SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 13, 1997
HEALTH AND RETIREMENT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 1-9317 04-6558834
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
400 Centre Street, Newton, MA 02158
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-332-3990
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements Under Rule 3-14 of Regulation S-X
Audited Statement of Revenue and Certain Expenses for Franklin Office
Associates, a limited partnership for the Year Ended December 31, 1996
As previously disclosed on Form 8-K dated November 26, 1997,
Health and Retirement Properties Trust and subsidiaries (the "Company")
acquired a medical office property located in Philadelphia,
Pennsylvania. Neither the Company nor its affiliates were related to
the seller of this property. The factors considered by the Company in
determining the purchase price paid for this property include, among
others, the following:
(i) the historical and projected rents received and likely to be
received from the property,
(ii) the historic and expected operating expenses, including real
estate taxes, incurred and expected to be incurred at the
property,
(iii) the credit quality and nature of the existing tenants
(iv) the existing lease terms and renewal options of the leases in
place,
(v) the market demand for similar space, the rent rates being paid
compared to existing rents being paid in the building, and
opportunities for alternative and new tenancies,
(vi) the physical location and condition of the property, the need
for repairs and likely cost of repairs,
(vii) the expected tenant inducements (such as free rent, tenant
improvement allowances, etc.) which might be necessary to fill
vacant space or renew leases, and
(viii) the pricing of comparable properties as evidenced by recent
arms-length market sales.
The Company, after investigation of the properties, is not
aware of any material factors, other than those enumerated above, which would
cause the financial information reported not to be necessarily indicative of
future operating results.
(b) Pro Forma Financial and Other Data
Pro Forma Balance Sheet as of September 30, 1997
Pro Forma Statement of Income for the Nine Months Ended September 30,
1997
Pro Forma Statement of Income for the Year Ended December 31, 1996
(c) Exhibits
23.1 Consent of KPMG Peat Marwick LLP
- 2 -
<PAGE>
Independent Auditors' Report
The Partners
Franklin Office Associates:
We have audited the accompanying statement of revenues and certain expenses of
Franklin Office Associates, a limited partnership, for the year ended December
31, 1996. This financial statement is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of revenues and certain expenses presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the filing of Form 8-K of Health and
Retirement Properties Trust, as described in Note 1 to the statement of revenues
and certain expenses. The presentation is not intended to be a complete
presentation of Franklin Office Associates' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses, as described in Note
1, of Franklin Office Associates for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
December 11, 1997
F-1
<PAGE>
FRANKLIN OFFICE ASSOCIATES
(A Limited Partnership)
Statement of Revenues and Certain Expenses
Year ended December 31, 1996
Revenues:
Base rent (notes 3 and 5) $ 10,590,548
Parking income 158,843
Escalation income 1,953,095
Interest and other income 115,951
------------
Total revenues 12,818,437
Certain Expenses:
Utilities 1,625,957
Repairs and maintenance 1,768,326
Real estate taxes 1,471,196
General and administrative 858,563
Payroll 463,323
Management fees 282,620
Insurance (note 4) 67,783
-------------
Total certain expenses 6,537,768
Revenues in excess of certain expenses $ 6,280,669
===========
See accompanying notes to statement of revenues and certain expenses.
F - 2
<PAGE>
FRANKLIN OFFICE ASSOCIATES
(A Limited Partnership)
Notes to Statement of Revenues and Certain Expenses
December 31, 1996
(1) General Information and Summary of Significant Accounting Policies
Franklin Office Associates, a limited partnership, (the Partnership) was
formed on July 28, 1978 under the Uniform Limited Partnership Act of
Pennsylvania for the purpose of purchasing and operating a twenty-four
story office building located in Philadelphia, Pennsylvania (the
Property). On November 13, 1997, Health and Retirement Properties Trust
acquired the Property from the Partnership.
Use of Estimates
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of revenues and certain expenses to
prepare the statement of revenues and certain expenses in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
Rental Income
Income from operating leases with scheduled rent increases is recognized
using the straight-line method over the respective lease term. Additional
rentals, consisting of operating expense and real estate tax expense
recoveries from tenants, are recognized as earned.
