Delaware
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1-8923 | 34-1096634 | ||
(State or other jurisdiction of
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(Commission | (I.R.S. Employer | ||
incorporation or organization)
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File Number) | Identification No.) | ||
4500 Dorr Street, Toledo, Ohio
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43615 | |||
(Address of principal executive office)
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(Zip Code) |
No. | Description | |
99.1
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Health Care REIT, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements as of and for the year ended December 31, 2010 |
HEALTH CARE REIT, INC. |
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Date: March 9, 2011 | By: | /s/ GEORGE L. CHAPMAN | ||
George L. Chapman, | ||||
Chairman, Chief Executive Officer and President |
2
No. | Description | |
99.1
|
Health Care REIT, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements as of and for the year ended December 31, 2010 |
3
Page | ||||
Unaudited Pro Forma Condensed Consolidated Balance Sheets as of December 31, 2010 |
3 | |||
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year
ended December 31, 2010 |
4 | |||
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements |
5 |
1
2
Acquisition | ||||||||||||||||||||
Company | Holding | Pro Forma | Company | Pro Forma | ||||||||||||||||
Historical | Historical | (A) | Adjustments | Pro Forma | As Adjusted | |||||||||||||||
Assets |
||||||||||||||||||||
Real property, net |
$ | 8,155,529 | $ | 1,753,406 | $ | 723,405 | (D) | $ | 10,632,340 | $ | 10,632,340 | |||||||||
Real estate loans receivable, net |
435,304 | | | 435,304 | 435,304 | |||||||||||||||
Net real estate investments |
8,590,833 | 1,753,406 | 723,405 | 11,067,644 | 11,067,644 | |||||||||||||||
Goodwill |
51,207 | 119,090 | (119,090) | (C) | 51,207 | 51,207 | ||||||||||||||
Deferred loan expenses |
32,960 | 12,545 | (467) | (C) | 39,543 | 40,960 | (P) | |||||||||||||
(5,495) | (E) | |||||||||||||||||||
Cash and cash equivalents |
131,570 | 113,152 | (113,152) | (C) | 88,987 | 442,070 | (P) | |||||||||||||
(42,583) | (B) | |||||||||||||||||||
Other assets |
645,164 | 629,848 | (587,855) | (C) | 645,164 | 645,164 | ||||||||||||||
(41,993) | (F) | |||||||||||||||||||
Total assets |
$ | 9,451,734 | $ | 2,628,041 | $ | (187,230 | ) | $ | 11,892,545 | $ | 12,247,045 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Borrowings under unsecured line of credit
arrangement |
$ | 300,000 | $ | | $ | | $ | 300,000 | $ | - | (P) | |||||||||
Bridge loan |
| | 345,500 | (G) | 345,500 | - | (P) | |||||||||||||
Senior unsecured notes |
3,034,949 | | | 3,034,949 | 4,034,949 | (P) | ||||||||||||||
Secured debt |
1,125,906 | 1,713,920 | (43,357) | (C) | 1,125,906 | 1,125,906 | ||||||||||||||
(1,670,563) | (G) | |||||||||||||||||||
Capital lease obligations |
8,881 | 160,820 | (84,454) | (C) | 85,692 | 85,692 | ||||||||||||||
445 | (H) | |||||||||||||||||||
Accrued expenses and other liabilities |
244,345 | 735,827 | (487,868) | (C) | 244,345 | 244,345 | ||||||||||||||
(247,959) | (F) | |||||||||||||||||||
Total liabilities |
4,714,081 | 2,610,567 | (2,188,256 | ) | 5,136,392 | 5,490,892 | ||||||||||||||
Redeemable noncontrolling interests |
4,553 | | | 4,553 | 4,553 | |||||||||||||||
Equity: |
||||||||||||||||||||
Preferred stock |
291,667 | | 718,750 | (N) | 1,010,417 | 1,010,417 | ||||||||||||||
Common stock |
147,155 | | 28,750 | (N) | 175,905 | 175,905 | ||||||||||||||
Capital in excess of par value |
4,932,468 | | 1,307,000 | (N) | 6,239,468 | 6,239,468 | ||||||||||||||
Other equity |
(768,439 | ) | | (36,000) | (B) | (804,439 | ) | (804,439 | ) | |||||||||||
Total members equity (deficit) |
| 10,613 | (10,613) | (I) | | | ||||||||||||||
Total Company
