-----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, NiswO3ZF7y9yJHPJ81TYfNFM8SKK+V+Z9OOVZ/l/IauxBR55B77zIdDY+ZgoT8TH LSN/GFSAQL5M1RJSghwJ+w== 0000950152-03-009076.txt : 20031024 0000950152-03-009076.hdr.sgml : 20031024 20031024171757 ACCESSION NUMBER: 0000950152-03-009076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031024 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08923 FILM NUMBER: 03957077 BUSINESS ADDRESS: STREET 1: ONE SEAGATE STE 1500 STREET 2: P O BOX 1475 CITY: TOLEDO STATE: OH ZIP: 43604 BUSINESS PHONE: 4192472800 10-Q 1 l03462ae10vq.txt HEALTH CARE REIT, INC. ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________to __________________ COMMISSION FILE NUMBER 1-8923 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 No.) ONE SEAGATE, SUITE 1500, TOLEDO, OHIO 43604 - ------------------------------------- ----- (Address of principal executive office) (Zip Code) (Registrant's telephone number, including area code) (419) 247-2800 --------------------------- - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [x] No [ ] As of October 23, 2003, the registrant had 49,239,128 shares of common stock outstanding. ================================================================================ INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - September 30, 2003 and December 31, 2002............................ 3 Consolidated Statements of Income - Three and nine months ended September 30, 2003 and 2002.................................................................................... 4 Consolidated Statements of Stockholders' Equity - Nine months ended September 30, 2003 and 2002.................................................................................... 5 Consolidated Statements of Cash Flows - Nine months ended September 30, 2003 and 2002............. 6 Notes to Unaudited Consolidated Financial Statements.............................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 13 Item 3. Quantitative and Qualitative Disclosure About Market Risk......................................... 16 Item 4. Controls and Procedures........................................................................... 16 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds......................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders............................................... 17 Item 6. Exhibits and Reports on Form 8-K.................................................................. 17 SIGNATURES .................................................................................................. 18
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS HEALTH CARE REIT, INC. AND SUBSIDIARIES
SEPTEMBER 30 DECEMBER 31 2003 2002 (UNAUDITED) (NOTE) ----------- ------ ASSETS (IN THOUSANDS) Real estate investments: Real property owned Land $ 157,608 $ 112,044 Buildings & improvements 1,656,499 1,288,520 Construction in progress 35,335 19,833 ----------- ----------- 1,849,442 1,420,397 Less accumulated depreciation (136,432) (113,579) ----------- ----------- Total real property owned 1,713,010 1,306,818 Loans receivable Real property loans 200,292 208,016 Subdebt investments 45,028 14,578 ----------- ----------- 245,320 222,594 Less allowance for losses on loans receivable (5,705) (4,955) ----------- ----------- 239,615 217,639 ----------- ----------- Net real estate investments 1,952,625 1,524,457 Other assets: Equity investments 7,649 7,494 Deferred loan expenses 8,098 9,291 Cash and cash equivalents 8,172 9,550 Receivables and other assets 55,067 43,318 ----------- ----------- 78,986 69,653 ----------- ----------- Total assets $ 2,031,611 $ 1,594,110 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Borrowings under unsecured lines of credit obligations $ 143,000 $ 109,500 Senior unsecured notes 615,000 515,000 Secured debt 145,164 51,831 Accrued expenses and other liabilities 7,323 20,547 ----------- ----------- Total liabilities 910,487 696,878 Stockholders' equity: Preferred stock 145,150 127,500 Common stock 48,016 40,086 Capital in excess of par value 1,006,983 790,838 Cumulative net income 641,366 580,496 Cumulative dividends (718,174) (638,085) Accumulated other comprehensive income 128 (170) Other equity (2,345) (3,433) ----------- ----------- Total stockholders' equity 1,121,124 897,232 ----------- ----------- Total liabilities and stockholders' equity $ 2,031,611 $ 1,594,110 =========== ===========
NOTE: The consolidated balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See notes to unaudited consolidated financial statements 3 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Rental income $ 43,306 $ 32,182 $121,798 $ 88,423 Interest income 5,797 7,127 15,927 21,022 Commitment fees and other income 872 839 2,108 2,144 -------- -------- -------- -------- 49,975 40,148 139,833 111,589 Expenses: Interest expense 13,093 9,556 37,093 28,234 Provision for depreciation 12,945 9,222 35,004 25,328 General and administrative 2,995 2,496 8,452 7,040 Loan expense 717 599 2,032 1,756 Impairment of assets 550 Loss on extinguishment of debt 403 Provision for loan losses 250 250 750 750 -------- -------- -------- -------- 30,000 22,123 83,331 64,061 -------- -------- -------- -------- Income from continuing operations 19,975 18,025 56,502 47,528 Discontinued operations: Net gain (loss) on sales of properties 4,278 439 4,312 584 Income (loss) from discontinued operations, net 1,048 1,299 2,846 4,372 -------- -------- -------- -------- 5,326 1,738 7,158 4,956 Net income 25,301 19,763 63,660 52,484 Preferred stock dividends 1,910 2,878 7,074 9,596 Preferred stock redemption charge 2,790 2,790 -------- -------- -------- -------- Net income available to common stockholders $ 20,601 $ 16,885 $ 53,796 $ 42,888 ======== ======== ======== ======== Average number of common shares outstanding: Basic 44,181 38,628 41,602 35,695 Diluted 44,833 39,324 42,165 36,451 Earnings per share: Basic: Income from continuing operations available to common stockholders $ 0.35 $ 0.40 $ 1.12 $ 1.06 Discontinued operations, net 0.12 0.04 0.17 0.14 -------- -------- -------- -------- Net income available to common stockholders $ 0.47 $ 0.44 $ 1.29 $ 1.20 Diluted: Income from continuing operations available to common stockholders $ 0.34 $ 0.39 $ 1.11 $ 1.04 Discontinued operations, net 0.12 0.04 0.17 0.14 -------- -------- -------- -------- Net income available to common stockholders $ 0.46 $ 0.43 $ 1.28 $ 1.18 Dividends declared and paid per common share $ 0.585 $ 0.585 $ 1.755 $ 1.755
