HEALTH AND RETIREMENT PROPERTIES TRUST
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1996
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 1-9317
HEALTH AND RETIREMENT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-6558834
- ---------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02158
(Address of principal executive offices) (Zip Code)
617-332-3990
(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 [ ]
Number of Common Shares outstanding at November 14, 1996:
66,325,030 shares of beneficial interest, $.01 par value.
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
FORM 10-Q
SEPTEMBER 30, 1996
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED JULY 1,
1994, 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.
INDEX
PART I Financial Information Page
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1996 and December 31, 1995 1
Statements of Income - Three and Nine Months Ended
September 30, 1996 and 1995 2
Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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HEALTH AND RETIREMENT PROPERTIES TRUST
<TABLE>
<CAPTION>
BALANCE SHEETS
(dollars in thousands, except per share amounts)
(unaudited)
September 30, December 31,
1996 1995
------------------ -----------------
<S> <C> <C>
ASSETS
Real estate properties, at cost (including properties leased to
affiliates with a cost of $106,356 and $103,324, respectively):
Land............................................................. $ 78,165 $ 72,124
Buildings and improvements....................................... 766,631 706,087
------------------ -----------------
844,796 778,211
Less accumulated depreciation.................................... 71,323 55,855
------------------ -----------------
773,473 722,356
Real estate mortgages and notes, net (including note to affiliate
of $1,365 and $1,565, respectively).............................. 150,704 141,307
Investment in Hospitality Properties Trust......................... 103,231 99,959
Cash and cash equivalents.......................................... 17,098 18,640
Interest and rents receivable...................................... 11,530 7,895
Deferred interest and finance costs, net, and other assets......... 13,844 9,520
------------------ -----------------
$ 1,069,880 $ 999,677
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 147,000 $ 53,000
Senior notes and bonds payable, net................................ 199,323 216,759
Accounts payable and accrued expenses.............................. 11,252 11,597
Security deposits 8,235 7,386
Due to affiliates 578 2,351
Dividends payable 23,835 22,992
Commitments and contingencies
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, 66,209,476 shares and
65,690,166 shares issued and outstanding, respectively.......... 662 657
Additional paid-in capital....................................... 783,404 775,688
Cumulative net income............................................ 289,733 233,044
Dividends........................................................ (394,142) (323,797)
------------------ -----------------
Total shareholders' equity...................................... 679,657 685,592
------------------ -----------------
$ 1,069,880 $ 999,677
================== =================
</TABLE>
See accompanying notes
1
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HEALTH AND RETIREMENT PROPERTIES TRUST
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------------ -------------------------------------
1996 1995 1996 1995
---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental income.................................. $ 23,803 $ 22,993 $ 70,080 $ 67,789
Interest income................................ 5,235 5,980 15,521 17,674
---------------- --------------- --------------- ---------------
Total revenues............................... 29,038 28,973 85,601 85,463
---------------- --------------- --------------- ---------------
Expenses:
Interest....................................... 5,580 6,675 15,826 17,819
Depreciation and amortization.................. 5,592 5,538 16,093 16,314
General and administrative..................... 1,709 1,606 4,782 4,676
---------------- --------------- --------------- ---------------
Total expenses............................... 12,881 13,819 36,701 38,809
---------------- --------------- --------------- ---------------
Income before equity in earnings of
Hospitality Properties Trust, gain on
sale of property and extraordinary item...... 16,157 15,154 48,900 46,654
Equity in earnings of Hospitality
Properties Trust............................. 2,301 898 6,629 898
Gain on equity transaction of Hospitality
Properties Trust............................. -- -- 3,603 --
---------------- --------------- --------------- ---------------
Income before gain on sale of property and
extraordinary item.......................... 18,458 16,052 59,132 47,552
Gain on sale of property...................... -- -- -- 2,476
---------------- --------------- --------------- ---------------
Income before extraordinary item.............. 18,458 16,052 59,132 50,028
Extraordinary item - early extinguishment
of debt...................................... -- -- (2,443) --
---------------- --------------- --------------- ---------------
Net income.................................... $ 18,458 $ 16,052 $ 56,689 $ 50,028
================ =============== =============== ===============
Weighted average shares outstanding........... 66,209 59,189 66,188 58,977
================ =============== =============== ===============
Per share amounts:
Income before gain on sale of property
and extraordinary item.......................
