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 June 30, 2009
or
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o |
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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
HEALTH CARE REIT, INC.
(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.
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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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 July 31, 2009, the registrant had
111,887,972 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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June 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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(Note) |
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(In thousands) |
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Assets |
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Real estate investments: |
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Real property owned: |
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Land and land improvements |
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$ |
518,213 |
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$ |
504,907 |
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Buildings and improvements |
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4,715,571 |
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4,653,871 |
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Acquired lease intangibles |
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133,480 |
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133,324 |
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Real property held for sale, net of accumulated depreciation |
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48,824 |
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48,054 |
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Construction in progress |
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730,381 |
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639,419 |
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Gross real property owned |
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6,146,469 |
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5,979,575 |
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Less accumulated depreciation and amortization |
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(636,325 |
) |
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(600,781 |
) |
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Net real property owned |
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5,510,144 |
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5,378,794 |
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Real estate loans receivable: |
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Real estate loans receivable |
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488,856 |
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482,885 |
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Less allowance for losses on loans receivable |
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(7,640 |
) |
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(7,500 |
) |
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Net real estate loans receivable |
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481,216 |
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475,385 |
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Net real estate investments |
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5,991,360 |
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5,854,179 |
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Other assets: |
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Equity investments |
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2,531 |
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1,030 |
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Deferred loan expenses |
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23,197 |
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23,579 |
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Cash and cash equivalents |
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79,505 |
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23,370 |
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Restricted cash |
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18,833 |
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154,070 |
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Receivables and other assets |
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132,233 |
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136,890 |
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Total other assets |
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256,299 |
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338,939 |
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Total assets |
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$ |
6,247,659 |
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$ |
6,193,118 |
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Liabilities and equity |
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Liabilities: |
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Borrowings under unsecured lines of credit arrangements |
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$ |
342,000 |
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$ |
570,000 |
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Senior unsecured notes |
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1,811,590 |
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1,831,151 |
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Secured debt |
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543,842 |
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446,525 |
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Accrued expenses and other liabilities |
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89,290 |
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107,157 |
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Total liabilities |
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2,786,722 |
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2,954,833 |
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Equity: |
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Preferred stock, $1.00 par value: |
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288,713 |
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289,929 |
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Authorized 50,000,000 shares |
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Issued and outstanding 11,475,093 shares at June 30, 2009 and 11,516,302 shares
at December 31, 2008 |
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Common stock, $1.00 par value: |
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111,733 |
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104,635 |
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Authorized 225,000,000 shares |
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Issued 111,975,546 shares at June 30, 2009 and 104,835,626 shares at December 31, 2008
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Outstanding 111,778,553 shares at June 30, 2009 and 104,703,702 shares at December 31, 2008 |
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Capital in excess of par value |
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3,454,399 |
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3,204,690 |
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Treasury stock |
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(7,587 |
) |
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(5,145 |
) |
Cumulative net income |
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1,485,798 |
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1,354,400 |
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Cumulative dividends |
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(1,886,583 |
) |
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(1,723,819 |
) |
Accumulated other comprehensive income |
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(1,016 |
) |
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(1,113 |
) |
Other equity |
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5,369 |
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4,105 |
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Total Health Care REIT, Inc. stockholders equity |
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3,450,826 |
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3,227,682 |
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Noncontrolling interests |
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10,111 |
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10,603 |
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Total equity |
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3,460,937 |
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3,238,285 |
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Total liabilities and equity |
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$ |
6,247,659 |
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$ |
6,193,118 |
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NOTE: |
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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.
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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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Six Months Ended |
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June 30, |
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June 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) |
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Revenues: |
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Rental income |
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$ |
130,291 |
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$ |
118,125 |
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$ |
260,420 |
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$ |
231,203 |
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Interest income |
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10,158 |
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9,175 |
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20,111 |
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18,267 |
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Other income |
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1,237 |
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1,885 |
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2,721 |
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3,601 |
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Total revenues |
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141,686 |
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129,185 |
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283,252 |
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253,071 |
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Expenses: |
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Interest expense |
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26,698 |
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33,335 |
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53,941 |
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67,844 |
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Property operating expenses |
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11,525 |
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10,697 |
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|
22,943 |
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21,409 |
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Depreciation and amortization |
|
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39,608 |
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|
35,437 |
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|
79,297 |
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|
70,637 |
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General and administrative |
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11,062 |
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10,575 |
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28,424 |
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|
22,904 |
|
Gain on extinguishment of debt |
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0 |
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0 |
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(1,678 |
) |
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(1,326 |
) |
Provision for loan losses |
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0 |
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0 |
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|
140 |
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0 |
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Total expenses |
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88,893 |
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|
90,044 |
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|
183,067 |
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181,468 |
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Income from continuing operations before income taxes |
|
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52,793 |
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39,141 |
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|
100,185 |
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71,603 |
|
Income tax (expense) benefit |
|
|
(21 |
) |
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|
(44 |
) |
|
|
(72 |
) |
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(1,323 |
) |
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|
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|
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Income from continuing operations |
|
|
52,772 |
|
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|
39,097 |
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|
100,113 |
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|
70,280 |
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|
|
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|
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Discontinued operations: |
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Net gain on sales of properties |
|
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10,677 |
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|
118,168 |
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|
27,713 |
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|
118,194 |
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Income from discontinued operations, net |
|
|
1,310 |
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|
|
3,994 |
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|
|
3,577 |
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|
8,242 |
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|
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|
|
|
|
|
|
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Discontinued operations, net |
|
|
11,987 |
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|
|
122,162 |
|
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|
31,290 |
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|
126,436 |
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Net income |
|
|
64,759 |
|
|
|
161,259 |
|
|
|
131,403 |
|
|
|
196,716 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
Less: Preferred stock dividends |
|
|
5,516 |
|
|
|
5,784 |
|
|
|
11,039 |
|
|
|
11,931 |
|
Net income attributable to noncontrolling interests |
|
|
3 |
|
|
|
65 |
|
|
|
5 |
|
|
|
127 |
|
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|
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|
|
|
|
|
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|
Net income attributable to common stockholders |
|
$ |
59,240 |
|
|
$ |
155,410 |
|
|
$ |
120,359 |
|
|
$ |
184,658 |
|
|
|
|
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Average number of common shares outstanding: |
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|
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Basic |
|
|
110,864 |
|
|
|
89,294 |
|
|
|
109,548 |
|
|
|
87,698 |
|
Diluted |
|
|
111,272 |
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|
|
89,853 |
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|
|
109,956 |
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|
|
88,223 |
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Earnings per share: |
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Basic: |
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Income from continuing operations
attributable to common stockholders |
|
$ |
0.43 |
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|
$ |
0.37 |
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|
$ |
0.81 |
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|
$ |
0.66 |
|
Discontinued operations, net |
|
|
0.11 |
|
|
|
1.37 |
|
|
|
0.29 |
|
|
|
1.44 |
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|
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|
|
|
|
|
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|
Net income attributable to common stockholders* |
|
$ |
0.53 |
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|
$ |
1.74 |
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|
$ |
1.10 |
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|
$ |
2.11 |
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|
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|
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|
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Diluted: |
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|
|
|
|
|
|
|
|
|
|
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|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.42 |
|
|
$ |
0.37 |
|
|
$ |
0.81 |
|
|
$ |
0.66 |
|
Discontinued operations, net |
|
|
0.11 |
|
|
|
1.36 |
|
|
|
0.28 |
|
|
|
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income attributable to common stockholders* |
|
$ |
0.53 |
|
|
$ |
1.73 |
|
|
$ |
1.09 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Dividends declared and paid per common share |
|
$ |
0.68 |
|
|
$ |
0.68 |
|
|
$ |
1.36 |
|
|
$ |
1.34 |
|
|
|
|
* |
|
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
(in thousands)
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|
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|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009 |
|
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|
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|
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|
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|
|
Accumulated |
|
|
|
|
|
|
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|
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|
Capital in |
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Other |
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|
|
|
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|
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|
|
|
|
|
Preferred |
|
|
Common |
|
|
Excess of |
|
|
Treasury |
|
|
Cumulative |
|
|
Cumulative |
|
|
Comprehensive |
|
|
Other |
|
|
Noncontrolling |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Par Value |
|
|
Stock |
|
|
Net Income |
|
|
Dividends |
|
|
Income |
|
|
Equity |
|
|
Interests |
|
|
Total |
|
|
|
|
Balances at beginning of period |
|
$ |
289,929 |
|
|
$ |
104,635 |
|
|
$ |
3,204,690 |
|
|
$ |
(5,145 |
) |
|
$ |
1,354,400 |
|
|
$ |
(1,723,819 |
) |
|
$ |
(1,113 |
) |
|
$ |
4,105 |
|
|
$ |
10,603 |
|
|
$ |
3,238,285 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
131,403 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
178 |
|
Cash flow hedge activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,349 |
|
|
|
1,349 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,846 |
) |
|
|
(1,846 |
) |
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures |
|
|
|
|
|
|
851 |
|
|
|
30,137 |
|
|
|
(2,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,546 |
|
Net proceeds from sale of common stock |
|
|
|
|
|
|
6,217 |
|
|
|
218,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,603 |
|
Conversion of preferred stock |
|
|
(1,216 |
) |
|
|
30 |
|
|
|
1,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264 |
|
|
|
|
|
|
|
1,264 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock-$1.36 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151,725 |
) |
Preferred stock, Series D-$0.9844 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,938 |
) |
Preferred stock, Series E-$0.7500 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
Preferred stock, Series F-$0.9532 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,672 |
) |
Preferred stock, Series G-$0.9376 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(373 |
) |
|
|
|
Balances at end of period |
|
$ |
288,713 |
|
|
$ |
111,733 |
|
|
$ |
3,454,399 |
|
|
$ |
(7,587 |
) |
|
$ |
1,485,798 |
|
|
$ |
(1,886,583 |
) |
|
$ |
(1,016 |
) |
|
$ |
5,369 |
|
|
$ |
10,111 |
|
|
$ |
3,460,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
196,716 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(589 |
) |
|
|
|
|
|
|
|
|
|
|
(589 |
) |
Cash flow hedge activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(576 |
) |
|
|
|
|
|
|
|
|
|
|
(576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243 |
|
|
|
243 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410 |
) |
|
|
(410 |
) |
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures |
|
|
|
|
|
|
975 |
|
|
|
42,060 |
|
|
|
(1,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87 |
) |
|
|
|
|
|
|
41,790 |
|
Proceeds from issuance of common shares |
|
|
|
|
|
|
3,000 |
|
|
|
115,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,555 |
|
Conversion of preferred stock |
|
|
(24,562 |
) |
|
|
594 |
|
|
|
23,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
934 |
|
|
|
|
|
|
|
934 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock-$1.34 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,411 |
) |
Preferred stock, Series D-$0.9844 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,938 |
) |
Preferred stock, Series E-$0.7500 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
Preferred stock, Series F-$0.9532 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,672 |
) |
Preferred stock, Series G-$0.9376 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,265 |
) |
|
|
|
Balances at end of period |
|
$ |
305,681 |
|
|
$ |
89,981 |
|
|
$ |
2,575,682 |
|
|
$ |
(5,110 |
) |
|
$ |
1,267,690 |
|
|
$ |
(1,577,301 |
) |
|
$ |
(8,546 |
) |
|
$ |
3,548 |
|
|
$ |
9,647 |
|
|
$ |
2,661,272 |
|
|
|
|
See notes to unaudited consolidated financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
131,403 |
|
|
$ |
196,716 |
|
Adjustments to reconcile net income to
net cash provided from (used in) operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
82,057 |
|
|
|
79,203 |
|
Other amortization expenses |
|
|
7,254 |
|
|
|
5,890 |
|
Provision for loan losses |
|
|
140 |
|
|
|
0 |
|
Stock-based compensation expense |
|
|
7,659 |
|
|
|
5,254 |
|
Loss (gain) on extinguishment of debt, net |
|
|
(1,678 |
) |
|
|
(1,326 |
) |
Rental income less than (in excess of)
cash received |
|
|
5,217 |
|
|
|
528 |
|
Amortization related to above (below) market leases, net |
|
|
(724 |
) |
|
|
(462 |
) |
(Gain) loss on sales of properties |
|
|
(27,713 |
) |
|
|
(118,194 |
) |
Deferred gain on sales of properties |
|
|
0 |
|
|
|
3,708 |
|
Increase (decrease) in accrued expenses and
other liabilities |
|
|
(15,875 |
) |
|
|
6,996 |
|
Decrease (increase) in receivables and
other assets |
|
|
(3,407 |
) |
|
|
(1,654 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) operating activities |
|
|
184,333 |
|
|
|
176,659 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Investment in real property |
|
|
(298,359 |
) |
|
|
(533,978 |
) |
Capitalized interest |
|
|
(20,891 |
) |
|
|
(10,230 |
) |
Investment in real estate loans receivable |
|
|
(37,046 |
) |
|
|
(67,352 |
) |
Other investments, net of payments |
|
|
10,696 |
|
|
|
(9,763 |
) |
Principal collected on real estate loans receivable |
|
|
31,077 |
|
|
|
13,401 |
|
Decrease (increase) in restricted cash |
|
|
135,237 |
|
|
|
(132,126 |
) |
Proceeds from sales of real property |
|
|
132,285 |
|
|
|
183,081 |
|
Other |
|
|
(13,252 |
) |
|
|
(5,503 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) investing activities |
|
|
(60,253 |
) |
|
|
(562,470 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net increase (decrease) under unsecured
lines of credit arrangements |
|
|
(228,000 |
) |
|
|
437,000 |
|
Principal payments on senior unsecured notes |
|
|
(19,796 |
) |
|
|
(42,330 |
) |
Net proceeds from the issuance of secured debt |
|
|
133,071 |
|
|
|
0 |
|
Principal payments on secured debt |
|
|
(35,791 |
) |
|
|
(40,612 |
) |
Net proceeds from the issuance of common stock |
|
|
249,196 |
|
|
|
157,094 |
|
Decrease (increase) in deferred loan expenses |
|
|
(3,364 |
) |
|
|
(23 |
) |
Contributions by noncontrolling interests |
|
|
1,349 |
|
|
|
243 |
|
Distributions to noncontrolling interests |
|
|
(1,846 |
) |
|
|
(410 |
) |
Cash distributions to stockholders |
|
|
(162,764 |
) |
|
|
(130,342 |
) |
|
|
|
|
|
|
|
Net cash provided from (used in) financing activities |
|
|
(67,945 |
) |
|
|
380,620 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
56,135 |
|
|
|
(5,191 |
) |
Cash and cash equivalents at beginning of period |
|
|
23,370 |
|
|
|
30,269 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
79,505 |
|
|
$ |
25,078 |
|
|
|
|
|
|
|
|
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 June 30, 2009, our broadly diversified portfolio consisted of 620 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 six months ended June 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 May 7, 2009.
New Accounting Standards
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R),
Business Combinations (SFAS 141(R)) and Statement of Financial Accounting Standards No. 160,
Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS
160). SFAS 141(R) changed how business acquisitions are accounted for and will impact financial
statements both on the acquisition date and in subsequent periods. SFAS 160 changed the accounting
and reporting for minority interests, which re-characterized them as non-controlling interests and
classified them as a component of equity. The provisions of SFAS 141(R) and SFAS 160 were effective
on January 1, 2009 and are to be applied prospectively; however, the disclosure provisions of SFAS
160 were applied retrospectively. In accordance with SFAS 141(R), we elected to expense all
development costs for projects in progress when it was determined they would not be completed prior
to the adoption of SFAS 141(R). See Note 19 for additional information regarding the application of
SFAS 160.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures About Derivative Instruments and Hedging Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 expands quarterly disclosure requirements in SFAS 133 concerning an
entitys derivative instruments and hedging activities. The provisions of SFAS 161 were effective
on January 1, 2009. The adoption of SFAS 161 did not have a material impact on us as there were no
derivatives instruments outstanding at June 30, 2009.