Basis of Accounting
The accompanying statement of revenues and certain expenses has been
prepared in accordance with Rule 3-14 of Regulation S-X of the Securities
and Exchange Commission for inclusion in Form 8-K of Health and
Retirement Properties Trust. Accordingly, certain historical expenses
which may not be comparable to the expenses expected to be incurred in
the proposed future operations of the Property have been excluded.
Excluded expenses consist of depreciation and amortization and interest
expense.
(2) Income Taxes
In accordance with the Internal Revenue Code, the Partnership's net
income or loss is included in the taxable income of the respective
partners. The income or loss reported by the partners for tax purposes
differs from that shown for financial reporting purposes primarily due to
the recognition of rental income, depreciation and the treatment of
construction period interest, real estate taxes and other costs.
The Partnership is subject to taxes on both their net profits and gross
receipts by the City of Philadelphia. For the year ended December 31,
1996, the Partnership paid approximately $24,000 in business receipts
tax. No amount was due for the net profits tax. The Partnership has
$27,662,287 of net operating loss carryforward available, related to net
profits tax, which expire as follows, $7,850,605 in 1997, $10,878,811 in
1998 and $8,932,871 in 1999.
F - 3
<PAGE>
(3) Leases
The following is a schedule of future minimum base rental receipts based
upon noncancelable leases currently in effect (including the lease
amendment described in Note 5):
Years ending December 31:
1997 $ 10,645,695
1998 10,425,873
1999 10,426,821
2000 10,427,769
2001 10,428,717
Thereafter 130,342,173
-----------
Total $ 182,697,048
===========
The Partnership has a lease with Smithkline Beecham Corporation
(Smithkline) which, as amended and discussed in Note 5, is scheduled to
expire in 2013 and accounts for approximately 97% of total base rental
revenues for the year ended December 31, 1996.
(4) Related Party Transaction
Aetna provides property and general liability insurance for the Property.
Insurance premiums paid to Aetna amounted to $67,783 for the year ended
December 31, 1996.
(5) Subsequent Event
On July 10, 1997, the Partnership amended its lease with Smithkline to
the year 2013. As a result of this amendment, Smithkline leases 593,000
of the available 611,000 square feet at the Property. This rental
agreement requires annual rental payments of $10,391,745 through December
31, 2005, $11,876,280 through December 31, 2010, and $13,063,908 through
March 31, 2013.
F - 4
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
Unaudited Pro Forma Financial Statements
The following unaudited pro forma balance sheet as of September 30,
1997 and the statement of income for the nine months ended September 30, 1997
and the year ended December 31, 1996, present the financial position and the
results of operations of Health and Retirement Properties Trust (the "Company")
as if the transactions described in the notes to unaudited financial statements
were consummated on January 1, 1996. These unaudited pro forma financial
statements should be read in connection 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, and the financial statements of the Company for the quarter ended
September 30, 1997 included in the Company's Quarterly Report on Form 10-Q.
These unaudited pro forma financial statements are not necessarily indicative of
the expected results of operations of the Company for any future period.
