UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- -
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
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 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
As of October 31,1999, 39,992,091 shares of the Registrant's Common Stock
and 3,000,000 shares of the Registrant's Voting Cumulative Preferred Stock,
were outstanding.
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE REALTY TRUST
INCORPORATED
FORM 10-Q
September 30, 1999
TABLE OF CONTENTS
<S> <C>
Part I - Financial Information
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Part II - Other Information
Item 1. Legal Proceedings 24
Item 6.Exhibits and Reports on Form 8-K 24
Signature 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 1.
Healthcare Realty Trust Incorporated
Condensed Consolidated Balance Sheet
(Dollars in thousands)
(Unaudited) (1)
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Real estate properties:
Land $ 147,130 $ 140,617
Buildings and improvements 1,226,089 1,169,941
Personal property 5,328 4,825
Construction in progress 24,509 72,172
------ ------
1,403,056 1,387,555
Less accumulated depreciation (76,780) (50,116)
------- -------
Total real estate properties, net 1,326,276 1,337,439
Cash and cash equivalents 5,463 14,411
Mortgage notes receivable 266,589 238,184
Other assets, net 29,804 25,389
------ ------
Total assets $ 1,628,132 $ 1,615,423
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable 587,454 559,924
Accounts payable and accrued liabilities 19,253 25,824
Other liabilities 9,244 11,971
----- ------
Total 615,951 597,719
------- -------
Commitments 0 0
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized;
issued and outstanding, 1999 and 1998 - 3,000,000 30 30
Common stock, $.01 par value; 150,000,000 shares authorized;
issued and outstanding, 1999 - 39,842,091; 1998 - 39,792,775 399 398
Additional paid-in capital 1,049,957 1,049,039
Deferred compensation (9,780) (10,662)
Cumulative net income 190,909 129,346
Cumulative dividends (219,334) (150,447)
-------- --------
Total stockholders' equity 1,012,181 1,017,704
--------- ---------
Total liabilities and stockholders' equity $ 1,628,132 $ 1,615,423
============= ===========
</TABLE>
(1) The balance sheet at Dec. 31, 1998 has been derived from audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.)
-1-
<PAGE>
<TABLE>
<CAPTION>
Healthcare Realty Trust Incorporated
Condensed Consolidated Statement of Income
For The Three Months Ended September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except per share data)
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Master lease rental income $ 22,866 $ 8,770
Property operating income 14,623 8,372
Straight line rent 1,394 0
Mortgage interest income 6,717 265
Management fees 687 425
Interest and other income 199 493
--- ---
46,486 18,325
------ ------
EXPENSES:
General and administrative 1,695 7,216
Property operating expenses 5,254 2,852
Interest 9,724 1,951
Depreciation 9,466 3,172
Amortization 117 84
--- --
26,256 15,275
------ ------
NET INCOME $ 20,230 $ 3,050
=========== ===========
NET INCOME PER SHARE - BASIC $ 0.47 $ 0.15
=========== ===========
NET INCOME PER SHARE - DILUTED $ 0.47 $ 0.15
=========== ===========
SHARES OUTSTANDING - BASIC 39,304,676 20,333,500
========== ==========
SHARES OUTSTANDING - DILUTED 39,969,686 20,771,296
========== ==========
DIVIDENDS DECLARED, PER COMMON SHARE, DURING THE PERIOD $ 0.540 $ 0.520
=========== ===========
</TABLE>
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.)
-2-
<PAGE>
<TABLE>
<CAPTION>
Healthcare Realty Trust Incorporated
Condensed Consolidated Statement of Income
For The Nine Months Ended September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands, except per share data)
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Master lease rental income $ 69,360 $ 27,025
Property operating income 41,980 23,341
Straight line rent 4,453 0
Mortgage interest income 18,820 570
Management fees 2,010 1,357
Interest and other income 3,353 1,095
----- -----
139,976 53,388
------- ------
EXPENSES:
General and administrative 5,492 9,714
Property operating expenses 15,135 7,586
Interest 28,366 5,406
Depreciation 29,063 9,392
Amortization 357 253
--- ---
78,413 32,351
------ ------
NET INCOME $ 61,563 $ 21,037
============ ============
NET INCOME PER SHARE - BASIC $ 1.44 $ 1.05
====== ======
NET INCOME PER SHARE - DILUTED $ 1.42 $ 1.03
====== ======
SHARES OUTSTANDING - BASIC 39,287,404 19,957,091
========== ==========
- -
SHARES OUTSTANDING - DILUTED 39,948,987 20,404,306
========== ==========
DIVIDENDS DECLARED, PER COMMON SHARE, DURING THE PERIOD $ 1.605 $ 1.545
============ ============
</TABLE>
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.)
-3-
<PAGE>
<TABLE>
<CAPTION>
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands)
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 61,563 $ 21,037
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 31,050 9,862
Deferred compensation 882 941
Increase (decrease) in other liabilities (2,727) 236
Increase in other assets (2,386) (14,847)
Increase (decrease) in accounts payable and accrued liabilities (6,653) 2,225
Increase in straight line rent (4,453) 0
Gain on sale of real estate (2,150) 0
------ -
Net cash provided by operating activities 75,126 19,454
------ ------
Cash flows from investing activities:
Acquisition and development of real estate properties (41,803) (83,828)
Acquisition and development of mortgages (32,291) 0
Proceeds from sale of mortgages 3,075 0
Proceeds from sale of real estate 27,782 0
------ -
Net cash used in investing activities (43,237) (83,828)
------- -------
Cash flows from financing activities:
Borrowings on notes and bonds payable 101,500 66,599
Repayments on notes and bonds payable (74,203) (11,300)
Dividends paid (68,886) (31,430)
Proceeds from issuance of common stock 752 37,548
--- ------
Net cash provided (used) by financing activities (40,837) 61,417
------- ------
Decrease in cash and cash equivalents (8,948) (2,957)
Cash and cash equivalents, beginning of period 14,411 5,325
------ -----
Cash and cash equivalents, end of period $ 5,463 $ 2,368
============ ============
</TABLE>
(The accompanying notes, together with the Notes to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.)
-4-
<PAGE>
Healthcare Realty Trust
Incorporated
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Healthcare Realty Trust Incorporated (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements which are included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
The results of operations for the three-month and nine-month periods ending
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
Certain reclassifications have been made for the period July 1, 1998
through September 30, 1998 and for the period January 1, 1998 through September
30, 1998 to conform to the 1999 presentation. These reclassifications had no
effect on the results of operations as previously reported.
Note 2. Organization
The Company invests in healthcare-related properties and mortgages located
throughout the United States. 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 September 30, 1999,
the Company had invested or committed to invest in 291 properties (the
"Properties") located in 34 states, which are supported by 70 healthcare-related
entities. The Properties include:
-5-
<PAGE>
<TABLE>
<CAPTION>
Number of (in thousands)
Properties Investment
---------- ----------
<S> <C> <C>
Ancillary hospital facilities 63 $ 505,232
Medical office buildings 6 26,959
Physician clinics 35 157,875
Skilled nursing facilities 55 248,889
Comprehensive ambulatory care centers 14 36,832
Assisted living facilities 91 321,816
Ambulatory surgery centers 9 43,332
Inpatient rehabilitation facilities 10 157,671
Other 8 167,307
Corporate property 0 3,732
- -----
291 $1,669,645
=== ==========
</TABLE>
Note 3. Funds From Operations
Funds from operations ("FFO"), 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 has adopted, effective January 1,
2000, a new definition of FFO as described in the NAREIT White Paper issued
October 1999.
The Company considers FFO to be an informative measure of the performance
of an equity real estate investment trust ("REIT") and consistent with measures
used by analysts to evaluate equity REITs. FFO 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. FFO for the three months ended September 30, 1999 and
1998, was $26.5 million, basic ($26.6 million, diluted), or $0.68 per basic
share ($0.67 per diluted share) and $12.4 million, or $0.61 per basic share
($0.60 per diluted share), respectively. FFO for the nine months ended September
30, 1999 and 1998, was $78.6 million basic ($78.8 million, diluted), or $2.00
per basic share ($1.97 per diluted share) and $36.3 million, or $1.82 per basic
share ($1.78 per diluted share), respectively.
-6-
<PAGE>
<TABLE>
<CAPTION>
Funds from Operations
(Dollars in thousands, except per share data)
Three Months Ended September 30,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Net Income (1) $ 20,230 $ 3,050
Non-recurring items (2) 0 6,308
Gain or loss on dispositions 32 0
Straight line rents (1,394) 0
Preferred stock dividend (1,664) 0
ADD:
Depreciation
Real estate 9,326 3,010
Office F,F&E 0 0
Leasehold improvements 0 0
Other non-revenue producing assets 0 0
- -
9,326 3,010
----- -----
Amortization
Acquired property contracts 0 0
Other non-revenue producing assets 0 0
Organization costs 0 0
- -
0 0
- -
Deferred financing costs 0 0
- -
Total Adjustments 6,300 9,318
----- -----
Funds From Operations - Basic $ 26,530 $ 12,368
Convertible Subordinated Debenture Interest 80 0
-- -
Funds From Operations - Diluted $ 26,610 $ 12,368
============ =============
Shares Outstanding - Basic 39,304,676 20,333,500
========== ==========
Shares Outstanding - Diluted 39,969,686 20,771,296
========== ==========
Funds From Operations Per Share - Basic $ 0.68 $ 0.61
============ =============
Funds From Operations Per Share - Diluted $ 0.67 $ 0.60
============ =============
</TABLE>
(1) Net income includes $292,858 in 1999 and $315,862 in 1998 of stock based
long-term incentive compensation expense. This expense never requires the
disbursement of cash.
(2) Represents the write-off of certain capitalized software costs, leasehold
improvements, organization and other deferred costs which were deemed to have no
continuing value and incremental internal costs incurred in conjunction with the
Capstone merger.
-7-
<PAGE>
<TABLE>
<CAPTION>
Funds from Operations
(Dollars in thousands, except per share data)
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net Income (1) $ 61,563 $ 21,037
Non-recurring items (2) 0 6,308
Gain or loss on dispositions (3) (2,150) 0
Straight line rents (4,453) 0
Preferred stock dividend (4,990) 0
ADD:
Depreciation
Real estate 28,651 8,943
Office F,F&E 0 0
Leasehold improvements 0 0
Other non-revenue producing assets 0 0
- -
28,651 8,943
------ -----
Amortization
Acquired property contracts 0 0
Other non-revenue producing assets 0 0
Organization costs 0 0
- -
0 0
- -
Deferred financing costs 0 0
- -
Total Adjustments 17,058 15,251
------ ------
Funds From Operations $ 78,622 $ 36,288
Convertible Subordinated Debenture Interest 213 0
--- -
Funds from Operations - Diluted $ 78,835 $ 36,288
============= ============
Shares Outstanding - Basic 39,287,404 19,957,091
========== ==========
Shares Outstanding - Diluted 39,948,987 20,404,306
========== ==========
Funds From Operations Per Share - Basic $ 2.00 $ 1.82
============= ============
Funds From Operations Per Share - Diluted $ 1.97 $ 1.78
============= ============
</TABLE>
(1) Net income includes $881,542 in 1999 and $940,950 in 1998 of stock based
long-term incentive compensation expense. This expense never requires the
disbursement of cash.
(2) Represents the write-off of certain capitalized software costs, leasehold
improvements, organization and other deferred costs which were deemed to have no
continuing value and incremental internal costs incurred in conjunction with the
Capstone merger.
(3) Represents a gain from the sale of an ancillary hospital facility in
Savannah, Georgia, the sale of a comprehensive ambulatory care center in Miami,
Florida and a loss from the sale of a partnership interest.
