e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
|
|
|
o |
|
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 1-8923
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
34-1096634 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.) |
|
|
|
4500 Dorr Street, Toledo, Ohio
|
|
43615 |
|
|
|
(Address of principal executive office)
|
|
(Zip Code) |
(419) 247-2800
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for at least the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of October 31, 2010, the registrant had 135,129,154 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited) |
|
|
(Note) |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Real estate investments: |
|
|
|
|
|
|
|
|
Real property owned: |
|
|
|
|
|
|
|
|
Land and land improvements |
|
$ |
668,135 |
|
|
$ |
521,055 |
|
Buildings and improvements |
|
|
6,350,167 |
|
|
|
5,185,328 |
|
Acquired lease intangibles |
|
|
223,349 |
|
|
|
127,390 |
|
Real property held for sale, net of accumulated depreciation |
|
|
16,928 |
|
|
|
45,686 |
|
Construction in progress |
|
|
286,366 |
|
|
|
456,832 |
|
|
|
|
|
|
|
|
Gross real property owned |
|
|
7,544,945 |
|
|
|
6,336,291 |
|
Less accumulated depreciation and amortization |
|
|
(804,651 |
) |
|
|
(677,851 |
) |
|
|
|
|
|
|
|
Net real property owned |
|
|
6,740,294 |
|
|
|
5,658,440 |
|
Real estate loans receivable: |
|
|
|
|
|
|
|
|
Real estate loans receivable |
|
|
416,570 |
|
|
|
427,363 |
|
Less allowance for losses on loans receivable |
|
|
(1,190 |
) |
|
|
(5,183 |
) |
|
|
|
|
|
|
|
Net real estate loans receivable |
|
|
415,380 |
|
|
|
422,180 |
|
|
|
|
|
|
|
|
Net real estate investments |
|
|
7,155,674 |
|
|
|
6,080,620 |
|
Other assets: |
|
|
|
|
|
|
|
|
Equity investments |
|
|
213,163 |
|
|
|
5,816 |
|
Deferred loan expenses |
|
|
29,529 |
|
|
|
22,698 |
|
Cash and cash equivalents |
|
|
181,147 |
|
|
|
35,476 |
|
Restricted cash |
|
|
61,224 |
|
|
|
23,237 |
|
Receivables and other assets |
|
|
252,330 |
|
|
|
199,339 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
737,393 |
|
|
|
286,566 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,893,067 |
|
|
$ |
6,367,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Borrowings under unsecured line of credit arrangement |
|
$ |
|
|
|
$ |
140,000 |
|
Senior unsecured notes |
|
|
2,585,961 |
|
|
|
1,653,027 |
|
Secured debt |
|
|
885,494 |
|
|
|
620,995 |
|
Accrued expenses and other liabilities |
|
|
201,529 |
|
|
|
145,713 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,672,984 |
|
|
|
2,559,735 |
|
Equity: |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
275,000 |
|
|
|
288,683 |
|
Common stock |
|
|
135,046 |
|
|
|
123,385 |
|
Capital in excess of par value |
|
|
4,429,425 |
|
|
|
3,900,666 |
|
Treasury stock |
|
|
(11,352 |
) |
|
|
(7,619 |
) |
Cumulative net income |
|
|
1,636,589 |
|
|
|
1,547,669 |
|
Cumulative dividends |
|
|
(2,329,215 |
) |
|
|
(2,057,658 |
) |
Accumulated other comprehensive income |
|
|
(11,459 |
) |
|
|
(2,891 |
) |
Other equity |
|
|
5,972 |
|
|
|
4,804 |
|
|
|
|
|
|
|
|
Total Health Care REIT, Inc. stockholders equity |
|
|
4,130,006 |
|
|
|
3,797,039 |
|
Noncontrolling interests |
|
|
90,077 |
|
|
|
10,412 |
|
|
|
|
|
|
|
|
Total equity |
|
|
4,220,083 |
|
|
|
3,807,451 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
7,893,067 |
|
|
$ |
6,367,186 |
|
|
|
|
|
|
|
|
NOTE: The consolidated balance sheet at December 31, 2009 has been derived from the audited
financial statements at that date but does not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial statements.
See notes to unaudited consolidated financial statements
3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
152,127 |
|
|
$ |
128,527 |
|
|
$ |
441,337 |
|
|
$ |
379,326 |
|
Resident fees and services |
|
|
12,809 |
|
|
|
|
|
|
|
12,809 |
|
|
|
|
|
Interest income |
|
|
10,054 |
|
|
|
10,528 |
|
|
|
28,437 |
|
|
|
30,639 |
|
Other income |
|
|
1,156 |
|
|
|
1,089 |
|
|
|
4,802 |
|
|
|
3,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
176,146 |
|
|
|
140,144 |
|
|
|
487,385 |
|
|
|
413,775 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
44,408 |
|
|
|
27,595 |
|
|
|
110,703 |
|
|
|
79,428 |
|
Property operating expenses |
|
|
20,849 |
|
|
|
12,153 |
|
|
|
45,859 |
|
|
|
34,441 |
|
Depreciation and amortization |
|
|
48,565 |
|
|
|
39,187 |
|
|
|
138,321 |
|
|
|
114,446 |
|
Transaction costs |
|
|
18,835 |
|
|
|
|
|
|
|
27,301 |
|
|
|
|
|
General and administrative |
|
|
11,628 |
|
|
|
10,363 |
|
|
|
40,331 |
|
|
|
38,784 |
|
Loss (gain) on extinguishment of debt |
|
|
9,099 |
|
|
|
26,374 |
|
|
|
34,171 |
|
|
|
24,697 |
|
Provision for loan losses |
|
|
28,918 |
|
|
|
|
|
|
|
28,918 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
182,302 |
|
|
|
115,672 |
|
|
|
425,604 |
|
|
|
291,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
and income from unconsolidated joint ventures |
|
|
(6,156 |
) |
|
|
24,472 |
|
|
|
61,781 |
|
|
|
121,839 |
|
Income tax (expense) benefit |
|
|
(52 |
) |
|
|
55 |
|
|
|
(325 |
) |
|
|
(17 |
) |
Income from unconsolidated joint ventures |
|
|
1,899 |
|
|
|
|
|
|
|
4,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
(4,309 |
) |
|
|
24,527 |
|
|
|
65,952 |
|
|
|
121,822 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
10,526 |
|
|
|
(806 |
) |
|
|
20,559 |
|
|
|
26,907 |
|
Impairment of assets |
|
|
(947 |
) |
|
|
(1,873 |
) |
|
|
(947 |
) |
|
|
(1,873 |
) |
Income (loss) from discontinued operations, net |
|
|
511 |
|
|
|
2,837 |
|
|
|
2,973 |
|
|
|
9,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
10,090 |
|
|
|
158 |
|
|
|
22,585 |
|
|
|
34,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
5,781 |
|
|
|
24,685 |
|
|
|
88,537 |
|
|
|
156,089 |
|
Less: Preferred stock dividends |
|
|
5,347 |
|
|
|
5,520 |
|
|
|
16,340 |
|
|
|
16,560 |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
|
(690 |
) |
|
|
35 |
|
|
|
(383 |
) |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
1,124 |
|
|
$ |
19,130 |
|
|
$ |
72,580 |
|
|
$ |
139,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
125,298 |
|
|
|
114,874 |
|
|
|
124,132 |
|
|
|
111,345 |
|
Diluted |
|
|
125,842 |
|
|
|
115,289 |
|
|
|
124,660 |
|
|
|
111,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
(0.08 |
) |
|
$ |
0.17 |
|
|
$ |
0.40 |
|
|
$ |
0.95 |
|
Discontinued operations, net |
|
|
0.08 |
|
|
|
|
|
|
|
0.18 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders* |
|
$ |
0.01 |
|
|
$ |
0.17 |
|
|
$ |
0.58 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
(0.08 |
) |
|
$ |
0.16 |
|
|
$ |
0.40 |
|
|
$ |
0.94 |
|
Discontinued operations, net |
|
|
0.08 |
|
|
|
|
|
|
|
0.18 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders* |
|
$ |
0.01 |
|
|
$ |
0.17 |
|
|
$ |
0.58 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid per common share |
|
$ |
0.69 |
|
|
$ |
0.68 |
|
|
$ |
2.05 |
|
|
$ |
2.04 |
|
|
|
|
* |
|
Amounts may not sum due to rounding |
See notes to unaudited consolidated financial statements
4
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Excess of |
|
|
Treasury |
|
|
Cumulative |
|
|
Cumulative |
|
|
Comprehensive |
|
|
Other |
|
|
Noncontrolling |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Par Value |
|
|
Stock |
|
|
Net Income |
|
|
Dividends |
|
|
Income |
|
|
Equity |
|
|
Interests |
|
|
Total |
|
|
|
|
Balances at beginning of period |
|
$ |
288,683 |
|
|
$ |
123,385 |
|
|
$ |
3,900,666 |
|
|
$ |
(7,619 |
) |
|
$ |
1,547,669 |
|
|
$ |
(2,057,658 |
) |
|
$ |
(2,891 |
) |
|
$ |
4,804 |
|
|
$ |
10,412 |
|
|
$ |
3,807,451 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383 |
) |
|
|
88,537 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
on equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
(95 |
) |
Cash flow hedge activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,473 |
) |
|
|
|
|
|
|
|
|
|
|
(8,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
41,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,697 |
|
|
|
124,120 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,649 |
) |
|
|
(2,649 |
) |
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures |
|
|
|
|
|
|
1,691 |
|
|
|
70,540 |
|
|
|
(3,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246 |
) |
|
|
|
|
|
|
68,252 |
|
Net proceeds from sale of common stock |
|
|
|
|
|
|
9,631 |
|
|
|
413,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422,937 |
|
Equity component of convertible debt |
|
|
|
|
|
|
|
|
|
|
(9,689 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,689 |
) |
Redemption of preferred stock |
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165 |
) |
Conversion of preferred stock |
|
|
(13,518 |
) |
|
|
339 |
|
|
|
13,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,414 |
|
|
|
|
|
|
|
1,414 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255,217 |
) |
Preferred stock cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,340 |
) |
|
|
|
Balances at end of period |
|
$ |
275,000 |
|
|
$ |
135,046 |
|
|
$ |
4,429,425 |
|
|
$ |
(11,352 |
) |
|
$ |
1,636,589 |
|
|
$ |
(2,329,215 |
) |
|
$ |
(11,459 |
) |
|
$ |
5,972 |
|
|
$ |
90,077 |
|
|
$ |
4,220,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Excess of |
|
|
Treasury |
|
|
Cumulative |
|
|
Cumulative |
|
|
Comprehensive |
|
|
Other |
|
|
Noncontrolling |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Par Value |
|
|
Stock |
|
|
Net Income |
|
|
Dividends |
|
|
Income |
|
|
Equity |
|
|
Interests |
|
|
Total |
|
|
|
|
Balances at beginning of period |
|
$ |
289,929 |
|
|
$ |
104,635 |
|
|
$ |
3,204,690 |
|
|
$ |
(5,145 |
) |
|
$ |
1,354,400 |
|
|
$ |
(1,723,819 |
) |
|
$ |
(1,113 |
) |
|
$ |
4,105 |
|
|
$ |
10,603 |
|
|
$ |
3,238,285 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
156,089 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
on equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
667 |
|
Cash flow hedge activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,496 |
) |
|
|
|
|
|
|
|
|
|
|
(4,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,946 |
|
|
|
1,946 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,967 |
) |
|
|
(1,967 |
) |
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures |
|
|
|
|
|
|
1,236 |
|
|
|
44,672 |
|
|
|
(2,474 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,434 |
|
Proceeds from issuance of common shares |
|
|
|
|
|
|
16,969 |
|
|
|
628,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645,263 |
|
Conversion of preferred stock |
|
|
(1,246 |
) |
|
|
30 |
|
|
|
1,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,446 |
|
|
|
|
|
|
|
1,446 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,959 |
) |
Preferred stock cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,558 |
) |
|
|
|
Balances at end of period |
|
$ |
288,683 |
|
|
$ |
122,870 |
|
|
$ |
3,878,872 |
|
|
$ |
(7,619 |
) |
|
$ |
1,510,449 |
|
|
$ |
(1,968,336 |
) |
|
$ |
(4,942 |
) |
|
$ |
5,551 |
|
|
$ |
10,622 |
|
|
$ |
3,836,150 |
|
|
|
|
See notes to unaudited consolidated financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
88,537 |
|
|
$ |
156,089 |
|
Adjustments to reconcile net income to net cash provided from (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
140,137 |
|
|
|
123,143 |
|
Other amortization expenses |
|
|
13,178 |
|
|
|
10,999 |
|
Provision for loan losses |
|
|
28,918 |
|
|
|
140 |
|
Impairment of assets |
|
|
947 |
|
|
|
1,873 |
|
Stock-based compensation expense |
|
|
9,757 |
|
|
|
8,734 |
|
Loss (gain) on extinguishment of debt |
|
|
34,171 |
|
|
|
24,697 |
|
Income from unconsolidated joint ventures |
|
|
(4,496 |
) |
|
|
|
|
Rental income less than (in excess of) cash received |
|
|
(6,200 |
) |
|
|
8,964 |
|
Amortization related to above (below) market leases, net |
|
|
(2,112 |
) |
|
|
(1,344 |
) |
Loss (gain) on sales of properties |
|
|
(20,559 |
) |
|
|
(26,907 |
) |
Increase (decrease) in accrued expenses and other liabilities |
|
|
10,139 |
|
|
|
(5,038 |
) |
Decrease (increase) in receivables and other assets |
|
|
(1,413 |
) |
|
|
(10,901 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) operating activities |
|
|
291,004 |
|
|
|
290,449 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Investment in real property |
|
|
(803,364 |
) |
|
|
(417,378 |
) |
Capitalized interest |
|
|
(16,008 |
) |
|
|
(30,866 |
) |
Investment in real estate loans receivable |
|
|
(52,499 |
) |
|
|
(46,882 |
) |
Other investments, net of payments |
|
|
(75,349 |
) |
|
|
(18,969 |
) |
Principal collected on real estate loans receivable |
|
|
18,819 |
|
|
|
34,892 |
|
Contributions to unconsolidated joint ventures |
|
|
(174,692 |
) |
|
|
|
|
Decrease (increase) in restricted cash |
|
|
(34,279 |
) |
|
|
136,577 |
|
Proceeds from sales of real property |
|
|
134,722 |
|
|
|
153,507 |
|
|
|
|
|
|
|
|
Net cash provided from (used in) investing activities |
|
|
(1,002,650 |
) |
|
|
(189,119 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net increase (decrease) under unsecured lines of credit arrangements |
|
|
(140,000 |
) |
|
|
(427,000 |
) |
Proceeds from issuance of senior unsecured notes |
|
|
1,378,180 |
|
|
|
|
|
Payments to extinguish senior unsecured notes |
|
|
(495,542 |
) |
|
|
(201,048 |
) |
Net proceeds from the issuance of secured debt |
|
|
79,127 |
|
|
|
276,277 |
|
Payments on secured debt |
|
|
(177,305 |
) |
|
|
(102,635 |
) |
Net proceeds from the issuance of common stock |
|
|
486,565 |
|
|
|
683,883 |
|
Decrease (increase) in deferred loan expenses |
|
|
(1,993 |
) |
|
|
(7,286 |
) |
Contributions by noncontrolling interests |
|
|
2,491 |
|
|
|
1,946 |
|
Distributions to noncontrolling interests |
|
|
(2,649 |
) |
|
|
(1,967 |
) |
Cash distributions to stockholders |
|
|
(271,557 |
) |
|
|
(244,517 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) financing activities |
|
|
857,317 |
|
|
|
(22,347 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
145,671 |
|
|
|
78,983 |
|
Cash and cash equivalents at beginning of period |
|
|
35,476 |
|
|
|
23,370 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
181,147 |
|
|
$ |
102,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
92,106 |
|
|
$ |
100,365 |
|
Income taxes paid |
|
|
220 |
|
|
|
534 |
|
See notes to unaudited consolidated financial statements
6
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is an equity
real estate investment trust (REIT) that invests in senior housing and health care real estate.
Our full service platform also offers property management and development services to our
customers. As of September 30, 2010, our broadly diversified portfolio consisted of 641 properties
in 39 states. Founded in 1970, we were the first real estate investment trust to invest exclusively
in health care facilities. More information is available on our website at www.hcreit.com.
2. Accounting Policies and Related Matters
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information
and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2010 are not necessarily an indication of the
results that may be expected for the year ending December 31, 2010. For further information, refer
to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2009, as updated by our Current Report on Form 8-K filed May 10, 2010.
New Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) amended the consolidation
guidance for variable interest entities. The new guidance, to be applied on a continuous basis,
requires enterprises to perform a qualitative approach to determining whether or not a variable
interest entity will need to be consolidated. This evaluation is based on an enterprises ability
to direct and influence the activities of a variable interest entity that most significantly impact
its economic performance. This amendment was effective as of January 1, 2010. The adoption of
this guidance did not have a material impact on our consolidated financial position or results of
operations.
In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Receivables (Topic
310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses (ASU 2010-20). This update expands disclosures about the credit quality of our financing
receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses,
and changes and reasons for those changes in the allowance for credit losses. Both new and existing
disclosures must be disaggregated by portfolio segment and class. The disaggregation of information
is based on the level at which an entity develops and documents a systematic method for determining
its allowance for credit losses. This update is effective for interim periods and fiscal years
ending after December 15, 2010. We are currently evaluating the impact of ASU 2010-20 on our
consolidated financial statements.
3. Real Property Acquisitions and Development
Merrill Gardens Partnership
During the three months ended September 30, 2010, we completed the formation of our
partnership with Merrill Gardens LLC to own and operate a portfolio of 38 combination senior
housing and care communities located primarily in West Coast markets. We own an 80% partnership
interest and Merrill Gardens owns the remaining 20% interest and continues to manage the
communities. The partnership owns and operates 13 communities previously owned by us and 25
additional communities previously owned by Merrill Gardens. The transaction took advantage of the
structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (RIDEA).
The results of operations for this partnership have been included in our consolidated results of
operations beginning as of September 1, 2010 and are a component of our senior housing and care
segment. Consolidation is based on a combination of ownership interest and operational
decision-making control authority.
In conjunction with the formation of the partnership we contributed $254,885,000 of cash and
the 13 properties previously owned by us and the partnership assumed the secured debt relating to
these properties. Merrill Gardens contributed the remaining 25 properties to the partnership and
the secured debt relating to these properties in exchange for their 20% interest in the
partnership. The 13 properties are recorded at their historical carrying values and the
noncontrolling interest was established based on such values. The difference between the fair
value of the consideration received relating to these properties and the historical allocation of
the 20% noncontrolling interest was recorded in capital in excess of par value. The total purchase
price for the 25 communities acquired have been allocated to the tangible and identifiable
intangible assets and liabilities based upon their respective fair values in accordance
7
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
with the
Companys accounting policies. Such allocations have not been finalized as we await final asset
valuations and, as such, the allocation of the purchase consideration included in the accompanying
Consolidated Balance Sheet at September 30, 2010 is preliminary and subject to adjustment. The 20%
noncontrolling interest relating to the acquired 25 properties is also reflected at
estimated fair value. The following table presents the preliminary allocation of the purchase
price to assets and liabilities assumed, based on their estimated fair values (in thousands):
|
|
|
|
|
Land and land improvements |
|
$ |
86,664 |
|
Buildings and improvements |
|
|
423,919 |
|
Acquired lease intangibles |
|
|
75,320 |
|
Cash and cash equivalents |
|
|
4,777 |
|
Restricted cash |
|
|
3,707 |
|
Receivables and other assets |
|
|
16,459 |
|
|
|
|
|
Total assets acquired |
|
|
610,846 |
|
Secured debt |
|
|
235,273 |
|
Accrued expenses and other liabilities |
|
|
3,316 |
|
|
|
|
|
Total liabilities assumed |
|
|
238,589 |
|
Capital in excess of par |
|
|
41,423 |
|
Noncontrolling interests |
|
|
80,207 |
|
|
|
|
|
Net assets acquired |
|
$ |
250,627 |
|
|
|
|
|
The weighted average useful life of the acquired intangibles was 1.9 years as of
September 30, 2010.
Real Property Investment Activity
The following is a summary of our real property investment activity for the periods presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
Real property acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing operating |
|
$ |
576,000 |
|
|
$ |
|
|
|
$ |
576,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Senior housing triple net |
|
|
219,772 |
|
|
|
|
|
|
|
219,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
|
|
|
|
246,582 |
|
|
|
246,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisitions |
|
|
795,772 |
|
|
|
246,582 |
|
|
|
1,042,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Assumed debt |
|
|
(244,921 |
) |
|
|
(108,244 |
) |
|
|
(353,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Assumed other items, net |
|
|
(118,901 |
) |
|
|
(31,048 |
) |
|
|
(149,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for acquisitions |
|
|
431,950 |
|
|
|
107,290 |
|
|
|
539,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing triple net |
|
|
62,115 |
|
|
|
|
|
|
|
62,115 |
|
|
|
250,066 |
|
|
|
|
|
|
|
250,066 |
|
Skilled nursing facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,534 |
|
|
|
|
|
|
|
19,534 |
|
Hospitals |
|
|
|
|
|
|
93,931 |
|
|
|
93,931 |
|
|
|
|
|
|
|
82,671 |
|
|
|
82,671 |
|
Medical office buildings |
|
|
|
|
|
|
91,042 |
|
|
|
91,042 |
|
|
|
|
|
|
|
96,642 |
|
|
|
96,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress additions |
|
|
62,115 |
|
|
|
184,973 |
|
|
|
247,088 |
|
|
|
269,600 |
|
|
|
179,313 |
|
|
|
448,913 |
|
Less: Capitalized interest |
|
|
(5,700 |
) |
|
|
(9,836 |
) |
|
|
(15,536 |
) |
|
|
(21,306 |
) |
|
|
(9,560 |
) |
|
|
(30,866 |
) |
Accruals(1) |
|
|
|
|
|
|
(8,088 |
) |
|
|
(8,088 |
) |
|
|
|
|
|
|
(21,466 |
) |
|
|
(21,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for construction in progress |
|
|
56,415 |
|
|
|
167,049 |
|
|
|
223,464 |
|
|
|
248,294 |
|
|
|
148,287 |
|
|
|
396,581 |
|
Capital improvements to existing properties |
|
|
18,821 |
|
|
|
21,839 |
|
|
|
40,660 |
|
|
|
11,333 |
|
|
|
9,464 |
|
|
|
20,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash invested in real property |
|
$ |
507,186 |
|
|
$ |
296,178 |
|
|
$ |
803,364 |
|
|
$ |
259,627 |
|
|
$ |
157,751 |
|
|
$ |
417,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents non-cash accruals for amounts to be paid in future periods relating to properties that converted in the period noted above. |
The following is a summary of the construction projects that were placed into
service and began generating revenues during the periods presented:
8
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
Development projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing facilities |
|
$ |
269,261 |
|
|
$ |
|
|
|
$ |
269,261 |
|
|
$ |
257,456 |
|
|
$ |
|
|
|
$ |
257,456 |
|
Skilled nursing facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,561 |
|
|
|
|
|
|
|
14,561 |
|
Hospitals |
|
|
|
|
|
|
96,829 |
|
|
|
96,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
|
|
|
|
49,144 |
|
|
|
49,144 |
|
|
|
|
|
|
|
173,744 |
|
|
|
173,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total development projects |
|
|
269,261 |
|
|
|
145,973 |
|
|
|
415,234 |
|
|
|
272,017 |
|
|
|
173,744 |
|
|
|
445,761 |
|
Expansion projects |
|
|
2,320 |
|
|
|
|
|
|
|
2,320 |
|
|
|
4,064 |
|
|
|
|
|
|
|
4,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress conversions |
|
$ |
271,581 |
|
|
$ |
145,973 |
|
|
$ |
417,554 |
|
|
$ |
276,081 |
|
|
$ |
173,744 |
|
|
$ |
449,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs for the nine months ended September 30, 2010 primarily represent costs
incurred with the Merrill Gardens partnership (including due diligence costs, fees for legal and
valuation services, and termination of a pre-existing relationship computed based on the fair value
of the assets acquired), lease termination fees and costs incurred in connection with the new
property acquisitions.
