<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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: September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 1-11852
-------------------------------
HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 62 - 1507028
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3310 West End Avenue
Suite 400
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
Registrant telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports 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
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ----
As of November 1, 1996, 13,201,174 shares of the Registrants Common Stock,
$.01 par value, were outstanding.
<PAGE>
HEALTHCARE REALTY TRUST
INCORPORATED
FORM 10-Q
September 30, 1996
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
Healthcare Realty Trust Incorporated
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (1)
ASSETS Sept. 30, 1996 Dec. 31, 1995
- ------ -------------- -------------
<S> <C> <C>
Real estate properties:
Land $43,649,286 $41,435,193
Buildings and improvements 291,199,064 273,522,934
Personal property 3,042,853 2,761,458
Construction in progress 39,716,995 15,253,397
---------- ----------
377,608,198 332,972,982
Less accumulated depreciation (20,731,105) (14,492,646)
----------- -----------
Total real estate properties, net 356,877,093 318,480,336
Cash and cash equivalents 1,440,371 9,142,775
Restricted cash 597,000 552,885
Receivables 1,499,060 1,378,261
Deferred costs, net 1,246,803 1,497,045
Other assets 6,740,109 5,726,375
--------- ---------
Total assets $368,400,436 $336,777,677
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $129,155,000 $92,970,000
Security deposits payable 4,172,490 4,562,490
Accounts payable and accrued liabilities 3,255,730 4,214,599
Deferred income 689,753 582,795
Commitments and contingencies 0 0
- -
Total liabilities 137,272,973 102,329,884
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares
authorized; none outstanding 0 0
Common stock, $.01 par value; 150,000,000 shares authorized; 13,201,174
issued and outstanding at Sept. 30, 1996 and 12,976,796 at Dec. 31,
1995 132,012 129,768
Additional paid-in capital 248,451,336 243,418,805
Deferred compensation (4,663,927) (478,288)
Cumulative net income 52,547,589 37,923,238
Cumulative dividends (65,339,547) (46,545,730)
----------- -----------
Total stockholders' equity 231,127,463 234,447,793
----------- -----------
Total liabilities and stockholders' equity $368,400,436 $336,777,677
============ ============
(1) The balance sheet at Dec. 31, 1995 has been derived from audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, are an integral part of these financial statements.)
</TABLE>
<PAGE>
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Three Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Rental income $8,763,658 $8,219,488
Management fees 281,122 102,876
Interest and other income 464,239 54,205
------- ------
9,509,019 8,376,569
--------- ---------
EXPENSES:
General and administrative 526,394 557,386
Interest 1,876,117 1,321,423
Depreciation 2,112,782 1,930,543
Amortization 80,026 40,949
------ ------
4,595,319 3,850,301
--------- ---------
NET INCOME $4,913,700 $4,526,268
========== ==========
NET INCOME PER SHARE $0.37 $0.35
===== =====
FUNDS FROM OPERATIONS $6,936,857 $6,413,618
========== ==========
FUNDS FROM OPERATIONS PER SHARE $0.53 $0.49
===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 13,198,553 12,968,799
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, are an integral part of these financial statements.)
</TABLE>
<PAGE>
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Rental income $26,020,223 $23,926,182
Management fees 881,938 232,468
Interest and other income 725,307 90,160
------- ------
27,627,468 24,248,810
---------- ----------
EXPENSES:
General and administrative 1,566,186 1,556,447
Interest 4,946,790 3,387,295
Depreciation 6,239,214 5,635,852
Amortization 250,927 118,376
------- -------
13,003,117 10,697,970
---------- ----------
NET INCOME $14,624,351 $13,550,840
=========== ===========
NET INCOME PER SHARE $1.11 $1.05
===== =====
FUNDS FROM OPERATIONS $20,602,529 $19,061,431
=========== ===========
FUNDS FROM OPERATIONS PER SHARE $1.57 $1.47
===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 13,155,689 12,964,850
========== ==========
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, are an integral part of these financial statements.)
</TABLE>
<PAGE>
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $14,624,351 $13,550,840
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 6,520,667 5,793,706
Deferred compensation 365,368 0
Increase in deferred income 106,958 272,606
Increase in receivables and other assets (1,134,533) (912,609)
Increase (decrease) in accounts payable and accrued liabilities (958,869) 153,466
-------- -------
Net cash provided by operating activities 19,523,942 18,858,009
========== ==========
Cash flows from investing activities:
Acquisition of real estate properties (44,573,676) (36,227,919)
Acquisition of subsidiary 0 (380,000)
Disbursement of security deposits (390,000) (197,282)
-------- --------
Net cash used in investing activities (44,963,676) (36,805,201)
=========== ===========
Cash flows from financing activities:
Borrowings on long-term notes payable 66,300,000 121,700,000
Repayments on long-term notes payable (30,115,000) (69,105,000)
Deferred financing and organization costs paid (31,209) (1,075,537)
Decrease in restricted cash (44,115) (53,099)
Dividends paid (18,566,441) (17,694,434)
Proceeds from issuance of common stock 194,095 317,364
------- -------
Net cash provided by financing activities 17,737,330 34,089,294
========== ==========
Increase (decrease) in cash and cash equivalents (7,702,404) 16,142,102
Cash and cash equivalents, beginning of period 9,142,775 496,852
--------- -------
Cash and cash equivalents, end of period $1,440,371 $16,638,954
========== ===========
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, are an integral part of these financial statements.)
