-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ke5t5C+sWlVn6Mnl5U0B7dxPmmGK0s/IddcgFRuKUsNCccX87Gt3Izwkt46cnRVP 8vWNEwUmeCa4CfLvXyT8xQ== 0000950135-95-000650.txt : 19950613 0000950135-95-000650.hdr.sgml : 19950613 ACCESSION NUMBER: 0000950135-95-000650 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950308 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950308 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDITRUST CENTRAL INDEX KEY: 0000774350 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046532031 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09582 FILM NUMBER: 95519383 BUSINESS ADDRESS: STREET 1: 197 FIRST AVENUE CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 6174336000 MAIL ADDRESS: STREET 1: 197 FIRST AVENUE CITY: NEEDHAM STATE: MA ZIP: 02194 8-K 1 MEDITRUST FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): March 8, 1995 MEDITRUST --------------------------------------------------------------- (Exact name of registrant as specified in charter) Massachusetts 0-14022 04-6532031 --------------------------------------------------------------- (State of (Commission (I.R.S. Employer Incorporation) File No.) Identification No.) 197 First Avenue, Needham, Massachusetts 02194 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(617) 433-6000 2 Item 5. OTHER EVENTS Meditrust (the "Company") is in the process of negotiating the terms, conditions and structure of a proposed sale of $105,000,000 principal amount of the Company's convertible notes to certain institutional investors (primarily insurance companies) in transactions arranged by NatWest Securities Limited and Smith Barney Inc. Based upon current negotiations, the notes are expected to be issued in two series, one in the principal amount of $40,000,000 bearing interst at 8.54% with a five-year term and the other in the principal amount of $65,000,000 bearing interest at 8.56% with a seven-year term. The notes are expected to be convertible into shares of beneficial interest, at the option of the holder, at a conversion price of $32.625 per share. There is no assurance that this transaction will be consummated. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations YEAR ENDED DECEMBER 31, 1994 VS. YEAR ENDED DECEMBER 31, 1993. Revenues for the year ended December 31, 1994 were $172,993,000 compared to $150,375,000 for the year ended December 31, 1993, an increase of $22,618,000 or 15%. Revenue growth resulted from increased rental income of $2,059,000 and increased interest income of $20,559,000 resulting primarily from additional real estate investments made during the past year. For the year ended December 31, 1994, total expenses increased by $5,794,000. Interest expense increased by $5,286,000 and resulted from the issuance of convertible debentures in November 1993 and March 1994 and a higher level of short-term borrowings during 1994. The increase was partially offset by the prepayment of senior secured and unsecured debt totaling $23,300,000 and the conversion of convertible debentures totaling $59,002,000 during 1994. Depreciation and amortization expense increased by $894,000 and general and administrative expense decreased by $386,000. YEAR ENDED DECEMBER 31, 1993 VS. YEAR ENDED DECEMBER 31, 1992. Revenues for the year ended December 31, 1993 were $150,375,000 compared to $132,394,000 for the year ended December 31, 1992, an increase of $17,981,000 or 14%. Revenue growth resulted from increased rental income of $10,325,000 and increased interest income of $7,656,000 as a result of additional real estate investments made during the past year. For the year ended December 31, 1993, total expenses increased by $5,703,000. Interest expense increased by $4,034,000 and resulted primarily from the issuance of convertible debentures in February and November 1993 which was partially offset by the prepayment of senior debt in December 1992. Depreciation and amortization expense increased by $2,245,000 primarily due to depreciation of the additional real estate investments made during the past year and general and administrative expense decreased by $576,000. Liquidity and Capital Resources The Company provides funding for its investments through a combination of long-term and short-term financing including both debt and equity. The Company obtains long-term financing through the issuance of Shares, the issuance of long-term unsecured -2- 3 notes, the issuance of convertible debentures and the assumption of mortgage notes. The Company obtains short-term financing through the use of bank lines of credit which are replaced with long-term financing as appropriate. From time to time, the Company may utilize interest rate caps or swaps to hedge interest rate volatility. It is the Company's objective to match the mortgage and lease terms with the terms of its borrowings. The