-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NW8EZ3D/tm1hU8xCVEdEn5OL5+zEA0GSl75kjp0/m64IUzeqFzZfECOV1nCNek6G 6Vv77wNkiEPX6KFr+PbkVw== 0000950152-97-000724.txt : 19970221 0000950152-97-000724.hdr.sgml : 19970221 ACCESSION NUMBER: 0000950152-97-000724 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970210 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE REIT INC /DE/ CENTRAL INDEX KEY: 0000766704 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341096634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08923 FILM NUMBER: 97522009 BUSINESS ADDRESS: STREET 1: ONE SEAGATE STE 1950 STREET 2: P O BOX 1475 CITY: TOLEDO STATE: OH ZIP: 43604 BUSINESS PHONE: 4192472800 10-K405 1 HEALTH CARE REIT, INC. 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ For the fiscal year ended DECEMBER 31, 1996 Commission File No. 1-8923 HEALTH CARE REIT, INC. (Exact name of registrant as specified in its charter) DELAWARE 34-1096634 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One SeaGate, Suite 1500, Toledo, Ohio 43604 (Address of principal executive office) (Zip Code) (419) 247-2800 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ---------------------- ------------------------ Shares of Common Stock New York Stock Exchange $1.00 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months; 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 of this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the Registrant on February 6, 1996 was $441,534,000 based on the reported closing sales price of such shares on the New York Stock Exchange for that date. As of February 6, 1996, there were 18,662,919 shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the annual shareholders meeting to be held April 22, 1997, are incorporated by reference into Part III. 2 HEALTH CARE REIT, INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
Page Item 1. Business................................................................................................3 Item 2. Properties.............................................................................................11 Item 3. Legal Proceedings......................................................................................12 Item 4. Submission of Matters to a Vote of Security Holders....................................................12 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters...........................................................................12 Item 6. Selected Financial Data................................................................................13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................14 Item 8. Financial Statements and Supplementary Data............................................................17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................. 33 PART III Item 10. Directors and Executive Officers of the Registrant.....................................................33 Item 11. Executive Compensation.................................................................................33 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................................................................33 Item 13. Certain Relationships and Related Transactions.........................................................33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................................................33 -2-
3 PART I ITEM 1. BUSINESS GENERAL Health Care REIT, Inc. (the "Company") is a self-administered real estate investment trust that invests in health care facilities, primarily nursing homes, assisted living facilities and retirement centers. The Company also invests in specialty care facilities. As of December 31, 1996, long-term care facilities, which include nursing homes, assisted living facilities and retirement centers, comprised approximately 85% of the investment portfolio. Founded in 1970, the Company was the first real estate investment trust to invest exclusively in health care facilities. As of December 31, 1996, the Company had $541,496,000 of real estate investments, inclusive of credit enhancements, in 137 facilities located in 28 states and managed by 51 different operators. At that date, the portfolio included 56 nursing homes, 63 assisted living facilities, 11 retirement centers, five specialty care facilities, and two behavioral care facilities. At December 31, 1996, the Company had approximately $236,277,000 in unfunded commitments. The Company's primary objectives are to protect shareholders' capital and enhance shareholder value. The Company seeks to pay consistent cash dividends to shareholders and create opportunities to increase dividend payments from annual increases in rental and interest income and portfolio growth. To meet these objectives, the Company invests primarily in long-term care facilities managed by experienced operators and diversifies its investment portfolio by form of investment, operator and geographic location. The Company anticipates providing mortgage financing for qualified health care operators and acquiring additional health care facilities through operating lease arrangements. Capital for future investments may be provided by borrowing under the Company's revolving credit facilities, public offerings or private placements of debt or equity, and the assumption of secured indebtedness. PORTFOLIO OF PROPERTIES The following table reflects the diversification of the Company's portfolio as of December 31, 1996:
Number Percentage Number of Investment Number Number Type of Investments of of Beds/ Per Bed/ of of Facility (1)(2)(3) Portfolio Facilities Units Unit(4) Operators States(5) -------- --------- --------- ---------- ----- ------- --------- --------- (In thousands) Nursing Homes $245,987 45.43% 56 7,651 $ 34,027 27 18 Assisted Living Facilities 172,189 31.80 63 4,152 56,990 16 10 Retirement Centers 42,483 7.84 11 1,366 39,637 6 9 Specialty Care Facilities 68,109 12.58 5 459 151,523 3 5 Behavioral Care Facilities 12,728 2.35 2 294 43,292 1 1 -------- ------ --- ------ Totals $541,496 100.0% 137 13,922 ======== ====== === ====== - -------------------------------------------------------------- (1) Investments include real estate investments and credit enhancements which amounted to $522,681,000 and $18,815,000, respectively. -3-
4 (2) Investments do not include $144,389,000 in commitments for financings for which the Company has not yet commenced funding. (3) Due to a number of factors, it is possible that some portion of the commitments for financings will not result in permanent financing. (4) Investment Per Bed/Unit was computed by using the total investment amount of $633,384,000 which includes real estate investments, unfunded commitments for which initial funding has commenced, and credit enhancements of, $522,681,000, $91,888,000 and $18,815,000, respectively. (5) The Company has investments in properties located in 28 states. Nursing Homes Skilled nursing facilities provide inpatient skilled nursing and custodial services as well as rehabilitative, restorative and transitional medical services. In some instances, nursing facilities supplement hospital care by providing specialized care for medically complex patients whose conditions require intense medical and therapeutic services, but who are medically stable enough to have these services provided in facilities that are less expensive than acute care hospitals. Assisted Living Facilities The assisted living facilities provide services to aid in everyday living, such as bathing, meals, security, transportation, recreation, medication supervision and limited therapeutic programs. More intensive medical needs of the resident are often met within assisted living facilities by home health providers, close coordination with the resident's physician and skilled nursing facilities. Assisted living facilities are increasingly successful as lower cost, less institutional alternatives to the health problems of the elderly or medically frail. Retirement Centers The retirement centers offer specially designed residential units for active and ambulatory elderly residents and provide various ancillary services. Retirement centers offer residents an opportunity for an independent lifestyle with a range of social and health services. Specialty Care Facilities The specialty care facilities provide specialized inpatient services for specific illnesses or diseases, including, among others, coronary and cardiovascular services. Specialty care facilities are lower cost alternatives to acute care hospitals. Behavioral Care Facilities The behavioral care facilities offer comprehensive inpatient and outpatient psychiatric treatment programs. Programs are tailored to the individual and include individual, group and family therapy. -4- 5 INVESTMENTS The Company invests in income producing health care facilities with a primary focus on long-term care facilities, which include skilled nursing facilities, assisted living facilities and retirement centers. The Company also invests in specialty care facilities. The Company intends to continue to diversify its investment portfolio by type of health care facilities and form of financing. In determining whether to finance a facility, the Company focuses on: (a) the experience of the operator; (b) the financial and operational feasibility of the property; (c) the financial strength of the borrower or lessee; (d) the security available to support the financing; and (e) the amount of capital committed to the property by the borrower or lessee. Management conducts market research and analysis for all potential investments. In addition, Management reviews the value of all properties, the interest rates and debt service coverage requirements of any debt to be assumed and the anticipated sources for repayment for such debt. The Company's investments primarily take the form of operating lease transactions, permanent mortgage loans and construction financings. Substantially all of the Company's loans and leases are designed with escalating rate structures that may result in principal payment or purchase prior to maturity. The Company's policy is to structure long term financing to maximize returns. The Company believes that appropriate new investments will be available in the future with substantially the same spreads over its costs of borrowing regardless of interest rate fluctuations. Investments are typically structured using mortgage loans or operating leases which are normally secured by guarantees and/or letters of credit. As of December 31, 1996, letters of credit from commercial banks, and cash deposits aggregating $26,012,000 were available to the Company as security for operating lease, permanent mortgage loan and construction loan obligations. In addition, the leases and loans are generally cross-defaulted and the loans are cross-collateralized with any other mortgage loans, leases, or other agreements between the operator or any affiliate of the operator and the Company. The Company typically finances up to 90% of the appraised value of a property. Economic terms normally include annual rate increases and fair market value based purchase options in operating leases, and may include contingent interest for mortgage loans. The Company monitors its investments through a variety of methods, which are determined by the type of health care facility and operator. The monitoring process includes a review and analysis of facility, borrower or lessee, and guarantor financial statements; periodic site visits; property reviews; and meetings with operators. Such reviews of operators and facilities generally encompass licensure and regulatory compliance materials and reports, contemplated building improvements and other material developments. For certain investments, the Company receives warrants or other similar equity instruments that provide the Company with an opportunity to share in an operator's enterprise value. As of December 31, 1996, the Company had obtained warrants from seven operators to purchase their common stock or partnership interest. None of the warrants are publicly traded. In one instance, the underlying common stock that relates to one set of warrants is publicly traded, and the market price of the common stock was below the exercise price of the related warrants at December 31, 1996. In connection with an investment in one operator, the Company also received warrants that were converted into 87,823 shares of common stock at the time of the operator's initial public offering. As of December 31, 1996, those shares of common stock were recorded on the Company's balance sheet at a value of $768,451. Operating Leases Each facility, which includes the land, buildings, improvements and related rights (the "Leased Properties") owned by the Company is leased to a health care provider pursuant to a long-term lease (collectively, the "Leases"). The -5- 6 Leases generally have a fixed term of 10 to 13 years and contain multiple five to ten-year renewal options. Each Lease is a triple net lease requiring the lessee to pay rent and all additional charges incurred in the operation of the Leased Property. The lessees are required to repair, rebuild and maintain the Leased Properties. The Company's Leased Properties aggregated approximately $153,623,000 at December 31, 1996. The base rents range from approximately 8.3% to 15.9% per annum of the Company's equity investment in the Leased Properties. The base rents for the renewal periods are generally fixed rents set at a spread above the Treasury yield for the corresponding period. In addition, the Company typically charges a lease commitment fee at the initiation of the transaction. Permanent Mortgage Loans The Company's investments in permanent mortgage loans are structured to provide the Company with interest income, principal amortization and commitment fees. Virtually all of the approximately $292,442,000 of permanent mortgage loans as of December 31, 1996 were first mortgage loans. The interest rate on the Company's investments in permanent mortgage loans for operating facilities ranges from 10.3% to 13.0% per annum on the outstanding balances. The yield to the Company on permanent mortgage loans depends upon a number of factors, including the stated interest rate, average principal amount outstanding during the term of the loan, the amount of the commitment fee charged at the inception of the loan, the interest rate adjustments and the additional interest earned. The permanent mortgage loans for operating facilities made through December 31, 1996 are generally subject to seven to ten year terms with 25-year amortization schedules that provide for a balloon payment of the outstanding principal balance at the end of the term. Generally, the permanent mortgage loans provide five to seven years of prepayment protection. Construction Financing The Company provides construction financing that by their terms converts either into a long-term operating lease or mortgage loan upon the completion of the facilities. Generally, the rates on the outstanding balances of the Company's construction financings are 250 to 350 basis points over the prime rate of a specified financial institution. The Company also typically charges a commitment