4. Real Estate Intangibles
The following is a summary of our real estate intangibles, excluding those classified as held
for sale, as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
Assets: |
|
|
|
|
|
|
|
|
In place lease intangibles |
|
$ |
149,447 |
|
|
$ |
74,198 |
|
Above market tenant leases |
|
|
27,689 |
|
|
|
10,232 |
|
Below market ground leases |
|
|
41,874 |
|
|
|
39,806 |
|
Lease commissions |
|
|
4,339 |
|
|
|
3,154 |
|
|
|
|
|
|
|
|
Gross historical cost |
|
|
223,349 |
|
|
|
127,390 |
|
Accumulated amortization |
|
|
(37,881 |
) |
|
|
(29,698 |
) |
|
|
|
|
|
|
|
Net book value |
|
$ |
185,468 |
|
|
$ |
97,692 |
|
|
|
|
|
|
|
|
Weighted-average amortization period in years |
|
|
17.5 |
|
|
|
30.0 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Below market tenant leases |
|
$ |
54,009 |
|
|
$ |
22,961 |
|
Above market ground leases |
|
|
4,084 |
|
|
|
4,084 |
|
|
|
|
|
|
|
|
Gross historical cost |
|
|
58,093 |
|
|
|
27,045 |
|
Accumulated amortization |
|
|
(14,582 |
) |
|
|
(10,478 |
) |
|
|
|
|
|
|
|
Net book value |
|
$ |
43,511 |
|
|
$ |
16,567 |
|
|
|
|
|
|
|
|
Weighted-average amortization period in years |
|
|
12.3 |
|
|
|
12.1 |
|
5. Dispositions, Assets Held for Sale and Discontinued Operations
During the year ended December 31, 2009, an impairment charge of $25,223,000 was recorded to
reduce the carrying value of eight medical facilities to their estimated fair value less costs to
sell. In determining the fair value of the properties, we used a combination of third party
appraisals based on market comparable transactions, other market listings and asset quality as well
as management calculations based on projected operating income and published capitalization rates.
During the nine months ended September 30, 2010, we sold 16 properties, including three of the held
for sale medical facilities, for net gains of $20,559,000. At September 30, 2010, we had five
medical facilities and one senior housing facility that satisfied the requirements for held for
sale treatment. During the three months ended September 30, 2010, we recorded an impairment charge
of $947,000 related to two of the held for sale medical facilities to adjust the carrying values to
estimated fair values less costs to sell based on current sales price expectations. The following
is a summary of our real
9
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
property disposition activity for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
Real property dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing facilities |
|
$ |
3,437 |
|
|
$ |
|
|
|
$ |
3,437 |
|
|
$ |
44,877 |
|
|
$ |
|
|
|
$ |
44,877 |
|
Skilled nursing facilities |
|
|
104,628 |
|
|
|
|
|
|
|
104,628 |
|
|
|
18,854 |
|
|
|
|
|
|
|
18,854 |
|
Hospitals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,841 |
|
|
|
40,841 |
|
Medical office buildings |
|
|
|
|
|
|
7,568 |
|
|
|
7,568 |
|
|
|
|
|
|
|
28,128 |
|
|
|
28,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
|
108,065 |
|
|
|
7,568 |
|
|
|
115,633 |
|
|
|
63,731 |
|
|
|
68,969 |
|
|
|
132,700 |
|
Add: Gain on sales of real property |
|
|
18,894 |
|
|
|
1,665 |
|
|
|
20,559 |
|
|
|
13,358 |
|
|
|
13,549 |
|
|
|
26,907 |
|
Seller financing on sales
of real property |
|
|
|
|
|
|
(1,470 |
) |
|
|
(1,470 |
) |
|
|
|
|
|
|
(6,100 |
) |
|
|
(6,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from real property sales |
|
$ |
126,959 |
|
|
$ |
7,763 |
|
|
$ |
134,722 |
|
|
$ |
77,089 |
|
|
$ |
76,418 |
|
|
$ |
153,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have reclassified the income and expenses attributable to all properties sold and
attributable to properties held for sale at September 30, 2010 to discontinued operations.
Expenses include an allocation of interest expense based on property carrying values and our
weighted average cost of debt. The following illustrates the reclassification impact as a result
of classifying properties as discontinued operations for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
2,602 |
|
|
$ |
6,794 |
|
|
$ |
9,292 |
|
|
$ |
25,237 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
577 |
|
|
|
1,238 |
|
|
|
1,817 |
|
|
|
4,748 |
|
Property operating expenses |
|
|
973 |
|
|
|
821 |
|
|
|
2,686 |
|
|
|
2,559 |
|
Provision for depreciation |
|
|
541 |
|
|
|
1,898 |
|
|
|
1,816 |
|
|
|
8,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net |
|
$ |
511 |
|
|
$ |
2,837 |
|
|
$ |
2,973 |
|
|
$ |
9,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. Real Estate Loans Receivable
The following is a summary of our real estate loan activity for the periods presented (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
Advances on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in new loans |
|
$ |
9,742 |
|
|
$ |
15,799 |
|
|
$ |
25,541 |
|
|
$ |
3,316 |
|
|
$ |
|
|
|
$ |
3,316 |
|
Draws on existing loans |
|
|
28,413 |
|
|
|
15 |
|
|
|
28,428 |
|
|
|
42,226 |
|
|
|
1,340 |
|
|
|
43,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
38,155 |
|
|
|
15,814 |
|
|
|
53,969 |
|
|
|
45,542 |
|
|
|
1,340 |
|
|
|
46,882 |
|
Less: Seller financing on property sales |
|
|
|
|
|
|
(1,470 |
) |
|
|
(1,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash advances on real estate loans |
|
|
38,155 |
|
|
|
14,344 |
|
|
|
52,499 |
|
|
|
45,542 |
|
|
|
1,340 |
|
|
|
46,882 |
|
Receipts on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payoffs |
|
|
3,809 |
|
|
|
|
|
|
|
3,809 |
|
|
|
20,440 |
|
|
|
|
|
|
|
20,440 |
|
Principal payments on loans |
|
|
11,682 |
|
|
|
3,328 |
|
|
|
15,010 |
|
|
|
12,838 |
|
|
|
1,614 |
|
|
|
14,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receipts on real estate loans |
|
|
15,491 |
|
|
|
3,328 |
|
|
|
18,819 |
|
|
|
33,278 |
|
|
|
1,614 |
|
|
|
34,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net advances (receipts) on real estate loans |
|
$ |
22,664 |
|
|
$ |
11,016 |
|
|
$ |
33,680 |
|
|
$ |
12,264 |
|
|
$ |
(274 |
) |
|
$ |
11,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded $28,918,000 of provision for loan losses during the nine months ended
September 30, 2010. This amount includes the write-off of loans totaling $32,753,000 primarily
related to certain early stage senior housing and CCRC development projects no longer being
actively pursued. This was offset by a net reduction of the allowance balance by $3,835,000,
resulting in an allowance for losses on loans receivable balance of $1,190,000 as of September 30,
2010.
During the quarter ended September 30, 2010, we received title to a parcel of land and an
equity interest in full satisfaction of certain loans outstanding with a combined balance of
$38,848,000. For balance sheet purposes, the land parcel is recorded as land and the equity interest
is accounted for as an equity method investment.
7. Investments in Unconsolidated Joint Ventures
During the six months ended June 30, 2010, we entered into a joint venture investment with
Forest City Enterprises (NYSE:FCE.A and FCE.B). We acquired a 49% interest in a seven-building
life science campus with approximately 1.2 million square feet located in University Park in
Cambridge, MA, which is immediately adjacent to the campus of the Massachusetts Institute of
Technology. Six buildings closed on February 22, 2010 and the seventh closed on June 30, 2010. The
portfolio is 100% leased and includes affiliates of investment grade pharmaceutical and research
tenants such as Novartis, Genzyme, Millennium (a subsidiary of Takeda Pharmaceuticals), and Brigham
and Womens Hospital. Forest City Enterprises self-developed the portfolio and will continue to
manage it on behalf of the joint venture. The life science campus is part of a mixed-use project
that includes a 210-room hotel, 674 residential units, a grocery store, restaurants and retail.
In connection with these transactions, we invested $174,692,000 of cash which is recorded as
an equity investment on the balance sheet. Our share of the non-recourse secured debt assumed by
the joint venture was approximately $156,729,000 with weighted-average interest rates of 7.1%. The
results of operations for these properties have been included in our consolidated results of
operations from the date of acquisition by the joint venture and are reflected in our income
statement as income from unconsolidated joint ventures. The aggregate remaining unamortized basis
difference of our investment in this joint venture of $18,411,000 at September 30, 2010 is
primarily attributable to real estate and related intangible assets and will be amortized over the
life of the related properties and included in the reported amount of income from unconsolidated
joint ventures.
11
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Customer Concentration
The following table summarizes certain information about our customer concentration as of
September 30, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Total |
|
Percent of |
|
|
Properties |
|
Investment(2) |
|
Investment(3) |
Concentration by investment:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Merrill Gardens LLC |
|
|
38 |
|
|
$ |
745,473 |
|
|
|
10 |
% |
Senior Living Communities, LLC |
|
|
12 |
|
|
|
593,483 |
|
|
|
9 |
% |
Aurora Health Care, Inc. |
|
|
18 |
|
|
|
305,517 |
|
|
|
4 |
% |
Brookdale Senior Living, Inc. |
|
|
86 |
|
|
|
303,463 |
|
|
|
4 |
% |
Signature Healthcare LLC |
|
|
32 |
|
|
|
260,620 |
|
|
|
4 |
% |
Remaining portfolio |
|
|
455 |
|
|
|
4,948,308 |
|
|
|
69 |
% |
|
|
|
|
|
Totals |
|
|
641 |
|
|
$ |
7,156,864 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
(1) |
|
All of our top five customers, except for Aurora Health Care, Inc., are in our senior housing
and care segment. |
|
(2) |
|
Excludes our share of unconsolidated joint venture investment of $349,832,000. Please see
Note 7 for additional information. |
|
(3) |
|
Investments with our top five customers comprised 24% of total investments at December 31,
2009. |
9. Borrowings Under Line of Credit Arrangement and Related Items
At September 30, 2010, we had an unsecured line of credit arrangement with a consortium of
sixteen banks in the amount of $1,150,000,000, which is scheduled to expire on August 5, 2011 (with
the ability to extend for one year at our discretion if we are in compliance with all covenants).
Borrowings under the agreement are subject to interest payable in periods no longer than three
months at either the agent banks prime rate of interest or the applicable margin over LIBOR
interest rate, at our option (0.86% at September 30, 2010). The applicable margin is based on
certain of our debt ratings and was 0.6% at September 30, 2010. In addition, we pay a facility fee
annually to each bank based on the banks commitment amount. The facility fee depends on certain of
our debt ratings and was 0.15% at September 30, 2010. We also pay an annual agents fee of $50,000.
Principal is due upon expiration of the agreement.
The following information relates to aggregate borrowings under the unsecured line of credit
arrangement for the periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Balance outstanding at quarter end |
|
$ |
|
|
|
$ |
143,000 |
|
|
$ |
|
|
|
$ |
143,000 |
|
Maximum amount outstanding at any month end |
|
$ |
560,000 |
|
|
$ |
292,000 |
|
|
$ |
560,000 |
|
|
$ |
559,000 |
|
Average amount outstanding (total of daily
principal balances divided by days in period) |
|
$ |
220,467 |
|
|
$ |
217,174 |
|
|
$ |
265,465 |
|
|
$ |
301,740 |
|
Weighted average interest rate (actual interest
expense divided by average borrowings
outstanding) |
|
|
2.22 |
% |
|
|
1.99 |
% |
|
|
1.74 |
% |
|
|
1.76 |
% |
10. Senior Unsecured Notes and Secured Debt
We have $2,585,961,000 of senior unsecured notes with annual stated interest rates ranging
from 3.00% to 8.00%. The carrying amounts of the senior unsecured notes represent the par value of
$2,614,930,000 adjusted for any unamortized premiums or discounts and other basis adjustments
related to hedging the debt with derivative instruments. See Note 11 for further discussion
regarding derivative instruments.
During the three months ended December 31, 2006, we issued $345,000,000 of 4.75% senior
unsecured convertible notes due December 2026, generating net proceeds of $337,517,000. The notes
are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at
an initial conversion rate of 20.8833 shares per $1,000 principal amount of notes, which represents
an initial conversion price of approximately $47.89 per share. In general, upon conversion, the
holder of each note would receive, in respect of the conversion value of such note, cash up to the
principal amount of such note and common stock for the notes conversion value in excess of such
principal amount. In addition, on each of December 1, 2011, December 1, 2016 and December 1, 2021,
holders may require us to purchase all or a portion of their notes at a purchase price in cash
equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid
interest. During the three months ended March 31, 2009, we
12
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
extinguished $5,000,000 of these notes
and recognized a gain of $446,000. During the six months ended June 30, 2010, we extinguished
$214,412,000 of these notes, recognized a loss of $8,837,000 and paid $18,552,000 to reacquire the
equity component of convertible debt. As of September 30, 2010, we had $125,588,000 of these notes
outstanding.
In July 2007, we issued $400,000,000 of 4.75% senior unsecured convertible notes due July
2027, generating net proceeds of $388,943,000. The notes are convertible, in certain circumstances,
into cash and, if applicable, shares of our common stock at an initial conversion rate of 20.0000
shares per $1,000 principal amount of notes, which represents an initial conversion price of
approximately $50.00 per share. In general, upon conversion, the holder of each note would receive,
in respect of the conversion value of such note, cash up to the principal amount of such note and
common stock for the notes conversion value in excess of such principal amount. In addition, on
each of July 15, 2012, July 15, 2017 and July 15, 2022, holders may require us to purchase all or a
portion of their notes at a purchase price in cash equal to 100% of the principal amount of the
notes to be purchased, plus any accrued and unpaid interest. During the three months ended March
31, 2009, we extinguished $5,000,000 of these notes and recognized a gain of $594,000. During the
six months ended June 30, 2010, we extinguished $226,914,000 of these notes, recognized a loss of
$16,235,000 and paid $21,062,000 to reacquire the equity component of convertible debt. As of
September 30, 2010, we had $168,086,000 of these notes outstanding.
During the nine months ended September 30, 2010, we issued $494,403,000 of 3.00% senior
unsecured convertible notes due December 2029, generating net proceeds of $486,084,000. The notes
are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at
an initial conversion rate of 19.5064 shares per $1,000 principal amount of notes, which represents
an initial conversion price of approximately $51.27 per share. In general, upon conversion, the
holder of each note would receive, in respect of the conversion value of such note, cash up to the
principal amount of such note and common stock for the notes conversion value in excess of such
principal amount. In addition, on each of December 1, 2014, December 1, 2019 and December 1, 2024,
holders may require us to purchase all or a portion of their notes at a purchase price in cash
equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid
interest. In connection with this issuance, we recognized $29,925,000 of equity component of
convertible debt.
During the three months ended June 30, 2010, we issued $450,000,000 of 6.125% senior unsecured
notes due 2020 with net proceeds of $446,328,000. During the three months ended September 30,
2010, we issued $450,000,000 of 4.70% senior unsecured notes due 2017 with net proceeds of
$445,768,000. We have secured debt totaling $885,494,000, collateralized by owned properties, with
annual interest rates ranging from 3.86% to 8.74%. The carrying amounts of the secured debt
represent the par value of $897,265,000 adjusted for any unamortized fair value adjustments. The
carrying values of the properties securing the debt totaled $1,399,126,000 at September 30, 2010.
During the nine months ended September 30, 2010, we assumed $363,515,000 of first mortgage loans
principal with an average rate of 6.44% secured by 41 properties. During the nine months ended
September 30, 2010, we extinguished $159,475,000 of first mortgage loans principal with an average
rate of 5.93% and recognized a loss of $9,099,000.
Our debt agreements contain various covenants, restrictions and events of default. Certain
agreements require us to maintain certain financial ratios and minimum net worth and impose certain
limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As
of September 30, 2010, we were in compliance with all of the covenants under our debt agreements.
At September 30, 2010, the annual principal payments due on these debt obligations are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior |
|
|
Secured |
|
|
|
|
|
|
Unsecured Notes(1) |
|
|
Debt (1) |
|
|
Totals |
|
2010 |
|
$ |
|
|
|
$ |
4,927 |
|
|
$ |
4,927 |
|
2011 |
|
|
|
|
|
|
53,611 |
|
|
|
53,611 |
|
2012 |
|
|
76,853 |
|
|
|
73,540 |
|
|
|
150,393 |
|
2013 |
|
|
300,000 |
|
|
|
52,987 |
|
|
|
352,987 |
|
2014 |
|
|
|
|
|
|
166,407 |
|
|
|
166,407 |
|
Thereafter |
|
|
2,238,077 |
|
|
|
545,793 |
|
|
|
2,783,870 |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
2,614,930 |
|
|
$ |
897,265 |
|
|
$ |
3,512,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal amounts due and do not include unamortized premiums/discounts
or other fair value adjustments as reflected on the balance sheet. |
13
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. Derivative Instruments
We are exposed to various market risks, including the potential loss arising from adverse
changes in interest rates. We may elect to use financial derivative instruments to hedge interest
rate exposure. These decisions are principally based on our policy to manage the general trend in
interest rates at the applicable dates and our perception of the future volatility of interest
rates. Derivates are recorded at fair value on the balance sheet as assets or liabilities. The
valuation of derivative instruments requires us to make estimates and judgments that affect the
fair value of the instruments. Fair values of our derivatives are estimated by pricing models that
consider the forward yield curves and discount rates. Such amounts and the recognition of such
amounts are subject to significant estimates that may change in the future.
The following is a summary of the fair value of our derivative instruments (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
Fair Value |
|
|
Location |
|
September 30, 2010 |
|
December 31, 2009 |
Cash flow hedge interest rate swaps |
|
Other liabilities |
|
$ |
|
|
|
$ |
2,381 |
|
Cash Flow Hedges
For instruments that are designated and qualify as a cash flow hedge, the effective portion of
the gain or loss on the derivative is reported as a component of other comprehensive income
(OCI), and reclassified into earnings in the same period, or periods, during which the hedged
transaction affects earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in
earnings. Approximately $1,643,000 of losses, which are included in accumulated other
comprehensive income (AOCI), are expected to be reclassified into earnings in the next 12 months.
The following presents the impact of derivative instruments on the statement of operations and
OCI for the periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
Location |
|
September 30, 2010 |
|
September 30, 2009 |
|
September 30, 2010 |
|
September 30, 2009 |
Gain (loss) on interest rate swap recognized in
OCI (effective portion) |
|
n/a |
|
|
|
$ |
(3,211 |
) |
|
$ |
(4,644 |
) |
|
$ |
(10,307 |
) |
|
$ |
(4,644 |
) |
Gain (loss) reclassified from AOCI into
income (effective portion) |
|
Interest expense |
|
|
(236 |
) |
|
|
(229 |
) |
|
|
(1,834 |
) |
|
|
(148 |
) |
Gain (loss) recognized in income (ineffective portion
and amount excluded from
effectiveness testing) |
|
Realized loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 7, 2009, we entered into an interest rate swap (the August 2009 Swap)
for a total notional amount of $52,198,000 to hedge seven years of interest payments associated
with long-term LIBOR based borrowings. This swap was terminated on September 30, 2010 for a cash
payment of $6,645,000. The effective portion is being amortized over the remaining term of the
original swap as an adjustment to the yield on our LIBOR-based debt. The August 2009 Swap had an
effective date of August 12, 2009 and a maturity date of September 1, 2016. The August 2009 Swap
had the economic effect of fixing $52,198,000 at 3.93% plus a credit spread for seven years. The
August 2009 Swap had been designated as a cash flow hedge and we expected it to be highly effective
at offsetting changes in cash flows of interest payments on $52,198,000 of long-term debt due to
changes in the LIBOR swap rate.
On September 28, 2009, we entered into an interest rate swap (the September 2009 Swap) for a
total notional amount of $48,155,000 to hedge seven years of interest payments associated with
long-term LIBOR based borrowings. This swap was terminated on September 30, 2010 for a cash
payment of $4,365,000. The effective portion is being amortized over the remaining term of the
original swap as an adjustment to the yield on our LIBOR-based debt. The September 2009 Swap had
an effective date of September 30, 2009 and a maturity date of October 1, 2016. The September 2009
Swap had the economic effect of fixing $48,155,000 at 3.2675% plus a credit spread for seven years.
The September 2009 Swap had been designated as a cash flow hedge and we expected it to be highly
effective at offsetting changes in cash flows of interest payments on $48,155,000 of long-term debt
due to changes in the LIBOR swap rate.
Fair Value Hedges
14
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For derivative instruments that are designated as a fair value hedge, the gain or loss on the
derivative as well as the offsetting loss or gain on the hedged risk are recognized in current
earnings. There were no outstanding fair value hedges at September 30, 2010 or December 31, 2009.
12. Commitments and Contingencies
We have two outstanding letters of credit issued for the benefit of certain insurance
companies that provide workers compensation insurance to one of our tenants. Our obligation to
provide the letters of credit terminates in 2013. At September 30, 2010, our obligation under the
letters of credit was $4,200,000.
We have an outstanding letter of credit issued for the benefit of certain insurance companies
that provide liability and property insurance to one of our tenants. Our obligation to provide the
letter of credit terminates in 2013. At September 30, 2010, our obligation under the letter of
credit was $1,000,000.
We have an outstanding letter of credit issued for the benefit of a village in Illinois that
secures the completion and installation of certain public improvements by one of our tenants in
connection with the development of a property. Our obligation to provide the letter of credit
terminates in November 2010. At September 30, 2010, our obligation under the letter of credit was
$129,057.
At September 30, 2010, we had outstanding construction in process of $286,366,000 for leased
properties and were committed to providing additional funds of approximately $314,132,000 to
complete construction. At September 30, 2010, we had contingent purchase obligations totaling
$7,065,000. These contingent purchase obligations relate to unfunded capital improvement
obligations. Rents due from the tenant are increased to reflect the additional investment in the
property.
At September 30, 2010, we had operating lease obligations of $209,719,000 relating to certain
ground leases and company office space. We incurred rental expense relating to company office space
of $303,000 and $938,000 for the three and nine months ended September 30, 2010, respectively, as
compared to $302,000 and $899,000 for the same periods in 2009. Regarding the ground leases, we
have sublease agreements with certain of our operators that require the operators to reimburse us
for our monthly operating lease obligations. At September 30, 2010, aggregate future minimum
rentals to be received under these noncancelable subleases totaled $31,088,000.
At September 30, 2010, future minimum lease payments due under operating leases are as follows
(in thousands):
|
|
|
|
|
2010 |
|
$ |
1,250 |
|
2011 |
|
|
4,980 |
|
2012 |
|
|
5,054 |
|
2013 |
|
|
4,758 |
|
2014 |
|
|
4,781 |
|
Thereafter |
|
|
188,896 |
|
|
|
|
|
Totals |
|
$ |
209,719 |
|
|
|
|
|
13. Stockholders Equity
The following is a summary of our stockholders equity capital accounts as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
Preferred Stock, $1.00 par value: |
|
|
|
|
|
|
|
|
Authorized shares |
|
|
50,000,000 |
|
|
|
50,000,000 |
|
Issued shares |
|
|
11,000,000 |
|
|
|
11,474,093 |
|
Outstanding shares |
|
|
11,000,000 |
|
|
|
11,474,093 |
|
|
|
|
|
|
|
|
|
|
Common Stock, $1.00 par value: |
|
|
|
|
|
|
|
|
Authorized shares |
|
|
225,000,000 |
|
|
|
225,000,000 |
|
Issued shares |
|
|
135,293,332 |
|
|
|
123,583,242 |
|
Outstanding shares |
|
|
135,009,522 |
|
|
|
123,385,317 |
|
15
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock. During the nine months ended September 30, 2009, certain holders
of our Series G Cumulative Convertible Preferred Stock converted 41,600 shares into 29,771 shares
of our common stock, leaving 399,713 of such shares outstanding at September 30, 2009. During the
nine months ended September 30, 2010, certain holders of our Series G Cumulative Convertible
Preferred Stock converted 394,200 shares into 282,078 shares of our common stock, leaving 5,513 of
such shares outstanding which were redeemed by us on September 30, 2010. During the three months
ended September 30, 2010, the holder of our Series E Cumulative Convertible and Redeemable
Preferred Stock converted 74,380 shares into 56,935 shares of our common stock, leaving no such
shares outstanding at September 30, 2010.
