<PAGE>
1
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: June 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's 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 August 1, 1996, 13,194,830 shares of the Registrant's
Common Stock, $.01 par value, were outstanding.
<PAGE>
2
HEALTHCARE REALTY TRUST
INCORPORATED
FORM 10-Q
June 30, 1996
TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C>
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Signature 18
Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE>
3
Item 1.
Healthcare Realty Trust Incorporated
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (1)
ASSETS June 30, 1996 Dec. 31, 1995
------------- -------------
<S> <C> <C>
Real estate properties:
Land $41,435,193 $41,435,193
Buildings and improvements 276,442,679 273,522,934
Personal property 2,970,685 2,761,458
Construction in progress 36,844,345 15,253,397
---------- ----------
357,692,902 332,972,982
Less accumulated depreciation (18,619,077) (14,492,646)
----------- -----------
Total real estate properties, net 339,073,825 318,480,336
Cash and cash equivalents 1,383,947 9,142,775
Restricted cash 506,692 552,885
Receivables 2,331,995 1,378,261
Deferred costs, net 1,339,129 1,497,045
Other assets 6,997,092 5,726,375
--------- ---------
Total assets $351,632,680 $336,777,677
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $110,055,000 $92,970,000
Security deposits payable 4,172,490 4,562,490
Accounts payable and accrued liabilities 4,604,255 4,214,599
Deferred income 553,592 582,795
Commitments and contingencies 0 0
- -
Total liabilities 119,385,337 102,329,884
----------- -----------
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;
13,194,830 issued and outstanding at
June 30, 1996 and 12,976,796 at
Dec. 31, 1995 131,948 129,768
Additional paid-in capital 248,317,999 243,418,805
Deferred compensation (4,830,993) (478,288)
Cumulative net income 47,633,889 37,923,238
Cumulative dividends (59,005,500) (46,545,730)
----------- -----------
Total stockholders' equity 232,247,343 234,447,793
----------- -----------
Total liabilities and stockholders' equity $351,632,680 $336,777,677
============ ============
</TABLE>
(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.)
<PAGE>
4
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Rental income $8,672,465 $7,885,007
Management fees 323,169 71,261
Interest and other income 139,904 21,843
------- ------
9,135,538 7,978,111
--------- ---------
EXPENSES:
General and administrative 525,383 475,467
Interest 1,510,061 1,068,165
Depreciation 2,067,135 1,874,228
Amortization 80,491 40,951
------ ------
4,183,070 3,458,811
--------- ---------
NET INCOME $4,952,468 $4,519,300
========== ==========
NET INCOME PER SHARE $0.38 $0.35
===== =====
WEIGHTED AVERAGE SHARES OUTSTAN 13,190,730 12,964,598
========== ==========
</TABLE>
(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.)
<PAGE>
5
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Rental income $17,256,566 $15,706,699
Management fees 600,816 129,592
Interest and other income 261,067 35,955
------- ------
18,118,449 15,872,246
EXPENSES:
General and administrative 1,039,792 999,023
Interest 3,070,674 2,065,919
Depreciation 4,126,430 3,705,309
Amortization 170,902 77,423
------- ------
8,407,798 6,847,674
--------- ---------
NET INCOME $9,710,651 $9,024,572
========== ==========
NET INCOME PER SHARE $0.74 $0.70
===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 13,134,021 12,962,843
========== ==========
</TABLE>
(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.)
<PAGE>
6
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $9,710,651 $9,024,572
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 4,314,165 3,802,170
Deferred compensation 227,290 0
Increase (decrease) in deferred income (29,203) 151,534
Increase in receivables and other
assets 24,451) (798,426)
Increase in accounts payable and
accrued liabilities 389,656 135,342
------- -------
Net cash provided by operating
activities 12,388,108 12,315,192
========== ==========
Cash flows from investing activities:
Acquisition of real estate
properties (24,710,502) (26,155,765)
Acquisition of subsidiary 0 (380,000)
Disbursement of security deposits (390,000) (197,282)
======== ========
Net cash used in investing activities 25,100,502) (26,733,047)
========== ===========
Cash flows from financing activities:
Borrowings on long-term notes payable 17,200,000 26,500,000
Repayments on long-term notes payable (115,000) (105,000)
Deferred financing and organization
costs paid (29,816) (2,247)
Decrease in restricted cash 46,193 40,471
Dividends paid (12,311,298) (11,729,805)
Proceeds from issuance of common stock 163,487 251,287
======= =======
Net cash provided by financing
activities 4,953,566 14,954,706
========= ==========
Increase (decrease) in cash and cash
equivalents (7,758,828) 536,851
Cash and cash equivalents, beginning
of period 9,142,775 496,852
========= =======
Cash and cash equivalents, end of period $1,383,947 $1,033,703
========== ==========
</TABLE>
(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.)
<PAGE>
7
Healthcare Realty Trust
Incorporated
Notes to Condensed Consolidated Financial Statements
June 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 Company's Annual Report on Form 10-K for
the period 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 Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
The results of operations for the six-month period ending June 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 April 1, 1995
through June 30, 1995 and for the period January 1, 1995 through June 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 incorporated on May 13, 1992, in the state of Maryland.
The Company completed an initial public offering of 6,000,000 shares of common
stock and commenced operations on June 3, 1993, with the receipt of proceeds
from the offering.
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. As of June
30, 1996, the Company had purchased, developed or had under development, 65
properties (the "Properties") for an aggregate investment of $357,692,902
located in 35 markets in 14 states, which are supported by 14 healthcare-related
entities. The Properties include 34 ancillary hospital facilities, 3 medical
office buildings, 7 physician clinics, 13 long-term care facilities, 3
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 Company's operating performance or as an alternative to cash
flow as a measure of liquidity. Funds from operations for the three months ended
June 30, 1996 and 1995, were $6,929,979 ($0.53 per share) and $6,340,191 ($0.49
per share), respectively. Funds from operations for the six months ended June
30, 1996 and 1995 were $13,665,672 ($1.04 per share) and $12,647,813 ($0.98 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 Company's policy has been to
report funds from operations calculated on the NAREIT 1995 White Paper while
providing supplemental information based upon previous methodology.
<PAGE>
8
FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
------------------ ------------------
NAREIT Previous
White Paper Previous NAREIT Methodology
As Reported Methodology White Paper As Reported
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $4,952,468 $4,952,468 $4,519,300 $4,519,300
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 1,977,511 1,977,511 1,820,891 1,820,891
Office F,F&E 0 44,198 0 37,012
Leasehold improvements 0 35,406 0 16,325
Other non-revenue
producing assets 0 10,020 0 0
- ------ - -
1,977,511 2,067,135 1,820,891 1,874,228
--------- --------- --------- ---------
Amortization
Acquired property
contracts (1) 0 63,852 0 39,600
Other non-revenue
producing assets 0 14,520 0 0
Organization costs 0 2,119 0 1,351
- ----- - -----
0 80,491 0 40,951
- ------ - ------
Deferred financing
costs (2) 0 92,067 0 47,082
- ------ - ------
Total Adjustments 1,977,511 2,239,693 1,820,891 1,962,261
--------- --------- --------- ---------
Funds From Operations $6,929,979 $7,192,161 $6,340,191 $6,481,561
========== ========== ========== ==========
Weighted Average
Shares Outstanding 13,190,730 13,190,730 12,964,598 12,964,598
========== ========== ========== ==========
Funds From Operations
Per Share $0.53 $0.5 $0.49 $0.50
===== ==== ===== =====
</TABLE>
(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.
