-----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, FMo+ttuZXjgvMzq0vX+DxOsZ0G4Xip25yNcGpunj0YoqLqNV0z9z5PZed9EJ58Vn +tiKK9OH/TUutXr/R24zsA== 0000950152-04-003816.txt : 20040510 0000950152-04-003816.hdr.sgml : 20040510 20040510164317 ACCESSION NUMBER: 0000950152-04-003816 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 04793660 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 l06882ae10vq.txt HEALTH CARE REIT, INC. 10-Q/QTR END 3-31-2004 ================================================================================ 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 MARCH 31, 2004 ---------------------------------------- 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 April 30, 2004, the registrant had 51,333,401 shares of common stock outstanding. ================================================================================ INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 2004 and December 31, 2003....................... 3 Consolidated Statements of Income - Three months ended March 31, 2004 and 2003............................................................................ 4 Consolidated Statements of Stockholders' Equity - Three months ended March 31, 2004 and 2003............................................................................ 5 Consolidated Statements of Cash Flows - Three months ended March 31, 2004 and 2003....... 6 Notes to Unaudited Consolidated Financial Statements..................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 15 Item 4. Controls and Procedures.................................................................. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................................................ 15 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities......... 16 Item 6. Exhibits and Reports on Form 8-K......................................................... 16 SIGNATURES ......................................................................................... 17
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS HEALTH CARE REIT, INC. AND SUBSIDIARIES
MARCH 31 DECEMBER 31 2004 2003 (UNAUDITED) (NOTE) ----------- ----------- ASSETS (IN THOUSANDS) Real estate investments: Real property owned Land $ 174,888 $ 166,408 Buildings & improvements 1,786,296 1,712,868 Construction in progress 17,924 14,701 ----------- ----------- 1,979,108 1,893,977 Less accumulated depreciation (169,574) (152,440) ----------- ----------- Total real property owned 1,809,534 1,741,537 Loans receivable Real property loans 218,434 213,480 Subdebt investments 45,173 45,254 ----------- ----------- 263,607 258,734 Less allowance for losses on loans receivable (8,125) (7,825) ----------- ----------- 255,482 250,909 ----------- ----------- Net real estate investments 2,065,016 1,992,446 Other assets: Equity investments 3,298 3,299 Deferred loan expenses 9,554 10,331 Cash and cash equivalents 47,063 124,496 Receivables and other assets 61,390 52,159 ----------- ----------- 121,305 190,285 ----------- ----------- Total assets $ 2,186,321 $ 2,182,731 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Borrowings under unsecured lines of credit arrangements $ 0 $ 0 Senior unsecured notes 865,000 865,000 Secured debt 147,616 148,184 Accrued expenses and other liabilities 13,342 19,868 ----------- ----------- Total liabilities 1,025,958 1,033,052 Stockholders' equity: Preferred stock 119,631 120,761 Common stock 51,051 50,298 Capital in excess of par value 1,091,896 1,069,887 Treasury stock (850) (523) Cumulative net income 681,371 660,446 Cumulative dividends (781,046) (749,166) Accumulated other comprehensive income 1 1 Other equity (1,691) (2,025) ----------- ----------- Total stockholders' equity 1,160,363 1,149,679 ----------- ----------- Total liabilities and stockholders' equity $ 2,186,321 $ 2,182,731 =========== ===========
NOTE: The consolidated balance sheet at December 31, 2003 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 MARCH 31 2004 2003 ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Rental income $54,535 $38,605 Interest income 5,713 4,940 Transaction fees and other income 713 592 ------- ------- 60,961 44,137 Expenses: Interest expense 18,552 11,383 Provision for depreciation 17,134 10,920 General and administrative 3,159 2,611 Loan expense 891 635 Provision for loan losses 300 250 ------- ------- 40,036 25,799 ------- ------- Income from continuing operations 20,925 18,338 Discontinued operations: Net gain (loss) on sales of properties 34 Income (loss) from discontinued operations, net 925 ------- ------- 0 959 Net income 20,925 19,297 Preferred stock dividends 2,270 2,846 ------- ------- Net income available to common stockholders $18,655 $16,451 ======= ======= Average number of common shares outstanding: Basic 50,580 39,971 Diluted 51,358 40,473 Earnings per share: Basic: Income from continuing operations available to common stockholders $ 0.37 $ 0.39 Discontinued operations, net 0.02 ------- ------- Net income available to common stockholders $ 0.37 $ 0.41 Diluted: Income from continuing operations available to common stockholders $ 0.36 $ 0.39 Discontinued operations, net 0.02 ------- ------- Net income available to common stockholders $ 0.36 $ 0.41 Dividends declared and paid per common share $ 0.585 $ 0.585
See notes to unaudited consolidated financial statements 4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2004 ----------------------------------------------------------------------- CAPITAL IN PREFERRED COMMON EXCESS OF TREASURY CUMULATIVE CUMULATIVE STOCK STOCK PAR VALUE STOCK NET INCOME DIVIDENDS ----------------------------------------------------------------------- (IN THOUSANDS) Balances at beginning of period $ 120,761 $ 50,298 $1,069,887 $ (523) $ 660,446 $ (749,166) Comprehensive income: Net income 20,925 Other comprehensive income: Unrealized gain (loss) on equity investments Total comprehensive income Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures 718 20,914 (327) Conversion of preferred stock (1,130) 35 1,095 Restricted stock amortization Compensation expense related to stock options Cash dividends paid: Common stock-$0.585 per share (29,610) Preferred stock, Series D-$0.492 per share (1,969) Preferred stock, Series E-$0.375 per share (301) ----------------------------------------------------------------------- Balances at end of period $ 119,631 $ 51,051 $1,091,896 $ (850) $ 681,371 $ (781,046) ======================================================================= THREE MONTHS ENDED MARCH 31, 2004 ----------------------------------- ACCUMULATED OTHER COMPREHENSIVE OTHER INCOME EQUITY TOTAL ----------------------------------- (IN THOUSANDS) Balances at beginning of period $ 1 $(2,025) $1,149,679 Comprehensive income: Net income 20,925 Other comprehensive income: Unrealized gain (loss) on equity investments 0 ---------- Total comprehensive income 20,925 ---------- Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures 21,305 Conversion of preferred stock 0 Restricted stock amortization 239 239 Compensation expense related to stock options 95 95 Cash dividends paid: Common stock-$0.585 per share (29,610) Preferred stock, Series D-$0.492 per share (1,969) Preferred stock, Series E-$0.375 per share (301) ----------------------------------- Balances at end of period $ 1 $ (1,691) $ 1,160,363 ====================================
