .28 .29 .29 .31 .32 .33 .33 .35
Fourth Quarter........... .28 .28 .29 .30 .31 .32 .33 .34 --(3)
<FN>
- ---------------
(1) Dividends shown in the chart above are dividends declared and paid with
respect to the year and quarter shown. With respect to dividends for 1987,
1988, 1989, 1990, 1991, 1992, 1993, 1994 and 1995, $.281, $.147, $.317,
$.226, $.132, $.247, $.272, $.090 and $.117 (estimated), respectively,
represent a return of capital.
(2) Includes $.025 for the period from December 23, 1986 (commencement of the
Company's operations) through December 31, 1986.
(3) The regular quarterly dividend of $.35 per Share for the period ended
December 31, 1995 will be paid on or about February 20, 1996 to shareholders
of record on January 10, 1996.
</TABLE>
S-9
<PAGE> 10
CAPITALIZATION
The capitalization of the Company as of September 30, 1995 and as adjusted
to give effect to the completion of the Offering and the use of the net proceeds
therefrom is as follows (see "Unaudited Pro Forma Balance Sheet"):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Bank notes payable................................................... $ 148,000 $ 56,125(1)
Notes and bonds payable, net......................................... 216,697 216,697
Shareholders' equity:
Preferred Shares of Beneficial Interest, par value $.01 per Share;
50,000,000 authorized, none issued.............................. -- --
Common Shares of Beneficial Interest, par value $.01 per Share;
100,000,000 Shares authorized; 59,190,166 Shares and 65,690,166
Shares, as adjusted, issued and outstanding..................... 592 657
Additional paid-in capital......................................... 677,809 775,619
Cumulative net income.............................................. 218,836 218,836
Distributions of Funds From Operations............................. (280,089) (280,089)
--------- ---------
Total shareholders' equity................................. 617,148 715,023
--------- ---------
Total capitalization....................................... $ 981,845 $ 987,845
========= =========
<FN>
- ---------------
(1) Includes $6 million of borrowings related to the proposed purchase of U.S.
Veterans' Administration Clinic in December 1995.
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are approximately $97.9
million ($112.6 million if the over-allotment option is exercised in full). Net
proceeds from the Offering will be used to reduce amounts outstanding under the
Company's credit facilities and for working capital and other general business
purposes. At September 30, 1995, $148 million was outstanding under the
Company's revolving credit facility. Under the terms of the revolving credit
facility, the Company may draw up to $250 million. Outstanding amounts bear
interest, at the Company's option, at prime or a spread over LIBOR, and the
revolving credit line expires in 1998. At September 30, 1995, the interest rate
applicable to borrowings under the revolving credit facility was 7.1%.
S-10
<PAGE> 11
INVESTMENT AND FINANCING POLICY
The population of the United States is aging. According to information from
the U.S. Census Bureau, the segment of the U.S. population age 65 and over is
increasing and is expected to increase sharply through the year 2020. The
Company believes that the demand for services provided at retirement
communities, assisted living centers and nursing homes should increase as the
population ages. Currently proposed federal legislation seeks to limit the
amount of growth in government expenditures for Medicare and Medicaid. These
limitations, if enacted, may adversely affect the profitability of health care
operating companies and might, in certain circumstances, affect their ability to
pay rent or service debt. These government funding limitations will likely also
make it less profitable to construct new health care facilities and thus may
increase the value of existing facilities. The Company believes that the net
effect of both these demographics and legislative changes will be to make it
less profitable to provide services and facilities for government funded
patients and more profitable to provide services and facilities for
non-government supported patients. The Company intends to respond to these
changes in three ways: (i) by focusing new investments in properties that are
not directly dependent upon a high percentage of Medicaid or Medicare revenues,
including retirement housing, assisted living facilities, medical office
buildings and nursing homes with a high percentage of private pay revenues; (ii)
by encouraging and making funding available to the operators of the Company's
existing properties to improve these properties in order to attract a greater
amount of non-government revenues; and (iii) whenever possible, by making new
investments in properties leased to well capitalized operators.
