e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
or
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|
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)
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Delaware
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34-1096634 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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One SeaGate, Suite 1500, Toledo, Ohio
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43604 |
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(Address of principal executive office)
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(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
o 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, 2009, the registrant had 123,011,917 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
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September 30, |
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December 31, |
|
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|
2009 |
|
|
2008 |
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|
|
(Unaudited) |
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|
(Note) |
|
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|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Real estate investments: |
|
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|
|
|
|
|
|
Real property owned: |
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|
|
|
|
|
|
|
Land and land improvements |
|
$ |
523,107 |
|
|
$ |
504,907 |
|
Buildings and improvements |
|
|
4,933,561 |
|
|
|
4,653,871 |
|
Acquired lease intangibles |
|
|
121,059 |
|
|
|
133,324 |
|
Real property held for sale, net of accumulated depreciation |
|
|
37,118 |
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|
|
48,054 |
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Construction in progress |
|
|
638,507 |
|
|
|
639,419 |
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|
|
|
|
|
|
|
Gross real property owned |
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|
6,253,352 |
|
|
|
5,979,575 |
|
Less accumulated depreciation and amortization |
|
|
(664,415 |
) |
|
|
(600,781 |
) |
|
|
|
|
|
|
|
Net real property owned |
|
|
5,588,937 |
|
|
|
5,378,794 |
|
Real estate loans receivable: |
|
|
|
|
|
|
|
|
Real estate loans receivable |
|
|
494,877 |
|
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|
482,885 |
|
Less allowance for losses on loans receivable |
|
|
(7,640 |
) |
|
|
(7,500 |
) |
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|
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|
|
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Net real estate loans receivable |
|
|
487,237 |
|
|
|
475,385 |
|
|
|
|
|
|
|
|
Net real estate investments |
|
|
6,076,174 |
|
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|
5,854,179 |
|
Other assets: |
|
|
|
|
|
|
|
|
Equity investments |
|
|
3,020 |
|
|
|
1,030 |
|
Deferred loan expenses |
|
|
24,755 |
|
|
|
23,579 |
|
Cash and cash equivalents |
|
|
102,353 |
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|
23,370 |
|
Restricted cash |
|
|
17,493 |
|
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|
154,070 |
|
Receivables and other assets |
|
|
157,611 |
|
|
|
136,890 |
|
|
|
|
|
|
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Total other assets |
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|
305,232 |
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|
|
338,939 |
|
|
|
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|
|
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Total assets |
|
$ |
6,381,406 |
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|
$ |
6,193,118 |
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|
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Liabilities and equity |
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Liabilities: |
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|
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|
Borrowings under unsecured lines of credit arrangements |
|
$ |
143,000 |
|
|
$ |
570,000 |
|
Senior unsecured notes |
|
|
1,651,916 |
|
|
|
1,831,151 |
|
Secured debt |
|
|
625,571 |
|
|
|
446,525 |
|
Accrued expenses and other liabilities |
|
|
124,769 |
|
|
|
107,157 |
|
|
|
|
|
|
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Total liabilities |
|
|
2,545,256 |
|
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|
2,954,833 |
|
Equity: |
|
|
|
|
|
|
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|
Preferred stock, $1.00 par value: |
|
|
288,683 |
|
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|
289,929 |
|
Authorized 50,000,000 shares
|
|
|
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|
Issued and outstanding 11,474,093 shares at September 30, 2009 and 11,516,302 shares
at December 31, 2008 |
|
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|
|
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|
Common stock, $1.00 par value: |
|
|
122,870 |
|
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|
104,635 |
|
Authorized 225,000,000 shares
|
|
|
|
|
|
|
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|
Issued 123,090,353 shares at September 30, 2009 and 104,835,626 shares at December 31, 2008
|
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Outstanding 122,892,428 shares at September 30, 2009 and 104,703,702 shares at December 31, 2008 |
|
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Capital in excess of par value |
|
|
3,878,872 |
|
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|
3,204,690 |
|
Treasury stock |
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|
(7,619 |
) |
|
|
(5,145 |
) |
Cumulative net income |
|
|
1,510,449 |
|
|
|
1,354,400 |
|
Cumulative dividends |
|
|
(1,968,336 |
) |
|
|
(1,723,819 |
) |
Accumulated other comprehensive income |
|
|
(4,942 |
) |
|
|
(1,113 |
) |
Other equity |
|
|
5,551 |
|
|
|
4,105 |
|
|
|
|
|
|
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|
Total Health Care REIT, Inc. stockholders equity |
|
|
3,825,528 |
|
|
|
3,227,682 |
|
Noncontrolling interests |
|
|
10,622 |
|
|
|
10,603 |
|
|
|
|
|
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| |
Total equity |
|
|
3,836,150 |
|
|
|
3,238,285 |
|
|
|
|
|
|
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|
Total liabilities and equity |
|
$ |
6,381,406 |
|
|
$ |
6,193,118 |
|
|
|
|
|
|
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|
NOTE: |
|
The consolidated balance sheet at December 31, 2008 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
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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|
2009 |
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|
2008 |
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|
(In thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
133,481 |
|
|
$ |
126,384 |
|
|
$ |
393,901 |
|
|
$ |
357,588 |
|
Interest income |
|
|
10,528 |
|
|
|
10,910 |
|
|
|
30,639 |
|
|
|
29,177 |
|
Other income |
|
|
1,089 |
|
|
|
2,055 |
|
|
|
3,810 |
|
|
|
5,655 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total revenues |
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|
145,098 |
|
|
|
139,349 |
|
|
|
428,350 |
|
|
|
392,420 |
|
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Expenses: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest expense |
|
|
28,571 |
|
|
|
33,725 |
|
|
|
82,512 |
|
|
|
101,569 |
|
Property operating expenses |
|
|
12,433 |
|
|
|
11,192 |
|
|
|
35,377 |
|
|
|
32,600 |
|
Depreciation and amortization |
|
|
41,085 |
|
|
|
39,011 |
|
|
|
120,129 |
|
|
|
109,649 |
|
General and administrative |
|
|
10,363 |
|
|
|
10,789 |
|
|
|
38,784 |
|
|
|
33,693 |
|
Realized loss of derivatives |
|
|
0 |
|
|
|
1,513 |
|
|
|
0 |
|
|
|
1,513 |
|
Loss (gain) on extinguishment of debt |
|
|
26,374 |
|
|
|
(768 |
) |
|
|
24,697 |
|
|
|
(2,094 |
) |
Provision for loan losses |
|
|
0 |
|
|
|
0 |
|
|
|
140 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
118,826 |
|
|
|
95,462 |
|
|
|
301,639 |
|
|
|
276,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
26,272 |
|
|
|
43,887 |
|
|
|
126,711 |
|
|
|
115,490 |
|
Income tax (expense) benefit |
|
|
55 |
|
|
|
153 |
|
|
|
(17 |
) |
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
26,327 |
|
|
|
44,040 |
|
|
|
126,694 |
|
|
|
114,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
(806 |
) |
|
|
12,619 |
|
|
|
26,907 |
|
|
|
130,813 |
|
Impairment of assets |
|
|
(1,873 |
) |
|
|
0 |
|
|
|
(1,873 |
) |
|
|
0 |
|
Income from discontinued operations, net |
|
|
1,037 |
|
|
|
2,661 |
|
|
|
4,361 |
|
|
|
10,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
(1,642 |
) |
|
|
15,280 |
|
|
|
29,395 |
|
|
|
141,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
24,685 |
|
|
|
59,320 |
|
|
|
156,089 |
|
|
|
256,036 |
|
Less: Preferred stock dividends |
|
|
5,520 |
|
|
|
5,730 |
|
|
|
16,560 |
|
|
|
17,660 |
|
Net income attributable to noncontrolling interests |
|
|
35 |
|
|
|
1 |
|
|
|
40 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
19,130 |
|
|
$ |
53,589 |
|
|
$ |
139,489 |
|
|
$ |
238,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
114,874 |
|
|
|
96,040 |
|
|
|
111,345 |
|
|
|
90,500 |
|
Diluted |
|
|
115,289 |
|
|
|
96,849 |
|
|
|
111,749 |
|
|
|
91,121 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.18 |
|
|
$ |
0.40 |
|
|
$ |
0.99 |
|
|
$ |
1.07 |
|
Discontinued operations, net |
|
|
(0.01 |
) |
|
|
0.16 |
|
|
|
0.26 |
|
|
|
1.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders* |
|
$ |
0.17 |
|
|
$ |
0.56 |
|
|
$ |
1.25 |
|
|
$ |
2.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.18 |
|
|
$ |
0.40 |
|
|
$ |
0.99 |
|
|
$ |
1.06 |
|
Discontinued operations, net |
|
|
(0.01 |
) |
|
|
0.16 |
|
|
|
0.26 |
|
|
|
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders* |
|
$ |
0.17 |
|
|
$ |
0.55 |
|
|
$ |
1.25 |
|
|
$ |
2.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid per common share |
|
$ |
0.68 |
|
|
$ |
0.68 |
|
|
$ |
2.04 |
|
|
$ |
2.02 |
|
|
|
|
* |
|
Amounts may not sum due to rounding |
See notes to unaudited consolidated financial statements
4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Preferred |
|
Common |
|
Excess of |
|
Treasury |
|
Cumulative |
|
Cumulative |
|
Comprehensive |
|
Other |
|
Noncontrolling |
|
|
(in thousands) |
|
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 |
|
Net proceeds from sale of common stock |
|
|
|
|
|
|
16,969 |
|
|
|
628,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645,263 |
|
Conversion of preferred stock |
|
|
(1,246 |
) |
|
|
30 |
|
|
|
1,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,446 |
|
|
|
|
|
|
|
1,446 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock-$2.04 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,959 |
) |
Preferred stock, Series D-$1.4766 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,906 |
) |
Preferred stock, Series E-$1.125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
Preferred stock, Series F-$1.4297 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,008 |
) |
Preferred stock, Series G-$1.4064 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(560 |
) |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
330,243 |
|
|
$ |
85,412 |
|
|
$ |
2,394,099 |
|
|
$ |
(3,952 |
) |
|
$ |
1,071,101 |
|
|
$ |
(1,446,959 |
) |
|
$ |
(7,381 |
) |
|
$ |
2,701 |
|
|
$ |
9,687 |
|
|
$ |
2,434,951 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
256,036 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
(14 |
) |
Cash flow hedge activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,510 |
) |
|
|
|
|
|
|
|
|
|
|
(4,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
1,609 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,466 |
) |
|
|
(2,466 |
) |
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures |
|
|
|
|
|
|
1,362 |
|
|
|
60,291 |
|
|
|
(1,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
60,361 |
|
Proceeds from issuance of common shares |
|
|
|
|
|
|
15,650 |
|
|
|
665,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,411 |
|
Conversion of preferred stock |
|
|
(28,342 |
) |
|
|
686 |
|
|
|
27,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,175 |
|
|
|
|
|
|
|
1,175 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock-$2.02 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183,080 |
) |
Preferred stock, Series D-$1.4766 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,906 |
) |
Preferred stock, Series E-$1.125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
Preferred stock, Series F-$1.4297 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,008 |
) |
Preferred stock, Series G-$1.4064 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,662 |
) |
|
|
|
Balances at end of period |
|
$ |
301,901 |
|
|
$ |
103,110 |
|
|
$ |
3,147,807 |
|
|
$ |
(5,145 |
) |
|
$ |
1,327,009 |
|
|
$ |
(1,647,699 |
) |
|
$ |
(11,905 |
) |
|
$ |
3,777 |
|
|
$ |
8,958 |
|
|
$ |
3,227,813 |
|
|
|
|
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, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
156,089 |
|
|
$ |
256,036 |
|
Adjustments to reconcile net income to
net cash provided from (used in) operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
123,143 |
|
|
|
120,894 |
|
Other amortization expenses |
|
|
10,999 |
|
|
|
11,217 |
|
Provision for loan losses |
|
|
140 |
|
|
|
0 |
|
Impairment of assets |
|
|
1,873 |
|
|
|
0 |
|
Stock-based compensation expense |
|
|
8,734 |
|
|
|
6,726 |
|
Loss (gain) on extinguishment of debt, net |
|
|
24,697 |
|
|
|
(2,094 |
) |
Rental income less than (in excess of)
cash received |
|
|
8,964 |
|
|
|
(128 |
) |
Amortization related to above (below) market leases, net |
|
|
(1,344 |
) |
|
|
(676 |
) |
(Gain) loss on sales of properties |
|
|
(26,907 |
) |
|
|
(130,813 |
) |
Deferred gain on sales of properties |
|
|
0 |
|
|
|
3,708 |
|
Increase (decrease) in accrued expenses and
other liabilities |
|
|
(5,038 |
) |
|
|
24,128 |
|
Decrease (increase) in receivables and
other assets |
|
|
(10,901 |
) |
|
|
(4,594 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) operating activities |
|
|
290,449 |
|
|
|
284,404 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Investment in real property |
|
|
(417,378 |
) |
|
|
(872,011 |
) |
Capitalized interest |
|
|
(30,866 |
) |
|
|
(16,594 |
) |
Investment in real estate loans receivable |
|
|
(46,882 |
) |
|
|
(74,353 |
) |
Other investments, net of payments |
|
|
(5,455 |
) |
|
|
(2,657 |
) |
Principal collected on real estate loans receivable |
|
|
34,892 |
|
|
|
13,524 |
|
Decrease (increase) in restricted cash |
|
|
136,577 |
|
|
|
(65,614 |
) |
Proceeds from sales of real property |
|
|
153,507 |
|
|
|
208,294 |
|
Other |
|
|
(13,514 |
) |
|
|
(7,311 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) investing activities |
|
|
(189,119 |
) |
|
|
(816,722 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net increase (decrease) under unsecured
lines of credit arrangements |
|
|
(427,000 |
) |
|
|
80,000 |
|
Payments to extinguish senior unsecured notes |
|
|
(201,048 |
) |
|
|
(42,330 |
) |
Net proceeds from the issuance of secured debt |
|
|
276,277 |
|
|
|
0 |
|
Principal payments on secured debt |
|
|
(102,635 |
) |
|
|
(53,050 |
) |
Net proceeds from the issuance of common stock |
|
|
683,883 |
|
|
|
737,325 |
|
Decrease (increase) in deferred loan expenses |
|
|
(7,286 |
) |
|
|
(26 |
) |
Contributions by noncontrolling interests |
|
|
1,946 |
|
|
|
1,609 |
|
Distributions to noncontrolling interests |
|
|
(1,967 |
) |
|
|
(2,466 |
) |
Cash distributions to stockholders |
|
|
(244,517 |
) |
|
|
(200,740 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) financing activities |
|
|
(22,347 |
) |
|
|
520,322 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
78,983 |
|
|
|
(11,996 |
) |
Cash and cash equivalents at beginning of period |
|
|
23,370 |
|
|
|
30,269 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
102,353 |
|
|
$ |
18,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
100,365 |
|
|
$ |
112,890 |
|
Income taxes paid |
|
|
534 |
|
|
|
1,576 |
|
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, 2009, our broadly diversified portfolio consisted of 608 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, 2009 are not necessarily an indication of the
results that may be expected for the year ending December 31, 2009. 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, 2008, as updated by our Current Report on Form 8-K filed August 6,
2009.