Company seeks to maintain an appropriate spread between its borrowing costs and the rate of return on its investments. When development loans convert to sale/leaseback transactions or permanent mortgage loans, the base rent or interest rate, as appropriate, is fixed at the time of such conversion. In March 1994, the Company issued $90,000,000 of 7 1/2% convertible debentures due 2001 and the proceeds were used to repay short-term borrowings. In October 1994, the Company completed the sale of 4,500,000 Shares at $30.875 and the proceeds of $138,937,000 were used to repay short-term borrowings and for investments in additional health care facilities. As of December 31, 1994, the Company's gross real estate investments totaled $1,550,147,000 including 233 long-term care facilities, 23 rehabilitation hospitals, two alcohol and substance abuse treatment facilities, six psychiatric hospitals, four retirement living facilities and six medical office buildings. As of December 31, 1994, the Company had outstanding funding commitments of approximately $31,398,000 for the completion of ten facilities under construction and for additions to three existing facilities. The Company has shareholders' equity of $770,147,000 and a total debt to equity ratio of 1.0 to 1.0 as of December 31, 1994. As of January 31, 1995, the Company has an unsecured revolving line of credit expiring July 1997 in the amount of $205,000,000 bearing interest at the lender's prime rate or LIBOR plus 1.25%. In addition, the Company has effective shelf registrations on file with the Securities and Exchange commission under which the Company may issue up to $444,000,000 of securities including debt, convertible debt and shares of beneficial interest. The Company believes that its various sources of capital resources are adequate to finance its operations as well as pending property acquisitions, mortgage financings and future dividends. For the balance of 1995, however, in the event that the Company identifies appropriate investment opportunities, the Company may raise additional capital through the sale of shares of beneficial interest or by the issuance of additional long-term debt. -3- 4 Item 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits Exhibit No. Description ----------- ----------- 23 Consent of Coopers & Lybrand L.L.P. 27 Financial Data Schedule 99 Consolidated Financial Statements of Meditrust as of December 31, 1994 and 1993 and for the years ended December 31, 1994, 1993 and 1992 SIGNATURES 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 hereunto duly authorized. MEDITRUST ----------------------------------- March 8, 1995 /s/ Lisa P. McAlister - ---------------- ----------------------------------- Lisa P. McAlister Vice President and Treasurer 73391 -4- EX-23 2 CONSENT OF COOPERS & LYBRAND 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the registration statements of Meditrust on Form S-8 (File Nos. 33-25072, 33-49218 and 33-57377) and on Form S-3 (File Nos. 33-40005, 33-40926, 33-42596, 33-43931, 33-45979, 33-48695, 33-50835, 33-55386 and 33-56663) of our reports dated January 16, 1995 on our audits of the consolidated financial statements of Meditrust as of December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992, which reports are included in this Current Report on Form 8-K. Boston, Massachusetts March 8, 1995 /s/ Coopers & Lybrand L.L.P. EX-27 3 FINANCIAL DATA SCHEDULES
5 This schedule contains summary financial information extracted from The Consolidated Balance Sheet as of December 31, 1994 and the Consolidated Statement of Income for the year ended December 31, 1994 of Meditrust and is qualified in its entirety by reference to such financial statements. 1,000 U.S. DOLLARS OTHER DEC-31-1994 JAN-01-1994 DEC-31-1994 1 39,932 0 16,718 0 0 0 626,406 65,918 1,595,130 0 765,752 860,071 0 0 (89,924) 1,595,130 0 172,993 0 0 0 0 67,479 80,460 0 80,460 0 0 0 80,460 2.28 2.28
EX-99 4 CONSOLIDATED FINANCIAL STATEMENT 1 EXHIBIT 99 TO THE SHAREHOLDERS AND TRUSTEES OF MEDITRUST: We have audited the accompanying consolidated balance sheets of Meditrust as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above represent fairly, in all material respects, the consolidated financial position of Meditrust at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Boston, Massachusetts /s/ Coopers & Lybrand L.L.P. January 16, 1995 2 MEDITRUST CONSOLIDATED BALANCE SHEETS