-8-
<PAGE>
Note 4. Capstone Merger
On October 15, 1998, the Company completed its merger with Capstone Capital
Corporation ("Capstone"). Pursuant to the merger agreement, the Company acquired
Capstone in a stock-for-stock merger in which the stockholders of Capstone
received a fixed ratio of .8518 shares of the Company's common stock and the
holders of Capstone preferred stock received one share of the Company's Series A
Voting Cumulative Preferred Stock in exchange for each share of Capstone
preferred stock. The Company issued 18,906,909 shares of common stock and
3,000,000 shares of preferred stock. The transaction was accounted for as a
purchase and resulted in no goodwill.
<TABLE>
<CAPTION>
The purchase price is summarized as follows (dollars in thousands):
<S> <C> <C>
Common stock $ 532,554
Preferred stock 72,052
Cash and cash equivalents 8,330
Liabilities assumed 424,897
-------
Total Purchase Price $ 1,037,833
===========
</TABLE>
<TABLE>
<CAPTION>
The assets acquired in the Capstone merger are summarized as follows
(dollars in thousands):
<S> <C> <C>
Real estate properties $ 804,178
Mortgage notes receivable 211,590
Cash and cash equivalents 13,767
Other assets 8,298
-----
Total Assets Acquired $ 1,037,833
===========
</TABLE>
Note 5. Notes and Bonds Payable
<TABLE>
<CAPTION>
Notes and bonds payable at September 30, 1999 consisted of the
following (dollars in thousands):
<S> <C> <C>
Unsecured credit facility $ 241,500
Term loan facility 147,700
Unsecured notes 54,000
6.55% Convertible subordinated debentures, net 73,677
10.5% Convertible subordinated debentures, net 3,598
Mortgage notes and other notes 66,979
------
$ 587,454
===========
</TABLE>
-9-
<PAGE>
Unsecured Credit Facility
On October 15, 1998, concurrent with its merger with Capstone, the Company
repaid the outstanding balances under both Capstone's and the Company's own
unsecured credit facilities and entered into a $265.0 million unsecured credit
facility (the "Unsecured Credit Facility") with ten commercial banks. The
Unsecured Credit Facility bears interest at LIBOR rates plus 1.05%, payable
quarterly, and matures on October 15, 2001. In addition, the Company will pay,
quarterly, a commitment fee of 0.225 of 1% on the unused portion of funds
available for borrowings. The Unsecured Credit Facility contains certain
representations, warranties, and financial and other covenants customary in such
loan agreements. At September 30, 1999, the Company had available borrowing
capacity of $23.5 million under the Unsecured Credit Facility.
Term Loan Facility
On October 15, 1998, concurrent with the Capstone merger, the Company
entered into a $200.0 million unsecured term loan (the "Term Loan Facility")
with Bank of America (formerly NationsBank). The Term Loan Facility bears
interest at LIBOR plus 1.75%, payable quarterly, and matures on January 14,
2000. The Term Loan Facility contains certain representations, warranties and
financial and other covenants customary in such loan agreements, as well as
restrictions on dividend payments if minimum tangible capital requirements are
not met. At September 30, 1999, the Company had no additional available
borrowing capacity under the Term Loan Facility.
Unsecured Notes
On September 18, 1995 the Company privately placed $90.0 million of
unsecured notes (the "Unsecured Notes") with 16 institutions. The Unsecured
Notes bear interest at 7.41%, payable semi-annually, and mature on September 1,
2002. Beginning on September 1, 1998 and on each September 1 through 2002, the
Company must repay $18.0 million of the 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.
Convertible Subordinated Debentures
As part of the Capstone merger, the Company assumed and recorded at fair
value $74.7 million aggregate face amount of 6.55% Convertible Subordinated
Debentures (the "6.55% Debentures") of Capstone. At September 30, 1999, the
Company had approximately $73.7 million aggregate principal amount of 6.55%
Debentures outstanding with a face amount of $74.7 million and unaccreted
discount of $1.0 million. Such rate of interest and accretion of discount
represents a yield to maturity of 7.5% per annum (computed on a semiannual bond
equivalent basis). The 6.55% Debentures are due on March 14, 2002, unless
redeemed earlier by the Company or converted by the holder, and are callable on
March 16, 2000. Interest on the 6.55% Debentures is payable on March 14 and
September 14 in each year. The 6.55% Debentures are convertible into shares of
common stock of the Company at the option of the holder at any time prior to
redemption or stated maturity, at a conversion rate of 33.6251 shares per $1
thousand bond.
-10-
<PAGE>
As part of the Capstone merger, the Company assumed and recorded at fair
value $3.75 million aggregate face amount of 10.5% Convertible Subordinated
Debentures (the "10.5% Debentures") of Capstone. At September 30, 1999, the
Company had approximately $3.6 million aggregate principal amount of 10.5%
Debentures outstanding with a face amount of $3.4 million and unamortized
premium of $0.2 million. Such rate of interest and amortization of premium
represents a yield to maturity of 7.5% per annum (computed on a semiannual bond
equivalent basis). The 10.5% Debentures are due on April 1, 2002, unless
redeemed earlier by the Company or converted by the holder, and are callable on
April 5, 2000. Interest on the 10.5% Debentures is payable on April 1 and
October 1 in each year. The 10.5% Debentures are convertible into shares of
common stock of the Company at the option of the holder at any time prior to
redemption or stated maturity, at a conversion rate of 52.8248 shares per $1
thousand bond.
Mortgage Notes
As part of the Capstone merger, the Company assumed nonrecourse mortgage
notes payable, and the related collateral, as follows (Dollars in millions):
<TABLE>
<CAPTION>
Book Value
Of Collateral at Balance at
Original Interest September 30, September30,
Mortgagor Balance Rate Collateral 1999 1999
--------- ------- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
Life Insurance Co. $ 23.3 8.500% Ancillary hospital facility $ 42.7 $ 22.7
Life Insurance Co. 4.7 7.625% Ancillary hospital facility 10.7 4.4
Life Insurance Co. 17.1 8.125% Two ambulatory surgery centers 37.0 16.6
& one ancillary hospital
Bank 17.0 8.500% Six skilled nursing facilities 29.8 16.3
---- ---- ----
$ 62.1 $ 120.2 $ 60.0
====== ========== ========
</TABLE>
The $23.3 million note is payable in monthly installments of principal and
interest based on a 30 year amortization with the final payment due in July
2026. The $4.7 million note is payable in monthly installments of principal and
interest based on a 20 year amortization with the final payment due in January
2017. The three notes totaling $17.1 million are payable in monthly installments
of principal and interest based on a 25 year amortization with a balloon payment
of the unpaid balance in September 2004. The $17.0 million note bears interest
at 50 basis points in excess of the prime rate, and is payable in monthly
installments of principal and interest based on a 25 year amortization with a
balloon payment of the unpaid balance in June 2000.
Note 6. Commitments
As of September 30, 1999, the Company had a net investment of approximately
$24.5 million in four build-to-suit developments in progress and one expansion
of an existing facility, which have a total remaining funding commitment of
approximately $30.7 million. The Company also has 13 mortgages under development
at September 30, 1999, which have a total remaining funding commitment of
approximately $5.6 million. The company has future
-11-
<PAGE>
commitments to purchase or provide funding for the construction of real estate
properties totaling $37.5 million.
As part of the Capstone merger, agreements were entered into with three
individuals affiliated with Capstone that restrict competitive practices and
that the Company believes will protect and enhance the value of the real estate
properties acquired from Capstone. These agreements provide for the issuance of
150,000 shares of common stock of the Company annually to the individuals on
October 15 of the years 1999, 2000, 2001 and 2002, provided all terms of the
agreements are met. The Company issued 150,000 shares of common stock to these
individuals in October 1999.
Note 7. Asset Disposition
During the first quarter of 1999, the Company sold a 90,000 square foot
ancillary hospital facility in Savannah, Georgia for $8.1 million in net
proceeds. These proceeds were applied to the partial repayment of the Term Loan
Facility.
During the second quarter of 1999, the Company sold a 56,900 square foot
comprehensive ambulatory care center in Miami, Florida for $11.3 million in net
proceeds, sold a 51% interest in a partnership for $5.4 million in net proceeds
and received $3.1 million in net proceeds from the repayment of two mortgage
notes receivable. These proceeds were applied to the partial repayment of the
Term Loan Facility.
During the third quarter of 1999, the Company sold a 19,000 square foot
integrated delivery system facility in Mesquite, Nevada for $3.0 million in net
proceeds. These proceeds were applied to the partial repayment of the Term Loan
Facility.
Note 8. Contingencies
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of two million dollars
arising out of the development and construction of four real estate projects
located in different parts of the United States. Medistar and Medix served as
the developer and contractor, respectively, for the projects. HRT has asserted
claims for damages relating to, among others, alleged breaches of the
development and contracting obligations, failure to perform in accordance with
contract terms and specifications, and other deficiencies in performance by
Medistar and Medix. On June 10, 1999, Medistar and Medix filed its answer and
counterclaim asserting a variety of alleged legal theories, claims for damages
for alleged deficiencies by HRT and the Company in the performance of alleged
obligations, and for damage to their business reputation, claiming in excess of
seventy-five million dollars in damages. Attempts at mediation have not resulted
in a settlement of the disputes. The Company's prosecution of its claims and
defense of the counterclaims will be vigorous. While there is yet no ability to
predict the outcome, the Company believes that, even though the asserted cross
claims seek substantial monetary damages, the allegations made by Medistar and
Medix are not factually or legally meritorious, are subject to sustainable
defenses and are, to a significant extent, covered by liability insurance.
-12-
<PAGE>
Note 8. Net Income Per Share
The table below sets forth the computation of basic and diluted earnings
per share as required by FASB Statement No. 128 for the three and nine months
ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS
Average Shares Outstanding 39,835,669 20,863,443 39,818,397 20,487,034
Actual Restricted Stock Shares (530,993) (529,943) (530,993) (529,943)
Denominator - Basic 39,304,676 20,333,500 39,287,404 19,957,091
========== ========== ========== ==========
Net Income $ 20,229,670 $ 3,049,966 $ 61,563,408 $ 21,036,549
Preferred Stock Dividend (1,664,070) 0 (4,989,958) 0
---------- - ---------- -
Numerator - Basic $ 18,565,600 $ 3,049,966 $ 56,573,450 $ 21,036,549
============ =========== ============ ============
Per Share Amount $ 0.47 $ 0.15 $ 1.44 $ 1.05
============ =========== ============ =========
Diluted EPS
Average Shares Outstanding 39,835,669 20,863,443 39,818,397 20,487,034
Actual Restricted Stock Shares (530,993) (529,943) (530,993) (529,943)
Restricted Shares - Treasury 482,134 424,106 476,759 399,832
Dilution for Convertible Debentures 181,136 0 181,136 0
Dilution for Employee Stock Purchase Plan 1,740 13,690 3,688 17,808
Dilution for Warrants 0 0 0 29,575
- - - ------
Denominator - Diluted 39,969,686 20,771,296 39,948,987 20,404,306
========== ========== ========== ==========
Numerator - Basic $ 18,565,600 $ 3,049,966 $ 56,573,450 $ 21,036,549
Convertible Subordinated Debenture Interest 79,896 0 212,929 0
------ - ------- -
Numerator - Diluted $ 18,645,496 $ 3,049,966 $ 56,786,379 $ 21,036,549
============ ============ ============ ============
Per Share Amount $ 0.47 $ 0.15 $ 1.42 $ 1.03
============ ============ ============ ============
</TABLE>
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Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results
Third Quarter 1999 Compared to Third Quarter 1998
The results of operations of the Company were significantly impacted by the
Capstone merger. For the three months ended September 30, 1999, net income
increased $11.6 million due to the Capstone merger. As a result of the Capstone
transaction, the Company acquired 111 properties and 75 mortgages for a fair
value of $804.2 million and $211.6 million, respectively. These investments
resulted in additional master lease rental income, straight line rental income,
property operating income net of operating expenses, and mortgage interest
income for the three months ended September 30, 1999 totaling $24.2 million, as
well as additional interest and other income of $0.2 million, additional
interest expense of $4.6 million under the unsecured credit facility and term
loan facility and depreciation and amortization expense of $5.9 million. The
Company also assumed Capstone's 6.55% and 10.5% convertible subordinated
debentures and notes payable, with interest rates ranging from 7.625% to 8.50%
at September 30, 1999, which resulted in interest expense of $2.3 million for
the three months ended September 30, 1999.