The Company considers equity offerings when, in the Company's judgment,
doing so will improve the Company's capital structure, while not materially
adversely affecting the market value of its Shares or impeding the Company's
ability to increase regularly its per Share dividend rate. In addition to the
use of equity, the Company utilizes short term and long term borrowings to
finance investments and to pay operating expenses. The Company's unsecured
senior indebtedness has been rated "investment grade" by Standard & Poor's
Ratings Group (BBB-), Moody's Investors Service, Inc. (Baa3) and Fitch Investors
Service , L.P. (BBB+). When variable rate debt is utilized, the Company
regularly purchases interest rate futures contracts to hedge against changes in
interest rates. At September 30, 1995, the Company had outstanding term and
revolving debt totalling $364.7 million. After this Offering and assuming the
use of proceeds hereof, the Company's total debt outstanding will be
approximately $272.8 million. The Company's borrowing guidelines established in
the Company's revolving credit facility and by its Board of Trustees prohibit
the Company from maintaining a debt to equity ratio of greater than 1 to 1,
except in certain limited circumstances. As of September 30, 1995, the Company's
debt to equity ratio was .6 to 1. After this Offering and assuming the use of
proceeds hereof, the Company's debt to equity ratio on a pro forma basis will be
approximately .4 to 1. The present debt to equity limitations may be changed in
the future. There can be no assurance that equity or debt capital will be
available in the future on reasonable terms to fund the Company's operations or
growth.
S-11
<PAGE> 12
SELECTED FINANCIAL DATA
Set forth below are selected financial data for the Company for the periods
and dates indicated which have been derived from audited and unaudited financial
statements. This data should be read in conjunction with, and is qualified in
its entirety by reference to, the financial statements and accompanying notes
incorporated by reference in this Prospectus Supplement and the Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-K incorporated by reference in this
Prospectus Supplement. Amounts are in thousands, except per Share information.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues............... $32,872 $43,835 $48,735 $56,485 $86,683 $61,279 $85,463
Income before extraordinary
item and gain (loss) on
sale of properties......... 14,280 22,079 27,243 37,738 51,872 42,572 47,552
Net income................... 14,280 22,079 27,243 33,417(1) 49,919(2) 44,613(2) 50,028(3)
Dividends(4)................. 18,927 27,179 33,079 44,869 76,317 52,628 60,963
Per Share:
Income before extraordinary
item and gain (loss) on
sale of properties...... $.89 $1.01 $1.02 $1.10 $1.10 $.83 $.81
Net income................. .89 1.01 1.02 .97(1) .95(2) .87(2) .85(3)
Dividends(4)............... 1.17 1.23 1.26 1.30 1.33 .99 1.03
Average Shares outstanding... 16,088 21,834 26,760 34,407 52,738 51,172 58,977
OTHER DATA:
Funds From
Operations(5).............. $19,467 $30,059 $36,853 $47,578 $73,846 $53,136 $65,422
<CAPTION>
AT DECEMBER 31, SEPTEMBER 30, 1995
------------------------------------------------ ------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate properties, net.... $188,352 $262,557 $310,882 $349,842 $633,513 $ 712,093
Real estate mortgages, net..... 87,061 31,760 47,173 157,281 133,477 149,910
Total assets................... 290,099 340,718 374,468 527,662 840,206 1,000,233
Total borrowings............... 125,500 103,000 138,500 73,000 216,513 364,697
Total shareholders' equity..... 147,760 234,427 228,301 441,135 602,039 617,148
<FN>
- ---------------
(1) Includes, as an extraordinary charge, the write-off of $4.3 million in
deferred finance charges (approximately $.13 per Share) resulting from
prepayment of debt with proceeds from the Company's Share offerings in 1993.
(2) Includes a $4 million gain on sale of property (approximately $.08 per
Share), a provision for loss on sale of properties of $10 million
(approximately $.19 per Share) and, as an extraordinary charge, the
write-off of $2 million in deferred finance charges (approximately $.04 per
Share) resulting from the prepayment of debt.
(3) Includes a $2.5 million gain on sale of property (approximately $.04 per
Share).
(4) Amounts represent dividends declared with respect to the periods shown.
(5) The Company's "Funds From Operations" represents net income (computed in
accordance with GAAP), before real estate depreciation and amortization
(including deferred finance charges) and includes its pro rata share of
HPT's Funds From Operations. Management considers Funds From Operations to
be a measure of the financial performance of an equity REIT that provides a
relevant basis for comparision among REITs, and Funds From Operations is
presented to assist in analyzing the performance of the Company. Funds From
Operations does not represent cash flows from operating activities (as
determined in accordance with GAAP) and should not be considered as an
alternative to net income as an indicator of the Company's financial
performance or to cash flows as a measure of liquidity.