In May 2008, the FASB issued FASB Staff Position APB 14-1 (FSP 14-1), which provides
guidance on accounting for debt that may be settled in cash upon conversion. FSP 14-1 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. FSP 14-1 was effective on January 1, 2009. Retrospective
application was required for all periods presented in the financial statements for instruments that
were outstanding during any periods presented in the financial statements. See Note 19 for
additional information.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (FSP 107-1). FSP 107-1 amends SFAS No. 107 to require disclosures
about fair value of financial instruments for interim reporting periods of publicly traded
companies in addition to the annual financial statements. FSP 107-1 also amends APB No. 28 to
require those disclosures in summarized financial information at interim reporting periods. FSP
107-1 is effective for interim periods ending after June 15, 2009. Prior period presentation is not
required for comparative purposes at initial adoption. The adoption of FSP 107-1 did not have a
material impact on our consolidated balance sheet or consolidated statement of income although
additional disclosures will be necessary. See Note 15 for additional information.
7
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent
Events (SFAS 165). FAS No. 165 establishes the accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events (either the date the financial statements were issued or the
date they were available to be issued) and the basis for the selection of that date. See Note 18
for the related disclosures. The adoption of SFAS No. 165 in the second quarter of 2009 did not
have a material impact on our financial statements.
We adopted FSP FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP FAS No. 157-4) in the second quarter of 2009. FSP FAS No. 157-4 clarifies the
methodology to be used to determine fair value when there is no active market or where the price
inputs being used represent distressed sales. FSP FAS No. 157-4 also reaffirms the objective of
fair value measurement, as stated in FAS No. 157, which is to reflect how much an asset would be
sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a
formerly active market has become inactive, as well as to determine fair values when markets have
become inactive. The adoption of FSP FAS No. 157-4 did not have a material impact on our financial
statements.
3. Real Property Acquisitions and Development
The following is a summary of our real property investment activity for the periods presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 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 |
|
Specialty care facilities |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
142,300 |
|
|
|
|
|
|
|
142,300 |
|
Medical office buildings |
|
|
|
|
|
$ |
0 |
|
|
|
0 |
|
|
|
|
|
|
$ |
47,853 |
|
|
|
47,853 |
|
Land parcels |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
10,000 |
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisitions |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
266,090 |
|
|
|
47,853 |
|
|
|
313,943 |
|
Less: Assumed debt |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
Assumed other assets (liabilities), net |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(967 |
) |
|
|
(967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for acquisitions |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
266,090 |
|
|
|
46,886 |
|
|
|
312,976 |
|
Construction in progress additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
99,055 |
|
|
|
|
|
|
|
99,055 |
|
|
|
112,345 |
|
|
|
|
|
|
|
112,345 |
|
Assisted living facilities |
|
|
94,021 |
|
|
|
|
|
|
|
94,021 |
|
|
|
50,290 |
|
|
|
|
|
|
|
50,290 |
|
Skilled nursing facilities |
|
|
15,935 |
|
|
|
|
|
|
|
15,935 |
|
|
|
8,736 |
|
|
|
|
|
|
|
8,736 |
|
Specialty care facilities |
|
|
51,855 |
|
|
|
|
|
|
|
51,855 |
|
|
|
35,726 |
|
|
|
|
|
|
|
35,726 |
|
Medical office buildings |
|
|
|
|
|
|
45,749 |
|
|
|
45,749 |
|
|
|
|
|
|
|
13,628 |
|
|
|
13,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress additions |
|
|
260,866 |
|
|
|
45,749 |
|
|
|
306,615 |
|
|
|
207,097 |
|
|
|
13,628 |
|
|
|
220,725 |
|
Less: Capitalized interest |
|
|
(17,603 |
) |
|
|
(3,288 |
) |
|
|
(20,891 |
) |
|
|
(9,794 |
) |
|
|
(436 |
) |
|
|
(10,230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for construction in progress |
|
|
243,263 |
|
|
|
42,461 |
|
|
|
285,724 |
|
|
|
197,303 |
|
|
|
13,192 |
|
|
|
210,495 |
|
Capital improvements to existing properties |
|
|
7,762 |
|
|
|
4,873 |
|
|
|
12,635 |
|
|
|
7,828 |
|
|
|
2,679 |
|
|
|
10,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash invested in real property |
|
$ |
251,025 |
|
|
$ |
47,334 |
|
|
$ |
298,359 |
|
|
$ |
471,221 |
|
|
$ |
62,757 |
|
|
$ |
533,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the construction projects that were placed into service and
began generating revenues during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Investment |
|
|
Medical Office |
|
|
|
|
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
|
Properties |
|
|
Buildings |
|
|
Totals |
|
Development projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
102,620 |
|
|
|
|
|
|
$ |
102,620 |
|
|
$ |
91,218 |
|
|
|
|
|
|
$ |
91,218 |
|
Assisted living facilities |
|
|
94,870 |
|
|
|
|
|
|
|
94,870 |
|
|
|
14,516 |
|
|
|
|
|
|
|
14,516 |
|
Skilled nursing facilities |
|
|
14,561 |
|
|
|
|
|
|
|
14,561 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Specialty care facilities |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
35,151 |
|
|
|
|
|
|
|
35,151 |
|
Medical office buildings |
|
|
|
|
|
$ |
0 |
|
|
|
0 |
|
|
|
|
|
|
$ |
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total development projects |
|
|
212,051 |
|
|
|
0 |
|
|
|
212,051 |
|
|
|
140,885 |
|
|
|
0 |
|
|
|
140,885 |
|
Expansion projects |
|
|
3,601 |
|
|
|
|
|
|
|
3,601 |
|
|
|
23,718 |
|
|
|
|
|
|
|
23,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress conversions |
|
$ |
215,652 |
|
|
$ |
0 |
|
|
$ |
215,652 |
|
|
$ |
164,603 |
|
|
$ |
0 |
|
|
$ |
164,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
4. Real Estate Intangibles
The following is a summary of our real estate intangibles as of the dates indicated (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
Assets: |
|
|
|
|
|
|
|
|
In place lease intangibles |
|
$ |
81,500 |
|
|
$ |
81,500 |
|
Above market tenant leases |
|
|
9,658 |
|
|
|
9,658 |
|
Below market ground leases |
|
|
39,806 |
|
|
|
39,806 |
|
Lease commissions |
|
|
2,516 |
|
|
|
2,360 |
|
|
|
|
|
|
|
|
Gross historical cost |
|
|
133,480 |
|
|
|
133,324 |
|
Accumulated amortization |
|
|
(37,591 |
) |
|
|
(31,452 |
) |
|
|
|
|
|
|
|
Net book value |
|
$ |
95,889 |
|
|
$ |
101,872 |
|
|
|
|
|
|
|
|
|
|
Weighted-average amortization period in years |
|
|
29.7 |
|
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Below market tenant leases |
|
$ |
25,265 |
|
|
$ |
25,265 |
|
Above market ground leases |
|
|
3,419 |
|
|
|
3,419 |
|
|
|
|
|
|
|
|
Gross historical cost |
|
|
28,684 |
|
|
|
28,684 |
|
Accumulated amortization |
|
|
(10,664 |
) |
|
|
(8,671 |
) |
|
|
|
|
|
|
|
Net book value |
|
$ |
18,020 |
|
|
$ |
20,013 |
|
|
|
|
|
|
|
|
|
|
Weighted-average amortization period in years |
|
|
8.7 |
|
|
|
8.9 |
|
5. Dispositions, Assets Held for Sale and Discontinued Operations
At June 30, 2009, we had six skilled nursing facilities and 14 medical office buildings that
satisfied the requirements of Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, 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. During the year ended December 31, 2008, an impairment charge of
$32,648,000 was recorded to reduce the carrying value of the 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 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 |
|
|
|
105,244 |
|
|
|
|
|
|
|
105,244 |
|
Skilled nursing facilities |
|
|
18,854 |
|
|
|
|
|
|
|
18,854 |
|
|
|
3,672 |
|
|
|
|
|
|
|
3,672 |
|
Specialty care facilities |
|
|
40,841 |
|
|
|
|
|
|
|
40,841 |
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
Medical office buildings |
|
|
|
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
Land parcels |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
73 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
|
104,572 |
|
|
|
0 |
|
|
|
104,572 |
|
|
|
124,536 |
|
|
|
0 |
|
|
|
124,536 |
|
Less: Gain/(loss) on sales of real property |
|
|
27,713 |
|
|
|
|
|
|
|
27,713 |
|
|
|
118,194 |
|
|
|
|
|
|
|
118,194 |
|
Seller financing on sales of real
property |
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(59,649 |
) |
|
|
|
|
|
|
(59,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from real property sales |
|
$ |
132,285 |
|
|
$ |
0 |
|
|
$ |
132,285 |
|
|
$ |
183,081 |
|
|
$ |
0 |
|
|
$ |
183,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with Statement No. 144, we have reclassified the income and expenses
attributable to all properties sold and attributable to properties held for sale at June 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 of Statement No. 144 as a result of classifying properties as discontinued
operations for the periods presented (in thousands):
9
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
3,586 |
|
|
$ |
11,685 |
|
|
$ |
8,822 |
|
|
$ |
23,773 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
634 |
|
|
|
2,820 |
|
|
|
1,402 |
|
|
|
5,632 |
|
Property operating expenses |
|
|
519 |
|
|
|
678 |
|
|
|
1,083 |
|
|
|
1,333 |
|
Provision for depreciation |
|
|
1,123 |
|
|
|
4,193 |
|
|
|
2,760 |
|
|
|
8,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net |
|
$ |
1,310 |
|
|
$ |
3,994 |
|
|
$ |
3,577 |
|
|
$ |
8,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
Advances on real estate loans receivable: |
|
|
|
|
|
|
|
|
Investments in new loans |
|
$ |
1,921 |
|
|
$ |
117,763 |
|
Draws on existing loans |
|
|
35,125 |
|
|
|
9,238 |
|
|
|
|
|
|
|
|
Total gross investments in real estate loans |
|
|
37,046 |
|
|
|
127,001 |
|
Less: Seller financing on sales of real property |
|
|
0 |
|
|
|
(59,649 |
) |
|
|
|
|
|
|
|
Net cash advances on real estate loans receivable |
|
|
37,046 |
|
|
|
67,352 |
|
|
Receipts on real estate loans receivable: |
|
|
|
|
|
|
|
|
Loan payoffs |
|
|
18,440 |
|
|
|
8,815 |
|
Principal payments on loans |
|
|
12,637 |
|
|
|
4,586 |
|
|
|
|
|
|
|
|
Total principal receipts on real estate loans |
|
|
31,077 |
|
|
|
13,401 |
|
|
|
|
|
|
|
|
|
Net cash advances (receipts) on real estate loans receivable |
|
$ |
5,969 |
|
|
$ |
53,951 |
|
|
|
|
|
|
|
|
7. Customer Concentration
At June 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
June 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Total |
|
Percent of |
|
|
Properties |
|
Investment |
|
Investment (2) |
Concentration by investment (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Senior Living Communities, LLC |
|
|
10 |
|
|
$ |
385,455 |
|
|
|
6 |
% |
Signature Healthcare LLC |
|
|
34 |
|
|
|
310,812 |
|
|
|
5 |
% |
Brookdale Senior Living, Inc. |
|
|
86 |
|
|
|
305,329 |
|
|
|
5 |
% |
Emeritus Corporation |
|
|
21 |
|
|
|
242,764 |
|
|
|
4 |
% |
Life Care Centers of America, Inc. |
|
|
20 |
|
|
|
207,640 |
|
|
|
4 |
% |
Remaining portfolio |
|
|
449 |
|
|
|
4,547,000 |
|
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
620 |
|
|
$ |
5,999,000 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Total |
|
Percent of |
|
|
Properties |
|
Revenue (3) |
|
Revenue (4) |
Concentration by revenue (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Signature Healthcare LLC |
|
|
34 |
|
|
$ |
20,068 |
|
|
|
7 |
% |
Brookdale Senior Living, Inc. |
|
|
86 |
|
|
|
19,507 |
|
|
|
7 |
% |
Life Care Centers of America, Inc. |
|
|
20 |
|
|
|
16,418 |
|
|
|
6 |
% |
Emeritus Corporation |
|
|
21 |
|
|
|
14,776 |
|
|
|
5 |
% |
Merrill Gardens LLC |
|
|
13 |
|
|
|
10,802 |
|
|
|
4 |
% |
Remaining portfolio |
|
|
446 |
|
|
|
207,782 |
|
|
|
70 |
% |
Other income |
|
|
n/a |
|
|
|
2,721 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
620 |
|
|
$ |
292,074 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
10
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
|
|
|
(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. |
|
(3) |
|
Revenues include gross revenues and revenues from discontinued operations for the six months
ended June 30, 2009. |
|
(4) |
|
Revenues from our top five customers were 31% of total revenues for the six months ended June
30, 2008. |
8. Borrowings Under Line of Credit Arrangement and Related Items
At June 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 (0.91% at June 30, 2009). The applicable margin is based on our
ratings with Moodys Investors Service and Standard & Poors Ratings Services and was 0.6% at June
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 June 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 June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Balance outstanding at quarter end |
|
$ |
342,000 |
|
|
$ |
744,000 |
|
|
$ |
342,000 |
|
|
$ |
744,000 |
|
Maximum amount outstanding at any month end |
|
$ |
342,000 |
|
|
$ |
744,000 |
|
|
$ |
559,000 |
|
|
$ |
744,000 |
|
Average amount outstanding (total of daily
principal balances divided by days in period) |
|
$ |
273,242 |
|
|
$ |
542,766 |
|
|
$ |
344,724 |
|
|
$ |
474,726 |
|
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding) |
|
|
1.77 |
% |
|
|
3.54 |
% |
|
|
1.68 |
% |
|
|
4.05 |
% |
9. Senior Unsecured Notes and Secured Debt
We have $1,811,590,000 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
$1,823,277,000 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 six months ended June 30, 2009, we extinguished
$21,723,000 of senior unsecured notes principal for $19,796,000 and recognized debt extinguishment
gains of $1,678,000.
We have secured debt totaling $543,842,000, collateralized by owned properties, with annual
interest rates ranging from 4.89% to 8.08%. The carrying amounts of the secured debt represent the
par value of $545,658,000 adjusted for any unamortized fair value adjustments. The carrying values
of the properties securing the debt totaled $858,254,000 at June 30, 2009. During the six months
ended June 30, 2009, we completed a $133,071,000 first mortgage loan secured by 12 senior housing
properties with multiple levels of service. The 10-year debt has a fixed interest rate of 6.10%.
During the six months ended June 30, 2009, we extinguished $20,928,000 of secured debt prior to
maturity.
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 June 30, 2009, we were in compliance with all of the covenants under our debt agreements.