</TABLE>
<PAGE>
HEALTHCARE REALTY TRUST
INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Healthcare Realty Trust Incorporated (the Company) have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 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 which are included in the Companys Annual Report on Form
10-K for the year ended December 31, 1995. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These financial statements should be read
in conjunction with the financial statements included in the Companys Annual
Report on Form 10-K for the year ended December 31, 1995.
The results of operations for the nine-month period ending September
30, 1996 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1996.
Certain reclassifications have been made for the period July 1, 1995 through
September 30, 1995 and for the period January 1, 1995 through
September 30, 1995 to conform to the 1996 presentation. These reclassifications
had no effect on the results of operations as previously reported.
NOTE 2. ORGANIZATION
The Company was organized to invest in healthcare-related
properties located throughout the United States, including ancillary hospital
facilities, medical office buildings, physician clinics, long-term care
facilities, comprehensive ambulatory care centers, clinical laboratories and
ambulatory surgery centers. In addition to acquisitions of existing facilities,
the Company provides capital for the construction of new facilities and through
its wholly-owned subsidiary, Healthcare Realty Management Incorporated, provides
property management, leasing and build-to-suit development services. The Company
commenced operations on June 3, 1993 following the completion of an initial
public offering. As of September 30, 1996, the Company had purchased, developed
or had under development, 66 properties,the Properties, for an aggregate
investment of $377,608,198 located in 36 markets in 14 states, which are
supported by 15 healthcare-related entities. The Properties include 34 ancillary
hospital facilities, 3 medical office buildings, 7 physician clinics, 13
long-term care facilities, 4 comprehensive ambulatory care centers, 2 clinical
laboratories, and 3 ambulatory surgery centers. See Schedule 1 following Notes
to Condensed Consolidated Financial Statements for detailed information
concerning the Properties.
NOTE 3. FUNDS FROM OPERATIONS
Funds from operations, as defined by the National Association of Real Estate
Investment Trusts, Inc.,NAREIT, 1995 White Paper, means net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation from real estate assets.
The Company considers funds from operations to be an informative measure of the
performance of an equity REIT and consistent with measures used by analysts to
evaluate equity REITs. Funds from operations does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles, is not necessarily indicative of cash available to fund cash needs,
and should not be considered as an alternative to net income as an indicator of
the Companys operating performance or as an alternative to cash flow as a
measure of liquidity. Funds from operations for the three months ended September
30, 1996 and 1995, were $6,936,857 ($0.53 per share) and $6,413,618 ($0.49 per
share), respectively.
Funds from operations for the nine months ended September 30, 1996 and 1995 were
$20,602,529 ($1.57 per share) and $19,061,431 ($1.47 per share, respectively.
NAREIT encourages REITs to make reporting changes consistent with the 1995
NAREIT White Paper on Funds from Operations no later than fiscal year 1996.
Beginning with first quarter 1996 operations, the Companys policy has
been to report funds from operations calculated on the NAREIT 1995 White
Paper while providing supplemental information based upon previous methodology.
<PAGE>
FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
NAREIT Previous
White Paper Previous NAREIT Methodology
As Reported Methodology White Paper As Reported
<S> <C> <C> <C> <C>
Net Income $4,913,700 $4,913,700 $4,526,268 $4,526,268
Non-recurring items 0 0 0 0
Gain or loss on dispositions 0 0 0 0
Straight line rents 0 0 0 0
ADD:
Depreciation
Real estate 2,023,157 2,023,157 1,887,350 1,887,350
Office F,F&E 0 44,199 0 5,475
Leasehold improvements 0 35,406 0 37,718
Other non-revenue producing assets 0 10,020 0 0
- ------ - -
2,023,157 2,112,782 1,887,350 1,930,543
--------- --------- --------- ---------
Amortization
Acquired property contracts (1) 0 63,852 0 39,600
Other non-revenue producing assets 0 14,520 0 0
Organization costs 0 1,654 0 1,349
- ----- - -----
0 80,026 0 40,949
- ------ - ------
Deferred financing costs (2) 0 92,067 0 59,644
- ------ - ------
Total Adjustments 2,023,157 2,284,875 1,887,350 2,031,136
--------- --------- --------- ---------
Funds From Operations $6,936,857 $7,198,575 $ 6,413,618 $ 6,557,404
========== ========== ============ ===========
Weighted Average Shares Outstanding 13,198,553 13,198,553 12,968,799 12,968,799
========== ========== ========== ==========
Funds From Operations Per Share $ 0.53 $ 0.55 $ 0.49 $ 0.51
============= ============= =============== ==============
(1) Amortization of the acquisition cost of revenue producing property management and development contracts.
(2) Amortization of deferred financing costs is reported as part of interest expense on the income statement.