</TABLE>
S-12
<PAGE> 13
PROPERTIES
The following charts show the Company's real estate investments by type of
property and type of investment. Dollar amounts are in thousands.
TYPE OF PROPERTY TYPE OF INVESTMENT
The Prospectus Supplement The Prospectus Supplement
contains a pie chart contains a pie chart
depicting the wedges depicting the wedges
shown below. shown below.
Long Term Care 33% 14% Mortgages
$339,972 $139,476
Equity Investment in HPT 10% 10% Equity Investment in HPT
$99,938 $99,938
34% Retirement/Assisted Living 76% Owned and Leased
$340,877 $776,902
7% Medical Office Buildings
$67,190
16% Specialty Health Services
$168,338
<TABLE>
LEASE EXPIRATION AND MORTGAGE MATURITY SCHEDULES
The following table sets forth the expiration and maturity dates of the
Company's leases and mortgages for the years from 1995 to 2005, together with
the percentage of the Company's current revenues derived from rent and interest
payments under leases and mortgages expiring or maturing in each year shown:
<CAPTION>
PERCENT OF
NO. OF NO. OF COMPANY'S
LEASES MORTGAGES CURRENT
YEAR EXPIRING MATURING REVENUES
- ---- -------- --------- --------
<S> <C> <C> <C>
1995........................................................ -- -- --
1996........................................................ -- 4 0.84%
1997........................................................ 1 7 2.76
1998........................................................ 4 5 5.51
1999........................................................ -- 10 1.64
2000........................................................ 2 4 7.20
2001........................................................ 1 2 0.77
2002........................................................ -- 1 0.17
2003........................................................ 20 -- 5.10
2004........................................................ -- -- --
2005 and thereafter(1)...................................... 111 24 76.01
--- --- -----
Total....................................................... 139 57 100%
=== === =====
<FN>
- ---------------
(1) Includes 37 hotels owned by HPT and reflects the revenues from rent payments
from the Company's 31.8% ownership in HPT. The Company is entitled to
receive dividends on its shares in HPT. The Company's financial reports
include its share of HPT's operating results under the equity method of
accounting.
</TABLE>
S-13
<PAGE> 14
THE LESSEES AND MORTGAGORS
The Company's financial condition depends in large part upon the financial
condition of the operators of the Company's properties. Approximately 86% of the
Company's investments are in properties leased to or operated by public
companies or high credit quality private companies. Certain information about
the three largest operators of the Company's properties contained in their
filings with the Commission or other public sources, or provided by these
companies, is set forth in the chart below.
<TABLE>
<CAPTION>
OPERATOR DATA (DOLLARS IN THOUSANDS)(1)
---------------------------------------------------
TOTAL TOTAL SHARE- COMPANY COMPANY COMPANY
OPERATOR FACILITIES ANNUAL HOLDERS' NET FACILITIES FACILITIES INVESTMENT
(STOCK SYMBOL) (BEDS) REVENUES EQUITY INCOME (BEDS) OCCUPANCY (% OF TOTAL)
- -------------- ---------- ---------- -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marriott International...... 898 $8,415,000 $767,000 $200,000 14 95.79% $325,520
(NYSE:MAR) (188,000) (3,927) 32.0%
Horizon/CMS Healthcare...... 149 1,625,326 650,652 27,569 15 88.70% 170,498
(NYSE:HHC) (17,776) (2,323) 16.8%
GranCare(2)................. 79 549,220 106,614 15,179 27 89.23% 97,571
(NYSE:GC) (10,600) (3,908) 9.6%
<FN>
- ---------------
(1) As of the most recent fiscal year end.
(2) On July 20, 1995, GranCare acquired Evergreen Healthcare, Inc. ("Evergreen")
in a stock-for-stock transaction. The operating data set forth above for
GranCare does not reflect the merger with Evergreen.
</TABLE>
Additional Security. In addition to fee ownership of the leased properties
and mortgage liens on the mortgaged properties, certain of the Company's leases
and mortgages contain additional security features. Generally, with respect to
investments originated by the Company, each obligation of an operator to the
Company is subject to cross default provisions with respect to all other
obligations of that operator to the Company and any collateral pledged by an
operator to the Company constitutes collateral for all obligations of that
operator. Certain operators have pledged additional collateral or provided
corporate guarantees, security deposits, and, in some cases, personal
guarantees.