3. Real Property Acquisitions and Development
The following is a summary of our real property investment activity for the periods presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
Real property acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
0 |
|
|
|
|
|
|
$ |
0 |
|
|
$ |
68,300 |
|
|
|
|
|
|
$ |
68,300 |
|
Assisted living facilities |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
45,490 |
|
|
|
|
|
|
|
45,490 |
|
Skilled nursing facilities |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
11,360 |
|
|
|
|
|
|
|
11,360 |
|
Specialty care facilities |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
182,303 |
|
|
|
|
|
|
|
182,303 |
|
Medical office buildings |
|
|
|
|
|
$ |
0 |
|
|
|
0 |
|
|
|
|
|
|
$ |
121,809 |
|
|
|
121,809 |
|
Land parcels |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
10,000 |
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisitions |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
317,453 |
|
|
|
121,809 |
|
|
|
439,262 |
|
Less: Assumed debt |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
Assumed other assets (liabilities), net |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(1,599 |
) |
|
|
(1,599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for acquisitions |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
317,453 |
|
|
|
120,210 |
|
|
|
437,663 |
|
Construction in progress additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
131,077 |
|
|
|
|
|
|
|
131,077 |
|
|
|
198,080 |
|
|
|
|
|
|
|
198,080 |
|
Assisted living facilities |
|
|
118,989 |
|
|
|
|
|
|
|
118,989 |
|
|
|
91,208 |
|
|
|
|
|
|
|
91,208 |
|
Skilled nursing facilities |
|
|
19,534 |
|
|
|
|
|
|
|
19,534 |
|
|
|
19,199 |
|
|
|
|
|
|
|
19,199 |
|
Specialty care facilities |
|
|
82,671 |
|
|
|
|
|
|
|
82,671 |
|
|
|
60,560 |
|
|
|
|
|
|
|
60,560 |
|
Medical office buildings |
|
|
|
|
|
|
96,642 |
|
|
|
96,642 |
|
|
|
|
|
|
|
62,129 |
|
|
|
62,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress
additions |
|
|
352,271 |
|
|
|
96,642 |
|
|
|
448,913 |
|
|
|
369,047 |
|
|
|
62,129 |
|
|
|
431,176 |
|
Less: Capitalized interest |
|
|
(26,147 |
) |
|
|
(4,719 |
) |
|
|
(30,866 |
) |
|
|
(15,624 |
) |
|
|
(970 |
) |
|
|
(16,594 |
) |
Capitalized other |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(119 |
) |
|
|
|
|
|
|
(119 |
) |
Accruals (1) |
|
|
|
|
|
|
(21,466 |
) |
|
|
(21,466 |
) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for construction in progress |
|
|
326,124 |
|
|
|
70,457 |
|
|
|
396,581 |
|
|
|
353,304 |
|
|
|
61,159 |
|
|
|
414,463 |
|
Capital improvements to existing properties |
|
|
11,938 |
|
|
|
8,859 |
|
|
|
20,797 |
|
|
|
14,540 |
|
|
|
5,345 |
|
|
|
19,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash invested in real property |
|
$ |
338,062 |
|
|
$ |
79,316 |
|
|
$ |
417,378 |
|
|
$ |
685,297 |
|
|
$ |
186,714 |
|
|
$ |
872,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents non-cash accruals for amounts to be paid in future periods relating to properties
that converted in the period noted above. |
7
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
The following is a summary of the construction projects that were placed into service and
began generating revenues during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
Development projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
102,621 |
|
|
|
|
|
|
$ |
102,621 |
|
|
$ |
120,452 |
|
|
|
|
|
|
$ |
120,452 |
|
Assisted living facilities |
|
|
154,835 |
|
|
|
|
|
|
|
154,835 |
|
|
|
39,446 |
|
|
|
|
|
|
|
39,446 |
|
Skilled nursing facilities |
|
|
14,561 |
|
|
|
|
|
|
|
14,561 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Specialty care facilities |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
35,151 |
|
|
|
|
|
|
|
35,151 |
|
Medical office buildings |
|
|
|
|
|
$ |
173,744 |
|
|
|
173,744 |
|
|
|
|
|
|
$ |
11,823 |
|
|
|
11,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total development projects |
|
|
272,017 |
|
|
|
173,744 |
|
|
|
445,761 |
|
|
|
195,049 |
|
|
|
11,823 |
|
|
|
206,872 |
|
Expansion projects |
|
|
4,064 |
|
|
|
|
|
|
|
4,064 |
|
|
|
40,341 |
|
|
|
|
|
|
|
40,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress conversions |
|
$ |
276,081 |
|
|
$ |
173,744 |
|
|
$ |
449,825 |
|
|
$ |
235,390 |
|
|
$ |
11,823 |
|
|
$ |
247,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Real Estate Intangibles
The following is a summary of our real estate intangibles as of the dates indicated (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Assets: |
|
|
|
|
|
|
|
|
In place lease intangibles |
|
$ |
71,679 |
|
|
$ |
81,500 |
|
Above market tenant leases |
|
|
6,929 |
|
|
|
9,658 |
|
Below market ground leases |
|
|
39,806 |
|
|
|
39,806 |
|
Lease commissions |
|
|
2,645 |
|
|
|
2,360 |
|
|
|
|
|
|
|
|
Gross historical cost |
|
|
121,059 |
|
|
|
133,324 |
|
Accumulated amortization |
|
|
(28,087 |
) |
|
|
(31,452 |
) |
|
|
|
|
|
|
|
Net book value |
|
$ |
92,972 |
|
|
$ |
101,872 |
|
|
|
|
|
|
|
|
Weighted-average amortization period in years |
|
|
30.2 |
|
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Below market tenant leases |
|
$ |
22,989 |
|
|
$ |
25,265 |
|
Above market ground leases |
|
|
3,419 |
|
|
|
3,419 |
|
|
|
|
|
|
|
|
Gross historical cost |
|
|
26,408 |
|
|
|
28,684 |
|
Accumulated amortization |
|
|
(9,588 |
) |
|
|
(8,671 |
) |
|
|
|
|
|
|
|
Net book value |
|
$ |
16,820 |
|
|
$ |
20,013 |
|
|
|
|
|
|
|
|
Weighted-average amortization period in years |
|
|
12.0 |
|
|
|
8.9 |
|
5. Dispositions, Assets Held for Sale and Discontinued Operations
At September 30, 2009, we had six skilled nursing facilities that satisfied the requirements
for held for sale treatment. We did not recognize any impairment loss on these properties in 2009
as the fair value less estimated costs to sell exceeded our carrying values. Also, at September 30,
2009, we had four medical office buildings that satisfied the requirements for held for sale
treatment. During the three months ended September 30, 2009, an impairment charge of $1,873,000 was
recorded to further reduce the carrying value of the four medical office buildings to their
estimated fair value less costs to sell. In determining the fair value of the medical office
buildings, we used a combination of third party appraisals based on market comparable transactions,
other market listings and asset quality as well as third party offers to purchase. During the year
ended December 31, 2008, an impairment charge of $32,648,000 was recorded to reduce
the carrying value of 14 medical office buildings to their estimated fair value less costs to sell.
In determining the fair value of the medical office buildings, 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.
The following is a summary of our real property disposition activity for the periods presented (in
thousands):
8
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
Real property dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
24,340 |
|
|
|
|
|
|
$ |
24,340 |
|
|
$ |
15,547 |
|
|
|
|
|
|
$ |
15,547 |
|
Assisted living facilities |
|
|
20,537 |
|
|
|
|
|
|
|
20,537 |
|
|
|
106,740 |
|
|
|
|
|
|
|
106,740 |
|
Skilled nursing facilities |
|
|
18,854 |
|
|
|
|
|
|
|
18,854 |
|
|
|
4,489 |
|
|
|
|
|
|
|
4,489 |
|
Specialty care facilities |
|
|
40,841 |
|
|
|
|
|
|
|
40,841 |
|
|
|
8,735 |
|
|
|
|
|
|
|
8,735 |
|
Medical office buildings |
|
|
|
|
|
$ |
28,128 |
|
|
|
28,128 |
|
|
|
0 |
|
|
$ |
6,781 |
|
|
|
6,781 |
|
Land parcels |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
73 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
|
104,572 |
|
|
|
28,128 |
|
|
|
132,700 |
|
|
|
135,584 |
|
|
|
6,781 |
|
|
|
142,365 |
|
Less: Gain/(loss) on sales of real property |
|
|
27,713 |
|
|
|
(806 |
) |
|
|
26,907 |
|
|
|
131,874 |
|
|
|
(1,061 |
) |
|
|
130,813 |
|
Extinguishment of other
assets/(liabilities) |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(113 |
) |
|
|
(113 |
) |
Seller financing on sales of real property |
|
|
|
|
|
|
(6,100 |
) |
|
|
(6,100 |
) |
|
|
(59,649 |
) |
|
|
(5,122 |
) |
|
|
(64,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from real property sales |
|
$ |
132,285 |
|
|
$ |
21,222 |
|
|
$ |
153,507 |
|
|
$ |
207,809 |
|
|
$ |
485 |
|
|
$ |
208,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have reclassified the income and expenses attributable to all properties sold and
attributable to properties held for sale at September 30, 2009 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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
1,840 |
|
|
$ |
7,645 |
|
|
$ |
10,662 |
|
|
$ |
31,418 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
262 |
|
|
|
1,629 |
|
|
|
1,664 |
|
|
|
7,261 |
|
Property operating expenses |
|
|
541 |
|
|
|
676 |
|
|
|
1,623 |
|
|
|
2,009 |
|
Provision for depreciation |
|
|
0 |
|
|
|
2,679 |
|
|
|
3,014 |
|
|
|
11,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net |
|
$ |
1,037 |
|
|
$ |
2,661 |
|
|
$ |
4,361 |
|
|
$ |
10,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Real Estate Loans Receivable
All real estate loans receivable are in our investment property segment. The following is a
summary of our real estate loan activity for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Advances on real estate loans receivable: |
|
|
|
|
|
|
|
|
Investments in new loans |
|
$ |
3,316 |
|
|
$ |
120,961 |
|
Draws on existing loans |
|
|
43,566 |
|
|
|
13,041 |
|
|
|
|
|
|
|
|
Total gross investments in real estate loans |
|
|
46,882 |
|
|
|
134,002 |
|
Less: Seller financing on sales of real property |
|
|
0 |
|
|
|
(59,649 |
) |
|
|
|
|
|
|
|
Net cash advances on real estate loans receivable |
|
|
46,882 |
|
|
|
74,353 |
|
Receipts on real estate loans receivable: |
|
|
|
|
|
|
|
|
Loan payoffs |
|
|
20,440 |
|
|
|
8,815 |
|
Principal payments on loans |
|
|
14,452 |
|
|
|
4,709 |
|
|
|
|
|
|
|
|
Total principal receipts on real estate loans |
|
|
34,892 |
|
|
|
13,524 |
|
|
|
|
|
|
|
|
Net cash advances (receipts) on real estate loans receivable |
|
$ |
11,990 |
|
|
$ |
60,829 |
|
|
|
|
|
|
|
|
9
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
7. Customer Concentration
At September 30, 2009, we had 64 investment property operators and over 800 medical office
building tenants. The following table summarizes certain information about our customer
concentration as of September 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Total |
|
|
Percent of |
|
|
|
Properties |
|
|
Investment |
|
|
Investment (2) |
|
Concentration by investment (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Senior Living Communities, LLC |
|
|
10 |
|
|
$ |
396,649 |
|
|
|
7 |
% |
Brookdale Senior Living, Inc. |
|
|
86 |
|
|
|
307,920 |
|
|
|
5 |
% |
Signature Healthcare LLC |
|
|
34 |
|
|
|
307,574 |
|
|
|
5 |
% |
Emeritus Corporation |
|
|
21 |
|
|
|
241,276 |
|
|
|
4 |
% |
Life Care Centers of America, Inc |
|
|
18 |
|
|
|
206,099 |
|
|
|
3 |
% |
Remaining portfolio |
|
|
439 |
|
|
|
4,624,296 |
|
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
608 |
|
|
$ |
6,083,814 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All of our top five customers are in our investment properties segment. |
|
(2) |
|
Investments with our top five customers comprised 25% of total investments at December 31,
2008. |
8. Borrowings Under Line of Credit Arrangement and Related Items
At September 30, 2009, 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 (0.85% at September 30, 2009). The applicable margin is based on our
ratings with Moodys Investors Service and Standard & Poors Ratings Services and was 0.6% at
September 30, 2009. In addition, we pay a facility fee annually to each bank based on the banks
commitment amount. The facility fee depends on our ratings with Moodys Investors Service and
Standard & Poors Ratings Services and was 0.15% at September 30, 2009. 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 |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Balance outstanding at quarter end |
|
$ |
143,000 |
|
|
$ |
387,000 |
|
|
$ |
143,000 |
|
|
$ |
387,000 |
|
Maximum amount outstanding at any month end |
|
$ |
292,000 |
|
|
$ |
701,000 |
|
|
$ |
559,000 |
|
|
$ |
744,000 |
|
Average amount outstanding (total of daily
principal balances divided by days in period) |
|
$ |
217,174 |
|
|
$ |
577,717 |
|
|
$ |
301,740 |
|
|
$ |
509,307 |
|
Weighted average interest rate (actual all-in interest/fees
expense divided by average borrowings
outstanding) |
|
|
1.99 |
% |
|
|
3.53 |
% |
|
|
1.76 |
% |
|
|
3.85 |
% |
10
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
9. Senior Unsecured Notes and Secured Debt
We have $1,651,916,000 of senior unsecured notes with annual interest rates ranging from 4.75%
to 8.00%. The carrying amounts of the senior unsecured notes represent the par value of
$1,661,853,000 adjusted for any unamortized premiums or discounts and other basis adjustments
related to hedging the debt with derivative instruments. See Note 10 for further discussion
regarding derivative instruments. During the nine months ended September 30, 2009, we extinguished
$183,147,000 of senior unsecured notes principal for $201,048,000 and recognized debt
extinguishment losses of $19,269,000.
We have secured debt totaling $625,571,000, collateralized by owned properties, with annual
interest rates ranging from 4.89% to 6.99%. The carrying amounts of the secured debt represent the
par value of $627,790,000 adjusted for any unamortized fair value adjustments. The carrying values
of the properties securing the debt totaled $908,536,000 at September 30, 2009. During the nine
months ended September 30, 2009, we completed $276,277,000 of
first mortgage loans secured by 31 senior housing properties with multiple levels of service and one commercial office campus. During
the nine months ended September 30, 2009, we extinguished $79,743,000 of secured debt prior to
maturity and recognized debt extinguishment losses of $5,428,000.
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, 2009, we were in compliance with all of the covenants under our debt agreements.
At September 30, 2009, the annual principal payments due on these debt obligations were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior |
|
|
Secured |
|
|
|
|
|
|
Unsecured Notes (1) |
|
|
Debt (1) |
|
|
Totals |
|
2009 |
|
$ |
0 |
|
|
$ |
2,786 |
|
|
$ |
2,786 |
|
2010 |
|
|
0 |
|
|
|
12,250 |
|
|
|
12,250 |
|
2011 |
|
|
0 |
|
|
|
12,920 |
|
|
|
12,920 |
|
2012 |
|
|
76,853 |
|
|
|
19,060 |
|
|
|
95,913 |
|
2013 |
|
|
300,000 |
|
|
|
67,828 |
|
|
|
367,828 |
|
Thereafter |
|
|
1,285,000 |
|
|
|
512,946 |
|
|
|
1,797,946 |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,661,853 |
|
|
$ |
627,790 |
|
|
$ |
2,289,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal amounts due and do not include unamortized premiums/discounts or
other fair value adjustments as reflected on the balance sheet. |
10. 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. Derivatives are recorded 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 pricing models that
consider 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 |
|
Sep. 30, 2009 |
|
Dec. 31, 2008 |
Cash flow hedge interest rate swaps |
|
Other liabilities |
|
$ |
4,375 |
|
|
$ |
0 |
|
11
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
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 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 $2,936,000
of losses, which are included in other comprehensive income, 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 three and nine months ended September 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income |
|
|
Gain (Loss) |
|
Gain (Loss) Reclass from AOCI |
|
(Ineffective Portion and Amount |
|
|
Recognized in OCI |
|
into Income (Effective Portion) |
|
Excluded from Effectiveness Testing) |
|
|
(Effective Portion) |
|
|
|
Amount |
|
|
|
Amount |
|
|
Three |
|
Nine |
|
|
|
Three |
|
Nine |
|
|
|
Three |
|
Nine |
|
|
Months |
|
Months |
|
|
|
Months |
|
Months |
|
|
|
Months |
|
Months |
|
|
Ended |
|
Ended |
|
Location |
|
Ended |
|
Ended |
|
Location |
|
Ended |
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
(4,644 |
) |
|
$ |
(4,644 |
) |
|
Interest expense |
|
$ |
229 |
|
|
$ |
148 |
|
|
Realized loss |
|
$ |
0 |
|
|
$ |
0 |
|
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. The August 2009 Swap has an effective date of August 12, 2009
and a maturity date of September 1, 2016. The August 2009 Swap has the economic effect of fixing
$52,198,000 at 3.93% plus a credit spread for seven years. The August 2009 Swap has been
designated as a cash flow hedge and we expect 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. The September 2009 Swap has an effective date of September 30,
2009 and a maturity date of October 1, 2016. The September 2009 Swap has the economic effect of
fixing $48,155,000 at 3.2675% plus a credit spread for seven years. The September 2009 Swap has
been designated as a cash flow hedge and we expect 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.
During the three months ended September 30, 2008, we recognized a realized loss on derivatives
of $1,513,000 related to forward rate-interest rate swaps that were in place to hedge future debt
issuances when the timing of those issuances were revised.
Fair Value Hedges
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, 2009.
12
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
11. Commitments and Contingencies
We have an outstanding letter 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
letter of credit terminates in 2009. At September 30, 2009, our obligation under the letter of
credit was $2,450,000.
We have an outstanding letter of credit issued for the benefit of certain insurance companies
that provide liability insurance to one of our tenants.
Our obligation to the tenant to provide the
letter of credit terminates in 2013. At September 30, 2009, 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 2010. At September 30, 2009, our obligation under the letter of credit was $129,057.
We have an outstanding letter of credit issued for the benefit of a municipality in
Pennsylvania in connection with the completion and installation of certain property improvements by
one of our subsidiaries. The improvements are expected to be approved
by the municipality in 2009. At September 30,
2009, our obligation under the letter of credit was $485,810.
We have an outstanding letter of credit issued for the benefit of a lender as additional
credit support for a secured loan of a medical office building. Our obligation to provide the
letter of credit terminates when the buildings occupancy thresholds are met with qualified leases.
At September 30, 2009, our obligation under the letter of credit was $475,000.
At September 30, 2009, we had outstanding construction financings of $638,507,000 for leased
properties and were committed to providing additional financing of approximately $328,553,000 to
complete construction. At September 30, 2009, we had contingent purchase obligations totaling
$9,446,000. These contingent purchase obligations primarily relate to deferred acquisition
fundings and capital improvements. Deferred acquisition fundings are contingent upon an operator
satisfying certain conditions such as payment coverage and value tests. Rents due from the tenant
are increased to reflect the additional investment in the property.
At September 30, 2009, we had operating lease obligations of $176,093,000 relating to certain
ground leases and company office space. We incurred rental expense relating to our company office
space of $302,000 and $899,000 for the three and nine months ended September 30, 2009,
respectively, as compared to $339,000 and $883,000 for the same periods in 2008. 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, 2009, aggregate
future minimum rentals to be received under these noncancelable subleases totaled $30,113,000.
At September 30, 2009, future minimum lease payments due under operating leases were as
follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
1,123 |
|
2010 |
|
|
4,422 |
|
2011 |
|
|
4,487 |
|
2012 |
|
|
4,167 |
|
2013 |
|
|
4,179 |
|
Thereafter |
|
|
157,715 |
|
|
|
|
|
Totals |
|
$ |
176,093 |
|
|
|
|
|
12. Stockholders Equity
Preferred Stock. During the nine months ended September 30, 2009, certain holders of our
Series E Cumulative Convertible and Redeemable Preferred Stock converted 609 shares into 466 shares
of our common stock, leaving 74,380 of such shares outstanding at September 30, 2009. 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.