December 31, -------------------------------- (In thousands) 1994 1993 ASSETS Real estate investments (Notes 1, 3, 4 and 6): Land $ 42,060 $ 48,257 Buildings and improvements, net of accumulated depreciation of $65,918 and $73,294, respectively 518,428 564,345 Real estate mortgages 923,741 601,706 Total real estate investments 1,484,229 1,214,308 Other assets, net 54,246 66,862 Cash and cash equivalents 39,937 16,306 Fees, interest and other receivables 16,718 12,925 ---------- ---------- Total assets $1,595,130 $1,310,401 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Indebtedness (Note 6): Senior unsecured notes, net $ 285,360 $297,155 Senior mortgage notes, net 21,206 31,804 Convertible debentures, net 231,277 199,822 Bank notes payable, net 168,645 69,375 Bonds and mortgages payable, net 59,264 60,089 Total indebtedness 765,752 658,245 Deferred income 12,559 14,468 Accrued expenses and other liabilities 46,672 51,893 Total liabilities 824,983 724,606 Commitments and contingencies (Note 3) Shareholders' equity (Notes 5, 6 and 10): Shares of beneficial interest without par value: Unlimited shares authorized; 39,619 and 32,836 shares issued and outstanding in 1994 and 1993, respectively 860,071 666,220 Distributions in excess of net income (89,924) (80,425) Total shareholders' equity 770,147 585,795 Total liabilities and shareholders' equity $1,595,130 $1,310,401
The accompanying notes are an integral part of these financial statements. -2- 3 MEDITRUST CONSOLIDATED STATEMENTS OF INCOME
For The Year Ended December 31, ------------------------------------------------ (In thousands except per Share data) 1994 1993 1992 REVENUES Rental income $ 82,063 $ 80,004 $ 69,679 Interest income 90,930 70,371 62,715 Total revenues 172,993 150,375 132,394 EXPENSES Interest 67,479 62,193 58,159 Depreciation and amortization 17,171 16,277 14,032 General and administrative 7,883 8,269 8,845 Total expenses 92,533 86,739 81,036 Net income $ 80,460 $ 63,636 $ 51,358 Net income per share of beneficial interest $2.28 $2.03 $1.95 Weighted average shares of beneficial interest outstanding 35,314 31,310 26,360
The accompanying notes are an integral part of these financial statements. -3- 4 MEDITRUST CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands except per Share data) Shares Amount Balance, December 31, 1991 25,944 $427,518 Issuance of shares of beneficial interest associated with: Conversion of debentures 114 3,075 Exercise of warrants 486 9,712 Employee compensation and stock options 223 4,750 Other (86) 1992 Dividends paid during 1992 ($2.46 per Share) (64,844) Net Income for the year ended December 31, 1992 51,358 Balance, December 31, 1992 26,767 431,483 Proceeds from issuance of shares of beneficial interest, net of offering costs of $5,135 3,277 95,239 Issuance of shares of beneficial interest associated with: Conversion of debentures, net of unamortized issue costs of $2,414 2,508 67,263 Exercise of warrants 182 3,646 Employee compensation and stock options 102 2,851 1993 Dividends paid during 1993 ($2.54 per Share) (78,323) Net income for the year ended December 31, 1993 63,636 Balance, December 31, 1993 32,836 585,795 Proceeds from issuance of shares of beneficial interest, net of offering costs of $8,371 4,500 130,566 Issuance of shares of beneficial interest associated with: Conversion of debentures, net of unamortized issue costs of $1,632 2,037 57,370 Exercise of warrants 122 2,431 Employee compensation and stock options 124 3,485 1994 Dividends paid during 1994 ($2.62 per Share) (89,960) Net income for the year ended December 31, 1994 80,460 Balance, December 31, 1994 39,619 $770,147
The accompanying notes are an integral part of these financial statements. -4- 5 MEDITRUST CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended December 31, ------------------------------------------ (In thousands) 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 80,460 $ 63,636 $ 51,358 Depreciation of real estate 15,209 14,548 12,250 Goodwill amortization 1,557 1,557 1,557 Shares issued for compensation 863 826 1,220 Other depreciation, amortization and provision for losses 6,916 12,317 2,213 Gain on sale of real estate and mortgage prepayments (3,726) (8,005) Other items, net (766) (48) (656) CASH FLOWS FROM OPERATING ACTIVITIES AVAILABLE FOR DISTRIBUTION 100,513 84,831 67,942 Net change in other assets and liabilities (Note 2) 306 (5,540) 7,916 Net cash provided by operating activities 100,819 79,291 75,858 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from convertible debentures 90,000 178,370 100,000 Proceeds from bank notes 370,004 100,000 75,000 Repayment of bank notes (270,595) (130,000) Repayment of senior mortgage notes and senior unsecured notes (23,300) (43,800) (32,600) Debt issuance costs and equity offering costs (11,484) (10,618) (4,638) Principal payments on bonds and mortgages payable (847) (868) (662) Distributions to shareholders (89,960) (78,323) (64,844) Proceeds from equity offering 138,937 100,374 Proceeds from warrant conversions and stock options 5,053 5,671 13,253 Net cash provided by financing activities 207,808 120,806 85,509 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of real estate $ (20,210) $ (18,272) $ (6,520) Investment in real estate mortgages and development funding (291,027) (210,295) (208,092) Prepayment proceeds and principal payments on real estate mortgages and note 23,470 42,045 27,228 Proceeds from sale of real estate 4,000 5,194 Working capital advances and acquisition of receivables (44,297) (47,153) Collection of receivables and repayment of working capital advances 43,068 19,832 Decrease in committed funds 33,958 Net cash used in investing activities (284,996) (208,649) (153,426) Net increase (decrease) in cash and cash equivalents 23,631 (8,552) 7,941 Cash and cash equivalents at: Beginning of year 16,306 24,858 16,917 End of year $ 39,937 $ 16,306 $ 24,858