fee at the commencement of the financing. The construction financing period commences upon funding and terminates upon the earlier of the completion of development of the applicable facility or the end of a specified period, generally 12 to 18 months. During the term of the construction financing, funds are advanced pursuant to draw requests made by the operator in accordance with the terms and conditions of the applicable loan agreement, which terms require, among other things, a site visit by a Company representative prior to the advancement of funds. Monthly payments are made on the total amount of the proceeds advanced during the development period. During the construction financing period, the Company generally requires additional security and collateral in the form of either payment and performance bonds and/or completion guarantees by either one, or a combination of, the operator's parent entity, other affiliates of the operator, or one or more of the individual principals of the operator. At December 31, 1996, the Company had outstanding construction financings of $71,912,000 and was committed to providing additional financing of approximately $69,308,000 to complete construction. -6- 7 BORROWING POLICIES The Company may arrange for long-term borrowing from banks, private placements to institutional investors, or public offerings. For other short-term purposes, the Company may, from time to time, negotiate lines of credit, or arrange for other short-term borrowing from banks or others. In addition, the Company may incur mortgage indebtedness on real estate that it has acquired through purchase, foreclosure or otherwise. When terms are deemed favorable, the Company may invest in properties subject to existing loans and mortgages. In addition, the Company may obtain financing for unleveraged properties in which it has invested or may refinance properties acquired on a leveraged basis. Under documents pertaining to existing indebtedness, the Company is subject to various restrictions with respect to secured and unsecured indebtedness. ALLOWANCE FOR LOSSES The Company maintains an allowance for possible losses that is evaluated quarterly to determine its adequacy. See Notes 1 and 5 of Notes to Financial Statements. At December 31, 1996, $6,000,000 of the total allowance of $9,787,000 was allocated to two specific properties. The Company believes that its allowance is adequate. COMPETITION The Company competes with other real estate investment trusts, real estate partnerships, banks, insurance companies and other investors in the acquisition, leasing and financing of health care facilities. The operators of the facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for patients and residents based on a number of factors, including quality of care, reputation, physical appearance of facilities, services offered, family preferences, physicians, staff and price. EMPLOYEES As of December 31, 1996, the Company employed 19 full-time employees. CERTAIN GOVERNMENT REGULATIONS The Company invests in single purpose health care facilities. The Company's customers must comply with the licensing requirements of federal, state and local health agencies, and with the requirements of municipal building codes, health codes and local fire departments. In granting and renewing a facility's license, the state health agency considers, among other things, the physical buildings and equipment, the qualifications of the administrative personnel and clinical staffs, the quality of health care programs and compliance with applicable laws. Many of the facilities operated by the Company's customers receive a substantial portion of their revenues from the federal Medicare program and state Medicaid programs; therefore, the Company's revenues may be indirectly affected by changes in these programs. The amounts of program payments can be changed by legislative or regulatory actions and by determinations by agents for the programs. Since Medicaid programs are funded by both the states and the federal government, the amount of payments can be affected by changes at either the state or federal level. There is no assurance that payments under these programs will remain at levels comparable to present levels or be sufficient to cover costs allocable to these patients. Under Medicare and Medicaid programs, acute care hospitals are generally paid a fixed amount per discharge (based on the patient's diagnosis) for inpatient services. Behavioral and rehabilitation hospitals are generally paid on a cost basis, subject to certain limitations on allowable costs; however, proposals have been made to change the system to a diagnosis-based fixed payment per discharge. -7- 8 Medicare and Medicaid programs have traditionally reimbursed nursing facilities for the reasonable direct and indirect allowable costs incurred in providing routine services (as defined by the programs), subject to certain cost ceilings. However, many states have converted to a system based on prospectively determined fixed rates, which may be based in part on historical costs. Medicare and Medicaid regulations could adversely affect the resale value of the Company's health care facilities. Medicare regulations provide that when a facility changes ownership (by sale or under certain lease transactions), reimbursement for depreciation and interest will be based on the lesser of the cost to the new owner or the historical cost of the original owner. Medicaid regulations allow a limited increase in the valuation of nursing facilities (but not hospitals) during the time the seller owned the facility. Other Medicare and Medicaid regulations provide that upon resale, facilities are responsible to pay back prior depreciation reimbursement payments that are "recaptured" as a result of the sale. Health care facilities that participate in Medicare or Medicaid must meet extensive program requirements, including physical plant and operational requirements, which are revised from time to time. Such requirements may include a duty to admit Medicare and Medicaid patients, limiting the ability of the facility to increase its private pay census beyond certain limits. Medicare and Medicaid facilities are regularly inspected to determine compliance, and may be excluded from the programs--in some cases without a prior hearing--for failure to meet program requirements. Under the Medicare program, "peer review organizations" have been established to review the quality and appropriateness of care rendered by health care providers. These organizations may not only deny claims that fail to meet their criteria, but can also fine and/or recommend termination of participation in the program. Recent changes in the Medicare and Medicaid programs will likely result in increased use of "managed care" organizations to meet the needs of program beneficiaries. These organizations selectively contract with health care facilities, resulting in some facilities being excluded from the ability to serve program beneficiaries. Health care facilities also receive a substantial portion of their revenues from private insurance carriers, health maintenance organizations, preferred provider organizations, self-insured employees and other health benefit payment arrangements. Such payment sources increasingly pay facilities under contractual arrangements that include a limited panel of providers and/or discounted or other special payment arrangements, including arrangements that shift the risk of high utilization to the providers. A number of states have established rate-setting agencies which control inpatient health care facility rates, including private pay rates. Recent proposals to significantly reduce Medicare and Medicaid spending at the federal level could reduce revenues of the Company's customers. President Clinton recently proposed legislation that would, over six years, reduce Medicare spending by an estimated $138 billion. The proposed reductions include specific elements that would affect the Company's customers, including a prospective payment system for skilled nursing facilities that would reduce payments by approximately $9 billion. It is impossible to predict with any certainty what form any such legislation may ultimately take. In order to meet a federal requirement, most states required providers to obtain certificates of need prior to construction of inpatient facilities and certain outpatient facilities. However, in 1987, the federal requirement was repealed. Some states have repealed these requirements, which may result in increased competition, and other states are considering similar repeals. Nursing facilities compete with other subacute care providers, including rehabilitation centers and hospitals. Many of these providers have underutilized facilities and are converting some or all of their facilities into nursing facilities. Some of these entities operate on a tax-exempt basis, which gives them a capital cost advantage. Furthermore, some states have granted rest homes the ability to provide limited nursing care services. -8- 9 Certain states have adopted pre-admission screening and other programs to promote utilization of outpatient and home-based services as an alternative to inpatient facility services. Recent changes in Medicaid regulations allow states to use Medicaid funding for home and community-based alternatives to inpatient care. TAXATION General A corporation, trust or association meeting certain requirements may elect to be treated as a "real estate investment trust." Beginning with its first fiscal year and in all subsequent years, the Company has elected to be treated as a real estate investment trust under Sections 856 to 860, inclusive, of the Internal Revenue Code of 1986, as amended (the "Code"). The Company intends to operate in such manner as to continue to qualify as a real estate investment trust for federal income tax purposes. No assurance can be given that the actual results of the Company's operations for any one taxable year will satisfy such requirements. To qualify as a real estate investment trust, the Company must satisfy a variety of complex requirements each year, including organizational and stock ownership tests and percentage tests relating to the sources of its gross income, the nature of its assets and the distribution of its income. Generally, for each taxable year during which the Company qualifies as a real estate investment trust, it will not be taxed on the portion of its taxable income (including capital gains) that is distributed to shareholders. Any undistributed income or gains will be taxed to the Company at regular corporate tax rates. The Company will be subject to tax at the highest corporate rate on its net income from foreclosure property, regardless of the amount of its distributions. The highest corporate tax rate is currently 35%. The Company may elect to treat any real property it acquires by foreclosure as foreclosure property, including any property acquired in future foreclosure actions brought with respect to the two loans in default. This would permit the Company to hold such property for up to two years without adverse consequences. Subject to certain limitations, the Company will also be subject to an additional tax equal to 100% of the net income, if any, derived from prohibited transactions. A prohibited transaction is defined as a sale or disposition of inventory-type property or property held by the Company primarily for sale to customers in the ordinary course of its trade or business, which is not property acquired on foreclosure. The Company is subject to a nondeductible federal excise tax equal to 4% of the amount, if any, by which 85% of its ordinary income plus 95% of its capital gain net income (plus distribution deficiencies from prior years) exceeds distributions actually paid or treated as paid to stockholders during the taxable year, plus current year income upon which the Company pays tax and any overdistribution from prior years. Due to the growth of the Company's income, primarily as a result of large capital gains from the exercise of purchase options under leases, the Company did not satisfy this requirement in 1996, 1995 and 1994 and incurred an excise tax of approximately $317,000, $326,000 and $575,000 respectively, in those years. There is a cumulative underdistribution of $15,930,000 that will carry over to 1997 and later years until reduced by distributions in a subsequent year that exceed the percentage of that year's income that is required to be distributed currently. Failure To Qualify While the Company intends to operate so as to qualify as a real estate investment trust under the Code, if in any taxable year the Company fails to qualify, and certain relief provisions do not apply, its taxable income would be subject to tax (including alternative minimum tax) at corporate rates. If that occurred, the Company might have to dispose of a significant amount of its assets or incur a significant amount of debt in order to pay the resulting federal income tax. Further distributions to its stockholders would not be deductible by the Company nor would they be required to be made. Distributions out of the Company's current or accumulated earnings and profits would be taxable to stockholders as dividends and would be eligible for the dividends received deduction for corporations. No portion of any distributions would be eligible for designation as a capital gain dividend. -9- 10 Unless entitled to relief under specific statutory provisions, the Company also would be disqualified from taxation as a real estate investment trust for the four taxable years following the year during which qualification was lost. The foregoing is only a summary of some of the significant federal income tax considerations affecting the Company and is qualified in its entirety by reference to the applicable provisions of the Code, the rules and regulations promulgated thereunder, and the administrative and judicial interpretations thereof. Stockholders of the Company are urged to consult their own tax advisors as to the effects of these rules and regulations on them. In particular, foreign stockholders should consult with their tax advisors concerning the tax consequences of ownership of shares in the Company, including the possibility that distributions with respect to the shares will be subject to federal income tax withholding. SUBSIDIARIES AND AFFILIATES On November 1, 1993 and July 9, 1996, the Company formed two wholly-owned subsidiaries, HCRI Pennsylvania Properties, Inc. and HCRI Overlook Green, Inc., respectively. These Pennsylvania corporations were created to own real estate in the State of Pennsylvania. On December 27, 1996 and December 30, 1996, the Company formed a wholly-owned subsidiary, HCRI Texas Properties, Inc., a Delaware corporation, and HCRI Texas Properties, Ltd., a Texas limited partnership, respectively. Both entities were created in connection with real estate investments in the State of Texas. -10- 11 ITEM 2. PROPERTIES The Company's headquarters are currently located at One SeaGate, Suite 1500, Toledo, Ohio 43604. The following table sets forth certain information regarding the facilities that comprise the Company's investments as of December 31, 1996.
