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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 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)
Securities registered pursuant Name of Each Exchange
to Section 12(b) of the Act: Title of Each Class on Which Registered
___________________ _____________________
None None
Securities registered pursuant
to Section 12 (g) of the Act: Common Stock, $.01 par value per share
______________________________________
Title of Class
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 the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the shares of Common Stock (based upon the
closing price of these shares on the New York Stock Exchange, Inc. on March 15,
1997) of the Registrant held by non-affiliates on March 15, 1997, was
approximately $532,045,076.
As of March 15, 1997, 19,227,803 shares of the Registrant's Common Stock
were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into which
the document is incorporated:
Portions of the Registrant's 1996 Annual Report to Shareholders are
incorporated into Part II of this Report.
Portions of the Registrant's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 12, 1997 are incorporated into
Part III of this Report.
(2)
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TABLE OF CONTENTS
Page
Item 1. Business..........................................................1
The Company...................................................1
Property Acquisition Activity.................................1
Completed Property Development Activity.......................1
Continuing Property Development Activity......................1
Pending Developments..........................................1
Investment Policy.............................................1
Competition...................................................1
Government Regulation.........................................1
Environmental Matters.........................................1
Insurance.....................................................1
Employees.....................................................1
Tax Information..............................................14
Cautionary Statements........................................26
Item 2. Properties.......................................................30
Executive Offices............................................30
Property Operations..........................................31
Healthcare Provider Clients..................................33
Lease Expiration Schedule....................................34
Item 3. Legal Proceedings................................................35
Item 4. Submission of Matters to a Vote of Securityholders...............35
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..................................................................36
Item 6. Selected Financial Data..........................................36
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................36
Item 8. Financial Statements and Supplementary Data......................36
(3)
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Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................36
Item 10. Directors and Executive Officers of the Registrant..............37
Directors....................................................37
Executive Officers...........................................37
Item 11. Executive Compensation..........................................37
Item 12. Security Ownership of Certain Beneficial Owners and Management..38
Item 13. Certain Relationships and Related Transactions..................38
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.39
(4)
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PART 1
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ITEM 1. BUSINESS
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THE COMPANY
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Healthcare Realty Trust Incorporated and its subsidiaries (the "Company" or
"Healthcare Realty") is a self-managed and self-administered real estate
investment trust (REIT) that integrates owning, acquiring, managing and
developing income-producing real estate properties related to healthcare
services throughout the United States. Since commencing operations in June 1993
through December 31, 1996, the Company has invested or committed to invest,
directly and indirectly, over $460 million in 80 income-producing real estate
properties related to the delivery of healthcare services, containing over 3.9
million square feet. The Company's portfolio is comprised of seven facility
types, located in 38 markets nationwide, and operated pursuant to contractual
arrangements with 16 healthcare providers. At December 31, 1996, the Company was
managing 83 healthcare-related properties nationwide totaling over 3.2 million
square feet, including 27 which were owned by the Company. The Company intends
to maintain a portfolio of properties that are focused predominantly on the
outpatient services segment of the healthcare industry and are diversified by
tenant, geographic location and facility type.
Healthcare Realty believes that it has a competitive advantage in the
healthcare real estate industry as a result of its use of innovative transaction
structures, the strength of its management expertise and its extensive
experience and client relationships with healthcare providers. Management
believes the Company is the largest fully integrated real estate company focused
on income-producing real estate properties related to the delivery of healthcare
services. The Company believes that its experience and client relationships with
a diverse group of healthcare providers and its access to the various capital
markets make it one of a limited number of companies that can acquire, manage
and develop income-producing real estate related to healthcare services on a
national scale. Unlike other healthcare REITs, the Company seeks to generate
internal growth by actively managing the properties within its portfolio and by
controlling and minimizing operating expenses with respect to its properties,
and providing management services for properties owned by healthcare provider
clients.
Healthcare Realty's strategy is to be a full service provider of integrated
real estate solutions to quality healthcare providers. Consistent with this
strategy, the Company seeks to provide a spectrum of services needed to own,
acquire, manage and develop healthcare properties, including leasing,
development, management, market research, budgeting, accounting, collection,
construction management, tenant coordination and financial services. The
Company's development activities are primarily accomplished through pre-leased
build-to-suit projects.
Healthcare Realty was formed as an independent, unaffiliated healthcare
REIT. The Company acquires income-producing real estate properties associated
with a diverse group of quality healthcare provider clients in markets where the
respective healthcare provider maintains a strong presence. Management believes
that because the Company is not affiliated with any of its clients and does not
expect to be affiliated with potential clients, the Company will have a
strategic advantage in providing its services to a more diverse group of
healthcare providers.
(5)
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Management believes that diversification among clients reduces the
Company's potential exposure to unsuccessful healthcare service strategies and
to a concentration of credit with any one healthcare provider. Approximately 68%
of the Company's investments, at cost, are in properties associated with
publicly-traded companies or private companies with an investment grade credit
rating. The Company's largest healthcare provider client is Columbia/HCA,
accounting for approximately 26% of the Company's current investments.
Healthcare Realty focuses predominantly on outpatient healthcare
facilities, which are designed to provide medical services outside of
traditional inpatient hospital or nursing home settings. Management believes the
outpatient services segment of healthcare provides the most cost-effective
delivery setting and, because of increasing cost pressures, this segment of the
healthcare related real estate market offers the greatest potential for future
growth.
The Company acquires existing healthcare facilities, provides property
management, leasing and build-to-suit development services, and capital for the
construction of build-to-suit developments for qualified healthcare operators.
The Company owns a diversified portfolio of healthcare properties, which are
subject to long term leases or financial support arrangements to ensure the
continuity of revenues and coverage of costs and expenses relating to the
properties by the tenants and the related healthcare operators.
Development funding arrangements require the Company to provide funding to
enable healthcare operators to build facilities on property owned or leased by
the Company. Prior to making any funding advance for a development, the Company
will enter into a contract to acquire or ground lease the real estate and will
enter into with a healthcare operator a long-term net lease or guarantee of the
return on the Company's investment in the property or similar financial support
agreement in favor of the Company. The Company will either act as developer, or
employ the healthcare operator to act as the developer of the property, and will
have approval authority with regard to plans, specifications, budgets and time
schedules for the completion of the development of the property. Under the terms
of its development funding agreements, the Company will receive funding fees
(the economic equivalent of construction period interest) on all funds advanced.
Timely completion of the development in compliance with the plans,
specifications, budgets and time schedules will be the contractual
responsibility of third parties and construction costs will be guaranteed by the
healthcare operator. All construction and service contracts relating to the
development will be collaterally assigned to the Company. During the term of the
development of a facility, funds will be advanced pursuant to requests made by
the developer in accordance with the terms and conditions of the applicable
funding agreement based on costs incurred prior to the date of such requests.
The Company's properties are currently leased to unaffiliated lessees
pursuant to long-term net lease agreements or are subject to financial support
agreements with the healthcare operators that generally provide for the return
on the Company's investment in the properties and other terms and conditions in
favor of the Company similar to those contained in the long-term leases. Each
property agreement related to a healthcare facility, comprised generally of the
land, buildings, other improvements and certain fixtures, for a use in most
cases restricted to the intended healthcare related use and for such other uses
as may be necessary in connection with or incidental to such use.
(6)
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Generally, most agreements will require that the healthcare operator use
its best efforts to transfer all licenses, permits and other governmental
authorizations and contracts which may be in the name of the healthcare operator
and necessary or useful in the operation of the facility, although in most
instances this obligation would not include the healthcare operator's operating
licenses. The current property agreements were entered into upon the conveyance
to the Company of the facilities, and have initial terms of ten to 20 years
with, in some cases, one or more renewal terms exercisable by the healthcare
provider of five years each. Most of the agreements are subject to earlier
termination upon the occurrence of certain contingencies. Certain of the
agreements also have an option to repurchase the facilities at specified times
during the term of the agreements for a price approximately equal to the fair
market value of such properties. Base rent or support payments vary by agreement
taking to consideration various factors, including the credit of the property
lessee or the healthcare operator, or both, operating performance of the
property, location type and physical condition of the property. Many of the
property agreements contain provisions for additional rent or support payment
increases. The existence and nature of provisions for additional payments in any
given agreement relate to, among other factors, the financial strength of the
respective property lessee, the healthcare operator, or both, as well as other
lease terms.
The Company operates so as to qualify as a REIT for federal income tax
purposes. If so qualified, with limited exceptions, the Company will not be
subject to corporate federal income tax with respect to net income distributed
to its shareholders.
PROPERTY ACQUISITION ACTIVITY
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During the fourth quarter of 1996, the Company invested approximately $50.8
million in acquisitions, comprised of the following:
Acquisition of Lewis-Gale Building Corporation in Roanoke, Virginia. On
November 15, 1996, the Company acquired Lewis-Gale Building Corporation,
which included two ancillary hospital facilities located adjacent to the
Lewis-Gale Medical Center, operated by Columbia/HCA, two medical office
buildings and six physician clinics in the Roanoke/Salem, Virginia area.
The buildings are either leased to Lewis-Gale Clinic, L.L.C., a Virginia
limited liability company (the "Clinic"), or are under leases guaranteed by
the Clinic, and are managed by the Company. PhyCor, Inc., a physician
practice management company, owns the related physician practice assets and
has guaranteed the direct lease obligations of the Clinic to the Company.
The Company's investment in these properties, which consists of the
issuance of Common Stock and the assumption of liabilities, is
approximately $44 million
Purchase of Ancillary Hospital Facility in West Palm Beach, Florida. On
October 18, 1996, the Company acquired an ancillary hospital facility
located adjacent to Columbia Hospital, operated by Columbia/HCA, in West
Palm Beach, Florida. The clinic is leased to an affiliate of and is
guaranteed by First Physician Care, Inc., a physician practice management
company. The Company's investment in this ancillary hospital facility is
approximately $3.8 million.
(7)
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Purchase of Two Ancillary Hospital Facilities in San Antonio, Texas. On
November 18, 1996, the Company acquired two ancillary hospital facilities
contiguous in Northeast Methodist Hospital in San Antonio, Texas. The
buildings are either leased to or are under leases guaranteed by Methodist
Healthcare System of San Antonio, Ltd., a joint venture of Methodist Health
Care Ministries of South Texas, Inc. and Columbia/HCA, and are managed by
the Company. The Company's investment in these ancillary hospital
facilities is approximately $3.1 million.
In addition, the Company has entered into an agreement to purchase an
ancillary hospital facility in Fountain Valley, California. The facility,
currently under construction and financed by a commercial bank, will be
purchased upon completion. The Company currently owns five other properties
located on the campus of Fountain Valley Regional Medical Center, which is
operated by OrNda Healthcorp (which in February 1997 merged with Tenet
Healthcare Corporation). The Company's investment in this ancillary hospital
facility will be approximately $15 million.
COMPLETED PROPERTY DEVELOPMENT ACTIVITY
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During the fourth quarter of 1996, the Company completed the development of
the following four properties:
Ancillary Hospital Facility in Overland Park, Kansas. On October 18, 1996,
the Company received the Temporary Certificate of Occupancy for Overland
Park Medical Plaza, an ancillary hospital facility located on the campus of
Overland Park Regional Medical Center, which is operated by Columbia/HCA.
The Company's investment in Overland Park Medical Plaza is approximately
$10.1 million.
Completion of Long-Term Care Facility in Wichita, Kansas. On December 6,
1996, the Company received the Certificate of Occupancy for Life Care
Center of Wichita, a long-term care facility operated by Life Care Centers
of America. The Company's investment in Life Care Center of Wichita is
approximately $7.5 million.
Completion of Long-Term Care Facility in Fort Worth, Texas. On November 26,
1996, the Company received the Certificate of Occupancy for Garden Terrace
of Fort Worth, a long-term care facility operated by Life Care Centers of
America. The Company's investment in Garden Terrace of Fort Worth is
approximately $9.5 million.
Completion of Comprehensive Ambulatory Care Center in Coral Gables,
Florida. On December 16, 1996, the Company received the Certificate of
Occupancy for Five Points Medical Plaza, a comprehensive ambulatory care
center operated by OrNda Healthcorp. The Company's investment in Five
Points Medical Plaza is approximately $11.3 million
(8)
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Under the Leases, the Company generally begins receiving rent upon receipt
of the Certificate of Occupancy for a property. However, due to timing of
receipt of invoices, finalization of construction draws and other contractual
arrangements, the Company will have remaining obligations to fund development
projects after it receives a Certificate of Occupancy. At December 31, 1996, the
Company had approximately $7.7 million of remaining obligations to fund related
to completed developments. Such amounts have been included in the investments of
each respective property on the table which begin on page 31.
CONTINUING PROPERTY DEVELOPMENT ACTIVITY
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At December 31, 1996, the Company had continuing commitments for the
following properties under development:
Development of Long-Term Care Facility in Houston, Texas. As of
December 31, 1996, the Company continued to fund the development of Garden
Terrace of Houston, a long-term care facility to be operated by Life Care
Centers of America. The Company's investment in Garden Terrace of Houston,
at completion, will be approximately $9.8 million, of which approximately
$8.5 million had been funded as of December 31, 1996.
Development of Long-Term Care Facility in Westminster, Colorado. As of
December 31, 1996, the Company continued to fund the development of Life
Care Center of Westminster, a long-term care facility to be operated by
Life Care Centers of America. The Company's investment in Life Care Center
of Westminster, at completion, will be approximately $7.6 million, of which
approximately $4.5 million had been funded as of December 31, 1996.
PENDING DEVELOPMENTS
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Management of Ancillary Hospital Facilities in Fredericksburg, Virginia.
During the fourth quarter of 1996, Healthcare Realty signed a property
management agreement, effective February 1, 1997, with an affiliate of Mary
Washington Hospital. The agreement provides for management of 15 buildings,
owned by the affiliate, consisting of 688,000 square feet of ancillary and
medical office space located in counties surrounding Fredericksburg, Virginia.
Expansion of Comprehensive Ambulatory Care Center in Venice, Florida. As of
December 31, 1996, the Company had plans for an approximately $4.4 million
expansion of the St. Andrews Surgery Center and Center for Sight, a $6.6 million
comprehensive ambulatory care center which the Company acquired during the third
quarter of 1996. The expansion will be located on an adjacent 2.5 acre parcel of
land acquired by the Company simultaneously with the St. Andrews Surgery Center
and Center for Sight.
INVESTMENT POLICY
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The Company's investment objectives are to (i) generate current cash flow,
(ii) provide the opportunity for additional returns through rent provisions in
the Company's leases, increased support payments through provisions in financial
support agreements (and if the Company acquires mortgages, through participating
interest provisions), (iii) provide the opportunity to realize capital growth
resulting from appreciation, if any, in the residual values of any properties
acquired and (iv) preserve and protect the Company's existing capital.
(9)
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The Company intends to invest in real property, principally for the
production of income, although the prospect for capital appreciation is a factor
that will be considered in making such investments. The Company will invest in
healthcare related facilities, including, but not limited to, acute care
hospitals, rehabilitation hospitals, physician clinics, ambulatory surgery
centers, clinical laboratories, ancillary hospital facilities, long-term care
facilities, medical centers, comprehensive ambulatory care centers and office
buildings predominantly occupied by healthcare related companies. The Company,
however, may also consider opportunities in other kinds of income producing real
property. Management has no present intention to invest in properties unrelated
to the healthcare industry.
Management of the Company will conduct market research and analysis for all
potential investments. In evaluating potential investments, the Company will
consider such factors as: (1) the geographic area, type of property and
demographic profile; (2) the location, construction quality, condition and
design of the property; (3) the current and anticipated cash available for
distribution and its adequacy to meet operational needs and lease obligations
and to provide a competitive market return on equity to the Company's investors;
(4) the potential for capital appreciation, if any; (5) the growth, tax and
regulatory environment of the communities in which the properties are located;
(6) the occupancy and demand for similar health facilities in the same or nearby
communities; (7) an adequate mix of private and government sponsored patients;
(8) any potential alternative uses of the facilities; (9) prospects for
liquidity through financing or refinancing; (10) industry segment and operator
diversification; and (11) the suitability of the potential investments in light
of maintaining REIT status.
The Company intends to focus on established, creditworthy healthcare
operators which meet the Company's standards for quality and experience of
management. In order to determine creditworthiness of healthcare operators, the
Company will review historical and prospective financial information of the
healthcare operator, together with appropriate financial information of a
guarantor, if any. Factors considered in connection with such financial review
with respect to the healthcare operator and any guarantor will include the net
worth, profitability and cash flow, debt position, and the ability of the
healthcare operators and any guarantor to provide additional credit
enhancements. The term of any long term-net lease, financial support agreement
generally providing for the return on the investment of the property or similar
obligation in favor of the Company, generally, shall be for a period of not less
than ten years from closing of an acquisition.
COMPETITION
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The Company competes for property acquisitions with, among other investors,
healthcare providers, other healthcare related REITs, real estate partnerships
and financial institutions. The operation of all of the Company's properties
will be subject to competition from similar properties. Certain operators of
other properties may have capital resources in excess of those of the operators
of the Company's properties. In addition, the extent to which the Company's
properties are utilized depends upon several factors, including the number of
physicians using the healthcare facilities or referring patients there,
competitive systems of healthcare delivery, and the area population, size and
composition. Private, federal and state payment programs and other laws and
regulations may also have a significant effect on the utilization of the
properties. Virtually all of the Company's properties operate in a competitive
environment and patients and referral sources, including physicians, may change
their preferences for a healthcare facility from time to time.
(10)
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The business of providing services relating to the day-to-day management
and leasing of multi-tenanted healthcare properties and to the supervision of
the development of new healthcare facilities is highly competitive and is
subject to price, personnel cost and other competitive pressures upon its
profitability. The Company will compete for management contracts and development
agreements with respect to properties owned or to be developed by the Company,
as well as with respect to properties that are owned by third parties.
GOVERNMENT REGULATION
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The facilities leased by the Company are affected by changes in the
reimbursement, licensing and certification policies of federal, state and local
governments for healthcare related facilities. Facilities may also be affected
by changes in accreditation standards or procedures of accrediting agencies that
are recognized by governments in the certification process. In addition,
expansion (including the addition of new beds or services or acquisition of
medical equipment) and occasionally the discontinuation of services of
healthcare facilities is generally subjected to state regulatory approval
through certificate of need programs.
A significant portion of the revenue of the healthcare operators is derived
from government reimbursement programs, such as Medicare and Medicaid. Although
lease payments to the Company are not directly affected by the level of
government reimbursement, to the extent that changes in these programs adversely
affect healthcare operators, such changes could have an impact on their ability
to make lease payments to the Company. The Medicare program is highly regulated
and subject to frequent and substantial changes. In recent years, fundamental
changes in the Medicare program (including the implementation of a prospective
payment system in which facilities are reimbursed generally a flat amount based
on a patient's diagnosis and not based on the facilities' cost for inpatient
services at medical surgical hospitals) have resulted in reduced levels of
payment for a substantial portion of healthcare services.
Considerable uncertainties surround the future determination of payment
levels under government reimbursement programs. In addition, governmental
budgetary concerns may significantly reduce future payments made to healthcare
operators as a result of government financed programs, and there can be no
assurance that future payment rates will be sufficient to cover cost increases
in providing services to patients. Reductions in payments pursuant to government
healthcare programs could have an adverse impact on a healthcare operator's
financial condition and, therefore, could adversely affect the ability of such
operator to make rental payments.
(11)
<PAGE>
Loss by a facility of its ability to participate in government sponsored
programs because of licensing, certification or accreditation deficiencies or
because of program exclusion resulting from violations of law would have
material adverse effects on facility revenues.
LEGISLATIVE DEVELOPMENTS
A number of legislative proposals have been introduced or proposed in
Congress and in some state legislatures that would effect major changes in the
healthcare system, either nationally or at the state level. Among the proposals
under consideration are cost controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. There can be no assurance whether any proposals will
be adopted or, if adopted, what effect, if any, such proposals would have on the
Company's business.
In recent years Congress and various state legislatures have considered
various proposals that would have prohibited or severely limited the ability of
physicians and other referral sources to refer Medicare or Medicaid patients to
ventures with which the referral source has a financial relationship. The
Company's leases require the lessees to covenant that they will comply with all
applicable laws.
ENVIRONMENTAL MATTERS
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Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real property (such as the Company) may be liable for
the costs of removal or remediation of certain hazardous or toxic substances at,
under or disposed of in connection with such property, as well as certain other
potential costs relating to hazardous or toxic substances (including government
fines and injuries to persons and adjacent property). Most, if not all, of these
laws, ordinances and regulations contain stringent enforcement provisions
including, but not limited to, the authority to impose substantial
administrative, civil and criminal fines and penalties upon violators. Such laws
often impose liability without regard to whether the owner knew of, or was
responsible for, the presence or disposal of such substances and may be imposed
on the owner in connection with the activities of an operator of the property.
The cost of any required remediation, removal, fines or personal or property
damages and the owner's liability therefor could exceed the value of the
property and/or the aggregate assets of the owner. In addition, the presence of
such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or lease such
property or to borrow using such property as collateral.
A property can also be negatively impacted either through physical
contamination or by virtue of an adverse effect on value, from contamination
that has or may have emanated from other properties. Certain of the properties
owned, managed or developed by the Company are adjacent to or near properties
that contain underground storage tanks or that have released petroleum products
or other hazardous or toxic materials into the soils or groundwater.
(12)
<PAGE>
Operations of the properties owned, developed or managed by the Company are
and will continue to be subject to numerous federal, state, and local
environmental laws, ordinances and regulations, including those relating to the
generation, segregation, handling, packaging and disposal of medical wastes as
well as facility siting, construction, occupational training and safety,
disposal of non-medical wastes, underground storage tanks and ash emissions from
incinerators. Certain properties owned, developed or managed by the Company
contain, and others may contain or at one time may have contained, underground
storage tanks that are or were used to store waste oils, petroleum products or
other hazardous substances. Such underground storage tanks can be the source of
releases of hazardous or toxic materials. Operations of nuclear medicine
departments at some of such properties also involve the use and handling, and
subsequent disposal of, radioactive isotopes and similar materials, activities
which are closely regulated by the Nuclear Regulatory Commission and state
regulatory agencies. In addition, several of the properties were built during
the period asbestos was commonly used in building construction and other such
facilities may be acquired by the Company in the future. Certain of the
properties contain non-friable asbestos-containing materials, and other
facilities acquired in the future may contain friable and non-friable
asbestos-containing materials. The presence of such materials could result in
significant costs in the event that any friable asbestos-containing materials
requiring immediate removal and/or encapsulation are located in or on any of
such facilities or in the event of any future renovation activities.
The Company has had environmental assessments conducted on all of the
properties currently owned. The Company is not aware of any environmental
condition or liability that management presently believes would have a material
adverse effect on the Company's earnings, expenditures or continuing operations.
While it is the Company's policy to seek indemnification relating to
environmental liabilities or conditions, even where sale and purchase agreements
do contain such provisions there can be no assurances that the seller will be
able to fulfill its indemnification obligations. In addition, the terms of the
Company's leases or financial support agreements do not give the Company control
over the operational activities of its lessees or health care operators, nor
will the Company monitor the lessees or healthcare operators with respect to
environmental matters.
INSURANCE
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The Company maintains appropriate liability and casualty insurance on its
assets and operations. The Company has also obtained title insurance with
respect to each of the properties it owns in amounts equal to their respective
purchase prices, insuring that the Company holds title to each of the properties
free and clear of all liens and encumbrances except those approved by the
Company. Under their leases or financial support agreements, the healthcare
operators are required to maintain, at their expense, certain insurance
coverages relating to their operations at the leased facilities. In the opinion
of management of the Company, each of the properties owned by the Company are
adequately covered by hazard, liability and rent insurance.
EMPLOYEES
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As of March 15, 1997, the Company employed 124 people. None of the
employees is a member of a labor union and the Company considers its relations
with its employees to be excellent.
(13)
<PAGE>
TAX INFORMATION
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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.
(14)
<PAGE>
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."
(15)
<PAGE>
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.
(16)
<PAGE>
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.
(17)
<PAGE>
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.
(18)
<PAGE>
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 eight 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.
(19)
<PAGE>
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's distributions for 1996 were adequate
to satisfy its distribution requirement.
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.
(20)
<PAGE>
NONQUALIFIED REIT SUBSIDIARY
The Company participated in the organization of certain corporations
affiliated with the Company 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 Company to participate in the income of its third
party management business and maintain its status as a REIT, portions of the
Company's business will be conducted by the Specified Affiliates. The Company
owns 100% of the nonvoting preferred stock and approximately 1% of the voting
common stock, and senior executives of the Company 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 Company to elect directors of the
Specified Affiliates who are elected by the senior executives of the Company 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 Company in the
Specified Affiliates is subject to agreements that are designed to ensure that
such stock will be held by officers of the Company.
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.
(21)
<PAGE>
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.
(22)
<PAGE>
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.
TAXATION OF FOREIGN HOLDERS
The following is a discussion of certain anticipated U.S. federal income
tax consequences of the ownership and disposition of Common Stock applicable to
Non-U.S. Holders of such stock. A "Non-U.S. Holder" is any person other than (i)
a citizen or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any state thereof or (iii) an estate or trust whose income is includable
in gross income for U.S. federal income tax purposes regardless of its source.
The discussion is based on current law and is for general information only.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder of Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The
discussion below is not intended to be a complete discussion of the provisions
of the Proposed Regulations, and investors are urged to consult their tax
advisors with respect to the effect the Proposed Regulations would have if
adopted.
DISTRIBUTIONS FROM THE COMPANY
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of the Company's earnings and profits that is not
attributable to capital gains of the Company and that is not effectively
connected with a U.S. trade or business of the Non-U.S. Holder will be subject
to U.S. withholding tax at the rate of 30% (unless reduced by treaty). In
general, Non-U.S. Holders will not be considered engaged in a U.S. trade or
business solely as a result of their ownership of stock of the Company. In cases
where the dividend income from a Non-U.S. Holder's investment in stock of the
Company is (or is treated as) effectively connected with the Non-U.S. Holder's
conduct of a U.S. trade or business, the Non-U.S. Holder generally will be
subject to U.S. tax at graduated rates, in the same manner as U.S. stockholders
are taxed with respect to such dividends (and may also be subject to the 30%
branch profits tax in the case of a Non-U.S. Holder that is a foreign
corporation).
(23)
<PAGE>
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-U.S. Holder would generally be required to provide an
Internal Revenue Service Form W-8 certifying such Non-U.S. Holder is entitled to
benefits under the treaty. The Proposed Regulations would also provide special
rules to determine whether, for purposes of determining the applicability of a
tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be
treated as paid to the entity or those holding an interest in that entity.
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the Internal Revenue Service (the
"Service") if it is subsequently determined that such distribution was, in fact,
in excess of current and accumulated earnings and profits of the Company.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the properties owned, directly or
beneficially, by the Company ("USRPI Capital Gains"), will be considered
effectively connected with a U.S. trade or business of the Non-U.S. Holder and
subject to U.S. income tax at the rate applicable to U.S. individuals and
corporations, without regard to whether such distribution is designated as a
capital gain dividend. In addition, the Company will be required to withhold tax
equal to 35% of the amount of dividends to the extent such dividends constitute
USRPI Capital Gains. Distributions subject to FIRPTA may also be subject to a
30% branch profits tax in the hands of a foreign corporate stockholder that is
not entitled to treaty exemption.