EQUITY INVESTMENT IN HPT
The Company owns four million shares of HPT, which constitutes 31.8% of the
total HPT shares outstanding. HPT is a REIT in the business of owning hotels and
leasing them to independent hotel operating companies. HPT currently owns 37
Courtyard by Marriott(R) hotels with 5,286 rooms located in 20 states. All of
these hotels are leased to Host and managed by Marriott. The average age of
these hotels is approximately five years, and the average occupancy and average
daily rates at these hotels are 81.1% and $66.65, respectively. The Company
receives dividends on its HPT shares at the current quarterly rate of $.55/share
or $2.20/share on an annualized basis. The Company's financial reports include
its share of HPT's operating results under the equity method of accounting. HPT
shares are traded on the NYSE and, on December 18, 1995, the last reported sale
price for such shares was $25.13. See "Recent Developments -- Net Investment of
$100 Million in Hospitality Properties Trust".
S-14
<PAGE> 15
<TABLE>
MANAGEMENT
The Trustees and executive officers of the Company are as follows:
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Barry M. Portnoy..................... 50 Managing Trustee
Gerard M. Martin..................... 61 Managing Trustee
Bruce M. Gans, M.D................... 48 Trustee
Rev. Justinian Manning, C.P.......... 69 Trustee
Ralph J. Watts....................... 48 Trustee
David J. Hegarty..................... 39 President, Chief Operating Officer and Secretary
Ajay Saini........................... 35 Treasurer and Chief Financial Officer
</TABLE>
Barry M. Portnoy has been a partner in the law firm of Sullivan &
Worcester, a Registered Limited Liability Partnership, since 1978. Mr. Portnoy
was a founder and has been a Trustee of the Company since its organization in
1986. From 1985 until the merger of Greenery Rehabilitation Group, Inc.
("Greenery") into Horizon/CMS in February 1994 (the "Greenery/Horizon Merger"),
Mr. Portnoy served as a Director of Greenery. Mr. Portnoy is currently a
Director of Horizon/CMS and also serves as a Managing Trustee of HPT.
Gerard M. Martin is a private investor in real estate. Mr. Martin was a
founder and has been a Trustee of the Company since its organization in 1986.
From 1985 until the Greenery/Horizon Merger, Mr. Martin served as the Chief
Executive Officer and Chairman of the Board of Directors of Greenery. Mr. Martin
is currently a Director of Horizon/CMS and also serves as a Managing Trustee of
HPT.
Bruce M. Gans, M.D. is President of the Rehabilitation Institute of
Michigan, a specialty hospital affiliated with Wayne State University School of
Medicine. Dr. Gans is also a Professor and Chairman of the Department of
Physical Medicine and Rehabilitation at Wayne State University School of
Medicine and a Senior Vice President of the Detroit Medical Center. Prior to
assuming his current position in 1989, Dr. Gans was Chairman of the Department
of Rehabilitation Medicine at New England Medical Center and a Professor and
Chairman of Rehabilitation Medicine at the Tufts University School of Medicine
in Boston, Massachusetts. Dr. Gans is a graduate of the University of
Pennsylvania School of Medicine and is active in a number of medical
professional organizations including serving as the current Chairman of the
Injury Prevention Grant Review Committee for the Centers for Disease Control and
Prevention in Atlanta, Georgia.
The Reverend Justinian Manning C.P. has been, since September 1993, the
pastor of St. Gabriel's parish in Brighton, Massachusetts. From 1984 until
September 1990, he was the Treasurer of the Provincial Council of Passionist
Provincialate. He is also on the Board of Directors of Charlesview, a low and
moderate income housing program, and St. Elizabeth's Hospital Foundation. He is
a past Treasurer and a former Director of St. Paul's Benevolent, Educational and
Missionary Institute, a New Jersey corporation, which oversees foundations in
Massachusetts, Connecticut, New York, Pennsylvania, Maryland, Florida and the
Institute's Overseas Missions. He was formerly on the Board of Directors of St.
Paul's Monastery Manor in Pittsburgh, Pennsylvania, a congregate housing
facility. He belongs to the Provincial Council of the Passionist Provincialate.
Ralph J. Watts is President and Chief Executive Officer of Cardiovascular
Ventures, Inc., a privately held company which develops, owns and operates
outpatient cardiac catheterization laboratories and is engaged in physician
practice management. Mr. Watts has held this position since 1992. From 1988 to
1992, Mr. Watts was President and CEO of Ramsay Health Care, Inc., a publicly
owned company which owned and operated 18 hospitals in 13 states and had
approximately 2,000 employees.