Number Number of of Beds/ Total Annualized Facility Location Facilities Units Investment(1) Income(2) ----------------- ---------- -------- ------------- ---------- NURSING FACILITIES: Arizona ................ 3 351 16,913,172 1,938,824 California ............. 1 122 3,888,000 438,178 Colorado ............... 1 180 5,406,917 570,970 Connecticut ............ 8 1,208 40,016,697 4,546,446 Florida ................ 3 420 9,350,979 1,077,344 Georgia ................ 1 170 4,709,514 506,744 Idaho .................. 3 404 18,889,864 2,035,777 Indiana ................ 1 50 1,183,919 172,734 Kentucky ............... 1 92 4,609,386 491,500 Massachusetts .......... 10 1,479 62,436,891 6,585,578 Michigan ............... 2 300 4,816,756 579,404 Missouri ............... 3 320 11,241,547 1,255,022 New York ............... 1 200 7,456,928 811,314 Ohio ................... 7 762 28,412,360 3,260,149 Oregon ................. 1 121 5,833,229 593,239 Pennsylvania ........... 2 287 13,126,237 1,482,105 Texas .................. 7 1,120 20,724,155 2,225,828 West Virginia .......... 1 65 1,324,018 236,734 ---- ----------- ----------- ----------- Total ................. 56 7,651 260,340,569 28,807,890 ASSISTED LIVING FACILITIES: Alabama ................ 1 71 3,217,265 333,952 Florida ................ 9 590 31,255,609 3,306,701 New Jersey ............. 1 264 22,760,823 2,335,107 New Mexico ............. 2 159 8,087,500 882,699 New York ............... 5 606 42,285,000 4,477,574 North Carolina ......... 5 256 13,063,901 1,472,907 Oklahoma ............... 16 532 24,313,141 2,511,030 Pennsylvania ........... 4 451 27,450,862 3,040,316 Texas .................. 16 978 54,629,954 5,831,494 Virginia ............... 4 245 9,558,847 1,140,658 ---- ----------- ----------- ----------- Total ................. 63 4,152 236,622,902 25,332,438 RETIREMENT CENTERS: Arizona ................ 1 164 2,420,582 302,573 California ............. 1 92 2,420,582 302,573 Illinois ............... 2 320 13,034,770 527,963 Indiana ................ 1 61 1,926,948 205,027 Missouri ............... 1 195 5,158,000 644,750 New Mexico ............. 1 150 8,396,735 361,178 North Carolina ......... 1 126 13,000,000 1,368,770 Ohio ................... 2 200 3,250,000 68,100 Texas .................. 1 58 4,536,000 471,290 ---- ----------- ----------- ----------- Total ................. 11 1,366 54,143,617 4,252,224 SPECIALTY CARE FACILITIES: Arkansas ............... 1 117 27,000,000 2,948,400 California ............. 1 162 10,875,833 1,280,086 Minnesota .............. 1 N/A 677,480 84,685 Texas .................. 1 70 13,750,000 1,431,375 Washington D.C ......... 1 110 17,245,787 1,997,062 ---- ----------- ----------- ----------- Total ................. 5 459 69,549,100 7,741,608 BEHAVIORAL CARE FACILITIES: Florida ................ 2 294 6,727,804 N/A ---- ----------- ----------- ----------- TOTAL ALL FACILITIES: . 137 13,922 627,383,992 66,134,160 ==== =========== =========== ===========
- -------------------------- (1) Reflects gross investment less specified allowance for losses, except for facilities under construction, for which the Company's total investment commitment is reflected. (2) Reflects contract rate of annual base rent or interest received or to be received upon completion of construction. -11- 12 ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table sets forth, for the periods indicated, the high and low prices of the Company's Common Stock on the New York Stock Exchange, as reported on the Composite Tape and dividends paid per share. There were 5,446 shareholders of record as of December 31, 1996.
SALES PRICE -------------------- DIVIDENDS HIGH LOW PAID 1996 ---- --- ---- First Quarter........................................... $ 22.625 $ 17.875 $ 0.52 Second Quarter.......................................... 23 20.50 0.52 Third Quarter .......................................... 23.25 20.875 0.52 Fourth Quarter.......................................... 25.25 23 0.52 1995 First Quarter........................................... $ 22.375 $ 19.875 $ 0.515 Second Quarter.......................................... 23.125 20.375 0.52 Third Quarter........................................... 21.50 15.50 0.52 Fourth Quarter.......................................... 19.125 15.75 0.52
-12- 13 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five years ended December 31, 1996 are derived from the audited consolidated financial statements of the Company.
Year Ended December 31, ---------------------------------------------- (In thousands, except per share data) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- OPERATING DATA Revenues .......................... $54,402 $44,596 $42,732 $36,018 $28,908 Expenses: Interest expense ................ 14,635 12,752 9,684 10,817 8,160 Provision for depreciation ...... 2,427 1,580 1,385 790 382 General and administrative and other expenses (1) ........ 6,664 10,835 6,710 4,356 3,851 Settlement of management contract (2) .................. -- 5,794 -- -- -- ------- ------- ------- ------- ------- Total expenses .................... 23,726 30,961 17,779 15,963 12,393 ------- ------- ------- ------- ------- Net income ........................ $30,676 $13,635 $24,953 $20,055 $16,515 ======= ======= ======= ======= ======= OTHER DATA Average number of shares outstanding ..................... 14,093 11,710 11,519 9,339 8,629 Cash available for distribution (3) $37,075 $27,938 $31,697 $22,780 $18,654 PER SHARE Net income ........................ $ 2.18 $ 1.16 $ 2.17 $ 2.15 $ 1.91 Cash distributions ................ $ 2.08 $ 2.075 $ 2.01 $ 1.93 $ 1.85 December 31, ------------------------------------------------ (In thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- BALANCE SHEET DATA Real estate investments, net $512,894 $351,924 $318,433 $276,858 $223,126 Total assets ..................... 519,831 358,092 324,102 285,024 226,207 Total debt ....................... 184,395 162,760 128,273 96,311 103,719 Total liabilities ................ 194,295 170,494 134,922 100,892 107,259 Total shareholders' equity ....... 325,536 187,598 189,180 184,132 118,948
(1) General and administrative and other expenses include loan expense, management fees through November 30, 1995, provision for losses, expenses related to disposition of investments and other operating expenses. (2) On November 30, 1995, the Company's advisor merged into the Company. Consideration for this transaction totaled approximately $5,048,000 which was solely comprised of 282,407 Shares. In addition, the Company acquired approximately $46,000 in net assets and incurred approximately $792,000 of related transaction expenses. The consideration, plus related transaction expenses, were accounted for as a settlement of a management contract. (3) Cash available for distribution is defined as net cash provided from operating activities, but does not consider the effects of changes in operating assets and liabilities such as other receivables and accrued expenses. The Company uses cash available for distribution in evaluating investments and the Company's operating performance. Cash available for distribution 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. -13- 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the Company's net real estate investments totaled approximately $512,894,000, which included 56 nursing facilities, 63 assisted living facilities, 11 retirement centers, five specialty care facilities and two behavioral care facilities. The Company funds its investments through a combination of long-term and short-term financing, utilizing both debt and equity. During 1996, the Company provided permanent mortgage financings of $69,970,000, invested $31,900,000 in operating leases and made construction advances of $93,993,000. During 1996, the Company received principal payments on real estate mortgages of $3,080,000, net repayments on working capital loans of $2,053,000 and proceeds of $52,047,000 from the prepayment of mortgage loans. Also during 1996, 16 of the above-mentioned construction loans completed the construction phase of the Company's investment process and were converted to investments in operating leases, with an aggregate investment of $26,418,000, and 4 construction loans converted to permanent mortgage loans with an aggregate investment balance of $24,298,000. As of December 31, 1996, the Company had shareholders' equity of $325,536,000 and a total outstanding debt balance of approximately $184,395,000, which represents a debt to equity ratio of 0.57 to 1.0. In April 1996, the Company issued Senior Notes in the aggregate principal amount of $30,000,000 which mature in 2001 and 2003, and have a weighted average interest rate of 7.18%. The notes are secured by approximately $40,000,000 of assets. In May 1996, the Company issued 2,322,200 shares of Common Stock, $1.00 par value per share, at the price of $22.00 per share, which generated net proceeds of $48,103,000 to the Company. In September 1996, the Company issued 1,587,800 shares of Common Stock, $1.00 par value per share, at the price of $22.00 per share, which generated net proceeds to the Company of $34,111,000. In December 1996, the Company issued 2,200,000 shares of Common Stock, $1.00 par value per share, at the price of $23.875 per share, which generated net proceeds to the Company of $49,898,000. As of December 31, 1996, the Company had a secured revolving line of credit expiring March 31, 1997 in the amount of $150,000,000 bearing interest at the lender's prime rate or LIBOR plus 1.50%. In addition, the Company had unsecured revolving lines of credit in the amounts of $25,000,000 and $10,000,000 bearing interest at the lenders' prime rate expiring May 31, 1997 and April 30, 1997, respectively. At December 31, 1996, under the Company's line of credit arrangements, available funding totaled $92,875,000. As of February 4, 1997, the Company has effective shelf registrations on file with the Securities and Exchange Commission under which the Company may issue up to $300,000,000 of securities including debt, convertible debt, common and preferred stock. The Company anticipates issuing securities under such shelf registrations to invest in additional health care facilities and to repay borrowings under the Company's line of credit arrangements. As of December 31, 1996, the Company had approximately $236,277,000 in unfunded commitments. The Company believes its liquidity and various sources of available capital are sufficient to fund operations, finance future investments, and meet debt service and dividend requirements. -14- 15 RESULTS OF OPERATIONS DECEMBER 31, 1996 VS. DECEMBER 31, 1995 Revenues for the year ended December 31, 1996, were $54,402,000 compared to $44,596,000 for the year ended December 31, 1995, an increase of $9,806,000 or 22%. Revenue growth resulted primarily from increased interest income of $5,457,000, operating lease income of $3,496,000 and loan and commitment fees of $941,000 resulting primarily from additional real estate investments made during the past twelve to fifteen months. Expenses for the year ended December 31, 1996, totaled $23,726,000, a decrease of $7,235,000 from expenses of $30,961,000 for the year ended December 31, 1995. Expenses for the year ended December 31, 1995, were negatively influenced by nonrecurring charges, primarily related to a $4,800,000 provision for losses and a $5,794,000 charge for the settlement of the management contract, an expense associated with the merger of the Company's advisor into the Company. The provision for depreciation for the year ended December 31, 1996, totaled $2,427,000, an increase of $848,000 over the year ended 1995 as a result of additional operating lease investments. Interest expense for the year ended December 31, 1996, was $14,635,000 compared to $12,752,000 for the year ended December 31, 1995. The increase in interest expense during 1996 was primarily due to the issuance of $30,000,000 Senior Notes in April 1996 and higher average borrowings under the Company's line of credit arrangements, which were offset by lower interest rates. General and administrative expense for the year ended December 31, 1996 totaled $4,448,000 as compared to $5,284,000 for the year ended December 31, 1995. The expenses for the year ended December 31, 1996 were 8.18% of revenues as compared to 11.85% for the year ended December 31, 1995. It is the Company's intention to systematically eliminate its investments in behavioral care facilities. As a result, at September 30, 1996, the Company declared a disposition of investment associated with its behavioral care portfolio. As a result, any gains realized through the repayment or sale of investments associated with the Company's behavioral care facilities will be added to the Company's general allowance for losses and applied against any losses incurred through the repayment or sale of behavioral care related investments. During the year ended December 31, 1996, the Company recorded an $808,000 disposition of investment expense as an offset to an $808,000 prepayment fee received from the repayment of two behavioral care related mortgage loans. Additionally, the Company's general allowance for losses was reduced by $481,000, resulting from the repayment of these loans. As a result of the various factors mentioned above, net income for the year ended December 31, 1996, was $30,676,000 as compared to $13,635,000 for the year ended December 31, 1995. Net income per share for the year ended December 31, 1996, was $2.18 versus $1.16 for the year ended December 31, 1995. The per share increase resulted from an increase in net income offset by an increase in average shares outstanding during 1996. RESULTS OF OPERATIONS DECEMBER 31, 1995 VS. DECEMBER 31, 1994 Revenues for the year ended December 31, 1995, were $44,596,000 compared to $42,732,000 for the year ended December 31, 1994, an increase of $1,864,000 or 4.4%. Revenue growth resulted primarily from increased interest income of $6,731,000 and increased operating lease income of $872,000 resulting primarily from additional real estate investments made during the previous twelve months. The growth in interest income and rental income was offset by a high incidence of prepayment fees and gains on the exercise of purchase options earned during 1994, which totaled $6,982,000 as compared to $4,082,000 for 1995. Expenses for the year ended December 31, 1995, totaled $30,961,000, an increase of $13,182,000 from expenses of $17,779,000 for the year ended December 31, 1994. Expenses for the year ended December 31, 1995, were negatively influenced by nonrecurring charges, primarily related to a $4,800,000 provision for losses and a $5,794,000 charge for the settlement of the management contract, an expense associated with the merger of the Company's advisor into the Company. -15- 16 The provision for depreciation for the year ended December 31, 1995, totaled $1,580,000, an increase of $194,000 over the year ended December 31, 1994 as a result of additional operating lease investments. Interest expense for the year ended December 31, 1995, was $12,752,000 compared to $9,684,000 for the year ended December 31, 1994. The increase in interest expense during 1995 was primarily due to higher average borrowings under the Company's line of credit arrangements, and higher costs of borrowing. General and administrative expense for the year ended December 31, 1995 totaled $5,284,000 as compared to $5,072,000 for the year ended December 31, 1994. The expenses for the year ended December 31, 1995 were 11.85% of revenues as compared to 11.87% for the year ended December 31, 1994. As a result of the various factors mentioned above, net income for the year ended December 31, 1995, was $13,635,000 as compared to $24,953,000 for the year ended December 31, 1994. Net income per share for the year ended December 31, 1995, was $1.16 versus $2.17 for the year ended December 31, 1994. The per share decrease resulted from a decrease in net income. IMPACT OF INFLATION During the past three years, inflation has not significantly affected the earnings of the Company because of the moderate inflation rate. Additionally, earnings of the Company are primarily long-term investments with fixed interest rates. These investments are mainly financed with a combination of equity, senior notes and borrowings under the revolving lines of credit, of which a portion is hedged with interest rate swaps. During inflationary periods, which generally are accompanied by rising interest rates, the Company's ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, the Company believes that equity and debt financing will be available. -16- 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA REPORT OF INDEPENDENT AUDITORS Shareholders and Directors Health Care REIT, Inc. We have audited the accompanying consolidated balance sheets of Health Care REIT, Inc. as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Health Care REIT, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP January 31, 1997 Toledo, Ohio -17- 18
HEALTH CARE REIT, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31 ---------------------------- 1996 1995 ASSETS Real estate investments: Loans receivable .............................. $358,182,032 $291,998,722 Operating-lease properties .................... 153,622,844 58,628,509 Direct financing leases ....................... 10,876,071 11,246,492 ------------ ------------ 522,680,947 361,873,723 Less allowance for losses ..................... 9,786,940 9,950,000 ------------ ------------ Net real estate investments ..................... 512,894,007 351,923,723 Other Assets: Deferred loan expenses ........................ 1,431,537 1,747,537 Cash and cash equivalents ..................... 581,390 860,350 Investment securities available for sale ...... 768,451 845,297 Receivables and other assets .................. 4,155,812 2,715,146 ------------ ------------ 6,937,190 6,168,330 ------------ ------------ Total assets .................................... $519,831,197 $358,092,053 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Borrowings under line of credit arrangements .. $ 92,125,000 $106,700,000 Senior notes .................................. 82,000,000 52,000,000 Other long-term obligations ................... 10,270,011 4,059,639 Accrued expenses and other liabilities ........ 9,900,045 7,734,618 ------------ ------------ Total liabilities ............................... 194,295,056 170,494,257 Shareholders' equity: Preferred Stock, $1.00 par value: Authorized - 10,000,000 shares Issued and outstanding - None Common Stock, $1.00 par value: Authorized - 40,000,000 shares Issued and outstanding - 18,320,291 shares in 1996 and 12,034,196 shares in 1995 .............................. 18,320,291 12,034,196 Capital in excess of par value ................ 298,280,949 168,800,194 Undistributed net income ...................... 8,166,450 5,918,109 Unrealized gains on investment securities available for sale .............. 768,451 845,297 ------------ ------------ Total shareholders' equity ...................... 325,536,141 187,597,796 ------------ ------------ Total liabilities and shareholders' equity ....... $519,831,197 $358,092,053 ============ ============
See accompanying notes -18- 19
HEALTH CARE REIT, INC. CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31 1996 1995 1994 ----- ---- ---- Revenues: Interest on loans receivable ....... $36,734,438 $30,836,649 24,545,933 Prepayment fees .................... 3,058,556 4,081,923 1,492,538 Direct financing leases: Lease income ..................... 1,464,091 1,528,655 4,353,192 Gain on exercise of options ...... 421,167 5,389,399 Operating leases: Rents ............................ 9,847,853 6,351,822 5,480,232 Gain on exercise of options ...... 155,270 100,029 Loan and commitment fees ........... 2,607,292 1,666,286 1,184,024 Interest and other income .......... 113,148 130,592 186,684 ----------- ----------- ----------- 54,401,815 44,595,927 42,732,031 Expenses: Interest: Line of credit arrangements ...... 8,243,975 7,472,418 3,537,555 Senior notes and other long- term obligations ................. 6,390,810 5,279,232 6,146,589 Loan expense ....................... 808,182 752,115 637,625 Management fees .................... 2,385,535 3,086,988 Provision for depreciation ......... 2,427,252 1,579,544 1,385,077 Provision for losses ............... 600,000 4,800,000 1,000,000 Disposition of investment .......... 807,791 Settlement of management contract .. 5,793,534 Other operating expenses ........... 4,448,243 2,898,576 1,985,279 ----------- ----------- ----------- 23,726,253 30,960,954 17,779,113 ----------- ----------- ----------- Net income ........................... $30,675,562 $13,634,973 $24,952,918 =========== =========== =========== Net income per share ................. $ 2.18 $ 1.16 $ 2.17 Average number of shares outstanding . 14,093,028 11,709,642 11,519,123
See accompanying notes -19- 20
HEALTH CARE REIT, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Capital in Common Excess of Undistributed Unrealized Stock Par Value Net Income Gains Total ----------- ------------- ------------- ----------- ------------ Balances at January 1, 1994 $ 11,446,249 $ 158,013,957 $ 14,671,622 $ $ 184,131,828 Net income 24,952,918 24,952,918 Proceeds from issuance of shares under the dividend reinvestment and stock option plans 148,866 3,072,801 3,221,667 Cash dividends paid--$2.01 per share (23,126,638) (23,126,638) ------------- ------------- ------------- ------------- ------------- Balances at December 31, 1994 11,595,115 161,086,758 16,497,902 189,179,775 Net income 13,634,973 13,634,973 Proceeds from issuance of shares under the dividend reinvestment and stock option plans 156,674 2,947,818 3,104,492 Issuance of shares related to settlement of management contract 282,407 4,765,618 845,297 5,048,025 Unrealized gains on investment securities available for sale 845,297 Cash dividends paid--$2.075 per share (24,214,766) (24,214,766) ------------- ------------- ------------- ------------- ------------- Balances at December 31, 1995 12,034,196 168,800,194 5,918,109 845,297 187,597,796 Net income 30,675,562 30,675,562 Proceeds from issuance of shares under the dividend reinvestment and stock option plan 176,095 3,479,211 3,655,306 Proceeds from sale of shares, net of expenses of $6,433,456 6,110,000 126,001,544 132,111,544 Change in unrealized gains on investment securities available for sale (76,846) (76,846) Cash dividends paid - $2.08 per share (28,427,221) (28,427,221) ------------- ------------- ------------- ------------- ------------- Balances at December 31, 1996 $ 18,320,291 $ 298,280,949 $ 8,166,450 $ 768,451 $ 325,536,141 ============= ============= ============= ============= =============
See accompanying notes -20- 21