Differences could 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 - 5
<PAGE>
<TABLE>
<CAPTION>
Health and Retirement Properties Trust
Pro Forma Balance Sheets
September 30, 1997
(dollars in thousands)
(unaudited)
West 34th Franklin Recent
Historical Street (A) Plaza (B) Acquisitions (C) Pro Forma
---------- ---------- ---------- ---------- -----------
ASSETS
<S> <C> <C> <C> <C> <C>
Real estate properties, at cost:
Land, buildings and improvements ............................$1,621,522 $ 110,750 $ 79,000 $ 152,000 $1,963,272
---------- ---------- ---------- ---------- ----------
1,621,522 110,750 79,000 152,000 1,963,272
Less accumulated depreciation ............................... 99,746 - - - 99,746
---------- ---------- ---------- ---------- ----------
1,521,776 110,750 79,000 152,000 1,863,526
Real estate mortgages, net ...................................... 116,941 - - - 116,941
Investment in Hospitality Properties Trust ...................... 102,465 - - - 102,465
Cash and cash equivalents ....................................... 71,765 (46,368) (27,414) 10,530 8,513
Interest and rent receivables ................................... 19,722 - - - 19,722
Deferred interest and finance costs, net and other assets ....... 18,625 (4,901) - (250) 13,474
---------- ---------- ---------- ---------- ----------
$1,851,294 $ 59,481 $ 51,586 $ 162,280 $2,124,641
========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable ..............................................$ 100,000 $ 59,000 $ 51,000 $ 160,000 $ 370,000
Senior notes and bonds payable, net ............................. 200,000 - - - 200,000
Mortgage notes payable .......................................... 26,941 - - - 26,941
Convertible subordinated debentures ............................. 211,650 - - - 211,650
Accounts payable and accrued expenses ........................... 35,616 481 586 850 37,533
Prepaid rents ................................................... 7,077 - - - 7,077
Security deposits ............................................... 2,872 - - 750 3,622
Due to affiliates ............................................... 1,336 - - - 1,336
Dividend payable ................................................ 36,571 36,571
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
98.8 million pro forma shares issued and outstanding,
respectively 988 - - - 988
Additional paid-in capital ................................... 1,370,730 - - 680 1,371,410
Cumulative net income ........................................ 383,775 - - - 383,775
Dividends .................................................... (526,262) - - - (526,262)
---------- ---------- ---------- ---------- ----------
Total shareholders' equity .......................... 1,229,231 - - 680 1,229,911
---------- ---------- ---------- ---------- ----------
$1,851,294 $ 59,481 $ 51,586 $ 162,280 $2,124,641
========== ========== ========== ========== ==========
- - - - -
See accompaning notes to unaudited pro forma financial statements
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Health and Retirement Properties Trust
Proforma Statements of Income
Nine months ended September 30, 1997
(amounts in thousands, except per share data)
(unaudited)
Second Third
Quarter Quarter Recent
Acquisi Acquisi West 34th Franklin Acquisi
Historical GPI (D) CSMC (E) tions(F) tions(F) Street(G) Plaza(H) tions(I) Pro Forma
------- ------- ------- ------- ------- ------- ------- ------- --------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income ................... $129,518 $12,235 $ 6,831 $ 2,948 $ 3,179 $10,771 $ 9,614 $11,482 $186,578
Interest income ................. 16,177 (268) -- -- -- -- -- -- 15,909
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues ............... 145,695 11,967 6,831 2,948 3,179 10,771 9,614 11,482 202,487
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Operating ....................... 16,961 3,732 1,910 -- 954 3,641 4,904 3,513 35,615
Interest ........................ 24,955 (1,366) 3,232 1,087 1,463 2,876 2,486 5,897 40,630
Depreciation and amortization ... 26,633 3,365 1,119 627 501 1,869 1,334 1,873 37,321
General and administrative ...... 8,148 1,579 249 139 111 415 296 417 11,354
------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses ... 76,697 7,310 6,510 1,853 3,029 8,801 9,020 11,700 124,920
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before equity in earnings
of income Hospitality Properties
Trust and before extraordinary
item ............................ 68,998 4,657 321 1,095 150 1,970 594 (218) 77,567
Equity in earnings of Hospitality
Properties Trust ................ 6,683 -- -- -- -- -- -- -- 6,683
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income before extraordinary item $ 75,681 $ 4,657 $ 321 $ 1,095 $ 150 $ 1,970 $ 594 $ (218) $ 84,250
------- ------- ------- ------- ------- ------- ------- ------- -------
Average shares outstanding ......... 89,918 98,838