David J. Hegarty is the President, Chief Operating Officer and Secretary of
the Company. He has been employed by the Company in various capacities since
1987, prior to which he was an audit manager with Ernst & Young LLP. Mr. Hegarty
is a certified public accountant.
Ajay Saini is the Treasurer and Chief Financial Officer of the Company. Mr.
Saini has been employed by the Company in various capacities since June 1990,
prior to which he was a senior accountant with Ernst & Young LLP. Mr. Saini is a
certified public accountant.
S-15
<PAGE> 16
Dr. Gans, Mr. Watts and Fr. Manning are the Company's Independent Trustees,
that is Trustees who are not affiliated with any of the Company's lessees or
mortgagors or with HRPT Advisors, Inc. (the "Advisor"). Under the Company's
Declaration of Trust, a majority of the Company's Trustees will at all times
consist of Independent Trustees. All investment and policy decisions affecting
the Company are made by its Board of Trustees. All day to day operations of the
Company are conducted by the Advisor pursuant to an investment advisory
contract. The Advisor is owned by Messrs. Martin and Portnoy. Messrs. Hegarty
and Saini, as well as all other personnel involved in the Company's operations,
are employees of the Advisor. The Advisor is paid an annual advisory fee
calculated on the basis of total assets under management (.7% of the first $250
million, plus .5% of additional assets) and an annual incentive fee calculated
on the basis of increases in operating cash flow per Share (as defined) above
threshold amounts (15% of cash flow above the threshold amount of $1.42/Share in
1995, which threshold increases by $.05/Share annually thereafter), but no more
than $.01/Share. The Advisor currently owns approximately one million Shares
which were purchased in 1989. All incentive fees which may be earned by the
Advisor will be paid in Shares. The Company believes that its total
administrative costs, measured as a percentage of assets under management or as
a percentage of revenues, are below the industry average.
FEDERAL INCOME TAX AND ERISA CONSIDERATIONS
The following description of certain Federal income tax matters and
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
considerations relating to the Company is qualified in its entirety by reference
to the more detailed description thereof contained in the Company's Annual
Report on Form 10-K, which is incorporated herein by reference. Sullivan &
Worcester, a Registered Limited Liability Partnership, Boston, Massachusetts,
has rendered its opinion that the discussion in this section and in the Form
10-K in the sections captioned "Federal Income Tax Considerations" and "ERISA
Plans, Keogh Plans and Individual Retirement Accounts" in all material respects
is accurate and fairly summarizes the federal income tax and ERISA issues which
are material to an investment in the Shares and that the opinions of counsel
referred to in those sections represent Sullivan & Worcester's opinions on those
subjects. Specifically, subject to qualifications and assumptions contained in
its opinion and in the Form 10-K, Sullivan & Worcester, a Registered Limited
Liability Partnership, has opined to the effect (a) that the Company has been
organized in conformity with the requirements for federal tax qualifications as
a REIT, has qualified as a REIT for its 1987, 1988, 1989, 1990, 1991, 1992, 1993
and 1994 taxable years, and that the Company's current and anticipated
investments and its plan of operation will enable it to continue to meet the
requirements for federal tax qualification and taxation as a REIT and (b) that,
under the "plan assets" regulations promulgated by the Department of Labor under
ERISA, the Shares are publicly offered securities and the assets of the Company
will not be deemed to be "plan assets" under ERISA.
The Company is and intends to remain qualified as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's net
income which is distributed as dividends to shareholders will be exempt from
Federal taxation. Distributions to the Company's shareholders generally will be
includable in their income; however, dividends distributed which are in excess
of current or accumulated earnings will be treated for tax purposes as a return
of capital to the extent of a shareholder's basis, and will reduce the basis of
shareholders' Shares. Approximately 8.5% of dividends distributed in calendar
1995 are expected to be treated as a return of capital.
The Company intends to conduct its affairs so that the assets of the
Company will not be deemed to be "plan assets" of any individual retirement
account, employee benefit plan subject to Title I of ERISA, or other qualified
retirement plan subject to Section 4975 of the Code which acquires its Shares.
The Company believes that, under present law, its distributions do not create
"unrelated business taxable income" to tax-exempt entities such as pension
trusts, subject, however, to certain new rules which apply to pension trusts
holding more than 10% of the Shares.