THREE MONTHS ENDED MARCH 31, 2003 ----------------------------------------------------------------------- CAPITAL IN PREFERRED COMMON EXCESS OF TREASURY CUMULATIVE CUMULATIVE STOCK STOCK PAR VALUE STOCK NET INCOME DIVIDENDS ----------------------------------------------------------------------- (IN THOUSANDS) Balances at beginning of period $ 127,500 $ 40,086 $ 790,838 $ 0 $ 580,496 $ (638,085) Comprehensive income: Net income 19,297 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 121 2,703 Restricted stock amortization Compensation expense related to stock options Cash dividends paid: Common stock-$0.585 per share (23,515) Preferred stock, Series B-$0.555 per share (1,664) Preferred stock, Series C-$0.563 per share (1,182) ----------------------------------------------------------------------- Balances at end of period $ 127,500 $ 40,207 $ 793,541 $ 0 $ 599,793 $ (664,446) ======================================================================= THREE MONTHS ENDED MARCH 31, 2003 --------------------------------------- ACCUMULATED OTHER COMPREHENSIVE OTHER INCOME EQUITY TOTAL --------------------------------------- (IN THOUSANDS) Balances at beginning of period $ (170) $ (3,433) $ 897,232 Comprehensive income: Net income 19,297 Other comprehensive income: Unrealized gain (loss) on equity investments (11) (11) Foreign currency translation adjustment (163) (163) ------ Total comprehensive income 19,123 ------ Proceeds from issuance of common shares from dividend reinvestment and stock incentive plans, net of forfeitures 2,824 Restricted stock amortization 493 493 Compensation expense related to stock options 62 62 Cash dividends paid: Common stock-$0.585 per share (23,515) Preferred stock, Series B-$0.555 per share (1,664) Preferred stock, Series C-$0.563 per share (1,182) --------------------------------------- Balances at end of period $ (344) $(2,878) $ 893,373 =======================================
See notes to unaudited consolidated financial statements 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) HEALTH CARE REIT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31 --------------------------- 2004 2003 --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 20,925 $ 19,297 Adjustments to reconcile net income to net cash provided from operating activities: Provision for depreciation 17,134 11,657 Amortization 1,118 1,188 Provision for loan losses 300 250 Rental income in excess of cash received (6,664) (4,204) Equity in (earnings) losses of affiliated companies (81) (Gain) loss on sales of properties (34) Increase (decrease) in accrued expenses and other liabilities (6,525) (12,909) Decrease (increase) in receivables and other assets (3,338) 4,139 --------- --------- Net cash provided from (used in) operating activities 22,950 19,303 INVESTING ACTIVITIES Investment in real property (85,390) (38,796) Investment in loans receivable and subdebt investments (8,571) (18,098) Other investments, net of payments 300 Principal collected on loans receivable and subdebt investments 3,698 17,445 Proceeds from sales of properties 144 Other 703 (70) --------- --------- Net cash provided from (used in) investing activities (89,560) (39,075) FINANCING ACTIVITIES Net increase (decrease) under unsecured lines of credit arrangements (35,400) Proceeds from issuance of senior notes 100,000 Principal payments on secured debt (568) (101) Net proceeds from the issuance of common stock 21,632 2,824 Decrease (increase) in deferred loan expense (7) 3,138 Cash distributions to stockholders (31,880) (26,361) --------- --------- Net cash provided from (used in) financing activities (10,823) 44,100 --------- --------- Increase (decrease) in cash and cash equivalents (77,433) 24,328 Cash and cash equivalents at beginning of period 124,496 9,550 --------- --------- Cash and cash equivalents at end of period $ 47,063 $ 33,878 ========= ========= Supplemental cash flow information-interest paid $ 25,187 $ 20,289 ========= =========
See notes to unaudited consolidated financial statements 6 HEALTH CARE REIT, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 three months ended March 31, 2004 are not necessarily an indication of the results that may be expected for the year ending December 31, 2004. 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, 2003. NOTE B - REAL ESTATE INVESTMENTS During the three months ended March 31, 2004, we invested $81,908,000 in real property, provided permanent mortgage and loan financings of $8,281,000, made construction advances of $3,482,000 and funded $290,000 of subdebt investments. As of March 31, 2004, we had approximately $12,290,000 in unfunded construction commitments. Also during the three months ended March 31, 2004, we collected $3,327,000 and $371,000 as repayment of principal on loans receivable and subdebt investments, respectively. NOTE C - EQUITY INVESTMENTS 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, 2004, we paid a dividend of $0.585 per share to stockholders of record on January 30, 2004. This dividend related to the period from October 1, 2003 through December 31, 2003. 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. 7 HEALTH CARE REIT, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) There were no dispositions during the three months ended March 31, 2004. 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 MARCH 31 -------------------- 2004 2003 ------ ------ Revenues Rental income $ 0 $2,155 Expenses Interest expense 493 Provision for depreciation 737 ------ ------ Income (loss) from discontinued operations, net $ 0 $ 925 ====== ======
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 March 31, 2004, we were contingently liable for $3,195,000 under this guaranty. As of March 31, 2004, we had approximately $12,290,000 of unfunded construction commitments. On November 20, 2002, Doctors Community Health Care Corporation ("DCHCC") and five subsidiaries (collectively, "Doctors") filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Columbia. Doctors stated that its bankruptcy filing was due to the bankruptcy of National Century Financial Enterprises and affiliates, which halted payments to health care providers, including Doctors. We had provided mortgage financing to Doctors in the form of a loan secured by the Pacifica Hospital of the Valley in Sun Valley, CA ("Pacifica Hospital"), and the other assets of the Pacifica of the Valley Corporation ("Pacifica"), one of the debtor subsidiaries. The outstanding principal balance of the loan was approximately $18,797,000 on March 31, 2004. Pursuant to procedures approved by the bankruptcy court, the assets of Doctors were the subject of an auction held on December 10 through December 16, 2003. At the conclusion of that auction, the debtors' independent director declared certain members of Doctors' management the winning bidder. Their bid contemplated a reorganization of Doctors with new equity and debt capitalization. In connection with management's winning bid, we agreed to advance additional loans and refinance the Pacifica loan. The results of this auction were approved by the bankruptcy court on April 2, 2004 in connection with the confirmation of the debtors' plan of reorganization, which also occurred on April 2, 2004. The closing on the reorganization and the new financings took place effective April 5, 2004. The new Pacifica loan, in the principal amount of $18,800,000, is secured by the Pacifica Hospital and other assets of Pacifica (other than the receivables of the Pacifica Hospital), and by a subordinate lien on the receivables of the Pacifica Hospital and certain assets of PACIN Healthcare-Hadley Memorial Hospital Corporation ("Hadley"). The loan is guaranteed by DCHCC, Paul Tuft, Erich Mounce and Hadley (although the Hadley guaranty is nonrecourse except as to the pledged assets of Hadley). This loan bears an initial interest rate of 7%, which will increase at a defined future point to 9.5%. The loan will have a term of up to seven years, and for a defined initial period will be serviced on an interest-only basis. No interest was paid for the period January 1, 2003 to April 5, 2004. An additional loan in the amount of $3,400,000 was made by us to Hadley. This loan is secured by a lien on the assets of the hospital operated by Hadley (other than the receivables) and a subordinate lien on the receivables of the Hadley hospital. The loan is guaranteed by DCHCC, Pacifica, Paul Tuft and Erich Mounce. This loan bears an interest rate of 7.5%, has a term of five years, with a ten-year amortization schedule and the remaining principal due at the end of five years. 