See notes to unaudited consolidated financial statements 4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 -------------------------------------------------------------- CAPITAL IN PREFERRED COMMON EXCESS OF CUMULATIVE STOCK STOCK PAR VALUE NET INCOME ----- ----- --------- ---------- (IN THOUSANDS) Balances at beginning of period $ 127,500 $ 40,086 $ 790,838 $ 580,496 Comprehensive income: Net income 63,660 Other comprehensive income: Unrealized gain (loss) on equity investments Foreign currency translation adjustment Total comprehensive income Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures 1,826 49,226 Proceeds from issuance of common shares 4,783 134,750 Proceeds from issuance of preferred shares 126,500 (3,150) Redemption of preferred stock (75,000) 2,790 (2,790) Conversion of preferred stock (33,850) 1,321 32,529 Restricted stock amortization Compensation expense related to stock options Cash dividends paid --------- -------- ----------- --------- Balances at end of period $ 145,150 $ 48,016 $ 1,006,983 $ 641,366 ========= ======== =========== =========
NINE MONTHS ENDED SEPTEMBER 30, 2003 ------------------------------------------------------------ ACCUMULATED OTHER CUMULATIVE COMPREHENSIVE OTHER DIVIDENDS INCOME EQUITY TOTAL --------- ------ ------ ----- (IN THOUSANDS) Balances at beginning of period $ (638,085) $ (170) $ (3,433) $ 897,232 Comprehensive income: Net income 63,660 Other comprehensive income: Unrealized gain (loss) on equity investments (11) (11) Foreign currency translation adjustment 309 309 ----------- Total comprehensive income 63,958 ----------- Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures 53 51,105 Proceeds from issuance of common shares 139,533 Proceeds from issuance of preferred shares 123,350 Redemption of preferred stock (75,000) Conversion of preferred stock 0 Restricted stock amortization 887 887 Compensation expense related to stock options 148 148 Cash dividends paid (80,089) (80,089) ----------- ------ --------- ----------- Balances at end of period $ (718,174) $ 128 $ (2,345) $ 1,121,124 ========== ====== ======== ===========
NINE MONTHS ENDED SEPTEMBER 30, 2002 -------------------------------------------------------------- CAPITAL IN PREFERRED COMMON EXCESS OF CUMULATIVE STOCK STOCK PAR VALUE NET INCOME ----- ----- --------- ---------- (IN THOUSANDS) Balances at beginning of period $ 150,000 $ 32,740 $ 608,942 $ 512,837 Comprehensive income: Net income 52,484 Other comprehensive income: Unrealized gain (loss) on equity investments Foreign currency translation adjustment Total comprehensive income Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures 1,083 22,818 Proceeds from issuance of common shares 4,356 110,879 Conversion of preferred stock (22,500) 878 21,622 Restricted stock amortization Cash dividends paid --------- -------- --------- --------- Balances at end of period $ 127,500 $ 39,057 $ 764,261 $ 565,321 ========= ======== ========= =========
NINE MONTHS ENDED SEPTEMBER 30, 2002 ------------------------------------------------------------ ACCUMULATED OTHER CUMULATIVE COMPREHENSIVE OTHER DIVIDENDS INCOME EQUITY TOTAL --------- ------ ------ ----- (IN THOUSANDS) Balances at beginning of period $(540,946) $ (923) $ (4,780) $ 757,870 Comprehensive income: Net income 52,484 Other comprehensive income: Unrealized gain (loss) on equity investments (44) (44) Foreign currency translation adjustment 597 597 --------- Total comprehensive income 53,037 --------- Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures (189) 23,712 Proceeds from issuance of common shares 115,235 Conversion of preferred stock 0 Restricted stock amortization 1,207 1,207 Cash dividends paid (71,419) (71,419) --------- -------- -------- --------- Balances at end of period $(612,365) $ (370) $ (3,762) $ 879,642 ========= ======== ======== =========
See notes to unaudited consolidated financial statements 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30 ------------------------ 2003 2002 --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 63,660 $ 52,484 Adjustments to reconcile net income to net cash provided from operating activities: Provision for depreciation 36,772 28,662 Amortization 2,855 2,961 Provision for loan losses 750 750 Impairment of assets 550 Commitment fees earned greater than cash received (1,530) Rental income in excess of cash received (7,025) (5,346) Equity in (earnings) losses of affiliated companies (270) 220 (Gain) loss on sales of properties (4,312) (584) Increase (decrease) in accrued expenses and other liabilities (13,223) (5,536) Decrease (increase) in receivables and other assets (4,535) (1,460) --------- --------- Net cash provided from (used in) operating activities 74,672 71,171 INVESTING ACTIVITIES Investment in real property (367,124) (291,439) Investment in loans receivable and subdebt investments (90,088) (61,433) Other investments, net of payments 414 (228) Principal collected on loans receivable and subdebt investments 54,929 35,203 Proceeds from sales of properties 65,160 49,519 Other (202) (485) --------- --------- Net cash provided from (used in) investing activities (336,911) (268,863) FINANCING ACTIVITIES Net increase (decrease) under unsecured line of credit arrangements 33,500 72,600 Net increase (decrease) under secured line of credit arrangements (29,000) Proceeds from issuance of senior notes 100,000 150,000 Principal payments on senior notes (40,000) Principal payments on secured debt (4,411) (7,527) Net proceeds from the issuance of common stock 190,638 138,947 Net proceeds from the issuance of preferred stock 96,850 Redemption of preferred stock (75,000) Decrease (increase) in deferred loan expense (627) (4,295) Cash distributions to stockholders (80,089) (71,419) --------- --------- Net cash provided from (used in) financing activities 260,861 209,306 --------- --------- Increase (decrease) in cash and cash equivalents (1,378) 11,614 Cash and cash equivalents at beginning of period 9,550 9,826 --------- --------- Cash and cash equivalents at end of period $ 8,172 $ 21,440 ========= ========= Supplemental cash flow information-interest paid $ 47,634 $ 35,935 ========= =========