$0.28 $0.27 $0.89 $0.81
================ ============== =============== ===============
Income before extraordinary item.............. $0.28 $0.27 $0.89 $0.85
================ ===============
Net income.................................... $0.28 $0.27 $0.86 $0.85
================ =============== =============== ===============
</TABLE>
See accompanying notes
2
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HEALTH AND RETIREMENT PROPERTIES TRUST
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Nine Months Ended September 30,
September 30,
--------------------------------------
1996 1995
---------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 56,689 $ 50,028
Adjustments to reconcile net income to cash provided
by operating activities:
Gain on sale of property................................................... -- (2,476)
Gain on sale of stock by Hospitality Properties Trust...................... (3,603) --
Equity in earnings of Hospitality Properties Trust......................... (6,629) (898)
Extraordinary item......................................................... 2,443 --
Depreciation and amortization.............................................. 16,093 16,314
Amortization of deferred interest costs.................................... 1,283 1,100
Change in assets and liabilities:
Increase in interest and rents receivable and other assets...............
Increase in security deposits............................................ 849 3,586
Decrease in accounts payable and accrued expenses........................ (345) (5,492)
Decrease in due to affiliate............................................. (1,193) (1,120)
---------------- ------------------
Cash provided by operating activities...................................... 54,260 59,602
---------------- ------------------
Cash flows from investing activities:
Real estate acquisitions..................................................... (66,585) (193,105)
Investments in mortgage loans................................................ (16,369) (22,827)
Proceeds from repayment of notes and mortgage loans.......................... 6,843 26,959
Proceeds from sale of real estate............................................ -- 5,000
Dividends from Hospitality Properties Trust.................................. 6,960 --
Repayment and advance of loan to affiliate................................... 200 (1,065)
----------------- ------------------
Cash used for investing activities......................................... (68,951) (185,038)
----------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common shares...................................... 6,990 --
Proceeds from borrowings..................................................... 101,000 213,000
Payments on borrowings....................................................... (24,620) (65,000)
Deferred finance costs....................................................... (719) (1,665)
Dividends paid............................................................... (69,502) (59,757)
----------------- ----------------
Cash provided by financing activities...................................... 13,149 86,578
----------------- ----------------
Decrease in cash................................................................ (1,542) (38,858)
Cash and cash equivalents at beginning of period................................ 18,640 59,766
----------------- ----------------
Cash and cash equivalents at end of period...................................... $ 17,098 $ 20,908
================= ================
Supplemental cash flow information:
Interest paid................................................................ $ 15,709 $ 16,599
================= ================
Non-cash investing and financing activities:
Purchase of real estate...................................................... $ -- $ (24,444)
Issuance of shares........................................................... -- 24,838
Sale of real estate.......................................................... -- 19,500
Investment in mortgage loan.................................................. -- (19,500)
Investment in Hospitality Properties Trust................................... -- (100,000)
Cancellation of advances and loans to Hospitality Properties Trust........... -- 100,000
</TABLE>
See accompanying notes
3
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HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1. Basis of Presentation
The financial statements of Health and Retirement Properties Trust (the
"Company") have been prepared in accordance with generally accepted accounting
principals for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for interim periods are
not necessarily indicative of the results that may be expected for the full
year.
Note 2. Shareholders' Equity
On September 18, 1996, the Trustees declared a dividend on the Company's
common shares of beneficial interest ("Common Shares") with respect to the
quarter ended September 30, 1996, of $0.36 which will be distributed on or about
November 22, 1996 to shareholders of record as of October 17, 1996.