8 HEALTH CARE REIT, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 MARCH 31 ---------------------- 2004 2003 ------- ------- Numerator for basic and diluted earnings per share - net income available to common stockholders $18,655 $16,451 ======= ======= Denominator for basic earnings per share - weighted average shares 50,580 39,971 Effect of dilutive securities: Employee stock options 547 259 Non-vested restricted shares 231 243 ------- ------- Dilutive potential common shares 778 502 ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares 51,358 40,473 ======= ======= Basic earnings per share $ 0.37 $ 0.41 ======= ======= Diluted earnings per share $ 0.36 $ 0.41 ======= =======
The diluted earnings per share calculation excludes the dilutive effect of 0 options for the three month period ended March 31, 2004, and 50,000 options for the same period in 2003, because the exercise price was greater than the average market price. The Series E Cumulative Convertible and Redeemable Preferred Stock was not included in this calculation as the effect of the conversion was anti-dilutive. NOTE H - OTHER EQUITY Other equity consists of the following (in thousands):
MARCH 31 ----------------------- 2004 2003 ------- ------- Accumulated compensation expense related to stock options $ 268 $ 62 Unamortized restricted stock (1,959) (2,940) ------- ------- $(1,691) $(2,878) ======= =======
Unamortized restricted stock represents the unamortized value of restricted stock granted to employees and directors prior to December 31, 2002. Expense, which is recognized as the shares vest based on the market value at the date of the award, totaled $239,000 and $493,000 for the three months ended March 31, 2004 and March 31, 2003, respectively. 9 HEALTH CARE REIT, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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, as amended, on a prospective basis. Accumulated option compensation expense represents the amount of amortized compensation costs related to stock options awarded to employees and directors subsequent to January 1, 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, as amended, 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 MARCH 31 ---------------------- 2004 2003 ------- ------- Numerator: Net income available to common stockholders - as reported $18,655 $16,451 Deduct: Stock based employee compensation expense determined under fair value based method for all awards 76 109 Net income available to common ------- ------- stockholders - pro forma $18,579 $16,342 ======= ======= Denominator: Basic weighted average shares - as reported and pro forma 50,580 39,971 Effect of dilutive securities: Employee stock options - pro forma 530 213 Non-vested restricted shares 231 243 ------- ------- Dilutive potential common shares 761 456 Diluted weighted average shares - ------- ------- pro forma 51,341 40,427 ======= ======= Net income available to common stockholders per share - as reported Basic $ 0.37 $ 0.41 Diluted 0.36 0.41 Net income available to common stockholders per share - pro forma Basic $ 0.37 $ 0.41 Diluted 0.36 0.40
10 HEALTH CARE REIT, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 months ended March 31, 2004 totaled $0 and ($174,000) for the same period in 2003. NOTE J - NEW ACCOUNTING POLICIES 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. Previously, entities were generally consolidated by an enterprise that had a controlling financial interest through ownership of a majority voting interest in the entity. The Interpretation is effective in the current quarter for all variable interests. We have performed a quantitative analysis for certain variable interests in our operators and determined that none of the operators' businesses are variable interest entities as the fair value of the equity of these businesses exceeds the expected losses as calculated. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE OVERVIEW Health Care REIT, Inc. is a self-administered, equity REIT that invests in health care facilities, primarily skilled nursing and assisted living facilities. We also invest in specialty care facilities. As of March 31, 2004, long-term care facilities, which include skilled nursing and assisted living facilities, comprised approximately 92% of our investment portfolio. Founded in 1970, we were the first REIT to invest exclusively in health care facilities. As of March 31, 2004, we had $2,076,336,000 of net real estate investments, inclusive of credit enhancements, in 340 facilities located in 33 states and managed by 48 different operators. At that date, the portfolio included 221 assisted living facilities, 111 skilled nursing facilities and eight specialty care facilities. Our primary objectives are to protect stockholders' capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments from annual increases in rental and interest income and portfolio growth. To meet these objectives, we invest primarily in long-term care facilities managed by experienced operators and diversify our investment portfolio by operator and geographic location. Depending upon the availability and cost of external capital, we anticipate making additional investments in health care related facilities. New investments are generally 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. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2004, we had stockholders' equity of $1,160,363,000 and a total outstanding debt balance of $1,012,616,000, which represents a debt to total book capitalization ratio of 0.47 to 1.0. As of April 30, 2004, we had an effective shelf registration on file with the Securities and Exchange Commission under which we may issue up to $581,794,619 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. As of April 30, 2004, we had an effective registration statement on file with the Securities and Exchange Commission under which we may issue up to 6,314,213 shares of common stock pursuant to our dividend reinvestment and stock purchase plan. As of April 30, 2004, 5,614,884 shares of common stock remained available for issuance under this registration statement. RESULTS OF OPERATIONS Revenues were comprised of the following (dollars in thousands):