<PAGE>
9
FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
------------------ ------------------
NAREIT Previous
White Paper Previous NAREIT Methodology
As Reported Methodology White Paper As Reported
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $9,710,651 $9,710,651 $9,024,572 $9,024,572
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 3,955,021 3,955,021 3,623,241 3,623,241
Office F,F&E 0 80,852 0 49,418
Leasehold improvements 0 69,107 0 32,650
Other non-revenue producing
assets 0 21,450 0 0
- ------ - -
3,955,021 4,126,430 3,623,241 3,705,309
--------- --------- --------- ---------
Amortization
Acquired property
contracts (1) 0 135,879 0 74,726
Other non-revenue
producing assets 0 31,557 0 0
Organization Costs 0 3,469 0 2,697
- ----- - -----
0 170,902 0 77,423
- ------- - ------
Deferred financing costs (2) 0 183,934 0 94,164
-- - ------- - ------
Total Adjustments 3,955,021 4,481,266 3,623,241 3,876,896
--------- --------- --------- ---------
Funds From Operations $13,665,672 $14,191,917 $12,647,813 $12,901,468
=========== =========== =========== ===========
Weighted Average
Shares Outstanding 13,134,021 13,134,021 12,962,843 12,962,843
========== ========== ========== ==========
Funds From Operations
Per Share $1.04 $1.08 $0.98 $1.00
===== ===== ===== =====
</TABLE>
(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.
<PAGE>
10
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 June 30, 1996 is as follows:
<S> <C> <C>
Senior Notes $90,000,000
Senior Credit Facility 17,200,000
Other 2,855,000
----------
Total $110,055,000
</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 Company's
common stock previously reserved were released to certain officers of the
Company upon the achievement of the Company's performance based criteria in
accordance with the terms of the First Implementation of the Company's 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 Company's common stock were canceled and 61,181
restricted shares of the Company's 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 June 30, 1996, the Company had a net investment of $36,844,345
for seven build-to-suit developments in progress and one expansion of an
existing facility, which have a total remaining funding commitment of
$29,828,710.
As of June 30, 1996, the Company, in the normal course of business, had
entered into a contract to acquire a comprehensive ambulatory care center in
Venice, Florida for approximately $6,750,000. The company also had 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.
<PAGE>
11
HEALTHCARE REALTY TRUST
INCORPORATED
REAL ESTATE & ACCUMULATED DEPRECIATION AT JUNE 30, 1996
<TABLE>
<CAPTION>
----------LAND------------- ---BUILDINGS & IMPROVEMENTS & CIP
COSTS COSTS
CAPITALIZED CAPITALIZED
INITIAL POST INITIAL POST
INVESTMENT ACQUI- INVESTMENT ACQUI-
SITION TOTAL (INCL CIP) SITION TOTAL
<S> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
Orange Grove $308,070 $0 $308,070 $4,965,923 $0 $4,965,923
Med Clinic
Eaton Canyon 1,337,483 0 1,337,483 3,106,587 0 3,106,587
Med Bldg
Fountain 2,218,847 0 2,218,847 3,297,543 0 3,297,543
Valley - AHF 1
Fountain 2,059,953 0 2,059,953 3,047,816 0 3,047,816
Valley - AHF 2
Fountain 3,149,515 0 3,149,515 5,635,848 0 5,635,848
Valley - AHF 3
Fountain 3,160,865 0 3,160,865 5,828,809 0 5,828,809
Valley - AHF 4
Valley 1,720,127 0 1,720,127 5,797,840 0 5,797,840
Presbyterian
(15211)
Valley 1,522,222 0 1,522,222 3,787,288 0 3,787,288
Presbyterian
(6840-50)
Coral Gables 532,112 0 532,112 10,676,167 0 10,676,167
Med Plaza
Deering Med 0 0 0 5,072,041 0 5,072,041
Plaza
East Pointe 45,216 0 45,216 4,936,632 0 4,936,632
Med Plaza
Gulf Coast Med 0 0 0 4,791,941 0 4,791,941
Centre
Palms of 0 0 0 4,528,345 760,481 5,288,827
Pasadena Med
Plaza
Southwest Med 0 0 0 8,042,863 0 8,042,863
Centre Plaza
Southwest Med 0 0 0 1,620,558 0 1,620,558
Centre Plaza II
Candler 0 0 0 4,169,090 0 4,169,090
Parking Garage
Candler 0 0 0 7,177,853 0 7,177,853
Professional
Office Bldg
Candler 0 0 0 7,960,639 0 7,960,639
Regional Health
Ctr
North Fulton 696,248 0 696,248 4,814,870 234,973 5,049,843
Med Arts Plaza
Northwest Med 1,268,962 0 1,268,962 8,492,284 475,000 8,967,284
Ctr
Overland Park 0 0 0 5,536,593 0 5,536,593
Regional Med
Ctr (4)
Hendersonville 395,056 0 395,056 2,643,834 100,000 2,743,834
Med Office Bldg
Bayshore 125,471 0 125,471 1,767,799 0 1,767,799
Doctors Ctr
Lake Pointe 217,941 0 217,941 1,507,165 0 1,507,165
Med Plaza
Oregon Med Bldg 999,193 0 999,193 17,445,917 0 17,445,917
Rosewood 682,867 0 682,867 4,569,953 0 4,569,953
Professional
Bldg
Southwest 124,000 0 124,000 2,982,549 0 2,982,549
General
Birthing Ctr
Spring Branch 3,833,076 0 3,833,076 10,295,139 0 10,295,139
Professional
Bldg
Trinity Valley 73,147 0 73,147 3,573,443 0 3,573,443
Birthing Ctr
Twelve Oaks 389,107 0 389,107 2,690,851 670,627 3,361,478
Med Plaza
Chippenham Med 0 0 0 3,771,668 0 3,771,668
Offices
Chippenham Med 874,497 0 874,497 3,718,966 0 3,718,966
Offices
Johnston-Willis 1,912,645 0 1,912,645 6,860,932 0 6,860,932
Med Offices
Johnston-Willis 0 0 0 4,729,002 1,126,713 5,855,715
Med Offices - - - --------- --------- ---------
27,646,620 0 27,646,620 179,844,749 3,367,794 183,212,543
---------- - ---------- ----------- --------- -----------
Ambulatory Surgery Ctrs
Bakersfield 209,246 0 209,246 828,613 0 828,613
Surgery Ctr
Valley View 940,000 0 940,000 2,860,571 0 2,860,571
Surgery Ctr
Physicians 509,891 0 509,891 1,514,376 0 1,514,376
Daysurgery Ctr ------- - ------- --------- - ---------
1,659,137 0 1,659,137 5,203,560 0 5,203,560
--------- - --------- --------- - ---------
Comp Ambulatory Care Ctrs
Five Points 0 0 0 5,896,543 0 5,896,543
Med Bldg (4)
Huebner Med Ctr 601,475 0 601,475 11,067,141 200,000 11,267,141
Huebner Med 1,041,298 0 1,041,298 7,731,437 0 7,731,437
Ctr II --------- - --------- --------- - ---------
1,642,773 0 1,642,773 24,695,122 200,000 24,895,122
--------- - --------- ---------- ------- ----------
Clinical Laboratories
Midtown Med Ctr 180,633 0 180,633 8,601,151 0 8,601,151
Puckett 537,660 0 537,660 3,718,165 0 3,718,165
Laboratory ------- - ------- --------- - ---------
718,293 0 718,293 12,319,316 0 12,319,316
------- - ------- ---------- - ----------
Long-Term Care Facilities
Fountain 1,361,952 0 1,361,952 11,325,746 0 11,325,746
Valley -
Living Care Ctr
Life Care Ctr 1,651,477 0 1,651,477 4,579,039 0 4,579,039
of Aurora
Life Care Ctr 0 0 0 8,964,941 0 8,964,941
of Orange Park
(4)
Life Care Ctr 0 0 0 3,758,819 0 3,758,819
of Wichita (4)
Life Care Ctr 0 0 0 1,155,395 0 1,155,395
of Westminster
(4)
New Harmonie 96,059 0 96,059 3,511,750 0 3,511,750
Healthcare Ctr
Fenton 40,463 0 40,463 3,467,687 0 3,467,687
Extended Care
Ctr
Meadows 6,984 0 6,984 3,241,787 0 3,241,787
Nursing Ctr
Ovid 62,326 0 62,326 2,009,095 0 2,009,095
Convalescent
Manor
Wayne 52,468 0 52,468 963,337 0 963,337
Convalescent
Ctr
Westgate Manor 30,855 0 30,855 1,633,307 0 1,633,307
Nursing Home
Life Care Ctr 0 0 0 4,129,609 0 4,129,609
of Houston (4)
Life Care Ctr 0 0 0 6,580,697 0 6,580,697
of Forth Worth (4)
- - - --------- - ---------
3,302,584 0 3,302,584 55,321,209 0 55,321,209
--------- - --------- ---------- - ----------
Med Office Bldgs
Rowlett Med 166,123 0 166,123 1,774,431 0 1,774,431
Plaza
New River 43,126 0 43,126 839,285 0 839,285
Valley Med.