Common Stock. The following is a summary of our common stock issuances during the nine months
ended September 30, 2010 and 2009 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued |
|
|
Average Price |
|
|
Gross Proceeds |
|
|
Net Proceeds |
|
February 2009 public issuance |
|
|
5,816,870 |
|
|
$ |
36.85 |
|
|
$ |
214,352 |
|
|
$ |
210,880 |
|
September 2009 public issuance |
|
|
9,200,000 |
|
|
|
40.40 |
|
|
|
371,680 |
|
|
|
356,691 |
|
2009 Equity shelf plan issuances |
|
|
1,952,600 |
|
|
|
40.69 |
|
|
|
79,447 |
|
|
|
77,692 |
|
2009 Dividend reinvestment plan
issuances |
|
|
1,099,340 |
|
|
|
35.05 |
|
|
|
38,528 |
|
|
|
38,528 |
|
2009 Option exercises |
|
|
3,434 |
|
|
|
26.67 |
|
|
|
92 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Totals |
|
|
18,072,244 |
|
|
|
|
|
|
$ |
704,099 |
|
|
$ |
683,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2010 public issuance |
|
|
9,200,000 |
|
|
$ |
45.75 |
|
|
$ |
420,900 |
|
|
$ |
403,921 |
|
2010 Equity shelf plan issuances |
|
|
431,082 |
|
|
|
44.94 |
|
|
|
19,371 |
|
|
|
19,014 |
|
2010 Dividend reinvestment plan
issuances |
|
|
1,441,612 |
|
|
|
42.83 |
|
|
|
61,737 |
|
|
|
61,737 |
|
2010 Option exercises |
|
|
56,947 |
|
|
|
33.24 |
|
|
|
1,893 |
|
|
|
1,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Totals |
|
|
11,129,641 |
|
|
|
|
|
|
$ |
503,901 |
|
|
$ |
486,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends. The following is a summary of our dividend payments (dollars in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
Common Stock |
|
$ |
2.0500 |
|
|
$ |
255,217 |
|
|
$ |
2.0400 |
|
|
$ |
227,959 |
|
Series D Preferred Stock |
|
|
1.4766 |
|
|
|
5,906 |
|
|
|
1.4766 |
|
|
|
5,906 |
|
Series E Preferred Stock |
|
|
1.1250 |
|
|
|
94 |
|
|
|
1.1250 |
|
|
|
84 |
|
Series F Preferred Stock |
|
|
1.4297 |
|
|
|
10,008 |
|
|
|
1.4297 |
|
|
|
10,008 |
|
Series G Preferred Stock |
|
|
1.4064 |
|
|
|
332 |
|
|
|
1.4064 |
|
|
|
560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
|
$ |
271,557 |
|
|
|
|
|
|
$ |
244,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
The following is a summary of accumulated other comprehensive income/(loss) as of the dates
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
Unrecognized losses on cash flow hedges |
|
$ |
(10,380 |
) |
|
$ |
(1,907 |
) |
Unrecognized losses on equity investments |
|
|
(645 |
) |
|
|
(550 |
) |
Unrecognized actuarial losses |
|
|
(434 |
) |
|
|
(434 |
) |
|
|
|
|
|
|
|
Totals |
|
$ |
(11,459 |
) |
|
$ |
(2,891 |
) |
|
|
|
|
|
|
|
16
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of comprehensive income/(loss) for the periods indicated
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Unrecognized losses on cash flow hedges |
|
$ |
(2,975 |
) |
|
$ |
(4,415 |
) |
|
$ |
(8,473 |
) |
|
$ |
(4,496 |
) |
Unrecognized gains (losses) on equity investments |
|
|
42 |
|
|
|
489 |
|
|
|
(95 |
) |
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(2,933 |
) |
|
|
(3,926 |
) |
|
|
(8,568 |
) |
|
|
(3,829 |
) |
Net income attributable to controlling interests |
|
|
6,471 |
|
|
|
24,650 |
|
|
|
88,920 |
|
|
|
156,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to controlling interests |
|
|
3,538 |
|
|
|
20,724 |
|
|
|
80,352 |
|
|
|
152,220 |
|
Net and comprehensive income (loss) attributable to noncontrolling interests |
|
|
(690 |
) |
|
|
35 |
|
|
|
(383 |
) |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
2,848 |
|
|
$ |
20,759 |
|
|
$ |
79,969 |
|
|
$ |
152,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Equity
Other equity consists of accumulated option compensation expense which represents the amount
of amortized compensation costs related to stock options awarded to employees and directors.
Expense, which is recognized as the options vest based on the market value at the date of the
award, totaled $221,000 and $1,414,000 for the three and nine months ended September 30, 2010,
respectively, as compared to $182,000 and $1,446,000 for the same periods in 2009.
14. Stock Incentive Plans
Our Amended and Restated 2005 Long-Term Incentive Plan authorizes up to 6,200,000 shares of
common stock to be issued at the discretion of the Compensation Committee of the Board of
Directors. The 2005 Plan replaced the 1995 Stock Incentive Plan and the Stock Plan for Non-Employee
Directors. The options granted to officers and key employees under the 1995 Plan continue to vest
through 2010 and expire ten years from the date of grant. Our non-employee directors, officers and
key employees are eligible to participate in the 2005 Plan. The 2005 Plan allows for the issuance
of, among other things, stock options, restricted stock, deferred stock units and dividend
equivalent rights. Vesting periods for options, deferred stock units and restricted shares
generally range from three years for non-employee directors to five years for officers and key
employees. Options expire ten years from the date of grant.
Valuation Assumptions
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes-Merton option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, 2010 |
|
September 30, 2009 |
Dividend yield |
|
|
6.28 |
% |
|
|
7.35 |
% |
Expected volatility |
|
|
34.08 |
% |
|
|
29.36 |
% |
Risk-free interest rate |
|
|
3.23 |
% |
|
|
2.33 |
% |
Expected life (in years) |
|
|
7.0 |
|
|
|
7.0 |
|
Weighted-average fair value |
|
$ |
7.82 |
|
|
$ |
4.38 |
|
The dividend yield represented the dividend yield of our common stock on the dates
of grant. Our computation of expected volatility was based on historical volatility. The risk-free
interest rates used were the 7-year U.S. Treasury Notes yield on the date of grant. The expected
life was based on historical experience of similar awards, giving consideration to the contractual
terms, vesting schedules and expectations regarding future employee behavior.
17
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Option Award Activity
The following table summarizes information about stock option activity for the nine months
ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted |
|
|
Weighted Average |
|
|
Aggregate |
|
|
|
Shares |
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
Stock Options |
|
(000s) |
|
|
Exercise Price |
|
|
Contract Life (years) |
|
|
Value ($000s) |
|
Options at beginning of year |
|
|
1,062 |
|
|
$ |
37.71 |
|
|
|
8.1 |
|
|
|
|
|
Options granted |
|
|
280 |
|
|
|
43.29 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(57 |
) |
|
|
33.24 |
|
|
|
|
|
|
|
|
|
Options terminated |
|
|
(6 |
) |
|
|
37.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at end of period |
|
|
1,279 |
|
|
$ |
$39.13 |
|
|
|
7.8 |
|
|
$ |
10,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
512 |
|
|
$ |
37.21 |
|
|
|
6.1 |
|
|
$ |
5,185 |
|
Weighted average fair value of options granted during the period |
|
|
|
|
|
$ |
$7.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value is calculated as the difference between the exercise price
of the underlying options and the quoted price of our common stock for the options that were
in-the-money at September 30, 2010. During the nine months ended September 30, 2010 and 2009, the
aggregate intrinsic value of options exercised under our stock incentive plans was $668,000 and
$54,000, respectively (determined as of the date of option exercise). Cash received from option
exercises under our stock incentive plans was $1,893,000 for the nine months ended September 30,
2010.
As of September 30, 2010, there was approximately $3,045,000 of total unrecognized
compensation cost related to unvested stock options granted under our stock incentive plans. That
cost is expected to be recognized over a weighted average period of four years. As of September 30,
2010, there was approximately $8,810,000 of total unrecognized compensation cost related to
unvested restricted stock granted under our stock incentive plans. That cost is expected to be
recognized over a weighted average period of three years.
The following table summarizes information about non-vested stock incentive awards as of
September 30, 2010 and changes for the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
Restricted Stock |
|
|
|
Number of |
|
|
Weighted Average |
|
|
Number of |
|
|
Weighted Average |
|
|
|
Shares |
|
|
Grant Date |
|
|
Shares |
|
|
Grant Date |
|
|
|
(000s) |
|
|
Fair Value |
|
|
(000s) |
|
|
Fair Value |
|
Non-vested at
December 31, 2009 |
|
|
675 |
|
|
$ |
5.44 |
|
|
|
405 |
|
|
$ |
40.26 |
|
Vested |
|
|
(181 |
) |
|
|
5.91 |
|
|
|
(232 |
) |
|
|
42.02 |
|
Granted |
|
|
280 |
|
|
|
7.82 |
|
|
|
244 |
|
|
|
43.32 |
|
Terminated |
|
|
(6 |
) |
|
|
7.06 |
|
|
|
(1 |
) |
|
|
38.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at
September 30, 2010 |
|
|
768 |
|
|
$ |
6.19 |
|
|
|
416 |
|
|
$ |
41.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator for basic and diluted earnings
per share net income attributable to
common stockholders |
|
$ |
1,124 |
|
|
$ |
19,130 |
|
|
$ |
72,580 |
|
|
$ |
139,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share weighted average shares |
|
|
125,298 |
|
|
|
114,874 |
|
|
|
124,132 |
|
|
|
111,345 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
128 |
|
|
|
11 |
|
|
|
112 |
|
|
|
|
|
Non-vested restricted shares |
|
|
416 |
|
|
|
404 |
|
|
|
416 |
|
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
544 |
|
|
|
415 |
|
|
|
528 |
|
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per
share adjusted weighted average
shares |
|
|
125,842 |
|
|
|
115,289 |
|
|
|
124,660 |
|
|
|
111,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.01 |
|
|
$ |
0.17 |
|
|
$ |
0.58 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.01 |
|
|
$ |
0.17 |
|
|
$ |
0.58 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The diluted earnings per share calculations exclude the dilutive effect of 381,000 stock
options for the three and nine months ended September 30, 2010, as compared to 418,000 and 885,000
for the same periods in 2009, because the exercise prices were less than the average market price.
The outstanding convertible senior unsecured notes were not included in these calculations as the
effect of the conversions into common stock was anti-dilutive for the relevant periods presented.
16. Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value.
Mortgage Loans and Other Real Estate Loans Receivable The fair value of mortgage loans and other
real estate loans receivable is generally estimated by discounting the estimated future cash flows
using the current rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
Cash and Cash Equivalents The carrying amount approximates fair value.
Available-for-sale Equity Investments Available-for-sale equity investments are recorded at
their fair value.
Borrowings Under Unsecured Lines of Credit Arrangements The carrying amount of the unsecured
line of credit arrangement approximates fair value because the borrowings are interest rate
adjustable.
Senior Unsecured Notes The fair value of the senior unsecured notes payable was estimated based
on publicly available trading prices.
Secured Debt The fair value of fixed rate secured debt is estimated by discounting the estimated
future cash flows using the current rates at which similar loans would be made with similar credit
ratings and for the same remaining maturities. The carrying amount of variable rate secured debt
approximates fair value because the borrowings are interest rate adjustable.
Interest Rate Swap Agreements Interest rate swap agreements are recorded as assets or
liabilities on the balance sheet at fair market value. Fair market value is estimated by utilizing
pricing models that consider forward yield curves and discount rates.
The carrying amounts and estimated fair values of our financial instruments are as follows (in
thousands):
19
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans receivable |
|
$ |
78,864 |
|
|
$ |
78,972 |
|
|
$ |
74,517 |
|
|
$ |
74,765 |
|
Other real estate loans receivable |
|
|
337,706 |
|
|
|
347,777 |
|
|
|
352,846 |
|
|
|
354,429 |
|
Available-for-sale equity investments |
|
|
955 |
|
|
|
955 |
|
|
|
1,050 |
|
|
|
1,050 |
|
Cash and cash equivalents |
|
|
181,147 |
|
|
|
181,147 |
|
|
|
35,476 |
|
|
|
35,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under unsecured lines of
credit arrangements |
|
$ |
|
|
|
$ |
|
|
|
$ |
140,000 |
|
|
$ |
140,000 |
|
Senior unsecured notes |
|
|
2,585,961 |
|
|
|
2,885,225 |
|
|
|
1,653,027 |
|
|
|
1,762,129 |
|
Secured debt |
|
|
885,494 |
|
|
|
953,451 |
|
|
|
620,995 |
|
|
|
623,266 |
|
Interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
2,381 |
|
|
|
2,381 |
|
U.S. GAAP provides authoritative guidance for measuring and disclosing fair value
measurements of assets and liabilities. The guidance for financial assets and liabilities was
previously adopted as the standard for those assets and liabilities as of January 1, 2008.
Additional guidance for non-financial assets and liabilities is effective for fiscal years
beginning after November 15, 2008, and was adopted as the standard for those assets and liabilities
as of January 1, 2009. The impact of adoption was not significant. The guidance defines fair
value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. The guidance also establishes a
fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The guidance describes three levels of
inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities. Interest rate swap agreements are valued using models that
assume a hypothetical transaction to sell the asset or transfer the liability in the
principal market for the asset or liability based on market data derived from interest rates
and yield curves observable at commonly quoted intervals, volatilities, prepayment timing,
loss severities, credit risks and default rates.
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The market approach is utilized to measure fair value for our financial assets and liabilities
reported at fair value on a recurring basis. The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable assets or
liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of September 30, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Available-for-sale equity
investments(1) |
|
$ |
955 |
|
|
$ |
955 |
|
|
$ |
|
|
|
$ |
|
|
Assets held for sale(2) |
|
|
3,453 |
|
|
|
|
|
|
|
3,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
4,408 |
|
|
$ |
955 |
|
|
$ |
3,453 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized gains or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date. |
|
(2) |
|
Please see Note 5 for additional information. |
20
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
17. Segment Reporting
We invest in senior housing and health care real estate. We evaluate our business and make
resource allocations on our two business segments senior housing and care and medical
facilities. Our primary senior housing and care properties include skilled nursing facilities,
assisted living facilities, independent living/continuing care retirement communities and
combinations thereof. Under the senior housing and care segment, we invest in senior housing and
health care real estate through acquisition and financing of primarily single tenant properties.
Excluding our Merrill Gardens partnership (please see Note 3 for additional information),
properties acquired are primarily leased under triple-net leases and we are not involved in the
management of the property. Our primary medical facility properties include medical office
buildings, hospitals and life science buildings. Our medical office buildings are typically leased
to multiple tenants and generally require a certain level of property management. Our hospital
investments are structured similar to our senior housing and care investments. Our life science
investments represent investments in an unconsolidated joint venture (see Note 7 for additional
information). The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1 to the financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2009, as updated by our Current Report
on Form 8-K filed May 10, 2010). There are no intersegment sales or transfers. We evaluate
performance based upon net operating income of the combined properties in each segment. Non-segment
revenue consists mainly of interest income on non-real estate investments and other income.
Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate
offices and equipment among others. Non-property specific revenues and expenses are not allocated
to individual segments in determining net operating income.
During the nine months ended September 30, 2010, we changed the names of our segments and
reclassified certain assets and related revenues. All hospitals that were formerly classified as
investment properties have been reclassified to medical facilities. Accordingly, we have
reclassified the following prior period amounts to be consistent with the current year
classification for the three and nine months ended September 30, 2009, respectively: (i) rental
income of $10,884,000 and $34,188,000; (ii) interest income of $1,262,000 and $3,740,000; (iii)
other income of $84,000 and $256,000; and (iv) real estate depreciation/amortization of $3,460,000
and $10,284,000. Additionally, we have restated $111,000 and $298,000 of interest income from
non-segment/corporate revenues to medical facilities to be consistent with the current year
classification.
Summary information for the reportable segments during the three and nine months ended
September 30, 2010 and 2009 is as follows (in thousands and includes amounts from discontinued
operations):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
Net |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
Rental |
|
|
Resident Fees |
|
|
Interest |
|
|
Other |
|
|
Total |
|
|
Operating |
|
|
Operating |
|
|
Depreciation/ |
|
|
Interest |
|
|
Total |
|
|
|
Income |
|
|
and Services |
|
|
Income |
|
|
Income |
|
|
Revenues |
|
|
Expenses |
|
|
Income(1) |
|
|
Amortization |
|
|
Expense |
|
|
Assets |
|
Three Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care |
|
$ |
97,658 |
|
|
$ |
12,809 |
|
|
$ |
9,179 |
|
|
$ |
698 |
|
|
$ |
120,344 |
|
|
$ |
7,993 |
|
|
$ |
112,351 |
|
|
$ |
29,087 |
|
|
$ |
7,507 |
|
|
$ |
4,838,163 |
|
Medical facilities(2) |
|
|
57,071 |
|
|
|
|
|
|
|
875 |
|
|
|
227 |
|
|
|
58,173 |
|
|
|
13,829 |
|
|
|
44,344 |
|
|
|
20,019 |
|
|
|
6,506 |
|
|
|
2,792,882 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
231 |
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
30,972 |
|
|
|
262,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,729 |
|
|
$ |
12,809 |
|
|
$ |
10,054 |
|
|
$ |
1,156 |
|
|
$ |
178,748 |
|
|
$ |
21,822 |
|
|
$ |
156,926 |
|
|
$ |
49,106 |
|
|
$ |
44,985 |
|
|
$ |
7,893,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care |
|
$ |
89,429 |
|
|
$ |
|
|
|
$ |
9,266 |
|
|
$ |
557 |
|
|
$ |
99,252 |
|
|
$ |
|
|
|
$ |
99,252 |
|
|
$ |
24,853 |
|
|
$ |
3,625 |
|
|
|
|
|
Medical facilities |
|
|
45,892 |
|
|
|
|
|
|
|
1,262 |
|
|
|
332 |
|
|
|
47,486 |
|
|
|
12,974 |
|
|
|
34,512 |
|
|
|
16,232 |
|
|
|
5,151 |
|
|
|
|
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 |
|
|
|
200 |
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
20,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
135,321 |
|
|
$ |
|
|
|
$ |
10,528 |
|
|
$ |
1,089 |
|
|
$ |
146,938 |
|
|
$ |
12,974 |
|
|
$ |
133,964 |
|
|
$ |
41,085 |
|
|
$ |
28,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
Net |
|
Real Estate |
|
|
|
|
Rental |
|
Resident Fees |
|
Interest |
|
Other |
|
Total |
|
Operating |
|
Operating |
|
Depreciation/ |
|
Interest |
|
|
Income |
|
and Services |
|
Income |
|
Income |
|
Revenues |
|
Expenses |
|
Income(1) |
|
Amortization |
|
Expense |
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care
|
|
$ |
288,148 |
|
|
$ |
12,809 |
|
|
$ |
26,583 |
|
|
$ |
2,726 |
|
|
$ |
330,266 |
|
|
$ |
7,993 |
|
|
$ |
322,273 |
|
|
$ |
84,040 |
|
|
$ |
17,200 |
|
Medical facilities(2)
|
|
|
162,481 |
|
|
|
|
|
|
|
1,853 |
|
|
|
800 |
|
|
|
165,134 |
|
|
|
40,552 |
|
|
|
124,582 |
|
|
|
56,097 |
|
|
|
18,560 |
|
Non-segment/Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,276 |
|
|
|
1,276 |
|
|
|
|
|
|
|
1,276 |
|
|
|
|
|
|
|
76,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
450,629 |
|
|
$ |
12,809 |
|
|
$ |
28,436 |
|
|
$ |
4,802 |
|
|
$ |
496,676 |
|
|
$ |
48,545 |
|
|
$ |
448,131 |
|
|
$ |
140,137 |
|
|
$ |
112,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care
|
|
$ |
269,521 |
|
|
$ |
|
|
|
$ |
26,899 |
|
|
$ |
1,921 |
|
|
$ |
298,341 |
|
|
$ |
|
|
|
$ |
298,341 |
|
|
$ |
76,132 |
|
|
$ |
8,183 |
|
Medical facilities
|
|
|
135,042 |
|
|
|
|
|
|
|
3,740 |
|
|
|
951 |
|
|
|
139,733 |
|
|
|
37,000 |
|
|
|
102,733 |
|
|
|
47,011 |
|
|
|
15,603 |
|
Non-segment/Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
938 |
|
|
|
938 |
|
|
|
|
|
|
|
938 |
|
|
|
|
|
|
|
60,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
404,563 |
|
|
$ |
|
|
|
$ |
30,639 |
|
|
$ |
3,810 |
|
|
$ |
439,012 |
|
|
$ |
37,000 |
|
|
$ |
402,012 |
|
|
$ |
123,143 |
|
|
$ |
84,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net operating income (NOI) is used to evaluate the operating performance of our properties.
We define NOI as total revenues, including tenant reimbursements, less property level
operating expenses, which exclude depreciation and amortization, general and administrative
expenses, impairments and interest expense. We believe NOI provides investors relevant and
useful information because it measures the operating performance of our properties at the
property level on an unleveraged basis. We use NOI to make decisions about resource
allocations and to assess the property level performance of our properties. |
|
(2) |
|
Excludes income and expense amounts related to our life science buildings held in an
unconsolidated joint venture. Please see Note 7 for additional information. |
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based primarily on the consolidated financial
statements of Health Care REIT, Inc. for the periods presented and should be read together with the
notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are
identified in our Annual Report on Form 10-K for the year ended December 31, 2009, as updated by
our Current Report on Form 8-K filed May 10, 2010, including factors identified under the headings
Business, Risk Factors and Managements Discussion and Analysis of Financial Condition and
Results of Operations.
Executive Summary
Company Overview
Health Care REIT, Inc. is an equity real estate investment trust (REIT) that invests in
senior housing and health care real estate. Founded in 1970, we were the first REIT to invest
exclusively in health care facilities. The following table summarizes our portfolio as of September
30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
Percentage of |
|
|
Number of |
|
|
# Beds/Units |
|
|
Investment per |
|
|
|
|
Type of Property |
|
(in thousands) |
|
|
Investments |
|
|
Properties |
|
|
or Sq. Ft. |
|
|
metric(1) |
|
|
States |
|
Senior housing facilities |
|
$ |
3,326,935 |
|
|
|
44.2 |
% |
|
|
264 |
|
|
23,098 |
units |
|
$ 148,363 |
per unit |
|
|
34 |
|
Skilled nursing facilities |
|
|
1,350,142 |
|
|
|
18.0 |
% |
|
|
197 |
|
|
26,413 |
beds |
|
51,117 |
per bed |
|
|
26 |
|
Hospitals |
|
|
741,008 |
|
|
|
9.9 |
% |
|
|
31 |
|
|
1,857 |
beds |
|
438,893 |
per bed |
|
|
13 |
|
Medical office buildings |
|
|
1,738,779 |
|
|
|
23.2 |
% |
|
|
142 |
|
|
7,585,071 |
sq. ft. |
|
248 |
per sq. ft. |
|
|
25 |
|
Life science buildings(2) |
|
|
349,832 |
|
|
|
4.7 |
% |
|
|
7 |
|
|
|
|
|
|
|
n/a |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
7,506,696 |
|
|
|
100.0 |
% |
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment per metric was computed by using the total investment amount of $7,470,996,000, which includes net real estate investments and unfunded construction commitments for which initial funding has commenced which
amounted to $7,156,864,000 and $314,132,000, respectively. |
|
(2) |
|
Includes our share of unconsolidated joint venture investments. Please see Note 7 to our unaudited financial statements for additional information. |
Health Care Industry
The demand for health care services, and consequently health care properties, is projected to
reach unprecedented levels in the near future. The Centers for Medicare and Medicaid Services
(CMS) projects that national health expenditures will rise to $3.5 trillion in 2015 or 18.2% of
gross domestic product (GDP). The average annual growth in national health expenditures for 2009
through 2019 is expected to be 6.3%, which is 0.2% faster than pre-health care reform estimates.