THREE MONTHS ENDED CHANGE ------------------------------ --------------------- Mar. 31, 2004 Mar. 31, 2003 $ % ------------------------------ --------- ----------- Rental income $54,535 $38,605 $15,930 41% Interest income 5,713 4,940 773 16% Transaction fees and other income 713 592 121 20% ------- ------- ------- --- Totals $60,961 $44,137 $16,824 38% ======= ======= ======= ===
For the three months ended March 31, 2004, we generated increased rental income as a result of the acquisition of properties for which we receive rent. Interest income increased due to an increase in the balance of outstanding loans. 12 Transaction fees and other income increase primarily due to interest earnings generated from short-term investments of excess cash. Expenses were comprised of the following (dollars in thousands):
THREE MONTHS ENDED CHANGE ---------------------------- ------------------- Mar. 31, 2004 Mar. 31, 2003 $ % ------------- ------------- ------- --- Interest expense $18,552 $11,383 $ 7,169 63% Provision for depreciation 17,134 10,920 6,214 57% General and administrative 3,159 2,611 548 21% Loan expense 891 635 256 40% Provision for loan losses 300 250 50 20% ------- ------- ------- -- Totals $40,036 $25,799 $14,237 55% ======= ======= ======= ==
The increase in interest expense from 2003 to 2004 was primarily due to higher average borrowings and a decrease in the amount of capitalized interest offsetting interest expense in 2004. This was partially offset by lower average interest rates. 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 months ended March 31, 2004 totaled $137,000, as compared with $258,000 for the same period in 2003. 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 months ended March 31, 2004 were 5.18%, as compared with 5.64% for the same period in 2003. The increase in loan expense was primarily due to the additional amortization of costs related to amending our primary unsecured line of credit arrangement and costs related to obtaining consents to modify the covenant packages of our senior unsecured notes. Other items were comprised of the following (dollars in thousands):
THREE MONTHS ENDED CHANGE --------------------------------- ---------------------- Mar. 31, 2004 Mar. 31, 2003 $ % --------------------------------- ------------ -------- Gain (loss) on sales of properties $ 0 $ 34 $ (34) n/a Discontinued operations, net 925 (925) n/a Preferred dividends (2,270) (2,846) 576 (20)% ------- ------- ------- --- Totals $(2,270) $(1,887) $ (383) 20% ======= ======= ======= ===
There were no dispositions during the three months ended March 31, 2004. All properties sold from January 1, 2003 through March 31, 2004 generated $925,000 of income after deducting depreciation and interest expense from rental income for the three months ended March 31, 2003. The decrease in preferred dividends is primarily due to the reduction in average outstanding preferred shares. Subsequent to March 31, 2003, the holder of our Series C Cumulative Convertible Preferred Stock converted 2,100,000 13 shares into 2,049,000 shares of common stock, leaving no shares outstanding at March 31, 2004 as compared to 2,100,000 at March 31, 2003. In July 2003, we closed a public offering of 4,000,000 shares of 7.875% Series D Cumulative Redeemable Preferred Stock. 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. In September 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock. Subsequently, certain holders of our Series E Cumulative Convertible and Redeemable Preferred Stock converted 274,765 shares into 210,319 shares of common stock, leaving 785,235 outstanding at March 31, 2004. Effective April 1, 2004, another 110,865 Series E shares were converted into 84,862 common shares. As a result of the various factors mentioned above, net income available to common stockholders for the three months ended March 31, 2004 was $18,655,000, or $0.36 per diluted share, as compared with $16,451,000, or $0.41 per diluted share, for the same period in 2003. 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, 2003, 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. 14 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 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 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 $30,443,000 at March 31, 2004 ($15,465,000 at March 31, 2003). 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 lines of credit arrangements, is reflected at fair value. At March 31, 2004, we did not have any borrowings outstanding under our unsecured lines of credit arrangements. As such, a 1% increase in interest rates would have no effect on our annual interest expense. At March 31, 2003, we had $78,100,000 outstanding related to our variable rate debt and assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $781,000. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited. 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 Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports we file with or submit to the Securities Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission's rules and forms. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See the disclosure in Note F to the Unaudited Consolidated Financial Statements regarding the developments in the bankruptcy proceeding of Doctors Community Health Care Corporation. 15 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES In September 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock. Subsequently, certain holders of our Series E Cumulative Convertible and Redeemable Preferred Stock converted 274,765 shares into 210,319 shares of common stock, leaving 785,235 outstanding at March 31, 2004. Effective April 1, 2004, another 110,865 Series E shares were converted into 84,862 common shares. These shares are not included in the following table.
ISSUER PURCHASES OF EQUITY SECURITIES Total Number Maximum Number of Shares Purchased of Shares that May Total Number as Part of Publicly Yet Be Purchased of Shares Average Price Announced Under the Plans or Period Purchased(1) Paid Per Share Plans or Programs(2) Programs ---------------------- ---------------- ------------------ ----------------------- --------------------- January 1, 2004 through January 31, 2004 8,923 $36.68 ---------------------- ---------------- ------------------ ----------------------- --------------------- February 1, 2004 through February 29, 2004 ---------------------- ---------------- ------------------ ----------------------- --------------------- March 1, 2004 through March 31, 2004 ---------------------- ---------------- ------------------ ----------------------- --------------------- Totals 8,923 $36.68 ---------------------- ---------------- ------------------ ----------------------- ---------------------
(1) All of the shares listed in the table are shares of common stock that were transferred to the Company by certain key employees to satisfy tax withholding obligations in connection with the lapse of certain restrictions under their restricted stock agreements with the Company. (2) No shares were purchased as part of publicly announced plans or programs. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective January 20, 1997. 10.2 First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective April 21, 1998. 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 -------------- ---- ----------- February 2, 2004 12 The Company issued a press release announcing earnings results for the quarter and year ended December 31, 2003. May 6, 2004 12 The Company issued a press release announcing earnings results for the quarter ended March 31, 2004.