At June 30, 2009, the annual principal payments due on these debt obligations are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior |
|
|
Secured |
|
|
|
|
|
|
Unsecured Notes (1) |
|
|
Debt (1) |
|
|
Totals |
|
2009 |
|
$ |
0 |
|
|
$ |
4,699 |
|
|
$ |
4,699 |
|
2010 |
|
|
0 |
|
|
|
16,662 |
|
|
|
16,662 |
|
2011 |
|
|
0 |
|
|
|
53,954 |
|
|
|
53,954 |
|
2012 |
|
|
238,277 |
|
|
|
15,431 |
|
|
|
253,708 |
|
2013 |
|
|
300,000 |
|
|
|
64,052 |
|
|
|
364,052 |
|
Thereafter |
|
|
1,285,000 |
|
|
|
390,860 |
|
|
|
1,675,860 |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,823,277 |
|
|
$ |
545,658 |
|
|
$ |
2,368,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal amounts due and do not include unamortized premiums/discounts or
other fair value adjustments as reflected on the balance sheet. |
11
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
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 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. Derivatives
are recorded at fair market value on the balance sheet as assets or liabilities.
On May 6, 2004, we entered into two interest rate swap agreements (the 2004 Swaps) for a
total notional amount of $100,000,000 to hedge changes in fair value attributable to changes in the
LIBOR swap rate of $100,000,000 of fixed rate debt with a maturity date of November 15, 2013. The
2004 Swaps were treated as fair-value hedges for accounting purposes and we utilized the short-cut
method to assess effectiveness. The 2004 Swaps were with highly rated counterparties in which we
received a fixed rate of 6.0% and paid a variable rate based on six-month LIBOR plus a spread. On
September 12, 2007, we terminated the 2004 Swaps and we received a $2,125,000 cash settlement. The
unamortized amount of this settlement at June 30, 2009 was $1,465,000 ($1,634,000 at December 31,
2008) and is recorded as an adjustment to the hedged item. This amount will be amortized to
interest expense over the life of the hedged debt using the effective interest method. For the
three and six months ended June 30, 2009, $84,000 and $169,000 of amortization was recognized as a
reduction to senior unsecured notes interest expense, respectively. For the three and six months
ended June 30, 2008, $84,000 and $169,000 of amortization was recognized as a reduction to senior
unsecured notes interest expense, respectively.
On July 2, 2007, we entered into two forward-starting interest rate swaps (the July 2007
Swaps), with an aggregate notional amount of $200,000,000, that were designated as cash flow
hedges of the variability in forecasted interest payments attributable to changes in the LIBOR swap
rate, on long-term fixed rate debt forecasted to be issued in 2007. The July 2007 Swaps had the
economic effect of fixing $200,000,000 of our debt at 4.913% for five years. The July 2007 Swaps
were settled on July 17, 2007, which was the date that the forecasted debt was priced. The cash
settlement value of these contracts at July 17, 2007 was $733,000. This amount represented the
effective portion of the hedges as there was no hedge ineffectiveness. Therefore, the $733,000
settlement value was deferred in accumulated other comprehensive income (AOCI) and will be
amortized to interest expense using the effective interest method. The unamortized amount of AOCI
related to these contracts at June 30, 2009 is $448,000 ($521,000 at December 31, 2008). For the
three and six months ended June 30, 2009, we reclassified $37,000 and $74,000, respectively, out of
AOCI as a reduction of interest expense. For the three and six months ended June 30, 2008, we
reclassified $37,000 and $74,000, respectively, out of AOCI as a reduction of interest expense.
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 originally 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 would have been made on the expected debt issuance). The ineffective
portion of the changes in fair value was to be recorded directly in earnings. However, 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.
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 a third
party consultant, which utilizes 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.
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 June 30, 2009, our
obligation under the letter of credit was $2,450,000.
12
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
We have an outstanding letter of credit issued for the benefit of certain insurance companies
that provide liability and property insurance to one of our tenants. Our obligation to provide the
letter of credit terminates in 2013. At June 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 June 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 completed in 2009. At June 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 June 30, 2009, our obligation under the letter of credit was $475,000.
At June 30, 2009, we had outstanding construction financings of $730,381,000 for leased
properties and were committed to providing additional financing of
approximately $458,811,000 to
complete construction. At June 30, 2009, we had contingent purchase obligations totaling
$3,503,000. 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 June 30, 2009, we had operating lease obligations of $161,928,000 relating to certain
ground leases and company office space. We incurred rental expense relating to our company office
space of $300,000 and $597,000 for the three and six months ended June 30, 2009, respectively, as
compared to $267,000 and $544,000 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 June 30, 2009, aggregate future minimum rentals to
be received under these noncancelable subleases totaled $30,112,000.
At June 30, 2009, future minimum lease payments due under operating leases are as follows (in
thousands):
|
|
|
|
|
2009 |
|
$ |
2,077 |
|
2010 |
|
|
4,129 |
|
2011 |
|
|
4,235 |
|
2012 |
|
|
3,916 |
|
2013 |
|
|
3,927 |
|
Thereafter |
|
|
143,644 |
|
|
|
|
|
Totals |
|
$ |
161,928 |
|
|
|
|
|
12. Stockholders Equity
Preferred Stock. During the six months ended June 30, 2009, certain holders of our Series E
Cumulative Convertible Preferred Stock converted 609 shares into 466 shares of our common stock,
leaving 74,380 of such shares outstanding at June 30, 2009. During the six months ended June 30,
2009, certain holders of our Series G Cumulative Convertible Preferred Stock converted 40,600
shares into 29,056 shares of our common stock, leaving 400,713 of such shares outstanding at June
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 six months
ended June 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 |
|
2008 Dividend reinvestment plan issuances |
|
|
812,815 |
|
|
|
43.63 |
|
|
|
35,461 |
|
|
|
35,461 |
|
2008 Option exercises |
|
|
103,607 |
|
|
|
29.71 |
|
|
|
3,078 |
|
|
|
3,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Totals |
|
|
3,916,422 |
|
|
|
|
|
|
$ |
162,859 |
|
|
$ |
157,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2009 public issuance |
|
|
5,816,870 |
|
|
$ |
36.85 |
|
|
$ |
214,352 |
|
|
$ |
210,880 |
|
2009 Equity shelf plan issuances |
|
|
400,000 |
|
|
|
36.05 |
|
|
|
14,420 |
|
|
|
13,723 |
|
2009 Dividend reinvestment plan issuances |
|
|
741,282 |
|
|
|
33.18 |
|
|
|
24,593 |
|
|
|
24,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Totals |
|
|
6,958,152 |
|
|
|
|
|
|
$ |
253,365 |
|
|
$ |
249,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Comprehensive Income
The following is a summary of accumulated other comprehensive income as of the dates indicated
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
Fair value of cash flow hedges |
|
$ |
555 |
|
|
$ |
635 |
|
Unrecognized gains (losses) on equity
investments |
|
|
(861 |
) |
|
|
(1,038 |
) |
Unrecognized actuarial gains (losses) |
|
|
(710 |
) |
|
|
(710 |
) |
|
|
|
|
|
|
|
Totals |
|
$ |
(1,016 |
) |
|
$ |
(1,113 |
) |
|
|
|
|
|
|
|
The following is a summary of comprehensive income for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Cash flow hedge activity |
|
$ |
(41 |
) |
|
$ |
10,277 |
|
|
$ |
(81 |
) |
|
$ |
(576 |
) |
Unrecognized
losses (gains) on equity investments |
|
|
373 |
|
|
|
(349 |
) |
|
|
178 |
|
|
|
(589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
332 |
|
|
|
9,928 |
|
|
|
97 |
|
|
|
(1,165 |
) |
Net income attributable to controlling interests |
|
|
64,756 |
|
|
|
161,194 |
|
|
|
131,398 |
|
|
|
196,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to controlling interests |
|
|
65,088 |
|
|
|
171,122 |
|
|
|
131,495 |
|
|
|
195,424 |
|
Net and comprehensive income attributable to noncontrolling interests |
|
|
3 |
|
|
|
65 |
|
|
|
5 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
65,091 |
|
|
$ |
171,187 |
|
|
$ |
131,500 |
|
|
$ |
195,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,264,000 for the three and six months
ended June 30, 2009, respectively, as compared to $237,000 and $934,000 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:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
June 30, 2009 |
|
June 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 six months
ended June 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 terminated |
|
|
(5 |
) |
|
|
40.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at end of period |
|
|
1,178 |
|
|
$ |
37.88 |
|
|
|
8.1 |
|
|
$ |
709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
503 |
|
|
$ |
36.68 |
|
|
|
6.5 |
|
|
$ |
709 |
|
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 June 30, 2009. There were no option exercises during the six months ended June 30,
2009. During the six months ended June 30, 2008, the aggregate intrinsic value of options exercised
under our stock incentive plans was $1,755,000 (determined as of the date of option exercise).
Cash received from option exercises under our stock incentive plans for the six months ended June
30, 2008 was $3,078,000.
15
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
As of June 30, 2009, there was approximately $2,243,000 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 June 30, 2009, there
was approximately $8,275,000 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 June
30, 2009 and changes for the six months ended June 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 |
|
|
|
(193 |
) |
|
|
41.51 |
|
Granted |
|
|
366 |
|
|
|
4.38 |
|
|
|
160 |
|
|
|
37.07 |
|
Terminated |
|
|
(5 |
) |
|
|
6.14 |
|
|
|
(2 |
) |
|
|
40.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2009 |
|
|
675 |
|
|
$ |
5.44 |
|
|
|
408 |
|
|
$ |
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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Numerator for basic and diluted earnings
per share net income attributable to
common stockholders |
|
$ |
59,240 |
|
|
$ |
155,410 |
|
|
$ |
120,359 |
|
|
$ |
184,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share weighted average shares |
|
|
110,864 |
|
|
|
89,294 |
|
|
|
109,548 |
|
|
|
87,698 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
0 |
|
|
|
104 |
|
|
|
0 |
|
|
|
70 |
|
Non-vested restricted shares |
|
|
408 |
|
|
|
455 |
|
|
|
408 |
|
|
|
455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
408 |
|
|
|
559 |
|
|
|
408 |
|
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per
share adjusted weighted average shares |
|
|
111,272 |
|
|
|
89,853 |
|
|
|
109,956 |
|
|
|
88,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.53 |
|
|
$ |
1.74 |
|
|
$ |
1.10 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.53 |
|
|
$ |
1.73 |
|
|
$ |
1.09 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The diluted earnings per share calculation excludes the dilutive effect of 1,100,000 stock
options for the three and six months ended June 30, 2009 because the exercise prices were greater
than the average market price. The diluted earnings per share calculation excludes the dilutive
effect of 0 and 121,000 stock options for the three and six months ended June 30, 2008,
respectively, because the exercise prices were greater 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 Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities (EITF 03-6-1), effective January 1,
2009, which required retrospective application. EITF 03-6-1 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 EITF 03-6-1 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 all 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 amounts and estimated fair values of our financial instruments are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans receivable |
|
$ |
124,812 |
|
|
$ |
127,541 |
|
|
$ |
137,292 |
|
|
$ |
143,285 |
|
Other real estate loans receivable |
|
|
364,044 |
|
|
|
364,671 |
|
|
|
345,593 |
|
|
|
302,584 |
|
Equity investments |
|
|
2,531 |
|
|
|
2,531 |
|
|
|
1,030 |
|
|
|
1,030 |
|
Cash and cash equivalents |
|
|
79,505 |
|
|
|
79,505 |
|
|
|
23,370 |
|
|
|
23,370 |
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under unsecured lines of credit arrangements |
|
$ |
342,000 |
|
|
$ |
342,000 |
|
|
$ |
570,000 |
|
|
$ |
570,000 |
|
Senior unsecured notes |
|
|
1,823,277 |
|
|
|
1,718,132 |
|
|
|
1,847,247 |
|
|
|
1,605,770 |
|
Secured debt |
|
|
545,658 |
|
|
|
550,347 |
|
|
|
446,525 |
|
|
|
452,262 |
|
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 introduces
a framework for measuring fair value and expands required disclosure about fair value measurements
of assets and liabilities. SFAS 157 for financial assets and liabilities is effective for fiscal
years beginning after November 15, 2007, and was adopted as the standard for those assets and
liabilities as of January 1, 2008. The impact of adoption was not significant. SFAS 157 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. SFAS 157 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 standard
describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities. Interest rate swap agreements are valued using models that
assume a hypothetical transaction to sell the asset or transfer the liability in the
principal market for the asset or liability based on market data derived from interest rates
and yield curves observable at commonly quoted intervals, volatilities, prepayment timing,
loss severities, credit risks and default rates.
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
17
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
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 June 30, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Equity investments (1) |
|
$ |
739 |
|
|
$ |
739 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
739 |
|
|
$ |
739 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized gains or losses on equity investments are recorded in accumulated other
comprehensive income (loss) at each measurement date. |
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). 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 among others. 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 June 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 June
30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
101,284 |
|
|
$ |
10,158 |
|
|
$ |
640 |
|
|
$ |
112,082 |
|
|
|
|
|
|
$ |
112,082 |
|
|
$ |
28,818 |
|
|
$ |
2,913 |
|
|
$ |
4,677,894 |
|
Medical Office Buildings |
|
|
32,593 |
|
|
|
|
|
|
|
234 |
|
|
|
32,827 |
|
|
$ |
12,044 |
|
|
|
20,783 |
|
|
|
11,913 |
|
|
|
5,238 |
|
|
|
1,439,277 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
363 |
|
|
|
363 |
|
|
|
|
|
|
|
363 |
|
|
|
|
|
|
|
19,181 |
|
|
|
130,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
133,877 |
|
|
$ |
10,158 |
|
|
$ |
1,237 |
|
|
$ |
145,272 |
|
|
$ |
12,044 |
|
|
$ |
133,228 |
|
|
$ |
40,731 |
|
|
$ |
27,332 |
|
|
$ |
6,247,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June
30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
96,807 |
|
|
$ |
9,175 |
|
|
$ |
1,533 |
|
|
$ |
107,515 |
|
|
|
|
|
|
$ |
107,515 |
|
|
$ |
27,068 |
|
|
$ |
1,675 |
|
|
$ |
4,419,000 |
|
Medical Office Buildings |
|
|
33,003 |
|
|
|
|
|
|
|
237 |
|
|
|
33,240 |
|
|
$ |
11,375 |
|
|
|
21,865 |
|
|
|
12,562 |
|
|
|
5,394 |
|
|
|
1,313,505 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
115 |
|
|
|
|
|
|
|
115 |
|
|
|
|
|
|
|
29,086 |
|
|
|
72,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
129,810 |
|
|
$ |
9,175 |
|
|
$ |
1,885 |
|
|
$ |
140,870 |
|
|
$ |
11,375 |
|
|
$ |
129,495 |
|
|
$ |
39,630 |
|
|
$ |
36,155 |
|
|
$ |
5,805,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Six months ended June 30,
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
203,396 |
|
|
$ |
20,111 |
|
|
$ |
1,534 |
|
|
$ |
225,041 |
|
|
|
|
|
|
$ |
225,041 |
|
|
$ |
58,102 |
|
|
$ |
4,557 |
|
|
$ |
4,677,894 |
|
Medical Office Buildings |
|
|
65,846 |
|
|
|
|
|
|
|
447 |
|
|
|
66,293 |
|
|
$ |
24,026 |
|
|
|
42,267 |
|
|
|
23,955 |
|
|
|
10,451 |
|
|
|
1,439,277 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
740 |
|
|
|
740 |
|
|
|
|
|
|
|
740 |
|
|
|
|
|
|
|
40,335 |
|
|
|
130,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
269,242 |
|
|
$ |
20,111 |
|
|
$ |
2,721 |
|
|
$ |
292,074 |
|
|
$ |
24,026 |
|
|
$ |
268,048 |
|
|
$ |
82,057 |
|
|
$ |
55,343 |
|
|
$ |
6,247,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Properties |
|
$ |
188,740 |
|
|
$ |
18,267 |
|
|
$ |
2,829 |
|
|
$ |
209,836 |
|
|
|
|
|
|
$ |
209,836 |
|
|
$ |
53,477 |
|
|
$ |
3,649 |
|
|
$ |
4,419,000 |
|
Medical Office Buildings |
|
|
66,236 |
|
|
|
|
|
|
|
447 |
|
|
|
66,683 |
|
|
$ |
22,742 |
|
|
|
43,941 |
|
|
|
25,726 |
|
|
|
11,055 |
|
|
|
1,313,505 |
|
Non-segment/Corporate |
|
|
|
|
|
|
|
|
|
|
325 |
|
|
|
325 |
|
|
|
|
|
|
|
325 |
|
|
|
|
|
|
|
58,772 |
|
|
|
72,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
254,976 |
|
|
$ |
18,267 |
|
|
$ |
3,601 |
|
|
$ |
276,844 |
|
|
$ |
22,742 |
|
|
$ |
254,102 |
|
|
$ |
79,203 |
|
|
$ |
73,476 |
|
|
$ |
5,805,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
|
|
(In thousands) |
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
71,188 |
|
|
$ |
79,388 |
|
Income taxes paid |
|
|
384 |
|
|
|
1,568 |
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash activities: |
|
|
|
|
|
|
|
|
Assets and liabilities assumed from real property acquisitions: |
|
|
|
|
|
|
|
|
Secured debt |
|
$ |
0 |
|
|
$ |
0 |
|
Other liabilities |
|
|
0 |
|
|
|
967 |
|
Other assets |
|
|
0 |
|
|
|
0 |
|
18. Subsequent Events
We have evaluated subsequent events for recognition or disclosure through the time we filed
this Form 10-Q with the SEC on August 6, 2009 and noted only the
following event requiring disclosure.
