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 March 31, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 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 (IRS Employer Identification No.)
of incorporation)
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 the latest practicable date
May 14, 1996: 66,200,726 shares of beneficial interest, $.01 par value.
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
FORM 10-Q
MARCH 31,1996
INDEX
PART I Financial Information Page
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1996 and December 31, 1995 1
Statements of Income - Three Months Ended
March 31, 1996 and 1995 2
Statements of Cash Flows - Three Months Ended
March 31, 1996 and 1995 3
Note to Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II Other Information
Item 6 Exhibits and Reports on Form 8-K 7
Signatures 8
<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
BALANCE SHEETS
(dollars in thousands, except per share amounts)
(unaudited)
March 31, December 31,
1996 1995
---------------- ----------------
<S> <C> <C>
ASSETS
Real estate properties, at cost (including properties leased to
affiliates with a cost of $104,309 and $103,324, respectively):
Land....................................................... $ 73,323 $ 72,124
Buildings and improvements................................. 718,288 706,087
-----------
791,611 778,211
Less accumulated depreciation............................... 60,906 55,855
----------- -----------
730,705 722,356
Real estate mortgages and notes, net (including note to affiliate
of $1,565)................................................ 156,821 141,307
Investment in Hospitality Properties Trust...................... 99,731 99,959
Cash and cash equivalents....................................... 20,824 18,640
Interest and rents receivable................................... 8,209 7,895
Deferred interest and finance costs, net, and other assets...... 7,356 9,520
----------- ----------
$ 1,023,646 $ 999,677
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable ............................................. $ 80,000 $ 53,000
Senior notes and bonds payable, net............................. 216,820 216,759
Accounts payable and accrued expenses........................... 11,546 11,597
Security deposits............................................... 6,020 7,386
Due to affiliates............................................... 1,070 2,351
Dividends payable............................................... -- 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, 66,165,166 shares and
65,690,166 shares issued and outstanding, respectively .... 662 657
Additional paid-in capital .................................. 782,678 775,688
Cumulative net income........................................ 248,813 233,044
Dividends ................................................... (323,963) (323,797)
Total shareholders' equity................................. 708,190 685,592
----------- ------------
$ 1,023,646 $ 999,677
=========== ============
</TABLE>
See accompanying notes
1
<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,
-----------------------------------
1996 1995
---------------- -------------
<S> <C> <C>
Revenues:
Rental income.................................................. $ 22,938 $ 19,530
Interest income................................................ 4,798 6,462
Total revenues............................................... 27,736 25,992
--------------- ------------
Expenses:
Interest....................................................... 4,961 4,131
Depreciation and amortization.................................. 5,182 4,615
General and administrative..................................... 1,473 1,414
Total expenses............................................... 11,616 10,160
--------------- ------------
Income before equity in earnings of Hospitality Properties Trust, gain
on sale of property and extraordinary item 16,120 15,832
Equity in earnings of Hospitality Properties Trust 2,092 --
--------------- ------------
Income before gain on sale of property and extraordinary item 18,212 15,832
..................................................................
Gain on sale of property.......................................... - 2,476
--------------- ------------
Income before extraordinary item.................................. 18,212 18,308
Extraordinary item - early extinguishment of debt................. (2,443) --
Net income........................................................ $15,769 $ 18,308
=============== ============
Weighted average share outstanding................................ 66,155 58,554
=============== ============
Per share amounts:
Income before gain on sale of properties and extraordinary item $0.28 $0.27
=============== ============
Income before extraordinary item............................... $0.28 $0.31
=============== ============
Net income..................................................... $0.24 $0.31
=============== ============
</TABLE>
See accompanying notes
2
<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Three Months Ended
March 31,
-----------------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,769 $ 18,308
Adjustments to reconcile net income to cash provided by operating
activities:
Gain on sale of property -- (2,476)
Equity in earnings of Hospitality Properties Trust (2,092) --
Extraordinary item 2,443 --
