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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950144-01-003890.txt : 20010326
<SEC-HEADER>0000950144-01-003890.hdr.sgml : 20010326
ACCESSION NUMBER: 0000950144-01-003890
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010323
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HEALTHCARE REALTY TRUST INC
CENTRAL INDEX KEY: 0000899749
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 621507028
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-11852
FILM NUMBER: 1577756
BUSINESS ADDRESS:
STREET 1: 3310 WEST END AVE
STREET 2: FOURTH FL SUITE 400
CITY: NASHVILLE
STATE: TN
ZIP: 37203
BUSINESS PHONE: 6152698175
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>g67659e10-k405.txt
<DESCRIPTION>HEALTHCARE REALTY TRUST, INC.
<TEXT>
<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
COMMISSION FILE NUMBER: 1-11852
---------------
HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
MARYLAND 62-1507028
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3310 WEST END AVENUE
SUITE 700
NASHVILLE, TENNESSEE 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $.01 par value per share New York Stock Exchange
8 7/8% Series A Voting Cumulative Preferred Stock, $.01 par value per share New York Stock Exchange
10 1/2% Convertible Subordinated Debentures due 2002 New York Stock Exchange
6.55% Convertible Subordinated Debentures due 2002 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
The aggregate market value of the shares of Common Stock and Preferred
Stock (based upon the closing prices of these shares on the New York Stock
Exchange, Inc. on March 15, 2001) of the Registrant held by non-affiliates on
March 15, 2001, were approximately $857,090,954 and $63,810,000, respectively.
As of March 15, 2001, 40,547,885 shares of the Registrant's Common
Stock and 3,000,000 shares of the Registrant's Preferred Stock were outstanding.
===============================================================================
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into
which the document is incorporated:
Portions of the Registrant's 2000 Annual Report to Shareholders are
incorporated into Part II of this Report.
Portions of the Registrant's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 15, 2001 are incorporated into
Part III of this Report.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Business......................................................................................... 4
The Company...................................................................................... 4
Property Dispositions............................................................................ 6
Commitments...................................................................................... 6
Mortgage Portfolio............................................................................... 7
Competition...................................................................................... 7
Government Regulation............................................................................ 8
Environmental Matters............................................................................ 9
Insurance........................................................................................ 10
Employees........................................................................................ 10
Executive Officers of the Registrant............................................................. 10
Federal Income Tax Information................................................................... 11
ERISA Considerations............................................................................. 23
Cautionary Statements............................................................................ 25
Item 2. Properties....................................................................................... 29
Item 3. Legal Proceedings................................................................................ 29
Item 4. Submission of Matters to a Vote of Securityholders............................................... 29
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................ 29
Item 6. Selected Financial Data.......................................................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 30
Item 8. Financial Statements and Supplementary Data...................................................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 31
Item 10. Directors and Executive Officers of the Registrant............................................... 32
Directors........................................................................................ 32
Executive Officers............................................................................... 32
Section 16(a) Compliance......................................................................... 32
Item 11. Executive Compensation........................................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management................................... 32
Item 13. Certain Relationships and Related Transactions................................................... 32
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. 33
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
THE COMPANY
Healthcare Realty Trust Incorporated ("Healthcare Realty" or the
"Company") was incorporated in Maryland in 1993 and is a self-managed and
self-administered real estate investment trust ("REIT") that integrates owning,
acquiring, managing and developing income-producing real estate properties and
mortgages associated with the delivery of healthcare services throughout the
United States.
On October 15, 1998, Healthcare Realty completed its acquisition of
Capstone Capital Corporation, a Maryland corporation ("Capstone"), through the
merger of HR Acquisition I Corporation, a wholly owned subsidiary of the
Company, into Capstone. The acquisition is accounted for as a tax-free
reorganization for federal income tax purposes and as a purchase for financial
reporting purposes. In the transaction, the Company acquired 111 facilities with
investments of approximately $804.2 million. The Company also acquired $211.6
million in mortgage notes receivable, secured by mortgages on 45 assisted living
facilities, 25 senior nursing facilities and five other facility types.
The Company has investments of approximately $1.7 billion in 267
income-producing real estate properties and mortgages associated with the
delivery of healthcare services. As of December 31, 2000, the Company's real
estate portfolio, containing approximately 9.7 million square feet, was
comprised of nine facility types and was operated pursuant to contractual
arrangements with 46 healthcare providers. Also, the Company's mortgage
portfolio was comprised of four facility types and was operated by 24 healthcare
providers. At December 31, 2000, the Company provided property management
services for 263 healthcare-related properties nationwide, totaling over 87
million square feet, and third-party asset management services for 273
properties nationwide, totaling over 1.5 million square feet. The Company
intends to maintain a portfolio of properties that are focused predominantly on
the outpatient services and medical office segments of the healthcare industry
and are diversified by tenant, geographic location and facility type.
Healthcare Realty believes that it has a competitive advantage in the
healthcare real estate industry as a result of its use of innovative transaction
structures, the strength of its management expertise and its extensive
experience and client relationships with healthcare providers. Management
believes that the Company is the largest fully-integrated real estate company
focused on income-producing real estate properties related to the delivery of
healthcare services. The Company believes that its experience and client
relationships with a diverse group of healthcare providers make it one of a
limited number of companies that can acquire, manage and develop
income-producing real estate related to healthcare services on a national scale.
Unlike other healthcare REITs, the Company seeks to generate internal growth by
actively managing the properties within its portfolio and by controlling and
minimizing operating expenses with respect to its properties, and providing
management services for properties owned by healthcare provider clients.
Healthcare Realty's strategy is to be a full-service provider of
integrated real estate solutions to quality healthcare providers. Consistent
with this strategy, the Company seeks to provide a spectrum of services needed
to own, acquire, manage and develop healthcare properties, including:
4
<PAGE> 5
- leasing;
- development;
- management;
- market research;
- budgeting;
- accounting;
- collection;
- construction;
- management;
- tenant coordination; and
- financial services.
The Company's development activities are primarily accomplished through
pre-leased build-to-suit projects.
Healthcare Realty was formed as an independent, unaffiliated healthcare
REIT. The Company acquires income-producing real estate properties associated
with a diverse group of quality healthcare provider clients in markets where the
respective healthcare provider maintains a strong presence. Management believes
that the Company has a strategic advantage in providing its services to a more
diverse group of healthcare providers because the Company is not affiliated with
any of its clients and does not expect to be affiliated with potential clients.
Management believes that client diversification reduces the Company's
potential exposure to unsuccessful healthcare service strategies and to a
concentration of credit with any one healthcare provider. Approximately 64% of
the Company's real estate investments including mortgages, at cost, are in
properties associated with publicly-traded companies or private companies with
an investment-grade credit rating. The following table sets forth the Company's
five largest healthcare provider clients:
<TABLE>
<CAPTION>
Client Percent of Investments
------ ----------------------
<S> <C>
HealthSouth Corporation 18.0%
HCA - The Healthcare Company 14.0%
Tenet Healthcare Corporation 6.8%
Life Care Centers of America 5.6%
Senior Lifestyles 4.6%
</TABLE>
Healthcare Realty focuses predominantly on outpatient healthcare
facilities, which are designed to provide medical services outside of
traditional inpatient hospital or nursing home settings. Management believes the
outpatient services segment of healthcare provides the most cost-effective
delivery setting and, because of increasing cost pressures, this segment of the
healthcare-related real estate market offers the greatest potential for future
growth. Company assets that are in categories outside of the Company's
outpatient healthcare facility focus, such as its senior living assets, are
under continuing management analysis with a view toward possible disposition
through cash, like-kind exchange or securities transactions.
The Company acquires existing healthcare facilities, provides property
management, leasing and build-to-suit development services, and capital for the
construction of build-to-suit developments for qualified healthcare operators.
The Company owns a diversified portfolio of healthcare properties, most of which
are subject to long-term leases or financial support arrangements to ensure the
continuity of revenues and coverage of costs and expenses relating to the
properties by the tenants and the related healthcare operators.
Development funding arrangements require the Company to provide funding
to enable healthcare operators to build facilities on property owned or leased
by the Company. Prior to making
5
<PAGE> 6
any funding advance for a development, the Company enters into a contract to
acquire or ground lease the real estate and enters into a long-term net lease
with a healthcare operator or guarantee of the return on the Company's
investment in the property or similar financial support agreement in favor of
the Company. In most development transactions, the Company either acts as
developer, or employs the healthcare operator to act as the developer of the
property, and has approval authority with regard to plans, specifications,
budgets and time schedules for the completion of the development of the
property. Under its customary development funding format, the Company receives
funding fees (the economic equivalent of construction period interest) on all
funds advanced. Timely completion of the development in compliance with the
plans, specifications, budgets and time schedules is the contractual
responsibility of third parties, and construction costs are guaranteed by the
healthcare operator or developer, or both. All construction and service
contracts relating to the development are collaterally assigned to the Company.
During the term of the development of a facility, funds are advanced pursuant to
requests made by the developer in accordance with the terms and conditions of
the applicable funding agreement based on costs incurred prior to the date of
such requests.
Approximately 98.3% of the Company's investments in properties consist
of properties currently leased to unaffiliated lessees pursuant to long-term net
lease agreements or subject to financial support agreements with the healthcare
operators that provide guarantees of the return on the Company's investment in
the properties. Most of the current property agreements were entered into upon
the conveyance to the Company of the facilities, and have initial terms of ten
to 20 years with, in some cases, one or more renewal terms exercisable by the
healthcare provider of five years each. Most of the agreements are subject to
earlier termination upon the occurrence of certain contingencies. Certain of the
agreements also have an option to repurchase the property at specified times
during the term of the agreements for a price approximately equal to the greater
of the fair market value of such property or the Company's investment in such
property. Base rent or support payments vary by agreement taking into
consideration various factors, including the credit of the property lessee, the
healthcare operator, and the operating performance, location, and physical
condition of the property. Many of the property agreements contain provisions
for additional rent or support payment increases. The existence and nature of
provisions for additional payments in any given agreement relate to, among other
factors, the financial strength of the respective property lessee, the
healthcare operator, or both, as well as other lease terms.
The Company operates so as to qualify as a REIT for federal income tax
purposes. If so qualified, with limited exceptions, the Company will not be
subject to corporate federal income tax with respect to net income distributed
to its shareholders. See "Federal Income Tax Information" below.
PROPERTY DISPOSITIONS
During the fourth quarter of 2000, the Company sold a 16,264 square
foot ancillary hospital facility in San Antonio, Texas and a 19,000 square foot
comprehensive ambulatory care center in Destin, Florida for net proceeds
totaling approximately $5.9 million. The Company recognized a net gain on these
sales of approximately $400,000.
COMMITMENTS
As of December 31, 2000, the Company had a net investment of
approximately $30.9 million in seven build-to-suit developments in progress,
which have a total remaining funding commitment of approximately $51.3 million.
Further, the Company has commitments to provide funding for the enhancement of
existing properties totaling $3.5 million at December 31, 2000.
As part of the Capstone merger, agreements were entered into with three
individuals affiliated with Capstone that restrict competitive practices and
which the Company believes will
6
<PAGE> 7
protect and enhance the value of the real estate properties acquired from
Capstone. These agreements provide for the issuance of 150,000 shares per year
of common stock of the Company to the individuals on October 15 of the years
1999, 2000, 2001, and 2002, provided all terms of the agreements are met. The
Company issued 150,000 shares during each of 2000 and 1999 pursuant to these
agreements.
MORTGAGE PORTFOLIO
Mortgage notes receivable, substantially all of which were acquired in
the Capstone merger, were recorded at their fair value at the date of
acquisition. Approximately 42.5% of the mortgage notes receivable are secured by
assisted living facilities and 35.4% are secured by skilled nursing facilities.
The 54 mortgages in the portfolio at December 31, 2000 represent 24 operators.
As of December 31, 2000, the weighted average maturity of the mortgage
portfolio was approximately 5.14 years, with maturity dates ranging from
February 2001 to October 2013. Interest rates ranged from 8.18% to 13.5% and are
generally adjustable each year to reflect increases in the Consumer Price Index.
Substantially all mortgages are subject to a prepayment penalty.
COMPETITION
The Company competes for property acquisitions with, among others:
- Investors;
- Healthcare providers;
- Other healthcare-related REITs;
- Real estate partnerships; and
- Financial institutions.
From 1992 until late 1998, the REIT industry was in an expansion mode,
and capital was readily available to REITs. By the end of 1998, however, market
valuations of REIT shares (including the Company's shares) had declined
substantially with the result that the Company presently has limited access to
capital from the equity market. The Company may not be able to obtain additional
equity or debt capital or dispose of assets at the time it requires additional
capital. Moreover, the Company may not be able to obtain capital on terms that
will enable it to acquire healthcare properties on a competitive basis.
The financial performance of all of the Company's properties is subject
to competition from similar properties. Certain operators of other properties
may have capital resources in excess of those of the operators of the Company's
properties. In addition, the extent to which the Company's properties are
utilized depends upon several factors, including the number of physicians using
the healthcare facilities or referring patients there, competitive systems of
healthcare delivery, and the area population, size and composition. Private,
federal and state payment programs and other laws and regulations may also have
a significant effect on the utilization of the properties. Virtually all of the
Company's properties operate in a competitive environment, and patients and
referral sources, including physicians, may change their preferences for a
healthcare facility from time to time.
The business of providing services relating to the day-to-day
management and leasing of multi-tenanted healthcare properties and to the
supervision of the development of new healthcare facilities is highly
competitive and is subject to price, personnel cost and other competitive
pressures upon its profitability. The Company will compete for management
contracts and development agreements with respect to properties owned or to be
developed by the Company, as well as with respect to properties that are owned
by third parties.
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<PAGE> 8
GOVERNMENT REGULATION
The investments made by the Company are with active participants in the
healthcare industry. The healthcare industry is undergoing substantial changes
due to rising costs in the delivery of healthcare services, rising competition
for patients, and reduction of reimbursement by private and governmental payors.
Further, the healthcare industry is faced with increased scrutiny by federal and
state legislative and administrative authorities, thus presenting the industry
and its individual participants with significant uncertainty. The Company
believes that these changes and uncertainties present significant opportunities
for the Company to assist in providing solutions to some of these pressures;
however, these various changes can affect the economic performance of some or
all of its tenants and clients. The Company cannot predict the degree to which
these changes may affect the economic performance of the Company, positively or
negatively.
The facilities leased by the Company and the manner in which they are
operated are affected by changes in the reimbursement, licensing and
certification policies of federal, state and local governments. Facilities may
also be affected by changes in accreditation standards or procedures of
accrediting agencies that are recognized by governments in the certification
process. In addition, expansion (including the addition of new beds or services
or acquisition of medical equipment) and occasionally the discontinuation of
services of healthcare facilities are, in some states, subjected to state
regulatory approval through certificate of need programs.
The provisions of the Social Security Act addressing illegal
remuneration (the "Anti-Kickback Statute") prohibit providers and others from,
among other things, soliciting, receiving, offering or paying, directly or
indirectly, any remuneration in return for either making a referral for a
service or item covered by a federal healthcare program or ordering or arranging
for or recommending the order of any covered service or item. Violations of this
statute may be punished by a fine of up to $50,000 or imprisonment for each
violation and damages up to three times the total amount of remuneration.
The Stark Law prohibits a practitioner (including a physician, dentist,
or podiatrist) from making referrals for certain designated health services paid
in whole or in part by Medicare and Medicaid to entities with which the
practitioner has a financial relationship. The Stark Law also prohibits the
entity receiving the referral from seeking payment under the Medicare and
Medicaid programs for services rendered pursuant to a prohibited referral. If an
entity is paid for services rendered pursuant to a prohibited referral, it may
incur civil penalties of up to $15,000 per prohibited claim and may be excluded
from participating in Medicare and Medicaid.
Although the Company is not a healthcare provider or in a position to
influence the referral of patients or ordering of services reimbursable by the
federal government, its leases and subleases must be negotiated at arm's length
for fair market value rental rates. To the extent that a healthcare facility
leases space from the Company and, in turn, subleases space to physicians or
other referral sources, at less than fair market rental rate, the Anti-kickback
Statute and the Stark Law could be implicated. The Company's leases require the
lessees to covenant that they will comply with all applicable laws.
A significant portion of the revenue of healthcare operators is derived
from government reimbursement programs, such as Medicare and Medicaid. Although
lease payments to the Company are not directly affected by the level of
government reimbursement, to the extent that changes in these programs adversely
affect healthcare operators, such changes could have an impact on their ability
to make lease payments to the Company. The Medicare program is highly regulated
and subject to frequent and substantial changes. In recent years, fundamental
changes in the Medicare program (including the implementation of a prospective
payment system in which facilities are reimbursed generally a flat amount based
on a patient's diagnosis and not based on the facilities'
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<PAGE> 9
cost for services) have resulted in reduced levels of payment for a substantial
portion of healthcare services.
Considerable uncertainties surround the future determination of payment
levels under government reimbursement programs. In addition, governmental
budgetary concerns may significantly reduce future payments made to healthcare
operators. It is possible that future payment rates will not be sufficient to
cover cost increases in providing services to patients. Reductions in payments
pursuant to government healthcare programs could have an adverse impact on a
healthcare operator's financial condition and, therefore, could adversely affect
the ability of such operator to make rental payments.
Loss by a facility of its ability to participate in government
sponsored programs because of licensing, certification or accreditation
deficiencies or because of program exclusion resulting from violations of law
would have material adverse effects on facility revenues.
Legislative Developments
Each year, legislative proposals are introduced or proposed in Congress
and in some state legislatures that would effect major changes in the healthcare
system, either nationally or at the state level. Among the proposals under
consideration are cost controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. There can be no assurance whether any proposals will
be adopted or, if adopted, what effect, if any, such proposals would have on the
Company's business.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances
and regulations, an owner of real property (such as the Company) may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
at, under or disposed of in connection with such property, as well as certain
other potential costs relating to hazardous or toxic substances (including
government fines and injuries to persons and adjacent property). Most, if not
all, of these laws, ordinances and regulations contain stringent enforcement
provisions including, but not limited to, the authority to impose substantial
administrative, civil and criminal fines and penalties upon violators. Such laws
often impose liability without regard to whether the owner knew of, or was
responsible for, the presence or disposal of such substances and may be imposed
on the owner in connection with the activities of an operator of the property.
The cost of any required remediation, removal, fines or personal or property
damages and the owner's liability therefore could exceed the value of the
property and/or the aggregate assets of the owner. In addition, the presence of
such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or lease such
property or to borrow using such property as collateral.
A property can also be negatively impacted either through physical
contamination or by virtue of an adverse effect on value, from contamination
that has or may have emanated from other properties. Certain of the properties
owned by the Company or managed or developed by its property management
subsidiary are adjacent to or near properties that contain underground storage
tanks or that have released petroleum products or other hazardous or toxic
materials into the soils or groundwater.
Operations of the properties owned, developed or managed by the Company
are and will continue to be subject to numerous federal, state, and local
environmental laws, ordinances and regulations, including those relating to the
following: the generation, segregation, handling, packaging and disposal of
medical wastes; air quality requirements related to operations of
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<PAGE> 10
generators, incineration devices, or sterilization equipment; facility siting
and construction; disposal of non-medical wastes and ash from incinerators; and
underground storage tanks. Certain properties owned, developed or managed by the
Company contain, and others may contain or at one time may have contained,
underground storage tanks that are or were used to store waste oils, petroleum
products or other hazardous substances. Such underground storage tanks can be
the source of releases of hazardous or toxic materials. Operations of nuclear
medicine departments at some properties also involve the use and handling, and
subsequent disposal of, radioactive isotopes and similar materials, activities
which are closely regulated by the Nuclear Regulatory Commission and state
regulatory agencies. In addition, several of the properties were built during
the period asbestos was commonly used in building construction and other such
facilities may be acquired by the Company in the future. Certain of the
properties contain friable asbestos-containing materials, and other facilities
acquired in the future may contain friable and non-friable asbestos-containing
materials. The presence of such materials could result in significant costs in
the event that any friable asbestos-containing materials requiring immediate
removal and/or encapsulation are located in or on any facilities or in the event
of any future renovation activities.
The Company has had limited environmental site assessments conducted on
substantially all of the properties currently owned. These site assessments are
limited in scope and provide only an evaluation of potential environmental
conditions associated with the property, not compliance assessments of ongoing
operations. The Company is not aware of any environmental condition or liability
that management believes would have a material adverse effect on the Company's
earnings, expenditures or continuing operations. While it is the Company's
policy to seek indemnification relating to environmental liabilities or
conditions, even where sale and purchase agreements do contain such provisions
there can be no assurances that the seller will be able to fulfill its
indemnification obligations. In addition, the terms of the Company's leases or
financial support agreements do not give the Company control over the
operational activities of its lessees or health care operators, nor will the
Company monitor the lessees or healthcare operators with respect to
environmental matters.
INSURANCE
The Company maintains appropriate liability and casualty insurance on
its assets and operations. The Company has also obtained title insurance with
respect to each of the properties it owns in amounts equal to their respective
purchase prices, insuring that the Company holds title to each of the properties
free and clear of all liens and encumbrances except those approved by the
Company. Under their leases or financial support agreements, the healthcare
operators are required to maintain, at their expense, certain insurance
coverages relating to their operations at the leased facilities. In the opinion
of management of the Company, each of the properties owned by the Company is
adequately covered by hazard, liability and rent insurance.
EMPLOYEES
As of March 15, 2001, the Company employed 186 people. None of the
employees is a member of a labor union, and the Company considers its relations
with its employees to be excellent.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David R. Emery.................................. 56 Chairman of the Board, Chief Executive Officer
& President
Timothy G. Wallace.............................. 42 Executive Vice President & Chief Financial
Officer
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C>
Roger O. West................................... 56 Executive Vice President & General Counsel
</TABLE>
Mr. Emery formed the Company and has held his current positions since
May 1992. Prior to 1992, Mr. Emery was engaged in the development and management
of commercial real estate in Nashville, Tennessee. Mr. Emery has been active in
the real estate industry for 30 years.
Mr. Wallace has held executive positions with the Company since January
1993. Prior to joining the Company, he was a Senior Manager with responsibility
for healthcare and real estate in the Nashville, Tennessee office of Ernst &
Young LLP from June 1989 to January 1993.
Mr. West has held executive positions with the Company since May 1994.
Prior to joining the Company, he was a senior partner in the law firm of Geary,
Porter and West, P.C. in Dallas, Texas from July 1992 to May 1994. Mr. West has
extensive experience in the areas of corporate, tax and real estate law.
FEDERAL INCOME TAX INFORMATION
The Company is and intends to remain qualified as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's
net income which is distributed as dividends to shareholders will be exempt from
federal taxation. Distributions to the Company's shareholders generally will be
includable in their income; however, dividends distributed which are in excess
of current and/or accumulated earnings and profits will be treated for tax
purposes as a return of capital to the extent of a shareholder's basis and will
reduce the basis of shareholders' shares.
Introduction
The Company is qualified and intends to remain qualified as a REIT for
federal income tax purposes under Sections 856 through 860 of the Code. The
following discussion addresses the material tax considerations relevant to the
taxation of the Company and summarizes certain federal income tax consequences
that may be relevant to certain shareholders. However, the actual tax
consequences of holding particular securities issued by the Company may vary in
light of a prospective securities holder's particular facts and circumstances.
Certain holders, such as tax-exempt entities, insurance companies and financial
institutions, are generally subject to special rules. In addition, the following
discussion does not address issues under any foreign, state or local tax laws.
The tax treatment of a holder of any of the securities issued by the Company
will vary depending upon the terms of the specific securities acquired by such
holder, as well as his particular situation, and this discussion does not
attempt to address aspects of federal income taxation relating to holders of
particular securities of the Company. This summary is qualified in its entirety
by the applicable Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof. The Code, rules,
regulations, and administrative and judicial interpretations are all subject to
change (possibly on a retroactive basis).
The Company is organized and is operating in conformity with the
requirements for qualification and taxation as a REIT and intends to continue
operating so as to enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. The Company's qualification
and taxation as a REIT depend upon its ability to meet, through actual annual
operating results, the various income, asset, distribution, stock ownership and
other tests discussed below. Accordingly, the Company cannot guarantee that the
actual results of operations for any one taxable year will satisfy such
requirements.
If the Company were to cease to qualify as a REIT, and the relief
provisions were found not to apply, the Company's income that it distributed to
shareholders would be subject to the "double
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taxation" on earnings (once at the corporate level and again at the shareholder
level) that generally results from investment in a corporation. Failure to
maintain qualification as a REIT would force the Company to significantly reduce
its distributions and possibly incur substantial indebtedness or liquidate
substantial investments in order to pay the resulting corporate taxes. In
addition, the Company, once having obtained REIT status and having thereafter
lost such status, would not be eligible to reelect REIT status for the four
subsequent taxable years, unless its failure to maintain its qualification was
due to reasonable cause and not willful neglect and certain other requirements
were satisfied. In order to elect again to be taxed as a REIT, just as with its
original election, the Company would be required to distribute all of its
earnings and profits accumulated in any non-REIT taxable year.
Taxation of the Company
As long as the Company remains qualified to be taxed as a REIT, it
generally will not be subject to federal income taxes on that portion of its
ordinary income or capital gain that is currently distributed to shareholders.
However, the Company will be subject to federal income tax as follows:
- The Company will be taxed at regular corporate rates on any
undistributed "real estate investment trust taxable income,"
including undistributed net capital gains.
- Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if
any.
- If the Company has (i) net income from the sale or other
disposition of "foreclosure property" that is held primarily
for sale to customers in the ordinary course of business, or
(ii) other nonqualifying income from foreclosure property, it
will be subject to tax on such income at the highest corporate
rate.
- Any net income that the Company has from prohibited
transactions (which are, in general, certain sales or other
dispositions of property other than foreclosure property held
primarily for sale to customers in the ordinary course of
business) will be subject to a 100% tax.
- If the Company should fail to satisfy either the 75% or 95%
gross income test (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax
on the net income attributable to the greater of the amount by
which the Company fails the 75% or 95% gross income test.
- If the Company fails to distribute during each year at least
the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year,
and (iii) any undistributed taxable income from preceding
periods, then the Company will be subject to a four percent
excise tax on the excess of such required distribution over
the amounts actually distributed.
- To the extent that the Company recognizes gain from the
disposition of an asset with respect to which there existed
"built-in gain" upon its acquisition by the Company from a C
corporation in a carry-over basis transaction and such
disposition occurs within a ten-year recognition period
beginning on the date on which it was acquired by the Company,
the Company will be subject to federal income tax at the
highest regular corporate rate on the amount of its "net
recognized built-in gain."
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- To the extent that the Company has net income from a taxable
REIT subsidiary ("TRS"), the TRS will be subject to federal
corporate income tax in much the same manner as other non-REIT
C corporations, with the exceptions that the deductions for
debt and rental payments made by the TRS to the Company will
be limited and a 100% excise tax may be imposed on
transactions between the TRS and the Company or its tenants
that are not conducted on an arm's length basis. A TRS is a
corporation in which a REIT owns stock, directly or
indirectly, and for which both the REIT and the corporation
have made TRS elections.