Secured
Debt. On August 6, 2009, we entered into a commitment with
KeyBank Capital Markets, Inc. (KeyBank) for a $52 million
first mortgage loan secured by nine senior housing properties. This
loan matures in seven years and has a variable interest rate. In
connection with the completion of the loan, we plan to enter into an
interest rate swap for a total notional amount of $52 million with a
term of seven years. KeyBank intends to sell the loan to Freddie Mac
after the closing. This debt is the second in a series of loans with
KeyBank and Freddie Mac. In April 2009, we closed on a 10-year, $133
million first mortgage loan secured by 12 senior housing properties.
19
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
19. Retrospective Application of New Accounting Standards
We adopted FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements (SFAS 160) and FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP
14-1), effective January 1, 2009, each of which required retrospective application. SFAS 160
changed the accounting and reporting for minority interests, which have been re-characterized as
non-controlling interests and classified as a component of equity. FSP 14-1 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 SFAS 160 and FSP 14-1 for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
As Previously |
|
|
FSP 14-1 |
|
|
SFAS 160 |
|
|
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 SFAS 160 and FSP 14-1 as
well as the SFAS 144 discontinued operation reclassifications for the periods indicated (amounts in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
|
As Previously |
|
|
FSP 14-1 |
|
|
SFAS 160 |
|
|
SFAS 144 |
|
|
As |
|
|
|
Reported |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjusted |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
124,828 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
(6,703 |
) |
|
$ |
118,125 |
|
Interest income |
|
|
9,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,175 |
|
Other income |
|
|
1,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,888 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(6,703 |
) |
|
|
129,185 |
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and loan expenses |
|
|
33,701 |
|
|
|
1,203 |
|
|
|
|
|
|
|
(1,569 |
) |
|
|
33,335 |
|
Property operating expenses |
|
|
11,375 |
|
|
|
|
|
|
|
|
|
|
|
(678 |
) |
|
|
10,697 |
|
Depreciation and amortization |
|
|
38,475 |
|
|
|
|
|
|
|
|
|
|
|
(3,038 |
) |
|
|
35,437 |
|
General and administrative |
|
|
10,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,575 |
|
Loss (gain) on extinguishment of debt |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,126 |
|
|
|
1,203 |
|
|
|
0 |
|
|
|
(5,285 |
) |
|
|
90,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interests |
|
|
41,762 |
|
|
|
(1,203 |
) |
|
|
0 |
|
|
|
(1,418 |
) |
|
|
39,141 |
|
Income tax (expense) benefit |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests |
|
|
41,718 |
|
|
|
(1,203 |
) |
|
|
0 |
|
|
|
(1,418 |
) |
|
|
39,097 |
|
Minority interests |
|
|
(65 |
) |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
41,653 |
|
|
|
(1,203 |
) |
|
|
65 |
|
|
|
(1,418 |
) |
|
|
39,097 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
118,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,168 |
|
Income from discontinued operations, net |
|
|
2,576 |
|
|
|
|
|
|
|
|
|
|
|
1,418 |
|
|
|
3,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,744 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,418 |
|
|
|
122,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
162,397 |
|
|
|
(1,203 |
) |
|
|
65 |
|
|
|
0 |
|
|
|
161,259 |
|
Less: Preferred stock dividends |
|
|
5,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,784 |
|
Net income attributable to noncontrolling interests |
|
|
0 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
156,613 |
|
|
$ |
(1,203 |
) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
155,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
89,294 |
|
|
|
89,294 |
|
|
|
89,294 |
|
|
|
89,294 |
|
|
|
89,294 |
|
Diluted |
|
|
89,853 |
|
|
|
89,853 |
|
|
|
89,853 |
|
|
|
89,853 |
|
|
|
89,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.40 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
0.37 |
|
Discontinued operations, net |
|
|
1.35 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.02 |
|
|
|
1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
1.75 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.40 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
0.37 |
|
Discontinued operations, net |
|
|
1.34 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.02 |
|
|
|
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
1.74 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
1.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
|
As Previously |
|
|
FSP 14-1 |
|
|
SFAS 160 |
|
|
SFAS 144 |
|
|
As |
|
|
|
Reported |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjustment |
|
|
Adjusted |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
244,868 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
(13,665 |
) |
|
$ |
231,203 |
|
Interest income |
|
|
18,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,267 |
|
Other income |
|
|
3,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266,736 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(13,665 |
) |
|
|
253,071 |
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
68,567 |
|
|
|
2,407 |
|
|
|
|
|
|
|
(3,130 |
) |
|
|
67,844 |
|
Property operating expenses |
|
|
22,742 |
|
|
|
|
|
|
|
|
|
|
|
(1,333 |
) |
|
|
21,409 |
|
Depreciation and amortization |
|
|
76,874 |
|
|
|
|
|
|
|
|
|
|
|
(6,237 |
) |
|
|
70,637 |
|
General and administrative |
|
|
22,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,904 |
|
Loss (gain) on extinguishment of debt |
|
|
(1,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,761 |
|
|
|
2,407 |
|
|
|
0 |
|
|
|
(10,700 |
) |
|
|
181,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interests |
|
|
76,975 |
|
|
|
(2,407 |
) |
|
|
0 |
|
|
|
(2,965 |
) |
|
|
71,603 |
|
Income tax (expense) benefit |
|
|
(1,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests |
|
|
75,652 |
|
|
|
(2,407 |
) |
|
|
0 |
|
|
|
(2,965 |
) |
|
|
70,280 |
|
Minority interests |
|
|
(127 |
) |
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
75,525 |
|
|
|
(2,407 |
) |
|
|
127 |
|
|
|
(2,965 |
) |
|
|
70,280 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of properties |
|
|
118,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,194 |
|
Income from discontinued operations, net |
|
|
5,277 |
|
|
|
|
|
|
|
|
|
|
|
2,965 |
|
|
|
8,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,471 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,965 |
|
|
|
126,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
198,996 |
|
|
|
(2,407 |
) |
|
|
127 |
|
|
|
0 |
|
|
|
196,716 |
|
Less: Preferred stock dividends |
|
|
11,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,931 |
|
Net income attributable to noncontrolling interests |
|
|
0 |
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
187,065 |
|
|
$ |
(2,407 |
) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
184,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
87,698 |
|
|
|
87,698 |
|
|
|
87,698 |
|
|
|
87,698 |
|
|
|
87,698 |
|
Diluted |
|
|
88,223 |
|
|
|
88,223 |
|
|
|
88,223 |
|
|
|
88,223 |
|
|
|
88,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.73 |
|
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
$ |
0.66 |
|
Discontinued operations, net |
|
|
1.41 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.03 |
|
|
|
1.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
2.13 |
|
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common stockholders |
|
$ |
0.72 |
|
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
$ |
0.66 |
|
Discontinued operations, net |
|
|
1.40 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.03 |
|
|
|
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
2.12 |
|
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 May 7, 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 June 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 |
|
$ |
1,157,784 |
|
|
|
19.2 |
% |
|
|
61 |
|
|
|
7,156 |
|
units |
|
$ |
173,994 |
|
per unit |
|
|
20 |
|
Assisted living facilities |
|
|
1,257,232 |
|
|
|
21.0 |
% |
|
|
179 |
|
|
|
11,022 |
|
units |
|
|
120,253 |
|
per unit |
|
|
30 |
|
Skilled nursing facilities |
|
|
1,569,326 |
|
|
|
26.2 |
% |
|
|
223 |
|
|
|
30,223 |
|
beds |
|
|
52,204 |
|
per bed |
|
|
26 |
|
Specialty care facilities |
|
|
609,628 |
|
|
|
10.2 |
% |
|
|
28 |
|
|
|
1,629 |
|
beds |
|
|
505,199 |
|
per bed |
|
|
13 |
|
Medical office buildings |
|
|
1,405,030 |
|
|
|
23.4 |
% |
|
|
129 |
|
|
|
5,667,620 |
|
sq. ft. |
|
|
262 |
|
per sq. ft. |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
5,999,000 |
|
|
|
100.0 |
% |
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment per metric was computed by using the total committed investment amount of
$6,457,811,000, which includes net real estate investments and unfunded construction
commitments for which initial funding has commenced which amounted to $5,999,000,000 and
$458,811,000, 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. |
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 will be 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 $399.9 million from these sources during the six months ended June 30, 2009. As
always, we will continue to closely monitor the credit and capital markets for
opportunities to raise reasonably priced capital. |
|
|
|
|
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 |
24
|
|
|
relationships and begin to cultivate new relationships. As we begin 2009, 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 six months ended June 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 expect to raise an additional $300,000,000 of
secured debt during the third quarter of 2009. 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 six months ended June 30, 2009, we
completed $351,423,000 of gross
investments and $123,012,000 of investment payoffs, resulting in
$228,411,000 of net new
investments. We expect to complete gross new investments of approximately $600,000,000 during 2009,
comprised of funded new development. We anticipate the sale of real property and the repayment of
loans receivable totaling approximately $200,000,000 to $300,000,000 resulting in net new
investments of approximately $300,000,000 to $400,000,000 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 unsecured line of
credit arrangement. At June 30, 2009, we had $79,505,000 of cash and cash equivalents, $18,833,000
of restricted cash and $808,000,000 of available borrowing capacity under our unsecured line of
credit arrangement.
25
Key Transactions in 2009
We have completed the following key transactions to date in 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 June 30, 2009 represents the 153rd consecutive quarterly dividend
payment; |
|
|
|
|
we completed $351,423,000 of gross investments and had $123,012,000 of investment
payoffs during the six months ended June 30, 2009; |
|
|
|
|
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; and |
|
|
|
|
we completed a $133,071,000 first mortgage loan secured by 12 senior housing properties
with multiple levels of service in April 2009. The 10-year debt has a fixed interest rate
of 6.10%. KeyBank Capital Markets, Inc. originated the loan and sold it to Freddie Mac in
May 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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
29,249 |
|
|
$ |
155,410 |
|
|
$ |
53,589 |
|
|
$ |
21,850 |
|
|
$ |
61,119 |
|
|
$ |
59,240 |
|
Funds from operations |
|
|
68,710 |
|
|
|
76,785 |
|
|
|
82,573 |
|
|
|
30,799 |
|
|
|
85,322 |
|
|
|
89,207 |
|
Net operating income |
|
|
124,607 |
|
|
|
129,495 |
|
|
|
135,126 |
|
|
|
136,907 |
|
|
|
134,819 |
|
|
|
133,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (fully diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
0.34 |
|
|
$ |
1.73 |
|
|
$ |
0.55 |
|
|
$ |
0.21 |
|
|
$ |
0.56 |
|
|
$ |
0.53 |
|
Funds from operations |
|
|
0.79 |
|
|
|
0.85 |
|
|
|
0.85 |
|
|
|
0.30 |
|
|
|
0.79 |
|
|
|
0.80 |
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt to book capitalization ratio |
|
|
52 |
% |
|
|
53 |
% |
|
|
45 |
% |
|
|
47 |
% |
|
|
43 |
% |
|
|
44 |
% |
Debt to undepreciated book
capitalization ratio |
|
|
47 |
% |
|
|
49 |
% |
|
|
41 |
% |
|
|
43 |
% |
|
|
39 |
% |
|
|
40 |
% |
Debt to market capitalization ratio |
|
|
39 |
% |
|
|
41 |
% |
|
|
31 |
% |
|
|
38 |
% |
|
|
41 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
2.86 |
x |
|
|
6.17 |
x |
|
|
3.50 |
x |
|
|
2.70 |
x |
|
|
3.88 |
x |
|
|
3.74 |
x |
Fixed charge coverage ratio |
|
|
2.37 |
x |
|
|
5.15 |
x |
|
|
2.91 |
x |
|
|
2.24 |
x |
|
|
3.18 |
x |
|
|
3.07 |
x |
Concentration Risk. We evaluate our concentration risk in terms of asset mix, investment mix,
customer mix and geographic mix. Concentration risk is a valuable measure in understanding what
portion of our investments could be at risk if certain sectors were to experience downturns. Asset
mix measures the portion of our investments that are real property. In order to qualify as an
equity REIT, at least 75% of our real estate investments must be real property whereby each
property, which includes the land, buildings, improvements, intangibles and related rights, is
owned by us and leased to a tenant pursuant to a long-term operating lease. Investment mix measures
the portion of our investments that relate to our various property types. Customer mix measures the
portion of our investments that relate to our top five customers. Geographic mix measures the
portion of our investments that relate to our top five states. The following table reflects our
recent historical trends of concentration risk for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property |
|
|
92 |
% |
|
|
91 |
% |
|
|
91 |
% |
|
|
92 |
% |
|
|
92 |
% |
|
|
92 |
% |
Real estate loans receivable |
|
|
8 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
16 |
% |
|
|
17 |
% |
|
|
18 |
% |
|
|
19 |
% |
|
|
19 |
% |
|
|
19 |
% |
Assisted living facilities |
|
|
21 |
% |
|
|
21 |
% |
|
|
20 |
% |
|
|
20 |
% |
|
|
21 |
% |
|
|
21 |
% |
Skilled nursing facilities |
|
|
31 |
% |
|
|
29 |
% |
|
|
28 |
% |
|
|
27 |
% |
|
|
27 |
% |
|
|
26 |
% |
Specialty care facilities |
|
|
7 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
10 |
% |
Medical office buildings |
|
|
25 |
% |
|
|
23 |
% |
|
|
24 |
% |
|
|
23 |
% |
|
|
23 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Living Communities, LLC |
|
|
4 |
% |
|
|
5 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
Signature Healthcare LLC |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
Brookdale Senior Living Inc. |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
Emeritus Corporation |
|
|
7 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
Life Care Centers of America, Inc. |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
Remaining customers |
|
|
73 |
% |
|
|
74 |
% |
|
|
73 |
% |
|
|
75 |
% |
|
|
75 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida |
|
|
15 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
13 |
% |
Texas |
|
|
13 |
% |
|
|
12 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
California |
|
|
7 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
|
8 |
% |
Massachusetts |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
|
|
7 |
% |
Tennessee |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
5 |
% |
|
|
5 |
% |
Remaining states |
|
|
52 |
% |
|
|
53 |
% |
|
|
53 |
% |
|
|
54 |
% |
|
|
55 |
% |
|
|
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
May 7, 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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
$ |
102,321 |
|
|
$ |
107,515 |
|
|
$ |
112,200 |
|
|
$ |
114,773 |
|
|
$ |
112,960 |
|
|
$ |
112,082 |
|
Medical office buildings |
|
|
22,076 |
|
|
|
21,865 |
|
|
|
22,351 |
|
|
|
21,341 |
|
|
|
21,483 |
|
|
|
20,783 |
|
Non-segment/corporate |
|
|
210 |
|
|
|
115 |
|
|
|
575 |
|
|
|
793 |
|
|
|
376 |
|
|
|
363 |
|
|
|
|
Net operating income |
|
$ |
124,607 |
|
|
$ |
129,495 |
|
|
$ |
135,126 |
|
|
$ |
136,907 |
|
|
$ |
134,819 |
|
|
$ |
133,228 |
|
|
|
|
Payment coverage. Payment coverage of the operators in our investment property portfolio
continues to remain strong. Our overall payment coverage is at 1.94 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
March 31, 2008 |
|
March 31, 2009 |
|
|
CBMF |
|
CAMF |
|
CBMF |
|
CAMF |
|
CBMF |
|
CAMF |
Independent living/CCRCs |
|
|
1.42x |
|
|
|
1.22x |
|
|
|
1.39x |
|
|
|
1.18x |
|
|
|
1.28x |
|
|
|
1.08x |
|
Assisted living facilities |
|
|
1.59x |
|
|
|
1.38x |
|
|
|
1.58x |
|
|
|
1.35x |
|
|
|
1.57x |
|
|
|
1.34x |
|
Skilled nursing facilities |
|
|
2.20x |
|
|
|
1.58x |
|
|
|
2.28x |
|
|
|
1.67x |
|
|
|
2.20x |
|
|
|
1.61x |
|
Specialty care facilities |
|
|
2.64x |
|
|
|
2.09x |
|
|
|
2.52x |
|
|
|
1.96x |
|
|
|
2.33x |
|
|
|
2.01x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted averages |
|
|
1.96x |
|
|
|
1.52x |
|
|
|
1.98x |
|
|
|
1.54x |
|
|
|
1.94x |
|
|
|
1.51x |
|
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 offerings of debt and equity securities, proceeds
from the sales of real property and principal payments on loans receivable. Our primary uses of
cash include dividend distributions, debt service payments (including principal and interest), real
property investments (including construction advances), loan advances and general and
administrative expenses. These sources and uses of cash are reflected in our Consolidated
Statements of Cash Flows and are discussed in further detail below.