In January 1996, the Company issued 475,000 Common Shares, resulting in net
proceeds of approximately $6,990, as a result of the underwriters exercise of
the over-allotment option pursuant to the December 1995 equity offering by the
Company. In April, 1996, the Company issued 35,560 restricted Common Shares to
HRPT Advisors, Inc. (the "Advisor"), an affiliate, as compensation for the
incentive fee earned for the year ended December 31, 1995. In June 1996, 7,250
Common Shares were granted to officers of the Company and certain employees of
the Advisor under the 1992 Incentive Share Award Plan. The three independent
Trustees, as part of their annual fee, were also each granted 500 Common Shares.
Note 3. Real Estate Properties
During 1996, the Company purchased two medical clinics, one medical office
building and five nursing facilities for approximately $60,869 with lease
periods ranging up to 21 years. During the nine months ended September 30, 1996,
the Company also provided $5,716 of improvement financing to existing tenants.
At September 30, 1996, 30% of the Company's real estate investments,
including real estate properties and mortgage receivables, net, and the
investment in Hospitality Properties Trust, were in properties leased to
Marriott International, Inc. ("Marriott"). The financial statements of Marriott
have been filed as a part of Marriott's Quarterly Report on Form 10-Q, file
number 1-12188, for the quarter ended September 6, 1996.
At September 30, 1996, the Company had total commitments outstanding
aggregating $62,769 for improvements to certain properties leased or mortgaged
by the Company and to purchase two medical office buildings.
Note 4. Investment in Hospitality Properties Trust
At September 30, 1996, the Company owned 4,000,000 common shares of
beneficial interest of Hospitality Properties Trust ("HPT") with a carrying
value of $103,231 and market value of $107,000. HPT is a real estate investment
trust investing principally in income producing hotel and lodging related real
estate. The Company's percentage of ownership of HPT as of September 30, 1996,
was 14.9%. During April 1996, HPT completed a public stock offering of
14,250,000 common shares of beneficial interest at a per share price of $26.625
for total consideration of approximately $379,406. As a result of this
transaction, the Company's ownership percentage was reduced from 31.7% to 14.9%.
Pursuant to the HPT offering, the Company realized a gain of $3,603. The Company
uses the income statement method to account for issuances of common shares of
beneficial interest by HPT. Although the Company did not sell any shares, under
this method gains and losses on the issuance of common shares of beneficial
interest by HPT are recognized in the income statement.
4
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HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 5. Real Estate Mortgages and Notes Receivable, net
During 1996, the Company provided debt financing totaling $15,000 secured
by a retirement community and by properties under existing mortgages with the
Company. These mortgage and notes receivable bear interest between 10.5% and 11%
and mature between 2006 and 2008. The Company also provided improvement
financing for existing mortgaged properties of $1,369. The Company received
regularly scheduled principal payments and prepayments of mortgages secured by
four nursing facilities totaling $6,843.
Note 6. Indebtedness
In March 1996, the Company entered into a new credit facility to refinance
its $250 million unsecured revolving bank credit facility. The restated credit
facility matures in 2000 and bears interest at LIBOR plus 0.875% per annum. In
connection with the refinancing, the Company recognized an extraordinary loss of
$2,443 from the early extinguishment of debt. At September 30, 1996, $147,000
was outstanding under the credit facility.
In April, 1996, the Company prepaid the outstanding secured Revenue
Refunding Bonds totaling $17,620 by borrowing on the revolving bank credit
facility and from available cash.
In October 1996, the Company issued $200,000 of 7.5% and $40,000 of 7.25%
convertible subordinated debentures due 2003 and 2001, respectively. The
debentures are non-callable for three years and are convertible at any time
prior to maturity into common shares of the Company at a price of $18 per share.