Requirements for Qualification as a REIT
To qualify as a REIT for a taxable year under the Code, the Company
must have no earnings and profits accumulated in any non-REIT year. The Company
also must elect or have in effect an election to be taxed as a REIT and must
meet other requirements, some of which are summarized below, including
percentage tests relating to the sources of its gross income, the nature of the
Company's assets and the distribution of its income to shareholders. Such
election, if properly made and assuming continuing compliance with the
qualification tests described herein, will continue in effect for subsequent
years.
Organizational Requirements and Share Ownership Tests
Section 856(a) of the Code defines a REIT as a corporation, trust or
association:
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) which would be taxable, but for Sections 856 through 860 of
the Code, as a domestic corporation;
(4) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more
persons, determined without reference to any rules of
attribution (the "share ownership test");
(6) that during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) (the "five or
fewer test"); and
(7) which meets certain other tests, described below, regarding
the nature of its income and assets.
Section 856(b) of the Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of fewer than 12 months. The "five or fewer
test" and the share ownership test do not apply to the first taxable year for
which an election is made to be treated as a REIT.
The Company has issued sufficient shares to a sufficient number of
people to allow it to satisfy the share ownership test and the five or fewer
test. In addition, to assist in complying with the five or fewer test, the
Company's Articles of Incorporation contain provisions restricting share
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transfers where the transferee (other than specified individuals involved in the
formation of the Company, members of their families and certain affiliates, and
certain other exceptions) would, after such transfer, own (a) more than 9.9%
either in number or value of the outstanding common stock of the Company or (b)
more than 9.9% either in number or value of the outstanding preferred stock of
the Company. Pension plans and certain other tax-exempt entities have different
restrictions on ownership. If, despite this prohibition, stock is acquired
increasing a transferee's ownership to over 9.9% in value of either the
outstanding common stock of the Company or preferred stock of the Company, the
stock in excess of this 9.9% in value is deemed to be held in trust for transfer
at a price which does not exceed what the purported transferee paid for the
stock and, while held in trust, the stock is not entitled to receive dividends
or to vote. In addition, under these circumstances, the Company also has the
right to redeem such stock.
For purposes of determining whether the "five or fewer test" (but not
the "share ownership test") is met, any stock held by a qualified trust
(generally, pension plans, profit-sharing plans and other employee retirement
trusts) is, generally, treated as held directly by the trust's beneficiaries in
proportion to their actuarial interests in the trust, and not as held by the
trust.
Income Tests
In order to maintain qualification as a REIT, two gross income
requirements must be satisfied annually.
- First, at least 75% of the Company's gross income (excluding
gross income from certain sales of property held primarily for
sale) must be derived directly or indirectly from investments
relating to real property (including "rents from real
property") or mortgages on real property. When the Company
receives new capital in exchange for its shares (other than
dividend reinvestment amounts) or in a public offering of debt
instruments with maturities of five years or longer, income
attributable to the temporary investment of such new capital,
if received or accrued within one year of the Company's
receipt of the new capital, is qualifying income under the 75%
test.
- Second, at least 95% of the Company's gross income (excluding
gross income from certain sales of property held primarily for
sale) must be derived from such real property investments,
dividends, interest, certain payments under interest rate swap
or cap agreements, and gain from the sale or other disposition
of stock, securities not held for sale in the ordinary course
of business or from any combination of the foregoing.
The Company may temporarily invest its working capital in short-term
investments. Although the Company will use its best efforts to ensure that its
income generated by these investments will be of a type which satisfies the 75%
and 95% gross income tests, there can be no assurance in this regard (see the
discussion above of the "new capital" rule under the 75% gross income test). The
Company has analyzed its gross income through December 31, 2000 and has
determined that it has met the 75% and 95% gross income tests.
In order to qualify as "rents from real property," the amount of rent
received must not be based on the income or profits of any person, but may be
based on a fixed percentage or percentages of receipts or sales. The Code also
provides that the rents will not qualify as "rents from real property," in
satisfying the gross income tests, if the REIT owns ten percent or more of the
tenant, whether directly or under certain attribution rules. The Company leases
and intends to lease property only under circumstances such that substantially
all, if not all, rents from such property qualify as "rents from real property."
Although it is possible that a tenant could sublease space to a sublessee in
which the Company is deemed to own directly or indirectly ten percent or more of
the tenant, the Company believes that as a result of the provisions of the
Company's Articles of Incorporation that limit ownership to 9.9%, such
occurrence would be unlikely. Application of the ten
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percent ownership rule is, however, dependent upon complex attribution rules
provided in the Code and circumstances beyond the control of the Company.
Ownership, directly or by attribution, by an unaffiliated third party of more
than ten percent of the Company's stock and more than ten percent of the stock
of any tenant or subtenant would result in a violation of the rule.
In order to qualify as "interest on obligations secured by mortgages on
real property," the amount of interest received must not be based on the income
or profits of any person, but may be based on a fixed percentage or percentages
of receipts or sales.
In addition, the Company must not manage its properties or furnish or
render services to the tenants of its properties, except through an independent
contractor from whom the Company derives no income unless (i) the Company is
performing services which are usually or customarily furnished or rendered in
connection with the rental of space for occupancy only and the services are of
the sort that a tax-exempt organization could perform without being considered
in receipt of unrelated business taxable income or (ii) the income earned by the
Company for other services furnished or rendered by the Company to tenants of a
property or for the management or operation of the property does not exceed a de
minimis threshold generally equal to 1% of the income from such property. The
Company self-manages some of its properties, but does not believe it provides
services to tenants which are outside the exception.
If rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Generally, this 15% test is applied
separately to each lease. The portion of rental income treated as attributable
to personal property is determined according to the ratio of the fair market
value of the personal property to the total fair market value of the property
which is rented. The determination of what fixtures and other property
constitute personal property for federal tax purposes is difficult and
imprecise. The Company does not have 15% by value of any of its properties
classified as personal property. If, however, rent payments do not qualify, for
reasons discussed above, as rents from real property for purposes of Section 856
of the Code, it will be more difficult for the Company to meet the 95% and 75%
gross income tests and continue to qualify as a REIT.
The Company is and expects to continue performing third-party
management and development services. If the gross income to the Company from
this or any other activity producing disqualified income for purposes of the 95%
or 75% gross tests approaches a level that could potentially cause the Company
to fail to satisfy these tests, the Company intends to take such corrective
action as may be necessary to avoid failing to satisfy the 95% or 75% gross
income tests.
If the Company were to fail to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is entitled to relief under certain provisions of the Code.
These relief provisions would generally be available if the Company's failure to
meet such test or tests was due to reasonable cause and not to willful neglect,
if the Company attaches a schedule of the sources of its income to its return,
and if any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to know whether the Company
would be entitled to the benefit of these relief provisions since the
application of the relief provisions is dependent on future facts and
circumstances. If these provisions were to apply, the Company would be subjected
to tax equal to 100% of the net income attributable to the greater of the amount
by which the Company failed either the 75% or the 95% gross income test.
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Asset Tests
At the close of each quarter of its taxable year, the Company must also
satisfy four tests relating to the nature of its assets.
- At least 75% of the value of the Company's total assets must
consist of real estate assets (including interests in real
property and interests in mortgages on real property as well
as its allocable share of real estate assets held by joint
ventures or partnerships in which the Company participates),
cash, cash items and government securities.
- Not more than 25% of the Company's total assets may be
represented by securities other than those includable in the
75% asset class.
- Not more than 20% of the Company's total assets may be
represented by securities of affiliated taxable REIT
subsidiaries.
- Of the investments included in the 25% asset class, except for
TRS, the value of any one issuer's securities owned by the
Company may not exceed five percent of the value of the
Company's total assets, and the Company may not own more than
ten percent of any one issuer's outstanding voting securities.
Securities issued by affiliated qualified REIT subsidiaries
("QRS"), which are corporations wholly owned by the Company,
either directly or indirectly, that are not TRS, are not
subject to the 25% of total assets limit, the five percent of
total assets limit or the ten percent of a single issuer's
voting securities limit. The existence of QRS are ignored and
the QRS' assets, income, gain, loss and other attributes are
treated as being owned or generated by the Company for federal
income tax purposes. The Company currently has 46 subsidiaries
and other affiliates which it employs in the conduct of its
business.
If the Company meets the 25% requirement at the close of any quarter,
it will not lose its status as a REIT because of a change in value of its assets
unless the discrepancy exists immediately after the acquisition of any security
or other property which is wholly or partly the result of an acquisition during
such quarter. Where a failure to satisfy the 25% asset test results from an
acquisition of securities or other property during a quarter, the failure can be
cured by disposition of sufficient nonqualifying assets within 30 days after the
close of such quarter. The Company maintains adequate records of the value of
its assets to maintain compliance with the 25% asset test and to take such
action as may be required to cure any failure to satisfy the test within 30 days
after the close of any quarter.
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
equal to or greater than the excess of (A) the sum of (i) 90% of the Company's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 90% of the
net income, if any, (after tax) from foreclosure property, over (B) the sum of
certain non-cash income (from certain imputed rental income and income from
transactions inadvertently failing to qualify as like-kind exchanges). These
requirements may be waived by the Internal Revenue Service ("IRS") if the
Company establishes that it failed to meet them by reason of distributions
previously made to meet the requirements of the four percent excise tax
described below. To the extent that the Company does not distribute all of its
net long-term capital gain and all of its "real estate investment trust taxable
income," it will be subject to tax thereon. In addition, the Company will be
subject to a four percent excise tax to the extent it fails within a calendar
year to make "required distributions" to its shareholders of 85% of its ordinary
income and 95% of its capital gain net income plus the excess, if any, of the
"grossed up required distribution" for the preceding calendar year over the
amount treated as distributed for such preceding calendar year. For this
purpose, the term "grossed up required distribution" for any calendar year is
the sum of the taxable income of the Company for
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the taxable year (without regard to the deduction for dividends paid) and all
amounts from earlier years that are not treated as having been distributed under
the provision. Dividends declared in the last quarter of the year and paid
during the following January will be treated as having been paid and received on
December 31 of such earlier year. The Company's distributions for 2000 were
adequate to satisfy its distribution requirement.
It is possible that the Company, from time to time, may have
insufficient cash or other liquid assets to meet the 90% distribution
requirement due to timing differences between the actual receipt of income and
the actual payment of deductible expenses or dividends on the one hand and the
inclusion of such income and deduction of such expenses or dividends in arriving
at "real estate investment trust taxable income" on the other hand. The problem
of not having adequate cash to make required distributions could also occur as a
result of the repayment in cash of principal amounts due on the Company's
outstanding debt, particularly in the case of "balloon" repayments or as a
result of capital losses on short-term investments of working capital.
Therefore, the Company might find it necessary to arrange for short-term, or
possibly long-term, borrowing or new equity financing. If the Company were
unable to arrange such borrowing or financing as might be necessary to provide
funds for required distributions, its REIT status could be jeopardized.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company may in certain circumstances remain liable for the four
percent excise tax described above.
The Company is also required to request annually (within 30 days after
the close of its taxable year) from record holders of specified percentages of
its shares written information regarding the ownership of such shares. A list of
shareholders failing to fully comply with the demand for the written statements
is required to be maintained as part of the Company's records required under the
Code. Rather than responding to the Company, the Code allows the shareholder to
submit such statement to the IRS with the shareholder's tax return.
Nonqualified REIT Subsidiaries
The Company has participated in the organization of certain
corporations affiliated with the Company that are not qualified REIT
subsidiaries ("Specified Affiliates") to enhance its management flexibility. Tax
law in effect through the year 2000 restricted the ability of REITs to engage in
certain activities, such as certain third party management activities, but these
did not apply to the activities of a company that is not a REIT, such as these
Specified Affiliates, whose income was subject to federal income tax.
In order to permit the Company to participate in the income of its
third party management business and maintain its status as a REIT, portions of
the Company's business were conducted by the Specified Affiliates. The Company
owns approximately 1% of the voting common stock, and senior executives of the
Company own 99% of the voting common stock of the Specified Affiliates. The
voting common stock held by the senior executives of the Company in the
Specified Affiliates is subject to agreements that are designed to ensure that
such stock will be held by officers of the Company.
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Effective January 1, 2001, the Specified Affiliates became taxable REIT
subsidiaries by election of the Company and the Specified Affiliates.
Federal Income Tax Treatment of Leases
The availability to the Company of, among other things, depreciation
deductions with respect to the facilities owned and leased by the Company
depends upon the treatment of the Company as the owner of the facilities and the
classification of the leases of the facilities as true leases, rather than as
sales or financing arrangements, for federal income tax purposes. The Company
has not requested nor has it received an opinion that it will be treated as the
owner of the portion of the facilities constituting real property and that the
leases will be treated as true leases of such real property for federal income
tax purposes.
Other Issues
With respect to property acquired from and leased back to the same or
an affiliated party, the IRS could assert that the Company realized prepaid
rental income in the year of purchase to the extent that the value of the leased
property exceeds the purchase price paid by the Company for that property. In
litigated cases involving sale-leasebacks which have considered this issue,
courts have concluded that buyers have realized prepaid rent where both parties
acknowledged that the purported purchase price for the property was
substantially less than fair market value and the purported rents were
substantially less than the fair market rentals. Because of the lack of clear
precedent and the inherently factual nature of the inquiry, the Company cannot
give complete assurance that the IRS could not successfully assert the existence
of prepaid rental income in such circumstances. The value of property and the
fair market rent for properties involved in sale-leasebacks are inherently
factual matters and always subject to challenge.
Additionally, it should be noted that Section 467 of the Code
(concerning leases with increasing rents) may apply to those leases of the
Company which provide for rents that increase from one period to the next.
Section 467 provides that in the case of a so-called "disqualified leaseback
agreement," rental income must be accrued at a constant rate. If such constant
rent accrual is required, the Company would recognize rental income in excess of
cash rents and, as a result, may fail to have adequate funds available to meet
the 90% dividend distribution requirement. "Disqualified leaseback agreements"
include leaseback transactions where a principal purpose of providing increasing
rent under the agreement is the avoidance of federal income tax. Since the
Section 467 regulations provide that rents will not be treated as increasing for
tax avoidance purposes where the increases are based upon a fixed percentage of
lessee receipts, additional rent provisions of leases containing such clauses
should not result in these leases being disqualified leaseback agreements. In
addition, the Section 467 regulations provide that leases providing for
fluctuations in rents by no more than a reasonable percentage, 15% for long-term
real property leases, from the average rent payable over the term of the lease
will be deemed to not be motivated by tax avoidance. The Company does not
believe it has rent subject to the disqualified leaseback provisions of Section
467.
Subject to a safe harbor exception for annual sales of up to seven
properties (or properties with a basis of up to 10% of the REIT's assets) that
have been held for at least four years, gain from sales of property held for
sale to customers in the ordinary course of business is subject to a 100% tax.
The simultaneous exercise of options to acquire leased property that may be
granted to certain tenants or other events could result in sales of properties
by the Company that exceed this safe harbor. However, the Company believes that
in such event, it will not have held such properties for sale to customers in
the ordinary course of business.
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Depreciation of Properties
For tax purposes, the Company's real property is being depreciated over
31.5, 39 or 40 years using the straight-line method of depreciation and its
personal property over various periods utilizing accelerated and straight-line
methods of depreciation.
Failure to Qualify as a REIT
If the Company were to fail to qualify for federal income tax purposes
as a REIT in any taxable year, and the relief provisions were found not to
apply, the Company would be subject to tax on its taxable income at regular
corporate rates (plus any applicable alternative minimum tax). Distributions to
shareholders in any year in which the Company failed to qualify would not be
deductible by the Company nor would they be required to be made. In such event,
to the extent of current and/or accumulated earnings and profits, all
distributions to shareholders would be taxable as ordinary income and, subject
to certain limitations in the Code, eligible for the 70% dividends received
deduction for corporate shareholders. Unless entitled to relief under specific
statutory provisions, the Company would also be disqualified from taxation as a
REIT for the following four taxable years. It is not possible to state whether
in all circumstances the Company would be entitled to statutory relief from such
disqualification. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent borrowings were
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
"unrelated business taxable income," even though the REIT may have financed
certain of its activities with acquisition indebtedness. Although revenue
rulings are interpretive in nature and are subject to revocation or modification
by the IRS, based upon the revenue ruling and the analysis therein,
distributions made by the Company to a U.S. shareholder that is a tax-exempt
entity (such as an individual retirement account ("IRA") or a 401(k) plan)
should not constitute unrelated business taxable income unless such tax-exempt
U.S. shareholder has financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code, or the shares are otherwise used
in an unrelated trade or business conducted by such U.S. shareholder.
Special rules apply to certain tax-exempt pension funds (including
401(k) plans but excluding IRAs or government pension plans) that own more than
10% (measured by value) of a "pension-held REIT" at any time during a taxable
year beginning after December 31, 1993. Such a pension fund may be required to
treat a certain percentage of all dividends received from the REIT during the
year as unrelated business taxable income. The percentage is equal to the ratio
of the REIT's gross income (less direct expenses related thereto) derived from
the conduct of unrelated trades or businesses determined as if the REIT were a
tax-exempt pension fund, to the REIT's gross income (less direct expenses
related thereto) from all sources. The special rules will not apply to require a
pension fund to recharacterize a portion of its dividends as unrelated business
taxable income unless the percentage computed is at least 5%.
A REIT will be treated as a "pension-held REIT" if the REIT is
predominantly held by tax-exempt pension funds and if the REIT would otherwise
fail to satisfy the "five or fewer test" discussed above, if the stock or
beneficial interests of the REIT held by such tax-exempt pension funds were not
treated as held directly by their respective beneficiaries. A REIT is
predominantly held by tax-exempt pension funds if at least one tax-exempt
pension fund holds more than 25% (measured by value) of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension funds (each of which
owns more than 10% (measured by value) of the REIT's stock or beneficial
interests) own in the aggregate more than 50% (measured by value) of the REIT's
stock or beneficial
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interests. The Company believes that it will not be treated as a pension-held
REIT. However, because the shares of the Company will be publicly traded, no
assurance can be given that the Company is not or will not become a pension-held
REIT.
Taxation of Non-U.S. Shareholders
The rules governing United States federal income taxation of any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created in the United States or under the laws of the United States
or of any state thereof, (iii) an estate whose income is includable in income
for U.S. federal income tax purposes regardless of its source or (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States fiduciaries have
the authority to control all substantial decisions of the trust ("Non-U.S.
Shareholders") are highly complex, and the following discussion is intended only
as a summary of such rules. Prospective Non-U.S. Shareholders should consult
with their own tax advisors to determine the impact of United States federal,
state, and local income tax laws on investment in stock of the Company,
including any reporting requirements.
In general, Non-U.S. Shareholders are subject to regular United States
income tax with respect to their investment in stock of the Company in the same
manner as a U.S. shareholder if such investment is "effectively connected" with
the Non-U.S. Shareholder's conduct of a trade or business in the United States.
A corporate Non-U.S. Shareholder that receives income with respect to its
investment in stock of the Company that is (or is treated as) effectively
connected with the conduct of a trade or business in the United States also may
be subject to the 30% branch profits tax imposed by the Code, which is payable
in addition to regular United States corporate income tax. The following
discussion addresses only the United States taxation of Non-U.S. Shareholders
whose investment in stock of the Company is not effectively connected with the
conduct of a trade or business in the United States.
Ordinary Dividends
Distributions made by the Company that are not attributable to gain
from the sale or exchange by the Company of United States real property
interests and that are not designated by the Company as capital gain dividends
will be treated as ordinary income dividends to the extent made out of current
or accumulated earnings and profits of the Company. Generally, such ordinary
income dividends will be subject to United States withholding tax at the rate of
30% on the gross amount of the dividend paid unless reduced or eliminated by an
applicable United States income tax treaty. The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless a lower treaty rate applies and
the Non-U.S. Shareholder has filed an IRS Form 1001 with the Company, certifying
the Non-U.S. Shareholder's entitlement to treaty benefits.
Non-Dividend Distributions
Distributions made by the Company in excess of its current and
accumulated earnings and profits to a Non-U.S. Shareholder who holds 5% or less
of the stock of the Company (after application of certain ownership rules) will
not be subject to U.S. income or withholding tax. If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of the Company's current and accumulated earnings and profits, the
distribution will be subject to withholding at the rate applicable to a dividend
distribution. However, the Non-U.S. Shareholder may seek a refund from the IRS
of any amount withheld if it is subsequently determined that such distribution
was, in fact, in excess of the Company's then current and accumulated earnings
and profits.
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Capital Gain Dividends
As long as the Company continues to qualify as a REIT, distributions
made by the Company that are attributable to gain from the sale or exchange by
the Company of any United States real property interests ("USRPI") will be taxed
to a Non-U.S. Shareholder under the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Shareholder as if such distributions were gains "effectively connected" with the
conduct of a trade or business in the United States. Accordingly, a Non-U.S.
Shareholder will be taxed on such distributions at the same capital gain rates
applicable to U.S. Shareholders (subject to any applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Distributions subject to FIRPTA also may be subject to the 30%
branch profits tax in the case of a corporate Non-U.S. Shareholder that is not
entitled to treaty relief or exemption. The Company will be required to withhold
tax from any distribution to a Non-U.S. Shareholder that could be designated by
the Company as a USRPI capital gain dividend in an amount equal to 35% of the
gross distribution. The amount of tax withheld is fully creditable against the
Non-U.S. Shareholder's FIRPTA tax liability, and if such amount exceeds the
Non-U.S. Shareholder's federal income tax liability for the applicable taxable
year, the Non-U.S. Shareholder may seek a refund of the excess from the IRS. In
addition, if the Company designates prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding.
Disposition of Stock of the Company
Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
stock of the Company generally will not be subject to United States taxation
unless such stock constitutes a USRPI within the meaning of FIRPTA. The stock of
the Company will not constitute a USRPI so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock or beneficial interests are held directly or indirectly by Non-U.S.
Shareholders. The Company believes that it will be a "domestically controlled
REIT," and therefore that the sale of stock of the Company will not be subject
to taxation under FIRPTA. However, because the stock of the Company is publicly
traded, no assurance can be given that the Company is or will continue to be a
"domestically controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of stock of the Company that is not otherwise subject to FIRPTA
will be taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States. In such
case, the nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.
If the Company did not constitute a "domestically controlled REIT,"
gain arising from the sale or exchange by a Non-U.S. Shareholder of stock of the
Company would be subject to United States taxation under FIRPTA as a sale of a
USRPI unless (i) the stock of the Company is "regularly traded" (as defined in
the applicable Treasury regulations) and (ii) the selling Non-U.S. Shareholder's
interest (after application of certain constructive ownership rules) in the
Company is 5% or less at all times during the five years preceding the sale or
exchange. If gain on the sale or exchange of the stock of the Company were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
regular United States income tax with respect to such gain in the same manner as
a U.S. Shareholder (subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the stock of the Company (including the
Company) would be required to withhold and remit to the IRS 10% of the purchase
price. Additionally, in such case, distributions on the stock of the Company to
the extent they represent a return of capital or capital gain from the sale of
the stock of the Company, rather than dividends, would be subject to a 10%
withholding tax.
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<PAGE> 22
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in two cases:
- if the Non-U.S. Shareholder's investment in the stock of the
Company is effectively connected with a U.S. trade or business
conducted by such Non-U.S. Shareholder, the Non-U.S.
Shareholder will be subject to the same treatment as a U.S.
shareholder with respect to such gain, or
- if the Non-U.S. Shareholder is a nonresident alien individual
who was present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United
States, the nonresident alien individual will be subject to a
30% tax on the individual's capital gain.
Information Reporting Requirements and Backup Withholding Tax
The Company will report to its U.S. shareholders and to the IRS the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
U.S. shareholder may be subject to backup withholding, at the rate of 31% on
dividends paid unless such U.S. shareholder
- is a corporation or falls within certain other exempt
categories and, when required, can demonstrate this fact, or
- provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup
withholding rules. A U.S. shareholder who does not provide the
Company with his correct taxpayer identification number also
may be subject to penalties imposed by the IRS. Any amount
paid as backup withholding will be creditable against the U.S.
shareholder's federal income tax liability. In addition, the
Company may be required to withhold a portion of any capital
gain distributions made to U.S. shareholders who fail to
certify their non-foreign status to the Company.
Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders, and Non-U.S.
Shareholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements.
State and Local Taxes
The Company and its shareholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective holders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the stock of the Company.
Real Estate Investment Trust Tax Proposals
Although there is no current legislation pending specifically addressed
at REITs, investors must recognize that the present federal income tax treatment
of the Company may be modified by future legislative, judicial or administrative
actions or decisions at any time, which may be retroactive in effect, and, as a
result, any such action or decision may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and by the IRS in
the Treasury Department, resulting in statutory changes as well as promulgation
of new, or revisions to existing, regulations
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<PAGE> 23
and revised interpretations of established concepts. No prediction can be made
as to the likelihood as to passage of any new tax legislation or other
provisions either directly or indirectly affecting the Company or its
shareholders.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under
ERISA and the prohibited transaction provisions of Section 4975 of the Code that
may be relevant to a holder of stock of the Company. This discussion does not
propose to deal with all aspects of ERISA or Section 4975 of the Code or, to the
extent not preempted, state law that may be relevant to particular employee
benefit plan shareholders (including plans subject to Title I of ERISA, other
employee benefit plans and IRAs subject to the prohibited transaction provisions
of Section 4975 of the Code, and governmental plans and church plans that are
exempt from ERISA and Section 4975 of the Code but that may be subject to state
law requirements) in light of their particular circumstances.
A fiduciary making the decision to invest in stock of the Company on
behalf of a prospective purchaser which is an ERISA plan, a tax-qualified
retirement plan, an IRA or other employee benefit plan is advised to consult its
own legal advisor regarding the specific considerations arising under ERISA,
Section 4975 of the Code, and (to the extent not preempted) state law with
respect to the purchase, ownership or sale of stock by such plan or IRA.
Employee Benefit Plans, Tax-qualified Retirement Plans and IRAs
Each fiduciary of an employee benefit plan subject to Title I of ERISA
(an "ERISA Plan") should carefully consider whether an investment in stock of
the Company is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require (i)
an ERISA Plan's investments to be prudent and in the best interests of the ERISA
Plan, its participants and beneficiaries, (ii) an ERISA Plan's investments to be
diversified in order to reduce the risk of large losses, unless it is clearly
prudent not to do so, (iii) an ERISA Plan's investments to be authorized under
ERISA and the terms of the governing documents of the ERISA Plan and (iv) that
the fiduciary not cause the ERISA Plan to enter into transactions prohibited
under Section 406 of ERISA. In determining whether an investment in stock of the
Company is prudent for purposes of ERISA, the appropriate fiduciary of an ERISA
Plan should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's portfolio for
which the fiduciary has investment responsibility, to meet the objectives of the
ERISA Plan, taking into consideration the risk of loss and opportunity for gain
(or other return) from the investment, the diversification, cash flow and
funding requirements of the ERISA Plan and the liquidity and current return of
the ERISA Plan's portfolio. A fiduciary should also take into account the nature
of the Company's business, the length of the Company's operating history and
other matters described below under "Cautionary Statements".
The fiduciary of an IRA or of an employee benefit plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA Plan") should consider that such an
IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.