Depreciation and amortization 5,182 4,615
Amortization of deferred interest costs 428 266
Change in assets and liabilities:
Increase in interes(662) rents recei(6,186)nd other assets (662) (6,186)
Increase (decrease) in security deposits (1,366) 1,000
Decrease in accounts payable and accrued expenses (51) (3,414)
Decrease in due to affiliate (1,281) (1,091)
--------- ---------
Cash provided by operating activities 18,370 11,022
--------- ---------
Cash flows from investing activities:
Real estate acquisitions (13,400) (170,861)
Investments in mortgage loans (15,293) (11,743)
Proceeds from repayment of notes and mortgage loans -- 8,110
Proceeds from sale of real estate -- 5,000
Dividend from Hospitality Properties Trust 2,320 --
--------- ---------
Cash used for investing activities (26,373) (169,494)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common shares 6,995 --
Proceeds from borrowings 27,000 150,000
Deferred finance costs (650) (919)
Dividends paid (23,158) (19,511)
--------- ---------
Cash provided by financing activities 10,187 129,570
--------- ---------
Increase (decrease) in cash 2,184 (28,902)
Cash and cash equivalents at beginning of period 18,640 59,766
--------- ---------
Cash and cash equivalents at end of period $ 20,824 $ 30,864
========= =========
Supplemental cash flow information:
Interest paid $ 5,058 $ 3,302
========= =========
Non-cash investing and financing activities:
Purchase of real estate $ -- $ (42,384)
Sale of real estate -- 19,550
Issuance of shares -- 24,684
Investment in mortgage loan -- (19,500)
Increase in security deposit -- 17,940
</TABLE>
See accompanying notes
3
<PAGE>
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 April 10, 1996, the Trustees declared a dividend on the Company's common
shares of beneficial interest with respect to the quarter ended March 31, 1996,
of $0.35, which will be distributed on or about May 21, 1996 to shareholders of
record as of April 25, 1996.
In January, 1996, the Company issued 475,000 shares, resulting in net
proceeds of approximately $6,995, from the underwriters exercise of the
over-allotment option pursuant to the December 1995 equity offering by the
Company. In addition, in April, 1996, the Company issued 35,560 restricted
shares of common stock to HRPT Advisors, Inc. (the "Advisor"), an affiliate, as
compensation for the incentive fee earned for the year ended December 31, 1995.
Note 3. Real Estate Properties
In February 1996, the Company purchased for approximately $12,059 a medical
building located in New York pursuant to a twenty year lease. The Company also
provided $1,341 of improvement financing to existing tenants, of which $987 was
funded to an affiliate of the Company. These transactions were funded with cash
on hand and a $12,000 draw on the Company's revolving credit facility.
At March 31, 1996, 31% of the Company's real estate properties, net, and
mortgage receivables 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 March 22, 1996.
At March 31, 1996, the Company had total commitments aggregating $13,994 to
finance improvements to certain properties leased or mortgaged by the Company
and to purchase a medical clinic.
Note 4. Investment in Hospitality Properties Trust
At March 31, 1996, the Company owned 4,000,000 shares of the common stock
of Hospitality Properties Trust ("HPT") with a carrying value of $99,731 and
market value of $107,000. During April 1996, HPT completed a public stock
offering of 14,250,000 shares of common stock at a per share price of $26.625.
After the completion of HPT's public offering, the Company's percentage of
ownership of HPT is 14.9%. Pursuant to the HPT offering, the Company will
realize a gain of approximately $3,600.
Note 5. Real Estate Mortgages and Notes Receivable, net
During the first quarter of 1996, the Company provided debt financing
totaling $15,281. A $5,000 mortgage loan is secured by a retirement community
and a $10,000 note is 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. The financings were
funded by $15,000 of drawings on the Company's revolving credit facility. The
Company also provided improvement financing for existing facilities of $281.
4
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 6. Indebtedness
In March 1996, the Company entered into a new agreement and restructured
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 restructuring, the Company recognized an extraordinary loss
of $2,443 from the early extinguishment of debt. At March 31, 1996, $80,000 was
outstanding under the credit facility.
On April 12, 1996, the Company prepaid the Revenue Refunding Bonds totaling
$17,620 with $9,620 cash on hand and an $8,000 draw on its revolving credit
facility.
5
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1996, increased to
$27,736,000 from $25,992,000 for the quarter ended March 31, 1995. Rental income
increased to $22,938,000 from $19,530,000, while interest income decreased to
$4,798,000 from $6,462,000 during the comparable period. Rental income increased
primarily as a result of new real estate investments subsequent to March 31,
1995, the full quarter impact of nine properties acquired during January, 1995,
and increases in participating rent. Interest income decreased as a result of
mortgage loan payoffs subsequent to March 31, 1995 and lower cash balances
compared to the quarter ended March 31, 1995.
