SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K/A
Amendment No. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] 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 of (IRS Employer Identification No.)
Incorporation or Organization)
400 Centre Street, Newton, Massachusetts 02158
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 617-332-3990
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------------------------------------- -------------------------
<S> <C>
Common Shares of Beneficial Interest New York Stock Exchange
7.25% Convertible Subordinated Debentures due 2001 New York Stock Exchange
7.5% Convertible Subordinated Debentures due 2003, Series A New York Stock Exchange
Remarketed Rested Notes New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
PART III
Part III of the Annual Report on Form 10-K is hereby amended and
restated in its entirety as follows:
Item 10. Directors and Executive Officers of the Registrant.
The following persons currently serve on the Board of Trustees or serve
as executive officers of Health and Retirement Properties Trust (the "Company"
or "HRP"). Their principal occupations for the last five years and their ages
are as follows:
TRUSTEES
BRUCE M. GANS, M.D. Age: 51
Dr. Gans has been a Professor and Chairman of the Department of
Physical Medicine and Rehabilitation at Wayne State University and a Senior Vice
President of the Detroit Medical Center since 1989. Dr. Gans is a Group I
Trustee; his term will expire at the 1999 Annual Meeting of Shareholders.
REV. JUSTINIAN MANNING, C.P. Age: 71
The Reverend Justinian Manning, C.P., has been, since September 1990,
the pastor of St. Gabriel's parish in Brighton, Massachusetts. He is also on the
Board of Directors of Charlesview, a low and moderate income housing program. He
is past Treasurer and a former Director of St. Paul's Benevolent, Educational
and Missionary Institute, a New Jersey corporation, which oversees foundations
in Massachusetts, Connecticut, New York, Pennsylvania, Maryland and Florida and
the Institute's Overseas Missions. He was formerly on the Board of Directors of
St. Paul's Monastery Manor, in Pittsburgh, Pennsylvania, a congregate housing
facility. He belonged to the Provincial Council of the Passionist Provincialate
and is the former Director of Consolidation for the Community. The Reverend
Manning is a Group II Trustee; his term will expire at the 2000 Annual Meeting
of Shareholders.
GERARD M. MARTIN Age: 63
Mr. Martin is a Managing Trustee of the Company. Mr. Martin is a
private investor in real estate and has been a Trustee of the Company since its
organization in 1986. From 1985 until the merger of Greenery Rehabilitation
Group, Inc. ("Greenery") into Horizon Healthcare Corporation ("HHC") in February
1994, he served as the Chief Executive Officer and Chairman of the Board of
Directors of Greenery. Mr. Martin served as a Director of HHC until his
resignation in July 1996. Mr. Martin has been active in the health care and real
estate industries for more than 25 years as a manager, developer and builder.
Mr. Martin is also a Director and 50% shareholder of each of REIT Management &
Research, Inc. ("RMR"), the Company's investment advisor, HRPT Advisors, Inc.
("Advisors"), Connecticut Subacute Corporation ("CSC") and Connecticut Subacute
Corporation II ("CSCII"), a Director and 331/3% shareholder of each of Vermont
Subacute Corporation ("VSC") and New Hampshire Subacute Corporation ("NHSC") and
a Managing Trustee of Hospitality Properties Trust ("HPT"). Mr. Martin is as a
Group II Trustee; his term will expire at the 2000 Annual Meeting of
Shareholders.
BARRY M. PORTNOY Age: 52
Barry M. Portnoy has been a Trustee of the Company since its
organization in 1986. Mr. Portnoy served as a Director of HHC until his
resignation in July 1996. Mr. Portnoy is a Director and 50% shareholder of RMR,
Advisors, CSC and CSCII, a Director and 331/3% shareholder of each of VSC and
NHSC and a Managing Trustee of HPT. Mr. Portnoy is an attorney and was a partner
of the law firm of Sullivan & Worcester LLP, counsel to the Company, from 1978
through March 31, 1997. Mr. Portnoy is a Group I Trustee; his term will expire
at the 1999 Annual Meeting of Shareholders.
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<PAGE>
RALPH J. WATTS Age: 51
Mr. Watts is Chairman and CEO of Health Matrix LLC ("Health Matrix"), a
privately held company which develops, owns and operates outpatient cardiac
catheterization laboratories and is engaged in physician practice management.
Mr. Watts had been President and CEO of Cardiovascular Ventures, Inc.
("Cardiovascular"), the predecessor of Health Matrix, since 1992. Prior to
assuming his position with Cardiovascular, Mr. Watts was President and CEO of
Ramsay Health Care, Inc., a publicly owned company which owned and operated 18
hospitals in 13 states and had approximately 2,000 employees. Mr. Watts is a
Group III Trustee; his term will expire at the 1998 Annual Meeting of
Shareholders and he has been nominated for re-election at such meeting.
EXECUTIVE OFFICERS
DAVID J. HEGARTY Age: 41
David J. Hegarty, a certified public accountant, joined the Company in
July 1987 as Treasurer, became Executive Vice President in July 1993 and became
the President and Chief Operating Officer of the Company in April 1994. Mr.
Hegarty has also been the Secretary of the Company since 1987. In April 1994, he
also became a Director and the President and Chief Operating Officer of
Advisors. In December 1997, Mr. Hegarty became the President and Chief Operating
Officer of RMR. From 1985 to 1987, Mr. Hegarty was an audit manager with Ernst &
Young LLP, the Company's independent auditors.
AJAY SAINI Age: 38
In April 1995, Ajay Saini, a certified public accountant, became the
Treasurer of the Company and in August 1995 also become Chief Financial Officer.
He has been Vice President and Chief Accounting Officer of Advisors since July
1993, and prior to that he served as Controller of Advisors since June 1990. In
April 1995, he became Treasurer of Advisors. In December 1997, Mr. Saini became
a Vice President of RMR. Prior to joining Advisors, Mr. Saini was employed by
Ernst & Young LLP, the Company's independent auditors.
There are no family relationships among any Trustees and current
executive officers of the Company. However, Adam D. Portnoy, who served as Vice
President of the Company prior to his resignation in January 1997, is the son of
Barry M. Portnoy. Executive officers serve at the will of the Board of Trustees.
Compliance with Section 16(a) of Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Trustees and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of securities with the Securities and
Exchange Commission and the New York Stock Exchange. Executive officers,
Trustees and greater than 10% shareholders are required to furnish the Company
with copies of all forms they file pursuant to Section 16(a). Based solely on
review of the copies of such reports furnished to the Company or written
representations that no other reports were required, the Company believes that,
during the 1997 fiscal year, all filing requirements applicable to its executive
officers, Trustees and greater than 10% shareholders were complied with.
Item 11. Executive Compensation.
Executive Compensation
The Company does not have any employees; services which otherwise would
be provided by employees were performed by Advisors prior to January 1, 1998 and
thereafter have been performed by RMR. Payments by the Company to Advisors and
RMR are described in Item 13 below.
The following table provides summary compensation information for
certain employees of Advisors who performed the duties of executive officers for
the Company during 1997:
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long-Term Compensation
----------------------------------------- -------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Awards(2) Options/SARs Payouts Compensation
--------------------------- ---- ------ ----- ------------ --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David J. Hegarty.............. 1997 None None None $ 55,688 None None None
President & Chief Operating 1996 None None None $ 51,750 None None None
Officer (chief executive 1995 None None None $ 46,125 None None None
officer)
Ajay Saini.................... 1997 None None None $ 37,125 None None None
Treasurer & Chief Financial 1996 None None None $ 34,500 None None None
Officer 1995 None None None $ 30,750 None None None
Adam D. Portnoy............... 1997 None None None None None None None
Vice President(3) 1996 None None None $ 25,875 None None None
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<FN>
(1) Except with respect to incentive share awards, the Company has not paid and has no current plans to pay compensation to its
executive officers. Advisors, which conducted the day-to-day operations of the Company during 1997, compensated Messrs.
Hegarty and Saini and Mr. Adam Portnoy in connection with their services to Advisors and to the Company.
(2) All incentive share awards have been granted pursuant to the Company's 1992 Incentive Share Award Plan (the "Plan") and,
except as described below in Note 3, provide that one third of each annual incentive share award vests immediately upon
grant and one third vests on each of the first and second anniversaries of the grant. In the event any executive officer
who has been granted an incentive share award ceases to perform the duties of an executive officer of the Company during
the vesting period of such award, that executive officer will only be entitled to receive the number of the Company's
common shares of beneficial interest, par value $.01 per share ("Common Shares"), which have vested up to the date of his
departure. At December 31, 1997, the aggregate 17,000 and 8,515 Common Shares granted under annual incentive share awards
to Messrs. Hegarty and Saini, respectively, had a value of $341,063 and $170,832 respectively, based upon a $20.0625 per
share closing price for the Common Shares as reported on the New York Stock Exchange on that date. Common Shares are
entitled to dividends as declared by the Company. The dollar amounts shown represent the number of restricted Common Shares
which have vested or continue to be subject to vesting multiplied by the closing price for the Common Shares on the New
York Stock Exchange on the date of grant.