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<PAGE> 24
STATUS OF THE COMPANY UNDER ERISA
A prohibited transaction may occur if the assets of the Company are
deemed to be assets of the investing Plans and "parties in interest" or
"disqualified persons" as defined in ERISA and Section 4975 of the Code,
respectively, deal with such assets. In certain circumstances where a Plan holds
an interest in an entity, the assets of the entity are deemed to be Plan assets
(the "look-through rule"). Under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is a Plan fiduciary. Plan assets are not defined in ERISA or the Code,
but the United States Department of Labor issued regulations in 1987 (the
"Regulations") that outline the circumstances under which a Plan's interest in
an entity will be subject to the look-through rule.
The Regulations apply only to the purchase by a Plan of an "equity
interest" in an entity, such as common stock or common shares of beneficial
interest of a REIT. However, the Regulations provide an exception to the
look-through rule for equity interests that are "publicly-offered securities."
Under the Regulations, a "publicly-offered security" is a security that
is (i) freely transferable, (ii) part of a class of securities that is
widely-held and (iii) either (a) part of a class of securities that is
registered under section 12(b) or 12(g) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or (b) sold to a Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
longer period allowed by the Securities and Exchange Commission) after the end
of the fiscal year of the issuer during which the offering of such securities to
the public occurred. Whether a security is considered "freely transferable"
depends on the facts and circumstances of each case. Generally, if the security
is part of an offering in which the minimum investment is $10,000 or less, any
restriction on or prohibition against any transfer or assignment of such
security for the purposes of preventing a termination or reclassification of the
entity for federal or state tax purposes will not of itself prevent the security
from being considered freely transferable. A class of securities is considered
"widely-held" if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another.
The Company believes that the stock of the Company will meet the
criteria of the publicly-offered securities exception to the look-through rule
in that the stock of the Company is freely transferable, the minimum investment
is less than $10,000 and the only restrictions upon its transfer are those
required under federal income tax laws to maintain the Company's status as a
REIT. Second, stock of the Company is held by 100 or more investors and at least
100 or more of these investors are independent of the Company and of one
another. Third, the stock of the Company has been and will be part of offerings
of securities to the public pursuant to an effective registration statement
under the Securities Act and will be registered under the Exchange Act within
120 days after the end of the fiscal year of the Company during which an
offering of such securities to the public occurs. Accordingly, the Company
believes that if a Plan purchases stock of the Company, the Company's assets
should not be deemed to be Plan assets and, therefore, that any person who
exercises authority or control with respect to the Company's assets should not
be treated as a Plan fiduciary for purposes of the prohibited transaction rules
of ERISA and Section 4975 of the Code.
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<PAGE> 25
CAUTIONARY STATEMENTS
This Annual Report on Form 10-K and other materials the Company has
filed or may file with the Securities and Exchange Commission, as well as
information included in oral statements or other written statements made, or to
be made, by senior management of the Company, contain, or will contain,
disclosures which are "forward-looking statements." Forward-looking statements
include all statements that do not relate solely to historical or current facts
and can be identified by the use of words such as "may," "will," "expect,"
"believe," "intend," "plan," "estimate," "project," "continue," "should" and
other comparable terms. These forward-looking statements are based on the
current plans and expectations of management and are subject to a number of
risks and uncertainties, including those set forth below, that could
significantly affect the Company's current plans and expectations and future
financial condition and results. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Shareholders and investors are
cautioned not to unduly rely on such forward-looking statements when evaluating
the information presented in the Company's filings and reports.
RISKS RELATED TO THE COMPANY'S GENERAL GROWTH STRATEGY
The Company follows a general growth strategy of providing integrated
real estate services to the healthcare industry, including the following:
- Asset management and strategic planning for real estate;
- Property administration, management and leasing services;
- Build-to-suit development of healthcare properties;
- The acquisition of existing healthcare properties; and
- Equity co-investment in healthcare provider acquisition
transactions.
By providing these services, the Company believes it can differentiate
its market position, acquire needed capital, expand its asset base and increase
revenue. The Company believes, however, that there are various risks inherent in
this growth strategy. The following factors, among others, could affect the
Company's ability to grow, and investors should consider them carefully.
THE COMPANY PRESENTLY HAS LIMITED ACCESS TO CAPITAL WHICH WILL SLOW THE
COMPANY'S GROWTH.
A REIT is required to make dividend distributions and retains little
capital for growth. As a result, a REIT is required to grow through the steady
investment of new capital in real estate assets. From 1992 until late 1998, the
REIT industry was in an expansion mode, and capital was readily available to
REITs. By the end of 1999, however, market valuations of REIT shares (including
the Company's shares) had declined substantially with the result that the
Company presently has limited access to capital from the equity market.
Virtually all of the Company's available capital in 2001 will be used to meet
existing commitments and to reduce debt. The Company will require additional
capital to acquire healthcare properties. The Company may not be able to obtain
additional equity or debt capital or dispose of assets at the time it requires
additional capital. Moreover, the Company may not be able to obtain capital on
terms that will permit it to acquire healthcare properties on a competitive
basis.
THE COMPANY MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL OR DISPOSE OF
ASSETS AT THE TIME IT REQUIRES THE FUNDS TO PAY ITS OBLIGATIONS.
The Company currently has substantial bank and institutional
indebtedness with significant payments due in 2001. The Company may also be
required to borrow money and mortgage its properties to fund any shortfall of
cash necessary to meet cash distribution requirements necessary to maintain its
REIT status. The Company anticipates that it will be able to obtain such
financing, as needed; however, if the Company is unable to obtain sufficient
funds within the necessary time periods, it will default on its obligations.
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<PAGE> 26
THERE IS CONSIDERABLE COMPETITION IN THE COMPANY'S MARKET.
The Company competes for property management, development and new
purchases with, among others:
- Investors;
- Healthcare providers;
- Other healthcare related real estate investment trusts;
- Real estate partnerships; and
- Financial institutions.
Competition for attractive investments results in investment pressure
on the Company. The Company intends to adhere to its established acquisition
standards; however, increased competition for such assets from other REITs and
traditional and non-traditional equity and debt capital sources may affect the
growth and financial return of the Company. The Company's properties are also
subject to competition from the properties of other healthcare providers, some
of which have greater capital resources than the providers leasing the Company's
facilities. All of the Company's properties operate in a competitive environment
and patients and referral sources, including physicians, may change their
preferences for a healthcare facility from time to time.
FAILURE OF THE COMPANY TO MAINTAIN OR INCREASE ITS DIVIDEND COULD
REDUCE THE MARKET PRICE OF THE COMPANY'S STOCK WHICH COULD MAKE IT DIFFICULT FOR
THE COMPANY TO RAISE ADDITIONAL EQUITY CAPITAL ON FAVORABLE TERMS, IF AT ALL.
The Company has raised its quarterly dividend each consecutive quarter
since the Company's initial public offering. The ability to maintain or raise
its dividend is dependent, to a large part, on growth of funds from operations.
This growth in turn depends upon increased revenues from additional investments,
rental increases and income from administrative and management services.
DEVELOPMENT FUNDING INVOLVES GREATER RISKS THAN ARE ASSOCIATED WITH THE
PURCHASE AND LEASE-BACK OF OPERATING PROPERTIES.
Development funding arrangements require the Company to provide the
funding to enable healthcare operators to build facilities on property owned or
leased by the Company. If the developer or contractor fails to complete the
project under the terms of the development agreement, the Company would be
forced to become involved in the development to ensure completion or the Company
would lose the property.
TRANSFERS OF OPERATIONS OF HEALTHCARE FACILITIES ARE SUBJECT TO
REGULATORY APPROVALS NOT REQUIRED FOR TRANSFERS OF OTHER TYPES OF COMMERCIAL
OPERATIONS AND REAL ESTATE.
Many of the Company's properties are special-purpose facilities that
may not be easily adaptable to uses unrelated to healthcare.
RISKS RELATED TO GROWTH OF REVENUE AND FUNDS FROM OPERATIONS
The Company's general growth strategy requires continuing growth in the
Company's funds from operations which could be negatively affected by the
following factors:
OPERATORS OF SENIOR LIVING ASSETS HAVE COME UNDER INCREASED FINANCIAL
PRESSURE WHICH MAY AFFECT THEIR ABILITY TO MEET THEIR OBLIGATIONS TO THE
COMPANY.
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<PAGE> 27
Due to increased competition in the senior living assets sector,
operators of senior living facilities have come under increased financial
pressure; additionally, the implementation of the "prospective payment system"
for Medicare reimbursement has increased pressure on these operators. As a
result of the Capstone merger, the Company's portfolio of senior living
facilities increased substantially. Since the Capstone merger, several senior
living facility operators have declared bankruptcy. The Company cannot be
certain that additional operator failures in this sector will not occur.
THE INVESTMENT RETURNS AVAILABLE FROM EQUITY INVESTMENTS IN REAL ESTATE
DEPEND LARGELY ON THE AMOUNT OF INCOME EARNED AND CAPITAL APPRECIATION GENERATED
BY THE RELATED PROPERTIES, AS WELL AS THE EXPENSES INCURRED.
Real property investments are generally subject to varying degrees of
risk. To offset the threat of insufficient revenue to meet operating expenses,
debt service, capital expenditures and dividend payments, the Company requires
net master leases or similar financial support with primary term periods for
most of its investments. Nevertheless, the Company's properties are subject to
all of the normal risks associated with real estate investments.
ADVERSE TRENDS IN HEALTHCARE PROVIDER OPERATIONS CAN NEGATIVELY AFFECT
THE LEASE REVENUES AND VALUES OF THE COMPANY'S INVESTMENTS.
The healthcare service industry continues to be a profitable, growing
segment of the economy, supported by fundamentals that ensure continued growth.
However, the industry is currently experiencing:
- Substantial changes in the method of delivery of healthcare
services;
- Rising competition among healthcare providers for patients;
- Continuing pressure by private and governmental payors; and
- Increased scrutiny by federal and state authorities.
The changes can affect the economic performance of some or all of the tenants
and sponsors who provide financial support to the Company's investments and, in
turn, the lease revenues and the value of the Company's property investments.
THE COMPANY'S CONCENTRATION ON A FEW HEALTHCARE PROVIDERS WOULD MAGNIFY
THE NEGATIVE EFFECT ON THE COMPANY IF A LARGER PROVIDER WERE TO SUFFER FINANCIAL
HARDSHIPS.
Currently, 49% of the Company's real estate portfolio, including
mortgages, is leased to, or supported by its five largest healthcare provider
clients. To varying degrees, these providers have experienced the pressures
listed above. Any financial problems experienced by these providers would
negatively impact the support arrangements that the Company has with these
providers and require the Company to rely solely upon rental revenue from
occupant tenants. If the Company is required to rely solely upon tenant
occupants with respect to one or more properties, it will experience the typical
risks associated with real estate investments enjoying no supplemental credit
support, including competition for individual tenants and the renewal or
roll-over of existing leases.
IF THE INPATIENT OCCUPANCY RATE AT A HOSPITAL NEAR A COMPANY FACILITY
DETERIORATED TO A LEVEL AT WHICH OPERATING CASH FLOWS WOULD BE INSUFFICIENT TO
COVER THE PAYMENTS TO THE COMPANY, THE COMPANY WOULD HAVE TO RELY UPON THE
GENERAL CREDIT OF THE PROVIDER OR THE RELATED GUARANTOR, IF ANY.
Most of the hospitals adjacent to or associated with the Company's
current properties and those to be acquired by the Company are substantially
less than fully occupied on an inpatient basis.
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<PAGE> 28
Despite such occupancy rates, however, the operating cash flow produced by such
hospitals adequately covers payments to the Company.
IF A PROVIDER LOST ITS LICENSURE OR CERTIFICATION, THE COMPANY WOULD
HAVE TO OBTAIN ANOTHER PROVIDER FOR THE AFFECTED FACILITY.
Healthcare providers are subject to federal and state laws and
regulations which govern financial and other arrangements between healthcare
operators. The Company has no control over its tenants' ability to meet the
numerous state and federal regulatory requirements. If a tenant does not
continue to meet all regulatory requirements, such tenant may lose its ability
to provide or bill for healthcare services. If the Company could not attract
another healthcare provider on a timely basis or on acceptable terms, the
Company's revenues would suffer.
A FAILURE OF THE COMPANY TO REINVEST THE PROCEEDS FROM SECURITIES
OFFERINGS AND PROPERTY DISPOSITIONS COULD HAVE AN ADVERSE EFFECT ON THE
COMPANY'S FUTURE REVENUES.
From time to time, the Company will have cash available from (1) the
proceeds of sales of shares of its securities, (2) the sale of its properties,
including non-elective dispositions, under the terms of master leases or similar
financial support arrangements, and (3) principal payments on its mortgage
investments. These arrangements require, among other items, a disposition of
properties in the event of a healthcare provider's default, and upon the
healthcare provider's exercise of an option to repurchase these properties. The
Company must re-invest these proceeds, on a timely basis, in another healthcare
investment or in a qualified short-term investment. While the Company has been
able to do so in the past, the Company may not be able to invest proceeds on a
timely basis or on acceptable terms in the future.
Delays in acquiring properties will negatively impact revenues and may
have the potential to adversely effect the Company's ability to increase its
distributions to shareholders.
TERMINATION OF PROPERTY MANAGEMENT ENGAGEMENTS CAN RESULT IN LOST
INCOME.
The Company is engaged on its own behalf, and for the benefit of
third-party property owners, in the following activities:
- Asset and property management;
- Day-to-day property management;
- Leasing of multi-tenanted healthcare properties; and
- Supervision of the development of new healthcare properties.
The terms of these service engagements can vary in duration from month-to-month
to 15 years. Additionally, the Company regularly terminates engagements as a
result of completion of the engagement assignment or the sale of managed
properties by the Company or third-party owners. Termination of engagements
results in lost future income stream. In addition, unamortized capital costs
incurred in obtaining engagements must be charged against current revenues or
established reserves. The Company has experienced significant fluctuation in the
number of engagements in effect at any given time. This fluctuation generates
uncertainty as to the predictability of net revenues. The Company is also
subject to significant uncertainties because of the dynamic nature of the
healthcare service industry, and increased competition from other real estate
management companies entering the healthcare services industry. The Company may
not be able to continue to be able to market or cross-sell its property
management services successfully.
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<PAGE> 29
RISKS RELATED TO THE COMPANY'S STATUS AS A REIT
FAILURE TO MAINTAIN ITS STATUS AS A REIT, EVEN IN ONE TAXABLE YEAR,
COULD CAUSE THE COMPANY TO REDUCE ITS DIVIDENDS DRAMATICALLY.
The Company intends to qualify at all times as a REIT under the Code.
If in any taxable year the Company does not qualify as a REIT, it would be taxed
as a corporation. As a result, the Company could not deduct its distributions to
the shareholders in computing its taxable income. Depending upon the
circumstances, a REIT that loses its qualification in one year may not be
eligible to re-qualify during the four succeeding years. Further, certain
transactions or other events could lead to the Company being taxed at rates
ranging from four to 100 percent on certain income or gains.
ITEM 2. PROPERTIES
The Company's headquarters, located in offices at 3310 West End Avenue
in Nashville, Tennessee, are leased from an unrelated third party. The lease
agreement, covering approximately 22,551 square feet of rented space, expires on
October 31, 2003, with two five-year renewal options. Annual rental is
approximately $423,000.
ITEM 3. LEGAL PROCEEDINGS
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of four million dollars
arising out of the development and construction of four real estate projects
located in different parts of the United States. Medistar and Medix served as
the developer and contractor, respectively, for the projects. HRT has asserted
claims for damages relating to, among others, alleged breaches of the
development and contracting obligations, failure to perform in accordance with
contract terms and specifications, and other deficiencies in performance by
Medistar and Medix. On June 10, 1999, Medistar and Medix filed its answer and
counterclaim asserting a variety of alleged legal theories, claims for damages
for alleged deficiencies by HRT and the Company in the performance of alleged
obligations, and for damage to their business reputation. Attempts at mediation
have not resulted in a settlement of the disputes. The Company's prosecution of
its claims and defense of the counterclaims will continue to be vigorous. While
the Company cannot predict the range of possible recovery or loss, the Company
believes that, even though the asserted cross claims seek substantial monetary
damages, the allegations made by Medistar and Medix are not factually or legally
meritorious, are subject to sustainable defenses and are, to a significant
extent, covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matter was submitted to a vote of shareholders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's common stock are traded on The New York Stock
Exchange under the symbol "HR." As of December 31, 2000, there were
approximately 1,733 shareholders of record. The following table sets forth the
high and low sales prices per common share and the distributions declared per
common share for the periods indicated.
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<TABLE>
<CAPTION>
Distributions Declared per
2000 High Low Share
- --------------- -------- -------- --------------------------
<S> <C> <C> <C>
First Quarter $18.5000 $15.4375 $0.550
Second Quarter 19.0000 15.8125 0.555
Third Quarter 21.8125 17.0625 0.560
Fourth Quarter 21.3125 17.2500 0.565
1999
- ---------------
First Quarter $23.2500 $18.0000 $0.530
Second Quarter 22.1875 18.1875 0.535
Third Quarter 22.1875 18.6875 0.540
Fourth Quarter 19.7500 14.5000 0.545
</TABLE>
On January 23, 2001, the Company declared an increase in its quarterly
common stock dividend from $.565 per share ($2.26 annualized) to $.57 per share
($2.28 annualized) payable to shareholders of record as of February 15, 2001.
This dividend was paid on March 7, 2001. While the Company has no present plans
to change its quarterly common stock dividend policy, the dividend policy is
reviewed each quarter by the Board of Directors. Future distributions will be
declared and paid at the discretion of the Board of Directors and will depend
upon cash generated by operating activities, the Company's financial condition,
capital requirements, annual distribution requirements under the REIT provisions
of the Code and such other factors as the Board of Directors deems relevant.
Should access to new capital not be available, the Company is uncertain of its
ability to increase its quarterly common stock dividends in the future.
On October 15, 2000, the Company issued an aggregate of 150,000 shares
of its Common Stock to three former executive officers of Capstone Capital
Corporation pursuant to Consulting Agreements with such individuals. Such sales
were exempt under the registration requirements of the Securities Act of 1933 in
reliance on the exemption contained in Section 4(2) of such Act.
ITEM 6. SELECTED FINANCIAL DATA
The Company's selected financial data, set forth on page 9 of its 2000
Annual Report to Shareholders under the caption "Selected Financial
Information," is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's information relating to management's discussion and
analysis of financial condition, set forth on pages 10 through 16 of the
Company's 2000 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," set forth on page 16 of the Company's 2000
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and the related notes, together with
the report of Ernst & Young LLP thereon, set forth on pages 17 through 34 of the
Company's 2000 Annual Report to Shareholders, are incorporated herein by
reference.
30
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
31
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information with respect to directors, set forth on pages 1 through 4
of the Company's Proxy Statement relating to the Annual Meeting of Shareholders
to be held on May 15, 2001 under the caption "Election of Directors," is
incorporated herein by reference.
EXECUTIVE OFFICERS
Information with respect to executive officers of the Company is
included in Part I of this Report. Information with respect to the terms of
office of the executive officers of the Company, set forth on pages 8 through 9
of the Company's Proxy Statement relating to the Annual Meeting of Shareholders
to be held on May 15, 2001 under the caption "Executive Compensation -
Employment Contracts and Change-In-Control Arrangements," is incorporated herein
by reference.
SECTION 16(A) COMPLIANCE
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, set forth on pages 5 through 6 of
the Company's Proxy Statement relating to the Annual Meeting of Shareholders to
be held on May 15, 2001 under the caption "Security Ownership of Certain
Beneficial Owners and Management - Section 16(a) Beneficial Ownership Reporting
Compliance," is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation, set forth on pages 6
through 11 of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 2001 under the caption "Executive
Compensation," is incorporated herein by reference. The Comparative Performance
Graph and the Compensation Committee Report on Executive Compensation also
included in the Proxy Statement are expressly not incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of management and
certain beneficial owners, set forth on page 5 of the Company's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on May 15, 2001 under
the caption "Security Ownership of Certain Beneficial Owners and Management," is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions,
set forth on page 14 of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 15, 2001 under the caption "Certain
Relationships and Related Transactions," is incorporated herein by reference.
32
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Index to Pro Forma and Historical Financial Statements,
Financial Statement Schedules and Exhibits
(1) FINANCIAL STATEMENTS:
The following financial statements of Healthcare
Realty Trust Incorporated are incorporated by reference in
Item 8 of this Report from the 2000 Annual Report to
Shareholders:
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- Independent Auditors' Report.
- Consolidated Balance Sheets - December 31, 2000 and 1999.
- Consolidated Statements of Income for the years ended December
31, 2000, December 31, 1999 and December 31, 1998.
- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, December 31, 1999 and December 31,
1998.
- Consolidated Statements of Cash Flows for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998.
- Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts at December 31, 2000.........................S-1
Schedule III -- Real Estate and Accumulated Depreciation at December 31, 2000.................S-2
Schedule IV - Mortgage Loans on Real Estate at December 31, 2000..............................S-3
</TABLE>
All other schedules are omitted because they are not
applicable or not required or because the information is
included in the consolidated financial statements or notes
thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------ -----------------------
<S> <C> <C>
3.1 -- Second Articles of Amendment and Restatement of the Registrant.(1)
3.2 -- Amended and Restated Bylaws of the Registrant. (6)
4 -- Specimen stock certificate.(1)
10.1 -- 1993 Employees Stock Incentive Plan of Healthcare Realty Trust Incorporated.(1)
10.2 -- 1995 Restricted Stock Plan for Non-Employee Directors of Healthcare Realty Trust Incorporated.(4)
10.3 -- Executive Retirement Plan, as amended.(7)
10.4 -- Retirement Plan for Outside Directors.(1)
10.5 -- Non-Qualified Deferred Compensation Plan.(7)
10.6 -- Executive Variable Incentive Compensation Plan. (7)
10.7 -- 2000 Employee Stock Purchase Plan. (7)
10.8 -- Dividend Reinvestment Plan.(2)
10.9 -- Amended and Restated Employment Agreement by and between David R. Emery and Healthcare Realty Trust Incorporated.
(7)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
10.10 -- Amended and Restated Employment Agreement by and between Roger O. West and Healthcare Realty Trust Incorporated.
(7)
10.11 -- Amended and Restated Employment Agreement by and between Timothy G. Wallace and Healthcare Realty Trust
Incorporated. (7)
10.12 -- Revolving Credit Agreement, dated as of October 15, 1998, among Healthcare Realty Trust Incorporated, NationsBank,
N.A., First Union National Bank, Societe Generale, and Bank Austria Creditanstalt Corporate Finance, Inc. (5)
10.13 -- Term Credit Agreement, dated as of October 15, 1998, among Healthcare Realty Trust Incorporated, Capstone Capital
Corporation, NationsBank, N.A., and the other lending banks. (5)
10.14 -- Amendment No. 1 to Term Credit Agreement. (6)
10.15 -- Amendment No. 2 to Term Credit Agreement. (7)
10.16 -- Amendment No. 3 to Term Credit Agreement.(8)
10.17 -- Amendment No. 4 to Term Credit Agreement.(9)
10.18 -- Amendment No. 5 to Term Credit Agreement (filed herewith).
10.19 -- Amendment No. 6 to Term Credit Agreement (filed herewith).
10.20 -- Amendment No. 7 to Term Credit Agreement (filed herewith).
10.21 -- Bank Joinder Agreement to Term Credit Agreement (filed herewith).
10.22 -- Form of Note Purchase Agreement, dated as of September 1, 1995, pertaining to $90,000,000 aggregate principal
amount of 7.41% Senior Notes due September 1, 2002.(3)
10.23 -- Form of Note Purchase Agreement, dated as of March 1, 2000, pertaining to $70,000,000 aggregate principal amount
of 9.49% Senior Notes due April 1, 2006.(8)
11 -- Statement re computation of per share earnings (contained in Note 9 to the Notes to the Consolidated Financial
Statement in the Annual Report to Shareholders for the year ended December 31, 2000 filed herewith as Exhibit 13).
13 -- Certain portions of the Company's Annual Report to Shareholders for the year ended December 31, 2000 (filed
herewith).
21 -- Subsidiaries of the Registrant (filed herewith).
23 -- Consent of Ernst & Young LLP, independent auditors (filed herewith).
</TABLE>
- ---------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-11 (Registration No. 33-60506) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-11 (Registration No. 33-72860) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(3) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1995 and hereby incorporated by reference.
(4) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1995 and hereby incorporated by reference.
(5) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1998 and hereby incorporated by reference.
(6) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1999 and hereby incorporated by reference.
(7) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1999 and hereby incorporated by reference.
(8) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
March 31, 2000 and hereby incorporated by reference.
34
<PAGE> 35
<TABLE>
<S> <C>
(9) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
June 30, 2000 and hereby incorporated by reference.
</TABLE>
35
<PAGE> 36
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
1. 1993 Employees Stock Incentive Plan of Healthcare Realty Trust
Incorporated (filed as Exhibit 10.1)
2. 1995 Restricted Stock Plan for Non-Employee Directors of
Healthcare Realty Trust Incorporated (filed as Exhibit 10.2)
3. Executive Retirement Plan, as amended (filed as Exhibit 10.3)
4. Retirement Plan for Outside Directors (filed as Exhibit 10.4)
5. Non-Qualified Deferred Compensation Plan (filed as Exhibit
10.5)
6. Executive Variable Incentive Compensation Plan (filed as
Exhibit 10.6)
7. 2000 Employee Stock Purchase Plan (filed as Exhibit 10.7)
8. Amended and Restated Employment Agreement by and between David
R. Emery and Healthcare Realty Trust Incorporated (filed as
Exhibit 10.9)
9. Amended and Restated Employment Agreement by and between Roger
O. West and Healthcare Realty Trust Incorporated (filed as
Exhibit 10.10)
10. Amended and Restated Employment Agreement by and between
Timothy G. Wallace and Healthcare Realty Trust Incorporated
(filed as Exhibit 10.11)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of 2000. The Company furnished in accordance with Regulation FD
the following reports on Form 8-K during the fourth quarter of 2000.
<TABLE>
<CAPTION>
Date of Earliest
Event Reported Date Filed Items Reported
------------------ ----------------- ------------------------------------------
<S> <C> <C>
November 16, 2000 November 16, 2000 Item 9. Regulation FD Disclosure
Item 7. Financial Statements and Exhibits
December 18, 2000 December 18, 2000 Item 9. Regulation FD Disclosure
Item 7. Financial Statements and Exhibits
</TABLE>
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(3).
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(2).
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on March 23, 2001.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ David R. Emery
----------------------------------------
David R. Emery
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ David R. Emery Chairman of the Board and March 23, 2001
- ----------------------------------------------------- Chief Executive Officer (Principal
David R. Emery Executive Officer)
/s/ Timothy G. Wallace Executive Vice President March 23, 2001
- ----------------------------------------------------- and Chief Financial Officer
Timothy G. Wallace (Principal Financial Officer)
Senior Vice President - March 23, 2001
/s/ Scott W. Holmes Financial Reporting
- ----------------------------------------------------- (Principal Accounting Officer)
Scott W. Holmes
/s/ Errol L. Biggs, Ph.D. Director March 23, 2001
- -----------------------------------------------------
Errol L. Biggs, Ph.D.
/s/ Charles Raymond Fernandez, M.D. Director March 23, 2001
- -----------------------------------------------------
Charles Raymond Fernandez, M.D.
/s/ Batey M. Gresham, Jr. Director March 23, 2001
- -----------------------------------------------------
Batey M. Gresham, Jr.