See notes to unaudited consolidated financial statements 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS HEALTH CARE REIT, INC. AND SUBSIDIARIES NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered for a fair presentation have been included. Operating results for the nine months ended September 30, 2003 are not necessarily an indication of the results that may be expected for the year ending December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2002. NOTE B - REAL ESTATE INVESTMENTS During the nine months ended September 30, 2003, we invested $345,091,000 in real property, provided permanent mortgage and loan financings of $63,367,000, made construction advances of $22,033,000 and funded $26,721,000 of subdebt investments. As of September 30, 2003, we had approximately $24,877,000 in unfunded construction commitments. Also during the nine months ended September 30, 2003, we sold real property generating $65,160,000 of net proceeds and collected $54,929,000 and $414,000 as repayment of principal on loans receivable and subdebt investments, respectively. NOTE C - EQUITY INVESTMENTS We have an investment in Atlantic Healthcare Finance L.P., a property group that specializes in the financing, through sale and leaseback transactions, of nursing and care homes located in the United Kingdom. This investment is accounted for using the equity method of accounting because we have the ability to exercise significant influence, but not control, over the investee due to our 31% ownership interest. In October 2003, we sold our investment in Atlantic Healthcare Finance L.P. generating a net gain of approximately $800,000 which will be recognized in the fourth quarter. Other equity investments, which consist of investments in private and public companies for which we do not have the ability to exercise influence, are accounted for under the cost method. Under the cost method of accounting, investments in private companies are carried at cost and are adjusted only for other-than-temporary declines in fair value, distributions of earnings and additional investments. For investments in public companies that have readily determinable fair market values, we classify our equity investments as available-for-sale and, accordingly, record these investments at their fair market values with unrealized gains and losses included in accumulated other comprehensive income, a separate component of stockholders' equity. These investments represent a minimal ownership interest in these companies. NOTE D - DISTRIBUTIONS PAID TO COMMON STOCKHOLDERS On February 20, 2003, we paid a dividend of $0.585 per share to stockholders of record on January 31, 2003. This dividend related to the period from October 1, 2002 through December 31, 2002. On May 20, 2003, we paid a dividend of $0.585 per share to stockholders of record on April 30, 2003. This dividend related to the period from January 1, 2003 through March 31, 2003. On August 20, 2003, we paid a dividend of $0.585 per share to stockholders of record on July 31, 2003. This dividend related to the period from April 1, 2003 through June 30, 2003. 7 NOTE E - DISCONTINUED OPERATIONS In August 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. We adopted the standard effective January 1, 2002. During the nine months ended September 30, 2003, we sold fourteen assisted living facilities, two skilled nursing facilities and one parcel of land with carrying values of $60,848,000 for a net gain of $4,312,000. In accordance with Statement No. 144, we have reclassified the income and expenses attributable to all properties sold subsequent to January 1, 2002 to discontinued operations. Expenses include an allocation of interest expense based on property carrying values and our weighted average cost of debt. The following illustrates the reclassification impact of Statement No. 144 as a result of classifying the properties as discontinued operations (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------- ----------------- 2003 2002 2003 2002 ------ ------ ------ ------ Revenues Rental income $1,541 $3,187 $5,833 $9,828 Expenses Interest expense 180 894 1,219 2,246 Provision for depreciation 313 994 1,768 3,210 ------ ------ ------ ------ Income (loss) from discontinued operations, net $1,048 $1,299 $2,846 $4,372 ====== ====== ====== ======
NOTE F - CONTINGENT LIABILITIES We have guaranteed the payment of industrial revenue bonds for one assisted living facility, in the event that the present owner defaults upon its obligations. In consideration for this guaranty, we receive and recognize fees annually related to this agreement. This guaranty expires upon the repayment of the industrial revenue bonds which currently mature in 2009. At September 30, 2003, we were contingently liable for $3,195,000 under this guaranty. In addition, we have an outstanding letter of credit issued to a bank, which bank provided additional financing for a residential retirement community project. We have also guaranteed the payment of a loan made by the bank on this project. The letter of credit currently expires in 2004 and the guaranty expires upon the repayment of the loan, which currently matures in 2004. At September 30, 2003, obligations under these agreements for which we were contingently liable aggregated approximately $3,500,000. As of September 30, 2003, we had approximately $24,877,000 of unfunded construction commitments. On November 20, 2002, Doctors Community Health Care Corporation and five subsidiaries filed for Chapter 11 bankruptcy protection. Doctors has stated that the bankruptcy filing was due to the bankruptcy of National Century Financial Enterprises and affiliates, who halted payments to health care providers, including Doctors. We have provided mortgage financing to Doctors in the form of a loan secured by the Pacifica Hospital of the Valley in Sun Valley, CA, and the other assets of the Pacifica of the Valley Corporation, one of the debtor subsidiaries. The outstanding principal balance of the loan was approximately $18.8 million at September 30, 2003. The assets of the Doctors debtors are currently out for bid under bankruptcy court supervision. Doctors anticipates a confirmation hearing on its plan of reorganization to be held on December 10, 2003. Doctors did not make an interest payment for the nine months ended September 30, 2003. We believe we are entitled to all accrued but unrecognized interest, however, as previously stated, we do not currently intend to recognize any interest on the loan if payment is not received. Alterra Healthcare Corporation filed for Chapter 11 bankruptcy protection on January 23, 2003. We have a master lease with Alterra for 45 assisted living facilities with a depreciated book value of $104.0 million at September 30, 2003. A joint venture between Fortress Investment Group LLC and Emeritus Corporation was the winning bidder at an auction held on July 17, 2003. The $76 million acquisition was approved by the bankruptcy court on July 23, 2003. Subject to confirmation of Alterra's plan of reorganization, our master lease should be assumed by the reorganized Alterra. A hearing on confirmation of Alterra's plan of reorganization is scheduled for October 24, 2003. Alterra has remained current on rental payments throughout the bankruptcy process. 