The net proceeds were used in part to repay the outstanding balance of $147,000
on the Company's revolving bank credit facility and $75,450 were placed in an
irrevocable trust to complete an in-substance defeasance of the $75,000 Floating
Rate Senior Notes, Series A, due 1999. The Company will recognize an
extraordinary loss of approximately $1,500 as a result of the early
extinguishment of such debt in the fourth quarter of 1996. The remaining
proceeds were used for general business purposes.
5
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Quarter Ended September 30, 1996 Versus 1995
Total revenues for the quarter ended September 30, 1996, increased by
$65,000 as compared to the quarter ended September 30, 1995. Rental income
increased by $810,000 and interest income decreased by $745,000. Rental income
increased as a net result of $82,895,000 of real estate investments subsequent
to September 30, 1995, offset by the exclusion of rental revenue from the
Company's formerly wholly owned subsidiary Hospitality Properties Trust ("HPT").
The Company's investment in HPT is accounted for using the equity method, and
the 1996 period does not include revenue and expenses of HPT. The Company's
percentage of ownership of HPT as of September 30, 1996, is 14.9%. Interest
income decreased due to the early repayment of mortgage loans, lower fees
associated with such early repayment and lower cash balances compared to the
quarter ended September 30, 1995. In addition, as a result of the early
repayment, the Company's investment in the mortgage loan pools acquired from the
Resolution Trust Company, at a discount, continues to decrease. Consequently,
the Company anticipates that the interest income and the accretion of the
associated discount on these mortgage loan investments will decline in the
future.
Total expenses for the quarter ended September 30, 1996, decreased by
$938,000 as compared to the quarter ended September 30, 1995. Interest expense
decreased by $1,095,000, while depreciation and amortization and general and
administrative expenses increased by $54,000 and $103,000, respectively.
Interest expense decreased due to lower interest rates and lower debt
outstanding during the quarter ended September 30, 1996 as compared to the
quarter ended September 30, 1995. The increase in depreciation expense was the
net result of new investments subsequent to September 30, 1995, offset by a
decrease in depreciation expense related to the HPT transaction described above.
Amortization expense decreased due to the write off of deferred finance fees in
March 1996. General and administrative expense increased due to net new
investments.
Net income for the quarter ended September 30, 1996, increased to
$18,458,000, or $.28 per share, from $16,052,000, or $.27 per share, for the
same quarter in 1995, as a result of new investments since September 30, 1995.
The Company bases its dividend primarily on Funds from Operations ("FFO").
The Company has adopted the National Association of Real Estate Investment
Trust's ("NAREIT") definition of FFO, as income before equity in earnings of
HPT, gain (loss) on sale of real estate and extraordinary items, plus
depreciation and the Company's proportionate share of HPT's FFO. FFO for the
1996 quarter was $24,852,000, or $.38 per share, as compared to $21,511,000, or
$.36 per share, for the 1995 quarter. Cash available for distribution may not
necessarily equal FFO as the cash flow of the Company is affected by other
factors not included in the FFO calculation. The dividends declared which relate
to these quarters were $23,835,000, or $.36 per share, in 1996 and $20,717,000,
or $.35 per share, in 1995.
Nine Months Ended September 30, 1996 Versus 1995
Total revenues for the nine months ended September 30, 1996 increased by
$138,000 as compared to the nine months ended September 30, 1995. Rental income
increased by $2,291,000 and interest income decreased by $2,153,000. Rental
income increased primarily as the net result of $82,895,000 of new investments
subsequent to September 30, 1995, offset by the exclusion of rental revenues of
HPT as described above. Interest income decreased due to the early repayment of
mortgage loans, lower fees associated with such early repayment and lower cash
balances compared to the quarter ended September 30, 1995. In addition, as a
result of the early repayment, the Company's investment in the mortgage loan
pools acquired from the Resolution Trust Company, at a discount, continues to
decrease. Consequently, the Company anticipates that the interest income and the
accretion of the associated discount on these mortgage loan investments will
decline in the future.