stockholders equity |
4,602,851 | 10,613 | 2,007,887 | 6,621,351 | 6,621,351 | |||||||||||||||
Noncontrolling interests |
130,249 | 6,861 | (6,861) | (C) | 130,249 | 130,249 | ||||||||||||||
Total equity |
4,733,100 | 17,474 | 2,001,026 | 6,751,600 | 6,751,600 | |||||||||||||||
Total liabilities and equity |
$ | 9,451,734 | $ | 2,628,041 | $ | (187,230 | ) | $ | 11,892,545 | $ | 12,247,045 | |||||||||
3
Acquisition | ||||||||||||||||||||
Company | Holding | Pro Forma | Company | Pro Forma | ||||||||||||||||
Historical | Historical (J) | Adjustments | Pro Forma | As Adjusted | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Rental income |
$ | 581,424 | $ | | $ | 222,429 | (K) | $ | 803,853 | $ | 803,853 | |||||||||
Resident fees and services |
51,006 | 2,460,737 | (2,460,737) | (C) | 51,006 | 51,006 | ||||||||||||||
Interest income |
40,855 | | | 40,855 | 40,855 | |||||||||||||||
Other income |
7,245 | 2,340 | (2,340) | (C) | 7,245 | 7,245 | ||||||||||||||
Total revenues |
680,530 | 2,463,077 | (2,240,648 | ) | 902,959 | 902,959 | ||||||||||||||
Expenses: |
||||||||||||||||||||
Interest expense |
157,108 | 142,296 | (11,555) | (C) | 188,619 | 216,269 | (Q) | |||||||||||||
(99,230) | (L) | |||||||||||||||||||
Property operating expenses |
83,120 | 2,080,426 | (2,080,426) | (C) | 83,120 | 83,120 | ||||||||||||||
Depreciation and amortization |
197,118 | 86,668 | (24,844) | (C) | 260,651 | 260,651 | ||||||||||||||
1,709 | (M) | |||||||||||||||||||
General and administrative |
54,626 | 118,543 | (118,543) | (C) | 54,626 | 54,626 | ||||||||||||||
Transaction costs |
46,660 | | | 46,660 | 46,660 | |||||||||||||||
Impairment of assets |
| 14,492 | (14,492) | (C) | | | ||||||||||||||
Loss (gain) on extinguishment of debt |
34,171 | (1,057 | ) | 1,057 | (C) | 34,171 | 34,171 | |||||||||||||
Provision for loan losses |
29,684 | | | 29,684 | 29,684 | |||||||||||||||
Total expenses |
602,487 | 2,441,368 | (2,346,324 | ) | 697,531 | 725,181 | ||||||||||||||
Income from continuing operations before income taxes and
income from unconsolidated joint ventures |
78,043 | 21,709 | 105,676 | 205,428 | 177,778 | |||||||||||||||
Income tax (expense) benefit |
(364 | ) | (8,113 | ) | 8,113 | (F) | (364 | ) | (364 | ) | ||||||||||
Income from unconsolidated joint ventures |
6,673 | (219 | ) | 219 | (C) | 6,673 | 6,673 | |||||||||||||
Income from continuing operations |
84,352 | 13,377 | 114,008 | 211,737 | 184,087 | |||||||||||||||
Less: Preferred stock dividends |
21,645 | | 46,719 | (O) | 68,364 | 68,364 | ||||||||||||||
Net income (loss)
attributable to
noncontrolling
interests |
357 | 3,066 | (3,066) | (C) | 357 | 357 | ||||||||||||||
Income from continuing operations attributable to common
stockholders |
$ | 62,350 | $ | 10,311 | $ | 70,355 | $ | 143,016 | $ | 115,366 | ||||||||||
Average number of common shares outstanding: |
||||||||||||||||||||
Basic |
127,656 | 28,750 | (N) | 156,406 | 156,406 | |||||||||||||||
Diluted |
128,208 | 28,750 | (N) | 156,958 | 156,958 | |||||||||||||||
Income from continuing operations attributable to common
stockholders per share: (R) |
||||||||||||||||||||
Basic |
$ | 0.49 | $ | 0.91 | $ | 0.74 | ||||||||||||||
Diluted |
0.49 | 0.91 | 0.74 |
4
(A) | As of the date of this Current Report on Form 8-K, Acquisition Holding, a private company, has not completed its audit for the year ended December 31, 2010. As such, the Company has elected to use the historical unaudited condensed consolidated financial statements of Acquisition Holding as of September 30, 2010 which have been presented based on the financial statement classifications utilized by the Company. | |