Net income for the quarter ended September 30, 1999 was $20.2 million,
($0.47 basic and diluted share), on total revenues of $46.5 million compared to
net income of $3.1 million, ($0.15 per basic and diluted share) on total
revenues of $18.3 million for the same period in 1998. Funds from operations
("FFO"), basic, was $26.5 million ($0.68 per basic share), and FFO, diluted, was
$26.6 million ($0.67 per diluted share), for the quarter ended September 30,
1999 compared to $12.4 million, or $0.61 per basic share ($0.60 per diluted
share), in 1998.
Total revenues for the three months ended September 30, 1999, compared to
the three months ended September 30, 1998, increased $28.2 million, or 153.7%.
Excluding the impact of the Capstone merger, which is discussed above, total
revenues for the quarter ended September 30, 1999, compared to the same period
in 1998, increased $1.5 million, or 8.0%. This increase is primarily due to an
increase in property operating income. Excluding the effect of the Capstone
merger, property operating income increased $1.3 million, or 15.2%. Since the
third quarter of 1998, excluding the effect of the Capstone merger, the Company
has sold four buildings and three previously-owned buildings were brought under
the Company's property management services. The Company acquired two additional
buildings also under property management and four buildings were acquired under
master lease arrangements. Certain leases acquired from Capstone contain
escalating rental rates over the life of the leases; however, rental income is
recognized as earned on a straight-line basis over the life of the lease.
Therefore, $1.4 million of accrued straight-line rental income is included in
net income for the three months ended September 30, 1999. Mortgage interest
income increased $6.5 million for the three months ended September 30, 1999
compared to 1998 due mainly to the acquisition of 75 mortgages in the Capstone
merger. Management fees increased $0.3 million, or 61.7%, for the three months
ending September 30, 1999, compared to the same period in 1998 substantially due
to the addition of third party asset management contracts in Florida.
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Total expenses for the three months ended September 30, 1999 were $26.3
million compared to $15.3 million for the three months ended September 30, 1998,
an increase of $11.0 million, or 71.9%. Excluding the effect of the Capstone
merger, total expenses decreased $4.1 million, or 26.9%, for the three months
ended September 30, 1999, compared to 1998. General and administrative expenses
decreased $5.7 million, or 79.5%, for the quarter ended September 30, 1999,
compared to the same period in 1998. The three months ended September 30, 1998
includes a $6.3 million write-off of certain capitalized software costs,
leasehold improvements, organization and other deferred costs which were deemed
to have no continuing value and incremental internal costs incurred in
conjunction with the Capstone merger. During 1999, there was an increase in the
number of employees for property management, development, and other
service-based activities. Property operating expenses increased $2.4 million, or
84.2%, for the three months ended September 30, 1999 compared to the same period
in 1998. Excluding the effect of the Capstone merger, property operating
expenses increased $0.3 million, or 11.9%, for the same reasons property
operating income increased, as discussed in the preceding paragraph. Interest
expense increased $7.8 million, or 398.4%, for the three months ended September
30, 1999 compared to the same period in 1998. Excluding the effect of the
Capstone merger, interest expense increased $0.9 million, or 44.6%, for the
three months ended September 30, 1999 compared to the same period in 1998.
During the three months ended September 30, 1999, the Company had an average
outstanding debt balance of approximately $85.0 million under the unsecured
credit facility, excluding the effect of the Capstone merger, compared to $10.0
million in 1998 while the balance under the unsecured notes was $18.0 million
lower during the three months ended September 30, 1999 compared to 1998.
Depreciation and amortization expense increased $6.3 million, or 194.3%, for the
three months ended September 30, 1999 compared to the same period in 1998.
Excluding the effect of the Capstone merger, depreciation and amortization
expense increased $0.4 million, or 12.7%, for the three months ended September
30, 1999 compared to 1998, for the same reasons property operating income
increased, as discussed in the preceding paragraph.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
The results of operations of the Company for the nine months ended
September 30, 1999 were significantly impacted by the Capstone merger. For the
nine months ended September 30, 1999, net income increased $34.7 million due to
the Capstone merger. As described in the operating results for the third
quarter, the Company acquired 111 properties and 75 mortgages as a result of the
Capstone merger. These investments resulted in additional master lease rental
income, straight line rental income, property operating income net of operating
expenses, and mortgage interest income for the nine months ended September 30,
1999 totaling $72.1 million, as well as additional interest and other income of
$0.7 million, additional interest expense of $12.8 million under the unsecured
credit facility and term loan facility, and depreciation and amortization
expense of $18.4 million. The Company also assumed Capstone's 6.55% and 10.5%
convertible subordinated debentures and notes payable, with interest rates
ranging from 7.625% to 8.50% at September 30, 1999, which resulted in interest
expense of $6.9 million for the nine months ended September 30, 1999.
Net income for the nine months ended September 30, 1999 was $61.6 million
($1.44 per basic share and $1.42 per diluted share), on total revenues of $140.0
million compared to net
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income of $21.0 million ($1.05 per basic share and $1.03 per diluted share), on
total revenues of $53.4 million, for the same period in 1998. FFO, basic, was
$78.6 million ($2.00 per basic share) and FFO, diluted, was $78.8 million ($1.97
per diluted share) compared to $36.3 million, or $1.82 per basic share ($1.78
per diluted share), in 1998.
Total revenues for the nine months ended September 30, 1999, compared to
the same period in 1998, increased $86.6 million, or 162.2%. Excluding the
impact of the Capstone merger, total revenues for the nine months ended
September 30, 1999, compared to 1998, increased $7.9 million, or 14.9%. This
increase is primarily due to increases in master lease rental income, property
operating income and interest and other income. Excluding the effect of the
Capstone merger, master lease rental income and property operating income
increased $5.1 million, or 10.2%. Since the third quarter of 1998, excluding the
effect of the Capstone merger, the Company has sold four buildings and three
previously-owned buildings were brought under the Company's property management
services. The Company acquired two additional buildings, also under property
management, one property under construction was completed and began operations,
and four buildings were acquired under master lease arrangements. Interest and
other income, excluding the effect of the Capstone merger, increased $1.5
million, or 140.7%, during the nine months ended September 30, 1999, compared to
the same period in 1998. During the nine months ended September 30, 1999, the
Company sold an ancillary hospital facility, a comprehensive ambulatory care
center, and a 51% interest in a partnership for net proceeds totaling $24.8
million, resulting in a $2.2 million net gain, reflected in interest and other
income. Certain leases acquired from Capstone contain escalating rental rates
over the life of the leases; however, rental income is recognized as earned on a
straight-line basis over the life of the lease. Therefore, $4.5 million of
accrued straight-line rental income is included in net income for the nine
months ended September 30, 1999. Mortgage interest income increased $18.8
million for the nine months ended September 30, 1999 compared to 1998, due
mainly to the acquisition of 75 mortgages in the Capstone merger. Management
fees increased $0.7 million, or 48.1%, for the nine months ended September 30,
1999, compared to the same period in 1998 substantially due to the addition of
third party asset management contracts in Florida.
Total expenses for the nine months ended September 30, 1999 were $78.4
million compared to $32.4 million for the nine months ended September 30, 1998,
an increase of $46.1 million, or 142.4%. Excluding the effect of the Capstone
merger, total expenses increased $2.1 million, or 6.5%, for the nine months
ended September 30, 1999, compared to 1998. General and administrative expenses
decreased $4.5 million, or 46.2%, for the nine months ended September 30, 1999
compared to the same period in 1998. During the nine months ended September 30,
1998, the Company incurred a $6.3 million write-off of certain capitalized
software costs, leasehold improvements, organization and other deferred costs,
which were deemed to have no continuing value and incremental internal costs
incurred in conjunction with the Capstone merger. During 1999, there was an
increase in the number of employees for property management, development, and
other service-based activities. Property operating expenses increased $7.5
million, or 99.5%, for the nine months ended September 30, 1999 compared to the
same period in 1998. Excluding the effect of the Capstone merger, property
operating expenses increased $2.0 million, or 26.7%, for the same reasons
property operating income increased as described in the preceding paragraph.
Interest expense increased $23.0 million, or 424.7%, for the nine months ended
September 30, 1999 compared to the same period in 1998. Excluding the impact of
the Capstone merger, interest expense increased $3.2 million, or 58.9%, for the
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nine months ended September 30, 1999 compared to the same period in 1998. During
the nine months ended September 30, 1999, the Company had an average outstanding
debt balance of approximately $85.0 million under the unsecured credit facility,
excluding the effect of the Capstone merger, compared to $5.9 million in 1998
while the balance under the unsecured notes was $18.0 million lower in 1999 than
in 1998. Additionally, there was approximately $4.4 million less in construction
in progress, excluding the effect of the Capstone merger, throughout the nine
months ended September 30, 1999 compared to the same period in 1998 which
resulted in less capitalized interest in 1999. Depreciation and amortization
increased $19.8 million, or 205.0%, for the nine months ended September 30, 1999
compared to the same period in 1998. Excluding the effect of the Capstone
merger, depreciation and amortization expense increased $4.4 million, or 14.5%,
for the same reasons master lease rental income and property operating income
increased, as discussed in the preceding paragraph.
Liquidity and Capital Resources
On October 15, 1998, at the time of the Capstone merger, the Company repaid
the outstanding balances under both Capstone's and the Company's own unsecured
credit facilities and entered into a $265.0 million unsecured credit facility
(the "Unsecured Credit Facility") with ten commercial banks. The Unsecured
Credit Facility bears interest at LIBOR plus 1.05%, payable quarterly, and
matures on October 15, 2001. In addition, the Company will pay, quarterly, a
commitment fee of 0.225 of 1% on the unused portion of funds available for
borrowings. At September 30, 1999, the Company had available borrowing capacity
of $23.5 million under the Unsecured Credit Facility.
At the time of the Capstone merger, the Company entered into a $200.0
million unsecured term loan (the "Term Loan Facility") with Bank of America
(formerly NationsBank). The Term Loan Facility, as amended in October 1999,
bears interest at LIBOR plus 1.75%, payable quarterly, and matures on January
14, 2000. Since the Capstone merger, the Company has received net proceeds from
the sale of assets and from mortgage repayments of approximately $52.3 million
and reduced the unpaid balance of the Term Loan Facility as of September 30,
1999 to $147.7 million. The Term Loan Facility maturity date has been extended
from October 16, 1999 to January 14, 2000. The Company expects that the Term
Loan Facility will be repaid by internally generated cash flow, proceeds from
the sale of additional assets, proceeds from additional prepayments of mortgage
notes receivable and proceeds from secured financing of real estate investments.
If such sources of funds are insufficient to repay the Term Loan Facility in
full, the Company may be required to extend the maturity date or refinance any
unpaid balance. Depending upon credit market conditions existing at the maturity
date, the Company may incur higher interest costs resulting from such an
extension or refinancing.
In 1995, the Company privately placed $90.0 million of unsecured notes (the
"Unsecured Notes") bearing interest at 7.41%, payable semi-annually ($5.3
million paid during 1999), and mature on September 1, 2002. The Company must
repay $18.0 million of principal annually. At September 30, 1999, $54.0 million
was outstanding under the Unsecured Notes.
The Company assumed in the Capstone merger 10.5% Convertible Subordinated
Debentures and 6.55% Convertible Subordinated Debentures having an aggregate
principal
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balance of $78.3 million. In 1999, the Company will pay $5.3 million of interest
on these subordinated debentures.