Arts Bldg
Valley Med Ctr 64,347 0 64,347 867,590 0 867,590
------ - ------ ------- - -------
273,596 0 273,596 3,481,306 0 3,481,306
------- - ------- --------- - ---------
Physician
Clinics
Doctors Clinic 2,183,572 0 2,183,572 8,070,828 0 8,070,828
Med & Surgical 906,829 0 906,829 3,580,315 717,332 4,297,647
Inst of Ft.
Lauderdale
SW Florida 468,544 0 468,544 3,135,642 0 3,135,642
Orthopedic Ctr
Woodstock 586,435 0 586,435 2,087,444 0 2,087,444
Clinic
Durham Med Ctr 992,738 0 992,738 6,865,237 288,566 7,153,803
Valley Diag 502,919 158,368 661,287 3,776,918 0 3,776,918
Med and
Surgical Clinic
Clinica Latina 392,785 0 392,785 331,686 0 331,685
------- - ------- ------- - -------
6,033,822 158,368 6,192,190 27,848,071 1,005,898 28,853,967
--------- ------- --------- ---------- --------- ----------
Total
Real Estate$41,276,825 $158,368 $41,435,193 $308,713,333 $4,573,692 $313,287,024
=========== ======== =========== ============ ========== ============
Corporate
Property 0 0 0 0 0 0
Total
Property $41,276,825 $158,368 $41,435,193 $308,713,333 $4,573,692 $313,287,024
=========== ======== =========== ============ ========== ============
<PAGE>
12
HEALTHCARE REALTY TRUST
INCORPORATED
REAL ESTATE & ACCUMULATED DEPRECIATION AT JUNE 30, 1996
</TABLE>
<TABLE>
<CAPTION>
(1) (2)
PERSONAL (2) ACCUMULATED ENCUM- YEAR YEAR
PROPERTY TOTAL DEPRECIATION BRANCES ACQUIRED CONSTR
Facility Name
<S> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
Orange Grove 0 $5,273,993 $479,584 $0 1993 1988
Med Clinic
Eaton Canyon 0 4,444,070 109,527 0 1995 1984
Med Bldg
Fountain 0 5,516,390 158,551 0 1994 1973
Valley - AHF 1
Fountain 0 5,107,769 146,544 0 1994 1975
Valley - AHF 2
Fountain 0 8,785,363 270,980 0 1994 1981
Valley - AHF 3
Fountain 0 8,989,674 280,258 0 1994 1984
Valley - AHF 4
Valley 20,237 7,538,204 568,601 1,000,0(3) 1993 1981
Presbyterian
(15211)
Valley 18,267 5,327,777 373,587 0 1993 1961, 1968,
Presbyterian 1984-85
(6840-50)
Coral Gables 0 11,208,279 627,348 0 1994 1991
Med Plaza
Deering Med 0 5,072,041 254,675 0 1994 1994
Plaza
East Pointe 0 4,981,848 205,717 0 1994 1994
Med Plaza
Gulf Coast Med 0 4,791,941 191,463 0 1994 1994
Centre
Palms of 0 5,288,827 211,009 0 1994 1994
Pasadena Med
Plaza
Southwest Med 0 8,042,863 352,324 0 1994 1994
Centre Plaza
Southwest Med 0 1,620,558 53,672 0 1995 1977
Centre Plaza II
Candler 0 4,169,090 85,281 0 1994 1995
Parking Garage
Candler 0 7,177,853 360,411 1,000,0(3) 1994 1981
Professional
Office Bldg
Candler 0 7,960,639 151,126 0 1995 1995
Regional Heart
Ctr
North Fulton 38,409 5,784,500 337,592 0 1993 1983
Med Arts Plaza
Northwest Med 0 10,236,246 493,805 0 1994 1975
Ctr
Overland Park 0 5,536,593 0 0 1995 Under
Regional Med construction
Ctr (4)
Hendersonville 0 3,138,890 150,786 0 1994 1991
Med Office Bldg
Bayshore 12,547 1,905,817 176,103 0 1993 1989
Doctors Ctr
Lake Pointe 12,023 1,737,129 103,375 0 1993 1988
Med Plaza
Oregon Med Bldg 39,968 18,485,078 1,701,972 0 1993 1992
Rosewood 0 5,252,820 249,024 0 1994 1982
Professional
Bldg
Southwest 0 3,106,549 142,983 0 1993 1994
General
Birthing Ctr
Spring Branch 173,532 14,301,747 1,068,617 0 1993 1985
Professional
Bldg
Trinity Valley 0 3,646,590 80,735 0 1994 1995
Birthing Ctr
Twelve Oaks 21,465 3,772,050 211,099 0 1993 1968, 1994
Med Plaza
Chippenham Med 0 3,771,668 188,066 0 1994 1972-80
Offices
Chippenham Med 0 4,593,463 188,065 0 1994 1994
Offices
Johnston-Willis 0 8,773,577 317,072 2,855,000 1994 1980,
Med Offices 1987-88
Johnston-Willis 0 5,855,715 309,539 0 1994 1993, 1994
- --------- ------- -
Med Offices
336,448 211,195,611 10,599,490 4,855,000
------- ----------- ---------- ---------
Ambulatory Surgery Ctrs
Bakersfield 8,370 1,046,229 83,611 0 1993 1985
Surgery Ctr
Valley View 0 3,800,571 143,634 0 1994 1994
Surgery Ctr
Physicians 15,296 2,039,563 152,808 0 1993 1985
Daysurgery Ctr ------ --------- ------- -
23,666 6,886,363 380,053 0
------ --------- ------- -
Comp Ambulatory Care Ctrs
Five Points 0 5,896,543 0 0 1995 Under
Med Bldg (4) construction
Huebner Med Ctr 60,148 11,928,764 1,099,933 0 1993 1991
Huebner Med 0 8,772,735 191,102 0 1994 1995
Ctr II - --------- ------- -
60,148 26,598,043 1,291,035 0
------ ---------- --------- -
Clinical Laboratories
Midtown Med Ctr 8,028 8,789,812 834,097 0 1993 1906, 1986
Puckett 29,660 4,285,485 269,699 0 1993 1986, 1991
Laboratory ------ --------- ------- -
37,688 13,075,297 1,103,796 0
------ ---------- --------- -
Long-Term Care Facilities
Fountain 0 12,687,698 544,559 0 1994 1989
Valley -
Living Care Ctr
Life Care Ctr 0 6,230,516 220,167 0 1994 1994
of Aurora
Life Care Ctr 0 8,964,941 0 0 1995 Under
of Orange Park construction
(4)
Life Care Ctr 0 3,758,819 0 0 1996 Under
of Wichita (4) construction
Life Care Ctr 0 1,155,395 0 0 1996 Under
of Westminster construction
(4)
New Harmonie 32,331 3,640,140 353,006 0 1993 1987
Healthcare Ctr
Fenton 32,345 3,540,495 348,765 0 1993 1968
Extended Care
Ctr
Meadows 35,415 3,284,186 328,256 0 1993 1971, 1977
Nursing Ctr
Ovid 48,791 2,120,212 135,583 0 1993 1968
Convalescent
Manor
Wayne 33,548 1,049,353 107,415 0 1993 1967
Convalescent
Ctr
Westgate Manor 32,887 1,697,049 171,834 0 1993 1964, 1974
Nursing Home
Life Care Ctr 0 4,129,609 0 0 1995 Under
of Houston (4) construction
Life Care Ctr 0 6,580,697 0 0 1995 Under
of Forth Worth(4) - --------- - - construction
215,317 58,839,110 2,209,583 0
------- ---------- --------- -
Med Office Bldgs
Rowlett Med 0 1,940,554 87,040 0 1994 1994
Plaza
New River 43,611 926,022 99,748 0 1993 1988
Valley Med.
Arts Bldg
Valley Med Ctr 83,179 1,015,116 119,442 0 1993 1989
------ --------- ------- -