(B) | On February 28, 2011, the Company entered into a definitive agreement to acquire Acquisition Holding for a total cash purchase price of $2,400,000,000. The total purchase price of $2,476,811,000 is comprised of the cash consideration and the fair value of capital lease obligations totaling $76,811,000 (see Note H). Immediately after the Acquisition, Tenant will lease the facilities acquired from Acquisition Holding from the Company pursuant to the Master Lease (see Note K). All obligations under the lease will be guaranteed by OpCo. In connection with the Acquisition, the Company estimates it will pay approximately $42,583,000 of fees and costs including advisory fees ($6,000,000), legal fees ($2,000,000), due diligence and other closing costs ($28,000,000) and fees associated with bridge loan financing ($6,583,000). Fees associated with bridge loan financing will be deferred and amortized over the term of the loan. The other $36,000,000 of costs are directly attributable to the Acquisition and represent non-recurring costs; therefore, the anticipated impact on the results of operations was excluded from the pro forma condensed consolidated statement of income. | |
(C) | Prior to closing, OpCo will be a direct subsidiary of Acquisition Holding. Immediately before the closing date, certain subsidiaries of Acquisition Holding will transfer the assets, liabilities and equity interests relating to (i) the business of operating and managing senior housing and care facilities, (ii) joint venture entities and (iii) other ancillary businesses to OpCo and then distribute all of the equity interests in OpCo to FC-GEN. The parties intend that under no circumstances shall the Company be deemed the owner of, or otherwise have control over, OpCo, its subsidiaries or the assets, liabilities and equity thereof for any period of time. As such, all relevant amounts relating to OpCo have been eliminated from Acquisition Holding. Adjustments identified represent assets, liabilities, revenues and expenses of OpCo that were not retained in the Acquisition. Subsequent to the Acquisition, the Company will have primarily acquired 140 senior housing and care facilities and the leasehold interests in and options to purchase seven other senior housing and care facilities. | |
(D) | Adjustments to real property follow (in thousands): |
Real property not acquired:(1) |
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Land and land improvements |
$ | (16,342 | ) | |
Buildings and improvements |
(275,830 | ) | ||
Construction in progress |
(2,565 | ) | ||
Accumulated depreciation and amortization |
72,684 | |||
Total real property not acquired |
(222,053 | ) | ||
Fair value adjustments:(2) |
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Land and land improvements |
(97,578 | ) | ||
Buildings and improvements |
859,810 | |||
Construction in progress |
(2,409 | ) | ||
Accumulated depreciation and amortization |
185,635 | |||
Total real property fair value adjustments |
945,458 | |||
Net real property asset adjustments |
$ | 723,405 | ||
(1) | See Note C. (2) Acquisition Holdings real property assets have been adjusted to their preliminary estimated fair values and the related historical balances of accumulated depreciation and construction in progress are eliminated when in-service real property assets are recorded at fair value. | |
(E) | Adjustments represent the deferral of $6,583,000 of fees associated with bridge financing (see Note B) offset by the elimination of Acquisition Holdings deferred loan costs of $12,078,000. | |
(F) | Adjustments represent elimination of deferred tax assets and liabilities of Acquisition Holding. As a result of the Acquisition, we are subject to corporate level taxes for any asset acquired in the Acquisition and subsequently sold for a period of 10 years |
5