HEALTH CARE REIT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31 1996 1995 1994 ------ ------ ----- OPERATING ACTIVITIES Net income $ 30,675,562 $ 13,634,973 $ 24,952,918 Adjustments to reconcile net income to net cash provided from operating activities: Amortization of loan and organization expenses 810,339 749,270 639,781 Provision for losses 600,000 4,800,000 1,000,000 Disposition of investment 807,791 Provision for depreciation 2,461,013 1,579,544 1,385,077 Settlement of management contract 5,001,624 Loan and commitment fees earned less than cash received 1,764,417 1,466,865 693,213 Direct financing lease income less than cash received 90,422 181,229 905,860 Interest income (more than) less than cash received (134,433) 524,907 2,120,035 (Increase) decrease in accrued expenses and other liabilities 401,010 (381,671) 856,127 Increase in receivables and other assets (1,256,386) (403,955) (575,571) ------------- ------------- ------------- Net cash provided from operating activities 36,219,735 27,152,786 31,977,440 INVESTING ACTIVITIES Investment in loans receivable (168,845,040) (107,296,680) (118,204,990) Investment in operating-lease properties (66,082,923) (2,976,000) (14,053,050) Investment in direct financing leases (1,300,000) Principal collected on loans 60,658,661 69,696,762 48,760,717 Proceeds from exercise of purchase options 9,507,988 38,330,065 Other (220,198) (3,150) ------------ ------------- ------------- Net cash used in investing activities (164,981,512) (40,579,068) (46,467,258) FINANCING ACTIVITIES Net (decrease) increase under line of credit arrangements (14,575,000) 35,800,000 35,900,000 Borrowings under senior notes 30,000,000 Assumption of mortgage loan payable 6,539,434 Principal payments on other long-term obligations (329,062) (1,313,151) (3,938,325) Net proceeds from the issuance of shares 135,766,850 3,104,492 3,221,667 Increase in deferred loan expense (492,184) (25,392) (1,527,751) Cash distributions to shareholders (28,427,221) (24,214,766) (23,126,638) ------------- ------------- ------------- Net cash provided from financing activities 128,482,817 13,351,183 10,528,953 ------------- ------------- ------------- Decrease in cash and cash equivalents (278,960) (75,099) (3,960,865) Cash and cash equivalents at beginning of year 860,350 935,449 4,896,314 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 581,390 $ 860,350 $ 935,449 ============= ============= =============
See accompanying notes -21- 22 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 1. ACCOUNTING POLICIES AND RELATED MATTERS INDUSTRY The Company is a self-administered real estate investment trust that invests primarily in long-term care facilities, which include nursing homes, assisted living facilities, and retirement centers. The Company also invests in specialty care facilities. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. LOANS RECEIVABLE Loans receivable consist of construction-period loans maturing in two years or less, working capital loans to related parties, and long-term mortgage loans. Interest income on loans is recognized as earned based upon the principal amount outstanding. The loans are generally collateralized by a first or second mortgage on or assignment of partnership interest in the related facilities which consist of nursing homes, assisted living facilities, retirement centers, behavioral care facilities and specialty care hospitals. OPERATING-LEASE PROPERTIES Certain properties owned by the Company are leased under operating leases. These properties are recorded at the lower of cost or net realizable value. Depreciation is provided for at rates which are expected to amortize the cost of the assets over their estimated useful lives using the straight-line method. The leases provide for payment of all taxes, insurance and maintenance by the lessees. Operating lease income includes the rent payments, which are recognized on a straight-line basis over the minimum lease period. DIRECT FINANCING LEASES Certain properties owned by the Company are subject to long-term leases which are accounted for by the direct financing method. The leases provide for payment of all taxes, insurance and maintenance by the lessees. The leases are generally for a term of 20 years and include an option to purchase the properties generally after a period of five years. Option prices equal or exceed the Company's original cost of the property. Income from direct financing leases is recorded based upon the implicit rate of interest over the lease term. This income is greater than the amount of cash received during the first six to seven years of the lease term. -22- 23 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED) CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST The Company capitalizes interest costs associated with funds used to finance the construction of facilities. The amount capitalized is based upon the borrowings outstanding during the construction period using the rate of interest which approximates the Company's cost of financing. ALLOWANCE FOR LOSSES The allowance for losses is maintained at a level believed adequate to absorb potential losses in the Company's real estate investments. The determination of the allowance is based on a quarterly evaluation of these earning assets (in the case of direct financing leases, estimated residual values), including general economic conditions, estimated collectibility of loan and lease payments, reappraisals (where appropriate), and the recoverability of the carrying amount of these investments in relationship to their net realizable value. DEFERRED LOAN EXPENSES Deferred loan expenses are costs incurred in acquiring financing for properties. The Company amortizes these costs by the straight-line method over the term of the debt. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less. INVESTMENT SECURITIES AVAILABLE FOR SALE Management determines the appropriate classification of a security at the time of acquisition and reevaluates such designation as of each balance sheet date. Investment securities available for sale are stated at fair value, with unrealized gains and losses reported in a separate component of shareholders' equity. At December 31, 1996, available-for-sale securities are the common stock of a corporation, which were obtained by the Company at no cost. LOAN AND COMMITMENT FEES Loan and commitment fees are earned by the Company for its agreement to provide direct and standby financing to, and credit enhancement for, owners of health care facilities. The Company amortizes loan and commitment fees over the initial fixed term of the lease, the mortgage or the construction period related to such investments. FEDERAL INCOME TAX No provision has been made for federal income taxes since the Company has elected to be treated as a real estate investment trust under the applicable provisions of the Internal Revenue Code, and the Company believes that it has met the requirements for qualification as such for each taxable year. See Note 8. -23- 24 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED) STOCK OPTIONS The Company typically grants stock options for a fixed number of shares to employees with an exercise price equal to fair value of the shares at the date of the grant. The Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees in accounting for its employee stock options, and, accordingly, recognizes no compensation expense for the stock option grants when the market price on the underlying stock on the date of grant equals the exercise price of the Company's employee stock option. The effect of applying Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation, fair value method to the Company's stock based awards results in net income and earnings per share that are not materially different from amounts reported. NET INCOME PER SHARE Net income per share has been computed by dividing net income by the weighted average number of common stock and common stock equivalents outstanding during the year. 2. LOANS RECEIVABLE
The following is a summary of loans receivable: December 31 1996 1995 ------------------------------------ Mortgage loans $290,515,494 $245,150,474 Mortgage loans to related parties 1,926,949 22,333,209 Construction loans 61,012,838 17,735,699 Working capital loans to related parties 4,726,751 6,779,340 ------------ ------------ TOTALS $358,182,032 $291,998,722 ============ ============
Loans to related parties (various entities whose ownership includes three Company directors and former officers) included above are at competitive rates, and are equal to or greater than the Company's net interest cost on borrowings to support such loans. The amount of interest income and loan and commitment fees from related parties amounted to $3,089,376, $3,378,347 and $3,810,340 for 1996, 1995 and 1994, respectively. -24- 25
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LOANS RECEIVABLE (CONTINUED) The following is a summary of mortgage loans at December 31, 1996: Final Number Principal Payment of Amount at Carrying Due Loans Payment Terms Inception Amount ----- ------- --------------- ----------- ------- In Default 2 Loans in default which are currently due and not accruing interest. $13,700,000 $12,727,804 1997 1 Monthly payments of $7,531, including interest of 11.41% 250,000 55,556 1998 1 Monthly payment of $53,772, including interest of 12.67% 5,200,000 5,158,000 1999 1 Monthly payment of $15,584, including interest of 10.64% 1,850,000 1,926,949 2001 2 Monthly payments from $39,500 to $51,217, including interest from 10.56% to 12.0% 6,303,509 6,084,397 2002 1 Monthly payment of $24,663, including interest at 12.0% 2,055,000 2,029,694 2003 1 Monthly payment of $45,828, including interest of 10.76% 4,761,192 4,709,514 2006 1 Monthly payment of $53,554, including interest of 10.82% 5,537,450 5,530,166 2007 9 Monthly payments from $5,447 to $42,708, including interest from 10.78% to 12.50% 21,398,117 17,700,225 2008 9 Monthly payments from $18,054 to $276,963, including interest from 10.38% to 13.01% 56,950,000 56,237,236 2009 5 Monthly payments from $24,933 to $62,377, including interest from 10.55% to 11.27% 24,645,610 24,625,201 2010 7 Monthly payments from $36,316 to $129,000, including interest from 10.32% to 10.97% 52,772,500 52,729,322 2012 1 Monthly payment of $40,078, including interest of 11.86% 3,843,000 3,838,786 2014 1 Monthly payment of $43,809, including interest of 12.94% 3,900,000 3,885,423 2015 7 Monthly payments from $22,479 to $113,940, including interest from 10.51% to 11.77% 46,597,063 46,245,611 2016 9 Monthly payments from $12,798 to $71,333, including interest from 10.39% to 10.97% 44,699,000 44,699,000 2017 1 Monthly payment of $37,839, including interest of 10.66% 4,259,559 4,259,559 ------------ ------------ TOTALS $298,722,000 $292,442,443 ============ ============
One loan (in default) has a prior lien of approximately $1,195,000; and six loans maturing in 2007 have prior liens aggregating $1,420,000. -25- 26 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN LEASES The following are the components of operating-lease properties: December 31 1996 1995 --------------------------------- Land $ 12,948,930 $ 4,971,670 Buildings 125,687,310 54,251,570 Equipment 10,569,093 3,777,143 Accumulated depreciation (6,482,065) (4,371,874) ------------- ------------- 142,723,268 58,628,509 Construction in progress 10,899,576 ------------- ------------- $ 153,622,844 $ 58,628,509 ============= ============= The following are the components of investments in direct financing leases: December 31 1996 1995 ------------------------------- Total minimum lease payments receivable $ 17,290,955 $ 18,833,646 Estimated unguaranteed residual values of leased properties 5,778,943 6,063,649 Unearned income (12,193,827) (13,650,803) ------------ ------------ Investment in direct financing leases $ 10,876,071 $ 11,246,492 ============ ============
The leases contain an option to purchase the leased property. Total minimum lease payments are computed assuming that the option will not be exercised. At December 31, 1996, future minimum lease payments receivable (assuming that the option will not be exercised) are as follows:
Direct Financing Operating Leases Leases ---------------- ---------- 1997 $1,665,320 17,278,925 1998 1,697,486 19,125,032 1999 1,729,651 19,336,480 2000 1,761,058 19,744,870 2001 1,438,148 20,255,021 Thereafter 8,999,292 100,752,859 ----------- ------------ TOTALS $17,290,955 $196,493,187 =========== ============
