SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 2, 1997
HEALTH AND RETIREMENT PROPERTIES TRUST
(Exact name of registrant as specified in charter)
Maryland 1-9317 04-6558834
(State or other (Commission file (IRS employer
jurisdiction of number) identification no.)
incorporation)
400 Centre Street, Newton, Massachusetts 02158
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 617-332-3990
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Item 5. Other Events.
RECENT DEVELOPMENTS
Investments
Government Office Properties. As previously reported, in February
1997, the Company entered into an agreement to acquire 30 office buildings
("Government Office Properties"), substantially all of which are leased to
various agencies of the U.S. Government. The Company's purchase price for these
properties was approximately $447 million, payable $82 million in common shares
of beneficial interest, par value $.01 per share ("Common Shares"), by the
assumption of approximately $27 million of debt by the subsidiaries of the
Company secured by mortgages on three acquired properties and the payment of
approximately $337 million to retire other debt and certain obligations of
Government Property Investors, Inc. and its subsidiaries assumed by the
Company's subsidiaries.
On July 11, 1997, the Company acquired one of the government office
properties for approximately $10.5 million through the issuance of 86,188 shares
of the Company's shares and cash on hand applied to discharge assumed
liabilities. As of August 25, 1997, 28 of the Government Office Properties have
been acquired by the Company and two remain under contract to be acquired.
Other Portfolio Developments
Community Care of America. The Company has invested $112 million, at
cost, in nursing homes and other properties operated by Community Care of
America, Inc. ("CCA"). During 1996, CCA suffered a series of financial setbacks
principally related to certain failed, attempted acquisitions. Since September
1996, the Company has granted CCA a series of temporary covenant waivers and
other indulgences. In August 1997, Integrated Health Services ("IHS") announced
that it had entered into an agreement to acquire CCA. In connection with IHS's
acquisition of CCA, the Company, IHS and CCA have entered into a letter of
intent to permit IHS to assume operations of certain properties owned and
financed by the Company, as follows: i) leases for 16 nursing homes now operated
by CCA will be assumed by IHS, ii) mortgages totaling approximately $8.8 million
secured by nine nursing homes will be assumed by IHS, iii) three nursing homes
now mortgage financed by the Company with CCA will be purchased by the Company
and leased to IHS, iv) 14 nursing homes owned by the Company currently leased to
CCA will be sold to IHS for approximately $33.5 million, v) indebtedness secured
by six nursing homes due to the Company from CCA totaling approximately $12.2
million will be repaid to the Company, vi) all lease and mortgage obligations
will be guaranteed by IHS and vii) The Company will receive a
1
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modification fee of approximately $3.7 million and the cash security deposit
previously paid by CCA will be released by the Company. Consummation of this
transaction is dependent upon several contingencies including definitive
documentation and IHS's acquisition of CCA. According to IHS's Quarterly Report
on Form 10-Q for the period ending June 30, 1997, IHS had a net worth of $581
million, and earnings after rent and interest, but before depreciation,
amortization, special charges, minority interest, income taxes and extraordinary
items for the six months then ended of $97 million.
Other Transactions. In the ordinary course of business, the Company
regularly evaluates investment opportunities and enters into contracts to
purchase and lease real estate or mortgage finance real estate. Similarly, the
Company is regularly engaged in discussions concerning lease and loan extensions
and other modifications of the terms of existing leases and mortgages.
Recent Tax Law Developments.
The Taxpayer Relief Act of 1997 liberalized certain of the requirements
for qualifying and operating as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. These
amendments apply to the Company for its taxable year commencing January 1, 1998,
but are not expected to alter significantly the Company's operations or its
continued qualification as a REIT. In comparison to the rules and requirements
in effect for the Company's 1997 taxable year (as discussed in its Annual Report
on Form 10-K for the year ended December 31, 1996 under the caption Federal
Income Tax Considerations), the amendments will, inter alia: (i) eliminate REIT
disqualification as the sanction for failing to solicit certain shareholder
ownership statements and instead impose a monetary penalty of $25,000 ($50,000
for intentional violations), and permit a REIT that solicits necessary
shareholder ownership statements (and otherwise exercises reasonable due
diligence) to rely on its actual knowledge for purposes of satisfying the
requirement that at no time during the last half of its taxable year were more
than 50% in value of its outstanding shares owned directly or indirectly by five
or fewer individuals; (ii) repeal the requirement that less than 30% of a REIT's
gross income be derived from sales or dispositions of certain short-term
property; (iii) treat income from a larger class of hedging instruments as
qualifying income for purposes of the 95% gross income requirement; (iv) permit
a REIT to receive de minimis amounts of otherwise impermissible service income
from tenants, and still have the rental income from such tenants qualify as
rents from real property for purposes of the 75% and 95% gross income
requirements; and (v) permit a REIT to retain and pay income tax on net
long-term capital gain, and then, without an actual distribution thereof, pass
through to its shareholders such gain and a refundable credit for such paid
taxes.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(b) Pro Forma Financial and Other Data
Unaudited Pro Forma Financial Statements F-1
Unaudited Pro Forma Balance Sheets at June 30, 1997 F-2
Unaudited Pro Forma Statements of Income for the Six Months
Ended June 30, 1997 F-3
Notes to Unaudited Pro Forma Financial Statements F-4
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HEALTH AND RETIREMENT PROPERTIES TRUST
Unaudited Pro Forma Financial Statements
The following unaudited pro forma statements of income for the six
months ended June 30, 1997, present the results of operations of the Company as
if the transactions described in the Notes were consummated on January 1, 1997.