subsequent to closing (built-in gains tax). The amount of income potentially subject to this special corporate level tax is generally equal to (i) the excess of the fair value of the asset as of the date of closing over its adjusted tax basis as of the date of closing, or (ii) the actual amount of gain, whichever of (i) and (ii) is lower. We have not recorded a deferred tax liability as a result of the potential built-in gains tax based on our intentions with respect to such assets and available tax planning strategies. Additionally, at the closing of the Acquisition, 100% of the real estate of Acquisition Holding will be acquired by a subsidiary of the Company; accordingly, assuming the Acquisition was effective January 1, 2010, all of the amounts of the income tax expense would then be eliminated. |
(G) | The Company expects to fund $2,400,000,000 of cash consideration and other associated costs of the Acquisition primarily with permanent financing and available cash. The Company has obtained a commitment for a 364-day bridge loan of $2,400,000,000. The original commitment amount of the bridge loan facility was reduced by approximately $1,829,732,000, the amount of a portion of the net proceeds of the common stock and preferred stock offerings. Although the Company intends to finance the Acquisition through the proceeds of the completed offerings of common stock and preferred stock (see Note N), cash on hand and the current offering of senior unsecured notes, for purposes of these unaudited pro forma consolidated financial statements we have initially assumed a drawdown of $345,500,000 under the bridge loan at the closing of the Acquisition. However, the Company does not expect to utilize the bridge loan assuming the successful completion of the notes offering (see Note P). Approximately $1,670,563,000 of Acquisition Holdings long-term debt is expected to be settled or repaid at closing. | |
(H) | At closing, Company will assume existing leases at seven properties. Acquisition Holding has historically recognized these leases as capital leases due to bargain purchase options. Company has adjusted the capital lease obligations to estimated fair values. | |
(I) | Adjustment to the total members equity represents the elimination of such balance of Acquisition Holding. | |
(J) | As discussed in Note A, Acquisition Holding has not completed its audit for the year ended December 31, 2010. As such, the following represents Acquisition Holdings unaudited condensed consolidated results from continuing operations for the twelve months ended September 30, 2010 as derived from the audited and unaudited condensed consolidated financial statements of Acquisition Holding (in thousands): |
Deduct: | Add: | |||||||||||||||
Year Ended | Nine Months Ended | Nine Months Ended | Twelve Months Ended | |||||||||||||
December 31, 2009 | September 30, 2009 | September 30, 2010 | September 30, 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Resident fees and services |
$ | 2,376,967 | $ | 1,766,127 | $ | 1,849,897 | $ | 2,460,737 | ||||||||
Other income |
2,145 | 2,026 | 2,221 | 2,340 | ||||||||||||
Total revenues |
2,379,112 | 1,768,153 | 1,852,118 | 2,463,077 | ||||||||||||
Expenses: |
||||||||||||||||
Interest expense |
138,008 | 99,973 | 104,261 | 142,296 | ||||||||||||
Property operating expenses |
2,003,989 | 1,478,145 | 1,554,582 | 2,080,426 | ||||||||||||
Depreciation and amortization |
85,151 | 63,488 | 65,005 | 86,668 | ||||||||||||
General and administrative |
117,742 | 88,959 | 89,760 | 118,543 | ||||||||||||
Impairment of assets |
17,358 | 17,358 | 14,492 | 14,492 | ||||||||||||
Loss (gain) on extinguishment of
debt |
12,306 | 12,956 | (407 | ) | (1,057 | ) | ||||||||||
Total expenses |
2,374,554 | 1,760,879 | 1,827,693 | 2,441,368 | ||||||||||||
Income from continuing operations before income
taxes and income from unconsolidated joint
ventures |
4,558 | 7,274 | 24,425 | 21,709 | ||||||||||||
Income tax expense |
(17,105 | ) | (18,469 | ) | (9,477 | ) | (8,113 | ) | ||||||||
Income from unconsolidated joint ventures |
435 | 332 | (322 | ) | (219 | ) | ||||||||||
Income (loss)
from continuing
operations |