16 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: May 10, 2004 By: /s/ GEORGE L. CHAPMAN ---------------------- --------------------------------- George L. Chapman, Chairman and Chief Executive Officer Date: May 10, 2004 By: /s/ RAYMOND W. BRAUN ---------------------- --------------------------------- Raymond W. Braun, President and Chief Financial Officer Date: May 10, 2004 By: /s/ MICHAEL A. CRABTREE ---------------------- --------------------------------- Michael A. Crabtree, Chief Accounting Officer 17 EX-10.1 2 l06882aexv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS ------------------------------------- 1. PURPOSE OF THE PLAN. Health Care REIT, Inc., a Delaware corporation, hereby adopts this Stock Plan for Non-Employee Directors providing for the granting of stock options and restricted stock to directors of the Company who are not employees of the Company. The general purpose of the Plan is to more closely align the interests of the Directors of the Company with the interests of the Company's stockholders by providing members of the Board of Directors of the Company who are not employees of the Company an opportunity to participate in the future growth and profitability of the Company through annual awards of non-qualified stock options and shares of restricted stock. The Stock Plan for Non-Employee Directors has been approved by the Board of Directors effective as of January 20, 1997, subject to approval by the Company's stockholders at the annual meeting of the stockholders. 2. CERTAIN DEFINITIONS. In addition to the words and terms elsewhere defined in this Plan, certain capitalized words and terms used in this Plan shall have the meanings given to them by the definitions and descriptions in this Section 2. Unless the context or use indicates another or different meaning or intent, then such definition shall be equally applicable to both the singular and plural forms of any of the capitalized words and terms herein defined. The following words and terms are defined terms under this Plan: 2.1 Award means the grant of an Option or Restricted Stock under this Plan. 2.2 Board of Directors means the Board of Directors of the Company. 2.3 Code means the Internal Revenue Code of 1986, as the same shall be amended from time to time. 2.4 Common Stock means the Common Stock, par value $1.00 per share, of the Company. 2.6 Company means Health Care REIT, Inc., a Delaware corporation. 2.7 Effective Date means January 20, 1997, the date the Plan was approved by the Board of Directors. 2.8 Fair Market Value means the fair market value of a share of Common Stock as determined by the Board of Directors by reference to the closing price for shares of Common Stock for the immediately preceding trading day, as reported on the New York Stock Exchange Composite Transactions, as published in The Wall Street Journal. 2.9 Holder means a Non-Employee Director who has received an Award of Options or Restricted Stock under this Plan. 2.10 Non-Employee Director means a member of the Board of Directors who is not an employee of the Company. 2.11 Nonstatutory Stock Option means a stock option that does not qualify as an incentive stock option within the meaning of Section 422 of the Code. 2.12 Option means a right granted to a Non-Employee Director pursuant to the Plan to purchase a specified number of shares of Common Stock at a specified Option Price during a specified period and on such other terms and conditions as may be specified pursuant to the Plan. All Options granted under this Plan shall be Nonstatutory Stock Options. 2.13 Option Price means, with respect to any Option, the price per share the Holder will be required to pay to the Company to exercise the Option and acquire the shares of Common Stock subject to the Option. 2.14 Plan means this Stock Plan for Non-Employee Directors. 2.15 Restricted Stock means shares of Common Stock issued to an eligible Non-Employee Director, subject to such transfer restrictions and other conditions as may be specified in accordance with Section 7 of the Plan. 2.16 Stock Option Agreement means the agreement specified in Section 11 hereof. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 hereof, the number of shares of Common Stock which may be issued upon exercise of Options or as Awards of Restricted Stock under the Plan shall be 100,000 shares of the Common Stock. On January 1 of each year subsequent to the Effective Date, the aggregate number of shares of Common Stock available for issuance under this Plan shall be increased by an additional 42,000 shares. Such shares may be, in whole or in part, authorized and unissued shares of Common Stock or treasury shares which have been reacquired by the Company. If any Option shall expire or terminate for any reason without having been exercised in full, the unexercised shares subject thereto shall again be available for purposes of the Plan. If any Shares of Restricted Stock are forfeited, the forfeited shares again be available for purposes of the Plan. 4. ADMINISTRATION. 4.1 Powers. The Plan shall be administered by the Board of Directors, which shall have all of the powers vested in it by the terms of the Plan, such powers to include authority (within the limitations described herein) to prescribe the form of the agreement embodying Awards made under the Plan. Subject to the express provisions of the Plan, the Board of Directors shall have plenary authority to interpret the Plan, to adopt, amend and rescind the rules and regulations relating to the Plan and to make all other determinations and to take all other actions deemed necessary or advisable for the administration of the Plan. Any decision of the Board of Directors in the administration of the Plan, as described herein, shall be final and conclusive. 4.2 Delegation to Committee Permitted. Notwithstanding anything to the contrary contained herein, the Board of Directors may at any time, or from time to time, appoint a Committee of at least two members, who shall be members of the Compensation Committee of the Board of Directors (or such other persons as the Board of Directors may designate), and delegate to the Committee the authority of the Board of Directors to administer the Plan. Upon such appointment and delegation, the Committee shall have all the powers, privileges and duties of the Board of Directors, and shall be substituted for the Board of Directors in the administration of the Plan, except the power to appoint members of the Committee and to terminate, modify or amend the Plan. The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed, may fill vacancies in the Committee and may discharge the Committee. The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as its shall deem advisable. A majority of its members shall constitute a quorum and all determinations shall be made by a majority of such quorum. Any determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. 5. ELIGIBILITY. Options and Restricted Stock Awards under this Plan shall be granted only to Non-Employee Directors. 6. OPTIONS. 6.1 Grant of Options. (a) As of the Effective Date, each Non-Employee Director serving on the Board of Directors automatically shall be granted an Option to purchase 10,000 shares of Common Stock, effective as of January 20, 1997, subject to approval of the Plan by the stockholders of the Company as required under Section 14 hereof. (b) Each new Non-Employee Director who is first appointed or elected to the Board of Directors after the Effective Date automatically shall be granted an Option to purchase 10,000 shares of Common Stock on the day he or she is first appointed or elected to the Board of Directors. (c) Each Non-Employee Director who has been granted Options under paragraph (a) or (b) automatically shall be granted an additional Option to purchase 5,000 shares of Common Stock at the time of each regular January meeting of the Board of Directors. 