</TABLE>
<PAGE>
FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
NAREIT Previous
White Paper Previous NAREIT Methodology
As Reported Methodology White Paper As Reported
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $14,624,351 $14,624,351 $13,550,840 $13,550,840
Non-recurring items 0 0 0 0
Gain or loss on dispositions 0 0 0 0
Straight line rents 0 0 0 0
ADD:
Depreciation
Real estate 5,978,178 5,978,178 5,510,591 5,510,591
Office F,F&E 0 125,053 0 54,897
Leasehold improvements 0 104,513 0 70,364
Other non-revenue producing assets 0 31,470 0 0
- ------ - -
5,978,178 6,239,214 5,510,591 5,635,852
--------- --------- --------- ---------
Amortization
Acquired property contracts (1) 0 199,728 0 114,326
Other non-revenue producing assets 0 46,076 0 0
Organization costs 0 5,123 0 4,050
- ----- - -----
0 250,927 0 118,376
- ------- - -------
Deferred financing costs (2) 0 276,000 0 153,808
-- - ------- - -------
Total Adjustments 5,978,178 6,766,141 5,510,591 5,908,036
--------- --------- --------- ---------
Funds From Operations $20,602,529 $21,390,492 $19,061,431 $19,458,876
=========== =========== =========== ===========
Weighted Average Shares Outstanding 13,155,689 13,155,689 12,964,850 12,964,850
========== ========== ========== ==========
Funds From Operations Per Share $ 1.57 $ 1.63 $ 1.47 $ 1.50
============= ============= =============== ==============
(1) Amortization of the acquisition cost of revenue producing property management and development
contracts.
(2) Amortization of deferred financing costs is reported as part of interest expense on the income
statement.
</TABLE>
<PAGE>
NOTE 4. NOTES PAYABLE
SENIOR NOTES
On September 18, 1995, the Company privately placed $90,000,000 of its
unsecured Senior Notes (the Senior Notes) with sixteen credit institutions.
The Senior Notes bear interest at 7.41%, payable semi-annually, and mature on
September 1, 2002. Beginning on September 1, 1998 and on each September 1
through 2002, the Company must amortize $18,000,000 of principal. The note
agreements contain certain representations, warranties and financial and other
covenants customary in such loan agreements.
SENIOR UNSECURED REVOLVING CREDIT
Facility The Company currently has a $75,000,000 Senior Unsecured Revolving
Credit Facility (the Senior Credit Facility) from four commercial banks. At
the option of the Company, borrowings bear interest at: (1) one of the banks
prime rate, or (2) the LIBOR rate for one, two, three, or six month dollar
deposits plus 1.25%. The Company pays a commitment fee of .25 of 1% per annum on
the unused portion of funds available for borrowing under the Senior Credit
Facility. The Senior Credit Facility expires on August 3, 1997, is unsecured,
and contains certain representations, warranties and financial and other
covenants customary in such loan agreements.
<TABLE>
<CAPTION>
A summary of notes payable at September 30, 1996 is as follows:
<S> <C> <C>
Senior Notes $90,000,000
Senior Credit Facility 36,300,000
Other 2,855,000
Total $129,155,000
</TABLE>
NOTE 5. ACQUISITIONS
Effective January 1, 1995, the Company through its wholly-owned subsidiary,
Healthcare Realty Management Incorporated, purchased substantially all of the
assets of and assumed certain liabilities of Starr Sanders Johnson, Inc., a
provider of property management and development services to healthcare
companies, for approximately $3,800,000.
NOTE 6. DEFERRED COMPENSATION
Effective January 23, 1996, 141,666 restricted shares of the Companys
common stock previously reserved were released to certain officers of the
Company upon the achievement of the Companys performance based criteria in
accordance with the terms of the First Implementation of the Companys 1993
Employees Stock Incentive Plan, the Employees Plan. These restricted shares
require continued employment prior to vesting. Effective January 23, 1996,
262,530 options to purchase the Companys common stock were canceled and 61,181
restricted shares of the Companys common stock were released to non-employee
directors and certain officers of the Company in accordance with the 1993
Outside Directors Stock Incentive Plan and the Employees Plan. These restricted
shares require continued service to the Company prior to vesting.
NOTE 7. COMMITMENTS
As of september 30, 1996, the company had a net investment of $39,716,995
for six build-to-suit developments in progress and two expansions of existing
facilities, which have a total remaining funding commitment of $23,082,941.
The company has also entered into a definitive agreement to purchase an
ancillaryhospital facility in fountain valley, california for approximately
$15,000,000. The facility, currently under construction and financed by a
commercial bank, will be purchased upon completion. The company will either
assume the existing debt or fund the acquisition from proceeds borrowed under
the senior credit facility.
The company has entered into a definitive agreement for the merger of a
real estate holding corporation into a subsidiary of the company. The
acquisition value of the corporations assets is approximately $43,500,000, to
be paid by the issuance of approximately 695,000 shares of company common stock
and the assumption of approximately $27,200,000 of liablilities. The board of
directors and shareholders of the holding corporation have approved the merger
agreement, which is now subject to various closing contingencies. The closing is
expected to occur in november, 1996. Following the closing, the real estate will
be substantially leased to a multi-specialty group practice located in virginia
and guaranteed by a public physician practice management company.