-5- 6 MEDITRUST SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid during the period $63,323 $59,746 $51,600 NONCASH INVESTING AND FINANCING TRANSACTIONS ACQUISITION AND LEASE OF REAL ESTATE (SEE NOTES 3 AND 4): Value of real estate (sold acquired): Land and Buildings (94,000) 106,566 22,500 Accumulated depreciation 22,463 Increase (reduction) of real estate mortgages net of participation reduction 85,000 (88,493) (15,843) Issuance of demand note payable related to participation reduction (18,073) (6,657) SHARES ISSUED FOR CONVERSION OF DEBENTURES 59,002 69,677 3,075
The accompanying notes are an integral part of these financial statements. -6- 7 MEDITRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1. ACCOUNTING POLICIES Meditrust (the "Company"), a real estate investment trust, invests primarily in the subacute sector of the health care industry, including long-term care facilities, rehabilitation hospitals, and other health care related facilities. These facilities are located throughout the United States and are operated by regional and national health care providers. The Company's more significant accounting policies follow: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned partnerships of all significant intercompany accounts and transactions. REAL ESTATE INVESTMENTS Land, buildings and improvements are stated at cost. Depreciation is provided for on a straight-line basis over 40 years, the expected useful lives of the buildings and improvements. The Company provides reserves for potential losses based upon management's periodic review of its assets and classifies these reserves as appropriate reductions to the assets or includes such reserves in accrued expenses and other liabilities. CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST The Company capitalizes interest costs associated with funds used to finance the construction of facilities. The amount capitalized is based upon the borrowings outstanding during the construction period using the rate of interest which approximates the Company's cost of financing. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of certificates of deposit and other investments with less than 90-day maturities at the time of purchase and are stated at cost which approximates fair value. -7- 8 MEDITRUST OTHER ASSETS Other assets includes cash restricted for specified disbursement in accordance with certain facility acquisitions and mortgage financings and other corresponding liabilities are reflected in accrued expenses and other liabilities. Other assets also include facilities' operating receivables, working capital advances and goodwill associated with the acquisition of the Company's previous investment advisor which is being amortized on a straight-line basis over a ten-year period. DEBT ISSUANCE COSTS Debt issuance costs have been deferred and are being amortized using primarily the effective interest method over the term of the related borrowings. REVENUE RECOGNITION Rental income from operating leases is recognized as earned over the life of the lease agreements. Interest income on real estate mortgages is recognized on the accrual basis. Deferred income consists principally of fees which are being amortized over the fixed term of the lease, the mortgage or the construction period related to such facilities. NET INCOME PER SHARE Net income per share of beneficial interest ("Shares") is computed using the weighted average number of Shares outstanding during the year of computation. INCOME TAXES The Company has elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and believes it has met all the requirements for qualification as such. Accordingly, the Company will not be subject to federal income taxes on amounts distributed to shareholders, provided it distributes annually at least 95% of its real estate investment trust taxable income and meets certain other requirements for qualifying as a real estate investment trust. Therefore, no provision for federal income taxes is believed necessary in the financial statements. -8- 9 MEDITRUST RECLASSIFICATIONS Certain reclassifications have been made in the prior years' consolidated financial statements to conform with the current year's presentation. - -------------------------------------------------------------------------------- NOTE 2. SUPPLEMENTAL CASH FLOW INFORMATION Details of net change in other assets and liabilities (excluding noncash items, deferred income recognized in excess of cash received and changes in restricted cash and related liabilities) follow:
For The Year Ended December 31, ------------------------------------------------- (In thousands) 1994 1993 1992 Increase in fees, interest and other receivables $(4,392) $(1,705) $(3,904) Increase in other assets (434) (1,630) (83) (Decrease) increase in deferred income (176) 2 2,314 Increase (decrease in accrued expenses and $5,308 $(2,207) $ 9,589 other liabilities $306 $(5,540) $7,916
- -------------------------------------------------------------------------------- NOTE 3. REAL ESTATE INVESTMENTS During 1994, the Company provided permanent mortgage financing of $221,903,000 for 68 long-term care facilities and one retirement living facility located in Texas, Massachusetts, Florida, Ohio, Indiana, Missouri, Nebraska and California and refinanced for $50,500,000 an existing mortgage with a balance of $32,836,000 collateralized by 28 long-term care facilities located in Illinois and refinanced for $5,765,000 an existing mortgage with a balance of $4,246,000 collateralized by a long-term care facility in Connecticut. In addition, the Company also provided net development financing of $49,941,000 for seven long-term care facilities under construction, six medical office buildings under construction and for additions to three existing long-term care facilities. Also, during 1994, the Company received principal payments on real estate mortgages of $5,149,000 and proceeds of $18,321,000 -9- 10 MEDITRUST from the prepayment of mortgage loans on a retirement living facility located in Texas and two long-term care facilities located in Connecticut. Also during 1994, the Company acquired for $18,327,000 three long-term care facilities located in Connecticut, one long-term care facility located in Massachusetts and one long-term care facility located in New York and provided $545,000 for additions to four facilities currently owned by the Company. The Company also acquired for $11,570,000 a long-term care facility located in Massachusetts which was substituted for a long-term care facility located in Connecticut with a mortgage balance of $10,232,000. In addition, the Company received proceeds of $4,000,000 from the sale of a long-term care facility in Texas. Minority interest in the equity of the majority-owned (94%) partnerships relating to the Company's investment in seven rehabilitation facilities is $2,562,000 and $2,661,000 as of December 31, 1994 and 1993 and is included in accrued expenses and other liabilities in the consolidated financial statements. As of December 31, 1994, the Company was committed to provide additional financing of approximately $31,398,000 for the completion of ten facilities under construction and for additions to three existing facilities. - -------------------------------------------------------------------------------- NOTE 4. MERGER BETWEEN SUN HEALTHCARE AND MEDIPLEX In June 1994, Sun Healthcare Group, Inc. ("Sun") merged with The Mediplex Group, Inc. ("Mediplex"). The merged entities comprise approximately 24% of the Company's portfolio of gross real estate investments as of December 31, 1994. A condition of the Company's consent to this merger was the extension of all existing Mediplex lease and mortgage terms to between 2004 and 2008 and the addition of annual rate escalators. In connection with this transaction, the Company (a) terminated its leases with Mediplex on three properties (two alcohol and substance abuse treatment facilities and one psychiatric hospital located in New York) with a net book value of $101,537,000 and replaced these leases with mortgages from Sun totaling $74,000,000, (b) loaned $11,000,000 to Sun which was collateralized by a mortgage on a rehabilitation facility located in Colorado and (c) entered into sale/leaseback transactions with Sun totaling $30,000,000 for two rehabilitation facilities located in Kentucky and Massachusetts and for a long-term care facility located in Connecticut. This transaction resulted in a -10- 11 MEDITRUST deferred gain of $13,463,000 currently being recognized over a ten-year period. The Company recorded revenues from Mediplex of $20,107,000, $37,937,000 and $32,741,000 for the years ended December 31, 1994, 1993 and 1992 respectively. - -------------------------------------------------------------------------------- NOTE 5. SHARES OF BENEFICIAL INTEREST Distributions paid to shareholders are determined by the Company's Board of Trustees based on an analysis of cash flows from operating activities. Cash flows from operating activities differ from net income primarily due to depreciation and amortization expense, a noncash item. Distributions in excess of net income as reflected on the Company's consolidated balance sheets are primarily a result of an accumulation of this difference. All Shares participate equally in dividends and in net assets available for distribution to shareholders on liquidation or termination of the Company. The Trustees of the Company have the authority to effect certain Share redemptions or prohibit the transfer of Shares under certain circumstances. Total distributions to shareholders during the years ended December 31, 1994, 1993 and 1992 included a return of capital per Share of $.3306, $.3797, and $.7462, respectively. Also, the 1993 distribution includes a long-term capital gain distribution of $.1351 per Share. -11- 12 MEDITRUST - -------------------------------------------------------------------------------- NOTE 6. INDEBTEDNESS Indebtedness of the Company as December 31, 1994 and 1993 is as follows:
(In thousands) 1994 1993 - ------------------------------------------------------------------------------------------------------------ Senior unsecured notes: Principal payments of $20,000,000 due in December 1995 and $16,000,000 due in December 1996 through December 2000, interest ranging from 10.00% to 10.57% $ 99,711 $ 99,511 Principal payments of $20,000,000 due in October 1995 through October 1999, interest at 10.22% 99,145 98,920 Principal payments of $12,500,000 due in February 1995 through February 2001, interest at 10.86% 86,504 98,724 - ------------------------------------------------------------------------------------------------------------ 285,360 297,155 - ------------------------------------------------------------------------------------------------------------ Senior mortgage notes: Principal payments of 10,800,000 due in December 1995 and December 1996 and $200,000 due in December 1997, interest at 10.75% 21,206 31,804 - ------------------------------------------------------------------------------------------------------------ Convertible debentures: 9% interest, convertible at $27.00 per Share, due January 2002 18,158 42,499 7% interest, convertible at $30,625 per share, due March 1998 40,789 73,317 6-7/8% interest, convertible at $37.125 per Share, due November 1998 84,471 84,006 7-1/2% interest, convertible at $36.18 per Share, due March 2001 87,859 - ------------------------------------------------------------------------------------------------------------ 231,277 199,822 - ------------------------------------------------------------------------------------------------------------ Bank notes payable: Revolving credit agreement expiring July 1997 168,645 44,785 Demand note, due July 1994 24,590 - ------------------------------------------------------------------------------------------------------------ 168,645 69,375 - ------------------------------------------------------------------------------------------------------------ Bonds and mortgages payable: Mortgage notes, interest ranging from 3.8% to 12.2%, monthly principal and interest payments ranging from $22,000 to $78,000 and maturing from January 1998 through March 2001, collateralized by nine facilities 55,739 56,519 Manatee County, Florida Industrial Revenue Bonds, Series 1983, serial payments ranging from $45,000 to $90,000 due in 1995 through 2000 and $345,000 due in December 2003 and $2,770,000 due in December 2013, interest ranging from 12.0% to 13.5%, collateralized by one facility 3,525 3,570 - ------------------------------------------------------------------------------------------------------------ 59,264 60,089 - ------------------------------------------------------------------------------------------------------------ Total indebtedness $765,752 $658,245 ============================================================================================================
-12- 13 MEDITRUST SENIOR MORTGAGE NOTES The 10.75% notes due December 1997 are collateralized by six facilities. These notes were issued with detachable warrants to purchase 790,000 Shares at a price of $20 per Share. All of these warrants have been exercised. CONVERTIBLE DEBENTURES The 9% convertible debentures issued in April 1992 are subject to redemption by the Company on or after April 23, 1995 at 100% of the principal amount plus accrued interest. During the year ended December 31, 1994, $25,210,000 of debentures were converted into 933,684 Shares. During the year ended December 31, 1993, $53,042,000 of debentures were converted into 1,964,495 Shares. The 7% debentures issued in February 1993 are subject to redemption by the Company on or after March 1, 1996 at 100% of the principal amount plus accrued interest. During the year ended December 31, 1994, $33,792,000 of debentures were converted into 1,103,404 Shares. During the