The following is a summary of our sources and uses of cash flows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Change |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
Cash and cash equivalents at beginning of period |
|
$ |
23,370 |
|
|
$ |
30,269 |
|
|
$ |
(6,899 |
) |
|
|
-23 |
% |
Cash provided from (used in) operating activities |
|
|
184,333 |
|
|
|
176,659 |
|
|
|
7,674 |
|
|
|
4 |
% |
Cash provided from (used in) investing activities |
|
|
(60,253 |
) |
|
|
(562,470 |
) |
|
|
502,217 |
|
|
|
-89 |
% |
Cash provided from (used in) financing activities |
|
|
(67,945 |
) |
|
|
380,620 |
|
|
|
(448,565 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
79,505 |
|
|
$ |
25,078 |
|
|
$ |
54,427 |
|
|
|
217 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
28
The following is a summary of our straight-line rent and above/below market lease amortization
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Change |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
Gross straight-line rental income |
|
$ |
9,927 |
|
|
$ |
10,370 |
|
|
$ |
(443 |
) |
|
|
-4 |
% |
Cash receipts due to real property sales |
|
|
(3,452 |
) |
|
|
(1,595 |
) |
|
|
(1,857 |
) |
|
|
116 |
% |
Prepaid rent receipts |
|
|
(11,692 |
) |
|
|
(9,303 |
) |
|
|
(2,389 |
) |
|
|
26 |
% |
Amortization related to above (below) market leases, net |
|
|
724 |
|
|
|
462 |
|
|
|
262 |
|
|
|
57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4,493 |
) |
|
$ |
(66 |
) |
|
$ |
(4,427 |
) |
|
|
6708 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross straight-line rental income represents the non-cash difference between contractual cash
rent due and the average rent recognized pursuant to Statement of Financial Accounting Standards
No. 13, Accounting for Leases (SFAS 13), for leases with fixed rental escalators, net of
collectibility 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 six months ended June 30,
2008. The fluctuation in prepaid rent receipts is primarily due to an increase in prepaid rent
received from certain of our 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):
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
|
Properties |
|
|
Amount |
|
|
Properties |
|
|
Amount |
|
Real property acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
|
|
|
$ |
0 |
|
|
|
2 |
|
|
$ |
68,300 |
|
Assisted living facilities |
|
|
|
|
|
|
0 |
|
|
|
3 |
|
|
|
45,490 |
|
Specialty care facilities |
|
|
|
|
|
|
0 |
|
|
|
4 |
|
|
|
142,300 |
|
Medical office buildings |
|
|
|
|
|
|
0 |
|
|
|
4 |
|
|
|
47,853 |
|
Land parcels |
|
|
|
|
|
|
0 |
|
|
|
1 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisitions |
|
|
0 |
|
|
|
0 |
|
|
|
14 |
|
|
|
313,943 |
|
Less: Assumed debt |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
Assumed other assets (liabilities), net |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursed for acquisitions |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
312,976 |
|
Construction in progress additions |
|
|
|
|
|
|
285,724 |
|
|
|
|
|
|
|
210,495 |
|
Capital improvements to existing properties |
|
|
|
|
|
|
12,635 |
|
|
|
|
|
|
|
10,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash invested in real property |
|
|
|
|
|
|
298,359 |
|
|
|
|
|
|
|
533,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
|
1 |
|
|
|
24,340 |
|
|
|
2 |
|
|
|
15,547 |
|
Assisted living facilities |
|
|
9 |
|
|
|
20,537 |
|
|
|
19 |
|
|
|
105,244 |
|
Skilled nursing facilities |
|
|
3 |
|
|
|
18,854 |
|
|
|
2 |
|
|
|
3,672 |
|
Specialty care facilities |
|
|
2 |
|
|
|
40,841 |
|
|
|
|
|
|
|
0 |
|
Land parcels |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
|
15 |
|
|
|
104,572 |
|
|
|
23 |
|
|
|
124,536 |
|
Less: Gain/(loss) on sales of real property |
|
|
|
|
|
|
27,713 |
|
|
|
|
|
|
|
118,194 |
|
Seller financing on sales of real property |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(59,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from real property sales |
|
|
|
|
|
|
132,285 |
|
|
|
|
|
|
|
183,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash investments in real property |
|
|
(15 |
) |
|
$ |
166,074 |
|
|
|
(9 |
) |
|
$ |
350,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in new loans |
|
|
|
|
|
$ |
1,921 |
|
|
|
|
|
|
$ |
117,763 |
|
Draws on existing loans |
|
|
|
|
|
|
35,125 |
|
|
|
|
|
|
|
9,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross investments in real estate loans |
|
|
|
|
|
|
37,046 |
|
|
|
|
|
|
|
127,001 |
|
Less: Seller financing on sales of real property |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
(59,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash advances on real estate loans receivable |
|
|
|
|
|
|
37,046 |
|
|
|
|
|
|
|
67,352 |
|
Receipts on real estate loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payoffs |
|
|
|
|
|
|
18,440 |
|
|
|
|
|
|
|
8,815 |
|
Principal payments on loans |
|
|
|
|
|
|
12,637 |
|
|
|
|
|
|
|
4,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal receipts on real estate loans |
|
|
|
|
|
|
31,077 |
|
|
|
|
|
|
|
13,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash advances (receipts) on real estate loans receivable |
|
|
|
|
|
$ |
5,969 |
|
|
|
|
|
|
$ |
53,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 six months ended June 30, 2009, we had a net decrease of $228,000,000 on our unsecured
line of credit arrangement as compared to a net increase of $437,000,000 for the same period in
2008. The changes in our senior unsecured notes are due to the extinguishment of $21,723,000 of
various senior unsecured notes in March 2009 and the extinguishment of $42,330,000 of our 7.625%
senior unsecured notes in March 2008. During the six months ended June 30, 2009, we extinguished
four secured debt loans totaling $20,928,000 with a weighted-average interest rate of 7.430%.
During the six months ended June 30, 2008, we
extinguished six secured debt loans totaling $36,702,000 with a weighted-average interest rate of
6.697% and recognized extinguishment gains of $1,326,000.
The following is a summary of our common stock issuances (dollars in thousands, except per
share amounts):
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued |
|
|
Average Price |
|
|
Gross Proceeds |
|
|
Net Proceeds |
|
March 2008 public issuance |
|
|
3,000,000 |
|
|
$ |
41.44 |
|
|
$ |
124,320 |
|
|
$ |
118,555 |
|
2008 Dividend reinvestment plan issuances |
|
|
812,815 |
|
|
|
43.63 |
|
|
|
35,461 |
|
|
|
35,461 |
|
2008 Option exercises |
|
|
103,607 |
|
|
|
29.71 |
|
|
|
3,078 |
|
|
|
3,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Totals |
|
|
3,916,422 |
|
|
|
|
|
|
$ |
162,859 |
|
|
$ |
157,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2009 public issuance |
|
|
5,816,870 |
|
|
$ |
36.85 |
|
|
$ |
214,352 |
|
|
$ |
210,880 |
|
2009 Equity shelf plan issuances |
|
|
400,000 |
|
|
|
36.05 |
|
|
|
14,420 |
|
|
|
13,723 |
|
2009 Dividend reinvestment plan issuances |
|
|
741,282 |
|
|
|
33.18 |
|
|
|
24,593 |
|
|
|
24,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Totals |
|
|
6,958,152 |
|
|
|
|
|
|
$ |
253,365 |
|
|
$ |
249,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
Common Stock |
|
$ |
1.3600 |
|
|
$ |
151,725 |
|
|
$ |
1.3400 |
|
|
$ |
118,411 |
|
Series D Preferred Stock |
|
|
0.9844 |
|
|
|
3,938 |
|
|
|
0.9844 |
|
|
|
3,938 |
|
Series E Preferred Stock |
|
|
0.7500 |
|
|
|
56 |
|
|
|
0.7500 |
|
|
|
56 |
|
Series F Preferred Stock |
|
|
0.9532 |
|
|
|
6,672 |
|
|
|
0.9532 |
|
|
|
6,672 |
|
Series G Preferred Stock |
|
|
0.9376 |
|
|
|
373 |
|
|
|
0.9376 |
|
|
|
1,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
|
$ |
162,764 |
|
|
|
|
|
|
$ |
130,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
At June 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.
Contractual Obligations
The following table summarizes our payment requirements under contractual obligations as of
June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
Contractual Obligations |
|
Total |
|
|
2009 |
|
|
2010-2011 |
|
|
2012-2013 |
|
|
Thereafter |
|
Unsecured line of credit arrangement |
|
$ |
342,000 |
|
|
$ |
0 |
|
|
$ |
342,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Senior unsecured notes (1) |
|
|
1,823,277 |
|
|
|
0 |
|
|
|
0 |
|
|
|
538,277 |
|
|
|
1,285,000 |
|
Secured debt (1) |
|
|
545,658 |
|
|
|
4,699 |
|
|
|
70,616 |
|
|
|
79,483 |
|
|
|
390,860 |
|
Contractual interest obligations |
|
|
1,201,240 |
|
|
|
71,231 |
|
|
|
277,793 |
|
|
|
244,185 |
|
|
|
608,031 |
|
Capital lease obligations |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Operating lease obligations |
|
|
161,928 |
|
|
|
2,077 |
|
|
|
8,364 |
|
|
|
7,843 |
|
|
|
143,644 |
|
Purchase obligations |
|
|
462,314 |
|
|
|
104,785 |
|
|
|
354,568 |
|
|
|
2,961 |
|
|
|
0 |
|
Other long-term liabilities |
|
|
4,678 |
|
|
|
187 |
|
|
|
488 |
|
|
|
4,003 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
4,541,095 |
|
|
$ |
182,979 |
|
|
$ |
1,053,829 |
|
|
$ |
876,752 |
|
|
$ |
2,427,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 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 (0.91% at June 30, 2009). The applicable margin is based on our ratings with Moodys
Investors Service and Standard & Poors Ratings
31
Services and was 0.6% at June 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 June 30, 2009. We also pay an annual agents fee of $50,000. Principal
is due upon expiration of the agreement. At June 30, 2009, we had $342,000,000 outstanding under
the unsecured line of credit arrangement and estimated total contractual interest obligations of
$6,541,000. Contractual interest obligations are estimated based on the assumption that the
balance of $342,000,000 at June 30, 2009 is constant until maturity at interest rates in effect at
June 30, 2009.
We have $1,823,277,000 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 $995,779,000 at June 30, 2009. Additionally, we have
secured debt with total outstanding principal of $545,658,000, collateralized by owned properties,
with fixed annual interest rates ranging from 4.89% to 8.08%, payable monthly. The carrying values
of the properties securing the debt totaled $858,254,000 at June 30, 2009. Total contractual
interest obligations on secured debt totaled $198,920,000 at June 30, 2009.
At June 30, 2009, we had operating lease obligations of $161,928,000 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 June 30, 2009, we had outstanding construction financings of $730,381,000
for leased properties and were committed to providing additional financing of approximately
$458,811,000 to complete construction. At June 30, 2009, we had contingent purchase obligations
totaling $3,503,000. 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 $3,469,000 and
$3,109,000 at June 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.
Capital Structure
As of June 30, 2009, we had stockholders equity of $3,460,937,000 and a total outstanding
debt balance of $2,697,432,000, which represents a debt to total book capitalization ratio of 44%.
Our ratio of debt to market capitalization was 40% at June 30, 2009. For the six months ended June
30, 2009, our interest coverage ratio was 3.81 to 1.00. For the six months ended June 30, 2009,
our fixed charge coverage ratio was 3.13 to 1.00. Also, at June 30, 2009, we had $79,505,000 of
cash and cash equivalents, $18,833,000 of restricted cash and $808,000,000 of available borrowing
capacity under our unsecured line of credit arrangement. During the six months ended June 30,
2009, we completed one public offering of 5,816,870 shares of common stock with net proceeds of
approximately $210,880,000.