As of November 13, 1996, the company had acquired during the fourth
quarter of 1996, a physician clinic in west palm beach, florida for
approximately $3,625,000. This acquisition was funded from proceeds borrowed
under the senior credit facility.
<PAGE>
SCHEDULE 1 - REAL ESTATE AND ACCUMULATED DEPRECIATION AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
FACILITY TYPE/NAME FACILITY LAND BUILDINGS PERSONAL (2) (1) (2) DATE DATE OF
LOCATION & PROPERTY TOTAL ACCUMULATED ACQUIRED CONSTRUCTION
IMPROVEMENTS DEPRECIATION
& CIP
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANCILLARY HOSPITAL FACILITIES
1 Orange Grove Medical Clinic AZ $308,070 $4,965,923 $0 $5,273,993 $519,001 1993 1988
2 Eaton Canyon Medical CA 1,337,483 3,106,587 0 4,444,070 129,441 1995 1984
Building
3 Fountain Valley - AHF 1 CA 2,218,847 3,297,543 0 5,516,390 179,689 1994 1973
4 Fountain Valley - AHF 2 CA 2,059,953 3,047,816 0 5,107,769 166,081 1994 1975
5 Fountain Valley - AHF 3 CA 3,149,515 5,635,848 0 8,785,363 307,107 1994 1981
6 Fountain Valley - AHF 4 CA 3,160,865 5,828,809 0 8,989,674 317,622 1994 1984
7 Valley Presbyterian (15211) CA 1,720,127 5,797,840 20,237 7,538,204 615,344 1993 1981
8 Valley Presbyterian CA 1,522,222 3,787,288 18,267 5,327,777 404,302 1993 1961, 1968,
(6840-50) 1984-85
9 Coral Gables Medical Plaza FL 532,112 10,676,167 0 11,208,279 695,784 1994 1991
10 Deering Medical Plaza FL 0 5,072,041 0 5,072,041 287,188 1994 1994
11 East Pointe Medical Plaza FL 45,216 4,936,632 0 4,981,848 237,362 1994 1994
12 Gulf Coast Medical Centre FL 0 4,791,941 0 4,791,941 222,510 1994 1994
13 Palms of Pasadena Medical FL 0 5,483,950 0 5,483,950 245,351 1994 1994
Plaza
14 Southwest Medical Centre FL 0 8,042,863 0 8,042,863 403,885 1994 1994
Plaza
15 Southwest Medical Centre FL 0 1,620,558 0 1,620,558 64,060 1995 1977
Plaza II
16 Candler Parking Garage GA 0 4,169,090 0 4,169,090 112,212 1994 1995
17 Candler Professional Office GA 0 7,177,853 0 7,177,853 406,423 1994 1981
Building
18 Candler Regional Heart GA 0 8,685,718 0 8,685,718 211,577 1995 1995
Center
19 North Fulton Medical Arts GA 696,248 5,049,843 38,409 5,784,500 371,046 1993 1983
Plaza
20 Northwest Medical Center GA 1,268,962 8,967,284 0 10,236,246 550,902 1994 1975
21 Overland Park Regional KS 0 6,750,795 0 6,750,795 0 1995 Under
Medical Center (3) construction
22 Hendersonville Medical TN 395,056 2,743,834 0 3,138,890 170,618 1994 1991
Office Building
23 Bayshore Doctors Center TX 125,471 1,767,799 12,547 1,905,817 190,584 1993 1989
24 Lake Pointe Medical Plaza TX 217,941 1,507,165 12,023 1,737,129 113,466 1993 1988
25 Oregon Medical Building TX 999,193 17,445,917 39,968 18,485,078 1,841,877 1993 1992
26 Rosewood Professional TX 682,867 4,569,953 0 5,252,820 278,318 1994 1982
Building
27 Southwest General Birthing TX 124,000 3,112,289 0 3,236,289 162,934 1993 1994
Center
28 Spring Branch Professional TX 3,833,076 10,295,139 173,532 14,301,747 1,156,534 1993 1985
Building
29 Trinity Valley Birthing TX 73,147 3,598,453 0 3,671,600 103,802 1994 1995
Center
30 Twelve Oaks Medical Plaza TX 389,107 3,361,478 21,465 3,772,050 233,414 1993 1968, 1994
31 Chippenham Medical Offices VA 0 3,771,668 0 3,771,668 212,074 1994 1972-80
32 Chippenham Medical Offices VA 874,497 3,718,966 0 4,593,463 212,074 1994 1994
33 Johnston-Willis Medical VA 1,912,645 6,860,932 0 8,773,577 361,145 1994 1980, 1987-88
Offices
34 Johnston-Willis Medical Ofc VA 0 5,855,715 0 5,855,715 346,983 1994 1993, 1994
- --------- - --------- -------
27,646,620 185,501,697 336,448 213,484,765 11,830,710
---------- ----------- ------- ----------- ----------
AMBULATORY SURGERY CENTERS
35 Bakersfield Surgery Center CA 209,246 828,613 8,370 1,046,229 90,487 1993 1985
36 Valley View Surgery Center NV 940,000 2,860,571 0 3,800,571 161,971 1994 1994
37 Physicians Daysurgery Center TX 509,891 1,514,376 15,296 2,039,563 165,375 1993 1985