126,790 3,881,692 306,230 0
------- --------- ------- -
Physician
Clinics
Doctors Clinic 50,781 10,305,181 801,207 0 1993 1969, 1973
Med & Surgical 0 5,204,476 204,025 0 1994 1991
Inst of Ft.
Lauderdale
SW Florida 0 3,604,186 170,866 0 1994 1984
Orthopedic Ctr
Woodstock 0 2,673,879 122,661 0 1994 1991
Clinic
Durham Med Ctr 364,987 8,511,528 566,894 0 1993 1993
Valley Diag 20,118 4,458,323 373,379 0 1993 1982
Med and
Surgical Clinic
Clinica Latina 0 724,470 9,569 0 1995 1991
- ------- ----- -
435,886 35,482,043 2,248,602 0
------- ---------- --------- -
Total Real
Estate $1,235,943 $355,958,159 $18,138,789 $4,855,000
Corporate
Property 1,734,743 1,734,743 480,288 0
Total
Property $2,970,685 $357,692,902 $18,619,077 $4,855,000
========== ============ =========== ==========
</TABLE>
(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 June 30,
1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
6/30/96 6/30/96
Total Accumulated Total Accumulated
Property Depreciation Property Depreciation
<S> <C> <C> <C> <C>
Beginning Balance $346,308,878 $16,551,942 $332,972,982 $14,492,646
Retirements/Dispositions 0 0 0 0
Additions during the
period:
815,672 1,977,511 2,911,085 3,955,021
Acquisitions/Improvements
Corporate Property 116,719 89,624 217,887 171,410
Constr. In Progress 10,451,633 0 21,590,948 0
Balance at 6/30/96 $357,692,902 $18,619,077 $357,692,902 $18,619,077
</TABLE>
<PAGE>
13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results
Second Quarter 1996 Compared to Second Quarter 1995
Total revenues for the quarter ended June 30, 1996 were $9,135,538
compared to $7,978,111 for the quarter ended June 30, 1995, which is an increase
of $1,157,427, or 15%. The increase is primarily due to base rent derived from
approximately $24,000,000 of property acquisitions and properties reclassified
from construction in progress subsequent to June 30, 1995. In addition, revenues
during the quarter ended June 30, 1996 reflect an increase of $251,908, or 354%
of property management fees (see Note 5). At June 30, 1996, the Company managed
45 properties compared to five properties at June 30, 1995. Interest and other
income for the quarter ended June 30, 1996 were $139,904 compared to $21,843 for
the quarter ended June 30, 1995 primarily due to an increase in third party
development fees.
Total expenses for the quarter ended June 30, 1996 were $4,183,070
compared to $3,458,811 for the quarter ended June 30, 1995, which is an increase
of $724,259, or 21%. Depreciation expense increased $192,907 due to the
acquisition of additional properties and the completion of properties under
construction which were discussed in the preceding paragraph. General and
administrative expenses increased $49,916, or 10%, due to an increase in
employees. Interest expense increased from $1,068,165 during the second quarter
of 1995 to $1,510,061 during the second 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 second quarter of 1995, the Company had an
average outstanding debt balance of $63,800,000 in comparison to an average
outstanding balance of $106,400,000 during the second quarter of 1996.
Amortization increased from $40,951 during the second quarter of 1995 to $80,491
during the second 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).
Six Months Ended June 30, 1996 Compared to Six Months ended June 30, 1995.
Total revenues for the six months ended June 30, 1996 were $18,118,449
compared to $15,872,246 for the six months ended June 30, 1995, which is an
increase of $2,246,203, or 14%. The increase is primarily due to base rent
derived from approximately $24,000,000 of property acquisitions and properties
reclassified from construction in progress subsequent to June 30, 1995. In
addition, revenues during the six months ended June 30, 1996 reflect an increase
of $471,224, or 364% of property management fees (see Note 5). At June 30, 1996,
the Company managed 45 properties compared to five properties at June 30, 1995.
Interest and other income for the six months ended June 30, 1996 were $261,067
compared to $35,955 for the six months ended June 30, 1995 primarily due to an
increase in third party development fees.
Total expenses for the six months ended June 30, 1996 were $8,407,798
compared to $6,847,674 for the six months ended June 30, 1995, which is an
increase of $1,560,124, or 23%. Depreciation expense increased $421,121 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 $2,065,919 during the six months ending June 30, 1995 to
$3,070,674 during the six months ending June 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 six months ending June 30, 1996, the Company had
an average outstanding debt balance of $56,600,000 in comparison to an average
outstanding balance of $101,100,000 during the six months ended June 30, 1996.
Amortization increased from $77,423 during the six months ended June 30, 1995 to
$170,902 during the six months ended June 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).
<PAGE>
14
Liquidity and Capital Resources
As of June 30, 1996, the Company had purchased, developed or had under
development, 65 properties (the "Properties") for an aggregate investment of
$357,692,902 located in 35 markets in 14 states, which are supported by to 14
healthcare-related entities. The Properties include 34 ancillary hospital
facilities, 3 medical office buildings, 7 physician clinics, 13 long-term care
facilities, 3 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 June 30,
1996, $17,200,000 was outstanding under the Senior Credit Facility, which
results in a remaining borrowing capacity of $57,800,000.