While demographics are the primary driver of demand, economic conditions and availability of
services contribute to health care service utilization rates. We believe the health care property
market may be less susceptible to fluctuations and economic downturns relative to other property
sectors. Investor interest in the market remains strong, especially in specific sectors such as
medical office buildings, regardless of the current stringent lending environment. As a REIT, we
believe we are situated to benefit from any turbulence in the capital markets due to our access to
capital.
The total U.S. population is projected to increase by 20.4% through 2030. The elderly are an
important component of health care utilization, especially independent living services, assisted
living services, skilled nursing services, inpatient and outpatient hospital services and physician
ambulatory care. The elderly population aged 65 and over is projected to increase by 79.2% through
2030. Most health care services are provided within a health care facility such as a hospital, a
physicians office or a senior housing facility. Therefore, we believe there will be continued
demand for companies, such as ours, with expertise in health care real estate.
The following chart illustrates the projected increase in the elderly population aged 65 and
over:
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Source: U.S. Census Bureau
Health care real estate investment opportunities tend to increase as demand for
health care services increases. We recognize the need for health care real estate as it correlates
to health care service demand. Health care providers require real estate to house their businesses
and expand their services. We believe that investment opportunities in health care real estate
will continue to be present due to:
|
|
|
The specialized nature of the industry, which enhances the credibility and experience of
our company; |
|
|
|
|
The projected population growth combined with stable or increasing health care
utilization rates, which ensures demand; and |
|
|
|
|
The on-going merger and acquisition activity. |
Health Reform Laws
On March 23, 2010, the President signed into law the Patient Protection and Affordable Care
Act (PPACA) and the Health Care and Education Reconciliation Act of 2010, which amends the PPACA
(collectively, the Health Reform Laws). The Health Reform Laws contain various provisions that
may directly impact us or the operators and tenants of our properties. Some provisions of the
Health Reform Laws may have a positive impact on our operators or tenants revenues, by, for
example, increasing coverage of uninsured individuals, while others may have a negative impact on
the reimbursement of our operators or tenants by, for example, altering the market basket
adjustments for certain types of health care facilities. The Health Reform Laws also enhance
certain fraud and abuse penalty provisions that could apply to our operators and tenants, in the
event of one or more violations of the federal health care regulatory laws. In addition, there are
provisions that impact the health coverage that we and our operators and tenants provide to our
respective employees. We cannot predict whether the existing Health Reform Laws, or future health
care reform legislation or regulatory changes, will have a material impact on our operators or
tenants property or business. If the operations, cash flows or financial condition of our
operators and tenants are materially adversely impacted by the Health Reform Laws or future
legislation, our revenue and operations may be adversely affected as well.
Impact to Reimbursement of the Operators and Tenants of Our Properties. The Health Reform
Laws provide for various changes to the reimbursement that our operators and tenants may receive.
One such change is a reduction to the market basket adjustments for inpatient acute hospitals,
long-term care hospitals, inpatient rehabilitation facilities, home health agencies, psychiatric
hospitals, hospice care and outpatient hospitals. Beginning in 2010, the otherwise applicable
percentage increase to the market basket for inpatient acute hospitals will decrease. Beginning in
2012, inpatient acute hospitals will also face a downward adjustment of the annual percentage
increase to the market basket rate by a productivity adjustment. The productivity adjustment may
cause the annual percentage increase to be less than zero, which would mean that inpatient acute
hospitals could face payment rates for a fiscal year that are less than the payment rates for the
preceding year.
A similar productivity adjustment also applies to skilled nursing facilities beginning in
2012, which means that the payment rates for skilled nursing facilities may decrease from one year
to the next. Long-term care hospitals will face a specified percentage decrease in their annual
update for discharges beginning in 2010. Additionally, beginning in 2012, long-term care hospitals
will be subject to the productivity adjustments, which may decrease the federal payment rates for
long-term care hospitals. Similar productivity adjustments and other adjustments to payment rates
will apply to inpatient rehabilitation facilities, psychiatric hospitals and outpatient hospitals
beginning in 2010.
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The Health Reform Laws revise other reimbursement provisions that may affect our business.
For example, the Health Reform Laws mandate a one-year extension of the exceptions for medical
therapy caps, which will be applicable though December 31, 2010. The Health Reform Laws also
reduce states Medicaid disproportionate share hospital (DSH) allotments, starting in 2014
through 2020. These allotments would have provided additional funding for DSH hospitals that are
operators or tenants of our properties, and thus, any reduction might negatively impact these
operators or tenants.
Additionally, beginning in fiscal year 2015, Medicare payments will decrease to hospitals for
treatment associated with hospital acquired conditions. This decreased payment rate may negatively
impact our operators or tenants. The Health Reform Laws also call for reductions in payments for
discharges beginning October 1, 2012, in order to account for excess readmissions. While the exact
amount of the reduction is not yet known, a reduction in payments to our operators or tenants may
affect their ability to make payments to us.
PPACA additionally calls for the creation of the Independent Payment Advisory Board (the
Board), which will be responsible for establishing payment polices, including recommendations in
the event that Medicare costs exceed a certain threshold. Proposals for recommendations submitted
by the Board prior to December 31, 2018 may not include recommendations that would reduce payments
for hospitals, skilled nursing facilities, and physicians, among other providers, prior to December
31, 2019. The Health Reform Laws also create other mechanisms that could permit significant
changes to payment. For example, PPACA establishes the Center for Medicare and Medicaid Innovation
to test innovative payment and service delivery models to reduce program expenditures through the
use of demonstration programs that can waive existing reimbursement methodologies. The Health
Reform Laws also provide additional Medicaid funding to allow states to carry out mandated
expansion of Medicaid coverage to certain financially-eligible individuals beginning in 2014, and
also permits states to expand their Medicaid coverage to these individuals as early as April 1,
2010, if certain conditions are met.
Additionally, the Health Reform Laws delay until at least October 1, 2011, the implementation
of the Resource Utilization Group, Version Four (RUG-IV) that would revise the payment
classification system for skilled nursing facilities. The Health Reform Laws also extend certain
payment rules related to long-term acute care hospitals found in the Medicare, Medicaid, and SCHIP
Extension Act of 2007.
Finally, many other changes resulting from the Health Reform Laws, or implementing regulations
or guidance may negatively impact our operators and tenants. We will continue to monitor and
evaluate the Health Reform Laws and implementing regulations and guidance to determine other
potential effects of the reform.
Impact of Fraud and Abuse Provisions. The Health Reform Laws revise health care fraud and
abuse provisions that will affect our operators and tenants. Specifically, PPACA allows for up to
treble damages under the Federal False Claims Act for violations related to state-based health
insurance exchanges authorized by the Health Reform Laws, which will be implemented beginning in
2014. The Health Reform Laws also impose new civil monetary penalties for false statements or
actions that lead to delayed inspections, with penalties of up to $15,000 per day for failure to
grant timely access and up to $50,000 for a knowing violation. The Health Reform laws also provide
for additional funding to investigate and prosecute health care fraud and abuse. Accordingly, the
increased penalties under PPACA for fraud and abuse violations may have a negative impact on our
operators and tenants in the event that the government brings an enforcement action or subjects
them to penalties.
Further, as recently as September 23, 2010, CMS published a proposed rulemaking to implement
the enhanced provider and supplier screening provisions called for in the Health Reform Laws.
Under the proposed rule, all enrolling and participating providers and suppliers would be assessed
an annual administrative fee and be placed in one of three risk levels (limited, moderate, and
high) based on an assessment of the entitys overall risk of fraud, waste and abuse. The Health
Reform Laws granted the Secretary of the Department of Health and Human Services significant
discretionary authority to suspend, exclude, or impose fines on providers and suppliers based on
the agencys determination that such a provider or supplier is high-risk, and, as a result, this
proposed rulemaking has the potential to materially adversely affect our operators and tenants who,
if implemented, may be evaluated under the enhanced screening process.
Additionally, provisions of Title VI of PPACA are designed to increase transparency and
program integrity by skilled nursing facilities, other nursing facilities and similar providers.
Specifically, skilled nursing facilities and other providers and suppliers will be required to
institute compliance and ethics programs. Additionally, PPACA makes it easier for consumers to
file complaints against nursing homes by mandating that states establish complaint websites. The
provisions calling for enhanced transparency will increase the administrative burden and costs on
these providers.
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Impact to the Health Care Plans Offered to Our Employees. The Health Reform Laws will affect
employers that provide health plans to their employees. The new laws will change the tax treatment
of the Medicare Part D retiree drug subsidy and extend dependent coverage for dependents up to age
26, among other changes. We are evaluating our health care plans in light of these changes. These
changes may affect our operators and tenants as well.
Medicare Program Reimbursement Changes
CMS recently released a number of rulemakings that may potentially increase or decrease the
government reimbursement of our operators and tenants. To the extent that any of these rulemakings
decrease government reimbursement to our operators and tenants, our revenue and operations may be
indirectly, adversely affected.
On August 16, 2010, CMS issued a final rule updating the long-term acute care hospital
prospective payment system for FY 2011. Among other things, the final rule updates payment rates
for acute care and long-term care hospitals and implements certain provisions of the Health Reform
Laws. In the rule, CMS finalized an update of 2.5% for inflation with a cut of 0.5% as required
by the Health Reform Laws and a negative 2.5% documentation and coding adjustment for long-term
care hospitals. CMS also released a notice and comment rulemaking for the prospective payment
system and consolidated billing for skilled nursing facilities for FY 2011 on July 22, 2010. CMS
adjusts the nursing home payment rates for FY 2011 by including a market basket increase factor of
2.3% and a negative 0.6 percentage point forecast error adjustment, which would result in a net
increase update of 1.7% for nursing home rates.
CMS annually adjusts the Medicare Physician Fee Schedule payment rates based on an update
formula that includes application of the Sustainable Growth Rate (SGR). On November 2, 2010, CMS
placed the CY 2011 Physician Fee Schedule final rule on public display for an expected publication
date of November 29, 2010. Among other things, CMS preliminary estimates in the final rule that
the CY 2011 SGR formula will be negative 13.4%. This measure is a significant change from the
figure provided in the proposed rule, and will replace the 21.3% reduction in physician Medicare
reimbursement in 2010 required by the SGR formula. Additionally, in the final rule, CMS has
eliminated certain CPT consultation codes, which could negatively impact the reimbursement levels
received by our operators and tenants.
Finally, on November 2, 2010, CMS placed on public display the CY 2011 Hospital Outpatient
Prospective Payment System (HOPPS) final rule with comment period for an expected publication
date of November 24, 2010. CMS estimates that the
cumulative effect of all changes to payment rates for CY 2011 will have a positive effect,
resulting in a 2.5% estimated increase in Medicare payments to providers paid under the HOPPS.
Economic Outlook
The serious economic recession affecting the national and global economy has continued to
impact all sectors, including to a somewhat lesser degree health care. Continuing mixed economic
signals have made it difficult to predict when there might be a return to more normal and stable
growth rates, employment levels and overall economic performance.
Banks have remained cautious in their lending, but significant liquidity has been injected
into the senior housing and care markets by various Government-Sponsored Enterprises. In addition,
there is significant equity investment capital available for certain health care sectors,
particularly medical office buildings. This has had the effect of keeping capitalization rates in
these segments generally in line with or even below historic rates. Debt costs for REITs have
generally come down over the past 12 months, and equity markets for health care REITs have remained
open for the most part.
As a consequence, while liquidity remains an important consideration in 2010, we have been
more aggressive in pursuing attractive investment opportunities that meet our strategic and
underwriting criteria. We have also been more active in accessing capital markets during this
time. We believe the markets in which we invest will continue to offer stable returns during the
economic downturn and significant growth potential as and when the economy begins to rebound.
Business Strategy
Our primary objectives are to protect stockholder capital and enhance stockholder value. We
seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend
payments to stockholders as a result of annual increases in rental and interest income and
portfolio growth. To meet these objectives, we invest across the full spectrum of senior housing
and health care real estate and diversify our investment portfolio by property type, customer and
geographic location.
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Substantially all of our revenues and sources of cash flows from operations are derived from
operating lease rentals and interest earned on outstanding loans receivable. These items represent
our primary source of liquidity to fund distributions and are dependent upon our obligors
continued ability to make contractual rent and interest payments to us. To the extent that our
obligors experience operating difficulties and are unable to generate sufficient cash to make
payments to us, there could be a material adverse impact on our consolidated results of operations,
liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a
variety of methods determined by the type of property and operator/tenant. Our asset management
process includes review of monthly financial statements for each property, periodic review of
obligor credit, periodic property inspections and review of covenant compliance relating to
licensure, real estate taxes, letters of credit and other collateral. In monitoring our portfolio,
our personnel use a proprietary database to collect and analyze property-specific data.
Additionally, we conduct extensive research to ascertain industry trends and risks. Through these
asset management and research efforts, we are typically able to intervene at an early stage to
address payment risk, and in so doing, support both the collectability of revenue and the value of
our investment.
In addition to our asset management and research efforts, we also structure our investments to
help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties
and/or letters of credit. In addition, operating leases are typically structured as master leases
and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases
or agreements between us and the obligor and its affiliates.
For the nine months ended September 30, 2010, rental income and interest income represented
91% and 6% respectively, of total gross revenues (including revenues from discontinued operations).
Substantially all of our operating leases are designed with either fixed or contingent escalating
rent structures. Leases with fixed annual rental escalators are generally recognized on a
straight-line basis over the initial lease period, subject to a collectability assessment. Rental
income related to leases with contingent rental escalators is generally recorded based on the
contractual cash rental payments due for the period. Our yield on loans receivable depends upon a
number of factors, including the stated interest rate, the average principal amount outstanding
during the term of the loan and any interest rate adjustments.
Depending upon the availability and cost of external capital, we believe our liquidity is
sufficient to fund operations, meet debt service obligations (both principal and interest), make
dividend distributions and complete construction projects in process. We also anticipate
evaluating opportunities to finance future investments. New investments are generally funded from
temporary borrowings under our unsecured line of credit arrangement, internally generated cash and
the proceeds from sales of real property. Our investments generate internal cash from rent and
interest receipts and principal payments on loans receivable. Permanent financing for future
investments, which replaces funds drawn under the unsecured line of credit arrangement, has
historically been provided through a combination of public and private offerings of debt and equity
securities and the incurrence or assumption of secured debt.
Depending upon market conditions, we believe that new investments will be available in the
future with spreads over our cost of capital that will generate appropriate returns to our
stockholders. We expect to complete gross new investments of $2.3 billion to $2.7 billion in 2010,
comprised of acquisitions/joint ventures totaling $2.0 billion to $2.3 billion and funded new
development of $300
million to $400 million. We anticipate the sale of real property and the repayment of loans
receivable totaling approximately $200 million during 2010. It is possible that additional loan
repayments or sales of real property may occur in the future. To the extent that loan repayments
and real property sales exceed new investments, our revenues and cash flows from operations could
be adversely affected. We expect to reinvest the proceeds from any loan repayments and real
property sales in new investments. To the extent that new investment requirements exceed our
available cash on-hand, we expect to borrow under our unsecured line of credit arrangement. At
September 30, 2010, we had $181,147,000 of cash and cash equivalents, $61,224,000 of restricted
cash and $1,150,000,000 of available borrowing capacity under our unsecured line of credit
arrangement.
Key Transactions in 2010
We have completed the following key transactions to date in 2010:
|
|
|
our Board of Directors increased the quarterly cash dividend to $0.69 per common share,
as compared to $0.68 per common share for 2009, beginning in August 2010. The dividend
declared for the quarter ended September 30, 2010 represents the 158th
consecutive quarterly dividend payment; |
|
|
|
|
we completed $1,580,059,000 of gross investments and had $119,442,000 of investment
payoffs during the nine months ended September 30, 2010; |
|
|
|
|
we issued $494,403,000 of 3.00% convertible senior unsecured notes due 2029 and
repurchased $441,326,000 of 4.75% convertible senior unsecured notes due 2026 and 2027 in
March and June 2010; |
|
|
|
|
we issued $450,000,000 of 6.125% senior unsecured notes due 2020 with net proceeds of
$446,328,000 in April and June 2010; |
|
|
|
|
we raised $81,977,000 of HUD mortgage loans at an average rate of 5.10%; |
|
|
|
|
we issued $450,000,000 of 4.70% senior unsecured notes due 2017 with net proceeds of
$445,768,000 in September 2010; |
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
we completed a public offering of 9,200,000 shares of common stock with net proceeds of
approximately $403,921,000 in September 2010; and |
|
|
|
|
we completed our RIDEA partnership with Merrill Gardens LLC in September 2010. |
Key Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the various aspects of our business.
These indicators are discussed below and relate to operating performance, concentration risk and
credit strength. Management uses these key performance indicators to facilitate internal and
external comparisons to our historical operating results, in making operating decisions and for
budget planning purposes.
Operating Performance. We believe that net income attributable to common stockholders (NICS)
is the most appropriate earnings measure. Other useful supplemental measures of our operating
performance include funds from operations (FFO) and net operating income (NOI); however, these
supplemental measures are not defined by U.S. generally accepted accounting principles (U.S.
GAAP). Please refer to the section entitled Non-GAAP Financial Measures for further discussion
and reconciliations of FFO and NOI. These earnings measures and their relative per share amounts
are widely used by investors and analysts in the valuation, comparison and investment
recommendations of companies. The following table reflects the recent historical trends of our
operating performance measures for the periods presented (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Net income attributable to
common stockholders |
|
$ |
61,119 |
|
|
$ |
59,240 |
|
|
$ |
19,130 |
|
|
$ |
31,700 |
|
|
$ |
25,812 |
|
|
$ |
45,646 |
|
|
$ |
1,124 |
|
Funds from operations |
|
|
85,322 |
|
|
|
89,207 |
|
|
|
60,933 |
|
|
|
56,290 |
|
|
|
63,087 |
|
|
|
92,214 |
|
|
|
41,108 |
|
Net operating income(1) |
|
|
134,819 |
|
|
|
133,228 |
|
|
|
133,964 |
|
|
|
145,667 |
|
|
|
143,055 |
|
|
|
157,415 |
|
|
|
164,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (fully diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
0.56 |
|
|
$ |
0.53 |
|
|
$ |
0.17 |
|
|
$ |
0.26 |
|
|
$ |
0.21 |
|
|
$ |
0.37 |
|
|
$ |
0.01 |
|
Funds from operations |
|
|
0.79 |
|
|
|
0.80 |
|
|
|
0.53 |
|
|
|
0.46 |
|
|
|
0.51 |
|
|
|
0.74 |
|
|
|
0.33 |
|
|
|
|
(1) |
|
Includes our share of net operating income from unconsolidated joint ventures. |
Credit Strength. We measure our credit strength both in terms of leverage ratios and
coverage ratios. Our leverage ratios include debt to book capitalization and debt to market
capitalization. The leverage ratios indicate how much of our balance sheet capitalization is
related to long-term debt. The coverage ratios indicate our ability to service interest and fixed
charges (interest, secured debt principal amortization and preferred dividends). We expect to
maintain capitalization ratios and coverage ratios sufficient to maintain
compliance with our debt covenants. The coverage ratios are based on earnings before interest,
taxes, depreciation and amortization (EBITDA) which is discussed in further detail, and
reconciled to net income, below in Non-GAAP Financial Measures. Leverage ratios and coverage
ratios are widely used by investors, analysts and rating agencies in the valuation, comparison,
investment recommendations and rating of companies. The following table reflects the recent
historical trends for our credit strength measures for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Debt to book capitalization ratio |
|
|
43 |
% |
|
|
44 |
% |
|
|
39 |
% |
|
|
39 |
% |
|
|
43 |
% |
|
|
46 |
% |
|
|
45 |
% |
Debt to undepreciated book
capitalization ratio |
|
|
39 |
% |
|
|
40 |
% |
|
|
35 |
% |
|
|
35 |
% |
|
|
39 |
% |
|
|
41 |
% |
|
|
41 |
% |
Debt to market capitalization ratio |
|
|
41 |
% |
|
|
40 |
% |
|
|
31 |
% |
|
|
30 |
% |
|
|
32 |
% |
|
|
36 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
3.88 |
x |
|
|
3.74 |
x |
|
|
2.63 |
x |
|
|
3.21 |
x |
|
|
3.08 |
x |
|
|
3.48 |
x |
|
|
2.25 |
x |
Fixed charge coverage ratio |
|
|
3.18 |
x |
|
|
3.07 |
x |
|
|
2.16 |
x |
|
|
2.57 |
x |
|
|
2.44 |
x |
|
|
2.78 |
x |
|
|
1.86 |
x |
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Concentration Risk. We evaluate our concentration risk in terms of asset mix, investment mix,
customer mix and geographic mix. Concentration risk is a valuable measure in understanding what
portion of our investments could be at risk if certain sectors were to experience downturns. Asset
mix measures the portion of our investments that are real property. In order to qualify as an
equity REIT, at least 75% of our real estate investments must be real property whereby each
property, which includes the land, buildings, improvements, intangibles and related rights, is
owned by us and leased to a tenant pursuant to a long-term operating lease. Investment mix measures
the portion of our investments that relate to our various property types. Customer mix measures the
portion of our investments that relate to our top five customers. Geographic mix measures the
portion of our investments that relate to our top five states. The following table reflects our
recent historical trends of concentration risk for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Asset mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property |
|
|
92 |
% |
|
|
92 |
% |
|
|
92 |
% |
|
|
93 |
% |
|
|
93 |
% |
|
|
93 |
% |
|
|
94 |
% |
Real estate loans receivable |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment mix:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing facilities |
|
|
40 |
% |
|
|
40 |
% |
|
|
40 |
% |
|
|
42 |
% |
|
|
38 |
% |
|
|
39 |
% |
|
|
44 |
% |
Skilled nursing facilities |
|
|
27 |
% |
|
|
26 |
% |
|
|
26 |
% |
|
|
25 |
% |
|
|
22 |
% |
|
|
21 |
% |
|
|
18 |
% |
Hospitals |
|
|
10 |
% |
|
|
10 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
10 |
% |
Medical office buildings |
|
|
23 |
% |
|
|
24 |
% |
|
|
23 |
% |
|
|
23 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
23 |
% |
Life science buildings |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer mix:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill Gardens LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
% |
Senior Living Communities, LLC |
|
|
6 |
% |
|
|
6 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
Aurora Health Care, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
Brookdale Senior Living Inc |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
Signature Healthcare LLC |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
Emeritus Corporation |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
|
Life Care Centers of America, Inc. |
|
|
5 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Remaining customers |
|
|
75 |
% |
|
|
76 |
% |
|
|
76 |
% |
|
|
76 |
% |
|
|
74 |
% |
|
|
76 |
% |
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic mix:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
11 |
% |
Florida |
|
|
14 |
% |
|
|
13 |
% |
|
|
13 |
% |
|
|
12 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
|
10 |
% |
Texas |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
9 |
% |
Massachusetts |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
9 |
% |
Washington |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
% |
Wisconsin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
% |
|
|
7 |
% |
|
|
|
|
Ohio |
|
|
|
|
|
|
|
|
|
|
5 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee |
|
|
5 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining states |
|
|
55 |
% |
|
|
56 |
% |
|
|
56 |
% |
|
|
55 |
% |
|
|
51 |
% |
|
|
52 |
% |
|
|
54 |
% |
|
|
|
(1) |
|
Includes our share of unconsolidated joint venture investments. |
We evaluate our key performance indicators in conjunction with current expectations
to determine if historical trends are indicative of future results. Our expected results may not be
achieved and actual results may differ materially from our expectations. Factors that may cause
actual results to differ from expected results are described in more detail in Forward-Looking
Statements and Risk Factors and other sections of this Quarterly Report on Form 10-Q. Management
regularly monitors economic and other factors to develop strategic and tactical plans designed to
improve performance and maximize our competitive position. Our ability to achieve our financial
objectives is dependent upon our ability to effectively execute these plans and to appropriately
respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form
10-K for the year ended December 31, 2009, as updated by our Current Report on Form 8-K filed May
10, 2010, under the headings Business, Risk Factors and Managements Discussion and Analysis
of Financial Condition and Results of Operations for further discussion of these risk factors.