-- ------- --------- ------ --------- -------
1,659,137 5,203,560 23,666 6,886,363 417,832
--------- --------- ------ --------- -------
COMPREHENSIVE AMBULATORY CARE
CENTERS
38 Five Points Medical FL 0 8,146,877 0 8,146,877 0 1995 Under
Building (3) construction
39 Huebner Medical Center TX 601,475 11,267,141 60,148 11,928,764 1,191,210 1993 1991
40 Huebner Medical Center II TX 1,041,298 8,103,239 0 9,144,537 245,702 1994 1995
41 St. Andrews FL 1,010,373 5,588,167 0 6,598,540 11,651 1996 1995
-- --------- --------- - --------- ------
2,653,146 33,105,425 60,148 35,818,718 1,448,563
--------- ---------- ------ ---------- ---------
CLINICAL LABORATORIES
42 Midtown Medical Center AL 180,633 8,601,151 8,028 8,789,812 902,656 1993 1906, 1986
43 Puckett Laboratory MS 537,660 3,718,165 29,660 4,285,485 294,593 1993 1986, 1991
-- ------- --------- ------ --------- -------
718,293 12,319,316 37,688 13,075,297 1,197,248
------- ---------- ------ ---------- ---------
LONG-TERM CARE FACILITIES
44 Fountain Valley - Living CA 1,361,952 11,325,746 0 12,687,698 617,160 1994 1989
Care Center
45 Life Care Center of Aurora CO 1,651,477 4,579,039 0 6,230,516 249,520 1994 1994
46 Life Care Center of Orange FL 1,203,720 8,388,977 0 9,592,697 33,996 1995 1996
Park
47 Life Care Center of Wichita KS 0 5,345,535 0 5,345,535 0 1996 Under
(3) construction
48 Life Care Center of CO 0 2,313,753 0 2,313,753 0 1996 Under
Westminster (3) construction
49 New Harmonie Healthcare IN 96,059 3,511,750 32,331 3,640,140 382,035 1993 1987
Center
50 Fenton Extended Care Center MI 40,463 3,467,687 32,345 3,540,495 377,445 1993 1968
51 Meadows Nursing Center MI 6,984 3,241,787 35,415 3,284,186 355,253 1993 1971, 1977
52 Ovid Convalescent Manor MI 62,326 2,562,255 48,791 2,673,372 146,750 1993 1968
53 Wayne Convalescent Center MI 52,468 963,337 33,548 1,049,353 116,260 1993 1967
54 Westgate Manor Nursing Home MI 30,855 1,633,307 32,887 1,697,049 185,973 1993 1964, 1974
55 Life Care Center of Houston TX 0 6,075,422 0 6,075,422 0 1995 Under
(3) construction
56 Life Care Center of Forth TX 0 8,218,584 0 8,218,584 0 1995 Under
-- - --------- - --------- -
Worth (3) construction
4,506,304 61,627,179 215,317 66,348,800 2,464,391
--------- ---------- ------- ---------- ---------
MEDICAL OFFICE BUILDINGS
57 Rowlett Medical Plaza TX 166,123 1,810,249 0 1,976,372 98,644 1994 1994
58 New River Valley Med. Arts VA 43,126 839,285 43,611 926,022 107,968 1993 1988
Building
59 Valley Medical Center VA 64,347 867,590 83,179 1,015,116 129,301 1993 1989
-- ------ ------- ------ --------- -------
273,596 3,517,124 126,790 3,917,510 335,912
------- --------- ------- --------- -------
PHYSICIAN CLINICS
60 Doctors Clinic FL 2,183,572 8,070,828 50,781 10,305,181 867,084 1993 1969, 1973
61 Medical & Surgical FL 906,829 4,297,647 0 5,204,476 231,635 1994 1991
Institute of Ft. Lauderdale
62 Southwest Florida FL 468,544 3,135,642 0 3,604,186 190,966 1994 1984
Orthopedic Center
63 Woodstock Clinic GA 586,435 2,087,444 0 2,673,879 136,042 1994 1991
64 Durham Medical Center TX 992,738 7,153,803 364,987 8,511,528 625,791 1993 1993
65 Valley Diagnostic Medical TX 661,287 3,776,918 20,118 4,458,323 404,077 1993 1982
and Surgical Clinic
66 Clinica Latina CA 392,785 331,685 0 724,470 11,694 1995 1991
-- ------- ------- - ------- ------
6,192,190 28,853,967 435,886 35,482,043 2,467,289
--------- ---------- ------- ---------- ---------
Total Real Estate ($) 43,649,286 330,128,268 1,235,943 375,013,497 20,161,947
=========== ============ ========= =========== ==========
Corporate Property 0 0 1,806,910 1,806,910 569,158
Third Party Developments 0 787,791 0 787,791 0
Total Property ($) 43,649,286 330,916,060 3,042,853 377,608,198 20,731,105
=========== ============ ========= =========== ==========
(1) Depreciation is provided on buildings and improvements over 31.5 or 39.0 years and personal
property over 3.0, 5.0 or 7.0 years.