6
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HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Nine Months Ended September 30, 1996 Versus 1995-continued
Total expenses for the nine months ended September 30, 1996 decreased by
$2,108,000 as compared to the nine months ended September 30, 1995. Interest
expense and depreciation and amortization expense decreased by $1,993,000 and
$221,000, respectively, while general and administrative expense increased by
$106,000. Interest expense decreased due to lower interest rates and lower debt
outstanding. Depreciation expense decreased primarily as a net result of new
investments and the depreciation expense associated with the HPT transaction as
described above. Amortization expense decreased due to the write off of deferred
finance fees associated with the prepayment of the outstanding secured Revenue
Refunding Bonds in March 1996. General and administrative expense remained
relatively unchanged from the prior year.
Net income increased to $56,689,000, or $.86 per share, for the 1996 period
from $50,028,000, or $.85 per share, for the 1995 period due to net new
investments and from the recognition of a gain of $3,603,000 resulting from the
public stock offering by HPT of its shares.
Funds from operations for the nine months ended September 30, 1996, were
$73,852,000, or $1.12 per share, and $63,007,000, or $1.07 per share, for the
1995 period. The dividends declared which relate to the nine months ended
September 30, 1996 and 1995 were $70,179,000, or $1.06 per share, and
$60,962,000, or $1.03 per share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Total assets of the Company increased to approximately $1.1 billion at
September 30, 1996, from $999,677,000 at December 31, 1995. The increase is
primarily attributable to additional real estate investments since December 31,
1995.
During 1996, the Company purchased two medical clinics, one medical office
building and five nursing facilities for approximately $60,869,000 with lease
periods ranging up to 21 years. During the nine months ended September 30, 1996,
the Company also provided $5,716,000 of improvement financing to existing
tenants. These transactions were funded with cash on hand and draws on the
Company's revolving credit facility.
During 1996, the Company provided debt financing totaling $15,000,000
secured by a retirement community and cross-collateralized by properties under
existing mortgages with the Company. These mortgage and notes receivable bear
interest between 10.5% and 11% and mature between 2006 and 2008. During this
period, the Company also provided improvement financing for existing facilities
of $1,369,000. These transactions were funded with cash on hand and draws on the
Company's revolving credit facility.
In January 1996, the underwriters for the December 1995 share offering
exercised the over-allotment option for 475,000 shares resulting in net proceeds
of approximately $6,990,000.
In October 1996, the Company issued $200,000,000 of 7.5% and $40,000,000 of
7.25% convertible subordinated debentures due 2003 and 2001, respectively. The
debentures are non-callable for three years and are convertible at any time
prior to maturity into common shares of the Company at a price of $18 per share.
The net proceeds were used in part to repay the outstanding balance of
$147,000,000 on the Company's revolving bank credit facility and $75,450,000
were placed in an irrevocable trust to complete an in-substance defeasance of
the Company's $75,000,000 Floating Rate Senior Notes, Series A, due 1999. The
Company will recognize an extraordinary loss of approximately $1,500,000 as a
result of the early extinguishment of such debt in the fourth quarter of 1996.
The remaining proceeds were used for general business purposes.
At September 30, 1996, the Company had $17,098,000 of cash and cash
equivalents, and the ability to borrow up to an additional $103,000,000 under
its revolving credit facility. After giving effect to the convertible debt
offerings in October 1996, the Company had no amounts outstanding and the
ability to borrow $250,000,000 under its revolving credit facility. The facility
matures in 2000 and bears interest at LIBOR plus 0.875% per
7
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HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES-continued
annum. The effective interest rates on the Company's senior notes are capped by
the use of interest rate cap agreements. The interest rate cap agreements
provide for maximum weighted average interest rates of approximately 6.24% on
$200,000,000 of variable rate debt through 1997.
At September 30, 1996, the Company had outstanding commitments to provide
financing totaling approximately $62,769,000. The Company intends to fund these
commitments with a combination of cash on hand, amounts available under its
existing credit facilities and/or proceeds of mortgage prepayments, if any.