As of September 30, 1999, the Company can issue an aggregate of
approximately $106.4 million of securities remaining under currently effective
registration statements. Due to the current market price of the Company's stock,
the Company does not presently plan to offer securities under such registration
statements. The Company may, under certain circumstances, borrow additional
amounts in connection with the renovation or expansion of its properties, the
acquisition or development of additional properties or, as necessary, to meet
distribution requirements for REITs under the Internal Revenue 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.
During the first quarter of 1999, the Company sold an ancillary hospital
facility in Savannah, Georgia for net proceeds of $8.1 million. The proceeds
were applied to the partial repayment of the Term Loan Facility.
During the second quarter of 1999, the Company sold a comprehensive
ambulatory care center in Miami, Florida for $11.3 million in net proceeds, a
51% partnership interest for $5.4 million in net proceeds, two mortgage notes
receivable were repaid for $3.1 million in net proceeds, and received $0.6
million from the purchase of a bank's participating interest in six mortgage
notes receivable. These proceeds were applied to the partial repayment of the
Term Loan Facility.
During the third quarter of 1999, the Company sold an integrated delivery
system facility in Mesquite, Nevada for $3.0 million in net proceeds. These
proceeds were applied to the partial repayment of the Term Loan Facility.
As of September 30, 1999, the Company had an investment of approximately
$24.5 million in four build-to-suit developments in progress and one expansion
of an existing facility, which have a total remaining funding commitment of
approximately $30.7 million. The Company also had 13 mortgages under development
at September 30, 1999, which have a total remaining funding commitment of
approximately $5.6 million. The Company has future commitments to purchase or
provide funding for the construction of real estate properties totaling $37.5
million. The Company intends to fund these commitments with funds available from
operations and proceeds from the Unsecured Credit Facility.
At September 30, 1999, the Company had stockholders' equity in excess of
$1.0 billion. The debt to total capitalization ratio was approximately .367 to 1
at September 30, 1999.
On July 27, 1999, the Company declared an increase in its quarterly common
stock dividend from $0.535 per share ($2.14 annualized) to $0.540 per share
($2.16 annualized) payable to stockholders of record on August 6, 1999. This
dividend was paid on August 16, 1999. In October 1999, the Company announced
payment of a common stock dividend of $0.545 per share ($2.18 annualized) to
holders of record of common shares on November 5, 1999. This dividend is payable
on November 16, 1999 and relates to the period July 1, 1999 through September
30, 1999. The Company presently plans to continue to pay its quarterly
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common stock dividends with increases consistent with its current practice. In
the event that the Company cannot make additional investments in 1999 because of
an inability to obtain new capital by issuing equity and debt securities, the
Company expects to continue to be able to pay its common stock dividends in a
manner consistent with its current practice. Should access to new capital not be
available, the Company is uncertain of its ability to increase its quarterly
common stock dividends.
During 1999, the Company expects to pay quarterly dividends on its 8 7/8%
Series A Voting Cumulative Preferred Stock in the annualized amount of $2.22 per
share.
Under the terms of the leases and other financial support agreements
relating to most of the properties, tenants or healthcare providers are
generally responsible for operating expenses and taxes relating to the
properties. As a result of these arrangements, with limited expectations not
material to the performance of the Company, 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 or
develops. After the term of the lease or financial support agreement, or in the
event the financial obligations required by the agreement are not met, the
Company anticipates that any expenditures it might become responsible for in
maintaining the properties will be funded by cash from operations and, in the
case of major expenditures, possibly by borrowings. To the extent that
unanticipated expenditures or significant borrowings are required, the Company's
cash available for distribution and liquidity may be adversely affected.
The Company plans to continue to meet its liquidity needs, including
funding additional investments in 1999, paying its quarterly dividends (with
increases consistent with its current practices) and funding the debt service on
the 10.50% Convertible Subordinated Debentures, the 6.55% Convertible
Subordinated Debentures, the Unsecured Credit Facility, and the Term Loan
Facility, and the Unsecured Notes from its operating revenues, the proceeds of
mortgage loan repayments, sales of real estate investments, and debt market
financings. The Company believes that its liquidity and sources of capital are
adequate to satisfy its cash requirements. The Company, however, cannot be
certain that these sources of funds will be available at a time and upon terms
acceptable to the Company in sufficient amounts to meet its liquidity needs.
Impact of Inflation
Inflation has not significantly affected the earnings of the Company
because of the moderate inflation rate and the fact that most of the Company's
leases and financial support arrangements require tenants and sponsors to pay
all or some portion of the increases in operating expenses, thereby reducing the
risk of any adverse effects of inflation to the Company. In addition, inflation
will have the effect of increasing the gross revenue the Company is to receive
under the terms of the leases and financial support arrangements. Leases and
financial support arrangements vary in the remaining terms of obligations from
one to nineteen years, further reducing the risk of any adverse effects of
inflation to the Company. The Unsecured Credit Facility bears interest at a
variable rate; therefore, the amount of interest
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payable under the Unsecured Credit Facility will be influenced by changes in
in short-term rates, which tend to be sensitive to inflation.
Real Estate Investment Trust Tax Proposals
The Clinton Administration's Fiscal Year 2000 Budget proposal includes
three provisions of interest to REITs in general; two of which potentially
affect the Company. These provisions (i) modify the structure of businesses
which are indirectly conducted by the Company and could limit or negatively
affect the Company's future ability to engage indirectly in certain business
activities that cannot be conducted directly by the Company; and (ii) repeal
tax-free conversion of large C corporations to S corporations, which would
effectively tax the built-in gains of C corporations prospectively electing
tax-free reorganizations, thus affecting an acquisition format employed by the
Company in the past. The President's Budget proposal includes numerous other
revenue provisions, none of which would materially impact the Company in the
event of their adoption. Debate regarding the broader implications of the
President's Year 2000 Budget proposals, as well as other matters of federal
fiscal policy, is ongoing, and there is no way to predict the outcome of these
proposals or the eventual economic effect of these proposals on the Company if
these proposals are enacted.
The Senate has approved a bill extending certain expiring tax provisions.
The Senate extenders bill substantially incorporates the Real Estate Investment
Trust Modernization Bill of 1999, which has as its central feature a provision
allowing a REIT to own 100% of the stock of a taxable REIT subsidiary, similar
to the initiative contained in the Administration's Fiscal Year 2000 Budget
proposal mentioned previously. The House extenders bill, which does not
incorporate the REIT provisions, has yet to be considered by the full House and
reconciled with the Senate extenders bill. In addition, the Senate has approved
a trade bill that includes the same REIT provisions as the Senate extender bill.
It, too, has yet to be reconciled with the House trade bill which differs
substantially from the Senate version. The House Ways and Means Committee has
approved a minimum wage bill that substantially incorporates the REIT
Modernization Bill. The Senate has approved a bankruptcy reform with minimum
wage provisions but no REIT provisions pertinent to the Company. Many of these
bills contain provisions similar to the Budget proposal's provisions to modify
the structure of businesses and could have a similar, undetermined impact on the
Company's future business activities as has already been noted. As with the
President's Year 2000 Budget proposal, there is no way to predict the outcome of
these proposals or the eventual economic effect of these proposals on the
Company if these proposals are enacted.
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four digits to define the applicable year.
Computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities. The Y2K issue
relating to the Company's corporate information technology systems, including
applications employed with respect to the real estate investments of the
Company, could have a material impact
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on the operations of the Company if compliance is not completed in a timely
manner. The Company's plan to resolve the Y2K issue involves four phases:
assessment, remediation, testing, and implementation.
Status of Y2K Issue - Company's Information Technology Systems
Based on the completed assessment of its own software and hardware relating
to the corporate information technology systems, the Company determined that it
was necessary to modify or replace certain portions of its software and hardware
so that those systems would properly utilize dates beyond December 31, 1999. The
Company has modified and replaced existing software and certain hardware
considered necessary based on its assessment. The Company's costs to complete
these modifications and replacements were less than $50,000.
In the ordinary course of events, the Company has purchased new file
servers and replaced many older desktop microcomputers with new equipment, all
of which is certified to be Y2K compliant by the manufacturers. Additionally,
"patches" available from the manufacturers were purchased to bring certain other
equipment into compliance, and were installed in desktop systems as necessary.
The Company's assessment of computer operating systems and software
indicated that the Company's significant information systems programs have not
required remediation. Accordingly, the Company does not believe that the Y2K
issue presents a material exposure as it relates to the Company's services. The
Company requested, and has subsequently received, certification from all of its
significant software and operating systems vendors that the versions of their
products currently installed are fully Y2K compliant.
The Company has tested 100% of its currently used systems and has found
them to be Y2K compliant in the testing environment.
Y2K Issue - Compliance of Suppliers
The Company has questioned its significant suppliers as to their respective
responses to the Y2K issue. To date, the Company is not aware of any suppliers
with a Y2K issue that would materially impact the Company's results of
operations, liquidity, or capital resources; however, the Company has no means
of ensuring that those parties will in fact be Y2K compliant. The Company has
received responses from approximately 88% of all of its inquiries and has
renewed its solicitation for written disclosures in compliance with the Year
2000 Information and Readiness Disclosure Act. 100% of the written responses
received have certified that they are or will be Y2K compliant by the end of
1999. The inability of suppliers to complete their Y2K resolution process in a
timely fashion could materially impact the Company. The Company cannot presently
determine the effect of non-compliance by the Company's suppliers.
While the Company does have ongoing relationships with third-party payors,
suppliers, vendors, and others, it has no systems that interface directly with
third party vendors other than its accounts with financial institutions and the
Company's payroll system interfaces directly with a vendor. The Company has
installed Y2K compliant software upgrades that
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have been certified by its primary financial institution and has received
notification from its payroll vendor that its systems and software with
which the Company interfaces are compliant.
Y2K Issue - Compliance of Properties
The Company will also have Y2K issue exposure in non-information technology
applications with respect to its real estate investments. Computer technology
employed in elevators, security systems, electrical systems and similar
applications involved in the operations of real estate properties may cause
interruptions of services with respect to those properties on and after January
1, 2000. The terms of agreements in place with respect to the bulk of the real
estate investments held by the Company, including many of the investments
managed by the Company, impose the economic cost of compliance upon third party
lessees and mortgagees; consequently, the costs to the Company for Y2K
remediation should not be material. The Company has received responses from
approximately 89% of its lessees and mortgagees and has renewed its solicitation
for written disclosures in compliance with the Year 2000 Information and
Readiness Disclosure Act. 98% of the responses received have certified that they
are or will be in Y2K compliance by the end of 1999. The Company manages 49 of
its owned investments, all of which have compliance plans in place. The Company
has been issued Y2K compliant letters from its Y2K consultant for 70% of these
investments and expects to have received compliant letters for the remaining
investments by the end of 1999.
Y2K Issue - Compliance of Related to the General Business Environment
Finally, the Y2K issue may affect the greater business environment in which
the Company operates. Due to the general uncertainty surrounding the Y2K
readiness of third parties, including federal and state governments, the effect
of the Y2K issue on the Company's lessees and mortgagees, as well as the Company
itself cannot be gauged. For example, the General Accounting Office has reported
that the systems employed in managing Medicare reimbursements is not likely to
be Y2K compliant in time to ensure the delivery of uninterrupted benefits and
services. Delay in reimbursements could negatively affect the Company's lessees
and mortgagees, resulting in a delay in receipt of payments owed to the
Company's lessees and mortgagees, with the further possibility of delay in
payments due to the Company. Similar consequences could result from the failure
of other parties having such an indirect relationship with the Company.