(3) Mr. Adam Portnoy served as Vice President until January of 1997. The 1,500 Common Shares held by him under the Plan became
fully vested and were sold by him in 1997.
</FN>
</TABLE>
Compensation Committee Interlocks and Insider Participation
Three of the Trustees, Bruce M. Gans, M.D., the Rev. Justinian Manning,
C.P. and Ralph J. Watts are the Company's "Independent Trustees;" that is,
Trustees who are not otherwise affiliated with the Company, RMR, or any other
person or entity that holds in excess of 8.5% of the issued and outstanding the
Company's common shares of beneficial interest, par value $.01 per share
("Common Shares"). The Company does not have a standing Compensation Committee;
rather, a committee comprised of the Company's Independent Trustees makes
recommendations for grants of Common Shares under the Company's 1992 Incentive
Share Award Plan (the "Plan"), and such recommendations are acted upon by the
full Board of Trustees (Dr. Gans, the Rev. Manning and Messrs. Watts, Martin and
Portnoy). Barry M. Portnoy, a member of the Board of Trustees, is a former
partner in the firm of Sullivan & Worcester LLP, counsel to the Company.
Performance Graph -- Comparison of Cumulative Total Return
The graph below shows, for the years indicated, the Company's
cumulative total shareholder return on its Common Shares (assuming a $100
investment on December 31, 1992) as compared with (a) the Standard & Poor's 500
Index and (b) the National Association of Real Estate Investment Trust, Inc.'s
index of all tax-qualified real estate investment trusts listed on the New York
Stock Exchange, the American Stock Exchange and the NASDAQ/National Market
System (NAREIT). The comparison assumes all dividends are reinvested and, in the
case of HRP, that the reinvestment occurred on the dividend payment date.
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<PAGE>
Measurement Period
---------------------
(Fiscal Year Covered) HRP NAREIT S&P 500 Index
1992 100 100 100
1993 131 119 110
1994 130 120 111
1995 172 141 153
1996 221 192 188
1997 249 228 251
Executive Compensation Report
Health and Retirement Properties Trust (the "Company") developed and
implemented its 1992 Incentive Share Award Plan (the "Plan") in May 1992 in
recognition of the following circumstances. First, the Company's Common Shares
are primarily a yield vehicle for shareholders and do not appreciate in value in
the same manner as other equity securities. Therefore, a conventional stock
option plan would not provide appropriate incentives for the Company's
management. Second, because the executive officers of the Company are employees
of its investment advisor and not of the Company, and receive their salary
compensation from its advisor, the Trustees wished to establish a vehicle which
would, among other things, (a) foster a continuing identity of interest between
management of the Company and its shareholders, and (b) recognize that the
Company's executive officers perform certain duties on behalf of the Company,
primarily with regard to shareholder relations and investor communications,
which fall outside of the services covered by the investment advisory contract
between the Company and its advisor. In granting incentive share awards, the
Trustees consider factors such as the amount and terms of restricted Common
Shares previously granted to executive officers and the amount of time spent and
complexity of the duties performed by executive officers on behalf of the
Company, speaking at Company conferences, road shows and making additional
presentations, interfacing with analysts and preparing and distributing
shareholder reports, materials, statements and other information. The Trustees
may impose vesting restrictions or other conditions on the granted Common
Shares, which may further promote continuity of management.
In 1997, David J. Hegarty, President and Chief Operating Officer of the
Company, received a grant of 3,000 Common Shares under the Plan, 1,000 Common
Shares of which vested immediately upon grant and 1,000 of which will vest on
each of the first and second anniversaries of the date of grant. In 1997, Mr.
Saini, Treasurer and Chief Financial Officer of the Company, received a grant of
2,000 Common Shares under the Plan, 6661/3 of which vested immediately upon
grant, 6661/3 of which will vest on the first anniversary of the grant and
6661/3 of which will vest on the second anniversary thereof. In January 1997,
Adam D. Portnoy resigned his position with the Company and the Board of Trustees
voted to accelerate fully the vesting of the Common Shares which had been
awarded in 1996. The determination of the number of Common Shares granted to
Messrs. Hegarty and Saini and the acceleration of the vesting schedule for Mr.