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
/s/ Marliese E. Mooney Director March 23, 2001
- -----------------------------------------------------
Marliese E. Mooney
/s/ Edwin B. Morris, III Director March 23, 2001
- -----------------------------------------------------
Edwin B. Morris, III
/s/ John Knox Singleton Director March 23, 2001
- -----------------------------------------------------
John Knox Singleton
</TABLE>
38
<PAGE> 39
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AT DECEMBER 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------------
Balance at Charged to Charged to Assumed from
Beginning costs and other Capstone Balance at
Description of Period expenses accounts Capital Corp. Deductions(1) End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000
Mortgage notes receivable allowance $2,283 $ -- $ -- $ -- $ 574 $1,709
Accounts receivable allowance 995 1,069 -- -- 346 1,718
Preferred stock investment reserve -- 1,000 -- -- -- 1,000
---------------------------------------------------------------------------------------
$3,278 $2,069 -- -- $ 920 $4,427
---------------------------------------------------------------------------------------
1999
Mortgage notes receivable allowance $3,000 $ -- $ -- $ -- $ 717 $2,283
Accounts receivable allowance 419 576 -- -- -- 995
---------------------------------------------------------------------------------------
$3,419 $ 576 $ -- $ -- $ 717 $3,278
---------------------------------------------------------------------------------------
1998
Mortgage notes receivable allowance $ -- $ -- $ -- $3,000 $ -- $3,000
Accounts receivable allowance 15 73 -- 346 15 419
---------------------------------------------------------------------------------------
$ 15 $ 73 $ -- $3,346 $ 15 $3,419
---------------------------------------------------------------------------------------
</TABLE>
(1) Write-off or collection of the related receivable accounts.
39
<PAGE> 40
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2000
<TABLE>
<CAPTION>
Land
-----------------------------------------
Costs Capitalized
Number of Initial Subsequent to
Facility Type Properties States Investment Acquisition Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities 59 AL, AZ, CA, FL, GA, $ 58,614,173 $1,291,556 $ 59,905,729
KS, MS, NV, PA, TN,
TX, VA, WY
Assisted Living Facilities 41 AL, CA, CT, FL, GA, 10,825,127 0 10,825,127
IL, MO, MS, NC, NJ,
OH, PA, SC, TN, TX,
VA, WY
Comprehensive Ambulatory Care Centers 13 AZ, CA, FL, MO, TX 12,269,618 577,655 12,847,273
Inpatient Rehabilitation Facilities 9 AL, FL, PA, TX 5,834,648 0 5,834,648
Medical Office Buildings 10 FL, PA, TN, TX, VA 6,845,576 2,894 6,848,470
Other Inpatient Facilities 3 MI, PA, TX 4,760,893 150,063 4,910,956
Other Outpatient Facilities 13 AL, AR, CA, FL, GA 7,599,395 436,620 8,036,015
IL, MO, MS, NV, TX
VA
Physician Clinics 32 AL, CA, FL, GA, IL, 29,078,433 268,064 29,346,497
MA, MO, PA, TN, TX,
VA
Skilled Nursing Facilities 33 AZ, CA, CO, FL, IN, 13,430,351 268,774 13,699,125
----------- KS, MI, MO, NC, OK, -------------------------------------------
PA, TN, TX, VA
Total Real Estate Properties 213 149,258,214 2,995,626 152,253,840
Corporate Property 0 0 0 0
----------- -------------------------------------------
Total Property 213 $149,258,214 $2,995,626 $152,253,840
=========== ===========================================
<CAPTION>
Buildings, Improvements, and CIP
----------------------------------------------------
Costs Capitalized
Initial Subsequent to Personal Total
Facility Type Investment Acquisition Total Property Assets
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities $ 398,440,423 $11,785,485 $ 410,225,908 $ 622,450 $ 470,754,087
Assisted Living Facilities 230,281,040 828,987 231,110,027 0 241,935,154
Comprehensive Ambulatory Care Centers 129,668,826 959,494 130,628,321 88,589 143,564,183
Inpatient Rehabilitation Facilities 148,753,610 313 148,753,922 0 154,588,570
Medical Office Buildings 37,151,455 801,485 37,952,940 576,297 45,377,707
Other Inpatient Facilities 17,419,445 0 17,419,445 0 22,330,401
Other Outpatient Facilities 36,582,832 0 36,582,832 61,355 44,680,202
Physician Clinics 130,148,313 1,413,964 131,562,277 51,777 160,960,551
Skilled Nursing Facilities 174,739,518 2,334,539 177,074,057 215,317 190,988,499
-----------------------------------------------------------------------------------
Total Real Estate Properties 1,303,185,461 18,124,267 1,321,309,727 1,615,786 1,475,179,353
Corporate Property 0 0 4,168,878 4,168,878
-----------------------------------------------------------------------------------
Total Property $1,303,185,461 $18,124,267 $1,321,309,727 $5,784,664 $1,479,348,231
===================================================================================
<CAPTION>
Accumulated Date Date
Facility Type Depreciation(1) Encumbrances Acquired Constructed
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ancillary Hospital Facilities $ 45,732,916 $22,375,434 1993-2000 1961-2000
4 under const. (3)
Assisted Living Facilities 12,286,511 0 1998, 2000 1976-2000
Comprehensive Ambulatory Care Centers 11,478,961 16,293,711 1993-1998 1991-1999
1 under const. (3)(2)
Inpatient Rehabilitation Facilities 9,468,161 0 1998 1983-1991
Medical Office Buildings 4,713,842 5,946,166 1993-2000 1988-1998
1 under const. (3)
Other Inpatient Facilities 1,023,219 0 1998, 1999 1983
1 under const. (3)
Other Outpatient Facilities 5,039,456 4,960,000 1993-1999 1906-1998
Physician Clinics 11,505,104 7,520,000 1993-1998 1905-1999
Skilled Nursing Facilities 17,447,457 0 1993-2000 1956-1998
----------------------------
Total Real Estate Properties 118,695,627 57,095,310
Corporate Property 1,826,222 0
----------------------------
Total Property $120,521,849 $57,095,310
============================
</TABLE>
(1) Depreciation is provided on buildings and improvements over 31.5 or
39.0 years and personal property over 3.0 to 7.0 years.
(2) Consists of three buildings, with one building being an MOB that is
under construction as of 12/31/00.
(3) Development at 12/31/00.
(4) Total assets at 12/31/00 have an estimated aggregate total cost of
$1,323,446,841 for Federal Income Tax purposes.
(5) Reconciliation of Total Property and Accumulated Depreciation for the
twelve months ended December 31, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
Year to Date Ending 12/31/00 Year to Date Ending 12/31/99 Year to Date Ending 12/31/98
------------------------------ ------------------------------- ----------------------------
Total Accumulated Total Accumulated Total Accumulated
Property Depreciation Property Depreciation Property Depreciation
------------------------------ ------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance $1,399,145,647 $ 83,995,802 $1,387,554,751 $50,116,154 $ 505,698,610 $34,718,380
Retirements/dispositions:
Real Estate (17,185,281) (1,821,351) (46,839,974) (4,027,489) (11,410,200) (423,339)
Corporate Property (21,130) (13,522) 0 0 0 0
Additions during the period:
Real Estate 72,556,057 37,790,216 24,633,438 37,686,289 847,262,872 15,507,502
Corporate Property 623,841 570,704 286,651 220,848 119,603 313,611
Construction in Progress 24,229,097 0 33,510,781 0 45,883,866 0
------------------------------ ------------------------------- ----------------------------
Ending Balance $1,479,348,231 $120,521,849 $1,399,145,647 $83,995,802 $1,387,554,751 $50,116,154
============================== =============================== ============================
</TABLE>
40
<PAGE> 41
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
PERIODIC ORIGINAL
INTEREST MATURITY PAYMENT FACE
DESCRIPTION RATE DATE TERMS AMOUNT
<S> <C> <C> <C> <C>
INDIVIDUAL PERMANENT MORTGAGES IN EXCESS OF 3% OF THE
TOTAL CARRYING AMOUNT:
Specialty hospital located in Arizona 9.58% 11/1/04 (1) $ 17,800
Skilled nursing facility located in Maryland 10.30% 2/15/02 (1) 8,800
Skilled nursing facility located in Maryland 10.30% 5/5/03 (1) 6,200
Skilled nursing facility located in Michigan 11.47% 2/15/07 (1) 9,600
Skilled nursing facility located in Tennessee 10.09% 10/27/13 (10) 12,380
Physician clinic facility located in Florida 10.51% 10/5/10 (1) 9,400
Assisted living facility located in Florida 10.06% 1/1/08 (1) 5,800
Assisted living facility located in Florida 8.69% 2/1/09 (1) 6,300
Skilled nursing facility located in California 10.00% 5/1/07 (1) 5,829
Assisted living facility in California 12.00% 5/31/08 (2) 6,800
Acute care hospital located in California 12.23% 8/10/09 (1) 8,000
OTHER MORTGAGES LESS THAN 3% OF THE TOTAL CARRYING AMOUNT:
Twelve skilled nursing facilities located in the states of From From
Alabama, California, Florida, Massachusetts, 8.18% Nov-01
Michigan, Ohio, South Carolina, Tennessee, to to
and Virginia; with face amounts ranging from $ .350 million
to $6.3 million 13.50% Aug-09
Twenty nine assisted living facilities located in the states of
Alabama, Arizona, California, Georgia,
Idaho, Mississippi, Montana, North Carolina, From From
New Mexico, Ohio, Oregon, Pennsylvania, Tennessee, 8.48% May-01
Texas, and Washington; with face amounts ranging to to
from $ .350 million to $6.8 million 13.50% Feb-08
One land investment located in Texas with an original
face amount of $2.4 million 12.50% Feb-01 (10) 2,400
One physician clinic located in Texas with an original face amount 13.00% Sep-10 (12) 752
of $.752 million
<CAPTION>
CARRYING BALLOON
DESCRIPTION AMOUNT (9) PAYMENT
<S> <C> <C>
INDIVIDUAL PERMANENT MORTGAGES IN EXCESS OF 3% OF THE
TOTAL CARRYING AMOUNT:
Specialty hospital located in Arizona $ 17,703 $ 16,409(4)
Skilled nursing facility located in Maryland 8,791 8,498(6)
Skilled nursing facility located in Maryland 6,269 5,995(3)
Skilled nursing facility located in Michigan 9,452 8,463(6)
Skilled nursing facility located in Tennessee 6,374 5,955(5)
Physician clinic facility located in Florida 9,430 8,006(7)
Assisted living facility located in Florida 5,690 4,967(6)
Assisted living facility located in Florida 6,275 5,318(6)
Skilled nursing facility located in California 5,722 4,911(6)
Assisted living facility in California 7,157 7,890(6)
Acute care hospital located in California 7,883 6,979(8)
OTHER MORTGAGES LESS THAN 3% OF THE TOTAL CARRYING AMOUNT:
Twelve skilled nursing facilities located in the states of
Alabama, California, Florida, Massachusetts,
Michigan, Ohio, South Carolina, Tennessee,
and Virginia; with face amounts ranging from $ .350 million
to $6.3 million 23,941
Twenty nine assisted living facilities located in the states of
Alabama, Arizona, California, Georgia,
Idaho, Mississippi, Montana, North Carolina,
New Mexico, Ohio, Oregon, Pennsylvania, Tennessee,
Texas, and Washington; with face amounts ranging
from $ .350 million to $6.8 million 53,577
One land investment located in Texas with an original
face amount of $2.4 million 2,450 2,400(6)
One physician clinic located in Texas with an original face amount 192 0(13)
of $.752 million
----------
TOTAL MORTGAGE NOTES RECEIVABLE $170,906
==========
</TABLE>
Notes:
(1) Paid in monthly installments of principal and interest. Principal
payable in full at maturity date. Amortized over 300 months.
(2) Interest only for 5 years. 2% of interest is capitalized.
(3) No prepayment until 3rd anniversary, then Greater of 5% penalty or (6)
Yield Maintenance until December '02. No Penalty after December '02.
(4) No prepayment penalty until 4th year, then 3% penalty scaling down 1%
annually.
(5) Prepayment penalty cannot be determined because future interest rate
fluctuations are based on future Consumer Price Index.
(6) Yield Maintenance Amount is defined generally as % of the Principal
Amount Being Prepaid x [(Present Value of the principal and Interest
payments remaining to maturity at a discount rate) - (Principal Amount
outstanding at the time of prepayment)].
(7) No prepayment until 5th anniversary, then 5% penalty scaling down 1%
per year.
(8) No prepayment before December 2001, then 3% penalty until August 2002,
then scales down 1% per year.
(9) Generally includes purchase accounting adjustment resulting from
Capstone merger.
(10) Interest only until maturity. Then principal is payable in full.
(11) Other deductions consists of 14 mortgages which were converted to
master leases, and net proceeds from a mortgage participation
transaction.
(12) Paid in monthly installments of principal and interest. Amortized over
120 months.
(13) Prepayment may be made with the following penalties: 1.5% penalty
during first loan year, 3.5% during second loan year, 5.5% during third
loan year, 8% until after maturity.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period $ 250,346 $ 234,504 $ 4,708
Additions during period:
New or acquired mortgages 192 0 218,816
Commitments assumed in the Capstone merger 0 16,734 0
Construction fundings 1,444 21,804 19,864
Other 129 407 121
--------- --------- ---------
1,765 38,945 238,801
Deductions during period:
Collections of principal (1,680) (1,931) (164)
Cost of mortgages sold (15,921) (20,249) (8,646)
Amortization of premium (787) (923) (195)
Other (11) (62,817) 0 0
--------- --------- ---------
(81,205) (23,103) (9,005)
--------- --------- ---------
Balance at end of period $ 170,906 $ 250,346 $ 234,504
========= ========= =========
</TABLE>
41
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>2
<FILENAME>g67659ex10-18.txt
<DESCRIPTION>AMENDMENT NO. 5 TO TERM CREDIT AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.18
AMENDMENT NO. 5
TERM LOAN CREDIT AGREEMENT
THIS AMENDMENT NO. 5 dated as of November 30, 2000 (the "Amendment") to
the Term Loan Credit Agreement referenced below, is by and among HEALTHCARE
REALTY TRUST INCORPORATED, a Maryland corporation, as Borrower, the banks
identified herein and BANK OF AMERICA, N.A. (formerly known as NationsBank,
N.A.), as administrative agent. Capitalized terms used but not otherwise defined
herein shall have the meanings provided in the Term Loan Credit Agreement.
W I T N E S S E T H
WHEREAS, a $200 million term loan facility, consisting of a $187.4
million Tranche A Term Loan to Healthcare Realty Trust Incorporated ("HRT") and
a $12.6 million Tranche B Term Loan to Capstone Capital Corporation ("CCT", and
together with HRT, the "Borrowers"), was established pursuant to the terms of
that Credit Agreement dated as of October 15, 1998 (as amended and modified, the
"Term Loan Credit Agreement") among HRT and CCT, as Borrowers, the banks
identified therein (the "Banks"), and NationsBank, N.A., (now known as Bank of
America, N.A.), as administrative agent (in such capacity, the "Agent");
WHEREAS, approximately $39.3 million remains outstanding on the Tranche
A Term Loan and the Tranche B Term Loan has been repaid;
WHEREAS, HRT has requested extension of the Tranche A Term Loan and
certain other modifications to the Term Loan Credit Agreement;
WHEREAS, the Banks have agreed to the requested extension and
modifications on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Term Loan Credit Agreement is hereby amended and modified in the
following respects:
1.1 The Tranche A Maturity Date is extended to January 31, 2001.
1.2 Subsection (iv) of Section 2.09(b) is renumbered as subsection
(v) and a new subsection (iv) is added to read as follows:
(iv) On December 29, 2000, the Borrower shall prepay
100% of all amounts in excess of $10 million, if any, then
outstanding on the Tranche A Term Loan.
2. Except as modified hereby, all of the terms and provisions of the
Term Loan Credit Agreement (including schedules and exhibits) shall remain in
full force and effect.
3. This Amendment shall be effective on the date (the "Effective Date")
of receipt by the Agent of copies of this Amendment duly executed by the Banks,
HRT and the Guarantors.
<PAGE> 2
4. HRT will deliver to the Agent, on or before December 29, 2000,
certified copies of resolutions and other documentation evidencing approval of
the transactions contemplated in this Amendment and a legal opinion of counsel
for HRT, in form reasonably satisfactory to the Agent and the Banks, including,
among other things, an opinion as to the enforceability of this Amendment.
5. HRT agrees to pay all reasonable costs and expenses of the Agent in
connection with the preparation, execution and delivery of this Amendment,
including the reasonable fees and expenses of Moore & Van Allen, PLLC.
6. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
7. This Amendment shall be governed by and construed in accordance with
the laws of the State of North Carolina.
[remainder of page intentionally left blank]
2
<PAGE> 3
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Amendment to be executed as of the day and year first above written.
BORROWER: HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:
----------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
AGENT: BANK OF AMERICA, N.A. (a national banking
association formerly known as NationsBank,
N.A.), as Agent under the Term Loan Credit
Agreement
By:
----------------------------------------
Name:
Title:
BANKS: BANK OF AMERICA, N.A. (a national banking
association formerly known as NationsBank,
N.A.)
By:
----------------------------------------
Name:
Title:
[signatures continue]
<PAGE> 4
ACKNOWLEDGED & AGREED:
GUARANTORS: DURHAM MEDICAL OFFICE BUILDING, INC.,
a Texas corporation
HEALTHCARE REALTY SERVICES INCORPORATED,
an Alabama corporation
HR ASSETS, INC., a Texas corporation
HR CAPITAL, INC., a Texas corporation
HR FUNDING, INC., a Texas corporation
HR INTERESTS, INC., a Texas corporation
HR OF TEXAS, INC., a Maryland corporation
HRT OF ALABAMA, INC., an Alabama corporation
HRT OF DELAWARE, INC., a Delaware
corporation
HRT OF FLORIDA, INC., a Florida corporation
HRT OF ROANOKE, INC. a Virginia corporation
HRT OF TENNESSEE, INC., a Tennessee
corporation
HRT OF VIRGINIA, INC., a Virginia
corporation
PENNSYLVANIA HRT, INC., a Pennsylvania
corporation
HR OF SAN ANTONIO, INC., a Texas corporation
PROPERTY TECHNOLOGY SERVICES, INC.,
a Tennessee corporation
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
for each of the foregoing
PASADENA MEDICAL PLAZA SSJ, LTD.,
a Florida limited partnership
By: Healthcare Realty Trust Incorporated,
a Maryland corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
SAN ANTONIO SSP, LTD.,
a Texas limited partnership
By: HR of San Antonio, Inc.,
a Texas corporation, as General Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
[signatures continue]
<PAGE> 5
HR ACQUISITION I CORPORATION,
f/k/a Capstone Capital Corporation, a
Maryland corporation
CAPSTONE CAPITAL OF ALABAMA, INC.,
an Alabama corporation
CAPSTONE-CAPITAL OF BAYTOWN, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF KENTUCKY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF MASSACHUSETTS. INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.,
a Pennsylvania corporation
CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF TEXAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL PROPERTIES, INC.,
an Alabama corporation
CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President for each of
the foregoing
[signatures continue]
<PAGE> 6
CAPSTONE OF BONITA BAY, LTD.,
an Alabama limited partnership
By: CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation, as General
Partner
By:
------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAPSTONE OF LOS ANGELES, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama Corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAPSTONE OF CAPE CORAL, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAPSTONE OF LAS VEGAS, LTD., an Alabama
limited partnership
BY: CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
[signatures continue]
<PAGE> 7
CAPSTONE OF SARASOTA, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAPSTONE CAPITAL OF SAN ANTONIO, LTD., an
Alabama limited partnership
By: CAPSTONE CAPITAL OF TEXAS, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAPSTONE OF VIRGINIA LIMITED PARTNERSHIP, an
Alabama limited partnership
By: CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAPSTONE OF OCOEE, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
[signatures continue]
<PAGE> 8
CAPSTONE OF PORT ORANGE, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAP-BAY IV, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAP-BAY V, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAP-BAY VII, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
CAP-BAY VIII, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation, as General
Partner
By:
-------------------------------------
Name: Timothy G. Wallace
Title: Executive Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>3
<FILENAME>g67659ex10-19.txt
<DESCRIPTION>AMENDMENT NO. 6 TO TERM CREDIT AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.19
AMENDMENT NO. 6
TERM LOAN CREDIT AGREEMENT
THIS AMENDMENT NO. 6 dated as of December ___, 2000 (the "Amendment")
to the Term Loan Credit Agreement referenced below, is by and among HEALTHCARE
REALTY TRUST INCORPORATED, a Maryland corporation, as Borrower, the banks
identified herein and BANK OF AMERICA, N.A. (formerly known as NationsBank,
N.A.), as administrative agent. Capitalized terms used but not otherwise defined
herein shall have the meanings provided in the Term Loan Credit Agreement.
W I T N E S S E T H
WHEREAS, a $200 million term loan facility, consisting of a $187.4
million Tranche A Term Loan to Healthcare Realty Trust Incorporated ("HRT") and
a $12.6 million Tranche B Term Loan to Capstone Capital Corporation ("CCT", and
together with HRT, the "Borrowers"), was established pursuant to the terms of
that Credit Agreement dated as of October 15, 1998 (as amended and modified, the
"Term Loan Credit Agreement") among HRT and CCT, as Borrowers, the banks
identified therein (the "Banks"), and NationsBank, N.A., (now known as Bank of
America, N.A.), as administrative agent (in such capacity, the "Agent");
WHEREAS, approximately $39.3 million remains outstanding on the Tranche
A Term Loan and the Tranche B Term Loan has been repaid;
WHEREAS, HRT has requested extension of the Tranche A Term Loan and
certain other modifications to the Term Loan Credit Agreement;
WHEREAS, the Banks have agreed to the requested extension and
modifications on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Term Loan Credit Agreement is hereby amended and modified in
the following respects:
1.1 The Tranche A Maturity Date is extended to February 28, 2001.
1.2 Subsection (iv) of Section 2.09(b) is deleted and subsection
(v) is renumbered as subsection (iv).
2. Except as modified hereby, all of the terms and provisions of the
Term Loan Credit Agreement (including schedules and exhibits) shall remain in
full force and effect.
3. This Amendment shall be effective on the date (the "Effective
Date") of receipt by the Agent of copies of this Amendment duly executed by the
Banks, HRT and the Guarantors.
4. HRT agrees to pay all reasonable costs and expenses of the Agent in
connection with the preparation, execution and delivery of this Amendment,
including the reasonable fees and expenses of Moore & Van Allen, PLLC.
<PAGE> 2
5. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
6. This Amendment shall be governed by and construed in accordance
with the laws of the State of North Carolina.
[remainder of page intentionally left blank]
2
<PAGE> 3
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Amendment to be executed as of the day and year first above written.
BORROWER: HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:
--------------------------------------
Name: Roger O. West
Title: Executive Vice President
AGENT: BANK OF AMERICA, N.A. (a national banking
association formerly known as NationsBank,
N.A.), as Agent under the Term Loan
Credit Agreement
By:
--------------------------------------
Name:
Title:
BANKS: BANK OF AMERICA, N.A. (a national banking
association formerly known as
NationsBank, N.A.)
By:
--------------------------------------
Name:
Title:
[signatures continue]
<PAGE> 4
ACKNOWLEDGED & AGREED:
GUARANTORS: DURHAM MEDICAL OFFICE BUILDING, INC.,
a Texas corporation
HEALTHCARE REALTY SERVICES INCORPORATED,
an Alabama corporation
HR ASSETS, INC., a Texas corporation
HR CAPITAL, INC., a Texas corporation
HR FUNDING, INC., a Texas corporation
HR INTERESTS, INC., a Texas corporation
HR OF TEXAS, INC., a Maryland corporation
HRT OF ALABAMA, INC., an Alabama corporation
HRT OF DELAWARE, INC., a Delaware corporation
HRT OF FLORIDA, INC., a Florida corporation
HRT OF ROANOKE, INC. a Virginia corporation
HRT OF TENNESSEE, INC., a Tennessee corporation
HRT OF VIRGINIA, INC., a Virginia corporation
PENNSYLVANIA HRT, INC., a Pennsylvania corporation
HR OF SAN ANTONIO, INC., a Texas corporation
PROPERTY TECHNOLOGY SERVICES, INC.,
a Tennessee corporation
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
for each of the foregoing
PASADENA MEDICAL PLAZA SSJ, LTD.,
a Florida limited partnership
By: Healthcare Realty Trust Incorporated,
a Maryland corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
SAN ANTONIO SSP, LTD.,
a Texas limited partnership
By: HR of San Antonio, Inc.,
a Texas corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
[signatures continue]
<PAGE> 5
HR ACQUISITION I CORPORATION,
f/k/a Capstone Capital Corporation, a Maryland corporation
CAPSTONE CAPITAL OF ALABAMA, INC.,
an Alabama corporation
CAPSTONE-CAPITAL OF BAYTOWN, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF KENTUCKY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF MASSACHUSETTS. INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.,
a Pennsylvania corporation
CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF TEXAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL PROPERTIES, INC.,
an Alabama corporation
CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
for each of the foregoing
[signatures continue]
<PAGE> 6
CAPSTONE OF BONITA BAY, LTD.,
an Alabama limited partnership
By: CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF LOS ANGELES, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama Corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF CAPE CORAL, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF LAS VEGAS, LTD., an Alabama limited partnership
BY: CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
[signatures continue]
<PAGE> 7
CAPSTONE OF SARASOTA, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE CAPITAL OF SAN ANTONIO, LTD., an
Alabama limited partnership
By: CAPSTONE CAPITAL OF TEXAS, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF VIRGINIA LIMITED PARTNERSHIP, an
Alabama limited partnership
By: CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF OCOEE, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
[signatures continue]
<PAGE> 8
CAPSTONE OF PORT ORANGE, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY IV, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY V, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY VII, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY VIII, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation, as General Partner
By:
------------------------------------------
Name: Roger O. West
Title: Executive Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>4
<FILENAME>g67659ex10-20.txt
<DESCRIPTION>AMENDMENT NO. 7 TO TERM CREDIT AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 7
TERM CREDIT AGREEMENT
THIS AMENDMENT NO. 7 dated as of January 4, 2001 (the "Amendment") to the
Term Credit Agreement referenced below, is by and among HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland corporation, as Borrower, the banks identified herein
and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A.), as
administrative agent. Capitalized terms used but not otherwise defined herein
shall have the meanings provided in the Term Credit Agreement.
W I T N E S S E T H
WHEREAS, a $200 million term loan facility, consisting of a $187.4 million
Tranche A Term Loan to Healthcare Realty Trust Incorporated ("HRT") and a $12.6
million Tranche B Term Loan to Capstone Capital Corporation ("CCT", and together
with HRT, the "Borrowers"), was established pursuant to the terms of that Credit
Agreement dated as of October 15, 1998 (as amended and modified, the "Term
Credit Agreement") among HRT and CCT, as Borrowers, the banks identified therein
(the "Banks"), and NationsBank, N.A., (now known as Bank of America, N.A.), as
administrative agent (in such capacity, the "Agent");
WHEREAS, $25 million remains outstanding on the Tranche A Term Loan and the
Tranche B Term Loan has been repaid;
WHEREAS, HRT has requested certain modifications to the Term Credit
Agreement;
WHEREAS, the Banks have agreed to the requested modifications on the terms
and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Term Credit Agreement is hereby amended and modified in the
following respects:
1.1 The following definitions are amended or added, as appropriate, to
Section 1.01:
"Conversion Event" means such term as defined in Section
2.01(a)(iii).