DISPOSITION OF STOCK OF THE COMPANY
Unless the Company's stock constitutes a USRPI, a sale of such stock by a
Non-U.S. Holder generally will not be subject to U.S. taxation under FIRPTA. The
stock will not constitute a USRPI if the Company is a "domestically controlled
REIT." A domestically controlled REIT is a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Holders. The Company believes that it is, and it
expects to continue to be, a domestically controlled REIT, and therefore expects
that the sale of the Company's stock will not be subject to taxation under
FIRPTA. Because the Company's stock is publicly traded, however, no assurance
can be given the Company will continue to be a domestically controlled REIT.
(24)
<PAGE>
If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Holder's sale of stock generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the NYSE, on which the Common Stock is listed) and (ii) the
selling Non-U.S. Holder held 5% or less of the Company's outstanding stock at
all times during a specified testing period.
If gain on the sale of stock of the Company were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of the stock could be required to withhold 10% of
the purchase price and remit such amount to the Service.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the stock of the Company is effectively connected with a U.S.
trade or business conducted by such Non-U.S. Holder, the Non-U.S. Holder will be
subject to the same treatment as a U.S. stockholder with respect to such gain,
or (ii) if the Non-U.S. Holder is a nonresident alien individual who was present
in the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, the nonresident alien individual will be subject to
a 30% tax on the individual's capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends (including any capital gain dividends) paid to, and the
tax withheld with respect to, each Non-U.S. Holder. These reporting requirements
apply regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these returns may also be made available under
the provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
stock of the Company to a Non-U.S. Holder at an address outside the United
States.
The payment of the proceeds from the disposition of stock of the Company to
or through a U.S. office of a broker will be subject to information reporting
and backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting.
(25)
<PAGE>
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-U.S. Holder would be subject to backup
withholding and information reporting unless the Company receives certification
from the Holder of non-U.S. status.
CAUTIONARY STATEMENTS
- ---------------------
From time to time, the Company may make forward-looking statements which
affect its current views with respect to future events and financial
performance. The Company wishes to caution readers that the following important
factors, among others, could affect the Company's actual results, and could
cause those results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Many of these
factors have been discussed in the Company's prior filings with the Securities
and Exchange Commission.
GENERAL GROWTH STRATEGY
- -----------------------
The Company follows a general growth strategy of providing integrated real
estate services to the healthcare industry, including asset management and
strategic planning for real estate, property administration, management and
leasing services, build-to-suit development, the acquisition of existing
healthcare properties and equity co-investment in healthcare provider
acquisition transactions. By providing these services, the Company believes it
can differentiate its market position, acquire needed capital, expand its asset
base and increase revenue; however, there are various risks inherent in this
growth strategy. The following factors, among others, could affect the Company's
ability to experience growth and investors should consider the following
factors.
ACCESS TO CAPITAL
- -----------------
CAPITAL MARKETS. The Company requires capital for the purchase of, or
investment in, healthcare real estate. There is no assurance that the Company
will be able to obtain additional equity or debt capital at the time it requires
additional capital; nor that the Company can obtain such capital on terms that
will permit the Company to acquire healthcare properties on a basis that is
competitive with other real estate investors.
RISKS OF LEVERAGE AND DEBT. The Company has incurred and may continue to
incur indebtedness and may mortgage its properties in furtherance of its
activities. The Company may be required to borrow money and mortgage its
properties to fund any shortfall of cash necessary to meet cash distribution
requirements necessary to maintain its REIT status.
MAINTENANCE OF THE COMPANY'S DIVIDEND POLICY. The Company has raised its
quarterly dividend each consecutive quarter since the Company's formation.
Failure of the Company to maintain or increase its dividend could make it
difficult for the Company to raise additional equity capital on favorable terms,
if at all. The ability to maintain or raise its dividend is dependent, to a
large part, on growth of funds from operations, which in turn depends upon
increased revenues from investments in the form of additional investment, rental
increases and income from administrative and management services. Impacting the
Company's ability to continue to increase its dividends also include the terms
described below.
(26)
<PAGE>
Under the terms of its current debt arrangements, the Company is prohibited
from declaring or paying dividends at any time that the Company fails to make
any payment of principal, interest fees or other amounts when due, and is
further prohibited from declaring or paying dividends (other than as the Company
determines necessary to maintain its status as a REIT for federal income tax
purposes) if, at the time of such action, any other event of default exists.
Repayment of any borrowings, as well as the resulting interest expense and debt
amortization, could negatively affect the Company's cash available for
distribution. If the Company defaults on any loan secured by mortgages on any of
its properties, the lenders may foreclose on such property, and the Company
would lose its investment herein.
REDUCTION IN DIVIDENDS FROM FAILURE TO QUALIFY AS A REIT; REIT TAXES. The
Company intends at all times to operate so as to qualify as a REIT under the
Code. If in any taxable year the Company does not qualify as a REIT, it would be
taxed as a corporation and distributions to the shareholders would not be
deductible by the Company in computing its taxable income. Depending upon the
circumstances, a REIT that loses is qualification in one year may not be
eligible to requalify during the four succeeding years. Failure to so qualify,
even in one taxable year, could cause the Company to dramatically reduce its
dividends. Further, certain transactions or other events could lead to the
Company being taxed at rates ranging from 4 to 100 percent on certain income or
gains.
REVENUE GROWTH
- --------------
The Company's general growth strategy implies continuing growth in the
Company's funds from operations. The Company's funds from operations can be
negatively affected by, among other items, the following factors.
DELAYS IN ACQUIRING PROPERTIES. The purchase of one or more properties may
not be consummated or may be delayed for various reasons. Acquisition delays
will negatively impact revenues and may have the potential to adversely effect
the Company's ability to increase its distributions to shareholders.
OPERATING RISKS. Real property investments are subject to varying degrees
of risk. The investment returns available from equity investments in real estate
depend in large part on the amount of income earned and capital appreciation
generated by the related properties as well as the expenses incurred.
(27)
<PAGE>
To offset the threat of insufficient revenue to meet operating expenses,
debt service, capital expenditures and dividend payments, the Company requires
net master leases or equivalent credit support with primary terms.
The terms of certain of the leases or credit support agreements provide an
option for healthcare providers to repurchase the subject properties at
specified times during the term of the agreement. The provider may repurchase
the property for a price equal to the greater of the fair market value purchase
price or the minimum repurchase price. No assurances can be given that the
Company could negotiate with the current healthcare provider should they wish to
repurchase the property or find another provider on a timely basis or on
acceptable terms. A failure of the Company to do so could have an adverse effect
on the Company's future revenues.
DEPENDENCE ON HEALTHCARE PROVIDERS AND POTENTIAL REDUCTION IN REVENUES. The
success of the Company's investment in a particular property will be dependent
upon the success of the business of the healthcare provider and, to the extent
that a provider's performance under the lease or credit arrangement has been
guaranteed, on the guarantor under such arrangement. There is no assurance that
the Company will be able to retain its provider upon the expiration of the
leases or that unfavorable economic, demographic or competitive conditions or
industry reform will not adversely affect the financial condition of providers
and/or guarantors and, consequently, lease revenues and the value of the
Company's investments in the property.
CONCENTRATION ON FEW HEALTHCARE PROVIDERS. Currently 26 percent of the
Company's portfolio is leased to Columbia/HCA Healthcare Corporation and 24
percent is leased or committed to the combined companies of OrNda Healthcorp and
Tenet Healthcare Corporation.
IMPACT OF REDUCED OCCUPANCY RATES. Most of the hospitals adjacent to or
associated with the Company's properties owned or to be acquired are
substantially less that fully occupied on an inpatient basis. Despite such
occupancy rates, however, the operating cash flow produced by such hospitals
available for the related payments to the Company adequately covers such
payments. If the inpatient occupancy rate at such a hospital were to deteriorate
to a level at which operating cash flows would be insufficient to cover the
payments to the Company on a particular ancillary hospital facility, the Company
would have to rely upon the general credit of the provider or the related
guarantor, if any.
POTENTIAL PROVIDER LOSS OF LICENSURE OR CERTIFICATION. Healthcare providers
are subject to federal and state laws and regulations which govern financial and
other arrangements between healthcare operators. A provider's loss of licensure
or certification would result in the Company having to obtain another provider
for the affected facility. No assurances can be given that the Company could
attract another healthcare provider on a timely basis or on acceptable terms.
Failure to do so would have an adverse effect on the Company's revenues.
FAILURE TO SUCCESSFULLY MARKET PROPERTY MANAGEMENT SERVICES. The Company
utilizes its wholly owned subsidiary, Healthcare Realty Management (HRM), in the
day-to-day management and leasing of multi-tenanted healthcare properties and in
the supervision of the development of new healthcare properties. There can be no
assurance that the Company will be able to successfully market or cross-sell
HRMs services. Current revenues from HRM's management agreements may not
significantly affect the Company's 1997 funds from operations. Additionally, HRM
employs 108 individuals nationwide, providing the Company with expanded overhead
expenses and labor liability not previously experienced.
(28)
<PAGE>
ASSET GROWTH
- ------------
INABILITY TO COMPLETE ACQUISITIONS. The Company's asset growth strategy
would be negatively impacted if it is unable to find suitable properties and to
purchase those properties on terms which meet the Company's investment
parameters.
PROVIDER DEVELOPMENT ARRANGEMENTS. The Company has entered into development
funding arrangements with three properties that are currently in progress. The
Company believes that development funding is an effective method to acquire new
healthcare facilities that providers have determined are strategic to their
business. The development funding arrangements require the Company to provide
the funding to enable healthcare operators to build facilities on property owned
or leased by the Company. Risks of development funding are greater than those
risks associated with the purchase and lease-back of operating properties
because of the potential for greater Company involvement within the development
process. There can be no assurance that the current portfolio of development
funding will be completed in accordance with the terms of the agreements;
however, the Company believes that it has the requisite access to capital and
development and construction experience to complete a development.
LIMITATIONS ON TRANSFERS AND ALTERNATIVE USES OF FACILITIES. Transfers of
operations of healthcare facilities are subject to regulatory approvals not
required for transfers of other types of commercial operations and other types
of real estate. In addition, many of the properties are special-purpose
facilities that may not be easily adaptable to uses unrelated to healthcare.
MARKET COMPETITION
- ------------------
The Company competes for property management, development and acquisitions
with, among others, investors, healthcare providers, other healthcare related
real estate investment trusts, real estate partnerships and financial
institutions. The Company's properties will be also subject to competition from
the properties of other healthcare providers. Certain of these operators may
have greater capital resources that the provider leasing the Company's
facilities. All of the properties operating in a competitive environment and
patients and referral sources, including physicians, may change their
preferences for a healthcare facility from time to time.
(29)
<PAGE>
ITEM 2. PROPERTIES
- ------
EXECUTIVE OFFICES
- -----------------
The Company's headquarters, located in offices at 3310 West End Avenue in
Nashville, Tennessee, are leased from an unrelated third party. The lease
agreement expired on January 31, 1997. The Company is currently occupying its
quarters on a month-to-month basis and anticipates moving into expanded quarters
in the same location. The Company is negotiating the terms of a lease of
approximately 17,000 square feet for a five-year term with renewal options. Such
space will give the Company room for growth, but it intends to sublease a
portion of such space initially. If a lease on acceptable terms is not signed,
which management does not anticipate, the Company does not believe it will have
any difficulty obtaining alternative space. The Company also maintains executive
offices of approximately 10,800 square feet in Birmingham, Alabama for a term
which will expire on May 31, 2000. Annual rental expense is approximately
$83,505.
(30)
<PAGE>
PROPERTY OPERATIONS
- -------------------
The following table sets forth information regarding the Company's
properties as of December 31, 1996:
<TABLE>
<CAPTION>
Property Name City State Facility Type Client/Major Tenant(s) Square Feet Investment
<S> <C> <C> <C> <C> <C> <C>
Midtown Medical Center Birmingham AL CL Laboratory Corp. of America 129,294 8,789,812
Orange Grove Medical Clinic Tucson AZ AHF Columbia, affiliated physicians 44,230 5,273,993
Bakersfield Surgery Center Bakersfield CA ASC National Surgery Centers 4,913 1,046,229
Fountain Valley - AHF 1* Fountain Valley CA AHF OrNda, affiliated physicians 51,153 5,516,390
Fountain Valley - AHF 2* Fountain Valley CA AHF OrNda, affiliated physicians 47,380 5,107,769
Fountain Valley - AHF 3* Fountain Valley CA AHF OrNda, affiliated physicians 73,770 8,785,363
Fountain Valley - AHF 4* Fountain Valley CA AHF OrNda, affiliated physicians 72,832 8,989,674
Fountain Valley - Living Care Ctr. Fountain Valley CA LTCF OrNda 63,000 12,687,698
Fountain Valley - AHF 5** Fountain Valley CA AHF OrNda, affiliated physicians 120,000 15,000,000
Clinica Latina Los Angeles CA PC OrNda, affiliated physicians 7,300 724,470
Eaton Canyon* Pasadena CA AHF OrNda, affiliated physicians 33,345 4,444,070
Valley Presbyterian Hospital-15211 Van Nuys CA AHF Valley Pres.affiliated physician 47,042 7,538,204
Valley Presbyterian Hospital-6840 Van Nuys CA AHF Valley Pres.affiliated physician 24,189 5,327,777
Life Care Center of Aurora Aurora CO LTCF Life Care Centers of America 61,200 6,230,516
Life Care Center of Westminister Westminister CO LTCF Life Care Centers of America 57,035 7,566,320
Coral Gables Medical Plaza* Coral Gables FL AHF OrNda, affiliated physicians 57,790 11,208,279
Southwest Florida Orthopaedic Center Fort Myers FL PC Columbia, affiliated physicians 37,674 3,604,186
Southwest Medical Centre Plaza Fort Myers FL AHF Columbia, affiliated physicians 64,780 8,042,863
Gulf Coast Medical Centre Fort Myers FL AHF Columbia, affiliated physicians 35,752 4,791,941
Southwest Medical Center Plaza II Fort Myers FL AHF Columbia, affiliated physicians 14,322 1,620,558
East Pointe Medical Plaza Lehigh Acres FL AHF Columbia, affiliated physicians 34,500 4,981,848
Deering Medical Plaza Miami FL AHF Columbia, affiliated physicians 41,046 5,072,041
Five Points Medical Building* Miami FL CACC OrNda, affiliated physicians 59,516 11,308,884
Life Care Center of Orange Park Orange Park FL LTCF Life Care Centers of America 57,904 9,592,697
Palm Beach Medical Group Building Palm Beach FL MOB First Physicians Care 26,000 3,766,272
Palms of Pasadena Medical Plaza* St. Petersburg FL AHF Tenet, affiliated physicians 49,300 5,483,950
Med.and Surg. Inst.of Ft. Lauderdale Sunrise FL PC OrNda, affiliated physicians 28,861 5,204,476
St. Andrews* Venice FL CACC Columbia, Center For Sight 29,000 6,598,540
Doctor's Clinic Vero Beach FL PC PhyCor 87,404 10,305,181
North Fulton Medical Arts Plaza Atlanta GA AHF Tenet, affiliated physicians 51,586 5,784,500
Northwest Medical Center Atlanta GA AHF Columbia, affiliated physicians 143,660 10,236,246
Candler Professional Office Bldg.* Savannah GA AHF Candler, affiliated physicians 90,000 7,177,853
Candler Parking Garage Savannah GA AHF Candler 175,150 4,169,090
Candler Regional Heart Center* Savannah GA AHF Candler, affiliated physicians 80,825 9,430,299
Woodstock Clinic Woodstock GA PC Tenet, affiliated physicians 47,858 2,673,879
New Harmonie Healthcare Center New Harmony IN LTCF Centennial 29,500 3,640,140
Overland Park Reg. Medical Center Overland Park KS AHF Columbia, affiliated physicians 71,086 10,106,167
Life Care Center of Wichita Wichita KS LTCF Life Care Centers of America 57,035 7,474,565
Fenton Extended Care Center Fenton MI LTCF Centennial 29,103 3,540,495
Meadows Nursing Center Meadows MI LTCF Centennial 43,194 3,284,186
Ovid Convalescent Manor Ovid MI LTCF Centennial 16,500 3,116,710
Westgate Manor Nursing Home St. Louis MI LTCF Centennial 21,567 1,697,049
Wayne Convalescent Center Wayne MI LTCF Centennial 11,308 1,049,353
Puckett Laboratory Hattiesburg MS CL Pathology Labs. 36,951 4,285,486
Valley View Surgery Center Las Vegas NV ASC National Surgery Centers 16,878 3,800,571
(31)
<PAGE>
Hendersonville Medical Office Bldg. Hendersonville TN AHF Columbia, affiliated physicians 25,456 3,138,890
Physicians Daysurgery Center Dallas TX ASC Columbia 10,855 2,039,563
Oregon Medical Building El Paso TX AHF Columbia, affiliated physicians 83,718 18,485,078
Life Care Center of Fort Worth Fort Worth TX LTCF Life Care Centers of America 64,265 9,452,336
Valley Diagnostic Med.&Surg.Clinic Harlingen TX PC PhyCor 41,515 4,458,323
Spring Branch Professional Building Houston TX AHF Columbia, affiliated physicians 109,898 14,301,747
Rosewood Professional Building Houston TX AHF Columbia, affiliated physicians 70,494 5,252,820
Durham Medical Center Houston TX PC Humana, Columbia 59,114 8,511,528
Life Care Center of Houston Houston TX LTCF Life Care Centers of America 64,265 9,847,297
Twelve Oaks Medical Plaza Houston TX AHF Tenet, affiliated physicians 38,500 3,772,050
Trinity Valley Birthing Center Palestine TX AHF OrNda, affiliated physicians 15,398 3,671,600
Bayshore Doctors Center Pasadena TX AHF Columbia, affiliated physicians 16,955 1,905,817
Lake Pointe Medical Plaza Rowlett TX AHF OrNda, affiliated physicians 12,788 1,737,129
Rowlett Medical Plaza Rowlett TX MOB OrNda, affiliated physicians 18,978 1,976,372
Huebner Medical Center San Antonio TX CACC Healthsouth,Columbia,MedPartners 90,840 11,928,764
Huebner Medical Center II San Antonio TX CACC Healthsouth,Columbia,MedPartners 63,459 9,144,537
Judson Professional Building San Antonio TX AHF Columbia, affiliated physicians 10,088 712,354
Toepperwein Medical Center San Antonio TX AHF Columbia, affiliated physicians 44,872 2,363,062
Southwest General Birthing Center San Antonio TX AHF OrNda, affiliated physicians 16,264 3,236,289
New River Valley Medical Arts Bldg. Christiansburg VA MOB Columbia, affiliated physicians 5,323 926,022
Valley Medical Center Dublin VA MOB Columbia, affiliated physicians 7,093 1,015,116
Lewis-Gale Family Practice Center New Castle VA PC PhyCor 11,265 1,150,333
Chippenham Medical Offices Richmond VA AHF Columbia, affiliated physicians 44,732 3,771,668
Chippenham Medical Offices Richmond VA AHF Healthcare service providers 53,189 4,593,463
Johnston-Willis Medical Offices Richmond VA AHF Healthcare service providers 78,843 8,773,577
Johnston-Willis Medical Offices Richmond VA AHF Healthcare service providers 36,000 5,855,715
Lewis-Gale Craig County Clinic Roanoke VA PC PhyCor 4,396 182,008
Lewis-Gale Fincastle Clinic Roanoke VA PC PhyCor 4,199 337,431
Lewis-Gale Valley View Mall Roanoke VA MOB PhyCor, Columbia 48,433 5,112,593
Lewis-Gale Business&Child Care Ctrs Salem VA MOB PhyCor, Allstate, U.S.Postal Svc. 6,387 6,723,060
Lewis-Gale Bent Mountain Road Clinic Salem VA PC PhyCor 3,264 349,701
Lewis-Gale Bonsack Clinic Salem VA PC PhyCor 6,283 673,840
Lewis-Gale Clinic Salem VA AHF PhyCor, Columbia 237,244 27,139,690
Lewis-Gale Medical Foundation Bldg. Salem VA AHF PhyCor 16,400 1,431,526
Lewis-Gale Spartan Drive Clinic Salem VA PC PhyCor 8,243 899,816
---------- --------------
All Properties 3,921,749 $460,947,705
========= ============
</TABLE>
* Properties owned and managed by Healthcare Realty
** Pending acquisition
Key:
AHF - Ancillary Hospital Facility
LTCF - Long-Term Care Facility
CACC - Comprehensive Ambulatory Care Center
PC - Physician Clinic
MOB - Medical Office Building
CL - Clinical Lab
ASC - Ambulatory Surgery Center
(32)
<PAGE>
HEALTHCARE PROVIDER CHARTS
The following table sets forth, by each healthcare provider client, certain
information as of December 31, 1996
<TABLE>
<CAPTION>
Percentage Square
Properties Investment of Investment Footage
<S> <C> <C> <C> <C>
Public/Investment Grade Credit Operators:
Columbia/HCA Healthcare Corp. 21 $120,151,613 26.1% 914,946
OrNda HealthCorp 15 99,598,463 21.6% 678,375
Candler Health System 3 20,032,661 4.3% 345,975
PhyCor, Inc. 12 58,763,502 12.7% 585,033
Tenet Healthcare Corporation 2 8,157,829 1.8% 97,158
National Surgery Centers, Inc. 2 4,846,800 1.1% 21,791
------ ---------------- --------------- ------------
55 $311,550,868 67.6% 2,643,278
Other Providers:
Life Care Centers of America 6 $50,163,731 10.9% 361,704
Huebner Medical Center 2 21,073,301 4.6% 154,299
Vest AmeriCare L.C. 3 19,792,796 4.3% 233,746
WelCare International, Inc. 6 16,327,933 3.5% 151,172
Six Operators with Investments Less Than 3% 8 41,294,495 9.0% 377,550
------ ---------------- --------------- ------------
25 $148,652,256 32.2% 3,921,749
====== ================ =============== ============
Totals 80 $460,947,705 99.8% 3,921,749
====== ================ =============== ============
(33)
<PAGE>
</TABLE>
LEASE EXPIRATION SCHEDULE
The following table sets forth the number of the Company leases that expire
in the indicated years and certain other information associated with such
leases.
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Annualized Annualized Square Square
Year Leases Revenue Square Footage Footage Footage
<S> <C> <C> <C> <C> <C>
0 0 0.0% 0 0.0%
1997 0 0 0.0% 0 0.0%
1998 0 0 0.0% 0 0.0%
1999 0 0 0.0% 0 0.0%
2000 0 0 0.0% 0 0.0%
2001 0 0 0.0% 0 0.0%
2002 0 0 0.0% 0 0.0%
2003 3 $2,788,402 5.8% 181,129 5.0%
2004 7 1,622,760 8.8% 164,756 9.9%
2005 6 1,569,032 6.8% 268,391 9.7%
2006 1 536,529 1.1% 36,951 1.0%
2007 3 962,504 2.0% 75,507 2.0%
2008 12 8,237,489 17.0% 645,027 16.9%
2009 19 14,325,866 25.3% 1,162,134 25.6%
2010 6 1,907,236 8.1% 119,502 6.2%
2011 15 9,105,172 16.2% 759,329 18.3%
2012 1 3,705,024 4.8% 237,851 1.6%
2013 6 1,966,505 4.1% 151,172 4.0%
== ============ ====== ========= ======
Totals 79* $ 46,726,518 100.0% 3,801,749 100.0%
</TABLE>
*Excludes Fountain Valley - AHF5, which currently has no lease agreement
(34)
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------
The Company is not aware of any material legal action pending
or threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
- ------
No matter was submitted to a vote of shareholders during the
fourth quarter of 1996.
(35)
<PAGE>
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------ MATTERS
Information relating to the Company's Common Stock, set forth
on page 28 of the Company's 1996 Annual Report to Shareholders under the
caption Common Stock, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- ------
The Company's selected financial data, set forth on page
9 of its 1996 Annual Report to Shareholders under the caption Selected Financial
Information, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ AND RESULTS OF OPERATIONS
The Company's information relating to the management's
discussion and analysis of financial condition, set forth on pages 10 through 12
of the Company's 1996 Annual Report to Shareholders under the caption
Managements Discussion and Analysis of Financial Condition and Results of
Operations, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------
The Company's financial statements and the related notes,
together with the report of Ernst & Young LLP thereon, set forth at pages 13
through 17 of the Company's 1996 Annual Report to Shareholders, are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------ AND FINANCIAL DISCLOSURE
None.
(36)
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------
DIRECTORS
- ---------
Information with respect to directors, set forth on pages one
through four of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 12, 1997 under the caption Election of Directors,
is incorporated herein by reference.
EXECUTIVE OFFICERS
- ------------------
The executive officers of the Company are:
Name Age Position
David R. Emery....... 52 Chairman of the Board, Chief Executive Officer &
President
Timothy G. Wallace... 38 Executive Vice President & Chief Financial Officer
Roger O. West......... 52 Executive Vice President & General Counsel
Mr.Emery formed the Company and has held his current positions
since May 1992. Prior to 1992, Mr. Emery was engaged in the development an
management of commercial real estate in Nashville, Tennessee. Mr. Emery has been
active in the real estate industry for 27 years.
Mr.Wallace has held executive positions with the Company since
January 1993. Prior to joining the Company, he was a Senior Manager with
responsibility for healthcare and real estate in the Nashville, Tennessee office
of Ernst & Young LLP from June 1989 to January 1993.
Mr. West has held executive positions with the Company since
May 1994. Prior to joining the Company, he was a senior partner in the law firm
of Geary, Porter and West, P. C. in Dallas, Texas from July 1992 to May 1994.
Mr.West has extensive experience in the areas of corporate, tax and real estate
law.
ITEM 11. EXECUTIVE COMPENSATION
- -------
Information relating to executive compensation, set forth on
pages six through 12 of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 12, 1997 under the caption Executive
Compensation, is incorporated herein by reference. The Comparative Performance
Graph and the Compensation Committee Report on Executive Compensation also
included in the Proxy Statement are expressly not incorporated herein by
reference.
(37)
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
Information relating to the security ownership of management
and certain beneficial owners, set forth on pages four through five of the
Company's Proxy Statement relating to the Annual Meeting of Shareholders
to be held on May 12, 1997 under the caption "Security Ownership of Certain
Beneficial Owners and Management," is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------
Information relating to certain relationships and related transactions,
set forth on page 13 of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 12, 1997 under the caption Certain
Relationships and Related Transactions, is incorporated herein by reference.
(38)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------
(a) Index to Pro Forma and Historical Financial Statements,
Financial Statement Schedules and Exhibits
(1) FINANCIAL STATEMENTS:
--------------------
The following financial statements of Healthcare
Realty Trust Incorporated are incorporated by reference in
Item 8 from the 1996 Annual Report to Shareholders:
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Income for the years ended December
31, 1996, December 31, 1995 and December 31, 1994.
Consolidated Statements of Stockholders Equity for the years
ended December 31, 1996, December 31, 1995 and
December 31, 1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995 and December 31,
1994.
Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES:
-----------------------------
Schedule III -- Real Estate and Accumulated Depreciation
at December 31, 1996..S-1
All other schedules are omitted because they are not
applicable or not required or because the information is
included in the consolidated financial statements or notes
thereto.