Portnoy's Common Shares were not specifically based on an estimate of the
Company's performance, but instead was based on the relationship of the fair
market value of the Common Shares so granted, on the number of Common Shares
previously granted to each such individual, and on the Board's opinion as to the
value of the "outside" services to the Company, as discussed above, performed by
these officers.
BOARD OF TRUSTEES
Bruce M. Gans, M.D.
Rev. Justinian Manning, C.P.
Gerard M. Martin
Barry M. Portnoy
Ralph J. Watts
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<PAGE>
Trustee Compensation
Each Independent Trustee receives an annual fee of $20,000 for services
as a Trustee, plus $500 for each meeting of the Board or Board Committee
attended by such Trustee. The Chairperson of the Audit Committee receives an
additional $2,000 annually; such position rotates annually among the Independent
Trustees. Each Independent Trustee also receives annual 500 Common Share grants
under the Plan. The Company reimburses all Trustees for travel expenses incurred
in connection with their duties as Trustees of the Company. The Company has also
agreed to pay any Independent Trustee who brings a property to the attention of
the Company a fee equal to one percent of any investment made by the Company in
the property. No fees have been earned to date by any Independent Trustee with
respect to any investments by the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to the
beneficial ownership of the Common Shares by each beneficial owner known to the
Company to hold more than 5% of the Common Shares, each Trustee and officer, and
all officers and Trustees of the Company as a group, as of the date hereof. The
address of each of the Trustees and current officers of the Company is c/o
Health and Retirement Properties Trust, 400 Centre Street, Newton, Massachusetts
02158.
<TABLE>
<CAPTION>
Beneficial Ownership
---------------------------
Number
Name and Address(1) of Shares Percent
------------------- --------- -------
<S> <C> <C>
Bruce M. Gans................................................. 1,000 *
David J. Hegarty(2)........................................... 17,000 *
Rev. Justinian Manning, C.P................................... 3,000 *
Gerard M. Martin(3)........................................... 3,912,138 3.7%
Barry M. Portnoy(3)........................................... 3,912,138 3.7%
Ajay Saini(4)................................................. 8,515 *
Ralph J. Watts................................................ 1,050 *
All executive officers and Trustees as a group (7 persons)
(2)(3)(4)).................................................... 3,942,703 3.7%
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<FN>
* Less than 1% of the Company's outstanding Common Shares.
(1) The address of each of the named persons is c/o Health and Retirement Properties Trust, 400 Centre Street, Newton, MA 02158.
(2) Includes 3,000 Common Shares awarded under the 1992 Incentive Share Award Plan which have not yet vested.
(3) Advisors, which is wholly owned by Messrs. Martin and Portnoy, owns 1,134,372 Common Shares directly. Solely in its capacity as
voting trustee of a voting trust agreement, Advisors exercises voting control over 1,000,000 Common Shares owned by AMS
Properties, Inc. ("AMSP") and pledged to the Company to secure the obligations of Paragon Health Network, Inc. and its
affiliates to the Company. Advisors also exercises voting control as proxy over 1,777,766 Common Shares owned by affiliates of
Mr. Jeff Chapple,
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<PAGE>
including Berlin C.C., Inc., St. Johnsbury C.C., Inc., Rochester C.C., Inc., Springfield C.C., Inc., Bennington C.C., Inc.,
Burlington, C.C., Inc., The L.P. Corporation and American Health Care, Inc. Neither Mr. Martin nor Mr. Portnoy owns any Common
Shares directly.
(4) Includes 2,000 Common Shares awarded under the 1992 Incentive Share Award Plan which have not yet vested, 500 Common Shares in
Mr. Saini's IRA account and approximately 15 Common Shares held by Mr. Saini's minor daughter.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions.
Messrs. Martin and Portnoy are principal shareholders of CSC, CSCII,
NHSC and VSC (collectively the "Subacute Entities"). The Subacute Entities are
borrowers/mortgagors or lessees of the Company. The Company has extended a $4
million line of credit to CSC until June 30, 1998. At December 31, 1997, there
was $2.4 million outstanding under this agreement. The lease and loan
transactions with the Subacute Entities are based on market terms and are
generally similar to the Company's lease and mortgage agreements with
unaffiliated companies. The former president of the Company is the president of
the Subacute Entities. Rent and interest paid to the Company by the Subacute
Entities was $13.6 million in 1997.