At June 30, 1996, $2,855,000 of serial and term bonds were outstanding.
During the quarter ended June 30, 1996, $115,000 of serial bonds were retired
from cash provided by Company operations.
At June 30, 1996, the Company had stockholders' equity of $232,247,343.
The debt to total capitalization ratio was approximately 0.32 to 1.00 at June
30, 1996.
During the quarter ended June 30, 1996, the Company funded a net
$11,331,150 for construction in progress and capital additions ($24,710,502 for
the six months ended June 30, 1996). The sources of these funds were cash
provided by Company operations and borrowings under the Senior Credit Facility.
On May 15, 1996, the Company paid a dividend of $0.475 per share to the
holders of its common stock as of the close of business on May 2, 1996. This
dividend related to the period from January 1, 1996 through March 31, 1996.
In July 1996, the Company announced payment of a dividend of $0.48 per
share to the holders of common shares on August 2, 1996. The dividend will be
paid on August 15, 1996. The dividend relates to the period April 1, 1996
through June 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
Company's ability to increase its quarterly dividends during periods subsequent
to 1996, should access to new capital not be available to the Company.
As of June 30, 1996, the Company had a net investment of $36,844,345
for seven build-to-suit developments in progress and one expansion of an
existing facility, which have a total remaining funding commitment of
$29,828,710. These commitments will be funded from Company operations and
proceeds borrowed under the Senior Credit Facility which had a remaining
borrowing capacity of $57,800,000 at June 30, 1996.
As of June 30, 1996, the Company, in the normal course of business, had
entered into a contract to acquire a comprehensive ambulatory care center in
Venice, Florida for approximately $6,750,000. The company also had 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.
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 Company's 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 Company's cash
available for distribution and liquidity may be adversely affected.
The Company's 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 that 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.
<PAGE>
15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 14, 1996.
At this meeting, the following matters were voted upon by the Company's
shareholders:
(a) Election of Class 3 Directors
David R. Emery, Thompson S. Dent and Batey M. Gresham, Jr. were elected to
serve as Class 3 directors of the Company until the annual meeting of
shareholders in 1999 or until their respective successors are elected and
qualified. The vote was as follows:
<TABLE>
<CAPTION>
Votes Cast Votes Cast Abstentions/
In Favor Against or Withhel Non Votes
<S> <C> <C> <C>
David R. Emery 11,556,686 57,007 0
Thompson S. Dent 11,556,258 57,435 0
Batey M. Gresham, Jr 11,552,410 61,283 0
</TABLE>
The following directors continued in office following the
meeting:
<TABLE>
<CAPTION>
Name Term Expires
<S> <C>
Charles Raymond Fernandez, M.D. 1997
Errol L. Biggs, Ph.D. 1997
Marliese E. Mooney 1998
Edwin B. Morris, III 1998
John Knox Singleton 1998
</TABLE>
(b) Selection of Auditors
The shareholders of the Company ratified the appointment of
Ernst & Young, LLP as the Company's independent auditors for the fiscal year
ended December 31, 1996 by the following:
<TABLE>
<CAPTION>
Votes Cast Votes Cast Abstentions/
In Favor Against or Withheld Non Votes
<S> <C> <C> <C>
11,521,324 31,272 61,098
</TABLE>
<PAGE>
16
Item 5. Other Information
Federal Income Tax and ERISA Considerations
The Company is and intends to remain qualified as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's
net income which is distributed as dividends to shareholders will be exempt from
Federal taxation. Distributions to the Company's shareholders generally will be
includable in their income; however, dividends distributed which are in excess
of current and/or accumulated earnings and profits will be treated for tax
purposes as a return of capital to the extent of a shareholder's basis, and will
reduce the basis of shareholders' shares.
The Company intends to conduct its affairs so that the assets of the
Company will not be deemed to be "plan assets" of any individual retirement
account, employee benefit plan subject to Title I of ERISA, or other qualified
retirement plan subject to Section 4975 of the Code which acquires its shares.
The Company believes that, under present law, its distributions do not create so
called "unrelated business taxable income" to tax-exempt entities such as
pension trusts, subject, however, to certain rules which, generally, apply to a
REIT predominantly owned by pension trusts each holding more than 10% of such
REIT's shares or to a REIT which is at least 25% owned by a single pension
trust. The Company does not believe that these special rules currently apply to
the Company's distributions.
Introduction
The Company believes that it has qualified and intends to remain
qualified to be taxed as a REIT for federal income tax purposes under Sections
856 through 860 of the Code. The following discussion addresses the material tax
considerations relevant to the taxation of the Company and summarizes certain
federal income tax consequences that may be relevant to certain shareholders.
However, the actual tax consequences of holding particular securities issued by
the Company may vary in light of a prospective securities holder's particular
facts and circumstances. Certain holders, such as tax-exempt entities, insurance
companies and financial institutions, are generally subject to special rules. In
addition, the following discussion does not address issues under any foreign,
state or local tax laws. The tax treatment of a holder of any of the securities
issued by the Company will vary depending upon the terms of the specific
securities acquired by such holder, as well as his particular situation, and
this discussion does not attempt to address aspects of federal income taxation
relating to holders of particular securities of the Company. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. No rulings have been obtained from the IRS concerning
any of the matters discussed herein. It should be noted that the Code, rules,
regulations, and administrative and judicial interpretations are all subject to
change (possibly on a retroactive basis).
The Company believes that it is organized and is operating in
conformity with the requirements for qualification and taxation as a REIT, and
its method of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. The Company's qualification
and taxation as a REIT depends upon its ability to meet, through actual annual
operating results, the various income, asset, distribution, stock ownership and
other tests discussed below. Accordingly, the Company can not guarantee that the
actual results of operations for any one taxable year will satisfy such
requirements.
If the Company were to cease to qualify as a REIT, and the relief
provisions were found not to apply, the Company's income that distributed to
shareholders would be subject to the "double taxation" on earnings (once at the
corporate level and again at the shareholder level) that generally results from
investment in a corporation. Failure to maintain qualification as a REIT would
force the Company to significantly reduce its distributions and possibly incur
substantial indebtedness or liquidate substantial investments in order to pay
the resulting corporate taxes. In addition, the Company, once having obtained
REIT status and having thereafter lost such status, would not be eligible to
re-elect REIT status for the four subsequent taxable years, unless its failure
to maintain its qualification was due to reasonable cause and not willful
neglect, and certain other requirements were satisfied. In order to elect again
to be taxed as a REIT, just as with its original election, the Company would be
required to distribute all of its earnings and profits accumulated in any
non-REIT taxable year.
Taxation of the Company
As long as the Company remains qualified to be taxed as a REIT, it
generally will not be subject to federal income taxes on that portion of its
ordinary income or capital gain that is currently distributed to shareholders.