28
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Portfolio Update
Net operating income. The primary performance measure for our properties is net operating
income (NOI) as discussed below in Non-GAAP Financial Measures. The following table summarizes
our net operating income for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care |
|
$ |
98,950 |
|
|
$ |
100,137 |
|
|
$ |
99,252 |
|
|
$ |
101,024 |
|
|
$ |
102,307 |
|
|
$ |
107,620 |
|
|
$ |
112,351 |
|
Medical facilities(1) |
|
|
35,493 |
|
|
|
32,728 |
|
|
|
34,512 |
|
|
|
44,411 |
|
|
|
40,517 |
|
|
|
48,983 |
|
|
|
51,710 |
|
Non-segment/corporate |
|
|
376 |
|
|
|
363 |
|
|
|
200 |
|
|
|
232 |
|
|
|
231 |
|
|
|
812 |
|
|
|
231 |
|
|
|
|
Net operating income |
|
$ |
134,819 |
|
|
$ |
133,228 |
|
|
$ |
133,964 |
|
|
$ |
145,667 |
|
|
$ |
143,055 |
|
|
$ |
157,415 |
|
|
$ |
164,292 |
|
|
|
|
|
|
|
(1) |
|
Includes our share of net operating income from unconsolidated joint ventures. |
Payment coverage. Payment coverage of our operators continues to remain strong. Our
overall payment coverage is at 2.11 times. The table below reflects our recent historical trends of
portfolio coverage. Coverage data reflects the 12 months ended for the periods presented. CBMF
represents the ratio of our customers earnings before interest, taxes, depreciation, amortization,
rent and management fees to contractual rent or interest due us. CAMF represents the ratio of our
customers earnings before interest, taxes, depreciation, amortization and rent (but after imputed
management fees) to contractual rent or interest due us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
June 30, 2009 |
|
June 30, 2010 |
|
|
CBMF |
|
CAMF |
|
CBMF |
|
CAMF |
|
CBMF |
|
CAMF |
Senior housing facilities |
|
|
1.51x |
|
|
|
1.29x |
|
|
|
1.51x |
|
|
|
1.30x |
|
|
|
1.54x |
|
|
|
1.31x |
|
Skilled nursing facilities |
|
|
2.29x |
|
|
|
1.68x |
|
|
|
2.24x |
|
|
|
1.64x |
|
|
|
2.37x |
|
|
|
1.75x |
|
Hospitals |
|
|
2.39x |
|
|
|
1.86x |
|
|
|
2.37x |
|
|
|
2.05x |
|
|
|
2.65x |
|
|
|
2.32x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted averages |
|
|
1.99x |
|
|
|
1.54x |
|
|
|
1.98x |
|
|
|
1.55x |
|
|
|
2.11x |
|
|
|
1.66x |
|
Corporate Governance
Maintaining investor confidence and trust has become increasingly important in todays
business environment. Our Board of Directors and management are strongly committed to policies and
procedures that reflect the highest level of ethical business practices. Our corporate governance
guidelines provide the framework for our business operations and emphasize our commitment to
increase stockholder value while meeting all applicable legal requirements. These guidelines meet
the listing standards adopted by the New York Stock Exchange and are available on our website at
www.hcreit.com and from us upon written request sent to the Senior Vice President Administration
and Corporate Secretary, Health Care REIT, Inc., 4500 Dorr Street, Toledo, Ohio 43615-4040.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of cash include rent and interest receipts, borrowings under the unsecured
line of credit arrangement, public and private offerings of debt and equity securities, proceeds
from the sales of real property and principal payments on loans receivable. Our primary uses of
cash include dividend distributions, debt service payments (including principal and interest), real
property investments (including construction advances), loan advances and general and
administrative expenses. These sources and uses of cash are reflected in our Consolidated
Statements of Cash Flows and are discussed in further detail below.
29
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following is a summary of our sources and uses of cash flows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Change |
|
|
September 30, 2010 |
|
September 30, 2009 |
|
$ |
|
|
% |
|
Cash and cash equivalents at beginning of period |
|
$ |
35,476 |
|
|
$ |
23,370 |
|
|
$ |
12,106 |
|
|
|
52 |
% |
Cash provided from operating activities |
|
|
291,004 |
|
|
|
290,449 |
|
|
|
555 |
|
|
|
0 |
% |
Cash used in investing activities |
|
|
(1,002,650 |
) |
|
|
(189,119 |
) |
|
|
(813,531 |
) |
|
|
430 |
% |
Cash provided from (used in) financing activities |
|
|
857,317 |
|
|
|
(22,347 |
) |
|
|
879,664 |
|
|
|
n/a |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
181,147 |
|
|
$ |
102,353 |
|
|
$ |
78,794 |
|
|
|
77 |
% |
|
|
|
|
|
Operating Activities. The change in net cash provided from operating activities is
primarily attributable to an increase in net income, excluding gains/losses on sales of properties,
depreciation and amortization and debt extinguishment charges. These items are discussed below in
Results of Operations. The following is a summary of our straight-line rent and above/below
market lease amortization (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
$ |
|
|
% |
|
Gross straight-line rental income |
|
$ |
12,414 |
|
|
$ |
14,499 |
|
|
$ |
(2,085 |
) |
|
|
-14 |
% |
Cash receipts due to real property sales |
|
|
(752 |
) |
|
|
(3,452 |
) |
|
|
2,700 |
|
|
|
-78 |
% |
Prepaid rent receipts |
|
|
(5,462 |
) |
|
|
(20,011 |
) |
|
|
14,549 |
|
|
|
-73 |
% |
Amortization related to below (above) market leases, net |
|
|
2,112 |
|
|
|
1,344 |
|
|
|
768 |
|
|
|
57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,312 |
|
|
$ |
(7,620 |
) |
|
$ |
15,932 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross straight-line rental income represents the non-cash difference between contractual
cash rent due and the average rent recognized pursuant to U.S. GAAP for leases with fixed rental
escalators, net of collectability reserves. This amount is positive in the first half of a lease
term (but declining every year due to annual increases in cash rent due) and is negative in the
second half of a lease term. The fluctuation in cash receipts due to real property sales is
attributable to the lack of straight-line rent receivable balances on properties sold during the
current year. The fluctuation in prepaid rent receipts is primarily due to changes in prepaid rent
received at certain construction projects.
Investing Activities. The changes in net cash used in investing activities are primarily
attributable to net changes in real property and real estate loans receivable. The following is a
summary of our investment and disposition activities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
Senior Housing |
|
|
Medical |
|
|
|
|
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
|
and Care |
|
|
Facilities |
|
|
Totals |
|
Advances on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in new loans |
|
$ |
9,742 |
|
|
$ |
15,799 |
|
|
$ |
25,541 |
|
|
$ |
3,316 |
|
|
$ |
|
|
|
$ |
3,316 |
|
Draws on existing loans |
|
|
28,413 |
|
|
|
15 |
|
|
|
28,428 |
|
|
|
42,226 |
|
|
|
1,340 |
|
|
|
43,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
38,155 |
|
|
|
15,814 |
|
|
|
53,969 |
|
|
|
45,542 |
|
|
|
1,340 |
|
|
|
46,882 |
|
Less: Seller financing on property sales |
|
|
|
|
|
|
(1,470 |
) |
|
|
(1,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash advances on real estate loans |
|
|
38,155 |
|
|
|
14,344 |
|
|
|
52,499 |
|
|
|
45,542 |
|
|
|
1,340 |
|
|
|
46,882 |
|
Receipts on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payoffs |
|
|
3,809 |
|
|
|
|
|
|
|
3,809 |
|
|
|
20,440 |
|
|
|
|
|
|
|
20,440 |
|
Principal payments on loans |
|
|
11,682 |
|
|
|
3,328 |
|
|
|
15,010 |
|
|
|
12,838 |
|
|
|
1,614 |
|
|
|
14,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receipts on real estate loans |
|
|
15,491 |
|
|
|
3,328 |
|
|
|
18,819 |
|
|
|
33,278 |
|
|
|
1,614 |
|
|
|
34,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net advances (receipts) on real estate loans |
|
$ |
22,664 |
|
|
$ |
11,016 |
|
|
$ |
33,680 |
|
|
$ |
12,264 |
|
|
$ |
(274 |
) |
|
$ |
11,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Properties |
|
|
Amount |
|
|
Properties |
|
|
Amount |
|
Real property acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing operating |
|
|
25 |
|
|
$ |
576,000 |
|
|
|
|
|
|
$ |
|
|
Senior housing triple net |
|
|
15 |
|
|
|
219,772 |
|
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
19 |
|
|
|
246,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisitions |
|
|
59 |
|
|
|
1,042,354 |
|
|
|
|
|
|
|
|
|
Less: Assumed debt |
|
|
|
|
|
|
(353,165 |
) |
|
|
|
|
|
|
|
|
Assumed other items, net |
|
|
|
|
|
|
(149,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for acquisitions |
|
|
|
|
|
|
539,240 |
|
|
|
|
|
|
|
|
|
Construction in progress additions |
|
|
|
|
|
|
223,464 |
|
|
|
|
|
|
|
396,581 |
|
Capital improvements to existing properties |
|
|
|
|
|
|
40,660 |
|
|
|
|
|
|
|
20,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash invested in real property |
|
|
|
|
|
|
803,364 |
|
|
|
|
|
|
|
417,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing triple net |
|
|
1 |
|
|
|
3,437 |
|
|
|
10 |
|
|
|
44,877 |
|
Skilled nursing facilities |
|
|
12 |
|
|
|
104,628 |
|
|
|
3 |
|
|
|
18,854 |
|
Hospitals |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
40,841 |
|
Medical office buildings |
|
|
3 |
|
|
|
7,568 |
|
|
|
10 |
|
|
|
28,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
|
16 |
|
|
|
115,633 |
|
|
|
25 |
|
|
|
132,700 |
|
Less: Gains (losses) on sales of real property |
|
|
|
|
|
|
20,559 |
|
|
|
|
|
|
|
26,907 |
|
Seller financing on sales of real property |
|
|
|
|
|
|
(1,470 |
) |
|
|
|
|
|
|
(6,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from real property sales |
|
|
|
|
|
|
134,722 |
|
|
|
|
|
|
|
153,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash investments in real property |
|
|
43 |
|
|
$ |
668,642 |
|
|
|
(25 |
) |
|
$ |
263,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contributions to unconsolidated joint ventures represent $174,692,000 of cash
invested by us in the joint venture with Forest City Enterprises. Please see Note 7 to our
unaudited financial statements for additional information.
Financing Activities. The changes in net cash provided from or used in financing activities
are primarily attributable to changes related to our long-term debt arrangements, proceeds from the
issuance of common stock and dividend payments.
For the nine months ended September 30, 2010, we had a net decrease of $140,000,000 on our
unsecured line of credit arrangement as compared to a net decrease of $427,000,000 for the same
period in 2009. The changes in our senior unsecured notes are due to (i) the issuance of
$494,403,000 of convertible senior unsecured notes in March and June 2010; (ii) the repurchase of
$441,326,000 of convertible senior unsecured notes in March and June 2010; (iii) the issuance of
$450,000,000 of senior unsecured notes in April and June 2010; (iv) the issuance of $450,000,000 of
senior unsecured notes in September 2010; and (v) the extinguishment of $183,147,000 of various
senior unsecured notes in March and September 2009. The changes in our secured debt are due to (i)
the extinguishment of $159,475,000 of secured debt in September 2010; and (ii) the extinguishment
of $79,743,000 of secured debt in September 2009.
We may repurchase, redeem or refinance convertible and non-convertible senior unsecured notes
from time to time, taking advantage of favorable market conditions when available. We may purchase
senior notes for cash through open market purchases, privately negotiated transactions, a tender
offer or, in some cases, through the early redemption of such securities pursuant to their terms.
The non-convertible senior unsecured notes are redeemable at our option, at any time in whole or
from time to time in part, at a redemption price equal to the sum of (1) the principal amount of
the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to
the redemption date and (2) any make-whole amount due under the terms of the notes in connection
with early redemptions. We cannot redeem the March and June 2010 convertible senior unsecured
notes prior to December 1, 2014 unless such redemption is necessary to preserve our status as a
REIT. However, on or after December 1, 2014, we may from time to time at our option redeem those
notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount
of the notes we redeem, plus any accrued and unpaid interest to, but excluding, the redemption
date. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions,
our liquidity requirements, contractual restrictions and other factors.
31
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following is a summary of our common stock issuances for the nine months ended September 30,
2010 and 2009 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued |
|
|
Average Price |
|
|
Gross Proceeds |
|
|
Net Proceeds |
|
February 2009 public issuance |
|
|
5,816,870 |
|
|
$ |
36.85 |
|
|
$ |
214,352 |
|
|
$ |
210,880 |
|
September 2009 public issuance |
|
|
9,200,000 |
|
|
|
40.40 |
|
|
|
371,680 |
|
|
|
356,691 |
|
2009 Equity shelf plan issuances |
|
|
1,952,600 |
|
|
|
40.69 |
|
|
|
79,447 |
|
|
|
77,692 |
|
2009 Dividend reinvestment plan
issuances |
|
|
1,099,340 |
|
|
|
35.05 |
|
|
|
38,528 |
|
|
|
38,528 |
|
2009 Option exercises |
|
|
3,434 |
|
|
|
26.67 |
|
|
|
92 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Totals |
|
|
18,072,244 |
|
|
|
|
|
|
$ |
704,099 |
|
|
$ |
683,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2010 public issuance |
|
|
9,200,000 |
|
|
$ |
45.75 |
|
|
$ |
420,900 |
|
|
$ |
403,921 |
|
2010 Equity shelf plan issuances |
|
|
431,082 |
|
|
|
44.94 |
|
|
|
19,371 |
|
|
|
19,014 |
|
2010 Dividend reinvestment plan
issuances |
|
|
1,441,612 |
|
|
|
42.83 |
|
|
|
61,737 |
|
|
|
61,737 |
|
2010 Option exercises |
|
|
56,947 |
|
|
|
33.24 |
|
|
|
1,893 |
|
|
|
1,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Totals |
|
|
11,129,641 |
|
|
|
|
|
|
$ |
503,901 |
|
|
$ |
486,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In order to qualify as a REIT for federal income tax purposes, we must distribute at
least 90% of our taxable income (including 100% of capital gains) to our stockholders. The increase
in dividends is primarily attributable to an increase in our common shares outstanding. The
following is a summary of our dividend payments (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
Common Stock |
|
$ |
2.0500 |
|
|
$ |
255,217 |
|
|
$ |
2.0400 |
|
|
$ |
227,959 |
|
Series D Preferred Stock |
|
|
1.4766 |
|
|
|
5,906 |
|
|
|
1.4766 |
|
|
|
5,906 |
|
Series E Preferred Stock |
|
|
1.1250 |
|
|
|
94 |
|
|
|
1.1250 |
|
|
|
84 |
|
Series F Preferred Stock |
|
|
1.4297 |
|
|
|
10,008 |
|
|
|
1.4297 |
|
|
|
10,008 |
|
Series G Preferred Stock |
|
|
1.4064 |
|
|
|
332 |
|
|
|
1.4064 |
|
|
|
560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
|
$ |
271,557 |
|
|
|
|
|
|
$ |
244,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
During the three months ended March 31, 2010, we entered into a joint venture investment with
Forest City Enterprises (NYSE:FCE.A and FCE.B). In connection with this transaction, we invested
$174,692,000 of cash which is recorded as an equity investment on the balance sheet. Our share of
the non-recourse secured debt assumed by the joint venture was approximately $156,729,000 with
weighted-average interest rates of 7.1%. Please see Note 7 to our unaudited consolidated financial
statements for additional information.
We are exposed to various market risks, including the potential loss arising from adverse
changes in interest rates. We may or may not elect to use financial derivative instruments to hedge
interest rate exposure. These decisions are principally based on the general trend in interest
rates at the applicable dates, our perception of the future volatility of interest rates and our
relative levels of variable rate debt and variable rate investments. Please see Note 11 to our
unaudited consolidated financial statements for additional information.
At September 30, 2010, we had four outstanding letter of credit obligations totaling
$5,329,057 and expiring between 2010 and 2013. Please see Note 12 to our unaudited consolidated
financial statements for additional information.
Contractual Obligations
The following table summarizes our payment requirements under contractual obligations as of
September 30, 2010 (in thousands):
32
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
Contractual Obligations |
|
Total |
|
|
2010 |
|
|
2011-2012 |
|
|
2013-2014 |
|
|
Thereafter |
|
Unsecured line of credit arrangement |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Senior unsecured notes(1) |
|
|
2,614,930 |
|
|
|
|
|
|
|
76,853 |
|
|
|
300,000 |
|
|
|
2,238,077 |
|
Secured debt(1) |
|
|
897,265 |
|
|
|
4,927 |
|
|
|
127,151 |
|
|
|
219,394 |
|
|
|
545,793 |
|
Contractual interest obligations |
|
|
1,548,381 |
|
|
|
63,064 |
|
|
|
362,304 |
|
|
|
315,574 |
|
|
|
807,439 |
|
Capital lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
209,719 |
|
|
|
1,250 |
|
|
|
10,034 |
|
|
|
9,539 |
|
|
|
188,896 |
|
Purchase obligations |
|
|
321,197 |
|
|
|
4,364 |
|
|
|
316,833 |
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
4,946 |
|
|
|
75 |
|
|
|
1,065 |
|
|
|
1,903 |
|
|
|
1,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
5,596,438 |
|
|
$ |
73,680 |
|
|
$ |
894,240 |
|
|
$ |
846,410 |
|
|
$ |
3,782,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value
adjustments as reflected on the balance sheet. |
At September 30, 2010, we had an unsecured line of credit arrangement with a
consortium of sixteen banks in the amount of $1.15 billion, which is scheduled to expire on August
5, 2011. Borrowings under the agreement are subject to interest payable in periods no longer than
three months at either the agent banks prime rate of interest or the applicable margin over LIBOR
interest rate, at our option (0.86% at September 30, 2010). The applicable margin is based on
certain of our debt ratings and was 0.6% at September 30, 2010. In addition, we pay a facility fee
annually to each bank based on the banks commitment amount. The facility fee depends on certain of
our debt ratings and was 0.15% at September 30, 2010. We also pay an annual agents fee of $50,000.
Principal is due upon expiration of the agreement.
We have $2,614,930,000 of senior unsecured notes principal outstanding with fixed annual
interest rates ranging from 3.00% to 8.00%, payable semi-annually. Total contractual interest
obligations on senior unsecured notes totaled $1,207,621,000 at September 30, 2010. A total of
$788,077,000 of our senior unsecured notes are convertible notes that also contain put features.
Please see Note 10 to our unaudited consolidated financial statements for additional information.
Additionally, we have secured debt with total outstanding principal of $897,265,000,
collateralized by owned properties, with fixed annual interest rates ranging from 3.86% to 8.74%,
payable monthly. The carrying values of the properties securing the debt totaled $1,399,126,000 at
September 30, 2010. Total contractual interest obligations on secured debt totaled $340,760,000 at
September 30, 2010.
At September 30, 2010, we had operating lease obligations of $209,719,000 relating primarily
to ground leases at certain of our properties and office space leases.
Purchase obligations are comprised of unfunded construction commitments and contingent
purchase obligations. At September 30, 2010, we had outstanding construction financings of
$286,366,000 for leased properties and were committed to providing additional financing of
approximately $314,132,000 to complete construction. At September 30, 2010, we had contingent
purchase obligations totaling $7,065,000. These contingent purchase obligations relate to unfunded
capital improvement obligations. Upon funding, amounts due from the tenant are increased to reflect
the additional investment in the property.
Other long-term liabilities relate to our Supplemental Executive Retirement Plan (SERP) and
certain non-compete agreements. We have a SERP, a non-qualified defined benefit pension plan, which
provides certain executive officers with supplemental deferred retirement benefits. The SERP
provides an opportunity for participants to receive retirement benefits that cannot be paid under
our tax-qualified plans because of the restrictions imposed by ERISA and the Internal Revenue Code
of 1986, as amended. Benefits are based on compensation and length of service and the SERP is
unfunded. No contributions by the company are anticipated for the 2010 fiscal year. Benefit
payments are expected to total $4,758,000 during the next five fiscal years and no benefit payments
are expected to occur during the succeeding five fiscal years. We use a December 31 measurement
date for the SERP. The accrued liability on our balance sheet for the SERP was $3,722,000 and
$3,287,000 at September 30, 2010 and December 31, 2009, respectively.
In connection with the Windrose merger, we entered into consulting agreements with Fred S.
Klipsch and Frederick L. Farrar, which expired in December 2008. We entered into a new consulting
agreement with Mr. Farrar in December 2008, which expired in December 2009. Each consultant has
agreed not to compete with us for a period of two years following the expiration of the agreement.
In exchange for complying with the covenant not to compete, Messers. Klipsch and Farrar receive
eight quarterly payments of $75,000 and $37,500, respectively, with the first payment to be made on
the date of expiration of the agreement. The first payment to Mr. Klipsch was made in December 2008
and the final payment in September 2010. The first payment to
Mr. Farrar was made in January 2010.
33
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Capital Structure
As of September 30, 2010, we had total equity of $4,220,083,000 and a total outstanding debt
balance of $3,471,455,000, which represents a debt to total book capitalization ratio of 45%. Our
ratio of debt to market capitalization was 34% at September 30, 2010. For the three months ended
September 30, 2010, our interest coverage ratio was 2.25x and our fixed charge coverage ratio was
1.86x. Also, at September 30, 2010, we had $181,147,000 of cash and cash equivalents, $61,224,000
of restricted cash and $1,150,000,000 of available borrowing capacity under our unsecured line of
credit arrangement.
Our debt agreements contain various covenants, restrictions and events of default. Certain
agreements require us to maintain certain financial ratios and minimum net worth and impose certain
limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As
of September 30, 2010, we were in compliance with all of the covenants under our debt agreements.
Please refer to the section entitled Non-GAAP Financial Measures for further discussion. None of
our debt agreements contain provisions for acceleration which could be triggered by our debt
ratings. However, under our unsecured line of credit arrangement, the ratings on our senior
unsecured notes are used to determine the fees and interest charged.
We plan to manage the company to maintain compliance with our debt covenants and with a
capital structure consistent with our current profile. Any downgrades in terms of ratings or
outlook by any or all of the rating agencies could have a material adverse impact on our cost and
availability of capital, which could in turn have a material adverse impact on our consolidated
results of operations, liquidity and/or financial condition.
On May 7, 2009, we filed an open-ended automatic or universal shelf registration statement
with the Securities and Exchange Commission covering an indeterminate amount of future offerings of
debt securities, common stock, preferred stock, depositary shares, warrants and units. As of
October 31, 2010, we had an effective registration statement on file in connection with our
enhanced dividend reinvestment plan under which we may issue up to 10,000,000 shares of common
stock. As of October 31, 2010, 8,915,091 shares of common stock remained available for issuance
under this registration statement. In November 2008, we entered into an Equity Distribution
Agreement with UBS Securities LLC relating to the offer and sale from time to time of up to
$250,000,000 aggregate amount of our common stock (Equity Shelf Program). As of October 31, 2010,
we had $119,985,000 of remaining capacity under the Equity Shelf Program. Depending upon market
conditions, we anticipate issuing securities under our registration statements to invest in
additional properties and to repay borrowings under our unsecured line of credit arrangement.