13
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
Common Stock. The following is a summary of our common stock issuances during the nine months
ended September 30, 2009 and 2008 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued |
|
|
Average Price |
|
|
Gross Proceeds |
|
|
Net Proceeds |
|
|
March 2008 public issuance |
|
|
3,000,000 |
|
|
$ |
41.44 |
|
|
$ |
124,320 |
|
|
$ |
118,555 |
|
July 2008 public issuance |
|
|
4,600,000 |
|
|
|
44.50 |
|
|
|
204,700 |
|
|
|
193,157 |
|
September 2008 public issuance |
|
|
8,050,000 |
|
|
|
48.00 |
|
|
|
386,400 |
|
|
|
369,699 |
|
2008 Dividend reinvestment plan issuances |
|
|
1,165,441 |
|
|
|
45.19 |
|
|
|
52,668 |
|
|
|
52,668 |
|
2008 Option exercises |
|
|
111,395 |
|
|
|
29.14 |
|
|
|
3,246 |
|
|
|
3,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Totals |
|
|
16,926,836 |
|
|
|
|
|
|
$ |
771,334 |
|
|
$ |
737,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 20, 2009, we paid a dividend of $0.68 per share to stockholders of record on
January 31, 2009. These dividends related to the period from October 1, 2008 through December 31,
2008. On May 20, 2009, we paid a dividend of $0.68 per share to stockholders of record on May 11,
2009. These dividends related to the period from January 1, 2009 to March 31, 2009. On August 20,
2009, we paid a dividend of $0.68 per share to stockholders of record on August 10, 2009. These
dividends related to the period from April 1, 2009 to June 30, 2009.
Comprehensive Income
The following is a summary of accumulated other comprehensive income as of the dates indicated
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
Unrecognized gains (losses) on cash flow hedges |
|
$ |
(3,861 |
) |
|
$ |
635 |
|
Unrecognized gains (losses) on equity investments |
|
|
(371 |
) |
|
|
(1,038 |
) |
Unrecognized actuarial gains (losses) |
|
|
(710 |
) |
|
|
(710 |
) |
|
|
|
|
|
|
|
Totals |
|
$ |
(4,942 |
) |
|
$ |
(1,113 |
) |
|
|
|
|
|
|
|
The following is a summary of comprehensive income for the periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Unrecognized gains (losses) on cash flow hedges |
|
$ |
(4,415 |
) |
|
$ |
(3,934 |
) |
|
$ |
(4,496 |
) |
|
$ |
(4,510 |
) |
Unrecognized losses (gains) on equity investments |
|
|
489 |
|
|
|
575 |
|
|
|
667 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
(3,926 |
) |
|
|
(3,359 |
) |
|
|
(3,829 |
) |
|
|
(4,524 |
) |
Net income attributable to controlling interests |
|
|
24,650 |
|
|
|
59,319 |
|
|
|
156,049 |
|
|
|
255,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to controlling interests |
|
|
20,724 |
|
|
|
55,960 |
|
|
|
152,220 |
|
|
|
251,384 |
|
Net and comprehensive income attributable to noncontrolling interests |
|
|
35 |
|
|
|
1 |
|
|
|
40 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
20,759 |
|
|
$ |
55,961 |
|
|
$ |
152,260 |
|
|
$ |
251,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
subsequent to January 1, 2003. Expense, which is recognized as the options vest based on the
market value at the date of the award, totaled $182,000 and $1,446,000 for the three and nine
months ended September 30, 2009, respectively, as compared to $241,000 and $1,175,000 for the same
periods in 2008.
14
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
13. Stock Incentive Plans
Our 2005 Long-Term Incentive Plan, as amended and restated effective May 7, 2009, 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 |
|
Nine Months Ended |
|
|
September 30, 2009 |
|
September 30, 2008 |
Dividend yield (1) |
|
|
7.35 |
% |
|
|
6.47 |
% |
Expected volatility |
|
|
29.36 |
% |
|
|
20.52 |
% |
Risk-free interest rate |
|
|
2.33 |
% |
|
|
3.42 |
% |
Expected life (in years) |
|
|
7.0 |
|
|
|
6.5 |
|
Weighted-average fair value (1) |
|
$ |
4.38 |
|
|
$ |
6.25 |
|
|
|
|
(1) |
|
Certain options granted to employees in 2008 include dividend equivalent rights
(DERs). The fair value of options with DERs also includes the net present value of projected
future dividend payments over the expected life of the option discounted at the dividend yield
rate. |
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.
Option Award Activity
The following table summarizes information about stock option activity for the nine months
ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
817 |
|
|
$ |
38.29 |
|
|
|
8.2 |
|
|
|
|
|
Options granted |
|
|
366 |
|
|
|
37.00 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(3 |
) |
|
|
26.67 |
|
|
|
|
|
|
|
|
|
Options terminated |
|
|
(5 |
) |
|
|
40.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at end of period |
|
|
1,175 |
|
|
$ |
37.92 |
|
|
|
8.1 |
|
|
$ |
4,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
500 |
|
|
$ |
36.75 |
|
|
|
6.5 |
|
|
$ |
2,680 |
|
Weighted average fair value of
options granted during the period |
|
|
|
|
|
$ |
4.38 |
|
|
|
|
|
|
|
|
|
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, 2009. During the nine months ended September 30, 2009, the aggregate
intrinsic value of options exercised under our stock incentive plans was $54,000 (determined as of
the date of option exercise). During the nine months ended September 30, 2008, the aggregate
intrinsic value of options exercised under our stock incentive plans was $1,890,000 (determined as
of the date of option exercise). Cash received from option exercises under our stock incentive
plans was $92,000 and $3,246,000 for the nine months ended September 30, 2009 and 2008,
respectively.
15
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
As of September 30, 2009, there was approximately $2,061,000 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,
2009, there was approximately $7,382,000 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, 2009 and changes for the nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008 |
|
|
534 |
|
|
$ |
6.98 |
|
|
|
443 |
|
|
$ |
41.95 |
|
Vested |
|
|
(220 |
) |
|
|
7.41 |
|
|
|
(196 |
) |
|
|
41.48 |
|
Granted |
|
|
366 |
|
|
|
4.38 |
|
|
|
160 |
|
|
|
37.07 |
|
Terminated |
|
|
(5 |
) |
|
|
6.14 |
|
|
|
(2 |
) |
|
|
40.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2009 |
|
|
675 |
|
|
$ |
5.44 |
|
|
|
405 |
|
|
$ |
40.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. 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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings
per share net income attributable to
common stockholders |
|
$ |
19,130 |
|
|
$ |
53,589 |
|
|
$ |
139,489 |
|
|
$ |
238,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share weighted average shares |
|
|
114,874 |
|
|
|
96,040 |
|
|
|
111,345 |
|
|
|
90,500 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
11 |
|
|
|
146 |
|
|
|
0 |
|
|
|
98 |
|
Non-vested restricted shares |
|
|
404 |
|
|
|
455 |
|
|
|
404 |
|
|
|
454 |
|
Convertible senior unsecured notes |
|
|
0 |
|
|
|
208 |
|
|
|
0 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
415 |
|
|
|
809 |
|
|
|
404 |
|
|
|
621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per
share adjusted weighted average shares |
|
|
115,289 |
|
|
|
96,849 |
|
|
|
111,749 |
|
|
|
91,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.17 |
|
|
$ |
0.56 |
|
|
$ |
1.25 |
|
|
$ |
2.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.17 |
|
|
$ |
0.55 |
|
|
$ |
1.25 |
|
|
$ |
2.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The diluted earnings per share calculations exclude the dilutive effect of 418,000 and 885,000
stock options for the three and nine months ended September 30, 2009, respectively, because the
exercise prices were greater than the average market price. The diluted earnings per share
calculations do not exclude the dilutive effect of any stock options for the three or nine months
ended September 30, 2008, because the exercise prices were less than the average market price. The
Series E Cumulative Convertible and Redeemable Preferred Stock, the Series G Cumulative Convertible
Preferred Stock, the $340,000,000 senior unsecured convertible notes due December
2026 and the $395,000,000 senior unsecured convertible notes due July 2027 were not included in
these calculations as the effect of the conversions into common stock was anti-dilutive for the
relevant periods presented.
We adopted FASB authoritative guidance on determining whether
instruments granted in share-based payment transactions are participating
securities, effective January 1, 2009, which required retrospective application. The guidance
clarifies that instruments granted in share-based payment transactions that are considered
to be participating securities prior to vesting should be included in the earnings
allocation under the two-class method of calculating earnings per share.
We determined that our restricted shares granted under our long-term incentive
plans are participating securities because the restricted shares participate in
non-forfeitable dividends prior to vesting. Applying the guidance did not have an
impact on previously reported amounts for any period presented.
16
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
15. 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.
Equity Investments Equity investments are recorded at their fair market 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 to borrowers 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, if any, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans receivable |
|
$ |
125,456 |
|
|
$ |
127,272 |
|
|
$ |
137,292 |
|
|
$ |
143,285 |
|
Other real estate loans receivable |
|
|
369,421 |
|
|
|
373,153 |
|
|
|
345,593 |
|
|
|
302,584 |
|
Equity investments |
|
|
3,020 |
|
|
|
3,020 |
|
|
|
1,030 |
|
|
|
1,030 |
|
Cash and cash equivalents |
|
|
102,353 |
|
|
|
102,353 |
|
|
|
23,370 |
|
|
|
23,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under unsecured lines of credit arrangements |
|
$ |
143,000 |
|
|
$ |
143,000 |
|
|
$ |
570,000 |
|
|
$ |
570,000 |
|
Senior unsecured notes |
|
|
1,651,916 |
|
|
|
1,748,454 |
|
|
|
1,831,151 |
|
|
|
1,605,770 |
|
Secured debt |
|
|
625,571 |
|
|
|
635,943 |
|
|
|
446,525 |
|
|
|
452,262 |
|
Interest rate swap agreements |
|
|
4,375 |
|
|
|
4,375 |
|
|
|
n/a |
|
|
|
n/a |
|
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.
17
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
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. 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, 2009 |
|
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Equity investments (1) |
|
$ |
1,229 |
|
|
$ |
1,229 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Assets-held-for sale (2) |
|
|
10,137 |
|
|
|
0 |
|
|
|
10,137 |
|
|
|
0 |
|
Interest rate swap agreements (3) |
|
|
(4,375 |
) |
|
|
0 |
|
|
|
(4,375 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
6,991 |
|
|
$ |
1,229 |
|
|
$ |
5,762 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(3) |
|
Please see Note 10 for additional information. |
16. 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 investment properties and medical office
buildings. Under the investment property segment, we invest in senior housing and health care real
estate through acquisition and financing of primarily single tenant properties. Properties acquired
are primarily leased under triple-net leases and we are not involved in the management of the
property. Our primary investment property types include skilled nursing facilities, assisted living
facilities, independent living/continuing care retirement communities and specialty care
facilities. Under the medical office building segment, our properties are typically leased to
multiple tenants and generally require a certain level of property management. 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, 2008, as updated by our Current Report on Form 8-K filed August 6, 2009).
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 office equipment. Non-property specific
revenues and expenses are not allocated to individual segments in determining net operating income.
Summary information for the reportable segments during the three months ended September 30, 2009
and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
Net |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
Rental |
|
|
Interest |
|
|
Other |
|
|
Total |
|
|
Operating |
|
|
Operating |
|
|
Depreciation/ |
|
|
Interest |
|
|
Total |
|
|
|
Income (1) |
|
|
Income |
|
|
Income |
|
|
Revenues (1) |
|
|
Expenses (1) |
|
|
Income (2) |
|
|
Amortization (1) |
|
|
Expense (1) |
|
|
Assets |
|
Three months ended September 30,
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
100,313 |
|
|
$ |
10,528 |
|
|
$ |
641 |
|
|
$ |
111,482 |
|
|
|
|
|
|
$ |
111,482 |
|
|
$ |
28,313 |
|
|
$ |
3,625 |
|
|
$ |
4,771,518 |
|
Medical Office Buildings |
|
|
35,008 |
|
|
|
|
|
|
|
248 |
|
|
|
35,256 |
|
|
$ |
12,974 |
|
|
|
22,282 |
|
|
|
12,772 |
|
|
|
5,151 |
|
|
|
1,448,989 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
200 |
|
|
|
200 |
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
20,057 |
|
|
|
160,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
135,321 |
|
|
$ |
10,528 |
|
|
$ |
1,089 |
|
|
$ |
146,938 |
|
|
$ |
12,974 |
|
|
$ |
133,964 |
|
|
$ |
41,085 |
|
|
$ |
28,833 |
|
|
$ |
6,381,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
100,071 |
|
|
$ |
10,910 |
|
|
$ |
1,219 |
|
|
$ |
112,200 |
|
|
|
|
|
|
$ |
112,200 |
|
|
$ |
29,324 |
|
|
$ |
1,851 |
|
|
$ |
4,534,432 |
|
Medical Office Buildings |
|
|
33,958 |
|
|
|
|
|
|
|
261 |
|
|
|
34,219 |
|
|
$ |
11,868 |
|
|
|
22,351 |
|
|
|
12,366 |
|
|
|
5,415 |
|
|
|
1,422,589 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
575 |
|
|
|
575 |
|
|
|
|
|
|
|
575 |
|
|
|
|
|
|
|
28,088 |
|
|
|
64,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
134,029 |
|
|
$ |
10,910 |
|
|
$ |
2,055 |
|
|
$ |
146,994 |
|
|
$ |
11,868 |
|
|
$ |
135,126 |
|
|
$ |
41,690 |
|
|
$ |
35,354 |
|
|
$ |
6,021,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
Summary information for the reportable segments during the nine months ended September 30,
2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
Net |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
Rental |
|
|
Interest |
|
|
Other |
|
|
Total |
|
|
Operating |
|
|
Operating |
|
|
Depreciation/ |
|
|
Interest |
|
|
Total |
|
|
|
Income (1) |
|
|
Income |
|
|
Income |
|
|
Revenues (1) |
|
|
Expenses (1) |
|
|
Income (2) |
|
|
Amortization (1) |
|
|
Expense (1) |
|
|
Assets |
|
Nine months ended September 30,
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
303,709 |
|
|
$ |
30,639 |
|
|
$ |
2,177 |
|
|
$ |
336,525 |
|
|
|
|
|
|
$ |
336,525 |
|
|
$ |
86,416 |
|
|
$ |
8,183 |
|
|
$ |
4,771,518 |
|
Medical Office Buildings |
|
|
100,854 |
|
|
|
|
|
|
|
695 |
|
|
|
101,549 |
|
|
$ |
37,000 |
|
|
|
64,549 |
|
|
|
36,727 |
|
|
|
15,603 |
|
|
|
1,448,989 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
938 |
|
|
|
938 |
|
|
|
|
|
|
|
938 |
|
|
|
|
|
|
|
60,390 |
|
|
|
160,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
404,563 |
|
|
$ |
30,639 |
|
|
$ |
3,810 |
|
|
$ |
439,012 |
|
|
$ |
37,000 |
|
|
$ |
402,012 |
|
|
$ |
123,143 |
|
|
$ |
84,176 |
|
|
$ |
6,381,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
288,812 |
|
|
$ |
29,177 |
|
|
$ |
4,048 |
|
|
$ |
322,037 |
|
|
|
|
|
|
$ |
322,037 |
|
|
$ |
82,802 |
|
|
$ |
5,500 |
|
|
$ |
4,534,432 |
|
Medical Office Buildings |
|
|
100,194 |
|
|
|
|
|
|
|
708 |
|
|
|
100,902 |
|
|
$ |
34,609 |
|
|
|
66,293 |
|
|
|
38,092 |
|
|
|
16,470 |
|
|
|
1,422,589 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
899 |
|
|
|
899 |
|
|
|
|
|
|
|
899 |
|
|
|
|
|
|
|
86,860 |
|
|
|
64,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
389,006 |
|
|
$ |
29,177 |
|
|
$ |
5,655 |
|
|
$ |
423,838 |
|
|
$ |
34,609 |
|
|
$ |
389,229 |
|
|
$ |
120,894 |
|
|
$ |
108,830 |
|
|
$ |
6,021,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts from discontinued operations. |
|
(2) |
|
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. |
17. Subsequent Events
We have evaluated subsequent events for recognition or disclosure through the time we filed
this Quarterly Report on Form 10-Q with the SEC on November 5, 2009 and noted no events requiring
disclosure.