6.2 Option Prices. The purchase price of the Common Stock under each Option shall be equal to the Fair Market Value of the Common Stock on the grant date (subject to adjustment as provided in Section 12 hereof). 6.3 Term of Options; Limitations on Exercise. The term of each Option shall be for ten years from the date of grant, and, except as set forth in Section 8 hereof or as modified by the Board pursuant to Section 6.6, shall expire six months after the cessation of the Holder's status as a Non-Employee Director or upon the earlier expiration at the end of its ten year term. Each Option granted pursuant to Section 6.1(a) shall become exercisable on the six month anniversary of the date of grant of such Option. Unless the Board of Directors approves another vesting schedule, one-third of the shares of Common Stock subject to each Option granted pursuant to Section 6.1(b) or Section 6.1(c) shall become exercisable on a cumulative basis on each of the first three anniversaries of the date of the grant of such Option. 6.4 Exercise of Options. Any part of an Option granted and presently exercisable under the Plan shall be exercisable in whole, or in part, at any time during the term of the Option. Payment shall be made in cash, in whole shares of Common Stock already owned by the Holder of the Option, partly in cash and partly in such Common Stock, or in any other manner acceptable to the Company. Such notice shall state that the Holder of the Option elects to exercise the Option, the number of shares in respect of which it is being exercised and the manner of payment for such shares, and shall either (i) be accompanied by payment of the full Option Price of such shares, or (ii) provide for such arrangements for the payment of the full Option Price of such shares as may be satisfactory to the Company. The Non-Employee Director shall be deemed to have paid the full Option Price due upon exercise of his Options, if his irrevocable notice of exercise to the Corporation is accompanied by an irrevocable instruction to the Corporation to deliver the shares of Common Stock issuable upon exercise of the Options promptly to a broker-dealer designated by Non-Employee Director (which may include the Corporation's transfer agent) for the Non-Employee Director's account, together with an irrevocable instruction to such broker-dealer to sell at least that portion of the shares necessary to pay the option price (and any related expenses specified by the parties), and such portion of the sale proceeds is delivered directly to the Corporation no later than the settlement date. This cashless exercise alternative shall not be available if, at the time of such exercise, the Corporation determines that this procedure would subject the Non-Employee Director to liability under Section 16(b) of the Securities Exchange Act of 1934. 6.5 Nontransferability of Options. No Options shall be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Holder thereof only by such Holder. Notwithstanding the foregoing, the Board of Directors may, in its discretion, permit a Holder to transfer all or a portion of his or her Options to members of his or her immediate family, to trusts for the benefit of members of his or her immediate family, or to family limited partnerships in which immediate family members are the only partners, provided that the Holder may receive no consideration for such transfers, and that such Options shall still be subject to termination in accordance with Section 6.3 and Section 9 in the hands of the transferee. 6.6 Modifications. The Board of Directors shall have the authority to modify, in any manner it deems desirable or appropriate, the terms of the Option Awards to be made to one or more classifications of Non-Employee Directors under Section 6, including the size or vesting schedules of such Option Awards; provided that, any modification shall be applied uniformly to all Non-Employee Directors in equivalent circumstances, and further provided, that the modification shall not increase the number of shares available under the Plan beyond the aggregate limit set forth in Section 3. 7. RESTRICTED STOCK. 7.1 Annual Grants of Restricted Stock. On January 20, 1997, and at the January meeting of the Board of Directors each subsequent year, each Non-Employee Director shall be granted an Award consisting of 250 shares of Restricted Stock; provided that, such an Award shall not be effective unless the Plan has been approved by the stockholders of the Company, as specified in Section 14 below, and the Non-Employee has agreed and acknowledged in writing in such form as may be requested by the Company that he or she holds such Restricted Stock subject to the transfer restrictions and other conditions set forth in this Section 7 of the Plan. 7.2 Issuance of Restricted Stock. When a Non-Employee Director is granted shares of Restricted Stock, the Company shall issue the shares immediately, and shall register the stock certificates or certificates representing such shares in the name of the Non-Employee Director. Each such stock certificate shall bear an appropriate legend referring to the transfer restrictions and other conditions applicable to such shares of Restricted Stock under the terms of the Plan. The Company shall deliver the stock certificates for each Restricted Stock Award to a custodian or an escrow agent designated by the Board, to be held in escrow until the latest of the following dates: (a) the date the Plan has been approved by the stockholders of the Company, as specified in Section 14 below; (b) six months after the date the Restricted Stock was granted to the Non-Employee Director; or (c) if later, the date on which the transfer restrictions imposed on the Restricted Stock Award by Section 7.3 have expired or been waived. The Board may designate an executive officer of the Company to act as the custodian or escrow agent for such stock certificates. Non-Employee Directors will not be required to make any payment or provide consideration to the Company for the issuance of Restricted Stock Awards, other than providing services to the Company as members of the Board of Directors. 