8 NOTE G - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------- -------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Numerator for basic and diluted earnings per share - net income available to common stockholders $20,601 $16,885 $53,796 $42,888 ======= ======= ======= ======= Denominator for basic earnings per share - weighted average shares 44,181 38,628 41,602 35,695 Effect of dilutive securities: Employee stock options 450 441 361 501 Non-vested restricted shares 202 255 202 255 ------- ------- ------- ------- Dilutive potential common shares 652 696 563 756 ------- ------- ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares 44,833 39,324 42,165 36,451 ======= ======= ======= ======= Basic earnings per share $ 0.47 $ 0.44 $ 1.29 $ 1.20 ======= ======= ======= ======= Diluted earnings per share $ 0.46 $ 0.43 $ 1.28 $ 1.18 ======= ======= ======= =======
The diluted earnings per share calculation excludes the dilutive effect of 0 shares for the three and nine month periods ended September 30, 2003, respectively, and 10,000 and 10,000 shares for the same periods in 2002, because the exercise price was greater than the average market price. The Series C Cumulative Convertible Preferred Stock and the Series E Cumulative Convertible and Redeemable Preferred Stock were not included in this calculation as the effect of the conversions were anti-dilutive. NOTE H - OTHER EQUITY Other equity consists of the following (in thousands):
SEPTEMBER 30 -------------------- 2003 2002 ------- ------- Accumulated compensation expense related to stock options $ 148 $ 0 Unamortized restricted stock (2,493) (3,762) ------- ------- $(2,345) $(3,762) ======= =======
Unamortized restricted stock represents the unamortized value of restricted stock granted to employees and directors. Expense, which is recognized as the shares vest based on the market value at the date of the award, totaled $887,000 and $1,207,000 for the nine months ended September 30, 2003 and September 30, 2002, respectively. In December 2002, the Financial Accounting Standards Board issued Statement No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, that we are required to adopt for fiscal years beginning after December 15, 2002, with transition provisions for certain matters. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Effective January 1, 2003, we commenced recognizing compensation expense in accordance with Statement 123 on a prospective basis. Accumulated option compensation 9 expense represents the amount of amortized compensation costs related to stock options awarded to employees and directors in 2003. The following table illustrates the effect on net income available to common stockholders if we had applied the fair value recognition provisions of Statement 123 to stock-based compensation for options granted since 1995 but prior to adoption at January 1, 2003 (in thousands, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------- ------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Numerator: Net income available to common stockholders - as reported $20,601 $16,885 $53,796 $42,888 Deduct: Stock based employee compensation expense determined under fair value based method for all awards 103 136 315 409 ------- ------- ------- ------- Net income available to common stockholders - pro forma $20,498 $16,749 $53,481 $42,479 ======= ======= ======= ======= Denominator: Basic weighted average shares - as reported and pro forma 44,181 38,628 41,602 35,695 Effect of dilutive securities: Employee stock options - pro forma 409 398 316 413 Non-vested restricted shares 202 255 202 255 ------- ------- ------- ------- Dilutive potential common shares 611 653 518 668 ------- ------- ------- ------- Diluted weighted average shares - pro forma 44,792 39,281 42,120 36,363 ======= ======= ======= ======= Net income available to common stockholders per share - as reported Basic $ 0.47 $ 0.44 $ 1.29 $ 1.20 Diluted 0.46 0.43 1.28 1.18 Net income available to common stockholders per share - pro forma Basic $ 0.46 $ 0.43 $ 1.29 $ 1.19 Diluted 0.46 0.43 1.27 1.17
NOTE I - ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income includes unrealized gains or losses on our equity investments and foreign currency translation adjustments. These items are included as components of stockholders' equity. Other comprehensive income for the three and nine months ended September 30, 2003 totaled ($125,000) and $298,000, respectively, and $188,000 and $553,000 for same periods in 2002. NOTE J - SIGNIFICANT CHANGES AND EVENTS In March 2003, we sold $100,000,000 of 8.0% senior unsecured notes, maturing in September 2012, at an effective yield of 7.40%. These notes were an add-on to the $150,000,000 senior unsecured notes sold in September 2002. The aggregate principal amount of outstanding notes of this series is now $250,000,000. 