Management of the Company believes it has an effective program in place to
resolve the Y2K issue in a timely manner. Disruptions in the economy generally
resulting from Y2K issues could materially adversely affect the Company. The
Company could be subject to litigation for computer systems failure, for
example, equipment shutdown or failure to properly date business records. The
Company cannot reasonably estimate the amount of potential liability and lost
revenue at this time. The most reasonable likely worst case Y2K scenario is that
business disruption could occur with respect to third-party payors, suppliers,
or vendors who fail to become Y2K compliant, and disruptions in the economy
generally resulting from Y2K issues could adversely impact the Company.
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Market Risk
The Company is exposed to market risk, in the form of changing interest
rates, on its debt and mortgage notes receivable. The Company has no market risk
with respect to derivatives and foreign currency fluctuations. Management uses
daily monitoring of market conditions and analytical techniques to manage this
risk. The Company does not believe there have been significant changes in its
market risk since December 31, 1998. For a more detailed discussion, see pages
16 through 17 of Exhibit 13 "Annual Report to Shareholders" of the Company's
Form 10-K for the fiscal year ended December 31, 1998.
Cautionary Language Regarding Forward Looking Statements
Statements in this Form 10-Q that are not historical factual statements are
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The statements include, among other things,
statements regarding the intent, belief or expectations of the Company and its
officers and can be identified by the use of terminology such as "may", "will",
"expect", "believe", "intend", "plan", "estimate", "should" and other comparable
terms. In addition, the Company, through its senior management, from time to
time makes forward looking oral and written public statements concerning the
Company's expected future operations and other developments. Shareholders and
investors are cautioned that, while forward looking statements reflect the
Company's good faith beliefs and best judgment based upon current information,
they are not guarantees of future performance and are subject to known and
unknown risks and uncertainties. Actual results may differ materially from the
expectations contained in the forward looking statements as a result of various
factors. For a more detailed discussion of these, and other, factors see pages
25 through 29 of Item 1 of the Company's Form 10-K for the fiscal year ended
December 31, 1998.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of two million dollars
arising out of the development and construction of four real estate projects
located in different parts of the United States. Medistar and Medix served as
the developer and contractor, respectively, for the projects. HRT has asserted
claims for damages relating to, among others, alleged breaches of the
development and contracting obligations, failure to perform in accordance with
contract terms and specifications, and other deficiencies in performance by
Medistar and Medix. On June 10, 1999, Medistar and Medix filed its answer and
counterclaim asserting a variety of alleged legal theories, claims for damages
for alleged deficiencies by HRT and the Company in the performance of alleged
obligations, and for damage to their business reputation, claiming in excess of
seventy-five million dollars in damages. Attempts at mediation have not resulted
in a settlement of the disputes. The Company's prosecution of its claims and
defense of the counterclaims will be vigorous. While there is yet no ability to
predict the outcome, the Company believes that, even though the asserted cross
claims seek substantial monetary damages, the allegations made by Medistar and
Medix are not factually or legally meritorious, are subject to sustainable
defenses and are, to a significant extent, covered by liability insurance.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
(i) Exhibit 3.2. Amended and Restated Bylaws of Healthcare Realty Trust
Incorporated
(ii) Exhibit 10. Amendment No. 1 Term Loan Credit Agreement
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
months ended September 30, 1999.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ Timothy G. Wallace
----------------------
Timothy G. Wallace
Executive Vice President, Finance
and Chief Financial Officer
Date: November 15, 1999
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Exhibit 3.2
-26-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
HEALTHCARE REALTY TRUST INCORPORATED
ARTICLE I
OFFICES
Section 1.1. Principal Office. The principal office of the Corporation
------------------
shall be located at such place in the State of Maryland as the Corporation's
Board of Directors may from time to time designate.
Section 1.2. Other Offices. The Corporation may also have offices at such
--------------
other places within or outside the State of Maryland as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE II
MEETINGS OF THE STOCKHOLDERS
Section 2.1. Place of Meetings. Meetings of the stockholders shall be held
------------------
at such place within or outside the State of Maryland as shall be specified in
the notice of the meeting or in a waiver thereof.
Section 2.2. Annual Meeting. An annual meeting of the stockholders shall be
---------------
held during the month of May of each year on a date and time designated by the
Board of Directors and as set forth in the notice of the meeting, for the
purpose of electing directors and transacting such other business as may
properly be brought before the meeting. Failure to hold an annual meeting or to
hold such meeting at the time prescribed herein will not invalidate the
Corporation's existence or affect otherwise valid acts of the Corporation.
Section 2.3. Special Meetings. Special meetings of the stockholders may be
-----------------
called by the Chairman of the Board, the President, the Board of Directors, or
by such person or persons as may be authorized by the Corporation's Charter or
by these Bylaws. Except as provided below, the Secretary of the Corporation
shall call a special meeting of the stockholders on the written request of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting. A request for a special meeting shall state the purpose of the
meeting and the matters proposed to be acted on at such meeting. The Secretary
shall: (a) inform the stockholders who make the request for a special meeting of
the reasonably estimated cost of preparing and mailing a notice of and, if
applicable, proxy materials in connection with that meeting; and (b) on payment
of these costs to the Corporation, notify each stockholder entitled to notice of
the meeting. Unless requested by stockholders entitled to cast a majority of all
the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding 12
months.
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<PAGE>
Section 2.4. Notice of Meetings. Not less than ten nor more than 90 days
--------------------
before each meeting of the stockholders, the Secretary of the Corporation shall
give written notice of the meeting to (a) each stockholder of record entitled to
vote at the meeting and (b) each other stockholder entitled by applicable law to
notice of the meeting. The notice shall state the date, time and place of the
meeting, and the purpose of the meeting if the meeting is a special meeting or
notice of the purpose is required by the Maryland General Corporation Law.
Notice is given to a stockholder when it is: (a) personally delivered to the
stockholder; (b) left at the stockholder's residence or usual place of business;
(c) mailed to the stockholder at the stockholder's address as it appears on the
records of the Corporation; or (d) transmitted to the stockholder by electronic
mail to any electronic mail address of the stockholder or by any other
electronic means. If mailed, notice is deemed to be given when deposited in the
United States mail, postage prepaid, and addressed to the stockholder at the
stockholder's address as it appears on the records of the Corporation.
Section 2.6. Quorum. The holders of shares entitled to vote as a separate
-------
voting group may take action on a matter at a meeting only if a quorum exists
with respect to that matter. The presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast on a matter by
a voting group shall constitute a quorum at meetings of stockholders except as
otherwise provided by statute or by the Charter with respect to the adoption of
any particular matter. Once a share is represented for any purpose at a meeting,
the holder is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting, unless a new record date is or
must be set for that adjourned meeting.
Section 2.7. Adjournment. If a quorum is not present or represented at any
-----------
meeting of the stockholders, the stockholders entitled to vote at such meeting,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without further notice other than announcement at the
meeting, to a date not more than 120 days after the original record date. At
such adjourned meeting at which a quorum is present or represented, any business
may be transacted which might have been transacted at the original meeting.
Section 2.8. Majority Rule. Except with respect to the election of
---------------
directors as provided in Section 3.5, a majority of all the votes cast at a
meeting of the stockholders at which a quorum is present is sufficient to
approve any matter which properly comes before a meeting of the stockholders,
unless the vote of a greater number is required by the Maryland General
Corporation Law, the Charter or these Bylaws.
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<PAGE>
Section 2.9. Voting. Each outstanding share of stock, regardless of class,
-------
is entitled to one vote on each matter submitted to a vote at a meeting of the
stockholders, unless otherwise provided pursuant to the Charter or by the
Maryland General Corporation Law. Voting on any question or in any election may
be by voice vote unless the chairman of the meeting orders otherwise or any
stockholder demands that voting be by ballot.
Section 2.10. Proxies. Each stockholder entitled to vote at a meeting of
--------
the stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for the
stockholder by proxy by signing a writing authorizing another person to act as
proxy. Signing may be accomplished by the stockholder or the stockholder's
authorized agent signing the writing or causing the stockholder's signature to
be affixed to the writing by any reasonable means, including a facsimile
signature. A stockholder may authorize another person to act as proxy by
transmitting, or authorizing the transmission of, a telegram, cablegram,
datagram, electronic mail or any other electronic or telephonic means to the
person authorized to act as proxy or to any other person authorized to receive
the proxy authorization on behalf of the person authorized to act as the proxy,
including a proxy solicitation firm or proxy support service organization. A
copy, facsimile telecommunication or other reliable reproduction of the writing
or transmission authorized hereunder may be substituted for the original writing
or transmission for any purpose for which the original writing or transmission
could be used. A proxy shall be filed with the Secretary of the Corporation at
or before the time of the meeting. Unless the proxy provides for a longer
period, it is not valid more than 11 months after its date. A duly executed
proxy shall be irrevocable if it conspicuously states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be irrevocable regardless of whether
the interest with which it is coupled is an interest in the stock to be voted
under the proxy or another general interest in the Corporation or its assets or
liabilities.
Section 2.11. Voting of Shares by Certain Holders. Shares of the
-----------------------------------------
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his or her name as such fiduciary,
either in person or by proxy. Shares of the Corporation directly or indirectly
owned by it on the applicable record date shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares
entitled to be voted at any given time, unless they are held by it in a
fiduciary capacity, in which case they may be voted and shall be counted in
determining the total number of outstanding shares at any given time. Shares of
the Corporation acquired by it after the applicable record date and before the
time of the meeting may be voted at the meeting by the holders of record as of
the record date and shall be counted in determining the total number of
outstanding shares entitled to be voted at the meeting.
Section 2.12. Stock Ledger; List of Stockholders. The original or a
--------------------------------------
duplicate of the Corporation's stock ledger shall be kept at the principal
office of the Corporation's transfer agent and registrar. The officer or agent
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<PAGE>
who has charge of the stock ledger books of the Corporation shall prepare and
make, at least ten days before each meeting of the stockholders, a complete list
of the stockholders entitled to vote at such meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. Such list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger, to
be included in the list required by this Section 2.12 or to vote in person or by
proxy at any meeting of the stockholders.
Section 2.13. Inspectors. The Board of Directors may, at or prior to any
-----------
meeting of the stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If the inspectors are not so appointed or if
any of them fails to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before discharging his or her duties, shall take and sign an
oath to execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of his or her ability. The inspectors
shall determine the number of shares represented at the meeting based on their
determination of the validity and effect of proxies, and the existence of a
quorum, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine and report the results, and
perform such other acts as are proper to conduct the election and voting with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. If there is more than one inspector,
the report or certificate of a majority of the inspectors shall be the report of
the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof. No director or candidate for the office of director
shall act as inspector of an election of directors. Inspectors need not be
stockholders.
Section 2.14. Action Without Meeting. Any action required or permitted to
-----------------------
be taken at a meeting of the stockholders may be taken without a meeting if the
following are filed with the records of meetings of the stockholders: (a) a
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter; and (b) a written waiver of any
right to dissent signed by each stockholder entitled to notice of the meeting
but not entitled to vote at such meeting. The affirmative vote of the number of
shares which would be necessary to authorize or take action at a meeting of the
stockholders pursuant to Section 2.8 is the act of the stockholders without a
meeting. Action taken by written consent is effective when the last stockholder
signs the consent, unless the consent specifies a different effective date.
-30-
<PAGE>
Section 2.15. Business to be Transacted at Annual Meetings.
---------------------------------------------
(a) Director Nominations. The Board of Directors, or a nominating
---------------------
committee appointed by the Board of Directors, shall nominate candidates for
election to the Board of Directors to be elected at meetings of the stockholders
at which directors are to be elected.
(b) Other Stockholder Proposals.