19
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
18. Retrospective Application of New Accounting Standards
We adopted FASB Accounting Standards Codification (ASC) topic for Noncontrolling Interests
in Consolidated Financial Statements (Noncontrolling Interest Guidance) and ASC topic for
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) (Convertible Debt Guidance), effective January 1, 2009, each of which
required retrospective application. Noncontrolling Interest Guidance changed the accounting and
reporting for minority interests, which have been re-characterized as non-controlling interests and
classified as a component of equity. Convertible Debt Guidance provides guidance on accounting for
convertible debt that may be settled in cash upon conversion. It requires bifurcation of the
convertible debt instrument into a debt component and an equity component. The value of the debt
component is based upon the estimated fair value of a similar debt instrument without the
conversion feature. The difference between the contractual principal on the debt and the value
allocated to the debt is recorded as an equity component and represents the conversion feature of
the instrument. The excess of the contractual principal amount of the debt over its estimated fair
value is amortized to interest expense using the effective interest method over the period used to
estimate the fair value. The following tables illustrate the retrospective restatement of our
previously reported consolidated balance sheet amounts to reflect the application of the new
guidance for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
Convertible |
|
|
Noncontrolling |
|
|
|
|
|
|
As Previously |
|
|
Debt |
|
|
Interests |
|
|
As |
|
|
|
Reported |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjusted |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under unsecured lines of credit arrangements |
|
$ |
570,000 |
|
|
|
|
|
|
|
|
|
|
$ |
570,000 |
|
Senior unsecured notes |
|
|
1,847,247 |
|
|
$ |
(16,096 |
) |
|
|
|
|
|
|
1,831,151 |
|
Secured debt |
|
|
446,525 |
|
|
|
|
|
|
|
|
|
|
|
446,525 |
|
Accrued expenses and other liabilities |
|
|
107,157 |
|
|
|
|
|
|
|
|
|
|
|
107,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,970,929 |
|
|
|
(16,096 |
) |
|
$ |
0 |
|
|
|
2,954,833 |
|
Minority interests |
|
|
10,603 |
|
|
|
|
|
|
|
(10,603 |
) |
|
|
0 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value |
|
|
289,929 |
|
|
|
|
|
|
|
|
|
|
|
289,929 |
|
Common stock, $1.00 par value |
|
|
104,635 |
|
|
|
|
|
|
|
|
|
|
|
104,635 |
|
Capital in excess of par value |
|
|
3,180,628 |
|
|
|
24,062 |
|
|
|
|
|
|
|
3,204,690 |
|
Treasury stock |
|
|
(5,145 |
) |
|
|
|
|
|
|
|
|
|
|
(5,145 |
) |
Cumulative net income |
|
|
1,362,366 |
|
|
|
(7,966 |
) |
|
|
|
|
|
|
1,354,400 |
|
Cumulative dividends |
|
|
(1,723,819 |
) |
|
|
|
|
|
|
|
|
|
|
(1,723,819 |
) |
Accumulated other comprehensive income |
|
|
(1,113 |
) |
|
|
|
|
|
|
|
|
|
|
(1,113 |
) |
Other equity |
|
|
4,105 |
|
|
|
|
|
|
|
|
|
|
|
4,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Health Care REIT, Inc. stockholders equity |
|
|
3,211,586 |
|
|
|
16,096 |
|
|
|
0 |
|
|
|
3,227,682 |
|
Noncontrolling interests |
|
|
0 |
|
|
|
|
|
|
|
10,603 |
|
|
|
10,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
3,211,586 |
|
|
|
16,096 |
|
|
|
10,603 |
|
|
|
3,238,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
6,193,118 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
6,193,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
The following tables illustrate the retrospective restatement of our previously reported
consolidated statements of income amounts to reflect the application of the aforementioned new
guidance as well as discontinued operations reclassifications for the periods indicated (amounts in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
|
|
|
|
Convertible |
|
|
Noncontrolling |
|
|
Discontinued |
|
|
|
|
|
|
As Previously |
|
|
Debt |
|
|
Interests |
|
|
Operations |
|
|
As |
|
|
|
Reported |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjusted |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
132,131 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
(5,747 |
) |
|
$ |
126,384 |
|
Interest income |
|
|
10,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,910 |
|
Other income |
|
|
2,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,096 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(5,747 |
) |
|
|
139,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and loan expenses |
|
|
33,769 |
|
|
|
1,203 |
|
|
|
|
|
|
|
(1,247 |
) |
|
|
33,725 |
|
Property operating expenses |
|
|
11,761 |
|
|
|
|
|
|
|
|
|
|
|
(569 |
) |
|
|
11,192 |
|
Depreciation and amortization |
|
|
41,375 |
|
|
|
|
|
|
|
|
|
|
|
(2,364 |
) |
|
|
39,011 |
|
General and administrative |
|
|
10,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,789 |
|
Realized loss on derivatives |
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513 |
|
Loss (gain) on extinguishment of debt |
|
|
(768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,439 |
|
|
|
1,203 |
|
|
|
0 |
|
|
|
(4,180 |
) |
|
|
95,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interests |
|
|
46,657 |
|
|
|
(1,203 |
) |
|
|
0 |
|
|
|
(1,567 |
) |
|
|
43,887 |
|
Income tax (expense) benefit |
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests |
|
|
46,810 |
|
|
|
(1,203 |
) |
|
|
0 |
|
|
|
(1,567 |
) |
|
|
44,040 |
|
Minority interests |
|
|
(1 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
46,809 |
|
|
|
(1,203 |
) |
|
|
1 |
|
|
|
(1,567 |
) |
|
|
44,040 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
12,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,619 |
|
Income from discontinued operations, net |
|
|
1,094 |
|
|
|
|
|
|
|
|
|
|
|
1,567 |
|
|
|
2,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,713 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,567 |
|
|
|
15,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
60,522 |
|
|
|
(1,203 |
) |
|
|
1 |
|
|
|
0 |
|
|
|
59,320 |
|
Less: Preferred stock dividends |
|
|
5,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,730 |
|
Net income attributable to noncontrolling interests |
|
|
0 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
54,792 |
|
|
$ |
(1,203 |
) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
53,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
96,040 |
|
|
|
96,040 |
|
|
|
96,040 |
|
|
|
96,040 |
|
|
|
96,040 |
|
Diluted |
|
|
96,849 |
|
|
|
96,849 |
|
|
|
96,849 |
|
|
|
96,849 |
|
|
|
96,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.43 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
0.40 |
|
Discontinued operations, net |
|
|
0.14 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.02 |
|
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
0.57 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.42 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
0.40 |
|
Discontinued operations, net |
|
|
0.14 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.02 |
|
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
0.57 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
|
|
|
|
Convertible |
|
|
Noncontrolling |
|
|
Discontinued |
|
|
|
|
|
|
As Previously |
|
|
Debt |
|
|
Interests |
|
|
Operations |
|
|
As |
|
|
|
Reported |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjusted |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
375,690 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
(18,102 |
) |
|
$ |
357,588 |
|
Interest income |
|
|
29,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,177 |
|
Other income |
|
|
5,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410,522 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(18,102 |
) |
|
|
392,420 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
102,074 |
|
|
|
3,609 |
|
|
|
|
|
|
|
(4,114 |
) |
|
|
101,569 |
|
Property operating expenses |
|
|
34,330 |
|
|
|
|
|
|
|
|
|
|
|
(1,730 |
) |
|
|
32,600 |
|
Depreciation and amortization |
|
|
117,293 |
|
|
|
|
|
|
|
|
|
|
|
(7,644 |
) |
|
|
109,649 |
|
General and administrative |
|
|
33,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,693 |
|
Realized loss on derivatives |
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513 |
|
Loss (gain) on extinguishment of debt |
|
|
(2,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286,809 |
|
|
|
3,609 |
|
|
|
0 |
|
|
|
(13,488 |
) |
|
|
276,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interests |
|
|
123,713 |
|
|
|
(3,609 |
) |
|
|
0 |
|
|
|
(4,614 |
) |
|
|
115,490 |
|
Income tax (expense) benefit |
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests |
|
|
122,543 |
|
|
|
(3,609 |
) |
|
|
0 |
|
|
|
(4,614 |
) |
|
|
114,320 |
|
Minority interests |
|
|
(128 |
) |
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
122,415 |
|
|
|
(3,609 |
) |
|
|
128 |
|
|
|
(4,614 |
) |
|
|
114,320 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
130,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,813 |
|
Income from discontinued operations, net |
|
|
6,289 |
|
|
|
|
|
|
|
|
|
|
|
4,614 |
|
|
|
10,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,102 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,614 |
|
|
|
141,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
259,517 |
|
|
|
(3,609 |
) |
|
|
128 |
|
|
|
0 |
|
|
|
256,036 |
|
Less: Preferred stock dividends |
|
|
17,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,660 |
|
Net income attributable to noncontrolling interests |
|
|
0 |
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
241,857 |
|
|
$ |
(3,609 |
) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
238,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
90,500 |
|
|
|
90,500 |
|
|
|
90,500 |
|
|
|
90,500 |
|
|
|
90,500 |
|
Diluted |
|
|
91,121 |
|
|
|
91,121 |
|
|
|
91,121 |
|
|
|
91,121 |
|
|
|
91,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
1.16 |
|
|
$ |
(0.04 |
) |
|
$ |
0.00 |
|
|
$ |
(0.05 |
) |
|
$ |
1.07 |
|
Discontinued operations, net |
|
|
1.51 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.05 |
|
|
|
1.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
2.67 |
|
|
$ |
(0.04 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
2.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
1.15 |
|
|
$ |
(0.04 |
) |
|
$ |
0.00 |
|
|
$ |
(0.05 |
) |
|
$ |
1.06 |
|
Discontinued operations, net |
|
|
1.50 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.05 |
|
|
|
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
2.65 |
|
|
$ |
(0.04 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
2.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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, 2008, as updated by
our Current Report on Form 8-K filed August 6, 2009, 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, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
Percentage of |
|
|
Number of |
|
|
# Beds/Units |
|
|
Investment per |
|
|
|
|
Type of Property |
|
(in thousands) |
|
|
Investments |
|
|
Properties |
|
|
or Sq. Ft. |
|
|
metric (1) |
|
|
States |
|
Independent living/CCRCs |
|
$ |
1,179,708 |
|
|
|
19.3 |
% |
|
|
57 |
|
|
7,047 |
units |
|
$ |
175,531 |
per unit |
|
|
20 |
|
Assisted living facilities |
|
|
1,289,485 |
|
|
|
21.2 |
% |
|
|
180 |
|
|
11,140 |
units |
|
119,383 |
per unit |
|
|
30 |
|
Skilled nursing facilities |
|
|
1,561,406 |
|
|
|
25.7 |
% |
|
|
223 |
|
|
30,211 |
beds |
|
51,843 |
per bed |
|
|
26 |
|
Specialty care facilities |
|
|
636,853 |
|
|
|
10.5 |
% |
|
|
28 |
|
|
1,629 |
beds |
|
502,995 |
p er bed |
|
|
13 |
|
Medical office buildings |
|
|
1,416,362 |
|
|
|
23.3 |
% |
|
|
120 |
|
|
5,615,653 |
sq. ft. |
|
260 |
per sq. ft. |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
6,083,814 |
|
|
|
100.0 |
% |
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment per metric was computed by using the total committed investment amount of
$6,412,367,000, which includes net real estate investments and unfunded construction
commitments for which initial funding has commenced which amounted to $6,083,814,000 and
$328,553,000, respectively. |
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
projects that national health expenditures will rise to $3.8 trillion in 2015 or 18.8% of gross
domestic product (GDP). This is up from $2 trillion or 15.9% of GDP in 2005. Health
expenditures per capita are projected to rise 5.8% per year from 2005 to 2015. 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 is 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 19% 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 81% 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.
23
The following chart illustrates the projected increase in the elderly population aged 65 and
over:
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; |
|
|
|
|
Projected population growth combined with stable or increasing health care utilization
rates which ensures demand; and |
|
|
|
|
On-going merger and acquisition activity. |
Recent Developments. Both the Senate and House of Representatives are considering legislation
to reform the U.S. healthcare system. Proposed reform involves the expansion of coverage through
existing government programs, public cooperatives, and national and state exchanges to reform the
commercial/private insurance market, and may include individual and employer mandates and a public
option. Future reform, increased coverage, changes in Medicare and Medicaid, changes in provider
reimbursement, and changes in healthcare sector funding could have a significant impact on our
operators financial situation and strategy. We continue to monitor these proposals as they move
through the legislative process and work with our political advisors to follow the issues.
Economic Outlook
Beginning in late 2007 and throughout 2008, the U.S. and global economy entered a serious
recession. The current economic environment is characterized by a severe residential housing
slump, depressed commercial real estate valuations, weakened consumer confidence, rising
unemployment and concerns regarding inflation, deflation and stagflation. Numerous financial
systems around the globe have become illiquid and banks have become less willing to lend to other
banks and borrowers. Further, capital markets have become and remain volatile as risk is repriced
and investments are revalued. Uncertainty remains in terms of the depth and duration of these
adverse economic conditions.
The conditions described above have created an environment of limited capital availability and
increasing capital costs. This was most evident in the credit markets, where lending institutions
cut back on loans, tightened credit standards and significantly increased interest rate spreads.
The equity markets were characterized by sporadic accessibility until late 2008, when share prices
in most sectors declined significantly. Continued volatility in the capital markets could limit
our ability to access debt or equity funds which, in turn, could impact our ability to finance
future investments and react to changing economic and business conditions. This difficult
operating environment also may make it more difficult for some of our operators/tenants to meet
their obligations to us.
During 2008, our focus gradually shifted from investment to capital preservation. To that
end, our efforts in 2009 have been directed towards: liquidity, portfolio management and investment
rationalization.
|
|
|
Liquidity. Liquidity has become increasingly important and we have concentrated our
efforts on further strengthening our balance sheet. We raised over $1 billion in funds
during 2008 from a combination of three common stock offerings, our dividend reinvestment
plan, our new equity shelf program, property sales and loan payoffs. We generated an
additional $862.1 million from these sources during the nine months ended September 30,
2009. As always, we will continue to closely monitor the credit and capital markets for
opportunities to raise reasonably priced capital. |
24
|
|
|
Portfolio Management. Our investment approach has produced a portfolio that is very
diverse with strong property level payment coverages. Yet, todays adverse economic
conditions can negatively impact even the strongest portfolio. Our portfolio management
program is designed to maintain our portfolios strength through a combination of extensive
industry research, stringent origination and underwriting protocols and a rigorous asset
management process. |
|
|
|
|
Investment Strategy. For the short-term, we expect to fund our ongoing development
projects and will evaluate new investments selectively and only when funding sources are
clearly identified. However, we will continue to strengthen our existing customer
relationships and begin to cultivate new relationships. We remain focused on preserving
liquidity, but we intend to take advantage of what we believe will be increasingly
attractive investment opportunities over time. |
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 a broad spectrum of senior housing and
health care real estate and diversify our investment portfolio by property type, operator/tenant
and geographic location.
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, 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 collectibility of revenue and the value of our investment.
With respect to our investment properties, 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, 2009, rental income and interest income represented
92% and 7%, 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 anticipate investing in
additional properties. 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, is expected to be provided through a
combination of public and private offerings of debt and equity securities and the incurrence or
assumption of secured debt. We believe our liquidity and various sources of available capital are
sufficient to fund operations, meet debt service obligations (both principal and interest), make
dividend distributions and finance future investments.
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. During the nine months ended September 30, 2009, we completed $507,733,000 of gross
investments and $153,140,000 of investment payoffs, resulting in $354,593,000 of net new
investments. We expect to complete gross new investments of approximately $550,000,000 during 2009,
comprised of funded new development. We anticipate the sale of real property and the repayment of
loans receivable totaling approximately $250,000,000 resulting in net new investments of
approximately $300,000,000 during 2009. 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
25
unsecured line of credit arrangement. At September 30, 2009, we had $102,353,000 of cash and cash
equivalents, $17,493,000 of restricted cash and $1,007,000,000 of available borrowing capacity
under our unsecured line of credit arrangement.