(39)
<PAGE>
(3) EXHIBITS:
--------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C> <C>
3.1 Second Articles of Amendment and Restatement of the Registrant.(1)
3.2 Second Amended and Restated Bylaws of the Registrant.(2)
4 Specimen stock certificate.(1)
10.1 1993 employee's Stock Incentive Plan of Healthcare Realty Trust Incorporated.(1)
10.2 1995 Restricted Stock Plan for Non-Employee Directors of Healthcare Realty Trust Incorporated.(6)
10.3 Executive Retirement Plan, as amended (filed herewith).
10.4 Retirement Plan for Outside Directors.(1)
10.5 Deferred Compensation Plan.(1)
10.6 Dividend Reinvestment Plan.(2)
10.7 Amended and Restated Employment Agreement by and between David R. Emery and Healthcare Realty Trust Incorporated
(filed herewith).
10.8 Amended and Restated Employment Agreement by and between Roger O. West and Healthcare Realty Trust Incorporated
(filed herewith).
10.9 Amended and Restated Employment Agreement by and between Timothy G. Wallace and Healthcare Realty Trust Incorporated
(filed herewith).
10.10 Modified and Restated Credit Agreement, dated as of December 26, 1996, by and among Healthcare Realty Trust
Incorporated; NationsBank, N.A.; The Sumitomo Bank, Limited; First Tennessee Bank National Association; and AmSouth
Bank of Alabama.(7)
10.11 Form of Note Purchase Agreement, dated as of September 1, 1995, pertaining to $90,000,000 aggregate principal amount
of 7.41% Senior Notes due September 1, 2002.(5)
11 Statement re computation of per share earnings (filed herewith).
13 Annual Report to Shareholders for the year ended December 31, 1996 (filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
23 Consent of Ernst & Young LLP, independent auditors (filed herewith).
</TABLE>
(40)
<PAGE>
(1) Filed as an exhibit to Company's Registration Statement on Form S-11
(Registration No. 33-60506) previously filed pursuant to the Securities Act of
1933 and hereby incorporated by reference.
(2) Filed as an exhibit to Company's Registration Statement on Form S-11
(Registration No. 33-72860) previously filed pursuant to the Securities Act of
1933 and hereby incorporated by reference.
(3) Filed as an exhibit to Company's Form 10-Q for the quarter ended June
30, 1994 and hereby incorporated by reference.
(4) Filed as an exhibit to Company's Form 10-K for the year ended December
31, 1994 and hereby incorporated by reference.
(5) Filed as an exhibit to Company's 10-Q for the quarter ended September
30, 1995 and hereby incorporated by reference.
(6) Filed as an exhibit to Company's Form 10-K for the year ended December
31, 1995 and hereby incorporated by reference.
(7) Filed as an exhibit to Company's Form 8-K for December 26, 1996 and
hereby incorporated by reference.
(41)
<PAGE>
Executive Compensation Plans and Arrangements
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
1. 1993 Employees Stock Incentive Plan of Healthcare Realty Trust
Incorporated (filed as Exhibit 10.1)
2. 1995 Restricted Stock Plan for Non-Employee Directors of Healthcare
Realty Trust Incorporated (filed as Exhibit 10.2)
3. Executive Retirement Plan, as amended (filed as Exhibit 10.3)
4. Retirement Plan for Outside Directors (filed as Exhibit 10.4)
5. Deferred Compensation Plan (filed as Exhibit 10.5)
6. Amended and Restated Employment Agreement by and between David R. Emery
and Healthcare Realty Trust Incorporated (filed as Exhibit 10.7)
7. Amended and Restated Employment Agreement by and between Roger O. West
and Healthcare Realty Trust Incorporated (filed as Exhibit 10.8)
8. Amended and Restated Employment Agreement by and between Timothy G.
Wallace and Healthcare Realty Trust Incorporated (filed as Exhibit 10.9)
(42)
<PAGE>
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the
last quarter of 1996.
<TABLE>
<CAPTION>
Date of Earliest Event Reported Items Reported
<S> <C> <C>
September 30, 1996 5.Other Events
November 15, 1996 2.Acquisition or Disposition of Assets
7.Financial Statements, Pro Forma Financial Information
and Exhibits
November 15, 1996 (Form 8K/A) 7.Financial Statements, Pro Forma Financial Information
and Exhibits*
November 15, 1996 (Form 8-K/A) 7.Financial Statements, Pro Forma Financial Information
and Exhibits
</TABLE>
* Included required financial statements for acquisition reported on in Item
2 of Current Report dated November 15, 1996.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report. See Item 14(a)(3).
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section
of this report. See Item 14(a)(2).
(43)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on March 24, 1997.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ David R. Emery
David R. Emery
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company and in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S><C> <C> <C>
/s/ David R. Emery Chairman, President and Chief March 24, 1997
David R. Emery Executive Officer (Principal
Executive Officer)
/s/ Timothy G. Wallace Executive Vice President and Chief March 24, 1997
Timothy G. Wallace Financial Officer (Principal
Financial Officer)
/s/ Fredrick M. Langreck Treasurer and Controller March 24, 1997
Fredrick M. Langreck
/s/ Errol L. Biggs, Ph.D. Director March 24, 1997
Errol L. Biggs, Ph.D.
/s/ Thompson S. Dent Director March 24, 1997
Thompson S. Dent
/s/ Charles Raymond Fernandez, M.D. Director March 24, 1997
Charles Raymond Fernandez, M.D.
(44)
<PAGE>
/s/ Batey B. Gresham, Jr. Director March 24, 1997
Batey B. Gresham, Jr.
/s/ Marliese E. Mooney Director March 24, 1997
Marliese E. Mooney
/s/ Edwin B. Morris, III Director March 24, 1997
Edwin B. Morris, III
/s/ John Knox Singleton Director March 24, 1997
John Knox Singleton
</TABLE>
(45)
<PAGE>
SCHEDULE 3 - REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
LAND
Costs Capitalized
Facility Type/Name Operator Facility Initial Subsequent to
Location Investment Acquisition Total
<S> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
1 Orange Grove Medical Clinic Col/HCA AZ $ 308,070 0 $ 308,070
2 Eaton Canyon Medical Building OrNda CA 1,337,483 0 1,337,483
3 Fountain Valley - AHF 1 OrNda CA 2,218,847 0 2,218,847
4 Fountain Valley - AHF 2 OrNda CA 2,059,953 0 2,059,953
5 Fountain Valley - AHF 3 OrNda CA 3,149,515 0 3,149,515
6 Fountain Valley - AHF 4 OrNda CA 3,160,865 0 3,160,865
7 Valley Presbyterian (15211) Valley Pres CA 1,720,127 0 1,720,127
8 Valley Presbyterian (6840-50) Valley Pres CA 1,522,222 0 1,522,222
9 Deering Medical Plaza Col/HCA FL 0 0 0
10 East Pointe Medical Plaza Col/HCA FL 45,216 0 45,216
11 Gulf Coast Medical Centre Col/HCA FL 0 0 0
12 Southwest Medical Centre Plaza Col/HCA FL 0 0 0
13 Southwest Medical Centre Plaza II Col/HCA FL 0 0 0
14 Coral Gables Medical Plaza OrNda FL 532,112 0 532,112
15 Palm Beach Medical Group Building First Physician FL 0 0 0
16 Palms of Pasadena Medical Plaza Tenet FL 0 0 0
17 Candler Parking Garage Candler GA 0 0 0
18 Candler Professional Office Building Candler GA 0 0 0
19 Candler Regional Heart Center Candler GA 0 0 0
20 North Fulton Medical Arts Plaza Vest Amer GA 696,248 0 696,248
21 Northwest Medical Center Vest Amer GA 1,268,962 0 1,268,962
22 Overland Park Regional Medical Center Col/HCA KS 0 0 0
23 Hendersonville Medical Office Building Col/HCA TN 395,056 0 395,056
24 Bayshore Doctors Center Col/HCA TX 125,471 0 125,471
25 Judson Medical Building Methodist TX 159,384 0 159,384
26 Oregon Medical Building Col/HCA TX 999,193 0 999,193
27 Rosewood Professional Building Col/HCA TX 682,867 0 682,867
28 Spring Branch Professional Building Col/HCA TX 3,833,076 0 3,833,076
29 Toepperwein Medical Center Methodist TX 497,982 0 497,982
30 Lake Pointe Medical Plaza OrNda TX 217,941 0 217,941
31 Southwest General Birthing Center OrNda TX 124,000 0 124,000
32 Trinity Valley Birthing Center OrNda TX 73,147 0 73,147
33 Twelve Oaks Medical Plaza Vest Amer TX 389,107 0 389,107
34 Chippenham Medical Offices Col/HCA VA 0 0 0
35 Chippenham Medical Offices Col/HCA VA 874,497 0 874,497
36 Johnston-Willis Medical Offices Col/HCA VA 1,912,645 0 1,912,645
37 Johnston-Willis Medical Offices Col/HCA VA 0 0 0
38 Lewis-Gale Clinic,Keagy, Braeburn,Floyd Phycor VA 1,413,423 0 1,413,423
39 Lewis-Gale Medical Foundation Phycor VA 38,604 0 38,604
---------- - ----------
29,756,014 0 29,756,014
---------- - ----------
Ambulatory Surgery Centers
40 Bakersfield Surgery Center Nat'l Surg Ctrs CA 209,246 0 209,246
41 Valley View Surgery Center Nat'l Surg Ctrs NV 940,000 0 940,000
42 Physicians Daysurgery Center Col/HCA TX 509,891 0 509,891
--------- - ---------
1,659,137 0 1,659,137
--------- - ---------
Comprehensive Ambulatory Care Centers
43 St. Andrews Col/HCA&St.Andrews FL 1,032,261 0 1,032,261
44 Five Points Medical Building OrNda FL 3,103,275 0 3,103,275
45 Huebner Medical Center Huebner TX 601,475 0 601,475
46 Huebner Medical Center II Huebner TX 1,041,298 0 1,041,298
--------- - ---------
5,778,309 0 5,778,309
--------- - ---------
Clinical Laboratories
47 Midtown Medical Center Midtown AL 180,633 0 180,633
48 Puckett Laboratory Path Labs MS 537,660 0 537,660
------- - -------
718,293 0 718,293
------- - -------
Long-Term Care Facilities
49 Fountain Valley - Living Care Center OrNda CA 1,361,952 0 1,361,952
50 Life Care Center of Aurora LCC of Amer. CO 1,651,477 0 1,651,477
51 Life Care Center of Westminster (4) LCC of Amer. CO 0 0 0
52 Life Care Center of Orange Park LCC of Amer. FL 1,203,720 0 1,203,720
53 New Harmonie Healthcare Center Centennial IN 96,059 0 96,059
54 Life Care Center of Wichita LCC of Amer. KS 1,013,423 0 1,013,423
55 Fenton Extended Care Center Centennial MI 40,463 0 40,463
56 Meadows Nursing Center Centennial MI 6,984 0 6,984
57 Ovid Convalescent Manor Centennial MI 62,326 0 62,326
58 Wayne Convalescent Center Centennial MI 52,468 0 52,468
59 Westgate Manor Nursing Home Centennial MI 30,855 0 30,855
60 Life Care Center of Forth Worth LCC of Amer. TX 690,768 0 690,768
61 Life Care Center of Houston (4) LCC of Amer. TX 0 0 0
--------- - ---------
6,210,495 0 6,210,495
--------- - ---------
Medical Office Buildings
62 Rowlett Medical Plaza OrNda TX 166,123 0 166,123
63 New River Valley Med. Arts Building Col/HCA VA 43,126 0 43,126
64 Valley Medical Center Col/HCA VA 64,347 0 64,347
65 Lewis-Gale Business & Child Care Centers Phycor VA 1,066,739 0 1,066,739
66 Lewis-Gale Valley View Phycor VA 752,629 0 752,629
--------- - ---------
2,092,964 0 2,092,964
--------- - ---------
Physician Clinics
67 Clinica Latina OrNda CA 392,785 0 392,785
68 Southwest Florida Orthopedic Center Col/HCA FL 468,544 0 468,544
69 Medical & Surgical Inst.Ft. Lauderdale OrNda FL 906,829 0 906,829
70 Doctors Clinic Phycor FL 2,183,572 0 2,183,572
71 Woodstock Clinic Tenet GA 586,435 0 586,435
72 Durham Medical Center Durham TX 992,738 0 992,738
73 Valley Diagnostic Med & Surgical Clinic Phycor TX 502,919 158,368 661,287
74 Lewis-Gale Bent Mountain Road Clinic Phycor VA 92,159 0 92,159
75 Lewis-Gale Bohnsack Clinic Phycor VA 150,526 0 150,526
76 Lewis-Gale Craig County Clinic Phycor VA 33,280 0 33,280
77 Lewis-Gale Family Practice Center Phycor VA 182,522 0 182,522
78 Lewis-Gale Fincastle Clinic Phycor VA 78,437 0 78,437
79 Lewis-Gale Spartan Drive Phycor VA 83,967 0 83,967
--------- ------- ---------
6,654,712 158,368 6,813,080
--------- ------- ---------
Total Real Estate $52,869,925 $158,368 $53,028,292
=========== ======== ===========
Corporate Property 0 0 0
Third Party Developments 0 0 0
Total Property $52,869,925 $158,368 $53,028,292
=========== ======== ===========
</TABLE>
SCHEDULE 1
REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1996 (continued)
<TABLE>
<CAPTION>
BUILDINGS & IMPROVEMENTS & CIP
Costs
Initial Capitalized
Investment Subsequent to
(Including CIP) Acquisition Total
<S> <C> <C> <C>
Ancillary Hospital Facilities
1 Orange Grove Medical Clinic $ 4,965,923 $ 0 $ 4,965,923
2 Eaton Canyon Medical Building 3,106,587 0 3,106,587
3 Fountain Valley - AHF 1 3,297,543 3,925 3,301,469
4 Fountain Valley - AHF 2 3,047,816 0 3,047,816
5 Fountain Valley - AHF 3 5,635,848 0 5,635,848
6 Fountain Valley - AHF 4 5,828,809 0 5,828,809
7 Valley Presbyterian (15211) 5,797,840 0 5,797,840
8 Valley Presbyterian (6840-50) 3,787,288 0 3,787,288
9 Deering Medical Plaza 5,072,041 0 5,072,041
10 East Pointe Medical Plaza 4,936,632 0 4,936,632
11 Gulf Coast Medical Centre 4,791,942 0 4,791,942
12 Southwest Medical Centre Plaza 8,042,864 0 8,042,864
13 Southwest Medical Centre Plaza II 1,620,558 0 1,620,558
14 Coral Gables Medical Plaza 10,676,167 5,454 10,681,621
15 Palm Beach Medical Group Building 3,830,316 0 3,830,316
16 Palms of Pasadena Medical Plaza 4,723,468 805,113 5,528,581
17 Candler Parking Garage 4,169,090 0 4,169,090
18 Candler Professional Office Building 7,177,853 15,193 7,193,045
19 Candler Regional Heart Center 8,685,718 79,184 8,764,902
20 North Fulton Medical Arts Plaza 4,814,870 234,973 5,049,843
21 Northwest Medical Center 8,492,284 475,000 8,967,284
22 Overland Park Regional Medical Center 8,606,501 0 8,606,501
23 Hendersonville Medical Office Building 2,643,834 100,000 2,743,834
24 Bayshore Doctors Center 1,767,800 0 1,767,800
25 Judson Medical Building 576,569 0 576,569
26 Oregon Medical Building 17,445,918 0 17,445,918
27 Rosewood Professional Building 4,569,953 0 4,569,953
28 Spring Branch Professional Building 10,295,139 0 10,295,139
29 Toepperwein Medical Center 1,983,956 0 1,983,956
30 Lake Pointe Medical Plaza 1,507,164 0 1,507,164
31 Southwest General Birthing Center 3,112,289 0 3,112,289
32 Trinity Valley Birthing Center 3,598,453 0 3,598,453
33 Twelve Oaks Medical Plaza 2,690,851 670,627 3,361,478
34 Chippenham Medical Offices 3,771,668 0 3,771,668
35 Chippenham Medical Offices 3,718,966 0 3,718,966
36 Johnston-Willis Medical Offices 6,860,932 0 6,860,932
37 Johnston-Willis Medical Offices 4,729,002 1,126,714 5,855,716
38 Lewis-Gale Clinic, Keagy, Braeburn, Floyd 26,019,699 0 26,019,699
39 Lewis-Gale Medical Foundation 1,394,974 0 1,394,974
----------- --------- ----------
217,795,124 3,516,183 221,311,306
----------- --------- -----------
Ambulatory Surgery Centers
40 Bakersfield Surgery Center 828,613 0 828,613
41 Valley View Surgery Center 2,860,571 0 2,860,571
42 Physicians Daysurgery Center 1,514,376 0 1,514,376
----------- -------- ---------
5,203,560 0 5,203,560
----------- -------- ---------
Comprehensive Ambulatory Care Centers
43 St.Andrews 5,969,200 0 5,969,200
44 Five Points Medical Building 6,929,636 0 6,929,636
45 Huebner Medical Center 11,067,141 200,000 11,267,141
46 Huebner Medical Center II 8,061,509 78,954 8,140,463
----------- ------- ----------
32,027,485 278,954 32,306,439
----------- ------- ----------
Clinical Laboratories
47 Midtown Medical Center 8,601,151 0 8,601,151
48 Puckett Laboratory 3,718,165 0 3,718,165
----------- --- ----------
12,319,316 0 12,319,316
----------- --- ----------
Long-Term Care Facilities
49 Fountain Valley - Living Care Center 11,325,746 0 11,325,746
50 Life Care Center of Aurora 4,579,039 0 4,579,039
51 Life Care Center of Westminster (4) 4,355,419 0 4,355,419
52 Life Care Center of Orange Park 8,388,977 0 8,388,977
53 New Harmonie Healthcare Center 3,511,749 0 3,511,749
54 Life Care Center of Wichita 5,297,900 0 5,297,900
55 Fenton Extended Care Center 3,467,687 0 3,467,687
56 Meadows Nursing Center 3,241,786 0 3,241,786
57 Ovid Convalescent Manor 982,862 1,844,691 2,827,552
58 Wayne Convalescent Center 963,336 0 963,336
59 Westgate Manor Nursing Home 1,633,306 0 1,633,306
60 Life Care Center of Forth Worth 8,359,126 0 8,359,126
61 Life Care Center of Houston (4) 8,297,775 0 8,297,775
----------- ---------- ----------
64,404,708 1,844,691 66,249,399
----------- ---------- ----------
Medical Office Buildings
62 Rowlett Medical Plaza 1,810,249 0 1,810,249
63 New River Valley Med. Arts Building 839,285 0 839,285
64 Valley Medical Center 867,590 0 867,590
65 Lewis-Gale Business & Child Care Centers 5,665,960 0 5,665,960
66 Lewis-Gale Valley View 4,367,295 0 4,367,295
----------- --- ----------
13,550,379 0 13,550,379
----------- --- ----------
Physician Centers
67 Clinica Latina 331,685 0 331,685
68 Southwest Florida Orthopedic Center 3,135,642 0 3,135,642
69 Medical & Surgical Institute of Ft. Lauderdale 3,580,315 717,332 4,297,647
70 Doctors Clinic 8,070,829 0 8,070,829
71 Woodstock Clinic 2,087,444 0 2,087,444
72 Durham Medical Center 6,865,237 288,566 7,153,802
73 Valley Diagnostic Medical and Surgical Clinic 3,776,918 0 3,776,918
74 Lewis-Gale Bent Mountain Road Clinic 258,044 0 258,044
75 Lewis-Gale Bohnsack Clinic 524,280 0 524,280
76 Lewis-Gale Craig County Clinic 148,990 0 148,990
77 Lewis-Gale Family Practice Center 969,461 0 969,461
78 Lewis-Gale Fincastle Clinic 259,478 0 259,478
79 Lewis-Gale Spartan Drive 817,140 0 817,140
----------- --------- -----------
30,825,462 1,005,897 31,831,359
----------- --------- ----------
Total Real Estate $376,126,034 $6,645,724 $382,771,758
============ ========== ============
Corporate Property 0 0 0
Third Party Developments 278,496 0 278,496
Total Property $376,404,530 $6,645,724 $383,050,254
============ =========== ============
</TABLE>
SCHEDULE 1
REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1996 (continued)
<TABLE>
<CAPTION>
(1) (2)
Personal (2) Accumulated Date Date
Property Total Depreciation Encumbrances Acquired Acquired
<S> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
1 Orange Grove Medical Clinic $ 0 $ 5,273,993 $ 558,41 0 1993 1988
2 Eaton Canyon Medical Building 0 4,444,070 149,355 0 1995 1984
3 Fountain Valley - AHF 1 0 5,520,316 200,873 0 1994 1973
4 Fountain Valley - AHF 2 0 5,107,769 185,618 0 1994 1975
5 Fountain Valley - AHF 3 0 8,785,363 343,234 0 1994 1981
6 Fountain Valley - AHF 4 0 8,989,674 354,986 0 1994 1984
7 Valley Presbyterian (15211) 20,237 7,538,204 662,088 730,000 (3) 1993 1981
8 Valley Presbyterian (6840-50) 18,267 5,327,777 435,016 0 1993 1961,1968,1984-85
9 Deering Medical Plaza 0 5,072,041 319,701 0 1994 1994
10 East Pointe Medical Plaza 0 4,981,848 269,007 0 1994 1994
11 Gulf Coast Medical Centre 0 4,791,942 253,557 0 1994 1994
12 Southwest Medical Centre Plaza 0 8,042,864 455,447 0 1994 1994
13 Southwest Medical Centre Plaza II 0 1,620,558 74,449 0 1995 1977
14 Coral Gables Medical Plaza 0 11,213,733 764,285 0 1994 1991
15 Palm Beach Medical Group Building 0 3,830,316 20,461 0 1996 1994
16 Palms of Pasadena Medical Plaza 0 5,528,581 288,460 0 1994 1994
17 Candler Parking Garage 0 4,169,090 139,143 0 1994 1995
18 Candler Professional Office Building 0 7,193,045 452,613 1,000,000 (3) 1994 1981
19 Candler Regional Heart Center 0 8,764,902 272,958 0 1995 1995
20 North Fulton Medical Arts Plaza 38,409 5,784,500 405,030 0 1993 1983
21 Northwest Medical Center 0 10,236,246 608,705 0 1994 1975
22 Overland Park Regional Medical Center 0 8,606,501 33,461 0 1995 1996
23 Hendersonville Medical Office Building 0 3,138,890 190,450 0 1994 1991
24 Bayshore Doctors Center 12,547 1,905,818 205,064 0 1993 1989
25 Judson Medical Building 0 735,954 1,848 0 1996 1990
26 Oregon Medical Building 39,968 18,485,079 1,981,781 0 1993 1992
27 Rosewood Professional Building 0 5,252,820 307,613 0 1994 1982
28 Spring Branch Professional Building 173,532 14,301,747 1,244,451 0 1993 1985
29 Toepperwein Medical Center 0 2,481,938 6,359 0 1996 1990
30 Lake Pointe Medical Plaza 12,023 1,737,128 123,557 0 1993 1988
31 Southwest General Birthing Center 0 3,236,289 182,884 0 1993 1994
32 Trinity Valley Birthing Center 0 3,671,600 126,869 0 1994 1995
33 Twelve Oaks Medical Plaza 21,465 3,772,050 255,729 0 1993 1968,1994
34 Chippenham Medical Offices 0 3,771,668 236,083 0 1994 1972-80
35 Chippenham Medical Offices 0 4,593,463 236,083 0 1994 1994
36 Johnston-Willis Medical Offices 0 8,773,577 426,408 2,855,000 1994 1980, 1987-88
37 Johnston-Willis Medical Offices 0 5,855,716 363,237 0 1994 1993, 1994
38 Lewis-Gale Clinic, Keagy, Braeburn, FLoyd 0 27,433,122 83,396 2,288,000 1996 1984
39 Lewis-Gale Medical Foundation 0 1,433,579 4,471 0 1996 1981
------ ---------- --------- --------- ---- --------------
336,448 251,403,769 13,223,147 6,873,000
------- ----------- ---------- --------- ---- --------------
Ambulatory Surgery Centers
40 Bakersfield Surgery Center 8,370 1,046,229 97,363 0 1993 1985
41 Valley View Surgery Center 0 3,800,571 180,308 0 1994 1994
42 Physicians Daysurgery Center 15,296 2,039,563 177,942 0 1993 1985
------ --------- ------- -- ---- ----
23,666 6,886,363 455,613 0
------ --------- ------- -- ---- ----
Comprehensive Ambulatory Care Centers
43 St. Andrews 0 7,001,461 40,096 0 1996 1995
44 Five Points Medical Building 0 10,032,911 8,921 0 1995 1996
45 Huebner Medical Center 60,148 11,928,764 1,282,486 0 1993 1991
46 Huebner Medical Center II 0 9,181,761 301,231 0 1994 1995
------ ---------- --------- -- ---- ----
60,148 38,144,896 1,632,734 0
------ ---------- --------- -- ---- ----
Clinical Laboratories
47 Midtown Medical Center 8,028 8,789,812 971,214 0 1993 1906, 1986
48 Puckett Laboratory 29,660 4,285,485 319,487 0 1993 1986, 1991
------ ---------- --------- -- ---- ----------
37,688 13,075,297 1,290,701 0
------ ---------- --------- -- ---- ----------
Long-Term Care Facilities
49 Fountain Valley - Living Care Center 0 12,687,698 689,761 0 1994 1989
50 Life Care Center of Aurora 0 6,230,516 278,873 0 1994 1994
51 Life Care Center of Westminster (4) 0 4,355,419 0 0 1996 Under construction
52 Life Care Center of Orange Park 0 9,592,697 85,153 0 1995 1996
53 New Harmonie Healthcare Center 32,331 3,640,139 411,065 0 1993 1987
54 Life Care Center of Wichita 0 6,311,323 6,921 0 1996 Under construction
55 Fenton Extended Care Center 32,345 3,540,494 406,124 0 1993 1968
56 Meadows Nursing Center 35,415 3,284,185 382,250 0 1993 1971, 1977
57 Ovid Convalescent Manor 48,791 2,938,669 179,597 0 1993 1968
58 Wayne Convalescent Center 33,548 1,049,352 125,105 0 1993 1967
59 Westgate Manor Nursing Home 32,887 1,697,048 200,112 0 1993 1964, 1974
60 Life Care Center of Forth Worth 0 9,049,894 28,116 0 1995 1996
61 Life Care Center of Houston (4) 0 8,297,775 0 0 1995 Under construction
------- ---------- --------- -- ---- ------------------
215,317 72,675,211 2,793,076 0
------- ---------- --------- -- ---- ------------------
Medical Office Buildings
62 Rowlett Medical Plaza 0 1,976,372 110,248 0 1994 1994
63 New River Valley Med. Arts Building 43,611 926,022 116,188 0 1993 1988
64 Valley Medical Center 83,179 1,015,116 139,159 0 1993 1989
65 Lewis-Gale Business & Child Care Centers 0 6,732,699 18,160 0 1996 1995
66 Lewis-Gale Valley View 0 5,119,923 13,998 1,575,000 1996 1990
------- ---------- ------- --------- ---- ----
126,790 15,770,133 397,752 1,575,000
------- ---------- ------- --------- ---- ----
Physician Clinics
67 Clinica Latina 0 724,470 13,820 0 1995 1991
68 Southwest Florida Orthopedic Center 0 3,604,186 211,066 0 1994 1984
69 Medical & Surgical Inst. of Ft. Lauderdale 0 5,204,476 259,245 0 1994 1991
70 Doctors Clinic 50,781 10,305,182 932,960 0 1993 1969, 1973
71 Woodstock Clinic 0 2,673,879 149,424 0 1994 1991
72 Durham Medical Center 364,987 8,511,527 684,688 0 1993 1993
73 Valley Diagnostic Med.& Surgical Clinic 20,117 4,458,322 434,775 0 1993 1982
74 Lewis-Gale Bent Mountain Road Clinic 0 350,203 827 0 1996 1984
75 Lewis-Gale Bohnsack Clinic 0 674,806 1,680 0 1996 1995
76 Lewis-Gale Craig County Clinic 0 182,269 478 0 1996 1973
77 Lewis-Gale Family Practice Center 0 1,151,983 3,107 0 1996 1905
78 Lewis-Gale Fincastle Clinic 0 337,915 832 0 1996 1986
79 Lewis-Gale Spartan Drive 0 901,107 2,619 0 1996 1992
------- ---------- --------- -- ---- ----
435,885 39,080,324 2,695,521 0
------- ---------- --------- -- ---- ----
Total Real Estate $1,235,942 $437,035,993 $22,488,543 $8,448,000
========== ============ =========== ========== ==== ====
Corporate Property 1,863,439 1,863,439 654,967 0
Third Party Developments 0 278,496 0 0
---------- ------------ ----------- ---------- ---- ----
Total Property $3,099,382 $439,177,928 $23,143,511 $8,448,000
========== ============ =========== ========== ==== ====
</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
three months and twelve months ended December 31, 1996:
<TABLE>
<CAPTION>
Three Months Ended 12/31/96 Twelve Months Ended 12/31/96
Accumulated Accumulated
Total Property Depreciation Total Property Depreciation
<S> <C> <C> <C> <C>
Beginning Balance $377,608,198 $20,731,105 $332,972,982 $14,492,646
Retirements/Dispositions:
Corporate Property 0 0 (5,033) (755)
Additions during the period:
Acquisitions/Improvements 87,367,681 2,326,597 107,249,244 8,304,776
Corporate Property 56,529 85,809 351,617 346,844
Construction in Progress (25,854,480) 0 (1,390,882) 0
============= =========== ============ ============
Balance at December 31, 1996 $439,177,928 $23,143,511 $439,177,928 $23,143,511
============= =========== ============ ============
</TABLE>
(3) These two encumbrances are to protect the lessee's interest in their
security deposit.