----------------------------
(1) No business shall be transacted at any annual
meeting of the stockholders other than business that is: (i) specified in
the Corporation's notice of meeting (including stockholder proposals
included in the Corporation's proxy materials under Rule 14a-8 of
Regulation 14A or any successor rule ("Rule 14a-8") under the Securities
Exchange Act of 1934, as amended ( the "Exchange Act" )), (ii) otherwise
brought before the meeting by or at the direction of the Board of
Directors, or (iii) a proper subject for the meeting and which is timely
submitted by a stockholder of the Corporation who was a stockholder of
record both at the time of the stockholder's submission and at the time of
the annual meeting who complies fully with the notice requirements set
forth in this Section 2.15(b) in addition to any other applicable law, rule
or regulation applicable to such meeting.
(2) For business to be properly submitted by a stockholder
before any annual meeting under Section 2.15(b (1)(iii) above, a stockholder
must give timely notice in writing of such business to the Secretary of the
Corporation. To be considered timely, a stockholder's notice must be received by
the Secretary at the principal office of the Corporation not earlier than the
date which is 150 calendar days nor later than the date which is 120 calendar
days before the first anniversary of the date on which the Corporation first
mailed its proxy statement to stockholders in connection with the prior year's
annual meeting of the stockholders.
(3) If the Corporation did not hold an annual meeting during
the previous year, or if the date of the applicable year's annual meeting
has been advanced by more than 30 calendar days or delayed by more than 60
calendar days from the first anniversary of the date of the previous year's
meeting, then a stockholder's notice must be received by the Secretary not
earlier than the date which is 150 calendar days before the date on which the
Corporation first mailed its proxy statement to the stockholders in connection
with the applicable year's annual meeting and not later than the date of the
later to occur of (i) 120 calendar days before the date on which the Corporation
first mailed its proxy statement to the stockholders in connection with the
applicable year's annual meeting of the stockholders or (ii) ten calendar days
after the Corporation's first public announcement of the date of the applicable
year's annual meeting of the stockholders.
(4) Notwithstanding anything in Section 2.15(b)(2) to the
contrary, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no public announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 70 days prior to the first anniversary
of the preceding year's annual meeting, a stockholder's notice required by this
Section 2.15(b) shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation not later than the close of
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<PAGE>
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(5) A stockholder's notice to the Secretary to submit a
nomination or other business to an annual meeting of the stockholders shall
set forth: (i) the name and address of the stockholder; (ii) the class and
number of shares of stock of the Corporation held of record and beneficially
owned by such stockholder; (iii) the name(s), including any beneficial owners,
and address(es) of such stockholder(s) in which all such shares of stock are
registered on the stock transfer books of the Corporation; (iv) a representation
that the stockholder intends to appear at the meeting in person or by proxy to
submit the business specified in such notice; (v) a brief description of the
business desired to be submitted to the annual meeting of the stockholders, the
complete text of any resolutions intended to be presented at the annual meeting
and the reasons for conducting such business at the annual meeting of the
stockholders; (vi) any personal or other material interest of the stockholder in
the business to be submitted; (vii) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (viii) all other information relating to
the proposed business which may be required to be disclosed under applicable
law. In addition, a stockholder seeking to submit such business at an annual
meeting of the stockholders shall promptly provide any other information
reasonably requested by the Corporation.
(c) General.
--------
(1) Only those persons who are nominated in accordance with
the procedures set forth in this Section 2.15 shall be eligible for
election as directors at an annual meeting of the stockholders. Only business
brought before the meeting in accordance with the procedures set forth in this
Section 2.15 shall be conducted at a meeting of the stockholders. The chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Section 2.15 and, if the chairman of the
meeting determines that any proposed nomination or business is not in compliance
with this Section 2.15, to declare that such defective proposal shall be
disregarded.
(2) For purposes of this Section 2.15, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press, Business Wire or comparable news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 2.15, a stockholder shall also comply with all applicable
requirements of state law, the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.15.
(4) Notwithstanding the foregoing provisions of this
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<PAGE>
Section 2.15, a stockholder who seeks to have any proposal included in the
Corporation's proxy materials shall comply with the requirements of Rule 14a-8
under the Exchange Act, and nothing in this Section 2.15 shall be deemed to
affect the rights of stockholders to request inclusion of proposals in, nor the
right of the Corporation to exclude proposals from, the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
Section 3.1. General Powers; Directors Holding Over. The business and
-------------------------------------------
affairs of the Corporation shall be managed under the direction of its Board of
Directors. In case of failure to elect directors at an annual meeting of the
stockholders, the directors holding over shall continue to direct the management
of the business and affairs of the Corporation until their successors are
elected and qualify.
Section 3.2. Number. Except as set forth below, the number of directors of
-------
the Corporation shall be not less than three nor more than nine, as determined
from time to time by the Board of Directors of the Corporation, who shall be
elected at the annual meeting of the stockholders, except as provided in
Section 3.3 below. If at any time the Corporation has less than three
stockholders, the number of directors of the Corporation may be less than three
but not less than the number of stockholders. Any action by the Board of
Directors or stockholders to reduce the number of directors shall not affect the
tenure of office of any director.
Section 3.3. Classes. The Board of Directors of the Corporation shall be
--------
classified into three classes, equal or approximately equal in number. If the
number of directors is not divisible evenly by three, the Board of Directors
shall determine the number of directors to be in each class, with each class to
be approximately equal in number. Each such class of directors shall be elected
for successive terms ending at the annual meeting of the stockholders the third
year after election and until his or her successor is elected and qualified. In
the event of an increase or decrease in the number of directors, and the number
of directors is not divisible evenly by three, the remaining directors by
majority vote shall determine the number of directors to be in each class of
directors, with each class to be approximately equal in number, to be effective
after expiration of the remaining terms of any class which have a reduction in
number due to a decrease in the number of directors.
Section 3.4. Independent Directors. At least a majority of the entire Board
----------------------
of Directors shall be Independent Directors, as hereinafter defined. An
"Independent Director" shall mean a director who is not: (a) an officer or
employee of the Corporation; (b) the beneficial owner of five percent or more of
any class of equity securities of the Corporation, or of any entity that
controls, is controlled by, or is under common control with the Corporation; or
(c) a person who has a member of his or her immediate family who has one of the
foregoing relationships with the Corporation.
Section 3.5. Election And Tenure. Until successors are elected and qualify,
--------------------
the Board of Directors consists of the individuals named as initial directors in
the Charter. Each director shall be elected by a plurality of all the votes cast
at a meeting of the stockholders at which a quorum is present, and each director
elected shall hold office until the end of his or her term as provided herein,
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<PAGE>
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
Section 3.6. Qualifications. Each director of the Corporation shall have
---------------
the qualifications required by the Charter or these Bylaws. Directors need not
be residents of the State of Maryland or stockholders of the Corporation.
Section 3.7. Removal. Any director may be removed: (a) by the stockholders
--------
in accordance with the requirements of the Charter; or (b) by the unanimous vote
of all of the other members of the Board of Directors.
Section 3.8. Vacancies. The stockholders may elect a successor to fill any
----------
vacancy on the Board of Directors which results from the removal of a director.
A director elected by the stockholders to fill a vacancy which results from the
removal of a director serves for the balance of the term of the removed director
and until such director's successor is elected and qualifies. A majority of the
remaining directors, whether or not sufficient to constitute a quorum, may fill
a vacancy on the Board of Directors that results from any cause except an
increase in the authorized number of directors. A majority of the entire Board
of Directors may fill a vacancy which results from an increase in the number of
directors and, subject to Section 3.3, determine the class of such additional
director or directors. A director elected by the Board of Directors to fill a
vacancy serves until the next annual meeting of the stockholders and until such
director's successor is elected and qualifies.
Section 3.9. Lack of Directors. If at any time, by reason of death or
-------------------
resignation or other cause, the Corporation should have no directors in office,
then any officer or any stockholder or an executor, administrator, trustee or
guardian of a stockholder, or other fiduciary entrusted with like responsibility
for the person or estate of a stockholder may call a special meeting of the
stockholders in accordance with the provisions of the Charter or these Bylaws,
and an election of directors may be held in the manner provided by the Charter,
these Bylaws or the Maryland General Corporation Law.
Section 3.10. Resignation. A director may resign at any time by delivering
------------
written notice to the Corporation, the Board of Directors, the Chairman of the
Board or the President. A resignation is effective when notice is delivered,
unless the notice specifies a later effective date.
Section 3.11. Quorum. A majority of the entire Board of Directors shall
-------
constitute a quorum for the transaction of business. If a quorum shall not be
present at any meeting of the Board of Directors, a majority of the directors
present may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 3.12. Annual Meeting. The annual meeting of the Board of Directors
---------------
for the purpose of electing officers and transacting such other business as may
be brought before the meeting shall be held each year as soon as reasonably
practicable following the annual meeting of the stockholders. No notice of such
meeting shall be necessary in order to legally constitute the meeting, provided
a quorum is present. Annual meetings may be held at such places, within or
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<PAGE>
outside the State of Maryland, as may from time to time be determined by the
Board of Directors.
Section 3.13. Regular Meetings. Regular meetings of the Board of Directors
-----------------
may be held without notice at such places, within or outside the State of
Maryland, on such dates and at such times as may from time to time be determined
by the Board of Directors.
Section 3.14. Special Meetings. Special meetings of the Board of Directors
-----------------
may be called by the Chairman of the Board or the President and shall be called
by the Secretary on the written request of two directors. Notice of special
meetings of the Board of Directors shall be given to each director at least one
day prior to the meeting. Notice need not be in writing. Neither the business to
be transacted at, nor the purpose of, any special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Such meetings shall be held at such places, within or outside the State of
Maryland, on such dates and at such times as may be stated in the notice.
Section 3.15. Action Without Meeting. Any action required or permitted to
-----------------------
be taken at a meeting of the Board of Directors or of a committee of the Board
of Directors may be taken without a meeting, if a unanimous written consent
which sets forth the action is: (a) signed by each member of the Board of
Directors or committee; and (b) filed with the minutes of proceedings of the
Board of Directors or committee. The affirmative vote of the number of directors
that would be necessary to authorize or take action at a meeting, pursuant to
Section 3.17, is the act of the Board of Directors without a meeting. Action
taken by written consent is effective when the last director signs the consent
unless the consent specifies a different effective date.
Section 3.16. Meetings by Telephone. Members of the Board of Directors or
----------------------
any committee may participate in a meeting by means of a conference telephone or
similar communications equipment provided all persons participating in the
meeting can hear each other at the same time. A director participating in such a
meeting is deemed to be present in person at the meeting.
Section 3.17. Majority Rule. The action of a majority of the directors
---------------
present at a meeting at which a quorum is present is the action of the Board of
Directors unless the Charter, these Bylaws or the Maryland General Corporation
Law requires a greater number.
Section 3.18. Interested Director Transactions. No contract or transaction
---------------------------------
(including, without limitation, a property acquisition or disposition) between
the Corporation and any of its directors, or between the Corporation and any
other corporation, firm or entity in which any of its directors is a director,
or has a material financial interest, shall be void or voidable solely for this
reason, or solely because the director is present at the meeting of the Board of
Directors or committee which authorizes, approves or ratifies the contract or
transaction, or solely because his or her vote is counted for such purpose, if
such interested director complies with the requirements of Section 2-419(b) of
the Maryland General Corporation Law or the contract or transaction is fair and
reasonable to the Corporation. Common or interested directors or the stock owned
by them or by an interested corporation, firm or other entity may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
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<PAGE>
of a committee or at a meeting of the stockholders, as the case may be, at which
the contract or transaction is authorized, approved or ratified.
Section 3.19. Compensation. The Board of Directors shall have the authority
-------------
to fix the compensation of directors, including compensation for service on
committees. The Board of Directors may delegate this authority to its
Compensation Committee as set forth in Section 4.5. Such compensation may
include stock options, restricted stock or other securities awarded under a plan
approved by the Board of Directors or the stockholders of the Corporation.
Directors shall be entitled to reimbursement for any reasonable expenses
incurred in attending meetings and otherwise carrying out their duties.