Key Transactions in 2009
We have completed the following key transactions during the nine months ended September 30,
2009:
|
|
|
our Board of Directors approved a quarterly cash dividend of $0.68 per share, which is
consistent with the quarterly dividend paid for 2008. The dividend declared for the
quarter ended September 30, 2009 represents the 154th consecutive quarterly
dividend payment; |
|
|
|
|
we completed $507,733,000 of gross investments and had $153,140,000 of investment
payoffs; |
|
|
|
|
we were added to the S&P 500 Index in January 2009; |
|
|
|
|
we completed a public offering of 5,816,870 shares of common stock with net proceeds of
approximately $210,880,000 in February 2009; |
|
|
|
|
we completed $265,527,000 of first mortgage loans secured by
31 senior housing
properties with multiple levels of service. The debt has terms ranging from seven to ten
years. The debt had weighted average initial interest rates of 5.98% after giving effect
to certain interest rate swap agreements. KeyBank Capital Markets, Inc. originated the
loans and sold them to Freddie Mac; |
|
|
|
|
we extinguished $79,743,000 of secured debt with weighted average interest rates of
7.26% prior to maturity; |
|
|
|
|
we extinguished $183,147,000 of unsecured senior notes with weighted average interest
rates of 7.82%; and |
|
|
|
|
we completed a public offering of 9,200,000 shares of common stock with net proceeds of
approximately $356,691,000 in September 2009. |
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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
Net income attributable to
common stockholders |
|
$ |
29,249 |
|
|
$ |
155,410 |
|
|
$ |
53,589 |
|
|
$ |
21,850 |
|
|
$ |
61,119 |
|
|
$ |
59,240 |
|
|
$ |
19,130 |
|
Funds from operations |
|
|
68,710 |
|
|
|
76,785 |
|
|
|
82,573 |
|
|
|
30,799 |
|
|
|
85,322 |
|
|
|
89,207 |
|
|
|
60,933 |
|
Net operating income |
|
|
124,607 |
|
|
|
129,495 |
|
|
|
135,126 |
|
|
|
136,907 |
|
|
|
134,819 |
|
|
|
133,228 |
|
|
|
133,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (fully diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
0.34 |
|
|
$ |
1.73 |
|
|
$ |
0.55 |
|
|
$ |
0.21 |
|
|
$ |
0.56 |
|
|
$ |
0.53 |
|
|
$ |
0.17 |
|
Funds from operations |
|
|
0.79 |
|
|
|
0.85 |
|
|
|
0.85 |
|
|
|
0.30 |
|
|
|
0.79 |
|
|
|
0.80 |
|
|
|
0.53 |
|
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 investment grade ratings
with Moodys Investors Service, Standard & Poors Ratings Services and Fitch Ratings. 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:
26
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
Debt to book capitalization ratio |
|
|
52 |
% |
|
|
53 |
% |
|
|
45 |
% |
|
|
47 |
% |
|
|
43 |
% |
|
|
44 |
% |
|
|
39 |
% |
Debt to undepreciated book
capitalization ratio |
|
|
47 |
% |
|
|
49 |
% |
|
|
41 |
% |
|
|
43 |
% |
|
|
39 |
% |
|
|
40 |
% |
|
|
35 |
% |
Debt to market capitalization ratio |
|
|
39 |
% |
|
|
41 |
% |
|
|
31 |
% |
|
|
38 |
% |
|
|
41 |
% |
|
|
40 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
2.86x |
|
|
|
6.17x |
|
|
|
3.50x |
|
|
|
2.70x |
|
|
|
3.88x |
|
|
|
3.74x |
|
|
|
2.63x |
|
Fixed charge coverage ratio |
|
|
2.37x |
|
|
|
5.15x |
|
|
|
2.91x |
|
|
|
2.24x |
|
|
|
3.18x |
|
|
|
3.07x |
|
|
|
2.16x |
|
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:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
Asset mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property |
|
|
92 |
% |
|
|
91 |
% |
|
|
91 |
% |
|
|
92 |
% |
|
|
92 |
% |
|
|
92 |
% |
|
|
92 |
% |
Real estate loans receivable |
|
|
8 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
16 |
% |
|
|
17 |
% |
|
|
18 |
% |
|
|
19 |
% |
|
|
19 |
% |
|
|
19 |
% |
|
|
19 |
% |
Assisted living facilities |
|
|
21 |
% |
|
|
21 |
% |
|
|
20 |
% |
|
|
20 |
% |
|
|
21 |
% |
|
|
21 |
% |
|
|
21 |
% |
Skilled nursing facilities |
|
|
31 |
% |
|
|
29 |
% |
|
|
28 |
% |
|
|
27 |
% |
|
|
27 |
% |
|
|
26 |
% |
|
|
26 |
% |
Specialty care facilities |
|
|
7 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
11 |
% |
Medical office buildings |
|
|
25 |
% |
|
|
23 |
% |
|
|
24 |
% |
|
|
23 |
% |
|
|
23 |
% |
|
|
24 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Living Communities, LLC |
|
|
4 |
% |
|
|
5 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
7 |
% |
Signature Healthcare LLC |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
Brookdale Senior Living Inc |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
Emeritus Corporation |
|
|
7 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
Life Care Centers of America, Inc |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
|
3 |
% |
Remaining customers |
|
|
73 |
% |
|
|
74 |
% |
|
|
73 |
% |
|
|
75 |
% |
|
|
75 |
% |
|
|
76 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida |
|
|
15 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
13 |
% |
|
|
13 |
% |
Texas |
|
|
13 |
% |
|
|
12 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
California |
|
|
7 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
Massachusetts |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
Ohio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
% |
Tennessee |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
|
|
Remaining states |
|
|
52 |
% |
|
|
53 |
% |
|
|
53 |
% |
|
|
54 |
% |
|
|
55 |
% |
|
|
56 |
% |
|
|
56 |
% |
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, 2008, as updated by our Current Report on Form 8-K filed
August 6, 2009, 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.
27
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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
$ |
102,321 |
|
|
$ |
107,515 |
|
|
$ |
112,200 |
|
|
$ |
114,773 |
|
|
$ |
112,960 |
|
|
$ |
112,082 |
|
|
$ |
111,482 |
|
Medical office buildings |
|
|
22,076 |
|
|
|
21,865 |
|
|
|
22,351 |
|
|
|
21,341 |
|
|
|
21,483 |
|
|
|
20,783 |
|
|
|
22,282 |
|
Non-segment/corporate |
|
|
210 |
|
|
|
115 |
|
|
|
575 |
|
|
|
793 |
|
|
|
376 |
|
|
|
363 |
|
|
|
200 |
|
|
|
|
Net operating income |
|
$ |
124,607 |
|
|
$ |
129,495 |
|
|
$ |
135,126 |
|
|
$ |
136,907 |
|
|
$ |
134,819 |
|
|
$ |
133,228 |
|
|
$ |
133,964 |
|
|
|
|
Payment coverage. Payment coverage of the operators in our investment property portfolio
continues to remain strong. Our overall payment coverage is at 1.98 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, 2007 |
|
June 30, 2008 |
|
June 30, 2009 |
|
|
CBMF |
|
CAMF |
|
CBMF |
|
CAMF |
|
CBMF |
|
CAMF |
Independent living/CCRCs |
|
|
1.46x |
|
|
|
1.26x |
|
|
|
1.36x |
|
|
|
1.15x |
|
|
|
1.29x |
|
|
|
1.09x |
|
Assisted living facilities |
|
|
1.59x |
|
|
|
1.37x |
|
|
|
1.56x |
|
|
|
1.33x |
|
|
|
1.58x |
|
|
|
1.36x |
|
Skilled nursing facilities |
|
|
2.21x |
|
|
|
1.60x |
|
|
|
2.29x |
|
|
|
1.68x |
|
|
|
2.24x |
|
|
|
1.64x |
|
Specialty care facilities |
|
|
2.57x |
|
|
|
2.01x |
|
|
|
2.39x |
|
|
|
1.86x |
|
|
|
2.37x |
|
|
|
2.05x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted averages |
|
|
1.96x |
|
|
|
1.52x |
|
|
|
1.99x |
|
|
|
1.54x |
|
|
|
1.98x |
|
|
|
1.55x |
|
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., One SeaGate, Suite 1500, P.O. Box 1475, Toledo,
Ohio 43603-1475.
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 issuances 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. The following is a summary of
our sources and uses of cash flows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
$ |
23,370 |
|
|
$ |
30,269 |
|
|
$ |
(6,899 |
) |
|
|
-23 |
% |
Cash provided from (used in) operating activities |
|
|
290,449 |
|
|
|
284,404 |
|
|
|
6,045 |
|
|
|
2 |
% |
Cash provided from (used in) investing activities |
|
|
(189,119 |
) |
|
|
(816,722 |
) |
|
|
627,603 |
|
|
|
-77 |
% |
Cash provided from (used in) financing activities |
|
|
(22,347 |
) |
|
|
520,322 |
|
|
|
(542,669 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
102,353 |
|
|
$ |
18,273 |
|
|
$ |
84,080 |
|
|
|
460 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities. The change in net cash provided from operating activities is
primarily attributable to an increase in net income, excluding gains on sales of properties and
depreciation and amortization. The increase in net income is 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):
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross straight-line rental income |
|
$ |
14,499 |
|
|
$ |
15,807 |
|
|
$ |
(1,308 |
) |
|
|
-8 |
% |
Cash receipts due to real property sales |
|
|
(3,452 |
) |
|
|
(1,896 |
) |
|
|
(1,556 |
) |
|
|
82 |
% |
Prepaid rent receipts |
|
|
(20,011 |
) |
|
|
(13,783 |
) |
|
|
(6,228 |
) |
|
|
45 |
% |
Amortization related to above (below) market leases, net |
|
|
1,344 |
|
|
|
676 |
|
|
|
668 |
|
|
|
99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7,620 |
) |
|
$ |
804 |
|
|
$ |
(8,424 |
) |
|
|
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
nine months ended September 30, 2008. The fluctuation in prepaid rent receipts is primarily due to
an increase 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 |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
|
Properties |
|
|
Amount |
|
|
Properties |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
|
|
|
$ |
0 |
|
|
|
2 |
|
|
$ |
68,300 |
|
Assisted living facilities |
|
|
|
|
|
|
0 |
|
|
|
3 |
|
|
|
45,490 |
|
Skilled nursing facilities |
|
|
|
|
|
|
0 |
|
|
|
1 |
|
|
|
11,360 |
|
Specialty care facilities |
|
|
|
|
|
|
0 |
|
|
|
6 |
|
|
|
182,303 |
|
Medical office buildings |
|
|
|
|
|
|
0 |
|
|
|
7 |
|
|
|
121,809 |
|
Land parcels |
|
|
|
|
|
|
0 |
|
|
|
1 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisitions |
|
|
0 |
|
|
|
0 |
|
|
|
20 |
|
|
|
439,262 |
|
Less: Assumed debt |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
Assumed other assets (liabilities), net |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(1,599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for acquisitions |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
437,663 |
|
Construction in progress additions |
|
|
|
|
|
|
396,581 |
|
|
|
|
|
|
|
414,463 |
|
Capital improvements to existing properties |
|
|
|
|
|
|
20,797 |
|
|
|
|
|
|
|
19,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash invested in real property |
|
|
|
|
|
|
417,378 |
|
|
|
|
|
|
|
872,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
1 |
|
|
|
24,340 |
|
|
|
2 |
|
|
|
15,547 |
|
Assisted living facilities |
|
|
9 |
|
|
|
20,537 |
|
|
|
20 |
|
|
|
106,740 |
|
Skilled nursing facilities |
|
|
3 |
|
|
|
18,854 |
|
|
|
3 |
|
|
|
4,489 |
|
Specialty care facilities |
|
|
2 |
|
|
|
40,841 |
|
|
|
1 |
|
|
|
6,781 |
|
Medical office buildings |
|
|
10 |
|
|
|
28,128 |
|
|
|
1 |
|
|
|
8,735 |
|
Land parcels |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
|
25 |
|
|
|
132,700 |
|
|
|
27 |
|
|
|
142,365 |
|
Less: Gain/(loss) on sales of real property |
|
|
|
|
|
|
26,907 |
|
|
|
|
|
|
|
130,813 |
|
Extinguishment of other assets/(liabilities) |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(113 |
) |
Seller financing on sales of real property |
|
|
|
|
|
|
(6,100 |
) |
|
|
|
|
|
|
(64,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from real property sales |
|
|
|
|
|
|
153,507 |
|
|
|
|
|
|
|
208,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash investments in real property |
|
|
(25 |
) |
|
$ |
263,871 |
|
|
|
(7 |
) |
|
$ |
663,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in new loans |
|
|
|
|
|
$ |
3,316 |
|
|
|
|
|
|
$ |
120,961 |
|
Draws on existing loans |
|
|
|
|
|
|
43,566 |
|
|
|
|
|
|
|
13,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross investments in real estate loans |
|
|
|
|
|
|
46,882 |
|
|
|
|
|
|
|
134,002 |
|
Less: Seller financing on sales of real property |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(59,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash advances on real estate loans receivable |
|
|
|
|
|
|
46,882 |
|
|
|
|
|
|
|
74,353 |
|
Receipts on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payoffs |
|
|
|
|
|
|
20,440 |
|
|
|
|
|
|
|
8,815 |
|
Principal payments on loans |
|
|
|
|
|
|
14,452 |
|
|
|
|
|
|
|
4,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal receipts on real estate loans |
|
|
|
|
|
|
34,892 |
|
|
|
|
|
|
|
13,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash advances (receipts) on real estate loans receivable |
|
|
|
|
|
$ |
11,990 |
|
|
|
|
|
|
$ |
60,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
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, 2009, we had a net decrease of $427,000,000 on our
unsecured line of credit arrangement as compared to a net increase of $80,000,000 for the same
period in 2008. The changes in our senior unsecured notes are due to the extinguishment of
$183,147,000 of various senior unsecured notes in March and September 2009 and the extinguishment
of $42,330,000 of our 7.625% senior unsecured notes in March 2008. During the nine months ended
September 30, 2009, we extinguished secured debt loans totaling $79,743,000 with a weighted-average
interest rate of 7.26%. During the nine months ended September 30, 2008, we extinguished secured
debt loans totaling $47,061,000 with a weighted-average interest rate of 6.76%.
The following is a summary of our common stock issuances for the nine months ended September
30, 2009 and 2008 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued |
|
|
Average Price |
|
|
Gross Proceeds |
|
|
Net Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2008 public issuance |
|
|
3,000,000 |
|
|
$ |
41.44 |
|
|
$ |
124,320 |
|
|
$ |
118,555 |
|
July 2008 public issuance |
|
|
4,600,000 |
|
|
|
44.50 |
|
|
|
204,700 |
|
|
|
193,157 |
|
September 2008 public issuance |
|
|
8,050,000 |
|
|
|
48.00 |
|
|
|
386,400 |
|
|
|
369,699 |
|
2008 Dividend reinvestment plan issuances |
|
|
1,165,441 |
|
|
|
45.19 |
|
|
|
52,668 |
|
|
|
52,668 |
|
2008 Option exercises |
|
|
111,395 |
|
|
|
29.14 |
|
|
|
3,246 |
|
|
|
3,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Totals |
|
|
16,926,836 |
|
|
|
|
|
|
$ |
771,334 |
|
|
$ |
737,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 stock.
The following is a summary of our dividend payments (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
2.0400 |
|
|
$ |
227,959 |
|
|
$ |
2.0200 |
|
|
$ |
183,080 |
|
Series D Preferred Stock |
|
|
1.4766 |
|
|
|
5,906 |
|
|
|
1.4766 |
|
|
|
5,906 |
|
Series E Preferred Stock |
|
|
1.1250 |
|
|
|
84 |
|
|
|
1.1250 |
|
|
|
84 |
|
Series F Preferred Stock |
|
|
1.4297 |
|
|
|
10,008 |
|
|
|
1.4297 |
|
|
|
10,008 |
|
Series G Preferred Stock |
|
|
1.4064 |
|
|
|
560 |
|
|
|
1.4064 |
|
|
|
1,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
|
$ |
244,517 |
|
|
|
|
|
|
$ |
200,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
At September 30, 2009, we had five outstanding letter of credit obligations totaling
$4,540,000 and expiring between 2009 and 2013. Please see Note 11 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 10 to our
unaudited consolidated financial statements for additional information.
30
Contractual Obligations
The following table summarizes our payment requirements under contractual obligations as of
September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
Contractual Obligations |
|
Total |
|
|
2009 |
|
|
2010-2011 |
|
|
2012-2013 |
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured line of credit arrangement |
|
$ |
143,000 |
|
|
$ |
0 |
|
|
$ |
143,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Senior unsecured notes (1) |
|
|
1,661,853 |
|
|
|
0 |
|
|
|
0 |
|
|
|
376,853 |
|
|
|
1,285,000 |
|
Secured debt (1) |
|
|
627,790 |
|
|
|
2,786 |
|
|
|
25,170 |
|
|
|
86,888 |
|
|
|
512,946 |
|
Contractual interest obligations |
|
|
1,178,442 |
|
|
|
43,378 |
|
|
|
262,762 |
|
|
|
245,394 |
|
|
|
626,908 |
|
Capital lease obligations |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Operating lease obligations |
|
|
176,093 |
|
|
|
1,123 |
|
|
|
8,909 |
|
|
|
8,346 |
|
|
|
157,715 |
|
Purchase obligations |
|
|
337,999 |
|
|
|
32,223 |
|
|
|
302,339 |
|
|
|
3,437 |
|
|
|
0 |
|
Other long-term liabilities |
|
|
4,603 |
|
|
|
112 |
|
|
|
488 |
|
|
|
4,003 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
4,129,780 |
|
|
$ |
79,622 |
|
|
$ |
742,668 |
|
|
$ |
724,921 |
|
|
$ |
2,582,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2009, 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 (0.85% at September 30, 2009). The applicable margin is based on our
ratings with Moodys Investors Service and Standard & Poors Ratings Services and was 0.6% at
September 30, 2009. In addition, we pay a facility fee annually to each bank based on the banks
commitment amount. The facility fee depends on our ratings with Moodys Investors Service and
Standard & Poors Ratings Services and was 0.15% at September 30, 2009. We also pay an annual
agents fee of $50,000. Principal is due upon expiration of the agreement. At September 30, 2009,
we had $143,000,000 outstanding under the unsecured line of credit arrangement and estimated total
contractual interest obligations of $7,893,000. Contractual interest obligations are estimated
based on the assumption that the balance of $143,000,000 at September 30, 2009 is constant until
maturity at interest rates in effect at September 30, 2009.
We have $1,661,853,000 of senior unsecured notes principal outstanding with fixed annual
interest rates ranging from 4.75% to 8%, payable semi-annually. Total contractual interest
obligations on senior unsecured notes totaled $938,125,000 at September 30, 2009. Additionally, we
have secured debt with total outstanding principal of $627,790,000, collateralized by owned
properties, with annual interest rates ranging from 4.89% to 6.99%, payable monthly. The carrying
values of the properties securing the debt totaled $908,536,000 at September 30, 2009. Total
contractual interest obligations on secured debt totaled $232,424,000 at September 30, 2009.
At September 30, 2009, we had operating lease obligations of $176,093,000 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, 2009, we had outstanding construction financings of
$638,507,000 for leased properties and were committed to providing additional financing of
approximately $328,553,000 to complete construction. At September 30, 2009, we had contingent
purchase obligations totaling $9,446,000. These contingent purchase obligations primarily relate
to deferred acquisition fundings and capital improvements. Deferred acquisition fundings are
contingent upon a tenant satisfying certain conditions in the lease. 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 2009 fiscal year. Benefit
payments are expected to total $4,003,000 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 $3,649,000 and
$3,109,000 at September 30, 2009 and December 31, 2008, 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 expires in December 2009 and may be terminated at
any time by Mr. Farrar. Each consultant has agreed not to compete with us for a period of two
years following termination or expiration of the agreement. In exchange for complying with the
covenant not to compete, Messers. Klipsch and Farrar will receive eight quarterly payments of $75,000 and $37,500, respectively, with the
first payment to be made on the date of termination or expiration of the agreement. The first
payment to Mr. Klipsch was made in December 2008.