year ended December 31, 1993, $16,635,000 of debentures were converted into 543,182 Shares. The 6 7/8% debentures issued in November 1993 and the 7 1/2% debentures issued in March 1994 are subject to redemption by the Company at 100% of the principal amount plus accrued interest to the extent necessary to preserve the Company's status as a real estate investment trust. BANK NOTES PAYABLE The Company has an unsecured revolving line of credit expiring July 1997 in the amount of $177,000,000 bearing interest at the lender's prime rate or LIBOR plus 1.25%. BONDS AND MORTGAGES PAYABLE The senior unsecured notes, senior mortgage notes, convertible debentures, bank notes payable and bonds and mortgages payable are presented net of unamortized debt issuance costs of $8,537,000 and $9,785,000 at December 31, 1994 and 1993, respectively. Amortization expense associated with the debt issuance costs amounted to $3,028,000, $2,961,000 and -13- 14 MEDITRUST $2,123,000 for the years ended December 31, 1994, 1993 and 1992, respectively, and is reflected in interest expense. All debt instruments contain certain covenants, the most restrictive of which limits the ratio of total liabilities to consolidated tangible shareholders' equity. The aggregate maturities of senior unsecured notes, senior mortgage notes, convertible debentures, and bonds and mortgages payable, excluding the bank notes payable, the 9% convertible debentures, the 7 1/2% convertible debentures for the five years subsequent to December 31, 1994, are as follows: - -------------------------------------------------------------------------------- 1995 $ 64,170,000 1996 60,274,000 1997 49,767,000 1998 197,543,000 1999 67,912,000
- -------------------------------------------------------------------------------- NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates are subjective in nature and are dependent on a number of significant assumptions associated with each financial instrument or group of financial instruments. Because of a variety of permitted calculations and assumptions regarding estimates of future cash flows, risks, discount rates and relevant comparable market information, reasonable comparisons of the Company's fair value information with other companies cannot necessarily be made. The following methods and assumptions were used to estimate the fair value of financial instruments for which it is practicable to estimate that value: REAL ESTATE MORTGAGES The fair value of real estate mortgages have been estimated by discounting future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. As of December 31, 1994, the fair value of real estate mortgages amounted to approximately $932,000,000. -14- 15 MEDITRUST INDEBTEDNESS The quoted market price for the Company's publicly traded convertible debentures and rates currently available to the Company for debt with similar terms and remaining maturities were used to estimate fair value of existing debt. As of December 31, 1994, the fair value of the Company's indebtedness amounted to approximately $773,000,000. - -------------------------------------------------------------------------------- NOTE 8. LEASE COMMITMENTS The Company's land and facilities are generally leased pursuant to noncancelable, fixed-term operating leases expiring from 1996 to 2008. The leases also generally provide multiple, five-year renewal options and the option to purchase the facilities at fair market value at the end of the initial term of the lease or at various times during the lease. The lessees are required to pay aggregate base rent during the lease term and applicable debt service payments as well as percentage, supplemental and additional rent (as defined in the lease agreements). For the years ended December 31, 1994, 1993 and 1992, additional rent from the leases and additional interest from the mortgages amounted to $8,156,000, $8,657,000 and $7,621,000, respectively. In addition, the lessees pay all taxes, insurance, maintenance and other operating costs of the land and facilities. Future minimum lease payments, including debt service payments (as defined in the lease agreements) which are based on interest rates in effect at December 31, 1994, expected to be received by the Company during the initial term of the leases for the years subsequent to December 31, 1994, are as follows: - -------------------------------------------------------------------------------- 1995 $ 72,026,000 1996 72,026,000 1997 71,312,000 1998 64,244,000 1999 52,657,000 Thereafter 240,190,000