Per share data:
Net income before extraordinary item $ 0.84 $ 0.85
See accompaning notes to unaudited pro forma financial statements
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Health and Retirement Properties Trust
Proforma Statements of Income
Year Ended December 31, 1996
(amounts in thousands, except per share data)
(unaudited)
HRPT GPI
------------------ ------------------ Recent
Acquitis Acquitis West 34th Franklin Acquitis Pro Forma
Historical tions(J) Historical tions(K) CSMC (L) Street(M) Plaza(N) tions(O) Adjustments Pro Forma
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income $ 98,039 $ 31,212 $ 36,523 $ 15,055 $ 15,911 $ 14,361 $ 12,818 $ 11,167 $ -- $235,086
Interest income 22,144 (396) 780 -- -- -- -- -- -- 22,528
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues 120,183 30,816 37,303 15,055 15,911 14,361 12,818 11,167 -- 257,614
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Expenses:
Operating 3,776 1,600 8,657 5,605 5,081 4,855 6,538 3,441 1,073 (P) 40,626
Interest 22,545 15,947 28,730 8,313 7,053 3,835 3,315 5,787 (45,086)(Q) 50,439
Depreciation and
amortization 22,106 6,467 6,357 1,174 2,441 2,492 1,778 1,738 932 (R) 45,485
General and
administrative 7,055 1,402 5,570 -- 543 554 395 388 (3,486)(P) 12,421
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total expenses 55,482 25,416 49,314 15,092 15,118 11,736 12,026 11,354 (46,567) 148,971
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before equity
income and extraordinary
item
64,701 5,400 (12,011) (37) 793 2,625 792 (187) 46,567 108,643
Equity in earnings of
Hospitality
Properties Trust 8,860 8,860
Gain on equity transaction
of Hospitality Properties
Trust 3,603 -- -- -- -- -- -- -- -- 3,603
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before gain (loss)
on sale of properties
and extraordinary item $ 77,164 $ 5,400 $(12,011) $ (37) $ 793 $ 2,625 $ 792 $ (187) $ 46,567 $121,106
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Average shares outstanding 66,255 98,838
Per share data:
Income before gain (loss)
on sale of properties
and extraordinary item $ 1.16 $ 1.23
See accompaning notes to unaudited pro forma financial statements
</TABLE>
F-8
<PAGE>
Notes To Unaudited Pro Forma Financial Statements
Pro Forma Balance Sheet Adjustments at September 30, 1997.
A. Represents the acquisition, on October 1, 1997, of a medical office
property located at 7 West 34th Street in New York, New York ("West 34th
Street"). This acquisition was funded with available cash and by drawing
under the Company's existing revolving line of credit.
B. Represents the acquisition, on November 13, 1997, of an office property
located at One Franklin Plaza, Philadelphia, Pennsylvania ("Franklin
Plaza"). This acquisition was funded with available cash and by drawing
under the Company's existing revolving line of credit.
C. Represents the Company's acquisitions, during November 1997 and December
1997, of a medical office property located in Colorado, a medical office
property located in Maryland, a medical office property located in Rhode
Island, five commercial office properties located in Texas, three medical
office properties located in California, a medical office property located
in Washington, D.C. and a government office property located in Texas
(collectively, "Recent Acquisitions"). The Recent Acquisitions were funded
with available cash, by drawings under the Company's existing revolving
line of credit and the issuance of the Company's common shares.
Pro Forma Statement of Income adjustments for the Nine months Ended September
30, 1997.
D. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's acquisition of the government office properties ("GPI") from
Government Property Investors, Inc. ("Seller"). Also reflects the decrease
in interest expense arising from the Company's issuance of its shares
pursuant to a common stock offering in March 1997, proceeds of which were
used in part to repay amounts then outstanding under the Company's
revolving line of credit, net of an increase in interest expense related to
the Company's assumption of certain debt in connection with the acquisition
of the GPI.
E. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's acquisition of two medical office properties and two parking
structures located in Los Angeles, California ("CSMC") as well as the
increase in interest expense due to the use of the Company's revolving line
of credit to fund this acquisition.
F. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's acquisition of a 200 unit retirement housing property located in
Spokane, Washington, 20 medical office clinics and ancillary structures
located in Massachusetts and three medical and two commercial office
buildings located in Pennsylvania as well as the increase in interest
expense due to the use of the Company's revolving line of credit to fund
these acquisitions.
G. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's acquisition of West 34th Street, as well as the increase in
interest expense due to the use of the Company's revolving line of credit
to fund the acquisition.
H. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's acquisition of Franklin Plaza, as well as the increase in
interest expense due to the use of the Company's revolving line of credit
to fund the acquisition.
F - 9
<PAGE>
I. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Company's Recent Acquisitions as well as the increase in interest expense
due to the use of the Company's revolving line of credit to fund these
acquisitions.
Pro Forma Statement of Income adjustments for the Year Ended December 31, 1996.
J. Represents the increase in rental income, operating expenses, interest
expense, depreciation and amortization and general and administrative
expenses arising from the Company's acquisitions completed during 1996 and
certain acquisitions completed during the nine months ended September 30,
1997, assuming the contractual rents were in effect since January 1, 1996.
Property level expense adjustments represent annualized historical
operating expenses for gross leased properties acquired. Depreciation
expense adjustments assume an average building life of 40 years. Also
assumes a reduction in interest income from the use of cash on hand to
fund, in part, these acquisitions.
K. Represents the increase in rental income, operating expenses, interest
expense, depreciation and amortization and general and administrative
expenses arising from the Seller's acquisitions completed during 1996 and
acquisitions completed by the Company during the nine months ended
September 30, 1997, assuming the contractual rents were in effect since
January 1, 1996. Property level expense adjustments are established for the
purpose of this pro forma presentation as equal to percentage of rents
which the same percentage of rents as was represented by property level
operating expenses for the properties which were owned by the Seller during
1996. Depreciation expense adjustments assume an average building life of
40 years.
L. Represents the historical rental income and operating expenses for the
Company's acquisition of CSMC. Also represents adjustments resulting from
the acquisition for interest expense due to the use of the Company's
revolving line of credit to fund the acquisition, depreciation expense
adjustments assuming an average building life of 40 years as well as
increases in general and administrative expenses.
M. Represents the historical rental income and operating expenses for the
Company's acquisition of West 34th Street. Also represents adjustments
resulting from the acquisition for interest expense due to the use of the
Company's revolving line of credit to fund the acquisition, depreciation
expense assuming an average building life of 40 years as well as increases
in general and administrative expenses.
N. Represents the historical rental income and operating expenses for the
Company's acquisition of Franklin Plaza. Also represents adjustments
resulting from the acquisition for interest expense due to the use of the
Company's revolving line of credit to fund the acquisition, depreciation
expense assuming an average building life of 40 years as well as increases
in general and administrative expenses.
O. Represents the increase in rental income, operating expenses, depreciation
and amortization and general and administrative expenses arising from the
Recent Acquisitions, as well as the increase in interest expense due to the
use of the Company's revolving line of credit to fund these acquisitions.
P. Represents the net reduction in operating and administrative expenses
arising from the differences in the Company's cost structure (which include
the full year's effect of general and administrative and property
management services) and the cost structure of GPI (which included the
employment of separate property management companies for certain of the
government office properties under separate fee arrangements and cost
related to administrative financial, acquisition and other activities
performed by GP s management) and the cost structure of the other
properties acquired in 1997.
F - 10
<PAGE>
Q. Represents the reduction of interest expense arising from the Company's
repayment of the GPI mortgage and affiliate debt, excluding $27,588 of
mortgage debt that was not repaid in connection with the acquisition of
GPI.
R. Represents the effect on the depreciation expense arising from the
adjustment of GPI's historical basis in existing assets to the Company's
basis at acquisition.
F - 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully 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: January 14, 1998
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the registration statements
(Nos. 333-34823, 333-26887 and 33-62135) on Forms S-3 of Health and Retirement
Properties Trust of our report dated December 11, 1997, with respect to the
statement of revenues and certain expenses of Franklin Office Associates for the
year ended December 31, 1996, which report appears in Form 8-K/A of Health and
Retirement Properties Trust dated January l4, 1998.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 13, 1998