"Converting Lenders" means such term as defined in Section
2.01(a)(iii).
"Designated Properties" means, in the case of the Tranche A-1
Term Loan, the Tranche A-1 Term Loan Designated Properties, and in the
case of the Tranche A-2 Term Loan, the Tranche A-2 Term Loan
Designated Properties.
"Escrow Agent" means such term as defined in Section 5.29.
"Escrow Agreement" means such term as defined in Section 5.29.
"Financing Documents" means the Credit Agreement, the Notes, the
Security Agreements, the Subsidiaries Guarantees, the Escrow
Agreements and, if a Conversion Event has occurred, the Mortgages, in
each case as amended and in effect from time to time.
<PAGE> 2
"Mortgage" means the mortgages, deeds of trust or other real
estate security documents made or required herein to be made by HRT,
its Subsidiaries or Specified Affiliates.
"Notice of Conversion" means such term as defined in Section
2.01(a)(iii).
"Notice of Intent to Convert" means such term as defined in
Section 2.01(a)(iii).
"Term Loan Commitments" means the Tranche A-1 Term Loan
Commitment, the Tranche A-2 Term Loan Commitment and the Tranche B
Term Loan Commitment.
"Term Loan Commitment Percentage" means the Tranche A-1 Term Loan
Commitment Percentage, the Tranche A-2 Term Loan Commitment Percentage
and the Tranche B Term Loan Commitment Percentage, as appropriate.
"Term Note" or "Term Notes" means the Tranche A-1 Term Notes, the
Tranche A-2 Term Notes and the Tranche B Term Notes, as appropriate.
"Tranche A Maturity Date" means the Tranche A-1 Maturity Date or
the Tranche A-2 Maturity Date, as appropriate.
"Tranche A Term Lenders" means the Tranche A-1 Term Lenders
and/or the Tranche A-2 Term Lenders, as appropriate.
"Tranche A-1 Term Loan Designated Properties" initially means the
properties listed on Schedule A-1 attached hereto and shall continue
to mean such properties until such time that properties are
substituted as provided in the next sentence. At any time the Tranche
A-1 Term Lenders and HRT make any substitution in the properties then
being considered for securitization by the Tranche A-1 Term Lenders,
the Tranche A-1 Term Loan Designated Properties shall be deemed to
mean the properties being considered for securitization at such time,
or in the event the negotiations for securitization of properties
shall be suspended or terminated, the properties being considered for
securitization immediately prior to any such suspension or
termination. Notwithstanding the foregoing, Tranche A-1 Term Loan
Designated Properties shall include any properties substituted
pursuant to Section 2.01(a)(iii)(D) hereof.
"Tranche A-1 Term Loan Mortgage" means the Mortgages covering the
Tranche A-1 Term Loan Designated Properties. The Tranche A-1 Term Loan
Mortgages shall be in form and substance satisfactory to the Tranche
A-1 Term Lenders.
"Tranche A-1 Maturity Date" means such term as defined in Section
2.04(a)(i).
"Tranche A-1 Term Lenders" means Banks holding Tranche A-1 Term
Loan Commitments.
"Tranche A-1 Term Loan" means such term as defined in Section
2.01(a).
"Tranche A-1 Term Loan Commitment" means, with respect to each
Bank, the commitment of such Bank to make its portion of the Tranche
A-1 Term Loan as specified
2
<PAGE> 3
in Schedule 2.01 (and after the Closing Date the outstanding principal
amount of such Bank's Tranche A-1 Term Loan).
"Tranche A-1 Term Loan Commitment Percentage" means, for each
Bank, a fraction (expressed as a percentage), the numerator of which
is the Tranche A-1 Term Loan Commitment (and after the Closing Date,
the outstanding principal amount of such Bank's Tranche A-1 Term Loan)
of such Bank at such time and the denominator of which is the
aggregate amount of the Tranche A-1 Term Loan Commitment (and after
the Closing Date, the aggregate principal amount of the Tranche A-1
Term Loan) at such time. The Tranche A-1 Term Loan Commitment
Percentages as of the date of Amendment No. 7 are set out on Schedule
2.01 (as amended by Amendment No. 7).
"Tranche A-1 Term Note" or "Tranche A-1 Term Notes" means the
promissory notes of HRT in favor of each of the Tranche A-1 Term
Lenders evidencing the Tranche A-1 Term Loans in substantially the
form attached as Schedule 2.06(a)(i), individually or collectively, as
appropriate, as such promissory notes may be amended, modified,
supplemented, extended or renewed from time to time.
"Tranche A-2 Term Loan Designated Properties" initially means the
properties listed on Schedule A-2 attached hereto and shall continue
to mean such properties until such time that properties are
substituted as provided in the next sentence. At any time the Tranche
A-2 Term Lenders and HRT make any substitution in the properties then
being considered for securitization by the Tranche A-2 Term Lenders,
the Tranche A-2 Term Loan Designated Properties shall be deemed to
mean the properties being considered for securitization at such time,
or in the event the negotiations for securitization of properties
shall be suspended or terminated, the properties being considered for
securitization immediately prior to any such suspension or
termination. Notwithstanding the foregoing, Tranche A-2 Term Loan
Designated Properties shall include any properties substituted
pursuant to Section 2.01(a)(iii)(D) hereof.
"Tranche A-2 Term Loan Mortgage" means the Mortgages covering the
Tranche A-2 Term Loan Designated Properties. The Tranche A-2 Term Loan
Mortgages shall be in form and substance satisfactory to the Tranche
A-2 Term Lenders.
"Tranche A-2 Maturity Date" means such term as defined in Section
2.04(a)(ii).
"Tranche A-2 Term Lenders" means Banks holding Tranche A-2 Term
Loan Commitments.
"Tranche A-2 Term Loan" means such term as defined in Section
2.01(a).
"Tranche A-2 Term Loan Commitment" means, with respect to each
Bank, the commitment of such Bank to make its portion of the Tranche
A-2 Term Loan as specified in Schedule 2.01 (and after the Closing
Date the outstanding principal amount of such Bank's Tranche A-2 Term
Loan).
"Tranche A-2 Term Loan Commitment Percentage" means, for each
Bank, a fraction (expressed as a percentage), the numerator of which
is the Tranche A-2 Term Loan Commitment (and after the Closing Date,
the outstanding principal amount of such Bank's Tranche A-2 Term Loan)
of such Bank at such time and the denominator of which is the
aggregate amount of the Tranche A-2 Term Loan Commitment (and after
the
3
<PAGE> 4
Closing Date, the aggregate principal amount of the Tranche A-2 Term
Loan) at such time. The Tranche A-2 Term Loan Commitment Percentages
as of the date of Amendment No. 7 are set out on Schedule 2.01 (as
amended by Amendment No. 7).
"Tranche A-2 Term Note" or "Tranche A-2 Term Notes" means the
promissory notes of HRT in favor of each of the Tranche A-2 Term
Lenders evidencing the Tranche A-2 Term Loans in substantially the
form attached as Schedule 2.06(a)(ii), individually or collectively,
as appropriate, as such promissory notes may be amended, modified,
supplemented, extended or renewed from time to time.
1.2 Subsection (a) of Section 2.01 is amended to read as follows:
(a) Tranche A Term Loan. A Tranche A Term Loan in the original
principal amount of ONE HUNDRED EIGHTY-SEVEN MILLION FOUR HUNDRED
THOUSAND DOLLARS ($187,400,000) was made to HRT on the Closing Date
(the "Tranche A Term Loan"). As of the date of Amendment No. 7, a
principal amount of TWENTY-FIVE MILLION DOLLARS ($25,000,000) remains
outstanding and unpaid on the Tranche A Term Loan. The Banks have
requested that the Tranche A Term Loan be split into separate tranches
(the "Tranche A-1 Term Loan" and the "Tranche A-2 Term Loan"; such
Loans may be referred to herein individually or collectively, as
appropriate, as the "Tranche A Term Loan") as hereafter provided. From
the date of Amendment No. 7, election of applicable interest rates and
related Notices of Interest Rate Election shall be made separately for
the Tranche A-1 Term Loan and the Tranche A-2 Term Loan. Amounts
repaid on the Tranche A Term Loan may not be reborrowed.
(i) Tranche A-1 Term Loan. The Tranche A-1 Term Loan shall
be in the initial principal amount of FIVE MILLION DOLLARS
($5,000,000). The Tranche A-1 Term Loan may consist of Base Rate
Loans or Eurodollar Loans, or a combination thereof, as HRT may
request. The portion of the Tranche A-1 Term Loan consisting of
Eurodollar Loans shall be in the minimum aggregate principal
amount of One Million Dollars ($1,000,000) and integral multiples
of One Hundred Thousand Dollars ($100,000) in excess thereof.
Notwithstanding anything contained herein to the contrary, the
Tranche A-1 Term Loan shall be comprised of not more than four
(4) Eurodollar Loans at any time.
(ii) Tranche A-2 Term Loan. The Tranche A-2 Term Loan shall
be in the initial principal amount of TWENTY MILLION DOLLARS
($20,000,000). The Tranche A-2 Term Loan may consist of Base Rate
Loans or Eurodollar Loans, or a combination thereof, as HRT may
request. The portion of the Tranche A-2 Term Loan consisting of
Eurodollar Loans shall be in the minimum aggregate principal
amount of One Million Dollars ($1,000,000) and integral multiples
of One Hundred Thousand Dollars ($100,000) in excess thereof.
Notwithstanding anything contained herein to the contrary, the
Tranche A-2 Term Loan shall be comprised of not more than four
(4) Eurodollar Loans at any time.
(iii) Right of Conversion. Either or both of the Tranche A-1
Term Lenders and the Tranche A-2 Term Lenders, in their sole
discretion, at any time after the occurrence and during the
continuance of an Event of Default, may give notice to the Agent
and HRT of the intent to convert their respective Tranche A Term
Loan from an unsecured recourse loan to a non-recourse loan
secured by
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<PAGE> 5
their respective Designated Properties (a "Notice of Intent to
Convert"; the Tranche A Term Lenders giving such notice may be
referred to as the "Converting Lenders"). Upon the delivery of
any such Notice of Intent to Convert:
(A) Deliveries in respect of the Designated Properties.
HRT at its own expense shall deliver to the Converting
Lenders as soon as practicable and in any event within
thirty (30) days following the Notice of Intent to Convert:
(i) phase one environmental reports on the
applicable Designated Properties containing only such
items as are acceptable to the Converting Lenders in
their reasonable discretion;
(ii) recent ALTA as-built surveys on the applicable
Designated Properties showing all structures and
easements in form and substance acceptable to the
Converting Lenders in their reasonable discretion;
(iii) mortgagee title insurance policies insuring
the priority of the Mortgages (in such amounts and
containing only such exceptions as are acceptable to
the Converting Lenders in their reasonable discretion);
(iv) any appraisals of the applicable Designated
Properties that may be required by law or regulation
applicable to the Converting Lenders, which appraisals
shall be in form and substance acceptable to the
Converting Lenders in their reasonable discretion;
(v) certificates of insurance with respect to the
property subject to the Mortgages showing coverages in
such amounts as are acceptable to the Converting
Lenders in their reasonable discretion; and
(vi) any other items and deliveries as are
reasonably requested by the Converting Lenders in
connection with the Mortgages and the Conversion Event.
(B) Deliveries in respect of Conversion. HRT at its own
expense will promptly provide:
(i) to the Converting Lenders and, if appropriate,
to the Agent,
(A) amendment(s) to this Credit Agreement and
other documentation necessary and appropriate to give
effect to the conversion of the respective Tranche A
Term Loan to a secured non-recourse loan (which other
documentation may be in the form of a new loan
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<PAGE> 6
agreement and related documents that do not include the
Agent or the other Tranche A Term Lenders), in form and
substance acceptable to the Converting Lender in its
discretion; and
(B) legal opinions relating to any such
amendments and other documentation in form and
substance satisfactory to the Converting Lenders in
their discretion; and
(ii) to the Escrow Agent, Mortgages on any of the
applicable Designated Properties for which the Escrow Agent
does not then hold Mortgages.
(C) Election of Conversion. The Converting Lenders may by
notice to the Agent and HRT, contemporaneous with any Notice of
Intent to Convert or at any time thereafter, elect to convert
their respective Tranche A Term Loan to a secured non-recourse
loan (a "Notice of Conversion" and any such exercise of the right
of conversion shall constitute a "Conversion Event") at HRT's
expense, and in connection therewith:
(i) the Converting Lender may direct the Agent to take
prompt action appropriate under the circumstances to give
effect to the provisions of this subsection, including
direction to the appropriate Escrow Agent for delivery of
Mortgages in respect of the applicable Designated
Properties; and
(ii) legal opinions relating to any such Mortgages,
other related documentation and the Designated Properties in
form and substance satisfactory to the Converting Lenders in
their discretion;
provided that, if the Converting Lenders should elect to exercise
their right of conversion hereunder prior to delivery of the
items in respect of the Designated Properties set forth in the
foregoing clause (A), HRT will covenant and agree to provide such
items promptly within the time provided thereby; provided further
that if HRT and the Converting Lenders shall not otherwise agree
to particular terms of the non-recourse provisions as
contemplated in the foregoing clause (B), THE RESPECTIVE TRANCHE
A TERM LOAN SHALL BE CONVERTED UPON DELIVERY OF THE NOTICE OF
CONVERSION AND SHALL THEREUPON BECOME NON-RECOURSE TO HRT AND ITS
SUBSIDIARIES UPON THE TERMS SPECIFIED IN THE LAST SENTENCE OF THE
NEXT SUCCEEDING PARAGRAPH HEREOF, AND THEREAFTER RECOVERY OF
AMOUNTS OWING TO SUCH CONVERTING LENDERS UNDER THEIR RESPECTIVE
NOTES AND TRANCHE A TERM LOAN SHALL, SUBJECT TO SUCH SPECIFIED
TERMS, BE LIMITED TO THE DESIGNATED PROPERTIES OF SUCH CONVERTING
LENDERS.
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<PAGE> 7
In connection with any Conversion Event, the Agent will take
such action appropriate under the circumstances to give effect to
the provisions of this subsection, and HRT will (and will cause
each of its Subsidiaries and its Specified Affiliates to)
cooperate with and assist in the delivery of any such Mortgages,
including, without limitation, the execution and delivery of
additional mortgage instruments or amendments of mortgage
instruments previously executed, as reasonably necessary to give
effect to the provisions of this subsection. HRT will also pay
any and all recording fees and taxes, any title insurance
premiums, any legal fees and other costs and expenses of the
Converting Lenders incurred in connection with the Conversion
Event. The parties hereto agree to cooperate in the preparation,
execution and delivery of any amendments to the Credit Agreement
or other documentation deemed reasonably necessary by the
Converting Lenders or the Agent in connection with the Conversion
Event. The parties hereto further agree that the non-recourse
provisions of any such amendment or other documentation will
contain reasonable and customary exceptions for such matters as
fraud, willful misrepresentation, material misstatements,
misappropriation of funds, waste, indemnification for
environmental liabilities, attorneys' fees and other costs of
collection.
(D) Substitution of Designated Properties. The Converting
Lenders may, by written notice to HRT, reject any Designated
Property for which HRT is unable to satisfy any of the
requirements set forth in clause (a)(iii)(A) of this Section
2.01, in which case, HRT shall, by written notice to the
Converting Lenders, promptly substitute another property of
comparable value satisfactory to the Converting Lenders in their
reasonable discretion. Any property so rejected shall cease to be
a Designated Property upon substitution of a conforming property,
and any conforming property so substituted shall immediately
become a Designated Property. HRT shall promptly comply with the
requirements of this Section 2.01(a)(iii) with respect to any
such new Designated Property.
1.3 Subsection (a) of Section 2.04 is amended to read as follows:
(a)(i) The Tranche A-1 Term Loan, together with accrued interest,
fees and other amounts owing hereunder, is due and payable in full on
March 30, 2001 (the "Tranche A-1 Maturity Date"). Payment on or in
respect of the Tranche A-1 Term Loan will be applied ratably to the
Tranche A-1 Term Loan held by the Tranche A-1 Term Lenders in
accordance with their respective Tranche A-1 Term Loan Commitment
Percentages.
(ii) The Tranche A-2 Term Loan, together with accrued interest,
fees and other amounts owing hereunder, is due and payable in full on
March 30, 2001 (the "Tranche A-2 Maturity Date"). Payment on or in
respect of the Tranche A-2 Term Loan will be applied ratably to the
Tranche A-2 Term Loan held by the Tranche A-2 Term Lenders in
accordance with their respective Tranche A-2 Term Loan Commitment
Percentages.
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<PAGE> 8
1.4 Subsection (i) of Section 2.09(b) is amended to read as follows:
(i) Mandatory Prepayments from Asset Sales. Within five (5)
Business Days (or such longer period of time agreed to by the Banks
entitled to proceeds in accordance with the provisions of this
subsection as set forth below) of each receipt by HRT or any of its
Subsidiaries or Specified Affiliates of any Net Sale Proceeds from any
Asset Sale, HRT shall prepay, or cause such Subsidiary or Specified
Affiliate to prepay on behalf of HRT, to the Agent hereunder for the
account of the Banks hereunder an amount equal to 100% of all Net Sale
Proceeds from all such Asset Sales as hereafter provided:
(A) Net Sale Proceeds derived from the Tranche A-1 Term Loan
Designated Properties shall be applied first to accrued interest and
fees and other amounts owing in respect of the Tranche A-1 Term Loan
and then to the principal amount of the Tranche A-1 Term Loan until
paid in full. After payment in full of the Tranche A-1 Term Loan, any
such proceeds shall be applied to accrued interest and fees and other
amounts owing in respect of the Tranche A-2 Term Loan;
(B) Net Sale Proceeds derived from the Tranche A-2 Term Loan
Designated Properties shall be applied first to accrued interest and
fees and other amounts owing in respect of the Tranche A-2 Term Loan
and then to the principal amount of the Tranche A-2 Term Loan until
paid in full. After payment in full of the Tranche A-2 Term Loan, any
such proceeds shall be applied to accrued interest and fees and other
amounts owing in respect of the Tranche A-1 Term Loan; and
(C) Net Sale Proceeds derived from property other than the
Tranche A-1 Term Loan Designated Properties or the Tranche A-2 Term
Loan Designated Properties shall be applied first to accrued interest
and fees and other amounts owing in respect of the Tranche A-1 Term
Loan and then to the principal amount of the Tranche A-1 Term Loan
until paid in full. After payment in full of the Tranche A-1 Term
Loan, any such proceeds shall be applied to accrued interest and fees
and other amounts owing in respect of the Tranche A-2 Term Loan.
1.5 Subsection (iii) of Section 2.09(b) is amended to read as follows:
(iii) Mandatory Prepayment from the Proceeds of Debt. Within five
(5) Business Days (or such longer period of time agreed to by the
Banks entitled to proceeds in accordance with the provisions of this
subsection as set forth below) of each date on which HRT or any of its
Subsidiaries receives cash proceeds from the issuance of any Debt
after the Closing Date (other than borrowings under the Revolving
Credit Agreement, or mortgage indebtedness assumed in connection with
purchases and acquisitions otherwise permitted hereunder), HRT shall
make payment, or shall cause any such Subsidiary to make payment, of
such cash proceeds less any actual out of pocket expenses, fees and
other sums paid or incurred by HRT or its Subsidiaries in connection
therewith on the Term Loans as hereafter provided.
(A) Prepayments in respect of the issuance of Debt by HRT
and its Subsidiaries secured by any of the Tranche A-1 Term Loan
Designated Properties shall be applied first to accrued interest
and fees and other amounts
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<PAGE> 9
owing in respect of the Tranche A-1 Term Loan and then to the
principal amount of the Tranche A-1 Term Loan until paid in full.
After payment in full of the Tranche A-1 Term Loan, any such
proceeds shall be applied to accrued interest and fees and other
amounts owing in respect of the Tranche A-2 Term Loan;
(B) Prepayments in respect of the issuance of Debt by HRT
and its Subsidiaries secured by any of the Tranche A-2 Term Loan
Designated Properties shall be applied first to accrued interest
and fees and other amounts owing in respect of the Tranche A-2
Term Loan and then to the principal amount of the Tranche A-2
Term Loan until paid in full. After payment in full of the
Tranche A-2 Term Loan, any such proceeds shall be applied to
accrued interest and fees and other amounts owing in respect of
the Tranche A-1 Term Loan; and
(C) Prepayments in respect of the issuance of Debt by HRT
and its Subsidiaries other than Debt described in subsections (A)
and (B) of this Section 2.09(b)(iii) shall be applied first to
accrued interest and fees and other amounts owing in respect of
the Tranche A-1 Term Loan and then to the principal amount of the
Tranche A-1 Term Loan until paid in full. After payment in full
of the Tranche A-1 Term Loan, any such proceeds shall be applied
to accrued interest and fees and other amounts owing in respect
of the Tranche A-2 Term Loan.
1.6 Section 2.11 is amended to include a new subsection (c) to read as
follows:
(c) Except as otherwise expressly provided, payments and
prepayments of principal, accrued interest and fees shall be shared
ratably by the Banks based on their portion of the principal balance
of the Tranche A Term Loan. Payments and prepayments and accrued
interest and other amounts in respect of the Tranche A-1 Term Loan
shall be shared ratably by the Tranche A-1 Term Lenders based on their
respective Tranche A-1 Term Loan Commitment Percentages. Payments and
prepayments and accrued interest and other amounts in respect of the
Tranche A-2 Term Loan shall be shared ratably by the Tranche A-2 Term
Lenders based on their respective Tranche A-2 Term Loan Commitment
Percentages.
1.7 A new Section 4.22 is added to read as follows:
SECTION 4.22 Designated Properties. As to each of the Designated
Properties: (i) HRT or its Subsidiaries have good marketable title thereto
and the legal right and authority to pledge the property under the terms
and conditions provided herein, (ii) the property is not subject to any
liens or encumbrances other than those permitted by Section 5.07, (iii) HRT
and its Subsidiaries hereby reaffirm the representations and warranties
regarding Environmental Matters provided in Section 4.06, and (iv) all
property taxes and governmental fees and charges relating to the properties
have been paid, other than those which are not yet delinquent or which are
being contested in accordance with the provisions of Section 4.16.
1.8 A new paragraph is added to the end of Section 5.07 to read as follows:
Notwithstanding anything to the contrary contained herein, HRT
will not nor will it permit any of its Subsidiaries to create, assume
or suffer to exist any Lien on any of the Designated Properties,
except (i) Liens created or contemplated hereunder, and (ii) Liens
permitted under subsections (b) - (f) hereof.
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<PAGE> 10
1.9 A new Section 5.29 is added to read as follows:
SECTION 5.29. Requirements Imposed by Amendment No. 7. As soon as
practicable, and in any event no later than January 17, 2001, HRT
shall deliver to the Agent the following:
(i) Escrow Agreements. An executed escrow agreement in form and
substance satisfactory to the Banks (the "Escrow Agreement") with an
Escrow Agent acceptable to the Banks (the "Escrow Agent") for each of
the Tranche A-1 Term Loan Designated Properties and the Tranche A-2
Term Loan Designated Properties; and
(ii) Confirmation of Delivery of Mortgages. A notice (a) from the
Escrow Agent for the Tranche A-1 Term Loan Designated Properties that
it has received fully executed Mortgages covering each of the Tranche
A-1 Term Loan Designated Properties and (b) from the Escrow Agent for
the Tranche A-2 Term Loan Designated Properties that it has received
fully executed Mortgages covering each of the Tranche A-2 Term Loan
Designated Properties.
1.10 Section 6.01(c) is amended to read as follows:
(c) Default in the due performance or observance of any term,
covenant or agreement contained in Sections 5.07 through 5.29,
inclusive.
1.11 The final paragraph of Section 6.01 is amended to read as follows:
then, and in every such event during the continuance of any such Event
of Default:
(i) Tranche A-1 Term Loan. The Tranche A-1 Term Lenders may
by notice to the Agent and HRT take any or all of the following
actions: (A) terminate any commitments which the Tranche A-1 Term
Lenders may have hereunder or under the other Financing
Documents, (B) declare the Tranche A-1 Term Loan and all amounts
owing under the Tranche A-1 Term Note (including accrued
interest) to be, and the such amounts and such Note shall
thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of
which are hereby waived by HRT, (C) in the event a Conversion
Event shall have occurred with respect to the Tranche A-1 Term
Loan, direct foreclosure or other appropriate action under any
Tranche A-1 Term Loan Mortgages, and (D) direct the Agent to take
any other such action and exercise any other such remedies in
respect of the Tranche A-1 Term Loan and any collateral interest
therefor as the Tranche A-1 Term Lender may direct; provided that
notwithstanding the foregoing, any and all commitments shall
immediately terminate and any and all amounts owing under the
Tranche A-1 Term Note or in respect of the Tranche A-1 Term Loan
shall be immediately due upon the occurrence of an event of
bankruptcy or insolvency described in the foregoing clauses (h)
or (i) of this Section 6.01 without demand or notice or other act
of any kind.
(ii) Tranche A-2 Term Loan. The Tranche A-2 Term Lenders may
by notice to the Agent and HRT take any or all of the following
actions: (A) terminate any commitments which the Tranche A-2 Term
Lenders may have hereunder or under the other Financing
Documents, (B) declare the Tranche A-2
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<PAGE> 11
Term Loan and all amounts owing under the Tranche A-2 Term Note
(including accrued interest) to be, and the such amounts and such
Note shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of
which are hereby waived by HRT, (C) in the event a Conversion
Event shall have occurred with respect to the Tranche A-2 Term
Loan, direct foreclosure or other appropriate action under any
Tranche A-2 Term Loan Mortgages, and (D) direct the Agent to take
any other such action and exercise any other such remedies in
respect of the Tranche A-2 Term Loan and any collateral interest
therefor as the Tranche A-2 Term Lender may direct; provided that
notwithstanding the foregoing, any and all commitments shall
immediately terminate and any and all amounts owing under the
Tranche A-2 Term Note or in respect of the Tranche A-2 Term Loan
shall be immediately due upon the occurrence of an event of
bankruptcy or insolvency described in the foregoing clauses (h)
or (i) of this Section 6.01 without demand or notice or other act
of any kind.
(iii) Other Actions. The Banks, by joint act of the Tranche
A-1 Term Lenders and the Tranche A-2 Term Lenders, may direct the
Agent to take any such other action and exercise any such other
remedies as they may deem appropriate.
1.12 The second sentence of Section 7.08 is amended to read as follows:
The Majority Banks may remove and replace the Agent with or
without cause at any time by giving thirty (30) days prior
written notice to the Agent, the other Banks and the Borrower.