(2) Reconciliations of Total Property and Accumulated Depreciation for the quarter
ended September 30, 1996:
Three Months Ended Nine Months Ended
9/30/96 9/30/96
Total Accumulated Total Accumulated
Property Depreciation Property Depreciation
Beginning Balance $357,692,902 $18,619,077 $332,972,982 $14,492,646
Retirements/Dispositions:
Corporate Property (5,033) (755) (5,033) (755)
Additions during the period:
Acquisitions/Improvements 16,970,477 2,023,158 19,881,563 5,978,179
Corporate Property 77,201 89,625 295,088 261,035
Construction in Progress 2,872,651 0 24,463,598 0
--------- - ---------- -
Balance at September 30, $377,608,198 $20,731,105 $377,608,19 $20,731,105
1996 ============ =========== =========== ===========
(3) Lessee development at September 30, 1996.
</TABLE>
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
Total revenues for the quarter ended September 30, 1996 were $9,509,019
compared to $8,376,569 for the quarter ended September 30, 1995, which is an
increase of $1,132,450, or 14%. The increase is primarily due to base rent
derived from approximately $23,000,000 of property acquisitions and properties
reclassified from construction in progress subsequent to September 30, 1995. In
addition, revenues during the quarter ended September 30, 1996 reflect an
increase of $178,246, or 173% of property management fees (see Note 5). At
September 30, 1996, the Company managed 52 properties compared to 25 properties
at September 30, 1995. Interest and other income for the quarter ended September
30, 1996 were $464,239 compared to $54,205 for the quarter ended September 30,
1995 due to an increase in third party development fees. In addition, the
Company benefited from a short-term arbitrage situation created by the
refinancing of approximately $30,800,000 of mortgage notes for a current
healthcare tenant.
Total expenses for the quarter ended September 30, 1996 were 4,595,319
compared to $3,850,301 for the quarter ended September 30, 1995, which is an
increase of $745,018, or 19%. Depreciation expense increased $182,239 due
to the acquisition of additional properties and the completion of properties
under construction which were discussed in the preceding paragraph. There was no
significant change in general and administrative expenses. Interest expense
increased from $1,321,423 during the third quarter of 1995 to $1,876,117 during
the third quarter of 1996. As previously discussed in the notes to the financial
statements, on September 18, 1995, the Company privately placed $90,000,000 of
its unsecured 7.41% Senior Notes with sixteen credit institutions. During the
third quarter of 1995, the Company had an average outstanding debt balance of
$83,600,000 in comparison to an average outstanding balance of $128,200,000
during the third quarter of 1996. As discussed in the preceeding paragraph, the
Company benefited from a short-term arbitrage situation created by the
refinancing of approximately $30,800,000 of mortgage notes for a current
healthcare tenant. In the process, the Company temporarily borrowed $30,000,000
for 36 days under the Senior Credit Facility. Amortization expense increased
from $40,949 during the third quarter of 1995 to $80,026 during the third
quarter of 1996 due to an increase in amortization of revenue producing
management and development contracts acquired in the Starr Sanders Johnson, Inc.
acquisition (See Note 5).
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995.
Total revenues for the nine months ended September 30, 1996 were
$27,627,468 compared to $24,248,810 for the nine months ended September 30,
1995, which is an increase of $3,378,658, or 14%. The increase is primarily due
to base rent derived from approximately $23,000,000 of property acquisitions and
properties reclassified from construction in progress subsequent to September
30, 1995. In addition, revenues during the nine months ended September 30, 1996
reflect an increase of $649,470, or 279% of property management fees (see Note
5). At September 30, 1996, the Company managed 52 properties compared to 25
properties at September 30, 1995. Interest and other income for the nine months
ended September 30, 1996 were $725,307 compared to $90,160 for the nine months
ended September 30, 1995 primarily due to an increase in third party development
fees and income from a short-term arbitrage situation created by the refinancing
of approximately $30,800,000 of mortgage notes for a current healthcare tenant.
Total expenses for the nine months ended September 30, 1996 were
$13,003,117 compared to $10,697,970 for the nine months ended September 30,
1995, which is an increase of $2,305,147, or 22%. Depreciation expense increased
$603,362 due to the acquisition of additional properties and the completion of
properties under construction which were discussed in the preceding paragraph.
There was no significant change in general and administrative expenses. Interest
expense increased from $3,387,295 for the nine months ending September 30, 1995
to $4,946,790 for the nine months ending September 30, 1996. As previously
discussed in the notes to the financial statements, on September 18, 1995, the
Company privately placed $90,000,000 of its unsecured 7.41% Senior Notes with
sixteen credit institutions. During the nine months ended September 30, 1995,
the Company had an average outstanding debt balance of $68,200,000 in comparison
to an average outstanding balance of $105,400,000 during the nine months ended
September 30, 1996. Amortization expense increased from $118,376 for the nine
months ended September 30, 1995 to $250,927 for the nine months ended September
30, 1996 due to an increase in amortization of revenue producing management and
development contracts acquired in the Starr Sanders Johnson, Inc. acquisition
(see Note 5).
