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 30, 1996
Healthcare Realty Trust Incorporated
Maryland 1-11852 62-1507028
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification
Incorporation) Number)
3310 West End Avenue
Suite 400
Nashville, Tennessee 37203
(Address of Principal Executive Offices)(Zip Code)
(615) 269-8175
(Registrant's Telephone Number, Including Area Code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events. Healthcare Realty Trust Incorporated (the "Company") has
filed this Current Report on Form 8-K to make certain cautionary statements with
respect to forward-looking statements which the Company may make from time to
time.
The Company wishes to caution readers that the following important
factors, among others, could affect the Company's actual results, and could
cause those results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Many of those
factors have been discussed in the Company's prior filings with the Securities
and Exchange Commission.
All references to the Company in this Form 8-K include entities with
the Company, including the Company's property management subsidiary, Healthcare
Realty Management, Incorporated.
GENERAL GROWTH STRATEGY
The Company follows a general growth strategy of providing integrated
real estate services to the healthcare industry, including asset management and
strategic planning for real estate, property administration, management and
leasing services, build-to-suit development, the acquisition of existing
healthcare properties and equity co-investment in healthcare provider
acquisition transactions. By providing these services, the Company believes it
can differentiate its market position, acquire needed capital, expand its asset
base and increase revenue; however, there are various risks inherent in this
growth strategy. The following factors, among others, could affect the Company's
ability to experience growth and investors should consider the following
factors.
Access to Capital
Capital Markets. The Company requires capital for the purchase of, or investment
in, healthcare real estate. Currently, the Company has already invested all of
its equity and a significant amount of its available debt commitments in the
acquisition of healthcare real properties. There is no assurance that the
Company will be able to obtain additional equity or debt capital at the time it
requires additional capital; nor that the Company can obtain such capital on
terms that will permit the Company to acquire healthcare properties on a basis
that is competitive with other real estate investors.
Risks of Leverage and Debt. The Company has incurred and may continue to incur
indebtedness and may mortgage its properties in furtherance of its activities.
The Company may be required to borrow money and mortgage its properties to fund
any shortfall of cash necessary to meet cash distribution requirements necessary
to maintain its REIT status.
Maintenance of the Company's Dividend Policy. The Company has raised its
quarterly dividend each consecutive quarter since the Company's formation.
Failure of the Company to maintain or increase its dividend could make it
difficult for the Company to raise additional equity capital on favorable terms,
if at all. The ability to maintain or raise its dividend is dependent, to a
large part, on growth of funds from operations, which in turn depends upon
increased revenues from investments in the form of additional investment, rental
increases and income from administrative and management services. Impacting the
Company's ability to continue to increase its dividends also include the terms
described below.
Under the terms of its current debt arrangements, the Company is
prohibited from declaring or paying dividends at any time that the Company fails
to make any payment of principal, interest fees or other amounts when due, and
is further prohibited from declaring or paying dividends (other than as the
Company determines necessary to maintain its status as a REIT for federal income
tax purposes) if, at the time of such action, any other event of default exists.
Repayment of any borrowings, as well as the resulting interest expense and debt
amortization, could negatively affect the Company's cash available for
distribution. If the Company defaults on any loan secured by mortgages on any of
its properties, the lenders may foreclose on such property, and the Company
would lose its investment herein.
Reduction in Dividends from Failure to Qualify as a REIT; REIT Taxes. The
Company intends at all times to operate so as to qualify as a REIT under the
Code. If in any taxable year the Company does not qualify as a REIT, it would be
taxed as a corporation and distributions to the shareholders would not be
deductible by the Company in computing its taxable income. Depending upon the
circumstances, a REIT that loses is qualification in one year may not be
eligible to requalify during the four succeeding years. Failure to so qualify,
even in one taxable year, could cause the Company to dramatically reduce its
dividends. Further, certain transactions or other events could lead to the
Company being taxed at rates ranging from 4 to 100 percent on certain income or
gains.
Revenue Growth
The Company's general growth strategy implies continuing growth in the
Company's funds from operations. The Company's funds from operations can be
negatively affected by, among other items, the following factors.
Delays in Acquiring Properties. The purchase of one or more properties may not
be consummated or may be delayed for various reasons. Acquisition delays will
negatively impact revenues and may have the potential to adversely effect the
Company's ability to increase its distributions to shareholders.
Operating Risks. Real property investments are subject to varying degrees of
risk. The investment returns available from equity investments in real estate
depend in large part on the amount of income earned and capital appreciation
generated by the related properties as well as the expenses incurred. To offset
the threat of insufficient revenue to meet operating expenses, debt service,
capital expenditures and dividend payments, the Company requires net master
leases or equivalent credit support with primary terms.