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 June 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 July 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
32
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 July
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
July 31, 2009, 7,174,661 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 400,000 shares of common stock
under the Equity Shelf Program during the six months ended June 30, 2009. As of July 31, 2009, we
had $204,384,000 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 |
|
Six Months Ended |
|
Change |
|
|
Jun. 30, 2009 |
|
Jun. 30, 2008 |
|
Amount |
|
% |
|
Jun. 30, 2009 |
|
Jun. 30, 2008 |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
$ |
59,240 |
|
|
$ |
155,410 |
|
|
$ |
(96,170 |
) |
|
|
-62 |
% |
|
$ |
120,359 |
|
|
$ |
184,658 |
|
|
$ |
(64,299 |
) |
|
|
-35 |
% |
Funds from operations |
|
|
89,207 |
|
|
|
76,785 |
|
|
|
12,422 |
|
|
|
16 |
% |
|
|
174,529 |
|
|
|
145,493 |
|
|
|
29,036 |
|
|
|
20 |
% |
EBITDA |
|
|
132,843 |
|
|
|
237,088 |
|
|
|
(104,245 |
) |
|
|
-44 |
% |
|
|
268,875 |
|
|
|
350,718 |
|
|
|
(81,843 |
) |
|
|
-23 |
% |
Net operating income |
|
|
133,228 |
|
|
|
129,495 |
|
|
|
3,733 |
|
|
|
3 |
% |
|
|
268,048 |
|
|
|
254,102 |
|
|
|
13,946 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (fully diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
$ |
0.53 |
|
|
$ |
1.73 |
|
|
$ |
(1.20 |
) |
|
|
-69 |
% |
|
$ |
1.09 |
|
|
$ |
2.09 |
|
|
$ |
(1.00 |
) |
|
|
-48 |
% |
Funds from operations |
|
|
0.80 |
|
|
|
0.85 |
|
|
|
(0.05 |
) |
|
|
-6 |
% |
|
|
1.59 |
|
|
|
1.65 |
|
|
|
(0.06 |
) |
|
|
-4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
3.74 |
x |
|
|
6.17 |
x |
|
|
-2.43 |
x |
|
|
-39 |
% |
|
|
3.81 |
x |
|
|
4.49 |
x |
|
|
-0.68 |
x |
|
|
-15 |
% |
Fixed charge coverage ratio |
|
|
3.07 |
x |
|
|
5.15 |
x |
|
|
-2.08 |
x |
|
|
-40 |
% |
|
|
3.13 |
x |
|
|
3.73 |
x |
|
|
-0.60 |
x |
|
|
-16 |
% |
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 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):
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Six Months Ended |
|
|
Change |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
98,322 |
|
|
$ |
86,379 |
|
|
$ |
11,943 |
|
|
|
14 |
% |
|
$ |
195,853 |
|
|
$ |
167,762 |
|
|
$ |
28,091 |
|
|
|
17 |
% |
Interest income |
|
|
10,158 |
|
|
|
9,175 |
|
|
|
983 |
|
|
|
11 |
% |
|
|
20,111 |
|
|
|
18,267 |
|
|
|
1,844 |
|
|
|
10 |
% |
Other income |
|
|
640 |
|
|
|
1,533 |
|
|
|
(893 |
) |
|
|
-58 |
% |
|
|
1,534 |
|
|
|
2,829 |
|
|
|
(1,295 |
) |
|
|
-46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,120 |
|
|
|
97,087 |
|
|
|
12,033 |
|
|
|
12 |
% |
|
|
217,498 |
|
|
|
188,858 |
|
|
|
28,640 |
|
|
|
15 |
% |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
2,419 |
|
|
|
(719 |
) |
|
|
3,138 |
|
|
|
n/a |
|
|
|
3,426 |
|
|
|
(1,136 |
) |
|
|
4,562 |
|
|
|
n/a |
|
Depreciation and amortization |
|
|
27,695 |
|
|
|
23,651 |
|
|
|
4,044 |
|
|
|
17 |
% |
|
|
55,342 |
|
|
|
46,623 |
|
|
|
8,719 |
|
|
|
19 |
% |
Gain on extinguishment of debt |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
0 |
|
|
|
(40 |
) |
|
|
40 |
|
|
|
-100 |
% |
Provision for loan losses |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
140 |
|
|
|
0 |
|
|
|
140 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,114 |
|
|
|
22,932 |
|
|
|
7,182 |
|
|
|
31 |
% |
|
|
58,908 |
|
|
|
45,447 |
|
|
|
13,461 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
79,006 |
|
|
|
74,155 |
|
|
|
4,851 |
|
|
|
7 |
% |
|
|
158,590 |
|
|
|
143,411 |
|
|
|
15,179 |
|
|
|
11 |
% |
Income tax expense |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
0 |
|
|
|
(1,351 |
) |
|
|
1,351 |
|
|
|
-100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
79,006 |
|
|
|
74,155 |
|
|
|
4,851 |
|
|
|
7 |
% |
|
|
158,590 |
|
|
|
142,060 |
|
|
|
16,530 |
|
|
|
12 |
% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales
of properties |
|
|
10,677 |
|
|
|
118,168 |
|
|
|
(107,491 |
) |
|
|
-91 |
% |
|
|
27,713 |
|
|
|
118,194 |
|
|
|
(90,481 |
) |
|
|
-77 |
% |
Income (loss) from
discontinued operations, net |
|
|
1,345 |
|
|
|
4,617 |
|
|
|
(3,272 |
) |
|
|
-71 |
% |
|
|
3,652 |
|
|
|
9,339 |
|
|
|
(5,687 |
) |
|
|
-61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
12,022 |
|
|
|
122,785 |
|
|
|
(110,763 |
) |
|
|
-90 |
% |
|
|
31,365 |
|
|
|
127,533 |
|
|
|
(96,168 |
) |
|
|
-75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
91,028 |
|
|
$ |
196,940 |
|
|
$ |
(105,912 |
) |
|
|
-54 |
% |
|
$ |
189,955 |
|
|
$ |
269,593 |
|
|
$ |
(79,638 |
) |
|
|
-30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in rental income is primarily attributable to the acquisitions of new investment
properties subsequent to June 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 six months ended June 30, 2009 represents $4,557,000 of secured debt
interest expense offset by interest allocated to discontinued operations. Interest expense for the
six months ended June 30, 2008 represents $3,649,000 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 six months ended June 30, 2008, we extinguished two investment property secured debt loans and
recognized extinguishment gains of $40,000. The following is a summary of our investment property
secured debt principal activity (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
93,557 |
|
|
|
6.996 |
% |
|
$ |
109,094 |
|
|
|
6.994 |
% |
|
$ |
94,234 |
|
|
|
6.996 |
% |
|
$ |
114,543 |
|
|
|
7.000 |
% |
Debt issued |
|
|
133,071 |
|
|
|
6.100 |
% |
|
|
|
|
|
|
|
|
|
|
133,071 |
|
|
|
6.100 |
% |
|
|
|
|
|
|
|
|
Debt extinguished |
|
|
(20,928 |
) |
|
|
7.430 |
% |
|
|
(2,713 |
) |
|
|
7.000 |
% |
|
|
(20,928 |
) |
|
|
7.430 |
% |
|
|
(7,463 |
) |
|
|
7.080 |
% |
Principal payments |
|
|
(11,188 |
) |
|
|
7.923 |
% |
|
|
(471 |
) |
|
|
6.973 |
% |
|
|
(11,865 |
) |
|
|
7.869 |
% |
|
|
(1,170 |
) |
|
|
6.974 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
194,512 |
|
|
|
6.283 |
% |
|
$ |
105,910 |
|
|
|
6.994 |
% |
|
$ |
194,512 |
|
|
|
6.283 |
% |
|
$ |
105,910 |
|
|
|
6.994 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
226,293 |
|
|
|
6.469 |
% |
|
$ |
108,800 |
|
|
|
6.994 |
% |
|
$ |
226,635 |
|
|
|
6.470 |
% |
|
$ |
110,483 |
|
|
|
6.996 |
% |
Depreciation and amortization increased primarily as a result of the acquisitions of new
investment properties subsequent to June 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 June 30, 2009, we had six skilled nursing facilities that satisfied the requirements of
Statement No. 144 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 six
months ended June 30, 2009, we sold 15 investment properties with carrying values of $104,572,000
for net gains
34
of $27,713,000. During the six months ended June 30, 2008, we sold 23 investment
properties and one parcel of land with a carrying value of $124,536,000 for a gain of $118,194,000
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
June 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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
2,962 |
|
|
$ |
10,428 |
|
|
$ |
7,543 |
|
|
$ |
20,978 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
494 |
|
|
|
2,394 |
|
|
|
1,131 |
|
|
|
4,785 |
|
Provision for depreciation |
|
|
1,123 |
|
|
|
3,417 |
|
|
|
2,760 |
|
|
|
6,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net |
|
$ |
1,345 |
|
|
$ |
4,617 |
|
|
$ |
3,652 |
|
|
$ |
9,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of our quarterly evaluations, we recorded a $140,000 addition to the allowance for
loan losses during the six months ended June 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 three months ended December 31, 2007, we recognized $3,900,000 of additional other
income related to the payoff of a warrant equity investment. During the six months ended June 30,
2008, we determined that $1,325,000 of income taxes were due in connection with that investment
gain.
Medical Office Buildings
The following is a summary of our results of operations for the medical office buildings
segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Six Months Ended |
|
|
Change |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
31,969 |
|
|
$ |
31,746 |
|
|
$ |
223 |
|
|
|
1 |
% |
|
$ |
64,567 |
|
|
$ |
63,441 |
|
|
$ |
1,126 |
|
|
|
2 |
% |
Other income |
|
|
234 |
|
|
|
237 |
|
|
|
(3 |
) |
|
|
-1 |
% |
|
|
447 |
|
|
|
447 |
|
|
|
0 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,203 |
|
|
|
31,983 |
|
|
|
220 |
|
|
|
1 |
% |
|
|
65,014 |
|
|
|
63,888 |
|
|
|
1,126 |
|
|
|
2 |
% |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
5,098 |
|
|
|
4,968 |
|
|
|
130 |
|
|
|
3 |
% |
|
|
10,180 |
|
|
|
10,208 |
|
|
|
(28 |
) |
|
|
0 |
% |
Property operating expenses |
|
|
11,525 |
|
|
|
10,697 |
|
|
|
828 |
|
|
|
8 |
% |
|
|
22,943 |
|
|
|
21,409 |
|
|
|
1,534 |
|
|
|
7 |
% |
Depreciation and amortization |
|
|
11,913 |
|
|
|
11,786 |
|
|
|
127 |
|
|
|
1 |
% |
|
|
23,955 |
|
|
|
24,014 |
|
|
|
(59 |
) |
|
|
0 |
% |
Gain on extinguishment of debt |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
0 |
|
|
|
(1,286 |
) |
|
|
1,286 |
|
|
|
-100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,536 |
|
|
|
27,451 |
|
|
|
1,085 |
|
|
|
4 |
% |
|
|
57,078 |
|
|
|
54,345 |
|
|
|
2,733 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
3,667 |
|
|
|
4,532 |
|
|
|
(865 |
) |
|
|
-19 |
% |
|
|
7,936 |
|
|
|
9,543 |
|
|
|
(1,607 |
) |
|
|
-17 |
% |
Income tax (expense) benefit |
|
|
(113 |
) |
|
|
(13 |
) |
|
|
(100 |
) |
|
|
769 |
% |
|
|
(257 |
) |
|
|
(45 |
) |
|
|
(212 |
) |
|
|
471 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3,554 |
|
|
|
4,519 |
|
|
|
(965 |
) |
|
|
-21 |
% |
|
|
7,679 |
|
|
|
9,498 |
|
|
|
(1,819 |
) |
|
|
-19 |
% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sales of properties |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
Income (loss) from
discontinued operations, net |
|
|
(35 |
) |
|
|
(623 |
) |
|
|
588 |
|
|
|
-94 |
% |
|
|
(75 |
) |
|
|
(1,097 |
) |
|
|
1,022 |
|
|
|
-93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net |
|
|
(35 |
) |
|
|
(623 |
) |
|
|
588 |
|
|
|
-94 |
% |
|
|
(75 |
) |
|
|
(1,097 |
) |
|
|
1,022 |
|
|
|
-93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
3,519 |
|
|
|
3,896 |
|
|
|
(377 |
) |
|
|
-10 |
% |
|
|
7,604 |
|
|
|
8,401 |
|
|
|
(797 |
) |
|
|
-9 |
% |
Less: Net income attributable to
noncontrolling interests |
|
|
3 |
|
|
|
65 |
|
|
|
(62 |
) |
|
|
-95 |
% |
|
|
5 |
|
|
|
127 |
|
|
|
(122 |
) |
|
|
-96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
stockholders |
|
$ |
3,516 |
|
|
$ |
3,831 |
|
|
$ |
(315 |
) |
|
|
-8 |
% |
|
$ |
7,599 |
|
|
$ |
8,274 |
|
|
$ |
(675 |
) |
|
|
-8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in rental income is primarily attributable to the acquisitions of medical office
buildings subsequent to June 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.
35
Interest expense for the six months ended June 30, 2009 represents $10,451,000 of secured debt
interest expense offset by interest allocated to discontinued operations. Interest expense for the
six months ended June 30, 2008 represents $11,055,000 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 six months ended June 30, 2008, we extinguished three 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 |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Beginning balance |
|
$ |
352,616 |
|
|
|
5.799 |
% |
|
$ |
370,103 |
|
|
|
5.777 |
% |
|
$ |
354,145 |
|
|
|
5.799 |
% |
|
$ |
392,430 |
|
|
|
5.854 |
% |
Debt extinguished |
|
|
|
|
|
|
|
|
|
|
(8,306 |
) |
|
|
5.000 |
% |
|
|
|
|
|
|
|
|
|
|
(29,239 |
) |
|
|
6.600 |
% |
Principal payments |
|
|
(1,470 |
) |
|
|
5.756 |
% |
|
|
(1,346 |
) |
|
|
5.731 |
% |
|
|
(2,999 |
) |
|
|
5.758 |
% |
|
|
(2,740 |
) |
|
|
5.729 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
351,146 |
|
|
|
5.799 |
% |
|
$ |
360,451 |
|
|
|
5.795 |
% |
|
$ |
351,146 |
|
|
|
5.799 |
% |
|
$ |
360,451 |
|
|
|
5.795 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
351,882 |
|
|
|
5.799 |
% |
|
$ |
363,202 |
|
|
|
5.790 |
% |
|
$ |
352,652 |
|
|
|
5.799 |
% |
|
$ |
372,542 |
|
|
|
5.808 |
% |
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.
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
buyout of a noncontrolling interest subsequent to June 30, 2008.
At June 30, 2009, we had 14 medical office buildings that satisfied the requirements of
Statement No. 144 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.
During the year ended December 31, 2008, an impairment charge of $32,648,000 was recorded to reduce
the carrying value of the 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 May 7, 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 June 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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
624 |
|
|
$ |
1,257 |
|
|
$ |
1,279 |
|
|
$ |
2,795 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense. |
|
|
140 |
|
|
|
426 |
|
|
|
271 |
|
|
|
847 |
|
Property operating expenses |
|
|
519 |
|
|
|
678 |
|
|
|
1,083 |
|
|
|
1,333 |
|
Provision for depreciation |
|
|
0 |
|
|
|
776 |
|
|
|
0 |
|
|
|
1,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net |
|
$ |
(35 |
) |
|
$ |
(623 |
) |
|
$ |
(75 |
) |
|
$ |
(1,097 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Segment/Corporate
The following is a summary of our results of operations for the non-segment/corporate
activities (dollars in thousands):
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Six Months Ended |
|
|
Change |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
|
|
(In thousands, except per share data) |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
$ |
363 |
|
|
$ |
115 |
|
|
$ |
248 |
|
|
|
216 |
% |
|
$ |
740 |
|
|
$ |
325 |
|
|
$ |
415 |
|
|
|
128 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
19,181 |
|
|
|
29,086 |
|
|
|
(9,905 |
) |
|
|
-34 |
% |
|
|
40,335 |
|
|
|
58,772 |
|
|
|
(18,437 |
) |
|
|
-31 |
% |
General and administrative |
|
|
11,062 |
|
|
|
10,575 |
|
|
|
487 |
|
|
|
5 |
% |
|
|
28,424 |
|
|
|
22,904 |
|
|
|
5,520 |
|
|
|
24 |
% |
Gain on extinguishments of
debt |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
n/a |
|
|
|
(1,678 |
) |
|
|
0 |
|
|
|
(1,678 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,243 |
|
|
|
39,661 |
|
|
|
(9,418 |
) |
|
|
-24 |
% |
|
|
67,081 |
|
|
|
81,676 |
|
|
|
(14,595 |
) |
|
|
-18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing
operations
before income taxes |
|
|
(29,880 |
) |
|
|
(39,546 |
) |
|
|
9,666 |
|
|
|
-24 |
% |
|
|
(66,341 |
) |
|
|
(81,351 |
) |
|
|
15,010 |
|
|
|
-18 |
% |
Income tax (expense) benefit |
|
|
92 |
|
|
|
(31 |
) |
|
|
123 |
|
|
|
n/a |
|
|
|
185 |
|
|
|
73 |
|
|
|
112 |
|
|
|
153 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(29,788 |
) |
|
|
(39,577 |
) |
|
|
9,789 |
|
|
|
-25 |
% |
|
|
(66,156 |
) |
|
|
(81,278 |
) |
|
|
15,122 |
|
|
|
-19 |
% |
Preferred stock dividends |
|
|
5,516 |
|
|
|
5,784 |
|
|
|
(268 |
) |
|
|
-5 |
% |
|
|
11,039 |
|
|
|
11,931 |
|
|
|
(892 |
) |
|
|
-7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
common stockholders |
|
$ |
(35,304 |
) |
|
$ |
(45,361 |
) |
|
$ |
10,057 |
|
|
|
-22 |
% |
|
$ |
(77,195 |
) |
|
$ |
(93,209 |
) |
|
$ |
16,014 |
|
|
|
-17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income primarily represents income from non-real estate activities such as interest
earned on temporary investments of cash reserves.