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had purchased, developed or had under
development, 66 properties, the Properties, for an aggregate investment of
$377,608,198 located in 36 markets in 14 states, which are supported by 15
healthcare-related entities. The Properties include 34 ancillary hospital
facilities, 3 medical office buildings, 7 physician clinics, 13 long-term care
facilities, 4 comprehensive ambulatory care centers, 2 clinical laboratories,
and 3 ambulatory surgery centers. See Schedule 1 following Notes to Condensed
Consolidated Financial Statements for detailed information concerning the
Properties. The Company has financed its acquisitions to date through the sale
or exchange of common stock, long-term indebtedness, borrowings under its credit
facilities, and the assumption of bonds.
On September 18, 1995, the Company privately placed $90,000,000 of its
Senior Notes. The Senior Notes bear interest at 7.41% and mature on September 1,
2002 (see Note 4).
The Company currently has a $75,000,000 Senior Credit Facility from four
commercial banks that expires in August 1997 (see Note 4). At September 30,
1996, $36,300,000 was outstanding under the Senior Credit Facility, which
results in a remaining borrowing capacity of $38,700,000.
At September 30,1996,$2,855,000 of serial and term bonds were outstanding.
At September 30,1996, the Company had stockholders equity of $231,127,463.
The debt to total capitalization ratio was approximately 0.36 to 1.00 at
September 30, 1996.
During the third quarter of 1996, the company purchased a 29,000 square
foot comprehensive ambulatory care center in West Palm Beach, Florida for
approximately $6,700,000 which included 2.5 acres of land for a future
$4,400,000 expansion which the Company will fund throughout the construction
period. The initial acquisition was funded from proceeds borrowed under the
Senior Credit Facility.
During the third quarter of 1996, the company benefited from a short-term
arbitrage situation created by the refinancing of approximately $30,800,000 of
mortgage notes for a current healthcare tenant. The Company borrowed, and
subsequently repaid 36 days later, $30,000,000 under the Senior Credit Facility
as part of the transaction.
During the quarter ended September 30, 1996, the Company funded a net
$12,355,590 for construction in progress and capital additions ($37,066,092 for
the nine months ended September 30, 1996). The sources of these funds were cash
provided by Company operations and borrowings under the Senior Credit Facility.
On August 15, 1996, the Company paid a dividend of $0.48 per share to the
holders of its common stock as of the close of business on August 2, 1996. This
dividend related to the period from April 1, 1996 through June 30, 1996.
In October 1996, the Company announced payment of a dividend of $0.485 per
share to the holders of common shares on November 6, 1996. The dividend will be
paid on November 15, 1996. The dividend relates to the period July 1, 1996
through September 30, 1996. The Company presently plans to continue to pay its
quarterly dividends, with increases consistent with its current practice. In the
event that the Company cannot make additional investments in 1996 because of an
inability to obtain new capital by issuing equity and debt securities, the
Company will continue to be able to pay its dividends in a manner consistent
with its current practice. No assurance can be made as to the effect upon the
Companys ability to increase its quarterly dividends during periods subsequent
to 1996, should access to new capital not be available to the Company.
As of September 30, 1996, the Company had a net investment of $39,716,995
for six build-to-suit developments in progress and two expansions of existing
facilities, which have a total remaining funding commitment of $23,082,941.
These commitments will be funded from Company operations and proceeds borrowed
under the Senior Credit Facility which had a remaining borrowing capacity of
$38,700,000 at September 30, 1996.
The Company has also entered into a definitive agreement to purchase an
ancillary hospital facility in Fountain Valley, California for approximately
$15,000,000. The facility, currently under construction and financed by a
commercial bank, will be purchased upon completion. The Company will either
assume the existing debt or fund the acquisition from proceeds borrowed under
the Senior Credit Facility.
The Company has entered into a definitive agreement for the merger of a
real estate holding corporation into a subsidiary of the Company. The
acquisition value of the corporations assets is approximately $43,500,000, to
be paid by the issuance of approximately 695,000 shares of Company common stock
and the assumption of approximately $27,200,000 of liablilities. The board of
directors and shareholders of the holding corporation have approved the merger
agreement, which is now subject to various closing contingencies. The closing is
expected to occur in November, 1996. Following the closing, the real estate will
be substantially leased to a multi-specialty group practice located in Virginia
and guaranteed by a public physician practice management company.
As of November 13, 1996, the Company had acquired during the fourth quarter
of 1996, a physician clinic in West Palm Beach, Florida for approximately
$3,625,000. This acquisition was funded from proceeds borrowed under the Senior
Credit Facility.
During 1995, the Company filed a Form S-3 shelf registration statement
pertaining to $250,000,000 of equity securities, debt securities, and warrants.