However, the Company will be subject to federal income tax as follows:
first, the Company will be taxed at regular corporate rates on any undistributed
"real estate investment trust taxable income," including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference, if any. Third,
if the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business, or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate. Fourth, any net income that the Company has from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business) will be subject to a 100% tax. Fifth, if the Company should
fail to satisfy either the 75% or 95% gross income test (as discussed below),
and has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% gross income test. Sixth, if the Company fails to distribute during each
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from preceding periods, then the Company will be
subject to a four percent excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, to the extent that the Company
recognizes gain from the disposition of an asset with respect to which there
existed "built-in gain" as of January 1, 1994 (or with respect to which there
existed "built-in gain" upon its acquisition by the Company from a C corporation
in a carry-over basis transaction occurring on or after January 1, 1994) and
such disposition occurs within a ten-year recognition period beginning January
1, 1994 (or beginning on the date on which it was acquired by the Company from a
C corporation in a carry-over basis transaction occurring on or after January 1,
1994), the Company will be subject to federal income tax at the highest regular
corporate rate on the amount of its "net recognized built-in gain."
Requirements for Qualification as a REIT
To qualify as a REIT for a taxable year under the Code, the Company
must have no earnings and profits accumulated in any non-REIT year. The Company
also must elect or have in effect an election to be taxed as a REIT and must
meet other requirements, some of which are summarized below, including
percentage tests relating to the sources of its gross income, the nature of the
Company's assets and the distribution of its income to shareholders. Such
election, if properly made and assuming continuing compliance with the
qualification tests described herein, will continue in effect for subsequent
years.
Organizational Requirements and Share Ownership Tests
Section 856(a) of the Code defines a REIT as a corporation, trust or
association: (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable,
but for Sections 856 through 860 of the Code, as an association taxable as a
domestic corporation; (4) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (5) the beneficial
ownership of which is held by 100 or more persons, determined without reference
to any rules of attribution (the "share ownership test"); (6) that during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities) (the "five or fewer test");
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets.
Section 856(b) of the Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of fewer than 12 months. The "five or fewer
test" and the share ownership test do not apply to the first taxable year for
which an election is made to be treated as a REIT.
The Company has issued sufficient shares to a sufficient number of
people to allow it to satisfy the share ownership test and the five or fewer
test. In addition, to assist in complying with the five or fewer test, the
Company's Articles of Incorporation contain provisions restricting share
transfers where the transferee (other than specified individuals involved in the
formation of the Company, members of their families and certain affiliates, and
certain other exceptions) would, after such transfer, own (a) more than 9.9%
either in number or value of the outstanding common stock of the Company or (b)
more than 9.9% either in number or value of the outstanding preferred stock of
the Company. Pension plans and certain other tax-exempt entities have different
restrictions on ownership. If, despite this prohibition, stock is acquired
increasing a transferee's ownership to over 9.9% in value of either the
outstanding common stock of the Company or preferred stock of the Company, the
stock in excess of this 9.9% in value is deemed to be held in trust for transfer
at a price which does not exceed what the purported transferee paid for the
stock and, while held in trust, the stock is not entitled to receive dividends
or to vote. In addition, under these circumstances, the Company also has the
right to redeem such stock.
Under the Revenue Reconciliation Act of 1993, for purposes of
determining whether the "five or fewer test" (but not the share ownership test)
is met, any stock held by a qualified trust (generally, pension plans,
profit-sharing plans and other employee retirement trusts) is, generally,
treated as held directly by the trust's beneficiaries in proportion to their
actuarial interests in the trust, and not as held by the trust.
Income Tests
In order to maintain qualification as a REIT, three gross income
requirements must be satisfied annually. First, at least 75% of the Company's
gross income (excluding gross income from certain sales of property held
primarily for sale) must be derived directly or indirectly from investments
relating to real property (including "rents from real property") or mortgages on
real property. When the Company receives new capital in exchange for its shares
(other than dividend reinvestment amounts) or in a public offering of debt
instruments with maturities of five years or longer, income attributable to the
temporary investment of such new capital, if received or accrued within one year
of the Company's receipt of the new capital, is qualifying income under the 75%
test. Second, at least 95% of the Company's gross income (excluding gross income
from certain sales of property held primarily for sale) must be derived from
such real property investments, dividends, interest, certain payments under
interest rate swap or cap agreements, and gain from the sale or other
disposition of stock, securities not held for sale in the ordinary course of
business or from any combination of the foregoing. Third, short-term gain from
the sale or other disposition of stock or securities, including, without
limitation, dispositions of interest rate swap or cap agreements, and gain from
certain prohibited transactions or from other dispositions of real property and
mortgages on real property held for less than four years (apart from involuntary
conversions and sales of foreclosure property) must represent less than 30% of
the Company's gross income. (This rule does not apply for a year in which a REIT
is completely liquidated, as to dispositions occurring after the adoption of a
plan of complete liquidation.) For purposes of these rules, income derived from
a "shared appreciation provision" in a real estate backed mortgage is treated as
gain recognized on the sale of the property to which it relates.
The Company may temporarily invest its working capital in short-term
investments. Although the Company will use its best efforts to ensure that its
income generated by these investments will be of a type which satisfies the 75%
and 95% gross income tests, there can be no assurance in this regard (see the
discussion above of the "new capital" rule under the 75% gross income test).
Moreover, the Company may realize short-term capital gain upon sale or exchange
of such investments, and such short-term capital gain would be subject to the
limitations imposed by the 30% gross income test. The Company has analyzed its
gross income through June 30, 1996 and has determined that it has met and
expects to meet in the future the 75% and 95% gross income tests through the
rental of the property it has and acquires, and by monitoring the sale of assets
has not and does not expect to violate the 30% gross income test.
In order to qualify as "rents from real property," the amount of rent
received must not be based on the income or profits of any person, but may be
based on a fixed percentage or percentages of receipts or sales. The Code also
provides that the rents will not qualify as "rents from real property," in
satisfying the gross income tests, if the REIT owns ten percent or more of the
tenant, whether directly or under certain attribution rules. The Company leases
and intends to lease property only under circumstances such that substantially
all, if not all, rents from such property qualify as "rents from real property."
Although it is possible that a tenant could sublease space to a sublessee in
which the Company is deemed to own directly or indirectly ten percent or more of
the tenant, the Company believes that as a result of the provisions of the
Company's Articles of Incorporation which limit ownership to 9.9%, such
occurrence would be unlikely. Application of the ten percent ownership rule is,
however, dependent upon complex attribution rules provided in the Code and
circumstances beyond the control of the Company. Ownership, directly or by
attribution, by an unaffiliated third party of more than ten percent of the
Company's stock and more than ten percent of the stock of any tenant or
subtenant would result in a violation of the rule.
In order to qualify as "interest on obligations secured by mortgages on
real property," the amount of interest received must not be based on the income
or profits of any person, but may be based on a fixed percentage or percentages
of receipts or sales.
In addition, the Company must not manage its properties or furnish or
render services to the tenants of its properties, except through an independent
contractor from whom the Company derives no income unless the Company is
performing services which are usually or customarily furnished or rendered in
connection with the rental of space for occupancy only and the services are of
the sort which a tax-exempt organization could perform without being considered
in receipt of unrelated business taxable income. The Company self-manages some
of its properties, but does not believe it provides services to tenants which
are outside the exception.
If rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Generally, this 15% test is applied
separately to each lease. The portion of rental income treated as attributable
to personal property is determined according to the ratio of the tax basis of
the personal property to the total tax basis of the property which is rented.
The determination of what fixtures and other property constitute personal
property for federal tax purposes is difficult and imprecise. Based upon
allocation of value as found in the purchase agreements and/or upon review by
employees of the Company, the Company currently does not have and does not
believe that it is likely in the future to have 15% by value of any of its
properties classified as personalty. If, however, rent payments do not qualify,
for reasons discussed above, as rents from real property for purposes of Section
856 of the Code, it will be more difficult for the Company to meet the 95% and
75% gross income tests and continue to qualify as a REIT.