Effective January 1, 1998, the Company entered into two agreements with
RMR, an advisory agreement (the "New Advisory Agreement") under which RMR
provides investment management and administrative services to the Company, and a
property management agreement (the "New Property Management Agreement") under
which RMR provides property management services for the Company's multi-tenant,
government-leased and other office buildings. Prior to January 1, 1998, the
Company had an agreement (the "Old Advisory Agreement") with Advisors under
which Advisors provided investment and administrative services to the Company.
Advisors and RMR are owned by Messrs. Martin and Portnoy. The Old Advisory
Agreement provided, and the New Advisory Agreement provides, for an annual base
advisory fee equal to 0.70% of the Company's Average Invested Capital, as
defined in the Advisory Agreements, up to $250 million, and 0.50% of Average
Invested Capital equal to or exceeding $250 million; and an annual incentive
fee, calculated on the basis of 15% of the increase in funds from operations
from the prior year on a fully diluted basis, but no more than $.01/fully
diluted Common Share outstanding. All incentive fees which may be earned by RMR
will be paid in Common Shares. The base advisory fee paid to Advisors for fiscal
year 1997 was $8.6 million, of which approximately $471,500 was attributable to
investments in the Subacute Entities. The incentive fee award for fiscal year
1997 was $1.0 million, paid by the issuance of approximately 52,316 Common
Shares, having a market value at December 31, 1997 of $1.0 million. During 1997,
Advisors received $1.6 million in dividends on its owned Common Shares.
Advisors is the general partner of M&P Partners Limited Partnership
("M&P"), a partnership which is owned by Advisors and Messrs. Martin and Portnoy
and which prior to January 1, 1998 provided management services for the
Company's multi-tenant, government-leased and other office buildings under
separate property management agreements which were consolidated into a master
property management agreement in late 1997 (the "Old Property Agreements"). The
Company paid $2.4 million in management fees to M&P in 1997. Fees paid to M&P
under the Old Property Management Agreements and which will be paid to RMR under
the New Property Management Agreement are based on a formula (generally 3% of
gross collected rents as an annual management fee and 5% of construction costs
as a construction fee) relating to the buildings under its management. No
construction management fee was collected by M&P during 1997.
Effective January 1, 1998, the Company entered into a parking operation
management agreement (the "Parking Management Agreement") pursuant to which
Garage Management, Inc. ("GMI"), a Delaware corporation owned by Messrs. Martin
and Portnoy, provides parking management services for garages associated with
certain of the Company's properties. Prior to January 1, 1998, M&P provided
these services under the Old Property Agreements. Under the Parking Management
Agreement, the Company has agreed to pay GMI a monthly management fee of 3% of
gross monthly parking receipts.
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<PAGE>
Messrs. Martin and Portnoy each has material interests in the
transactions between the Company and each of the Subacute Entities, RMR,
Advisors, M&P and GMI. To the extent that the terms of the Company's investments
in properties owned or leased by the Subacute Entities have been negotiated
among related parties, they have not been determined on an arm's-length basis.
Investment terms, however, have been based upon independent appraisals of the
properties, where available, but the Company has historically placed a greater
emphasis on what it believes to be more determinative factors such as cash flow
available for rent and debt service. All existing business relationships between
the Company, on the one hand, and RMR, Advisors, M&P, the Subacute Entities, GMI
and/or their affiliates, on the other hand, have been approved by, and, unless
and until any such company no longer has relationships with the Company or its
affiliates which are the same or similar to those described above, all such
future relationships will be submitted for approval by, majority vote of the
Independent Trustees. For a portion of 1997, Mr. Portnoy was a partner in the
firm of Sullivan & Worcester LLP, counsel to the Company and to HPT, RMR,
Advisors, M&P, the Subacute Entities, GMI and affiliates of each of the
foregoing, and received payments from the firm during 1997 as a partner and in
respect of his retirement from that firm.
The Declaration of Trust provides that Trustees, officers, employees
and agents of the Company shall be indemnified by the Company against any
losses, judgments, liabilities, expenses and amounts paid in settlement of any
claims asserted against them by reason of their status, provided that such
claims were not the result of willful misfeasance, bad faith, gross negligence
or reckless disregard of duty. Were Messrs. Martin and Portnoy to be held liable
in the proceedings described in Item 3 of Part I of this Annual Report on Form
10-K, they may therefore have a claim for indemnification from the Company.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 20, 1998
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