(4) Lessee development at December 31, 1996.
(46-47)
<PAGE>
EXHIBIT 10.3
HEALTHCARE REALTY TRUST
INCORPORATED
EXECUTIVE RETIREMENT PLAN
1. Purpose of the Plan
The principal objective of this Executive Retirement Plan is to ensure the
payment of a competitive level of retirement income in order to attract, retain,
and motivate selected executives. The Plan is designed to provide a benefit
which, when added to other retirement income of the executive, will meet the
objective described above. Eligibility for participation in the plan shall be
limited to executives selected by the Compensation Committee of the Board of
Directors. This Plan will become effective on January 1, 1993.
2. Definitions
(a) Accrued Benefit means, as of any date, the Participant's retirement
benefit to begin at his Normal Retirement Date (as hereinafter defined),
determined pursuant to Section 4.2 and based on his Final Average Earnings on
the date of calculation and Service projected to Normal Retirement Date
multiplied by the ratio of years of Service as of calculation date over years of
Service projected to age 65.
(b) Basic Plan means the retirement plan, a defined benefit and/or a
defined contribution plan, covering essentially all employees of the Company,
including a Participant.
(c) Basic Plan Benefit means the amount of benefit payable from the Basic
Plan to a Participant in the form of a straight life annuity. If the Basic Plan
includes a defined contribution plan, the lump sum value will be converted to a
straight life annuity based on actuarial factors selected by the Committee. If
the Basic Plan provides for employee contributions or employer contributions
[other than matching contributions, if any, within the contemplation of Section
401(m) of the Internal Revenue Code] which are based upon an employee's deferral
of compensation, such as under a cash or deferred arrangement under Section
401(k) of the Internal Revenue Code of 1986, the Basic Plan Benefit shall not
include benefits which are attributable to such contributions and any earnings
thereon.
(d) Committee means the Compensation Committee of the Board of Directors
of the Company, which the Board of Directors has given authority to administer
this Plan.
(e) Company means Healthcare Realty Trust Incorporated, a Maryland
corporation.
(f) Disability means any termination from the Company's employment during
the life of a Participant and prior to age 65 by reason of a Participant's
total and permanent disability, as determined by the Committee, in its sole
and absolute discretion. A Participant, who makes application for and
qualifies for disability benefits under the Company's disability plan or
under any similar plan provided by the Company, as now in effect or as
hereinafter amended (the "LTD Plans"), shall qualify for Disability under
this Plan, unless the Committee determines that the Participant is not
totally and permanently disabled. A Participant who fails to qualify for
disability benefits under the LTD Plans (whether or not the Participant
makes application for disability benefits thereunder) shall not be deemed
to be totally and permanently disabled under this Plan, unless the
Committee otherwise determines, based upon the opinion of a qualified
physician or medical clinic selected by the Committee to the effect that a
condition of total and permanent disability exists.
(g) Earnings means total annual cash compensation, including base salary,
annual incentives awards, and deferred compensation.
(1)
<PAGE>
(h) Final Average Earnings means the average of the three (3) highest,
not necessarily consecutive, years Earnings.
(i) Other Retirement Income means retirement income payable to a
Participant from the Basic Plan and Social Security.
(j) Participant means an employee of the Company designated as a
Participant by the Committee. An employee shall become a Participant in the
Plan as of the date he or she is individually selected by, and specifically
named in the resolutions of, the Committee to be included in the Plan.
(k) Plan means the Company's Executive Retirement Plan.
(l) Retirement means the termination of a Participant's employment with the
Company on one of the retirement dates specified in Section 3.1.
(m) Service means a Participant's total years of employment with the
Company from date of hire to date of termination of employment.
(n) Social Security Benefit means the annual Primary Insurance Amount
estimated by the Committee to be payable to the Participant at age 65 under the
Federal Social Security Act, provided, however, that:
(i) the Social Security Benefit for a Participant who dies, retires
or terminates employment before age 65 will be calculated assuming:
(A) the Participant will not receive any future wages that would be
treated as wages for purposes of the Federal Social Security Act;and
(B) the Participant will elect to begin receiving his Social
Security Benefit as of the earliest age then allowable under the Act
or, if later, at actual date of Retirement.
(ii) the Social Security Benefit for a Participant who retires on
a Disability Retirement date will be calculated assuming that
the Participant's disability would make him eligible for Social
Security disability benefits.
(iii) once calculated, the Social Security Benefit will be frozen as of
the date the Participant dies, retires, or terminates employment,
whichever is applicable.
(o) Surviving Spouse means the spouse of a Participant who is legally
married to the Participant on the Participant's termination or death.
Where appearing in the Plan, the masculine gender will be deemed to include
the feminine gender, and the singular may include the plural, unless the context
clearly indicates the contrary.
3. Eligibility for Benefits
3.1 Each Participant is eligible to retire and receive a benefit under this
Plan beginning on one of the following dates:
(a) Normal Retirement Date, which is the first day of the month
following the month in which the Participant reaches age 65 and
has completed five (5) years of Service.
(b) Early Retirement Date, which is the first day of any month
following the month in which the Participant reaches age 55 and
has completed five (5) years of Service.
(2)
<PAGE>
(c) Postponed Retirement Date, which is the first day of the month
following the Participant's Normal Retirement Date in which the
Participant terminates employment with the Company.
3.2 No benefits are payable hereunder unless the Participant retires on an
Early Retirement, Normal Retirement or Postponed Retirement Date.
Notwithstanding the prior sentence, in the event a Participant has entered into
an employment agreement with the Company which provides for vesting of his/her
Accrued Benefit hereunder, whether as a result of a termination other than for
cause or otherwise, any benefit paid with such agreement shall be funded and
paid through this Plan.
3.3 If any Participant entitled to a benefit under this Plan is (i)
discharged for cause after attaining his Early, Normal or Postponed Retirement
Date, or (ii) enters into competition with the Company, or interferes with the
relations between the Company and any person, firm or entity with whom the
Company does business, or (iii) by reason of Participant's material, substantial
and willful dishonesty towards, fraud upon, or deliberate injury or attempted
injury has caused material injury to Corporation., the rights of such
Participant to a benefit under this Plan, including the rights of a Surviving
Spouse to a benefit, will be forfeited, unless the Committee determines that
such activity is not detrimental to the best interests of the Company. However,
if the individual ceases such activity and notifies the Committee of this
action, then the Participant's right to receive a benefit, and any right of a
Surviving Spouse to a benefit, may be restored within sixty (60) days of said
notification, unless the Committee at its sole discretion determines that the
prior activity has caused serious injury to the Company, which determination
will be final and conclusive.
4. Amount and Form of Retirement Benefit
4.1 The annual retirement benefit payable to a Participant for his life
time at a Normal Retirement Date under the Plan shall be equal to sixty percent
(60%) of Final Average Earnings plus six percent (6%) of Final Average Earnings
times years of Service after age 60 to a maximum of five (5) years, less one
hundred percent (100%) of Other Retirement Income.
4.2 The annual benefit payable to a Participant for his lifetime at an
Early Retirement Date shall be equal to the benefit determined in Section 4.1
multiplied by the following factors according to the service of the Participant
on Early Retirement Date and the age of the Participant on the date the benefit
begins:
<TABLE>
<CAPTION>
Service Reduction Factor Age Reduction Factor
Completed Years of Service and Under Age 60 Age When Benefit Begins
Factor Factor*
<S> <C> <C> <C> <C>
4 0% 60 75%
5 50 61 80
6 60 62 85
7 70 63 90
8 80 64 95
9 90 65 100
10 or more 100
</TABLE>
*.417% for each month between whole ages.
(3)
<PAGE>
Completed Years of Service and
Age 60 and Over Factor
4 0%
5 or more 100%
4.3 The annual benefit payable to a Participant for his lifetime at a
Postponed Retirement Date shall be equal to the benefit determined in accordance
with Section 4.1 based on Service and Final Average Earnings as of the
Participant's Retirement Date.
4.4 The benefit determined under this Plan will be payable in any form
approved by the Committee and elected by the Participant.
5. Payment or Retirement Benefits
5.1 Benefits payable in accordance with Section 4 will begin on the
Participant's date of Retirement or, in the case of Early Retirement, on the
first day of any month following the Participant's Early Retirement Date but not
later than his Normal Retirement Date, as the Participant may elect. Benefits
will continue to be paid on the first day of each succeeding month. The last
payment will be on the first day of the month in which the retired Participant
dies, unless otherwise elected in accordance with Section 4.4.
5.2 Any Participant who is under Disability upon reaching his Normal
Retirement Date will be paid his retirement benefit under Section 4.1. Upon a
Participant's Disability while an employee of the Company, the Participant will
continue to accrue years of service during his Disability until the earliest of
(a) his recovery from Disability, (b) his 65th birthday or (c) his death. For
the purpose of determining the Participant's benefit hereunder, the
Participant's Final Average Earnings shall be determined on the basis of his
Earnings up to the date of Disability.
5.3 Any Participant who is entitled, in accordance with an employment
agreement with the Company to continued accruals with respect to this Plan,
shall be paid such benefit from this Plan, whether or not through any trust
associated with this Plan.
6. Death Benefits Payable
6.1 If a Participant should die after Retirement and after the commencement
of payment of his benefits, the Surviving Spouse will receive an annual benefit
equal to fifty percent (50%) of the amount of the Participant's retirement
benefit determined in accordance with Section 4. If a Participant should die
after Retirement but before commencement of payment of his benefits, the
Participant's Surviving Spouse shall receive the amount of the Participant's
retirement benefit as if Participant had retired on the day before his death.
6.2 A Surviving Spouse's benefits will be payable monthly, and will begin
on the first day of the month following the month in which the Participant dies.
The last payment will be on the first day of the month in which the Surviving
Spouse dies.
6.3 If a Participant should die after Retirement, and is survived by
dependent children each child will receive a benefit equal to $1,500 per month
until the later of the first day of the month in which the dependent child
reaches age 18, or age 25 if a full-time student or dies if physically or
mentally handicapped as determined by the Committee.
6.4 No benefits are payable to any person or persons in the event a
Participant should die before Retirement.
7. Miscellaneous
7.1 The Committee may, at its sole discretion, terminate, suspend, or amend
this Plan at any time or from time to time, in whole or in part. However, no
amendment or suspension of the Plan will affect a Participant's right to receive
an Accrued Benefit, or a retired Participant's or Surviving Spouse's right to
continue to receive a benefit in accordance with this Plan.
(4)
<PAGE>
7.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company, nor will it interfere with the
Company's right to discharge or otherwise deal with Participant's without regard
to the existence of this Plan.
7.3 This Plan is unfunded, and the Company will make Plan benefit payments
solely on a current disbursement basis. The Company may establish such grantor
trust(s) or other asset pool(s) as it deems necessary or appropriate to provide
for the payment of benefits hereunder.
7.4 To the maximum extent permitted by law, no benefit under this Plan
shall be assignable or subject in any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment, or encumbrances of any kind.
7.5 The Committee may adopt rules and regulations to assist it in
administering the Plan.
7.6 Each Participant shall receive a copy of this Plan, and the Committee
will make available for inspection by any Participant a copy of the rules and
regulations used by the Committee in administering the Plan.
7.7 This Plan is established under and will be construed according to the
Employee Retirement Income Security Act of 1974.
8. Minimum Benefit in Certain Cases
The provisions of this Section 8 apply only in the case of a Participant
who has entered into an Employment Agreement with the Company which provides for
accelerated vesting in the event of death, disability, termination other than
for cause or a change in control. The provisions of this Section 8 apply
notwithstanding Section 3.2 or any other provision of this Plan. In the event a
Participant's employment with the Company is terminated by reason of death,
disability, termination other than for cause or a change in control, each as
contemplated by the Employment Agreement between such individual and the
Company, then the benefit payable to or with respect to such Participant shall
be the greater of the benefit otherwise determined in accordance with the
provision of the Plan or the single sum benefit equal to the present value of
the then-accrued benefit, determined by reducing such adjusted accrued benefit
from age sixty-five (65) to the date as of which payment is made, using the
actuarial assumptions which have been used for financial accounting purposes
under generally accepted accounting principles.
(5)
<PAGE>
<PAGE>
EXHIBIT 10.7
HEALTHCARE REALTY TRUST
INCORPORATED
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
January 1, 1996 ("Effective Date") by and between HEALTHCARE REALTY TRUST
INCORPORATED, A Maryland corporation ("Corporation"), and David R. Emery
("Officer").
RECITAL
Corporation desires to employ Officer as its Chairman, President and Chief
Executive Officer and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. Duties. During the term of this Agreement, Officer agrees to be employed
by and to serve Corporation as its Chairman, President and Chief Executive
Officer, and Corporation agrees to employ and retain Officer in such capacities.
Officer shall devote such of his business time, energy, and skill to the affairs
of Corporation as shall be necessary to perform the duties of such positions.
Officer shall report only to Corporation's Board of Directors and at all times
during the term of this Agreement shall have powers and duties at least
commensurate with his position as President. Officer's principal place of
business with respect to his services to Corporation shall be within 20 miles of
Nashville, Tennessee.
2. Term of Employment.
2.1 Definitions. For purposes of this Agreement the following terms shall
have the following meanings:
(a) "Termination For Cause" shall mean termination by Corporation of
Officer's employment by Corporation by reason of Officer's material,
substantial and willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to, Corporation or by reason of Officer's
material, substantial and willful breach of this Agreement which has
resulted in material injury to Corporation. For purposes of this Agreement,
a termination of Officer's employment with the Corporation shall be deemed
a Termination Other Than For Cause rather than a Termination For Cause
unless and until established by Corporation to the contrary by a final,
nonappealable decision by a court of competent jurisdiction. The
Corporation shall have the burden of establishing that any termination of
Officer's employment by Corporation is a Termination For Cause.
(b) "Termination Other Than For Cause" shall mean any termination by
Corporation of Officer's employment by Corporation (other than in a
Termination for Cause) and shall include Constructive Termination of
Officer's employment, effective upon notice from Officer to Corporation of
such Constructive Termination. A failure or refusal of Corporation to
extend the term of employment of Officer in accordance with Section 2.2
hereof, other than as a result of circumstances which would warrant a
Termination of Cause hereunder, shall be deemed a Termination Other Than
For Cause.
(1)
<PAGE>
(c) "Voluntary Termination" shall mean termination by Officer of Officer's
employment by Corporation other than (i) Constructive Termination as
described in subsection 2.1(g), (ii) "Termination Upon a Change in
Control," (iii) termination by reason of Officer's death or disability as
described in Sections 2.5 and 2.6 and (iv) termination by reason of
retirement by Officer upon attainment of eligibility to retire in
accordance with the Executive Retirement Plan as in effect upon the date of
this Agreement.
(d) "Termination Upon a Change in Control" shall mean a termination by
Officer of Officer's employment with Corporation within twenty-four (24)
months following a "Change in Control."
(e) "Change in Control" shall mean (i) the time that Corporation first
determines that any person and all other persons who constitute a group
(within the meaning of Section 13 (d) (3) of the Securities Exchange Act of
1934 ("Exchange Act")) have acquired direct or indirect beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
twenty percent (20%) or more of Corporation's outstanding securities,
unless a majority of the "Continuing Directors" approves the acquisition
not later than ten (10) business days after Corporation makes that
determination, or (ii) the first day on which a majority of the members of
Corporation's Board of Directors are not "Continuing Directors."
(f) "Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors of Corporation who (i) was a member of
that Board of Directors on January 1, 1993, (ii) has been a member of that
Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board
of Directors with the affirmative vote of the greater of (x) a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election or (y) at least four Continuing Directors.
(g) "Constructive Termination" shall mean any material breach of this
Agreement by Corporation; any actual or implied threat of discharge of
Officer by Corporation under circumstances which would not constitute a
Termination for Cause and which results in an involuntary resignation of
employment by Officer; any substantial reduction in the authority or
responsibility of Officer or other substantial reduction in the terms and
conditions of Officer's employment under circumstances which would not
justify a Termination for Cause and which are not the result of a material
breach by Officer of this Agreement; or any act(s) by Corporation which are
designed or have the effect of rendering Officer's working conditions so
intolerable or demeaning on a recurring basis that a reasonable person
would resign such employment.
(h) "Deferred Compensation" or "deferred compensation" shall mean any
individual or group plan, program, agreement or other arrangement, whether
or not a "plan" for purposes of the Employee Retirement Income Security Act
of 1974 ("ERISA") and whether or not a retirement plan or supplemental
executive retirement plan or additional retirement plan as contemplated by
Section 3.11 of the Agreement, but which in any event involves an agreement
by the Corporation to make payment(s) to Officer at a future date as
compensation for current services to the Corporation. The term Deferred
Compensation or deferred compensation shall include, but not be limited to,
benefits described in the Healthcare Realty Trust Incorporated Executive
Retirement Plan, the 1993 Employees Stock Incentive Plan and the First
Performance Based Restricted Stock Implementation under the 1993 Employees
Stock Incentive Plan, or any additional implementation thereof, each as it
now exists or may hereafter be amended.
2.2 Basic Term. The term of employment of Officer by Corporation shall be
from January 1, 1996 through December 31, 2000, unless terminated earlier
pursuant to this Section 2. Commencing in 1996, on the first day of January of
each year, the first and third sentences of this Section 2.2 shall be amended by
deleting the year then appearing therein and inserting in its place the next
subsequent year.
(2)
<PAGE>
2.3 Termination For Cause. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be effected
by written notification to Officer. Upon Termination For Cause, Officer
immediately shall be paid all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by Officer in connection with his
duties hereunder, all to the date of termination, but Officer shall not be paid
any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.4 Termination Other Than For Cause. Notwithstanding anything else in this
Agreement, Corporation may effect a Termination Other Than For Cause at any time
upon giving written notice to Officer of such termination. Upon any Termination
Other Than For Cause, Officer shall immediately be paid all accrued salary,
bonus compensation to the extent earned, whether or not vested without regard to
such Termination (other than pension plan or profit sharing plan benefits which
will be paid in accordance with the applicable plan), any benefits under any
plans of the Corporation in which Officer is a participant to the full extent of
Officer's rights under such plans (including accelerated vesting of any awards
granted to Officer under Corporation's 1993 Employees Stock Incentive Plan, and
any implementation thereof), accrued vacation pay and any appropriate business
expenses incurred by Officer in connection with his duties hereunder, all to the
date of termination, and all severance compensation provided in Section 4.2, but
no other compensation or reimbursement of any kind.
2.5 Termination by Reason of Disability. If, during the term of this
Agreement, Officer, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than twelve (12) consecutive months, Corporation
shall have the right to terminate Officer's employment hereunder by written
notification to Officer and payment to Officer of all accrued salary, bonus
compensation to the extent earned, deferred compensation, whether or not vested
without regard to such illness or incapacity (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans (including
accelerated vesting of any awards granted to Officer under Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, with the
exception of medical and dental benefits which shall continue through the
expiration of this Agreement, but Officer shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation. Notwithstanding the foregoing, any Officer who incurs a
Disability within the contemplation of the Executive Retirement Plan shall
accrue such additional post-disability, post-termination benefits as may be
determined in accordance with such Plan.
2.6 Death. In the event of Officer's death during the term of this
Agreement, Officer's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall pay to
his estate or such beneficiaries as Officer may from time to time designate all
accrued salary, bonus compensation to the extent earned, whether or not vested
without regard to such Termination (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
vesting of any awards granted to Officer under the Corporation's 1993 Employees
Stock Incentive Plan, and any implementation thereof), accrued vacation pay and
any appropriate business expenses incurred by Officer in connection with his
duties hereunder, all to the date of termination, but Officer's estate shall not
be paid any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
(3)
<PAGE>
2.7 Voluntary Termination. In the event of a Voluntary Termination,
Corporation shall immediately pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.8 Termination Upon a Change in Control or Retirement. In the event of (i)
a Termination Upon a Change in Control or (ii) retirement by Officer upon
attainment of eligibility to retire in accordance with the Executive Retirement
Plan as in effect upon the date of this Agreement, Officer shall immediately be
paid all accrued salary, bonus compensation to the extent earned, whether or not
vested without regard to the Change in Control (other than pension plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
Officer is a participant to the full extent of Officer's rights under such plans
(including accelerated vesting of any awards granted to Officer under
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof), accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
and all severance compensation provided in Section 4.1, but no other
compensation or reimbursement of any kind.
2.9 Notice of Termination. Corporation may effect a termination of this
Agreement pursuant to the provisions of this Section 2 upon giving thirty (30)
days' written notice to Officer of such termination. Officer may effect a
termination of this Agreement pursuant to the provisions of this Section 2 upon
giving sixty (60) days' written notice to Corporation of such termination.
2.10 Determination of Benefit Upon Early Payment. In the event a
Participant's deferred compensation benefit becomes vested in accordance with
Sections 2.4, 2.5, 2.6 or 2.8:
(a) any deferred compensation payable under the Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof, shall be
effected by an immediate vesting and release of the shares of stock at
issue, at the specified exercise price, if any, such release to be made
within a reasonable time after the later of the relevant event or payment
of the exercise price, if any;
(b) any deferred compensation payable under a nonqualified defined
contribution plan shall be made available for payment within an
administratively practicable time after the relevant event, in an amount
equal to the then-current book account balance; and
(c) any deferred compensation payable under a nonqualified defined benefit
plan shall be made available for payment within an administratively
practicable time after the relevant event in an amount equal to the greater
of (1) the benefit, if any, otherwise determined in accordance with the
relevant plan, or (2) the present value of the then-accrued benefit,
determined by reducing the accrued benefit from age sixty-five (65) to the
date as of which payment is made, using the actuarial assumptions which
have been used for financial accounting purposes under generally accepted
accounting principles.
3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be rendered by Officer as
provided in Section 1 and subject to the terms and conditions of Section 2,
Corporation agrees to pay to Officer a "Base Salary" for the twelve (12)
calendar months beginning January 1, 1996 at the rate of $316,500.00 per annum
payable in 24 equal semi-monthly installments. The Base Salary for each year (or
portion thereof) beginning January 1, 1994 shall be determined by the Board of
Directors which shall authorize an increase in Officer's Base Salary in an
amount which, at a minimum, shall be equal to the cumulative cost-of-living
increment on the Base Salary as reported in the "Consumer Price Index,
Nashville, Tennessee, All Items," published by the U.S. Department of Labor.
Officer's Base Salary shall be reviewed annually by the Compensation Committee
of the Board of Directors (the "Compensation Committee").
(4)
<PAGE>
3.2 Bonuses. Officer shall be eligible to receive a bonus for each year (or
portion thereof) during the term of this Agreement and any extensions thereof,
with the actual amount of any such bonus to be determined by the Compensation
Committee in accordance with the Corporation's Executive Variable Incentive
Plan. All such bonuses shall be payable within forty-five (45) days after the
end of the year to which such bonus relates. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 Additional Benefits. During the term of this Agreement, Officer shall
be entitled to the following fringe benefits:
3.3.1 Officer Benefits. Officer shall be eligible to participate in such of
Corporation's benefits and deferred compensation plans as are now generally
available or later made generally available to executive officers of the
Corporation, including, without limitation, Corporation's 1993 Employees Stock
Incentive Plan, and any implementation thereof,, profit sharing plans, annual
physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans, if any. For purposes of establishing the length of
service under any benefit plans or programs of Corporation, Officer's employment
with the Corporation will be deemed to have commenced on January 1, 1993.
3.3.2 Vacation. Officer shall be entitled to six (6) weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
3.3.3 Life Insurance. For the term of this Agreement and any extensions
thereof, Corporation shall at its expense procure and keep in effect term life
insurance on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of $2,000,000.00. Such
policy shall be owned by Officer or by a member of his immediate family.
3.3.4 Reimbursement for Expenses. During the term of this Agreement,
Corporation shall reimburse Officer for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Officer in
connection with his duties under this Agreement.
4. Severance Compensation.
4.1 Severance Compensation in the Event of a Termination Upon a Change in
Control. In the event Officer's employment is terminated in a Termination Upon a
Change in Control, Officer shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), through the
remaining term of this Agreement and any extensions thereof, on the dates
specified in Section 3.1; provided, however, that if Officer is employed by a
new employer during such period, the severance compensation payable to Officer
during such period will be reduced by the amount of compensation that Officer is
receiving from the new employer. However, Officer is under no obligation to
mitigate the amount owed Officer pursuant to this Section 4.1 by seeking other
employment or otherwise. Notwithstanding anything in this Section 4.1 to the
contrary, Officer may in Officer's sole discretion, by delivery of a notice to
Corporation within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from Corporation a lump sum severance payment by bank
cashier's check equal to the present value of the flow of cash payments that
would otherwise be paid to Officer pursuant to this Section 4.1. However, in no
event shall payment pursuant to this Section 4.1 be less than three (3) times
Base Salary as defined herein for the applicable period. Such present value
shall be determined as of the date of delivery of the notice of election by
Officer and shall be based on a discount rate equal to the interest rate on
90-day U.S. Treasury bills, as reported in the Wall Street Journal (or similar
publication), on the date of delivery of the election notice. If Officer elects
to receive a lump sum severance payment, Corporation shall make such payment to
Officer within ten (10) days following the date on which Officer notifies
Corporation of Officer's election. In addition to the severance payment payable
under this Section 4.1, Officer shall be paid an amount equal to two (2) times
the average annual bonus earned by Officer in the two (2) years immediately
preceding the date of termination. Officer shall also be entitled to an
accelerated vesting of any awards granted to Officer under the Corporation's
1993 Employees Stock Incentive Plan, and any implementation thereof. Officer
shall continue to accrue retirement benefits and shall continue to enjoy any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans, including any perquisites
provided under this Agreement, through the remaining term of this Agreement;
provided, however, that the benefits under any such plans of the Corporation in
which Officer is a participant, including any such perquisites, shall cease upon
re-employment by a new employer.