During 1994, the Company restructured two direct financing leases, one into a $3,324,000 mortgage loan and the other into a $3,582,000 operating lease. During 1996, the Company restructured nineteen loans totalling $40,567,000 into operating leases. This noncash investing activity is appropriately not reflected in the accompanying statement of cash flows. -26- 27 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. CONCENTRATION OF RISK As of December 31, 1996, long-term care facilities comprised 85% of the Company's real estate investments and were located in 25 states. The Company's investments with the three largest operators totaled approximately 30%. No single operator has a real estate investment balance which exceeds 12% of total real estate investments, including credit enhancements. 5. ALLOWANCE FOR LOSSES
The following is a summary of the allowance for losses for 1996, 1995 and 1994. Balances at January 1, 1994 $4,150,000 Provision for losses 1,000,000 ---------- Balances at December 31, 1994 5,150,000 Provision for losses 4,800,000 ---------- Balances at December 31, 1995 9,950,000 Provision for losses 600,000 Disposition of investment 807,791 Charge-offs (1,570,851) ----------- Balances at December 31, 1996 $9,786,940 ==========
The allowance consists of $6,000,000 relating to specifically identified loans and an unallocated amount for other potential losses in the portfolio. Interest income on impaired loans is recognized as payments are received. The Company recognized $323,000 of interest income on impaired loans in 1995. 6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS The Company has a credit arrangement with a consortium of ten banks providing for a revolving line of credit (revolving credit) in the amount of $150,000,000 which expires on March 31, 1997. The agreement specifies that borrowings under the revolving credit are subject to interest payable in periods no longer than three months on either the agent bank's base rate of interest or 1.5% over LIBOR interest rate (based at the Company's option). The effective interest rate at December 31, 1996 was 7.39%. In addition, the Company pays a commitment fee at an annual rate of .5% of the unused line and an annual agent's fee of $75,000. At December 31, 1996, the revolving line of credit was collateralized by 41 real estate investments in health care facilities. Principal is due upon expiration of the agreement, but the total amount outstanding may not exceed a specified percentage of the agreed-upon values of the collateral. The Company has two other lines of credit with two banks for a total of $35,000,000 which expire at various dates through May 31, 1997. Borrowings under these lines of credit are subject to interest at each bank's prime rate of interest (8.25% at December 31, 1996) and are due on demand. -27- 28 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS (CONTINUED)
The following information relates to aggregate borrowings under the line of credit arrangements: YEAR ENDED DECEMBER 31 1996 1995 1994 -------------------------------------------- Balance outstanding at December 31 $ 92,125,000 $106,700,000 $ 70,900,000 Maximum amount outstanding at any month end 142,600,000 119,100,000 70,900,000 Average amount outstanding (total of daily principal balances divided by days in year) 110,666,754 88,850,548 51,422,466 Weighted average interest rate (actual interest expense divided by average borrowings outstanding) 7.72% 8.41% 6.88%
The Company has a five-year interest rate swap agreement totalling $20,000,000, which expires in 1997, for the purpose of reducing the Company's interest rate risk on its borrowings under the revolving credit. The maximum rate of interest under the swap agreement is 8.77%. At December 31, 1996, the Company had elected to borrow $20,000,000 at six-month LIBOR. The differential to be paid or received is accrued as interest rates change and is recognized as an interest expense. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements are not recognized in the financial statements. The Company may or may not elect to continue to match certain of its borrowings with interest rate swap agreements. Such decisions are principally based on the Company's policy to match its variable rate investments with comparable borrowings, but is also based on the general trend in interest rates at the applicable dates and the Company's perception of future volatility of interest rates. At December 31, 1996, the Company was at risk for rising interest rates because its variable interest rate debt exceeded its variable interest rate assets. Interest paid amounted to $14,210,532, $13,083,783 and $9,256,551 for 1996, 1995 and 1994, respectively, which includes $298,562, $706,318 and $1,309,368, respectively, for the net cost of the swaps. The Company capitalized interest costs of $287,397 during 1996 related to construction of its facilities. 7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS The Company has $82,000,000 of Senior Notes with interest ranging from 6.96% to 8.24% and maturing at various dates to 2003. These notes are collateralized by 23 real estate investments in health care facilities. -28- 29 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)
The following information relates to other long-term obligations: December 31 1996 1995 ---------------------------------- Notes payable related to industrial development bonds, collateralized by two health care facilities, interest rates from 11.25% to 15%, maturing at various dates to 2002 $ 2,320,000 $2,545,000 Mortgage notes payable, collateralized by two health care facilities, interest rates from 7.625% to 12%, maturing at various dates to 2034 7,950,011 1,514,639 ----------- ---------- TOTALS $10,270,011 $4,059,639 =========== ==========
At December 31, 1996, the annual principal payments on these long-term obligations for the succeeding five years are 1997 - $695,134; 1998 - $23,366,282; 1999 - $239,677; 2000 - $15,273,977; and 2001 - $10,319,285. 8. STOCK OPTION PLANS AND RETIREMENT ARRANGEMENTS The Company's 1995 Stock Incentive Plan authorized up to 600,000 shares of Common Stock to be issued at the discretion of the Board of Directors. The 1995 Plan replaced the 1985 Incentive Stock Option Plan. The options granted under the 1985 Plan continue to vest through 2005 and expire ten years from the date of grant. Officers and key salaried employees of the Company are eligible to participate in the 1995 plan. Such options expire ten years from the date of grant and one-fifth of all options granted become exercisable each year. The following summarizes the activity in the Plans for the years ended December 31:
1996 1995 ---- ---- Average Average Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- Options at beginning of year 485,268 $19.95 183,140 $20.71 Options granted 425,000 19.14 316,268 19.28 Options exercised (44,000) 17.66 (14,140) 14.81 Options terminated (117,000) 20.67 --------- ----- ------- ------ 749,268 $19.51 485,268 $19.95 ======= ====== ======= ====== At end of year: Shares exercisable 226,160 $21.45 243,198 $20.10
The Company has a 401(k) Profit Sharing Plan covering all eligible employees. Under the Plan, eligible employees may make contributions, and the Company may make a profit sharing contribution. Company contributions to this Plan totaled $90,000 and $6,000 in 1996 and 1995, respectively. -29- 30 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. DISTRIBUTIONS In order to continue to qualify as a real estate investment trust for federal income tax purposes, 95% of taxable income (not including capital gains) must be distributed to shareholders. Real estate investment trusts which do not distribute a certain amount of current year taxable income in the current year are also subject to a 4% federal excise tax. The Company's excise tax expense was $317,000, $326,000 and $575,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Undistributed net income for federal income tax purposes amounted to $15,930,000 at December 31, 1996. The principal reasons for the difference between undistributed net income for federal income tax purposes and financial statement purposes are the use of the operating method of accounting for leases for federal income tax purposes and the provision for losses for reporting purposes versus bad debt expense for tax purposes. Cash distributions paid to shareholders, for federal income tax purposes, are as follows:
YEAR ENDED DECEMBER 31 1996 1995 1994 ------------------------------------------ Per Share: Ordinary income $2.03 $2.075 $ .72 Capital gains .05 1.29 ----- ------ ----- TOTALS $2.08 $2.075 $2.01 ===== ====== =====
10. COMMITMENTS AND CONTINGENCIES At December 31, 1996, the Company has outstanding commitments to provide financing for facilities in the approximate amount of $236,277,000. The above commitments are generally on similar terms as existing financings of a like nature with rates of return to the Company based upon current market rates at the time of the commitment. The Company has entered into several agreements to purchase health care facilities, or the loans with respect thereto, in the event that the present owners default upon their obligations. In consideration for these agreements, the Company receives and recognizes fees annually related to these agreements. Although the terms of these agreements vary, the purchase prices are equal to the amount of the outstanding obligations financing the facility. These agreements expire between the years 1997 and 2005. At December 31, 1996, obligations under these agreements for which the Company was contingently liable aggregated approximately $18,815,000, all of which were with related parties. 11. MANAGEMENT AGREEMENT Through November 30, 1995, the Company had a management agreement with First Toledo Advisory Company (the Manager). Two of the Company's directors were officers and co-owners of the Manager. The Company accrued a fee to the Manager as defined in the Management Agreement. On November 30, 1995, the Manager merged with and into the Company pursuant to a Revised Merger Agreement (the "Merger"). Consideration for this transaction totaled approximately $5,048,000 which was solely comprised of 282,407 shares of the Company's common stock. In addition, the Company acquired approximately $46,000 in net assets and incurred approximately $792,000 of related transaction expenses. The Merger was a tax-free reorganization. The consideration, plus related transaction expenses, were accounted for as a settlement of a management contract. -30- 31 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SHAREHOLDER RIGHTS PLAN Under the terms of a Shareholder Rights Plan approved by the Board of Directors in July 1994, a Preferred Share Right (Right) is attached to and automatically trades with each outstanding share of Common Stock. The Rights, which are redeemable, will become exercisable only in the event that any person or group becomes a holder of 15% or more of the Common Stock, or commences a tender or exchange offer which, if consummated, would result in that person or group owning at least 15% of the Common Stock. Once the Rights become exercisable, they entitle all other shareholders to purchase one one-thousandth of a share of a new series of junior participating preferred stock for an exercise price of $48.00. The Rights will expire on August 5, 2004 unless exchanged earlier or redeemed earlier by the Company for $.01 per Right at any time before public disclosure that a 15% position has been acquired. 13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Mortgage Loans--The fair value of all mortgage loans, except those matched with debt, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Mortgage loans matched with debt are presumed to be at fair value. Working Capital and Construction Loans--The carrying amount is a reasonable estimate of fair value for working capital and construction loans because the interest earned on these instruments is variable. Cash and Cash Equivalents--The carrying amount approximates fair value because of the short maturity of these financial instruments. Investment Securities Available-for-Sale--The asset is recorded at its fair market value. Borrowings Under Line of Credit Arrangements--The carrying amount of the line of credit approximates fair value because the borrowings are interest rate adjustable. Senior Notes and Industrial Development Bonds--The fair value of the senior notes payable and the industrial development bonds was estimated by discounting the future cash flow using the current borrowing rate available to the Company for similar debt. Mortgage Loans Payable--Mortgage loans payable is a reasonable estimate of fair value because they are matched with loans receivable. -31- 32 HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996 and 1995 are as follows:
December 31, 1996 December 31, 1995 ------------------- ------------------ Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ----------- Financial Assets: Mortgage loans $292,442,443 $300,136,000 $267,483,683 $276,648,000 Working capital and construction loans 65,739,589 65,739,589 24,515,039 24,515,039 Cash and cash equivalents 581,390 581,390 860,350 860,350 Investment securities available-for-sale 768,451 768,451 845,297 845,297 Financial Liabilities: Borrowings under line of credit arrangements 92,125,000 92,125,000 106,700,000 106,700,000 Senior notes 82,000,000 82,301,000 52,000,000 54,203,000 Industrial development bonds 2,320,000 2,650,000 2,545,000 3,054,000 Mortgage loans payable 7,950,011 7,950,011 1,514,639 1,514,639
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations of the Company for the years ended December 31, 1996 and 1995:
Year Ended December 31, 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter --------------------------------------------------------- Revenues $10,890,381 $14,625,578 $14,068,308 $14,817,548 Net Income 5,677,108 8,568,871 7,383,279 9,046,304 Net Income Per Share .47 .66 .50 .55 Year Ended December 31, 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------------------------------------------------- Revenues $ 9,624,993 $ 9,677,526 $13,315,515 $11,977,893 Net Income 4,864,965 4,637,190 3,346,835 785,983 Net Income Per Share .42 .40 .28 .06
-32- 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference to the information under the heading "Election of Directors" and "Executive Officers of the Company" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the information under the heading "Remuneration" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the information under the heading "Security Ownership of Certain Beneficial Owners" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the information under the heading "Certain Relationships and Related Transactions" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. The following Consolidated Financial Statements of the Company are included in Part II, Item 8: Report of Independent Auditors.......................................................................17 Consolidated Balance Sheets - December 31, 1996 and 1995.............................................18 Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994....................................................................................19 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994.................................................................20 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994.................................................................21 Notes to Consolidated Financial Statements - December 31, 1996........................................22
-33- 34 2. The following Financial Statement Schedules are included in Item 14 (d): III - Real Estate and Accumulated Depreciation IV - Mortgage Loans on Real Estate All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. Exhibit Index: 3(i) Second Restated Certificate of Incorporation. 3(ii) By-Laws, as amended. 4 The Registrant, by signing this Report, agrees to furnish the Securities and Exchange Commission upon its request a copy of any instrument which defines the rights of holders of long-term debt of Registrant and which authorizes a total amount of securities not in excess of 10% of the total assets of the Registrant. 10(ii)(A) Rights Agreement. 10(ii)(B) Note Purchase Agreement between Health Care REIT, Inc. and each of the Purchasers a Party thereto, dated as of April 8, 1993. 10(ii)(C) Amended and Restated Credit Agreement dated as of September 8, 1994 among Health Care REIT, Inc., certain banks, and National City Bank, as Agent. 10(ii)(D) Note Purchase Agreement between Health Care REIT, Inc. and each of the Purchasers a Party thereto, dated as of April 15, 1995. 10(iii)(A) The 1985 Incentive Stock Option Plan of Health Care REIT, Inc. as amended. 10(iii)(B) The Health Care REIT, Inc. 1995 Stock Incentive Plan 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule (Edgar version only). (b) Reports on Form 8-K filed in the fourth quarter of 1996: Form 8-K filed with the Securities and Exchange Commission on December 12, 1996. (c) Exhibits: The exhibits listed in Item 14(a)(3) above are filed with this Form 10-K. (d) Financial Statement Schedules: Financial statement schedules are included in pages 36 through 40. -34- 35 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HEALTH CARE REIT, INC. (Registrant) By: GEORGE L. CHAPMAN --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February ___, 1997 by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ William C. Ballard, Jr.* /s/ Richard A. Unverferth* - ------------------------------------- ---------------------------------- William C. Ballard, Jr., Director Richard A. Unverferth, Director /s/ Pier C. Borra* - ------------------------------------ ---------------------------------- Pier C. Borra, Director Frederic D. Wolfe, Director /s/ Bruce Douglas* /s/ George L. Chapman - ------------------------------------ ---------------------------------- Bruce Douglas, Director George L. Chapman, Chairman, Chief Executive Officer, President and Director (Principal Executive Officer) /s/ Richard C. Glowacki* /s/ Edward F. Lange, Jr.* - ------------------------------------ ---------------------------------- Richard C. Glowacki, Director Edward F. Lange, Jr., Chief Financial Officer (Principal Financial Officer) /s/ Sharon M. Oster* /s/ Michael A. Crabtree* - ------------------------------------ ---------------------------------- Sharon M. Oster, Director Michael A. Crabtree, Controller (Principal Accounting Officer) /s/ Bruce G. Thompson* *By: /s/ George L. Chapman - ------------------------------------ ---------------------------------- Bruce G. Thompson, Director George L. Chapman, Attorney-in-Fact -35- 36
HEALTH CARE REIT, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 Initial Cost Gross Amount at Which to Company Carried at Close of Period -------------------------- Cost Capitalized Buildings & Subsequent to Buildings & Accumulated Year Year Description Encumbrances Improvements Acquisition Land Improvements Depreciation Acquired Built ----------- ------------ ------------ ------------- ---- ------------ ------------ -------- ----- ASSISTED LIVING FACILITIES: - -------------------------- Bradenton, FL $ 3,298,000 $ 252,000 $ 3,298,000 $ 91,928 1996 1995 Sarasota, FL 3,174,800 475,200 3,174,800 88,473 1996 1995 Newton, NC 819,240 180,000 20,760 999,240 66,769 1993 1985 Statesville, NC 1,331,265 292,500 33,735 1,623,765 108,500 1993 1990 Yadkinville, NC 1,262,995 277,500 32,005 1,540,495 102,936 1993 1983 Cranford, NJ 11,703,000 3,297,000 11,703,000 13,634 1996 1993 Bartlesville, OK 1,380,000 100,000 1,380,000 34,781 1994 1995 Chickasha, OK 1,395,000 85,000 1,395,000 28,422 1995 1996 Duncan, OK 1,347,000 103,000 1,347,000 17,877 1995 1996 Edmond, OK 1,564,000 175,000 1,564,000 20,363 1995 1996 Enid, OK 1,390,000 90,000 1,390,000 35,000 1995 1996 Lawton, OK 1,456,000 144,000 1,456,000 19,126 1995 1996 Midwest City, OK 1,385,000 95,000 1,385,000 34,891 1996 1996 Muskogee, OK 1,432,500 150,000 1,432,500 5,143 1996 1996 Norman, OK 1,484,000 55,000 1,484,000 23,367 1995 1996 N. Oklahoma City, OK 1,508,000 87,000 1,508,000 1,793 1995 1996 Oklahoma City, OK 1,350,000 130,000 1,350,000 27,253 1995 1996 Ponca City, OK 1,536,000 114,000 1,536,000 54,874 1995 1995 Shawnee, OK 1,400,000 80,000 1,400,000 34,964 1995 1996 Stillwater, OK 1,400,000 80,000 1,400,000 35,219 1995 1996 Pittsburgh, PA $ 6,529,558 10,157,760 423,240 10,157,760 99,050 1996 1989 Pittsburgh, PA 6,736,040 429,960 6,736,040 126,151 1996 1989 Claremore, TX 1,427,500 155,000 1,427,500 5,127 1996 1996 Ft. Worth, TX 3,790,000 210,000 3,790,000 73,726 1992 1984 Houston, TX 3,138,640 261,360 3,138,640 46,136 1994 1995 Owasso, TX 1,380,000 215,000 1,380,000 1,660 1996 1996 Palestine, TX 1,409,500 173,000 1,409,500 5,071 1996 1996 Texarkana, TX 1,403,000 192,000 1,403,000 1,683 1996 1996 Waxahachie, TX 1,428,500 154,000 1,428,500 5,130 1996 1996 Chesapeake, VA 889,714 120,960 81,327 1,010,674 94,742 1993 1988 Poquoson, VA 1,313,386 178,560 120,053 1,491,946 139,857 1993 1987 Williamsburg, VA 2,033,630 276,480 185,890 2,310,110 216,553 1993 1987 ----------- ----------- ----------- ----------- ----------- Total Assisted Living Facilities: $76,724,470 $ 1,326,000 $ 8,199,530 $78,050,470 $1,660,199
-36- 37
SCHEDULE III - Continued Initial Cost Gross Amount at Which to Company Carried at Close of Period -------------------------- Cost Capitalized Buildings & Subsequent to Buildings & Accumulated Year Year Description Encumbrances Improvements Acquisition Land Improvements Depreciation Acquired Built ----------- ------------ ------------ ------------- ---- ------------ ------------ -------- ----- SKILLED NURSING FACILITIES: Camp Verde, AZ 3,148,543 $ 275,000 $ 3,148,543 $1,040,538 1990 1985 Southington, CT 9,563,000 937,000 9,563,000 911,789 1993 1975 Owensboro, KY 4,870,000 130,000 4,870,000 390,615 1993 1967 Fall River, MA 5,080,000 620,000 5,080,000 20,234 1996 1973 Falmouth, MA 3,022,000 670,000 3,022,000 4,207 1996 1966 South Boston, MA 1,463,000 385,000 1,463,000 2,478 1995 1961 Webster, MA 8,790,000 570,000 8,790,000 11,514 1995 1982 Kent, OH 3,366,890 214,900 3,366,890 290,213 1989 1983 Easton, PA 6,315,000 285,000 6,315,000 850,817 1993 1959 San Antonio, TX 12,587,500 662,500 12,587,500 1,299,460 1993 1978 ----------- ----------- --------- ----------- ---------- Total Skilled Nursing Facilities $58,205,933 $4,749,400 $58,205,933 $4,821,865 Construction in Progress 2,710,000 8,189,576 ------------ ------------- ----------- ------------ ---------- Total Investment in Properties $134,930,403 $1,326,000 $15,658,930 $144,445,979 $6,482,065 ============ ============= =========== ============ ========== Reconciliation of Real Estate: Carrying cost: Accumulated depreciation: Balance at beginning period: $63,000,383 Balance at beginning of period: $4,371,874 Additions during period: Additions during period: Acquisitions $50,398,346 Depreciation expense $2,427,253 Improvements, etc. 15,684,577 Other (1) 40,846,653 106,929,576 2,427,253 ---------- ------------ --------- 169,929,959 6,799,127 Deductions during period: Deductions during period: Gross carrying cost of Accumulated depreciation real estate sold (9,825,050) on real estate sold (317,062) ------------ ---------- Balance at end of period $160,104,909 Balance at end of period $6,482,065 ============ ========== (1) Includes $40,566,653 of mortgage loans and $280,000 of Direct Financing Leases that were converted to operating lease properties during 1996.