The terms of certain of the leases or credit support agreements provide
an option for healthcare providers to repurchase the subject properties at
specified times during the term or the agreement. The provider may repurchase
the property for a price equal to the greater of the fair market value purchase
price or the minimum repurchase price. No assurances can be given that the
Company could negotiate with the current healthcare provider should they wish to
repurchase the property or find another provider on a timely basis or on
acceptable terms. A failure of the Company to do so could have an adverse effect
on the Company's future revenues. Dependence on Healthcare Providers and
Potential Reduction in Revenues. The success of the Company's investment in a
particular property will be dependent upon the success of the business of the
healthcare provider and, to the extent that a provider's performance under the
lease or credit arrangement has been guaranteed, on the guarantor under such
arrangement. There is no assurance that the Company will be able to retain its
provider upon the expiration of the leases or that unfavorable economic,
demographic or competitive conditions or industry reform will not adversely
affect the financial condition of providers and/or guarantors and, consequently,
lease revenues and the value of the Company's investments in the property.
Concentration on Few Healthcare Providers. Currently 28 percent of the Company's
portfolio is leased to Columbia/HCA Healthcare Corporation and 25 percent is
leased to OrNda HealthCorp.
Impact of Reduced Occupancy Rates. Most of the hospitals adjacent to or
associated with the Company's properties owned or to be acquired are
substantially less that fully occupied on an inpatient basis. Despite such
occupancy rates, however, the operating cash flow produced by such hospitals
available for the related payments to the Company adequately covers such
payments. If the inpatient occupancy rate at such a hospital were to deteriorate
to a level at which operating cash flows would be insufficient to cover the
payments to the Company on a particular ancillary hospital facility, the Company
would have to rely upon the general credit of the provider or the related
guarantor, if any.
Potential Provider Loss of Licensure or Certification. Healthcare providers are
subject to federal and state laws and regulations which govern financial and
other arrangements between healthcare operators. A provider's loss of licensure
or certification would result in the Company having to obtain another provider
for the affected facility. No assurances can be given that the Company could
attract another healthcare provider on a timely basis or on acceptable terms.
Failure to do so would have an adverse effect on the Company's revenues.
Failure to Successfully Market Property Management Services. The Company
employees its wholly owned subsidiary Healthcare Realty Management (HRM), in the
day-to-day management and leasing of multi-tenanted healthcare properties and in
the supervision of the development of new healthcare properties. There can be no
assurance that the Company will be able to successfully market or cross-sell
HRM's services. Current revenues from HRM's management agreements may not
significantly affect the Company's 1996 funds from operations. Additionally, HRM
employs 75 individuals nationwide, providing the Company with expanded overhead
expenses and labor liability not previously experienced.
Asset Growth
Inability to Complete Acquisitions. The Company's asset growth strategy would be
negatively impacted if it is unable to find suitable properties and to purchase
those properties on terms which meet the Company's investment parameters.
Provider Development Arrangements. The Company has entered into development
funding arrangements with eight properties that are currently in progress. The
Company believes that development funding is an effective method to acquire new
healthcare facilities that providers have determined are strategic to their
business. The development funding arrangements require the Company to provide
the funding to enable healthcare operators to build facilities on property owned
or leased by the Company. Risks of development funding are greater than those
risks associated with the purchase and lease-back of operating properties
because of the potential for greater Company involvement within the development
process. There can be no assurance that the current portfolio of development
funding will be completed in 1996 in accordance with the terms of the
agreements; however, the Company believes that it has the requisite access to
capital and development and construction experience to complete a development.
Limitations on Transfers and Alternative Uses of Facilities. Transfers of
operations of healthcare facilities are subject to regulatory approvals not
required for transfers of other types of commercial operations and other types
of real estate. In addition, many of the Properties are special-purpose
facilities that may not be easily adaptable to uses unrelated to healthcare.
Market Competition
The Company competes for property management, development and acquisitions with,
among others, investors, healthcare providers, other healthcare related real
estate investment trusts, real estate partnerships and financial institutions.
The Company's properties will be also subject to competition from the properties
of other healthcare providers. Certain of these operators may have greater
capital resources that the provider leasing the Company's facilities. All of the
properties operating in a competitive environment and patients and referral
sources, including physicians, may change their preferences for a healthcare
facility from time to time.
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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 hereunto duly authorized.
HEALTHCARE REALTY TRUST INCORPORATED
By:/s/ Roger O. West________________
Executive Vice President
Acquisitions and General Counsel
Date: September 30, 1996