(5)
<PAGE>
4.2 Severance Compensation in the Event of a Termination Other Than for
Cause. In the event Officer's employment is terminated in a Termination Other
Than for Cause, Officer shall be paid as severance compensation his Base Salary
(at the rate payable at the time of such termination), for a period of three (3)
years from the date of such termination, on the dates specified in Section 3.1;
provided, however, that if Officer is employed by a new employer during such
period, the severance compensation payable to Officer during such period will be
reduced by the amount of compensation that Officer is receiving from the new
employer. Notwithstanding anything in this Section 4.2 to the contrary, Officer
may in Officer's sole discretion, by delivery of a notice to Corporation within
thirty (30) days following a Termination Other Than for Cause, elect to receive
from Corporation a lump sum severance payment by bank cashier's check equal to
the present value of the flow of cash payments that would otherwise be paid to
Officer pursuant to this Section 4.2. However, in no event shall payment
pursuant to this Section 4.2 be less than two (2) times Base Salary as defined
herein for the applicable period. Such present value shall be determined as of
the date of delivery of the notice of election by Officer and shall be based on
a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as
reported in the Wall Street Journal (or similar publication), on the date of
delivery of the election notice. If Officer elects to receive a lump sum
severance payment, Corporation shall make such payment to Officer within ten
(10) days following the date on which Officer notifies Corporation of Officer's
election. In addition to the severance payment payable under this Section 4.2,
Officer shall be paid an amount equal to two (2) times the average annual bonus
earned by Officer in the two (2) years immediately preceding the date of
termination and Officer shall be entitled to an accelerated vesting of any
awards granted to Officer under Corporation's 1993 Employees Stock Incentive
Plan, and any implementation thereof. Officer shall be entitled to accelerated
vesting of any Accrued Benefit under each Deferred Compensation plan.
Notwithstanding the second prior sentence, continued benefit accrual shall not
apply in the case of any tax-qualified retirement plan if such accrual would
adversely affect the tax-qualified status of such plan; provided, however, that
the benefit which would otherwise have been contributed by the Corporation to
the account of the Officer in any tax-qualified defined contribution and the
single sum value of the benefit plan shall be paid by the Corporation to the
Officer as each such contribution or benefit would have been made or accrued, as
applicable, assuming that the Officer had remained employed on a full-time basis
with a rate of pay equal to his Base Salary. In the case of a Termination Other
Than for Cause by reason of the disability of the Participant, and if the
Participant is retired for Disability under the Executive Retirement Plan, then
the Officer will continue to accrue benefits as provided in the Executive
Retirement Plan at the time he incurs his Disability, notwithstanding any
subsequent nonsubstantial employment.
4.3 No Severance Compensation Upon Other Termination. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of Officer's
disability pursuant to Section 2.5, or termination by reason of Officer's death
pursuant to Section 2.6, Officer or his estate shall not be paid any severance
compensation.
4.4 Limit on Aggregate Compensation Upon a Change in Control.
Notwithstanding anything else in this Agreement, solely in the event of a
Termination Upon a Change in Control pursuant to Section 2.8, the amount of
severance compensation paid to Officer under Sections 2 and 4 or otherwise, but
exclusive of any payments to Officer in respect of any stock options or
restricted stock then held by Officer (or any compensation deemed to be received
by Officer in connection with the exercise of any stock options at any time) or
by virtue of Officer's exercise of a Limited Right under the Option Plan upon a
Change in Control, shall not include any amount that Corporation is prohibited
from deducting for federal income tax purposes by virtue of Section 280G of the
Internal Revenue Code or any successor provision.
(6)
<PAGE>
5. Non-Competition; Disclosure of Investments. During the term of this
Agreement, including the period, if any, during which Officer shall be entitled
to severance compensation pursuant to Section 4.1 or 4.2, Officer shall not
engage in any activity competitive with the Corporation. Simultaneously with
Officer's execution of this Agreement and upon each anniversary of the Effective
Date, Officer shall notify the Chairman of the Compensation Committee of the
nature and extent of Officer's investments, stock holdings, employment as an
employee, director, or any similar interest in any business or enterprise other
than Corporation; provided, however, that Officer shall have no obligation to
disclose any investment under $100,000 in value or any holdings of publicly
traded securities which are not in excess of one percent (1%) of the outstanding
class of such securities.
6. Miscellaneous.
6.1 Payment Obligations. Corporation's obligation to pay Officer the
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation and
Bylaws, hereby indemnifies Officer for Officer's reasonable attorneys' fees and
disbursements incurred in such litigation.
6.2 Confidentiality. Officer agrees that all confidential and proprietary
information relating to the business of Corporation shall be kept and treated as
confidential both during and after the term of this Agreement, except as may be
permitted in writing by Corporation's Board of Directors or as such information
is within the public domain or comes within the public domain without any breach
of this Agreement.
6.3 Waiver. The waiver of the breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of the
same or other provision hereof.
6.4 Entire Agreement; Modifications. Except as otherwise provided herein,
this Agreement represents the entire understanding among the parties with
respect to the subject matter hereof, and this Agreement supersedes any and all
prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof, including without limitation,
any understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5 Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by telegraph or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twelve (12) hours after
transmission of a telegram to the respective persons named below:
If to Corporation: Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
If to Officer: Mr. David R. Emery
108 Bonaventure
Nashville, Tennessee 37205
(7)
<PAGE>
Any party may change such party's address for notices by notice duly give
pursuant to this Section 6.5.
6.6 Headings. The Section headings herein are intended for reference and
shall not by themselves determine the construction or interpretation of this
Agreement.
6.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
6.8 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or breach thereof, shall be settled by arbitration in Nashville,
Tennessee in accordance with the Rules of the American Arbitration Association,
and judgment upon any proper award rendered by the Arbitrators may be entered in
any court having jurisdiction thereof. There shall be three (3) arbitrators, one
(1) to be chosen directly by each party at will, and the third arbitrator to be
selected by the two (2) arbitrators so chosen. To the extent permitted by the
Rules of the American Arbitration Association, the selected arbitrators may
grant equitable relief. Each party shall pay the fees of the arbitrator selected
by him and of his own attorneys, and the expenses of his witnesses and all other
expenses connected with the presentation of his case. The cost of the
arbitration including the cost of the record or transcripts thereof, if any,
administrative fees, and all other fees and costs shall be borne equally by the
parties. To the extent that Officer prevails with respect to any portion of an
arbitration award, Officer shall be reimbursed by the Corporation for the costs
and expenses incurred by Officer in connection with the arbitration in an amount
proportionate to the award to Officer as compared to the amount in dispute.
6.9 Severability. Should a court or other body of competent jurisdiction
determine that any provision of this Agreement is excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, and all other provisions of this Agreement shall be deemed
valid and enforceable to the extent possible.
6.10 Survival of Corporation's Obligations. Corporation's obligations
hereunder shall not be terminated by reason of any liquidation, dissolution,
bankruptcy, cessation of business, or similar event relating to the Corporation.
This Agreement shall not be terminated by any merger or consolidation or other
reorganization of the Corporation. In the event any such merger, consolidation
or reorganization shall be accomplished by transfer of stock or by transfer of
assets or otherwise, the provisions of this Agreement shall be binding upon and
inure to the benefit of the surviving or resulting corporation or person. This
Agreement shall be binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties; provided, however,
that except as herein expressly provided, this Agreement shall not be assignable
either by the Corporation (except to an affiliate of the Corporation in which
event Corporation shall remain liable if the affiliate fails to meet any
obligations to make payments or provide benefits or otherwise) or by Officer.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.12 Withholdings. All compensation and benefits to Officer hereunder shall
be reduced by all federal, state, local and other withholdings and similar taxes
and payments required by applicable law.
6.13 Indemnification. In addition to any rights to indemnification to which
Officer is entitled to under the Corporation's Articles of Incorporation and
Bylaws, Corporation shall indemnify Officer at all times during and after the
term of this Agreement to the maximum extent permitted under Section 2-418 of
the General Corporation Law of the State of Maryland or any successor provision
thereof and any other applicable state law, and shall pay Officer's expenses in
defending any civil or criminal action, suit, or proceeding in advance of the
final disposition of such action, suit, or proceeding, to the maximum extent
permitted under such applicable state laws.
(8)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CORPORATION:
HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:
______________________________________________
Roger O. West, Executive Vice President
Date:
______________________________________________
OFFICER:
_______________________________________________
David R. Emery
Date:
______________________________________________
(9)
<PAGE>
EXHIBIT 10.8
HEALTHCARE REALTY TRUST
INCORPORATED
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
January 1, 1996 ("Effective Date") by and between HEALTHCARE REALTY TRUST
INCORPORATED, A Maryland corporation ("Corporation"), and Roger O. West
(Officer).
RECITAL
Corporation desires to employ Officer as its Executive Vice-President and
General Counsel and Officer is willing to accept such employment by Corporation,
on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. Duties. During the term of this Agreement, Officer agrees to be employed
by and to serve Corporation as its Executive Vice President and General Counsel,
and Corporation agrees to employ and retain Officer in such capacities. Officer
shall devote such of his business time, energy, and skill to the affairs of
Corporation as shall be necessary to perform the duties of such positions.
Officer shall report only to Corporation's Board of Directors and/or President
and at all times during the term of this Agreement shall have powers and duties
at least commensurate with his position as Executive Vice President and General
Counsel. Officer's principal place of business with respect to his services to
Corporation shall be within 20 miles of Nashville, Tennessee.
2. Term of Employment.
2.1 Definitions. For purposes of this Agreement the following terms shall
have the following meanings:
(a) "Termination For Cause" shall mean termination by Corporation of
Officer's employment by Corporation by reason of Officer's material,
substantial and willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to, Corporation or by reason of Officer's
material, substantial and willful breach of this Agreement which has
resulted in material injury to Corporation. For purposes of this Agreement,
a termination of Officer's employment with the Corporation shall be deemed
a Termination Other Than For Cause rather than a Termination For Cause
unless and until established by Corporation to the contrary by a final,
nonappealable decision by a court of competent jurisdiction. The
Corporation shall have the burden of establishing that any termination of
Officer's employment by Corporation is a Termination For Cause.
(b) "Termination Other Than For Cause" shall mean any termination by
Corporation of Officer's employment by Corporation (other than in a
Termination for Cause) and shall include Constructive Termination of
Officer's employment, effective upon notice from Officer to Corporation of
such Constructive Termination. A failure or refusal of Corporation to
extend the term of employment of Officer in accordance with Section 2.2
hereof, other than as a result of circumstances which would warrant a
Termination of Cause hereunder, shall be deemed a Termination Other Than
For Cause.
(1)
<PAGE>
(c) "Voluntary Termination" shall mean termination by Officer of Officer's
employment by Corporation other than (i) Constructive Termination as
described in subsection 2.1(g), (ii) "Termination Upon a Change in
Control," (iii) termination by reason of Officer's death or disability as
described in Sections 2.5 and 2.6 and (iv) termination by reason of
retirement by Officer upon attainment of eligibility to retire in
accordance with the Executive Retirement Plan as in effect upon the date of
this Agreement.
(d) "Termination Upon a Change in Control" shall mean a termination by
Officer of Officer's employment with Corporation within twenty-four (24)
months following a "Change in Control."
(e) "Change in Control" shall mean (i) the time that Corporation first
determines that any person and all other persons who constitute a group
(within the meaning of Section 13 (d) (3) of the Securities Exchange Act of
1934 ("Exchange Act")) have acquired direct or indirect beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
twenty percent (20%) or more of Corporation's outstanding securities,
unless a majority of the "Continuing Directors" approves the acquisition
not later than ten (10) business days after Corporation makes that
determination, or (ii) the first day on which a majority of the members of
Corporation's Board of Directors are not "Continuing Directors."
(f) "Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors of Corporation who (i) was a member of
that Board of Directors on January 1, 1993, (ii) has been a member of that
Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board
of Directors with the affirmative vote of the greater of (x) a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election or (y) at least four Continuing Directors.
(g) "Constructive Termination" shall mean any material breach of this
Agreement by Corporation; any actual or implied threat of discharge of
Officer by Corporation under circumstances which would not constitute a
Termination for Cause and which results in an involuntary resignation of
employment by Officer; any substantial reduction in the authority or
responsibility of Officer or other substantial reduction in the terms and
conditions of Officer's employment under circumstances which would not
justify a Termination for Cause and which are not the result of a material
breach by Officer of this Agreement; or any act(s) by Corporation which are
designed or have the effect of rendering Officer's working conditions so
intolerable or demeaning on a recurring basis that a reasonable person
would resign such employment.
(h) Deferred Compensation or deferred compensation shall mean any
individual or group plan, program, agreement or other arrangement, whether
or not a plan for purposes of the Employee Retirement Income Security Act
of 1974 (ERISA) and whether or not a retirement plan or supplemental
executive retirement plan or additional retirement plan as contemplated by
Section 3.11 of the Agreement, but which in any event involves an agreement
by the Corporation to make payment(s) to Officer at a future date as
compensation for current services to the Corporation. The term Deferred
Compensation or deferred compensation shall include, but not be limited to,
benefits described in the Healthcare Realty Trust Incorporated Executive
Retirement Plan, the 1993 Employees Stock Incentive Plan and the First
Performance Based Restricted Stock Implementation under the 1993 Employees
Stock Incentive Plan, or any additional implementation thereof, each as it
now exists or may hereafter be amended.
2.2 Basic Term. The term of employment of Officer by Corporation shall be
from January 1, 1996 through December 31, 2000, unless terminated earlier
pursuant to this Section 2. Commencing in 1996, on the first day of January of
each year, the first and third sentences of this Section 2.2 shall be amended by
deleting the year then appearing therein and inserting in its place the next
subsequent year.
(2)
<PAGE>
2.3 Termination For Cause. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be effected
by written notification to Officer. Upon Termination For Cause, Officer
immediately shall be paid all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by Officer in connection with his
duties hereunder, all to the date of termination, but Officer shall not be paid
any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.4 Termination Other Than For Cause. Notwithstanding anything else in this
Agreement, Corporation may effect a Termination Other Than For Cause at any time
upon giving written notice to Officer of such termination. Upon any Termination
Other Than For Cause, Officer shall immediately be paid all accrued salary,
bonus compensation to the extent earned, whether or not vested without regard to
such Termination (other than pension plan or profit sharing plan benefits which
will be paid in accordance with the applicable plan), any benefits under any
plans of the Corporation in which Officer is a participant to the full extent of
Officer's rights under such plans (including accelerated vesting of any awards
granted to Officer under Corporation's 1993 Employees Stock Incentive Plan, and
any implementation thereof), accrued vacation pay and any appropriate business
expenses incurred by Officer in connection with his duties hereunder, all to the
date of termination, and all severance compensation provided in Section 4.2, but
no other compensation or reimbursement of any kind.
2.5 Termination by Reason of Disability. If, during the term of this
Agreement, Officer, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than twelve (12) consecutive months, Corporation
shall have the right to terminate Officer's employment hereunder by written
notification to Officer and payment to Officer of all accrued salary, bonus
compensation to the extent earned, deferred compensation, whether or not vested
without regard to such illness or incapacity (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans (including
accelerated vesting of any awards granted to Officer under Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, with the
exception of medical and dental benefits which shall continue through the
expiration of this Agreement, but Officer shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation. Notwithstanding the foregoing, any Officer who incurs a
Disability within the contemplation of the Executive Retirement Plan shall
accrue such additional post-disability, post-termination benefits as may be
determined in accordance with such Plan.
2.6 Death. In the event of Officer's death during the term of this
Agreement, Officer's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall pay to
his estate or such beneficiaries as Officer may from time to time designate all
accrued salary, bonus compensation to the extent earned, whether or not vested
without regard to such Termination (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
vesting of any awards granted to Officer under the Corporation's 1993 Employees
Stock Incentive Plan, and any implementation thereof), accrued vacation pay and
any appropriate business expenses incurred by Officer in connection with his
duties hereunder, all to the date of termination, but Officer's estate shall not
be paid any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
(3)
<PAGE>
2.7 Voluntary Termination. In the event of a Voluntary Termination,
Corporation shall immediately pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.8 Termination Upon a Change in Control or Retirement. In the event of (i)
a Termination Upon a Change in Control or (ii) retirement by Officer upon
attainment of eligibility to retire in accordance with the Executive Retirement
Plan as in effect upon the date of this Agreement, Officer shall immediately be
paid all accrued salary, bonus compensation to the extent earned, whether or not
vested without regard to the Change in Control (other than pension plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
Officer is a participant to the full extent of Officer's rights under such plans
(including accelerated vesting of any awards granted to Officer under
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof), accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
and all severance compensation provided in Section 4.1, but no other
compensation or reimbursement of any kind.
2.9 Notice of Termination. Corporation may effect a termination of this
Agreement pursuant to the provisions of this Section 2 upon giving thirty (30)
days' written notice to Officer of such termination. Officer may effect a
termination of this Agreement pursuant to the provisions of this Section 2 upon
giving sixty (60) days' written notice to Corporation of such termination.
2.10 Determination of Benefit Upon Early Payment. In the event a
Participant's deferred compensation benefit becomes vested in accordance with
Sections 2.4, 2.5, 2.6 or 2.8:
(a) any deferred compensation payable under the Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof, shall be
effected by an immediate vesting and release of the shares of stock at
issue, at the specified exercise price, if any, such release to be made
within a reasonable time after the later of the relevant event or payment
of the exercise price, if any;
(b) any deferred compensation payable under a nonqualified defined
contribution plan shall be made available for payment within an
administratively practicable time after the relevant event, in an amount
equal to the then-current book account balance; and
(c) any deferred compensation payable under a nonqualified defined benefit
plan shall be made available for payment within an administratively
practicable time after the relevant event in an amount equal to the greater
of (1) the benefit, if any, otherwise determined in accordance with the
relevant plan, or (2) the present value of the then-accrued benefit,
determined by reducing the accrued benefit from age sixty-five (65) to the
date as of which payment is made, using the actuarial assumptions which
have been used for financial accounting purposes under generally accepted
accounting principles.
(4)
<PAGE>
3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be rendered by Officer as
provided in Section 1 and subject to the terms and conditions of Section 2,
Corporation agrees to pay to Officer a "Base Salary" for the twelve (12)
calendar months beginning January 1, 1996 at the rate of $200,500 per annum
payable in 24 equal semi-monthly installments. The Base Salary for each year (or
portion thereof) beginning January 1, 1994 shall be determined by the Board of
Directors which shall authorize an increase in Officer's Base Salary in an
amount which, at a minimum, shall be equal to the cumulative cost-of-living
increment on the Base Salary as reported in the "Consumer Price Index,
Nashville, Tennessee, All Items," published by the U.S. Department of Labor.
Officer's Base Salary shall be reviewed annually by the Compensation Committee
of the Board of Directors (the Compensation Committee).
3.2 Bonuses. Officer shall be eligible to receive a bonus for each year (or
portion thereof) during the term of this Agreement and any extensions thereof,
with the actual amount of any such bonus to be determined by the Compensation
Committee in accordance with the Corporation's Executive Variable Incentive
Plan. All such bonuses shall be payable within forty-five (45) days after the
end of the year to which such bonus relates. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 Additional Benefits. During the term of this Agreement, Officer shall
be entitled to the following fringe benefits:
3.3.1 Officer Benefits. Officer shall be eligible to participate in such of
Corporation's benefits and deferred compensation plans as are now generally
available or later made generally available to executive officers of the
Corporation, including, without limitation, Corporation's 1993 Employees Stock
Incentive Plan, and any implementation thereof,, profit sharing plans, annual
physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans, if any. For purposes of establishing the length of
service under any benefit plans or programs of Corporation, Officer's employment
with the Corporation will be deemed to have commenced on May 1, 1994.
3.3.2 Vacation. Officer shall be entitled to six (6) weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
3.3.3 Life Insurance. For the term of this Agreement and any extensions
thereof, Corporation shall at its expense procure and keep in effect term life
insurance on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of $1,500,000.00. Such
policy shall be owned by Officer or by a member of his immediate family.
3.3.4 Reimbursement for Expenses. During the term of this Agreement,
Corporation shall reimburse Officer for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Officer in
connection with his duties under this Agreement.
3.4 Restricted Stock Inducement. To induce Officer to undertake the
employment evidenced by this Agreement, Corporation agrees to grant to Officer:
(i) fifteen thousand shares of stock of the Corporation (the Inducement
Shares) and (ii) twenty thousand shares of stock of the Corporation (the
"Incentive Shares"). Officer agrees that the Inducement Shares and Incentive
Shares are non-transferable except to an entity owned solely by Officer or his
immediate family, or both. Officer and Corporation agree that the dividends
relating to the Inducement Shares and Incentive Shares shall be paid to Officer
at the regular dividend payment date; however, the Inducement Shares and the
Incentive Shares shall be subject to the vesting restrictions as set forth in
the First Performance Based Restricted Stock Implementation. The Incentive
Shares be credited against the Shares Reserved for Release for the benefit of
Officer by the First Performance Based Restricted Stock Implementation. The
certificates representing the Inducement Shares and the Incentive Shares shall
be imprinted with a legend stating that the shares represented thereby may not
be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of
except in accordance with this Agreement.
(5)
<PAGE>
4. Severance Compensation
4.1 Severance Compensation in the Event of a Termination Upon a Change in
Control. In the event Officer's employment is terminated in a Termination Upon a
Change in Control, Officer shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), through the
remaining term of this Agreement and any extensions thereof, on the dates
specified in Section 3.1; provided, however, that if Officer is employed by a
new employer during such period, the severance compensation payable to Officer
during such period will be reduced by the amount of compensation that Officer is
receiving from the new employer. However, Officer is under no obligation to
mitigate the amount owed Officer pursuant to this Section 4.1 by seeking other
employment or otherwise. Notwithstanding anything in this Section 4.1 to the
contrary, Officer may in Officer's sole discretion, by delivery of a notice to
Corporation within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from Corporation a lump sum severance payment by bank
cashier's check equal to the present value of the flow of cash payments that
would otherwise be paid to Officer pursuant to this Section 4.1. However, in no
event shall payment pursuant to this Section 4.1 be less than three (3) times
Base Salary as defined herein for the applicable period. Such present value
shall be determined as of the date of delivery of the notice of election by
Officer and shall be based on a discount rate equal to the interest rate on
90-day U.S. Treasury bills, as reported in the Wall Street Journal (or similar
publication), on the date of delivery of the election notice. If Officer elects
to receive a lump sum severance payment, Corporation shall make such payment to
Officer within ten (10) days following the date on which Officer notifies
Corporation of Officer's election. In addition to the severance payment payable
under this Section 4.1, Officer shall be paid an amount equal to two (2) times
the average annual bonus earned by Officer in the two (2) years immediately
preceding the date of termination. Officer shall also be entitled to an
accelerated vesting of any awards granted to Officer under the Corporation's
1993 Employees Stock Incentive Plan, and any implementation thereof; and Officer
shall receive any Inducement Shares not previously delivered to Officer pursuant
to Section 3.4 of this Agreement. Officer shall continue to accrue retirement
benefits and shall continue to enjoy any benefits under any plans of the
Corporation in which Officer is a participant to the full extent of Officer's
rights under such plans, including any perquisites provided under this
Agreement, through the remaining term of this Agreement; provided, however, that
the benefits under any such plans of the Corporation in which Officer is a
participant, including any such perquisites, shall cease upon re-employment by a
new employer.
4.2 Severance Compensation in the Event of a Termination Other Than for
Cause. In the event Officer's employment is terminated in a Termination Other
Than for Cause, Officer shall be paid as severance compensation his Base Salary
(at the rate payable at the time of such termination), for a period of three (3)
years from the date of such termination, on the dates specified in Section 3.1;
provided, however, that if Officer is employed by a new employer during such
period, the severance compensation payable to Officer during such period will be
reduced by the amount of compensation that Officer is receiving from the new
employer. Notwithstanding anything in this Section 4.2 to the contrary, Officer
may in Officer's sole discretion, by delivery of a notice to Corporation within
thirty (30) days following a Termination Other Than for Cause, elect to receive
from Corporation a lump sum severance payment by bank cashier's check equal to
the present value of the flow of cash payments that would otherwise be paid to
Officer pursuant to this Section 4.2. However, in no event shall payment
pursuant to this Section 4.2 be less than two (2) times Base Salary as defined
herein for the applicable period. Such present value shall be determined as of
the date of delivery of the notice of election by Officer and shall be based on
a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as
reported in the Wall Street Journal (or similar publication), on the date of
delivery of the election notice. If Officer elects to receive a lump sum
severance payment, Corporation shall make such payment to Officer within ten
(10) days following the date on which Officer notifies Corporation of Officer's
election. In addition to the severance payment payable under this Section 4.2,
Officer shall be paid an amount equal to two (2) times the average annual bonus
earned by Officer in the two (2) years immediately preceding the date of
termination and Officer shall be entitled to an accelerated vesting of any
awards granted to Officer under Corporation's 1993 Employees Stock Incentive
Plan, and any implementation thereof; and Officer shall receive any Inducement
Shares stock not previously delivered to Officer pursuant to Section 3.4 of this
Agreement. Officer shall be entitled to accelerated vesting of any Accrued
Benefit under each Deferred Compensation plan. Notwithstanding the second prior
sentence, continued benefit accrual shall not apply in the case of any
tax-qualified retirement plan if such accrual would adversely affect the
tax-qualified status of such plan; provided, however, that the benefit which
would otherwise have been contributed by the Corporation to the account of the
Officer in any tax-qualified defined contribution and the single sum value of
the benefit plan shall be paid by the Corporation to the Officer as each such
contribution or benefit would have been made or accrued, as applicable, assuming
that the Officer had remained employed on a full-time basis with a rate of pay
equal to his Base Salary. In the case of a Termination Other Than for Cause by
reason of the disability of the Participant, and if the Participant is retired
for Disability under the Executive Retirement Plan, then the Officer will
continue to accrue benefits as provided in the Executive Retirement Plan at the
time he incurs his Disability, notwithstanding any subsequent nonsubstantial
employment.
(6)
<PAGE>
4.3 No Severance Compensation Upon Other Termination. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of Officer's
disability pursuant to Section 2.5, or termination by reason of Officer's death
pursuant to Section 2.6, Officer or his estate shall not be paid any severance
compensation.
4.4 Limit on Aggregate Compensation Upon a Change in Control.
Notwithstanding anything else in this Agreement, solely in the event of a
Termination Upon a Change in Control pursuant to Section 2.8, the amount of
severance compensation paid to Officer under Sections 2 and 4 or otherwise, but
exclusive of any payments to Officer in respect of any stock options or
restricted stock then held by Officer (or any compensation deemed to be received
by Officer in connection with the exercise of any stock options at any time) or
by virtue of Officer's exercise of a Limited Right under the Option Plan upon a
Change in Control, shall not include any amount that Corporation is prohibited
from deducting for federal income tax purposes by virtue of Section 280G of the
Internal Revenue Code or any successor provision.