EACH PROSPECTIVE PURCHASER OF THE SHARES OFFERED HEREBY IS ADVISED TO
CONSULT HIS OR HER OWN PROFESSIONAL ADVISOR REGARDING THE SPECIFIC FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX AND ERISA CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SHARES OFFERED HEREBY.
S-16
<PAGE> 17
<TABLE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of Shares set forth opposite the name of such Underwriter.
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Smith Barney Inc.................................................. 1,083,335
Dean Witter Reynolds Inc.......................................... 1,083,333
Donaldson, Lufkin & Jenrette Securities Corporation............... 1,083,333
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................... 1,083,333
PaineWebber Incorporated.......................................... 1,083,333
Prudential Securities Incorporated................................ 1,083,333
---------
Total................................................ 6,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all Shares offered hereby
(other than those covered by the over-allotment option described below) if any
such Shares are taken.
The Underwriters, for whom Smith Barney Inc., Dean Witter Reynolds Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, PaineWebber Incorporated and Prudential Securities
Incorporated are acting as Representatives, propose to offer part of the Shares
directly to the public at the public offering price set forth on the cover page
of this Prospectus Supplement and part of the Shares to certain dealers at a
price which represents a concession not in excess of $0.50 per Share under the
public offering price. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $0.10 per Share to certain other dealers.
The Company has agreed not to and has agreed to cause its affiliates not
to, directly or indirectly, offer, sell, contract to sell, or otherwise dispose
of, any Shares of the Company or any securities convertible into, or exercisable
or exchangeable for, Shares of the Company for a period of 90 days from the date
of this Prospectus Supplement, without the prior written consent of Smith Barney
Inc., other than the Shares being sold in connection with the Offering, pursuant
to the Company's 1992 Incentive Share Award Plan and Shares issued upon exercise
of any outstanding options. The Company has agreed that during such 90 day
period it will not, without the prior consent of Smith Barney Inc., terminate,
modify or waive any provision in any agreement to which it is a party that
restricts or limits the transferability of the Shares.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus Supplement, to purchase up to
975,000 additional Shares at the price to public set forth on the cover page of
this Prospectus Supplement minus the underwriting discounts and commissions and,
with respect to any such Shares issued after the record date for the quarterly
dividend for the period ended December 31, 1995, less an amount equal to such
dividend. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering. To the extent
such option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
Shares as the number of Shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of Shares listed in such table.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
S-17
<PAGE> 18
LEGAL MATTERS
Certain legal matters with respect to the Shares offered by the Company
have been passed upon for the Company by Sullivan & Worcester, a Registered
Limited Liability Partnership, Boston, Massachusetts and will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York. Sullivan &
Worcester, a Registered Limited Liability Partnership, has relied and Davis Polk
& Wardwell will rely, as to all matters of Maryland law, upon the opinion of
Piper & Marbury, Baltimore, Maryland. Sullivan & Worcester, a Registered Limited
Liability Partnership, has also given its opinion as to certain Federal income
tax matters and certain ERISA considerations relating to the Company. See
"Federal Income Tax and ERISA Considerations". Barry M. Portnoy, a partner in
the firm of Sullivan & Worcester, a Registered Limited Liability Partnership, is
a Managing Trustee of the Company and of HPT, a director and 50% shareholder of
the Advisor, and a director and/or significant shareholder of certain lessees
and mortgagors of the Company, including Horizon/CMS. Sullivan & Worcester, a
Registered Limited Liability Partnership, represents the Advisor, certain of
such lessees and mortgagors and certain affiliates of each of the foregoing on
various matters.
EXPERTS
The consolidated financial statements and schedules of MII incorporated by
reference in this Prospectus Supplement and elsewhere in the registration
statement to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements and schedules of Horizon/CMS
incorporated by reference in this Prospectus Supplement and elsewhere in the
registration statement to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their reports thereon incorporated by reference
elsewhere herein which, as to the years 1995, 1994 and 1993 are based in part on
the reports of Ernst & Young LLP and Price Waterhouse LLP, independent auditors.