-37- 38 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE HEALTH CARE REIT, INC. DECEMBER 31, 1996
PRINCIPAL AMOUNT OF LOANS SUBJECT FINAL PERIODIC CARRYING TO DELINQUENT INTEREST MATURITY PAYMENT PRIOR FACE AMOUNT AMOUNT OF PRINCIPAL OR DESCRIPTION RATE DATE TERMS LIENS OF MORTGAGES MORTGAGES INTEREST - -------------------- ------ ------ ------- ------ ------------ --------- --------- FIRST MORTGAGES: - -------------------- McAllen, TX 10.41% 01/01/10 Monthly $13,750,000 $13,750,000 None (Specialty Care Payments Facility) $119,281 Brea, CA 11.77% 07/01/15 Monthly 11,000,000 10,875,833 None (Specialty Care Payments Facility) $113,940 Washington, D.C. 11.58% 07/01/15 Monthly 17,350,000 17,245,787 None (Specialty Care Payments Facility) $173,234 Farmington, CT 12.69% 12/01/08 Monthly 25,100,000 24,738,935 None Manchester, CT Payments Manchester, CT $276,963 Manchester, CT New Haven, CT Waterbury, CT (6 Nursing Homes) Stoughton, MA 10.32% 03/01/10 Monthly 15,000,000 15,000,000 None (Nursing Home) Payments $129,000 Little Rock, AK 10.75% 01/01/04 Monthly 27,000,000 25,559,664 None (Specialty Care Payments Facility) $228,972
-38- 39
Principal Amount SCHEDULE IV - Continued of Loans Subject Final Periodic Carrying to Deliquent Interest Maturity Payment Prior Face Amount Amount of Principal or Description Rate Date Terms Liens of Mortgages Mortgages Interest ----------- --------- --------- ------- ------- ------------ ----------- ------------ 47 mortgage loans relating to 32 From From $217,957,884 $208,201,229(A) $16,983,827 (B) nursing homes, 12 assisted 10.38% to 12/01/98- living facilities, 13.01% 01/01/17 5 retirement centers, 2 behavioral care facilities and 1 specialty care facility 13 construction loans (all with From N/A 77,634,700 35,453,174 first mortgage liens) relating to 10.75% to 11 assisted living facilities, 1 11.75% nursing home and 1 retirement center SECOND MORTGAGES: 1 nursing home and 11.41% 08/01/97 1 behavioral care loan currently in default facility is due and payable 3,950,000 2,630,659 2,575,103(B) ------------ ------------ ---------- TOTALS $408,742,584 $353,455,281 $19,558,930 ============ ============ ===========
(A) For income tax purposes, the cost of investments is the carrying amount less $6,000,000, as disclosed in the schedule. (B) The Company is in dispute with two operators, both of which are over three months past due on certain interest and principal payments. The Company has evaluated these investments and has allocated in the aggregate $6,000,000 of its allowance to reduce their carrying value to their estimated net realizable value. -39- 40 SCHEDULE IV - Continued
Year Ended December 31 -------------------------------------------------------- 1996 1995 1994 ------ ------ ----- Reconciliation of mortgage loans: Balance at beginning of period $285,219,382 $247,885,457 $178,047,274 Additions during period: New mortgage loans 163,963,054 103,275,637 112,764,951 Negative principal amortization 134,433 311,295 642,630 Other (1) 3,656,084 ------------ ------------ ------------- 449,316,869 351,442,389 295,110,939 Deductions during period: Collections of principal (2) 55,294,935 66,223,007 47,255,482 Other (3) 40,566,653 ------------ ----------- ------------ Balance at end of period $353,455,281 $285,219,382 $247,855,457 ============ ============ ============
(1) During 1994, the Company restructured a direct financing lease into a mortgage loan. (2) Includes collection of negative principal amortization. (3) During 1996, the Company restructured nineteen loans into operating leases. -40- 41 EXHIBIT INDEX -------------
The following documents are included in this Form 10-K as an Exhibit: DESIGNATION NUMBER UNDER EXHIBIT ITEM 601 OF EXHIBIT PAGE NUMBER REGULATION S-K DESCRIPTION NUMBER ------ -------------- ----------- ------ 1(1) 3(i) Second Restated Certificate of Incorporation. 2(2) 3(ii) By-Laws, as amended. 3 4 The Registrant, by signing this Report, agrees to furnish the Securities and Exchange Commission upon its request a copy of any instrument which defines the rights of long-term debt of the Registrant and which authorizes a total amount of securities not in excess of 10% of the total assets of the Registrant. 4(3) 10(ii)(A) Rights Agreement. 5(4) 10(ii)(B) Note Purchase Agreement between Health Care REIT, Inc. and each of the Purchasers a Party thereto, dated as of April 8, 1993 6(5) 10(ii)(C) Amended and Restated Credit Agreement dated as of September 8, 1994 among Health Care REIT, Inc., certain banks, and National City Bank, as Agent. 7(6) 10(ii)(D) Note Purchase Agreement between Health Care REIT, Inc. and each of the Purchasers a Party thereto, dated April 15, 1995. 8(7) 10(iii)(A) The 1985 Incentive Stock Option Plan of Health Care REIT, Inc., as amended. 9(8) 10(iii)(B) The Health Care REIT, Inc. 1995 Stock Incentive Plan 10 21 Subsidiaries of the Registrant. 11 23 Consent of Independent Auditors. 12 24 Powers of Attorney. 13 27 Financial Data Schedule (Edgar version only). - --------------- 1 Incorporated by reference to Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
-41- 42
2 Incorporated by reference to Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3 Incorporated by reference to the Exhibit to the Registrant's Form 8-A filed on April 3, 1994 (File No. 1- 8923). 4 Incorporated by reference to Exhibits 1-4 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1993. 5 Incorporated by reference to Exhibit 1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994. 6 Incorporated by reference to Exhibit 4 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996. 7 Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 (File No. 333-1237) filed on February 27, 1996. 8 Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (File No. 333-1239) filed on February 27, 1996.
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EX-21 2 EXHIBIT 10 1 EXHIBIT 10 SUBSIDIARIES OF THE REGISTRANT On November 1, 1993 and July 9, 1996, the Company formed two wholly-owned subsidiaries, HCRI Pennsylvania Properties, Inc. and HCRI Overlook Green, Inc., respectively. These Pennsylvania corporations were created to own real estate in the State of Pennsylvania. On December 27, 1996 and December 30, 1996, the Company formed a wholly-owned subsidiary, HCRI Texas Properties, Inc., a Delaware corporation, and HCRI Texas Properties, Ltd., a Texas limited partnership, respectively. Both entities were created in connection with real estate investments in the State of Texas. -43- EX-23 3 EXHIBIT 11 1 EXHIBIT 11 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 33-43685) dated October 31, 1991 of Health Care REIT, Inc., the Registration Statement (Form S-8 No. 33-46561) dated March 20, 1992 pertaining to The 1985 Incentive Stock Option Plan of Health Care REIT, Inc., the Amendment No. 1 to the Registration Statement (Form S-3 No. 33-64877) dated February 9, 1996 of Health Care REIT, Inc., the Registration Statement (Form S-8 No. 333-1237) dated February 27, 1996 pertaining to The 1985 Incentive Stock Option Plan of Health Care REIT, Inc., the Registration Statement (Form S-8 No. 333-1239) dated February 27, 1996 pertaining to the Health Care REIT, Inc. 1995 Stock Incentive Plan, the Registration Statement (Form S-3 No. 333-19537) dated January 10, 1997 and the Amendment No. 1 to the Registration Statement (Form S-3 No. 33-19801) dated January 29, 1997 of Health Care REIT, Inc. of our report dated January 31, 1997 with respect to the consolidated financial statements and schedules of Health Care REIT, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1996. ERNST & YOUNG LLP Toledo, Ohio February 7, 1996 -44- EX-24 4 EXHIBIT 12 1 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacity as director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th day of February, 1997. /S/ WILLIAM C. BALLARD, JR. ----------------------------------- William C. Ballard, Jr., Director -45- 2 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacity as director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th day of February, 1997. /S/ BRUCE DOUGLAS ----------------------------- Bruce Douglas, Director -46- 3 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacity as director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 2nd day of February, 1997. /S/ RICHARD C. GLOWACKI ----------------------------- Richard C. Glowacki, Director -47- 4 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN her true and lawful attorney-in-fact and agent, with full power to act, her true and lawful attorney-in-fact and agent, for her and in her name, place and stead, in the capacity as director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets her hand this 31st day of January, 1997. /S/ SHARON M. OSTER -------------------------- Sharon M. Oster, Director -48- 5 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacity of director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th day of February, 1997. /s/ BRUCE G. THOMPSON ------------------------------- Bruce G. Thompson, Director -49- 6 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacity as director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 5th day of February, 1997. /S/ RICHARD A. UNVERFERTH ------------------------------------ Richard A. Unverferth, Director -50- 7 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacity of director, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 7th day of February, 1997. /s/ PIER C. BORRA --------------------------------- Pier C. Borra, Director -51- 8 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director and the Chairman of the Board and Principal Executive Officer of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints EDWARD F. LANGE, JR., his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacities as director and Chairman of the Board and Principal Executive Officer, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th day of February, 1997. /s/ GEORGE L. CHAPMAN -------------------------------- George L. Chapman, Director, Chairman of the Board and Principal Executive Officer -52- 9 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, the Principal Financial Officer and the Principal Accounting Officer of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in the capacities as the Principal Financial Officer and Principal Accounting Officer, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 5th day of February, 1997. /s/ EDWARD F. LANGE, JR. ------------------------------ Edward F. Lange, Jr., Principal Financial Officer and Principal Accounting Officer -53- 10 EXHIBIT 12 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned, the Controller of Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to file with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act, his true and lawful attorney-in-fact and agent, for his and in his name, place and stead, in the capacity as Controller, to sign such Form 10-K which is about to be filed, and any and all amendments to such Form 10-K, and to file such Form 10-K and each such amendment so signed, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 4th day of February, 1997. /s/ MICHAEL A. CRABTREE ------------------------------- Michael A. Crabtree, Controller -54- EX-27 5 EXHIBIT 13
5 1 YEAR DEC-31-1996 DEC-31-1996 581,390 768,451 4,155,812 9,786,940 0 0 160,104,909 6,482,065 519,831,197 0 184,395,011 18,320,291 0 0 307,215,850 519,831,197 0 54,401,815 0 0 7,683,677 1,407,791 14,634,785 30,675,562 0 30,675,562 0 0 0 30,675,562 2.18 2.18
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