Section 3.20. Organization. At every meeting of the Board of Directors, the
-------------
Chairman of the Board, or in the case of a vacancy in the office or absence of
the Chairman of the Board, the President or, in the absence of the President, a
chairman chosen by a majority of the directors present, shall act as chairman of
the meeting, and the Secretary, or, in the absence of the Secretary, an
Assistant Secretary, if any, or any other person appointed by the chairman of
the meeting, shall act as secretary of the meeting.
ARTICLE IV
COMMITTEES
Section 4.1. Appointments and Powers. The Corporation shall have an
--------------------------
Executive Committee, an Audit Committee and a Compensation Committee. Each of
the Audit Committee and the Compensation Committee shall have as members no less
than two Independent Directors. In addition, the Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more other committees composed of one or more directors. The
Board of Directors may designate one or more directors as alternative members of
a committee who may replace any absent or disqualified member at any meeting of
the committee. Such alternate members shall not be counted for purposes of
determining a quorum unless acting for an absent or disqualified member, in
which case they shall be counted in the place of the absent or disqualified
member. The committee, to the extent provided in said resolution or resolutions
or in these Bylaws, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
except that a committee may not: (i) authorize dividends on shares of the
Corporation's capital stock; (ii) amend these Bylaws; (iii) approve any merger
or share exchange which does not require stockholder approval; or (iv) authorize
or approve the issuance or sale or contract for sale of shares, except that if
the Board of Directors has given general authorization for the issuance of stock
providing for or establishing a method or procedure for determining the maximum
number of shares to be issued, such committee may authorize or fix the terms and
conditions of stock subject to classification or reclassification and the terms
on which any stock may be issued in accordance with that general authorization
or any stock option or other plan or program adopted by the Board of Directors.
Such committee or committees shall have such name or names as may be stated in
these Bylaws or as may be determined from time to time by resolution adopted by
the Board of Directors. Committees may set their own policies and procedures to
the extent consistent with the Maryland General Corporation Law.
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Section 4.2. Minutes. Committees shall keep regular minutes of their
--------
proceedings and report the same to the Board of Directors when required.
Section 4.3. Executive Committee. The Executive Committee shall act in the
--------------------
absence of the Board of Directors and shall be delegated all of the powers of
the Board of Directors except as limited by the Maryland General Corporation
Law.
Section 4.4. Audit Committee. The Audit Committee shall have the special
-----------------
duties described below:
(a) The Audit Committee shall select and engage on behalf of the
Corporation, and fix the compensation of, a firm of independent certified public
accountants whose duty it shall be to audit the books and accounts of the
Corporation and its subsidiaries for the fiscal year in which they are
appointed, and who shall report to such Audit Committee.
(b) The Audit Committee shall confer with the independent certified public
accountants and shall determine, and from time to time shall report to the Board
of Directors upon, the plans and results of the auditing of the books and
accounts of the Corporation.
(c) The Audit Committee shall review the services provided by, the
independence of, and the fees charged by the independent certified public
accountants, and from time to time shall report upon the same to the Board of
Directors.
(d) The Audit Committee shall review the adequacy of the Corporation's
internal accounting controls, and from time to time shall report upon the same
to the Board of Directors.
(e) The Audit Committee shall have such other powers as may be delegated by
the Board of Directors from time to time.
None of the members of the Audit Committee shall be officers or employees of th
Corporation.
Section 4.5. Compensation Committee. The Compensation Committee shall
------------------------
establish a general compensation policy for the Corporation, shall (subject to
any delegated authority under Section 3.19) approve increases in directors' fees
and shall approve increases in salaries paid to officers and senior employees
earning an annual base salary in excess of $200,000. The Compensation Committee
shall have all the powers of administration under all of the Corporation's
employee benefit plans, including any stock compensation plans, bonus plans,
retirement plans, stock purchase plans and medical, dental and insurance plans.
In connection therewith, the Compensation Committee shall determine, subject to
the provision of the Corporation's plans, the directors, officers and employees
of the Corporation eligible to participate in any of the plans, the extent of
such participation, and the terms and conditions under which benefits may be
vested, received or exercised.
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ARTICLE V
NOTICES
Section 5.1. Notice. Except as otherwise specifically provided herein,
-------
notices to the stockholders and directors shall specify the date, time and place
of the meeting. Notice is given to a stockholder as provided in Section 2.4.
Notice is given to a director when it is: (a) personally delivered or
communicated by telephone to the director; (b) left at the director's residence
or usual place of business; (c) mailed to the director at the director's address
as it appears on the records of the Corporation; or (d) transmitted to the
director by electronic mail to any electronic mail address of the director or by
any other electronic means. If mailed, notice is deemed to be given when
deposited in the United States mail, postage prepaid, and addressed to the
director at the director's address as it appears on the records of the
Corporation.
Section 5.2. Waiver of Notice. Whenever any notice of the time, place or
-----------------
purpose of a meeting is required to be given to any stockholder or director
under the Maryland General Corporation Law, the Charter or these Bylaws, a
written waiver, signed by the person entitled to notice and delivered to the
Corporation and filed with the Corporation's minutes or records, whether before
or after the time stated therein, shall be deemed equivalent to notice. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, Board of Directors or members of a committee of the
Board of Directors need be specified in any written waiver of notice unless
required by the Charter, these Bylaws or the Maryland General Corporation Law.
Section 5.3. Attendance Constitutes Waiver. Attendance of a person at a
--------------------------------
regular or special meeting of the stockholders, the Board of Directors, or any
committee of the Board of Directors in person or by proxy shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VI
OFFICERS
Section 6.1. Officers. The officers of the Corporation shall consist of a
---------
Chairman of the Board, President, Secretary and Treasurer, and may include a
Vice Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents (any one or more of which may be designated as a senior or executive
vice president), a Chief Financial Officer and one or more assistant vice
presidents, assistant treasurers, assistant controllers and assistant
secretaries, each of whom shall be elected by the Board of Directors. In
addition, the Board of Directors may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
Any number of offices may be held by the same person except the offices of
President and Vice President shall not be held by the same person concurrently.
Section 6.2. Election. At the first meeting of the Board of Directors
---------
following the annual meeting of the stockholders, or as soon thereafter as is
conveniently possible, the Board of Directors shall elect a Chairman of the
Board, President, Secretary and Treasurer and such other additional officers,
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assistant officers and agents as may be deemed necessary. The Board of Directors
may elect officers at such additional times as it deems advisable. The election
or appointment of an officer shall not by itself create contract rights.
Section 6.3. Removal. If the Board of Directors in its judgment finds that
--------
the best interests of the Corporation will be served, it may remove any officer
or agent of the Corporation. The removal of an officer or agent does not
prejudice any of his or her contract rights, if any, with the Corporation.
Section 6.4. Term of Office; Resignation; Vacancies. An officer of the
-----------------------------------------
Corporation shall serve for the term provided within any applicable contract for
employment or, absent such contract, shall serve until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
officer may resign at any time upon written notice to the Corporation. A
resignation is effective when the notice is delivered, unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts such later date, the Board of Directors may
fill the pending vacancy before the effective date if it provides that the
successor does not take office until the effective date. An officer's
resignation does not affect the Corporation's contract rights, if any, with the
officer. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors or
by such officer or agent of the Corporation to whom the Board of Directors may
expressly delegate such authority.
Section 6.5. Chairman of the Board. The Chairman of the Board shall be
-----------------------
chosen from among the members of the Board of Directors, shall be the Chief
Executive Officer of the Corporation, shall perform such duties as may be
delegated by the Board of Directors and shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board shall have
general powers and duties of supervision and management usually vested in the
office of chairman of the board and chief executive officer of a corporation,
except as modified by the Board of Directors. The Chairman of the Board shall
have general supervision, direction and control of the business of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 6.6. President. The President shall have general powers and duties
----------
of supervision and management usually vested in the office of president of a
corporation, except as modified by the Board of Directors. The President shall
have general supervision, direction and control of the business of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and the Board of
Directors. The President shall have the power to appoint, remove and suspend
subordinate officers, agents and factors upon such terms and conditions as he
deems reasonable and appropriate. The President shall have such powers and
duties as usually pertain to such office, except as the same may be modified by
the Board of Directors.
Section 6.7. Chief Financial Officer. The Board of Directors may designate
------------------------
a Chief Financial Officer from among the elected officers. Said officer will
have the responsibilities and duties as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate.
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Section 6.8. Vice Presidents. The Vice Presidents shall, in the absence or
----------------
disability of the President, perform the duties and exercise the powers of the
President as determined by the Board of Directors. They shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate.
Section 6.9. Secretary. The Secretary shall attend all meetings of the
----------
Board of Directors and the stockholders, and record all the proceedings of such
meetings in a book to be kept for that purpose. The Secretary shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as the
Board of Directors may from time to time prescribe or as the President may from
time to time delegate.
Section 6.10. Assistant Secretaries. The Assistant Secretaries shall, in
-----------------------
the absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary as determined by the Board of Directors. They shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe or as the President may from time to time
delegate.
Section 6.11. Treasurer. The Treasurer shall have custody of the corporate
----------
funds and securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. The Treasurer shall
perform such other duties and have such other authority and powers as the Board
of Directors may from time to time prescribe or as the President may from time
to time delegate.
Section 6.12. Assistant Treasurers. The Assistant Treasurers shall, in the
---------------------
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer as determined by the Board of Directors. They shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe or as the President may from time to time
delegate.
ARTICLE VII
SHARES
Section 7.1. Certificates For Shares. The shares of the Corporation shall
------------------------
be represented by certificates which shall be in a form approved by the Board of
Directors and contain such information as may be required by the Maryland
General Corporation Law or any securities exchanges on which any shares of the
Corporation may be listed.
Section 7.2. Facsimile Signatures. Any or all the signatures on the
----------------------
certificate may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
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such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer at the date
of issue.
Section 7.3. Lost, Stolen or Destroyed Certificates. The Board of Directors
---------------------------------------
may determine the conditions for issuing a new stock certificate in place of any
certificate issued by the Corporation which is alleged to have been lost, stolen
or destroyed. The Board of Directors may require the owner of the lost, stolen
or destroyed certificate to give to the Corporation a bond with sufficient
surety to indemnify the Corporation against any loss or claim arising as a
result of the issuance of a new certificate. The issuance of a new certificate
under this Section 7.3 does not constitute an over issue of the shares it
represents.
Section 7.4. Transfer Of Shares. Upon surrender to the Corporation or the
-------------------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 7.5. Record Date For Notice and Voting. For the purpose of
--------------------------------------
determining the stockholders entitled to notice of or to vote at any meeting of
the stockholders or any adjournment thereof, the Board of Directors may set a
record date or direct that the stock transfer books be closed for a stated
period for the purpose of making any proper determination with respect to the
stockholders. The record date shall be not more than 90 days nor less than ten
days before the date on which the action requiring the determination will be
taken. The transfer books may not be closed for a period longer than 20 days. If
no record date is fixed by the Board of Directors, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
the stockholders shall be the later of: (a) the close of business on the day on
which notice of the meeting is mailed; or (b) the 30th day before the meeting. A
determination of the stockholders of record entitled to notice of or to vote at
a meeting of the stockholders shall apply to any adjournment of the meeting not
more than 120 days after the original record date; provided, however, that the
Board of Directors may fix a new record date of the adjourned meeting.
Section 7.6. Record Date For Dividends. For the purpose of determining the
--------------------------
stockholders entitled to receive payment of any dividend or an allotment of any
rights, the record date is such date as is determined by the Board of Directors
in accordance with Section 2-511 of the Maryland General Corporation Law.