The financial statements referred to above have been incorporated by reference
herein in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
The consolidated financial statements of GranCare appearing in the GranCare
Annual Report (Form 10-K) for the year ended December 31, 1994, and the
supplemental consolidated financial statements of GranCare at and for the year
ended December 31, 1994 included in its Current Report on Form 8-K/A dated
September 21, 1995 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference which, as to the years 1994, 1993 and 1992 are based in part on the
report of KPMG Peat Marwick, independent auditors. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED OCTOBER 9, 1986, A
COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY
FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE
OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST"
REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS
DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE
COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
S-18
<PAGE> 19
HEALTH AND RETIREMENT PROPERTIES TRUST
UNAUDITED PRO FORMA BALANCE SHEET AND
UNAUDITED PRO FORMA STATEMENT OF INCOME
The following unaudited pro forma balance sheet at September 30, 1995 and
the unaudited pro forma statement of income for the nine months ended September
30, 1995 are intended to present the financial position and results of
operations of Health and Retirement Properties Trust as if the transactions
described in Note 1 were consummated on January 1, 1995. The unaudited pro forma
financial statements should be read in conjunction with the separate financial
statements of Health and Retirement Properties Trust for the quarter ended
September 30, 1995 which are incorporated herein by reference. The unaudited pro
forma financial statements are not necessarily indicative of the expected
financial position and results of operations for any future period. Differences
would result from, but not be limited to, changes in the Company's portfolio of
real estate investments, changes in interest rates and changes in the debt
and/or equity structure of the Company.
F-1
<PAGE> 20
<TABLE>
HEALTH AND RETIREMENT PROPERTIES TRUST
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL ADJUSTMENTS
SEPTEMBER 30, 1995 (NOTE 1) PRO FORMA
------------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
Real estate properties, at cost:
Land....................................... $ 70,508 $ 1,500 $ 72,008
Buildings and improvements................. 673,535 13,500 687,035
Equipment.................................. 17,859 -- 17,859
---------- -------- ----------
761,902 15,000 776,902
Less accumulated depreciation.............. 49,809 -- 49,809
---------- -------- ----------
712,093 15,000 727,093
Real estate mortgages and notes, net......... 149,910 (10,434) 139,476
Investment in Hospitality Properties Trust... 99,938 -- 99,938
Cash and cash equivalents.................... 20,908 2,934 23,842
Interest and rent receivable................. 6,625 -- 6,625
Deferred interest and finance costs, net, and
other assets............................... 10,759 (1,500) 9,259
---------- -------- ----------
$1,000,233 $ 6,000 $1,006,233
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable........................... $ 148,000 $(91,875) $ 56,125
Notes and bonds payable, net................. 216,697 -- 216,697
Security deposits............................ 7,386 -- 7,386
Due to affiliate............................. 387 -- 387
Accounts payable and accrued expenses........ 10,615 -- 10,615
Shareholders' equity:
Preferred shares of beneficial interest,
$.01 par value, 50,000,000 shares
authorized, none issued................. -- -- --
Common shares of beneficial interest, $.01
par value; 100,000,000 Shares
authorized; 59,190,166 and 65,690,166
Shares, as adjusted, issued and
outstanding............................. 592 65 657
Additional paid-in capital................. 677,809 97,810 775,619
Cumulative net income...................... 218,836 -- 218,836
Distributions of Funds From Operations..... (280,089) -- (280,089)
---------- -------- ----------
Total shareholders' equity......... 617,148 97,875 715,023
---------- -------- ----------
$1,000,233 $ 6,000 $1,006,233
========== ======== ==========
</TABLE>
F-2
<PAGE> 21
<TABLE>
HEALTH AND RETIREMENT PROPERTIES TRUST
UNAUDITED PRO FORMA STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL
SEPTEMBER 30, ADJUSTMENTS
1995 (NOTE 1) PRO FORMA
------------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Rental income............................... $67,789 $ (1,940) $65,849
Interest income............................. 17,674 (2,017) 15,657
------- -------- -------
Total revenues...................... 85,463 (3,957) 81,506
------- -------- -------
EXPENSES:
Interest.................................... 17,819 (3,725) 14,094
Depreciation and amortization............... 16,314 (826) 15,488
General, administrative and advisory........ 4,676 (183) 4,493
------- -------- -------
Total expenses...................... 38,809 (4,734) 34,075
------- -------- -------
Income before equity in income of HPT and
gain on sale of property................. 46,654 777 47,431
------- -------- -------
Equity in income of HPT....................... 898 5,709 6,607
------- -------- -------
Income before gain on sale of property........ $47,552 $ 6,486 $54,038
======= ======== =======
Average Shares outstanding.................... 58,977 65,679
======= =======
Per Share amounts:
Income before equity in income of HPT and
gain on sale of property................. $ .79 $ .72
======= =======
Income before gain on sale of property...... $ .81 $ .82
======= =======
</TABLE>
F-3
<PAGE> 22
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTE TO UNAUDITED PRO FORMA STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 PRO FORMA ADJUSTMENTS
For the purpose of the unaudited pro forma balance sheet at September 30,
1995 and the unaudited pro forma statement of income for the nine months ended
September 30, 1995, it has been assumed that the following transactions took
place on January 1, 1995.