31
Capital Structure
As of September 30, 2009, we had stockholders equity of $3,836,150,000 and a total
outstanding debt balance of $2,420,487,000, which represents a debt to total book capitalization
ratio of 39%. Our ratio of debt to market capitalization was 31% at September 30, 2009. For the
nine months ended September 30, 2009, our interest coverage ratio was 3.41 to 1.00. For the nine
months ended September 30, 2009, our fixed charge coverage ratio
was 2.80 to 1.00. Also, at
September 30, 2009, we had $102,353,000 of cash and cash equivalents, $17,493,000 of restricted
cash and $1,007,000,000 of available borrowing capacity under our unsecured line of credit
arrangement. During the nine months ended September 30, 2009, we completed two public offerings of
common stock, totaling 15,016,870 shares with aggregate net proceeds of approximately $567,571,000.
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, 2009, 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 with Moodys Investors Service and Standard & Poors Ratings Services. However, under our
unsecured line of credit arrangement, these ratings on our senior unsecured notes are used to
determine the fees and interest charged.
As of October 31, 2009, our senior unsecured notes were rated Baa2 (stable), BBB- (stable) and
BBB (stable) by Moodys Investors Service, Standard & Poors Ratings Services and Fitch Ratings,
respectively. We plan to manage the company to maintain investment grade status with a capital
structure consistent with our current profile. Any downgrades in terms of ratings or outlook by
any or all of the noted 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, 2009, we had an effective registration statement on file in connection with our
enhanced dividend reinvestment plan under which we may issue up to 10,760,247 shares of common
stock. As of October 31, 2009, 6,807,465 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). We issued 1,952,600
shares of common stock under the Equity Shelf Program during the nine months ended September 30,
2009. As of October 31, 2009, we had $139,356,000 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 |
|
|
Sep. 30, 2009 |
|
Sep. 30, 2008 |
|
Amount |
|
% |
|
Sep. 30, 2009 |
|
Sep. 30, 2008 |
|
Amount |
|
% |
|
Net income available to
common stockholders |
|
$ |
19,130 |
|
|
$ |
53,589 |
|
|
$ |
(34,459 |
) |
|
|
-64 |
% |
|
$ |
139,489 |
|
|
$ |
238,248 |
|
|
$ |
(98,759 |
) |
|
|
-41 |
% |
Funds from operations |
|
|
60,933 |
|
|
|
82,573 |
|
|
|
(21,640 |
) |
|
|
-26 |
% |
|
|
235,463 |
|
|
|
228,068 |
|
|
|
7,395 |
|
|
|
3 |
% |
EBITDA |
|
|
94,548 |
|
|
|
136,211 |
|
|
|
(41,663 |
) |
|
|
-31 |
% |
|
|
363,425 |
|
|
|
486,930 |
|
|
|
(123,505 |
) |
|
|
-25 |
% |
Net operating income |
|
|
133,964 |
|
|
|
135,126 |
|
|
|
(1,162 |
) |
|
|
-1 |
% |
|
|
402,012 |
|
|
|
389,229 |
|
|
|
12,783 |
|
|
|
3 |
% |
Per share data (fully diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
$ |
0.17 |
|
|
$ |
0.55 |
|
|
$ |
(0.38 |
) |
|
|
-69 |
% |
|
$ |
1.25 |
|
|
$ |
2.61 |
|
|
$ |
(1.36 |
) |
|
|
-52 |
% |
Funds from operations |
|
|
0.53 |
|
|
|
0.85 |
|
|
|
(0.32 |
) |
|
|
-38 |
% |
|
|
2.11 |
|
|
|
2.50 |
|
|
|
(0.39 |
) |
|
|
-16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
2.63 |
x |
|
|
3.50 |
x |
|
|
-0.87 |
x |
|
|
-25 |
% |
|
|
3.41 |
x |
|
|
4.16 |
x |
|
|
-0.75 |
x |
|
|
-18 |
% |
Fixed charge coverage ratio |
|
|
2.16 |
x |
|
|
2.91 |
x |
|
|
-0.75 |
x |
|
|
-26 |
% |
|
|
2.80 |
x |
|
|
3.46 |
x |
|
|
-0.66 |
x |
|
|
-19 |
% |
We evaluate our business and make resource allocations on our two business segments
investment properties and medical office buildings. Under the investment property segment,
properties are primarily leased under triple-net leases and we are not involved
32
in the management of the property. Under the medical office building segment, our properties are
typically leased under gross leases, modified gross leases or triple-net leases, to multiple
tenants, and generally require a certain level of property management. There are no intersegment
sales or transfers. Non-segment revenue consists mainly of interest income on non-real estate
investments and other income. Non-property specific revenues and expenses are not allocated to
individual segments in determining net operating income. Please see Note 16 to our unaudited
consolidated financial statements for additional information.
Investment Properties
The following is a summary of our results of operations for the investment properties segment
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
98,998 |
|
|
$ |
93,418 |
|
|
$ |
5,580 |
|
|
|
6 |
% |
|
$ |
294,850 |
|
|
$ |
261,181 |
|
|
$ |
33,669 |
|
|
|
13 |
% |
Interest income |
|
|
10,528 |
|
|
|
10,910 |
|
|
|
(382 |
) |
|
|
-4 |
% |
|
|
30,639 |
|
|
|
29,177 |
|
|
|
1,462 |
|
|
|
5 |
% |
Other income |
|
|
641 |
|
|
|
1,219 |
|
|
|
(578 |
) |
|
|
-47 |
% |
|
|
2,177 |
|
|
|
4,048 |
|
|
|
(1,871 |
) |
|
|
-46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,167 |
|
|
|
105,547 |
|
|
|
4,620 |
|
|
|
4 |
% |
|
|
327,666 |
|
|
|
294,406 |
|
|
|
33,260 |
|
|
|
11 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,490 |
|
|
|
594 |
|
|
|
2,896 |
|
|
|
488 |
% |
|
|
6,917 |
|
|
|
(542 |
) |
|
|
7,459 |
|
|
|
n/a |
|
Depreciation and amortization |
|
|
28,313 |
|
|
|
27,223 |
|
|
|
1,090 |
|
|
|
4 |
% |
|
|
83,402 |
|
|
|
73,847 |
|
|
|
9,555 |
|
|
|
13 |
% |
Loss (gain) on extinguishment of debt |
|
|
2,057 |
|
|
|
(768 |
) |
|
|
2,825 |
|
|
|
n/a |
|
|
|
2,057 |
|
|
|
(808 |
) |
|
|
2,865 |
|
|
|
n/a |
|
Provision for loan losses |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
140 |
|
|
|
0 |
|
|
|
140 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,860 |
|
|
|
27,049 |
|
|
|
6,811 |
|
|
|
25 |
% |
|
|
92,516 |
|
|
|
72,497 |
|
|
|
20,019 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
76,307 |
|
|
|
78,498 |
|
|
|
(2,191 |
) |
|
|
-3 |
% |
|
|
235,150 |
|
|
|
221,909 |
|
|
|
13,241 |
|
|
|
6 |
% |
Income tax expense |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
0 |
|
|
|
(1,351 |
) |
|
|
1,351 |
|
|
|
-100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
76,307 |
|
|
|
78,498 |
|
|
|
(2,191 |
) |
|
|
-3 |
% |
|
|
235,150 |
|
|
|
220,558 |
|
|
|
14,592 |
|
|
|
7 |
% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales
of properties |
|
|
0 |
|
|
|
13,680 |
|
|
|
(13,680 |
) |
|
|
-100 |
% |
|
|
27,713 |
|
|
|
131,874 |
|
|
|
(104,161 |
) |
|
|
-79 |
% |
Income (loss) from
discontinued operations, net |
|
|
1,180 |
|
|
|
3,295 |
|
|
|
(2,115 |
) |
|
|
-64 |
% |
|
|
4,579 |
|
|
|
12,634 |
|
|
|
(8,055 |
) |
|
|
-64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
1,180 |
|
|
|
16,975 |
|
|
|
(15,795 |
) |
|
|
-93 |
% |
|
|
32,292 |
|
|
|
144,508 |
|
|
|
(112,216 |
) |
|
|
-78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
77,487 |
|
|
$ |
95,473 |
|
|
$ |
(17,986 |
) |
|
|
-19 |
% |
|
$ |
267,442 |
|
|
$ |
365,066 |
|
|
$ |
(97,624 |
) |
|
|
-27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in rental income is primarily attributable to the acquisitions of new
investment properties subsequent to September 30, 2008 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. Interest
income increased from 2008 primarily due to an increase in the balance of outstanding loans.
Interest expense for the nine months ended September 30, 2009 represents $8,183,000 of secured
debt interest expense including $270,000 of swap losses offset by interest allocated to
discontinued operations. Interest expense for the nine months ended September 30, 2008 represents
$5,500,000 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. During the nine months ended September
30, 2009, we extinguished certain investment property secured debt loans and recognized
extinguishment losses of $2,057,000. During the nine months ended September 30, 2008, we
extinguished certain investment property secured debt loans and recognized extinguishment gains of
$808,000. The following is a summary of our investment property secured debt principal activity
(dollars in thousands):
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
194,512 |
|
|
|
6.283 |
% |
|
$ |
105,910 |
|
|
|
6.994 |
% |
|
$ |
94,234 |
|
|
|
6.996 |
% |
|
$ |
114,543 |
|
|
|
7.000 |
% |
Debt issued |
|
|
132,456 |
|
|
|
5.863 |
% |
|
|
0 |
|
|
|
0.000 |
% |
|
|
265,527 |
|
|
|
5.982 |
% |
|
|
0 |
|
|
|
0.000 |
% |
Debt extinguished |
|
|
(26,575 |
) |
|
|
7.402 |
% |
|
|
(10,358 |
) |
|
|
6.980 |
% |
|
|
(47,502 |
) |
|
|
7.414 |
% |
|
|
(17,821 |
) |
|
|
7.022 |
% |
Principal payments |
|
|
(743 |
) |
|
|
6.360 |
% |
|
|
(660 |
) |
|
|
6.972 |
% |
|
|
(12,609 |
) |
|
|
7.780 |
% |
|
|
(1,830 |
) |
|
|
6.973 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
299,650 |
|
|
|
5.998 |
% |
|
$ |
94,892 |
|
|
|
6.996 |
% |
|
$ |
299,650 |
|
|
|
5.998 |
% |
|
$ |
94,892 |
|
|
|
6.996 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
326,590 |
|
|
|
6.113 |
% |
|
$ |
100,395 |
|
|
|
6.995 |
% |
|
$ |
358,738 |
|
|
|
6.246 |
% |
|
$ |
106,814 |
|
|
|
6.996 |
% |
Depreciation and amortization increased primarily as a result of the acquisitions of new
investment properties subsequent to September 30, 2008. To the extent that we acquire or dispose
of additional properties in the future, our provision for depreciation and amortization will change
accordingly.
At September 30, 2009, we had six skilled nursing facilities that satisfied the requirements
for held for sale treatment. We did not recognize any impairment losses on
these assets as the fair value less estimated costs to sell exceeded our carrying values. During
the nine months ended September 30, 2009, we sold 16 investment properties with carrying values of
$104,572,000 for net gains of $27,713,000. During the nine months ended September 30, 2008, we
sold 26 investment properties and one parcel of land with a carrying value of $135,584,000 for a
gain of $131,874,000 and a deferred gain of $3,708,000. The following illustrates the
reclassification impact as a result of classifying investment properties sold subsequent to January
1, 2008 or held for sale at September 30, 2009 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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
1,315 |
|
|
$ |
6,653 |
|
|
$ |
8,859 |
|
|
$ |
27,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
135 |
|
|
|
1,257 |
|
|
|
1,266 |
|
|
|
6,042 |
|
Provision for depreciation |
|
|
0 |
|
|
|
2,101 |
|
|
|
3,014 |
|
|
|
8,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net |
|
$ |
1,180 |
|
|
$ |
3,295 |
|
|
$ |
4,579 |
|
|
$ |
12,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of our quarterly evaluations, we recorded a $140,000 addition to the
allowance for loan losses during the nine months ended September 30, 2009. 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.
During the nine months ended September 30, 2008, we recorded $1,325,000 of income taxes in
connection with an investment gain.
Medical Office Buildings
The following is a summary of our results of operations for the medical office buildings
segment (dollars in thousands):
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
34,483 |
|
|
$ |
32,966 |
|
|
$ |
1,517 |
|
|
|
5 |
% |
|
$ |
99,051 |
|
|
$ |
96,407 |
|
|
$ |
2,644 |
|
|
|
3 |
% |
Other income |
|
|
248 |
|
|
|
261 |
|
|
|
(13 |
) |
|
|
-5 |
% |
|
|
695 |
|
|
|
708 |
|
|
|
(13 |
) |
|
|
-2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,731 |
|
|
|
33,227 |
|
|
|
1,504 |
|
|
|
5 |
% |
|
|
99,746 |
|
|
|
97,115 |
|
|
|
2,631 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
5,024 |
|
|
|
5,043 |
|
|
|
(19 |
) |
|
|
0 |
% |
|
|
15,205 |
|
|
|
15,251 |
|
|
|
(46 |
) |
|
|
0 |
% |
Property operating expenses |
|
|
12,433 |
|
|
|
11,192 |
|
|
|
1,241 |
|
|
|
11 |
% |
|
|
35,377 |
|
|
|
32,600 |
|
|
|
2,777 |
|
|
|
9 |
% |
Depreciation and amortization |
|
|
12,772 |
|
|
|
11,788 |
|
|
|
984 |
|
|
|
8 |
% |
|
|
36,727 |
|
|
|
35,802 |
|
|
|
925 |
|
|
|
3 |
% |
Loss (gain) on extinguishment
of debt |
|
|
3,371 |
|
|
|
0 |
|
|
|
3,371 |
|
|
|
n/a |
|
|
|
3,371 |
|
|
|
(1,286 |
) |
|
|
4,657 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,600 |
|
|
|
28,023 |
|
|
|
5,577 |
|
|
|
20 |
% |
|
|
90,680 |
|
|
|
82,367 |
|
|
|
8,313 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
1,131 |
|
|
|
5,204 |
|
|
|
(4,073 |
) |
|
|
-78 |
% |
|
|
9,066 |
|
|
|
14,748 |
|
|
|
(5,682 |
) |
|
|
-39 |
% |
Income tax (expense) benefit |
|
|
25 |
|
|
|
(4 |
) |
|
|
29 |
|
|
|
n/a |
|
|
|
(232 |
) |
|
|
(49 |
) |
|
|
(183 |
) |
|
|
373 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
1,156 |
|
|
|
5,200 |
|
|
|
(4,044 |
) |
|
|
-78 |
% |
|
|
8,834 |
|
|
|
14,699 |
|
|
|
(5,865 |
) |
|
|
-40 |
% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
(806 |
) |
|
|
(1,061 |
) |
|
|
255 |
|
|
|
-24 |
% |
|
|
(806 |
) |
|
|
(1,061 |
) |
|
|
255 |
|
|
|
-24 |
% |
Impairment of assets |
|
|
(1,873 |
) |
|
|
0 |
|
|
|
(1,873 |
) |
|
|
n/a |
|
|
|
(1,873 |
) |
|
|
0 |
|
|
|
(1,873 |
) |
|
|
n/a |
|
Income (loss) from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued operations, net |
|
|
(143 |
) |
|
|
(634 |
) |
|
|
491 |
|
|
|
-77 |
% |
|
|
(218 |
) |
|
|
(1,731 |
) |
|
|
1,513 |
|
|
|
-87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
(2,822 |
) |
|
|
(1,695 |
) |
|
|
(1,127 |
) |
|
|
66 |
% |
|
|
(2,897 |
) |
|
|
(2,792 |
) |
|
|
(105 |
) |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
|
(1,666 |
) |
|
|
3,505 |
|
|
|
(5,171 |
) |
|
|
n/a |
|
|
|
5,937 |
|
|
|
11,907 |
|
|
|
(5,970 |
) |
|
|
-50 |
% |
Less: Net income attributable to
noncontrolling interests |
|
|
35 |
|
|
|
1 |
|
|
|
34 |
|
|
|
3400 |
% |
|
|
40 |
|
|
|
128 |
|
|
|
(88 |
) |
|
|
-69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
stockholders |
|
$ |
(1,701 |
) |
|
$ |
3,504 |
|
|
$ |
(5,205 |
) |
|
|
n/a |
|
|
$ |
5,897 |
|
|
$ |
11,779 |
|
|
$ |
(5,882 |
) |
|
|
-50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in rental income is primarily attributable to the acquisitions of medical
office buildings subsequent to September 30, 2008 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. Other income is attributable to third party
management fee income.
Interest expense for the nine months ended September 30, 2009 represents $15,603,000 of
secured debt interest expense offset by interest allocated to discontinued operations. Interest
expense for the nine months ended September 30, 2008 represents $16,470,000 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 assumptions, extinguishments
and principal amortizations. During the nine months ended September 30, 2009, we extinguished
certain medical office building secured debt loans and recognized extinguishment losses of
$3,371,000. During the nine months ended September 30, 2008, we extinguished certain medical
office building secured debt loans and recognized extinguishment gains of $1,286,000. The
following is a summary of our medical office building secured debt principal activity (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
351,146 |
|
|
|
5.799 |
% |
|
$ |
360,451 |
|
|
|
5.795 |
% |
|
$ |
354,145 |
|
|
|
5.799 |
% |
|
$ |
392,430 |
|
|
|
5.854 |
% |
Debt extinguished |
|
|
(32,241 |
) |
|
|
7.033 |
% |
|
|
0 |
|
|
|
0.000 |
% |
|
|
(32,241 |
) |
|
|
7.033 |
% |
|
|
(29,239 |
) |
|
|
6.600 |
% |
Principal payments |
|
|
(1,451 |
) |
|
|
5.722 |
% |
|
|
(1,420 |
) |
|
|
5.749 |
% |
|
|
(4,450 |
) |
|
|
5.746 |
% |
|
|
(4,160 |
) |
|
|
5.736 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
317,454 |
|
|
|
5.675 |
% |
|
$ |
359,031 |
|
|
|
5.795 |
% |
|
$ |
317,454 |
|
|
|
5.675 |
% |
|
$ |
359,031 |
|
|
|
5.795 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
350,412 |
|
|
|
5.800 |
% |
|
$ |
359,732 |
|
|
|
5.795 |
% |
|
$ |
351,919 |
|
|
|
5.799 |
% |
|
$ |
368,627 |
|
|
|
5.804 |
% |
The increase in property operating expenses is primarily attributable to the acquisition
of new medical office buildings for which we incur certain property operating expenses offset by
property operating expenses associated with discontinued operations.