1.13 Section 9.05 is amended to read as follows:
SECTION 9.05 Amendments and Waivers. Any provision of this Credit
Agreement or any of the other Financing Documents may be modified,
amended or waived if, but only if, such modification, amendment or
waiver is in writing and is signed:
(i) by HRT and the Tranche A-1 Term Lenders in respect of (A) the
Tranche A-1 Term Loan Designated Properties (except as provided in the
definition of such term) and the Tranche A-1 Term Loan Mortgages, (B)
any mandatory prepayments required by Section 2.09(b)(i)(A), and (C)
terms of this Agreement solely affecting the Tranche A-1 Term Loan or
the rights, duties and obligations of HRT and the Tranche A-1 Term
Lenders in respect thereof;
(ii) by HRT and the Tranche A-2 Term Lenders in respect of (A)
the Tranche A-2 Term Loan Designated Properties (except as provided in
the definition of such term) and the Tranche A-2 Term Loan Mortgages,
(B) any mandatory prepayments required by Section 2.09(b)(i)(B), and
(C) terms of this Agreement solely affecting the Tranche A-2 Term Loan
or the rights, duties and obligations of HRT and the Tranche A-2 Term
Lenders in respect thereof; and
(iii) otherwise by HRT, on the one hand, and the Majority Banks,
on the other hand, (and, if the rights or duties of the Agent are
affected thereby, by the Agent);
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provided that no such modification, amendment or waiver shall, unless
signed by each of the Banks directly affected thereby, (a) increase
the commitment of any Bank or subject any Bank to any additional
obligation, (b) reduce the principal of or rate of interest on any
Loan or any fees or other amounts payable to any Bank hereunder, (c)
postpone the date fixed for any scheduled payment of principal of or
interest on any Loan or any fees hereunder or for any scheduled
reduction or termination of any Commitment, (d) change the percentage
of commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Banks, which shall be required for the Banks
or any of them to take any action under this Section or any other
provision of this Credit Agreement or (e) release all or substantially
all of the Guarantors.
1.14 Schedule A-1 is added to read as shown on Schedule A-1 attached
hereto.
1.15 Schedule A-2 is added to read as shown on Schedule A-2 attached
hereto.
1.16 Schedule 2.01 is amended and restated in its entirety to read as shown
on Schedule 2.01 attached hereto.
1.17 Schedule 2.06(a)(i) is added to read as shown on Schedule 2.06(a)(i)
attached hereto.
1.18 Schedule 2.06(a)(ii) is added to read as shown on Schedule 2.06(a)(ii)
attached hereto.
2. Except as modified hereby, all of the terms and provisions of the Term
Credit Agreement (including schedules and exhibits) shall remain in full force
and effect.
3. This Amendment shall not be effective unless on January 4, 2001 (the
"Effective Date"):
3.1 Opinion of Counsel. HRT delivers to the Agent an opinion of counsel
addressed to the Agent and the Banks in form and substance
satisfactory to the Agent;
3.2 Documents. HRT delivers to the Agent an executed copy of this
Amendment, a Tranche A-1 Term Note payable to Bank of America, N.A.
and a Tranche A-2 Term Note payable to First Union National Bank;
3.3 Schedules. HRT delivers to the Agent Schedule A-1 identifying the
Tranche A-1 Term Loan Designated Properties and Schedule A-2
identifying the Tranche A-2 Term Loan Designated Properties;
3.4 Certificate. HRT delivers to the Agent a certificate of an authorized
officer of the Borrower confirming (a) that the representations and
warranties set forth in the Term Credit Agreement and the other
Financing Documents are true and correct as of the date of this
Amendment (except for those which expressly relate to an earlier date)
and (b) that there exists no Default or Event of Default under the
Term Credit Agreement or the Revolving Credit Agreement; and
3.5 Professional Fees. HRT pays the reasonable fees and expenses of Moore
& Van Allen, PLLC and Alston & Bird LLP, counsel to the Banks,
incurred in connection with the negotiation and documentation of this
Amendment.
4. HRT hereby affirms that, after giving effect to this Amendment, the
representations and warranties set forth in the Term Credit Agreement and the
other Financing Documents are true and
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correct in all material respects as of the date hereof (except those which
expressly relate to an earlier period).
5. HRT agrees to pay all reasonable costs and expenses of the Banks (i) in
connection with the preparation, execution and delivery of this Amendment, the
Escrow Agreements and the Mortgages and (ii) in connection with any Conversion
Event, including in each case the reasonable fees and expenses of Moore & Van
Allen, PLLC and Alston & Bird LLP.
6. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
7. This Amendment shall be governed by and construed in accordance with the
laws of the State of North Carolina.
[remainder of page intentionally left blank]
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<PAGE> 14
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Amendment to be executed as of the day and year first above written.
BORROWER: HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:
----------------------------------
Name:
Title: Executive Vice President
AGENT: BANK OF AMERICA, N.A. (a national banking association
formerly known as NationsBank, N.A.), as Agent under
the Term Credit Agreement
By:
----------------------------------
Name:
Title:
BANKS: BANK OF AMERICA, N.A. (a national banking association
formerly known as NationsBank, N.A.)
By:
----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:
----------------------------------
Name:
Title:
[signatures continue]
<PAGE> 15
ACKNOWLEDGED & AGREED:
GUARANTORS: DURHAM MEDICAL OFFICE BUILDING, INC.,
a Texas corporation
HEALTHCARE REALTY SERVICES INCORPORATED,
an Alabama corporation
HR ASSETS, INC., a Texas corporation
HR CAPITAL, INC., a Texas corporation
HR FUNDING, INC., a Texas corporation
HR INTERESTS, INC., a Texas corporation
HR OF TEXAS, INC., a Maryland corporation
HRT OF ALABAMA, INC., an Alabama corporation
HRT OF DELAWARE, INC., a Delaware corporation
HRT OF FLORIDA, INC., a Florida corporation
HRT OF ROANOKE, INC. a Virginia corporation
HRT OF TENNESSEE, INC., a Tennessee corporation
HRT OF VIRGINIA, INC., a Virginia corporation
PENNSYLVANIA HRT, INC., a Pennsylvania corporation
HR OF SAN ANTONIO, INC., a Texas corporation
PROPERTY TECHNOLOGY SERVICES, INC.,
a Tennessee corporation
HR SYMBIONT, INC., a Delaware corporation
By:
--------------------------------------
Name:
Title: Executive Vice President
for each of the foregoing
PASADENA MEDICAL PLAZA SSJ, LTD.,
a Florida limited partnership
By: Healthcare Realty Trust Incorporated,
a Maryland corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
SAN ANTONIO SSP, LTD.,
a Texas limited partnership
By: HR of San Antonio, Inc.,
a Texas corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
[signatures continue]
<PAGE> 16
HR ASSETS, LLC,
a Delaware limited liability company
BY: Healthcare Realty Trust Incorporated,
a Maryland corporation, as Sole Manager
By:
--------------------------------------
Name:
Title: Executive Vice President
HR ACQUISITION I CORPORATION,
f/k/a Capstone Capital Corporation, a Maryland corporation
CAPSTONE CAPITAL OF ALABAMA, INC.,
an Alabama corporation
CAPSTONE-CAPITAL OF BAYTOWN, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF KENTUCKY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF MASSACHUSETTS. INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.,
a Pennsylvania corporation
CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF TEXAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL PROPERTIES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation
By:
--------------------------------------
Name:
Title: Executive Vice President
for each of the foregoing
[signatures continue]
<PAGE> 17
CAPSTONE OF BONITA BAY, LTD.,
an Alabama limited partnership
By: CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF LOS ANGELES, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama Corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF CAPE CORAL, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF LAS VEGAS, LTD., an Alabama limited partnership
BY: CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF SARASOTA, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
By:
--------------------------------------
Name:
Title: Executive Vice President
[signatures continue]
<PAGE> 18
CAPSTONE CAPITAL OF SAN ANTONIO, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF TEXAS, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF VIRGINIA LIMITED PARTNERSHIP, an
Alabama limited partnership
By: CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF OCOEE, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
CAPSTONE OF PORT ORANGE, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation, as General Partner
By:
--------------------------------------
Name:
Title: Executive Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>5
<FILENAME>g67659ex10-21.txt
<DESCRIPTION>BANK JOINDER AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.21
BANK JOINDER AGREEMENT
THIS BANK JOINDER AGREEMENT (this "Agreement") dated as of December 28,
2000 to the Credit Agreement referenced below is by and among UBS AG, STAMFORD
BRANCH (the "New Bank"), HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation (the "Borrower") and BANK OF AMERICA, N.A., as administrative agent
(in such capacity, the "Agent") for the Banks. Capitalized terms used but not
defined herein shall have the meanings provided in the Credit Agreement.
W I T N E S S E T H
WHEREAS, pursuant to that Credit Agreement (as amended and modified
from time to time, the "Credit Agreement") dated as of October 15, 1998 among
the Borrower, the Banks and NationsBank, N.A. (now known as Bank of America,
N.A.), as Agent, the Banks agreed to provide the Borrower with a $265 million
revolving credit facility;
WHEREAS, pursuant to Section 2.01(d) of the Credit Agreement, the
Borrower has requested that the New Bank provide an additional Revolving
Commitment under the Credit Agreement; and
WHEREAS, the New Bank has agreed to provide the additional Revolving
Commitment on the terms and conditions set forth herein and to become a "Bank"
under the Credit Agreement in connection therewith.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The New Bank hereby agrees to provide Commitments to the Borrower in
the amounts set forth on Schedule 2.1(a) to the Credit Agreement as attached
hereto. The Revolving Commitment Percentage of the New Bank shall be as set
forth on Schedule 2.1(a).
2. The New Bank (a) represents and warrants that it is a commercial
lender, other financial institution or other "accredited" investor (as defined
in SEC Regulation D) which makes or acquires or loans on the ordinary course of
business and that it will make or acquire Loans for its own account in the
ordinary course of business, (b) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 5.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Agreement; (c) agrees that it will, independently and without reliance upon
the Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (d) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; and (e) agrees that, as of the effective date,
the New Bank shall (i) be a party to the Credit Agreement and the other Credit
Documents, (ii) be a "Bank" for all purposes of the Credit Agreement and the
other Credit Documents, (iii) perform all of the obligations that by the terms
of the Credit Agreement are required to be performed by it as a "Bank" under the
Credit Agreement and (iv) shall have the rights and obligations of a Bank under
the Credit Agreement and the other Credit Documents.
3. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of North Carolina.
<PAGE> 2
4. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.
[remainder of page intentionally left blank]
<PAGE> 3
IN WITNESS WHEREOF, the New Bank, the Borrower and the Agent have caused
this Agreement to be executed by their officers thereunto duly authorized as of
the date hereof.
HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:
-----------------------------------------
Name:
Title:
BANK OF AMERICA, N.A. (formerly
NationsBank, N.A.), as Agent
By:
-----------------------------------------
Name:
Title:
UBS AG, STAMFORD BRANCH,
as New Bank
By:
-----------------------------------------
Name:
Title:
New Bank Address for Notices:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>6
<FILENAME>g67659ex13.txt
<DESCRIPTION>CERTAIN PORTIONS OF THE ANNUAL REPORT
<TEXT>
<PAGE> 1
Exhibit 13
Selected Financial
I N F O R M A T I O N
The following table sets forth financial information for the Company
which is derived from the Consolidated Financial Statements of the Company
(Dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
2000 1999 1998 (2) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues $ 195,338 $ 187,257 $ 92,429 $ 59,796 $ 38,574
Interest expense $ 42,995 $ 38,603 $ 13,057 $ 7,969 $ 7,344
Net income $ 79,801 $ 86,027 $ 40,479 $ 31,212 $ 19,732
Net income per common share - Basic $ 1.85 $ 2.02 $ 1.66 $ 1.71 $ 1.52
Net income per common share - Diluted $ 1.82 $ 1.99 $ 1.63 $ 1.68 $ 1.49
Weighted average common shares outstanding
- Basic 39,544,400 39,326,594 24,043,942 18,222,243 13,014,286
Weighted average common shares outstanding
- Diluted 40,301,409 39,810,306 24,524,600 18,572,492 13,261,291
BALANCE SHEET DATA (AS OF THE END OF THE PERIOD):
Real estate properties, net $ 1,358,826 $ 1,315,150 $ 1,337,439 $ 466,273 $ 416,034
Total assets $ 1,587,076 $ 1,607,964 $ 1,612,423 $ 488,514 $ 427,505
Notes and bonds payable $ 536,781 $ 563,884 $ 559,924 $ 101,300 $ 168,618
Total stockholders' equity $ 1,008,037 $ 1,017,903 $ 1,017,704 $ 376,472 $ 245,964
OTHER DATA:
Funds from operations - Basic (1) $ 105,378 $ 105,727 $ 59,667 $ 42,337 $ 28,036
Funds from operations - Diluted (1) $ 105,653 $ 105,727 $ 59,731 $ 42,337 $ 28,036
Funds from operations per common share
- Basic (1) $ 2.66 $ 2.69 $ 2.48 $ 2.32 $ 2.15
Funds from operations per common share
- Diluted (1) $ 2.62 $ 2.66 $ 2.44 $ 2.28 $ 2.11
Dividends declared and paid per common
share $ 2.23 $ 2.15 $ 2.07 $ 1.99 $ 1.91
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See Note 11 to Consolidated Financial Statements.
(2) See Note 2 to Consolidated Financial Statements.
<PAGE> 2
Management's Discussion and Analysis of Financial Condition
AND RESULTS OF OPERATIONS
OVERVIEW
Healthcare Realty Trust Incorporated (the "Company") operates under the
Internal Revenue Code of 1986, as amended (the "Code"), as an indefinite life
real estate investment trust ("REIT"). The Company, a self-managed and
self-administered REIT, follows a general growth strategy that integrates
owning, managing, and developing income-producing real estate properties and
mortgages associated with the delivery of healthcare services throughout the
United States. Management believes that by providing related real estate
services, it can differentiate the Company's competitive market position, expand
its asset base and increase revenue.
Substantially all of the Company's revenues are derived from rentals on
its healthcare real estate property facilities, interest earned on mortgage
loans and from the temporary investment of funds in short-term instruments and
from management and development services. Leases and other financial support
arrangements with respect to the Company's healthcare real estate facilities
generally ensure that increased costs and expenses incurred with respect to the
operation of the facilities will be borne by tenants and healthcare providers
related to the facilities. The Company incurs operating and administrative
expenses, principally compensation expense for its officers and other employees,
office rental and related occupancy costs and various expenses incurred in the
process of acquiring additional properties.
RESULTS OF OPERATIONS
2000 Compared to 1999
For the year ended December 31, 2000, net income was $79.8 million, or
$1.85 per basic common share ($1.82 per diluted common share), on total revenues
of $195.3 million compared to net income of $86.0 million, or $2.02 per basic
common share ($1.99 per diluted common share), on total revenues of $187.3
million, for the year ended December 31, 1999. Funds from operations ("FFO") was
$105.4 million, basic ($105.7 million, diluted), or $2.66 per basic common share
($2.62 per diluted common share), for the year ended December 31, 2000 compared
to $105.7 million, or $2.69 per basic common share ($2.66 per diluted common
share), in 1999.
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Master lease rental income $ 97,238 $ 92,070
Property operating income 62,400 57,778
Straight line rent 7,827 6,885
------------------------
Total rental income 167,465 156,733
Mortgage interest income 22,755 25,940
Management fees 2,785 2,727
Interest and other income 2,333 1,857
------------------------
195,338 187,257
------------------------
EXPENSES
General and administrative 8,739 7,287
Property operating expenses 22,628 21,077
Interest 42,995 38,603
Depreciation 38,994 38,566
Amortization 513 473
Provision for loss on investment 1,000 0
------------------------
114,869 106,006
------------------------
Net income before net gain (loss) on sale of real estate properties 80,469 81,251
Net gain (loss) on sale of real estate properties (668) 4,776
------------------------
Net income $ 79,801 $ 86,027
========================
</TABLE>
Total revenues for the year ended December 31, 2000 compared to the
year ended December 31, 1999 increased $8.1 million or 4.3% as discussed below:
- Master lease rent and property operating income increased $9.8
million or 6.5%. During 1999 and 2000, the Company acquired 19
revenue-producing properties, and 13 properties under
construction were completed and began operations.
- Straight line rent income increased $0.9 million or 13.7%.
This increase is primarily attributable to the identification
during 2000 of additional leases acquired in 1998 for which
straight line rent should be recognized. The amount of
straight line rent income that relates to prior years totaled
approximately $1.2 million or $0.03 per basic and diluted
common share.
<PAGE> 3
- Mortgage interest income decreased $3.2 million or 12.3% for
2000 compared to 1999 due to the repayment of 31 mortgages
during 1999 and 2000.
- Interest and other income increased $0.5 million or 25.6%.
During 2000, the Company recognized income of approximately
$1.0 million in loan prepayment penalties and exit fees
resulting from the repayment of 14 mortgage notes receivable.
In 2000, the Company sold a participating interest in one of
its notes receivable decreasing the Company's interest income
on the note by approximately $0.4 million.
Total expenses for the year ended December 31, 2000 compared to the
year ended December 31, 1999 increased $8.9 million or 8.4% as discussed below:
- General and administrative expenses increased $1.5 million or
19.9% for 2000 compared to 1999. The primary reason is the
increased state tax expense from 1998 through 2000 resulting
from the Capstone merger impact on corporate structure coupled
with changes in state tax laws. The Company also incurred
expenses during 2000 pursuing profit-enhancing initiatives.
- Property operating expenses and depreciation expense for 2000
compared to 1999 increased $1.6 million or 7.4% and $0.4
million or 1.1%, respectively. During 1999 and 2000, the
Company acquired 19 revenue-producing properties, and 13
properties under construction were completed and began
operations.
- Interest expense for 2000 compared to 1999 increased $4.4
million or 11.4%. During 2000, the Company privately placed
$70.0 million of unsecured senior notes due 2006 (see Note 5
to Consolidated Financial Statements) resulting in additional
interest expense of approximately $4.9 million in 2000.
Interest expense on the unsecured credit facility and term
loan facility increased approximately $1.5 million from 1999
to 2000 due to an increase in the combined weighted average
interest rate of approximately 1.4% while the combined
weighted average balance outstanding decreased approximately
$57.5 million. Interest expense on the $90.0 million of
unsecured senior notes due 2002 decreased approximately $1.3
million due to annual principal payments of $18.0 million.
Further, one mortgage note payable assumed in 1998 was
defeased, by the Company, at maturity in June 2000 which
resulted in a decrease of approximately $0.8 million in
interest expense from 1999 to 2000.
- In 2000, the Company fully reserved for its $1.0 million
investment in the preferred stock of a private assisted living
company which was acquired in 1998 in its merger with Capstone
Capital Corporation (see Note 2 to Consolidated Financial
Statements).
During 2000, the Company sold six facilities resulting in a net loss of
$0.7 million, while the Company's 1999 dispositions resulted in net gains of
$4.8 million.
<PAGE> 4
1999 Compared to 1998
On October 15, 1998, the Company acquired by merger Capstone Capital
Corporation ("Capstone"). The purchase price is summarized as follows (in
thousands):
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Common stock $ 532,554
Preferred stock 72,052
Cash and cash equivalents 8,330
Liabilities assumed 424,897
------------
Total Purchase Price $ 1,037,833
============
</TABLE>
The assets acquired in the Capstone merger are summarized as follows
(in thousands):
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Real estate properties $ 804,178
Mortgage notes receivable 211,590
Cash and cash equivalents 13,767
Other assets 8,298
------------
Total Assets Acquired $ 1,037,833
============
</TABLE>
The results of operations of the Company have been significantly
impacted by the Capstone merger. As a result of this transaction in 1998, the
Company acquired 111 properties and 75 mortgages with a fair value of $804.2
million and $211.6 million, respectively. The merger was effective October 15,
1998; therefore, 1998 consolidated revenues and expenses of the Company reflects
the impact of the Capstone assets acquired and liabilities assumed for only 2.5
months in 1998 versus the entire year for 1999. The Capstone investments, along
with commitments acquired in the merger, resulted in additional master lease
rent, straight line rent and property operating income, net of operating
expenses, for the year ended December 31, 1999, of $73.5 million, a $59.0
million or 407.1% increase from 1998. Mortgage interest income in 1999 resulting
from these Capstone investments was $24.2 million, a $20.4 million or 543.3%
increase from 1998. Interest and other income attributed to the Capstone
acquisition for the years ended 1999 and 1998 was $1.4 million and $0.4 million,
respectively, a 286.2% increase. Depreciation and amortization expense for the
year ended December 31, 1999 attributed to the Capstone acquisition was $24.8
million compared to $2.9 million in 1998, a $21.9 million or 739.0% increase.
For the year ended December 31, 1999, net income was $86.0 million, or
$2.02 per basic common share ($1.99 per diluted common share), on total revenues
of $187.3 million compared to net income of $40.5 million, or $1.66 per basic
common share ($1.63 per diluted common share), on total revenues of $92.4
million, for the year ended December 31, 1998. Funds from operations ("FFO") was
$105.7 million, or $2.69 per basic common share ($2.66 per diluted common
share), for the year ended December 31, 1999 compared to $59.7 million, or $2.48
per basic common share ($2.44 per diluted common share), in 1998.
<PAGE> 5
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Master lease rental income $ 92,070 $ 47,512
Property operating income 57,778 35,269
Straight line rent 6,885 1,265
-----------------------------
Total rental income 156,733 84,046
Mortgage interest income 25,940 5,120
Management fees 2,727 2,056
Interest and other income 1,857 1,207
-----------------------------
187,257 92,429
-----------------------------
EXPENSES
General and administrative 7,287 11,126
Property operating expenses 21,077 11,978
Interest 38,603 13,057
Depreciation 38,566 15,965
Amortization 473 499
-----------------------------
106,006 52,625
-----------------------------
Net income before net gain (loss) on sale of real estate properties 81,251 39,804
Net gain (loss) on sale of real estate properties 4,776 675
-----------------------------
Net income $ 86,027 $ 40,479
=============================
</TABLE>
Total revenues for the year ended December 31, 1999 compared to the
year ended December 31, 1998, increased $94.8 million or 102.6% as discussed
below:
- Master lease rent, straight line rent and property operating
income increased $72.7 million or 86.5%. Excluding the impact
of the Capstone merger, master lease rent, straight line rent
and property operating income increased $4.8 million or 7.0%.
During 1999, the Company acquired two revenue-producing
properties and 11 properties under construction were completed
and began operations.
- Mortgage interest income increased $20.8 million or 406.6% for
the year ended December 31, 1999 compared to 1998
substantially due to the Capstone merger.
- Interest and other income for the year ended December 31, 1999
was $1.9 million compared to $1.2 million for the year ended
December 31, 1998. Excluding the impact of the Capstone
merger, interest and other income decreased $0.7 million from
1998 to 1999. In 1998, the Company recognized development fee
income from a third party project of $0.5 million, and the
Company's average cash balance was higher in 1998 resulting in
more interest income for the year.
- Third party management fees for the year ended December 31,
1999 compared to 1998 increased $0.7 million or 32.6% due
primarily to the addition of over 50 buildings with
approximately 0.9 million square feet under property
management.
Total expenses for the year ended December 31, 1999 were $106.0 million
compared to $52.6 million for 1998, an increase of $53.4 million or 101.4% as
discussed below:
- Interest expense for the year ended December 31, 1999,
compared to 1998 increased $25.5 million or 195.6%. In
conjunction with the Capstone merger in 1998, the Company
repaid the outstanding balances under both Capstone's and its
own unsecured credit facilities and entered into a $265.0
million unsecured credit facility and a $200.0 million term
loan facility. The average outstanding balances under its
credit facilities and term loan facility for the year ended
1999 compared to 1998 was $368.1 million and $82.3 million,
respectively, increasing interest expense in 1999 by
approximately $18.2 million. The subordinated convertible
debentures and mortgage notes payable assumed by the Company
in the Capstone merger resulted in an increase of $8.6 million
in interest expense for the year ended December 31, 1999
compared to 1998. These increases to interest expense
discussed above were offset by decreases to interest expense
due to an increase in capitalized interest of $0.5 million
from 1998 to 1999 and a decrease of $1.3 million to interest
expense on the Company's $90.0 million of unsecured notes due
2002 due to annual principal payments of $18.0 million.
- Depreciation expense increased $22.6 million due substantially
to the properties acquired in the Capstone merger. Excluding
the effect of the Capstone merger, depreciation expense
increased $0.8 million, resulting primarily from the
acquisition of 11 properties during 1998 and 1999.
- Property operating expenses for the year ended December 31,
1999, compared to 1998, increased $9.1 million or 76.0% due
mainly to the properties acquired in the Capstone merger.
<PAGE> 6
- General and administrative expenses decreased $3.8 million or
34.5% for the year ended December 31, 1999, compared to 1998.
During 1998, the Company recognized a $6.3 million write-off
for certain capitalized software costs, leasehold
improvements, organization and other deferred costs which were
deemed to have no continuing value and for incremental
internal costs incurred in conjunction with the Capstone
merger. After consideration of the write-off, the net $2.5
million increase was primarily due to the increased number of
employees for property management, development, and other
service-based activities, an increase and expansion of the
corporate office lease, and the write-off of certain project
costs during 1999.
During 1999, the Company sold five facilities and one partnership
interest in a facility resulting in net gains of $4.8 million, while the
Company's 1998 dispositions resulted in net gains of $0.7 million.
Liquidity and Capital Resources
As discussed in more detail in Note 5 to Consolidated Financial
Statements, the Company has various commitments to pay interest and outstanding
principal balances on its notes and bonds payable as follows (dollars in
millions):
<TABLE>
<CAPTION>
BALANCE AT MATURITY INTEREST INTEREST
DEC. 31, 2000 DATE RATE PAYMENTS PRINCIPAL PAYMENTS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unsecured credit facility (1) $ 265.0 10/01 LIBOR + 1.05% Quarterly At maturity
--------------------------------------------------------------------------------------------------------------------------
Term loan facility 25.0 3/01 LIBOR + 2.50% Quarterly At maturity
--------------------------------------------------------------------------------------------------------------------------
Senior notes due 2002 36.0 9/02 7.41% Semi-Annual $18 million annually
--------------------------------------------------------------------------------------------------------------------------
$20.3 million in 2004,
Senior notes due 2006 70.0 4/06 9.49% Semi- 2005 and $29.4 million
Annual in 2006
--------------------------------------------------------------------------------------------------------------------------
10.5% Convertible subordinated
Debentures, net 3.4 4/02 10.5% Semi-Annual At maturity
--------------------------------------------------------------------------------------------------------------------------
6.55% Convertible subordinated
Debentures, net 74.5 3/02 6.55% Semi-Annual At maturity
--------------------------------------------------------------------------------------------------------------------------
Mortgage notes payable 57.1 9/04-7/26 7.625%-9.063% Monthly Monthly or at maturity
--------------------------------------------------------------------------------------------------------------------------
Other note payable 5.8 7/05 7.53% Semi-Annual Semi-Annual
--------------------------------------------------------------------------------------------------------------------------
$ 536.8
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company pays a quarterly commitment fee of 0.225 of 1% on
the unused portion of its unsecured credit facility.
At December 31, 2000, the Company had $35.0 million available borrowing
capacity under its unsecured credit facility. The unsecured credit facility
matures in October 2001. During 2001, the Company will extend or renegotiate the
terms of this facility which may result in higher interest costs.