5. Non-Competition; Disclosure of Investments. During the term of this
Agreement, including the period, if any, during which Officer shall be entitled
to severance compensation pursuant to Section 4.1 or 4.2, Officer shall not
engage in any activity competitive with the Corporation. Simultaneously with
Officer's execution of this Agreement and upon each anniversary of the Effective
Date, Officer shall notify the Chairman of the Compensation Committee of the
nature and extent of Officer's investments, stock holdings, employment as an
employee, director, or any similar interest in any business or enterprise other
than Corporation; provided, however, that Officer shall have no obligation to
disclose any investment under $100,000 in value or any holdings of publicly
traded securities which are not in excess of one percent (1%) of the outstanding
class of such securities.
6. Miscellaneous.
6.1 Payment Obligations. Corporation's obligation to pay Officer the
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation and
Bylaws, hereby indemnifies Officer for Officer's reasonable attorneys' fees and
disbursements incurred in such litigation.
(7)
<PAGE>
6.2 Confidentiality. Officer agrees that all confidential and proprietary
information relating to the business of Corporation shall be kept and treated as
confidential both during and after the term of this Agreement, except as may be
permitted in writing by Corporation's Board of Directors or as such information
is within the public domain or comes within the public domain without any breach
of this Agreement.
6.3 Waiver. The waiver of the breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of the
same or other provision hereof.
6.4 Entire Agreement; Modifications. Except as otherwise provided herein,
this Agreement represents the entire understanding among the parties with
respect to the subject matter hereof, and this Agreement supersedes any and all
prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof, including without limitation,
any understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5 Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by telegraph or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twelve (12) hours after
transmission of a telegram to the respective persons named below:
If to Corporation: Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
If to Officer: Mr. Roger O. West
9014 Split Log Road.
Brentwood, Tennessee 37027
Any party may change such party's address for notices by notice duly give
pursuant to this Section 6.5.
6.6 Headings. The Section headings herein are intended for reference and
shall not by themselves determine the construction or interpretation of this
Agreement.
6.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
6.8 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or breach thereof, shall be settled by arbitration in Nashville,
Tennessee in accordance with the Rules of the American Arbitration Association,
and judgment upon any proper award rendered by the Arbitrators may be entered in
any court having jurisdiction thereof. There shall be three (3) arbitrators, one
(1) to be chosen directly by each party at will, and the third arbitrator to be
selected by the two (2) arbitrators so chosen. To the extent permitted by the
Rules of the American Arbitration Association, the selected arbitrators may
grant equitable relief. Each party shall pay the fees of the arbitrator selected
by him and of his own attorneys, and the expenses of his witnesses and all other
expenses connected with the presentation of his case. The cost of the
arbitration including the cost of the record or transcripts thereof, if any,
administrative fees, and all other fees and costs shall be borne equally by the
parties. To the extent that Officer prevails with respect to any portion of an
arbitration award, Officer shall be reimbursed by the Corporation for the costs
and expenses incurred by Officer in connection with the arbitration in an amount
proportionate to the award to Officer as compared to the amount in dispute.
(8)
<PAGE>
6.9 Severability. Should a court or other body of competent jurisdiction
determine that any provision of this Agreement is excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, and all other provisions of this Agreement shall be deemed
valid and enforceable to the extent possible.
6.10 Survival of Corporation's Obligations. Corporation's obligations
hereunder shall not be terminated by reason of any liquidation, dissolution,
bankruptcy, cessation of business, or similar event relating to the Corporation.
This Agreement shall not be terminated by any merger or consolidation or other
reorganization of the Corporation. In the event any such merger, consolidation
or reorganization shall be accomplished by transfer of stock or by transfer of
assets or otherwise, the provisions of this Agreement shall be binding upon and
inure to the benefit of the surviving or resulting corporation or person. This
Agreement shall be binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties; provided, however,
that except as herein expressly provided, this Agreement shall not be assignable
either by the Corporation (except to an affiliate of the Corporation in which
event Corporation shall remain liable if the affiliate fails to meet any
obligations to make payments or provide benefits or otherwise) or by Officer.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.12 Withholdings. All compensation and benefits to Officer hereunder shall
be reduced by all federal, state, local and other withholdings and similar taxes
and payments required by applicable law.
6.13 Indemnification. In addition to any rights to indemnification to which
Officer is entitled to under the Corporation's Articles of Incorporation and
Bylaws, Corporation shall indemnify Officer at all times during and after the
term of this Agreement to the maximum extent permitted under Section 2-418 of
the General Corporation Law of the State of Maryland or any successor provision
thereof and any other applicable state law, and shall pay Officer's expenses in
defending any civil or criminal action, suit, or proceeding in advance of the
final disposition of such action, suit, or proceeding, to the maximum extent
permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CORPORATION:
HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:_________________________________
Name:_______________________________
Title:______________________________
Date:_______________________________
OFFICER:
____________________________________
Roger O. West
Date:_______________________________
(9)
<PAGE>
EXHIBIT 10.9
HEALTHCARE REALTY TRUST
INCORPORATED
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
January 1, 1996 ("Effective Date") by and between HEALTHCARE REALTY TRUST
INCORPORATED, A Maryland corporation ("Corporation"), and Timothy G. Wallace
("Officer").
RECITAL
Corporation desires to employ Officer as its Executive Vice President -
Chief Financial Officer and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. Duties. During the term of this Agreement, Officer agrees to be employed
by and to serve Corporation as its Executive Vice President - Chief Financial
Officer, and Corporation agrees to employ and retain Officer in such capacities.
Officer shall devote such of his business time, energy, and skill to the affairs
of Corporation as shall be necessary to perform the duties of such positions.
Officer shall report only to Corporation's Board of Directors and/or President
and at all times during the term of this Agreement shall have powers and duties
at least commensurate with his position as Executive Vice President - Chief
Financial Officer. Officer's principal place of business with respect to his
services to Corporation shall be within 20 miles of Nashville, Tennessee.
2. Term of Employment.
2.1 Definitions. For purposes of this Agreement the following terms shall
have the following meanings:
(a) "Termination For Cause" shall mean termination by Corporation of
Officer's employment by Corporation by reason of Officer's material,
substantial and willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to, Corporation or by reason of Officer's
material, substantial and willful breach of this Agreement which has
resulted in material injury to Corporation. For purposes of this Agreement,
a termination of Officer's employment with the Corporation shall be deemed
a Termination Other Than For Cause rather than a Termination For Cause
unless and until established by Corporation to the contrary by a final,
nonappealable decision by a court of competent jurisdiction. The
Corporation shall have the burden of establishing that any termination of
Officer's employment by Corporation is a Termination For Cause.
(b) "Termination Other Than For Cause" shall mean any termination by
Corporation of Officer's employment by Corporation (other than in a
Termination for Cause) and shall include Constructive Termination of
Officer's employment, effective upon notice from Officer to Corporation of
such Constructive Termination. A failure or refusal of Corporation to
extend the term of employment of Officer in accordance with Section 2.2
hereof, other than as a result of circumstances which would warrant a
Termination of Cause hereunder, shall be deemed a Termination Other Than
For Cause.
(1)
<PAGE>
(c) "Voluntary Termination" shall mean termination by Officer of Officer's
employment by Corporation other than (i) Constructive Termination as
described in subsection 2.1(g), (ii) "Termination Upon a Change in
Control," (iii) termination by reason of Officer's death or disability as
described in Sections 2.5 and 2.6 and (iv) termination by reason of
retirement by Officer upon attainment of eligibility to retire in
accordance with the Executive Retirement Plan as in effect upon the date of
this Agreement.
(d) "Termination Upon a Change in Control" shall mean a termination by
Officer of Officer's employment with Corporation within twenty-four (24)
months following a Change in Control.
(e) Change in Control shall mean (i) the time that Corporation first
determines that any person and all other persons who constitute a group
(within the meaning of Section 13 (d) (3) of the Securities Exchange Act of
1934 (Exchange Act) have acquired direct or indirect beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
twenty percent (20%) or more of Corporation's outstanding securities,
unless a majority of the "Continuing Directors" approves the acquisition
not later than ten (10) business days after Corporation makes that
determination, or (ii) the first day on which a majority of the members of
Corporation's Board of Directors are not Continuing Directors.
(f) "Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors of Corporation who (i) was a member of
that Board of Directors on January 1, 1993, (ii) has been a member of that
Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board
of Directors with the affirmative vote of the greater of (x) a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election or (y) at least four Continuing Directors.
(g) Constructive Termination shall mean any material breach of this
Agreement by Corporation; any actual or implied threat of discharge of
Officer by Corporation under circumstances which would not constitute a
Termination for Cause and which results in an involuntary resignation of
employment by Officer; any substantial reduction in the authority or
responsibility of Officer or other substantial reduction in the terms and
conditions of Officers employment under circumstances which would not
justify a Termination for Cause and which are not the result of a material
breach by Officer of this Agreement; or any act(s) by Corporation which are
designed or have the effect of rendering Officer's working conditions so
intolerable or demeaning on a recurring basis that a reasonable person
would resign such employment.
(h) Deferred Compensation or deferred compensation shall mean any
individual or group plan, program, agreement or other arrangement, whether
or not a plan for purposes of the Employee Retirement Income Security Act
of 1974 (ERISA) and whether or not a retirement plan or supplemental
executive retirement plan or additional retirement plan as contemplated by
Section 3.11 of the Agreement, but which in any event involves an agreement
by the Corporation to make payment(s) to Officer at a future date as
compensation for current services to the Corporation. The term Deferred
Compensation or deferred compensation shall include, but not be limited to,
benefits described in the Healthcare Realty Trust Incorporated Executive
Retirement Plan, the 1993 Employees Stock Incentive Plan and the First
Performance Based Restricted Stock Implementation under the 1993 Employees
Stock Incentive Plan, or any additional implementation thereof, each as it
now exists or may hereafter be amended.
2.2 Basic Term. The term of employment of Officer by Corporation shall be
from January 1, 1996 through December 31, 2000, unless terminated earlier
pursuant to this Section 2. Commencing in 1996, on the first day of January of
each year, the first and third sentences of this Section 2.2 shall be amended by
deleting the year then appearing therein and inserting in its place the next
subsequent year.
(2)
<PAGE>
2.3 Termination For Cause. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be effected
by written notification to Officer. Upon Termination For Cause, Officer
immediately shall be paid all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by Officer in connection with his
duties hereunder, all to the date of termination, but Officer shall not be paid
any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.4 Termination Other Than For Cause. Notwithstanding anything else in this
Agreement, Corporation may effect a Termination Other Than For Cause at any time
upon giving written notice to Officer of such termination. Upon any Termination
Other Than For Cause, Officer shall immediately be paid all accrued salary,
bonus compensation to the extent earned, whether or not vested without regard to
such Termination (other than pension plan or profit sharing plan benefits which
will be paid in accordance with the applicable plan), any benefits under any
plans of the Corporation in which Officer is a participant to the full extent of
Officer's rights under such plans (including accelerated vesting of any awards
granted to Officer under Corporation's 1993 Employees Stock Incentive Plan, and
any implementation thereof), accrued vacation pay and any appropriate business
expenses incurred by Officer in connection with his duties hereunder, all to the
date of termination, and all severance compensation provided in Section 4.2, but
no other compensation or reimbursement of any kind.
2.5 Termination by Reason of Disability. If, during the term of this
Agreement, Officer, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than twelve (12) consecutive months, Corporation
shall have the right to terminate Officer's employment hereunder by written
notification to Officer and payment to Officer of all accrued salary, bonus
compensation to the extent earned, deferred compensation, whether or not vested
without regard to such illness or incapacity (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans (including
accelerated vesting of any awards granted to Officer under Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, with the
exception of medical and dental benefits which shall continue through the
expiration of this Agreement, but Officer shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation. Notwithstanding the foregoing, any Officer who incurs a
Disability within the contemplation of the Executive Retirement Plan shall
accrue such additional post-disability, post-termination benefits as may be
determined in accordance with such Plan.
2.6 Death. In the event of Officer's death during the term of this
Agreement, Officer's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall pay to
his estate or such beneficiaries as Officer may from time to time designate all
accrued salary, bonus compensation to the extent earned, whether or not vested
without regard to such Termination (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
vesting of any awards granted to Officer under the Corporation's 1993 Employees
Stock Incentive Plan, and any implementation thereof), accrued vacation pay and
any appropriate business expenses incurred by Officer in connection with his
duties hereunder, all to the date of termination, but Officer's estate shall not
be paid any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
(4)
<PAGE>
2.7 Voluntary Termination. In the event of a Voluntary Termination,
Corporation shall immediately pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.8 Termination Upon a Change in Control or Retirement. In the event of (i)
a Termination Upon a Change in Control or (ii) retirement by Officer upon
attainment of eligibility to retire in accordance with the Executive Retirement
Plan as in effect upon the date of this Agreement, Officer shall immediately be
paid all accrued salary, bonus compensation to the extent earned, whether or not
vested without regard to the Change in Control (other than pension plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
Officer is a participant to the full extent of Officer's rights under such plans
(including accelerated vesting of any awards granted to Officer under
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof), accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
and all severance compensation provided in Section 4.1, but no other
compensation or reimbursement of any kind.
2.9 Notice of Termination. Corporation may effect a termination of this
Agreement pursuant to the provisions of this Section 2 upon giving thirty (30)
days' written notice to Officer of such termination. Officer may effect a
termination of this Agreement pursuant to the provisions of this Section 2 upon
giving sixty (60) days' written notice to Corporation of such termination.
2.10 Determination of Benefit Upon Early Payment. In the event a
Participant's deferred compensation benefit becomes vested in accordance with
Sections 2.4, 2.5, 2.6 or 2.8:
(a) any deferred compensation payable under the Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof, shall be
effected by an immediate vesting and release of the shares of stock at
issue, at the specified exercise price, if any, such release to be made
within a reasonable time after the later of the relevant event or payment
of the exercise price, if any;
(b) any deferred compensation payable under a nonqualified defined
contribution plan shall be made available for payment within an
administratively practicable time after the relevant event, in an amount
equal to the then-current book account balance; and
(c) any deferred compensation payable under a nonqualified defined benefit
plan shall be made available for payment within an administratively
practicable time after the relevant event in an amount equal to the greater
of (1) the benefit, if any, otherwise determined in accordance with the
relevant plan, or (2) the present value of the then-accrued benefit,
determined by reducing the accrued benefit from age sixty-five (65) to the
date as of which payment is made, using the actuarial assumptions which
have been used for financial accounting purposes under generally accepted
accounting principles.
3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be rendered by Officer as
provided in Section 1 and subject to the terms and conditions of Section 2,
Corporation agrees to pay to Officer a "Base Salary" for the twelve (12)
calendar months beginning January 1, 1996 at the rate of $200,500 per annum
payable in 24 equal semi-monthly installments. The Base Salary for each year (or
portion thereof) beginning January 1, 1994 shall be determined by the Board of
Directors which shall authorize an increase in Officer's Base Salary in an
amount which, at a minimum, shall be equal to the cumulative cost-of-living
increment on the Base Salary as reported in the "Consumer Price Index,
Nashville, Tennessee, All Items," published by the U.S. Department of Labor.
Officer's Base Salary shall be reviewed annually by the Compensation Committee
of the Board of Directors (the "Compensation Committee").
(5)
<PAGE>
3.2 Bonuses. Officer shall be eligible to receive a bonus for each year (or
portion thereof) during the term of this Agreement and any extensions thereof,
with the actual amount of any such bonus to be determined by the Compensation
Committee in accordance with the Corporation's Executive Variable Incentive
Plan. All such bonuses shall be payable within forty-five (45) days after the
end of the year to which such bonus relates. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 Additional Benefits. During the term of this Agreement, Officer shall
be entitled to the following fringe benefits:
3.3.1 Officer Benefits. Officer shall be eligible to participate in such of
Corporation's benefits and deferred compensation plans as are now generally
available or later made generally available to executive officers of the
Corporation, including, without limitation, Corporation's 1993 Employees Stock
Incentive Plan, and any implementation thereof,, profit sharing plans, annual
physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans, if any. For purposes of establishing the length of
service under any benefit plans or programs of Corporation, Officer's employment
with the Corporation will be deemed to have commenced on January 1, 1993.
3.3.2 Vacation. Officer shall be entitled to six (6) weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
3.3.3 Life Insurance. For the term of this Agreement and any extensions
thereof, Corporation shall at its expense procure and keep in effect term life
insurance on the life of Officer, payable to such beneficiaries as Officer may
from time to time designate, in the aggregate amount of $1,500,000.00. Such
policy shall be owned by Officer or by a member of his immediate family.
3.3.4 Reimbursement for Expenses. During the term of this Agreement,
Corporation shall reimburse Officer for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Officer in
connection with his duties under this Agreement.
4. Severance Compensation.
4.1 Severance Compensation in the Event of a Termination Upon a Change in
Control. In the event Officer's employment is terminated in a Termination Upon a
Change in Control, Officer shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), through the
remaining term of this Agreement and any extensions thereof, on the dates
specified in Section 3.1; provided, however, that if Officer is employed by a
new employer during such period, the severance compensation payable to Officer
during such period will be reduced by the amount of compensation that Officer is
receiving from the new employer. However, Officer is under no obligation to
mitigate the amount owed Officer pursuant to this Section 4.1 by seeking other
employment or otherwise. Notwithstanding anything in this Section 4.1 to the
contrary, Officer may in Officer's sole discretion, by delivery of a notice to
Corporation within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from Corporation a lump sum severance payment by bank
cashier's check equal to the present value of the flow of cash payments that
would otherwise be paid to Officer pursuant to this Section 4.1. However, in no
event shall payment pursuant to this Section 4.1 be less than three (3) times
Base Salary as defined herein for the applicable period. Such present value
shall be determined as of the date of delivery of the notice of election by
Officer and shall be based on a discount rate equal to the interest rate on
90-day U.S. Treasury bills, as reported in the Wall Street Journal (or similar
publication), on the date of delivery of the election notice. If Officer elects
to receive a lump sum severance payment, Corporation shall make such payment to
Officer within ten (10) days following the date on which Officer notifies
Corporation of Officer's election. In addition to the severance payment payable
under this Section 4.1, Officer shall be paid an amount equal to two (2) times
the average annual bonus earned by Officer in the two (2) years immediately
preceding the date of termination. Officer shall also be entitled to an
accelerated vesting of any awards granted to Officer under the Corporation's
1993 Employees Stock Incentive Plan, and any implementation thereof. Officer
shall continue to accrue retirement benefits and shall continue to enjoy any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans, including any perquisites
provided under this Agreement, through the remaining term of this Agreement;
provided, however, that the benefits under any such plans of the Corporation in
which Officer is a participant, including any such perquisites, shall cease upon
re-employment by a new employer.
(6)
<PAGE>
4.2 Severance Compensation in the Event of a Termination Other Than for
Cause. In the event Officer's employment is terminated in a Termination Other
Than for Cause, Officer shall be paid as severance compensation his Base Salary
(at the rate payable at the time of such termination), for a period of three (3)
years from the date of such termination, on the dates specified in Section 3.1;
provided, however, that if Officer is employed by a new employer during such
period, the severance compensation payable to Officer during such period will be
reduced by the amount of compensation that Officer is receiving from the new
employer. Notwithstanding anything in this Section 4.2 to the contrary, Officer
may in Officer's sole discretion, by delivery of a notice to Corporation within
thirty (30) days following a Termination Other Than for Cause, elect to receive
from Corporation a lump sum severance payment by bank cashier's check equal to
the present value of the flow of cash payments that would otherwise be paid to
Officer pursuant to this Section 4.2. However, in no event shall payment
pursuant to this Section 4.2 be less than two (2) times Base Salary as defined
herein for the applicable period. Such present value shall be determined as of
the date of delivery of the notice of election by Officer and shall be based on
a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as
reported in the Wall Street Journal (or similar publication), on the date of
delivery of the election notice. If Officer elects to receive a lump sum
severance payment, Corporation shall make such payment to Officer within ten
(10) days following the date on which Officer notifies Corporation of Officer's
election. In addition to the severance payment payable under this Section 4.2,
Officer shall be paid an amount equal to two (2) times the average annual bonus
earned by Officer in the two (2) years immediately preceding the date of
termination and Officer shall be entitled to an accelerated vesting of any
awards granted to Officer under Corporation's 1993 Employees Stock Incentive
Plan, and any implementation thereof. Officer shall be entitled to accelerated
vesting of any Accrued Benefit under each Deferred Compensation plan.
Notwithstanding the second prior sentence, continued benefit accrual shall not
apply in the case of any tax-qualified retirement plan if such accrual would
adversely affect the tax-qualified status of such plan; provided, however, that
the benefit which would otherwise have been contributed by the Corporation to
the account of the Officer in any tax-qualified defined contribution and the
single sum value of the benefit plan shall be paid by the Corporation to the
Officer as each such contribution or benefit would have been made or accrued, as
applicable, assuming that the Officer had remained employed on a full-time basis
with a rate of pay equal to his Base Salary. In the case of a Termination Other
Than for Cause by reason of the disability of the Participant, and if the
Participant is retired for Disability under the Executive Retirement Plan, then
the Officer will continue to accrue benefits as provided in the Executive
Retirement Plan at the time he incurs his Disability, notwithstanding any
subsequent nonsubstantial employment.
4.3 No Severance Compensation Upon Other Termination. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of Officer's
disability pursuant to Section 2.5, or termination by reason of Officer's death
pursuant to Section 2.6, Officer or his estate shall not be paid any severance
compensation.
4.4 Limit on Aggregate Compensation Upon a Change in Control.
Notwithstanding anything else in this Agreement, solely in the event of a
Termination Upon a Change in Control pursuant to Section 2.8, the amount of
severance compensation paid to Officer under Sections 2 and 4 or otherwise, but
exclusive of any payments to Officer in respect of any stock options or
restricted stock then held by Officer (or any compensation deemed to be received
by Officer in connection with the exercise of any stock options at any time) or
by virtue of Officer's exercise of a Limited Right under the Option Plan upon a
Change in Control, shall not include any amount that Corporation is prohibited
from deducting for federal income tax purposes by virtue of Section 280G of the
Internal Revenue Code or any successor provision.
(7)
<PAGE>
5. Non-Competition; Disclosure of Investments. During the term of this
Agreement, including the period, if any, during which Officer shall be entitled
to severance compensation pursuant to Section 4.1 or 4.2, Officer shall not
engage in any activity competitive with the Corporation. Simultaneously with
Officer's execution of this Agreement and upon each anniversary of the Effective
Date, Officer shall notify the Chairman of the Compensation Committee of the
nature and extent of Officer's investments, stock holdings, employment as an
employee, director, or any similar interest in any business or enterprise other
than Corporation; provided, however, that Officer shall have no obligation to
disclose any investment under $100,000 in value or any holdings of publicly
traded securities which are not in excess of one percent (1%) of the outstanding
class of such securities.
6. Miscellaneous.
6.1 Payment Obligations. Corporation's obligation to pay Officer the
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation and
Bylaws, hereby indemnifies Officer for Officer's reasonable attorneys' fees and
disbursements incurred in such litigation.
6.2 Confidentiality. Officer agrees that all confidential and proprietary
information relating to the business of Corporation shall be kept and treated as
confidential both during and after the term of this Agreement, except as may be
permitted in writing by Corporation's Board of Directors or as such information
is within the public domain or comes within the public domain without any breach
of this Agreement.
6.3 Waiver. The waiver of the breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of the
same or other provision hereof.
6.4 Entire Agreement; Modifications. Except as otherwise provided herein,
this Agreement represents the entire understanding among the parties with
respect to the subject matter hereof, and this Agreement supersedes any and all
prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof, including without limitation,
any understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5 Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by telegraph or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twelve (12) hours after
transmission of a telegram to the respective persons named below:
If to Corporation: Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
If to Officer: Mr. Timothy G. Wallace
424 Maplewood Drive
Franklin, Tennessee 37064
(8)
<PAGE>
Any party may change such party's address for notices by notice duly give
pursuant to this Section 6.5.
6.6 Headings. The Section headings herein are intended for reference and
shall not by themselves determine the construction or interpretation of this
Agreement.
6.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
6.8 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or breach thereof, shall be settled by arbitration in Nashville,
Tennessee in accordance with the Rules of the American Arbitration Association,
and judgment upon any proper award rendered by the Arbitrators may be entered in
any court having jurisdiction thereof. There shall be three (3) arbitrators, one
(1) to be chosen directly by each party at will, and the third arbitrator to be
selected by the two (2) arbitrators so chosen. To the extent permitted by the
Rules of the American Arbitration Association, the selected arbitrators may
grant equitable relief. Each party shall pay the fees of the arbitrator selected
by him and of his own attorneys, and the expenses of his witnesses and all other
expenses connected with the presentation of his case. The cost of the
arbitration including the cost of the record or transcripts thereof, if any,
administrative fees, and all other fees and costs shall be borne equally by the
parties. To the extent that Officer prevails with respect to any portion of an
arbitration award, Officer shall be reimbursed by the Corporation for the costs
and expenses incurred by Officer in connection with the arbitration in an amount
proportionate to the award to Officer as compared to the amount in dispute.
6.9 Severability. Should a court or other body of competent jurisdiction
determine that any provision of this Agreement is excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, and all other provisions of this Agreement shall be deemed
valid and enforceable to the extent possible.
6.10 Survival of Corporation's Obligations. Corporation's obligations
hereunder shall not be terminated by reason of any liquidation, dissolution,
bankruptcy, cessation of business, or similar event relating to the Corporation.
This Agreement shall not be terminated by any merger or consolidation or other
reorganization of the Corporation. In the event any such merger, consolidation
or reorganization shall be accomplished by transfer of stock or by transfer of
assets or otherwise, the provisions of this Agreement shall be binding upon and
inure to the benefit of the surviving or resulting corporation or person. This
Agreement shall be binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties; provided, however,
that except as herein expressly provided, this Agreement shall not be assignable
either by the Corporation (except to an affiliate of the Corporation in which
event Corporation shall remain liable if the affiliate fails to meet any
obligations to make payments or provide benefits or otherwise) or by Officer.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.12 Withholdings. All compensation and benefits to Officer hereunder shall
be reduced by all federal, state, local and other withholdings and similar taxes
and payments required by applicable law.
6.13 Indemnification. In addition to any rights to indemnification to which
Officer is entitled to under the Corporation's Articles of Incorporation and
Bylaws, Corporation shall indemnify Officer at all times during and after the
term of this Agreement to the maximum extent permitted under Section 2-418 of
the General Corporation Law of the State of Maryland or any successor provision
thereof and any other applicable state law, and shall pay Officer's expenses in
defending any civil or criminal action, suit, or proceeding in advance of the
final disposition of such action, suit, or proceeding, to the maximum extent
permitted under such applicable state laws.