The following is a summary of our non-segment/corporate interest expense (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Change |
|
|
Six Months Ended |
|
|
Change |
|
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
|
Jun. 30, 2009 |
|
|
Jun. 30, 2008 |
|
|
$ |
|
|
% |
|
Senior unsecured notes |
|
$ |
27,297 |
|
|
$ |
27,717 |
|
|
$ |
(420 |
) |
|
|
-2 |
% |
|
$ |
55,002 |
|
|
$ |
56,110 |
|
|
$ |
(1,108 |
) |
|
|
-2 |
% |
Unsecured lines of credit |
|
|
1,214 |
|
|
|
4,798 |
|
|
|
(3,584 |
) |
|
|
-75 |
% |
|
|
2,898 |
|
|
|
9,624 |
|
|
|
(6,726 |
) |
|
|
-70 |
% |
Capitalized interest |
|
|
(11,026 |
) |
|
|
(5,063 |
) |
|
|
(5,963 |
) |
|
|
118 |
% |
|
|
(20,891 |
) |
|
|
(10,230 |
) |
|
|
(10,661 |
) |
|
|
104 |
% |
SWAP losses (savings) |
|
|
(40 |
) |
|
|
(40 |
) |
|
|
0 |
|
|
|
0 |
% |
|
|
(80 |
) |
|
|
(80 |
) |
|
|
0 |
|
|
|
0 |
% |
Loan expense |
|
|
1,736 |
|
|
|
1,674 |
|
|
|
62 |
|
|
|
4 |
% |
|
|
3,406 |
|
|
|
3,348 |
|
|
|
58 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19,181 |
|
|
$ |
29,086 |
|
|
$ |
(9,905 |
) |
|
|
-34 |
% |
|
$ |
40,335 |
|
|
$ |
58,772 |
|
|
$ |
(18,437 |
) |
|
|
-31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in interest expense on senior unsecured notes is due to the effect of
extinguishments. The following is a summary of our senior unsecured note principal activity
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
June 30, 2009 |
|
|
June 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,723 |
) |
|
|
6.504 |
% |
|
|
(42,330 |
) |
|
|
7.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,823,277 |
|
|
|
5.773 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
$ |
1,823,277 |
|
|
|
5.773 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
$ |
1,823,277 |
|
|
|
5.773 |
% |
|
$ |
1,845,000 |
|
|
|
5.782 |
% |
|
$ |
1,832,587 |
|
|
|
5.777 |
% |
|
$ |
1,863,141 |
|
|
|
5.800 |
% |
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 June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Balance outstanding at quarter end |
|
$ |
342,000 |
|
|
$ |
744,000 |
|
|
$ |
342,000 |
|
|
$ |
744,000 |
|
Maximum amount outstanding at any month end |
|
$ |
342,000 |
|
|
$ |
744,000 |
|
|
$ |
559,000 |
|
|
$ |
744,000 |
|
Average amount outstanding (total of daily
principal balances divided by days in period) |
|
$ |
273,242 |
|
|
$ |
542,766 |
|
|
$ |
344,724 |
|
|
$ |
474,726 |
|
Weighted average interest rate (actual interest
expense divided by average borrowings
outstanding) |
|
|
1.77 |
% |
|
|
3.54 |
% |
|
|
1.68 |
% |
|
|
4.05 |
% |
37
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 six months ended June 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 six months ended June 30, 2009 were 7.61%
and 9.73%, respectively, as compared with 7.51% and 8.27% for the same periods in 2008. The
increase from 2008 is primarily related to $3,909,000 of non-recurring expenses recognized during
the six months ended June 30, 2009 in connection with the departure of Raymond W. Braun who
formerly served as President of the company.
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 |
|
Six Months Ended |
|
Six Months Ended |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
June 30, 2009 |
|
June 30, 2008 |
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
Weighted Avg. |
|
|
|
|
|
Weighted Avg. |
|
|
Shares |
|
Dividend Rate |
|
Shares |
|
Dividend Rate |
|
Shares |
|
Dividend Rate |
|
Shares |
|
Dividend Rate |
Beginning balance |
|
|
11,475,702 |
|
|
|
7.697 |
% |
|
|
12,799,889 |
|
|
|
7.677 |
% |
|
|
11,516,302 |
|
|
|
7.696 |
% |
|
|
12,879,189 |
|
|
|
7.676 |
% |
Shares converted |
|
|
(609 |
) |
|
|
6.000 |
% |
|
|
(751,050 |
) |
|
|
7.500 |
% |
|
|
(41,209 |
) |
|
|
7.478 |
% |
|
|
(830,350 |
) |
|
|
7.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
11,475,093 |
|
|
|
7.697 |
% |
|
|
12,048,839 |
|
|
|
7.688 |
% |
|
|
11,475,093 |
|
|
|
7.697 |
% |
|
|
12,048,839 |
|
|
|
7.688 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly averages |
|
|
11,475,245 |
|
|
|
7.697 |
% |
|
|
12,242,227 |
|
|
|
7.685 |
% |
|
|
11,489,670 |
|
|
|
7.697 |
% |
|
|
12,495,896 |
|
|
|
7.681 |
% |
38
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.
39
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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
FFO Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
$ |
29,249 |
|
|
$ |
155,410 |
|
|
$ |
53,589 |
|
|
$ |
21,850 |
|
|
$ |
61,119 |
|
|
$ |
59,240 |
|
Depreciation and amortization |
|
|
39,574 |
|
|
|
39,630 |
|
|
|
41,690 |
|
|
|
42,150 |
|
|
|
41,326 |
|
|
|
40,731 |
|
Loss (gain) on sales of properties |
|
|
(26 |
) |
|
|
(118,168 |
) |
|
|
(12,619 |
) |
|
|
(33,120 |
) |
|
|
(17,036 |
) |
|
|
(10,677 |
) |
Noncontrolling interests |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
(81 |
) |
|
|
(87 |
) |
|
|
(87 |
) |
|
|
|
Funds from operations |
|
$ |
68,710 |
|
|
$ |
76,785 |
|
|
$ |
82,573 |
|
|
$ |
30,799 |
|
|
$ |
85,322 |
|
|
$ |
89,207 |
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
86,100 |
|
|
|
89,294 |
|
|
|
96,040 |
|
|
|
103,329 |
|
|
|
108,214 |
|
|
|
110,864 |
|
Diluted |
|
|
86,610 |
|
|
|
89,853 |
|
|
|
96,849 |
|
|
|
103,840 |
|
|
|
108,624 |
|
|
|
111,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
$ |
1.74 |
|
|
$ |
0.56 |
|
|
$ |
0.21 |
|
|
$ |
0.56 |
|
|
$ |
0.53 |
|
Diluted |
|
|
0.34 |
|
|
|
1.73 |
|
|
|
0.55 |
|
|
|
0.21 |
|
|
|
0.56 |
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.80 |
|
|
$ |
0.86 |
|
|
$ |
0.86 |
|
|
$ |
0.30 |
|
|
$ |
0.79 |
|
|
$ |
0.80 |
|
Diluted |
|
|
0.79 |
|
|
|
0.85 |
|
|
|
0.85 |
|
|
|
0.30 |
|
|
|
0.79 |
|
|
|
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2009 |
|
|
|
FFO Reconciliation: |
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
$ |
184,658 |
|
|
$ |
120,359 |
|
Depreciation and amortization |
|
|
79,203 |
|
|
|
82,057 |
|
Loss (gain) on sales of properties |
|
|
(118,194 |
) |
|
|
(27,713 |
) |
Noncontrolling interests |
|
|
(174 |
) |
|
|
(174 |
) |
|
|
|
Funds from operations |
|
$ |
145,493 |
|
|
$ |
174,529 |
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
87,698 |
|
|
|
109,548 |
|
Diluted |
|
|
88,223 |
|
|
|
109,956 |
|
Per share data: |
|
|
|
|
|
|
|
|
Net income available to
common stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.11 |
|
|
$ |
1.10 |
|
Diluted |
|
|
2.09 |
|
|
|
1.09 |
|
|
|
|
|
|
|
|
|
|
Funds from operations
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.66 |
|
|
$ |
1.59 |
|
Diluted |
|
|
1.65 |
|
|
|
1.59 |
|
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.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
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 |
|
Assisted living facilities |
|
|
30,228 |
|
|
|
31,071 |
|
|
|
28,189 |
|
|
|
27,521 |
|
|
|
27,708 |
|
|
|
28,392 |
|
Skilled nursing facilities |
|
|
40,100 |
|
|
|
40,260 |
|
|
|
40,687 |
|
|
|
40,595 |
|
|
|
41,731 |
|
|
|
41,598 |
|
Specialty care facilities |
|
|
8,191 |
|
|
|
10,595 |
|
|
|
12,650 |
|
|
|
12,359 |
|
|
|
12,677 |
|
|
|
11,293 |
|
|
|
|
Investment property
rental income |
|
|
91,933 |
|
|
|
96,807 |
|
|
|
100,071 |
|
|
|
100,037 |
|
|
|
102,112 |
|
|
|
101,284 |
|
Interest income |
|
|
9,092 |
|
|
|
9,175 |
|
|
|
10,910 |
|
|
|
10,886 |
|
|
|
9,953 |
|
|
|
10,158 |
|
Other income |
|
|
1,296 |
|
|
|
1,533 |
|
|
|
1,219 |
|
|
|
3,850 |
|
|
|
895 |
|
|
|
640 |
|
|
|
|
Total investment property
revenues |
|
|
102,321 |
|
|
|
107,515 |
|
|
|
112,200 |
|
|
|
114,773 |
|
|
|
112,960 |
|
|
|
112,082 |
|
Medical office buildings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
|
33,233 |
|
|
|
33,003 |
|
|
|
33,958 |
|
|
|
33,138 |
|
|
|
33,253 |
|
|
|
32,593 |
|
Other income |
|
|
210 |
|
|
|
237 |
|
|
|
261 |
|
|
|
222 |
|
|
|
213 |
|
|
|
234 |
|
|
|
|
Total medical office
building revenues |
|
|
33,443 |
|
|
|
33,240 |
|
|
|
34,219 |
|
|
|
33,360 |
|
|
|
33,466 |
|
|
|
32,827 |
|
Corporate other income |
|
|
210 |
|
|
|
115 |
|
|
|
575 |
|
|
|
793 |
|
|
|
376 |
|
|
|
363 |
|
|
|
|
Total revenues |
|
|
135,974 |
|
|
|
140,870 |
|
|
|
146,994 |
|
|
|
148,926 |
|
|
|
146,802 |
|
|
|
145,272 |
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Medical office buildings |
|
|
11,367 |
|
|
|
11,375 |
|
|
|
11,868 |
|
|
|
12,019 |
|
|
|
11,983 |
|
|
|
12,044 |
|
Non-segment/corporate |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
Total property operating
expenses |
|
|
11,367 |
|
|
|
11,375 |
|
|
|
11,868 |
|
|
|
12,019 |
|
|
|
11,983 |
|
|
|
12,044 |
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
|
102,321 |
|
|
|
107,515 |
|
|
|
112,200 |
|
|
|
114,773 |
|
|
|
112,960 |
|
|
|
112,082 |
|
Medical office buildings |
|
|
22,076 |
|
|
|
21,865 |
|
|
|
22,351 |
|
|
|
21,341 |
|
|
|
21,483 |
|
|
|
20,783 |
|
Non-segment/corporate |
|
|
210 |
|
|
|
115 |
|
|
|
575 |
|
|
|
793 |
|
|
|
376 |
|
|
|
363 |
|
|
|
|
Net operating income |
|
$ |
124,607 |
|
|
$ |
129,495 |
|
|
$ |
135,126 |
|
|
$ |
136,907 |
|
|
$ |
134,819 |
|
|
$ |
133,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2009 |
|
|
|
NOI Reconciliation: |
|
|
|
|
|
|
|
|
Total revenues: |
|
|
|
|
|
|
|
|
Investment properties: |
|
|
|
|
|
|
|
|
Rental income: |
|
|
|
|
|
|
|
|
Independent living/CCRCs |
|
$ |
28,295 |
|
|
$ |
39,997 |
|
Assisted living facilities |
|
|
61,299 |
|
|
|
56,100 |
|
Skilled nursing facilities |
|
|
80,360 |
|
|
|
83,329 |
|
Specialty care facilities |
|
|
18,786 |
|
|
|
23,970 |
|
|
|
|
Investment property
rental income |
|
|
188,740 |
|
|
|
203,396 |
|
Interest income |
|
|
18,267 |
|
|
|
20,111 |
|
Other income |
|
|
2,829 |
|
|
|
1,534 |
|
|
|
|
Total investment property
revenues |
|
|
209,836 |
|
|
|
225,041 |
|
Medical office buildings: |
|
|
|
|
|
|
|
|
Rental income |
|
|
66,236 |
|
|
|
65,846 |
|
Other income |
|
|
447 |
|
|
|
447 |
|
|
|
|
Total medical office
building revenues |
|
|
66,683 |
|
|
|
66,293 |
|
Corporate other income |
|
|
325 |
|
|
|
740 |
|
|
|
|
Total revenues |
|
|
276,844 |
|
|
|
292,074 |
|
Property operating expenses: |
|
|
|
|
|
|
|
|
Investment properties |
|
|
0 |
|
|
|
0 |
|
Medical office buildings |
|
|
22,742 |
|
|
|
24,026 |
|
Non-segment/corporate |
|
|
0 |
|
|
|
0 |
|
|
|
|
Total property operating
expenses |
|
|
22,742 |
|
|
|
24,026 |
|
Net operating income: |
|
|
|
|
|
|
|
|
Investment properties |
|
|
209,836 |
|
|
|
225,041 |
|
Medical office buildings |
|
|
43,941 |
|
|
|
42,267 |
|
Non-segment/corporate |
|
|
325 |
|
|
|
740 |
|
|
|
|
Net operating income |
|
$ |
254,102 |
|
|
$ |
268,048 |
|
|
|
|
41
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, |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,458 |
|
|
$ |
161,259 |
|
|
$ |
59,320 |
|
|
$ |
27,389 |
|
|
$ |
66,645 |
|
|
$ |
64,759 |
|
Interest expense |
|
|
37,320 |
|
|
|
36,155 |
|
|
|
35,354 |
|
|
|
32,230 |
|
|
|
28,011 |
|
|
|
27,332 |
|
Income tax expense (benefit) |
|
|
1,279 |
|
|
|
44 |
|
|
|
(153 |
) |
|
|
136 |
|
|
|
50 |
|
|
|
21 |
|
Depreciation and amortization |
|
|
39,574 |
|
|
|
39,630 |
|
|
|
41,690 |
|
|
|
42,150 |
|
|
|
41,326 |
|
|
|
40,731 |
|
|
|
|
EBITDA |
|
$ |
113,631 |
|
|
$ |
237,088 |
|
|
$ |
136,211 |
|
|
$ |
101,905 |
|
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
Interest Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
37,320 |
|
|
$ |
36,155 |
|
|
$ |
35,354 |
|
|
$ |
32,230 |
|
|
$ |
28,011 |
|
|
$ |
27,332 |
|
Non-cash interest expense |
|
|
(2,790 |
) |
|
|
(2,769 |
) |
|
|
(2,773 |
) |
|
|
(2,899 |
) |
|
|
(2,772 |
) |
|
|
(2,844 |
) |
Capitalized interest |
|
|
5,167 |
|
|
|
5,063 |
|
|
|
6,364 |
|
|
|
8,435 |
|
|
|
9,865 |
|
|
|
11,026 |
|
|
|
|
Total interest |
|
|
39,697 |
|
|
|
38,449 |
|
|
|
38,945 |
|
|
|
37,766 |
|
|
|
35,104 |
|
|
|
35,514 |
|
EBITDA |
|
$ |
113,631 |
|
|
$ |
237,088 |
|
|
$ |
136,211 |
|
|
$ |
101,905 |
|
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
|
|
Interest coverage ratio |
|
|
2.86 |
x |
|
|
6.17 |
x |
|
|
3.50 |
x |
|
|
2.70 |
x |
|
|
3.88 |
x |
|
|
3.74 |
x |
|
Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest |
|
$ |
39,697 |
|
|
$ |
38,449 |
|
|
$ |
38,945 |
|
|
$ |
37,766 |
|
|
$ |
35,104 |
|
|
$ |
35,514 |
|
Secured debt principal payments |
|
|
2,093 |
|
|
|
1,817 |
|
|
|
2,080 |
|
|
|
2,129 |
|
|
|
2,206 |
|
|
|
2,177 |
|