(12,112 | ) | (10,863 | ) | 14,626 | 13,377 | ||||||||||
Less: Net income
attributable to
noncontrolling
interests |
1,367 | 1,100 | 2,799 | 3,066 | ||||||||||||
Income (loss) from
continuing
operations
attributable to
common stockholders |
$ | (13,479 | ) | $ | (11,963 | ) | $ | 11,827 | $ | 10,311 | ||||||
6
(K) | Immediately after the closing of the Acquisition, a subsidiary of the Company will lease the acquired facilities to Tenant pursuant to the Master Lease. In addition to rent, the triple net Master Lease requires Tenant to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under the ground leases. All obligations under the Master Lease will be guaranteed by OpCo. The initial term will be fifteen years. Tenant will have one option to renew for an additional term of fifteen years. The Master Lease will provide that the base rent for the first year will be $198,000,000 and will increase at least 1.75% but no more than 3.50% (subject to CPI changes) for each of the years two through six during the initial term and at least 1.50% but no more than 3.00% per year thereafter (subject to CPI changes). The adjustment to rental income represents the estimated straight-line rent the Company expects to recognize based on the minimum rent escalators during the initial term. | |
(L) | The pro forma increase in interest expense as a result of the bridge loan financing in the Acquisition is calculated using market rates management believes would have been available to the Company for the borrowings assumed to have been issued as of February 25, 2011 (the last business date before the date that the definitive agreement was executed to acquire Acquisition Holding) pursuant to the bridge loan commitment. The all-in cost of bridge financing is estimated to be 7.97%. Each 1/8 of 1% increase in the annual interest rate assumed with respect to the debt would increase pro forma interest expense by $432,000 for the year ended December 31, 2010. Adjustments to interest expense are as follows (in thousands): |
Elimination of Acquisition Holdings interest expense |
$ | (130,741 | ) | |
Interest expense and fees associated with bridge loan |
20,950 | |||
Amortization of deferred fees associated with bridge loan (Note B) |
6,583 | |||
Interest expense on capital lease obligations (Note H) |
3,978 | |||
Total |
$ | (99,230 | ) | |
(M) | Adjustments to depreciation and amortization represent the elimination of Acquisition Holdings historical depreciation ($61,824,000) offset by depreciation expense as a result of the recording of Acquisition Holdings real property at its estimated fair value ($63,533,000). Estimated useful lives of 40 years and 15 years were assumed to compute depreciation for buildings and improvements, respectively, on a straight-line basis. | |
(N) | Adjustments represent the issuance of 28,750,000 shares of Company common stock and 14,375,000 shares of Company 6.50% Series I cumulative convertible perpetual preferred stock and the application of the proceeds therefrom of $2,054,500,000 to fund a portion of the Acquisitions cash consideration. The shares of Company common and preferred stock issued are valued as follows (in thousands, except per share data): |
Common | Preferred | |||||||
Number of shares issued |
28,750 | 14,375 | ||||||
Issuance price(1) |
$ | 49.25 | $ | 50.00 | ||||
Gross value of shares issued |
1,415,938 | 718,750 | ||||||
Less: Underwriting discounts |
(56,638 | ) | (21,563 | ) | ||||
Less: Share registration and issuance costs |
(1,200 | ) | (787 | ) | ||||
Total value of shares issued |
$ | 1,358,100 | $ | 696,400 | ||||
The total value of the shares issued is presented as follows (in thousands): |
Common | Preferred | |||||||
Common Stock: Par value, $1.00 per share |
$ | 28,750 | ||||||
Preferred Stock: Liquidation preference, $50.00 per share |
$ | 718,750 | ||||||
Capital in excess of par value |