(9)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CORPORATION:
HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:
______________________________________________
Roger O. West, Executive Vice President
Date:
______________________________________________
OFFICER:
_______________________________________________
Timothy G. Wallace
Date:
______________________________________________
(10)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11 - Statement Re: Computation of Per Share Earnings
Year Year Year
Ended Ended Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Weighted Average
- ----------------
Average Shares Outstanding 13,254,233 12,967,132 11,830,197
========== ========== ==========
Net income $19,731,623 $18,257,616 $15,715,588
=========== =========== ===========
Per share amount $1.49 $1.41 $1.33
===== ===== =====
Primary (1)
- -----------
Average Shares Outstanding 13,254,233 12,967,132 11,830,197
Net effect of dilutive stock options--
based on treasury stock method 27,927 13,025 24,035
------ ------ ------
Total 13,282,160 12,980,157 11,854,232
========== ========== ==========
Net income $19,731,623 $18,257,616 $15,715,588
=========== =========== ===========
Per share amount $1.49 $1.41 $1.33
===== ===== =====
Fully Diluted (1)
- -----------------
Average Shares Outstanding 13,254,233 12,967,132 11,830,197
Net effect of dilutive stock options--
based on treasury stock method 34,682 28,801 34,313
------ ------ ------
Total 13,288,915 12,995,933 11,864,510
========== ========== ==========
Net income $19,731,623 $18,257,616 $15,715,588
=========== =========== ===========
Per share amount $1.48 $1.40 $1.32
===== ===== =====
</TABLE>
(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.
(1)
<PAGE>
SELECTED FINANCIAL INFORMATION The following table sets forth financial
information for the Company which is derived from the Consolidated Financial
Statements of the Company.
<TABLE>
<CAPTION>
June 3, 1993
(commencement
of operations)
Year Ended December 31, through
1996 1995 1994 December 31, 1993
<S> <C> <C> <C> <C>
Statement of Income Data:
Total revenues $ 38,574,139 $ 33,361,161 $ 24,226,423 $ 7,135,004
Interest expense $ 7,344,141 $ 5,083,172 $ 1,116,436 $ 314,167
Net income $ 19,731,623 $ 18,257,616 $ 15,715,588 $ 3,950,034
Net income per share $ 1.49 $ 1.41 $ 1.33 $ 0.64
Weighted average shares outstanding 13,254,233 12,967,132 11,830,197 6,185,600
Balance Sheet Data (as of the end of the period):
Real estate properties, net $ 416,034,417 $ 318,480,336 $ 280,767,098 $ 133,392,751
Total assets $ 427,505,477 $ 336,777,677 $ 283,189,771 $ 134,069,694
Notes and bonds payable $ 168,618,000 $ 92,970,000 $ 40,375,000 $ 21,000,000
Total stockholders' equity $ 245,964,243 $ 234,447,793 $ 236,340,287 $ 108,190,254
Other Data:
Funds from operations (1) $ 28,036,395 $ 25,490,401 $ 20,918,679 $ 5,773,571
Funds from operations per share (1) $ 2.12 $ 1.97 $ 1.77 $ .93
Dividends declared and paid per share $ 1.91 $ 1.83 $ 1.75 $ .55
</TABLE>
(1) See Note 10 to Consolidated Financial Statements.
(1)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company operates under the Internal Revenue Code of 1986 (the Code) as
an indefinite life real estate investment trust (REIT). The Company, a
self-managed and self-administered REIT, follows a general growth strategy that
integrates owning, acquiring, managing, and developing income-producing real
estate properties related to healthcare services throughout the United States.
Management believes that by providing related real estate services, it can
differentiate the Company's competitive market position, acquire needed capital,
expand its asset base and increase revenue.
Since commencing operations in June, 1993, through December 31, 1996, the
Company has invested or committed to invest, directly and indirectly, over
$460,000,000 in 80 income-producing properties related to the delivery of
healthcare services, containing over 3.9 million square feet. The Company's
portfolio is comprised of seven facility types, located in 38 markets
nationwide, and operated pursuant to contractual arrangements with 16 healthcare
providers. The Company is currently managing 83 healthcare-related properties
nationwide totaling over 3.2 million square feet, including 27 which are owned
by the Company.
Substantially all of the Company's revenues are derived from rentals on its
healthcare real estate property facilities, interest earned from the temporary
investment of funds in short-term instruments and from management and
development services. Leases and other financial support arrangements with
respect to its healthcare real estate facilities generally ensure that the costs
and expenses incurred with respect to the operation of the facilities will be
borne by tenants and healthcare providers related to the facilities. The Company
incurs operating and administrative expenses, principally compensation expense
for its officers and other employees, office rental and related occupancy costs
and various expenses incurred in the process of acquiring additional properties.
The Company's strategy is to be a full service provider of integrated real
estate solutions to quality healthcare providers. Consistent with this strategy,
the Company seeks to provide a spectrum of services needed to own, acquire,
manage and develop healthcare properties, including leasing, development,
management, market research, budgeting, accounting, collection, construction
management, tenant coordination and financial services. The Company's
development activities are primarily accomplished through pre-leased
build-to-suit projects.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
For the year ended December 31, 1996, net income was $19,731,623, or $1.49
per share of common stock, on total revenues of $38,574,139 compared to net
income of $18,257,616, or $1.41 per share of common stock, on total revenues of
$33,361,161, for the year ended December 31, 1995. Funds from operations (FFO)
was $28,036,395, or $2.12 per share, for the year ended December 31, 1996
compared to $25,490,401, or $1.97 per share, in 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues
Master lease rental income $ 35,329,475 $ 32,402,507
Property operating income 1,337,779 0
------------ ------------
Total rental income 36,667,254 32,402,507
Management fees 1,110,943 465,766
Interest and other income 795,942 492,888
------------ ------------
38,574,139 33,361,161
============ ============
Expenses
General and administrative 2,232,882 2,143,505
Property operating expenses 269,408 0
Interest 7,344,141 5,083,172
Depreciation 8,651,620 7,693,048
Amortization 344,465 183,820
------------ ------------
18,842,516 15,103,545
------------ ------------
Net Income $ 19,731,623 $ 18,257,616
============ ============
</TABLE>
(2)
<PAGE>
Total revenues for the year ended December 31, 1996 compared to the year
ended December 31, 1995 provided an increase of $5,212,978 or 15.6%. The
increase is primarily due to base rent derived from investment of approximately
$45,400,000 in six completed development properties in 1996. In addition, total
rental income for the year ended December 31, 1996 includes a partial year of
base rent derived from investment of approximately $58,400,000 in 14
acquisitions during 1996. Revenues during 1996 also reflect an increase of
$645,177 (138.5%) in property management fees. At December 31, 1996, the Company
managed 83 properties compared to 26 properties at December 31, 1995. Interest
and other income increased from $492,888 for the year ended December 31, 1995 to
$795,942 for the year ended December 31, 1996 primarily due to the short-term
refinancing of approximately $30,800,000 of mortgage notes for a current
healthcare client.
Total expenses for the year ended December 31, 1996 were $18,842,516
compared to $15,103,545 for the year ended December 31, 1995, an increase of
$3,738,971 or 24.8%. Depreciation expense increased $958,572 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 $89,377, primarily due to an increase in total
employees. Interest expense increased from $5,083,172 for the year ended
December 31, 1995 to $7,344,141 for the year ended December 31, 1996. During the
year ended December 31, 1996, the Company had an average outstanding total debt
balance of approximately $122,400,000 compared to approximately $70,900,000 in
1995. On September 18, 1995, the Company privately placed $90,000,000 of
unsecured notes (the Unsecured Notes) with 16 credit institutions which also had
the effect of increasing 1996 interest expense since the Unsecured Notes were
outstanding for a full year in 1996 compared to 3.5 months in 1995. Amortization
expense increased from $183,820 for the year ended December 31, 1995 to $344,465
for the year ended December 31, 1996 due to amortization of acquired
revenue-producing management contracts and other intangible assets.
1995 COMPARED TO 1994
For the year ended December 31, 1995, net income was $18,257,616, or $1.41
per share of common stock, on total revenues of $33,361,161 compared to net
income of $15,715,588, or $1.33 per share of common stock, on total revenues of
$24,226,423, for the year ended December 31, 1994. FFO was $1.97 per share for
the year ended December 31, 1995 compared to $1.77 in 1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues
Master lease rental income $ 32,402,507 $ 23,231,345
Management fees 465,766 0
Interest and other income 492,888 995,078
------------ -------------
33,361,161 24,226,423
============ =============
Expenses
General and administrative 2,143,505 2,095,669
Interest 5,083,172 1,116,436
Depreciation 7,693,048 5,233,474
Amortization 183,820 65,256
------------ -------------
15,103,545 8,510,835
------------ -------------
Net Income $ 18,257,616 $ 15,715,588
============ =============
</TABLE>
Total revenues for the year ended December 31, 1995 compared to the year
ended December 31, 1994 provided an increase of $9,134,738 or 37.7%. The
increase is primarily due to a full year of rental income derived from the
acquisition of 20 properties during the year ended December 31, 1994 and base
rent derived from eight completed properties which were transferred from
construction in progress subsequent to September 30, 1994. In addition, rental
income for the year ended December 31, 1995 includes a partial year of base rent
derived from the three acquisitions during 1995. Revenues during 1995 also
reflect $465,766 of property management fees. Interest and other income
decreased from $995,078 for the year ended December 31, 1994 to $492,888 for the
year ended December 31, 1995 primarily due to the Company maintaining lower cash
balances. In addition, the 1995 amount reflects $220,140 of gain from a property
disposition.
(3)
<PAGE>
Total expenses for the year ended December 31, 1995 were $15,103,545
compared to $8,510,835 for the year ended December 31, 1994, an increase of
$6,592,710 or 77.5%. Depreciation expense increased $2,459,574 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 $47,836, primarily due to an increase in total
employees and an increase in the square footage of the Company's office space
during March 1994. Interest expense increased from $1,116,436 for the year ended
December 31, 1994 to $5,083,172 for the year ended December 31, 1995. The
Company completed a secondary offering on February 16, 1994 and immediately
repaid all $23,100,000 of outstanding indebtedness under the unsecured credit
facility (the Unsecured Credit Facility). The Company did not borrow under the
Unsecured Credit Facility again until August 9, 1994 since proceeds were
available from the secondary offering to fund additional property acquisitions.
During the year ended December 31, 1995, the Company had an average outstanding
debt balance of $70,900,000. On September 18, 1995, the Company privately placed
$90,000,000 of Unsecured Notes with 16 credit institutions which also had the
effect of increasing 1995 interest expense. Amortization increased from $65,256
for the year ended December 31, 1994 to $183,820 for the year ended December 31,
1995 due to amortization of acquired revenue-producing management contracts and
other intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
Effective December 26, 1996, the Company amended its $75,000,000 Unsecured
Credit Facility with four commercial banks to increase the Unsecured Credit
Facility to $100,000,000 and to extend the maturity date from August 1997 to
December 1999, with two one-year extensions. Other modifications include a
reduction in the interest rate to LIBOR plus 1.125% or the base rate of
NationsBank, National Association (previously LIBOR plus 1.25%). The Company
pays a commitment fee of .225 of one percent per annum on the unused portion of
funds available for borrowing under the Unsecured Credit Facility (previously
.250). The Unsecured Credit Facility is unsecured and contains certain
representations, warranties and financial and other covenants customary in such
loan agreements.
Effective February 14, 1997, the Company sold 5,175,000 shares of its
common stock in a secondary offering (the Secondary Offering) under its
currently effective registration statement pertaining to $250,000,000 of equity
securities, debt securities and warrants. The Company received $133,411,500 in
net proceeds. Promptly thereafter, the net proceeds were used, in part, to
extinguish all $71,900,000 of indebtedness outstanding under the Unsecured
Credit Facility, which results in a borrowing capacity of $100,000,000, and
repayment or defeasance of secured indebtedness in the total amount of
$6,718,000. Remaining proceeds of the Secondary Offering of approximately
$57,200,000 have been invested short-term and will be available to finance
additional property acquisitions, build-to-suit property development and for
general corporate purposes. FFO can be negatively affected by delay in the
acquisition of, or investment in, healthcare properties. As of December 31,
1996, the Company had stockholders' equity of $245,964,243; following the
Secondary Offering stockholders equity is approximately $379,375,000. The debt
to total capitalization ratio was approximately 40.7% at December 31, 1996 and
approximately 24.0% following the Secondary Offering.
The Company can issue an aggregate of approximately $143,000,000 of
securities remaining under currently effective registration statements and
intends to continue 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 real estate investment trusts 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.
The Company generated net cash from operations in 1996 of $29,554,897, an
increase of $2,817,979 over 1995 and $8,271,137 over 1994. The funds were used
in 1996, along with net borrowings of approximately $51,000,000 under the
Unsecured Credit Facility, to make additional investments in income-producing
assets and real estate properties totaling approximately $63,000,000. Funds were
also used to pay dividends to stockholders of $25,196,467.
On November 15, 1996, the Company acquired Lewis-Gale Building Corporation,
which included two ancillary hospital facilities located adjacent to the
Lewis-Gale Medical Center, operated by Columbia/HCA, two medical office
buildings and six physician clinics in the Roanoke/Salem, Virginia area. The
buildings are either leased to Lewis-Gale Clinic, L.L.C., or are under leases
guaranteed by the Clinic, and are managed by the Company. PhyCor, Inc., a
physician practice management company, owns the related physician practice
assets and has guaranteed the operating lease obligations of the Clinic to the
Company. The Company's investment in these properties, which consists of the
issuance of 687,692 shares of common stock of the Company and the assumption of
liabilities, is approximately $44,000,000. FFO should be positively affected by
the receipts of rentals from these properties for years following 1996.
At December 31, 1996, the Company, in the normal course of business, had
received a fully executed letter of intent to purchase upon completion of
development, one property for approximately $15,000,000. In addition, as of
December 31, 1996, the Company had a net investment of approximately $13,900,000
for three lessee developments in progress with a total remaining funding
commitment of approximately $10,100,000. The Company intends to fund these
commitments with the funds available from the proceeds of the Secondary
Offering.
(4)
<PAGE>
During 1996, the Company did not sell any properties. Early in 1997, the
Company entered into a contract of sale for one property located in Houston,
Texas, which if consummated will result in approximate net proceeds of
$3,000,000, an amount approximately equal to the Company's investment. Proceeds
from the sale will be available for general corporate purposes. No additional
property sales are anticipated in the near future.
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 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.
On January 21, 1997, the Company declared an increase in its quarterly
dividend from $0.485 per share ($1.94 annualized) to $0.49 per share ($1.96
annualized) payable to stockholders of record on January 28, 1997. This dividend
was paid on February 17, 1997. 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 1997, should access to new capital not be available to the Company.
This annual report to shareholders of the Company includes forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties which would cause actual results to differ
materially from historical results or those anticipated. For a more detailed
discussion of these factors, see Item 1 of the Company's Form 10K for the fiscal
year ended December 31, 1996.
(5)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Healthcare Realty Trust Incorporated
We have audited the accompanying consolidated balance sheets of Healthcare
Realty Trust Incorporated as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Healthcare
Realty Trust Incorporated at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young L.L.P.
Nashville, Tennessee
February 4, 1997, except for the disclosures
with respect to the 1997 Secondary Offering
of stock referred to in Notes 1, 4, and 12,
as to which the date is March 10, 1997
(6)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DECEMBER 31,
1996 1995
<S> <C> <C>
Assets
Real estate properties:
Land $ 53,028,292 $ 41,435,193
Buildings and improvements 369,187,739 273,522,934
Personal property 3,099,382 2,761,458
Construction in progress 13,862,515 15,253,397
------------- -------------
439,177,928 332,972,982
Less accumulated depreciation (23,143,511) (14,492,646)
------------- -----------
Total real estate properties, net 416,034,417 318,480,336
Cash and cash equivalents 1,354,325 9,142,775
Other assets, net 10,116,735 9,154,566
------------- -------------
Total assets $ 427,505,477 $ 336,777,677
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Notes and bonds payable $ 168,618,000 $ 92,970,000
Security deposits payable 4,172,490 4,562,490
Accounts payable and accrued liabilities 8,197,437 4,214,599
Deferred income 553,307 582,795
------------- -------------
Total liabilities $ 181,541,234 $ 102,329,884
============= =============
Commitments and contingencies 0 0
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; issued and outstanding,
1996 - 13,898,777; 1995 - 12,976,796 138,988 129,768
Additional paid-in capital 264,614,431 243,418,805
Deferred compensation (4,701,840) (478,288)
Cumulative net income 57,654,861 37,923,238
Cumulative dividends (71,742,197) (46,545,730)
------------- -------------
Total stockholders' equity 245,964,243 234,447,793
------------- -------------
Total liabilities and stockholders' equity $ 427,505,477 $ 336,777,677
============= =============
</TABLE>
See accompanying notes
(7)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues
Master lease rental income $ 35,329,475 $ 32,402,507 $ 23,231,345
Property operating income 1,337,779 0 0
Management fees 1,110,943 465,766 0
Interest and other income 795,942 492,888 995,078
------------- ------------- -------------
38,574,139 33,361,161 24,226,423
------------- ------------- -------------
Expenses
General and administrative 2,232,882 2,143,505 2,095,669
Property operating expenses 269,408 0 0
Interest 7,344,141 5,083,172 1,116,436
Depreciation 8,651,620 7,693,048 5,233,474
Amortization 344,465 183,820 65,256
------------- ------------- -------------
18,842,516 15,103,545 8,510,835
------------- ------------- -------------
Net income $ 19,731,623 $ 18,257,616 $ 15,715,588
============= ============= =============
Net income per share $ 1.49 $ 1.41 $ 1.33
============= ============= =============
Weighted average shares outstanding 13,254,233 12,967,132 11,830,197
============= ============= =============
</TABLE>
See accompanying notes.
(8)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Additional Cumulative Total
Common Stock Paid-In Deferred Net Cumulative Stockholders
Shares Amount Capital Compensation Income Dividends Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 6,185,600 $ 61,856 $107,586,630 $ 0 $ 3,950,034 $(3,408,266) $108,190,254
Issuance of stock 6,582,797 65,828 131,687,588 0 0 0 131,753,416
Shares awarded as deferred
stock compensation 35,000 350 686,525 (686,875) 0 0 0
Deferred stock compensation
amortization 0 0 0 91,567 0 0 91,567
Net income 0 0 0 0 15,715,588 0 15,715,588
Dividends ($1.75 per share) 0 0 0 0 0 (19,410,538) (19,410,538)
---------- ------- ----------- ------- ---------- ---------- -----------
Balance at December 31, 1994 12,803,397 128,034 239,960,743 (595,308) 19,665,622 (22,818,804) 236,340,287
Issuance of stock 172,349 1,724 3,436,547 0 0 0 3,438,271
Shares awarded as deferred
stock compensation 1,050 10 21,515 (21,525) 0 0 0
Deferred stock compensation
amortization 0 0 0 138,545 0 0 138,545
Net income 0 0 0 0 18,257,616 0 18,257,616
Dividends ($1.83 per share) 0 0 0 0 0 (23,726,926) (23,726,926)
---------- ------- ----------- ------- ---------- ---------- -----------
Balance at December 31, 1995 12,976,796 129,768 243,418,805 (478,288) 37,923,238 (46,545,730) 234,447,793
Issuance of stock 707,952 7,079 16,396,116 0 0 0 16,403,195
Shares awarded as deferred
stock compensation 203,897 2,040 4,611,264 (4,613,304) 0 0 0
Deferred stock compensation
amortization 0 0 0 389,752 0 0 389,752
Employee stock purchase plan 10,132 101 188,246 0 0 0 188,347
Net income 0 0 0 0 19,731,623 0 19,731,623
Dividends ($1.91 per share) 0 0 0 0 0 (25,196,467) (25,196,467)
---------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at December 31, 1996 13,898,777 $ 138,988 $264,614,431 $(4,701,840) $57,654,861 $(71,742,197) $245,964,243
========== ========= ============ =========== =========== ============ ============
</TABLE>
See accompanying notes.
(9)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income $ 19,731,623 $ 18,257,616 $ 15,715,588
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 9,018,430 8,124,374 5,419,702
Gain on sale of property 0 (220,140) 0
Deferred compensation 376,823 1,196 0
Increase (decrease) in deferred income (29,488) 313,837 232,734
Increase in other assets (933,355) (921,243) (270,425)
Increase in accounts payable and accrued liabilities 1,390,864 1,181,278 186,161
---------- ---------- ----------
Net cash provided by operating activities 29,554,897 26,736,918 21,283,760
========== ========== ==========
Investing Activities
Acquisition and development of real estate properties (63,069,013) (50,417,235) (130,795,615)
Proceeds from sale of real estate 0 4,800,000 0
Receipt (disbursement) of security deposits (390,000) (257,282) 412,114
---------- ---------- -----------
Net cash used in investing activities (63,459,013) (45,874,517) (130,383,501)
Financing Activities
Borrowings on notes and bonds payable 101,900,000 121,700,000 40,300,000
Repayments on notes and bonds payable (50,903,106) (69,105,000) (37,018,633)
Deferred financing and organization costs paid (168,709) (1,244,980) (463,884)
Dividends paid (25,196,467) (23,726,926) (19,410,538)
Proceeds from issuance of common stock 483,948 160,428 126,091,192
---------- ---------- -----------
Net cash provided by financing activities 26,115,666 27,783,522 109,498,137
========== ========== ===========
Increase (decrease) in cash and cash equivalents (7,788,450) 8,645,923 398,396
Cash and cash equivalents, beginning of period 9,142,775 496,852 98,456
------------ ------------ -----------
Cash and cash equivalents, end of period $ 1,354,325 $ 9,142,775 $ 496,852
============ ============ ===========
</TABLE>
See accompanying notes.
(10)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company commenced operations in 1993 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. The Company provides management, leasing and
build-to-suit development, and capital for the construction of new facilities as
well as for the acquisition of existing properties. As of December 31, 1996, the
Company had invested or committed to invest in 80 properties (the Properties)
located in 38 markets in 14 states, which are supported by 17 healthcare-related
entities pursuant to long-term leases.
BASIS OF PRESENTATION
The audited financial statements include the accounts of the Company, its
wholly owned subsidiaries and certain other affiliated Corporation's with
respect to which the Company controls the operating activities and receives
substantially all economic benefits. Significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
REAL ESTATE PROPERTIES
Real estate properties are recorded at cost. Transaction fees and
acquisition costs are netted with the purchase price as appropriate. The cost of
real properties acquired is allocated between land, buildings, and personal
property based upon estimated market values at the time of acquisition.
Depreciation is provided for on a straight-line basis over the following
estimated useful lives:
<TABLE>
<CAPTION>
<S> <C> <C>
Buildings and improvements 31.5 to 39.0 years
Personal property 3.0 to 7.0 years
</TABLE>
CASH AND CASH EQUIVALENTS
Short-term investments with maturities of three months or less at date of
purchase are classified as cash equivalents.
FEDERAL INCOME TAXES
No provision has been made for federal income taxes. The Company intends at
all times to qualify as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. The Company must
distribute at least 95% of its real estate investment trust taxable income to
its stockholders and meet other requirements to continue to qualify as a real
estate investment trust.
OTHER ASSETS
Included in other assets are receivables, deferred costs and intangible
assets. Deferred financing costs are amortized over the term of the related
credit facility using the interest method. Intangible assets are amortized
straight-line over the applicable lives of the assets which range from four to
forty years. Accumulated amortization was $1,060,811 and $518,347 at December
31, 1996 and 1995, respectively.
REVENUE RECOGNITION
Rental income is recognized as earned over the life of the lease
agreements. Any additional rent, as defined in each lease agreement, is
recognized as earned.
STOCK ISSUED TO EMPLOYEES
The Company has elected to follow Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations in accounting for its stock issued to employees.
(11)
<PAGE>
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares outstanding during the period, exclusive of common stock equivalents
which resulted in dilution of less than 3%, for each of the three years in the
period ended December 31, 1996.
SUPPLEMENTARY INCOME PER COMMON SHARE
As required by APB Opinion No. 15, "Earnings per Share," supplementary
income per common share data is presented for fiscal 1994 and 1996 to reflect
the payment during February 1994 of $23.1 million of outstanding indebtedness
using a portion of the proceeds of a secondary offering, and to reflect the
payment during the first quarter of 1997 of $78,618,000 of outstanding
indebtedness using a portion of the proceeds from another secondary offering
completed February 14, 1997 (see Note 12). For the 1994 computation of
supplementary income per common share, 1,080,700 common shares issued in the
offering whose proceeds were used to retire the debt were assumed to have been
issued at the beginning of fiscal 1994, and net income was assumed to have not
been reduced by interest expense incurred on the debt. Supplementary income per
common share totaled $1.33 for fiscal 1994. For the 1996 computation of
supplementary income per common share, 3,049,573 common shares issued in the
offering whose proceeds were used to retire the debt were assumed to have been
issued at the beginning of fiscal 1996, and net income was assumed to have not
been reduced by interest expense incurred on the debt. Supplementary income per
common share totaled $1.35 for fiscal 1996.
ADOPTION OF NEW ACCOUNTING RULES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted Statement No. 121 in the first quarter of fiscal 1995
with no impact.
RECLASSIFICATIONS
Certain reclassifications have been made in the financial statements for
the years ended 1995 and 1994 to conform to the 1996 presentation. These
reclassifications had no effect on the results of operations as previously
reported.
2. REAL ESTATE PROPERTY LEASES
The Company's properties are generally leased pursuant to noncancelable,
fixed-term operating leases with expiration dates from 1997 to 2013. Some leases
provide for fixed rent renewal terms of five years, or multiples thereof, in
addition to market rent renewal terms. The leases generally provide the lessee,
during the term of the lease and for a short period thereafter, with an option
and a right of first refusal to purchase the leased property.
Each lease generally requires the lessee to pay minimum rent, additional
rent based upon increases in the Consumer Price Index or increases in net
patient revenues (as defined in the lease agreements), and all taxes (including
property tax), insurance, maintenance and other operating costs associated with
the leased property.
Amounts of rental income received from lessees who accounted for more than
10% of the Company's rental income for the three years in the period ended
December 31, 1996 were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Columbia/HCA Healthcare Corporation $ 11,234,295 $ 10,713,960 $ 5,667,948
OrNda Healthcorp 7,634,690 7,257,939 4,086,002
</TABLE>
<TABLE>
<CAPTION>
Future minimum lease payments under the noncancelable operating leases as of
December 31, 1996 are as follows:
<S> <C> <C>
1997 $ 46,513,544
1998 46,365,714
1999 46,162,819
2000 46,011,237
2001 45,824,755
2002 and thereafter 301,547,167
--------------
$ 532,425,236
</TABLE>
(12)
<PAGE>
REAL ESTATE PROPERTIES
The following table summarizes the Company's real estate properties by type of
facility and by state as of December 31, 1996.