As of December 31, 2000, the Company can issue an aggregate of
approximately $100.0 million of securities remaining under its currently
effective registration statement. The Company has filed a second shelf
registration statement with the Securities and Exchange Commission. The second
shelf registration statement allows the Company to issue an additional $400.0
million of securities, bringing the total securities available for issuance to
$500.0 million. Should the market permit, the Company may issue securities under
its registration statements. The Company may, under certain circumstances,
borrow additional amounts in connection with the renovation or expansion of its
properties, the acquisition or development of additional properties or, as
necessary, to meet distribution requirements for REITs under the Code. The
Company may raise additional capital or make investments by issuing, in public
or private transactions, its equity and debt securities, but the availability
and terms of any such issuance will depend upon market and other conditions.
The Company is presently negotiating for new secured debt financing.
Historically, the Company has limited the use of secured debt financing.
However, given the current favorable differential between the cost of unsecured
debt and secured debt, the Company is seeking to take advantage of this
opportunity to access capital in the secured debt market. The Company provides
no assurance that the new secured debt financing
<PAGE> 7
will be obtained. If the new secured debt financing is obtained, the proceeds
will be used to repay the term loan facility and to reduce the balance of the
unsecured credit facility.
In 1998, the Company sold an aggregate of 1.4 million shares of its
common stock. The Company received an aggregate of $37.1 million in net proceeds
from these transactions. The proceeds were used to repay debt and were also used
for acquisitions, developments and general corporate purposes.
The Company generated net cash from operations in 2000 of $121.0
million, an increase of $29.3 million from 1999 and $98.6 million from 1998. The
increase from 1999 resulted primarily from changes in other assets, other
liabilities, accounts payable and accrued expenses. The increase from 1998
resulted primarily from increases in net income, depreciation and liabilities
due to the Capstone merger (see Note 2 to Consolidated Financial Statements).
Other significant sources and uses of cash for investing and financing
activities are set forth in the Statement of Cash Flows in the Consolidated
Financial Statements.
As of December 31, 2000, the Company had an investment of approximately
$30.9 million in seven build-to-suit developments in progress which have a total
remaining funding commitment of approximately $51.3 million. Further, the
Company has commitments to provide funding for the enhancement of existing
properties totaling $3.5 million at December 31, 2000. The Company intends to
fund these commitments with internally generated cash flow, proceeds from the
sale of additional assets, proceeds from additional repayments of mortgage notes
receivable, and additional capital market financing.
At December 31, 2000, the Company had stockholders' equity of $1.0
billion. The debt to total capitalization ratio was approximately .344 to 1 at
January 31, 2001.
On January 23, 2001, the Company declared an increase in its quarterly
common stock dividend from $.565 per share ($2.26 annualized) to $.57 per share
($2.28 annualized) payable to stockholders of record as of February 15, 2001.
This dividend was paid on March 7, 2001. While the Company has no present plans
to change its quarterly common stock dividend policy, the dividend policy is
reviewed each quarter by its board of directors. Should access to new capital
not be available, the Company is uncertain of its ability to increase its
quarterly common stock dividends in the future.
During 2001, the Company will pay quarterly dividends on its 8 7/8%
Series A Cumulative Preferred Stock in the annualized amount of $2.22 per share.
Under the terms of the leases and other financial support agreements
relating to most of the properties, tenants or healthcare providers are
generally responsible for operating expenses and taxes relating to the
properties. As a result of these arrangements, with limited exceptions not
material to the performance of the Company, the Company does not believe any
increases in the property operating expenses or taxes would significantly impact
the operating results of the Company during the respective terms of the
agreements. The Company anticipates entering into similar arrangements with
respect to additional properties it acquires or develops. After the term of the
leases or financial support agreements, or in the event the financial
obligations required by the agreement are not met, the Company anticipates that
any expenditures it might become responsible for in maintaining the properties
will be funded by cash from operations and, in the case of major expenditures,
possibly by borrowings. To the extent that unanticipated expenditures or
significant borrowings are required, the Company's cash available for
distribution and liquidity may be adversely affected.
The Company plans to continue to meet its liquidity needs, including
funding additional investments in 2001, paying its quarterly dividends and
funding its debt service from its cash flows, the proceeds of mortgage loan
repayments, sales of real estate investments, payments of mortgage notes
receivable, and capital market financings. The Company continues negotiations
for additional capital market financings and asset sales, the proceeds of which
would be used to repay the term loan facility, the unsecured credit facility and
for other general corporate purposes. The Company believes that its liquidity
and sources of capital are adequate to satisfy its cash requirements. The
Company, however, cannot be certain that these sources of funds will be
available at a time and upon terms acceptable to the Company in sufficient
amounts to meet its liquidity needs.
Impact of Inflation
Inflation has not significantly affected the earnings of the Company
because of the moderate inflation rate and the fact that most of the Company's
leases and financial support arrangements require tenants and sponsors to pay
all or some portion of the increases in operating expenses, thereby reducing the
risk of any adverse effects of inflation to the Company. In addition, inflation
will have the effect of increasing gross revenue the Company is to receive under
the terms of the leases and financial support arrangements. Leases and financial
support arrangements vary in the remaining terms of obligations from one to 23
years, further reducing the risk of any adverse effects of inflation to the
Company. The unsecured credit facility bears interest at a variable rate;
therefore, the amount of interest payable under the unsecured credit facility
will be influenced by changes in short-term rates, which tend to be sensitive to
inflation. Generally, changes in inflation and interest rates tend to move in
the same direction. During periods where interest rate increases outpace
inflation, the Company's operating results will be negatively impacted.
Likewise, when increases in inflation outpace increases in interest rates, the
Company's operating results will be positively impacted.
<PAGE> 8
Market Risk
The Company is exposed to market risk, in the form of changing interest
rates, on its debt and mortgage notes receivable. The Company has no market risk
with respect to derivatives and foreign currency fluctuations. Management uses
daily monitoring of market conditions and analytical techniques to manage this
risk.
At December 31, 2000 and 1999, the fair value of the Company's variable
rate debt approximates its carrying value of $304.2 million and $365.7 million,
respectively. By definition, because the interest rate is variable, the carrying
amount of variable rate debt will always approximate its fair value. Assuming
the December 31, 2000 and 1999 carrying value of $304.2 million and $365.7
million, respectively, is held constant, the hypothetical increase in interest
expense resulting from a one percentage point increase in interest rates, would
be $3.0 million and $3.7 million, respectively. The interest rate on variable
rate debt is based on and variable with London interbank offered rate ("LIBOR").
At December 31, 2000 and 1999, the carrying value of the Company's
fixed rate debt is $232.6 million and $198.2 million, respectively, and the fair
value of the Company's fixed rate debt is approximately $218.8 million and
$190.9 million, respectively. The fair value is based on the present value of
future cash flows discounted at the market rate of interest. Market risk,
expressed as the hypothetical decrease in fair value resulting from a one
percentage point increase in interest rates is $3.8 million and $4.1 million,
respectively, for aggregate fixed rate debt.
At December 31, 2000 and 1999, the carrying value of the Company's
fixed rate mortgage notes receivable is $170.9 million and $250.3 million,
respectively, and the fair value is approximately $168.7 million and $232.1
million, respectively. The fair value is based on the present value of future
cash flows discounted at an assumed market rate of interest. Because no market
rates of interest are published for these assets, the market rate of interest is
assumed to be the same spread to U.S. Treasury yields for comparable maturities
that existed when the mortgage notes receivable were acquired in the Capstone
merger on October 15, 1998, adjusted to published U.S. Treasury yields. Market
risk, expressed as the hypothetical decrease in fair value resulting from a one
percentage point increase in interest rates, is $4.1 million and $10.6 million
for December 31, 2000 and 1999, respectively, on the aggregate portfolio of
fixed rate mortgage notes receivable.
<PAGE> 9
Report of
I N D E P E N D E N T A U D I T O R S
THE BOARD OF DIRECTORS AND STOCKHOLDERS
HEALTHCARE REALTY TRUST INCORPORATED
We have audited the accompanying consolidated balance sheets of
Healthcare Realty Trust Incorporated as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Healthcare Realty Trust Incorporated at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
Nashville, Tennessee
January 23, 2001
<PAGE> 10
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate properties:
Land $ 152,254 $ 150,591
Buildings and improvements 1,290,395 1,223,387
Personal property 5,785 5,165
Construction in progress 30,914 20,003
--------------------------
1,479,348 1,399,146
Less accumulated depreciation (120,522) (83,996)
--------------------------
Total real estate properties, net 1,358,826 1,315,150
Cash and cash equivalents 1,788 3,396
Restricted cash 577 990
Mortgage notes receivable 170,906 250,346
Other assets, net 54,979 38,082
--------------------------
Total assets $ 1,587,076 $1,607,964
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $ 536,781 $ 563,884
Accounts payable and accrued liabilities 22,714 17,658
Other liabilities 19,544 8,519
--------------------------
Total liabilities 579,039 590,061
--------------------------
Commitments -- --
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; issued and
outstanding 2000 and 1999 - 3,000,000; $75,000,000
liquidation preference 30 30
Common stock, $.01 par value; 150,000,000 shares authorized;
issued and outstanding 2000 - 40,314,399; 1999 - 40,004,579 403 400
Additional paid-in capital 1,061,190 1,054,405
Deferred compensation (9,730) (9,509)
Cumulative net income 295,174 215,373
Cumulative dividends (339,030) (242,796)
--------------------------
Total stockholders' equity 1,008,037 1,017,903
--------------------------
Total liabilities and stockholders' equity $ 1,587,076 $1,607,964
==========================
</TABLE>
See accompanying notes.
<PAGE> 11
CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Master lease rental income $ 97,238 $ 92,070 $ 47,512
Property operating income 62,400 57,778 35,269
Straight line rent 7,827 6,885 1,265
Mortgage interest income 22,755 25,940 5,120
Management fees 2,785 2,727 2,056
Interest and other income 2,333 1,857 1,207
-----------------------------------------
195,338 187,257 92,429
-----------------------------------------
EXPENSES
General and administrative 8,739 7,287 11,126
Property operating expenses 22,628 21,077 11,978
Interest 42,995 38,603 13,057
Depreciation 38,994 38,566 15,965
Amortization 513 473 499
Provision for loss on investment 1,000 0 0
-----------------------------------------
114,869 106,006 52,625
-----------------------------------------
Net income before net gain (loss) on
sale of real estate properties 80,469 81,251 39,804
Net gain (loss) on sale of real estate properties (668) 4,776 675
-----------------------------------------
Net income $ 79,801 $ 86,027 $ 40,479
=========================================
Net income per common share - Basic $ 1.85 $ 2.02 $ 1.66
=========================================
Net income per common share - Diluted $ 1.82 $ 1.99 $ 1.63
=========================================
Weighted average common shares outstanding - Basic 39,544,400 39,326,594 24,043,942
=========================================
Weighted average common shares outstanding - Diluted 40,301,409 39,810,306 24,524,600
=========================================
Dividend declared, per common share,
during the period $ 2.23 $ 2.15 $ 2.07
=========================================
</TABLE>
See accompanying notes.
<PAGE> 12
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative Total
(Dollars in thousands, Preferred Common Paid-In Deferred Net Cumulative Stockholders'
except per share data) Stock Stock Capital Compensation Income Dividends Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $-- $193 $402,607 $ (7,689) $ 88,867 $(107,506) $ 376,472
Issuance of common stock -- 202 567,734 -- -- -- 567,936
Issuance of preferred stock 30 -- 71,956 -- -- -- 71,986
Shares awarded as deferred
stock compensation -- 2 4,331 (4,274) -- -- 59
Shares issued from warrants -- 1 2,411 -- -- -- 2,412
Deferred stock compensation
amortization -- -- -- 1,301 -- -- 1,301
Net income -- -- -- -- 40,479 -- 40,479
Dividends - common
($2.07 per share) -- -- -- -- -- (42,386) (42,386)
Dividends - preferred
($0.46224 per share) -- -- -- -- -- (555) (555)
--------------------------------------------------------------------------------------------
Balance at December 31, 1998 30 398 1,049,039 (10,662) 129,346 (150,447) 1,017,704
Issuance of common stock -- 2 5,345 -- -- -- 5,347
Shares awarded as deferred
stock compensation -- -- 21 (21) -- -- 0
Deferred stock compensation
amortization -- -- -- 1,174 -- -- 1,174
Net income -- -- -- -- 86,027 -- 86,027
Dividends - common
($2.15 per share) -- -- -- -- -- (85,693) (85,693)
Dividends - preferred
($2.22 per share) -- -- -- -- -- (6,656) (6,656)
--------------------------------------------------------------------------------------------
Balance at December 31, 1999 30 400 1,054,405 (9,509) 215,373 (242,796) 1,017,903
Issuance of stock -- 2 5,171 -- -- -- 5,173
Shares awarded as deferred
stock compensation -- 1 1,614 (1,606) -- -- 9
Deferred stock compensation
amortization -- -- -- 1,385 -- -- 1,385
Net income -- -- -- -- 79,801 -- 79,801
Dividends - common
($2.23 per share) -- -- -- -- -- (89,577) (89,577)
Dividends - preferred
($2.22 per share) -- -- -- -- -- (6,657) (6,657)
--------------------------------------------------------------------------------------------
Balance at December 31, 2000 $30 $403 $1,061,190 $ (9,730) $295,174 $(339,030) $ 1,008,037
============================================================================================
</TABLE>
See accompanying notes.
<PAGE> 13
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
December 31,
------------------------------------------
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 79,801 $ 86,027 $ 40,479
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 41,440 41,225 17,122
Deferred compensation amortization 1,385 1,153 1,247
Increase (decrease) in other liabilities 11,438 (1,973) (3,247)
Increase in other assets (10,924) (17,288) (7,506)
Increase (decrease) in accounts payable and
accrued liabilities 5,056 (5,781) (27,133)
Increase in straight line rent (7,827) (6,885) (1,265)
Charge to operations -- -- 3,373
(Gain) loss on sales of real estate 668 (4,776) (675)
----------------------------------------
Net cash provided by operating activities 121,037 91,702 22,395
-----------------------------------------
INVESTING ACTIVITIES
Acquisition and development of real estate properties (97,750) (55,664) (94,066)
Funding of mortgages (7,955) (27,475) (27,851)
Proceeds from mortgage payments/sales 86,610 18,749 8,522
Proceeds from sale of real estate 15,048 46,929 11,895
Purchase of Capstone, net of cash acquired -- -- 5,437
----------------------------------------
Net cash used in investing activities (4,047) (17,461) (96,063)
----------------------------------------
FINANCING ACTIVITIES
Borrowings on notes and bonds payable 151,760 125,200 425,000
Repayments on notes and bonds payable (179,306) (121,608) (338,689)
Dividends paid (96,234) (92,349) (42,941)
Proceeds from issuance of common stock 5,182 5,202 37,683
----------------------------------------
Net cash provided by (used in) financing activities (118,598) (83,555) 81,053
----------------------------------------
Increase (decrease) in cash and cash equivalents (1,608) (9,314) 7,385
Cash and cash equivalents, beginning of period 3,396 12,710 5,325
----------------------------------------
Cash and cash equivalents, end of period $ 1,788 $ 3,396 $ 12,710
========================================
</TABLE>
See accompanying notes.
<PAGE> 14
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Healthcare Realty Trust Incorporated (the "Company") invests in
healthcare-related properties and mortgages located throughout the United
States, including ancillary hospital facilities, skilled nursing facilities,
physician clinics, comprehensive ambulatory care centers, medical office
buildings, inpatient rehabilitation facilities, assisted living facilities,
other inpatient facilities and other outpatient facilities. The Company provides
management, leasing and build-to-suit development, and capital for the
construction of new facilities as well as for the acquisition of existing
properties. These activities constitute a single business segment as defined by
the Financial Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." As of December 31, 2000, the
Company had invested in 267 properties and mortgages located in 32 states,
affiliated with 66 healthcare-related entities.
Basis of Presentation
The financial statements include the accounts of the Company, its
wholly owned subsidiaries and certain other affiliated corporations with respect
to which the Company controls the operating activities and receives
substantially all economic benefits. Significant intercompany accounts and
transactions have been eliminated.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Real Estate Properties
Real estate properties are recorded at cost. Transaction fees and
acquisition costs are included with the purchase price as appropriate. The cost
of real properties acquired is allocated between land, buildings, and personal
property based upon estimated market values at the time of acquisition.
Depreciation is provided for on a straight-line basis over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 31.5 or 39.0 years
Personal property 3.0 to 7.0 years
</TABLE>
Restricted Cash
Restricted cash includes security deposits and other funds set aside
for capital expenditures on certain investments of the Company.
Mortgage Notes Receivable
Mortgage notes receivable, substantially all of which were acquired in
the Capstone merger (see Note 2), were recorded at their fair value at the date
of acquisition. As of December 31, 2000, the mortgage portfolio had a weighted
average maturity of approximately 5.14 years. Interest rates ranged from 8.18%
to 13.5% and are generally adjustable each year to reflect actual increases in
the Consumer Price Index subject to various minimum increases. Substantially all
of the mortgages are subject to a prepayment penalty.
Cash and Cash Equivalents
Short-term investments with maturities of three months or less at date
of purchase are classified as cash equivalents.
<PAGE> 15
Federal Income Taxes
No provision has been made for federal income taxes. The Company
intends at all times to qualify as a real estate investment trust under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended. The Company
must distribute at least 95% per annum (90% beginning in 2001) of its real
estate investment trust taxable income to its stockholders and meet other
requirements to continue to qualify as a real estate investment trust.
Other Assets
Other assets consist primarily of receivables, deferred costs and
intangible assets. Deferred financing costs are amortized over the term of the
related credit facility using the interest method. Intangible assets are
amortized straight-line over the applicable lives of the assets, which range
from three to forty years. Accumulated amortization was $2.8 million and $1.9
million at December 31, 2000 and 1999, respectively.
Revenue Recognition
Rental income related to noncancelable operating leases is recognized
as earned over the life of the lease agreements on a straight-line basis. Any
additional rent, as defined in each lease agreement, is recognized as earned.
The Company had two customers in each of the years ended 2000, 1999 and 1998 who
accounted for more than 10% of the Company's revenues. Healthsouth and HCA-The
Healthcare Company accounted for 13% and 11%, respectively, of revenues for each
of the years 2000 and 1999. HCA-The Healthcare Company and Tenet Healthcare
accounted for 16% and 13%, respectively, for 1998.
Stock Issued to Employees
The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock issued to employees.
Net Income Per Share
Basic earnings per share is calculated using weighted average shares
outstanding less issued and outstanding but unvested restricted shares of Common
Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of convertible debt and restricted shares
of Common Stock and outstanding stock options, using the treasury stock method
and the average stock price during the period.
Reclassification
Certain reclassifications have been made in the financial statements
for the years ended 1999 and 1998 to conform to the 2000 presentation. These
reclassifications had no effect on the results of operations as previously
reported.
2. CAPSTONE MERGER
On October 15, 1998, the Company acquired Capstone Capital Corporation
("Capstone"). The assets acquired in this transaction totaled approximately $1.0
billion. The transaction was accounted for as a purchase and resulted in no
goodwill.
The unaudited proforma results of operations for the year ended
December 31, 1998, assuming that the Capstone merger had occurred as of the
beginning of the year are (dollars in thousands, except for per share data):
<TABLE>
<CAPTION>
1998
- ---------------------------------------------------------------------------
<S> <C>
Revenues $ 168,721
Net income $ 73,186
Net income per share - Basic $ 1.74
Net income per share - Diluted $ 1.72
</TABLE>
<PAGE> 16
3. REAL ESTATE PROPERTY LEASES
The Company's properties are generally leased or supported pursuant to
noncancelable, fixed-term operating leases and other financial support
arrangements with expiration dates from 2001 to 2023. Some leases and financial
arrangements provide for fixed rent renewal terms of five years, or multiples
thereof, in addition to market rent renewal terms. The leases generally provide
the lessee, during the term of the lease and for a short period thereafter, with
an option and a right of first refusal to purchase the leased property. Each
lease generally requires the lessee to pay minimum rent, additional rent based
upon increases in the Consumer Price Index or increases in net patient revenues
(as defined in the lease agreements), and all taxes (including property tax),
insurance, maintenance and other operating costs associated with the leased
property.
Future minimum lease and guaranty payments under the noncancelable
operating leases and financial support arrangements as of December 31, 2000 are
as follows (in thousands):
<TABLE>
<S> <C>
2001 $ 152,114
2002 150,996
2003 150,003
2004 145,523
2005 160,276
2006 and thereafter 693,371
-------------
$ 1,452,283
</TABLE>
<PAGE> 17
4. REAL ESTATE PROPERTIES
The following table summarizes the Company's real estate properties by
type of facility and by state as of December 31, 2000 (dollars in thousands).
<TABLE>
<CAPTION>
NUMBER OF BUILDINGS AND
FACILITIES IMPROVEMENTS PERSONAL ACCUMULATED
(1) LAND AND CIP PROPERTY TOTAL DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ANCILLARY HOSPITAL FACILITIES:
California 9 $ 18,375 $ 61,352 $ 44 $ 79,771 $ 8,079
Florida 10 4,015 65,297 116 69,428 8,396
Nevada 2 2,293 48,072 22 50,387 3,252
Texas 10 8,865 60,006 278 69,149 10,109
Virginia 9 13,703 67,856 93 81,652 7,325
Other states 19 12,655 107,643 69 120,367 8,572
------------------------------------------------------------------------------
59 59,906 410,226 622 470,754 45,733
SKILLED NURSING FACILITIES:
Colorado 3 2,885 23,522 0 26,407 2,265
Oklahoma 5 120 12,844 0 12,964 271
Pennsylvania 3 479 20,138 0 20,617 1,389
Texas 2 1,795 17,670 0 19,465 1,793
Virginia 6 1,452 34,958 0 36,410 2,405
Other states 14 6,968 67,942 215 75,125 9,324
------------------------------------------------------------------------------
33 13,699 177,074 215 190,988 17,447
PHYSICIAN CLINICS:
Florida 9 12,089 43,220 51 55,360 5,119
Illinois 1 207 11,473 0 11,680 786
Massachusetts 5 4,284 26,502 0 30,786 1,820
Tennessee 5 2,942 7,963 0 10,905 566
Texas 1 5,134 11,804 0 16,938 805
Other states 11 4,690 30,600 1 35,291 2,409
------------------------------------------------------------------------------
32 29,346 131,562 52 160,960 11,505
COMPREHENSIVE AMBULATORY CARE
CENTERS:
Arizona 1 2,095 9,079 6 11,180 425
California 1 3,375 25,376 0 28,751 2,147
Florida 6 2,008 54,002 11 56,021 3,524
Missouri 3 3,726 22,137 2 25,865 1,446
Texas 2 1,643 20,034 70 21,747 3,937
------------------------------------------------------------------------------
13 12,847 130,628 89 143,564 11,479
MEDICAL OFFICE BUILDINGS:
Florida 2 2,027 7,271 0 9,298 491
Pennsylvania 1 0 621 0 621 0
Tennessee 1 1,734 8,993 5 10,732 615
Texas 2 1,161 9,003 442 10,606 1,993
Virginia 4 1,927 12,065 129 14,121 1,615
------------------------------------------------------------------------------
10 6,849 37,953 576 45,378 4,714
INPATIENT REHABILITATION FACILITIES:
Alabama 1 0 17,722 0 17,722 1,017
Florida 1 0 11,703 0 11,703 672
Pennsylvania 6 4,719 107,529 0 112,248 6,969
Texas 1 1,116 11,800 0 12,916 810
------------------------------------------------------------------------------
9 5,835 148,754 0 154,589 9,468
ASSISTED LIVING FACILITIES:
Florida 3 2,016 20,479 0 22,495 675
New Jersey 2 1,809 16,825 0 18,634 1,012
Pennsylvania 7 1,425 28,971 0 30,396 1,910
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Texas 8 0 70,990 0 70,990 4,863
Virginia 3 889 16,130 0 17,019 1,090
Other states 18 4,686 77,715 0 82,401 2,737
------------------------------------------------------------------------------
41 10,825 231,110 0 241,935 12,287
OTHER INPATIENT FACILITIES:
Michigan 1 4,405 9,153 0 13,558 633
Pennsylvania 1 0 2,880 0 2,880 0
Texas 1 506 5,386 0 5,892 390
------------------------------------------------------------------------------
3 4,911 17,419 0 22,330 1,023
OTHER OUTPATIENT FACILITIES:
Alabama 2 817 10,604 8 11,429 2,205
Florida 2 3,111 6,370 0 9,481 285
Missouri 1 849 3,621 0 4,470 247
Mississippi 1 538 3,723 30 4,291 717
Nevada 1 940 2,861 0 3,801 474
Other states 6 1,781 9,404 24 11,209 1,112
------------------------------------------------------------------------------
13 8,036 36,583 62 44,681 5,040
Corporate Property 0 0 4,169 4,169 1,826
------------------------------------------------------------------------------
Total Property 213 $152,254 $1,321,309 $5,785 $1,479,348 $120,522
==============================================================================
</TABLE>
(1) Includes seven lessee developments.
<PAGE> 19
5. NOTES AND BONDS PAYABLE
Notes and bonds payable at December 31, 2000 and 1999 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured credit facility $ 265,000 $ 252,000
Term loan facility 25,000 113,700
Senior notes due 2002 36,000 54,000
Senior notes due 2006 70,000 0
6.55% Convertible subordinated debentures, net 74,501 73,836
10.50% Convertible subordinated debentures, net 3,351 3,573
Mortgage notes payable 57,096 59,775
Other note payable 5,833 7,000
-------------------------------------
$ 536,781 $ 563,884
=====================================
</TABLE>
Unsecured Credit Facility
On October 15, 1998, concurrent with the Capstone merger, the Company
repaid the outstanding balances under both Capstone and its own unsecured credit
facilities and entered into a $265.0 million unsecured credit facility (the
"Unsecured Credit Facility") with ten commercial banks. During the fourth
quarter of 2000, the Company entered into an agreement with an additional bank
to increase its Unsecured Credit Facility to $300.0 million. The Unsecured
Credit Facility bears interest at LIBOR plus 1.05%, payable quarterly, and
matures on October 15, 2001. In addition, the Company will pay, quarterly, a
commitment fee of 0.225 of 1% on the unused portion of funds available for
borrowings. The Unsecured Credit Facility contains certain representations,
warranties, and financial and other covenants customary in such loan agreements.
At December 31, 2000, the Company had available borrowing capacity of $35.0
million under the Unsecured Credit Facility.
Term Loan Facility
On October 15, 1998, concurrent with the Capstone merger, the Company
entered into a $200.0 million term loan facility (the "Term Loan Facility").
Effective January 4, 2001, the Company amended its Term Loan Facility agreement
with Bank of America. The Term Loan Facility, as amended, bears interest at
LIBOR plus 2.50%, payable quarterly, and matures on March 30, 2001. The Term
Loan Facility contains certain representations, warranties and financial and
other covenants customary in such loan agreements, as well as restrictions on
dividend payments if minimum tangible capital requirements are not met.
Senior Notes due 2002
On September 18, 1995, the Company privately placed $90.0 million of
unsecured senior notes (the "Senior Notes due 2002") with 16 institutions. The
Senior Notes due 2002 bear interest at 7.41%, payable semi-annually, and mature
on September 1, 2002. Each September 1, beginning in 1998, the Company must
repay $18.0 million of principal. The note agreements pursuant to which the
Senior Notes due 2002 were purchased contain certain representations, warranties
and financial and other covenants customary in such loan agreements.