Preferred dividends |
|
|
6,147 |
|
|
|
5,784 |
|
|
|
5,730 |
|
|
|
5,541 |
|
|
|
5,524 |
|
|
|
5,516 |
|
|
|
|
Total fixed charges |
|
|
47,937 |
|
|
|
46,050 |
|
|
|
46,755 |
|
|
|
45,436 |
|
|
|
42,834 |
|
|
|
43,207 |
|
EBITDA |
|
$ |
113,631 |
|
|
$ |
237,088 |
|
|
$ |
136,211 |
|
|
$ |
101,905 |
|
|
$ |
136,032 |
|
|
$ |
132,843 |
|
|
|
|
Fixed charge coverage ratio |
|
|
2.37 |
x |
|
|
5.15 |
x |
|
|
2.91 |
x |
|
|
2.24 |
x |
|
|
3.18 |
x |
|
|
3.07 |
x |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2009 |
|
|
|
EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
196,716 |
|
|
$ |
131,403 |
|
Interest expense |
|
|
73,476 |
|
|
|
55,343 |
|
Tax expense (benefit) |
|
|
1,323 |
|
|
|
72 |
|
Depreciation and amortization |
|
|
79,203 |
|
|
|
82,057 |
|
|
|
|
EBITDA |
|
$ |
350,718 |
|
|
$ |
268,875 |
|
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio: |
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
73,476 |
|
|
$ |
55,343 |
|
Non-cash interest expense |
|
|
(5,559 |
) |
|
|
(5,616 |
) |
Capitalized interest |
|
|
10,230 |
|
|
|
20,891 |
|
|
|
|
Total interest |
|
|
78,147 |
|
|
|
70,618 |
|
EBITDA |
|
$ |
350,718 |
|
|
$ |
268,875 |
|
|
|
|
Interest coverage ratio |
|
|
4.49 |
x |
|
|
3.81 |
x |
|
|
|
|
|
|
|
|
|
Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
Total interest |
|
$ |
78,147 |
|
|
$ |
70,618 |
|
Secured debt principal payments |
|
|
3,910 |
|
|
|
4,383 |
|
Preferred dividends |
|
|
11,931 |
|
|
|
11,039 |
|
|
|
|
Total fixed charges |
|
|
93,988 |
|
|
|
86,040 |
|
EBITDA |
|
$ |
350,718 |
|
|
$ |
268,875 |
|
|
|
|
Fixed charge coverage ratio |
|
|
3.73 |
x |
|
|
3.13 |
x |
42
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 |
|
|
June 30, |
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
|
2008 |
|
2008 |
|
2008 |
|
2009 |
|
2009 |
|
|
|
Adjusted EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
274,047 |
|
|
$ |
303,603 |
|
|
$ |
283,425 |
|
|
$ |
314,613 |
|
|
$ |
218,112 |
|
Interest expense |
|
|
150,031 |
|
|
|
147,596 |
|
|
|
141,059 |
|
|
|
131,750 |
|
|
|
122,927 |
|
Income tax expense (benefit) |
|
|
1,569 |
|
|
|
1,439 |
|
|
|
1,306 |
|
|
|
77 |
|
|
|
54 |
|
Depreciation and amortization |
|
|
159,422 |
|
|
|
160,975 |
|
|
|
163,045 |
|
|
|
164,797 |
|
|
|
165,898 |
|
Stock-based compensation
expense |
|
|
7,853 |
|
|
|
8,024 |
|
|
|
8,530 |
|
|
|
11,360 |
|
|
|
11,034 |
|
Provision for loan losses |
|
|
0 |
|
|
|
0 |
|
|
|
94 |
|
|
|
234 |
|
|
|
234 |
|
Loss (gain) on extinguishment
of debt |
|
|
(2,407 |
) |
|
|
(3,175 |
) |
|
|
(2,094 |
) |
|
|
(2,446 |
) |
|
|
(2,446 |
) |
|
|
|
Adjusted EBITDA |
|
$ |
590,515 |
|
|
$ |
618,462 |
|
|
$ |
595,365 |
|
|
$ |
620,385 |
|
|
$ |
515,813 |
|
|
Adjusted Fixed Charge Coverage Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
150,031 |
|
|
$ |
147,596 |
|
|
$ |
141,059 |
|
|
$ |
131,750 |
|
|
$ |
122,927 |
|
Capitalized interest |
|
|
17,860 |
|
|
|
21,062 |
|
|
|
25,029 |
|
|
|
29,727 |
|
|
|
35,690 |
|
Non-cash interest expense |
|
|
(11,047 |
) |
|
|
(11,325 |
) |
|
|
(11,231 |
) |
|
|
(11,214 |
) |
|
|
(11,289 |
) |
Secured debt principal payments |
|
|
8,066 |
|
|
|
8,137 |
|
|
|
8,119 |
|
|
|
8,232 |
|
|
|
8,592 |
|
Preferred dividends |
|
|
24,427 |
|
|
|
23,840 |
|
|
|
23,201 |
|
|
|
22,579 |
|
|
|
22,311 |
|
|
|
|
Total fixed charges |
|
|
189,337 |
|
|
|
189,310 |
|
|
|
186,177 |
|
|
|
181,074 |
|
|
|
178,231 |
|
Adjusted EBITDA |
|
$ |
590,515 |
|
|
$ |
618,462 |
|
|
$ |
595,365 |
|
|
$ |
620,385 |
|
|
$ |
515,813 |
|
|
|
|
Adjusted fixed charge coverage ratio |
|
|
3.12 |
x |
|
|
3.27 |
x |
|
|
3.20 |
x |
|
|
3.43 |
x |
|
|
2.89 |
x |
43
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 for further information regarding
significant accounting policies that impact us. There have been no material changes to these
policies in 2009. See Note 2 to our consolidated financial statements for the impact of new
accounting pronouncements.
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 Statement of
Financial Accounting Standards No.
114, Accounting by Creditors for
Impairment of a Loan, as amended, and
SEC Staff Accounting Bulletin No. 102,
Selected Loan Loss Allowance
Methodology and Documentation Issues.
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
collectibility 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
collectibility of loan payments
and principal. We evaluate the
collectibility 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 six months ended June 30,
2009, resulting in an allowance
for loan losses of $7,640,000
relating to loans with
outstanding balances of
$120,691,000. Also at June 30,
2009, we had loans with
outstanding balances of
$72,469,000 on non-accrual
status. |
44
|
|
|
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 Statement of Financial Accounting
Standards No. 141(R), Business Combinations
adopted for business combinations subsequent
to January 1, 2009.
|
|
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 six months ended
June 30, 2009, we recorded
$60,908,000, $16,279,000 and
$4,870,000 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 35.8 years,
11.0 years and 8.6 years,
respectively, for the six
months ended June 30, 2009. |
|
|
|
Impairment of Long-Lived Assets |
|
|
|
|
|
We review our long-lived assets for
potential impairment in accordance with
Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment and
Disposal of Long-Lived Assets. 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.
We did not record any
impairment charges for the
six months ended June 30,
2009. |
|
|
|
Fair Value of Derivative Instruments |
|
|
|
|
|
The valuation of derivative instruments is
accounted for in accordance with Statement
of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and
Hedging Activities (SFAS133), as amended
by Statement of Financial Accounting
Standards No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging
Activities. SFAS133, as amended, 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. We were not party
to any derivative
instruments at June 30,
2009. |
45
|
|
|
Nature of Critical |
|
Assumptions/Approach |
Accounting Estimate |
|
Used |
|
|
|
Revenue Recognition |
|
|
|
|
|
Revenue is recorded in accordance
with Statement of Financial
Accounting Standards No. 13,
Accounting for Leases, and SEC Staff
Accounting Bulletin No. 104, Revenue
Recognition in Financial Statements,
as amended (SAB104). SAB104
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
collectibility. If the
collectibility 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 collectibility
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 collectibility
assessment. Rental income related to
leases with contingent rental
escalators is generally recorded
based on the contractual cash rental
payments due for the period.
|
|
We evaluate the collectibility of
our revenues and related receivables
on an on-going basis. We evaluate
collectibility based on assumptions
and other considerations including,
but not limited to, the certainty of
payment, payment history, the
financial strength of the
investments underlying operations
as measured by cash flows and
payment coverages, the value of the
underlying collateral and guaranties
and current economic conditions.
If our evaluation indicates that
collectibility is not reasonably
assured, we may place an investment
on non-accrual or reserve against
all or a portion of current income
as an offset to revenue.
For the six months ended June 30,
2009, we recognized $20,111,000 of
interest income and $269,242,000 of
rental income, including
discontinued operations. Cash
receipts on leases with deferred
revenue provisions were $15,144,000
as compared to gross straight-line
rental income recognized of
$9,927,000 for the six months ended
June 30, 2009. At June 30, 2009,
our straight-line receivable balance
was $39,746,000, net of reserves
totaling $379,000. Also at June 30,
2009, we had loans with outstanding
balances of $72,469,000 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 May 7, 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.
46
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Principal |
|
|
Change in |
|
|
Principal |
|
|
Change in |
|
|
|
balance |
|
|
fair value |
|
|
balance |
|
|
fair value |
|
Senior unsecured notes |
|
$ |
1,823,277 |
|
|
$ |
(116,673 |
) |
|
$ |
1,845,000 |
|
|
$ |
(112,438 |
) |
|
Secured debt |
|
|
545,658 |
|
|
|
(25,481 |
) |
|
|
448,378 |
|
|
|
(17,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
2,368,935 |
|
|
$ |
(142,154 |
) |
|
$ |
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.
Our variable rate debt, including our unsecured line of credit arrangement, is reflected at
fair value. At June 30, 2009, we had $342,000,000 outstanding related to our variable rate debt and
assuming no changes in outstanding balances, a 1% increase in interest rates would result in
increased annual interest expense of $3,420,000. 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.
47
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 |
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
of Shares Purchased |
|
of Shares that May |
|
|
Total Number |
|
|
|
|
|
as Part of Publicly |
|
Yet Be Purchased |
|
|
of Shares |
|
Average Price |
|
Announced |
|
Under the Plans or |
Period |
|
Purchased (1) |
|
Paid Per Share |
|
Plans or Programs (2) |
|
Programs |
April 1, 2009 through
April 30, 2009 |
|
|
166 |
|
|
$ |
33.72 |
|
|
|
|
|
|
|
|
|
May 1, 2009 through
May 31, 2009 |
|
|
117 |
|
|
$ |
32.08 |
|
|
|
|
|
|
|
|
|
June 1, 2009 through
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
283 |
|
|
$ |
33.04 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the three months ended June 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. |
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of stockholders was duly called and held on May 7, 2009 in Toledo, Ohio.
Proxies for the meeting were solicited on behalf of the Board of Directors pursuant to Regulation
14A of the General Rules and Regulations of the SEC. There was no solicitation in opposition to the
Boards nominees for election as directors as listed in the Proxy Statement, and all such nominees
were elected.
Votes were cast at the meeting upon the proposals described in the Proxy Statement for the
meeting (filed with the SEC pursuant to Regulation 14A and incorporated herein by reference) as
follows:
Proposal #1 Election of four directors for a term of three years:
|
|
|
|
|
|
|
|
|
Nominee |
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For |
|
Withheld |
Pier C. Borra |
|
|
94,429,197 |
|
|
|
4,188,408 |
|
George L. Chapman |
|
|
94,586,650 |
|
|
|
4,030,955 |
|
Sharon M. Oster |
|
|
94,038,583 |
|
|
|
4,579,022 |
|
Jeffrey R. Otten |
|
|
95,154,547 |
|
|
|
3,463,058 |
|
48
Proposal #2 Approval of the Amended and Restated Health Care REIT, Inc. 2005 Long-Term
Incentive Plan:
|
|
|
|
|
For |
|
|
69,184,669 |
|
Against |
|
|
11,458,279 |
|
Abstain |
|
|
660,710 |
|
Proposal #3 Ratification of the appointment of Ernst & Young LLP as independent registered
public accounting firm for the fiscal year 2009:
|
|
|
|
|
For |
|
|
97,252,079 |
|
Against |
|
|
1,153,197 |
|
Abstain |
|
|
212,329 |
|
Item 6. Exhibits
|
1.1 |
|
Amendment No. 1 to Equity Distribution Agreement, dated as of May 8, 2009, by and
among the company and UBS Securities LLC. |
|
|
10.1 |
|
Health Care REIT, Inc. Amended and Restated 2005 Long-Term Incentive Plan (filed
with the Securities and Exchange Commission as Appendix A to the companys Proxy
Statement for the 2009 Annual Meeting of Stockholders filed March 25, 2009, and
incorporated herein by reference thereto). |
|
|
31.1 |
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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: August 6, 2009 |
By: |
/s/ George L. Chapman
|
|
|
George L. Chapman, |
|
|
Chairman, Chief Executive Officer
and President
(Principal Executive Officer) |
|
|
|
|
|
Date: August 6, 2009 |
By: |
/s/ Scott A. Estes
|
|
|
Scott A. Estes, |
|
|
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
Date: August 6, 2009 |
By: |
/s/ Paul D. Nungester, Jr.
|
|
|
Paul D. Nungester, Jr., |
|
|
Vice President and Controller
(Principal Accounting Officer) |
|
|
49