(A) INVESTMENT IN HOSPITALITY PROPERTIES TRUST ("HPT")
On March 24, 1995, the Company's then wholly owned subsidiary, HPT,
acquired 21 Courtyard by Marriott(R) hotels for approximately $179.4 million.
HPT's acquisition of these properties was funded by the Company under a demand
loan ("HRP Loan") of approximately $163.3 million. The Company funded this
transaction by drawing $140 million under its revolving credit facility and with
cash on hand. In August 1995, HPT completed its Initial Public Offering ("IPO")
of 8,350,000 shares. Prior to the IPO, the Company acquired 40,000 shares of HPT
for $1 million. Concurrent with the completion of the IPO, the Company purchased
for $25.00 per share an additional 3,960,000 shares of HPT by canceling $99
million of the HRP Loan. The remaining amount of the HRP Loan was repaid. At
September 30, 1995, the Company owned 4,000,000 shares of HPT, representing an
equity interest in HPT of approximately 31.8%.
(B) REAL ESTATE ACQUISITIONS AND DISPOSITIONS
In January 1995, the Company purchased nine nursing homes for approximately
$31.9 million and mortgage financed four nursing properties for $11.5 million.
These acquisitions were funded by the issuance of 1,777,766 Shares with a fair
market value of approximately $24.4 million and cash on hand.
In April 1995, the Company purchased and leased and mortgage financed 14
nursing properties for approximately $20 million to CCAI. This investment was
funded by drawing $18 million under the Company's revolving credit facility.
In August 1995, $10.8 million in real estate mortgages and notes were
repaid to the Company.
In September 1995, the Company purchased two medical office buildings and
one nursing property for approximately $61.3 million. These investments were
funded by drawing $45 million under its revolving credit facility and cash on
hand.
In November 1995, the Company sold two properties for approximately $12
million.
The Company has a commitment to purchase a medical office building for
approximately $15 million. Annual minimum rent expected on this transaction is
approximately $1.6 million. This transaction is scheduled to close in late
December 1995. The Company expects to use cash on hand and/or to draw $6 million
under its revolving credit facility to fund this transaction.
(C) THE PROPOSED OFFERING
The Company has issued this Prospectus Supplement relating to an offering
of 6,500,000 Shares (plus a 975,000 Share underwriters' over-allotment option).
Upon the consummation of the Offering, the Company will receive approximately
$97.9 million ($112.6 million, if the underwriters' over-allotment option is
exercised in full). The net proceeds will be used to repay debt currently
outstanding under the Company's revolving credit facility.
F-4
<PAGE> 23
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- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Incorporation of Certain Information
by Reference............................. S-2
Summary.................................... S-3
Recent Developments........................ S-6
The Company................................ S-8
Distributions.............................. S-9
Capitalization............................. S-10
Use of Proceeds............................ S-10
Investment and Financing Policy............ S-11
Selected Financial Data.................... S-12
Properties................................. S-13
Lease Expiration and Mortgage Maturity
Schedules................................ S-13
The Lessees and Mortgagors................. S-14
Equity Investment in HPT................... S-14
Management................................. S-15
Federal Income Tax and ERISA
Considerations........................... S-16
Underwriting............................... S-17
Legal Matters.............................. S-18
Experts.................................... S-18
Unaudited Pro Forma Financial
Information.............................. F-1
PROSPECTUS
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
The Company................................ 3
Use of Proceeds............................ 3
Description of Debt Securities............. 3
Description of Shares...................... 13
Description of Preferred Shares............ 13
Description of Common Share Warrants....... 20
Ratios of Earnings to Fixed Charges........ 20
Plan of Distribution....................... 21
Legal Matters.............................. 22
Experts.................................... 22
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
6,500,000 SHARES
HEALTH AND
RETIREMENT
PROPERTIES TRUST
COMMON SHARES OF
BENEFICIAL INTEREST
------------
PROSPECTUS SUPPLEMENT
DECEMBER 18, 1995
------------
SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
- ------------------------------------------------------------
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