The Company is and expects to continue performing third-party
management and development services. If the gross income to the Company from
this or any other activity producing disqualified income for purposes of the 95%
or 75% gross tests approaches a level which could potentially cause the Company
to fail to satisfy these tests, the Company intends to take such corrective
action as may be necessary to avoid failing to satisfy the 95% or 75% gross
income tests.
If the Company were to fail to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is entitled to relief under certain provisions of the Code.
These relief provisions would generally be available if the Company's failure to
meet such test or tests was due to reasonable cause and not to willful neglect,
if the Company attaches a schedule of the sources of its income to its return,
and if any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to know whether the Company
would be entitled to the benefit of these relief provisions since the
application of the relief provisions is dependent on future facts and
circumstances. If these provisions were to apply, the Company would be subjected
to tax equal to 100% of the net income attributable to the greater of the amount
by which the Company failed either the 75% or the 95% gross income test.
Asset Tests
At the close of each quarter of the Company's taxable year, it must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of the Company's total assets must consist of real estate
assets (including interests in real property and interests in mortgages on real
property as well as its allocable share of real estate assets held by joint
ventures or partnerships in which the Company participates), cash, cash items
and government securities. Second, not more than 25% of the Company's total
assets may be represented by securities other than those includable in the 75%
asset class. Finally, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed five
percent of the value of the Company's total assets, and the Company may not own
more than ten percent of any one issuer's outstanding voting securities. The
Company, however, may own 100% of the stock of a corporation if such stock is
held by the Company at all times during such subsidiary's existence. Such a
subsidiary is called a "qualified REIT subsidiary". Under that circumstance, the
qualified REIT subsidiary is ignored and its assets, income, gain, loss and
other attributes are treated as being owned or generated by the Company for
federal tax purposes. The Company currently has six qualified REIT subsidiaries
which it employs in the conduct of its business.
If the Company meets the 25% requirement at the close of any quarter,
it will not lose its status as a REIT because of the change in value of its
assets unless the discrepancy exists immediately after the acquisition of any
security or other property which is wholly or partly the result of an
acquisition during such quarter. Where a failure to satisfy the 25% asset test
results from an acquisition of securities or other property during a quarter,
the failure can be cured by disposition of sufficient nonqualifying assets
within 30 days after the close of such quarter. The Company maintains and
intends to continue to maintain adequate records of the value of its assets to
maintain compliance with the 25% asset test and to take such action as may be
required to cure any failure to satisfy the test within 30 days after the close
of any quarter.
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
equal to or greater than the excess of (A) the sum of (i) 95% of the Company's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 95% of the
net income, if any, (after tax) from foreclosure property, over (B) the sum of
certain non-cash income (from certain imputed rental income and income from
transactions inadvertently failing to qualify as like-kind exchanges). These
requirements may be waived by the IRS if the REIT establishes that it failed to
meet them by reason of distributions previously made to meet the requirements of
the four percent excise tax described below. To the extent that the Company does
not distribute all of its net long-term capital gain and all of its "real estate
investment trust taxable income," it will be subject to tax thereon. In
addition, the Company will be subject to a four percent excise tax to the extent
it fails within a calendar year to make "required distributions" to its
shareholders of 85% of its ordinary income and 95% of its capital gain net
income plus the excess, if any, of the "grossed up required distribution" for
the preceding calendar year over the amount treated as distributed for such
preceding calendar year. For this purpose, the term "grossed up required
distribution" for any calendar year is the sum of the taxable income of the
Company for the taxable year (without regard to the deduction for dividends
paid) and all amounts from earlier years that are not treated as having been
distributed under the provision. Dividends declared in the last quarter of the
year and paid during the following January will be treated as having been paid
and received on December 31. The Company has analyzed its income and
distributions through June 30, 1996 and believes that its distributions through
June 30, 1996 combined with distributions planned for the remainder of 1996 will
be adequate to satisfy its distribution requirement for 1996.
It is possible that the Company, from time to time, may have
insufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between the actual receipt of income and
the actual payment of deductible expenses or dividends on the one hand and the
inclusion of such income and deduction of such expenses or dividends in arriving
at "real estate investment trust taxable income" on the other hand. The problem
of not having adequate cash to make required distributions could also occur as a
result of the repayment in cash of principal amounts due on the Company's
outstanding debt, particularly in the case of "balloon" repayments or as a
result of capital losses on short-term investments of working capital.
Therefore, the Company might find it necessary to arrange for short-term, or
possibly long-term borrowing, or new equity financing. If the Company were
unable to arrange such borrowing or financing as might be necessary to provide
funds for required distributions, its REIT status could be jeopardized.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company may in certain circumstances remain liable for the four
percent excise tax described above.
The Company is also required to request annually (within 30 days after
the close of its taxable year) from record holders of specified percentages of
its shares written information regarding the ownership of such shares. A list of
shareholders failing to fully comply with the demand for the written statements
is required to be maintained as part of the Company's records required under the
Code. Rather than responding to the Company, the Code allows the shareholder to
submit such statement to the IRS with the shareholder's tax return.
Nonqualified REIT Subsidiary
The Registrant participated in the organization of certain corporations
affiliated with the Registrant which are not qualified REIT subsidiaries
("Specified Affiliates") to enhance its management flexibility. Current tax law
restricts the ability of REITs to engage in certain activities, such as certain
third party management activities, but these restrictions do not apply to the
activities of a company that is not a REIT, such as these Specified Affiliates,
whose income is subject to federal income tax.
In order to permit the Registrant to participate in the income of its
third party management business and maintain its status as a REIT, portions of
the Registrant's business will be conducted by the Specified Affiliates. The
Registrant owns 100% of the nonvoting preferred stock and approximately 1% of
the voting common stock, and senior executives of the Registrant own 99% of the
voting common stock of the Specified Affiliates. The nonvoting preferred stock
of the Specified Affiliates represents substantially all of the equity interest
in the Specified Affiliates, but does not enable the Registrant to elect
directors of the Specified Affiliates who are elected by the senior executives
of the Registrant as the holders of 99% of the voting common stock of the
Specified Affiliates. The voting common stock held by the senior executives of
the Registrant in the Specified Affiliates is subject to agreements that are
designed to ensure that such stock will be held by officers of the Registrant.
Federal Income Tax Treatment of Leases
The availability to the Company of, among other things, depreciation
deductions with respect to the facilities owned and leased by the Company
depends upon the treatment of the Company as the owner of the facilities and the
classification of the leases of the facilities as true leases, rather than as
sales or financing arrangements, for federal income tax purposes. The Company
has not requested nor has it received an opinion that it will be treated as the
owner of the portion of the facilities constituting real property and that the
leases will be treated as true leases of such real property for federal income
tax purposes. Based on the conclusions of the Company and its senior management
as to the values of personalty, the Company has met and plans to meet in the
future its compliance with the 95% distribution requirement (and the required
distribution requirement) by making distributions on the assumption that it is
not entitled to depreciation deductions for that portion of the leased
facilities which it believes constitutes personal property, but to report the
amount of income taxable to its shareholders by taking into account such
depreciation. The value of real and personal property and whether certain
fixtures are real or personal property are factual evaluations that cannot be
determined with absolute certainty under current IRS regulations and are,
therefore, somewhat uncertain.