<TABLE>
<CAPTION>
Number of Buildings, Personal Accumulated
Facilities (1) Land Improvements and CIP Property Total Depreciation
<S> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
Arizona 1 $ 308,070 $ 4,965,923 $ 0 $ 5,273,993 $ 558,418
California 7 15,169,012 30,505,657 38,504 45,713,173 2,331,170
Florida 8 577,328 44,504,554 0 45,081,882 2,445,367
Georgia 5 1,965,210 34,144,164 38,409 36,147,783 1,878,449
Kansas 1 0 8,606,501 0 8,606,501 33,461
Tennessee 1 395,056 2,743,834 0 3,138,890 190,450
Texas 10 7,102,169 48,218,720 259,536 55,580,423 4,436,154
Virginia 6 4,239,169 47,621,955 0 51,861,124 1,349,678
-- ---------- ----------- ------- ----------- ----------
39 29,756,014 221,311,306 336,449 251,403,769 13,223,147
Ambulatory Surgery Centers
California 1 209,246 828,613 8,370 1,046,229 97,363
Nevada 1 940,000 2,860,571 0 3,800,571 180,308
Texas 1 509,891 1,514,376 15,296 2,039,563 177,942
- --------- --------- ------ --------- -------
3 1,659,137 5,203,560 23,666 6,886,363 455,613
Comprehensive Ambulatory Care
Florida 2 4,135,536 12,898,835 0 17,034,371 49,017
Texas 2 1,642,773 19,407,604 60,148 21,110,525 1,583,717
- --------- ---------- ------ ---------- ---------
4 5,778,309 32,306,439 60,148 38,144,896 1,632,734
Clinical Laboratories
Alabama 1 180,633 8,601,151 8,028 8,789,812 971,214
Mississippi 1 537,660 3,718,165 29,660 4,285,485 319,487
- ------- ---------- ------ ---------- ---------
2 718,293 12,319,316 37,688 13,075,297 1,290,701
Long-term Care Facilities
California 1 1,361,952 11,325,746 0 12,687,698 689,761
Colorado 2 1,651,477 8,934,457 0 10,585,934 278,873
Florida 1 1,203,720 8,388,977 0 9,592,697 85,153
Indiana 1 96,059 3,511,749 32,331 3,640,139 411,065
Kansas 1 1,013,423 5,297,900 0 6,311,323 6,921
Michigan 5 193,096 12,133,668 182,986 12,509,750 1,293,187
Texas 2 690,768 16,656,902 0 17,347,670 28,116
-- --------- ---------- ------- ---------- ---------
13 6,210,495 66,249,399 215,317 72,675,211 2,793,076
Medical Office Buildings
Texas 1 166,123 1,810,249 0 1,976,372 110,248
Virginia 4 1,926,841 11,740,130 126,790 13,793,761 287,504
5 2,092,964 13,550,379 126,790 15,770,133 397,752
Physician Clinics
Florida 3 3,558,945 15,504,117 50,781 19,113,843 1,403,271
Georgia 1 586,435 2,087,444 0 2,673,879 149,424
Texas 2 1,654,025 10,930,721 385,104 12,969,850 1,119,463
California 1 392,785 331,685 0 724,470 13,820
Virginia 6 620,890 2,977,392 0 3,598,282 9,543
-- ---------- ---------- ------- ---------- ---------
13 6,813,080 31,831,359 435,885 39,080,324 2,695,521
(13)
<PAGE>
Other 0 278,496 1,863,439 2,141,935 654,967
-- ------------- ------------- ----------- ------------- ------------
Total property 79 $ 53,028,292 $ 383,050,254 $ 3,099,382 $ 439,177,928 $ 23,143,511
== ============= ============= =========== ============= ============
</TABLE>
(1) Includes three properties under construction.
(14)
<PAGE>
NOTES AND BONDS PAYABLE
Notes and bonds payable at December 31,1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Unsecured notes $ 90,000,000 $ 90,000,000
Unsecured credit facility 71,900,000 0
Serial and term bonds payable 6,718,000 2,970,000
------------ ------------
$168,618,000 $ 92,970,000
============ ============
</TABLE>
UNSECURED NOTES
On September 18, 1995, the Company privately placed $90,000,000 of
unsecured notes (the "Unsecured Notes") with 16 institutions. The Unsecured
Notes bear interest at 7.41%, payable semiannually, and mature on September 1,
2002. Beginning on September 1, 1998 and on each September 1 through 2002, the
Company must repay $18,000,000 of principal. The note agreements pursuant to
which the Unsecured Notes were purchased contain certain representations,
warranties and financial and other covenants customary in such loan agreements.
UNSECURED CREDIT FACILITY
On December 26, 1996, the Company's $75,000,000 unsecured credit facility
(the "Unsecured Credit Facility") with four commercial banks was increased to
$100,000,000 and extended to December 30, 1999. At the option of the Company,
borrowings bear interest at one of the banks' base rate or LIBOR plus 1.125%
(previously 1.250%). In addition, the Company pays a commitment fee of .225
(previously .250) of 1% per annum on the unused portion of funds available for
borrowings under the Unsecured Credit Facility. The Unsecured Credit Facility
contains certain representations, warranties and financial and other covenants
customary in such loan agreements. At December 31, 1996, the Company had
available borrowing capacity of $28,100,000 under the Unsecured Credit Facility.
Subsequent to December 31, 1996, the Company repaid all $71,900,000 indebtedness
under the Unsecured Credit Facility which results in the maximum borrowing
capacity of $100,000,000.
SERIAL AND TERM BONDS PAYABLE
In conjunction with the acquisition of certain facilities (see Note 6), the
Company assumed an obligation for a $2,496,000 bond issue of the Industrial
Development Authority of the City of Salem, Virginia, payable in annual
installments of $208,000 through 2007. Interest on the outstanding principal
balance is payable semi-annually at a rate of 75% of the prime rate or 6.1875%
at December 31, 1996. The obligation was secured by a deed of trust and
guaranteed by Lewis-Gale Clinic, Inc. Subsequent to December 31, 1996, this
obligation was repaid.
In conjunction with the acquisition of certain facilities (see Note 6), the
Company assumed an obligation for a $1,575,000 bond issue of the Industrial
Development Authority of the City of Roanoke, Virginia, payable in annual
installments of $175,000 through 2005. Interest is payable semi-annually at a
rate of approximately 77% of the commercial base rate or 6.3525% at December 31,
1996. The obligation was secured by land and building and guaranteed by
Lewis-Gale Clinic, Inc. Subsequent to December 31, 1996, this obligation was
repaid.
In conjunction with the acquisition of certain facilities (see Note 6), the
Company assumed an obligation for $1,095,000 of Serial Bonds and $1,980,000 of
Term Bonds. The obligation is secured by a deed of trust and security agreement
granting the issuer a first mortgage lien and security interest in these
properties and by assignment of and a security interest in the tenant leases of
these properties. The bonds pay interest semiannually at interest rates ranging
from 6.9% to 8.1%. The Serial Bonds mature at annual intervals through 2002 in
amounts ranging from $120,000 to $320,000; the Term Bonds mature in 2010. The
obligation was defeased subsequent to December 31, 1996. The resulting loss was
not significant.
(15)
<PAGE>
OTHER LONG-TERM DEBT INFORMATION
Subsequent to December 31, 1996, the Company repaid $78,618,000 of
indebtedness from proceeds of a secondary offering (see Note 12).
The remaining indebtedness of Unsecured Notes is due in five $18,000,000 annual
installments beginning in 1998.
During the years ended December 31, 1996, 1995 and 1994, interest paid
totaled $8,389,712, $3,932,112 and $1,268,680, and capitalized interest totaled
$2,175,113, $888,238 and $424,675, respectively.
5. SECURITY DEPOSITS
The Company is currently obligated to certain lessees, under executed sale
and purchase agreements, for security and related deposits in an aggregate
amount of $4,172,490 and $4,562,490 at December 31, 1996 and 1995, respectively.
These security deposits are repayable at various times, typically upon
expiration of the lease, and generally bear interest at the First National Bank
of Boston or NationsBank prime rate, payable annually.
The security deposits were negotiated with lessees as part of the terms of
the sale and purchase agreements as collateral for lessee performance for future
rental payments and property maintenance in accordance with the lease
agreements. These funds are unrestricted according to the terms of the lease
contracts and may be used at the Company's discretion.
6. ACQUISITIONS AND DISPOSITION OF REAL ESTATE
During November 1996, the Company acquired ten properties, Lewis Gale
Building Corporation, in exchange for an aggregate of 687,692 shares of the
Company's common stock (valued at $16,074,800) and the assumption of $20,566,106
of notes payable, $4,071,000 of bonds payable and $3,037,769 of accounts payable
and accrued liabilities, and incurred $483,328 in acquisition costs. In addition
to the properties, representing an aggregate investment of $44,063,087, the
Company acquired cash of $5,196, accounts receivable of $58,340, and other
assets of $106,382. During 1996, the Company repaid the notes payable assumed in
the acquisition.
On October 31, 1995, the Company sold a 24,189-square-foot ancillary
hospital facility in Van Nuys, California for $4,800,000. The property was sold
to the lessee, pursuant to provisions in the Company's lease agreement, due to
hidden structural damages suffered in the January 1994 Northridge earthquake
that rendered the facility unusable for its intended purpose.
During June 1994, the Company acquired two ancillary hospital facility
complexes in exchange for an aggregate of 328,322 shares of the Company's common
stock (valued at $6,898,944) and the assumption of $13,018,633 of notes payable,
$3,075,000 of bonds payable and $623,465 of accounts payable and accrued
liabilities. In addition to the facilities, representing an aggregate investment
of $21,774,433, the Company acquired cash of $1,258,910, accounts receivable of
$7,719, restricted cash of $455,910, and other assets of $119,071. During the
first week of July 1994, the Company repaid the $13,018,633 of notes payable
assumed in the acquisitions.
7. BENEFIT PLANS
EXECUTIVE RETIREMENT PLAN
The Company has an Executive Retirement Plan, under which an executive
designated by the Compensation Committee of the Board of Directors may receive
upon normal retirement (defined to be when the executive reaches age 65 and has
completed five years of service with the Company) 60% of the executive's final
average earnings (defined as the average of the executive's highest three years'
earnings) plus 6% of final average earnings times years of service after age 60
(but not more than five years), less 100% of benefits paid to the executive from
the Company's contributions to any basic retirement plan of the Company that
covers all employees and from social security.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
The Company has a retirement plan for outside directors which upon
retirement will pay annually, for a period not to exceed 15 years, an amount
equal to the director's pay immediately preceding retirement from the Board.
(16)
<PAGE>
RETIREMENT PLAN INFORMATION
Net expense for both the Executive Retirement Plan and the Retirement Plan
for Outside Directors (the Plans) for the three years in the period ended
December 31, 1996 is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 201,372 $ 367,864 $ 294,528
Interest cost 58,828 40,431 13,099
Other (21,483) (219,006) (137,181)
----------- ---------- ----------
$ 238,717 $ 189,289 $ 170,446
=========== ========== ==========
</TABLE>
The Plans are unfunded and benefits will be paid from earnings of the
Company. The following table sets forth the benefit obligations at December 31,
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 0 $ 0
Accumulated $ 619,729 $ 345,855
------------- -----------
Actual present value of projected benefit
obligations for services rendered to date $ 743,951 $ 913,682
Unrecognized net gain (loss) 278,211 (112,901)
------------ -----------
Net pension liability in accrued liabilities $ 1,022,162 $ 800,781
============ ===========
</TABLE>
Accounting for the Executive Retirement Plan for the years ended December
31, 1996 and 1995 assumes discount rates of 8.5% and 8%, respectively, and
compensation increase rates of 2.7% and 5%, respectively. Accounting for the
Retirement Plan for Outside Directors assumes discount rates of 9% and 8%,
respectively.
(17)
<PAGE>
8. STOCK PLANS AND WARRANTS
1993 Employees Stock Incentive Plan
The Company is authorized to issue stock representing up to 7.5% of its
outstanding shares of common stock, (the Employee Plan Shares) under the 1993
Employees Stock Incentive Plan (the Employee Plan). As of December 31, 1996
and 1995, the Company had a total of 812,364 and 716,260 Employee Plan Shares,
respectively, that had not been issued or optioned. Unless terminated earlier,
the Employee Plan will terminate on January 1, 2003.
Under the Employee Plan, the Compensation Committee may grant options (the
Options) to purchase shares of the Company's common stock to employees for
terms not longer than 10 years at prices that may not be less than 95% of the
fair market value of the common stock on the date of grant. The Options may be
subject to any conditions set by the Compensation Committee, may be exercised by
payment of cash, shares valued at fair market value, or, at the option of the
Compensation Committee, by a note secured by shares. As of December 31, 1995,
Options to purchase a total of 222,000 of the Employee Plan Shares at $19.50 per
share were outstanding, all of which were exercisable. During 1996 the Company
canceled all outstanding Options under the Employee Plan.
Under the Employee Plan, the Compensation Committee may also grant
incentive stock awards to employees. Incentive stock awards granted under the
Employee Plan may be subject to any conditions set by the Compensation
Committee. As of December 31, 1996 and 1995, the Company had specifically
reserved, but not issued, a total of 283,334 and 425,000 Employee Plan Shares
(the Reserved Stock), respectively, for performance-based awards to employees
under the Employee Plan. The issue of Reserved Stock to eligible employees is
contingent upon the achievement of specific performance criteria. The Reserved
Stock awards are subject to fixed vesting periods varying from four to twelve
years beginning on the date of issue. If an employee voluntarily terminates
employment with the Company before the end of the vesting period, the shares are
forfeited, at no cost to the Company. Once the Reserved Stock has been issued,
the employee has the right to receive dividends and the right to vote the
shares.
As of December 31, 1996 and 1995, performance criteria had been met for the
award of, and the Company had issued, a total of 230,044 and 35,000 Employee
Plan Shares, respectively. For 1996 and 1995, compensation expense resulting
from the amortization of the value of these shares was $319,120 and $137,349,
respectively.
NON-EMPLOYEE DIRECTORS STOCK PLANS
Prior to May 16, 1995, the Company was authorized to issue stock options
for up to 2% of its outstanding shares of common stock under the 1993 Outside
Directors Stock Incentive Plan (the 1993 Director Plan). Under the 1993
Director Plan, each member of the Board of Directors of the Company who was not
an employee of the Company, its subsidiaries or affiliates received an option to
purchase 3,000 shares on January 1, 1994 at an exercise price equal to the
market price of the common stock on the date of grant. As of December 31, 1995,
options to purchase a total of 19,530 shares were outstanding under the 1993
Director Plan, all of which were exercisable. During 1996 the Company canceled
all unexercised options granted pursuant to the 1993 Director Plan.
Effective May 16, 1995, the Company enacted the 1995 Restricted Stock Plan
for Non-Employee Directors (the 1995 Directors Plan). As of December 31, 1996
and 1995, the Company had a total of 97,900 and 98,950 shares under the 1995
Directors Plan, respectively, that had not been issued. Under the 1995
Directors Plan, each member of the Board of Directors of the Company who is not
an employee of the Company, its subsidiaries or affiliates, receives an award of
shares of common stock (the Directors Stock) at the conclusion of the
Company's annual meeting of shareholders. The Directors Stock vests in each
Director upon the date three years from the date of issue and is subject to
forfeiture prior to such date upon termination of the Directors service, at no
cost to the Company. Once the Directors' Stock has been issued, the Director has
the right to receive dividends and the right to vote the shares.
As of December 31, 1996 and 1995, the Company had issued a total of 9,903
and 1,050 shares, respectively, pursuant to the Non-Employee Directors Stock
Plans. For 1996 and 1995, compensation expense resulting from the amortization
of the value of these shares was $70,672 and $1,196, respectively.
1995 EMPLOYEE STOCK PURCHASE PLAN
Effective May 16, 1995, the Company adopted an Employee Stock Purchase Plan
(the Employee Purchase Plan) pursuant to which the Company is authorized to
issue shares of common stock (the Employee Purchase Plan Shares). As of
December 31, 1996 and 1995, the Company had a total of 918,795 and 952,732
shares under the Employee Purchase Plan, respectively, that had not been issued
or optioned. Under the Employee Purchase Plan, each eligible employee as of May
16, 1995 and each subsequent January 1 (the Grant Dates) has been or shall be
granted an option to purchase up to $25,000 of common stock at the lesser of 85%
of the market price on the Grant Date or 85% of the market price on the date of
exercise of such option (the Exercise Date), but at not less than book value
per share as of the December 31 immediately preceding the Grant Date. The number
of shares subject to each year's option becomes fixed on the Grant Date.
Eligible employees include those employees who were employed by the Company or a
subsidiary on a full-time basis as of May 16, 1995 and those employees with six
months of service who are employed by the Company or subsidiary as of each
subsequent Grant Date. Options granted under the Employee Purchase Plan expire
if not exercised 27 months after each such option's Grant Date.
(18)
<PAGE>
A summary of Employee Purchase Plan activity and related information for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
Options
1996 1995
<S> <C> <C>
Outstanding, beginning of year 47,268 0
Granted 47,564 47,268
Exercised (10,132) 0
Forfeited (13,627) 0
------ ------
Outstanding, end of year 71,073 47,268
Exercisable at end of year 71,073 47,268
====== ======
Weighted-average fair value of options granted
during the year (calculated as of the grant date) $ 2.70 $ 2.56
Weighted-average exercise prices of options
exercised during the year $ 18.59 $ 0
Weighted-average exercise prices of options
outstanding (calculated as of December 31) $ 19.09 $ 18.46
Weighted-average contractual life of outstanding
options (calculated as of December 31, in years) 0.9 1.6
</TABLE>
The Company has determined that the pro forma effect on net income and
earnings per share for the two years in the period ended December 31, 1996 of
adopting Statement of Financial Accounting Standards No. 123 Accounting for
Stock-Based Compensation is not material.
OTHER
In 1993, the Company issued warrants to purchase up to 188,712 shares of
common stock (the Warrants). The Warrants are exercisable for a period of four
years commencing July 1, 1994 at a price of $19.50 per share, the then current
fair market value, subject to adjustment under applicable antidilution
provisions. The holders of the Warrants have the right to require the Company to
include the common stock underlying such Warrants in any registration statement
filed by the Company at the Company's expense. At December 31, 1996 and 1995,
the Company had reserved 2,017,771 and 1,956,654 shares, respectively, for
future issuance.
9. COMMITMENTS
At December 31, 1996, the Company, in the normal course of business, had
received a fully executed letter of intent to purchase upon completion of
development, one property for approximately $15,000,000. In addition, as of
December 31, 1996, the Company had a net investment of approximately $13,900,000
for three lessee developments in progress with a total remaining funding
commitment of approximately $10,100,000.
10. OTHER DATA
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. 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 the 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. 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.
(19)
<PAGE>
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
1995 NAREIT Previous
White Paper Previous 1995 NAREIT Methodology
As Reported Methodology White Paper As Reported
Net income (1) $ 19,731,623 $ 19,731,623 $ 18,257,616 $ 18,257,616
Non-recurring items 0 0 0 0
Gain on disposition 0 0 (220,140) (220,140)
Straight line rents 0 0 0 0
ADD
Depreciation
Real estate 8,304,772 8,304,772 7,452,925 7,452,925
Other non-revenue producing assets 0 346,848 0 240,123
------------- --------- --------- ---------
8,304,772 8,651,620 7,452,925 7,693,048
------------- --------- --------- ---------
Amortization
Acquired property management contracts (2) 0 337,722 0 178,420
Organization costs 0 6,743 0 5,400
0 ------- 0 -------
0 344,465 0 183,820
------------- ------------- ------------- -------------
Deferred financing costs (3) 0 359,744 0 247,506
------------- ------------- ------------- -------------
Total adjustments 8,304,772 9,355,829 7,232,785 7,904,234
------------- ------------- ------------- -------------
Funds from operations $ 28,036,395 $ 29,087,452 $ 25,490,401 $ 26,161,850
============= ============= ============= =============
Weighted average shares outstanding 13,254,233 13,254,233 12,967,132 12,967,132
============= ============= ============= =============
Funds from operations per share $ 2.12 $ 2.19 $ 1.97 $ 2.02
============= ============= ============= =============
</TABLE>
(1) 1996 amounts include $389,752 ($0.03 per share) of stock based,
long-term, incentive compensation expense, a non-cash expense.
(2) Amortization of the acquisition cost of revenue producing property
management contracts.
(3) Amortization of deferred financing costs is reported as part of
interest expense on the income statement.
RETURN OF CAPITAL
Distributions in excess of net income generally constitute a return of
capital. For the years ended December 31, 1996, 1995 and 1994, dividends paid
per share were $1.91, $1.83 and $1.75, respectively, which consisted of ordinary
income per share of $1.65, $1.42 and $1.59 and return of capital per share of
$.26, $.41 and $.16, respectively.
(20)
<PAGE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and receivables are a reasonable estimate of
their fair value due to their short-term nature. The fair value of notes and
bonds payable is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The difference between the carrying amount and the fair value of
the Company's notes and bonds payable is not significant.
12. SUBSEQUENT EVENTS
On January 21, 1997, the Company declared an increase in its quarterly
dividend from $.485 per share ($1.94 annualized) to $.49 per share ($1.96
annualized) payable on February 17, 1997 to shareholders of record on January
28, 1997.
Effective February 14, 1997, the Company sold 5,175,000 shares of its
common stock in a secondary offering (the Secondary Offering) under its
currently effective registration statement pertaining to $250,000,000 of equity
securities, debt securities and warrants. The Company received $133,411,500 in
net proceeds. Promptly thereafter, the net proceeds were used, in part, to
extinguish all $71,900,000 of indebtedness outstanding under the Unsecured
Credit Facility, which results in a borrowing capacity under the Unsecured
Credit Facility of $100,000,000, and repayment or defeasance of secured
indebtedness in the total amount of $6,718,000. Remaining proceeds of the
Secondary Offering of approximately $57,200,000 have been invested short-term
and will be available to finance additional property acquisitions, build-to-suit
property development and for general corporate purposes.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1995 is summarized below:
<TABLE>
<CAPTION>
Quarter ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1996
Total revenue $ 8,982,907 $ 9,135,538 $ 9,509,019 $ 10,946,673
Net income $ 4,758,183 $ 4,952,468 $ 4,913,700 $ 5,107,272
Funds from operations $ 6,735,694 $ 6,929,979 $ 6,936,857 $ 7,433,866
Net income per share $ 0.36 $ 0.38 $ 0.37 $ 0.38
Funds from operations per share $ 0.52 $ 0.53 $ 0.53 $ 0.55
1995
Total revenue $ 7,894,137 $ 7,978,111 $ 8,376,569 $ 9,112,344
Net income $ 4,505,272 $ 4,519,300 $ 4,526,268 $ 4,706,776
Funds from operations $ 6,307,622 $ 6,340,191 $ 6,413,618 $ 6,428,970
Net income per share $ 0.35 $ 0.35 $ 0.35 $ 0.36
Funds from operations per share $ 0.49 $ 0.49 $ 0.49 $ 0.50
</TABLE>
(21)
<PAGE>
CORPORATE DATA
CORPORATE ADDRESS
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 400
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
INDEPENDENT PUBLIC AUDITORS
Ernst & Young LLP
NationsBank Plaza
414 Union St.
Nashville, Tennessee 37219-1779
TRANSFER AGENT
TRANSFER OF SHARES
Boston EquiServe
Stock Transfer Department
P.O. Box 1865
Mail Stop 45-02-62
Boston, Massachusetts 02105-1865
Phone: (617) 575-3400
CUSIP #: 421946104
Street Address for Courier Service
Boston EquiServe
Blue Hills Office Park
Mail Stop 45-02-62
150 Royall Street
Canton, Massachusetts 02021-1031
INTERNET SITE
http://www.equiserve.com
CORPORATE INTERNET SITE
http://www.healthcarerealty.com
CORPORATE EMAIL ADDRESS
[email protected]
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan is offered as a convenience to stockholders
who wish to increase their holdings in the Company. Additional shares may be
purchased, without a service or sales charge, through automatic reinvestment of
quarterly cash dividends. For information write Investor Relations, Boston
EquiServe, 150 Royall Street, Canton, Massachusetts 02021 or call (617)
575-3400.
FORM 10K
The Company has filed an Annual Report on Form 10K for the year ended
December 31, 1996, with the Securities and Exchange Commission. Shareholders may
obtain a copy of this report, without charge, by writing: Investor Relations,
Healthcare Realty Trust, Inc., 3310 West End Avenue, Suite 400, Nashville,
Tennessee 37203. Or, via e-mail: [email protected]
(22)
<PAGE>
MEMBER
National Association of Real Estate Investment Trusts, Inc. (NAREIT)
COMMON STOCK
Healthcare Realty Trust Incorporated common stock is traded on The New York
Stock Exchange under the symbol HR. As of March 12, 1997, there were
approximately 1,086 shareholders of record. The following table shows, for the
fiscal periods indicated, the quarterly range of high and low closing sales
prices of the common stock.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
High Low High Low High Low
First Quarter $ 23.125 $ 20.875 $21.000 $ 19.000 $22.500 $19.375
Second Quarter 23.750 21.500 20.500 18.500 21.375 19.500
Third Quarter 24.125 21.500 20.750 19.375 22.125 19.875
Fourth Quarter 26.875 23.000 23.000 20.000 21.125 19.375
</TABLE>
ANNUAL SHAREHOLDERS MEETING
The annual meeting of shareholders will be held on May 12, 1997, at 10:00
a.m. at the Cumberland Club, 511 Union Street, Nashville, Tennessee.
(23)
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT
Subsidiary* State of Incorporation
<S> <C> <C>
HR of Texas, Inc. Maryland
HRT of Alabama, Inc. Alabama
HRT of Tennessee, Inc. Tennessee
HRT of Virginia, Inc. Virginia
HRT of Arkansas, Inc. (Inactive) Arkansas
Healthcare Realty Management Incorporated Alabama
HRT of Florida, Inc. Florida
HRT of Roanoke, Inc. Virginia
</TABLE>
* Each of the above listed subsidiaries is wholly owned by the Company.
<TABLE>
<CAPTION>
Other Affiliates*
<S> <C> <C>
Durham Medical Office Building, Inc. Texas
HR Assets, Inc. (Inactive) Texas
HR Capital, Inc. (Inactive) Texas
HR Funding, Inc. (Inactive) Texas
</TABLE>
* The Company owns approximately 99% by value of the stock of each of the
above listed other affiliates. The remainder of the affiliates' stock is owned
by, and voting control rests with, executive officers of the Company.
(1)
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Healthcare Realty Trust Incorporated of our report dated February 4,
1997 (except for the disclosures with respect to the 1997 Secondary Offering of
stock referred to in Notes 1, 4 and 12, as to which the date is March 10, 1997)
included in the 1996 Annual Report to Shareholders of Healthcare Realty Trust
Incorporated.
Our audits also included the financial statement schedule of Healthcare
Realty Trust Incorporated listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the following:
1. Registration Statement (Form S-8 No. 33-97240) pertaining to the
Healthcare Realty Trust Incorporated 1993 Employees Stock Incentive Plan, 1995
Restricted Stock Plan for Non-Employee Directors, and 1995 Employee Stock
Purchase Plan;
2. Registration Statement (Form S-3 No. 33-97888) pertaining to the
registration of $250,000,000 of debt securities, preferred stock, common stock
warrants, and common stock; and
3. Registration Statement (Form S-4 No. 333-07971) pertaining to the
registration of $50,000,000 of shares of common stock
of our report dated February 4, 1997 (except for the disclosures with
respect to the 1997 Secondary Offering of stock referred to in Notes 1, 4 and
12, as to which the date is March 10, 1997) with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of Healthcare Realty Trust
Incorporated.
Nashville, Tennessee
March 27, 1997
(1)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,354,325
<SECURITIES> 0
<RECEIVABLES> 1,708,236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,062,561
<PP&E> 439,177,928
<DEPRECIATION> 23,143,511
<TOTAL-ASSETS> 427,505,477
<CURRENT-LIABILITIES> 8,750,744
<BONDS> 172,790,490
0
0
<COMMON> 138,988
<OTHER-SE> 245,825,255
<TOTAL-LIABILITY-AND-EQUITY> 427,505,477
<SALES> 37,778,197
<TOTAL-REVENUES> 38,574,139
<CGS> 11,498,375
<TOTAL-COSTS> 18,842,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,344,141
<INCOME-PRETAX> 19,731,623
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,731,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,731,623
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 0
</TABLE>