Results of Operations
Our primary sources of revenue include rent and interest. Our primary expenses include
interest expense, depreciation and amortization, property operating expenses and general and
administrative expenses. These revenues and expenses are reflected in our Consolidated Statements
of Income and are discussed in further detail below. The following is a summary of our results of
operations (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
Amount |
|
% |
|
2010 |
|
2009 |
|
Amount |
|
% |
Net income attributable to
common stockholders |
|
$ |
1,124 |
|
|
$ |
19,130 |
|
|
$ |
(18,006 |
) |
|
|
-94 |
% |
|
$ |
72,580 |
|
|
$ |
139,489 |
|
|
$ |
(66,909 |
) |
|
|
-48 |
% |
Funds from operations |
|
|
41,108 |
|
|
|
60,933 |
|
|
|
(19,825 |
) |
|
|
-33 |
% |
|
|
196,405 |
|
|
|
235,463 |
|
|
|
(39,058 |
) |
|
|
-17 |
% |
EBITDA |
|
|
99,924 |
|
|
|
94,548 |
|
|
|
5,376 |
|
|
|
6 |
% |
|
|
341,519 |
|
|
|
363,425 |
|
|
|
(21,906 |
) |
|
|
-6 |
% |
Net operating income |
|
|
164,292 |
|
|
|
133,964 |
|
|
|
30,328 |
|
|
|
23 |
% |
|
|
464,760 |
|
|
|
402,012 |
|
|
|
62,748 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (fully diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
0.01 |
|
|
$ |
0.17 |
|
|
$ |
(0.16 |
) |
|
|
-94 |
% |
|
$ |
0.58 |
|
|
$ |
1.25 |
|
|
$ |
(0.67 |
) |
|
|
-54 |
% |
Funds from operations |
|
|
0.33 |
|
|
|
0.53 |
|
|
|
(0.20 |
) |
|
|
-38 |
% |
|
|
1.58 |
|
|
|
2.11 |
|
|
|
(0.53 |
) |
|
|
-25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
2.25x |
|
|
|
2.63x |
|
|
|
-0.38x |
|
|
|
-14 |
% |
|
|
2.90x |
|
|
|
3.41x |
|
|
|
-0.51x |
|
|
|
-15 |
% |
Fixed charge coverage ratio |
|
|
1.86x |
|
|
|
2.16x |
|
|
|
-0.30x |
|
|
|
-14 |
% |
|
|
2.34x |
|
|
|
2.80x |
|
|
|
-0.46x |
|
|
|
-16 |
% |
34
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
We evaluate our business and make resource allocations on our two business segments senior
housing and care properties and medical facilities. Please see Note 17 to our unaudited
consolidated financial statements for additional information.
Senior Housing and Care Properties
The following is a summary of our results of operations for the senior housing and care
properties segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
95,357 |
|
|
$ |
84,391 |
|
|
$ |
10,966 |
|
|
|
13 |
% |
|
$ |
280,345 |
|
|
$ |
251,016 |
|
|
$ |
29,329 |
|
|
|
12 |
% |
Resident fees and services |
|
|
12,809 |
|
|
|
|
|
|
|
12,809 |
|
|
|
n/a |
|
|
|
12,809 |
|
|
|
|
|
|
|
12,809 |
|
|
|
n/a |
|
Interest income |
|
|
9,179 |
|
|
|
9,266 |
|
|
|
(87 |
) |
|
|
-1 |
% |
|
|
26,583 |
|
|
|
26,899 |
|
|
|
(316 |
) |
|
|
-1 |
% |
Other income |
|
|
698 |
|
|
|
557 |
|
|
|
141 |
|
|
|
25 |
% |
|
|
2,726 |
|
|
|
1,921 |
|
|
|
805 |
|
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,043 |
|
|
|
94,214 |
|
|
|
23,829 |
|
|
|
25 |
% |
|
|
322,463 |
|
|
|
279,836 |
|
|
|
42,627 |
|
|
|
15 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
6,979 |
|
|
|
2,755 |
|
|
|
4,224 |
|
|
|
153 |
% |
|
|
15,535 |
|
|
|
4,687 |
|
|
|
10,848 |
|
|
|
231 |
% |
Property operating expenses |
|
|
7,993 |
|
|
|
|
|
|
|
7,993 |
|
|
|
n/a |
|
|
|
7,993 |
|
|
|
|
|
|
|
7,993 |
|
|
|
n/a |
|
Depreciation and amortization |
|
|
28,546 |
|
|
|
23,593 |
|
|
|
4,953 |
|
|
|
21 |
% |
|
|
82,224 |
|
|
|
69,730 |
|
|
|
12,494 |
|
|
|
18 |
% |
Transaction costs |
|
|
18,820 |
|
|
|
|
|
|
|
18,820 |
|
|
|
n/a |
|
|
|
24,483 |
|
|
|
|
|
|
|
24,483 |
|
|
|
n/a |
|
Loss on extinguishment of debt |
|
|
7,791 |
|
|
|
2,057 |
|
|
|
5,734 |
|
|
|
279 |
% |
|
|
7,791 |
|
|
|
2,057 |
|
|
|
5,734 |
|
|
|
279 |
% |
Provision for loan losses |
|
|
28,918 |
|
|
|
|
|
|
|
28,918 |
|
|
|
n/a |
|
|
|
28,918 |
|
|
|
140 |
|
|
|
28,778 |
|
|
|
20556 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,047 |
|
|
|
28,405 |
|
|
|
70,642 |
|
|
|
249 |
% |
|
|
166,944 |
|
|
|
76,614 |
|
|
|
90,330 |
|
|
|
118 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
18,996 |
|
|
|
65,809 |
|
|
|
(46,813 |
) |
|
|
-71 |
% |
|
|
155,519 |
|
|
|
203,222 |
|
|
|
(47,703 |
) |
|
|
-23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
18,996 |
|
|
|
65,809 |
|
|
|
(46,813 |
) |
|
|
-71 |
% |
|
|
155,519 |
|
|
|
203,222 |
|
|
|
(47,703 |
) |
|
|
-23 |
% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales
of properties |
|
|
10,526 |
|
|
|
|
|
|
|
10,526 |
|
|
|
n/a |
|
|
|
18,894 |
|
|
|
13,358 |
|
|
|
5,536 |
|
|
|
41 |
% |
Income from
discontinued
operations, net |
|
|
1,232 |
|
|
|
2,908 |
|
|
|
(1,676 |
) |
|
|
-58 |
% |
|
|
4,322 |
|
|
|
8,607 |
|
|
|
(4,285 |
) |
|
|
-50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
11,758 |
|
|
|
2,908 |
|
|
|
8,850 |
|
|
|
304 |
% |
|
|
23,216 |
|
|
|
21,965 |
|
|
|
1,251 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
30,754 |
|
|
|
68,717 |
|
|
|
(37,963 |
) |
|
|
-55 |
% |
|
|
178,735 |
|
|
|
225,187 |
|
|
|
(46,452 |
) |
|
|
-21 |
% |
Less: Net income attributable to
noncontrolling interests |
|
|
567 |
|
|
|
|
|
|
|
567 |
|
|
|
n/a |
|
|
|
567 |
|
|
|
|
|
|
|
567 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
30,187 |
|
|
$ |
68,717 |
|
|
$ |
(38,530 |
) |
|
|
-56 |
% |
|
$ |
178,168 |
|
|
$ |
225,187 |
|
|
$ |
(47,019 |
) |
|
|
-21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in rental income is primarily attributable to the conversion of newly
constructed senior housing and care properties subsequent to September 30, 2009 from which we
receive rent. Certain of our leases contain annual rental escalators that are contingent upon
changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenants
properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental
income is recorded based on the contractual cash rental payments due for the period. If gross
operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of
our revenues may not continue to increase. Sales of real property would offset revenue increases
and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our
leases could renew above or below current rent rates, resulting in an increase or decrease in
rental income.
As discussed in Note 3 to our unaudited consolidated financial statements, we completed our
partnership with Merrill Gardens LLC in September 2010. The results of operations for this
partnership have been included in our consolidated results of operations from the date of
acquisition and represent the sole component of resident fees and services, property operating
expenses and net income attributable to noncontrolling interests for this segment.
35
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Interest expense for the three and nine months ended September 30, 2010 represents $7,507,000
and $17,200,000, respectively, of secured debt interest expense offset by interest allocated to
discontinued operations. Interest expense for the three and nine months ended September 30, 2009
represents $3,625,000 and $8,183,000, respectively, of secured debt interest expense offset by
interest allocated to discontinued operations. The change in secured debt interest expense is due
to the net effect and timing of assumptions, extinguishments and principal amortizations. The
following is a summary of our senior housing and care property secured debt principal activity
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
388,092 |
|
|
|
5.705 |
% |
|
$ |
194,512 |
|
|
|
6.283 |
% |
|
$ |
298,492 |
|
|
|
5.998 |
% |
|
$ |
94,234 |
|
|
|
6.996 |
% |
Debt issued |
|
|
|
|
|
|
|
|
|
|
132,456 |
|
|
|
5.863 |
% |
|
|
81,977 |
|
|
|
4.600 |
% |
|
|
265,527 |
|
|
|
5.982 |
% |
Debt assumed |
|
|
247,087 |
|
|
|
6.053 |
% |
|
|
|
|
|
|
0.000 |
% |
|
|
257,375 |
|
|
|
6.057 |
% |
|
|
|
|
|
|
0.000 |
% |
Debt extinguished |
|
|
(150,981 |
) |
|
|
5.924 |
% |
|
|
(26,575 |
) |
|
|
7.402 |
% |
|
|
(150,981 |
) |
|
|
5.924 |
% |
|
|
(47,502 |
) |
|
|
7.414 |
% |
Principal payments |
|
|
(1,581 |
) |
|
|
5.918 |
% |
|
|
(743 |
) |
|
|
6.360 |
% |
|
|
(4,246 |
) |
|
|
5.978 |
% |
|
|
(12,609 |
) |
|
|
7.780 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
482,617 |
|
|
|
5.815 |
% |
|
$ |
299,650 |
|
|
|
5.998 |
% |
|
$ |
482,617 |
|
|
|
5.815 |
% |
|
$ |
299,650 |
|
|
|
5.998 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
411,312 |
|
|
|
5.738 |
% |
|
$ |
326,590 |
|
|
|
6.113 |
% |
|
$ |
345,020 |
|
|
|
5.875 |
% |
|
$ |
358,738 |
|
|
|
6.246 |
% |
Depreciation and amortization increased primarily as a result of the conversions of newly
constructed investment properties subsequent to September 30, 2009. To the extent that we acquire
or dispose of additional properties in the future, our provision for depreciation and amortization
will change accordingly.
Transaction costs for the nine months ended September 30, 2010 primarily represent costs
incurred with the Merrill Gardens partnership, lease termination fees and costs incurred in
connection with other new property acquisitions.
During the nine months ended September 30, 2010, we sold 12 senior housing and care
properties. The following illustrates the reclassification impact as a result of classifying the
properties sold subsequent to January 1, 2009 or held for sale at September 30, 2010 as
discontinued operations for the periods presented. Please refer to Note 5 to our unaudited
consolidated financial statements for further discussion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Rental income |
|
$ |
2,301 |
|
|
$ |
5,038 |
|
|
$ |
7,803 |
|
|
$ |
18,505 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
528 |
|
|
|
870 |
|
|
|
1,665 |
|
|
|
3,496 |
|
Provision for depreciation |
|
|
541 |
|
|
|
1,260 |
|
|
|
1,816 |
|
|
|
6,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net |
|
$ |
1,232 |
|
|
$ |
2,908 |
|
|
$ |
4,322 |
|
|
$ |
8,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of our quarterly evaluations, we recorded $28,918,000 of provision for loan
losses during the nine months ended September 30, 2010. This amount includes the write-off of loans
totaling $32,753,000 primarily related to certain early stage senior housing and CCRC development
projects. This was offset by a net reduction of the allowance balance by $3,835,000. The provision
for loan losses is related to our critical accounting estimate for the allowance for loan losses
and is discussed in Critical Accounting Policies.
36
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Medical Facilities
The following is a summary of our results of operations for the medical facilities segment
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
56,770 |
|
|
$ |
44,136 |
|
|
$ |
12,634 |
|
|
|
29 |
% |
|
$ |
160,992 |
|
|
$ |
128,310 |
|
|
$ |
32,682 |
|
|
|
25 |
% |
Interest income |
|
|
875 |
|
|
|
1,262 |
|
|
|
(387 |
) |
|
|
-31 |
% |
|
|
1,853 |
|
|
|
3,740 |
|
|
|
(1,887 |
) |
|
|
-50 |
% |
Other income |
|
|
227 |
|
|
|
332 |
|
|
|
(105 |
) |
|
|
-32 |
% |
|
|
800 |
|
|
|
951 |
|
|
|
(151 |
) |
|
|
-16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,872 |
|
|
|
45,730 |
|
|
|
12,142 |
|
|
|
27 |
% |
|
|
163,645 |
|
|
|
133,001 |
|
|
|
30,644 |
|
|
|
23 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
6,457 |
|
|
|
4,783 |
|
|
|
1,674 |
|
|
|
35 |
% |
|
|
18,408 |
|
|
|
14,351 |
|
|
|
4,057 |
|
|
|
28 |
% |
Property operating expenses |
|
|
12,856 |
|
|
|
12,153 |
|
|
|
703 |
|
|
|
6 |
% |
|
|
37,866 |
|
|
|
34,441 |
|
|
|
3,425 |
|
|
|
10 |
% |
Depreciation and amortization |
|
|
20,019 |
|
|
|
15,594 |
|
|
|
4,425 |
|
|
|
28 |
% |
|
|
56,097 |
|
|
|
44,716 |
|
|
|
11,381 |
|
|
|
25 |
% |
Transaction costs |
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
n/a |
|
|
|
2,818 |
|
|
|
|
|
|
|
2,818 |
|
|
|
n/a |
|
Loss (gain) on extinguishment
of debt |
|
|
1,308 |
|
|
|
3,371 |
|
|
|
(2,063 |
) |
|
|
-61 |
% |
|
|
1,308 |
|
|
|
3,371 |
|
|
|
(2,063 |
) |
|
|
-61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,655 |
|
|
|
35,901 |
|
|
|
4,754 |
|
|
|
13 |
% |
|
|
116,497 |
|
|
|
96,879 |
|
|
|
19,618 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and income
from unconsolidated joint ventures |
|
|
17,217 |
|
|
|
9,829 |
|
|
|
7,388 |
|
|
|
75 |
% |
|
|
47,148 |
|
|
|
36,122 |
|
|
|
11,026 |
|
|
|
31 |
% |
Income tax (expense) benefit |
|
|
73 |
|
|
|
25 |
|
|
|
48 |
|
|
|
192 |
% |
|
|
(174 |
) |
|
|
(232 |
) |
|
|
58 |
|
|
|
-25 |
% |
Income from unconsolidated joint ventures |
|
|
1,899 |
|
|
|
|
|
|
|
1,899 |
|
|
|
n/a |
|
|
|
4,496 |
|
|
|
|
|
|
|
4,496 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
19,189 |
|
|
|
9,854 |
|
|
|
9,335 |
|
|
|
95 |
% |
|
|
51,470 |
|
|
|
35,890 |
|
|
|
15,580 |
|
|
|
43 |
% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
|
|
|
|
(806 |
) |
|
|
806 |
|
|
|
-100 |
% |
|
|
1,665 |
|
|
|
13,549 |
|
|
|
(11,884 |
) |
|
|
-88 |
% |
Impairment of assets |
|
|
(947 |
) |
|
|
(1,873 |
) |
|
|
926 |
|
|
|
-49 |
% |
|
|
(947 |
) |
|
|
(1,873 |
) |
|
|
926 |
|
|
|
-49 |
% |
Income (loss) from discontinued operations, net |
|
|
(721 |
) |
|
|
(71 |
) |
|
|
(650 |
) |
|
|
915 |
% |
|
|
(1,349 |
) |
|
|
626 |
|
|
|
(1,975 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
(1,668 |
) |
|
|
(2,750 |
) |
|
|
1,082 |
|
|
|
-39 |
% |
|
|
(631 |
) |
|
|
12,302 |
|
|
|
(12,933 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
17,521 |
|
|
|
7,104 |
|
|
|
10,417 |
|
|
|
147 |
% |
|
|
50,839 |
|
|
|
48,192 |
|
|
|
2,647 |
|
|
|
5 |
% |
Less: Net income (loss) attributable to noncontrolling interests |
|
|
(123 |
) |
|
|
35 |
|
|
|
(158 |
) |
|
|
n/a |
|
|
|
184 |
|
|
|
40 |
|
|
|
144 |
|
|
|
360 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders |
|
$ |
17,644 |
|
|
$ |
7,069 |
|
|
$ |
10,575 |
|
|
|
150 |
% |
|
$ |
50,655 |
|
|
$ |
48,152 |
|
|
$ |
2,503 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in rental income is primarily attributable to the acquisitions and
construction conversions of medical facilities subsequent to September 30, 2009 from which we
receive rent. Certain of our leases contain annual rental escalators that are contingent upon
changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is
recorded; however, rental income is recorded based on the contractual cash rental payments due for
the period. If the Consumer Price Index does not increase, a portion of our revenues may not
continue to increase. Sales of real property would offset revenue increases and, to the extent
that they exceed new acquisitions, could result in decreased revenues. Our leases could renew
above or below current rent rates, resulting in an increase or decrease in rental income. Interest
income decreased from the prior period primarily due to a decline in outstanding balances for
medical facility real estate loans. Other income is attributable to third party management fee
income.
Interest expense for the three and nine months ended September 30, 2010 represents $6,506,000
and $18,560,000, respectively, of secured debt interest expense offset by interest allocated to
discontinued operations. Interest expense for the three and nine months ended September 30, 2009
represents $5,151,000 and $15,603,000, respectively, of secured debt interest expense offset by
interest allocated to discontinued operations. The change in secured debt interest expense is
primarily due to the net effect and timing of
37
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
assumptions, extinguishments and principal
amortizations. The following is a summary of our medical facilities secured debt principal
activity (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
415,570 |
|
|
|
6.098 |
% |
|
$ |
351,146 |
|
|
|
5.799 |
% |
|
$ |
314,065 |
|
|
|
5.677 |
% |
|
$ |
354,145 |
|
|
|
5.799 |
% |
Debt assumed |
|
|
|
|
|
|
0.000 |
% |
|
|
|
|
|
|
0.000 |
% |
|
|
106,140 |
|
|
|
7.352 |
% |
|
|
|
|
|
|
0.000 |
% |
Debt extinguished |
|
|
(8,494 |
) |
|
|
6.045 |
% |
|
|
(32,241 |
) |
|
|
7.033 |
% |
|
|
(8,494 |
) |
|
|
6.045 |
% |
|
|
(32,241 |
) |
|
|
7.033 |
% |
Principal payments |
|
|
(2,307 |
) |
|
|
6.131 |
% |
|
|
(1,451 |
) |
|
|
5.722 |
% |
|
|
(6,942 |
) |
|
|
6.200 |
% |
|
|
(4,450 |
) |
|
|
5.746 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
404,769 |
|
|
|
6.099 |
% |
|
$ |
317,454 |
|
|
|
5.675 |
% |
|
$ |
404,769 |
|
|
|
6.099 |
% |
|
$ |
317,454 |
|
|
|
5.675 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
412,278 |
|
|
|
6.099 |
% |
|
$ |
350,412 |
|
|
|
5.800 |
% |
|
$ |
394,779 |
|
|
|
6.032 |
% |
|
$ |
351,919 |
|
|
|
5.799 |
% |
The increase in property operating expenses and depreciation and amortization is
primarily attributable to acquisitions and construction conversions of new medical facilities for
which we incur certain property operating expenses offset by property operating expenses associated
with discontinued operations.
Transaction costs for the nine months ended September 30, 2010 represent costs incurred in
connection with the acquisition of new properties.
Income tax expense is primarily related to third party management fee income.
Income from unconsolidated joint ventures represents our share of net income related to our
joint venture investment with Forest City Enterprises. The following is a summary of our net
income from this investment for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Revenues |
|
$ |
10,401 |
|
|
$ |
|
|
|
$ |
10,401 |
|
|
|
n/a |
|
|
$ |
23,481 |
|
|
$ |
|
|
|
$ |
23,481 |
|
|
|
n/a |
|
Operating expenses |
|
|
3,035 |
|
|
|
|
|
|
|
3,035 |
|
|
|
n/a |
|
|
|
6,852 |
|
|
|
|
|
|
|
6,852 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
7,366 |
|
|
|
|
|
|
|
7,366 |
|
|
|
n/a |
|
|
|
16,629 |
|
|
|
|
|
|
|
16,629 |
|
|
|
n/a |
|
Depreciation and
amortization |
|
|
2,696 |
|
|
|
|
|
|
|
2,696 |
|
|
|
n/a |
|
|
|
5,794 |
|
|
|
|
|
|
|
5,794 |
|
|
|
n/a |
|
Interest expense |
|
|
2,362 |
|
|
|
|
|
|
|
2,362 |
|
|
|
n/a |
|
|
|
5,399 |
|
|
|
|
|
|
|
5,399 |
|
|
|
n/a |
|
Asset management fee |
|
|
409 |
|
|
|
|
|
|
|
409 |
|
|
|
n/a |
|
|
|
940 |
|
|
|
|
|
|
|
940 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,899 |
|
|
$ |
|
|
|
$ |
1,899 |
|
|
|
n/a |
|
|
$ |
4,496 |
|
|
$ |
|
|
|
$ |
4,496 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, an impairment charge of $25,223,000 was recorded
to reduce the carrying value of eight medical facilities to their estimated fair value less costs
to sell. In determining the fair value of the properties, we used a combination of third party
appraisals based on market comparable transactions, other market listings and asset quality as well
as management calculations based on projected operating income and published capitalization rates.
During the nine months ended September 30, 2010, we sold three of the held for sale medical
facilities, for net gains of $1,665,000. At September 30, 2010, we had five medical facilities
that satisfied the requirements for held for sale treatment. During the three months ended
September 30, 2010, we recorded an impairment charge of $947,000 related to two of the held for
sale medical facilities to adjust the carrying values to estimated fair values less costs to sell
based on current sales price expectations. The following illustrates the reclassification impact
as a result of classifying medical facilities sold subsequent to January 1, 2009 or held for sale
at September 30, 2010 as discontinued operations for the periods presented. Please refer to Note 5
to our unaudited consolidated financial statements for further discussion.
38
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Rental income |
|
$ |
301 |
|
|
$ |
1,756 |
|
|
$ |
1,489 |
|
|
$ |
6,732 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
49 |
|
|
|
368 |
|
|
|
152 |
|
|
|
1,252 |
|
Property operating expenses |
|
|
973 |
|
|
|
821 |
|
|
|
2,686 |
|
|
|
2,559 |
|
Provision for depreciation |
|
|
|
|
|
|
638 |
|
|
|
|
|
|
|
2,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations, net |
|
$ |
(721 |
) |
|
$ |
(71 |
) |
|
$ |
(1,349 |
) |
|
$ |
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests primarily relates to certain
properties that are consolidated in our operating results but where we have less than a 100%
ownership interest.
Non-Segment/Corporate
The following is a summary of our results of operations for the non-segment/corporate
activities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
$ |
231 |
|
|
$ |
200 |
|
|
$ |
31 |
|
|
|
16 |
% |
|
$ |
1,276 |
|
|
$ |
938 |
|
|
$ |
338 |
|
|
|
36 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
30,972 |
|
|
|
20,057 |
|
|
|
10,915 |
|
|
|
54 |
% |
|
|
76,760 |
|
|
|
60,390 |
|
|
|
16,370 |
|
|
|
27 |
% |
General and administrative |
|
|
11,628 |
|
|
|
10,363 |
|
|
|
1,265 |
|
|
|
12 |
% |
|
|
40,331 |
|
|
|
38,784 |
|
|
|
1,547 |
|
|
|
4 |
% |
Loss (gain) on
extinguishments of debt |
|
|
|
|
|
|
20,946 |
|
|
|
(20,946 |
) |
|
|
-100 |
% |
|
|
25,072 |
|
|
|
19,269 |
|
|
|
5,803 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,600 |
|
|
|
51,366 |
|
|
|
(8,766 |
) |
|
|
-17 |
% |
|
|
142,163 |
|
|
|
118,443 |
|
|
|
23,720 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(42,369 |
) |
|
|
(51,166 |
) |
|
|
8,797 |
|
|
|
-17 |
% |
|
|
(140,887 |
) |
|
|
(117,505 |
) |
|
|
(23,382 |
) |
|
|
20 |
% |
Income tax (expense) benefit |
|
|
(125 |
) |
|
|
30 |
|
|
|
(155 |
) |
|
|
n/a |
|
|
|
(151 |
) |
|
|
215 |
|
|
|
(366 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(42,494 |
) |
|
|
(51,136 |
) |
|
|
8,642 |
|
|
|
-17 |
% |
|
|
(141,038 |
) |
|
|
(117,290 |
) |
|
|
(23,748 |
) |
|
|
20 |
% |
Preferred stock dividends |
|
|
5,347 |
|
|
|
5,520 |
|
|
|
(173 |
) |
|
|
-3 |
% |
|
|
16,340 |
|
|
|
16,560 |
|
|
|
(220 |
) |
|
|
-1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(47,841 |
) |
|
$ |
(56,656 |
) |
|
$ |
8,815 |
|
|
|
-16 |
% |
|
$ |
(157,378 |
) |
|
$ |
(133,850 |
) |
|
$ |
(23,528 |
) |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income primarily represents income from non-real estate activities such as
interest earned on temporary investments of cash reserves.