10 On July 9, 2003, we closed on a public offering of 4,000,000 shares of 7.875% Series D Cumulative Redeemable Preferred Stock, which generated net proceeds of approximately $96,850,000. The shares have a liquidation value of $25 per share. The preferred stock, which has no stated maturity, may be redeemed by us at par on or after July 9, 2008. A portion of the proceeds from this offering were used to redeem all 3,000,000 shares of our 8.875% Series B Cumulative Redeemable Preferred Stock on July 15, 2003, at a redemption price of $25 per share plus accrued and unpaid dividends. In July 2003, we issued 1,583,100 shares of common stock, $1 par value, at a price of $30.32 per share, which generated net proceeds of approximately $47,950,000. In July 2003, we issued 594,000 shares of common stock, $1 par value, under our dividend reinvestment and stock purchase plan's waiver program, which generated net proceeds of approximately $17,900,000. In September 2003, we issued 3,200,000 shares of common stock, $1 par value, at a price of $30.25 per share, which generated net proceeds of approximately $91,583,000. In October 2003, we issued an additional 480,000 shares of common stock pursuant to the over-allotment exercise, which generated net proceeds of approximately $13,795,000. On September 29, 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock as partial consideration for an acquisition of assets by the Company, with the shares valued at $26,500,000 for such purposes. The shares were issued to Southern Assisted Living, Inc. and certain of its shareholders without registration in reliance upon the federal statutory exemption of Section 4(2) of the Securities Act of 1933, as amended. The shares have a liquidation value of $25 per share. The preferred stock, which has no stated maturity, may be redeemed by us at par on or after August 15, 2008. The preferred shares are convertible into common stock at a conversion price of $32.66 per share at any time. The holder of our Series C Cumulative Convertible Preferred Stock converted 1,354,000 shares into 1,321,000 shares of common stock during the nine months ended September 30, 2003, and 376,000 shares into 367,000 shares of common stock in October 2003. In August and September 2003, we solicited the consents of registered holders of our senior unsecured notes to the adoption of certain amendments to the Indenture, dated as of April 17, 1997 (as amended and supplemented) (the "1997 Indenture"), with Fifth Third Bank, as trustee (the "Trustee"), and the Indenture, dated as of September 6, 2002 (as amended and supplemented) (the "2002 Indenture"), with the Trustee. After receiving the requisite number of consents, we entered into Supplemental Indenture No. 5 to the 1997 Indenture with the Trustee and Supplemental Indenture No. 2 to the 2002 Indenture with the Trustee. As amended, the supplemental indentures modify the indentures to require us to (a) limit the use of secured debt to 40% of undepreciated assets, (b) limit total debt to 60% of undepreciated total assets, and (c) maintain total unencumbered assets at 150% of total secured debt. These amendments to all of our $615,000,000 of senior unsecured notes are intended to modernize the covenant package and make it consistent with other investment-grade REITs. NOTE K - NEW ACCOUNTING POLICIES In April 2002, the Financial Accounting Standards Board (FASB) issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections. Statement 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement 4. Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. Statement 145 is effective for fiscal years beginning after December 15, 2002. We adopted the standard effective January 1, 2003. Effective January 1, 2003, we commenced recognizing compensation expense for employee stock options in accordance with Statement 123 on a prospective basis. See Note H. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 (the Interpretation). The Interpretation requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. The Interpretation is effective for financial statements issued for the first period ending after December 15, 2003. We are currently evaluating the effects, if any, of the issuance of the Interpretation. In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Statement 150 requires that certain financial instruments be classified as liabilities (or assets in certain circumstances) rather than as equity. Statement 150 is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted the standard effective July 1, 2003 and have determined that none of our financial instruments are impacted by this Statement. 11 Emerging Issues Task Force (EITF) Topic D-42, "The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock," provides, among other things, that any excess of (1) the fair value of the consideration transferred to the holders of preferred stock redeemed over (2) the carrying amount of the preferred stock should be subtracted from net earnings to determine net income available to common stockholders in the calculation of earnings per share. At the July 31, 2003 meeting of the EITF, the Securities and Exchange Commission (SEC) Observer clarified that for purposes of applying EITF Topic D-42, the carrying amount of the preferred stock should be reduced by the issuance costs of the preferred stock, regardless of where in the stockholders' equity section those costs were initially classified upon issuance. On July 15, 2003, we redeemed all three million shares of our 8.875% Series B Cumulative Redeemable Preferred Stock. The costs to issue these securities were recorded as a reduction to paid-in capital, and to implement the clarified accounting pronouncement, we recorded a non-cash, non-recurring charge of $2.79 million, or $0.06 per diluted share, in the third quarter of 2003 to reduce net income available to common stockholders. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At September 30, 2003, our net real estate investments totaled approximately $1.96 billion and included 217 assisted living facilities, 96 skilled nursing facilities and eight specialty care facilities. Depending upon the availability and cost of external capital, we anticipate making additional investments in health care related facilities. New investments are funded from temporary borrowings under our unsecured lines of credit arrangements, internally generated cash and the proceeds derived from asset sales. Permanent financing for future investments, which replaces funds drawn under the unsecured lines of credit arrangements, is expected to be provided through a combination of public and private offerings of debt and equity securities and the incurrence of secured debt. We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service and dividend requirements and finance future investments. In March 2003, we sold $100,000,000 of 8.0% senior unsecured notes, maturing in September 2012, at an effective yield of 7.40%. These notes were an add-on to the $150,000,000 senior unsecured notes sold in September 2002. The aggregate principal amount of outstanding notes of this series is now $250,000,000. On July 9, 2003, we closed on a public offering of 4,000,000 shares of 7.875% Series D Cumulative Redeemable Preferred Stock, which generated net proceeds of