Such registration statement has been declared effective by the Securities and
Exchange Commission. During the second quarter ended June 30, 1996, the Company
filed a Form S-4 shelf registration statement relating to the issuance of shares
of the Companys common stock, par value $.01 per share, in an aggregate amount
of up to $50,000,000 to be issued from time to time in connection with
acquisitions of assets, upon terms to be determined at the time of such
offering. Such registration statement has also been declared effective by the
Securities and Exchange Commission. The Company intends to offer securities
under such registration statements from time to time to finance future
acquisitions and build-to-suit developments as they occur. The Company may,
under certain circumstances, borrow additional amounts in connection with the
renovation or expansion of its properties, the acquisition or development of
additional properties or, as necessary, to meet distribution requirements for
REITs under the Code. The Company may raise additional capital or make
investments by issuing, in public or private transactions, its equity and debt
securities, but the availability and terms of any such issuance will depend upon
market and other conditions. Although management believes that the Company will
be able to obtain additional financing or capital on terms acceptable to the
Company in sufficient amounts to meet its liquidity needs, there can be no
assurance that such additional financing or capital will be available on terms
acceptable to the Company.
Under the terms of the leases and other financial support agreements
relating to the properties, tenants or healthcare providers are generally
responsible for operating expenses and taxes relating to the properties. As a
result of these arrangements, the Company does not believe that it will be
responsible for any major expenses in connection with the properties during the
respective terms of the agreements. The Company anticipates entering into
similar arrangements with respect to any additional properties it acquires.
After the term of the lease or financial support agreement, or in the event the
financial obligations required by the agreement are not met, the Company
anticipates that any expenditures it might become responsible for in maintaining
the properties will be funded by cash from operations and, in the case of major
expenditures, possibly by borrowings. To the extent that unanticipated
expenditures or significant borrowings are required, the Companys cash
available for distribution and liquidity may be adversely affected.
The Companys future results of operations will be influenced by the terms
of any subsequent investments the Company may make, as well as its ability to
generate revenues from the management and development services performed by
Healthcare Realty Management.There can be no assurance that the Company will be
able to purchase or develop additional properties or to lease to others on
suitable terms or to successfully market the services offered by Healthcare
Realty Management.
Management believes that inflation should not have a materially
adverse effect on the Company. The majority of the leases contain some provision
for additional rent payments based on increases in various economic measures.
These additional rent payments have not been significant to date.various
economic measures. These additional rent payments have not been significant
to date.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement re: Computation of Per-Share Earnings
(b) Reports on Form 8-K
During the three months ended September 30, 1996, the Company filed a
Form 8-K dated September 30, 1996 in order for the Company to make certain
cautionary statements with respect to forward-looking statements which the
Company may make from time to time.
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.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ Timothy G. Wallace
Timothy G. Wallace
Executive Vice President, Finance
and Chief Financial Officer
Date: November 13, 1996
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
11.1 Statement re: Computation of Per-Share Earnings
<PAGE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Weighted Average
- ------------------------
Average Shares Outstanding 13,198,553 12,968,799 13,155,689 12,964,850
================== ================= ================== ==================
Net income $4,913,700 $4,526,268 $14,624,351 $13,550,840
================== ================= ================== ==================
Per share amount $0.37 $0.35 $1.11 $1.05
================== ================= ================== ==================
Primary (1)
- ------------------------
Average Shares Outstanding 13,198,553 12,968,799 13,155,689 12,964,850
Net effect of dilutive stock options--
based on treasury stock method 26,674 26,099 24,337 16,236
------------------ ----------------- ------------------ ------------------
Total 13,225,227 12,994,898 13,180,026 12,981,086
=================== ================= ================== ==================
Net income $4,913,700 $4,526,268 $14,624,351 $13,550,840
================== ================= ================== ==================
Per share amount $0.37 $0.35 $1.11 $1.04
================== ================= ================== ==================
Fully Diluted (1)
- ------------------------
Average Shares Outstanding 13,198,553 12,968,799 13,155,689 12,964,850
Net effect of dilutive stock options--
based on treasury stock method 32,983 26,099 29,626 16,236
------------------ ----------------- ------------------ ------------------
Total 13,231,536 12,994,898 13,185,315 12,981,086
=================== ================= ================== ==================
Net income $4,913,700 $4,526,268 $14,624,351 $13,550,840
================== ================= ================== ==================
Per share amount $0.37 $0.35 $1.11 $1.04
================== ================= ================== ==================
(1) In accordance with footnote 2 of paragraph 15 of APB Opinion No. 15, "Earnings Per Share",
because the reduction is less than 3%, the weighted average shares outstanding were used
in the computation of per share earnings.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,037,371
<SECURITIES> 0
<RECEIVABLES> 1,499,060
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,536,431
<PP&E> 377,608,198
<DEPRECIATION> 20,731,105
<TOTAL-ASSETS> 368,400,436
<CURRENT-LIABILITIES> 3,945,483
<BONDS> 133,327,490
0
0
<COMMON> 132,012
<OTHER-SE> 230,995,451
<TOTAL-LIABILITY-AND-EQUITY> 368,400,436
<SALES> 26,902,161
<TOTAL-REVENUES> 27,627,468
<CGS> 8,056,327
<TOTAL-COSTS> 13,003,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,946,790
<INCOME-PRETAX> 14,624,351
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,624,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,624,351
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
</TABLE>