- -------------------------------------------------------------------------------- -15- 16 MEDITRUST NOTE 9. LEGAL PROCEEDINGS In December 1993, the Chapter 11 Trustee of Towers Financial Corporation commenced an action in the Suffolk County Superior Court for the Commonwealth of Massachusetts against one of the Company's lessees and in January, 1994 two subsidiaries of the Company were named as additional defendants. The plaintiff alleges that it holds a prior security interest in the accounts receivable of seven health care facilities, one of which is owned by the Company. The plaintiff demands payment of all such receivables including those collected by the Company (which, as of December 31, 1994, totaled approximately $12,976,000). The Company is vigorously defending this action. It has filed an answer and counterclaim denying any liability to the plaintiff and asserting that the plaintiff does not have a valid prior security interest in any assets of the Company or its borrowers. The Company is a party to a number of other claims and lawsuits arising out of the normal course of business; the Company believes that none of these claims or pending lawsuits, either individually or in the aggregate, will have a material adverse affect on the Company's business or on its consolidated financial position. - -------------------------------------------------------------------------------- NOTE 10. STOCK OPTION PLANS Incentive awards under the Company's stock option plans (the "Plans") which may be granted by the Board of Trustees include nonqualified or nonstatutory options to purchase Company shares and incentive stock options (collectively, "options"). The number of Shares available for issuance under the Plans is 5% of the number of outstanding Shares. Up to 500,000 Shares available under each Plan may be issued pursuant to incentive stock options. Trustees, officers and key employees of the Company or any other entity providing similar services to the Company and its officers, directors and key employees, and all persons retained by the Company solely as consultants are eligible to participate in the Plans. Such options expire 10 years after the date granted. One third of all options granted become exercisable at the end of each year following the date of issuance. Options to purchase 411,000 Shares were exercisable as of December 31, 1994. Information concerning option activity for the years 1994, 1993 and 1992 is as follows: -16- 17 MEDITRUST
Shares Option Price - ---------------------------------------------------------------------------------------------------- Outstanding at December 31, 1991 746,000 $16.625 to $26.625 Granted 62,000 $26.75 to $29.00 Exercised 182,000 $16.625 to $26.375 Expired 28,000 $26.25 to $26.375 - ---------------------------------------------------------------------------------------------------- Outstanding at December 31, 1992 598,000 $16.625 to $29.00 Granted 126,000 $26.375 to $34.00 Exercised 83,000 $16.625 to $27.625 Expired 23,000 $26.375 to $27.625 - ---------------------------------------------------------------------------------------------------- Outstanding at December 31, 1993 618,000 $16.625 to $34.00 Granted 61,000 $32.375 to $33.00 Exercised 97,000 $18.750 to $33.125 Expired 44,000 $33.00 to $33.625 - ---------------------------------------------------------------------------------------------------- Outstanding at December 31, 1994 538,000 $16.625 TO $34.00 ====================================================================================================
- -------------------------------------------------------------------------------- NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following quarterly financial data summarizes the unaudited quarterly results for the years ended December 31, 1994 and 1993:
Quarter Ended 1994 ------------------------------------------------- (In thousands, except per Share amounts) March 31 June 30 September 30 December 31 - ------------------------------------------------------------------------------------------------------------ Revenues $40,995 $42,378 $43,158 $46,462 Net Income 17,705 19,008 19,817 23,930 Net Income per Share .53 .56 .57 .62 - ------------------------------------------------------------------------------------------------------------ Quarter Ended 1993 ------------------------------------------------- March 31 June 30 September 30 December 31 - ------------------------------------------------------------------------------------------------------------ Revenues $36,625 $37,311 $38,336 $38,103 Net Income 14,838 16,001 16,081 16,716 Net Income per Share .50 .51 .51 .51 - ------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NOTE 12. SUBSEQUENT EVENTS On January 10, 1995, the Board of Trustees of the Company declared a dividend of $.6675 per Share payable February 15, 1995, to shareholders of -17- 18 MEDITRUST record on January 31, 1995. The dividend related to the period October 1, 1994 through December 31, 1994. On January 12, 1995, the Company's unsecured revolving line of credit was increased from $177,000,000 to $205,000,000. -18- -----END PRIVACY-ENHANCED MESSAGE-----