Other Issues
With respect to property acquired from and leased back to the same or
an affiliated party, the IRS could assert that the Company realized prepaid
rental income in the year of purchase to the extent that the value of the leased
property exceeds the purchase price paid by the Company for that property. In
litigated cases involving sale-leasebacks which have considered this issue,
courts have concluded that buyers have realized prepaid rent where both parties
acknowledged that the purported purchase price for the property was
substantially less than fair market value and the purported rents were
substantially less than the fair market rentals. Because of the lack of clear
precedent and the inherently factual nature of the inquiry, complete assurance
cannot be given that the IRS could not successfully assert the existence of
prepaid rental income in such circumstances. The value of property and the fair
market rent for properties involved in sale-leasebacks are inherently factual
matters and always subject to challenge.
Additionally, it should be noted that Section 467 of the Code
(concerning leases with increasing rents) may apply to those leases of the
Company which provide for rents that increase from one period to the next.
Section 467 provides that in the case of a so-called "disqualified leaseback
agreement," rental income must be accrued at a constant rate. If such constant
rent accrual is required, the Company would recognize rental income in excess of
cash rents and as a result, may fail to have adequate funds available to meet
the 95% dividend distribution requirement. "Disqualified leaseback agreements"
include leaseback transactions where a principal purpose of providing increasing
rent under the agreement is the avoidance of federal income tax. Because Section
467 directs the Treasury to issue regulations providing that rents will not be
treated as increasing for tax avoidance purposes where the increases are based
upon a fixed percentage of lessee receipts, additional rent provisions of leases
containing such clauses should not be "disqualified leaseback agreement." In
addition, the legislative history of Section 467 indicates that the Treasury
should issue regulations under which leases providing for fluctuations in rents
by no more than a reasonable percentage from the average rent payable over the
term of the lease will be deemed to not be motivated by tax avoidance. This
legislative history indicates that a standard allowing a ten percent fluctuation
in rents may be too restrictive for real estate leases. It should be noted,
however, that leases involved in sale-leaseback transactions are subject to
special scrutiny under this Section. The Company, based on its evaluation of the
value of the property and the terms of the leases, does not believe it has or
will have in the future rent subject to the provisions of Section 467.
Subject to a safe harbor exception for annual sales of up to seven
properties (or properties with a basis of up to 10% of the REIT's assets) that
have been held for at least four years, gain from sales of property held for
sale to customers in the ordinary course of business is subject to a 100% tax.
The simultaneous exercise of options to acquire leased property that may be
granted to certain tenants or other events could result in sales of properties
by the Company that exceed this safe harbor. However, the Company believes that
in such event, it will not have held such properties for sale to customers in
the ordinary course of business.
Depreciation of Properties
For tax purposes, the Company's real property is being and will
continue to be depreciated over 31.5 or 39 years using the straight-line method
of depreciation and its personal property over various periods utilizing
accelerated and straight-line methods of depreciation.
Failure to Qualify as a REIT
If the Company were to fail to qualify for federal income tax purposes
as a REIT in any taxable year, and the relief provisions were found not to
apply, the Company would be subject to tax on its taxable income at regular
corporate rates (plus any applicable alternative minimum tax). Distributions to
shareholders in any year in which the Company failed to qualify would not be
deductible by the Company nor would they be required to be made. In such event,
to the extent of current and/or accumulated earnings and profits, all
distributions to shareholders would be taxable as ordinary income and, subject
to certain limitations in the Code, eligible for the 70% dividends received
deductions for corporate shareholders. Unless entitled to relief under specific
statutory provisions, the Company would also be disqualified from taxation as a
REIT for the following four taxable years. It is not possible to state whether
in all circumstances the Company would be entitled to statutory relief from such
disqualification. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent borrowings were
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
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
No reports on Form 8-K were filed by the Company during the three
months ended June 30, 1996.
<PAGE>
18
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
August 12, 1996
<PAGE>
19
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
11.1 Statement re: Computation of Per-Share Earnings
<TABLE>
<CAPTION>
EXHIBIT 11 - Statement Re: Computation of Per Share Earnings
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------ ----------------- ------------------ ------------------
Weighted Average
- ------------------------
<S> <C> <C> <C> <C>
Average Shares
Outstanding 13,190,730 12,964,598 13,134,021 12,962,843
========== ========== ========== ==========
Net income $4,952,468 $4,519,300 $9,710,651 $9,024,572
========== ========== ========== ==========
Per share
amount $0.38 $0.35 $0.74 $0.70
========== ========== ========== ==========
Primary (1)
- ------------------------
Average Shares
Outstanding 13,190,730 12,964,598 13,134,021 12,962,843
Net effect of
dilutive stock
options--
based on treasury
stock method 24,211 16,046 23,169 11,305
========== ========== ============ ==========
Total 13,214,941 12,980,644 13,157,190 12,974,148
========== ========== ============ ==========
Net income $4,952,468 $4,519,300 $9,710,651 $9,024,572
========== ========== ============ ==========
Per share amount $0.37 $0.35 $0.74 $0.70
========== ========== ============ ==========
Fully Diluted (1)
- ------------------------
Average Shares
Outstanding 13,190,730 12,964,598 13,134,021 12,962,843
Net effect of
dilutive stock
options--
based on treasury
stock method 33,770 16,046 27,948 11,305
========== ========== =========== ==========
Total 13,224,500 12,980,644 13,161,969 12,974,148
========== ========== =========== ==========
Net income $4,952,468 $4,519,300 $9,710,651 $9,024,572
========== ========== =========== ==========
Per share amount $0.37 $0.35 $0.74 $0.70
========== ========== =========== ==========
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> ........................ <C>
<PERIOD-TYPE> .............. 6-MOS
<FISCAL-YEAR-END> .......... DEC-31-1996
<PERIOD-START> ............. JAN-01-1996
<PERIOD-END> ............... JUN-30-1996
<EXCHANGE-RATE> ............ 1
<CASH> ..................... 1,890,639
<SECURITIES> ............... 0
<RECEIVABLES> .............. 2,331,995
<ALLOWANCES> ............... 0
<INVENTORY> ................ 0
<CURRENT-ASSETS> ........... 4,222,634
<PP&E> ..................... 357,692,902
<DEPRECIATION> ............. 18,619,077
<TOTAL-ASSETS> ............. 351,632,680
<CURRENT-LIABILITIES> ...... 5,157,847
<BONDS> .................... 114,227,490
...... 0
................ 0
<COMMON> ................... 131,948
<OTHER-SE> ................. 232,115,395
<TOTAL-LIABILITY-AND-EQUITY> 351,632,680
<SALES> .................... 17,857,382
<TOTAL-REVENUES> ........... 18,118,449
<CGS> ...................... 5,337,124
<TOTAL-COSTS> .............. 8,407,798
<OTHER-EXPENSES> ........... 0
<LOSS-PROVISION> ........... 0
<INTEREST-EXPENSE> ......... 3,070,674
<INCOME-PRETAX> ............ 9,710,651
<INCOME-TAX> ............... 0
<INCOME-CONTINUING> ........ 9,710,651
<DISCONTINUED> ............. 0
<EXTRAORDINARY> ............ 0
<CHANGES> .................. 0
<NET-INCOME> ............... 9,710,651
<EPS-PRIMARY> .............. 0.74
<EPS-DILUTED> .............. 0
</TABLE>