Senior Notes due 2006
On April 7, 2000, the Company privately placed $70.0 million of
unsecured senior notes (the "Senior Notes due 2006") with multiple purchasers
affiliated with two lending institutions. The Senior Notes due 2006 bear
interest at 9.49%, payable semi-annually, and mature on April 1, 2006. On April
1, 2004 and 2005, the Company must repay $20.3 million of the principal with the
remaining principal balance of $29.4 million payable upon maturity. The note
agreements pursuant to which the Senior Notes due 2006 were purchased contain
certain representations, warranties and financial and other covenants customary
in such loan agreements.
Convertible Subordinated Debentures
As part of the Capstone merger, the Company assumed and recorded at
fair value $74.7 million aggregate face amount of 6.55% Convertible Subordinated
Debentures (the "6.55% Debentures") of Capstone. At December 31, 2000, the
Company had approximately $74.5 million aggregate principal amount of 6.55%
Debentures outstanding with a face amount of $74.7 million and unaccreted
discount of $0.2 million. Such rate of interest and accretion of discount
represents a yield to maturity of 7.5% per annum (computed on a semiannual bond
equivalent basis). The 6.55% Debentures are due on March 14, 2002, unless
redeemed earlier by the Company or converted by the holder, and are callable on
March 16, 2000. Interest on the 6.55% Debentures is payable on March 14 and
September 14 in each year. The 6.55% Debentures are convertible
<PAGE> 20
into shares of common stock of the Company at the option of the holder at any
time prior to redemption or stated maturity, at a conversion price rate of
33.6251 shares per $1 thousand bond.
Also, as part of the Capstone merger, the Company assumed and recorded
at fair value $3.75 million aggregate face amount of 10.5% Convertible
Subordinated Debentures (the "10.5% Debentures") of Capstone. At December 31,
2000, the Company had approximately $3.35 million aggregate principal amount of
10.5% Debentures outstanding with a face amount of $3.32 million and unamortized
premium of $0.03 million. Such rate of interest and amortization of premium
represents a yield to maturity of 7.5% per annum (computed on a semiannual bond
equivalent basis). The 10.5% Debentures are due on April 1, 2002, unless
redeemed earlier by the Company or converted by the holder, and are callable on
April 5, 2000. Interest on the 10.5% Debentures is payable on April 1 and
October 1 in each year. The 10.5% Debentures are convertible into shares of
common stock of the Company at the option of the holder at any time prior to
redemption or stated maturity, at a conversion price rate of 52.8248 shares per
$1 thousand bond.
Mortgage Notes Payable
At December 31, 2000, the Company had assumed or entered into nine
non-recourse mortgage notes payable, with the related collateral, as follows
(dollars in millions):
<TABLE>
<CAPTION>
Book Value Contractual
Of Collateral at Balance at
Original Contractual December 31, December 31,
Mortgagor Balance Interest Rate Collateral 2000 2000
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance Co. $ 23.3 8.500% Ancillary hospital facility $ 43.5 $ 22.3
Life Insurance Co. 4.7 7.625% Ancillary hospital facility 10.8 4.3
Life Insurance Co. 17.1 8.125% Two Ambulatory surgery centers 37.2 16.3
& one ancillary hospital facility
Commercial bank 14.2 9.063% Two physician clinics, one 16.9 14.2
ambulatory surgery center &
one medical office building
----------------------------------------------------------------------------------
$ 59.3 $ 108.4 $ 57.1
==================================================================================
</TABLE>
The $23.3 million note is payable in monthly installments of principal
and interest based on a 30-year amortization with the final payment due in July
2026. The $4.7 million note is payable in monthly installments of principal and
interest based on a 20-year amortization with the final payment due in January
2017. The three notes totaling $17.1 million are payable in monthly installments
of principal and interest based on a 25 year amortization with a balloon payment
of the unpaid balance in September 2004. The four notes totaling $14.2 million
are payable in monthly installments of interest only with the final payment due
in December 2003.
<PAGE> 21
Other Note Payable
On July 31, 1999, the Company entered into a $7.0 million note with a
commercial bank. The note bears interest at 7.53%, is payable in equal
semi-annual installments of principal and interest and fully amortizes in July
2005.
Other Long-Term Debt Information
Future maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
2001 $ 309,595
2002 97,962
2003 16,131
2004 37,361
2005 22,019
2006 and thereafter 53,713
-------------
$ 536,781
=============
</TABLE>
During the years ended December 31, 2000, 1999 and 1998, interest paid
totaled $43.1 million, $41.5 million and $11.1 million, and capitalized interest
totaled $1.8 million, $1.9 million and $1.4 million, respectively.
6. STOCKHOLDERS' EQUITY
The Company had common and preferred shares outstanding as of the three
years ended December 31, 2000 as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Common Shares
Balance, beginning of period 40,004,579 39,792,775 19,285,927
Issuance of stock 206,603 210,754 20,226,981
Shares awarded as deferred stock compensation 103,217 1,050 148,357
Shares issued from warrants -- -- 131,510
----------------------------------------------
Balance, end of period 40,314,399 40,004,579 39,792,775
==============================================
Preferred Shares
Balance, beginning of period 3,000,000 3,000,000 --
Issuance of stock -- -- 3,000,000
----------------------------------------------
Balance, end of period 3,000,000 3,000,000 3,000,000
==============================================
</TABLE>
On October 15, 1998, the Company issued 18,906,909 shares of Common
stock and 3,000,000 shares of 8 7/8% Series A Voting Cumulative Preferred stock,
par value $.01 per share, in a stock-for-stock merger with Capstone Capital
Corporation (see Note 2). Upon dissolution of the Company, the Preferred Stock
is senior to common stock with respect to dividend rights and rights upon
dissolution. Holders of Preferred Stock are entitled to receive cumulative
preferential cash dividends of 8 7/8 % per annum of the liquidation preference
of $25.00 per share payable quarterly, in arrears. Preferred Stock is not
redeemable prior to September 30, 2002. On or after September 2002, the Company,
at its option, may redeem Preferred Stock, in whole or in part, at any time or
from time to time, at the redemption price. The holder of each share of
Preferred Stock has one vote, together with the holders of common stock, on all
matters on which stockholders may vote.
In July 1998, warrants for 128,149 shares of common stock were
exercised. At December 31, 2000, 1999 and 1998, the Company had no warrants
outstanding. During April and May 1998, the Company sold an aggregate of 49,953
shares of common stock to a single institutional investor. In February 1998, the
Company participated in two unit investment trust offerings and sold an
aggregate of 1,224,026 shares of its common stock. The Company received an
aggregate of $37.1 million in proceeds for these transactions. The proceeds were
used to repay outstanding borrowings under the Company's previous unsecured
credit facility, acquisitions, developments and for general corporate purposes.
Comprehensive income is the same as net income for the Company.
7. BENEFIT PLANS
Executive Retirement Plan
The Company has an Executive Retirement Plan, under which an executive
designated by the Compensation Committee of the Board of Directors may receive
upon normal retirement (defined to be when the executive reaches age 65 and has
completed five years of service with the Company) 60% of the executive's
<PAGE> 22
final average earnings (defined as the average of the executive's highest three
years' earnings) plus 6% of final average earnings times years of service after
age 60 (but not more than five years), less 100% of certain other retirement
benefits received by the executive.
Retirement Plan for Outside Directors
The Company has a retirement plan for outside directors which upon
retirement will pay annually, for a period not to exceed 15 years, an amount
equal to the director's pay immediately preceding retirement from the Board.
Retirement Plan Information
Net expense for both the Executive Retirement Plan and the Retirement
Plan for Outside Directors (the "Plans") for the two years in the period ended
December 31, 2000 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 304 $ 233
Interest cost 192 141
Other 0 (27)
-------------------------------
$ 496 $ 347
===============================
</TABLE>
The Plans are unfunded and benefits will be paid from earnings of the
Company. The following table sets forth the benefit obligations at December 31,
2000 and 1999 (in thousands).
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation at beginning of year $ 2,324 $ 2,553
Service cost 304 233
Interest cost 192 141
Other 0 (27)
Actuarial gain (loss) 130 (576)
-------------------------------
Benefit obligation at end of year 2,950 2,324
Unrecognized net actuarial (gain) loss 84 214
-------------------------------
Net pension liability in accrued liabilities $ 3,034 $ 2,538
===============================
</TABLE>
Accounting for the Executive Retirement Plan for the years ended
December 31, 2000 and 1999 assumes discount rates of 7.73% and 8.03%,
respectively, and a compensation increase rate of 2.7%. Accounting for the
Retirement Plan for Outside Directors assumes discount rates of 7.73% and 8.03%,
respectively.
<PAGE> 23
8. STOCK PLANS
1993 Employees Stock Incentive Plan
The Company is authorized to issue stock representing up to 7.5% of its
outstanding shares of common stock, (the "Employee Plan Shares") under the 1993
Employees Stock Incentive Plan (the "Employee Plan"). As of December 31, 2000
and 1999, the Company had a total of 2,401,396 and 2,480,326 Employee Plan
Shares authorized, respectively, that had not been issued. Unless terminated
earlier, the Employee Plan will terminate on January 1, 2003. As of December 31,
2000 and 1999, the Company had issued a total of 622,184 and 520,017, and had
specifically reserved, but not issued, a total of 445,000 and 445,000 Employee
Plan Shares (the "Reserved Stock"), respectively, for performance-based awards
to employees under the Employee Plan. The Employee Plan Shares are subject to
fixed vesting periods varying from three to twelve years beginning on the date
of issue. If an employee voluntarily terminates employment with the Company
before the end of the vesting period, the shares are forfeited, at no cost to
the Company. Once the Employee Plan Shares have been issued, the employee has
the right to receive dividends and the right to vote the shares. For 2000 and
1999, compensation expense resulting from the amortization of the value of these
shares was $1.4 million and $1.1 million, respectively.
Non-Employee Directors' Stock Plan
Pursuant to the 1995 Restricted Stock Plan for Non-Employee Directors
(the "1995 Directors' Plan"), the Directors' stock vests in each Director upon
the date three years from the date of issue and is subject to forfeiture prior
to such date upon termination of the Director's service, at no cost to the
Company. As of December 31, 2000 and 1999, the Company had a total of 84,427 and
85,477 authorized shares under the 1995 Directors' Plan, respectively, that had
not been issued. As of December 31, 2000 and 1999, the Company had issued a
total of 15,573 and 14,523 shares, respectively, pursuant to the 1995 Directors'
Plan. For 2000 and 1999, compensation expense resulting from the amortization of
the value of these shares was $24,516 and $30,943, respectively.
Employee Stock Purchase Plan
Effective January 2000, the Company adopted the 2000 Employee Stock
Purchase Plan (the "2000 Employee Purchase Plan") pursuant to which the Company
is authorized to issue shares of common stock. The 2000 Employee Purchase Plan
effectively replaces a 1995 Employee Purchase Plan (the "1995 Employee Purchase
Plan"), although options issued under the 1995 Employee Purchase Plan prior to
2000 remain exercisable until their scheduled expiration date. As of December
31, 2000 and 1999, the Company had a total of 662,525 and 772,819 shares
authorized collectively under the 2000 and 1995 Employee Purchase Plans,
respectively, which had not been issued or optioned. Under the 2000 Employee
Purchase Plan, each eligible employee as of January 2000 and each subsequent
January 1 has been granted an option to purchase up to $25,000 of common stock
at the lesser of 85% of the market price on the date of grant or 85% of the
market price on the date of exercise of such option (the "Exercise Date"). The
number of shares subject to each year's option becomes fixed on the date of
grant. Options granted under both the 2000 and 1995 Employee Purchase Plans
expire if not exercised 27 months after each such option's date of grant.
<PAGE> 24
A summary of Employee Purchase Plans collective activity and related
information for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
All Options
----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 158,605 85,716 65,573
Granted 289,272 144,886 74,472
Exercised (2,892) (5,524) (12,289)
Forfeited (136,003) (37,775) (31,799)
Expired (42,975) (28,698) (10,241)
---------------------------------------------
Outstanding and exercisable at end of year 266,007 158,605 85,716
Weighted-average fair value of options granted during the year
(calculated as of the grant date) $ 1.68 $ 0.76 $ 5.94
Weighted-average exercise price of options exercised during
the year $ 14.84 $ 18.00 $ 20.69
Weighted-average exercise price of options outstanding
(calculated as of December 31) $ 17.72 $ 22.57 $ 19.10
Range of exercise prices of options outstanding (calculated as of
December 31) $14.98-23.76 $19.52-$23.76 $18.43-$19.52
Weighted-average contractual life of outstanding options (calculated
as of December 31, in years) 0.9 1.0 0.9
</TABLE>
The fair value for these options was estimated at the date of grant
using a Black-Scholes options pricing model with the following assumptions for
2000, 1999 and 1998; risk-free interest rates of 5.36%, 6.24% and 5.00%; a
dividend yield of 13.05%, 9.87% and 7.13%; a volatility factor of the expected
market price of the Company's common stock of .187, .178 and .139; and an
expected life of the option of 1.13 years, respectively. The Company recognized
no compensation expense related to the 2000 Employee Purchase Plan. If
compensation expense had been recognized, the proforma effect on net income and
earnings per share for the three years in the period ended December 31, 2000,
calculated in accordance with Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" would have been as follows
(dollars in thousands, except for per share data):
<TABLE>
<CAPTION>
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proforma net income $ 79,315 $ 85,917 $ 40,037
Proforma earnings per share
Basic $ 1.84 $ 2.02 $ 1.64
Assuming dilution $ 1.81 $ 1.99 $ 1.61
</TABLE>
<PAGE> 25
9. NET INCOME PER SHARE
The table below sets forth the computation of basic and diluted
earnings per share as required by FASB Statement No. 128 for the three years in
the period ended December 31, 2000 (dollars in thousands, except per share
data).
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Average Shares Outstanding 40,151,220 39,857,587 24,573,885
Actual Restricted Stock Shares (606,820) (530,993) (529,943)
------------------------------------------------------
Denominator - Basic 39,544,400 39,326,594 24,043,942
======================================================
Net Income $ 79,801 $ 86,027 $ 40,479
Preferred Stock Dividend (6,657) (6,656) (555)
------------------------------------------------------
Numerator - Basic $ 73,144 $ 79,371 $ 39,924
======================================================
Per share amount $ 1.85 $ 2.02 $ 1.66
======================================================
DILUTED EPS
Average Shares Outstanding 40,151,220 39,857,587 24,573,885
Actual Restricted Stock Shares (606,820) (530,993) (529,943)
Dilution for Convertible Debentures 181,136 0 40,017
Restricted Shares - Treasury 533,955 482,496 405,235
Dilution For Employee Stock Purchase Plan 41,918 1,216 15,597
Dilution for Warrants 0 0 19,809
------------------------------------------------------
Denominator - Diluted 40,301,409 39,810,306 24,524,600
======================================================
Numerator - Basic $ 73,144 $ 79,371 $ 39,924
Convertible Subordinated Debenture Interest 275 0 64
------------------------------------------------------
Numerator - Diluted $ 73,419 $ 79,371 $ 39,988
======================================================
Per share amount $ 1.82 $ 1.99 $ 1.63
======================================================
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
As of December 31, 2000, the Company had a net investment of
approximately $30.9 million in seven build-to-suit developments in progress,
which have a total remaining funding commitment of approximately $51.3 million.
Further, the Company has commitments to provide funding for the enhancement of
existing properties totaling $3.5 million at December 31, 2000.
As part of the Capstone merger, agreements were entered into with three
individuals affiliated with Capstone that restrict competitive practices and
which the Company believes will protect and enhance the value of the real estate
properties acquired from Capstone. These agreements provide for the issuance of
150,000 shares per year of common stock of the Company to the individuals on
October 15 of the years 1999, 2000, 2001, and 2002, provided all terms of the
agreements are met. The Company issued 150,000 shares during 2000 and 1999
pursuant to these agreements.
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of four million dollars
arising out of the development and construction of four real estate projects
located in different parts of the United States. Medistar and Medix served as
the developer and contractor, respectively, for the projects. HRT has asserted
claims for damages relating to, among others, alleged breaches of the
development and contracting obligations, failure to perform in accordance with
contract terms and specifications, and other deficiencies in performance by
Medistar and Medix. On June 10, 1999, Medistar and Medix filed its answer and
counterclaim asserting a variety of alleged legal theories, claims for damages
for alleged deficiencies by HRT and the Company in the performance of alleged
obligations, and for damage to their business reputation. Attempts at mediation
have not resulted in a settlement of the disputes. The Company's prosecution of
its claims and defense of the counterclaims will continue to be vigorous. While
the Company cannot predict the range of possible recovery or loss, the Company
believes that, even though the asserted cross claims seek substantial monetary
damages, the allegations made by Medistar and Medix are not factually or legally
meritorious, are subject to sustainable defenses and are, to a significant
extent, covered by liability insurance.
11. OTHER DATA
Funds From Operations (Unaudited)
Funds from operations, as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT") 1995 White Paper, means net income
(computed in accordance with generally accepted
<PAGE> 26
accounting principles), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation from real estate assets. Funds from
operations ("FFO") does not represent cash generated from operating activities
in accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs, and should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
Management believes the Company's FFO is not directly comparable to
other healthcare REIT's, which own a portfolio of triple net leased properties
or mortgages, as the Company develops projects through a development and
lease-up phase before they reach their targeted cash flow returns. Furthermore,
the Company eliminates in consolidation, fee income for developing, leasing and
managing owned properties and expenses or capitalizes, whichever the case may
be, related internal costs.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(Dollars in thousands, except per share data) 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income before net gain (loss) on sale of real estate properties (2) $ 80,469 $ 81,251
Elimination of rental revenues recognized
on a straight line basis (1) (7,827) (6,885)
Preferred stock dividend (6,657) (6,656)
Real estate depreciation 38,393 38,017
Provision for loss on investment (1) 1,000 0
---------------------------------
Total Adjustments 24,909 24,476
---------------------------------
Funds From Operations - Basic $ 105,378 $ 105,727
---------------------------------
Convertible Subordinated Debenture Interest 275 0
---------------------------------
Funds From Operations - Diluted $ 105,653 $ 105,727
=================================
Weighted average common shares outstanding - Basic 39,544,400 39,326,594
=================================
Weighted average common shares outstanding - Diluted 40,301,409 39,810,306
=================================
Funds From Operations Per Common Share - Basic $ 2.66 $ 2.69
=================================
Funds From Operations Per Common Share - Diluted $ 2.62 $ 2.66
=================================
</TABLE>
(1) The Company calculates its FFO using a modified version of NAREIT's October
1999 definition of funds from operations. The Company eliminates straight-line
rental revenue in computing FFO although NAREIT's definition of funds from
operations requires the inclusion of straight-line rental revenue. Likewise, the
Company excluded its provision for loss on investment in computing FFO although
NAREIT's definition of funds from operations requires its inclusion. If the
Company had followed NAREIT's definition of funds from operations, as other
healthcare REIT's do, FFO on a diluted basis would have been $2.79 and $2.83 per
common share for the twelve months ended December 31, 2000 and December 31,
1999, respectively.
(2) 2000 and 1999 amounts include $1.4 million and $1.2 million, respectively,
of stock-based, long-term, incentive compensation expense, a non-cash expense.
Return of Capital
Distributions in excess of earnings and profits generally constitute a
return of capital. For the years ended December 31, 2000, 1999 and 1998,
dividends paid per share of common stock were $2.23, $2.15 and $2.07,
respectively, which consisted of ordinary income per share of $1.90, $2.00 and
$2.07 and return of capital per share of $0.33, $0.15 and $0.00 respectively.
For the years ended December 31, 2000, 1999 and 1998, dividends paid per share
of preferred stock were, $2.22, $2.22 and $0.46, respectively, all of which was
ordinary income.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and payables are a reasonable
estimate of their fair value at December 31, 2000 and 1999 due to their short
term nature. The fair value of notes and bonds payable is estimated using cash
flow analyses at December 31, 2000 and 1999, based on the Company's current
interest rates for similar types of borrowing arrangements. The carrying amount
of the Company's notes and bonds payable at December 31, 2000 and 1999 was
approximately $13.8 million and $7.3 million greater than the fair value,
respectively. The carrying amount of the Company's mortgage notes receivable at
December 31, 2000 and 1999 was approximately $2.2 million and $18.2 million
greater than the fair value, respectively.
13. SUBSEQUENT EVENTS
On January 23, 2001, the Company declared an increase in its quarterly
common stock dividend from $.565 per share ($2.26 annualized) to $.57 per share
($2.28 annualized) payable on March 7, 2001 to shareholders of record on
February 15, 2001. The Company also announced its quarterly preferred stock
dividend of $.55469 per share ($2.22 annualized) payable on February 28, 2001 to
shareholders of record on February 15, 2001.
<PAGE> 27
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 2000
and 1999 is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Total revenue $ 48,259 $ 49,850 $ 49,588 $ 47,641
---------------------------------------------------------------
Net income $ 20,453 $ 21,187 $ 20,191 $ 17,970
---------------------------------------------------------------
Funds from operations - Basic $ 26,723 $ 26,336 $ 26,296 $ 26,023
---------------------------------------------------------------
Funds from operations - Diluted $ 26,723 $ 26,336 $ 26,421 $ 26,094
---------------------------------------------------------------
Net income per common share - Basic $ 0.48 $ 0.49 $ 0.47 $ 0.41
---------------------------------------------------------------
Net income per common share - Diluted $ 0.47 $ 0.49 $ 0.46 $ 0.41
---------------------------------------------------------------
Funds from operations per common share
- Basic $ 0.68 $ 0.67 $ 0.67 $ 0.66
---------------------------------------------------------------
Funds from operations per common share
- Diluted $ 0.67 $ 0.66 $ 0.66 $ 0.65
---------------------------------------------------------------
1999
Total revenue $ 45,148 $ 46,160 $ 46,518 $ 49,431
---------------------------------------------------------------
Net income $ 20,742 $ 20,592 $ 20,230 $ 24,463
---------------------------------------------------------------
Funds from operations - Basic $ 25,730 $ 26,362 $ 26,530 $ 27,105
---------------------------------------------------------------
Funds from operations - Diluted $ 25,730 $ 26,420 $ 26,610 $ 27,105
---------------------------------------------------------------
Net income per common share - Basic $ 0.49 $ 0.48 $ 0.47 $ 0.58
---------------------------------------------------------------
Net income per common share - Diluted $ 0.48 $ 0.48 $ 0.47 $ 0.57
---------------------------------------------------------------
Funds from operations per common share
- Basic $ 0.66 $ 0.67 $ 0.68 $ 0.69
---------------------------------------------------------------
Funds from operations per common share
- Diluted $ 0.65 $ 0.66 $ 0.67 $ 0.68
---------------------------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>g67659ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
SUBSIDIARY* STATE OF ORGANIZATION
- ---------- ---------------------
<S> <C>
HR of Texas, Inc. Maryland
HRT of Alabama, Inc. Alabama
HRT of Tennessee, Inc. Tennessee
HRT of Virginia, Inc. Virginia
Healthcare Realty Services Incorporated Alabama
HRT of Florida, Inc. Florida
HRT of Roanoke, Inc. Virginia
HRT of Delaware, Inc. Delaware
HR Interests, Inc. Texas
Pennsylvania HRT, Inc. Pennsylvania
HR Acquisition I Corporation 1 Maryland
Property Technology Services, Inc. Tennessee
HR Symbion, LLC Delaware
HR Assets, LLC Delaware
</TABLE>
- ---------------
* All of the above listed subsidiaries are wholly owned by the Company.
<TABLE>
<CAPTION>
SUBSIDIARIES OF HR ACQUISITION I CORPORATION:* STATE OF ORGANIZATION
- -------------------------------------------- ---------------------
<S> <C>
Capstone Capital of Alabama, Inc. Alabama
Capstone Capital of Baytown, Inc. Alabama
Capstone Capital of Bonita Bay, Inc. Alabama
Capstone Capital of California, Inc. Alabama
Capstone Capital of Cape Coral, Inc. Alabama
Capstone Capital of Kentucky, Inc. Alabama
Capstone of Las Vegas, Inc. Alabama
Capstone Capital of Los Angeles, Inc. Alabama
Capstone Capital of Massachusetts, Inc. Alabama
Capstone Capital of Ocoee, Inc. Alabama
Capstone Capital of Pennsylvania, Inc. Pennsylvania
Capstone Capital of Port Orange, Inc. Alabama
Capstone Capital of Sarasota, Inc. Alabama
Capstone Capital of Texas, Inc. Alabama
Capstone Capital of Virginia, Inc. Alabama
Capstone Capital Properties, Inc. Alabama
</TABLE>
- ---------------
* All of the above listed subsidiaries are wholly owned by HR Acquisition I
Corporation.
(1) Formerly known as Capstone Capital Corporation
<PAGE> 2
<TABLE>
<CAPTION>
OTHER AFFILIATES* STATE OF ORGANIZATION
- ---------------- ---------------------
<S> <C>
Durham Medical Office Building, Inc. Texas
HR Assets, Inc. Texas
HR Capital, Inc. Texas
HR Funding, Inc. Texas
HR of San Antonio, Inc.2** Texas
</TABLE>
- ---------------
* The Company owns approximately 99% by value of the stock of each of the
above listed other affiliates, with the exception of Durham Medical
Office Building, Inc. of which the Company owns 1% by value. The
remainder of the affiliates' stock is owned by, and voting control
rests with, executive officers of the Company.
** Durham Medical Office Building, Inc. is 100% Shareholder.
<TABLE>
<CAPTION>
LIMITED PARTNERSHIPS: PERCENT OF OWNERSHIP* STATE OF ORGANIZATION
<S> <C> <C>
San Antonio SSP, Ltd. 25.3% Texas
Pasadena Medical Plaza, SSJ, Ltd. 51.0% Florida
Capstone of Bonita Bay, Ltd. 100% Alabama
Capstone of Cape Coral, Ltd. 100% Alabama
Capstone of Las Vegas, Ltd. 100% Alabama
Capstone of Los Angeles, Ltd. 25% Alabama
Capstone of Ocoee, Ltd. 75% Alabama
Capstone of Port Orange, Ltd. 75% Alabama
Capstone Capital of San Antonio, Ltd. 100% Alabama
Capstone of Sarasota, Ltd. 100% Alabama
Capstone of Virginia Limited Partnership 100% Alabama
</TABLE>
- ---------------
* The Company and/or certain affiliates have varying amounts of ownership as
either the general or limited partner in these limited partnerships.
- ---------------------
*Formerly know as SSP San Antonio, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>g67659ex23.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE> 1
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Healthcare Realty Trust Incorporated of our report dated January
23, 2001 included in the 2000 Annual Report to Shareholders of Healthcare Realty
Trust Incorporated.
Our audits also included the financial statement schedules of
Healthcare Realty Trust Incorporated listed in Item 14(a). These schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-97240) pertaining to the Healthcare Realty Trust
Incorporated 1993 Employees Stock Incentive Plan, 1995 Restricted Stock Plan for
Non-Employee Directors, and 1995 Employee Stock Purchase Plan; in the
Registration Statement (Form S-3 No. 333-56608) pertaining to the registration
of $500,000,000 of debt securities, preferred stock, common stock warrants, and
common stock; and in the Registration Statement (Form S-3 No. 33-79452)
pertaining to the Healthcare Realty Trust Incorporated Dividend Reinvestment
Plan of our report dated January 23, 2001 with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of Healthcare Realty Trust
Incorporated.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
March 21, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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