The following is a summary of our non-segment/corporate interest expense (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Senior unsecured notes |
|
$ |
31,522 |
|
|
$ |
27,146 |
|
|
$ |
4,376 |
|
|
|
16 |
% |
|
$ |
83,894 |
|
|
$ |
82,149 |
|
|
$ |
1,745 |
|
|
|
2 |
% |
Secured debt |
|
|
160 |
|
|
|
90 |
|
|
|
70 |
|
|
|
78 |
% |
|
|
463 |
|
|
|
90 |
|
|
|
373 |
|
|
|
414 |
% |
Unsecured lines of credit |
|
|
1,221 |
|
|
|
1,081 |
|
|
|
140 |
|
|
|
13 |
% |
|
|
3,459 |
|
|
|
3,979 |
|
|
|
(520 |
) |
|
|
-13 |
% |
Capitalized interest |
|
|
(3,656 |
) |
|
|
(9,975 |
) |
|
|
6,319 |
|
|
|
-63 |
% |
|
|
(16,008 |
) |
|
|
(30,866 |
) |
|
|
14,858 |
|
|
|
-48 |
% |
SWAP savings |
|
|
(40 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
0 |
% |
|
|
(121 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
0 |
% |
Loan expense |
|
|
1,765 |
|
|
|
1,755 |
|
|
|
10 |
|
|
|
1 |
% |
|
|
5,073 |
|
|
|
5,159 |
|
|
|
(86 |
) |
|
|
-2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
30,972 |
|
|
$ |
20,057 |
|
|
$ |
10,915 |
|
|
|
54 |
% |
|
$ |
76,760 |
|
|
$ |
60,390 |
|
|
$ |
16,370 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The change in interest expense on senior unsecured notes is due to the net effect of
issuances and extinguishments. The following is a summary of our senior unsecured note principal
activity (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
2,164,930 |
|
|
|
5.256 |
% |
|
$ |
1,823,277 |
|
|
|
5.773 |
% |
|
$ |
1,661,853 |
|
|
|
5.557 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
Debt issued |
|
|
450,000 |
|
|
|
4.700 |
% |
|
|
|
|
|
|
0.000 |
% |
|
|
1,394,403 |
|
|
|
4.557 |
% |
|
|
|
|
|
|
0.000 |
% |
Debt extinguished |
|
|
|
|
|
|
|
|
|
|
(161,424 |
) |
|
|
8.000 |
% |
|
|
(441,326 |
) |
|
|
4.750 |
% |
|
|
(183,147 |
) |
|
|
7.823 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
2,614,930 |
|
|
|
5.160 |
% |
|
$ |
1,661,853 |
|
|
|
5.557 |
% |
|
$ |
2,614,930 |
|
|
|
5.160 |
% |
|
$ |
1,661,853 |
|
|
|
5.557 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
2,277,430 |
|
|
|
5.228 |
% |
|
$ |
1,782,921 |
|
|
|
5.723 |
% |
|
$ |
2,025,167 |
|
|
|
5.313 |
% |
|
$ |
1,813,652 |
|
|
|
5.756 |
% |
During the three months ended September 30, 2009, we completed a $10,750,000 first
mortgage loan secured by a commercial real estate campus. The 10-year debt has a fixed interest
rate of 6.37%.
The change in interest expense on the unsecured line of credit arrangement is due primarily to
the net effect and timing of draws, paydowns and variable interest rate changes. The following is
a summary of our unsecured line of credit arrangement (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Balance outstanding at quarter end |
|
$ |
|
|
|
$ |
143,000 |
|
|
$ |
|
|
|
$ |
143,000 |
|
Maximum amount outstanding at any month end |
|
$ |
560,000 |
|
|
$ |
292,000 |
|
|
$ |
560,000 |
|
|
$ |
559,000 |
|
Average amount outstanding (total of daily principal balances divided by days in period) |
|
$ |
220,467 |
|
|
$ |
217,174 |
|
|
$ |
265,465 |
|
|
$ |
301,740 |
|
Weighted average interest rate (actual interest expense divided by average borrowings
outstanding) |
|
|
2.22 |
% |
|
|
1.99 |
% |
|
|
1.74 |
% |
|
|
1.76 |
% |
We capitalize certain interest costs associated with funds used to finance the
construction of properties owned directly by us. The amount capitalized is based upon the balances
outstanding during the construction period using the rate of interest that approximates our cost of
financing. Our interest expense is reduced by the amount capitalized.
Please see Note 11 to our unaudited consolidated financial statements for a discussion of our
interest rate swap agreements and their impact on interest expense. Loan expense represents the
amortization of deferred loan costs incurred in connection with the issuance and amendments of
debt. Loan expense for the nine months ended September 30, 2010 is consistent with the prior year.
General and administrative expenses as a percentage of consolidated revenues (including
revenues from discontinued operations) for the three and nine months ended September 30, 2010 were
6.51% and 8.12%, respectively, as compared to 7.05% and 8.83% for the same periods in 2009. The
change from prior year is primarily related to the recognition of $2,853,000 of expenses in
connection with a performance-based stock grant during the nine months ended September 30, 2010 and
additional salary and benefits to attract and retain appropriate personnel to support our business
growth. This was partially offset by $3,909,000 of non-recurring expenses recognized during the
nine months ended September 30, 2009 in connection with the departure of Raymond W. Braun who
formerly served as President of the company.
40
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The change in preferred dividends is primarily attributable to preferred stock conversions into
common stock. The following is a summary of our preferred stock activity (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Shares |
|
|
Dividend Rate |
|
|
Shares |
|
|
Dividend Rate |
|
|
Shares |
|
|
Dividend Rate |
|
|
Shares |
|
|
Dividend Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
11,397,252 |
|
|
|
7.697 |
% |
|
|
11,475,093 |
|
|
|
7.697 |
% |
|
|
11,474,093 |
|
|
|
7.697 |
% |
|
|
11,516,302 |
|
|
|
7.696 |
% |
Shares redeemed |
|
|
(5,513 |
) |
|
|
7.500 |
% |
|
|
|
|
|
|
0.000 |
% |
|
|
(5,513 |
) |
|
|
7.500 |
% |
|
|
|
|
|
|
0.000 |
% |
Shares converted |
|
|
(391,739 |
) |
|
|
7.215 |
% |
|
|
(1,000 |
) |
|
|
7.500 |
% |
|
|
(468,580 |
) |
|
|
7.265 |
% |
|
|
(42,209 |
) |
|
|
7.478 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
11,000,000 |
|
|
|
7.716 |
% |
|
|
11,474,093 |
|
|
|
7.697 |
% |
|
|
11,000,000 |
|
|
|
7.716 |
% |
|
|
11,474,093 |
|
|
|
7.697 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
|
11,297,939 |
|
|
|
7.703 |
% |
|
|
11,474,593 |
|
|
|
7.697 |
% |
|
|
11,383,466 |
|
|
|
7.700 |
% |
|
|
11,485,097 |
|
|
|
7.697 |
% |
41
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Non-GAAP Financial Measures
We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings
measurement. However, we consider FFO to be a useful supplemental measure of our operating
performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP
implicitly assumes that the value of real estate assets diminishes predictably over time as
evidenced by the provision for depreciation. However, since real estate values have historically
risen or fallen with market conditions, many industry investors and analysts have considered
presentations of operating results for real estate companies that use historical cost accounting to
be insufficient. In response, the National Association of Real Estate Investment Trusts (NAREIT)
created FFO as a supplemental measure of operating performance for REITs that excludes historical
cost depreciation from net income. FFO, as defined by NAREIT, means net income, computed in
accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
Net operating income (NOI) is used to evaluate the operating performance of our properties.
We define NOI as total revenues, including tenant reimbursements, less property level operating
expenses, which exclude depreciation and amortization, general and administrative expenses,
impairments and interest expense. We believe NOI provides investors relevant and useful information
because it measures the operating performance of our properties at the property level on an
unleveraged basis. We use NOI to make decisions about resource allocations and to assess the
property level performance of our properties.
EBITDA stands for earnings before interest, taxes, depreciation and amortization. We believe
that EBITDA, along with net income and cash flow provided from operating activities, is an
important supplemental measure because it provides additional information to assess and evaluate
the performance of our operations. We primarily utilize EBITDA to measure our interest coverage
ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio,
which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured
debt principal amortization and preferred dividends.
A covenant in our line of credit arrangement contains a financial ratio based on a definition
of EBITDA that is specific to that agreement. Failure to satisfy this covenant could result in an
event of default that could have a material adverse impact on our cost and availability of capital,
which could in turn have a material adverse impact on our consolidated results of operations,
liquidity and/or financial condition. Due to the materiality of this debt agreement and the
financial covenant, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above and
adjusted for stock-based compensation expense, provision for loan losses and gain/loss on
extinguishment of debt. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio,
which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed
charges include total interest (excluding capitalized interest and non-cash interest expenses),
secured debt principal amortization and preferred dividends. Our covenant requires an adjusted
fixed charge ratio of at least 1.75 times.
Other than Adjusted EBITDA, our supplemental reporting measures and similarly entitled
financial measures are widely used by investors, equity and debt analysts and rating agencies in
the valuation, comparison, rating and investment recommendations of companies. Management uses
these financial measures to facilitate internal and external comparisons to our historical
operating results and in making operating decisions. Additionally, these measures are utilized by
the Board of Directors to evaluate management. Adjusted EBITDA is used solely to determine our
compliance with a financial covenant of our line of credit arrangement and is not being presented
for use by investors for any other purpose. None of our supplemental measures represent net income
or cash flow provided from operating activities as determined in accordance with U.S. GAAP and
should not be considered as alternative measures of profitability or liquidity. Finally, the
supplemental measures, as defined by us, may not be comparable to similarly entitled items reported
by other real estate investment trusts or other companies. Multi-period amounts may not equal the
sum of the individual quarterly amounts due to rounding.
42
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The tables below reflect the reconciliation of FFO to net income attributable to common
stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. The
provisions for depreciation and amortization include provisions for depreciation and amortization
from discontinued operations. Noncontrolling interest amounts represent the noncontrolling
interests share of transaction costs and depreciation and amortization. Unconsolidated joint
venture amounts represent our share of unconsolidated joint ventures depreciation and
amortization. Amounts are in thousands except for per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
FFO Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
61,119 |
|
|
$ |
59,240 |
|
|
$ |
19,130 |
|
|
$ |
31,700 |
|
|
$ |
25,812 |
|
|
$ |
45,646 |
|
|
$ |
1,124 |
|
Depreciation and amortization |
|
|
41,326 |
|
|
|
40,731 |
|
|
|
41,085 |
|
|
|
41,780 |
|
|
|
43,581 |
|
|
|
47,451 |
|
|
|
49,106 |
|
Loss (gain) on sales of properties |
|
|
(17,036 |
) |
|
|
(10,677 |
) |
|
|
806 |
|
|
|
(16,487 |
) |
|
|
(6,718 |
) |
|
|
(3,314 |
) |
|
|
(10,526 |
) |
Noncontrolling interests |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
(88 |
) |
|
|
(703 |
) |
|
|
(363 |
) |
|
|
108 |
|
|
|
(1,292 |
) |
Unconsolidated joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775 |
|
|
|
2,323 |
|
|
|
2,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
$ |
85,322 |
|
|
$ |
89,207 |
|
|
$ |
60,933 |
|
|
$ |
56,290 |
|
|
$ |
63,087 |
|
|
$ |
92,214 |
|
|
$ |
41,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
108,214 |
|
|
|
110,864 |
|
|
|
114,874 |
|
|
|
122,700 |
|
|
|
123,270 |
|
|
|
123,808 |
|
|
|
125,298 |
|
Diluted |
|
|
108,624 |
|
|
|
111,272 |
|
|
|
115,289 |
|
|
|
123,105 |
|
|
|
123,790 |
|
|
|
124,324 |
|
|
|
125,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.56 |
|
|
$ |
0.53 |
|
|
$ |
0.17 |
|
|
$ |
0.26 |
|
|
$ |
0.21 |
|
|
$ |
0.37 |
|
|
$ |
0.01 |
|
Diluted |
|
|
0.56 |
|
|
|
0.53 |
|
|
|
0.17 |
|
|
|
0.26 |
|
|
|
0.21 |
|
|
|
0.37 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.79 |
|
|
$ |
0.80 |
|
|
$ |
0.53 |
|
|
$ |
0.46 |
|
|
$ |
0.51 |
|
|
$ |
0.74 |
|
|
$ |
0.33 |
|
Diluted |
|
|
0.79 |
|
|
|
0.80 |
|
|
|
0.53 |
|
|
|
0.46 |
|
|
|
0.51 |
|
|
|
0.74 |
|
|
|
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September |
|
|
September |
|
|
|
30, |
|
|
30, |
|
|
|
2009 |
|
|
2010 |
|
FFO Reconciliation: |
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
139,489 |
|
|
$ |
72,580 |
|
Depreciation and amortization |
|
|
123,143 |
|
|
|
140,137 |
|
Loss (gain) on sales of properties |
|
|
(26,907 |
) |
|
|
(20,559 |
) |
Noncontrolling interests |
|
|
(262 |
) |
|
|
(1,547 |
) |
Unconsolidated joint ventures |
|
|
|
|
|
|
5,794 |
|
|
|
|
|
|
|
|
Funds from operations |
|
$ |
235,463 |
|
|
$ |
196,405 |
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
111,345 |
|
|
|
124,132 |
|
Diluted |
|
|
111,749 |
|
|
|
124,660 |
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.25 |
|
|
$ |
0.58 |
|
Diluted |
|
|
1.25 |
|
|
|
0.58 |
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.11 |
|
|
$ |
1.58 |
|
Diluted |
|
|
2.11 |
|
|
|
1.58 |
|
43
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following tables reflect the reconciliation of NOI for the periods presented. All amounts
include amounts from discontinued operations, if applicable. Our share of revenues and expenses
from unconsolidated joint ventures for life science buildings are included in medical facilities.
Amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
NOI Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing |
|
$ |
47,704 |
|
|
$ |
47,678 |
|
|
$ |
47,446 |
|
|
$ |
47,856 |
|
|
$ |
52,366 |
|
|
$ |
56,197 |
|
|
$ |
56,162 |
|
Skilled nursing facilities |
|
|
41,731 |
|
|
|
42,979 |
|
|
|
41,983 |
|
|
|
40,733 |
|
|
|
40,872 |
|
|
|
41,057 |
|
|
|
41,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
89,435 |
|
|
|
90,657 |
|
|
|
89,429 |
|
|
|
88,589 |
|
|
|
93,238 |
|
|
|
97,254 |
|
|
|
97,658 |
|
Resident fees and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,809 |
|
Interest income |
|
|
8,723 |
|
|
|
8,910 |
|
|
|
9,266 |
|
|
|
9,046 |
|
|
|
8,575 |
|
|
|
8,830 |
|
|
|
9,179 |
|
Other income |
|
|
792 |
|
|
|
570 |
|
|
|
557 |
|
|
|
3,389 |
|
|
|
494 |
|
|
|
1,536 |
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior housing
and care revenues |
|
|
98,950 |
|
|
|
100,137 |
|
|
|
99,252 |
|
|
|
101,024 |
|
|
|
102,307 |
|
|
|
107,620 |
|
|
|
120,344 |
|
Medical facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
33,253 |
|
|
|
32,593 |
|
|
|
35,008 |
|
|
|
35,980 |
|
|
|
40,088 |
|
|
|
42,056 |
|
|
|
43,758 |
|
Hospitals |
|
|
12,677 |
|
|
|
10,627 |
|
|
|
10,884 |
|
|
|
10,779 |
|
|
|
10,781 |
|
|
|
12,484 |
|
|
|
13,313 |
|
Life science buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,725 |
|
|
|
9,355 |
|
|
|
10,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
45,930 |
|
|
|
43,220 |
|
|
|
45,892 |
|
|
|
46,759 |
|
|
|
54,594 |
|
|
|
63,895 |
|
|
|
67,472 |
|
Interest income |
|
|
1,230 |
|
|
|
1,248 |
|
|
|
1,262 |
|
|
|
1,201 |
|
|
|
473 |
|
|
|
505 |
|
|
|
875 |
|
Other income |
|
|
316 |
|
|
|
304 |
|
|
|
332 |
|
|
|
8,415 |
|
|
|
271 |
|
|
|
302 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total medical facilities
revenues |
|
|
47,476 |
|
|
|
44,772 |
|
|
|
47,486 |
|
|
|
56,375 |
|
|
|
55,338 |
|
|
|
64,702 |
|
|
|
68,574 |
|
Corporate other income |
|
|
376 |
|
|
|
363 |
|
|
|
200 |
|
|
|
232 |
|
|
|
231 |
|
|
|
812 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
146,802 |
|
|
|
145,272 |
|
|
|
146,938 |
|
|
|
157,631 |
|
|
|
157,876 |
|
|
|
173,134 |
|
|
|
189,149 |
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,993 |
|
Medical facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
11,983 |
|
|
|
12,044 |
|
|
|
12,974 |
|
|
|
11,964 |
|
|
|
12,992 |
|
|
|
12,853 |
|
|
|
13,307 |
|
Hospitals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
728 |
|
|
|
150 |
|
|
|
522 |
|
Life science buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101 |
|
|
|
2,716 |
|
|
|
3,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
11,983 |
|
|
|
12,044 |
|
|
|
12,974 |
|
|
|
11,964 |
|
|
|
14,821 |
|
|
|
15,719 |
|
|
|
16,864 |
|
Non-segment/corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating
expenses |
|
|
11,983 |
|
|
|
12,044 |
|
|
|
12,974 |
|
|
|
11,964 |
|
|
|
14,821 |
|
|
|
15,719 |
|
|
|
24,857 |
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior housing and care |
|
|
98,950 |
|
|
|
100,137 |
|
|
|
99,252 |
|
|
|
101,024 |
|
|
|
102,307 |
|
|
|
107,620 |
|
|
|
112,351 |
|
Medical facilities |
|
|
35,493 |
|
|
|
32,728 |
|
|
|
34,512 |
|
|
|
44,411 |
|
|
|
40,517 |
|
|
|
48,983 |
|
|
|
51,710 |
|
Non-segment/corporate |
|
|
376 |
|
|
|
363 |
|
|
|
200 |
|
|
|
232 |
|
|
|
231 |
|
|
|
812 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
$ |
134,819 |
|
|
$ |
133,228 |
|
|
$ |
133,964 |
|
|
$ |
145,667 |
|
|
$ |
143,055 |
|
|
$ |
157,415 |
|
|
$ |
164,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2010 |
|
NOI Reconciliation: |
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
Senior housing and care: |
|
|
|
|
|
|
|
|
Rental income: |
|
|
|
|
|
|
|
|
Senior housing |
|
$ |
142,828 |
|
|
$ |
164,723 |
|
Skilled nursing facilities |
|
|
126,693 |
|
|
|
123,425 |
|
|
|
|
|
|
|
|
Sub-total |
|
|
269,521 |
|
|
|
288,148 |
|
Resident fees and services |
|
|
|
|
|
|
12,809 |
|
Interest income |
|
|
26,899 |
|
|
|
26,583 |
|
Other income |
|
|
1,921 |
|
|
|
2,726 |
|
|
|
|
|
|
|
|
Total senior housing
and care revenues |
|
|
298,341 |
|
|
|
330,266 |
|
Medical facilities: |
|
|
|
|
|
|
|
|
Rental income
|
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
100,854 |
|
|
|
125,903 |
|
Hospitals |
|
|
34,188 |
|
|
|
36,578 |
|
Life science buildings |
|
|
|
|
|
|
23,481 |
|
|
|
|
|
|
|
|
Sub-total |
|
|
135,042 |
|
|
|
185,962 |
|
Interest income |
|
|
3,740 |
|
|
|
1,853 |
|
Other income |
|
|
951 |
|
|
|
800 |
|
|
|
|
|
|
|
|
Total medical facilities
revenues |
|
|
139,733 |
|
|
|
188,615 |
|
Corporate other income |
|
|
938 |
|
|
|
1,276 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
439,012 |
|
|
|
520,157 |
|
Property operating expenses: |
|
|
|
|
|
|
|
|
Senior housing and care |
|
|
|
|
|
|
7,993 |
|
Medical facilities: |
|
|
|
|
|
|
|
|
Medical office buildings |
|
|
37,000 |
|
|
|
39,152 |
|
Hospitals |
|
|
|
|
|
|
1,400 |
|
Life science buildings |
|
|
|
|
|
|
6,852 |
|
|
|
|
|
|
|
|
Sub-total |
|
|
37,000 |
|
|
|
47,404 |
|
Non-segment/corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating
expenses |
|
|
37,000 |
|
|
|
55,397 |
|
Net operating income: |
|
|
|
|
|
|
|
|
Senior housing and care |
|
|
298,341 |
|
|
|
322,273 |
|
Medical facilities |
|
|
102,733 |
|
|
|
141,211 |
|
Non-segment/corporate |
|
|
938 |
|
|
|
1,276 |
|
|
|
|
|
|
|
|
Net operating income |
|
$ |
402,012 |
|
|
$ |
464,760 |
|
|
|
|
|
|
|
|
45
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The tables below reflect the reconciliation of EBITDA to net income, the most directly comparable
U.S. GAAP measure, for the periods presented. Interest expense and the provisions for depreciation
and amortization include discontinued operations. Dollars are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
66,645 |
|
|
$ |
64,759 |
|
|
$ |
24,685 |
|
|
$ |
36,838 |
|
|
$ |
31,694 |
|
|
$ |
51,064 |
|
|
$ |
5,781 |
|
Interest expense |
|
|
28,011 |
|
|
|
27,332 |
|
|
|
28,833 |
|
|
|
25,596 |
|
|
|
29,985 |
|
|
|
37,550 |
|
|
|
44,985 |
|
Income tax expense (benefit) |
|
|
50 |
|
|
|
21 |
|
|
|
(55 |
) |
|
|
151 |
|
|
|
84 |
|
|
|
188 |
|
|
|
52 |
|
Depreciation and amortization |
|
|
41,326 |
|
|
|
40,731 |
|
|
|
41,085 |
|
|
|
41,780 |
|
|
|
43,581 |
|
|
|
47,451 |
|
|
|
49,106 |
|
|
|
|
EBITDA |
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
$ |
94,548 |
|
|
$ |
104,365 |
|
|
$ |
105,344 |
|
|
$ |
136,253 |
|
|
$ |
99,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
28,011 |
|
|
$ |
27,332 |
|
|
$ |
28,833 |
|
|
$ |
25,596 |
|
|
$ |
29,985 |
|
|
$ |
37,550 |
|
|
$ |
44,985 |
|
Non-cash interest expense |
|
|
(2,772 |
) |
|
|
(2,844 |
) |
|
|
(2,895 |
) |
|
|
(3,387 |
) |
|
|
(2,841 |
) |
|
|
(3,659 |
) |
|
|
(4,258 |
) |
Capitalized interest |
|
|
9,865 |
|
|
|
11,026 |
|
|
|
9,975 |
|
|
|
10,305 |
|
|
|
7,076 |
|
|
|
5,276 |
|
|
|
3,656 |
|
|
|
|
Total interest |
|
|
35,104 |
|
|
|
35,514 |
|
|
|
35,913 |
|
|
|
32,514 |
|
|
|
34,220 |
|
|
|
39,167 |
|
|
|
44,383 |
|
EBITDA |
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
$ |
94,548 |
|
|
$ |
104,365 |
|
|
$ |
105,344 |
|
|
$ |
136,253 |
|
|
$ |
99,924 |
|
|
|
|
Interest coverage ratio |
|
|
3.88 |
x |
|
|
3.74 |
x |
|
|
2.63 |
x |
|
|
3.21 |
x |
|
|
3.08 |
x |
|
|
3.48 |
x |
|
|
2.25 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest |
|
$ |
35,104 |
|
|
$ |
35,514 |
|
|
$ |
35,913 |
|
|
$ |
32,514 |
|
|
$ |
34,220 |
|
|
$ |
39,167 |
|
|
$ |
44,383 |
|
Secured debt principal payments |
|
|
2,206 |
|
|
|
2,177 |
|
|
|
2,298 |
|
|
|
2,611 |
|
|
|
3,378 |
|
|
|
4,325 |
|
|
|
4,019 |
|
Preferred dividends |
|
|
5,524 |
|
|
|
5,516 |
|
|
|
5,520 |
|
|
|
5,520 |
|
|
|
5,509 |
|
|
|
5,484 |
|
|
|
5,347 |
|
|
|
|
Total fixed charges |
|
|
42,834 |
|
|
|
43,207 |
|
|
|
43,731 |
|
|
|
40,645 |
|
|
|
43,107 |
|
|
|
48,976 |
|
|
|
53,749 |
|
EBITDA |
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
$ |
94,548 |
|
|
$ |
104,365 |
|
|
$ |
105,344 |
|
|
$ |
136,253 |
|
|
$ |
99,924 |
|
|
|
|
Fixed charge coverage ratio |
|
|
3.18 |
x |
|
|
3.07 |
x |
|
|
2.16 |
x |
|
|
2.57 |
x |
|
|
2.44 |
x |
|
|
2.78 |
x |
|
|
1.86 |
x |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2010 |
EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
156,089 |
|
|
$ |
88,537 |
|
Interest expense |
|
|
84,176 |
|
|
|
112,520 |
|
Income tax expense |
|
|
17 |
|
|
|
325 |
|
Depreciation and amortization |
|
|
123,143 |
|
|
|
140,137 |
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
363,425 |
|
|
$ |
341,519 |
|
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio: |
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
84,176 |
|
|
$ |
112,520 |
|
Non-cash interest expense |
|
|
(8,511 |
) |
|
|
(10,759 |
) |
Capitalized interest |
|
|
30,866 |
|
|
|
16,008 |
|
|
|
|
Total interest |
|
|
106,531 |
|
|
|
117,769 |
|
EBITDA |
|
$ |
363,425 |
|
|
$ |
341,519 |
|
|
|
|
Interest coverage ratio |
|
|
3.41 |
x |
|
|
2.90 |
x |
|
|
|
|
|
|
|
|
|
Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
Total interest |
|
$ |
106,531 |
|
|
$ |
117,769 |
|
Secured debt principal payments |
|
|
6,681 |
|
|
|
11,723 |
|
Preferred dividends |
|
|
16,560 |
|
|
|
16,340 |
|
|
|
|
Total fixed charges |
|
|
129,772 |
|
|
|
145,832 |
|
EBITDA |
|
$ |
363,425 |
|
|
$ |
341,519 |
|
|
|
|
Fixed charge coverage ratio |
|
|
2.80 |
x |
|
|
2.34 |
x |
46
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The table below reflects the reconciliation of Adjusted EBITDA to net income, the most directly
comparable U.S. GAAP measure, for the periods presented. Interest expense and the provisions for
depreciation and amortization include discontinued operations. Dollars are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
Adjusted EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
314,613 |
|
|
$ |
218,112 |
|
|
$ |
183,478 |
|
|
$ |
192,927 |
|
|
$ |
157,976 |
|
|
$ |
144,282 |
|
|
$ |
125,377 |
|
Interest expense |
|
|
131,750 |
|
|
|
122,927 |
|
|
|
116,406 |
|
|
|
109,772 |
|
|
|
111,746 |
|
|
|
121,964 |
|
|
|
138,116 |
|
Income tax expense |
|
|
77 |
|
|
|
54 |
|
|
|
152 |
|
|
|
168 |
|
|
|
201 |
|
|
|
368 |
|
|
|
475 |
|
Depreciation and amortization |
|
|
164,797 |
|
|
|
165,898 |
|
|
|
165,292 |
|
|
|
164,923 |
|
|
|
167,177 |
|
|
|
173,897 |
|
|
|
181,918 |
|
Stock-based compensation
expense |
|
|
11,360 |
|
|
|
11,034 |
|
|
|
10,637 |
|
|
|
9,633 |
|
|
|
10,619 |
|
|
|
10,736 |
|
|
|
10,669 |
|
Provision for loan losses |
|
|
234 |
|
|
|
234 |
|
|
|
234 |
|
|
|
23,261 |
|
|
|
23,121 |
|
|
|
23,121 |
|
|
|
52,039 |
|