7.3 Rights As A Stockholder. Upon approval of the Plan by the stockholders, a Non-Employee Director granted a Restricted Stock Award shall have all of the rights of a stockholder of the Company with respect to the shares of Restricted Stock included in the Award, including the right to vote the shares and receive all dividends and other distributions declared with respect to such shares, excluding, however, the shares of Restricted Stock held by the Non-Employee Director shall be subject to the following terms and conditions: (a) During a period set by the Board of Directors of not less than six (6) months, commencing with the date on which the Restricted Stock Award was granted (the "Restriction Period"), the Non-Employee Director will not be permitted to sell, transfer, pledge or assign the shares of Restricted Stock awarded to him or her. (b) If, at any time during the Restriction Period set by the Board for the Restricted Stock Award, the Non-Employee Director's service on the Board of Directors terminates for any reason other than death, disability or retirement at or after age 65, the shares of Restricted Stock included in that Award shall be forfeited, unless the Board of Directors determines that a waiver of such forfeiture would be appropriate, desirable and in the best interests of the Company. A Non-Employee Director shall not forfeit any shares of Restricted Stock if his or her service as a director terminates as a result of death, disability or retirement at or after age 65. (c) Notwithstanding the other provisions of this Section 7.3, the Board of Directors may adopt rules which would permit a gift by a Non-Employee Director of shares of Restricted Stock to a spouse, child, stepchild, grandchild or a family limited partnership or a transfer to a trust the beneficiary or beneficiaries of which shall be either such a relative or persons or the Non-Employee Director, provided that the Restricted Stock so transferred shall remain subject to the restrictions in paragraphs (a) and (b). 7.4 Modifications. The Board of Directors shall have the authority to modify, in any manner it deems desirable or appropriate, the terms of the Restricted Stock Awards to be made to one or more classifications of Non-Employee Directors under this Section 7, including the size or Restriction Periods of such Restricted Stock Awards; provided that, any modification shall be applied uniformly to all Non-Employee Directors in equivalent circumstances, and further provided that the modification shall not increase the number of shares available under the Plan beyond the aggregate limit set forth in Section 3. 8. ACCELERATION ON CHANGE IN CORPORATE CONTROL. Notwithstanding any waiting period to the contrary set forth herein, each outstanding Option granted under the Plan shall become exercisable in full for the aggregate number of shares covered thereby, and all transfer restrictions and forfeiture conditions imposed on Awards of Restricted Stock shall be waived, in the event of a Change in Corporate Control. The acceleration of the exercise of Options or the waiver of restrictions on Restricted Stock as provided in this Section 8 may be limited as the Board of Directors deems appropriate to ensure that the penalty provisions of Section 4999 of the Code will not apply to any stock received by the Holder from the Company. For purposes of this Plan, a "Change in Corporate Control" shall include any of the following events: (1) The acquisition in one or more transactions of more than twenty percent (20%) of the Company's outstanding Common Stock (or the equivalent in voting power of any class or classes of securities of the Company entitled to vote in elections of directors) by any corporation, or other person or group (within the meaning of Section 14(d)(3) of the Securities Exchange Act of 1934, as amended); (2) Any transfer or sale of substantially all of the assets of the Company, or any merger or consolidation of the Company into or with another corporation in which the Company is not the surviving entity; (3) Any election of persons to the Board of Directors which causes a majority of the Board of Directors to consist of persons other than "Continuing Directors". For this purpose, those persons who were members of the Board of Directors on January 20, 1997, shall be "Continuing Directors". Any person who is nominated for election as a member of the Board after January 20, 1997, shall also be considered a "Continuing Director" for this purpose if, and only if, his or her nomination for election to the Board of Directors is approved or recommended by a majority of the members of the Board (or of the relevant Nominating Committee) and at least five (5) members of the Board are themselves Continuing Directors at the time of such nomination; or (4) Any person, or group of persons, announces a tender offer for at least twenty percent (20%) of the Company's Common Stock. 9. CESSATION OF SERVICE AS A NON-EMPLOYEE DIRECTOR. 9.1 Death of Holder. If any Non-Employee Director shall die prior to the end of his or her service as a member of the Board of Directors, then: (a) Each outstanding but unexercised Option granted to him or her under the Plan shall become exercisable in full for the aggregate number of shares covered thereby and each Option may be exercised by the legatee(s) or personal representative(s) of such Holder at any time within twelve months after such Holder's death; provided, however, that no Option may be exercised after the expiration date of such Option. (b) Any transfer restrictions and conditions of forfeiture applicable to his or her shares of Restricted Stock shall be waived by the Company. 9.2 Total Disability; Retirement. If a Non-Employee Director ceases to serve as a member of the Board of Directors prior to the end of his or her term as a result of Retirement at or after age 65 or Total Disability, then: (a) Each outstanding but unexercised Option granted under the Plan shall become exercisable in full for the aggregate number of shares covered thereby from and after the date of such cessation of service and such Option may be exercised by such Holder (or his or her guardian(s) or personal representative(s)) at any time within twelve months after such cessation of service; provided, however, that no Option may be exercised after the expiration date of such Option; and (b) Any transfer restrictions and conditions of forfeiture applicable to his or her shares of Restricted Stock shall be waived by the Company. 9.3 Failure to be Nominated for Reelection; Failure to be Reelected. If a Non-Employee Director shall cease to serve as a member of the Board of Directors as a result of such Holder's resignation from the Board (other than as a result of Retirement or Total Disability) or such Holder's decision not to stand for reelection at the expiration of his or her term of office, or such Holder is not nominated by the Board to stand for election at the Annual Stockholders' Meeting at which his or her term of office expires, or, if nominated, such person is not reelected, then all Options held by such Holder may be exercised at any time within six months after the date of such cessation of service; provided, however, (i) only Options exercisable by the Holder at the time of the cessation of service as a Non-Employee Director may be exercised after such cessation, and (ii) no Option may be exercised after the expiration date of such Option. Further, any shares of Restricted Stock held by that Non-Employee Director subject to forfeiture under Section 7.3 shall be forfeited. 9.4 Removal by the Stockholders for Cause. If a Holder is removed from the Board by the stockholders of the Company for cause (for these purposes, cause shall include, but not be limited to, dishonesty, incompetence, moral turpitude, other misconduct of any kind and the refusal to perform his or her duties and responsibilities for any reason other than illness or incapacity), then (a) all unexercised Options held by such Holder shall immediately be cancelled and terminate, and (b) any shares of Restricted Stock subject to forfeiture under Section 7.3 shall be forfeited. 10. NONALIENATION OF BENEFITS. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. 11. WRITTEN AGREEMENTS. Each grant of an Option hereunder shall be evidenced by a Stock Option Agreement, and each Restricted Stock Award shall be evidenced by a Restricted Stock Agreement, each in such form and containing such terms and provisions not inconsistent with the provisions of the Plan as the Board of Directors from time to time shall approve. 