This unaudited pro forma financial statement should be read in conjunction with,
and is qualified in its entirety by reference to, the separate financial
statements of the Company and of the Seller of the Government Office Properties,
each for the year ended December 31, 1996, included in the Company's Current
Report on Form 8-K dated February 17, 1997, the pro forma financial statements
included in the Company's Current Report on Form 8-K dated July 2, 1997 and the
financial statements of the Company for the quarter ended June 30, 1997 included
in the Company's Quarterly Report on Form 10-Q. This unaudited pro forma
financial statement is not necessarily indicative of the expected results of
operations of the company for any future period. Differences would result from,
among other considerations, future changes in the Company's portfolio of
investments, changes in interest rates, changes in the capital structure of the
Company, delays in the acquisition of certain properties and changes in property
level operating expenses.
F-1
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<TABLE>
<CAPTION>
Health and Retirement Properties Trust
Proforma Statements of Income
Six months ended June 30, 1997
(amounts in thousands, except per share data)
(unaudited)
Adjusted Second Quarter
Historical GPI (B) Acquisitions (C) Pro Forma
----------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 77,292 $ 13,896 $ 9,649 $100,837
Interest income 11,099 -- -- 11,099
-------- -------- -------- --------
Total revenues 88,391 13,896 9,649 111,936
-------- -------- -------- --------
Expenses:
Interest 15,746 (1,421) 4,319 18,644
Operating 8,756 4,459 1,910 15,125
Depreciation and amortization 16,238 2,392 1,719 20,349
General and administrative 4,839 504 382 5,725
-------- -------- -------- --------
Total expenses 45,579 5,934 8,330 59,843
-------- -------- -------- --------
Income before equity in earnings of
Hospitality Properties Trust 42,812 7,962 1,319 52,093
Equity in earnings of Hospitality Properties Trust 4,445 -- -- 4,445
-------- -------- -------- --------
Income before extraordinary item $ 47,257 $ 7,962 $ 1,319 56,538
-------- -------- -------- --------
Average shares outstanding 85,388 98,829
-------- --------
Per share data:
Income before extraordinary item $ 0.55 $ 0.57
-------- --------
</TABLE>
See accompaning notes
F-2
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<TABLE>
<CAPTION>
Health and Retirement Properties Trust
Balance Sheets
June 30, 1997
(dollars in thousands)
Historical Adjustments (A) Pro Forma
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<S> <C> <C> <C>
ASSETS
Real estate properties, at cost:
Land $ 183,449 $ 1,050 $ 184,499
Buildings and improvements 1,413,774 9,450 1,423,224
----------- ----------- -----------
1,597,223 10,500 1,607,723
Less accumulated depreciation 92,284 -- 92,284
----------- ----------- -----------
1,504,939 10,500 1,515,439
Real estate mortgages and notes, net 144,588 -- 144,588
Investment in Hospitality Properties Trust 102,707 -- 102,707
Cash and cash equivalents 39,962 (8,545) 31,417
Interest and rent receivables 16,544 -- 16,544
Deferred interest and finance costs, net, and other assets 13,191 -- 13,191
----------- ----------- -----------
$ 1,821,931 $ 1,955 $ 1,823,886
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 145,000 $ -- $ 145,000
Senior notes and bonds payable, net 124,508 -- 124,508
Mortgage notes payable 27,106 -- 27,106
Convertible subordinated debentures 211,650 -- 211,650
Accounts payable and accrued expenses 30,404 309 30,713
Prepaid rents 7,113 -- 7,113
Security deposits 4,428 -- 4,428
Due to affiliates 2,253 -- 2,253
Shareholders' equity:
Preferred shares, $.01 par value: none issued -- -- --
Common shares of beneficial interest, $.01 par value:
125 million shares authorized, 98.7 million shares and 987 1 988
98.8 million pro forma shares issued and outstanding, respectively
Additional paid-in capital 1,369,037 1,645 1,370,682
Cumulative net income 353,555 -- 353,555
Dividends (454,110) -- (454,110)
----------- ----------- -----------
Total shareholders' equity 1,269,469 1,646 1,271,115
----------- ----------- -----------
$ 1,821,931 $ 1,955 $ 1,823,886
=========== =========== ===========
</TABLE>
See accompaning notes
F-3
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Notes to Unaudited Pro Forma Financial Statements
A. Represents the acquisition of one of the 30 government office properties,
described in Item 5 of this report under the heading "Recent Developments--
Investments--Government Office Properties."
B. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's acquisition of the 28 government office properties. Also,
reflects the decrease in interest expense arising from the Company's
issuance of shares pursuant to a common stock offering in March 1997,
proceed of which were used, in part, to repay amounts then outstanding on
the Company's revolving credit facility, net of an increase in interest
expense related to the Company's assumption of certain debt in the
acquisition of its government office properties.
C. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expense as well as the
increase in interest expense due to the use of the Company's revolving
credit facility in the amount of $145 million to fund the Company's
acquisition of:
i) One 200 unit retirement community located in Spokane Washington.
ii) Two multi-tenanted medical office buildings and related
structures located in Los Angeles, California.
iii) 20 medical office clinics and ancillary structures located in
Massachusetts.
F-4
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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/ Ajay Saini
Ajay Saini, Treasurer and
Chief Financial Officer
Date: September 2, 1997