approximately $96,850,000. The shares have a liquidation value of $25 per share. The preferred stock, which has no stated maturity, may be redeemed by us at par on or after July 9, 2008. A portion of the proceeds from this offering were used to redeem all 3,000,000 shares of our 8.875% Series B Cumulative Redeemable Preferred Stock on July 15, 2003, at a redemption price of $25 per share plus accrued and unpaid dividends. In July 2003, we issued 1,583,100 shares of common stock, $1 par value, at a price of $30.32 per share, which generated net proceeds of approximately $47,950,000. In July 2003, we issued 594,000 shares of common stock, $1 par value, under our dividend reinvestment and stock purchase plan's waiver program, which generated net proceeds of approximately $17,900,000. In September 2003, we issued 3,200,000 shares of common stock, $1 par value, at a price of $30.25 per share, which generated net proceeds of approximately $91,583,000. In October 2003, we issued an additional 480,000 shares of common stock pursuant to the over-allotment exercise, which generated net proceeds of approximately $13,795,000. On September 29, 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock as partial consideration for an acquisition of assets by the Company, with the shares valued at $26,500,000 for such purposes. The shares were issued to Southern Assisted Living, Inc. and certain of its shareholders without registration in reliance upon the federal statutory exemption of Section 4(2) of the Securities Act of 1933, as amended. The shares have a liquidation value of $25 per share. The preferred stock, which has no stated maturity, may be redeemed by us at par on or after August 15, 2008. The preferred shares are convertible into common stock at a conversion price of $32.66 per share at any time. The holder of our Series C Cumulative Convertible Preferred Stock converted 1,354,000 shares into 1,321,000 shares of common stock during the nine months ended September 30, 2003, and 376,000 shares into 367,000 shares of common stock in October 2003. As of September 30, 2003, we had stockholders' equity of $1,121,124,000 and a total outstanding debt balance of $903,164,000, which represents a debt to total book capitalization ratio of 0.45 to 1.0. In October 2003, we sold our investment in Atlantic Healthcare Finance L.P. generating a net gain of approximately $800,000 which will be recognized in the fourth quarter. In May 2003, we announced the amendment and extension of our primary unsecured revolving line of credit. The line of credit was expanded to $225,000,000, expires in May 2006 (with the ability to extend for one year at our discretion if we are in compliance with all covenants) and currently bears interest at the lender's prime rate or LIBOR plus 1.3% at our option. In August 2003, we further amended the line of credit to modify certain financial covenants that will enhance our financial flexibility and align our covenant package with other investment grade REITs. Also in May 2003, we repaid our $4,000,000 secured note and terminated this agreement. At the same time, we increased our $25,000,000 unsecured line of credit to $30,000,000. This line of credit bears interest at the lender's prime rate and expires in May 2004. Also, at September 30, 2003, we had a secured line of credit in the amount of $60,000,000 bearing interest at the lender's prime rate or LIBOR plus 2.0%, at our option, with a floor of 7.0% and which expires in April 2004. At September 30, 2003, we had $143,000,000 in borrowings outstanding under the unsecured lines of credit arrangements. 13 As of October 23, 2003, we had an effective shelf registration on file with the Securities and Exchange Commission under which we may issue up to $831,794,619 of securities including debt securities, common and preferred stock, depositary shares, warrants and units. Depending upon market conditions, we anticipate issuing securities under our shelf registration to invest in additional health care facilities and to repay borrowings under our unsecured lines of credit arrangements. On July 23, 2003, Moody's Investor Services upgraded its rating on our senior unsecured notes from Ba1 to Baa3. The credit strengths noted by Moody's included moderate financial leverage, negligible secured debt, strong portfolio management and underwriting skills and improved portfolio fundamentals in our skilled nursing and assisted living facilities. In August and September 2003, we solicited the consents of registered holders of our senior unsecured notes to the adoption of certain amendments to the Indenture, dated as of April 17, 1997 (as amended and supplemented) (the "1997 Indenture"), with Fifth Third Bank, as trustee (the "Trustee"), and the Indenture, dated as of September 6, 2002 (as amended and supplemented) (the "2002 Indenture"), with the Trustee. After receiving the requisite number of consents, we entered into Supplemental Indenture No. 5 to the 1997 Indenture with the Trustee and Supplemental Indenture No. 2 to the 2002 Indenture with the Trustee. As amended, the supplemental indentures modify the indentures to require us to (a) limit the use of secured debt to 40% of undepreciated assets, (b) limit total debt to 60% of undepreciated total assets, and (c) maintain total unencumbered assets at 150% of total secured debt. These amendments to all of our $615,000,000 of senior unsecured notes are intended to modernize the covenant package and make it consistent with other investment-grade REITs. RESULTS OF OPERATIONS Revenues were comprised of the following:
Three months ended Change Year to date through Change ---------------------- ----------------------- ----------------------- ----------------------- Sep. 30, Sep. 30, Sep. 30, Sep. 30, 2003 2002 $ % 2003 2002 $ % ---- ---- - - ---- ---- - - (in thousands) Rental income $ 43,306 $ 32,182 $ 11,124 35% $121,798 $ 88,423 $ 33,375 38% Interest income 5,797 7,127 (1,330) -19% 15,927 21,022 (5,095) -24% Commitment fees and other income 872 839 33 4% 2,108 2,144 (36) -2% -------- -------- -------- -- -------- -------- -------- -- Totals $ 49,975 $ 40,148 $ 9,827 24% $139,833 $111,589 $ 28,244 25% ======== ======== ======== == ======== ======== ======== ==