Total expenses for the quarter ended March 31, 1996, increased to
$11,616,000 from $10,160,000 for the quarter ended March 31, 1995. The increase
is the result of increases in interest, depreciation and general and
administrative expenses of $830,000, $567,000 and $59,000, respectively.
Interest expense increased due to higher borrowings outstanding under its
revolving credit facility during the comparable periods. Depreciation and
general and administrative increased as a result of new investments since March
31, 1995.
Net income for the quarter ended March 31, 1996 decreased to $15,769,000,
or $.24 per share, from $18,308,000, or $.31 per share, for the same quarter in
1995. The decrease is the result of an extraordinary loss of $2,443,000 related
to the early retirement of debt during March 1996, and the $2,476,000 gain on
sale of real estate during January 1995. Income before gain on sale of real
estate and extraordinary item increased to $18,212,000, or $.28 per share, from
$15,832,000, or $.27 per share, primarily as a result of new investments since
March 31, 1995, primarily the Company's equity investment in Hospitality
Properties Trust. On a per share basis, net income has been diluted by the
issuance of additional common shares issued since March 31, 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, defined 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 $24,161,000, or $.37 per share, as compared to $20,059,000,
or $.34 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 $23,158,000, or $.35 per share, in 1996 and $20,121,000,
or $.34 per share, in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Assets of the Company increased to $1.02 billion at March 31, 1996 from
$999.7 million at December 31, 1995. The increase is primarily attributable to
new acquisitions and the issuance of additional mortgage loans.
In February 1996, the Company purchased for approximately $12,059,000 a
medical building located in New York which is leased for twenty years. The
Company also provided $1,341,000 of improvement financing to existing tenants,
of which $987,000 was funded to an affiliate of the Company. These transactions
were funded with cash on hand and a $12,000,000 draw on the Company's revolving
credit facility.
During the first quarter of 1996, the Company provided debt financing
totaling $15,281,000. A $5,000,000 mortgage loan is secured by a retirement
community and a $10,000,000 note is 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. The financings
were funded by $15,000,000 of drawings on the Company's revolving credit
facility. The Company also provided improvement financing for existing
facilities of $281,000.
In January, 1996, the underwriters from the December, 1995, offering
exercised the over-allotment option for 475,000 shares resulting in net proceeds
of approximately $6,995,000.
6
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES - continued
At March 31, 1996, the Company had $20,824,000 of cash and cash
equivalents, and the ability to borrow up to an additional $170,000,000 under
its revolving credit facility. The facility matures in 2000 and bears interest
at a spread over LIBOR. 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 million of its variable rate debt through 1997.
At March 31, 1996, the Company had commitments to provide financing
totaling approximately $13,994,000. 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 diversity 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 borrowed to acquire or mortgage finance facilities is
appropriately matched, to the extent practicable, with the terms of the
investments made with such borrowed funds. As of March 31, 1996, the Company's
debt as a percentage of total market capitalization was approximately 21%.
CERTAIN IMPORTANT FACTORS
The Company's Quarterly Report on Form 10-Q contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. 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
declaration or payment of dividends, the consummation of additional
acquisitions, policies and plans of the Company regarding investments,
financings or other matters, the Company's qualification and continued
qualification as a real estate investment trust or trends affecting the
Company's or any healthcare property's financial condition or results of
operations. 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, results of operations of the
Company's healthcare properties 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 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
7
<PAGE>
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: May 15, 1996
By: /S/ Ajay Saini
Ajay Saini
Treasurer and Chief Financial Officer
Dated: May 15, 1996
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,824
<SECURITIES> 0
<RECEIVABLES> 156,821
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 791,611
<DEPRECIATION> 60,906
<TOTAL-ASSETS> 1,023,646
<CURRENT-LIABILITIES> 0
<BONDS> 296,820
0
0
<COMMON> 662
<OTHER-SE> 707,528
<TOTAL-LIABILITY-AND-EQUITY> 1,023,646
<SALES> 0
<TOTAL-REVENUES> 27,736
<CGS> 0
<TOTAL-COSTS> 11,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,961
<INCOME-PRETAX> 18,212
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,212
<DISCONTINUED> 0
<EXTRAORDINARY> (2,443)
<CHANGES> 0
<NET-INCOME> 15,769
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