1,329,350 | (22,350 | ) | |||||
Total |
$ | 1,358,100 | $ | 696,400 | ||||
(1) | Common stock price represents the public offering price. Preferred stock price represents liquidation preference per share. |
(O) | Adjustment represents the dividend on the issuance of 14,375,000 shares of the Companys 6.50% Series I cumulative convertible perpetual preferred stock (see Note N). | |
(P) | Adjustments represent the anticipated issuance and sale of $1,000,000,000 of senior unsecured notes due 2016-2041 with an assumed weighted-average interest rate of 5.44% (calculated using market rates management believes would have been available to the Company for the borrowings assumed to have been issued as of March 8, 2011) and the application of the estimated net |
7
proceeds therefrom of $992,000,000. As a result of not utilizing bridge financing, the Company would not expect to pay the $6,583,000 of bridge fees. The notes proceeds assumed are predicated on anticipated sales of debt securities by the Company. There can be no assurance that such sales will occur on the terms estimated herein or at all. The notes assumed to be issued are valued as follows (in thousands): |
Face amount |
$ | 1,000,000 | ||
Offering price(1) |
100 | % | ||
Gross value of notes issued |
1,000,000 | |||
Less: Underwriting discounts |
(6,938 | ) | ||
Less: Debt issuance costs |
(1,062 | ) | ||
Total net proceeds |
$ | 992,000 | ||
The application of the net proceeds is as follows (in thousands): |
Cash consideration for the Acquisition |
$ | 345,500 | ||
Repayment of unsecured line of credit arrangement |
300,000 | |||
Unallocated cash and cash equivalents(2) |
346,500 | |||
Total net proceeds |
$ | 992,000 | ||
(1) | For pro forma purposes, the Company has assumed the notes will be issued at par. | |
(2) | The Company intends to use any unallocated proceeds from this offering for general corporate purposes, including investing in health care and senior housing properties. |
(Q) | Adjustments to interest expense represent the recognition of $55,183,000 of assumed interest and fees associated with the senior unsecured notes offerings offset by $27,533,000 reduction in interest and fees associated with the bridge loan resulting from the use of proceeds from the notes offerings. See Note P for a discussion of the interest rate assumptions. Each 1/8 of 1% increase in the annual interest rate assumed with respect to the notes would increase adjusted pro forma interest expense by $1,250,000 for the year ended December 31, 2010. | |
(R) | The calculations of basic and diluted earnings per share are as follows (in thousands, except per share data): |
Pro Forma | ||||||||||||
Historical | Pro Forma | As Adjusted | ||||||||||
Income from continuing operations |
$ | 84,352 | $ | 211,737 | $ | 184,087 | ||||||
Preferred stock dividends |
(21,645 | ) | (68,364 | ) | (68,364 | ) | ||||||
Net income attributable to noncontrolling interests |
(357 | ) | (357 | ) | (357 | ) | ||||||
Income from continuing operations attributable to common stockholders |
$ | 62,350 | $ | 143,016 | $ | 115,366 | ||||||
Weighted-average shares used to calculate earnings per common share Basic(1) |
127,656 | 156,406 | 156,406 | |||||||||
Effect of dilutive securities |
552 | 552 | 552 | |||||||||
Adjusted weighted-average shares used to calculate earnings per common share Diluted |
128,208 | 156,958 | 156,958 | |||||||||
Income from continuing operations attributable to common stockholders per share: |
||||||||||||
Basic |
$ | 0.49 | $ | 0.91 | $ | 0.74 | ||||||
Diluted |
0.49 | 0.91 | 0.74 |
(1) | The pro forma weighted-average shares outstanding are the historical weighted-average shares of the Company adjusted for the issuance of 28,750,000 shares of Company common stock (see Note N). The convertible preferred stock discussed in Note N were excluded as the effect of the conversion would be anti-dilutive. |
8