For the three and nine months ended September 30, 2003, we generated increased rental income as a result of the acquisition of properties for which we receive rent. This offset a reduction in interest income due to the repayment of mortgage loans and non-recognition of interest income related to our mortgage loan with Doctors Community Health Care Corporation. Expenses were comprised of the following:
Three months ended Change Year to date through Change --------------------- --------------------- --------------------- --------------------- Sep. 30, Sep. 30, Sep. 30, Sep. 30, 2003 2002 $ % 2003 2002 $ % ---- ---- - - ---- ---- - - (in thousands) Interest expense $ 13,093 $ 9,556 $ 3,537 37% $ 37,093 $ 28,234 $ 8,859 31% Provision for depreciation 12,945 9,222 3,723 40% 35,004 25,328 9,676 38% General and administrative 2,995 2,496 499 20% 8,452 7,040 1,412 20% Loan expense 717 599 118 20% 2,032 1,756 276 16% Impairment of assets 550 (550) n/a Loss on extinguishment of debt 403 (403) n/a Provision for loan losses 250 250 0 0% 750 750 0 0% -------- -------- -------- -- -------- -------- -------- -- Totals $ 30,000 $ 22,123 $ 7,877 36% $ 83,331 $ 64,061 $ 19,270 30% ======== ======== ======== == ======== ======== ======== ==
The increase in interest expense from 2002 to 2003 was primarily due to higher average borrowings in 2003. This was partially offset by lower average interest rates and an increase in the amount of capitalized interest offsetting interest expense. We capitalize certain interest costs associated with funds used to finance the construction of properties owned directly by us. The amount capitalized is based upon the borrowings outstanding during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized. Capitalized interest for the three and nine months ended September 30, 2003 totaled $490,000 and $1,128,000, respectively, as compared with none for the same periods in 2002. The provision for depreciation increased primarily as a result of additional investments in properties owned directly by us. General and administrative expenses as a percentage of revenues (including revenues from discontinued operations) for the three and nine months ended September 30, 2003 were 4.97% and 5.49%, respectively, as compared with 5.89% and 5.96% for the same periods in 2002. 14 The increase in loan expense was primarily due to the additional amortization of costs related to the unsecured lines of credit expansions and costs related to obtaining consents to modify the covenant packages of our senior unsecured notes. During the nine months ended September 30, 2002, it was determined that the projected undiscounted cash flows from a parcel of land did not exceed its related net book value and an impairment charge of $550,000 was recorded to reduce the property to its estimated fair market value. The estimated fair market value of the property was determined by an offer to purchase received from a third party. In April 2002, we purchased $35,000,000 of our outstanding unsecured senior notes that were due in 2003 and recorded a charge of $403,000 in connection with this early extinguishment. Effective January 1, 2003, in accordance with FASB Statement No. 145, we reclassified the loss on extinguishment of debt in 2002 to income from continuing operations rather than as an extraordinary item as previously required under FASB Statement No. 4.
Other items: Three months ended Change Year to date through Change - ------------ -------------------- ------------------ -------------------- ----------------- Sep. 30, Sep. 30, Sep. 30, Sep. 30, 2003 2002 $ % 2003 2002 $ % ---- ---- - - ---- ---- - - (in thousands) Gain (loss) on sales of properties $ 4,278 $ 439 $ 3,839 874% $ 4,312 $ 584 $ 3,728 638% Discontinued operations, net 1,048 1,299 (251) -19% 2,846 4,372 (1,526) -35% Preferred dividends (1,910) (2,878) 968 -34% (7,074) (9,596) 2,522 -26% Preferred stock redemption charge (2,790) (2,790) n/a (2,790) (2,790) n/a ------- ------- ------- --- ------- ------- ------- -- Totals $ 626 $(1,140) $ 1,766 -155% $(2,706) $(4,640) $ 1,934 -42% ======= ======= ======= === ======= ======= ======= ===
During the nine months ended September 30, 2003, we sold fourteen assisted living facilities, two skilled nursing facilities and one parcel of land with carrying values of $60,848,000 for a net gain of $4,312,000. These properties generated a net gain of $2,846,000 after deducting depreciation and interest expense from rental income for the nine months ended September 30, 2003. All properties sold from January 1, 2002 through September 30, 2003 generated $4,372,000 of income after deducting depreciation and interest expense from rental income for the nine months ended September 30, 2002. During the nine months ended September 30, 2003, the holder of our Series C Cumulative Convertible Preferred Stock converted 1,354,000 shares into 1,321,000 shares of common stock, leaving 746,000 shares outstanding at September 30, 2003 as compared to 2,100,000 at September 30, 2002. The decrease in preferred dividends is due to the reduction in outstanding preferred shares. On July 15, 2003, we redeemed all three million shares of our 8.875% Series B Cumulative Redeemable Preferred Stock. In accordance with EITF Topic D-42, the costs to issue these securities were recorded as a non-cash, non-recurring charge of $2.79 million, or $0.06 per diluted share, in the third quarter of 2003 to reduce net income available to common stockholders. As a result of the various factors mentioned above, net income available to common stockholders for the three and nine months ended September 30, 2003 was $20,601,000, or $0.46 per diluted share, and $53,796,000, or $1.28 per diluted share, respectively, as compared with $16,885,000, or $0.43 per diluted share, and $42,888,000, or $1.18 per diluted share, for the same periods in 2002. 15 STATEMENT REGARDING FORWARD LOOKING DISCLOSURE This report on Form 10-Q of the Company may contain "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern the possible expansion of our portfolio; the performance of our operators and properties; our ability to enter into agreements with new viable tenants for properties which we take back from financially troubled tenants, if any; our ability to make distributions; our policies and plans regarding investments, financings and other matters; our tax status as a real estate investment trust; our ability to appropriately balance the use of debt and equity; and our ability to access capital markets or other sources of funds. When we use words such as "believe," "expect," "anticipate," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including prevailing interest rates; compliance with and changes to regulations and payment policies within the health care industry; changes in financing terms; competition within the health care and senior housing industries; and changes in federal, state and local legislation. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2002, including factors identified under the headings "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Finally, we assume no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. The following section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates. We historically borrow on our unsecured and secured lines of credit arrangements to make acquisitions of, loans to or to construct health care facilities. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under the unsecured and secured lines of credit arrangements. A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. A 1% increase in interest rates would result in a decrease in fair value of our senior unsecured notes by approximately $14 million at September 30, 2003 ($15 million at September 30, 2002). Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt, or equity or repaid by the sale of assets. Our variable rate debt, including our unsecured and secured lines of credit arrangements, is reflected at fair value. At September 30, 2003, a 1% increase in interest rates related to this variable rate debt (assuming no changes in outstanding balances) would result in increased annual interest expense of $1,430,000 ($726,000 at September 30, 2002). We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited. We may or may not elect to use financial derivative instruments to hedge variable interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. ITEM 4. CONTROLS AND PROCEDURES An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 16 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS See the discussion of the issuance of our 6% Series E Cumulative Convertible and Redeemable Preferred Stock set forth in Part I, Item 1 Notes to Unaudited Consolidated Financial Statements, Note J - Significant Changes and Events and Part I, Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS See the discussion of the consent solicitation and amendments to our indentures set forth in Part I, Item 1 Notes to Unaudited Consolidated Financial Statements, Note J - Significant Changes and Events and Part I, Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 32.1 Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer. 32.2 Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer. (b) Reports on Form 8-K Date of Report Item Description -------------- ---- ----------- July 8, 2003 5 The Company announced that it had filed the Certificate of Designation for its 7 7/8% Series D Cumulative Redeemable Preferred Stock. July 8, 2003 5 The Company reported the following: (1) it issued a press release announcing investments for the quarter ended June 30, 2003; (2) Arnold & Porter issued a tax opinion to the Company in connection with the Company's sale of 4,000,000 shares of its 7 7/8% Series D Cumulative Redeemable Preferred Stock; and (3) the Company had signed a purchase agreement for the purchase and sale of 1,583,100 shares of common stock. July 15, 2003 12 The Company issued a press release announcing earnings results for the quarter ended June 30, 2003. August 26, 2003 5 The Company reported the following: (1) it had amended existing credit facilities; (2) it had entered into an underwriting agreement for the sale and purchase of 3,200,000 shares of $1 par value common stock; and (3) it issued a press release announcing it had changed net income guidance to reflect EITF Topic D-42. September 29, 2003 5 The Company announced that it had filed the Certificate of Designation for its 6% Series E Cumulative Convertible and Redeemable Preferred Stock. October 22, 2003 12 The Company issued a press release announcing earnings results for the quarter ended September 30, 2003. 17 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HEALTH CARE REIT, INC. Date: October 24, 2003 By: /s/ GEORGE L. CHAPMAN -------------------------- ------------------------------------ George L. Chapman, Chairman and Chief Executive Officer Date: October 24, 2003 By: /s/ RAYMOND W. BRAUN -------------------------- ------------------------------------ Raymond W. Braun, President and Chief Financial Officer Date: October 24, 2003 By: /s/ MICHAEL A. CRABTREE -------------------------- ------------------------------------ Michael A. Crabtree, Chief Accounting Officer 18 EX-31.1 3 l03462aexv31w1.txt EX-31.1 CERT EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, GEORGE L. CHAPMAN, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Health Care REIT, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 24, 2003 -------------------- /s/ GEORGE L. CHAPMAN -------------------------------- George L. Chapman, Chief Executive Officer 19 EX-31.2 4 l03462aexv31w2.txt EX-31.2 CERT EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, RAYMOND W. BRAUN, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Health Care REIT, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 24, 2003 -------------------- /s/ RAYMOND W. BRAUN ----------------------------- Raymond W. Braun, Chief Financial Officer 20 EX-32.1 5 l03462aexv32w1.txt EX-32.1 CERT EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 I, George L. Chapman, the Chief Executive Officer of Health Care REIT, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that (i) the Quarterly Report on Form 10-Q for the Company for the quarter ended September 30, 2003 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ GEORGE L. CHAPMAN ---------------------------- George L. Chapman, Chief Executive Officer Date: October 24, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 21 EX-32.2 6 l03462aexv32w2.txt EX-32.2 CERT EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 I, Raymond W. Braun, the Chief Financial Officer of Health Care REIT, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that (i) the Quarterly Report on Form 10-Q for the Company for the quarter ended September 30, 2003 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ RAYMOND W. BRAUN ---------------------------- Raymond W. Braun, Chief Financial Officer Date: October 24, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 22 -----END PRIVACY-ENHANCED MESSAGE-----