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change or changes in the outstanding Common Stock of the Company by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, stock split, combination or any similar transaction, the Board of Directors shall adjust the number of shares of Common Stock which may be issued under this Plan, the number of shares of Common Stock subject to Options theretofore granted under this Plan, the Option Price of such Options, the number of shares of Restricted Stock and make any and all other adjustments deemed appropriate by the Board of Directors in such manner as the Board of Directors deems appropriate to prevent substantial dilution or enlargement of the rights granted to a participating Non-Employee Director. 13. TERMINATION AND AMENDMENT. Unless the Plan shall theretofore have been terminated as hereinafter provided, the Plan shall expire on January 20, 2007. The Board of Directors may terminate the Plan at any time, and the Board of Directors at any time also may modify or amend the Plan in such respects as it shall deem advisable. No termination, modification or amendment of the Plan or any outstanding Stock Option Agreement may, without the consent of the Holder to whom any Award shall theretofore have been granted, adversely affect the rights of such Holder with respect to such Award. The Plan automatically shall terminate in the event that it is not approved by the stockholders of the Company as required under Section 14 hereof. 14. EFFECTIVENESS OF THE PLAN. The Plan shall become effective as of January 20, 1997, provided that the Plan is approved at the 1997 Annual Stockholders' Meeting of the Company by the holders of a majority of the shares of Common Stock represented at the meeting (in person or by proxy) and entitled to vote thereon. If the Plan is not so approved it shall terminate automatically, and all Options and Restricted Stock shall automatically be cancelled and be of no further force or effect. 15. RIGHTS OF A HOLDER AS A STOCKHOLDER. The Holder of an Option shall have none of the rights of a stockholder with respect to the shares subject to the Option until such shares shall be transferred to the Holder upon the exercise of the Option. 16. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company with respect to Awards shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as amended, and (ii) the rules and regulations of any securities exchange or securities market on which the Common Stock may be listed or traded. Any Option or Restricted Stock award granted under this Plan shall be subject to the requirement that, if at any time the Board of Directors shall determine that any registration of the shares of Common Stock, or any consent or approval of any governmental body, or any other agreement or consent, is necessary as a condition of the granting of an Option or other Award, or the issuance of Common Stock in satisfaction thereof, such Common Stock will not be issued or delivered until such requirement is satisfied in a manner acceptable to the Board of Directors. 17. WITHHOLDING. The Company's obligation to deliver shares of Common Stock upon the exercise of any Option granted under the Plan shall be subject to applicable Federal, state and local tax withholding requirements. Federal, state and local withholding tax due upon the exercise of any Option or upon the vesting of Restricted Stock may be paid in shares of Common Stock upon such terms and conditions as the Board shall determine; provided, however, that the Board in its sole discretion may disapprove such payment and require that such taxes be paid in cash. 18. SEVERABILITY. If any of the terms or provisions of this Plan conflict with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934 (as the same shall be amended from time to time), then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of said Rule 16b-3. 19. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 20. GOVERNING LAW. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware. EX-10.2 3 l06882aexv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 FIRST AMENDMENT TO THE HEALTH CARE REIT, INC. STOCK PLAN FOR NON-EMPLOYEE DIRECTORS Health Care REIT, Inc., a Delaware corporation (the "Company"), hereby amends the Health Care REIT, Inc. Stock Plan for Non-Employee Directors (the "Plan") in the manner set forth in the terms of this Amendment (the "Amendment"). Capitalized terms used in this Amendment and not otherwise defined shall have the definitions set forth in the Plan. 1. PURPOSE OF THE AMENDMENT. The purpose of this Amendment is to increase the number of shares of the Company's common stock reserved for issuance to eligible non-employee directors under the Plan, so as to provide for annual grants to non-employee directors and to project the increased needs for grants under the Plan as current directors retire or otherwise leave the Board. 2. AUTHORITY FOR THE AMENDMENT. Section 13 of the Plan provides the Board of Directors of the Company with the authority to amend or modify the Plan in such respects as it shall deem advisable. 3. AMENDMENT TO SECTION 3. The first two sentences of Section 3 of the Plan shall be amended, to read as follows: Subject to the provisions of Section 12 hereof, the number of shares of Common Stock which may be issued upon exercise of Options or as Awards of Restricted Stock under the Plan shall be 192,000 shares. On January 1 of each year subsequent to the Effective Date, the aggregate number of shares of common stock available for issuance under the Plan shall be increased by an additional number of shares calculated by multiplying the number of non-employee directors serving on the Board each January 1, by 6,000 shares (not to exceed 90,000 shares). The effectiveness of this Amendment to Section 3 set forth in this Paragraph 3 shall be conditioned upon its approval by the Company's shareholders at the next Annual Meeting of Shareholders. 4. RATIFICATION OF THE PLAN. In all other respects, the Plan, as amended to date, is hereby ratified, approved and confirmed. IN WITNESS WHEREOF, the undersigned, being a duly authorized officer of the Company, hereby executes this Amendment to the Plan on behalf of the Company, as directed and approved by the Board of Directors of Health Care REIT, Inc. HEALTH CARE REIT, INC. By -------------------------------- Title ----------------------------- EX-31.1 4 l06882aexv31w1.txt EXHIBIT 31.1 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: May 10, 2004 ------------------------------ /s/ GEORGE L. CHAPMAN ------------------------------------- George L. Chapman, Chief Executive Officer 18 EX-31.2 5 l06882aexv31w2.txt EXHIBIT 31.2 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: May 10, 2004 ------------------- /s/ RAYMOND W. BRAUN ---------------------------------- Raymond W. Braun, Chief Financial Officer 19 EX-32.1 6 l06882aexv32w1.txt EXHIBIT 32.1 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 March 31, 2004 (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: May 10, 2004 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. 20 EX-32.2 7 l06882aexv32w2.txt EXHIBIT 32.2 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 March 31, 2004 (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: May 10, 2004 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 -----END PRIVACY-ENHANCED MESSAGE-----