Section 7.7. Stockholders Of Record. The Corporation shall be entitled to
-----------------------
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. Dividends and Distributions. Subject to the provisions of the
----------------------------
Charter and the Maryland General Corporation Law, the Board of Directors of the
Corporation may, at any regular or special meeting, authorize the payment of
dividends and other distributions upon the capital stock of the Corporation, as
and when the Board of Directors may deem expedient. Dividends and other
distributions may be paid in cash, property or shares of the Corporation,
subject to the provisions of Maryland General Corporation Law and the Charter.
Section 8.2. Checks, Notes and Drafts. All checks, notes, drafts or other
--------------------------
orders for the payment of money, or other evidences of indebtedness of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 8.3. Fiscal Year. The fiscal year of the Corporation shall be the
------------
calendar year, unless otherwise fixed by the Board of Directors.
Section 8.4. Annual Statement Of Affairs. The President, or any other
------------------------------
executive officer of the Corporation designated by the Board of Directors, shall
prepare annually a full and correct statement of the affairs of the Corporation,
to include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the annual
meeting of the stockholders and, within 20 days after such meeting, placed on
file at the principal office of the Corporation.
Section 8.5. Statements From Stockholders. In order to maintain its status
-----------------------------
as a real estate investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"), the Corporation shall demand annual written statements
from the stockholders of record disclosing the actual owners of the shares of
the Corporation to the extent required by Treasury Regulation Section
1.857-8(d). Such written statements from the stockholders of record shall be
demanded by the Corporation within 30 days after the close of the Corporation's
taxable year. A list of the persons failing or refusing to comply in whole or in
part with the Corporation's demand for statements shall be maintained as part of
the Corporation's records. The Corporation shall also maintain, within the
Internal Revenue District in which it is required to file its federal income tax
return, permanent records showing the information it has received as to actual
ownership of those shares and a list of those persons failing or refusing to
comply with that demand. Stockholders of the Corporation shall comply with the
Corporation's demand for statements pursuant to Section 857 of the Code.
ARTICLE IX
AMENDMENTS
The Board of Directors may amend or repeal any provision of these Bylaws
without the consent of the stockholders, unless (i) the Charter or the Maryland
General Corporation Law reserves this power exclusively to the stockholders, or
(ii) the stockholders, in amending or repealing a particular bylaw, provide
expressly that the Board of Directors may not amend or repeal that particular
bylaw. Notwithstanding any of the provisions of these Bylaws (and
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notwithstanding the fact that a lesser percentage may be specified by law, or
these Bylaws) the affirmative vote of the holders of at least 90% of the common
stock and, if any, preferred stock entitled to vote, voting together as a single
class, shall be required in order for the stockholders to amend or repeal any
provision of these Bylaws.
ARTICLE X
INDEMNIFICATION
The Corporation shall indemnify and advance expenses to its directors,
officers, employees and agents to the fullest extent permitted by the Maryland
General Corporation Law, and as provided in the Corporation's Articles of
Incorporation. The Corporation may purchase and maintain liability insurance or
make other arrangements for such obligations.
ARTICLE XI
EMERGENCY BYLAW
In the event that a quorum of directors cannot be readily assembled because
of a catastrophic event, the Board of Directors may take action by the
affirmative vote of a majority of those directors present at a meeting and may
exercise any emergency power granted to a board of directors under the Maryland
General Corporation Law not inconsistent with this bylaw. If less than three
regularly elected directors are present, the director present having the
greatest seniority as a director may appoint one or more persons (not to exceed
the number most recently fixed by the Board pursuant to Section 3.2) from among
the officers or other executive employees of the Corporation to serve as
substitute directors. If no regularly elected director is present, the officer
present having the greatest seniority as an officer shall serve as a substitute
director, shall appoint up to four additional persons from among the officers or
other executive employees of the Corporation to serve as substitute directors.
Special meetings of the Board of Directors may be called in an emergency by the
director or, if no director is present at the Corporation's principal offices,
by the officer present having the greatest seniority as an officer.
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Exhibit 10
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AMENDMENT NO. 1
TERM LOAN CREDIT AGREEMENT
THIS AMENDMENT NO. 1 dated as of October 14, 1999 (the "Amendment") to the
Term Loan Credit Agreement referenced below, is by and among HEALTHCARE REALTY
TRUST INCORPORATED, a Maryland corporation, and CAPSTONE CAPITAL CORPORATION, a
Maryland corporation, as Borrowers, the banks identified therein and BANK OF
AMERICA, N.A. (formerly known as NationsBank, N.A.), as Administrative Agent.
Terms used but not otherwise defined shall have the meaning provided in the Term
Loan Credit Agreement.
W I T N E S S E T H
WHEREAS, a $200 million term loan facility, consisting of a $187.4 million
Tranche A Term Loan to Healthcare Realty Trust Incorporated ("HRT") and a $12.6
million Tranche B Term Loan to Capstone Capital Corporation ("CCT", and together
with HRT, the "Borrowers"), was established pursuant to the terms of that Credit
Agreement dated as of October 15, 1998 (as amended and modified, the "Term Loan
Credit Agreement") among HRT and CCT, as Borrowers, the banks identified
therein, and NationsBank, N.A., (now known as Bank of America, N.A.), as
Administrative Agent;
WHEREAS, approximately $147.7 million remains outstanding on the Tranche A
Term Loan and the Tranche B Term Loan has been paid;
WHEREAS, HRT has requested extension of the Tranche A Term Loan and certain
other modifications to the Term Loan Credit Agreement;
WHEREAS, the Banks have agreed to the requested extension and modifications
on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The Term Loan Credit Agreement is amended and modified in the following
respects:
1.1 The Tranche A Maturity Date is extended to January 14, 2000.
1.2 The definition of "Applicable Percentage" is amended to read as
follows:
"Applicable Percentage" means for any day, a rate per annum
equal to (i) one and three-fourths percent (1.75%) in the case of
Eurodollar Loans, and (ii) three-fourths of one percent (0.75%) in
the case of Base Rate Loans.
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1.3 Notwithstanding anything to the contrary contained in the Term Loan
Credit Agreement, the Banks hereby consent to prepayment of up to $16.5
million on indebtedness owing to SouthTrust Bank, N.A. provided that the
principal balance of the Tranche A Term Loan is at such time [$63.45]
million or less.
2. This Amendment shall be effective upon satisfaction of the following
conditions:
(a) receipt by the Agent of executed signature pages from the Banks and
the Borrowers; and
(b) receipt by the Agent for the ratable benefit of the Banks holding
the Tranche A Term Loan an amendment fee of twenty five basis points(0.25%)
on the outstanding principal balance of the Tranche A Term Loan.
3. HRT will deliver to the Agent on or before October 30, 1999 certified
copies of resolutions and other documentation evidencing approval of the
transactions contemplated in this Amendment and a legal opinion of counsel for
the Borrowers, in form reasonably satisfactory to the Agent and the Banks, and
including, among other things, enforceability of this Amendment.
4. Except as modified hereby, all of the terms and provisions of the Term
Loan Credit Agreement (including schedules and exhibits) shall remain in full
force and effect.
5. The Borrowers agree to pay all reasonable costs and expenses of the
Agent in connection with the preparation, execution and delivery of this
Amendment,including the reasonable fees and expenses of Moore & Van Allen, PLLC.
6. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
7. This Amendment shall be governed by and construed in accordance with
the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, each of the undersigned parties has caused this
Amendment to be executed as of the day and year first above written.
BORROWERS: HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By: ________/s/________________________
Name: Timothy G. Wallace
Title: Executive Vice President
AGENT: BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A.), as Agent under the
Term Loan Credit Agreement
By:__________________________________
Name:
Title:
BANKS: BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A.)
By:__________________________________
Name:
Title:
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ACKNOWLEDGED & AGREED:
GUARANTORS: DURHAM MEDICAL OFFICE BUILDING, INC.,
a Texas corporation
HEALTHCARE REALTY SERVICES INCORPORATED,
an Alabama corporation
HR ASSETS, INC., a Texas corporation
FIR CAPITAL, INC., a Texas corporation
HR FUNDING, INC., a Texas corporation
HR INTERESTS, INC., a Texas corporation
HR OF TEXAS, INC., a Maryland corporation
HRT OF ALABAMA. INC., an Alabama corporation
HRT OF DELAWARE, INC., a Delaware corporation
HRT OF FLORIDA, INC., a Florida corporation
HRT OF ROANOKE, INC. a Virginia corporation
HRT OF TENNESSEE, INC., a Tennessee corporation
HRT OF VIRGINIA, INC., a Virginia corporation
PENNSYLVANIA HRT, INC., a Pennsylvania corporation
HR of SAN ANTONIO, INC., a Texas corporation
By: /S/______________________________
Name: Roger O. West
Title: Executive Vice President
for each of the foregoing subsidiaries
PASADENA MEDICAL PLAZA SSJ, LTD.,
A Florida limited partnership
By: Healthcare Realty Trust Incorporated,
a Maryland corporation
By:/S/____________________________
Name: Roger O. West
Title: Executive Vice President
SAN ANTONIO SSP, LTD., a Texas limited partnership
By: SSP San Antonio, Inc., a Texas corporation,
as General Partner
By: /S/_____________________________
Name: Roger O. West
Title: Executive Vice President
HR ACQUISITION I CORPORATION,
f/k/a Capstone Capital Corporation,
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a Maryland corporation
CAPSTONE CAPITAL OF ALABAMA, INC.,
an Alabama corporation
CAPSTONE-CAPITAL OF BAYTOWN, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF KENTUCKY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF MASSACHUSETTS. INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.,
a Pennsylvania corporation
CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF TEXAS, INC
an Alabama corporation
CAPSTONE CAPITAL OF VIRGINIA. INC.,
an Alabama corporation
CAPSTONE CAPITAL PROPERTIES, INC.,
an Alabama corporation
CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation
By: /S/________________________________
Name: Roger O. West
Title: Executive Vice President
for each of the foregoing subsidiaries of HR Acquisition I Corporation;
CAPSTONE OF BONITA BAY, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation, as General Partner
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By: /S/_____________________________
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF LOS ANGELES, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF CALIFORNIA, INC., an
Alabama Corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF CAPE CORAL, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF CAPE CORAL. INC.. an
Alabama corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF LAS VEGAS, LTD., an Alabama limited
partnership
BY: CAPSTONE CAPITAL OF LAS VEGAS, INC., an
Alabama corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
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CAPSTONE OF SARASOTA.. LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF SARASOTA, INC., an Alabama
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAPSTONE CAPITAL OF SAN ANTONIO. LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF TEXAS, INC., an Alabama
corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF VIRGINIA LIMITED PARTNERSHIP, an
Alabama limited partnership
BY CAPSTONE CAPITAL OF VIRGINIA, INC., an Alabama
corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF OCOEE, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF OCOEE, INC., an Alabama
corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
-51-
<PAGE>
CAPSTONE OF PORT ORANGE, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF PORT ORANGE, INC., an
Alabama corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAP-BAY IV, LTD., an Alabama limited partnership
BY: CAPSTONE CAPITAL SENIOR HOUSING, INC., an
Alabama corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAP-BAY V, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC., an
Alabama corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAP-BAY VII, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC., an
Alabama corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
CAP-BAY VIII, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama Corporation, as General Partner
By: /S/____________________________
Name: Roger O. West
Title: Executive Vice President
-52-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jul-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,463
<SECURITIES> 0
<RECEIVABLES> 16,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,905
<PP&E> 1,403,056
<DEPRECIATION> 76,780
<TOTAL-ASSETS> 1,628,132
<CURRENT-LIABILITIES> 20,360
<BONDS> 595,591
0
30
<COMMON> 399
<OTHER-SE> 1,011,752
<TOTAL-LIABILITY-AND-EQUITY> 1,628,132
<SALES> 46,287
<TOTAL-REVENUES> 46,486
<CGS> 16,532
<TOTAL-COSTS> 26,256
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,724
<INCOME-PRETAX> 20,230
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,230
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.47
</TABLE>