Income tax expense is related to third party management fee income.
35
Net income attributable to noncontrolling interests primarily relates to certain joint
venture properties that are consolidated in our operating results. The decrease is due to our
acquisition of a noncontrolling interest subsequent to September 30, 2008.
At September 30, 2009, we had four medical office buildings that satisfied the requirements
for held for sale treatment. During the three months ended September 30, 2009, an impairment
charge of $1,873,000 was recorded to further reduce the carrying value of the four medical office
buildings to their estimated fair value less costs to sell. In determining the fair value of the
medical office buildings, we used a combination of third party appraisals based on market
comparable transactions, other market listings and asset quality as well as third party offers to
purchase. During the year ended December 31, 2008, an impairment charge of $32,648,000 was
recorded to reduce the carrying value of 14 medical office buildings to their estimated fair value
less costs to sell. In determining the fair value of the medical office buildings, 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. Please see Note 4 to
the financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2008, as updated by our Current Report on Form 8-K filed August 6, 2009, for additional
information. The following illustrates the reclassification impact as a result of classifying
medical office buildings sold subsequent to January 1, 2008 or held for sale at September 30, 2009
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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
525 |
|
|
$ |
992 |
|
|
$ |
1,803 |
|
|
$ |
3,787 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
127 |
|
|
|
372 |
|
|
|
398 |
|
|
|
1,219 |
|
Property operating expenses |
|
|
541 |
|
|
|
676 |
|
|
|
1,623 |
|
|
|
2,009 |
|
Provision for depreciation |
|
|
0 |
|
|
|
578 |
|
|
|
0 |
|
|
|
2,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net |
|
$ |
(143 |
) |
|
$ |
(634 |
) |
|
$ |
(218 |
) |
|
$ |
(1,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
$ |
200 |
|
|
$ |
575 |
|
|
$ |
(375 |
) |
|
|
-65 |
% |
|
$ |
938 |
|
|
$ |
899 |
|
|
$ |
39 |
|
|
|
4 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
20,057 |
|
|
|
28,088 |
|
|
|
(8,031 |
) |
|
|
-29 |
% |
|
|
60,390 |
|
|
|
86,860 |
|
|
|
(26,470 |
) |
|
|
-30 |
% |
Realized loss on derivatives |
|
|
0 |
|
|
|
1,513 |
|
|
|
(1,513 |
) |
|
|
-100 |
% |
|
|
0 |
|
|
|
1,513 |
|
|
|
(1,513 |
) |
|
|
-100 |
% |
General and administrative |
|
|
10,363 |
|
|
|
10,789 |
|
|
|
(426 |
) |
|
|
-4 |
% |
|
|
38,784 |
|
|
|
33,693 |
|
|
|
5,091 |
|
|
|
15 |
% |
Loss on extinguishments of debt |
|
|
20,946 |
|
|
|
0 |
|
|
|
20,946 |
|
|
|
n/a |
|
|
|
19,269 |
|
|
|
0 |
|
|
|
19,269 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,366 |
|
|
|
40,390 |
|
|
|
10,976 |
|
|
|
27 |
% |
|
|
118,443 |
|
|
|
122,066 |
|
|
|
(3,623 |
) |
|
|
-3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
before income taxes |
|
|
(51,166 |
) |
|
|
(39,815 |
) |
|
|
(11,351 |
) |
|
|
29 |
% |
|
|
(117,505 |
) |
|
|
(121,167 |
) |
|
|
3,662 |
|
|
|
-3 |
% |
Income tax (expense) benefit |
|
|
30 |
|
|
|
157 |
|
|
|
(127 |
) |
|
|
-81 |
% |
|
|
215 |
|
|
|
230 |
|
|
|
(15 |
) |
|
|
-7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(51,136 |
) |
|
|
(39,658 |
) |
|
|
(11,478 |
) |
|
|
29 |
% |
|
|
(117,290 |
) |
|
|
(120,937 |
) |
|
|
3,647 |
|
|
|
-3 |
% |
Preferred stock dividends |
|
|
5,520 |
|
|
|
5,730 |
|
|
|
(210 |
) |
|
|
-4 |
% |
|
|
16,560 |
|
|
|
17,660 |
|
|
|
(1,100 |
) |
|
|
-6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
common stockholders |
|
$ |
(56,656 |
) |
|
$ |
(45,388 |
) |
|
$ |
(11,268 |
) |
|
|
25 |
% |
|
$ |
(133,850 |
) |
|
$ |
(138,597 |
) |
|
$ |
4,747 |
|
|
|
-3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Sep. 30, 2009 |
|
|
Sep. 30, 2008 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes |
|
$ |
27,146 |
|
|
$ |
27,718 |
|
|
$ |
(572 |
) |
|
|
-2 |
% |
|
$ |
82,149 |
|
|
$ |
83,827 |
|
|
$ |
(1,678 |
) |
|
|
-2 |
% |
Secured debt |
|
|
90 |
|
|
|
0 |
|
|
|
90 |
|
|
|
n/a |
|
|
|
90 |
|
|
|
0 |
|
|
|
90 |
|
|
|
n/a |
|
Unsecured lines of credit |
|
|
1,081 |
|
|
|
5,099 |
|
|
|
(4,018 |
) |
|
|
-79 |
% |
|
|
3,979 |
|
|
|
14,723 |
|
|
|
(10,744 |
) |
|
|
-73 |
% |
Capitalized interest |
|
|
(9,975 |
) |
|
|
(6,364 |
) |
|
|
(3,611 |
) |
|
|
57 |
% |
|
|
(30,866 |
) |
|
|
(16,594 |
) |
|
|
(14,272 |
) |
|
|
86 |
% |
SWAP losses (savings) |
|
|
(40 |
) |
|
|
(40 |
) |
|
|
0 |
|
|
|
0 |
% |
|
|
(121 |
) |
|
|
(121 |
) |
|
|
0 |
|
|
|
0 |
% |
Loan expense |
|
|
1,755 |
|
|
|
1,675 |
|
|
|
80 |
|
|
|
5 |
% |
|
|
5,159 |
|
|
|
5,025 |
|
|
|
134 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
20,057 |
|
|
$ |
28,088 |
|
|
$ |
(8,031 |
) |
|
|
-29 |
% |
|
$ |
60,390 |
|
|
$ |
86,860 |
|
|
$ |
(26,470 |
) |
|
|
-30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in interest expense on senior unsecured notes is due to the effect of
extinguishments. During the nine months ended September 30, 2009, we extinguished $183,147,000 of
unsecured senior notes with weighted average interest rates of 7.82% and recognized extinguishment
losses of $19,269,000. 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, 2009 |
|
|
September 30, 2008 |
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Face |
|
|
Weighted Avg. |
|
|
Face |
|
|
Weighted Avg. |
|
|
Face |
|
|
Weighted Avg. |
|
|
Face |
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,823,277 |
|
|
|
5.773 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
$ |
1,887,330 |
|
|
|
5.823 |
% |
Principal payments |
|
|
(161,424 |
) |
|
|
8.000 |
% |
|
|
0 |
|
|
|
0.000 |
% |
|
|
(183,147 |
) |
|
|
7.823 |
% |
|
|
(42,330 |
) |
|
|
7.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,661,853 |
|
|
|
5.557 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
$ |
1,661,853 |
|
|
|
5.557 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
1,782,921 |
|
|
|
5.723 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
$ |
1,813,652 |
|
|
|
5.756 |
% |
|
$ |
1,863,141 |
|
|
|
5.800 |
% |
During the nine 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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Balance outstanding at quarter end |
|
$ |
143,000 |
|
|
$ |
387,000 |
|
|
$ |
143,000 |
|
|
$ |
387,000 |
|
Maximum amount outstanding at any month end |
|
$ |
292,000 |
|
|
$ |
701,000 |
|
|
$ |
559,000 |
|
|
$ |
744,000 |
|
Average amount outstanding (total of daily
principal balances divided by days in period) |
|
$ |
217,174 |
|
|
$ |
577,717 |
|
|
$ |
301,740 |
|
|
$ |
509,307 |
|
Weighted average interest rate (actual
all-in interest/fees
expense divided by average borrowings
outstanding) |
|
|
1.99 |
% |
|
|
3.53 |
% |
|
|
1.76 |
% |
|
|
3.85 |
% |
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 10 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, 2009 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, 2009 were
7.05% and 8.83%, respectively, as compared with 7.34% and 7.95% for the same periods in 2008. The
year-to-date increase from 2008 is primarily related to $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.
37
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, 2009 |
|
September 30, 2008 |
|
September 30, 2009 |
|
September 30, 2008 |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
Weighted Avg. |
|
|
Shares |
|
Dividend Rate |
|
Shares |
|
Dividend Rate |
|
Shares |
|
Dividend Rate |
|
Shares |
|
Dividend Rate |
Beginning balance |
|
|
11,475,093 |
|
|
|
7.697 |
% |
|
|
12,048,839 |
|
|
|
7.688 |
% |
|
|
11,516,302 |
|
|
|
7.696 |
% |
|
|
12,879,189 |
|
|
|
7.676 |
% |
Shares converted |
|
|
(1,000 |
) |
|
|
7.500 |
% |
|
|
(127,780 |
) |
|
|
7.500 |
% |
|
|
(42,209 |
) |
|
|
7.478 |
% |
|
|
(958,130 |
) |
|
|
7.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
11,474,093 |
|
|
|
7.697 |
% |
|
|
11,921,059 |
|
|
|
7.690 |
% |
|
|
11,474,093 |
|
|
|
7.697 |
% |
|
|
11,921,059 |
|
|
|
7.690 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
|
11,474,593 |
|
|
|
7.697 |
% |
|
|
11,953,449 |
|
|
|
7.689 |
% |
|
|
11,485,097 |
|
|
|
7.697 |
% |
|
|
12,323,623 |
|
|
|
7.684 |
% |
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.
38
The table below reflects 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. 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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
FFO
Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
29,249 |
|
|
$ |
155,410 |
|
|
$ |
53,589 |
|
|
$ |
21,850 |
|
|
$ |
61,119 |
|
|
$ |
59,240 |
|
|
$ |
19,130 |
|
Depreciation and amortization |
|
|
39,574 |
|
|
|
39,630 |
|
|
|
41,690 |
|
|
|
42,150 |
|
|
|
41,326 |
|
|
|
40,731 |
|
|
|
41,085 |
|
Loss (gain) on sales of properties |
|
|
(26 |
) |
|
|
(118,168 |
) |
|
|
(12,619 |
) |
|
|
(33,120 |
) |
|
|
(17,036 |
) |
|
|
(10,677 |
) |
|
|
806 |
|
Noncontrolling interests |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
(81 |
) |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
(88 |
) |
|
|
|
Funds from operations |
|
$ |
68,710 |
|
|
$ |
76,785 |
|
|
$ |
82,573 |
|
|
$ |
30,799 |
|
|
$ |
85,322 |
|
|
$ |
89,207 |
|
|
$ |
60,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
86,100 |
|
|
|
89,294 |
|
|
|
96,040 |
|
|
|
103,329 |
|
|
|
108,214 |
|
|
|
110,864 |
|
|
|
114,874 |
|
Diluted |
|
|
86,610 |
|
|
|
89,853 |
|
|
|
96,849 |
|
|
|
103,840 |
|
|
|
108,624 |
|
|
|
111,272 |
|
|
|
115,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
$ |
1.74 |
|
|
$ |
0.56 |
|
|
$ |
0.21 |
|
|
$ |
0.56 |
|
|
$ |
0.53 |
|
|
$ |
0.17 |
|
Diluted |
|
|
0.34 |
|
|
|
1.73 |
|
|
|
0.55 |
|
|
|
0.21 |
|
|
|
0.56 |
|
|
|
0.53 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.80 |
|
|
$ |
0.86 |
|
|
$ |
0.86 |
|
|
$ |
0.30 |
|
|
$ |
0.79 |
|
|
$ |
0.80 |
|
|
$ |
0.53 |
|
Diluted |
|
|
0.79 |
|
|
|
0.85 |
|
|
|
0.85 |
|
|
|
0.30 |
|
|
|
0.79 |
|
|
|
0.80 |
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2009 |
|
|
|
FFO
Reconciliation: |
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
$ |
238,248 |
|
|
$ |
139,489 |
|
Depreciation and amortization |
|
|
120,894 |
|
|
|
123,143 |
|
Loss (gain) on sales of properties |
|
|
(130,813 |
) |
|
|
(26,907 |
) |
Noncontrolling interests |
|
|
(261 |
) |
|
|
(262 |
) |
|
|
|
Funds from operations |
|
$ |
228,068 |
|
|
$ |
235,463 |
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
90,500 |
|
|
|
111,345 |
|
Diluted |
|
|
91,121 |
|
|
|
111,749 |
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.63 |
|
|
$ |
1.25 |
|
Diluted |
|
|
2.61 |
|
|
|
1.25 |
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.52 |
|
|
$ |
2.11 |
|
Diluted |
|
|
2.50 |
|
|
|
2.11 |
|
The following table reflects the reconciliation of NOI for the periods presented. All
amounts include amounts from discontinued operations, if applicable. Amounts are in thousands.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
NOI
Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
13,414 |
|
|
$ |
14,881 |
|
|
$ |
18,545 |
|
|
$ |
19,562 |
|
|
$ |
19,996 |
|
|
$ |
20,001 |
|
|
$ |
19,070 |
|
Assisted living facilities |
|
|
30,228 |
|
|
|
31,071 |
|
|
|
28,189 |
|
|
|
27,521 |
|
|
|
27,708 |
|
|
|
28,392 |
|
|
|
28,634 |
|
Skilled nursing facilities |
|
|
40,100 |
|
|
|
40,260 |
|
|
|
40,687 |
|
|
|
40,595 |
|
|
|
41,731 |
|
|
|
41,598 |
|
|
|
41,337 |
|
Specialty care facilities |
|
|
8,191 |
|
|
|
10,595 |
|
|
|
12,650 |
|
|
|
12,359 |
|
|
|
12,677 |
|
|
|
11,293 |
|
|
|
11,272 |
|
|
|
|
Investment property
rental income |
|
|
91,933 |
|
|
|
96,807 |
|
|
|
100,071 |
|
|
|
100,037 |
|
|
|
102,112 |
|
|
|
101,284 |
|
|
|
100,313 |
|
Interest income |
|
|
9,092 |
|
|
|
9,175 |
|
|
|
10,910 |
|
|
|
10,886 |
|
|
|
9,953 |
|
|
|
10,158 |
|
|
|
10,528 |
|
Other income |
|
|
1,296 |
|
|
|
1,533 |
|
|
|
1,219 |
|
|
|
3,850 |
|
|
|
895 |
|
|
|
640 |
|
|
|
641 |
|
|
|
|
Total investment property
revenues |
|
|
102,321 |
|
|
|
107,515 |
|
|
|
112,200 |
|
|
|
114,773 |
|
|
|
112,960 |
|
|
|
112,082 |
|
|
|
111,482 |
|
Medical office buildings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
|
33,233 |
|
|
|
33,003 |
|
|
|
33,958 |
|
|
|
33,138 |
|
|
|
33,253 |
|
|
|
32,593 |
|
|
|
35,008 |
|
Other income |
|
|
210 |
|
|
|
237 |
|
|
|
261 |
|
|
|
222 |
|
|
|
213 |
|
|
|
234 |
|
|
|
248 |
|
|
|
|
Total medical office
building revenues |
|
|
33,443 |
|
|
|
33,240 |
|
|
|
34,219 |
|
|
|
33,360 |
|
|
|
33,466 |
|
|
|
32,827 |
|
|
|
35,256 |
|
Corporate other income |
|
|
210 |
|
|
|
115 |
|
|
|
575 |
|
|
|
793 |
|
|
|
376 |
|
|
|
363 |
|
|
|
200 |
|
|
|
|
Total revenues |
|
|
135,974 |
|
|
|
140,870 |
|
|
|
146,994 |
|
|
|
148,926 |
|
|
|
146,802 |
|
|
|
145,272 |
|
|
|
146,938 |
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Medical office buildings |
|
|
11,367 |
|
|
|
11,375 |
|
|
|
11,868 |
|
|
|
12,019 |
|
|
|
11,983 |
|
|
|
12,044 |
|
|
|
12,974 |
|
Non-segment/corporate |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
Total property operating
expenses |
|
|
11,367 |
|
|
|
11,375 |
|
|
|
11,868 |
|
|
|
12,019 |
|
|
|
11,983 |
|
|
|
12,044 |
|
|
|
12,974 |
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
|
102,321 |
|
|
|
107,515 |
|
|
|
112,200 |
|
|
|
114,773 |
|
|
|
112,960 |
|
|
|
112,082 |
|
|
|
111,482 |
|
Medical office buildings |
|
|
22,076 |
|
|
|
21,865 |
|
|
|
22,351 |
|
|
|
21,341 |
|
|
|
21,483 |
|
|
|
20,783 |
|
|
|
22,282 |
|
Non-segment/corporate |
|
|
210 |
|
|
|
115 |
|
|
|
575 |
|
|
|
793 |
|
|
|
376 |
|
|
|
363 |
|
|
|
200 |
|
|
|
|
Net operating income |
|
$ |
124,607 |
|
|
$ |
129,495 |
|
|
$ |
135,126 |
|
|
$ |
136,907 |
|
|
$ |
134,819 |
|
|
$ |
133,228 |
|
|
$ |
133,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2009 |
|
|
|
NOI
Reconciliation: |
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
Investment properties: |
|
|
|
|
|
|
|
|
Rental income: |
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
46,841 |
|
|
$ |
58,588 |
|
Assisted living facilities |
|
|
89,488 |
|
|
|
85,212 |
|
Skilled nursing facilities |
|
|
121,047 |
|
|
|
124,667 |
|
Specialty care facilities |
|
|
31,436 |
|
|
|
35,242 |
|
|
|
|
Investment property
rental income |
|
|
288,812 |
|
|
|
303,709 |
|
Interest income |
|
|
29,177 |
|
|
|
30,639 |
|
Other income |
|
|
4,048 |
|
|
|
2,177 |
|
|
|
|
Total investment property
revenues |
|
|
322,037 |
|
|
|
336,525 |
|
Medical office buildings: |
|
|
|
|
|
|
|
|
Rental income |
|
|
100,194 |
|
|
|
100,854 |
|
Other income |
|
|
708 |
|
|
|
695 |
|
|
|
|
Total medical office
building revenues |
|
|
100,902 |
|
|
|
101,549 |
|
Corporate other income |
|
|
899 |
|
|
|
938 |
|
|