The Company continues to seek new investments to expand and diversify its
portfolio of leased and mortgaged health care related real estate. The Company
intends to balance the use of debt and equity in such a manner that the long
term cost of funds used to acquire or mortgage finance facilities is
appropriately matched, to the extent practicable, with the terms of the
investments made with such funding. As of September 30, 1996, the Company's debt
as a percentage of total market capitalization was approximately 23%.
8
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HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
CERTAIN IMPORTANT FACTORS
The Company's Quarterly Report on Form 10-Q contains statements which
constitute forward looking statements. Those statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief or
expectations of the Company, its Trustees or its officers with respect to the
consummation of additional acquisitions and financings, the funding of the
Company's commitments, policies and plans of the Company regarding investments,
financings or other matters. Readers are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contained in the forward looking statements as a result of various factors. Such
factors include without limitation changes in financing terms, the Company's
ability or inability to complete acquisitions and financing transactions and
general changes in economic conditions not presently contemplated. The
information contained in this Form 10-Q and the Company's Annual Report on Form
10-K for the year ended December 31, 1995, including the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations", identifies other important factors that could cause such
differences.
Part II Other Information
Item 1. Legal Proceedings
As previously disclosed, in January 1995 the Company commenced an action in the
Circuit Court of Hardee County, Florida to collect on a secured indemnity
agreement from a former tenant and mortgagor, together with certain related
parties (collectively, the "Former Tenant"). In May 1995 the Former Tenant filed
a counterclaim and third-party complaint against the Company and others seeking
a jury trial and to set aside the indemnity agreement and to recover substantial
damages; and the Company responded by seeking to refer the entire dispute to
arbitration pursuant to the terms of the indemnity agreement. After a
Massachusetts state court ordered the dispute to arbitration and a Florida court
stayed further proceedings pending arbitration, the Former Tenant brought a
separate action against the Company in the Federal District Court in
Massachusetts where the Former Tenant realleged many of the same allegations
made in the counterclaims and third-party complaints previously brought by them
in response to the Company's original action, and adding allegations of
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder and violations of RICO. The Company and
other defendants in the Federal Court case again moved to refer all of the
disputes with the Former Tenant to non-jury arbitration. On September 30, 1996,
the Federal Court in Massachusetts ordered the case brought by the Former Tenant
dismissed and all disputes between the Former Tenant and the Company referred to
arbitration. The arbitration is proceeding. Within the past few days, the
Company has learned that the Former Tenant has assigned a part of his alleged
damages to another creditor of the Former Tenant who held a second mortgage on
the Hardee County property (the " Assignee Junior Creditor") upon which property
the Company holds a first mortgage to secure its indemnity claim. The Assignee
Junior Creditor foreclosed its second mortgage, subject to the Company's first
mortgage, in September 1996. Moreover, the Company has been advised that the
Assignee Junior Creditor of the Former Tenant has filed a new action in the
Massachusetts State Court against the Company and others alleging, among other
things, that the Company received fraudulent transfers from the Former Tenant.
This new action by the Assignee Junior Creditor of the Former Tenant has not yet
been served upon the Company. The amounts of damages claimed by the Former
Tenant and his Assignee Junior Creditor are material. The Company is pursuing
its indemnity claims against the Former Tenant and is defending the claims of
the Former Tenant in the arbitration proceedings. If and when the Company is
served with the complaint by the Assignee Junior Creditor of the Former Tenant,
the Company intends to defend itself and to pursue such claims and rights which
it may have. The outcome of this pending litigation cannot be predicted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule
9
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HEALTH AND RETIREMENT PROPERTIES TRUST
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEALTH AND RETIREMENT PROPERTIES TRUST
By: /S/ David J. Hegarty
David J. Hegarty
President and Chief Operating Officer
Dated: November 14, 1996
By: /S/ Ajay Saini
Ajay Saini
Treasurer and Chief Financial Officer
Dated: November 14, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
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