Loss (gain) on extinguishment of debt |
|
|
(2,446 |
) |
|
|
(2,446 |
) |
|
|
24,696 |
|
|
|
25,107 |
|
|
|
44,822 |
|
|
|
51,857 |
|
|
|
34,582 |
|
|
|
|
Adjusted EBITDA |
|
$ |
620,385 |
|
|
$ |
515,813 |
|
|
$ |
500,895 |
|
|
$ |
525,791 |
|
|
$ |
515,662 |
|
|
$ |
526,225 |
|
|
$ |
543,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
131,750 |
|
|
$ |
122,927 |
|
|
$ |
116,406 |
|
|
$ |
109,772 |
|
|
$ |
111,746 |
|
|
$ |
121,964 |
|
|
$ |
138,116 |
|
Capitalized interest |
|
|
29,727 |
|
|
|
35,690 |
|
|
|
39,301 |
|
|
|
41,170 |
|
|
|
38,381 |
|
|
|
32,631 |
|
|
|
26,313 |
|
Non-cash interest expense |
|
|
(11,214 |
) |
|
|
(11,289 |
) |
|
|
(11,410 |
) |
|
|
(11,898 |
) |
|
|
(11,967 |
) |
|
|
(12,782 |
) |
|
|
(14,145 |
) |
Secured debt principal payments |
|
|
8,232 |
|
|
|
8,592 |
|
|
|
8,810 |
|
|
|
9,292 |
|
|
|
10,464 |
|
|
|
12,612 |
|
|
|
14,333 |
|
Preferred dividends |
|
|
22,579 |
|
|
|
22,311 |
|
|
|
22,101 |
|
|
|
22,079 |
|
|
|
22,064 |
|
|
|
22,032 |
|
|
|
21,860 |
|
|
|
|
Total fixed charges |
|
|
181,074 |
|
|
|
178,231 |
|
|
|
175,208 |
|
|
|
170,415 |
|
|
|
170,688 |
|
|
|
176,457 |
|
|
|
186,477 |
|
Adjusted EBITDA |
|
$ |
620,385 |
|
|
$ |
515,813 |
|
|
$ |
500,895 |
|
|
$ |
525,791 |
|
|
$ |
515,662 |
|
|
$ |
526,225 |
|
|
$ |
543,176 |
|
|
|
|
Adjusted fixed charge coverage ratio |
|
|
3.43 |
x |
|
|
2.89 |
x |
|
|
2.86 |
x |
|
|
3.09 |
x |
|
|
3.02 |
x |
|
|
2.98 |
x |
|
|
2.91 |
x |
47
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which
requires us to make estimates and assumptions. Management considers an accounting estimate or
assumption critical if:
|
|
|
the nature of the estimates or assumptions is material due to the levels of subjectivity
and judgment necessary to account for highly uncertain matters or the susceptibility of
such matters to change; and |
|
|
|
|
the impact of the estimates and assumptions on financial condition or operating
performance is material. |
Management has discussed the development and selection of its critical accounting policies
with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the
disclosure presented below relating to them. Management believes the current assumptions and other
considerations used to estimate amounts reflected in our consolidated financial statements are
appropriate and are not reasonably likely to change in the future. However, since these estimates
require assumptions to be made that were uncertain at the time the estimate was made, they bear the
risk of change. If actual experience differs from the assumptions and other considerations used in
estimating amounts reflected in our consolidated financial statements, the resulting changes could
have a material adverse effect on our consolidated results of operations, liquidity and/or
financial condition. Please refer to Note 1 to the financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2009, as updated by our Current Report on Form
8-K filed May 10, 2010, for further information regarding significant accounting policies that
impact us. There have been no material changes to these policies in 2010.
The following table presents information about our critical accounting policies, as well as
the material assumptions used to develop each estimate:
|
|
|
Nature of Critical |
|
Assumptions/Approach |
Accounting Estimate |
|
Used |
Impairment of Long-Lived Assets |
|
|
|
|
|
We review our long-lived assets for
potential impairment in accordance with U.S.
GAAP. An impairment charge must be
recognized when the carrying value of a
long-lived asset is not recoverable. The
carrying value is not recoverable if it
exceeds the sum of the undiscounted cash
flows expected to result from the use and
eventual disposition of the asset. If it is
determined that a permanent impairment of a
long-lived asset has occurred, the carrying
value of the asset is reduced to its fair
value and an impairment charge is recognized
for the difference between the carrying
value and the fair value.
|
|
The net book value of
long-lived assets is
reviewed quarterly on a
property by property basis
to determine if there are
indicators of impairment.
These indicators may
include anticipated
operating losses at the
property level, the
tenants inability to make
rent payments, a decision
to dispose of an asset
before the end of its
estimated useful life and
changes in the market that
may permanently reduce the
value of the property. If
indicators of impairment
exist, then the
undiscounted future cash
flows from the most likely
use of the property are
compared to the current net
book value. This analysis
requires us to determine if
indicators of impairment
exist and to estimate the
most likely stream of cash
flows to be generated from
the property during the
period the property is
expected to be held.
During the year ended
December 31, 2009, an
impairment charge of
$25,223,000 was recorded to
reduce the carrying value
of eight medical facilities
to their estimated fair
value less costs to sell.
In determining the fair
value of the properties, we
used a combination of third
party appraisals based on
market comparable
transactions, other market
listings and asset quality
as well as management
calculations based on
projected operating income
and published
capitalization rates.
During the nine months
ended September 30, 2010,
we sold 16 properties,
including three of the held
for sale medical
facilities, for net gains
of $20,559,000. At
September 30, 2010, we had
five medical facilities and
one senior housing facility
that satisfied the
requirements for held for
sale treatment. During the
three months ended
September 30, 2010, we
recorded an impairment
charge of $947,000 related
to two of the held for sale
medical facilities to
adjust the carrying values
to estimated fair values
less costs to sell based on
current sales price
expectations. |
48
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
Nature of Critical |
|
Assumptions/Approach |
Accounting Estimate |
|
Used |
Business Combinations |
|
|
|
|
|
Substantially all of the properties owned by us
are leased under operating leases and are
recorded at cost. The cost of our real
property is allocated to land, buildings,
improvements and intangibles in accordance with
U.S. GAAP.
|
|
We compute depreciation
and amortization on our
properties using the
straight-line method
based on their estimated
useful lives which range
from 15 to 40 years for
buildings and five to 15
years for improvements.
Lives for intangibles are
based on the remaining
term of the underlying
leases.
For the nine months ended
September 30, 2010, we
recorded $103,670,000,
$29,539,000 and
$6,928,000 as provisions
for depreciation and
amortization relating to
buildings, improvements
and intangibles,
respectively, including
amounts reclassified as
discontinued operations.
The average useful life
of our buildings,
improvements and
intangibles was 38.1
years, 11.3 years and 9.9
years, respectively, for
the nine months ended
September 30, 2010. |
Revenue Recognition |
|
|
|
|
|
Revenue is recorded in accordance with U.S.
GAAP, which requires that revenue be recognized
after four basic criteria are met. These four
criteria include persuasive evidence of an
arrangement, the rendering of service, fixed
and determinable income and reasonably assured
collectability. If the collectability of
revenue is determined incorrectly, the amount
and timing of our reported revenue could be
significantly affected. Interest income on
loans is recognized as earned based upon the
principal amount outstanding subject to an
evaluation of collectability risk.
Substantially all of our operating leases
contain fixed and/or contingent escalating rent
structures. Leases with fixed annual rental
escalators are generally recognized on a
straight-line basis over the initial lease
period, subject to a collectability assessment.
Rental income related to leases with contingent
rental escalators is generally recorded based
on the contractual cash rental payments due for
the period.
|
|
We evaluate the
collectibility of our
revenues and related
receivables on an
on-going basis. We
evaluate collectibility
based on assumptions and
other considerations
including, but not
limited to, the certainty
of payment, payment
history, the financial
strength of the
investments underlying
operations as measured by
cash flows and payment
coverages, the value of
the underlying collateral
and guaranties and
current economic
conditions.
If our evaluation
indicates that
collectibility is not
reasonably assured, we
may place an investment
on non-accrual or reserve
against all or a portion
of current income as an
offset to revenue.
For the nine months ended
September 30, 2010, we
recognized $28,437,000 of
interest income,
$12,809,000 of resident
fees and services, and
$450,629,000 of rental
income, including
discontinued operations.
Cash receipts on leases
with deferred revenue
provisions were
$6,214,000 as compared to
gross straight-line
rental income recognized
of $12,414,000 for the
nine months ended
September 30, 2010. At
September 30, 2010, our
straight-line receivable
balance was $86,606,000,
net of reserves totaling
$273,000. Also at
September 30, 2010, we
had real estate loans
with outstanding balances
of $10,889,000 on
non-accrual status. |
Fair Value of Derivative Instruments |
|
|
|
|
|
The valuation of derivative instruments is
accounted for in accordance with U.S. GAAP,
which requires companies to record derivatives
at fair market value on the balance sheet as
assets or liabilities.
|
|
The valuation of
derivative instruments
requires us to make
estimates and judgments
that affect the fair
value of the instruments.
Fair values for our
derivatives are estimated
by utilizing pricing
models that consider
forward yield curves and
discount rates. Such
amounts and the
recognition of such
amounts are subject to
significant estimates
which may change in the
future. At September 30,
2010, we did not
participate in any
interest rate swap
agreements. |
49
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
Nature of Critical |
|
Assumptions/Approach |
Accounting Estimate |
|
Used |
Allowance for Loan Losses |
|
|
|
|
|
We maintain an allowance for loan losses
in accordance with U.S. GAAP. The
allowance for loan losses is maintained
at a level believed adequate to absorb
potential losses in our loans receivable.
The determination of the allowance is
based on a quarterly evaluation of all
outstanding loans. If this evaluation
indicates that there is a greater risk of
loan charge-offs, additional allowances
or placement on non-accrual status may be
required. A loan is impaired when, based
on current information and events, it is
probable that we will be unable to
collect all amounts due as scheduled
according to the contractual terms of the
original loan agreement. Consistent with
this definition, all loans on non-accrual
are deemed impaired. To the extent
circumstances improve and the risk of
collectability is diminished, we will
return these loans to full accrual
status.
|
|
The determination of the
allowance is based on a
quarterly evaluation of all
outstanding loans, including
general economic conditions
and estimated collectability
of loan payments and
principal. We evaluate the
collectability of our loans
receivable based on a
combination of factors,
including, but not limited to,
delinquency status, historical
loan charge-offs, financial
strength of the borrower and
guarantors and value of the
underlying property.
As a result of our quarterly
evaluations, we recorded
$28,918,000 of provision for
loan losses during the nine
months ended September 30,
2010. This amount includes the
write-off of loans totaling
$32,753,000 primarily related
to certain early stage senior
housing and CCRC development
projects. This was offset by
a net reduction of the
allowance balance by
$3,835,000, resulting in an
allowance for loan losses of
$1,190,000 relating to real
estate loans with outstanding
balances of $10,889,000, all
of which were on non-accrual
status at September 30, 2010. |
Forward-Looking Statements and Risk Factors
This Quarterly Report on Form 10-Q may contain forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking statements concern and are
based upon, among other things, the possible expansion of the companys portfolio; the sale of
properties; the performance of its operators and properties; its occupancy rates; its ability to
acquire or develop properties; its ability to manage properties; its ability to enter into
agreements with viable new tenants for vacant space or for properties that the company takes back
from financially troubled tenants, if any; its ability to make distributions; its policies and
plans regarding investments, financings and other matters; its tax status as a real estate
investment trust; its ability to appropriately balance the use of debt and equity; its ability to
access capital markets or other sources of funds; its critical accounting policies; and its ability
to meet its earnings guidance. When the company uses words such as may, will, intend,
should, believe, expect, anticipate, project, estimate or similar expressions, it is
making forward-looking statements. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. The companys expected results may not be
achieved, and actual results may differ materially from expectations. This may be a result of
various factors, including, but not limited to: the status of the economy; the status of capital
markets, including availability and cost of capital; issues facing the health care industry,
including compliance with, and changes to, regulations and payment policies, responding to
government investigations and punitive settlements and operators/tenants difficulty in
cost-effectively obtaining and maintaining adequate liability and other insurance; changes in
financing terms; competition within the health care, senior housing and life science industries;
negative developments in the operating results or financial condition of operators/tenants,
including, but not limited to, their ability to pay rent and repay loans; the companys ability to
transition or sell facilities with profitable results; the failure to make new investments as and
when anticipated; acts of God affecting the companys properties; the companys ability to re-lease
space at similar rates as vacancies occur; the companys ability to timely reinvest sale proceeds
at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or
insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare
and Medicaid reimbursement rates and operational requirements; regulatory approval and market
acceptance of the products and technologies of life science tenants; liability or contract claims
by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future
acquisitions; environmental laws affecting the companys properties; changes in rules or practices
governing the companys financial reporting; and legal and operational matters, including real
estate investment trust qualification and key management personnel recruitment and retention.
Other important factors are identified in the companys Annual Report on Form 10-K for the year
ended December 31, 2009, as updated by our Current Report on Form 8-K filed May 10, 2010, including
factors identified under the headings Business, Risk Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations. Finally, the company assumes no
obligation to update or revise any forward-looking statements or to update the reasons why actual
results could differ from those projected in any forward-looking statements.
50
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks, including the potential loss arising from adverse
changes in interest rates. We seek to mitigate the effects of fluctuations in interest rates by
matching the terms of new investments with new long-term fixed rate borrowings to the extent
possible. We may or may not elect to use financial derivative instruments to hedge interest rate
exposure. These decisions are principally based on our policy to match our variable rate
investments with comparable borrowings, but are also based on the general trend in interest rates
at the applicable dates and our perception of the future volatility of interest rates. This section
is presented to provide a discussion of the risks associated with potential fluctuations in
interest rates.
We historically borrow on our unsecured line of credit arrangement to acquire, construct or
make loans relating to health care and senior housing properties. Then, as market conditions
dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under the
unsecured line of credit arrangement.
A change in interest rates will not affect the interest expense associated with our fixed rate
debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in
the interest rate environment upon maturity of this fixed rate debt could have an effect on our
future cash flows and earnings, depending on whether the debt is replaced with other fixed rate
debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of
changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt
instruments whereby we modeled the change in net present values arising from a hypothetical 1%
increase in interest rates to determine the instruments change in fair value. The following table
summarizes the analysis performed as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Principal |
|
|
Change in |
|
|
Principal |
|
|
Change in |
|
|
|
balance |
|
|
fair value |
|
|
balance |
|
|
fair value |
|
Senior unsecured notes |
|
$ |
2,614,930 |
|
|
$ |
(226,147 |
) |
|
$ |
1,661,853 |
|
|
$ |
(129,350 |
) |
Secured debt |
|
|
826,615 |
|
|
|
(44,903 |
) |
|
|
491,094 |
|
|
|
(22,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
3,441,545 |
|
|
$ |
(271,050 |
) |
|
$ |
2,152,947 |
|
|
$ |
(151,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our variable rate debt, including our unsecured line of credit arrangement, is reflected
at fair value. At September 30, 2010, we had $0 outstanding related to our variable rate line of
credit and $70,650,000 outstanding related to our variable rate secured debt. Assuming no changes
in outstanding balances, a 1% increase in interest rates would result in increased annual interest
expense of $707,000. At December 31, 2009, we had $140,000,000 outstanding related to our variable
rate line of credit and $131,952,000 outstanding related to our variable rate secured debt.
Assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in
increased annual interest expense of $2,720,000.
We are subject to risks associated with debt financing, including the risk that existing
indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the
terms of current indebtedness. The majority of our borrowings were completed under indentures or
contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the
event that we are unable to raise additional equity or borrow money because of these limitations,
our ability to acquire additional properties may be limited.
51
Item 4. Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective in providing reasonable assurance that information
required to be disclosed by us in the reports we file with or submit to the Securities and Exchange
Commission (SEC) under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms. No changes in our internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the
fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
Except as provided in Item 2 Managements Discussion and Analysis of Financial Condition
and Results of Operations Forward Looking Statements and Risk Factors, there have been no
material changes from the risk factors identified under the heading Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2009, as updated by our Current Report on Form
8-K filed May 10, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Maximum Number of |
|
|
Total Number |
|
|
|
|
|
Purchased as Part of |
|
Shares that May Yet Be |
|
|
of Shares |
|
Average Price Paid |
|
Publicly Announced Plans |
|
Purchased Under the Plans |
Period |
|
Purchased(1) |
|
Per Share |
|
or Programs(2) |
|
or Programs |
July 1, 2010 through July 31, 2010
|
|
|
873 |
|
|
$ |
42.41 |
|
|
|
|
|
August 1, 2010 through August 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2010 through September
30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
873 |
|
|
$ |
42.41 |
|
|
|
|
|
|
|
|
(1) |
|
During the three months ended September 30, 2010, the company acquired shares of common stock held by employees who tendered owned shares to
satisfy the tax withholding on the lapse of certain restrictions on restricted stock. |
|
(2) |
|
No shares were purchased as part of publicly announced plans or programs. |
Item 5.
Other Information
Preferred Stock Certificates of Elimination
On November 4, 2010, we filed certificates of elimination with the Delaware Secretary of State
to eliminate from our Second Restated Certificate of Incorporation, as amended, all matters set
forth in the certificates of designation for the 6% Series E Cumulative Convertible and Redeemable
Preferred Stock and the 7.5% Series G Cumulative Convertible Preferred Stock.
During the nine months ended September 30, 2010, certain holders of our Series G Cumulative
Convertible Preferred Stock converted 394,200 shares into 282,078 shares of our common stock,
leaving 5,513 of such shares outstanding which were redeemed by us on September 30, 2010. During
the three months ended September 30, 2010, the holder of our Series E Cumulative Convertible and
Redeemable Preferred Stock converted 74,380 shares into 56,935 shares of our common stock, leaving
no such shares outstanding at September 30, 2010.
52
Item 6.
Exhibits
|
|
|
3.1
|
|
Certificate of Elimination of 6% Series E Cumulative Convertible and Redeemable Preferred
Stock of the company. |
|
|
|
3.2
|
|
Certificate of Elimination of 7.5% Series G Cumulative Convertible Preferred Stock of the
company. |
|
|
|
4.1
|
|
Indenture, dated as of March 15, 2010, between the company and The Bank of New York Mellon
Trust Company, N.A., as trustee (the Trustee) (filed with the Securities and Exchange
Commission as Exhibit 4.1 to the companys Form 8-K filed March 15, 2010, and incorporated
herein by reference thereto). |
|
|
|
4.2
|
|
Supplemental Indenture No. 3, dated as of September 10, 2010, between the company and the
Trustee (filed with the Securities and Exchange Commission as Exhibit 4.2 to the companys
Form 8-K filed September 10, 2010, and incorporated herein by reference thereto). |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer. |
|
|
|
32.2
|
|
Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer. |
|
|
|
101.INS
|
|
XBRL Instance Document* |
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document* |
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document* |
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document* |
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document* |
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document* |
|
|
|
* |
|
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are
the following materials, formatted in XBRL (eXtensible Business
Reporting Language): (i) the Consolidated Balance Sheets at
September 30, 2010 and December 31, 2009, (ii) the Consolidated
Statements of Income for the three and nine months ended September
30, 2010 and 2009, (iii) the Consolidated Statements of Equity for
the nine months ended September 30, 2010 and 2009, (iv) the
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2010 and 2009 and (v) the Notes to Unaudited
Consolidated Financial Statements tagged as blocks of text. |
|
|
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files
on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the
Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities and Exchange Act of 1934,
as amended, and otherwise are not subject to liability under those
sections. |
53
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
HEALTH CARE REIT, INC.
|
|
Date: November 8, 2010 |
By: |
/s/ GEORGE L. CHAPMAN
|
|
|
George L. Chapman, |
|
|
Chairman, Chief Executive Officer
and President
(Principal Executive Officer) |
|
|
|
|
|
Date: November 8, 2010 |
By: |
/s/ SCOTT A. ESTES
|
|
|
Scott A. Estes, |
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
Date: November 8, 2010 |
By: |
/s/ PAUL D. NUNGESTER, JR.
|
|
|
Paul D. Nungester, Jr., |
|
|
Vice President and Controller
(Principal Accounting Officer) |
|
54