|
|
Total revenues |
|
|
423,838 |
|
|
|
439,012 |
|
Property operating expenses: |
|
|
|
|
|
|
|
|
Investment properties |
|
|
0 |
|
|
|
0 |
|
Medical office buildings |
|
|
34,609 |
|
|
|
37,000 |
|
Non-segment/corporate |
|
|
0 |
|
|
|
0 |
|
|
|
|
Total property operating
expenses |
|
|
34,609 |
|
|
|
37,000 |
|
Net operating income: |
|
|
|
|
|
|
|
|
Investment properties |
|
|
322,037 |
|
|
|
336,525 |
|
Medical office buildings |
|
|
66,293 |
|
|
|
64,549 |
|
Non-segment/corporate |
|
|
899 |
|
|
|
938 |
|
|
|
|
Net operating income |
|
$ |
389,229 |
|
|
$ |
402,012 |
|
|
|
|
40
The table below reflects 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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
EBITDA
Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,458 |
|
|
$ |
161,259 |
|
|
$ |
59,320 |
|
|
$ |
27,389 |
|
|
$ |
66,645 |
|
|
$ |
64,759 |
|
|
$ |
24,685 |
|
Interest expense |
|
|
37,320 |
|
|
|
36,155 |
|
|
|
35,354 |
|
|
|
32,230 |
|
|
|
28,011 |
|
|
|
27,332 |
|
|
|
28,833 |
|
Income tax expense (benefit) |
|
|
1,279 |
|
|
|
44 |
|
|
|
(153 |
) |
|
|
136 |
|
|
|
50 |
|
|
|
21 |
|
|
|
(55 |
) |
Depreciation and amortization |
|
|
39,574 |
|
|
|
39,630 |
|
|
|
41,690 |
|
|
|
42,150 |
|
|
|
41,326 |
|
|
|
40,731 |
|
|
|
41,085 |
|
|
|
|
EBITDA |
|
$ |
113,631 |
|
|
$ |
237,088 |
|
|
$ |
136,211 |
|
|
$ |
101,905 |
|
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
$ |
94,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
37,320 |
|
|
$ |
36,155 |
|
|
$ |
35,354 |
|
|
$ |
32,230 |
|
|
$ |
28,011 |
|
|
$ |
27,332 |
|
|
$ |
28,833 |
|
Non-cash interest expense |
|
|
(2,790 |
) |
|
|
(2,769 |
) |
|
|
(2,773 |
) |
|
|
(2,899 |
) |
|
|
(2,772 |
) |
|
|
(2,844 |
) |
|
|
(2,895 |
) |
Capitalized interest |
|
|
5,167 |
|
|
|
5,063 |
|
|
|
6,364 |
|
|
|
8,435 |
|
|
|
9,865 |
|
|
|
11,026 |
|
|
|
9,975 |
|
|
|
|
Total interest |
|
|
39,697 |
|
|
|
38,449 |
|
|
|
38,945 |
|
|
|
37,766 |
|
|
|
35,104 |
|
|
|
35,514 |
|
|
|
35,913 |
|
EBITDA |
|
$ |
113,631 |
|
|
$ |
237,088 |
|
|
$ |
136,211 |
|
|
$ |
101,905 |
|
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
$ |
94,548 |
|
|
|
|
Interest coverage ratio |
|
|
2.86 |
x |
|
|
6.17 |
x |
|
|
3.50 |
x |
|
|
2.70 |
x |
|
|
3.88 |
x |
|
|
3.74 |
x |
|
|
2.63 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest |
|
$ |
39,697 |
|
|
$ |
38,449 |
|
|
$ |
38,945 |
|
|
$ |
37,766 |
|
|
$ |
35,104 |
|
|
$ |
35,514 |
|
|
$ |
35,913 |
|
Secured debt principal payments |
|
|
2,093 |
|
|
|
1,817 |
|
|
|
2,080 |
|
|
|
2,129 |
|
|
|
2,206 |
|
|
|
2,177 |
|
|
|
2,298 |
|
Preferred dividends |
|
|
6,147 |
|
|
|
5,784 |
|
|
|
5,730 |
|
|
|
5,541 |
|
|
|
5,524 |
|
|
|
5,516 |
|
|
|
5,520 |
|
|
|
|
Total fixed charges |
|
|
47,937 |
|
|
|
46,050 |
|
|
|
46,755 |
|
|
|
45,436 |
|
|
|
42,834 |
|
|
|
43,207 |
|
|
|
43,731 |
|
EBITDA |
|
$ |
113,631 |
|
|
$ |
237,088 |
|
|
$ |
136,211 |
|
|
$ |
101,905 |
|
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
$ |
94,548 |
|
|
|
|
Fixed charge coverage ratio |
|
|
2.37 |
x |
|
|
5.15 |
x |
|
|
2.91 |
x |
|
|
2.24 |
x |
|
|
3.18 |
x |
|
|
3.07 |
x |
|
|
2.16 |
x |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2009 |
|
|
|
EBITDA
Reconciliation: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
256,036 |
|
|
$ |
156,089 |
|
Interest expense |
|
|
108,830 |
|
|
|
84,176 |
|
Tax expense (benefit) |
|
|
1,170 |
|
|
|
17 |
|
Depreciation and amortization |
|
|
120,894 |
|
|
|
123,143 |
|
|
|
|
EBITDA |
|
$ |
486,930 |
|
|
$ |
363,425 |
|
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio: |
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
108,830 |
|
|
$ |
84,176 |
|
Non-cash interest expense |
|
|
(8,332 |
) |
|
|
(8,511 |
) |
Capitalized interest |
|
|
16,594 |
|
|
|
30,866 |
|
|
|
|
Total interest |
|
|
117,092 |
|
|
|
106,531 |
|
EBITDA |
|
$ |
486,930 |
|
|
$ |
363,425 |
|
|
|
|
Interest coverage ratio |
|
|
4.16 |
x |
|
|
3.41 |
x |
|
|
|
|
|
|
|
|
|
Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
Total interest |
|
$ |
117,092 |
|
|
$ |
106,531 |
|
Secured debt principal payments |
|
|
5,990 |
|
|
|
6,681 |
|
Preferred dividends |
|
|
17,660 |
|
|
|
16,560 |
|
|
|
|
Total fixed charges |
|
|
140,742 |
|
|
|
129,772 |
|
EBITDA |
|
$ |
486,930 |
|
|
$ |
363,425 |
|
|
|
|
Fixed charge coverage ratio |
|
|
3.46 |
x |
|
|
2.80 |
x |
41
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 |
|
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
Adjusted
EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
303,603 |
|
|
$ |
283,425 |
|
|
$ |
314,613 |
|
|
$ |
218,112 |
|
|
$ |
183,478 |
|
Interest expense |
|
|
147,596 |
|
|
|
141,059 |
|
|
|
131,750 |
|
|
|
122,927 |
|
|
|
116,406 |
|
Income tax expense (benefit) |
|
|
1,439 |
|
|
|
1,306 |
|
|
|
77 |
|
|
|
54 |
|
|
|
152 |
|
Depreciation and amortization |
|
|
160,975 |
|
|
|
163,045 |
|
|
|
164,797 |
|
|
|
165,898 |
|
|
|
165,292 |
|
Stock-based compensation
expense |
|
|
8,024 |
|
|
|
8,530 |
|
|
|
11,360 |
|
|
|
11,034 |
|
|
|
10,637 |
|
Provision for loan losses |
|
|
0 |
|
|
|
94 |
|
|
|
234 |
|
|
|
234 |
|
|
|
234 |
|
Loss (gain) on extinguishment
of debt |
|
|
(3,175 |
) |
|
|
(2,094 |
) |
|
|
(2,446 |
) |
|
|
(2,446 |
) |
|
|
24,696 |
|
|
|
|
Adjusted EBITDA |
|
$ |
618,462 |
|
|
$ |
595,365 |
|
|
$ |
620,385 |
|
|
$ |
515,813 |
|
|
$ |
500,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
147,596 |
|
|
$ |
141,059 |
|
|
$ |
131,750 |
|
|
$ |
122,927 |
|
|
$ |
116,406 |
|
Capitalized interest |
|
|
21,062 |
|
|
|
25,029 |
|
|
|
29,727 |
|
|
|
35,690 |
|
|
|
39,301 |
|
Non-cash interest expense |
|
|
(11,325 |
) |
|
|
(11,231 |
) |
|
|
(11,214 |
) |
|
|
(11,289 |
) |
|
|
(11,410 |
) |
Secured debt principal payments |
|
|
8,137 |
|
|
|
8,119 |
|
|
|
8,232 |
|
|
|
8,592 |
|
|
|
8,810 |
|
Preferred dividends |
|
|
23,840 |
|
|
|
23,201 |
|
|
|
22,579 |
|
|
|
22,311 |
|
|
|
22,101 |
|
|
|
|
Total fixed charges |
|
|
189,310 |
|
|
|
186,177 |
|
|
|
181,074 |
|
|
|
178,231 |
|
|
|
175,208 |
|
Adjusted EBITDA |
|
$ |
618,462 |
|
|
$ |
595,365 |
|
|
$ |
620,385 |
|
|
$ |
515,813 |
|
|
$ |
500,895 |
|
|
|
|
Adjusted fixed charge coverage ratio |
|
|
3.27 |
x |
|
|
3.20 |
x |
|
|
3.43 |
x |
|
|
2.89 |
x |
|
|
2.86 |
x |
42
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, 2008, as updated by our Current Report on Form
8-K filed August 6, 2009, for further information regarding significant accounting policies that
impact us. There have been no material changes to these policies in 2009.
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 |
|
|
|
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 a
$140,000 addition to the
allowance for loan losses during
the nine months ended September
30, 2009, resulting in an
allowance for loan losses of
$7,640,000 relating to loans with
outstanding balances of
$122,742,000. Also at September
30, 2009, we had loans with
outstanding balances of
$72,365,000 on non-accrual
status. |
43
|
|
|
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, 2009, we
recorded $90,669,000,
$24,944,000 and $7,530,000
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 36.4 years,
10.9 years and 8.3 years,
respectively, for the nine
months ended September 30,
2009. |
|
|
|
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. |
|
|
|
|
|
At September 30, 2009, we
had four medical office
buildings that satisfied the
requirements for held for
sale treatment. During the
three months ended September
30, 2009, an impairment
charge of $1,873,000 was
recorded to further reduce
the carrying value of the
four medical office
buildings to their estimated
fair value less costs to
sell. In determining the
fair value of the medical
office buildings, we used a
combination of third party
appraisals based on market
comparable transactions,
other market listings and
asset quality as well as
third party offers to
purchase. |
|
|
|
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,
2009, we participated in two
interest rate swap
agreements which are
reported at their fair value
of $4,375,000 and are
included in other
liabilities and accumulated
other comprehensive income. |
44
|
|
|
Nature of Critical |
|
Assumptions/Approach |
Accounting Estimate |
|
Used |
|
|
|
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 collectability of our revenues and related receivables on an on-going basis.
We evaluate collectability 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
collectability 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, 2009, we recognized $30,639,000
of interest income and $404,563,000
of rental income, including
discontinued operations. Cash
receipts on leases with deferred
revenue provisions were $23,463,000
as compared to gross straight-line
rental income recognized of
$14,499,000 for the nine months
ended September 30, 2009. At
September 30, 2009, our
straight-line receivable balance was
$35,999,000, net of reserves
totaling $379,000. Also at
September 30, 2009, we had loans
with outstanding balances of
$72,365,000 on non-accrual status. |
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; operators/tenants
difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance;
changes in financing terms; competition within the health care and senior housing 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; the failure of closings to occur 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 bankruptcies or insolvencies; government regulations affecting Medicare and
Medicaid reimbursement rates and operational requirements; 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, 2008, as updated by our Current Report on Form 8-K filed August 6, 2009,
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.
45
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, 2009 |
|
|
December 31, 2008 |
|
|
|
Principal |
|
|
Change in |
|
|
Principal |
|
|
Change in |
|
|
|
balance |
|
|
fair value |
|
|
balance |
|
|
fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes |
|
$ |
1,661,853 |
|
|
$ |
(128,552 |
) |
|
$ |
1,845,000 |
|
|
$ |
(112,438 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate secured debt |
|
|
495,334 |
|
|
|
(24,105 |
) |
|
|
448,378 |
|
|
|
(17,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
2,157,187 |
|
|
$ |
(152,657 |
) |
|
$ |
2,293,378 |
|
|
$ |
(130,404 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 12, 2007, we entered into two forward-starting interest rate swaps (the
September 2007 Swaps) for a total notional amount of $250,000,000 to hedge 10 years of interest
payments associated with a long-term borrowing that was expected to occur in 2008. The September
2007 Swaps each had an effective date of September 12, 2008 and a maturity date of September 12,
2018. We expected to settle the 2007 Swaps when the debt was to be priced. The September 2007
Swaps were to have the economic effect of fixing $250,000,000 of our future debt at 4.469% plus a
credit spread for 10 years. The September 2007 Swaps had been designated as cash flow hedges and
we expected the 2007 Swaps to be highly effective at offsetting changes in cash flows of interest
payments on $250,000,000 of our future debt due to changes in the LIBOR swap rate. Therefore,
effective changes in the fair value of the September 2007 Swaps were recorded in AOCI and were to
be reclassified to interest expense when the hedged forecasted transactions affected earnings (as
interest payments are made on the expected debt issuance). The ineffective portion of the changes
in fair value was to be recorded directly in earnings. During the year ended December 31, 2008, as
a result of the severe dislocation in the credit markets, we terminated plans to issue debt and
also terminated the September 2007 Swaps for $23,393,000. Amounts previously recorded in AOCI were
reclassified to realized loss on derivatives resulting in $23,393,000 of expense as the forecasted
transaction was no longer probable to occur.
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. The August 2009 Swap has an effective date of August 12, 2009 and a
maturity date of September 1, 2016. The August 2009 Swap has the economic effect of fixing
$52,198,000 at 3.93% plus a credit spread for seven years. The August 2009 Swap has been
designated as a cash flow hedge and we expect 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. The September 2009 Swap has an effective date of September 30,
2009 and a maturity date of October 1, 2016. The September 2009 Swap has the economic effect of
fixing $48,155,000 at 3.2675% plus a credit spread for seven years. The September 2009 Swap has
been designated as a cash flow hedge and we expect 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.
46
Our variable rate debt, including our unsecured line of credit arrangement, is reflected at
fair value. At September 30, 2009, we had $143,000,000 outstanding related to our variable rate
line of credit and $132,456,000 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 $2,755,000. At December 31, 2008, we had $570,000,000 outstanding related to
our variable rate debt and assuming no changes in outstanding balances, a 1% increase in interest
rates would have resulted in increased annual interest expense of $5,700,000.
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.
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, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares Purchased |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
as Part of Publicly |
|
|
of Shares that May |
|
|
|
Total Number |
|
|
|
|
|
|
Announced |
|
|
Yet Be Purchased |
|
|
|
of Shares |
|
|
Average Price |
|
|
Plans or Programs |
|
|
Under the Plans or |
|
Period |
|
Purchased (1) |
|
|
Paid Per Share |
|
|
(2) |
|
|
Programs |
|
July 1, 2009 through
July 31, 2009 |
|
|
932 |
|
|
$ |
34.52 |
|
|
|
|
|
|
|
|
|
August 1, 2009 through
August 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2009 through
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
932 |
|
|
$ |
34.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the three months ended September 30, 2009, 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. |
47
Item 6. Exhibits
|
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. |
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 5, 2009 |
By: |
/s/ George L. Chapman
|
|
|
|
George L. Chapman, |
|
|
|
Chairman, Chief Executive Officer and President
(Principal Executive Officer) |
|
|
|
|
|
Date: November 5, 2009 |
By: |
/s/ Scott A. Estes
|
|
|
|
Scott A. Estes, |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
Date: November 5, 2009 |
By: |
/s/ Paul D. Nungester, Jr.
|
|
|
|
Paul D. Nungester, Jr., |
|
|
|
Vice President and Controller
(Principal Accounting Officer) |
|
|
48